ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
CONSOLIDATED FINANCIAL STATEMENTS
(AUDITED IN CANADIAN DOLLARS)
FOR THE YEARS ENDED
DECEMBER 31, 2018 AND 2017
DATED: FEBRUARY 26, 2019
TABLE OF CONTENTS
PRESIDENT’S MESSAGE... ..................................................................................................................... 1
PART I
Basis of Presentation... .................................................................................................................................. 2
Forward-Looking Disclaimer ........................................................................................................................ 2
Overview of the Business .............................................................................................................................. 2
Business Environment and Outlook .............................................................................................................. 4
Development Pipeline and Acquisitions/Dispositions .................................................................................. 4
Summary of Selected Year to Date Information……………………………………………………………7
PART II
Strategy .......................................................................................................................................................... 8
Key Performance Drivers and Indicators ...................................................................................................... 9
Property and Corporate Financial Performance 2018 and 2017 .................................................................. 11
Leasing and Occupancy ............................................................................................................................... 17
PART III
Operating Liquidity and Working Capital ................................................................................................... 19
Capital Resources, Equity and Debt Activities ........................................................................................... 21
Commitments and Contingent Liabilities .................................................................................................... 26
PART IV
Summary of Selected Quarterly Information .............................................................................................. 27
PART V
Risks and Uncertainties ............................................................................................................................... 28
PART VI
Related Party Transactions .......................................................................................................................... 30
PART VII
Disclosure Controls and Procedures and Internal Controls over Financial Reporting ................................ 32
Critical Accounting Policies ........................................................................................................................ 32
Future Accounting Policy Changes ............................................................................................................. 33
Explanation of Non-IFRS Measures used in this Document ....................................................................... 34
Explanation of Additional IFRS Measures used in this Document ............................................................. 34
Additional Information ................................................................................................................................ 35
Properties of the Trust ................................................................................................................................. 35
Appendix A
Fourth Quarter Consolidated Statements of Comprehensive Income. ........................................................ 36
CONSOLIDATED FINANCIAL STATEMENTS. ................................................................................ 37
Plaza Retail REIT
PRESIDENT’S MESSAGE
Fellow Unitholders:
On behalf of the Board of Trustees and management team at Plaza Retail REIT, I am pleased to present our financial and
operating results for the year ended December 31, 2018; a year that was highlighted by continued growth through new
development and redevelopment projects across our geographic footprint.
This growth was driven by investments and capital recycling. During the year, Plaza invested $85 million in new developments,
redevelopments and high yield structured deals, a record level for the REIT. These investments were funded in part by the sale
of lower-return, non-core assets for proceeds of $37 million. This reflects Plaza’s development focused growth strategy, which
is very different from that of other publicly traded REITs that grow primarily through the acquisition of stabilized properties.
At Plaza, we are running a development and redevelopment business with a strong track record of creating value, as opposed
to just buying properties and collecting rent. We invest capital in land for new developments or buildings that we redevelop, so
we do not realize any return during the development or redevelopment period. However, as the projects are completed and we
start to realize returns, they are typically materially higher than returns available from the acquisition of stabilized properties.
New projects added $3.6 million to our NOI, which represented 5.6% of our NOI for the year. Concurrently, we took advantage
of opportunities for asset dispositions that had the effect of removing $1.8 million from NOI. These proceeds are being invested
in new projects that are expected to produce substantially higher NOI upon project completions. In 2018, recycling of capital
combined with high investment levels temporarily reduced NOI and FFO due to the time lag between asset sales and the new
investments generating income. Ultimately, we expect this strategy to create superior value for unitholders.
That is not to say that Plaza will not capitalize on unique opportunities to acquire existing high-return properties. Well-
publicized headwinds to bricks-and-mortar retail continue to negatively affect investor sentiment for retail real estate
assets. This has motivated a number of large real estate owners to sell retail assets into the market. In some instances, this is
creating an oversupply of retail assets for sale. We have been able to execute on several opportunities to purchase income-
producing assets with value-add potential that are accretive to our AFFO. We see this market opportunity continuing through
2019 and are excited about the prospect of acquiring more properties with upside potential at compelling going-in yields.
Plaza’s pipeline remains strong - we foresee continued growth and opportunity for both redevelopments and new development
projects. We are pursuing a number of joint venture initiatives with various types of partners, such as residential land developers
with excess retail lands and institutions and property owners seeking a strong and capable development partner. We will
continue to recycle capital in order to fund our growth and will pursue structured deals with private and institutional investors.
These strategies enable us to fund growth without dilution to unitholders.
Plaza’s unit price has been significantly impacted by investors exiting retail REITs across North America, reflecting the
widespread negative view of bricks-and-mortar retail that I referenced above. However, many of the reasons for this strong exit
are not relevant to Plaza. First, our properties are smaller and very community-centric, attracting the same customers every
week, as they conduct their regular pre- and post-work routines. Second, our tenant lineup comprises value, specialty and
necessity-based retailers that require a local, physical presence. And third, Plaza possesses strong leasing and development
infrastructures that enable us to seize interesting growth opportunities and take advantage of current retail trends.
That said, we are not sitting back and waiting for the unit price to improve only after the market eventually recognizes these
differentiated features of Plaza. We are currently looking at a number of strategies that will help to surface value for our
unitholders. For the first time since the initiation of our distribution policy, we did not announce an increase in our distribution
prior to the new year. This reflects our view that advancing our growth strategy can generate stronger investor returns than an
increased distribution and that we can also support our unit price through the buyback of units in the market. In fact, we
anticipate buying back units in 2019.
Our Board and management recognize and appreciate the investment that all of our stakeholders have made in Plaza, and are
working hard to ensure our success. Thank you to our employees, customers and unitholders for your ongoing commitment
and support.
Sincerely,
Michael Zakuta
President and CEO
Page 1 of 78
Plaza Retail REIT
PART I
BASIS OF PRESENTATION
Financial information included in this Management’s Discussion and Analysis (“MD&A”) includes material information up to
February 26, 2019. The financial statements to which this MD&A relates were prepared in accordance with International
Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).
This MD&A has been reviewed and approved by management of Plaza Retail REIT (hereinafter referred to as “Plaza” or the
“Trust”) and the Audit Committee on behalf of the Board of Trustees.
In this MD&A, Plaza reports non-IFRS financial measures, including: funds from operations (“FFO”); adjusted funds from
operations (“AFFO”); earnings before interest, taxes, depreciation and amortization (“EBITDA”); and same-asset net property
operating income (“same-asset NOI”). Plaza also reports net property operating income (“NOI”) as an additional IFRS
measure. These measures are widely used in the Canadian real estate industry. Plaza believes these financial measures provide
useful information to both management and investors in measuring the financial performance and financial condition of Plaza.
These financial measures do not have any standardized definitions prescribed by IFRS and may not be comparable to similar
titled measures reported by other entities. Refer to Part VII of this MD&A under the headings “Explanation of Non-IFRS
Measures Used in this Document” and “Explanation of Additional IFRS Measures Used in this Document”, for definitions of
these financial measures.
FORWARD-LOOKING DISCLAIMER
This MD&A should be read in conjunction with the Trust’s Consolidated Financial Statements and the notes thereto for the
year ended December 31, 2018 and 2017, along with the MD&A of the Trust for the year ended December 31, 2017, including
the section on “Risks and Uncertainties”. Historical results, including trends which might appear, should not be taken as
indicative of future operations or results.
Certain information in this MD&A contains forward-looking statements, based on the Trust’s estimates and assumptions, which
are subject to numerous known and unknown risks and uncertainties, including those described under the heading “Risks and
Uncertainties” in this MD&A. This may cause the actual results, performance and achievements of the Trust to differ materially
from future results, performance or achievements expressed or implied by such forward-looking statements. Without limiting
the foregoing, the words “believe”, “expect”, “continue”, “anticipate”, “could”, “may”, “intend”, “will”, “estimate”, “planning”
or “planned” and variations of such words and similar expressions identify forward-looking statements. Forward-looking
statements (which involve significant risks and uncertainties and should not be read as guarantees of future performance or
results) include, but are not limited to, statements related to distributions, development activities, leasing expectations,
financing and the availability of financing sources. Factors that could cause actual results, performance or achievements to
differ from those expressed or implied by forward-looking statements include, but are not limited to: economic, retail, capital
market, debt market and competitive real estate conditions; Plaza’s ability to lease or re-lease space at current or anticipated
rents; changes in interest rates; changes in operating costs; the availability of development and redevelopment opportunities
for growth; tenant insolvencies or bankruptcies; and government regulations. Management believes that the expectations
reflected in forward-looking statements are based upon reasonable assumptions, however, management can give no assurance
that actual results, performance or achievements will be consistent with these forward-looking statements.
These forward-looking statements are made as of February 26, 2019 and Plaza assumes no obligation to update or revise them
to reflect new events or circumstances, except for forward-looking information disclosed in a prior MD&A which, in light of
intervening events, requires further explanation to avoid being misleading.
OVERVIEW OF THE BUSINESS
Headquartered in Fredericton, New Brunswick, Plaza is an unincorporated “open-ended” real estate investment trust (a “REIT”)
established pursuant to its declaration of trust dated as of November 1, 2013 (the “Declaration of Trust”). Plaza is the successor
to Plazacorp Retail Properties Ltd. (“Plazacorp”), which began operations in late 1999. Plaza trades on the Toronto Stock
Exchange under the symbol “PLZ.UN”.
Plaza is a developer, owner and manager of retail real estate primarily in Atlantic Canada, Quebec and Ontario. Plaza offers a
unique business strategy that differs from many of its peers in the real estate industry.
Plaza has a 16 year history of accretive growth and value creation since beginning to pay distributions in late 2002;
Plaza has strong relationships with leading retailers;
Page 2 of 78
Plaza Retail REIT
Plaza’s main business is driven by value-add opportunities to develop and redevelop, for its own account, unenclosed
and enclosed retail real estate throughout Canada;
Plaza has a competitive advantage as a developer in Atlantic Canada;
Plaza’s entrepreneurial abilities allow it to adapt more easily to changing market conditions;
Plaza is fully internalized and able to develop retail properties in-house;
Plaza minimizes the amount of short-term debt that it obtains, therefore locking in returns for unitholders and
minimizing financing risk;
Insiders hold a significant position in Plaza; and
Plaza is focused on cash flow per unit and per unit growth and conducts its business in order to maximize this and,
accordingly, unitholder value.
Plaza’s growth is driven by value-add developments and redevelopments as well as organic growth from the existing portfolio
as leases roll-over. Plaza’s unique business strategy and focus on cash flow per unit has allowed it to increase its distribution
every year since Plazacorp began paying dividends in November 2002 until 2018. Plaza’s distribution compounded annual
growth rate has been approximately 9%.
Yearly Distribution/Dividend Growth
2003(1)
2004
2005
2006
2007
2008
2009
2010
2011
2011-Aug
2012
2013
2014
2015
2016
2017
2018
8.00¢
8.75¢
10.50¢
12.50¢
15.00¢
17.50¢
18.50¢
19.25¢
20.25¢
21.00¢
21.50¢
22.50¢
24.00¢
25.00¢
26.00¢
27.00¢
28.00¢
n/a
9.4%
20.0%
19.0%
20.0%
16.7%
5.7%
4.1%
5.2%
3.7%
2.4%
4.7%
6.7%
4.2%
4.0%
3.8%
3.7%
$0.30
$0.25
$0.20
$0.15
$0.10
$0.05
$0.00
Distributions/Dividends per unit
3
0
0
2
4
0
0
2
5
0
0
2
6
0
0
2
7
0
0
2
8
0
0
2
9
0
0
2
0
1
0
2
1
1
0
2
2
1
0
2
3
1
0
2
4
1
0
2
5
1
0
2
6
1
0
2
7
1
0
2
8
1
0
2
1
1
0
2
‐
g
u
A
(1) Plazacorp began paying dividends in November 2002.
2003 is the first full year of dividend payments.
Summary of Properties
The Trust’s portfolio at December 31, 2018 includes interests in 287 properties totaling approximately 8.2 million square feet
(which are predominantly occupied by national tenants) and additional lands held for development. These include properties
indirectly held by Plaza through its subsidiaries and through joint arrangements.
Gross Leasable
Area (sq. ft.)
December 31,
2018(1) (2)
34,238
682,044
1,938,349
1,151,286
30,424
1,571,739
595,683
2,149,359
8,153,122
Includes properties under development and non-consolidated investments.
Alberta
Newfoundland and Labrador
New Brunswick
Nova Scotia
Manitoba
Ontario
Prince Edward Island
Quebec
Total
(1)
(2) At 100%, regardless of the Trust’s ownership interest in the properties
Number of
Properties
December 31,
2018(1)
2
12
52
35
6
71
11
98
287
Number of
Properties
December 31,
2017(1)
10
12
51
37
6
71
11
100
298
Gross Leasable
Area (sq. ft.)
December 31,
2017(1) (2)
52,513
679,544
1,837,420
1,180,164
30,424
1,262,229
595,413
2,196,332
7,834,039
Page 3 of 78
Plaza Retail REIT
BUSINESS ENVIRONMENT AND OUTLOOK
Plaza’s entrepreneurial culture and adaptability, combined with its strong fully internalized platform, has allowed, and will
continue to allow, Plaza to grow and take advantage of opportunities in the market-place. Plaza has always had a focused
strategy of growing the business through value-add developments and redevelopments and opportunistic acquisitions. Its
properties are primarily leased to national retailers, with a focus on retailers in the consumer staples market segment – a segment
that tends to withstand broader economic conditions or other retail trends, such as online sales. Plaza’s execution of this strategy
and its leasing efforts over the years have produced a portfolio that is dominated by national retailers, providing investors with
a stable and growing cash flow. Barring unforeseen events, management believes it can continue to deliver growth in 2019.
While it continues to be tough for the enclosed mall business and for certain retailers, particularly those focused on fashion,
strip centre retailers with a focus on consumer staple goods or value goods continue to perform well. These are the retailers
that dominate Plaza’s portfolio and ongoing developments and redevelopments.
Government of Canada bond rates have increased over the last year as a result of Bank of Canada rate increases. More recently,
bond rates have been extremely volatile due to economic uncertainties in Canada and abroad. Notwithstanding all of this, it is
still a relatively low interest rate environment, and long-term debt financing continues to be readily available from lenders at
competitive fixed rates. Plaza will continue to underwrite its development and redevelopment projects to build in appropriate
anticipated fixed rate debt financing. Plaza will also attempt to early refinance mortgages to take advantage of current rates.
DEVELOPMENT PIPELINE AND ACQUISITIONS/DISPOSITIONS
Development Pipeline
Plaza’s development pipeline is robust and will continue to drive growth going forward. Plaza currently owns an interest in
the following projects under development or redevelopment which, upon completion, are expected to be accretive to Plaza’s
earnings. The following properties are under construction, active development, or active planning and are anticipated to be
completed at various points over the next three years as follows:
Page 4 of 78
Plaza Retail REIT
Properties under development/redevelopment
In Planning/In Development:
Strip Plaza:
Plaza de L’Ouest, Sherbrooke, QC – Phase III
Fairville Boulevard, Saint John, NB – Phase III
St. Jerome, St. Jerome (Montreal), QC -Phase III.2(2)
100 Saint-Jude Nord, Granby, QC – Phase II(2)
The Shoppes at Galway, St. John’s, NL – Phase I.2(2)
The Shoppes at Galway, St. John’s, NL – Phase II(2)
The Shoppes at Galway, St. John’s, NL – Phase III(2)
Rideau Plaza, Smiths Falls, ON
Taunton Rd., Oshawa, ON
Single Use:
5150 Blvd Arthur-Sauve, Laval, QC(2)
464 Dundas St., Belleville, ON(3)
90 Main St., Picton, ON(3)
311 Main St., Dunnville, ON(3)
499 Dundas St., Cambridge, ON(3)
63 Lindsay St., Lindsay, ON(3)
Carson & Mapleton, Moncton, NB
Expansion:
Champlain St. Plaza, Dieppe (Moncton), NB–Phase II.1
600 J.P. Perrault, Sherbrooke, QC
Champlain St. Plaza, Dieppe (Moncton), NB–Phase II.2
Pleasant Street, Yarmouth, NS
Silver Fox Plaza, New Minas, NS
In Construction:
Enclosed Mall to Strip Plaza:
Timiskaming, New Liskeard, ON
1000 Islands Plaza, Brockville, ON
Strip Plaza:
1324 Blvd Talbot, Saguenay (Chicoutimi), QC
St. Jerome, St. Jerome (Montreal), QC -Phase III.1(2)
The Shoppes at Galway, St. John’s, NL – Phase I.1(2)
Single Use:
144 Denison, Granby, QC(2)
6685 Century Avenue, Mississauga, ON
9205 Bd. Lacordaire, St. Leonard, QC(3)
Expansion:
9025 Torbram Rd, Brampton, ON(3)
Total
Square
Footage(1) Ownership
Occupied or
Committed at
December 31,
2018(4)
Anticipated
Completion
Date
20,000
10,000
70,000
100,000
195,000
142,000
100,000
18,640
40,000
10,000
2,500
2,500
2,500
4,000
4,000
5,400
7,600
17,000
10,000
2,000
5,000
75,565
165,000
84,000
30,000
58,000
10,000
77,262
2,632
50%
100%
20%
10%
50%
50%
50%
75%
50%
25%
100%
100%
100%
100%
100%
100%
100%
50%
100%
100%
100%
50%
50%
50%
20%
50%
25%
50%
100%
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
100%
100%
n/a
n/a
n/a
n/a
100%
100%
100%
n/a
n/a
n/a
71%
83%
65%
100%
100%
100%
100%
100%
1-2 years
1-2 years
1-2 years
2-3 years
1-2 years
2-3 years
2-3 years
1-2 years
Q3 2020
Q3 2019
Q4 2019
Q4 2019
Q4 2019
1-2 years
1-2 years
Q4 2019
Q3 2019
Q4 2019
1-2 years
1-2 years
1-2 years
Q4 2019
Q4 2019
Q3 2019
Q3 2019
Q3 2019
Q1 2019
Q3 2019
Q2 2019
34,272
1,304,871
100%
100%
Q2 2019
(1) Approximate square footage upon completion or to be added on expansion.
(2) This is owned in a limited partnership that is part of the Trust’s non-consolidated trusts and partnerships.
(3) This is an existing property being redeveloped.
(4) Occupied or committed based on redeveloped square footage.
Page 5 of 78
Plaza Retail REIT
Plaza’s goal is to achieve unlevered returns on developments/redevelopments of between 8%-10%.
There is excess density at existing properties which would represent approximately 97 thousand additional square feet of
gross leasable area.
At December 31, 2018, there are two land assemblies under purchase agreement and subject to due diligence or other conditions.
These land purchases, if executed, will represent an additional 131 thousand square feet of retail space at completion.
At December 31, 2018, there is a property, representing 197 thousand square feet for redevelopment under purchase agreement
and subject to due diligence or other conditions.
The total estimated costs for the developments and redevelopments (noted in the chart on the previous page) are between $120
million and $130 million, of which approximately $56 million has already been spent (at Plaza’s ownership percentage). The
unspent amount has not been fully or specifically budgeted or committed at this time. For the projects in construction,
remaining costs to complete are between $13 million and $14 million. For the projects in planning or in development that are
expected to be completed by the end of 2019, remaining costs to complete are between $3 million and $4 million. The majority
of unspent amounts for Plaza’s development projects are funded by Plaza’s existing development facilities or construction
loans entered into.
Acquisitions/Dispositions
During the year ended December 31, 2018, the Trust purchased the following (all including closing costs): land in Oshawa,
ON for $2.5 million; a 50% interest in land in Saguenay, QC for $380 thousand; land in Moncton, NB for $330 thousand; a
75% interest in a property in Smiths Falls, ON for redevelopment for $1.8 million; a property in Brockville, ON for
redevelopment for $14.3 million; the remaining 50% interest in Northumberland Square in Miramichi, NB for $5.0 million;
and a property in Quispamsis, NB for $12.6 million. As well, the Trust acquired a 100% interest in Shediac West Plaza,
Shediac, NB and Northwest Centre, Moncton, NB for $42.1 million through the purchase of the remaining 90% of the issued
and outstanding units of Plazacorp - Shediac Limited Partnership and Northwest Plaza Commercial Trust that it did not already
own (the “Transaction”). Net of assumption of debt, working capital and the existing ownership interest, the remaining units
were purchased for total cash consideration of $14.3 million. Both properties were previously co-owned with the Trust through
two retail syndications. The previous syndications for these two properties, whose interests were bought out as a result of the
Transaction, included certain related parties of the Trust – namely; Earl Brewer, Michael Zakuta, Edouard Babineau and Denis
Losier. A special committee of independent trustees of the Trust was formed to review and approve the related party
transactions. As well, concurrent with the Transaction, the Trust sold a 50% co-ownership interest in Shediac West Plaza and
Northwest Centre to a Canadian pension fund for gross proceeds of $20.5 million ($8.7 million after assumption of 50% of the
existing mortgages).
During the year ended December 31, 2018, the Trust disposed of properties in Ottawa, ON and Perth, ON for net proceeds of
$1.6 million, a property in Halifax, NS for net proceeds of $3.5 million, a property in Lachine, QC for net proceeds of $641
thousand, a property in Montreal, QC for net proceeds of $10.3 million, a property in Halifax, NS for $1.3 million, a property
in Pointe aux Trembles, QC for net proceeds of $600 thousand and 8 properties in Alberta for $11.8 million. The Trust sold a
50% co-ownership interest in its redevelopment property in Brockville, ON for gross proceeds of $7.2 million ($2.5 million
after assumption of 50% of the existing mortgage). Also, purchasers waived conditions to buy property from the Trust in Paris,
ON for $400 thousand and London, ON for $972 thousand. The Paris, ON transaction closed in January 2019 and the London,
ON transaction is scheduled to close in April 2019.
On January 15, 2019, the Trust sold a 50% co-ownership interest in a property located in Quispamsis, NB to a syndicated
limited partnership. As part of the transaction, $1.2 million in debt was issued by the Trust at a rate of prime + 1.05%, on an
interest-only basis for a 5 year term.
On January 31, 2019, the Trust disposed of land and building located in Montreal, QC for gross proceeds of $1.0 million.
Page 6 of 78
Plaza Retail REIT
SUMMARY OF SELECTED YEAR TO DATE INFORMATION
(000s, except as otherwise noted)
Property rental revenue
Total revenue
NOI(1)
Same-asset NOI(1)
FFO(1) (5)
AFFO(1) (5)
EBITDA(1)
Profit and total comprehensive income
Total assets
Total non-current liabilities
Total mortgages, mortgage bonds, notes payable,
bank credit facilities
Total debentures
Weighted average units outstanding (2)
Amounts on a Per Unit Basis
FFO(1)
AFFO(1)
Distributions
Financial Ratios
Weighted average interest rate – fixed rate mortgages
Debt to gross assets (excluding converts)
Debt to gross assets (including converts)
Interest coverage ratio(1)
Debt coverage ratio(1)
Distributions as a % of FFO
Distributions as a % of AFFO
Leasing Information
Square footage leased during the period (total portfolio)
Committed occupancy(4)
Same-asset committed occupancy(4)
Mix of Tenancy Based on Square Footage(4)
National
Regional
Local
Non retail
Other
Average term to maturity - mortgages
Average term to maturity - leases(4)
IFRS capitalization rate
Property Type Breakdown
Strip
Enclosed
Single Use – Quick Service Restaurant
Single Use – Retail
Total
Number of Properties
December 31, 2018
110
4
102
71
287
12 Months
Ended
December 31,
2018
(unaudited)
$ 104,017
$ 105,436
$ 63,924
$ 58,845
$ 34,264
$ 30,304
12 Months
Ended
December 31,
2017
(unaudited)
$ 102,887
$ 105,963
$ 64,358
$ 59,040
$ 35,596
$ 32,996
12 Months
Ended
December 31,
2016
(unaudited)
$ 100,215
$ 108,029
$ 62,672
N/A(3)
$ 32,358
$ 28,967
$ 59,996
$ 12,212
$ 1,061,066
$ 480,295
$ 520,146
$ 59,835
103,490
$ 0.331
$ 0.293
$ 0.280
4.41%
49.7%
54.7%
2.27x
1.62x
84.6%
95.7%
1,283,055
96.2%
96.0%
91.1%
3.4%
3.7%
1.8%
5.5 Years
5.7 Years
7.25%
Square
Footage
(000s)
5,711
993
272
1,177
8,153
$ 60,016
$ 23,447
$ 1,031,335
$ 450,020
$ 58,661
$ 32,758
$ 1,029,892
$ 484,587
$ 490,305
$ 488,344
$ 49,773
102,385
$ 60,172
98,100
$ 0.348
$ 0.322
$ 0.270
$ 0.330
$ 0.295
$ 0.260
4.39%
48.4%
52.2%
2.36x
1.68x
77.7%
83.9%
1,111,025
95.2%
95.4%
91.4%
3.5%
3.4%
1.7%
6.0 Years
5.8 Years
7.02%
Number of Properties
December 31, 2017
106
5
125
62
298
4.46%
47.7%
53.0%
2.18x
1.58x
79.2%
88.4%
1,049,545
96.1%
N/A(3)
92.0%
3.3%
3.2%
1.5%
6.4 Years
6.2 Years
7.03%
Square
Footage
(000s)
5,403
971
434
1,026
7,834
(1) Refer to Part VII under the headings “Explanation of Non-IFRS Measures used in this Document” and “Explanation of Additional IFRS Measures
used in this Document” for further explanations.
Includes Class B exchangeable limited partnership (“LP”) units.
(2)
(3) Not applicable as the same-asset calculation relates to assets owned since January 1, 2017.
(4)
(5)
Excludes properties under development and non-consolidated investments.
Prior year comparatives have been restated for change to REALpac’s definition of FFO in 2017.
Page 7 of 78
Plaza Retail REIT
PART II
STRATEGY
Plaza’s principal goal is to deliver a reliable and growing yield to unitholders from a diversified portfolio of retail properties.
To achieve this goal the Trust’s Board of Trustees has set development criteria of a minimum cash yield (unlevered yield) equal
to 100 basis points above the mortgage constant for a 10 year mortgage at prevailing rates and assuming a 25 year amortization
period.
The Trust strives to:
maintain access to cost effective sources of debt and equity capital to finance acquisitions and new developments;
acquire or develop properties at a cost that is consistent with the Trust’s targeted returns on investment;
maintain high occupancy rates on existing properties while sourcing tenants for properties under development and
future acquisitions; and
diligently manage its properties to ensure tenants are able to focus on their businesses.
The Trust invests in the following property types:
new properties developed on behalf of existing clients or in response to demand;
well located but significantly depreciated shopping malls and strip plazas to be redeveloped; and
existing properties that will provide stable recurring cash flows with opportunity for growth.
Management intends to achieve Plaza’s goals by:
focusing on property leasing, operations and delivering superior services to tenants;
acquiring or developing high quality properties with the potential for increases in future cash flows;
managing properties to maintain high occupancies and staggering lease maturities appropriately;
achieving appropriate pre-leasing prior to commencing construction;
managing debt to obtain both a low cost of debt and a staggered debt maturity profile;
matching, as closely as practical, the weighted average term to maturity of mortgages to the weighted average lease
increasing rental rates when market conditions permit;
term;
retaining sufficient capital to fund capital expenditures required to maintain the properties;
raising capital where required in the most cost-effective manner;
properly integrating new properties acquired;
using internal expertise to ensure that value is surfaced from all of the properties; and
periodically reviewing the portfolio to determine if opportunities exist to re-deploy equity from slow growth properties
into higher growth investments.
Page 8 of 78
Plaza Retail REIT
KEY PERFORMANCE DRIVERS AND INDICATORS
There are numerous performance drivers, many beyond management’s control, that affect Plaza’s ability to achieve its above-
stated goals. These key drivers can be divided into internal and external factors.
Management believes that the key internal performance
drivers are:
occupancy rates;
rental rates;
tenant service; and
maintaining competitive operating costs.
Management believes that the key external performance
drivers are:
the availability of new properties for acquisition
and development;
the availability and cost of equity and debt capital;
and
The key performance indicators by which management measures Plaza’s performance are as follows:
a stable retail market.
FFO;
AFFO;
debt service ratios;
debt to gross assets;
same-asset NOI;
weighted average effective cost of debt; and
occupancy levels.
The key performance indicators discussed throughout the MD&A are summarized in the table that follows. Management
believes that its key performance indicators allow it to track progress towards the achievement of Plaza’s primary goal of
providing a steady and increasing cash flow to unitholders. The following chart discusses the key performance indicators for
the twelve months ended December 31, 2018 compared to the twelve months ended December 31, 2017.
