CT Real Estate Investment Trust
Annual Report 2020

Plain-text annual report

RELIABLE. DURABLE. GROWING. 2020 ANNUAL REPORT KEY STRATEGIC ACHIEVEMENTS SINCE IPO 2013–2020 6.1% AFFO per unit CAGR $2 billion invested in property acquisitions and development 10 million square feet added to the portfolio $1 billion+ public unsecured debt issued Public float increased to $1 billion+ and included in several market indices 7 distribution increases in 7 years AFFO payout ratio reduced to 76.8% ~46% increase in net asset value per unit Leverage reduced to ~43% A Resilient 2020 CT REIT successfully navigated the challenging business environment in 2020, highlighting the resiliency of our portfolio and strength of our balance sheet. We ended the year with over 99% in both occupancy and rent collections, and paid two distribution increases to our Unitholders. Financial Performance since IPO: $1.10 AFFO/unit and Distributions Growth $1.00 $0.90 $0.80 $0.70 $0.60 $0.50 $0.40 1.032 1.007 0.954 0.919 0.862 0.808 0.736 2.0% 0 5 6 . 0 4 1 0 2 3 6 6 . 0 5 1 0 2 2.6% 3.0% 0 8 6 . 0 6 1 0 2 0 0 7 . 0 7 1 0 2 4.7% 2 9 7 0 . 4.0% 7 5 7 0 . 4.0% 8 2 7 . 0 8 1 0 2 9 1 0 2 0 2 0 2 Annual distribution AFFO/unit COVER PHOTOS: 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 continued to invest 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. 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. Management's Discussion and Analysis CT REIT Fourth Quarter and Full Year 2020 TABLE OF CONTENTS Forward-looking Disclaimer 1.0 Preface 1.1 1.2 1.3 1.4 1.5 1.6 1.7 1.8 2.0 3.0 4.0 5.0 5.1 5.2 5.3 5.4 5.5 5.6 5.7 5.8 5.9 5.10 5.11 Basis of Presentation Definitions Accounting Estimates and Assumptions Quarterly and Annual Comparisons in this MD&A Currency and Rounding Key Operating Performance Measures and Additional Non-GAAP Measures Review and Approval by the Board of Trustees Nature and Formation Factors Affecting the REIT as a Result of the COVID-19 Pandemic 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 2020 Investment Activities Development Activities Investment and Development Funding Lease Maturities Top 10 Tenants Excluding CTC Related Tenancies Leasing Activities Recoverable Capital Costs 6.0 Results of Operations 6.1 6.2 Financial Results for the Three Months and Year Ended December 31, 2020 Non-GAAP Measures 7.0 Liquidity and Financial Condition 7.1 7.2 7.3 7.4 Liquidity Discussion of Cash Flows Credit Ratings Debt and Capital Structure 3 4 4 4 4 4 5 5 5 5 6 8 9 10 10 12 12 13 15 15 17 18 19 19 19 20 20 24 27 27 27 27 28 CT REIT 2020 ANNUAL REPORT 1 TABLE OF CONTENTS (continued) 7.5 7.6 7.7 7.8 7.9 7.10 7.11 7.12 7.13 Interest Coverage Ratio Indebtedness Ratio Class C LP Units Debentures Mortgages Payable Credit Facilities Capital Strategy Commitments and Contingencies Base Shelf Prospectus 8.0 Equity 8.1 8.2 8.3 8.4 Authorized Capital and Outstanding Units Equity Distributions Book Value Per Unit 9.0 Related Party Transactions 10.0 Accounting Policies and Estimates 10.1 10.2 Significant Areas of Estimation Standards, Amendments and Interpretations Issued but Not Yet Adopted 11.0 Non-GAAP Measures 11.1 11.2 11.3 11.4 11.5 11.6 11.7 11.8 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 12.0 Enterprise Risk Management 13.0 Internal Controls and Procedures 13.1 13.2 13.3 Disclosure Controls and Procedures Internal Control Over Financial Reporting Changes in Internal Control Over Financial Reporting 14.0 Forward-looking Information 2 CT REIT 2020 ANNUAL REPORT 31 31 31 33 33 34 34 35 35 36 36 37 37 39 39 41 41 42 43 43 44 47 47 47 48 49 49 50 55 55 56 56 56 MANAGEMENT'S DISCUSSION AND ANALYSIS CT REAL ESTATE INVESTMENT TRUST MANAGEMENT’S DISCUSSION AND ANALYSIS YEAR ENDED DECEMBER 31, 2020 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 14.0 in this MD&A for a more detailed discussion of the REIT’s use of forward-looking statements. CT REIT 2020 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, 2020 and should be read in conjunction with the REIT’s audited consolidated financial statements (“consolidated financial statements”) and accompanying notes for the year ended December  31, 2020 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 14.0 of this MD&A. Information about CT REIT, including the Annual Information Form for the year ended December  31, 2020 (“AIF”), the consolidated financial statements as at and for the period ending December 31, 2020 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 AIF 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 10.0 in this MD&A for further information. Financial data included in this MD&A includes material information as of February  8, 2021. 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 three months ended December  31, 2020 (“Q4 2020”) are against results for three months ended December 31, 2019 (“Q4 2019”) and comparisons of results for the year ended December 31, 2020 are against results for the year ended December 31, 2019. 4 CT REIT 2020 ANNUAL REPORT MANAGEMENT'S DISCUSSION AND ANALYSIS 1.5 Currency and Rounding 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. 1.6 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 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 11.0 of this MD&A. 1.7 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 8, 2021. 1.8 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 as amended and restated as of October 22, 2013 and as further amended and restated as of April 5, 2020 (“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 69.2% effective interest in CT REIT as of December 31, 2020, 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 issued and outstanding 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 management of primarily net leased single-tenant retail investment properties located across Canada. CT REIT 2020 ANNUAL REPORT 5 MANAGEMENT'S DISCUSSION AND ANALYSIS 2.0 FACTORS AFFECTING THE REIT AS A RESULT OF THE COVID-19 PANDEMIC The following section contains forward-looking information and readers are cautioned that actual results may vary. During 2020, the global spread of the coronavirus disease ("COVID-19") had an impact on the Canadian and global economies and on the business and operations of the REIT. During this time, the REIT remained committed to the health and safety of its employees and tenants, as well as its tenants’ customers and employees. Many of the measures that were introduced at the outset of the pandemic to reduce the spread of the virus, continue to remain in place, including REIT employees continuing to work from home. The REIT continues to prepare for any future waves of the pandemic and/or viral strains and continues to manage and mitigate, if possible, the implications and impact of the COVID-19 pandemic on its operations. The REIT may be required to take further actions in response to directives of government and public health authorities or that are in the best interests of its employees and tenants, as well as its tenants’ customers and employees. Since the onset of the COVID-19 pandemic, certain operating restrictions have been imposed on many of the REIT’s tenants, including CTC. Canadian Tire stores remained open until late in the fourth quarter when temporary closures in certain jurisdictions were announced, some of which have continued into the first quarter of 2021. The Canadian Tire stores which remain open continue to operate with various combinations of restrictions on products being sold, restricted operating hours, enhanced cleaning protocols and measures to support physical distancing. Those Canadian Tire stores which are now temporarily closed, remain open to curbside pickup in support of online sales and delivery to home as required by current government guidelines and restrictions. Regardless of operating status, there have been no rental interruptions, abatements or deferrals impacting these stores. Impact on Property Revenue Tenants representing approximately 99.4% of annual base minimum rent fulfilled their January 1, 2021 financial obligations to the REIT, consistent with the 99.2% for December 1, 2020, 99.2% for November 1, 2020 and 99.1% for October 1, 2020. From the onset of the pandemic, the REIT has been supporting tenants facing financial hardships including by participating in the Canada Emergency Commercial Rent Assistance (“CECRA”) program for certain qualified tenants and providing rental abatements or deferrals to other qualifying tenants. The CECRA program provided a 75% rent abatement for qualifying small businesses for the period from April 1, 2020 to September 30, 2020, two-thirds of which was paid for by the Federal and Provincial governments and one-third of which was funded by the landlord. On October 9, 2020, the federal government announced a new rent relief program, the Canada Emergency Rent Subsidy (“CERS”), to replace the CECRA program. Similar to CECRA, CERS is available to small and medium-sized businesses significantly impacted by the COVID-19 pandemic. CERS is effective retroactively for periods beginning September 27, 2020 and ending in June 2021. CERS is provided directly to tenants on a sliding scale up to a maximum of 65% of eligible expenses, thereby supporting property owners with payments of rents for CERS subsidized amounts. In addition to the 65% subsidy, a 25% CERS top-up is available to tenants who are temporarily shut down by a mandatory public health order issued by a qualifying public health authority. 6 CT REIT 2020 ANNUAL REPORT MANAGEMENT'S DISCUSSION AND ANALYSIS For the three months ended December 31, 2020, the REIT’s assistance to its tenants totalled $0.6 million, consisting of $0.4 million in abatements of gross rents, which were recognized as bad debt expense, and an additional $0.2 million of expected credit losses related to tenants who had been significantly impacted by the pandemic. For the year ended December  31, 2020, the REIT’s assistance to its tenants totalled $2.8 million, consisting of $0.6 million related to the CECRA program, $0.7 million in abatements of gross rents which were recognized as bad debt expense, and an additional $1.5 million of expected credit losses related to tenants who had been significantly impacted by the pandemic. Impact on Valuation of Investment Properties The REIT’s valuation assessment of its investment properties, as at December  31, 2020, was reflected in the fair value adjustment of investment properties. In determining the fair value of investment properties for these financial statements, management considered, among other factors, the impact of the pandemic on its tenant base. Management has reviewed the cash flow assumptions and made certain adjustments to the investment metrics used in determining the fair value of investment properties as at December 31, 2020. The impact of these changes is reflected in the fair value adjustment on investment properties and should be considered together with the sensitivity analysis included in Note 5 of the financial statements. Impact to Liquidity Management continues to believe the REIT is well positioned to manage through the pandemic based on its strong balance sheet, a portfolio that is 99.3% occupied, its conservative 76.8% payout ratio, a low debt-to-gross book value of approximately 42.9%, a high proportion of unencumbered assets (97.3%) and a strong liquidity position of approximately $299 million of committed undrawn Credit Facilities (as defined below) and cash on hand, coupled with no debt maturities for the balance of 2021. As at December 31, 2020 the REIT was in compliance with the financial covenants contained in the Declaration of Trust, the Credit Facilities and the trust indenture dated June 9, 2015, as supplemented by supplemental indentures thereto (collectively, the “Trust Indenture”). Key Risks and Risk Management While vaccination programs have begun to be implemented throughout Canada, industries, including retail and commercial real estate, continue to be affected in varying degrees by COVID-19. It continues to be difficult to predict the duration and extent of the impact of COVID-19 on the REIT’s business and operations, both in the short and long-term. The REIT has instituted comprehensive and evolving risk management strategies to support its business and operations in a manner that aims to address impacts on its key risks. The impact of COVID-19 on liquidity, cash flows, property operations and head office facilities has been considered while ensuring the maintenance of controls that aim to protect the integrity of the REIT’s reported financial information and safeguard systems and information. These strategies allow the REIT to maintain a financially strong business and to continue to support employees, tenants and their customers and employees. Refer to section 12.0, “Enterprise Risk Management” for a further discussion of key risks and COVID-19 impacts to the REIT’s operations, its tenants and financial performance. CT REIT 2020 ANNUAL REPORT 7 MANAGEMENT'S DISCUSSION AND ANALYSIS 3.0 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, as a real estate investment trust investing primarily in net lease assets, 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 AFFO per unit 1. Future growth is expected to continue to be achieved from a number of sources including: 1. the portfolio of Canadian Tire store leases, which generally contain contractual rent escalations of approximately 1.5% per year, on average, over their initial term and have a weighted average remaining lease term of 9.0 years; 2. 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 through preferential rights, subject to certain exceptions, to participate in the development of, and to acquire, certain new retail properties; and 3. its relationship with CTC, which CT REIT will continue to leverage in order to obtain insights into potential real estate acquisitions and development opportunities in markets across Canada. 1 Non-GAAP measure. Refer to section 11.0 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 8.0). 8 CT REIT 2020 ANNUAL REPORT MANAGEMENT'S DISCUSSION AND ANALYSIS 4.0 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 section 1.0 and section 11.0. (in thousands of Canadian dollars, except unit, per unit and square footage amounts) Year Ended For the periods ended December 31, 2020 2019 2018 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 11.0 for further information. 2 Total units means Units and Class B LP Units outstanding. $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 502,348 378,814 381,566 183,305 0.801 0.772 270,725 1.181 236,457 1.032 0.793 76.8 % 55,063 0.240 370,766 238,954 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 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 0.227 331,722 206,056 228,934,001 222,559,681 214,805,646 322,574,451 314,615,032 336,142,459 229,199,901 222,791,571 215,040,074 230,969,594 228,216,876 220,249,239 6,176,142 2,652,341 14.62 15.67 $ $ $ $ 6,024,511 2,572,294 14.61 16.14 $ $ $ $ 5,708,692 2,573,489 14.01 11.53 3.87 % 42.9 % 3.51 7.5 4.08 % 42.7 % 3.40 8.0 4.08 % 45.1 % 3.35 9.0 28,738,736 27,556,341 26,537,359 99.3 % 99.1 % 98.7 % 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 8.0. 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 8.0. 5 Refer to section 8.0 for further information. 6 Excludes the Credit Facilities. Refer to section 7.10 for definition. Adjusted for the early redemption of Series C unsecured debentures and the issuance of Series G unsecured debentures, the weighted average interest rate is 3.89% and the weighted average term to debt maturity (in years) is 8.1. 7 Refers to retail, mixed-use commercial and Industrial Properties and excludes Properties Under Development. Refer to the Glossary of Terms in the 2020 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, 2020 and December 31, 2019. CT REIT 2020 ANNUAL REPORT 9 MANAGEMENT'S DISCUSSION AND ANALYSIS 5.0 OVERVIEW OF THE PROPERTY PORTFOLIO 5.1 Property Profile The property portfolio, as at December 31, 2020, consisted of 357 retail properties, four Industrial Properties, one mixed-use commercial property and one Development Property (collectively, “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 28.7 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-half interest in Canada Square, a mixed-use commercial property in Toronto, Ontario (“Toronto (Canada Square), Ontario”). CTC is CT REIT’s most significant tenant. As at December 31, 2020, CTC represented 92.2% of total GLA (December 31, 2019 - 92.5%) and 91.6% of annualized base minimum rent (December 31, 2019 - 91.7%). 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, 2020 GLA Occupied GLA Occupancy rate 2 21,993,621 21,993,621 617,669 1,935,392 3,914,026 278,028 617,669 1,744,924 3,914,026 256,613 28,738,736 28,526,853 100.0 % 100.0 % 90.2 % 100.0 % 92.3 % 99.3 % 1 Includes Mark’s and L’Équipeur, SportChek, Sports Experts, 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, 2020. (in square feet) Property Type Retail Canadian Tire stores Other CTC Banners Third party retail tenants Industrial Properties Mixed-use property Total As at December 31, 2019 GLA Occupied GLA Occupancy rate 1 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 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 2020 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, 2020 December 31, 2019 261 25 64 7 4 1 362 1 363 257 25 60 6 4 1 353 4 357 December 31, 2020 December 31, 2019 111 109 CT REIT’s Properties by region, as a percentage of total GLA, as at December 31, 2020 are as follows: 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, 2020. CT REIT 2020 ANNUAL REPORT 11 Properties by Region ¹ ²(% of Total GLA)Atlantic Canada8.4%Ontario42.0%Quebec23.1%Western Canada26.4% MANAGEMENT'S DISCUSSION AND ANALYSIS 5.2 Revenue by Region CT REIT’s Properties by region, as a percentage of annualized base minimum rent, as at December 31, 2020 are as follows: 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, 2020. 5.3 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, 2020 December 31, 2019 3.1 % 4.9 % 2.7 % 20.2 % 3.8 % 10.8 % 45.5 % 3.2 % 4.2 % 2.6 % 21.0 % 4.0 % 11.3 % 46.3 % 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, 2020. 