2015
Annual Report
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Dream Office REIT owns well-located,
high-quality central business district
and suburban office properties in
major urban centres across Canada.
Its portfolio is well diversified by
geographic location and tenant mix.
Cover image: State Street Financial Centre, Toronto, ON
Letter to
Unitholders
P. Jane Gavan
Chief Executive Officer
2015 was a challenging year for Canadian Office REITs, in
particular those with exposure to the Alberta market, which
continued to be impacted by record-low oil prices. Our
focus on retaining and attracting new tenants enabled us
to maintain strong leasing momentum through 2015, which
accelerated in the latter part of the year and into 2016. We
achieved an overall tenant retention ratio of 62%, completing
1.7 million square feet of renewals in 2015. In-place and
committed occupancy remained above 91%, and continued
to outperform the national industry average.
Looking ahead, we have made excellent progress on our
2016 and 2017 leasing. To date, we have addressed over two-
thirds of our 2016 lease expiries. By volume, this represents
over 100% of the total leasing completed in 2015 and is the
highest level of pre-leasing completed over the past five years.
For Alberta, we have lease commitments in place for nearly
two-thirds of our 2016 lease maturities. With respect to our
2017 lease expiries, we have already addressed approximately
one-fifth of all maturities.
In 2015, we embarked on a $75 million capital expenditure
program to proactively invest in our buildings to improve
tenant retention, attract tenants and reduce energy costs.
This was the largest annual investment we have made and
reflects our commitment to our tenants and to increasing
the functionality and appeal of our buildings. We were also
actively selling non-core assets to improve the overall quality
of our portfolio. The proceeds were largely used to repurchase
Trust units, as we recognized the disconnect between the
private market valuations of many of our assets and the
trading discount in respect of our units in the public markets.
classified our portfolio into three types: core, private market
and value-add. We have identified $1.2 billion of private
market assets, which we intend to sell to crystallize the
value for unitholders. We will use the proceeds from asset
dispositions to repay debt and lower our overall leverage,
making our company safer. Additionally, we have revised our
distribution, eliminated our DRIP and secured an $800 million
credit facility, all with the goal of providing us financial
flexibility to execute on our strategic plan. As a result, we
expect to have a higher quality Canadian office portfolio,
supported by an industry-leading balance sheet and ample
liquidity for undertaking long-term value-enhancing initiatives.
While we foresee a challenging environment, we remain
focused on proactively reaching out to existing tenants in
renewal discussions, creatively attracting new tenants and
continually improving the services we provide. We further
expanded our focus on sustainability, which is integral to
how we run our business and how we manage our social
and environmental obligations, and recently issued our first
Corporate Sustainability Report.
2016 will be an active year for the Trust and we believe that the
execution of our key initiatives, in conjunction with our focus
on leasing and improving our buildings, will lead to increased
value for our unitholders.
As always, I would like to thank you for your continued
support and look forward to the upcoming year.
In February 2016, we announced a multi-year strategic plan
to close the valuation gap between our unit trading price
and our view of the intrinsic value of the business. We have
P. Jane Gavan
Chief Executive Officer
March 21, 2016
Portfolio
at-a-Glance
DECEMBER 31, 2015
Dream Office REIT owns and
operates high-quality, well-located
and competitively priced business
premises. The portfolio comprises
approximately 23 million square
feet of central business district and
suburban office properties located
in Canada’s key office markets.
High-Quality Tenants
TENANT
Bank of Nova Scotia
Government of Canada
Government of Ontario
Bell Canada
Telus
Enbridge Pipelines Inc.
State Street Trust Company
Government of Saskatchewan
Government of Alberta
Newalta Corporation
2%
NORTHWEST
TERRITORIES
25%
ALBERTA
5%
BRITISH
COLUMBIA
6%
SASKATCHEWAN
5%
QUÉBEC
54%
ONTARIO
1%
ATLANTIC
CANADA
2%
UNITED STATES
Geographic Diversification
(% of net operating income,
excluding properties held for sale)
OWNED AREA
(%)
4.4
6.1
2.0
1.6
1.2
1.1
1.1
1.5
1.3
0.8
GROSS
RENTAL REVENUE
(%)
7.7
7.0
2.3
2.0
1.6
1.6
1.4
1.3
1.2
1.2
WEIGHTED
AVERAGE
REMAINING
LEASE TERM
(YEARS)
8.8
3.2
4.2
3.7
1.1
3.1
6.3
2.2
2.6
3.8
Diversified Tenant Base
Net Operating Income Breakdown
(excluding properties held for sale)
Conservative Level of Debt
(net debt-to-gross book value)
37%
DIVERSIFIED
22%
FINANCE &
INSURANCE
8%
MINING, OIL & GAS
EXTRACTION
16%
PUBLIC
ADMINISTRATION
17%
PROFESSIONAL,
SCIENTIFIC &
TECHNICAL
SERVICES
55%
53%
51%
49%
47%
45%
20%
SUBURBAN
OFFICE
80%
CENTRAL
BUSINESS
DISTRICT
47.8% 47.6% 47.5%
48.3%
2012
2013
2014
2015
91%
OCCUPANCY
(INCLUDING COMMITTED)
IBM Corporate Park,
Calgary, AB
$7.3 billion
TOTAL ASSETS
(INCLUDING INVESTMENT IN JOINT VENTURES)
Scotia Plaza
Toronto
2.9x
INTEREST COVERAGE RATIO
91%
OCCUPANCY
(INCLUDING COMMITTED)
Adelaide Place,
Toronto
23 million
TOTAL GROSS LEASABLE AREA
(SQUARE FEET)
2,175
NUMBER OF TENANTS
700 de la Gauchetière,
Montréal, QC
Table of Contents
Management’s Discussion and Analysis
Management’s Responsibility for the
Consolidated Financial Statements
Independent Auditor’s Report
Consolidated Financial Statements
Notes to the Consolidated
Financial Statements
Trustees
Corporate Information
1
78
79
80
84
IBC
IBC
Management’s discussion and analysis
(All dollar amounts in our tables are presented in thousands, except for rental rates, unit and per unit amounts)
SECTION I – FINANCIAL HIGHLIGHTS AND OBJECTIVES
FINANCIAL OVERVIEW
The fourth quarter was another active quarter from a leasing, financing and dispositions perspective. During the quarter,
approximately 915,700 square feet of leases commenced, compared to 759,100 square feet of leases that commenced in
Q3 2015. Of the 915,700 square feet of leases that commenced during the quarter, 634,700 square feet were renewals,
resulting in a tenant retention ratio of approximately 75%. To date, we continue to make good progress on securing future lease
commitments, with approximately 69% of 2016 maturities leased, amounting to approximately 2.8 million square feet.
Subsequent to year-end, leasing velocity has increased in the Calgary region, with three major lease commitments in Calgary
downtown totalling approximately 111,400 square feet and one major lease commitment in Calgary suburban totalling
21,600 square feet. The three lease commitments in Calgary downtown include a 10.8-year lease for 55,800 square feet
commencing in October 2016, a five-year lease commencing on April 1, 2016 and a ten-year lease commencing in December
2016, each comprising 27,800 square feet, respectively. The Trust has also signed a 10.5-year lease in the Calgary suburban
region for 21,600 square feet effective as at January 1, 2016. In addition, we renewed or refinanced mortgages totalling
$164.4 million and disposed of four non-core assets totalling $95.1 million.
The fourth quarter results were better than our expectations. As at December 31, 2015, our comparative portfolio in-place
occupancy was stable at 89.8% when compared to the prior quarter. During the quarter, Toronto downtown posted
approximately 27,000 square feet of positive leasing absorption, representing a 50 basis points (“bps”) in-place occupancy
increase, and Toronto suburban had over 53,000 square feet of positive leasing absorption, representing a 1.2% in-place
occupancy increase. There were modest gains in Western and Eastern Canada while Calgary downtown and Calgary suburban
experienced negative leasing absorption of 49,000 square feet and 19,100 square feet, respectively.
At Q4 2015, our comparative portfolio in-place and committed occupancy was 91.3%, compared to 91.5% in Q3 2015. The
decline was largely due to occupancy declines in Calgary downtown and Calgary suburban. When compared to the prior year,
our comparative portfolio in-place and committed occupancy declined 1.5% from 92.8% to 91.3%. The decline was observed in
all regions except for our largest market, Toronto downtown, which experienced a 70 bps increase, and our smallest market,
Calgary suburban, with a 100 bps increase. Despite the decline, both our in-place and committed occupancy of 91.3% and
in-place occupancy of 89.8% remain well above the industry average of 87.8% (CBRE, Canadian Market Statistics, Fourth
Quarter 2015).
Comparative portfolio average in-place and committed net rents across our comparative portfolio at December 31, 2015 were
up $0.09 per square foot to $18.94 per square foot from $18.85 per square foot at September 30, 2015, reflecting rent uplifts in
all regions except for the Calgary suburban and Toronto suburban regions. Comparative portfolio average in-place and
committed net rents across our comparative portfolio at December 31, 2015 increased to $18.94 per square foot from
$18.68 per square foot at December 31, 2014, reflecting rent uplifts in all regions except for Calgary suburban and Eastern
Canada. Estimated average market rents continue to be above average in-place net rents by approximately 2.7%.
Comparative net operating income (“NOI”) for the quarter was $111.7 million, compared to $112.6 million in Q4 2014. For the
year ended December 31, 2015, comparative NOI was $447.4 million, compared to $449.9 million in the prior year comparative
period. We continue to see strength in Toronto downtown, Calgary suburban and Eastern Canada, offset by declines in Western
Canada, Calgary downtown and Toronto suburban.
Funds from operations (“FFO”) (excluding Reorganization) for the three months and year ended December 31, 2015 was
$79.7 million and $318.5 million, respectively, an increase of $1.5 million, or 1.9%, over the prior year comparative quarter and
an increase of $5.7 million, or 1.8%, over the prior year comparative period.
Diluted FFO (excluding Reorganization) on a per unit basis for the three months and year ended December 31, 2015 was $0.70
and $2.82, respectively, compared to $0.71 and $2.87 for the three months and year ended December 31, 2014. The modest
decline when compared to the prior year comparative quarter and period was mainly due to the following reasons:
• Decrease in comparative NOI;
• Decrease in lease termination fees and other one-time property adjustments;
• Disposition of properties; and
• Incremental change in straight-line rent adjustment;
Dream Office REIT 2015 Annual Report | 1
Partially offset by
• General and administrative expense savings as a result of the elimination of the asset management agreement with
Dream Asset Management Corporation (“DAM”) (the “Reorganization”), net of the dilution impact on issuance of
4.85 million subsidiary redeemable units to DAM pursuant to the Reorganization;
• Interest rate savings upon refinancing of maturing debt;
• Incremental increase in FFO from our investment in Dream Industrial REIT on a full-year basis; and
• Compensation received on expropriation of a small parcel of land.
Total adjusted funds from operations (“AFFO”) for the three months and year ended December 31, 2015 was $70.9 million and
$281.4 million, respectively, an increase of $2.4 million, or 3.4%, over the prior year comparative quarter, and an increase of
$8.4 million, or 3.1%, over the prior year comparative period.
AFFO on a per unit basis for the three months and year ended December 31, 2015 was $0.62 and $2.50, respectively, a decline
of one cent over the prior year comparative quarter and down two cents when compared to the prior year comparative period.
The change in AFFO per unit for the three months and year ended December 31, 2015 was largely due to the same reasons as
described above on the change in diluted FFO (excluding Reorganization) except for the incremental change in straight-line rent
adjustment, which is added back in the determination of AFFO.
We have continued our commitment to maintaining a strong and flexible balance sheet. We ended the quarter with a stable
net total debt-to-gross book value ratio of 48.3%, net average debt-to-EBITDFV of 7.7 years and interest coverage ratio of
2.9 times. Our weighted average face rate of interest improved to 4.05%, compared to 4.11% at September 30, 2015 and 4.18%
at December 31, 2014. The Trust’s pool of unencumbered assets was approximately $825 million as at December 31, 2015.
During the quarter, the Trust was active from a financing perspective, renewing or refinancing mortgages totalling
$164.4 million at an average fixed face rate of 2.94% per annum with an average term of 5.6 years. In addition, the Trust
discharged mortgages totalling $162.8 million at an average face rate of 3.77% per annum with an average term of 6.0 years
during the quarter. Overall, the renewals and refinancing of mortgages completed during the quarter represented interest
savings of approximately 83 bps per annum over the mortgages discharged.
For the three months ended December 31, 2015, the Trust has purchased for cancellation 1,203,373 REIT A Units under its
normal course issuer bid (the “Bid”) at an average price of $19.19 per unit and a total cost of approximately $23.1 million
(excluding transaction costs). For the year ended December 31, 2015, the Trust purchased for cancellation 4,486,473 REIT A
Units under the Bid at an average price of $23.43 per unit (excluding transaction costs) and a total cost of approximately
$105.1 million. Subsequent to quarter-end, the Trust purchased an additional 406,573 REIT A Units at an average price of
$15.95 per unit (excluding transaction costs) and a total cost of approximately $6.5 million.
On October 30, 2015, the Trust completed the sale of four properties located in Québec, totalling approximately
634,100 square feet, for gross proceeds net of adjustments and before transaction costs of $95.1 million.
On February 18, 2016, the Trust announced 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, effective for the month of February 2016 distribution. The February 2016
distribution will be payable on March 15, 2016 to unitholders of record at February 29, 2016. On February 18, 2016, the Trust
also announced the suspension of its Distribution Reinvestment and Unit Purchase Plan (“DRIP”) until further notice effective
for the February 2016 distribution.
Subsequent to year-end, the Trust has committed to a new three-year, $800 million revolving credit facility with a syndicate of
major Canadian and global financial institutions with an expected closing date on or before March 4, 2016. This revolving credit
facility is expected to replace the existing $171.5 million revolving credit facility due on March 5, 2016 and $183.5 million term
loan facility due on August 15, 2016. The interest rate will be calculated in the form of rolling one-month bankers’ acceptances
(“BAs”) bearing interest at the BA rate plus 170 bps or at the bank’s prime rate plus 70 bps.
Dream Office REIT 2015 Annual Report | 2
KEY PERFORMANCE INDICATORS
Performance is measured by these and other key indicators:
Total Portfolio
Number of properties(1)
Gross leasable area (“GLA”) (1)(2)
Occupancy rate – including committed (period-end)(1)
Occupancy rate – in-place (period-end)(1)
Average in-place and committed net rent per square foot (period-end)(1)
Market rent/average in-place and committed net rent (%)(1)
Comparative Portfolio
Occupancy rate – including committed (period-end)(1)(3)
Occupancy rate – in-place (period-end)(1)(3)
Average in-place and committed net rent per square foot (period-end)(1)(3)
Market rent/average in-place and committed net rent (%)(1)(3)
December 31,
2015
September 30,
2015
December 31,
2014
As at
166
23,030
91.3 %
89.8 %
18.94 $
2.7 %
91.3 %
89.8 %
18.94 $
2.7 %
169
23,349
91.6 %
89.8 %
18.73 $
5.0 %
91.5 %
89.7 %
18.85 $
5.0 %
175
24,223
93.0 %
91.4 %
18.22
7.8 %
92.8 %
91.2 %
18.68
7.7 %
$
$
Operating results
Investment properties revenue(4)
NOI(5)
Comparative properties NOI(5)
FFO (excluding Reorganization)(6)
AFFO(7)
Distributions
Declared distributions
DRIP participation ratio (for the period)
Per unit amounts(8)
Distribution rate
Basic:
FFO (excluding Reorganization)(6)
AFFO(7)
Diluted:
FFO (excluding Reorganization)(6)
Payout ratio (%):(9)
FFO (excluding Reorganization) (basic)
AFFO (basic)
Three months ended December 31,
2014
2015
Year ended December 31,
2015
2014
$
$
$
196,178 $
108,297
111,731
79,672
70,922
205,186 $
111,037
112,565
78,149
68,570
802,446 $
436,579
447,383
318,511
281,445
63,335 $
38%
62,622 $
29%
250,656 $
37%
0.56 $
0.56 $
2.24 $
0.70
0.62
0.70
80%
90%
0.72
0.63
0.71
78%
89%
2.83
2.50
2.82
79%
90%
817,995
445,995
449,934
312,829
273,060
242,220
26%
2.24
2.88
2.52
2.87
78%
89%
Dream Office REIT 2015 Annual Report | 3
Financing
Weighted average effective interest rate on debt (period-end)(10)
Weighted average face rate of interest on debt (period-end)(11)
Interest coverage ratio (times)(12)
Net average debt-to-EBITDFV (years)(12)
Net debt-to-adjusted EBITDFV (years)(12)
Level of debt (net total debt-to-gross book value)(12)
Level of debt (net secured debt-to-gross book value)(12)
Debt – average term to maturity (years)
Unencumbered assets(13)
Unsecured convertible and non-convertible debentures
December 31,
2015
September 30,
2015
As at
December 31,
2014
4.11 %
4.05 %
2.9
7.7
7.7
48.3 %
41.0 %
3.8
825,000 $
534,097 $
4.12 %
4.11 %
2.9
7.7
7.8
48.0 %
40.9 %
3.8
768,000 $
534,038 $
4.15 %
4.18 %
2.9
7.8
7.9
47.5 %
40.4 %
4.4
796,000
533,860
$
$
(1) Includes investment in joint ventures and excludes redevelopment properties and assets held for sale at period-end.
(2) In thousands of square feet.
(3) Comparative periods excludes properties sold and properties held for sale in Q4 2015.
(4) On a non-GAAP basis as investment properties revenue includes investment in joint ventures.
(5) NOI and comparative properties NOI (non-GAAP measures) – NOI is defined as total of net rental income, including the share of net rental income from
investment in joint ventures and property management income, excluding net rental income from properties sold and assets held for sale. Comparative
properties NOI includes the properties acquired prior to January 1, 2014 and excludes lease termination fees, one-time property adjustments, bad debt
expenses, NOI of acquired properties and properties held for redevelopment, straight-line rent and amortization of lease incentives. The reconciliation of
NOI to net rental income can be found in the section “Non-GAAP measures and other disclosures” under the heading “NOI”.
(6) FFO (excluding Reorganization) (non-GAAP measure) – The reconciliation of FFO (excluding Reorganization) to net income can be found in the section
“Our Results of Operations” under the heading “Funds from operations (excluding Reorganization) and adjusted funds from operations”.
(7) AFFO (non-GAAP measure) – The reconciliation of AFFO to cash flow from operations can be found in the section “Non-GAAP measures and other
disclosures” under the heading “Cash generated from operating activities to AFFO reconciliation”.
(8) A description of the determination of basic and diluted amounts per unit can be found in the section “Non-GAAP measures and other disclosures” under
the heading “Weighted average number of units”.
(9) Payout ratio (non-GAAP measure) is calculated as the distribution rate as a percentage of basic FFO (excluding Reorganization) per unit and basic AFFO per
unit.
(10) Weighted average effective interest rate is calculated as the weighted average face rate of interest net of amortization of fair value adjustments and
financing costs of all interest bearing debt, including debt related to investment in joint ventures, which are equity accounted.
(11) Weighted average face interest rate is calculated as the weighted average face rate of all interest bearing debt, including investment in joint ventures that
are equity accounted.
(12) The calculation of the following non-GAAP measures – interest coverage ratio, net average debt-to-EBITDFV, net debt-to-adjusted EBITDFV and levels of
debt – are included in the section “Non-GAAP measures and other disclosures”.
(13) Unencumbered assets (non-GAAP measure) includes unencumbered investment properties related to wholly owned and co-owned properties and
investment in joint ventures that are equity accounted.
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 year ended December 31, 2015. 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 18, 2016.
For simplicity, throughout this discussion we may make reference to the following:
• “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
• “LP B Units” and “subsidiary redeemable units”, meaning the LP Class B Units, Series 1
Dream Office REIT 2015 Annual Report | 4
Certain market information has been obtained from CBRE, Canadian Market Statistics, Fourth Quarter 2015, a publication
prepared by a commercial firm that provides information relating to the real estate industry. Although we believe this
information is reliable, its accuracy and completeness is not guaranteed. We have not independently verified this information
and make no representation as to its accuracy.
When we use terms such as “we”, “us” and “our”, we are referring to the Dream Office REIT and its subsidiaries.
Market rents disclosed throughout the MD&A are management’s estimates and are based on current period leasing
fundamentals. The current estimated market rents are 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 publicly available information. We have not independently verified any such information.
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 Trusts’ 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 and leasing assumptions, litigation and the real estate industry in
general (including statements regarding our Strategic Plan, our disposition targets, the timing of proposed dispositions, the use
of proceeds from dispositions, the timing of closing of our revolving credit facility, proposed debt repayments and unit
repurchases and anticipating interest savings), 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 execute our Strategic Plan
and achieve its expected benefits; 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”, “Our Strategy”, and “Our Results of Operations”
under the heading “Adjusted funds from operations”. 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 18, 2016. 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 Report and Annual Information Form. Certain filings are also available on our website at
www.dreamofficereit.ca.
Dream Office REIT 2015 Annual Report | 5
OUR OBJECTIVES
We have been committed to:
• Managing our business to provide stable and growing cash flows and sustainable returns, through adapting our strategy
and tactics to changes in the real estate industry and the economy;
• Building and maintaining a diversified, growth-oriented portfolio of office properties in Canada, based on an established
platform;
• Providing predictable and sustainable cash distributions to unitholders and prudently managing distributions over time;
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.
Although we remain committed to our objectives, as described below under “2016 Strategy Update” and as announced by the
Trust today, we have determined that the best course of action is for the Trust to execute a mandate similar to that of a real
estate private equity fund, to attempt to reduce the approximately 50% discount to equity (or “net asset value”).
Distributions
For the three months ended December 31, 2015, approximately 38% of our total units were enrolled in the DRIP. There is no
equivalent program for the REIT B Units (for a description of distributions, refer to the section “Our Equity”).
Annualized distribution rate
Monthly distribution rate
Period-end closing unit price
Annualized distribution yield on period-end
closing unit price (%)(1)
Q4
2.24 $
Q3
2.24 $
Q2
2.24 $
2015
Q1
2.24 $
Q4
2.24 $
Q3
2.24 $
Q2
2.24 $
2014
Q1
2.24
0.187 $
0.187 $
0.187 $
0.187 $
0.187 $
0.187 $
0.187 $
0.187
17.37 $
21.20 $
24.54 $
26.35 $
25.15 $
27.96 $
29.29 $
29.06
$
$
$
12.9 %
10.6 %
9.1 %
8.5 %
8.9 %
8.0 %
7.6 %
7.7 %
(1) Annualized distribution yield is calculated as the annualized distribution rate divided by period-end closing unit price.
OUR STRATEGY
Dream Office REIT’s core strategy has been to invest in office properties in key markets across Canada, providing a solid
platform for stable. We are the largest pure-play office REIT in Canada. The majority of our portfolio comprises central business
district office properties concentrated in nine of Canada’s top ten office markets. The execution of our strategy is continuously
reviewed, including acquisitions and dispositions, our capital structure and our analysis of current economic conditions – see
“2016 Strategy Update” below. Our executive team is experienced, knowledgeable and highly motivated to continue to
increase the value of our portfolio and provide stable, reliable returns for our unitholders.
Dream Office REIT’s methodology to execute its strategy and to meet its objectives has traditionally included:
Investing in high-quality office properties
Dream Office REIT has an established presence in key urban markets across Canada. Our portfolio comprises high-quality office
properties that are well-located and attractively priced and produce consistent cash flow. When considering acquisition
opportunities, we look for quality tenancies, strong occupancy, the appeal of the property to future tenants, how it
complements our existing portfolio and how we can create additional value.
Optimizing the performance, value and cash flow of our portfolio
We manage our properties to optimize long-term cash flow and value. With a fully internalized property manager, we offer a
strong team of highly experienced real estate professionals who are focused on achieving more from our assets. Occupancy
rates across our portfolio have remained steady and strong for a number of years and have been consistently above the
national average. We view this as compelling evidence of the appeal of our properties and our ability to meet and exceed
tenant expectations. Dream Office REIT has a proven ability to identify and execute on value-add opportunities.
Dream Office REIT 2015 Annual Report | 6
Diversifying our portfolio to mitigate risk
Since the credit crisis in 2008, we have carefully repositioned our portfolio through a significant number of accretive, high-
quality acquisitions. In addition to expanding and diversifying our geographic footprint across the country, the acquisitions have
served to enhance the stability of our business, diversify and strengthen the quality of our revenue stream and increase cash
flow. Our existing tenant base is well diversified, representing a number of industries and different space requirements, and
offers strong financial covenants. Our lease maturity profile is well staggered over the next five years. We may pursue
opportunities for acquisitions, but only when it enhances our overall portfolio, further improves the sustainability of our
distributions, strengthens our tenant profile and mitigates risk. We have experience in each of Canada’s key markets and have
the flexibility to pursue acquisitions in markets that offer compelling investment opportunities.
Maintaining and strengthening our conservative financial profile
We have always operated our business in a disciplined manner, with a keen eye on financial analysis and balance sheet
management to ensure that we maintain a prudent capital structure.
Identifying opportunities within our portfolio for intensification and alternative uses
We look at ways to generate additional revenue and value from our existing buildings through intensification and alternative
uses, especially in our downtown buildings where urbanization allows for opportunities to increase revenue in both office and
retail space.
Investing capital in our portfolio
The current leasing environment is challenging and requires us to look for new ways to retain tenants and increase revenue. A
key to this strategy is investing capital in our buildings that improves the value and attractiveness to tenants as well as reduces
operating costs. 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.
Divesting of non-core assets
Dream Office REIT has an established presence in key urban markets across Canada. Our portfolio comprises high-quality office
properties that are well-located and attractively priced and produce consistent cash flow. We continuously review our portfolio
to identify opportunities to dispose of non-core assets, such as those that are special-purpose, peripherally located or in
declining locations with lower potential for long-term income growth – see “2016 Strategy Update” below. Net proceeds from
dispositions could be used to fund improvement initiatives, repay debt or buy back REIT A Units.
2016 Strategy Update
We have reviewed a series of potential strategies that may surface value for the Trust’s unitholders. Based on the quality of
many of the Trust's assets, the current state of economic uncertainty in Alberta and the private demand for many of the Trust ’s
properties, we have determined that the best course of action is to execute a mandate similar to that of a real estate private
equity fund, in an attempt to reduce the approximately 50% discount to current net asset value, through the execution of the
following initiatives:
Effective with the February 2016 distribution, payable on March 15, 2016, we have revised our distribution from $2.24 per
unit to $1.50 per unit, on an annualized basis, which will reflect a more conservative payout ratio of approximately 67% of
2016 analyst consensus AFFO. Concurrently, the Trust suspended the DRIP (currently at 38% participation ratio) to
eliminate dilution and to preserve value.
We have received commitments from a syndicate of Canadian and global financial institutions to provide an $800 million
revolving credit facility to replace the Trust’s existing credit facilities totalling $355 million. This new facility is expected to
provide the Trust with operating flexibility through the execution of the strategic plan (the “Strategic Plan”) and
significantly bolsters liquidity to manage the Trust’s business in the current environment.
The Trust is targeting to sell non-core assets currently valued at approximately $1.2 billion over the next three years to
crystallize the value of the assets, which we anticipate will narrow the significant trading discount, which is approximately
50% to current net asset value.
The Trust intends to use the proceeds from the dispositions to first pay down debt to reduce leverage and subsequently, if
the current discount to net asset value persists, to reduce the number of outstanding units through repurchases under the
Trust’s normal course issuer bid (“NCIB”).
Dream Office REIT 2015 Annual Report | 7
We currently intend to continue the Strategic Plan until completion or the value of the Trust's units is significantly closer to the
underlying net asset value. With our new $800 million revolving credit facility in place, together with our relatively low level of
leverage (48% net total debt-to-gross book value) and a disposition program intended to fund further debt reductions and
potentially units repurchases, we believe that the Trust will have a stronger and more flexible balance sheet.
This Strategic Plan is premised on the classification of our portfolio into three types of assets (core assets, private market assets
and value-add assets), with the following strategy for each:
Identification of irreplaceable assets (the “Core Assets”), currently expected to represent approximately $2.9 billion or 41%
of the total portfolio value, and maintaining these as core holdings for the Trust. The Core Assets are primarily located in
downtown Toronto, downtown Montréal, with 700 De la Gauchetière, 5001 Yonge in North York and Station Tower in
suburban Vancouver. These assets are 97% leased with a weighted average lease term (“WALT”) of approximately six years
and have an aggregate investment property value of approximately $2.9 billion as at December 31, 2015 with associated
mortgages outstanding of approximately $1.2 billion. This group of assets amounts to approximately $1.7 billion of net
asset value, or approximately $15.00 per unit, which approximates the Trust's recent trading prices;
We have identified good quality assets primarily in the Greater Toronto Area suburbs, Ottawa and Vancouver that
management believes are fairly liquid, but not considered to be irreplaceable (the “Private Market Assets”). This
classification currently is expected to represent approximately $2.6 billion or 37% of the total portfolio value, which have a
higher degree of liquidity in the private market at a reasonable price. The $1.2 billion of planned disposition are expected
to be from this classification; and
Active management of the balance of the assets (the “Value-Add Assets”), currently expected to represent approximately
$1.5 billion or 22% of the total portfolio value, largely located in Alberta or considered value-add assets. The Value-Add
Assets may require improvements in either occupancy and/or market fundamentals prior to improving their demand
profile and liquidity in the private market. The hold period for these assets may extend beyond five years (longer if the
market fundamentals improve), although we would expect to see some sales in the shorter term. We believe that the
Trust’s assets located in Alberta are of good quality and that the current unit trading price of the Trust implies that a
negative net asset value is currently being ascribed to these assets. The Trust will continue to actively stabilize these assets
or wait for a change in the market conditions to realize value.
OUR PROPERTIES
Dream Office REIT provides high-quality, well-located and reasonably priced business premises. Our portfolio comprises central
business district and suburban office properties predominantly located in major urban centres across Canada including Toronto,
Calgary, Edmonton, Montréal, Ottawa and Vancouver.
At December 31, 2015, our ownership interests included 170 office properties (198 buildings), which includes 166 office
properties, one redevelopment property and three properties held for sale. The Trust owns approximately 23.4 million square
feet of GLA, including 23.0 million square feet of office properties and 0.4 million square feet of redevelopment properties and
properties held for sale. The occupancy rate across our office portfolio remains high at 91.3% at December 31, 2015, well ahead
of the national industry average occupancy rate of 87.8% (CBRE, Canadian Market Statistics, Fourth Quarter 2015). Our
occupancy rates include lease commitments for space that is currently being readied for occupancy but for which rent is not yet
being recognized.
Total portfolio(1)
Western Canada
Calgary – downtown
Calgary – suburban
Toronto – downtown
Toronto – suburban
Eastern Canada(2)
Total
Total
4,710
3,153
758
5,408
4,226
4,775
December 31, 2015
%
20
14
3
24
18
21
100
23,030
Total
September 30, 2015
%
20
14
3
23
18
22
100
4,706
3,149
758
5,404
4,223
5,109
23,349
Owned GLA (in thousands of sq. ft.)
December 31, 2014
Total
4,806
3,146
757
5,400
4,219
5,895
24,223
%
20
13
3
23
17
24
100
(1) Total portfolio excludes redevelopment properties and properties held for sale at the end of each period.
(2) Includes two properties located in the United States.
Dream Office REIT 2015 Annual Report | 8
SECTION II – EXECUTING THE STRATEGY
OUR OPERATIONS
The following key performance indicators related to our operations influence the cash generated from operating activities.
Performance indicators
Total portfolio(1)
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)
Comparative portfolio(2)
Occupancy rate – including committed
Occupancy rate – in place
Average in-place and committed net rental rates (per sq. ft.) (period-end)
Tenant maturity profile – average term to maturity (years)
December 31, 2015
September 30, 2015
December 31, 2014
$
$
91.3 %
89.8 %
18.94 $
4.6
91.3 %
89.8 %
18.94 $
4.6
91.6 %
89.8 %
18.73 $
4.7
91.5 %
89.7 %
18.85 $
4.7
93.0 %
91.4 %
18.22
5.0
92.8 %
91.2 %
18.68
4.7
(1) Total portfolio includes investment in joint ventures and excludes redevelopment properties and properties held for sale at the end of each period.
(2) Comparative portfolio includes investment in joint ventures and excludes redevelopment properties, properties sold and properties held for sale in
Q4 2015.
As at December 31, 2015, our comparative portfolio in-place occupancy increased by 10 bps to 89.8% when compared to the
prior quarter. During the quarter, our largest market, Toronto downtown, posted approximately 27,000 square feet of positive
leasing absorption, representing a 50 bps in-place occupancy increase, and Toronto suburban had over 53,000 square feet of
positive leasing absorption, representing a 1.2% in-place occupancy increase. There were modest gains in Western and Eastern
Canada while Calgary downtown and Calgary suburban experienced negative leasing absorption of 49,000 square feet and
19,100 square feet, respectively.
As at December 31, 2015, our comparative portfolio in-place and committed occupancy was 91.3%, compared to 91.5% in
Q3 2015. The decline was largely due to occupancy declines in Calgary downtown and Calgary suburban.
When compared to the prior year, our comparative portfolio in-place and committed occupancy declined 1.5% from 92.8% to
91.3%. The decline was observed in all regions except for our largest market, Toronto downtown, which experienced a 70 bps
increase and our smallest market, Calgary suburban, with a 1% increase. Despite the decline, both our in-place and committed
occupancy of 91.3% and in-place occupancy of 89.8% remain well above the industry average of 87.8% (CBRE, Canadian Market
Statistics, Fourth Quarter 2015).
(percent)
Occupancy rate – including committed
Western Canada
Calgary – downtown
Calgary – suburban
Toronto – downtown
Toronto – suburban
Eastern Canada
Total
December 31,
2015
September 30,
2015
Total portfolio(1)
December 31,
2014
December 31,
2015
Comparative portfolio(2)
December 31,
2014
September 30,
2015
90.2
87.0
90.2
98.0
84.5
94.1
91.3
90.5
88.6
91.5
97.4
84.9
93.8
91.6
91.7
89.5
89.2
97.3
89.5
94.8
93.0
90.2
87.0
90.2
98.0
84.5
94.1
91.3
90.5
88.6
91.5
97.4
84.9
93.8
91.5
91.6
89.5
89.2
97.3
89.5
94.6
92.8
(1) Total portfolio includes investment in joint ventures and excludes redevelopment properties and properties held for sale at the end of each period.
(2) Comparative portfolio includes investment in joint ventures and excludes redevelopment properties, properties sold and properties held for sale in
Q4 2015.
Dream Office REIT 2015 Annual Report | 9
The table below details the percentage of in-place and committed occupancy across our total portfolio and in-place occupancy
for the last eight quarters compared to the national industry average in-place occupancy, demonstrating the strength and
consistency of our portfolio to outperform the overall market.
(percent)
Occupancy rate – including committed (period-end)(1)
Occupancy rate – in-place (period-end)(1)
National industry average(2)
Q4
91.3
89.8
87.8
Q3
91.6
89.8
88.2
Q2
92.8
91.0
88.6
2015
Q1
92.8
91.4
88.9
Q4
93.0
91.4
89.3
Q3
93.0
91.1
89.7
Q2
94.1
92.5
89.6
2014
Q1
94.2
92.5
89.7
(1) Includes investment in joint ventures and excludes redevelopment properties and properties held for sale at the end of each period.
(2) National industry average in-place occupancy rates obtained from the CBRE, Canadian Market Statistics quarterly reports.
Occupancy schedule
The following table details the change in occupancy (including committed) for the three months and year ended December 31, 2015:
Weighted Three months ended
As a
December 31, 2015 % of total
GLA(1)
in sq. ft.(1)
Weighted
Year ended
average rate December 31, 2015
in sq. ft.(1)
per sq. ft.
average rate
per sq. ft.
$
(18.84)
(15.45)
14.55
20.99
Occupancy (including committed) at
beginning of period
Vacancy committed for future leases
Occupancy in-place at beginning of period
Occupancy related to disposed 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, 2015
Vacancy committed for future leases
Occupancy (including committed) –
December 31, 2015
21,382,050
(411,873 )
20,970,177
91.6 %
(1.8 )%
89.8 %
(315,722 )
884
20,655,339
(849,693 )
(45,359 )
280,972
634,704
20,675,963
360,605
89.7 %
(3.7 )% $
(0.2 )%
1.2 %
2.8 %
89.8 %
1.5 %
(17.54)
(16.62)
15.80
19.01
22,521,461
(382,470 )
22,138,991
(1,147,824 )
(4,402 )
20,986,765
(2,719,800 )
(148,576 )
881,785
1,675,789
20,675,963
360,605
As a
% of total
GLA(1)
93.0 %
(1.6 )%
91.4 %
91.1 %
(11.8 )%
(0.6 )%
3.8 %
7.3 %
89.8 %
1.5 %
21,036,568
91.3 %
21,036,568
91.3 %
(1) Includes investment in joint ventures and excludes redevelopment properties and properties held for sale at period-end.
During the quarter, overall comparative portfolio in-place occupancy increased by 10 bps to 89.8%. Tenants taking occupancy
during the quarter included approximately 634,700 square feet of renewals and approximately 281,000 square feet of new
leases, offset by approximately 849,700 square feet of lease expiries across the portfolio and approximately 45,400 square feet
of early terminations and bankruptcies.
At December 31, 2015, vacant space committed for future occupancy decreased from the beginning of the quarter by
approximately 51,300 square feet to approximately 360,600 square feet, mainly due to previously committed space taking
occupancy during the quarter. Of the total vacant space committed for future occupancy, approximately 352,000 square feet
will take occupancy during 2016.
Subsequent to year-end, leasing velocity has increased in the Calgary region with three major lease commitments in Calgary
downtown totalling approximately 111,400 square feet and one major lease commitment in Calgary suburban totalling
21,600 square feet. The three lease commitments in Calgary downtown include a 10.8-year lease for 55,800 square feet
commencing in October 2016, a five-year lease commencing on April 1, 2016 and a ten-year lease commencing in
December 2016, each comprising 27,800 square feet, respectively. The Trust has also signed a 10.5-year lease in the Calgary
suburban region for 21,600 square feet effective as at January 1, 2016.
Dream Office REIT 2015 Annual Report | 10
Tenant retention ratio
Expiring rents on renewed space (per sq. ft.)
Renewal to expiring rent spread (per sq. ft.)
Renewal rate (per sq. ft.)
Renewal to expiring rent spread (%)
Three months ended
December 31, 2015
74.7 %
18.47 $
2.52 $
20.99 $
13.6 %
Year ended
December 31, 2015
61.6 %
17.07
1.94
19.01
11.4 %
$
$
$
For the three months ended December 31, 2015, our tenant retention ratio was 74.7%, with renewals completed at $20.99 per
square foot, compared to expiring rents at $18.47 per square foot, for an increase of $2.52 per square foot, or 13.6%. For the
year ended December 31, 2015, our tenant retention ratio was 61.6% and we completed renewals at $19.01 per square foot,
compared to expiring rents at $17.07 per square foot, for an increase of $1.94 per square foot, or 11.4%.
In-place net rental rates
Average in-place and committed net rents across our comparative portfolio at December 31, 2015 were up $0.09 per square
foot to $18.94 per square foot from $18.85 per square foot at September 30, 2015, reflecting rent uplifts in all regions except
for the Calgary suburban and Toronto suburban regions.
Average in-place and committed net rents across our comparative portfolio at December 31, 2015 increased to $18.94 per
square foot from $18.68 per square foot at December 31, 2014, reflecting rent uplifts in all regions except for Calgary suburban
and Eastern Canada.
We estimate market rents with reference to recent leasing activity and external market data. We believe estimated market
rents for our in-place and committed space are approximately 2.7% higher than our portfolio average.
December 31, 2015(1)
Market rent/
September 30, 2015(2)
Market rent/
Average
in-place and
committed
net rent
(per sq. ft.)
Market
rent
(per sq. ft.)
20.28
20.67
16.51
26.47
15.09
13.60
19.46
20.10 $
21.60
16.69
24.39
14.79
13.41
18.94 $
$
Comparative portfolio
Western Canada
Calgary – downtown
Calgary – suburban
Toronto – downtown
Toronto – suburban
Eastern Canada
Total
$
average
in-place and
committed
net rent
(%)
0.9 $
(4.3 )
(1.1 )
8.5
2.0
1.4
2.7 $
Average
in-place and
committed
net rent
(per sq. ft.)
