ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
CONSOLIDATED FINANCIAL STATEMENTS
(AUDITED IN CANADIAN DOLLARS)
FOR THE YEARS ENDING
DECEMBER 31, 2019 & 2018
DATED: FEBRUARY 25, 2020
PRESIDENT’S MESSAGE ........................................................................................................................ 1
TABLE OF CONTENTS
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 2019 and 2018 .................................................................. 11
Leasing and Occupancy ............................................................................................................................... 18
PART III
Operating Liquidity and Working Capital ................................................................................................... 20
Capital Resources, Equity and Debt Activities ........................................................................................... 22
Commitments and Contingent Liabilities .................................................................................................... 28
PART IV
Summary of Selected Quarterly Information .............................................................................................. 30
PART V
Risks and Uncertainties ............................................................................................................................... 31
PART VI
Related Party Transactions .......................................................................................................................... 33
PART VII
Disclosure Controls and Procedures and Internal Controls over Financial Reporting ................................ 35
Critical Accounting Policies ........................................................................................................................ 35
Future Accounting Policy Changes ............................................................................................................. 36
Explanation of Non-IFRS Measures used in this Document ....................................................................... 36
Explanation of Additional IFRS Measures used in this Document ............................................................. 37
Additional Information ................................................................................................................................ 37
Properties of the Trust ................................................................................................................................. 37
APPENDIX A
Fourth Quarter Consolidated Statements of Comprehensive Income ......................................................... 38
CONSOLIDATED FINANCIAL STATEMENTS ................................................................................. 39
Plaza Retail REIT
PRESIDENT’S MESSAGE
Fellow Unitholders:
We produced solid financial results for the year ended December 31, 2019, driven by accretive growth without diluting
unitholders. The results were generated through improved operating metrics, new development and redevelopment projects
across our geography.
During 2019, Plaza:
realized outstanding returns from new development and redevelopment projects. We anticipate that this growth will
continue into 2020 and beyond;
recycled capital by selling non-core assets. The proceeds provided funding for higher-yielding projects;
acquired low cost capital to fund developments and redevelopments by placing a record amount of long-term mortgage
financing at historically low interest rates;
continued to maintain long-term loan maturities at progressively lower interest rates;
materially lowered its pay-out ratio as a result of FFO & AFFO growth;
continued to initiate joint venture projects with capital partners in order to preserve capital; and
launched a normal course issuer bid and repurchased 722,000 units.
Plaza’s pipeline remains strong - we foresee additional growth and
opportunity for both redevelopments and new development
projects. Plaza possesses strong leasing and development
infrastructure that enables us to meet the needs of tenants.
Plaza’s core product of strip centres and single use retail perform
very well, with high occupancy levels. Our tenant lineup is
dominated by national tenants comprised of value, specialty and
necessity-based retailers that require a physical presence.
We are making a concentrated effort to extract more value from our
existing portfolio and our current development projects through the
sale or development of excess land.
Plaza has the necessary capital to take advantage of acquisition and
development opportunities. Our capital recycling and financing
programs have allowed Plaza to fund its growth without dilution to
unitholders. We are confident that we will continue to grow cash
flow and net asset value across our geography as we develop and
redevelop high quality and necessity-based retail projects.
Thank you for your continued support and confidence in Plaza.
Sincerely,
Based on Base Rents
Mix of Tenancy
Local
3.7%
Regional
3.9%
Non-Retail
1.7%
National
90.7%
Mix by Property Type
Single -
Retail
19.1%
Single -
QSR
6.9%
Enclosed
7.1%
Strip
66.9%
Open-Air vs. Enclosed
Enclosed
Centres,
7.1%
Open-Air
Centres,
92.9%
Michael Zakuta
President and CEO
Page 1 of 82
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 25, 2020. 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 Board of Trustees (the “Board”).
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
years ended December 31, 2019 and 2018, along with the MD&A of the Trust for the year ended December 31, 2018, 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 25, 2020 and Plaza assumes no obligation to update or revise them
to reflect new events or circumstances, except as required by applicable law.
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 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 Ontario, Quebec and Atlantic Canada. Plaza offers a
unique business strategy that differs from many of its peers in the real estate industry.
Plaza has a 20 year history of accretive growth and value creation;
Plaza has strong relationships with leading retailers;
Page 2 of 82
Plaza Retail REIT
Plaza’s main business is driven by value-add opportunities to develop and redevelop, for its own account, unenclosed
retail real estate throughout Canada;
Plaza has a competitive advantage as a developer in Atlantic Canada and Quebec;
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, thereby 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.
Summary of Properties
The Trust’s portfolio at December 31, 2019 includes interests in 274 properties totaling approximately 8.4 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,
2019(1) (2)
34,238
17,018
793,854
1,943,764
1,161,369
1,690,869
596,035
2,146,617
8,383,764
Includes properties under development and non-consolidated investments.
Alberta
Manitoba
Newfoundland and Labrador
New Brunswick
Nova Scotia
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,
2019(1)
2
1
12
52
33
68
11
95
274
Number of
Properties
December 31,
2018(1)
2
6
12
52
35
71
11
98
287
Gross Leasable
Area (sq. ft.)
December 31,
2018(1) (2)
34,238
30,424
682,044
1,938,349
1,151,286
1,571,739
595,683
2,149,359
8,153,122
Page 3 of 82
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 marketplace. 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 and is more e-commerce resilient. 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 through 2020.
Open-air 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 decreased over the last year due to economic uncertainties in Canada and abroad. As
a result, it is still a very 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 has and will continue to refinance mortgages early where possible and
feasible 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. Projects on 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 indicated:
Page 4 of 82
Plaza Retail REIT
Properties under development/redevelopment
In Planning/In Development:
Open-Air Centre:
Plaza de L’Ouest, Sherbrooke, QC – Phase III
Fairville Boulevard, Saint John, NB – Phase III.2
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.4(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
Tri-City Center, Cambridge, ON
Single Use:
464 Dundas St., Belleville, ON(3)
1726 Huron Church Rd, Windsor, ON(3)
Beaubien St., Montreal, QC
Expansion:
Champlain St. Plaza, Dieppe (Moncton), NB–Phase II.2
Pleasant Street, Yarmouth, NS
Mountainview Plaza, Midland, ON
Powell Drive, Carbonear, NL
Queens Place Drive Plaza, Liverpool, NS
SP Magog, Magog, QC
Granite Drive, New Minas, NS
In Construction:
Enclosed Mall to Open-Air Centre:
Timiskaming Plaza, New Liskeard, ON
Open-Air Centre:
1324 Blvd Talbot, Saguenay (Chicoutimi), QC
The Shoppes at Galway, St. John’s, NL – Phase I.2(2)
The Shoppes at Galway, St. John’s, NL – Phase I.3(2)
Carson & Mapleton, Moncton, NB
Expansion:
Silver Fox Plaza, New Minas, NS
Fairville Boulevard, Saint John, NB – Phase III.1
9025 Torbram Rd, Brampton, ON(3)
Total
Square
Footage(1) Ownership
Occupied or
Committed at
December 31,
2019(4)
Anticipated
Completion
Date
20,000
8,000
70,000
52,000
100,000
100,000
85,000
18,640
40,000
229,000
2,500
14,069
10,000
10,000
1,000
4,000
2,000
3,500
1,740
10,000
50%
100%
20%
10%
50%
50%
50%
75%
50%
50%
100%
100%
100%
100%
50%
20%
100%
100%
50%
100%
n/a
24%
n/a
n/a
n/a
n/a
n/a
n/a
n/a
90%
100%
n/a
n/a
n/a
n/a
n/a
n/a
n/a
100%
n/a
1-2 years
1-2 years
1-2 years
2-3 years
1-2 years
2-3 years
2-3 years
1-2 years
Q1 2021
2-3 years
Q4 2020
1-2 years
Q2 2021
1-2 years
1-2 years
Q4 2020
Q4 2020
1-2 years
Q2 2021
1-2 years
101,595
50%
61%
1-2 years
103,956
33,537
32,500
5,400
12,560
2,380
34,272
1,107,649
50%
50%
50%
100%
100%
100%
100%
91%
100%
100%
100%
100%
100%
99%
Q1 2020
Q2 2020
Q3 2020
Q1 2020
Q4 2020
Q4 2020
Q1 2020
(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.
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 26 thousand additional square feet of gross
leasable area.
At December 31, 2019, there are four land assemblies under purchase agreement and subject to due diligence or other
conditions. These land purchases, if executed, will represent an additional 276 thousand square feet of retail space at
completion.
Page 5 of 82
Plaza Retail REIT
The total estimated costs for the developments and redevelopments (noted in the chart on the previous page) are between $100
million and $110 million, of which approximately $59 million has already been spent (all figures represent 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 $10 million and $11 million. The majority of unspent amounts for
Plaza’s development projects are funded by Plaza’s existing development facilities or construction loans.
Acquisitions/Dispositions
During the year ended December 31, 2019, the Trust acquired and disposed of the following properties:
Property Acquired
Tri-City Centre, Cambridge, ON
(1)
Including closing costs
%
Acquired
50%
Year ending
December 31, 2019(1)
$ 12,650
Properties Disposed
Quispamsis Town Centre, Quispamsis, NB(1)
Quick Service Restaurants and Single Tenant Assets – Coldbrook, NS, Halifax,
NS, London, ON, Ottawa, ON, Paris, ON, Laval, QC, Longueiul QC, and
Montreal, QC
Winnipeg, MB portfolio – five properties
Land – Sherbrooke, QC
Total disposals
%
Disposed
50%
Net Proceeds Year Ending
December 31, 2019
$ 2,245
100%
100%
50%
6,645
6,900
475
$ 16,265
(1) The Trust sold a 50% co-ownership interest in a property located in Quispamsis, NB for net proceeds of $6.4 million, $2.2
million after assumption of notes and advances and receivables for the purchaser’s 50% interest of the existing line of credit on
the property.
Page 6 of 82
Plaza Retail REIT
SUMMARY OF SELECTED YEAR TO DATE INFORMATION
(000s, except as otherwise noted)
Financial Amounts
Property rental revenue
Total revenue
NOI(1)
Same-asset NOI(1)
FFO(1)
AFFO(1)
EBITDA(1)
Profit and total comprehensive income
Total assets
Total non-current liabilities
Total mortgages, mortgage bonds, notes payable,
bank credit facilities, and land lease liabilities
Total debentures
Weighted average units outstanding (2)
Normal course issuer bid – units repurchased
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 convertible debentures)(5)
Debt to gross assets (including convertible debentures)(5)
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 Base Rents(4)
National
Regional
Local
Non retail
12 Months
Ended
December 31,
2019
(unaudited)
12 Months
Ended
December 31,
2018
(unaudited)
12 Months
Ended
December 31,
2017
(unaudited)
$ 112,461
$ 118,471
$ 72,727
$ 62,839
$ 41,006
$ 36,466
$ 70,487
$ 51,337
$ 1,161,968
$ 553,175
$ 591,992
$ 64,190
103,685
722
$ 104,017
$ 105,436
$ 63,924
$ 62,728
$ 34,264
$ 30,304
$ 59,996
$ 12,212
$ 1,061,066
$ 480,295
$ 520,146
$ 59,835
103,490
-
$ 0.395
$ 0.352
$ 0.280
$ 0.331
$ 0.293
$ 0.280
4.26%
51.8%
56.3%
2.41x
1.73x
70.8%
79.6%
1,202,232
96.3%
96.1%
90.7%
3.9%
3.7%
1.7%
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%
$ 102,887
$ 105,963
$ 64,358
N/A(3)
$ 35,596
$ 32,996
$ 60,016
$ 23,447
$ 1,031,335
$ 450,020
$ 490,305
$ 49,773
102,385
-
$ 0.348
$ 0.322
$ 0.270
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%
Other
Average term to maturity - mortgages
Average term to maturity - leases(4)
IFRS capitalization rate
6.0 Years
5.8 Years
7.02%
Square
Footage
(000s)
5,711
993
272
1,177
8,153
(1) Refer to Part VII under the headings “Explanation of Non-IFRS Measures used in this Document” and “Explanation of Additional IFRS
Property Type Breakdown
Open-Air Centres
Enclosed
Single Use – Quick Service Restaurant
Single Use – Retail
Total
Number of Properties
December 31, 2019
114
3
88
69
274
Number of Properties
December 31, 2018
110
4
102
71
287
5.9 Years
6.2 Years
7.07%
Square
Footage
(000s)
6,266
713
237
1,168
8,384
5.5 Years
5.7 Years
7.25%
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, 2018.
(4)
(5) As of January 1, 2019, ratios include land lease liability and right-of-use land lease asset, prior year comparatives have not been restated.
Excludes properties under development and non-consolidated investments.
Page 7 of 82
Plaza Retail REIT
PART II
STRATEGY
Plaza’s principal goal is to deliver growth in per-unit net asset value (“NAV”) and FFO from a diversified portfolio of retail
properties. To achieve this goal, the Board has set development criteria of a minimum unlevered cash 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:
acquire or develop properties at a cost that is consistent with the Trust’s targeted return on investment;
maintain high occupancy rates on existing properties while sourcing tenants for properties under development and
future acquisitions;
maintain access to cost effective sources of debt and equity capital to finance acquisitions and new developments; 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 retailer clients or in response to demand;
well located properties where Plaza can add value through efficiencies, density/development or redevelopment; 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 when 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 or non-
core properties into higher growth investments.
Page 8 of 82
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;
distributions as a percentage of FFO and AFFO; 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 growth in per-unit NAV and FFO. The following chart discusses the key performance indicators for the twelve
months ended December 31, 2019 compared to the twelve months ended December 31, 2018.
Page 9 of 82
Plaza Retail REIT
FFO(1)
AFFO(1)
Debt Service Ratios(1)
Debt to Gross Assets
Same-Asset NOI(1)
Weighted Average
Interest Rate – Fixed
Rate Mortgages
Occupancy Levels
YTD Q4 2019
$41,006
$0.395
70.8%
YTD Q4 2018
$34,264
$0.331
84.6%
FFO
FFO per unit
Distributions as a % of FFO
The increase in FFO and FFO per unit was mainly due to the impact of lease buyout
revenues recorded from two significant lease buyout transactions along with growth in
NOI from developments/redevelopments and acquisitions.
Excluding the effect of the lease buyouts and other similar items from the current and
prior year, FFO would have been 7.9% higher than the prior year. On a per unit basis,
FFO would have been 7.8% higher than the prior year. Notwithstanding a decrease in
NOI of $1.1 million due to property sales, NOI grew by $815 thousand from
developments/redevelopments and acquisitions.
% Change
19.7%
19.3%
(16.3%)
YTD Q4 2019
$36,466
$0.352
79.6%
YTD Q4 2018
$30,304
$0.293
95.7%
AFFO
AFFO per unit
Distributions as a % of AFFO
The principal factors influencing AFFO are consistent with those impacting FFO,
partly offset by higher leasing costs compared with the prior year.
