2020 ANNUAL REPORT
2020 ANNUAL REPORT
THE SHAPE OF
THINGS TO COME
FROM
SHOPPING CENTRES
167
properties
in all Canadian provinces
TO
CITY CENTRES
$13.5B
transformation
program1
(“Project 512”)
34.1M
97.3%
$10.7B
284
55.4M
$3.2 – $3.6B
income producing square feet
industry-leading occupancy rate
total real estate assets
projects announced to date
incremental square feet2
potential value creation3
1 REIT share $7.9B
2 REIT share 32.5M square feet
3 REIT share $1.8B - $2.0B
TABLE OF CONTENTS
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8
13
18
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27
35
46
48
50
Section I — About this Management’s
Discussion and Analysis
Presentation of Certain Terms Including
Non-GAAP Measures
Forward-Looking Statements
Section II — Business Overview, Outlook
and Strategic Direction
68
Section VII — Financing and
Capital Resources
68
Capital Resources and Liquidity
70
71
75
Maintenance of Productive Capacity
Debt
Interest Expense
76
Financial Covenants
Business Overview and Strategic Direction
77
Unitholders’ Equity
Outlook
Key Business Development, Financial and
Operational Highlights for the Year Ended
December 31, 2020
Section III — Development Activities
Mixed-Use Development Initiatives
Properties Under Development
Residential Development Inventory
Earnouts and Developments Completed
on Existing Properties
79
83
83
88
94
95
Section VIII — Related Party
Transactions
Section IX — Accounting Policies,
Risk Management and Compliance
Significant Accounting Estimates
and Policies
Risks and Uncertainties
Income Taxes and the REIT Exception
Disclosure Controls and Procedures and
Internal Control Over Financial Reporting
Section IV — Business Operations
and Performance
Results of Operations – Balance Sheets,
Income Statements, NOI, SPNOI, Adjusted
EBITDA
Other Measures of Performance – Weighted
Average Units, FFO, ACFO, Distributions
96
Section X — Glossary of Terms
100
MANAGEMENT’S RESPONSIBILITY
FOR FINANCIAL REPORTING
101
INDEPENDENT AUDITOR’S REPORT
Quarterly Results and Trends
106
CONSOLIDATED BALANCE SHEETS
General and Administrative Expense
Section V — Leasing Activities and
Lease Expiries
50
Leasing Activities
52
54
56
56
60
62
Tenant Profile
Leasing Expiries
Section VI — Asset Profile
Investment Properties
Equity Accounted Investments
Amounts Receivable and Other, Deferred
Financing Costs, and Prepaid Expenses
and Deposits
64
Mortgages, Loans and Notes Receivable,
and Interest Income
107
108
109
110
CONSOLIDATED STATEMENTS
OF INCOME AND COMPREHENSIVE
INCOME
CONSOLIDATED STATEMENTS
OF CASH FLOWS
CONSOLIDATED STATEMENTS
OF EQUITY
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
168
CORPORATE INFORMATION
MANAGEMENT’S DISCUSSION AND ANALYSIS
MANAGEMENT’S DISCUSSION AND ANALYSIS
FOR THE YEAR ENDED DECEMBER 31, 2020
Section I — About this Management’s Discussion and Analysis
This Management’s Discussion and Analysis (“MD&A”) sets out SmartCentres Real Estate Investment Trust’s (“SmartCentres” or
the “Trust”) business overview and strategic direction, and provides an analysis of the financial performance and financial
condition for the year ended December 31, 2020, management’s outlook and the risks facing the business.
This MD&A should be read in conjunction with the Trust’s audited consolidated financial statements for the years ended
December 31, 2020 and December 31, 2019, the notes contained therein, and the Trust’s annual information form (“AIF”). Such
consolidated financial statements have been prepared in accordance with International Financial Reporting Standards as issued
by the International Accounting Standards Board (“IFRS”). The Canadian dollar is the functional and reporting currency for
purposes of preparing the consolidated financial statements.
This MD&A is dated February 10, 2021, which is the date of the press release announcing the Trust’s results for the year ended
December 31, 2020. Disclosure contained in this MD&A is current to that date, unless otherwise noted.
Certain definitions of terms and ratios capitalized throughout this MD&A can be found in Section X – Glossary of
Terms.
Presentation of Certain Terms Including Non-GAAP Measures
Readers are cautioned that certain terms used in this MD&A such as “COVID-19”, Funds From Operations (“FFO”), “FFO per
Unit Growth”, “Transactional FFO”, Net Asset Value (“NAV”), Adjusted Cashflow From Operations (“ACFO”), Net Operating
Income (“NOI”), “Annual Run-Rate NOI”, “Same Properties NOI”, “Same Properties NOI excluding expected credit loss
provision”, “Interest Coverage”, “Aggregate Assets”, “Gross Book Value”, Adjusted Earnings Before Interest, Taxes, Depreciation
and Amortization (“Adjusted EBITDA”), “Payout Ratio”, “secured debt”, “unsecured debt”, and any related measure per Variable
Voting Unit of the Trust (a “Trust Unit”) and per unit of the Trust’s subsidiary limited partnerships (an “LP Unit”) (where
management discloses the combination of Trust Units and LP Units, combined units are referred to as a “Unit” or “Units”) are
terms used by management to measure, compare and explain the operating results and financial performance of the Trust and
do not have any standardized meaning prescribed under IFRS and, therefore, should not be construed as alternatives to net
income or cash flow from operating activities calculated in accordance with IFRS. These terms are defined in this MD&A and
reconciled to the closest IFRS measure in the consolidated financial statements of the Trust for the year ended December 31,
2020. Such terms do not have a standardized meaning prescribed by IFRS and may not be comparable to similarly titled
measures presented by other publicly traded entities. See “Other Measures of Performance”, “Net Operating Income”, “Debt” and
“Financial Covenants”.
Proportionate Share of Equity Accounted Investments
Certain disclosures in the MD&A are presented on a GAAP basis and on a total proportionate share basis (non-GAAP).
References made to a “total proportionate share” or “the Trust’s proportionate share of equity accounted investments” (“EAI”)
refer to non-GAAP financial measures which represent the Trust’s proportionate interest in the financial position and operating
activities of its entire portfolio, which reflect the difference in accounting treatment between joint ventures using proportionate
consolidation and equity accounting. Management believes this presentation to be more meaningful to users of the MD&A
because it represents how the Trust and its partners manage the net assets and operating performance for each of the Trust’s
co-owned properties. The Trust accounts for its investments in both associates and joint ventures using the equity method of
accounting.
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2020 ANNUAL REPORT 1
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MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT MANAGEMENT’S DISCUSSION AND ANALYSIS
Forward-Looking Statements (see also “Risks and Uncertainties”)
Certain statements in this MD&A are “forward-looking statements” that reflect management’s expectations regarding the Trust’s
future growth, results of operations, performance and business prospects and opportunities, including those statements outlined
under the headings “Business Overview and Strategic Direction”, “Outlook”, “Key Business Development, Financial and
Operational Highlights for the Year Ended December 31, 2020”, “Mixed-Use Development Initiatives”, “Properties Under
Development”, “Status of Current Development Initiatives”, “Leasing Activities and Lease Expiries”, “Amounts Receivable and
Other, Deferred Financing Costs, and Prepaid Expenses and Deposits”, “Future Retail Developments, Earnouts and Mezzanine
Financing”, “Uncommitted Retail Pipeline”, “Capital Resources and Liquidity”, and “Unencumbered Assets”. More specifically,
certain statements contained in this MD&A, including statements related to the impact of the COVID-19 pandemic including the
Trust's plans, expectations and intentions with respect to the collection of rent from tenants, the operation, maintenance and
development of its properties and its expectations with respect to liquidity; expected replacement income to be generated by
backfilling existing vacant space over time; the Trust’s maintenance of productive capacity, estimated future development plans
and joint venture projects, including the described type, scope, costs and other financial metrics related thereto; the Trust’s
expectation that Walmart will continue to be the dominant Anchor tenant in the Trust’s property portfolio and that its presence will
continue to attract other retailers and consumers; the Trust’s expectations regarding future potential mixed-use development
opportunities, the timing of construction and costs thereof and returns therefrom; ability to pay future distributions to Unitholders,
view of term mortgage renewals including rates and upfinancing amounts, timing of future payments of obligations, intentions to
obtain additional secured and unsecured financing and potential financing sources; the Trust’s potential future pipeline and
uncommitted pipeline; Forecasted Annualized NOI and Annual Run-Rate NOI]; vacancy and leasing assumptions, and
statements that contain words such as “could”, “should”, “can”, “anticipate”, “expect”, “believe”, “plan”, “potential”, “propose”,
“schedule”, “estimate”, “intend”, “project”, “will”, “may”, “might”, “vision”, and similar expressions and statements relating to
matters that are not historical facts, constitute “forward-looking statements”. These forward-looking statements are presented for
the purpose of assisting Unitholders and financial analysts to understand the Trust’s operating environment, and may not be
appropriate for other purposes. Such forward-looking statements reflect management’s current beliefs and are based on
information currently available to management.
However, such forward-looking statements involve significant risks and uncertainties. A number of factors could cause actual
results to differ materially from the results discussed in the forward-looking statements. These risks include risks associated with
public health crises such as the COVID-19 pandemic; real property ownership and leasing/tenant risk; liquidity risk; capital
requirements and access to capital; environmental and climate change risk; availability of cash flow; potential conflicts of interest;
significant Unitholder risk; cyber security risk; debt financing; interest and financing risk; potential volatility of Unit prices; joint
venture risk; development and construction risk; credit risk; cash distributions are not guaranteed and will fluctuate with
SmartCentres’ performance; litigation and regulatory risks; and tax-related risk factors. These risks and others are more fully
discussed under the heading “Risks and Uncertainties” and elsewhere in this MD&A, as well as under the heading “Risk Factors”
in the Trust’s most recent AIF. The Trust has attempted to identify important factors that could cause actual results, performance
or achievements to be other than as expected or estimated and that could cause actual results, performance or achievements to
differ materially from current expectations. These factors are not intended to represent a complete list of the factors that could
affect the Trust. Although the forward-looking statements contained in this MD&A are based on what management believes to be
reasonable assumptions, including those discussed under the heading “Outlook” and elsewhere in this MD&A, the Trust cannot
assure investors that actual results will be consistent with these forward-looking statements.
Material factors or assumptions that were applied in drawing a conclusion or making an estimate set out in the forward-looking
information may include, but are not limited to: that government restrictions, due to COVID-19, on the ability of tenants to operate
their businesses at our properties will continue to ease and will not be re-imposed in any material respects, that COVID-19 will
not materially change the willingness of consumers to shop at open-format retail malls of the type operated by the Trust, that
there will be a return to a reasonably stable retail environment; relatively low and stable interest costs; a continuing trend toward
land use intensification, including residential development in urban and suburban markets, access to equity and debt capital
markets to fund, at acceptable costs, future capital requirements and to enable the refinancing of debts as they mature; the
availability of investment opportunities for growth in Canada; the timing and ability of the Trust to sell certain properties; and the
valuations to be realized on property sales relative to current IFRS values. Certain statements included in this MD&A may be
considered “financial outlook” for purposes of applicable Canadian securities laws and, as such, the financial outlook may not be
appropriate for purposes other than this MD&A. The forward-looking statements contained herein are expressly qualified in their
entirety by this cautionary statement and readers should not place undue reliance on such forward-looking statements. These
forward-looking statements are made as at the date of this MD&A and the Trust assumes no obligation to update or revise them
to reflect new events or circumstances unless otherwise required by applicable securities legislation.
All amounts in the MD&A are expressed in millions of Canadian dollars, except where otherwise stated. Per Unit amounts are
expressed on a diluted basis, except where otherwise stated. Additional information relating to the Trust, including the Trust’s AIF
for the year ended December 31, 2020, can be found at www.sedar.com.
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MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT MANAGEMENT’S DISCUSSION AND ANALYSIS
Section II — Business Overview, Outlook and Strategic Direction
Business Overview and Strategic Direction
The Trust is an unincorporated open-ended mutual fund trust governed by the laws of the Province of Alberta. The Trust Units
are listed and publicly traded on the Toronto Stock Exchange (the “TSX”) under the symbol “SRU.UN”.
Throughout this unprecedented time, the Trust continues to maintain focus on its long-term strategic initiatives, while supporting
its current operations, tenants and the communities in which the Trust operates throughout Canada.
Strategic Overview
The Trust’s vision is to create exceptional places to shop, work and live in Canada. Together with its ‘best-in-class’ partners, the
Trust’s purpose is to develop, lease, construct, own and manage interests in shopping centres, residential rental buildings,
retirement homes, office buildings and self-storage facilities. In addition, together with its ‘best-in-class’ partners, the Trust has
commenced a program to develop, pre-sell, construct and deliver high-rise condominium and townhome projects. These
initiatives are intended to be developed primarily within the Trust’s current portfolio of convenient locations. The Trust expects
these projects to provide intelligent designs, a desirable mix of retail and office tenants, high-quality residential space for
residential owners, tenants and seniors, and industry-leading self-storage facility designs. The Trust is continuing to work on
opportunities to provide these additional sources of FFO and NAV growth, and to date has identified 284 mixed-use development
initiatives expected to be developed on 95 of its existing properties which are expected to add approximately 32.5 million square
feet of mixed-use rental space and condominium and townhome developments to the Trust's existing portfolio of approximately
33.8 million (December 31, 2019 – 34.1 million) square feet of retail space. This robust development pipeline is expected to be
further increased over time as the Trust continues to identify additional opportunities for intensification and further development
within its existing portfolio of shopping centre properties across Canada.
From the Trust’s inception in 2001 and prior to 2015, the Trust’s growth was principally a result of the acquisition and Earnout of
completed and fully leased retail shopping centres, predominately with the Anchor or Shadow Anchor tenant (i.e., located on a
nearby property not owned by SmartCentres) being Walmart. Although the current COVID-19 pandemic has resulted in the
closure of a limited number of tenants, this portfolio of shopping centres continues to focus on value-oriented retailers and
includes large, well-capitalized and well-known national and regional retailers as well as strong neighbourhood merchants,
resulting in the Trust continuing to experience an industry-leading in-place occupancy rate of 97.0% as at December 31, 2020
(December 31, 2019 – 98.1%). The Trust’s shopping centres are typically located close to major highways and other major
arterial roadways, which, along with the Anchor and Shadow Anchor stores, provide significant draws to the Trust’s portfolio,
attracting both value-oriented retailers and consumers. It is expected that Walmart will continue to be the dominant Anchor tenant
in the Trust’s retail portfolio and that its presence will continue to generate, over the long-term, high traffic levels and therefore
provide a strong basis for the Trust to both retain existing retail tenants and have the ability to attract new retailers.
In May of 2015, as part of a transformative transaction (the “Transaction”) the Trust acquired the SmartCentres platform and the
“SmartCentres” brand from Penguin. This brand has historically represented a family and value-oriented shopping experience.
Among other things, this strategic acquisition of the SmartCentres platform resulted in the Trust absorbing a large team of
professionals working in the areas of land acquisition, planning, development, leasing, construction and other complementary
services. This team of professionals that was responsible for the successful development, leasing and construction of more than
60.0 million square feet of retail space, and on average, over a period of 14 consecutive years, completed and opened a new
Walmart-anchored shopping centre every three weeks, is now focused on the development and construction of the 284 mixed-
use development initiatives noted above.
As at December 31, 2020, the Trust's portfolio includes an ownership interest in 167 properties located in communities across
Canada, which includes: 148 shopping centres with total income-producing gross leasable area of approximately 33.8 million
square feet, one office property, eight mixed-use properties (including the Trust’s interest in both the KPMG tower and the PwC-
YMCA mixed-used facility at SmartVMC and the Toronto (Leaside) self-storage facility), and 10 development properties. Many of
the Trust’s retail properties are shadow-anchored by approximately 9.7 million square feet of large retailers including Walmart,
Canadian Tire, Home Depot, Costco, Rona and Loblaws and its related banners. This Shadow Anchor space is in addition to the
area these same retailers lease in the Trust's shopping centres.
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MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT MANAGEMENT’S DISCUSSION AND ANALYSIS
Mixed-Use Development Initiatives
The Trust has announced numerous mixed-use initiatives, either with various joint venture partners or on its own, to develop
parcels primarily within its existing portfolio of shopping centres with residential, seniors’ housing, office and self-storage uses
where such uses make sense to optimize each centre within its local community. These mixed-use initiatives are expected to
typically occur on: i) adjacent vacant lands that would have historically been designated for retail development, ii) surplus parking
areas, and iii) properties previously designated as income properties that have now been transferred to properties under
development. Please see further details in the “Mixed-Use Development Initiatives” and “Leasing Activities and Lease Expiries”
sections in this MD&A.
Description
Recurring income initiatives
Development income initiatives
Total
Total project area (in thousands of
sq. ft.) – at 100%
Total Trust’s share of project
area (in thousands of sq. ft.)
Total estimated costs (in millions
of dollars) – at 100% based on
current planning budgets
Trust’s share of such estimated
costs (in millions of dollars)
Underway
Active
Future
(Construction underway or
expected to commence within
next 2 years)
(Construction expected to
commence within next 3–5
years)
(Construction expected to
commence after 5 years)
40
17
57
60
22
82
97
48
145
Total
197
87
284
12,500
15,200
27,700
55,400
6,700
9,500
16,300
32,500
5,800
3,200
7,700
4,700
–(1)
–(1)
13,500
7,900
(1)
The Trust has not yet fully determined the costs attributable to future projects expected to commence after five years and as such they are not included in this
table.
Retail Developments, Earnouts and Mezzanine Financing
Retail Developments, Earnouts and Mezzanine Financing continue to be components of the Trust’s strategic plan, although they
are much less significant than the mixed-use development initiatives noted above. In the table below, “Retail Developments”
represent the potential gross leasable area for retail use that the Trust plans to develop for its own account and exclude the
Trust’s share of SmartVMC and other major mixed-use development initiatives that are discussed separately in “Mixed-Use
Development Initiatives”. “Earnouts” are defined as the contractual provisions on parcels of land to be developed and leased,
which were previously purchased from Penguin and its partners. The Trust recently agreed, pursuant to the Omnibus Agreement,
to extend the maturity dates on all remaining Earnouts by two years (see also “Related Party Transactions” in this MD&A).
“Mezzanine Financing” purchase options are exercisable with the borrower of the mezzanine financing once a certain level of
development and leasing at a shopping centre has been achieved and typically allow the Trust to acquire 50% of the completed
shopping centre at agreed-upon formulas, based on a market capitalization rate at the time the option is exercised. If the
specified level of development and leasing is not achieved prior to the maturity date of the loan and the loan is repaid, then the
option terminates. However, in some circumstances the Trust has permitted certain of those loans to be extended. If an
applicable property is to be sold prior to the maturity date of the loan and prior to the applicable option being triggered, then the
Trust has a right of first refusal with respect to such sale.
The Trust’s potential gross leasable area subject to Retail Developments, Earnouts and Mezzanine Financing is summarized in
the following table:
(in thousands of square feet)
Planned developments not subject to Earnouts
Planned developments subject to Earnouts
Future estimated retail development area
Lands under Mezzanine Financing
Trust's potential gross leasable area
December 31, 2020
December 31, 2019
1,291
154
1,445
502
1,947
2,346
247
2,593
615
3,208
The Trust continues to revise its estimates and adjust its plans towards mixed-use developments. Pursuant to the Transaction,
which involved the acquisition of both a significant portfolio of real estate and the Penguin platform – all leasing and development
work on behalf of Penguin and other vendors is now managed and completed by the Trust under contract with those parties (see
also “Related Party Transactions – Development Services Agreement” of the MD&A). Subject to certain limitations, the Trust is
responsible for managing the completion of Developments and Earnouts and charges fees to the vendors for such management
of Developments and Earnouts.
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MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
Acquisitions
Subject to the availability of acquisition opportunities, the Trust also may grow distributions in part through the accretive
acquisition of investment properties. The Trust explores acquisition opportunities as they arise but will only pursue acquisitions
that management believes are strategic and/or accretive relative to its long-term cost of capital. The Trust measures accretion by
assessing whether an acquisition will generate a sustainable economic return to Unitholders immediately upon closing or once
developed.
Professional Management
Through the continued professional management of the portfolio, the Trust intends to ensure its properties portray an image that
will continue to attract consumers and residents, as well as provide preferred locations for its retail, office, residential and self-
storage tenants. Well-managed properties enhance the overall quality of shopping, working and living experiences. The Trust
believes its professional management of the portfolio permitted the maintenance of a high in-place occupancy rate of 97.0% at
December 31, 2020 (December 31, 2019 – 98.1%) and a committed occupancy rate (that includes executed leases that have not
commenced) of 97.3% at December 31, 2020 (December 31, 2019 – 98.2%).
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MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT MANAGEMENT’S DISCUSSION AND ANALYSIS
Outlook – Leading Through the Pandemic by Helping Canadians
On March 11, 2020, the World Health Organization declared COVID-19 a global pandemic and, since that time, we have
continued to maintain our focus on long-term strategic initiatives, while supporting our current operations, tenants and the
communities in which we operate throughout Canada. During the initial stages of this pandemic, we offered to provide over 1.0
million square feet of space to Canadian health organizations to support their needs and over the last 10 months we have not
wavered from our offer to assist Canadian health authorities. Most recently, we have offered space in our shopping centres to
Canadian health authorities to assist with the inoculation process and we are hoping that we can further assist initiatives and
programs which seek to help Canadians feel safe, secure and healthy.
In the fall of 2019, 256 mixed-use development initiatives (representing approximately 27.9 million square feet) were identified to
potentially be built on 95 of the Trust’s properties. This number has now grown to 284 mixed-use initiatives. Mixed-use
development initiatives enable us to leverage our existing portfolio of retail properties as a catalyst to assist future growth in the
Trust’s NAV and FFO. These mixed-use initiatives are expected to be developed primarily on underutilized lands currently owned
by the Trust. We will also judiciously purchase additional development lands or income-producing properties when they offer
longer term strategic and economic opportunities.
From a development perspective at SmartVMC, we are pleased to confirm that our 2020 results include over $45.0 million ($0.26
of FFO per Unit) emanating from the closings in the Transit City 1 & 2 condominiums that began in Q3 2020 and which are now
substantially complete. This is a milestone achievement as it represents the initial contributions to FFO from our robust pipeline
of development opportunities, from which we expect to grow FFO and NAV for many years to come.
The table below summarizes activity currently underway at SmartVMC through the Trust’s equity accounted investments (the
figures presented below are at 100%, of which the Trust’s share is 50% for the purpose-built residential rental apartment tower
and 25% for the condo towers and townhomes):
Phase
Transit City 1
Transit City 2
Transit City 3
Transit City 4
Transit City 5
Transit City 1 & 2 Townhomes
Subtotal – SmartVMC Condos/
Townhomes
Purpose-Built Residential Rental Apartment
Tower
Total – SmartVMC Residential
Units Released
for Sale/
Available for
Rent (#)
Storeys (#)
Units Sold (#)
Units Sold
to Date (%)
55
55
55
45
50
N/A
36
551
559
631
498
528
22
551
559
631
498
528
22
2,789
2,789
454
3,243
100.0
100.0
100.0
100.0
100.0
100.0
100.0
Actual/
Estimated
Completion
Period
2020
2020
2021
2023
2023
2021
2023/2024
We are proud to confirm that the completion and profitability of our first three phases of condominium development at SmartVMC
are coming in both ahead of schedule and ahead of budget. Closings in Transit City 1 & 2 began on August 5 and have
continued as noted in the table below. The table below provides details on expected closings for Transit City 3 and the Transit
City 1 & 2 townhomes at 100%, of which the Trust’s share is 25%:
Month
August
September
October
November
December
Total – 2020
Q2/Q3 2021
Q4 2021
Total – 2020 and 2021
Transit City 1
Closings
Transit City 2
Closings
Transit City 3
Closings
Transit City 1 & 2
Townhome
Closings
Total Transit
City Closings
As a % of Total
Transit City 1, 2
& 3 Units
247
174
35
35
60
551
—
—
551
—
345
88
50
75
558
—
—
558
—
—
—
—
—
—
631
—
631
—
—
—
—
—
—
—
22
22
247
519
123
85
135
1,109
631
22
1,762
14.0
29.5
7.0
4.8
7.7
62.9
35.8
1.2
100.0
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MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
SmartVMC has become a community, with approximately 3,000 new residents in occupancy or expected to occupy their new
homes over the next 12 months. In addition, construction of Transit City 4 & 5 continues, along with our first purpose-built rental
building at SmartVMC. Upon their completion, which is expected in 2023/2024, these new towers are expected to provide
accommodation for over 2,000 additional residents to SmartVMC.
Also, at SmartVMC, the construction of the world-class YMCA space is substantively complete, and subject to COVID-19
restrictions, is expected to be open in Q2 of 2021. We are also now actively designing the next phase of office development at
SmartVMC which is expected to be built in conjunction with two new residential towers adjacent to the SmartVMC Bus Terminal.
In September 2020, we sold 22 townhomes as part of the Transit City 1 & 2 phases. Construction of these units has now begun
with completion and delivery expected for Q4 2021. In addition, the opening of the new Walmart store on the site of our former
head office took place in October 2020. This new store features leading edge omnichannel attributes for Walmart, and the
significance of the new aligned off-ramp from Hwy 400 directly into the SmartVMC site cannot be overstated as it now permits
Walmart customers access to the new store directly from the highway. Walmart’s recent move has now provided 15.5 acres of
additional development lands on the SmartVMC site.
In addition to SmartVMC, our residential development initiatives on other sites are expected to continue to progress over the next
twelve months, whereby, subject to arranging satisfactory project financing, we expect to commence construction on a variety of
new mixed-use initiatives including:
Description
Phase 2 Residential Rental Building
Vaughan NW Townhomes
Seniors’ Rental and Seniors’ Living Community
Phase 1 and 2 Residential Rental Building
Location
Laval, Quebec
Vaughan, Ontario
Ottawa, Ontario
Mascouche, Quebec
Units (#) Partner
167 Jadco
179 Fieldgate Homes
410 Selection Group
238 To be arranged
In Laval, Quebec, with our partner, Jadco, construction of the first phase of the two-phase, purpose-built residential rental project
was completed in 2020 and initial occupancies in the 171-unit, 15-storey first phase commenced in Q2 2020. Currently,
approximately 80% of the rental units have now been leased. Economic stabilization and permanent financing of this first tower
are expected in 2021 and construction of the second phase is now expected to commence in the second quarter of 2021 with
completion expected in 2022.
Earlier in 2020, together with our partner, Greenwin Developments Inc. (“Greenwin”), we announced the purchase of a
development site on Balliol Street in the Davisville/Yonge area of midtown Toronto on which we plan to develop a 35-storey high-
rise purpose-built rental tower. Also, in the second half of 2019, together with our partner, Greenwin, we announced the purchase
of a 7.8 acre lakefront site in Barrie, Ontario on which we plan to construct approximately 2,000 rental units in four high-rise
phases. The first phase of this project is expected to begin construction within the next 12 months.
In 2019, together with Revera Inc. (“Revera”), we announced the execution of an overall agreement to develop and own new
retirement living residences across Canada. (We note these retirement living residences are very different in nature, in level of
care and funding, than government subsidized long-term care facilities in which there have been so many unfortunate issues
during the pandemic.) We have now executed specific site agreements to proceed with the first three initiatives on properties that
are currently owned by the Trust, in Vaughan (two initiatives) and Oakville, Ontario which in aggregate will contain 536 units.
Subject to appropriate approvals and project-specific financing being arranged, construction of these three initiatives is expected
to commence within the next 12 to 18 months. During the first quarter of 2020, together with Revera, we announced additional
Toronto area retirement living residences to be built in Markham and Oakville each on properties currently owned by Revera. We
purchased our 50% interest in the Markham property in early November. In addition, together with Selection Group (formerly
Réseau Sélection) we announced a two-tower seniors’ apartments/retirement residences project on undeveloped lands at our
Laurentian Place shopping centre in Ottawa. Subject to appropriate approvals and project-specific financing being arranged,
construction of this 410-unit development is also expected to commence within the next six months with completion expected in
Q1 2023. We are continuing to work with our partners and are at various stages of identifying and moving forward with additional
opportunities to develop retirement communities within our portfolio of shopping centre locations.
With our partner SmartStop, construction is now complete on our first self-storage project in Leaside, Ontario. It opened in 2020
and the facility has been very well received by the local community with current occupancy levels ahead of expectations.
Construction is progressing on the next four SmartStop projects in Brampton, Vaughan NW, Oshawa, and Scarborough with
completions expected within the next three months. These 4-storey self-storage facilities range in size up to 135,000 square feet
and will each have approximately 1,000 units. Additional self-storage facilities have been approved by our Board for development
on our existing properties including locations at Aurora, Whitby, Markham and an additional location in Brampton. In each case,
lands have been or will be transferred to the partnership with SmartStop as soon as we receive municipal approvals.
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2020 ANNUAL REPORT 7
9
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT MANAGEMENT’S DISCUSSION AND ANALYSIS
The Trust’s 33.8 million square foot portfolio of predominately Walmart-anchored shopping centres was built for ‘heavy weather’
and during these uncertain times, continues to demonstrate industry-leading occupancy levels. When including committed deals,
our overall occupancy level was 97.3% at the end of Q4 (December 31, 2019 – 98.2%). Prior to the pandemic, there was already
a dearth of new retail space being constructed and the pandemic has resulted in the deferral of most planned new retail
expansion projects in Canada. We believe that this limitation of new supply will assist us in being able to backfill our additional
vacant space over the next 2–3 years as we are speaking with many tenants that are seeking lower-cost, safer open-format
alternatives. While we have been left with some additional vacant space resulting from this pandemic, we remain well positioned
as the strategic lower-cost provider of retail space in Walmart-anchored open-format shopping centres in Canada. During the
pandemic, Walmart has continued to demonstrate its industry-leading ability to drive high traffic levels to our shopping centres
across Canada. This is best exemplified by our core portfolio of shopping centres continuing to demonstrate strong resilience in
the face of adversity and as at December 31, 2020, we have renewed 75.3% of our expiring lease maturities (2019 – 83.6%) with
rental increases, excluding Anchor tenants averaging 3.3% (2019 – 4.0%).
Our experience with the collection of tenant billings has continued to show improvement since the pandemic began. On April 21,
2020, we announced that our collection experience for April was 68% and as reflected in the table below, since that date, our
actual collection experience has continued to improve substantively.
Month(1)
April
May
June
July
August
September(2)
October
November
December
% of Gross Monthly Billings Collected
Before Application of CECRA Related
Arrangements(2)
76.9
% of Gross Monthly Billings Collected
After Application of CECRA Related
Arrangements(2)
83.5
77.5
80.8
86.0
89.4
89.5
95.1
94.9
93.4
84.0
87.3
92.5
96.0
96.1
95.1
94.9
93.4
(1)
(2)
Represents the Trust’s collection experience up to January 25, 2021.
The CECRA program ended on September 30, 2020.
As of February 3, 2021, the Trust has collected 90.0% of gross monthly billings for the month of January 2021.
In May 2020, to assist those small to medium-sized businesses that have been most affected across the country, the federal
government announced the Canada Emergency Commercial Rent Assistance (“CECRA”) program which ended in September
2020. This program provided for federal rent subsidies to qualifying tenants of 50% of their rents for the period April – September
2020 and required participating landlords to ‘forgive’ 25% of the rent otherwise payable for the subject months. Qualifying tenants
were, therefore, required to fund only 25% of their rents for this period, with the expectation that doing so would provide those
tenants that had been significantly impacted by the pandemic the opportunity to stabilize their businesses. Since the inception of
the CECRA program, we have worked with over 700 of our tenants that qualified for this program and filed applications for the
federal subsidies for the period April – September 2020, on their behalf, all of which were received prior to September 30, 2020.
The table below provides the details associated with our involvement in the CECRA program:
(in thousands of dollars)
Total for the Six Months Ended September 30, 2020(1)
(1)
Net of sales tax, the CECRA program ended September 30, 2020.
Total Tenant Gross
Billings Eligible for the
CECRA Program
Government Funded
Amounts
Amounts “Forgiven” by
the Trust
(A)
30,824
(50% of A)
15,412
(25% of A)
7,706
8 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2020 ANNUAL REPORT
10
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
The following table provides some additional details on the Trust’s tenant billings, amounts received, expected recovery and
related provisions for pandemic-impacted periods for the three months and nine months ended December 31, 2020:
(in thousands of dollars)
Total tenant billings
Less: Amounts received directly from tenants to date
Balance outstanding
Less:
Recovery from governments for CECRA
Amounts forgiven by the Trust for CECRA
Sales tax on CECRA
Tenant rent deferral arrangements agreed
Tenant rent deferral arrangements under negotiation
Rents to be collected before expected credit loss (“ECL”) provision
Less: ECL provision
Balance to be collected
Three Months Ended
December 31, 2020 As a %
Nine Months Ended
December 31, 2020 As a %
198,901
100.0
187,850
11,051
94.4
5.6
—
—
—
544
—
10,507
5,235
5,272
—
—
—
0.3
—
5.3
2.6
2.7
597,349
100.0
519,919
77,430
87.0
13.0
15,412
7,706
2,976
7,664
15,829
27,843
15,319
12,524
2.6
1.3
0.5
1.3
2.6
4.7
2.6
2.1
In addition, there are a number of mid- and large-size tenants that did not qualify for the CECRA program, but have been
required to close or significantly scale back their operations during parts of the pandemic. These tenants include restaurants,
fashion, toys, fitness, sportswear, furniture, and other retailers that certain governments deemed non-essential. While many of
these larger tenants fulfilled their lease payment obligations during the period, a number of tenants required some flexibility to
permit them to re-establish operations and begin to return to normalcy. Deferral rents negotiated or near completion amounted to
3.9% of total tenant billings for the nine months ended December 31, 2020.
This pandemic has also resulted in certain tenants seeking creditor protection and/or restructuring their businesses. These
tenants include Reitman’s, Comark, Aldo and SAIL, all of whom are intending to restructure and continue the bulk of their
business with a stronger balance sheet and improved liquidity in our strong Walmart-anchored centres. These challenges,
together with additional doubtful account provisions, resulted in additional expected credit loss provisions totalling $5.2 million
being recorded during the fourth quarter. The table below represents a summary of the nature of bad debt and ECL provisions
taken during the three months ended December 31, 2020, September 30, 2020, and June 30, 2020, and the nine months ended
December 31, 2020:
(in thousands of dollars)
Provisions for CECRA-eligible tenants
Provisions for tenants not eligible for CECRA
Provisions for tenants filing under Companies'
Creditors Arrangement Act (“CCAA”) and similar
bankruptcy restructurings
Provisions for additional ECL
Total bad debt/ECL provisions
Three Months Ended
December 31, 2020
Three Months Ended
September 30, 2020
Three Months Ended
June 30, 2020
Total for the Nine
Months Ended
December 31, 2020
—
358
358
997
3,837
4,834
5,192
2,101
646
2,747
4,089
2,875
6,964
9,711
5,605
1,408
7,013
3,070
5,401
8,471
7,706
2,412
10,118
8,156
12,113
20,269
15,484
30,387
The retail portfolio’s additional vacant space and the additional time now expected to backfill such space has had an impact on
our IFRS property valuations which are reflected in the table below. Our IFRS values are predicated on income in place (or
expected replacement income to be generated by backfilling existing vacant space over time). It is important to note that we have
not factored into our IFRS values any value that accrues from future development of mixed-use space on our properties and that
we expect substantial future value increments to be derived from our proposed mixed-use development initiatives. For example,
the potential for incremental value from future mixed-use development (once fully zoned and the site-plan is approved) at our
Westside Mall property in Toronto alone is projected to add in excess of $100.0 million to this property’s current IFRS value. This
represents only one property in a portfolio of 167 properties that we expect will provide for further mixed-use development of
various forms, none of which has been reflected in our current IFRS values on our balance sheet.
Because of the uncertainty surrounding certain tenancies and future leasing parameters resulting from this pandemic, the value
of our investment properties has decreased by 3.0% since December 31, 2019.
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2020 ANNUAL REPORT 9
11
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
The following table identifies the impact to IFRS investment property values for the year ended December 31, 2020:
(in thousands of dollars)
Balance before fair value revaluation
adjustment as at March 31, 2020
Fair value adjustment on revaluation of
investment properties in Q1 2020
Fair value as at March 31, 2020
Additional costs and other adjustments
Fair value adjustment on revaluation of
investment properties in Q2 2020
Fair value as at June 30, 2020
Additional costs and other adjustments
Fair value adjustment on revaluation of
investment properties in Q3 2020
Fair value as at September 30, 2020
Additional costs and other adjustments(1)
Fair value adjustment on revaluation of
investment properties in Q4 2020
Fair value as at December 31, 2020
Year to date fair value adjustment on
Amount
8,475,370
(64,158)
8,411,212
1,676
(139,141)
8,273,747
(14,146)
745
8,260,346
5,749
1,335
8,267,430
Income Properties Properties Under Development
Fair value
adjustments as
% of carrying
value
(0.8) %
Amount
593,548
776
594,324
3,653
Fair value
adjustments as
% of carrying
value
Amount
9,068,918
Total
Fair value
adjustments as
% of carrying
value
0.1 %
(63,382)
(0.7) %
9,005,536
5,329
(1.7) %
(58,223)
(9.7) %
(197,364)
(2.2) %
0.0 %
539,754
32,605
1,489
573,848
26,986
8,813,501
18,459
0.3 %
2,234
0.0 %
8,834,194
32,735
0.0 %
(17,874)
(3.0) %
(16,539)
(0.2) %
582,960
8,850,390
revaluation of investment properties
(201,219)
(2.4) %
(73,832)
(12.4) %
(275,051)
(3.0) %
(1) See “Investment Properties” for further details.
The pandemic resulted in further reductions in benchmark interest rates (i.e., the current overnight Bank of Canada lending rate
is 0.25%) however, spreads associated with both secured and unsecured borrowings increased. We believe the pandemic will
continue to result in a challenging economic environment for at least the next 18–24 months, which in turn is expected to result in
continued low short and long-term interest rates (by historical standards). Given this low interest rate environment, we will
continue, when appropriate, to take advantage of these favourable borrowing conditions to enhance FFO, extend debt maturities
and further mitigate exposure to interest rate and debt repayment/maturity risk. In addition, we expect to continue our strategy to
repay most maturing mortgages and then term out selectively with unsecured debentures or similar unsecured facilities. Our
current ratio of unsecured/secured debt is 68%/32% (December 31, 2019 – 63%/37%). This strategy permits us to continue to
increase our unencumbered asset pool, which is currently valued at in excess of $5.8 billion (December 31, 2019 – $5.7 billion).
Liquidity and having the ability to fund obligations during challenging periods, such as the effects currently being experienced
that result from the pandemic, is the principal reason that we increased and extended our unsecured revolving operating line of
credit to $500.0 million in 2017, as well as establishing a $250.0 million undrawn accordion feature. As a result of our continued
commitment to our balance sheet, late in 2019, we received a credit rating upgrade to BBB(H) from DBRS Morningstar. This
achievement is significant as it reduces future borrowing costs and permits a wider group of investors to invest in our bonds,
which is of particular importance in periods such as those resulting from COVID-19. In June 2020, once the debt capital markets
had stabilized, we took the opportunity to issue $600.0 million in new 7- and 10.5-year debentures yielding 3.192% and 3.648%,
respectively. In December 2020, we once again took the opportunity to issue $650.0 million in new 5- and 8-year debentures
yielding 1.740% and 2.307%, respectively. These were strategic preemptive measures intended to eliminate any risk of the
markets not being available to permit us to repay maturing unsecured debt. Funds raised from these issuances were used to
repay maturing Series R, Series M, and Series Q unsecured debt and other debt in 2020 and 2021.
As at December 31, 2020, our credit metrics (net of cash on hand) had the following strong attributes:
a. Average interest rate of 3.28%
b. Average duration of unsecured debt of 5.2 years
c. Adjusted debt/Adjusted EBITDA of 8.5X
d. Debt/Total assets of 44.6%
e.
f. Maturing secured debt during 2021 of $134.8 million
g. Maturing unsecured debt in 2021 and 2022 of $623.1 million (including $323.1 million of Series T unsecured senior
Interest coverage ratio of 3.2X
debentures to be repaid with existing cash and cash equivalents)
SmartCentres has continued to demonstrate a strong commitment to assist our communities, our tenants and our stakeholders
during this unprecedented period. Concurrently, we have continued to focus on the long term, beyond the current pandemic
period, and in this regard, we remain disciplined in our focus on our various mixed-use development initiatives, 57 of which are
either underway or for which construction is expected to commence within the next two years. With the recognition of
approximately $45.2 million in FFO ($0.26 per Unit) from the first two phases of Transit City closings, 2020 marked the beginning
of the next phase in SmartCentres’ growth as a fully integrated REIT. These substantial earnings are the first foundational
indicators from our robust pipeline of opportunity from which we expect to see consistent and measured growth in both FFO and
NAV.
10 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2020 ANNUAL REPORT
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MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
Key Business Development, Financial and Operational Highlights for the Year Ended December 31, 2020
The Trust’s estimates and judgments could be affected by various risks and uncertainties, including but not limited to the effects
of the COVID-19 pandemic, which in turn could have a significant effect on the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the consolidated financial statements for the year ended December
31, 2020 and the reported amounts of revenues and expenses during the reporting period, and could potentially result in a
material adjustment to the consolidated financial statements in a subsequent period.
Mixed-Use Development and Intensification at SmartVMC
•
•
•
•
•
•
•
Occupancy of both 55-storey Transit City 1 and 2 condo towers representing 1,110 residential units is complete, with
substantially all units closed by year-end. These closings contributed approximately $45.2 million in FFO (approximately
$0.26 in FFO per unit) for the second half of 2020.(2) In addition, the 1,098 unit multi-level parking facility providing
parking for both these condominium buildings and the neighbouring PwC/YMCA mixed-use facility is now fully
functional.
Construction of the 55-storey Transit City 3 condo tower representing 631 residential units continues to be ahead of
schedule and ahead of budget. The tower is topped-off, cranes have been dismantled, and closings are expected to
commence in spring 2021.
Construction is well underway on Transit City 4 (45 storeys) and 5 (50 storeys) condo towers, representing 1,026 sold
residential units, with bulk excavation complete and tower cranes erected. Concrete and formwork for the multi-level
underground parking garage is in progress and approaching ground level.
Construction is well underway on a 35-storey, 454-unit purpose-built residential rental building at SmartVMC, with the
tower crane erected and concrete and formwork for the multi-level underground parking garage in progress and
approaching ground level.
Construction of the new Walmart store is complete, with Walmart's grand opening having taken place on October 22,
2020, allowing for the closing of the store that was located on the SmartVMC site, and freeing up approximately 15.5
acres of valuable land for future mixed-use development close to the TTC subway station.
Pre-sold 100% of the 22 townhomes, as part of the Transit City 1 & 2 project, for which construction has commenced
and delivery of units is expected in late 2021.
Preparing for the launch of the next phase of high-rise development.
Other Business Development
•
•
•
•
The completed first phase of the two-phase, purpose-built residential rental project in Laval, Quebec, which had initial
occupancy by tenants commencing in March 2020 and, to date, approximately 80% of the 171-unit building has been
leased. Construction of the next phase is expected to commence in early 2021.
The Trust completed construction of its first three self-storage facilities in Toronto (Leaside), Brampton, and Vaughan
NW, each of which has been very well received by the local communities, with current occupancy levels ahead of
expectations.
Based on planning and rezoning work completed to date, the Trust expects to commence construction of a new
retirement home early in 2021 with its joint venture partner Selection Group in Ottawa.
Two additional self-storage facilities in Oshawa and Scarborough are currently under construction and are expected to
be completed in 2021. Additional self-storage facilities have been approved by the Board and the Trust is in the process
of obtaining municipal approvals in Aurora, Whitby, Markham and an additional location in Brampton.
• With the recently issued Minister's Zoning Order, the Trust has commenced the redevelopment of its 73-acre Cambridge
retail property with various forms of residential, retail, office, institutional, and commercial uses to create a complete
vibrant urban community representing over 12.0 million square feet.
•
During the COVID-19 pandemic, the Trust has been aggressively pursuing final municipal approvals for mixed-use
density on many of its shopping centres.
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2020 ANNUAL REPORT 11
13
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT MANAGEMENT’S DISCUSSION AND ANALYSIS
Financial
•
The Trust further improved its unsecured/secured debt ratio to 68%/32% (December 31, 2019 – 63%/37%), as it repaid
$120.9 million of secured debt and other debt, and $474.4 million of unsecured debt and credit facilities during 2020.
•
•
•
•
•
•
•
•
•
•
•
The Trust continues to add to its unencumbered pool of high-quality assets. As at December 31, 2020, this
unencumbered portfolio consisted of income properties valued at $5.8 billion (December 31, 2019 – $5.7 billion).
In June 2020, the Trust issued $300.0 million aggregate principal amount of 3.192% Series V 7-year senior unsecured
debentures and $300.0 million aggregate principal amount of 3.648% Series W 10.5-year senior unsecured debentures.
In December 2020, the Trust issued $350.0 million of 1.740% Series X 5-year senior unsecured debentures and $300.0
million of 2.307% Series Y 8-year senior unsecured debentures.
In December 2020, the Trust repaid the $250.0 million aggregate principal of Series R senior unsecured debentures
upon their maturity. The repayment was funded by the proceeds from the issuances of Series V and Series W senior
unsecured debentures in June 2020.
In December 2020, the Trust announced the redemption of 3.730% Series M senior unsecured debentures and 2.876%
Series Q senior unsecured debentures, in aggregate principal amounts of $150.0 million and $150.0 million,
respectively. The redemptions were settled in January 2021. The redemptions were funded by the proceeds from the
issuance of Series X and Series Y senior unsecured debentures in December 2020.
Debt metrics continue to demonstrate the Trust's commitment to its balance sheet, including Debt to Total Assets of
44.6%, Interest Coverage multiple of 3.2X, Interest Coverage net of capitalized interest multiple of 3.7X, and Adjusted
Debt to Adjusted EBITDA multiple of 8.5X.(2)(3)
Net income and comprehensive income was $89.9 million as compared to $374.2 million in the same period in 2019,
representing a decrease of $284.3 million. This decrease was primarily attributed to the fair value adjustment on the
revaluation of investment properties of $275.1 million, principally resulting from the impact of the COVID-19 pandemic
during 2020.(1)
FFO increased by $2.5 million or 0.7% to $368.0 million, which was primarily due to the Trust’s share of profit on the
closings of Transit City 1 and 2, partially offset by COVID-19 related expected credit loss provisions.
ACFO with one-time adjustment increased by $10.2 million or 2.9% to $365.4 million as compared to the same period in
2019, primarily due to the Trust’ share of profit on the closings of Transit City 1 and 2, partially offset by COVID-19
related expected credit loss provisions.(2)
ACFO with one-time adjustment exceeded both distributions declared and distributions paid by $46.6 million and $67.5
million respectively (2019 - $44.5 million and $116.0 million, respectively). The change is primarily due to the Trust's
share of profit on the closings of Transit City 1 and 2, partially offset by COVID-19-related expected credit loss
provisions and their associated impact on the Trust's cashflows from operations. Note also that the Trust suspended its
dividend reinvestment plan in April 2020.(2)
The Payout Ratio relating to ACFO with one-time adjustment for the year ended December 31, 2020 decreased by
0.3% to 87.2% as compared to 87.5% for 2019.
Operational
•
•
•
Occupancy rates, both committed and in-place, were 97.3% and 97.0%, respectively, as at December 31, 2020.
Rentals from investment properties and other was $781.3 million, as compared to $806.4 million in the same period in
2019, representing a decrease of $25.1 million or 3.1%. This decrease was primarily due to lower: i) percentage rent, ii)
short-term rental revenue, iii) parking and other miscellaneous revenues, and iv) lower recoverable costs, all resulting
from the COVID-19 pandemic.
Same Properties NOI for the year ended December 31, 2020 decreased by $35.3 million or 6.9% as compared to 2019.
This decrease was primarily due to an increase in expected credit losses recorded for the year ended December 31,
2020 as a result of the COVID-19 pandemic. Excluding the expected credit losses of $30.8 million recorded in the year
ended December 31, 2020, Same Properties NOI would have been $504.7 million representing a decrease of $5.5
million or 1.1% as compared to 2019.(2)
12 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2020 ANNUAL REPORT
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MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT MANAGEMENT’S DISCUSSION AND ANALYSIS
Subsequent Events
In January 2021, the Trust redeemed $150.0 million aggregate principal of 3.73% Series M senior unsecured debentures and
$150.0 million aggregate principal of 2.876% Series Q senior unsecured debentures. The redemptions were funded from
proceeds raised from the issuance of Series X and Series Y senior unsecured debentures.
In January 2021, the Trust granted 900,000 Performance Units to Mitchell Goldhar through the Equity Incentive Plan (“EIP”),
subject to the achievement of Unit price thresholds. The performance period for the EIP is from January 1, 2021 to December 31,
2027. Distributions on Performance Units will accumulate from January 1, 2021, and they and the Performance Units vest for the
lesser of three years after they are earned or on December 31, 2027. Performance Units will be exchanged for Trust Units or
paid out in cash (see also Note 21, “Related party transactions”, in the Trust's consolidated financial statements for the year
ended December 31, 2020).
On February 2, 2021, the Trust entered into a total return swap agreement for up to 6.5 million Trust Units with a notional value of
approximately $156.0 million for a 48-month period, which, subject to certain conditions, may be unwound prior to its maturity,
either in whole or in part. The counterparty to this swap agreement is a highly rated Canadian financial institution.
(1)
(2)
(3)
Represents a GAAP measure.
Represents a non-GAAP measure. The Trust’s method of calculating non-GAAP measures may differ from other reporting issuers’ methods and, accordingly, may not be comparable. For
definitions and basis of presentation of the Trust’s non-GAAP measures, refer to “Presentation of Certain Terms Including Non-GAAP Measures”.
Net of cash-on-hand of $754.4 million as at December 31, 2020 for the purposes of calculating the ratios.
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2020 ANNUAL REPORT 13
15
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT MANAGEMENT’S DISCUSSION AND ANALYSIS
Selected Consolidated Operational, Mixed-Use Development and Financial Information
Key consolidated operational, mixed-use development and financial information shown in the table below includes the Trust’s
proportionate share of equity accounted investments:
(in thousands of dollars, except per Unit and other non-financial data)
December 31, 2020 December 31, 2019 December 31, 2018
Operational Information
Total number of properties with an ownership interest
Gross leasable area including both retail and office space (in thousands of
sq. ft.)
Occupied area including both retail and office space (in thousands of sq. ft.)
Vacant area including both retail and office space (in thousands of sq. ft.)
Committed occupancy rate (%)
In-place occupancy rate (%)
Average lease term to maturity (in years)
Net retail rental rate (per occupied sq. ft.) ($)
Net retail rental rate excluding Anchors (per occupied sq. ft.) ($)
167
34,056
33,039
1,017
97.3
97.0
4.6
15.37
21.89
165
34,337
33,678
659
98.2
98.1
4.9
15.49
22.13
Mixed-use Development Information
Future development area (in thousands of sq. ft.)
Total number of future projects currently in development planning stage
Trust's share of estimated costs of future projects currently under
construction, or for which construction is expected to commence within the
next 5 years
32,500
284
27,900
256
7,900,000
5,500,000
164
34,379
33,695
684
98.1
98.0
5.4
15.31
21.77
N/A(5)
N/A(5)
N/A(5)
Financial Information
Investment properties(2)(3)
Total assets(1)
Total unencumbered assets(2)
Debt(2)(3)
Debt to Aggregate Assets (%)(2)(3)(4)
Debt to Gross Book Value (%)(2)(3)(4)
Unsecured to Secured Debt Ratio(2)(3)(4)
Unencumbered assets to unsecured debt(2)(3)(4)
Weighted average interest rate (%)(2)(3)
Weighted average term of debt (in years)
Interest Coverage Ratio(2)(3)(4)
Interest coverage (net of capitalized interest expense)(2)(3)(4)
Adjusted Debt to Adjusted EBITDA (net of cash)(2)(3)(4)
Equity (book value)(1)
Weighted average number of units outstanding – diluted
9,400,584
10,724,492
5,835,600
5,261,360
44.6
50.1
9,466,501
9,928,467
5,696,100
4,290,826
42.3
49.0
9,155,175
9,459,632
4,250,800
4,236,364
43.9
51.1
68%/32%
63%/37%
48%/52%
1.9X
3.28
5.0
3.2X
3.7X
8.5X
2.1X
3.55
5.0
3.5X
4.0X
8.0X
2.1X
3.73
4.9
3.3X
3.8X
8.2X
5,166,975
172,971,603
5,367,752
5,008,331
170,581,531
161,507,550
(1)
(2)
(3)
(4)
(5)
Represents a GAAP measure.
Represents a non-GAAP measure. The Trust’s method of calculating non-GAAP measures may differ from other reporting issuers’ methods and, accordingly, may not be comparable. For
definitions and basis of presentation of the Trust’s non-GAAP measures, refer to “Presentation of Certain Terms Including Non-GAAP Measures”.
Includes the Trust’s proportionate share of equity accounted investments.
As at December 31, 2020, cash-on-hand of $754.4 million was excluded for the purposes of calculating the applicable ratios (December 31, 2019 – $37.0 million).
N/A – information not available.
14 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2020 ANNUAL REPORT
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MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
Year-to-Date Comparison to Prior Year
The following table presents key financial, per Unit, and payout ratio information for the years ended December 31, 2020 and
December 31, 2019:
(in thousands of dollars, except per Unit information)
Financial Information
Rentals from investment properties and other(1)
Net base rent
Total recoveries
Net income and comprehensive income(1)(3)
Net income and comprehensive income excluding fair value adjustments(2)(3)
Cash flows provided by operating activities(1)
NOI(2)
FFO(2)(3)(4)(5)
FFO with one-time adjustment of yield maintenance costs(2)(3)(4)(5)
FFO with one-time adjustment and Transactional FFO(2)(3)(4)(5)
ACFO(2)(3)(4)(5)
ACFO with one-time adjustment(2)(3)(4)(5)
Distributions declared
Surplus of ACFO over distributions declared(2)
Surplus (shortfall) of ACFO with one-time adjustment over distributions
declared(2)
Surplus of ACFO over distributions paid(2)
Surplus of ACFO with one-time adjustment over distributions paid(2)
Units outstanding(6)
Weighted average – basic
Weighted average – diluted(7)
Per Unit Information (Basic/Diluted)
Net income and comprehensive income(1)
Net income and comprehensive income excluding fair value adjustments(2)(3)
FFO(2)(3)(4)(5)
FFO with one-time adjustment of yield maintenance costs(2)(3)(4)(5)
FFO with one-time adjustment and Transactional FFO(2)(3)(4)(5)
Distributions declared
Payout Ratio Information
Payout ratio to FFO(2)(3)(4)(5)
Payout ratio to FFO with one-time adjustment of yield maintenance costs(2)(3)(4)(5)
Payout ratio to FFO with one-time adjustment and Transactional FFO(2)(3)(4)(5)
Payout ratio to ACFO(2)(3)(4)(5)
Payout ratio to ACFO with one-time adjustment(2)(3)(4)(5)
2020
(A)
781,253
496,135
263,802
89,940
337,863
295,982
519,105
367,967
379,921
380,665
353,409
365,363
318,758
34,651
46,605
55,536
67,490
2019
(B)
806,412
505,458
272,380
374,203
341,963
345,611
514,050
365,456
385,969
388,787
334,647
355,160
310,651
23,996
44,509
95,536
116,049
172,221,212
171,973,301
172,971,603
171,283,191
169,709,748
170,581,531
Variance
(A–B)
(25,159)
(9,323)
(8,578)
(284,263)
(4,100)
(49,629)
5,055
2,511
(6,048)
(8,122)
18,762
10,203
8,107
10,655
2,096
(40,000)
(48,559)
938,021
2,263,553
2,390,072
$0.52/$0.52
$1.96/$1.95
$2.14/$2.13
$2.21/$2.20
$2.21/$2.20
$1.850
86.6 %
83.9 %
83.7 %
90.2 %
87.2 %
$2.20/$2.19
-$1.68/-$1.67
$2.01/$2.00
-$0.05/-$0.05
$2.15/$2.14
-$0.01/-$0.01
$2.27/$2.26
-$0.06/-$0.06
$2.29/$2.28
-$0.08/-$0.08
$1.813
$0.037
85.0 %
80.5 %
79.9 %
92.8 %
87.5 %
1.6 %
3.4 %
3.8 %
(2.6) %
(0.3) %
(1)
(2)
(3)
(4)
(5)
(6)
(7)
Represents a GAAP measure.
Represents a non-GAAP measure. The Trust’s method of calculating non-GAAP measures may differ from other reporting issuers’ methods and, accordingly, may not be comparable. For
definitions and basis of presentation of the Trust’s non-GAAP measures, refer to “Presentation of Certain Terms Including Non-GAAP Measures”.
Includes the Trust’s proportionate share of equity accounted investments.
See “Other Measures of Performance” for a reconciliation of these measures to the nearest consolidated financial statement measure.
The calculation of the Trust’s FFO and ACFO and related payout ratios, including comparative amounts, are financial metrics that were determined based on the February 2019 REALpac
White Paper on FFO and ACFO, respectively. Comparison with other reporting issuers may not be appropriate. The payout ratio to FFO and the payout ratio to ACFO are calculated as
declared distributions divided by FFO and ACFO, respectively.
Total Units outstanding include Trust Units and LP Units, including Units classified as liabilities. LP Units classified as equity in the consolidated financial statements are presented as non-
controlling interests.
The diluted weighted average includes the vested portion of the deferred units issued pursuant to the deferred unit plan.
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2020 ANNUAL REPORT 15
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MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT MANAGEMENT’S DISCUSSION AND ANALYSIS
Section III — Development Activities
Mixed-Use Development Initiatives
The following table summarizes the 284 identified mixed-use development initiatives, which are included in the Trust’s large
development pipeline:
Description
Section A
Number of projects in which
the Trust has an ownership
interest
Residential Rental
Seniors’ Housing
Self-storage
Office Buildings
Hotels
Subtotal – Recurring income
initiatives
Condominium developments
Townhome developments
Subtotal – Development
income initiatives
Total
Section B
Planning entitlements (#)
Section C
Project area (in thousands of
sq. ft.) – at 100%(2)
Recurring income initiatives
Development income
initiatives
Total project area (in
thousands of sq. ft.) – at
100%
Trust’s share of project area
(in thousands of sq. ft.)
Recurring income initiatives
Development income
initiatives
Total Trust’s share of project
area (in thousands of sq. ft.)
Section D
Total estimated costs (in
millions of dollars) – at
100% based on current
planning budgets(2)
Trust’s share of such
estimated costs (in millions
of dollars)
Underway
Active
Future
(Construction underway or
expected to commence within
next 2 years)
(Construction expected to
commence within next 3–5
years)
(Construction expected to
commence after 5 years)
Total
17
9
14
—
—
40
13
4
17
57
38
28
14
17
1
—
60
21
1
22
82
52
51
17
19
6
4
97
38
10
48
145
96
40
50
7
4
197
72
15
87
284
74
164
7,300
5,200
9,300
5,900
15,300
31,900
12,400
23,500
12,500
15,200
27,700
55,400
3,900
2,800
6,700
5,800
3,200
5,900
3,600
9,500
7,700
4,700
9,300
19,100
7,000
13,400
16,300
32,500
– (1)
– (1)
13,500
7,900
(1)
(2)
The Trust does not fully determine the costs attributable to future projects expected to commence after five years and as such they are not included in this table.
Square footage and cost figures provided at 100% pertain to projects for which the Trust has an ownership interest in such projects, and do not include related party projects to which the
Trust does not have an ownership interest.
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MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
Status of Current Development Initiatives
This section contains forward-looking statements related to expected milestones and completion dates of various development
initiatives. Completion, milestone or occupancy dates of each of the projects described below may be delayed or adversely
impacted as a result of, among other things, restrictions or delays related to the COVID-19 pandemic.
The Trust’s evolution into mixed-use development initiatives has resulted in the Trust participating in various substantive
construction development projects. This includes construction at SmartVMC; a two-phase high-rise rental residential project in
Laval, Quebec; several seniors’ apartments and retirement home buildings in the Greater Toronto Area and Ottawa; and several
self-storage locations throughout Ontario. In addition, the Trust is currently working on development initiatives for many other
properties that will primarily consist of residential and retirement home developments located in Ontario and Quebec as well as
the intensification of the Toronto StudioCentre.
When complete, SmartVMC contemplates approximately 11.0 million square feet (5.5 million square feet at the Trust’s share) of
mixed-use development, anchored by over $3.0 billion in public transit infrastructure spending including the VMC subway station
which opened in 2017. SmartVMC currently includes:
i)
ii)
the 360,000 square feet of fully leased and occupied office space in the KPMG tower;
the 225,000 square-foot PwC-YMCA office and community-use complex which is fully leased, with fully occupied office
space and community-use space, including a new world-class YMCA facility and municipal library, expected to open in
2021;
iii) the new 140,000 square-foot Walmart store which opened in October 2020; and
iv) the development of Transit City, with details of each previously announced residential phase as follows:
Phase
Transit City 1
Transit City 2
Transit City 3
Transit City 4
Transit City 5
Transit City 1 & 2 Townhomes
Subtotal – SmartVMC Condos/
Townhomes
Purpose-built residential rental
apartment tower
Total – SmartVMC Residential
Units Released
for Sale/
Available for
Rent (#)
Storeys (#)
Units Sold (#)
Units Sold
to Date (%)
55
55
55
45
50
N/A
36
551
559
631
498
528
22
551
559
631
498
528
22
2,789
2,789
454
3,243
100.0
100.0
100.0
100.0
100.0
100.0
100.0
Actual/
Estimated
Completion
Period
2020
2020
2021
2023
2023
2021
2023/2024
The following table summarizes the associated major mixed-use initiatives at SmartVMC:
PCVP
Project
KPMG (Tower #1)
PwC-YMCA (Complex/
Tower #2)
Office (Tower #3)
Office (Tower #4)
Estimated Total
Building Area
(sq. ft.)/units
360,000 sq. ft.
225,000 sq. ft. (1)
500,000 sq. ft.
500,000 sq. ft.
Type
Office
Office
Office
Office
Residential Rental
Apartments
Residences LP
Residences III LP
Transit City 1
Transit City 2
Transit City 1 & 2
Townhomes
Transit City 3
East Block Residences LP
Transit City 4 and 5
(1)
Includes 112,000 sq. ft. of YMCA, library and community-use space.
Condo
Condo
Townhomes
Condo
Condo
454 units
551 units
559 units
22 units
631 units
1,026 units
Expected
Completion Year
Completed
Trust’s
Share (%)
50.0
Completed
2027
2029
2023–2024
Completed
Completed
2021
2021
2023
50.0
50.0
50.0
50.0
25.0
25.0
25.0
25.0
25.0
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MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
SmartVMC, Residential and Other Development Initiatives
During the year ended December 31, 2020, the Trust experienced continued success and progress at SmartVMC, including:
i) KPMG Tower:
The KPMG Tower office space is 100% leased and strong tenant interest in the ground floor retail space continues. The
building's tenants include KPMG, Green for Life, Harley-Davidson Canada, Bank of Montreal, Miller Thomson LLP, FM Global,
Marc Anthony, TD Bank, International News and Pumpernickel’s.
ii) PwC-YMCA Complex:
The PwC-YMCA Complex is a 225,000 square foot mixed-use office complex located in the heart of SmartVMC, adjacent to the
VMC subway station and bus terminal. The Trust, together with Penguin, each own a 50% interest in the new fully leased office
tower, which represents approximately 113,000 square feet of Class A office space. PwC opened its 77,000 square feet of office
space at SmartVMC in November 2019. Scotiabank opened both its 23,000 square feet of office space on the 8th floor of the
PwC-YMCA complex and its lobby-level retail branch in July 2020.
iii) SmartVMC Residential:
Closing and occupancy of Transit City 1, 2 have been substantially completed. By December 31, 2020, 1,109 of Transit City 1 &
2 condo units had closed. Transit City 3 is progressing on time and ahead of budget, and project costs are substantially covered
by committed funds as at December 31, 2020. Transit City 3 closings and occupancy are expected in the spring and summer of
2021. Transit City 4 and 5 condo towers, which comprise 45 and 50 storeys, respectively, were sold out in the second quarter of
2019. Construction is ongoing for Transit City 4 and 5 condo towers as well as the 36-storey, 454-unit, purpose-built residential
rental building. Such construction is deemed essential under government regulations. Furthermore, 22 townhomes were sold out
in September 2020, for which construction has commenced, with planned closings in late 2021. A Walmart store in the heart of
SmartVMC was relocated and opened in October 2020 to enable the construction of these townhomes and future mixed-use
development on the former Walmart site.
iv) Residential and Other Development Initiatives
In addition, the Trust is also working on the following development initiatives:
a.
b.
c.
d.
e.
f.
a two-phase high-rise rental residential project in Laval, Quebec, with the first phase representing 171 units having been
completed and occupancy commenced in March 2020, and construction of the second phase expected to begin in Q2
2021;
an integrated complex comprising a 174-unit rental building and a 228-unit retirement home at SmartCentres Laurentian
Place in Ottawa, Ontario, which is expected to commence construction within the next six months and be completed in
2023;
a 133,000 square-foot Leaside self-storage facility in Toronto, Ontario and a 118,000 square-foot self-storage facility at
the Trust’s Vaughan NW shopping centre in Vaughan, Ontario are completed and opened in 2020;
a 135,000 square-foot self-storage facility at the Trust’s Bramport shopping centre in Brampton, Ontario substantially
completed with two of the four floors and opened in December 2020;
a 123,500 square-foot self-storage facility at the Trust’s shopping centre in Oshawa (South), Ontario where construction
is well underway and is expected to be complete by July 2021;
a 137,000 square-foot self-storage facility at the Trust’s Scarborough East shopping centre in Scarborough, Ontario
where construction has begun and is expected to be completed in 2021; and
g. with the issued Minister's Zoning Order, the Trust has begun to redevelop its 73-acre Cambridge retail property with
various forms of residential, retail, office, institutional and commercial uses to create a complete vibrant urban
community representing over 12.0 million square feet.