12 CT REIT 2020 ANNUAL REPORT Properties by Region ¹ ²(% of Annualized Base Minimum Rent)Atlantic Canada7.2%Ontario44.1%Quebec20.1%Western Canada28.6%MANAGEMENT'S DISCUSSION AND ANALYSIS 5.4 Fair Value of Property Portfolio The fair value of the Properties represents 99.4% of the total assets of CT REIT as at December 31, 2020. (in thousands of Canadian dollars) Balance, beginning of period Property acquisitions (including transaction costs) Intensifications Developments Development land Capitalized interest and property taxes Transfers from PUD Transfers to PUD 1 Transfer to asset held for sale Right-of-use assets 2 Fair value adjustment on investment properties Straight-line rent Recoverable capital expenditures Dispositions Year Ended December 31, 2020 Year Ended December 31, 2019 Income- producing properties Properties Under Development Total investment properties Income- producing properties Properties Under Development Total investment properties 5,932,864 74,118 6,006,982 5,635,550 127,233 5,762,783 131,762 — 131,762 75,669 — — — — — 23,047 23,047 53,197 53,197 — — 1,283 1,283 — — — — 39,448 48,222 1,918 2,080 144,783 (144,783) 111,224 (111,224) (17,434) (20,600) 5,403 (87,359) 10,014 18,091 (820) 17,434 — — — — — — — — (20,600) — — 5,403 (2,343) (87,359) 47,306 10,014 14,130 18,091 20,549 (820) (2,780) — — — — — — — 75,669 39,448 48,222 1,918 2,080 — — — (2,343) 47,306 14,130 20,549 (2,780) Balance, end of period $ 6,083,145 $ 57,855 $ 6,141,000 $ 5,932,864 $ 74,118 $ 6,006,982 1 Relates to Toronto (Canada Square), Ontario 2Reflects impact of Toronto (Canada Square), Ontario increase in ownership to 50% interest from 33% interest. Included in CT REIT’s Property portfolio are 10 properties which are situated on ground leases with remaining initial terms up to 35 years, and an average remaining initial term of 15 years. Assuming all extensions are exercised, the ground leases have remaining terms between 3 and 50 years with an average remaining lease term of up to 31 years. As at December 31, 2020, management’s assessment includes performing a sensitivity analysis on the investment metrics. On a periodic basis, CT REIT obtains independent appraisals such that approximately 80% of its Properties, by value, are externally appraised over a four-year period. In January 2021, CT REIT sold its Arnprior Mall property in Arnprior, Ontario for approximately $21,000. 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. In Q4 2020, there was a change in methodology for the valuation of the Property portfolio from a combination of the DCF and the OCR, to a single DCF model approach for all Properties. Management believes the change in methodology provides a more consistent approach to valuing the REIT’s Property portfolio and better allows for assumption changes with respect to CT REIT 2020 ANNUAL REPORT 13 MANAGEMENT'S DISCUSSION AND ANALYSIS future rental rates, lease renewals, lease expiries and other inputs in response to changing market conditions. See section 10.1 The significant inputs used to determine the fair value of CT REIT’s income-producing properties are as follows: Number of properties Value at the period end 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 Year Ended December 31, 2020 Year Ended December 31, 2019 Properties valued by the DCF method Properties valued by the OCR method Properties valued by the DCF method 363 287 70 $ 6,141,000 $ 4,240,942 $ 1,766,040 7.15 % 6.67 % — % 12 — % — % 6.17 % — 7.01 % 6.56 % — % 10 The following table summarizes the sensitivity of the fair value of income-producing properties to changes in the capitalization rate and discount rate: Year Ended December 31, 2020 DCF Sensitivity Fair value Change in fair value $ 5,545,000 $ (596,000) 5,742,000 5,967,000 $ 6,141,000 $ 6,371,000 6,623,000 $ 6,898,000 $ (399,000) (174,000) — 230,000 482,000 757,000 Year Ended December 31, 2019 OCR Sensitivity DCF Sensitivity Fair value Change in fair value Fair value Change in fair value $ 3,795,258 $ (445,684) $ 1,585,694 $ (180,346) 3,932,504 (308,438) 1,640,800 (125,240) 4,080,638 (160,304) 1,699,732 (66,308) $ 4,240,942 $ — $ 1,766,040 $ 4,415,156 4,605,102 174,214 1,830,296 364,160 1,903,008 $ 4,813,073 $ 572,131 $ 1,982,280 $ — 64,256 136,968 216,240 Rate sensitivity + 75 basis points + 50 basis points + 25 basis points December 31, 2020 - 25 basis points - 50 basis points - 75 basis points Rate sensitivity + 75 basis points + 50 basis points + 25 basis points December 31, 2019 - 25 basis points - 50 basis points - 75 basis points 14 CT REIT 2020 ANNUAL REPORT MANAGEMENT'S DISCUSSION AND ANALYSIS 5.5 2020 Investment Activities The following table presents income-producing properties acquired, intensified, developed, or redeveloped during the year ended December 31, 2020. (in thousands of Canadian dollars, except for GLA amounts) Property Location Toronto (Canada Square), ON 1,3 Bradford, ON 2 Niagara Falls, ON 1 Yarmouth, NS 2 Rouyn-Noranda, QC 2 Kincardine, ON 2 Napanee, ON 3 Yellowknife, NT 3 St.Jean-sur-Richelieu, QC 3 Drayton Valley, AB 3 Leduc, AB 3 Fort St. John, BC 4 Orillia, ON 1 Buckingham, QC 2 Quebec City (Vanier), QC 3 Pad Developments 5 Total 1 Redevelopment property. 2 Intensification of an existing income-producing property. 3 Acquisition of income-producing properties. 4 Development Property. 5 Relates to third party pad development projects. Transaction date GLA Total investment cost January 2020 March 2020 June 2020 June 2020 June 2020 June 2020 September 2020 October 2020 November 2020 November 2020 November 2020 November 2020 November 2020 November 2020 December 2020 Various 140,193 10,000 224,121 23,135 12,076 28,600 35,951 15,395 103,766 54,263 101,464 145,983 266,189 20,005 125,127 5,295 1,311,563 $ 245,072 The following section contains forward-looking information and readers are cautioned that actual results may vary. 5.6 Development Activities The following table provides details of the REIT’s development activities as at December  31, 2020. 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. CT REIT 2020 ANNUAL REPORT 15 MANAGEMENT'S DISCUSSION AND ANALYSIS Property 1 Anticipated date of completion Committed to lease Not committed to lease Total 10 Incurred to-date 10 Committed additional investment Total Gross leasable area (in square feet) Total investment (in thousands of Canadian dollars) Fort St John, BC - Phase 2 2 Q4 2021 — Pad Developments 3 2021 10,000 Brampton Trinity Commons, ON 4 Q2 2022 16,000 7,000 5,000 — — Q2 2022 41,000 Q2 2022 28,000 34,000 Q4 2022 26,000 Q4 2022 18,000 Q4 2022 28,000 Q4 2022 43,000 Q4 2022 79,000 Q1 2023 322,000 Q2 2023 26,000 Q2 2023 7,000 TBD TBD TBD TBD — — — — — — — — TBD TBD 7,000 15,000 16,000 41,000 62,000 26,000 18,000 28,000 43,000 79,000 322,000 26,000 7,000 TBD TBD Midland, ON 4 Orillia, ON - Phase 2 5 La Plaine, QC 4 Sept-Iles, QC 4 Brampton McLaughlin, ON 4 Dryden, ON 4 Welland, ON 6 Coteau-du-Lac, QC 4 Fenelon Falls, ON 4 Mission, BC 4 Calgary, AB 7 Toronto (Canada Square), ON 8,9 TOTAL 644,000 46,000 690,000 $ 57,855 $ 132,715 $ 190,570 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 Development Property. 3 Relates to third party pad development projects that are estimated to be completed in the next 12 months. 4 Intensification of an existing income-producing property. 5 Redevelopment property. 6 Acquired development land for the intensification of an existing income-producing property. 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. As at December  31, 2020, CT REIT had committed lease agreements for approximately 644,000 square feet, representing 93.3% of total GLA under development, of which 98.4% has been leased to CTC. A total of $57,855 has been expended to date on these developments, and CT REIT anticipates investing an additional $132,715 to complete the developments, of which $106,375 is due to CTC. In the next 12 months, the REIT expects to spend $32,000 on these development activities. These commitments exclude the development activities at the Calgary, Alberta and Toronto (Canada Square), Ontario properties. 16 CT REIT 2020 ANNUAL REPORT MANAGEMENT'S DISCUSSION AND ANALYSIS 5.7 Investment and Development Funding Funding of investment and development activities for the three months and year ended December 31, 2020 was as follows: (in thousands of Canadian dollars) Funded with working capital to CTC Funded with working capital to third parties1 Funded with CTC Credit Facilities Capitalized interest and property taxes Issuance of Class B LP Units to CTC Total costs $ 1 Includes $498 for the construction of Other CTC Banner stores. Q4 2020 Investment and Development Activity Property investments Developments Intensifications 1,700 $ 7,868 63,200 — 19,560 92,328 $ 29,991 $ 2,972 — 177 — 5,200 $ 616 — — — 33,140 $ 5,816 $ Total 36,891 11,456 63,200 177 19,560 131,284 2020 Investment and Development Activity (in thousands of Canadian dollars) Property investments Developments Intensifications Funded with working capital to CTC $ 3,050 $ 22,825 63,200 — 24,120 18,567 38,091 $ 15,106 — 1,283 — — 20,765 $ 2,282 — — — — Total 61,906 40,213 63,200 1,283 24,120 18,567 $ 131,762 $ 54,480 $ 23,047 $ 209,289 Funded with working capital to third parties1 Funded with CTC Credit Facilities Capitalized interest and property taxes Issuance of Class B LP Units to CTC Mortgages Payable Total costs 1 Includes $5,918 for the construction of Other CTC Banner stores. 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 Property investments Development land Developments Intensifications Funded with working capital to CTC $ 4,200 $ 1,900 $ — $ 15,285 $ Funded with working capital to third parties1 Capitalized interest and property taxes Issuance of Class B LP Units to CTC 23,404 — 10,545 18 — — 1,691 6,277 $ 371 — — — Total Costs $ 38,149 $ 1,918 $ 2,062 $ 21,562 $ 1Includes $3,025 for the construction of Other CTC Banner stores. Total 21,385 31,390 371 10,545 63,691 2019 Investment and Development Activity Funded with working capital to CTC $ 15,945 $ 1,900 $ 41,276 $ 22,382 $ Property investments Development land Developments Intensifications Funded with working capital to third parties1 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 1Includes $10,735 for the construction of Other CTC Banner stores. CT REIT 2020 ANNUAL REPORT 17 Total 81,503 59,139 2,080 13,285 11,330 MANAGEMENT'S DISCUSSION AND ANALYSIS 5.8 Lease Maturities CTC is CT REIT’s most significant tenant. As at December 31, 2020, CTC, including Canadian Tire stores and Other CTC Banners, had leased 26.5 million square feet of GLA, with approximately 86.1% and 13.9% 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 8.8 years, excluding the exercise of any renewal options. The weighted average term of the Canadian Tire store leases was 9.0 years, with a weighted average rental rate of $13.98 per square foot. The weighted average lease term for the CTC Industrial Properties was 12.8 years. The weighted average lease term of all leases in the REIT’s portfolio, excluding Properties Under Development, was 8.9 years. The following graph presents the lease maturity profile from 2021 to 2040 (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. 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-half interest. Refer to section 5.5 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, 2020. 18 CT REIT 2020 ANNUAL REPORT MANAGEMENT'S DISCUSSION AND ANALYSIS 5.9 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 Sobeys/FreshCo/Farm Boy Canadian Imperial Bank of Commerce Winners/Marshalls Metro Dollarama Best Buy 10 Tim Hortons Total Percentage of total annualized base minimum rent 1 0.68 % 0.51 % 0.51 % 0.45 % 0.42 % 0.40 % 0.25 % 0.23 % 0.22 % 0.21 % 3.88 % 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, 2020. 5.10 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, 2020, the REIT’s occupancy rate, excluding Properties Under Development, increased to 99.3% (Q4 2019 - 99.1%). Refer to section 5.1 for further details. 5.11 Recoverable Capital Costs Many of the capital costs that will be incurred by CT REIT are recoverable from tenants pursuant to the terms of their leases. The recoveries will 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 $7,945 and $18,091 (Q4 2019 - $4,728 and YTD 2019- $20,549) were incurred during the three months and year ended December  31, 2020. Most of the REIT’s recoverable capital expenditures relate to parking lots, roofs and heating, ventilation and air conditioning equipment, the incurrence of which are typically seasonal in nature. As a result, the actual recoverable capital costs may vary widely from period to period. CT REIT 2020 ANNUAL REPORT 19 MANAGEMENT'S DISCUSSION AND ANALYSIS 6.0 RESULTS OF OPERATIONS 6.1 Financial Results for the Three Months and Year Ended December 31, 2020 CT REIT’s financial results for the three months and year ended December 31, 2020 and December 31, 2019 are summarized below: (in thousands of Canadian dollars, except per unit amounts) Three Months Ended Year Ended For the periods ended December 31, 2020 2019 Change 2020 2019 Change Property revenue Property expense $ 126,833 $ 123,692 2.5 % $ 502,348 $ 489,013 2.7 % (27,748) (26,763) 3.7 % (110,768) (106,088) 4.4 % General and administrative expense (3,949) (3,647) 8.3 % (13,018) (14,285) (8.9) % Net interest and other financing charges (27,235) (27,033) 0.7 % (107,898) (108,753) (0.8) % Fair value adjustment on investment properties (53,869) 10,641 (606.2) % (87,359) 47,306 (284.7) % Net income and comprehensive income Net income per unit - basic Net income per unit - diluted $ $ $ 14,032 $ 76,890 (81.8) % $ 183,305 $ 307,193 (40.3) % 0.061 $ 0.338 (82.0) % $ 0.801 $ 1.380 (42.0) % 0.093 $ 0.294 (68.4) % $ 0.772 $ 1.193 (35.3) % 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 the terms of their leases, with the REIT absorbing these expenses to the extent that vacancies exist. Total revenue for the three months ended December 31, 2020 was $126,833 which was $3,141 (2.5%) higher compared to the same period in the prior year, primarily due to contractual rent escalations, additional base rent related to properties acquired, and developments and intensifications completed during 2020 and 2019. Total revenue for the three months ended December 31, 2020 also included property operating expense recoveries in the amount of $25,738 (Q4 2019 - $25,288). Total revenue for the year ended December 31, 2020 was $502,348 which was $13,335 (2.7%) higher compared to the same period in the prior year, primarily due to contractual rent escalations, additional base rent related to properties acquired, and developments and intensification completed during 2020 and 2019. Total revenue for the year ended December 31, 2020 also included property operating expense recoveries in the amount of $102,257 (2019 - $100,378). 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, 2020, straight-line rent of $2,212 (Q4 2019 - $3,485) was included in total property revenue. For the year ended December 31, 2020, straight-line rent of $10,014 (2019 - $14,130) was included in total property revenue. 20 CT REIT 2020 ANNUAL REPORT MANAGEMENT'S DISCUSSION AND ANALYSIS Property Expense The components of property expense consist primarily of property taxes, operating costs, property management costs (including any outsourcing of property management services) and other recoveries. The majority of property expenses are recoverable from tenants with the REIT absorbing these expenses to the extent that vacancies exist. Property expense for the three months ended December 31, 2020 increased by $985 (3.7%) compared to the same period in the prior year primarily due to the REIT's assistance to its tenants which totalled $0.6 million, consisting of $0.4 million in abatements of gross rents which were recognized as bad debt expense, $0.2 million of expected credit losses and increased operating expenses related to property acquisitions completed during 2020 and 2019. Property expenses for the year ended December 31, 2020 increased by $4,680 (4.4%) compared to the same period in the prior year primarily due to the REIT's assistance to its tenants which totalled $2.8 million, consisting of $0.6 million related to the CECRA program, $0.7 million in abatements of gross rents which were recognized as bad debt expense, $1.5 million of expected credit losses and increased operating expenses related to property acquisitions completed during 2020 and 2019. 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, information technology, internal audit and other support services provided by CTC to the REIT pursuant to the Services Agreement, as further described in section 9.0 of this MD&A. (in thousands of Canadian dollars) Three Months Ended Year Ended For the periods ended December 31, 2020 2019 Change 2020 2019 Change Personnel expense 1 Services Agreement with CTC Public entity and other 1 $ 2,910 $ 2,524 15.3 % $ 8,515 $ 228 943 543 702 (58.0) % 34.3 % 1,112 3,918 7,953 2,500 4,156 $ 4,081 $ 3,769 8.3 % $ 13,545 $ 14,609 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 (132) 3,949 3.1 % 2.5 % (122) 3,647 2.9 % 2.4 % 8.2 % (527) (324) 8.3 % 13,018 14,285 2.6 % 2.6 % 2.9 % 2.5 % 7.1 % (55.5) % (5.7) % (7.3) % 62.7 % (8.9) % 1 Includes unit-based awards including loss adjustments as a result of the change in the fair market value of the Units of $832 (Q4 2019 - $659) and $134 (YTD 2019 - $2,029) for the three months and year ended December 31, 2020. 2 Adjusted for fair value adjustments on unit-based awards. General and administrative expenses amounted to $3,949 or 3.1% of property revenue for the three months ended December 31, 2020 which is $302 (8.3%) higher compared to the same period in the prior year primarily due to: • • increased personnel compensation and headcount; partially offset by decreased Service Agreement costs as a result of insourcing some support services during 2019; CT REIT 2020 ANNUAL REPORT 21 MANAGEMENT'S DISCUSSION AND ANALYSIS General and administrative expenses amounted to $13,018 or 2.6% of property revenue for the year ended December  31, 2020 which is $1,267 (8.9%) lower compared to the same period in the prior year primarily due to: • • • • decreased Service Agreement costs as a result of insourcing some support services during 2019; and fair value adjustment on unit-based awards resulting in decreased personnel compensation and trustee fees; partially offset by increased personnel compensation and headcount; and higher income tax expense recorded in connection with GP’s activities. Net Interest and Other Financing Charges As at December 31, 2020 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 4.41% 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. 