Excluding the effect of the lease buyouts and other similar items from the current and
prior year, AFFO would have been 7.0% higher than the prior year and on a per unit
basis would have been 6.8% higher than the prior year.
% Change
20.3%
20.1%
(16.8%)
Interest coverage ratio
Debt coverage ratio
The interest and debt coverage ratios were higher than the prior year mainly due to the
$6.0 million in lease buyout revenues recorded. The debt coverage and interest
coverage ratios exceed the requirements under borrowing arrangements.
YTD Q4 2019
2.41x
1.73x
YTD Q4 2018
2.27x
1.62x
% Change
6.2%
6.8%
Q4 2019
51.8%
Q4 2018
49.7%
% Change
4.2%
Debt to gross assets (excluding convertible
debentures)
Debt to gross assets (including convertible
debentures)
The increase in debt to gross assets over the prior year relates to the new accounting
standards on leases implemented on January 1, 2019 requiring Plaza to record a land
lease liability and right of use land lease asset on its books. Excluding the effect of the
land leases, debt to gross assets (excluding convertible debentures) would have been
49.1% and debt to gross assets (including convertible debentures) would have been
53.9%.
56.3%
54.7%
2.9%
Same-asset NOI
Same-asset NOI is slightly higher than the prior year.
Excluding the effect of the lost NOI due to lease buyouts, same-asset NOI would have
YTD Q4 2019
$62,839
YTD Q4 2018
$62,728
% Change
0.2%
been 1.8% higher than the prior year.
Weighted average interest rate – fixed rate
mortgages
Plaza continues to finance at low rates.
Q4 2019
Q4 2018
% Change
4.26%
4.41%
(3.4%)
Committed occupancy
Same-asset committed occupancy
Q4 2019
96.3%
96.1%
Q4 2018
96.2%
96.0%
% Change
0.1%
0.1%
(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 82
Plaza Retail REIT
PROPERTY AND CORPORATE FINANCIAL PERFORMANCE 2019 AND 2018
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, 2019, compared to the three and twelve
months ended December 31, 2018 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
Distributions on Class B exchangeable LP units included in
finance costs
Deferred income taxes
Principal repayments of land lease liabilities
Fair value adjustment to restricted 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
Fair value adjustment to right-of-use land lease assets
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,
2019
(unaudited)
3 Months
Ended
December 31,
2018
(unaudited)
12 Months
Ended
December 31,
2019
(unaudited)
12 Months
Ended
December 31,
2018
(unaudited)
$ 8,256
$ 1,055
$ 51,407
$ 12,063
353
(103)
84
(332)
(169)
12
1,010
1,761
143
(185)
(1,380)
169
(57)
(358)
$ 9,204
(84)
(811)
(153)
30
$ 8,186
103,384
$ 0.089
$ 0.079
$ 7,235
78.6%
88.4%
$ 9,204
684
$ 9,888
112,657
$ 8,186
607
$ 8,793
112,746
$ 0.088
$ 0.078
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
1,505
(411)
334
266
(663)
53
(18,748)
1,665
822
4,294
392
663
(63)
(510)
$ 41,006
(78)
(3,325)
(1,295)
158
$ 36,466
103,685
$ 0.395
$ 0.352
$ 29,020
70.8%
79.6%
$ 41,006
2,705
$ 43,711
112,958
$ 36,466
2,705
$ 39,171
112,958
$ 0.387
$ 0.347
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) Based on actuals.
(2)
(3)
(4)
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 82
Plaza Retail REIT
Basic FFO for the three months ended December 31, 2019 increased by $1.0 million or 12.5% over the prior year and basic FFO
per unit for the three months ended December 31, 2019 was 12.7% higher compared to the prior year.
Items impacting FFO were:
(i)
(ii)
(iii)
(iv)
(v)
lease buyout revenues recorded of $350 thousand;
a decrease in NOI of $175 thousand from property sales;
an increase in same-asset NOI due to new leasing, offset by the impact of the vacancies from lease buyouts during
2019, which negatively affected same-asset NOI by $337 thousand for the quarter;
an increase in other income of $381 thousand in development and leasing fees earned from co-owned properties;
and
an increase in share of profit of associates of $282 thousand, excluding the fair value adjustment, mainly due to an
increase in NOI from continued development at The Shoppes at Galway, St. John’s, NL.
For the three months ended December 31, 2019, AFFO increased by $720 thousand, or 9.6% over the prior year and AFFO per
unit increased 9.7% over the prior year. The increase in AFFO was mainly due to the changes in FFO and FFO per unit described
above, as well as, higher leasing costs in the current quarter compared to the same period in the prior year.
Excluding the impact of the lease buyouts, the additional professional fees and retiring allowance incurred and any loan
defeasance and early mortgage discharge fees from the current and prior year, FFO and FFO per unit would have been 14.1%
and 14.7%, respectively, higher than the prior year. AFFO adjusted for the same items would have been 11.4% higher than the
prior year and AFFO per unit would have been 12.0% higher.
Basic FFO for the twelve months ended December 31, 2019 increased by $6.7 million, or 19.7% over the prior year. Basic FFO
per unit for the twelve months ended December 31, 2019 was 19.3% higher than the prior year.
Items impacting FFO was:
(i)
(ii)
(iii)
(iv)
(v)
(vi)
growth in NOI of $815 thousand from developments/redevelopments/acquisitions;
lease buyout revenues recorded of $6.0 million, primarily from two significant lease buyout transactions;
a decrease in NOI of $1.1 million from property sales;
the impact of the vacancies from lease buyout transactions, which negatively affected same-asset NOI by $1.0
million;
an increase in other income of $1.6 million mainly due to an increase in development and leasing fees earned from
co-owned properties; and
an increase in administrative expenses of $518 thousand mainly as a result of additional professional fees and
retiring allowance.
For the twelve months ended December 31, 2019, AFFO increased by $6.2 million, or 20.3% over the prior year and AFFO per
unit increased by 20.1% over the prior year. The increase in AFFO and AFFO per unit was mainly due to the increase in FFO
and FFO per unit described above, partly offset by higher maintenance capital expenditures compared to the prior year.
Excluding the impact of the lease buyouts, the additional professional fees and retiring allowance incurred and any loan
defeasance and early mortgage discharge fees from the current and prior year, FFO and FFO per unit would have been 7.9% and
7.8%, respectively, higher than the prior year. AFFO adjusted for the same items would have been 7.0% higher than the prior
year and AFFO per unit would have been 6.8% higher.
Profit and Total Comprehensive Income for the Period
The Trust recorded a profit for the three months ended December 31, 2019 of $8.0 million compared to $1.1 million for the same
period in the prior year. The increase was mainly due to a decrease in the fair value of investment properties of $1.0 million as
compared to a fair value decrease of $9.9 million in the prior year. The fair value increase year over year was mainly due to a
decrease in capitalization rates. Profit was also impacted by the same factors mentioned in the discussion of FFO above, as well
as:
(i)
(ii)
a net gain of $185 thousand compared to a net gain of $3.2 million in the prior year, relating to the non-cash fair
value adjustment to convertible debentures; and
a net loss of $143 thousand compared to a net gain of $381 thousand in the prior year, relating to the non-cash fair
value adjustment relating to the Class B exchangeable LP units.
Page 12 of 82
Plaza Retail REIT
The Trust recorded a profit for the twelve months ended December 31, 2019 of $51.3 million compared to $12.2 million for the
same period in the prior year. The increase was mainly due to an increase in the fair value of investment properties of $18.7
million as compared to a fair value decrease of $18.4 million in the prior year. The fair value increase was mainly due to the
decrease in capitalization rates, largely stemming from higher values on a number of appraisals received on properties during the
year. Profit was also impacted by the same factors mentioned in the discussion of FFO above, as well as:
(i)
(ii)
(iii)
(iv)
an increase in the share of profit of associates of $2.7 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 in the prior year;
convertible debenture issuance costs in the prior year, negatively impacting the prior year results by $2.3 million;
a net loss of $4.3 million compared to a net gain of $3.0 million in the prior year, relating to the non-cash fair value
adjustment to convertible debentures; and
a net loss of $392 thousand compared to a net gain of $39 thousand in the prior year, relating to the non-cash fair
value adjustment to interest rate swaps and the addition of three new interest rate swaps entered into during the
quarter.
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, 2019 and the entire year ended December 31, 2018 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, 2019, approximately 47.6% 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 other operating
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 open-air centres 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,
2019
(unaudited)
$ 23,413
(3,528)
(4,316)
$ 15,569
3 Months
Ended
December 31,
2018
(unaudited)
$ 22,961
(3,116)
(4,339)
$ 15,506
12 Months
Ended
December 31,
2019
12 Months
Ended
December 31,
2018
(unaudited)
$ 91,343
(10,991)
(17,624)
$ 62,728
(unaudited)
$ 92,629
(12,055)
(17,735)
$ 62,839
Same-asset NOI for the three and twelve months ended December 31, 2019 were impacted by new lease up and rent increases
within the portfolio offset by vacancies from lease buyouts during 2019, which negatively affected same-asset NOI by $337
thousand for the quarter and $1.0 million for the year to date as compared to the prior year, as well as the bankruptcy of a tenant,
which negatively affected same-asset NOI by $89 thousand for the quarter and $267 thousand for the year to date as compared
to the prior year.
Excluding the effect of the lost NOI due to lease buyouts, same-asset NOI for the three and twelve months ended December 31,
2019 would have increased by 2.6% and 1.8%, respectively, compared with the same periods in the prior year.
Page 13 of 82
Plaza Retail REIT
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 over prior period
Net Property Operating Income (NOI)
3 Months
Ended
December 31,
2019
(unaudited)
$ 3,826
2,778
3,371
53
88
2,108
1,382
1,963
$ 15,569
0.4%
3 Months
Ended
December 31,
2018
(unaudited)
$ 3,802
2,738
3,211
196
88
2,098
1,447
1,926
$ 15,506
12 Months
Ended
December 31,
2019
(unaudited)
12 Months
Ended
December 31,
2018
(unaudited)
$ 15,586
10,977
13,261
771
353
8,294
5,900
7,586
$ 62,728
$ 15,514
10,962
13,348
621
353
8,415
5,845
7,781
$ 62,839
0.2%
The following table shows the breakdown of total NOI and relevant variances from the prior year.
(000s)
Same-asset NOI
Land lease expense in NOI (1)
Developments and redevelopments transferred to income
producing in 2018 ($3.8 million annualized NOI)
Developments and redevelopments transferred to income
producing in 2019 ($2.0M annualized NOI)
Acquisitions ($3.1 million annualized NOI)
NOI from properties currently under development and
redevelopment ($2.5 million annualized NOI)
Straight-line rent
Administrative expenses charged to NOI
Lease buyout revenue
Property disposals
Other
Total NOI
3 Months
Ended
December 31,
2019
(unaudited)
$ 15,569
-
3 Months
Ended
December 31,
2018
(unaudited)
$ 15,506
(720)
832
213
703
81
85
(826)
350
(55)
(167)
$ 16,785
810
307
391
230
(53)
(858)
-
115
12
$ 15,740
12 Months
Ended
December 31,
2019
(unaudited)
12 Months
Ended
December 31,
2018
(unaudited)
$ 62,728
(2,880)
$ 62,839
-
3,303
1,150
2,545
408
78
(3,248)
5,963
(91)
(220)
$ 72,727
2,591
1,603
1,287
949
(228)
(3,306)
-
1,076
104
$ 63,924
(1) Under new accounting rules in effect January 1, 2019, Plaza’s land leases have been required to be recorded on the statement of
financial position. Payments to land lessors are no longer recorded in NOI. Instead an imputed interest expense on the land lease
liabilities is recorded in finance costs and a fair value adjustment to the right-of-use land lease assets is recorded in the statement
of income and comprehensive income. Principal repayments are booked directly on the statement of financial position reducing
the land lease liability recorded. The new standard has been implemented prospectively and therefore prior year comparatives have
not been restated.
Page 14 of 82
Plaza Retail REIT
Share of Profit of Associates
Share of profit of associates consists of income from equity accounted investments, 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 residual return 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
Ste. Hyacinthe Limited Partnership
144 Denison East Limited Partnership
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 Port Perry (Plazacorp Ontario2 Limited Partnership); King & Mill Newcastle (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).
10%
10%
8%
n/a
n/a
n/a
n/a
n/a
n/a
8%
n/a
n/a
n/a
20%
30%
25%
n/a
n/a
n/a
n/a
n/a
n/a
27%
n/a
n/a
n/a
(2) Land within this partnership is currently in development.
Share of profit of associates for the three months ended December 31, 2019 includes Plaza’s share of NOI of approximately $1.3
million compared to $1.0 million for the three months ended December 31, 2018. Share of profit of associates decreased by $270
thousand for the three months ended December 31, 2019 compared to the three months ended December 31, 2018. The decrease
was mainly due to the non-cash fair value adjustment to the underlying investment properties.
Share of profit of associates for the twelve months ended December 31, 2019 includes Plaza’s share of NOI of approximately
$4.4 million compared to $4.1 million for the twelve months ended December 31, 2018. Share of profit of associates increased
by $2.7 million for the twelve months ended December 31, 2019 compared to the twelve months ended December 31, 2018. The
increase was mainly due 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 in the prior year.
Overall committed occupancy for non-consolidated investments (excluding land under development) was 98.1% at December
31, 2019, compared to 98.7% at December 31, 2018.
Distributions received from associates for the three months ended December 31, 2019 were $351 thousand compared to $207
thousand for the three months ended December 31, 2018 for regular distributions.
Distributions received from associates for the twelve months ended December 31, 2019 were $1.7 million compared to $1.3
million for the twelve months ended December 31, 2018 for regular distributions. There were two additional distributions of
$3.9 million as a result of proceeds from two separate re-financings at the two underlying investment properties.
Page 15 of 82
Plaza Retail REIT
Finance Costs
Finance costs for the three months ended December 31, 2019 were $7.2 million, compared to $6.7 million for the same period in
the prior year. Finance costs were impacted by:
(i)
(ii)
(iii)
(iv)
new imputed interest on land lease liabilities of $563 thousand due to the implementation of the new accounting
leasing standard. Under the new accounting rule in effect January 1, 2019, Plaza’s land leases have been required
to be recorded on the statement of financial position. Payments to land lessors are no longer recorded in NOI.
Instead an imputed interest expense on the land lease liabilities is recorded in finance costs and a fair value
adjustment to the right-of-use land lease assets is recorded in the statement of income and comprehensive income.
Principal repayments are booked directly on the statement of financial position reducing the land lease liability
recorded. The new standard has been implemented prospectively and therefore prior year comparatives have not
been restated;
higher mortgage interest of $296 thousand;
higher capitalized interest of $172 thousand; and
lower mortgage bond interest of $75 thousand due to the maturing of Series XI bonds in July 2019.
