2017
Annual Report
Dream Office REIT
Dream Office REIT owns well-located, high-quality
central business district office properties in major
urban centres across Canada, with a focus on
downtown Toronto.
Letter to Unitholders
The last few years have been transformational for Dream Office
REIT. In 2016, we announced a strategic plan to sell $1.2 billion
of assets over three years; we achieved this in the first year and then
expanded the program in 2017. We are now focused on increasing
the value of all of our remaining assets through initiatives that
provide our tenants with the best experience in our buildings,
pursuing intensification opportunities and maximizing the income
from our properties.
Today, about 60% of Dream Office REIT’s portfolio is located
in Toronto’s downtown core, one of North America’s best office
markets and one of the fastest growing cities on the continent.
We also have quality assets with growth potential in Calgary,
Mississauga, North York and Montréal. Dream Office REIT’s
portfolio is of significantly higher quality than what we owned in
2015 and all of our assets are likely to have a better future than
their past.
Over the last two years, we used the proceeds of asset sales to
reduce our debt level from 52% to below 40%. The dramatic
reduction in debt has had a cost as we are paying down lower
cost debt with more expensive equity, trading off yield for a much
safer, higher quality company. We have also used capital from
dispositions to reduce our units outstanding from 113 million to
75 million currently, or by 34%, so that future NAV increases can
have a more dramatic effect on a per unit basis. Our unit price
has responded favourably as we have now had two years of total
unitholder returns of 20% each.
We still have a few assets to sell, which we are making progress on
all the time. Now that our business consists of only our best assets,
we are working on a detailed plan for each of them that will focus
on customer service, increasing the usefulness of all of our space,
animating our common areas and reducing energy costs.
2018 will be another transformational year for us. We are starting
the year with a plan that focuses on how to manage our core assets
in downtown Toronto to create a brand that is meaningful to
our tenants, increases retention, and contributes to our financial
returns. We want to develop ways for people to know that they are
in one of our buildings as soon as they enter, and we are committed
to providing a memorable, positive tenant experience. We also
have great opportunities to intensify and develop our assets as the
demand for residential and commercial space continues to increase.
We will continue to make decisions that we believe will add value
to our business and that we hope will continue to be recognized in
the public markets. I would like to thank you for your support of
Dream Office REIT as we execute the next phase of our strategy.
Sincerely,
Michael J. Cooper
Chairman & Chief Executive Officer, Dream Office REIT
February 22, 2018
We are focused on increasing the value
of all of our assets through initiatives
that provide our tenants with an even
better experience within our buildings,
pursuing intensification opportunities
and maximizing our net operating
income.
Michael J. Cooper
Chairman & Chief Executive Officer,
Dream Office REIT
Dream Office REIT at-a-Glance
$23.46
NET ASSET VALUE PER UNIT
$3.3 Billion
TOTAL ASSETS
90.4%
OCCUPANCY
(INCLUDING COMMITTED)
39.6%
NET TOTAL DEBT-TO-TOTAL ASSETS
Adelaide Place, Toronto, ON
330 Bay Street, Toronto, ON
14%
CALGARY
7%
NON-CORE MARKETS(2)
12%
OTTAWA/
MONTRÉAL
59%
MISSISSAUGA/
NORTH YORK
8%
TORONTO
DOWNTOWN
Top 10 Tenants with Weighted Average Lease Term of 4.9 Years
TENANT
Government of Canada
Government of Ontario
State Street Trust Company
Newalta Corporation
Bell Canada
AON Canada Inc.
International Financial Data Services
Cenovus Energy
Government of Québec
National Bank of Canada
Total
GROSS RENTAL
REVENUE
(%)
OWNED AREA
(THOUSANDS OF
SQ. FT.)
OWNED AREA
(%)
CREDIT RATING (3)
9.1
7.9
3.5
2.9
2.4
2.1
2.0
2.0
1.9
1.8
612
613
219
187
185
152
137
141
164
206
7.5
7.5
2.7
2.3
2.3
1.9
1.7
1.7
2.0
2.5
AAA/A-1+
A+/A-1
AA-/A/A-1+
N/R
A-2/BBB+
N/R
N/R
BBB
AA-/A-1+
A/A-1
35.6
2,616
32.1
Comparative Properties NOI by Region
Gross Leasable Area by Region
13%
NON-CORE
MARKETS
12%
OTTAWA &
MONTRÉAL
8%
MISSISSAUGA
& NORTH YORK
CALGARY
15%
NON-CORE
MARKETS
15 42%
DOWNTOWN 22+
1319%
19+
8%
MISSISSAUGA
& NORTH YORK
13%
OTTAWA &
MONTRÉAL
48%
TORONTO
22%
CALGARY
TORONTO
DOWNTOWN
(1) Chart based on percentage of investment property fair value excluding properties held for sale, as at December 31, 2017.
(2) Non-Core markets consist of 5% in Saskatchewan and 2% in the U.S., based on investment property fair value.
(3) Credit ratings are obtained from Standard & Poor’s as at December 31, 2017 and may reflect the parent’s or guarantor’s credit rating. N/R – not rated
Geographic Diversification(1)48
+
8
+
12
+
42
+
8
+
13
+
Sustainability
Our Values
Integrity
Teamwork
Dealing with stakeholders
Social responsibility
Opportunities
Fun
These values provide the foundation
for our corporate culture – acting as
a strong platform on which to build
sustainability into Dream’s DNA.
Embedding
Sustainability
Our ambition is to integrate sustain-
ability objectives throughout our
business. We set quantitative and
qualitative targets to help focus on
reaching our goals.
Our aim is to directly tie sustain-
ability to our corporate values, our
culture and the way in which we
conduct our business.
438 University Avenue, Toronto, ON
5001 Yonge Street, Toronto, ON
Focus on sustainability
Our sustainability strategy guides us in
how we run our business and how we
manage our environmental and social
obligations, including managing our brand,
business risks and operations. We strive
to integrate sustainability at both the
corporate and property levels, focusing on
internal and external initiatives to benefit
all stakeholders. We believe that a long-
term sustainable approach is imperative to
create value.
collaboration. Tenants generally are
becoming more curious about the energy
performance, cost and footprint of the
specific building they are leasing. Building
and maintaining high-quality, resilient
properties allows us to protect our asset
value and sustain high occupancy rates
- an environmentally sound building
is a desirable building. These are just
a few examples of how business and
sustainability go hand in hand.
From our ongoing dialogue with
stakeholders, we know that they care
about our sustainability platform, best
practices and results. Our unitholders want
to be confident that they are investing in
a corporate entity which uses land and
resources responsibly, minimizes carbon
emissions and is in good standing with its
employees and communities.
As property owners and operators, we are
well positioned to implement meaningful
changes within each of our companies
through a progressive approach and
With our more valuable and more
concentrated portfolio, we will, among other
changes, include significant improvements
to energy efficiency, waste diversion and
sustainable procurement as we increase
the appeal of our buildings to our tenants
and have less impact on our environment.
In addition, we are continuing to invest in
the development of our employees, which
contributes to the strong execution of our
business strategies. We are committed to
sound and effective corporate governance
practices.
Finally, it is increasingly important to
employees that they feel good about the
company for which they work. Many
employees ask about best practices for
energy, water and carbon management,
waste recycling rates, our community
commitments and what they can do to
contribute.
Whatever we do, we always keep in mind
the impact we have not only on our cus-
tomers and tenants, but on anyone who
comes into our buildings or neighbour-
hoods.
Our continued focus on sustainability
is fostering a culture of innovation and
collaboration with internal employees,
external business partners and the com-
munity at large. We continue to implement
strategies to manage our sustainability
initiatives.
Canary District | Dream Office REIT Leasing, Toronto, ON
LEED Gold
Integrating sustainability into our buildings
Dream Office REIT has been
integrating best practices into our
environmental platform since 2011
and has been working hard to
reduce our environmental footprint
by minimizing resource consump-
tion and greenhouse gas emissions.
Reducing our energy, water and
waste benefits the environment, our
tenants and future generations.
According to the Canadian Green
Building Council, green-certified
buildings with lower operating
costs and superior indoor environ-
mental quality are more attractive
to a growing group of customers.
High-performing buildings are
becoming a material factor when
tenants and buyers make leasing
and buying decisions.
At Dream, we also recognize the
value of green buildings. That is
why 95% of all properties over
100,000 square feet in Dream
Office REIT now have a green
building certification and operating
standards regarding smart manage-
ment of energy, water and waste.
Our initiatives have resulted in an
11.4% reduction in energy use in
our portfolio from 2014 to 2016.
The ongoing monitoring of re-
source consumption, waste streams,
environmental regulations and risks
also helps us to better position our
assets for the future.
At the end of 2016, three of Dream
Office REIT’s flagship properties
were LEED Gold certified, which
represents 11% of the overall gross
leasable area (“GLA”) of its office
portfolio. Another 4% is current-
ly in progress, and we are in the
process of reviewing additional
buildings for LEED certification.
Improving energy efficiency is an
important part of our operational
strategy for our buildings. It reduc-
es costs and decreases our contri-
bution to carbon emissions and
climate change. We enable energy
efficiency and conservation through
capital improvements, process
changes and modifying behaviours.
Another example of Dream Office
REIT’s commitment to sustainabil-
ity was demonstrated by winning
the Earth Hour Portfolio Challenge
for the most buildings entered by
a single company for three con-
secutive years (2014, 2015, 2016).
Around the globe, millions of peo-
ple, businesses and landmarks set
aside an hour to host events, switch
off their lights, and make noise for
climate change action.
As a leading Canadian office REIT,
we feel that Dream Office REIT
has a responsibility to manage and
mitigate our overall impact on the
environment and we will continue
to tie sustainability into the ways
we manage our business.
Outstanding
Building of
the Year
Our sustainability efforts were
recognized in 2016 when in addition
to being certified BOMA Platinum,
London City Centre received
The Outstanding Building of the
Year (TOBY) Award in the class of
500,000 to 1 million square feet.
The award is the most prestigious
and comprehensive achievement of
its kind in the commercial real estate
(CRE) industry, recognizing quality
in CRE buildings and rewarding
excellence in building management.
During the competition, all facets of
a building’s operations are thoroughly
evaluated. Entries are judged on
everything from community involve-
ment to environmental and sustain-
ability management.
Judging is based on building stan-
dards, community impact, tenant
relations, energy conservation,
environmental, regulatory and sus-
tainability, management emergency
preparedness and security stan-
dards, and the training of building
personnel.
London City Centre, London, ON
Sustainability Highlights
Environmental*
95% BOMA BESt
certification rate, based on
buildings over 100,000 square feet
in the Dream Office REIT portfolio
11.4%
reduction in energy use
from 2014 to 2016
11% LEED
certification rate for our buildings
in Dream Office REIT and an
additional 4% underway
25,700 tonne
reduction in greenhouse
gas emissions, equivalent to removing
5,500 cars from the road for one year
Winner
of the Earth Hour Challenge
for the most buildings entered by a single
company for three consecutive years
(2014, 2015, 2016)
6.3 million litre
reduction in water use
from 2014 to 2016 which is equivalent
to the water in 2.5 Olympic size
swimming pools
Governance
Embedded elements of
sustainability in Board mandates
43% of Dream Office REIT Board members
and the majority of the senior executives
of Dream’s public companies are women
86% of Dream Office REIT Board
members are independent
Social**
$800,000
donated to charities and
communities
~150 employees
participated in health and wellness
initiatives or participated on Dream
employee sports teams
$300,000
in tuition and professional
development fees reimbursed
Awarded Employer of the Year in 2017 by
Community Living Toronto in recognition
of outstanding practices in furthering
employment opportunities for people with
an intellectual disability
1,500 shoeboxes
were donated to the Shoebox Project for
Women’s Shelter by Dream, and:
600 gifts were donated to seniors
through the Tree of Dreams
Major Sponsor
of the Invictus Games; and
Dream employees attended the sporting
events in support of the athletes
* Environmental highlights are based on 2016
** Social highlights are based on all Dream entities combined
Table of Contents
Section I
Key Performance Indicators
at-a-glance
Basis of Presentation
Forward-looking Disclaimer
Our Objectives
Substantial Completion of
Disposition Program & Outlook
Financial Overview
Section II
Our Properties
Owned gross leasable area by region
Top ten tenants
Our Operations
Occupancy
Rental rates
Net Operating Income (“NOI”)
Leasing costs
Lease maturity profile & expiring
rental rates
Our Results of Operations
Section III
Investment Properties
Investment property continuity
Valuations of externally appraised
properties
Fair value adjustments to investment
properties
1
2
3
4
4
4
8
8
8
9
9
10
11
13
14
15
23
23
24
24
Assumptions in the valuation of
investment properties (excluding
Alberta)
Assumptions in the valuation of
investment properties in Alberta
Building improvements
Dispositions update for the quarter
and year
Investment in Dream Industrial REIT
Our Financing
Debt summary
Liquidity & capital resources
Financing activities during the
quarter and year
Demand revolving credit facilities
Debentures
Debt maturity profile
Commitments & contingencies
Our Equity
Total equity
NAV per unit
Outstanding equity
Normal course issuer bid (“NCIB”)
Substantial issuer bid (“SIB”)
Weighted average number of units
Distribution policy
Cash flows from operating activities
& distributions declared
Selected Annual Information
Section IV
Non-GAAP Measures & Other
Disclosures
Quarterly Information
25
25
25
26
28
29
29
29
30
30
31
31
31
32
32
33
33
34
34
34
34
35
37
38
47
Key leasing, financing & portfolio
information
Results of operations
Reconciliation between net income
(loss) and funds from operations
47
47
48
Section V
Disclosure Controls & Procedures
49
Section VI
Risks & Our Strategy to Manage
49
Section VII
Critical Accounting Policies
Section VIII
Asset Listing
Consolidated Financial Statements
Independent Auditor’s Report
Consolidated balance sheets
Consolidated statements of
comprehensive income (loss)
Consolidated statements of
changes in equity
Consolidated statements of
cash flows
Notes to the consolidated financial
statements
53
56
58
59
60
61
62
63
64
Trustees and Management Team
Corporate Information
IBC
IBC
Management’s discussion and analysis
(All dollar amounts in our tables are presented in thousands of Canadian dollars, except for rental rates, unit and per unit amounts, or unless otherwise stated)
SECTION I
KEY PERFORMANCE INDICATORS AT A GLANCE
Performance is measured by these and other key indicators:
Total portfolio(1)
Number of properties
Gross leasable area (“GLA”)(2)
Comparative portfolio(3)
Occupancy rate – including committed (period-end)
Occupancy rate – in-place (period-end)
Average in-place and committed net rent per square foot (period-end)
Weighted average lease term (“WALT”) (years)
December 31,
2017
September 30,
2017
As at
December 31,
2016
42
8,188
90.4 %
86.1 %
21.02 $
4.8
46
8,544
0
90.4 %
87.4 %
20.71 $
4.8
121
17,233
0
91.8 %
89.5 %
20.94
5.0
$
— %
December 31,
2017
September 30,
2017
Three months ended
December 31,
2016
December 31,
2017
Year ended
December 31,
2016
Operating results
Net income (loss)
Adjusted net operating income (“NOI”)(4)
Comparative properties NOI(5)
Funds from operations (“FFO”)(6)
EBITDFV(7)
Distributions
Total distributions
Per unit amounts(8)
Distribution rate
FFO (basic)(6)
FFO (diluted)(6)
$
$
$
100,731 $
38,760
42,079
32,235
46,239
(637 ) $
(100,671 ) $
41,624
43,270
44,653
64,524
41,354
44,230
67,155
98,191
$
134,786
169,075
173,067
197,869
274,011
(879,705 )
174,141
183,985
290,887
417,845
19,927
$
22,249
$
42,235
$
122,422
$
177,633
$
0.25
0.40
0.40
$
0.25
0.48
0.48
$
0.38
0.59
0.59
$
1.25
2.03
2.03
1.56
2.55
2.54
December 31,
2017
September 30,
2017
As at
December 31,
2016
Financing
Weighted average face rate of interest on debt (period-end)(9)
Interest coverage ratio (times)(10)(11)
Net debt-to-adjusted EBITDFV (years)(10)
Level of debt (net total debt-to-total assets)(10)(11)
Level of debt (net secured debt-to-total assets)(10)(11)
Debt – average term to maturity (years)
Unencumbered assets(12)
Available liquidity(13)
Capital (period-end)
Total number of REIT A Units and LP B Units (in millions)(14)
81.1
Net asset value (“NAV”) per unit(15)
22.40 $
(1) Total portfolio includes investment in joint ventures and excludes properties held for sale and redevelopment at the end of each period.
(2)
(3) Comparative portfolio includes investment in joint ventures and excludes properties sold, properties held for sale and redevelopment at the end of Q4 2017.
(4) Adjusted NOI (non-GAAP measure) excludes NOI from properties held for sale and sold properties. Adjusted NOI is defined and reconciled to net rental
3.90 %
3.1
7.1
39.6 %
30.6 %
4.5
299,000 $
493,627 $
3.93 %
3.1
6.5
39.7 %
30.0 %
4.7
160,000 $
666,670 $
3.84 %
3.1
7.7
52.4 %
44.3 %
3.8
244,000
622,725
78.9
23.46 $
In thousands of square feet.
110.0
22.48
$
$
$
income in the section “Non-GAAP Measures and Other Disclosures” under the heading “Net operating income (“NOI”) and Adjusted NOI”.
Dream Office REIT 2017 Annual Report | 1
(5) Comparative properties NOI (non-GAAP measure) is defined and reconciled to net rental income in the section “Non-GAAP Measures and Other Disclosures”
under the heading “Comparative properties NOI”.
(6) FFO (non-GAAP measure) – The reconciliation of FFO to net income (loss) can be found in the section “Non-GAAP Measures and Other Disclosures” under the
heading “Funds from operations (“FFO”)”.
(7) EBITDFV (non-GAAP measure) – The reconciliation of EBITDFV to net income (loss) can be found in the section “Non-GAAP Measures and Other Disclosures”
under the heading “Earnings before interest, taxes, depreciation and fair value adjustments (“EBITDFV”)”.
(8) A description of the determination of basic and diluted amounts per unit can be found in the section “Our Equity” under the heading “Weighted average
number of units”.
(9) Weighted average face rate of interest on debt is calculated as the weighted average face rate of all interest bearing debt balances, including investment in
joint ventures that are equity accounted.
(10) The calculation of the following non-GAAP measures – interest coverage ratio, net debt-to-adjusted EBITDFV and levels of debt – are included in the section
“Non-GAAP Measures and Other Disclosures”.
(11) Interest coverage ratio and levels of debt have been restated in the comparative periods to conform to current period presentation.
(12) Excludes properties held for sale at period-end.
(13) Available liquidity (non-GAAP measure) is defined in the section “Non-GAAP Measures and Other Disclosures” under the heading “Available liquidity”.
(14) Total number of REIT A Units and LP B Units includes 5.2 million LP B Units which are classified as a liability under IFRS.
(15) NAV per unit (non-GAAP measure) is defined in the section “Non-GAAP Measures and Other Disclosures” under the heading “Net asset value (“NAV”) per
unit” and the reconciliation of NAV per unit to equity (as per consolidated financial statements) can be found in the section “Our Equity”.
BASIS OF PRESENTATION
Our discussion and analysis of the financial position and results of operations of Dream Office Real Estate Investment Trust
(“Dream Office REIT” or the “Trust”) should be read in conjunction with the audited consolidated financial statements of Dream
Office REIT for the years ended December 31, 2016 and December 31, 2017, respectively. Unless otherwise indicated, our
discussion of assets, liabilities, revenue and expenses includes our investment in joint ventures, which are equity accounted at our
proportionate share of assets, liabilities, revenue and expenses.
This management’s discussion and analysis (“MD&A”) is dated as at February 22, 2018.
For simplicity, throughout this discussion, we may make reference to the following:
• “REIT A Units”, meaning the REIT Units, Series A of the Trust;
• “REIT B Units”, meaning the REIT Units, Series B of the Trust;
• “REIT Units”, meaning the REIT Units, Series A, and REIT Units, Series B, of the Trust; and
• “LP B Units” and “subsidiary redeemable units”, meaning the LP Class B, Series 1 limited partnership units of Dream
Office LP (a wholly owned subsidiary of the Trust).
When we use terms such as “we”, “us” and “our”, we are referring to Dream Office REIT and its subsidiaries.
Prior to July 1, 2017, the Trust’s reportable operating segments of its investment properties and results of operations were
segmented geographically, namely B.C./Saskatchewan/N.W.T., Alberta, Toronto – downtown, Toronto – suburban and Eastern
Canada. Effective July 1, 2017, as a result of changes in the Trust’s property portfolio, the Trust made several changes to its
reportable operating segments as follows: (i) separated its investment properties in Calgary from Alberta and created a new
Calgary segment; (ii) separated its investment properties in Ottawa and Montréal from Eastern Canada and created a new Ottawa
and Montréal segment; (iii) renamed the properties remaining in Toronto – suburban as Mississauga and North York; and (iv)
created a new Non-core markets segment containing the remainder of the investment properties in the previous Alberta and
Eastern Canada regions. This Non-core markets segment contains those investment properties in geographic areas which the Trust
does not consider core to its stated strategic direction. These changes will enable management and unitholders to evaluate the
performance of those investment properties which are key to the Trust’s strategy.
Market rents disclosed throughout the MD&A are management’s estimates at a point in time and are subject to change based on
future market conditions.
In addition, certain disclosure incorporated by reference into this report includes information regarding our largest tenants that
has been obtained from available public information. We have not verified any such information independently.
Dream Office REIT 2017 Annual Report | 2
FORWARD-LOOKING DISCLAIMER
Certain information herein contains or incorporates comments that constitute forward-looking information within the meaning of
applicable securities legislation, including but not limited to statements relating to the Trust’s objectives, strategies to achieve
those objectives, the Trust’s beliefs, plans, estimates, projections and intentions, and similar statements concerning anticipated
future events, future growth, results of operations, performance, business prospects and opportunities, acquisitions or
divestitures, tenant base, future maintenance and development plans and costs, capital investments, financing, the availability of
financing sources, income taxes, vacancy, renewal and leasing assumptions, litigation and the real estate industry in general
(including statements regarding our disposition targets, the timing of proposed dispositions, redevelopment and intensification
plans, the future composition of our portfolio, future NAV growth and debt levels), in each case that are not historical facts.
Forward-looking statements generally can be identified by words such as “outlook”, “objective”, “may”, “will”, “would”, “expect”,
“intend”, “estimate”, “anticipate”, “believe”, “should”, “could”, “likely”, “plan”, “project”, “budget” or “continue” or similar
expressions suggesting future outcomes or events. Forward-looking information is based on a number of assumptions and is
subject to a number of risks and uncertainties, many of which are beyond Dream Office REIT’s control, which could cause actual
results to differ materially from those disclosed in or implied by such forward-looking information. These risks and uncertainties
include, but are not limited to, general and local economic and business conditions; the financial condition of tenants; our ability to
refinance maturing debt; our ability to sell investment properties at a price which reflects fair value; leasing risks, including those
associated with the ability to lease vacant space; our ability to source and complete accretive acquisitions; and interest rates.
Although the forward-looking statements contained in this MD&A are based on what we believe are reasonable assumptions,
there can be no assurance that actual results will be consistent with these forward-looking statements. Forward-looking
information is disclosed in this MD&A as part of the sections “Our Objectives”, “Substantial Completion of Disposition Program and
Outlook” and “Financial Overview”. Factors that could cause actual results to differ materially from those set forth in the forward-
looking statements and information include, but are not limited to, general economic conditions; local real estate conditions,
including the development of properties in close proximity to the Trust’s properties; timely leasing of vacant space and re-leasing
of occupied space upon expiration; dependence on tenants’ financial condition; the uncertainties of acquisition activity; the ability
to effectively integrate acquisitions; interest rates; availability of equity and debt financing; our continued compliance with the real
estate investment trust (“REIT”) exception under the specified investment flow-through trust (“SIFT”) legislation; and other risks
and factors described from time to time in the documents filed by the Trust with securities regulators.
All forward-looking information is as of February 22, 2018. Dream Office REIT does not undertake to update any such forward-
looking information whether as a result of new information, future events or otherwise, except as required by applicable law.
Additional information about these assumptions, risks and uncertainties is contained in our filings with securities regulators,
including our latest Annual Information Form available on the System for Electronic Document Analysis and Retrieval (“SEDAR”) at
www.sedar.com. Certain filings are also available on our website at www.dreamofficereit.ca.
Dream Office REIT 2017 Annual Report | 3
OUR OBJECTIVES
We have been and remain committed to:
• Managing our business to provide cash flows and superior risk-adjusted returns, while managing our assets to maximize value
over the longer term;
• Continual improvement in the quality of our portfolio by investing in assets through upgrades, intensification and
redevelopment in order for our buildings to be attractive to our tenants and selectively disposing of assets with lower
potential for long-term income growth;
• Building and maintaining a strong, flexible and resilient balance sheet; and
• Maintaining a REIT status that satisfies the REIT exception under the SIFT legislation in order to provide certainty to
unitholders with respect to taxation of distributions.
SUBSTANTIAL COMPLETION OF DISPOSITION PROGRAM AND OUTLOOK
In February 2016, we announced our strategic plan to improve the long-term NAV of the Trust, by selectively disposing of assets
while forgoing short-term cash flows and yield. We had originally set out to sell $1.2 billion of non-core assets over three years;
however, as we progressed through our disposition program, we found the private markets had a stronger than expected appetite
for our assets. Further, we reviewed our portfolio at the beginning of 2017 and expanded upon our disposition goals to include
some of our assets that did not have opportunities to increase their value through redevelopment and intensification. We have
substantially completed our disposition program, having sold approximately $3.3 billion of assets since the beginning of 2016,
leaving a portfolio of higher-quality assets with a focus in downtown Toronto.
Consistent with our strategy, we have used our repatriated capital from dispositions to repurchase our units, positioning the Trust
for future NAV increases to have a more dramatic effect on a per unit basis. Since the announcement of our strategic plan, we
have purchased approximately 35.2 million REIT A Units for a total cost of approximately $722.9 million or $20.52 per unit. In
conjunction with the disposition program and unit buybacks, we reduced our distribution from $2.24 per unit prior to the
announcement of our strategic plan to $1.00 per unit this past July. The reduction in our distribution was done to maintain a
conservative payout ratio, retain appropriate maintenance capital and generate investment capital to be used to improve the
value of our portfolio.
With our strategic plan announced in February 2016 now substantially complete, we can now look to the next phase of our
strategy, to become a nimble, value-add real estate operator positioned to unlock the value in our downtown Toronto assets
through redevelopment and intensification.
FINANCIAL OVERVIEW
• Net income for the quarter and year: For the three months ended December 31, 2017, the Trust generated net income of
$100.7 million, consisting primarily of net rental income of $41.4 million and fair value adjustments to investment properties
and financial instruments of $71.6 million, offset by interest expense on debt and subsidiary redeemable units of $16.5 million
and net losses on transactions and other activities of $1.6 million.
For the year ended December 31, 2017, the Trust generated net income of $134.8 million, consisting primarily of net rental
income of $257.7 million and fair value adjustments to investment properties and financial instruments of $6.3 million, offset
by interest expense on debt and subsidiary redeemable units of $93.1 million and net losses on transactions and other
activities of $37.9 million.
• Diluted FFO per unit(1) for the quarter and year: Diluted FFO per unit for the three months ended December 31, 2017 was
$0.40, compared to $0.48 and $0.59 at Q3 2017 and Q4 2016, respectively. Diluted FFO per unit for the year ended
December 31, 2017 was $2.03, compared to $2.54 for the year ended December 31, 2016. The decrease in diluted FFO per
unit for the three months and year ended December 31, 2017 when compared to the prior year respective periods was
primarily as a result of allocating capital repatriated from property dispositions to reduce overall debt levels, net of unit
buybacks (-$0.22 and -$0.55, respectively), along with a decrease in comparative properties NOI(1) (-$0.02 and -$0.11,
respectively), partially offset by lease termination fees and other non-recurring items (+$0.05 and +$0.15, respectively).
The decrease in diluted FFO per unit on a quarter-over-quarter basis was primarily as a result of allocating capital repatriated
from property dispositions to reduce overall debt levels, net of unit buybacks (-$0.07), along with a decrease in comparative
properties NOI(1) (-$0.01).
Dream Office REIT 2017 Annual Report | 4
•
In-place occupancy: As at December 31, 2017, our comparative portfolio in-place occupancy was 86.1%, compared to 87.4%
and 89.5% at Q3 2017 and Q4 2016, respectively. The decline on a quarter-over-quarter basis was primarily due to a known
vacancy at 438 University Ave. in Toronto downtown. Partially offsetting this decline in occupancy was an increase to
occupancy in Calgary of 3.2%, mainly at 444-7th Building.
The decline on a year-over-year basis in occupancy was primarily due to known vacancies at 438 University Ave. in Toronto
downtown, 700 De la Gauchetière St. W. (“700 DLG”) in Montréal, and vacancies at 1900 Sherwood Place and Saskatoon
Square in Saskatchewan. Partially offsetting this decline in occupancy was an increase of 1.8% in the Mississauga and North
York region.
• Leasing activity: For the three months ended December 31, 2017, approximately 292 thousand square feet of leases
commenced, of which approximately 115 thousand square feet were renewals. The retention ratio for the quarter was 57.5%
after excluding the known vacancy at 438 University Ave. in Toronto downtown totalling approximately 194 thousand square
feet.
For the year ended December 31, 2017, approximately 1.4 million square feet of leases commenced, of which approximately
797 thousand square feet were renewals, resulting in a tenant retention ratio of approximately 48.9%. Excluding the known
vacancy at 438 University Ave., our retention ratio for the quarter improves to 55.5%.
To date, we have secured 2018 lease commitments totalling approximately 1.3 million square feet in our comparative
portfolio, representing over three quarters of our 2018 lease maturities. The Trust has also leased over one-third of the 2019
lease maturities.
Leasing momentum in downtown Toronto remains robust given the low vacancy rates, which remain amongst the lowest in
North America. To date, we have completed 126% of our 2018 lease maturities in the Toronto downtown region. During the
quarter, the net rents for leases that commenced in Toronto downtown were approximately 6.5% above expiring net rents.
Further, as at December 31, 2017, downtown Toronto market rents are estimated to be approximately 15% higher than our
in-place and committed net rents.
• Comparative properties NOI(1) for the quarter and year: For the three months ended December 31, 2017, comparative
properties NOI decreased by 4.9% over the prior year comparative quarter, mainly driven by decreases at 700 DLG in
Montréal, at 438 University Ave. in Toronto downtown and in Saskatchewan within our Non-core markets regions, partially
offset by increases in the Mississauga and North York region.
As previously disclosed, the decrease in comparative properties NOI at 700 DLG was mainly driven by Bell Canada vacating
approximately 0.2 million square feet at the beginning of Q2 2017, which was substantially backfilled immediately by National
Bank of Canada for a term of ten years. Bell Canada has a further 0.2 million square feet of lease maturities at the end of
Q1 2018, for which we have lease commitments totalling 68 thousand square feet taking occupancy immediately, resulting in
a loss of $4 million to gross revenue on an annualized basis. Given the increasingly favourable economy in Montréal, we
remain confident in our ability to re-let the vacancy at 700 DLG.
The decrease in comparative properties NOI at 438 University Ave. was mainly driven by Loyalty Management vacating
approximately 0.2 million square feet of space at the beginning of Q4 2017, reducing gross revenue by approximately
$8 million on an annualized basis, partially offset by expected savings in operating expenses. Over the course of 2018, the
Trust will ready the space to accommodate the new government tenant that will take effect in December 2018. 438 University
Ave. is situated in a desirable location at the south-west corner of University Ave. and Dundas St. West, directly atop the
St. Patrick TTC subway station and within close proximity to major hospitals.
Further, the decrease in comparative properties NOI in Saskatchewan was mainly driven by lower occupancies at
1900 Sherwood Place with an early termination in March 2017 of approximately 21 thousand square feet and at Saskatoon
Square with a tenant vacating approximately 30 thousand square feet at the beginning of Q3 2017. Partially offsetting this
decline in comparative properties NOI are the Mississauga and North York and Calgary regions with higher occupancies at
Sussex Centre in Mississauga, 444-7th Building and 606-4th Building in Calgary.
For the year ended December 31, 2017, comparative properties NOI decreased by 5.9% over the prior year, with decreases in
Calgary, Ottawa and Montréal and Saskatchewan within our Non-core markets regions, partially offset by increases in the
Toronto downtown and Mississauga and North York regions. The overall decrease in comparative properties NOI was mainly
due to lower occupancy and net rental rates.
The major vacancies noted above are going to negatively impact our comparative property performance over the next
four quarters.
Dream Office REIT 2017 Annual Report | 5
• Fair value adjustments to investment properties for the quarter and year: For the three months ended December 31, 2017,
the Trust recorded a fair value gain of $78.7 million, mainly driven by fair value gains in Toronto downtown totalling
$203.0 million, reflecting higher stabilized NOI to account for higher market rate assumptions and capitalization rate
compression. Partially offsetting this were fair value losses in our Calgary and Non-core markets regions (Saskatchewan in
particular) totalling $106.9 million, reflecting a soft leasing environment in those regions with the balance of the fair value
losses mainly attributable to properties sold and held for sale.
For the year ended December 31, 2017, the Trust recorded a fair value gain of $23.1 million, mainly driven by the same
reasons noted above.
For the three months ended December 31, 2017, the Trust valued 21 investment properties (mainly in the Toronto downtown
region) by external appraisers with an aggregate fair value of $1.8 billion, representing approximately 61% of the total
investment property values.
• Dispositions update: For the three months ended December 31, 2017, we completed investment property dispositions for
gross proceeds net of adjustments of $184 million. Including the dispositions completed this quarter and subsequent to
quarter-end, the Trust has sold approximately $3.3 billion of investment properties since the beginning of 2016.
• NAV per unit(1): As at December 31, 2017, our NAV per unit was $23.46, compared to $22.40 at September 30, 2017 and
$22.48 at December 31, 2016, up $1.06 or 4.7% and $0.98 or 4.4%, respectively. The increase in NAV per unit during the
quarter and year was primarily driven by fair value gains in Toronto downtown investment properties and unit buybacks,
offset by fair value losses taken on properties in our Calgary and Non-core markets region (Saskatchewan in particular) and
properties sold and held for sale.
The following table summarizes the major components of our NAV per unit as at December 31, 2017:
Value
(in $ millions)
Per unit
GLA
(in millions
of sq. ft.)
Occupancy –
in-place and
committed (%)
WALT
(years)
Investment properties
Calgary
Toronto downtown
Mississauga and North York
Ottawa and Montréal
Non-core markets
Total investment properties
Mortgages
Investment properties, net of mortgages
Properties classified as held for sale and select
redevelopment properties, net of related debt
Investment in Dream Industrial REIT
Unsecured debentures
Cash and other items
Net asset value
Less: LP B units
Equity per condensed consolidated financial statements $
$
$
387 $
1,708
216
356
212
2,879
(1,081 )
1,798
92
221
(290 )
31
1,852 $
116
1,736
1.8
3.5
0.6
1.1
1.2
8.2
77.1 %
96.8 %
94.5 %
93.6 %
86.9 %
90.4 %
4.6
5.2
5.0
5.6
3.3
4.8
4.90
21.64
2.74
4.51
2.68
36.47
(13.69 )
22.78
1.17
2.80
(3.68 )
0.39
23.46
Our Toronto downtown properties currently account for approximately 42% of our total GLA and approximately 59% of our
comparative portfolio fair value of investment properties.
• Capital allocation for the quarter and year: For the three months and year ended December 31, 2017, the Trust was very
active in redeploying the net proceeds received from dispositions to purchase units and pay down debt. For the three months
and year ended December 31, 2017, the Trust received net proceeds from dispositions totalling approximately $38.4 million
and $1.66 billion, respectively, and used the net proceeds and cash and cash equivalents on hand to purchase units for
cancellation totalling approximately 2.2 million REIT A Units ($21.62 per unit for a cost of $47.3 million) and 31.3 million
REIT A Units ($20.74 per unit for a cost of $649.2 million), respectively, and repaid debt totalling $100.3 million and
$916.0 million, respectively.
Dream Office REIT 2017 Annual Report | 6
On November 21, 2017, Dream Industrial REIT completed an $86.5 million equity offering to partially fund an acquisition of a
portfolio of four light industrial properties located in the United States. Concurrently with the equity offering, the Trust
subscribed for 2,858,000 Dream Industrial REIT units through a private placement totalling $25.0 million, to maintain our
ownership interest in Dream Industrial REIT and provide the Trust a good return. As at December 31, 2017, the Trust owns
25.6% of Dream Industrial REIT.
• Conservative capital structure with ample liquidity: We ended the year with a net total debt-to-total assets ratio(1) of 39.6%,
net debt-to-adjusted EBITDFV(1) of 7.1 years and interest coverage ratio(1) of 3.1 times. Our available liquidity(1) of $494 million
comprises undrawn demand revolving credit facilities totalling $397 million and $97 million of cash and cash equivalents on
hand as at December 31, 2017.
(1) Diluted FFO per unit, comparative properties NOI, NAV per unit, net total debt-to-total assets, net debt-to-adjusted EBITDFV, interest coverage ratio and
available liquidity are non-GAAP measures used by management in evaluating operating and financial performance. Please refer to the “Non-GAAP Measures
and Other Disclosures” section of the MD&A for a full description of these non-GAAP measures.
Dream Office REIT 2017 Annual Report | 7
SECTION II
OUR PROPERTIES
At December 31, 2017, our ownership interests included 9.0 million square feet of GLA across 48 properties, which comprise
42 office properties (8.2 million square feet), four properties held for sale (0.4 million square feet) and two redevelopment
properties comprising 15 acres in Scarborough, Ontario (0.4 million square feet).
Owned gross leasable area by region
The following pie charts illustrate GLA and fair value of investment properties by region, excluding investment properties held for
sale and redevelopment properties, as at December 31, 2017.
Top ten tenants
Our tenant base includes municipal, provincial and federal governments as well as a wide range of high-quality large international
corporations, including Canada’s major banks and Canada’s prominent law firms, and small- to medium-sized businesses across
Canada. With 755 tenants and an average tenant size of approximately 11 thousand square feet in our portfolio, excluding
properties held for sale and redevelopment, our risk of exposure to any single large lease or tenant is mitigated.
The following table outlines the contributions to total gross rental revenue of our ten largest tenants with a weighted average
lease term of 4.9 years.
Tenant
Government of Canada
1
Government of Ontario
2
State Street Trust Company
3
Newalta Corporation
4
Bell Canada
5
AON Canada Inc.
6
International Financial Data Services
7
Cenovus Energy
8
Government of Québec
9
10 National Bank of Canada
Total
(%)
revenue
Gross rental Owned area
(thousands
of sq. ft.)
612
613
219
187
185
152
137
141
164
206
2,616
9.1
7.9
3.5
2.9
2.4
2.1
2.0
2.0
1.9
1.8
35.6
Owned area
Credit
rating(1)
(%)
7.5
AAA/A-1+
7.5
A+/A-1
2.7 AA-/A/A-1+
2.3
N/R
2.3
A-2/BBB+
1.9
N/R
1.7
N/R
1.7
BBB
2.0
AA-/A-1+
2.5
A/A-1
32.1
(1) Credit ratings are obtained from Standard & Poor’s and may reflect the parent’s or guarantor’s credit rating.
N/R – not rated
For the 185,000 square feet of space that is currently occupied by Bell Canada at 700 DLG, Montréal and expires at the end of
Q1 2018, the Trust has commitments totalling approximately 68,000 square feet commencing in 2018.
Dream Office REIT 2017 Annual Report | 8
OUR OPERATIONS
The following key performance indicators related to our operations influence the cash generated from operating activities.
Performance indicators
December 31, 2017(1) September 30, 2017(2) December 30, 2016(2)
Comparative portfolio
Occupancy rate – including committed (period-end)
Occupancy rate – in-place (period-end)
Average in-place and committed net rental rates (per sq. ft.) (period-end) $
Tenant maturity profile – average term to maturity (years)
90.4 %
86.1 %
21.02 $
4.8
90.4 %
87.4 %
20.71 $
4.8
91.8 %
89.5 %
20.94
5.0
(1) Excludes properties held for sale and redevelopment at year-end.
(2) Comparative periods include investment in joint ventures and excludes properties sold, held for sale and redevelopment at the end of Q4 2017.
Occupancy
The following table details our comparative portfolio in-place and committed occupancy and in-place occupancy rates, by
geographic segment at December 31, 2017, September 30, 2017, and December 31, 2016. Our in-place and committed occupancy
rates include lease commitments for space that is currently being readied for occupancy but for which rent is not yet being
recognized.
Comparative portfolio
(percentage)
Occupancy rate
Calgary
Toronto downtown
Mississauga and North York
Ottawa and Montréal
Non-core markets
Total
December 31,
2017(1)
In-place and committed occupancy rate
December 31,
2016(2)
September 30,
2017(2)
In-place occupancy rate
December 31,
2017(1)
September 30,
2017(2)
December 31,
2016(2)
77.1
96.8
94.5
93.6
86.9
90.4
76.7
97.7
93.6
92.0
87.1
90.4
78.7
97.6
92.3
96.8
90.6
91.8
75.7
89.1
92.6
92.1
84.4
86.1
72.5
93.6
92.9
92.0
85.1
87.4
75.5
93.9
90.8
96.8
90.5
89.5
(1) Excludes properties held for sale and redevelopment at year-end.
(2) Comparative periods include investment in joint ventures and excludes properties sold, held for sale and redevelopment at the end of Q4 2017.
The decline in the comparative portfolio in-place occupancy on a quarter-over-quarter and year-over-year basis was largely
attributable to the Toronto downtown, Ottawa and Montréal and Non-core markets. In particular, the decline in Toronto
downtown was primarily due to Loyalty Management vacating approximately 0.2 million square feet of space at 438 University
Ave. on October 1, 2017. The decline in the Ottawa and Montréal region was mainly due to Bell Canada vacating approximately
0.2 million square feet of space at 700 DLG on April 1, 2017. The declines in the Non-core markets region were mainly experienced
in select properties in Saskatchewan with negative absorption. With respect to the vacant space at 438 University Ave., the Trust
has secured the entire space to a government tenant that will commence in December 2018 for a term of seven years, and the
vacant space at 700 DLG in Montréal was substantially backfilled by National Bank of Canada for a term of ten years.
Dream Office REIT 2017 Annual Report | 9
The following table details the change in occupancy (including committed) for the three months and year ended December 31,
2017:
Three months ended December 31, 2017
As a
percentage
of total
GLA(1)
000s sq. ft.(1)
Weighted
average
net rents
per sq. ft.
Weighted
average
net rents
per sq. ft.
Year ended December 31, 2017
As a
percentage
of total
GLA(1)
89.7 %
(1.8 %)
87.9 %
000s sq. ft.(1)
15,450
(310 )
15,140
(7,810 )
(4 )
7,326
(1,629 )
(33 )
591
797
7,052
347
89.5 %
(19.9 %)
(0.4 %)
7.2 %
9.7 %
86.1 %
4.3 %
(21.64)
(22.95)
18.06
21.22
7,712
(245 )
7,467
90.3 %
(2.9 %)
87.4 %
(311 )
(1 )
7,155
(394 )
(1 )
177
115
7,052
347
87.4 %
(4.9 %) $
0.0 %
2.2 %
1.4 %
86.1 %
4.3 %
7,399
90.4 %
7,399
90.4 %
Occupancy (including vacancy committed
for future leases) – beginning of period
Vacancy committed for future leases
Occupancy in-place at beginning of period
Occupancy related to redevelopment
properties, sold properties and
properties held for sale
Remeasurements/reclassifications
Occupancy at beginning of period –
adjusted
$
Expiries
Early terminations and bankruptcies
New leases
Renewals
Occupancy in-place – December 31, 2017
Vacancy committed for future leases
Occupancy (including vacancy committed
for future leases) – December 31, 2017
(18.62)
(21.00)
19.39
20.68
(1) Excludes properties held for sale and redevelopment at period-end.