Completion or occupancy dates of each of the projects listed above may be delayed or adversely impacted as a consequence of
further government orders, supply chain issues and changes in construction staffing to include physical distancing measures,
among other factors, as a result of the COVID-19 pandemic.
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MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT MANAGEMENT’S DISCUSSION AND ANALYSIS
In addition, the Trust is currently working on initiatives for the development of many other properties, including the following
mixed-use development initiatives for which final municipal approvals have or are being actively pursued:
a.
b.
c.
d.
e.
f.
g.
h.
i.
j.
k.
l.
m.
n.
o.
p.
q.
r.
the development of up to 5.3 million square feet of predominately residential space, in various forms, at Highway 400 &
Highway 7, in Vaughan, Ontario, with a rezoning application submitted in December 2019 and a site plan application for the
first four buildings totalling 1,742 units submitted in October 2020;
the development of more than four million square feet (4,600 units) of residential density on the land at SmartVMC
previously occupied by a Walmart store, with rezoning and site plan applications submitted for phase one of 550,000 square
feet in 2020;
the development of 1.2 million square feet of mixed-use density – office, retail and residential – on the SmartVMC lands
immediately south of the Transit City 4 and 5 towers, with the rezoning and site plan applications submitted in September
2020;
the development of up to 5.0 million square feet of predominately residential space, in various forms over the long term, in
Pickering, Ontario, with the site plan application for a two-tower mixed-use phase, approximating 650,000 square feet,
submitted in April 2020;
the development of up to 5.5 million square feet of predominately residential space, in various forms, at Oakville North in
Oakville, Ontario, with the rezoning application for an initial two-tower 585-unit residential phase expected to be submitted in
early 2021;
the development of up to 2.55 million square feet of predominately residential space, in various forms, at Westside Mall in
Toronto, Ontario, with an application for the first 35-storey mixed-use tower expected to be submitted by February 2021;
the development of up to 1.7 million square feet of residential space in various forms at the Vaughan NW shopping centre in
Vaughan, Ontario. Residential development includes townhomes, to be developed in partnership with Fieldgate; a seniors’
apartment building and separate retirement residence to be developed in partnership with Revera, along with condominiums
and residential rental buildings. Applications for these six towers have been submitted. In addition, an 85,000 square-foot
self-storage facility is under construction and scheduled to open early in 2021;
the development of up to 1.5 million square feet of residential space, in various forms, in Pointe-Claire, Quebec, with the first
phase, a two-tower rental project, being actively pursued;
the development of up to 318,000 square feet of residential space at Oakville South in Oakville, Ontario, including 170 units
in a retirement residence project with Revera and townhomes;
the intensification of the Toronto StudioCentre (“StudioCentre”) in Toronto, Ontario (zoning allows for up to 1.2 million square
feet);
the development of four high-rise purpose-built residential rental buildings comprising approximately 1,800 units with
Greenwin, in Barrie, Ontario, for which a zoning application was approved by Barrie Council in January 2021. The site plan
was submitted in August 2020 with anticipated approval in spring 2021;
the development of a 35-storey high-rise purpose-built residential rental tower, on Balliol Street in midtown Toronto, Ontario,
with applications submitted in September 2020;
the development of up to 1,600 residential units, in various forms, in Mascouche, Quebec, with the first phase consisting of
two 10-storey rental towers approved by municipal council in August 2020, with a construction start expected in early 2021;
the development of residential density at the Trust’s shopping centre at 1900 Eglinton in Scarborough with rezoning
applications for the first two residential towers (38 and 40 storeys) submitted in January 2021;
the development of up to 275,000 square feet of residential space in 150 townhomes at London Fox Hollow in London,
Ontario, with site plan approval applications submitted in December 2020;
the development of the first phase, 42-unit rental building, which is part of a multi-phase masterplan in Alliston, Ontario, with
a rezoning application approved by Council in December 2020 and a site plan application submitted in May 2020 with
anticipated approval in spring 2021;
the development of four additional self-storage facilities with the Trust’s partner, SmartStop, in Aurora, Brampton, Markham,
and Whitby with zoning and/or site plan applications submitted in the last several months;
the acquisition of an additional 33.33% interest (new ownership structure of 66.66% held by the Trust and 33.33% held by
Penguin) in 50 acres of adjacent land to the Trust’s Outlet Centre in Mirabel for the ultimate development of residential
density of up to 4,500 units;
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MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT MANAGEMENT’S DISCUSSION AND ANALYSIS
s.
t.
u.
v.
the development of residential density of 450 condo units (in two phases) at Laval Centre in Quebec, with the zoning
application for the first tower of 225 units expected to be submitted in the third quarter of 2021;
the development of residential density at the Trust’s shopping centre at Bayview and Major Mackenzie in Richmond Hill, with
a rezoning application for a 10-storey retirement residences building submitted in the first quarter of 2021, to be developed
in partnership with Revera;
the acquisition of 8 acres of land in Aurora (Yonge and Murray) adjacent to the Trust’s shopping centre and the preparation
of a rezoning application for 425 residential units; and
the acquisition of a 50% interest in a property in downtown Markham for the development of a 243,000 square foot
retirement residence with Revera. The rezoning application was submitted in December 2020.
20 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2020 ANNUAL REPORT
22
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT Properties Under Development
MANAGEMENT’S DISCUSSION AND ANALYSIS
As at December 31, 2020, the fair value of properties under development including properties under development recorded in
equity accounted investments totalled $898.6 million as compared to $791.6 million at December 31, 2019, resulting in a net
increase of $107.0 million (for details on the factors influencing this change, see “Investment Properties”) presented in the table
as follows:
(in thousands of dollars)
Variance ($)
2019
Developments
Earnouts subject to option agreements(1)
Total
Equity accounted investments
Total including equity accounted investments (Non-GAAP)
2020
521,149
61,811
582,960
315,628
898,588
513,034
48,363
561,397
230,231
791,628
8,115
13,448
21,563
85,397
106,960
(1)
Earnout development costs during the development period are paid by the Trust and funded through interest-bearing secured debt provided by the vendors to the Trust. On completion of
the development and the commencement of lease payments by a tenant, the Earnouts will be acquired from the vendors based on predetermined or formula-based capitalization rates
ranging from 6.00% to 7.40%, net of land and development costs incurred. Penguin has contractual options to acquire Trust Units and LP Units on completion of Earnouts as shown in
Note 13(b) of the consolidated financial statements for the year ended December 31, 2020. Effective December 9, 2020, pursuant to the Omnibus Agreement between the Trust and
Penguin (see also “Related Party Transactions”), Penguin has the option to extend all Earnouts have by two years from the previous expiry date, and the Trust has been given a right of
first offer in connection with the sale of the economic and financial benefits and rights of any such development parcel during any extended period. For further details, see the Trust’s
management information circular dated November 6, 2020, filed on SEDAR.
Future Retail Developments, Earnouts and Mezzanine Financing
Total future Retail Developments, Earnouts and Mezzanine Financing could increase the existing Trust portfolio by an additional
1.9 million square feet. With respect to the future pipeline, commitments have been negotiated on 0.1 million square feet. The
Trust continues to revise its estimates and adjust its plans towards mixed-use developments.
The following table summarizes the expected potential future retail pipeline in properties under development as at December 31,
2020:
(in thousands of square feet)
Developments
Earnouts
Beyond Year 5
Committed
Years 0–2
Years 3–5
61
59
120
—
120
690
30
720
—
720
189
56
245
—
245
351
9
360
502
862
Total(1)
1,291
154
1,445
502
1,947
Mezzanine Financing
(1)
The estimated timing of development is based on management’s best estimates and can be adjusted based on changes in business conditions.
During the year ended December 31, 2020, the future retail properties under development pipeline decreased by 1.1 million
square feet to a total of 1.4 million square feet. The change is summarized in the following table:
(in thousands of square feet)
Future retail properties under development pipeline – January 1, 2020
Add:
Properties transferred from investment properties to properties under development
Less:
Re-purposing properties/land (previously earmarked as retail development) for mixed-use development
Net adjustment to project densities
Completion of Earnouts and Developments
Net change
Future retail properties under development pipeline – December 31, 2020
Total Area
2,593
520
(1,036)
(409)
(223)
(1,148)
1,445
Committed Retail Pipeline
The following table summarizes the committed investment by the Trust in retail properties under development as at
December 31, 2020:
(in thousands of dollars)
Developments
Earnouts
Square Feet (in
thousands)
Total Estimated
Costs
Costs Incurred
Estimated Future
Development Costs
61
59
120
19,374
20,925
40,299
6,024
5,391
11,415
13,350
15,534
28,884
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2020 ANNUAL REPORT 21
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MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
The completion of these committed Earnouts and Developments as currently scheduled is expected to have an average
estimated yield of 5.7% in 2021 and 6.3% in 2022.
Uncommitted Retail Pipeline
The following table summarizes the estimated future investment by the Trust in retail properties under development. It is
expected the future development costs will be spent over the next five years and beyond:
(in thousands of dollars)
Years 0–2
Years 3–5 Beyond Year 5
Total Estimated
Costs
Costs
Incurred(1)
Developments
Earnouts
220,486
8,918
229,404
72,270
18,198
90,468
139,948
3,192
143,140
432,704
30,308
463,012
170,442
6,138
176,580
Future
Development
Costs
262,262
24,170
286,432
(1)
The fair value of properties under development totalled $898.6 million (including equity accounted investments of $315.6 million) which primarily consists of costs of $176.6 million in the
uncommitted pipeline, costs of $11.4 million in the committed pipeline, costs of $48.3 million in undeveloped land, costs of $352.0 million in development land reserved for parcel sales,
costs of $315.6 million of future development land recorded in equity accounted investments, less $5.4 million of non-cash development costs relating to future land development and
cumulative fair value loss on revaluation of properties under development.
Approximately 10.2% of the retail properties under development, representing a proportion of gross investment cost (committed
and uncommitted) relating to Earnouts ($51.2 million, divided by total estimated costs of $503.3 million), representing 154,000
square feet are lands that are under contract by vendors to develop and lease for additional proceeds when developed. In certain
events, the developer may sell the portion of undeveloped land to accommodate the construction plan that provides the best use
of the property. It is management’s intention to finance the costs of construction through interim financing or operating facilities
and, once rental revenue is stabilized, long-term financing will be arranged. With respect to the remaining gross leasable area, it
is expected that 1.3 million square feet of future space will be developed as the Trust leases space and finances the related
construction costs.
Residential Development Inventory
Vaughan NW Townhome Development
From a consolidated perspective as recorded in the Trust’s consolidated financial statements for the year ended December 31,
2020 (GAAP basis) residential development inventory consists of development lands, co-owned with Fieldgate, located at
Vaughan NW, Ontario, for the purpose of developing and selling residential townhome units.
The following table summarizes the activity in residential development inventory:
(in thousands of dollars)
Balance – beginning of year
Development costs
Capitalized interest
Balance – end of year
Year ended December 31, 2020
Year ended December 31, 2019
24,564
317
914
25,795
23,429
207
928
24,564
SmartVMC Residential Development
From a proportionately consolidated perspective which considers the Trust’s proportionate share in equity accounted
investments (Non-GAAP), residential development inventory refers to the residential development concerning Transit City
condominium units, which are recorded as equity accounted investments (investment in associates) (see Note 6 (a) in the Trust’s
consolidated financial statements for the year ended December 31, 2020). As disclosed earlier in 2020, the Trust and its
partners, Penguin and CentreCourt, have made significant progress with the residential development at Transit City. As such, the
following summarizes the status of condominium closings at Transit City 1 and 2 for the year ended December 31, 2020:
Total units available/sold (#)
Total units closed (#)
Units closed (%)
Transit City 3’s units are expected to close in 2021.
Transit City 1
Transit City 2
551
551
100.0
559
558
99.8
Total
1,110
1,109
99.9
22 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2020 ANNUAL REPORT
24
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
The following table summarizes the net profits and impact to FFO and FFO per Unit from the condominium closings of Transit
City 1 and 2 for the year ended December 31, 2020:
(in thousands of dollars)
Condominium sales revenue
Cost of goods sold
Marketing and selling expenses
Other
NOI before additional partnership profit
Additional partnership profit(1)
NOI(5)
Less: General and administrative expenses previously capitalized(2)
Net profit(5)
Adjustment for previously capitalized interest associated with condominium closings(3)
FFO(5)
Per Unit – basic/diluted(4):
FFO(5)
Total
539,992
(374,832)
(751)
255
164,664
N/A
164,664
N/A
164,664
Trust’s share
134,998
(93,708)
(188)
64
41,166
6,862
48,028
(1,842)
46,186
(940)
45,246
$0.26/$0.26
(1) Additional profit allocated to the Trust for Transit City 1 and 2 closings pursuant to the development agreement and limited partnership agreement.
(2) Amount is included in general and administrative expenses. See “General and Administrative Expense” for further details.
(3) Amount is deducted from FFO calculation. See “Other Measures of Performance” for further details.
(4) Diluted FFO is adjusted for the dilutive effect of vested deferred units, which are not dilutive for net income purposes. To calculate diluted FFO for the year ended December 31, 2020,
998,302 vested deferred units are added back to the weighted average Units outstanding.
(5) Represents a non-GAAP measure. The Trust’s method of calculating non-GAAP measures may differ from other reporting issuers’ methods and, accordingly, may not be comparable. For
definitions and basis of presentation of the Trust’s non-GAAP measures, refer to “Presentation of Certain Terms Including Non-GAAP Measures”.
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2020 ANNUAL REPORT 23
25
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
Earnouts and Developments Completed on Existing Properties
For the three months ended December 31, 2020, $36.3 million of Earnouts and Developments (including Developments relating
to equity accounted investments) were completed and transferred to income properties, including the Trust’s interest in a new
Walmart store (Trust’s share is approximately 70,000 square feet) and the new Transit City commercial parkade in Vaughan,
Ontario (Trust’s share is approximately 90,000 square feet), as compared to $28.9 million in the same period in 2019.
Three Months Ended December 31, 2020
Three Months Ended December 31, 2019
Earnouts(1)
Retail Developments
Area
(sq. ft.)
—
23,245
Investment
($ millions)
—
7.5
Annualized Yield
(%)
— 14,865
5.8
Area
(sq. ft.)
84,415
Investment
($ millions)
3.7
18.8
Annualized Yield
(%)
6.8
7.4
Developments – equity accounted investments
200,152
223,397
28.8
36.3
4.6 12,204
4.7
111,484
6.4
28.9
5.4
6.9
(1) The Earnout for the three months ended December 31, 2020 related to a land parcel sale and as a result the area and annualized yield information are not reflected in the table above.
For the year ended December 31, 2020, $116.2 million of Earnouts and Developments (including Developments relating to equity
accounted investments) were completed and transferred to income properties, including the Trust’s interest in the 171-unit
residential rental building in Laval, Quebec and Leaside self-storage facility in Toronto, Ontario (Trust’s share is approximately
50,000 square feet), as compared to $105.8 million in 2019.
Earnouts(1)
Retail Developments
Year Ended December 31, 2020
Year Ended December 31, 2019
Area
(sq. ft.)
—
124,173
Investment
($ millions)
13.6
42.4
Annualized Yield
(%)
— 41,008
5.7 207,274
Area
(sq. ft.)
Investment
($ millions)
13.3
59.0
Annualized Yield
(%)
7.0
6.3
Developments – equity accounted investments
329,384
453,557
60.2
116.2
5.3 59,596
5.4 307,878
33.5
105.8
5.4
6.1
(1) The Earnouts for the year ended December 31, 2020 included four land parcel sales totalling $13.6 million of investment and as a result the area and annualized yield information for these
parcel sales are not reflected in the table above.
The annualized yield represents the estimated annualized rate of return on the investments related to the completed Earnouts
and Developments on existing properties (including Developments relating to equity accounted investments). It is calculated by
dividing the aggregate anticipated NOI from these Earnouts and Developments by the total investment costs incurred to bring
these Earnouts and Developments to their intended status. Management believes this annualized yield is a higher return than
would otherwise typically be available through acquisitions of similar properties in the open market.
24 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2020 ANNUAL REPORT
26
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT MANAGEMENT’S DISCUSSION AND ANALYSIS
Section IV — Business Operations and Performance
Results of Operations
Notwithstanding the challenges faced as a result of the COVID-19 pandemic and its adverse impact on the Trust’s operating
results for the year ended December 31, 2020, the Trust’s real estate portfolio (excluding fair value adjustments) has continued
to steadily perform, in part from Acquisitions, Developments and Earnouts, as compared to the year ended December 31, 2019
(see “Earnouts and Developments Completed on Existing Properties” for more details).
Proportionately Consolidated Balance Sheets (including the Trust’s interests in equity accounted investments)
The following table presents the proportionately consolidated balance sheets, which includes a reconciliation of the Trust’s
proportionate share of equity accounted investments:
(in thousands of dollars)
December 31, 2020
December 31, 2019
GAAP Basis
Proportionate
Share
Reconciliation
Total
Proportionate
Share (Non-
GAAP Basis) GAAP Basis
Proportionate
Share
Reconciliation
Total
Proportionate
Share (Non-
GAAP Basis)
Assets
Non-current assets
Investment properties
8,850,390
550,194
9,400,584
9,050,066
416,435
9,466,501
Mortgages, loans and notes receivable
263,558
(67,345)
196,213
216,907
(46,214)
170,693
Equity accounted investments
463,204
(463,204)
—
345,376
(345,376)
88,141
46,470
7,437
—
95,578
46,470
89,023
47,801
7,567
—
9,711,763
27,082
9,738,845
9,749,173
32,412
9,781,585
—
96,590
47,801
Other assets
Intangible assets
Current assets
Residential development inventory
25,795
88,783
114,578
24,564
122,254
146,818
Current portion of mortgages, loans and
notes receivable
125,254
—
125,254
55,953
Amounts receivable and other
58,644
(3,767)
54,877
36,679
Deferred financing costs
Prepaid expenses and deposits
Cash and cash equivalents
1,173
7,269
794,594
79
9,527
28,704
1,252
16,796
1,477
5,247
823,298
55,374
—
3,616
25
1,134
8,873
55,953
40,295
1,502
6,381
64,247
Total assets
Liabilities
Non-current liabilities
Debt
Other payables
Other financial liabilities
Current liabilities
Current portion of debt
Accounts payable and current portion of
other payables
Total liabilities
Equity
Trust Unit equity
Non-controlling interests
1,012,729
123,326
1,136,055
179,294
135,902
315,196
10,724,492
150,408
10,874,900
9,928,467
168,314
10,096,781
4,355,862
(8,288)
4,347,574
4,110,548
62,678
4,173,226
19,705
85,188
—
—
19,705
85,188
21,444
95,735
—
—
21,444
95,735
4,460,755
(8,288)
4,452,467
4,227,727
62,678
4,290,405
854,261
59,525
913,786
115,385
2,215
117,600
242,501
99,171
341,672
217,603
158,696
1,255,458
332,988
103,421
105,636
321,024
438,624
1,096,762
5,557,517
4,317,357
849,618
5,166,975
150,408
5,707,925
4,560,715
168,314
4,729,029
—
—
—
4,317,357
4,492,678
849,618
875,074
5,166,975
5,367,752
—
—
—
4,492,678
875,074
5,367,752
Total liabilities and equity
10,724,492
150,408
10,874,900
9,928,467
168,314
10,096,781
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2020 ANNUAL REPORT 25
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MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
Proportionately Consolidated Statements of Income and Comprehensive Income (including the Trust’s interests in
equity accounted investments)
The following tables present the proportionately consolidated statements of income and comprehensive income, which include a
reconciliation of the Trust’s proportionate share of equity accounted investments:
Quarterly Comparison to Prior Year
(in thousands of dollars)
Three Months Ended December 31, 2020
Three Months Ended December 31, 2019
Proportionate
Share
Reconciliation
Total
Proportionate
Share (Non-
GAAP Basis) GAAP Basis
Proportionate
Share
Reconciliation
Total
Proportionate
Share (Non-
GAAP Basis)
GAAP Basis
Net rental income and other
Rentals from investment properties and
other
197,897
5,023
202,920
207,702
4,545
212,247
Condominium sales revenue
—
47,136
47,136
—
—
—
Property operating costs and other
(79,836)
(2,167)
(82,003)
(79,079)
(1,750)
(80,829)
Condominium cost of sales
Net rental income and other
—
(31,051)
(31,051)
—
—
—
118,061
18,941
137,002
128,623
2,795
131,418
Other income and expenses
General and administrative expense, net
(7,766)
—
(7,766)
(4,622)
—
(4,622)
Earnings from equity accounted
investments
Fair value adjustment on revaluation of
investment properties
20,150
(20,150)
—
4,140
(4,140)
—
(16,539)
3,050
(13,489)
14,985
4,012
18,997
Gain (loss) on sale of investment properties
(1)
26
25
12
(1)
11
Interest expense
Interest income
Supplemental costs
Fair value adjustment on financial
instruments
Acquisition-related costs
Net income and comprehensive income
(51,519)
(1,310)
(52,829)
(46,319)
(992)
(47,311)
4,137
—
(17,977)
(166)
48,380
34
(591)
—
—
—
4,171
(591)
3,207
9
—
(1,667)
(17,977)
(166)
3,842
(283)
48,380
103,585
—
(16)
—
3,216
(1,667)
3,842
(299)
103,585
For the three months ended December 31, 2020, net income and comprehensive income (as noted in the table above)
decreased by $55.2 million or 53.3% as compared to the same period in 2019. This decrease was primarily attributed to the
following:
•
$32.5 million increase in unfavourable fair value adjustments on revaluation of investment properties principally due to
changes in leasing and cash flow assumptions such as rental rates, lease renewal rates, leasing costs, downtime on
lease expiries, vacancy allowance, among others, to reflect the impact of the COVID-19 pandemic;
$21.8 million increase in unfavourable fair value adjustment on financial instruments principally due to the fluctuation in
the Trust’s Unit price;
$5.5 million net increase in interest expense (see the “Interest Expense” subsection for details); and
$3.1 million increase in general and administrative expenses (net);
•
•
•
Partially offset by the following:
•
•
•
•
$5.6 million increase in NOI (see further details in the “Net Operating Income” subsection);
$1.1 million decrease in supplemental costs;
$1.0 million increase in interest income, which was primarily due to an increase in bank interest as a result of the
increase in cash and cash equivalents; and
$0.1 million decrease in acquisition-related costs.
26 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2020 ANNUAL REPORT
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MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
Year-to-Date Comparison to Prior Year
(in thousands of dollars)
Year Ended December 31, 2020
Year Ended December 31, 2019
Proportionate
Share
Reconciliation
Total
Proportionate
Share (Non-
GAAP Basis) GAAP Basis
Proportionate
Share
Reconciliation
Total
Proportionate
Share (Non-
GAAP Basis)
GAAP Basis
Net rental income and other
Rentals from investment properties and
other
781,253
18,813
800,066
806,412
15,765
822,177
Condominium sales revenue
—
141,557
141,557
—
—
—
Property operating costs and other
(320,542)
(7,976)
(328,518)
(301,513)
(6,614)
(308,127)
Condominium cost of sales
Net rental income and other
—
(94,000)
(94,000)
—
—
—
460,711
58,394
519,105
504,899
9,151
514,050
Other income and expenses
General and administrative expense, net
(28,682)
—
(28,682)
(20,456)
—
(20,456)
Earnings from equity accounted
investments
Fair value adjustment on revaluation of
investment properties
61,972
(61,972)
—
6,639
(6,639)
—
(275,051)
9,406
(265,645)
29,471
4,089
33,560
Gain on sale of investment properties
418
26
444
623
—
623
Interest expense
Interest income
Supplemental costs
Fair value adjustment on financial
instruments
Acquisition-related costs
Net income and comprehensive income
(160,044)
(4,625)
(164,669)
(157,038)
(3,422)
(160,460)
15,241
802
16,043
11,668
32
11,700
—
(2,031)
(2,031)
—
(3,195)
(3,195)
17,722
(2,347)
89,940
—
—
—
17,722
(2,347)
(1,320)
(283)
89,940
374,203
—
(16)
—
(1,320)
(299)
374,203
For the year ended December 31, 2020, net income and comprehensive income (as noted in the table above) decreased by
$284.3 million or 76.0% as compared to the same period last year. This decrease was primarily attributed to the following:
•
•
•
•
•
$299.2 million increase in unfavourable fair value adjustments on revaluation of investment properties principally due to
changes in leasing and cash flow assumptions such as rental rates, lease renewal rates, leasing costs, downtime on
lease expiries, vacancy allowance, among others, to reflect the impact of the COVID-19 pandemic;
$8.2 million increase in general and administrative expenses (net);
$4.2 million net increase in interest expense;
$2.1 million increase in acquisition-related costs; and
$0.2 million decrease in gain on sale of investment properties;
Partially offset by the following:
•
•
•
•
$19.0 million increase in favourable fair value adjustment on financial instruments principally due to the fluctuation in the
Trust’s Unit price as compared to the same period in 2019;
$5.1 million increase in NOI (see further details in the “Net Operating Income” subsection);
$4.3 million increase in interest income which was principally due to the increase in average interest-bearing loan
receivable balance and cash and cash equivalents; and
$1.2 million decrease in supplemental costs.
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2020 ANNUAL REPORT 27
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MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
Net Operating Income
The following tables summarize NOI, related ratios, and recovery ratios, and to provide additional information, reflect the Trust’s
proportionate share of equity accounted investments, the sum of which represent a non-GAAP measure:
Quarterly Comparison to Prior Year
(in thousands of dollars)
Three Months Ended December 31, 2020 Three Months Ended December 31, 2019
Total
Proportionate
Share(1)
(B)
Total
Proportionate
Share(1)
(A)
Equity
Accounted
Investments
Equity
Accounted
Investments
Trust portion
excluding EAI
Trust portion
excluding EAI
Variance(1)
(A–B)
Net base rent
Property tax and insurance recoveries
Property operating cost recoveries
Miscellaneous revenue
123,649
3,014
126,663
127,389
2,532
129,921
(3,258)
43,584
22,891
4,462
489
983
537
44,073
23,874
4,999
47,285
23,848
5,934
412
866
735
47,697
(3,624)
24,714
(840)
6,669
(1,670)
Rentals from investment properties
194,586
5,023
199,609
204,456
4,545
209,001
(9,392)
Service and other revenues
Rentals from investment properties and other(2)
3,311
—
3,311
3,246
—
3,246
65
197,897
5,023
202,920
207,702
4,545
212,247
(9,327)
Recoverable CAM costs
Recoverable tax and insurance costs
Property management fees and costs
Non-recoverable operating costs
Other property operating costs
Property operating costs
Other expenses
Property operating costs and other(2)
Net rental income and other
Condominium sales revenue
Condominium cost of sales
Condominium marketing and selling costs –
Transit City 1 & 2
Condominium marketing and selling costs –
Others
Net profit on condominium sales
NOI(3)
Net rental income and other as a percentage of
net base rent (%)
Net rental income and other as a percentage of
rentals from investment properties (%)
Net rental income and other as a percentage of
rentals from investment properties and other
(%)
Recovery Ratio (including prior year
adjustments) (%)
Recovery Ratio (excluding prior year
adjustments) (%)
(27,967)
(41,801)
(311)
(6,445)
—
(76,524)
(3,312)
(79,836)
118,061
—
—
—
—
—
118,061
95.5
60.7
59.7
95.3
(834)
(646)
(189)
375
(873)
(28,801)
(42,447)
(500)
(6,070)
(873)
(22,657)
(50,401)
(1,216)
(1,559)
—
(801)
(457)
(117)
(303)
(55)
(23,458)
(5,343)
(50,858)
8,411
(1,333)
833
(1,862)
(4,208)
(55)
(818)
(2,167)
(78,691)
(75,833)
(1,733)
(77,566)
(1,125)
—
(3,312)
(3,246)
—
(3,246)
(66)
(2,167)
2,856
47,136
(31,038)
(13)
—
16,085
18,941
94.8
56.9
56.9
99.5
(82,003)
(79,079)
(1,733)
(80,812)
(1,191)
120,917
128,623
2,812
131,435
(10,518)
47,136
(31,038)
(13)
—
16,085
—
—
—
—
—
—
—
—
(17)
(17)
—
—
—
(17)
(17)
47,136
(31,038)
(13)
17
16,102
137,002
128,623
2,795
131,418
5,584
95.5
60.6
59.6
95.4
94.9
101.0
111.1
101.2
(5.7)
62.9
61.9
62.9
(2.3)
61.9
61.9
61.9
(2.3)
97.4
101.6
97.4
(2.0)
95.4
101.5
95.5
(0.6)
94.7
104.1
(1)
(2)
(3)
This column contains non-GAAP measures because it includes figures that are recorded in equity accounted investments. The Trust’s method of calculating non-GAAP measures may
differ from other reporting issuers’ methods and accordingly may not be comparable. For definitions and basis of presentation of the Trust’s non-GAAP measures, refer to “Presentation of
Certain Terms Including Non-GAAP Measures”.
As reflected under the column 'Trust portion excluding EAI' in the table above, this amount represents a GAAP measure.
Represents a non-GAAP measure. The Trust’s method of calculating non-GAAP measures may differ from other reporting issuers’ methods and accordingly may not be comparable. For
definitions and basis of presentation of the Trust’s non-GAAP measures, refer to “Presentation of Certain Terms Including Non-GAAP Measures”.
NOI for the three months ended December 31, 2020 increased by $5.6 million or 4.2% as compared to the same period last year.
This increase was primarily attributed to the following:
•
•
$16.1 million net profit on condominium unit sales was recognized during the quarter (130 units and 213 units in Transit
City 1 and 2, respectively); and
$0.7 million decrease in net CAM and realty tax recovery shortfall primarily due to lower operating expenses incurred;
Partially offset by the following factors, most of which represent the impact of the COVID-19 pandemic:
•
•
•
•
$4.9 million increase in bad debt and expected credit losses (see “Amounts Receivable and Other, Deferred Financing
Costs, and Prepaid Expenses and Deposits” for further discussion);
$3.2 million decrease in base rent primarily due to increased vacancy;
$1.8 million decrease in percentage rent, parking revenue, short-term rental, and other miscellaneous revenue; and
$1.3 million decrease in prior years realty tax recovery adjustments.
28 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2020 ANNUAL REPORT
30
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
Year-to-Date Comparison to Prior Year
(in thousands of dollars)
Year Ended December 31, 2020
Year Ended December 31, 2019
Trust portion
excluding
EAI
Equity
Accounted
Investments
Total
Proportionate
Share(1)
Trust portion
excluding EAI
Equity
Accounted
Investments
Total
Proportionate
Share(1)
Variance(1)
(A)
(B)
(A–B)
Net base rent
Property tax and insurance recoveries
Property operating cost recoveries
Miscellaneous revenue
496,135
180,181
83,621
11,182
11,032
507,167
505,458
8,865
514,323
2,368
3,255
2,158
182,549
187,520
1,864
189,384
86,876
13,340
84,860
18,345
2,650
2,386
87,510
20,731
(7,156)
(6,835)
(634)
(7,391)
Rentals from investment properties
771,119
18,813
789,932
796,183
15,765
811,948
(22,016)
Service and other revenues
Rentals from investment properties and other(2)
10,134
—
10,134
10,229
—
10,229
(95)
781,253
18,813
800,066
806,412
15,765
822,177
(22,111)
Recoverable CAM costs
Recoverable tax and insurance costs
Property management fees and costs(3)
Non-recoverable operating costs
Other property operating costs
Property operating costs
Other expenses
Property operating costs and other(2)
(87,670)
(186,517)
(1,340)
(34,877)
—
(310,404)
(10,138)
(2,922)
(2,455)
(617)
(274)
(1,708)
(7,976)
(90,592)
(85,096)
(2,749)
(87,845)
(2,747)
(188,972)
(196,350)
(1,996)
(198,346)
(1,957)
(35,151)
(1,708)
(4,672)
(5,160)
—
(373)
(1,121)
(55)
(5,045)
(6,281)
(55)
9,374
3,088
(28,870)
(1,653)
(318,380)
(291,278)
(6,294)
(297,572)
(20,808)
—
(10,138)
(10,235)
—
(10,235)
97
(320,542)
(7,976)
(328,518)
(301,513)
(6,294)
(307,807)
(20,711)
Net rental income and other
460,711
10,837
471,548
504,899
9,471
514,370
(42,822)
Condominium sales revenue
Condominium cost of sales
Condominium marketing and selling costs –
Transit City 1 & 2
Condominium marketing and selling costs –
Others
Net profit on condominium sales
NOI(4)
Net rental income and other as a percentage of
net base rent (%)
Net rental income and other as a percentage of
rentals from investment properties (%)
Net rental income and other as a percentage of
rentals from investment properties and other
(%)
Recovery Ratio (including prior year
adjustments) (%)
Recovery Ratio (excluding prior year
adjustments) (%)
—
—
—
—
—
460,711
141,557
141,557
(93,709)
(93,709)
(188)
(188)
(103)
47,557
58,394
(103)
47,557
92.9
98.2
59.7
57.6
59.0
57.6
96.2
104.6
96.1
105.9
93.0
59.7
58.9
96.4
96.3
—
—
—
—
—
—
—
(6)
—
—
141,557
(93,709)
(6)
(182)
(314)
(320)
(314)
(320)
211
47,877
5,055
(7.0)
(3.7)
(3.7)
(0.4)
99.9
106.8
100.0
63.4
60.1
63.4
62.6
60.1
62.6
96.8
95.1
96.8
95.8
96.4
95.8
0.5
519,105
504,899
9,151
514,050
(1)
(2)
(3)
(4)
This column contains non-GAAP measures because it includes figures that are recorded in equity accounted investments – that are not explicitly disclosed and/or presented in the
consolidated financial statements for the years ended December 31, 2020 and December 31, 2019. The Trust’s method of calculating non-GAAP measures may differ from other reporting
issuers’ methods and accordingly may not be comparable. For definitions and basis of presentation of the Trust’s non-GAAP measures, refer to “Presentation of Certain Terms Including
Non-GAAP Measures”.
As reflected under the column 'Trust portion excluding EAI' in the table above, this amount represents a GAAP measure.
Includes an adjustment for the Canada Emergency Wage Subsidy (“CEWS”) of $0.9 million for the year ended December 31, 2020 (year ended December 31, 2019 – $nil).
Represents a non-GAAP measure. The Trust’s method of calculating non-GAAP measures may differ from other reporting issuers’ methods and accordingly may not be comparable. For
definitions and basis of presentation of the Trust’s non-GAAP measures, refer to “Presentation of Certain Terms Including Non-GAAP Measures”.
NOI for the year ended December 31, 2020 increased by $5.1 million or 1.0% as compared to the same period last year. This
increase was primarily attributed to the following:
•
•
$47.9 million net profit on condominium unit sales was recognized during the quarter (551 units and 558 units in Transit
City 1 and 2, respectively); and
$4.6 million decrease in net CAM and realty tax recovery shortfall primarily due to lower operating expenses incurred;
Partially offset by the following factors, most of which represent the impact of the COVID-19 pandemic:
•
•
•
•
•
$29.8 million increase in bad debt and expected credit losses (see “Amounts Receivable and Other, Deferred Financing
Costs, and Prepaid Expenses and Deposits” for further discussion);
$7.3 million decrease in percentage rent, parking revenue, short-term rental, and other miscellaneous revenue;
$5.9 million decrease in straight-line rent;
$3.1 million decrease in prior years realty tax recovery adjustments; and
$1.3 million decrease in base rent primarily due to increased vacancy.
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2020 ANNUAL REPORT 29
31
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
Same Properties NOI
NOI (a non-GAAP financial measure) from continuing operations represents: i) rentals from investment properties and other less
property operating costs and other, and ii) net profit from condominium sales. Disclosing the NOI contribution from each of same
properties, acquisitions, dispositions, Earnouts and Development activities highlights the impact each component has on
aggregate NOI. Straight-line rent, lease terminations and other adjustments, and amortization of tenant incentives have been
excluded from NOI attributed to same properties, acquisitions, dispositions, Earnouts and Development activities in the table
below to highlight the impact of changes in occupancy, rent uplift and productivity.
Quarterly Comparison to Prior Year
(in thousands of dollars)
Net rental income
Service and other revenues
Other expenses
NOI(1)
NOI from equity accounted investments(1)
Total portfolio NOI before adjustments(1)
Adjustments:
Royalties
Straight-line rent
Lease termination and other adjustments
Net profit on condominium sales
Amortization of tenant incentives
Total portfolio NOI after adjustments(1)
NOI sourced from:
Acquisitions
Earnouts and Developments
Same Properties NOI(1)
Add back: bad debt expense/expected credit
losses(3)
Same Properties NOI excluding expected credit
losses(1)
Three Months Ended
Three Months Ended
December 31, 2020
December 31, 2019
Variance ($)
Variance (%)
118,062
3,311
(3,312)
118,061
18,941
137,002
243
(448)
(477)
(16,085)
1,825
122,060
(162)
(965)
120,933
5,301
128,623
(10,561)
3,246
(3,246)
128,623
2,795
131,418
284
(633)
(1,480)
17
1,967
131,573
23
(1,948)
129,648
65
(66)
(10,562)
16,146
5,584
(41)
185
1,003
(16,102)
(142)
(9,513)
(185)
983
(8,715)
334
4,967
126,234
129,982
(3,748)
(8.2)
2.0
(2.0)
(8.2)
N/R(2)
4.2
(14.4)
(29.2)
67.8
N/R(2)
(7.2)
(7.2)
N/R(2)
50.5
(6.7)
N/R(2)
(2.9)
(1)
(2)
(3)
Represents a non-GAAP measure. The Trust’s method of calculating non-GAAP measures may differ from other reporting issuers’ methods and accordingly may not be comparable. For
definitions and basis of presentation of the Trust’s non-GAAP measures, refer to “Presentation of Certain Terms Including Non-GAAP Measures”.
N/R – Not representative.
Amount for the three months ended December 31, 2020 reflects the impact of the COVID-19 pandemic.
“Same Properties” in the table above refer to those income properties that were owned by the Trust from October 1, 2019 to
December 31, 2019 and from October 1, 2020 to December 31, 2020. The Same Properties NOI for the three months ended
December 31, 2020 decreased by $8.7 million or 6.7% as compared to the same period in 2019, which was primarily due to the
following:
•
$4.3 million increase in miscellaneous expense primarily due to higher bad debt expenses, partially offset by lower
management fees;
$2.4 million decrease in rental revenue mainly due to higher vacancy and rent reductions;
$1.0 million decrease in recoverable costs primarily due to higher tax vacancy shortfalls and non-recurring favourable
adjustments recorded in the same period in 2019; and
$1.0 million decrease in miscellaneous revenues primarily due to lower percentage rent, short-term rentals and parking
revenue as a result of the COVID-19 pandemic.
•
•
•
Excluding the expected credit losses of $5.3 million recorded in the three months ended December 31, 2020, Same Properties
NOI would have been $126.2 million representing a decrease of $3.7 million or 2.9% as compared to the same period in 2019.
30 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2020 ANNUAL REPORT
32
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT
Year-to-Date Comparison to Prior Year
(in thousands of dollars)
Net rental income
Service and other revenues
Other expenses
NOI(1)
NOI from equity accounted investments(1)
Total portfolio NOI before adjustments(1)
Adjustments:
Royalties
Straight-line rent
Lease termination and other adjustments
Condominium sales profit
Amortization of tenant incentives
Total portfolio NOI after adjustments(1)
NOI sourced from:
Acquisitions
Dispositions
Earnouts and Developments
Same Properties NOI(1)
Add back: bad debt expense/expected credit
losses(3)
Same Properties NOI excluding expected credit
losses(1)
MANAGEMENT’S DISCUSSION AND ANALYSIS
Year Ended
Year Ended
December 31, 2020
December 31, 2019
Variance ($)
Variance (%)
460,715
10,134
(10,138)
460,711
58,394
519,105
835
3,363
(1,483)
(47,557)
7,564
481,827
(401)
—
(7,543)
473,883
30,817
504,905
10,229
(10,235)
504,899
9,151
514,050
1,011
(2,633)
(3,667)
330
7,733
516,824
27
(17)
(7,604)
509,230
(44,190)
(95)
97
(44,188)
49,243
5,055
(176)
5,996
2,184
(47,887)
(169)
(34,997)
(428)
17
61
(35,347)
951
29,866
504,700
510,181
(5,481)
(8.8)
(0.9)
0.9
(8.8)
N/R(2)
1.0
(17.4)
N/R(2)
59.6
N/R(2)
(2.2)
(6.8)
N/R(2)
N/R(2)
0.8
(6.9)
N/R(2)
(1.1)
(1)
(2)
(3)
Represents a non-GAAP measure. The Trust’s method of calculating non-GAAP measures may differ from other reporting issuers’ methods and accordingly may not be comparable. For
definitions and basis of presentation of the Trust’s non-GAAP measures, refer to “Presentation of Certain Terms Including Non-GAAP Measures”.
N/R – Not representative.
Amount for the year ended December 31, 2020 reflects the impact of the COVID-19 pandemic.
“Same Properties” in the table above refer to those income properties that were owned by the Trust from January 1, 2019 to
December 31, 2019 and from January 1, 2020 to December 31, 2020. The Same Properties NOI for the year ended
December 31, 2020 decreased by $35.3 million or 6.9% as compared to the same period in 2019, which was primarily due to the
following:
•
$26.2 million increase in miscellaneous expenses primarily due to higher bad debt expenses, partially offset by lower
management fee;
$3.4 million decrease in percentage rents, primarily due to mall closures as a result of the COVID-19 pandemic;
$2.5 million decrease in miscellaneous revenues, primarily due to a decrease in: short-term rentals, parking revenues,
and other miscellaneous revenues;
$2.4 million decrease in net rental income mainly due to higher vacancy and rent reductions as a result of the
COVID-19 pandemic; and
$0.8 million decrease in recoverable costs primarily due to higher realty tax vacancy shortfalls and non-recurring
favourable adjustments recorded in 2019.
•
•
•
•
Excluding the expected credit losses of $30.8 million recorded in the year ended December 31, 2020, Same Properties NOI
would have been $504.7 million representing a decrease of $5.5 million or 1.1% as compared to 2019.
Due to the various uncertainties pertaining to the COVID-19 pandemic, management is currently unable to predict reliably and
accurately the impact it will have on certain aspects of results of operations, including Annual Run-Rate NOI and the related
sensitivity analysis at this time.
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2020 ANNUAL REPORT 31
33
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
Adjusted EBITDA
The following table presents a reconciliation of net income and comprehensive income to Adjusted EBITDA:
(in thousands of dollars)
Net income and comprehensive income
Add (deduct) the following items(1):
Interest expense
Interest income
Yield maintenance costs
Amortization of equipment and intangible assets
Amortization of tenant improvements
Fair value adjustment on revaluation of investment properties
Fair value adjustment on financial instruments
Adjustment for supplemental contribution
Gain on sale of investment properties
Gain on sale of land to co-owners (Transactional FFO)
Acquisition-related costs
Adjusted EBITDA(1)
12 Months Ended
December 31, 2020
12 Months Ended
December 31, 2019
89,940
374,203
Variance ($)
(284,263)
152,715
(15,241)
11,954
3,714
7,320
265,645
(17,722)
2,031
(444)
744
2,347
503,003
139,947
(11,668)
20,513
2,075
7,461
(33,561)
1,319
3,195
(623)
2,818
298
505,977
12,768
(3,573)
(8,559)
1,639
(141)
299,206
(19,041)
(1,164)
179
(2,074)
2,049
(2,974)
(1)
Represents a non-GAAP measure. The Trust’s method of calculating non-GAAP measures may differ from other reporting issuers’ methods and accordingly may not be comparable. For
definitions and basis of presentation of the Trust’s non-GAAP measures, refer to “Presentation of Certain Terms Including Non-GAAP Measures”.
32 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2020 ANNUAL REPORT
34
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
Other Measures of Performance
The following measures of performance are sometimes used by Canadian REITs and other reporting entities as indicators of
financial performance. Because these measures are not standardized as prescribed by IFRS, they may not be comparable to
similar measures presented by other reporting entities. Management uses these measures to analyze operating performance.
Because one of the factors that may be considered relevant by prospective investors is the cash distributed by the Trust relative
to the price of the Units, management believes these measures are useful supplemental measures that may assist prospective
investors in assessing an investment in Units. The Trust analyzes its cash distributions against these measures to assess the
stability of the monthly cash distributions to Unitholders. These measures are not intended to represent operating profits for the
year; nor should they be viewed as an alternative to net income and comprehensive income, cash flows from operating activities
or other measures of financial performance calculated in accordance with IFRS. The calculations are derived from the
consolidated financial statements for the years ended December 31, 2020 and December 31, 2019, unless otherwise stated, do
not include any assumptions, do not include any forward-looking information and are consistent with prior reporting years.
Weighted Average Number of Units
The weighted average number of Trust Units and exchangeable LP Units is used in calculating the Trust’s net income and
comprehensive income per Unit, net income and comprehensive income excluding fair value adjustments per Unit, and FFO per
Unit. The corresponding diluted per Unit amounts are adjusted for the dilutive effect of the vested portion of deferred units
granted under the Trust’s deferred unit plan unless they are anti-dilutive. To calculate diluted FFO per Unit for the years ended
December 31, 2020 and December 31, 2019, vested deferred units are added back to the weighted average Units outstanding
because they are dilutive.
The following table sets forth the weighted average number of Units outstanding for the purposes of FFO per Unit and net
income and comprehensive income per Unit calculations in this MD&A:
(number of Units)
Trust Units
Class B LP Units
Class D LP Units
Class F LP Units
Class B LP II Units
Class B LP III Units
Class B LP IV Units
Class B Oshawa South LP Units
Class D Oshawa South LP Units
Class B Oshawa Taunton LP Units
Class B Boxgrove LP Units
Three Months Ended December 31
Year Ended December 31
2020
2019
Variance
2020
2019
Variance
144,618,352
143,754,198
864,154
144,543,393
142,483,673
2,059,720
16,416,667
16,416,667
311,022
8,708
756,525
311,022
4,886
756,525
—
—
3,822
—
16,416,667
16,416,667
311,022
8,405
756,525
311,022
3,306
756,525
—
—
5,099
—
4,006,661
3,819,137
187,524
3,945,328
3,818,692
126,636
3,067,593
3,065,059
2,534
3,067,593
3,055,746
11,847
710,416
260,417
374,223
170,000
710,416
260,417
374,223
—
—
—
—
170,000
710,416
260,417
374,223
58,989
710,416
260,417
374,223
—
—
—
—
58,989
Class B Series ONR LP Units
1,248,140
1,248,140
Class B Series 1 ONR LP I Units
Class B Series 2 ONR LP I Units
132,881
139,302
132,881
139,302
—
—
—
1,248,140
1,248,140
132,881
139,302
132,881
138,040
—
—
1,262
Total Exchangeable LP Units
27,602,555
27,238,675
363,880
27,429,908
27,226,075
203,833
Total Units – Basic
Vested deferred units
172,220,907
170,992,873
1,228,034
171,973,301
169,709,748
2,263,553
1,043,747
865,561
178,186
998,302
871,783
126,519
Total Units and vested deferred
units – Diluted
173,264,654
171,858,434
1,406,220
172,971,603
170,581,531
2,390,072
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2020 ANNUAL REPORT 33
35
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
Funds From Operations
FFO is a non-GAAP financial measure of operating performance widely used by the Canadian real estate industry based on the
definition set forth by REALpac, which published a White Paper describing the intended use of FFO, last revised in February
2019. It is the Trust’s view that IFRS net income does not necessarily provide a complete measure of the Trust’s recurring
operating performance. This is primarily because IFRS net income includes items such as fair value changes of investment
property that are subject to market conditions and capitalization rate fluctuations and gains and losses on the disposal of
investment properties, including associated transaction costs and taxes, which management believes are not representative of a
company’s economic earnings. For these reasons, the Trust has adopted REALpac’s definition of FFO, which was created by the
real estate industry as a supplemental measure of operating performance. FFO is computed as IFRS consolidated net income
and comprehensive income attributable to Unitholders adjusted for items such as, but not limited to, unrealized changes in the
fair value of investment properties and financial instruments and transaction gains and losses on the acquisition or disposal of
investment properties calculated on a basis consistent with IFRS.
FFO should not be construed as an alternative to net income and comprehensive income or cash flows provided by or used in
operating activities determined in accordance with IFRS. The Trust’s method of calculating FFO is in accordance with REALpac’s
recommendations, but may differ from other issuers’ methods and, accordingly, may not be comparable to FFO reported by other
issuers.
A reconciliation of FFO to net income and comprehensive income can be found below.
Adjusted Cashflow From Operations
ACFO is a non-GAAP financial measure of operating performance and may not be comparable to similar measures used by
other real estate entities. The Trust calculates its ACFO in accordance with REALpac’s “White Paper on Adjusted Cashflow From
Operations (ACFO)” for IFRS last revised in February 2019. The purpose of the White Paper is to provide reporting issuers and
stakeholders with greater guidance on the definitions of ACFO and to help promote more consistent disclosure from reporting
issuers. ACFO is intended to be used as a sustainable, economic cash flow metric. The Trust considers ACFO an input to
determine the appropriate level of distributions to Unitholders as it adjusts cash flows from operations to better measure
sustainable, economic cash flows. Prior to the initial issuance of the February 2017 White Paper on ACFO, there was no industry
standard to calculate a sustainable, economic cash flow metric.
A reconciliation of ACFO to cash provided by operating activities can be found below.
Determination of Distributions
Pursuant to the Trust's declaration of trust (“Declaration of Trust”) the Trust endeavours to distribute annually such amount as is
necessary to ensure the Trust will not be subject to tax on its net income under Part I of the Income Tax Act (Canada).
The Board of Trustees determines the Trust’s Unit cash distribution rate by, among other considerations, its assessment of cash
flow as determined using certain non-GAAP measures. As such, management believes the cash distributions are not an
economic return of capital, but a distribution of sustainable cash flow from operations. Given both existing ACFO and distribution
levels, and current facts and assumptions, including any potential impact from the COVID-19 pandemic, the Board of Trustees
continues to assess the sustainability of future cash distributions.
In any given period, the distributions declared may differ from cash provided by operating activities, primarily due to seasonal
fluctuations in non-cash operating items (amounts receivable, prepaid expenses, deposits, accounts payable and accrued
liabilities). These seasonal or short-term fluctuations are funded, if necessary, by the Trust’s revolving operating facility. In
addition, the distributions declared previously included a component funded by the dividend reinvestment plan (“DRIP”) which
was suspended by the Board of Trustees effective April 13, 2020. The Board of Trustees anticipates that distributions declared
will, in the foreseeable future, continue to vary from net income and comprehensive income because net income and
comprehensive income include fair value adjustments to investment properties, fair value changes in financial instruments, and
other adjustments and also because distributions are determined based on non-GAAP cash flow measures, which include
consideration of the maintenance of productive capacity. Accordingly, the Trust does not use IFRS net income and
comprehensive income as a proxy for distributions. The Board of Trustees will continue to assess the sustainability of future cash
distributions.
34 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2020 ANNUAL REPORT
36
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT MANAGEMENT’S DISCUSSION AND ANALYSIS
Cash Flows from Operating Activities and Distributions Declared
As required by National Policy 41-201, “Income Trusts and Other Indirect Offerings”, the table “Distributions and ACFO
Highlights”, provided later in this report, outlines the differences between cash flows provided by operating activities (per the
Consolidated Financial Statements) and total distributions, as well as the differences between net income and comprehensive
income and total distributions, in accordance with the guidelines.
In compliance with Canadian Securities Administrators Staff Notice 52-306 (Revised) “Non-GAAP Financial Measures”, the table
below reconciles cash flows provided by operating activities (GAAP measure) to adjusted cash flows from operating activities
(non-GAAP measure):
(in thousands of dollars)
Cash flows provided by operating activities
Add:
Normalizing adjustments, actual sustaining expenditures adjustments and other(1)
ACFO(2)
One-time adjustment:
Yield maintenance costs(3)
ACFO with one-time adjustment(2)
ACFO(2)
Distributions declared
Surplus of ACFO over distributions declared
Distributions for Units classified as equity
Distributions for Units classified as liabilities
Total distributions declared
Year Ended December 31
2020
295,982
57,427
353,409
11,954
365,363
353,409
318,758
2019
345,611
(10,964)
334,647
20,513
355,160
334,647
310,651
34,651
23,996
314,877
3,881
318,758
306,857
3,794
310,651
(1)
(2)
(3)
Represents the adjustments that are added to/deducted from cash flows provided by operating activities, in order to determine ACFO. Refer to the subsection entitled “Reconciliation of
ACFO” provided later in this report for details.
Represents a non-GAAP measure. The Trust’s method of calculating non-GAAP measures may differ from other reporting issuers’ methods and, accordingly, may not be comparable. For
definitions and basis of presentation of the Trust’s non-GAAP measures, refer to “Presentation of Certain Terms Including Non-GAAP Measures”.
The year ended December 31, 2020 includes $12.0 million of yield maintenance costs on repayment of debt and related write-off of unamortized financing costs (year ended
December 31, 2019 – $20.5 million).
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2020 ANNUAL REPORT 35
37
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
Reconciliation of FFO
The tables and analyses below illustrate a reconciliation of the Trust’s net income and comprehensive income (GAAP measures)
to FFO (non-GAAP measures).
Quarterly Comparison to Prior Year
(in thousands of dollars, except per Unit amounts)
December 31, 2020
December 31, 2019 Variance ($) Variance (%)
Net income and comprehensive income
48,380
103,584
(55,204)
(53.3)
Three Months Ended
Three Months Ended
Add (deduct):
Fair value adjustment on revaluation of investment
properties(1)
Fair value adjustment on financial instruments(2)
Gain on sale of investment properties
Amortization of intangible assets
Amortization of tenant improvement allowance and other
Distributions on Units classified as liabilities and vested
deferred units recorded as interest expense
Salaries and related costs attributed to leasing activities(3)
Acquisition-related costs
Adjustments relating to equity accounted investments:
Rental revenue adjustment – tenant improvement
amortization
Indirect interest with respect to the development portion(4)
Adjustment to indirect interest with respect to Transit City
condo closings(4)
Fair value adjustment on revaluation of investment
properties
Loss on sale of investment properties
Acquisition related costs
Adjustment for supplemental contribution
FFO(5)
One-time adjustment:
Yield maintenance costs(7)
FFO with one-time adjustment of yield maintenance
costs(5)
Transactional FFO – gain on sale of land to co-owners
FFO with one-time adjustments and Transactional FFO(5)
16,539
17,839
1
332
1,668
1,521
1,200
166
100
1,676
(240)
(26)
—
591
86,697
11,954
98,651
—
98,651
N/R(6)
N/R(6)
N/R(6)
—
(7.9)
11.4
0.2
7.5
N/R(6)
N/R(6)
(24.0)
N/R(6)
N/R(6)
(64.6)
(1.5)
(14,985)
(3,841)
31,524
21,680
(13)
332
14
—
1,811
(143)
1,365
1,198
283
156
2
(117)
(41.3)
93
553
7
1,123
—
(240)
—
16
961
(26)
(16)
1,668
88,053
(1,077)
(1,356)
12,648
(694)
(5.5)
100,701
(2,050)
2,211
102,912
(2,211)
(4,261)
(2.0)
N/R(6)
(4.1)
(3,050)
(4,011)
(1)
(2)
(3)
(4)
(5)
(6)
(7)
Fair value adjustment on revaluation of investment properties is described in “Investment Properties”.
Fair value adjustment on financial instruments comprises the following financial instruments: units classified as liabilities, Earnout options, deferred unit plan and interest rate swap
agreements. The significant assumptions made in determining the fair value and fair value adjustments for these financial instruments are more thoroughly described in the Trust’s
consolidated financial statements for the year ended December 31, 2020. The fair value adjustment on financial instruments experienced a significant decrease as compared to the same
period in 2019. For details please see discussion in the “Results of Operations” above.
Salaries and related costs attributed to leasing activities of $1.2 million were incurred in the three months ended December 31, 2020 (three months ended December 31, 2019 – $1.2
million) and were eligible to be added back to FFO based on the definition of FFO, in the REALpac White Paper published in February 2019, which provided for an adjustment to
incremental leasing expenses for the cost of salaried staff. This adjustment to FFO results in more comparability between Canadian publicly traded real estate entities that expensed their
internal leasing departments and those that capitalized external leasing expenses.
Indirect interest is not capitalized to properties under development and residential development inventory of equity accounted investments under IFRS but is a permitted adjustment under
REALpac’s definition of FFO. The amount is based on the total cost incurred with respect to the development portion of equity accounted investments multiplied by the Trust’s weighted
average cost of debt.
Represents a non-GAAP measure. The Trust's method of calculating non-GAAP measures may differ from other reporting issuers' methods and accordingly may not be comparable. For
definitions and basis of presentation of the Trust's non-GAAP measures, refer to “Presentation of Certain Terms Including Non-GAAP Measures”.
N/R – Not representative.
The three months ended December 31, 2020 includes $12.0 million of yield maintenance costs on repayment of debt and related write-off of unamortized financing costs (three months
ended December 31, 2019 – $12.6 million).
For the three months ended December 31, 2020, FFO decreased by $1.4 million or 1.5% to $86.7 million. This decrease was
primarily attributed to:
•
•
$5.5 million net increase in interest expense, which was primarily due to a higher debt level; and
$3.1 million increase in net general and administrative expense;
Partially offset by:
•
$5.6 million increase in NOI, which was primarily due to Transit City 1 and 2 units closings (see further details in “Net
Operating Income”);
36 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2020 ANNUAL REPORT
38
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
•
•
$1.0 million increase in interest income which was primarily due to an increase in bank interest as a result of the
increase in cash and cash equivalents as compared to the same period in 2019;
$0.6 million net increase in FFO add back for indirect interest incurred in respect of equity accounted development
projects which was primarily due to the development property acquisitions completed, tenant improvement allowance
and others.
The following table presents per unit FFO (non-GAAP measures):
Per Unit – basic/diluted(1):
FFO(2)
FFO with one-time adjustment of yield maintenance
costs(2)
FFO with one-time adjustments and Transactional
FFO(2)
Payout Ratio:
FFO(2)
FFO with one-time adjustment of yield maintenance
costs(2)
FFO with one-time adjustments and Transactional
FFO(2)
Three Months Ended Three Months Ended
December 31, 2019
December 31, 2020
Variance ($)
Variance (%)
$0.50/$0.50
$0.51/$0.51
-0.01/-0.01
-2.0/-2.0
$0.57/$0.57
$0.59/$0.59
-0.02/-0.02
-3.4/-3.4
$0.57/$0.57
$0.60/$0.60
-0.03/-0.03
-5.0/-5.0
91.9 %
80.7 %
80.7 %
90.5 %
79.1 %
77.4 %
1.4 %
1.6 %
3.3 %
(1)
(2)
Diluted FFO is adjusted for the dilutive effect of vested deferred units, which are not dilutive for net income purposes. To calculate diluted FFO for the three months ended December 31,
2020, 1,043,747 vested deferred units are added back to the weighted average Units outstanding (three months ended December 31, 2019 – 865,561 vested deferred units).
Represents a non-GAAP measure. The Trust's method of calculating non-GAAP measures may differ from other reporting issuers' methods and accordingly may not be comparable. For
definitions and basis of presentation of the Trust's non-GAAP measures, refer to “Presentation of Certain Terms Including Non-GAAP Measures”.
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2020 ANNUAL REPORT 37
39
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT MANAGEMENT’S DISCUSSION AND ANALYSIS
Year-to-Date Comparison to Prior Year
(in thousands of dollars, except per Unit amounts)
Net income and comprehensive income
Add (deduct):
Fair value adjustment on revaluation of investment properties(1)
Fair value adjustment on financial instruments(2)
Gain on sale of investment properties
Amortization of intangible assets
Amortization of tenant improvement allowance and other
Distributions on Units classified as liabilities and vested
deferred units recorded as interest expense
Salaries and related costs attributed to leasing activities(3)
Acquisition-related costs
Adjustments relating to equity accounted investments:
Rental revenue adjustment – tenant improvement
amortization
Indirect interest with respect to the development portion(4)
Adjustment to indirect interest with respect to Transit City
condo closings(4)
Fair value adjustment on revaluation of investment
properties
Loss on sale of investment properties
Acquisition-related costs
Adjustment for supplemental contribution
FFO(5)
One-time adjustment:
Yield maintenance costs(7)
FFO with one-time adjustment of yield maintenance costs(5)
Transactional FFO – gain on sale of land to co-owners
FFO with one-time adjustment and Transactional FFO(5)
Year Ended
December 31, 2020
Year Ended
December 31, 2019 Variance ($) Variance (%)
89,940
374,203
(284,263)
(76.0)
275,051
(17,722)
(29,471)
304,522
1,320
(19,042)
(418)
1,331
6,926
5,785
5,853
2,347
394
6,821
(940)
(9,406)
(26)
—
2,031
367,967
11,954
379,921
744
380,665
(807)
1,331
7,165
5,385
5,462
389
—
(239)
400
391
283
2,064
322
72
1,141
5,680
—
(940)
(4,089)
(5,317)
—
16
(26)
(16)
3,195
(1,164)
365,456
2,511
20,513
(8,559)
385,969
(6,048)
2,818
388,787
(2,074)
(8,122)
N/R(6)
N/R(6)
(48.2)
—
(3.3)
7.4
7.2
N/R(6)
22.4
N/R(6)
N/R(6)
N/R(6)
N/R(6)
N/R(6)
(36.4)
0.7
(41.7)
(1.6)
(73.6)
(2.1)
(1)
(2)
(3)
(4)
(5)
(6)
(7)
Fair value adjustment on revaluation of investment properties is described in “Investment Properties”.
Fair value adjustment on financial instruments comprises the following financial instruments: units classified as liabilities, Earnout options, deferred unit plan and interest rate swap
agreements. The significant assumptions made in determining the fair value and fair value adjustments for these financial instruments are more thoroughly described in the Trust’s
consolidated financial statements for the year ended December 31, 2020. The fair value adjustment on financial instruments experienced a significant increase as compared to the same
period in 2019. For details please see discussion in “Results of Operations” above.
Salaries and related costs attributed to leasing activities of $5.9 million were incurred in the year ended December 31, 2020 (year ended December 31, 2019 – $5.5 million) and were
eligible to be added back to FFO based on the definition of FFO, in the REALpac White Paper published in February 2019, which provided for an adjustment to incremental leasing
expenses for the cost of salaried staff. This adjustment to FFO results in more comparability between Canadian publicly traded real estate entities that expensed their internal leasing
departments and those that capitalized external leasing expenses.
Indirect interest is not capitalized to properties under development and residential development inventory of equity accounted investments under IFRS but is a permitted adjustment under
REALpac’s definition of FFO. The amount is based on the total cost incurred with respect to the development portion of equity accounted investments multiplied by the Trust’s weighted
average cost of debt.
Represents a non-GAAP measure. The Trust's method of calculating non-GAAP measures may differ from other reporting issuers' methods and accordingly may not be comparable. For
definitions and basis of presentation of the Trust's non-GAAP measures, refer to “Presentation of Certain Terms Including Non-GAAP Measures”.
N/R – Not representative.
The year ended December 31, 2020 includes $12.0 million of yield maintenance costs on repayment of debt and related write-off of unamortized financing costs (year ended
December 31, 2019 – $20.5 million).
For the year ended December 31, 2020, FFO increased by $2.5 million or 0.7% to $368.0 million. This increase was primarily
attributed to:
•
•
•
•
$5.1 million increase in NOI, which was primarily due to Transit City 1 and 2 units closings (see further details in “Net
Operating Income”);
$4.7 million increase in add-back for indirect interest incurred in respect of equity accounted development projects
which was primarily due to the development property acquisitions completed;
$4.3 million increase in interest income which was primarily due to an increase in bank interest as a result of the
increase in cash and cash equivalents as compared to the same period in 2019; and
$0.8 million increase in FFO add back for salaries and related costs attributed to leasing activities and distributions on
Units classified as liabilities;
Partially offset by:
•
•
$8.2 million increase in net general and administrative expense; and
$4.2 million net increase in interest expense, which was primarily due to a higher debt level.