Finance costs for the twelve months ended December 31, 2019 were $29.5 million, compared to $26.8 million for the same period
in the prior year. Finance costs were impacted by new imputed interest on land lease liabilities of $2.3 million due to the
implementation of the new accounting leasing standard as mentioned above. Higher mortgage interest, higher development line
and construction loan interest due to carrying higher balances than the prior year was offset by:
(i)
(ii)
(iii)
higher early mortgage discharge fees in the amount of $106 thousand incurred in the prior year;
lower mortgage bond interest of $119 thousand due to the maturing of Series XI bonds in July 2019; and
one month overlap of interest on the convertible debentures incurred in the prior year in the amount of $120 thousand
due to the timing of issuance of the Series E convertible debentures compared to the redemption of the Series D
convertible debentures.
Of note, a large number of refinancings were undertaken year-to-date at historically low rates, the net proceeds of which have
been used to reduce Plaza’s operating line of credit, thereby reducing operating line of credit interest expense in future quarters.
Administrative Expenses
Administrative expenses for the three months ended December 31, 2019 are $24 thousand higher than the prior year.
Administrative expenses for the twelve months ended December 31, 2019 are $518 thousand higher than the prior year, mainly
due to a retiring allowance.
Plaza maintains a fully internalized and integrated structure and therefore incurs certain costs related to development and
redevelopment activity that are 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 $1.0 million for the three months ended December 31, 2019
compared to a fair value decrease of $9.9 million for the three months ended December 31, 2018. The Trust recorded a fair value
increase to investment properties of $18.7 million for the twelve months ended December 31, 2019 compared to a fair value
decrease of $18.4 million for the twelve months ended December 31, 2018. The weighted average capitalization rate at December
31, 2019 was 7.07% compared to 7.25% at December 31, 2018. The fair value increase when comparing the three months ended
December 31, 2019 to the three months ended December 31, 2018 was mainly due to a decrease in capitalization rates. The fair
value increase recorded in the current year ending December 31, 2019 is mainly due to the decrease in capitalization rates, largely
stemming from higher values on a number of appraisals received on properties during the year. The fair value decrease in the
prior year was largely due to an increase in capitalization rates compared to December 31, 2017.
Page 16 of 82
Plaza Retail REIT
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, 2019 was a net gain of $185
thousand compared to a net gain of $3.2 million in the prior year. The fair value adjustment to convertible debentures for the
twelve months ended December 31, 2019 was a net loss of $4.3 million compared to a net gain of $3.0 million 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.
The fair value adjustment to Class B exchangeable LP units for the three months ended December 31, 2019 was a net loss of
$143 thousand compared to a net gain of $381 thousand in the prior year. The fair value adjustment to Class B exchangeable LP
units for the twelve months ended December 31, 2019 was a net loss of $822 thousand compared to a net gain of $457 thousand
in the prior year.
Page 17 of 82
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,
2019 (excluding developments, redevelopments and non-consolidated investments).
Year
2020
2021
2022
2023
2024
Thereafter
Subtotal
Vacant
Total
Weighted average
lease term
Open-Air Centres
%
6.9
12.2
10.2
11.8
10.9
48.0
100.0
Sq Ft(1)
328,042
576,851
482,727
561,598
516,314
2,276,480
4,742,012
173,973
4,915,985
Enclosed Malls Single-User Retail
Sq Ft(1)
%
1.8
74,749
4.3
36,497
11.6
19,500
17.1
55,939
5.6
67,951
59.6
372,955
627,591
100.0
85,783
713,374
Sq Ft(1)
16,018
38,537
103,739
152,738
50,262
531,548
892,842
-
892,842
%
11.9
5.8
3.1
8.9
10.8
59.5
100.0
Single-User QSR (2)
Sq Ft(1)
%
10.6
20,634
15,279
7.8
21.5
41,778
17.4
33,792
-
-
42.7
83,178
194,661
100.0
16,196
210,857
6.5 years
%
6.8
10.3
10.0
12.5
9.8
50.6
100.0
Total
Sq Ft(1)
439,443
667,164
647,744
804,067
634,527
3,264,161
6,457,106
275,952
6,733,058
6.2 years
6.5 years
(1) At 100%, regardless of the Trust’s ownership interest in the properties.
(2) QSR refers to quick service restaurants.
6.5 years
3.3 years
At December 31, 2019, overall committed occupancy for the portfolio (excluding properties under development, redevelopment
and non-consolidated investments) was 96.3% compared to 96.2% at December 31, 2018. Same-asset committed occupancy was
96.1% at December 31, 2019, compared to 96.0% at December 31, 2018.
Committed occupancy for the portfolio over the last eight quarters is as follows:
100
95
90
Occupancy %
95.2
95.4
95.4
95.9
96.2
96.5
96.5
96.3
F18Q1
F18Q2
F18Q3
F18Q4
F19Q1
F19Q2
F19Q3
F19Q4
Page 18 of 82
Plaza Retail REIT
The weighted average contractual base rent per square foot on renewals/new leasing in 2019 versus expiries (excluding
developments, redevelopments and non-consolidated investments) is outlined in the following table:
Open-Air Centres
Enclosed Malls
Single-User Retail
Single-User QSR
2019 – Q4 YTD
Leasing renewals (sq. ft.)
Weighted average rent ($/sq. ft.)
547,974
$16.27
103,058
$14.63
Change in weighted average rent
7.7%
(2.3)%
Expiries that renewed (sq. ft.)
Weighted average rent ($/sq. ft.)
New leasing (sq. ft.)
Weighted average rent ($/sq. ft.)
Expiries not renewed (sq. ft.)
Weighted average rent ($/sq. ft.)
2020
Expiries (sq. ft.)
Weighted average rent ($/sq. ft.)
547,974
$15.10
107,320
$14.25
79,310
$15.44
328,042
$14.80
103,058
$14.98
10,564
$17.45
14,035
$15.69
74,749
$7.83
97,788
$18.41
0.5%
97,788
$18.32
3,200
$29.00
-
-
16,018
$8.93
10,595
$23.39
(3.7%)
10,595
$24.30
-
-
13,409
$24.16
20,634
$28.59
The majority of the renewals in the single-user retail category were early renewals of 2020 lease expiries.
In addition, for the twelve months ended December 31, 2019, the Trust completed 106 thousand square feet of new and renewal
leasing deals on developments and redevelopments at market rates and 216 thousand square feet of new and renewal leasing deals
at market rates at non-consolidated investments.
Plaza’s financial exposure to vacancies and lease roll-overs differs among 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 open-air centres was 96.9% at December 31, 2019, compared to 96.7% at December 31,
2018.
Committed occupancy for enclosed malls was 88.0% at December 31, 2019, compared to 88.6% at December 31, 2018.
Committed occupancy for single use assets was 98.6% at December 31, 2019, compared to 98.8% at December 31,
2018.
Pre-leased space in active properties under development was 86.7% at December 31, 2019.
Page 19 of 82
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, 2019 represent approximately 54.3% of total base rent revenues in place.
1. Shoppers Drug Mart/Loblaw(1)
2. KFC(2)
3. Dollarama
4. Canadian Tire Group(3)
5. Sobeys Group(4)
% of
Base Rent
Revenue(6)
25.1
5.5
5.1
3.9
3.5
6. TJX Group(5)
7. Staples
8. Bulk Barn
9. Tim Hortons/Burger King (RBI)
10. Metro/Jean Coutu
% of
Base Rent
Revenue(6)
3.3
3.0
1.8
1.6
1.5
(1) Shoppers Drug Mart/Loblaw represents the following stores: Shoppers Drug Mart, No Frills, and Maxi.
(2) The majority is represented by 3 operators.
(3) Canadian Tire Group represents the following stores: Canadian Tire, Mark’s/L’Équipeur, Party City and Sport Chek.
(4) Sobeys Group represents the following stores: Sobeys, IGA, Sobeys Fast Fuel and Lawtons.
(5) TJX Group represents the following stores: Winners, HomeSense, and Marshalls.
(6) 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.
Mix of Tenancy
Mix by Property Type
Local
3.7%
Regional
3.9%
Non-Retail
1.7%
Single -
Retail
19.1%
Single - QSR
6.9%
National
90.7%
Enclosed
7.1%
Strip
66.9%
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 convertible debentures – items that
are not reflective of Plaza’s ability to pay distributions and outside of Plaza’s control.
Page 20 of 82
Plaza Retail REIT
For 2019, Plaza’s annual distributions are currently set at $0.28 per unit.
12 Months
Ended
December 31,
2019
12 Months
Ended
December 31,
2018
3 Months
Ended
December 31,
2019
(unaudited)
$ 7,235
-
$ 7,235
3 Months
Ended
December 31,
2018
(unaudited)
$ 7,281
(382)
$ 6,899
(000s)
Total distributions(1)
Less: Distribution Reinvestment Plan proceeds(2)
Cash distributions paid
$ 28,997
(4,438)
$ 24,559
(1) Total distributions include cash distributions paid and payable to unitholders, unit distributions under the Distribution Reinvestment
$ 29,020
-
$ 29,020
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 payment of the October 2018 distribution, the Trust suspended its DRIP until further notice following 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,
2019
(unaudited)
$ 11,713
(7,235)
3 Months
Ended
December 31,
2018
(unaudited)
$ 10,695
(7,281)
12 Months
Ended
December 31,
2019
12 Months
Ended
December 31,
2018
$ 42,653
(29,020)
$ 33,770
(28,997)
(000s)
Cash provided by operating activities(1)
Total distributions(2)
Excess of cash provided by operating activities
over total distributions
$ 4,773
(1) Cash provided by operating activities is presented net of interest paid, but excludes distributions paid on Class B exchangeable LP
$ 13,633
$ 4,478
$ 3,414
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 21 of 82
Plaza Retail REIT
CAPITAL RESOURCES, EQUITY AND DEBT ACTIVITIES
Operating and Development Facilities
(000s)
December 31, 2018(1)
Net change
December 31, 2019(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
$ 35,604
(18,265)
$ 17,339
$20.0 Million
Development
$ 11,579
(11,579)
$ -
$15.0 Million
Development
$ 4,885
4,039
$ 8,924
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, 2020
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
$0.5 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, 2019, 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. 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 XII
5.50%
July 15, 2022
$3,000
The Series X 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.
On July 8, 2019 the Series XI mortgage bonds matured and were paid out.
Page 22 of 82
Plaza Retail REIT
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
Mortgages
Fixed Rate Mortgages
During 2019, the Trust closed $199.3 million in fixed rate financing, with a weighted average term of 9.5 years and a weighted
average interest rate of 3.81%. The Trust’s consolidated share of the long-term financing obtained is $100.7 million.
Long-term financing obtained in 2019 held in non-consolidated investments includes:
- fixed term loans totaling $4.5 million with a weighted average term of 10 years and a weighted average interest rate of
3.68%. These loans are secured by properties located in Granby and Laval, QC and are held in a non-consolidated investment
of which the Trust owns 25%;
- fixed term loans totaling $6.5 million with a term of 6.0 years and an interest rate of 3.32%. These loans are secured by
properties located in Amherstview and Port Perry, ON and are held in a non-consolidated investment of which the Trust
owns 50%. These mortgages are funded by a variable rate that has an interest rate swap in place, thereby fixing the variable
interest rate;
- fixed term loans were early extended with the existing lender for $36 million with a weighted average term of 10.0 years
and a weighted average interest rate of 4.7%. These loans are secured by properties located in Montreal, QC and are held
in a non-consolidated investment of which the Trust owns 10%; and
- a fixed term loan in the amount of $8.1 million with a term of 10.0 years and an interest rate of 3.41%. This loan is secured
by a property located in Saint-Jerome, QC and is held in a non-consolidated investment of which the Trust owns 20%. This
mortgage is funded by a variable rate that has an interest rate swap in place, thereby fixing the variable interest rate.
Subsequent to year end, a fixed term loan was obtained for a property located in Mississauga, ON for $5.75 million with a term
of 10 years and an interest rate of 3.75%, at the Trust’s ownership percentage of 50%.
Variable Rate Mortgages
During 2019, the Trust obtained a total of $46.6 million in variable rate financing, with a weighted average term of 2.1 years and
a weighted average current variable interest rate of 4.9%, at the current prime rate. The Trust’s consolidated share of the variable
rate financing drawn in 2019 is $15.8 million.
Variable rate financing obtained in 2019 includes:
- an unsecured variable-rate interest-only loan in the amount of $1.2 million (at Plaza’s consolidated share) in connection with
the acquisition of a property. The loan has a term of 5 years and a rate of prime plus 1.05% with a minimum 5.00% rate;
- a $10.1 million secured non-revolving construction facility. The loan has a term of 2 years and a rate of prime plus 1.00%
or BAs plus 2.25%. At December 31, 2019, $8.9 million has been drawn on the loan;
- 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 1.25% or BAs plus 2.75%, and matures on May 31, 2020. At December 31,
2019, $6.6 million has been drawn on the loan, of which $4.6 million has been drawn in 2019; and
- a construction facility for $27.4 million was entered into with a term of 2.0 years and an interest rate of prime plus 0.75%
or BA plus 2.0%. At December 31, 2019, $17.7 million has been drawn of which $7.6 million was used to repay a portion
Page 23 of 82
Plaza Retail REIT
of a land loan for the same property. This facility is held in a non-consolidated investment for a property located in St.
John’s, NL of which the Trust owns 50%.
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. This loan was repaid during 2019 when long term financing
was obtained for this property.
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 long-term mortgages by year:
l
a
p
i
c
n
i
r
P
l
a
t
o
T
f
o
%
60.0%
50.0%
40.0%
30.0%
20.0%
10.0%
0.0%
16.0%
2020
$63.5M
4.62%*
Long-Term Mortgage Maturities
52.2%
7.2%
2021
$28.6M
4.77%*
9.7%
2022
$38.3M
4.08%*
6.2%
2023
$24.7M
4.98%*
*Weighted average expiring interest rate
8.7%
2024
$34.4M
4.07%*
After 5 years
$206.5M
3.99%*
The weighted average term to maturity for the long-term mortgages is 5.9 years. The average remaining repayment (amortization)
period on long-term mortgage debt is 21.8 years.
Page 24 of 82
Plaza Retail REIT
Debt Service Ratios
Plaza’s summary of EBITDA and debt service ratios for the three and twelve months ended December 31, 2019, compared to the
three and twelve months ended December 31, 2018 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 units
Fair value adjustment to interest rate swaps
Fair value adjustment to right-of-use land lease assets
Equity accounting adjustment for interest rate swaps
EBITDA
Finance costs(1)
Periodic mortgage principal repayments(2)
Total debt service
Debt service ratios
Interest coverage ratio
Debt coverage ratio
3 Months
Ended
December 31,
2019
(unaudited)
$ 8,017
3 Months
Ended
December 31,
2018
(unaudited)
$ 1,068
12 Months
Ended
December 31,
2019
12 Months
Ended
December 31,
2018
$ 51,337
$ 12,212
(232)
7,169
-
1,010
1,761
(185)
143
12
(1,380)
169
(57)
$ 16,427
$ 7,034
2,885
$ 9,919
(537)
6,666
-
9,865
1,209
(3,159)
(381)
(28)
50
-
9
$ 14,762
$ 6,629
2,698
$ 9,327
554
29,518
-
(18,748)
1,665
4,294
822
53
392
663
(63)
$ 70,487
$ 29,192
11,458
$ 40,650
(175)
26,752
2,280
18,405
4,119
(3,022)
(457)
(30)
(39)
-
(49)
$ 59,996
$ 26,413
10,730
$ 37,143
2.34 times
1.66 times
2.23 times
1.58 times
2.41 times
1.73 times
2.27 times
1.62 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.