At December 31, 2017, vacant space committed for future occupancy approximated 347 thousand square feet, with approximately
339 thousand square feet scheduled to take occupancy in 2018.
Tenant retention ratio
Renewal rate (per sq. ft.)
Expiring rents on renewed space (per sq. ft.)
Renewal to expiring rent spread (per sq. ft.)
Renewal to expiring rent spread (%)
Three months ended
December 31,
Year ended
December 31,
$
2017
29.2 %
20.68 $
19.98
0.70
3.5 %
2017
48.9 %
21.22
22.46
(1.24)
(5.5 %)
For the three months and year ended December 31, 2017, approximately 292 thousand square feet and 1.4 million square feet,
respectively, of leases commenced, of which approximately 115 thousand square feet and 797 thousand square feet, respectively,
were renewals. The retention ratio for the quarter and year were 57.5% and 55.5%, respectively, after excluding the known
vacancy at 438 University Ave. in Toronto downtown totalling approximately 194 thousand square feet.
The positive renewal to expiring rent spread for the three months ended December 31, 2017 was mainly driven by Toronto
downtown, offset by the Calgary and Non-core markets regions. The negative renewal to expiring rent spread for the year ended
December 31, 2017 was primarily driven by the Calgary and Ottawa and Montréal regions, offset by rent uplifts in Toronto
downtown.
Rental rates
Average in-place and committed net rents across our comparative portfolio at December 31, 2017 was $21.02 per square foot,
compared to $20.71 per square foot at September 30, 2017, and $20.94 per square foot at December 31, 2016. The overall
increase in our comparative portfolio average in-place and committed net rents on a quarter-over-quarter and year-over-year
basis was mainly due to rent uplifts in the Toronto downtown region of 2.7% and 4.2%, respectively. As a result of when leases are
executed, there is typically a lag between leasing spreads relative to our estimates of the spread between estimated market rents
and average in-place and committed net rental rates.
Dream Office REIT 2017 Annual Report | 10
The following table details the average in-place and committed net rental rates in our comparative portfolio as at December 31,
2017, September 30, 2017 and December 31, 2016:
Comparative portfolio
Calgary
Toronto downtown
Mississauga and North York
Ottawa and Montréal
Non-core markets
Total
$
$
December 31, 2017(1)
September 30, 2017(2)
Average in-place and committed net rent (per sq. ft.)
December 31, 2016(2)
22.93
22.15
20.62
18.98
16.79
20.94
21.73 $
22.48
20.70
17.60
16.76
20.71 $
22.06 $
23.09
20.67
17.48
16.83
21.02 $
(1) Excludes properties held for sale and redevelopment at period-end.
(2) Comparative periods include investments in joint ventures and exclude properties sold and properties held for sale and redevelopment at the end of Q4 2017.
Market rents represent base rents only and do not include the impact of lease incentives. Market rents reflect management’s best
estimates with reference to recent leasing activity and external market data, which do not take into account allowance for
increases in future years. Market rents are subject to change depending on the market conditions at a particular point in time. In
particular, the market rents in Calgary as presented in the table below are based on the best available information as at the
respective periods and may vary significantly from period to period given the changing economic conditions in that particular
region.
The following table compares market rents in our comparative portfolio to the average in-place and committed net rent as at
December 31, 2017:
Comparative portfolio
Calgary
Toronto downtown
Mississauga and North York
Ottawa and Montréal
Non-core markets
Total
Market rent(2)
(per sq. ft.)
Average in-place and
committed net rent
(per sq. ft.)
$
$
15.07 $
26.68
18.69
19.82
16.93
21.48 $
22.06
23.09
20.67
17.48
16.83
21.02
December 31, 2017(1)
Market rent/
average in-place and
committed net rent
(%)
(31.7 )
15.5
(9.6 )
13.4
0.6
2.2
(1) Excludes properties held for sale and redevelopment at period-end.
(2) Market rents include office and retail space.
Net operating income (“NOI”)(1)
NOI is defined as the total of net rental income, including the share of net rental income from investment in joint ventures and
property management income, and net rental income from properties held for redevelopment, properties sold and assets held
for sale.
For a detailed discussion about Investment properties revenue and expenses for the three months and year ended December 31,
2017, refer to “Our Results of Operations” section.
Comparative properties NOI(1)
For the three months ended December 31, 2017, comparative properties NOI decreased by 4.9%, or $2.2 million, over the prior
year comparative quarter, mainly driven by decreases in Ottawa and Montréal, Toronto downtown and Non-core markets regions,
partially offset by increases in the Mississauga and North York region. The declines in occupancy and net rental rates in Toronto
downtown were partially offset by lower non-recoverable operating expenses at certain properties. In the Calgary region, the
declines in occupancy and net rental rates were offset by property tax refunds received in the current quarter as a result of
vacancy in certain properties.
For the year ended December 31, 2017, NOI from comparative properties decreased by 5.9%, or $10.9 million, over the prior year,
with decreases in Calgary, Ottawa and Montréal and Non-core markets regions, partially offset by increases in the Toronto
downtown and Mississauga and North York regions. The overall decrease in comparative properties NOI was mainly due to lower
occupancy and net rental rates.
(1) NOI and comparative properties NOI (non-GAAP measures) – The reconciliations of NOI and comparative properties NOI to net rental income can be found in the
section “Non-GAAP Measures and Other Disclosures” under the headings “Net operating income (“NOI”) and Adjusted NOI” and “Comparative properties NOI”.
Dream Office REIT 2017 Annual Report | 11
Lease termination fees and other are not necessarily of a recurring nature and the amounts may vary year-over-year. For the three
months and year ended December 31, 2017, lease termination fees and other adjustments amounted to a loss of $0.1 million and
income of $5.9 million, respectively. The significant lease termination and other fees for the year ended December 31, 2017 was
largely attributable to a lease cancellation fee for a tenant located at 700 DLG in Montréal during the first quarter (for the three
months and year ended December 31, 2016 – income of $0.2 million and $1.7 million, respectively).
Properties held for redevelopment include Aviva Corporate Centre and 1020 Birchmount Road in Scarborough, Ontario. In
September, Aviva Canada Inc., the major tenant at the redevelopment properties, vacated the premises upon expiry of their lease
totalling approximately 319 thousand square feet, resulting in a decline in NOI related to these properties. The Trust is currently
exploring redevelopment opportunities at these properties and accordingly has reclassified them out of our comparative
properties during the third quarter of 2017.
Three months ended
Change in
Change
weighted average
In-place
net rent
$
Calgary
Toronto downtown
Mississauga and North York
Ottawa and Montréal
Non-core markets
Comparative properties NOI(1)
Lease termination fees and other
Properties held for redevelopment
Straight-line rent
Amortization of lease incentives
Adjusted NOI(1)
NOI from properties held for sale
NOI from sold properties
NOI(1)
(1) Comparative properties NOI, Adjusted NOI and NOI (non-GAAP measures) – The reconciliations of comparative properties NOI, Adjusted NOI and NOI to net
rental income can be found in the section “Non-GAAP Measures and Other Disclosures” under the headings “Net operating income (“NOI”) and Adjusted NOI”
and “Comparative properties NOI”.
December 31, December 31,
2016
8,282 $
20,513
3,506
6,025
5,904
44,230
213
1,105
461
(4,655 )
41,354
1,707
49,603
92,664 $
2017
8,312 $
20,168
3,694
4,658
5,247
42,079
(127 )
(727 )
261
(2,726 )
38,760
1,573
1,040
41,373 $
Amount
30
(345 )
188
(1,367 )
(657 )
(2,151 )
(340 )
(1,832 )
(200 )
1,929
(2,594 )
(134 )
(48,563 )
(51,291 )
occupancy %
(0.2 )
(5.2 )
1.7
(4.6 )
(6.0 )
(3.6 )
change %
(3.4 )
(0.8 )
1.9
(15.6 )
(9.3 )
(4.2 )
%
0.4
(1.7 )
5.4
(22.7 )
(11.1 )
(4.9 )
$
Year ended
Change in
In-place
net rent
$
Change weighted average
Calgary
Toronto downtown
Mississauga and North York
Ottawa and Montréal
Non-core markets
Comparative properties NOI(1)
Lease termination fees and other
Properties held for redevelopment
Straight-line rent
Amortization of lease incentives
Adjusted NOI(1)
NOI from properties held for sale
NOI from sold properties
NOI(1)
(1) Comparative properties NOI, Adjusted NOI and NOI (non-GAAP measures) – The reconciliations of comparative properties NOI, Adjusted NOI and NOI to net
rental income can be found in the section “Non-GAAP Measures and Other Disclosures” under the headings “Net operating income (“NOI”) and Adjusted NOI”
and “Comparative properties NOI”.
December 31, December 31,
Amount
2016
39,180 $
(7,150 )
995
82,886
662
13,901
23,979
(3,626 )
24,039
(1,799 )
183,985
(10,918 )
4,230
1,703
4,293
(2,028 )
554
1,843
3,096
(17,683 )
174,141
(5,066 )
6,477
(74 )
218,581
(136,400 )
399,199 $ (141,540 )
2017
32,030 $
83,881
14,563
20,353
22,240
173,067
5,933
2,265
2,397
(14,587 )
169,075
6,403
82,181
257,659 $
occupancy %
(4.4 )
(1.9 )
0.5
(2.9 )
(5.1 )
(2.9 )
change %
(15.6 )
1.1
3.1
(11.3 )
(5.4 )
(4.8 )
%
(18.2 )
1.2
4.8
(15.1 )
(7.5 )
(5.9 )
$
Dream Office REIT 2017 Annual Report | 12
NOI prior quarter comparison
For the three months ended December 31, 2017, comparative properties NOI on a quarter-over-quarter basis decreased by 2.8%,
or $1.2 million, over the prior quarter, with decreases mainly in the Toronto downtown, Ottawa and Montréal and Non-core
markets regions, partially offset by increases in the Calgary and Mississauga and North York regions. The overall decrease in
comparative properties NOI on a quarter-over-quarter basis was primarily due to Loyalty Management vacating approximately
194 thousand square feet of space at 438 University Ave. in Toronto downtown on October 1, 2017. Of the 194 thousand square
feet of vacant space, the Trust has secured the entire space to a government tenant that will commence in December 2018 for a
term of seven years.
Lease termination fees and other are not necessarily of a recurring nature and the amounts may vary from quarter-to-quarter. For
the three months ended December 31, 2017, lease termination fees and other amounted to a loss of $0.1 million (three months
ended September 30, 2017 – income of $0.6 million).
In September, Aviva Canada Inc., the major tenant at the properties held for redevelopment, vacated the premises upon expiry of
their lease totalling approximately 319 thousand square feet, resulting in a decline in NOI from $0.7 million in Q3 2017 to negative
$0.7 million in Q4 2017.
Three months ended
Change in
Change weighted average
occupancy %
2.3
(5.8 )
0.2
0.1
(1.8 )
(2.1 )
%
3.1
(6.2 )
3.0
(2.3 )
(1.9 )
(2.8 )
In-place
net rent
change %
0.8
(2.6 )
0.0
(0.3 )
(1.8 )
(1.4 )
Calgary
Toronto downtown
Mississauga and North York
Ottawa and Montréal
Non-core markets
Comparative properties NOI(1)
Lease termination fees and other
Properties held for redevelopment
Straight-line rent
Amortization of lease incentives
Adjusted NOI(1)
NOI from properties held for sale
NOI from sold properties
NOI(1)
$
December 31, September 30,
2017
8,059 $
21,511
3,585
4,767
5,348
43,270
562
730
640
(3,578 )
41,624
1,612
16,952
60,188 $
2017
8,312 $
20,168
3,694
4,658
5,247
42,079
(127 )
(727 )
261
(2,726 )
38,760
1,573
1,040
41,373 $
$
Amount
253
(1,343 )
109
(109 )
(101 )
(1,191 )
(689 )
(1,457 )
(379 )
852
(2,864 )
(39 )
(15,912 )
(18,815 )
(1) Comparative properties NOI, Adjusted NOI and NOI (non-GAAP measures) – The reconciliations of comparative properties NOI, Adjusted NOI and NOI to net
rental income can be found in the section “Non-GAAP Measures and Other Disclosures” under the headings “Net operating income (“NOI”) and Adjusted NOI”
and “Comparative properties NOI”.
Leasing costs
Initial direct leasing costs include leasing fees and related costs and broker commissions incurred in negotiating and arranging
tenant leases. Lease incentives include costs incurred to make leasehold improvements to tenant spaces, cash allowances and
landlord works. Initial direct leasing costs and lease incentives are dependent upon asset type, lease terminations and expiries, the
mix of new leasing activity compared to renewals, portfolio growth and general market conditions.
For the three months and year ended December 31, 2017, approximately $10.0 million and $33.7 million, respectively, of initial
direct leasing costs and lease incentives were attributable to leases that commenced in our comparative portfolio during the
respective periods. For the year, we managed to lease up more space in our comparative portfolio with approximately 1.4 million
square feet of space occupied, with a longer WALT and lower leasing costs on a per square foot per year basis relative to the prior
year. For the three months and year ended December 31, 2017, the WALT on leases that commenced over the respective periods
were 6.2 years and 5.8 years, respectively, well above our current average of 4.8 years. The average cost per square foot per year
leased for the three months and year ended December 31, 2017 was $5.52 per square foot per year and $4.18 per square foot per
year leased, respectively, representing a decrease of $1.97 and $1.74 per square foot, respectively, over the prior year
comparative periods. While the overall leasing costs and lease incentives per square foot per year have decreased year-over-year,
we expect leasing costs and lease incentives to remain elevated in areas such as Calgary and Saskatchewan, given the current
competitive office leasing environment in those particular regions.
Dream Office REIT 2017 Annual Report | 13
Performance indicators
Leases commenced during the period(1)
Leases that commenced during the period
(in thousands of sq. ft.)
Average lease term (years)(3)
Initial direct leasing costs and lease incentives(3):
In thousands of dollars
Per square foot
Per square foot per year
Three months ended December 31,
2016(2)
2017
Year ended December 31,
2016(2)
2017
292
6.2
$
$
$
10,022
34.37
5.52
$
$
$
332
7.0
17,321 $
52.16 $
7.49 $
1,388
5.8
33,740 $
24.31 $
4.18 $
1,114
5.5
36,175
32.48
5.92
(1) Excludes properties held for sale and redevelopment at period-end.
(2) Comparative periods include investments in joint ventures and exclude properties sold and properties held for sale and redevelopment at the end of Q4 2017.
(3) For leases that commenced during the respective periods.
Lease maturity profile and expiring rental rates
The following table details our lease maturity profile, lease commitments and expiring net rents by geographic segment and by
year, as at December 31, 2017.
(in thousands of square feet)
Calgary
Expiries
Expiring net rents
Commencements
Commencements as a percentage of expiries
Toronto downtown
Expiries
Expiring net rents
Commencements
Commencements as a percentage of expiries
Mississauga and North York
Expiries
Expiring net rents
Commencements
Commencements as a percentage of expiries
Ottawa and Montréal
Expiries
Expiring net rents
Commencements
Commencements as a percentage of expiries
Non-core markets
Expiries
Expiring net rents
Commencements
Commencements as a percentage of expiries
Total
Expiries
Expiring net rents
Commencements
Commencements as a percentage of expiries
2018
2019
2020
2021
2022
2023+
$
$
$
$
$
$
(178)
26.34 $
33
19 %
(570)
21.47 $
685
120 %
(249)
23.34 $
239
96 %
(220)
20.94 $
105
48%
(526)
14.47 $
219
42 %
(1,743)
20.05 $
1,281
73 %
(393)
22.44 $
147
37 %
(434)
22.72 $
105
24 %
(30)
22.74 $
—
—
(27)
19.35 $
—
—
(60)
20.21 $
—
—
(944)
22.35 $
252
27 %
(59)
24.43 $
—
—
(185)
23.92 $
11
6 %
(92)
20.91 $
39
42%
(190)
13.60 $
—
—
(280)
17.58 $
—
—
(806)
18.99 $
50
6 %
(193)
18.74 $
—
—
(593)
22.39 $
13
2 %
(96)
18.82 $
—
—
(12)
34.89 $
—
—
(14)
15.66 $
—
—
(908)
21.29 $
13
1 %
(123)
20.84 $
—
—
(415)
25.18 $
—
—
(19)
19.61 $
7
37%
(206)
22.27 $
6
3%
(89)
23.86 $
—
—
(852)
23.59 $
13
2 %
(424)
23.68
—
—
(851)
25.58
138
16 %
(101)
19.63
—
—
(353)
18.99
—
—
(70)
21.75
—
—
(1,799)
23.35
138
8 %
Dream Office REIT 2017 Annual Report | 14
OUR RESULTS OF OPERATIONS
Basis of accounting
The Trust’s proportionate share of the results of operations of its investment in joint ventures, which are accounted for using the
equity method in the consolidated financial statements, are presented and discussed throughout the MD&A using the
proportionate consolidation method and are, therefore, non-GAAP measures. This presentation only impacted the comparative
periods as the Trust did not have any investments in joint ventures during the current year. A reconciliation of the results of
operations to the consolidated statements of comprehensive income (loss) is included in the following tables.
“GAAP” or “IFRS” means International Financial Reporting Standards as issued by the International Accounting Standards Board
and as adopted by the Canadian Professional Accountants of Canada in Part I of The Canadian Professional Accountants of Canada
Handbook – Accounting, as amended from time to time.
Dream Office REIT 2017 Annual Report | 15
Statement of comprehensive income (loss) reconciliation to consolidated financial statements
2017
Three months ended December 31,
2016
Amounts
included in
consolidated
financial statements
$
Share of
income from
investment in
joint ventures
78,740 $
(37,367 )
41,373
Amounts
included in
consolidated
financial statements
Share of
income from
investment in
joint ventures
Total
78,740 $
(37,367 )
41,373
— $
—
—
166,919 $
(75,204 )
91,715
Total
2,196 $ 169,115
(76,451 )
(1,247 )
92,664
949
Investment properties revenue
Investment properties operating expenses
Net rental income
Other income (loss)
Share of net income and net accretion loss
from investment in Dream Industrial REIT
Share of net loss from investment in joint
ventures
Interest and fee income
Other expenses
General and administrative
Interest:
Debt
Subsidiary redeemable units
Amortization and write-off of external
management contracts and depreciation on
property and equipment
Fair value adjustments, net losses on
transactions and other activities
Fair value adjustments to investment
properties
Fair value adjustments to financial instruments
Net losses on transactions and other activities
Income (loss) before income taxes
Current income taxes expense
Deferred income taxes (expense) recovery
Net income (loss) for the period
Other comprehensive income (loss)
Items reclassified to net income (loss):
Reclassified realized foreign currency
translation gain, net of taxes
Items that will be reclassified subsequently to
net income (loss):
Unrealized gain on interest rate swaps and
other, net of taxes
Unrealized foreign currency translation gain,
net of taxes
Share of other comprehensive loss from
investment in Dream Industrial REIT
Comprehensive income (loss) for the period $
3,409
—
1,064
4,473
(2,556 )
(15,209 )
(1,307 )
(616 )
(19,688 )
78,663
(7,063 )
(1,632 )
69,968
96,126
(4,123 )
8,728
100,731
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
3,409
—
1,064
4,473
1,156
—
1,156
(12,201 )
1,055
(9,990 )
12,201
9
12,210
—
1,064
2,220
(2,556 )
(2,811 )
—
(2,811 )
(15,209 )
(1,307 )
(616 )
(19,688 )
78,663
(7,063 )
(1,632 )
69,968
96,126
(4,123 )
8,728
100,731
(28,248 )
(1,963 )
(259 )
—
(28,507 )
(1,963 )
(872 )
(33,894 )
—
(259 )
(872 )
(34,153 )
(123,200 )
(15,246 )
(9,332 )
(147,778 )
(99,947 )
—
(724 )
(100,671 )
(12,900 )
—
—
(12,900 )
—
—
—
—
(136,100 )
(15,246 )
(9,332 )
(160,678 )
(99,947 )
—
(724 )
(100,671 )
(5,905 )
—
(5,905 )
—
—
—
12
110
(260 )
(6,043 )
94,688 $
—
—
12
110
—
—
— $
(260 )
(6,043 )
94,688 $
11
950
—
961
(99,710 ) $
—
—
11
950
—
—
— $
—
961
(99,710 )
Dream Office REIT 2017 Annual Report | 16
Investment properties revenue
Investment properties operating expenses
Net rental income
Other income (loss)
Share of net income and net accretion loss
from investment in Dream Industrial REIT
Share of net loss from investment in joint
ventures
Interest and fee income
Other expenses
General and administrative
Interest:
Debt
Subsidiary redeemable units
Amortization and write-off of external
management contracts and depreciation on
property and equipment
Fair value adjustments, net losses on
transactions and other activities
Fair value adjustments to investment
properties
Fair value adjustments to financial
Net losses on transactions and other activities
instruments
Income (loss) before income taxes
Current income taxes expense
Deferred income taxes (expense) recovery
Net income (loss) for the year
Other comprehensive income (loss)
Items reclassified to net income (loss):
Reclassified interest rate swaps, net of tax
Reclassified realized foreign currency
translation gain, net of taxes
Items that will be reclassified subsequently to
net income (loss):
Unrealized gain on interest rate swaps, and
other, net of taxes
Unrealized foreign currency translation loss,
net of taxes
Share of other comprehensive loss from
investment in Dream Industrial REIT
Comprehensive income (loss) for the year
$
Amounts per
consolidated
financial statements
$
469,775 $
(212,116 )
257,659
2017
Share of
income from
investment in
joint ventures
Amounts per
consolidated
financial statements
Total
— $ 469,775 $
(212,116 )
—
257,659
—
664,291 $
(295,713 )
368,578
Year ended December 31,
2016
Share of
income from
investment in
joint ventures
59,002 $
(28,381 )
30,621
Total
723,293
(324,094 )
399,199
9,440
—
9,440
8,086
—
8,086
—
6,112
15,552
—
—
—
—
6,112
15,552
(154,300 )
3,258
(142,956 )
154,300
42
154,342
—
3,300
11,386
(10,644 )
—
(10,644 )
(11,906 )
—
(11,906 )
(86,560 )
(6,542 )
—
—
(86,560 )
(6,542 )
(119,520 )
(8,174 )
(8,864 )
—
(128,384 )
(8,174 )
(6,921 )
(110,667 )
—
—
(6,921 )
(110,667 )
(3,573 )
(143,173 )
(27 )
(8,891 )
(3,600 )
(152,064 )
23,116
(16,771 )
(37,930 )
(31,585 )
130,959
(4,123 )
7,950
134,786
—
—
—
—
—
—
—
—
23,116
(16,771 )
(37,930 )
(31,585 )
130,959
(4,123 )
7,950
134,786
(899,100 )
(13,555 )
(47,546 )
(960,201 )
(877,752 )
—
(1,953 )
(879,705 )
(172,700 )
—
(3,372 )
(176,072 )
—
—
—
—
(1,071,800 )
(13,555 )
(50,918 )
(1,136,273 )
(877,752 )
—
(1,953 )
(879,705 )
—
—
—
(5,905 )
—
(5,905 )
561
—
45
(3,115 )
(260 )
(9,235 )
125,551 $
—
—
45
252
(3,115 )
(1,207 )
(260 )
—
(9,235 )
—
— $ 125,551 $
—
(394 )
(880,099 ) $
—
—
— $
—
(394 )
(880,099 )
—
—
—
—
561
—
252
(1,207 )
Dream Office REIT 2017 Annual Report | 17
Net income
For the three months ended December 31, 2017, the Trust generated net income of $100.7 million consisting primarily of net
rental income of $41.4 million and fair value adjustments to investment properties and financial instruments of $71.6 million,
offset by interest expense on debt and subsidiary redeemable units of $16.5 million and net losses on transactions and other
activities of $1.6 million.
For the year ended December 31, 2017, the Trust generated net income of $134.8 million consisting primarily of net rental income
of $257.7 million and fair value adjustments to investment properties and financial instruments of $6.3 million, offset by interest
expense on debt and subsidiary redeemable units of $93.1 million and net losses on transactions and other activities of
$37.9 million.
Investment properties revenue
Investment properties revenue includes base rent from investment properties, recovery of operating costs and property taxes
from tenants, the impact of straight-line rent adjustments as well as lease termination fees and other adjustments. Lease
termination fees and other adjustments are not necessarily of a recurring nature and the amounts may vary year-over-year.
Investment properties revenue for the quarter (included in consolidated financial statements) was $78.7 million compared to
$166.9 million (included in consolidated financial statements) and $169.1 million (including joint ventures) in the prior year
comparative quarter. For the year ended December 31, 2017, investment properties revenue (per consolidated financial
statements) was $469.8 million compared to $664.3 million (per consolidated financial statements) and $723.3 million (including
joint ventures) in the prior year.
Overall, the decreases were primarily driven by dispositions during the current and prior year and lower weighted average in-place
occupancy. Offsetting this decline in investment properties revenue (per consolidated financial statements) for the three months
and year ended December 31, 2017 was the recognition of the investment property revenues from the Trust’s 50% interests in
Scotia Plaza(1), 100 Yonge Street(1) and F1RST Tower(2) in the consolidated financial statements and an increase in lease termination
fees and other adjustments. The increase in lease termination fees and other adjustments was mainly driven by a one-time lease
cancellation fee of $4.6 million that was received during Q1 2017 from a tenant located at 700 DLG in Montréal.
Investment properties operating expenses
Investment properties operating expenses comprise operating costs and property taxes as well as certain expenses that are not
recoverable from tenants. Operating expenses fluctuate with changes in occupancy levels, expenses that are seasonal in nature,
and the level of repairs and maintenance incurred during the period.
Investment properties operating expenses (included in consolidated financial statements) for the quarter were $37.4 million
compared to $75.2 million (included in consolidated financial statements) and $76.5 million (including joint ventures) in the prior
year comparative quarter. For the year ended December 31, 2017, investment properties operating expenses (per consolidated
financial statements) were $212.1 million compared to $295.7 million (per consolidated financial statements) and $324.1 million
(including joint ventures) in the prior year.
Overall, the decreases were mainly driven by dispositions during the current and prior year and lower weighted average in-place
occupancy. Offsetting this decrease in investment properties operating expenses (per consolidated financial statements) for the
three months and year ended December 31, 2017 was the recognition of investment properties operating expenses from the
Trust’s 50% interest in Scotia Plaza(1), 100 Yonge Street(1) and F1RST Tower(2) in the consolidated financial statements.
Share of net income and net accretion loss from investment in Dream Industrial REIT
Share of net income and net accretion loss from investment in Dream Industrial REIT for the quarter and year ended December 31,
2017 were $3.4 million and $9.4 million, respectively. The increase in our share of net income and net accretion loss from
investment in Dream Industrial REIT for the respective periods was primarily driven by reduction in fair value losses to investment
properties and a reduction in non-recurring charges on other activities, offset by reduction in fair value gains to financial
instruments and higher net accretion loss recognized as a result of our participation in Dream Industrial REIT’s distribution
reinvestment plan.
(1) On June 30, 2016, the Trust derecognized its investment in the joint ventures of Scotia Plaza and 100 Yonge Street and recognized the Trust’s remaining 50%
interest in the revenues and expenses of these investment properties in the consolidated financial statements.
(2) On January 1, 2017, the Trust derecognized its investment in the joint venture of F1RST Tower and recognized the Trust’s 50% interest in the revenues and
expenses in the consolidated financial statements.
Dream Office REIT 2017 Annual Report | 18
Interest and fee income
Interest and fee income comprises fees earned from third-party property management, including management, leasing and
construction fees, our share of net income (loss) from investment in Dream Technology Ventures LP (“DTV LP”), and interest
earned on bank accounts. Except for the third-party property management fees, the income included in interest and fee income is
not necessarily of a recurring nature and the amounts may vary year-over-year.
Interest and fee income (included in consolidated financial statements) for the quarter was $1.1 million, flat when compared to
the prior year comparative quarter.
For the year ended December 31, 2017, interest and fee income was $6.1 million, an increase of $2.9 million over the prior year
comparative period, mainly due to one-time leasing fees of $1.3 million related to leasing activity at Scotia Plaza in the second
quarter, $0.6 million of one-time interest earned on a vendor take-back mortgage related to the sale of a portfolio of properties in
Kitchener in the fourth quarter of 2016, $1.1 million of investment income and interest earned on bank accounts.
General and administrative expenses
The following table summarizes the nature of expenses included in general and administrative expenses:
Management Services Agreement with Dream Asset Management
Corporation (“DAM”)
Salaries and benefits
Deferred compensation expense
Other(1)
General and administrative expenses
Three months ended December 31,
Year ended December 31,
2017
2016
2017
2016
$
$
(176 ) $
(320 )
(621 )
(1,439 )
(2,556 ) $
(110 ) $
(438 )
(694 )
(1,569 )
(2,811 ) $
(830 ) $
(1,521 )
(3,128 )
(5,165 )
(10,644 ) $
(661 )
(1,902 )
(2,551 )
(6,792 )
(11,906 )
(1) “Other” comprises public reporting, professional service fees, corporate sponsorships, donations and overhead-related costs.
General and administrative (“G&A”) expenses for the quarter were $2.6 million, a decrease of $0.3 million over the prior year
comparative quarter, mainly attributable to decreases in salaries and benefits expense and a reduction in overhead related costs
as a result of our cost reduction program. Partially offsetting the reduction was an increase in charges from the Management
Services Agreement with DAM, reflecting the adjustment to the Chief Executive Officer’s compensation. For the year ended
December 31, 2017, G&A expenses were $10.6 million, a decrease of $1.3 million over the prior year, mainly due to the same
reasons noted earlier, partially offset by an increase in deferred compensation expense due to an appreciating unit price
throughout 2017 and changes to the vesting terms of the Board of Trustee retainer fees in the third quarter.
Interest expense – debt
Interest expense on debt (included in consolidated financial statements) for the quarter was $15.2 million, compared to
$28.2 million (included in consolidated financial statements) and $28.5 million (including joint ventures). For the year ended
December 31, 2017, interest expense on debt (per consolidated financial statements) was $86.6 million compared to
$119.5 million (per consolidated financial statements) and $128.4 million (including joint ventures) in the prior year comparative
period.
Overall, the decreases were mainly driven by discharge of debt related to sold properties, discharge of certain maturing debt in the
current and prior year and refinancing of maturing debt at lower interest rates during the current and prior year. Offsetting this
decline in interest expense on debt (per consolidated financial statements) for the three months and year ended December 31,
2017 was the recognition of interest expense related to the Trust’s 50% interest in the debt of Scotia Plaza(1), 100 Yonge Street(1)
and F1RST Tower(2) in the consolidated financial statements.
Interest expense – subsidiary redeemable units
Interest expense on subsidiary redeemable units (included in consolidated financial statements) for the quarter was $1.3 million, a
decrease of $0.7 million over the prior year comparative quarter. For the year ended December 31, 2017, interest expense on
subsidiary redeemable units (per consolidated financial statements) was $6.5 million, a decrease of $1.6 million over the prior
year. The decreases were due to the reduction in monthly cash distribution from $0.18666 per unit to $0.125 per unit, or $1.50 per
unit on an annualized basis, commencing with the month of February 2016 distribution and a further reduction to $0.08333 per
unit, or $1.00 per unit on an annualized basis, commencing with the month of July 2017 distribution.
(1) On June 30, 2016, the Trust derecognized its investment in the joint ventures of Scotia Plaza and 100 Yonge Street and recognized the Trust’s remaining 50%
interest in the revenues and expenses of these investment properties in the consolidated financial statements.
(2) On January 1, 2017, the Trust derecognized its investment in the joint venture of F1RST Tower and recognized the Trust’s 50% interest in the revenues and
expenses in the consolidated financial statements.
Dream Office REIT 2017 Annual Report | 19
Amortization and write-off of external management contracts and depreciation on property and equipment
Amortization and write-off of external management contracts and depreciation on property and equipment expense (included in
consolidated financial statements) for the quarter was $0.6 million, an increase of $0.3 million when compared to the prior year
comparative quarter (for the year ended December 31, 2017 – $6.9 million, an increase of $3.3 million over the prior year),
primarily driven by the write-off of external management contracts related to certain co-owned properties disposed of during the
current year.
Fair value adjustments to investment properties
Refer to the section “Investment Properties” under the heading “Fair value adjustments to investment properties” for a discussion
of fair value changes for the three months and year ended December 31, 2017.
Fair value adjustments to financial instruments
Fair value adjustments to financial instruments include remeasurements of the carrying value of subsidiary redeemable units and
deferred trust units.
The $7.1 million and $16.8 million fair value losses (included in consolidated financial statements) recorded for the three months
and year ended December 31, 2017, respectively, were due to remeasurement of the carrying value of subsidiary redeemable
units and deferred trust units during the quarter and for the year, as a result of increases in the Trust’s unit price.
Net losses on transactions and other activities
The following table summarizes the nature of expenses and gains included in net losses on transactions and other activities,
including investments in joint ventures:
Debt settlement costs, net(1)
Costs on sale of investment properties(2)
Internal leasing costs
Charge on cost reduction program
Realized foreign exchange gain on the sale of investment
property
Loss on recognition of net assets related to joint operations
Business transformation costs
Other
Total
$
$
Three months ended December 31,
2016
2017
(3,968 ) $
(1,665 )
(1,308 )
(43 )
5,905
—
—
(553 )
(1,632 ) $
— $
(3,137 )
(2,150 )
(3,923 )
—
—
(122 )
—
(9,332 ) $
Year ended December 31,
2017
(16,255 ) $
(20,057 )
(5,237 )
(1,616 )
2016
(13,320 )
(12,074 )
(8,822 )
(3,923 )
5,905
(117 )
—
(553 )
(37,930 ) $
—
(10,263 )
(1,219 )
(1,297 )
(50,918 )
(1) Net debt settlement costs comprise expenses and gains on early discharge of mortgages and the write-off of associated mark-to-market adjustments and
deferred financing costs.
(2) Costs on sale of investment properties comprise transaction costs, commissions and other expenses incurred in relation to the disposal of investment
properties.
For the three months ended December 31, 2017, the decrease in net losses on transactions and other activities over the prior year
comparative quarter was mainly due to the realization of historic foreign exchange adjustments on the sale of an investment
property in the United States, and a reduction in costs on sale of investment properties, internal leasing costs, the charge on cost
reduction program and elimination of business transformation costs, partially offset by higher debt settlement costs. For the year
ended December 31, 2017, the decrease over the prior year was mainly due to the same reasons noted above, except for costs on
sale of investment properties, where it increased over the prior year, and lower loss on recognition of net assets related to
joint operations.
Current income taxes expense
Current income taxes expense (included in consolidated financial statements) for the three months and year ended December 31,
2017 were $4.1 million as compared to $nil in the comparative periods. The increase in current income tax expense in the current
year was attributable to the sale of an investment property in the United States along with current year income taxes for our
remaining United States property.
Deferred income taxes (expense) recovery
Deferred income taxes recovery (included in consolidated financial statements) for the three months and year ended
December 31, 2017 were $8.7 million and $8.0 million, respectively, as compared to deferred income taxes expense of $0.7 million
and $2.0 million for the three months and year ended December 31, 2016. The current year deferred income taxes recovery was a
result of the realization of timing differences pertaining to an investment property in the United States that was sold during the
quarter and changes to United States tax regulations.
Dream Office REIT 2017 Annual Report | 20
Other comprehensive income (loss)
Other comprehensive income (loss) comprises amortization of an unrealized gain on an interest rate swap and an unrealized
foreign currency translation gain (loss) related to the investment property located in the United States. For the three months and
year ended December 31, 2017, other comprehensive loss (included in consolidated financial statements) amounted to
$6.0 million and $9.2 million, respectively. The changes in overall comprehensive income (loss) for the respective periods were
mainly driven by the reclassification of the realized foreign exchange adjustments related to the sale of an investment property in
the United States during the quarter.
Related party transactions
From time to time, Dream Office REIT and its subsidiaries enter into transactions with related parties that are generally conducted
on a cost-recovery basis, except for dispositions of investment properties which are transacted at fair value. The following tables
summarize our related party transactions for the three months and years ended December 31, 2017 and December 31, 2016.
On April 2, 2015, the Trust and DAM entered into a Management Services Agreement pursuant to which DAM will provide
strategic oversight of the Trust and the services of a Chief Executive Officer as requested on a cost recovery basis. In accordance
with the termination provisions of the Management Services Agreement, the Trust is subject to an incentive fee payable which is
based on 15% of the Trust’s Aggregate Adjusted Funds from Operations (as defined in the Management Services Agreement),
including the net gain on sale of any properties during the term of the agreement, and the deemed sale of the remaining portfolio
upon termination, in excess of $2.65 per REIT A Unit. This agreement gives DAM the right to terminate the agreement upon
180 days’ notice (any time after April 2, 2018) and the Trust the right to terminate the agreement upon 60 days’ notice. As the
termination of the Management Services Agreement for the first three years is solely at the discretion of the Trust and the Trust
currently has no intention to terminate the Management Services Agreement, the Trust has determined that it is not probable that
the incentive fee is payable and accordingly, no amounts related to the incentive fee have been recorded in the consolidated
financial statements as at December 31, 2017 and December 31, 2016.
On December 1, 2013, Dream Office REIT and DAM entered into a Shared Services and Cost Sharing Agreement. Pursuant to the
Reorganization, the Trust and DAM amended the existing Shared Services and Cost Sharing Agreement as of April 2, 2015.
According to the terms of the amended arrangement, DAM will continue to provide administrative and support services on an
as-needed basis and will receive an annual fee to reimburse it for all expenses incurred. The Trust will continue to reimburse DAM
for any shared costs allocated in each calendar year. This amended agreement provides for the automatic reappointment of DAM
for additional one-year terms commencing on January 1 unless and until terminated in accordance with its terms or by mutual
agreement of the parties.
Dream Office REIT, Dream Office Management LP (a wholly owned subsidiary of Dream Office LP) and DAM were parties to an
administrative services agreement (the “Services Agreement with DAM”). Effective April 2, 2015, as part of the Reorganization, the
existing Services Agreement with DAM was terminated and Dream Office Management Corp. (“DOMC”), a wholly owned
subsidiary of Dream Office Management LP, and DAM entered into an amended Administrative Services Agreement pursuant to
which DOMC will continue to provide certain administrative and support services to DAM. The terms of the agreement provide for
DOMC to be reimbursed by DAM for the actual costs incurred by it in carrying out these activities on behalf of DAM. This
agreement is for one-year terms unless and until terminated in accordance with its terms or by mutual agreement of the parties.
On October 25, 2016, the Trust and DAM jointly implemented a cost reduction program to simplify and to establish more
dedicated services on a cost-efficient basis of the Trust’s operating and shared service platform. On a go forward basis, the portion
of the cost reduction program that relates to the shared service platform will impact the costs being allocated to related parties in
accordance with the Shared Services, Cost Sharing, Administrative Services and Services Agreements currently in place. As a result
of implementing this program, the Trust incurred a charge of $1.6 million and $3.9 million for the years ended December 31, 2017
and December 31, 2016, respectively, which are included in net losses on transactions and other activities.
Dream Office REIT 2017 Annual Report | 21
Management Services Agreement with DAM
The following is a summary of fees incurred for the three months and years ended December 31, 2017 and December 31, 2016
pursuant to the Management Services Agreement:
Senior management compensation (included in G&A expenses)
Expense reimbursements related to financing arrangements
$
(included in debt)
Expense reimbursements related to disposition arrangements
(included in costs on sale of investment properties)
Professional services and other (included in investment properties
and G&A expenses)
Total incurred under the Management Services Agreement
$
Three months ended December 31,
2017
(176 ) $
2016
(110 ) $
Year ended December 31,
2017
(830 ) $
2016
(661 )
(142 )
(190 )
(576 )
(138 )
(271 )
(702 )
(753 )
(876 )
(352 )
(808 ) $
(180 )
(751 ) $
(848 )
(2,956 ) $
(871 )
(3,161 )
Administrative Services Agreement with DAM
The following is a summary of cost reimbursements received from or paid to DAM and costs incurred by DAM or the Trust on
behalf of the other party for the three months and years ended December 31, 2017 and December 31, 2016 pursuant to the
amended Administrative Services Agreement with DAM:
Shared services and costs processed on behalf of DAM
Operating and administration costs of regional offices processed on
$
behalf of DAM
Total costs processed on behalf of DAM under the Administrative
Services Agreement
Total costs processed by DAM on behalf of the Trust under the
Administrative Services Agreement
$
$
Three months ended December 31,
2017
$
1,668
2016
1,569 $
Year ended December 31,
2017
5,742 $
2016
7,220
74
85
287
615
1,742
$
1,654
$
6,029
$
7,835
(221 ) $
(148 ) $
(966 ) $
(568 )
Shared Services and Cost Sharing Agreement with DAM
The following is a summary of fees billed by DAM for the three months and years ended December 31, 2017 and December 31,
2016.
Business transformation costs(1)
Total costs incurred under the Shared Services and Cost Sharing
Agreement
Three months ended December 31,
2016
(122 ) $
2017
— $
$
Year ended December 31,
2017
— $
2016
(1,219 )
$
—
$
(122 ) $
—
$
(1,219 )
(1) Business transformation costs are included in net losses on transactions and other activities and relate to process and technology improvement. This initiative
transformed our operating platform to allow us to improve data integrity, realize operating efficiencies, establish business analytic tools and ultimately
generate better business outcomes. This initiative also formed the foundation of our continuous improvement culture. The Trust has no remaining
commitment under the Shared Services and Cost Sharing Agreement.
Services Agreement with Dream Industrial REIT
DOMC entered into a separate Services Agreement with Dream Industrial REIT, in which the Trust provides certain services to
Dream Industrial REIT on a cost-recovery basis.
The following is a summary of the cost recoveries from Dream Industrial REIT for the three months and years ended December 31,
2017 and December 31, 2016:
Total cost recoveries from Dream Industrial REIT
Three months ended December 31,
2016
973 $
2017
728 $
$
Year ended December 31,
2017
2,726 $
2016
3,682
Dream Office REIT 2017 Annual Report | 22
SECTION III
INVESTMENT PROPERTIES
Investment property continuity
Changes in the value of our investment properties by region for the three months ended December 31, 2017 are summarized in
the following table:
Three months ended
September 30,
2017(1)
418,761 $
$
1,498,160
218,209
357,178
284,052
2,776,360
40,597
Assets held
for sale/sold
properties
— $
—
—
—
—
—
—
Building
improvement,
initial direct
leasing costs
and lease
incentives
1,640 $
7,917
1,473
1,553
2,010
14,593
Fair value
adjustments
(32,578 ) $
202,970
(3,196 )
(3,019 )
(74,305 )
89,872
Amortization of
lease incentives,
foreign exchange
adjustments
(861 ) $
and other December 31,
2017
386,962
1,707,867
216,400
355,687
211,923
2,878,839
(1,180 )
(86 )
(25 )
166
(1,986 )
3
2
(3 )
40,599
242,757
$ 3,059,714 $
(184,090 )
(184,090 ) $
2,541
17,137 $
(11,211 )
78,663 $
1,533
(456 ) $
51,530
2,970,968
181,754
(132,559 )
1,590
(979 )
1,724
51,530
$ 2,877,960 $
(51,531 ) $
15,547 $
79,642 $
(2,180 ) $
2,919,438
Calgary
Toronto downtown
Mississauga and North York
Ottawa and Montréal
Non-core markets
Total comparative portfolio
Add:
Properties held for redevelopment
Properties classified as held for
sale/sold properties
Total portfolio
Less:
Wholly owned/co-owned properties
classified as assets held for sale
Total amounts included in
consolidated financial statements
(1) Opening balances have been reclassified to exclude sold properties and properties held for sale and redevelopment during the period.