38 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2020 ANNUAL REPORT
40
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
The following table presents per unit FFO (non-GAAP measures):
Per Unit – basic/diluted(1):
FFO(2)
FFO with one-time adjustment of yield maintenance costs(2)
FFO with one-time adjustment and Transactional FFO(2)
Payout Ratio:
FFO(2)
FFO with one-time adjustment of yield maintenance costs(2)
FFO with one-time adjustment and Transactional FFO(2)
Year Ended
December 31, 2020
Year Ended
December 31, 2019
Variance ($) Variance (%)
$2.14/$2.13
$2.21/$2.20
$2.21/$2.20
$2.15/$2.14
-$0.01/-$0.01
$2.27/$2.26
-$0.06/-$0.06
$2.29/$2.28
-$0.08/-$0.08
-0.5/-0.5
-2.6/-2.7
-3.5/-3.5
86.6 %
83.9 %
83.7 %
85.0 %
80.5 %
79.9 %
1.6 %
3.4 %
3.8 %
(1)
(2)
Diluted FFO is adjusted for the dilutive effect of vested deferred units, which are not dilutive for net income purposes. To calculate diluted FFO for the year ended December 31, 2020,
998,302 vested deferred units are added back to the weighted average Units outstanding (year ended December 31, 2019 – 871,783 vested deferred units).
Represents a non-GAAP measure. The Trust's method of calculating non-GAAP measures may differ from other reporting issuers' methods and accordingly may not be comparable. For
definitions and basis of presentation of the Trust's non-GAAP measures, refer to “Presentation of Certain Terms Including Non-GAAP Measures”.
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2020 ANNUAL REPORT 39
41
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT MANAGEMENT’S DISCUSSION AND ANALYSIS
Reconciliation of ACFO
The tables and analyses below illustrate a reconciliation of the Trust’s cash flows provided by operating activities (GAAP
measure) to ACFO (non-GAAP measure).
Quarterly Comparison to Prior Year
(in thousands of dollars)
Cash flows provided by operating activities
Adjustments to working capital items that are not indicative of
sustainable cash available for distribution(1)
Distributions on Units classified as liabilities and vested
deferred units recorded as interest expense
Expenditures on direct leasing costs and tenant incentives
Expenditures on tenant incentives for properties under
development
Actual sustaining capital expenditures
Actual sustaining leasing commissions
Actual sustaining tenant improvements
Non-cash interest expense
Non-cash interest income
Acquisition-related loss, net
Gain on sale of land to co-owners
Distributions from equity accounted investments
Adjustments relating to equity accounted investments:
Cash flows from operating activities relating to the
Trust's equity accounted investments
Adjustments to working capital items that are not
indicative of sustainable cash available for distribution
Notional interest capitalization(2)
Adjustment to indirect interest with respect to Transit City
condo closings(2)
Actual sustaining capital expenditures
Actual sustaining leasing commissions
Actual sustaining tenant improvements
Expenditures on direct leasing costs and tenant
incentives
Expenditures on tenant incentives for properties under
development
Acquisition-related cost (gain), net
Non-cash interest expense
ACFO(3)
One-time adjustment:
Yield maintenance costs(5)
ACFO with one-time adjustment(3)
ACFO(3)
Distributions declared
Surplus (Shortfall) of ACFO over distributions declared
Payout Ratio:
ACFO(3)
ACFO with one-time adjustment(3)
Three Months Ended
December 31, 2020
Three Months Ended
December 31, 2019 Variance ($) Variance (%)
91,371
(21,921)
1,521
2,178
(386)
(4,686)
(738)
(1,466)
(3,504)
2,222
166
—
(3,473)
27,124
(5,819)
1,676
(240)
(71)
(1)
(20)
8
11
—
(9)
83,943
11,954
95,897
83,943
79,656
4,287
131,647
(40,276)
(30.6)
(51,868)
29,947
(57.7)
1,365
1,733
426
(8,028)
(558)
(1,348)
(1,143)
2,058
283
2,211
146
156
445
(812)
3,342
(180)
(118)
(2,361)
164
(117)
(2,211)
(3,619)
(31,417)
58,541
31,049
553
(36,868)
1,123
—
(60)
(3)
(1)
3
360
16
3
77,427
12,648
90,075
77,427
79,682
(2,255)
(240)
(11)
2
(19)
5
(349)
(16)
(12)
6,516
(694)
5,822
6,516
(26)
6,542
11.4
25.7
N/R(4)
(41.6)
32.3
8.8
N/R(4)
8.0
(41.3)
(100.0)
N/R(4)
N/R(4)
N/R(4)
N/R(4)
N/R(4)
18.3
(66.7)
N/R(4)
N/R(4)
(96.9)
(100.0)
N/R(4)
8.4
N/R(5)
6.5
8.4
N/R(4)
N/R(5)
94.9 %
83.1 %
102.9 %
88.5 %
(8.0) %
(5.4) %
(1)
(2)
(3)
Adjustments to working capital items include, but are not limited to, changes in prepaid expenses and deposits, accounts receivables, accounts payables and other working capital items
that are not indicative of sustainable cash available for distribution.
See the “Indirect interest with respect to the development portion” line items as presented in the “Reconciliation of FFO” subsection above for more information.
Represents a non-GAAP measure. The Trust’s method of calculating non-GAAP measures may differ from other reporting issuers’ methods and, accordingly, may not be comparable. For
definitions and basis of presentation of the Trust’s non-GAAP measures, refer to “Presentation of Certain Terms Including Non-GAAP Measures”.
40 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2020 ANNUAL REPORT
42
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
(4)
(5)
N/R – Not representative.
The three months ended December 31, 2020 includes $12.0 million of yield maintenance costs on repayment of debt and related write-off of unamortized financing costs (three months
ended December 31, 2019 – $12.6 million).
For the three months ended December 31, 2020, ACFO with one-time adjustment increased by $5.8 million or 6.5% to $95.9
million compared to the same period in 2019, which was primarily due to the items previously identified (see “Results of
Operations”).
The Payout Ratio relating to ACFO with one-time adjustment for the three months ended December 31, 2020 decreased to
83.1% as compared to the same period in 2019, which was primarily due to the other items previously identified.
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2020 ANNUAL REPORT 41
43
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT MANAGEMENT’S DISCUSSION AND ANALYSIS
Year-to-Date Comparison to Prior Year
(in thousands of dollars)
Year Ended
December 31, 2020
Year Ended
December 31, 2019
Variance ($) Variance (%)
Cash flows provided by operating activities
295,982
345,611
(49,629)
Adjustments to working capital items that are not indicative of
sustainable cash available for distribution(1)
Distributions on Units classified as liabilities and vested
deferred units recorded as interest expense
Expenditures on direct leasing costs and tenant incentives
Expenditures on tenant incentives for properties under
development
Actual sustaining capital expenditures
Actual sustaining leasing commissions
Actual sustaining tenant improvements
Non-cash interest expense
Non-cash interest income
Acquisition-related loss, net
Gain on sale of land to co-owners
Distributions from equity accounted investments
Adjustments relating to equity accounted investments:
Cash flows from operating activities relating to the Trust's
equity accounted investments
Adjustments to working capital items that are not
indicative of sustainable cash available for distribution
Notional interest capitalization(2)
Adjustment to indirect interest with respect to Transit City
condo closings(2)
Actual sustaining capital expenditures
Actual sustaining leasing commissions
Actual sustaining tenant improvements
Expenditures on direct leasing costs and tenant
incentives
Expenditures on tenant incentives for properties under
development
Acquisition-related cost (gain), net
Non-cash interest expense
ACFO(3)
One-time adjustment:
Yield maintenance costs(5)
ACFO with one-time adjustment(3)
ACFO(3)
Distributions declared
Surplus of ACFO over distributions declared
Payout Ratio:
ACFO(3)
ACFO with one-time adjustment(3)
14,039
5,785
5,462
1,897
(8,445)
(1,732)
(3,829)
(19,966)
9,739
166
744
(4,770)
81,333
(28,786)
6,821
(940)
(160)
(8)
(98)
70
11
—
94
(7,989)
22,028
5,385
5,910
2,467
(17,792)
(1,789)
(4,691)
433
8,394
283
2,818
(7,197)
400
(448)
(570)
9,347
57
862
(20,399)
1,345
(117)
(2,074)
2,427
(31,881)
113,214
31,843
1,141
(60,629)
5,680
—
(74)
(3)
(1)
3
(940)
(86)
(5)
(97)
67
1,631
(1,620)
16
129
(16)
(35)
353,409
334,647
18,762
11,954
365,363
353,409
318,758
34,651
20,513
355,160
334,647
310,651
23,996
(8,559)
10,203
18,762
8,107
10,655
90.2 %
87.2 %
92.8 %
87.5 %
(2.6) %
(0.3) %
(14.4)
N/R(4)
7.4
(7.6)
(23.1)
(52.5)
(3.2)
(18.4)
N/R(4)
16.0
(41.3)
(73.6)
(33.7)
N/R(4)
N/R(4)
N/R(4)
N/R(4)
N/R(4)
N/R(4)
N/R(4)
N/R(4)
(99.3)
(100.0)
(27.1)
5.6
N/R(5)
2.9
5.6
2.6
44.4
(1)
(2)
(3)
(4)
(5)
Adjustments to working capital items include, but are not limited to, changes in prepaid expenses and deposits, accounts receivables, accounts payables and other working capital items
that are not indicative of sustainable cash available for distribution.
See the “Indirect interest with respect to the development portion” as presented in the “Reconciliation of FFO” subsection above for more information.
Represents a non-GAAP measure. The Trust’s method of calculating non-GAAP measures may differ from other reporting issuers’ methods and, accordingly, may not be comparable. For
definitions and basis of presentation of the Trust’s non-GAAP measures, refer to “Presentation of Certain Terms Including Non-GAAP Measures”.
N/R – Not representative.
The year ended December 31, 2020 includes $12.0 million of yield maintenance costs on repayment of debt and related write-off of unamortized financing costs (year ended
December 31, 2019 – $20.5 million).
42 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2020 ANNUAL REPORT
44
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the year ended December 31, 2020, ACFO with one-time adjustment increased by $10.2 million or 2.9% to $365.4 million
compared to the same period in 2019, which was primarily due to the items previously identified (see “Results of Operations”).
The Payout Ratio relating to ACFO with one-time adjustment for the year ended December 31, 2020 decreased by 0.3% to
87.2% as compared to 2019, which was primarily due to the items previously identified.
Distributions and ACFO Highlights
(in thousands of dollars)
Three Months Ended December 31
Year Ended December 31
2020
2019 Variance ($)
2020
2019 Variance ($)
Cash flows provided by operating activities
91,371
131,647
(40,276)
295,982 345,611
(49,629)
Distributions declared
Distributions paid
ACFO(1)
ACFO with one-time adjustment(1)
79,656
79,682
(26)
318,758 310,651
76,249
60,591
15,658
297,873 239,111
83,943
77,427
6,516
353,409 334,647
95,897
90,075
5,822
365,363 355,160
8,107
58,762
18,762
10,203
Surplus (shortfall) of ACFO over distributions declared
4,287
(2,255)
6,542
34,651
23,996
10,655
Surplus of ACFO with one-time adjustment over distributions
declared
16,241
10,393
5,848
46,605
44,509
2,096
Surplus of ACFO over distributions paid
7,694
16,836
(9,142)
55,536
95,536
(40,000)
Surplus of ACFO with one-time adjustment over distributions
paid
Surplus (shortfall) of cash flows provided by operating
activities over distributions declared
Surplus (shortfall) of cash flows provided by operating
activities over distributions paid
19,648
29,484
(9,836)
67,490 116,049
(48,559)
11,715
51,965
(40,250)
(22,776)
34,960
(57,736)
15,122
71,056
(55,934)
(1,891) 106,500
(108,391)
(1)
Represents a non-GAAP measure. The Trust’s method of calculating non-GAAP measures may differ from other reporting issuers’ methods and accordingly may not be comparable. For
definitions and basis of presentation of the Trust’s non-GAAP measures, refer to “Presentation of Certain Terms Including Non-GAAP Measures”.
For the year ended December 31, 2020, the shortfall of cash flows provided by operating activities over distributions declared of
$22.8 million was primarily due to the $22.0 million increase in amounts receivable and other, net of ECL, which are expected to
be collected from tenants with whom the Trust is currently working on rent deferral or similar payment arrangements.
For the year ended December 31, 2020, the shortfall of cash flows provided by operating activities over distributions paid of $1.9
million was primarily due to the $22.8 million shortfall of cash flows provided by operating activities over distributions declared,
discussed above, partially offset by the distributions paid through DRIP totalling $17.3 million (effective April 2020, the Trust
suspended the DRIP).
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2020 ANNUAL REPORT 43
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MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
Quarterly Results and Trends
(in thousands of dollars, except percentage, Unit and per Unit amounts)
Results of operations
Net income (loss) and comprehensive income
(loss)(1)
Per Unit
Basic
Diluted
Net base rent(1)(2)
Rentals from investment properties(1)(2)
NOI(1)(2)
Other measures of performance
FFO(2)
Per Unit
Basic
Diluted(3)
Cash flows provided by operating activities
Distributions declared
Units outstanding(4)
Weighted average Units outstanding
Basic
Diluted
Total assets
Total unencumbered assets
Debt(1)(2)
In-place occupancy rate (%)(1)
Q4
2020
Q3
2020
Q2
2020
Q1
2020
Q4
2019
Q3
2019
Q2
2019
Q1
2019
48,380
111,033
(133,674)
64,201
103,584
95,138
95,513
79,973
$0.28
$0.28
126,663
199,609
137,002
$0.65
$0.64
126,045
188,981
147,612
-$0.78
-$0.78
125,558
192,607
108,094
$0.37
$0.37
128,901
208,735
126,397
$0.61
$0.60
129,921
209,001
131,418
$0.56
$0.56
128,780
197,545
128,645
$0.56
$0.56
128,261
198,174
128,217
$0.48
$0.47
127,361
207,227
125,924
86,697
110,107
75,199
95,964
88,037
97,330
91,781
88,296
$0.50
$0.50
91,371
79,657
$0.64
$0.64
79,100
79,621
$0.44
$0.43
46,349
79,562
$0.56
$0.56
79,162
79,918
$0.51
$0.51
131,647
79,682
$0.57
$0.57
80,615
77,264
$0.54
$0.54
80,767
76,988
$0.53
$0.52
55,863
76,716
172,221,212 172,220,387 172,046,139 171,865,757 171,283,191 170,689,152 170,118,375 169,609,625
172,220,907 172,112,821 171,988,473 171,566,750 170,992,873 170,400,281 169,858,745 167,541,581
173,264,654 173,120,316 172,980,866 172,515,723 171,858,434 171,255,329 170,718,814 168,448,169
10,724,492
10,365,651
10,382,902
10,430,793
9,928,467
9,704,677
9,676,090
9,608,647
5,835,600
5,261,360
97.0
5,763,400
5,644,500
5,647,800
5,696,100
4,652,700
4,499,700
4,451,600
4,908,808
5,000,070
4,841,249
4,290,826
4,132,699
4,127,264
4,139,682
97.1
97.6
97.8
98.1
98.1
97.8
97.8
(1)
(2)
(3)
(4)
Includes the Trust’s share of earnings from equity accounted investments.
Represents a non-GAAP measure. The Trust’s method of calculating non-GAAP measures may differ from other reporting issuers’ methods and, accordingly, may not be comparable. For
definitions and basis of presentation of the Trust’s non-GAAP measures, refer to “Presentation of Certain Terms Including Non-GAAP Measures”.
Diluted FFO are adjusted for the dilutive effect of the vested Earnout options and vested portion of deferred units, unless they are anti-dilutive.
Total Units outstanding include Trust Units and LP Units, including Units classified as financial liabilities.
Results of operations
Net income (loss) and comprehensive income (loss), net base rent, rentals from investment properties, NOI, and related financial
and operational metrics noted above are typically not materially impacted by seasonal factors. However, macroeconomic and
market trends, as described under “Outlook” in this MD&A, acquisition, Earnout, development and disposition activities and the
impacts of the COVID-19 pandemic (for 2020 specifically) do have an influence on the demand for space, occupancy levels and,
consequently, net base rent, CAM and realty tax recoveries, property valuations and ultimately operating performance.
Overall, quarterly fluctuations in revenue and operating results are mainly attributable to occupancy levels and same property
NOI growth, Acquisitions, Developments, Earnouts, and dispositions. In addition, the COVID-19 pandemic has had an adverse
effect on results of operations for Q2 through Q4 of 2020.
Net income and comprehensive income declined in Q4 2020 from Q3 2020, primarily due to: fair value adjustments (loss) on
revaluation of investment properties of approximately $19.0 million principally due to valuations on the Trust’s properties under
development, fair value adjustments (loss) on financial instruments of approximately $12.0 million which was attributed to the
increase in the Trust’s Unit price as compared to Q3, and an increase in interest expense of approximately $14.0 million which
was primarily due to the accrued yield maintenance and write-off of unamortized financing costs of approximately $12.0 million
related to the announced redemption of Series M and Q unsecured debentures. Net income (loss) and comprehensive income
(loss) in Q3 2020 surpassed each of the previous seven quarters, largely due to the $31.9 million profit on initial condominium
closings of Transit City 1 and 2 units recognized during the quarter. It previously decreased in Q1 2020 and Q2 2020 primarily as
a result of unfavourable fair value adjustments on the revaluation of investment properties, which principally resulted from
estimates of future cash flows and other assumptions to the valuation model, when considering the impact of the COVID-19
pandemic, and was partially offset by the fair value adjustment on financial instruments, which was attributed to the significant
decline in the Trust's Unit price following the market volatility caused by the COVID-19 pandemic during the first three quarters of
2020.
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MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT MANAGEMENT’S DISCUSSION AND ANALYSIS
Rentals from investment properties declined in Q2 and Q3 of 2020 primarily due to lower CAM and realty tax recoveries as a
result of lower operating costs. In addition, the Trust recognized lower percentage rents, short-term rentals, and other
miscellaneous revenues, due to the COVID-19 pandemic. Rentals from investment properties increased in Q1 of 2019, Q4 of
2019, and Q1 of 2020 as compared to other quarters primarily as a result of higher CAM recoveries, lease termination fees,
percentage rent, parking and other miscellaneous revenue.
Other measures of performance
FFO decreased in Q4 2020 from Q3 2020, primarily due to a decrease in earnings from equity accounted investments of
approximately $14 million as a result of fewer units remaining to close at Transit City 1 and 2 in Q4 2020 as compared to Q3
2020, and an increase in yield maintenance costs totalling approximately $12 million. For Q3 2020, FFO increased significantly
as a result of the earnings from condominium closings included in equity accounted investments, which was offset by the
increased ECL provisions during the quarter associated with the COVID-19 pandemic. In Q2 2020, FFO decreased primarily due
to ECL taken on tenant receivables, reflecting adverse economic circumstances due to the COVID-19 pandemic. FFO decreased
in Q4 2019 from Q3 2019 primarily as a result of yield maintenance costs and higher CAM and realty tax recoveries’ shortfall due
to higher vacancy.
Units Outstanding
Quarterly increases in Units outstanding and weighted average Units outstanding (basic and diluted) can be attributed to Units
issued pursuant to: (i) DRIP, (ii) Earnouts, and (iii) deferred units exchanged for Trust Units.
Total Assets
Total assets increased in Q4 2020 from Q3 2020, principally due to the proceeds from issuance of unsecured debentures, net of
repayments, as noted below in ‘Debt and financing activities’. Total assets decreased in Q3 2020 as a result of a reduction in
cash and cash equivalents principally from the repayment of secured and unsecured debt. They increased in Q1 2020 from Q4
2019 primarily as a result of the increase in cash balance from the unsecured debt issuance in June 2020, partially offset by fair
value adjustments on the revaluation of investment properties. Prior to Q2 2020, the quarter-over-quarter change in total assets
is primarily attributed to: (i) acquisitions of investment properties, (ii) development and related costs associated with properties
under development in the portfolio, (iii) fair value adjustment on revaluation of investment properties, (iv) additional debt and
equity issuance, and v) capital expenditures and leasing costs incurred. Total assets increased in Q4 2019 from Q3 2019
primarily as a result of acquisitions completed in the quarter including, a self-storage facility in Toronto (Dupont Street),
residential development land in Barrie, and a 50% interest in a parcel of land in Vaughan that the Trust purchased from Penguin.
Debt and financing activities
Total debt increased in Q4 2020 from Q3 2020, principally due to the issuance of Series X and Series Y unsecured debentures
totalling $650.0 million, net of repayment of Series R unsecured debentures totalling $250.0 million and purchase and
cancellation of a proportion of Series T unsecured debentures totalling $26.9 million. Total debt decreased in Q3 2020 from Q2
2020 principally as a result of repayment of secured debt, but increased from Q4 2019 principally due to the $600.0 million
issuance of Series V and Series W unsecured debentures in Q2 2020.
Total debt increased in Q4 2019 from Q3 2019 primarily as a result of $110.0 million net new debt issued in Q4 2019.
The quarter-over-quarter increase in unencumbered assets over the last two years is primarily attributed to the Trust’s strategic
practice of repaying mortgages by using its existing credit facilities and unsecured debt, resulting in the related assets remaining
unencumbered thereafter. Unencumbered assets increased in Q4 2019 from Q3 2019 primarily as a result of the repayment of
approximately $313.0 million aggregate principal amount of secured mortgages which were secured by properties with an
aggregate fair value of approximately $1.0 billion.
Leasing
The Trust’s in-place occupancy rate has reduced over the last eight quarters, ranging from a low of 97.0% in the fourth quarter of
2020 to a high of 98.1% in Q4 2019 and Q3 2019. The primary reason for the reduction in occupancy rate in the second and third
quarters of 2020 is because of the impact of tenant bankruptcies in the Trust’s portfolio and a challenging leasing environment
primarily due to the COVID-19 pandemic. Quarterly changes in occupancy rates are primarily caused by: i) the expiration,
bankruptcies, closures and non-renewals of existing tenants or tenancies, as applicable, ii) new leasing, iii) assumed occupancy/
vacancy on acquisitions, and iv) movements of space in and out of the Trust’s portfolio of properties under development.
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2020 ANNUAL REPORT 45
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MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT MANAGEMENT’S DISCUSSION AND ANALYSIS
General and Administrative Expense
The following tables summarize general and administrative expense before allocation, general and administrative expense, net
(as presented in the consolidated statements of income and comprehensive income for the year ended December 31, 2020)
general and administrative expense excluding internal leasing expense, and general and administrative expense, net as a
percentage of rental from investment properties:
Year Ended
Year Ended
(in thousands of dollars)
Salaries and benefits
Master planning services fee – by Penguin
Professional fees
Public company costs
Rent and occupancy
Amortization of intangible assets
Note(1)
21
8
Other costs including information technology, marketing,
communications and other employee expenses
Subtotal
Previously capitalized general and administrative costs –
Transit City 1 & 2
Total general and administrative expense before
allocation
Less:
Allocated to property operating costs
Capitalized to properties under development and other
assets
Total amounts allocated and capitalized
Transition services charged to Penguin
Time billings, leasing, management fees, development fees
and other fees
Shared service costs charged to Penguin
Total amounts charged
21
21
21
Total amounts allocated, capitalized and charged
General and administrative expense, net
Less:
Salaries and related costs attributed to leasing activities(2)
General and administrative expense excluding internal
leasing expense
December 31, 2020 December 31, 2019 Variance ($)
3,209
50,240
53,449
6,880
6,093
2,505
1,078
1,331
9,063
80,399
1,842
9,100
3,251
2,530
2,405
1,331
6,570
75,427
(2,220)
2,842
(25)
(1,327)
—
2,493
4,972
—
1,842
(A)
(B)
(C)
(D = B + C)
(E = A + D)
82,241
75,427
6,814
(13,949)
(14,988)
1,039
(29,476)
(43,425)
(833)
(8,538)
(763)
(10,134)
(53,559)
28,682
(29,821)
(44,809)
(2,417)
345
1,384
1,584
(6,536)
(2,002)
(1,209)
(10,162)
446
28
(54,971)
1,412
20,456
8,226
(F)
(5,853)
(5,462)
(391)
(G = E + F)
22,829
14,994
7,835
General and administrative expense, net
Rental revenue from investment properties including rental
revenue from equity accounted investments
(E)
(H)
28,682
20,456
8,226
789,932
811,948
(22,016)
As a percentage of rentals from investment properties (%)
(I = E / H)
3.6
2.5
1.1
(1)
(2)
The Note reference relates to the corresponding Note disclosure in the consolidated financial statements for the year ended December 31, 2020.
Salaries and related costs attributed to leasing activities of $5.9 million were incurred in the year ended December 31, 2020 (year ended December 31, 2019 – $5.5 million) and were
eligible to be added back to FFO based on the definition of FFO in the REALpac White Paper published in February 2019, which provided for an adjustment to incremental leasing
expenses for the cost of salaried staff. This adjustment to FFO results in more comparability between Canadian publicly traded real estate entities that expensed their internal leasing
departments and those that capitalized external leasing expenses.
Total general and administrative expense before allocation
For the year ended December 31, 2020, total general and administrative expense before allocation was $82.2 million,
representing an increase of $6.8 million or 9.0% as compared to the year ended December 31, 2019. This increase can be
attributed primarily to:
•
•
•
$3.2 million net increase in salaries and benefits principally due to new staff hires, annual wage increases, increases in
both LTIP and DUP accruals, offset by amounts received from the CEWS program;
$2.1 million net increase in legal fees; and
$1.8 million increase in previously capitalized expenses on Transit City 1 and 2 condo closings;
46 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2020 ANNUAL REPORT
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MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
Partially offset by:
•
$0.3 million decrease in other employee expense.
Total amounts allocated, capitalized and charged
For the year ended December 31, 2020, total amounts allocated, capitalized and charged to Penguin and others was $53.6
million, representing a decrease of $1.4 million or 2.6% as compared to the year ended December 31, 2019. This decrease can
be attributed primarily to:
•
•
$1.1 million decrease in development and other service fees charged to Penguin and third parties; and
$1.0 million decrease in amounts allocated to property operating costs principally as a result of the Canada Emergency
Wage Subsidy;
Partially offset by:
•
$0.7 million increase in the amounts capitalized to properties under development and other assets.
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2020 ANNUAL REPORT 47
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MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT MANAGEMENT’S DISCUSSION AND ANALYSIS
Section V — Leasing Activities and Lease Expiries
Leasing Activities
Occupancy
Notwithstanding the various government enacted shutdowns that were put in place towards quarter end, the Trust maintained
occupancy levels of 97.3% for the fourth quarter inclusive of executed deals for future occupancies (97.0% without such future
occupancies). Previously deferred renewals that had been put on hold due to challenging market conditions were completed with
all effort made to ensure the Trust could obtain the best renewal rates. The Trust continued to support its tenants both financially
and operationally to assist in their return to normalcy, with a significant focus to those most in need. Tenant rent collection
continued to improve, with the government extending commercial rental assistance namely through the Canada Emergency Rent
Subsidy program.
Occupancy
Total Leasable Area (in sq. ft.)
In-place Occupancy Rate (%)
Committed Occupancy Rate (%)
December 31, 2020
December 31, 2019
Variance
34,056,064
34,337,351
(281,287)
97.0
97.3
98.1
98.2
(1.1)
(0.9)
New Leasing Activity
The Trust has, over the past three months, continued discussions and completed new leases with a number of tenants seeking
expansion and new locations owing to the high traffic generation of the Trust’s food and pharmacy-anchored centres. The open-
format nature of the Trust’s portfolio as well as the presence in all major markets coast to coast in Canada bodes well for new
entrants into the market. The Trust continues to expand its retail offering to each community with medical services, pharmacies,
pet stores, liquor, dollar stores, and, grocery expansion. During the current quarter, the Trust executed approximately 108,122
square feet of new leasing. Also, of note during the quarter were the decreased number of filings under Companies’ Creditors
Arrangement Act (“CCAA”) compared to the prior quarter.
The following table presents a continuity of the Trust’s in-place occupancy level for the three months ended December 31, 2020:
(in square feet)
Beginning balance – October 1, 2020
New vacancies
New leases
Subtotal
Transferred from properties under development to
income properties
Transferred from income properties to properties
under development
Other including unit area remeasurements
Vacant Area
Occupied Area
Leasable Area
In-place Occupancy
Level (%)
974,930
279,759
(108,122)
33,076,280
34,051,210
97.1
(279,759)
108,122
—
—
1,146,567
32,904,643
34,051,210
—
133,137
133,137
(129,598)
(75)
—
1,390
(129,598)
1,315
Ending balance – December 31, 2020
1,016,894
33,039,170
34,056,064
97.0
The following table presents a continuity of the Trust’s in-place occupancy level for the year ended December 31, 2020:
(in square feet)
Vacant Area
Occupied Area
Leasable Area
In-place Occupancy
Level (%)
Beginning balance – January 1, 2020
658,964
33,678,387
34,337,351
98.1
New vacancies
New leases
Subtotal
Transferred from properties under development to
income properties
Transferred from income properties to properties
under development
Other including unit area remeasurements
1,274,332
(1,274,332)
(396,770)
396,770
—
—
1,536,526
32,800,825
34,337,351
—
236,001
236,001
(519,542)
(90)
—
2,344
(519,542)
2,254
Ending balance – December 31, 2020
1,016,894
33,039,170
34,056,064
97.0
48 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2020 ANNUAL REPORT
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MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
Transferred from properties under development to income properties
The following table presents a reconciliation of properties transferred from properties under development to income properties for
the year ended December 31, 2020:
Property
Vaughan (670 Applewood), ON
Tenant(s)
Walmart
Cornwall, ON
Winners, PetSmart, LCBO
Vaughan (VMC - PCVP), ON
SmartCentres Home Office
Stoney Creek, ON
Pointe Claire, QC
Welland, ON
Winnipeg Southwest, MB
Others (BC, ON)
PetSmart, Healthy Planet
Salvation Army
LCBO
Kai Medical
Various
Net leasable area
before transfer of
properties under
development (sq. ft.)
Leasable area
transferred to income
properties (sq. ft.)
Net leasable area after
transfer of properties under
development (sq. ft.)
—
176,702
—
111,474
372,760
240,663
521,190
1,454,145
2,876,934
69,887
48,190
40,006
22,274
12,031
8,129
7,989
27,495
236,001
69,887
224,892
40,006
133,748
384,791
248,792
529,179
1,481,640
3,112,935
Transferred from income properties to properties under development transfers
The following table presents a reconciliation of properties transferred from income properties to properties under development for
the year ended December 31, 2020:
Property
Cambridge, ON
Former/departed tenant
Rona
Vaughan (VMC - PCVP), ON
Walmart (former)
400 & 7, ON
Etobicoke Index, ON
St. Catharines, ON
Barrie South, ON
SAIL
SAIL
Home Outfitters
La-Z-Boy
St. Johns Stickpond, NL
Pier One, Bowring, Bombay
Markham Woodside, ON
Michaels, Bouclair, Pier One
Brockville, ON
Others (ON)
Best Buy
Various
Net leasable area before
transfer of space to
properties under
development (sq. ft.)
Leasable area
transferred to
properties under
development (sq. ft.)
Net leasable area after
transfer of space (sq. ft.)
570,908
—
176,929
117,587
370,244
385,752
261,575
142,560
124,063
1,127,066
3,276,684
125,077
97,623
76,093
70,472
31,975
28,032
21,635
20,159
20,021
28,455
519,542
695,985
97,623
253,022
188,059
402,219
413,784
283,210
162,719
144,084
1,155,521
3,796,226
Renewal Activity
For the year ended December 31, 2020, the Trust achieved a retention rate of 75.3% (December 31, 2019 – 83.6%) for renewing
tenants.
Renewal Summary
Expiring (in sq. ft.)
Total renewed and near completion (in sq. ft.)
Retention rate (%)
Renewed rental rate (in dollars per sq. ft.) – including Anchors
Renewed rental rate (in dollars per sq. ft.) – excluding Anchors
Renewed rent growth (including Anchors, %)
Renewed rent growth (excluding Anchors, %)
December 31, 2020
December 31, 2019
Variance
4,096,297
3,085,472
75.32
13.09
18.76
2.6
3.3
3,577,382
518,915
2,990,717
94,755
83.60
14.04
20.35
3.3
4.0
(8.28)
(0.95)
(1.59)
(0.7)
(0.7)
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MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
Tenant Profile
The Trust’s portfolio is represented in all major markets across Canada particularly in the Greater-VECTOM markets (Vancouver,
Edmonton, Calgary, Toronto, Ottawa and Montreal). While the Greater-VECTOM and primary markets account for nearly 90% of
revenue and fair value, properties in the secondary markets reflect higher occupancy levels, approaching 99%.
Portfolio Summary by Market Type
Market
Greater-VECTOM
Primary
Secondary
Total
Number of
Properties
105
32
30
167
Area
(000 sf)
22,847
6,537
4,672
34,056
Gross Revenue
(%)
Fair Value
(%)
In-place
Occupancy (%)
71.7
16.7
11.6
100.0
75.4
14.1
10.5
100.0
96.7
96.8
98.6
97.0
Tenant Categories
The portfolio is represented by strong individual shopping centres in every major market, with a diverse mix of tenant and service
offerings, reflecting almost every retail category.
Gross Rent by Category as at December 31, 2020
Category
General merchandise including stores with grocery &
pharmacy
Apparel
Home improvement & housewares
Standalone grocery & liquor
Restaurant
Leisure (sporting goods, toys)
Pharmacy & personal services
Specialty (fitness, electronics, pet)
Financial services
Other
Total
Total
(%)
Greater-VECTOM
(%)
Primary
(%)
Secondary
(%)
28.4
15.7
9.5
8.9
9.0
6.8
6.9
5.6
4.5
4.7
24.0
16.1
10.2
9.3
10.0
6.9
8.0
5.4
4.9
5.2
35.4
14.7
8.1
8.1
6.9
7.8
5.2
6.4
4.0
3.4
46.7
13.7
7.0
7.8
5.9
4.4
2.9
5.5
2.7
3.4
100.0
100.0
100.0
100.0
50 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2020 ANNUAL REPORT
52
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT Top 25 Tenants
The 25 largest tenants (by annualized gross rental revenue) accounted for 63.1% of portfolio revenue for the year ended
December 31, 2020 and are presented in the following table:
MANAGEMENT’S DISCUSSION AND ANALYSIS
#
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
Tenant
Walmart(1)
Canadian Tire, Mark's and FGL Sports
Winners, HomeSense, Marshalls
Loblaws, Shoppers Drug Mart
Sobeys
Lowes, RONA
Dollarama
LCBO
Best Buy
Michaels
Recipe Unlimited
Bonnie Togs
Staples
Gap Inc.
Bulk Barn
Reitmans(2)
Toys R Us
CIBC
The Brick
Dollar Tree, Dollar Giant
Metro
Sleep Country
PetSmart
Home Depot
Ricki's, Cleo, Urban Barn & Warehouse One
Number of
Stores
Annualized
Gross
Rental Revenue
($ millions)
Percentage of
Total Annualized
Gross Rental
Revenue (%)
Leased
Area
(sq. ft.)
101
201.7
25.6
14,069,863
Leased Area as
a % of Total
Gross Leasable
Area (%)
41.3
72
56
24
17
8
53
36
19
24
55
46
21
26
52
58
7
27
9
27
9
37
15
3
37
37.3
34.4
22.1
17.4
16.1
13.8
12.7
12.3
12.0
11.5
10.7
10.3
9.3
8.3
7.9
7.6
7.3
6.8
6.8
6.7
6.6
6.1
5.7
5.7
4.7
4.4
2.8
2.2
2.0
1.8
1.6
1.6
1.5
1.5
1.4
1.3
1.2
1.0
1.0
1.0
0.9
0.9
0.9
0.8
0.8
0.8
0.7
0.7
1,394,632
1,380,657
899,056
733,421
898,146
501,776
342,226
451,226
467,059
277,200
229,365
449,599
269,742
242,998
306,196
268,880
147,298
258,244
225,717
315,438
177,517
199,598
261,661
176,154
4.1
4.1
2.6
2.2
2.6
1.5
1.0
1.3
1.4
0.8
0.7
1.3
0.8
0.7
0.9
0.8
0.4
0.8
0.7
0.9
0.5
0.6
0.8
0.5
(1)
(2)
The Trust has a total of 101 Walmart locations under lease, of which 99 are Supercentres that represent stores that carry all merchandise that Walmart department stores offer including a
full assortment of food. The Trust also has another 14 shopping centres with Walmart as Shadow Anchors, all of which are Supercentres.
Reitmans commenced proceedings under the CCAA in May 2020, disclaiming leases and ceased to rent with respect to 24 of its locations situated within the Trust’s portfolios.
839
497.1
63.1
24,943,669
73.3
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2020 ANNUAL REPORT 51
53
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
Leasing Expiries
The following table presents total retail and office lease expiries for the portfolio as at December 31, 2020:
Year of Expiry
Month-to-month and holdovers
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
Beyond
Vacant
Total retail
Total office
Total retail and office
Total Area
(sq. ft.)
570,953
2,418,449
4,349,375
4,477,537
4,721,287
4,197,609
2,805,269
2,163,432
1,435,560
2,274,227
979,956
635,000
1,759,158
1,016,894
33,804,706
251,358
34,056,064
Percentage of
Total Area
(%)
1.6
7.1
12.8
13.1
13.9
12.3
8.2
6.4
4.2
6.7
2.9
1.9
5.2
3.0
99.3
0.7
100.0
Annualized
Base Rent
($000s)
Average Base Rent
psf(1)
($)
12,330
33,325
61,172
75,568
73,383
55,954
41,711
31,394
26,792
38,018
19,182
9,699
25,284
—
503,812
21.60
13.78
14.06
16.88
15.54
13.33
14.87
14.51
18.66
16.72
19.57
15.27
14.37
—
15.37
(1)
The total average base rent per square foot excludes vacant space of 1,016,894 square feet.
The following table presents total retail and office lease expiries for the portfolio excluding Anchor tenants as at December 31,
2020:
Total Area
(excluding Anchor
tenants)
Percentage of
Total Area
(including Anchor
tenants)
Percentage of
Total Area
(excluding Anchor
tenants)
Year of Expiry
Month-to-month and holdovers
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
Beyond
Vacant
Total retail
Total office
Total retail and office
(sq. ft.)
529,664
1,253,279
1,744,820
2,331,631
2,043,131
1,771,176
1,006,951
618,183
668,794
727,020
416,759
206,907
109,028
944,258
14,371,601
54,510
14,426,111
(%)
1.6
3.7
5.1
6.8
6.0
5.2
3.0
1.8
2.0
2.1
1.2
0.6
0.3
2.8
42.2
0.2
42.4
(%)
3.7
8.7
12.1
16.1
14.2
12.3
7.0
4.3
4.6
5.0
2.9
1.4
0.8
6.5
99.6
0.4
100.0
(1)
The total average base rent per square foot excludes vacant space of 944,258 square feet.
Annualized
Base Rent
($000s)
Average Base Rent
psf(1)
($)
11,793
22,007
36,709
52,389
46,200
35,673
21,590
13,941
16,878
19,278
10,525
4,343
2,617
—
293,943
22.27
17.56
21.04
22.47
22.61
20.14
21.44
22.55
25.24
26.52
25.25
20.99
24.00
—
21.89
52 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2020 ANNUAL REPORT
54
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
Retail Lease Expiries
(in millions of square feet)
5.0
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
M T M
V acant
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036
B eyond
Walmart
Other Anchors
Non-Anchor
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2020 ANNUAL REPORT 53
55
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT MANAGEMENT’S DISCUSSION AND ANALYSIS
Section VI — Asset Profile
Investment Properties
The portfolio consists of 34.1 million square feet of gross leasable retail and office area and 1.4 million square feet of future
potential gross leasable area in 167 properties and the option to acquire a 50.0% interest in four investment properties and
25.0% interest in another investment property (0.6 million square feet) on their completion pursuant to the terms of Mezzanine
Financing. The portfolio is located across Canada, with assets in each of the 10 provinces. By selecting well-located centres, the
Trust seeks to attract high-quality tenants at market rental rates. The following table summarizes the changes in fair values of
investment properties including the Trust’s proportionate share of equity accounted investments:
(in thousands of dollars)
Investment properties
Balance – beginning of year
Additions (deductions):
Acquisitions, Earnouts and related
adjustments of investment properties
Transfer to income properties from
properties under development
Transfer from income properties to
properties under development
Transfer from properties under
development to equity accounted
investments
Earnout Fees on properties subject to
development management agreements
Capital expenditures
Leasing costs
Development expenditures
Capitalized interest
Dispositions
Year Ended December 31, 2020
Year Ended December 31, 2019
Income
Properties
Properties
Under
Development
Total
Investment
Properties
Income
Properties
Properties
Under
Development
Total
Investment
Properties
8,488,669
561,397
9,050,066
8,404,513
500,544
8,905,057
—
21,678
21,678
1,641
16,752
18,393
39,748
(39,748)
(70,236)
70,236
—
—
66,306
(66,306)
(43,400)
43,400
—
(6,125)
(6,125)
—
291
8,445
1,732
—
—
—
—
—
—
291
8,445
1,732
50,728
50,728
17,689
(19,063)
17,689
(19,063)
5,311
17,665
1,789
—
—
(95)
—
—
—
—
69,387
18,956
(15,868)
—
—
—
5,311
17,665
1,789
69,387
18,956
(15,963)
Fair value adjustment on revaluation of
investment properties
(201,219)
(73,832)
(275,051)
34,939
(5,468)
29,471
Balance – end of year
8,267,430
582,960
8,850,390
8,488,669
561,397
9,050,066
54 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2020 ANNUAL REPORT
56
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT
(in thousands of dollars)
Year Ended December 31, 2020
Year Ended December 31, 2019
Income
Properties
Properties
Under
Development
Total
Investment
Properties
Income
Properties
Properties
Under
Development
Total
Investment
Properties
Investment properties classified as equity accounted investments (Non-GAAP)
MANAGEMENT’S DISCUSSION AND ANALYSIS
Balance – beginning of year
Additions (deductions):
Acquisitions
Transfer to income properties from
properties under development
Transfer from income properties to
properties under development
Transfer from the Trust
Capital expenditures
Development expenditures
Capitalized interest
Dispositions
Fair value adjustment on revaluation of
investment properties
186,204
230,231
416,435
137,328
112,790
250,118
—
58,302
58,302
17,852
111,399
129,251
55,568
(55,568)
(16,600)
—
106
—
—
—
16,600
6,125
—
58,656
1,164
—
—
—
6,125
106
58,656
1,164
—
30,844
(30,844)
—
—
835
—
—
—
—
—
—
64,949
1,073
—
—
—
835
64,949
1,073
(29,154)
(29,154)
9,288
118
9,406
(655)
18
(637)
Balance – end of year
234,566
315,628
550,194
186,204
230,231
416,435
Total balance (including investment
properties classified as equity accounted
investments) – end of year
8,501,996
898,588
9,400,584
8,674,873
791,628
9,466,501
Valuation Methodology
From January 1, 2018 to December 31, 2020, the Trust has had approximately 61.3% (by value) or 49.7% (by number of
properties) of its operating portfolio appraised externally by independent national real estate appraisal firms with representation
and expertise across Canada.
Management internally appraises the entire portfolio of properties. In addition, the determination of which properties are
externally appraised to support management’s internal valuation process is based on a combination of factors, including property
size, property type, tenant mix, strength and type of retail node, age of property and location. Commencing in the first quarter of
2014, the Trust, on an annual basis, has had external appraisals performed on 15%–20% of the portfolio, rotating properties to
ensure that at least 50% (by value) of the portfolio is valued externally over a three-year period.
The portfolio is valued internally by management utilizing valuation methodologies that are consistent with the external
appraisals. Management performed these valuations by updating cash flow information reflecting current leases, renewal terms,
expected credit losses and market rents and applying updated discount rates determined, in part, through consultation with
various external appraisers and available market data. In addition, the fair value of properties under development reflects the
impact of development agreements (see Note 4 in the consolidated financial statements for the year ended December 31, 2020
for further discussion).
Fair values were primarily determined through the discounted cash flows approach. For each property, the valuation
methodology was conducted and reliance placed upon: (a) a direct capitalization method, which is an estimate of the relationship
between value and stabilized income, and (b) a discounted cash flow method, which is an estimate of the present value of future
cash flows over a specified horizon. Starting on January 1, 2020, the Trust changed its valuation method as it believes that the
discounted cash flow valuation method appropriately represents the Trust's estimate of fair values of income properties based on
expectations of changes in rental rates, occupancy rates, lease renewal rates, leasing costs, expected credit losses and
downtime on lease expiries, among others, as a result of the impact of the COVID-19 pandemic.
For the year ended December 31, 2020, investment properties (including properties under development) as recorded in the
Trust's consolidated financial statements, with a total carrying value of $1,426.2 million (December 31, 2019 – $1,737.6 million)
were valued by external national appraisers, and investment properties with a total carrying value of $7,424.2 million
(December 31, 2019 – $7,312.5 million) were valued internally by the Trust. Based on these valuations, the weighted average
capitalization rate on the Trust's income properties portfolio as at December 31, 2020 was 5.69% using a weighted average
discount rate of 6.46% (December 31, 2019 – weighted average capitalization rate of 5.79% using a weighted average discount
rate of 6.20%).
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MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
The following tables summarize the discount/capitalization rates used along with corresponding fair values:
Class
Valuation Method
Carrying Value
Year ended December 31, 2020
Terminal Capitalization Rate
Discount Rate
Weighted
Average (%)
Range (%)
Weighted
Average (%)
Range (%)
Income properties Discounted cash flow
8,267,430
5.94
4.25 – 7.79
6.46
4.65 – 8.54
Class
Valuation Method
Carrying Value
Properties under
development
Direct income capitalization
165,996
Land, development and
construction costs recorded
at market value
Balance – end of year
416,964
582,960
8,850,390
Weighted
Average
Capitalization
Rate (%)
6.22
N/A
Class
Valuation Method
Carrying Value
Income properties
Direct income capitalization
Year ended December 31, 2019
Weighted Average
Capitalization or
Discount Rate (%)
Total Stabilized or
Forecasted
NOI(1)
Range of
Capitalization Rates
(%)
7,456,585
5.79
431,662
4.25 – 9.11
Direct income capitalization
less present value of purchase
option
Discounted cash flow
829,462
202,622
8,488,669
6.33
6.20
52,500
12,568
5.88 – 6.75
6.00 – 6.50
Class
Valuation Method
Carrying Value
Properties under
development
Direct income capitalization
99,882
Land, development and
construction costs recorded at
market value
Balance – end of year
461,515
561,397
9,050,066
Weighted Average
Capitalization Rate
(%)
6.56
N/A
(1)
Represents a non-GAAP measure. The Trust’s method of calculating non-GAAP measures may differ from other reporting issuers’ methods and accordingly may not be comparable. For
definitions and basis of presentation of the Trust’s non-GAAP measures, refer to “Presentation of Certain Terms Including Non-GAAP Measures”.
The effect of the COVID-19 pandemic on the real estate market, both in duration and in scale, is uncertain. However, given the
dynamic environment and the Trust's income properties portfolio, management has re-assessed the valuation of certain
properties based on expectations of the pandemic’s impact on the Trust's continued ability to lease and generate net operating
income in the foreseeable future. This effort has resulted in a fair value adjustment on revaluation of investment properties of
$275.1 million, of which $201.2 million related to income properties and $73.8 million related to properties under development
(excluding investment properties recorded in equity accounted investments) for the year ended December 31, 2020, which was
primarily attributed to changes in leasing assumptions in the retail portfolio for expected credit losses, renewal probabilities of
existing tenants, and potential vacancies.
56 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2020 ANNUAL REPORT
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MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
Acquisitions of Investment Properties
Acquisitions and dispositions completed in the year ended December 31, 2020
In August 2020, the Trust completed an Earnout event, ultimately resulting in the disposition of a 40% interest in approximately
11.0 acres of land in Markham, Ontario for a purchase price of $7.5 million.
In December 2020, the Trust acquired an additional 33.33% interest in a parcel of land in Mirabel, Quebec from an unrelated
party, adjacent to Premium Outlets Montreal, consisting of 49.79 acres, for a purchase price of $7.9 million, adjusted for costs of
acquisition and other working capital amounts. As a result of this transaction, the Trust’s ownership in this land represents
66.66%, while the remaining 33.33% interest is held by Penguin.
See also Note 3, “Acquisitions and Earnouts”, in the Trust's consolidated financial statements for the year ended December 31,
2020.
In addition, see “Equity Accounted Investments” below for acquisitions completed during the year ended December 31, 2020 that
are recorded in investment in joint ventures.
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2020 ANNUAL REPORT 57
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MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT MANAGEMENT’S DISCUSSION AND ANALYSIS
Equity Accounted Investments
The following table summarizes key components relating to the Trust’s equity accounted investments:
(in thousands of dollars)
Investment – beginning of year
Operating Activities:
Earnings (losses)
Distributions from operations
Financing Activities:
Fair value adjustment on loan
Loan repayment
Investing Activities:
Cash contribution
Property contribution
Acquisition and related costs(1)
Year Ended December 31, 2020
Year Ended December 31, 2019
Investment in
Associates
Investment in
Joint Ventures
Total
Investment in
Associates
Investment in
Joint Ventures
Total
294,499
50,877
345,376
116,284
30,022
146,306
62,369
(3,987)
4,218
(3,987)
4,061
—
(2,181)
(397)
(783)
—
—
8,088
2,036
63,600
61,972
(4,770)
5,981
(6,621)
658
(576)
6,639
(7,197)
4,218
(3,987)
(28,356)
—
—
—
(28,356)
—
12,149
2,036
61,419
(15,209)
463,204
115,581
—
123,608
(31,978)
294,499
6,296
5,260
9,217
121,877
5,260
132,825
—
(31,978)
50,877
345,376
Distributions from development
Investment – end of year
—
354,992
(15,209)
108,212
(1)
Represents the contribution of funds to acquire an interest in equity accounted investments.
Investment in associates
The following table summarizes the Trust’s ownership interest in each investment in an associate as reflected in the Trust’s
consolidated financial statements for the year ended December 31, 2020:
As at
PCVP
Residences LP
Residences III LP
East Block Residences LP
Principal Intended Activity
December 31, 2020 December 31, 2019
Ownership Interest (%)
Own, develop and operate investment
properties
Own, develop and sell two residential
condominium towers and 22 townhomes
(Transit City 1 and 2)
Own, develop and sell a residential
condominium tower (Transit City 3)
Own, develop and sell two residential
condominium towers (Transit City 4 and 5)
50.0
25.0
25.0
25.0
50.0
25.0
25.0
25.0
In 2012, the Trust entered into the Penguin-Calloway Vaughan Partnership (“PCVP”) with Penguin (see also Note 21, “Related
party transactions”, in the Trust’s consolidated financial statements for the year ended December 31, 2020) to develop
SmartVMC, which is expected to consist of approximately 11.0 million square feet of mixed-use space once fully developed, on
53 acres of development land in Vaughan, Ontario.
In 2017, the Trust entered into the VMC Residences Limited Partnership (“Residences LP”) and VMC Residences III Limited
Partnership (“Residences III LP”) with Penguin and CentreCourt Developments, to develop three residential condominium towers
and a related parking facility, located on the SmartVMC site, referred to as Transit City. For the year ended December 31, 2020,
Transit City 1 and 2 have been substantially completed with 551 units closed for Transit City 1 and 558 units closed for Transit
City 2, and the closing of units in Transit City 3 is expected in 2021. See “Residential Development Inventory” for further details.
In 2018, the Trust entered into the VMC East Block Residences Limited Partnership (“East Block Residences LP”) with Penguin
and CentreCourt Developments, to develop two additional residential condominium towers, located on the SmartVMC site.
In 2019, the Trust acquired, through PCVP, a 50% interest in a parcel of land with approximately 15.5 acres in Vaughan, Ontario,
proximate to SmartVMC which is available for development now that Walmart has relocated and opened at its new Applewood
location in October 22, 2020.
Note that the limited partnerships involving residential condominium developments, as noted in the above table: Residences LP,
Residences III LP and East Block Residences LP, are hereinafter collectively referred to as “VMC Residences”.
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MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
Acquisition completed through PCVP during the year ended December 31, 2019
In December 2019, the Trust acquired, through PCVP, a 50% interest in a parcel of land with approximately 15.5 acres in
Vaughan, Ontario, proximate to SmartVMC, which is a 50:50 joint arrangement with Penguin, for a purchase price of $109.2
million paid in cash, adjusted for other working capital amounts.
Investment in Joint Ventures
The following table summarizes the Trust’s ownership interest in investments in joint ventures grouped by their principal intended
activities as reflected in the Trust’s consolidated financial statements for the year ended December 31, 2020:
December 31, 2020
December 31, 2019
Joint Venture
Partner
Number of
Projects
Ownership
Interest (%)
Number of
Projects
Ownership
Interest (%)
As at
Business Focus
Retail investment properties
Joint Venture: 1500 Dundas East LP
Fieldgate
Self-storage facilities
Joint Ventures: Leaside SAM LP, Oshawa South Self
Storage LP, Bramport SAM LP, Vaughan NW SAM LP,
Dupont Self Storage LP, Aurora Self Storage LP,
Scarborough East Self Storage LP and Kingspoint Self
Storage LP
Seniors' apartments
SmartStop
Joint Venture: Vaughan NW SA PropCo LP
Revera
Retirement residences
Joint Ventures: Vaughan NW RR (Propco and Opco
LP’s), Hopedale RR (Propco and Opco LP’s), Baymac
RR Propco LP, Oakville Garden Drive RR PropCo LP,
Barrie Collier and Owen RR PropCo LP and Markham
Main Street RR PropCo LP
Revera
Joint Ventures: Ottawa SW (PropCo and OpCo LP’s)
Selection Group
Residential apartments
Joint Venture: Laval C Apartments LP
Joint Venture: Balliol/Pailton LP
Total
Jadco
Greenwin
1
8
1
6
1
1
1
19
30.0
50.0
50.0
50.0
50.0
50.0
75.0
1
5
1
2
—
1
—
10
30.0
50.0
50.0
50.0
N/A
50.0
N/A
Acquisitions completed during the year ended December 31, 2020
In January 2020, the Trust together with its partner Greenwin acquired a 75% interest in a parcel of land through a joint venture,
Balliol/Pailton LP, totalling 1.1 acres in Toronto, Ontario, with the intention of developing a high-rise apartment community, for a
purchase price of $48.0 million.
In April 2020, the Trust together with its joint venture partner Selection Group formed a 50:50 joint venture known as Ottawa SW
PropCo LP, into which the Trust contributed development lands, through an Earnout transaction, located in Ottawa, Ontario,
totalling 2.25 acres previously presented as property under development and Selection Group contributed land and cash, with
the intention to develop two phases, including a retirement and seniors’ housing tower and a multi-residential rental tower.
In August 2020, the Trust together with its joint venture partner SmartStop formed a 50:50 joint venture known as Scarborough
East Self Storage LP, into which the Trust contributed development lands located in Scarborough, Ontario, totalling 1.16 acres
and SmartStop contributed cash, with the intention to develop, construct and operate a self-storage facility.
In November 2020, pursuant to the 50:50 joint venture formed with Revera known as Markham Main Street RR PropCo LP, the
Trust contributed cash and Revera contributed development lands into the joint venture, which is located in Markham, Ontario,
totalling 2.04 acres, with the intention to develop, construct and operate retirement residence and retail projects.
In November 2020, pursuant to the 50:50 joint venture formed with SmartStop known as Aurora Self Storage Limited
Partnership, both joint venture parties contributed cash into the joint venture to fund the purchase of a parcel of land located in
Aurora, Ontario, totalling 1.59 acres with the intention to develop, construct and operate a self-storage facility.
See also Note 3, “Acquisitions and Earnouts, and Note 4, “Investment properties”, in the Trust’s consolidated financial statements
for the year ended December 31, 2020.
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MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
Amounts Receivable and Other, Deferred Financing Costs, and Prepaid Expenses and Deposits
The timely collection of amounts receivable is a critical component associated with the Trust’s cash and treasury management
functions. The following table presents the components of amounts receivable and other, deferred financing costs, and prepaid
expenses and deposits:
(in thousands of dollars)
Amounts receivable and other
Tenant receivables
Unbilled other tenant receivables
Receivables from related party – excluding equity accounted investments
Receivables from related party – equity accounted investments
Other non-tenant receivables
Other
Allowance for ECL
Amounts receivable and other, net of ECL
Deferred financing costs
Prepaid expenses and deposits
December 31, 2020
December 31, 2019
Variance ($)
57,563
8,287
1,311
—
2,898
8,327
78,386
(19,742)
58,644
1,173
7,269
67,086
15,921
7,649
7,958
1,690
1,482
5,040
39,740
(3,061)
36,679
1,477
5,247
43,403
41,642
638
(6,647)
(1,690)
1,416
3,287
38,646
(16,681)
21,965
—
(304)
2,022
23,683
As at December 31, 2020, total amounts receivable and other, net of ECL increased by $22.0 million as compared to
December 31, 2019. This increase was primarily attributed to the following:
•
•
•
$24.9 million increase in tenant receivables, which is net of an increase in the allowance for ECL of $16.7 million, and
was primarily due to the rent deferral arrangements for non-CECRA-qualifying tenants and other COVID-related
collection issues;
$4.7 million increase in other non-tenant receivables and other; and
$0.6 million increase in unbilled other tenant receivables primarily representing timing differences on realty tax billings to
tenants;
Partially offset by:
•
$8.3 million net decrease in related party receivables pursuant to the agreements signed with Penguin (see also
“Related Party Transactions”.
As at December 31, 2020, deferred financing costs decreased by $0.3 million as compared to December 31, 2019 as a result of
amortization recorded during the year ended December 31, 2020.
As at December 31, 2020, prepaid expenses and deposits increased by $2.0 million as compared to December 31, 2019. This
increase was primarily attributed to timing differences associated with realty tax payments.
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MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
Tenant receivables
The COVID-19 pandemic and related responses of governments and private sector participants has adversely affected
workforces, economies and financial markets globally, leading to an economic downturn. The duration and the full scope of the
economic impact of the COVID-19 pandemic and the related economic downturn, as well as the effectiveness of government,
central bank and private sector responses remain unclear at this time. Therefore, it is not possible to reliably estimate the
duration and magnitude of the adverse changes resulting from the pandemic and related responses on the ability of the Trust’s
tenants to meet their contractual rent obligations. The Trust has intensely focused on assisting its tenants that serve the
communities in which it operates during these unprecedented and challenging times. As part of these efforts, the Trust has
reached out to its various tenants that have been deemed to be operating “non-essential” businesses by various governments
and have been most effected during the pandemic offering its support through rent deferral arrangements and potential rental
relief to be granted by the Trust under the Canadian federal government’s CECRA program which ended in September 2020.
Tenants that operate essential businesses and national/regional tenants that have been determined by governments to be “non-
essential” businesses for the purposes of the COVID-19 pandemic-related restrictions collectively represent approximately 94%
of the Trust’s contractual rent. During 2020, many Canadian businesses deemed “non-essential” were required to close during
various shutdown periods by various levels of provincial and municipal governments. Given the value-focused origins of the
SmartCentres portfolio, the Trust has a strong and stable tenant base, the majority comprised of stable creditworthy essential
businesses such as Walmart, Loblaws, Shoppers Drug Mart, Canadian Tire, Sobeys, Dollarama, Rexall, Home Depot,
McDonald’s, the LCBO, Rogers, Telus, Lowe’s, Dollar Tree, BMO, CIBC, RBC, Scotiabank and TD. Walmart is the Anchor or
Shadow Anchor in over 70% of the Trust's properties, and represents over 25% of the Trust’s rental income. Approximately 60%
of the Trust’s tenant base is comprised of businesses deemed to be offering “essential” services, and which were largely
permitted to operate throughout the year, supplying local communities with everyday groceries, pharmaceuticals, general
merchandise, medical assistance, banking, telecom and other essential needs.
In order to determine ECL, the Trust considers both payment history and future expectations of credit risk by each tenant, which
may include, but are not limited to, the following factors: i) actual or expected insolvency filings, and ii) other rent deferral or
similar arrangements. However, the assumptions and estimates underlying the manner in which ECLs have been implemented
historically may not be appropriate in the current COVID-19 pandemic environment. Accordingly, the Trust has not applied its
existing ECL methodology mechanically. Instead, during the current COVID-19 pandemic environment, the Trust has been in
discussions with tenants on a case-by-case basis to determine optimal rent payment solutions and has incorporated this
available reasonable and supportable information when estimating ECL on tenant receivables.
The Trust continues to monitor rent collections from its portfolio of tenants and for the year ended December 31, 2020 has
reflected an additional allowance for expected credit loss of $16.7 million, net of: i) the reversals of previous allowances, and ii)
tenant receivables written off during the period. Primarily as a result of the COVID-19 pandemic, during the three months and
year ended December 31, 2020, the Trust recorded additional ECL of $5.2 million and $30.4 million, respectively (see “Outlook”
for details). This ECL amount was recorded based on a forward-looking nature of assessment. The Trust’s estimates and
judgments could also be further affected by various risks and uncertainties, including but not limited to the impact of the
COVID-19 pandemic (see “Risks and Uncertainties” and “Forward Looking Statements”). These estimated amounts may
potentially differ from the actual amounts.
The following table provides some additional details on the Trust’s tenant billings, amounts received (up to January 25, 2021),
expected recovery and related provisions:
(in thousands of dollars)
Total tenant billings
Less: Amounts received directly from tenants to date
Balance outstanding
Less:
Recovery from governments for CECRA
Amounts forgiven by the Trust for CECRA
Sales tax on CECRA
Tenant rent deferral arrangements agreed
Tenant rent deferral arrangements under negotiation
Rents to be collected before expected credit loss (“ECL”) provision
Less: ECL provision
Balance to be collected
Three Months Ended
December 31, 2020 As a %
Nine Months Ended
December 31, 2020 As a %
198,901
100.0
187,850
11,051
94.4
5.6
—
—
—
544
—
10,507
5,235
5,272
—
—
—
0.3
—
5.3
2.6
2.7
597,349
100.0
519,919
77,430
87.0
13.0
15,412
7,706
2,976
7,664
15,829
27,843
15,319
12,524
2.6
1.3
0.5
1.3
2.6
4.7
2.6
2.1
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MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
Mortgages, Loans and Notes Receivable, and Interest Income
The following table summarizes mortgages, loans and notes receivable:
(in thousands of dollars)
Mortgages, loans and notes receivable
Mortgages receivable (Mezzanine Financing)
Loans receivable(1)
Notes receivable
December 31, 2020 December 31, 2019 Variance ($)
144,205
241,683
2,924
388,812
138,762
5,443
131,119
110,564
2,979
(55)
272,860
115,952
(1)
Includes $104.1 million due from Penguin (December 31, 2019 – $24.4 million), see “Loans Receivable” subsection.
Mortgages Receivable (Mezzanine Financing)
In addition to direct property acquisitions, the Trust has provided Mezzanine Financing to Penguin (see also, “Related Party
Transactions”) on terms that include an option in favour of the Trust to acquire an interest in the mortgaged property once a
certain level of development and leasing is achieved. As at December 31, 2020, the Trust had total commitments of $312.8
million to fund mortgages receivable under this program. Five mortgages have an option entitling the Trust to acquire an
additional interest in the property upon a certain level of development and leasing being achieved, with the acquisition price
calculated pursuant to an agreed-upon formula, based on a market capitalization rate at the time the option is exercised. The
properties under the Mezzanine Financing have 0.5 million potential square feet available (discussed in “Properties Under
Development”). If the specified level of development and leasing is not achieved prior to the maturity date of the loan and the
loan is repaid, then the option terminates. However, in some circumstances the Trust has permitted certain of those loans to be
extended. If an applicable property is to be sold prior to the maturity date of the loan and prior to the applicable option being
triggered, then the Trust has a right of first refusal with respect to such sale.
The following table presents the details of the mortgages receivable (by maturity date) provided to Penguin:
(in thousands of dollars)
Property
Amount
Outstanding
($)
Including:
Interest
Accrued
($)
Committed
($)
Amount
Guaranteed
by Penguin
($) Maturity Date
Aurora (South), ON(5)(8)
16,858
2,661
38,964
16,858
March 2022
Innisfil, ON(2)(7)
Salmon Arm, BC(2)(4)
Pitt Meadows, BC(6)(8)
22,164
9,239
39,740
7,711
May 2022
15,370
7,681
30,080
15,370
May 2022
30,669
5,281
85,653
30,669 November 2023
Vaughan (7 & 427), ON(5)(8)
18,908
2,283
36,100
18,907 December 2023
Caledon (Mayfield), ON(7)(8)
10,363
1,733
26,689
10,363
April 2024
Toronto (StudioCentre), ON(2)(6)(8)
29,873
4,967
55,552
29,873
June 2024
144,205
33,845
312,778
129,751
Extended
Maturity
Date(3)
August
2028
August
2028
August
2028
August
2028
August
2028
August
2028
August
2028
Annual
Variable
Interest
Rate at
Year-
End (%)
Potential
Area Upon
Exercising
Purchase
Option
(sq. ft.)