Includes land lease principal repayments
(2)
For the three and twelve months ended December 31, 2019, the interest and debt coverage ratios were significantly higher than
the prior year mainly due to $6.0 million in lease buyout revenues recorded in the current year.
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,
2019
December 31,
2018
56.3%
51.8%
54.7%
49.7%
The increase in debt to gross assets over the prior year relates to the new accounting standards on leases implemented on January
1, 2019 requiring Plaza to record a land lease liability and right-of-use land lease asset on its books. This standard has been
implemented prospectively and therefore prior year comparatives have not been restated. Excluding land leases and excluding
convertible debentures, the debt to gross assets ratio is 49.1%; excluding land leases and including convertible debentures, the
ratio is 53.9%. The Trust’s general philosophy is to maintain its leverage excluding land leases at no more than approximately
50% excluding convertible debentures and approximately 55% including convertible debentures. By its Declaration of Trust,
Page 25 of 82
Plaza Retail REIT
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 25, 2020 (000s) (unaudited)
Current outstanding units
Class B exchangeable LP units
Series VII convertible debentures
Series E convertible debentures
Total adjusted units outstanding
Units
102,113
1,191
911
8,363
112,578
On September 26, 2019, the Trust announced that it had received approval from the TSX for the renewal of its normal course
issuer bid (“NCIB”) for a further year. The period of the renewed NCIB commenced on September 28, 2019, with purchases
able to be made as at the open of markets on September 30, 2019, and will conclude on the earlier of the date on which purchases
under the bid have been completed and September 27, 2020. Under the terms of the renewed NCIB, the Trust can purchase up
to 8,096,331 of its issued and outstanding units through the facilities of the TSX and any alternative trading system in
Canada. Subject to certain prescribed exemptions and any block purchase made in accordance with the rules of the TSX, daily
purchases made by the Trust may not exceed 12,433 units, representing 25% of the average daily trading volume of the units on
the TSX for the six-month period ended August 31, 2019 (being 49,733 units). All units that are purchased under the renewed
NCIB will be cancelled (on a monthly basis, on or before the record date for each monthly distribution). Unitholders may obtain
a copy of the NCIB renewal notice, without charge, by contacting the Trust.
Plaza also entered into a new automatic securities purchase plan agreement (the “Plan”) with its designated broker in order to
facilitate purchases of units under the renewed NCIB. The Plan, which was pre-cleared by the TSX, allows for purchases of units
by Plaza at times when it would ordinarily not be permitted to make purchases due to regulatory restrictions or self-imposed
blackout periods. The Plan will terminate on September 27, 2020.
Under its previous NCIB, which expired on September 27, 2019, Plaza purchased a total of 579,389 units at a weighted average
price of $4.1984 per unit. Plaza also purchased 142,300 units to date under the renewed NCIB at a weighted average price of
$4.5128, resulting in a total of 721,689 units being repurchased for cancellation for the year ended December 31, 2019.
Subsequent to year end, an additional 68,400 units have been repurchased under the normal course issuer bid at an average unit
price of $4.5607.
Page 26 of 82
Plaza Retail REIT
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.
In January 2016, the IASB issued IFRS 16, Leases (“IFRS 16”). The new standard replaced the previous lease guidance in IFRS
and related interpretations, requiring lessees to bring most leases on their statement of financial position. Lessor accounting
remains similar to the current standard and the distinction between operating and finance leases is retained. The new standard
was effective beginning January 1, 2019.
The Trust has investment properties located on land which is leased. Under the former lease standard, these leases were accounted
for as operating leases and the related lease payments were expensed. Under the new lease standard, a right-of-use (“ROU”)
asset and a land lease liability have been recorded along with the corresponding financing charges. The ROU asset is accounted
for as investment property, as these land leases meet the definition of investment property under IAS 40, Investment property.
At transition, for leases classified as operating leases under the old standard, lease liabilities were measured at the present value
of the remaining lease payments, discounted at the Trust’s incremental borrowing rate as at January 1, 2019. The Trust elected
to measure all its ROU assets at an amount equal to the lease liability, adjusted for any prepaid or accrued lease payments.
As at January 1, 2019, the Trust recognized lease liabilities of $60.6 million recorded as land lease liabilities and ROU assets of
$60.6 million in investment properties on its statement of financial position. The nature and timing of the related expenses has
changed under the new standard, as IFRS 16 replaces the straight-line operating lease expense recorded in NOI with interest
expense on lease liabilities. Changes in the fair value of the ROU asset are also now being recorded.
Land lease commitments at December 31, 2018
Additional land lease commitments upon transition(1)
Total land lease liability commitments
Discounted using the incremental borrowing rate at January 1, 2019
Land lease liabilities recognized at January 1, 2019
$ 126,374
16,782
143,156
(82,586)
$ 60,570
(1) Land lease commitments upon transition represent those leases that, in the opinion of management, will be renewed for terms beyond
the current contractual commitments based on the estimated useful lives of the investment properties occupying the leased land.
When measuring lease liabilities for leases that were classified as operating leases, the Trust discounted lease payments using its
incremental borrowing rate at January 1, 2019. The weighted average rate applied was 4.67%.
The Trust has 26 long-term land leases (affecting 25 properties). One of the land leases relates to shared parking facilities. Land
leases expire (excluding any non-automatic renewal periods) on dates ranging from 2022 to 2084 with an average life of 35 years,
with some of the leases also containing non-automatic renewal options, extending the average life of the leases to 60 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. At December 31, 2019, the recorded amount of the right-of-use asset and land lease liability is $59.9 million.
Page 27 of 82
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
3 Months
Ended
December 31,
2019
(unaudited)
3 Months
Ended
December 31,
2018
(unaudited)
12 Months
Ended
December 31,
2019
(unaudited)
12 Months
Ended
December 31,
2018
(unaudited)
$ 72
487
559
153
712
202
3,708
2,673
$ 53
456
509
75
584
225
3,713
3,538
$ 232
2,058
2,290
1,295
3,585
$ 338
1,836
2,174
869
3,043
365
8,630
14,193
654
11,424
10,346
6,583
$ 7,295
7,476
$ 8,060
23,188
$ 26,773
22,424
$ 25,467
$ 559
252
$ 509
221
$ 2,290
1,035
$ 2,174
1,199
$ 811
$ 730
$ 3,325
$ 3,373
COMMITMENTS AND CONTINGENT LIABILITIES
Commitments
The Trust has $9.1 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, 2019 in respect of certain projects under development and other long-term
obligations are as follows:
Year 1
2020
Year 2
2021
Year 3
2022
Year 4
2023
Year 5
2024
After 5
Years
Face Value
Total
Mortgages – periodic payments
Mortgages – due at maturity
Development lines of credit
Construction loans
Unsecured interest-only loans
Bank indebtedness
Mortgage bonds payable
Debentures(1)
Land leases
Development activities
Total contractual obligations
(1) Stated at face value.
$ 11,243
63,502
8,924
6,560
$ 9,887
28,646
-
8,855
$ 7,951
34,425
-
-
2,971
-
1,800
-
-
2,965
-
$59,722 $ 59,994 $ 88,742 $ 48,312
$ 9,685
38,347
-
-
-
-
-
3,000
6,000
2,962
-
$ 8,257
24,664
-
-
5,643
-
6,193
-
47,250
2,928
-
-
-
-
-
9,360
2,974
-
-
17,339
--
6,000
-
2,958
9,084
$125,610
$ 29,994
206,534
-
-
-
-
-
-
-
108,670
-
$345,198
$ 77,017
396,118
8,924
15,415
8,614
17,339
7,9
9,000
62,610
123,457
9,084
$727,578
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Plaza Retail REIT
Contingent Liabilities
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
did not relieve the Trust’s obligations as original borrower in respect of these mortgages. The debt subject to such guarantees at
December 31, 2019 totals $4.8 million with a weighted average remaining term of 3.1 years. As well, the Trust has contingent
liabilities as original borrower on six 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, 2019 totals $6.8 million with a weighted average remaining term of 5.6 years.
The Trust is contingently liable for certain obligations of its co-venturers, under guarantees in excess of its ownership percentages
for six strip plazas and four free-standing properties. The excess guarantees amount to $15.0 million. Cross indemnities, are in
place for certain of these properties from co-venturers.
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Plaza Retail REIT
PART IV
SUMMARY OF SELECTED QUARTERLY INFORMATION
Plaza’s summary of selected quarterly information for the last eight quarters is presented below:
8.1¢
8.8¢
8.9¢
9.8¢
12.8¢
$16,449
$16,785
$16,125
$15,740
$18,015
$16,699
$21,478
$1,068
7.0¢
$6,983
7.0¢
$16,954
7.0¢
$16,290
7.0¢
$10,076
7.0¢
$8,017
7.0¢
Q2’19
$28,491
$26,373
Q4’18
$26,162
$26,068
Q2’18
$28,639
$26,260
Q3’18
$27,077
$25,723
Q1’19
$33,858
$31,747
Q3’ 19
$28,437
$26,868
Q4’ 19
$27,685
$27,473
(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
97.2%
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.
$7,327
7.0¢
96.3%
88.4%
78.6%
96.3%
54.9%
60.0%
89.4%
77.4%
95.9%
71.5%
83.5%
96.5%
96.2%
89.0%
85.0%
97.5%
96.5%
86.3%
95.4%
99.5%
11.7¢
6,430
11.3¢
12.3¢
6,326
6,358
6,418
6,406
6,430
6,733
7.2¢
7.0¢
8.3¢
7.2¢
7.0¢
7.8¢
8.4¢
7.8¢
7.8¢
7.9¢
7.2¢
7.2¢
7.8¢
8.9¢
8.2¢
8.2¢
9.6¢
9.0¢
7.9¢
8.0¢
Q1’18
$23,558
$25,966
$15,360
$(3,166)
7.0¢
7.9¢
7.9¢
7.2¢
7.2¢
88.1%
97.0%
6,065
95.1%
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.
Some of Plaza’s leases have common cost recoveries from tenants linked to CPI or otherwise have caps on operating cost
recoveries. At December 31, 2019, approximately 47.6% of the Trust’s leased area is tied to a CPI cost recovery formula. As
well, anchor tenant leases may restrict common area maintenance (also referred to as “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, 2019, the Trust held interests in 274 properties
spread geographically across Canada. Some of the more important risks are outlined below. See Financial Instruments and Risk
Management Note 29 to the December 31, 2019 Consolidated Financial Statements of the Trust for further details. Also see the
Trust’s Annual Information Form dated March 27, 2019 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, considering 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 $429 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 2020 or properties needing long term financing in 2020 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/Loblaw, represents 25.1% of current monthly base rents in place, while franchisees of
KFC represent 5.5%. The top 10 tenants collectively represent approximately 54.3% of current monthly base rents in place.
National and regional tenants represent 94.6% 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.
One of Plaza’s performance drivers is related to same-property 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 immediately
reduced by vacancy. Certain costs such as 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 portfolio 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 any 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. 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)
Bonds and Debentures Held
December 31,
2019
December 31,
2018
$ 261
$ 261
The trustees, directly or indirectly, held mortgage bonds or debentures of the Trust as follows (stated at face value):
(000s)
Earl Brewer (Chair of the Board and trustee)
Stephen Johnson (trustee)
Michael Zakuta
Total
December 31,
2019
$ 325
200
-
$ 525
December 31,
2018
$ 450
300
100
$ 850
No other trustee or key management personnel own mortgage bonds of the Trust at December 31, 2019.
Other Related Party Transactions
TC Land LP, an entity controlled by Michael Zakuta and Earl Brewer, leases nine parcels of land to the Trust at market rates,
with 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. At December 31, 2019 there is a $28 thousand accounts receivable
balance owing to the Trust for property management, leasing and development fees. For the twelve months ended December 31,
2019, property management, development, financing and leasing fees of $158 thousand were earned by a subsidiary of the Trust
from this property. For the year ended December 31, 2019 there were no amounts owing to the Trust. The $405 thousand note
receivable owing to the Trust at December 31, 2018, relating to short-term funding requirements for the construction of a retail
pad on the property was repaid during the first quarter of 2019.
Until January 31, 2018, 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. The Trust pays no basic minimum
rent for the space.
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, 2019
Page 33 of 82
Plaza Retail REIT
there is $5.9 million owed by the properties to the Trust which is recorded in notes and advances. As well, there is a $13 thousand
accounts receivable balance owing to the Trust for property management, leasing and development fees. For the twelve months
ended December 31, 2019, property management, leasing, development and financing fees of $181 thousand were earned by a
subsidiary of the Trust from these properties.
Until January 31, 2018, 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, 2019, property management fees of $5 thousand were earned by a subsidiary of the Trust from these
properties.
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, 2019 there is a $9 thousand accounts receivable balance owing to the Trust for property
management, development and leasing fees. For the twelve months ended December 31, 2019, property management, leasing
and development fees of $144 thousand were earned by a subsidiary of the Trust from these properties.
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, 2019, property management fees
of $32 thousand were earned by a subsidiary of the Trust from these properties.
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, 2019 there is a $16 thousand accounts receivable balance owing to the Trust for property management fees. For the twelve
months ended December 31, 2019, property management, leasing and development fees of $239 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 of the Trust’s DC&P and ICFR at December 31, 2019. Based on that evaluation they determined that the Trust’s DC&P
and ICFR were appropriately designed 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, 2019, 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 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, generally 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, 2019 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 $38.0 million. An increase of 0.25% in the
capitalization rates used would have resulted in a decrease in investment properties of approximately $35.4 million.
FUTURE ACCOUNTING POLICY CHANGES
Please refer to Note 3 to the Consolidated Financial Statements for the year ended December 31, 2019 for details about future
accounting policy changes.
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 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 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.
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Plaza Retail REIT
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, 2018, 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
consolidated statements of comprehensive income (property revenues less total property operating costs).
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, 2019 can be accessed on Plaza’s website at www.plaza.ca.