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, 2020 2019 Change 2020 2019 Change Interest on Class C LP Units 1 $ 15,991 $ 17,055 (6.2) % $ 65,736 $ 68,219 (3.6) % Interest and financing costs - debentures 9,772 8,890 9.9 % 36,615 35,723 2.5 % Interest and financing costs - Credit Facilities 2 Interest on mortgages payable Interest on lease liabilities Interest and financing costs - CTC Credit Facility 2 315 354 903 72 278 440 851 — 13.3 % (19.5) % 6.1 % — % 1,175 1,665 3,624 72 1,466 (19.8) % 1,763 3,317 — (5.6) % 9.3 % — % $ 27,407 $ 27,514 (0.4) % $ 108,887 $ 110,488 (1.4) % Less: capitalized interest (156) (269) (42.0) % (844) (1,351) (37.5) % Interest expense and other financing charges $ 27,251 $ 27,245 — % $ 108,043 $ 109,137 (1.0) % Less: interest income (16) (212) (92.5) % (145) (384) (62.2) % Net interest and other financing charges $ 27,235 $ 27,033 0.7 % $ 107,898 $ 108,753 (0.8) % 1 CTC elected to defer receipt of distributions on Series 3-9 and Series 16 and 19 of the Class C LP Units for the three months and year ended December 31, 2020 in the amount of $15,852 (Q4 2019 -$16,916) and $59,898 (YTD 2019 - $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 7.10 for details on Credit Facilities. Net interest and other financing charges for the three months ended December 31, 2020 was $202 (0.7%) higher compared to the same period in the prior year largely due to a prepayment cost related to the redemption of the Series C senior unsecured debentures, partially offset by decreased interest on Class C LP Units from resetting the interest rates as of June 1, 2020 on the Series 3, 16, 17, 18 and 19 Class C LP Units with CTC. Net interest and other financing charges for the year ended December 31, 2020 was $855 (0.8%) lower compared to the same period in the prior year largely due to decreased interest on the Class C LP Units from resetting the interest rates as of June 1, 22 CT REIT 2020 ANNUAL REPORT MANAGEMENT'S DISCUSSION AND ANALYSIS 2020 on the Series 3, 16, 17, 18 and 19 Class C LP Units with CTC, decreased interest capitalization on development projects in 2020 and decreased utilization on the Credit Facilities, partially offset by a prepayment cost related to the redemption of the Series C senior unsecured debentures and increased interest expense on lease liabilities. Fair Value Adjustment on Investment Properties The fair value adjustment on Investment Properties for the three months ended December  31, 2020 was $(53,869), a decrease of $64,510 compared to the adjustment in the same period in the prior year. The decrease in the fair value adjustment on Investment Properties is primarily due to updated inputs and assumptions in the property appraisal models reflecting the changing market conditions and their impact on the REIT’s portfolio. Refer to section 2.0. The fair value adjustment on Investment Properties for the year ended December  31, 2020 was $(87,359), a decrease of $134,665 compared to the adjustment in the same period in the prior year. The decrease in the fair value adjustment on Investment Properties is primarily due to updated inputs and assumptions in the property appraisal models reflecting the changing market conditions and their impact on the REIT’s portfolio. Refer to section 2.0. 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. If CT REIT fails to distribute the required amount of taxable income to Unitholders, or if CT REIT fails to qualify as a “real estate investment trust” under the ITA, substantial adverse tax consequences may occur. Refer to section 12.0 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, 2020 2019 Change 2020 2019 Change Net income and comprehensive income Net income per unit - basic Net income per unit - diluted $ $ $ 14,032 $ 76,890 (81.8) % $ 183,305 $ 307,193 (40.3) % 0.061 $ 0.338 (82.0) % $ 0.801 $ 1.380 (42.0) % 0.093 $ 0.294 (68.4) % $ 0.772 $ 1.193 (35.3) % Net income decreased by $62,858 (81.8%) for the three months ended December 31, 2020 compared to the same period in the prior year for the reasons discussed above. Net income decreased by $123,888 (40.3%) for the year ended December 31, 2020 compared to the same period in the prior year for the reasons discussed above. Net income per unit - basic decreased by $0.277 (82.0%) for the three months ended December 31, 2020 compared to the same period in the prior year primarily due to decreased net income, as discussed above, as well as by an increase in the weighted average number of units outstanding - basic. CT REIT 2020 ANNUAL REPORT 23 MANAGEMENT'S DISCUSSION AND ANALYSIS For the year ended December 31, 2020 the net income per unit - basic decreased by $0.579 (42.0%) compared to the same period in the prior year primarily due to decreased net income, as discussed above, as well as by an increase in the weighted average number of units outstanding - basic. Net income per unit - diluted decreased by $0.201 (68.4%) for the three months ended December 31, 2020 compared to the same period in the prior year primarily due to decreased net income, as discussed above, as well as by an increase in the weighted average number of units outstanding - diluted. For the year ended December  31, 2020 net income per unit - diluted decreased by $0.421 (35.3%) compared to the same period in the prior year primarily due to decreased net income, as discussed above, as well as by an increase in the weighted average number of units outstanding - diluted. 6.2 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 section 11.0 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, 2020 2019 Change 2020 2019 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 Net Operating Income $ $ $ $ $ $ $ $ $ $ $ 96,873 93,558 94,286 68,149 0.297 0.296 59,796 0.260 0.260 77.3 % 60,105 95,416 $ $ $ $ $ $ $ $ $ $ $ 93,444 92,493 92,663 66,797 0.293 0.293 3.7 % $ 381,566 1.2 % $ 364,122 1.8 % $ 367,848 2.0 % $ 270,725 1.4 % $ 1.0 % $ 1.183 1.181 57,397 4.2 % $ 236,457 0.252 0.252 3.2 % $ 3.2 % $ 1.033 1.032 75.0 % 3.1 % 76.8 % 60,422 93,686 (0.5) % $ 238,954 1.8 % $ 378,814 $ $ $ $ $ $ $ $ $ $ $ 368,795 360,733 361,904 261,861 1.177 1.175 224,300 1.008 1.007 75.2 % 228,366 370,693 3.5 % 0.9 % 1.6 % 3.4 % 0.5 % 0.5 % 5.4 % 2.5 % 2.5 % 2.1 % 4.6 % 2.2 % Net Operating Income for the three months ended December  31, 2020 increased by $3,429 (3.7%) compared to the same period in the prior year primarily due to the acquisition of income-producing properties and Properties Under Development completed in 2020 and 2019, which contributed $1,465 to NOI growth. Same store NOI for the three months ended December 31, 2020 increased by $1,065 (1.2%), 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, contributed $1,830 to NOI growth; partially offset by 24 CT REIT 2020 ANNUAL REPORT MANAGEMENT'S DISCUSSION AND ANALYSIS • • expected credit losses for tenants significantly impacted by the pandemic and bad debt expenses related to rental abatements reduced NOI by $488; and vacancies and parking revenue reduced NOI by $283. Same property NOI for the three months ended December 31, 2020 increased by $1,623 (1.8%), when compared to the prior year primarily for the following reasons: • • increase in same store NOI by $1,065 per above; and Intensifications completed in 2020 and 2019 which contributed $558 to NOI growth. NOI for the year ended December 31, 2020 increased $12,771 (3.5%) compared to the same period in the prior year primarily due to the acquisition of income-producing properties and Properties Under Development completed in 2020 and 2019, which contributed $6,239 to NOI growth and Properties Under Development which contributed $661. Same store NOI for the year ended December  31, 2020 increased $3,389 (0.9%), when compared to the prior year for the following reasons: • • • • contractual rent escalations of 1.5% per year, on average, contained within the Canadian Tire store and CTC’s industrial leases, which are generally effective January 1st, contributed $6,488 to NOI growth; and recovery of capital expenditures and interest earned on the unrecovered balance contributed $576 to NOI growth; partially offset by expected credit losses for tenants significantly impacted by the pandemic and bad debt expenses related to rental abatements and rent relief under the CECRA program reduced NOI by $2,744; and the proceeds received in Q3 2019 from the assignment of REIT’s interest and claim against a former tenant under the Companies Creditors Arrangement Act decreased the comparison of NOI by $838. Same property NOI for the year ended December 31, 2020 increased $5,944 (1.6%), respectively, when compared to the prior year for the following reasons: • • increase in same store NOI by $3,389 per above; and Intensifications completed in 2020 and 2019 which contributed $2,555 to NOI growth. Funds From Operations FFO for the three months ended December 31, 2020 amounted to $68,149 or $0.296 per unit - diluted (non-GAAP) which was $1,352 (2.0%) higher or $0.003 per unit - diluted (non-GAAP) (1.0%) higher than the same period in 2019 primarily due to the impact of NOI variances, partially offset by higher interest expense, discussed earlier. FFO for the year ended December 31, 2020 amounted to $270,725 or $1.181 per unit (diluted non-GAAP) which was $8,864 (3.4%) and $0.006 (0.5%) per unit (diluted non-GAAP) higher than the same period in 2019 primarily due to the impact of NOI variances and lower interest expense, discussed earlier. CT REIT 2020 ANNUAL REPORT 25 MANAGEMENT'S DISCUSSION AND ANALYSIS Adjusted Funds From Operations AFFO for the three months ended December 31, 2020 amounted to $59,796 or $0.260 per unit - diluted (non-GAAP) which was $2,399 (4.2%) or $0.008 per unit - diluted (non-GAAP) (3.2%) higher than the same period in 2019 primarily due to the impact of NOI variances, partially offset by higher interest expense discussed earlier. AFFO for the year ended December  31, 2020 amounted to $236,457 or $1.032 per unit (diluted non-GAAP) which was $12,157 (5.4%) and $0.025 (2.5%), respectively, higher than the same period in 2019 primarily due to the impact of NOI variances and lower interest expense, discussed earlier. Adjusted Funds From Operations Payout Ratio The AFFO payout ratio for the three months ended December 31, 2020 was 77.3%, an increase of 3.1% from the same period in 2019 due to the rate of increase in the monthly distribution rate, which commenced January 1, 2020 and again on September 1, 2020, exceeding the increase in AFFO per unit. The AFFO payout ratio for the year ended December 31, 2020 was 76.8%, an increase of 2.1% from the same period in 2019 due to the rate of increase in the monthly distribution rate, which commenced January 1, 2020 and again on September 1, 2020, exceeding the increase in AFFO per unit. Adjusted Cashflow From Operations ACFO for the three months ended December 31, 2020 decreased by $317 (0.5%) over the same period in 2019 primarily due to a decrease in the changes in working capital and other, partially offset by the impact of NOI variances, discussed earlier, and an increase in the non-operating adjustments to changes in working capital related to the timing of payment of property taxes and of commodity taxes payable. ACFO for the year ended December 31, 2020 increased by $10,588 or 4.6% over the same period in 2019 primarily due to the impact of NOI variances, discussed earlier and an increase in the non-operating adjustments to changes in working capital related to the timing of commodity taxes payable. Earnings Before Interest and Other Financing Costs, Taxes and Fair Value Adjustments EBITFV for the three months ended December 31, 2020 increased by $1,730 (1.8%) over the same period in 2019, primarily due to the impact of NOI variances discussed earlier. EBITFV for the year ended December 31, 2020 increased by $8,121 (2.2%) over the same period in 2019, primarily due to the impact of NOI variances discussed earlier. 26 CT REIT 2020 ANNUAL REPORT MANAGEMENT'S DISCUSSION AND ANALYSIS 7.0 LIQUIDITY AND FINANCIAL CONDITION The following section contains forward-looking information and readers are cautioned that actual results may vary. 7.1 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 or private issuance of debt or equity. (in thousands of Canadian dollars) As at Cash and cash equivalents Unused portion of available Credit Facilities 1 Liquidity 1 See section 7.10 for details on Credit Facilities. December 31, 2020 December 31, 2019 $ $ 4,531 $ 294,436 298,967 $ 9,734 294,442 304,176 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 (used)/generated in the period 7.2 Discussion of Cash Flows Year Ended 2020 370,766 $ (162,683) (213,286) (5,203) $ 2019 362,328 (161,867) (195,718) 4,743 $ $ Cash used for the year ended December 31, 2020 of $(5,203) was primarily the result of cash used for investing activities and distribution payments, partially offset by operating activities and amounts drawn on the CTC Credit Facility. 7.3 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 Morningstar”), 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. CT REIT 2020 ANNUAL REPORT 27 MANAGEMENT'S DISCUSSION AND ANALYSIS The following table sets out the credit ratings of CT REIT’s senior unsecured debt: Credit Ratings (Canadian Standards) 7.4 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 1 Total indebtedness Unitholders’ equity Non-controlling interests Total capital under management 1 See section 7.10 for details on Credit Facilities. DBRS Morningstar S&P Credit Rating BBB Trend Stable Credit Rating BBB Outlook NEG December 31, 2020 December 31, 2019 $ 1,451,550 $ 1,451,550 65,956 1,071,635 63,200 2,652,341 $ 1,481,849 1,894,021 6,028,211 $ 48,049 1,070,695 2,000 2,572,294 1,464,939 1,869,166 5,906,399 $ $ CT REIT’s total indebtedness at December 31, 2020 was higher than at December 31, 2019 primarily due to higher amounts drawn on the Credit Facilities and an increase in mortgages payable. Refer to section 7.6 of this MD&A for further details. CT REIT’s Unitholders’ equity and non-controlling interests at December 31, 2020 increased as compared to December 31, 2019 primarily as a result of net income exceeding distributions. Future payments in respect of CT REIT’s indebtedness as at December 31, 2020 are as follows: (in thousands of Canadian dollars) Principal amortization Maturities Class C LP Units Debentures 1 Total Mortgages payable 2021 2 2022 2023 2024 2025 and thereafter Total contractual obligation 420 255 — — — 9,460 55,700 — — — — — 200,000 150,000 213,620 150,000 159,715 — — 55,700 200,000 1,251,550 775,000 2,026,550 $ 675 $ 65,160 $ 1,451,550 $ 1,075,000 $ 2,655,585 Unamortized portion of mark to market on mortgages payable assumed on the acquisition of properties Unamortized transaction costs — — 219 (98) — — — 219 (3,365) (3,463) $ 675 $ 65,281 $ 1,451,550 $ 1,071,635 $ 2,652,341 1 Refer to section 7.8. 2 Refer to section 7.8. for details on Series C senior unsecured debenture early redemption which occurred on January 10, 2021. 28 CT REIT 2020 ANNUAL REPORT MANAGEMENT'S DISCUSSION AND ANALYSIS Interest rates on CT REIT’s indebtedness range from 1.87% to 5.00%. The maturity dates on the indebtedness range from June 2021 to May 2038. On January 10, 2021, CT REIT redeemed all outstanding Series C senior unsecured debentures due June 1, 2021. No other indebtedness matures in 2021. Total indebtedness at December  31, 2020 had a weighted average interest rate of 3.87% and a weighted average term to maturity of 7.5 years, excluding the Credit Facilities. As at December 31, 2020, variable rate and fixed rate indebtedness were $118,900 and $2,533,441, respectively. As at Variable rate debt Total indebtedness Variable rate debt / total indebtedness December 31, 2020 December 31, 2019 $ 118,900 $ 39,133 2,652,341 2,572,294 4.48 % 1.52 % CT REIT’s variable rate debt-to-total indebtedness ratio as at December  31, 2020 increased as compared to December  31, 2019 primarily due to increased draws on the CTC Credit Facility and an increased proportionate interest in the mortgage secured by the Toronto (Canada Square), Ontario property as result of the REIT’s increased ownership interest in the property in Q1 2020. The following table presents the contractual obligations of CT REIT: Total 2021 2022 2023 2024 2025 2026 and thereafter Class C LP Units 1 Debentures 2 $ 1,451,550 $ — $ — $ — $ 200,000 251,550 $ 1,000,000 1,075,000 150,000 150,000 — — 200,000 200,000 Payments on Class C LP Units 1 680,499 63,962 63,962 63,962 58,712 51,484 378,417 Interest on debentures 169,529 33,330 29,572 27,433 27,433 23,906 27,855 Credit Facilities 63,200 63,200 — — — — — Undiscounted lease liabilities 152,810 4,512 4,143 4,127 4,076 3,776 132,176 Mortgages payable 65,835 420 9,715 55,700 118,561 13,585 63,056 41,920 Obligations for the completion of developments Other liabilities Distributions payable 3 57,947 52,671 5,276 15,459 15,459 — — Payable on Class C LP Units, net of loans receivable 5,330 5,330 Interest on mortgages payable 3,099 1,560 1,328 Interest on CTC Credit Facility 72 72 — — — — 211 — — — — — — — — — — — — — — — — — — — — — Total $ 3,858,891 $ 404,101 $ 327,052 $ 193,353 $ 290,221 $ 530,716 $ 1,738,448 1 Assumes redemption on Initial Fixed Rate Period for each series. 2 Refer to section 7.8. 3 On Units and Class B LP Units. CT REIT 2020 ANNUAL REPORT 29 MANAGEMENT'S DISCUSSION AND ANALYSIS 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, 2020: (in thousands of Canadian dollars) Unencumbered investment properties Encumbered investment properties Total Number of properties Fair value of investment properties Percentage of total assets Mortgages payable Loan to value ratio 361 $ 6,006,857 2 138,143 363 $ 6,145,000 97.3 % $ 2.2 % 99.4 % $ — 65,956 65,956 — 47.7 % 1.1 % 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, 2020 December 31, 2019 $ 65,956 $ 2,652,341 2.49 % 48,049 2,572,294 1.87 % CT REIT’s secured debt to total indebtedness ratio at December  31, 2020 increased as compared to December  31, 2019, primarily due to an increased proportionate interest in the mortgage secured by the Toronto (Canada Square), Ontario property in Q1 2020. Indebtedness to EBITFV ratios are used to measure an entity's ability to meet its debt obligations. Generally, the lower the ratio, the less the entity is leveraged which might increase their ability to pay off its debts. 