3.45
4.20
4.19
3.85
3.57
59,000
—
—
36,950
76,000
3.71
101,865
3.68
3.81 (1)
227,831
501,646
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
Represents the weighted average interest rate.
The Trust owns a 50% interest in these properties, with the other 50% interest owned by Penguin. These loans are secured against Penguin’s interest in the property.
The maturity date for this mortgage is automatically extended to August 31, 2028 unless written notice is delivered from the borrower. During the extended maturity period, the mortgages
receivable accrue interest at a variable rate based on the banker's acceptance rate plus 4.00% to 5.00%
The weighted average interest rate on this mortgage is subject to an upper limit of 6.50%.
The weighted average interest rate on this mortgage is subject to an upper limit of 6.75%.
The weighted average interest rate on this mortgage is subject to an upper limit of 6.90%.
The weighted average interest rate on this mortgage is subject to an upper limit of 7.00%.
The Trust has a purchase option from the borrower in these properties upon a certain level of development and leasing being achieved. As at December 31, 2020, it is management’s
expectation that the Trust will exercise these purchase options. The purchase option for Aurora (South), ON, Pitt Meadows, BC, Vaughan (7 & 427), ON, and Caledon (Mayfield), ON are
each 50%. The purchase option for Toronto (StudioCentre), ON is 25%.
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MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
Mortgages receivable amendments
The mortgages receivable for Mirabel (Shopping Centre), Quebec and Mirabel (Option Lands), Quebec have been discharged
effective November 5, 2020.
On December 9, 2020, there were two mortgages receivable (Innisfil, Ontario and Salmon Arm, British Columbia) for which the
maturity dates were extended from an original range of years 2020 to 2021 to 2022. The maturity dates of all mortgages
receivable outstanding will also be automatically extended to August 31, 2028 unless written notice is delivered from the
borrower. These extensions were provided principally because of delays associated with market conditions, anticipated municipal
and related approvals, and development-related complexities.
The committed facilities on these mortgages receivable were amended to reflect an increase from $279.0 million to $312.8
million.
In addition, the interest rates on these mortgages receivable were amended pursuant to independent opinions obtained that
provided current market-based interest rates for similar development-based opportunities. Interest on these mortgages accrues
monthly as follows: from December 9, 2020 to the maturity of each mortgage, at a variable rate based on the banker's
acceptance rate plus 2.75% to 4.20%; from the maturity of each mortgage to the extended maturity (August 2028), at a variable
rate based on the banker's acceptance rate plus 4.00% to 5.00%; prior to December 9, 2020, (i) at a variable rate based on the
banker’s acceptance rate plus 1.75% to 4.20% or at the Trust’s cost of capital (as defined in the mortgage agreement) plus
0.25%; and (ii) at fixed rates of 6.35% to 7.50% which is added to the outstanding principal up to a predetermined maximum
accrual after which it is payable in cash monthly or quarterly. Additional interest of $109.2 million (December 31, 2019 – $63.6
million) on the existing credit facilities may be accrued on certain of the mortgages receivable before cash interest must be paid.
The mortgage security includes a first or second charge on properties, assignments of rents and leases and general security
agreements. In addition, $144.2 million (December 31, 2019 – $125.5 million) of the outstanding balance is guaranteed by
Penguin. The loans are subject to individual loan guarantee agreements that provide additional guarantees for all interest and
principal advanced on outstanding amounts. The guarantees decrease on achievement of certain specified value-enhancing
events. All mortgages receivable are considered by management to be fully collectible.
Assuming that developments are completed as anticipated, and assuming that borrowers repay their mortgages in accordance
with the terms of the agreements governing such mortgages, expected repayments of the outstanding balances would be as
presented in the following table:
(in thousands of dollars)
2022
2023
2024
The following table illustrates the activity in mortgages receivable:
(in thousands of dollars)
Balance – beginning of year
Interest accrued
Interest payments
Principal repayments
Balance – end of year
Mortgages (#)
Repayments of
outstanding
balances ($)
3
2
2
7
54,392
49,577
40,236
144,205
Year Ended December 31
2020
138,762
6,744
(499)
(802)
2019
134,221
7,399
(1,498)
(1,360)
144,205
138,762
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MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT
Committed
Maturity Date
Interest Rate
(%)
Note
December 31, 2020 December 31, 2019
MANAGEMENT’S DISCUSSION AND ANALYSIS
Loans Receivable
The following table presents the details of loans receivable (by maturity date):
(in thousands of dollars)
Issued to
Penguin(1)
Penguin(2)
Penguin(3)
Penguin(4)
19,148
N/A
26,227
March 2021
Variable
January 2021
Interest-free
June 2021
Variable
21
21
21
N/A
December 2029
Interest-free
21,
11(b)(iii)
Total loans issued to Penguin
PCVP(5)
Self-storage facilities(6)
N/A
60,000
June 2021
2.76
21
July 2023
Variable
Total loans issued to equity accounted investments
Vaughan NW Residence Inc.(7)
Selection Group(8)
Greenwin(9)
Greenwin(10)
N/A
N/A
11,694
1,280
November 2020
April 2021
September 2024
January 2025
6.25
Variable
Variable
Variable
Total loans issued to unrelated parties
9,349
3,460
14,587
76,747
104,143
95,008
39,682
134,690
—
2,850
—
—
2,850
241,683
10,215
—
14,173
—
24,388
92,427
—
92,427
9,804
—
4,500
—
14,304
131,119
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
This loan receivable was provided pursuant to a development management agreement with Penguin with a total loan facility of $19.1 million. Repayment of the pro rata share of the
outstanding loan amount is due upon the completion of each Earnout event. The loan bears interest at 10 basis points plus the lower of: (i) the Canadian prime rate plus 45 basis points,
and (ii) the Canadian Dealer Offer Rate plus 145 basis points.
In August 2020, this non-interest bearing, unsecured loan was issued to the holders of Class G Series 1 Units of Smart Boxgrove LP in the amount of $3.5 million pursuant to the amended
and restated Smart Boxgrove Limited Partnership agreement. Such loan had limited recourse up to the amount of $3.5 million and was due and payable on or before the fifth business day
after year end (December 31, 2020). As such, in January 2021, Smart Boxgrove LP made a distribution to the holders of Class G Series 1 Units in an amount equal to the outstanding loan
amount, which was set-off to repay the aggregate amount of loans issued.
In March 2019, the Trust entered into a loan agreement with Penguin for a non-revolving principal advance facility of $13.2 million and a non-revolving construction facility of $13.0 million,
which combine for a total loan facility of $26.2 million, bearing interest accruing at a fixed rate of 2.76% and a variable rate based on banker’s acceptance rate plus 150 basis points,
respectively. The loan security includes a first or second charge on the property, assignments of rents and leases and general security agreements, and is guaranteed by Penguin. The
principal advance facility was advanced in full in March 2019. Unless prepaid in accordance with the terms of the loan agreement, principal and any accrued and unpaid interest in respect
of the loan receivable shall be repaid in full in June 2021.
This loan receivable relates to the acquisition of a parcel of land in Vaughan, Ontario through PCVP in December 2019 ( “700 Applewood purchase”). In March 2020, the Trust assumed
this loan receivable from Penguin in regards to PCVP. The loan has a principal amount outstanding of $103.8 million, is non-interest bearing, and is repayable at the end of 10 years. As at
December 31, 2020, the loan balance of $76.7 million is net of a cumulative fair value adjustment totalling $27.0 million. See also Note 11(b)(iii) “Debt” in the consolidated financial
statements for the year ended December 31, 2020 reflecting the corresponding loan payable amount.
In April 2019, the Trust entered into a loan agreement with PCVP (in which the Trust has a 50% interest) for a total loan facility of $90.6 million, bearing interest accruing at 2.76% per
annum. The loan security includes a first or second charge on properties, assignments of rents and leases and general security agreements, and is guaranteed by Penguin up to its 50%
share of the loan. This loan facility was advanced in full in April 2019. Unless prepaid in accordance with the terms of the loan agreement, principal and any accrued and unpaid interest in
respect of the loan receivable shall be repaid in full in June 2021. The Trust reflects the activity from the PCVP as an equity accounted investment (see also Note 6, “Equity accounted
investments”) and 100% of the loan provided to the PCVP is recorded in the consolidated financial statements for the year ended December 31, 2020.
In July 2020, the Trust entered into a loan agreement with its partner SmartStop to provide funding for the development of self-storage facilities. The loan agreement matures in July 2023
and bears interest at a variable rate based on banker's acceptance rate plus 245 basis points. See further details in Note 6(b) “Equity accounted investments” in the consolidated financial
statements for the year ended December 31, 2020.
In 2017, a loan receivable was provided pursuant to an agreement to use in acquiring a 50% interest in development lands. The loan matured in November 2020, and bore interest at
6.25% per annum. In addition, the loan was secured by a first charge on the 50% interest of the development lands.
In April 2020, the Trust entered into a loan agreement with Selection Group, whereby the Trust loaned Selection Group funds for the acquisition of development lands in Ottawa, Ontario
(see also Note 6, “Equity accounted investments”) for a non-revolving term acquisition credit facility of $2.9 million. This loan has been contributed by Selection Group to a joint venture
with the Trust. This loan will mature at the earlier of (i) the date of the first disbursement of the construction financing, and (ii) the date twelve months from the date of obtaining an advance
of the facility and bears interest at the prime rate of interest plus 2% per annum.
In September 2019, the Trust entered into a loan agreement with Greenwin to use in acquiring a 50% interest in development lands in Barrie, Ontario. As at December 31, 2020, the total
remaining credit facility was $11.7 million. The loan security includes a first charge on the development lands and is guaranteed by Greenwin. This loan matures in September 2024, and
bears interest at the greater of: (i) 7.0% per annum, and (ii) the Trust’s weighted average cost of capital plus 1.25% per annum. In August 2020, Greenwin repaid this loan in advance of
the maturity date.
In January 2020, the Trust entered into a loan agreement with Greenwin, whereby the Trust assisted Greenwin to fund its 25% interest in development lands in Toronto, Ontario (see also
Note 6, “Equity accounted investments”). As at December 31, 2020, the total remaining non-revolving term acquisition credit facility was $1.3 million. The loan agreement also includes a
non-revolving put exercise credit facility in an amount equal to the put purchase price plus any associated closing costs at the time of exercise. The loan security includes a first charge on
the development lands and is guaranteed by Greenwin. This loan matures in January 2025, and bears interest at the greater of: (i) 7.0% per annum and (ii) the Trust’s weighted average
cost of capital plus 1.25% per annum. In August 2020, Greenwin repaid this loan in advance of the maturity date.
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MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT
The following table illustrates the activity in loans receivable:
(in thousands of dollars)
Balance – beginning of year
Loans issued(1)
Advances
Interest accrued
Fair value adjustments(2)
Repayments
Balance – end of year
MANAGEMENT’S DISCUSSION AND ANALYSIS
Year Ended December 31
2020
131,119
122,153
9,762
3,633
3,416
(28,400)
241,683
2019
19,949
108,326
1,201
2,495
—
(852)
131,119
(1)
(2)
During the year ended December 31, 2020, loans issued to Penguin totalled $81.7 million, of which $78.3 million relates to the 700 Applewood purchase, as described in footnote 4 in the
table above, and $3.5 million relates to the unsecured loan issued to Penguin as the holder of Class G Series 1 Units of Smart Boxgrove LP, as described in footnote 2 in the table above
(December 31, 2019 – $13.2 million of loans issued to Penguin in connection with the loan agreement as described in footnote 3 in the table above).
Represents the fair value adjustment of $3.4 million recorded during the year ended December 31, 2020 (December 31, 2019 – $nil) in connection with the loan issued as part of the 700
Applewood purchase. See details in footnote 4 in table above.
Notes Receivable
Notes receivable of $2.9 million (December 31, 2019 – $3.0 million) have been granted to Penguin (see also, “Related Party
Transactions”). These secured demand notes bear interest at 9.00% per annum (December 31, 2019 – 9.00%). During the year
ended December 31, 2020, $0.1 million (December 31, 2019 – $nil) was repaid as a result of a settlement with Penguin on
December 9, 2020.
Interest Income
The following table summarizes the components of interest income:
(in thousands of dollars)
Interest income
Mortgage interest
Loan interest
Note receivable interest
Bank interest
2020
6,744
4,717
268
3,512
15,241
Year Ended December 31
Variance ($)
2019
7,399
3,190
268
811
11,668
(655)
1,527
—
2,701
3,573
For the year ended December 31, 2020, interest income increased by $3.6 million as compared to the year ended December 31,
2019. This increase was primarily attributed to:
•
•
$2.7 million increase in bank interest as a result of the increase in cash and cash equivalents as compared to the year
ended December 31, 2019, which was principally driven by proceeds from issuances of unsecured debentures during
the year, net of redemptions (see “Debt” section for details); and
$1.5 million increase in loan interest as a result of the increase in the average loans receivable balance outstanding;
Partially offset by:
•
$0.6 million decrease in mortgage interest as a result of a reduction in variable interest rates and repayments of
mortgages receivable during the year ended December 31, 2020.
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MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
Section VII — Financing and Capital Resources
Capital Resources and Liquidity
In addition to the items noted below, please see “Risks and Uncertainties” in this MD&A that pertain to the potential impact of the
COVID-19 pandemic.
The following table presents the Trust's capital resources available:
(in thousands of dollars)
Cash and cash equivalents
Remaining operating facility(1)
Operating facility – Accordion feature
December 31, 2020
December 31, 2019
Variance ($)
794,594
491,373
1,285,967
250,000
1,535,967
55,374
491,156
546,530
250,000
796,530
739,220
217
739,437
—
739,437
(1)
Excludes the Trust’s development facilities which have been arranged to fund project-specific development and related costs.
On the assumption that cash flow levels permit the Trust to obtain financing on reasonable terms, the Trust anticipates meeting
all current and future obligations. Management expects to finance future acquisitions, committed Earnouts, Developments,
Mezzanine Financing commitments and maturing debt from: (i) existing cash balances, (ii) funds received from the closings of
mixed-use development initiatives, including condominium and townhome sales, (iii) a mix of mortgage debt secured by
investment properties, operating facilities, issuance of equity and unsecured debentures, (iv) repayments of mortgages
receivable, and (v) the sale of non-core assets. The Trust’s ability to meet these future obligations may be impacted by the
liquidity risk associated with receiving repayments of its mortgages, loans, and notes receivable, amounts receivable and other,
deposits, and cash equivalents on time and in full, and infrequently, the realization of fair value on the disposition of the Trust’s
non-core assets. Cash flow generated from operating activities is the primary source of liquidity to pay Unit distributions and
sustain capital expenditures and leasing costs. See also the “Distributions and ACFO Highlights” subsection.
As at December 31, 2020, the Trust’s cash and cash equivalents increased by $739.2 million as compared to December 31,
2019, which is primarily due to the following:
•
•
•
$1,772.5 million relating to the proceeds from debt issuance, which is principally due to the issuance of Series V, Series
W, Series X, and Series Y senior unsecured debentures totalling $1,245.3 million, $460.0 million of lines of credit from
the revolving operating facility, and $67.2 million relating to the proceeds of other unsecured debt;
$296.0 million of cash provided by operating activities; and
$19.5 million of net proceeds from sale of investment properties;
Partially offset by the following:
•
•
•
•
•
$872.2 million representing repayment of debt, which is principally due to the $460.0 million repayment of the Trust’s
revolving operating facility, $291.3 million repayment of unsecured debt, and $120.9 million repayment of secured debt
and other debt;
$297.9 million of distributions paid on Trust Units, non-controlling interests and Units classified as liabilities;
$152.5 million representing net additions to investing activities including investment properties, equity accounted
investments, Earnouts, and equipment;
$24.4 million relating to advances of mortgages and loans receivable net of repayments; and
$1.8 million relating to the payment of lease liabilities.
The Trust manages its cash flow from operating activities by maintaining a target debt level. The Debt to Gross Book Value, as
defined in the Declaration of Trust, as at December 31, 2020 is 50.1% (December 31, 2019 – 49.0%). Including the Trust’s
capital resources as at December 31, 2020, the Trust could invest an additional $1,571.5 million (December 31, 2019 – $1,688.8
million) in new investments and developments and remain at the midpoint of the Trust’s target Debt to Gross Book Value range of
55% to 60%.
Future obligations total $5.2 billion, as identified in the following table. Other than contractual maturity dates, the timing of
payment of these obligations is management’s best estimate based on assumptions with respect to the timing of leasing,
construction completion, occupancy and Earnout dates at December 31, 2020.
66 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2020 ANNUAL REPORT
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MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
The following table presents the estimated amount and timing of certain of the Trust’s future obligations including development
obligations as at December 31, 2020:
(in thousands of dollars)
Total
2021
2022
2023
2024
2025
Thereafter
Secured debt
Unsecured debt
Mortgage receivable advances
(repayments)(1)
1,329,522
3,841,077
178,690
261,417
179,064
150,471
391,909
167,971
324,706
300,000
200,000
250,000
590,000 2,176,371
35,515
10,585
9,401
(3,697)
(2,070)
3,656
17,640
Development obligations (commitments)(2)
23,103
23,103
—
—
—
—
—
Total
5,229,217
537,084
570,818
375,367
398,401
985,565 2,361,982
(1)
(2)
Mortgages receivable of $144.2 million at December 31, 2020, and further forecasted commitments of $35.5 million, mature over a period extending to 2028 if the Trust does not exercise
its option to acquire the investment properties. Refer to the “Mortgages, Loans and Notes Receivable, and Interest Income” for timing of principal repayments.
The Trust is in the process of refining its estimates of development obligations for the years subsequent to 2020. This total does not include commitments associated with equity accounted
investments, nor does this total include expected costs associated with the Trust’s mixed-use development initiatives except for current amounts outstanding for active projects currently
underway.
The following table presents the estimated amount and timing of certain of the equity accounted investment’s future obligations
including development obligations as at December 31, 2020:
(in thousands of dollars)
Total
2021
2022
2023
2024
2025
Thereafter
Secured and unsecured debt
Development obligations (commitments)(1)
459,545
158,156
108,680
155,033
42,179
48,358
34,240
40,589
6,220
27,030
6,478
148,894
—
—
Total
617,701
150,859
203,391
74,829
33,250
6,478
148,894
(1)
The Trust is in the process of refining its estimates of development obligations for the years subsequent to 2020. This total does not include expected costs associated with the Trust’s
mixed-use development initiatives except for current amounts outstanding for active projects currently underway.
The following table presents the estimated amount and timing of certain of the Trust’s proportionate share of equity accounted
investment’s future obligations including development obligations as at December 31, 2020:
(in thousands of dollars)
Total
2021
2022
2023
2024
2025
Thereafter
Secured and unsecured debt
Development obligations (commitments)(1)
185,924
53,892
53,077
9,562
2,596
2,701
64,096
51,209
21,878
18,524
10,807
—
—
—
Total Trust’s share
237,133
75,770
71,601
20,369
2,596
2,701
64,096
(1)
The Trust is in the process of refining its estimates of development obligations for the years subsequent to 2020. This total does not include expected costs associated with the Trust’s
mixed-use development initiatives except for current amounts outstanding for active projects currently underway.
The following table presents the Trust’s net working capital surplus (deficiency):
(in thousands of dollars)
Current assets
Less: Current liabilities
Working capital deficiency
Less: Current portion of debt
Net working capital surplus (deficiency)
December 31, 2020
December 31, 2019
1,012,729
(1,096,762)
(84,033)
(854,261)
770,228
179,294
(332,988)
(153,694)
(115,385)
(38,309)
As at December 31, 2020 the Trust experienced a working capital deficiency of $84.0 million (December 31, 2019 – $153.7
million). This deficiency includes mortgages, unsecured debentures and operating lines of credit of $854.3 million (December 31,
2019 – $115.4 million) that have maturity dates within 12 months of the balance sheet date. It is management’s intention to either
repay or refinance these maturing liabilities with cash and cash equivalents, newly issued secured or unsecured debt, equity or,
in certain circumstances not expected to occur frequently, the disposition of certain assets. Without mortgages, unsecured
debentures and operating lines of credit, the Trust maintained a net working capital surplus of $770.2 million as at December 31,
2020 (December 31, 2019 – $38.3 million deficiency).
It is management’s intention to repay $323.1 million in maturing Series T debentures and approximately $134.8 million of
maturing secured debt in the remainder of 2021. The Trust has an unencumbered asset pool with an approximate fair value
totalling $5.8 billion, which could generate gross financing proceeds on income properties of approximately $3.7 billion using a
65% loan to value. The secured and unsecured debt, mortgage receivable advances and development obligations will be funded
by additional term mortgages, net proceeds on the sale of certain assets, existing cash or operating lines, the issuance of
unsecured debentures, and equity Units, as necessary.
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MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
Maintenance of Productive Capacity
Differentiating between those costs incurred to achieve the Trust’s longer term goals to produce increased cash flows and Unit
distributions, and those costs incurred to maintain the level and quality of the Trust’s existing cash flows is key in the Trust’s
consideration of capital expenditures. Acquisitions of investment properties and the development of new and existing investment
properties (see also “Earnouts and Developments Completed on Existing Properties” in the MD&A) are the two main areas of
capital expenditures that are associated with increasing or enhancing the productive capacity of the Trust. In addition, there are
capital expenditures incurred on existing investment properties to maintain the productive capacity of the Trust (“sustaining
capital expenditures”).
The sustaining capital expenditures are those of a capital nature that are not considered to increase or enhance the productive
capacity of the Trust, but rather maintain the productive capacity of the Trust. Leasing and related costs, which include tenant
improvements, leasing commissions and related costs, vary with the timing of new leases, renewals, vacancies, tenant mix and
market conditions. Leasing and related costs are generally lower for renewals of existing tenants when compared to new leases.
Leasing and related costs also include internal expenses for leasing activities, primarily salaries, which are eligible to be added
back to FFO based on the definition of FFO in the REALpac White Paper last revised in February 2019. The sustaining capital
expenditures and leasing costs are based on actual costs incurred during the period. FFO is a non-GAAP measure. See
“Presentation of Certain Terms Including Non-GAAP Measures” and “Other Measures of Performance”.
The following table and discussion present an analysis of capital expenditures of a maintenance nature (actual sustaining
recoverable and non-recoverable capital expenditures and leasing costs). Earnouts, Acquisitions and Developments are
discussed elsewhere in the MD&A. Given that a significant proportion of the Trust’s portfolio is relatively new, management does
not believe that actual sustaining capital expenditures will have an impact on the Trust’s ability to pay distributions at their current
level.
(in thousands of dollars, except per Unit and other Unit
amounts)
2020
2019
Variance
2020
2019
Variance
Three Months Ended December 31
Year Ended December 31
Adjusted salaries and related costs attributed to leasing
1,200
1,198
Actual sustaining leasing commissions
Actual sustaining tenant improvements
Total actual sustaining leasing and related costs
Actual sustaining capital expenditures (recoverable and
non-recoverable)
Total actual sustaining leasing costs and capital
expenditures
Weighted average number of units outstanding –
diluted
Per Unit – diluted ($)
738
1,466
3,404
558
1,348
3,104
2
180
118
300
5,853
1,732
3,829
5,462
1,789
4,691
11,414
11,942
391
(57)
(862)
(528)
4,686
8,028
(3,342)
8,445
17,792
(9,347)
8,090
11,132
(3,042)
19,859
29,734
(9,875)
173,264,654 171,858,434 1,406,220 172,971,603 170,581,531 2,390,072
0.05
0.06
-0.01
0.11
0.17
-0.06
For the three months ended December 31, 2020, the total sustaining leasing costs and capital expenditures were $8.1 million, as
compared to $11.1 million in the same period in 2019, representing a decrease of $3.0 million. This decrease is primarily due to
the following:
•
$3.3 million decrease in both recoverable and non-recoverable capital expenditures;
Partially offset by:
•
$0.3 million net increase in leasing and related costs.
For the year ended December 31, 2020, the total sustaining leasing costs and capital expenditures were $19.9 million, as
compared to $29.7 million in the same period in 2019, representing a decrease of $9.9 million. This decrease is due to the
following:
•
$9.3 million decrease in both recoverable and non-recoverable capital expenditures which primarily relate to the costs
associated with parking lot resurfacing, roof replacement, paving and HVAC improvements. These capital expenditures
were incurred to sustain rental revenue from income properties and may vary widely from period to period and from
year to year; and
$0.5 million net increase in leasing and related costs.
•
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MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT
Debt
The following table summarizes total debt including debt associated with equity accounted investments:
As at
December 31, 2020
December 31, 2019
MANAGEMENT’S DISCUSSION AND ANALYSIS
Weighted
Average Term
of Debt (in
years)
Weighted
Average
Interest Rate
of Debt (%)
(in thousands of dollars)
Secured debt
Unsecured debt
Unsecured loan from equity accounted
investments
Revolving operating facility(1)
Total debt before equity accounted
investments
Less: unsecured loan from equity
accounted investments(2)
Subtotal
Share of secured debt (equity
accounted investments)
Share of unsecured debt (equity
accounted investments)
Share of debt classified as equity
accounted investments
Balance
1,327,760
3,670,929
211,434
—
5,210,123
(134,687)
5,075,436
134,336
51,588
185,924
Total debt including equity accounted
investments
5,261,360
3.8
5.2
N/A
—
N/A
N/A
4.9
11.1
1.1
8.3
5.0
Balance
1,442,278
2,700,359
83,296
—
3.68
3.22
—
—
—
4,225,933
—
(83,296)
3.29
4,142,637
3.34
136,039
2.19
12,150
3.02
148,189
3.28
4,290,826
Weighted
Average Term
of Debt (in
years)
Weighted
Average
Interest Rate of
Debt (%)
4.6
4.9
N/A
—
N/A
N/A
4.8
12.2
1.3
11.3
5.0
3.75
3.42
—
—
—
—
3.54
3.90
3.38
3.86
3.55
(1)
(2)
The Trust has available a $500.0 million unsecured revolving operating facility with undrawn accordion feature of $250.0 million.
This represents the Trust's share of a loan from equity accounted investments.
The following table summarizes the activity in debt including debt recorded in equity accounted investments, for the year ended
December 31, 2020:
(in thousands of dollars)
Balance – January 1, 2020
Borrowings
Scheduled amortization
Repayments
Secured
Debt
Unsecured
Debt
Revolving
Operating
Facility
Loan from
Equity
Accounted
Investments
Equity
Accounted
Investments
Total
1,442,278
2,700,359
—
—
148,189
4,290,826
860
1,245,265
460,000
81,702
67,196
1,855,023
(45,244)
—
—
—
(2,215)
(47,459)
(70,197)
(276,880)
(460,000)
(4,955)
(27,098)
(839,130)
Amortization of acquisition fair value adjustments
Financing costs incurred, net of additions
(855)
918
—
2,185
Balance – December 31, 2020
1,327,760
3,670,929
—
—
—
—
—
(162)
(1,017)
14
3,117
76,747
185,924
5,261,360
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MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
Secured Debt
The Trust believes it will have continued access to secured debt due to its strong tenant base and high occupancy levels at
mortgage loan levels ranging from 60% to 70% of loan to value.
The following table summarizes future principal payments as a percentage of total secured debt:
(in thousands of dollars)
Instalment
Payments
Lump Sum
Payments
at Maturity
Total
Total (%)
Weighted Average
Interest Rate of
Maturing Debt (%)
2021
2022
2023
2024
2025
Thereafter
Total
Acquisition date fair value adjustment
Unamortized financing costs
43,841
41,111
36,720
31,775
21,124
32,890
134,849
220,306 (1)
142,344
118,696
370,785
135,081
178,690
261,417
179,064
150,471
391,909
167,971
13.0
20.0
13.0
11.0
29.0
14.0
207,461
1,122,061
1,329,522
100.0
1,541
(3,303)
1,327,760
3.48
3.35
4.47
3.63
3.43
4.21
3.67
3.67
(1) Includes construction loan in the amount of $57.9 million, which bears interest at banker's acceptance rate plus 120 basis points.
Unsecured Debt
The following table summarizes the components of unsecured debt:
(in thousands of dollars)
Unsecured debentures (a)
Credit facilities (b)
Other unsecured debt from equity accounted investments (c)
December 31, 2020 December 31, 2019
3,271,625
399,304
2,301,257
399,102
3,670,929
2,700,359
211,434
3,882,363
83,296
2,783,655
a) Unsecured debentures
The following table summarizes unsecured debentures issued and outstanding:
(in thousands of dollars)
Series
Series I
Series M(3)
Series N
Series O
Series P
Series Q(3)
Series R
Series S
Series T
Series U
Series V
Series W
Series X
Series Y
Maturity Date
May 30, 2023
July 22, 2022
February 6, 2025
August 28, 2024
August 28, 2026
March 21, 2022
December 21, 2020
December 21, 2027
June 23, 2021
December 20, 2029
June 11, 2027
December 11, 2030
December 16, 2025
December 18, 2028
Annual
Interest Rate (%)
3.985
3.730
3.556
2.987
3.444
2.876
Variable (1)
3.834
2.757
3.526
3.192
3.648
1.740
2.307
3.139 (2)
Unamortized financing costs
December 31, 2020
December 31, 2019
200,000
150,000
160,000
100,000
250,000
150,000
—
250,000
323,120
450,000
300,000
300,000
350,000
300,000
3,283,120
(11,495)
3,271,625
200,000
150,000
160,000
100,000
250,000
150,000
250,000
250,000
350,000
450,000
—
—
—
—
2,310,000
(8,743)
2,301,257
(1)
(2)
(3)
These unsecured debentures carried a floating rate of three-month CDOR plus 66 basis points.
Represents the weighted average annual interest rate and excludes deferred financing costs.
The 3.730% Series M senior unsecured debentures and the 2.876% Series Q senior unsecured debentures were subsequently redeemed in January 2021.
70 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2020 ANNUAL REPORT
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MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
Unsecured debenture activities for the year ended December 31, 2020
Issuances
In June 2020, the Trust issued $300.0 million of 3.192% Series V senior unsecured debentures and $300.0 million of
3.648% Series W senior unsecured debentures (net proceeds of the two issuances in aggregate after issuance costs –
$597.7 million). The Series V debentures will mature on June 11, 2027 and the Series W debentures will mature on
December 11, 2030. Both debentures have semi-annual payments due on June 11 and December 11 of each year,
commencing on December 11, 2020. The proceeds from the issuances were principally used to repay Series R unsecured
debentures in December 2020, other existing indebtedness and for general Trust purposes.
In December 2020, the Trust issued $350.0 million of 1.740% Series X senior unsecured debentures and $300.0 million of
2.307% Series Y senior unsecured debentures (net proceeds of the two issuances in aggregate after issuance costs –
$647.6 million). The Series X debentures will mature on December 16, 2025 and the Series Y debentures will mature on
December 18, 2028. Series X debentures have semi-annual payments due on June 16 and December 16, and Series Y
debentures have semi-annual payments due on June 18 and December 18 each year, commencing on June 16, 2021 and
June 18, 2021, respectively. The proceeds from the issuances, together with cash on hand, were used to redeem the
3.730% Series M senior unsecured debentures and the 2.876% Series Q senior unsecured debentures in January 2021 and
will also be used to repay the 2.757% Series T senior unsecured debentures due June 2021.
Repayment on Maturity
In December 2020, the Trust repaid the $250.0 million aggregate principal of Series R senior unsecured debentures upon
their maturity, paying accrued interest of $0.7 million. The repayment was funded by the proceeds from the issuances of
Series V and Series W senior unsecured debentures in June 2020, as noted above.
Redemptions
In December 2020, the Trust announced the redemption of 3.730% Series M senior unsecured debentures and 2.876%
Series Q senior unsecured debentures, in aggregate principal amounts of $150.0 million and $150.0 million, respectively,
with yield maintenance costs and accrued interest payable. The redemptions were settled in January 2021 (see also the
Trust's consolidated financial statements for the year ended December 31, 2020, Note 28, “Subsequent events”). For the
year ended December 31, 2020, the Trust recorded yield maintenance costs of $11.1 million relating to the redemptions. The
redemptions were funded by the proceeds from the issuance of Series X and Series Y senior unsecured debentures in
December 2020, as noted above.
In December 2020, the Trust purchased in the open market and cancelled $26.9 million of 2.757% Series T senior
unsecured debentures.
Unsecured debenture activities for the year ended December 31, 2019
Issuances
In December 2019, the Trust issued $450.0 million of 3.526% Series U senior unsecured debentures (net proceeds after
issuance costs – $448.2 million), which are due on December 20, 2029 with semi-annual payments due on June 20 and
December 20 of each year. The proceeds were used to repay existing indebtedness, to fund a property acquisition and for
general Trust purposes.
In March 2019, the Trust issued $350.0 million of 2.757% Series T senior unsecured debentures (net proceeds including
issuance costs – $349.3 million), which are due on June 23, 2021 with semi-annual payments due on June 23 and
December 23 of each year. The proceeds were used to repay existing indebtedness and for general Trust purposes.
Redemptions
In June 2019, the Trust redeemed $150.0 million aggregate principal of 3.749% Series L senior unsecured debentures. In
addition to paying accrued interest of $2.1 million, the Trust paid a yield maintenance fee of $4.0 million in connection with
the redemption. The redemption was funded by advances from the non-revolving credit facility.
In March 2019, the Trust redeemed $150.0 million aggregate principal of 4.05% Series H senior unsecured debentures. In
addition to paying accrued interest of $0.7 million, the Trust paid a yield maintenance fee of $3.3 million in connection with
the redemption. The redemption was funded by advances from the non-revolving credit facility.
Credit Rating of Unsecured Debentures
DBRS provides credit ratings of debt securities for commercial issuers that indicate the risk associated with a borrower’s
capabilities to fulfill its obligations. An investment-grade rating must exceed “BB”, with the highest rating being “AAA”. The
Trust received a credit rating upgrade on December 6, 2019, and unsecured debentures issued after this date are rated
“BBB(H)” with a stable trend as at December 31, 2020.
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MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT MANAGEMENT’S DISCUSSION AND ANALYSIS
b) Credit facilities
The following table summarizes the activity for revolving and non-revolving unsecured credit facilities:
(in thousands of dollars)
(Issued In)
Maturity Date
Annual
Interest Rate (%)
Facility
Amount December 31, 2020 December 31, 2019
Non-revolving:
August 2018(1)
March 2019(2)
May 2019(3)
Revolving:
May 2020(4)
January 31, 2025
March 7, 2024
June 24, 2024
2.980
3.590
3.146
80,000
150,000
170,000
May 11, 2021
BA + 1.450
60,000
Less: Unamortized financing costs
80,000
150,000
170,000
400,000
—
400,000
(696)
399,304
80,000
150,000
170,000
400,000
—
400,000
(898)
399,102
(1)
(2)
(3)
(4)
This credit facility was due to mature on August 29, 2023, bearing interest at a variable interest rate. In January 2020, the maturity date was extended to January 31, 2025, with
the interest fixed at 2.98%.
$150.0 million was drawn to fund the redemption of 4.050% Series H senior unsecured debentures in March 2019.
$170.0 million was drawn to fund the redemption of 3.749% Series L unsecured debentures and for general Trust purposes in May 2019.
In May 2020, the Trust obtained $60.0 million of unsecured revolving facilities for the construction of self-storage facilities, bearing interest at a variable interest rate based on
either bank prime rate plus 45 basis points or the banker’s acceptance rate plus 145 basis points, which matures on May 11, 2021. The facility includes an undrawn accordion
feature of $60.0 million whereby the Trust has an option to increase its facility amount with the lenders.
c) Other unsecured debt
Other unsecured debt totalling $211.4 million (December 31, 2019 – $83.3 million) pertains to loans received from equity
accounted investments (see also, “Equity accounted investments”) in connection with contribution agreements relating to
joint ventures. The loans are non-interest bearing with repayment terms based on the distributions that are to be paid
pursuant to the limited partnership agreements (see also, “Related Party Transactions”). The balances of the loans are
expected to be paid at the end of their respective terms.
The following table summarizes components of the Trust’s other unsecured debt:
(in thousands of dollars)
PCVP (5.00% discount rate)(1)
PCVP (5.75% discount rate)(2)
Laval C Apartment LP
Scarborough East Self Storage LP
Vaughan NW SAM LP
VMC Residences LP(3)
December 31, 2020
December 31, 2019
79,624
76,747
1,321
265
—
53,477
211,434
80,862
—
2,214
—
220
—
83,296
(1)
(2)
(3)
In connection with the 700 Applewood purchase, in December 2019, the loan has a principal amount outstanding of $103.8 million (December 31, 2019 – $109.2 million), is non-
interest bearing, and is repayable at the end of 10 years. As at December 31, 2020, the loan balance of $79.6 million is net of a fair value adjustment totalling $24.1 million.
In connection with the 700 Applewood purchase, in March 2020, the Trust assumed a loan payable to PCVP from Penguin. The loan has a principal amount outstanding of
$103.8 million, is non-interest bearing, and is repayable at the end of 10 years. As at December 31, 2020, the loan balance of $76.7 million is net of a fair value adjustment
totalling $27.0 million. See also Note 5(b) in the consolidated financial statements for the year ended December 31, 2020 reflecting offsetting loan receivable amount.
In connection with the Transit City condominium closings during the period from September to December 2020, the Trust received amounts that are non-interest bearing and
were settled subsequent to year end.
Revolving Operating Facility
As at December 31, 2020, the Trust had a $500.0 million unsecured revolving operating facility bearing interest at a variable
interest rate based on either bank prime rate plus 20 basis points or the banker’s acceptance rate plus 120 basis points, which
matures on September 30, 2024. In addition, the Trust has an undrawn accordion feature of $250.0 million whereby the Trust has
an option to increase its facility amount with the lenders to sustain future operations as required.
(in thousands of dollars)
Revolving operating facility
Letters of credit – outstanding
Remaining unused operating facility
Operating facility – accordion feature (undrawn)
December 31, 2020 December 31, 2019
500,000
(8,627)
491,373
250,000
741,373
500,000
(8,844)
491,156
250,000
741,156
In addition to the letters of credit outstanding on the Trust’s revolving operating facility (see above), the Trust also has $20.6
million of letters of credit outstanding with other financial institutions as at December 31, 2020 (December 31, 2019 – $26.5
million).
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MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
Unencumbered Assets
As at December 31, 2020, the Trust had $5.8 billion of unencumbered assets (December 31, 2019 – $5.7 billion), which reflects
the Trust’s share of the value of investment properties. Expressed as a percentage, the Trust earned approximately 59.4% of its
NOI from unencumbered assets (December 31, 2019 – 65.8%). In connection with this pool of unencumbered assets,
management estimates the total Forecasted Annualized NOI for 2021 to be $325.9 million (December 31, 2019 – $339.5 million).
Forecasted Annualized NOI is computed by annualizing the current quarter NOI for the Trust’s income properties that are not
encumbered by secured debt, and is a forward-looking non-GAAP measure. See “Presentation of Certain Terms Including Non-
GAAP Measures”.
Interest Expense
The following table summarizes the components of interest expense:
(in thousands of dollars)
Interest at stated rates
Amortization of acquisition date fair value
adjustments on assumed debt
Amortization of deferred financing costs
Yield maintenance costs on redemption of debt and
related write-off of unamortized financing costs
Distributions on vested deferred units and Units
classified as liabilities
Three Months Ended December 31
Year Ended December 31
2020
2019
Variance
2020
2019
Variance
41,071
37,076
3,995 157,635 149,215
8,420
(191)
1,087
(431)
952
240
135
(857)
(2,002)
1,145
4,130
3,811
319
11,954
12,648
(694)
11,954
20,513
(8,559)
1,521
1,365
156
5,785
5,385
400
Total interest expense before interest capitalized
(A)
55,442
51,610
3,832 178,647 176,922
1,725
Less:
Interest capitalized to properties under development
(3,693)
(5,057)
1,364
(17,689)
(18,956)
1,267
Interest capitalized to residential development
inventory
Total interest capitalized
(230)
(234)
4
(914)
(928)
14
(B)
(3,923)
(5,291)
1,368
(18,603)
(19,884)
1,281
Total interest expense
(C = A + B)
51,519
46,319
5,200 160,044 157,038
3,006
Capitalized interest as a percentage of interest
expense(1)
(D = B / A)
7.1 %
10.3 %
(3.2) %
10.4 %
11.2 %
(0.8) %
For the three months ended December 31, 2020, interest expense totalled $51.5 million, representing an increase of $5.2 million
as compared to the same period in 2019, which was primarily due to the following:
•
•
$3.8 million increase in interest expense before interest capitalized, which principally resulted from a higher debt level
during the three months ended December 31, 2020 as compared to the same period in 2019. This was in large part due
to the unsecured debentures issued during the year net of repayment and redemption, as discussed in the year to date
commentary below (see also the “Debt” section for details); and
$1.4 million decrease in interest capitalized, principally due to a decrease in interest capitalized to properties under
development.
For the year ended December 31, 2020, interest expense totalled $160.0 million, representing an increase of $3.0 million as
compared to 2019, which was primarily due to the following:
•
•
•
$9.9 million increase in interest at stated rates, amortization of acquisition date fair value adjustments on assumed debt,
and amortization of deferred financing costs, which was primarily due to the unsecured debentures issued during the
year totalling $1.3 billion ($600.0 million in June 2020 and $650.0 million in December 2020) net of repayment and
redemptions totalling $576.9 million ($250.0 million relating to Series R, $150.0 million relating to Series M, $150.0
million relating to Series Q, and $26.9 million relating to Series T) (see “Debt” section for details);
$1.3 million decrease in interest capitalized, principally due to a decrease in interest capitalized to properties under
development; and
$0.4 million increase in distributions on vested deferred units and Units classified as liabilities, principally due to the
growth in the deferred unit population as compared to 2019;
Partially offset by:
•
$8.6 million decrease in yield maintenance costs on redemption of debt and related write-off of unamortized financing
costs, principally due to the greater amount of early redemptions of unsecured and secured debt in 2019.
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MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
Financial Covenants
The Trust's revolving operating facility and unsecured debt contain numerous terms and covenants that limit the discretion of
management with respect to certain business matters. These covenants could in certain circumstances place restrictions on,
among other things, the ability of the Trust to create liens or other encumbrances, to pay distributions on its Units or make certain
other payments, investments, loans and guarantees and to sell or otherwise dispose of assets and merge or consolidate with
another entity.
In addition, the Trust's revolving operating facility and unsecured debt contain a number of financial covenants that require the
Trust to meet certain financial ratios and financial condition tests. A failure to comply with the financial covenants in the revolving
operating facility and unsecured debt could result in a default, which, if not cured or waived, could result in a reduction,
suspension or termination of distributions by the Trust and permit acceleration of the relevant indebtedness.
The following table presents ratios which the Trust monitors. These ratios are either requirements stipulated by the Declaration of
Trust or significant financial covenants pursuant to the terms of revolving operating facilities and other credit facilities or
indentures, or indicators monitored by the Trust to manage an acceptable level of leverage. These ratios are not considered
measures in accordance with IFRS; nor is there an equivalent IFRS measure. See “Presentation of Certain Terms Including Non-
GAAP Measures”.
For the year ended December 31, 2020, the Trust was in compliance with all financial covenants.
Ratios
Interest coverage(1)
Interest coverage (net of capitalized interest expense)(2)
Fixed charge coverage(3)
Debt to aggregate assets(3)(4)(5)
Debt to Gross Book Value (excluding convertible debentures)(1)(4)(5)
Debt to Gross Book Value (including convertible debentures)(1)(4)(5)
Secured debt to aggregate assets(3)(5)
Unsecured to Secured debt ratio(2)(5)
Unencumbered assets to unsecured debt(3)(5)
Adjusted Debt to Adjusted EBITDA(2)(5)
Unitholders’ equity (in thousands)(1)(3)
Threshold
December 31, 2020
December 31, 2019
≥ 1.65X
N/A(6)
≥ 1.5X
≤ 65%
≤ 60%
≤ 65%
≤ 40%
N/A(6)
≥ 1.3X
N/A(6)
3.2X
3.7X
2.5X
44.6 %
50.1 %
50.1 %
14.5 %
3.5X
4.0X
2.4X
42.3 %
49.0 %
49.0 %
15.6 %
68%/32%
63%/37%
1.9X
8.5X
2.1X
8.0X
≥ $2,000,000
$5,166,975
$5,367,752
(1)
(2)
(3)
(4)
(5)
(6)
This ratio is required by the Trust’s indentures.
This ratio is disclosed for informational purposes only.
This ratio is a significant financial covenant pursuant to the terms of revolving operating facilities and other credit facilities.
This ratio is stipulated by the Declaration of Trust.
As at December 31, 2020, cash-on-hand of $754.4 million (December 31, 2019 – $37.0 million) was excluded for the purposes of calculating the ratios.
Not applicable.
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MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT MANAGEMENT’S DISCUSSION AND ANALYSIS
Unitholders’ Equity
The Unitholders’ equity of the Trust is calculated based on the equity attributable to the holders of Trust Units and LP Units
(“Exchangeable Securities”) that are exchangeable into Trust Units on a one-for-one basis. These LP Units consist of certain
Class B Units of the Trust’s subsidiary limited partnerships. Certain of the Trust’s subsidiary limited partnerships also have Units
classified as liabilities that are exchangeable on a one-for-one basis for Units. The following table is a summary of the number of
Units outstanding:
Type
Trust Units
Smart Limited Partnership
Smart Limited Partnership
Smart Limited Partnership
Smart Limited Partnership II
Smart Limited Partnership III
Smart Limited Partnership III
Smart Limited Partnership III
Smart Limited Partnership III
Smart Limited Partnership III
Smart Limited Partnership IV
Smart Oshawa South Limited Partnership
Class and Series
N/A
Class B Series 1
Class B Series 2
Class B Series 3
Class B
Class B Series 4
Class B Series 5
Class B Series 6
Class B Series 7
Class B Series 8
Class B Series 1
Class B Series 1
Smart Oshawa Taunton Limited Partnership Class B Series 1
Smart Boxgrove Limited Partnership
Class B Series 1
Total Units classified as equity
Smart Limited Partnership
Smart Limited Partnership
Smart Oshawa South Limited Partnership
ONR Limited Partnership
ONR Limited Partnership I
ONR Limited Partnership I
Total Units classified as liabilities
Class D Series 1
Class F Series 3
Class D Series 1
Class B
Class B Series 1
Class B Series 2
December 31, 2020
December 31, 2019
144,618,657
14,746,176
950,059
720,432
756,525
705,420
572,337
596,288
434,598
1,698,018
3,067,593
710,416
374,223
170,000
170,120,742
311,022
8,708
260,417
1,248,140
132,881
139,302
2,100,470
144,038,363
14,746,176
950,059
720,432
756,525
668,428
572,337
449,375
434,598
1,698,018
3,067,593
710,416
374,223
—
169,186,543
311,022
4,886
260,417
1,248,140
132,881
139,302
2,096,648
Variance (#)
580,294
—
—
—
—
36,992
—
146,913
—
—
—
—
—
170,000
934,199
—
3,822
—
—
—
—
3,822
Total Units
172,221,212
171,283,191
938,021
As of February 10, 2021, the Trust has 170,140,696 Units outstanding which are classified as equity, and 2,100,470 Units
outstanding which are classified as liabilities.
The following table is a summary of the activities having an impact on Unitholders’ equity:
(in thousands of dollars)
Unitholders' Equity – beginning of year
Issuance of Trust Units
Units issuance cost
Deferred Units exchanged for Trust Units
Trust options exercised for Trust Units
Issuance of LP Units classified as equity
Net income and comprehensive income
Return of contributions by other non-controlling interest
Distributions
Unitholders' Equity – end of year
Year Ended
Year Ended
December 31, 2020
December 31, 2019
5,367,752
17,335
—
32
—
6,848
89,940
(55)
(314,877)
5,166,975
5,008,331
299,693
(9,635)
63
1,631
621
374,203
—
(307,155)
5,367,752
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MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
Distributions
The Trust's Board of Trustees is responsible for approving distributions and as a result of the COVID-19 pandemic is
continuously reviewing the level of monthly distributions paid to Unitholders by the Trust. Please see “Risks and Uncertainties”
for a description of risks pertaining to the potential impact of the COVID-19 pandemic.
Effective April 13, 2020, the Trust suspended its DRIP. Beginning with the April 2020 distribution, plan participants receive
distributions in cash.
During the year ended December 31, 2020, distributions declared by the Trust totalled $318.8 million of which $314.9 million
relates to distributions on Units classified as equity, and $3.9 million relates to distributions on Units classified as liabilities that is
treated as interest expense (during the year ended December 31, 2019 – $310.7 million, $306.9 million on Units classified as
equity, and $3.8 million relates to distributions on Units classified as liabilities that is treated as interest expense), or $1.8500 per
Unit (during the year ended December 31, 2019 – $1.8125 per Unit).
For the year ended December 31, 2020, the Trust paid $301.4 million in cash distributions and the balance of $17.3 million by
issuing 578,744 Trust Units under the DRIP (for the year ended December 31, 2019 – $241.0 million in cash distributions and the
balance of $69.7 million by issuing 2,125,071 Trust Units under the DRIP).
The following table summarizes declared distributions and declared distributions, net of DRIP:
(in thousands of dollars)
Distributions declared on:
Trust Units
LP Units
Distributions on Units classified as equity
Distributions on Units classified as liabilities
Total distributions declared
Distributions reinvested through DRIP
Total distributions declared, net of DRIP
DRIP as a percentage of total distributions declared
Year Ended December 31
2020
2019
267,976
46,901
314,877
3,881
318,758
(17,335)
301,423
5.4%
261,301
45,556
306,857
3,794
310,651
(69,693)
240,958
22.4%
Normal Course Issuer Bid
The Trust commenced a normal course issuer bid (“NCIB”) program on March 31, 2020. The NCIB program will terminate on
March 30, 2021, or on such earlier date as the Trust may complete its purchases pursuant to the notice filed with the TSX. Under
the NCIB program, the Trust is authorized to purchase up to 6,500,835 of its Trust Units representing approximately 5% of the
public float as at March 23, 2020, by way of normal course purchases effected through the facilities of the TSX and/or alternative
Canadian trading systems. All Trust Units purchased by the Trust will be cancelled.
During the year ended December 31, 2020, the Trust did not purchase any Trust Units under the NCIB.
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MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
Section VIII — Related Party Transactions
Pursuant to the Declaration of Trust, provided certain ownership thresholds are met, the Trust is required to issue such number
of additional Special Voting Units to Penguin that will entitle Penguin to cast 25.0% of the aggregate votes eligible to be cast at a
meeting of the Unitholders and Special Voting Unitholders (“Voting Top-Up Right”). As at December 31, 2020, there were
8,241,544 additional Special Voting Units outstanding (December 31, 2019 – 9,427,089). These Special Voting Units are not
entitled to any interest or share in the distributions or net assets of the Trust, nor are they convertible into any Trust securities.
There is no value assigned to the Special Voting Units. A five-year extension of the Voting Top-Up Right was approved by
Unitholders at the Trust’s most recent annual general and special meeting held on December 9, 2020. For further details, see the
Trust’s management information circular dated November 6, 2020, filed on the System for Electronic Document Analysis and
Retrieval (“SEDAR”).
As at December 31, 2020, Penguin owned 21.4% of the aggregate issued and outstanding Trust Units in addition to the Special
Voting Units previously noted above. Penguin’s ownership of Trust Units would increase to 25.4% if Penguin exercised all
remaining options to purchase Units pursuant to existing development and exchange agreements (Earnouts). In addition, the
Trust has entered into property management, leasing, development and exchange, and co-ownership agreements with Penguin.
Pursuant to its rights under the Declaration of Trust, as at December 31, 2020, Penguin has appointed two of the eight trustees.
The Trust entered into various agreements with Penguin in November 2020 coincident with the extension of the term of the
Voting Top-Up Right. For further details, see the Trust’s management information circular dated November 6, 2020, filed on
SEDAR and below.
Supplement to Development Services Agreement between the Trust and its affiliates and Penguin
The following represent the key elements of this agreement which is effective from July 1, 2020 until December 31,
2025:
a) Penguin shall be reimbursed for 50% of disposition fees otherwise payable pursuant to the Development
b)
Services Agreement related to Penguin’s interest in properties sold by the Trust,
for future VMC commercial phases and certain properties currently owned by Penguin (for which the Trust was
historically assisted with development and planning requirements), all development fees are payable to
Penguin and all other fees (management, leasing, etc.) are payable to the Trust,
d)
c) when Penguin utilizes employees of the Trust to assist with its development projects, Penguin will pay for
these services provided by employees of the Trust based on annual estimates of time billings related to these
projects, charged at estimated total cost, including compensation,
for a property owned by a third party which is managed by Penguin in Richmond, BC, the Trust will be paid
50% of the management and leasing fees, and 100% of costs associated with Trust employees/personnel who
service this particular property,
for Penguin’s 50% interest in a property in Toronto co-owned with Revera to develop a retirement home,
Penguin will pay 50% of the development fees it earns to the Trust for the development services provided by
the Trust, and
the Trust will continue to manage and develop all other Penguin properties.
e)
f)
Support services are provided for a fee based on an allocation of the Trust’s relevant costs of the support services to
Penguin. Such relevant costs include: office administration, human resources, information technology, insurance, legal
and marketing.
Penguin Services Agreement
The amended and restated services agreement entered into on November 5, 2020 (the “Penguin Services Agreement”),
and effective from February 2018 reflects the additional services provided by Penguin since that time. Under the
agreement, Penguin provides specified services to the Trust in connection with the development of its projects. In return
for those services, Penguin is entitled to receive: (i) a fixed quarterly fee of $1,000 (subject to inflation-related
increments after 2018) and (ii) an annual variable fee between $1,500 and $3,500 (also inflation-adjusted after 2018)
that is based on the achievement of the Trust-level targets for “New Development Initiatives” and “New Projects” that
the Trust uses to measure the performance of its executive officers and other annual targets (other than such Trust-level
targets) of a similar nature that the Trust uses to measure the performance of its executive officers as determined by the
Board of Trustees from time to time.
Omnibus Agreement between the Trust and Penguin
Effective December 9, 2020, pursuant to an omnibus agreement between the Trust and Penguin (the “Omnibus
Agreement”), Penguin has the option to extend all Earnouts by two years from the previous expiry date, and the Trust
has been given a right of first offer in connection with the sale of the economic and financial benefits and rights of any
such development parcel during any extended period. In addition, this agreement provides for the payment of certain
outstanding immaterial amounts between the parties.
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MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT MANAGEMENT’S DISCUSSION AND ANALYSIS
Mezzanine Loan Amending Agreements between the Trust and its affiliates and Penguin
Effective November 5, 2020, all loan maturity dates have been extended to August 31, 2028, with a new rate structure
for the extension period of each mortgage receivable (see also Note 5 “Mortgages, loans and notes receivable”). The
Trust’s purchase option periods have been extended and because these properties may now be subject to mixed-use
development projects, the agreements provide that the parties establish a new framework for the purchase options for
the Trust related to mixed-use development.
Non-Competition Agreement
A new non-competition agreement with Penguin replaces and supersedes the previous non-competition agreement
extending the term by 5 years and broadening restricted competing initiatives to include various forms of mixed-use
development.
Executive Employment Agreement
This new agreement confirms Mr. Goldhar’s position as Executive Chairman of the Trust for the period from February
14, 2018 to December 31, 2025, for which Mr. Goldhar receives a salary, bonus, customary benefits, and is eligible to
participate in the Trust’s Deferred Unit Plan and the Equity Incentive Plan (see below).
Equity Incentive Plan
In January 2021, the Trust granted 900,000 Performance Units to Mitchell Goldhar pursuant to the Equity Incentive Plan
(“EIP”) adopted by Unitholders effective December 9, 2020, which are subject to the achievement of Unit price
thresholds. The performance period for this award granted under the EIP is from January 1, 2021 to December 31,
2027. The vesting period for these Performance Units will commence on the date that the applicable performance
measure is achieved, and will end on the earlier of the third anniversary of the date that the applicable performance
period is achieved and the end of the performance period. Distributions on these Performance Units will accumulate
from January 1, 2021. Provided the various performance measures are achieved, the Performance Units will be
exchanged for Trust Units or paid out in cash (see also Note 21, “Related party transactions”, in the Trust’s consolidated
financial statements for the year ended December 31, 2020).
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MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT MANAGEMENT’S DISCUSSION AND ANALYSIS
In addition to related party transactions and balances disclosed elsewhere in the Trust’s consolidated financial statements
(including Note 3 referring to the purchase of Earnouts, Note 4(c) referring to Leasehold property interests, Note 5 referring to
Mortgages, loans and notes receivable, Note 6(a)(ii) referring to a supplemental development fee agreement, Note 7 referring to
Other assets, Note 10 referring to Amounts receivable and other, Note 12 referring to Accounts payable and other payables, Note
13 referring to Other financial liabilities, Note 17 referring to Rentals from investment properties and other, Note 18 referring to
Property operating costs and other, and Note 19 relating to General and administrative expenses), the following table
summarizes related party transactions and balances with Penguin and other related parties, including the Trust’s share of
amounts relating to the Trust’s share in equity accounted investments:
Note(1)
Year Ended December 31
2020
2019
(in thousands of dollars)
Related party transactions with Penguin
Revenues:
Service and other revenues:
Transition services fee revenue
Management fee and other services revenue pursuant to the Development and Services
Agreement
Support services
Interest income from mortgages and loans receivable
Rents and operating cost recoveries included in rentals from income properties (includes
rental income from Penguin Pick-Up of $245 (Year Ended December 31, 2019 - $326))
833
6,956
763
8,552
7,626
1,078
17,256
17
5
17
Expenses and other payments:
Master planning services:
Capitalized to properties under development
19
6,880
Development fees and interest expense (capitalized to investment properties)
Rent and operating costs (included in general and administrative expense and property
operating costs)
Marketing, time billings and other administrative costs (included in general and
administrative expense and property operating costs)
Expenditures on tenant inducement
10
—
112
72
7,074
2,417
4,974
1,209
8,600
8,333
1,270
18,203
9,100
11
397
283
—
9,791
Related party transactions with PCVP
Revenues:
Interest income from mortgages and loans receivable
5
2,580
1,827
Expenses and other payments:
Rent and operating costs (included in general and administrative expense and property
operating costs)
18, 19
2,634
1,953
(1)
Relates to the corresponding Note disclosure in the consolidated financial statements for the year ended December 31, 2020.
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MANAGEMENT’S DISCUSSION AND ANALYSIS
(in thousands of dollars)
Note(1)
December 31, 2020 December 31, 2019
Related party balances with Penguin disclosed elsewhere in the financial statements
Receivables:
Amounts receivable(2)
Mortgages receivable (see below)
Loans receivable
Notes receivable
Total receivables
Payables and other accruals:
Accounts payable and accrued liabilities
Future land development obligations (see below)
Secured debt
Total payables and other accruals
10
5(a)
5(b)
5(c)
12
12
1,310
144,205
104,143
2,924
252,582
6,406
18,410
—
24,816
7,958
138,762
24,388
2,979
174,087
8,893
27,074
318
36,285
(1)
(2)
The Note reference relates to the corresponding Note disclosure in the consolidated financial statements for the year ended December 31, 2020.
Excludes amounts receivable presented below as part of balances with equity accounted investments.
The following table summarizes the related party balances with the Trust’s equity accounted investments:
As at
Note(1)
December 31, 2020
December 31, 2019
Related party balances disclosed elsewhere in the financial statements
Amounts receivable(2)
Loans receivable(3)
Amounts payable(4)
Other unsecured debt
10
5(b)
11(b)(iii)
1
134,690
—
211,434
1,690
92,427
2,024
83,296
(1) The Note reference relates to the corresponding Note disclosure in the consolidated financial statements for the year ended December 31, 2020.
(2) Amounts receivable includes Penguin’s portion, which represents $nil (December 31, 2019 – $0.8 million) relating to Penguin’s 50% investment in PCVP and 25% investment in
Residences LP.
(3) Loans receivable includes Penguin’s portion, which represents $47.5 million (December 31, 2019 – $46.2 million) relating to Penguin’s 50% investment in PCVP.
(4) Amounts payable includes Penguin’s portion, which represents $nil (December 31, 2019 – $1.0 million) relating to Penguin’s 50% investment in PCVP.
Mortgages receivable
As at December 31, 2020, the weighted average interest rate associated with mortgages receivable from Penguin was 4.51%
(December 31, 2019 – 5.38%) (see also Note 5, “Mortgages, loans and notes receivable” in the Trust’s consolidated financial
statements for the year ended December 31, 2020).
Future land development obligations
The future land development obligations represent payments required to be made to Penguin for certain undeveloped lands
acquired by the Trust from Penguin from 2006 to 2015, either on completion and rental of additional space on the undeveloped
lands or, in some cases if no additional space is completed on the undeveloped lands, at the expiry of the development
management agreement periods ending from 2021 to 2025, which may be extended to 2022 to 2027. The accrued future land
development obligations are measured at their amortized values using imputed interest rates ranging from 4.50% to 5.50% (see
also Note 4, “Investment properties”, in the Trust’s consolidated financial statements for the year ended December 31, 2020).
Leasehold interest properties
The Trust has entered into leasehold agreements with Penguin for 16 investment properties (see also Note 4, “Investment
properties” in the Trust’s consolidated financial statements for the year ended December 31, 2020).
Other related party transactions:
The following table summarizes other related party transactions:
(in thousands of dollars)
Legal fees incurred from a law firm in which a partner is a Trustee:
Capitalized to investment properties
Included in general and administrative expense
Year Ended December 31
2020
2019
2,214
1,887
4,101
1,624
524
2,148
Acquisition completed through PCVP during the year ended December 31, 2019
In December 2019, the Trust acquired from Penguin, through PCVP, a 50% interest in a parcel of land with approximately 15.5
acres in Vaughan, Ontario, proximate to SmartVMC, which is a 50:50 joint arrangement with Penguin, for a purchase price of
$109.2 million paid in cash, adjusted for other working capital amounts.
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MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
Section IX — Accounting Policies, Risk Management and Compliance
Significant Accounting Estimates and Policies
In preparing the Trust’s consolidated financial statements and accompanying notes, it is necessary for management to make
estimates, assumptions and judgments that affect the reported amounts of assets and liabilities, the disclosure of contingent
assets and liabilities, and the reported amounts of revenue and expenses during the period. The significant accounting policies of
the Trust are as follows:
Investment properties
Investment properties include income properties and properties under development (land or building, or part of a building, or
both) that are held by the Trust, or leased by the Trust as a lessee, to earn rentals or for capital appreciation or both.
Acquired investment properties are measured initially at cost, including related transaction costs in connection with asset
acquisitions. Certain properties are developed by the Trust internally, and other properties are subject to Earnouts. Earnouts
occur when the vendors retain responsibility for managing certain developments on land acquired by the Trust for additional
proceeds paid on completion calculated based on a predetermined, or formula-based, capitalization rate, net of land and
development costs incurred by the Trust (see Note 4(d)(ii), “Investment properties” in the consolidated financial statements for
the year ended December 31, 2020). The completion of an Earnout is reflected as an additional purchase in Note 3, “Acquisitions
and Earnouts” in the consolidated financial statements for the year ended December 31, 2020. Costs capitalized to properties
under development include direct development and construction costs, Earnout Fees, borrowing costs, property taxes and other
carrying costs, as well as capitalized staff compensation and other costs directly attributable to property under development.
Borrowing costs that are incurred for the purpose of, and are directly attributable to, acquiring or constructing a qualifying
investment property are capitalized as part of its cost. The amount of borrowing costs capitalized is determined first by reference
to borrowings specific to the project, where relevant, and otherwise by applying a weighted average cost of borrowings to eligible
expenditures after adjusting for borrowings associated with other specific developments. Borrowing costs are capitalized while
acquisition or construction is actively underway and ceases once the asset is ready for use as intended by management or
suspended if the development of the asset is suspended, as identified by management.
After the initial recognition, investment properties are recorded at fair value, determined based on comparable transactions, if
any. If comparable transactions are not available, the Trust uses alternative valuation methods such as: i) the direct income
capitalization method, ii) land, development and construction costs recorded at market value, and iii) the discounted cash flow
valuation method. Valuations, where obtained externally, are performed during the year with quarterly updates on capitalization
rates by professional valuers who hold recognized and relevant professional qualifications and have recent experience in the
location and category of the investment property being valued. Related fair value gains and losses are recorded in the
consolidated statements of income and comprehensive income in the period in which they arise.
Investment property held by the Trust under a lease is classified as investment property when the definition of an investment
property is met and the Trust accounts for the lease as a right-of-use asset. The Trust accounts for all leasehold property
interests that meet the definition of investment property held by the Trust as right-of-use assets.