Page 37 of 82
Plaza Retail REIT
APPENDIX A
FOURTH QUARTER 2019 INCOME RESULTS
Consolidated Statements of Comprehensive Income
(000s) (unaudited)
Revenues
Operating expenses
Net property operating income
Share of loss 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
Net change in fair value of right-of-use land lease assets
Net change in fair value of investment properties
Profit before income tax
Income tax recovery (expense)
- Current
- Deferred
3 Months
Ended
December 31,
2019
$ 27,473
(10,688)
16,785
3 Months
Ended
December 31,
2018
$ 26,068
(10,328)
15,740
(843)
(2,286)
170
885
14,711
(7,169)
185
(143)
1,380
(169)
(1,010)
7,785
(100)
332
232
(573)
(2,262)
163
504
13,572
(6,666)
3,159
381
(50)
-
(9,865)
531
(90)
627
537
Profit and total comprehensive income for the period
$ 8,017
$ 1,068
Profit and total comprehensive income for the period attributable to:
- Unitholders
- Non-controlling interests
$ 8,256
(239)
$ 8,017
$ 1,055
13
$ 1,068
Page 38 of 82
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 25, 2020
__________________________________
Jim Drake
Chief Financial Officer
February 25, 2020
Page 39 of 82
KPMG LLP
Frederick Square, TD Tower
700-77 Westmorland Street
Fredericton NB E3B 6Z3
Canada
Tel (506) 452-8000
Fax (506) 450-0072
INDEPENDENT AUDITORS’ REPORT
To 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, 2019 and December 31, 2018
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, 2019 and December 31, 2018, 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 ethical responsibilities in accordance with these
requirements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
opinion.
Page 40 of 82
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.
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 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 IFRS, and for such internal control as management determines is necessary to enable the preparation of
financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, management is responsible for assessing the 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.
Page 41 of 82
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.
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.
Page 42 of 82
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.
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 25, 2020
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 43 of 82
Plaza Retail REIT
Consolidated Statements of Financial Position
(in thousands of Canadian dollars)
Assets
Non-Current Assets
Investment properties (Note 5)
Investments (Note 6)
Tenant loans
Deferred income tax asset (Note 17)
Total non-current assets
Current Assets
Investment properties held for sale (Note 5)
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 22)
Land lease liabilities (Note 14)
Deferred income tax liability (Note 17)
Total non-current liabilities
Current Liabilities
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 15)
Land lease liabilities (Note 14)
Income tax payable
Notes payable (Note 16)
Total current liabilities
Total liabilities
Unitholders’ equity
Non-controlling interests
Total unitholders’ equity
Total liabilities and unitholders’ equity
December 31,
2019
,
December 31,
2018
$ 1,086,680
49,124
530
364
1,136,698
$ 988,640
44,614
613
461
1,034,328
609
8,845
4,285
5,383
110
6,038
25,270
$ 1,161,968
-
7,296
3,398
3,390
105
12,549
26,738
$ 1,061,066
$ 64,190
2,950
414,125
5,444
59,219
7,247
553,175
5,987
17,339
90,228
21,623
688
24
1,456
137,345
690,520
$ 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
467,142
4,306
471,448
$ 1,161,968
447,181
4,521
451,702
$ 1,061,066
Contingencies, commitments, guarantees and indemnities, litigation and provisions – see Note 28
Subsequent events – see Note 31
Barbara Trenholm, Trustee
Chair of the Audit Committee Chair of the Board
______________________________
Earl Brewer, Trustee
See accompanying notes which are an integral part of these consolidated financial statements.
Page 44 of 82
Plaza Retail REIT
Consolidated Statements of Comprehensive Income
(in thousands of Canadian dollars)
Revenues (Note 18)
Operating expenses (Note 19)
Net property operating income
Share of profit (loss) of associates
Administrative expenses (Note 20)
Investment income
Other income
Income before finance costs, fair value adjustments and income taxes
Finance costs (Note 21)
Finance costs - convertible debenture issuance costs
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 22)
Finance costs - net change in fair value of interest rate swaps (Note 12 and 29)
Net change in fair value of right-of-use land lease assets (Note 5)
Net change in fair value of investment properties (Note 5)
Profit before income tax
Income tax recovery (expense)
- Current
- Deferred
2019
2018
$ 112,461
(39,734)
72,727
$ 104,017
(40,093)
63,924
1,229
(9,905)
981
3,800
68,832
(29,518)
-
(4,294)
(822)
(392)
(663)
18,748
(1,492)
(9,387)
688
2,223
55,956
(26,752)
(2,280)
3,022
457
39
-
(18,405)
51,891
12,037
(288)
(266)
(554)
(235)
410
175
Profit and total comprehensive income for the period
$ 51,337
$ 12,212
Profit and total comprehensive income for the period attributable to:
- Unitholders
- Non-controlling interests
$ 51,407
(70)
$ 12,063
149
$ 51,337
$ 12,212
See accompanying notes which are an integral part of these consolidated financial statements.
Page 45 of 82
Plaza Retail REIT
Consolidated Statements of Changes in Unitholders’ Equity
(in thousands of Canadian dollars)
Trust
Units
(Note 22)
Retained
Earnings
Total
Attributable
to Unitholders
Non-
Controlling
Interests
Total
Equity
Balance as at December 31, 2017
$ 273,158
$ 185,706
$ 458,864
$ 4,231
$ 463,095
Profit and total comprehensive income for the period
Transactions with unitholders, recorded directly in equity:
- Issuance of units under the DRIP and RU plan
- Units issued from exchange of Class B exchangeable units
- Distributions to unitholders (Note 24)
- 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
Profit and total comprehensive income for the period
Transactions with unitholders, recorded directly in equity:
- Issuance of units under the RU plan (Note 22)
- Repurchase of units under normal course issuer bid (Note 22)
- Distributions to unitholders (Note 24)
- 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, 2019
-
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
175,461
-
$ 447,181
141
$ 4,521
141
$ 451,702
-
51,407
51,407
(70)
51,337
273
(1,925)
-
-
(1,108)
(28,686)
273
(3,033)
(28,686)
-
-
-
273
(3,033)
(28,686)
-
$ 276,406
-
$ 190,736
-
$ 467,142
(145)
$ 4,306
(145)
$ 471,448
See accompanying notes which are an integral part of these consolidated financial statements.
Page 46 of 82
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 21)
Share of loss (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 (Note 12 and 29)
Net change in fair value of right-of-use land lease assets
Current and deferred income taxes
Issuance of units under the DRIP and RU plan
Straight-line rent (Note 18)
Interest paid
Imputed interest paid on land lease liabilities (Note 21)
Income taxes paid
Distributions from equity accounted investments (Note 6)
Leasing commissions paid
Change in non-cash working capital (Note 25)
Financing activities
Cash distributions paid to unitholders (Note 24)
Cash distributions paid to Class B exchangeable LP unitholders (Note 21)
Repurchase of units under normal course issuer bid (Note 22)
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 21)
Mortgages repaid
Periodic mortgage principal repayments
Land lease principal repayments
Distributions from equity accounted investments (Note 6)
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))
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 increase (decrease) in cash
Cash less bank indebtedness, beginning of the period
Cash less bank indebtedness, end of the period
2019
2018
$ 51,337
$ 12,212
29,518
(1,229)
(18,748)
4,294
822
392
663
554
273
(78)
(26,134)
(2,254)
(348)
1,676
(232)
2,147
42,653
(28,686)
(334)
(3,033)
-
-
-
(6,000)
139,949
(1,059)
(134)
(92,953)
(10,795)
(663)
3,952
115
359
(12,650)
(26,541)
16,265
(8,910)
(146)
-
-
(1,907)
10,623
(40)
108
(23,198)
19,814
(28,308)
$ (8,494)
26,752
1,492
18,405
(3,022)
(457)
(39)
-
(175)
148
228
(24,811)
-
(164)
1,338
(338)
2,201
33,770
(24,208)
(351)
-
739
48,655
(53)
(35,545)
65,373
(480)
(240)
(38,783)
(10,730)
-
-
(83)
4,294
(36,877)
(25,129)
40,976
(5,161)
141
(859)
(14,296)
538
(2,550)
(331)
464
(43,084)
(5,020)
(23,288)
$ (28,308)
See accompanying notes which are an integral part of these consolidated financial statements.
Page 47 of 82
Plaza Retail REIT
Notes to the Consolidated Financial Statements
December 31, 2019
(tabular amounts in thousands of Canadian dollars, except per unit amounts and as otherwise indicated)
1. Reporting Entity
Plaza Retail REIT (the “Trust” or “Plaza”) 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 is 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 25, 2020.
(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 48 of 82
Plaza Retail REIT
Notes to the Consolidated Financial Statements
December 31, 2019
(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.
(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 statement of financial position 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
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.
Page 49 of 82
Plaza Retail REIT
Notes to the Consolidated Financial Statements
December 31, 2019
(tabular amounts in thousands of Canadian dollars, except per unit amounts and as otherwise indicated)
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
The Trust enters as a lessor into lease agreements that fall within the scope of IFRS 16, “Leases” which are classified as
operating leases. The Trust's revenues are earned from lease contracts with tenants and include both a lease component and a
non-lease component. The Trust recognizes revenue from lease components on a straight-line basis over the lease term,
including the recovery of property tax and insurance, and is included in revenue in the consolidated statements of
comprehensive income due to its operating nature, except for contingent rental income which is recognized when it arises. An
accrued straight-line rent receivable is recorded from tenants for the difference between the straight-line rent and the rent that is
contractually due from the tenant.
The lease agreements include certain services offered to tenants such as cleaning, utilities, security, landscaping, snow removal,
property maintenance costs, as well as other support services. The consideration charged to tenants for these services includes
fees charged based on a percentage of the rental income and reimbursement of certain expenses incurred. The Trust has
determined that these services constitute distinct non-lease component (transferred separately from the right to use the
underlying asset) and are within the scope of IFRS 15, “Revenue from Contracts with Customers”. These property management
services are considered one performance obligation, meeting the criteria for over time recognition and are recognized in the
period that recoverable costs are incurred, or services are performed.
Fee Income
Fee income consists mainly of property management fees, leasing fees, project management fees and other miscellaneous fees.
Property management fees are generally based on a percentage of property revenues and are recognized when earned in
accordance with the property management or co-ownership agreements. Leasing fees are incurred when the Trust is the leasing
manager for co-owned properties and are recognized when earned in accordance with the property management or co-
ownership agreements.
Lease buyout revenue
Lease buyout revenue represents amounts earned from tenants in connection with the cancellation or the early termination of
their remaining lease obligations and is recognized when a lease termination agreement is signed, and collection is reasonably
assured.
Page 50 of 82
Plaza Retail REIT
Notes to the Consolidated Financial Statements
December 31, 2019
(tabular amounts in thousands of Canadian dollars, except per unit amounts and as otherwise indicated)
(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.
(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 also issues unit-based awards, comprised of restricted units, to certain officers and employees of the Trust or its
affiliates. Under the restricted unit plan, the fair value of the restricted 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 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 unit or deferred unit 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. 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.
(i)
Financial Instruments
Financial assets and liabilities are recognized when the Trust becomes a party to the contractual provision of the financial
instrument.
Classification and Measurement - Financial assets are classified and measured based on three categories: amortized cost, fair
value through other comprehensive income (“FVOCI”), and fair value through profit or loss (“FVTPL”). Financial liabilities
are classified and measured on two categories: amortized cost or FVTPL. Derivatives embedded in contracts where the host is a
financial asset in the scope of IFRS 9, “Financial Instruments” are not separated, but the hybrid financial instrument as a whole
is assessed for classification.
Page 51 of 82
Plaza Retail REIT
Notes to the Consolidated Financial Statements
December 31, 2019
(tabular amounts in thousands of Canadian dollars, except per unit amounts and as otherwise indicated)
Financial assets are measured at amortized cost if both of the following conditions are met and it is not designated as FVTPL:
‐ the financial asset is held within a business model with the objective of collecting the contractual cash flows; and
‐ the contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the
principal amount outstanding.
Financial assets are measured at FVOCI if they meet both of the following conditions and are not designated at FVTPL:
‐ the financial asset is held within a business model whose objective is to both hold assets to collect contractual cash flows and
to sell assets prior to maturity; and
‐ the contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the
principal amount outstanding.
Assets held within another business model or assets that do not have contractual cash flow characteristics that are solely
payments of principal and interest are measured at FVTPL.
Financial liabilities are classified and measured subsequently at amortized cost using the effective interest method or at FVTPL.
The Trust’s financial assets and liabilities have been classified and measured as follows:
Asset / Liability
Classification and Measurement Basis
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
Amortized cost
Amortized cost
Amortized cost
Amortized cost
FVTPL
Amortized cost
Amortized cost
Amortized cost
FVTPL
Amortized cost
Amortized cost
Amortized cost
FVTPL
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 - An allowance for expected credit losses (“ECL”) is recognized at each balance sheet date for all financial assets
measured at amortized cost or those measured at fair value through other comprehensive income, except for investments in
equity instruments. 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.
Page 52 of 82
Plaza Retail REIT
Notes to the Consolidated Financial Statements
December 31, 2019
(tabular amounts in thousands of Canadian dollars, except per unit amounts and as otherwise indicated)
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.
(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 2019
On January 1, 2019, the Trust implemented IFRS 16, Leases (“IFRS 16”) and IFRIC 23, Uncertainty over income tax
treatments (“IFRIC 23”), in accordance with IAS 8, Accounting policies, changes in accounting estimates and errors. The
impacts on implementation of IFRS 16 and IFRIC 23 are described below.
(i) Leases
In January 2016, the IASB issued IFRS 16. The new standard replaced the previous lease guidance in IFRS and related
interpretations, requiring lessees to bring most leases on their statement of financial position. Lessor accounting remains
similar to the former standard and the distinction between operating and finance leases is retained. The new standard was
effective beginning January 1, 2019.
The Trust has investment properties located on land which is leased. Under the former lease standard, these leases were
accounted for as operating leases and the related lease payments were expensed. Under the new lease standard, right-of-use
(“ROU”) assets and land lease liabilities have been recorded along with the corresponding financing charges. The ROU assets
are accounted for as investment property, as these land leases meet the definition of investment property under IAS 40,
Investment property.
At transition, for leases classified as operating leases under the old standard IAS 17, lease liabilities were measured at the
present value of the remaining lease payments, discounted at the Trust’s incremental borrowing rate as at January 1, 2019. The
Page 53 of 82
Plaza Retail REIT
Notes to the Consolidated Financial Statements
December 31, 2019
(tabular amounts in thousands of Canadian dollars, except per unit amounts and as otherwise indicated)
Trust elected to measure all its ROU assets at an amount equal to the lease liability, adjusted for any prepaid or accrued lease
payments.
The Trust elected the following practical expedients when applying IFRS 16 to leases previously classified as operating leases
under IAS 17:
o Applied IFRS 16 only to contracts that were previously identified as leases;
o Applied the exemption not to recognize the ROU asset and lease liabilities for leases with less than 12 months of
lease term;
o Excluded initial direct costs from measuring ROU assets; and
o Used hindsight when determining the lease term if the contract contains options to extend or terminate the lease.
As at January 1, 2019, the Trust recognized lease liabilities of $60.6 million recorded as land lease liabilities and ROU assets of
$60.6 million in investment properties on its statement of financial position. The nature and timing of the related expenses has
changed under the new standard, 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 are also now being recorded.