Page 9 of 78
Plaza Retail REIT
FFO(1)
AFFO(1)
Debt Service Ratios(1)
Debt to Gross Assets
FFO
FFO per unit
Distributions as a % of FFO
YTD Q4 2018
$34,264
$0.331
84.6%
YTD Q4 2017
$35,596
$0.348
77.7%
The decrease in FFO and FFO per unit was mainly due to $1.7 million in lease buyout
revenues recorded in the prior year. Notably however, there was considerable growth
in NOI from developments/redevelopments/acquisitions of $3.6 million, well in
excess of $1.8 million in lost NOI due to a large amount of property dispositions. Also
impacting FFO per unit were (i) higher other income from leasing and development
fees earned on co-owned properties, and (ii) higher interest expense mainly related to
the timing and amount of the issuance of the Series E convertible debentures versus
the redemption of the Series D convertible debentures, early mortgage discharge fees
incurred in the current year, as well as higher mortgage interest due to a large number
of acquisitions.
Excluding the non-recurring one month overlap of interest on the convertible
debentures, the impact of the 2017 lease buyouts and the early mortgage discharge
fees, FFO per unit would have been 1.7% higher than the prior year.
AFFO
AFFO per unit
Distributions as a % of AFFO
YTD Q4 2018
$30,304
$0.293
95.7%
YTD Q4 2017
$32,996
$0.322
83.9%
The principal factors influencing AFFO are consistent with those impacting FFO, as
well as an increase in leasing costs relating to new tenancies.
Interest coverage ratio
Debt coverage ratio
YTD Q4 2018
2.27x
1.62x
YTD Q4 2017
2.36x
1.68x
The interest and debt coverage ratios were lower than the prior year mainly due to the
$1.7 million in lease buyout revenue recorded in the prior year, as well as higher
debenture interest expense due to the fact that a higher face value of Series E
convertible debentures were issued versus the redemption of the Series D convertible
debentures. The debt coverage and interest coverage ratios exceed the requirements
under borrowing arrangements.
Debt to gross assets (excluding converts)
Debt to gross assets (including converts)
Q4 2018
49.7%
54.7%
Q4 2017
48.4%
52.2%
Including convertible debentures, the current year ratio was impacted by the issuance
of the $47.25 million Series E convertible debentures versus the repayment of the
$34.0 million Series D convertible debentures.
Same-Asset NOI(1)
Same-asset NOI
YTD Q4 2018
$58,845
YTD Q4 2017
$59,040
Weighted Average
Interest Rate – Fixed
Rate Mortgages
Occupancy Levels
Same-asset NOI decreased 0.3% over the prior year mainly due to $182 thousand of
bad debt expense recorded in the period due to a tenant going into creditor protection.
Vacancies in the portfolio from two significant lease buyouts concluded during 2017,
as well as vacancies at one of Plaza’s enclosed malls (which is in the process of being
stabilized), were offset by new lease up and rent increases in the portfolio. Excluding
the impact of the lease buyouts, same-asset NOI would have been up 0.1% over the
prior year.
Weighted average interest rate – fixed rate
mortgages
Plaza continues to finance at low rates.
Committed occupancy
Same-asset committed occupancy
Retail demand in Plaza’s markets remains strong.
Q4 2018
Q4 2017
4.41%
4.39%
Q4 2018
96.2%
96.0%
Q4 2017
95.2%
95.4%
(1) Refer to Part VII under the headings “Explanation of Non-IFRS Measures used in this Document” and “Explanation of Additional
IFRS Measures used in this Document” for further explanations.
Page 10 of 78
Plaza Retail REIT
PROPERTY AND CORPORATE FINANCIAL PERFORMANCE 2018 AND 2017
Funds from Operations (FFO) and Adjusted Funds from Operations (AFFO)
Plaza’s summary of FFO and AFFO for the three and twelve months ended December 31, 2018, compared to the three and twelve
months ended December 31, 2017 is presented below:
(000s – except per unit amounts and percentage data)
Profit and total comprehensive income for the period
attributable to unitholders
Add (deduct):
Incremental leasing costs included in administrative expenses
Debenture issuance costs, net of amortization(5)
Distributions on Class B exchangeable LP units included in
finance costs
Deferred income taxes
Fair value adjustment to restricted share units
Fair value adjustment to investment properties
Fair value adjustment to investments
Fair value adjustment to Class B exchangeable LP units
Fair value adjustment to convertible debentures
Fair value adjustment to interest rate swaps and bond
forwards
Equity accounting adjustment
Non-controlling interest adjustment
Basic FFO
Add (deduct):
Non-cash revenue – straight-line rent(4)
Leasing costs – existing properties(1) (4)
Maintenance capital expenditures – existing properties(1) (4)
Non-controlling interest adjustment
Basic AFFO
Basic weighted average units outstanding (2)
Basic FFO per unit
Basic AFFO per unit
Gross distributions to unitholders (3)
Distributions as a percentage of basic FFO
Distributions as a percentage of basic AFFO
Basic FFO
Interest on dilutive convertible debentures
Diluted FFO
Diluted weighted average units outstanding (2)
Basic AFFO
Interest on dilutive convertible debentures
Diluted AFFO
Diluted weighted average units outstanding (2)
Diluted FFO per unit
Diluted AFFO per unit
3 Months
Ended
December 31,
2018
(unaudited)
3 Months
Ended
December 31,
2017
(unaudited)
12 Months
Ended
December 31,
2018
12 Months
Ended
December 31,
2017
$ 1,055
$ 9,431
$ 12,063
$ 23,232
296
(101)
85
(627)
(28)
9,865
1,209
(381)
(3,159)
50
9
(91)
$ 8,182
49
(730)
(75)
40
$ 7,466
103,966
$ 0.079
$ 0.072
$ 7,281
89.0%
97.5%
$ 8,182
607
$ 8,789
112,329
$ 7,466
-
$ 7,466
103,966
$0.078
$0.072
382
(73)
87
207
(5)
(2,124)
600
(152)
94
-
(23)
11
$ 8,435
56
(424)
(287)
9
$ 7,789
102,685
$ 0.082
$ 0.076
$ 6,937
82.2%
89.1%
$ 8,435
-
$ 8,435
102,685
$ 7,789
-
$ 7,789
102,685
$ 0.082
$ 0.076
1,646
1,939
351
(410)
(30)
18,405
4,119
(457)
(3,022)
(39)
(49)
(252)
$ 34,264
228
(3,373)
(869)
54
$ 30,304
103,490
$ 0.331
$ 0.293
$ 28,997
84.6%
95.7%
$ 34,264
2,410
$ 36,674
111,853
$ 30,304
2,410
$ 32,714
111,853
$ 0.328
$ 0.292
1,727
(292)
354
(64)
(17)
10,392
1,876
(970)
(339)
-
(138)
(165)
$ 35,596
239
(1,783)
(1,098)
42
$ 32,996
102,385
$ 0.348
$ 0.322
$ 27,674
77.7%
83.9%
$ 35,596
2,258
$ 37,854
109,209
$ 32,996
-
$ 32,996
102,385
$ 0.347
$ 0.322
(1) Based on actuals.
(2)
(3)
(4)
(5) Prior year comparative has been restated for this new addition to REALpac’s definition of FFO in 2017.
Includes Class B exchangeable LP units.
Includes distributions on Class B exchangeable LP units.
Includes proportionate share of expenditures at equity-accounted investments.
Page 11 of 78
Plaza Retail REIT
Basic FFO for the three months ended December 31, 2018 decreased by $253 thousand, or 3.0% over the prior year. Basic FFO
per unit for the three months ended December 31, 2018 was 3.7% lower than the prior year.
More specifically, impacting FFO was:
(i)
(ii)
(iii)
(iv)
(v)
growth in NOI of $1.0 million from developments/redevelopments/acquisitions;
a decrease in NOI of $515 thousand from property sales, mainly due to the syndication of eight properties in the
prior year;
a decrease in same-asset NOI of $103 thousand, mainly due to higher operating costs, primarily at the enclosed
malls;
lease buyout revenues of $119 thousand recorded in the prior year; and
an increase in finance costs of $261 thousand mainly due to the large number of acquisitions, as well as higher
debenture interest.
For the three months ended December 31, 2018, AFFO decreased by $323 thousand, or 4.1% over the prior year and AFFO per
unit decreased by 5.3% over the prior year. The decrease in AFFO and AFFO per unit was mainly due to the decrease in FFO
and FFO per unit described above.
Basic FFO for the twelve months ended December 31, 2018 decreased by $1.3 million, or 3.7% over the prior year. Basic FFO
per unit for the twelve months ended December 31, 2018 decreased by 4.9% over the prior year. The decrease was mainly due
to lease buyout revenues recorded in the prior year.
More specifically, impacting FFO was:
(i)
(ii)
(iii)
(iv)
(v)
growth in NOI of $3.6 million from developments/redevelopments/acquisitions;
a decrease in NOI of $1.8 million from property sales, mainly due to the syndication of eight properties in the prior
year;
lease buyout revenues of $1.7 million recorded in the prior year from two significant lease buyouts concluded during
the second quarter of 2017;
an increase in other income of $497 thousand mainly due to an increase in development and leasing fees earned
from co-owned properties; and
an increase in finance costs of $1.1 million mainly due to $240 thousand of early mortgage discharge fees paid in
the current year, compared to $56 thousand in the prior year, higher debenture interest due to the timing and amount
of convertible debentures outstanding and higher mortgage interest, mainly from the large number of acquisitions.
For the twelve months ended December 31, 2018, AFFO decreased by $2.7 million, or 8.2% over the prior year and AFFO per
unit decreased by 9.0% over the prior year. The decrease in AFFO was mainly due to the same factors impacting FFO as well as
an increase in leasing costs relating to new tenancies. Leasing costs fluctuate depending on timing of new tenancies.
Excluding the one month overlap of interest on the convertible debentures, the impact of the 2017 lease buyouts and the early
mortgage discharge fees, FFO per unit would have been 1.7% higher than the prior year mainly from net growth in NOI, and
AFFO per unit would have only been 2.3% lower than the prior year due to the higher leasing costs.
Profit and Total Comprehensive Income for the Period
The Trust recorded a profit for the three months ended December 31, 2018 of $1.1 million compared to $9.5 million for the same
period in the prior year. The decrease was mainly due to a decrease in the fair value of investment properties of $12.0 million,
mainly attributable to an increase in capitalization rates in the quarter. This was partly offset by a net gain of $3.0 million
compared to a net loss of $94 thousand in the prior year, relating to the non-cash fair value adjustment to convertible debentures.
The Trust recorded a profit for the twelve months ended December 31, 2018 of $12.2 million compared to $23.4 million for the
same period in the prior year. The decrease was mainly due to convertible debenture issuance costs expensed, a decrease in NOI
mainly due to lease buyout revenues recorded in the prior year, and an increase in losses from non-cash fair value adjustments.
Specifically, profit was impacted by the same factors mentioned in the discussion of FFO above, as well as:
(i)
(ii)
a decrease in the share of profit of associates of $2.1 million mainly relating to the non-cash fair value adjustment
to the underlying investment properties and a fair value loss on the disposal of land at an underlying investment
property;
convertible debenture issuance costs incurred in the amount of $2.3 million in the current year for the Series E
convertible debentures, which are fully expensed for accounting purposes upon issuance;
Page 12 of 78
Plaza Retail REIT
(iii)
(iv)
(v)
a net gain of $3.0 million compared to $339 thousand in the prior year, relating to the non-cash fair value adjustment
to convertible debentures;
a net gain of $457 thousand compared to $970 thousand in the prior year, relating to the non-cash fair value
adjustment to the Class B exchangeable LP units; and
a net loss from non-cash fair value adjustments to investment properties of $18.4 million compared to $10.4 million
in the prior year due to the increase in capitalization rates.
Same-Asset Net Property Operating Income (Same-Asset NOI)
Same-asset categorization refers to those properties which were owned and operated by Plaza for the twelve months ended
December 31, 2018 and the entire year ended December 31, 2017 and excludes partial year results from certain assets due to
timing of acquisition, development, redevelopment or disposition.
Significant portions of the Trust’s leases have common cost recoveries from tenants linked to the consumer price index (CPI).
At December 31, 2018, approximately 47.4% of the Trust’s leased area is tied to a CPI cost recovery formula. As well, certain
anchor tenant leases may restrict recovery of common costs. As a result, certain costs such as snow removal and utility costs
may not be completely offset by cost recoveries in a period, or recovery revenues may exceed costs. Municipal taxes are generally
net and fully recoverable from all tenants. Most tenants in strip plazas and single use properties are responsible for their own
utilities, and changes to these costs do not materially impact NOI.
(000s)
Same-asset rental revenue
Same-asset operating expenses
Same-asset realty tax expense
Same-asset NOI
3 Months
Ended
December 31,
2018
(unaudited)
$ 22,455
(3,735)
(4,200)
$ 14,520
3 Months
Ended
December 31,
2017
(unaudited)
$ 22,566
(3,761)
(4,182)
$ 14,623
12 Months
Ended
December 31,
2018
(unaudited)
$ 89,471
(13,584)
(17,042)
$ 58,845
12 Months
Ended
December 31,
2017
(unaudited)
$ 89,597
(13,525)
(17,032)
$ 59,040
As noted in the chart above, the same-asset NOI for the three months ended December 31, 2018 was down 0.7% compared to the
prior year. Higher operating costs, particularly at the enclosed malls, contributed to the decrease in same-asset NOI.
Same-asset NOI for the twelve months ended December 31, 2018 decreased by $195 thousand or 0.3% mainly due to $182
thousand of bad debt expense recorded due to a tenant going into creditor protection. Vacancies from two significant lease
buyouts concluded during 2017, which impacted same-asset NOI by $276 thousand compared to the prior year, as well as
vacancies at one of Plaza’s enclosed malls, were offset by new lease up and rent increases in the portfolio. The lease buyouts
were done in order to bring on other more stable tenants. As well, Plaza is in the process of stabilizing the occupancy at the
enclosed mall. Occupancy at that mall is up 5% from December 31, 2017 and rents from some new tenants have commenced
late in the quarter. Excluding the impact of the lease buyouts, same-asset NOI would have been up 0.1% over the prior year.
The following table shows a breakdown of same-asset NOI by province.
(000s except percentage data)
New Brunswick
Nova Scotia
Quebec
Alberta
Manitoba
Ontario
Newfoundland and Labrador
Prince Edward Island
Same-asset NOI
Percentage increase (decrease) over prior period
3 Months
Ended
December 31,
2018
(unaudited)
$ 3,310
2,627
3,127
94
195
2,069
1,339
1,759
$ 14,520
(0.7)%
3 Months
Ended
December 31,
2017
(unaudited)
$ 3,353
2,568
3,318
82
191
2,038
1,305
1,768
$ 14,623
12 Months
Ended
December 31,
2018
(unaudited)
$ 13,570
10,534
12,962
362
777
8,251
5,467
6,922
$ 58,845
(0.3)%
12 Months
Ended
December 31,
2017
(unaudited)
$ 13,685
10,779
13,063
345
752
8,135
5,627
6,654
$ 59,040
Page 13 of 78
Plaza Retail REIT
Net Property Operating Income (NOI)
The following table shows the breakdown of total NOI and relevant variances from the prior year.
(000s)
Same-asset NOI
Developments and redevelopments transferred
to income producing in 2017
Developments and redevelopments transferred to income
producing in 2018 ($3.8 million annualized NOI)
Acquisitions ($2.4 million annualized NOI)
NOI from properties currently under development and
redevelopment ($4.5 million annualized NOI)
Straight-line rent
Administrative expenses charged to NOI
Lease buyout revenue
Property disposals
Other
Total NOI
Share of Profit of Associates
3 Months
Ended
December 31,
2018
(unaudited)
$ 14,520
3 Months
Ended
December 31,
2017
(unaudited)
$ 14,623
12 Months
Ended
December 31,
2018
12 Months
Ended
December 31,
2017
$ 58,845
$ 59,040
573
805
391
396
(49)
(858)
-
(28)
(10)
$ 15,740
558
364
-
206
(56)
(837)
119
487
25
$ 15,489
2,271
2,557
1,287
1,946
(228)
(3,306)
-
464
88
$ 63,924
1,774
1,787
-
908
(239)
(2,984)
1,676
2,283
113
$ 64,358
Share of profit of associates consists of income from equity accounted investments as well as fair value changes in the underlying
investment properties included within equity-accounted investments and other changes to the equity position of the equity-
accounted investments that would impact the residual returns on wind-up (such as debt financing incurred). The following
schedule shows Plaza’s ownership position, rates of preferred returns on investment and Plaza’s interest in cash on capital
appreciation beyond the preferred returns.
Ownership Position
Preferred Return
Residual Return
Equity Accounted Investments(1)
Centennial Plaza Limited Partnership
Trois Rivières Limited Partnership
Plazacorp Ontario1 Limited Partnership
Plazacorp Ontario2 Limited Partnership
Plazacorp Ontario3 Limited Partnership
Plazacorp Ontario4 Limited Partnership
RBEG Limited Partnership
CPRDL Limited Partnership
Fundy Retail Ltd.
VGH Limited Partnership(2)
Ste. Hyacinthe Limited Partnership
144 Denison East Limited Partnership(2)
The Shoppes at Galway Limited Partnership(2)
10%
15%
25%
50%
50%
50%
50%
50%
50%
20%
25%
25%
50%
(1) Equity and fair value accounted investments consist of the following properties: 3550 Sources, Centennial Plaza, Place Du Marche,
BPK Levis and 100 Saint-Jude Nord (Centennial Plaza Limited Partnership); Plaza des Recollets (Trois Rivières Limited
Partnership); Ottawa Street Almonte, Hastings Street Bancroft and Main Street Alexandria (Plazacorp Ontario1 Limited
Partnership); Amherstview and Scugog Street Port Perry (Plazacorp Ontario2 Limited Partnership); King & Mill (Plazacorp
Ontario3 Limited Partnership); Manotick (Plazacorp Ontario4 Limited Partnership); Bureau en Gros (RBEG Limited Partnership);
CPRDL (CPRDL Limited Partnership); Gateway Mall (Fundy Retail Ltd.); St. Jerome (VGH Limited Partnership); 5400 Laurier
Ouest (Ste. Hyacinthe Limited Partnership); 144 Denison and 5150 Arthur-Sauvé (144 Denison East Limited Partnership); and the
Shoppes at Galway (The Shoppes at Galway Limited Partnership).
20%
30%
25%
n/a
n/a
n/a
n/a
n/a
n/a
27%
n/a
n/a
n/a
10%
10%
4%
n/a
n/a
n/a
n/a
n/a
n/a
8%
n/a
n/a
n/a
(2) Land within this partnership is currently in development.
Page 14 of 78
Plaza Retail REIT
Share of profit of associates for the three months ended December 31, 2018 includes Plaza’s share of NOI of approximately $1.0
million, up from $844 thousand recorded in the prior year, mainly due to continued development at St. Jerome and construction
of a new retail pad at Gateway Mall. Share of profit of associates decreased by $590 thousand for the three months ended
December 31, 2018 compared to the three months ended December 31, 2017. The decrease was mainly due to non-cash fair
value adjustments to the underlying investment properties, mainly from capitalization rate increases.
Share of profit of associates for the twelve months ended December 31, 2018 includes Plaza’s share of NOI of approximately
$4.1 million, up approximately $300 thousand compared to the prior year, mainly due to continued development at St. Jerome
and construction of a new retail pad at Gateway Mall. Share of profit of associates decreased by $2.1 million for the twelve
months ended December 31, 2018 compared to the twelve months ended December 31, 2017. The decrease was mainly due to a
fair value loss on the disposal of land at an underlying investment property, partially offset by positive non-cash fair value
adjustments to the underlying investment properties.
Overall committed occupancy for non-consolidated investments (excluding land under development) was 98.7% at December
31, 2018, compared to 97.9% at December 31, 2017.
Distributions received from associates for the three months ended December 31, 2018 were $207 thousand compared to $313
thousand for the three months ended December 31, 2017. Distributions received from associates for the twelve months ended
December 31, 2018 were $1.3 million, compared to $1.4 million for the twelve months ended December 31, 2017.
On January 31, 2018, the Trust completed the acquisition of the remaining 90% of the issued and outstanding units of Plazacorp
- Shediac Limited Partnership and Northwest Plaza Commercial Trust that it did not already own. The units were purchased by
the Trust through the payment of $14.3 million in cash consideration. Unitholder debt outstanding in Northwest Plaza
Commercial Trust in the amount of $859 thousand was also repaid by the Trust as part of the transaction. The two entities were
previously included in investments and accounted for on an equity basis and fair value basis, respectively. Concurrent with this
transaction, the Trust sold a 50% co-ownership interest in the two underlying properties, namely, Shediac West Plaza, Shediac,
NB and Northwest Centre, Moncton, NB, to a Canadian pension fund for gross proceeds of $20.5 million ($8.7 million after
assumption of 50% of the existing mortgages). See also Part I of this MD&A under the heading “Acquisitions/Dispositions”.
During the year, 144 Denison East Limited Partnership purchased land and building in Laval, QC for redevelopment for $1.2
million.
Finance Costs
Finance costs for the three months ended December 31, 2018 were $6.7 million, compared to $6.4 million for the same period in
the prior year. Finance costs were impacted by:
(i)
(ii)
higher mortgage interest of $258 thousand, mainly due to the large amount of acquisitions; and
higher debenture interest of $112 thousand mainly due to the higher amount of convertible debentures outstanding
compared to the prior year.
Finance costs for the twelve months ended December 31, 2018 were $26.8 million, compared to $25.6 million for the same period
in the prior year. Finance costs were impacted by:
(i)
(ii)
(iii)
(iv)
higher debenture interest of $612 thousand mainly due to the issuance of $47.3 million of Series E convertible
debentures on February 21, 2018, compared with the redemption of the $34.0 million Series D convertible
debentures taking place on March 27, 2018;
higher mortgage interest of $479 thousand mainly due to the large amount of acquisitions;
higher operating line of credit interest of $188 thousand due to higher balances outstanding during the period; and
early mortgage discharge fees of $240 thousand paid on the early refinancing of loans, in order to lock in lower
rates, compared to $56 thousand incurred in the prior year.
These were partly offset by higher capitalization of interest of $239 thousand.
Administrative Expenses
Administrative expenses for the three months ended December 31, 2018 was relatively consistent with the prior year (up by only
$39 thousand) at $2.3 million.
Page 15 of 78
Plaza Retail REIT
Administrative expenses for the twelve months ended December 31, 2018 were $9.4 million, compared to $9.2 million for the
same period in the prior year. The increase was mainly due to regular salary increases.
Plaza maintains a fully internalized and integrated structure and therefore incurs certain costs related to development and
redevelopment activity that is not capitalizable for accounting purposes or for AFFO purposes, but that in Plaza’s view is not
indicative of regular income producing activities. Plaza carries between $700 and $900 thousand per year in these costs included
in administrative expenses. Other real estate entities that are not development-oriented or not fully internalized for their
development activities would not incur this level of expenses, or they might otherwise be able to capitalize these costs for
accounting purposes.
Change in Fair Value of Investment Properties
Investment properties are recorded at fair value based on a combination of external appraisals and internal valuations, whereby
appropriate capitalization rates (supplied by independent appraisers) are applied to budgeted normalized net operating income
(property revenue less property operating expenses).
The Trust recorded a fair value decrease to investment properties of $9.9 million for the three months ended December 31, 2018
compared to a fair value increase of $2.1 million for the three months ended December 31, 2017. The Trust recorded a fair value
decrease to investment properties of $18.4 million for the twelve months ended December 31, 2018 compared to a fair value
decrease of $10.4 million for the twelve months ended December 31, 2017. The weighted average capitalization rate at December
31, 2018 was 7.25% compared to 7.02% at December 31, 2017 and 7.03% at September 30, 2018. The fair value adjustment
recorded in the quarter was mainly due to the increase in capitalization rates in the quarter. For the current year to date, the fair
value decrease recorded was largely due to the increase in capitalization rates since December 31, 2017, whereas the fair value
decrease recorded in the prior year was largely due to changes in NOI.
Change in Fair Value of Convertible Debentures
The majority of the convertible debentures are publicly traded with their fair values based on their traded prices.
The fair value adjustment to convertible debentures for the three months ended December 31, 2018 was a net gain of $3.2 million
compared to a net loss of $94 thousand in the prior year. The fair value adjustment to convertible debentures for the twelve
months ended December 31, 2018 was a net gain of $3.0 million compared to a net gain of $339 thousand in the prior year.
Change in Fair Value of Class B Exchangeable LP Units
The Class B exchangeable LP units were issued effective January 1, 2015 in connection with the purchase by Plaza of the interests
of certain equity partners in eight properties located in New Brunswick and Prince Edward Island. Distributions paid on these
exchangeable units are based on the distributions paid to Plaza unitholders. The exchangeable LP units are exchangeable on a
one-for-one basis into Plaza units at the option of the holders. The fair value of these exchangeable LP units is based on the
trading price of Plaza’s units. In October 2018, 75 thousand exchangeable LP units were exchanged for Plaza units.
The fair value adjustment to Class B exchangeable LP units for the three months ended December 31, 2018 was a net gain of
$381 thousand compared to $152 thousand in the prior year. The fair value adjustment to Class B exchangeable LP units for the
twelve months ended December 31, 2018 was a net gain of $457 thousand compared to $970 thousand in the prior year.
Page 16 of 78
Plaza Retail REIT
LEASING AND OCCUPANCY
The following table represents leases expiring for the next 5 years and thereafter for Plaza’s property portfolio at December 31,
2018 (excluding developments, redevelopments and non-consolidated investments).
Year
2019
2020
2021
2022
2023
Thereafter
Subtotal
Vacant
Total
Weighted average
lease term
Strip Plazas
%
6.3
13.0
12.2
9.7
12.7
46.1
100.0
Sq Ft(1)
276,444
573,365
537,869
426,040
561,173
2,030,862
4,405,753
173,782
4,579,535
Enclosed Malls Single-User Retail
Sq Ft(1)
%
2.2
95,860
12.3
63,912
4.3
24,314
11.4
54,813
16.8
59,390
53.0
332,845
631,134
100.0
81,319
712,453
Sq Ft(1)
19,504
111,214
38,537
103,739
152,739
480,831
906,564
2,485
909,049
%
15.2
10.1
3.9
8.7
9.4
52.7
100.0
Single-User QSR (2)
Sq Ft(1)
%
9.9
21,595
7.3
15,944
13,344
6.1
22.0
48,062
16.2
35,268
38.5
83,848
218,061
100.0
10,728
228,789
7.0 years
%
6.7
12.4
10.0
10.3
13.1
47.5
100.0
Total
Sq Ft(1)
413,403
764,435
614,064
632,654
808,570
2,928,386
6,161,512
268,314
6,429,826
5.7 years
6.5 years
(1) At 100%, regardless of the Trust’s ownership interest in the properties.
(2) QSR refers to quick service restaurants.
5.9 years
3.3 years
At December 31, 2018, overall committed occupancy for the portfolio (excluding properties under development, redevelopment
and non-consolidated investments) was 96.2% compared to 95.2% at December 31, 2017. Same-asset committed occupancy was
96.0% at December 31, 2018, compared to 95.4% at December 31, 2017.
Committed occupancy for the portfolio over the last eight quarters is as follows:
Occupancy %
100
95
90
85
80
75
F17Q1
F17Q2
F17Q3
F17Q4
F18Q1
F18Q2
F18Q3
F18Q4
Page 17 of 78
Plaza Retail REIT
The weighted average contractual base rent per square foot on renewals/new leasing in 2018 versus expiries (excluding
developments, redevelopments and non-consolidated investments) is outlined in the following table:
2018
Leasing renewals (sq. ft.)
Weighted average rent ($/sq. ft.)
Strip Plazas Enclosed Malls
Single-User Retail
Single-User
QSR
401,582
$11.86
103,970
$16.68
27,282
$13.50
142,317
$27.99
Change in weighted average rent
3.4%
-%
6.6%
4.7%
Expiries that renewed (sq. ft.)
Weighted average rent ($/sq. ft.)
New leasing (sq. ft.)
Weighted average rent ($/sq. ft.)
Expiries not renewed (sq. ft.)
Weighted average rent ($/sq. ft.)
2019
Expiries (sq. ft.)
Weighted average rent ($/sq. ft.)