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 11.0 for further information. December 31, 2020 December 31, 2019 $ $ 2,652,341 $ 378,814 7.00 2,572,294 370,693 6.94 CT REIT’s indebtedness to EBITFV ratio at December 31, 2020 increased as compared to the indebtedness to EBITFV ratio at December 31, 2019 primarily due to the growth of total indebtedness exceeding the growth of EBITFV. 30 CT REIT 2020 ANNUAL REPORT MANAGEMENT'S DISCUSSION AND ANALYSIS 7.5 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) Three Months Ended Year Ended $ $ 2020 95,416 $ 27,251 $ 3.50 2019 2020 93,686 $ 378,814 $ 27,245 $ 108,043 $ 3.44 3.51 2019 370,693 109,137 3.40 1 Non-GAAP measure. Refer to section 11.0 for further information. The increase in interest coverage ratio for the three months ended December 31, 2020, as compared to the same period in 2019 is primarily due to the growth of EBITFV exceeding the growth of interest and other financing charges. The increase in interest coverage ratio for the year ended December  31, 2020, as compared to the same period in 2019 is primarily due to the growth of EBITFV exceeding the growth of interest and other financing charges. 7.6 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 assets provided by debt. This ratio can help investors determine the REIT’s risk levels. 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 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, 2020 December 31, 2019 $ $ 2,652,341 6,176,142 $ $ 2,572,294 6,024,512 42.9 % 42.7 % 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, 2020 increased compared to the indebtedness ratio as at December  31, 2019 primarily due to the growth of total indebtedness exceeding the growth of CT REIT’s 2020 acquisition, intensification and development activities and fair value adjustments made to its Investment Property portfolio. 7.7 Class C LP Units As at December 31, 2020, 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 fixed rate period for each series of Class C LP Units (the “Current Fixed Rate Period”). 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 CT REIT 2020 ANNUAL REPORT 31 MANAGEMENT'S DISCUSSION AND ANALYSIS 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 8.0 for further details. On expiry of the Current 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 also 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. 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 variable rate option. 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 2020. In Q2 2020, the REIT reset the interest rates on its Series 3, 16, 17, 18 and 19 Class C LP Units with CTC to 2.37%, for a five- year term ending on May 31, 2025. The following table presents the details of the Class C LP Units: Series of Class C LP Units Subscription price Annual distribution rate during Current Fixed Rate Period Expiry of Current Fixed Rate Period % of Total 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 $ $ $ $ 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 — 1,451,550 1,451,550 2.37 % 4.50 % 4.50 % 5.00 % 5.00 % 5.00 % 5.00 % 2.37 % 2.37 % 2.37 % 2.37 % May 31, 2025 (4.4 years) May 31, 2024 (3.4 years) May 31, 2028 (7.4 years) May 31, 2031 (10.4 years) May 31, 2034 (13.4 years) May 31, 2035 (14.4 years) May 31, 2038 (17.4 years) May 31, 2025 (4.4 years) May 31, 2025 (4.4 years) May 31, 2025 (4.4 years) May 31, 2025 (4.4 years) 4.41 % 9.9 years 13.78 % 13.78 % 13.78 % 13.78 % 13.78 % 13.78 % 13.78 % 1.14 % 1.27 % 0.34 % 0.79 % 100.0 % The weighted average rate of the aggregate capital amount ascribed to the Class C LP Units was 4.41% as at December 31, 2020. 32 CT REIT 2020 ANNUAL REPORT MANAGEMENT'S DISCUSSION AND ANALYSIS 7.8 Debentures Series A, 2.85%, June 9, 2022 B, 3.53%, June 9, 2025 C, 2.16%, June 1, 2021 1 D, 3.29%, June 1, 2026 E, 3.47%, June 16, 2027 F, 3.87%, December 7, 2027 Total Current Non-current Total December 31, 2020 December 31, 2019 Face value Carrying amount Face value Carrying amount $ 150,000 $ 149,777 $ 150,000 $ 149,625 200,000 199,255 200,000 150,000 150,000 150,000 200,000 199,266 200,000 175,000 174,257 175,000 200,000 199,080 200,000 199,101 149,751 199,130 174,142 198,946 $ $ $ $ 1,075,000 $ 1,071,635 $ 1,075,000 $ 1,070,695 150,000 $ 150,000 $ — $ — 925,000 $ 921,635 $ 1,075,000 $ 1,070,695 1,075,000 $ 1,071,635 $ 1,075,000 $ 1,070,695 1 Refer below for additional information on Series C senior unsecured debentures early redemption. Debentures as at December 31, 2020 had a weighted average interest rate of 3.25% (December 31, 2019 - 3.25%). On January 6, 2021, CT REIT completed the issuance of $150,000 of Series G unsecured debentures with a ten-year term and a coupon of 2.371% per annum. On January 10, 2021, the net proceeds, along with cash on hand, were used to redeem the Series C senior unsecured debentures in the aggregate principal amount of $150,000 with a coupon of 2.159% due June 1, 2021. For the three months and year ended December 31, 2020, amortization of the transaction costs of $291 (Q4 2019 - $229) and $940 (YTD 2019 - $850) is included in net interest and other financing charges on the consolidated statement of income and comprehensive income. Refer to Note 16 of the consolidated financial statements. The debentures are rated “BBB” by S&P and “BBB” by DBRS Morningstar. The debentures are direct senior unsecured obligations of CT REIT. Refer to section 7.3 for further details. 7.9 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, 2020 December 31, 2019 Face value Carrying amount Face value $ $ 420 $ 514 $ 37,533 $ 65,415 65,442 10,134 65,835 $ 65,956 $ 47,667 $ Carrying amount 37,696 10,353 48,049 Mortgages payable at December 31, 2020 had a weighted average interest rate of 2.27% (December 31, 2019 – 3.82%). CT REIT 2020 ANNUAL REPORT 33 MANAGEMENT'S DISCUSSION AND ANALYSIS 7.10 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, 2020 the Bank Credit Facility had no amounts drawn under the revolving credit facility, and $5,564 (December 31, 2019 – $5,558) of outstanding letters of credit. CTC Credit Facility CT REIT has an uncommitted, unsecured $300,000 revolving credit facility with CTC (“CTC Credit Facility”) expiring in December 2021, unless otherwise renewed. 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, 2020, $63,200 of borrowings were drawn on the CTC Credit Facility. At December 31, 2020, borrowings under the CTC Credit Facility had an ending average interest rate of 2.45% (December 31, 2019 – 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, 2020: (in thousands of Canadian dollars) Bank Credit Facility CTC Credit Facility 1Uncommitted facility subject to CTC discretion. Maximum draw amount Cash advances Letters of credit Available to be drawn $ $ 300,000 $ — $ 5,564 $ 294,436 300,000 $ 63,200 $ — $ — 1 The following section contains forward-looking information and readers are cautioned that actual results may vary. 7.11 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 34 CT REIT 2020 ANNUAL REPORT MANAGEMENT'S DISCUSSION AND ANALYSIS 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, 2020, CT REIT’s indebtedness ratio was 42.9%. Refer to section 7.6 of this MD&A for the definition and calculation of CT REIT’s indebtedness ratio. At December  31, 2020, 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, 2020, CT REIT’s interest coverage ratio was 3.5 times. Refer to section 7.5 of this MD&A for the definition and calculation of CT REIT’s interest coverage ratio. Assuming a future economic environment that is stable, management does not foresee any material impediments to refinancing future debt maturities. Refer to section 2.0. The following section contains forward-looking information and readers are cautioned that actual results may vary. 7.12 Commitments and Contingencies As at December 31, 2020, CT REIT had obligations of $132,715 (December 31, 2019 - $145,667) in future payments for the completion of developments, as described in section 5.6 of this MD&A. Included in the commitment is $106,375 due to CTC. 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. 7.13 Base Shelf Prospectus CT REIT has a short form base shelf prospectus under which it can raise up to $2.0 billion of debt and/or equity (including the sale of Units by CTC) expiring May 24, 2021. CT REIT 2020 ANNUAL REPORT 35 MANAGEMENT'S DISCUSSION AND ANALYSIS 8.0 EQUITY 8.1 Authorized Capital and Outstanding Units CT REIT is authorized to issue an unlimited number of Units. As of December 31, 2020, CT REIT had a total of 105,103,391 Units outstanding, 33,989,508 of which were held by CTC, and 125,866,203 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 Total outstanding at end of period 1 1,176,006 issued pursuant to the REIT’s distribution reinvestment plan. Total outstanding at beginning of year Units issued 1 2019 REIT Offering 2 Total outstanding at end of year As at December 31, 2020 Units Class B LP Units Total 103,927,385 124,289,491 228,216,876 1,176,006 1,576,712 2,752,718 105,103,391 125,866,203 230,969,594 As at December 31, 2019 Units Class B LP Units Total 96,848,606 123,400,633 220,249,239 762,779 888,858 1,651,637 6,316,000 — 6,316,000 103,927,385 124,289,491 228,216,876 1 742,946 issued pursuant to the REIT’s distribution reinvestment plan. 2 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 costs of $3,863 (the “2019 REIT Offering”) and the sale of 10,530,000 Units by CTC. 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. 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: 36 CT REIT 2020 ANNUAL REPORT MANAGEMENT'S DISCUSSION AND ANALYSIS (in thousands of Canadian dollars, except unit amounts) For the Year ended December 31, 2020 Units Class B LP Units Total Net income attributable to Unitholders - basic $ 83,694 $ 99,611 $ 183,305 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 65,736 $ 249,041 104,524,871 124,409,130 228,934,001 265,900 93,374,550 322,574,451 For the Year ended December 31, 2019 (in thousands of Canadian dollars, except unit amounts) Units Class B LP Units Total Net income attributable to Unitholders - basic $ 136,667 $ 170,526 $ 307,193 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 68,219 $ 375,412 98,990,726 123,568,955 222,559,681 231,890 91,823,461 314,615,032 8.2 Equity (in thousands of Canadian dollars) As at Equity - beginning of period Net income and comprehensive income for the period Issuance of Units from 2019 REIT Offering, 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, 2020 December 31, 2019 3,334,105 183,305 — 24,101 (98,857) (83,022) 16,238 3,086,223 307,193 86,140 13,275 (93,925) (75,469) 10,668 Equity - end of the period $ 3,375,870 $ 3,334,105 The following section contains forward-looking information and readers are cautioned that actual results may vary. 8.3 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. CT REIT 2020 ANNUAL REPORT 37 MANAGEMENT'S DISCUSSION AND ANALYSIS 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 August 4, 2020, the REIT announced a 2.0% distribution increase effective with the September 15, 2020 payment to Unitholders. Monthly distributions increased to $0.06693 per unit or $0.80316 per unit on an annualized basis. On December 15, 2020, CT REIT’s Board declared a distribution of $0.06693 per unit payable on January 15, 2021 to holders of Units and Class B LP Units of record as of December 31, 2020. On January 15, 2021, CT REIT’s Board declared a distribution of $0.06693 per unit payable on February 16, 2021 to holders of Units and Class B LP Units of record as of January 29, 2021. One of CT REIT’s objectives is to grow monthly distributions. The distribution payments and increases since December 31, 2014 are as follows: 2020 (September onward) 2020 (January - August) 2019 2018 2017 2016 2015 2014 Monthly distribution per Unit1 % increase Annualized distribution per Unit Annualized increase per Unit $ $ $ $ $ $ $ $ 0.06693 0.06562 0.06310 0.06067 0.05833 0.05667 0.05525 0.05417 2.0 % $ 4.0 % $ 4.0 % $ 4.0 % $ 2.9 % $ 2.6 % $ 2.0 % $ — $ 0.803 $ 0.787 $ 0.757 $ 0.728 $ 0.700 $ 0.680 $ 0.663 $ 0.650 $ 0.0160 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. 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 11.0) 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, 2020 2019 2020 2019 Distributions before distribution reinvestment - paid Distribution reinvestment Distributions net of distribution reinvestment - paid Distributions per unit - paid $ $ $ 46,089 $ 43,080 $ 181,394 $ 168,318 4,203 3,728 16,245 10,395 41,886 $ 39,352 $ 165,151 $ 157,923 0.201 $ 0.189 $ 0.793 $ 0.757 38 CT REIT 2020 ANNUAL REPORT MANAGEMENT'S DISCUSSION AND ANALYSIS Distributions for the three months and year ended December 31, 2020 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 2020 and a subsequent increase in the monthly rate effective September 2020. CT REIT’s distributions for the three months and year ended December  31, 2020 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, 2020 2019 2020 2019 AFFO 1 Distributions before distribution reinvestment - paid Excess of AFFO over distributions paid (A) $ $ 59,796 $ 57,397 $ 236,457 $ 224,300 46,089 43,080 181,394 168,318 13,707 $ 14,317 $ 55,063 $ 55,982 Weighted average units outstanding - diluted (non-GAAP)1(B) 229,996,707 227,887,268 229,199,901 222,791,571 Excess of AFFO over distributions paid per unit (A)/(B) 1 $ 0.060 $ 0.063 $ 0.240 $ 0.251 1 Non-GAAP measure. Refer to section 11.0 for further information. 8.4 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, 2020 December 31, 2019 $ $ 3,375,870 $ 3,334,105 230,969,594 228,216,876 14.62 $ 14.61 CT REIT’s book value per Unit as at December 31, 2020 increased from the book value per Unit as at December 31, 2019 primarily due to net income exceeding distributions. 9.0 RELATED PARTY TRANSACTIONS On December  31, 2020, CT REIT’s controlling Unitholder, CTC, held a 69.2% effective interest in the REIT, through the ownership of 33,989,508 Units and all of the issued and outstanding Class B LP Units. Refer to section 7.7 of this MD&A for additional information on Class C LP Units. In addition to its ownership interest, CTC is CT REIT’s most significant tenant representing approximately 91.6% of the annualized base minimum rent earned by CT REIT and 92.2% of total GLA as at December 31, 2020. 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 CT REIT 2020 ANNUAL REPORT 39 MANAGEMENT'S DISCUSSION AND ANALYSIS transactions with CTC amounted to $149,226 (2019 - $94,788) for the year ended December 31, 2020. Refer to Note 5 to the consolidated financial statements for additional information. In Q2 2020, the REIT reset the interest rates on its Series 3, 16, 17, 18 and 19 Class C LP Units with CTC to 2.37%, for a five-year term ending on May 31, 2025. CT REIT entered into the CTC Credit Facility in December 2019. Refer to section 7.10 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 described below. Services Agreement Under the Services Agreement, CTC provides the REIT with certain administrative, 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 2021 and CTC will continue to provide such Services on a cost recovery basis. Property Management Agreement Under the Property Management Agreement, CTC provides the REIT with certain 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 2021 and CTC will continue to provide such Property Management Services on a cost recovery basis. Refer to CT REIT’s 2020 AIF available 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 for additional information on related party agreements and arrangements with CTC. 40 CT REIT 2020 ANNUAL REPORT MANAGEMENT'S DISCUSSION AND ANALYSIS The following table summarizes CT REIT’s related party transactions as at December  31, 2020, excluding acquisition, intensification and development activities which are contained in section 5.0: (in thousands of Canadian dollars) For the periods ended December 31, Rental revenue Property Management and Services Agreements expense 1 Distributions on Units Distributions on Class B LP Units 2 Interest expense on Class C LP Units Interest expense on the CTC Credit Facility Year Ended 2020 2019 448,629 $ 437,391 1,755 $ 26,988 $ 98,857 $ 65,736 $ 72 $ 4,253 31,139 93,925 68,219 — $ $ $ $ $ $ 1The Service Agreement and Property Management Agreement decreased as a result of insourcing some property management and support services during 2020. 2 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: (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 1Includes distributions deferred at the election of the holders of the Class B LP Units. 2 See section 7.10 for details on the Credit Facilities. December 31, 2020 December 31, 2019 $ (1,549) $ (1,890) 1,451,550 1,451,550 65,228 (59,898) 29,467 31,343 (20,643) 63,200 67,712 (62,027) 6,695 29,589 (19,202) 2,000 $ 1,558,698 $ 1,474,427 10.0 ACCOUNTING POLICIES AND ESTIMATES 10.1 Significant Areas of Estimation 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 the property can reasonably be expected to produce over its remaining economic life. In Q4 2020, there was a change in methodology for the valuation of the property portfolio from a combination of the discounted cash flow and the overall CT REIT 2020 ANNUAL REPORT 41 MANAGEMENT'S DISCUSSION AND ANALYSIS capitalization approach (“OCR”), to a single model approach for all Properties. All Properties were valued using the 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. Management believes the change in methodology provides a more consistent approach to valuing the REIT’s portfolio and better allows for assumption changes with respect to future rental rates, lease renewals, lease expires and other inputs in response to changing market conditions. 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. 