Land lease commitment at December 31, 2018
Additional land lease commitments upon transition(1)
Total land lease liability commitments
Discounted using the incremental borrowing rate at January 1, 2019
Land lease liabilities recognized at January 1, 2019
$ 126,374
16,782
143,156
(82,586)
$ 60,570
(1) Land lease commitments upon transition represent those leases that, in the opinion of management, will be renewed for terms beyond
the current contractual commitments based on the estimated useful lives of the investment properties occupying the leased land.
When measuring lease liabilities for leases that were classified as operating leases, the Trust discounted lease payments using
its incremental borrowing rate at January 1, 2019. The weighted average rate applied was 4.67%.
(ii)
IFRIC Interpretation 23, Uncertainty over Income Tax Treatments
In June 2017, the IASB issued 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. 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 has adopted IFRIC 23 in its condensed interim
consolidated financial statements for the annual period beginning January 1, 2019. The adoption of IFRIC 23 has not had a
material impact on the condensed interim consolidated financial statements.
(n) Future Changes in Accounting Policies
(i)
Hedge Accounting
On September 26, 2019, the IASB issued amendments for some of its requirements for hedge accounting in IFRS 9 Financial
Instruments and IAS 39 Financial Instruments: Recognition and Measurement, as well as the related Standard on disclosures,
IFRS 7 Financial Instruments: Disclosures in relation to Phase 1 of IBOR Reform and its Effects on Financial Reporting
project. The amendments address issues affecting financial reporting in the period leading up to IBOR reform, are mandatory
and apply to all hedging relationships directly affected by uncertainties related to IBOR reform. The amendments modify some
specific hedge accounting requirements to provide relief from potential effects of the uncertainty caused by the IBOR reform in
the following areas: the ‘highly probable’ requirement, prospective assessments, retrospective assessments (for IAS 39), and
eligibility of risk components. The amendments are effective from January 1, 2020. The Trust does not expect the amendments
to have an impact on the consolidated financial statements.
(ii)
Conceptual Framework
On March 29, 2018 the IASB issued a revised version of its Conceptual Framework for Financial Reporting (the Framework),
that underpins IFRS Standards. The IASB also issued Amendments to References to the Conceptual Framework in IFRS
Page 54 of 82
Plaza Retail REIT
Notes to the Consolidated Financial Statements
December 31, 2019
(tabular amounts in thousands of Canadian dollars, except per unit amounts and as otherwise indicated)
Standards to update references in IFRS Standards to previous versions of the Conceptual Framework. Some Standards include
references to the 1989 and 2010 versions of the Framework. The IASB has published a separate document which contains
consequential amendments to affected Standards so that they refer to the new Framework, with the exception of IFRS 3
Business Combinations which continues to refer to both the 1989 and 2010 Frameworks. Both documents are effective from
January 1, 2020. The Trust does not expect the revisions to have an impact on the consolidated financial statements.
(iii) Definition of Material (Amendments to IAS 1 and IAS 8)
On October 31, 2018, the IASB refined its definition of material and removed the definition of material omissions or
misstatements from IAS 8. The definition of material has been aligned across IFRS Standards and the Framework. The
amendments provide a definition and explanatory paragraphs in one place. Pursuant to the amendments, information is material
if omitting, misstating or obscuring it could reasonably be expected to influence decisions that the primary users of general
purpose financial statements make on the basis of those financial statements, which provide financial information about a
specific reporting entity. The amendments are effective for annual periods beginning on or after January 1, 2020. The Trust
does not expect the amendments to have an impact on the consolidated financial statements.
(iv) Definition of a Business (Amendments to IFRS 3)
On October 22, 2018, the IASB issued amendments to IFRS 3 Business Combinations that seek to clarify whether a transaction
results in an asset or a business acquisition. The amendments include an election to use a concentration test. This is a
simplified assessment that results in an asset acquisition if substantially all of the fair value of the gross assets is concentrated in
a single identifiable asset or a group of similar identifiable assets. If a preparer chooses not to apply the concentration test, or
the test is failed, then the assessment focuses on the existence of a substantive process. The amendments apply to businesses
acquired in annual reporting periods beginning on or after January 1, 2020. The Trust does not expect the amendments to have
an impact on the consolidated financial statements.
Page 55 of 82
Plaza Retail REIT
Notes to the Consolidated Financial Statements
December 31, 2019
(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
($8.6 million after assumption of 50% of the existing mortgages by the purchaser).
Page 56 of 82
Plaza Retail REIT
Notes to the Consolidated Financial Statements
December 31, 2019
(tabular amounts in thousands of Canadian dollars, except per unit amounts and as otherwise indicated)
5.
Investment Properties
December 31, 2019
December 31, 2018
Income
producing
properties
Properties
under
development
Right-of-
use land
lease
assets(2)
Income
producing
properties
Properties
under
development
Total
Total
$ 935,779
$ 52,861 $ - $ 988,640 $ 905,964
$ 53,654 $ 959,618
-
-
60,570
60,570
-
-
-
5,788
21,872
12,650
(20,377)
38,377
(25)
(609)
-
-
(38,377)
86
-
19,743
(995)
-
-
-
-
-
-
-
27,660
2,169
24,035
26,204
12,650
(20,377)
-
54,678
(48,847)
44,527
24,328
(8,647)
(44,527)
79,006
(57,494)
-
61
(409)
120
(289)
(609)
-
-
-
18,748
(22,303)
3,898
(18,405)
-
-
(663)
(663)
-
-
-
Balance, beginning of the
period:
Right-of-use land lease
assets (Note 5 (f))
Additions (deductions):
Additions to investment
properties
Acquisitions of investment
properties and land
Disposals(1)
Transfers
Straight line rent
receivable change
Investment properties held
for sale (Note 5 (g))
Change in fair value –
income producing and
under development
Change in fair value –
right-of-use land lease
assets
Balance, end of the period:
$ 991,326
$ 35,447 $ 59,907 $ 1,086,680 $ 935,779
$ 52,861
$ 988,640
(1) Cash received from disposals as per the statement of cash flows of $16.3 million is net of notes and advances receivable of $4.1
million assumed by the purchasers. Cash received in the prior year as per the statement of cash flows of $40.9 million is net of
$16.5 million of mortgages assumed by the purchasers.
(2) The new IFRS 16, Leases standard is effective January 1, 2019 and has been applied prospectively. Prior year balances have not been
restated.
The majority of the Trust’s income producing properties and properties under development have been pledged as security under
various debt agreements.
Investment properties are stated at fair value using either external appraisals or an internal approach:
(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,
$290 million of investment properties was based on such external appraisals (December 31, 2018 - $87 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.
Page 57 of 82
Plaza Retail REIT
Notes to the Consolidated Financial Statements
December 31, 2019
(tabular amounts in thousands of Canadian dollars, except per unit amounts and as otherwise indicated)
As at December 31, 2019 the Trust has utilized the following range of capitalization rates:
Freestanding or Mini Box
Quick Service Restaurant
Anchored Open-Air Centre – Class A
Anchored Open-Air Centre – Class B
Unanchored Open-Air Centre
Enclosed Malls – Community
Number of
Properties(1)
73
92
14
36
37
3
255
Weighted average
capitalization rates
6.57%
6.64%
7.06%
7.14%
7.76%
7.77%
7.07%
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 quick-service restaurant.
Anchored Open-Air Centre – Class A - defined as a food or equivalent-anchored retail open-air centre, 20,000-125,000 square
feet and where the anchor tenant(s) represents 70% or more of GLA or gross revenue.
Anchored Open-Air Centre – Class B - defined as a food or equivalent-anchored retail open-air centre, 20,000-200,000 square
feet and where the anchor tenant(s) represents less than 70% of GLA or gross revenue.
Unanchored Open-Air Centre - defined as an unanchored retail open-air centre 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, 2019 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 $38.0 million. An increase of 0.25% in the
capitalization rates used would have resulted in a decrease in investment properties of approximately $35.4 million.
As at December 31, 2018 the Trust utilized the following range of capitalization rates:
Freestanding or Mini Box
Quick Service Restaurant
Anchored Open-Air Centre – Class A
Anchored Open-Air Centre – Class B
Unanchored Open-Air Centre
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.
(a) Straight-line Rent
Included in investment properties at December 31, 2019 is $12.0 million (December 31, 2018 - $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
IFRS 16, Leases.
Page 58 of 82
Plaza Retail REIT
Notes to the Consolidated Financial Statements
December 31, 2019
(tabular amounts in thousands of Canadian dollars, except per unit amounts and as otherwise indicated)
(b)
Surplus Land
Included in investment properties at December 31, 2019 is $2.3 million of surplus lands at fair value (December 31, 2018 - $1.2
million).
(c) Borrowing Costs
The total amount of borrowing costs capitalized for the period ended December 31, 2019 is $640 thousand (for the year ended
December 31, 2018 - $587 thousand).
(d)
Acquisitions of Investment Properties and Land
Properties Acquired
Tri-City Centre, Cambridge, ON
1000 Islands Plaza, Brockville, ON
Land – 595 & 645 Taunton Rd, Oshawa, ON
Northumberland Square, Miramichi, NB
58, 60, & 62 Lombard St, Smith Falls, ON
Land - Chicoutimi, QC
Land - Moncton, NB
Quispamsis Town Centre, Quispamsis, NB
Acquisitions of investment properties and land
(1) Including closing costs
%
Acquired
50%
100%
100%
50%
75%
50%
100%
50%
Year ending
December 31,
2019(1)
$ 12,650
-
-
-
-
-
-
-
$ 12,650
Year ending
December 31,
2018(1)
$ -
14,322
2,450
5,025
1,820
380
330
12,550
$ 36,877
During the year ended December 31, 2018, the Trust also 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.
Page 59 of 82
Plaza Retail REIT
Notes to the Consolidated Financial Statements
December 31, 2019
(tabular amounts in thousands of Canadian dollars, except per unit amounts and as otherwise indicated)
(e)
Disposals
Net Proceeds
Year Ending
December 31,
2019
$ 2,245
Net Proceeds
Year Ending
December 31,
2018
$ -
6,645
6,900
475
-
-
-
%
Disposed
50%
100%
100%
50%
Properties Disposed
Quispamsis Town Centre, Quispamsis, NB(1)
Quick Service Restaurants and Single Tenant Assets - Coldbrook, NS, Halifax, NS,
London, ON, Ottawa, ON, Paris, ON, Laval, QC, Longueiul, QC, and Montreal, QC
Winnipeg, MB portfolio – five properties
Land – Sherbrooke, QC
Quick Service Restaurants – Halifax, NS, Ottawa, ON, Perth, ON, Lachine, QC, and
Pointe Aux Trembles, QC
998 Parkland Dr, Halifax, NS
Alberta portfolio – eight properties
7550-7600 rue Beclard, Montreal, QC
Shediac West Plaza, Shediac, NS and Northwest Centre, Moncton, NB(2)
1000 Islands Plaza, Brockville, ON(3)
Surplus Land(4)
Total disposals
4,232
3,450
11,774
10,310
8,595
2,529
86
$ 40,976
(1) The Trust sold a 50% co-ownership interest in a property located in Quispamsis, NB for net proceeds of $6.4 million, $2.2 million
after assumption of notes and advances and receivables for the purchaser’s 50% interest of the existing line of credit on the
property.
100%
100%
100%
100%
50%
50%
100%
$ 16,265
-
-
-
-
-
-
-
(2) 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 ($8.6 million after assumption of 50% of the
existing mortgages). See Note 4 for further details.
(3) 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).
(4) Small parcels of surplus land located in Campbellton, NB, Miramichi, NB and Charlottetown, PE were sold in 2018.
(f)
Right-of-use land lease assets
Effective January 1, 2019, the Trust implemented the new IFRS 16, Leases standard. This standard required lessees to bring
most leases on their statement of financial position. The Trust has investment properties located on land which is leased. A
right-of-use asset has been recorded effective January 1, 2019 to recognize these assets. IFRS 16 has been implemented
prospectively and therefore prior year comparatives have not been restated. The Trust has 27 long-term land leases (affecting
26 properties). Land leases expire (excluding any non-automatic renewal periods) on dates ranging from 2022 to 2084 with an
average life of 35 years, with some of the leases also containing non-automatic renewal options, extending the average life of
the leases to 60 years including these non-automatic renewal options.
(g)
Investment properties held for sale
The Trust has segregated an investment property held for sale of $609 thousand located in Neufchatel, QC at December 31,
2019 (December 31, 2018 – nil). The sale closed on January 24, 2020.
Page 60 of 82
Plaza Retail REIT
Notes to the Consolidated Financial Statements
December 31, 2019
(tabular amounts in thousands of Canadian dollars, except per unit amounts and as otherwise indicated)
6.
Investments
Investments consist of the following:
Equity Accounted Investments
Centennial Plaza Limited Partnership
Trois Rivières 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
Total investments
Ownership
Position
Preferred
Return
Residual
Return
December 31,
2019
December 31,
2018
10%
15%
20%
25%
50%
50%
50%
50%
50%
50%
25%
25%
50%
10%
10%
8%
8%
-
-
-
-
-
-
-
-
-
20%
30%
27%
25%
-
-
-
-
-
-
-
-
-
$ 12,237
2,825
1,912
2,179
3,972
2,139
1,613
2,387
2,224
556
224
440
16,416
$ 49,124
$ 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
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.
For the year ended December 31, 2019 the Trust received $1.7 million of distributions (for the year ended December 31, 2018 -
$1.3 million) from equity accounted investments, and an additional $3.9 million in distributions relating to proceeds from
financing (for the year ended December 31, 2018 – nil). For the year ended December 31, 2019 the Trust made $8.9 million in
contributions to its equity accounted investments (for the year ended December 31, 2018 - $5.2 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.
Page 61 of 82
Plaza Retail REIT
Notes to the Consolidated Financial Statements
December 31, 2019
(tabular amounts in thousands of Canadian dollars, except per unit amounts and as otherwise indicated)
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
7.
Receivables
Receivables consist of the following:
Tenant accounts receivable, net of allowance
Excise tax
Holdback receivable
Other receivables
Total receivables
December 31, 2019
Equity accounted investments
December 31, 2018
Equity accounted investments
$ 4,714
$ 2,507
$ 315,243
$ 4,273
$ 157,789
$ 22,766
$ (13,215)
$ 2,336
$ 11,887
$ 5,713
$ 3,871
$ 283,241
$ 7,736
$ 136,024
$ 21,754
$ (12,650)
$ (5,924)
$ 3,180
December 31,
2019
$ 1,249
667
949
1,420
$ 4,285
December 31,
2018
$ 1,416
421
500
1,061
$ 3,398
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. The allowance for doubtful accounts balance at December 31,
2019 is $358 thousand (December 31, 2018 - $46 thousand). This amount is deducted from tenant accounts receivable.
There were no impairment losses recognized during the period ended December 31, 2019 (for the year ended December 31,
2018 – nil).
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,
2019
$ 2,224
3,159
$ 5,383
December 31,
2018
$ 2,138
1,252
$ 3,390
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.