401,582
$11.46
195,389
$14.66
141,979
$10.38
276,444
$13.37
103,970
$16.68
65,392
$13.03
45,391
$14.85
27,282
$12.67
20,218
$24.38
9,469
$29.56
95,860
$13.00
19,504
$20.00
142,317
$26.73
1,484
$37.06
6,618
$30.39
21,595
$30.72
In addition, for the twelve months ended December 31, 2018, the Trust completed 215 thousand square feet of new and renewal
leasing deals on developments and redevelopments at market rates and 110 thousand square feet of new and renewal leasing deals
at market rates at non-consolidated investments.
During the year, the Trust finalized lease renewals on 150,000 square feet or 62 sites with its two primary KFC operators. Most
of these leases were set to expire in 2018. Stand-alone KFC restaurants make up approximately 218,000 square feet of Plaza’s
portfolio. The two KFC operators have 81 sites and represent 90% of Plaza’s total KFC square footage. The renewals have an
average rental increase in the first year of approximately 5% and an average lease term of approximately 7 years.
Plaza’s financial exposure to vacancies and lease roll-overs differs among the different retail asset types, as gross rental rates
differ by asset class. Committed occupancy by asset class (excluding non-consolidated investments) was as follows:
Committed occupancy in the strip plazas was 96.7% at December 31, 2018, compared to 95.6% at December 31, 2017.
Committed occupancy for enclosed malls was 88.6% at December 31, 2018, compared to 85.8% at December 31, 2017.
Committed occupancy for single use assets was 98.8% at December 31, 2018, compared to 100% at December 31, 2017.
Pre-leased space in active properties under development was 78.9% at December 31, 2018.
Page 18 of 78
Plaza Retail REIT
Plaza has built a portfolio with a high quality revenue stream. Plaza’s ten largest tenants based upon current monthly base rents
at December 31, 2018 represent approximately 55.4% of total base rent revenues in place.
1. Shoppers Drug Mart
2. KFC(1)
3. Dollarama
4. Canadian Tire Group(2)
5. Sobeys Group(3)
% of
Base Rent
Revenue(5)
24.9
6.7
5.0
4.0
3.5
6. TJX Group(4)
7. Staples
8. Rexall Pharma Plus
9. Bulk Barn
10. Metro/Jean Coutu
% of
Base Rent
Revenue(5)
3.3
2.9
2.0
1.7
1.4
(1) The majority is represented by 3 operators.
(2) Canadian Tire Group represents the following stores: Canadian Tire, Mark’s/L’Équipeur, Paderno and Sport Chek.
(3) Sobeys Group represents the following stores: Sobeys, IGA, Sobeys Fast Fuel and Lawtons.
(4) TJX Group represents the following stores: Winners, HomeSense, and Marshalls.
(5) Excludes developments, redevelopments and non-consolidated investments.
The Trust’s mix of tenancies, based on base rents, is primarily made up of national tenants. The graphs below exclude
developments, redevelopments and non-consolidated investments.
Local
3.7%
Regional
3.4%
Mix of Tenancy
Mix by Property Type
Non‐Retail
1.8%
National
91.1%
Single ‐
Retail
19.3%
Single ‐
QSR
8.1%
Enclosed
7.1%
Strip
65.5%
PART III
OPERATING LIQUIDITY AND WORKING CAPITAL
Cash flow, in the form of recurring rent generated from the portfolio, represents the primary source of liquidity to service debt,
to pay operating, leasing and property tax costs, and to fund distributions. Costs of development activities, which form a large
portion of accounts payable and accrued liabilities, are generally funded by a combination of debt and equity.
Cash flow from operations is dependent upon occupancy levels of properties owned, rental rates achieved, effective collection of
rents, and efficiencies in operations as well as other factors.
Plaza maintains a prudent cash distribution policy, in order to retain sufficient funds to manage the business, including ongoing
maintenance capital expenditures and debt service. New debt or equity capital raised is generally directed to acquisitions or
continuing development activities, which are discretionary, based on the availability of such capital. In setting the annual
distributions to unitholders, Plaza reviews budgets and forecasts and considers future growth prospects for the business, including
developments/redevelopments and leasing within the portfolio and considers maintenance capital expenditures and leasing costs,
among other things. Plaza may also look at other qualitative capital markets factors when determining any increase in
distributions. Plaza does not consider temporary fluctuations in cash flow due to working capital items such as the timing of
property tax installments and semi-annual debenture interest payments, in determining the level of distributions to be paid in any
given time period. Profit under IFRS is not used by Plaza when setting the annual distribution, as profit reflects, among other
things, non-cash fair value adjustments relating to the Trust’s income producing property and debt – items that are not reflective
of Plaza’s ability to pay distributions and outside of Plaza’s control.
For 2019, Plaza’s annual distributions are currently set at $0.28 per unit.
Page 19 of 78
Plaza Retail REIT
12 Months
Ended
December 31,
2018
12 Months
Ended
December 31,
2017
3 Months
Ended
December 31,
2018
(unaudited)
$ 7,281
(486)
$ 6,795
3 Months
Ended
December 31,
2017
(unaudited)
$ 6,937
(1,148)
$ 5,789
(000s)
Total distributions(1)
Less: Distribution Reinvestment Plan proceeds(2)
Cash distributions paid
$ 27,674
(2,607)
$ 25,067
(1) Total distributions include cash distributions paid and payable to unitholders, unit distributions under the Distribution Reinvestment
$ 28,997
(4,586)
$ 24,411
Plan (DRIP) and distributions on Class B exchangeable LP units classified as finance costs.
(2) Plaza’s DRIP allowed Canadian unitholders to acquire additional units through the reinvestment of distributions, otherwise receivable
in cash, and to receive a bonus distribution in units equivalent to 3% of each distribution.
Commencing with the October 2018 distribution, payable November 15, 2018, the Trust suspended its DRIP until further notice
due to the Trust’s previous announcement of a normal course issuer bid (see further details in Part III of this MD&A under the
heading “Units”. As a result, unitholders enrolled in the DRIP began receiving distribution payments in cash. If Plaza elects to
reinstate the DRIP in the future, unitholders that were enrolled in the DRIP at the time of its suspension and remain enrolled at
the time of its reinstatement will automatically resume participation in the DRIP.
Total distributions compared to cash provided by operating activities is summarized in the following table.
3 Months
Ended
December 31,
2018
(unaudited)
$ 10,605
(7,280)
3 Months
Ended
December 31,
2017
(unaudited)
$ 10,186
(6,937)
12 Months
Ended
December 31,
2018
12 Months
Ended
December 31,
2017
$ 33,622
(28,997)
$ 35,782
(27,674)
(000s)
Cash provided by operating activities(1)
Total distributions(2)
Excess of cash provided by operating activities
over total distributions
$ 8,108
(1) Cash provided by operating activities is presented net of interest paid, but excludes distributions paid on Class B exchangeable LP
$ 3,325
$ 3,249
$ 4,625
units classified as finance costs.
(2) Total distributions include cash distributions paid and payable to unitholders, unit distributions under the DRIP and distributions on
Class B exchangeable LP units classified as finance costs.
Plaza believes its current distributions are sustainable based on expected and historical results and cash flows.
Page 20 of 78
Plaza Retail REIT
CAPITAL RESOURCES, EQUITY AND DEBT ACTIVITIES
Operating and Development Facilities
(000s)
December 31, 2017(1)
Net change
December 31, 2018(1)
Interest rate
Maturity
Security
Other terms
Line reservations available for
letters-of-credit
Issued and outstanding
(1) Excludes unamortized finance charges.
$44.0 Million
Operating
$ 29,538
6,066
$ 35,604
$20.0 Million
Development
$ 2,710
8,869
$ 11,579
$15.0 Million
Development
$ 4,592
293
$ 4,885
Prime + 0.75% or
BA + 2.00%
Prime + 0.75% or
BA + 2.25%
Prime + 0.75% or
BA + 2.00%
July 31, 2020
First charges on
pledged properties
Debt service,
maximum leverage,
occupancy & equity
maintenance
covenants
July 31, 2019
First charges on
applicable pledged
development
property
Debt service &
maximum leverage
covenants
July 31, 2020
First charges on
applicable pledged
development
property
Debt service,
maximum leverage,
occupancy & equity
maintenance
covenants
$2.0 million
$0.9 million
$1.5 million
-
$0.5 million
-
Funding is secured by first mortgage charges on properties or development properties as applicable. The Trust must maintain
certain financial ratios to comply with the facilities. As of December 31, 2018, all debt covenants in respect of the above facilities
have been maintained.
Costs of development activities are generally funded by a combination of debt and equity. Timing of development activities or
whether a development project is launched at all (including those listed in Part I of this MD&A under the heading “Development
Pipeline and Acquisitions/Dispositions – Development Pipeline”) is dependent on tenant demand and availability of capital,
among other factors. Plaza’s operating facility is generally used to fund the equity portion of development projects (which usually
consists of the actual acquisition of the development projects or land). Plaza’s existing development facilities or new construction
loans entered into (generally in the case where Plaza has partners in a development) are used to fund construction costs until
permanent long-term financing is placed on the finished development. Given the rotation of development projects onto, and off
of, the development facilities and the availability of specific construction financing when required, Plaza’s facilities and its debt
capacity are sufficient to fund ongoing planned and committed development expenditures.
Mortgage Bonds
Mortgage bonds are secured by either property or cash. The mortgage bonds terms are as follows:
(000s)
Interest rate
Maturity date
Amount
Series X
5.00%
June 25, 2020
$6,000
Series XI
5.00%
July 8, 2019
$6,000
Series XII
5.50%
July 15, 2022
$3,000
In July 2017, the $3.0 million 5.50% Series IX mortgage bonds matured and were repaid. On July 15, 2017, the Trust issued the
$3.0 million 5.50% Series XII mortgage bonds.
The Series X, XI and XII mortgage bonds can be deployed up to 90% of the cost of a property under a first or second charge on
that property. If it is a second charge, the total debt, including mortgage bonds, cannot exceed 90%. These mortgage bonds can
be reallocated to different properties from time to time as required. The Trust can redeem up to one-half of the Series X and XII
Page 21 of 78
Plaza Retail REIT
mortgage bonds at par on the fourth anniversary for the Series X mortgage bonds and the second anniversary for the Series XII
mortgage bonds, being: June 25, 2019 for the Series X mortgage bonds and July 15, 2019 for the Series XII mortgage bonds.
Debentures
Convertible and non-convertible debentures are subordinate and unsecured. Convertible debentures are recorded at fair value
and changes in the fair value are recorded quarterly in profit and loss. The debenture terms are as follows:
(000s)
Interest rate
Conversion price
Par call date
Maturity date
Face amount
Convertible
Series E
5.10%
$5.65
April 1, 2022
March 31, 2023
$47,250
Convertible
Series VII
5.50%
$6.04
June 30, 2020
June 30, 2021
$5,500
Non-convertible
Series I
5.00%
n/a
n/a
May 2, 2021
$3,860
Non-convertible
Series II
5.00%
n/a
n/a
February 28, 2022
$6,000
On February 21, 2018, the Trust completed a public offering of $45 million aggregate principal amount of 5.10% convertible
unsecured subordinated debentures due March 31, 2023. The debentures are convertible at the option of the holder, into units of
the Trust at $5.65 per unit. In addition, the underwriters were granted an over-allotment option, exercisable in whole or in part
up to 30 days after closing, to purchase up to an additional $2.25 million debentures. The option was exercised on closing of the
offering on February 21, 2018. Proceeds from the offering were used to redeem the $34 million 5.75% Series D convertible
debentures on March 27, 2018, which had a par call date of December 31, 2017, with the remainder of the proceeds used to repay
amounts outstanding on the Trust’s operating line of credit.
(000s)
Redemption of Series D convertible debentures
Total
Use of Proceeds
Per
Prospectus
$ 34,000
$ 34,000
Actuals
$ 34,000
$ 34,000
Variance
$ -
$ -
The Trust extended $3.86 million of the $4.0 million of tranched Series I non-convertible debentures to May 2, 2021 on the same
terms and conditions.
On February 28, 2017, the Trust issued $6.0 million in Series II unsecured debentures with an interest rate of 5.0% per annum
maturing on February 28, 2022.
Mortgages
During 2018 the Trust obtained new long-term financing in the amount of $36.0 million (at Plaza’s consolidated share) with a
weighted average term of 7.1 years and a weighted average interest rate of 4.53%.
The Trust had a $3.0 million variable rate secured construction loan/credit facility on one of its redevelopment projects. The loan
bore interest at prime plus 1.25% or BAs plus 2.50% and matured on May 26, 2018. The loan was repaid upon maturity.
The Trust had a $907 thousand variable rate secured construction loan/credit facility on another one of its redevelopment projects.
The loan bore interest at prime plus 1.00% or BAs plus 2.50% and matured on September 15, 2018. The loan was repaid upon
maturity.
The Trust has a $6.6 million variable rate secured construction loan/credit facility in connection with the acquisition of a
redevelopment project. The loan bears interest at prime plus 2.25% or BAs plus 3.75%, reducing to prime plus 1.25% or BAs
plus 2.75% on the second draw (once construction commences), and matures on November 30, 2019. At December 31, 2018,
$1.95 million has been drawn on the loan.
In January 2018, the Trust obtained a $14.9 million variable rate secured construction loan/credit facility in connection with the
acquisition of a redevelopment project. Upon the sale of a 50% co-ownership interest in the underlying property in the second
quarter of 2018, 50% of this facility was assumed by the partner. The loan bears interest at prime plus 1.25% or BAs plus 2.50%,
and matures on January 10, 2020. At December 31, 2018 at Plaza’s proportionate share, $6.0 million has been drawn on the loan.
Page 22 of 78
Plaza Retail REIT
In January 2018, the Trust closed on a short-term bridge financing related to a property acquisition in the amount of $3.0 million
at 6.0% for 6 months. The loan was repaid upon maturity.
Subsequent to year end, long-term financing was obtained in the amount of $11.0 million with a term of 10 years and an interest
rate of 3.67%. This property is held in a non-consolidated investment of which the Trust owns 25%.
The Trust’s strategy is to balance maturities and terms on new debt with existing debt maturities to minimize maturity exposure
in any one year and to reduce overall interest costs. Maintaining or improving the average cost of debt will be dependent on
market conditions at the time of refinancing. Plaza’s debt strategy involves maximizing the term of long-term debt available
based on the tenant profiles for the assets being financed, at current market rates, in order to stabilize cash flow available for
reinvestment and distribution payments.
As a conservative interest rate risk management practice, the Trust’s use of floating-rate debt is generally limited to its operating
line (to fund ongoing operations and acquisitions) and its development lines/construction loans (until long term fixed-rate
mortgage financing is placed on the completed development projects).
The following is a maturity chart of mortgages by year:
Mortgage Maturities
45.8%
17.6%
12.3%
8.2%
7.1%
9.0%
l
a
p
i
c
n
i
r
P
l
a
t
o
T
f
o
%
50.00%
45.00%
40.00%
35.00%
30.00%
25.00%
20.00%
15.00%
10.00%
5.00%
0.00%
2019
2020
2021
2022
2023
After 5 years
$46.5M $66.5M $30.9M $26.8M $33.9M $173.0M
4.01% 4.70%
Weighted average expiring rate on long-term fixed-rate mortgages
4.94% 4.35% 5.00%
4.22%
The weighted average term to maturity for the long-term mortgages is 5.5 years. The average remaining repayment (amortization)
period on long-term mortgage debt is 22.8 years.
Page 23 of 78
Plaza Retail REIT
Debt Service Ratios
Plaza’s summary of EBITDA and debt service ratios for the three and twelve months ended December 31, 2018, compared to the
three and twelve months ended December 31, 2017 is presented below:
(000s – except debt service ratios)
Profit and total comprehensive income for the period
Add (deduct):
Income taxes
Finance costs
Finance costs - convertible debenture issuance costs
Fair value adjustment to investment properties
Fair value adjustment to investments
Fair value adjustment to convertible debentures
Fair value adjustment to Class B exchangeable LP units
Fair value adjustment to restricted share units
Fair value adjustment to interest rate swaps and bond
forwards
Equity accounting adjustment for interest rate swaps
and bond forwards
EBITDA
Finance costs(1)
Periodic mortgage principal repayments
Total debt service
Debt service ratios
Interest coverage ratio
Debt coverage ratio
3 Months
Ended
December 31,
2018
(unaudited)
3 Months
Ended
December 31,
2017
(unaudited)
12 Months
Ended
December 31,
2018
12 Months
Ended
December 31,
2017
$ 1,068
$ 9,530
$ 12,212
$ 23,447
(537)
6,666
-
9,865
1,209
(3,159)
(381)
(28)
50
9
$ 14,762
$ 6,629
2,698
$ 9,327
295
6,405
-
(2,124)
600
94
(152)
(5)
-
(23)
$ 14,620
$ 6,348
2,606
$ 8,954
(175)
26,752
2,280
18,405
4,119
(3,022)
(457)
(30)
(39)
(49)
$ 59,996
$ 26,413
10,730
$ 37,143
119
25,646
-
10,392
1,876
(339)
(970)
(17)
-
(138)
$ 60,016
$ 25,387
10,416
$ 35,803
2.23 times
1.58 times
2.30 times
1.63 times
2.27 times
1.62 times
2.36 times
1.68 times
(1) Excludes mark-to-market adjustments, loan defeasance and early mortgage discharge fees and distributions on Class B
exchangeable LP units recorded in finance costs.
For the three months ended December 31, 2018, the interest and debt coverage ratios were lower than the prior year mainly due
to higher mortgage interest from new developments financed. For the twelve months ended December 31, 2018, the interest and
debt coverage ratios were lower than the prior year mainly due to $1.6 million in lease buyout revenues recorded in the prior year,
as well as higher debenture interest expense due to the fact that a higher face value of Series E convertible debentures were issued
on February 21, 2018, versus the redemption of the Series D convertible debentures (which were redeemed on March 27, 2018).
The debt coverage and interest coverage ratios exceed the requirements under borrowing arrangements.
Debt to Gross Assets
Plaza’s debt to gross assets is presented below:
Debt to gross assets:
Including convertible debentures(1)
Excluding convertible debentures
(1) Convertible debentures valued at cost.
December 31,
2018
December 31,
2017
54.7%
49.7%
52.2%
48.4%
Including convertible debentures, the current year ratio was impacted by the issuance of the $47.25 million Series E convertible
debentures versus the repayment of the $34.0 million Series D convertible debentures. The Trust’s general philosophy is to
maintain its leverage at no more than approximately 50% excluding convertible debentures and approximately 55% including
Page 24 of 78
Plaza Retail REIT
convertible debentures. By its Declaration of Trust, Plaza is limited to an overall indebtedness ratio of 60% excluding convertible
debentures and 65% including convertible debentures.
Units
If all rights to convert units under the provisions of convertible debt were exercised and exchangeable LP units were exchanged,
the impact on units outstanding would be as follows:
At February 26, 2019 (000s) (unaudited)
Current outstanding units
Class B exchangeable LP units
Series VII convertible debentures
Series E convertible debentures
Total adjusted units outstanding
Units
102,824
1,191
911
8,363
113,289
Effective September 28, 2018, the Trust instituted a normal course issuer bid (“NCIB”). Pursuant to the NCIB, the Trust can
purchase through the facilities of the TSX and any alternative trading system in Canada, from time to time over the next twelve
months, if considered advisable, up to an aggregate of 8,025,793 of the Trust’s issued and outstanding units. All units that are
purchased under the NCIB will be cancelled. The NCIB will conclude on the earlier of the date on which purchases under the
bid have been completed and September 27, 2019. Daily purchases made by the Trust may not exceed 14,623 units, being 25%
of the average daily trading volume of the units on the TSX for the six month period ended August 31, 2018, subject to certain
prescribed exemptions and any block purchase made in accordance with the rules of the TSX. No purchases under the NCIB
have been made to date.
Land Leases
Return on invested cash or equity is a measure Plaza uses to evaluate development and strategic acquisitions. Investing in a
project subject to a land lease reduces the cash equity required for an individual project and increases the number of projects
which can be undertaken with available capital. This spreads risk and enhances overall unitholder return. In some instances, use
of a land lease will enhance project feasibility where a project might not otherwise be undertaken without use of a land lease.
Currently Plaza has 26 long-term land leases (affecting 25 properties) with total annual rent of $3.3 million. One of the land
leases relates to shared parking facilities. The other properties under land lease represent approximately 8.8% of the Trust’s fair
value of investment properties and investments. Land leases expire (excluding any non-automatic renewal periods) on dates
ranging from 2022 to 2084 with an average life of 40 years, with some of the leases also containing non-automatic renewal
options, extending the average life of the leases to 65 years including these non-automatic renewal options. Of the 26 land leases,
10 of the land leases have options to purchase, generally at fair market value.
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Plaza Retail REIT
Gross Capital Additions Including Leasing Fees:
(000s)
Existing properties
Leasing commissions
Other leasing costs
Maintenance capital expenditures
Total capital additions – existing properties
Development/redevelopment properties
Leasing commissions
Other leasing costs
Capital additions
Total capital additions -
developments/redevelopments
Total gross additions per statements of cash flows
Reconciliation of leasing costs for AFFO
purposes
Leasing costs – existing properties per above
Internal leasing salaries
Total leasing costs – existing properties for
AFFO purposes
COMMITMENTS AND CONTINGENT LIABILITIES
Commitments
3 Months
Ended
December 31,
2018
(unaudited)
3 Months
Ended
December 31,
2017
(unaudited)
12 Months
Ended
December 31,
2018
(unaudited)
12 Months
Ended
December 31,
2017
(unaudited)
$ 53
456
509
75
584
225
3,713
3,538
7,476
$ 8,060
$ 39
157
196
287
483
82
1,465
2,409
3,956
$ 4,439
$ 338
1,836
2,174
869
3,043
654
11,424
10,346
$ 157
605
762
1,098
1,860
161
2,172
16,556
22,424
$ 25,467
18,889
$ 20,749
$ 509
221
$ 196
228
$ 2,174
1,199
$ 762
1,021
$ 730
$ 424
$ 3,373
$ 1,783
The Trust has $20.8 million in short-term commitments in respect of development activities. Management believes that Plaza
has sufficient unused bank line availability, and/or mortgage bond deployment potential, to fund these commitments.
The Trust’s estimated commitments at December 31, 2018 in respect of certain projects under development and other long-term
obligations are as follows:
Year 1
2019
Year 2
2020
Year 3
2021
Year 4
2022
Year 5
2023
After 5
Years
Face Value
Total
Mortgages – periodic payments
Mortgages – due at maturity
Development lines of credit
Construction loans
Bank indebtedness
Mortgage bonds payable
Debentures(1)
Operating land leases
Development activities
Total contractual obligations
(1) Stated at face value.
Contingent Liabilities
$10,371
46,523
11,579
1,950
-
6,000
-
3,272
20,791
$8,192
30,905
-
-
-
-
9,360
3,337
-
$100,486 $132,078 $51,794
$9,753
66,532
4,885
5,988
35,604
6,000
-
3,316
-
$7,928
26,844
-
-
-
3,000
6,000
3,327
-
$47,099
$6,376
33,924
-
-
-
-
47,250
3,293
-
$90,843
$24,945
173,019
-
-
-
-
-
124,636
-
$322,600
$67,565
377,747
16,464
7,938
35,604
15,000
62,610
141,181
20,791
$744,900
The Trust has contingent liabilities as original borrower on three mortgages partially assumed by the purchasers of the underlying
properties, where a 75% interest in each was sold in 2009. These commitments are subject to indemnity agreements. These sales
Page 26 of 78
Plaza Retail REIT
did not relieve the Trust’s obligations as original borrower in respect of these mortgages. The debt subject to such guarantees at
December 31, 2018 totals $5.1 million with a weighted average remaining term of 4.1 years. As well, the Trust has contingent
liabilities as original borrower on eight mortgages partially assumed by the purchasers of the underlying properties, where a 50%
interest in each was sold in November 2017. These commitments are subject to indemnity agreements. These sales did not
relieve the Trust’s obligations as original borrower in respect of these mortgages. The debt subject to such guarantees at
December 31, 2018 totals $9.8 million with a weighted average remaining term of 5.0 years.
The Trust guarantees mortgage debt in excess of its pro-rata position in joint ventures and non-consolidated subsidiaries in the
amount of $14.2 million. As well, the Trust has a guarantee in excess of its ownership percentage to the mortgagee on one
property in the amount of $523 thousand. This amount is subject to cross-guarantees by the other co-owners.
PART IV
SUMMARY OF SELECTED QUARTERLY INFORMATION
Plaza’s summary of selected quarterly information for the last eight quarters is presented below:
9.0¢
7.9¢
7.8¢
7.9¢
8.2¢
$15,489
$16,308
$16,125
$17,248
$15,740
$16,699
$15,360
$7,327
7.0¢
$6,983
7.0¢
$9,530
6.75¢
$1,068
7.0¢
$7,611
6.75¢
$(3,166)
7.0¢
Q3’18
$27,077
$25,723
Q2’18
$28,639
$26,260
Q1’18
$23,558
$25,966
Q4’17
$26,461
$25,679
Q3’17
$26,817
$25,113
Q2’17
$27,839
$26,755
Q4’18
$26,162
$26,068
(000s except per unit
and percentage data)
(unaudited)
Total revenue(1)
Property rental revenue
Net property operating
income
Profit (loss) and total
comprehensive income
(loss)
Distributions per unit
Funds from operations
per unit – basic
Funds from operations
per unit – diluted
Adjusted funds from
operations per unit –
basic
Adjusted funds from
operations per unit –
diluted
Distributions as a
percentage of basic FFO
Distributions as a
percentage of basic
AFFO
99.5%
Gross Leasable Area (000s of sq. ft.) (at 100% and excluding non-consolidated investments and properties under development/redevelopment)
Total income
producing
properties
Occupancy % (at 100% and excluding non-consolidated investments and properties under development/redevelopment)
Total income
producing
properties
(1)
Includes investment income, other income and share of profit of associates.
$6,027
6.75¢
89.0%
97.5%
96.2%
89.4%
88.1%
71.0%
85.0%
75.4%
82.2%
77.4%
97.0%
95.1%
95.9%
95.4%
95.4%
95.2%
95.9%
81.6%
89.1%
77.2%
5,547
5,542
6,065
6,326
5,525
6,358
6,430
8.3¢
7.8¢
7.6¢
9.5¢
7.0¢
8.2¢
8.7¢
9.4¢
7.2¢
7.8¢
7.2¢
8.9¢
8.2¢
8.9¢
7.2¢
7.0¢
8.7¢
7.9¢
7.2¢
7.6¢
8.2¢
8.3¢
8.9¢
Q1’17
$24,846
$25,340
$15,313
$279
6.75¢
8.1¢
8.1¢
7.6¢
7.6¢
83.7%
88.9%
5,516
96.2%
During the last eight quarters occupancy has remained high which contributes to stability of cash flow. Significant fluctuations
in profit and loss are mainly due to non-cash fair value adjustments on the Trust’s investment properties and debt instruments.
Fair value adjustments are based on market parameters for which the Trust has no control or ability to predict.
Some of Plaza’s leases have common cost recoveries from tenants linked to the consumer price index (CPI) or otherwise have
caps on operating costs. At December 31, 2018, approximately 47.4% of the Trust’s leased area is tied to a CPI cost recovery
formula. As well, anchor tenant leases may restrict common area maintenance (CAM) cost recoveries. As a result of all of these
factors, seasonal fluctuations in NOI, FFO and AFFO occur primarily due to winter costs as well as yearly repair and maintenance
activities which typically occur in spring and early summer which may create inconsistencies in quarterly recovery revenues
compared with quarterly expenses.
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Plaza Retail REIT
PART V
RISKS AND UNCERTAINTIES
All property investments are subject to a degree of risk and uncertainty. Property investments are affected by various factors
including general economic conditions and local market circumstances. Local business conditions such as oversupply of space
or a reduction in demand for space particularly affect property investments. Management attempts to manage these risks through
geographic and retail asset class diversification in the portfolio. At December 31, 2018, the Trust held interests in 287 properties
spread geographically across Canada. Some of the more important risks are outlined below. See Financial Risk Management
Note 28 to the December 31, 2018 Consolidated Financial Statements of the Trust for further details. Also see the Trust’s Annual
Information Form dated March 22, 2018 for a complete list of risks and uncertainties.
Interest Rate, Financing and Refinancing Risk
Management attempts to lock in cash returns on assets for the longest period possible, consistent with exposure to debt maturing
and leases expiring in any given year. Matching as closely as possible the debt term on a particular asset with its average lease
term, helps ensure that any interest rate increases could be offset by increases in rental rates.