10.2 Standards, Amendments and Interpretations Issued but Not Yet Adopted The following new standards, amendments and interpretations have been issued but are not effective until the fiscal years ending on or after December 2021 and, accordingly, have not been applied in preparing these financial statements. (i) Amendment to IFRS 16 Leases - COVID-19 Related Rent Concessions In May 2020, the IASB issued an amendment to IFRS 16 - Leases ("IFRS 16") to make it easier for lessees to account for COVID-19-related rent concessions such as rent holidays and temporary rent reductions. The amendment exempts lessees from having to consider individual lease contracts to determine whether rent concessions occurring as a direct consequence of the COVID-19 pandemic are lease modifications and allows lessees to account for such rent concessions as if they were not lease modifications. It applies to COVID-19-related rent concessions that reduce lease payments due on or before June 30, 2021. The amendment is effective for annual reporting periods beginning on or after June 1, 2020. Earlier application is permitted. The implementation of this amendment did not have a significant impact on CT REIT. (ii) Classification of Liabilities as Current or Non-Current (Amendments to IAS 1) In January 2020, IASB issued Classification of Liabilities as Current or Non-current, which amends IAS 1 - Presentation of Financial Statements. The narrow scope amendments affect only the presentation of liabilities in the statement of financial position and not the amount or timing of their recognition. It clarifies that the classification of liabilities as current or non-current is based on rights that are in existence at the end of the reporting period and specifies that classification is unaffected by expectations about whether an entity will exercise its right to defer settlement of a liability. It also introduces a definition of ‘settlement’ to make clear that settlement refers to the transfer to the counterparty of cash, equity instruments, other assets or services. The amendments are effective for annual reporting periods beginning on or after January 1, 2023. Earlier application is permitted. The implementation of these amendments is not expected to have a significant impact on CT REIT. (iii) Annual Improvements 2018-2020 and package of narrow-scope amendments In May 2020, the IASB issued a package of narrow-scope amendments to three standards (IFRS 3 - Business Combinations, IAS 16 - Property, Plant and Equipment, and IAS 37 - Provisions, Contingent Liabilities and Contingent Assets) as well as the IASB’s Annual Improvements 2018-2020, which are changes that clarify the wording or correct minor consequences, oversights or conflicts between requirements in the standards. These amendments will be effective for annual periods beginning on or after January 1, 2022. The implementation of these narrow-scope amendments is not expected to have a significant impact on CT REIT. 42 CT REIT 2020 ANNUAL REPORT MANAGEMENT'S DISCUSSION AND ANALYSIS 11.0 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 and its ability to meet 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. 11.1 Net Operating Income CT REIT defines NOI as property revenue less property expense adjusted further for straight-line rent. 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, 2020 2019 Change 2020 2019 Change Property revenue Less: Property expense $ 126,833 $ 123,692 2.5 % $ 502,348 $ 489,013 2.7 % (27,748) (26,763) 3.7 % (110,768) (106,088) 4.4 % Property straight-line rent revenue (2,212) (3,485) (36.5) % (10,014) (14,130) (29.1) % Net operating income $ 96,873 $ 93,444 3.7 % $ 381,566 $ 368,795 3.5 % 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 GLA in both periods. CT REIT management uses this measure to gauge the change in asset productivity and asset value. 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. CT REIT 2020 ANNUAL REPORT 43 MANAGEMENT'S DISCUSSION AND ANALYSIS The following table summarizes the same store and same property components of NOI: (in thousands of Canadian dollars) Three Months Ended Year Ended For the periods ended December 31, 2020 2019 Change 1 2020 2019 Change 1 Same store Intensifications 2020 2019 $ 93,558 $ 92,493 1.2 % $ 364,122 $ 360,733 0.9 % 415 313 — — % 170 84.1 % 1,037 2,689 — 1,171 — % NM Same property $ 94,286 $ 92,663 1.8 % $ 367,848 $ 361,904 1.6 % Acquisitions, developments and dispositions 2020 2019 Net operating income 1 NM - not meaningful. 1,605 979 — — % 3,537 — — % 782 25.2 % 10,177 6,891 47.7 % 96,870 $ 93,445 3.7 % 381,562 $ 368,795 3.5 % 11.2 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, 2020 2019 Change 1 2020 2019 Change 1 Net Income and comprehensive income $ 14,032 $ 76,890 (81.8) % $ 183,305 $ 307,193 (40.3) % Fair value adjustment on investment property 53,869 (10,641) (606.2) % 87,359 (47,306) (284.7) % GP income tax expense Lease principal payments on right-of-use assets Fair value adjustment of unit-based compensation Internal leasing expense Funds from operations (568) (270) 832 254 (467) 21.6 % 171 659 185 NM 26.3 % 37.3 % (27) (822) 134 776 (360) (92.5) % (201) NM 2,029 (93.4) % 506 53.4 % $ 68,149 $ 66,797 2.0 % $ 270,725 $ 261,861 3.4 % Property straight-line rent revenue (2,212) (3,485) (36.5) % (10,014) (14,130) (29.1) % Normalized capital expenditure reserve (6,141) (5,915) 3.8 % (24,254) (23,431) 3.5 % Adjusted funds from operations FFO per unit - basic FFO per unit - diluted (non-GAAP) 2 AFFO per unit - basic AFFO per unit - diluted (non-GAAP) 2 $ $ $ $ $ 59,796 $ 57,397 4.2 % $ 236,457 $ 224,300 5.4 % 0.297 $ 0.296 $ 0.260 $ 0.260 $ 0.293 0.293 0.252 0.252 1.4 % $ 1.183 $ 1.0 % $ 1.181 $ 3.2 % $ 1.033 $ 3.2 % $ 1.032 $ 1.177 1.175 1.008 1.007 Weighted average units outstanding - basic 229,712,658 227,646,716 0.9 % 228,934,001 222,559,681 Weighted average units outstanding - diluted (non-GAAP) 229,996,707 227,887,268 0.9 % 229,199,901 222,791,571 Number of units outstanding, end of period 230,969,594 228,216,876 1.2 % 230,969,594 228,216,876 1 NM - not meaningful. 2 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 0.5 % 0.5 % 2.5 % 2.5 % 2.9 % 2.9 % 1.2 % 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 44 CT REIT 2020 ANNUAL REPORT MANAGEMENT'S DISCUSSION AND ANALYSIS 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. 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 the 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. CT REIT 2020 ANNUAL REPORT 45 MANAGEMENT'S DISCUSSION AND ANALYSIS The following table compares capital expenditures during the 2016-2020 period to the normalized capital expenditure reserve used in the calculation of AFFO: (in thousands of Canadian dollars) For the periods indicated 2016 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 2020 Q1 Q2 Q3 Q4 Year ended December 31, 2020 Normalized capital expenditure reserve 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 $ 6,122 $ 5,922 $ 6,069 $ 6,141 $ 2,366 $ 1,904 $ 5,876 $ 7,945 $ 24,254 $ 18,091 $ $ $ $ $ $ $ $ $ $ $ $ $ 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 3,756 4,018 193 (1,804) 6,163 The normalized capital expenditure reserve exceeded actual capital expenditures by $18,212 during the five-year period from 2016 through 2020. The normalized capital expenditure reserve per square foot has increased since 2016, 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. 46 CT REIT 2020 ANNUAL REPORT MANAGEMENT'S DISCUSSION AND ANALYSIS 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 5.11 for additional information. 11.3 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, 2020 2019 Change 2020 2019 Change Distribution per unit - paid (A) AFFO per unit - diluted (non-GAAP) 1 (B) $ $ 0.201 0.260 $ $ 0.189 0.252 6.2 % $ 0.793 3.2 % $ 1.032 $ $ 0.757 1.007 AFFO payout ratio (A)/(B) 77.3 % 75.0 % 3.1 % 76.8 % 75.2 % 1 For the purposes of calculating diluted per unit amounts, diluted units include restricted and deferred units issued under various plans and excludes the effects of settling 4.8 % 2.5 % 2.1 % the Class C LP Units with Class B LP Units. 11.4 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, 2020 2019 2020 2019 Weighted average units outstanding - diluted (non-GAAP) 229,996,707 227,887,268 229,199,901 222,791,571 Dilutive effect of settling Class C LP Units with Class B LP Units 93,374,550 91,823,461 93,374,550 91,823,461 Weighted average units outstanding - diluted 323,371,257 319,710,729 322,574,451 314,615,032 Three Months Ended Year Ended 11.5 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. CT REIT 2020 ANNUAL REPORT 47 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 three months and year ended December 31, 2020 and December 31, 2019) to ACFO is as follows: (in thousands of Canadian dollars) For the periods ended December 31, Three Months Ended Year Ended 2020 2019 Change 1 2020 2019 Change 1 Cash generated from operating activities 93,526 $ 93,986 (0.5) % 370,766 $ 362,328 2.3 % Non-operating adjustments to changes in working capital and other 225 (787) NM 1,162 (1,577) NM Net interest and other financing charges (27,235) (27,033) 0.7 % (107,898) (108,753) (0.8) % Normalized capital expenditure reserve (6,141) (5,915) 3.8 % (24,254) (23,431) 3.5 % Lease principal payments on right-of-use assets (270) 171 NM (822) (201) NM Adjusted cashflow from operations 60,105 $ 60,422 (0.5) % 238,954 $ 228,366 4.6 % 1 NM - not meaningful. The non-operating adjustments to changes in working capital and other for three months ended December  31, 2020 is primarily due to the payment and timing of property taxes and timing of commodity taxes payable. The non-operating adjustments to changes in working capital and other for year ended December  31, 2020 is primarily due to timing of commodity taxes and other taxes payable. 11.6 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, 2020, EBITFV was calculated as follows: (in thousands of Canadian dollars) Three Months Ended Year Ended For the periods ended December 31, 2020 2019 Change 1 2020 2019 Change 1 Net income and comprehensive income $ 14,032 $ 76,890 (81.8) % $ 183,305 $ 307,193 (40.3) % Fair value adjustment on investment properties 53,869 (10,641) NM 87,359 (47,306) NM Fair value adjustment on unit-based awards 832 659 26.3 134 2,029 (93.4) Interest expense and other financing charges 27,251 27,245 — % 108,043 109,137 (1.0) % GP income tax expense (568) (467) 21.6 % (27) (360) (92.5) % EBITFV 1 NM - not meaningful. $ 95,416 $ 93,686 1.8 % $ 378,814 $ 370,693 2.2 % 48 CT REIT 2020 ANNUAL REPORT MANAGEMENT'S DISCUSSION AND ANALYSIS 11.7 Non-GAAP Measures Referenced in Other Sections of the MD&A The interest coverage ratio under section 7.5 is calculated using EBITVF, a non-GAAP measure. 11.8 Selected Quarterly Consolidated Information (in thousands of Canadian dollars, except per unit amounts) As at and for the quarter ended Q4 2020 Q3 Q2 Q1 Q4 Q3 Q2 Q1 2019 Property revenue Net income Net income per unit - basic - diluted FFO per unit - diluted (non-GAAP) 1 AFFO per unit - diluted (non-GAAP) 1 $ 126,833 $ 123,172 $ 125,498 $ 126,845 $ 123,692 $ 121,763 $ 121,994 $ 121,564 $ 14,032 $ 64,107 $ 61,970 $ 43,196 $ 76,890 $ 80,138 $ 78,720 $ 71,445 $ $ $ $ 0.061 $ 0.280 $ 0.271 $ 0.189 $ 0.338 $ 0.362 $ 0.357 $ 0.093 $ 0.240 $ 0.235 $ 0.173 $ 0.294 $ 0.301 $ 0.297 $ 0.296 $ 0.299 $ 0.294 $ 0.293 $ 0.293 $ 0.303 $ 0.291 $ 0.260 $ 0.262 $ 0.256 $ 0.254 $ 0.252 $ 0.261 $ 0.249 $ 0.324 0.273 0.288 0.245 Total assets Total indebtedness $ 6,176,142 $ 6,139,575 $ 6,112,837 $ 6,069,044 $ 6,024,512 $ 6,001,912 $ 5,928,005 $ 5,853,296 $ 2,652,341 $ 2,588,976 $ 2,588,889 $ 2,588,789 $ 2,572,294 $ 2,570,162 $ 2,609,049 $ 2,580,000 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) $ 41,886 $ 41,282 $ 41,326 $ 40,657 $ 39,352 $ 39,337 $ 39,337 $ 39,877 $ $ $ $ $ 0.201 $ 0.199 $ 0.197 $ 0.197 $ 0.189 $ 0.189 $ 0.189 $ 14.62 $ 14.75 $ 14.67 $ 14.60 $ 14.61 $ 14.46 $ 14.31 $ 15.90 $ 14.50 $ 14.30 $ 17.22 $ 16.30 $ 15.05 $ 14.77 $ 15.04 $ 13.28 $ 11.02 $ 9.14 $ 14.51 $ 13.97 $ 13.54 $ 15.67 $ 13.97 $ 13.58 $ 11.70 $ 16.14 $ 15.03 $ 14.22 $ 0.189 14.15 14.45 11.47 14.36 1 Non-GAAP measure. Refer to section 11.0 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. See section 2.0. Refer to CT REIT’s respective annual and interim MD&A’s issued for a discussion and analysis relating to those periods. CT REIT 2020 ANNUAL REPORT 49 MANAGEMENT'S DISCUSSION AND ANALYSIS 12.0 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. See section 2.0 The ERM Framework is designed to provide an integrated approach to the management of risks, through a disciplined manner that: • • • • 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 if 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. During the quarter, the COVID-19 pandemic continued to have a significant impact on the Canadian and global economies. The duration and severity of the pandemic remain uncertain and difficult to predict, as does its adverse short and long term 50 CT REIT 2020 ANNUAL REPORT MANAGEMENT'S DISCUSSION AND ANALYSIS impacts on CT REIT. The REIT has implemented a number of comprehensive and evolving risk management strategies to support its business and operations and to protect the health and safety of its employees, tenants, tenants’ employees and customers. 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 2020 AIF. CT REIT cautions that the discussion of risks, including those risks described in the REIT’s 2020 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 2020 ANNUAL REPORT 51 MANAGEMENT'S DISCUSSION AND ANALYSIS Key Risks External Economic Environment Risk Management Strategy The REIT is subject to risks resulting from fluctuations or The REIT regularly monitors and analyzes external economic, fundamental changes in the external business environment, demographic, consumer behaviour and competitive developments in including those driven or compounded by the COVID-19 pandemic. Canada related to its business. Results are shared with the REIT These fluctuations or fundamental shifts in the macroeconomic executives, who are accountable for any necessary amendments to environment as well as the regions and local marketplaces where the the strategic and operational plans and for on-going investment REIT conducts its business 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, In response to the COVID-19 pandemic, government authorities depression, or high inflation impacting business and consumer have implemented, and are continuing to implement, significant 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; assistance programs to provide economic support to financially challenged businesses. While in the short term these measures have mitigated some effects of the pandemic, over the long term they may not be sufficient to fully offset its negative impact or advert recessionary conditions. Upon cessation of these measures, the • changes in the economic condition and regulatory environment of REIT may expect to see an increase in rental payment delinquencies the regions in which the REIT’s properties are concentrated, which or defaults. may have a material adverse effect on the REIT’s business, cash The REIT has continued to support certain tenants facing financial flows, financial condition, results of operations and ability to make challenges, either by participating in government rent assistance distributions to Unitholders; programs with qualified tenants or providing rent abatement or • changes in retail shopping behaviours and habits of consumers and deferral options. 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 2020 ANNUAL REPORT MANAGEMENT'S DISCUSSION AND ANALYSIS Key Risks Key Business Relationship Risk Management Strategy The REIT’s relationship with its majority Unitholder, CTC, is integral The REIT benefits from the stability offered by CTC businesses to its business strategy and could affect the REIT’s cash flows, including Canadian Tire Retail, one of Canada’s most shopped operating results, overall financial performance and its ability to general merchandise retailers with high recognition and a strong make distributions. Key factors inherent to this relationship include: reputation throughout the communities it serves. Appropriate • situations where the interests of CTC and the REIT are in conflict, governance structures, including policies, processes and other CTC may utilize its ownership interest in, and contractual rights with management activities and practices are in place to maintain and the REIT, to further CTC’s own interest which may not be the same monitor the relationship between the REIT and CTC. In addition, as the REIT’s interest in all cases, causing the REIT not to be able to Management regularly monitors the operating results and credit operate in a manner that is to its favour, which could adversely affect ratings of CTC. From the onset of the COVID-19 pandemic, the REIT the REIT’s cash flows, operating results, valuation, and overall has worked closely with CTC and its other tenants to help maintain financial condition; safe facilities and business operations for their employees and • the dependence of the REIT’s revenues on the ability of its key customers, following guidance from public health authorities. 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, including the uncertain long term impact of the COVID-19 pandemic on its operations and customer behaviours. 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 2020 ANNUAL REPORT 53 MANAGEMENT'S DISCUSSION AND ANALYSIS Key Risks Financial Risk Management Strategy 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 place that governs the management of capital, funding, and other financial position and its ability to achieve its strategic goals and financial risks. The indebtedness and Class C LP Units of the REIT aspirations. Such risks include: are predominantly at fixed rates and its variable interest rate • fundamental changes in the economic environment, significant exposure is minimal. The weighted average term to redemption/ events such as the COVID-19 pandemic, or volatility in the financial maturity of the REIT’s debt portfolio is managed to generally align markets resulting in changes in interest rates that affect the value of with the weighted average term to maturity of the REIT’s assets. The real estate, the value of the REIT’s Units, the economics of REIT manages refinancing risk by maintaining a diversified debt acquisition activity and the availability of capital impacting the redeeming/ maturity schedule to limit the amount of debt maturing in financial position of the REIT and its ability to make distributions to any one year. The REIT may use interest rate hedges from time to its Unitholders; and time to manage interest rate risk and to provide more certainty • the REIT’s ability to manage fluctuations in interest rates, access to regarding the FFO available to Unitholders, subject to the REIT’s capital and liquidity, the price of the REIT’s Units and the REIT’s investment and guidelines and operating policies. In response to the degree of leverage. Failure to develop, implement, and execute COVID-19 pandemic, the REIT increased its focus on maintaining effective strategies to manage these risks may result in insufficient liquidity and a strong balance sheet and ensuring continued access capital to absorb unexpected losses and/or changes in asset value to capital. 