Market
rent
(per sq. ft.)
20.73
22.40
17.20
26.45
15.09
13.68
19.80
19.91 $
21.40
17.19
24.25
14.82
13.38
18.85 $
average
in-place and
committed
net rent
(%)
4.1 $
4.7
0.1
9.1
1.8
2.2
5.0 $
Average
in-place and
committed
net rent
(per sq. ft.)
19.86 $
21.28
17.18
23.95
14.53
13.49
18.68 $
Market
rent
December 31, 2014(2)
Market rent/
average
in-place and
committed
net rent
(%)
6.3
14.7
3.7
10.1
3.4
2.6
7.7
(per sq. ft.)
21.12
24.41
17.82
26.36
15.02
13.84
20.12
(1) Includes investment in joint ventures and excludes redevelopment properties and properties held for sale at period-end.
(2) Comparative periods excludes redevelopment properties, properties sold and properties held for sale in Q4 2015.
Market rent estimates for occupied and committed space across our comparative portfolio at December 31, 2015 decreased to
$19.46 per square foot from $19.80 per square foot at September 30, 2015 and $20.12 per square foot at December 31, 2014.
The spread between estimated market rents and our comparative portfolio average in-place and committed net rents has
tightened over the past few quarters as we bring rents to market upon lease renewals and due to the impact of the continued
downward pressure on market rents in the Calgary region and Edmonton in Western Canada, driven by softening market
conditions in those regions.
Dream Office REIT 2015 Annual Report | 11
Market rents – In-place occupancy and vacant space
The following table details the market rents by geographic segments for the comparative portfolio, which includes both in-place
occupancy and vacant space.
Rent per square foot
Western Canada
Calgary – downtown
Calgary – suburban
Toronto – downtown
Toronto – suburban
Eastern Canada
Total comparative portfolio(1)
December 31, 2015
20.02 $
20.45
16.51
26.41
14.82
13.60
19.18 $
September 30, 2015
20.44 $
22.20
17.04
26.42
14.84
13.67
19.54 $
$
$
December 31, 2014
20.84
24.30
17.57
26.28
14.90
13.84
19.94
(1) Comparative portfolio includes investment in joint ventures and excludes redevelopment properties, properties sold and properties held for sale at Q4 2015.
The overall estimated market rents for in-place and vacant space at December 31, 2015 decreased to $19.18 per square foot
from $19.54 per square foot at September 30, 2015 and $19.94 per square foot at December 31, 2014. The decrease was
mainly due to downward pressure on market rents in the Calgary region and Edmonton in Western Canada, resulting from
softening market conditions in those regions. The remainder of the portfolio saw modest changes on a quarter-over-quarter
and year-over-year basis.
Leasing and tenant profile
The average remaining lease term and other comparative portfolio information are detailed in the following table. The
comparative portfolio average remaining lease term at December 31, 2015 is 4.6 years compared to 4.7 years at September 30,
2015 and December 31, 2014, largely reflecting the impact of new leases rolling on, offset by leases rolling off, during the
period.
Average
remaining
lease term
(years)
3.4
3.6
3.5
5.7
4.3
5.6
4.6
Comparative portfolio
Western Canada
Calgary – downtown
Calgary – suburban
Toronto – downtown
Toronto – suburban
Eastern Canada
Total
Average Average
December 31, 2015(1)
Average
Average
tenant
in-place and
committed
size
(sq. ft.)
10,246 $
10,864
6,633
10,341
10,446
16,951
11,109 $
(per sq. ft.)
remaining
net rent lease term
(years)
3.4
3.6
3.2
5.8
4.4
5.8
4.7
20.10
21.60
16.69
24.39
14.79
13.41
18.94
tenant
size
September 30, 2015(2)
Average
in-place and
Average
committed remaining
net rent lease term
(years)
3.7
3.8
3.8
5.8
3.9
5.8
4.7
(per sq. ft.)
19.91
21.40
17.19
24.25
14.82
13.38
18.85
(sq. ft.)
10,295 $
10,993
6,843
10,310
10,468
17,144
11,163 $
Average
tenant
size
December 31, 2014(2)
Average
in-place and
committed
net rent
(per sq. ft.)
19.86
21.28
17.18
23.95
14.53
13.49
18.68
(sq. ft.)
10,238 $
10,857
7,067
10,519
11,071
16,904
11,323 $
(1) Includes investment in joint ventures and excludes redevelopment properties and properties held for sale at period-end.
(2) Comparative periods excludes redevelopment properties, properties sold and properties held for sale in Q4 2015.
The following table details our lease maturity profile, net of committed occupancy, by geographic segment at December 31, 2015.
(in thousands of square feet)
Western Canada
Calgary – downtown
Calgary – suburban
Toronto – downtown
Toronto – suburban
Eastern Canada
Total portfolio(1)
Total GLA
Total GLA (%)
Current
monthly/
short-term
tenancies
Vacancy
461
410
74
108
657
284
1
—
—
2
—
1
2016
472
478
105
358
221
208
2017
809
311
96
782
926
546
2018
940
351
147
724
370
807
2019
559
643
50
328
309
304
2020
579
239
45
368
388
725
2021+
889
721
241
2,738
1,355
1,900
1,994
8.7%
4
0.0 %
1,842 3,470 3,339
8.0%
15.1% 14.5%
2,193
9.5%
2,344 7,844
34.0%
10.2%
Total
4,710
3,153
758
5,408
4,226
4,775
23,030
100%
(1) Includes investment in joint ventures and excludes redevelopment properties and properties held for sale at period-end.
Dream Office REIT 2015 Annual Report | 12
Our lease maturity profile, net of committed occupancy, remains staggered. Lease expiries, net of committed occupancy, as a
percentage of total gross leasable area between 2016 and 2020, range from 8.0% to 15.1%.
Expiring net rents
The following table details the expiring net rent, including committed, by year and by geographic segment at December 31, 2015.
(per square foot)
Western Canada
Calgary – downtown
Calgary – suburban
Toronto – downtown
Toronto – suburban
Eastern Canada
Total portfolio(1)
2016
17.46 $
20.72
14.10
21.89
14.11
15.09
18.30 $
2017
21.45 $
22.49
16.14
23.31
14.85
13.43
18.79 $
2018
19.07 $
24.63
20.20
24.27
15.17
16.73
19.83 $
2019
20.27 $
24.25
19.14
24.31
13.03
13.75
20.09 $
2020
22.45 $
19.06
14.65
24.57
16.43
13.21
18.43 $
2021+
23.35
21.46
18.73
29.09
16.97
13.35
21.52
$
$
(1) Includes investment in joint ventures and excludes redevelopment properties and properties held for sale at period-end.
2016 and 2017 lease expiry profile
The following tables detail our 2016 and 2017 lease maturities, excluding current monthly and short-term tenancies that have
been committed in each of the geographic segments.
in thousands of square feet, except %
2016 expiries (as at December 31, 2015)
Expiries committed for occupancy
Expiries, net of commitments for occupancy
(as at December 31, 2015)
Total commitments as % of expiries
(as at December 31, 2015)
2016 vacancy (as at December 31, 2015)
Vacancy committed for occupancy
2016 vacancy, net of commitments for occupancy
(as at December 31, 2015)
Western
Canada
(961 )
489
Calgary
downtown
(706 )
228
Calgary
suburban
(127 )
22
Toronto
downtown
(835 )
477
Toronto
suburban
(897 )
676
Eastern
Canada
(482 )
274
Total
Portfolio(1)
(4,008 )
2,166
(472 )
(478 )
(105 )
(358 )
(221 )
(208 )
(1,842 )
50.9%
(511 )
50
32.3%
(476 )
66
17.3%
(98 )
24
57.1%
(219 )
110
75.4%
(718 )
54
56.8%
(332 )
48
54.0%
(2,354 )
352
(461 )
(410 )
(74 )
(109 )
(664 )
(284 )
(2,002 )
(1) Includes investment in joint ventures and excludes redevelopment properties and properties held for sale at period-end.
As at December 31, 2015, the Trust had lease commitments of approximately 54.0% of 2016 maturities.
in thousands of square feet, except %
2017 expiries (as at December 31, 2015)
Expiries committed for occupancy
Expiries, net of commitments for occupancy
(as at December 31, 2015)
Total commitments as % of expiries
(as at December 31, 2015)
2017 vacancy (as at December 31, 2015)
Vacancy committed for occupancy
2017 vacancy, net of commitments for occupancy
(as at December 31, 2015)
Western
Calgary
Canada downtown
(439 )
(809 )
128
—
Calgary
suburban
(173 )
77
Toronto
downtown
(935 )
153
Toronto
suburban
(1,007 )
81
Eastern
Canada
(789 )
243
Total
Portfolio(1)
(4,152 )
682
(809 )
(311 )
(96 )
(782 )
(926 )
(546 )
(3,470 )
0.0%
(461 )
—
29.2%
(410 )
—
44.5%
(74 )
—
16.4%
(109 )
1
8.0%
(664 )
7
30.8%
(284 )
—
16.4%
(2,002 )
8
(461 )
(410 )
(74 )
(108 )
(657 )
(284 )
(1,994 )
(1) Includes investment in joint ventures and excludes redevelopment properties and properties held for sale at period-end.
As at December 31, 2015, the Trust had lease commitments of approximately 16.4% of 2017 maturities.
Dream Office REIT 2015 Annual Report | 13
2016 and 2017 expiring net rents versus market rents
Expiring net rents and 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 does not take
into account allowance for increases in the future years. Market rents are subject to change from time to time depending on
the market conditions at a particular point in time.
The following tables compare 2016 and 2017 expiring in-place net rents to our respective estimated market rents by geographic
segment as at December 31, 2015.
Rent per square foot
2016 expiring rents
Market rents associated with expiring rents
Market rents/2016 expiring rents (%)
$
Western
Canada
17.46 $
17.79
1.9%
Calgary
downtown
Calgary
suburban
Toronto
downtown
Toronto
suburban
20.72 $
20.62
(0.5)%
14.10 $
15.09
7.0%
21.89 $
23.56
7.6%
14.11 $
14.09
(0.2)%
Eastern
Canada
15.09 $
14.45
(4.3)%
Total
portfolio(1)
18.30
18.67
2.0%
(1) Includes investment in joint ventures and excludes redevelopment properties and properties held for sale at period-end.
We believe estimated market rents are approximately 2.0% higher than our 2016 expiring in-place net rents. Estimated market
rents are higher than 2016 expiring in-place net rents in all regions except for Calgary downtown, Toronto suburban and
Eastern Canada.
Rent per square foot
$
2017 expiring rents
Market rents associated with expiring rents
Market rents/2017 expiring rents (%)
Western
Canada
21.45 $
18.97
(11.6)%
Calgary
downtown
Calgary
suburban
Toronto
downtown
Toronto
suburban
22.49 $
20.95
(6.8)%
16.14 $
15.14
(6.2)%
23.31 $
25.32
8.6%
14.85 $
14.57
(1.9)%
Eastern
Canada
13.43 $
13.53
0.7%
Total
portfolio(1)
18.79
18.44
(1.9)%
(1) Includes investment in joint ventures and excludes redevelopment properties and properties held for sale at period-end.
We believe estimated market rents are approximately 1.9% lower than our 2017 expiring in-place net rents. Estimated market
rents are lower than 2017 expiring in-place net rents in all regions except for Toronto downtown and Eastern Canada.
Initial direct leasing costs and lease incentives
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 and cash allowances.
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. Short-term leases generally have lower
costs than long-term leases, and leasing costs associated with office space are generally higher than costs associated with flex
office and industrial space.
For the three months and year ended December 31, 2015, approximately $13.3 million and $44.3 million, respectively, of
leasing costs and lease incentives were attributable to leases that commenced during the periods, representing an average cost
of $14.48 per square foot and $17.33 per square foot leased, respectively. When compared to the prior year, average leasing
costs and lease incentives on a per square foot basis increased from $14.66 to $17.33, mainly attributable to the
implementation of our proactive leasing strategies which commenced last year and continued into the current year to
secure leases. We expect leasing costs and lease incentives to remain elevated in light of the current competitive office leasing
environment.
Dream Office REIT 2015 Annual Report | 14
Performance indicators
Operating activities (total portfolio)(1)
Portfolio size (in thousands of sq. ft.)
Occupied and committed occupancy (period-end)
Number of lease deals committed
Leases that commenced during the period (sq. ft.)
Average lease term for leases that commenced during the period (years)
Initial direct leasing costs and lease incentives attributable to leases that commenced
during the period (in thousands)
Initial direct leasing costs and lease incentives attributable to leases that commenced
during the period (per sq. ft.)
Three months ended
December 31, 2015
Year ended
December 31, 2015
23,030
91.3 %
152
915,676
4.5
$
$
13,260 $
14.48 $
23,030
91.3 %
484
2,557,574
4.8
44,319
17.33
(1) Includes investment in joint ventures and excludes redevelopment properties and properties held for sale.
Tenant base profile
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 three of Canada’s prominent law firms, and small to medium-
sized businesses across Canada. With 2,175 tenants, our risk of exposure to any single large lease or tenant is mitigated. The
average size of our office tenants is approximately 11,100 square feet. Effectively managing this diverse tenant base is one of
our key strengths and has helped us to maintain occupancy levels above the national average and to capitalize on rental
rate increases.
The stability and quality of our cash flow is further enhanced by the fact that rental revenue from government and major
financial institutions comprises approximately 22% of our total rental revenue. The list of our 20 largest tenants includes both
federal and provincial governments as well as other nationally and internationally recognizable high-quality corporations and
businesses. The following table outlines their contributions to our total rental revenue.
Tenant
Bank of Nova Scotia
Government of Canada
Government of Ontario
Bell Canada
Telus
Enbridge Pipelines Inc.
State Street Trust Company
Government of Saskatchewan
Government of Alberta
Newalta Corporation
Aviva Canada Inc.
Borell Management
Loyalty Management
Government of British Columbia
SNC-Lavalin Inc.
Miller Thomson
Cenovus Energy
Government of NW Territories
Cassels Brock Blackwell
Government of Québec
Total
Owned area
(sq. ft.)
1,002,340
1,411,488
464,232
376,694
287,803
248,577
244,936
340,019
304,079
187,297
335,900
124,795
194,018
210,828
203,383
137,149
140,605
139,516
94,507
164,362
6,612,528
Owned area
(%)
4.4
6.1
2.0
1.6
1.2
1.1
1.1
1.5
1.3
0.8
1.5
0.5
0.8
0.9
0.9
0.6
0.6
0.6
0.4
0.7
28.6
Gross rental
revenue
(%)
7.7
7.0
2.3
2.0
1.6
1.6
1.4
1.3
1.2
1.2
1.2
1.1
1.0
1.0
0.9
0.9
0.8
0.8
0.8
0.7
36.5
Weighted average
remaining lease term
(years)
8.8
3.2
4.2
3.7
1.1
3.1
6.3
2.2
2.6
3.8
2.1
1.0
1.8
3.7
3.9
7.7
7.5
6.5
9.0
4.3
4.4
Credit
rating(1)
A+/A-/A-1
AAA/A-1+
A+/A-1+
BBB+
BBB+
A-1/BBB+
AA-/A/A-1+
AAA/A-1+
AA+/A-1+
N/R
A+/A-
N/R
N/R
AAA/A-1+
BBB
N/R
A-2/BBB
N/R
N/R
A+/A-1+
(1) Credit ratings obtained from Standard & Poor’s and may reflect the parentʼs or a guarantorʼs credit rating.
N/R – not rated
Dream Office REIT 2015 Annual Report | 15
OUR RESOURCES AND FINANCIAL CONDITION
Investment properties
As at December 31, 2015, the value of our investment property comparative portfolio, which includes investment in joint
ventures and excludes redevelopment properties, properties sold and assets held for sale, was $6,956.2 million (December 31,
2014 – $6,986.2 million).
Fair values were determined using the direct capitalization method and/or the discounted cash flow method. The direct
capitalization method applies a capitalization rate (“cap rate”) to stabilized NOI (non-GAAP measure) and incorporates
allowances for vacancy and management fees. The resulting capitalized value is further adjusted for non-recurring costs to
stabilize income and non-recoverable capital expenditures, where applicable. Individual properties across our comparative
portfolio were valued using cap rates in the range of 4.65% to 8.25% as at December 31, 2015. The discounted cash flow
method discounts the expected future cash flows, generally over a term of ten years, and uses discount rates and terminal cap
rates specific to each property.
The fair value of our investment properties, including investment in joint ventures, is set out below:
Western Canada
Calgary – downtown
Calgary – suburban
Toronto – downtown
Toronto – suburban
Eastern Canada
Total comparative portfolio
Add:
Redevelopment properties
Assets classified as held for sale/sold properties
Total portfolio
Less:
Investment in joint ventures
Wholly owned properties classified as assets held for sale
Property classified as assets held for sale related to investment in joint ventures
Total per consolidated balance sheets
December 31,
2015
1,310,713 $
1,068,134
165,977
2,543,398
951,030
916,937
6,956,189
September 30,
2015(1)
1,317,818 $
1,080,964
165,530
2,529,198
964,709
920,313
6,978,532
10,000
44,638
7,010,827 $
10,000
136,758
7,125,290 $
$
$
1,099,594
44,638
—
1,092,680
92,003
—
$
5,866,595 $
5,940,607 $
Total portfolio
December 31,
2014(1)
1,373,110
1,162,981
183,969
2,409,667
960,268
896,213
6,986,208
10,000
208,388
7,204,596
1,062,776
—
2,750
6,139,070
(1) Comparative periods have been reclassified to exclude assets held for sale and properties sold in the current period.
The carrying value of our total portfolio decreased by approximately $114.5 million during the quarter, mainly due to
$79.4 million in fair value loss and $92.1 million relating to dispositions, offset by $57.1 million of building improvements and
initial direct leasing costs and lease incentive additions and $0.1 million related to the amortization of lease incentives, foreign
exchange and other adjustments.
For the three months and year ended December 31, 2015, the $79.4 million and $190.0 million fair value losses recognized
during these respective periods were mainly driven by changes in capital, market rental rate and leasing assumptions, mainly in
Calgary downtown, Calgary suburban, Edmonton in Western Canada and Toronto suburban, to reflect the changing economics
in those particular markets. The fair value losses for the year were offset by an increase in fair value related to properties in the
Toronto downtown region due to cap rate compression.
The weighted average cap rate across our total comparative portfolio compressed to 6.00% in Q4 2015 from 6.04% in Q3 2015
and 6.16% at December 31, 2014.
Dream Office REIT 2015 Annual Report | 16
Changes in the value of our investment properties by region for the three months ended December 31, 2015 are summarized in
the table below as follows:
Three months ended
Initial direct
leasing costs
and lease
incentives
Building
improvements
Fair value
adjustments
Amortization of
lease incentives,
foreign exchange
and other
adjustments
Assets held
for sale/sold
properties
— $
—
—
—
—
—
—
2,826 $
5,143
7
13,445
4,134
4,597
30,152
3,241 $
3,247
795
9,084
4,598
5,687
26,652
(12,500 ) $
(20,100 )
(200 )
(7,700 )
(21,800 )
(16,700 )
(79,000 )
(672 ) $
(1,120 )
(155 )
(629 )
(611 )
3,040
(147 )
$
September 30,
2015(1)
1,317,818 $
1,080,964
165,530
2,529,198
964,709
920,313
6,978,532
December 31,
2015
1,310,713
1,068,134
165,977
2,543,398
951,030
916,937
6,956,189
10,000
—
136,758
7,125,290 $
(92,045 )
(92,045 ) $
—
18
—
246
30,170 $ 26,898 $
—
—
10,000
(400 )
(79,400 ) $
61
(86 ) $
44,638
7,010,827
1,092,680
—
5,429
1,807
(240 )
(82 )
1,099,594
92,003
(47,408 )
—
—
(60)
103
44,638
5,940,607 $
(44,637 ) $
24,741 $ 25,091 $
(79,100 ) $
(107 ) $
5,866,595
Western Canada
Calgary – downtown
Calgary – suburban
Toronto – downtown
Toronto – suburban
Eastern Canada
Total comparative portfolio
Add:
Redevelopment properties
Assets classified as held for
sale/sold properties
$
Total portfolio
Less:
Investment in joint ventures
Wholly owned properties classified
as assets held for sale
Total per consolidated balance
sheet
$
(1) Opening balances have been reclassified to exclude assets held for sale and sold properties during the period.
Dream Office REIT 2015 Annual Report | 17
Changes in the value of our investment properties by region for the year ended December 31, 2015 are summarized in the
table below as follows:
January 1,
2015(1)
Assets held
for sale/sold
properties
Building
improvements
Initial direct
leasing costs
and lease
incentives
$ 1,373,110 $
1,162,981
183,969
2,409,667
960,268
896,213
6,986,208
— $
—
—
—
—
—
—
10,954 $
10,865
931
35,037
7,187
8,044
73,018
10,565 $
12,492
2,249
17,608
14,423
11,729
69,066
Year ended
Amortization of
lease incentives,
foreign exchange
Fair value
adjustments
(81,400 ) $
(114,300 )
(20,600 )
83,200
(28,500 )
(16,000 )
(177,600 )
and other December 31,
2015
1,310,713
1,068,134
165,977
2,543,398
951,030
916,937
6,956,189
adjustments
(2,516 ) $
(3,904 )
(572 )
(2,114 )
(2,348 )
16,951
5,497
10,000
—
—
—
—
—
10,000
208,388
$ 7,204,596 $
(153,122 )
(153,122 ) $
1,278
74,296 $
508
69,574 $
(12,400 )
(190,000 ) $
(14 )
5,483 $
44,638
7,010,827
1,062,776
—
22,359
3,158
11,490
(189 )
1,099,594
—
38,668
—
—
5,970
—
44,638
Western Canada
Calgary – downtown
Calgary – suburban
Toronto – downtown
Toronto – suburban
Eastern Canada
Total comparative portfolio
Add:
Redevelopment properties
Assets classified as held for
sale/sold properties
Total portfolio
Less:
Investment in joint ventures
Wholly owned properties
classified as assets held for sale
Property classified as asset held for
sale related to investment in
joint ventures
Total per consolidated balance
sheet
2,750
(2,283 )
—
—
(460 )
(7 )
—
$ 6,139,070 $
(189,507 ) $
51,937 $
66,416 $
(207,000 ) $
5,679 $
5,866,595
(1) Opening balances have been reclassified to exclude assets held for sale and sold properties during the year.
Cap rates are a key metric used to value our investment properties and are set out in the table below by region:
Capitalization rates
Total portfolio
December 31, 2014(1)
Weighted
average (%)
Range (%)
December 31, 2015
Weighted
average (%)
6.60
6.43
7.00
5.10
6.52
6.47
6.00
9.00
Range (%)
5.25–8.25
5.75–7.50
6.75–7.50
4.65–6.25
5.75–7.50
5.50–8.25
4.65–8.25
N/A
Range (%)
September 30, 2015(1)
Weighted
average (%)
6.69
6.45
6.99
5.10
6.52
6.55
6.04
9.00
5.25–8.75
5.75–7.50
6.75–7.25
4.65–6.25
5.75–7.50
5.50–8.25
4.65–8.75
N/A
5.75–8.75
5.50–7.50
6.25–7.25
5.15–7.00
5.75–7.50
6.00–8.50
5.15–8.75
N/A
7.00–9.00
4.65–9.00
7.42
6.02
7.45–9.20
4.65–9.20
5.82
6.05
5.75–8.00
5.15–9.00
6.65
6.16
6.81
5.42
6.55
6.72
6.16
9.00
7.11
6.17
Western Canada
Calgary – downtown
Calgary – suburban
Toronto – downtown
Toronto – suburban
Eastern Canada
Total comparative portfolio
Redevelopment properties
Assets classified as held for sale/sold
properties(2)
Total portfolio
(1) Comparative periods have been reclassified to exclude assets held for sale and sold properties during the period.
(2) Cap rates on assets classified as held for sale/sold properties will vary depending on the composition of properties at period-end.
N/A – not applicable
Dream Office REIT 2015 Annual Report | 18
Building improvements
Building improvements represent investments made to our properties to ensure optimal building performance, to improve the
value and attractiveness to our tenants, as well as to reduce operating costs. For the three months and year ended
December 31, 2015, we incurred $30.2 million and $74.3 million, respectively, in expenditures related to building
improvements, the majority of which are recoverable from tenants under current terms of the leases.
Recurring recoverable building improvements for the three months and year ended December 31, 2015 were $8.6 million and
$20.9 million, respectively, and included safety enhancements, roof, heating, ventilation and air conditioning replacements as
well as parking upgrades. Recurring recoverable enhancement projects include elevator modernization, recoverable lobby and
common area upgrades and exterior enhancements. For the three months and year ended December 31, 2015, recurring
recoverable enhancement projects were $13.4 million and $35.9 million, respectively. For the three months and year ended
December 31, 2015, approximately $5.2 million and $12.4 million, respectively, were spent on sustainability and environmental
initiatives, substantially all of which are recoverable from tenants. For the three months and year ended December 31, 2015,
recurring non-recoverable building improvements were $0.4 million and $2.0 million, respectively, and included projects such
as parkade and curtain wall restoration. Non-recurring and non-recoverable building improvements included capital
expenditures such as window replacements that generally would not be expected to recur over the useful life of the building.
Over the next three years, the Trust will be investing a significant amount of capital in Scotia Plaza, the Trust’s largest and most
iconic asset in our Toronto downtown portfolio. The capital will be allocated across three major property enhancements:
elevator modernization, common area revitalization and LEED recertification. All of these investments are targeted towards
superior tenant experience. For the three months and year ended December 31, 2015, approximately $5.2 million and
$21.7 million, respectively, of the amounts included in the following table pertained to Scotia Plaza and account for
approximately 29.0% of the investments incurred during the year.
The table below represents amounts either paid or accrued for the three months and year ended December 31, 2015 and
December 31, 2014:
Building improvements(1)
Recurring recoverable
Recurring recoverable enhancement projects
Sustainability and environmental initiatives
Recoverable – identified upon acquisition
Recurring non-recoverable
Nonrecurring and non-recoverable
Total
Three months ended December 31,
2014
2015
Year ended December 31,
2015
2014
$
$
8,596
13,411
5,168
—
422
2,573
30,170
$
$
6,912
4,558
1,120
866
654
57
14,167
$
$
20,929
35,915
12,405
—
2,031
3,016
74,296
$
$
13,286
11,056
1,760
5,402
1,182
1,272
33,958
(1) Includes investment in joint ventures that are equity accounted and properties held for sale at period-end.
As part of our broader strategy to invest capital in our buildings to improve the value 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 2015 Annual Report | 19
Dispositions
Pursuant to our strategy of divesting non-core assets, we completed the following dispositions for the year ended
December 31, 2015:
Capital Centre, Edmonton(3)
8100 Granville Avenue, Vancouver
2200–2204 Walkley Road, Ottawa
Québec City Portfolio(4)
Total
Disposed
GLA
Property Ownership
(sq. ft.)
(%)
16,029 $
25 %
95,298
100 %
100 % 158,898
100 % 634,132
904,357 $
type
office
office
office
office
Sales
price(1)
2,340 $
28,759
27,910
95,122
154,131 $
Mortgages
discharged/
assumed
—
—
15,279
51,354 (5)
66,633
$
$
Loss on
sale(2)
(121 )
(714 )
(817 )
(2,121 )
(3,773 )
Date disposed
March 12, 2015
July 15, 2015
August 27, 2015
October 30, 2015
(1) Sales price reflects gross proceeds net of adjustments and before transaction costs.
(2) Loss on sale includes mainly the transaction costs and the write-off of a pro rata share of goodwill associated with the cash-generating unit.
(3) The Trust held a 25% interest in the property through a partnership interest and accounted for this as an investment in joint venture.
(4) Includes four properties in Québec City: 900 Place D’Youville, 580 Rue Grand Allée, 200 Chemin Sainte-Foy and 141 Saint Jean Street.
(5) Of this mortgage amount, $21,959 was assumed by the purchaser on disposal of investment properties.
On April 30, 2015, a parcel of land at 60 Columbia Way, Markham, Ontario, was expropriated by the City of Markham to build a
highway off-ramp for total gross proceeds of $2.7 million. The gross proceeds represented fair market value. In addition to the
gross proceeds, the Trust recorded a one-time compensation income of $0.6 million for the expropriation of the parcel of land.
We completed the following dispositions of non-core assets for the year ended December 31, 2014:
Riverbend Atrium, Calgary(3)
Stockman Centre, Calgary(3)
Plaza 124, Edmonton(3)
9705 Horton Road, Calgary
26229 Township Road 531, Edmonton(4)
11404 Winterburn Road NW, Edmonton(4)
16134 - 114th Avenue NW, Edmonton(4)
16104 - 114th Avenue NW, Edmonton(4)
St. Albert Trail Centre, Edmonton
Total
Property Ownership
(%)
25 %
25 %
25 %
100 %
100 %
100 %
100 %
100 %
50 %
type
office
office
office
office
flex
flex
flex
flex
office
Disposed
GLA
(sq. ft.)
22,055 $
15,656
38,590
55,363
89,165
81,917
48,353
28,759
48,402
428,260 $
Mortgages
discharged/
assumed
1,173 $
577
3,569
5,919(5)
5,529(5)
5,599(5)
2,651
2,030
6,389
33,436 $
Sales
price(1)
4,850 $
3,375
9,275
9,150
12,084
10,489
3,938
6,281
12,075
71,517 $
Loss on
sale(2)
(248 )
(12 )
(498 )
(173 )
(68 )
(24 )
(44 )
(5 )
(424 )
(1,496 )
Date disposed
June 3, 2014
June 3, 2014
June 3, 2014
June 12, 2014
September 9, 2014
September 9, 2014
September 9, 2014
September 9, 2014
September 15, 2014
(1) Sales price reflects gross proceeds net of adjustments and before transaction costs.
(2) Loss on sale includes mainly the transaction costs and the write-off of a pro rata share of goodwill associated with the cash-generating unit.
(3) The Trust held a 25% interest in the property through a partnership interest and accounted for this as an investment in joint venture.
(4) These investment properties were sold to Dream Industrial REIT.
(5) Mortgages assumed by purchaser on disposal of investment properties.
Assets held for sale
Balance, beginning of period
Add (deduct):
Building improvements
Lease incentives and initial direct leasing costs
Investment property classified as held for sale during the year
Investment properties disposed of during the year
Fair value adjustment to investment properties
Amortization of lease incentives
Balance, end of period
(1) Includes investment in joint ventures that are equity accounted.
Year ended
December 31, 2015 (1)
2,750
$
$
Year ended
December 31, 2014 (1)
20,481
—
—
159,473
(123,088 )
5,510
(7)
44,638
$
$
45
674
—
(17,833 )
(557 )
(60 )
2,750
Dream Office REIT 2015 Annual Report | 20
OUR FINANCING
Our discussion of financing activities will be 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 following tables in this section.
Liquidity and capital resources
Dream Office REIT’s primary sources of capital are cash generated from operating activities, 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 property acquisitions. We expect to meet all of our ongoing obligations with current cash and cash
equivalents, cash flows generated from operations, credit facilities, conventional mortgage refinancing and, as growth requires
and when appropriate, new equity or debt issuances.
In our consolidated financial statements, our current liabilities exceeded our current assets by $680.9 million. Typically, real
estate entities seek to address liquidity needs by having a balanced debt maturity schedule, undrawn credit facilities and a pool
of unencumbered assets. We are able to use our 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
$609.6 million (excluding debt related to investment in joint ventures which are equity accounted), which we typically refinance
with term loan facilities and mortgages of terms between five and ten years. Amounts payable and accrued liabilities balances
outstanding at the end of any reporting period depends primarily on the timing of leasing costs, capital expenditures incurred,
as well as the impact of transaction costs incurred on any acquisitions or dispositions completed during the reporting period.
Our unencumbered assets pool as at December 31, 2015 is approximately $825.0 million.
We endeavour to maintain high levels of liquidity to ensure that we can meet distribution requirements and react quickly to
potential investment opportunities.
Debt
Less debt related to:
Investment in joint ventures
Assets held for sale
Debt (per consolidated financial statements)
December 31,
2015
3,520,486 $
September 30,
2015
3,591,433 $
December 31,
2014
3,593,808
485,493
24,245
3,010,748 $
490,782
51,458
3,049,193 $
496,980
—
3,096,828
$
$
Dream Office REIT 2015 Annual Report | 21
A summary of debt
The key performance indicators in the management of our debt are as follows:
Financing and liquidity metrics
Weighted average effective interest rate (period-end)(1)
Weighted average face rate of interest (period-end)(2)
Interest coverage ratio (times)(3)
Net average debt-to-EBITDFV (years)(3)
Net debt-toadjusted EBITDFV (years)(3)
Level of debt (net total debt-to-gross book value)(3)
Level of debt (net secured debt-to-gross book value)(3)
Secured debt to total investment properties(4)
Debt – average term to maturity (years)
Variable rate debt as percentage of total debt
Secured debt(5)
Unsecured convertible and non-convertible debentures
Unencumbered assets(6)
Cash and cash equivalents on hand(7)
Undrawn demand revolving credit facilities
December 31,
2015
September 30,
2015
December 31,
2014
4.11 %
4.05 %
2.9
7.7
7.7
48.3 %
41.0 %
42.6 %
3.8
7.6 %
$
2,986,389 $
534,097
825,000
12,433
186,495
4.12 %
4.11 %
2.9
7.7
7.8
48.0 %
40.9 %
42.9 %
3.8
7.5 %
3,057,395 $
534,038
768,000
13,280
184,995
4.15 %
4.18 %
2.9
7.8
7.9
47.5 %
40.4 %
42.5 %
4.4
7.6 %
3,059,948
533,860
796,000
20,889
251,540
(1) Weighted average effective interest rate is calculated as the weighted average face rate of interest net of amortization of fair value adjustments and
financing costs of all interest bearing debt, including debt related to investment in joint ventures, which are equity accounted.
(2) Weighted average face interest rate is calculated as the weighted average face rate of all interest bearing debt, 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 average debt-to-EBITDFV, net debt-to-adjusted EBITDFV and levels of
debt – are included in the “Non-GAAP measures and other disclosures” section of the MD&A.
(4) Secured debt to total investment properties (non-GAAP measure) is calculated as total debt secured by investment properties related to wholly owned and
co-owned properties and investment in joint ventures that are equity accounted, divided by total investment properties. Management believes this non-
GAAP measurement is an important measure of our secured debt levels.
(5) Secured debt (non-GAAP measure) includes debt secured by investment properties related to wholly owned and co-owned properties and investment in
joint ventures that are equity accounted.
(6) Unencumbered assets (non-GAAP measure) includes unencumbered investment properties related to wholly owned and co-owned properties and
investment in joint ventures that are equity accounted. Management believes this non-GAAP measurement is an important measure of our unencumbered
pool of assets.
(7) Cash and cash equivalents on hand (non-GAAP measure) includes cash and cash equivalents related to investment in joint ventures that are equity accounted.
We currently use cash flow performance and debt level indicators to assess our ability to meet our financing obligations. Our
current interest coverage ratio remains strong at 2.9 times, demonstrating our ability to more than adequately cover interest
expense requirements. We also monitor our debt-to-EBITDFV ratio to gauge our ability to repay existing debt. Our current net
average debt-to-EBITDFV ratio improved to 7.7 years when compared to December 31, 2014. Our weighted average face rate of
interest is 4.05% at December 31, 2015, down 6 bps when compared to September 30, 2015 and down 13 bps when compared
to December 31, 2014. After accounting for fair value adjustments and financing costs, the weighted average effective interest
rate for outstanding debt is 4.11% at December 31, 2015, down 1 bp when compared to September 30, 2015 and down 4 bps
when compared to December 31, 2014. The decline in both the weighted average face rate and effective interest rates was
mainly driven by the interest savings from disposed properties and interest rate savings upon refinancing of maturing debt
during 2014 and 2015.
Dream Office REIT 2015 Annual Report | 22
Financing activities during the quarter
The following tables detail the total mortgages renewed, refinanced and discharged during the three months and year ended
December 31, 2015:
Financing activities for the three months ended December 31, 2015
Amount
New term/discharged term
Weighted average face interest rate
(1) Excludes mortgages discharged due to dispositions.
Mortgages renewed
or refinanced
Mortgages discharged(1)
$
164,354 $
5.6
2.94%
(162,794)
6.0
3.77 %
During the quarter, the Trust renewed or refinanced seven mortgages totalling $164.4 million at an average fixed face rate of
2.94% per annum with an average term of 5.6 years. Overall, the renewals and refinancing of mortgages completed during the
quarter represented interest savings of approximately 83 bps per annum over the mortgages discharged.
Financing activities for the year ended December 31, 2015
Amount
New term/discharged term
Weighted average face interest rate
(1) Excludes mortgages discharged due to dispositions.
Mortgages renewed
or refinanced
Mortgages discharged(1)
$
282,708 $
5.3
2.95%
(272,213)
4.8
3.92 %
For the year ended December 31, 2015, the Trust renewed or refinanced mortgages totalling $282.7 million at an average fixed
face rate of 2.95% per annum with an average term of 5.3 years. Overall, the renewals and refinancing of mortgages completed
during the year represented interest savings of approximately 97 bps per annum over the mortgages discharged.
Subsequent to year-end, the Trust has committed to a new three-year, $800 million revolving credit facility with a syndicate of
major Canadian and global financial institutions with an expected closing date on or before March 4, 2016. This revolving credit
facility is expected to replace the existing $171.5 million revolving credit facility due on March 5, 2016 and $183.5 million term
loan facility due on August 15, 2016. The interest rate will be calculated in the form of rolling one-month BAs bearing interest at
the BA rate plus 170 bps or at the bank’s prime rate plus 70 bps. The revolving credit facility is expected to be secured by the
properties currently included in the existing $171.5 million revolving credit facility and $183.5 million term loan facility and
select properties in the current unencumbered asset pool. The Trust has complete discretion on the use of borrowings, which
includes but is not limited to: repayment of debt, investment in existing or future properties and/or unit repurchases. The
terms of the revolving credit facility will not limit the Trust’s ability to determine or revise its distribution policy in the future.
Composition of debt
As at December 31, 2015, variable rate debt as a percentage of total debt remained stable at 7.6% when compared to
December 31, 2014.
Mortgages
Demand revolving credit facilities
Term loan facility
Convertible debentures
Debentures
Total
Less:
Debt related to investment in joint
ventures
Assets held for sale
Fixed
$ 2,714,921 $
—
129,459
50,923
358,396
$ 3,253,699 $
December 31, 2015
Fixed
Total
Variable
38,978 $ 2,753,899 $ 2,781,344 $
—
49,500
49,500
128,948
182,990
53,531
51,160
50,923
—
124,778
358,144
483,174
266,787 $ 3,520,486 $ 3,319,596 $
December 31, 2014
Variable
Total
96,344 $ 2,877,688
—
—
53,312
182,260
—
51,160
124,556
482,700
274,212 $ 3,593,808
485,493
24,245
—
—
485,493
24,245
496,980
—
—
—
496,980
—
Debt (per consolidated financial
statements)
Percentage of total debt(1)
92.4%
4.17%
In-place face rate (year-end)(1)
4.0
Average term to maturity (years)(1)
(1) Includes investment in joint ventures that are equity accounted.
$ 2,743,961 $
266,787 $ 3,010,748 $ 2,822,616 $
100.0%
4.05%
3.8
92.4%
4.26%
4.6
7.6%
2.62%
1.3
274,212 $ 3,096,828
100.0%
4.18%
4.4
7.6%
3.13%
1.8
Dream Office REIT 2015 Annual Report | 23
Demand revolving credit facilities
Secured
investment properties
Second-
ranking
Maturity date mortgages mortgages
First-
ranking
Face
interest
rate
December 31, 2015
December 31, 2014
Amount
available
Amount
drawn
Amount
available
Amount
drawn
March 5, 2016
Formula-based maximum
not to exceed $171,500
Formula-based maximum
not to exceed $27,690
Formula-based maximum
not to exceed $15,000 November 1, 2016(5)
Formula-based maximum
not to exceed $55,000 November 1, 2016(5)
April 30, 2016(3)
8
2
–
1
11
–
2.62 % (1) $
156,500 (2) $ 15,000 $
171,500 (2) $
–
3.55 % (3)
27,247 (4)
–
27,247 (4)
2
3.40 % (5)
350 (6)
14,500
34,850 (6)
1
3
2.54 % (5)
2,398 (7)
186,495
20,000
$ 49,500 $
17,943 (7)
251,540
$
$
–
–
–
–
–
(1) In the form of rolling one-month BAs bearing interest at the BA rate plus 1.75% or at the bankʼs prime rate (2.70% as at December 31, 2015) plus 0.75%.