Changes in the value of our investment properties by region for the year ended December 31, 2017 are summarized in the
following table:
January 1,
2017(1)
404,861 $
$
1,455,983
215,214
353,171
324,725
2,753,954
49,210
Assets held
for sale/sold
properties
— $
—
—
—
—
—
—
Building
improvement,
initial direct
leasing costs
and lease
incentives
17,827 $
22,117
3,600
7,256
5,570
56,370
Amortization of
lease incentives,
foreign exchange
and other
adjustments
(2,554 ) $
(3,645 )
(326 )
(338 )
(4,511 )
(11,374 )
Fair value
adjustments
(33,172 ) $
233,412
(2,088 )
(4,402 )
(113,861 )
79,889
Year ended
December 31,
2017
386,962
1,707,867
216,400
355,687
211,923
2,878,839
260
(8,853 )
(18 )
40,599
2,414,423
$ 5,217,587 $
(2,339,572 )
(2,339,572 ) $
31,232
87,862 $
(47,920 )
23,116 $
(6,633 )
(18,025 ) $
51,530
2,970,968
60,000
—
—
—
(60,000)(2)
—
321,232
(264,570 )
12,484
(15,327 )
(2,289 )
51,530
$ 4,836,355
$
(2,075,002 ) $
75,378
$
38,443
$
44,264
$
2,919,438
Calgary
Toronto downtown
Mississauga and North York
Ottawa and Montréal
Non-core markets
Total comparative portfolio
Add:
Properties held for redevelopment
Properties classified as held for
sale/sold properties
Total portfolio
Less:
Investment in joint ventures
Wholly owned/co-owned properties
classified as assets held for sale
Total per consolidated financial
statements
Dream Office REIT 2017 Annual Report | 23
(1) Opening balances have been reclassified to exclude sold properties and properties held for sale and redevelopment during the year.
(2) On January 1, 2017, the Trust derecognized its investment in the joint venture of F1RST Tower and recognized the Trust’s 50% interest in the investment
property as a joint operation.
Valuations of externally appraised properties
For the year ended December 31, 2017, the Trust valued 27 investment properties by qualified external valuation professionals
with an aggregate fair value of $2.2 billion (for the year ended December 31, 2016 – 46 investment properties with an aggregate
fair value of $2.0 billion).
Fair value adjustments to investment properties
For the three months ended December 31, 2017, the Trust recorded a fair value gain of $78.7 million, mainly driven by fair value
gains totalling $89.9 million in our comparative portfolio, partially offset by fair value losses totalling $11.2 million in our sold
properties and assets held for sale. In particular, the fair value gains in our comparative portfolio were for the most part
attributable to Toronto downtown totalling $203.0 million, reflecting higher stabilized NOI to account for the higher market rate
assumptions and capitalization rate (“cap rate”) compression of 46 basis points (“bps”). Partially offsetting this were fair value
losses in our Calgary region totalling $32.6 million, reflecting higher terminal cap rates at certain properties to account for the
elevated risk associated with lease up assumptions as well as adjustments for the time and costs required to reach stabilization.
Furthermore, the fair value losses in our Non-core markets region totalled $74.3 million, reflecting an increase in the cap rates by
54 bps. The fair value for the remaining regions in our comparative portfolio were relatively stable. The fair value losses that relate
to the properties sold and held for sale were for the most part due to final adjustments on properties sold during the quarter and
bids received on properties held for sale.
For the year ended December 31, 2017, the Trust recorded a fair value gain of $23.1 million, mainly driven by the same reasons
noted above.
Dream Office REIT 2017 Annual Report | 24
Assumptions in the valuation of investment properties (excluding Alberta)
As at December 31, 2017, the Trust’s comparative portfolio, excluding investment properties in Alberta and certain properties
where bids were received by the Trust, was valued using the cap rate method. The critical valuation metrics as at December 31,
2017, September 30, 2017 and December 31, 2016 are set out in the table below by region as follows:
Toronto downtown
Mississauga and North York
Ottawa and Montréal
Non-core markets
Total comparative portfolio (excluding
Alberta)
December 31, 2017
Weighted
average (%)(2)
4.82
5.96
5.60
7.37
Range (%)(2)
4.50–6.00
5.75–6.25
5.50–6.50
6.00–8.00
September 30, 2017(1)
Weighted
average (%)(2)
5.28
5.96
5.57
6.93
Range (%)(2)
5.00–6.00
5.75–6.25
5.50–6.25
6.00–7.50
Capitalization rates
December 31, 2016(1)
Range (%)(2)
5.00–6.00
5.75–6.25
5.50–6.25
6.25–7.50
Weighted
average (%)(2)
5.30
5.97
5.57
6.79
4.50–8.00
5.20
5.00–7.50
5.57
5.00–7.50
5.58
(1) Comparative periods have been reclassified to exclude sold properties and properties held for sale and redevelopment in the current period.
(2) Excludes certain properties where bids were received by the Trust at period-end.
Assumptions in the valuation of investment properties in Alberta
As at December 31, 2017, the Trust continues to value its investment properties in Alberta, excluding certain properties where bids
were received by the Trust and assets held for sale, using the discounted cash flow method in light of the ongoing challenges in
that region’s office sector. The critical valuation metrics as at December 31, 2017, September 30, 2017 and December 31, 2016 are
set out below:
Discount rates (%)
Terminal cap rates (%)
Market rents(3)
September 30, 2017(1)
December 31, 2016(1)(2)
December 31, 2017(1)
Weighted
average
8.07
7.09
14.46 $10.00–16.50 $
Range
7.50–8.25
6.63–7.50
Range
7.50–8.75
6.63–8.25
$10.00–16.50 $
Weighted
average
7.89
7.05
14.34 $12.00–16.50 $
Range
7.50–8.25
6.63–7.50
Weighted
average
7.82
7.05
15.04
(1) Excludes certain properties where bids were received by the Trust, sold properties and properties held for sale and redevelopment in the current period.
(2) Includes investment in joint ventures.
(3) Market rents represent year one rates in the discounted cash flow model. Market rents include office space only and exclude retail space.
In addition to the assumptions noted above, leasing cost assumptions for new and renewed leasing were within the range of $20
and $60 per square foot, with weighted average vacancy rate assumptions in years one to four of 23%, returning to normalized
vacancy rates of 6% beyond year four.
Building improvements
Building improvements represent investments made to our investment properties to ensure optimal building performance, to
improve the experience and attractiveness to our tenants, as well as to reduce operating costs. In order to retain desirable
rentable space and to generate adequate revenue over the long term, we must maintain or, in some cases, improve each
property’s condition to meet market demand.
As part of our broader strategy to invest capital in our buildings to improve the experience and attractiveness to tenants as well as
to reduce operating costs, we expect overall building improvements to remain elevated. By doing so, our tenants will have a better
experience at our buildings, leading to improved tenant retention, quicker leasing of available space and realization of higher
rental rates.
Dream Office REIT 2017 Annual Report | 25
The table below summarizes the building improvements incurred for the three months and years ended December 31, 2017 and
December 31, 2016.
Year ended December 31,
Building improvements
Recoverable
Non-recoverable
Total comparative portfolio(1)
Add:
Properties held for redevelopment
Properties classified as held for sale/sold properties
Total portfolio
Less:
Investment in joint ventures
$
$
Three months ended December 31,
2016
4,274
1,132
5,406
2017
4,576
1,440
6,016
$
—
97
6,113
$
—
563
7,255
13,224
—
$
$
$
$
2017
17,138
2,769
19,907
100
7,662
27,669
—
Wholly owned/co-owned properties classified as assets
held for sale
Total amounts included in consolidated financial statements $
—
6,113
$
—
13,224
$
3,162
24,507
$
(1) Excludes sold properties and properties held for sale and redevelopment during the period.
2016
15,749
2,742
18,491
563
29,068
48,122
9,901
128
38,093
For the three months and year ended December 31, 2017, we incurred $6.1 million and $27.7 million, respectively, in expenditures
related to building improvements, the majority of which are recoverable from tenants under current terms of the leases.
Recoverable building improvements for the three months and year ended December 31, 2017 were $4.6 million and $17.1 million,
respectively, and included safety enhancements, heating, ventilation, air conditioning replacements, parking upgrades, elevator
modernization and recoverable lobby and common area upgrades.
For the three months and year ended December 31, 2017, non-recoverable building improvements were $1.4 million and
$2.8 million, respectively, which include costs for structural, safety and exterior enhancements.
Dispositions update for the quarter and year
For the three months ended December 31, 2017, the Trust completed the sale of investment properties totalling approximately
5.1 million square feet, for gross proceeds (net of adjustments) totalling $184.1 million. Subsequent to year-end, the Trust
completed the sale of four properties located in Alberta and Saskatchewan, totalling approximately 0.4 million square feet, for
gross proceeds (net of adjustments) totalling $51.7 million. In addition, the Trust has approximately $100 million of properties
currently under contract to be sold or in various stages of discussion.
Dream Office REIT 2017 Annual Report | 26
Property
Braithwaite Boyle Centre, Calgary
10 Lower Spadina Avenue, Toronto(2)
49 Ontario Street, Toronto(2)
Calgary Portfolio(3)
HSBC Bank Place and Enbridge Place, Edmonton
HSBC Building and Milner Building, Edmonton
13183 146th Street NW, Edmonton
Accelerator Building, Waterloo
10199 101st Street NW, Edmonton
Date disposed
January 9, 2017
January 11, 2017
January 11, 2017
January 31, 2017
February 27, 2017
March 3, 2017
March 15, 2017
March 28, 2017
March 30, 2017
Total dispositions for the three months ended March 31, 2017
Franklin Atrium, Calgary
April 3, 2017
Airport Corporate Centre, Calgary
April 12, 2017
3115 12th Street NE, Calgary
April 12, 2017
2816 11th Street NE, Calgary
April 19, 2017
250 King Street, Fredericton
April 25, 2017
460 Two Nations Crossing, Fredericton(2)
April 25, 2017
185, 191 & 195 The West Mall, Etobicoke(2)
April 25, 2017
625 Agnes Street, New Westminster
May 9, 2017
5945–5955 & 5915–5935 Airport Road, Mississauga
May 11, 2017
Highfield Place, Edmonton
May 11, 2017
401 & 405 The West Mall, Toronto(2)
May 26, 2017
680 Broadway Street, Tillsonburg(2)
June 1, 2017
55 Norfolk Street South, Simcoe(2)
June 16, 2017
180 Keil Drive South, Chatham
June 27, 2017
2550 Argentia Road, Mississauga
June 28, 2017
Regina Portfolio(4)
June 29, 2017
Total dispositions for the three months ended June 30, 2017
July 31, 2017
August 15, 2017
August 15, 2017
August 17, 2017
August 23, 2017
August 23, 2017
August 23, 2017
September 8, 2017 Diversified Portfolio(5)
September 19, 2017 6501–6523 & 6531–6559 Mississauga Road, Mississauga(2)
Total dispositions for the three months ended September 30, 2017
October 4, 2017
October 6, 2017
October 31, 2017
Total dispositions for the three months ended December 31, 2017
Total dispositions for the year ended December 31, 2017
Franklin Building, Calgary
2645 Skymark Avenue, Mississauga
2810 Matheson Boulevard East, Mississauga(2)
586 Argus Road, Oakville
Scotia Plaza (40 & 44 King Street West), Toronto
100 Yonge Street, Toronto
Baker Centre, Edmonton
Station Tower, Surrey
Royal Centre, Saskatchewan
445 Opus Industrial Boulevard, Mount Juliet, Nashville, U.S.
Ownership
(%)
100.0 %
40.0 %
40.0 %
100.0 %
100.0 %
100.0 %
100.0 %
100.0 %
50.0 %
100.0 %
100.0 %
100.0 %
100.0 %
100.0 %
40.0 %
49.9 %
100.0 %
100.0 %
100.0 %
40.0 %
49.9 %
40.0 %
100.0 %
100.0 %
100.0 %
100.0 %
100.0 %
49.9 %
100.0 %
50.0 %
50.0 %
100.0 %
Various
40.0 %
100.0 %
100.0 %
100.0 %
Disposed
share of GLA
(000s sq. ft.)
Sales price(1)
Debt related to
dispositions
55
24
35
1,505
563
296
39
93
60
2,670 $
150
151
73
33
80
20
308
86
685
105
165
23
6
37
52
176
2,150 $
51
141
69
75
991
123
143
3,436
63
323,959 $
(217,384 )
391,248 $
(108,267 )
5,092 $ 1,440,275 $
(612,756 )
220
48
717
985 $
184,090 $
(84,675 )
10,897 $ 2,339,572 $ (1,023,082 )
(1) Sales price reflects gross proceeds net of adjustments and before transaction costs.
(2) For the year ended December 31, 2017, the Trust wrote off external management contracts related to these disposed co-owned properties totalling $3,914.
(3) Includes 12 properties in Calgary: Atrium I, Atrium II, Roslyn Building, 435-4th Avenue SW, Mount Royal Place, 1035-7th Avenue SW, 840-7th Avenue,
McFarlane Tower, Dominion Centre, 510-5th Street SW, Northland Building and 441-5th Avenue.
(4) Includes five properties in Regina: 2400 College Avenue, 2220 College Avenue, 2208 Scarth Avenue, 2445 13th Avenue and Harbour Landing, Phase 2.
(5) Diversified Portfolio includes 39 properties: three properties in British Columbia, five properties in the Northwest Territories, nine properties in Alberta,
18 properties in Ontario and four properties in Nova Scotia. The Trust’s ownership interest in these properties ranged between 35.0% and 100.0%.
Dream Office REIT 2017 Annual Report | 27
For the year ended December 31, 2016, the Trust disposed of the following properties:
Date disposed
February 26, 2016
Property
2450 Girouard Street West & 455 Saint Joseph Avenue
(Intact Tower), Saint-Hyacinthe
8550 Newman Boulevard, Montréal
1305 Chemin Sainte-Foy, Québec City
1 Riverside Drive, Windsor
March 1, 2016
March 1, 2016
March 10, 2016
Total dispositions for the three months ended March 31, 2016
April 1, 2016
April 27, 2016
April 29, 2016
May 2, 2016
2010 Winston Park Drive, Oakville
4259–4299 Canada Way, Burnaby
960 Quayside Drive, New Westminster
625 Cochrane Drive and Valleywood Corporate Centre,
Markham
30 Eglinton Ave. West, Mississauga
887 Great Northern Way, Vancouver
Scotia Plaza and 100 Yonge Street, Toronto
May 18, 2016
June 10, 2016
June 30, 2016
Total dispositions for the three months ended June 30, 2016
July 25, 2016
July 29, 2016
August 2, 2016
September 16, 2016 4370 & 4400 Dominion Street, Burnaby
Total dispositions for the three months ended September 30, 2016
November 16, 2016 2665 Renfrew Street, Vancouver
December 29, 2016 Kitchener Portfolio(3)
Total dispositions for the three months ended December 31, 2016
Total dispositions for the year ended December 31, 2016
100 Gough Road, Markham
Suburban Ottawa & Gatineau Portfolio(2)
Seven Capella Court, Ottawa
Ownership
(%)
Disposed
share of GLA
(000s sq. ft.) Sales price(1)
Debt related to
dispositions
100 %
100 %
100 %
100 %
40 %
100 %
100 %
100 %
100 %
100 %
17 %
100 %
100 %
100 %
100 %
100 %
100 %
$
232
66
37
236
571 $
32
120
62
318
165
164
371
1,232 $
112
392
32
157
693 $
82
985
1,067 $
3,563 $
81,501 $
(23,268 )
471,030 $
(218,934 )
146,350 $
(31,421 )
171,273 $
870,154 $
(55,426 )
(329,049 )
(1) Sales price reflects gross proceeds net of adjustments and before transaction costs.
(2) Includes four properties in suburban Ottawa and Gatineau: 2625 Queensview Drive, Gateway Business Park, 1125 Innovation Drive and 22 Varennes Street.
(3) Includes seven properties in Kitchener: Market Square, 101 Frederick Street (Galleria), 50 Queen Street North, 55 King Street West, 235 King Street East,
22 Frederick Street, and 70 King Street East.
INVESTMENT IN DREAM INDUSTRIAL REIT
Dream Industrial REIT is an unincorporated, open-ended real estate investment trust listed on the Toronto Stock Exchange under
the symbol “DIR.UN”.
Investment in Dream Industrial REIT
Dream Industrial REIT units held, end of year
Dream Industrial LP Class B limited partnership units held, end of year
Total Dream Industrial REIT units held, end of year
Ownership %, end of year
$
December 31,
2017
220,796 $
5,431,141
18,551,855
23,982,996
25.6 %
December 31,
2016
186,754
882,473
18,551,855
19,434,328
24.9 %
On November 21, 2017, Dream Industrial REIT completed an $86.5 million equity offering to partially fund the acquisition of a
portfolio of four light industrial properties located in the United States. Concurrently with the equity offering, the Trust subscribed
for 2,858,000 of Dream Industrial REIT units through a private placement totalling $25.0 million.
For the three months and year ended December 31, 2017, the Trust purchased Dream Industrial REIT Units through its distribution
reinvestment plan totalling 440,161 and 1,690,668 Dream Industrial REIT Units, respectively, for a total cost of $3.8 million and
$14.5 million, respectively.
The Trust’s ownership increased to 25.6% at December 31, 2017 from 24.9% at December 31, 2016. The net change in the Trust’s
ownership was a result of Dream Industrial REIT’s issuance of additional units through a private placement, and Dream Industrial
REIT’s distribution reinvestment plan, offset by Dream Industrial REIT’s deferred unit incentive plan and unit purchase plan along
with additional units issued through an equity offering during the year ended December 31, 2017.
Dream Office REIT 2017 Annual Report | 28
The fair value of the Trust’s interest in Dream Industrial REIT of $211.1 million (December 31, 2016 – $165.8 million) was
determined using the Dream Industrial REIT closing unit price of $8.80 per unit at year-end multiplied by the number of units held
by the Trust as at December 31, 2017.
OUR FINANCING
Our discussion of financing activities is based on the debt balance, which includes debt related to investments in joint ventures
that are equity accounted, at our proportionate ownership, and debt associated with assets held for sale. Where applicable, a
reconciliation to our consolidated financial statements has been included in the tables in this section.
Debt summary
The key performance indicators in the management of our debt are as follows:
Financing and liquidity metrics
Weighted average face rate of interest (period-end)(1)
Interest coverage ratio (times)(2)(3)
Net debt-to-adjusted EBITDFV (years)(2)
Level of debt (net total debt-to-total assets)(2)(3)
Level of debt (net secured debt-to-total assets)(2)(3)
Average term to maturity (years)
Variable rate debt as percentage of total debt
Unencumbered assets(4)
Available liquidity(5)
December 31,
2017
3.90 %
3.1
7.1
39.6 %
30.6 %
4.5
8.3 %
299,000
September 30,
2017
3.93 %
3.1
6.5
39.7 %
30.0 %
4.7
7.3 %
160,000
December 31,
2016
3.84 %
3.1
7.7
52.4 %
44.3 %
3.8
13.0 %
244,000
Cash and cash equivalents
Undrawn demand revolving credit facilities
9,211
613,514
622,725
(1) Weighted average face rate of interest is calculated as the weighted average face rate of all interest bearing debt balances, including debt related to
96,960 $
396,667
493,627 $
259,777 $
406,893
666,670 $
Available liquidity
$
$
investment in joint ventures that are equity accounted.
(2) The calculation of the following non-GAAP measures – interest coverage ratio, net debt-to-adjusted EBITDFV and levels of debt are included in the “Non-GAAP
Measures and Other Disclosures” section of the MD&A.
(3) Interest coverage ratio and levels of debt have been restated in the comparative periods to conform to current period presentation.
(4) Excludes properties held for sale at period-end.
(5) Available liquidity (a non-GAAP measure) is defined in the section “Non-GAAP Measures and Other Disclosures” under the heading “Available liquidity”.
We ended the quarter with a net total debt-to-total assets ratio of 39.6%, net debt-to-adjusted EBITDFV of 7.1 years, and interest
coverage ratio of 3.1 times. Our weighted average face rate of interest decreased to 3.90% when compared to 3.93% at
September 30, 2017 due to discharge of debt related to sold properties during the quarter, and was up from 3.84% at
December 31, 2016 for the same reasons, due to the discharge of debt during the year and lower drawings on our credit facilities.
Our available liquidity of $493.6 million comprises undrawn demand revolving credit facilities totalling $396.7 million and
$97.0 million of cash and cash equivalents on hand as at December 31, 2017.
Liquidity and capital resources
Dream Office REIT’s primary sources of capital are cash generated from operating activities, net proceeds from investment
property dispositions, demand revolving credit facilities, mortgage financing and refinancing, and equity and debt issuances. Our
primary uses of capital include the payment of distributions, costs of attracting and retaining tenants, recurring property
maintenance, major property improvements, debt principal repayments, interest payments and repurchases of REIT A Units. We
expect to meet all of our ongoing obligations with current cash and cash equivalents, cash flows generated from operations,
demand revolving credit facilities, conventional mortgage refinancing and, as growth requires and when appropriate, new equity
or debt issuances.
In our consolidated financial statements as at December 31, 2017, our current liabilities exceeded our current assets by
$108.4 million. Typically, real estate entities seek to address liquidity needs by having a balanced debt maturity schedule and
undrawn demand revolving credit facilities. We are able to use our demand revolving credit facilities on short notice, which
eliminates the need to hold significant amounts of cash and cash equivalents on hand. Working capital balances can fluctuate
significantly from period-to-period depending on the timing of receipts and payments. Debt obligations that are due within one
year include debt maturities of $207.0 million, which we typically refinance with our undrawn demand credit facilities and
mortgages of terms between five and ten years. Amounts payable and accrued liabilities balances outstanding at the end of any
reporting period depend primarily on the timing of leasing costs and capital expenditures incurred, as well as the impact of
transaction costs incurred on dispositions completed during the reporting period.
Dream Office REIT 2017 Annual Report | 29
We continue to maintain high levels of liquidity for capital expenditures and to generate investment capital to be used to improve
the value of our portfolio.
Debt
Less debt related to:
Investment in joint ventures(1)
Assets held for sale
Debt per consolidated financial statements
December 31,
2017
1,367,650 $
December 31,
2016
2,898,901
—
—
1,367,650 $
39,883
209,228
2,649,790
$
$
(1) On January 1, 2017, the Trust derecognized its investment in the joint venture of F1RST Tower and recognized the Trust’s 50% interest in the debt of this
investment property in its joint operations.
Financing activities during the quarter and year
The following table details the total mortgages renewed, refinanced and discharged during the three months and year ended
December 31, 2017:
Three months ended December 31, 2017
Year ended December 31, 2017
Financing activities
Mortgages renewed or
refinanced Mortgages discharged
Amount
New term (years)
Weighted average face interest rate(1)
n/a – not applicable.
(1) Weighted average face interest rate is calculated as the weighted average face rate of all interest bearing debt on balance, including debt related to
n/a
4.36 %
(155,297 ) $
— $
n/a
n/a
$
or refinanced Mortgages discharged
(1,304,719 )
n/a
4.04 %
159,880 $
7.0
3.43 %
Mortgages renewed
investment in joint ventures that are equity accounted.
On January 9, 2017, the Trust repaid its Series B floating rate senior unsecured debentures with an aggregate principal amount of
$125.0 million.
On September 27, 2017 and December 13, 2017, the Trust purchased and cancelled $4.6 million and $29.7 million, respectively, of
the Series A Debentures with an original aggregate principal amount of $175.0 million and a maturity date of June 13, 2018.
Demand revolving credit facilities
The amounts available and drawn under the demand revolving credit facilities as at December 31, 2017 are as follows:
Maturity date
March 1, 2020
April 30, 2018
Interest rates on
drawings
BA + 1.70% or
Prime + 0.70%
BA + 2.00% or
Prime + 0.85%
Formula-based maximum
not to exceed $400,000
Formula-based maximum
not to exceed $45,000
n/a – not applicable.
Secured
investment
properties
Face
interest
rate
Borrowing
capacity
Drawings
Letters of
credit
Amount
available
December 31, 2017
8
n/a $ 371,483
$
—
$
(660 ) $ 370,823
2
10
n/a
25,844
$ 397,327 $
—
— $
—
25,844
(660 ) $ 396,667
On April 18, 2017, the $800 million formula-based demand revolving credit facility was amended and reduced to $500 million (the
“$500 million Facility”). On September 29, 2017, the $500 million Facility was further amended and reduced to $400 million (the
“$400 million Facility”). The $400 million Facility bears interest at the bankers’ acceptance (“BA”) rate plus 1.70% and/or at the
bank’s prime rate plus 0.70%. The $400 million Facility is at a minimum secured by first-ranking mortgages of eight properties at
any point in time and matures on March 1, 2020.
Dream Office REIT 2017 Annual Report | 30
Debentures
The principal amount outstanding and the carrying value for each series of debentures are as follows:
December 31, 2017
December 31, 2016
Date issued
Maturity date
Original
principal
Face Outstanding
principal
interest rate
Carrying Outstanding
principal
value
Carrying
value
June 13, 2013
June 13, 2018 $ 175,000
3.42 % $ 140,755
$ 140,609
$ 175,000
$ 174,536
Debentures
Series A
Debentures
Series B
Debentures October 9, 2013
January 9, 2017
125,000
2.60%(1)
—
—
125,000
124,999
Series C
Debentures
January 21, 2014
January 21, 2020
150,000
$ 450,000
(1) Variable interest rate at three-month CDOR plus 1.7%.
4.07 %
150,000
149,293
$ 290,755 $ 290,140 $ 450,000 $ 448,828
149,531
150,000
Continuity of debt
Refer to Note 12 of the consolidated financial statements for details of the changes in our debt balances for the year ended
December 31, 2017.
Debt maturity profile
Our current debt profile is balanced with staggered maturities over the next nine years. The following tables summarize our debt
maturity profile as at December 31, 2017:
Mortgages
Outstanding Weighted
average
interest
rate
3.31 % $
3.88 %
3.59 %
4.73 %
3.90 %
3.81 %
3.93 % $
balance
due at
maturity
49,225
72,991
43,910
133,249
184,014
443,514
926,903
Demand revolving
credit facilities
Outstanding Weighted
average
interest
rate
— $
—
—
—
—
—
— $
balance
due at
maturity
—
—
—
—
—
—
—
Debentures
Outstanding Weighted
average
interest
rate
3.42 % $
—
4.07 %
—
—
—
Total
Outstanding Weighted
average
interest
rate
3.39 %
3.88 %
3.97 %
4.73 %
3.90 %
3.81 %
3.89 %
balance
due at
maturity
189,980
72,991
193,910
133,249
184,014
443,514
3.76 % $ 1,217,658
balance
due at
maturity
140,755
—
150,000
—
—
—
290,755
—
3.94 % $
—
—
(3,192 )
—
—
— $
—
290,755
—
157,434
3.76 % $ 1,375,092
—
3.90 %
(615 )
—
(8,471 )
1,029
Debt maturities
2018
2019
2020
2021
$
2022
2023–2027
Subtotal before undernoted items $
Scheduled principal repayments on
157,434
non-matured debt
Subtotal before undernoted items $ 1,084,337
Financing costs
(4,664 )
1,029
Fair value adjustments
Debt per consolidated financial
statements
$ 1,080,702
4.01 % $
(3,192 )
—
$
290,140
3.96 % $ 1,367,650
4.00 %
On October 1, 2017, the Trust repaid two mortgages prior to their respective maturity dates totalling $58.4 million with a weighted
average face interest rate of 4.62% and an average remaining term of 3.3 years. The total debt settlement costs incurred as a
result of the early repayments totalled $2.6 million.
Commitments and contingencies
We are contingently liable under guarantees that are issued in the normal course of business, on certain debt assumed by
purchasers of investment properties, and with respect to litigation and claims that arise from time to time. In the opinion of
management, any liability that may arise from such contingencies would not have a material adverse effect on the consolidated
financial statements of Dream Office REIT.
Dream Office REIT 2017 Annual Report | 31
In 2015, a subsidiary of the Trust received notices of reassessment from both the Canada Revenue Agency and the Alberta Minister
of Finance with respect to its 2007, 2008 and 2010 taxation years. These reassessments relate to the deductibility of certain tax
losses claimed by the subsidiary prior to its acquisition by the Trust. These federal and provincial reassessments if upheld could
increase total current taxes payable, including interest and penalties, by $11.8 million. No cash payment is expected to be made
unless it is ultimately established that the Trust has an obligation to make one. Management is of the view that there is a strong
case to support the position as filed and has contested both the federal and provincial reassessments. Since management believes
that it is more likely than not that its position will be sustained, no amounts related to these reassessments have been recorded in
the consolidated financial statements as at December 31, 2017.
At December 31, 2017, Dream Office REIT’s future minimum commitments under operating leases and fixed price contracts to
purchase steam are as follows:
Operating lease payments
Fixed price contracts – steam
Total
< 1 year
2,680 $
151
2,831 $
1–5 years
4,362 $
604
4,966 $
$
$
Minimum payments due
> 5 years
3,670 $
1,815
5,485 $
Total
10,712
2,570
13,282
Operating leases include a ground lease on a property totalling $4.5 million, payable over the next 29 years.
The Trust has entered into lease agreements that may require tenant improvement costs of approximately $14.4 million
(December 31, 2016 – $42.6 million).
As at December 31, 2017, the Trust’s share of contingent liabilities for the obligation of the other owners of co-owned properties
was $nil (December 31, 2016 – $5.3 million).
The Trust is contingently liable under guarantees that are issued on certain debt assumed by purchasers of investment properties
totalling $173.2 million (December 31, 2016 – $74.4 million).
OUR EQUITY
Total equity
Our discussion of equity includes LP B Units (or subsidiary redeemable units), which are economically equivalent to REIT Units.
Pursuant to IFRS, the LP B Units are classified as a liability in our consolidated financial statements.
Number of Units
Amount
3,108,424
REIT Units, Series A
(747,840 )
Deficit
11,181
Accumulated other comprehensive income
2,371,765
Equity per consolidated financial statements
102,321
Add: LP B Units
2,474,086
Total equity (including LP B Units)(1)
22.48
Net asset value (“NAV”) per unit(2)
(1) Total equity (non-GAAP measure) is defined in the section “Non-GAAP Measures and Other Disclosures” under the heading “Total equity (including
—
—
104,806,724
5,233,823
110,040,547 $
$
—
—
73,705,285
5,233,823
78,939,108 $
$
December 31, 2017
Amount
2,462,611
(728,934 )
1,946
1,735,623
115,981
1,851,604
23.46
104,806,724 $
73,705,285 $
Number of Units
Unitholders’ equity
December 31, 2016
LP B Units)”.
(2) NAV per unit (non-GAAP measure) is defined in the section “Non-GAAP Measures and Other Disclosures” under the heading “Net asset value (“NAV”) per unit”.
The amended and restated Declaration of Trust of Dream Office REIT dated May 8, 2014, as amended or amended and restated
from time to time (the “Declaration of Trust”), authorizes the issuance of an unlimited number of the following classes of units:
REIT Units, issuable in one or more series, Transition Fund Units and Special Trust Units. The Special Trust Units may only be issued
to holders of LP B Units, are not transferable separately from these Units, and are used to provide voting rights with respect to
Dream Office REIT to persons holding LP B Units. The LP B Units are held by DAM, a related party to Dream Office REIT, and DAM
holds an equivalent number of Special Trust Units. Both the REIT Units and Special Trust Units entitle the holder to one vote for
each Unit at all meetings of the unitholders. The LP B Units are exchangeable on a one-for-one basis for REIT B Units at the option
of the holder, which can then be converted into REIT A Units. The LP B Units and corresponding Special Trust Units together have
economic and voting rights equivalent in all material respects to REIT A Units. The REIT A Units and REIT B Units have economic
and voting rights equivalent in all material respects to each other.
Dream Office REIT 2017 Annual Report | 32
At December 31, 2017, DAM held 5,992,583 REIT A Units and 5,233,823 LP B Units for a total ownership interest of
approximately 14.2%.
NAV per unit
NAV per unit is calculated as the total equity (including LP B Units) divided by the total number of REIT A Units and LP B Units. This
non-GAAP measurement is an important measure used by the Trust, as it reflects management’s view of the intrinsic value of the
Trust. However, it is not defined by IFRS, does not have a standardized meaning and may not be comparable with similar measures
presented by other income trusts.
In compliance with Canadian Securities Administrators Staff Notice 52-306 (Revised), “Non-GAAP Financial Measures”, the table
within this section “Our Equity” reconciles NAV per unit to equity (as per consolidated financial statements).
The following table contains a summary of the major components of NAV per unit:
Investment properties
Calgary
Toronto downtown
Mississauga and North York
Ottawa and Montréal
Non-core markets
Total investment properties
Mortgages
Investment properties, net of mortgages
Properties classified as held for sale and select redevelopment properties, net of related debt
Investment in Dream Industrial REIT
Unsecured debentures
Cash and other items
Net asset value
Less: LP B units
Equity per consolidated financial statements
Outstanding equity
The following table summarizes the changes in our outstanding equity:
Total
Per unit
$
$
$
386,962 $
1,707,867
216,400
355,687
211,923
2,878,839
(1,080,702 )
1,798,137
92,129
220,796
(290,140 )
30,682
1,851,604 $
115,981
1,735,623
4.90
21.64
2.74
4.51
2.68
36.47
(13.69 )
22.78
1.17
2.80
(3.68 )
0.39
23.46
Total Units issued and outstanding at January 1, 2017
Units issued pursuant to Deferred Unit Incentive Plan (“DUIP”)
Cancellation of REIT A Units under NCIB
Total Units issued and outstanding at March 31, 2017
Percentage of all units
Units issued pursuant to DUIP
Cancellation of REIT A Units under NCIB
Total Units issued and outstanding at June 30, 2017
Percentage of all Units
Units issued pursuant to DUIP
Cancellation of REIT A Units under NCIB
Cancellation of REIT A Units under SIB
Total Units issued and outstanding at September 30, 2017
Percentage of all Units
Units issued pursuant to DUIP
Cancellation of REIT A Units under NCIB
Total Units issued and outstanding at December 31, 2017
Percentage of all Units
Cancellation of REIT A Units under NCIB
Total Units issued and outstanding at February 22, 2018
Percentage of all Units
REIT A Units
104,806,724
121,036
(1,589,140 )
103,338,620
95.2 %
252
(5,219,106 )
98,119,766
94.9 %
66,108
(1,355,279 )
(20,952,380 )
75,878,215
93.5 %
12,279
(2,185,209 )
73,705,285
93.4 %
(3,656,607)
70,048,678
93.0 %
LP B Units
5,233,823
—
—
5,233,823
4.8 %
—
—
5,233,823
5.1 %
—
—
—
5,233,823
6.5 %
—
—
5,233,823
6.6 %
—
5,233,823
7.0 %
Total
110,040,547
121,036
(1,589,140 )
108,572,443
100.0 %
252
(5,219,106 )
103,353,589
100.0 %
66,108
(1,355,279 )
(20,952,380 )
81,112,038
100.0 %
12,279
(2,185,209 )
78,939,108
100.0 %
(3,656,607)
75,282,501
100.0 %
Dream Office REIT 2017 Annual Report | 33
As at December 31, 2017, there were 889,301 deferred trust units and income deferred trust units outstanding (December 31,
2016 – 907,972) under the Trust’s DUIP.
Normal course issuer bid (“NCIB”)
On June 7, 2017, the NCIB covering the period from June 22, 2016 to June 21, 2017 expired as the Trust purchased the maximum
number of REIT A Units, totalling 10,732,867 REIT A Units, permitted under this NCIB. On August 10, 2017, the Toronto Stock
Exchange accepted a notice filed by the Trust to renew its prior NCIB for a one-year period. Under the renewed bid, the Trust will
have the ability to purchase for cancellation up to a maximum of 7,197,095 of its REIT A Units (representing 10% of the Trust’s
public float of 71,970,948 REIT A Units) through the facilities of the Toronto Stock Exchange. The renewed bid commenced on
August 15, 2017 and will remain in effect until the earlier of August 14, 2018 or the date on which the Trust has purchased the
maximum number of REIT A Units permitted under the bid. Daily purchases will be limited to 54,249 REIT A Units, which equals
25% of the average daily trading volume during the last six calendar months (being 216,999 REIT A Units per day), other than
purchases pursuant to applicable block purchase exceptions. On February 13, 2018, the NCIB covering the period from August 15,
2017 to August 14, 2018 expired as the Trust purchased the maximum number of REIT A Units, totalling 7,197,095 REIT A Units,
permitted under this NCIB.
For the three months and year ended December 31, 2017, the Trust purchased for cancellation 2,185,209 REIT A Units and
10,348,734 REIT A Units, respectively, under the NCIB, at a cost of approximately $47.3 million and $209.2 million, respectively
(December 31, 2016 – 4,331,194 REIT A Units cancelled for $80.2 million).
Subsequent to quarter-end, the Trust purchased for cancellation an additional 3,656,607 REIT A Units under the NCIB at a cost of
approximately $81.3 million or $22.21 per unit.
Substantial issuer bid (“SIB”)
On August 14, 2017, the Trust took up and paid for 20,952,380 REIT A Units at a price of $21.00 per REIT A Unit for an aggregate
cost of approximately $440 million, excluding fees and expenses relating to the SIB. The REIT A Units purchased for cancellation
under the SIB represented approximately 21.3% of the issued and outstanding REIT A Units immediately prior to the expiry of
the SIB.
Weighted average number of units
The basic weighted average number of units outstanding used in the FFO per unit calculations includes the weighted average
number of all REIT Units, LP B Units, and vested but unissued deferred trust units and the associated income deferred trust units.
The diluted weighted average number of units outstanding used in the FFO per unit calculations includes the basic weighted
average number of units and unvested deferred trust units and the associated income deferred trust units.
Weighted average number of units (in thousands)
Basic
Diluted
Three months ended December 31,
2016
113,920
114,018
2017
80,611
80,943
Year ended December 31,
2017
97,257
97,531
2016
114,203
114,651
Distribution policy
Our Declaration of Trust provides our trustees with the discretion to determine the percentage payout of income that would be in
the best interest of the Trust.
On June 22, 2017, the Trust announced a revision to its monthly cash distribution from $0.125 per unit to $0.08333 per unit, or
$1.00 per unit on an annualized basis, commencing with the July 2017 distribution in order to maintain a conservative payout ratio
relative to FFO, to retain appropriate maintenance capital for capital expenditures and leasing costs and to generate investment
capital to be used to improve the value of our portfolio.
For the three months and year ended December 31, 2017, total distributions amounted to $19.9 million and $122.4 million,
respectively, representing a decrease of $22.3 million over the prior year comparative quarter and a decrease of $55.2 million over
the prior year. The decrease in the respective periods mainly reflects the reduction in the monthly cash distribution from $0.18666
per unit to $0.125 per unit, or $1.50 per unit on an annualized basis, commencing with the month of February 2016 distribution, a
further reduction to $0.08333 per unit, or $1.00 per unit on an annualized basis, commencing with the month of July 2017
distribution, and the cancellation of REIT A Units under the NCIB and SIB.
Dream Office REIT 2017 Annual Report | 34
Cash flows from operating activities and distributions declared
The Trust anticipates that future cash generated from (utilized in) operating activities and/or adjusted cash from operating
activities (a non-GAAP measure) may be less than distributions declared. With a conservative balance sheet, significant liquidity
and a plan to stabilize our portfolio’s operating performance in the foreseeable future, the Trust does not anticipate cash
distributions will be suspended.
To the extent that there are shortfalls in cash generated from (utilized in) operating activities when compared to distributions
declared or a shortfall in adjusted cash flows from operating activities (a non-GAAP measure) when compared to distributions
declared, the Trust will fund the shortfalls with cash and cash equivalents on hand and with our existing demand revolving credit
facilities. The use of the demand revolving credit facilities may involve risks compared with using cash and cash equivalents on
hand as a source of funding, such as the risk that interest rates may rise in the future which may make it more expensive for the
Trust to borrow under the demand revolving credit facilities, and the risk associated with increasing the overall indebtedness of
the Trust. In the event that shortfalls exist, the Trust does not anticipate cash distributions will be suspended in the foreseeable
future but does expect that there could be timing differences as a result of our disposition program and our intensification and
redevelopment plans on certain assets within our portfolio. Accordingly, to the extent there are shortfalls, distributions may be
considered an economic return of capital. In light of the fact that the Trust is substantially through its disposition program and
expects adjusted cash flow from operating activities (a non-GAAP measure) to be lower as a result, the Trust reduced its monthly
cash distribution from $0.125 per unit to $0.08333 per unit, or $1.00 per unit on an annualized basis, commencing with the July
2017 distribution. Management reviews the estimated annual distributable cash flows (measured by adjusted cash flows from
operating activities (a non-GAAP measure)) with the Board of Trustees periodically to assist the Board in determining the targeted
distribution rate.
In any given period, the Trust anticipates that net income (loss) will continue to vary from distributions declared as net income
(loss) includes non-cash items such as fair value adjustments to investment properties and financial instruments and costs related
to our disposition program such as debt settlement costs and costs on sale of investment properties. Accordingly, the Trust does
not use net income (loss) as a proxy for determining distributions.
In any given period, actual cash generated from (utilized in) operating activities may differ from distributions declared, primarily
due to fluctuations in non-cash working capital and the impact of leasing costs, which fluctuate with lease maturities, renewal
terms, the type of asset being leased, and when tenants fulfill the terms of their respective lease agreements. These seasonal
fluctuations or the unpredictability of when leasing costs are incurred are funded with our cash and cash equivalents on hand and,
if necessary, with our existing demand revolving credit facilities.
The Trust determines the distribution rate by, among other considerations, its assessment of cash flows as determined using
adjusted cash flows from operating activities (a non-GAAP measure). This non-GAAP measure does not represent cash generated
from (utilized in) operating activities as defined by IFRS, and does not have a standardized meaning and may not be comparable
with similar measures presented by other income trusts. In compliance with Canadian Securities Administrators Staff Notice
52-306 (Revised), “Non-GAAP Financial Measures”, the reconciliation of cash generated from (utilized in) operating activities (per
consolidated financial statements) to adjusted cash flows from operating activities (a non-GAAP measure) can be found in the
section “Non-GAAP Measures and Other Disclosures” under the heading “Adjusted cash flows from operating activities”. Actual
adjusted cash flows from operating activities (a non-GAAP measure) may differ from distributions declared, primarily due to the
reasons noted above for variations in cash generated from (utilized in) operating activities and the impact of investments in
building improvements, which fluctuates with timing and extent of the capital projects, as well as age, type and condition of asset.