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 processes and controls in place to comply with legal and regulatory decline in the REIT’s Unit price. Changes to laws and regulations requirements, including but not limited to the REIT’s ability to applicable to the REIT may adversely affect the REIT’s financial continue to satisfy the conditions to qualify as a closed end mutual condition, results of operation, and distributions to Unitholders, fund trust and to comply with environmental laws and address any including: material environmental issues, including climate change. Processes • changes in income tax laws such that the REIT would not qualify as are also in place to monitor any legal and regulatory changes that a mutual fund trust for purposes of the Income Tax Act (“ITA”), may impact the REIT. including the treatment of real estate investment trusts and mutual fund trusts, 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 legislation, regulations, regulatory initiatives or proceedings adopted or instituted in response to the COVID-19 pandemic, which may impose additional constraints on the REIT’s operations or the operations of its tenants; and • 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 2020 ANNUAL REPORT MANAGEMENT'S DISCUSSION AND ANALYSIS Key Risks Operations Risk Management Strategy The REIT is subject to the risk that a direct or indirect loss of The REIT has appropriate governance structures, including policies, operating capabilities may occur due to: processes, contracts, service agreements and other management • inadequate or failed operations processes (property management, activities in place to maintain the operational performance of the development, redevelopment and renovation risks such as REIT and to support the REIT’s business and strategic objectives. substantial unanticipated delays and expenses or the inability to Since the onset of COVID-19, the health and safety of the REIT’s initiate or complete activities) that could have an adverse effect on employees, tenants, tenants’ employees and customers have the REIT’s reputation, financial condition, results of operations, cash remained a top priority and the REIT has continued to take flow, trading price of the Units, distributions to Unitholders and the necessary measures and precautions to help protect and support ability of the REIT to satisfy its principal and interest obligations; them, all reflecting guidance from public health authorities. • internal or outsourced business activities and business disruptions (such as disasters, health crises such as the COVID-19 pandemic, cyber incidents, and climate change) and ineffective business continuity and contingency planning, which could adversely affect the reputation, operations and financial performance of the REIT; • Government issued guidelines and restrictions in response to COVID-19 that have resulted in the implementation of operational measures that impact REIT properties, including the temporary closure of tenants’ businesses, reduced hours and capacity, enhanced cleaning protocols and actions to promote physical distancing; 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. 13.0 INTERNAL CONTROLS AND PROCEDURES 13.1 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 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, AIF and other documents and external communications. As required by CSA National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings (“NI 52-109”), an evaluation of the adequacy of the design (quarterly) and effective operation (annually) of CT REIT’s disclosure controls and CT REIT 2020 ANNUAL REPORT 55 MANAGEMENT'S DISCUSSION AND ANALYSIS procedures was conducted, under the supervision of management, including the CEO and CFO, as at December  31, 2020. 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, 2020. 13.2 Internal Control Over Financial Reporting Management is also responsible for establishing and maintaining appropriate internal controls over financial reporting. CT REIT’s internal controls 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 controls over financial reporting as defined in NI 52-109, as at December 31, 2020. 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 CT REIT’s internal controls over financial reporting were effective as at December  31, 2020, in providing reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with IFRS. 13.3 Changes in Internal Control Over Financial Reporting During the quarter and year ended December 31, 2020, there have been no changes in CT REIT’s internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, CT REIT’s internal controls over financial reporting. 14.0 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 and results of operations and the effect of the COVID-19 pandemic on the REIT’s business and 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, 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 and liquidity; taxes; and plans and objectives of or 56 CT REIT 2020 ANNUAL REPORT MANAGEMENT'S DISCUSSION AND ANALYSIS involving CT REIT. In addition, the effects of COVID-19, including the spread and severity of the pandemic and its impact on the business, operations and financial condition of the REIT, create additional uncertainties. In particular, the impact of the virus and government authorities’ and public health officials’ responses thereto may effect: our tenants’ ability to pay rent in full or at all; domestic and global credit and capital markets, and our ability to access capital on favourable terms, or at all; the health and safety of our employees and our tenants’ customers and employees; and domestic and global supply chains. Given the evolving circumstances surrounding the COVID-19 pandemic, such as the duration of the current wave and any future waves and the availability and distribution of vaccines, the spread and severity of its impact on the REIT’s business and financial results cannot be estimated with certainty as the extent of the impact will largely depend on future developments, including any additional actions taken to contain COVID-19. Statements regarding future acquisitions, developments, distributions, results, performance, achievements, prospects or opportunities for CT REIT or the real estate industry and the impact of COVID-19 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. Some of the specific forward-looking statements in this document include, but are not limited to, statements with respect to CT REIT's: • • • • • • • • • • • • • • • assessment of factors affecting the REIT as a result of COVID-19 under section 2.0; growth strategy and objectives under section 3.0; fair value of property portfolio under section 5.4; development activities under section 5.6; leasing activities under section 5.10; recoverable capital costs under section 5.11; capital expenditures to fund acquisitions and development activities under section 7.1; capital strategy under section 7.11; commitments as at December 31, 2020 under section 7.12; distributions under section 8.3; capital expenditures under section 11.2; 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. Such factors and assumptions include but are not limited to: that the Canadian economy will stabilize over the next 12 months and inflation will remain relatively low, despite government stimulus; that tax laws will remain unchanged; that the REIT will continue to manage its liquidity and debt covenants; that conditions within the real estate market, including competition for acquisitions, will normalize to historical levels in the near- to medium-term; that Canadian capital markets will provide CT REIT with access to CT REIT 2020 ANNUAL REPORT 57 MANAGEMENT'S DISCUSSION AND ANALYSIS equity and/or debt at reasonable rates when required; that CTC will continue its involvement with CT REIT on the basis described in its 2020 AIF and that for the near- to medium-term, Canadian Tire stores will remain open, either fully, for curbside pick-up or for delivery to home, or other available manner as stipulated by government officials. However, given the evolving circumstances surrounding COVID-19, including those described above, it is difficult to predict how significant the adverse impact of the pandemic will be on the global and domestic economy, interest or tax rates, the general business environments and the operations and financial position of the REIT’s tenants, including Canadian Tire, the fair value ascribed to CTC tenanted properties and the business, operations and future financial position of the REIT. 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 in section 12 of this MD&A and under the “Risk Factors” section of the 2020 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 materially and adversely affect its results. Investors and other readers are urged to consider the foregoing risks, uncertainties, factors and 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 2020 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; Consolidated financial statements and accompanying notes for the year ended December 31, 2020; • Management Information Circular; • • • the Base Shelf Prospectus and related prospectus supplements; quarterly financial statements and related MD&As; 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 8, 2021 CT REIT 2020 ANNUAL REPORT 59 INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS AND NOTES 61 62 65 66 67 68 69 69 73 79 81 84 86 87 87 89 90 92 93 93 94 95 95 95 95 96 98 100 101 102 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 COVID-19 Note 5 Investment Properties Note 6 Class C LP Units Note 7 Mortgages payable Note 8 Debentures Note 9 Leases Note 10 Credit Facilities Note 11 Equity Note 12 Unit-Based Compensation Plans Note 13 Non-controlling interests Note 14 Revenues and Expenses Note 15 General and Administrative Expense Note 16 Net Interest and Other Financing Charges Note 17 Changes in Working Capital and Other Note 18 Segmented Information Note 19 Commitments and Contingencies Note 20 Related-Party Transactions Note 21 Financial Instruments and Risk management Note 22 Capital Management and Liquidity Note 23 Subsequent Events Glossary of Terms 60 CT REIT 2020 ANNUAL REPORT 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 8, 2021 Lesley Gibson Chief Financial Officer CT REIT 2020 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, 2020 and 2019, 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, 2020 and 2019, 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. Key Audit Matter A key audit matter is a matter that, in our professional judgment, was of most significance in our audit of the consolidated financial statements for the year ended December 31, 2020. This matter was addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on this matter. Fair Value of Investment Properties — Refer to Note 5 to the financial statements Key Audit Matter Description The REIT measures investment properties at fair value subsequent to acquisition. The fair value of each investment property is estimated using the discounted cash flow (“DCF”) method. This method requires management to make estimates and assumptions. The assumptions with the highest degree of subjectivity and impact on fair values are the discount rates and terminal capitalization rates. Auditing these assumptions required a high degree of auditor judgment and this resulted in an increased extent of audit effort, including the need to involve fair value specialists. How the Key Audit Matter Was Addressed in the Audit Our audit procedures related to the discount rates and terminal capitalization rates used to determine the fair value of the investment properties included the following, among others: • Evaluated the effectiveness of controls over determining investment properties’ fair value, including those over the determination of the discount rates and terminal capitalization rates. 62 CT REIT 2020 ANNUAL REPORT • With the assistance of fair value specialists, evaluated the reasonableness of management’s discount rates and terminal capitalization rates by considering recent market transactions and industry surveys. 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 2020 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. 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: CT REIT 2020 ANNUAL REPORT 63 ● 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. From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor's report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. 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 8, 2021 64 CT REIT 2020 ANNUAL REPORT 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 Asset classified as held for sale 5, 23 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 Debentures Lease liabilities Other liabilities Distributions payable Total liabilities Equity Unitholders’ equity Non-controlling interests Total equity Total liabilities and equity Note December 31, 2020 December 31, 2019 5 $ 6,141,000 $ 6,006,982 1,486 6,142,486 1,674 6,008,656 4,911 3,614 4,531 13,056 20,600 2,882 3,240 9,734 15,856 — 6,176,142 $ 6,024,512 1,451,550 $ 65,442 921,635 65,830 5,276 1,200,000 10,353 1,070,695 61,374 4,975 2,509,733 2,347,397 — 514 63,200 150,000 1,052 60,314 15,459 290,539 2,800,272 1,481,849 1,894,021 3,375,870 251,550 37,696 2,000 — 884 35,904 14,976 343,010 2,690,407 1,464,939 1,869,166 3,334,105 6,024,512 $ $ 6 7 8 9 6 7 10 8 9 11 11 11, 13 $ 6,176,142 $ The related notes form an integral part of these consolidated financial statements. << David Laidley >> << Anna Martini >> David Laidley Trustee Anna Martini Trustee CT REIT 2020 ANNUAL REPORT 65 Consolidated Statements of Income and Comprehensive Income (Canadian dollars, in thousands, except per unit amounts) For the year ended December 31, Note 2020 2019 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 14 14 15 16 5 13 11 11 $ $ $ $ $ $ 502,348 $ (110,768) (13,018) (107,898) (87,359) 183,305 $ 83,694 $ 99,611 183,305 $ 0.801 $ 0.772 $ 489,013 (106,088) (14,285) (108,753) 47,306 307,193 136,667 170,526 307,193 1.380 1.193 The related notes form an integral part of these consolidated financial statements. 66 CT REIT 2020 ANNUAL REPORT Consolidated Statements of Changes in Equity (Canadian dollars, in thousands) Note Units Retained Earnings Unitholders’ Equity Non- controlling interests Total Equity Balance at December 31, 2019 $ 1,057,496 $ 407,443 $ 1,464,939 $ 1,869,166 $ 3,334,105 Net income and comprehensive income for the period Issuance of Class B LP Units, net of issue costs Distributions Issuance of Units under Distribution Reinvestment Plan and other 11 11 11 — — — 83,694 83,694 99,611 183,305 — — 24,101 24,101 (83,022) (83,022) (98,857) (181,879) 16,238 — 16,238 — 16,238 Balance at December 31, 2020 $ 1,073,734 $ 408,115 $ 1,481,849 $ 1,894,021 $ 3,375,870 Note Units Retained Earnings Unitholders’ Equity Non- controlling interests Total Equity Balance at December 31, 2018 Transition adjustments - IFRS 16 $ 960,688 $ 345,667 $ 1,306,355 $ 1,778,554 $ 3,084,909 — 578 578 736 1,314 Restated balance at January 1, 2019 960,688 346,245 1,306,933 1,779,290 3,086,223 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 11 11 11 11 — — — 136,667 136,667 170,526 307,193 — — 13,275 13,275 (75,469) (75,469) (93,925) (169,394) 86,140 — 86,140 — 86,140 10,668 — 10,668 — 10,668 Balance at December 31, 2019 $ 1,057,496 $ 407,443 $ 1,464,939 $ 1,869,166 $ 3,334,105 The related notes form an integral part of these consolidated financial statements. CT REIT 2020 ANNUAL REPORT 67 Consolidated Statements of Cash Flows (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 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 2019 REIT Offering, net Unit distributions Class B LP Unit distributions paid or loaned Payments on Class C LP Units paid or loaned Credit facilities draws (repayments), 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 (used)/generated in the period Cash and cash equivalents, beginning of period Cash and cash equivalents, end of period Note 2020 2019 $ 183,305 $ 307,193 5 14 17 11 6 10 7 87,359 (10,014) (27) 107,898 2,245 $ 370,766 $ (89,547) (56,398) (17,558) 820 (47,306) (14,130) (360) 108,753 8,178 362,328 (52,002) (90,197) (22,448) 2,780 $ (162,683) $ (161,867) — (66,563) (98,588) (65,736) 61,200 (991) (400) (42,189) (19) (213,286) $ (5,203) $ 9,734 4,531 $ 86,255 (64,368) (93,555) (68,219) (12,995) (778) (323) (41,735) — (195,718) 4,743 4,991 9,734 $ $ $ The related notes form an integral part of these consolidated financial statements. 68 CT REIT 2020 ANNUAL REPORT Notes to the Consolidated Financial Statements For the year ended December 31, 2020 and 2019 (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 69.2% effective interest in CT REIT as of December  31, 2020, 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 6). 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 2020 are for the years ended December 31, 2020 and 2019. (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 8, 2021. (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. 