Subsequent expenditure is capitalized to the investment property's carrying amount only when it is probable that future economic
benefits associated with the expenditure will flow to the Trust and the cost of the item can be measured reliably. All other repairs
and maintenance costs are expensed when incurred. When part of an investment property is replaced, the carrying amount of
the replaced part is derecognized.
Initial direct leasing costs incurred by the Trust in negotiating and arranging tenant leases are added to the carrying amount of
investment properties.
Revenue Recognition
Rentals from investment properties and other
The Trust's rentals from investment properties and other comes from different sources and is accounted for in accordance with
IFRS 15 and IFRS 16.
a) Rentals from investment properties
The Trust's lease agreements may contain both lease and non-lease elements. IFRS 16 requires lessors to allocate
consideration in the contracts between lease and non-lease components based on their relative standalone prices. Rentals
from investment properties accounted for using IFRS 16 (lease components) include rents from tenants under leases,
recoveries of property tax and operating costs that do not relate to additional services provided to lessees, percentage
participation rents, lease cancellation fees, parking income and some incidental lease-related income. Rents from tenants
may include free rent periods and rental increases over the term of the lease and are recognized in revenue on a straight-
line basis over the term of the lease. The difference between revenue income recognized and the cash received is included
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in other assets as straight-line rent receivable. Lease incentives provided to tenants are deferred and are amortized against
revenue rental income over the term of the lease. Percentage participation rents are recognized after the minimum sales
level has been achieved with each lease. Lease cancellation fees are recognized as revenue income once an agreement is
completed with the tenant to terminate the lease and the collectibility is probable.
Rentals from investment properties also include certain amounts accounted for under IFRS 15 (non-lease components)
where the Trust provides lessees or others with a distinct service. Non-lease components include revenue in a form of
recoveries of operating costs where services are provided to tenants (common area maintenance recoveries, chargeback
recoveries and administrative recoveries), parking revenue and revenue from other services that are distinct. The
respective performance obligations are satisfied as services are rendered and revenue is recognized over time. See also
Note 17 of the consolidated financial statements for details on amounts related to lease and non-lease components.
Typically, revenue from operating costs recoveries and other services is collected from tenants on a monthly basis, parking
revenue is collected at the day when the respective service has been provided. This results in immaterial contract balances
as at each reporting date.
b) Service and other revenues
The Trust provides asset and property management services to co-owners, partners and third parties for which it earns
market-based construction, development and other fees. These fees are recognized over time in accordance with IFRS 15
as the service or activity is performed. Where a contract has multiple deliverables, the Trust identifies the different
performance obligations of the contract and recognizes the revenue allocated to each obligation as the respective
obligation is met.
The Trust recognizes non-lease component revenue to depict the transfer of goods or services to customers in amounts
that reflect the consideration to which the Trust expects to be entitled in exchange for those goods or services. It applies to
all contracts with customers, excluding leases, financial instruments and insurance contracts.
Financial instruments – recognition and measurement
The Trust's financial instruments are accounted for under IFRS 9:
Initial Recognition
The Trust recognizes a financial asset or a financial liability when, and only when, it becomes a party to the contractual
provisions of the instrument. Such financial assets or financial liabilities are initially recognized at their fair value, including
directly attributable transaction costs in the case of a financial asset or financial liability not subsequently measured at fair value
through profit or loss. Transaction costs of financial assets carried at fair value through profit or loss are expensed in profit or
loss. Subsequent measurement depends on the initial classification of the financial asset or financial liability.
Classification
The classification of financial assets depends on the entity’s business model for managing the financial assets and the
contractual terms of the cash flows. Financial assets are classified and measured based on the following categories:
•
•
•
amortized cost;
fair value through other comprehensive income (“FVTOCI”); and
fair value through profit or loss (“FVTPL”).
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MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT The following table summarizes the Trust’s classification and measurement of financial assets and liabilities:
Note(1)
Classification under IFRS 9
MANAGEMENT’S DISCUSSION AND ANALYSIS
Financial assets
Mortgages and loans receivable
Amounts receivable and deposits
Cash and cash equivalents
Financial liabilities
Accounts and other payables
Secured debt
Revolving operating facility
Unsecured debt
Units classified as liabilities
Earnout options
Deferred unit plan
Interest rate swap agreements
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Amortized cost
FVTPL
FVTPL
FVTPL
FVTPL
2.13
2.13
2.13
(1) Refer to notes in the consolidated financial statements for the year ended December 31, 2020.
a) Financing costs
Financing costs include commitment fees, underwriting costs and legal costs associated with the acquisition or issuance of
financial assets or liabilities.
Financing costs relating to secured debt, non-revolving credit facilities, and convertible and unsecured debentures are
accounted for as part of the respective liability's carrying value at inception and amortized to interest expense using the
effective interest method. Financing costs incurred to establish revolving credit facilities are deferred as a separate asset on
the consolidated balance sheet and amortized on a straight-line basis over the term of the facilities. In the event any debt is
extinguished, any associated unamortized financing costs are expensed immediately.
b) Derivative instruments
Derivative financial instruments may be utilized by the Trust in the management of its interest rate exposure. Derivatives are
carried at fair value with changes in fair value recognized in net income. The Trust's policy is not to utilize derivative
instruments for trading or speculative purposes.
c) Fair value of financial and derivative instruments
The fair value of financial instruments is the amount of consideration that would be agreed upon in an arm's-length
transaction between knowledgeable, willing parties who are under no compulsion to act, i.e., the fair value of consideration
given or received. In certain circumstances, the fair value may be determined based on observable current market
transactions in the same instrument, using market-based inputs. The fair values are described and disclosed in Note 14,
“Fair value of financial instruments”.
d) Interest rate swap agreements
The Trust may enter into interest rate swaps to economically hedge its interest rate risk. The fair value of interest rate swap
agreements reflects the fair value of swap agreements at each reporting date, and is driven by the difference between the
fixed interest rate and the Canadian Dealer Offered Rate (“CDOR”).
e) Modifications or extinguishments of loans and debt
Amendments to mortgages and loans receivable and debt are assessed as either modifications or extinguishments based
on the terms of the revised agreements.
When a modification is determined, the carrying amount of the loan or debt is adjusted using the original effective interest
rate, with a corresponding adjustment recorded as a gain or loss.
When an extinguishment is determined, the new loan or debt is recorded at its fair value and a corresponding gain/loss is
recognized immediately for the difference between the carrying amount of the old loan or debt and the new loan or debt.
f) Impairment of financial assets
The Trust assesses, on a forward-looking basis, the expected credit losses (“ECL”) associated with its debt instruments
carried at amortized cost. The impairment is dependent on whether there has been a significant increase in credit risk.
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For trade receivables, the Trust applies the simplified approach permitted by IFRS 9, which requires expected lifetime
losses to be recognized from initial recognition of the receivables.
To measure the expected credit losses, trade receivables and contract assets have been grouped based on shared credit
risk characteristics and the days past due. The contract assets (“Unbilled other tenant receivables”) relate to unbilled work
in progress and have substantially the same risk characteristics as the trade receivables for the same types of contracts.
The Trust has therefore concluded that the expected loss rates for trade receivables are a reasonable approximation of the
loss rates for the contract assets. However, the assumptions and estimates underlying the manner in which ECLs have
been implemented historically may not be appropriate in the current COVID-19 pandemic environment. Accordingly, the
Trust has not applied its existing ECL methodology mechanically. Instead, during the current COVID-19 pandemic
environment, the Trust has been in discussions with tenants on a case-by-case basis to determine optimal rent payment
solutions and has incorporated this available, reasonable and supportable information when estimating ECL on tenant
receivables.
All of the Trust’s loans receivable and mortgages receivable at amortized cost are considered to have low credit risk, and
the loss allowance recognized during the period was therefore limited to 12 months expected losses. These financial assets
are considered by management to be “low credit risk” when these financial assets have a low risk of default and the
borrower has a strong capacity to meet its contractual cash flow obligations in the near term.
g) Interest Income
Interest income is recognized as interest accrues using the effective interest method. When a loan and receivable are
impaired, the Trust reduces the carrying amount to its recoverable amount, which is the estimated future cash flow
discounted at the original effective interest rate of the instrument, and continues unwinding the discount as interest income.
Interest income on impaired loans and receivables is recognized using the original effective interest rate.
Equity accounted investments
a) Investment in associates
Investment in associates are entities over which the Trust has significant influence but not control or joint control, generally
accompanying an ownership of between 20% and 50% of the voting rights. Investment in associates are accounted for
using the equity method of accounting and recorded as equity accounted investments on the consolidated balance sheet.
Under the equity method, the investment is initially recognized at cost, and the carrying amount is increased or decreased
to recognize the investor’s share of the profit or loss of the investee, including the Trust's pro rata share of changes in fair
value of investment property held by the associate from the previous reporting period, after the date of acquisition. The
Trust’s investment in associates includes any notional goodwill identified on acquisition.
b) Investment in joint ventures
A joint venture is a joint arrangement whereby the parties that have joint control only have rights to the net assets of the
arrangement. Investment in joint ventures are accounted for using the equity method of accounting and recorded as equity
accounted investments on the consolidated balance sheet. Under the equity method, the investment is initially recognized
at cost, and the carrying amount is increased or decreased to recognize the investor’s share of the profit or loss of the
investee, including the Trust's pro rata share of changes in fair value of investment property held by the equity accounted
investment from the previous reporting period, after the date of acquisition. The Trust’s investment in joint ventures includes
any notional goodwill identified on acquisition.
The Trust’s share of post-acquisition profit or loss is recognized in the consolidated statement of income and comprehensive
income with a corresponding adjustment to the carrying amount of the equity accounted investment. When the Trust’s share of
losses in an equity accounted investment equals or exceeds its interest in the equity accounted investment, including any other
unsecured receivables, the Trust does not recognize further losses, unless it has incurred legal or constructive obligations or
made payments on behalf of the equity accounted investment.
The Trust determines at each reporting date whether there is any objective evidence that the equity accounted investment is
impaired. If this is the case, the Trust calculates the amount of impairment as the difference between the recoverable amount of
the equity accounted investment and its carrying value and recognizes the amount in the consolidated statement of income and
comprehensive income.
Profits and losses resulting from upstream and downstream transactions between the Trust and its equity accounted investment
are recognized in the Trust’s consolidated financial statements only to the extent of an unrelated investor's interests in the equity
accounted investment. Accounting policies of equity accounted investments are updated when necessary to ensure consistency
with the policies adopted by the Trust.
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Condominium sales revenue
During the year ended December 31, 2020, the Trust’s equity accounted investments generated revenue from condominium
sales. The Trust’s equity accounted investments have adopted the accounting policy which requires that the revenue generated
from contracts with customers on the sale of residential condominium units is recognized at a point in time when control of the
asset (i.e., condominium unit) has transferred to the purchaser (i.e., generally, when the purchaser takes possession of the
condominium unit) as the purchaser has the ability to direct the use of and obtain substantially all of the remaining benefits from
the asset. The amount of revenue recognized is based on the transaction price included in the purchasers' contracts. Any funds
received prior to the purchasers taking possession of their respective assets are recognized as deferred revenue (contractual
liability).
Condominium cost of sales
Inventory costs associated with the development of condominiums are allocated to direct operating costs on a per unit basis
using the net yield method. In addition, if post-closing costs are expected (i.e., remaining construction costs, warranties etc.), the
unit’s allocation of the post-closing costs are included in cost of sales and a cost to complete liability is recorded.
Leases
Upon lease commencement where the Trust is the lessee, the Trust records a right-of-use asset at the amount equal to the lease
liability. The lease liability is initially measured at the present value of lease payments payable over the lease term, discounted at
the Trust’s incremental borrowing rate. The lease liability is subsequently measured at amortized cost using the effective interest
method.
However, as and when rent changes as a result of lease payments being linked to a rate or index, leased assets and liabilities
have to be remeasured. A lease modification is accounted for as a separate lease if:
•
•
The modification increases the scope of the lease by adding the right to use one or more underlying assets; and
The consideration for the lease increases by an amount commensurate with the standalone price for the increase in scope.
With respect to tenant improvements in connection with the sublease, under IFRS 16, tenant improvements provided by the Trust
are not included in the cost of the right-of-use asset. However, when the leased property meets the definition of investment
property under IAS 40 (see Note 2.4) the Trust presents tenant improvements that enhance the value of the leased property as
an adjustment together with right-of-use assets or incentives resulting in an adjustment to revenue within investment properties.
Future changes in accounting policies
Amendments to IAS 1, Presentation of Financial Statements - Classification of Liabilities as Current or Non-current
The amendments clarify that liabilities are classified as either current or non-current, depending on the rights that exist at the end
of the reporting period. Classification is unaffected by expectations of the entity or events after the reporting date. The
amendments also clarify that the ‘settlement’ of a liability refers to the transfer to the counterparty of cash, equity instruments,
and/or other assets or services. Early application is permitted. The Trust intends to adopt the amendments to IAS 1 on the
required effective date of January 1, 2023.
Amendments to IAS 37, Provisions, Contingent Liabilities and Contingent Assets - Onerous Contracts, Cost of Fulfilling a
Contract
The amendments clarify that the direct costs of fulfilling a contract include both the incremental costs of fulfilling the contract and
an allocation of other costs directly related to fulfilling contracts. Before recognizing a separate provision for an onerous contract,
the entity recognizes any impairment loss that has occurred on assets used in fulfilling the contract. The Trust intends to adopt
the amendments to IAS 37 on the required effective date of January 1, 2022.
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MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT MANAGEMENT’S DISCUSSION AND ANALYSIS
Risks and Uncertainties
The ability of the Trust to meet its performance targets is dependent on its success in mitigating the various forms of risks that it
has identified. For a more comprehensive list of risks and uncertainties pertinent to the Trust, please see the additional factors
disclosed in the Trust’s AIF for the year ended December 31, 2020 under the headings “Risk Factors”.
Public Health Crises Risks
Public health crises, including the ongoing and evolving COVID-19 pandemic, or relating to any other broad-reaching disease,
virus, flu, epidemic, pandemic or other similar disease or illness (each, a “Public Health Crisis”) have and could further adversely
impact the Trust’s and its tenants’ businesses, including the ability of some tenants to legally operate thereby adversely
impacting the ability of tenants to meet their payment obligations under leases. A Public Health Crisis could result in a general or
acute decline in economic activity, increased unemployment, staff shortages, reduced tenant traffic, mobility restrictions and
other quarantine measures, supply shortages, increased government regulations, and the quarantine or contamination of one or
more of the Trust’s properties.
A Public Health Crisis could impact the following material aspects of the Trust’s business, among others: (i) the value of the
Trust’s properties and developments; (ii) the Trust’s ability to make distributions to Unitholders; (iii) the availability or the terms of
financing that the Trust currently has access to or may anticipate utilizing; (iv) the Trust’s ability to make principal and interest
payments on, or refinance any outstanding debt when due; (v) the occupancy rates in the Trust’s properties; (vi) the ability of the
Trust to pursue its development plans or obtain construction financing on previously announced and anticipated timelines or
within budgeted terms; (vii) the ability of our tenants to enter into new leasing transactions or to satisfy rental payments under
existing leases; and (viii) the impact to the Trust’s financial covenants.
On March 11, 2020, the World Health Organization declared the outbreak and subsequent spread of COVID-19 a global
pandemic. The duration and intensity of resulting business disruption and related financial and social impact are unprecedented
and remain uncertain, and such adverse effects may be material.
Efforts by governmental agencies, health agencies, and private sector participants to contain COVID-19 or address its impacts
have adversely affected the Trust’s business and the operation of its properties and developments. A number of provincial and
municipal governments have declared states of emergency and governments have implemented restrictive measures such as
travel bans, quarantine, self-isolation, and social distancing. As a result, some tenants, that were not permitted to remain open,
have sought rent relief including those tenants eligible for relief through the government-sponsored CECRA program, and/or
have not complied with their rent obligations. Landlords, including SmartCentres, have entered into various rent assistance
arrangements with certain tenants. Otherwise, SmartCentres will unless prohibited by law require tenants to honour the terms of
their respective leases, including the payment of rent, and if they do not, SmartCentres may pursue enforcement and related
alternatives. There can be no assurance that if the Trust enters into any such arrangements, deferred rents will be collected in
accordance with the terms of those arrangements, or at all. Inability of tenants to meet their payment obligations, deferred or
otherwise, and any inability of the Trust to collect rents in a timely manner or at all could adversely affect the Trust’s business and
financial condition. In addition, many jurisdictions in which the Trust operates have enacted, and in the future may reenact,
mandatory business closures which affected certain of its tenants. Approximately 60% of the Trust’s retail tenants (by rental
revenue) are large, well-capitalized and well-known national and regional retail anchors providing grocery, pharmacy and
household necessities, and although affected, are deemed ‘essential services’ in their respective provincial jurisdictions and,
therefore, have remained open to retail customers during the height of the initial pandemic period.
The Trust is continuously monitoring the situation, but is unable to accurately predict the impact that the COVID-19 pandemic will
have on its results of operations due to uncertainties including the ultimate geographic spread of the virus, the severity of the
disease, the duration or recurrence of the outbreak, and any further actions that may be taken by governmental agencies and
private sector participants to contain the COVID-19 pandemic or to address its impacts. The worldwide spread of COVID-19 has
adversely affected global economies and financial markets resulting in a severe economic downturn and significant impacts on
many tenant businesses and their ability to meet payment obligations, including rent. The duration of this downturn is currently
unknown.
While governmental agencies, health agencies, and private sector participants are seeking to mitigate the adverse effects of
COVID-19, and the medical community has begun to develop vaccines and other treatment options, the ultimate efficacy,
adoption, availability and timing of such measures remain uncertain. If the outbreak of COVID-19 and related developments lead
to a more prolonged or significant impact on global, national or local markets or economic growth, the Trust’s cash flows, Unit
price, financial condition or results of operations and ability to make distributions to Unitholders may be materially and adversely
affected.
Any Public Health Crisis may also exacerbate other risk factors described in this subsection.
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MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT MANAGEMENT’S DISCUSSION AND ANALYSIS
Real Property Ownership and Leasing/Tenant Risk
All real property investments are subject to elements of risk. Such investments are affected by general economic conditions,
local real estate markets, supply and demand for leased premises, competition from other available premises and various other
factors.
Real estate has a high fixed cost associated with ownership, and income lost due to declining rental rates or increased vacancies
cannot easily be minimized through cost reduction. Through well-located, well-designed and professionally managed properties,
management seeks to reduce this risk. Management believes prime locations will attract high-quality retailers with strong
covenants and will enable the Trust to maintain economic rents and high occupancy. By maintaining properties at the highest
standards through professional management practices, management seeks to increase tenant loyalty.
The value of real property and any improvements thereto may also depend on the credit and financial stability of the tenants and
on the vacancy rates of the Trust’s portfolio of income-producing properties. On the expiry of any lease, there can be no
assurance that the lease will be renewed or the tenant replaced. The terms of any subsequent lease may be less favourable to
the Trust than the existing lease and these risks have been increased in respect of expiries occurring during the COVID-19
pandemic and resulting economic downturn. In the event of default by a tenant, delays or limitations in enforcing rights as lessor,
may be experienced and substantial costs in protecting the Trust’s investment may be incurred. Furthermore, at any time, a
tenant of any of the Trust’s properties may seek the protection of bankruptcy, insolvency or similar laws that could result in the
rejection and termination of such tenant’s lease and thereby cause a reduction in the cash flow available to the Trust. The ability
to rent unleased space in the properties in which the Trust has an interest will be affected by many factors. Costs may be
incurred in making improvements or repairs to property. The failure to rent vacant space on a timely basis or at all would likely
have an adverse effect on the Trust’s financial condition.
Certain significant expenditures, including property taxes, maintenance costs, mortgage payments, insurance costs and related
charges must be made throughout the period of ownership of real property regardless of whether the property is producing any
income. If the Trust is unable to meet mortgage payments on any property, losses could be sustained as a result of the
mortgagee’s exercise of its rights of foreclosure or sale.
Real property investments tend to be relatively illiquid with the degree of liquidity generally fluctuating in relation to demand for
and the perceived desirability of such investments. If the Trust were to be required to liquidate its real property investments, the
proceeds to the Trust might be significantly less than the aggregate carrying value of its properties.
The Trust will be subject to the risks associated with debt financing on its properties and it may not be able to refinance its
properties on terms that are as favourable as the terms of existing indebtedness. In order to minimize this risk, the Trust attempts
to appropriately structure the timing of the renewal of significant tenant leases on the properties in relation to the time at which
mortgage indebtedness on such properties becomes due for refinancing. In addition, the Trust attempts to stagger the maturities
of its various levels of debt over an extended period of time.
Significant deterioration of the retail shopping centre market in general, or the financial health of Walmart and other key tenants
in particular, could have an adverse effect on the Trust’s business, financial condition or results of operations. Also, the
emergence of e-commerce as a platform for retail growth has caused many retailers to change their approach to attracting and
retaining customers. To the extent that some retailers are unsuccessful in attracting and retaining customers because of the
impact of e-commerce on their respective businesses, the Trust may experience additional vacancy and its resulting adverse
effects on financial condition and results of operations including occupancy rates, base rental income, tax and operating cost
recoveries, leasing and other similar costs.
With respect to residential rental properties, in addition to the risks highlighted above, the Trust is subject to the other risks
inherent in the multi-tenant rental property industry, including controlling bad debt exposure, rent control regulations, increases in
operating costs including the costs of utilities (residential leases are often “gross” leases under which the landlord is not able to
pass on costs to its residents), the imposition of increased taxes or new taxes and capital investment requirements.
Liquidity Risk
The Trust's ability to meet its financial obligations as they become due represents the Trust's exposure to liquidity risk. It is
management’s intention to either repay or refinance maturing liabilities with newly issued secured or unsecured debt, equity or, in
certain circumstances not expected to occur frequently, the disposition of certain assets. Any net working capital deficiencies are
funded with the Trust’s existing revolving operating facility. Management expects to finance future acquisitions, including
committed Earnouts, Developments, Mezzanine Financing commitments and maturing debt from: (i) existing cash balances, (ii) a
mix of mortgage debt secured by investment properties, operating facilities, issuance of equity and unsecured debentures, (iii)
repayments of mortgages receivable, and (iv) the sale of non-core assets. However, the Trust’s ability to meet these future
obligations may be impacted by the liquidity risk associated with receiving repayments of its mortgages, loans, and notes
receivable, amounts receivable and other, deposits, and cash equivalents on time and in full and the realization of fair value on
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the disposition of the Trust’s non-core assets. Cash flow generated from operating activities is the primary source of liquidity to
pay Unit distributions, sustaining capital expenditures and leasing costs.
Liquidity risk management implies maintaining sufficient cash and the availability of funding through an adequate amount of
committed credit facilities and the ability to lease out vacant units. In the next 12 months, $1.1 billion of liabilities (including
$854.3 million of secured and unsecured debt and $242.5 million of account and other payable amounts) will mature and will
need to be settled by means of renewal or payment.
The Trust aims to maintain flexibility and opportunities in funding by keeping committed credit lines available, obtaining additional
mortgages as the value of investment properties increases and issuing equity or unsecured debentures.
The key assumptions used in the Trust’s estimates of future cash flows when assessing liquidity risk are: the renewal or
replacement of the maturing revolving operating facility, secured debt and unsecured debentures, at reasonable terms and
conditions in the normal course of business and no major bankruptcies of large tenants. Management believes that it has
considered all reasonable facts and circumstances in forming appropriate assumptions. However, as always, there is a risk that
significant changes in market conditions could alter the assumptions used, particularly in light of the current conditions caused by
COVID-19.
While it is not possible for management to reasonably estimate the duration, complexity or severity of this pandemic, which could
have a material adverse impact on the Trust’s business, results of operations, financial position and cash flows, as at
December 31, 2020, the Trust had: a) cash and cash equivalents of $794.6 million; b) the funds available from its $500.0 million
operating facility and its $250.0 million accordion feature; c) project-specific financing arrangements; and d) approximately $5.8
billion in unencumbered assets that could be used to obtain additional secured financing to assist with its liquidity requirements.
Capital Requirements and Access to Capital
The Trust accesses the capital markets from time to time through the issuance of debt, equity or equity-related securities. If the
Trust were unable to raise additional funds or renew existing maturing debt on favourable terms, then acquisition or development
activities could be curtailed, asset sales accelerated, property-specific financing, purchase and development agreements
renegotiated and monthly cash distributions reduced or suspended. However, the Trust anticipates accessing the capital markets
on reasonable terms due to its high occupancy levels and low lease maturities, combined with its strong national and regional
tenants base and its prime retail locations.
Environmental and Climate Change Risk
As an owner of real property, the Trust is subject to various federal, provincial, territorial and municipal laws relating to
environmental matters. Such laws provide that the Trust could be liable for the costs of removal of certain hazardous substances
and remediation of certain hazardous locations. The failure to remove or remediate such substances or locations, if any, could
adversely affect the Trust’s ability to sell such real estate or to borrow using such real estate as collateral and could potentially
also result in claims against the Trust. The Trust is not aware of any material non-compliance with environmental laws at any of
its properties. The Trust is also not aware of any pending or threatened investigations or actions by environmental regulatory
authorities in connection with any of its properties or any pending or threatened claims relating to environmental conditions at its
properties. The Trust has policies and procedures to review and monitor environmental exposure, including obtaining a Phase I
environmental assessment, as appropriate, prior to the completion of an acquisition of land, a shopping centre or other real
estate assets. Further investigation is conducted if the Phase I assessments indicate a problem. In addition, the standard lease
requires compliance with environmental laws and regulations and restricts tenants from carrying on environmentally hazardous
activities or having environmentally hazardous substances on site. The Trust has obtained environmental insurance on certain
assets to further manage risk.
The Trust is making the necessary capital and operating expenditures to comply with environmental laws and regulations.
Although there can be no assurances, the Trust does not believe that costs relating to environmental matters will have a material
adverse effect on the Trust’s business, financial condition or results of operations. However, environmental laws and regulations
can change, and the Trust may become subject to more stringent environmental laws and regulations in the future. Compliance
with more stringent environmental laws and regulations could have an adverse effect on the Trust’s business, financial condition
or results of operations.
Climate change continues to attract the focus of governments and the general public as an important threat, given the emission
of greenhouse gases and other activities continue to negatively impact the planet. The Trust faces the risk that its properties will
be subject to government initiatives aimed at countering climate change, such as reduction of greenhouse gas emissions, which
could impose constraints on its operational flexibility. Furthermore, the Trust’s properties may be exposed to the impact of events
caused by climate change, such as natural disasters and increasingly frequent and severe weather conditions. Such events
could interrupt the Trust’s operations and activities, damage its properties, diminish traffic and require the Trust to incur additional
expenses including an increase in insurance costs to insure its properties against natural disasters and severe weather.
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Potential Conflicts of Interest
The Trust may be subject to various conflicts of interest because of the fact that the Trustees and executive management, and
their associates, may be engaged in a wide range of real estate and other business activities. The Trust may become involved in
transactions which conflict with the interests of the foregoing. The Trustees, executive management and their associates or
affiliates may from time to time deal with persons, firms, institutions or corporations with which the Trust may be dealing, or which
may be seeking investments similar to those desired by the Trust. The interests of these persons could conflict with those of the
Trust. In addition, from time to time, these persons may be competing with the Trust for available investment opportunities. The
Declaration of Trust contains “conflicts of interest” provisions requiring Trustees or officers of the Trust to disclose material
interests in material contracts and transactions and refrain from voting.
Cyber Security
Cyber security has become an increasingly problematic issue for issuers and businesses in Canada and around the world,
including for the Trust and the real estate industry. Cyber attacks against large organizations are increasing in sophistication and
are often focused on financial fraud, compromising sensitive data for inappropriate use or disrupting business operations. Such
an attack could compromise the Trust’s confidential information as well as that of the Trust’s employees, tenants and third parties
with whom the Trust interacts and may result in negative consequences, including remediation costs, loss of revenue, additional
regulatory scrutiny, litigation and reputational damage. As a result, the Trust continually monitors for malicious threats and adapts
accordingly in an effort to ensure it maintains high privacy and security standards. The Trust invests in cyber-defence
technologies to support its business model and to protect its systems, employees and tenants and seeks to employ industry best
practices. The Trust’s investments continue to manage the risks it faces today and position the Trust for the evolving threat
landscape. The Trust also follows certain protocols when it engages software and hardware vendors concerning data security
and access controls.
Debt Financing
The ability of the Trust to make cash distributions or make other payments or advances is subject to applicable laws and
contractual restrictions contained in the instruments governing its indebtedness. The degree to which the Trust is leveraged
could have important consequences to the holders of its securities, including: that the Trust’s ability to obtain additional financing
for working capital, capital expenditures or acquisitions in the future may be limited; that a significant portion of the Trust’s cash
flow from operations may be dedicated to the payment of the principal of and interest on its indebtedness, thereby reducing
funds available for future operations and distributions; that certain of the Trust’s borrowings may be at variable rates of interest,
which exposes it to the risk of increased interest rates; and that the Trust may be vulnerable to economic downturns including the
Trust’s ability to retain and attract tenants. Also, there can be no assurance that the Trust will continue to generate sufficient cash
flow from operations to meet required interest and principal payments. Further, the Trust is subject to the risk that any of its
existing indebtedness may not be able to be refinanced upon maturity or that the terms of such financing may not be as
favourable as the terms of its existing indebtedness. These factors may adversely affect the Trust’s cash distributions.
The Trust’s credit facility provides lenders with first charge security interests on most of the income producing properties in its
portfolio. This credit facility contains numerous terms and covenants that limit the discretion of management with respect to
certain business matters. These covenants place restrictions on, among other things, the ability of the trust to create liens or
other encumbrances, to make certain payments, investments, loans and guarantees and to sell or otherwise dispose of assets
and merge or consolidate with another entity. In addition, the credit facility contains a number of financial covenants that require
the Trust to meet certain financial ratios and financial condition tests. For example, certain of the Trust’s loans require specific
loan to value and debt service coverage ratios which must be maintained by the Trust. A failure to comply with the obligations in
the credit facility could result in a default which, if not cured or waived, could result in acceleration of the relevant indebtedness. If
the indebtedness under the credit facility were to be accelerated, there can be no assurance that the assets of the Trust would be
sufficient to repay that indebtedness in full.
Interest and Financing Risk
In the low interest rate environment that the Canadian economy has experienced in recent years, leverage has enabled the Trust
to enhance its return to Unitholders. In December 2019, the Trust was upgraded from a BBB(mid) credit rating to a BBB(H) credit
rating, which further reinforces its ability to borrow debt at these interest rates. A reversal of this trend, however, could
significantly affect the Trust’s ability to meet its financial obligations. Circumstances that may impair the Trust's credit rating
include an inability for the Trust to maintain its cash flow from operating activities, an inability to meet covenants for both secured
and unsecured debentures, an inability to meet expectations of credit rating agencies, and/or a higher interest rate environment
in the Canadian economy. In order to minimize this risk, the Trust’s policy is to negotiate fixed rate secured debt and unsecured
debt with staggered maturities on the portfolio and where appropriate, seek to match average lease maturity to average debt
maturity. Derivative financial instruments may be utilized by the Trust in the management of its interest rate exposure. The Trust’s
policy is not to utilize derivative financial instruments for trading or speculative purposes. In addition, the Declaration of Trust
restricts total indebtedness permitted on the portfolio.
Interest rate changes will also affect the Trust’s development portfolio. The Trust has entered into development agreements that
obligate the Trust to acquire up to approximately 0.2 million square feet of additional income properties at a cost determined by
capitalizing the rental income at predetermined rates. Subject to the ability of the Trust to obtain financing on acceptable terms,
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the Trust anticipates that it will finance these acquisitions by issuing additional debt and equity. Changes in interest rates will
have an impact on the return from these acquisitions should the rate exceed the capitalization rate used and could result in a
purchase not being accretive. This risk is mitigated as management has certain rights of approval over the developments and
acquisitions.
Operating facilities, secured debt and unsecured debt exist that are priced at a risk premium over short-term rates. Changes in
short-term interest rates will have an impact on the cost of financing. In addition, there is a risk the lenders will not refinance on
maturity. By restricting the amount of both variable interest rate debt and short-term debt, the Trust minimizes the impact of
changes in short-term rates on financial performance.
The Canadian capital markets are competitively priced. In addition, the secured debt market remains strong with lenders seeking
quality products. Due to the quality and location of the Trust’s real estate, management expects to meet its financial obligations.
Joint Venture Risk
The Trust is a co-owner in several properties including but not limited to SmartVMC, Transit City, a residential unit project in
Laval, Quebec, a 16-acre parcel of land in Vaughan to build townhomes, and various other retail, self-storage, residential and
other mixed-use properties. As part of its growth strategy, the Trust expects to increase its participation in additional joint
ventures in the future, which may include additional joint ventures in condominiums, self-storage facilities, retirement homes and
other initiatives. The Trust is subject to the risks associated with the conduct of joint ventures. Such risks include disagreements
with its partners to develop and operate the properties efficiently, the inability of the partners to meet their obligations to the joint
ventures or third parties as they become due and decisions made by partners which may not be in favour of the Trust’s best
interests, but rather are in the best interests of the partnership. In addition, the Trust may be exposed to the risks of the actions
taken by any of the partners that may result in reputational damage to the Trust or the joint ventures. These risks could have a
material adverse effect on the joint ventures, which may have a material adverse effect on the Trust. The Trust attempts to
mitigate these risks by continuing to maintain strong relationships with its partners.
Development and Construction Risk
Development and construction risk arises from the possibility that completed developed space will not be leased or that costs of
development and construction will exceed original estimates, resulting in an uneconomic return from the leasing of such
developments. The Trust mitigates this risk by limiting construction of any development until sufficient lease-up has occurred and
by entering into fixed price contracts for a large proportion of both development and construction costs.
The Trust is becoming increasingly involved in mixed-use development initiatives that include residential condominiums and
townhomes, rental apartments, seniors’ housing and self-storage. Purchaser and tenant demand for these uses can be cyclical
and is affected by changes in general market and economic conditions, such as consumer confidence, employment levels,
availability of financing for home buyers, interest rates, demographic trends, and housing and similar commercial demand.
Furthermore, the market value of undeveloped land, buildable lots and housing inventories held by the Trust can fluctuate
significantly as a result of changing economic and real estate market conditions. An oversupply of alternative housing, such as
new homes, resale homes (including homes held for sale by investors and speculators), foreclosed home and rental properties
and apartments, accommodation of seniors’ housing and self-storage space may: (i) reduce the Trust’s ability to sell new
condominiums and townhomes, depress prices and reduce margins from the sale of condominiums and townhomes, and (ii)
have an adverse effect on the Trust’s ability to lease rental apartments, seniors’ housing and self-storage units and on the rents
charged.
The Trust’s construction commitments are subject to those risks usually attributable to construction projects, which include: (i)
construction or other unforeseen delays including delays in obtaining municipal approvals, (ii) cost overruns, and (iii) the failure of
tenants to occupy and pay rent in accordance with existing lease arrangements, some of which are conditional and these risks
have been exacerbated by the COVID-19 pandemic and resulting economic downturn.
Credit Risk
Credit risk arises from cash and cash equivalents, as well as credit exposures with respect to tenant receivables and mortgages
and loans receivable. Tenants may experience financial difficulty and become unable to fulfill their lease commitments. The Trust
mitigates this risk of credit loss by reviewing tenants’ covenants, ensuring its tenant mix is diversified and limiting its exposure to
any one tenant, except Walmart Canada because of its creditworthiness. Further risks arise in the event that borrowers may
default on the repayment of amounts owing to the Trust. The Trust endeavours to ensure adequate security has been provided in
support of mortgages and loans receivable. The failure of the Trust’s tenants or borrowers to pay the Trust amounts owing on a
timely basis or at all would have an adverse effect on the Trust’s financial condition.
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Litigation and Regulatory Risks
The Trust is subject to a wide variety of laws and regulations across all of its operating jurisdictions and faces risks associated
with legal and regulatory changes and litigation. If the Trust fails to monitor and become aware of changes in applicable laws and
regulations or if the Trust fails to comply with these changes in an appropriate and timely manner, it could result in fines and
penalties, litigation or other significant costs, as well as significant time and effort to remediate any violations. The Trust, in the
normal course of operations, is subject to a variety of legal and other claims including claims relating to personal injury, property
damage, property taxes, land rights and contractual and other commercial disputes. The final outcome with respect to
outstanding, pending or future actions cannot be predicted with certainty, and the resolution of such actions may have an
adverse effect on the Trust’s financial position or results of operations as well as reputational damage both from an operating and
an investment perspective. Management evaluates all claims on their apparent merits and accrues management’s best estimate
of the likely cost to satisfy such claims. Management believes the outcome of current legal and other claims filed against the
Trust, after considering insurance coverage, will not have a significant impact on the Trust’s consolidated financial statements.
In addition, the Trust’s estimates and judgments could also be affected by various risks and uncertainties, including but not
limited to the effects of the COVID-19 pandemic, which in turn could have a significant risk on the reported amounts of assets
and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements for the
year ended December 31, 2020 and the reported amounts of revenues and expenses during the reporting period and may
potentially result in a material adjustment in a subsequent period.
Potential Volatility of Unit Prices
The price for the Units could be subject to wide fluctuations in response to quarter-to-quarter variations in operating results, the
gain or loss of significant properties, changes in income estimates by analysts and market conditions in the industry, as well as
general economic conditions or other risk factors set out herein. In addition, stock markets have experienced volatility that has
affected the market prices for many issuers’ stocks and that often has been unrelated to the operating performance of such
issuers. These market fluctuations may adversely affect the market price of the Units.
A publicly traded real estate investment trust will not necessarily trade at values determined solely by reference to the underlying
value of its real estate assets. Accordingly, the Units may trade at a premium or a discount to the underlying value of the Trust’s
real estate assets.
One of the factors that may influence the market price of the Units is market interest rates relative to the monthly cash
distributions of SmartCentres to the Unitholders. An increase in market interest rates or a decrease in monthly cash distributions
by the Trust could adversely affect the market price of the Units. In addition, the market price for the Units may be affected by
changes in general market conditions, fluctuations in the markets for equity securities and numerous other factors beyond the
control of the Trust.
Cash Distributions are Not Guaranteed and will Fluctuate with SmartCentres’ Performance
A return on an investment in Units is not comparable to the return on an investment in a fixed-income security. The recovery of
an investment in Units is at risk, and any anticipated return on an investment in Units is based on many performance
assumptions.
Although the Trust intends to make distributions of a significant percentage of its available cash to its Unitholders, these cash
distributions are not assured and may be reduced or suspended. The ability of the Trust to make cash distributions and the
actual amount distributed will be dependent upon, among other things, the financial performance of the properties in its property
portfolio, its debt covenants and obligations, its working capital requirements and its future capital requirements. In addition, the
market value of the Units may decline for a variety of reasons including if the Trust is unable to meet its cash distribution targets
in the future, and that decline may be significant.
It is important for a person making an investment in Units to consider the particular risk factors that may affect both the Trust and
the real estate industry in which the Trust operates and which may therefore affect the stability of the cash distributions on the
Units.
Availability of Cash Flow
Cash distributions to Unitholders may be reduced from time to time if such distributions would exceed the cash obligations of the
Trust from time to time due to items such as principal repayments, tenant allowances, leasing commissions and capital
expenditures and redemption of Units, if any. The Trust may be required to use part of its debt capacity or to reduce distributions
in order to accommodate such items. The Trust anticipates temporarily funding such items, if necessary, through an operating
line of credit in expectation of refinancing long-term debt on its maturity.
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Significant Unitholder Risk
According to reports filed under applicable Canadian securities legislation, as at December 31, 2020, Mitchell Goldhar (“Mr.
Goldhar”) of Vaughan, Ontario beneficially owns or controls a number of the outstanding Units which, together with the securities
he beneficially owns or controls that are exchangeable at his option for Trust Units for no additional consideration and the
associated Special Voting Units, represent an approximate 21.4% voting interest in the Trust. Further, according to the above-
mentioned reports, as at December 31, 2020, Mr. Goldhar beneficially owns or controls additional rights to acquire Trust Units
which, if exercised or converted, would result in him increasing his beneficial economic and voting interest in the Trust to as
much as approximately 25.4%. In addition, pursuant to the Voting Top-Up Right Mr. Goldhar may be issued additional Special
Voting Units to entitle him (directly or indirectly through Penguin) to cast 25% of the votes attached to voting Units at a meeting of
the holders of voting Units.
If Mr. Goldhar sells a substantial number of Trust Units in the public market, the market price of the Trust Units could fall. The
perception among the public that these sales will occur could also produce such an effect. As a result of his voting interest in the
Trust, Mr. Goldhar may be able to exert significant influence over matters that are to be determined by votes of the Unitholders of
the Trust. The timing and receipt of any takeover or control premium by Unitholders could depend on the determination of Mr.
Goldhar as to when to sell Trust Units. This could delay or prevent a change of control that might be attractive to and provide
liquidity for Unitholders, and could limit the price that investors are willing to pay in the future for Trust Units.
Tax-Related Risks
There can be no assurance that Canadian federal income tax laws respecting the treatment of mutual fund trusts will not be
changed in a manner that would adversely affect the Unitholders.
If the Trust fails to qualify for the REIT Exception (as defined below), the Trust will be subject to the taxation regime under the
SIFT Rules. The Trust qualifies for the REIT Exception as at December 31, 2020. In the event that the REIT Exception did not
apply to the Trust, the corresponding application of the SIFT Rules to the Trust could impact the level of cash distributions which
would otherwise be made by the Trust and the taxation of such distributions to Unitholders. The Trust intends to take all
necessary steps to continue to qualify for the REIT Exception. However, there can be no assurance that Canadian federal
income tax laws with respect to the REIT Exception will not be changed, or that administrative and assessment practices of the
Canada Revenue Agency will not develop in a manner that adversely affects the Trust or its Unitholders. Furthermore, the
determination as to whether the Trust qualifies for the REIT Exception in a particular taxation year can only be made at the end
of such taxation year. Accordingly, no assurance can be given that the Trust will continue to qualify for the REIT Exception.
The extent to which distributions will be tax deferred in the future will depend in part on the extent to which the Trust is able to
deduct capital cost allowance or other expenses relating to properties directly or indirectly held by the Trust.
Income Taxes and the REIT Exception
The Trust currently qualifies as a “mutual fund trust” as defined in the Income Tax Act (Canada) (the “Tax Act”). In accordance
with the Declaration of Trust, distributions to Unitholders are declared at the discretion of the Trustees. The Trust endeavours to
distribute to Unitholders, in cash or in Units, in each taxation year its taxable income to such an extent that the Trust will not be
liable to income tax under Part I of the Tax Act.
For specified investment flow-through trusts (each a “SIFT”), including certain publicly traded income trusts, the Tax Act imposes
a special taxation regime (the “SIFT Rules”). A SIFT includes a trust resident in Canada with publicly traded units that holds one
or more “non-portfolio properties”. “Non-portfolio properties” include certain investments in real properties situated in Canada and
certain investments in corporations and trusts resident in Canada and in partnerships with specified connections in Canada.
Under the SIFT Rules, a SIFT is subject to tax in respect of certain distributions that are attributable to the SIFT’s “non-portfolio
earnings” (as defined in the Tax Act; generally, income (other than certain dividends) from, or capital gains realized on, “non-
portfolio properties”, which does not include certain investments in non-Canadian entities), at a rate substantially equivalent to
the combined federal and provincial corporate tax rate on certain types of income. The SIFT Rules are not applicable to a SIFT
that meets certain specified criteria relating to the nature of its revenues and investments in order to qualify as a real estate
investment trust for purposes of the Tax Act (the “REIT Exception”). The Trust qualifies for the REIT Exception as at
December 31, 2020.
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MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT MANAGEMENT’S DISCUSSION AND ANALYSIS
Disclosure Controls and Procedures and Internal Control Over Financial Reporting
Disclosure Controls and Procedures (“DCP”)
The Trust’s Chief Executive Officer (CEO) and Chief Financial Officer (CFO) have designed or caused to be designed under their
direct supervision, the Trust’s DCP (as defined in National Instrument 52-109 – Certification of Disclosure in Issuers’ Annual and
Interim Filings (“NI 52-109”), adopted by the Canadian Securities Administrators) to provide reasonable assurance that: (i)
material information relating to the Trust, including its consolidated subsidiaries, is made known to them by others within those
entities, particularly during the period in which the interim filings are being prepared, and (ii) material information required to be
disclosed in the annual filings is recorded, processed, summarized and reported on a timely basis. The Trust continues to
evaluate the effectiveness of DCP, and changes are implemented to adjust to the needs of new processes and enhancements as
required. There were no changes in the Trust’s internal controls over financial reporting in the year ended December 31, 2020
that materially affected, or are reasonably likely to materially affect, the Trust’s internal control over financial reporting. Further,
the Trust's CEO and CFO have evaluated, or caused to be evaluated under their direct supervision, the effectiveness of the
Trust's DCP as at December 31, 2020, and concluded that it was effective.
Internal Control Over Financial Reporting (“ICFR”)
The Trust’s CEO and CFO have also designed, or caused to be designed under their direct supervision, the Trust’s ICFR to
provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial
statements for external purposes in accordance with IFRS. Using the criteria established by the Committee of Sponsoring
Organizations of the Treadway Commission 2013 (COSO 2013), the Trust's CEO and CFO have evaluated, or caused to be
evaluated under their direct supervision, the effectiveness of the Trust's ICFR as at December 31, 2020, and concluded that it
was effective.
Inherent Limitations
Notwithstanding the foregoing, because of its inherent limitations a control system can provide only reasonable assurance that
the objectives of the control system are met and may not prevent or detect misstatements. Management’s estimates may be
incorrect, or assumptions about future events may be incorrect, resulting in varying results. In addition, management has
attempted to minimize the likelihood of fraud. However, any control system can be circumvented through collusion and illegal
acts.
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Section X — Glossary of Terms
Term
Definition
Adjusted Cashflow From Operations
(“ACFO”)
Adjusted Debt
Adjusted Debt to Adjusted Aggregate
Assets
Adjusted Debt to Adjusted EBITDA
Adjusted Earnings Before Interest, Taxes,
Depreciation and Amortization Expense
(“Adjusted EBITDA”)
Anchors
Annual Run-Rate NOI
CAM
Debt to Aggregate Assets
Debt to Gross Book Value
ACFO is a non-GAAP financial measure and may not be comparable to similar
measures used by other real estate entities. The Trust calculates its ACFO in
accordance with the Real Property Association of Canada’s (“REALpac”) White
Paper on Adjusted Cashflow from Operations for IFRS last revised in February
2019. The purpose of the White Paper is to provide reporting issuers and
investors with greater guidance on the definitions of ACFO and to help promote
more consistent disclosure from reporting issuers. ACFO is intended to be used
as a sustainable, economic cash flow metric. The Trust considers ACFO an
input to determine the appropriate level of distributions to Unitholders as it
adjusts cash flows from operations to better measure sustainable, economic
cash flows.
Defined as the Trust’s total proportionate share of debt, net of mortgages and
loans receivable and cash-on-hand.
Calculated as debt divided by aggregate assets including equity accounted
investments. The ratio is used by the Trust to manage an acceptable level of
leverage and is not considered a measure in accordance with IFRS, as adjusted
for the repayment of certain secured debt within 30 days of the balance sheet
date.
Defined as Adjusted debt divided by Adjusted EBITDA. The ratio of total
Adjusted debt to Adjusted EBITDA is included and calculated each period to
provide information on the level of the Trust’s debt versus the Trust’s ability to
service that debt. Adjusted EBITDA is used as part of this calculation because
the fair value changes and gains and losses on investment property dispositions
do not have an impact on cash flow, which is a critical part of this measure (see
“Financial Covenants”).
Adjusted earnings before interest expense, income taxes, depreciation expense
and amortization expense, as defined by the Trust, is a non-GAAP financial
measure that comprises net earnings adjusted by income taxes, interest
expense, amortization expense and depreciation expense, as well as
adjustments for gains and losses on disposal of investment properties including
transactional gains and losses on the sale of investment properties to a joint
venture that are expected to be recurring, and the fair value changes associated
with investment properties and financial instruments, and excludes non-
recurring one-time adjustments such as, but not limited to, yield maintenance on
redemption of unsecured debentures and Transactional FFO – gain on sale of
land to co-owners. It is a metric that can be used to help determine the Trust’s
ability to service its debt, finance capital expenditures and provide for
distributions to its Unitholders. Additionally, Adjusted EBITDA removes the non-
cash impact of the fair value changes and gains and losses on investment
property dispositions. Adjusted EBITDA is reconciled with net income, which is
the closest IFRS measure (see “Results of Operations”).
Anchors are defined as tenants within a retail or office property with gross
leasable area greater than 30,000 square feet.
Represents a non-GAAP financial measure and is computed by annualizing the
current quarter NOI and making adjustments for management’s estimate of the
impact of straight-line rent and other non-recurring items including but not
limited to bad debt provisions and termination fees.
Defined as common area maintenance expenses.
Calculated as debt divided by aggregate assets, which includes the Trust’s
proportionate share of the assets and debt of equity accounted investments.
The ratio is used by the Trust to manage an acceptable level of leverage and is
not considered a measure in accordance with IFRS.
Calculated as debt divided by aggregate assets plus accumulated amortization
less cumulative unrealized fair value gain or loss with respect to investment
property. The ratio is used by the Trust to manage an acceptable level of
leverage and is not considered a measure in accordance with IFRS.
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MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT Glossary of Terms (continued)
Term
Definition
MANAGEMENT’S DISCUSSION AND ANALYSIS
Earnings Before Interest Expense, Income
Taxes, Depreciation Expense and
Amortization Expense (“EBITDA”)
ECL
Exchangeable Securities
Fixed Charge Coverage Ratio
Forecasted Annualized NOI
Funds From Operations (“FFO”)
Interest Coverage Ratio
Net Asset Value (“NAV”)
Net Operating Income (“NOI”)
Payout Ratio to ACFO
Earnings before interest expense, income taxes, depreciation expense and
amortization expense is a non-GAAP measure that can be used to help
determine the Trust’s ability to service its debt, finance capital expenditures and
provide for distributions to its Unitholders. EBITDA is reconciled with net income,
which is the closest IFRS measure (see “Financial Covenants”).
Refers to expected credit losses.
Exchangeable Securities are securities issued by the limited partnership
subsidiaries of the Trust that are convertible or exchangeable directly for Units
without the payment of additional consideration, including Class B Smart Limited
Partnership Units (“Class B Smart LP Units”) and Units classified as liabilities.
Such Exchangeable Securities are economically equivalent to Units as they are
entitled to distributions equal to those on the Units and are exchangeable for
Units on a one-for-one basis. The issue of a Class B Smart LP Unit and Units
classified as liabilities is accompanied by a Special Voting Unit that entitles the
holder to vote at meetings of Unitholders.
Defined as Adjusted EBITDA divided by interest expense on debt and
distributions on Units classified as liabilities and all regularly scheduled principal
payments made with respect to indebtedness during the period. The ratio is
used by the Trust to manage an acceptable level of leverage and is not
considered a measure in accordance with IFRS.
Represents a forward-looking, non-GAAP measure, and is calculated based on
management’s estimates of annualized NOI.
FFO is a non-GAAP financial measure of operating performance widely used by
the Canadian real estate industry based on the definition set forth by REALpac,
which published a White Paper describing the intended use of FFO last revised
in February 2019. It is the Trust’s view that IFRS net income does not
necessarily provide a complete measure of the Trust’s economic earnings. This
is primarily because IFRS net income includes items such as fair value changes
of investment property that are subject to market conditions and capitalization
rate fluctuations and gains and losses on the disposal of investment properties,
including associated transaction costs and taxes, which are not representative
of a company’s economic earnings. For these reasons, the Trust has adopted
REALpac’s definition of FFO, which was created by the real estate industry as a
supplemental measure of economic earnings.
Defined as Adjusted EBITDA over interest expense, where interest expense
excludes the distributions on deferred units and Units classified as liabilities and
adjustments relating to the early redemption of unsecured debentures. The ratio
is used by the Trust to manage an acceptable level of interest expense relative
to available earnings and is not considered a measure in accordance with IFRS.
NAV is a non-GAAP financial measure and is used by the Trust as a measure of
growth. It is the Trust’s view that NAV is a meaningful measure of economic
performance and an appropriate indicator of growth in the Trust’s strategy.
NOI (a non-GAAP financial measure) from continuing operations represents: i)
rentals from investment properties and other less property operating costs and
other, and ii) net profit from condominium sales. In the consolidated statements
of income and comprehensive income, NOI is presented as “net rental income
and other”.
Represents a non-GAAP financial measure and is calculated as distributions
declared divided by ACFO. It is the proportion of earnings paid out as dividends
to Unitholders. Management determines the Trust’s Unit cash distribution rate
by, among other considerations, its assessment of cash flow as determined
using certain non-GAAP measures. As such, management believes the cash
distributions are not an economic return of capital, but a distribution of
sustainable cash flow from operations.
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2020 ANNUAL REPORT 95
97
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT MANAGEMENT’S DISCUSSION AND ANALYSIS
Glossary of Terms (continued)
Term
Penguin
Proportionate Share Reconciliation
Recovery Ratio
Same Properties NOI
Shadow Anchor
SIFT
The Transaction
Definition
Penguin refers to entities controlled by Mitchell Goldhar, a Trustee, executive
chairman and significant Unitholder of the Trust.
(non-GAAP). References made
Certain disclosures in the MD&A are presented on a GAAP basis and on a total
proportionate share basis
“total
proportionate share” or “the Trust’s proportionate share of EAI” refer to non-
GAAP financial measures which represent the Trust’s proportionate interest in
the financial position and operating activities of its entire portfolio, which reflect
joint ventures using
the difference
proportionate consolidation and equity accounting. Management believes this
presentation to be more meaningful to users of the MD&A because it represents
how the Trust and its partners manage the net assets and operating
performance for each of the Trust’s co-owned properties. The Trust accounts for
its investments in both associates and joint ventures using the equity method of
accounting.
treatment between
in accounting
to a
Defined as property operating cost recoveries divided by recoverable costs.
To facilitate a more meaningful comparison of NOI between periods, Same
properties NOI (a non-GAAP financial measure) amounts are calculated as the
NOI attributable to those income properties that were owned by the Trust during
the current period and the same period in the prior year. Any NOI from
properties either acquired, Earnouts, developed or disposed of, outside of these
periods, are excluded from Same Properties NOI.
A shadow anchor is a store or business that satisfies the criteria for
an anchor tenant, but which may be located at an adjoining property or on a
portion.
The Tax Act imposes a special taxation regime (referred to as the “SIFT Rules”)
for specified investment flow-through trusts (“SIFT”). A SIFT includes a trust
resident in Canada with publicly traded units that holds one or more “non-
portfolio properties”. “Non-portfolio properties” (as defined in the Tax Act)
include certain investments in real properties situated in Canada and certain
investments in corporations and trusts resident in Canada and in partnerships
with specified connections in Canada. Under the SIFT Rules, a SIFT is subject
to tax in respect of certain distributions that are attributable to the SIFT’s “non-
portfolio earnings” (as defined in the Tax Act; generally, income (other than
certain dividends) from, or capital gains realized on, “non-portfolio properties”,
which does not include certain investments in non-Canadian entities), at a rate
substantially equivalent to the combined federal and provincial corporate tax
rate on certain types of income.
The SIFT Rules are not applicable to a SIFT that meets certain specified criteria
relating to the nature of its revenues and investments in order to qualify as a
real estate investment trust for purposes of the Tax Act.
On May 28, 2015, the Trust completed the acquisition of the SmartCentres'
platform from Mitchell Goldhar as part of a $1,171.2 million transaction that
transformed the Trust into a fully integrated real estate developer and operator
by adding the SmartCentres' platform of development, leasing, planning,
engineering, architecture, and construction capabilities.
The Transaction also included the acquisition of interests in a portfolio of 22
properties located principally in Ontario and Quebec, including 20 open-format
Walmart Supercentre-anchored or shadow-anchored shopping centres owned
by Mitchell Goldhar and joint venture partners, including Walmart, for $1,116.0
million.
96 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2020 ANNUAL REPORT
98
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT Glossary of Terms (continued)
Term
Transactional FFO
Unsecured to Secured Debt Ratio
Voting Top-Up Right
MANAGEMENT’S DISCUSSION AND ANALYSIS
Definition
Transactional FFO is a non-GAAP financial measure that represents the net
financial/economic gain resulting from a partial sale of an investment property.
Transactional FFO is calculated as the difference between the actual selling
price and actual costs incurred for the subject investment property. Because the
Trust intends to establish numerous joint ventures with partners in which it plans
to co-develop mixed-use development initiatives, the Trust expects such gains
to be recurring and therefore represent part of the Trust’s overall distributable
earnings.
Calculated as the ratio of unsecured debt to secured debt. The ratio is used by
the Trust to assess the composition of debt and is not considered a measure in
accordance with IFRS.
Mitchell Goldhar (either directly or indirectly through Penguin) is entitled to have
a minimum of 25.0% of the votes eligible to be cast at any meeting of
Unitholders provided certain ownership thresholds are met. Pursuant to the
Voting Top-Up Right, the Trust issued additional Special Voting Units of the
Trust to Mitchell Goldhar and/or Penguin to increase his voting rights to 25.0%
in advance of a meeting of Unitholders. The total number of Special Voting Units
is adjusted for each meeting of the Unitholders based on changes in Mitchell
Goldhar’s, and Penguin’s ownership interest. At the Trust’s recent annual
meeting of Unitholders in December 2020, Unitholders approved an extension
of the Voting Top-Up Right to December 31, 2025.
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2020 ANNUAL REPORT 97
99
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT Management’s Responsibility for Financial Reporting
The Annual Report, including consolidated financial statements, is the responsibility of the management of SmartCentres Real
Estate Investment Trust and has been approved by the Board of Trustees. The financial statements have been prepared in
accordance with International Financial Reporting Standards. The summary of significant accounting policies used are described
in Note 2 to the consolidated financial statements. Financial information contained elsewhere in this report is consistent with
information contained in the consolidated financial statements.
Management maintains a system of internal controls over financial reporting that provides reasonable assurance that the assets
of SmartCentres Real Estate Investment Trust are safeguarded and that facilitates the preparation of relevant, timely and reliable
financial information that reflects, where necessary, management’s best estimates and judgments based on informed knowledge
of the facts.
The Board of Trustees is responsible for (i) ensuring that management fulfills its responsibility for financial reporting; and (ii)
providing final approval of the consolidated financial statements. The Board of Trustees has appointed an Audit Committee
comprising three independent Trustees to approve, monitor, evaluate, advise and make recommendations on matters affecting
the external audit, the financial reporting and the accounting controls, policies and practices of SmartCentres Real Estate
Investment Trust under its terms of reference.
The Audit Committee meets at least four times per year with management and with the independent external auditors to satisfy
itself that they are properly discharging their responsibilities. The consolidated financial statements and the Management
Discussion and Analysis of SmartCentres Real Estate Investment Trust have been reviewed by the Audit Committee and
approved by the Board of Trustees.
PricewaterhouseCoopers LLP, the independent auditors, have audited the consolidated financial statements in accordance with
International Financial Reporting Standards and have read Management’s Discussion and Analysis. Their auditors’ report is set
forth herein.
Peter Forde
President & CEO
Peter Sweeney
Chief Financial Officer
100
SMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT
Independent auditor’s report
To the Unitholders of SmartCentres Real Estate Investment Trust
Our opinion
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects,
the financial position of SmartCentres Real Estate Investment Trust and its subsidiaries (together, the
Trust) as at December 31, 2020 and 2019, and its financial performance and its cash flows for the years
then ended in accordance with International Financial Reporting Standards as issued by the International
Accounting Standards Board (IFRS).
the consolidated statements of income and comprehensive income for the years then ended;
the consolidated balance sheets as at December 31, 2020 and 2019;
What we have audited
The Trustʼs consolidated financial statements comprise:
the consolidated statements of cash flows for the years then ended;
the consolidated statements of equity for the years then ended; and
the notes to the consolidated financial statements, which include significant accounting policies and
other explanatory information.
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 Auditorʼs responsibilities for the audit of
the consolidated financial statements section of our report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our opinion.
Independence
We are independent of the Trust in accordance with the ethical requirements that are relevant to our audit
of the consolidated financial statements in Canada. We have fulfilled our other ethical responsibilities in
accordance with these requirements.
PricewaterhouseCoopers LLP
200 Apple Mill Road, Vaughan, Ontario, Canada L4K 0J8
T: +1 905 326 6800, F: +1 905 326 5339
“PwC” refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership.
101
SMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our
audit of the consolidated financial statements for the year ended December 31, 2020. These matters were
addressed in the context of our audit of the consolidated financial statements as a whole, and in forming
our opinion thereon, and we do not provide a separate opinion on these matters.
Key audit matter
How our audit addressed the key audit matter
Valuation of investment properties
Our approach to addressing the matter included the
following procedures, among others:
Refer to note 2 – Summary of significant accounting
policies and note 4 – Investment properties to the
consolidated financial statements.
The Trust measures its investment properties at fair
value and, as at December 31, 2020, total investment
properties were valued at $8,850 million and include
income properties and properties under development
(PUD). Fair values of investment properties are
determined using valuations prepared by
management, with reference to available external
data. PUD is valued using land development and
construction costs recorded at market value and the
direct income capitalization method less construction
costs to complete; and income properties are valued
using the discounted cash flow valuation method.
Significant judgments are made by management in
respect of determining the fair values of investment
properties using the three methods described above
(the valuation methods). The significant assumptions
in the land development and construction costs
recorded at market value include the market value per
acre for land.
The significant assumptions used in the direct income
capitalization method less construction costs to
complete include stabilized or forecasted net
operating income (NOI), the overall capitalization rates
and construction costs to complete.
For a sample of investment properties, tested how
management determined the fair value, which
included the following:
Tested the underlying data used in the valuation
methods.
Evaluated the reasonableness of the estimated
future cash flows over an average period of
10 years used in the discounted cash flow
valuation method by agreeing assumptions, such
as expected changes in rental rates and
occupancy rates, to external market and industry
data and comparing components of the year one
cash flows to the underlying accounting records.
Evaluated the reasonableness of expected credit
losses by assessing the calculation and
comparing it to the underlying data.
Professionals with specialized skill and knowledge
in the field of real estate valuations assisted us in
evaluating the appropriateness of the valuation
methods and in evaluating the reasonableness of
the discount rates, overall capitalization rates,
terminal capitalization rates, changes in rental
rates, lease renewal rates and downtime on
existing lease expiries.
Agreed NOI figures used in the direct income
capitalization method less construction costs to
complete to the accounting records and evaluated
whether stabilization or forecasts were reasonable
considering (i) the current and past leasing activity
102
SMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT Key audit matter
How our audit addressed the key audit matter
of the investment properties, (ii) the comparability
with external market and industry data and
(iii) whether these assumptions were aligned with
evidence obtained in other areas of the audit.
Evaluated whether construction costs to complete
were reasonable based on market and industry
data.
Assessed the market value of land per acre used
by management by comparing it to external
market and industry data.
The significant assumptions used in the discounted
cash flow valuation method include estimated future
cash flows over an average period of 10 years,
discount rates and terminal capitalization rates. The
determination of estimated future cash flows
incorporates significant assumptions including
expectations of changes in rental rates, occupancy
rates, lease renewal rates, expected credit losses and
downtime on existing lease expiries.
We considered this a key audit matter due to the
significant judgments made by management when
determining the fair values of the income properties
and PUD, and the high degree of complexity in
assessing audit evidence related to the significant
assumptions made by management. In addition, the
audit effort involved the use of professionals with
specialized skill and knowledge in the field of real
estate valuations.
Other information
Management is responsible for the other information. The other information comprises the Managementʼs
Discussion and Analysis, which we obtained prior to the date of this auditorʼs report and the information,
other than the consolidated financial statements and our auditorʼs report thereon, included in the annual
report, which is expected to be made available to us after that date.
Our opinion on the consolidated financial statements does not cover the other information and we do not
express any form of assurance conclusion thereon.
In connection with our audit of the consolidated 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 consolidated financial statements or our knowledge obtained in the audit, or
otherwise appears to be materially misstated.
If, based on the work we have performed, we conclude that there is a material misstatement of this other
information, we are required to report that fact. We have nothing to report in this regard. When we read
the information, other than the consolidated financial statements and our auditorʼs report thereon, included
in the annual report, if we conclude that there is a material misstatement therein, we are required to
communicate the matter to those charged with governance.
103
SMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT Responsibilities of management and those charged with governance for the
consolidated financial statements
Management is responsible for the preparation and fair presentation of the consolidated financial
statements in accordance with IFRS, and for such internal control as management determines is
necessary to enable the preparation of consolidated financial statements that are free from material
misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, management is responsible for assessing the Trustʼs
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 Trust or to
cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Trustʼs financial reporting process.
Auditorʼs responsibilities for the audit of the consolidated financial statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as
a whole are free from material misstatement, whether due to fraud or error, and to issue an auditorʼs
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 these consolidated 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 consolidated 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 Trustʼs internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by management.