The Trust mitigates interest rate risk by maintaining the majority of its debt at fixed rates. Floating rate debt is typically used on
its operating line of credit and for development or redevelopment projects as interim financing, until the projects are completed
and are then able to attract the appropriate long-term financing. The hypothetical impact of a 1% change in interest rates would
be approximately $600 thousand. The Trust mitigates its exposure to fixed-rate interest risk on its debt by staggering maturities
in order to avoid excessive amounts of debt maturing in any one year. If market conditions warrant, the Trust may attempt to
renegotiate its existing debt to take advantage of lower interest rates. At existing financing rates, the Trust is able to obtain
positive returns from debt financing. The quality of the Trust’s projects and properties makes management believe it can obtain
suitable long-term financing for those projects on completion of development as well as those properties with maturing existing
debt. The Trust has an ongoing requirement to access the debt markets and there is a risk that lenders will not refinance such
maturing debt on terms and conditions acceptable to the Trust or on any terms at all. Management believes that all debts maturing
in 2019 or properties needing long term financing in 2019 will be able to be financed or refinanced as they come due.
From time to time Plaza may enter into derivative instruments to hedge the cash flow variability on future interest payments on
anticipated mortgage financings from changes in interest rates until the time the mortgage interest rate is set.
Credit Risk
Credit risk mainly arises from the possibility that tenants may experience financial difficulty and will be unable to fulfill their
lease commitments. Management mitigates this risk by ensuring that Plaza’s tenant mix is diversified and heavily weighted to
national tenants. Plaza also maintains a portfolio that is diversified geographically so that exposure to local business is lessened
and Plaza limits loans granted under lease arrangements to credit-worthy mainly national tenants.
Currently one tenant, Shoppers Drug Mart, represents 24.9% of current monthly base rents in place, while franchisees of KFC
represent 6.7%. The top 10 tenants collectively represent approximately 55.4% of current monthly base rents in place. National
and regional tenants represent 94.5% of the tenant base, based on base rents in place.
Lease Roll-Over and Occupancy Risk
Lease roll-over risk arises from the possibility that Plaza may experience difficulty renewing leases as they expire or in re-leasing
space vacated by tenants.
Plaza’s principal management of occupancy risk is the skewing of tenancies towards national tenants, the signing of longer term
leases and significant pre-leasing of development space. As well, management attempts to stagger the lease expiry profile so that
Plaza is not faced with a disproportionate amount of square footage of leases expiring in any one year. Management further
mitigates this risk by maintaining a diversified portfolio mix by geographic location and ensuring that the Trust maintains a well-
staffed and highly skilled leasing department to deal with all leasing issues.
One of Plaza’s performance drivers is related to occupancy levels. The majority of Plaza’s leases in place are referred to as “net
leases”, meaning tenants reimburse Plaza fully for their share of property operating costs (subject to consumer price index
adjustments in many cases) and realty taxes. Many of Plaza’s operating costs and realty taxes are not reduced by vacancy.
Certain costs such as utilities and janitorial costs would not decline with a decline in occupancy.
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Plaza Retail REIT
The hypothetical impact to NOI of a change in occupancy of 1% would be approximately $600 thousand to $1.0 million per
annum. The analysis does not identify a particular cause of such changing occupancy and as a result, it does not reflect the
actions management may take in relation to the changes.
Development and Acquisition Risk
Plaza’s external growth prospects will depend in large part on identifying suitable development, redevelopment and acquisition
opportunities, pursuing such opportunities, conducting necessary due diligence, consummating acquisitions (including obtaining
necessary consents) and effectively operating the properties acquired or developed by the Trust. If Plaza is unable to manage its
growth and integrate its acquisitions and developments effectively, its business, operating results and financial condition could
be adversely affected. Developments and acquisitions may not meet operational or financial expectations due to unexpected costs
or market conditions, which could impact the Trust’s performance.
Environmental Risk
Plaza is subject to various laws relating to the environment which deal primarily with the costs of removal and remediation of
hazardous substances such as asbestos or petroleum products. Environmental risk is relevant to Plaza’s ability to sell or finance
affected assets and could potentially result in liabilities for the costs of removal and remediation of hazardous substances or
claims against Plaza. Management is not aware of any material non-compliance with environmental laws or regulations with
regard to Plaza’s portfolio, or of any material pending or threatened actions, investigations or claims against Plaza relating to
environmental matters. Plaza manages environmental exposures in a proactive manner during every aspect of the property life
cycle including extensive due diligence in respect of environmental risk before purchase or development.
Status of the REIT
Plaza is required to comply with specific restrictions regarding its activities and the investments held by it in order to maintain
its mutual fund trust status. Should Plaza cease to qualify as a mutual fund trust, the consequences could be material and adverse.
As well, Plaza conducts its affairs in order to qualify as a REIT under applicable tax statutes so that it retains its status as a flow-
through vehicle for the particular year. Should Plaza not meet the conditions to qualify as a REIT in a particular year, it may be
subject to tax similar to a corporation, which may have an adverse impact on it and its unitholders, on the value of the units and
on its ability to undertake financings and acquisitions, and its distributable cash may be materially reduced. Management believes
that it complies with both the mutual fund trust rules and the REIT rules.
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Plaza Retail REIT
PART VI
RELATED PARTY TRANSACTIONS
Notes Payable to Related Parties
The following non-interest bearing notes existed at the time of acquisition of properties in September 2000. Certain of the notes
are owed to parties controlled directly or indirectly by Michael Zakuta. The notes are repayable on sale or refinancing of the
related asset.
(000s)
Non-interest bearing notes:
Entities owned (directly or indirectly), controlled or significantly
influenced by Michael Zakuta, President, Chief Executive Officer
and trustee of the Trust
Bonds and Debentures Held
December 31,
2018
December 31,
2017
$ 261
$ 261
The trustees, directly or indirectly, held mortgage bonds or debentures of the Trust as follows (stated at face value):
(000s)
Edouard Babineau
Earl Brewer
Stephen Johnson
Michael Zakuta
Total
December 31,
2018
$ 150
450
300
100
$ 1,000
December 31,
2017
$ 150
425
300
100
$ 975
Other key management personnel own $20 thousand in mortgage bonds of the Trust at December 31, 2018.
Other Related Party Transactions
TC Land LP, an entity controlled by Michael Zakuta and Earl Brewer, leases nine parcels of land to Plaza at a total annual rent
of $1.2 million. The land leases expire at various times from October 2043 to November 2047, subject to options to renew. All
of these land leases have options to purchase, of which one is at a fixed price and the others are at fair market value. The business
purpose of the leases was to enhance levered equity returns on the affected assets.
Earl Brewer and Michael Zakuta, directly or indirectly, hold interests in common with the Trust’s 25% interest in the Gateway
Mall, Sussex, NB. A subsidiary of the Trust manages the mall. There is a $60 thousand accounts receivable balance owing to
the Trust for property management, leasing and development fees. For the twelve months ended December 31, 2018, property
management, development and leasing fees of $212 thousand were earned by a subsidiary of the Trust from this property. There
is a $405 thousand note receivable owing to the Trust relating to short-term funding requirements for the construction of a retail
pad on the property.
Until January 31, 2018, Edouard Babineau, Earl Brewer and Michael Zakuta, directly or indirectly, held interests in common
with the Trust’s 10% interest in Northwest Plaza Commercial Trust, the owner of Northwest Centre, Moncton, NB. A subsidiary
of the Trust manages the centre. On January 31, 2018, the Trust completed the acquisition of the remaining 90% of the issued
and outstanding units of Northwest Plaza Commercial Trust that it did not already own. A special committee of independent
trustees of the Trust was formed to review and approve the related party transaction. For the one month ended January 31, 2018,
property management, development and leasing fees of $18 thousand were earned by a subsidiary of the Trust from this property.
The Montreal office of Plaza Group Management Limited (a wholly-owned subsidiary of the Trust) shares office space with a
company indirectly owned by Michael Zakuta in an office building owned by that related party. No basic minimum rent is
payable for the space.
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Plaza Retail REIT
Edouard Babineau, Earl Brewer and Michael Zakuta, directly or indirectly, hold interests in common with the Trust’s 20% interest
in Mountainview Plaza, Midland, ON and Park Street Plaza, Kenora, ON. A subsidiary of the Trust manages the malls. At
December 31, 2018 there is $5.6 million owed by the properties to the Trust which is recorded in notes and advances
receivable. As well, there is a $5 thousand accounts receivable balance owing to the Trust for property management, leasing,
development and financing fees. For the twelve months ended December 31, 2018, property management, leasing and
development fees of $453 thousand were earned by a subsidiary of the Trust from these properties.
Until January 31, 2018, Edouard Babineau, Earl Brewer, Denis Losier and Michael Zakuta, directly or indirectly, held interests
in common with the Trust’s 10% interest in Shediac West Plaza, Shediac, NB. A subsidiary of the Trust manages the property.
On January 31, 2018, the Trust completed the acquisition of the remaining 90% of the issued and outstanding units of Plazacorp
– Shediac Limited Partnership that it did not already own. A special committee of independent trustees of the Trust was formed
to review and approve the related party transaction. For the one month ended January 31, 2018, property management, leasing
and development fees of $2 thousand were earned by a subsidiary of the Trust from this property.
Earl Brewer and Michael Zakuta, directly or indirectly, hold interests in common with the Trust’s 50% interest in two single-use
properties located in Amherstview and Port Perry, ON. A subsidiary of the Trust manages the properties. For the twelve months
ended December 31, 2018, property management fees of $5 thousand were earned by a subsidiary of the Trust from these
properties.
Edouard Babineau, Earl Brewer, James Petrie, Barbara Trenholm and Michael Zakuta, directly or indirectly, hold interests in
common with the Trust’s 25% interest in KGH Plaza, Miramichi, NB, a single-use property located at 681 Mountain Road,
Moncton, NB, a single-use property located at 201 Main Street, Sussex, NB and Robie Street Truro Plaza, Truro, NS. A subsidiary
of the Trust manages the properties. At December 31, 2018 there is a $5 thousand accounts receivable balance owing to the Trust
for property management, leasing and development fees. For the twelve months ended December 31, 2018, property
management, leasing and development fees of $168 thousand were earned by a subsidiary of the Trust from these properties.
Edouard Babineau, Earl Brewer and Michael Zakuta, directly or indirectly, hold interests in common with the Trust’s 50% interest
in Scott Street Plaza, St. Catharines, ON, and five single-use properties located at St. Joseph’s Boulevard, Orleans, ON, Dufferin
and Wilson, Perth, ON, Ontario Street Port Hope, Port Hope, ON, Civic Centre Road, Petawawa, ON and 615 King Street,
Gananoque, ON. A subsidiary of the Trust manages the properties. For the twelve months ended December 31, 2018, property
management fees of $32 thousand were earned by a subsidiary of the Trust from these properties.
Effective December 1, 2017, Edouard Babineau, Earl Brewer, Denis Losier and Michael Zakuta, directly or indirectly, hold
interests in common with the Trust’s 50% interest in the following eight properties: Boulevard Hebert Plaza and Victoria Street
Plaza in Edmundston, NB; Grand Falls Shopping Center and Madawaska Road Plaza in Grand Falls, NB; Connell Road Plaza,
Woodstock, NB; Welton Street Plaza, Sydney, NS; and Pleasant Street Plaza and Starrs Road Plaza in Yarmouth, NS. A
subsidiary of the Trust manages the properties. At December 31, 2018 there is a $9 thousand accounts receivable balance owing
to the Trust for property management fees. For the twelve months ended December 31, 2018, property management, leasing and
development fees of $125 thousand were earned by a subsidiary of the Trust from these properties.
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Plaza Retail REIT
PART VII
DISCLOSURE CONTROLS AND PROCEDURES AND INTERNAL CONTROLS OVER FINANCIAL
REPORTING
Disclosure controls and procedures (“DC&P”) are intended to provide reasonable assurance that material information is gathered
and reported to senior management to permit timely decisions regarding public disclosure. Internal controls over financial
reporting (“ICFR”) are intended to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with IFRS. The Trust maintains appropriate DC&P and
ICFR to ensure that information disclosed externally is complete, reliable and timely.
A control system, no matter how well conceived and operated, can provide only reasonable and not absolute assurance that the
objectives of the control system are met. As a result of the inherent limitations in all control systems, no evaluation of controls
can provide absolute assurance that all control issues, including instances of fraud, if any, have been detected. These inherent
limitations include, amongst other items: (i) that management’s assumptions and judgments could ultimately prove to be incorrect
under varying conditions and circumstances; or (ii) the impact of isolated errors.
Additionally, controls may be circumvented by the unauthorized acts of individuals, by collusion of two or more people, or by
management override. The design of any system of controls is also based, in part, upon certain assumptions about the likelihood
of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future
conditions.
The Trust’s Chief Executive Officer and Chief Financial Officer evaluated, or under their supervision caused to be evaluated, the
design and operating effectiveness of the Trust’s DC&P and ICFR at December 31, 2018. Based on that evaluation they
determined that the Trust’s DC&P and ICFR were appropriately designed and were operating effectively based on the criteria
established in the Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the
Treadway Commission.
During the twelve months ended December 31, 2018, there were no changes in the Trust’s ICFR that occurred that have materially
affected, or are reasonably likely to materially affect, the Trust’s ICFR.
CRITICAL ACCOUNTING POLICIES
Critical Accounting Estimates
The preparation of the Trust’s Consolidated Financial Statements requires management to make judgments, estimates and
assumptions that affect the reported amounts of certain assets and liabilities at the reporting date and the reported amounts of
revenues and expenses during the reporting period. The significant estimates and judgments include the assessment of fair values,
the discount rates used in the valuation of the Trust’s assets and liabilities, capitalization rates, the relative credit worthiness of
the Trust to its counterparties, the determination of the accounting basis for investments and joint arrangements, the amount of
borrowing costs to capitalize to properties under development and the selection of accounting policies.
(i)
Investment properties
One significant judgment and key estimate that affects the reported amounts of assets at the date of the Consolidated Financial
Statements and the reported amounts of profit or loss during the period, relates to property valuations. Investment properties,
which are carried on the consolidated statements of financial position at fair value, are valued either by the Trust or by external
valuators. The valuation of investment properties is one of the principal estimates and uncertainties of the financial statements.
The valuations are based on a number of assumptions, such as appropriate discount rates and capitalization rates and estimates
of future rental income, operating expenses and capital expenditures. These investment properties are sensitive to fluctuations in
capitalization and discount rates.
Specifically, the fair value of investment properties is based on a combination of external appraisals and internal valuations as
noted below. Management undertakes a quarterly review of the fair value of its investment properties to assess the continuing
validity of the underlying assumptions, such as cash flows and capitalization rates. Where increases or decreases are warranted,
the Trust adjusts the fair values of its investment properties. Related fair value gains and losses are recorded in profit and loss in
the period in which they arise.
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Plaza Retail REIT
(a)
External appraisals
Independent appraisals are obtained in the normal course of business as refinancing activities require them, and as applicable, the
fair value of various investment properties is based on these external appraisals.
(b)
Internal approach – direct capitalization income approach
Under this approach the Trust determines the fair value based upon capitalization rates applied to budgeted normalized net
operating income (property revenue less property operating expenses). Normalized net operating income adjusts net operating
income for things like market property management fees, or in the case of development properties, to reflect full intended
occupancy (less a normal vacancy allowance). The key assumption is the capitalization rate for each specific property. The
Trust receives quarterly capitalization rate matrices from an external independent appraiser. The capitalization rate matrices
provide a range of rates for various geographic regions and for various types and qualities of properties within each region. The
Trust utilizes capitalization rates within the range of rates provided. To the extent that the externally provided capitalization rate
ranges change from one reporting period to the next or should another rate within the provided ranges be more appropriate than
the rate previously used, the fair value of the investment properties would increase or decrease accordingly.
At December 31, 2018 a decrease of 0.25% in the capitalization rates used to determine the fair value of investment properties
would have resulted in an increase in investment properties of approximately $35.2 million. An increase of 0.25% in the
capitalization rates used would have resulted in a decrease in investment properties of approximately $32.8 million.
FUTURE ACCOUNTING POLICY CHANGES
The following standards, and amendments to standards and interpretations under IFRS, are not yet effective for the year ended
December 31, 2018, and have not been applied in preparing the Consolidated Financial Statements. Please also refer to Note 3
to the Consolidated Financial Statements for the year ended December 31, 2018 for additional details about future accounting
policy changes.
(i)
Leases
In January 2016, the IASB issued IFRS 16, Leases (“IFRS 16”). The new standard replaces existing lease guidance in IFRS and
related interpretations, and requires lessees to bring most leases on-balance sheet. Lessor accounting remains similar to the current
standard and the distinction between operating and finance leases is retained. The new standard is effective beginning January 1,
2019.
The Trust has investment properties located on land which is leased. Under current IFRS 17, Leases, these leases are accounted
for as operating leases and the related lease payments are expensed. It is expected that under the new lease standard, a right-of-
use (“ROU”) asset and a lease obligation liability will be recorded along with the corresponding financing charges. The ROU
asset will be accounted for as investment property, as these land leases meet the definition of investment property under IAS 40.
Management has estimated the liability and corresponding ROU asset to be approximately $60 - $70 million.
The nature and timing of the related expenses will change as IFRS 16 replaces the straight-line operating lease expense with
interest expense on lease liabilities. Changes in the fair value of the ROU asset will be recorded within change in fair value of
investment properties.
(i)
IFRIC Interpretation 23, Uncertainty over Income Tax Treatments
In June 2017, the IASB issued IFRIC 23, Uncertainty over income tax treatments (“IFRIC 23”). IFRIC 23 clarifies application
of recognition and measurement requirements in IAS 12, Income taxes when there is uncertainty over income tax treatments.
IFRIC 23 is effective for annual reporting periods beginning on or after January 1, 2019 with early adoption permitted. IFRIC
23 requires the Trust to contemplate whether uncertain tax treatments should be considered separately or together as a group,
based on which approach provides better predictions of the resolution, and to determine if it is probable that the tax authorities
will accept the uncertain tax treatment or, if it is not probable that the uncertain tax treatment will be accepted, measure the
uncertainty based on the most likely amount or expected value, depending on which method better predicts the resolution of the
uncertainty. The Trust will adopt IFRIC 23 in its consolidated financial statements for the annual period beginning January 1,
2019. The Trust does not expect the adoption of IFRIC 23 to have a material impact on the consolidated financial statements.
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Plaza Retail REIT
EXPLANATION OF NON-IFRS MEASURES USED IN THIS DOCUMENT
The below-noted measures are not defined by IFRS, and therefore should not be considered as alternatives to profit or net income
calculated in accordance with IFRS.
Funds From Operations (FFO) and Adjusted Funds From Operations (AFFO) are not IFRS financial measures. FFO and
AFFO are industry terms commonly used in the real estate industry and their calculations are prescribed in publications of the
Real Property Association of Canada (REALpac). Plaza calculates FFO and AFFO in accordance with REALpac’s publications.
In late 2016, REALpac undertook an initiative to prescribe definitions for certain non-IFRS financial measures used in the real
estate industry, such as AFFO (whereas previously a prescribed definition only existed for FFO). The new guidelines were issued
in March 2017 and Plaza has adopted the new definition for AFFO, as this is a non-IFRS financial measure that has always been
used and reported by Plaza.
FFO and AFFO as calculated by Plaza may not be comparable to similar titled measures reported by other entities. FFO is an
industry standard widely used for measuring operating performance and is exclusive of unrealized changes in the fair value of
investment properties, deferred income taxes and gains or losses on property dispositions. AFFO is an industry standard widely
used for measuring recurring or sustainable economic operating performance and AFFO further primarily adjusts FFO for
operating capital and leasing (both internal and external) requirements that must be made merely to preserve the existing rental
stream. Capital expenditures which generate a new investment or revenue stream, such as the development of a new property or
the construction of a new retail pad during property expansion or intensification would not be included in determining AFFO.
See the reconciliation of FFO and AFFO to profit for the period attributable to unitholders in Part II of this MD&A under the
heading “Property and Corporate Financial Performance”.
Plaza considers FFO and AFFO meaningful additional measures as they adjust for certain non-cash and other items that do not
necessarily provide an appropriate picture of the Trust’s recurring performance. They more reliably show the impact on operations
of trends in occupancy levels, rental rates, net property operating income, interest costs and sustaining capital expenditures
compared to profit determined in accordance with IFRS. As well, FFO and AFFO allow some comparability amongst different
real estate entities using the same definition of FFO and AFFO.
FFO per unit and AFFO per unit are not IFRS financial measures. Plaza calculates FFO per unit and AFFO per unit as FFO or
AFFO divided by the weighted average number of units outstanding.
Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) is not an IFRS financial measure. EBITDA,
as calculated by Plaza, may not be comparable to similarly titled measures reported by other entities. EBITDA is used in
calculations that measure the Trust’s ability to service debt. Its calculation is profit before finance costs, income tax expense,
gains/losses on property dispositions, unrealized changes from fair value adjustments, transaction costs expensed as a result of
the purchase of a business or properties, and net revaluation of interest rate swaps. See the reconciliation of EBITDA to profit
for the period in Part III of this MD&A under the heading “Capital Resources, Equity and Debt Activities – Debt Service
Ratios”.
Same-Asset Net Property Operating Income (Same-asset NOI) is not an IFRS financial measure. Same-asset NOI, as
calculated by Plaza, may not be comparable to similarly titled measures reported by other entities. Same-asset NOI is used by
Plaza to evaluate the period over period performance of those properties owned by Plaza since January 1, 2017, and excludes
partial year results from certain assets due to timing of acquisition, development, redevelopment or disposition. Its calculation is
revenues less operating expenses for the same-asset pool of properties. The revenues or operating expenses exclude the impact
of non-cash straight-line rent, administrative expenses charged to NOI, property tax settlements and lease buyout revenue.
Excluding these items enables the users to better understand the period over period performance for a consistent pool of assets
from contractual rental rate changes embedded in lease agreements, and the impact of leasing and occupancy on the same-asset
portfolio. See the reconciliation of same-asset NOI to NOI in Part II of this MD&A under the heading “Property and Corporate
Financial Performance”.
EXPLANATION OF ADDITIONAL IFRS MEASURES USED IN THIS DOCUMENT
Net Property Operating Income (NOI) is an industry term in widespread use. The Trust includes NOI as an additional IFRS
measure in its consolidated statement of comprehensive income. NOI as calculated by Plaza may not be comparable to similar
titled measures reported by other entities. Plaza considers NOI a meaningful additional measure of operating performance of
property assets, prior to financing considerations. Its calculation is total revenues less total operating expenses as shown in the
Page 34 of 78
Plaza Retail REIT
consolidated statements of comprehensive income (property revenues less total property operating costs, including operating
ground rents).
ADDITIONAL INFORMATION
Additional information relating to Plaza including the Management Information Circular, Material Change reports and all other
continuous disclosure documents required by the securities regulators, are filed on the System for Electronic Document Analysis
and Retrieval (SEDAR) and can be accessed electronically at www.sedar.com or on Plaza’s website at www.plaza.ca.
PROPERTIES OF THE TRUST
A chart listing the Trust’s properties at December 31, 2018 can be accessed on Plaza’s website at www.plaza.ca.
Page 35 of 78
Plaza Retail REIT
APPENDIX A
FOURTH QUARTER 2018 INCOME RESULTS
Consolidated Statements of Comprehensive Income
(000s) (unaudited)
Revenues
Operating expenses
Net property operating income
Share of profit of associates
Administrative expenses
Investment income
Other income
Income before finance costs, fair value adjustments and income taxes
Finance costs
Finance costs – net change in fair value of convertible debentures
Finance costs – net change in fair value of Class B exchangeable LP units
Finance costs – net change in fair value of interest rate swaps and bond forwards
Net change in fair value of investment properties
Profit before income tax
Income tax recovery (expense)
- Current
- Deferred
3 Months
Ended
December 31,
2018
$ 26,068
(10,328)
15,740
3 Months
Ended
December 31,
2017
$ 25,679
(10,190)
15,489
(573)
(2,262)
163
504
13,572
(6,666)
3,159
381
(50)
(9,865)
531
(90)
627
537
17
(2,223)
163
602
14,048
(6,405)
(94)
152
-
2,124
9,825
(88)
(207)
(295)
Profit and total comprehensive income for the period
$ 1,068
$ 9,530
Profit and total comprehensive income for the period attributable to:
- Unitholders
- Non-controlling interests
$ 1,055
13
$ 1,068
$ 9,431
99
$ 9,530
Page 36 of 78
Plaza Retail REIT
Management’s Statement of Responsibility for Financial Reporting
The accompanying consolidated financial statements and information contained in the Annual Report have been prepared by,
and are the responsibility of, the management of the Trust. The financial statements have been prepared within accepted
limits of materiality and in accordance with the International Financial Reporting Standards appropriate in the circumstances.
Management maintains appropriate systems of internal control. Policies and procedures are designed to provide reasonable
assurance that transactions are properly authorized, assets are safeguarded and financial records are properly maintained to
provide reliable information for preparation of financial statements.
The Board of Trustees, with the assistance of its Audit Committee, is responsible for ensuring that management fulfills its
oversight responsibility for financial reporting and internal control. The Audit Committee consists entirely of independent
Trustees. At regular meetings, the Audit Committee reviews audit, internal control and financial reporting matters with
management and the external auditors to satisfy itself that each is properly discharging its responsibilities. The financial
statements, the Independent Auditors’ Report and the accompanying management’s discussion and analysis have been
reviewed by the Audit Committee and have been approved by the Board of Trustees.
KPMG LLP, the independent auditors appointed by the unitholders based on the recommendation of the Board of Trustees,
have been engaged to audit the consolidated financial statements and provide an independent professional opinion thereon.
The auditors have full and independent access to the Audit Committee to discuss audit and related matters with and without
the presence of management and non-independent Trustees.
______________________________
Michael Zakuta
President and CEO
February 26, 2019
__________________________________
Floriana Cipollone
Chief Financial Officer
February 26, 2019
Page 37 of 78
KPMG LLP
Frederick Square
77 Westmorland Street
Fredericton NB E3B 6Z3
Telephone
Fax
Internet
(506) 452-8000
(506) 450-0072
www.kpmg.ca
One Factory Lane
Place Marven’s
PO Box 827
Moncton NB E1C 8N6
Telephone
Fax
(506) 856-4400
(506) 856-4499
Harbour Building
133 Prince William Street
PO Box 2388 Stn Main
Saint John NB E2L 3V6
Telephone
Fax
(506) 634-1000
(506) 633-8828
INDEPENDENT AUDITORS’ REPORT
To the Unitholders of Plaza Retail REIT
Opinion
We have audited the consolidated financial statements of Plaza Retail REIT (the “Entity”), which comprise:
the consolidated statements of financial position as at December 31, 2018 and December 31, 2017
the consolidated statements of comprehensive income for the years then ended
the consolidated statements of changes in unitholders’ equity for the years then ended
the consolidated statements of cash flows for the years then ended
and notes to the consolidated financial statements, including a summary of significant accounting
policies
(Hereinafter referred to as the “financial statements”).
In our opinion, the accompanying financial statements present fairly, in all material respects, the
consolidated financial position of the Entity as at December 31, 2018 and December 31, 2017, and its
consolidated financial performance and its consolidated cash flows for the years then ended in accordance
with International Financial Reporting Standards (“IFRS”).
Basis for Opinion
We conducted our audit in accordance with Canadian generally accepted auditing standards. Our
responsibilities under those standards are further described in the “Auditors’ Responsibilities for the
Audit of the Financial Statements” section of our auditors’ report.
We are independent of the Entity in accordance with the ethical requirements that are relevant to our audit of
the financial statements in Canada and we have fulfilled our other responsibilities in accordance with these
requirements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
opinion.
Other Information
Management is responsible for the other information. Other information comprises:
the information included in Management’s Discussion and Analysis filed with the relevant Canadian
Securities Commissions.
Page 38 of 78
the information, other than the financial statements and the auditors’ report thereon, included in a
document likely to be entitled “Annual Report”.
Our opinion on the financial statements does not cover the other information and we do not and will not
express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information
identified above and, in doing so, consider whether the other information is materially inconsistent with the
financial statements or our knowledge obtained in the audit, and remain alert for indications that the other
information appears to be materially misstated.
We obtained the information included in the Management’s Discussion and Analysis filed with the relevant
Canadian Securities Commissions as at the date of this auditors’ report. If, based on the work we have
performed on this other information, we conclude that there is a material misstatement of this other
information, we are required to report that fact in the auditors’ report.