Page 62 of 82
Plaza Retail REIT
Notes to the Consolidated Financial Statements
December 31, 2019
(tabular amounts in thousands of Canadian dollars, except per unit amounts and as otherwise indicated)
10. Debentures Payable
Debentures payable consist of the following:
Convertible
Series E(1)
Series VII
Total convertible debentures
Maturity Date
Interest Rate
December 31, 2019 December 31, 2018
March 31, 2023
June 30, 2021
5.10%
5.50%
$ 48,739
5,673
54,412
$ 44,892
5,226
50,118
Non-convertible(2) (3)
Total debentures payable – long-term portion
9,717
$ 59,835
(1) Recorded at fair value based on closing market trading prices of the debentures; the fair value change of the total convertible
9,778
$ 64,190
Various (see below)
5.00%
debentures during 2019 was a loss of $4.3 million (for the year ended December 31, 2018 – gain of $3.0 million)
(2) Recorded at amortized cost
(3) Net of unamortized finance charges of $82 thousand (December 31, 2018 - $143 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
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.
In 2018, 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.
Page 63 of 82
Plaza Retail REIT
Notes to the Consolidated Financial Statements
December 31, 2019
(tabular amounts in thousands of Canadian dollars, except per unit amounts and as otherwise indicated)
11. Mortgage Bonds Payable
Mortgage bonds payable are secured by various properties:
December 31, 2019
December 31, 2018
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
Series XI
$ 6,000
-
-
6,000
$ -
-
-
-
Series XII
$ -
-
3,000
3,000
Total
$ 6,000
-
3,000
9,000
(63)
8,937
(5,987)
$ 2,950
Total
$ 6,000
6,000
3,000
15,000
(137)
14,863
(5,970)
$ 8,893
Interest Rate
Maturity Date
Amount
Series X
5.00%
June 25, 2020
$6,000
Series XII
5.50%
July 15, 2022
$3,000
The Series X 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.
On July 8, 2019, the $6.0 million Series XI mortgage bonds matured and were repaid.
Page 64 of 82
Plaza Retail REIT
Notes to the Consolidated Financial Statements
December 31, 2019
(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 $6,164 (December 31, 2018 -
$6,022)
Less: unamortized finance charges
Total net fixed rate loans
Variable rate loans:
-
-
-
-
$20 million development facility
$15 million development facility
$6.6 million secured non-revolving
construction credit facility
$7.45 million secured non-revolving
construction credit facility
-
-
$1.2 million unsecured interest-only loan
$10.08 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 May 2024
4.44%
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 2.75%
Prime plus 1.25% or
BA plus 2.50%
Prime plus 1.05%
(min. 5.00% rate)
Prime plus 1.00% or
BA plus 2.25%
July 31, 2020
July 31, 2020
May 31, 2020
January 10, 2020
January 15, 2024
April 24, 2021
December 31,
2019
$ 473,135
7,443
354
December 31,
2018
$ 438,669
6,643
136
609
(2,638)
478,903
751
(2,124)
444,075
-
11,579
8,924
6,560
-
1,171
4,885
1,950
5,988
-
8,855
(60)
25,450
504,353
(90,228)
$ 414,125
-
(139)
24,263
468,338
(68,471)
$ 399,867
All 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, 2019 there is $26.1 million available on these development facilities
(December 31, 2018 - $18.5 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, 2019 the Trust is in compliance
with all financial covenants.
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 was set to
mature on August 13, 2023 and had been recorded at fair value. In May 2019, the mortgage was discharged and the interest
rate swap was settled at a cost of $176 thousand.
During 2019, the Trust entered into four new mortgages that utilize interest rate swaps in order to fix the variable interest rate.
The interest rate swaps mature in May, June and August 2029 and are recorded at fair value.
Page 65 of 82
Plaza Retail REIT
Notes to the Consolidated Financial Statements
December 31, 2019
(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, 2018 - $44.0 million) revolving operating line of credit facility with a Canadian
chartered bank at the rate of prime plus 0.75% or BA 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, 2019, the
available limit was $44.0 million of which $17.3 million (December 31, 2018 – $35.6 million) was drawn and therefore the
maximum amount available to be drawn on the facility was $26.2 million (December 31, 2018 – $7.5 million), net of letters of
credit outstanding of $503 thousand (December 31, 2018 - $869 thousand). As security, at December 31, 2019, the Trust has
provided a $50.0 million demand debenture secured by a first mortgage over forty properties.
14. Land Lease Liabilities
Effective January 1, 2019, the Trust implemented the new IFRS 16, Leases standard. This standard required lessees to bring
most leases on their statement of financial position. The Trust has investment properties located on land which is leased. A
liability has been recorded effective January 1, 2019 to recognize these assets. IFRS 16 has been implemented prospectively
and therefore prior year comparatives have not been restated. The Trust has 27 long-term land leases (affecting 26 properties).
Land leases expire (excluding any non-automatic renewal periods) on dates ranging from 2022 to 2084 with an average life of
35 years, with some of the leases also containing non-automatic renewal options, extending the average life of the leases to 60
years including these non-automatic renewal options.
15. 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
16. Notes Payable
Notes payable consist of the following:
December 31,
2019
December 31,
2018
$ 11,035
2,412
1,328
2,374
4,125
349
$ 21,623
$ 8,183
2,427
1,050
2,328
3,216
479
$ 17,683
Interest
Rate
December 31,
2019
December 31,
2018
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
$ 261
$ 261
1,195
$ 1,456
1,080
$ 1,341
Page 66 of 82
Plaza Retail REIT
Notes to the Consolidated Financial Statements
December 31, 2019
(tabular amounts in thousands of Canadian dollars, except per unit amounts and as otherwise indicated)
17.
Income Taxes
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.
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,
2019
December 31,
2018
$ 364
$ 461
7,247
$ 6,883
7,078
$ 6,617
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
18. Revenues
Contractual revenue
Straight-line rent
Property tax and insurance recoveries
Cost recovery revenue
Lease buyout revenue
Other revenue
Total property revenues
19. Operating Expenses
Property taxes and insurance
Recoverable expenses
Non-recoverable expenses
Total operating expenses
Page 67 of 82
2019
$ 28,686
14,616
$ 14,070
2018
$ 28,646
15,453
$ 13,193
2019
$ 73,910
78
20,513
11,726
5,963
271
$ 112,461
2018
$ 73,336
(228)
19,502
11,013
-
394
$ 104,017
2019
$ 22,338
15,054
2,342
$ 39,734
2018
$ 21,595
14,089
4,409
$ 40,093
Plaza Retail REIT
Notes to the Consolidated Financial Statements
December 31, 2019
(tabular amounts in thousands of Canadian dollars, except per unit amounts and as otherwise indicated)
20. Administrative Expenses
Salaries and benefits
Professional services
Office expenses
Total administrative expenses
2019
$ 7,030
1,272
1,603
$ 9,905
2018
$ 6,435
1,112
1,840
$ 9,387
Total employee salaries and benefits recorded by the Trust during the period were $13.1 million, of which $4.5 million is
included in operating expenses, $7.0 million is included in administrative expenses and $1.6 million has been capitalized to
investment properties (for the year ended December 31, 2018 – $12.5 million, of which $4.6 million is in operating expenses,
$6.4 million is in administrative expenses and $1.5 million is in investment properties).
21.
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
Imputed interest on land lease liabilities
Mark to market amortization
Capitalization of interest
Total finance costs
2019
$ 21,461
3,204
646
334
1,235
274
758
134
2,254
(142)
(640)
$ 29,518
2018
$ 20,280
3,325
765
351
1,196
424
1,010
240
-
(252)
(587)
$ 26,752
Page 68 of 82
Plaza Retail REIT
Notes to the Consolidated Financial Statements
December 31, 2019
(tabular amounts in thousands of Canadian dollars, except per unit amounts and as otherwise indicated)
22. Unitholders’ Equity
(a)
Authorized
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 LP 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
(ii)
Special Voting Units
December 31, 2019
December 31, 2018
Units (000s)
1,191
-
-
1,191
Amount
$ 4,622
-
822
$ 5,444
Units (000s)
1,266
(75)
-
1,191
Amount
$ 5,393
(314)
(457)
$ 4,622
At December 31, 2019, there were 1,191,000 (December 31, 2018 - 1,191,000) special voting units outstanding, issued in
connection with 1,191,000 (December 31, 2018 - 1,191,000) 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
RU plan
Repurchase and cancellation of units under normal course issuer bid
Units outstanding, end of the period
December 31, 2019
December 31, 2018
Trust Units
(000s)
102,824
-
-
59
(712)
102,171
Amount
$ 278,058
-
-
273
(1,925)
$ 276,406
Trust Units
(000s)
101,610
75
1,101
38
-
102,824
Amount
$ 273,158
314
4,433
153
-
$ 278,058
Page 69 of 82
Plaza Retail REIT
Notes to the Consolidated Financial Statements
December 31, 2019
(tabular amounts in thousands of Canadian dollars, except per unit amounts and as otherwise indicated)
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, 2019 no
unitholder had redeemed units.
The Trust has a Distribution Reinvestment Plan (“DRIP”), which was suspended until further notice commencing with the
payment of the October 2018 distribution, and unitholders enrolled in the DRIP began receiving distribution payments in cash.
Prior to its suspension, the DRIP enabled 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. 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.
On September 26, 2019, the Trust announced that it had received approval from the TSX for the renewal of its normal course
issuer bid (“NCIB”) for a further year. The period of the renewed NCIB commenced on September 28, 2019, with purchases
able to be made as at the open of markets on September 30, 2019, and will conclude on the earlier of the date on which
purchases under the bid have been completed and September 27, 2020. Under the terms of the renewed NCIB, the Trust can
purchase up to 8,096,331 of its issued and outstanding units through the facilities of the TSX and any alternative trading system
in Canada. Subject to certain prescribed exemptions and any block purchase made in accordance with the rules of the TSX,
daily purchases made by the Trust may not exceed 12,433 units, representing 25% of the average daily trading volume of the
units on the TSX for the six-month period ended August 31, 2019 (being 49,733 units). All units that are purchased under the
renewed NCIB will be cancelled (on a monthly basis, on or before the record date for each monthly distribution). Unitholders
may obtain a copy of the NCIB renewal notice, without charge, by contacting the Trust.
Plaza also entered into a new automatic securities purchase plan agreement (the “Plan”) with its designated broker in order to
facilitate purchases of units under the renewed NCIB. The Plan, which was pre-cleared by the TSX, allows for purchases of
units by Plaza at times when it would ordinarily not be permitted to make purchases due to regulatory restrictions or self-
imposed blackout periods. The Plan will terminate on September 27, 2020.
Under its previous NCIB, which expired on September 27, 2019, Plaza purchased a total of 579,389 units at a weighted average
price of $4.1984 per unit. Plaza has purchased 142,300 units to date under the renewed NCIB at a weighted average price of
$4.5128, resulting in a total of 721,689 units being repurchased for cancellation for the year ended December 31, 2019.
23. Restricted Share Unit Plan and Deferred Unit Plan
The Trust has a Restricted Unit Plan (“RU 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 Units (“RUs”) may be granted from time to time on a discretionary basis by the Administrator (the Governance and
Compensation Committee of the Board of Trustees). Each RU notionally represents a unit in the Trust. Each RU credited to a
participant shall receive a distribution of additional RUs equal to the amount of distributions paid per unit by the Trust on its
units (“Distribution RUs”). The number of Distribution RUs 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 RUs divided by the volume weighted average
closing price of units for the five trading days immediately preceding such applicable day. The Distribution RUs are granted
immediately following any distribution payment date, vest at the same time as and are redeemed on the same basis as the
underlying RUs. The RUs vest as follows: one-third of a given award on the first anniversary of the grant date, one-third on
the second anniversary of the grant date and the balance on the third anniversary of the grant date. Upon vesting, the RUs are
exchanged for units, net of any applicable withholding taxes. At December 31, 2019, the maximum number of units that may
be issued under the RU Plan upon the redemption of RUs and Distribution RUs is 5,669,957. A total of 488,813 RUs have
been granted under the RU Plan since inception. For the year ended December 31, 2019, compensation expense of $482
thousand (for the year ended December 31, 2018 - $436 thousand) has been recognized in respect of the RUs.
Page 70 of 82
Plaza Retail REIT
Notes to the Consolidated Financial Statements
December 31, 2019
(tabular amounts in thousands of Canadian dollars, except per unit amounts and as otherwise indicated)
Restricted units outstanding, beginning of the period
Granted
Vested
Forfeited
Restricted units outstanding, end of the period
December 31, 2019 December 31, 2018
195,120
-
(106,129)
(4,032)
84,959
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 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, 2019, a total of 136,359 DUs have been granted or issued under the
DU Plan since inception and for the year ended December 31, 2019, compensation expense of $234 thousand was recorded (for
the year ended December 31, 2018 - $100 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
24. Distributions
Distributions are declared monthly at the discretion of the Board.
Distributions paid to unitholders
Distribution reinvestment proceeds
Cash distributions paid to unitholders
December 31, 2019 December 31, 2018
100,427
9,456
18,899
7,577
136,359
67,947
9,926
17,150
5,404
100,427
2019
$ 28,686
-
$ 28,686
2018
$ 28,646
(4,438)
$ 24,208
Page 71 of 82
Plaza Retail REIT
Notes to the Consolidated Financial Statements
December 31, 2019
(tabular amounts in thousands of Canadian dollars, except per unit amounts and as otherwise indicated)
25. 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) (2) – beginning of the period
Gross proceeds from mortgage bonds and debentures
Redemption/repayment of mortgage bonds and debentures
Periodic mortgage principal repayments
Land lease principal repayments
Mortgages repaid
Gross mortgage proceeds
Fees incurred for placement of debt
Increases (decreases) in notes payable
Non-cash changes in current and long-term debt:
Mortgages assumed on acquisition
Mortgages assumed by purchasers on sale of investment properties
Deferred finance charges assumed on acquisition
Deferred finance charges written off on sale of investment properties
Net change in fair value of Class B exchangeable LP units
Net change in fair value of interest rate swaps
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
Current and long-term debt(1) – end of the period
December 31,
2019
$ (887)
(86)
(991)
December 31,
2018
$ 1,186
150
(737)
4,111
$ 2,147
1,602
$ 2,201
December 31,
2019
$ 609,569
-
(6,000)
(10,795)
(663)
(92,953)
139,949
(1,059)
115
December 31,
2018
$ 515,933
48,655
(35,545)
(10,730)
-
(38,783)
65,373
(533)
(83)
-
-
-
-
822
392
4,294
-
758
-
(142)
$ 644,287
23,646
(16,519)
(162)
82
(457)
(39)
(3,022)
(314)
1,010
739
(252)
$ 548,999
(1) Debt defined for this purpose as mortgage bonds, debentures, mortgages payable, notes payable, Class B exchangeable LP units and
land lease liabilities.
(2) Opening debt on January 1, 2019 includes the land lease liabilities of $60.6 million booked under new accounting pronouncements on
a prospective basis (see Note 14).