104
SMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT Conclude on the appropriateness of managementʼs use of the going concern basis of accounting and,
Conclude on the appropriateness of managementʼs use of the going concern basis of accounting and,
based on the audit evidence obtained, whether a material uncertainty exists related to events or
based on the audit evidence obtained, whether a material uncertainty exists related to events or
conditions that may cast significant doubt on the Trustʼs ability to continue as a going concern. If we
conditions that may cast significant doubt on the Trustʼs ability to continue as a going concern. If we
conclude that a material uncertainty exists, we are required to draw attention in our auditorʼs report to
conclude that a material uncertainty exists, we are required to draw attention in our auditorʼs report to
the related disclosures in the consolidated financial statements or, if such disclosures are inadequate,
the related disclosures in the consolidated 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
to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our
auditorʼs report. However, future events or conditions may cause the Trust to cease to continue as a
auditorʼs report. However, future events or conditions may cause the Trust to cease to continue as a
going concern.
going concern.
Evaluate the overall presentation, structure and content of the consolidated financial statements,
Evaluate the overall presentation, structure and content of the consolidated financial statements,
including the disclosures, and whether the consolidated financial statements represent the underlying
including the disclosures, and whether the consolidated financial statements represent the underlying
transactions and events in a manner that achieves fair presentation.
transactions and events in a manner that achieves fair presentation.
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or
business activities within the Trust to express an opinion on the consolidated financial statements. We
business activities within the Trust to express an opinion on the consolidated financial statements. We
are responsible for the direction, supervision and performance of the group audit. We remain solely
are responsible for the direction, supervision and performance of the group audit. We remain solely
responsible for our audit opinion.
responsible for our audit opinion.
We communicate with those charged with governance regarding, among other matters, the planned scope
We communicate with those charged with governance regarding, among other matters, the planned scope
and timing of the audit and significant audit findings, including any significant deficiencies in internal
and timing of the audit and significant audit findings, including any significant deficiencies in internal
control that we identify during our audit.
control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant
We also provide those charged with governance with a statement that we have complied with relevant
ethical requirements regarding independence, and to communicate with them all relationships and other
ethical requirements regarding independence, and to communicate with them all relationships and other
matters that may reasonably be thought to bear on our independence, and where applicable, related
matters that may reasonably be thought to bear on our independence, and where applicable, related
safeguards.
safeguards.
From the matters communicated with those charged with governance, we determine those matters that
From the matters communicated with those charged with governance, we determine those matters that
were of most significance in the audit of the consolidated financial statements of the current period and
were of most significance in the audit of the consolidated financial statements of the current period and
are therefore the key audit matters. We describe these matters in our auditorʼs report unless law or
are therefore the key audit matters. We describe these matters in our auditorʼs report unless law or
regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we
regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we
determine that a matter should not be communicated in our report because the adverse consequences of
determine that a matter should not be communicated in our report because the adverse consequences of
doing so would reasonably be expected to outweigh the public interest benefits of such communication.
doing so would reasonably be expected to outweigh the public interest benefits of such communication.
The engagement partner on the audit resulting in this independent auditorʼs report is Daniel D'Archivio.
The engagement partner on the audit resulting in this independent auditorʼs report is Daniel D'Archivio.
Chartered Professional Accountants, Licensed Public Accountants
Chartered Professional Accountants, Licensed Public Accountants
Vaughan, Ontario
Vaughan, Ontario
February 10, 2021
February 10, 2021
105
SMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT SMARTCENTRES REAL ESTATE INVESTMENT TRUST
SMARTCENTRES REAL ESTATE INVESTMENT TRUST
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED BALANCE SHEETS
As at December 31, 2020 and December 31, 2019
As at December 31, 2020 and December 31, 2019
(in thousands of Canadian dollars)
(in thousands of Canadian dollars)
Note
Note
2020
2020
2019
2019
Assets
Assets
Non-current assets
Non-current assets
Investment properties
Investment properties
Mortgages, loans and notes receivable
Mortgages, loans and notes receivable
Equity accounted investments
Equity accounted investments
Other assets
Other assets
Intangible assets
Intangible assets
Current assets
Current assets
Residential development inventory
Residential development inventory
Current portion of mortgages, loans and notes receivable
Current portion of mortgages, loans and notes receivable
Amounts receivable and other
Amounts receivable and other
Deferred financing costs
Deferred financing costs
Prepaid expenses and deposits
Prepaid expenses and deposits
Cash and cash equivalents
Cash and cash equivalents
Total assets
Total assets
Liabilities
Liabilities
Non-current liabilities
Non-current liabilities
Debt
Debt
Other payables
Other payables
Other financial liabilities
Other financial liabilities
Current liabilities
Current liabilities
Current portion of debt
Current portion of debt
Accounts payable and current portion of other payables
Accounts payable and current portion of other payables
Total liabilities
Total liabilities
Equity
Equity
Trust Unit equity
Trust Unit equity
Non-controlling interests
Non-controlling interests
Total liabilities and equity
Total liabilities and equity
4
4
5
5
6
6
7
7
8
8
9
9
5
5
10
10
10
10
10
10
11
11
12
12
13
13
11
11
12
12
8,850,390
8,850,390
263,558
263,558
463,204
463,204
88,141
88,141
46,470
46,470
9,711,763
9,711,763
25,795
25,795
125,254
125,254
58,644
58,644
1,173
1,173
7,269
7,269
794,594
794,594
1,012,729
1,012,729
10,724,492
10,724,492
4,355,862
4,355,862
19,705
19,705
85,188
85,188
4,460,755
4,460,755
854,261
854,261
242,501
242,501
1,096,762
1,096,762
5,557,517
5,557,517
4,317,357
4,317,357
849,618
849,618
5,166,975
5,166,975
10,724,492
10,724,492
9,050,066
9,050,066
216,907
216,907
345,376
345,376
89,023
89,023
47,801
47,801
9,749,173
9,749,173
24,564
24,564
55,953
55,953
36,679
36,679
1,477
1,477
5,247
5,247
55,374
55,374
179,294
179,294
9,928,467
9,928,467
4,110,548
4,110,548
21,444
21,444
95,735
95,735
4,227,727
4,227,727
115,385
115,385
217,603
217,603
332,988
332,988
4,560,715
4,560,715
4,492,678
4,492,678
875,074
875,074
5,367,752
5,367,752
9,928,467
9,928,467
Commitments and contingencies (Note 27)
Commitments and contingencies (Note 27)
The accompanying notes are an integral part of the consolidated financial statements.
The accompanying notes are an integral part of the consolidated financial statements.
Approved by the Board of Trustees.
Approved by the Board of Trustees.
Michael Young
Michael Young
Trustee
Trustee
Garry Foster
Garry Foster
Trustee
Trustee
6 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2020 ANNUAL REPORT
6 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2020 ANNUAL REPORT
106
SMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT
SMARTCENTRES REAL ESTATE INVESTMENT TRUST
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
For the years ended December 31, 2020 and December 31, 2019
(in thousands of Canadian dollars)
Net rental income and other
Rentals from investment properties and other
Property operating costs and other
Net rental income and other
Other income and expenses
General and administrative expense, net
Earnings from equity accounted investments
Fair value adjustment on revaluation of investment properties
Gain on sale of investment properties
Interest expense
Interest income
Fair value adjustment on financial instruments
Acquisition-related costs
Net income and comprehensive income
Net income and comprehensive income attributable to:
Trust Units
Non-controlling interests
The accompanying notes are an integral part of the consolidated financial statements.
Note
2020
2019
17
18
19
6
25
781,253
806,412
(320,542)
(301,513)
460,711
504,899
(28,682)
61,972
(275,051)
418
(20,456)
6,639
29,471
623
11(d)
(160,044)
(157,038)
25
15,241
17,722
(2,347)
89,940
11,668
(1,320)
(283)
374,203
75,288
14,652
89,940
314,046
60,157
374,203
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2020 ANNUAL REPORT 7
107
SMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT
SMARTCENTRES REAL ESTATE INVESTMENT TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 2020 and December 31, 2019
(in thousands of Canadian dollars)
Cash provided by (used in)
Operating activities
Net income and comprehensive income
Add (deduct):
Fair value adjustments
Gain on sale of investment properties
Earnings from equity accounted investments, net of distributions
Acquisition-related costs
Interest expense
Other financing costs
Interest income
Amortization of other assets and intangible assets
Lease obligation interest
Deferred unit compensation expense, net of redemptions
Long Term Incentive Plan accrual adjustment
Cash interest paid
Interest received
Expenditures on direct leasing costs and tenant incentives
Expenditures on tenant incentives for properties under development
Changes in other non-cash operating items
Cash flows provided by operating activities
Financing activities
Proceeds from issuance of unsecured debentures, net of issuance costs
Repayment of unsecured debentures
Proceeds from issuance of secured and unsecured debt and credit facilities
Repayments of unsecured debt and credit facilities
Repayments of secured debt and other debt, net of proceeds
Proceeds from issuance of Trust Units, net of issuance costs
Distributions paid on Trust Units
Distributions paid on non-controlling interests and Units classified as liabilities
Payment of lease liability
Cash flows provided by financing activities
Investing activities
Acquisitions and Earnouts of investment properties
Additions to investment properties
Additions to equity accounted investments
Net proceeds from sale of investment properties in equity accounted investments
Additions to equipment
Advances of mortgages and loans receivable
Repayments of mortgages and loans receivable
Net proceeds from sale of investment properties
Cash flows used in investing activities
Increase in cash and cash equivalents during the year
Cash and cash equivalents – beginning of year
Cash and cash equivalents – end of year
Supplemental cash flow information (see Note 20)
The accompanying notes are an integral part of the consolidated financial statements.
8 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2020 ANNUAL REPORT
108
Note
2020
2019
89,940
374,203
25
6
11(d)
13(c)
12(b)
11(d)
20
11(b)
11(b)
15
3
6
7
5
257,329
(418)
(57,202)
2,347
160,044
(1,231)
(15,241)
14,467
553
1,433
895
(138,847)
5,502
(5,462)
(1,897)
(16,230)
295,982
1,245,265
(276,880)
527,252
(474,404)
(120,915)
—
(259,914)
(37,959)
(1,822)
600,623
(11,383)
(84,659)
(56,452)
—
—
(53,629)
29,202
19,536
(157,385)
739,220
55,374
794,594
(28,151)
(623)
558
283
157,038
(2,618)
(11,668)
8,016
541
(4,737)
(596)
(154,854)
3,274
(5,910)
(2,467)
13,322
345,611
797,500
(300,000)
534,423
(227,037)
(657,128)
220,365
(189,582)
(49,529)
(170)
128,842
(24,625)
(104,448)
(254,702)
31,978
(1,278)
(109,527)
2,212
11,867
(448,523)
25,930
29,444
55,374
SMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT
SMARTCENTRES REAL ESTATE INVESTMENT TRUST
CONSOLIDATED STATEMENTS OF EQUITY
For the years ended December 31, 2020 and December 31, 2019
(in thousands of Canadian dollars)
Attributable to Unitholders
Attributable to LP Units
Classified as Non-Controlling
Interests
Trust
Units
(Note 15)
Note
Retained
Earnings
Unit
Equity
LP Units
(Note 15)
Retained
Earnings
LP Unit
Equity
Other Non-
Controlling
Interest
(Note 21)
Total
Equity
Equity – January 1, 2019
2,781,069 1,367,112 4,148,181
632,737 224,302 857,039
3,111 5,008,331
Issuance of Units
15 291,752
— 291,752
621
—
621
— 292,373
Net income and comprehensive income
—
314,046 314,046
—
59,795 59,795
362 374,203
Distributions
16
— (261,301) (261,301)
— (45,556) (45,556)
(298) (307,155)
Equity – December 31, 2019
3,072,821 1,419,857 4,492,678
633,358 238,541 871,899
3,175 5,367,752
Equity – January 1, 2020
3,072,821 1,419,857 4,492,678
633,358 238,541 871,899
3,175 5,367,752
Issuance of Units
15
17,367
—
17,367
6,848
— 6,848
—
24,215
Net income and comprehensive income
—
75,288
75,288
— 14,287 14,287
365
89,940
Return of contributions by other non-
controlling interest
—
—
—
—
—
—
(55)
(55)
Distributions
16
— (267,976) (267,976)
— (46,901) (46,901)
— (314,877)
Equity – December 31, 2020
3,090,188 1,227,169 4,317,357
640,206 205,927 846,133
3,485 5,166,975
The accompanying notes are an integral part of the consolidated financial statements.
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2020 ANNUAL REPORT 9
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SMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SMARTCENTRES REAL ESTATE INVESTMENT TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2020 and 2019
(in thousands of Canadian dollars, except Unit, square foot and per Unit amounts)
1. Organization
SmartCentres Real Estate Investment Trust and its subsidiaries (“the Trust”), is an unincorporated open-ended mutual fund trust
governed by the laws of the Province of Alberta created under a declaration of trust, dated December 4, 2001, subsequently
amended and last restated on December 9, 2020 (“the Declaration of Trust”). The Trust develops, leases, constructs, owns and
manages shopping centres, office buildings, high-rise and low-rise condominiums and rental residences, seniors’ housing,
townhome units, and self-storage rental facilities in Canada, both directly and through its subsidiaries, Smart Limited Partnership,
Smart Limited Partnership II, Smart Limited Partnership III, Smart Limited Partnership IV, Smart Oshawa South Limited
Partnership, Smart Oshawa Taunton Limited Partnership, Smart Boxgrove Limited Partnership, ONR Limited Partnership and
ONR Limited Partnership I. The exchangeable securities of these subsidiaries, which are presented as non-controlling interests
or as a liability as appropriate, are economically equivalent to voting trust units (“Trust Units”) as a result of voting, exchange and
distribution rights as more fully described in Note 15(a). The address of the Trust’s registered office is 3200 Highway 7, Vaughan,
Ontario, L4K 5Z5. The Units of the Trust are listed on the Toronto Stock Exchange (“TSX”) under the ticker symbol “SRU.UN”.
These consolidated financial statements have been approved for issue by the Board of Trustees on February 10, 2021. The
Board of Trustees has the power to amend the consolidated financial statements after issue.
As at December 31, 2020, the Penguin Group of Companies (“Penguin”), owned by Mitchell Goldhar, owned approximately
21.4% (December 31, 2019 – 20.7%) of the issued and outstanding Units of the Trust and Limited Partnerships (see also Note
21, “Related party transactions”).
2. Summary of significant accounting policies
2.1
Basis of presentation
The Trust’s consolidated financial statements are prepared on a going concern basis and have been presented in
Canadian dollars rounded to the nearest thousand. The consolidated financial statements have been prepared under
the historical cost convention, except for the revaluation of investment property and certain financial and derivative
instruments (discussed in Note 2.4 and Note 2.11, respectively). The accounting policies set out below have been
applied consistently to all periods presented in these consolidated financial statements, unless otherwise indicated.
Statement of compliance
The consolidated financial statements of the Trust have been prepared in accordance with International Financial
Reporting Standards as issued by the International Accounting Standards Board (“IFRS”).
2.2
Principles of consolidation
Subsidiaries are all entities over which the Trust has control. The Trust controls an entity when the Trust is exposed to,
or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its
power over the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Trust. They
are deconsolidated from the date that control ceases.
Inter-company transactions, balances, unrealized losses and unrealized gains on transactions between the Trust and its
subsidiaries are eliminated. Accounting policies of subsidiaries have been changed where necessary to ensure
consistency with the policies adopted by the Trust.
Non-controlling interests represent equity interests in subsidiaries not attributable to the Trust. The share of net assets
of subsidiaries attributable to non-controlling interests is presented as a component of equity. Net income and
comprehensive income are attributed to Trust Units and non-controlling interests.
Interests in joint arrangements
Investments in joint arrangements are classified as either joint operations or joint ventures depending on the contractual
rights and obligations of each investor. 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 is a co-owner in
several properties that are subject to joint control and has determined that certain current joint arrangements are joint
operations as the Trust, through its subsidiaries, is the direct beneficial owner of the Trust's interests in the properties.
For these properties, the Trust recognizes its proportionate share of the assets, liabilities, revenue and expenses of
these co-ownerships in the respective lines in the consolidated financial statements (see Note 23, “Co-ownership
interests”).
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT 2.3
Equity accounted investments
a) Investment in associates
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Investment in associates includes entities over which the Trust has significant influence but not control or joint
control, generally accompanying an ownership of between 20% and 50% of the voting rights. Investment in
associates is accounted for using the equity method of accounting and recorded as equity accounted investments
on the consolidated balance sheet. Under the equity method, the investment is initially recognized at cost, and the
carrying amount is increased or decreased to recognize the investor’s share of the profit or loss of the investee,
including the Trust's pro rata share of changes in fair value of investment property held by the associate from the
previous reporting period, after the date of acquisition. The Trust’s investment in associates includes any notional
goodwill identified on acquisition.
b) Investment in joint ventures
A joint venture is a joint arrangement whereby the parties that have joint control only have rights to the net assets
of the arrangement. Investment in joint ventures is accounted for using the equity method of accounting and
recorded as equity accounted investments on the consolidated balance sheet. Under the equity method, the
investment is initially recognized at cost, and the carrying amount is increased or decreased to recognize the
investor’s share of the profit or loss of the investee, including the Trust's pro rata share of changes in fair value of
investment property held by the equity accounted investment from the previous reporting period, after the date of
acquisition. The Trust’s investment in joint ventures includes any notional goodwill identified on acquisition.
The Trust’s share of post-acquisition profit or loss is recognized in the consolidated statement of income and
comprehensive income with a corresponding adjustment to the carrying amount of the equity accounted investment.
When the Trust’s share of losses in an equity accounted investment equals or exceeds its interest in the equity
accounted investment, including any other unsecured receivables, the Trust does not recognize further losses, unless it
has incurred legal or constructive obligations or made payments on behalf of the equity accounted investment.
The Trust determines at each reporting date whether there is any objective evidence that the equity accounted
investment is impaired. If this is the case, the Trust calculates the amount of impairment as the difference between the
recoverable amount of the equity accounted investment and its carrying value and recognizes the amount in the
consolidated statement of income and comprehensive income.
Profits and losses resulting from upstream and downstream transactions between the Trust and its equity accounted
investment are recognized in the Trust’s consolidated financial statements only to the extent of an unrelated investor's
interests in the equity accounted investment. Accounting policies of equity accounted investments are updated when
necessary to ensure consistency with the policies adopted by the Trust.
Condominium sales revenue
During the year ended December 31, 2020, the Trust’s equity accounted investments generated revenue from
condominium sales. The Trust’s equity accounted investments have adopted the accounting policy which requires that
the revenue generated from contracts with customers on the sale of residential condominium units is recognized at a
point in time when control of the asset (i.e., condominium unit) has transferred to the purchaser (i.e., generally, when
the purchaser takes possession of the condominium unit) as the purchaser has the ability to direct the use of and obtain
substantially all of the remaining benefits from the asset. The amount of revenue recognized is based on the transaction
price included in the purchasers' contracts. Any funds received prior to the purchasers taking possession of their
respective assets are recognized as deferred revenue (contractual liability).
Condominium cost of sales
Inventory costs associated with the development of condominiums are allocated to direct operating costs on a per unit
basis using the net yield method. In addition, if post-closing costs are expected (i.e., remaining construction costs,
warranties etc.), the unit’s allocation of the post-closing costs are included in cost of sales and a cost to complete
liability is recorded.
2.4
Investment properties
Investment properties include income properties and properties under development (land or building, or part of a
building, or both) that are held by the Trust, or leased by the Trust as a lessee, to earn rentals or for capital appreciation
or both.
Acquired investment properties are measured initially at cost, including related transaction costs in connection with
asset acquisitions. Certain properties are developed by the Trust internally, and other properties are developed and
leased to third parties under development management agreements with Penguin and other vendors (“Earnouts”).
Earnouts occur when the vendors retain responsibility for managing certain developments on land acquired by the Trust
for additional proceeds paid on completion calculated based on a predetermined, or formula-based, capitalization rate,
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
net of land and development costs incurred by the Trust (see Note 4(d)(ii)). The completion of an Earnout is reflected as
an additional purchase in Note 3, “Acquisitions and Earnouts”. Costs capitalized to properties under development
include direct development and construction costs, Earnout Fees (“Earnout Fees”), borrowing costs, property taxes and
other carrying costs, as well as capitalized staff compensation and other costs directly attributable to property under
development.
Borrowing costs that are incurred for the purpose of, and are directly attributable to, acquiring or constructing a
qualifying investment property are capitalized as part of its cost. The amount of borrowing costs capitalized is
determined first by reference to borrowings specific to the project, where relevant, and otherwise by applying a weighted
average cost of borrowings to eligible expenditures after adjusting for borrowings associated with other specific
developments. Borrowing costs are capitalized while acquisition or construction is actively underway and cease once
the asset is ready for use as intended by management, or suspended if the development of the asset is suspended, as
identified by management.
After the initial recognition, investment properties are recorded at fair value, determined based on comparable
transactions, if any. If comparable transactions are not available, the Trust uses alternative valuation methods such as:
i) the direct income capitalization method, ii) land, development and construction costs recorded at market value, and iii)
the discounted cash flow valuation method. Valuations, where obtained externally, are performed during the year with
quarterly updates on capitalization rates by professional valuers who hold recognized and relevant professional
qualifications and have recent experience in the location and category of the investment property being valued. Related
fair value gains and losses are recorded in the consolidated statements of income and comprehensive income in the
period in which they arise.
Investment property held by the Trust under a lease is classified as investment property when the definition of an
investment property is met and the Trust accounts for the lease as a right-of-use asset. The Trust accounts for all
leasehold property interests that meet the definition of investment property held by the Trust as right-of-use assets.
Subsequent expenditure is capitalized to the investment property's carrying amount only when it is probable that future
economic benefits associated with the expenditure will flow to the Trust and the cost of the item can be measured
reliably. All other repairs and maintenance costs are expensed when incurred. When part of an investment property is
replaced, the carrying amount of the replaced part is derecognized.
Initial direct leasing costs incurred by the Trust in negotiating and arranging tenant leases are added to the carrying
amount of investment properties.
2.5
Residential development inventory
Residential development inventory, which is developed for sale in the ordinary course of business within the normal
operating cycle, is stated at the lower of cost and estimated net realizable value. Residential development inventory is
reviewed for impairment at each reporting date. An impairment loss is recognized as an expense when the carrying
value of the property exceeds its net realizable value. Net realizable value is based on projections of future cash flows,
which take into account the development plans for each project and management’s best estimate of the most probable
set of anticipated economic conditions.
The cost of residential development inventory includes borrowing costs directly attributable to projects under active
development. The amount of borrowing costs capitalized is determined first by reference to borrowings specific to the
project, where relevant, and otherwise by applying a weighted average interest rate for the Trust's other borrowings to
eligible expenditures. Borrowing costs are not capitalized on residential development inventory where no development
activity is taking place. Residential development inventory is presented separately on the consolidated balance sheets
as current assets, as the Trust intends to sell these assets in the ordinary course of business within the normal
operating cycle.
The revenue generated from contracts with customers on the sale of townhomes and residential condominium units is
recognized at a point in time when control of the asset (i.e., townhome or condominium unit) has transferred to the
purchaser (i.e., generally, when the purchaser takes possession of the townhome or condominium unit) as the
purchaser has the ability to direct the use of and obtain substantially all of the remaining benefits from the asset. The
amount of revenue recognized is based on the transaction price included in the purchasers' contracts. Any funds
received prior to the purchasers taking possession of their respective assets are recognized as deferred revenue
(contractual liability).
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2.6
Business combinations
The Trust applies business combination accounting whereby identifiable assets acquired and liabilities assumed are
measured at their acquisition date fair values. Any excess of the purchase price over the fair value of identifiable net
assets acquired is considered goodwill. If the purchase price is less than the fair value of the net assets acquired the
difference is recognized directly in the consolidated statement of income and comprehensive income as a gain. The
Trust expenses any transaction costs associated with a business combination in the period incurred. When an
acquisition does not meet the criteria for a business, it is accounted for as an asset acquisition. Any transaction costs
associated with an asset acquisition are allocated to the assets acquired and liabilities assumed. No goodwill is
recognized for asset acquisitions.
Effective January 1, 2020, the Trust has adopted the amendments to IFRS 3, “Business Combinations” (“IFRS 3”). The
amendments to IFRS 3 relate to whether a transaction meets the definition of a business combination. The
amendments clarify the definition of a business, as well as provide additional illustrative examples, including those
relevant to the real estate industry. A significant change in the amendment is the option for an entity to assess whether
substantially all of the fair value of the gross assets acquired is concentrated in a single asset or group of similar assets.
If such a concentration exists, the transaction is not viewed as an acquisition of a business and no further assessment
of the business combination guidance is required. This will be relevant where the value of the acquired entity is
concentrated in one property, or a group of similar properties. The amendments are effective for business combinations
for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after
January 1, 2020, and to asset acquisitions that occur on or after the beginning of that period. Early application is
permitted. The Trust has assessed the amendments to IFRS 3 and believes it did not have a significant impact on the
Trust’s consolidated financial statements.
2.7
2.8
Intangible assets
The Trust’s intangible assets comprise key joint venture relationships, trademarks and goodwill. The joint venture
relationships and trademarks have finite useful lives, and as such are amortized over a period of 30 years and reviewed
for impairment when an indication of impairment exists. Goodwill is not amortized but tested for impairment at least
annually, or more frequently if there are indicators of impairment.
Equipment
Equipment is stated at cost less accumulated amortization and accumulated impairment losses and is included in other
assets. Cost includes expenditures that are directly attributable to the acquisition of the asset.
The Trust records amortization expense on a straight-line basis over the assets' estimated useful lives included in the
table as follows:
Office furniture and fixtures
Computer hardware
Computer software
Up to 7 years
Up to 5 years
Up to 7 years
The assets' residual values and useful lives are reviewed, and adjusted if appropriate, at least at each financial year-
end. If events and circumstances indicate an asset may be impaired, the asset's carrying amount is written down
immediately to its recoverable amount if its carrying amount is greater than its estimated recoverable amount defined as
the higher of an asset's fair value less costs to sell and its value in use.
2.9
Provisions
Provisions are recognized when: (i) the Trust has a present legal or constructive obligation as a result of past events; (ii)
it is probable that an outflow of resources will be required to settle the obligation; and (iii) the amount can be reliably
estimated.
Provisions are measured at the present value of the expenditures expected to be required to settle the obligation that
reflect current market assessments of the time value of money and the risks specific to the obligation. The increase in
the provision due to passage of time is recognized as interest expense.
2.10
Classification of Units as liabilities and equity
a) Trust Units
The Trust Units meet the definition of a financial liability under IFRS as the redemption feature of the Trust Units
creates an unavoidable contractual obligation to pay cash.
The Trust Units are considered to be “puttable instruments” because of the redemption feature. IFRS provides a
very limited exemption to allow puttable instruments to be presented as equity provided certain criteria are met.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
To be presented as equity, a puttable instrument must meet all of the following conditions: (i) it must entitle the
holder to a pro rata share of the entity's net assets in the event of the entity's dissolution; (ii) it must be in the class
of instruments that is subordinate to all other instruments; (iii) all instruments in the class in (ii) must have identical
features; (iv) other than the redemption feature, there can be no other contractual obligations that meet the
definition of a liability; and (v) the expected cash flows for the instrument must be based substantially on the profit
or loss of the entity or change in fair value of the instrument. This is called the “Puttable Instrument Exemption”.
The Trust Units meet the Puttable Instrument Exemption criteria and accordingly are presented as equity in the
consolidated financial statements. The distributions on Trust Units are deducted from retained earnings.
b) Limited Partnership Units
The Class B General Partnership Units and Class D Limited Partnership Units of Smart Limited Partnership
(referred to herein as “Smart LP Units”), Class B Limited Partnership Units of Smart Limited Partnership II
(referred to herein as “Smart LP II Units”), Class B General Partnership Units of Smart Limited Partnership III
(referred to herein as “Smart LP III Units”), Class B General Partnership Units of Smart Limited Partnership IV
(referred to herein as “Smart LP IV Units”), Class B General Partnership Units and Class D Limited Partnership
Units of Smart Oshawa South Limited Partnership (referred to herein as “Smart Oshawa South LP Units”), Class B
General Partnership Units and Class D Limited Partnership Units of Smart Oshawa Taunton Limited Partnership
(referred to herein as “Smart Oshawa Taunton LP Units”), Class B Limited Partnership Units of ONR Limited
Partnership (referred to herein as “ONR LP Units”), Class B Limited Partnership Units of ONR Limited Partnership
I (referred to herein as “ONR LP I Units”), and Class B Limited Partnership Units of Smart Boxgrove Limited
Partnership (referred to herein as “Smart Boxgrove LP Units”) are exchangeable into Trust Units at the partners’
option. All limited partnership units that are presented as equity are referred to herein as “LP Units” (individually,
each of these limited partnerships are referred to herein as an LP).
The original characteristics of the LP Units indicated that they were exchangeable into a liability (the Trust Units
are a liability by definition), and accordingly were also considered to be a liability, measured at amortized cost
each reporting period with changes in carrying amount recorded directly in the consolidated statements of income
and comprehensive income, and on that basis, the distributions on such Units were classified as interest expense
in the consolidated statements of income and comprehensive income.
However, amendments were made effective December 31, 2012 to the Exchange, Option and Support
Agreements (“EOSA”) for each respective LP that require the Trust to convert to a closed-end trust prior to
honouring a redemption request by the partners. Converting to a closed-end trust will classify the Trust Units as
equity as the Trust Units will no longer have the redemption feature. As a result, the LP Units meet the Puttable
Instrument Exemption criteria and as a result are presented in equity as non-controlling interests in the Trust’s
consolidated financial statements.
The Class D Smart LP Units, Class F Smart LP Units, Class D Smart Oshawa South LP Units, Class D Smart
Oshawa Taunton LP Units, Class B ONR LP Units and Class B ONR LP I Units (collectively referred to herein as
“Units classified as liabilities”), are presented as a liability, designated at fair value in accordance with IFRS 9,
“Financial Instruments” (“IFRS 9”), and approximate the fair value of Trust Units, with changes in fair value
recorded directly in earnings. The distributions on such Units are classified as interest expense in the consolidated
statement of income and comprehensive income. The Trust considers distributions on such Units classified as
interest expense to be a financing activity in the consolidated statement of cash flows.
2.11
Financial instruments – recognition and measurement
The Trust's financial instruments are accounted for under IFRS 9:
Initial Recognition
The Trust recognizes a financial asset or a financial liability when, and only when, it becomes a party to the contractual
provisions of the instrument. Such financial assets or financial liabilities are initially recognized at their fair value,
including directly attributable transaction costs in the case of a financial asset or financial liability not subsequently
measured at fair value through profit or loss. Transaction costs of financial assets carried at fair value through profit or
loss are expensed in profit or loss. Subsequent measurement depends on the initial classification of the financial asset
or financial liability.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Classification
The classification of financial assets depends on the entity’s business model for managing the financial assets and the
contractual terms of the cash flows. Financial assets are classified and measured based on the following categories:
•
•
•
The following table summarizes the Trust’s classification and measurement of financial assets and liabilities:
amortized cost;
fair value through other comprehensive income (“FVTOCI”); and
fair value through profit or loss (“FVTPL”).
Note
Classification under IFRS 9
Financial assets
Mortgages, loans and notes receivable
Amounts receivable and other
Cash and cash equivalents
Financial liabilities
Accounts payable and other payables
Secured debt
Revolving operating facility
Unsecured debt
Units classified as liabilities
Earnout options
Deferred unit plan
Interest rate swap agreements
a) Financing costs
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Amortized cost
FVTPL
FVTPL
FVTPL
FVTPL
2.13
2.13
2.13
Financing costs include commitment fees, underwriting costs and legal costs associated with the acquisition or
issuance of financial assets or liabilities.
Financing costs relating to secured debt, non-revolving credit facilities, and convertible and unsecured debentures
are accounted for as part of the respective liability's carrying value at inception and amortized to interest expense
using the effective interest method. Financing costs incurred to establish revolving credit facilities are deferred as
a separate asset on the consolidated balance sheet and amortized on a straight-line basis over the term of the
facilities. In the event any debt is extinguished, any associated unamortized financing costs are expensed
immediately.
b) Derivative instruments
Derivative financial instruments may be utilized by the Trust in the management of its interest rate exposure.
Derivatives are carried at fair value with changes in fair value recognized in net income. The Trust's policy is not to
utilize derivative instruments for trading or speculative purposes.
c) Fair value of financial and derivative instruments
The fair value of financial instruments is the amount of consideration that would be agreed upon in an arm's-length
transaction between knowledgeable, willing parties who are under no compulsion to act; i.e., the fair value of
consideration given or received. In certain circumstances, the fair value may be determined based on observable
current market transactions in the same instrument, using market-based inputs. The fair values are described and
disclosed in Note 14, “Fair value of financial instruments”.
d) Interest rate swap agreements
The Trust may enter into interest rate swaps to economically hedge its interest rate risk. The fair value of interest
rate swap agreements reflects the fair value of swap agreements at each reporting date, and is driven by the
difference between the fixed interest rate and the applicable variable interest rate.
e) Modifications or extinguishments of loans and debt
Amendments
extinguishments based on the terms of the revised agreements.
to mortgages and
loans receivable and debt are assessed as either modifications or
When a modification is determined, the carrying amount of the loan or debt is adjusted using the original effective
interest rate, with a corresponding adjustment recorded as a gain or loss.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
When an extinguishment is determined, the new loan or debt is recorded at its fair value and a corresponding
gain/loss is recognized immediately for the difference between the carrying amount of the old loan or debt and the
new loan or debt.
f) Impairment of financial assets
The Trust assesses, on a forward-looking basis, the expected credit losses (“ECL”) associated with its debt
instruments carried at amortized cost. The impairment is dependent on whether there has been a significant
increase in credit risk.
For trade receivables, the Trust applies the simplified approach permitted by IFRS 9, which requires expected
lifetime losses to be recognized from initial recognition of the receivables.
To measure the expected credit losses, trade receivables and contract assets have been grouped based on
shared credit risk characteristics and the days past due. The contract assets (“Unbilled other tenant receivables”)
relate to unbilled work in progress and have substantially the same risk characteristics as the trade receivables for
the same types of contracts. The Trust has therefore concluded that the expected loss rates for trade receivables
are a reasonable approximation of the loss rates for the contract assets. However, the assumptions and estimates
underlying the manner in which ECLs have been implemented historically may not be appropriate in the current
COVID-19 pandemic environment. Accordingly, the Trust has not applied its existing ECL methodology
mechanically. Instead, during the current COVID-19 pandemic environment, the Trust has been in discussions
with tenants on a case-by-case basis to determine optimal rent payment solutions and has incorporated this
available, reasonable and supportable information when estimating ECL on tenant receivables.
All of the Trust’s loans receivable and mortgages receivable at amortized cost are considered to have low credit
risk, and the loss allowance recognized during the period was therefore limited to 12 months expected losses.
These financial assets are considered by management to be “low credit risk” when these financial assets have a
low risk of default and the borrower has a strong capacity to meet its contractual cash flow obligations in the near
term.
2.12
2.13
g) Interest income
Interest income is recognized as interest accrues using the effective interest method. When a loan and receivable
are impaired, the Trust reduces the carrying amount to its recoverable amount, which is the estimated future cash
flow discounted at the original effective interest rate of the instrument, and continues unwinding the discount as
interest income. Interest income on impaired loans and receivables is recognized using the original effective
interest rate.
Cash and cash equivalents
Cash and cash equivalents comprise cash and short-term investments with original maturities of three months or less.
Trust and Limited Partnership Unit based arrangements
a) Unit options issued to non-employees on acquisitions (the “Earnout options”)
In connection with certain acquisitions and the associated development agreements, the Trust may grant options
to acquire Units of the Trust or Limited Partnerships to Penguin or other vendors. These options are exercisable
only at the time of completion and rental of additional space on acquired properties at strike prices determined on
the date of grant. Earnout options that have not vested expire at the end of the term of the corresponding
development management agreement.
The Earnout options are considered to be a financial liability because there is a contractual obligation for the Trust
to deliver Trust or Limited Partnership Units upon exercise of the Earnout options. The Earnout options are
considered to be contingent consideration with respect to the acquisitions they relate to, and are initially
recognized at their fair value. The Earnout options are subsequently carried at fair value with changes in fair value
recognized in the fair value adjustment on financial instruments in the consolidated statements of income and
comprehensive income.
The fair value of Earnout options is determined using the Black-Scholes option-pricing model using certain
observable inputs with respect to the volatility of the underlying Trust Unit price, the risk-free rate and using
unobservable inputs with respect to the anticipated expected lives of the options, the number of options that will
ultimately vest and the expected Trust Unit distribution rate. Generally, increases in the anticipated lives of the
options, decreases in the number of options that will ultimately vest, and decreases in the expected Trust Unit
distribution rate will combine to result in a lower fair value of Earnout options (see also 2.21(b)(i)).
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b) Deferred unit plan
Deferred units granted to Trustees with respect to their Trustee fees, as well as the matching deferred units, vest
immediately and are considered to be with respect to past services and are recognized as compensation expense
upon grant. Deferred units granted to eligible associates with respect to their bonuses vest immediately, and the
matching deferred units vest 50% on the third anniversary and 25% on each of the fourth and fifth anniversaries.
Deferred units granted relating to amounts matched by the Trust are considered to be with respect to future
services and are recognized as compensation expense based upon the fair value of Trust Units over the vesting
period of each deferred unit.
The deferred units earn additional deferred units for the distributions that would otherwise have been paid on the
deferred units as if they instead had been issued as Trust Units on the date of grant. The deferred units are
considered to be a financial liability because there is a contractual obligation for the Trust to deliver Trust Units or
settle in cash upon conversion or redemption of the deferred units.
The deferred units are measured at fair value using the market price of the Trust Units on each reporting date,
with changes in fair value recognized in the consolidated statements of income and comprehensive income as
additional compensation expense over their vesting period and as a gain or loss on financial instruments once
vested. The additional deferred units are recorded in the consolidated statements of income and comprehensive
income as compensation expense over their vesting period and as interest expense once vested (see also
2.21(b)(ii)).
c) Long Term Incentive Plan
The Trust has a Long Term Incentive Plan that awards officers of the Trust with performance units that are linked
to the long-term performance of Trust Units relative to the respective market index. Performance units vest over a
performance period of three years and are settled for cash based on the market value of Trust Units at the end of
the performance period.
At each reporting date, the performance units are measured based on the performance of Trust Units relative to
the respective market index, the market value of Trust Units and the total performance units granted including
additional units for distributions (see also 2.21(b)(iv)).
d) Equity Incentive Plan
The Trust has an Equity Incentive Plan commencing January 1, 2021 that awards officers and key employees of
the Trust with performance units when the daily volume weighted average price (“VWAP”) of all Trust Units traded
on the TSX for 20 consecutive trading days meets or exceeds certain Unit price thresholds set by the Board.
Performance units vest over a performance period of three years and are settled for cash or exchanged for Trust
Units based on the 10-day VWAP of Trust Units at the redemption date. The performance period is January 1,
2021 through December 31, 2027.
At each reporting date, the performance units are measured based on the performance of Trust Units relative to
the Unit price threshold targets, the market value of Trust Units and the total performance units granted including
additional units for distributions (see also 2.21(b)(v)).
2.14
Rentals from investment properties and other
The Trust's rental from investment properties and other comes from different sources and is accounted for in
accordance with IFRS 15, “Revenue from Contracts with Customers” (“IFRS 15”) and IFRS 16, “Leases” (“IFRS 16”).
a) Rentals from investment properties
The Trust's lease agreements may contain both lease and non-lease elements. IFRS 16 requires lessors to
allocate consideration in the contracts between lease and non-lease components based on their relative
standalone prices. Rentals from investment properties accounted for using IFRS 16 (lease components) include
rents from tenants under leases, recoveries of property tax and operating costs that do not relate to additional
services provided to lessees, percentage participation rents, lease cancellation fees, parking income and some
incidental lease-related income. Rents from tenants may include free rent periods and rental increases over the
term of the lease and are recognized in revenue on a straight-line basis over the term of the lease. The difference
between revenue income recognized and the cash received is included in other assets as straight-line rent
receivable. Lease incentives provided to tenants are deferred and are amortized against revenue rental income
over the term of the lease. Percentage participation rents are recognized after the minimum sales level has been
achieved with each lease. Lease cancellation fees are recognized as revenue income once an agreement is
completed with the tenant to terminate the lease and the collectibility is probable.
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Rentals from investment properties also include certain amounts accounted for under IFRS 15 (non-lease
components) where the Trust provides lessees or others with a distinct service. Non-lease components include
revenue in a form of recoveries of operating costs where services are provided to tenants (common area
maintenance recoveries, chargeback recoveries and administrative recoveries), parking revenue and revenue
from other services that are distinct. The respective performance obligations are satisfied as services are
rendered and revenue is recognized over time. See also Note 17 for details on amounts related to lease and non-
lease components.
Typically, revenue from operating costs recoveries and other services is collected from tenants on a monthly basis
and parking revenue is collected at the day when the respective service has been provided. This results in
immaterial contract balances as at each reporting date.
b) Service and other revenues
The Trust provides asset and property management services to co-owners, partners and third parties for which it
earns market-based construction, development and other fees. These fees are recognized over time in
accordance with IFRS 15 as the service or activity is performed. Where a contract has multiple deliverables, the
Trust identifies the different performance obligations of the contract and recognizes the revenue allocated to each
obligation as the respective obligation is met.
The Trust recognizes non-lease component revenue to depict the transfer of goods or services to customers in
amounts that reflect the consideration to which the Trust expects to be entitled in exchange for those goods or
services. It applies to all contracts with customers, excluding leases, financial instruments and insurance
contracts.
Tenant receivables
Tenant receivables are recognized initially at fair value and subsequently are measured at amortized cost using the
effective interest method, less impairment provision. The carrying amount of tenant receivables is reduced through the
use of expected credit losses, and a loss is recorded in the consolidated statements of income and comprehensive
income within “Property operating costs”. The Trust records the expected credit loss to comply with IFRS 9’s simplified
approach for tenant receivables where its loss allowance is measured at initial recognition and throughout the life of the
receivable at an amount equal to lifetime expected credit loss.
Current and deferred income tax
The Trust is taxed as a mutual fund trust for Canadian income tax purposes. In accordance with the Declaration of
Trust, distributions to Unitholders are declared at the discretion of the Trustees. The Trust endeavours to declare
distributions in each taxation year in such an amount as is necessary to ensure that the Trust will not be subject to tax
on its net income and net capital gains under Part I of the Income Tax Act (Canada) (“Tax Act”).
The Trust qualifies for the REIT Exception under the specified investment flow-through ("SIFT") trust rules for
accounting purposes. The Trust considers the tax deductibility of the Trust's distributions to Unitholders to represent, in
substance, an exemption from current tax so long as the Trust continues to expect to distribute all of its taxable income
and taxable capital gains to its Unitholders. Accordingly, the Trust will not recognize any current tax or deferred income
tax assets or liabilities on temporary differences in the Trust's financial statements.
Distributions
Distributions are recognized as a deduction from retained earnings for the Trust Units and the Limited Partnership Units
classified as equity, and as interest expense for the Units classified as liabilities and vested deferred units, in the Trust's
consolidated financial statements in the period in which the distributions are approved (see Note 16, “Unit
distributions”).
Operating segments
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating
decision-maker. The chief operating decision-maker is the person or group that allocates resources to and assesses the
performance of the operating segments of an entity. The Trust has determined that its chief operating decision-makers
are the Executive Chairman and the President and Chief Executive Officer.
Leases
Upon lease commencement where the Trust is the lessee, the Trust records a right-of-use asset at the amount equal to
the lease liability. The lease liability is initially measured at the present value of lease payments payable over the lease
term, discounted at the Trust’s incremental borrowing rate. The lease liability is subsequently measured at amortized
cost using the effective interest method.
2.15
2.16
2.17
2.18
2.19
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However, as and when rent changes as a result of lease payments being linked to a rate or index, leased assets and
liabilities have to be remeasured. A lease modification is accounted for as a separate lease if:
•
•
The modification increases the scope of the lease by adding the right to use one or more underlying assets; and
The consideration for the lease increases by an amount commensurate with the standalone price for the increase
in scope.
With respect to tenant improvements in connection with the sublease, under IFRS 16, tenant improvements provided by
the Trust are not included in the cost of the right-of-use asset. However, when the leased property meets the definition
of investment property under IAS 40 (see Note 2.4), the Trust presents tenant improvements that enhance the value of
the leased property as an adjustment together with right-of-use assets or incentives resulting in an adjustment to
revenue within investment.
2.20
Critical accounting judgments
The following are the critical judgments that have been made in applying the Trust's accounting policies and that have
the most significant effect on the amounts recorded or disclosed in the consolidated financial statements:
a) Investment properties
The Trust's accounting policies relating to investment properties are described in Note 2.4. In applying these
policies, judgment is applied in determining whether certain costs are additions to the carrying amount of an
investment property and, for properties under development, identifying the point at which substantial completion of
the property occurs and identifying the directly attributable borrowing costs to be included in the carrying value of
the development property. The Trust applies judgment in determining whether development projects are active
and viable, otherwise previously capitalized costs are written off.
The Trust also applies judgment in determining whether the properties it acquires are considered to be asset
acquisitions or business combinations. The Trust considers all the properties it has acquired to date to be asset
acquisitions. Earnout options, as described in Note 2.13(a), are exercisable upon completion and rental of
additional space on acquired properties. Judgment is applied in determining whether Earnout options are
considered to be contingent consideration relating to the acquisition of the acquired properties or additional cost of
services during the construction period. The Trust considers the Earnout options it has issued to date to represent
contingent considerations relating to the acquisitions. The valuation of the investment properties is the main area
of judgment exercised by the Trust. Investment properties are stated at fair value. Gains and losses arising from
changes in the fair values are recognized in fair value adjustment on revaluation of investment properties in the
consolidated statements of income and comprehensive income in the period in which they arise.
Management internally values the entire portfolio of investment properties, taking into account available external
data. In addition, the Trust endeavours to obtain external valuations of approximately 15%–20% (by value) of the
portfolio annually carried out by professionally qualified valuers in accordance with the Appraisal and Valuation
Standards of the Royal Institute of Chartered Surveyors. Properties are rotated annually to ensure that
approximately 50% (by value) of the portfolio is appraised externally over a three-year period. Judgment is applied
in determining the extent and frequency of independent appraisals.
b) Investment in associates
The Trust's policy for its investment in associates is described in Note 2.3. For those investment in associates
disclosed in Note 6, “Equity accounted investments”, management has assessed the level of influence that the
Trust has over those investment in associates and determined that it has significant influence based on its
decision-making authority with regards to the operating, financing and investing activities as specified in the
contractual terms of the arrangement. Consequently, those investments have been classified as investment in
associates.
c) Joint arrangements
The Trust's policy for its joint arrangements is described in Note 2.2. In applying this policy, the Trust makes
judgments with respect to whether the Trust has joint control and whether the arrangements are joint operations or
joint ventures.
d) Intangible assets
The Trust's policy for intangible assets is described in Note 2.7. In applying this policy, the Trust makes judgments
with respect to the amortization period relating to the joint venture relationships and trademarks that have finite
useful lives, while also reviewing for impairment when an indication of impairment exists. In addition, on an annual
basis or more frequently if there are any indications of impairment, the Trust evaluates whether goodwill may be
impaired by determining whether the recoverable amount is less than the carrying amount for the smallest
identified cash-generating unit.
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e) Classifications of Units as liabilities and equity
The Trust's accounting policies relating to the classification of Units as liabilities and equity are described in Note
2.10. The critical judgments inherent in these policies relate to applying the criteria set out in IAS 32, “Financial
Instruments Presentation”, relating to the Puttable Instrument Exemption.
f) Income taxes
The Trust is taxed as a mutual fund trust for Canadian income tax purposes and qualifies for the REIT Exemption
under the SIFT rules for tax purposes. The Trust endeavours to declare distributions in each taxation year in such
an amount as is necessary to ensure that the Trust will not be subject to tax on its net income and net capital
gains under Part I of the Tax Act.
The Trust considers the tax deductibility of its distributions to Unitholders to represent, in substance, an exemption
from current tax so long as the Trust continues to expect to distribute all of its taxable income and taxable capital
gains to its Unitholders. Accordingly, the Trust will not recognize any current tax or deferred income tax assets or
liabilities on temporary differences in the Trust.
2.21
Critical accounting estimates and assumptions
The preparation of the consolidated financial statements in conformity with IFRS requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results may differ from these estimates.
The estimates and assumptions that are critical to the determination of the amounts reported in the consolidated
financial statements relate to the following:
a) Fair value of investment properties
The fair value of investment properties is dependent on projected future cash flows (for income properties), on
land, development and construction costs (for properties under development) and stabilized or forecasted net
operating income (for properties under development), and capitalization and discount rates applicable to those
assets. The projected cash flows and stabilized or forecasted net operating income for each property are based
on the location, type and quality of the property and supported by the terms of any existing leases, other contracts
or external evidence such as current market rents for similar properties, and adjusted for estimated vacancy rates
and estimated maintenance costs. Capitalization and discount rates are based on the location, size and condition
of the properties and take into account market data at the valuation date. These assumptions may not ultimately
be achieved.
The critical estimates and assumptions underlying the valuation of investment properties are set out in Note 4,
“Investment Properties”.
b) Fair value of financial instruments
i) Unit options issued to non-employees on acquisitions (the “Earnout options”)
The Earnout options are considered to be contingent consideration with respect to the acquisitions they relate
to, and are initially recognized at their fair value. The Earnout options are subsequently carried at fair value
with changes in fair value recognized in the consolidated statements of income and comprehensive income.
The fair value of Earnout options is determined using the Black-Scholes option-pricing model using certain
observable inputs with respect to the volatility of the underlying Trust Unit price, the risk-free rate and using
unobservable inputs with respect to the anticipated expected lives of the options, the number of options that
will ultimately vest and the expected Trust Unit distribution rate. Generally, increases in the anticipated lives of
the options, decreases in the number of options that will ultimately vest, and decreases in the expected Trust
Unit distribution rate will combine to result in a lower fair value of Earnout options.
ii) Deferred unit plan
The deferred units are measured at fair value using the market price of the Trust Units on each reporting date
with changes in fair value recognized in the consolidated statements of income and comprehensive income
as additional compensation expense over their vesting period and as a gain or loss on financial instruments
once vested. The additional deferred units are recorded in the consolidated statements of income and
comprehensive income as compensation expense over their vesting period and as interest expense once
vested.
iii) Units classified as liabilities
Units classified as liabilities are measured at each reporting period and approximate the fair value of Trust
Units, with changes in value recorded directly in earnings through unrealized fair value adjustments. The
distributions on such Units are classified as interest expense in the consolidated statement of income and
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comprehensive income. The Trust considers distributions on such Units classified as interest expense to be a
financing activity in the consolidated statement of cash flows.
iv) Long Term Incentive Plan
The fair value of the Long Term Incentive Plan ("LTIP") is based on the Monte Carlo simulation pricing model,
which incorporates: (i) the long-term performance of the Trust relative to the S&P/TSX Capped REIT Index for
each performance period, (ii) the market value of Trust Units at each reporting date, and (iii) the total granted
LTIP units under the plan including LTIP units reinvested. Any adjustments made to the accrued value of LTIP
are recorded in earnings.
v) Equity Incentive Plan
The fair value of the Equity Incentive Plan ("EIP") is based on the Monte Carlo simulation pricing model,
which incorporates: (i) the performance of the Trust relative to the Unit price thresholds for the performance
period, (ii) the 10-day VWAP of Trust Units at each reporting date, and (iii) the total granted EIP units under
the plan including EIP units reinvested. Any adjustments made to the accrued value of EIP are recorded in
earnings.
c) Fair value of mortgages and loans receivable
The fair values of mortgages and loans receivable are estimated based on discounted future cash flows using
discounted rates that reflect current market conditions for instruments with similar terms and risks.
d) Fair value of secured debt and the revolving operating facility
The fair values of secured debt and the revolving operating facility reflect current market conditions for instruments
with similar terms and risks.
e) Estimation of ECL for tenant receivables
The Trust has determined that the expected loss rates for tenant receivables are a reasonable approximation of
the loss rates for the contract assets. However, the assumptions and estimates underlying the manner in which
ECLs have been implemented historically may not be appropriate in the current COVID-19 pandemic
environment. Accordingly, the Trust has not applied its existing ECL methodology mechanically. Instead, during
the current COVID-19 pandemic environment, the Trust has been in discussions with tenants on a case-by-case
basis to determine optimal rent payment solutions and has incorporated this available, reasonable and
supportable information when estimating ECL on tenant receivables.
2.22
Future changes in accounting policies
Amendments to IAS 1, Presentation of Financial Statements – Classification of Liabilities as Current or Non-current
The amendments clarify that liabilities are classified as either current or non-current, depending on the rights that exist
at the end of the reporting period. Classification is unaffected by expectations of the entity or events after the reporting
date. The amendments also clarify that the ‘settlement’ of a liability refers to the transfer to the counterparty of cash,
equity instruments, and/or other assets or services. Early application is permitted. The Trust intends to adopt the
amendments to IAS 1 on the required effective date of January 1, 2023.
Amendments to IAS 37, Provisions, Contingent Liabilities and Contingent Assets – Onerous Contracts, Cost of Fulfilling
a Contract
The amendments clarify that the direct costs of fulfilling a contract include both the incremental costs of fulfilling the
contract and an allocation of other costs directly related to fulfilling contracts. Before recognizing a separate provision
for an onerous contract, the entity recognizes any impairment loss that has occurred on assets used in fulfilling the
contract. The Trust intends to adopt the amendments to IAS 37 on the required effective date of January 1, 2022.
3. Acquisitions and Earnouts
Acquisitions and Earnouts completed during the year ended December 31, 2020
a)
During the year ended December 31, 2020, pursuant to development management agreements referred to in Note 4,
“Investment properties” (see also Note 21, “Related party transactions”), the Trust completed the purchase of:
i)
Earnouts totalling 1,936 square feet of development space with a purchase price of $291 and a parcel land sale with a
purchase price of $1,789, of which $792 was satisfied through the issuance of 3,822 Class F Series 3 Smart LP Units
(see also Note 13, “Other financial liabilities”) and 36,992 Class B Series 4 Smart LP III Units, and the balance of
$1,288 was paid in cash, adjusted for other working capital amounts.
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ii)
iii)
An Earnout transaction representing a 50% interest in a parcel of land totalling 2.25 acres in Ottawa, Ontario, was
transferred to a joint venture, Ottawa SW PropCo LP, which is recorded in equity accounted investments (see Note 6,
“Equity accounted investments”), to develop one retirement and seniors’ housing tower and one multi-residential rental
tower. The purchase price was $4,375 (at the Trust’s share), of which $2,624 was satisfied through the issuance of
146,913 Class B Series 6 Smart LP III Units and the balance of $1,751 was paid in cash, with adjustments made for
development costs paid by the Trust and other working capital amounts (see also Note 21, “Related party
transactions”). In conjunction with this purchase, the Trust granted its joint venture partner a non-revolving term
acquisition credit facility in the amount of $2,850 (see Note 5, “Mortgages, loans and notes receivable”), to finance a
portion of its share of the purchase price and closing costs for the above acquisition.
a)
b)
An Earnout of 40% interest in approximately 11.0 acres of land with a purchase price of $7,452, of which:
$3,509 was satisfied through the issuance of 170,000 Class B Series 1 Smart Boxgrove LP Units;
$3,460 was satisfied through the issuance of Class G Series 1 Smart Boxgrove LP Units, which has a
committed distribution in January 2021. This committed distribution payable to the holders of Class G Series
1 Smart Boxgrove LP Units is in conjunction with a loan receivable issued for the same amount (see details
in Note 5(b), Note 12, and Note 15(a)(ii)); and
the balance of $483 was paid in cash adjusted for other working capital amounts.
c)
The interest in this parcel of land was subsequently disposed (see also, Note 4, “Investment properties”).
b)
In December 2020, the Trust acquired an additional 33.33% interest in a parcel of land in Mirabel, Quebec from an
unrelated party, adjacent to Premium Outlets Montreal, consisting of 49.79 acres, for a purchase price of $7,900, adjusted
for costs of acquisition and other working capital amounts. As a result of this transaction, the Trust’s ownership in this land
represents 66.66%, while the remaining 33.33% interest is held by Penguin.
The following table summarizes the consideration for Acquisitions and Earnouts completed for the year ended December 31,
2020:
Cash
LP Units issued
Other payable
Amounts previously funded
Note
Acquisitions
Earnouts
4(d)(ii)
5(b), 12, 15(a)(ii)
7,910
—
—
152
8,062
3,318
6,925
3,460
204
13,907
Total
11,228
6,925
3,460
356
21,969
The Earnouts in the above table do not include the cost of previously acquired freehold land of $318.
Acquisitions and Earnouts completed during the year ended December 31, 2019
a)
During the year ended December 31, 2019, pursuant to development management agreements referred to in Note 4,
“Investment properties” (see also Note 21, “Related party transactions”), the Trust completed the purchase of Earnouts
totalling 41,008 square feet of development space with a purchase price of $12,926, of which $1,858 was satisfied through
the issuance of 53,002 Trust Units, 4,214 Class B Series 4 LP III Units, 4,886 Class F Series 3 Smart LP Units, 15,089
Class B Series 1 LP IV Units, 2,193 Class B Series 2 ONR LP I Units (see also Note 13(b)) and the balance paid in cash,
adjusted for other working capital amounts.
b)
In September 2019, the Trust acquired a 50% interest in a parcel of residential land totalling 7.8 acres in Barrie, Ontario,
which is a co-owned joint arrangement with Greenwin Inc. (“Greenwin”) to develop a multi-phase rental apartment
community, for a purchase price of $7,450, adjusted for costs of acquisition and other working capital amounts.
The following table summarizes the consideration for Acquisitions and Earnouts completed for the year ended December 31,
2019:
Cash
Trust Units issued
LP Units issued
Amounts previously funded and other adjustments
Note
Acquisitions
Earnouts
4(d)(ii)
4(d)(ii)
18,332
—
—
50
6,293
1,065
793
4,775
18,382
12,926
Total
24,625
1,065
793
4,825
31,308
The Earnouts in the above table do not include the cost of previously acquired freehold land of $364.
See also Note 6, “Equity accounted investments”, for additional details on acquisitions in equity accounted investments.
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4. Investment properties
The following table summarizes the activities in investment properties:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Balance – beginning of year
Additions (deductions):
Acquisitions, Earnouts and related
adjustments of investment properties
Transfer to income properties from
properties under development
Transfer from income properties to
properties under development
Transfer from properties under
development to equity accounted
investments
Year Ended December 31, 2020
Year Ended December 31, 2019
Note
Income
Properties
Properties
Under
Development
Total
Income
Properties
Properties
Under
Development
Total
8,488,669
561,397 9,050,066 8,404,513
500,544 8,905,057
—
21,678
21,678
1,641
16,752
18,393
39,748
(39,748)
—
66,306
(66,306)
(70,236)
70,236
—
(43,400)
43,400
—
—
—
5,311
17,665
1,789
—
—
—
—
Earnout Fees on properties subject to
development management agreements
4(d)(ii)
Capital expenditures
Leasing costs
Development expenditures
Capitalized interest
Dispositions
291
8,445
1,732
—
—
—
—
(6,125)
(6,125)
—
—
—
—
291
5,311
8,445
1,732
17,665
1,789
50,728
50,728
17,689
17,689
—
—
69,387
69,387
18,956
18,956
(19,063)
(19,063)
(95)
(15,868)
(15,963)
Fair value adjustment on revaluation of
investment properties
25
(201,219)
(73,832)
(275,051)
34,939
(5,468)
29,471
Balance – end of year
8,267,430
582,960 8,850,390 8,488,669
561,397 9,050,066
The historical costs of both income properties and properties under development as at December 31, 2020 totalled $6,570,845
and $793,666, respectively (December 31, 2019 – $6,584,852 and $703,472, respectively).
Secured debt with a carrying value of $1,327,760 (December 31, 2019 – $1,442,278) is secured by investment properties with a
fair value of $3,014,790 (December 31, 2019 – $3,353,966).
Presented separately from investment properties is $81,511 (December 31, 2019 – $86,398) of net straight-line rent receivables
and tenant incentives (these amounts are included in “Other assets”, see Note 7) arising from the recognition of rental revenues
on a straight-line basis and amortization of tenant incentives over the respective lease terms. The fair value of investment
properties has been reduced by these amounts.
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2020 ANNUAL REPORT 23
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
a) Valuation methods underlying management’s estimation of fair value
i) Income properties
Valuation method for the year ended December 31, 2020
Effective January 1, 2020, the Trust applied a change in accounting estimate in the valuation method used to estimate
the fair value of income properties. The Trust applied the discounted cash flow valuation method to estimate the value
of income properties, which include: freehold properties, properties with leasehold interests with purchase options, and
properties with leasehold interests without purchase options. The Trust changed its valuation method as it believes that
the discounted cash flow valuation method represents the Trust's estimate of fair values of income properties based on
expectations of changes in rental rates, occupancy rates, lease renewal rates, leasing costs, expected credit losses and
downtime on lease expiries, among others, as a result of the impact of COVID-19.
Using the discounted cash flow valuation method, the fair value of income properties is estimated based on
assumptions of the asset’s benefits and liabilities over its life, over an average period of 10 years in addition to its
terminal value. The 10 years of annual net cash flows and the terminal cash flows are projected for each property, and
then a discount rate is applied to each of these cash flows to establish the present value of future cash flows for each
property. Annual net cash flows are estimated as rental revenue, less operating expenses, a vacancy allowance and
other adjustments. The terminal value is estimated based on the application of a terminal capitalization rate to each
property’s stabilized net operating income (“NOI”). The sum of the present value of future cash flows, including its
discounted terminal value, represents the estimated fair value of each property.
The significant areas of estimation uncertainty in determining the fair value of income properties include the projected
cash flows and the discount rate for each property. The projected cash flows for each property are based on expected
inflows and outflows, and are based on the location, type and quality of the property and supported by the terms of any
existing leases, other contracts or external evidence such as current market rents for similar properties, and adjusted for
estimated vacancy rates based on current and expected future market conditions after expiry of any current leases and
expected maintenance costs. The discount rate for each property is based on the location, size and quality of the
property, taking into account market data at the valuation date.
Valuation methods for the year ended December 31, 2019
For the year ended December 31, 2019, the Trust applied the following valuation methods to estimate the fair value of
income properties:
Fair value estimates of income properties that are freehold properties were based on a valuation method known as the
direct income capitalization method. In applying the direct income capitalization method, the stabilized NOI of each
property is divided by an overall capitalization rate.
The stabilized NOI of a property is based on the location, type and quality of the property and supported by the terms of
any existing lease, other contracts or external evidence such as current market rents for similar properties, adjusted for
estimated vacancy rates based on current and expected future market conditions after expiry of any current lease and
expected maintenance costs. The capitalization rate of a property is based on the location, size and quality of the
property and taking into account market data at the valuation date.
Fair value estimates of income properties that are leasehold interests with purchase options were valued using the
direct income capitalization method as described above, adjusted for the present value of the purchase options.
Fair value estimates of income properties that are leasehold interests with no purchase options were valued by present
valuing the remaining income stream of the properties.
ii) Properties under development
Valuation method for the year ended December 31, 2020
Properties under development were valued using two primary methods: (i) the direct income capitalization method less
construction costs to complete development, leasing costs and other fees, and Earnout Fees, if any; or (ii) with
reference to land, development and construction costs recorded at market value, factoring in development risks such as
planning, zoning, timing and market conditions.
The significant assumptions for the direct income capitalization method less construction costs to complete
development and Earnout Fees, if any, include:
Stabilized or forecasted net operating income:
Based on the location, type and quality of the properties and supported by the terms of actual or anticipated
future leases, other contracts or external evidence such as current market rents for similar properties, adjusted
for estimated vacancy rates based on expected future market conditions and estimated maintenance costs,
24 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2020 ANNUAL REPORT
124
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
which are consistent with internal budgets, based on management’s experience and knowledge of market
conditions.
Earnout Fee:
Based on estimated net operating rents divided by predetermined negotiated capitalization rates, less
associated land and development costs incurred by the Trust.
Capitalization rate:
Based on the location, size and quality of the properties and taking into account market data at the valuation
date.
Construction costs to complete:
Derived from internal budgets, based on management’s experience and knowledge of market conditions.
Completion date:
Properties under development require approval or permits from oversight bodies at various points in the
development process, including approval or permits with respect to initial design, zoning, commissioning and
compliance with environmental regulations. Based on management's experience with similar developments, all
relevant permits and approvals are expected to be obtained. However, the completion date of the development
may vary depending on, among other factors, the timeliness of obtaining approvals, construction delays,
weather and any remedial action required by the Trust.
The significant assumptions in the land, development and construction costs recorded at market value include the
market value per acre for land.