We have nothing to report in this regard.
The information, other than the financial statements and the auditors’ report thereon, included in a document
likely to be entitled “Annual Report” is expected to be made available to us after the date of this auditors’
report. If, based on the work we will perform on this other information, we conclude that there is a material
misstatement of this other information, we are required to report that fact to those charged with governance.
Responsibilities of Management and Those Charged with Governance for the Financial Statements
Management is responsible for the preparation and fair presentation of the financial statements in
accordance with the IFRSs, and for such internal control as management determines is necessary to enable
the preparation of financial statements that are free from material misstatement, whether due to fraud or
error.
In preparing the financial statements, management is responsible for assessing the Entity’s ability to
continue as a going concern, disclosing as applicable, matters related to going concern and using the going
concern basis of accounting unless management either intends to liquidate the Entity or to cease operations,
or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Entity’s financial reporting process.
Auditors’ Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are
free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes
our opinion.
Page 39 of 78
Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in
accordance with Canadian generally accepted auditing standards will always detect a material misstatement
when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate,
they could reasonably be expected to influence the economic decisions of users taken on the basis of the
financial statements.
As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise
professional judgment and maintain professional skepticism throughout the audit.
We also:
Identify and assess the risks of material misstatement of the financial statements, whether due to
fraud or error, design and perform audit procedures responsive to those risks, and obtain audit
evidence that is sufficient and appropriate to provide a basis for our opinion.
The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting
from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the
override of internal control.
Obtain an understanding of internal control relevant to the audit in order to design audit procedures
that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Entity’s internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by management.
Conclude on the appropriateness of management's use of the going concern basis of accounting and,
based on the audit evidence obtained, whether a material uncertainty exists related to events or
conditions that may cast significant doubt on the Entity’s ability to continue as a going concern. If we
conclude that a material uncertainty exists, we are required to draw attention in our auditors’ report
to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify
our opinion. Our conclusions are based on the audit evidence obtained up to the date of our
auditors’ report. However, future events or conditions may cause the Entity to cease to continue as a
going concern.
Evaluate the overall presentation, structure and content of the financial statements, including the
disclosures, and whether the financial statements represent the underlying transactions and events
in a manner that achieves fair presentation.
Communicate with those charged with governance regarding, among other matters, the planned
scope and timing of the audit and significant audit findings, including any significant deficiencies in
internal control that we identify during our audit.
Page 40 of 78
Provide those charged with governance with a statement that we have complied with relevant ethical
requirements regarding independence, and communicate with them all relationships and other
matters that may reasonably be thought to bear on our independence, and where applicable, related
safeguards.
Chartered Professional Accountants
The engagement partner on the audit resulting in this auditors’ report is Douglas Reid.
Fredericton, Canada
February 26, 2019
KPMG LLP is a Canadian limited liability partnership and a member firm of the KPMG
network of independent member firms affiliated with KPMG International Cooperative
(“KPMG International”), a Swiss entity.
KPMG Canada provides services to KPMG LLP.
Page 41 of 78
Plaza Retail REIT
Consolidated Statements of Financial Position
(in thousands of Canadian dollars)
December 31, December 31,
2017
2018
Assets
Non-Current Assets
Investment properties (Note 5)
Investments (Note 6)
Tenant loans
Deferred income tax asset (Note 16)
Total non-current assets
Current Assets
Cash
Receivables (Note 7)
Prepaid expenses and deposits (Note 8)
Tenant loans
Notes and advances receivable (Note 9)
Total current assets
Total assets
Liabilities and Unitholders’ Equity
Non-Current Liabilities
Debentures payable (Note 10)
Mortgage bonds payable (Note 11)
Mortgages payable (Note 12)
Class B exchangeable LP units (Note 21)
Deferred income tax liability (Note 16)
Total non-current liabilities
Current Liabilities
Current portion of debentures payable (Note 10)
Current portion of mortgage bonds payable (Note 11)
Bank indebtedness (Note 13)
Current portion of mortgages payable (Note 12)
Accounts payable, accrued liabilities, tenant payables and
tenant deposits (Note 14)
Notes payable (Note 15)
Total current liabilities
Total liabilities
Unitholders’ equity
Non-controlling interests
Total unitholders’ equity
Total liabilities and unitholders’ equity
$ 988,640
44,614
613
461
1,034,328
$ 959,618
45,550
403
520
1,006,091
7,296
3,398
3,390
105
12,549
26,738
$ 1,061,066
6,250
4,480
4,067
448
9,999
25,244
$ 1,031,335
$ 59,835
8,893
399,867
4,622
7,078
480,295
-
5,970
35,604
68,471
17,683
1,341
129,069
609,364
$ 11,437
14,764
410,879
5,393
7,547
450,020
38,336
-
29,538
33,700
15,222
1,424
118,220
568,240
447,181
4,521
451,702
$ 1,061,066
458,864
4,231
463,095
$ 1,031,335
Contingencies, commitments, guarantees and indemnities, litigation and provisions – see Note 27
Subsequent events – see Note 30
Barbara Trenholm, Trustee
______________________________
Earl Brewer, Trustee
See accompanying notes which are an integral part of these consolidated financial statements.
Page 42 of 78
Plaza Retail REIT
Consolidated Statements of Comprehensive Income
(in thousands of Canadian dollars)
Revenues (Note 17)
Operating expenses (Note 18)
Net property operating income
Share of profit of associates
Administrative expenses (Note 19)
Investment income
Other income
Income before finance costs, fair value adjustments and income taxes
Finance costs (Note 20)
Finance costs – convertible debenture issuance costs (Note 10)
Finance costs - net change in fair value of convertible debentures (Note 10)
Finance costs - net change in fair value of Class B exchangeable LP units (Note 21)
Finance costs - net change in fair value of interest rate swaps and bond forwards (Notes 12 and 28)
Net change in fair value of investment properties (Note 5)
Profit before income tax
Income tax recovery (expense)
- Current
- Deferred
2018
2017
$104,017
(40,093)
63,924
$ 102,887
(38,529)
64,358
(1,492)
(9,387)
688
2,223
55,956
(26,752)
(2,280)
3,022
457
39
(18,405)
587
(9,139)
763
1,726
58,295
(25,646)
-
339
970
-
(10,392)
12,037
23,566
(235)
410
175
(183)
64
(119)
Profit and total comprehensive income for the period
$ 12,212
$ 23,447
Profit and total comprehensive income for the period attributable to:
- Unitholders
- Non-controlling interests
$ 12,063
149
$ 23,232
215
$ 12,212
$ 23,447
See accompanying notes which are an integral part of these consolidated financial statements.
Page 43 of 78
Plaza Retail REIT
Consolidated Statements of Changes in Unitholders’ Equity
(in thousands of Canadian dollars)
Trust
Units
(Note 21)
Retained
Earnings
Total
Attributable
to
Unitholders
Non-
Controlling
Interests
Total
Equity
Balance as at December 31, 2016
$ 258,011
$ 189,794
$ 447,805
$ 3,938
$ 451,743
Profit and total comprehensive income for the period
Transactions with unitholders, recorded directly in equity:
- Contributions by unitholders - DRIP and RSU plan
- Units issued through debt conversion
- Units issued from exchange of Class B exchangeable LP units
- Distributions to unitholders (Note 23)
- Contributions to (distributions from) non-controlling interests
and changes in ownership interests in subsidiaries
-
23,232
23,232
215
23,447
2,702
12,213
232
-
-
-
-
(27,320)
2,702
12,213
232
(27,320)
-
-
-
-
2,702
12,213
232
(27,320)
that do not result in loss of control
Balance as at December 31, 2017
-
$ 273,158
-
$ 185,706
-
$ 458,864
78
$ 4,231
78
$ 463,095
Profit and total comprehensive income for the period
Transactions with unitholders, recorded directly in equity:
- Contributions by unitholders - DRIP and RSU plan
- Units issued from exchange of Class B exchangeable LP units
- Distributions to unitholders (Note 23)
- Contributions to (distributions from) non-controlling interests
and changes in ownership interests in subsidiaries that do not
result in loss of control
Balance as at December 31, 2018
-
12,063
12,063
149
12,212
4,586
314
-
-
-
(28,646)
4,586
314
(28,646)
-
-
-
4,586
314
(28,646)
-
$ 278,058
-
$ 169,123
-
$ 447,181
141
$ 4,521
141
$ 451,702
See accompanying notes which are an integral part of these consolidated financial statements.
Page 44 of 78
Plaza Retail REIT
Consolidated Statements of Cash Flows
(in thousands of Canadian dollars)
Cash obtained from (used for):
Operating activities
Profit and total comprehensive income for the period
Items not affecting cash:
Finance costs (Note 20)
Share of profit of associates
Net change in fair value of investment properties
Net change in fair value of convertible debentures
Net change in fair value of Class B exchangeable LP units
Net change in fair value of interest rate swaps and bond forwards (Notes 12 and 28)
Current and deferred income taxes
Straight-line rent (Note 17)
Interest paid
Income taxes paid
Distributions from equity accounted investments (Note 6)
Leasing commissions paid
Change in non-cash working capital (Note 24)
Financing activities
Cash paid on conversion of convertible debentures
Cash distributions paid to unitholders (Note 23)
Cash distributions paid to Class B exchangeable LP unitholders (Note 20)
Cash received on acquisition of Plazacorp – Shediac Limited Partnership and Northwest
Plaza Commercial Trust (Note 4)
Gross proceeds from mortgage bonds and debentures
Fees incurred for bonds and debentures
Redemption/repayment of mortgage bonds and debentures
Gross mortgage proceeds
Fees incurred for placement of mortgages
Loan defeasance expenses and early mortgage discharge fees paid (Note 20)
Mortgages repaid
Periodic mortgage principal repayments
Increase (decrease) in notes payable
Investing activities
Acquisitions of investment properties and land (Note 5)
Investment properties – additions
Net proceeds from disposal of investment properties and land (Note 5(e))
Net proceeds from disposal of investment properties and land on
properties previously classified as held for sale (Note 5(e))
Advances to equity accounted investments for developments (Note 6)
Contributions to/(distributions from) subsidiaries from/to non-controlling interests
Repayment of Northwest Plaza Commercial Trust unitholder debt (Note 4)
Purchase of remaining units of Northwest Plaza Commercial Trust and Plazacorp –
Shediac Limited Partnership (Note 4)
Decrease (increase) in deposits for acquisitions and financings (Note 8)
Decrease (increase) in notes and advances receivable
Issuance of tenant loans
Repayment of tenant loans
Net decrease in cash
Cash less bank indebtedness, beginning of the period
Cash less bank indebtedness, end of the period
2018
2017
$ 12,212
$ 23,447
26,752
1,492
18,405
(3,022)
(457)
(39)
(175)
228
(24,811)
(164)
1,338
(338)
2,201
33,622
-
(24,060)
(351)
739
48,655
(53)
(35,545)
65,373
(480)
(240)
(38,783)
(10,730)
(83)
4,442
(36,877)
(25,129)
40,976
-
(5,161)
141
(859)
25,646
(587)
10,392
(339)
(970)
-
119
239
(24,345)
(168)
1,376
(157)
1,129
35,782
(1,454)
(24,713)
(354)
-
9,000
(232)
(5,276)
36,933
(415)
(56)
(31,975)
(10,416)
234
(28,724)
(11,494)
(20,592)
9,282
92
(1,039)
78
-
(14,296)
538
(2,550)
(331)
464
(43,084)
(5,020)
(23,288)
$ (28,308)
-
(1,686)
1,929
(5)
469
(22,966)
(15,908)
(7,380)
$ (23,288)
See accompanying notes which are an integral part of these consolidated financial statements.
Page 45 of 78
Plaza Retail REIT
Notes to the Consolidated Financial Statements
December 31, 2018
(tabular amounts in thousands of Canadian dollars, except per unit amounts and as otherwise indicated)
1. Reporting Entity
Plaza Retail REIT (the “Trust”) is an unincorporated “open-ended” real estate investment trust established pursuant to its
declaration of trust dated as of November 1, 2013 (the “Declaration of Trust”) and governed by the laws of the Province of
Ontario. The address of the Trust’s head office is 98 Main Street, Fredericton, New Brunswick. The Trust operates a retail real
estate ownership and development business in Canada. Management does not distinguish or group its operations by geography
or any other basis, when measuring its performance or making decisions. Accordingly, the Trust has a single reportable
segment for disclosure purposes.
2.
Basis of Preparation
(a)
Statement of Compliance
These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards
(“IFRS”) as issued by the International Accounting Standards Board (“IASB”).
The consolidated financial statements were authorized for issue by the Board of Trustees of the Trust on February 26, 2019.
(b)
Basis of Measurement
The consolidated financial statements have been prepared on a historical cost basis, except for the following items in the
consolidated statements of financial position that are measured at fair value:
-
-
-
-
-
-
-
Interest rate swaps;
Interest rate hedges;
Unit-based payments;
Convertible debentures;
Investment properties;
Investment properties included in investments; and
Exchangeable LP units.
These consolidated financial statements are presented in Canadian dollars, which is the Trust’s functional currency.
(c)
Use of Estimates and Judgments
The preparation of the Trust’s consolidated financial statements requires management to make judgments, estimates and
assumptions that affect the reported amounts of certain assets and liabilities at the reporting date and the reported amounts of
revenues and expenses during the reporting period. The significant estimates and judgments include the assessment of fair
values, the discount rates used in the valuation of the Trust’s assets and liabilities, capitalization rates, the relative credit
worthiness of the Trust to its counterparties, the determination of the accounting basis for investments and joint arrangements,
the amount of borrowing costs to capitalize to properties under development and the selection of accounting policies.
(i)
Investment property
One significant judgment and key estimate that affects the reported amounts of assets at the date of the consolidated financial
statements and the reported amounts of profit or loss during the year, relates to property valuations. Investment properties,
which are carried on the consolidated statements of financial position at fair value, are valued either by the Trust or by external
valuators. The valuation of investment properties is one of the principal estimates and uncertainties of these financial
statements. The valuations are based on a number of assumptions, such as appropriate discount rates and capitalization rates
and estimates of future rental income, operating expenses and capital expenditures. These investment properties are sensitive to
fluctuations in capitalization and discount rates.
Page 46 of 78
Plaza Retail REIT
Notes to the Consolidated Financial Statements
December 31, 2018
(tabular amounts in thousands of Canadian dollars, except per unit amounts and as otherwise indicated)
3.
Summary of Significant Accounting Policies
The Trust’s accounting policies set out below have been applied consistently to all years presented in these consolidated
financial statements, except with respect to the adoption of IFRS 15, Revenue from contracts with customers and IFRS 9,
Financial instruments, which were effective for year ends beginning January 1, 2018 and have been applied by the Trust
retrospectively, without restatement of comparative information (described more fully in Note 3(m) below).
(a) General and Consolidation
The consolidated financial statements comprise the financial statements of the Trust and the entities that it controls. All intra-
group balances, transactions, income and expenses resulting from intra-group transactions are eliminated in full.
(i) Subsidiaries
Subsidiaries are entities over which the Trust has control. The Trust has control over an entity when it 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.
When the Trust does not own all of the equity in a subsidiary, the non-controlling equity interest is disclosed in the
consolidated balance sheet as a separate component of total equity.
(ii) Associates and joint ventures
Associates are entities over which the Trust has significant influence over the financial and operating policies of the entities
and that are neither subsidiaries nor interests in joint ventures.
A joint venture is a type of joint arrangement whereby the parties that share joint control have rights to the net assets of the
joint venture. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when
decisions about the relevant activities require unanimous consent of the parties sharing control.
Investments in associates and joint ventures are accounted for using the equity method and initially recorded at cost and
adjusted thereafter to recognize the Trust’s share of the profit or loss and other comprehensive income of the associate or
joint venture. The Trust’s share of the associate or joint venture’s profit or loss is recognized in the Trust’s consolidated
statements of comprehensive income under share of profit of associates.
(iii) Joint operations
A joint operation is a joint arrangement whereby the parties that have joint control have rights to the assets and obligations
for the liabilities relating to the arrangement. The Trust recognizes its proportionate share of assets, liabilities, revenues
and expenses of joint operations.
The financial statements of the associates, joint ventures, and joint operations are prepared for the same reporting period as the
Trust, using consistent accounting policies.
(b) Investment Properties
Investment properties consist of all of the Trust’s consolidated commercial properties, development properties, land held for
future development and land parcels that become surplus after assembly and subdivision of parcels used for development.
Investment properties include interests held under land leases. The Trust has adopted application of IAS 40, “Investment
property”, and has chosen the fair value method of valuing its investment properties. Fair value represents the amount at which
the properties could be exchanged between knowledgeable, willing parties in an arm’s length transaction at the date of
valuation.
The fair value of investment properties is based on a combination of external appraisals and internal valuations based on a
capitalization matrix provided by independent appraisers. Management undertakes a quarterly review of the fair value of its
investment properties to assess the continuing validity of the underlying assumptions, such as cash flows and capitalization
Page 47 of 78
Plaza Retail REIT
Notes to the Consolidated Financial Statements
December 31, 2018
(tabular amounts in thousands of Canadian dollars, except per unit amounts and as otherwise indicated)
rates. Where increases or decreases are warranted, the Trust adjusts the fair values of its investment properties. Related fair
value gains and losses are recorded in profit or loss in the period in which they arise.
Development properties included in investment properties consist of properties under construction, which are recorded at fair
value less costs to complete.
Surplus lands are included in investment properties and are carried at fair value. The fair value of the surplus lands is based on
a combination of external appraisals and internal valuations based on recent market transactions.
Investment properties are classified as held for sale if their carrying amount will be recovered primarily through a sale
transaction rather than through continuing use. The asset is classified as such only when management has committed to a plan
to sell, when the sale is probable and is expected to qualify for recognition as a completed sale within one year. Investment
properties classified as held for sale are recorded at fair value less costs of disposal. Any difference between the existing fair
value and the calculated fair value less costs of disposal, at the time the asset is reclassified, is recorded through change in fair
value.
(c) Capitalization of Costs
The Trust capitalizes investment property acquisition costs incurred at the time of purchase.
For development properties, the Trust capitalizes all direct expenditures incurred in connection with their acquisition,
development and construction. These expenditures consist of all direct costs and borrowing costs on both specific and general
debt. Borrowing costs are offset by any interest earned by the Trust on borrowed funds prior to utilization. The development
period commences when expenditures are being incurred and activities necessary to prepare the asset for its intended use are in
progress. Capitalization ceases when substantially all the activities necessary to prepare the asset for its intended use are
complete.
(d) Revenue Recognition
(i) Rental revenue
Rental revenue includes rent earned from tenants under lease arrangements including, base rent, percentage rents, straight-line
rents, property tax and operating cost recoveries and incidental income including lease cancellation payments. The Trust
retains substantially all of the benefits and risks of ownership of its investment properties and therefore accounts for leases with
its tenants as operating leases.
Common area maintenance recoveries are the share of property operating costs charged to tenants under the terms of the leases.
Recoveries from tenants for common area maintenance, real estate taxes and other recoverable costs are recognized as revenue
in the period that services are provided.
(ii) Straight-line rent
Certain leases provide for (i) tenant occupancy during the period for which no rent is due (free rent period) or (ii) minimum rent
increases during the term of the lease. Rental revenue from leases is recorded for the fixed term of each lease on a straight-line
basis. The straight-line or free rent receivable, as applicable, is recorded as a component of investment properties for the
difference between the rental revenue recorded and the contractual amount received. When a property is acquired, the term of
existing leases is considered to commence as of the acquisition date for the purposes of the straight-line rent calculations. For
lease renewals, the effective date of the lease is used for the purposes of the straight-line rent calculations.
(e) Income Taxes
The Trust is a mutual fund trust and qualifies as a real estate investment trust for Canadian income tax purposes. Under current
tax legislation, a real estate investment trust is entitled to deduct distributions of taxable income such that it is not liable to pay
income tax, provided that its taxable income is fully distributed to unitholders. Accordingly, income taxes, comprised of
current and deferred taxes, are only recorded for the Trust’s corporate subsidiaries. The Trust intends to continue to qualify as a
real estate investment trust and to make distributions not less than the amount necessary to ensure that the Trust will not be
liable to pay income taxes.
Page 48 of 78
Plaza Retail REIT
Notes to the Consolidated Financial Statements
December 31, 2018
(tabular amounts in thousands of Canadian dollars, except per unit amounts and as otherwise indicated)
(f) Cash
Cash represents cash in bank accounts and short-term deposits with initial maturity dates of less than 90 days. The Trust’s cash
balance does not include any instruments related to asset-backed securities or commercial paper programs.
(g) Unit-based Payments
The Trust issues unit-based awards, comprised of restricted share units, to certain officers and employees of the Trust or its
affiliates. Under the restricted share unit plan, the fair value of the restricted share units granted is recognized as compensation
expense over the vesting period. Fair value is determined with reference to the market price of the Trust’s units.
The Trust issues unit-based awards, comprised of deferred units, to non-employee trustees. Under the deferred unit plan, the
fair value of the deferred units granted is recognized as compensation expense in the period the deferred units are granted and
the fair value is updated at the end of each reporting period. Fair value is determined with reference to the market price of the
Trust’s units.
Since the Trust’s units are redeemable at the option of the holder and are, therefore, considered puttable instruments in
accordance with IAS 32, “Financial instruments: presentation”, any restricted share units or deferred units are accounted for as
a liability because the participants’ rights to receive a puttable instrument is a cash-settled share-based payment under IFRS 2,
“Share-based payments”. The restricted share units or deferred units liability is adjusted to reflect the change in their fair value
at each reporting period with the changes in fair value recognized as compensation expense.
(h) Investments
Investments consist of the Trust’s associates and joint ventures accounted for using the equity method, other investments in
entities not accounted for using the equity method and other held-to-maturity financial assets. For investments in entities not
accounted for using the equity method, amounts received or receivable in accordance with the income distribution formula of
the entity, if not capital or financing receipts, are included in income. For investments in entities accounted for using the equity
method, amounts received are accounted for as a reduction of the investments and the proportionate share of the net income or
loss from the investments are recorded in profit or loss for the period under share of profit of associates, and as an increase or
decrease to the investments.
Investment properties that are held by equity-accounted entities are measured at fair value, consistent with the Trust’s policy for
its consolidated investment properties. The Trust’s pro-rata share of any fair value gain or loss is calculated based on “winding-
up” the specific entity and distributing the net assets to the partners as dictated by the respective agreements. The Trust’s pro-
rata share of any fair value gain or loss is recorded in profit or loss for the period within share of profit of associates.
Investments in entities not accounted for using the equity method are measured at fair value (see (i)(iii) below). Held-to-
maturity financial assets are measured at amortized cost (see (i)(i) below).
(i)
Financial Instruments
The Trust has had the following non-derivative financial instruments: financial assets and financial liabilities at fair value
through profit or loss, held-to-maturity financial assets, loans and receivables and other financial liabilities.
Financial assets and liabilities are offset and the net amount is presented in the statement of financial position when, and only
when, the Trust has a legal right to offset the amounts and intends either to settle on a net basis or to realize the asset and settle
the liability simultaneously.
The effective interest method is used for financial instruments measured at amortized cost and allocates interest over the
relevant period. The effective interest rate used in the effective interest method (“Effective Interest Rate”), is the rate that
discounts estimated future cash flows (including all fees paid or received that form an integral part of the Effective Interest
Rate, transaction costs and other premiums or discounts) through the expected life of the instrument, to the net carrying amount
on initial recognition.
Any transaction costs associated with financial instruments measured at fair value through profit or loss are expensed as
incurred in the consolidated statement of comprehensive income.
Page 49 of 78
Plaza Retail REIT
Notes to the Consolidated Financial Statements
December 31, 2018
(tabular amounts in thousands of Canadian dollars, except per unit amounts and as otherwise indicated)
(i)
Financial assets at fair value through profit or loss
A financial asset is classified at fair value through profit or loss if it is classified as held for trading or is designated as such
upon initial recognition. A financial asset is classified as held for trading if it has been acquired principally for the purpose of
selling in the near term, or it is part of a portfolio of identified financial instruments that the Trust manages together and has a
recent actual pattern of short-term profit-taking. Financial assets are designated at fair value through profit or loss if the Trust
manages and evaluates such assets on a fair value basis in accordance with the Trust’s documented risk management or
investment strategy. Upon initial recognition, certain transaction costs are recognized in profit or loss as incurred. Financial
assets at fair value through profit or loss are measured at fair value, and changes therein are recognized in profit or loss.
The Trust’s held for trading assets consisted of cash.
(ii)
Financial liabilities at fair value through profit or loss
Convertible debentures issued by the Trust are convertible into units at the option of the holder and the number of units to be
issued does not vary with changes in their fair value. As the Trust’s units are redeemable at the option of the holder and are,
therefore, considered puttable instruments in accordance with IAS 32, Financial instruments: presentation (“IAS 32”), the
convertible debentures are considered a liability containing liability-classified embedded derivatives.
The Trust elected to record the full outstanding amount of each convertible debenture at fair value determined using either (i) a
valuation methodology which considers the volatility of the unit price and current credit spreads, for non-publicly traded
convertible debentures, or (ii) the closing trading price, for publicly traded convertible debentures. Changes in fair value are
recognized in profit or loss.
The Class B exchangeable limited partnership (“LP”) units of the Trust’s subsidiary are exchangeable into units of the Trust at
the option of the holder. These exchangeable units are considered puttable instruments in accordance with IAS 32, and are
required to be classified as financial liabilities at fair value through profit or loss. The distributions paid on the exchangeable LP
units are accounted for as finance costs.
(iii) Held-to-maturity financial assets
If the Trust has the positive intent and ability to hold certain financial assets to maturity, then such financial assets are classified
as held-to-maturity. Held-to-maturity financial assets are recognized initially at fair value plus any directly attributable
transaction costs. Subsequent to initial recognition, held-to-maturity financial assets are measured at amortized cost using the
effective interest method, less any impairment losses. Any sale or reclassification of a more than insignificant amount of held-
to-maturity investments not close to their maturity would have resulted in a reclassification of all held-to-maturity investments
as available-for-sale, and prevented the Trust from classifying investment securities as held-to-maturity for the then current and
following two financial years.
Held-to-maturity assets were comprised of mortgage bonds, Government of Canada bonds and cash substituted for mortgage
security under defeasance arrangements.
(iv) Loans and receivables
Trade receivables, loans and other receivables that have fixed or determinable payments that are not quoted in an active market
are classified as loans and receivables. Such assets are recognized initially at fair value plus any directly attributable
transaction costs. Subsequent to initial recognition, loans and receivables are measured at amortized cost using the effective
interest method, less any impairment losses.
Loans and receivables comprised receivables, notes and advances receivable and tenant loans.
(v) Available-for-sale financial assets
Available-for-sale financial assets are non-derivative financial assets that are designated as available-for-sale and that are not
classified in any of the previous categories. Subsequent to initial recognition, they are measured at fair value and changes
therein, other than impairment losses, are recognized in other comprehensive income and presented within equity in the fair
Page 50 of 78
Plaza Retail REIT
Notes to the Consolidated Financial Statements
December 31, 2018
(tabular amounts in thousands of Canadian dollars, except per unit amounts and as otherwise indicated)
value reserve. When an available-for-sale financial asset is derecognized, the cumulative gain or loss in other comprehensive
income is transferred to profit and loss.
The Trust did not have any financial assets designated as available-for-sale.
(vi) Other financial liabilities
The Trust initially recognizes debt securities issued and subordinated liabilities on the date that they are originated. All other
financial liabilities are recognized on the trade date at which the Trust becomes a party to the contractual provisions of the
instrument.
The Trust derecognizes a financial liability when its contractual obligations are discharged or cancelled or expire.
Such financial liabilities are recognized initially at fair value plus any directly attributable transaction costs. Subsequent to
initial recognition, these financial liabilities are measured at amortized cost using the effective interest method.
The Trust’s other financial liabilities consisted of accounts payable and accrued liabilities, notes payable, mortgage bonds
payable, bank indebtedness and mortgages payable.
(j)
Trust Units
The Trust’s units are redeemable at the option of the holder and, therefore, are considered puttable instruments. Puttable
instruments are required to be accounted for as financial liabilities, except where certain conditions are met in accordance with
IAS 32, “Financial instruments: presentation”, in which case, the puttable instruments may be presented as equity. The Trust’s
units meet the conditions of IAS 32 and are, therefore, presented as equity.