The following table summarizes net income (loss), cash flows from operating activities (per consolidated financial statements),
adjusted cash flows from operating activities (a non-GAAP measure) and total distributions for the three months and years ended
December 31, 2017 and December 31, 2016:
Net income (loss) for the period
Cash flows from (utilized in) operating activities (included in
consolidated financial statements) for the period
Adjusted cash flows from operating activities(1) (non-GAAP
Three months ended December 31,
2016
(100,671 ) $
2017
100,731 $
$
Year ended December 31,
2017
134,786 $
2016
(879,705 )
10,177
35,911
79,820
147,368
measure) for the period
123,029
Total distributions(2) for the period
177,633
(1) Adjusted cash flows from operating activities (non-GAAP measure) – The reconciliation of adjusted cash flows from operating activities to cash flows from
(utilized in) operating activities (included in consolidated financial statements) can be found in the section “Non-GAAP Measures and Other Disclosures” under
the heading “Adjusted cash flows from operating activities”.
82,916
122,422 $
4,077
19,927 $
25,583
42,235 $
$
(2) Includes distributions declared on LP B Units and 4% bonus on reinvested units in the comparative periods.
Dream Office REIT 2017 Annual Report | 35
As required by National Policy 41-201, “Income Trusts and Other Indirect Offerings”, the following table outlines the difference
between net income (loss) and total distributions, as well as the difference between cash generated from (utilized in) operating
activities (per consolidated financial statements) and total distributions, in accordance with the guidelines. The table below also
outlines the difference between adjusted cash flows from operating activities (a non-GAAP measure) and total distributions.
Excess (shortfall) of net income (loss) over total distributions(1)
Shortfall of cash flows from (utilized in) operating activities (included
in consolidated financial statements) over total distributions(1)
Shortfall of adjusted cash flows from operating activities (non-GAAP
measure) over total distributions(1)
Three months ended December 31,
2016
(142,906 ) $
2017
80,804 $
$
Year ended December 31,
2017
12,364 $
(1,057,338 )
2016
(9,750 )
(6,324 )
(42,602 )
(30,265 )
$
(15,850 ) $
(16,652 ) $
(39,506 ) $
(54,604 )
(1) Includes distributions declared on LP B Units and 4% bonus on reinvested units in the comparative periods.
For the three months ended December 31, 2017, net income exceeded total distributions by $80.8 million primarily as a result of
fair value increases recorded during the quarter. For the year ended December 31, 2017, net income marginally exceeded total
distributions by $12.4 million primarily due to costs incurred as part of our disposition program such as costs on sale of investment
properties and debt settlement costs, and non-cash items such as fair value adjustments to financial instruments, offset by positive
fair value adjustments to investment properties. For the three months and year ended December 31, 2016, total distributions
exceeded net income (loss) by $142.9 million and $1,057.3 million, respectively, primarily as a result of costs related to our
disposition program, fair value adjustments to financial instruments and fair value losses on investment properties.
For the three months and year ended December 31, 2017, total distributions exceeded cash generated from (utilized in) operating
activities (included in consolidated financial statements) by $9.8 million and $42.6 million, respectively. The shortfall of cash
generated from (utilized in) operating activities (included in consolidated financial statements) over total distributions is mainly
due to fluctuations in non-cash working capital and the impact of leasing costs, which fluctuate with lease maturities, renewal
terms and the type of asset being leased. For the three months and year ended December 31, 2016, cash generated from (utilized
in) operating activities (included in consolidated financial statements) exceeded total distributions by $6.3 million and
$30.3 million, respectively, for the same reasons noted in the current year. In addition, the shortfall for the year ended
December 31, 2016 was due to the fact that cash flows from operating activities of our investments in joint ventures that are
equity accounted were excluded from this calculation despite the fact that they form part of the Trust’s determination of its cash
available for distribution. Further, the Trust receives monthly distributions from its investment in Dream Industrial REIT totalling
$14.6 million for the year ended December 31, 2017 (for the year ended December 31, 2016 – $13.1 million), which the Trust has
currently elected to reinvest through Dream Industrial REIT’s distribution reinvestment plan. Had the Trust not reinvested the
distributions from Dream Industrial REIT, management is of the view such distributions could be used to fund the shortfall of cash
generated from (utilized in) operating activities (included in consolidated financial statements) over total distributions, even
though distributions received from Dream Industrial REIT would be included as part of cash generated from (utilized in) investing
activities in the consolidated financial statements. Additionally, the Trust has included distributions received from Dream Industrial
REIT as part of its calculation of EBITDFV and interest coverage ratio (non-GAAP measures), consistent with management’s view of
the characterization of such cash flows as operating in nature as opposed to investing activities.
For the year ended December 31, 2017, total distributions exceeded adjusted cash flows from operating activities (a non-GAAP
measure) by $15.9 million and $39.5 million, respectively (for the three months and year ended December 31, 2016 – $16.7 million
and $54.6 million, respectively). The shortfall of adjusted cash flows from operating activities (a non-GAAP measure) over total
distributions in the respective periods is mainly due to the impact of elevated leasing costs related to properties that have been
sold during the period, which fluctuate with lease maturities, renewal terms and the type of asset being leased, and the impact of
investments in building improvements, which fluctuate with timing and extent of the capital projects, and age, type and condition
of asset. Given the unpredictability of when leasing costs and investments in building improvements are incurred, we typically fund
these costs with cash and cash equivalents on hand and, if necessary, with our existing demand revolving credit facilities.
Dream Office REIT 2017 Annual Report | 36
SELECTED ANNUAL INFORMATION
The following table provides selected financial information for the past three years:
2015
690,962
(55,039 )
6,762,874
2,401,104
3,010,748
254,303
2.24
2016
664,291 $
(879,705 )
5,486,516
2,321,530
2,649,790
177,633
1.56 (2)
2017
469,775 $
134,786
3,321,983
1,160,689
1,367,650
122,422
1.25 (1)
$
Investment properties revenue
Net income (loss)
Total assets
Non-current debt
Total debt
Total distributions
Distribution rate (per unit)
Units outstanding:
107,860,638
REIT Units, Series A
5,233,823
LP Class B Units, Series 1
(1) The Trust announced on June 22, 2017 a reduction to its monthly cash distribution from $0.125 per unit to $0.08333 per unit, or $1.00 per unit on an
104,806,724
5,233,823
73,705,285
5,233,823
annualized basis, commencing with the month of July 2017 distribution.
(2) The Trust announced on February 18, 2016 a reduction to its monthly cash distribution from $0.18666 per unit to $0.125 per unit, or $1.50 per unit on an
annualized basis, commencing with the month of February 2016 distribution.
Dream Office REIT 2017 Annual Report | 37
SECTION IV
NON-GAAP MEASURES AND OTHER DISCLOSURES
The following non-GAAP measures are important measures used by management in evaluating the Trust’s underlying operating
performance and debt management. These non-GAAP measures are not defined by IFRS, do not have a standardized meaning and
may not be comparable with similar measures presented by other income trusts.
Available liquidity
Available liquidity is defined as the sum of cash and cash equivalents, including cash and cash equivalents held by joint ventures
that are equity accounted, and undrawn demand revolving credit facilities at period-end. Management believes that available
liquidity, a non-GAAP measurement, is an important measure in determining our ability to meet all of our ongoing obligations. This
non-GAAP measure does not have a standardized meaning and may not be comparable with similar measures presented by other
income trusts.
Cash and cash equivalents (per consolidated financial statements)
Cash and cash equivalents from investments in joint ventures
Undrawn demand revolving credit facilities (per consolidated financial statements)
Available liquidity
$
December 31,
2017
96,960 $
—
396,667
493,627 $
$
September 30,
2017
259,777 $
—
406,893
666,670 $
December 31,
2016
7,667
1,544
613,514
622,725
Total equity (including LP B Units)
One of the components used to determine the Trust’s net asset value per unit is total equity (including LP B Units). Total equity
(including LP B Units) is calculated as the sum of the equity amount per consolidated financial statements and the subsidiary
redeemable units amount. Management believes it is important to include the subsidiary redeemable units amount for the
purpose of determining the Trust’s capital management. Management does not consider the subsidiary redeemable units to be
debt or borrowings of the Trust, but rather a component of the Trust’s equity. However, total equity (including LP B Units) is not
defined by IFRS, does not have a standardized meaning and may not be comparable with similar measures presented by other
income trusts.
In compliance with Canadian Securities Administrators Staff Notice 52-306 (Revised), “Non-GAAP Financial Measures”, the table
within the section “Our Equity” under the heading “Total equity” reconciles total equity (including LP B Units) to equity (as per
consolidated financial statements).
Net asset value (“NAV”) per unit
NAV per unit is calculated as the total equity (including LP B Units) divided by the total number of REIT A Units and LP B Units. This
non-GAAP measurement is an important measure used by the Trust, as it reflects management’s view of the intrinsic value of the
Trust. However, it is not defined by IFRS, does not have a standardized meaning and may not be comparable with similar measures
presented by other income trusts.
In compliance with Canadian Securities Administrators Staff Notice 52-306 (Revised), “Non-GAAP Financial Measures”, the table
within the section “Our Equity” reconciles NAV per unit to equity (as per consolidated financial statements).
Funds from operations (“FFO”)
Management believes FFO is an important measure of our operating performance. This non-GAAP measurement is a commonly
used measure of performance of real estate operations; however, it does not represent net income nor cash generated
from (utilized in) operating activities, as defined by IFRS, and is not necessarily indicative of cash available to fund Dream Office
REIT’s needs.
In February 2017, REALPAC issued a white paper on Funds from Operations and Adjusted Funds from Operations for IFRS. The
Trust has reviewed the REALPAC FFO white paper guidelines and its determination of FFO is substantially aligned with the REALPAC
FFO white paper guidelines with the exception of the treatment of debt settlement cost adjustments. Debt settlement costs are
typically incurred by the Trust as a result of disposition of investment properties in any given period and accordingly are primarily
funded from net proceeds from dispositions and not from cash flows from operating activities. Thus, the Trust is of the view that
debt settlement costs should not be included in the determination of FFO.
Dream Office REIT 2017 Annual Report | 38
In compliance with Canadian Securities Administrators Staff Notice 52-306 (Revised), “Non-GAAP Financial Measures”, FFO has
been reconciled to net income (loss) in the table below:
Net income (loss) for the period
Add (deduct):
December 31,
2017
100,731 $
$
September 30,
2017
(637 ) $
Three months ended
December 31,
2016
(100,671 ) $
December 31,
2017
134,786 $
Year ended
December 31,
2016
(879,705 )
Share of net income and net accretion loss
from investment in Dream Industrial REIT
Share of FFO from investment in Dream
Industrial REIT
Depreciation, amortization and write-offs of
external management contracts
Costs on sale of investment properties(1)
Interest expense on subsidiary redeemable
units
Fair value adjustments to investment
properties
Fair value adjustments to financial instruments
and DUIP included in G&A expenses
Debt settlement costs, net
Internal leasing costs
Deferred income taxes expense (recovery)
Taxes attributable to dispositions
Foreign exchange gain attributable to
dispositions
Loss on recognition of net assets related to
(3,409 )
(4,009 )
(1,156 )
(9,440 )
(8,086 )
5,063
3,344
1,665
1,307
4,826
4,890
6,050
1,309
4,068
18,765
17,104
5,526
3,137
21,509
20,057
1,963
6,542
21,283
12,074
8,174
(78,663 )
21,009
136,100
(23,116 )
1,071,800
7,075
3,968
1,308
(8,728 )
4,369
(5,717 )
9,086
957
1,111
102
—
15,257
—
2,150
724
—
16,673
16,255
5,237
(7,950 )
4,369
—
—
(5,905 )
13,108
13,320
8,822
1,953
—
—
Other
joint operations
10,263
777
290,887
FFO
FFO per unit – basic(2)
2.55
FFO per unit – diluted(2)
2.54
(1) For the three months and year ended December 31, 2017 and for the three months ended September 30, 2017, costs on sale of investment properties
117
(30 )
197,869 $
2.03 $
2.03 $
—
(78 )
32,235 $
0.40 $
0.40 $
—
57
67,155 $
0.59 $
0.59 $
—
(41 )
44,653 $
0.48 $
0.48 $
$
$
$
included severance charges directly attributable to the investment properties sold of $59, $1,724 and $631, respectively.
(2) The LP B Units are included in the calculation of basic and diluted FFO per unit.
Adjusted funds from operations (“AFFO”)
Management of the Trust has determined that the best course of action for the Trust is to increase the long-term NAV of the Trust
and to reduce the discount between the unit trading price and NAV. Further, continuing economic uncertainty in the Alberta office
market will result in higher leasing costs, relative to historical normalized rates. There can also be a large degree of variability in
the actual amounts incurred in any given period due to the timing and extent of leasing activity and building improvement
projects. Management does not believe current costs in respect of leasing and building improvements are indicative of a
normalized longer-term trend.
Given these dynamics, it is difficult for management to provide a meaningful normalized reserve for leasing costs and building
improvements, based on a percentage of NOI, in the calculation of AFFO consistent with our practice in prior periods. Accordingly,
the Trust has discontinued presenting AFFO in its MD&A and public disclosures and is of the view that net asset value is a more
relevant metric.
Prior to 2016, the Trust had included AFFO, a non-GAAP measure, as part of the MD&A as management previously was of the view
that it provided an important additional measure of the Trust’s operating performance. AFFO is not defined by IFRS, does not have
a standardized meaning and may not be comparable with similar measures presented by other income trusts. For unitholders that
continue to use AFFO to evaluate the performance of the Trust, we continue to disclose in our MD&A relevant information,
including leasing and building improvement costs incurred during the period, to enable unitholders to make their own estimates
of AFFO.
Dream Office REIT 2017 Annual Report | 39
Net operating income (“NOI”) and Adjusted NOI
NOI is defined by the Trust as net rental income (which is the total investment property revenue less investment property
operating expenses), including the share of net rental income from investment in joint ventures and property management
income. Adjusted NOI is NOI excluding NOI from properties held for sale and sold properties. These non-GAAP measurements are
an important measure used by the Trust in evaluating property operating performance; however, they are not defined by IFRS, do
not have standard meanings and may not be comparable with similar measures presented by other income trusts. In compliance
with Canadian Securities Administrators Staff Notice 52-306 (Revised), “Non-GAAP Financial Measures”, NOI and Adjusted NOI
have been reconciled to net rental income in the table below:
Net rental income (included in consolidated
financial statements)
Add: Share of net rental income from
investments in joint ventures
NOI
Less: NOI from properties held for sale
Less: NOI from sold properties
Adjusted NOI
December 31,
2017
September 30,
2017
Three months ended
December 31,
2016
December 31,
2017
Year ended
December 31,
2016
$
41,373
$
60,188
$
91,715
$
257,659
$
368,578
—
41,373
1,573
1,040
38,760 $
—
60,188
1,612
16,952
41,624 $
949
92,664
1,707
49,603
41,354 $
—
257,659
6,403
82,181
169,075 $
30,621
399,199
6,477
218,581
174,141
$
Comparative properties NOI
Comparative properties NOI includes NOI of the same properties owned by the Trust in (i) the current and prior year comparative
period and (ii) the current and prior quarter, and excludes: lease termination fees; one-time property adjustments, if any; bad debt
expenses; NOI of sold properties, properties held for sale, and properties held for redevelopment; straight-line rent; and
amortization of lease incentives. Comparative properties NOI is an important non-GAAP measure used by management to evaluate
the performance of the same properties owned by the Trust in the current period, comparative period and prior quarter as
presented. This non-GAAP measure is not defined by IFRS, does not have a standard meaning and may not be comparable with
similar measures presented by other income trusts. In compliance with Canadian Securities Administrators Staff Notice 52-306
(Revised), “Non-GAAP Financial Measures”, comparative properties NOI for the respective periods have been reconciled to net
rental income in the tables below:
Net rental income (included in consolidated
financial statements)
Add: Share of net rental income from
investments in joint ventures
Less: Lease termination fees and other
Less: Properties held for redevelopment
Less: Straight-line rent
Less: Amortization of lease incentives
Less: NOI from properties held for sale
Less: NOI from sold properties
Comparative properties NOI
December 31,
2017
September 30,
2017
Three months ended
December 31,
2016
December 31,
2017
Year ended
December 31,
2016
$
41,373
$
60,188
$
91,715
$
257,659
$
368,578
—
(127 )
(727 )
261
(2,726 )
1,573
1,040
42,079 $
—
562
730
640
(3,578 )
1,612
16,952
43,270 $
949
213
1,105
461
(4,655 )
1,707
49,603
44,230 $
—
5,933
2,265
2,397
(14,587 )
6,403
82,181
173,067 $
30,621
1,703
4,293
1,843
(17,683 )
6,477
218,581
183,985
$
Dream Office REIT 2017 Annual Report | 40
Earnings before interest, taxes, depreciation and fair value adjustments (“EBITDFV”)
EBITDFV is defined by the Trust as net income (loss) for the period adjusted for: lease termination fees and other, non-cash items
included in investment properties revenue, fair value adjustments to investment properties and financial instruments, share of net
income and accretion loss from Dream Industrial REIT, distributions received from Dream Industrial REIT, interest expense,
amortization of external management contracts and depreciation on property and equipment, net loss on transactions and other
activities, and deferred income taxes. This non-GAAP measurement is an important measure used by the Trust in evaluating
property operating performance; however, it is not defined by IFRS, does not have a standard meaning and may not be
comparable with similar measures presented by other income trusts. In compliance with Canadian Securities Administrators Staff
Notice 52-306 (Revised), “Non-GAAP Financial Measures”, EBITDFV has been reconciled to net income (loss) in the table below:
Net income (loss) for the period
Add (deduct):
Lease termination fees and other
Non-cash items included in investment
properties revenue(1)
Fair value adjustments to investment
properties
Fair value adjustments to financial
instruments
Share of net income and net accretion loss
from Dream Industrial REIT
Distributions received from Dream
Industrial REIT
Interest – debt
Interest – subsidiary redeemable units
Amortization and write-off of external
management contracts and depreciation
on property and equipment
Net losses on transactions and other
activities
Current income taxes expense
Deferred income taxes expense (recovery)
EBITDFV for the period
$
December 31,
2017
100,731 $
$
September 30,
2017
(637 ) $
Three months ended
December 31,
2016
(100,671 ) $
December 31,
2017
134,786 $
Year ended
December 31,
2016
(879,705 )
127
2,465
(562 )
2,974
(213 )
(5,933 )
(1,703 )
4,194
12,190
15,840
(78,663 )
21,009
136,100
(23,116 )
1,071,800
7,063
9,067
15,246
16,771
13,555
(3,409 )
(4,009 )
(1,156 )
(9,440 )
(8,086 )
3,766
15,209
1,307
3,694
21,462
1,309
3,293
28,507
1,963
14,627
86,560
6,542
13,115
128,384
8,174
616
1,313
872
6,921
3,600
1,632
4,123
(8,728 )
46,239 $
8,802
—
102
64,524 $
9,332
—
724
98,191 $
37,930
4,123
(7,950 )
274,011 $
50,918
—
1,953
417,845
(1) Includes adjustments for straight-line rent and amortization of lease incentives.
Adjusted cash flows from operating activities
Prior to July 1, 2017, the Trust determined its cash available for distribution using the non-GAAP cash flow metric adjusted cash
flows from operating activities, which included cash flows from operating activities (per consolidated financial statements) and
cash flows from operating activities of our investments in joint ventures that are equity accounted, and excluded working capital
and investment in lease incentives and initial direct leasing costs. In February 2017, REALPAC issued a white paper on a new non-
GAAP measure referred to as Adjusted Cashflow from Operations (“ACFO”), which is intended to be used as a sustainable,
economic cash flow metric.
The Trust has reviewed the REALPAC ACFO white paper guidelines and revisited its determination of adjusted cash flows from
operating activities to better align with the REALPAC ACFO white paper guidelines except for the deduction of debt settlement
costs. Debt settlement costs are typically incurred as a result of the disposition of investment properties in any given period and
accordingly are primarily funded from net proceeds from dispositions and not from cash flows from operating activities. Effective
July 1, 2017, the Trust revised its determination of adjusted cash flows from operating activities, with comparative periods
restated to conform with current period presentation, as cash flows generated from (utilized in) operating activities (as per
consolidated financial statements) adjusted for the following:
• adding cash flows generated from (utilized in) operations of joint ventures not included in cash flows generated from (utilized
in) operating activities under GAAP;
• deducting investment in building improvements;
Dream Office REIT 2017 Annual Report | 41
• adding or deducting change in working capital;
• deducting amortization of financing costs; and
• adding amortization of fair value adjustments on assumed debt.
Management believes adjusted cash flows from operating activities is an important measure that reflects our ability to pay cash
distributions. This non-GAAP measurement does not represent cash generated by operating activities (as per consolidated financial
statements), as defined by IFRS, does not have a standardized meaning and may not be comparable with similar measures
presented by other income trusts.
In compliance with Canadian Securities Administrators Staff Notice 52-306 (Revised), “Non-GAAP Financial Measures”, the table
below reconciles cash generated from (utilized in) operating activities (included in consolidated financial statements) to adjusted
cash flows from operating activities (a non-GAAP measure).
Cash generated from (utilized in) operating activities
(included in consolidated financial statements)
Add (deduct):
Three months ended December 31,
2017
2016
Year ended December 31,
2017
2016
$
10,177
$
35,911
$
79,820
$
147,368
Investment in joint ventures’ cash flows from operating activities
Change in non-cash working capital(1)
Change in joint ventures’ non-cash working capital
Total investment in building improvements(1)
Joint ventures’ total investment in building improvements
Amortization of financing costs(1)
Amortization of fair value adjustments on assumed debt(1)
—
3,711
—
(9,182 )
—
(734 )
105
278
3,902
(92 )
(14,556 )
—
(992 )
1,132
—
31,985
—
(28,310 )
—
(3,514 )
2,935
18,123
18,421
(2,835 )
(47,689 )
(9,990 )
(3,867 )
3,498
Adjusted cash flows from operating activities
(non-GAAP measure)
(1) Included in consolidated financial statements.
$
4,077
$
25,583
$
82,916
$
123,029
Cash flows from operating activities (including investments in joint ventures)
When the Trust determines its cash available for distribution, it uses adjusted cash flows from operating activities. One of the
components of adjusted cash flows from operating activities is cash flows from operating activities of our investments in joint
ventures that are equity accounted. Management believes it is important to include cash flows from operating activities of our
investments in joint ventures that are equity accounted as it forms part of the Trust’s determination of its cash available for
distribution. This non-GAAP measurement does not represent cash generated from (utilized in) operating activities (as per
consolidated financial statements), as defined by IFRS, does not have a standardized meaning and may not be comparable with
similar measures presented by other income trusts.
In compliance with Canadian Securities Administrators Staff Notice 52-306 (Revised), “Non-GAAP Financial Measures”, the table
below reconciles cash generated from (utilized in) operating activities (included in consolidated financial statements) to cash flows
from operating activities (including investment in joint ventures).
Cash generated from (utilized in) operating activities
(included in consolidated financial statements)
Add:
Three months ended December 31,
2017
2016
Year ended December 31,
2017
2016
$
10,177
$
35,911
$
79,820
$
147,368
Investment in joint ventures’ cash flows from operating activities
Cash flows from operating activities (including investment in
—
278
—
18,123
joint ventures) (non-GAAP measure)
$
10,177
$
36,189
$
79,820
$
165,491
Dream Office REIT 2017 Annual Report | 42
Investment in joint ventures and debt associated with assets held for sale
The Trust’s proportionate share of the financial position and results of operations of its investment in joint ventures, which are
accounted for using the equity method in the consolidated financial statements and as presented and discussed throughout this
MD&A using the proportionate consolidation method, are non-GAAP measures. The reconciliation of debt tables is included in the
“Our Financing” section of this MD&A under the heading “Liquidity and capital resources”. The reconciliation of the consolidated
statements of comprehensive loss is included in the “Our Results of Operations” section of this MD&A under the heading
“Statement of comprehensive income (loss) reconciliation to consolidated financial statements”.
Balance sheet reconciliation to consolidated financial statements
December 31, 2017
December 31, 2016
Amounts per
consolidated
financial
statements
Share from
investment
in joint
ventures
Amounts per
consolidated
financial
statements
Share from
investment
in joint
ventures
Total
Total
Assets
NON-CURRENT ASSETS
Investment properties
Investment in Dream Industrial REIT
Investment in joint ventures
Other non-current assets
CURRENT ASSETS
Amounts receivable
Prepaid expenses and other assets
Cash and cash equivalents
Assets held for sale
Total assets
Liabilities
NON-CURRENT LIABILITIES
Debt
Subsidiary redeemable units
Deferred Unit Incentive Plan
Deferred tax liabilities, net
Tenant security deposits and other
CURRENT LIABILITIES
Debt
Amounts payable and accrued liabilities
$ 2,919,438 $
220,796
—
9,544
3,149,778
14,826
8,889
96,960
120,675
51,530
$ 3,321,983 $
$ 1,160,689 $
115,981
17,280
2,214
9,558
1,305,722
— $ 2,919,438 $ 4,836,355 $
—
—
—
—
220,796
—
9,544
3,149,778
186,754
15,189
16,556
5,054,854
—
—
—
—
—
— $ 3,321,983 $ 5,486,516 $
14,826
8,889
96,960
120,675
51,530
17,786
84,854
7,667
110,307
321,355
— $ 1,160,689 $ 2,321,530 $
—
—
—
—
—
115,981
17,280
2,214
9,558
1,305,722
102,321
14,796
10,735
15,056
2,464,438
206,961
73,677
280,638
—
1,586,360
—
—
—
—
—
206,961
73,677
280,638
—
1,586,360
328,260
104,997
433,257
217,056
3,114,751
Liabilities related to assets held for sale
Total liabilities
Equity
Unitholders’ equity
Deficit
Accumulated other comprehensive income
Total equity
Total liabilities and equity
2,462,611
(728,934 )
1,946
1,735,623
$ 3,321,983 $
2,462,611
(728,934 )
1,946
1,735,623
—
—
—
—
— $ 3,321,983 $ 5,486,516 $
3,108,424
(747,840 )
11,181
2,371,765
60,000 $ 4,896,355
186,754
—
16,563
5,099,672
—
(15,189 )
7
44,818
249
140
1,544
1,933
—
18,035
84,994
9,211
112,240
321,355
46,751 $ 5,533,267
39,883 $ 2,361,413
102,321
14,796
10,735
15,058
2,504,323
—
—
—
2
39,885
—
6,866
6,866
—
46,751
328,260
111,863
440,123
217,056
3,161,502
—
—
—
—
3,108,424
(747,840 )
11,181
2,371,765
46,751 $ 5,533,267
Dream Office REIT 2017 Annual Report | 43
Level of debt (net total debt-to-total assets and net secured debt-to-total assets)
Management believes that level of debt (net total debt-to-total assets and net secured debt-to-total assets) are important non-
GAAP measures in the management of our debt levels. These non-GAAP measures do not have standardized meanings and may
not be comparable with similar measures presented by other income trusts. Net total debt-to-total assets as shown below is
determined as net total debt (net of cash on hand), which includes debt related to investment in joint ventures that are equity
accounted and debt related to assets held for sale, divided by total assets. Net secured debt-to-total assets as shown below is
determined as net total secured debt (net of unsecured debt and cash on hand), which includes debt related to investment in joint
ventures that are equity accounted and debt related to assets held for sale, divided by total assets. Total assets include assets of
investment in joint ventures that are equity accounted and the reversal of cash on hand. Effective December 31, 2017, the Trust
has chosen to revise its calculation of net total debt-to-total assets and net secured debt-to-total assets to exclude the reversal of
accumulated depreciation of property and equipment as management is of the view that such exclusion is more representative of
the current debt levels. Accordingly, the level of debt (net total debt-to-total assets and net secured debt-to-total assets) for
comparative periods have been restated to conform to current period presentation.
In compliance with Canadian Securities Administrators Staff Notice 52-306 (Revised), “Non-GAAP Financial Measures”, the
following tables calculate the level of debt (net total debt-to-total assets and net secured debt-to-total assets) as at December 31,
2017 and December 31, 2016:
As at December 31, 2017
Non-current debt
Current debt
Debt before undernoted items
Less: Cash on hand(1)
Net total debt
Less: Unsecured debt
Net total secured debt
Total assets(2)
Less: Cash on hand(1)
Total assets (excluding cash on hand)
Net total debt-to-total assets
Net secured debt-to-total assets value
Amounts included in
consolidated
financial statements
$
$
1,160,689 $
206,961
1,367,650
(86,474 )
1,281,176
(290,140 )
991,036
3,321,983
(86,474 )
3,235,509 $
Share of amounts
from investment
in joint ventures
— $
—
—
—
—
—
—
—
—
— $
Total
1,160,689
206,961
1,367,650
(86,474 )
1,281,176
(290,140 )
991,036
3,321,983
(86,474 )
3,235,509
39.6 %
30.6 %
(1) Cash on hand represents cash on hand at year-end, excluding cash held in co-owned properties.
(2) Total assets are determined as total assets including assets held for sale at year-end.
As at December 31, 2016(1)
Non-current debt
Current debt
Debt before undernoted items
Add: Debt related to assets held for sale
Add: Overdraft(2)
Net total debt
Less: Unsecured debt
$
Amounts included in
consolidated
financial statements
Share of amounts
from investment
in joint ventures
2,321,530 $
328,260
2,649,790
209,228
1,274
2,860,292
(448,828)
2,411,464
5,486,516 (3)
1,274
5,487,790 $
39,883 $
—
39,883
—
—
39,883
—
39,883
46,751
—
46,751 $
Total
2,361,413
328,260
2,689,673
209,228
1,274
2,900,175
(448,828)
2,451,347
5,533,267 (4)
Net total secured debt
Total assets
Add: Overdraft(2)
Total assets (excluding cash on hand)
Net total debt-to-total assets
Net secured debt-to-total assets
1,274
5,534,541
52.4 %
44.3 %
(1) Net total debt-to-total assets and net secured debt-to-total assets have been restated in the comparative period to conform to current period presentation.
(2) Overdraft represents overdraft at year-end, excluding cash held in joint ventures and co-owned properties.
(3) Includes investment in joint ventures that are equity accounted.
(4) Total assets are determined as total assets, including assets related to investment in joint ventures that are equity accounted and assets held for sale at
$
year-end.
Dream Office REIT 2017 Annual Report | 44
Interest coverage ratio
Management believes that interest coverage ratio, a non-GAAP measurement, is an important measure in determining our ability
to cover interest expense based on our operating performance. This non-GAAP measure does not have a standardized meaning
and may not be comparable with similar measures presented by other income trusts. Interest coverage ratio for the years ended
December 31, 2017 and December 31, 2016 includes the results from investment in joint ventures that are equity accounted.
Interest coverage ratio as shown below is calculated as net rental income plus interest and fee income and distributions received
from Dream Industrial REIT, less general and administrative expenses, all divided by interest expense on total debt. Effective
January 1, 2017, the Trust has chosen to revise its calculation of interest coverage ratio to include distributions received from
Dream Industrial REIT as management is of the view that such distributions are a source of income that covers interest expense.
Accordingly, the interest coverage ratios for comparative periods have been restated to conform to current period presentation.
In compliance with Canadian Securities Administrators Staff Notice 52-306 (Revised), “Non-GAAP Financial Measures”, the
following tables calculate the interest coverage ratio for the years ended December 31, 2017 and December 31, 2016:
Net rental income
Add: Interest and fee income
Add: Distributions received from Dream Industrial REIT
Less: General and administrative expenses
Total
Interest expense – debt
Interest coverage ratio (times)
Net rental income
Add: Interest and fee income
Add: Distributions received from Dream Industrial REIT
Less: General and administrative expenses
Total
Interest expense – debt
Interest coverage ratio (times)
For the year ended December 31, 2017
Amounts per
consolidated
financial statements
257,659 $
6,112
14,627
(10,644 )
267,754 $
86,560 $
Share of amounts
from investment
in joint ventures
— $
—
—
—
— $
— $
Total
257,659
6,112
14,627
(10,644 )
267,754
86,560
3.1
For the year ended December 31, 2016(1)
Amounts per
consolidated
financial statements
368,578 $
3,258
13,115
(11,906 )
373,045 $
119,520 $
Share of amounts
from investment
in joint ventures
30,621 $
42
—
—
30,663 $
8,864 $
Total
399,199
3,300
13,115
(11,906 )
403,708
128,384
3.1
$
$
$
$
$
$
(1) Interest coverage ratio has been restated in the comparative period to conform to current period presentation.
Net debt-to-adjusted EBITDFV
Management believes that net debt-to-adjusted EBITDFV, a non-GAAP measurement, is an important measure in determining the
time it takes the Trust, on a go-forward basis, based on its normalized operating performance, to repay our debt. This non-GAAP
measure does not have a standardized meaning and may not be comparable with similar measures presented by other income
trusts.
Net debt-to-adjusted EBITDFV as shown below is calculated as total debt (net of cash on hand), which includes debt related to
investment in joint ventures that are equity accounted and debt related to assets held for sale, divided by adjusted EBITDFV –
annualized. Adjusted EBITDFV – annualized is calculated as EBITDFV – annualized less NOI of disposed properties for the quarter.
EBITDFV – annualized is calculated as net income for the period adjusted for: lease termination fees and other, non-cash items
included in investment properties revenue, fair value adjustments to investment properties and financial instruments, share of net
income and accretion loss from Dream Industrial REIT, distributions received from Dream Industrial REIT, interest expense,
amortization of external management contracts and depreciation on property and equipment, net loss on transactions and other
activities, and deferred income taxes.
Dream Office REIT 2017 Annual Report | 45
In compliance with Canadian Securities Administrators Staff Notice 52-306 (Revised), “Non-GAAP Financial Measures”, the
following tables calculate the annualized net debt-to-adjusted EBITDFV for the periods ended December 31, 2017 and
December 31, 2016:
Non-current debt
Current debt
Debt before undernoted items
Less: Cash on hand(1)
Net debt
EBITDFV(2) – quarterly
Less: NOI of disposed properties for the quarter
Adjusted EBITDFV – quarterly
Adjusted EBITDFV – annualized
Net debt-to-adjusted EBITDFV (years)
December 31, 2017
Amounts included in
consolidated
financial statements
1,160,689 $
206,961
1,367,650
(86,474 )
1,281,176 $
46,239 $
(1,040 )
45,199 $
$
$
$
$
Share of amounts
from investment
in joint ventures
— $
—
—
—
— $
— $
—
— $
$
Total
1,160,689
206,961
1,367,650
(86,474 )
1,281,176
46,239
(1,040 )
45,199
180,796
7.1
(1) Cash on hand represents cash on hand at year-end, excluding cash held in co-owned properties.
(2) EBITDFV (a non-GAAP measure) has been reconciled to net income (loss) under the heading “Earnings before interest, taxes, depreciation and fair value
adjustments (“EBITDFV”)” in this section.
December 31, 2016
Non-current debt
Current debt
Debt before undernoted items
Add: Debt related to assets held for sale
Add: Overdraft(1)
Net debt
Net loss for the period
Add (deduct):
Lease termination fees and other
Non-cash items included in investment properties revenue(2)
Fair value adjustments to investment properties
Fair value adjustments to financial instruments
Share of net loss from Dream Industrial REIT
Distributions received from Dream Industrial REIT
Interest – debt
Interest – subsidiary redeemable units
Amortization of external management contracts and depreciation
on property and equipment
Net losses on transactions and other activities
Deferred income taxes
EBITDFV – quarterly
Less: NOI of disposed properties for the quarter
Adjusted EBITDFV – quarterly
Adjusted EBITDFV – annualized
Net debt-to-adjusted EBITDFV (years)
Amounts included in
consolidated
financial statements
2,321,530 $
328,260
2,649,790
209,228
1,274
2,860,292 $
(88,470 )
(213 )
4,163
123,200
15,246
(1,156 )
3,293
28,248
1,963
872
9,332
724
97,202 $
(3,634 )
93,568 $
$
$
$
$
Share of amounts
from investment
in joint ventures
39,883 $
—
39,883
—
—
39,883 $
(12,201 )
—
31
12,900
—
—
—
259
—
—
—
—
989 $
—
989 $
$
(1) Overdraft represents overdraft at year-end, excluding cash held in joint ventures and co-owned properties.
(2) Includes adjustments for straight-line rent and amortization of lease incentives.
Total
2,361,413
328,260
2,689,673
209,228
1,274
2,900,175
(100,671 )
(213 )
4,194
136,100
15,246
(1,156 )
3,293
28,507
1,963
872
9,332
724
98,191
(3,634 )
94,557
378,228
7.7
Dream Office REIT 2017 Annual Report | 46
QUARTERLY INFORMATION
The following tables show quarterly information since January 1, 2016.
Key leasing, financing and portfolio information
Leasing – total portfolio(1)
Occupancy rate – including committed (period-end)
Occupancy rate – in-place (period-end)
Tenant retention ratio
Average in-place and committed net rent per square
foot (period-end)
Financing
Weighted average face rate of interest on debt
(period-end)(2)
Interest coverage ratio (times)(3)(4)
Net debt-to-adjusted EBITDFV (years)(3)
Level of debt (net total debt-to-total assets)(3)(4)
Portfolio(1)
Number of properties
GLA (millions of sq. ft.)
Q4
Q3
Q2
2017
Q1
Q4
Q3
Q2
2016
Q1
90.4 %
86.1 %
29.2 %
90.3 %
87.4 %
43.3 %
91.5 %
89.0 %
57.1 %
88.6 %
86.5 %
51.6 %
89.7 %
87.9 %
54.9 %
88.9 %
87.0 %
66.1 %
90.1 %
87.7 %
60.0 %
91.4 %
89.4 %
65.3 %
$ 21.02
$ 20.64
$ 19.90
$ 19.61
$ 19.21
$ 18.95
$ 18.75
$ 19.02
3.90 %
3.1
7.1
39.6 %
3.93 %
3.1
6.5
39.7 %
3.82 %
3.2
7.6
47.6 %
3.77 %
3.3
7.9
49.8 %
3.84 %
3.1
7.7
52.4 %
3.89 %
3.1
7.3
50.4 %
3.97 %
3.0
7.4
51.4 %
3.96 %
3.0
7.8
48.7 %
42
8.2
46
8.5
51
9.0
106
15.4
121
17.2
148
20.8
157
21.5
160
22.3
(1) Excludes properties held for sale and redevelopment at period-end.
(2) Weighted average face rate of interest is calculated as the weighted average face rate of all interest bearing debt balances, including debt related to
investment in joint ventures that are equity accounted.
(3) The calculation of the following non-GAAP measures – interest coverage ratio, net debt-to-adjusted EBITDFV and level of debt are included in the “Non-GAAP
Measures and Other Disclosures” section of the MD&A.
(4) Interest coverage ratio and net total debt-to-total assets have been restated in the comparative periods to conform to current period presentation.
Results of operations
(in thousands of Canadian dollars)
Investment properties revenue
Investment properties operating
$
expenses
Net rental income
Other income (loss)
Other expenses
Fair value adjustments, net losses on
transactions and other activities
Income (loss) before income taxes
Current income taxes expense
Deferred income taxes (expense)
recovery
Net income (loss) for the period
Other comprehensive income (loss)
Comprehensive income (loss) for
2017
Q1
78,740 $ 110,466 $ 128,206 $ 152,363 $ 166,919 $ 170,699 $ 159,124 $
Q4
Q3
Q3
Q2
Q4
Q2
(37,367 )
41,373
4,473
(19,688 )
69,968
96,126
(4,123 )
(50,278 )
60,188
5,278
(27,123 )
(38,878 )
(535 )
—
8,728
100,731
(6,043 )
(102 )
(637 )
(1,740 )
(56,709 )
71,497
2,908
(31,623 )
(67,762 )
84,601
2,893
(32,233 )
(75,204 )
91,715
(9,990 )
(33,894 )
(77,032 )
93,667
1,616
(34,766 )
(70,513 )
88,611
(63,682 )
(36,013 )
(7,969 )
34,813
—
(257 )
34,556
(1,127 )
(54,706 )
555
—
(147,778 )
(99,947 )
—
(31,573 )
28,944
—
(695,587 )
(706,671 )
—
(85,263 )
(100,078 )
—
(419 )
136
(325 )
(724 )
(100,671 )
961
(364 )
28,580
523
(403 )
(707,074 )
(40 )
(462 )
(100,540 )
(1,859 )
2016
Q1
167,549
(72,964 )
94,585
(70,900 )
(38,500 )
the period
$
94,688
$
(2,377 ) $
33,429
$
(189 ) $
(99,710 ) $
29,103
$ (707,114 ) $
(102,399 )
Dream Office REIT 2017 Annual Report | 47
Reconciliation between net income (loss) and funds from operations
(in thousands of Canadian dollars except for unit and per unit amounts)
Q4
Net income (loss) for the period $ 100,731 $
Add (deduct):
Share of net income and net
Q3
(637 ) $
Q2
34,556 $
2017
Q1
136 $
Q4
(100,671 ) $
Q3
28,580 $
Q2
(707,074 ) $
Q1
(100,540 )
2016
accretion loss from investment
in Dream Industrial REIT
Share of FFO from investment in
Dream Industrial REIT
Depreciation, amortization and
write-offs of external
management contracts
Costs on sale of investment
properties
Interest expense on subsidiary
redeemable units
Fair value adjustments to
investment properties
Fair value adjustments to financial
instruments and DUIP included
in G&A expenses
Debt settlement costs, net
Internal leasing costs
Deferred income taxes expense
(recovery)
Taxes attributable to dispositions
Foreign exchange gain
attributable to dispositions
Loss on recognition of net assets
related to joint operations
Other
FFO(1)
FFO per unit – basic(2)
FFO per unit – diluted(2)
Weighted average units
outstanding(3)
Basic (in thousands)
Diluted (in thousands)
(3,409 )
(4,009 )
(557 )
(1,465 )
(1,156 )
(255 )
(4,400)
(2,275 )
5,063
4,826
4,683
4,193
4,068
4,307
4,348
4,381
3,344
4,890
7,377
5,898
5,526
5,291
5,460
5,006
1,665
6,050
6,268
6,074
3,137
2,213
5,217
1,507
1,307
1,309
1,963
1,963
1,963
1,963
1,963
2,285
(78,663 )
21,009
(6,337 )
40,875
136,100
33,700
759,400
142,600
7,075
3,968
1,308
9,086
957
1,111
2,122
3,939
1,312
(1,610 )
7,391
1,506
15,257
—
2,150
(9,677 )
2,844
2,051
(12,748)
8,862
2,299
20,276
1,614
2,322
(8,728 )
4,369
102
—
257
—
419
—
724
—
364
—
403
—
(5,717 )
—
—
—
—
—
—
462
—
—
—
(78 )
32,235 $
0.40 $
0.40 $
—
(41 )
44,653 $
0.48 $
0.48 $
—
103
55,686 $
0.53 $
0.53 $
117
(14 )
65,483 $
0.59 $
0.59 $
—
57
67,155 $
0.59 $
0.59 $
—
(22 )
71,359 $
0.62 $
0.62 $
10,263
157
74,150 $
0.65 $
0.65 $
—
585
78,223
0.69
0.68
$
$
$
114,448 114,396 113,971
105,663
114,558 114,516 115,488
105,880
(1) FFO (non-GAAP measure) – Refer to the section “Non-GAAP Measures and Other Disclosures” under the heading “Funds from operations (“FFO”)” for further
113,920
114,018
110,229
110,303
80,611
80,943
92,858
93,213
details.
(2) The LP B Units are included in the calculation of basic and diluted FFO per unit.
(3) A description of the determination of basic and diluted amounts per unit can be found in the section “Our Equity” under the heading “Weighted average
number of units”.