Valuation methods for the year ended December 31, 2019
Properties under development were valued using two primary methods: (i) the direct income capitalization method less
any construction costs to complete development, leasing costs and other fees, and Earnout Fees, if any; or (ii) with
reference to land, development and construction costs recorded at market value, factoring in development risks such as
planning, zoning, timing and market conditions.
The significant assumptions for the direct income capitalization method less construction costs to complete
development and Earnout Fees, if any, include:
Stabilized or forecasted net operating income:
Based on the location, type and quality of the properties and supported by the terms of actual or anticipated
future leases, other contracts or external evidence such as current market rents for similar properties, adjusted
for estimated vacancy rates based on expected future market conditions and estimated maintenance costs,
which are consistent with internal budgets, based on management’s experience and knowledge of market
conditions.
Earnout Fee:
Based on estimated net operating rents divided by predetermined negotiated capitalization rates, less
associated land and development costs incurred by the Trust.
Capitalization rate:
Based on the location, size and quality of the properties and taking into account market data at the valuation
date.
Construction costs to complete:
Derived from internal budgets, based on management’s experience and knowledge of market conditions.
Completion date:
Properties under development require approval or permits from oversight bodies at various points in the
development process, including approval or permits with respect to initial design, zoning, commissioning and
compliance with environmental regulations. Based on management's experience with similar developments, all
relevant permits and approvals are expected to be obtained. However, the completion date of the development
may vary depending on, among other factors, the timeliness of obtaining approvals, construction delays,
weather and any remedial action required by the Trust.
The significant assumptions in the land, development and construction costs recorded at market value include the
market value per acre for land.
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2020 ANNUAL REPORT 25
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes significant assumptions in Level 3 valuations along with corresponding fair values:
Class
Valuation Method
Carrying Value
Year ended December 31, 2020
Terminal Capitalization Rate
Discount Rate
Weighted
Average (%)
Range (%)
Weighted
Average (%)
Range (%)
Income properties
Discounted cash flow
8,267,430
5.94
4.25 – 7.79
6.46
4.65 – 8.54
Class
Valuation Method
Carrying Value
Weighted
Average
Capitalization
Rate (%)
Properties under
development
Direct income
capitalization
165,996
6.22
Land, development and
construction costs
recorded at market
value
Balance – end of year
N/A
416,964
582,960
8,850,390
Class
Income properties
Valuation Method
Direct income
capitalization
Year ended December 31, 2019
Carrying Value
Weighted Average
Capitalization or
Discount Rate (%)
Total Stabilized or
Forecasted
NOI
Range of
Capitalization Rates
(%)
7,456,585
5.79
431,662
4.25 – 9.11
Direct income
capitalization less present
value of purchase option
Discounted cash flow
829,462
202,622
8,488,669
6.33
6.20
52,500
12,568
5.88 – 6.75
6.00 – 6.50
Class
Valuation Method
Carrying Value
Properties under
development
Direct income
capitalization
Land, development and
construction costs
recorded at market value
Balance – end of year
99,882
461,515
561,397
9,050,066
Weighted Average
Capitalization
Rate (%)
6.56
N/A
The estimates of fair value are most sensitive to changes in the discount rates and forecasted future cash flows for each
property. The sensitivity analysis in the table below indicates the approximate impact on the fair values of the Trust's investment
property portfolio resulting from changes in discount rates assuming no changes in other assumptions.
Change in discount rate of:
Increase (decrease) in fair value
Income properties
(1.0)%
(0.5)%
(0.25)%
+0.25%
+0.50%
+1.00%
1,784,100
807,600
385,900
(352,800)
(678,800) (1,257,700)
26 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2020 ANNUAL REPORT
126
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT
b) Dispositions
Disposition of investment properties during the year ended December 31, 2020
In April 2020, the Trust contributed its interest in a parcel of land located in Ottawa, Ontario, to a joint venture, Ottawa SW
PropCo LP, with Selection Group to develop, own and operate a retirement and seniors’ housing community and a multi-
residential rental tower for a value of $4,375 (see also, Note 6(b)).
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In August 2020, a parcel of land totalling 1.16 acres in Scarborough, Ontario, was transferred to a joint venture, Scarborough
East Self Storage LP, which is recorded in equity accounted investments, to develop, construct and operate a self-storage
facility.
In August 2020, the Trust sold its 40% interest in a parcel of land totalling approximately 11.0 acres in Markham, Ontario, for
gross proceeds of $7,452. See also Note 3, “Acquisitions and Earnouts”.
Disposition of investment properties during the year ended December 31, 2019
In January 2019, the Trust sold a parcel of land located in Jonquière, Quebec, for gross proceeds of $5,250, which was
satisfied by cash, adjusted for other working capital amounts.
In May 2019, the Trust sold a parcel of land located in Woodstock, Ontario, for gross proceeds of $1,365, which was
satisfied by cash, adjusted for other working capital amounts.
In August 2019, the Trust contributed its interest in a parcel of land located in Vaughan, Ontario, to a joint venture
arrangement, Vaughan NW SAM Limited Partnership, with Smart Asset Management (“SmartStop”), to develop, own and
operate a self-storage facility for a value of $3,417, excluding closing costs (see also, Note 6(b)).
In August 2019, the Trust sold a parcel of land located in Bradford, Ontario, for gross proceeds of $1,964 excluding closing
costs.
In September 2019, the Trust contributed its interest in a parcel of land located in Brampton, Ontario, to a joint venture
arrangement, Bramport SAM Limited Partnership, with SmartStop, to develop, own and operate a self-storage facility for a
value of $1,850, excluding closing costs (see also, Note 6(b)).
c) Leasehold property interests
At December 31, 2020, 16 (December 31, 2019 – 16) investment properties with a fair value of $978,410 (December 31,
2019 – $1,032,084) are leasehold property interests accounted for as leases.
i)
Leasehold property interests without bargain purchase options
Three of the leasehold interests commenced in 2005 under the terms of 35-year leases with Penguin. Penguin has
the right to terminate the leases after 10 years on payment to the Trust of the fair value of a 35-year leasehold
interest in the properties at that time and also has the right to terminate the leases at any time in the event that
there is an acquisition in excess of 20% of the aggregate of the Trust Units and Special Voting Units by payment to
the Trust of the unamortized balance of any prepaid lease cost. The Trust does not have a purchase option under
these three leases.
Eleven of the leasehold interests commenced in 2006 through 2015, of which four are under the terms of 80-year
leases with Penguin and seven are under the terms of 49-year leases with Penguin. The Trust has separate
options to purchase each of these 11 leasehold interests at the end of the respective leases at prices that are not
considered to be bargain prices.
The Trust prepaid its entire lease obligations for the 14 leasehold interests with Penguin noted above (see also
Note 21, “Related party transactions”) in the amount of $889,931 (December 31, 2019 – $889,931), including
prepaid land rent of $229,846 (December 31, 2019 – $229,846).
ii) Leasehold property interests with bargain purchase options
One leasehold interest commenced in 2003 under the terms of a 35-year lease with Penguin (see also Note 21,
“Related party transactions”). The lease requires a $10,000 payment at the end of the lease term in 2038 to
exercise a purchase option, which is considered to be a bargain purchase option. The Trust prepaid its entire lease
obligation for this property of $57,997 (December 31, 2019 – $57,997). As the Trust expects to exercise the
purchase option in 2038, the purchase option price has been included in accounts payable in the amount of $1,957
(December 31, 2019 – $1,786), net of imputed interest at 9.18% of $8,043 (December 31, 2019 – $8,214) (see also
Note 12, “Accounts and other payables”).
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A second leasehold interest was acquired on February 11, 2015 and includes a land lease that expires on
September 1, 2054. The land lease requires monthly payments ranging from $450 to $600 annually until
September 1, 2054, and a $6,000 payment between September 1, 2023 and September 1, 2025 to exercise a
purchase option that is considered to be a bargain purchase option. As the Trust expects to exercise the purchase
option on September 1, 2023, the purchase option price and the monthly payments up to September 1, 2023 have
been included in accounts payable, net of imputed interest at 6.25% of $1,027 (December 31, 2019 – $1,408), in
the amount of $6,211 (December 31, 2019 – $6,279) (see also Note 12, “Accounts and other payables”).
d) Properties under development
The following table presents properties under development:
As at
Properties under development not subject to development management agreements (i)
Properties under development subject to development management agreements (ii)
December 31, 2020
December 31, 2019
521,149
61,811
582,960
513,034
48,363
561,397
For the year ended December 31, 2020, the Trust capitalized a total of $17,689 (year ended December 31, 2019 – $18,956)
of borrowing costs related to properties under development.
i)
Properties under development not subject to development management agreements
During the year ended December 31, 2020, the Trust completed the development and leasing of certain properties
under development not subject to development management agreements, for which the value of land and
development costs incurred has been reclassified from properties under development to income properties.
For the year ended December 31, 2020, the Trust incurred land and development costs of $39,430 (year ended
December 31, 2019 – $58,185).
ii) Properties under development subject to development management agreements
These properties under development (including certain leasehold property interests) are subject to various
development management agreements with Penguin and Walmart.
In certain events, the developer/vendor may sell a portion of undeveloped land to accommodate the construction
plan that provides the best use of the property, reimbursing the Trust its costs related to such portion, and provides
a profit based on a pre-negotiated formula. Pursuant to the development management agreements, the developers/
vendors assume responsibility for managing the development of the land on behalf of the Trust and are granted the
right for a period of up to 10 years to earn an Earnout Fee (subject to options and extensions in certain
circumstances). On completion and rental of additional space on these properties, the Trust is obligated to pay the
Earnout Fee and to purchase the additional developments, at a total price calculated by a formula using the net
operating rents and predetermined negotiated capitalization rates, on the date rent becomes payable on the
additional space (“Gross Cost”). The Earnout Fee is calculated as the Gross Cost less the associated land and
development costs incurred by the Trust.
For additional space completed on land with a fair value of $13,743 (December 31, 2019 – $13,237), the fixed
predetermined negotiated capitalization rates range from 6.0% to 7.4% during the five-year period of the respective
development management agreements. For additional space completed on land with a fair value of $48,068
(December 31, 2019 – $35,126), the predetermined negotiated capitalization rates are fixed for each contract for
either the first one, two, three, four or five years, ranging from 6.0% to 8.0%, and then are determined by reference
to the 10-year Government of Canada bond rate at the time of completion plus a fixed predetermined negotiated
spread ranging from 2.00% to 3.90% for the remaining term of the 10-year period of the respective development
management agreements subject to a maximum capitalization rate ranging from 6.60% to 9.50% and a minimum
capitalization rate ranging from 5.75% to 7.50%.
For certain of these properties under development, Penguin and others have been granted Earnout options that
give them the right, at their option, to invest up to 40% of the Earnout Fee for one of the agreements and up to 30%
to 40% of the Gross Cost for the remaining agreements in Trust Units, Class B, D and F Smart LP Units, Class B
and D Smart LP III Units, Class B Smart LP IV Units, Class B and D Smart Oshawa South LP Units, Class B and D
Smart Oshawa Taunton LP Units, Class B Smart Boxgrove LP Units and Class B ONR LP I Units at predetermined
option strike prices subject to a maximum number of units. On December 9, 2020, the Trust entered into an
Omnibus Settlement Agreement with Mitchell Goldhar that provided a right to extend the terms of certain Earnout
agreements for an additional two years. As a result, the Earnout agreements for Earnout options that were
originally set to expire between 2020 to 2025 may be extended to 2022 to 2027. See also Note 13, “Other financial
liabilities”.
28 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2020 ANNUAL REPORT
128
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT
The following table summarizes the Earnout options that were elected to exercise which resulted in proceeds (see
also Note 13(b)):
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unit Type
Trust Units
Smart Limited Partnership
Smart Limited Partnership III
Smart Limited Partnership IV
Smart Limited Partnership III
Smart Boxgrove Limited Partnership
ONR Limited Partnership I
Class and Series
N/A
Class F Series 3
Class B Series 4
Class B Series 1
Class B Series 6
Class B Series 1
Class B Series 2
Year Ended December 31
2020
—
77
715
—
2,624
3,509
—
6,925
2019
1,065
98
134
487
—
—
74
1,858
The following table summarizes the development costs incurred (exclusive of the cost of land previously acquired)
and Earnout Fees paid to vendors relating to the completed retail spaces (see also Note 3, “Acquisitions and
Earnouts”) that have been reclassified to income properties:
Development costs incurred
Earnout Fees paid
5. Mortgages, loans and notes receivable
The following table summarizes mortgages, loans and notes receivable:
As at
Mortgages receivable (a)
Loans receivable (b)
Notes receivable (c)
Current
Non-current
Year Ended December 31
2020
13,616
291
13,907
2019
7,615
5,311
12,926
Note
21
21
December 31, 2020
December 31, 2019
144,205
241,683
2,924
388,812
125,254
263,558
388,812
138,762
131,119
2,979
272,860
55,953
216,907
272,860
a) Mortgages receivable of $144,205 (December 31, 2019 – $138,762) are provided pursuant to agreements with Penguin (see
also Note 21, “Related party transactions”). These amounts are provided to fund costs associated with both the original
acquisition and development of seven (December 31, 2019 – nine) properties across Ontario, Quebec and British Columbia.
The Trust is committed to lend up to $312,778 (December 31, 2019 – $279,235) to assist with the further development of
these properties.
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2020 ANNUAL REPORT 29
129
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table provides further details on the mortgages receivable (by maturity date) provided to Penguin:
Property
Aurora (South), ON(5)
Innisfil, ON(2)(7)
Salmon Arm, BC(2)(4)
Pitt Meadows, BC(6)
Vaughan (7 & 427), ON(5)
Caledon (Mayfield), ON(7)
Toronto (StudioCentre), ON(2)(6)
Annual
Variable
Interest
Rate at
Year End
(%)
Extended
Maturity
Date(3)
Purchase
Option of
Property
(%)
(1)
Committed Maturity Date
38,964
March 2022 August 2028
39,740
30,080
May 2022 August 2028
May 2022 August 2028
85,653 November 2023 August 2028
36,100 December 2023 August 2028
26,689
55,552
312,778
April 2024 August 2028
June 2024 August 2028
3.45
4.20
4.19
3.85
3.57
3.71
3.68
3.81 (8)
50.00
—
—
50.00
50.00
50.00
25.00
December 31,
2020
December 31,
2019
16,858
22,164
15,370
30,669
18,908
10,363
29,873
17,005
20,937
14,997
29,387
17,820
9,944
28,672
144,205
138,762
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
The Trust has a purchase option from the borrower in these properties upon a certain level of development and leasing being achieved. As at December 31, 2020, it is
management’s expectation that the Trust will exercise these purchase options.
The Trust owns a 50% interest in these properties, with the other 50% interest owned by Penguin. These loans are secured against Penguin’s interest in the property.
The maturity date for this mortgage is automatically extended to August 31, 2028 unless written notice is delivered from the borrower. During the extended maturity period, the
mortgages receivable accrue interest at a variable rate based on the banker's acceptance rate plus 4.00% to 5.00%
The weighted average interest rate on this mortgage is subject to an upper limit of 6.50%.
The weighted average interest rate on this mortgage is subject to an upper limit of 6.75%.
The weighted average interest rate on this mortgage is subject to an upper limit of 6.90%.
The weighted average interest rate on this mortgage is subject to an upper limit of 7.00%.
Represents the weighted average interest rate.
Mortgages receivable amendments
The mortgages receivable commitments for Mirabel (Shopping Centre), Quebec and Mirabel (Option Lands), Quebec, which
had never been drawn, have been terminated effective November 5, 2020.
On December 9, 2020, the maturity dates of all mortgages receivable outstanding, including purchase options where
applicable, were extended up to August 31, 2028. These extensions were provided principally because of delays associated
with market conditions, anticipated municipal and related approvals, and development-related complexities. The committed
facilities on these mortgages receivable were amended to reflect an increase from $279,048 to $312,778.
In addition, the interest rates on these mortgages receivable were amended pursuant to independent opinions obtained that
provided current market-based interest rates for such loans with similar security. Interest on these mortgages accrues
monthly as follows: from December 9, 2020 to the maturity of each mortgage, at a variable rate based on the banker's
acceptance rate plus 2.75% to 4.20%; from the maturity of each mortgage to the extended maturity (August 2028), at a
variable rate based on the banker's acceptance rate plus 4.00% to 5.00%; prior to December 9, 2020, (i) at a variable rate
based on the banker’s acceptance rate plus 1.75% to 4.20% or at the Trust’s cost of capital (as defined in the mortgage
agreement) plus 0.25%; and (ii) at fixed rates of 6.35% to 7.50%, which is added to the outstanding principal up to a
predetermined maximum accrual, after which it is payable in cash monthly or quarterly. Additional interest of $109,171
(December 31, 2019 – $63,613) on the existing credit facilities may be accrued on certain of the mortgages receivable
before cash interest must be paid.
The mortgage security includes a first or second charge on properties, assignments of rents and leases and general security
agreements. In addition, $144,205 (December 31, 2019 – $125,536) of the outstanding balance is guaranteed by Penguin.
The loans are subject to individual loan guarantee agreements that provide additional guarantees for all interest and
principal advanced on outstanding amounts. The guarantees decrease on achievement of certain specified value-enhancing
events. All mortgages receivable are considered by management to be fully collectible.
The following table illustrates the activity in mortgages receivable:
Balance – beginning of year
Interest accrued
Interest payments
Principal repayments
Balance – end of year
30 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2020 ANNUAL REPORT
130
Year Ended December 31
2020
138,762
6,744
(499)
(802)
2019
134,221
7,399
(1,498)
(1,360)
144,205
138,762
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT
b) The following table presents loans receivable (by maturity date):
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Committed
Maturity Date Interest Rate (%)
Note
December 31, 2020 December 31, 2019
Issued to
Penguin(1)
Penguin(2)
Penguin(3)
Penguin(4)
19,148
N/A
26,227
March 2021
Variable
January 2021
Interest-free
June 2021
Variable
21
21
21
N/A
December 2029
Interest-free
21,
11 (b)(iii)
Total loans issued to Penguin
PCVP(5)
Self-storage facilities(6)
N/A
60,000
June 2021
July 2023
2.76
21
Variable
Total loans issued to equity accounted investments
Vaughan NW Residence Inc.(7) N/A
Selection Group(8)
Greenwin(9)
Greenwin(10)
N/A
11,694
1,280
Total loans issued to unrelated parties
November 2020
April 2021
September 2024
January 2025
6.25
Variable
Variable
Variable
9,349
3,460
14,587
76,747
104,143
95,008
39,682
134,690
—
2,850
—
—
2,850
241,683
10,215
—
14,173
—
24,388
92,427
—
92,427
9,804
—
4,500
—
14,304
131,119
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
This loan receivable was provided pursuant to a development management agreement with Penguin with a total loan facility of $19,148. Repayment of the pro rata share of the
outstanding loan amount is due upon the completion of each Earnout event. The loan bears interest at 10 basis points plus the lower of: (i) the Canadian prime rate plus 45 basis
points, and (ii) the Canadian Dealer Offer Rate plus 145 basis points.
In August 2020, this non-interest bearing, unsecured loan was issued to the holders of Class G Series 1 Units of Smart Boxgrove LP in the amount of $3,460 pursuant to the
amended and restated Smart Boxgrove Limited Partnership agreement. Such loan had limited recourse up to the amount of $3,460 and was due and payable on or before the fifth
business day after year end (December 31, 2020). As such, in January 2021, Smart Boxgrove LP made a distribution to the holders of Class G Series 1 Units in an amount equal to
the outstanding loan amount, which was set-off to repay the aggregate amount of loans issued.
In March 2019, the Trust entered into a loan agreement with Penguin for a non-revolving principal advance facility of $13,227 and a non-revolving construction facility of $13,000,
which combine for a total loan facility of $26,227, bearing interest accruing at a fixed rate of 2.76% and a variable rate based on banker’s acceptance rate plus 150 basis points,
respectively. The loan security includes a first or second charge on the property, assignments of rents and leases and general security agreements, and is guaranteed by Penguin.
The principal advance facility was advanced in full in March 2019. Unless prepaid in accordance with the terms of the loan agreement, principal and any accrued and unpaid
interest in respect of the loan receivable shall be repaid in full in June 2021.
This loan receivable relates to the acquisition of a parcel of land in Vaughan, Ontario, through PCVP in December 2019 (“700 Applewood purchase”). In March 2020, the Trust
assumed this loan receivable from Penguin in regards to PCVP. The loan has a principal amount outstanding of $103,764, is non-interest bearing, and is repayable at the end of 10
years. As at December 31, 2020, the loan balance of $76,747 is net of a cumulative fair value adjustment totalling $27,017. See also Note.11(b)(iii) reflecting the corresponding loan
payable amount.
In April 2019, the Trust entered into a loan agreement with PCVP (in which the Trust has a 50% interest) for a total loan facility of $90,600, bearing interest accruing at 2.76% per
annum. The loan security includes a first or second charge on properties, assignments of rents and leases and general security agreements, and is guaranteed by Penguin up to its
50% share of the loan. This loan facility was advanced in full in April 2019. Unless prepaid in accordance with the terms of the loan agreement, principal and any accrued and
unpaid interest in respect of the loan receivable shall be repaid in full in June 2021. The Trust reflects the activity from the PCVP as an equity accounted investment (see also Note
6, “Equity accounted investments”) and 100% of the loan provided to the PCVP is recorded in the consolidated financial statements for the year ended December 31, 2020.
In July 2020, the Trust entered into a loan agreement with its partner SmartStop to provide funding for the development of self-storage facilities. The loan agreement matures in July
2023 and bears interest at a variable rate based on banker's acceptance rate plus 245 basis points. See further details in Note 6(b).
In 2017, a loan receivable was provided pursuant to an agreement to use in acquiring a 50% interest in development lands, with interest at 6.25% per annum. In November 2020,
the loan was fully repaid.
In April 2020, the Trust entered into a loan agreement, with Selection Group, whereby the Trust loaned Selection Group funds for the acquisition of development lands in Ottawa,
Ontario (see also Note 6, “Equity accounted investments”) for a non-revolving term acquisition credit facility of $2,850. This loan has been contributed by Selection Group to a joint
venture with the Trust. This loan will mature at the earlier of: (i) the date of the first disbursement of the construction financing, and (ii) the date 12 months from the date of obtaining
an advance of the facility and bears interest at the prime rate of interest plus 2% per annum.
In September 2019, the Trust entered into a loan agreement with Greenwin to use in acquiring a 50% interest in development lands in Barrie, Ontario. As at December 31, 2020, the
total remaining credit facility was $11,694. The loan security includes a first charge on the development lands and is guaranteed by Greenwin. This loan matures in September
2024, and bears interest at the greater of: (i) 7.0% per annum, and (ii) the Trust’s weighted average cost of capital plus 1.25% per annum. In August 2020, Greenwin repaid this loan
in advance of the maturity date.
In January 2020, the Trust entered into a loan agreement with Greenwin, whereby the Trust assisted Greenwin to fund its 25% interest in development lands in Toronto, Ontario
(see also Note 6, “Equity accounted investments”). As at December 31, 2020, the total remaining non-revolving term acquisition credit facility was $1,280. The loan agreement also
includes a non-revolving put exercise credit facility in an amount equal to the put purchase price plus any associated closing costs at the time of exercise. The loan security includes
a first charge on the development lands and is guaranteed by Greenwin. This loan matures in January 2025, and bears interest at the greater of: (i) 7.0% per annum, and (ii) the
Trust’s weighted average cost of capital plus 1.25% per annum. In August 2020, Greenwin repaid this loan in advance of the maturity date.
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2020 ANNUAL REPORT 31
131
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table illustrates the activity in loans receivable:
Balance – beginning of year
Loans issued(1)
Advances
Interest accrued
Fair value adjustments(2)
Repayments
Balance – end of year
Year Ended December 31
2020
131,119
122,153
9,762
3,633
3,416
(28,400)
241,683
2019
19,949
108,326
1,201
2,495
—
(852)
131,119
(1)
(2)
During the year ended December 31, 2020, loans issued to Penguin totalled $81,746, of which $78,286 relates to the 700 Applewood purchase, as described in footnote 4 in the
table above, and $3,460 relates to the unsecured loan issued to Penguin as the holder of Class G Series 1 Units of Smart Boxgrove LP, as described in footnote 2 in the table
above (December 31, 2019 – $13,227 of loans issued to Penguin in connection with the loan agreement as described in footnote 3 in the table above).
Represents the fair value adjustment of $3,416 recorded during the year ended December 31, 2020 (December 31, 2019 – $nil) in connection with the loan issued as part of the
700 Applewood purchase. See details in footnote 4 in table above.
c) Notes receivable of $2,924 (December 31, 2019 – $2,979) have been granted to Penguin (see also Note 21, “Related party
transactions”). As at December 31, 2020, these secured demand notes bear interest at the rate of 9.00% per annum
(December 31, 2019 – 9.00%). During the year ended December 31, 2020, $55 (December 31, 2019 – $nil) was repaid as a
result of a settlement with Penguin on December 9, 2020.
The estimated fair values of mortgages, loans and notes receivable are based on their respective current market rates,
bearing similar terms and risks. This information is disclosed in Note 14, “Fair value of financial instruments”.
6. Equity accounted investments
The following table summarizes key components relating to the Trust’s equity accounted investments:
Year ended December 31, 2020
Year Ended December 31, 2019
Investment in
Associates
Investment in
Joint Ventures
Total
Investment in
Associates
Investment in
Joint Ventures
Total
Investment – beginning of year
294,499
50,877
345,376
116,284
30,022
146,306
Operating Activities:
Earnings (losses)
Distributions from operations
Financing Activities:
Fair value adjustment on loan
Loan repayment
Investing Activities:
Cash contribution
Property contribution
Acquisition and related costs(1)
Distributions from development
Investment – end of year
62,369
(3,987)
4,218
(3,987)
4,061
—
(2,181)
—
354,992
(397)
(783)
—
—
8,088
2,036
63,600
(15,209)
108,212
61,972
(4,770)
5,981
(6,621)
658
(576)
6,639
(7,197)
4,218
(3,987)
(28,356)
—
—
—
(28,356)
—
12,149
2,036
61,419
(15,209)
463,204
115,581
—
123,608
(31,978)
294,499
6,296
5,260
9,217
121,877
5,260
132,825
—
(31,978)
50,877
345,376
(1)
Represents the contribution of funds to acquire an interest in equity accounted investments.
32 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2020 ANNUAL REPORT
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT
a)
Investment in associates
The following table summarizes the Trust’s ownership interest in each investment in an associate as reflected in the Trust’s
consolidated financial statements:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Principal Intended Activity
December 31, 2020 December 31, 2019
Ownership Interests (%)
As at
PCVP
Residences LP
Residences III LP
Own, develop and operate investment properties
Own, develop and sell two residential condominium towers
and 22 townhomes (Transit City 1 and 2)
Own, develop and sell a residential condominium tower
(Transit City 3)
East Block Residences LP
Own, develop and sell two residential condominium towers
(Transit City 4 and 5)
50.0
25.0
25.0
25.0
50.0
25.0
25.0
25.0
In 2012, the Trust entered into the Penguin-Calloway Vaughan Partnership ("PCVP") with Penguin (see also Note 21,
“Related party transactions”) to develop the Vaughan Metropolitan Centre (“SmartVMC”), which is expected to consist of
approximately 10.0 million to 11.0 million square feet of mixed-use space once fully developed, on 53 acres of development
land in Vaughan, Ontario.
In 2017, the Trust entered into the VMC Residences Limited Partnership (“Residences LP”) and VMC Residences III Limited
Partnership (“Residences III LP”) with Penguin and CentreCourt Developments, to develop three residential condominium
towers and a related parking facility, located on the SmartVMC site.
In 2018, the Trust entered into the VMC East Block Residences Limited Partnership (“East Block Residences LP”) with
Penguin and CentreCourt Developments, to develop two additional residential condominium towers, located on the
SmartVMC site.
In 2019, the Trust acquired, through PCVP, a 50% interest in a parcel of land with approximately 15.5 acres in Vaughan,
Ontario, proximate to SmartVMC available for development once Walmart has relocated to its new Applewood location.
Note that the limited partnerships involving residential condominium developments, as noted in the above table: Residences
LP, Residences III LP and East Block Residences LP, are hereinafter collectively referred to as “VMC Residences”.
Acquisition completed through PCVP during the year ended December 31, 2019
In December 2019, the Trust acquired, through PCVP, a 50% interest in a parcel of land with approximately 15.5 acres in
Vaughan, Ontario, proximate to SmartVMC, which is a 50:50 joint arrangement with Penguin, for a purchase price of
$109,218 paid in cash, adjusted for other working capital amounts.
i)
Summary of balance sheets
The following table summarizes the balance sheets for investment in associates:
As at
Non-current assets
Current assets
Total assets
Non-current liabilities(1)
Current liabilities
Total liabilities
December 31, 2020
PCVP
VMC
Residences
Total
PCVP
December 31, 2019
VMC
Residences
Total
920,064
—
920,064
812,469
—
812,469
20,019
632,691
652,710
14,995
505,286
520,281
940,083
632,691 1,572,774
827,464
505,286 1,332,750
171,382
28,268
199,650
234,592
143,757
378,349
197,187
360,690
557,877
50,475
283,693
334,168
368,569
388,958
757,527
285,067
427,450
712,517
Net assets
571,514
243,733
815,247
542,397
77,836
620,233
Trust’s share of net assets before adjustments
285,757
60,934
346,691
271,198
19,459
290,657
Trust’s additional investment
Fair value adjustment on loan
—
6,862
1,439
—
6,862
1,439
—
3,842
—
—
—
3,842
Trust's share of net assets
287,196
67,796
354,992
275,040
19,459
294,499
(1)
Balance as at December 31, 2020 includes loan payable to the Trust of $95,008 (December 31, 2019 – $92,427), see also Note 5(b).
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2020 ANNUAL REPORT 33
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes existing commitments with various development construction contracts:
As at
PCVP
Residences LP
Residences III LP
East Block Residences LP
December 31, 2020
December 31, 2019
Commitments
Trust’s Share
Commitments
Trust’s Share
25,070
9,199
15,449
86,554
136,272
12,535
2,300
3,862
21,638
40,335
18,397
82,648
74,069
50,845
225,959
9,198
20,662
18,517
12,711
61,088
ii) Summary of earnings (losses)
The following tables summarize the earnings (losses) for investment in associates:
Year Ended December 31, 2020
Year Ended December 31, 2019
PCVP
VMC
Residences
Total
PCVP
VMC
Residences
Revenue
Rental revenue(1)
Condominium sales revenue(2)
Operating expense
Rental operating costs
Condominium cost of sales
28,295
—
28,295
25,088
—
538,778
538,778
—
(11,175)
—
(11,175)
(10,606)
—
(375,985)
(375,985)
—
Revenue net of operating expense
17,120
162,793
179,913
14,482
—
—
—
—
—
Total
25,088
—
(10,606)
—
14,482
Other sales and related costs
—
—
—
—
(1,281)
(1,281)
Fair value adjustment on revaluation of
investment properties
Interest income (expense)
20,930
(5,976)
—
20,930
9,667
3,105
(2,871)
(5,156)
Loss on sale of investment properties
52
—
52
—
—
—
—
9,667
(5,156)
—
Earnings (losses)
32,126
165,898
198,024
18,993
(1,281)
17,712
Trust’s share of earnings (losses) before
supplemental cost and additional profit
sharing
Additional Trust's share of earnings(3)
Supplemental cost
(2,031)
—
(2,031)
(3,195)
16,063
41,475
57,538
9,497
(321)
9,176
—
6,862
6,862
—
—
—
—
(3,195)
Trust’s share of earnings (losses)
14,032
48,337
62,369
6,302
(321)
5,981
Includes office rental revenue from the Trust in the amount of $2,634 for the year ended December 31, 2020 (year ended December 31, 2019 – $1,953).
(1)
(2)
Includes condominium sales revenue recognized on the closings of 551 units and 558 units in Transit City 1 and Transit City 2, respectively.
(3) Additional profit allocated to the Trust for Transit City 1 and 2 closings pursuant to the development agreement and limited partnership agreement.
In accordance with the Supplemental Development Fee Agreement, the Trust invoiced PCVP a net amount of $4,061
related to associated development fees for the year ended December 31, 2020 (year ended December 31, 2019 –
$6,390).
iii) Summary of development credit facilities
The development financing relating to the PCVP and VMC Residences comprise pre-development, construction and
letters of credit facilities. With respect to the development credit facilities relating to the PCVP, the obligations are joint
and several to each of the PCVP limited partners; however, by virtue of an indemnity agreement between the PCVP
limited partners, the obligations are effectively several. From time to time, the original facility amounts are reduced
through repayments and through amended agreements with the financial institutions from which the facilities were
obtained.
34 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2020 ANNUAL REPORT
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT
The following table shows the development facilities available:
As at
Development facilities – beginning of year
Reduction
Repayments and adjustments
Letters of credit released
Additional development credit facilities obtained
Development facilities – end of year
Amount drawn on development credit facility
Letters of credit – outstanding
Trust’s share of remaining unused development credit facilities
The PCVP and VMC Residences had the following credit facilities available:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2020
December 31, 2019
768,302
(36,072)
(204,390)
(1,100)
270,000
796,740
(227,327)
(79,816)
489,597
177,884
555,826
—
(86,800)
(888)
300,164
768,302
(168,057)
(37,734)
562,511
152,006
As at
PCVP
Maturity in
Annual
Interest Rate
(%)(1)
Facility
Amount
The Trust’s
Share
Facility
Amount
The Trust’s
Share
December 31, 2020
December 31, 2019
Development credit facility
December 2022
Development credit facility
June 2021
BA + 1.35
BA + 1.45
15,876
48,500
7,938
24,250
Construction credit facility
August 2022
BA + 2.20
270,000
135,000
Letters of credit facility
May 2021
0.75
35,000
17,500
369,376
184,688
15,876
48,500
—
35,000
99,376
VMC Residences
Development credit facility
December 2021
Development credit facility
December 2021
Development credit facility
September 2023
BA + 1.75
BA + 1.75
BA + 1.60
14,512
132,688
280,164
427,364
3,628
33,172
70,041
246,612
142,150
280,164
106,841
668,926
167,232
7,938
24,250
—
17,500
49,688
61,653
35,538
70,041
(1) Annual interest rate is a function of banker's acceptance (“BA”) rates plus a premium.
796,740
291,529
768,302
216,920
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2020 ANNUAL REPORT 35
135
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
b) Investment in joint ventures
The following table summarizes the Trust’s ownership interest in investments in joint ventures grouped by their principal
intended activities as reflected in the Trust’s consolidated financial statements:
As at
Business Focus
Retail investment properties
Joint Venture: 1500 Dundas East LP
Fieldgate
Self-storage facilities
Joint Ventures: Leaside SAM LP, Oshawa South Self
Storage LP, Bramport SAM LP, Vaughan NW SAM LP,
Dupont Self Storage LP, Aurora Self Storage LP,
Scarborough East Self Storage LP and Kingspoint Self
Storage LP
SmartStop
December 31, 2020
December 31, 2019
Joint Venture
Partner
Number of
Projects
Ownership
Interest (%)
Number of
Projects
Ownership
Interest (%)
1
8
30.0
50.0
Seniors' apartments
1
50.0
Joint Venture: Vaughan NW SA PropCo LP
Revera
Retirement residences
Joint Ventures: Vaughan NW RR (Propco and Opco
LP’s), Hopedale RR (Propco and Opco LP’s), Baymac
RR Propco LP, Oakville Garden Drive RR PropCo LP,
Barrie Collier and Owen RR PropCo LP and Markham
Main Street RR PropCo LP
Revera
Joint Ventures: Ottawa SW (PropCo and OpCo LP’s)
Selection Group
Residential apartments
Joint Venture: Laval C Apartments LP
Joint Venture: Balliol/Pailton LP
Total
Jadco
Greenwin
6
1
1
1
19
50.0
50.0
50.0
75.0
1
5
1
2
—
1
—
10
30.0
50.0
50.0
50.0
N/A
50.0
N/A
Acquisitions completed during the year ended December 31, 2020
In January 2020, the Trust together with its partner Greenwin acquired a 75% interest in a parcel of land through a joint
venture, Balliol/Pailton LP, totalling 1.1 acres in Toronto, Ontario, with the intention of developing a high-rise apartment
community, for a purchase price of $48,000.
In April 2020, the Trust together with its joint venture partner Selection Group formed a 50:50 joint venture known as Ottawa
SW PropCo LP, into which the Trust contributed development lands, through an Earnout transaction, located in Ottawa,
Ontario, totalling 2.25 acres previously presented as property under development and Selection Group contributed land and
cash, with the intention to develop two phases, including a retirement and seniors’ housing tower and a multi-residential
rental tower.
In August 2020, the Trust together with its joint venture partner SmartStop formed a 50:50 joint venture known as
Scarborough East Self Storage LP, into which the Trust contributed development lands located in Scarborough, Ontario,
totalling 1.16 acres and SmartStop contributed cash, with the intention to develop, construct and operate a self-storage
facility.
In November 2020, pursuant to the 50:50 joint venture formed with Revera known as Markham Main Street RR PropCo LP,
the Trust contributed cash and Revera contributed development lands into the joint venture, which is located in Markham,
Ontario, totalling 2.04 acres, with the intention to develop, construct and operate retirement residence and retail projects.
In November 2020, pursuant to the 50:50 joint venture formed with SmartStop known as Aurora Self Storage Limited
Partnership, both joint venture parties contributed cash into the joint venture to fund the purchase of a parcel of land located
in Aurora, Ontario, totalling 1.59 acres with the intention to develop, construct and operate a self-storage facility.
See also Note 3, “Acquisitions and Earnouts”, and Note 4, “Investment properties”.
36 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2020 ANNUAL REPORT
136
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT
i) Summary of balance sheets
The following table summarizes the balance sheets for investment in joint ventures:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As at
Non-current assets
Current assets
Total assets
Non-current liabilities
Current liabilities
Total liabilities
Net assets
Trust’s share of net assets
December 31, 2020
December 31, 2019
370,555
4,028
374,583
139,155
28,781
167,936
206,647
108,212
244,686
5,158
249,844
109,029
15,118
124,147
125,697
50,877
The joint ventures listed above have entered into various development construction contracts with existing commitments
totalling $21,498, of which the Trust’s share is $10,777 (December 31, 2019 – $24,335, of which the Trust’s share is
$12,167).
ii) Summary of earnings (losses)
The following tables summarize the earnings (losses) for investment in joint ventures:
Revenue
Operating expense
Revenue net of operating expense
Fair value adjustments on revaluation of investment properties
Interest expense
Loss on sale of investment properties
Earnings (losses)
Trust’s share of earnings (losses)
iii) Summary of credit facilities
Year Ended December 31
2020
10,975
(4,330)
6,645
(3,596)
(3,428)
—
(379)
(397)
2019
10,631
(3,251)
7,380
(1,511)
(2,389)
(190)
3,290
658
Development financing includes a credit facility relating to Laval C Apartments comprising a pre-development and
construction facility, and a construction facility relating to four self-storage facilities. From time to time, the facility
amounts may be reduced through repayments and through amended agreements with the financial institutions from
which the facilities were obtained. The development facilities are presented as follows:
As at
Development facility – beginning of year
Additional development facility obtained(1)
Development facilities – end of year
Amount drawn on development facility – Laval C Apartments
Amount drawn on development facility – Self Storage
Letters of credit – outstanding
Remaining unused development facilities
Trust’s share of remaining unused development facilities
December 31, 2020
December 31, 2019
35,417
60,000
95,417
(35,417)
(39,682)
(706)
19,612
9,806
35,417
—
35,417
—
(24,292)
—
11,125
5,563
(1)
This additional development facility was provided by the Trust to fund construction costs relating to four self-storage facilities. See details in table below.
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2020 ANNUAL REPORT 37
137
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As at December 31, 2020 and December 31, 2019, the Trust’s joint ventures had the following credit facilities:
As at
December 31, 2020
December 31, 2019
Laval C Apartments LP
Pre-development and construction facility
February 2022
BA + 1.60
35,417
17,709
35,417
17,709
Maturity in
Annual
Interest Rate
(%)(1)
Facility
Amount
The Trust’s
Share
Facility
Amount
The Trust’s
Share
SmartStop
Construction facility(2)
May 2021
BA + 2.45
60,000
95,417
30,000
47,709
—
—
35,417
17,709
(1) Annual interest rate is a function of BA rates plus a premium.
(2) This construction facility was provided by the Trust and is used to fund construction costs for the following SmartStop locations: Leaside, Bramport, Vaughan NW, and Oshawa
South. In addition, the Trust has a separate facility with a large Canadian financial institution to draw from in order to assist with funding requirements for the self-storage
facilities. As at December 31, 2020, the Trust has not drawn on this separate facility (December 31, 2019 - $nil).
7. Other assets
The following table presents the components of other assets:
As at
Straight-line rent receivables
Tenant incentives
Equipment
Right-of-use assets
December 31, 2020
December 31, 2019
44,786
36,725
81,511
1,273
5,357
88,141
48,380
38,018
86,398
2,173
452
89,023
The following table summarizes the activity in other assets:
Straight-line rent receivables
Tenant incentives
Equipment
Right-of-use assets(1)
December 31, 2019
Additions
(Disposals)
Write-offs
Amortization and
other adjustments December 31, 2020
48,380
38,018
86,398
2,173
452
89,023
8,862
5,628
(3,503)
(430)
14,490
(3,933)
(70)
6,697
—
—
21,117
(3,933)
(8,953)
(6,491)
(15,444)
(830)
(1,792)
(18,066)
44,786
36,725
81,511
1,273
5,357
88,141
(1)
Pursuant to updated agreements entered into between the Trust and Mitchell Goldhar, the lease associated with the Trust’s home office in Vaughan, Ontario, was settled resulting in an
additional right-of-use asset of $6,374 and related amortization of $1,593 for the year ended December 31, 2020.
8. Intangible assets
The following table summarizes the components of intangible assets:
As at
Intangible assets with finite lives:
Key joint venture relationships
Trademarks
Total intangible assets with finite lives
Goodwill
December 31, 2020
Cost
Accumulated
Amortization
36,944
2,995
39,939
13,979
53,918
6,889
559
7,448
—
7,448
Net
30,055
2,436
32,491
13,979
46,470
December 31, 2019
Cost
Accumulated
Amortization
36,944
2,995
39,939
13,979
53,918
5,658
459
6,117
—
6,117
Net
31,286
2,536
33,822
13,979
47,801
The total amortization expense recognized for the year ended December 31, 2020 amounted to $1,331 (year ended
December 31, 2019 – $1,331).
38 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2020 ANNUAL REPORT
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT
9. Residential development inventory
Residential development inventory consists of development lands, co-owned with Fieldgate, located at Vaughan NW, Ontario, for
the purpose of developing and selling residential townhome units.
The following table summarizes the activity in residential development inventory:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As at
Balance – beginning of year
Development costs
Capitalized interest
Balance – end of year
December 31, 2020
December 31, 2019
24,564
317
914
25,795
23,429
207
928
24,564
10. Amounts receivable and other, deferred financing costs, and prepaid expenses and deposits
The following table presents the components of amounts receivable and other, deferred financing costs and prepaid expenses
and deposits:
As at
Amounts receivable and other
Tenant receivables
Unbilled other tenant receivables
Receivables from related party – excluding equity accounted investments
Receivables from related party – equity accounted investments
Other non-tenant receivables
Other
Allowance for ECL
Amounts receivable and other, net of allowance for ECL
Deferred financing costs
Prepaid expenses and deposits
December 31, 2020
December 31, 2019
57,563
8,287
1,311
—
2,898
8,327
78,386
(19,742)
58,644
1,173
7,269
67,086
15,921
7,649
7,958
1,690
1,482
5,040
39,740
(3,061)
36,679
1,477
5,247
43,403
Allowance for expected credit loss
The Trust records the ECL to comply with IFRS 9’s simplified approach for amounts receivable where its allowance for ECL is
measured at initial recognition and throughout the life of the amounts receivable at a total equal to lifetime ECL.
The following table summarizes the reconciliation of changes in the allowance for ECL on amounts receivable:
Year Ended December 31
Balance – beginning of year
Additional allowance recognized as expense – excluding CECRA(1)
Additional allowance recognized as expense – CECRA(1)
Reversal of previous allowances
Net
Tenant receivables written off during the year – CECRA(1)
Tenant receivables written off during the year – other
Tenant receivables written off
Balance – end of year
2020
3,061
16,962
7,706
(285)
24,383
(7,706)
4
(7,702)
19,742
2019
3,114
711
—
(295)
416
—
(469)
(469)
3,061
(1) CECRA refers to the “Canada Emergency Commercial Rent Assistance” program. Refer to Note 17, “Rentals from investment properties and other” for details.
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2020 ANNUAL REPORT 39
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. Debt
The following table presents debt balances:
As at
Secured debt (a)
Unsecured debt (b)
Revolving operating facility (c)
Current
Non-current
a) Secured debt
December 31, 2020
December 31, 2019
1,327,760
3,882,363
—
5,210,123
854,261
4,355,862
5,210,123
1,442,278
2,783,655
—
4,225,933
115,385
4,110,548
4,225,933
Secured debt bears interest at a weighted average interest rate of 3.67% as at December 31, 2020 (December 31, 2019 –
3.81%). Total secured debt of $1,327,760 (December 31, 2019 – $1,442,278) includes $1,269,900 (December 31, 2019 –
$1,385,278) at fixed interest rates and $57,860 (December 31, 2019 – $57,000) at variable interest rates based on banker’s
acceptance rates plus 120 basis points. Secured debt matures at various dates between 2021 and 2031 and is secured by
first or second registered mortgages over specific income properties and properties under development and first general
assignments of leases, insurance and registered chattel mortgages.
The following table presents principal repayment requirements for secured debt:
2021
2022
2023
2024
2025
Thereafter
Instalment
Payments
43,841
41,111
36,720
31,775
21,124
32,890
207,461
Lump Sum
Payments
at Maturity
134,849
220,306 (1)
142,344
118,696
370,785
135,081
1,122,061
Unamortized acquisition date fair value adjustments
Unamortized financing costs
(1) Includes construction loan in the amount of $57,860, which bears interest at banker's acceptance rate plus 120 basis points.
b) Unsecured debt
The following table summarizes the components of unsecured debt:
Total
178,690
261,417
179,064
150,471
391,909
167,971
1,329,522
1,541
(3,303)
1,327,760
As at
Unsecured debentures (i)
Credit facilities (ii)
Other unsecured debt (iii)
December 31, 2020
December 31, 2019
3,271,625
399,304
211,434
3,882,363
2,301,257
399,102
83,296
2,783,655
40 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2020 ANNUAL REPORT
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT
i) Unsecured debentures
The following table summarizes the components of unsecured debentures:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Interest Payment Dates December 31, 2020 December 31, 2019
Series
Series I
Series M
Series N
Series O
Series P
Series Q
Series R
Series S
Series T
Series U
Series V
Series W
Series X
Series Y
Maturity Date
May 30, 2023
July 22, 2022
February 6, 2025
August 28, 2024
August 28, 2026
March 21, 2022
December 21, 2020
December 21, 2027
June 23, 2021
December 20, 2029
June 11, 2027
December 11, 2030
December 16, 2025
December 18, 2028
Annual
Interest Rate
(%)
3.985
3.730
3.556
2.987
3.444
2.876
Variable (1)
3.834
2.757
3.526
3.192
3.648
1.740
2.307
3.139 (2)
May 30 and November 30
January 22 and July 22
February 6 and August 6
February 28 and August 28
February 28 and August 28
March 21 and September 21
March 21, June 21, September
21 and December 21
June 21 and December 21
June 23 and December 23
June 20 and December 20
June 11 and December 11
June 11 and December 11
June 16 and December 16
June 18 and December 18
(1)
(2)
These unsecured debentures carried a floating rate of three-month CDOR plus 66 basis points.
Represents the weighted average annual interest rate.
Less: Unamortized financing costs
200,000
150,000
160,000
100,000
250,000
150,000
—
250,000
323,120
450,000
300,000
300,000
350,000
300,000
3,283,120
(11,495)
3,271,625
200,000
150,000
160,000
100,000
250,000
150,000
250,000
250,000
350,000
450,000
—
—
—
—
2,310,000
(8,743)
2,301,257
Unsecured debenture activities for the year ended December 31, 2020
Issuances
In June 2020, the Trust issued $300,000 of 3.192% Series V senior unsecured debentures and $300,000 of 3.648%
Series W senior unsecured debentures (net proceeds of the two issuances in aggregate after issuance costs – $597,690).
The Series V debentures will mature on June 11, 2027 and the Series W debentures will mature on December 11, 2030.
Both debentures have semi-annual payments due on June 11 and December 11 of each year, commencing on December
11, 2020. The proceeds from the issuances were principally used to repay Series R unsecured debentures in December
2020, other existing indebtedness and for general Trust purposes.
In December 2020, the Trust issued $350,000 of 1.740% Series X senior unsecured debentures and $300,000 of 2.307%
Series Y senior unsecured debentures (net proceeds of the two issuances in aggregate after issuance costs – $647,575).
The Series X debentures will mature on December 16, 2025 and the Series Y debentures will mature on December 18,
2028. Series X debentures have semi-annual payments due on June 16 and December 16, and Series Y debentures
have semi-annual payments due on June 18 and December 18 each year, commencing on June 16, 2021 and June 18,
2021, respectively. The proceeds from the issuances, together with cash on hand, were used to redeem the 3.730%
Series M senior unsecured debentures and the 2.876% Series Q senior unsecured debentures in January 2021 and will
also be used to repay the 2.757% Series T senior unsecured debentures due June 2021.
Repayment on Maturity
In December 2020, the Trust repaid the $250,000 aggregate principal of Series R senior unsecured debentures upon their
maturity, paying accrued interest of $724. The repayment was funded by the proceeds from the issuances of Series V and
Series W senior unsecured debentures in June 2020, as noted above.
Redemptions
In December 2020, the Trust announced the redemption of 3.730% Series M senior unsecured debentures and 2.876%
Series Q senior unsecured debentures, in aggregate principal amounts of $150,000 and $150,000, respectively, with yield
maintenance costs and accrued interest payable. The redemptions were settled in January 2021 (see also Note 28,
“Subsequent events”). For the year ended December 31, 2020, the Trust recorded yield maintenance costs of $11,084
relating to the redemptions. The redemptions were funded by the proceeds from the issuance of Series X and Series Y
senior unsecured debentures in December 2020, as noted above.
In December 2020, the Trust purchased in the open market and cancelled $26,880 of 2.757% Series T senior unsecured
debentures.
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2020 ANNUAL REPORT 41
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unsecured debenture activities for the year ended December 31, 2019
Issuances
In December 2019, the Trust issued $450,000 of 3.526% Series U senior unsecured debentures (net proceeds after
issuance costs – $448,200), which are due on December 20, 2029 with semi-annual payments due on June 20 and
December 20 of each year. The proceeds were used to repay existing indebtedness, to fund a property acquisition and for
general Trust purposes.
In March 2019, the Trust issued $350,000 of 2.757% Series T senior unsecured debentures (net proceeds after issuance
costs – $349,300), which are due on June 23, 2021 with semi-annual payments due on June 23 and December 23 of
each year. The proceeds were used to repay existing indebtedness and for general Trust purposes.
Redemptions
In June 2019, the Trust redeemed $150,000 aggregate principal of 3.749% Series L senior unsecured debentures. In
addition to paying accrued interest of $2,065, the Trust paid a yield maintenance fee of $4,035 in connection with the
redemption. The redemption was funded by advances from the non-revolving credit facility (see Note 11(b)(ii)).
In March 2019, the Trust redeemed $150,000 aggregate principal of 4.050% Series H senior unsecured debentures. In
addition to paying accrued interest of $666, the Trust paid a yield maintenance fee of $3,281 in connection with the
redemption. The redemption was funded by advances from the non-revolving credit facility (see Note 11(b)(ii)).
Credit rating of unsecured debentures
Dominion Bond Rating Services (“DBRS”) provides credit ratings of debt securities for commercial issuers that indicate the
risk associated with a borrower’s capabilities to fulfill its obligations. An investment-grade rating must exceed “BB”, with
the highest rating being “AAA”. The Trust received a credit rating upgrade on December 6, 2019, and unsecured
debentures issued after this date are rated “BBB(H)” with a stable trend as at December 31, 2020.
ii) Credit facilities
The following table summarizes the activity for revolving and non-revolving unsecured credit facilities:
(Issued In)
Non-revolving:
August 2018(1)
March 2019(2)
May 2019(3)
Revolving:
May 2020(4)
Maturity Date
Annual
Interest Rate
(%)
Facility
Amount December 31, 2020 December 31, 2019
January 31, 2025
March 7, 2024
June 24, 2024
2.980
3.590
3.146
80,000
150,000
170,000
May 11, 2021
BA + 1.450
60,000
Less: Unamortized financing costs
80,000
150,000
170,000
400,000
—
400,000
(696)
399,304
80,000
150,000
170,000
400,000
—
400,000
(898)
399,102
(1)
(2)
(3)
(4)
This credit facility was due to mature on August 29, 2023, bearing interest at a variable interest rate. In January 2020, the maturity date was extended to January 31, 2025, with
the interest fixed at 2.98%.
$150,000 was drawn to fund the redemption of 4.050% Series H senior unsecured debentures in March 2019.
$170,000 was drawn to fund the redemption of 3.749% Series L unsecured debentures and for general Trust purposes in May 2019.
In May 2020, the Trust obtained $60,000 of unsecured revolving facilities for the construction of self-storage facilities, bearing interest at a variable interest rate based on either
bank prime rate plus 45 basis points or the banker’s acceptance rate plus 145 basis points, which matures on May 11, 2021. The facility includes an undrawn accordion feature
of $60,000 whereby the Trust has an option to increase its facility amount with the lenders.
iii) Other unsecured debt
Other unsecured debt net of fair value adjustments totalling $211,434 (December 31, 2019 – $83,296) at the Trust's share
pertains to loans received from equity accounted investments in connection with contribution agreements relating to joint
ventures. The loans are non-interest bearing with repayment terms based on the distributions that are to be paid pursuant
to the limited partnership agreements. The balances of the loans are expected to be paid at the end of their respective
terms.
42 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2020 ANNUAL REPORT
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT
The following table summarizes components of the Trust’s other unsecured debt:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As at
PCVP (5.00% discount rate)(1)
PCVP (5.75% discount rate)(2)
Laval C Apartment LP
Scarborough East Self Storage LP
Vaughan NW SAM LP
VMC Residences LP(3)
December 31, 2020
December 31, 2019
79,624
76,747
1,321
265
—
53,477
211,434
80,862
—
2,214
—
220
—
83,296
(1)
(2)
(3)
In connection with the 700 Applewood purchase, in December 2019, the loan has a principal amount outstanding of $103,764 (December 31, 2019 – $109,218), is non-interest
bearing, and is repayable at the end of 10 years. As at December 31, 2020, the loan balance of $79,624 is net of a fair value adjustment totalling $24,140.
In connection with the 700 Applewood purchase, in March 2020, the Trust assumed a loan payable to PCVP from Penguin. The loan has a principal amount outstanding of
$103,764, is non-interest bearing, and is repayable at the end of 10 years. As at December 31, 2020, the loan balance of $76,747 is net of a fair value adjustment totalling
$27,017. See also Note 5(b) reflecting offsetting loan receivable amount.
In connection with the Transit City condominium closings during the period from September to December 2020, the Trust received amounts that are non-interest bearing and
were settled subsequent to year end.
c) Revolving operating facility
The Trust has a $500,000 unsecured revolving operating facility bearing interest at a variable interest rate based on either
bank prime rate plus 20 basis points or the banker’s acceptance rate plus 120 basis points, which matures on September
30, 2024. In addition, the Trust has an undrawn accordion feature of $250,000 whereby the Trust has an option to increase
its facility amount with the lenders to sustain future operations as required. The following table summarizes components of
the Trust's revolving operating facility:
As at
Revolving operating facility
Lines of credit – outstanding
Letters of credit – outstanding
Remaining operating facility
d)
Interest expense
The following table summarizes interest expense:
December 31, 2020
December 31, 2019
500,000
—
(8,627)
491,373
500,000
—
(8,844)
491,156
Interest at stated rates
Amortization of acquisition date fair value adjustments on assumed debt
Amortization of deferred financing costs
Less:
Interest capitalized to properties under development
Interest capitalized to residential development inventory
Yield costs maintenance on redemption of debt and related write-off of unamortized financing costs
(Note 11(b))
Distributions on vested deferred units and Units classified as liabilities
Year Ended December 31
2020
157,635
(857)
4,130
160,908
(17,689)
(914)
142,305
11,954
154,259
5,785
160,044
2019
149,215
(2,002)
3,811
151,024
(18,956)
(928)
131,140
20,513
151,653
5,385
157,038
The following table presents a reconciliation between the interest expense and the cash interest paid:
Interest expense
Amortization of acquisition date fair value adjustments on assumed debt
Amortization of deferred financing costs
Distributions on vested deferred units and Units classified as liabilities
Change in accrued interest payable
Cash interest paid
Year Ended December 31
2020
160,044
857
(4,130)
(5,785)
(12,139)
138,847
2019
157,038
2,002
(3,811)
(5,385)
5,010
154,854
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2020 ANNUAL REPORT 43
143
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
e) Other letters of credit
In addition to the letters of credit outstanding on the Trust’s revolving operating facility (see Note 11(c) above), the Trust also
has $20,562 of letters of credit outstanding with other financial institutions as at December 31, 2020 (December 31, 2019 –
$26,545).
12. Accounts and other payables
The following table presents accounts payable and the current portion of other payables that are classified as current liabilities:
Note
December 31, 2020
December 31, 2019
As at
Accounts payable
Accounts payable and accrued liabilities with Penguin
21
Tenant prepaid rent, deposits, and other payables
Accrued interest payable
Distributions payable(1)
Realty taxes payable
Current portion of other payables
(1)
Includes $3,460 of committed distributions to the holders of Class G Series 1 Smart Boxgrove LP Units (see details in Note 15(a)(ii)).
The following table presents other payables that are classified as non-current liabilities:
70,938
6,406
87,519
29,067
30,011
4,964
13,596
242,501
77,295
8,893
69,836
16,929
26,406
3,443
14,801
217,603
As at
Future land development obligations with Penguin
Lease liability – investment properties(1)
Lease liability – other
Long Term Incentive Plan liability
Total other payables
Less: current portion of other payables
Total non-current portion of other payables
(1)
Leasehold properties with bargain purchase options are accounted for as leases.
a) Future land development obligations
Note
12(a)
12(b)
December 31, 2020
December 31, 2019
18,410
8,168
5,183
1,540
33,301
(13,596)
19,705
27,074
8,065
461
645
36,245
(14,801)
21,444
The future land development obligations represent payments required to be made to Penguin (see also Note 21, “Related
party transactions”) for certain undeveloped lands acquired from 2006 to 2015, either on completion and rental of additional
space on the undeveloped lands or, if no additional space is completed on the undeveloped lands, at the expiry of the
development management agreement periods ending in 2021 to 2025, which may be extended to 2022 to 2027. The
accrued future land development obligations are measured at their amortized values using imputed interest rates ranging
from 4.50% to 5.50%. For the year ended December 31, 2020, imputed interest of $867 (year ended December 31, 2019 –
$1,166) was capitalized to properties under development.
b) Long Term Incentive Plan liability
The following table summarizes the activity in the LTIP:
Balance – beginning of year
Accrual adjustment(1)
Balance – end of year
Year Ended December 31
2020
645
895
1,540
2019
1,241
(596)
645
(1)
In December 2020, LTIP units granted to Mitchell Goldhar were revised pursuant to an updated employment agreement between Mitchell Goldhar and the Trust, which resulted in
the cancellation of 29,774 LTIP units, of which $169 was written-off during the year ended December 31, 2020.
44 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2020 ANNUAL REPORT
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT
13. Other financial liabilities
The following table summarizes the components of other financial liabilities:
As at
Units classified as liabilities (a)
Earnout options (b)
Deferred unit plan (c)
Fair value of interest rate swap agreements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2020
December 31, 2019
48,479
—
28,051
8,658
85,188
65,436
52
30,247
—
95,735
a) Units classified as liabilities
Total number of Units classified as liabilities
The following table presents the number of Units classified as liabilities that are issued and outstanding:
Class D
Series 1
Smart
LP Units
Class F
Series 3
Smart LP
Units
Class D Series
1 Smart
Oshawa South
LP Units
Class B
ONR LP
Units
Class B
Series 1
ONR LP
I Units
Class B
Series 2
ONR LP
I Units
Total
Balance – January 1, 2019
311,022
—
260,417 1,248,140 132,881 137,109 2,089,569
Options exercised
—
4,886
—
—
—
2,193
7,079
Balance – December 31, 2019
311,022
4,886
260,417 1,248,140 132,881 139,302 2,096,648
Balance – January 1, 2020
Options exercised
Balance – December 31, 2020
311,022
—
311,022
4,886
3,822
8,708
260,417 1,248,140 132,881 139,302 2,096,648
—
—
—
—
3,822
260,417 1,248,140 132,881 139,302 2,100,470
Carrying value of Units classified as liabilities
The following table represents the carrying value of Units classified as liabilities. The fair value measurement of the Units
classified as liabilities is described in Note 14, “Fair value of financial instruments”.
Class D Series
1 Smart
LP Units
Class F Series
3 Smart LP
Units
Class D Series 1
Smart Oshawa
South LP Units
Class B
ONR LP
Units
Class B
Series 1
ONR LP
I Units
Class B
Series 2
ONR LP
I Units
Total
Balance – January 1, 2019
Options exercised
Change in carrying value
Balance – December 31, 2019
Balance – January 1, 2020
Options exercised
Change in carrying value(1)
Balance – December 31, 2020
9,589
—
118
9,707
9,707
—
(2,529)
7,178
—
98
54
152
152
77
(28)
201
8,028
38,480
4,096
4,227
64,420
—
100
—
475
—
51
74
46
172
844
8,128
38,955
4,147
4,347
65,436
8,128
38,955
4,147
4,347
65,436
—
—
—
—
77
(2,117)
(10,147)
(1,080)
(1,133)
(17,034)
6,011
28,808
3,067
3,214
48,479
(1)
The Trust's policy is to measure this liability based on the market value of the Trust Units at each reporting date. As such, the total change in carrying value for the year ended
December 31, 2020 was the result of the $8.13 decline in the Trust's Unit price from $31.21 at December 31, 2019, to $23.08 at December 31, 2020.
b) Earnout options
As part of the consideration paid for certain investment property acquisitions, the Trust has granted options in connection
with the development management agreements (see also Note 4(d)). On completion and rental of additional space on
specific properties, the Earnout options vest and the holder may elect to exercise the options and receive Trust Units,
Class B Smart LP Units, Class D Smart LP Units, Class F Smart LP Units, Class B Smart LP III Units, Class B Smart LP IV
Units, Class B Smart Oshawa South LP Units, Class D Smart Oshawa South LP Units, Class B Smart Oshawa Taunton LP
Units, Class D Smart Oshawa Taunton LP Units, Class B Smart Boxgrove LP Units and Class B ONR LP I Units, as
applicable. Earnout options that have not vested expire at the end of the term of the corresponding development
management agreement. In certain circumstances, the Trust may be required to issue additional Earnout options to
Penguin. The option strike prices were based on the market price of Trust Units on the date the substantive terms were
agreed on and announced. In the case of Class B Smart LP III Units, Class B Smart LP IV Units, Class B Smart Oshawa
South LP Units, Class D Smart Oshawa South LP Units, Class B Smart Oshawa Taunton LP Units, Class D Smart Oshawa
Taunton LP Units, Class B Smart Boxgrove LP Units, and Class B ONR LP I Units, the strike price is the market price of the
Trust Units at the date of exchange. On December 9, 2020, the Trust entered into an Omnibus Settlement Agreement with
Mitchell Goldhar that provided a right to extend the terms of certain Earnout agreements for an additional two years. As a
result, the Earnout agreements for Earnout options in the table below that were originally set to expire between 2020 to 2025
may be extended to 2022 to 2027.