(k) Leasing Costs
Payments to tenants under lease contracts are characterized as either tenant improvements, which enhance the value of the
property, or lease inducements. When the obligation is determined to be a tenant improvement, the Trust is considered to have
acquired an asset. Accordingly, the tenant improvements are capitalized as part of investment property. When the obligation is
determined to be a lease inducement, the amount is recognized as an asset which forms a component of investment property and
is deferred and amortized over the term of the lease as a reduction of revenue.
(l) Finance Costs
Finance costs are comprised of interest expense on borrowings, fair value changes in financial liabilities, the fair value
adjustment on interest rate swap and bond forward derivatives and transaction costs associated with the issuance of financial
liabilities measured at fair value though profit or loss (such as convertible debentures). Transaction costs associated with
financial liabilities presented at amortized cost are presented with the related debt instrument and amortized into finance costs
using the effective interest method over the anticipated life of the related debt.
(m) Accounting Standards Implemented in 2018
On January 1, 2018, the Trust implemented IFRS 15, Revenue from contracts with customers (“IFRS 15”), IFRS 9, Financial
instruments (“IFRS 9”), and IFRS 2, Share-based payments (“IFRS 2”) in accordance with IAS 8, Accounting policies, changes
in accounting estimates and errors. The impacts on implementation of IFRS 15, IFRS 9 and IFRS 2 are described below.
(i) Revenue from contracts with customers
In 2014, the IASB issued IFRS 15, replacing all existing guidance in IFRS related to revenue, including but not limited to, IAS
18, Revenue, IAS 11, Construction contracts, IFRIC 15, Agreements for the construction of real estate and related
interpretations. IFRS 15 provides a comprehensive framework for the recognition, measurement and disclosure of revenue
from contracts with customers, excluding contracts within the scope of the accounting standards on leases, insurance contracts
and financial instruments. IFRS 15 became effective for annual periods beginning on or after January 1, 2018.
Page 51 of 78
Plaza Retail REIT
Notes to the Consolidated Financial Statements
December 31, 2018
(tabular amounts in thousands of Canadian dollars, except per unit amounts and as otherwise indicated)
IFRS 15 contains a single, control-based model that applies to contracts with customers and provides two approaches to
recognizing revenue: at a point in time or over time. The model features a contract-based five-step analysis of transactions to
determine whether, how much and when revenue is recognized. IFRS 15 also includes additional disclosure requirements for
revenue accounted for under the standard.
The Trust adopted IFRS 15 beginning on January 1, 2018, using the cumulative effect method, which means that the Trust did
not apply the requirements of IFRS 15 to the comparative period presented. The effect of initially applying this standard would
have been recognized at January 1, 2018, however, the adoption of IFRS 15 did not have an impact on the timing of recognition
or measurement of revenue.
(ii) Financial instruments
In 2014, the IASB issued IFRS 9, replacing IAS 39, Financial instruments: recognition and measurement (“IAS 39”), and
related interpretations. IFRS 9 includes revised guidance on the classification and measurement of financial assets, including
impairment and a new general hedge accounting model. IFRS 9 became effective for annual periods beginning on or after
January 1, 2018.
The Trust adopted IFRS 9 beginning on January 1, 2018, the mandatory effective date. The adoption of IFRS 9 was generally
applied retrospectively, without restatement of comparative information. There was no material impact from the adoption of
IFRS 9.
Classification and Measurement - IFRS 9 contains a new classification and measurement approach for financial assets that
reflects the business model in which assets are managed and their cash flow characteristics. Financial assets are classified and
measured based on the three categories: amortized cost, fair value through other comprehensive income (“FVOCI”), and fair
value through profit or loss (“FVTPL”) and eliminates the existing IAS 39 categories of held to maturity, loans and receivables
and available for sale.
A financial asset is measured at amortized cost if it meets both of the following conditions and is not designated at FVTPL:
‐ It is held within a business model whose objective is to hold assets to collect contractual cash flows; and
‐ Its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the
principal amount outstanding.
A financial asset is measured at FVOCI if it meets both of the following conditions and is not designated at FVTPL:
‐ It is held within a business model whose objective is to both hold assets to collect contractual cash flows and to sell assets;
and
‐ Its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the
principal amount outstanding.
All financial assets not classified as measured at amortized cost or FVOCI as described above are measured at FVTPL.
Financial liabilities are classified and measured on two categories: amortized cost or FVTPL. One distinction on financial
liabilities is that under the previous IAS 39, all fair value changes of liabilities designated as FVTPL were recognized in profit
or loss, whereas under IFRS 9, the amount of change in fair value attributable to changes in the credit risk of the liability is
presented in other comprehensive income, and the remaining amount of change in fair value is presented in profit or loss.
Under IFRS 9, derivatives embedded in contracts where the host is a financial asset in the scope of the standard are not
separated, but the hybrid financial instrument as a whole is assessed for classification.
Page 52 of 78
Plaza Retail REIT
Notes to the Consolidated Financial Statements
December 31, 2018
(tabular amounts in thousands of Canadian dollars, except per unit amounts and as otherwise indicated)
The following table summarizes the classification impacts upon adoption of IFRS 9. The adoption of the new classification
requirements under IFRS 9 did not result in significant changes in measurement or the carrying amount of financial assets and
liabilities.
Asset / Liability
Tenant loans
Cash
Receivables
Notes and advances receivable
Debentures payable:
‐
Convertible debentures
‐ Non-convertible debentures
Mortgage bonds payable
Mortgages payable
Class B exchangeable LP units
Bank indebtedness
Accounts payable, accrued liabilities, tenant
payables and tenant deposits
Notes payable
Interest rate swaps
Classification
under IAS 39
Classification
under IFRS 9
Loans and receivables at amortized cost
Fair value through profit or loss
Loans and receivables at amortized cost
Loans and receivables at amortized cost
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Fair value through profit or loss
Other liabilities at amortized cost
Other liabilities at amortized cost
Other liabilities at amortized cost
Fair value through profit or loss
Other liabilities at amortized cost
Fair value through profit or loss
Amortized cost
Amortized cost
Amortized cost
Fair value through profit or loss
Amortized cost
Other liabilities at amortized cost
Other liabilities at amortized cost
Fair value through profit or loss
Amortized cost
Amortized cost
Fair value through profit or loss
Financial assets are not reclassified subsequent to their initial recognition, unless the Trust identifies changes in its business
model in managing financial assets and would reassess the classification of financial assets.
The effective interest method is used for financial instruments measured at amortized cost and allocates interest over the
relevant period. The Effective Interest Rate used in the effective interest method, is the rate that discounts estimated future cash
flows (including all fees paid or received that form an integral part of the Effective Interest Rate, transaction costs and other
premiums or discounts) through the expected life of the instrument, to the gross carrying amount of a financial asset or to the
amortized cost of a financial liability.
Any transaction costs associated with financial instruments measured at FVPTL are expensed as incurred.
Impairment - IFRS 9 replaces the ‘incurred loss’ model in IAS 39 with a forward-looking ‘expected credit loss’ (“ECL”)
model. The ECL model requires considerable judgment, including consideration of how changes in economic factors affect
ECLs, which will be determined on a probability-weighted basis. The new impairment model is applied, at each balance sheet
date, to financial assets measured at amortized cost or those measured at fair value through other comprehensive income, except
for investments in equity instruments.
The Trust adopted the practical expedient to determine ECL on receivables using a provision matrix based on historical credit
loss experiences to estimate lifetime ECL. The ECL models applied to other financial assets also required judgment,
assumptions and estimations on changes in credit risks, forecasts of future economic conditions and historical information on
the credit quality of the financial asset. The provision matrix and ECL models applied did not have a material impact on
receivables or other financial assets of the Trust.
Impairment losses, if incurred, would be recorded in the consolidated statement of comprehensive income with the carrying
amount of the financial asset or group of financial assets reduced through the use of impairment allowance accounts. In periods
subsequent to the impairment where the impairment loss has decreased, and such decrease can be related objectively to
conditions and changes in factors occurring after the impairment was initially recognized, the previously recognized
impairment loss would be reversed through the consolidated statement of comprehensive income. The impairment reversal
would be limited to the lesser of the decrease in impairment or the extent that the carrying amount of the financial asset at the
date the impairment is reversed does not exceed what the amortized cost would have been had the impairment not been
recognized, after the reversal.
General Hedging - IFRS 9 includes a new general hedge accounting standard which aligns hedge accounting more closely with
an entity’s risk management objectives and strategies. The Trust does not currently apply hedge accounting in its financial
statements.
Page 53 of 78
Plaza Retail REIT
Notes to the Consolidated Financial Statements
December 31, 2018
(tabular amounts in thousands of Canadian dollars, except per unit amounts and as otherwise indicated)
(iii) Share-based payments
In 2016, the IASB issued three amendments to IFRS 2 to eliminate diversity in practice in the classification and measurement
of particular share-based payment transactions. The amendments are narrow in scope and address specific areas of classification
and measurement. IFRS 2 was effective January 1, 2018. On adoption, entities are required to apply the amendments without
restating prior periods, but retrospective application is permitted if elected for all three amendments and other criteria are met.
The Trust’s accounting policy for cash-settled share-based payments is consistent with the amendments clarified and therefore
do not have any impact on the Trust’s consolidated financial statements.
(n) Future Changes in Accounting Policies
(i) Leases
In January 2016, the IASB issued IFRS 16, Leases (“IFRS 16”). The new standard replaces existing lease guidance in IFRS and
related interpretations, and requires lessees to bring most leases on-balance sheet. Lessor accounting remains similar to the
current standard and the distinction between operating and finance leases is retained. The new standard is effective beginning
January 1, 2019.
The Trust has investment properties located on land which is leased. Under current IFRS 17, Leases, these leases are accounted
for as operating leases and the related lease payments are expensed. It is expected that under the new lease standard, a right-of-
use (“ROU”) asset and a lease obligation liability will be recorded along with the corresponding financing charges. The ROU
asset will be accounted for as investment property, as these land leases meet the definition of investment property under IAS
40. Management has estimated the liability and corresponding ROU asset to be approximately $60 - $70 million.
The nature and timing of the related expenses will change as IFRS 16 replaces the straight-line operating lease expense with
interest expense on lease liabilities. Changes in the fair value of the ROU asset will be recorded within change in fair value of
investment properties.
(ii)
IFRIC Interpretation 23, Uncertainty over Income Tax Treatments
In June 2017, the IASB issued IFRIC 23, Uncertainty over income tax treatments (“IFRIC 23”). IFRIC 23 clarifies application
of recognition and measurement requirements in IAS 12, Income taxes when there is uncertainty over income tax treatments.
IFRIC 23 is effective for annual reporting periods beginning on or after January 1, 2019 with early adoption permitted. IFRIC
23 requires the Trust to contemplate whether uncertain tax treatments should be considered separately or together as a group,
based on which approach provides better predictions of the resolution, and to determine if it is probable that the tax authorities
will accept the uncertain tax treatment or, if it is not probable that the uncertain tax treatment will be accepted, measure the
uncertainty based on the most likely amount or expected value, depending on which method better predicts the resolution of the
uncertainty. The Trust will adopt IFRIC 23 in its consolidated financial statements for the annual period beginning January 1,
2019. The Trust does not expect the adoption of IFRIC 23 to have a material impact on the consolidated financial statements.
Page 54 of 78
Plaza Retail REIT
Notes to the Consolidated Financial Statements
December 31, 2018
(tabular amounts in thousands of Canadian dollars, except per unit amounts and as otherwise indicated)
4. Acquisition of Plazacorp - Shediac Limited Partnership & Northwest Plaza Commercial Trust
On January 31, 2018, the Trust completed the acquisition of the remaining 90% of the issued and outstanding units of Plazacorp
- Shediac Limited Partnership and Northwest Plaza Commercial Trust that it did not already own. The units were purchased by
the Trust through the payment of $14.3 million in cash consideration. The purchases have been accounted for as asset
acquisitions. Unitholder debt outstanding in Northwest Plaza Commercial Trust in the amount of $859 thousand was also
repaid by the Trust as part of the transaction. The two entities were previously included in investments and accounted for on an
equity basis and fair value basis, respectively.
The following table summarizes the consideration paid and the estimated fair value of the net assets.
Investment properties
Cash
Receivables
Prepaid expenses and deposits
Deferred financing charges
Mortgages payable
Mortgages payable – mark to market
Accounts payable and accrued liabilities
Fair value of net assets
Consideration satisfied by:
Cash paid for 90% of the issued and outstanding units
Cash paid to discharge unitholder debt
10% of investment already owned
Total consideration
(At 100%)
$ 42,129
739
125
11
162
(23,646)
(739)
(355)
$ 18,426
$ 14,296
859
3,271
$ 18,426
Concurrent with this transaction, the Trust sold a 50% co-ownership interest in the two underlying properties, namely, Shediac
West Plaza, Shediac, NB and Northwest Centre, Moncton, NB, to a Canadian pension fund for gross proceeds of $20.5 million
($8.7 million after assumption of 50% of the existing mortgages by the purchaser).
5.
Investment Properties
Balance, beginning of the period:
Additions (deductions):
Additions to investment properties
Acquisitions of investment
properties and land
Disposals(1)
Transfers
Straight line rent receivable change
Change in fair value
Income
producing
properties
December 31, 2018
Properties
under
development
Total
Income
producing
properties
December 31, 2017
Properties
under
development
$ 905,964
$ 53,654
$ 959,618
$ 912,462
$ 47,427
Total
$ 959,889
2,169
24,035
26,204
7,264
10,918
18,182
54,678
(48,847)
44,527
(409)
(22,303)
24,328
(8,647)
(44,527)
120
3,898
79,006
(57,494)
-
(289)
(18,405)
2,055
(16,884)
8,431
(337)
(7,027)
9,439
(2,433)
(8,431)
99
(3,365)
11,494
(19,317)
-
(238)
(10,392)
Balance, end of the period:
$ 959,618
$ 52,861
(1) Cash received from disposals as per the statement of cash flows of $40.9 million is net of $16.5 million of mortgages assumed by
$ 905,964
$ 988,640
$ 935,779
$ 53,654
purchasers.
The majority of the Trust’s investment properties have been pledged as security under various debt agreements.
Page 55 of 78
Plaza Retail REIT
Notes to the Consolidated Financial Statements
December 31, 2018
(tabular amounts in thousands of Canadian dollars, except per unit amounts and as otherwise indicated)
Investment properties are stated at fair value using the following:
(i)
External appraisals
Independent appraisals are obtained in the normal course of business as refinancing activities require them, and as applicable,
the fair value of various investment properties is based on these external appraisals. Of the total fair value in the chart above,
$87 million of investment properties was based on such external appraisals (December 31, 2017 - $322 million).
(ii)
Internal approach - direct capitalization income approach
Under this approach the Trust determines the fair value based upon capitalization rates applied to budgeted normalized net
operating income (property revenue less property operating expenses). Normalized net operating income adjusts net operating
income for things like market property management fees, or in the case of development properties, to reflect full intended
occupancy (less a normal vacancy allowance). The key assumption is the capitalization rate for each specific property. The
Trust receives quarterly capitalization rate matrices from an external independent appraiser. The capitalization rate matrices
provide a range of rates for various geographic regions and for various types and qualities of properties within each region.
The Trust utilizes capitalization rates within the range of rates provided. To the extent that the externally provided
capitalization rate ranges change from one reporting period to the next or should another rate within the provided ranges be
more appropriate than the rate previously used, the fair value of the investment properties would increase or decrease
accordingly.
As at December 31, 2018 the Trust has utilized the following range of capitalization rates:
Freestanding or Mini Box
Quick Service Restaurant
Anchored Strip – Class A
Anchored Strip – Class B
Unanchored Strip
Enclosed Malls – Community
Number of
Properties(1)
73
104
14
34
37
4
266
Weighted average
capitalization rates
6.67%
7.07%
7.06%
7.32%
8.00%
8.31%
7.25%
Primary Market
5.50% - 9.00%
5.50% - 9.50%
6.25% - 8.75%
6.00% - 9.00%
5.75% - 9.50%
8.00% - 10.00%
Secondary Market
6.00% - 9.50%
6.00% - 11.50%
6.25% - 9.50%
6.75% - 10.50%
6.25% - 11.50%
7.75% - 11.50%
(1) Excludes certain properties under development and non-consolidated trusts and partnerships.
Freestanding or Mini Box - defined as a freestanding retail, non-restaurant use such as a pharmacy or equivalent national box
retailer. May include nominal additional gross leasable area (“GLA”) if the additional GLA is 15% or less than the total GLA
or gross revenue.
Quick Service Restaurant – defined as freestanding retail space for food.
Anchored Strip – Class A - defined as a food or equivalent-anchored retail strip, 20,000-125,000 square feet and where the
anchor tenant(s) represents 70% or more of GLA or gross revenue.
Anchored Strip – Class B - defined as a food or equivalent-anchored retail strip, 20,000-200,000 square feet and where the
anchor tenant(s) represents less than 70% of GLA or gross revenue.
Unanchored Strip - defined as an unanchored retail strip less than 75,000 square feet.
Enclosed Malls - Community - defined as an enclosed community mall with food or department/junior department store or
equivalent anchors.
At December 31, 2018 a decrease of 0.25% in the capitalization rates used to determine the fair value of investment properties
would have resulted in an increase in investment properties of approximately $35.2 million. An increase of 0.25% in the
capitalization rates used would have resulted in a decrease in investment properties of approximately $32.8 million.
Page 56 of 78
Plaza Retail REIT
Notes to the Consolidated Financial Statements
December 31, 2018
(tabular amounts in thousands of Canadian dollars, except per unit amounts and as otherwise indicated)
As at December 31, 2017 the Trust utilized the following range of capitalization rates:
Freestanding or Mini Box
Quick Service Restaurant
Anchored Strip – Class A
Anchored Strip – Class B
Unanchored Strip
Enclosed Malls – Community
Number of
Properties(1)
72
117
13
31
38
4
275
Weighted average
capitalization rates
6.44%
7.26%
7.07%
7.03%
7.61%
7.80%
7.02%
Primary Market
5.50% - 8.50%
5.50% - 9.00%
6.00% - 8.25%
6.00% - 8.50%
5.75% - 9.00%
7.50% - 9.50%
Secondary Market
6.00% - 9.00%
6.00% - 11.00%
6.25% - 9.00%
6.75% - 10.00%
6.00% - 11.00%
7.50% - 11.00%
(1) Excludes certain properties under development and non-consolidated trusts and partnerships.
(a) Straight-line Rent
Included in investment properties at December 31, 2018 is $11.9 million (December 31, 2017 - $11.9 million) of straight-line
rents receivable arising from the recognition of rental revenue on a straight-line basis over the lease terms in accordance with
IAS 17, Leases.
(b)
Surplus Land
Included in investment properties at December 31, 2018 is $1.2 million of surplus lands at fair value (December 31, 2017 - $1.4
million).
(c) Borrowing Costs
The total amount of borrowing costs capitalized for the year ended December 31, 2018 is $587 thousand (for the year ended
December 31, 2017 - $348 thousand).
(d)
Acquisitions
During the year ended December 31, 2018, the Trust purchased the following (all including closing costs): land in Oshawa, ON
for $2.5 million; a 50% interest in land in Saguenay, QC for $380 thousand; land in Moncton, NB for $330 thousand; a 75%
interest in a property in Smiths Falls, ON for redevelopment for $1.8 million; a property in Brockville, ON for redevelopment
for $14.3 million; the remaining 50% interest in Northumberland Square in Miramichi, NB for $5.0 million; and a property in
Quispamsis, NB for $12.6 million. As well, the Trust acquired a 100% interest in Shediac West Plaza, Shediac, NB and
Northwest Centre, Moncton, NB for $42.1 million through the purchase of the remaining 90% of the issued and outstanding
units of Plazacorp - Shediac Limited Partnership and Northwest Plaza Commercial Trust that it did not already own (the
“Transaction”). Net of assumption of debt, working capital and the existing ownership interest, the remaining units were
purchased for total cash consideration of $14.3 million. See Note 4 for further details.
During the year ended December 31, 2017, the Trust purchased the following (all including closing costs): land adjacent to an
existing property in Picton, ON for $217 thousand; land in Fredericton, NB for $287 thousand; land in Dunnville, ON for $279
thousand; land in Gatineau, QC for $1.1 million; a 50% interest in development lands in Mississauga, ON for $6.1 million; a
50% interest in an existing property for redevelopment in Saguenay, QC for $3.3 million; and development lands in Liverpool,
NS for $168 thousand.
(e)
Disposals
During the year ended December 31, 2018, the Trust disposed of properties in Ottawa, ON and Perth, ON for net proceeds of
$1.6 million, a property in Halifax, NS for net proceeds of $3.5 million, a property in Lachine, QC for net proceeds of $641
thousand, a property in Montreal, QC for net proceeds of $10.3 million, a property in Halifax, NS for $1.3 million, a property in
Pointe aux Trembles, QC for net proceeds of $600 thousand and 8 properties in Alberta for $11.8 million. The Trust sold a
50% co-ownership interest in its redevelopment property in Brockville, ON for gross proceeds of $7.2 million ($2.5 million
after assumption of 50% of the existing mortgage). Also, purchasers waived conditions to buy property from the Trust in Paris,
Page 57 of 78
Plaza Retail REIT
Notes to the Consolidated Financial Statements
December 31, 2018
(tabular amounts in thousands of Canadian dollars, except per unit amounts and as otherwise indicated)
ON for $400 thousand and London, ON for $972 thousand. The Paris, ON transaction closed in January 2019 and the London,
ON transaction is scheduled to close in April 2019. As well, concurrent with the Transaction (noted in (d) above), the Trust
sold a 50% co-ownership interest in Shediac West Plaza, Shediac, NB and Northwest Centre, Moncton, NB, for gross proceeds
of $20.5 million ($8.7 million after assumption of 50% of the existing mortgages). See Note 4 for further details.
During the year ended December 31, 2017, the Trust disposed of surplus land in Kenora, ON for net proceeds of $92 thousand
which was recorded as investment properties held for sale at December 31, 2016. The Trust also disposed of land in Calgary,
AB and in Miramichi, NB for net proceeds of $78 thousand and $272 thousand, respectively. The Trust disposed of properties
in North Sydney, NS, for net proceeds of $215 thousand, in Oshawa, ON for net proceeds of $662 thousand, in Hamilton, ON
for net proceeds of $577 thousand and in Niagara Falls, ON for net proceeds $287 thousand. The Trust disposed of a 50% non-
managing interest in eight properties in Edmundston, NB, Woodstock, NB, Grand Falls, NB, Yarmouth, NS and Sydney, NS
for net proceeds of $17.3 million ($7.3 million after assumption of 50% of the existing mortgages).
Ownership
Position
Preferred
Return
Residual
Return
December 31,
2018
December 31,
2017
6.
Investments
Investments consist of the following:
Equity Accounted Investments
Centennial Plaza Limited Partnership
Trois Rivières Limited Partnership
Plazacorp-Shediac Limited Partnership
VGH Limited Partnership
Plazacorp Ontario1 Limited Partnership
Plazacorp Ontario2 Limited Partnership
Plazacorp Ontario3 Limited Partnership
Plazacorp Ontario4 Limited Partnership
RBEG Limited Partnership
CPRDL Limited Partnership
Fundy Retail Ltd.
Ste. Hyacinthe Limited Partnership
144 Denison East Limited Partnership
The Shoppes at Galway Limited Partnership
10%
15%
10%
20%
25%
50%
50%
50%
50%
50%
50%
25%
25%
50%
10%
10%
8%
8%
4%
-
-
-
-
-
-
-
-
-
20%
30%
50%
27%
25%
-
-
-
-
-
-
-
-
-
Fair Value Accounted Investments
Northwest Plaza Commercial Trust
10%
-
-
Held-to-Maturity Investments
Bonds and cash – substituted for mortgage
security
Total investments
Maturity
Date
Weighted
Average
Rate
-
7.0%
$ 10,948
2,640
-
2,301
2,281
3,619
2,032
1,590
2,710
2,091
1,701
185
529
11,987
44,614
$ 10,949
2,851
2,005
2,430
2,344
3,728
2,185
1,826
2,309
2,309
1,143
175
17
10,021
44,292
-
44,614
1,159
45,451
-
$ 44,614
99
$ 45,550
For equity accounted investments in which the Trust has less than a 20% ownership interest, the Trust has significant influence
over these entities as it has the power to participate in the financial and operating policy decisions of the entities but is not able
to exercise control or joint control over those policies.
The share of the profits which the equity-accounted investments noted above are entitled to, is distributed first as a preferred
return on invested capital, as outlined above, with the remaining distributed as a residual return as outlined above.
There are no held-to-maturity investments at December 31, 2018. In the prior year the held-to-maturity investments included
investments that were made up of mortgage bonds totaling $99 thousand with a yield of 7%.
Page 58 of 78
Plaza Retail REIT
Notes to the Consolidated Financial Statements
December 31, 2018
(tabular amounts in thousands of Canadian dollars, except per unit amounts and as otherwise indicated)
For the year ended December 31, 2018 the Trust received $1.3 million of distributions (for the year ended December 31, 2017 -
$1.4 million) from equity accounted investments. For the year ended December 31, 2018 the Trust made $5.2 million in
contributions to its equity accounted investments (for the year ended December 31, 2017 - $1.0 million).
On January 31, 2018, the Trust completed the acquisition of the remaining 90% of the issued and outstanding units of Plazacorp
- Shediac Limited Partnership and Northwest Plaza Commercial Trust that it did not already own. See Note 4 for further
details.
Summary financial information for equity accounted investments, not adjusted for the percentage ownership held by the Trust
is as follows:
Cash
Current assets
Long term assets
Current liabilities
Long term liabilities
Revenues
Expenses
Fair value gain (loss)
Profit
December 31, 2018
December 31, 2017
Equity accounted
investments
$ 5,713
$ 3,871
$ 283,241
$ 7,736
$ 136,024
$ 21,754
$ (12,650)
$ (5,924)
$ 3,180
Fair value accounted
investments(1)
-
-
-
-
-
-
-
-
-
Equity accounted
investments
$ 3,077
$ 921
$ 292,284
$ 2,348
$ 140,634
$ 22,458
$ (13,353)
$ 1,775
$ 10,880
Fair value accounted
investments
$ 500
$ 63
$ 32,699
$ 153
$ 19,689
$ 3,254
$ (3,031)
$ 441
$ 664
(1) On January 31, 2018, the Trust completed the acquisition of the remaining 90% of the issued and outstanding units of Northwest
Plaza Commercial Trust that it did not already own. Concurrent with this transaction, the Trust sold a 50% co-ownership interest in
the Northwest Centre, Moncton, NB. For the year ended December 31, 2018 this investment is proportionately consolidated.
7.
Receivables
Receivables consist of the following:
Tenant accounts receivable, net of allowance
Excise tax
Holdback receivable
Other receivables
Income taxes receivable
Total receivables
December 31,
2018
$ 1,416
421
500
1,061
-
$ 3,398
December 31,
2017
$ 1,214
355
500
2,390
21
$ 4,480
The Trust determines its allowance for doubtful accounts on a tenant-by-tenant basis using an expected credit loss model taking
into consideration lease terms, industry conditions and status of the tenants’ accounts, among other factors. Accounts are
written off only when all collection efforts have been exhausted. Allowance for doubtful accounts balance at December 31,
2018 is $46 thousand (December 31, 2017 - $77 thousand). This amount is deducted from tenant accounts receivable.
There were no impairment losses recognized during the year ended December 31, 2018 (for the year ended December 31, 2017
– nil).
Page 59 of 78
Plaza Retail REIT
Notes to the Consolidated Financial Statements
December 31, 2018
(tabular amounts in thousands of Canadian dollars, except per unit amounts and as otherwise indicated)
8.
Prepaid Expenses and Deposits
Prepaid expenses and deposits consist of the following:
Prepaid expenses
Deposits for acquisitions and financings
Total prepaid expenses and deposits
9.
Notes and Advances Receivable
December 31,
2018
$ 2,138
1,252
$ 3,390
December 31,
2017
$ 2,277
1,790
$ 4,067
The notes and advances receivable are owed by co-owners of investment properties as a result of funding requirements on a
short-term basis during development of investment properties, and by minority interest shareholders of consolidated entities.
The notes and advances are due on demand.