Dream Office REIT 2017 Annual Report | 48
SECTION V – DISCLOSURE CONTROLS AND PROCEDURES
At December 31, 2017, the financial year-end, the Chief Executive Officer and the Chief Financial Officer (the “Certifying Officers”),
together with other members of management, have evaluated the design and operational effectiveness of Dream Office REIT’s
disclosure controls and procedures, as defined in National Instrument 52-109 – Certification of Disclosure in Issuers’ Annual and
Interim Filings (“NI 52-109”). The Certifying Officers have concluded that the disclosure controls and procedures are adequate and
effective in order to provide reasonable assurance that material information has been accumulated and communicated to
management, to allow timely decisions of required disclosures by Dream Office REIT and its consolidated subsidiary entities, within
the required time periods.
Dream Office REIT’s internal control over financial reporting (as defined in NI 52-109) is designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in
accordance with IFRS. During the year ended December 31, 2016, Dream Office REIT implemented the framework established in
“2013 Committee of Sponsoring Organizations (COSO) Internal Control Framework”, published by the Committee of Sponsoring
Organizations of the Treadway Commission. The Certifying Officers, together with other members of management, have evaluated
the design and operation of Dream Office REIT’s internal control over financial reporting. Based on that evaluation, the Certifying
Officers have concluded that Dream Office REIT’s internal control over financial reporting was effective as at December 31, 2017.
There were no changes in Dream Office REIT’s internal control over financial reporting during the financial year ended
December 31, 2017 that have materially affected, or are reasonably likely to materially affect, Dream Office REIT’s internal control
over financial reporting.
SECTION VI – RISKS AND OUR STRATEGY TO MANAGE
In addition to the specific risks discussed in this MD&A, we are exposed to various risks and uncertainties, many of which are
beyond our control and could have an impact on our business, financial condition, operating results and prospects. Unitholders
should consider these risks and uncertainties when assessing our outlook in terms of investment potential. For a further discussion
of the risks and uncertainties identified by Dream Office REIT, please refer to our latest Annual Report and Annual Information
Form filed on SEDAR at www.sedar.com.
REAL ESTATE OWNERSHIP
Real estate ownership is generally subject to numerous factors and risks, including changes in general economic conditions (such
as the availability, terms and cost of mortgage financings and other types of credit), local economic conditions (such as an
oversupply of office and other commercial properties or a reduction in demand for real estate in the area), the attractiveness of
properties to potential tenants or purchasers, competition with other landlords with similar available space, and the ability of the
owner to provide adequate maintenance at competitive costs.
An investment in real estate is relatively illiquid. Such illiquidity will tend to limit our ability to vary our portfolio promptly in
response to changing economic or investment conditions. In recessionary times, it may be difficult to dispose of certain types of
real estate. The costs of holding real estate are considerable, and during an economic recession, we may be faced with ongoing
expenditures with a declining prospect of incoming receipts. In such circumstances, it may be necessary for us to dispose of
properties at lower prices in order to generate sufficient cash from operations and make distributions and interest payments.
Certain significant expenditures (e.g., property taxes, maintenance costs, mortgage payments, insurance costs and related charges)
must be made throughout the period of ownership of real property, regardless of whether the property is producing sufficient
income to pay such expenses. In order to retain desirable rentable space and to generate adequate revenue over the long term,
we must maintain or, in some cases, improve each property’s condition to meet market demand. Maintaining a rental property in
accordance with market standards can entail significant costs, which we may not be able to pass on to our tenants. Numerous
factors, including the age of the relevant building structure, the material and substances used at the time of construction, or
currently unknown building code violations, could result in substantial unbudgeted costs for refurbishment or modernization. In
the course of acquiring a property, undisclosed defects in design or construction or other risks might not have been recognized or
correctly evaluated during the pre-acquisition due diligence process. These circumstances could lead to additional costs and could
have an adverse effect on our proceeds from sales and rental income of the relevant properties.
Dream Office REIT 2017 Annual Report | 49
ROLLOVER OF LEASES
Upon the expiry of any lease, there can be no assurance that the lease will be renewed or the tenant replaced. Furthermore, the
terms of any subsequent lease may be less favourable than those of the existing lease. Our cash flows and financial position would
be adversely affected if our tenants were to become unable to meet their obligations under their leases or if a significant amount
of available space in our properties could not be leased on economically favourable lease terms. In the event of default by a
tenant, we may experience delays or limitations in enforcing our rights as lessor and incur substantial costs in protecting our
investment. Furthermore, at any time, a tenant may seek the protection of bankruptcy, insolvency or similar laws which could
result in the rejection and termination of the lease of the tenant and, thereby, cause a reduction in the cash flows available to us.
CONCENTRATION OF PROPERTIES AND TENANTS
Currently, principally all of our properties are located in Canada and, as a result, are impacted by economic and other factors
specifically affecting the real estate markets in Canada. These factors may differ from those affecting the real estate markets in
other regions. Due to the concentrated nature of our properties, a number of our properties could experience any of the same
conditions at the same time. If real estate conditions in Canada decline relative to real estate conditions in other regions, our cash
flows and financial condition may be more adversely affected than those of companies that have more geographically diversified
portfolios of properties.
Given the prominence of the oil and gas industry in Alberta, the office market in that province continues to be significantly
impacted by the price of oil. A continuation of these market and economic conditions, including any substantial decline or
prolonged weakness in the price of oil, could adversely affect the Trust’s occupancy, its operating results and its investment
property values as they relate to the properties in our Alberta portfolio. The Trust expects that occupancy, operating results and its
Alberta investment properties values will remain challenging for the foreseeable future and there can be no assurance that the
occupancy, operating results and fair value will not decrease further. Until there is positive visibility on oil prices and related
economic fundamentals, the Trust anticipates continued challenges for its assets located in Alberta and will continuously evaluate
the economic health of the markets in which we operate to ensure that we have identified and, where possible, mitigated risks to
the Trust, including the potential impacts of changes in the price of oil.
FINANCING
We require access to capital to maintain our properties as well as to fund our growth strategy and significant capital expenditures.
There is no assurance that capital will be available when needed or on favourable terms. Our access to third-party financing will be
subject to a number of factors, including general market conditions; the market’s perception of our growth potential; our current
and expected future earnings; our cash flow and cash distributions, and cash interest payments; and the market price of our
REIT A Units.
A significant portion of our financing is debt. Accordingly, we are subject to the risks associated with debt financing, including the
risk that our cash flows will be insufficient to meet required payments of principal and interest, and that, on maturities of such
debt, we may not be able to refinance the outstanding principal under such debt or that the terms of such refinancing will be more
onerous than those of the existing debt. If we are unable to refinance debt at maturity on terms acceptable to us or at all, we may
be forced to dispose of one or more of our properties on disadvantageous terms, which may result in losses and could alter our
debt-to-equity ratio or be dilutive to unitholders. Such losses could have a material adverse effect on our financial position or
cash flows.
The degree to which we are leveraged could have important consequences to our operations. A high level of debt will reduce the
amount of funds available for the payment of distributions to unitholders and interest payments on our debentures; limit our
flexibility in planning for and reacting to changes in the economy and in the industry, and increase our vulnerability to general
adverse economic and industry conditions; limit our ability to borrow additional funds, dispose of assets, encumber our assets and
make potential investments; place us at a competitive disadvantage compared to other owners of similar real estate assets that
are less leveraged and, therefore, may be able to take advantage of opportunities that our indebtedness would prevent us from
pursuing; make it more likely that a reduction in our borrowing base following a periodic valuation (or redetermination) could
require us to repay a portion of then outstanding borrowings; and impair our ability to obtain additional financing in the future for
working capital, capital expenditures, acquisitions, general trust or other purposes.
Dream Office REIT 2017 Annual Report | 50
CHANGES IN LAW
We are subject to applicable federal, provincial, municipal, local and common laws and regulations governing the ownership and
leasing of real property, employment standards, environmental matters, taxes and other matters. It is possible that future changes
in such laws or regulations, or changes in their application, enforcement or regulatory interpretation, could result in changes in the
legal requirements affecting us (including with retroactive effect). In addition, the political conditions in the jurisdictions in which
we operate are also subject to change. Any changes in investment policies or shifts in political attitudes may adversely affect our
investments. Any changes in the laws to which we are subject in the jurisdictions in which we operate could materially affect our
rights and title in and to the properties and the revenues we are able to generate from our investments.
INTEREST RATES
When entering into financing agreements or extending such agreements, we depend on our ability to agree on terms for interest
payments that will not impair our desired profit, and on amortization schedules that do not restrict our ability to pay distributions
on our REIT A Units and interest payments on our debentures. In addition to existing variable rate portions of our financing
agreements, we may enter into future financing agreements with variable interest rates. An increase in interest rates could result
in a significant increase in the amount we pay to service debt, which could limit our ability to pay distributions to unitholders and
could impact the market price of the REIT A Units and/or the debentures. We have implemented an active hedging program in
order to offset the risk of revenue losses and to provide more certainty regarding the payment of distributions to unitholders and
cash interest payments under the debentures should current variable interest rates increase. However, to the extent that we fail
to adequately manage these risks, including if any such hedging arrangements do not effectively or completely hedge increases in
variable interest rates, our financial results, our ability to pay distributions to unitholders and cash interest payments under our
financing arrangements, and the debentures and future financings may be negatively affected. Hedging transactions involve
inherent risks. Increases in interest rates generally cause a decrease in demand for properties. Higher interest rates and more
stringent borrowing requirements, whether mandated by law or required by banks, could have a significant negative effect on our
ability to sell any of our properties.
ENVIRONMENTAL RISK
As an owner of real property, we are subject to various federal, provincial and municipal laws relating to environmental matters.
Such laws provide a range of potential liability, including potentially significant penalties, and potential liability for the costs of
removal or remediation of certain hazardous substances. The presence of such substances, if any, could adversely affect our ability
to sell or redevelop such real estate or to borrow using such real estate as collateral and, potentially, could also result in civil claims
against us. In order to obtain financing for the purchase of a new property through traditional channels, we may be requested to
arrange for an environmental audit to be conducted. Although such an audit provides us and our lenders with some assurance, we
may become subject to liability for undetected pollution or other environmental hazards on our properties against which
we cannot insure, or against which we may elect not to insure where premium costs are disproportionate to our perception of
relative risk.
We have formal policies and procedures to review and monitor environmental exposure. These policies include the requirement to
obtain a Phase I Environmental Site Assessment, conducted by an independent and qualified environmental consultant, before
acquiring any real property or any interest therein.
JOINT ARRANGEMENTS
We may be, from time to time, a participant in jointly controlled entities and co-ownerships (combined “joint arrangements”) with
third parties. A joint arrangement involves certain additional risks, including:
(i)
(ii)
(iii)
the possibility that such third parties may at any time have economic or business interests or goals that will be
inconsistent with ours, or take actions contrary to our instructions or requests or to our policies or objectives with respect
to our real estate investments;
the risk that such third parties could experience financial difficulties or seek the protection of bankruptcy, insolvency or
other laws, which could result in additional financial demands on us to maintain and operate such properties or repay the
third parties’ share of property debt guaranteed by us or for which we will be liable, and/or result in our suffering or
incurring delays, expenses and other problems associated with obtaining court approval of the joint arrangement;
the risk that such third parties may, through their activities on behalf of or in the name of the joint arrangements, expose
or subject us to liability; and
Dream Office REIT 2017 Annual Report | 51
(iv)
the need to obtain third parties’ consents with respect to certain major decisions, including the decision to distribute cash
generated from such properties or to refinance or sell a property. In addition, the sale or transfer of interests in certain of
the joint arrangements may be subject to rights of first refusal or first offer, and certain of the joint venture and
partnership agreements may provide for buy-sell or similar arrangements. Such rights may be triggered at a time when
we may not desire to sell but may be forced to do so because we do not have the cash to purchase the other party’s
interests. Such rights may also inhibit our ability to sell an interest in a property or a joint arrangement within the time
frame or otherwise on the basis we desire.
Our investment in properties through joint arrangements is subject to the investment guidelines set out in our Declaration
of Trust.
COMPETITION
The real estate market in Canada is highly competitive and fragmented, and we compete for real property acquisitions with
individuals, corporations, institutions and other entities that may seek real property investments similar to those we desire. An
increase in the availability of investment funds or an increase in interest in real property investments may increase competition for
real property investments, thereby increasing purchase prices and reducing the yield on them. If competing properties of a similar
type are built in the area where one of our properties is located or if similar properties located in the vicinity of one of our
properties are substantially refurbished, the net operating income derived from and the value of such property could be reduced.
Numerous other developers, managers and owners of properties will compete with us in seeking tenants. To the extent that our
competitors own properties that are in better locations, of better quality or less leveraged than the properties owned by us, they
may be in a better position to attract tenants who might otherwise lease space in our properties. To the extent that our
competitors are better capitalized or financially stronger, they would be in a better position to withstand an economic downturn.
The existence of competition for tenants could have an adverse effect on our ability to lease space in our properties and on
the rents charged or concessions granted, and could materially and adversely affect our cash flows, operating results and
financial condition.
INSURANCE
We carry general liability, umbrella liability and excess liability insurance with limits that are typically obtained for similar real
estate portfolios in Canada and otherwise acceptable to our trustees. For the property risks, we carry “All Risks” property
insurance including, but not limited to, flood, earthquake and loss of rental income insurance (with at least a 24-month indemnity
period). We also carry boiler and machinery insurance covering all boilers, pressure vessels, HVAC systems and equipment
breakdown. However, certain types of risks (generally of a catastrophic nature such as from war or nuclear accident) are
uninsurable under any insurance policy. Furthermore, there are other risks that are not economically viable to insure at this time.
We partially self-insure against terrorism risk for our entire portfolio. We have insurance for earthquake risks, subject to certain
policy limits, deductibles and self-insurance arrangements. Should an uninsured or underinsured loss occur, we could lose our
investment in, and anticipated profits and cash flows from, one or more of our properties, but we would continue to be obligated
to repay any recourse mortgage indebtedness on such properties. We do not carry title insurance on our properties. If a loss
occurs resulting from a title defect with respect to a property where there is no title insurance or the loss is in excess of insured
limits, we could lose all or part of our investment in, and anticipated profits and cash flows from, such property.
RELIANCE ON DAM FOR CERTAIN MANAGEMENT SERVICES
We rely on DAM for certain management services, including the services of a Chief Executive Officer, as requested. DAM has the
right, upon 180 days’ notice, to terminate our Management Services Agreement for any reason: (i) at any time on or after April 2,
2018; and (ii) at any time on or after April 2, 2017 if the Shared Services and Cost Sharing Agreement has been terminated by
Dream Office LP. Our Management Services Agreement may also be terminated in other circumstances, such as in the event of
default or insolvency of DAM within the meaning of such agreement. Accordingly, there can be no assurance that DAM will
continue to provide management services. If DAM should cease for whatever reason to provide such services, this may adversely
impact our ability to meet our objectives and execute our strategy.
The Management Services Agreement does not obligate DAM to provide the services of any particular person to Dream Office
REIT, including the services of our current senior management team. However, we have no reason to believe the services of our
current senior management team will not continue to be provided by DAM.
Dream Office REIT 2017 Annual Report | 52
SECTION VII – CRITICAL ACCOUNTING POLICIES
CRITICAL ACCOUNTING JUDGMENTS, ESTIMATES AND ASSUMPTIONS IN APPLYING ACCOUNTING POLICIES
Preparing the consolidated financial statements requires management to make judgments, estimates and assumptions that affect
the amounts reported. Management bases its judgments and estimates on historical experience and other factors it believes to be
reasonable under the circumstances, but which are inherently uncertain and unpredictable, the result of which forms the basis of
the carrying amounts of assets and liabilities. However, uncertainty about these assumptions and estimates could result in
outcomes that could require a material adjustment to the carrying amount of the affected asset or liability in the future.
Critical accounting judgments
The following are the critical accounting judgments used in applying the Trust’s accounting policies that have the most significant
effect on the amounts in the consolidated financial statements:
Investment properties
Critical judgments are made in respect of the fair values of investment properties and the investment properties held in equity
accounted investments. The fair values of these investments are reviewed at least quarterly by management with reference to
independent property appraisals and market conditions existing at the reporting date, using generally accepted market practices.
The independent appraisers are experienced, nationally recognized and qualified in the professional valuation of office buildings in
their respective geographic areas. Judgment is also applied in determining the extent and frequency of independent appraisals. At
each reporting period, a select number of properties, determined on a rotational basis, are valued by appraisals. For properties not
subject to independent appraisals, valuations are prepared internally during each reporting period.
Critical assumptions relating to the estimates of fair values of investment properties include cap rates, discount rates that reflect
current market uncertainties, terminal cap rates and market rents. Other key assumptions relating to the estimates of fair values
of investment properties include components of stabilized NOI, leasing costs and vacancy rates. The Trust examines the critical and
key assumptions at the end of each reporting period and updates these assumptions based on recent leasing activity and external
market data available at that time. If there is any change in these assumptions or regional, national or international economic
conditions, the fair value of investment properties may change materially.
The Trust makes judgments with respect to whether lease incentives provided in connection with a lease enhance the value of the
leased space, which determines whether or not such amounts are treated as tenant improvements and added to investment
properties. Lease incentives, such as cash, rent-free periods and lessee- or lessor-owned improvements, may be provided to
lessees to enter into an operating lease. Lease incentives that do not provide benefits beyond the initial lease term are included in
the carrying amount of investment properties and are amortized as a reduction of rental revenue on a straight-line basis over the
term of the lease.
Judgment is also applied in determining whether certain costs are additions to the carrying amount of the investment property.
Impairment
The Trust assesses the possibility and amount of any impairment loss or write-down as it relates to the investment in
Dream Industrial REIT, amounts receivable, property and equipment and external management contracts.
IAS 39, “Financial Instruments: Recognition and Measurement”, requires management to use judgment in determining if the
Trust’s financial assets are impaired. In making this judgment, the Trust evaluates, among other factors, the duration and extent to
which the fair value of the investment is less than its carrying amount; and the financial health of and short-term business outlook
for the investee, including factors such as industry and sector performance, changes in technology, and operational and financing
cash flows.
IAS 36, “Impairment of Assets” (“IAS 36”), requires management to use judgment in determining the recoverable amount of assets
and equity accounted investments that are tested for impairment, including our investment in Dream Industrial REIT and
investment in joint ventures. Judgment is also involved in estimating the value-in-use of the investment in Dream Industrial REIT,
including estimates of future cash flows, discount rates and terminal rates. The values assigned to these key assumptions reflect
past experience and are consistent with external sources of information.
Estimates and assumptions
The Trust 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 reporting period. Actual results could differ from these
estimates. The estimates and assumptions that are critical in determining the amounts reported in the consolidated financial
statements relate to the following:
Dream Office REIT 2017 Annual Report | 53
Valuation of financial instruments
The Trust makes estimates and assumptions relating to the fair value measurement of the subsidiary redeemable units, the
deferred trust units, the convertible debenture conversion feature, interest rate swaps and the fair value disclosure of the
mortgages, term loan facility, convertible debentures and debentures. The critical assumptions underlying the fair value
measurements and disclosures include the market price of REIT A Units, market interest rates for mortgages, term loan facility and
unsecured debentures, and assessment of the effectiveness of hedging relationships.
For certain financial instruments, including cash and cash equivalents, amounts receivable, other receivables, amounts payable
and accrued liabilities, deposits and distributions payable, the carrying amounts approximate fair values due to their immediate or
short-term maturity. The fair values of mortgages, term loan facility and interest rate swaps are determined based on discounted
cash flows using discount rates that reflect current market conditions for instruments with similar terms and risks. The fair value of
convertible debentures is determined by reference to quoted market prices from an active market.
FUTURE ACCOUNTING POLICY CHANGES
Statement of cash flows
IAS 7, “Cash Flow Statements” (“IAS 7”), has been amended by the IASB to introduce additional disclosure that will allow users to
understand changes in liabilities arising from financing activities. This amendment to IAS 7 is effective for annual periods beginning
on or after January 1, 2017. The Trust does not anticipate this amendment to have a material impact on the consolidated financial
statements.
Revenue recognition
IFRS 15, “Revenue from Contracts with Customers” (“IFRS 15”), provides a comprehensive five-step revenue recognition model for
all contracts with customers. The IFRS 15 revenue recognition model requires management to exercise significant judgment and
make estimates that affect revenue recognition. IFRS 15 is effective for annual periods beginning on or after January 1, 2018, with
earlier application permitted. The Trust has not early adopted IFRS 15.
The Trust has performed an in-depth assessment of IFRS 15 to determine what the impact of the adoption of the standard will
have on the Trust’s consolidated financial statements. The Trust has certain service obligations with respect to its rented space
which are in the scope of IFRS 15. These obligations are satisfied evenly over time, and revenue earned is based on actual costs
incurred to provide the services. The Trust will recognize revenues to the extent it is entitled to recover costs from tenants under
the terms of the leases. IFRS 15 also includes a control-based model for determining whether a principal or agent relationship
exists, under which the Trust exercises judgment about the nature of its relationships with related parties. As a result of its
assessment, the Trust does not expect there to be a material impact on the timing and amount of service revenue recognized in a
given reporting period under IFRS 15. Rental revenue earned from leases is outside of the scope of IFRS 15 and will therefore not
be impacted by its adoption. Additional disclosures will be required to comply with IFRS 15.
Financial instruments
The final version of IFRS 9, “Financial Instruments” (“IFRS 9”), was issued by the IASB in July 2014 and will replace IAS 39, “Financial
Instruments: Recognition and Measurement” (“IAS 39”). IFRS 9 introduces a model for classification and measurement, a single,
forward-looking “expected loss” impairment model and a substantially reformed approach to hedge accounting. The new single,
principle-based approach for determining the classification of financial assets is driven by cash flow characteristics and the
business model in which an asset is held. The new model also results in a single impairment model being applied to all financial
instruments, which will require more timely recognition of expected credit losses. It also includes changes in respect of an entity’s
own credit risk in measuring liabilities elected to be measured at fair value, so that gains caused by the deterioration of an entity’s
own credit risk on such liabilities are no longer recognized in profit or loss. The entity’s own credit changes can be early adopted in
isolation without otherwise changing the accounting for financial instruments. Lastly, a third measurement category for financial
assets, “fair value through other comprehensive income”, will exist. IFRS 9 is effective for annual periods beginning on or after
January 1, 2018.
The Trust has performed an in-depth assessment of IFRS 9 to determine what the impact of the adoption of the standard will have
on the Trust’s consolidated financial statements. The Trust has determined that all financial assets, with the exception of
marketable securities, meet the test that the resulting cash flows are payments on specified dates that are solely payments of
principal and interest and will be carried at amortized cost upon adoption. Marketable securities will continue to be carried at fair
value through profit or loss. The Trust does not expect there to be a material impact on the carrying value of its trade receivables
or to the classification and measurement of its financial assets. Additional disclosures will be required to comply with IFRS 9.
Dream Office REIT 2017 Annual Report | 54
Financial instruments – disclosures
IFRS 7, “Financial Instruments: Disclosures” (“IFRS 7”), has been amended by the IASB to require additional disclosures on
transition from IAS 39 to IFRS 9. The amendment to IFRS 7 is effective for annual periods beginning on or after January 1, 2018. The
Trust is currently evaluating the impact of adopting this standard on the consolidated financial statements.
Share-based payments
IFRS 2, “Share-Based Payments” (“IFRS 2”), clarifies how to account for certain types of share-based payment transactions. It was
amended to address (i) certain issues related to the accounting for cash settled awards, and (ii) the accounting for equity settled
awards that include a “net settlement” feature in respect of employee withholding taxes. The amendments to IFRS 2 are effective
for years beginning on or after January 1, 2018. The Trust does not anticipate this amendment to have a material impact on the
consolidated financial statements.
Leases
IFRS 16, “Leases” (“IFRS 16”), sets out the principles for the recognition, measurement and disclosure of leases. IFRS 16 provides
revised guidance on identifying a lease and for separating lease and non-lease components of a contract. IFRS 16 introduces a
single accounting model for all lessees and requires a lessee to recognize right-of-use assets and lease liabilities for leases with
terms of more than 12 months, unless the underlying asset is of low value. Under IFRS 16, lessor accounting for operating and
finance leases will remain substantially unchanged. IFRS 16 is effective for annual periods beginning on or after January 1, 2019,
with earlier application permitted for entities that apply IFRS 15. The Trust is currently evaluating the impact of adopting this
standard on the consolidated financial statements.
Income taxes
IFRIC 23, “Uncertainty over Income Tax Treatments” (“IFRIC 23”), clarifies the application of the recognition and measurement
requirements in IAS 12, “Income Taxes” (“IAS 12”), for situations where there is uncertainty over income tax treatments. IFRIC 23
specifically addresses whether an entity considers income tax treatments separately; assumptions that an entity makes regarding
the examination of tax treatments by taxation authorities; how an entity determines taxable income or loss, tax bases, unused tax
losses or credits and tax rates; and how an entity considers changes in facts and circumstances. IFRIC 23 does not apply to taxes or
levies outside the scope of IAS 12. IFRIC 23 is effective for annual periods beginning on or after January 1, 2019. The Trust is
currently evaluating the impact of adopting this interpretation on the consolidated financial statements.
ADDITIONAL INFORMATION
Additional information relating to Dream Office REIT, including the latest Annual Information Form of Dream Office REIT, is
available on SEDAR at www.sedar.com.
Dream Office REIT 2017 Annual Report | 55
SECTION VIII
ASSET LISTING
The following table includes supplementary information on our portfolio as at December 31, 2017.
Property
IBM Corporate Park, Calgary
F1RST Tower, Calgary(1)
444 – 7th Building, Calgary
Life Plaza, Calgary
Rocky Mountain Plaza, Calgary
606 – 4th Building & Barclay Parkade, Calgary
Joffre Place, Calgary
Kensington House, Calgary
14505 Bannister Road, SE, Calgary
Centre 70, Calgary(1)
Calgary
Adelaide Place, Toronto
State Street Financial Centre, Toronto
438 University Avenue, Toronto
655 Bay Street, Toronto
74 Victoria Street/137 Yonge Street, Toronto
720 Bay Street, Toronto
36 Toronto Street, Toronto
330 Bay Street, Toronto
20 Toronto Street/33 Victoria Street, Toronto
250 Dundas Street West, Toronto
Victory Building, Toronto
425 Bloor Street East, Toronto(2)
212 King Street West, Toronto
357 Bay Street, Toronto
360 Bay Street, Toronto
67 Richmond Street West, Toronto
350 Bay Street, Toronto
366 Bay Street, Toronto
56 Temperance Street, Toronto
Toronto downtown
50 & 90 Burnhamthorpe Road West, Mississauga (Sussex
Centre)(1)
5001 Yonge Street, North York
Mississauga and North York
700 De la Gauchetière Street West, Montréal(3)
150 Metcalfe Street, Ottawa
Ottawa and Montréal
Ownership
100.0 %
50.0 %
100.0 %
100.0 %
100.0 %
100.0 %
100.0 %
100.0 %
100.0 %
15.0 %
100.0 %
100.0 %
100.0 %
100.0 %
100.0 %
100.0 %
100.0 %
100.0 %
100.0 %
100.0 %
100.0 %
100.0 %
100.0 %
100.0 %
100.0 %
100.0 %
100.0 %
100.0 %
100.0 %
49.9 %
100.0 %
100.0 %
100.0 %
Owned share of
total GLA (in
thousands of
square feet)
358
354
261
237
205
128
107
78
61
20
1,809
657
414
323
299
266
248
214
164
158
122
101
84
73
64
58
54
53
36
32
3,420
Average tenant
size (in
thousands of
square feet)
38
52
23
4
20
9
7
4
15
3
11
9
52
17
12
53
248
5
4
6
6
2
10
7
2
4
10
4
3
3
9
No. of
tenants
8
7
11
34
9
12
11
18
4
34
148
72
8
19
25
5
1
36
41
25
19
43
8
9
21
15
5
12
13
10
387
325
309
634
985
109
1,094
60
21
81
42
18
60
10
15
11
22
5
17
Average
remaining
lease term
(in years)
4.4
2.1
7.2
3.5
4.9
5.7
3.1
5.8
3.2
3.3
4.6
5.2
6.5
7.4
4.5
5.9
3.0
4.8
3.5
6.6
6.0
3.3
6.0
3.6
2.1
3.4
2.5
3.9
2.5
3.8
5.2
5.9
4.1
5.0
5.6
5.4
5.6
In-place and
committed
occupancy
86.0 %
51.4 %
98.3 %
59.1 %
87.3 %
81.4 %
74.7 %
89.1 %
100.0 %
74.6 %
77.1 %
96.3 %
100.0 %
100.0 %
97.7 %
100.0 %
100.0 %
86.3 %
94.2 %
99.5 %
100.0 %
98.3 %
100.0 %
84.8 %
70.4 %
96.8 %
93.3 %
100.0 %
100.0 %
100.0 %
96.8 %
89.3 %
100.0 %
94.5 %
95.1 %
79.8 %
93.6 %
Dream Office REIT 2017 Annual Report | 56
Property
Ownership
Saskatoon Square, Saskatoon
275 Dundas Street West, London (London City Centre)(1)
1900 Sherwood Place, Regina
12800 Foster Street, Overland Park, U.S.
Victoria Tower, Regina
Princeton Tower, Saskatoon
Financial Building, Regina
Preston Centre, Saskatoon
234 – 1st Avenue South, Saskatoon
100.0 %
40.0 %
100.0 %
100.0 %
100.0 %
100.0 %
100.0 %
100.0 %
100.0 %
Non-core markets
Total comparative portfolio(4)
Total – held for sale
Total – redevelopment
(1) Co-owned property.
(2) Property subject to a ground lease.
(3) Includes both an office and a co-owned retail component.
(4) Excludes redevelopment properties and properties held for sale as at December 31, 2017.
Owned share of
total GLA (in
thousands of
square feet)
228
216
185
185
144
135
66
62
10
1,231
8,188
354
442
Average tenant
size (in
thousands of
square feet)
15
24
20
185
72
7
5
5
2
17
11
17
16
No. of
tenants
14
21
7
1
2
16
1
13
4
79
755
18
8
Average
remaining
lease term
(in years)
3.6
5.7
2.7
2.9
0.8
3.0
1.0
3.8
4.5
3.3
4.8
3.8
1.5
In-place and
committed
occupancy
92.2 %
91.5 %
77.2 %
100.0 %
100.0 %
85.1 %
6.8 %
100.0 %
83.4 %
86.9 %
90.4 %
88.0 %
28.1 %
Dream Office REIT 2017 Annual Report | 57
Management’s responsibility for the consolidated financial statements
The accompanying consolidated financial statements, the notes thereto and other financial information contained in this
Annual Report have been prepared by, and are the responsibility of, the management of Dream Office Real Estate Investment
Trust. These consolidated financial statements have been prepared in accordance with International Financial Reporting
Standards, using management’s best estimates and judgments when appropriate.
The Board of Trustees is responsible for ensuring that management fulfills its responsibility for financial reporting and internal
controls. The Audit Committee, which comprises trustees, meets with management as well as the external auditor to satisfy
itself that management is properly discharging its financial responsibilities and to review its consolidated financial statements
and the report of the auditor. The Audit Committee reports its findings to the Board of Trustees, which approves the
consolidated financial statements.
PricewaterhouseCoopers LLP, the independent auditor, has audited the consolidated financial statements in accordance with
Canadian generally accepted auditing standards. The auditor has full and unrestricted access to the Audit Committee, with or
without management present.
“Michael J. Cooper”
Michael J. Cooper
Chief Executive Officer
Toronto, Ontario, February 22, 2018
“Rajeev Viswanathan”
Rajeev Viswanathan
Chief Financial Officer
Dream Office REIT 2017 Annual Report | 58
Independent Auditor’s Report
To the Unitholders of Dream Office Real Estate Investment Trust
We have audited the accompanying consolidated financial statements of Dream Office Real Estate Investment Trust and its
subsidiaries (together, Dream Office REIT), which comprise the consolidated balance sheets as at December 31, 2017 and
December 31, 2016 and the consolidated statements of comprehensive income (loss), changes in equity and cash flows for
the years then ended, and the related notes, which comprise a summary of significant accounting policies and other
explanatory information.
Management’s responsibility for the consolidated financial statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in
accordance with International Financial Reporting Standards, as issued by the International Accounting Standards Board, and
for such internal control as management determines is necessary to enable the preparation of consolidated financial
statements that are free from material misstatement, whether due to fraud or error.
Auditor’s responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our
audits in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with
ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated
financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated
financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of
material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk
assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the
consolidated financial statements 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 entity’s internal control. An audit also includes evaluating
the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as
well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our
audit opinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Dream
Office REIT as at December 31, 2017 and December 31, 2016 and its financial performance and its cash flows for the years
then ended in accordance with International Financial Reporting Standards, as issued by the International Accounting
Standards Board.
(Signed) “PricewaterhouseCoopers LLP”
Chartered Professional Accountants, Licensed Public Accountants
Toronto, Ontario,
February 22, 2018
Dream Office REIT 2017 Annual Report | 59
Note
December 31,
2017
December 31,
2016
7
8
9
10
11
18
18
12
13
14
21
12
15
18
17
17
17, 26
$
$
$
$
2,919,438
220,796
—
9,544
3,149,778
14,826
8,889
96,960
120,675
51,530
3,321,983
1,160,689
115,981
17,280
2,214
9,558
1,305,722
206,961
73,677
280,638
—
1,586,360
2,462,611
(728,934 )
1,946
1,735,623
3,321,983
$
$
$
$
4,836,355
186,754
15,189
16,556
5,054,854
17,786
84,854
7,667
110,307
321,355
5,486,516
2,321,530
102,321
14,796
10,735
15,056
2,464,438
328,260
104,997
433,257
217,056
3,114,751
3,108,424
(747,840 )
11,181
2,371,765
5,486,516
Consolidated balance sheets
(in thousands of Canadian dollars)
Assets
NON-CURRENT ASSETS
Investment properties
Investment in Dream Industrial REIT
Investment in joint ventures
Other non-current assets
CURRENT ASSETS
Amounts receivable
Prepaid expenses and other assets
Cash and cash equivalents
Assets held for sale
Total assets
Liabilities
NON-CURRENT LIABILITIES
Debt
Subsidiary redeemable units
Deferred Unit Incentive Plan
Deferred tax liabilities, net
Tenant security deposits and other
CURRENT LIABILITIES
Debt
Amounts payable and accrued liabilities
Liabilities related to assets held for sale
Total liabilities
Equity
Unitholders’ equity
Deficit
Accumulated other comprehensive income
Total equity
Total liabilities and equity
See accompanying notes to the consolidated financial statements.
On behalf of the Board of Trustees of Dream Office Real Estate Investment Trust:
“Joanne Ferstman”
JOANNE FERSTMAN
Trustee
“Michael J. Cooper”
MICHAEL J. COOPER
Trustee
Dream Office REIT 2017 Annual Report | 60
Note
$
Year ended December 31,
2017
469,775 $
(212,116 )
257,659
2016
664,291
(295,713 )
368,578
9,440
—
6,112
15,552
8,086
(154,300 )
3,258
(142,956 )
(10,644 )
(11,906 )
(86,560 )
(6,542 )
(119,520 )
(8,174 )
(6,921 )
(110,667 )
(3,573 )
(143,173 )
23,116
(16,771 )
(37,930 )
(31,585 )
130,959
(4,123 )
7,950
134,786
(899,100 )
(13,555 )
(47,546 )
(960,201 )
(877,752 )
—
(1,953 )
(879,705 )
—
(5,905 )
561
—
45
(3,115 )
(260 )
(9,235 )
125,551 $
252
(1,207 )
—
(394 )
(880,099 )
$
8
9
23
19
19
10, 18
7, 18
20
31
21
21
26
26
26
26
26
Consolidated statements of comprehensive income (loss)
(in thousands of Canadian dollars)
Investment properties revenue
Investment properties operating expenses
Net rental income
Other income (loss)
Share of net income and net accretion loss from investment in Dream Industrial REIT
Share of net loss from investment in joint ventures
Interest and fee income
Other expenses
General and administrative
Interest:
Debt
Subsidiary redeemable units
Amortization and write-off of external management contracts and depreciation on property
and equipment
Fair value adjustments, net losses on transactions and other activities
Fair value adjustments to investment properties
Fair value adjustments to financial instruments
Net losses on transactions and other activities
Income (loss) before income taxes
Current income taxes expense
Deferred income taxes (expense) recovery
Net income (loss) for the year
Other comprehensive income (loss)
Items reclassified to net income (loss):
Reclassified realized gain on interest rate swaps, net of taxes
Reclassified realized gain on foreign currency translation, net of taxes
Items that will be reclassified subsequently to net income (loss):
Unrealized gain on interest rate swaps and other, net of taxes
Unrealized loss on foreign currency translation, net of taxes
Share of other comprehensive loss from investment in Dream Industrial REIT
Comprehensive income (loss) for the year
See accompanying notes to the consolidated financial statements.
Dream Office REIT 2017 Annual Report | 61
Consolidated statements of changes in equity
(in thousands of Canadian dollars, except for number of units)
Attributable to unitholders of the Trust
Year ended December 31, 2017
Balance at January 1, 2017
Net income for the year
Distributions paid and payable
Deferred trust units exchanged for REIT A Units
Cancellation of REIT A Units under NCIB
Cancellation of REIT A Units under SIB
Issue and cancellation costs
Other comprehensive loss
Balance at December 31, 2017
Note
16
14
17
17
26
Number of
REIT A Units
104,806,724 $
—
—
199,675
(10,348,734 )
(20,952,380 )
—
—
73,705,285 $
Unitholdersʼ
equity
3,108,424 $
—
—
3,863
(209,178 )
(440,000 )
(498 )
—
2,462,611 $
Deficit
(747,840 ) $
134,786
(115,880 )
—
—
—
—
—
(728,934 ) $
Accumulated
other
comprehensive
income (loss)
11,181 $
—
—
—
—
—
—
(9,235 )
1,946 $
Total equity
2,371,765
134,786
(115,880 )
3,863
(209,178 )
(440,000 )
(498 )
(9,235 )
1,735,623
Year ended December 31, 2016
Balance at January 1, 2016
Net loss for the year
Distributions paid and payable
Distribution Reinvestment Plan
Unit Purchase Plan
Deferred trust units exchanged for REIT A Units
Cancellation of REIT A Units under NCIB
Issue and cancellation costs
Other comprehensive loss
Balance at December 31, 2016
Note
16
17
17
14
17
26
Number of
REIT A Units
107,860,638 $
—
—
1,122,411
362
154,507
(4,331,194 )
—
—
104,806,724 $
Unitholdersʼ
equity
3,168,915 $
—
—
17,034
6
2,696
(80,174 )
(53 )
—
3,108,424 $
See accompanying notes to the consolidated financial statements.
Attributable to unitholders of the Trust
Retained
earnings
(deficit)
301,324 $
(879,705 )
(169,459 )
—
—
—
—
—
—
(747,840 ) $
Accumulated
other
comprehensive
income (loss)
11,575 $
—
—
—
—
—
—
—
(394 )
11,181 $
Total equity
3,481,814
(879,705 )
(169,459 )
17,034
6
2,696
(80,174 )
(53 )
(394 )
2,371,765
Dream Office REIT 2017 Annual Report | 62
Consolidated statements of cash flows
(in thousands of Canadian dollars)
Generated from (utilized in) operating activities
Net income (loss) for the year
Non-cash items:
Share of net income and net accretion loss from investment
in Dream Industrial REIT
Share of net loss from investment in joint ventures
Amortization and depreciation
Fair value adjustments to investment properties
Fair value adjustments to financial instruments
Other adjustments
Investment in lease incentives and initial direct leasing costs
Interest expense on subsidiary redeemable units
Change in non-cash working capital
Generated from (utilized in) investing activities
Investment in building improvements
Investment in property and equipment
Net proceeds from disposal of investment properties
Distributions from investment in Dream Industrial REIT
Purchase of Dream Industrial REIT Units
Distributions from investment in joint ventures
Contributions to investment in joint ventures
Change in restricted cash
Generated from (utilized in) financing activities
Borrowings
Principal repayments
Lump sum repayments
Lump sum repayments on property dispositions
Financing cost additions
Distributions paid on REIT A Units
Interest paid on subsidiary redeemable units
Cancellation of REIT A Units under NCIB
Cancellation of REIT A Units under SIB
REIT A Units issued for cash
Debt settlement and REIT A Units issue and cancellation costs
Increase in cash and cash equivalents
Foreign exchange loss on cash held in foreign currency
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
See accompanying notes to the consolidated financial statements.
Note
8
9
25
7, 18
20
25
19
25
12
12, 18
12, 18
12, 18
12
16
25
17
17
Year ended December 31,
2017
2016
$
134,786 $
(879,705 )
(9,440 )
—
22,087
(23,116 )
16,771
22,925
(58,750 )
6,542
(31,985 )
79,820
(28,310 )
(390 )
1,664,271
48
(25,008 )
1,544
—
275
1,612,430
1,144,885
(40,013 )
(1,603,887 )
(297,102 )
(2,393 )
(122,839 )
(6,760 )
(209,178 )
(440,000 )
—
(25,242 )
(1,602,529 )
89,721
(428 )
7,667
96,960 $
(8,086 )
154,300
21,006
899,100
13,555
35,646
(78,201 )
8,174
(18,421 )
147,368
(47,689 )
(2,623 )
470,293
11,918
(5,851 )
130,698
(35,909 )
101
520,938
1,121,743
(61,814 )
(1,325,173 )
(133,917 )
(7,080 )
(159,782 )
(8,497 )
(80,174 )
—
6
(7,918 )
(662,606 )
5,700
(84 )
2,051
7,667
$
Dream Office REIT 2017 Annual Report | 63
Notes to the consolidated financial statements
(All dollar amounts in thousands of Canadian dollars, except for unit, per unit or per square foot amounts)
Note 1
ORGANIZATION
Dream Office Real Estate Investment Trust (“Dream Office REIT” or the “Trust”) is an open-ended investment trust created
pursuant to a Declaration of Trust, as amended and restated, under the laws of the Province of Ontario. The consolidated
financial statements of Dream Office REIT include the accounts of Dream Office REIT and its subsidiaries. Dream Office REIT’s
portfolio comprises office properties located in urban centres primarily in Canada. A subsidiary of Dream Office REIT performs
the property management function.
The principal office and centre of administration of the Trust is 30 Adelaide Street East, Suite 301, State Street Financial
Centre, Toronto, ON M5C 3H1. The Trust is listed on the Toronto Stock Exchange (“TSX”) under the symbol “D.UN”.
Dream Office REIT’s consolidated financial statements for the year ended December 31, 2017 were authorized for issuance by
the Board of Trustees on February 22, 2018, after which they may only be amended with the Board of Trustees’ approval.
For simplicity, throughout the Notes, reference is made to the units of the Trust as follows:
• “REIT A Units”, meaning the REIT Units, Series A;
• “REIT B Units”, meaning the REIT Units, Series B;
• “REIT Units”, meaning the REIT Units, Series A, and REIT Units, Series B, collectively;
• “Units”, meaning REIT Units, Series A, REIT Units, Series B, and Special Trust Units, collectively; and
• “subsidiary redeemable units”, meaning the LP Class B Units, Series 1, limited partnership units of Dream Office LP, a
subsidiary of Dream Office REIT.
Note 2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The principal accounting policies applied in the preparation of these consolidated financial statements are set out below.
These policies have been consistently applied to all years presented, unless otherwise stated.
Basis of presentation and statement of compliance
The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards
(“IFRS”) as issued by the International Accounting Standards Board (“IASB”).
Basis of consolidation
The consolidated financial statements comprise the financial statements of Dream Office REIT and its subsidiaries.