(2) Formula-based amount available under this facility was $171,500 less $15,000 drawn as at December 31, 2015 and $171,500 as at December 31, 2014.
(3) This facility matured on April 30, 2015 and was renewed to April 30, 2016 in the form of rolling one-month BAs bearing interest at the BA rate plus 1.85%
or at the bankʼs prime rate (2.70% as at December 31, 2015) plus 0.85%.
(4) Formula-based amount available under this facility was $27,690 less $443 in the form of a letter of credit (“LOC”) as at December 31, 2015 and
December 31, 2014.
(5) These facilities matured on June 30, 2015 and were renewed to November 1, 2016 in the form of rolling one-month BAs bearing interest at the BA rate plus
1.70% or at the bank’s prime rate (2.70% as at December 31, 2015) plus 0.70%.
(6) Effective June 30, 2015, the formula-based maximum will not exceed $15,000. Formula-based amount available under this facility was $15,000 less
$14,500 drawn and $150 in the form of LOC as at December 31, 2015, and under the previous facility, the formula-based amount available was $35,000
less $150 in the form of LOC as at December 31, 2014.
(7) Effective June 30, 2015, the formula-based maximum will not exceed $55,000. Formula-based amount available under this facility was $55,000 less
$20,000 drawn and $32,602 in the form of LOC as at December 31, 2015, and under the previous facility, the formula-based amount available was $35,000
less $17,057 in the form of LOC as at December 31, 2014.
Dream Office REIT 2015 Annual Report | 24
Changes in debt levels, including debt related to investment in joint ventures that are equity accounted and assets held for sale,
for the three months and year ended December 31, 2015, are as follows:
Three months ended December 31, 2015
Mortgages
$ 2,823,587 $
164,354
(20,860 )
(162,794 )
(21,959 )
(29,395 )
(1,273 )
2,404
(165 )
Debt as at September 30, 2015
New debt placed
Scheduled repayments
Lump sum repayments
Lump sum repayment on property disposition
Debt assumed by purchaser on disposal of
investment properties
Financing costs additions
Foreign exchange adjustments
Other adjustments(1)
Debt as at December 31, 2015
Less:
Debt related to investment in joint ventures
Debt related to assets held for sale
Debt (per consolidated financial statements)
Term loan
facility
Demand
revolving
credit
facilities
51,000 $ 182,808 $
129,603
—
(131,103 )
—
—
—
—
—
Convertible
debentures
Debentures
Total
50,983 $ 483,055 $ 3,591,433
293,957
(20,860 )
(293,897 )
(21,959 )
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
182
$ 2,753,899 $
49,500 $ 182,990 $
485,493
24,245
—
—
—
—
$ 2,244,161 $
49,500 $ 182,990 $
—
—
—
(60 )
—
(29,395 )
—
(1,273 )
2,404
—
76
119
50,923 $ 483,174 $ 3,520,486
—
—
485,493
24,245
50,923 $ 483,174 $ 3,010,748
—
—
(1) Other adjustments include amortization of financing costs and amortization of fair value adjustments.
Year ended December 31, 2015
Convertible
debentures
Debentures
Total
51,160 $ 482,700 $ 3,593,808
572,628
(75,867 )
(512,633 )
(37,239 )
—
—
—
—
—
—
—
—
—
—
—
(237 )
—
(29,395 )
—
(1,987 )
12,069
—
474
(898 )
50,923 $ 483,174 $ 3,520,486
—
—
485,493
24,245
50,923 $ 483,174 $ 3,010,748
—
—
Demand
revolving
credit
facilities
Term loan
facility
Mortgages
Debt as at January 1, 2015
New debt placed
Scheduled repayments
Lump sum repayments
Lump sum repayment on property disposition
Debt assumed by purchaser on disposal of
investment properties
Financing costs additions
Foreign exchange adjustments
Other adjustments(1)
Debt as at December 31, 2015
Less:
Debt related to investment in joint ventures
Debt related to assets held for sale
$ 2,877,688 $
— $ 182,260 $
282,708
(75,867 )
(272,213 )
(37,239 )
(29,395 )
(1,987 )
12,069
(1,865 )
289,920
—
(240,420 )
—
—
—
—
—
—
—
—
—
—
—
—
730
$ 2,753,899 $
49,500 $ 182,990 $
485,493
24,245
—
—
—
—
Debt (per consolidated financial statements)
$ 2,244,161 $
49,500 $ 182,990 $
(1) Other adjustments include amortization of financing costs and amortization of fair value adjustments.
Dream Office REIT 2015 Annual Report | 25
Our current debt profile is balanced with staggered maturities over the next 13 years. The following tables summarize our debt
maturity profile as at December 31, 2015:
Demand
revolving
credit
facilities
— $
—
—
—
—
—
—
$
Outstanding
balance
568,576 $
412,659
382,770
426,024
522,107
801,086
3,113,222
Scheduled
principal
repayments on
nonmatured
debt
72,722 $
63,715
58,152
45,138
42,077
82,793
364,597
Amount
641,298
476,374
440,922
471,162
564,184
883,879
3,477,819
%
18.2 %
13.4 %
12.5 %
13.4 %
16.0 %
25.1 %
98.6 %
Debt maturities
2016
2017
2018
2019
2020
2021–2028
Subtotal before undernoted item
Demand revolving credit facilities
Weighted
average effective
interest rate on
balance due
Weighted
average
face rate on
balance due
at maturity (%) at maturity (%)
4.37 %
4.29 %
3.87 %
3.33 %
3.75 %
4.42 %
4.07 %
4.37 %
4.18 %
4.01 %
3.64 %
3.90 %
4.43 %
4.13 %
—
$ 3,113,222 $
2016
Subtotal
Financing costs
Fair value adjustments
Subtotal
Less:
Debt related to investment in joint ventures
Debt related to assets held for sale
Debt (per consolidated financial statements)
49,500
49,500 $
—
49,500
364,597 $ 3,527,319
1.4 %
100.0 %
2.82 %
4.11 %
2.82 %
4.05 %
(12,480 )
5,647
3,520,486
485,493
24,245
$ 3,010,748
Debt maturities
2016
2017
2018
2019
2020
2021–2028
Subtotal
Financing costs
Fair value adjustments
Subtotal
Less:
Debt related to investment in joint ventures
Debt related to assets held for sale
Debt (per consolidated financial statements)
Demand
revolving
credit
facilities
49,500 $
—
—
—
—
—
49,500
—
—
49,500
$
Mortgages
422,845 $
300,746
265,922
471,162
414,184
883,879
2,758,738
(10,060 )
5,221
2,753,899
Term loan
facility
183,453 $
—
—
—
—
—
183,453
(463 )
—
182,990
Convertible
debentures Debentures
— $
50,628
—
—
—
—
50,628
—
295
50,923
35,000 $
125,000
175,000
—
150,000
—
485,000
(1,957 )
131
483,174
485,493
24,245
$ 2,244,161 $
—
—
—
—
—
—
—
—
49,500 $
182,990 $
50,923 $ 483,174 $
Total
690,798
476,374
440,922
471,162
564,184
883,879
3,527,319
(12,480 )
5,647
3,520,486
485,493
24,245
3,010,748
Dream Office REIT 2015 Annual Report | 26
Term loan facility
The total principal amount outstanding for the term loan facility is as follows:
Term loan facility
August 15, 2011 August 15, 2016 $
188,000
Date issued
Maturity date
principal issued
Original
Weighted
average face
interest rate December 31, 2015 December 31, 2014
183,453
Outstanding principal amount
183,453 $
3.28% $
Convertible debentures
The total principal amounts outstanding for the convertible debentures are as follows:
5.5% Series H Debentures
December 9, 2011 March 31, 2017 $
Date issued
Maturity date
Outstanding
principal amount
December 31, 2015
50,628
Outstanding
principal amount
February 18, 2016
$
50,628
REIT A Units
if converted
February 18, 2016
1,379,941
The fair value of the conversion features of the convertible debentures is remeasured each period, with changes in fair value
being recorded in comprehensive income. At December 31, 2015, the conversion feature amounted to a $0.04 million financial
asset (December 31, 2014 – $0.8 million financial asset).
Debentures
The total principal amounts outstanding for debentures as at December 31, 2015 are as follows:
Debentures
Series A
Series B
Series C
Series K
Series L
Total
Date issued
June 13, 2013
October 9, 2013
January 21, 2014
April 26, 2011
August 8, 2011
Maturity date
June 13, 2018
January 9, 2017
January 21, 2020
April 26, 2016
September 30, 2016
Type
Fixed
Variable
Fixed
Fixed
Fixed
Face
interest rate
3.42 %
2.50 % (1)
4.07 %
5.95 %
5.95 %
Outstanding
principal amount at
December 31, 2015
175,000
$
125,000
150,000
25,000
10,000
485,000
$
(1) Variable interest rate at three-month Canadian Dealer Offered Rate (“CDOR”) plus 1.7%.
Short form base shelf prospectus
On April 27, 2015, the Trust filed a short form base shelf prospectus, which is valid for a 25-month period, during which time
the Trust may offer and issue, from time to time, debt securities, with an aggregate offering price of up to $2.0 billion. For the
three months and year ended December 31, 2015, no debt securities had been issued under the short form base shelf
prospectus.
For the year ended December 31, 2014, the Trust completed the issuance of $150 million aggregate principal amount of senior
unsecured debentures under the previous short form base shelf prospectus which expired on December 26, 2014.
Dream Office REIT 2015 Annual Report | 27
Commitments and contingencies
We are contingently liable with respect to guarantees that are issued in the normal course of business and with respect to
litigation and claims that may 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 our consolidated financial statements.
During the year, 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 $10.6 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 of December 31, 2015.
In an effort to manage the volatility of electricity prices mainly in the Western Canada and Calgary regions, the Trust entered
into fixed price contracts to purchase electricity for 60 properties. Furthermore, in an effort to manage the volatility of heating
prices mainly in the Toronto downtown region, the Trust entered into fixed price contracts to purchase steam for nine
properties.
Dream Office REIT’s finance leases, fixed price contracts to purchase electricity and steam, and future minimum commitments
under operating leases are as follows:
Operating lease payments
Finance lease payments
Fixed price contracts – electricity
Fixed price contracts – steam
Total
Minimum payments due
< 1 year
784
195
2,873
315
4,167
$
$
1–5 years
899
$
38
—
1,576
2,513
$
$
> 5 years
8,165
—
—
4,412
$ 12,577
Total
9,848
233
2,873
6,303
19,257
$
$
The Trust has entered into lease agreements whereby tenants currently in place may require the Trust to reimburse for tenant
improvement costs totalling approximately $37.8 million.
OUR 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.
REIT Units, Series A
Retained earnings
Accumulated other comprehensive income
Equity (per consolidated financial statements)
Add: LP B Units
Total equity(1)
Number of Units
107,860,638 $
—
—
107,860,638
5,233,823
113,094,461 $
December 31, 2015
Amount
3,168,915
301,324
11,575
3,481,814
90,912
3,572,726
Unitholders’ equity
December 31, 2014
Number of Units
107,936,575
—
—
107,936,575
602,434
108,539,009
$
$
Amount
3,171,794
601,495
4,228
3,777,517
15,151
3,792,668
(1) Total equity (non-GAAP measure) includes the subsidiary redeemable units.
Our Declaration of Trust authorizes the issuance of an unlimited number of the following classes of units: REIT 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. 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 2015 Annual Report | 28
At December 31, 2015, DAM held 773,939 REIT A Units and 5,233,823 LP B Units for a total ownership interest of
approximately 5.3%.
Exchange of REIT B Units for REIT A Units
On May 25, 2015, one of the holders surrendered 218,611 subsidiary redeemable units and received 218,611 REIT B Units. On
the same day, such REIT B Units were converted by the holder into 218,611 REIT A Units. The exchanges were valued based on
the carrying amount of the subsidiary redeemable units, the day prior to the surrender.
On April 2, 2015, the Trust acquired a subsidiary of DAM, a subsidiary of Dream Unlimited Corp. which was a party to the Asset
Management Agreement with the Trust, resulting in the elimination of the Trust’s obligation to pay asset management fees to
DAM. In consideration for the acquisition, the Trust issued 4,850,000 subsidiary redeemable units to DAM. See “Related party
transactions – Asset Management Agreement with DAM” under the section “Our Results of Operations” for further discussion.
On July 23, 2014, one of the holders surrendered 2,936,023 subsidiary redeemable units and received 2,936,023 REIT B Units.
On July 24, 2014, 2,936,023 REIT B Units were exchanged for 2,936,023 REIT A Units totalling $85.4 million. The exchange was
valued based on the carrying amount of the subsidiary redeemable units, the day prior to the exchange to REIT B Units.
Conversion of 5.5% Series H Debentures
For the year ended December 31, 2015, no debentures were converted. For the year ended December 31, 2014, $0.5 million of
5.5% Series H Debentures were converted for 13,628 REIT A Units.
Outstanding equity
The following table summarizes the changes in our outstanding equity:
Total Units issued and outstanding on January 1, 2015
Units issued pursuant to DRIP
Units issued pursuant to the Unit Purchase Plan
Units issued pursuant to Deferred Unit Incentive Plan (“DUIP”)
Units issued pursuant to reorganization of the Trustʼs management structure
LP B Units surrendered and exchanged for REIT A Units
Cancellation of REIT A Units
Total Units issued and outstanding on December 31, 2015
Percentage of all Units
Units issued pursuant to DRIP on January 15, 2016
Units issued pursuant to DRIP on February 15, 2016
Units issued pursuant to Unit Purchase Plan
Cancellation of REIT A Units
Total Units issued and outstanding on February 18, 2016
Percentage of all Units
REIT A Units
107,936,575
4,040,965
13,727
137,233
—
218,611
(4,486,473 )
107,860,638
95.4 %
571,077
551,336
362
(406,573 )
108,576,840
95.4 %
LP B Units
602,434
—
—
—
4,850,000
(218,611 )
—
5,233,823
4.6 %
—
—
—
—
5,233,823
4.6 %
Total
108,539,009
4,040,965
13,727
137,233
4,850,000
—
(4,486,473 )
113,094,461
100.0 %
571,077
551,336
362
(406,573 )
113,810,663
100.0 %
As at December 31, 2015, there were 847,071 deferred trust units and income deferred trust units outstanding (December 31,
2014 – 791,299).
Normal course issuer bid
On June 22, 2015, the Trust renewed its normal course issuer bid which expired on June 19, 2015. The Bid will remain in effect
until the earlier of June 21, 2016 or the date on which the Trust has purchased the maximum number of REIT A Units permitted
under the Bid. Under the Bid, the Trust has the ability to purchase for cancellation up to a maximum of 10,648,031 REIT A Units
(representing 10% of the Trust’s public float of 106,480,305 REIT A Units at the time of entering the Bid through the facilities of
the TSX). Daily purchases are limited to 73,273 REIT A Units, other than purchases pursuant to applicable block purchase
exceptions.
For the year ended December 31, 2015, 4,486,473 REIT A Units had been purchased and subsequently cancelled under the Bid
for a total cost of $105.1 million (December 31, 2014 – 832,200 REIT A Units cancelled for $20.9 million).
Subsequent to year-end, the Trust purchased an additional 406,573 REIT A Units under the normal course issuer bid for
cancellation for a cost of $6.5 million.
Dream Office REIT 2015 Annual Report | 29
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, which allows for any unforeseen expenditures and the variability in cash distributions as a
result of additional units issued pursuant to the Trust’s DRIP. The Trust determines the distribution rate by, among other
considerations, its assessment of cash flow as determined using adjusted cash flows from operating activities (a non-GAAP
measure), which includes cash flows from operating activities of our investments in joint ventures that are equity accounted
and excludes the fluctuations in non-cash working capital, transaction costs on business combinations and investment in lease
incentives and initial direct leasing costs. As such, the Trust believes the cash distributions are not an economic return of
capital, but a distribution of sustainable adjusted cash flow from operating activities.
The table below summarizes the distributions for the three months and year ended December 31, 2015:
2015 distributions(2)
Paid in cash or reinvested in units
Payable at December 31, 2015
Total distributions
2015 reinvestment(2)
Reinvested to December 31, 2015
Reinvested on January 15, 2016
Total distributions reinvested
Distributions paid in cash(2)
Reinvestment to distribution ratio
Cash payout ratio
Three months ended December 31, 2015
Year ended December 31, 2015
Declared
distributions
4% bonus
distributions(1)
Total
Declared
distributions
4% bonus
distributions(1)
$
$
$
42,201 $
21,134
63,335
15,684
8,374
24,058 $
39,277
38.0%
62.0%
629 $
301
930
629
311
940 $
42,830 $
21,435
64,265
16,313
8,685
24,998 $
$
229,522 $
21,134
250,656
83,650
8,374
92,024 $
158,632
36.7%
63.3%
3,346 $
301
3,647
3,346
311
3,657 $
Total
232,868
21,435
254,303
86,996
8,685
95,681
(1) Unitholders who participate in the DRIP receive an additional distribution of units equal to 4% of each cash distribution that was reinvested.
(2) Includes distributions on LP B Units.
Distributions declared for the three months ended December 31, 2015 were $63.3 million, up $0.7 million over the prior year
comparative quarter. Distributions declared for the year ended December 31, 2015 were $250.7 million, up $8.4 million over
the prior year. The increase mainly reflects a larger number of Units outstanding as a result of the 4,850,000 subsidiary
redeemable units issued pursuant to the reorganization of the Trust’s management structure on April 2, 2015, distributions
reinvested in additional Units and vested deferred trust units exchanged for REIT A Units, offset by REIT A Units buyback. Of the
distributions declared for the three months ended December 31, 2015, $24.1 million, or approximately 38.0%, was reinvested
in additional REIT A Units (year ended December 31, 2015 – $92.0 million, or approximately 36.7%, was reinvested in additional
REIT A Units), resulting in the three months ended December 31, 2015 cash payout ratio of 62.0% (year ended December 31,
2015 – 63.3%).
The Trust is committed to preserving a strong balance sheet and bolstering its liquidity position. In consideration of these
objectives, 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, effective for the month of February 2016 distribution. The February
2016 distribution will be payable on March 15, 2016 to unitholders of record at February 29, 2016. In addition, in consideration
of the current discount to the net asset value of the Dream Office REIT, the Trust also announced on February 18, 2016 the
suspension of its DRIP until further notice effective for the February 2016 distribution.
Dream Office REIT 2015 Annual Report | 30
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. A reconciliation of the results of operations to
the consolidated statements of comprehensive income is included in the following tables.
Statement of comprehensive income (loss) reconciliation to consolidated financial statements
2015
Three months ended December 31,
2014
Amounts included
in consolidated
financial
statements
168,349 $
(73,662 )
94,687
Share of
income from
investment in
joint ventures
27,829 $
(12,907 )
14,922
Amounts included
in consolidated
financial
statements
Share of
income from
investment in
joint ventures
Total
196,178 $
(86,569 )
109,609
176,460 $
(77,702 )
98,758
Total
28,726 $ 205,186
(13,313 )
(91,015 )
114,171
15,413
Investment properties revenue
Investment properties operating expenses
Net rental income
Other income
Share of net income (loss) and dilution loss from
$
investment in Dream Industrial REIT
Share of net income from investment in joint
ventures
Interest and fee income
Other expenses
General and administrative
Interest:
Debt
Subsidiary redeemable units
Amortization 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
Deferred income tax expense
Net income (loss) for the period
Other comprehensive income (loss)
Unrealized gain (loss) on interest rate swaps,
net of tax
Unrealized foreign currency translation gain,
net of tax
Comprehensive income (loss) for the period
$
(5,923 )
—
(5,923 )
3,699
—
3,699
10,186
914
5,177
(10,186 )
15
(10,171 )
—
929
(4,994 )
10,343
908
14,950
(10,343 )
—
(10,343 )
—
908
4,607
(1,899 )
(47 )
(1,946 )
(5,879 )
(3 )
(5,882 )
(32,302 )
(2,931 )
(779 )
(37,911 )
(79,100 )
20,695
(57,169 )
(115,574 )
(53,621 )
(516 )
(54,137 )
(4,286 )
—
(36,588 )
(2,931 )
(33,091 )
(338 )
(4,734 )
—
(37,825 )
(338 )
(3 )
(4,336 )
(782 )
(42,247 )
(800 )
(40,108 )
—
(4,737 )
(800 )
(44,845 )
(300 )
—
(115 )
(415 )
—
—
—
(79,400 )
20,695
(57,284 )
(115,989 )
(53,621 )
(516 )
(54,137 )
(67,100 )
2,689
(1,583 )
(65,994 )
7,606
(300 )
7,306
(200 )
—
(133 )
(333 )
—
—
—
(67,300 )
2,689
(1,716 )
(66,327 )
7,606
(300 )
7,306
377
—
377
(323 )
—
(323 )
1,406
1,783
(52,354 ) $
—
—
— $
1,406
1,783
(52,354 ) $
1,675
1,352
8,658 $
—
—
— $
1,675
1,352
8,658
Dream Office REIT 2015 Annual Report | 31
Amounts per
consolidated
financial
statements
690,962 $
(303,449 )
387,513
Share of
income from
investment in
joint ventures
111,484 $
(51,693 )
59,791
2015
Total
802,446 $
(355,142 )
447,304
Year ended December 31,
2014
Amounts per
consolidated
financial
statements
705,279 $
(303,771 )
401,508
Share of
income from
investment in
joint ventures
112,716 $
(52,274 )
60,442
Total
817,995
(356,045 )
461,950
6,112
—
6,112
15,965
—
15,965
53,136
3,005
62,253
(53,136 )
68
(53,068 )
—
3,073
9,185
37,611
3,199
56,775
(37,611 )
35
(37,576 )
—
3,234
19,199
(12,196 )
(47 )
(12,243 )
(24,393 )
(3 )
(24,396 )
(131,818 )
(9,171 )
(17,266 )
—
(149,084 )
(9,171 )
(134,952 )
(4,638 )
(17,725 )
—
(152,677 )
(4,638 )
(2,949 )
(156,134 )
(24 )
(17,337 )
(2,973 )
(173,471 )
(2,970 )
(166,953 )
—
(17,728 )
(2,970 )
(184,681 )
(201,030 )
48,890
(194,836 )
(346,976 )
(53,344 )
(1,695 )
(55,039 )
(139 )
7,486
7,347
(47,692 ) $
11,030
—
(416 )
10,614
—
—
—
(190,000 )
48,890
(195,252 )
(336,362 )
(53,344 )
(1,695 )
(55,039 )
(124,303 )
2,749
(9,848 )
(131,402 )
159,928
(638 )
159,290
(4,153 )
—
(985 )
(5,138 )
—
—
—
(128,456 )
2,749
(10,833 )
(136,540 )
159,928
(638 )
159,290
—
—
—
— $
(139 )
(666 )
7,486
7,347
(47,692 ) $
3,210
2,544
161,834 $
—
—
—
— $
(666 )
3,210
2,544
161,834
$
Investment properties revenue
Investment properties operating expenses
Net rental income
Other income
Share of net income and dilution loss from
investment in Dream Industrial REIT
Share of net income from investment in joint
ventures
Interest and fee income
Other expenses
General and administrative
Interest:
Debt
Subsidiary redeemable units
Amortization 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
Deferred income tax expense
Net income (loss) for the year
Other comprehensive income (loss)
Unrealized loss on interest rate swaps,
net of tax
Unrealized foreign currency translation gain,
net of tax
Comprehensive income (loss) for the year
$
Dream Office REIT 2015 Annual Report | 32
Investment properties revenue
Investment properties revenue includes base rent from investment properties as well as the recovery of operating costs and
property taxes from tenants.
Investment properties revenue for the quarter was $196.2 million, a decrease of $9.0 million, or 4.4%, over the prior year
comparative quarter (for the year ended December 31, 2015 – $802.4 million, a decrease of $15.5 million, or 1.9%, over the
prior year), primarily driven by dispositions during the current year and 2014, lower in-place occupancy, decrease in straight-
line rent and an increase in amortization of lease incentives.
Investment properties operating expenses
Investment properties operating expenses comprises of occupancy costs and property taxes as well as certain expenses that are
not recoverable from tenants, the majority of which are related to leasing. 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 for the quarter were $86.6 million, a decrease of $4.4 million, or 4.9%, over the prior
year comparative quarter (for the year ended December 31, 2015 – $355.1 million, a decrease of $0.9 million, or 0.3%, over the
prior year), primarily driven by lower operating expenses as a result of dispositions during the current year and 2014, offset by
higher operating expenses that are associated with planned maintenance work and seasonal in nature.
Interest and fee income
Interest and fee income comprises fees earned from third-party property management, including management, construction
and leasing fees, and interest earned on bank accounts and related fees. 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 quarter-
over-quarter.
Interest and fee income for the quarter was $0.9 million, flat when compared to the prior year comparative quarter. For the
year ended December 31, 2015, interest and fee income was $3.1 million, a decrease of $0.2 million, or 5.0%, over the prior
year mainly due to lower third-party property management fees from sale of third-party managed properties and lower
interest income on cash balances.
General and administrative expenses
The following table summarizes the nature of expenses included:
Management Services Agreement
Asset management fees
Salaries
Deferred compensation expense
Other(1)
General and administrative expenses
Three months ended December 31,
Year ended December 31,
$
$
2015
(133 ) $
—
(152 )
(494 )
(1,167 )
(1,946 ) $
2014
— $
(4,244 )
—
(787 )
(851 )
(5,882 ) $
2015
(435 ) $
(4,338 )
(346 )
(2,638 )
(4,486 )
(12,243 ) $
2014
—
(17,093 )
—
(3,707 )
(3,596 )
(24,396 )
(1) Other comprises professional service fees, Board of Trusteesʼ fees and expenses, investor relations and compliance and regulatory costs.
General and administrative (“G&A”) expenses for the quarter were $1.9 million, a decrease of $3.9 million, or 66.9%, over the
prior year comparative quarter (for the year ended December 31, 2015 – $12.2 million, a decrease of $12.2 million, or 49.8%,
over the prior year), mainly attributable to the elimination of the Trust’s obligation to pay asset management fees to DAM, and
lower fair value adjustments to vested DUIP units during the year, offset by fees related to the Management Services
Agreement, higher salaries, investor relations and compliance and regulatory costs.
Interest expense – debt
Interest expense on debt for the quarter was $36.6 million, a decrease of $1.2 million, or 3.3%, over the prior year comparative
quarter (for the year ended December 31, 2015 – $149.1 million, a decrease of $3.6 million, or 2.4%, over the prior year). The
decrease in interest expense was due to the discharge of debt related to the disposed properties in 2014 and 2015, and the
refinancing of maturing debt at lower interest rates in 2014 and in 2015.
Dream Office REIT 2015 Annual Report | 33
Interest expense – subsidiary redeemable units
Interest expense on subsidiary redeemable units for the quarter was $2.9 million, an increase of $2.6 million, or 767.2%, over
the prior year comparative quarter (for the year ended December 31, 2015 – $9.2 million, an increase of $4.5 million, or 97.7%,
over the prior year), mainly due to the issuance of 4,850,000 subsidiary redeemable units to DAM on April 2, 2015, offset by
one of the holders of the subsidiary redeemable units surrendering 2,936,023 subsidiary redeemable units and receiving
2,936,023 REIT A Units on July 24, 2014 and surrendering an additional 218,611 subsidiary redeemable units and receiving
218,611 REIT A Units on May 25, 2015.
Amortization of external management contracts and depreciation on property and equipment
Amortization of external management contracts and depreciation on property and equipment expense for the three months
and year ended December 31, 2015 was $0.8 million and $3.0 million, respectively, which remained relatively flat when
compared to the prior year.
Fair value adjustments to investment properties
The $79.4 million fair value loss recognized during the quarter (for the year ended December 31, 2015 – $190.0 million loss)
was mainly driven by changes made in capital, market rental rate and leasing assumptions in Calgary downtown, Calgary
suburban, Edmonton in Western Canada and Toronto suburban, to reflect the changing economics in those particular markets.
The fair value loss for the year was offset by an increase in fair value related to properties in the Toronto downtown region due
to cap rate compression.
Fair value adjustments to financial instruments
Fair value adjustments to financial instruments include remeasurement on the conversion feature of the convertible debenture,
remeasurement of the carrying value of subsidiary redeemable units and remeasurement of deferred trust units.
Our remeasurement of the conversion feature of the convertible debenture resulted in a loss of $1.5 million during the quarter
(loss of $0.7 million for the year ended December 31, 2015), mainly as a result of fluctuations in the inputs used to value the
conversion feature of the convertible debenture.
Our remeasurement of the carrying value of subsidiary redeemable units resulted in a gain of $20.0 million during the quarter
(gain of $25.7 million for the year ended December 31, 2015), mainly as a result of a decrease in the unit price during the
quarter and for the year ended December 31, 2015.
The remeasurement of the deferred trust units resulted in a gain of $2.1 million during the quarter (gain of $3.9 million for the
year ended December 31, 2015), mainly as a result of a decrease in the unit price during the quarter and for the year ended
December 31, 2015.
Net losses on transactions and other activities
The following table summarizes the nature of expenses included:
Debt settlement costs, net
Net loss on sale of investment properties
Internal leasing costs
Business transformation costs
Cost on Reorganization
Impairment of goodwill
Other activities
Total
$
$
$
Three months ended December 31,
2014
(683 )
—
(758 )
(275 )
—
—
—
(1,716 )
2015
(1,136 )
(2,121 )
(2,442 )
(373 )
—
(51,212 )
—
(57,284 )
$
Year ended December 31,
2015
(1,999 ) $
(3,773 )
(9,246 )
(1,490 )
(128,132 )
(51,212 )
600
(195,252 ) $
$
$
2014
(1,892 )
(1,496 )
(6,345 )
(1,100 )
—
—
—
(10,833 )
Net losses on transactions and other activities for the quarter was $57.3 million, an increase of $55.6 million over the prior year
comparative quarter, mainly due to the $51.2 million goodwill impairment charge, higher debt settlement costs incurred in
relation to a property disposition during the quarter, higher net loss on sale of investment properties and higher internal
leasing costs. The goodwill impairment was mainly attributable to the significant increase in the weighted average cost of
capital of the Trust during the fourth quarter of 2015, resulting from the unfavourable external market conditions. For the year
ended December 31, 2015, net losses on transactions and other activities was $195.3 million, an increase of $184.4 million
over the prior year, primarily due to the $128.1 million related to the cost on Reorganization whereby on April 2, 2015, the
Trust’s obligation to pay asset management fees to DAM was eliminated, and the goodwill impairment charge of $51.2 million
as at December 31, 2015.
Dream Office REIT 2015 Annual Report | 34
The business transformation costs relate to process and technology improvement costs. This initiative will transform 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 will also form the foundation of our continuous improvement
culture.
Related party transactions
From time to time, Dream Office REIT and its subsidiaries enter into transactions with related parties that are conducted under
normal commercial terms.
Agreements with DAM
On April 2, 2015, the Trust and DAM also 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. 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, 2015.
On August 24, 2007, Dream Office REIT had an asset management agreement (the “Asset Management Agreement”) with DAM
pursuant to which DAM provided certain asset management services to Dream Office REIT and its subsidiaries. On April 2,
2015, the Trust acquired a subsidiary of DAM which was a party to the Asset Management Agreement with the Trust, resulting
in the elimination of the Trust’s obligation to pay asset management, acquisition and capital expenditure fees to DAM. In
consideration for the Reorganization, the Trust issued 4,850,000 subsidiary redeemable units to DAM, representing total
consideration of $127,313 using the closing price of REIT A Units at the date of the transaction. The total consideration of
$127,313 and costs related to the Reorganization totalling $819 were charged to net income in the consolidated statement of
comprehensive income.
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.
Management Services Agreement with DAM
The following is a summary of fees incurred for the three months and years ended December 31, 2015 and December 31, 2014:
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 net loss on sale of investment properties)
Total incurred under the Management Services Agreement
Three months ended December 31,
2014
— $
2015
133 $
$
Year ended December 31,
2015
435 $
2014
—
122
—
359
119
374 $
$
—
— $
300
1,094 $
—
—
—
Dream Office REIT 2015 Annual Report | 35
Asset Management Agreement with DAM
The Asset Management Agreement provided for a broad range of asset management services for the following fees:
• base annual management fee calculated and payable on a monthly basis, equal to 0.25% of the gross asset value of
properties, defined as the fair value of the properties at August 23, 2007 (the date of the sale of our portfolio of properties
in Eastern Canada) plus the purchase price of properties acquired subsequent to that date, adjusted for any
properties sold;
•
incentive fee equal to 15% of Dream Office REIT’s adjusted funds from operations per unit (as defined in the Asset
Management Agreement) in excess of $2.65 per unit;
• capital expenditures fee equal to 5% of all hard construction costs incurred on each capital project with costs in excess of
$1 million, excluding work done on behalf of tenants or any maintenance capital expenditures;
• acquisition fee, calculated over a fiscal year based on the anniversary date of the Asset Management Agreement, equal to:
(i) 1.0% of the purchase price of a property on the first $100 million of properties acquired; (ii) 0.75% of the purchase price
of a property on the next $100 million of properties acquired; and (iii) 0.50% of the purchase price of a property acquired in
excess of $200 million of properties acquired; and
•
financing fee equal to the lesser of actual expenses incurred by DAM in supplying services relating to financing transactions
and 0.25% of the debt and equity of all financing transactions completed on behalf of Dream Office REIT.
The following is a summary of fees incurred for the three months and years ended December 31, 2015 and December 31, 2014
prior to the elimination of the Asset Management Agreement with DAM as part of the Reorganization on April 2, 2015:
Base annual management fee (included in G&A expenses)
Expense reimbursements (recovery) related to financing arrangements
(included in debt)
Total incurred under the Asset Management Agreement
Three months ended December 31,
2014
4,244 $
— $
2015
$
Year ended December 31,
2015
4,338 $
2014
17,093
—
— $
(245 )
3,999 $
—
4,338 $
319
17,412
$
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, 2015 and December 31,
2014. Amounts billed by DAM prior to April 2, 2015 are included pursuant to the original agreement:
Business transformation costs
Strategic services and other
Total costs incurred under the Shared Services and Cost Sharing
Agreement
Three months ended December 31,
2014
275 $
97
2015
373 $
352
$
Year ended December 31,
2015
1,490 $
889
2014
1,100
405
$
725 $
372 $
2,379 $
1,505
The Trust’s expected future commitment under the Shared Services and Cost Sharing Agreement, which expires on
December 1, 2020, is $2,463.
Dream Office REIT 2015 Annual Report | 36
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 three months and years ended December 31, 2015 and December 31, 2014. Amounts incurred prior to April 2,
2015 are included pursuant to the original agreement:
Certain 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
Certain costs processed by DAM on behalf of the Trust under
the Administrative Services Agreement
Three months ended December 31,
2014
988 $
2015
1,495 $
$
Year ended December 31,
2015
5,560 $
2014
5,007
810
574
2,979
8,705
$
$
2,305 $
1,562 $
8,539 $
13,712
476 $
— $
610 $
37
Services Agreement with Dream Industrial REIT
Dream Office Management Corp. has 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 year ended
December 31, 2015 and December 31, 2014:
Total cost recoveries from Dream Industrial REIT
Three months ended December 31,
2014
1,640 $
2015
806 $
$
Year ended December 31,
2015
3,471 $
2014
5,999
Deferred income taxes expense
Deferred income taxes expense for the three months and year ended December 31, 2015 were $0.5 million and $1.7 million,
respectively, which related to the two investment properties located in the United States (“U.S.”).
Other comprehensive income (loss)
Other comprehensive income (loss) comprises unrealized gain (loss) on interest rate swaps and unrealized foreign currency
translation gain related to the two properties located in the U.S. For the three months and year ended December 31, 2015,
other comprehensive income amounted to $1.8 million and $7.3 million, respectively. The increase in overall comprehensive
income (loss) for the three months and year ended December 31, 2015 was mainly driven by the strong U.S. dollar in relation to
the Canadian dollar during the respective period.
Dream Office REIT 2015 Annual Report | 37
Net operating income (“NOI”)
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, excluding net rental income from properties sold and assets held for sale.
The following pie chart illustrates comparative properties NOI by region as a percentage of comparative properties NOI,
excluding properties sold and properties held for sale, for the three months ended December 31, 2015.
COMPARATIVE PROPERTIES NOI BY REGION
(Three months ended December 31, 2015)
NOI comparative portfolio
NOI shown below details comparative and non-comparative items to assist in understanding the impact each component has
on NOI. The comparative properties disclosed in the following table are properties acquired prior to January 1, 2014. Income
from properties sold and properties held for sale contributing to NOI in comparative periods are shown separately.
Comparative NOI excludes lease termination fees, bad debt expense, one-time property adjustments, straight-line rents and
amortization of lease incentives.
For the three months ended December 31, 2015, NOI from comparative properties decreased by 0.7%, or $0.8 million, over the
prior year comparative quarter (for the year ended December 31, 2015 – a decrease of 0.6%, or $2.6 million, over the prior
year), with decreases mainly in Western Canada, Calgary downtown and Toronto suburban regions. The overall decrease was
mainly driven by lower occupancy.
Dream Office REIT 2015 Annual Report | 38
Three months ended December 31,
Change
%
(1.6 ) $
(6.6 )
4.3
2.3
(4.0 )
2.6
(0.7 )
2014
23,951 $
18,309
3,107
35,138
15,487
16,573
112,565
546
(126 )
778
(2,726 )
111,037
Amount
(381 )
(1,201 )
135
798
(620 )
435
(834 )
(511 )
5
(294 )
(1,106 )
(2,740 )
(2.5 )
Year ended December 31,
2015
2014
93,772 $ 95,927 $
76,722
70,801
11,627
12,789
141,734 136,391
63,324
60,432
65,943
67,855
447,383 449,934
1,869
16
(468 )
(432 )
4,612
2,852
(9,952 )
(13,240 )
436,579 445,995
Amount
(2,155 )
(5,921 )
1,162
5,343
(2,892 )
1,912
(2,551 )
(1,853 )
36
(1,760 )
(3,288 )
(9,416 )
Change
%
(2.2 )
(7.7 )
10.0
3.9
(4.6 )
2.9
(0.6 )
(2.1 )
2015
$ 23,570 $
17,108
3,242
35,936
14,867
17,008
111,731
35
(121 )
484
(3,832 )
108,297
1,312
3,134
(1,822 )
10,725
15,955
(5,230 )
Western Canada
Calgary – downtown
Calgary – suburban
Toronto – downtown
Toronto – suburban
Eastern Canada
Comparative properties NOI(1)
Lease termination fees and other
Properties held for redevelopment
Straight-line rent
Amortization of lease incentives
NOI(1)
NOI from properties sold and
properties held for sale
NOI including income from properties
sold and assets held for sale
$ 109,609 $ 114,171 $
(4,562 )
(4.0 ) $ 447,304 $ 461,950 $ (14,646 )
(3.2 )
(1) Comparative properties NOI and NOI (non-GAAP measures) – The reconciliation of NOI to net rental income can be found in the section “Non-GAAP
measures and other disclosures” under the heading “NOI”.
Western Canada decreased by 1.6%, or $0.4 million, over the prior year comparative quarter (for the year ended December 31,
2015 – a decrease of 2.2%, or $2.2 million, over the prior year), largely due to a decline in weighted average in-place occupancy
of approximately 66,000 square feet, partially offset by higher rents on renewals and step-up in rental rates for certain tenants.
Calgary downtown decreased by 6.6%, or $1.2 million, over the prior year comparative quarter (for the year ended
December 31, 2015 – a decrease of 7.7%, or $5.9 million, over the prior year), primarily due to a decline in weighted average in-
place occupancy of approximately 114,000 square feet.
Calgary suburban increased by 4.3%, or $0.1 million, over the prior year comparative quarter (for the year ended December 31,
2015 – an increase of 10.0%, or $1.2 million, over the prior year), mainly due to higher weighted average in-place occupancy of
approximately 26,000 square feet.
Toronto downtown increased by 2.3%, or $0.8 million, over the prior year comparative quarter (for the year ended
December 31, 2015 – an increase of 3.9%, or $5.3 million, over the prior year), mainly due to higher rents on renewals and
step-up in rental rates for certain tenants.