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. CT REIT 2020 ANNUAL REPORT 69 (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. For properties under development, the CT REIT exercises judgment in determining when development activities have commenced, when and how much borrowing costs are to be capitalized to the development project, and the point of practical completion. On a periodic basis, CT REIT obtains independent appraisals such that approximately 80% of its Properties, by value, are externally appraised over a four-year period. 70 CT REIT 2020 ANNUAL REPORT (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, CT REIT intends to continue to distribute its taxable income and therefore continue to qualify as a real estate investment trust for the foreseeable future. (iv) Consolidation CT REIT makes judgments in the application of IFRS 10 - Consolidated Financial Statements in its assessment of control over the Partnership and its subsidiaries collectively the "Consolidated Partnership", including the purpose for which the Consolidated Partnership was created, the power to direct the relevant activities of the Consolidated Partnership, its exposure or rights to the variable returns of the Consolidated 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 one-half interest it holds 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, the 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 are set out in Note 5, are considered critical. (f) Standards, amendments and interpretations issued but not yet adopted The following new standards, amendments and interpretations have been issued but are not effective until the fiscal years ending on or after December 2021 and, accordingly, have not been applied in preparing these financial statements. The implementation of these amendments is not expected to have a significant impact on CT REIT. (i) Amendment to IFRS 16 Leases - COVID-19 Related Rent Concessions In May 2020, the IASB issued an amendment to IFRS 16 - Leases ("IFRS 16") to make it easier for lessees to account for COVID-19-related rent concessions such as rent holidays and temporary rent reductions. The amendment exempts lessees from having to consider individual lease contracts to determine whether rent concessions occurring as a direct consequence of the COVID-19 pandemic are lease modifications and allows lessees to account for such rent concessions as if they were not lease modifications. It applies to COVID-19-related rent concessions that reduce lease payments due on or before June 30, 2021. The amendment is effective for annual reporting periods beginning on or after June 1, 2020. Earlier application is permitted. The implementation of this amendment did not have a significant impact on CT REIT. CT REIT 2020 ANNUAL REPORT 71 (ii) Classification of Liabilities as Current or Non-Current (Amendments to IAS 1) In January 2020, IASB issued Classification of Liabilities as Current or Non-current, which amends IAS 1 - Presentation of Financial Statements. The narrow scope amendments affect only the presentation of liabilities in the statement of financial position and not the amount or timing of their recognition. It clarifies that the classification of liabilities as current or non-current is based on rights that are in existence at the end of the reporting period and specifies that classification is unaffected by expectations about whether an entity will exercise its right to defer settlement of a liability. It also introduces a definition of ‘settlement’ to make clear that settlement refers to the transfer to the counterparty of cash, equity instruments, other assets or services. The amendments are effective for annual reporting periods beginning on or after January 1, 2023. Earlier application is permitted. The implementation of these amendments is not expected to have a significant impact on CT REIT. (i) Annual Improvements 2018-2020 and package of narrow-scope amendments In May 2020, the IASB issued a package of narrow-scope amendments to three standards (IFRS 3 - Business Combinations, IAS 16 - Property, Plant and Equipment, and IAS 37 - Provisions, Contingent Liabilities and Contingent Assets) as well as the IASB’s Annual Improvements 2018-2020, which are changes that clarify the wording or correct minor consequences, oversights or conflicts between requirements in the standards. These amendments will be effective for annual periods beginning on or after January 1, 2022. The implementation of these narrow-scope amendments is not expected to have a significant impact on CT REIT. 72 CT REIT 2020 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 Consolidated Partnership and the GP and their 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 issued and outstanding 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 issued and outstanding 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 and their subsidiaries. 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 has a one-half interest in the 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 2020 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 2020 ANNUAL REPORT (d) 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 or Property 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. 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 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. CT REIT 2020 ANNUAL REPORT 75 (e) 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. (f) 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. (g) 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. (h) 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. (i) 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 76 CT REIT 2020 ANNUAL REPORT 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. (j) 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. (k) Cash and cash equivalents Cash and cash equivalents include cash and short-term investments with original maturities of three months or less. (l) 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 fair value through profit & loss (“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. 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. CT REIT 2020 ANNUAL REPORT 77 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 expected credit losses ("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. (m) Assets as Held for Sale Investment properties are classified as assets held for sale when their carrying amount is to be recovered principally through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the asset is available for immediate sale in its present condition. Management must be committed to the sale and it should be expected to qualify for recognition as a completed sale within one year from the date of classification. 78 CT REIT 2020 ANNUAL REPORT 4. COVID-19 During 2020, the global spread of the coronavirus disease ("COVID-19") had an impact on the Canadian and global economies and on the business and operations of the REIT. During this time, the REIT remained committed to the health and safety of its employees and tenants, as well as its tenants’ customers and employees. Many of the measures that were introduced at the outset of the pandemic to reduce the spread of the virus, continue to remain in place, including REIT employees continuing to work from home. The REIT continues to prepare for any future waves of the pandemic and/or viral strains and continues to manage and mitigate, if possible, the implications and impact of the COVID-19 pandemic on its operations. The REIT may be required to take further actions in response to directives of government and public health authorities or that are in the best interests of its employees and tenants, as well as its tenants’ customers and employees. Since the onset of the COVID-19 pandemic, certain operating restrictions have been imposed on many of the REIT’s tenants, including CTC. Canadian Tire stores remained open until late in the fourth quarter when temporary closures in certain jurisdictions were announced, some of which have continued into the first quarter of 2021. The Canadian Tire stores which remain open continue to operate with various combinations of restrictions on products being sold, restricted operating hours, enhanced cleaning protocols and measures to support physical distancing. Those Canadian Tire stores which are now temporarily closed, remain open to curbside pickup in support of online sales and delivery to home as required by current government guidelines and restrictions. Regardless of operating status, there have been no rental interruptions, abatements or deferrals impacting these stores. The following are the accounting policies that are subject to judgments and estimates that have been significantly impacted by the COVID-19 pandemic. Valuation of Investment Properties Given the continuously evolving circumstances surrounding the COVID-19 pandemic, it is difficult to predict with certainty the nature, duration, and extent of the pandemic and the extent of the impact on the operations of CT REIT’s tenants and the REIT’s results. The impact of the pandemic is highly dependent on future developments, which include among other things, emerging information concerning COVID-19, potential future waves of the pandemic, and the actions required to contain or manage its impact. The REIT’s valuation assessment of its investment properties, as at December  31, 2020, was reflected in the fair value adjustment of investment properties. In determining the fair value of investment properties for these financial statements, management considered, among other factors, the impact of the pandemic on its tenant base. Management has reviewed the cash flow assumptions and made certain adjustments to the investment metrics used in determining the fair value of investment properties as at December 31, 2020. The impact of these changes is reflected in the fair value adjustment on investment properties and should be considered together with the sensitivity analysis included in Note 5. CT REIT 2020 ANNUAL REPORT 79 Tenant Receivables In assessing the adequacy of the credit losses on tenant receivables for these financial statements, management has considered the likelihood of collection of current receivables given the impact of the pandemic on tenant operations. From the onset of the pandemic, the REIT has been supporting tenants facing financial hardships including by participating in the Canada Emergency Commercial Rent Assistance (“CECRA”) program for certain qualified tenants and providing rental abatements or deferrals to other qualifying tenants. The CECRA program provided a 75% rent abatement for qualifying small businesses for the period from April 1, 2020 to September 30, 2020, two-thirds of which was paid for by the Federal and Provincial governments and one-third of which was funded by the landlord. On October 9, 2020, the federal government announced a new rent relief program, the Canada Emergency Rent Subsidy (“CERS”), to replace the CECRA program. Similar to CECRA, CERS is available to small and medium-sized businesses significantly impacted by the COVID-19 pandemic. CERS is effective retroactively for periods beginning September 27, 2020 and ending in June 2021. CERS is provided directly to tenants on a sliding scale up to a maximum of 65% of eligible expenses, thereby supporting property owners with payments of rents for CERS subsidized amounts. In addition to the 65% subsidy, a 25% CERS top-up is available to tenants who are temporarily shut down by a mandatory public health order issued by a qualifying public health authority. For the year ended December  31, 2020, the REIT’s assistance to its tenants totalled $2.8 million, consisting of $0.6 million related to the CECRA program, $0.7 million in abatements of gross rents which were recognized as bad debt expense, and an additional $1.5 million of expected credit losses related to tenants who had been significantly impacted by the pandemic. 80 CT REIT 2020 ANNUAL REPORT 5. INVESTMENT PROPERTIES The following table summarizes CT REIT’s investment property portfolio holdings: Year Ended December 31, 2020 Year Ended December 31, 2019 Income- producing properties Properties Under Development Total investment properties Income- producing properties Properties Under Development Total investment properties Balance, beginning of period 5,932,864 74,118 6,006,982 5,635,550 127,233 5,762,783 Property acquisitions (including transaction costs) Intensifications Developments Development land Capitalized interest and property taxes Transfers from PUD Transfers to PUD 1 Transfer to asset held for sale Right-of-use assets 2 Fair value adjustment on investment properties Straight-line rent Recoverable capital expenditures Dispositions 131,762 — 131,762 75,669 — — — — — 23,047 23,047 53,197 53,197 — — 1,283 1,283 — — — — 39,448 48,222 1,918 2,080 144,783 (144,783) 111,224 (111,224) (17,434) (20,600) 5,403 (87,359) 10,014 18,091 (820) 17,434 — — — — — — — — (20,600) — — 5,403 (2,343) (87,359) 47,306 10,014 14,130 18,091 20,549 (820) (2,780) — — — — — — — 75,669 39,448 48,222 1,918 2,080 — — — (2,343) 47,306 14,130 20,549 (2,780) Balance, end of period $ 6,083,145 $ 57,855 $ 6,141,000 $ 5,932,864 $ 74,118 $ 6,006,982 1 Relates to Toronto (Canada Square), Ontario. 2Reflects impact of Toronto (Canada Square), Ontario increase in ownership to 50% interest from 33% interest. Included in CT REIT’s portfolio are 10 (December  31, 2019 – 10) properties which are situated on ground leases with remaining initial terms up to 35 years (December 31, 2019 – up to 36 years), and an average remaining initial term of 15 years (December 31, 2019 – 14 years). Subsequent to the year ended December 31, 2020, the REIT completed the sale of an income producing property. Refer to Note 23. The investment property balance includes right-of-use assets of $68,270 as of December  31, 2020 (December  31, 2019 - $63,684). 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. In Q4 2020, there was a change in methodology for the valuation of the property portfolio from a combination of the discounted cash flow (“DCF”) and the overall capitalization approach (“OCR”), to a single model approach for all properties. All properties were valued using the DCF method, in which the cash flows are projected over the anticipated term of the investment plus a terminal value discounted CT REIT 2020 ANNUAL REPORT 81 using an appropriate discount rate. Management believes the change in methodology provides a more consistent approach to valuing the REIT’s portfolio and better allows for assumption changes with respect to future rental rates, lease renewals, lease expires and other inputs in response to changing market conditions. As at December 31, 2020, management’s assessment includes performing a sensitivity analysis on the investment metrics. On a periodic basis, CT REIT obtains independent appraisals such that approximately 80% of its Properties, by value, are externally appraised over a four-year period. The fair value of investment properties is based on Level 3 inputs (see Note 21(a) to the REIT’s 2020 audited annual consolidated financial statements 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 the period end 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 Year Ended December 31, 2020 Year Ended December 31, 2019 Properties valued by the DCF method Properties valued by the OCR method Properties valued by the DCF method 363 287 70 $ 6,141,000 $ 4,240,942 $ 1,766,040 7.15 % 6.67 % — % 12 — % — % 6.17 % — 7.01 % 6.56 % — % 10 82 CT REIT 2020 ANNUAL REPORT Valuations determined by the DCF method are most sensitive to changes in discount rates. Valuations determined by the OCR method are most sensitive to changes in capitalization rates. The following table summarizes the sensitivity of the fair value of income-producing properties to changes in the capitalization rate and discount rate: Rate sensitivity + 75 basis points + 50 basis points + 25 basis points December 31, 2020 - 25 basis points - 50 basis points - 75 basis points Rate sensitivity + 75 basis points + 50 basis points + 25 basis points December 31, 2019 - 25 basis points - 50 basis points - 75 basis points Year Ended December 31, 2020 DCF Sensitivity Fair value Change in fair value $ 5,545,000 $ (596,000) 5,742,000 (399,000) 5,967,000 (174,000) $ 6,141,000 $ — 6,371,000 6,623,000 230,000 482,000 $ 6,898,000 $ 757,000 Year Ended December 31, 2019 OCR Sensitivity DCF Sensitivity Fair value Change in fair value Fair value Change in fair value $ 3,795,258 $ (445,684) $ 1,585,694 $ (180,346) 3,932,504 (308,438) 1,640,800 (125,240) 4,080,638 (160,304) 1,699,732 (66,308) $ 4,240,942 $ — $ 1,766,040 $ 4,415,156 4,605,102 174,214 1,830,296 364,160 1,903,008 $ 4,813,073 $ 572,131 $ 1,982,280 $ — 64,256 136,968 216,240 2020 Investment and Development Activity Funding of investment and development activities for the year ended December 31, 2020 was as follows: 2020 Investment and Development Activity Funded with working capital to CTC $ 3,050 $ 38,091 $ 20,765 $ Property investments Developments Intensifications Funded with working capital to third parties Funded with CTC Credit Facilities Capitalized interest and property taxes Issuance of Class B LP Units to CTC Mortgages Payable Total costs 15,106 2,282 22,825 63,200 — — 1,283 24,120 18,567 — — — — — — Total 61,906 40,213 63,200 1,283 24,120 18,567 $ 131,762 $ 54,480 $ 23,047 $ 209,289 CT REIT 2020 ANNUAL REPORT 83 2019 Investment and Development Activity Funding of investment and development activities for the year ended December 31, 2019 was as follows: 2019 Investment and Development Activity Funded with working capital to CTC $ 15,945 $ 1,900 $ 41,276 $ 22,382 $ Property investments Development land Developments Intensifications 35,109 — 13,285 11,330 18 — — — 6,946 2,080 — — 17,066 $ — $ — $ — $ $ 75,669 $ 1,918 $ 50,302 $ 39,448 $ 167,337 Total 81,503 59,139 2,080 13,285 11,330 Funded with working capital to third parties Capitalized interest and property taxes Issuance of Class B LP Units to CTC Mortgages Payable Total Costs 6. CLASS C LP UNITS The Class C LP Units entitle the holder to a fixed cumulative monthly payment, during the fixed rate period for each Series of Class C LP Units (the “Current Fixed Rate Period”). Such payments are made 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 Current 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 also 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. 