Subsidiaries are fully consolidated from the date of acquisition, the date on which the Trust obtains control, and continue to
be consolidated until the date such control ceases. Control exists when the Trust is exposed to, or has rights to, variable
returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. All
intercompany balances, income and expenses, and unrealized gains and losses resulting from intercompany transactions are
eliminated in full.
Equity accounted investments
Equity accounted investments are investments over which the Trust has significant influence, but not control. Generally, the
Trust is considered to exert significant influence when it holds more than a 20% interest in an entity or partnership. However,
determining significant influence is a matter of judgment and specific circumstances and, from time to time, the Trust may
hold an interest of more than 20% in an entity or partnership without exerting significant influence. Conversely, the Trust may
hold an interest of less than 20% and exert significant influence through representation on the Board of Trustees, direction of
management or through contractual agreements.
Dream Office REIT 2017 Annual Report | 64
The financial results of the Trust’s equity accounted investments are included in the Trust’s consolidated financial statements
using the equity method, whereby the investment is carried on the consolidated balance sheets at cost, adjusted for the
Trust’s proportionate share of post-acquisition profits and losses and for post-acquisition changes in excess of the Trust’s
carrying amount of its investment over the net assets of the equity accounted investments, less any identified impairment
loss. The Trust’s share of profits and losses is recognized in the share of net earnings from equity accounted investments in
the consolidated statements of comprehensive income (loss). Dilution gains and losses arising from changes in the Trust’s
interest in equity accounted investments are recognized in earnings. If the Trust’s investment is reduced to zero, additional
losses are not provided for, and a liability is not recognized, unless the Trust has incurred legal or constructive obligations, or
made payments on behalf of the equity accounted investment.
At each reporting date, the Trust evaluates whether there is objective evidence that its interest in an equity accounted
investment is impaired. The entire carrying amount of the equity accounted investment is compared to the recoverable
amount, which is the higher of the value-in-use or fair value less costs to sell. The recoverable amount of each investment is
considered separately.
Where the Trust transacts with its equity accounted investments, unrealized profits and losses are eliminated to the extent of
the Trust’s interest in the investment. Balances outstanding between the Trust and equity accounted investments in which it
has an interest are not eliminated in the consolidated balance sheets.
Joint arrangements
The Trust enters into joint arrangements via joint operations and joint ventures. A joint arrangement is a contractual
arrangement pursuant to which the Trust and other parties undertake an economic activity that is subject to joint control,
whereby the strategic financial and operating policy decisions relating to the activities of the joint arrangement require the
unanimous consent of the parties sharing control, and that is referred to as joint operations. Joint arrangements that involve
the establishment of a separate entity or partnership in which each party to the venture has rights to the net assets of the
arrangements are referred to as joint ventures. In a co-ownership arrangement, the Trust owns jointly one or more
investment properties with another party and has direct rights to the investment property, and obligations for the liabilities
relating to the co-ownership.
The Trust reports its interests in joint ventures using the equity method of accounting as previously described under “Equity
accounted investments”. The Trust reports its interests in co-ownerships as joint operations by accounting for its share of the
assets, liabilities, revenues and expenses. Under this method, the Trust’s consolidated financial statements reflect only the
Trust’s proportionate share of the assets, its share of any liabilities incurred jointly with the other ventures as well as any
liabilities incurred directly, its share of any revenues earned or expenses incurred by the joint operation and any expenses
incurred directly.
Note 3
ACCOUNTING POLICIES SELECTED AND APPLIED FOR SIGNIFICANT TRANSACTIONS AND EVENTS
The significant accounting policies used in the preparation of these consolidated financial statements are described below:
Investment properties
Investment properties are initially recorded at cost, including related transaction costs in connection with asset acquisitions
and include office properties held to earn rental income and/or for capital appreciation. Subsequent to initial recognition,
investment properties are accounted for at fair value. At the end of each reporting period, the Trust determines the fair value
of investment properties by:
1) considering current contracted sales prices for properties that are available for sale;
2) obtaining appraisals from qualified external professionals applying the income approach on a rotational basis for select
properties; and
3) using internally prepared valuations applying the income approach.
Dream Office REIT 2017 Annual Report | 65
The income approach is derived from two methods: capitalization rate (“cap rate”) method and discounted cash flow method.
In applying the cap rate method, the stabilized net operating income (“stabilized NOI”) of each property is divided by an
appropriate cap rate with adjustments for items such as average lease up costs, long-term vacancy rates, non-recoverable
capital expenditures, management fees, straight-line rents and other non-recurring items. On a quarterly basis, the Trust
generally uses the cap rate method to value investment properties that are more stable and uses the discounted cash flow
method on an annual basis to validate the cap rate value on such properties. On a quarterly basis, for investment properties
that are subject to significant volatility, uncertainty and risk, the Trust generally uses the discounted cash flow method to
value such properties.
Initial direct leasing costs incurred in negotiating and arranging tenant leases are added to the carrying amount of investment
properties. Lease incentives, which include costs incurred to make leasehold improvements to tenants’ space and cash
allowances provided to tenants, are added to the carrying amount of investment properties and are amortized on a straight-
line basis over the term of the lease as a reduction to investment properties revenue. Internal leasing costs are expensed in
the period that they are incurred.
Investment properties are derecognized on disposal or when no future economic benefits are expected from their use or
disposal. Any transaction costs arising on derecognition of an investment property is included in the consolidated statements
of comprehensive income (loss) in the period the asset is derecognized.
Straight-line rent receivables are added to the carrying amount of investment properties.
Segment reporting
A reportable operating segment is a distinguishable component of the Trust that is engaged either in providing related
products or services (business segment) or in providing products or services within a particular economic environment
(geographic segment), which is subject to risks and rewards that are different from those of other reportable segments. The
Trust’s primary format for segment reporting is based on geographic segments. Operating segments are reported in a manner
consistent with the internal reporting provided to the chief operating decision-maker, determined to be the Chief Executive
Officer (“CEO”) of the Trust. The operating segments derive their revenue primarily from rental income from lessees. All of
the Trust’s business activities and operating segments are reported within the geographic segments.
Prior to July 1, 2017, the Trust’s reportable operating segments of its investment properties and results of operations were
segmented geographically, namely B.C./Saskatchewan/N.W.T., Alberta, Toronto – downtown, Toronto – suburban and
Eastern Canada. Effective July 1, 2017, as a result of changes in the Trust’s property portfolio, the Trust made several changes
to its reportable operating segments as follows: (i) separated its investment properties in Calgary from Alberta and created a
new Calgary segment; (ii) separated its investment properties in Ottawa and Montréal from Eastern Canada and created a
new Ottawa and Montréal segment; (iii) renamed the properties remaining in Toronto – suburban as Mississauga and North
York; and (iv) created a new Non-core markets segment containing the remainder of the investment properties that were
previously included in the Alberta and Eastern Canada regions. This Non-core markets segment contains those investment
properties in geographic areas which the Trust does not consider core to its stated strategic direction. These changes will
enable the Chief Executive Officer to evaluate the performance of those investment properties which are key to the Trust’s
overall strategy.
Other non-current assets
Other non-current assets include property and equipment, deposits, restricted cash and external management contracts.
Property and equipment are stated at cost less accumulated depreciation and accumulated impairment losses. Depreciation
of property and equipment is calculated using the straight-line method to allocate their cost, net of their residual values, over
their expected useful lives of two to seven years. The residual values and useful lives of all property and equipment are
reviewed and adjusted, if appropriate, at least once a year. Cost includes expenditures that are directly attributable to the
acquisition and expenditures for replacing part of the property and equipment when that cost is incurred, if the recognition
criteria are met. Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as
appropriate, only when it is probable that future economic benefits associated with the item will flow to the Trust and the
cost of the item can be measured reliably. All other repairs and maintenance are charged to consolidated statements of
comprehensive income (loss) during the reporting period in which they are incurred.
Other non-current assets are derecognized on disposal or when no future economic benefits are expected from their use or
disposal. Any gain or loss arising on derecognition of an asset (calculated as the difference between the net disposal proceeds
and the carrying amount of the asset) is included in the consolidated statements of comprehensive income (loss) in the year
the asset is derecognized.
Dream Office REIT 2017 Annual Report | 66
Revenue recognition
The Trust accounts for tenant leases as operating leases given that it has retained substantially all of the risks and rewards of
ownership of its investment properties. Revenues from investment properties include base rents, recoveries of operating
expenses including property taxes, percentage participation rents, lease termination fees, parking income and incidental
income. Revenue recognition under a lease commences when the tenant has a right to use the leased asset. The total amount
of contractual rent 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 investment properties, is recorded for the difference between the rental
revenue recognized and the contractual amount received. Recoveries from tenants are recognized as revenues in the period
in which the corresponding costs are incurred and collectibility reasonably assured. Percentage participation rents are
recognized on an accrual basis once tenant sales revenues exceed contractual thresholds. Other revenues are recorded as
earned.
External property management contracts
External property management contracts assumed in a business combination are recorded on the consolidated balance
sheets and arise when the Trust acquires less than 100% of an investment property, but manages the investment property
and earns a property management fee from the co-owner. External property management contracts are in place as long as
the property is co-owned by the Trust and are amortized on a straight-line basis into consolidated statements of
comprehensive income (loss) over the life of the contract. As co-owned investment properties are derecognized on disposal, a
portion of the unamortized external property management contracts is written off and included in the consolidated
statements of comprehensive income (loss).
Distributions
Distributions to unitholders are recognized in the period in which the distributions are declared and are recorded as a
reduction of retained earnings.
Income taxes
Dream Office REIT is taxed as a mutual fund trust for Canadian income tax purposes. The Trust expects to distribute all of its
taxable income to its unitholders, which enables it to deduct such distributions for income tax purposes. As the income tax
obligations relating to the distributions are those of the individual unitholder, no provision for income taxes is required on
such amounts. The Trust expects to continue to distribute its taxable income and to qualify as a real estate investment trust
(“REIT”) for the foreseeable future.
For U.S. subsidiaries, income taxes are accounted for using the asset and liability method. Under this method, deferred
income taxes are recognized for the expected future tax consequences of temporary differences between the carrying value
of balance sheet items and their corresponding tax values. Deferred income taxes are computed using substantively enacted
income tax rates or laws for the years in which the temporary differences are expected to reverse or settle. Deferred tax
assets are recognized only to the extent that they are realizable.
Unit-based compensation plan
As described in Note 14, the Trust has a Deferred Unit Incentive Plan (“DUIP”) that provides for the granting of deferred trust
units and income deferred trust units to trustees, officers, employees and employees of affiliates.
Over the vesting period, deferred units are recorded as a liability, and compensation expense is recognized at amortized cost
based on the fair value of the units. Once vested, the liability is remeasured at each reporting date at amortized cost, based
on the fair value of the corresponding REIT A Units, with changes in fair value recognized in the consolidated statements of
comprehensive income (loss) as a fair value adjustment to financial instruments. Deferred trust units and income deferred
units are only settled in REIT A Units.
Cash and cash equivalents
Cash and cash equivalents include all short-term investments with an original maturity of three months or less, and exclude
cash subject to restrictions that prevent its use for current purposes. Excluded from cash and cash equivalents are amounts
held for repayment of tenant security deposits, as required by various lending agreements. Restricted cash and deposits are
included in other non-current assets (see Note 10).
Dream Office REIT 2017 Annual Report | 67
Financial instruments
Designation of financial instruments
The following summarizes the Trust’s classification and measurement of financial assets and financial liabilities:
Financial assets
Amounts receivable
Other receivables(1)
Marketable securities(1)
Restricted cash and deposits(1)
Cash and cash equivalents
Financial liabilities
Amounts payable and accrued liabilities
Tenant security deposits
Deferred Unit Incentive Plan
Subsidiary redeemable units
Mortgages(2)
Demand revolving credit facilities(2)
Debentures(2)
Classification
Measurement
Loans and receivables
Loans and receivables
Financial assets available for sale
Loans and receivables
Loans and receivables
Amortized cost
Amortized cost
Fair value through profit or loss
Amortized cost
Amortized cost
Other liabilities
Other liabilities
Other liabilities
Other liabilities
Other liabilities
Other liabilities
Other liabilities
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Amortized cost
(1) Included within prepaid expenses and other assets in consolidated balance sheets.
(2) Included within debt in consolidated balance sheets.
Financial assets
The Trust classifies its non-derivative financial assets with fixed or determinable payments that are not quoted in an active
market as loans and receivables. All financial assets are initially measured at fair value, less any related transaction costs, and
are subsequently measured at amortized cost, other than marketable securities, which are measured at fair value through
profit and loss.
Amounts receivable and other receivables are initially measured at fair value and are subsequently measured at amortized
cost less provision for impairment. A provision for impairment is established for amounts receivable when there is objective
evidence that collection of all principal and interest is unlikely under the original terms of the contract. Indicators of
impairment include payment delinquency and significant financial difficulty of the tenant. The carrying amount of the
financial asset is reduced through an allowance account, and the amount of the loss is recognized in the consolidated
statements of comprehensive income (loss) within investment properties operating expenses. Bad debt write-offs occur when
the Trust determines collection is not possible. Any subsequent recoveries of amounts previously written off are credited
against investment properties operating expenses in the consolidated statements of comprehensive income (loss). Trade
receivables that are less than three months past due are not considered impaired unless there is evidence collection is not
possible. If in a subsequent period when the amount of the impairment loss decreases and the decrease can be related
objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed
to the extent that the carrying amount of the amounts receivable does not exceed its amortized cost at the reversal date. Any
subsequent reversal of an impairment loss is recognized in the consolidated statements of comprehensive income (loss).
Financial assets are derecognized only when the contractual rights to the cash flows from the financial asset expire or the
Trust transfers substantially all risks and rewards of ownership.
Financial liabilities
The Trust classifies its financial liabilities on initial recognition as either fair value through profit or loss or other liabilities
measured at amortized cost. Financial liabilities are initially recognized at fair value less related transaction costs. Financial
liabilities classified as other liabilities are measured at amortized cost using the effective interest rate method. Under the
effective interest rate method, any transaction fees, costs, discounts and premiums directly related to the financial liabilities
are recognized in the consolidated statements of comprehensive income (loss) over the expected life of the debt. The Trust’s
financial liabilities that are classified as fair value through profit or loss are initially recognized at fair value and are
subsequently remeasured at fair value each reporting period, with changes in the fair value recognized in the consolidated
statements of comprehensive income (loss).
Dream Office REIT 2017 Annual Report | 68
Mortgages, demand revolving credit facilities and debentures are initially recognized at fair value less related transaction
costs, or at fair value when assumed in a business or asset acquisition. Subsequent to initial recognition, mortgages, demand
revolving credit facilities and debentures are recognized at amortized cost.
Deferred trust units and the subsidiary redeemable units are measured at amortized cost as they are settled in REIT A Units
and REIT B Units, respectively, which in accordance with IAS 32 are considered liabilities. Consequently, the deferred trust
units and subsidiary redeemable units are remeasured each reporting period based on the fair value of REIT Units, with
changes in the liabilities recorded in the consolidated statements of comprehensive income (loss). Distributions paid and
payable on subsidiary redeemable units are recorded as interest expense in the consolidated statements of comprehensive
income (loss).
Financial liabilities are derecognized when the obligation under the liabilities are discharged, cancelled or expired and their
associated unamortized financing costs and unamortized fair value adjustments on assumed debt are written off and included
in consolidated statements of comprehensive income (loss).
Interest on debt
Interest on debt includes coupon interest, amortization of ancillary costs incurred in connection with the arrangement of
borrowings and amortization of fair value adjustments on assumed debt. Finance costs are amortized to interest expense.
Equity
The Trust presents REIT Units as equity, notwithstanding the fact that the Trust’s REIT Units meet the definition of a financial
liability. Under IAS 32, the REIT Units are considered a puttable financial instrument because of the holder’s option to redeem
REIT Units, generally at any time, subject to certain restrictions, at a redemption price per unit equal to the lesser of 90% of a
20-day weighted average closing price prior to the redemption date or 100% of the closing market price on the redemption
date. The total amount payable by Dream Office REIT in any calendar month will not exceed $50 unless waived by Dream
Office REIT’s Board of Trustees at their sole discretion. The Trust has determined the REIT Units can be presented as equity
and not financial liabilities because the REIT Units have all of the following features, as defined in IAS 32 (hereinafter referred
to as the “puttable exemption”):
• REIT Units entitle the holder to a pro rata share of the Trust’s net assets in the event of its liquidation. Net assets are
those assets that remain after deducting all other claims on the assets.
• REIT Units are the class of instruments that are subordinate to all other classes of instruments as they have no priority
over other claims to the assets of the Trust on liquidation, and do not need to be converted into another instrument
before they are in the class of instruments that is subordinate to all other classes of instruments.
• All instruments in the class of instruments that is subordinate to all other classes of instruments have identical features.
• Apart from the contractual obligation for the Trust to redeem the REIT Units for cash or another financial asset, the REIT
Units do not include any contractual obligation to deliver cash or another financial asset to another entity, or to exchange
financial assets or financial liabilities with another entity under conditions that are potentially unfavourable to the Trust,
and it is not a contract that will or may be settled in the Trust’s own instruments.
• The total expected cash flows attributable to the REIT Units over their lives are based substantially on the profit or loss,
and the change in the recognized net assets and unrecognized net assets of the Trust over the life of the REIT Units.
• REIT Units are initially recognized at the fair value of the consideration received by the Trust. Any transaction costs arising
on the issuance of REIT Units are recognized directly in unitholders’ equity as a reduction of the proceeds received.
Provisions
Provisions for legal claims are recognized when the Trust has a present legal or constructive obligation as a result of past
events; it is probable an outflow of resources will be required to settle the obligation; and the amount has been reliably
estimated. Provisions are not recognized for future operating losses.
Where there are a number of similar obligations, the likelihood an outflow will be required in settlement is determined by
considering the class of obligations as a whole. A provision is recognized even if the likelihood of an outflow with respect to
any one item included in the same class of obligations may be small.
Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a rate
that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in
the provision due to passage of time is recognized as interest expense.
Dream Office REIT 2017 Annual Report | 69
Assets held for sale
Assets and liabilities (or disposal groups) are classified as held for sale when their carrying amount is to be recovered
principally through a sale transaction and a sale is considered highly probable. Investment properties continue to be
measured at fair value and the remainder of the disposal group is stated at the lower of the carrying amount and fair value
less costs to sell.
Foreign currencies
The consolidated financial statements are presented in Canadian dollars, which is the functional currency of the Trust and the
presentation currency for the consolidated financial statements.
Assets and liabilities related to properties held in a foreign entity with a functional currency other than the Canadian dollar
are translated at the rate of exchange at the consolidated balance sheet dates. Revenues and expenses are translated at
average rates for the period, unless exchange rates fluctuate significantly during the period, in which case the exchange rates
at the dates of the transactions are used. The resulting foreign currency translation adjustments are recognized in other
comprehensive income (loss).
Note 4
CRITICAL ACCOUNTING JUDGMENTS, ESTIMATES AND ASSUMPTIONS IN APPLYING ACCOUNTING POLICIES
Preparing the consolidated financial statements requires management to make judgments, estimates and assumptions that
affect the amounts reported. Management bases its judgments and estimates on historical experience and other factors it
believes to be reasonable under the circumstances, but which are inherently uncertain and unpredictable, the result of which
forms the basis of the carrying amounts of assets and liabilities. However, uncertainty about these assumptions and estimates
could result in outcomes that could require a material adjustment to the carrying amount of the affected asset or liability in
the future.
Critical accounting judgments
The following are the critical accounting judgments used in applying the Trust’s accounting policies that have the most
significant effect on the amounts in the consolidated financial statements:
Investment properties
Critical judgments are made in respect of the fair values of investment properties and the investment properties held in
equity accounted investments. The fair values of these investments are reviewed at least quarterly by management with
reference to independent property appraisals and market conditions existing at the reporting date, using generally accepted
market practices. The independent appraisers are experienced, nationally recognized and qualified in the professional
valuation of office buildings in their respective geographic areas. Judgment is also applied in determining the extent and
frequency of independent appraisals. At each reporting period, a select number of properties, determined on a rotational
basis, are valued by appraisals. For properties not subject to independent appraisals, valuations are prepared internally during
each reporting period.
Critical assumptions used in estimating the fair values of investment properties include cap rates, discount rates that reflect
current market uncertainties, terminal cap rates and market rents. Other key assumptions relating to the estimates of fair
values of investment properties include components of stabilized NOI, leasing costs and vacancy rates. The Trust examines
the critical and key assumptions at the end of each reporting period and updates these assumptions based on recent leasing
activity and external market data available at that time. If there is any change in these assumptions or regional, national or
international economic conditions, the fair value of investment properties may change materially.
The Trust makes judgments with respect to whether lease incentives provided in connection with a lease enhance the value
of the leased space, which determines whether or not such amounts are treated as tenant improvements and added to
investment properties. Lease incentives, such as cash, rent-free periods and lessee- or lessor-owned improvements, may be
provided to lessees to enter into an operating lease. Lease incentives that do not provide benefits beyond the initial lease
term are included in the carrying amount of investment properties and are amortized as a reduction of rental revenue on a
straight-line basis over the term of the lease.
Judgment is also applied in determining whether certain costs are additions to the carrying amount of the investment
property.
Dream Office REIT 2017 Annual Report | 70
Impairment
The Trust assesses the possibility and amount of any impairment loss or write-down as it relates to the investment in
Dream Industrial REIT, amounts receivable, property and equipment and external management contracts.
IAS 39, “Financial Instruments: Recognition and Measurement”, requires management to use judgment in determining if the
Trust’s financial assets are impaired. In making this judgment, the Trust evaluates, among other factors, the duration and
extent to which the fair value of the investment is less than its carrying amount; and the financial health of and short-term
business outlook for the investee, including factors such as industry and sector performance, changes in technology, and
operational and financing cash flows.
IAS 36, “Impairment of Assets” (“IAS 36”), requires management to use judgment in determining the recoverable amount of
assets and equity accounted investments that are tested for impairment, including the investment in Dream Industrial REIT
and the investment in joint ventures. Judgment is also involved in estimating the value-in-use of the investment in Dream
Industrial REIT, including estimates of future cash flows, discount rates and terminal rates. The values assigned to these key
assumptions reflect past experience and are consistent with external sources of information.
Estimates and assumptions
The Trust 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 reporting period. Actual results could differ
from these estimates. The estimates and assumptions that are critical in determining the amounts reported in the
consolidated financial statements relate to the following:
Valuation of financial instruments
The Trust makes estimates and assumptions relating to the fair value measurement of the subsidiary redeemable units, the
deferred trust units and the fair value disclosure of the mortgages and debentures. The critical assumptions underlying the
fair value measurements and disclosures include the market price of REIT A Units, market interest rates for mortgages and
unsecured debentures.
For certain financial instruments, including cash and cash equivalents, amounts receivable, other receivables, amounts
payable and accrued liabilities, deposits and distributions payable, the carrying amounts approximate fair values due to their
immediate or short-term maturity. The fair values of mortgages and debentures are determined based on discounted cash
flows using discount rates that reflect current market conditions for instruments with similar terms and risks.
Note 5
CHANGES IN ACCOUNTING POLICIES AND DISCLOSURES
The Trust has adopted the following revised standard, along with any consequential amendments, effective January 1, 2017.
This change was made in accordance with the applicable transitional provisions.
Statement of cash flows
IAS 7, “Cash Flow Statements” (“IAS 7”), was amended by the IASB to introduce additional disclosure that allows users to
understand changes in liabilities arising from financing activities. This amendment did not have a material impact on the
consolidated financial statements.
Note 6
FUTURE ACCOUNTING POLICY CHANGES
Revenue recognition
IFRS 15, “Revenue from Contracts with Customers” (“IFRS 15”), provides a comprehensive five-step revenue recognition
model for all contracts with customers. The IFRS 15 revenue recognition model requires management to exercise significant
judgment and make estimates that affect revenue recognition. IFRS 15 is effective for annual periods beginning on or after
January 1, 2018, with earlier application permitted. The Trust has not early adopted IFRS 15.
The Trust has performed an in-depth assessment of IFRS 15 to determine what the impact of the adoption of the standard will
have on the Trust’s consolidated financial statements. The Trust has certain service obligations with respect to its rented
space which are in scope of IFRS 15. These obligations are satisfied evenly over time, and revenue earned is based on actual
costs incurred to provide the services. The Trust will recognize revenues to the extent it is entitled to recover costs from
tenants under the terms of the leases. IFRS 15 also includes a control-based model for determining whether a principal or
Dream Office REIT 2017 Annual Report | 71
agent relationship exists, under which the Trust exercises judgment about the nature of its relationships with related parties.
As a result of its assessment, the Trust does not expect there to be a material impact on the timing and amount of service
revenue recognized in a given reporting period under IFRS 15. Rental revenue earned from leases is outside of the scope of
IFRS 15 and will therefore not be impacted by its adoption. Additional disclosures will be required to comply with IFRS 15.
Financial instruments
The final version of IFRS 9, “Financial Instruments” (“IFRS 9”), was issued by the IASB in July 2014 and will replace IAS 39,
“Financial Instruments: Recognition and Measurement” (“IAS 39”). IFRS 9 introduces a model for classification and
measurement, a single, forward-looking “expected loss” impairment model and a substantially reformed approach to hedge
accounting. The new single, principle-based approach for determining the classification of financial assets is driven by cash
flow characteristics and the business model in which an asset is held. The new model also results in a single impairment
model being applied to all financial instruments, which will require more timely recognition of expected credit losses. It also
includes changes in respect of an entity’s own credit risk in measuring liabilities elected to be measured at fair value, so that
gains caused by the deterioration of an entity’s own credit risk on such liabilities are no longer recognized in profit or loss. The
entity’s own credit changes can be early adopted in isolation without otherwise changing the accounting for financial
instruments. Lastly, a third measurement category for financial assets, “fair value through other comprehensive income”, will
exist. IFRS 9 is effective for annual periods beginning on or after January 1, 2018.
The Trust has performed an in-depth assessment of IFRS 9 to determine what the impact of the adoption of the standard will
have on the Trust’s consolidated financial statements. The Trust has determined that all financial assets, with the exception of
marketable securities, meet the test that the resulting cash flows are payments on specified dates that are solely payments of
principal and interest and will be carried at amortized cost upon adoption. Marketable securities will continue to be carried at
fair value through profit or loss. The Trust does not expect there to be a material impact on the carrying value of its trade
receivables or to the classification and measurement of its financial assets. Additional disclosures will be required to comply
with IFRS 9.
Financial instruments – disclosures
IFRS 7, “Financial Instruments: Disclosures” (“IFRS 7”), has been amended by the IASB to require additional disclosures on the
transition from IAS 39 to IFRS 9. The amendment to IFRS 7 is effective for annual periods beginning on or after January 1,
2018. The Trust does not anticipate this amendment to have a material impact to the consolidated financial statements.
Share-based payments
IFRS 2, “Share-Based Payments” (“IFRS 2”), clarifies how to account for certain types of share-based payment transactions. It
was amended to address (i) certain issues related to the accounting for cash settled awards, and (ii) the accounting for equity
settled awards that include a “net settlement” feature in respect of employee withholding taxes. The amendments to IFRS 2
are effective for years beginning on or after January 1, 2018. The Trust does not anticipate this amendment to have a material
impact to the consolidated financial statements.
Leases
IFRS 16, “Leases” (“IFRS 16”), sets out the principles for the recognition, measurement and disclosure of leases. IFRS 16
provides revised guidance on identifying a lease and for separating lease and non-lease components of a contract. IFRS 16
introduces a single accounting model for all lessees and requires a lessee to recognize right-of-use assets and lease liabilities
for leases with terms of more than 12 months, unless the underlying asset is of low value. Under IFRS 16, lessor accounting
for operating and finance leases will remain substantially unchanged. IFRS 16 is effective for annual periods beginning on or
after January 1, 2019, with earlier application permitted for entities that apply IFRS 15. The Trust is currently evaluating the
impact of adopting this standard on the consolidated financial statements.
Income taxes
IFRIC 23, “Uncertainty over Income Tax Treatments” (“IFRIC 23”), clarifies the application of the recognition and
measurement requirements in IAS 12, “Income Taxes” (“IAS 12”), for situations where there is uncertainty over income tax
treatments. IFRIC 23 specifically addresses whether an entity considers income tax treatments separately; assumptions that
an entity makes regarding the examination of tax treatments by taxation authorities; how an entity determines taxable
income or loss, tax bases, unused tax losses or credits and tax rates; and how an entity considers changes in facts and
circumstances. IFRIC 23 does not apply to taxes or levies outside the scope of IAS 12. IFRIC 23 is effective for annual periods
beginning on or after January 1, 2019. The Trust is currently evaluating the impact of adopting this interpretation on the
consolidated financial statements.
Dream Office REIT 2017 Annual Report | 72
Note 7
INVESTMENT PROPERTIES
Balance, beginning of year
Additions:
Building improvements
Lease incentives and initial direct leasing costs
Recognition of investment properties related to joint operations
Other
Total additions to investment properties
Dispositions and assets held for sale:
Investment properties disposed of during the year
Investment properties classified as held for sale during the year
Total investment properties disposed of and classified as held for sale
Changes included in net income (loss):
Fair value adjustments to investment properties
Amortization of lease incentives
Change in straight-line rent
Total changes included in net income (loss)
Losses included in other comprehensive income (loss):
Foreign currency translation adjustment and other
Total losses included in other comprehensive income (loss)
Balance, end of year
Change in unrealized income (loss) included in net income (loss) for the year
Change in fair value of investment properties
Year ended December 31,
Note
$
2017
4,836,355 $
2016
5,899,131
9
18
24,507
50,871
60,000
—
135,378
(70,852 )
(2,004,150 )
(2,075,002 )
38,443
(13,044 )
2,845
28,244
38,093
74,259
663,705
4,070
780,127
(386,679 )
(536,125 )
(922,804 )
(898,800 )
(16,092 )
(1,764 )
(916,656 )
(5,537 )
(5,537 )
2,919,438 $
(3,443 )
(3,443 )
4,836,355
50,425 $
(898,747 )
$
$
Investment properties includes $21,530 (December 31, 2016 – $30,772) related to straight-line rent receivables.
Investment properties excluding assets held for sale with a fair value of $2,084,942 as at December 31, 2017 (December 31,
2016 – $3,778,650) are pledged as security for mortgages.
Investment properties excluding assets held for sale with a fair value of $535,198 as at December 31, 2017 (December 31,
2016 – $826,563) are pledged as security for the demand revolving credit facilities.
Valuations of externally appraised properties
For the year ended December 31, 2017, the Trust valued 27 investment properties by qualified external valuation
professionals with an aggregate fair value of $2,207,640, representing 76% of the total investment property values (for the
year ended December 31, 2016 – 46 investment properties with an aggregate fair value of $2,014,068, representing 42% of
the total investment property values).
Fair value adjustments to investment properties
For the year ended December 31, 2017, the Trust recorded a fair value gain in our investment properties totalling $38,443,
partially offset by a fair value loss of $15,327 recorded in our investment properties classified as assets held for sale (see
Note 18).
For the year ended December 31, 2016, the Trust recorded a fair value loss in our investment properties totalling $898,800,
and a fair value loss of $300 recorded in our investment properties classified as assets held for sale (see Note 18).
The fair value of the investment properties as at December 31, 2017 represents the Trust’s best estimate based on the
internally and externally available information as at the end of the reporting period. If there are any changes in the critical and
key assumptions used in valuing the investment properties, or regional, national or international economic conditions, the fair
value of investment properties may change materially.
Dream Office REIT 2017 Annual Report | 73
Assumptions used in the valuation of investment properties (excluding Alberta)
As at December 31, 2017, the Trust’s investment properties, excluding investment properties in Alberta and assets held for
sale, were valued using the capitalization rate (“cap rate”) method. The critical valuation metrics as at December 31, 2017 and
December 31, 2016 are set out below:
Cap rates(1)(2)
(1) Excludes certain properties where bids were received by the Trust.
(2) Excludes investment properties in Alberta and assets held for sale at the end of each period.
December 31, 2017
Weighted
average (%)
5.23
Range (%)
4.50–8.00
December 31, 2016
Range (%)
4.90–8.25
Weighted
average (%)
5.74
Sensitivities on assumptions
Generally, an increase in stabilized net operating income (“NOI”) will result in an increase to the fair value of an investment
property. An increase in the cap rate will result in a decrease to the fair value of an investment property. The cap rate
magnifies the effect of a change in stabilized NOI, with a lower rate resulting in a greater impact to the fair value of an
investment property than a higher rate.
If the weighted average cap rate were to increase by 25 basis points (“bps”), the value of investment properties (excluding
investment properties in Alberta, assets held for sale and certain properties where bids were received by the Trust) would
decrease by $113,030. If the cap rate were to decrease by 25 bps, the value of investment properties (excluding investment
properties in Alberta, assets held for sale and certain properties where bids were received by the Trust) would increase by
$124,990.
Assumptions used in the valuation of investment properties in Alberta
As at December 31, 2017, the Trust’s investment properties in Alberta were valued using the discounted cash flow method.
The critical valuation metrics as at December 31, 2017 and December 31, 2016 are set out below:
Discount rates(1)(2)
Terminal cap rates(1)(2)
Market rents (in dollars per square foot)(1)(2)(3)
December 31, 2017
Weighted
average (%)
8.07
7.09
14.46 $
Range (%)
7.50–8.75
6.63–8.25
10.00–16.50 $
December 31, 2016
Range (%)
7.50–8.75
6.63–8.25
11.00–16.50 $
Weighted
average (%)
7.98
7.31
14.22
$
(1) Excludes certain properties where bids were received by the Trust.
(2) Excludes investment in joint ventures and assets held for sale at the end of each period.
(3) Market rents represent year one rates in the discounted cash flow model. Market rents include office space only and exclude retail space.
In addition to the assumptions noted above, leasing cost assumptions for new and renewed leasing were within the range of
$20.00 and $60.00 per square foot, with weighted average vacancy rate assumptions in years one to four of 23%, returning to
normalized vacancy rates of 6% beyond year four.
Sensitivities on assumptions
The following sensitivity table outlines the potential impact on the value of investment properties in Alberta, excluding assets
held for sale, assuming a change in the weighted average discount rates and terminal cap rates by a respective 25 bps as at
December 31, 2017.
Increase (decrease) in value
Impact of change
to weighted average discount rates
Impact of change
to weighted average terminal cap rates
+25 bps
(6,070 )
$
–25 bps
6,153
$
+25 bps
(7,555 ) $
–25 bps
8,119
$
Dream Office REIT 2017 Annual Report | 74
The following sensitivity table outlines the potential impact on the value of investment properties in Alberta, excluding assets
held for sale, assuming the market rental rates were to change by $1.00 per square foot and if the leasing costs per square
foot were to change by $5.00 per square foot as at December 31, 2017.
Increase (decrease) in value
Impact of change to market rental rates
Impact of change
to leasing costs per square foot
+$1.00
15,442
$
–$1.00
(13,123 )
$
+$5.00
5,136 $
–$5.00
(5,136 )
$
Generally, a decrease in vacancy rate assumptions will result in an increase to the value of investment properties in Alberta,
excluding assets held for sale, while an increase in vacancy rate assumptions will result in a decrease to the value of
investment properties in Alberta, excluding assets held for sale.
Note 8
INVESTMENT IN DREAM INDUSTRIAL REIT
Dream Industrial Real Estate Investment Trust (“Dream Industrial REIT”) is an unincorporated, open-ended real estate
investment trust listed on the Toronto Stock Exchange under the symbol “DIR.UN”.
On November 21, 2017, Dream Industrial REIT completed an $86,538 equity offering to partially fund the acquisition of a
portfolio of four light industrial properties located in the United States. Concurrently with the equity offering, the Trust
subscribed for 2,858,000 Dream Industrial REIT units through a private placement totalling $25,008.
During the fourth quarter of 2016, the Trust purchased 747,190 Dream Industrial REIT Units for a total cost of $5,851. These
units purchased were enrolled in Dream Industrial REIT’s distribution reinvestment plan effective for the December 2016
distribution. In addition, the Trust enrolled its 18,551,855 Dream Industrial LP Class B limited partnership units into Dream
Industrial REIT’s distribution reinvestment plan effective for the November 2016 distribution and elected to reinvest the
distributions received in Dream Industrial REIT Units.
For the year ended December 31, 2017, the Trust purchased Dream Industrial REIT Units through its distribution reinvestment
plan totalling 1,690,668 Dream Industrial REIT Units for a total cost of $14,481 (for the year ended December 31, 2016 –
135,283 Dream Industrial REIT Units for a total cost of $1,115).
As at December 31, 2017 and December 31, 2016, the Trust’s ownership was 25.6% and 24.9%, respectively.
Balance, beginning of year
Dream Industrial REIT units purchased during the year
Dream Industrial REIT units purchased through distribution reinvestment plan
Distributions received on LP Class B limited partnership units
Distributions received on Dream Industrial REIT Units
Share of comprehensive income from investment in Dream Industrial REIT
Net accretion loss
Balance, end of year
Dream Industrial REIT units held, end of year
Dream Industrial LP Class B limited partnership units held, end of year
Total Dream Industrial REIT units held, end of year
Ownership %, end of year
$
$
Year ended December 31,
2017
186,754 $
25,008
14,481
(13,473 )
(1,154 )
13,307
(4,127 )
220,796 $
5,431,141
18,551,855
23,982,996
25.6 %
2016
184,817
5,851
1,115
(13,050 )
(65 )
8,467
(381 )
186,754
882,473
18,551,855
19,434,328
24.9 %
The fair value of the Trust’s interest in Dream Industrial REIT of $211,050 (December 31, 2016 – $165,775) was determined
using the Dream Industrial REIT closing unit price of $8.80 per unit at year-end multiplied by the number of units held by the
Trust as at December 31, 2017.
Pursuant to the reorganization of the Trust’s management structure on April 2, 2015, the Trust granted DAM a right of first
offer to purchase up to 18,551,855 Dream Industrial LP Class B limited partnership units, in the event the Trust sells its
interest in Dream Industrial REIT in an open market or private sale at fair market value.
Dream Office REIT 2017 Annual Report | 75
Under IAS 39, “Financial Instruments”, a significant or prolonged decline in the fair value of an investment in an equity
instrument below its cost is an indicator of impairment. As a result, the Trust performed an impairment test as at
December 31, 2017, by comparing the recoverable amount of its investment in Dream Industrial REIT using the value-in-use
approach to its carrying value. Based on the impairment test performed, the Trust concluded that no impairment existed as at
December 31, 2017.
The following amounts represent the Trust’s ownership interest in the assets, liabilities, revenues, expenses and cash flows of
Dream Industrial REIT:
Non-current assets
Current assets
Total assets
Non-current liabilities
Current liabilities
Total liabilities
Net assets
Add-back:
Subsidiary redeemable units
Investment in Dream Industrial REIT
At 100%
At % ownership interest
2017
1,729,622 $
78,129
1,807,751 $
957,650
137,855
1,095,505 $
712,246 $
December 31,
2016
1,638,031
20,045
1,658,076
956,389
110,577
1,066,966
591,110
$
$
$
$
2017
436,200 $
19,704
455,904 $
363,597
34,767
398,364 $
57,540 $
December 31,
2016
408,225
4,996
413,221
357,157
27,557
384,714
28,507
163,256
220,796 $
158,247
186,754
$
$
$
$
$
Net rental income
Other revenue and expenses, fair value adjustments and
other items
Net income (loss)
Other comprehensive income (loss)
Comprehensive income (loss) before the undernoted
$
$
adjustments
Add-back:
Interest on subsidiary redeemable units
Fair value adjustments to subsidiary redeemable units
Share of comprehensive income from investment in Dream
Industrial REIT
Add (deduct):
Net accretion loss
Share of comprehensive income and net accretion loss from
investment in Dream Industrial REIT
At 100%
At % ownership interest
Year ended December 31,
Year ended December 31,
2017
116,778 $
2016
117,387 $
2017
29,867 $
2016
28,073
(82,119 )
34,659 $
(266 )
(120,077 )
(2,690 ) $
708
(34,685 )
(4,818 ) $
(260 )
(57,701 )
(29,628 )
—
34,393
(1,982 )
(5,078 )
(29,628 )
13,376
5,009
13,050
25,045
$
13,307
$
8,467
(4,127 )
(381 )
$
9,180
$
8,086
Dream Office REIT 2017 Annual Report | 76
Note 9
JOINT ARRANGEMENTS
The Trust participates in partnerships (“joint ventures”) with other parties that own investment properties and accounts for
its interests using the equity method.
On January 1, 2017, the Trust and H&R REIT terminated the joint venture agreement and entered into a co-ownership
agreement. As a result of this change, the Trust derecognized its investment in the joint venture of F1RST Tower at its carrying
amount of $15,189 and recognized the Trust’s 50% interest in the assets and liabilities amounting to $61,940 and $46,868,
respectively, of F1RST Tower in the consolidated balance sheet. This resulted in the Trust recognizing a loss of $117 in the
consolidated statements of comprehensive income (loss) related to the initial recognition at fair value of the Trust’s 50%
share of the assets and liabilities compared to the carrying values of the joint ventures (see Note 31). The newly formed
co-ownership entered into a property management agreement with H&R REIT to provide property management services to
F1RST Tower.
On June 30, 2016, four limited partnerships jointly controlled by the Trust and H&R REIT completed the sale of a 50%
undivided interest in each of Scotia Plaza and 100 Yonge Street to KingSett Canadian Real Estate Income Fund LP (“KingSett”)
and Alberta Investment Management Corporation (“AIMCo”) for gross proceeds, net of adjustments, totalling $663,705. The
Trust’s share of the sale represented one-third of the 50% or 16.7%, for gross proceeds, net of adjustments, totalling
$221,235. The Trust’s share of the gross proceeds, net of adjustments were satisfied by cash consideration of $113,518, debt
assumed by KingSett and AIMCo with a carrying value of $104,474 and other adjustments of $3,243. The Trust’s share of the
costs related to the sale, including debt settlement costs, totalled $4,370 and was included within share of net loss from
investment in joint ventures in the consolidated statements of comprehensive loss during the year.
Concurrently on June 30, 2016, the Trust terminated the joint venture agreement with H&R REIT and entered into a
co-ownership agreement with KingSett and AIMCo. As a result of this change, the Trust derecognized its investment in joint
ventures of Scotia Plaza and 100 Yonge Street at its combined carrying amount of $329,104 and recognized the Trust’s
remaining 50% interest in the assets and liabilities amounting to $664,144 and $345,303, respectively, of Scotia Plaza and
100 Yonge Street on a combined basis in the consolidated balance sheet. This resulted in the Trust recognizing a loss of
$10,263 in the consolidated statements of comprehensive loss related to the initial recognition at fair value of the Trust’s
remaining 50% share of the assets and liabilities compared to the carrying values of the joint ventures (see Note 31). The
newly formed co-ownership entered into a property management agreement with a wholly owned subsidiary of the Trust to
provide property management services to Scotia Plaza and 100 Yonge Street.
Property
Scotia Plaza(1)
Other joint ventures:
100 Yonge Street(1)
F1RST Tower(2)
Location
Toronto
Toronto
Calgary
Ownership interest (%)
December 31,
December 31,
2017
—
—
—
2016
—
—
50.0
(1) On June 30, 2016, the Trust derecognized its investment in the joint ventures of Scotia Plaza and 100 Yonge Street and recognized the Trust’s remaining
50% interest in the assets, liabilities, revenues and expenses of these investment properties in the consolidated financial statements.