Toronto suburban decreased by 4.0%, or $0.6 million, over the prior year comparative quarter (for the year ended
December 31, 2015 – a decrease of 4.6%, or $2.9 million, over the prior year), mainly due to 196,200 square feet of previously
identified vacancy that took effect at the beginning of Q3 2015.
Eastern Canada increased by 2.6%, or $0.4 million, over the prior year comparative quarter (for the year ended December 31,
2015 – an increase of 2.9%, or $1.9 million, over the prior year), mainly due to higher weighted average in-place occupancy of
approximately 57,000 square feet and favourable foreign exchange adjustments in our U.S. properties.
For the three months and year ended December 31, 2015, lease termination fees and other adjustments amounted to income
of $0.04 million and $0.02 million, respectively (three months and year ended December 31, 2014 – income of $0.5 million and
$1.9 million, respectively).
Dream Office REIT 2015 Annual Report | 39
NOI prior quarter comparison
The comparative properties disclosed in the following table include properties acquired prior to July 1, 2015.
Western Canada
Calgary – downtown
Calgary – suburban
Toronto – downtown
Toronto – suburban
Eastern Canada
Comparative properties NOI(1)
Lease termination fees and other
Properties held for redevelopment
Straightline rent
Amortization of lease incentives
NOI(1)
NOI from properties sold and properties held for sale
NOI including income from properties sold and assets held for sale
December 31,
2015
23,570 $
17,108
3,242
35,936
14,867
17,008
111,731
35
(121 )
484
(3,832 )
108,297
1,312
109,609 $
September 30,
2015
23,232 $
17,672
3,275
35,315
14,506
16,897
110,897
(361 )
(58 )
544
(3,382 )
107,640
2,672
110,312 $
$
$
Three months ended
Change
%
1.5
(3.2 )
(1.0 )
1.8
2.5
0.7
0.8
Amount
338
(564 )
(33 )
621
361
111
834
396
(63 )
(60 )
(450 )
657
(1,360 )
(703 )
0.6
(0.6 )
(1) Comparative properties NOI and NOI (non-GAAP measures) – The reconciliation of NOI to net rental income can be found in the section “Non-GAAP
measures and other disclosures” under the heading “NOI”.
Comparative properties NOI increased by 0.8%, or $0.8 million, over the prior quarter.
Western Canada increased by 1.5%, or $0.3 million, over the prior quarter, largely due to an increase in weighted average
in-place occupancy of approximately 9,000 square feet and higher rents on renewals and step-up in rental rates for
certain tenants.
Calgary downtown decreased by 3.2%, or $0.6 million, over the prior quarter, largely due to a decline in weighted average
in-place occupancy of approximately 46,000 square feet.
Toronto downtown increased by 1.8%, or $0.6 million, over the prior quarter, largely due to an increase in weighted average
in-place occupancy of approximately 15,000 square feet and higher rents on renewals and step-up in rental rates for
certain tenants.
Toronto suburban increased by 2.5%, or $0.4 million, over the prior quarter, largely due to an increase in weighted average in-
place occupancy of approximately 24,000 square feet.
Eastern Canada increased by 0.7%, or $0.1 million, over the prior quarter, largely due to higher rents on renewals and
favourable foreign exchange adjustments in our U.S. properties.
Calgary suburban remained relatively stable over the prior quarter.
For the three months ended December 31, 2015, lease termination fees and other adjustments amounted to income of
$0.04 million (three months ended September 30, 2015 – loss of $0.4 million).
Dream Office REIT 2015 Annual Report | 40
Funds from operations (excluding Reorganization) and adjusted funds from operations
Net income (loss) for the period
Add (deduct):
Share of net loss (income) and dilution loss from investment in
Dream Industrial REIT
Share of FFO from investment in Dream Industrial REIT
Depreciation and amortization
Net loss 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
Impairment of goodwill
Other
FFO
Add: Cost on Reorganization
FFO (excluding Reorganization)(1)
Funds from operations (excluding Reorganization)
Add (deduct):
Share of FFO from investment in Dream Industrial REIT
Share of AFFO from investment in Dream Industrial REIT
Amortization of fair value adjustments on assumed debt
Deferred unit compensation expense
Straight-line rent
Business transformation costs
Other
Three months ended December 31,
2014
7,306 $
2015
(54,137 ) $
$
Year ended December 31,
2015
(55,039 ) $
2014
159,290
5,923
4,519
4,614
2,121
2,931
79,400
(21,046 )
1,136
2,442
516
51,212
41
79,672 $
—
79,672 $
(3,699 )
4,565
3,526
—
338
67,300
(2,918 )
683
758
300
—
(10 )
78,149 $
—
78,149 $
(6,112 )
18,056
16,213
3,773
9,171
190,000
(49,851 )
1,999
9,246
1,695
51,212
16
190,379 $
128,132
318,511 $
(15,965 )
16,412
12,922
1,496
4,638
128,456
(3,441 )
1,892
6,345
638
—
146
312,829
—
312,829
79,672 $
78,149 $
318,511 $
312,829
(4,519 )
3,902
(796 )
845
(484 )
373
(18 )
78,975
(4,565 )
3,767
(1,110 )
1,016
(778 )
275
(54 )
76,700
(18,056 )
15,437
(4,060 )
3,599
(2,852 )
1,490
(129 )
313,940
(16,412 )
13,511
(4,754 )
4,399
(4,612 )
1,100
(433 )
305,628
$
$
$
Deduct:
Normalized initial direct leasing costs and lease incentives
AFFO(2)
(8,053 )
70,922 $
$
(8,130 )
68,570 $
(32,495 )
281,445 $
(32,568 )
273,060
(1) FFO (excluding Reorganization) (non-GAAP measure) – refer to the section “Non-GAAP measures and other disclosures” under the heading “Funds from
operations (“FFO”) (excluding Reorganization)” for further details.
(2) AFFO (non-GAAP measure) – The reconciliation of AFFO to cash flow from operations can be found in the section “Non-GAAP measures and other
disclosures” under the heading “Cash generated from operating activities to AFFO reconciliation”.
Funds from operations (excluding Reorganization)
FFO (excluding Reorganization)
FFO (excluding Reorganization) per unit – basic(1)
FFO (excluding Reorganization) per unit – diluted(1)
Three months ended December 31,
2015
79,672
0.70
0.70
$
$
$
$
$
$
2014
78,149 $
0.72 $
0.71 $
(1) The LP B Units are included in the calculation of basic and diluted FFO (excluding Reorganization) per unit.
Year ended December 31,
2015
318,511
2.83
2.82
2014
312,829
2.88
2.87
$
$
$
Total FFO (excluding Reorganization) for the three months and year ended December 31, 2015 was $79.7 million and
$318.5 million, respectively, an increase of $1.5 million, or 1.9%, over the prior year comparative quarter and an increase of
$5.7 million, or 1.8%, over the prior year comparative period.
Dream Office REIT 2015 Annual Report | 41
Diluted FFO (excluding Reorganization) on a per unit basis for the three months and year ended December 31, 2015 was $0.70
and $2.82, respectively, compared to $0.71 and $2.87 for the three months and year ended December 31, 2014. The modest
decline when compared to the prior year comparative quarter and period was mainly due to the following reasons:
• Decrease in comparative NOI;
• Decrease in lease termination fees and other one-time property adjustments;
• Disposition of properties; and
• Incremental change in straight-line rent adjustment;
Partially offset by
• General and administrative expense savings as a result of the elimination of the asset management agreement with DAM,
net of the dilution impact on issuance of 4.85 million subsidiary redeemable units to DAM pursuant to the Reorganization;
• Interest rate savings upon refinancing of maturing debt;
• Incremental increase in FFO from our investment in Dream Industrial REIT on a full-year basis; and
• Compensation received on expropriation of a small parcel of land.
Adjusted funds from operations
AFFO
AFFO per unit – basic(1)
(1) The LP B Units are included in the calculation of basic AFFO per unit.
$
$
Three months ended December 31,
2015
70,922
0.62
$
$
2014
68,570 $
0.63 $
Year ended December 31,
2015
281,445
2.50
2014
273,060
2.52
$
$
Total AFFO for the three months and year ended December 31, 2015 was $70.9 million and $281.4 million, respectively, an
increase of $2.4 million, or 3.4%, over the prior year comparative quarter and an increase of $8.4 million, or 3.1%, over the
prior year.
AFFO on a per unit basis for the three months and year ended December 31, 2015 was $0.62 and $2.50, respectively, down
slightly from $0.63 over the prior year comparative quarter and $2.52 when compared to the prior year. The change in AFFO
per unit for the year ended December 31, 2015 was largely due to the same reasons as described above on change in diluted
FFO (excluding Reorganization) except for the incremental change in straight-line rent adjustment as this is added back in the
determination of AFFO.
SELECTED ANNUAL INFORMATION
The following table provides selected financial information for the past three years:
Investment properties revenue(1)
Net income (loss)
Total assets(1)
Non-current debt(1)
Total debt(1)
Distributions declared
Distribution rate (per unit)
Units outstanding:
REIT Units, Series A
LP Class B Units, Series 1
$
2015
802,446 $
(55,039 )
7,286,037
2,811,936
3,520,486
250,656
2.24
2014
817,995 $
159,290
7,558,895
3,215,878
3,593,808
242,220
2.24
2013
800,531
445,011
7,667,742
3,380,891
3,662,543
235,751
2.23
107,860,638
5,233,823
107,936,575
602,434
103,420,221
3,538,457
(1) Includes investment in joint ventures, which are equity accounted, and properties held for sale.
Dream Office REIT 2015 Annual Report | 42
QUARTERLY INFORMATION
The following tables show quarterly information since January 1, 2014.
Key leasing, financing, portfolio and results of operations quarterly information
Leasing – total portfolio
Occupancy – including committed (period-end)
Occupancy – in place (period-end)
Occupancy – national industry average
Tenant retention ratio
Average in-place and committed net rent per
square foot (period-end)
Market rent/in-place and committed rent (%)
Financing
Weighted average effective interest rate on
debt (period-end)
Weighted average face rate of interest on
debt (period-end)
Interest coverage ratio (times)
Net average debt-to-EBITDFV (years)
Level of debt (net total debt-to-gross book value)
Debt – average term to maturity (years)
Unencumbered assets (in millions)
Portfolio(1)
Number of properties
GLA (millions of sq. ft.)
Q4
Q3
Q2
2015
Q1
Q4
Q3
Q2
91.3 %
89.8 %
87.8 %
74.7 %
91.6 %
89.8 %
88.2 %
53.4 %
92.8 %
91.0 %
88.6 %
61.8 %
92.8 %
91.4 %
88.9 %
51.5 %
93.0 %
91.4 %
89.3 %
64.4 %
93.0 %
91.1 %
89.7 %
34.5 %
94.1 %
92.5 %
89.6 %
54.8 %
2014
Q1
94.2 %
92.5 %
89.7 %
62.6 %
$
18.94 $
2.7 %
18.73 $
5.0 %
18.28 $
6.4 %
18.24 $
7.5 %
18.22 $
7.8 %
18.21 $
8.2 %
18.14 $
8.0 %
17.97
8.9 %
4.11 %
4.12 %
4.13 %
4.15 %
4.15 %
4.20 %
4.19 %
4.19 %
4.05 %
2.9
7.7
48.3 %
3.8
825 $
4.11 %
2.9
7.7
48.0 %
3.8
768 $
4.13 %
2.9
7.6
47.9 %
3.9
820 $
4.16 %
2.9
7.9
47.6 %
4.1
820 $
4.18 %
2.9
7.8
47.5 %
4.4
796 $
4.21 %
2.9
7.8
46.9 %
4.2
794 $
4.22 %
2.9
7.9
47.3 %
4.4
793 $
4.23 %
2.9
8.0
47.6 %
4.6
771
$
166
23.0
169
23.3
174
24.1
174
24.1
175
24.2
175
24.2
180
24.5
181
24.6
(1) Excludes redevelopment properties and properties held for sale at period-end.
Results of operations
(in thousands of Canadian dollars)
Investment properties revenue
Investment properties operating
expenses
Net rental income
Other income
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 period
Other comprehensive income
(loss)
Comprehensive income (loss) for
the period
$
2015
Q1
Q1
$ 168,349 $ 174,370 $ 174,402 $ 173,841 $ 176,460 $ 173,724 $ 176,432 $ 178,663
Q4
Q2
Q3
Q2
Q3
Q4
2014
(73,662 )
94,687
5,177
(37,911 )
(78,734 )
95,636
19,099
(38,741 )
(75,275 )
99,127
15,894
(39,185 )
(75,778 )
98,063
22,083
(40,297 )
(77,702 )
98,758
14,950
(40,108 )
(74,449 )
99,275
12,784
(40,548 )
(74,339 )
(77,281 )
102,093 101,382
14,678
14,363
(43,507 )
(42,790 )
(115,574 )
(53,621 )
(516 )
(54,137 )
(49,259 )
26,735
(522 )
26,213
(164,345 )
(88,509 )
(328 )
(88,837 )
(17,798 )
62,051
(329 )
61,722
(65,994 )
7,606
(300 )
7,306
(16,608 )
54,903
(36 )
54,867
(26,226 )
46,723
(155 )
46,568
(22,574 )
50,696
(147 )
50,549
1,783
3,315
(59 )
2,308
1,352
1,708
(1,523 )
1,007
(52,354 ) $
29,528 $
(88,896 ) $
64,030 $
8,658 $
56,575 $
45,045 $ 51,556
Dream Office REIT 2015 Annual Report | 43
Calculation of funds from operations (excluding Reorganization)
(in thousands of Canadian dollars except for unit and per unit amounts)
Net income (loss) for the period
Add (deduct):
Share of net loss (income) and
dilution loss from investment
in Dream Industrial REIT
Share of FFO from investment
in Dream Industrial REIT
Depreciation and amortization
Net loss on sale of investment
properties
Interest expense on subsidiary
Q4
(54,137) $
$
Q3
Q2
2015
Q1
Q4
Q3
Q2
2014
Q1
26,213 $ (88,837) $ 61,722 $
7,306 $ 54,867 $ 46,568 $ 50,549
5,923
(3,303)
(4,305)
(4,427)
(3,699)
(3,291)
(5,386)
(3,589)
4,519
4,614
4,506
4,125
4,517
3,915
4,514
3,561
4,565
3,526
4,070
3,515
3,946
3,065
3,831
2,817
2,121
1,531
—
121
—
565
931
—
redeemable units
2,931
2,931
2,972
337
338
337
1,982
1,981
Fair value adjustments to
investment properties
Fair value adjustments to
financial instruments
and DUIP included in G&A
Debt settlement costs, net
Internal leasing costs
Deferred income taxes expense
Impairment of goodwill
Other
FFO
Add: Cost on Reorganization
FFO (excluding Reorganization)(1)
FFO per unit (excluding
Reorganization) – basic(2)
FFO per unit (excluding
Reorganization) – diluted(2)
$
$
$
$
79,400
58,200
44,100
8,300
67,300
17,644
25,197
18,315
(21,046)
1,136
2,442
516
51,212
41
79,672 $
—
79,672 $
746
—
933
—
(2,285)
—
(10,647)
—
(19,091)
863
2,411
522
—
9
1,016
1,209
1,900
147
—
(72)
78,917 $ (45,659) $ 77,439 $ 78,149 $ 77,389 $ 79,187 $ 78,104
—
78,917 $ 82,473 $ 77,439 $ 78,149 $ 77,389 $ 79,187 $ 78,104
(2,918)
683
758
300
—
(10)
1,969
36
—
(38)
2,342
328
—
(44)
2,051
329
—
(2)
1,718
155
—
265
— 128,132
—
—
—
—
0.70 $
0.70 $
0.73 $
0.71 $
0.72 $
0.71 $
0.73 $
0.73
0.70 $
0.69 $
0.72 $
0.71 $
0.71 $
0.71 $
0.73 $
0.72
(1) FFO (excluding Reorganization) (non-GAAP measure) – refer to the section “Non-GAAP measures and other disclosures” under the heading “Funds from
operations (“FFO”) (excluding Reorganization)” for further details.
(2) The LP B Units are included in the calculation of basic and diluted FFO (excluding Reorganization) per unit.
Dream Office REIT 2015 Annual Report | 44
Calculation of adjusted funds from operations
(in thousands of Canadian dollars except for unit and per unit amounts)
Funds from operations
(excluding Reorganization)
Add (deduct):
Share of FFO from investment in
Dream Industrial REIT
Share of AFFO from investment
in Dream Industrial REIT
Amortization of fair value
adjustments on assumed debt
Deferred unit compensation
expense
Straightline rent
Business transformation costs
Other
Q4
Q3
Q2
2015
Q1
Q4
Q3
Q2
2014
Q1
$
79,672 $ 78,917 $ 82,473 $ 77,439 $ 78,149 $
77,389 $ 79,187 $ 78,104
(4,519)
(4,506)
(4,517)
(4,514)
(4,565)
(4,070)
(3,946)
(3,831)
3,902
3,863
3,881
3,791
3,767
3,325
3,277
3,142
(796)
(1,033)
(1,124)
(1,107)
(1,110)
(1,166)
(1,217)
(1,261)
845
(484)
373
(18)
78,975
809
(544)
372
(25)
77,853
966
(739)
373
(38)
979
(1,085)
372
(48)
1,016
(778)
275
(54)
1,016
(513)
275
(55)
1,307
(1,489)
274
(69)
81,275
75,827
76,700
76,201
77,324
1,060
(1,832)
276
(255)
75,403
(8,053)
Deduct:
Normalized initial direct leasing
costs and lease incentives
(8,130)
Adjusted funds from operations(1) $ 70,922 $ 69,741 $ 73,128 $ 67,644 $ 68,570 $
AFFO per unit – basic(2)
0.63 $
Weighted average units
outstanding
107,728
113,664
Basic (in thousands)
109,231
115,256
Diluted (in thousands)
(1) AFFO (non-GAAP measure) – The reconciliation of AFFO to cash flow from operations can be found in the section “Non-GAAP measures and other
(8,141)
(8,112)
68,060 $ 69,139 $ 67,291
0.62
108,301
109,938
108,718
110,352
109,232
110,849
113,532
115,075
113,483
115,019
108,758
110,375
(8,183)
(8,185)
(8,147)
(8,112)
0.62 $
0.63 $
0.64 $
0.64 $
0.62 $
0.61 $
$
disclosures” under the heading “Cash generated from operating activities to AFFO reconciliation”.
(2) The LP B Units are included in the calculation of basic AFFO per unit.
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.
Funds from operations (“FFO”) (excluding Reorganization)
Management believes FFO (excluding Reorganization) 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 operating activities, as defined by IFRS, and is not necessarily indicative of cash available to
fund Dream Office REIT’s needs.
In compliance with Canadian Securities Administrators Staff Notice 52-306 (Revised), “Non-GAAP Financial Measures and
Additional GAAP Measures”, FFO (excluding Reorganization) has been reconciled to net income in the section “Our Results of
Operations” under the heading “Funds from operations (excluding Reorganization) and adjusted funds from operations”.
Adjusted funds from operations (“AFFO”)
Management believes AFFO is an important measure of our economic performance and is indicative of our ability to pay
distributions. This non-GAAP measurement is commonly used for assessing real estate performance; however, it does not
represent cash generated from operating activities, as defined by IFRS, and is not necessarily indicative of cash available to fund
Dream Office REIT’s needs.
Dream Office REIT 2015 Annual Report | 45
Our calculation of AFFO includes a deduction for an estimated amount of normalized initial direct leasing costs and lease
incentives that we expect to incur based on our current portfolio, lease maturity profile and expected renewals and new leasing
activity. Our estimates of initial direct leasing costs and lease incentives are based on our expected renewals and new
leasing activity multiplied by the average normalized cost per square foot that we expect to incur over the long term, adjusted
for properties that have been acquired or sold. These assumptions are evaluated and adjusted from time to time based on
actual experience over the long term. An alternative approach is to calculate AFFO by deducting the actual initial direct leasing
costs and lease incentives incurred and a portion of building improvement costs incurred for the three months and year ended
December 31, 2015. Management does not believe this approach to be appropriate for the purpose of determining AFFO as
there can be a large degree of variability in the actual amounts incurred in any given period due to timing and extent of the
leasing activity and building improvement projects. In addition, current spending on initial direct leasing costs, lease incentives
and building improvements may not be indicative of a normalized long-term trend.
In compliance with Canadian Securities Administrators Staff Notice 52-306 (Revised), “Non-GAAP Financial Measures and
Additional GAAP Measures”, AFFO has been reconciled to cash generated from operating activities in this section under the
heading “Cash generated from operating activities to AFFO reconciliation”.
NOI
NOI is defined by the Trust as 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. 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 and Additional GAAP Measures”, NOI has been reconciled to net rental income in the table below:
Net rental income (per consolidated financial statements)
Add: Share of net rental income from investments in joint ventures
NOI
Less: NOI from properties sold and properties held for sale
NOI (excluding properties sold and properties held for sale)
Three months ended December 31,
2014
98,758 $
15,413
114,171
3,134
111,037 $
2015
94,687 $
14,922
109,609
1,312
108,297 $
$
$
$
Year ended December 31,
2015
387,513
59,791
447,304
10,725
436,579
2014
401,508
60,442
461,950
15,955
445,995
$
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,
bad debt expenses, NOI of properties sold, 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, 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.
Stabilized NOI
Stabilized NOI for an individual property is defined by the Trust as investment property revenues less property operating
expenses, including the share of net rental income from investment in joint ventures and property management income,
adjusted 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. This non-GAAP measurement is an important measure used by the Trust
in determining the fair value of certain investment properties that are valued using the direct capitalization method; 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.
Dream Office REIT 2015 Annual Report | 46
Weighted average number of units
The basic weighted average number of units outstanding used in the FFO (excluding Reorganization) and AFFO per unit
calculations includes the weighted average number of all REIT Units, LP B Units, and vested but unissued deferred trust units
and income deferred trust units. The diluted weighted average number of units for the three months and year ended
December 31, 2015 assumes the conversion of the 5.5% Series H Debentures, as they are dilutive. Diluted FFO (excluding
Reorganization) per unit for the three months and year ended December 31, 2015 excludes $0.7 million and $2.8 million,
respectively, in interest related to convertible debentures (for the three months and year ended December 31, 2014 ̶ $0.7
million and $2.8 million, respectively).
Weighted average units outstanding for basic
per unit amounts (in thousands)
Weighted average units outstanding for diluted
per unit amounts (in thousands)
Three months ended December 31,
2014
2015
Year ended December 31,
2015
2014
113,483
109,232
112,370
108,484
115,019
110,849
113,927
110,100
Adjusted cash flows from operating activities
When the Trust determines its cash available for distribution, it uses adjusted cash flows from operating activities which
includes cash flows from operating activities of our investments in joint ventures that are equity accounted and excludes
fluctuations in working capital, investment in lease incentives and initial direct leasing costs. The Trust funds its working capital
needs and investments in lease incentives and initial direct leasing costs with cash and cash equivalents on hand and our credit
facilities. Accordingly, 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 from (utilized in)
operating activities (as per consolidated financial statements), as defined by IFRS.
In compliance with Canadian Securities Administrators Staff Notice 52-306 (Revised), “Non-GAAP Financial Measures and
Additional GAAP Measures”, the table within this section under the heading “Cash flows from operating activities and
distributions declared” reconciles adjusted cash flows from operating activities to cash generated from (utilized in) operating
activities (as per consolidated financial statements).
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.
In compliance with Canadian Securities Administrators Staff Notice 52-306 (Revised), “Non-GAAP Financial Measures and
Additional GAAP Measures”, the table within this section under the heading “Cash flows from operating activities and
distributions declared” reconciles cash flows from operating activities (including investments in joint ventures) to cash
generated from (utilized in) operating activities (as per consolidated financial statements).
Dream Office REIT 2015 Annual Report | 47
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 the
MD&A using the proportionate consolidation method, are non-GAAP measures. The reconciliation of debt tables are included
in the “Our Financing” section of this MD&A. The reconciliation of the consolidated statements of comprehensive income 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”. A reconciliation of the financial position and results of operations to
the consolidated balance sheets is included in the following table.
Balance sheet reconciliation to consolidated financial statements
December 31, 2015
December 31, 2014
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
$ 5,866,595 $ 1,099,594 $ 6,966,189 $
184,817
—
54,249
7,205,255
184,817
595,203
49,984
6,696,599
—
(595,203 )
4,265
508,656
6,139,070 $
191,691
553,141
106,803
6,990,705
1,062,776 $ 7,201,846
191,691
—
115,310
7,508,847
—
(553,141 )
8,507
518,142
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
Other non-current liabilities
CURRENT LIABILITIES
Debt
Amounts payable and accrued
liabilities
Liabilities related to assets
held for sale
Total liabilities
Equity
Unitholders’ equity
Retained earnings
Accumulated other comprehensive
income
Total equity
Total liabilities and equity
10,258
9,052
2,051
21,361
44,914
$ 6,762,874 $
3,785
340
10,382
14,507
—
14,043
9,392
12,433
35,868
44,914
523,163 $ 7,286,037 $
16,565
8,593
10,920
36,078
2,968
7,029,751 $
682
351
9,969
11,002
—
17,247
8,944
20,889
47,080
2,968
529,144 $ 7,558,895
$ 2,401,104 $
90,912
12,596
9,038
20,284
2,533,934
410,832 $ 2,811,936 $
90,912
12,596
9,038
20,775
2,945,257
—
—
—
491
411,323
2,730,973 $
15,151
17,082
6,183
19,468
2,788,857
484,905 $ 3,215,878
15,151
17,082
6,183
19,846
3,274,140
—
—
—
378
485,283
609,644
74,661
684,305
365,855
12,075
377,930
112,980
722,624
24,502
$ 3,281,060 $
37,179
111,840
150,159
834,464
97,522
463,377
31,786
43,861
129,308
507,238
—
24,502
523,163 $ 3,804,223 $
—
3,252,234 $
—
—
529,144 $ 3,781,378
3,168,915
301,324
—
—
3,168,915
301,324
3,171,794
601,495
—
—
3,171,794
601,495
11,575
3,481,814
$ 6,762,874 $
—
—
11,575
3,481,814
523,163 $ 7,286,037 $
4,228
3,777,517
7,029,751 $
—
—
4,228
3,777,517
529,144 $ 7,558,895
Dream Office REIT 2015 Annual Report | 48
Cash generated from operating activities to AFFO reconciliation
In compliance with Canadian Securities Administrators Staff Notice 52-306 (Revised), “Non-GAAP Financial Measures and
Additional GAAP Measures”, the table below reconciles AFFO to cash generated from (utilized in) operating activities.
Cash generated from (utilized in) operating activities (per
consolidated financial statements)
$
53,778 $
55,103 $
192,509 $
203,354
Three months ended December 31,
2015
2014
Year ended December 31,
2015
2014
Add (deduct):
Share of AFFO from investment in Dream Industrial REIT
Share of net income from investment in joint ventures
Initial direct leasing costs and lease incentives
Amortization of financing costs
Transaction costs related to the Reorganization
Internal leasing costs
Business transformation costs
Change in non-cash working capital
Adjustments for investment in joint ventures:
Fair value adjustments to investment properties
Straight-line rent
Amortization of lease incentives
Internal leasing costs
Net loss on sale of investment properties
Normalized initial direct leasing costs and lease incentives
Other
AFFO
$
3,902
10,186
22,799
(748 )
—
2,327
373
(14,025 )
300
(139 )
79
115
—
(8,053 )
28
70,922 $
3,767
10,343
18,295
(786 )
—
625
275
(11,039 )
200
(174 )
57
133
—
(8,130 )
(99 )
68,570 $
15,437
53,136
63,895
(3,060 )
819
8,951
1,490
(8,203 )
(11,030 )
(539 )
208
295
121
(32,495 )
(89 )
281,445 $
13,511
37,611
49,116
(3,178 )
—
6,118
1,100
(5,648 )
4,153
(683 )
59
227
758
(32,568 )
(870 )
273,060
Cash flows from operating activities and distributions declared
In any given period, actual distributions declared may differ from cash generated from (utilized in) operating activities, primarily
due to seasonal 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. These seasonal or short-term fluctuations are funded with our cash and cash
equivalents on hand and, if necessary, with our existing credit facilities. The Trust determines the distribution rate by, among
other considerations, its assessment of cash flow as determined using adjusted cash flows from operating activities (a non-
GAAP measure), which includes cash flows from operating activities of our investments in joint ventures that are equity
accounted and excludes the fluctuations in non-cash working capital, and investment in lease incentives and initial direct
leasing costs. As such, the Trust believes the cash distributions are not an economic return of capital, but a distribution of
sustainable adjusted cash flow from operating activities.
In any given period, the Trust anticipates that total distributions will, in the foreseeable future, continue to vary from net
income as net income includes non-cash items such as fair value adjustments to investment properties and fair value
adjustments to financial instruments. Accordingly, the Trust does not use net income as a proxy for distributions.
As required by National Policy 41-201, “Income Trusts and Other Indirect Offerings”, the following table outlines the differences
between cash generated from (utilized in) operating activities (per consolidated financial statements) and total distributions, as
well as the differences between net income and total distributions, in accordance with the guidelines.
Dream Office REIT 2015 Annual Report | 49
As the Trust uses adjusted cash flows from operating activities (a non-GAAP measure) in determining its cash available for
distribution, the following table also outlines the differences between adjusted cash flow from operating activities and
total distributions.
Net income (loss) for the period
Cash generated from operating activities (per consolidated
financial statements)
Add:
Investment in joint venturesʼ cash flows from operating
activities
Cash flows from operating activities (including investment
in joint ventures)
Add (deduct):
Investment in lease incentives and initial direct leasing costs
Change in non-cash working capital
Adjusted cash flows from operating activities
Total distributions(2)
Adjusted cash flows from operating activities over
total distributions
Shortfall of net income (loss) over total distributions
Shortfall of cash generated from operating activities
(per consolidated financial statements) over total
Three months ended December 31,
2014(1)
7,306 $
2015
(54,137 ) $
$
Year ended December 31,
2014(1)
159,290
2015
(55,039 ) $
53,778
55,103
192,509
203,354
7,270
3,091
46,419
37,596
61,048
58,194
238,928
240,950
24,653
(12,591 )
73,110
64,265
18,645
(9,021 )
67,818
63,347
67,145
(15,454 )
290,619
254,303
51,001
(8,697 )
283,254
244,698
8,845
4,471
36,316
38,556
(118,402 )
(56,041 )
(309,342 )
(85,408 )
distributions
$
(10,487 ) $
(8,244 ) $
(61,794 ) $
(41,344 )
(1) Comparative figures have been reclassified to conform to the current period presentation.
(2) Includes distributions declared on LP B Units and 4% bonus on distributions reinvested.
For the three months and year ended December 31, 2015, adjusted cash flows from operating activities exceeded total
distributions by $8.8 million and $36.3 million, respectively (for the three months and year ended December 31, 2014 –
$4.5 million and $38.6 million, respectively).
For the three months and year ended December 31, 2015, total distributions exceeded cash generated from (utilized in)
operating activities (per consolidated financial statements) by $10.5 million and $61.8 million, respectively. The shortfall of cash
generated from (utilized in) operating activities over total distributions is mainly due to the fact that cash flows from operating
activities of our investments in joint ventures that are equity accounted are excluded from this calculation despite the fact that
they form part of the Trust’s determination of its cash available for distribution.
For the three months ended December 31, 2015, total distributions exceeded cash flows from operating activities (including
investment in joint ventures) by $3.2 million. For the year ended December 31, 2015, total distributions exceeded cash flows
from operating activities (including investment in joint ventures) by $15.4 million. The shortfall in the current period was mainly
driven by the short-term fluctuations in our investment in lease incentives and initial direct leasing costs. These investments
were funded by cash and cash equivalents and our existing credit facilities. For the three months and year ended December 31,
2014, total distributions exceeded cash flows from operating activities (including investment in joint ventures) by $5.2 million
and $3.7 million, respectively).
Of the total distributions for the three months and year ended December 31, 2015, $25.0 million and $95.7 million,
respectively, were reinvested in units pursuant to the DRIP. Over time, reinvestments pursuant to the DRIP will increase the
number of units outstanding, thereby increasing the total cash distributions. 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, which allows for
any unforeseen expenditures and the variability in cash distributions as a result of additional units issued pursuant to the
Trust’s DRIP. Accordingly, the Trust believes this does not constitute an economic return of capital.
Dream Office REIT 2015 Annual Report | 50
For the three months and year ended December 31, 2015, total distributions exceeded net loss by $118.4 million and
$309.3 million, respectively, primarily due to non-cash components of net loss, which include the cost on the Reorganization of
$127.3 million, goodwill impairment charge of $51.2 million, fair value loss to investment properties of $79.4 million and
$190.0 million, respectively, and fair value adjustments to financial instruments of $20.7 million and $48.9 million, respectively.
For the three months and year ended December 31, 2014, total distributions exceeded net income by $56.0 million and
$85.4 million, respectively, primarily due to non-cash components of net income, which include the fair value loss to
investment properties of $67.3 million and $128.5 million, respectively, and fair value adjustments to financial instruments of
$2.7 million and $2.7 million, respectively.
Level of debt (net total debt-to-gross book value and net secured debt-to-gross book value)
Management believes these non-GAAP measurements are important measures in the management of our debt levels. Net total
debt-to-gross book value as shown below is determined 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 total assets. Net
secured debt-to-gross book value as shown below is determined as 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
accumulated depreciation of property and equipment and cash on hand.
In compliance with Canadian Securities Administrators Staff Notice 52-306 (Revised), “Non-GAAP Financial Measures and
Additional GAAP Measures”, the following tables calculate the level of debt (net total debt-to-gross book value and net secured
debt-to-gross book value) as at December 31, 2015 and December 31, 2014.
As at December 31, 2015
$
Non-current debt
Current debt
Debt before undernoted items
Add: Debt related to assets held for sale
Add: Overdraft (cash on hand)(1)
Total debt (net of cash on hand)
Less: Unsecured debt
Total secured debt (net of cash on hand)
Amounts per
consolidated
financial statements
2,401,104
609,644
3,010,748
24,245
2,485
3,037,478
(534,097 )
2,503,381
6,762,874
6,471
2,485
(2)
Share of amounts
from investment
in joint ventures
$
410,832 $
74,661
485,493
–
–
485,493
–
485,493
523,163
–
–
Total
2,811,936
684,305
3,496,241
24,245
2,485
3,522,971
(534,097 )
2,988,874
7,286,037
6,471
2,485
(3)
Total assets
Add: Accumulated depreciation of property and equipment
Add: Overdraft (cash on hand)(1)
Total assets (excluding accumulated depreciation of
property and equipment and cash on hand)
Net total debt-to-gross book value
Net secured debt-to-gross book value
(1) Overdraft (cash on hand) represents overdraft (cash) at period-end, excluding cash held in joint ventures and co-owned properties.
(2) Includes net assets of investment in joint ventures that are equity accounted.
(3) 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
523,163 $
6,771,830
7,294,993
48.3%
41.0%
$
$
year-end.
Dream Office REIT 2015 Annual Report | 51
Non-current debt
Current debt
Debt before undernoted items
Less: Cash on hand(1)
Total debt (net of cash on hand)
Less: Unsecured debt
Total secured debt (net of cash on hand)
$
Amounts per
consolidated
financial statements
2,730,973
365,855
3,096,828
(5,466)
3,091,362
(533,860)
2,557,502
7,029,751
4,813
(5,466)
(2)
As at December 31, 2014
Share of amounts
from investment
in joint ventures
$
Total
3,215,878
377,930
3,593,808
(5,466)
3,588,342
(533,860)
3,054,482
(3)
484,905 $
12,075
496,980
—
496,980
—
496,980
529,144
—
—
Total assets
Add: Accumulated depreciation of property and equipment
Less: Cash on hand(1)
Total assets (excluding accumulated depreciation of
property and equipment and cash on hand)
Net total debt-to-gross book value
Net secured debt-to-gross book value
(1) Cash on hand represents cash at year-end, excluding cash held in joint ventures and co-owned properties.
(2) Includes net assets of investment in joint ventures that are equity accounted.
(3) 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
7,558,242
47.5%
40.4%
7,558,895
4,813
(5,466)
529,144 $
7,029,098
$
$
year-end.
Interest coverage ratio
Management believes this non-GAAP measurement is an important measure in determining our ability to cover interest
expense based on our operating performance. Interest coverage ratio for the years ended December 31, 2015 and December
31, 2014 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, less general and administrative expenses, all divided by
interest expense on total debt.
In compliance with Canadian Securities Administrators Staff Notice 52-306 (Revised), “Non-GAAP Financial Measures and
Additional GAAP Measures”, the following tables calculate the interest coverage ratio for the years ended December 31, 2015
and December 31, 2014.
For the year ended December 31, 2015
Net rental income
Add: Interest and fee income
Less: General and administrative expenses
Total
Interest expense – debt
Interest coverage ratio (times)
Net rental income
Add: Interest and fee income
Less: General and administrative expenses
Total
Interest expense – debt
Interest coverage ratio (times)
$
$
$
$
Amounts per
consolidated
financial statements
Share of amounts
from investment
in joint ventures
387,513 $
3,005
(12,196 )
378,322
131,818 $
59,791 $
68
(47 )
59,812
17,266 $
Total
447,304
3,073
(12,243 )
438,134
149,084
2.9
For the year ended December 31, 2014
Amounts per
consolidated
financial statements
Share of amounts
from investment
in joint ventures
401,508 $
3,199
(24,393 )
380,314
134,952 $
60,442 $
35
(3 )
60,474
17,725 $
Total
461,950
3,234
(24,396 )
440,788
152,677
2.9
Dream Office REIT 2015 Annual Report | 52
Net average debt-to-EBITDFV
Management believes this non-GAAP measurement is an important measure in determining the time it takes the Trust, based
on its historical operating performance, to repay our average debt.
Net average debt-to-EBITDFV as shown below is calculated as total average 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 annualized
EBITDFV for the current 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 dilution gain (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 gains (losses) on transactions and other activities, and income taxes.
Net debt-to-adjusted EBITDFV
Management believes this 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.
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 plus normalized NOI of acquired properties
for the quarter.
In compliance with Canadian Securities Administrators Staff Notice 52-306 (Revised), “Non-GAAP Financial Measures and
Additional GAAP Measures”, the following tables calculate the annualized net average debt-to-EBITDFV and annualized net
debt-to-adjusted EBITDFV for the years ended December 31, 2015 and December 31, 2014.
Dream Office REIT 2015 Annual Report | 53
Non-current debt
Current debt
Debt before undernoted items
Add: Debt related to assets held for sale
Add: Weighted average debt adjustment(1)
Add: Overdraft (cash on hand)(2)
Net average debt
Less: Weighted average debt adjustment(1)
Net debt
Net income (loss) for the period
Add (deduct):
Lease termination fees and other
Non-cash items included in investment properties revenue(3)
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 loss on transactions and other activities
Deferred income taxes
EBITDFV – quarterly
Normalized NOI of acquired (disposed) properties for the quarter
Adjusted EBITDFV – quarterly
EBITDFV – annualized
Adjusted EBITDFV – annualized
Net average debt-to-EBITDFV (years)
Net debt-to-adjusted EBITDFV (years)
Amounts included in
consolidated
financial statements
2,401,104 $
609,644
3,010,748
24,245
8,430
2,485
3,045,908 $
(8,430 )
3,037,478 $
(64,323 )
(35 )
3,408
79,100
(20,695 )
5,923
3,247
32,302
2,931
779
57,169
516
100,322 $
(494 )
99,828 $
$
$
$
$
$
$
Share of amounts
from investment
in joint ventures
410,832
74,661
485,493
—
—
—
485,493
—
485,493
10,186
$
$
—
(60 )
300
—
—
—
4,286
—
3
115
—
14,830
—
14,830
$
$
$
$
December 31, 2015
Total
2,811,936
684,305
3,496,241
24,245
8,430
2,485
3,531,401
(8,430 )
3,522,971
(54,137 )
(35 )
3,348
79,400
(20,695 )
5,923
3,247
36,588
2,931
782
57,284
516
115,152
(494 )
114,658
460,608
458,632
7.7
7.7
(1) Weighted average debt adjustment reflects outstanding debt at period-end, pro-rated for the number of days outstanding during the period.
(2) Overdraft (cash on hand) represents overdraft (cash) at period-end, excluding cash held in joint ventures and co-owned properties.
(3) Includes adjustments for straight-line rent and amortization of lease incentives.