Page 72 of 82
Plaza Retail REIT
Notes to the Consolidated Financial Statements
December 31, 2019
(tabular amounts in thousands of Canadian dollars, except per unit amounts and as otherwise indicated)
26. 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):
Earl Brewer (Chair of the Board and trustee)
Stephen Johnson (trustee)
Michael Zakuta (President, Chief Executive Officer and trustee)
Total
December 31, 2019
$ 325
200
-
$ 525
December 31, 2018
$ 450
300
100
$ 850
No other trustee or key management personnel own mortgage bonds of the Trust at December 31, 2019 (December 31, 2018 -
$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. The notes are
repayable on sale or refinancing of the related asset.
Entities owned (directly or
influenced by Michael Zakuta.
indirectly), controlled or significantly
(c) Other Transactions with Related Parties
December 31, 2019 December 31, 2018
$ 261
$ 261
(i)
TC Land LP, an entity controlled by Michael Zakuta and Earl Brewer, leases nine parcels of land to the Trust at market
rates, with 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. At December 31, 2019 there is a $28 thousand
accounts receivable balance owing to the Trust for property management, leasing and development fees (December 31,
2018 - $60 thousand). For the twelve months ended December 31, 2019, property management, development, financing
and leasing fees of $158 thousand were earned by a subsidiary of the Trust from this property (for the twelve months
ended December 31, 2018 - $212 thousand). For the year ended December 31, 2019 there were no amounts owing to the
Trust. The $405 thousand note receivable owing to the Trust at December 31, 2018, relating to short-term funding
requirements for the construction of a retail pad on the property was repaid during the first quarter of 2019.
(iii) Until January 31, 2018, 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.
(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. The Trust pays
no basic minimum rent for the space.
Page 73 of 82
Plaza Retail REIT
Notes to the Consolidated Financial Statements
December 31, 2019
(tabular amounts in thousands of Canadian dollars, except per unit amounts and as otherwise indicated)
(v)
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, 2019 there is $5.9 million owed by the properties to the Trust which is recorded in notes and advances
receivable (December 31, 2018 - $5.6 million). As well, there is a $13 thousand accounts receivable balance owing to
the Trust for property management, leasing and development fees (December 31, 2018 - $5 thousand). For the twelve
months ended December 31, 2019, property management, leasing, development and financing fees of $181 thousand
were earned by a subsidiary of the Trust from these properties (for the twelve months ended December 31, 2018 - $453
thousand).
(vi) Until January 31, 2018, 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 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.
(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, 2019, property management fees of $5 thousand were earned by a subsidiary of
the Trust from these properties (for the twelve months ended December 31, 2018 - $5 thousand).
(viii) 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, 2019 there is a $9 thousand accounts receivable
balance owing to the Trust for property management, development and leasing fees (December 31, 2018 - $5 thousand).
For the twelve months ended December 31, 2019, property management, leasing and development fees of $144 thousand
were earned by a subsidiary of the Trust from these properties (for the twelve months ended December 31, 2018 - $168
thousand).
(ix) 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,
2019, property management fees of $32 thousand were earned by a subsidiary of the Trust from these properties (for the
twelve months ended December 31, 2018 - $32 thousand).
(x)
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, 2019 there is a $16 thousand accounts receivable balance owing to the Trust
for property management fees (December 31, 2018 - $9 thousand). For the twelve months ended December 31, 2019,
property management, leasing and development fees of $239 thousand were earned by a subsidiary of the Trust from
these properties (for the twelve months ended December 31, 2018 – $125 thousand).
Page 74 of 82
Plaza Retail REIT
Notes to the Consolidated Financial Statements
December 31, 2019
(tabular amounts in thousands of Canadian dollars, except per unit amounts and as otherwise indicated)
(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, 2019 and 2018 was as follows:
Salaries and benefits
Share-based payments – including DUs and RUs
Total key management personnel compensation
2019
$ 2,494
301
$ 2,795
2018
$ 1,906
170
$ 2,076
During the year ended December 31, 2019 a retiring allowance of $678 thousand was recorded with $598 thousand remaining
payable (December 31, 2018 – nil).
(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
Plaza Tacoma Limited Partnership
Plazacorp Shediac Limited Partnership
Northwest Plaza Commercial Trust
Ownership Interest
December 31, 2019
100%
100%
100%
100%
100%
90%
100%
90%
90%
90%
100%
100%
80%
100%
100%
100%
December 31, 2018
100%
100%
100%
100%
100%
90%
100%
90%
90%
90%
100%
100%
80%
100%
100%(1)
100%(1)
(1) Purchased remaining 90% interest as of January 31, 2018.
27.
Interests in Joint Operations
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
December 31, 2019 December 31, 2018
$ 4,492
$ 1,519
$ 214,546
$ 8,726
$ 124,235
$ 24,811
$ (16,541)
$ 3,131
$ 6,214
$ 2,195
$ 254,736
$ 21,526
$ 138,023
$ 28,426
$ (17,817)
$ 13,064
Page 75 of 82
Plaza Retail REIT
Notes to the Consolidated Financial Statements
December 31, 2019
(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, 2019
December 31, 2018
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
Tri-City Centre, ON
KGH Plaza, NB
681 Mountain Road, NB
201 Main Street - Sussex, NB
Boulevard Hebert Plaza, NB
Victoria Street Plaza, NB
Connell Road Plaza, NB
Madawaska Road Plaza, NB
Grand Falls Shopping Centre, NB
Northwest Centre, NB
Shediac West Plaza, NB
Quispamsis Town Centre, NB
The Village Shopping Centre, NL
Page 76 of 82
2006
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%
50%
25%
25%
25%
50%
50%
50%
50%
50%
50%
50%
50%
50%
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%
50%
50%
50%
50%
50%
50%
50%
100%
50%
Plaza Retail REIT
Notes to the Consolidated Financial Statements
December 31, 2019
(tabular amounts in thousands of Canadian dollars, except per unit amounts and as otherwise indicated)
28. 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,
2019, there were no letters-of-credit issued and outstanding (December 31, 2018 – 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, 2019, there were no letters-of-credit issued and outstanding (December 31, 2018 – 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,
2019, letters-of-credit in the amount of $503 thousand were issued and outstanding (December 31, 2018 - $869 thousand).
(b) Commitments
The Trust’s estimated commitments at December 31, 2019 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
Unsecured interest-only loans
Bank indebtedness
Mortgage bonds payable
Debentures (1)
Land leases (2)
Development activities
Year 1
2020
$ 11,243
63,502
8,924
6,560
-
17,339
6,000
-
2,958
9,084
Year 2
2021
$ 9,887
28,646
-
8,855
-
-
-
9,360
2,974
-
Year 3
2022
Year 4
2023
$ 9,685 $ 8,257
24,664
-
-
5,643
-
-
47,250
2,928
-
38,347
-
-
-
-
3,000
6,000
2,962
-
Year 5
2024
$ 7,951
34,425
-
-
2,971
-
-
-
2,965
-
After 5
Years
$ 29,994
206,534
-
-
-
-
-
-
108,670
-
Face Value
Total
$ 77,017
396,118
8,924
15,415
8,614
17,339
9,000
62,610
123,457
9,084
Total contractual obligations
(1) Stated at face value.
(2) Land leases expire on dates ranging from 2022 to 2084 (including automatic renewal periods) with non-automatic renewal options
$ 59,994 $ 88,742
$ 59,722
$ 48,312
$ 125,610
$ 345,198
$ 727,578
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, 2019 a $4.8 million commitment (December 31, 2018 - $5.1 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 3.1 years (December 31, 2018 - 4.1 years). As well, at December 31,
2019 a $6.8 million commitment (December 31, 2018 – $8.7 million) relating to the mortgages on six assets (December 31,
2018 – 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 5.6 years (December 31, 2018 – 5.4 years). At December 31, 2019 a
$4.1 million commitment (December 31, 2018 - $4.2 million) relating to the mortgage of an asset sold in 2018, with a weighted
average remaining term of 4.6 years (December 31, 2018 – 5.6 years).
The Trust is contingently liable for certain obligations of its co-venturers, under guarantees in excess of its ownership
percentages for six strip plazas and four free-standing properties. The excess guarantees amount to $15.0 million (December
31, 2018 - $14.7 million). Cross indemnities, are in place for certain of these properties from co-venturers.
Page 77 of 82
Plaza Retail REIT
Notes to the Consolidated Financial Statements
December 31, 2019
(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, 2019 (December 31, 2018 – nil).
29. 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 (generally 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 has entered into four interest rate swap contracts during 2019 with Canadian chartered banks, in order to convert the
mortgages from variable rates to fixed rates. The swaps mature between May and August 2029. The fair value of these
contracts results in a liability of $354 thousand at December 31, 2019. There is a risk that interest rates will fluctuate during the
terms 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.
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 26, 2025. 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 $65 thousand at December 31, 2019 (December 31, 2018 – $70 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). In May 2019, the mortgage was discharged and the interest rate swap was settled at a
cost of $176 thousand. The fair value of this contract resulted in a liability, for the Trust’s share, at December 31, 2018 of $136
thousand.
The Trust entered into an interest rate swap with a Canadian chartered bank in connection with a mortgage obtained during
2019 for a property held in an equity-accounted investee. The interest rate swap contract has been recorded at fair value in
investments with changes in fair value reflected in share of profit of associates. The fair value of this contract results in a
liability, for the Trust’s share of $27 thousand at December 31, 2019. 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
Page 78 of 82
Plaza Retail REIT
Notes to the Consolidated Financial Statements
December 31, 2019
(tabular amounts in thousands of Canadian dollars, except per unit amounts and as otherwise indicated)
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, 2019 if applied to all outstanding floating rate instruments
would increase interest expense and decrease pre-tax profit by $429 thousand (for the year ended December 31, 2018 – $600
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
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 94.6% of the in-place tenant base rent (December 31, 2018 – 94.5%).
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 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. See Note 28(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
Tenant loans, receivables, and notes and advances receivable
Cash
Total
December 31, 2019 December 31, 2018
$ 16,665
7,296
$ 23,961
$ 10,963
8,845
$ 19,808
The Trust’s most significant customer, a national retailer, accounts for $131 thousand of tenant loans at December 31, 2019
(December 31, 2018- $156 thousand).
Shoppers Drug Mart/Loblaw represents 25.1% of monthly base rents in place at December 31, 2019, while franchisees of KFC
represent 5.5% of monthly base rents in place. The top 10 tenants collectively represent approximately 54.3% 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.
Page 79 of 82
Plaza Retail REIT
Notes to the Consolidated Financial Statements
December 31, 2019
(tabular amounts in thousands of Canadian dollars, except per unit amounts and as otherwise indicated)
(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
(generally 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 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
$ 21,623
$ 64,190
$ 1,456
$ 17,339
$ 8,937
$504,353
Contractual
cash flows
$ 21,623
$ 71,803
$ 1,456
$ 17,814
$ 9,583
$608,441
Year 5
Year 4
Year 3
Year 1
$ 21,623
$ 3,205
$ 1,456
$ 17,814 $ -
$ 6,315
$108,815
Year 2
$ - $ - $ -
$ 12,285
$ -
$ 8,460
$ - $ -
$ -
$ 165 $ 3,103
$61,854
$ 62,469
$ 47,853 $ -
$ -
$ -
$ -
$55,925
$ -
$ -
$50,585
$ -
More
than
5 years
$ -
$ -
$ -
$ -
$ -
$268,793
(1) Balance includes accounts payable, accrued liabilities, tenant payables and tenant deposits.
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 2.35% (December 31, 2018 – 1.60% to
2.50%). The rate used to determine the fair value of mortgage bonds was 5.0% (December 31, 2018 – 5.0%). The rate used to
determine the fair value of non-convertible debentures was 5.50% (December 31, 2018 – 5.50%). 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.
Page 80 of 82
Plaza Retail REIT
Notes to the Consolidated Financial Statements
December 31, 2019
(tabular amounts in thousands of Canadian dollars, except per unit amounts and as otherwise indicated)
The following chart shows the estimated fair value of the Trust’s financial instruments.
Cash
Receivables
Notes and advances receivable
Tenant loans
Total Financial Assets
Book Value
December 31,
2019
Fair Value
December 31,
2019
$ 8,845
$ 8,845
4,285
6,038
640
$ 19,808
4,285
6,038
640
$ 19,808
Book Value
December 31,
2018
$ 7,296
3,398
12,549
718
$ 23,961
Fair Value
December 31,
2018
$ 7,296
3,398
12,549
718
$ 23,961
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
$ 17,339
$ 17,339
$ 35,604
$ 35,604
21,623
478,903
25,450
54,412
9,778
8,937
5,444
1,456
$ 623,342
21,623
488,862
25,450
54,412
9,688
8,975
5,444
1,456
$ 633,249
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
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.
December 31, 2019
December 31, 2018
Investment properties
Right-of-use land lease asset
Investment properties held for sale
Class B exchangeable LP units
Series E convertible debentures
Series VII convertible debentures
Land lease liabilities
Level 1
$ -
-
-
$ -
$ 5,444
48,739
-
-
$ 54,183
Level 2
$ -
-
-
$ -
Level 3
$ 1,026,773
59,907
609
$ 1,087,289
Level 1
$ -
-
-
$ -
$ -
-
5,673
-
$ 4,622
44,892
-
-
$ 5,673 $ 59,907 $ 49,514
$ -
-
-
59,907
Level 2
$ -
-
-
$ -
$ -
-
5,226
-
$ 5,226
Level 3
$ 988,640
-
-
$ 988,640
$ -
-
-
-
$ -
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.
Page 81 of 82
Plaza Retail REIT
Notes to the Consolidated Financial Statements
December 31, 2019
(tabular amounts in thousands of Canadian dollars, except per unit amounts and as otherwise indicated)
30. 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 $10.08 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, 2019.
There were no changes to the Trust’s approach to capital management for the year ended December 31, 2019.
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
Land lease liabilities
Bank indebtedness
Class B exchangeable units
Notes payable
Unitholders’ equity
Total
31.
Subsequent Events
Financings
December 31,
2019
$ 478,903
25,450
8,937
64,190
59,907
17,339
5,444
1,456
661,626
471,448
$ 1,133,074
December 31,
2018
$ 444,075
24,263
14,863
59,835
-
35,604
4,622
1,341
584,603
451,702
$ 1,036,305
In February 2020, the Trust obtained new long-term financing for a property located in Mississauga, ON in the amount of $5.75
million with a term of 10 years and an interest rate of 3.75%, at the Trust’s ownership percentage of 50%.
Unitholders’ Equity
Between January 1st and February 24th, 2020, an additional 68,400 units have been repurchased under the normal course issuer
bid at an average unit price of $4.5607.
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, 2020.
The Trust paid a cash distribution of $0.02333 per unit for a total of $2.4 million on February 18, 2020.
Page 82 of 82
Plaza Retail REIT
98 Main Street
Fredericton, NB
E3A 9N6
506-451-1826
506-451-1802
Email: info@plaza.ca
www.plaza.ca