(2) On January 1, 2017, the Trust derecognized its investment in the joint venture of F1RST Tower and recognized the Trust’s 50% interest in the assets,
liabilities, revenues and expenses of this investment property in the consolidated financial statements.
Property
Scotia Plaza(1)
Other joint ventures(1)(2)
Total net assets
Net assets at % ownership interest
December 31,
December 31,
$
$
2017
— $
—
— $
2016
—
15,189
15,189
(1) On June 30, 2016, the Trust derecognized its investment in the joint ventures of Scotia Plaza and 100 Yonge Street and recognized the Trust’s remaining
50% interest in the assets and liabilities of these investment properties in the consolidated financial statements.
(2) On January 1, 2017, the Trust derecognized its investment in the joint venture of F1RST Tower and recognized the Trust’s 50% interest in the assets and
liabilities of this investment property in the consolidated financial statements.
Dream Office REIT 2017 Annual Report | 77
Property
Scotia Plaza(1)
Other joint ventures(1)(2)
Share of net loss from investment in joint ventures
Share of net loss at
% ownership interest
for the year ended December 31,
$
$
2017
— $
—
— $
2016
(79,104 )
(75,196 )
(154,300 )
(1) On June 30, 2016, the Trust derecognized its investment in the joint ventures of Scotia Plaza and 100 Yonge Street and recognized the Trust’s remaining
50% interest in the revenues and expenses of these investment properties in the consolidated financial statements.
(2) On January 1, 2017, the Trust derecognized its investment in the joint venture of F1RST Tower and recognized the Trust’s 50% interest in the revenues
and expenses of this investment property in the consolidated financial statements.
The following amounts represent 100% and the Trust’s ownership interest in the assets, liabilities, revenues, expenses and
cash flows in the equity accounted investments in which the Trust participates, excluding the interest in Dream Industrial
REIT, which is disclosed separately in Note 8.
Non-current assets
Current assets
Total assets
Non-current liabilities
Current liabilities
Total liabilities
Net assets
Scotia Plaza(1)
At 100%
Scotia Plaza(1)
At 66.7%
December 31,
December 31, December 31, December 31,
$
$
$
$
2017
— $
—
— $
—
—
— $
— $
2016
— $
—
— $
—
—
— $
— $
2017
— $
—
— $
—
—
— $
— $
2016
—
—
—
—
—
—
—
(1) On June 30, 2016, the Trust derecognized its investment in the joint venture of Scotia Plaza and recognized the Trust’s remaining 50% interest in the
assets and liabilities of this investment property in the consolidated financial statements.
Net rental income
Other income and expenses, fair value adjustments, net losses
on transactions and other activities
Net loss for the year
$
$
Scotia Plaza(1)
At 100%
Scotia Plaza(1)
At 66.7%
Year ended December 31,
2017
— $
2016
35,211 $
Year ended December 31,
2017
— $
2016
23,474
—
— $
(153,867 )
(118,656 ) $
—
— $
(102,578 )
(79,104 )
(1) On June 30, 2016, the Trust derecognized its investment in the joint venture of Scotia Plaza and recognized the Trust’s remaining 50% interest in the
revenues and expenses of this investment property in the consolidated financial statements.
Cash flows generated from (utilized in):
Operating activities
Investing activities
Financing activities
Decrease in cash and cash equivalents
Scotia Plaza(1)
At 100%
Scotia Plaza(1)
At 66.7%
Year ended December 31,
2016
2017
Year ended December 31,
2017
2016
$
$
— $
—
—
— $
20,433 $
301,837
(323,696 )
(1,426 ) $
— $
—
—
— $
13,622
95,749
(110,321 )
(950 )
(1) On June 30, 2016, the Trust derecognized its investment in the joint venture of Scotia Plaza and recognized the Trust’s remaining 50% interest in the cash
flows from operating, investing and financing activities of this investment property in the consolidated financial statements.
Dream Office REIT 2017 Annual Report | 78
Non-current assets
Current assets
Total assets
Non-current liabilities
Current liabilities
Total liabilities
Net assets
Other joint ventures(1)(2)
At 100%
Other joint ventures(1)(2)
At proportionate share
December 31,
$
$
$
$
2017
— $
—
— $
—
—
— $
— $
December 31, December 31,
2017
— $
—
— $
—
—
— $
— $
2016
120,014 $
3,866
123,880 $
79,770
13,732
93,502 $
30,378 $
December 31,
2016
60,007
1,933
61,940
39,885
6,866
46,751
15,189
(1) On June 30, 2016, the Trust derecognized its investment in the joint venture of 100 Yonge Street and recognized the Trust’s remaining 50% interest in the
assets and liabilities of this investment property in the consolidated financial statements.
(2) On January 1, 2017, the Trust derecognized its investment in the joint venture of F1RST Tower and recognized the Trust’s 50% interest in the assets and
liabilities of this investment property in the consolidated financial statements.
Net rental income
Other income and expenses, fair value adjustments, net losses
on transactions and other activities
Net loss for the year
$
$
Other joint ventures(1)(2)
At 100%
Other joint ventures(1)(2)
At proportionate share
Year ended December 31,
2016
2017
13,533 $
— $
Year ended December 31,
2017
— $
2016
7,147
—
— $
(162,887 )
(149,354 ) $
—
— $
(82,343 )
(75,196 )
(1) On June 30, 2016, the Trust derecognized its investment in the joint venture of 100 Yonge Street and recognized the Trust’s remaining 50% interest in the
revenues and expenses of this investment property in the consolidated financial statements.
(2) On January 1, 2017, the Trust derecognized its investment in the joint venture of F1RST Tower and recognized the Trust’s 50% interest in the revenues
and expenses of this investment property in the consolidated financial statements.
Cash flows generated from (utilized in):
Operating activities
Investing activities
Financing activities
Decrease in cash and cash equivalents
Other joint ventures(1)(2)
At 100%
Other joint ventures(1)(2)
At proportionate share
Year ended December 31,
2016
2017
Year ended December 31,
2017
2016
$
$
— $
—
—
— $
8,675 $
23,731
(36,594 )
(4,188 ) $
— $
—
—
— $
4,501
7,779
(14,416 )
(2,136 )
(1) On June 30, 2016, the Trust derecognized its investment in the joint venture of 100 Yonge Street and recognized the Trust’s remaining 50% interest in the
cash flows from operating, investing and financing activities of this investment property in the consolidated financial statements.
(2) On January 1, 2017, the Trust derecognized its investment in the joint venture of F1RST Tower and recognized the Trust’s 50% interest in the cash flows
from operating, investing and financing activities of this investment property in the consolidated financial statements.
Dream Office REIT 2017 Annual Report | 79
Co-owned investment properties
The Trust’s interests in co-owned investment properties are accounted for based on the Trust’s share of interest in the assets,
liabilities, revenues and expenses of the investment properties.
Property
700 De la Gauchetière Street West – retail
F1RST Tower(1)
50 & 90 Burnhamthorpe Road West (Sussex Centre)
275 Dundas Street West (London City Centre)
Centre 70
Scotia Plaza(2)
100 Yonge Street(2)
10199 - 101st Street North West(3)
680 Broadway Street (Tillsonburg Gateway Centre)(3)
2810 Matheson Boulevard East(3)
300, 302 & 304 The East Mall (Valhalla Executive Centre)(3)
185, 191, 195 The West Mall(3)
2261 Keating Cross Road(3)
350-450 Lansdowne Street(3)
55 Norfolk Street South(3)
6501–6523 Mississauga Road(3)
6531–6559 Mississauga Road(3)
10 Lower Spadina Avenue(3)
49 Ontario Street(3)
401 & 405 The West Mall (Commerce West)(3)
80 Whitehall Drive(3)
219 Laurier Avenue West(3)
460 Two Nations Crossing(3)
117 Kearney Lake Road(3)
Location
Montréal, Quebec
Calgary, Alberta
Mississauga, Ontario
London, Ontario
Calgary, Alberta
Toronto, Ontario
Toronto, Ontario
Edmonton, Alberta
Tillsonburg, Ontario
Mississauga, Ontario
Mississauga, Ontario
Toronto, Ontario
Victoria, British Columbia
Kamloops, British Columbia
Simcoe, Ontario
Mississauga, Ontario
Mississauga, Ontario
Toronto, Ontario
Toronto, Ontario
Toronto, Ontario
Markham, Ontario
Ottawa, Ontario
Fredericton, New Brunswick
Halifax, Nova Scotia
Ownership interest (%)
December 31,
December 31,
2017
79.2
50.0
49.9
40.0
15.0
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
2016
79.2
—
49.9
40.0
15.0
50.0
50.0
50.0
49.9
49.9
49.9
49.9
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
35.0
(1) On January 1, 2017, the Trust derecognized its investment in the joint venture of F1RST Tower and recognized the Trust’s 50% interest in the assets,
liabilities, revenues and expenses of this investment property in the consolidated financial statements.
(2) On June 30, 2016, the Trust derecognized its investment in the joint ventures of Scotia Plaza and 100 Yonge Street and recognized the Trust’s remaining
50% interest in the assets, liabilities, revenues and expenses of these investment properties in the consolidated financial statements. On August 23,
2017, the Trust sold its remaining 50% interest in Scotia Plaza and 100 Yonge Street (see Note 18).
(3) Investment property was sold during 2017 (see Note 18).
Dream Office REIT 2017 Annual Report | 80
The following amounts represent the Trust’s ownership interest in the assets, liabilities, revenues and expenses of the
co-owned properties in which the Trust participates.
Net assets at % ownership interest
December 31,
Non-current assets
Current assets
Assets held for sale
Total assets
Non-current liabilities
Current liabilities
Liabilities related to assets held for sale
Total liabilities
Net assets
2017(1)
195,493 $
5,073
—
200,566 $
78,001
44,392
—
122,393 $
78,173 $
$
$
$
$
December 31,
2016(2)
1,058,636
12,716
22,784
1,094,136
423,902
96,121
9,090
529,113
565,023
(1) On January 1, 2017, the Trust derecognized its investment in the joint venture of F1RST Tower and recognized the Trust’s 50% interest in the assets and
liabilities of this investment property in the consolidated financial statements.
(2) On June 30, 2016, the Trust derecognized its investment in the joint ventures of Scotia Plaza and 100 Yonge Street and recognized the Trust’s remaining
50% interest in the assets and liabilities of these investment properties in the consolidated financial statements.
Share of net income (loss) at
% ownership interest
Net rental income
Other income and expenses, fair value adjustments, net losses on transactions and other activities
Share of net income (loss) from co-owned properties
$
$
for the year ended December 31,
2016(2)
40,017
(52,681 )
2017(1)
36,811 $
(2,415 )
34,396 $
(12,664 )
(1) On January 1, 2017, the Trust derecognized its investment in the joint venture of F1RST Tower and recognized the Trust’s 50% interest in the revenues
and expenses of this investment property in the consolidated financial statements.
(2) On June 30, 2016, the Trust derecognized its investment in the joint ventures of Scotia Plaza and 100 Yonge Street and recognized the Trust’s remaining
50% interest in the revenues and expenses of these investment properties in the consolidated financial statements.
Note 10
OTHER NON-CURRENT ASSETS
Property and equipment, net of accumulated depreciation of $10,433 (December 31, 2016 – $8,753) $
Restricted cash
External management contracts, net of accumulated amortization of $3,008
December 31,
2017
5,500
1,082
$
(December 31, 2016 – $6,331)
Deposits and other
Total
1,862
1,100
9,544 $
$
December 31,
2016
6,783
1,357
6,671
1,745
16,556
Property and equipment primarily includes leasehold improvements, information and technology hardware, and furniture
and fixtures. Restricted cash primarily represents tenant rent deposits and cash held as security for certain mortgages.
External management contracts represent the value attributed to the remaining co-ownership management contracts at the
time of the Whiterock Real Estate Investment Trust business combination in 2012, net of accumulated amortization. Deposits
largely represent amounts provided by the Trust in connection with utility deposits.
Dream Office REIT 2017 Annual Report | 81
External management contracts
Balance as at January 1, 2016
Amortization of external management contracts
Balance as at December 31, 2016
Amortization of external management contracts
Derecognition of external management contracts related to investment property dispositions during the year
Balance as at December 31, 2017
External
management
contracts
7,962
(1,291 )
6,671
(895 )
(3,914 )
1,862
Note
$
18
$
Note 11
AMOUNTS RECEIVABLE
As at December 31, 2017, amounts receivable are net of credit adjustments aggregating to $6,532 (December 31, 2016 –
$10,081).
Trade receivables
Less: Provision for impairment of trade receivables
Trade receivables, net
Other amounts receivable
Total
Note
24
December 31,
2017
7,159 $
(1,486 )
5,673
9,153
14,826 $
$
$
December 31,
2016
3,442
(1,803 )
1,639
16,147
17,786
The movement in the provision for impairment of trade receivables for the years ended December 31, 2017 and
December 31, 2016 were as follows:
Balance, beginning of year
Provision for impairment of trade receivables
Reversal of provision for previously impaired trade receivables
Receivables written off during the year as uncollectible
Balance, end of year
Year ended December 31,
2017
1,803 $
2,257
(532 )
(2,042 )
1,486 $
$
$
2016
1,615
1,868
(408 )
(1,272 )
1,803
The carrying value of amounts receivable approximates fair value due to their current nature. As at December 31, 2017, trade
receivables of approximately $1,226 (December 31, 2016 – $1,634) were past due but not considered impaired, as the Trust
has ongoing relationships with these tenants and the aging of these trade receivables is not indicative of expected default.
The Trust leases office properties to tenants under operating leases. Minimum rental commitments, including joint
operations, on non-cancellable tenant operating leases over their remaining terms are as follows:
$
December 31, 2017
144,135
459,862
168,734
772,731
$
No more than 1 year
1–5 years
5+ years
Dream Office REIT 2017 Annual Report | 82
Note 12
DEBT
Mortgages(1)(2)
Demand revolving credit facilities(2)(3)
Debentures(4)
Total
Less: Current portion
Non-current debt
December 31,
2017
1,080,702 $
(3,192 )
290,140
1,367,650
206,961
1,160,689 $
$
$
December 31,
2016
2,027,172
173,790
448,828
2,649,790
328,260
2,321,530
(1) Net of financing costs of $4,664 (December 31, 2016 – $6,925).
(2) Secured by charges on specific investment properties (see Notes 7 and 18).
(3) Net of financing costs of $3,192 (December 31, 2016 – $4,210).
(4) Net of financing costs of $615 (December 31, 2016 – $1,172).
Continuity of debt
The following tables provide a continuity of debt for the years ended December 31, 2017 and December 31, 2016:
Note
Mortgages
$ 2,027,172 $
Year ended December 31, 2017
Demand
revolving
credit
facilities
173,790 $
Debentures
Total
448,828 $ 2,649,790
985,005
—
(1,163,005 )
(1,216 )
—
—
—
(159,245 )
—
—
1,144,885
(35,739 )
(1,589,931 )
(2,393 )
(32,934 )
—
—
—
2,234
(3,192 ) $
—
—
—
557
(799,762 )
40,000
(3,181 )
(3,085 )
290,140 $ 1,367,650
159,880
(35,739 )
(267,681 )
(1,177 )
(32,934 )
(799,762 )
40,000
(3,181 )
(5,876 )
Balance as at January 1, 2017
Cash items:
Borrowings
Principal repayments
Lump sum repayments
Financing costs additions
Lump sum repayments on property dispositions
Non-cash items:
Debt classified as liabilities related to assets held for sale
Recognition of debt related to joint operations
Foreign currency translation adjustment
Other adjustments(1)
18
9
Balance as at December 31, 2017
$ 1,080,702 $
(1) Other adjustments includes write-offs and amortization of financing costs and fair value adjustments.
Dream Office REIT 2017 Annual Report | 83
Balance as at January 1, 2016
Cash items:
Note Mortgages
$ 2,244,161 $
Year ended December 31, 2016
Demand
revolving
credit
facilities
49,500 $ 483,174 $ 182,990 $
Term
loan
facility
Debentures
Convertible
debentures
Total
50,923 $ 3,010,748
Borrowings
Principal repayments
Lump sum repayments
Financing costs additions
Lump sum repayments on property dispositions
191,434
(61,336 )
(254,283 )
(1,370 )
(83,141 )
930,309
—
(801,809 )
(5,710 )
—
—
—
(35,000 )
—
—
—
—
(183,453 )
—
—
—
—
(50,628 )
—
—
1,121,743
(61,336 )
(1,325,173 )
(7,080 )
(83,141 )
Non-cash items:
Debt assumed by purchaser on disposal of
investment properties
Debt classified as liabilities related to assets
held for sale
Recognition of debt related to joint
operations
Foreign currency translation adjustment
Other adjustments(1)(2)
(52,788 )
18
(274,761 )
9
313,422
(2,064 )
7,898
—
—
—
—
1,500
—
—
—
—
654
—
—
—
—
463
Balance as at December 31, 2016
$ 2,027,172 $ 173,790 $ 448,828 $
— $
—
—
(52,788 )
(274,761 )
—
—
(295 )
313,422
(2,064 )
10,220
— $ 2,649,790
(1) Other adjustments includes write-offs and amortization of financing costs and fair value adjustments.
(2) As a result of the recognition of debt related to joint operations, the Trust recognized $9,145 of fair value adjustments on June 30, 2016.
Demand revolving credit facilities
The amounts available and drawn under the demand revolving credit facilities as at December 31, 2017 and December 31,
2016 are as follows:
Maturity date
March 1, 2020
April 30, 2018
Interest rates on
drawings
BA + 1.70% or
Prime + 0.70%
BA + 2.00% or
Prime + 0.85%
Secured
investment
properties
Face
interest
rate
Borrowing
capacity
Drawings
Letters of
credit
Amount
available
December 31, 2017
8
n/a $ 371,483
$
—
$
(660 ) $ 370,823
2
10
n/a
25,844
$ 397,327 $
—
— $
—
25,844
(660 ) $ 396,667
Formula-based maximum
not to exceed $400,000
Formula-based maximum
not to exceed $45,000
n/a – not applicable.
Maturity date
Formula-based maximum
not to exceed $800,000
March 1, 2019
Formula-based maximum
not to exceed $45,000
April 30, 2018
Interest rates on
drawings
BA + 1.70% or
Prime + 0.70%
BA + 2.00% or
Prime + 0.85%
n/a – not applicable.
Secured
investment
properties
Face
interest
rate
Borrowing
capacity
Drawings
Letters of
credit
Amount
available
December 31, 2016
22
2.61 % $ 763,333
$
(178,000 ) $
(16,461 ) $ 568,872
4
26
n/a
45,000
$ 808,333 $
—
(178,000 ) $
(358 )
44,642
(16,819 ) $ 613,514
On April 18, 2017, the $800,000 formula-based demand revolving credit facility was amended and reduced to $500,000 (the
“$500,000 Facility”). On September 29, 2017, the $500,000 Facility was further amended and reduced to $400,000
(the “$400,000 Facility”). Subsequent to year-end, the Trust issued a letter of credit in the normal course of business, in the
amount of $1,847.
Dream Office REIT 2017 Annual Report | 84
Debentures
Series A Debentures
On June 13, 2013, the Trust completed the issuance of $175,000 aggregate principal amount of Series A senior unsecured
debentures (“Series A Debentures”). The Series A Debentures bear interest at a coupon rate of 3.424% per annum with a
maturity date of June 13, 2018. Interest on the Series A Debentures is payable semi-annually on June 13 and December 13,
with the first payment commencing on December 13, 2013. Costs related to the issuance of the Series A Debentures
totalled $1,590.
The Trust has the option to redeem the Series A Debentures at a redemption price equal to the greater of the Canada Yield
Price and par plus any accrued and unpaid interest. The Canada Yield Price is defined as the amount that would return a yield
on investment for the remaining term to maturity equal to the Canada bond rate with equal term to maturity plus a spread
of 0.475%.
During the year ended December 31, 2017, the Trust purchased and cancelled $34,245 of Series A Debentures.
Series B Debentures
On October 9, 2013, the Trust completed the issuance of $125,000 aggregate principal amount of Series B floating senior
unsecured debentures (“Series B Debentures”). The Series B Debentures bear interest at a three-month Canadian Dealer
Offered Rate (“CDOR”) rate plus 1.7% per annum with a maturity date of January 9, 2017. Interest on the Series B Debentures
is payable quarterly in arrears on January 9, April 9, July 9 and October 9, with the first payment commencing on January 9,
2014. Costs related to the issuance of the Series B Debentures totalled $720.
On January 9, 2017, the Trust repaid Series B Debentures with an aggregate principal amount of $125,000.
Series C Debentures
On January 21, 2014, the Trust completed the issuance of $150,000 aggregate principal amount of Series C senior unsecured
debentures (“Series C Debentures”). The Series C Debentures bear interest at a rate of 4.074% with a maturity date of
January 21, 2020. Interest on the Series C Debentures is payable semi-annually on January 21 and July 21, with the first
payment commencing on July 21, 2014. Costs related to the issuance of the Series C Debentures totalled $1,400.
The Trust has the option to redeem the Series C Debentures at a redemption price equal to the greater of the Canada Yield
Price and par plus any accrued and unpaid interest. The Canada Yield Price is defined as the amount that would return a yield
on investment for the remaining term to maturity equal to the Canada bond rate with equal term to maturity plus a spread of
0.525%.
Debentures
The principal amount outstanding and the carrying value for each series of debentures are as follows:
December 31, 2017
December 31, 2016
Debentures
Series A
Date issued
Maturity date
Original
principal
Face Outstanding
principal
interest rate
Carrying Outstanding
principal
value
Carrying
value
Debentures
June 13, 2013
June 13, 2018 $ 175,000
3.42 % $ 140,755
$ 140,609
$ 175,000
$ 174,536
Series B
Debentures October 9, 2013
January 9, 2017
125,000
2.60 % (1)
—
—
125,000
124,999
Series C
Debentures
January 21, 2014
January 21, 2020
150,000
$ 450,000
(1) Variable interest rate at three-month CDOR plus 1.7%.
4.07 %
150,000
149,293
$ 290,755 $ 290,140 $ 450,000 $ 448,828
149,531
150,000
Dream Office REIT 2017 Annual Report | 85
Debt weighted average effective interest rates and maturities
Fixed rate
Mortgages
Debentures
Total fixed rate debt
Variable rate
Mortgages
Demand revolving credit facilities
Series B Debentures
Total variable rate debt
Total debt
Weighted average
effective interest rates(1)
December 31, December 31,
2016
2017
4.09 %
3.96 %
4.06 %
3.32 %
—
—
3.32 %
4.00 %
3.86 %
3.93 %
3.87 %
3.05 %
3.02 %
3.09 %
3.05 %
3.76 %
Maturity
dates
December 31,
2017
Debt amount
December 31,
2016
2018–2027 $
2018–2020
963,346 $
290,140
1,253,486
1,989,222
323,829
2,313,051
2018–2022
2018–2020
2017
$
117,356
(3,192 )
—
114,164
1,367,650 $
37,950
173,790
124,999
336,739
2,649,790
(1) The effective interest rate method includes the impact of fair value adjustments on assumed debt and financing costs.
The following table summarizes the aggregate of the scheduled principal repayments and debt maturities:
2018
2019
2020
2021
2022
2023–2027
Financing costs
Fair value adjustments
Mortgages
68,782 $
95,127
72,878
158,715
205,456
483,379
1,084,337
(4,664 )
1,029
1,080,702 $
$
$
Demand
revolving
credit facilities
— $
—
—
—
—
—
—
(3,192 )
—
(3,192 ) $
Debentures
140,755 $
—
150,000
—
—
—
290,755
(615 )
—
290,140 $
Total
209,537
95,127
222,878
158,715
205,456
483,379
1,375,092
(8,471 )
1,029
1,367,650
Short form base shelf prospectus
On April 27, 2015, the Trust filed a short form base shelf prospectus, which was valid for a 25-month period, during which
time the Trust could offer and issue, from time to time, debt securities, with an aggregate offering price of up to $2,000,000.
On May 26, 2017, the short form base shelf prospectus expired and was not renewed. For the years ended December 31,
2017 and December 31, 2016, no debt securities were issued under the short form base shelf prospectus.
Note 13
SUBSIDIARY REDEEMABLE UNITS
The Trust has the following subsidiary redeemable units outstanding:
Year ended December 31, 2017
Year ended December 31, 2016
Balance, beginning of year
Remeasurement of carrying value of
Note
Number of units
issued and outstanding
5,233,823 $
Amount
102,321
subsidiary redeemable units
20
Balance, end of year
—
5,233,823 $
13,660
115,981
Number of units
issued and outstanding
5,233,823 $
—
5,233,823
$
Amount
90,912
11,409
102,321
During the year ended December 31, 2017, the Trust incurred $6,542 (December 31, 2016 – $8,174) in distributions on the
subsidiary redeemable units, which is included as interest expense in the consolidated statements of comprehensive loss (see
Note 19).
Dream Office REIT 2017 Annual Report | 86
Dream Office LP, a subsidiary of Dream Office REIT, is authorized to issue an unlimited number of LP Class B limited
partnership units. These units have been issued in two series: subsidiary redeemable units and LP Class B Units, Series 2. The
subsidiary redeemable units, together with the accompanying Special Trust Units, have economic and voting rights equivalent
in all material respects to REIT A Units. Generally, each subsidiary redeemable unit entitles the holder to a distribution equal
to distributions declared on REIT Units, Series B, or if no such distribution is declared, on REIT Units, Series A. Subsidiary
redeemable units may be surrendered or indirectly exchanged on a one-for-one basis at the option of the holder, generally at
any time subject to certain restrictions, for REIT Units, Series B.
Holders of the LP Class B Units, Series 2 are entitled to vote at meetings of the limited partners of Dream Office LP and each
Unit entitles the holder to a distribution equal to distributions on the subsidiary redeemable units. As at December 31, 2017
and December 31, 2016, all issued and outstanding LP Class B Units, Series 2 are owned indirectly by the Trust and have been
eliminated in the consolidated balance sheets.
Special Trust Units are issued in connection with subsidiary redeemable units. The Special Trust Units are not transferable
separately from the subsidiary redeemable units to which they relate and will be automatically redeemed for a nominal
amount and cancelled on surrender or exchange of such subsidiary redeemable units. Each Special Trust Unit entitles the
holder to the number of votes at any meeting of unitholders that is equal to the number of REIT B Units that may be obtained
on the surrender or exchange of the subsidiary redeemable units to which they relate.
As at December 31, 2017 and December 31, 2016, 5,233,823 Special Trust Units were issued and outstanding.
Note 14
DEFERRED UNIT INCENTIVE PLAN
The Deferred Unit Incentive Plan (“DUIP”) provides for the grant of deferred trust units to trustees, officers and employees as
well as employees of affiliates. Deferred trust units are granted at the discretion of the trustees and earn income deferred
trust units based on the payment of distributions. Once granted, each deferred trust unit and the related distribution of
income deferred trust units vest evenly over a three- or five-year period on the anniversary date of the grant. Subject to an
election option available for certain participants to postpone receipt of REIT A Units, such units will be issued immediately on
vesting. As at December 31, 2017 and December 31, 2016, up to a maximum of 2.55 million deferred trust units are issuable
under the DUIP.
The movement in the DUIP balance was as follows:
Balance, beginning of year
Compensation expense
REIT A Units issued for vested deferred trust units
Remeasurements of carrying value of deferred trust units
Balance, end of year
Note
$
$
20
Year ended December 31,
2017
14,796
3,236
(3,863 )
3,111
17,280
$
$
2016
12,596
2,750
(2,696 )
2,146
14,796
Of the $3,236 of deferred compensation expense incurred during the year ended December 31, 2017, $3,128 was recorded
and included in general and administrative (“G&A”) expenses (December 31, 2016 – $2,551). For the same period, a fair value
loss of $3,111 (December 31, 2016 – fair value loss of $2,146) was recognized, representing the remeasurement of the DUIP
liability during the year.
Outstanding and payable at beginning of year
Granted
Income deferred trust units
REIT A Units issued
Fractional Units paid in cash
Cancelled
Outstanding and payable at end of year
Vested but not issued at end of year
Year ended December 31,
2017
907,972
128,985
57,735
(199,675 )
(100 )
(5,616 )
889,301
556,854
2016
862,358
144,436
82,595
(154,507 )
—
(26,910 )
907,972
471,455
Dream Office REIT 2017 Annual Report | 87
For the year ended December 31, 2017, 128,985 deferred trust units were granted to trustees, officers and employees as well
as employees of affiliates with the grant price ranging from $19.17 to $21.15 per unit. Of the units granted, 86,685 units
relate to key management personnel. For the year ended December 31, 2016, 144,636 deferred trust units were granted to
trustees, officers and employees as well as employees of affiliates with the grant price ranging from $16.27 to $20.31 per unit.
Of the units granted, 74,898 units relate to key management personnel.
Note 15
AMOUNTS PAYABLE AND ACCRUED LIABILITIES
Trade payables
Accrued liabilities and other payables
Accrued interest
Rent received in advance
Distributions payable
Total
Note
24
16
December 31,
2017
3,847 $
48,474
6,886
8,328
6,142
73,677 $
$
$
December 31,
2016
1,313
63,414
10,775
16,394
13,101
104,997
Note 16
DISTRIBUTIONS
Dream Office REIT’s Declaration of Trust provides the Board of Trustees with the discretion to determine the percentage
payout of income that would be in the best interest of the Trust. The Trust determines the distribution rate by, among other
considerations, its assessment of cash flows as determined using adjusted cash flows from operating activities (a non-GAAP
measure). This non-GAAP measure does not represent cash generated from (utilized in) operating activities as defined by
IFRS, and does not have a standardized meaning and may not be comparable with similar measures presented by other
income trusts. Actual adjusted cash flows from operating activities (a non-GAAP measure) may differ from distributions
declared, primarily due to fluctuations in non-cash working capital, the impact of leasing costs, which fluctuate with lease
maturities, renewal terms, the type of asset being leased, and when tenants fulfill the terms of their respective lease
agreements, and the impact of investments in building improvements, which fluctuates with timing and extent of the capital
projects, as well as age, type and condition of asset. These seasonal fluctuations or the unpredictability of when leasing costs
are incurred are funded with our cash and cash equivalents on hand and, if necessary, with our existing demand revolving
credit facilities. Monthly distribution payments to unitholders are payable on or about the 15th day of the following month.
On June 22, 2017, the Trust announced a revision to its monthly cash distribution from $0.125 per REIT A Unit to $0.08333, or
$1.00 per REIT A Unit on an annualized basis, effective for the month of July 2017 distribution.
On February 18, 2016, the Trust announced a reduction to its monthly cash distribution from $0.18666 per REIT A Unit to
$0.125 per REIT A Unit, or $1.50 per REIT A Unit on an annualized basis, effective for the month of February 2016 distribution.
The Trust declared monthly distributions of $0.125 per unit from January 2017 to June 2017 and $0.08333 per unit for the
remainder of 2017, or $1.25 per unit for the year ended December 31, 2017. The Trust declared monthly distributions of
$0.18666 per unit for January 2016 and $0.125 per unit for the remainder of 2016, or $1.56 per unit for the year ended
December 31, 2016.
The following table summarizes distribution payments for the years ended December 31, 2017 and December 31, 2016:
Paid in cash
Paid by way of reinvestment in REIT A Units
Less: Payable at December 31, 2016 (December 31, 2015)
Plus: Payable at December 31, 2017 (December 31, 2016)
Total
Year ended December 31,
Note
15
$
$
2017
122,839 $
—
(13,101 )
6,142
115,880 $
2016
159,782
17,034
(20,458 )
13,101
169,459
Dream Office REIT 2017 Annual Report | 88
On December 18, 2017, the Trust announced a cash distribution of $0.08333 per REIT A Unit for the month of December
2017. The December 2017 distribution was paid in cash on January 15, 2017, totalling $6,142.
On January 22, 2018, the Trust announced a cash distribution of $0.08333 per REIT A Unit for the month of January 2018. The
January 2018 distribution was paid in cash on February 15, 2018, totalling $5,870.
On February 16, 2018, the Trust announced a cash distribution of $0.08333 per REIT A Unit for the month of February 2018.
The February 2018 distribution will be payable on March 15, 2018 to unitholders of record at February 28, 2018.
Note 17
EQUITY
REIT A Units
Deficit
Accumulated other comprehensive income
Total
Note
26
December 31, 2017
December 31, 2016
Number of
REIT A Units
73,705,285 $
—
—
73,705,285 $
Amount
2,462,611
(728,934 )
1,946
1,735,623
Number of
REIT A Units
104,806,724 $
—
—
104,806,724 $
Amount
3,108,424
(747,840 )
11,181
2,371,765
Dream Office REIT Units
Dream Office REIT is authorized to issue an unlimited number of REIT Units and an unlimited number of Special Trust Units.
The REIT Units are divided into and issuable in two series: REIT Units, Series A and REIT Units, Series B. The Special Trust Units
may only be issued to holders of subsidiary redeemable units.
REIT Units, Series A and REIT Units, Series B represent an undivided beneficial interest in Dream Office REIT and in
distributions made by Dream Office REIT. No REIT Unit, Series A or REIT Unit, Series B has preference or priority over any
other. Each REIT Unit, Series A and REIT Unit, Series B entitles the holder to one vote at all meetings of unitholders.
Distribution Reinvestment and Unit Purchase Plan
The Distribution Reinvestment Plan (“DRIP”) allows holders of REIT A Units or subsidiary redeemable units, other than
unitholders who are resident of or present in the U.S., to elect to have all cash distributions from Dream Office REIT
reinvested in additional units. Unitholders who participate in the DRIP receive an additional distribution of units equal to 4%
of each cash distribution that was reinvested. The price per unit is calculated by reference to a five-day weighted average
closing price of the REIT A Units on the TSX preceding the relevant distribution date, which typically is on or about the 15th
day of the month following the declaration.
On February 18, 2016, the Trust announced the suspension of its DRIP until further notice effective for the February 2016
distribution. For the year ended December 31, 2016, the Trust issued 1,122,411 REIT A Units under the DRIP for $17,034.
The Unit Purchase Plan feature of the DRIP facilitates the purchase of additional REIT A Units by existing unitholders.
Participation in the Unit Purchase Plan is optional and subject to certain limitations on the maximum number of additional
REIT A Units that may be acquired. The price per unit is calculated in the same manner as the DRIP. No commission, service
charges or brokerage fees are payable by participants in connection with either the reinvestment or purchase features of the
DRIP. For the year ended December 31, 2017, no REIT A Units were issued under the Unit Purchase Plan (December 31,
2016 – 362 REIT A Units for $6).
Dream Office REIT 2017 Annual Report | 89
Normal course issuer bid (“NCIB”)
On June 7, 2017, the NCIB covering the period from June 22, 2016 to June 21, 2017 expired as the Trust purchased the
maximum number of REIT A Units, totalling 10,732,867 REIT A Units, permitted under this NCIB. On August 10, 2017, the
Toronto Stock Exchange accepted a notice filed by the Trust to renew its prior NCIB for a one-year period. Under the renewed
bid, the Trust will have the ability to purchase for cancellation up to a maximum of 7,197,095 of its REIT A Units (representing
10% of the Trust’s public float of 71,970,948 REIT A Units) through the facilities of the Toronto Stock Exchange. The renewed
bid commenced on August 15, 2017 and will remain in effect until the earlier of August 14, 2018 or the date on which the
Trust has purchased the maximum number of REIT A Units permitted under the bid. Daily purchases will be limited to 54,249
REIT A Units, which equals 25% of the average daily trading volume during the last six calendar months (being 216,999 REIT A
Units per day), other than purchases pursuant to applicable block purchase exceptions. On February 13, 2018, the NCIB
covering the period from August 15, 2017 to August 14, 2018 expired as the Trust purchased the maximum number of REIT A
Units, totalling 7,197,095 REIT A Units, permitted under this NCIB.
For the year ended December 31, 2017, the Trust purchased for cancellation 10,348,734 REIT A Units under the NCIB at a cost
of $209,178 (for the year ended December 31, 2016 – 4,331,194 REIT A Units cancelled for $80,174).
Subsequent to year-end, the Trust purchased for cancellation an additional 3,656,607 REIT A Units under the NCIB at a cost of
$81,226.
Substantial issuer bid (“SIB”)
On June 22, 2017, the Trust announced the offer to purchase for cancellation up to 24,444,444 of its REIT A Units for an
aggregate purchase price not to exceed $440,000 through a “modified Dutch auction” within a price range of not less than
$18.00 per REIT A Unit and not more than $21.00 per REIT A Unit (in increments of $0.25 per REIT A Unit within that range).
On August 14, 2017, the Trust took up and paid for 20,952,380 REIT A Units at a price of $21.00 per REIT A Unit for an
aggregate cost of $440,000, excluding fees and expenses relating to the SIB. The REIT A Units purchased for cancellation
under the SIB represented approximately 21.3% of the issued and outstanding REIT A Units immediately prior to the expiry of
the SIB.
Note 18
ASSETS HELD FOR SALE AND DISPOSITIONS
Assets held for sale
As at December 31, 2017 and December 31, 2016, the Trust classified certain properties as assets held for sale totalling
$51,530 and $321,355, respectively, and associated liabilities totalling $nil and $217,056, respectively, with prior year
balances including working capital items.
As at December 31, 2017 and December 31, 2016, management had committed to a plan of sale of the underlying properties
and the sales were considered to be highly probable. As a result, these properties were classified as assets held for sale as at
December 31, 2017 and December 31, 2016 and certain properties were subsequently sold (see Note 32).
Investment properties held for sale
Balance, beginning of year
Add (deduct):
Building improvements
Lease incentives and initial direct leasing costs
Investment properties disposed of during the year
Investment properties classified as held for sale during the year
Fair value adjustment to investment properties
Amortization of lease incentives and other
Foreign currency translation adjustment
Balance, end of year
Note
$
Year ended December 31,
2016
44,712
2017
321,232 $
3,162
9,322
(2,268,720 )
2,004,150
(15,327 )
(1,966 )
(323 )
51,530 $
128
671
(259,327 )
536,125
(300 )
(777 )
—
321,232
7
$
Investment properties included in assets held for sale as at December 31, 2017 had previously been included in the Calgary
and Non-core markets reportable operating segments.
Dream Office REIT 2017 Annual Report | 90
Held for sale properties with a fair value of $nil as at December 31, 2017 (December 31, 2016 – $177,043) are pledged as
security for the mortgages.
Held for sale properties with a fair value of $30,977 as at December 31, 2017 (December 31, 2016 – $131,043) are pledged as
security for the demand revolving credit facilities.
Debt related to investment properties held for sale
Note
$
Year ended December 31,
2016
24,245
2017
209,228 $
(4,274 )
(13,956 )
(264,168 )
799,762
(720,990 )
(236 )
(5,366 )
— $
(478 )
—
(50,776 )
274,761
(37,899 )
—
(625 )
209,228
Balance, beginning of year
Cash items:
Principal repayments
Lump sum repayments
Lump sum repayment on property dispositions
Non-cash items:
Debt classified as liabilities related to assets held for sale
Debt assumed by purchaser on disposal of investment properties
Foreign currency translation adjustment
Other adjustments(1)
Balance, end of year
12
$
(1) Other adjustments includes write-off and amortization of financing costs and fair value adjustments.
Dream Office REIT 2017 Annual Report | 91
Dispositions
For the year ended December 31, 2017, the Trust disposed of the following properties:
Property
Braithwaite Boyle Centre, Calgary
10 Lower Spadina Avenue, Toronto(2)
49 Ontario Street, Toronto(2)
Calgary Portfolio(3)
HSBC Bank Place and Enbridge Place, Edmonton
HSBC Building and Milner Building, Edmonton
13183 146th Street NW, Edmonton
Accelerator Building, Waterloo
10199 101st Street NW, Edmonton
Date disposed
January 9, 2017
January 11, 2017
January 11, 2017
January 31, 2017
February 27, 2017
March 3, 2017
March 15, 2017
March 28, 2017
March 30, 2017
Total dispositions for the three months ended March 31, 2017
Franklin Atrium, Calgary
April 3, 2017
Airport Corporate Centre, Calgary
April 12, 2017
3115 12th Street NE, Calgary
April 12, 2017
2816 11th Street NE, Calgary
April 19, 2017
250 King Street, Fredericton
April 25, 2017
460 Two Nations Crossing, Fredericton(2)
April 25, 2017
185, 191 & 195 The West Mall, Etobicoke(2)
April 25, 2017
625 Agnes Street, New Westminster
May 9, 2017
5945–5955 & 5915–5935 Airport Road, Mississauga
May 11, 2017
Highfield Place, Edmonton
May 11, 2017
401 & 405 The West Mall, Toronto(2)
May 26, 2017
680 Broadway Street, Tillsonburg(2)
June 1, 2017
55 Norfolk Street South, Simcoe(2)
June 16, 2017
180 Keil Drive South, Chatham
June 27, 2017
2550 Argentia Road, Mississauga
June 28, 2017
Regina Portfolio(4)
June 29, 2017
Total dispositions for the three months ended June 30, 2017
July 31, 2017
August 15, 2017
August 15, 2017
August 17, 2017
August 23, 2017
August 23, 2017
August 23, 2017
September 8, 2017 Diversified Portfolio(5)
September 19, 2017 6501–6523 & 6531–6559 Mississauga Road, Mississauga(2)
Total dispositions for the three months ended September 30, 2017
October 4, 2017
October 6, 2017
October 31, 2017
Total dispositions for the three months ended December 31, 2017
Total dispositions for the year ended December 31, 2017
Franklin Building, Calgary
2645 Skymark Avenue, Mississauga
2810 Matheson Boulevard East, Mississauga(2)
586 Argus Road, Oakville
Scotia Plaza (40 & 44 King Street West), Toronto
100 Yonge Street, Toronto
Baker Centre, Edmonton
Station Tower, Surrey
Royal Centre, Saskatchewan
445 Opus Industrial Boulevard, Mount Juliet, Nashville, U.S.
Ownership
(%)
100.0 %
40.0 %
40.0 %
100.0 %
100.0 %
100.0 %
100.0 %
100.0 %
50.0 %
100.0 %
100.0 %
100.0 %
100.0 %
100.0 %
40.0 %
49.9 %
100.0 %
100.0 %
100.0 %
40.0 %
49.9 %
40.0 %
100.0 %
100.0 %
100.0 %
100.0 %
100.0 %
49.9 %
100.0 %
50.0 %
50.0 %
100.0 %
Various
40.0 %
100.0 %
100.0 %
100.0 %
Disposed
share of GLA
(000s sq. ft.)
Sales price(1)
55
24
35
1,505
563
296
39
93
60
2,670 $
150
151
73
33
80
20
308
86
685
105
165
23
6
37
52
176
2,150 $
51
141
69
75
991
123
143
3,436
63
323,959
391,248
5,092 $ 1,440,275
220
48
717
985 $
184,090
10,897 $ 2,339,572
(1) Sales price reflects gross proceeds net of adjustments and before transaction costs.
(2) For the year ended December 31, 2017, the Trust wrote off external management contracts related to these disposed co-owned properties totalling
$3,914.
(3) Includes 12 properties in Calgary: Atrium I, Atrium II, Roslyn Building, 435-4th Avenue SW, Mount Royal Place, 1035-7th Avenue SW, 840-7th Avenue,
McFarlane Tower, Dominion Centre, 510-5th Street SW, Northland Building and 441-5th Avenue.
(4) Includes five properties in Regina: 2400 College Avenue, 2220 College Avenue, 2208 Scarth Avenue, 2445 13th Avenue and Harbour Landing, Phase 2.