Dream Office REIT 2015 Annual Report | 54
Non-current debt
Current debt
Debt before undernoted items
Less: Weighted average debt adjustment(1)
Less: Cash on hand(2)
Net average debt
Add-back: Weighted average debt adjustment(1)
Net debt
Net income (loss) for the period
Add (deduct):
Lease termination fees and other
Non-cash items included in investment properties revenue(3)
Fair value adjustments to investment properties
Fair value adjustments to financial instruments
Share of net income and dilution 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 loss on transactions and other activities
Deferred income taxes
EBITDFV – quarterly
Normalized NOI of acquired (disposed) properties for the quarter
Adjusted EBITDFV – quarterly
EBITDFV – annualized
Adjusted EBITDFV – annualized
Net average debt-to-EBITDFV (years)
Net debt-to-adjusted EBITDFV (years)
Amounts included
in consolidated
financial statements
$
2,730,973 $
365,855
3,096,828
(41,386 )
(5,466 )
3,049,976 $
41,386
3,091,362 $
(3,037 )
(546 )
2,065
67,100
(2,689 )
(3,699 )
3,247
33,091
338
800
1,583
300
98,553 $
—
98,553 $
$
$
$
$
December 31, 2014
Share of amounts
from investment
in joint ventures
484,905 $
12,075
496,980
—
—
496,980 $
—
496,980 $
10,343
—
(117 )
200
—
—
—
4,734
—
—
133
—
15,293 $
—
15,293 $
$
$
Total
3,215,878
377,930
3,593,808
(41,386 )
(5,466 )
3,546,956
41,386
3,588,342
7,306
(546 )
1,948
67,300
(2,689 )
(3,699 )
3,247
37,825
338
800
1,716
300
113,846
—
113,846
455,384
455,384
7.8
7.9
(1) Weighted average debt adjustment reflects outstanding debt at period-end, pro-rated for the number of days outstanding during the period.
(2) Cash on hand represents cash at year-end, excluding cash held in joint ventures and co-owned properties.
(3) Includes adjustments for straight-line rent and amortization of lease incentives.
Dream Office REIT 2015 Annual Report | 55
SECTION III – DISCLOSURE CONTROLS AND PROCEDURES
At December 31, 2015, 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. Using the framework established in “Risk Management and Governance: Guidance on
Control (COCO Framework)”, published by the Chartered Professional Accountants Canada, 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, 2015.
There were no changes in Dream Office REIT’s internal control over financial reporting during the financial year ended
December 31, 2015 that have materially affected, or are reasonably likely to materially affect, Dream Office REIT’s internal
control over financial reporting.
SECTION IV – RISKS AND OUR STRATEGY TO MANAGE
Dream Office REIT is exposed to various risks and uncertainties, many of which are beyond our control. For a full list and
explanation of our risks and uncertainties, please refer to our 2014 Annual Report or our Annual Information Form filed on
SEDAR (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 2015 Annual Report | 56
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 the Province of Alberta, the economy of this province can be significantly
impacted by the price of oil. As at December 31, 2015, approximately 18% of our comparative properties NOI was generated
from Calgary and approximately 7% was generated from Edmonton. Accordingly, any substantial decline or prolonged weakness
in the price of oil could also adversely affect the Trust’s operating results and its ability to renew or refinance mortgages as it
relates to the properties in these cities. We continuously evaluate the economic health of the markets in which we operate
through various means to ensure that we have identified and, where possible, mitigate risks to the Trust, including the potential
impacts of changes in the price of oil. As of December 31, 2015, the Trust had not identified any material adverse effect on our
business as a result of the current softening of oil prices.
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 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 2015 Annual Report | 57
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 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 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 are 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)
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;
(iii)
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 2015 Annual Report | 58
(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 2015 Annual Report | 59
IMPLEMENTING THE TRUST’S STRATEGIC PLAN
The Trust’s Strategic Plan is intended to surface value for unitholders by reducing the current 50% discount to net asset value
and creating a stronger and more flexible balance sheet. However, there can be no assurance that the Trust will be successful in
executing the Strategic Plan and achieving its expected benefits. If we are unable to successfully execute the Strategic Plan,
whether because we are unable to complete dispositions of our investment properties contemplated by the Strategic Plan on
favourable terms or at prices which reflect fair value, because one or more of the assumptions underlying the Strategic Plan
proves to be incorrect, or as a result of events outside the Trust’s control that were not anticipated or expected when the
Strategic Plan was implemented or for other reasons, or if the benefits of the Strategic Plan are not fully achieved or take
longer to realize than anticipated, it could have a material adverse effect on the Trust’s financial condition and results
of operations.
SECTION V – 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 regularly by management with reference to
independent property valuations and market conditions existing at the reporting date, using generally accepted market
practices. The independent valuators 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 annual reporting period, a select number of properties, determined on a rotational basis, will
be valued by qualified valuation professionals. 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 the receipt of contractual rents,
expected future market rents, renewal rates, maintenance requirements, discount rates that reflect current market
uncertainties, capitalization rates, and current and recent property investment prices. 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
and, for properties under development, identifying the point at which practical completion of the property occurs and
identifying the directly attributable borrowing costs to be included in the carrying amount of the development property.
Dream Office REIT 2015 Annual Report | 60
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, external management contracts and goodwill.
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 flow.
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 goodwill, the investment in Dream Industrial
REIT and the investment in joint ventures. Judgment is involved in estimating the fair value less cost to sell or value-in-use of
the cash-generating units (“CGUs”) to which goodwill has been allocated, including estimates of growth rates, discount rates
and terminal rates. 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.
The Trust’s goodwill balance is allocated to the office properties group of CGUs by geographical segment (herein referred to as
the goodwill CGU). The recoverable amount of the Trust’s goodwill CGU is determined based on the value-in-use approach.
For the purpose of this impairment test, the Trust uses cash flow projections forecasted out for a ten-year period, consistent
with the internal financial budgets approved by management on a property-by-property basis. The key assumptions used
in determining the value-in-use of the goodwill CGU are the estimated growth rate, discount rate and terminal rate. In
arriving at the growth rate, the Trust considers past experience and inflation, as well as industry trends. The Trust utilizes
weighted average cost of capital (“WACC”) to determine the discount rate and terminal rate. The WACC reflects specific risks
that would be attributable to the Trust. As the Trust is not subject to taxation, no adjustment is required to adjust the WACC on
a pre-tax basis.
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 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, the convertible debenture conversion feature, interest rate swaps and the fair value disclosure of the
convertible debentures, mortgages and term debt. The critical assumptions underlying the fair value measurements and
disclosures include the market price of REIT Units, market interest rates for mortgages, term debt and unsecured debentures,
and assessment of the effectiveness of hedging relationships.
For certain financial instruments, including cash and cash equivalents, amounts receivable, 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 debt 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
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 is currently evaluating the impact of adopting this standard on the
consolidated financial statements.
Dream Office REIT 2015 Annual Report | 61
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; however, it is available for early adoption. The
Trust is currently evaluating the impact of adopting this standard on the consolidated financial statements.
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.
Presentation of financial statements
IAS 1, “Presentation of Financial Statements” (“IAS 1”), was amended by the IASB to clarify guidance on materiality and
aggregation, the presentation of subtotals, the structure of financial statements and disclosure of accounting policies. The
amendment gives guidance that information within the consolidated balance sheets and statements of comprehensive income
should not be aggregated or disaggregated in a manner that obscures useful information, and that disaggregation may be
required in the statement of comprehensive income in the form of additional subtotals as they are relevant to understanding
the entity’s financial position or performance. The amendment to IAS 1 are effective for annual periods beginning on or after
January 1, 2016. This amendment to IAS 1 has no material impact on the Trust’s consolidated financial statements or
note disclosures.
Acquisitions of interests in joint operations
IFRS 11, “Joint Arrangements” (“IFRS 11”), has been amended to require the application of IFRS 3 to transactions where an
investor obtains an interest in a joint operation that constitutes a business. The amendment to IFRS 11 is effective for annual
periods beginning on or after January 1, 2016. This amendment to IFRS 11 has no material impact on the Trust’s consolidated
financial statements or note disclosures.
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.
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 2015 Annual Report | 62
SECTION VI – SUPPLEMENTARY INFORMATION
The following tables within this section include supplementary information on our portfolio as at December 31, 2015.
Asset listing
Property
Ownership
HSBC Bank Place, Edmonton
Enbridge Place, Edmonton
Saskatoon Square, Saskatoon
Station Tower, Surrey
100.0%
100.0%
100.0%
100.0%
Total GLA in
square feet
300,860
262,456
228,312
219,638
Owned
share of
total GLA
in square
feet
300,860
262,456
228,312
219,638
Year
built/
renovated
1981
1981
1980
1994
1900 Sherwood Place, Regina
100.0%
185,104
185,104
1992/2003
Milner Building, Edmonton
887 Great Northern Way,
Vancouver
2257 & 2301 Premier Way,
Sherwood Park
2121 & 2181 Premier Way,
Sherwood Park
Victoria Tower, Regina
100.0%
100.0%
174,383
164,364
174,383
164,364
100.0%
156,166
156,166
1957
1999
2003
100.0%
151,387
151,387 2005–2006
100.0%
144,165
144,165
Baker Centre, Edmonton
100.0%
142,791
142,791
Princeton Tower, Saskatoon
100.0%
134,461
134,461
340-450 3rd Avenue N.,
Saskatoon
HSBC Building, Edmonton
100.0%
130,724
130,724
1980/1993
100.0%
118,838
118,838
1974
4259-4299 Canada Way, Burnaby
100.0%
119,570
119,570
1973/1998
1976
1958
1988
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
116,530
107,973
104,629
93,095
116,530
107,973
104,629
93,095
92,730
92,730
87,965
87,965
87,994
85,534
87,994
85,534
82,489
82,489
82,264
81,808
82,264
81,808
81,662
81,662
2008
1991
1978
1977/2000
and 2006
1976
2007
1991
1981
1999
1973
2007
2009
13888 Wireless Way, Richmond
Scotia Centre, Yellowknife
Highfield Place, Edmonton
4400 Dominion Street, Burnaby
Precambrian Building,
Yellowknife
2055 Premier Way, Strathcona
County
Northwest Tower, Yellowknife
625 Agnes Street, New
Westminster
2899 Broadmoor Blvd.,
Strathcona County
1914 Hamilton Street, Regina
2693 Broadmoor Blvd.,
Strathcona County
2665 Renfrew Street, Vancouver
350-450 Lansdowne Street,
Kamloops(4)
2833 Broadmoor Blvd.,
Strathcona County
2261 Keating Cross Road,
Victoria(4)
Financial Building, Regina
4370 Dominion Street, Burnaby
Total
site
area in
acres
1.6
0.7
0.6
1.0
3.0
0.9
2.3
8.7
7.8
0.8
0.7
0.6
1.1
0.4
3.2
4.8
0.7
0.3
1.9
0.8
4.3
0.3
0.6
3.5
0.4
4.1
3.3
Owned
share of
site area
in acres
Description of asset
1.6 19-storey downtown office building
with commercial parkade
0.7 22-storey downtown office building
0.6 18-storey downtown office building
1.0 18-storey office building with grade
level retail
3.0 One 9-storey and one 2-storey
downtown office building
0.9 12-storey downtown office building
2.3 8-storey office building
8.7 2-storey suburban office building
7.8 2-storey suburban office building
0.8 15-storey downtown government
office building
0.7 16-storey downtown office building
with parkade
0.6 11-storey downtown office building
with grade level retail
1.1 2-storey office building
0.4 12-storey downtown office building
with underground parking
3.2 Two 2-storey suburban office
buildings
4.8 3-storey suburban office building
0.7 11-storey office building
0.3 10-storey downtown office building
1.9 5-storey suburban office building
0.8 11-storey office building
4.3 2-storey flex office building
0.3 11-storey office building
0.6 5-storey suburban office building
3.5 2-storey suburban office building
0.4 14-storey downtown office building
4.1 2-storey suburban office building
3.3 2-storey suburban office building
40.0%
190,665
76,266
1970/2008
11.9
4.8 One 1-storey, one 2-storey and one
100.0%
74,649
74,649
40.0%
181,601
72,640
2000
1999
100.0%
100.0%
65,739
63,930
65,739
63,930
1958/1992
1983/1999
3.2
4.9
0.6
1.0
4-storey retail and office complex
3.2 2-storey flex office building
2.0 One 2-storey and one 4-storey
suburban office building
0.6 8-storey downtown office building
1.0 6-storey suburban office building
Dream Office REIT 2015 Annual Report | 63
Property
Ownership
Preston Centre, Saskatoon
960 Quayside Drive, New
Westminster
2755 Broadmoor Blvd.,
Sherwood Park
10199 - 101st Street NW,
Edmonton(4)
2220 College Avenue, Regina
Morgex Building, Edmonton
Gallery Building, Yellowknife
13183 - 146th Street NW,
Edmonton
Harbour Landing, Phase 2,
Regina
2400 College Avenue, Regina
Royal Centre, Saskatoon
2208 Scarth Street, Regina
Royal Centre, Saskatoon
2445 - 13th Avenue, Regina
234 - 1st Avenue South,
Saskatoon
Western Canada
IBM Corporate Park, Calgary
F1RST Tower (formerly Telus
Tower), Calgary (3)
840 - 7th Avenue SW, Calgary
444 - 7th Building, Calgary
McFarlane Tower, Calgary
Life Plaza, Calgary
Rocky Mountain Plaza, Calgary
Northland Building, Calgary
606 4th Building & Barclay
Parkade, Calgary
Roslyn Building, Calgary
Atrium I, Calgary
Atrium II, Calgary
510 - 5th Street SW, Calgary
Joffre Place, Calgary
Dominion Centre, Calgary
435 - 4th Avenue SW, Calgary
1035 - 7th Ave SW, Calgary
Mount Royal Place, Calgary
441 - 5th Avenue SW, Calgary
Calgary Downtown
Airport Corporate Centre,
Calgary
Franklin Atrium, Calgary
2891 Sunridge Way, Calgary
Kensington House, Calgary
3115 - 12th Street NE, Calgary
Owned
share of
total GLA
in square
feet
61,867
Year
built/
renovated
1988/2003
Total
site
area in
acres
3.1
Total GLA in
square feet
61,867
50.0%
121,357
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%
94.3%
100.0%
61,849
61,849
61,255
59,590
53,000
48,265
38,561
61,255
60,679
59,590
53,000
48,265
38,561
38,738
38,738
35,528
32,128
25,129
16,411
16,316
9,567
35,528
32,128
25,129
16,411
16,316
9,567
4,994,037
357,277
4,709,999
357,277
50.0%
710,243
355,122
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%
89.9%
100.0%
272,266
254,545
242,263
236,688
205,254
146,602
132,697
131,764
109,793
109,542
109,181
107,261
98,712
88,737
75,129
59,363
60,787
3,508,104
149,771
272,266
254,545
242,263
236,688
205,254
146,602
132,697
131,764
109,793
109,542
109,181
107,261
98,712
88,737
75,129
59,363
60,787
3,152,983
149,771
100.0%
150,312
150,312
100.0%
100.0%
100.0%
87,246
77,816
87,246
77,816
72,753
72,753
1988
2005
1985
1976
1982/1995
2012
2005
2013
1977
1952
1974
1952
1975
1971
2002
1983
1979/2001
1963/1998
1979/2003
1980/1992
1972
1982
1969/1998
1966/2003
1978
1979
1981
1980
1979
1978
1979/2002
1979/2004
1973
2000
1981
2001
1982/2002
to 2003
1981
1.8
2.9
0.7
0.6
4.8
0.1
2.6
2.3
0.5
0.7
3.2
0.3
0.4
0.7
104.7
2.4
1.7
0.4
0.8
0.7
0.5
0.9
0.4
0.3
0.5
0.5
0.4
0.2
0.6
0.3
0.4
0.6
0.5
0.2
12.3
—
7.9
5.1
0.6
2.3
Dream Office REIT 2015 Annual Report | 64
Owned
share of
site area
in acres
Description of asset
3.1 3-storey suburban office building
with grade level retail
1.8 4-storey suburban office building
2.9 2-storey suburban office building
0.4 5-storey downtown office building
0.6 7-storey suburban office building
4.8 1-storey suburban office building
0.1 3-storey office building
2.6 2-storey suburban office building
2.3 3-storey suburban office building
0.5 5-storey suburban office building
0.7 4-storey downtown office/retail
complex
3.2 2-storey suburban office building
0.3 Retail component of office/retail
complex
0.4 3-storey downtown office building
0.7 4-storey parking garage with grade
level retail
94.4
2.4 One 5-storey and two 6-storey
downtown office buildings
0.9 28-storey downtown office building
0.4 20-storey downtown office building
0.8 10-storey downtown office building
0.7 18-storey downtown office building
0.5 18-storey downtown office building
0.9 14-storey downtown office building
0.4 14-storey downtown office building
0.3 14-storey downtown office building
and parkade
0.5 10-storey downtown office building
0.5 8-storey downtown office building
0.4 8-storey downtown office building
0.2 18-storey downtown office building
0.6 6-storey downtown office building
0.3 11-storey downtown office building
0.4 7-storey downtown office building
0.6 6-storey downtown office building
0.5 6-storey downtown office building
0.2 10-storey downtown office building
11.5
— 8-storey suburban office building
7.9 Two 2-storey suburban office
buildings
5.1 3-storey suburban office building
0.6 5-storey suburban office building
with grade level retail
2.3 4-storey suburban office building
Owned
share of
total GLA
in square
feet
61,272
Total GLA in
square feet
61,272
54,924
54,924
Year
built/
renovated
2000
1982
Total
site
area in
acres
2.2
Owned
share of
site area
in acres
Description of asset
2.2 3-storey office building
0.3
0.3 6-storey suburban office building
Property
Ownership
14505 Bannister Road, SE,
Calgary
Braithwaite Boyle Centre,
Calgary
Franklin Building, Calgary
2816 - 11th Street NE, Calgary
Centre 70, Calgary(4)
Calgary Suburban
Scotia Plaza (40 King Street
West), Toronto(3)
100.0%
100.0%
100.0%
100.0%
15.0%
87.0%
66.7%
50,577
33,435
133,219
871,325
1,577,071
50,577
33,435
19,983
758,089
1,051,433
1978/2001
1981
1977
1989/2011
2.6
0.9
2.0
23.9
2.4
2.6 2-storey suburban office building
0.9 3-storey suburban office building
0.3 8-storey suburban office building
22.2
1.6 68-storey, 5-storey and 3-storey
downtown office buildings with
below grade retail concourse
2.1 One 22-storey and one 20-storey
downtown office building
1.3 17-storey downtown office building
0.7 20-storey downtown office building
1.3 17-storey downtown office building
0.4 26-storey downtown office building
0.4 10-storey commercial office
building
0.6 11-storey downtown office building
0.5 13-storey downtown office building
0.5 18-storey downtown office building
0.2 17-storey downtown office building
0.4 One 16-storey and one 11-storey
downtown office building
0.4 15-storey commercial office
building
0.2 21-storey downtown office building
0.6 8-storey downtown office building
0.2 20-storey downtown office building
0.6 5-storey downtown office building
0.4 6-storey downtown historical office
building
0.2 10-storey downtown office building
0.1 10-storey downtown office building
0.1 14-storey downtown office building
0.1 13-storey downtown office building
0.2 7-storey downtown office building
0.1 12-storey downtown office building
0.4 7-storey downtown office building
0.1 10-storey downtown office building
0.04 7-storey downtown office building
0.1 3-storey downtown office building
with grade level retail
2.1
1.3
0.7
1.3
0.6
0.4
0.6
0.5
0.5
0.3
0.4
0.4
0.2
0.6
0.2
0.6
0.4
0.2
0.1
0.1
0.1
0.2
0.1
1.1
0.1
0.1
0.1
Adelaide Place, Toronto
100.0%
659,533
659,533
1982/2001
100.0%
413,933
413,933
1958/2001
State Street Financial Centre,
Toronto
AIR MILES Tower, Toronto
655 Bay Street, Toronto
Scotia Plaza (44 King Street
West), Toronto(3)
74 Victoria St/137 Yonge St,
Toronto
720 Bay Street, Toronto
36 Toronto Street, Toronto
100.0%
100.0%
66.7%
322,669
298,372
401,705
322,669
298,372
267,817
100.0%
265,956
265,956
100.0%
100.0%
247,743
213,993
247,743
213,993
18 King Street East, Toronto
100.0%
232,365
232,365
100 Yonge Street, Toronto(3)
330 Bay Street, Toronto
66.7%
100.0%
244,787
162,229
163,199
162,229
20 Toronto St/33 Victoria St,
Toronto
8 King Street East, Toronto
100.0%
157,852
157,852
100.0%
150,113
150,113
121,593
101,421
121,593
101,421
83,527
73,277
63,529
58,328
57,476
52,796
50,158
83,527
73,277
63,529
58,328
57,476
52,796
50,158
36,364
36,364
87,105
32,338
60,255
34,842
32,338
24,102
250 Dundas Street West, Toronto
Victory Building, Toronto
425 Bloor Street East, Toronto
212 King Street West, Toronto
357 Bay Street, Toronto
360 Bay Street, Toronto
10 King Street East, Toronto
350 Bay Street, Toronto
67 Richmond Street West,
Toronto
366 Bay Street, Toronto
49 Ontario Street, Toronto(4)
56 Temperance Street, Toronto
10 Lower Spadina Avenue,
Toronto(4)
83 Yonge Street, Toronto
Toronto Downtown
5915-5935 Airport Road,
Mississauga
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
40.0%
100.0%
40.0%
100.0%
86.7%
100.0%
1992
1990
1951/2011
1958/1968
and 2011
1989
1875/2008
to 2009
1967/2008
to 2009
1989
1926
1965/2009
to 2011
1914/2006
and 2008
1983
1925/2007
to 2008
1986
1908/1980
1921/2008
1955/2007
and 2009
1965/2010
1928/1987
1940
1959/2006
and 2009
1972
1984/2008
1988
11,504
11,504
1857/2006
6,237,992
499,934
5,408,462
499,934
15.7
10.5
13.8
10.5 11-storey suburban office building
1983
Dream Office REIT 2015 Annual Report | 65
Property
Ownership
Aviva Corporate Centre, Toronto
100.0%
Total GLA in
square feet
352,425
Owned
share of
total GLA
in square
feet
352,425
6655-6725 Airport Road,
Mississauga
5001 Yonge Street, Toronto
2075 Kennedy Road, Toronto
5945-5955 Airport Road,
Mississauga
50 Burnhamthorpe Road West,
Mississauga (Sussex Centre)(4)
30 Eglinton Avenue West,
Mississauga
401 & 405 The West Mall,
Toronto (Commerce West)(4)
300, 302 & 304 The East Mall,
Toronto (Valhalla Executive
Centre)(4)
625 Cochrane Drive, Markham
Valleywood Corporate Centre,
Markham
90 Burnhamthorpe Road West,
Mississauga (Sussex Centre)(4)
185 The West Mall, Toronto(4)
2645 Skymark Ave., Mississauga
100 Gough Road, Markham
6299 Airport Road, Mississauga
1020 Birchmount Road, Toronto
6303 Airport Road, Mississauga
195 The West Mall, Toronto(4)
191 The West Mall, Toronto(4)
586 Argus Road, Oakville
2810 Matheson Boulevard East,
Mississauga(4)
6509 Airport Road, Mississauga
2550 Argentia Road, Mississauga
6501 Mississauga Road,
Mississauga(4)
2010 Winston Park Drive,
Oakville(4)
6531 Mississauga Road,
Mississauga(4)
80 Whitehall Drive, Markham(4)
3035 Orlando Drive, Mississauga
Toronto Suburban
700 De la Gauchetière Street
West, Montréal
445 Opus Industrial Boulevard,
Mount Juliet, Nashville
Market Square, Kitchener
Year
built/
renovated
1987
1983
1992
1991
1981
1987
1989
100.0%
331,372
331,372
100.0%
100.0%
100.0%
308,568
205,949
177,960
308,568
205,949
177,960
49.9%
350,525
174,912
100.0%
165,012
165,012
40.0%
411,842
164,737
1985/2007
49.9%
326,401
162,874
1973
100.0%
100.0%
162,792
154,774
162,792
154,774
49.9%
304,774
152,082
1989
1990
1989
49.9%
100.0%
100.0%
100.0%
100.0%
100.0%
49.9%
49.9%
100.0%
49.9%
100.0%
100.0%
40.0%
297,292
142,436
111,840
90,779
89,208
80,325
160,812
158,260
74,570
139,035
60,000
51,639
84,725
148,349
142,436
111,840
90,779
89,208
80,325
80,245
78,972
74,570
69,378
60,000
51,639
33,890
40.0%
79,137
31,655
40.0%
71,192
28,477
40.0%
100.0%
76.5%
100.0%
60,805
16,754
5,521,137
956,725
24,322
16,754
4,226,230
956,725
1989/2006
1984
1980
1975/2007
1952
1979/2007
1984
1985
1992/2011
1989
1981/2010
1987
1982
1990
1978
1990
1991
1983/2003
and 2010
100.0%
241,341
241,341
1975/1986
Total
site
area in
acres
9.8
12.6
1.0
5.4
6.8
2.1
6.3
4.6
4.5
Owned
share of
site area
in acres
Description of asset
9.8 3-storey, 2-storey and 7-storey
suburban office complex
12.6 6-storey and 7-storey suburban
office buildings, 1-storey and
2-storey flex buildings
1.0 20-storey office building
5.4 13-storey suburban office building
6.8 3-storey suburban office complex
1.0 15-storey suburban office building
with retail space
6.3 8-storey suburban office building
1.8 Two 11-storey suburban office
buildings
2.2 9-storey and two 6-storey suburban
office buildings
5.8
16.6
5.8 10-storey suburban office building
16.6 9-storey suburban office building
0.9
9.3
6.6
9.2
2.1
3.7
1.8
5.1
5.0
2.6
5.3
2.9
4.9
7.6
3.8
6.5
1.1
2.4
166.8
1.6
0.5 16-storey suburban office building
with retail space
4.6 16-storey suburban office building
6.6 2-storey suburban office building
with warehouse
9.2 2-storey suburban data centre
2.1 7-storey suburban office building
3.7 1-storey industrial building
1.8 5-storey suburban office building
2.5 11-storey suburban office building
2.5 11-storey suburban office building
2.6 2-storey suburban office building
2.6 8-storey suburban office building
with grade level retail
2.9 2-storey suburban office building
4.9 2-storey suburban office building
3.0 1-storey suburban office building
1.5 5-storey suburban office building
2.6 1-storey suburban office building
0.4 2-storey suburban office building
2.4 1-storey suburban office building
136.2
1.6 28-storey downtown office building
4.0
1.8
4.0 3-storey downtown office/retail
building
1.8 10-storey downtown office building
100.0%
717,160
717,160
2010
16.5
16.5 1-storey industrial building
101 Frederick Street, Kitchener
100.0%
239,428
239,428
1981/2005
Dream Office REIT 2015 Annual Report | 66
Property
1 Riverside Drive, Windsor
Ownership
100.0%
Total GLA in
square feet
235,915
Owned
share of
total GLA
in square
feet
235,915
Year
built/
renovated
2002
Total
site
area in
acres
1.8
Owned
share of
site area
in acres
Description of asset
1.8 14-storey office building with
ground floor podium and below
grade retail
1.1 One 21-storey and one 23-storey
downtown office building
10.0 5-storey office building with parking
0.5 11-storey downtown office building
0.9 11-storey downtown office building
1.1 12-storey downtown office building
0.4 13-storey downtown office building
6.0 Three 6-storey suburban office
buildings
7.0 One 3-storey and two 2-storey
suburban office buildings
0.2 22-storey downtown office building
4.3 2-storey suburban office building
0.3 11-storey downtown office building
0.6 6-storey downtown office building
with underground parking
0.7 12-storey downtown office building
5.5 3-storey office building
1.4 4-storey office building
1.8 5-storey office building with
underground parking
0.1 14-storey downtown office building
4.2 1-storey suburban office building
2.7 2-storey suburban office building
3.6 1-storey office building with parking
1.3 3-storey suburban office building
1.6 3-storey suburban office building
1.3 3-level retail podium
4.1 1-storey neighbourhood shopping
plaza
1.5 3-storey suburban office building
1.5 1-storey retail plaza
0.9 1-storey retail restaurant building
0.2 2-storey office/retail complex
0.5
0.9
1.1
0.4
6.0
7.0
0.2
4.3
0.3
0.6
0.7
5.5
1.4
1.8
0.3
4.2
2.7
3.6
1.3
1.6
1.6
8.3
3.7
4.2
0.9
0.6
1992
1968
1987
2000
1991
2001
1966/2010
1973/1999
2006
1999
1971
1965
1987
1983
2005
2002
1983
1983/2003
and 2010
2003
2008
1994
275 Dundas Street West, London
(London City Centre)(4)
12800 Foster Street, Overland
Park
400 Cumberland Road, Ottawa
50 Queen Street North,
Kitchener
55 King Street West, Kitchener
130 Slater Street, Ottawa
Gateway Business Park, Ottawa
40.0%
540,785
216,314
1974
2.8
100.0%
185,178
185,178
2006
10.0
100.0%
100.0%
100.0%
100.0%
100.0%
174,274
170,333
126,071
122,906
121,142
174,274
170,333
1972/2000
1978/2004
126,071
122,906
121,142
1125 Innovation Drive, Ottawa
100.0%
116,936
116,936
150 Metcalfe Street, Ottawa
22 Varennes Street, Gatineau
360 Laurier Avenue West,
Ottawa
100.0%
100.0%
100.0%
109,006
107,783
107,298
109,006
107,783
107,298
235 King Street East, Kitchener
100.0%
100,797
100,797
1977
22 Frederick Street, Kitchener
Accelerator Building, Waterloo
250 King Street, Fredericton
277 Pleasant Street, Dartmouth
219 Laurier Avenue West,
Ottawa(4)
236 Brownlow Avenue,
Dartmouth
2625 Queensview Drive, Ottawa
180 Keil Drive South, Chatham
Seven Capella Court, Ottawa
111 Ilsley Avenue, Dartmouth
700 De la Gauchetière Street
West, Montréal
680 Broadway Street, Tillsonburg
(Tillsonburg Gateway Centre)(4)
460 Two Nations Crossing,
Fredericton(4)
117 Kearney Lake Road,
Halifax(4)
70 King Street East, Kitchener
55 Norfolk Street South,
Simcoe(4)
Eastern Canada(1)
Total(2)
Redevelopment properties:
Bellanca Building, Yellowknife
Redevelopment properties
100.0%
100.0%
100.0%
100.0%
95,855
92,862
80,162
76,527
95,855
92,862
80,162
76,527
40.0%
187,783
75,113
60,739
60,739
46,156
46,156
36,927
31,693
27,428
39,669
36,927
31,693
27,428
31,418
47,016
23,461
50,945
20,378
36,353
12,724
100.0%
100.0%
100.0%
100.0%
100.0%
79.2%
49.9%
40.0%
35.0%
100.0%
40.0%
90.0%
87.1%
100.0%
100.0%
9,485
12,887
9,485
5,155
1977/2009
1987/2000
5,305,565
26,438,160
4,774,690
23,030,453
102.2
425.6
90.5
368.6
52,285
52,285
52,285
52,285
1973/1996
0.6
0.6
0.6 10-storey office building
0.6
Dream Office REIT 2015 Annual Report | 67
Ownership
Total GLA in
square feet
Owned
share of
total GLA
in square
feet
Year
built/
renovated
Total
site
area in
acres
Owned
share of
site area
in acres
Description of asset
100.0%
66,397
66,397
2001/2005
100.0%
37,266
37,266
1957/1991
100.0%
231,500
231,500
1959/1967
100.0%
335,163
335,163
2.8
0.3
5.4
8.5
2.8
0.3
2-storey suburban office building
5-storey office building with parking
5.4 Two 5-storey office buildings
8.5
87.3%
26,825,608 23,417,901
434.7
377.7
Property
Held for sale properties:
8550 Newman Boulevard,
Montréal
1305 Chemin Sainte-Foy,
Québec City
2450 Rue Girouard, Saint-
Hyacinthe
Held for sale properties
Total including redevelopment
and held for sale properties
(1) Includes properties in southwestern Ontario and U.S.
(2) Excludes redevelopment properties and held for sale properties.
(3) Investment in joint venture.
(4) Co-owned property.