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 variable rate option. 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 2020. In Q2 2020, the REIT reset the interest rates on its Series 3, 16, 17, 18 and 19 Class C LP Units with CTC to 2.37%, for a five-year term ending on May 31, 2025. 84 CT REIT 2020 ANNUAL REPORT 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 Current Fixed Rate Period Annual distribution rate during Current Fixed Rate Period Carrying amount at December 31, 2020 Carrying amount at December 31, 2019 May 31, 2025 May 31, 2024 May 31, 2028 May 31, 2031 May 31, 2034 May 31, 2035 May 31, 2038 May 31, 2025 May 31, 2025 May 31, 2025 May 31, 2025 2.37 % $ 200,000 $ 4.50 % 4.50 % 5.00 % 5.00 % 5.00 % 5.00 % 2.37 % 2.37 % 2.37 % 2.37 % 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 4.41 % $ 1,451,550 $ 1,451,550 Current Non-current Total  $ $ — $ 251,550 1,451,550 1,200,000 1,451,550 $ 1,451,550 The weighted average rate of the aggregate capital amount ascribed to the Class C LP Units was 4.41% as at December 31, 2020. For the year ended December 31, 2020, interest expense of $65,736 (2019 - $68,219) was recognized in respect of the Class C LP Units (see Note 16). 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, 2020 of $59,898 (2019 – $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, 2020 of $5,330 (2019 – $5,685) is included in other liabilities on the consolidated balance sheets. The loans deferred as at December 31, 2020 were settled on January 4, 2021. CT REIT 2020 ANNUAL REPORT 85 7. MORTGAGES PAYABLE Mortgages payable, secured by certain CT REIT investment properties, include the following: December 31, 2020 December 31, 2019 Current Non-current Total  Future repayments are as follows: 2021 2022 2023 2024 2025 and thereafter Total contractual obligation Unamortized portion of mark to market on mortgages payable assumed on the acquisition of properties Unamortized transaction costs Face value 420 $ 65,415 65,835 $ Carrying amount 514 $ 65,442 65,956 $ Face value 37,533 $ 10,134 47,667 $ $ $ Carrying amount 37,696 10,353 48,049 Total 420 9,715 55,700 — — Principal amortization Maturities 420 $ 255 — — — $ 9,460 55,700 — — $ $ 675 $ 65,160 $ 65,835 219 (98) $ 65,956 Mortgages payable have interest rates that range from 1.87% to 4.50%, and have maturity dates that range from July 2022 to March 2023. Mortgages payable at December 31, 2020 had a weighted average interest rate of 2.27% (December 31, 2019 – 3.82%). At December  31, 2020, variable rate and fixed rate mortgages were $55,700 (December  31, 2019 – $37,133) and $10,236 (December 31, 2019 – $10,534), respectively. In 2020, the increase in mortgages payable of $18,567 compared to December 31, 2019 was the result of the increased ownership in Toronto (Canada Square), Ontario from a 33% to a 50% interest. In addition, the mortgage on Toronto (Canada Square), Ontario was renewed to 2023. Investment properties having a fair value of $138,143 (December  31, 2019 – $99,142) have been pledged as security for mortgages payable. 86 CT REIT 2020 ANNUAL REPORT 8. DEBENTURES Series A, 2.85%, June 9, 2022 B, 3.53%, June 9, 2025 C, 2.16%, June 1, 2021 1 D, 3.29%, June 1, 2026 E, 3.47%, June 16, 2027 F, 3.87%, December 7, 2027 Total Current Non-current Total December 31, 2020 December 31, 2019 Face value Carrying amount Face value $ 150,000 $ 149,777 $ 150,000 $ 200,000 150,000 200,000 175,000 200,000 199,255 150,000 199,266 174,257 199,080 200,000 150,000 200,000 175,000 200,000 Carrying amount 149,625 199,101 149,751 199,130 174,142 198,946 $ $ $ $ 1,075,000 $ 1,071,635 $ 1,075,000 $ 1,070,695 150,000 $ 150,000 $ — $ — 925,000 $ 921,635 $ 1,075,000 $ 1,070,695 1,075,000 $ 1,071,635 $ 1,075,000 $ 1,070,695 1 Refer to Note 23 for additional information on the Series C senior unsecured debenture early redemption and the issuance of Series G senior unsecured debenture which occurred on January 10, 2021. Debentures as at December 31, 2020, had a weighted average interest rate of 3.25% (December 31, 2019 – 3.25%). For the year ended December 31, 2020, amortization of transaction costs of $940 (December 31, 2019 – $850) are included in net interest and other financing charges on the Consolidated Statements of Income and Comprehensive Income (see Note 16). 9. LEASES (a) CT REIT as lessee CT REIT is the tenant under 10 ground leases with third party landlords. The remaining initial terms of the ground leases are between two and 35 years, with an average remaining initial term of 15 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 3 and 50 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 December 31, 2020 December 31, 2019 $ $ 1,052 $ 65,830 66,882 $ 884 61,374 62,258 The increase of $4,624 from prior year is primarily due to the increase of the REIT’s ownership interest in Toronto (Canada Square), Ontario from a 33% interest to a 50% interest. CT REIT 2020 ANNUAL REPORT 87 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, 2020 December 31, 2019 $ $ 4,512 $ 17,051 138,772 160,335 $ 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 21. There were no expenses in 2020 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 2020. The total cash outflow for leases in 2020 was $4,615 (2019 - $4,095). There were no gains or losses arising from sale and leaseback transactions in 2020. (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 9.1 years. Annual base minimum rent for leases have weighted average annual rent escalations of approximately 1.5% per year. 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 $ 385,804 387,066 381,226 366,233 348,330 1,768,384 $ 3,637,043 2021 2022 2023 2024 2025 Thereafter Total 88 CT REIT 2020 ANNUAL REPORT 10. 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, 2020 December 31, 2019 $ $ — $ 63,200 63,200 $ — 2,000 2,000 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, 2020 the Bank Credit Facility had no amounts drawn under the revolving credit facility, and $5,564 (December 31, 2019 – $5,558) of outstanding letters of credit. (b) CTC Credit Facility CT REIT has an uncommitted, unsecured $300,000 revolving credit facility with CTC (“CTC Credit Facility”) expiring in December 2021, unless otherwise renewed. 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, 2020, $63,200 of borrowings were drawn on the CTC Credit Facility. At December 31, 2020, borrowings under the CTC Credit Facility had an ending average interest rate of 2.45% (December 31, 2019 – 3.95%). The Bank Credit Facility and the CTC Credit Facility are collectively referred to herein as the “Credit Facilities”. CT REIT 2020 ANNUAL REPORT 89 11. 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 Total outstanding at end of period 1 1,176,006 issued pursuant to the REIT’s distribution reinvestment plan. Total outstanding at beginning of year Units issued 1 2019 REIT Offering 2 Total outstanding at end of year 1 742,946 issued pursuant to the REIT’s distribution reinvestment plan. As at December 31, 2020 Units Class B LP Units Total 103,927,385 124,289,491 228,216,876 1,176,006 1,576,712 2,752,718 105,103,391 125,866,203 230,969,594 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 2 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 costs of $3,863 (the “2019 REIT Offering”) and the sale of 10,530,000 Units by CTC. Net income attributable to Unitholders and weighted average units outstanding used in determining basic and diluted net income per unit for years ended December 31, 2020 and 2019, are calculated as follows, respectively: For the Year ended December 31, 2020 Units Class B LP Units Total Net income attributable to Unitholders - basic $ 83,694 $ 99,611 $ 183,305 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 65,736 $ 249,041 104,524,871 124,409,130 228,934,001 265,900 93,374,550 322,574,451 90 CT REIT 2020 ANNUAL REPORT 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 $ Units Class B LP Units Total 307,193 68,219 375,412 For the Year ended December 31, 2019 Weighted average units outstanding - basic 98,990,726 123,568,955 222,559,681 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 231,890 91,823,461 314,615,032 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 2020 2019 Distributions per unit Distributions per unit $ $ 0.793 $ 0.793 $ 0.757 0.757 On December 15, 2020, CT REIT’s Board declared a distribution of $0.06693 per unit payable on January 15, 2021 to holders of Units and Class B LP Units of record as of December 31, 2020. On January 15, 2021, CT REIT’s Board declared a distribution of $0.06693 per unit payable on February 16, 2021 to holders of Units and Class B LP Units of record as of January 29, 2021. 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. CT REIT 2020 ANNUAL REPORT 91 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. 12. 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, 2020, accrued DU compensation costs, which are included in other liabilities, totalled $3,136 (2019 – $2,589). Compensation expense recorded related to DU’s for the year ended December 31, 2020 was $(17) (2019 - $715). The fair value of DUs is equal to the trading price of Units, which is a Level 1 input (see Note 21(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 PU Plan. As at December  31, 2020, accrued PU compensation costs, which are included in other liabilities, totalled $3,865 (2019 - $3,555). Compensation expense recorded for the year ended December 31, 2020 for PUs granted to employees was $2,029 (2019 - $2,425). The fair value of PUs is equal to the trading price of Units, which is a Level 1 input (see Note 21(a)). 92 CT REIT 2020 ANNUAL REPORT 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, 2020, accrued RU compensation costs, which are included in other liabilities, totalled $1,414 (2019 - $1,360). Compensation expense for the year ended December  31, 2020 was $53 (2019 - $537). The fair value of RUs is equal to the trading price of Units, which is a Level 1 input (see Note 21(a)). 13. 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 54.49 % 54.46 % $ 99,611 $ 170,526 As at December 31, 2020 As at December 31, 2019 For the year ended December 31, 2020 For the year ended December 31, 2019 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. 14. 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 CTC Other For the Year ended December 31, 2020 $ $ 344,092 $ 34,869 $ 9,251 353,343 $ 85,360 9,924 2 763 35,632 $ 16,897 155 1,035 $ 448,629 $ 53,719 $ 378,961 10,014 388,975 102,257 10,079 1,037 502,348 CT REIT 2020 ANNUAL REPORT 93 Base minimum rent Straight-line rent Subtotal base rent Property operating expense recoveries Capital expenditure and interest recovery charge Other revenues Property revenue (b) Property expense $ $ $ CTC 330,468 $ 13,612 344,080 $ 83,979 9,325 7 437,391 $ Other 32,190 $ 518 32,708 $ 16,399 131 2,384 51,622 $ The major components of property expense consist of property taxes and other recoverable operating costs: For the year ended December 31, Property taxes Operating costs Property management 1 Property expense 1 Includes $643 (2019 - $1,753) payable to CTC. See Note 20. 15. 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 $ $ $ $ $ 2020 89,237 $ 18,393 3,138 110,768 $ 2020 8,515 $ 1,112 3,918 13,545 $ (527) 13,018 $ For the Year ended December 31, 2019 362,658 14,130 376,788 100,378 9,456 2,391 489,013 2019 88,056 14,202 3,830 106,088 2019 7,953 2,500 4,156 14,609 (324) 14,285 1 Includes unit-based awards including (gain) loss adjustments as a result of the change in the fair market value of the Units of $134 ( 2019 - $2,029) for the year ended December 31, 2020. 2 See Note 20. 94 CT REIT 2020 ANNUAL REPORT 16. 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 Interest and financing costs - CTC Credit Facility Less: capitalized interest Interest and other financing charges Less: interest income Net interest and other financing charges 1 Paid or payable to CTC. 17. 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 18. SEGMENTED INFORMATION $ $ $ $ $ $ 2020 65,736 $ 36,615 1,175 1,665 3,624 72 108,887 $ (844) 108,043 $ (145) 107,898 $ 2020 (2,029) $ (13) 4,304 (17) 2,245 $ 2019 68,219 35,723 1,466 1,763 3,317 — 110,488 (1,351) 109,137 (384) 108,753 2019 (737) 446 8,269 200 8,178 CT REIT has one segment for financial reporting purposes which comprises the ownership and management of primarily net leased single-tenant retail investment properties located across Canada. 19. 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, 2020, CT REIT had obligations of $132,715 (December 31, 2019 – $145,667) in future payments for the completion of developments. Included in the commitments is $106,375 due to CTC. CT REIT 2020 ANNUAL REPORT 95 20. 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, 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 2021 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 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 2021 and CTC will continue to provide such Property Management Services on a cost recovery basis. CTC Credit Facility CT REIT entered into the CTC Credit Facility and is automatically renewed for one year terms, unless otherwise terminated in accordance with its terms. CTC Credit Facility was automatically renewed for 2021, expiring in December 2021. The CTC Credit Facility bears interest at a rate based on the bank’s prime rate of interest or bankers’ acceptances plus a margin. (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 5: For the year ended December 31, Rental revenue Property Management and Services Agreement expense 1 Distributions on Units Distributions on Class B LP Units 2 Interest expense on Class C LP Units Interest expense on the CTC Credit Facility Note 14 16 16 $ $ $ $ $ $ 2020 448,629 $ 1,755 $ 26,988 $ 98,857 $ 65,736 $ 72 $ 2019 437,391 4,253 31,139 93,925 68,219 — 1The Service Agreement and Property Management Agreement decreased as a result of insourcing some property management and support services during 2020. 2 Includes distributions deferred at the election of the holders of the Class B LP Units. 96 CT REIT 2020 ANNUAL REPORT 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 10. December 31, 2020 December 31, 2019 $ (1,549) $ (1,890) 1,451,550 1,451,550 65,228 (59,898) 29,467 31,343 (20,643) 63,200 67,712 (62,027) 6,695 29,589 (19,202) 2,000 $ 1,558,698 $ 1,474,427 (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 $ $ 2020 3,127 $ 1,394 4,521 $ 2019 2,674 2,746 5,420 1 Unit-based awards, as described in Note 12,  includes increase (reduction) in expense as a result of the change in the fair market value of the Units of $96 (2019 - $1,588). 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. CT REIT 2020 ANNUAL REPORT 97 21. 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, 2020, is $1,715,615, $1,157,903 and $67,498, 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 6). 98 CT REIT 2020 ANNUAL REPORT 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 credit 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 several financing sources to ensure that the appropriate level of liquidity is available to meet its monthly distributions and objectives, including its committed Bank Credit Facility totalling $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. 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. CT REIT incurs variable rates indebtedness through certain mortgages payable and borrowings under its Credit Facilities. CT REIT currently has $63,200 (2019 - $2,000) in short-term borrowings outstanding under its Credit Facilities. CT REIT 2020 ANNUAL REPORT 99 22. 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 as amended and restated as of October 22, 2013 and as further amended and restated as of April 5, 2020 ("Declaration of Trust"), the trust indenture dated June 9, 2015, as supplemented by supplemental indentures thereto (collectively, the “Trust Indenture”) 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, 2020 December 31, 2019 $ 1,451,550 $ 1,451,550 65,956 1,071,635 63,200 1,481,849 1,894,021 $ 6,028,211 $ 48,049 1,070,695 2,000 1,464,939 1,869,166 5,906,399 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 100 CT REIT 2020 ANNUAL REPORT As at December 31, 2020, 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’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: Class C LP Units 1 Debentures 2 Total 2021 2022 2023 2024 2025 2026 and thereafter $ 1,451,550 $ — $ — $ — $200,000 $ 251,550 $ 1,000,000 1,075,000 150,000 150,000 — — 200,000 575,000 Payments on Class C LP Units 1 680,499 63,962 63,962 63,962 58,712 51,484 378,417 Interest on debentures Credit Facilities Mortgages payable Other liabilities Distributions payable 3 Payable on Class C LP Units, net of loans receivable Interest on mortgages payable Interest on CTC Credit Facility 169,529 33,330 29,572 27,433 27,433 23,906 27,855 63,200 63,200 — — 65,835 420 9,715 55,700 57,947 52,671 5,276 15,459 15,459 — — — 5,330 5,330 — — 3,099 1,560 1,328 211 72 72 — — — — — — — — — — — — — — — — — — — — — — Total $ 3,587,520 $ 386,004 $ 259,853 $ 147,306 $ 286,145 $ 526,940 $ 1,981,272 1 Assumes redemption on Initial Fixed Rate Period for each series. 2 Refer to Note 23. 3 On Units and Class B LP Units. 23. SUBSEQUENT EVENTS On January 6, 2021, CT REIT completed the issuance of $150,000 of Series G unsecured debentures with a ten-year term and a coupon of 2.371% per annum. On January 10, 2021, the net proceeds, along with cash on hand, were used to redeem the Series C senior unsecured debentures in the aggregate principal amount of $150,000 with a coupon of 2.159% due June 1, 2021. In January 2021, CT REIT sold its Arnprior Mall property in Arnprior, Ontario for approximately $21,000. CT REIT 2020 ANNUAL REPORT 101 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. 102 CT REIT 2020 ANNUAL REPORT GLOSSARY OF TERMS “CTREL” means Canadian Tire Real Estate Limited, a wholly-owned Subsidiary of CTC. “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 CT REIT 2020 ANNUAL REPORT 103 GLOSSARY OF TERMS “NOI” means property revenue less property expense and is further adjusted for straight-line rent. “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. 104 CT REIT 2020 ANNUAL REPORT 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 

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