(5) Diversified Portfolio includes 39 properties: three properties in British Columbia, five properties in the Northwest Territories, nine properties in Alberta,
18 properties in Ontario and four properties in Nova Scotia. The Trust’s ownership interest in these properties ranged between 35.0% and 100.0%.
Dream Office REIT 2017 Annual Report | 92
As part of the sale of a portfolio of properties in Etobicoke and Fredericton on April 25, 2017, the Trust received as partial
consideration 646,128 units of a Canadian publicly traded real estate investment trust totalling $5,234. As at December 31,
2017, the fair value of these units was $5,259 and is included in prepaid expenses and other assets in the consolidated
balance sheet.
For the year ended December 31, 2016, the Trust disposed of the following properties:
Date disposed
Property
2450 Girouard Street West & 455 Saint Joseph Avenue (Intact Tower),
2010 Winston Park Drive, Oakville
4259–4299 Canada Way, Burnaby
960 Quayside Drive, New Westminster
625 Cochrane Drive and Valleywood Corporate Centre, Markham
30 Eglinton Ave. West, Mississauga
887 Great Northern Way, Vancouver
Saint-Hyacinthe
8550 Newman Boulevard, Montréal
1305 Chemin Sainte-Foy, Québec City
1 Riverside Drive, Windsor
February 26, 2016
March 1, 2016
March 1, 2016
March 10, 2016
Total dispositions for the three months ended March 31, 2016
April 1, 2016
April 27, 2016
April 29, 2016
May 2, 2016
May 18, 2016
June 10, 2016
Total dispositions for the three months ended June 30, 2016
July 25, 2016
July 29, 2016
August 2, 2016
September 16, 2016 4370 & 4400 Dominion Street, Burnaby
Total dispositions for the three months ended September 30, 2016
November 16, 2016 2665 Renfrew Street, Vancouver
December 29, 2016 Kitchener Portfolio(3)
Total dispositions for the three months ended December 31, 2016
Total dispositions for the year ended December 31, 2016
100 Gough Road, Markham
Suburban Ottawa & Gatineau Portfolio(2)
Seven Capella Court, Ottawa
Ownership
(%)
Disposed
share of GLA
(000s sq. ft.)
Sales price(1)
100 %
100 %
100 %
100 %
40 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
$
232
66
37
236
571 $
32
120
62
318
165
164
861 $
112
392
32
157
693 $
82
985
1,067 $
3,192 $
81,501
249,795
146,350
171,273
648,919
(1) Sales price reflects gross proceeds net of adjustments and before transaction costs.
(2) Includes four properties in suburban Ottawa and Gatineau: 2625 Queensview Drive, Gateway Business Park, 1125 Innovation Drive and 22 Varennes
Street.
(3) Includes seven properties in Kitchener: Market Square, 101 Frederick Street (Galleria), 50 Queen Street North, 55 King Street West, 235 King Street East,
22 Frederick Street, and 70 King Street East.
As part of the Kitchener Portfolio sale on December 29, 2016, the Trust received as partial consideration a vendor takeback
mortgage (“VTB Mortgage”) of $78,775. The VTB Mortgage bore interest at the bank’s prime rate plus 0.2277% per annum
and interest was payable monthly. The VTB Mortgage was included in prepaid expenses and other assets in the consolidated
balance sheets as at December 31, 2016. The VTB Mortgage was repaid in full on March 28, 2017.
Dream Office REIT 2017 Annual Report | 93
Note 19
INTEREST
Interest on debt
Interest on debt incurred and charged to the consolidated statements of comprehensive loss is recorded as follows:
Interest expense incurred, at contractual rate of debt
Amortization of financing costs
Amortization of fair value adjustments on assumed debt
Interest expense on debt
Add (deduct):
Amortization of financing costs
Amortization of fair value adjustments on assumed debt
Change in accrued interest
Cash interest paid
$
$
Year ended December 31,
2017
$
2016
119,151
3,867
(3,498 )
119,520
85,981
3,514
(2,935 )
86,560
(3,514 )
2,935
(3,889 )
82,092
$
(3,867 )
3,498
(1,389 )
117,762
Certain debts assumed in connection with acquisitions have been adjusted to fair value using the estimated market interest
rate at the time of the acquisition (“fair value adjustments”). Fair value adjustments are amortized to interest expense over
the expected life of the debt using the effective interest rate method. Non-cash adjustments to interest expense are recorded
as a change in non-cash working capital in the consolidated statements of cash flows.
Interest on subsidiary redeemable units
Interest payments charged to comprehensive income are recorded as follows:
Paid in cash
Less: Interest payable at December 31, 2016 (December 31, 2015)
Plus: Interest payable at December 31, 2017 (December 31, 2016)
Interest expense on subsidiary redeemable units
Note 20
FAIR VALUE ADJUSTMENTS TO FINANCIAL INSTRUMENTS
Remeasurement of carrying value of subsidiary redeemable units
Remeasurement of carrying value of deferred trust units
Year ended December 31,
2017
6,760 $
(654 )
436
6,542 $
2016
8,497
(977 )
654
8,174
$
$
Note
13
14
$
$
2016
Year ended December 31,
2017
(13,660 ) $
(3,111 )
(16,771 ) $
(11,409 )
(2,146 )
(13,555 )
Note 21
INCOME TAXES
The Trust is subject to taxation in the United States (“U.S.”) on the taxable income earned by its investment properties
located in the U.S. at a rate of approximately 39.41% (December 31, 2016 – 39.49%). A deferred tax asset arises from the loss
carry-forwards of the U.S. subsidiaries, and is recognized only to the extent that it is realizable. A deferred tax liability arises
from the temporary differences between the carrying value and the tax basis of the net assets of the U.S. subsidiaries.
On October 31, 2017, the Trust completed the sale of a single-tenant distribution centre located in Nashville, Tennessee
to Dream Industrial REIT (see Note 24). As a result of the disposition, the timing differences pertaining to this property
were realized, effectively reducing the deferred tax liability balance. The loss carry-forward balance was fully utilized in the
current year.
Dream Office REIT 2017 Annual Report | 94
On December 22, 2017, Public law no. 115-97, also known as Tax Cuts and Jobs Act (TCJA), was enacted in the U.S. One of the
changes introduced by TCJA was the reduction of the corporate income tax rate from graduated rates with a maximum rate of
35% to a flat rate of 21% for the taxation years starting from January 1, 2018. As a result of the rate drop, the Trust is
expecting the remaining timing differences to be realized at a tax rate which is lower than was previously expected. The
closing deferred tax liability was recalculated at the lower expected tax rate, which resulted in a further reduction in the
deferred tax liabilities of the Trust.
The tax effects of the remaining temporary differences that give rise to the recognition of deferred tax assets and liabilities
are presented below:
Deferred tax assets
Deferred financing costs
Financial instruments
Loss carry-forwards
Deferred tax liabilities
Investment properties
Deferred tax liabilities, net
December 31,
2017
130 $
273
—
403
December 31,
2016
269
1,121
1,097
2,487
(2,617 )
(2,214 ) $
(13,222 )
(10,735 )
$
$
A reconciliation between the expected income taxes based upon the 2017 and 2016 statutory rates and the income tax
expense recognized during the years ended December 31, 2017 and December 31, 2016 is as follows:
Income taxes computed at the statutory rate of nil that is applicable to the Trust
Current income taxes expense on U.S. properties
Deferred income taxes expense (recovery) on U.S. properties
December 31,
2017
$
$
— $
4,123
(7,950 )
(3,827 ) $
December 31,
2016
—
—
1,953
1,953
As part of the deferred tax balance, $560 is a result of a foreign exchange difference for the remaining property in the U.S.
(for the year ended December 31, 2016 – $256). This amount is included as part of accumulated other comprehensive income
under unrealized foreign currency translation gain (loss).
Note 22
SEGMENTED INFORMATION
Prior to July 1, 2017, the Trust’s reportable operating segments of its investment properties and results of operations were
segmented geographically, namely B.C./Saskatchewan/N.W.T., Alberta, Toronto – downtown, Toronto – suburban and
Eastern Canada. Effective July 1, 2017, as a result of changes in the Trust’s property portfolio, the Trust made several changes
to its reportable operating segments as follows: (i) separated its investment properties in Calgary from Alberta and created a
new Calgary segment; (ii) separated its investment properties in Ottawa and Montréal from Eastern Canada and created a
new Ottawa and Montréal segment; (iii) renamed the properties remaining in Toronto – suburban as Mississauga and North
York; and (iv) created a new Non-core markets segment containing the remainder of the investment properties in the
previous Alberta and Eastern Canada regions. This Non-core markets segment contains those investment properties in
geographic areas which the Trust does not consider core to its stated strategic direction. These changes will enable the Chief
Executive Officer to evaluate the performance of those investment properties which are key to the Trust’s overall strategy.
Dream Office REIT 2017 Annual Report | 95
For the years ended December 31, 2017 and December 31, 2016, the Trust’s reportable operating segments of its investment
properties and results of operations were segmented geographically, namely Calgary, Toronto downtown, Mississauga and
North York, Ottawa and Montréal and Non-core markets. Corporate amounts, lease termination fees, bad debt expense,
straight-line rent and amortization of lease incentives, and revenue and expenses related to properties held for
redevelopment, sold properties and assets held for sale at December 31, 2017, were included in “Other” for segment
disclosure. Assets classified as held for sale or sold as at December 31, 2017 have been reclassified to “Other” in the
comparative segment disclosures for the year ended December 31, 2016, including the investment properties revenue,
investment properties operating expenses and fair value adjustments associated with these properties. The Trust did not
allocate interest expense to these segments since leverage is viewed as a corporate function. The decision as to where to
incur the debt is largely based on minimizing the cost of debt and is not specifically related to the segments. Similarly, other
income, other expenses, fair value adjustments to financial instruments, net losses on transactions and other activities, and
deferred income taxes were not allocated to the segments.
For the year ended December 31, 2016, segments include the Trust’s proportionate share of its joint ventures. The column
entitled “Reconciliation” adjusts the segmented results to account for these joint ventures using the equity method of
accounting as applied in these consolidated financial statements.
Year ended December 31, 2017
Operations
Investment properties revenues
Investment properties operating
expenses
Net rental income (segment income)
Other income
Other expenses
Fair value adjustments, net losses on
transactions and other activities
Income (loss) before income taxes
Current income taxes expense
Deferred income taxes recovery
Net income (loss) for the year
$
Calgary
Toronto
downtown
Mississauga
and
North York
Ottawa and
Montréal
Non-core
markets
Segment
total
Other(1) Reconciliation
Total
$
57,264 $
148,006 $
23,808 $
39,830 $
37,262
$
306,170 $
163,605 $
— $ 469,775
(25,234 )
32,030
—
—
(33,172 )
(1,142 )
—
—
(1,142 ) $
(64,125 )
83,881
—
—
233,412
317,293
—
—
317,293 $
(9,245 )
14,563
—
—
(2,088 )
12,475
—
—
12,475 $
(19,477 )
20,353
—
—
(15,022 )
22,240
—
—
(4,402 )
15,951
—
—
15,951
$
(113,861 )
(91,621 )
—
—
(91,621 ) $
(133,103 )
173,067
—
—
79,889
252,956
—
—
252,956 $
(79,013 )
84,592
15,552
(110,667 )
(111,474 )
(121,997 )
(4,123 )
7,950
(118,170 ) $
—
—
—
—
(212,116 )
257,659
15,552
(110,667 )
(31,585 )
—
130,959
—
—
(4,123 )
—
7,950
— $ 134,786
Year ended December 31, 2017
Capital expenditures(4)
Investment properties
Total
75,378
(12,484 ) $
(51,530 ) $ 2,919,438
(1) Includes revenue, expenses and fair value adjustments related to properties held for redevelopment, sold properties and assets held for sale at year-end, corporate amounts,
Calgary
17,827 $
22,117 $
386,962 $ 1,707,867 $
Other(2) Reconciliation(3)
31,492 $
92,129 $
3,600 $
216,400 $
$
$
Ottawa and
Montréal
Non-core
markets
5,570
355,687 $ 211,923
7,256 $
Segment
total
56,370 $
$
$ 2,878,839 $
Toronto
downtown
Mississauga
and
North York
lease termination fees, bad debt expense, straight-line rent and amortization of lease incentives.
(2) Includes properties held for redevelopment, sold properties and assets held for sale at year-end.
(3) Includes assets held for sale at year-end.
(4) Includes building improvements and initial direct leasing costs and lease incentives.
Dream Office REIT 2017 Annual Report | 96
Year ended December 31, 2016
Operations
Investment properties revenue
Investment properties operating
expenses
Net rental income (segment income)
Other income (loss)
Other expenses
Fair value adjustments, net losses on
transactions and other activities
Income (loss) before income taxes
Deferred income taxes expense
Net income (loss) for the year
$
Year ended December 31, 2016
Capital expenditures(5)
Investment properties
$
$
Calgary
Toronto
downtown
Mississauga
and
North York
Ottawa and
Montréal
Non-core
markets
Segment
total(1)
Other(2)
Reconciliation(1)
Total
$
66,729 $
145,796 $
23,000 $
43,728 $
39,156 $
318,409 $
404,884 $
(59,002 ) $
664,291
(27,549 )
39,180
—
—
(62,910 )
82,886
—
—
(305,060 )
(265,880 )
—
(265,880 ) $
26,606
109,492
—
109,492 $
(9,099 )
13,901
—
—
(18 )
13,883
—
13,883 $
(19,749 )
23,979
—
—
(3,496 )
20,483
—
20,483 $
(15,117 )
24,039
—
—
(134,424 )
183,985
—
—
(189,670 )
215,214
11,386
(152,064 )
(52,438 )
(28,399 )
—
(28,399 ) $
(334,406 )
(150,421 )
—
(150,421 ) $
(801,867 )
(727,331 )
(1,953 )
(729,284 ) $
28,381
(30,621 )
(154,342 )
8,891
176,072
—
—
— $
(295,713 )
368,578
(142,956 )
(143,173 )
(960,201 )
(877,752 )
(1,953 )
(879,705 )
Toronto
downtown
Calgary
18,227 $
17,924 $
404,861 $ 1,455,983 $
Mississauga
and
North York
Ottawa and
Montréal
3,006 $
215,214 $
5,134 $
353,171 $
Non-core
markets
Segment
total(1)
51,029 $
324,725 $ 2,753,954 $
6,738 $
Other(3)
77,728 $
2,463,633 $
Reconciliation(1)(4)
Total
112,352
(16,405 ) $
(381,232 ) $ 4,836,355
(1) Includes the Trust’s proportionate share of its joint ventures, accounted for using the equity method of accounting.
(2) Includes revenue, expenses and fair value adjustments related to properties held for redevelopment, sold properties and assets held for sale at year-end, corporate amounts,
lease termination fees, bad debt expense, straight-line rent and amortization of lease incentives.
(3) Includes properties held for redevelopment, sold properties and assets held for sale at year-end.
(4) Includes assets held for sale at year-end.
(5) Includes building improvements and initial direct leasing costs and lease incentives.
Dream Office REIT 2017 Annual Report | 97
Note 23
GENERAL AND ADMINISTRATIVE EXPENSES
Management Services Agreement
Salaries
Deferred compensation expense
Other(1)
General and administrative expenses
Note
24
14
$
$
Year ended December 31,
2017
(830 ) $
(1,521 )
(3,128 )
(5,165 )
(10,644 )
$
2016
(661 )
(1,902 )
(2,551 )
(6,792 )
(11,906 )
(1) Other comprises public reporting, professional service fees, corporate sponsorships, donations and overhead related costs.
Note 24
RELATED PARTY TRANSACTIONS AND ARRANGEMENTS
From time to time, Dream Office REIT and its subsidiaries enter into transactions with related parties that are generally
conducted on a cost recovery basis, except for dispositions of investment properties which are transacted at fair value.
At December 31, 2017, DAM held 5,992,583 REIT A Units and 5,233,823 subsidiary redeemable units (December 31, 2016 –
3,858,153 REIT A Units and 5,233,823 subsidiary redeemable units).
On October 31, 2017, the Trust completed the sale of a 0.7 million square foot single-tenant distribution centre located in
Nashville, Tennessee to Dream Industrial REIT for gross proceeds (net of adjustments) totalling $60,855. The gross proceeds,
net of adjustments, were satisfied by $30,592 in cash, $28,917 in assumed debt and $1,346 of other adjustments. The Trust
incurred $709 in transaction costs with respect to this sale which was included in net losses on transactions and other
activities.
Agreements with DAM
On April 2, 2015, the Trust and DAM entered into a Management Services Agreement pursuant to which DAM will provide
strategic oversight of the Trust and the services of a Chief Executive Officer as requested on a cost recovery basis. In
accordance with the termination provisions of the Management Services Agreement, the Trust is subject to an incentive fee
payable which is based on 15% of the Trust’s Aggregate Adjusted Funds from Operations (as defined in the Management
Services Agreement), including the net gain on sale of any properties during the term of the agreement, and the deemed sale
of the remaining portfolio upon termination, in excess of $2.65 per REIT A Unit. This agreement gives DAM the right to
terminate the agreement upon 180 days’ notice (any time after April 2, 2018) and the Trust the right to terminate the
agreement upon 60 days’ notice. As the termination of the Management Services Agreement for the first three years is solely
at the discretion of the Trust and the Trust currently has no intention to terminate the Management Services Agreement, the
Trust has determined that it is not probable that the incentive fee is payable and accordingly, no amounts related to the
incentive fee have been recorded in the consolidated financial statements as at December 31, 2017 and December 31, 2016.
On December 1, 2013, Dream Office REIT and DAM entered into a Shared Services and Cost Sharing Agreement. Pursuant to
the Reorganization, the Trust and DAM amended the existing Shared Services and Cost Sharing Agreement as of April 2, 2015.
According to the terms of the amended arrangement, DAM will continue to provide administrative and support services on an
as-needed basis and will receive an annual fee to reimburse it for all expenses incurred. The Trust will continue to reimburse
DAM for any shared costs allocated in each calendar year. This amended agreement provides for the automatic
reappointment of DAM for additional one-year terms commencing on January 1 unless and until terminated in accordance
with its terms or by mutual agreement of the parties.
Dream Office REIT, Dream Office Management LP (a wholly owned subsidiary of Dream Office LP) and DAM were parties to an
administrative services agreement (the “Services Agreement with DAM”). Effective April 2, 2015, as part of the
Reorganization, the existing Services Agreement with DAM was terminated and Dream Office Management Corp. (“DOMC”), a
wholly owned subsidiary of Dream Office Management LP, and DAM entered into an amended Administrative Services
Agreement pursuant to which DOMC will continue to provide certain administrative and support services to DAM. The terms
of the agreement provide for DOMC to be reimbursed by DAM for the actual costs incurred by it in carrying out these
activities on behalf of DAM. This agreement is for one-year terms unless and until terminated in accordance with its terms or
by mutual agreement of the parties.
Dream Office REIT 2017 Annual Report | 98
On October 25, 2016, the Trust and DAM jointly implemented a cost reduction program to simplify and to establish more
dedicated services on a cost-efficient basis of the Trust’s operating and shared service platform. On a go forward basis, the
portion of the cost reduction program that relates to the shared service platform will impact the costs being allocated to
related parties in accordance with the Shared Services, Cost Sharing, Administrative Services and Services Agreements
currently in place. As a result of implementing this program, the Trust incurred a charge of $1,616 and $3,923 for the years
ended December 31, 2017 and December 31, 2016, which are included in net losses on transactions and other activities (see
Note 31).
Management Services Agreement with DAM
The following is a summary of fees incurred for the years ended December 31, 2017 and December 31, 2016:
Senior management compensation (included in G&A expenses)
Expense reimbursements related to financing arrangements (included in debt)
Expense reimbursements related to disposition arrangements (included in costs on sale of investment
properties)
Professional services and other (included in investment properties and G&A expenses)
Total incurred under the Management Services Agreement
$
$
Year ended December 31,
2017
(830 ) $
(576 )
2016
(753 )
(661 )
(702 )
(848 )
(2,956 ) $
(876 )
(871 )
(3,161 )
Administrative Services Agreement with DAM
The following is a summary of fees received from or paid to DAM and costs incurred by DAM or the Trust on behalf of the
other party for the years ended December 31, 2017 and December 31, 2016.
Shared services and costs processed on behalf of DAM
Operating and administration costs of regional offices processed on behalf of DAM
Total costs processed on behalf of DAM under the Administrative Services Agreement
$
$
Total costs processed by DAM on behalf of the Trust under the Administrative Services Agreement
$
Year ended December 31,
2017
5,742 $
287
6,029 $
(966 ) $
2016
7,220
615
7,835
(568 )
Shared Services and Cost Sharing Agreement with DAM
The following is a summary of fees billed by DAM for the years ended December 31, 2017 and December 31, 2016:
Business transformation costs (included in net losses on transactions and other activities)
Total costs incurred under the Shared Services and Cost Sharing Agreement
$
$
— $
— $
Year ended December 31,
2017
2016
(1,219 )
(1,219 )
Services Agreement with Dream Industrial REIT
The following is a summary of the cost recoveries from Dream Industrial REIT for the years ended December 31, 2017 and
December 31, 2016:
Total cost recoveries from Dream Industrial REIT
Year ended December 31,
2017
2,726 $
2016
3,682
$
Dream Office REIT 2017 Annual Report | 99
Amounts due from (to) related parties
Amounts due from DAM
Administrative Services Agreement with DAM
Total amounts due from DAM
Amounts due to DAM
Various agreements with DAM(1)
Distributions payable to DAM(2)
Subsidiary redeemable interest payable to DAM(3)
Total amounts due to DAM
December 31,
December 31,
$
$
2017
763 $
763 $
2016
1,077
1,077
$
December 31,
2017
(894 ) $
(499 )
(436 )
(1,829 ) $
$
December 31,
2016
(825 )
(482 )
(654 )
(1,961 )
(1) Includes Management Services Agreement and Administrative Services Agreement.
(2) Distributions payable is in relation to the 5,992,583 REIT A Units held by DAM.
(3) Subsidiary redeemable interest payable is in relation to the 5,233,823 subsidiary redeemable units held by DAM.
Amounts due from Dream Industrial REIT
Service Agreement with Dream Industrial REIT
Distributions from Dream Industrial REIT
Total amounts due from Dream Industrial REIT
Amounts due to Dream Industrial REIT
Funds received on behalf of Dream Industrial REIT
Total amounts due to Dream Industrial REIT
December 31,
2017
302 $
$
1,431
1,733 $
$
December 31,
2016
429
1,168
1,597
December 31,
2017
(299 ) $
(299 ) $
$
$
December 31,
2016
—
—
Compensation of key management personnel and trustees
Compensation of key management personnel and trustees for the years ended December 31, 2017 and December 31, 2016 is
as follows:
Compensation and benefits
Unit-based awards(1)
Total
Year ended December 31,
2017
1,417 $
1,489
2,906 $
2016
1,189
1,298
2,487
$
$
(1) Deferred trust units granted to officers and trustees vest over a five-year period with one-fifth of the deferred trust units vesting each year. Amounts are
determined based on the grant date fair value of deferred trust units multiplied by the number of deferred trust units granted in the year.
Dream Office REIT 2017 Annual Report | 100
Note 25
SUPPLEMENTARY CASH FLOW INFORMATION
The components of amortization and depreciation under operating activities include:
Amortization of lease incentives
Amortization and write-off of external management contracts
Amortization of financing costs
Amortization of fair value adjustments on assumed debt
Depreciation on property and equipment
Total amortization and depreciation
The components of changes in other adjustments under operating activities include:
Debt settlement costs, net
Costs on sale of investment properties
Deferred unit compensation expense
Straight-line rent adjustment
Deferred income taxes expense (recovery)
Loss on recognition of net assets of joint operations
Realized foreign exchange gain on sale of investment property
Cost on Reorganization and other
Total other adjustments
Note
7, 18 $
10
19
19
$
Note
31 $
31
14
21
31
31
24, 31
$
Year ended December 31,
2017
14,587 $
4,809
3,514
(2,935 )
2,112
22,087 $
2016
17,064
1,291
3,867
(3,498 )
2,282
21,006
Year ended December 31,
2017
16,255 $
20,057
3,236
(2,885 )
(7,950 )
117
(5,905 )
—
22,925 $
2016
9,899
12,250
2,750
(1,512 )
1,953
10,263
—
43
35,646
The components of the changes in non-cash working capital under operating activities include:
Decrease (increase) in amounts receivable
Decrease in prepaid expenses and other assets
Decrease in other non-current assets
Decrease in amounts payable and accrued liabilities
Decrease in non-current liabilities
Change in non-cash working capital
The following amounts were paid on account of interest:
Interest:
Debt
Subsidiary redeemable units
Year ended December 31,
2017
1,686 $
3,622
518
(29,261 )
(8,550 )
(31,985 ) $
2016
(3,965 )
2,078
188
(12,160 )
(4,562 )
(18,421 )
$
$
Note
Year ended December 31,
2017
2016
19 $
19
82,092 $
6,760
117,762
8,497
Dream Office REIT 2017 Annual Report | 101
Note 26
ACCUMULATED OTHER COMPREHENSIVE INCOME
Opening
balance
January 1
Net change
during the
year
2017
Closing
balance
December 31
Opening
balance
January 1
Year ended December 31,
Net change
during the
2016
Closing
balance
year
December 31
$
(328 ) $
45 $
(283 ) $
(1,141 ) $
813 $
(328 )
11,509
(9,020 )
2,489
12,716
(1,207 )
11,509
—
11,181 $
(260 )
(9,235 ) $
(260 )
1,946 $
—
11,575 $
—
(394 ) $
—
11,181
Realized and unrealized gain (loss) on interest
rate swaps, net of taxes
Realized and unrealized gain (loss) on foreign
currency translation, net of taxes
Share of other comprehensive loss from
investment in Dream Industrial REIT
Accumulated other comprehensive income
$
Note 27
COMMITMENTS AND CONTINGENCIES
Dream Office REIT and its operating subsidiaries are contingently liable under guarantees that are issued in the normal course
of business, on certain debt assumed by purchasers of investment properties, and with respect to litigation and claims that
arise from time to time. In the opinion of management, any liability that may arise from such contingencies would not have a
material adverse effect on the consolidated financial statements of Dream Office REIT.
In 2015, a subsidiary of the Trust received notices of reassessment from both the Canada Revenue Agency and the Alberta
Minister of Finance with respect to its 2007, 2008 and 2010 taxation years. These reassessments relate to the deductibility of
certain tax losses claimed by the subsidiary prior to its acquisition by the Trust. These federal and provincial reassessments if
upheld could increase total current taxes payable, including interest and penalties, by $11,765. No cash payment is expected
to be made unless it is ultimately established that the Trust has an obligation to make one. Management is of the view that
there is a strong case to support the position as filed and has contested both the federal and provincial reassessments. Since
management believes that it is more likely than not that its position will be sustained, no amounts related to these
reassessments have been recorded in the consolidated financial statements as at December 31, 2017.
At December 31, 2017, Dream Office REIT’s future minimum commitments under operating leases and fixed price contracts to
purchase steam are as follows:
Operating lease payments
Fixed price contracts – steam
Total
$
$
2,680 $
151
2,831 $
4,362 $
604
4,966 $
3,670 $
1,815
5,485 $
Total
10,712
2,570
13,282
< 1 year
1–5 years
Minimum payments due
> 5 years
Operating leases include a ground lease on a property totalling $4,458, payable over the next 29 years.
During the year ended December 31, 2017, the Trust paid $1,908 (December 31, 2016 – $3,208) in minimum lease payments,
which has been included in the consolidated statements of comprehensive income (loss) for the year.
The Trust has entered into lease agreements that may require tenant improvement costs of approximately $14,412
(December 31, 2016 – $42,575).
As at December 31, 2017, the Trust’s share of contingent liabilities for the obligation of the other owners of co-owned
properties was $nil (December 31, 2016 – $5,330).
The Trust is contingently liable under guarantees that are issued on certain debt assumed by purchasers of investment
properties totalling $173,188 (December 31, 2016 – $74,380).
Dream Office REIT 2017 Annual Report | 102
Note 28
CAPITAL MANAGEMENT
The primary objective of the Trust’s capital management is to ensure it remains within its quantitative banking covenants.
The Trust’s capital consists of debt, including mortgages, demand revolving credit facilities, debentures, subsidiary
redeemable units and unitholders’ equity. The Trust’s objectives in managing capital are to ensure adequate operating funds
are available to maintain consistent and sustainable unitholder distributions, to fund leasing costs and capital expenditure
requirements. The Trust’s maximum credit exposure is equal to the trade receivables as at December 31, 2017 and
December 31, 2016.
Various debt, equity and earnings distribution ratios are used to ensure capital adequacy and to monitor capital
requirements. The primary ratios used for assessing capital management are the interest coverage ratio and net debt-to-gross
carrying value. Other significant indicators include weighted average interest rate, average term to maturity of debt and
variable debt as a portion of total debt. These indicators assist the Trust in assessing whether the debt level maintained is
sufficient to provide adequate cash flows for unitholder distributions, leasing costs, and capital expenditures, and for
evaluating the need to raise funds for further expansion. Various mortgages have debt covenant requirements that are
monitored by the Trust to ensure there are no defaults. These covenants include loan-to-value ratios, cash flow coverage
ratios, interest coverage ratios and debt service coverage ratios. These covenants are measured at the subsidiary limited
partnership level, and all have been complied with in all material respects.
The Trust’s equity consists of REIT Units, in which the carrying value is impacted by earnings and unitholder distributions.
Amounts retained in excess of the distributions are used to fund leasing costs, capital expenditures and working capital
requirements. Management monitors distributions to ensure adequate resources are available by comparing total
distributions to adjusted cash flows from operating activities, a non-IFRS measure.
During the year, there were no events of default on any of the Trust’s obligations under its credit facilities or mortgage loans.
Note 29
FINANCIAL INSTRUMENTS
Risk management
IFRS 7, “Financial Instruments: Disclosures” (“IFRS 7”), places emphasis on disclosures about the nature and extent of risks
arising from financial instruments and how the Trust manages those risks, including market, credit and liquidity risks.
Market risk is the risk the fair value or future cash flows of a financial instrument will fluctuate because of changes in market
prices. Market risk consists of interest rate risk, currency risk and other market price risk. The Trust has exposure to interest
rate risk primarily as a result of its variable rate debt. In addition, there is interest rate risk associated with the Trust’s fixed
rate debt due to the expected requirement to refinance such debts in the year of maturity. The Trust is exposed to the
variability in market interest rates and credit spreads on maturing debt to be renewed. Variable rate debt at December 31,
2017 was 8.3% of the Trust’s total debt (December 31, 2016 – 12.7%). In order to manage exposure to interest rate risk, the
Trust endeavours to maintain an appropriate mix of fixed and variable rate debt, manage maturities of fixed rate debt and
match the nature of the debt with the cash flow characteristics of the underlying asset.
The following interest rate sensitivity table outlines the potential impact of a 1% change in the interest rate on variable rate
financial assets and liabilities for the prospective 12-month period. A 1% change is considered a reasonable level of
fluctuation on variable rate financial assets and liabilities.
Financial assets
Cash and cash equivalents(1)
Financial liabilities
Fixed rate debt due to mature in 2018
and total variable debt
$
$
Amount
Income
-1 %
Equity
Income
Interest rate risk
+1%
Equity
96,960
$
(970 )
$
(970 )
$
970
$
970
267,860
$
2,679
$
2,679
$
(2,679 )
$
(2,679 )
(1) Cash and cash equivalents are short-term investments with an original maturity of three months or less, and exclude cash subject to restrictions that
prevent the Trustʼs use for current purposes. These balances generally receive interest income at the bankʼs prime rate less 1.95%. Cash and cash
equivalents are short term in nature and the current balance may not be representative of the balance for the rest of the year.
Dream Office REIT 2017 Annual Report | 103
The Trust is not exposed to significant foreign exchange risks.
The Trust’s assets mainly consist of investment properties. Credit risk arises from the possibility that tenants in investment
properties may not fulfill their lease or contractual obligations. The Trust mitigates its credit risks by attracting tenants of
sound financial standing and by diversifying its mix of tenants. It also monitors tenant payment patterns and discusses
potential tenant issues with property managers on a regular basis. Cash and cash equivalents, deposits and restricted cash
carry minimal credit risk as all funds are maintained with highly reputable financial institutions.
Liquidity risk is the risk the Trust will encounter difficulty in meeting obligations associated with the maturity of financial
obligations. The Trust manages maturities of the fixed rate debts, and monitors the repayment dates to ensure sufficient
capital will be available to cover obligations as they become due.
Note 30
FAIR VALUE MEASUREMENT
Fair value of financial instruments
Quoted market prices represent a Level 1 valuation. When quoted market prices are not available, the Trust maximizes the
use of observable inputs. When all significant inputs are observable, the valuation is classified as Level 2. Valuations that
require the significant use of unobservable inputs are considered Level 3. The Trust’s policy is to recognize transfers in and
transfers out of fair value hierarchy levels as of the date of the event or change in circumstances that caused the transfer.
There were no transfers between Levels 1, 2 and 3 during the year.
The following tables summarize fair value measurements recognized in the consolidated financial statements by class of asset
or liability and categorized by level according to the significance of the inputs used in making the measurements.
Note
Carrying value as at
December 31, 2017
Fair value as at December 31, 2017
Level 1
Level 2
Level 3
Recurring measurements
Financial instruments
Marketable securities
Non-financial assets
Investment properties
Investment properties classified as held for sale
18 $
7 $
18 $
5,259 $
5,259 $
— $
—
2,919,438 $
51,530 $
— $
— $
— $ 2,919,438
51,530
— $
Note
Carrying value as at
December 31, 2016
Fair value as at December 31, 2016
Level 1
Level 2
Level 3
Recurring measurements
Non-financial assets
Investment properties
Investment properties classified as held for sale
7
18
$
$
4,836,355 $
321,232 $
— $
— $
— $ 4,836,355
321,232
— $
Financial instruments carried at amortized cost where the carrying value does not approximate fair value are noted below:
Fair values disclosed
Mortgages
Debentures
Investment in Dream Industrial REIT
Note
Carrying value as at
December 31, 2017
Fair value as at December 31, 2017
Level 1
Level 2
Level 3
12 $
12
8
1,080,702 $
290,140
220,796
— $
292,346
47,794
— $ 1,087,274
—
—
—
163,256
Dream Office REIT 2017 Annual Report | 104
Fair values disclosed
Mortgages
Mortgages related to properties held for sale
Debentures
Investment in Dream Industrial REIT
Note
Carrying value as at
December 31, 2016
Fair value as at December 31, 2016
Level 1
Level 2
Level 3
12 $
12
12
8
2,027,172 $
209,228
448,828
186,754
— $
—
450,000
7,528
— $ 2,047,635
211,845
—
—
—
—
158,247
Amounts receivable, cash and cash equivalents, tenant security deposits, amounts payable and accrued liabilities, and
distributions payable are carried at amortized cost which approximates fair value due to their short-term nature. Subsidiary
redeemable units and the Deferred Unit Incentive Plan are carried at amortized cost, which approximates fair value as they
are readily redeemable financial instruments.
Investment properties
The Trust’s accounting policy as indicated in Note 3 is applied to fair value investment properties using the income approach,
which is derived from two methods: overall capitalization rate method and discounted cash flow method, which result in
these measurements being classified as Level 3 in the fair value hierarchy. Valuations of investment properties are most
sensitive to changes in discount rates and capitalization rates. In applying the overall cap rate method the stabilized NOI of
each property is divided by any appropriate cap rate.
The critical and key assumptions in the valuation of investment properties are as follows:
Cap rate method
• Cap rates – based on actual location, size and quality of the properties and taking into account any available market data
at the valuation date.
•
Stabilized NOI – normalized property operating revenues less property operating expenses.
Discounted cash flow method
• Discount and terminal rates – reflecting current market assessments of the return expectations.
• Market rents – reflecting management’s best estimates with reference to recent leasing activity and external market
data.
•
Leasing costs – reflecting recent leasing activity and external market data.
• Vacancy rates – reflecting recent leasing activity and external market data.
In accordance with IFRS 5, “Non-Current Assets Held for Sale and Discontinued Operations”, as at December 31, 2017, the
Trust classified certain investment properties as assets held for sale totalling $51,530 and its associated liabilities totalling
$nil. The fair value of the assets held for sale approximates the carrying value of the assets.
Investment properties are valued on a highest-and-best-use basis. For all of the Trust’s investment properties the current use
is considered the highest and best use.
Investment properties valuation process
The Trust is responsible for determining the fair value measurements included in the consolidated financial statements. At the
end of each reporting period, the Trust determines the fair value of investment properties by:
1) considering current contracted sales prices for properties that are available for sale;
2) obtaining appraisals from qualified external professionals applying the income approach on a rotational basis for select
properties; and
3) using internally prepared valuations applying the income approach.
The fair values of these investments are reviewed at least quarterly by management with reference to independent property
appraisals and market conditions existing at the reporting date, using generally accepted market practices. The independent
appraisers are experienced, nationally recognized and qualified in the professional valuation of office buildings in their
respective geographic areas. Judgment is also applied in determining the extent and frequency of independent appraisals. At
each reporting period, a select number of properties, determined on a rotational basis, are valued by appraisals. For
properties not subject to independent appraisals, valuations are prepared internally during each reporting period.
Dream Office REIT 2017 Annual Report | 105
The Trust uses the following techniques in determining the fair value disclosed for the following financial liabilities classified
as Level 1, 2 and 3:
Mortgages
The fair value of mortgages as at December 31, 2017 and December 31, 2016 are determined by discounting the expected
cash flows of each mortgage using market discount rates. The discount rates are determined using the Government of Canada
benchmark bond yield for instruments of similar maturity adjusted for the Trust’s specific credit risk. In determining the
adjustment for credit risk, the Trust considers market conditions, the value of the investment properties that the mortgages
are secured by and other indicators of the Trust’s creditworthiness.
Debentures
The fair value of debentures that are traded as at December 31, 2017 and December 31, 2016 are based on the debentures’
trading price on or about December 31, 2017 and December 31, 2016, respectively. The fair values of debentures that are
non-trading as at December 31, 2017 and December 31, 2016 are based on the debentures’ par value.
Demand revolving credit facilities
The fair value of the demand revolving credit facilities as at December 31, 2017 and December 31, 2016 approximates their
carrying value due to their short-term nature.
Note 31
NET LOSSES ON TRANSACTIONS AND OTHER ACTIVITIES
Debt settlement costs, net(1)
Costs on sale of investment properties(2)
Internal leasing costs
Charge on cost reduction program
Realized foreign exchange gain on sale of investment property
Loss on recognition of net assets related to joint operations
Business transformation costs
Other
Total
Note
$
24
26
9
24
$
Year ended December 31,
2017
(16,255 ) $
(20,057 )
(5,237 )
(1,616 )
5,905
(117 )
—
(553 )
(37,930 ) $
2016
(9,899 )
(12,250 )
(8,695 )
(3,923 )
—
(10,263 )
(1,219 )
(1,297 )
(47,546)
(1) Net debt settlement costs comprise expenses and gains on early discharge of mortgages and the write-off of associated mark-to-market adjustments and
deferred financing costs.
(2) Costs on sale of investment properties comprise transaction costs, commissions and other expenses incurred in relation to the disposal of investment
properties.
On October 31, 2017, the Trust completed the sale of a 0.7 million square foot single-tenant distribution centre located in
Nashville, Tennessee to Dream Industrial REIT (see Note 24). As a result of the sale, the Trust reclassified $5,905 of realized
foreign currency translation gain, net of taxes from other comprehensive income (loss) to net income during the year.
On January 1, 2017, the Trust and H&R REIT terminated the joint venture agreement and entered into a co-ownership
agreement. As a result of this change, the Trust recognized a loss of $117 in the consolidated statements of comprehensive
income (loss) related to the initial recognition at fair value of the Trust’s 50% share of the assets and liabilities compared to
the carrying values of the joint ventures (see Note 9).
On October 25, 2016, the Trust and DAM jointly implemented a cost reduction program to simplify and to establish more
dedicated services on a cost-efficient basis of the Trust’s operating and shared service platform. On a go forward basis, the
portion of the cost reduction program that relates to the shared service platform will impact the costs being allocated to
related parties in accordance with the Shared Services, Cost Sharing, Administrative Services and Services Agreements
currently in place. As a result of implementing this program, the Trust incurred a charge of $1,616 and $3,923 for the years
ended December 31, 2017 and December 31, 2016.
On June 30, 2016, the Trust terminated the joint venture agreement with H&R REIT and entered into a co-ownership
agreement with KingSett and AIMCo. As a result of this change, the Trust recognized a loss of $10,263 in the consolidated
statements of comprehensive income (loss) related to the initial recognition at fair value of the Trust’s remaining 50% share
of the assets and liabilities compared to the carrying values of the joint ventures (see Note 9).
Dream Office REIT 2017 Annual Report | 106
Note 32
SUBSEQUENT EVENTS
Subsequent to year-end, the Trust completed the sale of four properties located in Alberta and Saskatchewan, totalling
approximately 0.4 million square feet, for gross proceeds (net of adjustments) totalling $51,730.
Dream Office REIT 2017 Annual Report | 107
Trustees
Detlef BierbaumInd.,1,2
Köln, Germany
Corporate Director
Donald K. CharterInd.,3,4,6
Toronto, Ontario
Corporate Director
Michael J. Cooper2,5
Management Team
Michael J. Cooper
Chief Executive Officer
Rajeev Viswanathan
Chief Financial Officer
Robert GoodallInd.,3,4
Toronto, Ontario
President
Canadian Mortgage Capital Corp.
The Hon. Dr. Kellie LeitchInd.,3
Creemore, Ontario
Member of Parliament for
Simcoe–Grey
Toronto, Ontario
President and Chief Responsible Officer
Dream Unlimited Corp.
Joanne FerstmanInd.,1,2
Toronto, Ontario
Corporate Director
Karine MacIndoeInd.,1,4
Toronto, Ontario
Corporate Director
Ind. Independent
1 Member of the Audit Committee
2 Member of the Investment Committee
3 Member of the Governance and
Nominating Committee
4 Member of the Compensation,
Health and Environmental Committee
5 Chair of the Board
6
Independent Lead Trustee
Corporate Information
HEAD OFFICE
Dream Office
Real Estate Investment Trust
State Street Financial Centre
30 Adelaide Street East, Suite 301
Toronto, Ontario M5C 3H1
Phone: (416) 365-3535
Fax: (416) 365-6565
INVESTOR RELATIONS
Phone: (416) 365-3535
Toll free: 1 877 365-3535
E-mail: officeinfo@dream.ca
Website: www.dreamofficereit.ca
TRANSFER AGENT
CORPORATE COUNSEL
Osler, Hoskin & Harcourt LLP
Box 50, 1 First Canadian Place, Suite 6200
Toronto, Ontario M5X 1B8
STOCK EXCHANGE LISTING
The Toronto Stock Exchange
Listing Symbol: REIT Units, Series A: D.UN
(for change of address, registration or
other unitholder enquiries)
Computershare Trust
Company of Canada
100 University Avenue, 8th Floor
Toronto, Ontario M5J 2Y1
Phone: (514) 982-7555 or 1 800 564-6253
Fax: (416) 263-9394 or 1 888 453-0330
Web: www.computershare.com
E-mail: service@computershare.com
AUDITORS
PricewaterhouseCoopers LLP
PwC Tower
18 York Street, Suite 2600
Toronto, Ontario M5J 0B2
Corporate Office
State Street Financial Centre
30 Adelaide Street East, Suite 301
Toronto, Ontario M5C 3H1
Phone: 416.365.3535
Fax: 416.365.6565
dreamofficereit.ca