Dream Office REIT 2015 Annual Report | 68
Occupancy by asset
Property
HSBC Bank Place, Edmonton
Enbridge Place, Edmonton
Saskatoon Square, Saskatoon
Station Tower, Surrey
1900 Sherwood Place, Regina
Milner Building, Edmonton
887 Great Northern Way, Vancouver
2257 & 2301 Premier Way, Sherwood
Park
2121 & 2181 Premier Way, Sherwood
Park
Victoria Tower, Regina
Baker Centre, Edmonton
Princeton Tower, Saskatoon
340-450 3rd Avenue N., Saskatoon
HSBC Building, Edmonton
4259-4299 Canada Way, Burnaby
13888 Wireless Way, Richmond
Highfield Place, Edmonton
Scotia Centre, Yellowknife
4400 Dominion Street, Burnaby
Precambrian Building, Yellowknife
2055 Premier Way, Strathcona County
Northwest Tower, Yellowknife
625 Agnes Street, New Westminster
2899 Broadmoor Blvd., Strathcona
County
2693 Broadmoor Blvd., Strathcona
County
1914 Hamilton Street, Regina
2665 Renfrew Street, Vancouver
350-450 Lansdowne Street,
Kamloops(5)
2833 Broadmoor Blvd., Strathcona
County
2261 Keating Cross Road, Victoria(5)
Financial Building, Regina
4370 Dominion Street, Burnaby
Preston Centre, Saskatoon
960 Quayside Drive, New
Westminster
2755 Broadmoor Blvd., Sherwood
Park
10199 - 101st Street NW, Edmonton(5)
2220 College Avenue, Regina
Morgex Building, Edmonton
Gallery Building, Yellowknife
13183 - 146th Street NW, Edmonton
Harbour Landing, Phase 2, Regina
2400 College Avenue, Regina
Owned
share of
total GLA in
square feet
300,860
262,456
228,312
219,638
185,104
174,383
164,364
156,166
No. of
tenants
19
5
14
19
7
4
5
15
Total GLA in
square feet
300,860
262,456
228,312
219,638
185,104
174,383
164,364
156,166
Average
tenant
size in
square
feet
14,231
52,491
15,156
10,705
26,443
42,936
32,873
9,054
Average
lease term
remaining
in years
3.3
3.0
2.5
4.7
2.9
2.5
4.7
2.7
Owned
share
vacancy in
square feet
30,470
—
16,133
16,241
—
2,639
—
20,357
151,387
151,387
144,165
142,791
134,461
130,724
118,838
119,570
116,530
104,629
107,973
93,095
92,730
87,965
87,994
85,534
82,489
144,165
142,791
134,461
130,724
118,838
119,570
116,530
104,629
107,973
93,095
92,730
87,965
87,994
85,534
82,489
81,808
81,808
82,264
81,662
190,665
82,264
81,662
76,266
74,649
74,649
181,601
65,739
63,930
61,867
61,849
72,640
65,739
63,930
61,867
61,849
61,255
61,255
121,357
59,590
53,000
48,265
38,561
38,738
35,528
60,679
59,590
53,000
48,265
38,561
38,738
35,528
15
2
24
18
4
21
18
2
5
15
19
7
10
13
13
6
8
7
1
29
15
6
2
9
13
13
16
1
1
1
2
5
2
4
9,864
72,083
5,074
6,564
21,872
5,219
4,904
58,265
5,504
7,067
4,765
11,337
8,123
6,225
5,564
13,748
8,787
11,752
81,662
5,586
3,989
24,511
32,870
4,307
4,759
4,670
3,828
65,532
59,590
53,000
24,133
7,164
19,369
7,062
Dream Office REIT 2015 Annual Report | 69
3.9
2.8
3.1
5.2
4.0
2.9
2.0
2.3
1.8
7.1
2.7
5.3
3.9
4.7
4.5
2.0
1.6
3.7
4.5
4.0
3.8
1.6
0.1
2.8
4.2
1.4
3.0
1.8
0.6
3.8
6.2
3.2
7.6
4.5
3,428
—
21,019
16,302
43,237
9,243
31,292
—
77,110
1,975
2,563
13,371
6,740
7,070
13,200
—
11,509
—
—
11,467
14,811
13,813
—
25,164
—
1,143
—
27,913
—
—
—
2,739
—
7,281
Owned
share
occupancy
in square
feet
270,390
262,456
212,179
203,397
185,104
171,744
164,364
135,809
147,959
144,165
121,772
118,159
87,487
109,595
88,278
116,530
27,519
105,998
90,532
79,359
81,225
80,924
72,334
82,489
70,299
82,264
81,662
64,799
59,838
58,827
65,739
38,766
61,867
60,706
61,255
32,766
59,590
53,000
48,265
35,822
38,738
28,247
Occupancy(1)
89.9%
100.0%
92.9%
92.6%
100.0%
98.5%
100.0%
87.0%
97.7%
100.0%
85.3%
87.9%
66.9%
92.2%
73.8%
100.0%
26.3%
98.2%
97.2%
85.6%
92.3%
92.0%
84.6%
100.0%
85.9%
100.0%
100.0%
85.0%
80.2%
81.0%
100.0%
60.6%
100.0%
98.2%
100.0%
54.0%
100.0%
100.0%
100.0%
92.9%
100.0%
79.5%
Property
Royal Centre, Saskatoon
2208 Scarth Street, Regina
Royal Centre, Saskatoon
2445 - 13th Avenue, Regina
234 - 1st Avenue South, Saskatoon
Western Canada
IBM Corporate Park, Calgary
F1RST Tower (formerly Telus Tower),
Calgary(4)
840 - 7th Avenue SW, Calgary
444 - 7th Building, Calgary
McFarlane Tower, Calgary
Life Plaza, Calgary
Rocky Mountain Plaza, Calgary
Northland Building, Calgary
606 4th Building & Barclay Parkade,
Calgary
Roslyn Building, Calgary
Atrium I, Calgary
Atrium II, Calgary
510 - 5th Street SW, Calgary
Joffre Place, Calgary
Dominion Centre, Calgary
435 - 4th Avenue SW, Calgary
1035 - 7th Ave SW, Calgary
Mount Royal Place, Calgary
441 - 5th Avenue SW, Calgary
Calgary Downtown
Airport Corporate Centre, Calgary
Franklin Atrium, Calgary
2891 Sunridge Way, Calgary
Kensington House, Calgary
3115 - 12th Street NE, Calgary
14505 Bannister Road, SE, Calgary
Braithwaite Boyle Centre, Calgary
Franklin Building, Calgary
2816 - 11th Street NE, Calgary
Centre 70, Calgary(5)
Calgary Suburban
Scotia Plaza (40 King Street West),
Toronto(4)
Adelaide Place, Toronto
State Street Financial Centre, Toronto
AIR MILES Tower, Toronto
655 Bay Street, Toronto
Scotia Plaza (44 King Street West),
Toronto(4)
74 Victoria St/137 Yonge St, Toronto
720 Bay Street, Toronto
18 King Street East, Toronto
Owned
share of
total GLA in
square feet
32,128
25,129
16,411
16,316
9,567
4,709,999
357,277
355,122
No. of
tenants
2
3
7
5
4
436
10
7
Total GLA in
square feet
32,128
25,129
16,411
16,316
9,567
4,994,037
357,277
710,243
272,266
254,545
242,263
236,688
205,254
146,602
132,697
131,764
109,793
109,542
109,181
107,261
98,712
88,737
75,129
59,363
60,787
3,508,104
149,771
150,312
87,246
77,816
72,753
61,272
54,924
50,577
33,435
133,219
871,325
1,577,071
659,533
413,933
322,669
298,372
401,705
265,956
247,743
232,365
272,266
254,545
242,263
236,688
205,254
146,602
132,697
131,764
109,793
109,542
109,181
107,261
98,712
88,737
75,129
59,363
60,787
3,152,983
149,771
150,312
87,246
77,816
72,753
61,272
54,924
50,577
33,435
19,983
758,089
1,051,433
659,533
413,933
322,669
298,372
267,817
265,956
247,743
232,365
21
8
30
36
12
20
14
13
7
13
26
12
6
14
3
19
14
285
11
10
4
15
15
4
9
3
5
41
117
67
73
9
20
25
1
5
1
28
Average
tenant
size in
square
feet
16,064
7,313
2,344
1,644
1,994
10,246
35,728
100,968
8,371
23,865
7,480
4,903
16,050
5,948
7,728
8,120
15,685
6,759
3,746
7,027
16,452
6,039
23,903
3,124
3,250
10,864
13,272
14,301
21,812
3,336
4,147
15,318
4,936
16,859
4,542
2,649
6,633
23,538
8,567
45,993
15,981
11,907
401,705
53,191
247,743
8,296
Average
lease term
remaining
in years
3.2
3.4
1.7
2.2
6.0
3.4
3.0
2.1
Owned
share
vacancy in
square feet
—
3,190
—
8,094
1,590
461,104
—
1,734
4.3
6.9
3.1
3.0
6.1
3.7
2.5
4.6
3.7
4.1
2.3
4.0
4.1
2.9
1.9
2.8
2.8
3.6
5.2
2.8
2.9
2.8
3.4
5.2
2.5
1.9
2.4
2.7
3.5
7.2
5.7
8.6
4.3
4.4
11.5
4.9
5.0
2.7
96,473
63,628
17,878
60,181
12,654
27,638
24,501
26,205
—
21,669
11,789
22,936
—
4,195
3,420
—
15,285
410,186
3,774
7,298
—
27,780
10,551
—
10,496
—
10,723
3,690
74,312
—
34,113
—
3,044
707
—
—
—
64
Dream Office REIT 2015 Annual Report | 70
Owned
share
occupancy
in square
feet
32,128
21,939
16,411
8,222
7,977
4,248,895
357,277
353,388
175,793
190,917
224,385
176,507
192,600
118,964
108,196
105,559
109,793
87,873
97,392
84,325
98,712
84,542
71,709
59,363
45,502
2,742,797
145,997
143,014
87,246
50,036
62,202
61,272
44,428
50,577
22,712
16,293
683,777
1,051,433
625,420
413,933
319,625
297,665
267,817
265,956
247,743
232,301
Occupancy(1)
100.0%
87.3%
100.0%
50.4%
83.4%
90.2%
100.0%
99.5%
64.6%
75.0%
92.6%
74.6%
93.8%
81.1%
81.5%
80.1%
100.0%
80.2%
89.2%
78.6%
100.0%
95.3%
95.4%
100.0%
74.9%
87.0%
97.5%
95.1%
100.0%
64.3%
85.5%
100.0%
80.9%
100.0%
67.9%
81.5%
90.2%
100.0%
94.8%
100.0%
99.1%
99.8%
100.0%
100.0%
100.0%
100.0%
Property
36 Toronto Street, Toronto
100 Yonge Street, Toronto(4)
330 Bay Street, Toronto
20 Toronto St/33 Victoria St, Toronto
8 King Street East, Toronto
250 Dundas Street West, Toronto
Victory Building, Toronto
425 Bloor Street East, Toronto
212 King Street West, Toronto
357 Bay Street, Toronto
360 Bay Street, Toronto
10 King Street East, Toronto
350 Bay Street, Toronto
67 Richmond Street West, Toronto
366 Bay Street, Toronto
49 Ontario Street, Toronto(5)
56 Temperance Street, Toronto
10 Lower Spadina Avenue, Toronto(5)
83 Yonge Street, Toronto
Toronto Downtown
5915-5935 Airport Road, Mississauga
Aviva Corporate Centre, Toronto
6655-6725 Airport Road, Mississauga
5001 Yonge Street, Toronto
2075 Kennedy Road, Toronto
5945-5955 Airport Road, Mississauga
50 Burnhamthorpe Road West,
Mississauga(5)
30 Eglinton Avenue West, Mississauga
401 & 405 The West Mall, Toronto(5)
300, 302 & 304 The East Mall,
Toronto(5)
625 Cochrane Drive, Markham
Valleywood Corporate Centre,
Markham
90 Burnhamthorpe Road West,
Mississauga(5)
185 The West Mall, Toronto(5)
2645 Skymark Ave., Mississauga
100 Gough Road, Markham
6299 Airport Road, Mississauga
1020 Birchmount Road, Toronto
6303 Airport Road, Mississauga
195 The West Mall, Toronto(5)
191 The West Mall, Toronto(5)
586 Argus Road, Oakville
2810 Matheson Boulevard East,
Mississauga(5)
6509 Airport Road, Mississauga
2550 Argentia Road, Mississauga
Owned
share of
total GLA in
square feet
213,993
163,199
162,229
157,852
150,113
121,593
101,421
83,527
73,277
63,529
58,328
57,476
52,796
50,158
36,364
34,842
32,338
24,102
11,504
5,408,462
499,934
352,425
331,372
308,568
205,949
177,960
174,912
Total GLA in
square feet
213,993
244,787
162,229
157,852
150,113
121,593
101,421
83,527
73,277
63,529
58,328
57,476
52,796
50,158
36,364
87,105
32,338
60,255
11,504
6,237,992
499,934
352,425
331,372
308,568
205,949
177,960
350,525
No. of
tenants
36
14
42
28
51
18
45
9
10
22
16
22
13
5
10
2
9
7
4
592
48
7
5
19
13
36
36
165,012
411,842
326,401
162,792
154,774
165,012
164,737
162,874
162,792
154,774
304,774
152,082
297,292
142,436
111,840
90,779
89,208
80,325
160,812
158,260
74,570
139,035
60,000
51,639
148,349
142,436
111,840
90,779
89,208
80,325
80,245
78,972
74,570
69,378
60,000
51,639
43
21
25
12
15
20
20
2
1
23
1
9
1
9
5
8
1
15
Average
tenant
size in
square
feet
5,793
17,485
3,779
5,611
2,685
6,675
2,227
8,066
7,328
2,011
3,597
2,613
4,061
10,032
3,019
43,553
3,337
6,744
2,876
10,341
7,951
49,407
25,181
15,866
12,389
4,284
8,231
3,724
17,321
10,277
13,326
9,860
13,388
13,698
42,282
111,840
3,326
89,208
8,606
160,812
16,684
14,914
13,237
60,000
2,462
Average
lease term
remaining
in years
3.8
7.0
3.3
5.6
3.6
3.7
3.0
3.4
3.9
2.4
3.7
3.4
3.1
4.3
2.1
2.2
2.7
3.3
4.4
5.7
5.8
1.8
2.3
2.4
4.9
3.9
4.7
Owned
share
vacancy in
square feet
5,449
—
3,517
737
13,177
1,449
1,219
10,936
—
19,288
774
—
—
—
6,175
—
2,305
5,218
—
108,172
118,297
6,579
205,467
7,121
44,897
23,729
27,052
5.0
3.9
3.2
5.7
3.1
5.2
4.7
5.6
10.7
4.2
3.1
5.0
5.0
3.5
2.7
6.4
5.0
4.7
4,869
19,244
34,674
2,883
6,872
18,468
11,646
57,872
—
14,276
—
2,869
—
4,045
—
16,537
—
14,703
Dream Office REIT 2015 Annual Report | 71
Owned
share
occupancy
in square
feet
208,544
163,199
158,712
157,115
136,936
120,144
100,202
72,591
73,277
44,241
57,554
57,476
52,796
50,158
30,189
34,842
30,033
18,884
11,504
5,300,290
381,637
345,846
125,905
301,447
161,052
154,231
147,860
160,143
145,493
128,200
159,909
147,902
133,614
136,703
84,564
111,840
76,503
89,208
77,456
80,245
74,927
74,570
52,841
60,000
36,936
Occupancy(1)
97.5%
100.0%
97.8%
99.5%
91.2%
98.8%
98.8%
86.9%
100.0%
69.6%
98.7%
100.0%
100.0%
100.0%
83.0%
100.0%
92.9%
78.4%
100.0%
98.0%
76.3%
98.1%
38.0%
97.7%
78.2%
86.7%
84.5%
97.0%
88.3%
78.7%
98.2%
95.6%
87.9%
92.1%
59.4%
100.0%
84.3%
100.0%
96.4%
100.0%
94.9%
100.0%
76.2%
100.0%
71.5%
Property
6501 Mississauga Road, Mississauga(5)
2010 Winston Park Drive, Oakville(5)
6531 Mississauga Road, Mississauga(5)
80 Whitehall Drive, Markham(5)
3035 Orlando Drive, Mississauga
Toronto Suburban
700 De la Gauchetière Street West,
Montréal
445 Opus Industrial Boulevard, Mount
Juliet, Nashville
Market Square, Kitchener
101 Frederick Street, Kitchener
1 Riverside Drive, Windsor
275 Dundas Street West, London(5)
12800 Foster Street, Overland Park
400 Cumberland Road, Ottawa
50 Queen Street North, Kitchener
55 King Street West, Kitchener
130 Slater Street, Ottawa
Gateway Business Park, Ottawa
1125 Innovation Drive, Ottawa
150 Metcalfe Street, Ottawa
22 Varennes Street, Gatineau
360 Laurier Avenue West, Ottawa
235 King Street East, Kitchener
22 Frederick Street, Kitchener
Accelerator Building, Waterloo
250 King Street, Fredericton
277 Pleasant Street, Dartmouth
219 Laurier Avenue West, Ottawa(5)
236 Brownlow Avenue, Dartmouth
2625 Queensview Drive, Ottawa
180 Keil Drive South, Chatham
Seven Capella Court, Ottawa
111 Ilsley Avenue, Dartmouth
700 De la Gauchetière Street West,
Montréal
680 Broadway Street, Tillsonburg(5)
460 Two Nations Crossing,
Fredericton(5)
117 Kearney Lake Road, Halifax(5)
70 King Street East, Kitchener
55 Norfolk Street South, Simcoe(5)
Eastern Canada(2)
Total(3)
Owned
share of
total GLA in
square feet
33,890
31,655
28,477
24,322
16,754
4,226,230
956,725
No. of
tenants
25
8
19
2
1
450
13
Total GLA in
square feet
84,725
79,137
71,192
60,805
16,754
5,521,137
956,725
Average
tenant
size in
square
feet
3,282
8,463
2,572
30,403
16,754
10,446
71,988
Average
lease term
remaining
in years
3.0
6.2
3.7
4.0
6.4
4.3
6.4
Owned
share
vacancy in
square feet
1,066
4,572
8,930
—
—
656,668
20,881
Owned
share
occupancy
in square
feet
32,824
27,083
19,547
24,322
16,754
3,569,562
935,844
Occupancy(1)
96.9%
85.6%
68.6%
100.0%
100.0%
84.5%
97.8%
717,160
717,160
1
717,160
241,341
239,428
235,915
540,785
185,178
174,274
170,333
126,071
122,906
121,142
116,936
109,006
107,783
107,298
100,797
95,855
92,862
80,162
76,527
187,783
60,739
46,156
36,927
31,693
27,428
39,669
47,016
50,945
241,341
239,428
235,915
216,314
185,178
174,274
170,333
126,071
122,906
121,142
116,936
109,006
107,783
107,298
100,797
95,855
92,862
80,162
76,527
75,113
60,739
46,156
36,927
31,693
27,428
31,418
23,461
20,378
19
17
8
19
1
3
13
11
22
39
4
21
1
7
4
16
4
3
4
5
2
5
1
2
4
27
4
1
12,724
36,353
9,485
9,485
5,155
12,887
5,305,565
4,774,690
26,438,160 23,030,453
12
1
1
295
2,175
12,525
10,758
25,536
26,798
185,178
58,091
11,493
10,877
5,074
2,896
29,234
4,751
107,783
15,328
19,645
3,865
23,216
26,721
15,685
37,557
19,595
8,427
36,927
15,847
5,532
1,469
11,754
50,945
2,693
9,485
12,887
16,951
11,109
10.3
2.9
3.6
5.9
6.5
4.9
2.0
2.9
4.3
3.6
4.3
5.1
3.2
1.8
2.2
3.7
3.5
6.6
3.8
2.3
11.6
0.6
2.9
2.3
8.4
1.0
6.5
7.2
12.6
3.9
3.3
1.2
5.6
4.6
—
100.0%
717,160
3,373
56,550
31,630
12,646
—
—
20,922
6,420
11,285
8,194
—
9,244
—
—
22,216
34,010
—
—
13,788
—
21,550
4,021
—
—
5,300
—
—
—
1,413
—
—
283,443
1,993,885
98.6%
76.4%
86.6%
94.2%
100.0%
100.0%
87.7%
94.9%
90.8%
93.2%
100.0%
91.5%
100.0%
100.0%
78.0%
64.5%
100.0%
100.0%
82.0%
100.0%
64.5%
91.3%
100.0%
100.0%
80.7%
100.0%
100.0%
100.0%
88.9%
100.0%
100.0%
94.1%
91.3%
237,968
182,878
204,285
203,668
185,178
174,274
149,411
119,651
111,621
112,948
116,936
99,762
107,783
107,298
78,581
61,845
92,862
80,162
62,739
75,113
39,189
42,135
36,927
31,693
22,128
31,418
23,461
20,378
11,311
9,485
5,155
4,491,247
21,036,568
Includes properties in southwestern Ontario and U.S.
(1) Occupancy includes in-place and committed.
(2)
(3) Excludes redevelopment properties and held for sale properties.
(4)
(5) Co-owned property.
Investment in joint venture.
Dream Office REIT 2015 Annual Report | 72
Largest tenants by GLA
Tenant
Government of Canada
Bank of Nova Scotia
Nissan North America Inc.
Government of Ontario
Bell Canada
Government of Saskatchewan
Aviva Canada Inc.
Government of Alberta
Telus
Enbridge Pipelines Inc.
State Street Trust Company
Government of British Columbia
SNC-Lavalin Inc.
Loyalty Management
Dream Office Management Corp.
Owned area of
total GLA in
square feet
Properties
1,411,488 2 Properties
1 Property
1 Property
4 Properties
3 Properties
1 Properties
5 Properties
3 Properties
5 Properties
1 Property
1,002,340 1 Property
1 Property
2 Properties
6 Properties
1 Property
2 Properties
2 Properties
717,160 445 Opus Industrial Boulevard
464,232 6 Properties
1 Property
1 Property
376,694 Northwest Tower
350-450 Lansdowne Street
Enbridge Place
Scotia Plaza
Gateway Business Park
700 De la Gauchetière Street West
340,019 6 Properties
1 Property
335,900 HSBC Bank Place
2200-2206 Eglinton Avenue East
304,079 8 Properties
3 Properties
287,803 2261 Keating Cross Road
F1RST Tower (formerly Telus Tower)
248,577 Enbridge Place
244,936 State Street Financial Centre
18 King Street East
210,828 Station Tower
2 Properties
4370 Dominion Street
2261 Keating Cross Road
350-450 Lansdowne Street
203,383 1 Property
1 Property
4 Properties
194,018 AIR MILES Tower
191,096 2 Properties
1 Property
1 Property
2 Properties
1 Property
7 Properties
2 Properties
Dream Office REIT 2015 Annual Report | 73
City
Yellowknife
Surrey
New Westminster
Saskatoon
Calgary
Edmonton
Toronto
Kitchener
Ottawa
Windsor
Yellowknife
Calgary
Saskatoon
Toronto
Markham
Mississauga
Kitchener
Mount Juliet
Toronto
Ottawa
Kitchener
Yellowknife
Kamloops
Edmonton
Toronto
Ottawa
Montréal
Regina
Saskatoon
Edmonton
Toronto
Calgary
Edmonton
Victoria
Calgary
Edmonton
Toronto
Toronto
Surrey
New Westminster
Burnaby
Victoria
Kamloops
Yellowknife
Calgary
Toronto
Toronto
Yellowknife
Surrey
New Westminster
Saskatoon
Regina
Calgary
Edmonton
Province/State
Northwest Territories
British Columbia
British Columbia
Saskatchewan
Alberta
Alberta
Ontario
Ontario
Ontario
Ontario
Northwest Territories
Alberta
Saskatchewan
Ontario
Ontario
Ontario
Ontario
Tennessee, U.S.
Ontario
Ontario
Ontario
Northwest Territories
British Columbia
Alberta
Ontario
Ontario
Québec
Saskatchewan
Saskatchewan
Alberta
Ontario
Alberta
Alberta
British Columbia
Alberta
Alberta
Ontario
Ontario
British Columbia
British Columbia
British Columbia
British Columbia
British Columbia
Northwest Territories
Alberta
Ontario
Ontario
Northwest Territories
British Columbia
British Columbia
Saskatchewan
Saskatchewan
Alberta
Alberta
Tenant
Owned area of
total GLA in
square feet
Properties
7 Properties
1 Property
4 Properties
4 Properties
1 Property
1 Property
Newalta Corporation
TD Canada Trust
U.S. Bank National Association
AON Canada Inc.
Government of Québec
IBM Canada Ltd.
The City of Edmonton
ATCO Group
AECOM Canada Ltd.
Cenovus Energy Inc.
Government of Northwest Territories
Miller Thomson
Daimler Chrysler Canada Inc.
Borell Management
Goodlife Fitness Centre Inc.
International Financial Data Services
Stantec Consulting Ltd.
Minacs Worldwide Inc.
Government of New Brunswick
Total
187,297 3 Properties
185,870 Saskatoon Square
1914 Hamilton Street
300, 302 & 304 The East Mall
275 Dundas Street West
185,178 12800 Foster Street
166,609 700 De la Gauchetière Street West
164,362 700 De la Gauchetière Street West
163,608 IBM Corporate Park
100 Gough Road
156,106 HSBC Bank Place
146,942 Milner Building
143,993 2 Properties
Preston Centre
140,605 Rocky Mountain Plaza
139,516 3 Properties
137,149 Valleywood Corporate Centre
Accelerator Building
Scotia Plaza
132,500 1 Riverside Drive
124,795 Scotia Plaza
117,893 Market Square
5 Properties
107,490 State Street Financial Centre
103,851 Station Tower
Market Square
2261 Keating Cross Road
103,658 6655-6725 Airport Road
180 Keil Drive South
100,540 2 Properties
9,240,515
City
Toronto
Ottawa
Mississauga
Kitchener
Windsor
Montréal
Calgary
Saskatoon
Regina
Toronto
London
Overland Park
Montréal
Montréal
Calgary
Markham
Edmonton
Edmonton
Edmonton
Saskatoon
Calgary
Yellowknife
Markham
Waterloo
Toronto
Windsor
Toronto
Kitchener
Toronto
Toronto
Surrey
Kitchener
Victoria
Mississauga
Chatham
Fredericton
Province/State
Ontario
Ontario
Ontario
Ontario
Ontario
Québec
Alberta
Saskatchewan
Saskatchewan
Ontario
Ontario
Kansas, U.S.
Québec
Québec
Alberta
Ontario
Alberta
Alberta
Alberta
Saskatchewan
Alberta
Northwest Territories
Ontario
Kitchener
Ontario
Ontario
Ontario
Ontario
Ontario
Ontario
British Columbia
Ontario
British Columbia
Ontario
Ontario
New Brunswick
Dream Office REIT 2015 Annual Report | 74
Cumulative gross
contractual rents
$104.1 million
Largest tenants by annualized gross rent
(Includes all tenants where projected annualized gross contractual rent exceeds $1.0 million)
Rank
Tenant
$2.5 million or greater:
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
Bank of Nova Scotia
Government of Canada
Government of Ontario
Bell Canada
Telus
Enbridge Pipelines Inc.
State Street Trust Company
Government of Saskatchewan
Government of Alberta
Newalta Corporation
Aviva Canada Inc.
Borell Management
Loyalty Management
Government of British Columbia
Dream Office Management Corp.
SNC-Lavalin Inc.
Miller Thomson
Cenovus Energy
Government of Northwest Territories
Cassels Brock Blackwell
Government of Québec
Daimler Chrysler Canada Inc.
ATCO Group
IBM Canada Ltd.
AON Canada Inc.
The City of Edmonton
Penn West Energy Trust
International Financial Data Services
TD Canada Trust
U.S. Bank National Association
Discovery Parks Holdings Ltd.
AECOM Canada Ltd.
Royal Bank of Canada
Goodlife Fitness Centre Inc.
Nissan North America Inc.
Medcan Health Management Inc.
The Art Institute of Vancouver
Co-operators Life Insurance
Hatch Optima Ltd
Stantec Consulting Ltd.
Bank of Montreal
CIBC
CB Richard Ellis Limited
Sage Software Canada Ltd.
National Bank of Canada
Cumulative gross
contractual rents Rank
Tenant
$367.6 million
Between $1.0 million and $2.5 million:
Great West Life Assurance Co.
Gemini Corporation
BDO Dunwoody
Agence Metropolitaine de Transport
Carswell
Livingston International Inc.
Minacs Worldwide Inc.
Rogers Communication Inc.
DBRS
Encana Corporation
Bereskin & Parr Management
MCAP Services Corporation
Ensign Resource Service Group
Raymond James Ltd.
Mark Anthony Group
Maple Leaf Foods
Government of New Brunswick
Delcan Corporation
International Civil Aviation Organization
Canadian Energy Services LP
Government of Nova Scotia
Intact Financial Corporation
CGI Group
Cardinia Real Estate Canada Inc.
Edward D. Jones & Co.
AMEC Americas Ltd Energy
Conexus Credit Union
Care Factor Computer Services
Gardiner Roberts
Trident Exploration Corp.
Reg. Municipality of Waterloo
Johnson Inc.
CAE Professional Services Inc.
Toronto Central Community Care
Canadian Western Bank
Stewart Weir and Co.
Yellow Pages
Wells Fargo Foothill Canada
Saskatchewan Telecommunication
Dutton Brock
Exchange Solutions Inc.
GCAN Insurance Company
Jardine Lloyd Thompson Canada
MKRT Management Corporation
Wardrop Engineering Inc.
Lindt & Sprungli (Canada), Inc
BHP Billiton Diamonds
IMV Projects Inc.
Bantrel
Precision Drilling Corp.
Wawanesa Mutual Insurance
Technicolor Creative Services
MLT Management Inc.
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
75
76
77
78
79
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
Dream Office REIT 2015 Annual Report | 75
Rank
Tenant
Cumulative gross
contractual rents Rank
Tenant
Cumulative gross
contractual rents
99
100
101
102
103
104
105
106
107
108
109
110
111
112
113
114
115
HSBC Bank Canada
Family Guidance Group Inc.
Yardi Systems Inc.
The Insurance Institute of Canada
Cambridge Mercantile Corp.
Tartan Engineering
Gilliland, Gold, Young Consulting
Lafarge Canada Inc.
Ontario Bar Association
Trader Corporation
The Record
City of Windsor
Connor, Clark & Lunn Financial
Smart & Biggar Management
Parmalat Canada Inc.
Saxon Energy Services
Inmet Mining Corporation
All tenants with annualized owned rent in excess of $2.5 million:
Total annualized owned net rental income
Total annualized owned gross rental income
Total GLA in square feet (owned share)
Average base rent (PSF)
Average recoveries (PSF)
Entire owned portfolio:
Total annualized owned net rental income
Total annualized owned gross rental income
Total occupied and committed GLA in square feet
Average base rent (PSF)
Average recoveries (PSF)
$198.8 million
$367.6 million
10,089,680
$19.70
$16.73
$398.4 million
$747.8 million
21,036,568
$18.94
$16.61
Dream Office REIT 2015 Annual Report | 76
Portfolio tenant base (by NAICS codes)
Sector
Finance and Insurance
Professional, Scientific and Technical Services
Public Administration
Information and Cultural Industries
Mining and Oil and Gas Extraction
Manufacturing
Administrative & Support, Waste Management & Remediation Services
Retail Trade
Transportation and Warehousing
Other
Total
By GLA
20.1 %
17.6 %
15.8 %
7.3 %
6.6 %
6.2 %
4.8 %
3.3 %
3.2 %
15.1 %
100.0 %
By contractual rent
By contractual rent
22.1 %
17.2 %
16.4 %
6.8 %
7.8 %
3.1 %
4.9 %
3.6 %
2.9 %
15.2 %
100.0 %
Dream Office REIT 2015 Annual Report | 77
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
control. 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.
P. Jane Gavan
Chief Executive Officer
Rajeev Viswanathan
Chief Financial Officer
Toronto, Ontario, February 18, 2016
Dream Office REIT 2015 Annual Report | 78
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, 2015 and
December 31, 2014 and the consolidated statements of comprehensive income, 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, 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, 2015 and December 31, 2014 and its financial performance and its cash flows for the years then
ended in accordance with International Financial Reporting Standards.
Chartered Professional Accountants, Licensed Public Accountants
Toronto, Ontario, February 18, 2016
Dream Office REIT 2015 Annual Report | 79
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
Other non-current liabilities
CURRENT LIABILITIES
Debt
Amounts payable and accrued liabilities
Liabilities related to assets held for sale
Total liabilities
Equity
Unitholders’ equity
Retained earnings
Accumulated other comprehensive income
Total equity
Total liabilities and equity
Note
December 31,
2015
December 31,
2014
6
7
8
9
10
18
11
12
13
21
14
11
15
18
17
17
17, 26
17
$
$
$
$
5,866,595 $
184,817
595,203
49,984
6,696,599
10,258
9,052
2,051
21,361
44,914
6,762,874 $
2,401,104 $
90,912
12,596
9,038
20,284
2,533,934
609,644
112,980
722,624
24,502
3,281,060
3,168,915
301,324
11,575
3,481,814
6,762,874 $
6,139,070
191,691
553,141
106,803
6,990,705
16,565
8,593
10,920
36,078
2,968
7,029,751
2,730,973
15,151
17,082
6,183
19,468
2,788,857
365,855
97,522
463,377
—
3,252,234
3,171,794
601,495
4,228
3,777,517
7,029,751
See accompanying notes to the consolidated financial statements.
On behalf of the Board of Trustees of Dream Office Real Estate Investment Trust:
JOANNE FERSTMAN
Trustee
MICHAEL J. COOPER
Trustee
Dream Office REIT 2015 Annual Report | 80
Consolidated statements of comprehensive income (loss)
(in thousands of Canadian dollars)
Investment properties revenue
Investment properties operating expenses
Net rental income
Other income
Share of net income and dilution loss from investment in Dream Industrial REIT
Share of net income from investment in joint ventures
Interest and fee income
Other expenses
General and administrative
Interest:
Debt
Subsidiary redeemable units
Amortization 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
Deferred income taxes
Net income (loss) for the year
Other comprehensive income (loss)
Items that will be reclassified subsequently to net income:
Unrealized loss on interest rate swaps, net of tax
Unrealized foreign currency translation gain, net of tax
Comprehensive income (loss) for the year
See accompanying notes to the consolidated financial statements.
Note
$
Year ended December 31,
2015
2014
705,279
690,962 $
(303,449 )
(303,771 )
401,508
387,513
7
8
6,112
53,136
3,005
62,253
15,965
37,611
3,199
56,775
23
(12,196 )
(24,393 )
19
19
20
31
21
(131,818 )
(9,171 )
(2,949 )
(156,134 )
(201,030 )
48,890
(194,836 )
(346,976 )
(53,344 )
(1,695 )
(55,039 )
(134,952 )
(4,638 )
(2,970 )
(166,953 )
(124,303 )
2,749
(9,848 )
(131,402 )
159,928
(638 )
159,290
26
26
$
(139 )
7,486
7,347
(47,692 ) $
(666 )
3,210
2,544
161,834
Dream Office REIT 2015 Annual Report | 81
Consolidated statements of changes in equity
(in thousands of Canadian dollars, except for number of units)
Year ended December 31, 2015
Balance at January 1, 2015
Net loss for the year
Distributions paid and payable
Distribution Reinvestment Plan
Unit Purchase Plan
Deferred units exchanged for REIT A Units
REIT B Units exchanged for REIT A Units
Cancellation of REIT A Units
Issue costs
Other comprehensive income
Balance at December 31, 2015
Note
16
17
17
13
17
17
26
Number of
REIT A Units
107,936,575 $
—
—
4,040,965
13,727
137,233
218,611
(4,486,473 )
—
—
107,860,638 $
Unitholdersʼ
equity
3,171,794 $
—
—
93,122
343
3,269
5,795
(105,114 )
(294 )
—
3,168,915 $
Year ended December 31, 2014
Balance at January 1, 2014
Net income for the year
Distributions paid and payable
Distribution Reinvestment Plan
Unit Purchase Plan
Deferred units exchanged for REIT A Units
REIT B Units exchanged for REIT A Units
Cancellation of REIT A Units
Conversion of debentures
Conversion feature on converted debentures
Issue costs
Other comprehensive income
Balance at December 31, 2014
Note
Number of
REIT A Units
103,420,221 $
Unitholdersʼ
equity
3,039,189 $
—
—
2,236,530
4,765
157,608
2,936,023
(832,200 )
13,628
—
—
—
16
17
17
13
17
17
17
26
—
—
63,248
135
4,338
85,350
(20,924 )
500
(7 )
(35 )
—
107,936,575 $
3,171,794 $
See accompanying notes to the consolidated financial statements.
Attributable to unitholders of the Trust
Accumulated
other
comprehensive
income
4,228 $
—
—
—
—
—
—
—
—
7,347
11,575 $
Retained
earnings
601,495 $
(55,039 )
(245,132 )
—
—
—
—
—
—
—
301,324 $
Total equity
3,777,517
(55,039 )
(245,132 )
93,122
343
3,269
5,795
(105,114 )
(294 )
7,347
3,481,814
Attributable to unitholders of the Trust
Accumulated
other
comprehensive
income
1,684 $
—
—
—
—
—
—
—
—
—
—
2,544
4,228 $
Retained
earnings
682,265 $
159,290
(240,060 )
—
—
—
—
—
—
—
—
—
601,495 $
Total equity
3,723,138
159,290
(240,060 )
63,248
135
4,338
85,350
(20,924 )
500
(7 )
(35 )
2,544
3,777,517
Dream Office REIT 2015 Annual Report | 82
Consolidated statements of cash flow
(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 dilution loss from investment in Dream Industrial REIT
Share of net income 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 and expropriation of land
Net proceeds from disposal of equity accounted investments
Distributions from investment in Dream Industrial REIT
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 disposition
Financing costs
Distributions paid on Units
Interest paid on subsidiary redeemable units
Cancellation of REIT A Units
REIT A Units issued for cash
Debt settlement and REIT A Unit issue costs
Decrease in cash and cash equivalents
Foreign exchange gain 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
Year ended December 31,
2015
2014
$
(55,039 ) $
159,290
7
8
25
20
25
19
25
11
11
11
11
11
16
19, 25
17
17
$
(6,112 )
(53,136 )
14,981
201,030
(48,890 )
186,196
(63,895 )
9,171
8,203
192,509
(44,755 )
(1,450 )
130,582
—
12,986
33,577
(19,535 )
2,101
113,506
572,628
(63,792 )
(512,633 )
(44,674 )
(1,987 )
(151,945 )
(8,306 )
(105,114 )
343
(1,408 )
(316,888 )
(10,873 )
2,004
10,920
2,051 $
(15,965 )
(37,611 )
11,287
124,303
(2,749 )
3,081
(49,116 )
4,638
6,196
203,354
(31,255 )
(1,367 )
14,957
12,843
11,795
55,644
(43,919 )
(942 )
17,756
460,054
(67,135 )
(416,431 )
(11,070 )
(3,007 )
(175,912 )
(5,186 )
(20,924 )
135
(1,927 )
(241,403 )
(20,293 )
196
31,017
10,920
Dream Office REIT 2015 Annual Report | 83
Notes to the consolidated financial statements
(All dollar amounts in thousands of Canadian dollars, except for unit or per unit 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 consolidated subsidiaries. Dream
Office REIT’s portfolio comprises office properties located in urban centres across Canada and the United States (“U.S.”). 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 under the symbol “D.UN”. Dream Office REIT’s
consolidated financial statements for the year ended December 31, 2015 were authorized for issuance by the Board of Trustees
on February 18, 2016, 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
• “subsidiary redeemable units”, meaning the LP Class B Units, Series 1, limited partnership units of Dream Office LP
On April 2, 2015, 4,850,000 subsidiary redeemable units were issued to Dream Asset Management Corporation (“DAM”),
a subsidiary of Dream Unlimited Corp., pursuant to the reorganization of the Trust’s management structure (see Note 24).
At December 31, 2015, DAM held 773,939 REIT A Units and 5,233,823 subsidiary redeemable units (December 31, 2014 –
773,939 REIT A Units and 383,823 subsidiary redeemable units).
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. 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 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 2015 Annual Report | 84
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. 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 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 and properties that are being constructed
or developed for future use as investment properties. Subsequent to initial recognition, investment properties are accounted
for at fair value. Investment properties and properties under development are measured at fair value, determined based on
available market evidence, at the consolidated balance sheet dates. Related fair value gains and losses are recorded in net
income in the period in which they arise. The fair value of each investment property is based on, among other things, rental
income from current leases and assumptions about rental income from future leases reflecting market conditions at the
consolidated balance sheet dates, less future estimated cash outflows in respect of such properties. To determine fair value,
the Trust first considers whether it can use current prices in an active market for a similar property in the same location and
condition, which is subject to similar leases and other contracts. The Trust has concluded there is insufficient market evidence
on which to base investment property valuation using this approach, and has therefore determined that using the income
approach is more appropriate.
Dream Office REIT 2015 Annual Report | 85
The income approach is one in which the fair value is estimated by capitalizing the net rental income that the property can
reasonably be expected to produce over its remaining economic life. The income approach is derived from two methods: the
overall capitalization rate method, whereby the stabilized net operating income is capitalized at the requisite overall
capitalization rate, and/or the discounted cash flow method, in which the income and expenses are projected over the
anticipated term of the investment plus a terminal value discounted using an appropriate discount rate. Active properties
under development are measured using a discounted cash flow model, net of costs to complete, as of the consolidated balance
sheet dates. Development sites in the planning phases are measured using comparable market prices for similar assets.
The initial cost of properties under development includes the acquisition cost of the property, direct development costs, realty
taxes and borrowing costs directly attributable to properties under development. Borrowing costs associated with direct
expenditures on properties under development are capitalized. The amount of capitalized borrowing costs is determined first
by reference to project-specific borrowings, where relevant, and otherwise by applying a weighted average cost of borrowings
to eligible expenditures after adjusting for borrowings associated with other specific developments. Where borrowings are
associated with specific developments, the amount capitalized is the gross cost incurred on those borrowings less any
investment income arising on their temporary investment. Borrowing costs are capitalized from the commencement of the
development until the date of practical completion when the property is substantially ready for its intended use or sale. The
capitalization of borrowing costs is suspended if there are prolonged periods when development activity is interrupted.
Practical completion is when the property is capable of operating in the manner intended by management. Generally, this
occurs on completion of construction and receipt of all necessary occupancy and other material permits.
If the Trust has pre-leased space at or prior to the start of the development, and the lease requires tenant improvements that
enhance the value of the property, practical completion is considered to occur when such improvements are completed.
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 of investment properties revenue. Internal leasing costs are expensed in the
period that they are incurred.
Segment reporting
A reportable operating segment is a distinguishable component of the Trust that is engaged either in providing related products
or services (geographic segment) or in providing products or services within a particular economic environment (geographical
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. The business segments, office properties, are based on the
Trust’s management and internal reporting structure. 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.
Other non-current assets
Other non-current assets include property and equipment, deposits, restricted cash, straight-line rent receivables, external
management contracts and goodwill. 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 four to ten years. The residual values and
useful lives of all assets are reviewed and adjusted, if appropriate, at least at each financial year-end. 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
comprehensive income during the financial 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 in the year the
asset is derecognized.
Dream Office REIT 2015 Annual Report | 86
Revenue recognition
The Trust accounts for tenant leases as operating leases given that it has retained substantially all of the risks and benefits 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 other non-current assets, 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 collectability reasonably assured. Percentage participation rents are recognized
on an accrual basis once tenant sales revenues exceed contractual thresholds. Other revenues are recorded as earned.
Goodwill
Goodwill arises on the acquisition of businesses and represents the excess of the consideration transferred over and above the
Trust’s interest in the fair value of the net identifiable assets, liabilities and contingent liabilities of the acquiree and the fair
value of the non-controlling interest in the acquiree.
For the purpose of impairment testing, goodwill acquired in a business combination is allocated to each of the cash-generating
units or groups of cash-generating units that are expected to benefit from the synergies of the combination. Each unit or group
of units to which the goodwill is allocated represents the lowest level within the entity at which the goodwill is monitored for
internal management purposes. Goodwill is monitored by the Trust at the geographical segment level.
Goodwill impairment reviews are undertaken annually or more frequently if events or changes in circumstances indicate a
potential impairment. The carrying value of goodwill is compared to the recoverable amount, which is the higher of value-in-
use and the fair value less costs to sell. Any impairment is recognized immediately as an expense and is not subsequently
reversed.
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 comprehensive income over the life of the contract.
Distributions
Distributions to unitholders are recognized as a liability in the period in which the distributions are approved by the Board of
Trustees 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 13, 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 affiliates. Unvested deferred trust units are recorded
as a liability, and compensation expense is recognized over the vesting period 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 comprehensive income as a fair value adjustment to
financial instruments. Deferred trust units and income deferred units are only settled in REIT A Units.
Dream Office REIT 2015 Annual Report | 87
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. Deposits are included in other
non-current assets.
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
Restricted cash and deposits
Cash and cash equivalents
Financial liabilities
Mortgages
Term loan and revolving credit facilities
Debentures
Subsidiary redeemable units
Tenant security deposits
Deferred Unit Incentive Plan
Amounts payable and accrued liabilities
Distributions payable
Convertible debentures – host instrument
Convertible debentures – conversion feature
Interest rate swaps
Classification
Measurement
Loans and receivables
Loans and receivables
Loans and receivables
Other liabilities
Other liabilities
Other liabilities
Other liabilities
Other liabilities
Other liabilities
Other liabilities
Other liabilities
Other liabilities
Fair value through profit or loss
Cash flow hedge
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Fair value
Fair value
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.
Amounts receivable are initially measured at fair value and are subsequently measured at amortized cost less provision for
impairment. A provision for impairment is established 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 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. 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 asset does not exceed its amortized cost
at the reversal date. Any subsequent reversal of an impairment loss is recognized in profit or 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.
Dream Office REIT 2015 Annual Report | 88
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 comprehensive income 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 comprehensive income.
Mortgages, term debt 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 and term debt are recognized at
amortized cost. Borrowing costs that are directly attributable to investment properties under development are capitalized.
On issuance, convertible debentures are separated into two financial liability components: the host instrument and the
conversion feature. This presentation is required because the conversion feature permits the holder to convert the debenture
into REIT Units that, except for the available exemption under International Accounting Standard (“IAS”) 32, “Financial
Instruments: Presentation” (“IAS 32”), would normally be presented as a financial liability because of the redemption feature
attached to the REIT A Units. Both components are measured based on their respective estimated fair values at the date of
issuance. The fair value of the host instrument is net of any related transaction costs. The fair value of the host instrument is
estimated based on the present value of future interest and principal payments due under the terms of the debenture using a
discount rate for similar debt instruments without a conversion feature. Subsequent to initial recognition, the host instrument
is accounted for at amortized cost. The conversion feature is accounted for at fair value with changes in fair value recognized in
comprehensive income each period. When the holder of a convertible debenture converts its interest into REIT A Units, the
host instrument and conversion feature are reclassified to unitholders’ equity in proportion to the units converted over the
total equivalent units outstanding.
Deferred trust units and the subsidiary redeemable units are measured at amortized cost because they are settled in REIT A
Units and REIT B Units, which in accordance with IAS 32 are considered liabilities. Consequently, the deferred 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 comprehensive income. Distributions paid on subsidiary redeemable units are recorded as interest
expense in comprehensive income. A financial liability is derecognized when the obligation under the liability is discharged,
cancelled or expired.
Derivative financial instruments and hedging activities
Derivative financial instruments are initially recognized at fair value on the date a derivative contract is entered into and
subsequently remeasured at fair value. The method of recognizing the resulting gain or loss depends on whether the derivative
financial instrument is designated as a hedging instrument and, if so, the nature of the item being hedged. The Trust has
designated its interest rate swaps as a hedge of the interest under the term loan facility.
At the inception of the transaction, the Trust documents the relationship between hedging instruments and hedged items, as
well as its risk management objectives and strategy for undertaking various hedging transactions. The Trust also documents,
both at hedge inception and on an ongoing basis, its assessment of whether the derivatives used in hedging transactions are
highly effective in offsetting changes in cash flows of hedged items.
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is
recognized in other comprehensive income. The gain or loss relating to the ineffective portion is recognized immediately in the
consolidated statements of comprehensive income.
Amounts accumulated in equity are reclassified to other comprehensive income or loss in the periods when the hedged item
affects profit or loss.
When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any
cumulative gains or losses existing in equity at that time are recognized in the consolidated statements of comprehensive
income immediately.