10. Debentures Payable
Debentures payable consist of the following:
Convertible(1)
Series D
Series E
Series VII
Total convertible debentures
Maturity Date
Interest Rate
December 31, 2018 December 31, 2017
December 31, 2018
March 31, 2023
June 30, 2021
5.75%
5.10%
5.50%
$ -
44,892
5,226
50,118
$ 34,336
-
5,554
39,890
Non-convertible(2) (3)
Total debentures payable
Less: current portion of debentures payable
Debentures payable – long-term portion
9,883
49,773
(38,336)
$ 11,437
(1) Recorded at fair value based on closing market trading prices of debentures; the fair value change during 2018 was a gain of $3.0
9,717
59,835
-
Various (see below)
$ 59,835
5.00%
million (2017 – gain of $339 thousand)
(2) Recorded at amortized cost
(3) Net of unamortized finance charges of $143 thousand (December 31, 2017 - $117 thousand)
Convertible and non-convertible debentures are subordinate and unsecured.
Convertible debenture terms are as follows:
Conversion price
Trust’s first redemption date
Par call date
Maturity date
Face value outstanding
Publicly listed
Series E
$5.65
April 1, 2021
April 1, 2022
March 31, 2023
$47,250
yes
Series VII
$6.04
June 30, 2019
June 30, 2020
June 30, 2021
$5,500
no
Non-convertible debenture maturities are as follows:
Face value outstanding
Maturity date
Series I
$3,860
May 2, 2021
Series II
$6,000
February 28, 2022
Total
$9,860
On February 21, 2018, the Trust completed a public offering of $45 million aggregate principal amount of Series E 5.10%
convertible unsecured subordinated debentures due March 31, 2023. The debentures are convertible at the option of the holder,
into units of the Trust at $5.65 per unit. In addition, the underwriters were granted an over-allotment option, exercisable in
whole or in part up to 30 days after closing, to purchase up to an additional $2.25 million debentures. The option was exercised
on closing of the offering on February 21, 2018. Proceeds from the offering were used to redeem the $34 million 5.75% Series
Page 60 of 78
Plaza Retail REIT
Notes to the Consolidated Financial Statements
December 31, 2018
(tabular amounts in thousands of Canadian dollars, except per unit amounts and as otherwise indicated)
D convertible unsecured subordinated debentures on March 27, 2018, with the remainder of the proceeds used to repay amounts
outstanding on the Trust’s operating line of credit.
The Trust extended $3.9 million of the $4.0 million of tranched Series I non-convertible debentures to May 2, 2021 on the same
terms and conditions.
On February 28, 2017, the Trust issued $6.0 million in Series II unsecured debentures with an interest rate of 5.0% per annum
maturing on February 28, 2022.
11. Mortgage Bonds Payable
Mortgage bonds payable are secured by the following properties:
Various properties, 1st mortgage
Various properties, 1st mortgage
Various properties, 1st mortgage
Gross mortgage bonds payable
Less: unamortized finance charges
Net mortgage bonds payable
Less: current portion of mortgage bonds payable
Net mortgage bonds payable – long-term portion
Series X
6,000
-
-
6,000
Series XI Series XII
-
-
3,000
3,000
-
6,000
-
6,000
December 31,
2018
December 31,
2017
Total
$ 6,000
6,000
3,000
15,000
(137)
14,863
(5,970)
$ 8,893
Total
$ 6,000
6,000
3,000
15,000
(236)
14,764
-
$ 14,764
Interest Rate
Maturity Date
Amount
Series X
Series XI
Series XII
5.00%
5.00%
5.50%
June 25, 2020
$6,000
July 8, 2019
$6,000
July 15, 2022
$3,000
The Series X, XI and XII mortgage bonds can be deployed up to 90% of the cost of a property under a first or second charge on
that property. If it is a second charge, the total debt, including mortgage bonds, cannot exceed 90%. These mortgage bonds can
be reallocated to different properties from time to time as required.
The Trust can redeem up to one-half of the Series X and XII mortgage bonds at par on the fourth anniversary for the Series X
mortgage bonds and the second anniversary for the Series XII mortgage bonds, being: June 25, 2019 for the Series X mortgage
bonds; and July 15, 2019 for the Series XII mortgage bonds.
On July 15, 2017, the $3.0 million 5.50% Series IX mortgage bonds matured and were repaid.
On July 15, 2017, the $3.0 million 5.50% Series XII mortgage bonds were issued.
Page 61 of 78
Plaza Retail REIT
Notes to the Consolidated Financial Statements
December 31, 2018
(tabular amounts in thousands of Canadian dollars, except per unit amounts and as otherwise indicated)
12. Mortgages Payable
Secured fixed rate loans:
Unsecured interest-only fixed rate loans:
Fair value of interest rate swap
Revaluation of loans upon acquisitions, net of
amortization of $6,022 (December 31, 2017 -
$5,770)
Less: unamortized finance charges
Total net fixed rate loans
Variable rate loans:
-
$20 million development facility
-
-
-
-
$15 million development facility
$3.0 million secured non-revolving
construction credit facility
$907 thousand secured non-revolving
construction credit facility
$6.6 million secured non-revolving
construction credit facility
$7.45 million secured non-revolving
construction credit facility
Less: unamortized finance charges
Total net variable rate loans
Net mortgages payable
Less: mortgages payable – current portion
Total mortgages payable – long-term portion
-
Interest Rate
Range
2.47% - 7.00%
5.00%
Weighted
Average
Effective
Interest Rate Maturity Dates
Up to June 2034
Up to June 2023
4.58%
5.00%
Prime plus 0.75% or
BA plus 2.25%
Prime plus 0.75% or
BA plus 2.00%
Prime plus 1.25% or
BA plus 2.50%
Prime plus 1.00% or
BA plus 2.50%
Prime plus 2.25% or
BA plus 3.75% (1)
Prime plus 1.25% or
BA plus 2.50%
July 31, 2019
July 31, 2020
May 26, 2018
September 15,
2018
November 30,
2019
January 10, 2020
December 31,
2018
$ 438,669
6,643
136
December 31,
2017
$ 433,995
-
175
751
(2,124)
444,075
264
(2,472)
431,962
11,579
4,885
-
-
2,710
4,592
2,768
712
1,950
1,950
5,988
(139)
24,263
468,338
(68,471)
$ 399,867
-
(115)
12,617
444,579
(33,700)
$ 410,879
(1) Rates reduce to prime plus 1.25% or BA plus 2.75% once construction begins and construction draws under the facility are advanced.
All secured mortgages and facilities are secured by charges against specific assets. The unamortized finance charges are made
up of fees and costs incurred to obtain the mortgage financing less accumulated amortization.
To fund development activities the Trust has two revolving development facilities with Canadian chartered banks available
upon pledging of specific assets. One is a $20.0 million one-year revolving facility that bears interest at prime plus 0.75% or
bankers’ acceptances (“BAs”) plus 2.25%, and the other is a $15.0 million two-year revolving facility that bears interest at
prime plus 0.75% or BAs plus 2.00%. At December 31, 2018 there is $18.5 million available on these development facilities
(December 31, 2017 - $27.7 million). Funding is secured by first mortgage charges on development properties. The Trust must
maintain certain financial ratios to comply with the facilities. These covenants include loan-to-value, debt coverage, interest
coverage and occupancy covenants, as well as unitholder equity tests. As of December 31, 2018 the Trust is in compliance
with all financial covenants.
In January 2018 the Trust obtained a $14.9 million secured non-revolving construction credit facility relating to the acquisition
of a development property in Brockville, ON. Upon the sale of a 50% co-ownership interest in the property in the second
quarter of 2018, 50% of this facility was assumed by the partner.
In the second quarter of 2015 as part of the acquisition of a development property, the Trust assumed a $4.0 million variable
rate mortgage that had an interest rate swap in place (thereby fixing the variable interest rate). The interest rate swap matures
on August 13, 2023 and is recorded at fair value.
Page 62 of 78
Plaza Retail REIT
Notes to the Consolidated Financial Statements
December 31, 2018
(tabular amounts in thousands of Canadian dollars, except per unit amounts and as otherwise indicated)
13. Bank Indebtedness
The Trust has a $44.0 million (December 31, 2017 - $44.0 million) revolving operating line of credit facility with a Canadian
chartered bank at the rate of prime plus 0.75% or BAs plus 2.00%, maturing July 31, 2020. The amount available to be drawn
fluctuates depending on the specific assets pledged as security. Based on the assets pledged at December 31, 2018, the
available limit was $44.0 million of which $35.6 million (December 31, 2017 – $29.5 million) was drawn and therefore the
maximum amount available to be drawn on the facility was $7.5 million (December 31, 2017 – $11.0 million), net of letters of
credit outstanding of $869 thousand (December 31, 2017 - $750 thousand). As security, at December 31, 2018, the Trust has
provided a $50.0 million demand debenture secured by a first mortgage over forty properties.
14. Accounts Payable, Accrued Liabilities, Tenant Payables and Tenant Deposits
Accounts payable, accrued liabilities, tenant payables and tenant deposits consist of the following:
Accounts payable and accrued liabilities
Distributions payable
Excise tax payable
Accrued interest payable
Deferred tenant revenue and deposits
Other
Total accounts payable, accrued liabilities, tenant payables and tenant deposits
15. Notes Payable
Notes payable consist of the following:
December 31,
2018
December 31,
2017
$ 8,183
2,427
1,050
2,328
3,216
479
$ 17,683
$ 7,395
2,315
1,055
1,735
2,195
527
$ 15,222
Interest
Rate
December 31,
2018
December 31,
2017
Non-interest bearing notes:
Entities owned (directly and indirectly), controlled or significantly
influenced by Michael Zakuta, President, CEO and Trustee of the Trust (1)
Unrelated parties and non-controlling interests
Total notes payable
(1) The notes are repayable on sale or refinancing of the related asset
n/a
n/a
16.
Income Taxes
$ 261
$ 261
1,080
$ 1,341
1,163
$ 1,424
The Trust qualifies as a real estate investment trust (“REIT”) for Canadian income tax purposes. The Trust expects to distribute
all of its taxable income to unitholders and is entitled to deduct such distributions for income tax purposes. Accordingly, no
provision for Canadian current income tax payable is required, except for amounts in its incorporated Canadian subsidiaries.
Where an entity does not qualify as a REIT for Canadian income tax purposes, certain distributions will not be deductible by
that entity in computing its income for Canadian tax purposes. As a result, the entity will be subject to tax at a rate substantially
equivalent to the general corporate income tax rate on distributed taxable income. Distributions paid in excess of taxable
income will continue to be treated as a return of capital to unitholders. Undistributed taxable income is subject to the top
marginal personal tax rate. The Trust consolidates certain wholly-owned incorporated entities that remain subject to tax. The
current year tax disclosures and expense relate only to these entities.
Page 63 of 78
Plaza Retail REIT
Notes to the Consolidated Financial Statements
December 31, 2018
(tabular amounts in thousands of Canadian dollars, except per unit amounts and as otherwise indicated)
The components of deferred taxes on the consolidated statements of financial position are as follows:
Deferred income tax assets
Tax loss carry-forwards of subsidiaries
Deferred income tax liabilities
Income producing properties
Net deferred income tax liability
December 31,
2018
December 31,
2017
$ 461
$ 520
7,078
$ 6,617
7,547
$ 7,027
Distributions are declared monthly at the discretion of the Board of Trustees of the Trust, provided that the Board of Trustees
intend to make distributions sufficient to reduce or eliminate the Trust’s liability for income tax under Part I of the Income Tax
Act (Canada).
Cash distributions declared
Required cash distributions to ensure no Part I tax
Total discretionary cash distributions
17. Revenues
Contractual revenue
Straight-line rent
Property tax and insurance recovery
Recovery revenue
Lease buyout revenue
Other revenue
Total property revenues
(1) 2017 is not restated for IFRS 15 changes in presentation
18. Operating Expenses
Property taxes and insurance
Recoverable expenses
Non-recoverable expenses
Total operating expenses
19. Administrative Expenses
Salaries and benefits
Professional services
Office expenses
Total administrative expenses
2018
$ 28,646
15,453
$ 13,193
2017
$ 27,320
12,747
$ 14,573
2018
$ 73,336
(228)
19,502
11,013
-
394
$ 104,017
2017(1)
$ 73,734
(239)
17,127
10,363
1,676
226
$ 102,887
2018
$ 21,595
14,089
4,409
$ 40,093
2017
$ 19,947
13,848
4,734
$ 38,529
2018
$ 6,435
1,112
1,840
$ 9,387
2017
$ 6,270
1,010
1,859
$ 9,139
Total employee salaries and benefits paid by the Trust during the year were $12.5 million, of which $4.6 million is included in
operating expenses, $6.4 million is included in administrative expenses and $1.5 million has been capitalized to income
producing properties (for the year ended December 31, 2017 - $12.1 million, of which $4.6 million is in operating expenses,
$6.2 million is in administrative expenses and $1.3 million is in income producing properties).
Page 64 of 78
Plaza Retail REIT
Notes to the Consolidated Financial Statements
December 31, 2018
(tabular amounts in thousands of Canadian dollars, except per unit amounts and as otherwise indicated)
20.
Finance Costs
Mortgage interest
Debenture interest
Mortgage bond interest
Distributions paid to Class B exchangeable LP unitholders
Operating line of credit interest
Interest and bank charges
Amortization of finance charges
Loan defeasance and early mortgage discharge fees
Mark to market amortization
Capitalization of interest
Total finance costs
21. Unitholders’ Equity
(a)
Authorized
2018
$ 20,280
3,325
765
351
1,196
424
1,010
240
(252)
(587)
$ 26,752
2017
$ 19,801
2,713
765
354
1,008
341
1,107
56
(151)
(348)
$ 25,646
The Declaration of Trust authorizes the issuance of an unlimited number of units and special voting units. Special voting units
are only issued in tandem with the issuance of securities exchangeable into units.
Each special voting unit shall have no economic entitlement nor beneficial interest in the Trust including in the distributions or
assets of the Trust, but shall entitle the holder of record thereof to a number of votes at any meeting of the unitholders equal to
the number of units that may be obtained upon the exchange of the exchangeable security to which such special voting unit is
attached. Special voting units may only be issued in connection with or in relation to, securities exchangeable into units, for the
purpose of providing voting rights with respect to the Trust to the holders of such securities. The creation or issuance of special
voting units is subject to the prior written consent of the Toronto Stock Exchange (“TSX”).
In addition, preferred units may from time to time be created and issued in one or more classes (each of which may be made up
of unlimited series) without requiring voting unitholder approval. Before the issuance of preferred units of a series, the Board
will execute an amendment to the Declaration of Trust containing a description of such series, including the designations,
rights, privileges, restrictions and conditions determined by the Board, and the class of preferred units of which such series is a
part. The issuance of preferred units is also subject to the prior written consent of the TSX.
(b)
Issued and Outstanding
(i)
Class B Exchangeable LP Units
The Class B exchangeable units are economically equivalent to units of the Trust and are exchangeable at any time into units of
the Trust on a one-for-one basis. These units are puttable instruments where the Trust has a contractual obligation to issue
Trust units to the exchangeable unitholders upon redemption. Holders of the exchangeable LP units are entitled to receive
distributions per unit equal to distributions per unit provided to the unitholders of the Trust.
Exchangeable LP units outstanding, beginning of the period
Exchanges
Fair value adjustment for the period
Exchangeable LP units outstanding, end of the period
December 31, 2018
December 31, 2017
Units (000s)
1,266
(75)
-
1,191
Amount
$ 5,393
(314)
(457)
$ 4,622
Units (000s)
1,319
(53)
-
1,266
Amount
$ 6,595
(232)
(970)
$ 5,393
Page 65 of 78
Plaza Retail REIT
Notes to the Consolidated Financial Statements
December 31, 2018
(tabular amounts in thousands of Canadian dollars, except per unit amounts and as otherwise indicated)
(ii)
Special Voting Units
At December 31, 2018, there were 1,191,000 (December 31, 2017 1,266,000) special voting units outstanding, issued in
connection with 1,191,000 (December 31, 2017 - 1,266,000) Class B exchangeable LP units of a subsidiary of the Trust (see
above).
(iii) Units
Units outstanding, beginning of the period
Issuance of units:
Exchange of Class B exchangeable LP units
Distribution reinvestment plan
RSU plan
Convertible debenture conversions
- face value of convertible debentures
- impact of fair value of convertible debentures
Units outstanding, end of the period
December 31, 2018
December 31, 2017
Trust Units
(000s)
101,610
Amount
$ 273,158
Trust Units
(000s)
98,488
Amount
$ 258,011
75
1,101
38
314
4,433
153
-
-
102,824
-
-
$ 278,058
53
597
22
2,450
-
101,610
232
2,607
95
11,439
774
$ 273,158
Unitholders have the right to redeem their units at the lesser of (i) 90% of the Market Price of the unit (Market Price is defined
for this purpose in the Declaration of Trust as the weighted average trading price of the previous 10 trading days) and (ii) the
most recent Closing Market Price (Closing Market Price is defined for this purpose in the Declaration of Trust as the weighted
average trading price on the specified date) at the time of the redemption. The redemption price will be satisfied by cash, up to
a limit of $50 thousand for all redemptions in a calendar month, or a note payable. For the year ended December 31, 2018 no
unitholder had redeemed units.
The Trust instituted a Distribution Reinvestment Plan (“DRIP”) to enable Canadian resident unitholders to acquire additional
units of the Trust through the reinvestment of distributions on their units. Units issued in connection with the DRIP were issued
directly from the treasury of the Trust at a price based on the weighted average daily closing price of the units on the TSX for
the 5 trading days immediately preceding the relevant distribution date. Participants also received “bonus units” in an amount
equal to 3% of the distribution amount reinvested. Commencing with the October 2018 distribution, payable November 15,
2018, the Trust suspended its DRIP until further notice and unitholders enrolled in the DRIP began receiving distribution
payments in cash. If the Trust elects to reinstate the DRIP in the future, unitholders that were enrolled in the DRIP at the time
of its suspension and remain enrolled at the time of reinstatement, will automatically resume participation in the DRIP.
Effective September 28, 2018, the Trust instituted a normal course issuer bid (“NCIB”). Pursuant to the NCIB, the Trust can
purchase through the facilities of the TSX and any alternative trading system in Canada, from time to time over the next twelve
months, if considered advisable, up to an aggregate of 8,025,793 of the Trust’s issued and outstanding units. All units that are
purchased under the NCIB will be cancelled. The NCIB will conclude on the earlier of the date on which purchases under the
bid have been completed and September 27, 2019. Daily purchases made by the Trust may not exceed 14,623 units, being 25%
of the average daily trading volume of the units on the TSX for the six month period ended August 31, 2018, subject to certain
prescribed exemptions and any block purchase made in accordance with the rules of the TSX. No purchases under the NCIB
have been made to date.
22. Restricted Share Unit Plan and Deferred Unit Plan
The Trust has a Restricted Share Unit Plan (“RSU Plan”) to enable the Trust to reward senior management and employees for
their sustained contributions and to assist in attracting, retaining and motivating senior management and employees of the Trust.
Restricted Share Units (“RSUs”) may be granted from time to time on a discretionary basis by the Administrator (the Corporate
Governance and Compensation Committee of the Board of Trustees). Each RSU notionally represents a unit in the Trust. Each
RSU credited to a participant shall receive a distribution of additional RSUs equal to the amount of distributions paid per unit
by the Trust on its units (“Distribution RSUs”). The number of Distribution RSUs to be issued for each distribution payment
will be equal to the aggregate amount of such distribution payable to a participant on his or her RSUs divided by the volume
weighted average closing price of units for the five trading days immediately preceding such applicable day. The Distribution
RSUs vest immediately and are redeemed by the participant in either cash or units, net of any applicable withholding taxes.
The RSUs vest as follows: one-third of a given award on the first anniversary of the grant date, one-third on the second
Page 66 of 78
Plaza Retail REIT
Notes to the Consolidated Financial Statements
December 31, 2018
(tabular amounts in thousands of Canadian dollars, except per unit amounts and as otherwise indicated)
anniversary of the grant date and the balance on the third anniversary of the grant date. Upon vesting, a participant must
redeem the RSUs for cash or units or a combination of both, net of any applicable withholding taxes. At December 31, 2018,
the maximum number of units that may be issued under the RSU Plan upon the redemption of RSUs and Distribution RSUs is
5,729,499. A total of 488,813 RSUs have been granted under the RSU Plan since inception. For the year ended December 31,
2018, compensation expense of $436 thousand (for the year ended December 31, 2017 - $295 thousand) has been recognized in
respect of the RSUs.
Restricted share units outstanding, beginning of the period
Granted
Vested
Forfeited
Restricted share units outstanding, end of the period
December 31, 2018 December 31, 2017
98,600
107,378
(33,609)
(2,600)
169,769
169,769
100,035
(72,518)
(2,166)
195,120
In 2015, the Trust implemented a Deferred Unit Plan (“DU Plan”) for non-employee trustees. Participants may be awarded
deferred units (“DUs”) from time to time on a discretionary basis by the Corporate Governance and Compensation Committee.
Each DU is economically equivalent to one unit, however, under no circumstances shall DUs be considered units nor entitle a
participant to any rights as a unitholder, including, without limitation, voting rights or rights on liquidation. Participants may
also elect to receive, in the form of DUs, up to 100% of their annual Board retainer, meeting fees and additional compensation
paid by the Trust to a trustee in a calendar year for service on the Board or for chairing a committee of the Board. Each DU
shall receive a distribution of additional DUs equal to the amount of distributions paid per unit by the Trust on its units. DUs
vest immediately upon grant or issuance. The DUs shall be redeemable by the participant on or after the date on which the
participant ceases to be a trustee. The DUs may be redeemed in whole or in part for units of the Trust issued from treasury or
cash, as elected by the participant, net of any applicable withholding taxes. The maximum number of units that may be issued
under the DU Plan upon the redemption of DUs is 750,000. At December 31, 2018, a total of 100,427 DUs have been granted
or issued under the DU Plan since inception and for the year ended December 31, 2018, compensation expense of $100
thousand was recorded (for the year ended December 31, 2017 - $88 thousand).
Deferred units outstanding, beginning of the period
Granted
Trustee fees taken as deferred units
Distributions paid on deferred units taken as additional deferred units
Deferred units outstanding, end of the period
23. Distributions
December 31, 2018 December 31, 2017
40,265
10,549
13,989
3,144
67,947
67,947
9,926
17,150
5,404
100,427
Distributions are declared monthly at the discretion of the Board of Trustees of the Trust.
Distributions paid to unitholders
Distribution reinvestment proceeds
Cash distributions paid to unitholders
2018
$ 28,646
(4,586)
$ 24,060
2017
$ 27,320
(2,607)
$ 24,713
Page 67 of 78
Plaza Retail REIT
Notes to the Consolidated Financial Statements
December 31, 2018
(tabular amounts in thousands of Canadian dollars, except per unit amounts and as otherwise indicated)
24. Additional Cash Flow Information
(a)
Changes in Non-Cash Working Capital
Receivables
Prepaid expenses and deposits
Change in construction accruals removed from investing
activities
Accounts payable, accrued liabilities, tenant payables
and tenant deposits
Total cash from change in non-cash working capital
(b)
Changes in Liabilities Arising from Financing Activities
Current and long-term debt(1) – beginning of the period
Gross proceeds from mortgage bonds and debentures
Redemption/repayment of mortgage bonds and debentures
Periodic mortgage principal repayments
Mortgages repaid
Gross mortgage proceeds
Fees incurred for placement of debt
Increases in notes payable
Non-cash changes in current and long-term debt:
2018
$ 1,186
150
2017
$ (973)
136
(737)
2,567
1,602
$ 2,201
(601)
$ 1,129
December 31,
2018
$ 515,933
48,655
(35,545)
(10,730)
(38,783)
65,373
(533)
(83)
December 31,
2017
$ 542,549
9,000
(5,276)
(10,416)
(31,975)
36,933
(647)
234
Deferred finance charges assumed on acquisition
Deferred finance charges written off on sale of investment properties
Convertible debenture conversions
Mortgages assumed on acquisition
Mortgages assumed by purchasers on sale of investment properties
(13,667)
-
(10,035)
-
-
(970)
(182)
(339)
(232)
1,107
-
(151)
$ 515,933
(1) Debt defined for this purpose as mortgage bonds, debentures, mortgages payable, notes payable and Class B exchangeable LP units.
Net change in fair value of Class B exchangeable LP units
Net change in fair value of interest rate swaps and bond forwards
Net change in fair value of convertible debentures
Exchanges of Class B exchangeable LP units
Amortization of finance charges
Mark to market on assumption of debt
Mark to market amortization
-
23,646
(16,519)
(162)
82
(457)
(39)
(3,022)
(314)
1,010
739
(252)
$ 548,999
Current and long-term debt(1) – end of the period
25. Related Party Transactions
The following are the related party transactions of the Trust. All related party transactions have been recorded at the exchange
amount.
(a) Bonds and Debentures
The trustees own directly or indirectly the following mortgage bonds and debentures of the Trust (stated at face value):
Edouard Babineau
Earl Brewer
Stephen Johnson
Michael Zakuta
Total
December 31, 2018
$ 150
450
300
100
$ 1,000
December 31, 2017
$ 150
425
300
100
$ 975
Page 68 of 78
Plaza Retail REIT
Notes to the Consolidated Financial Statements
December 31, 2018
(tabular amounts in thousands of Canadian dollars, except per unit amounts and as otherwise indicated)
Other key management personnel own $20 thousand in mortgage bonds of the Trust at December 31, 2018 (December 31, 2017
- $20 thousand).
(b) Notes Payable to Related Parties
The following non-interest bearing notes existed at the time of acquisition of properties in September 2000. Certain of the
notes are owed to parties controlled directly or indirectly by Michael Zakuta. The notes are repayable on sale or refinancing of
the related asset.
Entities owned (directly or
indirectly), controlled or significantly
influenced by Michael Zakuta, President, Chief Executive Officer and
trustee of the Trust
(c) Other Transactions with Related Parties
December 31, 2018 December 31, 2017
$ 261
$ 261
(i)
TC Land LP, an entity controlled by Michael Zakuta and Earl Brewer, leases nine parcels of land to the Trust at a total
annual rent of $1.2 million. The land leases expire at various times from October 2043 to November 2047, subject to
options to renew. All of these land leases have options to purchase, of which one is at a fixed price and the others are at
fair market value.
(ii) Earl Brewer and Michael Zakuta, directly or indirectly, hold interests in common with the Trust’s 25% interest in the
Gateway Mall, Sussex, NB. A subsidiary of the Trust manages the mall. There is a $60 thousand accounts receivable
balance owing to the Trust for property management, leasing and development fees (December 31, 2017 - $7 thousand).
For the twelve months ended December 31, 2018, property management, development and leasing fees of $212 thousand
were earned by a subsidiary of the Trust from this property (for the twelve months ended December 31, 2017 - $96
thousand). There is a $405 thousand note receivable owing to the Trust relating to short-term funding requirements for
the construction of a retail pad on the property (December 31, 2017 – nil).
(iii) Until January 31, 2018, Edouard Babineau, Earl Brewer and Michael Zakuta, directly or indirectly, held interests in
common with the Trust’s 10% interest in Northwest Plaza Commercial Trust, the owner of Northwest Centre, Moncton,
NB. A subsidiary of the Trust manages the centre. On January 31, 2018, the Trust completed the acquisition of the
remaining 90% of the issued and outstanding units of Northwest Plaza Commercial Trust that it did not already own (see
Note 4). A special committee of independent trustees of the Trust was formed to review and approve the related party
transaction. For the one month ended January 31, 2018, property management, development and leasing fees of $18
thousand were earned by a subsidiary of the Trust from this property (for the twelve months ended December 31, 2017 -
$126 thousand).
(iv) The Montreal office of Plaza Group Management Limited (a wholly-owned subsidiary of the Trust) shares office space
with a company indirectly owned by Michael Zakuta in an office building owned by that related party. No basic
minimum rent is payable for the space.
(v)
Edouard Babineau, Earl Brewer and Michael Zakuta, directly or indirectly, hold interests in common with the Trust’s
20% interest in Mountainview Plaza, Midland, ON and Park Street Plaza, Kenora, ON. A subsidiary of the Trust
manages the malls. At December 31, 2018 there is $5.6 million owed by the properties to the Trust which is recorded in
notes and advances receivable (December 31, 2017 - $6.5 million). As well, there is a $5 thousand accounts receivable
balance owing to the Trust for property management, leasing and development fees (December 31, 2017 - $64
thousand). For the twelve months ended December 31, 2018, property management, leasing, development and financing
fees of $453 thousand were earned by a subsidiary of the Trust from these properties (for the twelve months ended
December 31, 2017 - $393 thousand).