Interest on debt
Interest on debt includes coupon interest, amortization of premiums allocated to the conversion features of the convertible
debentures, and amortization of ancillary costs incurred in connection with the arrangement of borrowings. Finance costs are
amortized to interest expense unless they relate to a qualifying asset in which case they are capitalized.
Dream Office REIT 2015 Annual Report | 89
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 because 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.
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.
Dream Office REIT 2015 Annual Report | 90
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 regularly by management with reference to
independent property valuations and market conditions existing at the reporting date, using generally accepted market
practices. The independent valuators 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 annual reporting period, a select number of properties, determined on a rotational basis, will
be valued by qualified valuation professionals. 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 the receipt of contractual rents,
expected future market rents, renewal rates, maintenance requirements, discount rates that reflect current market
uncertainties, capitalization rates, and current and recent property investment prices. 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
and, for properties under development, identifying the point at which practical completion of the property occurs and
identifying the directly attributable borrowing costs to be included in the carrying amount of the development 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, external management contracts and goodwill.
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 flow.
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 goodwill, the investment in Dream Industrial
REIT and the investment in joint ventures. Judgment is involved in estimating the fair value less cost to sell or value-in-use of
the cash-generating units (“CGUs”) to which goodwill has been allocated, including estimates of growth rates, discount rates
and terminal rates. 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.
Dream Office REIT 2015 Annual Report | 91
The Trust’s goodwill balance is allocated to the office properties group of CGUs by geographical segment (herein referred to as
the goodwill CGU). The recoverable amount of the Trust’s goodwill CGU is determined based on the value-in-use approach.
For the purpose of this impairment test, the Trust uses cash flow projections forecasted out for a ten-year period, consistent
with the internal financial budgets approved by management on a property-by-property basis. The key assumptions used
in determining the value-in-use of the goodwill CGU are the estimated growth rate, discount rate and terminal rate. In
arriving at the growth rate, the Trust considers past experience and inflation, as well as industry trends. The Trust utilizes
weighted average cost of capital (“WACC”) to determine the discount rate and terminal rate. The WACC reflects specific risks
that would be attributable to the Trust. As the Trust is not subject to taxation, no adjustment is required to adjust the WACC on
a pre-tax basis.
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 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, the convertible debenture conversion feature, interest rate swaps and the fair value disclosure of the
convertible debentures, mortgages and term debt. The critical assumptions underlying the fair value measurements and
disclosures include the market price of REIT Units, market interest rates for mortgages, term debt and unsecured debentures,
and assessment of the effectiveness of hedging relationships.
For certain financial instruments, including cash and cash equivalents, amounts receivable, 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 debt 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.
Dream Office REIT 2015 Annual Report | 92
Note 5
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 is currently evaluating the impact of adopting this standard on the
consolidated financial statements.
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; however, it is available for early adoption. The
Trust is currently evaluating the impact of adopting this standard on the consolidated financial statements.
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.
Presentation of financial statements
IAS 1, “Presentation of Financial Statements” (“IAS 1”), was amended by the IASB to clarify guidance on materiality and
aggregation, the presentation of subtotals, the structure of financial statements and disclosure of accounting policies. The
amendment gives guidance that information within the consolidated balance sheets and statements of comprehensive income
should not be aggregated or disaggregated in a manner that obscures useful information, and that disaggregation may be
required in the statement of comprehensive income in the form of additional subtotals as they are relevant to understanding
the entity’s financial position or performance. The amendment to IAS 1 is effective for annual periods beginning on or after
January 1, 2016. This amendment to IAS 1 has no material impact on the Trust’s consolidated financial statements or note
disclosures.
Acquisitions of interests in joint operations
IFRS 11, “Joint Arrangements” (“IFRS 11”), has been amended to require the application of IFRS 3 to transactions where an
investor obtains an interest in a joint operation that constitutes a business. The amendment to IFRS 11 is effective for annual
periods beginning on or after January 1, 2016. This amendment to IFRS 11 has no material impact on the Trust’s consolidated
financial statements or note disclosures.
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.
Dream Office REIT 2015 Annual Report | 93
Note 6
INVESTMENT PROPERTIES
Balance at beginning of year
Additions:
Building improvements
Lease incentives and initial direct leasing costs
Total additions to investment properties
Dispositions and assets held for sale
Investment properties and land disposed of during the year
Investment properties classified as held for sale during the year
Total investment properties and land disposed and classified as held for sale
Losses included in net income:
Fair value adjustments to investment properties
Amortization of lease incentives
Total losses included in net income
Gains included in other comprehensive income:
Foreign currency translation gain and other
Total gains included in other comprehensive income
Balance at end of year
Change in unrealized losses included in net income for the year
Change in fair value of investment properties
Year ended December 31,
2015
6,139,070 $
2014
6,241,685
$
51,937
66,416
118,353
(30,034 )
(159,473 )
(189,507 )
(207,000 )
(13,032 )
(220,032 )
29,979
47,414
77,393
(53,947 )
—
(53,947 )
(124,303 )
(9,893 )
(134,196 )
18,711
18,711
5,866,595 $
8,135
8,135
6,139,070
$
$
(195,866 )
$
(123,064 )
Investment properties have been reduced by $32,536 (December 31, 2014 – $33,382) related to straight-line rent receivables,
which have been reclassified to other non-current assets.
The key valuation metrics for investment properties, including investment in joint ventures, are set out below:
Capitalization rate (“cap rate”)
Investment properties
Investment in joint ventures
Total portfolio
December 31, 2015
Weighted
average (%)
6.21
4.89
6.02
Range (%)
5.00–8.25
4.65–6.25
4.65–9.00
December 31, 2014
Range (%)
5.15–9.00
5.15–6.00
5.15–9.00
Weighted
average (%)
6.32
5.29
6.17
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 joint
ventures and assets held for sale) would decrease by $284,424. If the cap rate were to decrease by 25 bps, the value of
investment properties (excluding joint ventures and assets held for sale) would increase by $310,268.
Investment properties, including investment in joint ventures and excluding assets held for sale, with an aggregate fair value of
$2,992,179 for the year ended December 31, 2015 (for the year ended December 31, 2014 – $2,475,687) were valued by
qualified external valuation professionals.
Investment properties, including investment in joint ventures and excluding assets held for sale, with a fair value of $5,505,881
as at December 31, 2015 (December 31, 2014 – $5,768,109), are pledged as security for the mortgages.
Investment properties, including investment in joint ventures and excluding assets held for sale, with a fair value of $912,227 as
at December 31, 2015 (December 31, 2014 – $928,707), are pledged as security for demand revolving credit facilities and the
term loan facility.
Dream Office REIT 2015 Annual Report | 94
Note 7
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”. Dream Industrial REIT owns a portfolio of 219 primarily light industrial properties comprising
approximately 17.0 million square feet of gross leasable area.
On September 9, 2014, the Trust completed the sale of four investment properties to Dream Industrial REIT for a sale price of
$33,000, net of mark-to-market adjustments on mortgages assumed by Dream Industrial REIT. The sale price was satisfied by
receipt of 2,269,759 Class B limited partnership units of Dream Industrial LP (a subsidiary of Dream Industrial REIT) at $9.40 per
unit, which are exchangeable for units of Dream Industrial REIT, offset by mortgages assumed on disposition.
As part of Dream Industrial REIT’s distribution reinvestment plan, deferred unit incentive plan, and other transactions entered
during the years ended December 31, 2015 and December 31, 2014, Dream Industrial REIT issued additional units, which
resulted in a net change to the Trust’s ownership to 24.0% and 24.2%, respectively.
Balance as at beginning of year
Units received on sale of properties to Dream Industrial REIT
Distributions received
Share of net income from investment in Dream Industrial REIT
Dilution loss
Balance as at end of year
Dream Industrial LP Class B limited partnership units held, end of year
Ownership %, end of year
$
$
Year ended December 31,
2015
191,691 $
—
(12,986 )
6,112
—
184,817 $
18,551,855
24.0 %
2014
166,317
21,336
(11,927 )
16,225
(260 )
191,691
18,551,855
24.2 %
The fair value of the Trust’s interest in Dream Industrial REIT of $133,202 (December 31, 2014 – $156,206) was determined
using the Dream Industrial REIT closing unit price at period-end multiplied by the number of units held by the Trust as at
December 31, 2015.
Pursuant to the reorganization of the Trust’s management structure (see Note 24), the Trust has 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.
External market conditions have caused a decline in the unit price of Dream Industrial REIT since the second quarter of 2013,
resulting in the carrying value to be above the market value. Under IAS 39, “Financial Instruments”, a significant or prolonged
decline in the fair value of an investment in an equity instrument above its cost is an indicator of impairment. As a result, the
Trust performed an impairment test as at December 31, 2015, 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, 2015.
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
December 31,
December 31,
2015
1,701,307
19,613
1,720,920
900,326
193,711
1,094,037
626,883
$
$
$
$
2014
1,723,693
19,017
1,742,710
947,970
166,089
1,114,059
628,651
$
$
$
$
2015
413,110
4,762
417,872
319,475
46,782
366,257
51,615
133,202
184,817
$
$
$
$
$
2014
399,025
4,402
403,427
339,496
28,446
367,942
35,485
156,206
191,691
$
$
$
$
$
Dream Office REIT 2015 Annual Report | 95
$
$
Net rental income
Other revenue and expenses, fair value adjustments and
other items
Net income before the undernoted adjustments
Add-back:
Interest on subsidiary redeemable units
Fair value adjustments to subsidiary redeemable units
Share of net income from investment in Dream Industrial REIT
Add (deduct):
Dilution loss
Share of net income and dilution loss from investment
in Dream Industrial REIT
At 100 %
At % ownership interest
Year ended December 31,
Year ended December 31,
2015
119,446
$
2014
112,764
$
2015
29,004
$
2014
26,104
(84,257 )
35,189
$
(44,763 )
68,001
$
(12,874 )
16,130
$
(11,967 )
14,137
12,986
(23,004 )
6,112
$
11,927
(9,839 )
16,225
$
—
(260 )
$
6,112
$
15,965
Note 8
JOINT ARRANGEMENTS
Investment in joint ventures
The Trust participates in partnerships (“joint ventures”) with other parties that own investment properties and accounts for its
interests using the equity method.
The investment properties that the joint ventures hold are consistent in terms of the class and type of properties held in the
Trust’s portfolio.
Property
Scotia Plaza
Other joint ventures:
100 Yonge Street
F1RST Tower (formerly Telus Tower)
Location
Toronto, Ontario
Toronto, Ontario
Calgary, Alberta
Property
Scotia Plaza
Other joint ventures
Total net assets
Property
Scotia Plaza
Other joint ventures
Share of net income from investment in joint ventures
Ownership interest (%)
December 31,
2015
66.7
66.7
50.0
December 31,
2014
66.7
66.7
50.0
Net assets at % ownership interest
as at December 31,
2015
491,603 $
103,600
595,203 $
2014
448,906
104,235
553,141
Share of net income at
% ownership interest
for the year ended December 31,
2015
46,465 $
6,671
53,136 $
2014
31,345
6,266
37,611
$
$
$
$
Dream Office REIT 2015 Annual Report | 96
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 7.
Non-current assets
Current assets
Total assets
Non-current liabilities
Current liabilities
Total liabilities
Net assets
Scotia Plaza
At 100%
Scotia Plaza
At 66.7%
December 31,
December 31,
2015
1,367,333
17,661
1,384,994
585,380
62,210
647,590
737,404
$
$
$
$
2014
1,316,805
14,150
1,330,955
599,255
58,341
657,596
673,359
$
$
$
$
$
$
$
$
2015
911,555
11,774
923,329
390,253
41,473
431,726
491,603
$
$
$
$
2014
877,870
9,433
887,303
399,503
38,894
438,397
448,906
Net rental income
Other income and expenses, fair value adjustments, net
losses on transactions and other activities
Net income for the year
$
$
Scotia Plaza
At 100%
Scotia Plaza
At 66.7%
Year ended December 31,
Year ended December 31,
2015
70,813
$
2014
70,404
$
2015
47,209
$
2014
46,936
(1,116 )
69,697
$
(23,387 )
47,017
$
(744 )
46,465
$
(15,591 )
31,345
Scotia Plaza
At 100%
Scotia Plaza
At 66.7%
Year ended December 31,
Year ended December 31,
2015
2014
2015
2014
Cash flows generated from (utilized in):
Operating activities
Investing activities
Financing activities
Increase (decrease) in cash and cash equivalents
$
$
51,426 $
(32,900 )
(20,298 )
(1,772 ) $
43,976
(710 )
(33,468 )
9,798
$
$
34,284
(21,933 )
(13,532 )
(1,181 )
$
$
29,317
(473 )
(22,312 )
6,532
Dream Office REIT 2015 Annual Report | 97
Non-current assets
Current assets
Total assets
Non-current liabilities
Current liabilities
Total liabilities
Net assets
Other joint ventures
At 100%
Other joint ventures
At proportionate share
December 31,
December 31,
2015
356,618
5,009
361,627
31,605
139,871
171,476
190,151
$
$
$
$
2014
360,801
2,879
363,680
160,704
9,139
169,843
193,837
$
$
$
$
2015
192,304
2,733
195,037
21,070
70,367
91,437
103,600
$
$
$
$
2014
193,413
1,569
194,982
85,780
4,967
90,747
104,235
$
$
$
$
Net rental income
Other income and expenses, fair value adjustments, net
losses on transactions and other activities
Net income for the year
$
$
Other joint ventures
At 100%
Other joint ventures
At proportionate share
Year ended December 31,
Year ended December 31,
2015
23,727
$
2014
26,694
$
2015
12,582
$
2014
13,506
(13,882 )
9,845
$
(16,879 )
9,815
$
(5,911 )
6,671
$
(7,240 )
6,266
Other joint ventures
At 100%
Other joint ventures
At proportionate share
Year ended December 31,
Year ended December 31,
2015
2014
2015
2014
Cash flows generated from (utilized in):
Operating activities
Investing activities
Financing activities
Increase (decrease) in cash and cash equivalents
$
$
23,330
8,730
(30,422 )
1,638
$
$
13,373
64,504
(80,419 )
(2,542 )
$
$
12,135
1,916
(12,847 )
1,204
$
$
8,279
14,442
(22,996 )
(275 )
Dream Office REIT 2015 Annual Report | 98
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 properties.
Property
10199 - 101st Street North West
2810 Matheson Boulevard East
50 & 90 Burnhamthorpe Road (Sussex Centre)
300, 302 & 304 The East Mall (Valhalla Executive Centre)
680 Broadway Street (Tillsonburg Gateway Centre)
185-195 The West Mall
460 Two Nations Crossing
350-450 Lansdowne Street
275 Dundas Street West (London City Centre)
80 Whitehall Drive
6501-6523 Mississauga Road
6531-6559 Mississauga Road
2010 Winston Park Drive
219 Laurier Avenue West
55 Norfolk Street South
10 Lower Spadina Avenue
49 Ontario Street
401 & 405 The West Mall (Commerce West)
2261 Keating Cross Road
117 Kearney Lake Road
Centre 70
Location
Edmonton, Alberta
Mississauga, Ontario
Mississauga, Ontario
Mississauga, Ontario
Tillsonburg, Ontario
Toronto, Ontario
Fredericton, New Brunswick
Kamloops, British Columbia
London, Ontario
Markham, Ontario
Mississauga, Ontario
Mississauga, Ontario
Oakville, Ontario
Ottawa, Ontario
Simcoe, Ontario
Toronto, Ontario
Toronto, Ontario
Toronto, Ontario
Victoria, British Columbia
Halifax, Nova Scotia
Calgary, Alberta
Ownership interest (%)
December 31,
December 31,
2015
50.0
49.9
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
40.0
40.0
35.0
15.0
2014
50.0
49.9
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
40.0
40.0
35.0
15.0
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.
Non-current assets
Current assets
Total assets
Non-current liabilities
Current liabilities
Total liabilities
Net assets
December 31,
2015
446,827
4,804
451,631
191,617
29,828
221,445
230,186
$
$
$
$
$
$
December 31,
2014
445,314
8,315
453,629
160,553
68,445
228,998
224,631
$
$
$
$
Year ended December 31,
2015
24,433 $
(15,629 )
2014
24,753
(12,652 )
12,101
8,804 $
Net rental income
Other income and expenses, fair value adjustments, net losses on transactions and other activities
Share of net income from investment in co-owned properties
$
$
Dream Office REIT 2015 Annual Report | 99
Note 9
OTHER NON-CURRENT ASSETS
Property and equipment, net of accumulated depreciation of $6,471 (December 31, 2014 – $4,813)
Deposits
Restricted cash
Straight-line rent receivable
External management contracts, net of accumulated amortization of $5,040
$
(December 31, 2014 – $3,749)
Goodwill
Total
$
December 31,
2015
6,190 $
1,838
1,458
32,536
7,962
—
49,984 $
December 31,
2014
6,398
2,125
3,559
33,382
9,253
52,086
106,803
Deposits largely represent amounts provided by the Trust in connection with utility deposits. Restricted cash primarily
represents tenant rent deposits and cash held as security for certain mortgages.
The Trust leases various vehicles and machinery under non-cancellable finance lease agreements. The remaining term of these
leases is one year.
As a result of the Trust’s disposition of assets during the year ended December 31, 2015 (see Note 18), goodwill associated with
the cash-generating unit of $874 (December 31, 2014 – $285) was derecognized and included in the determination of the net
loss on sale of investment properties.
External management contracts and goodwill
As at January 1, 2014
Amortization of external management contracts
Derecognition of goodwill due to investment properties disposed of during the year
As at December 31, 2014
Amortization of external management contracts
Derecognition of goodwill due to investment properties disposed of during the year
Impairment of goodwill
As at December 31, 2015
External
management
contracts
10,545 $
(1,292 )
—
9,253
(1,291 )
—
—
7,962 $
$
$
Goodwill
52,371
—
(285 )
52,086
—
(874 )
(51,212 )
—
The Trust performed its annual goodwill impairment test as at December 31, 2015 in accordance with the methodology set out
in IAS 36, by comparing the recoverable amount of the goodwill CGU using the value-in-use approach to its carrying amount.
The carrying amount of goodwill associated with each geographical segment was:
Western Canada
Calgary downtown
Calgary suburban
Toronto downtown
Toronto suburban
Eastern Canada
Total goodwill
$
$
10,225
8,517
1,301
16,735
6,848
7,586
51,212
For the purpose of this impairment test, management used projected financial forecasts for a period of ten years. The key
assumptions used included weighted average cost of capital, estimated growth, discount and terminal rates. The weighted
average cost of capital, discount and terminal rates used in this impairment test ranged from 7.06% to 8.96% depending on the
geographic segment.
Dream Office REIT 2015 Annual Report | 100
Based on the impairment test performed on each of the geographic segments, the Trust concluded that goodwill for each of
the geographic segments was impaired as at December 31, 2015. As a result, the Trust has recognized a goodwill impairment
loss of $51,212 in the consolidated statement of comprehensive income. The goodwill impairment was mainly attributable to
the significant increase in the weighted average cost of capital of the Trust during the fourth quarter of 2015, resulting from the
unfavourable external market conditions.
Note 10
AMOUNTS RECEIVABLE
Amounts receivable are net of credit adjustments aggregating $6,674 (December 31, 2014 – $5,992).
Trade receivables
Less: Provision for impairment of trade receivables
Trade receivables, net
Other amounts receivable
Total
Note
24
December 31,
2015
4,932 $
(1,615 )
3,317
6,941
10,258 $
December 31,
2014
8,296
(2,419 )
5,877
10,688
16,565
$
$
The movement in the provision for impairment of trade receivables during the year ended December 31 was as follows:
Balance at 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 at end of year
Year ended December 31,
2014
2,113
1,812
(589 )
(917 )
2,419
2015
2,419 $
1,785
(869 )
(1,720 )
1,615 $
$
$
The carrying value of amounts receivable approximates fair value due to their current nature. As at December 31, 2015, trade
receivables of approximately $2,785 (December 31, 2014 – $2,642) 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, 2015
378,737
1,139,047
399,902
1,917,686
$
No more than 1 year
1–5 years
5+ years
Dream Office REIT 2015 Annual Report | 101
Note 11
DEBT
Mortgages(1)(2)
Demand revolving credit facilities(2)
Term loan facility(2)
Convertible debentures
Debentures
Total
Less: Current portion
Non-current debt
December 31,
2015
2,244,161 $
49,500
182,990
50,923
483,174
3,010,748
609,644
2,401,104 $
December 31,
2014
2,380,708
—
182,260
51,160
482,700
3,096,828
365,855
2,730,973
$
$
(1) Net of financing costs of $8,248 (December 31, 2014 – $7,943).
(2) Secured by charges on specific investment properties (refer to Note 6).
Demand revolving credit facilities
The amounts available and drawn under the demand revolving credit facilities are as follows:
Secured
investment properties
Second-
ranking
Maturity date mortgages mortgages
First-
ranking
Face
interest
rate
December 31, 2015
December 31, 2014
Amount
available
Amount
drawn
Amount
available
Amount
drawn
Formula-based maximum
not to exceed $171,500
Formula-based maximum
not to exceed $27,690
Formula-based maximum
not to exceed $15,000
Formula-based maximum
not to exceed $55,000
March 5, 2016
April 30, 2016(3)
November 1, 2016(5)
November 1, 2016(5)
8
2
—
1
11
—
2.62% (1) $
156,500 (2) $
15,000 $
171,500 (2) $ —
—
3.55% (3)
27,247 (4)
—
27,247 (4)
—
2
3.40% (5)
350 (6)
14,500
34,850 (6)
—
1
3
2.54% (5)
$
2,398 (7)
186,495
$
20,000
49,500 $
17,943 (7)
251,540
—
$ —
(1) In the form of rolling one-month bankersʼ acceptances (“BAs”) bearing interest at the BA rate plus 1.75% or at the bankʼs prime rate (2.70% as at
December 31, 2015) plus 0.75%.
(2) Formula-based amount available under this facility was $171,500 less $15,000 drawn as at December 31, 2015 and $171,500 as at December 31, 2014.
(3) This facility matured on April 30, 2015 and was renewed to April 30, 2016 in the form of rolling one-month BAs bearing interest at the BA rate plus 1.85%
or at the bankʼs prime rate (2.70% as at December 31, 2015) plus 0.85%.
(4) Formula-based amount available under this facility was $27,690 less $443 in the form of a letter of credit (“LOC”) as at December 31, 2015 and
December 31, 2014.
(5) These facilities matured on June 30, 2015 and were renewed to November 1, 2016 in the form of rolling one-month BAs bearing interest at the BA rate plus
1.70% or at the bank’s prime rate (2.70% as at December 31, 2015) plus 0.70%.
(6) Effective June 30, 2015, the formula-based maximum will not exceed $15,000. Formula-based amount available under this facility was $15,000 less
$14,500 drawn and $150 in the form of LOC as at December 31, 2015, and under the previous facility, the formula-based amount available was $35,000
less $150 in the form of LOC as at December 31, 2014.
(7) Effective June 30, 2015, the formula-based maximum will not exceed $55,000. Formula-based amount available under this facility was $55,000 less
$20,000 drawn and $32,602 in the form of LOC as at December 31, 2015, and under the previous facility, the formula-based amount available was $35,000
less $17,057 in the form of LOC as at December 31, 2014.
Dream Office REIT 2015 Annual Report | 102
Term loan facility
On August 15, 2011, the Trust entered into a term loan facility for $188,000 in the form of rolling one-month BA rates. The term
loan facility bears interest at BA rates plus 1.85% payable monthly. The term loan facility was originally secured by first-ranking
collateral mortgages on nine properties. On August 15, 2012, the Trust repaid $4,547 on the term loan facility as one of the
properties securing the facility was sold. At December 31, 2015, $183,453 was outstanding on the term loan facility, secured by
first-ranking collateral mortgages on eight properties. The term loan facility expires on August 15, 2016.
On August 15, 2011, the Trust entered into two interest rate swap agreements to modify the interest rate profile of the current
variable rate debt on the $188,000 term loan facility, without an exchange of the underlying principal amounts. The first
interest rate swap agreement is for a five-year term on a notional balance of $133,000, fixing interest at a BA rate of 1.67% plus
a spread of 185 bps and the second interest rate swap agreement is for a three-year term on a notional balance of $55,000,
fixing interest at a BA rate of 1.28% plus a spread of 185 bps. On August 15, 2014, the three-year interest rate swap expired and
was not subsequently renewed. On December 31, 2015, the notional amount of interest rate swap agreement hedged against
the term loan facility was $129,783. The Trust has applied hedge accounting to this relationship, whereby the change in fair
value of the effective portion of the hedging derivative is recognized in other comprehensive income. Settlement of both the
fixed and variable portions of the interest rate swaps occurs on a monthly basis.
The principal amount and the carrying value for the term loan facility is as follows:
Maturity date
August 15, 2016 $
Original
principal issued
188,000
Term loan facility
Date issued
August 15, 2011
Term loan facility
Weighted
average
face
interest rate
3.28 % $
Outstanding principal amount
December 31,
2014
183,453
December 31,
2015
183,453 $
December 31,
2015
182,990 $
$
Carrying value
December 31,
2014
182,260
Convertible debentures
5.5% Series H Debentures
The 5.5% Series H Debentures are convertible at the request of the holder, subject to certain terms and conditions, into
27.25648 REIT A Units per one thousand dollars of face value, representing a conversion price of $36.69 per unit. The 5.5%
Series H Debentures are redeemable at the principal amount at the Trust’s option, subject to certain terms and conditions,
from March 31, 2015, and prior to March 31, 2016, provided the 20-day weighted average trading price of the Units is at least
$45.87, and on and after March 31, 2016 at their principal amount. Interest on the 5.5% Series H Debentures is payable semi-
annually on March 31 and September 30.
For the year ended December 31, 2015, no debentures were converted. For the year ended December 31, 2014, $500 of 5.5%
Series H Debentures were converted to REIT A Units (see Note 17).
The principal amount outstanding and the carrying value for the convertible debentures is as follows:
5.5% Series H Debentures December 9, 2011 March 31, 2017 $
Date issued
Maturity date
Original
principal issued
51,650
5.5% Series H Debentures
Face
interest rate
5.50 % $
Outstanding principal amount
December 31,
2014
50,628
December 31,
2015
50,628 $
December 31,
2015
50,923 $
$
Carrying value
December 31,
2014
51,160
Dream Office REIT 2015 Annual Report | 103
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 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%.
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 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.
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 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%.
Series K and Series L Debentures
The Series K and Series L Debentures are redeemable at the Trust’s option, subject to certain terms and conditions. Interest is
payable monthly.
The principal amount outstanding and the carrying value for each series of debentures are as follows:
Debentures
Series A
Debentures
Series B
Debentures
Series C
Debentures
Series K
Debentures
Series L
Debentures
Date issued
Maturity date
principal issued
Original
Face
interest rate
December 31, 2015
Outstanding
principal
Carrying
value
December 31, 2014
Carrying
value
June 13, 2013
June 13, 2018 $
175,000
3.42 %
$ 175,000 $
174,218 $
173,900
October 9, 2013
January 9, 2017
125,000
2.50 % (1)
125,000
124,778
January 21, 2014
January 21, 2020
150,000
4.07 %
150,000
149,047
April 26, 2011
April 26, 2016
35,000
5.95 %
25,000
25,097
August 8, 2011 September 30, 2016
$
10,000
495,000
5.95 %
10,000
$ 485,000 $
10,034
483,174 $
124,556
148,813
25,312
10,119
482,700
(1) Variable interest rate at three-month Canadian Dealer Offered Rate (“CDOR”) plus 1.7%.
Dream Office REIT 2015 Annual Report | 104
The following tables provide a continuity of debt for the years ended December 31, 2015 and December 31, 2014:
Year ended December 31, 2015
Balance as at January 1, 2015
Borrowings
Principal repayments
Lump sum repayments
Lump sum repayments on property disposition
Debt assumed by purchaser on disposal of
investment properties
Financing costs additions
Debt classified as assets held for sale
Foreign exchange adjustments
Other adjustments(1)
Balance as at December 31, 2015
Mortgages
$ 2,380,708 $
282,708
(63,792 )
(272,213 )
(44,674 )
(21,959 )
(1,987 )
(24,245 )
12,069
(2,454 )
$ 2,244,161 $
Demand
revolving
credit
facilities
— $
289,920
—
(240,420 )
Term
loan Convertible
debentures
facility
182,260 $
—
—
—
Debentures
51,160 $
—
—
—
482,700 $
—
—
—
—
—
—
—
—
49,500 $
—
—
—
—
730
182,990 $
—
—
—
—
(237 )
50,923 $
—
—
—
—
474
483,174 $
Total
3,096,828
572,628
(63,792 )
(512,633 )
(44,674 )
(21,959 )
(1,987 )
(24,245 )
12,069
(1,487 )
3,010,748
(1) Other adjustments include amortization of financing costs and amortization of fair value adjustments.
Balance as at January 1, 2014
Borrowings
Principal repayments
Lump sum repayments
Lump sum repayments on property disposition
Debt assumed by purchaser on disposal of
investment properties
Financing costs additions
Conversion to REIT A Units
Foreign exchange adjustments
Other adjustments(1)
Balance as at December 31, 2014
Mortgages
$ 2,477,183 $
231,707
(66,843 )
(234,084 )
(11,070 )
(17,047 )
(1,607 )
—
4,743
(2,274 )
$ 2,380,708 $
Demand
revolving
credit
facilities
103,946 $
78,347
—
(182,347 )
—
—
—
—
—
54
— $
Year ended December 31, 2014
Term
loan Convertible
facility debentures
181,530 $
—
—
—
—
—
—
—
—
730
182,260 $
51,885 $
—
—
—
—
—
—
(500 )
—
(225 )
51,160 $
Debentures
333,647 $
150,000
—
—
—
—
(1,400 )
—
—
453
482,700 $
Total
3,148,191
460,054
(66,843 )
(416,431 )
(11,070 )
(17,047 )
(3,007 )
(500 )
4,743
(1,262 )
3,096,828
(1) Other adjustments include amortization of financing costs and amortization of fair value adjustments.
Dream Office REIT 2015 Annual Report | 105
Debt weighted average effective interest rates and maturities
Fixed rate
Mortgages
Term loan facility(2)
Convertible debentures
Debentures
Total fixed rate debt
Variable rate
Mortgages
Demand revolving credit facilities
Term loan facility(3)
Series B Debentures
Total variable rate debt
Total debt
Weighted average
effective interest rates(1)
December 31, December 31,
2014
2015
4.38 %
3.83 %
3.80 %
4.04 %
4.30 %
2.98 %
2.82 %
3.83 %
3.09 %
3.21 %
4.20 %
4.43 %
3.83 %
3.80 %
4.04 %
4.34 %
3.65 %
—
3.83 %
3.09 %
3.43 %
4.26 %
Maturity
dates
December 31,
2015
Debt amount
December 31,
2014
2016–2028 $
2016
2017
2016–2020
2018
2016
2016
2017
$
2,205,183 $
129,459
50,923
358,396
2,743,961
38,978
49,500
53,531
124,778
266,787
3,010,748 $
2,284,364
128,948
51,160
358,144
2,822,616
96,344
—
53,312
124,556
274,212
3,096,828
(1) The effective interest rate method includes the impact of fair value adjustments on assumed debt and financing costs.
(2) Under a hedging arrangement, the Trust has entered into an interest rate swap agreement to fix the interest rate of a portion of the term loan facility: a
five-year interest rate swap on a notional balance of $129,783, fixing interest at a BA rate of 1.67% plus a spread of 185 bps. The effective interest rate on
the term loan facility is 3.83% after accounting for financing costs.
(3) The notional balance of $53,670 bears interest at the one-month BA rate plus 185 bps.
The following table summarizes the aggregate of the scheduled principal repayments and debt maturities:
2016
2017
2018
2019
2020
2021–2028
Financing costs
Fair value adjustments
Mortgages
341,691 $
286,861
234,422
99,360
413,372
872,300
2,248,006
(8,248 )
4,403
2,244,161 $
$
$
Demand
revolving
credit facility
49,500 $
—
—
—
—
—
49,500
—
—
Term loan
facility
183,453 $
—
—
—
—
—
183,453
(463 )
—
49,500 $
182,990 $
Convertible
debentures
Debentures
— $
50,628
—
—
—
—
50,628
—
295
50,923 $
35,000 $
125,000
175,000
—
150,000
—
485,000
(1,957 )
131
483,174 $
Total
609,644
462,489
409,422
99,360
563,372
872,300
3,016,587
(10,668 )
4,829
3,010,748
Other financial instruments
The Trust has other financial instruments included as part of other non-current liabilities as follows (see Note 14):
Fair value of interest rate swaps – liability
Conversion feature on the convertible debentures – asset
Other financial instruments – net liabilities (assets)
December 31,
2015
770 $
(38 )
732 $
$
$
December 31,
2014
592
(760 )
(168 )
The Trust’s interest rate swap agreements are subject to master netting agreements that create a legally enforceable right to
offset, by the counterparty, the related interest rate swap financial assets and liabilities.
Dream Office REIT 2015 Annual Report | 106
Interest rate swap
The following table summarizes the details of the interest rate swap that is outstanding at December 31, 2015:
Transaction date
August 15, 2011
Term loan facility
principal amount
(notional)
129,783
$
Fixed
interest rate
Maturity date
Financial
instrument
classification
3.52 %
August 15, 2016
Cash flow hedge
$
Fair value
770
For the interest rate swap designated as cash flow hedge, the Trust has assessed that there is no ineffectiveness in the hedge of
its interest rate exposure. The effectiveness of the hedging relationship is reviewed on a quarterly basis. As an effective hedge,
unrealized gains or losses on the interest rate swap agreements are recognized in other comprehensive income. The associated
unrealized gains or losses that are recognized in other comprehensive income will be reclassified into net income in the same
period or periods during which the interest payments on the hedged item affect net income.
On August 15, 2014, the three-year interest rate swap on the notional balance of $53,670 expired and was not subsequently
renewed. As a result, the associated unrealized loss of $8 included in accumulated other comprehensive income was
reclassified into net income during the year. At December 31, 2015, the fair value of the remaining interest rate swap amounted
to a $770 financial liability (December 31, 2014 – $592 financial liability).
Conversion feature on the convertible debentures
The movement in the conversion feature on the convertible debentures for the year is as follows:
Balance at beginning of year
Reduction of conversion feature on the convertible debentures converted during the year
Remeasurement of conversion feature on convertible debentures
Balance at end of year
Note
$
20
$
Year ended December 31,
2015
2014
(760 ) $
(317 )
—
7
722
(450 )
(38 ) $
(760 )
Short form base shelf prospectus
On April 27, 2015, the Trust filed a short form base shelf prospectus, which is valid for a 25-month period, during which time
the Trust may offer and issue, from time to time, debt securities, with an aggregate offering price of up to $2.0 billion. For the
year ended December 31, 2015, no debt securities had been issued under the short form base shelf prospectus.
For the year ended December 31, 2014, the Trust completed the issuance of $150,000 aggregate principal amount of senior
unsecured debentures under the previous short form base shelf prospectus, which expired on December 26, 2014.
Note 12
SUBSIDIARY REDEEMABLE UNITS
The Trust has the following subsidiary redeemable units outstanding:
Year ended December 31, 2015
Year ended December 31, 2014
Balance at beginning of year
Units issued pursuant to the Reorganization
Subsidiary redeemable units surrendered
Remeasurement of carrying value of
subsidiary redeemable units
Balance at end of year
24
20
Note
Number of units
issued and outstanding
602,434 $
4,850,000
(218,611 )
Amount
15,151
127,313
(5,795 )
—
5,233,823 $
(45,757 )
90,912
Number of units
issued and outstanding
3,538,457 $
—
(2,936,023 )
—
602,434 $
Amount
101,978
—
(85,350 )
(1,477 )
15,151
During the year ended December 31, 2015, the Trust incurred $9,171 (December 31, 2014 – $4,638) in distributions on the
subsidiary redeemable units, which is included as interest expense in comprehensive income (see Note 19).
Dream Office REIT 2015 Annual Report | 107
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, 2015
and December 31, 2014, 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.
On May 25, 2015, one of the holders surrendered 218,611 subsidiary redeemable units and received 218,611 REIT B Units. On
the same day, such REIT B Units were converted by the holder into 218,611 REIT A Units. The exchanges were valued based on
the carrying amount of the subsidiary redeemable units on the day prior to the surrender.
On April 2, 2015, the Trust acquired a subsidiary of DAM which was a party to the Asset Management Agreement with the
Trust, resulting in the elimination of the Trust’s obligation to pay asset management, acquisition and capital expenditure fees to
DAM (the “Reorganization”). In consideration for the Reorganization, the Trust issued 4,850,000 subsidiary redeemable units at
$26.25 per unit to DAM, representing total consideration of $127,313.
On July 23, 2014, one of the holders surrendered 2,936,023 subsidiary redeemable units and received 2,936,023 REIT B Units.
On July 24, 2014, such REIT B Units were converted by the holder into 2,936,023 REIT A Units. The exchanges were valued
based on the carrying amount of the subsidiary redeemable units, the day prior to the exchange to REIT B Units.
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, 2015, 5,233,823 Special Trust Units were issued and outstanding (December 31, 2014 – 602,434).
Note 13
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 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, 2015, up to a maximum of 1.75 million (December 31, 2014 – 1.75 million) deferred trust units are issuable
under the DUIP.
The movement in the DUIP balance was as follows:
As at January 1, 2014
Compensation expense
REIT A Units issued for vested deferred trust units
Remeasurements of carrying value of deferred trust units
As at December 31, 2014
Compensation expense
REIT A Units issued for vested deferred trust units
Remeasurements of carrying value of deferred trust units
As at December 31, 2015
Note
$
20
20
$
18,535
3,707
(4,338 )
(822 )
17,082
2,638
(3,269 )
(3,855 )
12,596
Dream Office REIT 2015 Annual Report | 108
During the year ended December 31, 2015, $2,638 of compensation expense was recorded (December 31, 2014 – $3,707) and
included in general and administrative (“G&A”) expenses. For the same period, a fair value gain of $3,855 (December 31, 2014 –
fair value gain of $822) was recognized, representing the remeasurement of the DUIP liability during the year.
Outstanding and payable as at January 1, 2014
Granted
Income deferred units
REIT A Units issued
Fractional Units paid in cash
Cancelled
Outstanding and payable as at December 31, 2014
Granted
Income deferred units
REIT A Units issued
Fractional Units paid in cash
Cancelled
Outstanding and payable as at December 31, 2015
Vested but not issued as at December 31, 2015
Total units
766,038
122,386
62,726
(157,608)
(66)
(2,177)
791,299
131,833
79,652
(137,233)
(6)
(18,474)
847,071
421,649
For the year ended December 31, 2015, 131,833 deferred trust units were granted to trustees, officers and employees as well
as affiliates with the grant price ranging from $17.59 to $27.34 per unit. For the year ended December 31, 2014, 122,386
deferred trust units were granted to trustees, officers and employees as well as affiliates with the grant price ranging from
$28.96 to $29.36 per unit.
For the year ended December 31, 2015, 18,474 deferred trust units were cancelled (December 31, 2014 – 2,177).
Note 14
OTHER NON-CURRENT LIABILITIES
Tenant security deposits
Finance leases
Other financial instruments – net liabilities (assets)
Total
Note 15
AMOUNTS PAYABLE AND ACCRUED LIABILITIES
Trade payables
Accrued liabilities and other payables
Accrued interest
Rent received in advance
Distributions payable
Total
Note
11
Note
24
16
$
$
$
$
December 31,
2015
19,319 $
233
732
20,284 $
December 31,
2014
19,103
533
(168 )
19,468
December 31,
2015
3,460 $
59,662
13,603
15,797
20,458
112,980 $
December 31,
2014
3,013
49,972
12,654
11,490
20,393
97,522
Dream Office REIT 2015 Annual Report | 109
Note 16
DISTRIBUTIONS
Dream Office REIT’s Declaration of Trust endeavours to maintain monthly distribution payments to unitholders payable on or
about the 15th day of the following month. The Trust determines the distribution rate by, among other considerations, its
assessment of cash flow as determined using adjusted cash flows from operating activities, which includes cash flows from
operating activities of our investments in joint ventures that are equity accounted and excludes the fluctuations in non-cash
working capital, transaction costs on business combinations and investment in lease incentives and initial direct leasing costs.
Adjusted cash flows from operating activities is not a measure defined by IFRS and therefore may not be comparable to similar
measures presented by other real estate investment trusts. The distribution rate is determined by the trustees, at their sole
discretion, based on what they consider appropriate given the circumstances of the Trust. Distributions may be adjusted for
amounts paid in prior periods if the actual adjusted cash flows from operating activities for those prior periods is greater or less
than the estimates used for those prior periods. In addition, the trustees may declare distributions out of the income, net
realized capital gains, net recapture income and capital of the Trust, to the extent such amounts have not already been paid,
allocated or distributed.
The following table summarizes distribution payments for the year ended December 31:
Paid in cash
Paid by way of reinvestment in REIT A Units
Less: Payable at December 31, 2014 (December 31, 2013)
Plus: Payable at December 31, 2015 (December 31, 2014)
Total
2015
151,945 $
93,122
(20,393)
20,458
245,132 $
$
$
Total
2014
175,912
63,248
(19,493 )
20,393
240,060
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 February 2016 distribution will be payable on March 15, 2016 to unitholders of record at February 29, 2016.
On January 19, 2016, the Trust announced a cash distribution of $0.18666 per REIT A Unit for the month of January 2016. The
January 2016 distribution was satisfied on February 15, 2016 by $12,159 in cash and $8,325 in connection with the issuance of
551,336 REIT A Units.
On December 17, 2015, the Trust announced a cash distribution of $0.18666 per REIT A Unit for the month of December 2015.
The amount payable at December 31, 2015 was satisfied on January 15, 2016 by $11,759 in cash and $8,709 in connection with
the issuance of 571,077 REIT A Units.
During 2015 and 2014, the Trust declared monthly distributions of $0.18666 per unit, or $2.24 per unit for the years ended
December 31, 2015 and December 31, 2014.
Note 17
EQUITY
REIT A Units
Retained earnings
Accumulated other comprehensive income
Total
December 31, 2015
December 31, 2014
Note
26
Number of
REIT A Units
107,860,638 $
—
—
107,860,638 $
Amount
3,168,915
301,324
11,575
3,481,814
Number of
REIT A Units
107,936,575 $
—
—
107,936,575 $
Amount
3,171,794
601,495
4,228
3,777,517
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.
Dream Office REIT 2015 Annual Report | 110
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 Toronto Stock Exchange (“TSX”) preceding the relevant distribution date, which typically is on or about the
15th day of the month following the declaration.
For the year ended December 31, 2015, 4,040,965 REIT A Units were issued under the DRIP for $93,122 (December 31, 2014 –
2,236,530 REIT A Units for $63,248).
On February 18, 2016, the Trust announced the suspension of its DRIP until further notice effective for the February 2016
distribution.
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, 2015, 13,727 REIT A Units were issued under the Unit Purchase Plan for $343 (December 31,
2014 – 4,765 REIT A Units for $135).
Debenture conversions
For the year ended December 31, 2015, no debentures were converted. For the year ended December 31, 2014, $500 of 5.5%
Series H Debentures were converted for 13,628 REIT A Units.
Exchange of REIT B Units for REIT A Units
On May 25, 2015, 218,611 REIT B Units were exchanged for 218,611 REIT A Units totalling $5,795. The exchange was valued
based on the carrying amount of the subsidiary redeemable units on the day prior to the exchange for REIT B Units.
On July 24, 2014, 2,936,023 REIT B Units were exchanged for 2,936,023 REIT A Units totalling $85,350. The exchange was
valued based on the carrying amount of the subsidiary redeemable units on the day prior to the exchange for REIT B Units.
Normal course issuer bid
On June 22, 2015, the Trust renewed its normal course issuer bid (the “Bid”) which expired on June 19, 2015. The Bid will
remain in effect until the earlier of June 21, 2016 or the date on which the Trust has purchased the maximum number of REIT A
Units permitted under the Bid. Under the Bid, the Trust has the ability to purchase for cancellation up to a maximum of
10,648,031 REIT A Units (representing 10% of the Trust’s public float of 106,480,305 REIT A Units at the time of entering the bid
through the facilities of the TSX). Daily purchases are limited to 73,273 REIT A Units, other than purchases pursuant to
applicable block purchase exceptions.
For the year ended December 31, 2015, 4,486,473 REIT A Units had been purchased and subsequently cancelled under the Bid
for a total cost of $105,114 (December 31, 2014 – 832,200 REIT A Units cancelled for $20,924).
Subsequent to year-end, the Trust purchased an additional 406,573 REIT A Units under the normal course issuer bid for
cancellation for a cost of $6,486.
Dream Office REIT 2015 Annual Report | 111
Note 18
ASSETS HELD FOR SALE AND DISPOSITIONS
Assets held for sale
As at December 31, 2015, the Trust classified three properties located in Québec as assets held for sale totalling $44,914 and
their associated liabilities totalling $24,502. At December 31, 2015, management had committed to a plan of sale of the
underlying properties and the sale was considered to be highly probable. As a result, these properties have been reclassified as
assets held for sale.
As at December 31, 2014, the Trust held an investment in a joint venture totalling $2,968 as assets held for sale. The Trust’s
share of the joint venture’s assets and liabilities were $2,990 and $22, respectively. At December 31, 2014, management had
committed to a plan of sale of the underlying properties and the sale was considered to be highly probable. As a result, the
investment in the joint ventures had been reclassified as assets held for sale as at December 31, 2014.
Non-current assets
Current assets
Total assets
Non-current liabilities
Current liabilities
Total liabilities
Net assets
Investment properties held for sale
Balance at beginning of year
Add (deduct):
Investment properties classified as held for sale during the year
Investment properties disposed of during the year
Fair value adjustment to investment properties
Balance at end of year
December 31, 2015 December 31, 2014
2,968
—
2,968
—
—
—
2,968
44,732 $
182
44,914 $
24,268
234
24,502 $
20,412 $
$
$
$
$
Year ended
December 31, 2015
— $
Year ended
December 31, 2014
—
159,473
(120,805 )
5,970
44,638 $
—
—
—
—
$
$
Dispositions
For the year ended December 31, 2015, the Trust disposed of the following properties:
8100 Granville Avenue, Vancouver
2200–2204 Walkley Road, Ottawa
Québec City Portfolio(3)
Disposed
GLA
Property
(sq. ft.)
type
95,298 $
office
office 158,898
office 634,132
888,328 $
Sales
price(1)
28,759 $
27,910
95,122
151,791 $
Loss on
sale(2)
(714 ) $
(817 )
(2,121 )
(3,652 ) $
Mortgages
discharged/
assumed
—
15,279
51,354
66,633
(4)
Date disposed
July 15, 2015
August 27, 2015
October 30, 2015
(1) Sales price reflects gross proceeds net of adjustments and before transaction costs.
(2) Loss on sale includes mainly the transaction costs and the write-off of a pro rata share of goodwill associated with the cash-generating unit.
(3) Includes four properties in Québec City: 900 Place D’Youville, 580 Rue Grand Allée, 200 Chemin Sainte-Foy and 141 Saint Jean Street.
(4) Of this mortgage amount, $21,959 was assumed by the purchaser on disposal of investment properties.
Dream Office REIT 2015 Annual Report | 112
On April 30, 2015, a parcel of land at 60 Columbia Way, Markham, Ontario, was expropriated by the City of Markham to build a
highway off-ramp, for total gross proceeds of $2,674. The gross proceeds represented fair market value. In addition to the gross
proceeds, the Trust recorded a one-time compensation income of $600 in its results for the year ended December 31, 2015 for
the expropriation of the parcel of land.
On March 12, 2015, the Trust disposed of its 25% interest in an investment property of Capital Centre, Edmonton (an
investment in joint venture) for total gross proceeds of $2,340. As a result of the sale, the Trust recognized a net loss of $121,
which was included in share of net income from investment in joint ventures.
For the year ended December 31, 2014, the Trust disposed of the following properties:
9705 Horton Road, Calgary
26229 Township Road 531, Edmonton(4)
11404 Winterburn Road NW, Edmonton(4)
16134 - 114th Avenue NW, Edmonton(4)
16104 - 114th Avenue NW, Edmonton(4)
St. Albert Trail Centre, Edmonton
Total
Property
type
office
flex
flex
flex
flex
office
Disposed
GLA
(sq. ft.)
55,363 $
89,165
81,917
48,353
28,759
48,402
351,959 $
Sales
price(1)
9,150 $
12,084
10,489
3,938
6,281
12,075
54,017 $
Mortgages
discharged/
assumed
5,919(3)
5,529(3)
5,599(3)
2,651
2,030
6,389
28,117
Loss on
sale(2)
(173 ) $
(68 )
(24 )
(44 )
(5 )
(424 )
(738 ) $
Date disposed
June 12, 2014
September 9, 2014
September 9, 2014
September 9, 2014
September 9, 2014
September 15, 2014
(1) Sales price reflects gross proceeds net of adjustments and before transaction costs.
(2) Loss on sale includes mainly the transaction costs and the write-off of a pro rata share of goodwill associated with the cash-generating unit.
(3) Mortgage assumed by purchaser on disposal of investment property.
(4) These investment properties were sold to Dream Industrial REIT.
On June 3, 2014, the Trust disposed of its 25% investment in three joint ventures totalling $12,597. The Trust’s share of the
disposed joint venture assets and liabilities were $18,179 and $5,582, respectively. As a result of the sale, the Trust recognized a
net loss of $738.
Note 19
INTEREST
Interest on debt
Interest on debt incurred and charged to comprehensive income is recorded as follows:
Interest expense incurred, at contractual and hedged rate of debt
Amortization of financing costs
Amortization of fair value adjustments on assumed debt
Interest expense
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,
2015
2014
136,528
132,818 $
3,178
3,060
(4,060 )
(4,754 )
134,952
131,818
(3,060 )
4,060
545
133,363 $
(3,178 )
4,754
(1,736 )
134,792
$
$
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.
Dream Office REIT 2015 Annual Report | 113
Interest on subsidiary redeemable units
Interest payments charged to comprehensive income are recorded as follows:
Paid in cash
Less: Interest payable at December 31, 2014 (December 31, 2013)
Plus: Interest payable at December 31, 2015 (December 31, 2014)
Total
Note 20
FAIR VALUE ADJUSTMENTS TO FINANCIAL INSTRUMENTS
Remeasurement of conversion feature on convertible debentures
Remeasurement of carrying value of subsidiary redeemable units
Remeasurement of carrying value of deferred trust units
Year ended December 31,
2015
2014
5,186
8,306 $
(112 )
(660 )
112
977
4,638
9,171 $
$
$
Note
11
12
13
$
$
Year ended December 31,
2015
2014
(722 )
450
1,477
45,757
3,855
822
2,749
48,890
$
$
Note 21
INCOME TAXES
The Trust is subject to taxation in the U.S. on the taxable income earned by its investment properties located in the U.S. at a
rate of approximately 38.46% (December 31, 2014 – 38.46%). 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.
The tax effects of temporary differences arise from investment properties. As at December 31, 2015, the Trust had a deductible
temporary difference of $4,434 (December 31, 2014 – $3,226) that was not recognized as a deferred tax asset as it did not
meet the probable recognition criteria under IAS 12. However, the deductible temporary difference can be carried forward
indefinitely.
The loss carry-forwards and the tax effects of 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,
2015
$
331 $
1,375
1,292
2,998
(12,036 )
(9,038 ) $
$
December 31,
2014
327
1,350
915
2,592
(8,775 )
(6,183 )
A reconciliation between the expected income taxes based upon the 2015 and 2014 statutory rates and the income tax expense
recognized during the years ended December 31, 2015 and December 31, 2014 is as follows:
Income taxes computed at the statutory rate of nil that is applicable to the Trust
Deferred income tax expense on U.S. properties
December 31,
2015
$
$
— $
1,695
1,695 $
December 31,
2014
—
638
638
As part of the deferred tax balance, $1,160 is a result of foreign exchange differences for the U.S. properties. This amount is
included as part of other comprehensive income under unrealized foreign currency translation gain.
Dream Office REIT 2015 Annual Report | 114
Note 22
SEGMENTED INFORMATION
For the years ended December 31, 2015 and December 31, 2014, the Trust’s reportable operating segments of its investment
properties and results of operations were segmented geographically, namely Western Canada, Calgary downtown, Calgary
suburban, Toronto downtown, Toronto suburban and Eastern Canada. 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, properties acquired after January 1, 2014, sold properties and assets held for sale at period-end, were included
in “Other” for segment disclosure. 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, net losses on transactions
and other activities (excluding impairment of goodwill), and deferred income taxes were not allocated to the segments.
For the years ended December 31, 2015 and December 31, 2014, the 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, 2015
Operations
Investment properties
revenue
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
Deferred income taxes
Net income (loss) for
the year
Year ended
December 31, 2015
Capital expenditures(5)
Investment properties
Western
Canada
Calgary
downtown
Calgary
suburban
Toronto
downtown
Toronto
suburban
Eastern
Canada
Segment
total(1)
Other(2)
Reconciliation(1)
Total
$
152,835 $
120,293 $
22,642 $
259,867 $ 111,009 $ 124,892 $
791,538 $
10,908 $
(111,484 ) $
690,962
(59,063 )
(49,492 )
(9,853 )
(118,133 )
(50,577 )
(57,037 )
(344,155 )
(10,987 )
93,772
—
—
70,801
—
—
12,789
—
—
141,734
—
—
60,432
—
—
67,855
—
—
447,383
—
—
(79 )
9,185
(173,471 )
51,693
(303,449 )
(59,791 )
53,068
17,337
387,513
62,253
(156,134 )
(10,225 )
(8,517 )
(1,301 )
(16,735 )
(6,848 )
(7,586 )
(51,212 )
(285,150 )
(10,614 )
(346,976 )
83,547
—
62,284
—
11,488
—
124,999
—
53,584
—
60,269
—
396,171
—
(449,515 )
(1,695 )
—
—
(53,344 )
(1,695 )
$
83,547 $
62,284 $
11,488 $
124,999 $
53,584 $
60,269 $
396,171 $ (451,210 ) $
— $
(55,039 )
Calgary
downtown
Western
Canada
21,519 $
total(1)
142,084 $
$
$ 1,310,713 $ 1,068,134 $ 165,977 $ 2,543,398 $ 951,030 $ 916,937 $ 6,956,189 $
52,645 $
23,357 $
3,180 $
Toronto
suburban
21,610 $
Eastern
Canada
19,773 $
Toronto
downtown
Calgary
suburban
Segment
Other(3)
1,786 $
54,638 $
Reconciliation(1)(4)
Total
118,353
(1,144,232 ) $ 5,866,595
(25,517 ) $
(1) Includes the Trustʼs proportionate share of its joint ventures, accounted for using the equity method of accounting.
(2) Includes 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, properties acquired after January 1, 2014, sold properties and assets held for sale at period-end.
(3) Includes properties held for redevelopment, sold properties and assets held for sale at period-end.
(4) Includes assets held for sale at period-end.
(5) Includes building improvements and initial direct leasing costs and lease incentives.
Dream Office REIT 2015 Annual Report | 115
Year ended
December 31, 2014
Operations
Investment properties
revenue
Investment properties
operating expenses
Net rental income
(segment income)
Other income
Other expenses
Fair value adjustments,
net losses on
transactions and
other activities
Income before income
taxes
Deferred income taxes
Net income for the
year
Western
Canada
Calgary
downtown
Calgary
suburban
Toronto
downtown
Toronto
suburban
Eastern
Canada
Segment
total(1)
Other(2)
Reconciliation(1)
Total
$
154,316 $
125,935 $
21,273 $
254,243 $
114,293 $
121,381 $
791,441 $
26,554 $
(112,716 ) $
705,279
(58,389 )
(49,213 )
(9,646 )
(117,852 )
(50,969 )
(55,440 )
(341,509 )
(14,536 )
95,927
—
—
76,722
—
—
11,627
—
—
136,391
—
—
63,324
—
—
65,941
—
—
449,932
—
—
12,018
19,199
(184,681 )
52,274
(303,771 )
(60,442 )
37,576
17,728
401,508
56,775
(166,953 )
—
—
—
—
—
—
—
(136,540 )
5,138
(131,402 )
95,927
—
76,722
—
11,627
—
136,391
—
63,324
—
65,941
—
449,932
—
(290,004 )
(638 )
—
—
159,928
(638 )
$
95,927 $
76,722 $
11,627 $
136,391 $
63,324 $
65,941 $
449,932 $
(290,642 ) $
— $
159,290
Calgary
Year ended
downtown
December 31, 2014
17,685 $
Capital expenditures(5) $
Investment properties $ 1,395,943 $ 1,162,981 $
Western
Canada
13,189 $
Calgary
suburban
2,132 $
Toronto
downtown
17,074 $
183,969 $ 2,409,667 $
Segment
Eastern
Toronto
total(1)
Canada
suburban
82,045 $
17,473 $
14,492 $
962,942 $ 1,076,344 $ 7,191,846 $
Other(3) Reconciliation(1)(4)
1,155 $
12,750 $
Total
77,393
(1,065,526 ) $ 6,139,070
(5,807 ) $
(1) Includes the Trustʼs proportionate share of its joint ventures, accounted for using the equity method of accounting.
(2) Includes 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, properties acquired after January 1, 2014, sold properties and assets held for sale at period-end.
(3) Includes properties held for redevelopment, sold properties and assets held for sale at period-end.
(4) Includes assets held for sale at period-end.
(5) Includes building improvements and initial direct leasing costs and lease incentives.
Note 23
GENERAL AND ADMINSTRATIVE EXPENSES
Management Services Agreement
Asset management fees
Salaries
Deferred compensation expense
Other(1)
General and administrative expenses
Note
24
24
$
$
Year ended December 31,
2014
—
17,093
—
3,707
3,593
24,393
2015
435 $
4,338
346
2,638
4,439
12,196 $
(1) Other comprises professional service fees, Board of Trusteesʼ fees and expenses, investor relations, compliance and regulatory costs.
Dream Office REIT 2015 Annual Report | 116
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 conducted under
normal commercial terms.
Agreements with DAM
On April 2, 2015, the Trust and DAM also 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. 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, 2015.
On August 24, 2007, Dream Office REIT had an asset management agreement (the “Asset Management Agreement”) with DAM
pursuant to which DAM provided certain asset management services to Dream Office REIT and its subsidiaries. On April 2,
2015, the Trust acquired a subsidiary of DAM which was a party to the Asset Management Agreement with the Trust, resulting
in the elimination of the Trust’s obligation to pay asset management, acquisition and capital expenditure fees to DAM. In
consideration for the Reorganization, the Trust issued 4,850,000 subsidiary redeemable units to DAM, representing total
consideration of $127,313 using the closing price of REIT A Units at the date of the transaction. The total consideration of
$127,313 and costs related to the Reorganization totalling $819 were charged to net income in the consolidated statement of
comprehensive income.
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.
Management Services Agreement with DAM
The following is a summary of fees incurred for the year ended December 31, 2015 and December 31, 2014:
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 net loss on sale of investment properties)
Total incurred under the Management Services Agreement
Year ended December 31,
2015
2014
—
435
—
359
$
300
1,094
$
—
—
$
$
Dream Office REIT 2015 Annual Report | 117
Asset Management Agreement with DAM
The Asset Management Agreement provided for a broad range of asset management services for the following fees:
• base annual management fee calculated and payable on a monthly basis, equal to 0.25% of the gross asset value of
properties, defined as the fair value of the properties at August 23, 2007 (the date of the sale of our portfolio of properties
in Eastern Canada) plus the purchase price of properties acquired subsequent to that date, adjusted for any
properties sold;
•
•
incentive fee equal to 15% of Dream Office REIT’s adjusted funds from operations per unit (as defined in the Asset
Management Agreement) in excess of $2.65 per unit;
capital expenditures fee equal to 5% of all hard construction costs incurred on each capital project with costs in excess of
$1,000, excluding work done on behalf of tenants or any maintenance capital expenditures;
• acquisition fee calculated over a fiscal year based on the anniversary date of the Asset Management Agreement, equal to:
(i) 1.0% of the purchase price of a property on the first $100,000 of properties acquired; (ii) 0.75% of the purchase price of
a property on the next $100,000 of properties acquired; and (iii) 0.50% of the purchase price of a property acquired in
excess of $200,000 of properties acquired; and
•
financing fee equal to the lesser of actual expenses incurred by DAM in supplying services relating to financing transactions
and 0.25% of the debt and equity of all financing transactions completed on behalf of Dream Office REIT.
The following is a summary of fees incurred for the years ended December 31, 2015 and December 31, 2014 prior to the
elimination of the Asset Management Agreement with DAM as part of the Reorganization on April 2, 2015:
Base annual management fee (included in G&A expenses)
Expense reimbursements related to financing arrangements (included in debt)
Total incurred under the Asset Management Agreement
$
$
Year ended December 31,
2015
2014
17,093
4,338
—
319
4,338
17,412
$
$
Shared Services and Cost Sharing Agreement with DAM
The following is a summary of fees billed by DAM for the years ended December 31, 2015 and December 31, 2014. Amounts
billed by DAM prior to April 2, 2015 are included pursuant to the original agreement:
Business transformation costs
Strategic services and other
Total costs incurred under the Shared Services and Cost Sharing Agreement
$
$
Year ended December 31,
2015
2014
1,490
1,100
889
405
2,379
1,505
$
$
The Trust’s expected future commitment under the Shared Services and Cost Sharing Agreement, which expires on
December 1, 2020, is $2,463.
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, 2015 and December 31, 2014. Amounts incurred prior to April 2, 2015 are included
pursuant to the original agreement:
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
Costs processed by DAM on behalf of the Trust under the Administrative Services Agreement
Year ended December 31,
2014
5,007
8,705
13,712
37
2015
5,560 $
2,979
8,539 $
610 $
$
$
$
Dream Office REIT 2015 Annual Report | 118
Services Agreement with Dream Industrial REIT
Effective October 4, 2012, Dream Office Management Corp. and Dream Industrial REIT entered into a Services Agreement, 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 years ended December 31, 2015 and
December 31, 2014:
Total cost recoveries from Dream Industrial REIT
Year ended December 31,
2015
2014
5,999
3,471 $
$
Other transactions with Dream Industrial REIT
As discussed in Note 7 and Note 18, the Trust completed the sale of four investment properties to Dream Industrial REIT on
September 9, 2014. A total loss of $141 was recognized in the statements of comprehensive income upon disposal and related
to the write-off of financing costs and fair value adjustments associated with the debt discharged, transaction costs and the
write-off of goodwill associated with the cash-generating unit.
Amounts due from (to) related parties
Amounts due from DAM
Administrative Services Agreement with DAM
Parking revenue received on behalf of the Trust
Total amounts due from DAM
Amounts due from (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,
2015
December 31,
2014
552 $
260
812 $
447
546
993
December 31, December 31,
2014
2015
(2,536 ) $
(144 )
(977 )
(3,657 ) $
148
(144 )
(72 )
(68 )
$
$
$
$
(1) Includes Management Services Agreement, Asset Management Agreement, Shared Services and Cost Sharing Agreement, and Administrative
Services Agreement.
(2) Distributions payable is in relation to the 773,939 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
Total amounts due to Dream Industrial REIT related to Dream Industrial REIT properties
December 31,
2015
December 31,
2014
$
$
$
256 $
1,082
1,338 $
(135 ) $
808
1,082
1,890
(35 )
Dream Office REIT 2015 Annual Report | 119
Compensation of key management personnel
Compensation of key management personnel for the years ended December 31 is as follows:
Unit-based awards(1)
Year ended December 31,
2015
1,405 $
2014
925
$
(1) Deferred trust units granted 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.
Note 25
SUPPLEMENTARY CASH FLOW INFORMATION
The components of amortization and depreciation under operating activities include:
Amortization of lease incentives
Amortization 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:
Note
6 $
9
19
19
$
$
Year ended December 31,
2015
2014
9,893
13,032
1,292
1,291
3,178
3,060
(4,060 )
(4,754 )
1,678
1,658
11,287
14,981
$
Cost on Reorganization
Debt settlement and Unit issue costs, net
Net loss on sale of investment properties
Deferred unit compensation expense
Straight-line rent adjustment
Deferred income taxes
Impairment of goodwill
Total other adjustments
Note
24 $
31
18, 31
13
21
9, 31
$
Year ended December 31,
2015
2014
127,313 $
—
1,927
1,999
3,652
738
3,707
2,638
(2,313 )
(3,929 )
638
1,695
51,212
—
3,081
186,196
$
$
Year ended December 31,
2015
2014
12,043
6,155
857
(481 )
287
794
2,026
(7,753 )
255
216
6,196
8,203
$
The components of the changes in non-cash working capital under operating activities include:
Decrease in amounts receivable
Decrease (increase) in prepaid expenses and other assets
Decrease in other non-current assets
Increase (decrease) in amounts payable and accrued liabilities
Increase in non-current liabilities
Change in non-cash working capital
$
$
Dream Office REIT 2015 Annual Report | 120
The following amounts were paid on account of interest:
Interest:
Debt
Subsidiary redeemable units
Note 26
ACCUMULATED OTHER COMPREHENSIVE INCOME
Note
Year ended December 31,
2015
2014
19 $
19
133,363
8,306
$
134,792
5,186
Unrealized loss on interest rate swaps, net of tax
Unrealized foreign currency translation gain, net
of tax
Accumulated other comprehensive income
Opening
balance
January 1
$
(1,002 ) $
Net change
during the
year
(139 ) $
2015
Closing
balance
December 31
Opening
balance
January 1
(1,141 ) $
(336 ) $
Net change
during the
Year ended December 31,
2014
Closing
balance
December 31
(1,002 )
year
(666 ) $
5,230
4,228 $
7,486
7,347 $
12,716
11,575 $
2,020
1,684 $
3,210
2,544 $
$
5,230
4,228
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 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.
During the year, 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 $10,619. 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 of December 31, 2015.
At December 31, 2015, Dream Office REIT’s future minimum commitments under operating leases, finance leases, and fixed
price contracts to purchase electricity and steam are as follows:
Operating lease payments
Finance lease payments
Fixed price contracts – electricity
Fixed price contracts – steam
Total
$
< 1 year
784
195
2,873
315
4,167 $
$
1–5 years
899
38
—
1,576
2,513 $
$
$
$
Minimum payments due
Total
9,848
233
2,873
6,303
19,257
> 5 years
8,165
—
—
4,412
12,577 $
During the year ended December 31, 2015, the Trust paid $817 (December 31, 2014 – $1,065) in minimum lease payments,
which has been included in comprehensive income for the period.
The Trust has entered into lease agreements that may require tenant improvement costs of approximately $37,825.
The Trustʼs share of contingent liabilities for the obligation of the other owners of investments in joint ventures is $275,735
(December 31, 2014 – $282,738).
Dream Office REIT 2015 Annual Report | 121
Note 28
CAPITAL MANAGEMENT
The primary objectives of the Trust’s capital management are to ensure it remains within its quantitative banking covenants
and to improve its credit rating. The Trust was assigned for the first time a credit rating of BBB (low) with a stable trend as part
of the Series A and Series B Debentures offering during 2013.
The Trust’s capital consists of debt, including mortgages, convertible debentures, debentures, subsidiary redeemable units and
demand revolving credit facilities, 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, and to provide for resources needed to acquire new properties. The Trust’s maximum credit
exposure is equal to the trade receivables at December 31, 2015.
Various debt, equity and earnings distribution ratios are used to ensure capital adequacy and 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 that the debt level maintained is sufficient to provide
adequate cash flows for unitholder distributions 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 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 through various ratios to ensure adequate resources are available. These ratios include the
proportion of distributions paid in cash, DRIP participation ratio, and total distributions as a percent of distributable income and
distributable income per unit.
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, “Presentation of Financial Statements” (“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 some 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 on maturing debt to be renewed. Variable rate debt at December 31, 2015 was 8.9% of the
Trust’s total debt (December 31, 2014 – 8.9%). Included in fixed rate debt is the term loan facility of $183,453, which has a
variable rate of interest at bankers’ acceptances plus 1.85% payable monthly. The Trust had entered into two interest rate swap
agreements, one for three years at 3.03% for a notional value of $53,670 and one for five years at 3.52% for a notional value of
$129,783, fixing the rate of interest at 3.38%. On August 15, 2014, the three-year interest rate swap on the notional balance of
$53,670 expired and was not subsequently renewed. 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.
Dream Office REIT 2015 Annual Report | 122
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 2016
and total variable debt
$
$
Amount
Income
-1 %
Equity
Income
Interest rate risk
+1%
Equity
2,051
$
(21 )
$
(21 )
$
21
$
21
713,141
$
7,131
$
7,131
$
(7,131 )
$
(7,131 )
(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 1.85%. 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.
The Trust is not exposed to significant foreign exchange risks.
The Trust’s assets consist of office 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.
Derivatives and hedging activities
The Trust uses an interest rate swap to manage its cash flow associated with changes in interest rates on variable rate debt. As
at December 31, 2015, the Trust had the following interest rate swap outstanding (December 31, 2014 – $129,783):
Hedging item
Notional
Rate (%)
Maturity
Fair value
Hedged item
Interest rate swap
$ 129,783
3.52
August 15, 2016
$
770
Interest payments on forecasted
issuance of bankersʼ acceptances
The maximum term over which interest rate hedging gains and losses reflected in other comprehensive income will be
recognized is five years as the hedged interest payments occur.
Dream Office REIT 2015 Annual Report | 123
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 into 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, 2015
Level 1
Fair value as at December 31, 2015
Level 3
Level 2
Recurring measurements
Non-financial assets
Investment properties
Financial liabilities (assets)
Interest rate swaps
Conversion feature on the convertible debentures
6
$
5,866,595 $
— $
— $ 5,866,595
11
11
770
(38 )
—
—
770
(38 )
—
—
Note
Carrying value as at
December 31, 2014
Level 1
Fair value as at December 31, 2014
Level 3
Level 2
Recurring measurements
Non-financial assets
Investment properties
Financial liabilities (assets)
Interest rate swaps
Conversion feature on the convertible debentures
6
$
6,139,070
$
—
$
—
$ 6,139,070
11
11
592
(760 )
—
—
592
(760 )
—
—
Financial instruments carried at amortized cost where the carrying value does not approximate fair value are noted below:
Fair values disclosed
Mortgages
Term loan facility
Convertible debentures
Debentures
Investment in Dream Industrial REIT
Fair values disclosed
Mortgages
Term loan facility
Convertible debentures
Debentures
Investment in Dream Industrial REIT
Note
Carrying value as at
December 31, 2015
Fair value as at December 31, 2015
Level 1
Level 2
Level 3
$
11
11
11
11
7
2,244,161 $
182,990
50,923
483,174
184,817
— $
—
50,628
485,000
—
— $ 2,325,458
185,009
—
—
—
—
—
—
133,202
Note
Carrying value as at
December 31, 2014
Fair value as at December 31, 2014
Level 1
Level 2
Level 3
$
11
11
11
11
7
2,380,708 $
182,260
51,160
482,700
191,691
— $
—
51,641
485,200
—
— $ 2,491,411
186,069
—
—
—
—
—
—
156,206
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 Deferred Unit Incentive Plan are carried at amortized cost which approximates fair value as they are
readily redeemable financial instruments.
Dream Office REIT 2015 Annual Report | 124
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 capitalization rate method the stabilized net operating
income (“stabilized NOI”) of each property is divided by any appropriate capitalization rate (“cap rate”).
The key assumptions in the valuation of investment properties are as follows:
• Cap rate – based on actual location, size and quality of the properties and taking into account any available market data at
•
the valuation date.
Stabilized NOI – revenues less property operating expenses adjusted 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.
• Discount rate – reflecting current market assessments of the uncertainty in the amount and timing of cash flows.
• Terminal rate – taking into account assumptions regarding vacancy rates and market rents.
• Cash flows – based on the actual location, type and quality of the properties and supported by the terms of any existing
lease, other contracts or external evidence such as current market rents for similar properties.
In accordance with IFRS 5, “Non-Current Assets Held for Sale and Discontinued Operations”, as at December 31, 2015, the Trust
classified three properties located in Québec as assets held for sale totalling $44,914 and its associated liabilities totalling
$24,502. The fair value of the assets held for sale approximates the carrying value of the net 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. To
determine fair value, the Trust first considers whether it can use current prices in an active market for a similar property in the
same location and condition, which is subject to similar leases and other contracts. The Trust has concluded there is insufficient
market evidence on which to base investment property valuation using this approach, and has therefore determined that using
the income approach is more appropriate.
The Trust’s internal valuations team prepares a valuation of each investment property every quarter. The internal valuations
team is headed by portfolio managers with valuations experience. On a quarterly basis, the Trust engages independent
professionally qualified valuators who hold a recognized relevant professional qualification and have recent experience in the
locations and categories of the investment properties to complete valuations of selected properties. The Trust’s objective is to
have each property valued by an independent valuator at least once every three years. For properties subject to an
independent valuation report, the internal valuations team verifies all major inputs to the valuation and reviews the results
with the independent valuators. Changes in Level 3 fair values are analyzed at each reporting date.
Convertible debentures and interest rate swaps
The convertible debentures have two components of value – a conventional bond and a call on the equity of the Trust through
conversion. Based on its terms (see Note 11) the conversion feature is an embedded derivative and has been separated from
the host contract and classified as a financial liability or asset through profit and loss.
The fair value of the conversion feature, categorized in Level 2, is calculated based on a market-based methodology. In this
model, a convertible bond consists of two components, an equity component and a debt component, and these components
have different default risks. The equity component is discounted at the risk-free rate. The equity component has no default risk
since the Trust can always issue its own units. The debt component is discounted at the risk-free rate plus a credit spread.
The fair value of the conversion feature on the convertible debentures was determined using a number of inputs. The critical
inputs are the unit price, the units’ distribution yield, the underlying unit volatility, the risk-free rate and the assumed credit
spread, all of which are observable.
A qualified independent consultant calculates the fair value measurement for the financial liability classified as Level 2. The
valuation processes and results are determined and reviewed by senior management. The inputs and processes used in the
valuation and the results thereof are reviewed by senior management and discussed with the qualified independent consultant
to ensure conformity with IFRS.
Dream Office REIT 2015 Annual Report | 125
The significant observable inputs used in the fair value measurement of the conversion feature as at December 31, 2015 and
December 31, 2014 are the following:
• Volatility: Historical volatility as at December 31, 2015 and December 31, 2014 was derived from the historical prices of the
Trust with maturity equal to the term to maturity of the convertible debentures.
• Credit spread: The credit spread of the convertible debentures was imputed from the trade price of the convertible
debentures as at December 31, 2015 and December 31, 2014.
5.5% Series H Debentures
Credit spread
Volatility
December 31,
December 31,
2015
4.55%
15.64%
2014
2.39 %
13.6 %
A higher volatility will increase the value of the conversion option. A lower credit spread will decrease the value of the
conversion option.
The following table shows the changes in fair value of the conversion option from a 5% increase or decrease in volatility and a
100 bps increase or decrease in credit spread, holding all other inputs constant.
Increase (decrease) in fair value as at December 31, 2015
$
Increase (decrease) in fair value as at December 31, 2014
$
Impact of change to volatility
-5%
—
+5%
—
$
Impact of change to volatility
-5%
3
+5%
(44 )
$
Impact of change to credit spread
+100 bps
$
38
$
-100 bps
(460)
Impact of change to credit spread
+100 bps
461
$
-100 bps
(481)
$
The Trust also uses the following techniques in determining the fair value disclosed for the following financial liabilities
classified as Level 1, 2 and 3:
Mortgages and term loan facility
The fair value of mortgages and term loan facility as at December 31, 2015 is determined by discounting the expected cash
flows of each mortgage and term loan facility using spreads ranging from 1.85% to 2.40% (December 31, 2014 – 1.60% to
1.70%). The spreads 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 properties that the mortgage is secured by and other indicators of the Trust’s creditworthiness.
Convertible debentures
The fair value of convertible debentures as at December 31, 2015 and December 31, 2014 is based on the convertible
debentures’ trading price on or about December 31, 2015 and December 31, 2014, respectively.
Debentures
The fair value of debentures that are traded as at December 31, 2015 and December 31, 2014 is based on the debentures’
trading price on or about December 31, 2015 and December 31, 2014, respectively. The fair values of debentures that are non-
trading as at December 31, 2015 are based on the debentures’ par value.
Demand revolving credit facilities
The fair value of the demand revolving credit facilities as at December 31, 2015 and December 31, 2014 approximates their
carrying value due to their short-term nature.
Dream Office REIT 2015 Annual Report | 126
Note 31
NET LOSSES ON TRANSACTIONS AND OTHER ACTIVITIES
Debt settlement costs, net
Net loss on sale of investment properties
Internal leasing costs
Business transformation costs
Cost on Reorganization
Impairment of goodwill
Other activities
Total
Note
$
18
24
24
9
$
Year ended December 31,
2015
2014
(1,999 ) $
(1,892)
(3,652 )
(738)
(8,951 )
(6,118)
(1,490 )
(1,100)
—
(128,132 )
—
(51,212 )
—
600
(194,836 ) $
(9,848)
Net debt settlement costs comprise of fees related to the discharge of mortgages prior to the original maturity dates during the
year, offset by the write-off of associated fair value adjustments and financing costs. Net loss on sale of investment properties
for the year mainly comprise of transaction costs and the write-off of a pro rata share of goodwill associated with the cash-
generating unit. Business transformation costs related to process and technology improvement costs incurred pursuant to the
Shared Services and Cost Sharing Agreement (see Note 24).
In consideration for the Reorganization, the Trust issued 4,850,000 subsidiary redeemable units to DAM, representing total
consideration of $127,313. The total consideration of $127,313 and costs related to the Reorganization totalling $819 were
charged to net income in the consolidated statement of comprehensive income (see Note 24).
Note 32
SUBSEQUENT EVENTS
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 February 2016 distribution will be payable on March 15, 2016 to unitholders of record at February 29, 2016.
On February 18, 2016, the Trust announced the suspension of its DRIP until further notice effective for the February
2016 distribution.
Subsequent to year-end, the Trust has committed to a new three-year, $800,000 revolving credit facility with an expected
closing date on or before March 4, 2016. This revolving credit facility is expected to replace the existing $171,500 revolving
credit facility due on March 5, 2016 and $183,453 term loan facility due on August 15, 2016.
Dream Office REIT 2015 Annual Report | 127
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Dream Office REIT 2015 Annual Report | 128
Trustees
Detlef Bierbaum 1,2
Köln, Germany
Corporate Director
Donald K. Charter 3
Toronto, Ontario
Corporate Director
Michael J. Cooper 2,4
Toronto, Ontario
President and Chief Responsible Officer
Dream Unlimited Corp.
Joanne Ferstman 1,2
Toronto, Ontario
Corporate Director
The Hon. Dr. Kellie Leitch
Creemore, Ontario
Member of Parliament for Simcoe–Grey
Robert G. Goodall 3
Toronto, Ontario
President
Canadian Mortgage Capital Corporation
Karine MacIndoe 1
Toronto, Ontario
Corporate Director
Duncan Jackman 3
Toronto, Ontario
Chairman, President and CEO
E-L Financial Corporation Limited
1 Member of the Audit Committee
2 Member of the Investment Committee
3
Member of the Governance, Compensation
and Environmental Committee
4 Chair of the Board of Trustees
Corporate Information
HEAD OFFICE
AUDITORS
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
TRANSFER AGENT
(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
E-mail: service@computershare.com
PricewaterhouseCoopers LLP
PwC Tower, 18 York Street, Suite 2600
Toronto, Ontario M5J 0B2
CORPORATE COUNSEL
Osler, Hoskin & Harcourt LLP
Box 50, 1 First Canadian Place, Suite 6200
Toronto, Ontario M5X 1B8
INVESTOR RELATIONS
Phone: (416) 365-3538
Toll free: 1 877 365-3535
E-mail: officeinfo@dream.ca
Website: www.dreamofficereit.ca
TAXATION OF DISTRIBUTIONS
Distributions paid to unitholders in respect
of the tax year ending December 31, 2015,
are taxed as follows:
Other income: 28.1%
Capital gains: 14.3%
Return of capital: 57.6%
STOCK EXCHANGE LISTING
The Toronto Stock Exchange
Listing symbols:
REIT Units, Series A: D.UN
5.5% Series H Convertible Debentures:
D.DB.H
5.95% Senior Unsecured Debentures, Series K:
D.DB.K
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Corporate Offices
State Street Financial Centre
30 Adelaide Street East, Suite 301
Toronto, ON M5C 3H1
Phone: 416.365.3535
Fax: 416.365.6565
E-mail: officeinfo@dream.ca
dreamofficereit.ca