(vi) Until January 31, 2018, Edouard Babineau, Earl Brewer, Denis Losier and Michael Zakuta, directly or indirectly, held
interests in common with the Trust’s 10% interest in Shediac West Plaza, Shediac, NB. A subsidiary of the Trust
manages the property. On January 31, 2018, the Trust completed the acquisition of the remaining 90% of the issued and
outstanding units of Plazacorp – Shediac Limited Partnership that it did not already own (see Note 4). A special
committee of independent trustees of the Trust was formed to review and approve the related party transaction. For the
Page 69 of 78
Plaza Retail REIT
Notes to the Consolidated Financial Statements
December 31, 2018
(tabular amounts in thousands of Canadian dollars, except per unit amounts and as otherwise indicated)
one month ended January 31, 2018, property management, leasing and development fees of $2 thousand were earned by
a subsidiary of the Trust from this property (for the twelve months ended December 31, 2017 - $34 thousand).
(vii) Earl Brewer and Michael Zakuta, directly or indirectly, hold interests in common with the Trust’s 50% interest in two
single-use properties located in Amherstview and Port Perry, ON. A subsidiary of the Trust manages the properties. For
the twelve months ended December 31, 2018, property management fees of $5 thousand were earned by a subsidiary of
the Trust from these properties (for the twelve months ended December 31, 2017 - $5 thousand).
(viii) Edouard Babineau, Earl Brewer, James Petrie, Barbara Trenholm and Michael Zakuta, directly or indirectly, hold
interests in common with the Trust’s 25% interest in KGH Plaza, Miramichi, NB, a single-use property located at 681
Mountain Road, Moncton, NB, a single-use property located at 201 Main Street, Sussex, NB and Robie Street Truro
Plaza, Truro, NS. A subsidiary of the Trust manages the properties. At December 31, 2018 there is a $5 thousand
accounts receivable balance owing to the Trust for property management, development and leasing fees (December 31,
2017 - $5 thousand). For the twelve months ended December 31, 2018, property management, leasing and development
fees of $168 thousand were earned by a subsidiary of the Trust from these properties (for the twelve months ended
December 31, 2017 - $65 thousand).
(ix) Edouard Babineau, Earl Brewer and Michael Zakuta, directly or indirectly, hold interests in common with the Trust’s
50% interest in Scott Street Plaza, St. Catharines, ON, and five single-use properties located at St. Joseph’s Boulevard,
Orleans, ON, Dufferin and Wilson, Perth, ON, Ontario Street Port Hope, Port Hope, ON, Civic Centre Road, Petawawa,
ON and 615 King Street, Gananoque, ON. A subsidiary of the Trust manages the properties. For the twelve months
ended December 31, 2018, property management fees of $32 thousand were earned by a subsidiary of the Trust from
these properties (for the twelve months ended December 31, 2017 - $29 thousand).
(x)
Effective December 1, 2017, Edouard Babineau, Earl Brewer, Denis Losier and Michael Zakuta, directly or indirectly,
hold interests in common with the Trust’s 50% interest in the following eight properties: Boulevard Hebert Plaza and
Victoria Street Plaza in Edmundston, NB; Grand Falls Shopping Center and Madawaska Road Plaza in Grand Falls, NB;
Connell Road Plaza, Woodstock, NB; Welton Street Plaza, Sydney, NS; and Pleasant Street Plaza and Starrs Road Plaza
in Yarmouth, NS. A subsidiary of the Trust manages the properties. At December 31, 2018 there is a $9 thousand
accounts receivable balance owing to the Trust for property management fees (December 31, 2017 - $13 thousand). For
the twelve months ended December 31, 2018, property management, leasing and development fees of $125 thousand
were earned by a subsidiary of the Trust from these properties (for the twelve months ended December 31, 2017 – $13
thousand).
(d) Remuneration of Key Management Personnel
Key management personnel are those persons having authority and responsibility for planning, directing, and controlling the
activities of the entity, directly or indirectly, including any trustee of the entity. The remuneration of trustees and other key
management personnel of the Trust during the years ended December 31, 2018 and 2017 was as follows:
Salaries and benefits
Share-based payments – including DUs and RSUs
Total key management personnel compensation
2018
$ 1,906
170
$ 2,076
2017
$ 1,797
133
$ 1,930
During the years ended December 31, 2018 and 2017 there were no amounts paid in post-employment benefits, long-term
benefits or termination benefits.
Page 70 of 78
Plaza Retail REIT
Notes to the Consolidated Financial Statements
December 31, 2018
(tabular amounts in thousands of Canadian dollars, except per unit amounts and as otherwise indicated)
(e) Significant Subsidiaries
Plaza Master Limited Partnership
Lemarchant Property Holdings Inc.
Plaza Retail Limited Partnership #1
Bedford Commons 2 Property Holdings Inc.
Plaza Group Management Limited
Stavanger Torbay Limited Partnership
Spring Park Plaza Inc.
Granville Street Properties Limited Partnership
Wildan Properties Limited Partnership
Exhibition Plaza Inc.
Scott’s Real Estate Limited Partnership
Scott’s Acquisition Inc.
Riverside Emerald (Timmins) Limited Partnership
26.
Interests in Joint Operations
Ownership Interest
December 31, 2018
100%
100%
100%
100%
100%
90%
100%
90%
90%
90%
100%
100%
80%
December 31, 2017
100%
100%
100%
100%
100%
90%
100%
90%
90%
90%
100%
100%
80%
As described in Note 3(a), the consolidated financial statements include the Trust’s proportionate interest in its activities
characterized as joint operations with other parties. The following amounts represent the total proportionate amounts
consolidated for these joint operations:
Cash
Current assets
Long term assets
Current liabilities
Long term liabilities
Revenues
Expenses
Fair value gain (loss)
December 31, 2018 December 31, 2017
$ 6,065
$ 1,478
$ 209,574
$ 9,032
$ 107,223
$ 20,193
$ (12,549)
$ 124
$ 4,492
$ 1,519
$ 214,546
$ 8,726
$ 124,235
$ 24,811
$ (16,541)
$ 3,131
Page 71 of 78
Plaza Retail REIT
Notes to the Consolidated Financial Statements
December 31, 2018
(tabular amounts in thousands of Canadian dollars, except per unit amounts and as otherwise indicated)
The chart below details the Trust’s ownership interest of direct and indirect investments and co-ownerships in real estate assets.
Ownership Interest
December 31, 2018
December 31, 2017
Accounting Method – Proportionate Consolidation
Les Galeries Montmagny and Plaza Tache, QC
Bureau en Gross, QC
Plaza SP Magog, QC
Carrefour des Seigneurs, QC
Galeries des Cantons, QC
Plaza BDP Deux Montagnes, QC
Plaza Jean XXIII, QC
Plaza BBRF, QC
Plaza TS Magog, QC
Plaza De L’Ouest, QC
Plaza HDB, QC
SBT Chicoutimi, QC
4999 Queen Mary Road, QC
600 JP Perrault, QC
201 Chain Lake Drive Plaza, NS
209 Chain Lake Drive Plaza, NS
Tacoma Centre, NS
Tacoma Shoppers, NS
Robie Street Truro Plaza, NS
210 Wyse Road, NS
Pleasant Street Plaza, NS
Starrs Road Plaza, NS
Welton Street Plaza, NS
Scott Street Plaza, ON
St. Josephs Boulevard, ON
Civic Centre Road, ON
Ontario Street Port Hope, ON
Dufferin and Wilson, ON
615 King Street, ON
Park Street Plaza, ON
Mountainview Plaza, ON
Eastcourt, ON
Timiskaming, ON
6685 Century Ave, ON
1000 Islands Plaza (Brockville), ON
KGH Plaza, NB
681 Mountain Road, NB
201 Main Street - Sussex, NB
Northumberland Plaza, NB(1)
Boulevard Hebert Plaza, NB
Victoria Street Plaza, NB
Connell Road Plaza, NB
Madawaska Road Plaza, NB
Grand Falls Shopping Center, NB
Northwest Centre, NB
Shediac West Plaza, NB
The Village Shopping Centre, NL
50%
50%
50%
25%
50%
37.5%
50%
50%
50%
50%
33%
50%
25%
50%
50%
50%
50%
50%
25%
50%
50%
50%
50%
50%
50%
50%
50%
50%
50%
20%
20%
50%
50%
50%
50%
25%
25%
25%
100%
50%
50%
50%
50%
50%
50%
50%
50%
50%
50%
50%
25%
50%
37.5%
50%
50%
50%
50%
33%
-
25%
50%
50%
50%
50%
50%
25%
50%
50%
50%
50%
50%
50%
50%
50%
50%
50%
20%
20%
50%
50%
-
-
25%
25%
25%
50%
50%
50%
50%
50%
50%
-
-
50%
(1) The remaining 50% in Northumberland Plaza was purchased during 2018 and is no longer proportionately consolidated.
Page 72 of 78
Plaza Retail REIT
Notes to the Consolidated Financial Statements
December 31, 2018
(tabular amounts in thousands of Canadian dollars, except per unit amounts and as otherwise indicated)
27. Contingencies, Commitments, Guarantees and Indemnities, Litigation and Provisions
(a)
Contingencies
The $20.0 million development line of credit has $1.5 million available for use in the form of letters-of-credit. At December 31,
2018, there were no letters-of-credit issued and outstanding (December 31, 2017 – nil).
The $15.0 million development line of credit has $500 thousand available for use in the form of letters-of-credit. At December
31, 2018, there were no letters-of-credit issued and outstanding (December 31, 2017 – nil).
The $44.0 million operating line of credit has $2.0 million available for use in the form of letters-of-credit. At December 31,
2018, letters-of-credit in the amount of $869 thousand were issued and outstanding (December 31, 2017 - $750 thousand).
The $3.0 million secured non-revolving construction credit facility has $100 thousand available for use in the form of letters-of-
credit, at the Trust’s 20% ownership percentage. At December 31, 2018, there were no letters-of-credit issued and outstanding
(December 31, 2017 – nil).
(b) Commitments
The Trust’s estimated commitments at December 31, 2018 in respect of certain projects under development and other long-term
obligations are as follows:
Mortgages – periodic payments
Mortgages – due at maturity
Development lines of credit
Construction loans
Bank indebtedness
Mortgage bonds payable
Debentures (1)
Operating land leases (2)
Development activities
Year 1
2019
$ 10,371
46,523
11,579
1,950
-
6,000
-
3,272
20,791
Year 3
2021
Year 2
2020
Year 4
2022
$ 9,753 $ 8,192 $ 7,928
26,844
30,905
-
-
-
-
-
-
3,000
-
6,000
9,360
3,327
3,337
-
-
66,532
4,885
5,988
35,604
6,000
-
3,316
-
Year 5
2023
$ 6,376
33,924
-
-
-
-
47,250
3,293
-
After 5
Years
$ 24,945
173,019
-
-
-
-
-
124,636
-
Face Value
Total
$ 67,565
377,747
16,464
7,938
35,604
15,000
62,610
141,181
20,791
Total contractual obligations
(1) Stated at face value.
(2) Operating land leases expire on dates ranging from 2022 to 2084 (including automatic renewal periods) with non-automatic renewal
$ 51,794 $ 47,099
$ 90,843
$ 132,078
$ 744,900
$ 100,486
$ 322,600
options ranging from 5 to 66 years.
(c)
Guarantees and Indemnities
The Trust continues to guarantee certain debt assumed by purchasers in connection with past dispositions of properties. These
guarantees will remain until the debt is modified, refinanced or extinguished. These commitments are subject to indemnity
agreements. At December 31, 2018 a $5.1 million commitment (December 31, 2017 - $5.3 million) relating to the mortgages
on three assets in which the Trust sold a 75% interest in January 2009 is subject to such guarantees by the Trust. These
mortgages have a weighted average remaining term of 4.1 years (December 31, 2017 - 5.1 years). As well, at December 31,
2018 a $9.8 million commitment (December 31, 2017 – $10.0 million) relating to the mortgages on eight assets in which the
Trust sold a 50% interest in November 2017 is subject to such guarantees by the Trust. These mortgages have a weighted
average remaining term of 5.0 years (December 31, 2017 – 6.0 years).
The Trust is contingently liable for certain obligations of its co-venturers. The guarantee provided to the mortgagee of a free-
standing property located in Granby, QC is subject to a cross-guarantee provided by the other co-owners for the full amount of
the loan. At December 31, 2018 the Trust’s total exposure on the cross-guarantee is $523 thousand (December 31, 2017 - $540
thousand). As well, the Trust has guarantees in excess of its ownership percentages for five strip plazas and two free-standing
properties. The excess guarantees amount to $14.2 million (December 31, 2017 - $18.7 million on nine properties).
Page 73 of 78
Plaza Retail REIT
Notes to the Consolidated Financial Statements
December 31, 2018
(tabular amounts in thousands of Canadian dollars, except per unit amounts and as otherwise indicated)
(d)
Litigation
The Trust is involved in litigation and claims in relation to the investment properties that arise from time to time in the normal
course of business. Any liability that may arise from current or pending litigation would not have a significant adverse effect
on these financial statements.
(e)
Provisions
A provision is recognized if, as a result of a past event, the Trust has a present legal or constructive obligation that can be
estimated reliably and it is probable that an outflow of economic benefits will be required to settle the obligation. The Trust has
no provisions recorded at December 31, 2018 (December 31, 2017 – nil).
28. Financial Instruments and Risk Management
In the normal course of its business, the Trust is exposed to a number of risks that can affect its operating performance. The
Trust’s Board of Trustees monitors the Trust’s risk management practices through periodic reviews. These risks and the actions
taken to manage them are as follows:
(a)
Interest Rate Risk
The Trust adopts a policy of holding floating rate debt generally only for properties under development and for those properties
pledged to support the operating line of credit. All other debt is converted to fixed rate debt, when market conditions are
favorable, as soon as practical after an asset attains income producing status.
A change in interest rates on Plaza’s fixed rate instruments at the reporting date would not affect profit or loss. The Trust
minimizes its exposure to fixed rate interest risk on its debt by staggering the maturities in order to avoid excessive amounts of
debt maturing in any one year. If market conditions warrant, the Trust may attempt to renegotiate its existing debt to take
advantage of lower interest rates. The Trust minimizes its exposure to short term interest rate risk by obtaining longer term
financing as much as possible (10 years or longer). The Trust matches as closely as possible the debt term on a particular asset
with its average lease term so that any interest rate increases could be offset by increases in rental rates.
The Trust had entered into interest rate swap contracts with a Canadian chartered bank in connection with mortgages obtained
in 2010, in order to convert the mortgages from variable rates to fixed rates. The swaps mature on July 31, 2020. As the swaps
relate to debt of an equity-accounted investee, the interest rate swap contracts have been recorded at fair value in investments
with changes in fair value reflected in share of profit of associates. The fair value of these contracts results in a liability, for the
Trust’s share, of $70 thousand at December 31, 2018 (December 31, 2017 – $118 thousand). There is a risk that interest rates
will fluctuate during the term of the mortgages. The Trust intends to hold the mortgages to maturity and therefore would not
realize the fair value fluctuations. The fair value is calculated as the present value of the estimated future cash flows based on
observable yield curves.
As part of a property acquisition in 2015, the Trust assumed a variable rate mortgage that had an interest rate swap in place
(thereby fixing the variable interest rate). The interest rate swap matures on August 13, 2023. The fair value of this contract
results in a liability, for the Trust’s share, of $136 thousand at December 31, 2018 (December 31, 2017 – $175 thousand).
There is a risk that interest rates will fluctuate during the term of the mortgage. The Trust intends to hold the mortgage to
maturity and therefore would not realize the fair value fluctuations. The fair value is calculated as the present value of the
estimated future cash flows based on observable yield curves.
Trade receivables and payables (other than tenant deposits) are interest free and have settlement dates within one year.
An increase of 100 basis points in interest rates at December 31, 2018 if applied to all outstanding floating rate instruments
would increase interest expense and decrease pre-tax profit by $600 thousand (for the year ended December 31, 2017 – $423
thousand).
(b)
Lease Rollover and Occupancy Risk
The Trust is exposed to the risk of not being able to replace tenants as leases expire or in re-leasing space vacated by tenants.
The hypothetical impact to net property operating income of a change in occupancy of 1% would be approximately $600
Page 74 of 78
Plaza Retail REIT
Notes to the Consolidated Financial Statements
December 31, 2018
(tabular amounts in thousands of Canadian dollars, except per unit amounts and as otherwise indicated)
thousand to $1.0 million per annum. The Trust’s principal management of occupancy risk involves the skewing of tenancies
towards national tenants, the signing of longer term leases and significant pre-leasing of development space. As well, the Trust
attempts to stagger the lease expiry profile so that the Trust is not faced with a disproportionate amount of square footage of
leases expiring in any one year. The Trust further mitigates this risk by maintaining a diversified portfolio mix by geographic
location and maintaining a well-staffed and highly skilled leasing department to deal with all leasing issues.
(c)
Credit Risk
Credit risk arises from the possibility that tenants may experience financial difficulty and will be unable to fulfill their lease
commitments. The Trust mitigates the risk of credit loss by ensuring that its tenant mix is diversified and heavily weighted to
national tenants. National and regional tenants comprise 94.5% of the in-place tenant base (December 31, 2017 – 94.9%). As
well, the Trust maintains a portfolio that is diversified geographically so that exposure to local business is lessened and the
Trust limits loans granted under lease arrangements to credit-worthy mainly national tenants.
The Trust minimizes its credit risk on investment bonds by having them consist generally of Government of Canada bonds.
The Trust generally provides financial guarantees and advances only to wholly-owned subsidiaries, non-consolidated
investments and joint arrangement partners during the development periods, subject to reciprocal indemnities, by utilizing
established development lines of credit. Repayment of the advances occurs upon placing permanent financing on the related
property or through cash flows generated by the related property upon completion of the development. Where lenders of first
mortgages on joint arrangement properties require financial guarantees from the Trust, reciprocal indemnities are generally
obtained from the Trust’s joint arrangement partners. Guarantees are generally limited to the lower of 75% of the asset cost or
65% of the fair market value. See Note 27(c) for details of guarantees.
The Trust limits cash transactions to high quality financial institutions to minimize its credit risk from cash and cash
equivalents.
The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the
reporting date was:
Carrying Amount
Held-to-maturity investments
Tenant loans, receivables, and notes and advances receivable
Cash
Total
December 31, 2018 December 31, 2017
$ 99
15,330
6,250
$ 21,679
$ -
16,665
7,296
$ 23,961
The Trust’s most significant customer, a national retailer, accounts for $156 thousand of tenant loans at December 31, 2018
(December 31, 2017- $183 thousand).
Shoppers Drug Mart represents 24.9% of monthly base rents in place at December 31, 2018, while franchisees of KFC
represent 6.7% of monthly base rents in place. The top 10 tenants collectively represent approximately 55.4% of monthly base
rents in place.
Deposits refundable to tenants may be withheld by the Trust in part or in whole if receivables due from the tenant are not settled
or in case of other breaches of contract.
(d)
Liquidity and Debt Market Risk
Prudent liquidity risk management implies maintaining sufficient cash and an adequate amount of committed credit facilities to
run the business and pay obligations as they come due. The Trust manages its cash resources and committed credit facilities
based on financial forecasts and anticipated cash flows. In terms of debt, there is always the risk that lenders may tighten their
lending standards, which could make it challenging for the Trust to obtain financing on favourable terms or any terms at all. If
this were to occur, it could adversely impact the Trust. The Trust staggers the maturities of its long-term debt to avoid
excessive amounts of debt maturing in any one year. As well, the Trust obtains longer term financing as much as possible (10
years or longer) in order to help mitigate debt market risk. Several mortgages and the development and operating lines contain
material adverse change clauses which entitle the lenders to demand partial or full loan repayment when there are material
Page 75 of 78
Plaza Retail REIT
Notes to the Consolidated Financial Statements
December 31, 2018
(tabular amounts in thousands of Canadian dollars, except per unit amounts and as otherwise indicated)
adverse changes in the Trust’s financial position. The Trust has determined that circumstances that could trigger action by a
lender under these clauses are unlikely.
The following are the contractual maturities of financial liabilities, including estimated interest payments and excluding the
impact of netting agreements.
Current liabilities (1)
Debentures payable
Notes payable
Bank indebtedness
Mortgage bonds payable
Mortgages payable
Carrying
amount
$ 17,683
$ 59,835
$ 1,341
$ 35,604
$ 14,863
$468,338
Contractual
cash flows
$ 17,683
$ 75,008
$ 1,341
$ 38,253
$ 16,203
$572,889
Year 1
$ 17,683
$ 3,205
$ 1,341
$ 1,673
$ 6,615
$ 87,246
Year 3
Year 2
- $ -
$
$12,285
$ 3,205
- $ -
$
$ -
$ 36,580
$ 6,334 $ 165
$52,156
$105,661
Year 4
$ -
$ 8,460
$ -
$ -
$ 3,089
$46,619
Year 5
$ -
$47,853
$ -
$ -
$ -
$50,659
(1) Balance includes accounts payable, accrued liabilities, tenant payables and tenant deposits.
More
than
5 years
$ -
$ -
$ -
$ -
$ -
$230,548
It is not expected that the cash flows included in the maturity analysis could occur significantly earlier, or at significantly
different amounts.
(e)
Fair Value
Generally, trading values for the Trust’s financial instruments are not available. In determining estimates of the fair values of
the financial instruments, the Trust must make assumptions regarding current market rates, considering the term of the
instrument and its risk. Current market rates are generally selected from a range of potentially acceptable rates and accordingly,
other effective rates and fair values are possible. The rates used in determining the fair value of fixed rate mortgages are
corresponding term Government of Canada bonds plus credit spreads of 1.60% to 2.50% (December 31, 2017 – 1.60% to
2.30%). The rate used to determine the fair value of mortgage bonds was 5.0% (December 31, 2017 – 5.50%). The rate used to
determine the fair value of non-convertible debentures was 5.50% (December 31, 2017 – 5.00%). The majority of the Trust’s
convertible debentures are publicly traded. The fair value of the Class B exchangeable LP units is based on the trading price for
the Trust’s units.
The following chart shows the estimated fair value of the Trust’s financial instruments.
Cash
Receivables
Notes and advances receivable
Held-to-maturity investments
Tenant loans
Total Financial Assets
Book Value
December 31,
2018
Fair Value
December 31,
2018
$ 7,296
$ 7,296
3,398
12,549
-
718
$ 23,961
3,398
12,549
-
718
$ 23,961
Book Value
December 31,
2017
$ 6,250
4,480
9,999
99
851
$ 21,679
Fair Value
December 31,
2017
$ 6,250
4,480
9,999
99
851
$ 21,679
Bank indebtedness
Accounts payable, accrued liabilities, tenant payables and
tenant deposits
Total net fixed rate mortgage loans
Total net variable rate mortgage loans or credit facilities
Convertible debentures
Non-convertible debentures
Mortgage bonds payable
Class B exchangeable LP units
Notes payable
Total Financial Liabilities
$ 35,604
$ 35,604
$ 29,538
$ 29,538
17,683
444,075
24,263
50,118
9,717
14,863
4,622
1,341
$ 602,286
17,683
452,450
24,263
50,118
9,578
14,917
4,622
1,341
$ 610,576
15,222
431,962
12,617
39,890
9,883
14,764
5,393
1,424
$ 560,693
15,222
448,785
12,617
39,890
9,883
14,645
5,393
1,424
$ 577,397
Page 76 of 78
Plaza Retail REIT
Notes to the Consolidated Financial Statements
December 31, 2018
(tabular amounts in thousands of Canadian dollars, except per unit amounts and as otherwise indicated)
The fair value of the Trust’s financial assets and liabilities that represent net working capital, including cash, receivables, notes
and advances receivable, income taxes receivable, bank indebtedness, accounts payable, accrued liabilities, tenant payables and
tenant deposits and notes payable approximate their recorded values due to their short-term nature.
In accordance with IFRS, the Trust is required to classify its financial instruments carried at fair value in the financial
statements using a fair value hierarchy that exhibits the significance of the inputs used in making the measurements.
Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2 - Inputs other than quoted prices included within level 1 that are observable for the asset or
liability, either directly (that is, as prices) or indirectly (that is, derived from prices).
Level 3 - Inputs for the asset or liability that are not based on observable market data.
The following table provides information on financial assets and liabilities measured at fair value.
Investment properties
Class B exchangeable LP units
Series C, D and E convertible debentures
Series VII convertible debentures
December 31, 2018
December 31, 2017
Level 1
$ -
$ -
$ 4,622
44,892
-
$ 49,514
Level 2
$ -
$ -
$ -
-
5,226
$ 5,226
Level 3
$ 988,640
$ 988,640
$ -
-
-
$ -
Level 1
$ -
$ -
$ 5,393
34,336
-
$ 39,729
Level 2
$ -
$ -
$ -
-
5,554
$ 5,554
Level 3
$ 959,618
$ 959,618
$ -
-
-
$ -
The fair value of investment properties is based on a combination of external appraisals and internal valuations based on a
capitalization matrix provided by independent appraisers (see Note 5 for a more detailed description of the Trust’s valuation
approach). The significant unobservable inputs include normalized net operating income, which is supported by the terms of
existing leases in place and current market rents to renew or lease up vacant or expiring space, adjusted for estimated or
normalized vacancy rates based on market conditions and factoring in expected maintenance costs.
29. Capital Management
The primary objective of the Trust’s capital management is to ensure that it maintains adequate capital resources in order to
support its business and maximize unitholder value. The Trust manages its capital structure with the primary goal of
minimizing risk and ensuring the stability of cash flow from properties. Other goals include maintaining debt service and
interest coverage ratios in compliance with bank and debenture covenants. The Trust has defined its capital to include bank
indebtedness, mortgages payable, debentures payable, mortgage bonds payable, notes payable and unitholders’ equity.
Bank operating and development lines require maintenance of at least $150 million of unitholders’ equity; maximum leverage
of 70% including convertible debentures and 65% excluding convertible debentures; maintenance of debt coverage ratios in
excess of 1.5 times with the debt coverage ratios calculated exclusive of interest charged on subordinate debt and convertible
debentures. The bank operating line also requires on pledged assets: 90% occupancy; 65% loan to value; and interest coverage
constraints of 1.60. In addition, under a development line, the Trust must maintain a ratio of mortgages plus bank indebtedness
to the book value of its gross assets less fair value adjustments of not more than 70%. The Trust has a $7.45 million
construction credit facility which requires maintenance of at least $200 million of unitholders’ equity, maximum leverage of
65% and debt coverage ratios in excess of 1.3 times. The Trust is in compliance with all financial debt covenants at December
31, 2018.
There were no changes to the Trust’s approach to capital management for the year ended December 31, 2018.
Page 77 of 78
Plaza Retail REIT
Notes to the Consolidated Financial Statements
December 31, 2018
(tabular amounts in thousands of Canadian dollars, except per unit amounts and as otherwise indicated)
The calculation of the total capital is summarized as follows:
Total net fixed rate mortgage loans
Total net variable rate mortgage loans or credit facilities
Mortgage bonds payable
Debentures payable
Bank indebtedness
Notes payable
Unitholders’ equity
Total
30.
Subsequent Events
Financings
December 31,
2018
$ 444,075
24,263
14,863
59,835
35,604
1,341
579,981
451,702
$ 1,031,683
December 31,
2017
$ 431,962
12,617
14,764
49,773
29,538
1,424
540,078
463,095
$ 1,003,173
In January 2019, long-term financing was obtained on a property located in Sussex, NB in the amount of $11.0 million with a
10 year term and an interest rate of 3.67%. This property is held in a non-consolidated investment of which the Trust owns
25%.
Investment Properties
During 2018, purchasers waived conditions to buy property from the Trust in Paris, ON for $400 thousand and London, ON for
$972 thousand. The Paris, ON transaction closed in January 2019 and the London, ON transaction is scheduled to close in
April 2019.
On January 15, 2019, the Trust sold a 50% co-ownership interest in a property located in Quispamsis, NB to a syndicated
limited partnership. As part of the transaction, $1.2 million in debt was issued by the Trust at a rate of prime + 1.05%, on an
interest-only basis for a 5 year term.
On January 31, 2019, the Trust disposed of land and building located in Montreal, QC for gross proceeds of $1.0 million.
Distributions and Distribution Reinvestment Plan
The Trust paid a cash distribution of $0.02333 per unit for a total of $2.4 million on January 15, 2019.
The Trust paid a cash distribution of $0.02333 per unit for a total of $2.4 million on February 15, 2019.
Page 78 of 78
Plaza Retail REIT
98 Main Street
Fredericton, NB
E3A 9N6
506-451-1826
506-451-1802
Email: info@plaza.ca
www.plaza.ca