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2020 ANNUAL REPORT 45
145
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT
($)
—
—
—
—
—
—
—
77
77
715
—
2,624
—
3,339
—
—
—
—
—
—
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes the change in Units outstanding and proceeds received:
Options
Outstanding at
January 1, 2020
Options
Granted
(Cancelled)
Options
Exercised
Options
Outstanding at
December 31, 2020
Amounts from
Options
Exercised
Strike Price
($)
20.10
29.55 to 33.55
29.55 to 33.00
20.10
29.55 to 30.55
29.55 to 33.00
20.10
Market price
Market price
Market price
Market price
Options to acquire Trust
Units
July 2005
December 2006
July 2007
Options to acquire Class B
Smart LP Units, Class D
Smart LP Units and Class F
Smart LP Units(1)
July 2005
December 2006
July 2007
June 2008(2)
Options to acquire Class B
Smart LP III Units(3)
September 2010
August 2011
August 2013
September 2014
Options to acquire Class B
Smart LP IV Units(4)
(#)
(#)
(#)
(#)
55,604
53,458
1,348,223
1,457,285
—
—
—
—
—
—
—
—
1,354,153
2,226,949
1,600,000
680,227
5,861,329
598,913
596,219
560,071
259,704
2,014,907
—
—
—
(1,968)
(1,968)
—
—
—
(3,822)
(3,822)
—
(33,131)
—
—
— (102,017)
—
—
— (135,148)
55,604
53,458
1,348,223
1,457,285
1,354,153
2,226,949
1,600,000
674,437
5,855,539
565,782
596,219
458,054
259,704
1,879,759
May 2015
Market price
422,059
422,059
—
—
—
—
422,059
422,059
Options to acquire Class B
Smart Oshawa South LP
Units and Class D Smart
Oshawa South LP Units(5)
May 2015
Market price
26,585
26,585
—
—
—
—
26,585
26,585
Options to acquire Class B
Smart Oshawa Taunton LP
Units and Class D Smart
Oshawa Taunton LP Units(6)
May 2015
Options to acquire Class B
and Class G Smart Boxgrove
LP Units(7)
May 2015
Options to acquire Class B
ONR LP I Units(8)
October 2017
Market price
265,422
265,422
—
—
—
—
265,422
265,422
Market price
170,000
170,000
340,000 (242,821)
340,000 (242,821)
267,179
267,179
3,509
3,509
Market price
482,086
482,086
—
—
—
—
482,086
482,086
—
—
Total Earnout options
10,699,673
338,032 (381,791)
10,655,914
6,925
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
Each option is represented by a corresponding Class C Smart LP Unit or Class E Smart LP Unit.
Each option is convertible into Class F Series 3 Smart LP Units. At the holder’s option, the Class F Series 3 Smart LP Units may be redeemed for cash at $20.10 per Unit or, on the
completion and rental of additional space on certain development properties, the Class F Series 3 Smart LP Units may be exchanged for Class B Smart LP Units.
Each option is represented by a corresponding Class C Smart LP III Unit.
Each option is represented by a corresponding Class C Smart LP IV Unit.
Each option is represented by a corresponding Class C Smart Oshawa South LP Unit or Class E Smart Oshawa South LP Unit.
Each option is represented by a corresponding Class C Smart Oshawa Taunton LP Unit or Class E Smart Oshawa Taunton LP Unit.
Each option is represented by a corresponding Class C Smart Boxgrove LP Unit.
Each option is represented by a corresponding Class C ONR LP I Unit.
46 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2020 ANNUAL REPORT
146
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT
The following table summarizes the change in Units outstanding and proceeds received:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Strike Price
Options Outstanding
at January 1, 2019
Options
Cancelled
Options
Exercised
Options Outstanding at
December 31, 2019
Amounts from
Options
Exercised
($)
(#)
(#)
(#)
(#)
($)
20.10
29.55 to 33.55
29.55 to 33.00
108,606
53,458
1,348,223
—
—
—
(53,002)
—
—
55,604
53,458
1,348,223
1,065
—
—
1,510,287
—
(53,002)
1,457,285
1,065
Options to acquire Trust Units
July 2005
December 2006
July 2007
Options to acquire Class B
Smart LP Units and Class D
Smart LP Units(1)
July 2005
December 2006
July 2007
June 2008(2)
Options to acquire Class B
Smart LP III Units(3)
September 2010
August 2011
August 2013
September 2014
Options to acquire Class B
Smart LP IV Units(4)
May 2015
Options to acquire Class B
Smart Oshawa South LP Units
and Class D Smart Oshawa
South LP Units(5)
May 2015
Options to acquire Class B
Smart Oshawa Taunton LP
Units and Class D Smart
Oshawa Taunton LP Units(6)
20.10
29.55 to 30.55
29.55 to 33.00
20.10
1,354,153
2,226,949
1,600,000
685,113
5,866,215
—
—
—
—
—
—
—
—
(4,886)
(4,886)
Market price
Market price
Market price
Market price
617,932
(12,810)
(6,209)
596,219
560,071
—
—
286,054
(26,350)
—
—
—
1,354,153
2,226,949
1,600,000
680,227
5,861,329
598,913
596,219
560,071
259,704
2,060,276
(39,160)
(6,209)
2,014,907
Market price
439,149
439,149
—
(17,090)
—
(17,090)
422,059
422,059
Market price
26,585
26,585
—
—
—
—
26,585
26,585
May 2015
Market price
Options to acquire Class B
Smart Boxgrove LP Units(7)
May 2015
Market price
265,422
265,422
170,000
170,000
—
—
—
—
—
—
—
—
Options to acquire Class B
ONR LP I Units(8)
October 2017
Market price
540,000
(41,705)
(16,209)
540,000
(41,705)
(16,209)
265,422
265,422
170,000
170,000
482,086
482,086
Total Earnout options
10,877,934
(80,865)
(97,396)
10,699,673
1,858
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
Each option is represented by a corresponding Class C Smart LP Unit or Class E Smart LP Unit.
Each option is convertible into Class F Series 3 Smart LP Units. At the holder’s option, the Class F Series 3 Smart LP Units may be redeemed for cash at $20.10 per Unit or, on the
completion and rental of additional space on certain development properties, the Class F Series 3 Smart LP Units may be exchanged for Class B Smart LP Units.
Each option is represented by a corresponding Class C Smart LP III Unit.
Each option is represented by a corresponding Class C Smart LP IV Unit.
Each option is represented by a corresponding Class C Smart Oshawa South LP Unit or Class E Smart Oshawa South LP Unit.
Each option is represented by a corresponding Class C Smart Oshawa Taunton LP Unit or Class E Smart Oshawa Taunton LP Unit.
Each option is represented by a corresponding Class C Smart Boxgrove LP Unit.
Each option is represented by a corresponding Class C ONR LP I Unit. During the year ended December 31, 2019, 16,209 Class C Series 2 ONR LP I Units were exercised for
2,193 Class B Series 2 ONR LP I Units.
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2020 ANNUAL REPORT 47
147
—
—
—
98
98
134
—
—
—
134
487
487
—
—
—
—
—
—
74
74
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes the change in the fair value of Earnout options:
Fair value – beginning of year
Trust options exercised
Fair value adjustment
Fair value – end of year
c) Deferred unit plan
Year Ended December 31
2020
52
—
(52)
—
2019
881
(566)
(263)
52
The Trust has a deferred unit plan that entitles: i) Trustees, and ii) eligible associates, which include a) senior executive
officers (key management personnel); b) senior officers holding the title of vice president, senior vice president or executive
vice president; and c) other eligible associates; at the participant’s option, to receive deferred units in consideration for all or
a portion of trustee fees or associate bonuses with the Trust matching the number of units received. Any deferred units
granted to Trustees, which include the matching deferred units, vest immediately. Any deferred units granted to eligible
associates as part of their compensation structure vest immediately, and the matching deferred units vest 50% on the third
anniversary and 25% on each of the fourth and fifth anniversaries, subject to provisions for earlier vesting in certain events.
The deferred units earn additional deferred units (“reinvested units”) for the distributions that would otherwise have been
paid on the deferred units (i.e., had they instead been issued as Trust Units on the date of grant). Once the matching
deferred units have vested, participants are entitled to receive an equivalent number of Trust Units for both the vested
deferred units initially granted, and the matching deferred units.
The following table summarizes outstanding deferred units:
Balance – January 1, 2019
Granted
Trustees
Eligible associates
Reinvested units from distributions
Vested
Exchanged for Trust Units
Redeemed for cash
Forfeited
Balance – December 31, 2019
Balance – January 1, 2020
Granted
Trustees
Eligible associates(1)
Reinvested units from distributions
Vested
Exchanged for Trust Units
Redeemed for cash
Forfeited
Balance – December 31, 2020
Outstanding
1,007,929
Vested
876,870
Non-vested
131,059
55,424
137,437
58,323
—
(1,893)
(200,528)
(31,110)
1,025,582
1,025,582
55,193
181,301
106,867
—
(1,550)
(59,263)
(2,855)
1,305,275
55,424
69,980
49,668
18,662
(1,893)
(200,528)
—
868,183
868,183
55,193
89,219
86,135
30,326
(1,550)
(59,263)
—
1,068,243
—
67,457
8,655
(18,662)
—
—
(31,110)
157,399
157,399
—
92,082
20,732
(30,326)
—
—
(2,855)
237,032
(1) In December 2020, deferred units granted to Mitchell Goldhar were revised pursuant to an updated employment agreement between Mitchell Goldhar and the Trust, which resulted in
an increase in deferred units of 5,007 totalling $156, of which 3,072 deferred units totalling $96 relate to a 2020 grant and 1,935 deferred units totalling $60 relate to a 2019 grant.
48 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2020 ANNUAL REPORT
148
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT
The following table summarizes the change in the carrying value of the deferred unit plan:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Carrying value – beginning of year
Deferred units granted for trustee fees
Deferred units granted for bonuses(1)
Reinvested distributions on vested deferred units
Compensation expense – reinvested distributions and amortization
Exchanged for Trust Units
Redeemed for cash
Fair value adjustment – vested and unvested deferred units
Carrying value – end of year
Year Ended December 31
2020
30,247
864
2,791
1,904
2,892
(32)
(1,459)
(9,156)
28,051
2019
29,683
864
2,170
1,591
1,891
(63)
(6,748)
859
30,247
(1) In December 2020, deferred units granted to Mitchell Goldhar were revised pursuant to an updated employment agreement between Mitchell Goldhar and the Trust, which resulted in an
increase in deferred units of 5,007 totalling $156, of which 3,072 deferred units totalling $96 relate to a 2020 grant and 1,935 deferred units totalling $60 relate to a 2019 grant.
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2020 ANNUAL REPORT 49
149
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. Fair value of financial instruments
The fair value of financial instruments is the amount for which an asset could be exchanged or a liability settled between
knowledgeable, willing parties in an arm’s-length transaction based on the current market for assets and liabilities with the same
risks, principal and remaining maturity. The following table summarizes the fair value of the Trust’s financial instruments:
As at
December 31, 2020
December 31, 2019
Financial assets
Mortgages, loans and notes receivable
Amounts receivable and other
Cash and cash equivalents
Financial liabilities
Accounts and other payables
Secured debt
Unsecured debt
Units classified as liabilities
Earnout options
Deferred unit plan
Fair value of interest rate swap
agreements
FVTPL Amortized cost
Total
FVTPL Amortized cost
Total
—
—
—
—
—
—
48,479
—
28,051
8,658
376,788
376,788
57,563
57,563
794,594
794,594
242,501
242,501
1,413,571
1,413,571
4,044,737
4,044,737
—
—
—
—
—
—
—
—
—
—
48,479
65,436
—
52
28,051
30,247
8,658
—
267,815
267,815
15,921
55,374
15,921
55,374
217,603
217,603
1,476,880
1,476,880
2,834,406
2,834,406
—
—
—
—
65,436
52
30,247
—
Fair value hierarchy
The Trust values financial assets and financial liabilities carried at fair value using quoted closing market prices, where available.
Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical financial
assets or financial liabilities. When quoted market prices are not available, the Trust maximizes the use of observable inputs
within valuation models. When all significant inputs are observable, the valuation is classified as Level 2. Valuations that require
the significant use of unobservable inputs are considered Level 3. Valuations at this level are more subjective and, therefore,
more closely managed. Such assessment has not indicated that any material difference would arise due to a change in input
variables. The following table categorizes the inputs used in valuation methods for the Trust’s financial liabilities measured under
FVTPL:
As at
Recurring measurements:
Financial liabilities
Units classified as liabilities
Earnout options
Deferred unit plan
Fair value of interest rate swap agreements
December 31, 2020
December 31, 2019
Level 1
Level 2
Level 3
Level 1
Level 2
Level 3
—
—
—
—
48,479
—
28,051
8,658
—
—
—
—
—
—
—
—
65,436
—
30,247
—
—
52
—
—
Refer to Note 13, “Other financial liabilities”, for a reconciliation of fair value measurements.
50 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2020 ANNUAL REPORT
150
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT
15. Unit equity
The following table presents the number of Units issued and outstanding and the related carrying value of Unit equity. The
Limited Partnership Units are classified as non-controlling interests in the consolidated balance sheets and the consolidated
statements of equity.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Number of Units Issued and
Outstanding
Note
Trust Units
(#)
Smart LP
Units (#)
Total Units
(#)
Trust Units
($)
(Table A)
Carrying Value
Smart LP
Units ($)
(Table B)
Total
($)
134,498,397 25,128,877 159,627,274
2,781,069
632,737
3,413,806
4,13(b)
53,002
19,303
72,305
1,631
621
2,252
Balance – January 1, 2019
Options exercised(1)
Deferred units exchanged for Trust
Units
Distribution reinvestment plan
15(b),16
2,125,071
—
2,125,071
Unit issuance cost
Units issued for cash
—
—
—
7,360,000
—
7,360,000
230,000
63
69,693
(9,635)
—
—
—
—
63
69,693
(9,635)
230,000
13(c)
1,893
—
1,893
Balance – December 31, 2019
144,038,363 25,148,180 169,186,543 —
3,072,821
633,358
3,706,179
144,038,363 25,148,180 169,186,543
3,072,821
633,358
3,706,179
4(d),13(b)
—
353,905
353,905
—
6,848
6,848
Balance – January 1, 2020
Options exercised(1)
Deferred Units exchanged for Trust
Units
Distribution reinvestment plan
15(b),16
578,744
13(c)
1,550
—
—
1,550
32
578,744
17,335
—
—
32
17,335
Balance – December 31, 2020
144,618,657 25,502,085 170,120,742
3,090,188
640,206
3,730,394
(1)
For the year ended December 31, 2020, the carrying value of Trust Units issued includes the change in fair value of Earnout options on exercise of $nil (year ended December 31, 2019 –
$566).
Table A: Number of LP Units issued and outstanding
The following table presents the number of Units issued and outstanding:
Unit Type
Class and Series
Balance – January 1, 2020
Smart Limited Partnership
Class B Series 1
14,746,176
Options Exercised
(Note 13(b))
Balance – December 31, 2020
Smart Limited Partnership
Class B Series 2
Smart Limited Partnership
Class B Series 3
Smart Limited Partnership II
Class B
Smart Limited Partnership III
Class B Series 4
Smart Limited Partnership III
Class B Series 5
Smart Limited Partnership III
Class B Series 6
Smart Limited Partnership III
Class B Series 7
Smart Limited Partnership III
Smart Limited Partnership IV
Class B Series 8
Class B Series 1
Smart Oshawa South Limited
Partnership
Class B Series 1
Smart Oshawa Taunton Limited
Partnership
Class B Series 1
Smart Boxgrove Limited
Partnership
Class B Series 1
950,059
720,432
756,525
668,428
572,337
449,375
434,598
1,698,018
3,067,593
710,416
374,223
—
—
—
—
36,992
—
146,913
—
—
—
—
—
—
25,148,180
170,000
353,905
14,746,176
950,059
720,432
756,525
705,420
572,337
596,288
434,598
1,698,018
3,067,593
710,416
374,223
170,000
25,502,085
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2020 ANNUAL REPORT 51
151
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unit Type
Class and Series
Balance – January 1, 2019
Options Exercised
(Note 13(b))
Balance – December 31, 2019
Smart Limited Partnership
Smart Limited Partnership
Smart Limited Partnership
Class B Series 1
Class B Series 2
Class B Series 3
Smart Limited Partnership II
Class B
Smart Limited Partnership III
Class B Series 4
Smart Limited Partnership III
Class B Series 5
Smart Limited Partnership III
Class B Series 6
Smart Limited Partnership III
Class B Series 7
Smart Limited Partnership III
Class B Series 8
Smart Limited Partnership IV
Class B Series 1
Smart Oshawa South Limited
Partnership
Smart Oshawa Taunton Limited
Partnership
Class B Series 1
Class B Series 1
14,746,176
950,059
720,432
756,525
664,214
572,337
449,375
434,598
1,698,018
3,052,504
710,416
374,223
25,128,877
—
—
—
—
4,214
—
—
—
—
15,089
—
—
19,303
14,746,176
950,059
720,432
756,525
668,428
572,337
449,375
434,598
1,698,018
3,067,593
710,416
374,223
25,148,180
Table B: Carrying value of LP Units
The following table presents the carrying values of Units issued and outstanding:
Unit Type
Smart Limited Partnership
Smart Limited Partnership
Smart Limited Partnership
Smart Limited Partnership II
Smart Limited Partnership III
Smart Limited Partnership III
Smart Limited Partnership III
Smart Limited Partnership III
Smart Limited Partnership III
Smart Limited Partnership IV
Smart Oshawa South Limited
Partnership
Class and Series
Class B Series 1
Class B Series 2
Class B Series 3
Class B
Class B Series 4
Class B Series 5
Class B Series 6
Class B Series 7
Class B Series 8
Class B Series 1
Class B Series 1
Smart Oshawa Taunton Limited
Partnership
Class B Series 1
Smart Boxgrove Limited
Partnership
Class B Series 1
Balance – January 1, 2020
Value From
Options Exercised
(Note 13(b))
347,675
27,587
16,836
17,680
16,468
15,356
11,720
11,668
48,732
88,162
20,441
11,033
—
633,358
—
—
—
—
715
—
2,624
—
—
—
—
—
3,509
6,848
Unit Type
Class and Series
Balance – January 1, 2019
Value From Options
Exercised (Note
13(b))
Smart Limited Partnership
Smart Limited Partnership
Smart Limited Partnership
Smart Limited Partnership II
Smart Limited Partnership III
Smart Limited Partnership III
Smart Limited Partnership III
Smart Limited Partnership III
Smart Limited Partnership III
Smart Limited Partnership IV
Smart Oshawa South Limited
Partnership
Smart Oshawa Taunton Limited
Partnership
Class B Series 1
Class B Series 2
Class B Series 3
Class B
Class B Series 4
Class B Series 5
Class B Series 6
Class B Series 7
Class B Series 8
Class B Series 1
Class B Series 1
Class B Series 1
347,675
27,587
16,836
17,680
16,334
15,356
11,720
11,668
48,732
87,675
20,441
11,033
632,737
—
—
—
—
134
—
—
—
—
487
—
—
621
Balance – December 31, 2020
347,675
27,587
16,836
17,680
17,183
15,356
14,344
11,668
48,732
88,162
20,441
11,033
3,509
640,206
Balance – December 31, 2019
347,675
27,587
16,836
17,680
16,468
15,356
11,720
11,668
48,732
88,162
20,441
11,033
633,358
52 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2020 ANNUAL REPORT
152
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
a) Authorized Units
i)
Trust Units (authorized – unlimited)
Each voting trust unit represents an equal undivided interest in the Trust. All Trust Units outstanding from time to time
are entitled to participate pro rata in any distributions by the Trust and, in the event of termination or windup of the
Trust, in the net assets of the Trust. All Trust Units rank among themselves equally and rateably without
discrimination, preference or priority. Unitholders are entitled to require the Trust to redeem all or any part of their
Trust Units at prices determined and payable in accordance with the conditions provided for in the Declaration of
Trust. A maximum amount of $50 may be redeemed in total in any one month unless otherwise waived by the Board
of Trustees.
In accordance with the Declaration of Trust, distributions to Unitholders are declared at the discretion of the Trustees.
The Trust endeavours to declare distributions in each taxation year in such an amount as is necessary to ensure that
the Trust will not be subject to tax on its net income and net capital gains under Part I of the Tax Act.
The Trust is authorized to issue an unlimited number of Special Voting Units that will be used to provide voting rights
to holders of securities exchangeable, including all series of Class B Smart LP Units, Class D Smart LP Units, Class
B Smart LP II Units, Class B Smart LP III Units, Class B Smart LP IV Units, Class B Smart Oshawa South LP Units,
Class D Smart Oshawa South LP Units, Class B Smart Oshawa Taunton Units, Class D Oshawa Taunton Units, Class
B Smart Boxgrove LP Units, Class B ONR LP and Class B ONR LP I Units, into Trust Units. Special Voting Units are
not entitled to any interest or share in the distributions or net assets of the Trust. Each Special Voting Unit entitles the
holder to the number of votes at any meeting of Unitholders of the Trust that is equal to the number of Trust Units into
which the exchangeable security is exchangeable or convertible. Special Voting Units are cancelled on the issuance
of Trust Units on exercise, conversion or cancellation of the corresponding exchangeable securities.
As at December 31, 2020, there were 27,593,847 (December 31, 2019 – 27,239,942) Special Voting Units
outstanding, which are associated with those LP Units that have voting rights. There is no value assigned to the
Special Voting Units. These Special Voting Units are not entitled to any interest or share in the distributions or net
assets of the Trust; nor are they convertible into any Trust securities.
Pursuant to the Voting Top-Up Right agreement made in December 2020 between the Trust and Penguin, which was
approved by Unitholders, the following amendments were made: (i) extension of the Voting Top-Up Right for five
years, ending December 31, 2025, (ii) extension of the designation of Units as Variable Voting Units until December
31, 2025, and (iii) an increase to the alternative ownership threshold from 20,000,000 Units to 22,800,000 Units,
including exchangeable LP Units. The total number of Special Voting Units is adjusted for each annual meeting of the
Unitholders based on changes in Penguin’s ownership interest (see also Note 21, “Related Party Transactions”).
ii) Limited Partnership Units (authorized – unlimited)
The following table summarizes the Class A and Class B Limited Partnership Units:
Class A(1)(2)
Smart Limited Partnership
Smart Limited Partnership II
Smart Limited Partnership III
Smart Limited Partnership IV
Smart Oshawa South Limited Partnership
Smart Oshawa Taunton Limited Partnership
Smart Boxgrove Limited Partnership
ONR Limited Partnership
ONR Limited Partnership I
Class B(3)(4)
Classified as Equity
Limited Partnership Units(5)
Classified as Liabilities
ONR Limited Partnership Class B(6)
ONR Limited Partnership I Class B Series 1(6)
ONR Limited Partnership I Class B Series 2(6)
December 31, 2020 December 31, 2019
75,062,169
75,062,169
263,303
12,556,688
4,902,569
2,168,190
637,895
397,438
263,303
12,556,688
3,402,569
668,190
637,895
397,438
3,912,943,532
3,912,943,532
38,000,010
38,000,010
December 31, 2020 December 31, 2019
25,502,085
25,148,180
1,248,140
1,248,140
132,881
139,302
132,881
139,302
(1)
(2)
Entitled to all distributable cash of the LP after the required distributions on the other classes of Units have been paid; owned directly by the Trust and eliminated on
consolidation.
At the meetings of the respective LP, Class A partners have 20 votes for each Class A Unit held with exception to Smart LP II, in which a Class A LP II partner has five
votes for each Class A Unit held.
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(3)
(4)
(5)
(6)
Non-transferable, except under certain limited circumstances; exchangeable into an equal number of Trust Units at the holder's option; entitled to receive distributions
equivalent to the distributions on Trust Units; entitled to one Special Voting Unit, which will entitle the holder to receive notice of, attend and vote at all meetings of the
Trust; considered to be economically equivalent to Trust Units.
Class B partners have one vote for each Class B Unit held at the meetings of the respective LPs.
Units have been presented as non-controlling interest. See further details in Table A above.
Units have been presented as liabilities.
The following table summarizes the Class C Limited Partnership Units:
Class C(1)(2)
Smart Limited Partnership
Smart Limited Partnership
Smart Limited Partnership
Smart Limited Partnership III
Smart Limited Partnership III
Smart Limited Partnership III
Smart Limited Partnership III
Smart Limited Partnership IV
Smart Oshawa South Limited Partnership
Smart Oshawa Taunton Limited Partnership
Smart Boxgrove Limited Partnership
ONR Limited Partnership I
Series
Series 1(3)
Series 2(3)
Series 3(3)
Series 4(4)
Series 5(4)
Series 6(4)
Series 7(4)
Series 1(4)
Series 1(4)
Series 1(4)
Series 1(4)(5)
Series 2(4)
December 31, 2020 December 31, 2019
3,445,341
3,026,949
3,445,341
3,026,949
674,437
565,782
596,219
458,054
259,704
422,059
21,082
132,711
267,179
482,086
680,227
598,913
596,219
560,071
259,704
422,059
21,082
132,711
170,000
482,086
(1)
(2)
(3)
(4)
(5)
Entitled to receive 0.01% of any distributions of the LP and have nominal value assigned in the consolidated financial statements.
Class C partners have no votes at the meetings of the respective LPs.
At the holder’s option, and on the completion and rental of additional space on specific properties and payment of a specific predetermined amount per Unit, Units are
exchangeable into Class B Units of the respective LP, except for Class C Series 3 LP Units, which are exchangeable into Class F Series 3 LP Units.
At the holder’s option, and on the completion and rental of additional space on specific properties and payment of a specific formula amount per Unit based on the market
price of Trust Units, and exchangeable into Class B Units of the respective LP.
In August 2020, pursuant to the updated limited partnership agreement, there was a 3-for-1 Unit split of Class C Series 1 Smart Boxgrove LP Units, which resulted in
510,000 Class C Smart Boxgrove LP Units outstanding after the Unit split. Subsequent to the 3-for-1 Unit split and at the holder’s option, 122,258 Class C Series 1 Smart
Boxgrove LP Units were cancelled in exchange of 170,000 Class B Series 1 Smart Boxgrove LP Units, and 120,563 Class C Series 1 Units Smart Boxgrove LP were
cancelled in exchange of 120,563 Class G Series 1 Units (see further details below in footnote 8).
The following table summarizes the Class D, Class E, Class F and Class G Limited Partnership Units:
Unit type
Smart Limited Partnership
Smart Limited Partnership
Smart Limited Partnership
Smart Limited Partnership
Smart Oshawa South Limited Partnership
Smart Oshawa South Limited Partnership
Smart Oshawa Taunton Limited Partnership
Smart Boxgrove Limited Partnership
Class and Series
Class D Series 1(1)(5)(6)
Class E Series 1(2)(3)(7)
Class E Series 2(2)(3)(7)
Class F Series 3(4)(5)(7)
Class D Series 1(1)(5)(6)
Class E Series 1(2)(3)(7)
Class E Series 1(2)(3)(7)
Class G Series 1(3)(7)(8)
December 31, 2020 December 31, 2019
311,022
16,704
800,000
8,708
260,417
5,503
132,711
120,563
311,022
16,704
800,000
4,886
260,417
5,503
132,711
—
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
Non-transferable, except under certain limited circumstances; exchangeable into an equal number of Trust Units at the holder's option; entitled to receive distributions
equivalent to the distributions on Trust Units; entitled to one Special Voting Unit, which will entitle the holder to receive notice of, attend, and vote at all meetings of the
Trust; considered to be economically equivalent to Trust Units; Units owned by outside parties have been presented as liabilities.
At the holder’s option, and on the completion and rental of additional space on specific properties and payment of a specific formula amount per Unit based on the market
price of Trust Units, and exchangeable into Class D Units of the respective LP.
Entitled to receive 0.01% of any distributions of the LP and have nominal value assigned in the consolidated financial statements.
Entitled to 65.5% of the distribution on Trust Units and exchangeable for $20.10 in cash per Unit or on the completion and rental of additional space on specific properties.
Units have been presented as liabilities.
Class D partners have one vote for each Class D Unit held at the meetings of the respective LPs.
Class E, F and G partners have no votes at the meetings of the respective LPs.
Class G Series 1 Smart Boxgrove LP Units represent a new class of units that were issued in August 2020 as part of the 120,563 Class C Series 1 Smart Boxgrove LP
Units exchange discussed in Class C table above (see footnote 5). Concurrent with this issuance, Smart Boxgrove LP issued a loan receivable to the holders of Class G
Series 1 Smart Boxgrove LP Units (as discussed in Note 5(b)). The holders of Class G Series 1 Smart Boxgrove LP Units have the right to receive a distribution equal to
the loan amount and, as such, the Trust has recorded a distributions payable presently reflected in Other payables in the consolidated financial statements (see also,
Note 12 “Accounts and other payables”). Subsequent to this distribution, Smart Boxgrove LP is entitled to redeem all Class G Series 1 Units outstanding for an amount
equal to the nominal value assigned to them.
b)
Distribution reinvestment plan
The Trust enables holders of Trust Units to reinvest their cash distributions in additional Trust Units at 97% of the volume
weighted average Unit price over the 10 trading days prior to the distribution. The 3% bonus amount is recorded as an
additional issuance of Trust Units.
Effective April 13, 2020, the Trust suspended its Distribution Reinvestment Plan (the “DRIP”). Beginning with the April
2020 distribution, plan participants receive distributions in cash.
54 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2020 ANNUAL REPORT
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c)
d)
Trust Units issued for cash
During the year ended December 31, 2020, no Trust Units were issued for cash (year ended December 31, 2019 – the
Trust issued 7,360,000 Trust Units for cash at an issue price of $31.25, totalling $230,000, before issuance costs of
$9,635).
Normal Course Issuer Bid
The Trust commenced a normal course issuer bid (“NCIB”) program on March 31, 2020 with acceptance by the TSX. The
NCIB program will terminate on March 30, 2021, or on such earlier date as the Trust may complete its purchases pursuant
to a Notice of Intention filed with the TSX. Under the NCIB program, the Trust is authorized to purchase up to 6,500,835 of
its Trust Units representing approximately 5% of the public float as at March 23, 2020 by way of normal course purchases
effected through the facilities of the TSX and/or alternative Canadian trading systems. All Trust Units purchased by the
Trust will be cancelled.
During the year ended December 31, 2020, the Trust did not purchase for cancellation any Trust Units under the NCIB.
16. Unit distributions
Pursuant to the Declaration of Trust, the Trust endeavours to distribute annually such amount as is necessary to ensure the Trust
will not be subject to tax on its net income under Part I of the Tax Act. The following table presents Unit distributions declared:
Unit Type Subject to Distributions
Class and Series
Distributions on Units classified as equity:
Year Ended December 31
2020
2019
Trust Units
N/A
267,976
261,301
Distributions on Limited Partnership Units
Smart Limited Partnership
Smart Limited Partnership
Smart Limited Partnership
Smart Limited Partnership II
Smart Limited Partnership III
Smart Limited Partnership III
Smart Limited Partnership III
Smart Limited Partnership III
Smart Limited Partnership III
Smart Limited Partnership IV
Smart Boxgrove Limited Partnership
Smart Oshawa South Limited Partnership
Smart Oshawa Taunton Limited Partnership
Total distributions on Limited Partnership Units
Class B Series 1
Class B Series 2
Class B Series 3
Class B
Class B Series 4
Class B Series 5
Class B Series 6
Class B Series 7
Class B Series 8
Class B Series 1
Class B Series 1
Class B Series 1
Class B Series 1
Distributions on other non-controlling interest
N/A
Total distributions on Units classified as equity
Distributions on Units classified as liabilities:
Smart Limited Partnership
Smart Limited Partnership
Smart Oshawa South Limited Partnership
ONR Limited Partnership
ONR Limited Partnership I
ONR Limited Partnership I
Total distributions on Units classified as liabilities
Distributions paid through DRIP(1)
Class D Series 1
Class F Series 3
Class D Series 1
Class B
Class B Series 1
Class B Series 2
27,284
1,758
1,333
1,400
1,275
1,059
1,035
804
3,141
5,675
131
1,314
692
46,901
26,728
1,722
1,306
1,371
1,205
1,037
814
788
3,078
5,541
—
1,288
678
45,556
—
314,877
298
307,155
575
11
482
2,309
246
258
3,881
564
4
472
2,262
241
251
3,794
N/A
17,335
69,693
(1)
Effective April 13, 2020, the Trust suspended its DRIP. Beginning with the April 2020 distribution, plan participants receive distributions in cash.
On January 22, 2021, the Trust declared a distribution for the month of January 2021 of $0.15417 per Unit, representing $1.85
per Unit on an annualized basis, to Unitholders of record on January 29, 2021.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
17. Rentals from investment properties and other
The following table presents rentals from investment properties and other:
Gross base rent
Less: Amortization of tenant incentives
Net base rent
Property tax and insurance recoveries
Property operating cost recoveries
Total recoveries
Miscellaneous revenue
Rentals from investment properties
Service and other revenues(1)
Rentals from investment properties and other
Year Ended December 31
2020
503,061
(6,926)
496,135
180,181
83,621
263,802
11,182
771,119
10,134
781,253
2019
512,597
(7,139)
505,458
187,520
84,860
272,380
18,345
796,183
10,229
806,412
(1)
For the year ended December 31, 2020, service and other revenues included $8,552 relating to the fees associated with the Development and Services Agreement with Penguin (year
ended December 31, 2019 – $8,600). See also Note 21, “Related party transactions”.
The following table summarizes the future contractual minimum base rent payments under non-cancellable operating leases
expected from tenants in investment properties:
As at
2020
2021
2022
2023
2024
2025
Thereafter
December 31, 2020
December 31, 2019
—
479,825
436,475
363,707
291,336
229,658
603,580
495,817
451,887
399,090
322,346
249,586
194,887
551,317
On May 25, 2020, the Government of Canada announced the Canada Emergency Commercial Rent Assistance (“CECRA”)
program which was established to provide rent relief for eligible small and medium-sized businesses that were most affected by
COVID-19. Under the CECRA program, the Trust has written off 25% of gross rents from CECRA-eligible tenants due for the
period of April to September 2020. These CECRA rent amounts written off aggregated approximately $7,706 for the year ended
December 31, 2020.
The following table summarizes the CECRA rent amounts written off and bad debts – other tenants:
Description
Rent amounts written off – CECRA-eligible tenants
Bad debts – other tenants
Year ended
December 31, 2020
7,706
22,858
30,564
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT
18. Property operating costs and other
The following table summarizes property operating costs and other:
Recoverable property operating costs(1)
Property management fees and costs(2)
Rent amounts written off – CECRA-eligible tenants
Bad debts – other tenants
Non-recoverable costs
Property operating costs
Other expenses(3)
Property operating costs and other
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Year Ended December 31
2020
2019
274,187
281,446
1,340
7,706
22,858
4,313
310,404
10,138
320,542
4,672
—
874
4,286
291,278
10,235
301,513
(1)
(2)
(3)
Include recoverable property tax and insurance costs.
Includes an adjustment for the Canada Emergency Wage Subsidy of $850 for the year ended December 31, 2020 (year ended December 31, 2019 – $nil).
Other expenses relate to service and other revenues as disclosed in Note 17, “Rentals from investment properties and other”.
19. General and administrative expense, net
The following table summarizes the general and administrative expense, net:
Salaries and benefits
Master planning services fee – by Penguin
Professional fees
Public company costs
Rent and occupancy
Amortization of intangible assets
Other costs including information technology, marketing, communications, and other employee
expenses
Subtotal
Previously capitalized general and administrative expenses on completed developments
Total general and administrative expense before allocation
Less:
Capitalized to properties under development and other assets
Allocated to property operating costs
Amounts charged to Penguin and others
Total amounts capitalized, allocated and charged
General and administrative expense, net
20. Supplemental cash flow information
The following table presents changes in other non-cash operating items:
Amounts receivable and other
Deferred financing costs
Prepaid expenses and deposits
Accounts payable
Realty taxes payable
Tenant prepaid rent, deposits and other payables
Other working capital changes
Note
21
8
Note
10
10
10
12
12
12
Year Ended December 31
2020
53,449
6,880
6,093
2,505
1,078
1,331
9,063
80,399
1,842
82,241
(29,476)
(13,949)
(10,134)
(53,559)
28,682
2019
50,240
9,100
3,251
2,530
2,405
1,331
6,570
75,427
—
75,427
(29,821)
(14,988)
(10,162)
(54,971)
20,456
Year Ended December 31
2020
(21,965)
304
(2,022)
(8,844)
1,521
17,683
(2,907)
(16,230)
2019
18,633
161
(294)
(7,638)
(1,065)
4,283
(758)
13,322
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
21. Related party transactions
Transactions with related parties are conducted in the normal course of operations.
The following table presents Units owned by Penguin (the Trust’s largest Unitholder) as at December 31, 2020, which in total
represent approximately 21.4% of the issued and outstanding Units (December 31, 2019 – 20.7%) of the Trust and Limited
Partnerships:
Type
Trust Units
Smart Limited Partnership
Smart Limited Partnership
Smart Limited Partnership
Smart Limited Partnership
Smart Limited Partnership III
Smart Limited Partnership III
Smart Limited Partnership III
Smart Limited Partnership III
Smart Limited Partnership III
Smart Limited Partnership IV
Smart Oshawa South Limited Partnership
Smart Oshawa Taunton Limited Partnership
Smart Boxgrove Limited Partnership
ONR Limited Partnership I
ONR Limited Partnership I
Units owned by Penguin
Distributions declared to Penguin (in thousands of dollars)
Units owned by Penguin
Class and Series December 31, 2020 December 31, 2019
13,892,863
N/A
12,488,816
Class B Series 1
367,550
Class B Series 2
720,432
Class B Series 3
4,886
Class F Series 3
668,428
Class B Series 4
572,337
Class B Series 5
449,375
Class B Series 6
434,598
Class B Series 7
1,698,018
Class B Series 8
2,838,954
Class B Series 1
630,880
Class B Series 1
374,223
Class B Series 1
—
Class B Series 1
132,881
Class B Series 1
15,032,063
12,488,816
367,550
720,432
8,708
705,420
572,337
596,288
434,598
1,698,018
2,838,954
630,880
374,223
170,000
132,881
Class B Series 2
139,302
139,302
36,910,470
35,413,543
66,799
63,983
Pursuant to the Declaration of Trust, provided certain ownership thresholds are met, the Trust is required to issue such number
of additional Special Voting Units to Penguin that will entitle Penguin to cast 25.0% of the aggregate votes eligible to be cast at a
meeting of the Unitholders and Special Voting Unitholders (“Voting Top-Up Right”). As at December 31, 2020, there were
8,241,544 additional Special Voting Units outstanding (December 31, 2019 – 9,427,089). These Special Voting Units are not
entitled to any interest or share in the distributions or net assets of the Trust, nor are they convertible into any Trust securities.
There is no value assigned to the Special Voting Units. A five-year extension of the Voting Top-Up Right was approved by
Unitholders at the Trust’s most recent annual general and special meeting held on December 9, 2020. For further details, see the
Trust’s management information circular dated November 6, 2020, filed on the System for Electronic Document Analysis and
Retrieval (“SEDAR”).
The following table presents the Earnout options completed in 2020 and 2019, for which Penguin elected to exercise its right to
receive partial consideration in Units (see also Note 3(iv)), which resulted in the following proceeds:
Unit Type
Trust Units
Smart Limited Partnership
Smart Limited Partnership III
Smart Limited Partnership III
Smart Limited Partnership IV
Smart Boxgrove Limited Partnership
ONR Limited Partnership I
Class and Series
N/A
Class F Series 3
Class B Series 4
Class B Series 6
Class B Series 1
Class B Series 1
Class B Series 2
Year Ended December 31
2020
—
77
715
2,624
—
3,509
—
6,925
2019
1,065
98
134
—
424
—
74
1,795
During the year ended December 31, 2020, pursuant to development management agreements referred to in Note 3
“Acquisitions and Earnouts” and Note 4 “Investment Properties”, the Trust completed the purchase of an Earnout of a 40%
interest in approximately 11.0 acres of land with a purchase price of $7,452, of which:
i)
$3,509 was satisfied through the issuance of 170,000 Class B Series 1 Smart Boxgrove LP Units;
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ii)
iii)
$3,460 was satisfied through the issuance of Class G Series 1 Smart Boxgrove LP Units which has a committed
distribution in January 2021. This committed distribution payable to the holders of Class G Series 1 Smart Boxgrove
LP Units is in conjunction with a loan receivable issued for the same amount (see details in Note 5(b), Note 12, and
Note 15(a)(ii)); and
the balance of $483 was paid in cash adjusted for other working capital amounts.
The Trust’s interest in this parcel of land was subsequently disposed of (see also, Note 4, “Investment properties”).
The following table presents those Units which Penguin has Earnout options to acquire, upon completion of Earnout events:
Type
Trust Units
Smart Limited Partnership
Smart Limited Partnership
Smart Limited Partnership
Smart Limited Partnership III
Smart Limited Partnership III
Smart Limited Partnership III
Smart Limited Partnership III
Smart Limited Partnership IV
Smart Oshawa South Limited Partnership
Smart Oshawa Taunton Limited Partnership
Smart Boxgrove Limited Partnership
ONR Limited Partnership I
Class and Series
N/A
Class B Series 1
Class B Series 2
Class B Series 3
Class B Series 4
Class B Series 5
Class B Series 6
Class B Series 7
Class B Series 1
Class B Series 1
Class B Series 1
Class B Series 1
Class B Series 2
December 31, 2020
1,286,833
1,337,449
3,026,949
674,437
565,782
596,219
458,054
259,704
387,859
16,082
132,711
267,179
482,086
9,491,344
December 31, 2019
1,286,833
1,337,449
3,026,949
680,227
598,913
596,219
560,071
259,704
387,859
16,082
132,711
170,000
482,086
9,535,103
At December 31, 2020, Penguin’s ownership would increase to 25.4% (December 31, 2019 – 24.7%) if Penguin were to exercise
all remaining Earnout options.
Pursuant to its rights under the Declaration of Trust, at December 31, 2020, Penguin has appointed two Trustees out of eight.
The other non-controlling interest, which is included in equity, represents a 5.0% equity interest by Penguin in five consolidated
investment properties.
The Trust entered into various agreements with Penguin in November 2020 coincident with the extension of the term of the
Voting Top-Up Right. For further details, see the Trust’s management information circular dated November 6, 2020, filed on
SEDAR and below.
Supplement to Development Services Agreement between the Trust and its affiliates and Penguin
The following represent the key elements of this agreement which is effective from July 1, 2020 until December 31,
2025:
a) Penguin shall be reimbursed for 50% of disposition fees otherwise payable pursuant to the Development
b)
Services Agreement related to Penguin’s interest in properties sold by the Trust,
for future VMC commercial phases and certain properties currently owned by Penguin (for which the Trust was
historically assisted with development and planning requirements), all development fees are payable to
Penguin and all other fees (management, leasing, etc.) are payable to the Trust,
d)
c) when Penguin utilizes employees of the Trust to assist with its development projects, Penguin will pay for
these services provided by employees of the Trust based on annual estimates of time billings related to these
projects, charged at estimated total cost, including compensation,
for a property owned by a third party which is managed by Penguin in Richmond, BC, the Trust will be paid
50% of the management and leasing fees, and 100% of costs associated with Trust employees/personnel who
service this particular property,
for Penguin’s 50% interest in a property in Toronto co-owned with Revera to develop a retirement home,
Penguin will pay 50% of the development fees it earns to the Trust for the development services provided by
the Trust, and
the Trust will continue to manage and develop all other Penguin properties.
e)
f)
Support services are provided for a fee based on an allocation of the Trust’s relevant costs of the support services to
Penguin. Such relevant costs include: office administration, human resources, information technology, insurance, legal
and marketing.
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Penguin Services Agreement
The amended and restated services agreement entered into on November 5, 2020 (the “Penguin Services Agreement”),
and effective from February 2018 reflects the additional services provided by Penguin since that time. Under the
agreement, Penguin provides specified services to the Trust in connection with the development of its projects. In return
for those services, Penguin is entitled to receive: (i) a fixed quarterly fee of $1,000 (subject to inflation-related
increments after 2018) and (ii) an annual variable fee between $1,500 and $3,500 (also inflation-adjusted after 2018)
that is based on the achievement of the Trust-level targets for “New Development Initiatives” and “New Projects” that
the Trust uses to measure the performance of its executive officers and other annual targets (other than such Trust-level
targets) of a similar nature that the Trust uses to measure the performance of its executive officers as determined by the
Board of Trustees from time to time.
Omnibus Agreement between the Trust and Penguin
Effective December 9, 2020, pursuant to an omnibus agreement between the Trust and Penguin (the “Omnibus
Agreement”), Penguin has the option to extend all Earnouts by two years from the previous expiry date, and the Trust
has been given a right of first offer in connection with the sale of the economic and financial benefits and rights of any
such development parcel during any extended period. In addition, this agreement provides for the payment of certain
outstanding immaterial amounts between the parties.
Mezzanine Loan Amending Agreements between the Trust and its affiliates and Penguin
Effective November 5, 2020, all loan maturity dates have been extended to August 31, 2028, with a new rate structure
for the extension period of each mortgage receivable (see also Note 5 “Mortgages, loans and notes receivable”). The
Trust’s purchase option periods have been extended and because these properties may now be subject to mixed-use
development projects, the agreements provide that the parties establish a new framework for the purchase options for
the Trust related to mixed-use development.
Non-Competition Agreement
A new non-competition agreement with Penguin replaces and supersedes the previous non-competition agreement
extending the term by 5 years and broadening restricted competing initiatives to include various forms of mixed-use
development.
Executive Employment Agreement
This new agreement confirms Mr. Goldhar’s position as Executive Chairman of the Trust for the period from February
14, 2018 to December 31, 2025, for which Mr. Goldhar receives a salary, bonus, customary benefits, and is eligible to
participate in the Trust’s Deferred Unit Plan and the Equity Incentive Plan (see below).
Equity Incentive Plan
In January 2021, the Trust granted 900,000 Performance Units to Mitchell Goldhar pursuant to the Equity Incentive Plan
(“EIP”) adopted by Unitholders effective December 9, 2020, which are subject to the achievement of Unit price
thresholds. The performance period for this award granted under the EIP is from January 1, 2021 to December 31,
2027. The vesting period for these Performance Units will commence on the date that the applicable performance
measure is achieved, and will end on the earlier of the third anniversary of the date that the applicable performance
period is achieved and the end of the performance period. Distributions on these Performance Units will accumulate
from January 1, 2021. Provided the various performance measures are achieved, the Performance Units will be
exchanged for Trust Units or paid out in cash (see also Note 21, “Related party transactions”, in the Trust’s consolidated
financial statements for the year ended December 31, 2020).
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT In addition to related party transactions and balances disclosed elsewhere in these consolidated financial statements (including
Note 3 referring to the purchase of Earnouts, Note 4(c) referring to Leasehold property interests, Note 5 referring to Mortgages,
loans and notes receivable, Note 6(a)(ii) referring to a Supplemental development fee agreement, Note 7 referring to Other
assets, Note 10 referring to Amounts receivable and other, Note 12 referring to Accounts payable and other payables, Note 13
referring to Other financial liabilities, Note 17 referring to Rentals from investment properties and other), Note 18 referring to
Property operating costs and other, and Note 19 relating to General and administrative expenses, the following table summarizes
related party transactions and balances with Penguin and other related parties, including the Trust’s share of amounts relating to
the Trust’s share in equity accounted investments:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Year Ended December 31
Note
2020
2019
Related party transactions with Penguin
Revenues:
Service and other revenues:
Transition services fee revenue
Management fee and other services revenue pursuant to the Development and Services
Agreement
Support services
Interest income from mortgages and loans receivable
Rents and operating cost recoveries included in rentals from income properties (includes rental
income from Penguin Pick-Up of $245 (Year Ended December 31, 2019 - $326))
Expenses and other payments:
Master planning services:
Capitalized to properties under development
Development fees and interest expense (capitalized to investment properties)
Rent and operating costs (included in general and administrative expense and property
operating costs)
Marketing, time billings and other administrative costs (included in general and
administrative expense and property operating costs)
Expenditures on tenant inducement
Related party transactions with PCVP
Revenues:
Interest income from mortgages and loans receivable
Expenses and other payments:
Rent and operating costs (included in general and administrative expense and property
operating costs)
17
5
17
19
5
18,
19
833
6,956
763
8,552
7,626
1,078
17,256
2,417
4,974
1,209
8,600
8,333
1,270
18,203
6,880
9,100
10
—
112
72
7,074
11
397
283
—
9,791
2,580
1,827
2,634
1,953
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As at
Note
December 31, 2020
December 31, 2019
Related party balances with Penguin disclosed elsewhere in the financial
statements
Receivables:
Amounts receivable(1)
Mortgages receivable (see below)
Loans receivable
Notes receivable
Total receivables
Payables and other accruals:
Accounts payable and accrued liabilities
Future land development obligations (see below)
Secured debt
Total payables and other accruals
10
5(a)
5(b)
5(c)
12
12
1,310
144,205
104,143
2,924
252,582
6,406
18,410
—
24,816
7,958
138,762
24,388
2,979
174,087
8,893
27,074
318
36,285
(1)
Excludes amounts receivable presented below as part of balances with equity accounted investments.
The following table summarizes the related party balances with the Trust’s equity accounted investments:
As at
Note
December 31, 2020
December 31, 2019
Related party balances disclosed elsewhere in the financial statements
Amounts receivable(1)
Loans receivable(2)
Amounts payable(3)
Other unsecured debt
10
5(b)
11(b)(iii)
1
134,690
—
211,434
1,690
92,427
2,024
83,296
(1)
(2)
(3)
Amounts receivable includes Penguin’s portion, which represents $nil (December 31, 2019 – $833) relating to Penguin’s 50% investment in the PCVP and 25% investment in Residences
LP.
Loans receivable includes Penguin’s portion, which represents $47,504 (December 31, 2019 – $46,214) relating to Penguin’s 50% investment in the PCVP.
Amounts payable includes Penguin’s portion, which represents $nil (December 31, 2019 – $1,012) relating to Penguin’s 50% investment in the PCVP.
Mortgages receivable
As at December 31, 2020, the weighted average interest rate associated with mortgages receivable from Penguin was 3.81%
(December 31, 2019 – 5.38%) (see also Note 5, “Mortgages, loans and notes receivable”).
Future land development obligations
The future land development obligations represent payments required to be made to Penguin for certain undeveloped lands
acquired by the Trust from Penguin from 2006 to 2015, either on completion and rental of additional space on the undeveloped
lands or, in some cases if no additional space is completed on the undeveloped lands, at the expiry of the development
management agreement periods ending from 2021 to 2025, which may be extended to 2022 to 2027. The accrued future land
development obligations are measured at their amortized values using imputed interest rates ranging from 4.50% to 5.50% (see
also Note 4, “Investment properties”).
Leasehold interest properties
The Trust has entered into leasehold agreements with Penguin for 16 investment properties (see also Note 4, “Investment
properties”).
Other related party transactions:
The following table summarizes other related party transactions:
Legal fees incurred from a law firm in which a partner is a Trustee:
Capitalized to investment properties
Included in general and administrative expense
62 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2020 ANNUAL REPORT
162
Year Ended December 31
2020
2019
2,214
1,887
4,101
1,624
524
2,148
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Acquisition completed through PCVP during the year ended December 31, 2019
In December 2019, the Trust acquired, through PCVP, a 50% interest in a parcel of land with approximately 15.5 acres in
Vaughan, Ontario, proximate to SmartVMC, which is a 50:50 joint arrangement with Penguin, for a purchase price of $109,218
paid in cash, adjusted for other working capital amounts (see also Note 5(b) and 6(a)).
22. Key management and Trustee compensation
Key management personnel are those individuals having authority and responsibility for planning, directing and controlling the
activities of the Trust, directly or indirectly. Currently, the Trust’s key management personnel include the Executive Chairman (see
also, Note 21 “Related party transactions”), President and Chief Executive Officer, Chief Financial Officer, Chief Development
Officer, Executive Vice President – Portfolio Management and Investments, and two Executive Vice Presidents of Development.
In addition, the Trustees have oversight responsibility for the Trust.
The following table presents the compensation relating to key management:
Salaries and other short-term employee benefits
Deferred unit plan
Long Term Incentive Plan
The following table presents the compensation relating to Trustees:
Trustee fees
Deferred unit plan
23. Co-owned property interests
Year Ended December 31
2020
3,601
2,916
895
7,412
2019
3,059
2,486
(595)
4,950
Year Ended December 31
2020
797
797
1,594
2019
864
864
1,728
The Trust has the following co-owned property interests and includes in these consolidated financial statements its proportionate
share of the related assets, liabilities, revenues and expenses of these properties, as presented in the table below:
As at
December 31, 2020
December 31, 2019
Income properties
Properties under development
Residential development
Total
Number of Co-owned
Properties(1)
18
4
2
24
Ownership
Interest (%)
40 – 60
25 – 66.66
50
Number of Co-owned
Properties(1)
17
5
2
24
Ownership
Interest (%)
40 – 50
25 – 60
50
(1)
Penguin is a co-owner of seven investment properties, consisting of four properties under development and three income properties (December 31, 2019 – seven investment properties,
consisting of five properties under development and two income properties) (see also Note 21, “Related party transactions”).
The following amounts presented in the table below, included in these consolidated financial statements, represent the Trust’s
proportionate share of the assets and liabilities of the 24 co-owned property interests as at December 31, 2020 (24 co-ownership
property interests at December 31, 2019).
As at
Assets(1)
Liabilities
(1)
Includes cash and cash equivalents of $28,527 (December 31, 2019 – $19,825).
December 31, 2020
December 31, 2019
1,455,466
349,739
1,392,229
367,359
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes the results of operations and cash flows of the Trust’s co-owned property interests:
Revenues
Expenses
Net income before fair value adjustment
Fair value adjustment on revaluation of investment properties
Net income and comprehensive income
Cash flows provided by operating activities
Cash flows used in financing activities
Cash flows used in investing activities
Year Ended December 31
2019
2020
95,498
52,847
42,651
42,617
85,268
39,617
(18,830)
(12,085)
101,029
49,275
51,754
113,626
165,380
47,297
(28,162)
(21,005)
Management believes the assets of the co-owned property interests are sufficient for the purpose of satisfying the associated
obligations of the co-owned property interests.
24. Segmented information
Operating segments are components of an entity that engage in business activities from which they earn revenues and incur
expenses (including revenues and expenses related to transactions with the other component(s)), the operations of which can be
clearly distinguished and the operating results of which are regularly reviewed by the Executive Chairman, and the President and
CEO to make resource allocation decisions and to assess performance.
As at December 31, 2020, the Trust has one reportable segment, which comprises the development, ownership, management
and operation of investment properties located in Canada. In measuring performance, the Trust does not distinguish or group its
operations on a geographical or any other basis and, accordingly, has a single reportable segment for disclosure purposes.
The Trust’s major tenant is Walmart, accounting for 25.6% of the Trust’s annualized rentals from investment properties for the
year ended December 31, 2020 (year ended December 31, 2019 – 25.2%).
25. Adjustments to fair value
The following table summarizes the adjustments to fair value:
Investment properties
Income properties
Properties under development
Year Ended December 31
Note
2020
2019
4
4
(201,219)
(73,832)
34,939
(5,468)
Fair value adjustment on revaluation of investment properties
(275,051)
29,471
Financial instruments
Units classified as liabilities(1)
Earnout options
Deferred unit plan – vested and unvested
Loans receivable
Fair value of interest rate swap agreements
Fair value adjustment on financial instruments
Total adjustments to fair value
13(a)
13(b)
13(c)
13
17,034
52
9,156
138
(8,658)
17,722
(257,329)
(844)
263
(739)
—
—
(1,320)
28,151
(1)
The Trust's policy is to measure this liability based on the market value of the Trust Units at each reporting date. As such, the total change in carrying value for the year ended December
31, 2020 was the result of the $8.13 decline in the Trust's Unit price from $31.21 at December 31, 2019, to $23.08 at December 31, 2020.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT
26. Risk management
a) Financial risks
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Trust’s activities expose it to a variety of financial risks, including interest rate risk, credit risk and liquidity risk. The
Trust’s overall financial risk management focuses on the unpredictability of financial markets and seeks to minimize potential
adverse effects on the Trust’s financial performance. The Trust may use derivative financial instruments to hedge certain risk
exposures.
i)
Interest rate risk
A significant proportion of the Trust’s debt is financed at fixed rates with maturities staggered over a number of years,
thereby mitigating its exposure to changes in interest rates and financing risks. At December 31, 2020, approximately
1.12% (December 31, 2019 – 7.22%) of the Trust’s debt is financed at variable rates, which reflects minor exposure to
changes in interest rates on such debt.
The Trust analyzes its interest rate exposure on a regular basis. From time to time, the Trust may enter into interest
rate swaps as part of its strategy for managing certain interest rate risks. The Trust recognizes any change in fair value
associated with interest rate swap agreements in the consolidated statements of income (loss) and comprehensive
income (loss).
The Trust monitors the historical movement of 10-year Government of Canada bonds and performs a sensitivity
analysis to identify the possible impact on net income of an interest rate shift. The simulation is performed on a regular
basis to ensure the maximum loss potential is within the limit acceptable to management. Management performs the
simulation only for secured debt, unsecured debt, and revolving operating facility. The Trust’s policy is to capitalize
interest expense incurred relating to properties under development and residential development inventory (year ended
December 31, 2020 – 10.41% of total interest costs; year ended December 31, 2019 – 11.24% of total interest costs).
The Trust’s exposure to interest rate risk is monitored by management on a regular basis (see also Note 11, “Debt”).
ii) Credit risk
Credit risk arises from cash and cash equivalents, as well as credit exposures with respect to mortgages and loans
receivable (see also Note 5, “Mortgages, loans and notes receivable”) and tenant receivables (see also Note 10,
“Amounts receivable and other, deferred financing costs, and prepaid expenses and deposits”). Tenants may
experience financial difficulty and become unable to fulfill their lease commitments. The Trust mitigates this risk of
credit loss by reviewing tenants’ covenants, by ensuring its tenant mix is diversified and by limiting its exposure to any
one tenant except Walmart. Further risks arise in the event that borrowers of mortgages and loans receivable default
on the repayment of amounts owing to the Trust. The Trust endeavours to ensure adequate security has been
provided in support of mortgages and loans receivable. The Trust limits cash transactions to high-credit-quality
financial institutions to minimize its credit risk from cash and cash equivalents.
The ECL model requires an entity to measure the loss allowance for a financial instrument at an amount equal to the
lifetime ECL if the credit risk on that financial instrument has increased significantly since initial recognition or at an
amount equal to 12-month expected credit losses if the credit risk on that financial instrument has not increased
significantly since initial recognition. The Trust uses a provision matrix based on historical credit loss experiences to
estimate 12-month expected credit losses as the Trust has deemed the risk of credit loss has not increased
significantly for both mortgages and loans receivable (see also Note 5, “Mortgages, loans and notes receivable”) and
tenant receivables (see also Note 10, “Amounts receivable and other, deferred financing costs, and prepaid expenses
and deposits”). Credit risks for both have been mitigated by various measures including ensuring adequate security
has been provided in support of mortgages and loans receivable and reviewing tenant’s covenants, ensuring its tenant
mix is diversified and by limiting its exposure to any one tenant except Walmart for tenant receivables. However, the
assumptions and estimates underlying the manner in which ECLs have been implemented historically may not be
appropriate in the current COVID-19 pandemic environment. Accordingly, the Trust has not applied its existing ECL
methodology mechanically. Instead, during the current COVID-19 pandemic environment, the Trust has been in
discussions with tenants on a case-by-case basis to determine optimal rent payment solutions and has incorporated
this available, reasonable and supportable information when estimating ECL on tenant receivables.
iii) Liquidity risk
Liquidity risk management implies maintaining sufficient cash and the availability of funding through an adequate
amount of committed credit facilities and the ability to lease out vacant units. In the next 12 months, $1,096,762 of
liabilities (including $854,261 of secured and unsecured debt and $242,501 of accounts and other payable amounts)
will mature and will need to be settled by means of renewal or payment.
The Trust aims to maintain flexibility and opportunities in funding by keeping committed credit lines available, obtaining
additional mortgages as the value of investment properties increases, issuing equity or unsecured debentures.
The key assumptions used in the Trust’s estimates of future cash flows when assessing liquidity risk are: the renewal
or replacement of the maturing revolving operating facility, secured debt and unsecured debentures, at reasonable
terms and conditions in the normal course of business and no major bankruptcies of principal tenants. Management
believes that it has considered all reasonable facts and circumstances in forming appropriate assumptions. However,
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
as always, there is a risk that significant changes in market conditions could alter the assumptions used, particularly in
light of the current conditions caused by COVID-19.
The Trust’s liquidity position is monitored by management on a regular basis. A schedule of principal repayments on
secured debt and other debt maturities is disclosed in Note 11, “Debt”.
The impact of COVID-19
While it is not possible for management to reasonably estimate the duration, complexity or severity of this pandemic,
which could have a material adverse impact on the Trust’s business, results of operations, financial position and cash
flows, as at December 31, 2020, the Trust had: a) cash and cash equivalents of $794,594; b) the funds available to be
drawn from its $500,000 operating facility and its $250,000 accordion feature; c) project-specific financing
arrangements; and d) approximately $5,835,600 in unencumbered assets that could be used to obtain additional
secured financing to assist with its liquidity requirements.
b) Capital risk management
The Trust defines capital as the aggregate amount of Unitholders’ equity, debt and Units classified as liabilities. The Trust’s
primary objectives when managing capital are: (i) to safeguard the Trust’s ability to continue as a going concern so that it
can continue to provide returns for Unitholders; and (ii) to ensure the Trust has access to sufficient funds for operating,
acquisitions (including Earnouts) and development activities.
The Trust sets the amount of capital in proportion to risk. The Trust manages its capital structure and makes adjustments to
it in light of changes in economic conditions and the risk characteristics of the underlying assets. In order to maintain or
adjust the capital structure, the Trust may adjust the amount of distributions paid to Unitholders, issue new Units and debt or
sell assets to reduce debt or fund operating, acquisition and development activities.
The Trust anticipates meeting all current and future obligations. Management expects to finance operating, future
acquisitions, mortgages receivable, development costs and maturing debt from: (i) existing cash balances; (ii) a mix of debt
secured by investment properties, operating and credit facilities, issuance of equity and unsecured debentures; and (iii) the
sale of non-core assets. Cash flows generated from operating activities is the source of liquidity to service debt (except
maturing debt), sustaining capital expenditures, leasing costs and Unit distributions.
The Trust monitors its capital structure based on the following ratios: interest coverage ratio, debt to total assets and debt to
total earnings before interest, taxes, depreciation and amortization and fair value changes associated with investment
properties and financial instruments. These ratios are used by the Trust to manage an acceptable level of leverage and are
not considered measures in accordance with IFRS, nor are there equivalent IFRS measures.
The following table shows the significant financial covenants that the Trust is required, pursuant to the terms of its revolving
operating facilities and other credit facilities, to maintain:
Financial covenants
Debt as a percentage of total aggregate assets
Secured debt as a percentage of aggregate assets
Fixed charge coverage multiple
Unencumbered assets to unsecured debt multiple
Minimum Unitholders’ equity
Threshold
≤ 65%
≤ 40%
≥ 1.5X
≥ 1.3X
≥ $2,000,000
The Trust’s indentures require its unsecured debentures to maintain debt to gross book value including convertible
debentures not more than 65%, an interest coverage ratio not less than 1.65X and Unitholders’ equity not less than
$500,000.
These covenants are required to be calculated based on Canadian generally accepted accounting principles (“GAAP”) at the
time of debt issuance. If the Trust does not meet all externally imposed financial covenants, then the related debt will
become immediately due and payable unless the Trust is able to remedy the default or obtain a waiver from lenders. For the
year ended December 31, 2020, the Trust was in compliance with all financial covenants.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
27. Commitments and contingencies
The Trust has certain obligations and commitments pursuant to development management agreements to complete the
purchase of Earnouts totalling approximately 154,000 square feet (December 31, 2019 – 247,000 square feet) of development
space from Penguin and others, based on a pre-negotiated formula, as more fully described in Note 4, “Investment properties”.
As at December 31, 2020, the carrying value of these obligations and commitments included in properties under development
was $61,811 (December 31, 2019 – $48,363). The timing of completion of the purchase of the Earnouts, and the final prices,
cannot be readily determined because they are a function of future tenant leasing.
The Trust has also entered into various other development construction contracts totalling $23,103 (December 31, 2019 –
$23,178) and commitments relating to equity accounted investments that total $157,769 (December 31, 2019 – $250,294), of
which the Trust’s share is $51,113 (December 31, 2019 – $73,257) – see Note 6, “Equity accounted investments”, that will be
incurred in future periods.
The Trust entered into agreements with Penguin in which the Trust will lend funds in the form of mortgages receivable, as
disclosed in Note 5(a). The maximum amount that may be provided under the agreements totals $312,778 (December 31, 2019
– $279,235) (see also Note 5, “Mortgages, loans and notes receivable”), of which $144,205 has been provided as at
December 31, 2020 (December 31, 2019 – $138,762).
As at December 31, 2020, letters of credit totalling $29,189 (December 31, 2019 – $35,389) – including letters of credit drawn
down under the revolving operating facility described in Note 11(c) – have been issued on behalf of the Trust by financial
institutions as security for debt and for maintenance and development obligations to municipal authorities.
The Trust carries insurance and indemnifies its Trustees and officers against any and all claims or losses reasonably incurred in
the performance of their services to the Trust to the extent permitted by law.
The Trust, in the normal course of operations, is subject to a variety of legal and other claims. Management and the Trust’s legal
counsel evaluate all claims on their apparent merits and accrue management’s best estimate of the likely cost to satisfy such
claims. Management believes the outcome of current legal and other claims filed against the Trust, after considering insurance
coverage, will not have a significant impact on the Trust’s consolidated financial statements.
28. Subsequent events
In January 2021, the Trust redeemed $150,000 aggregate principal of 3.73% Series M senior unsecured debentures and
$150,000 aggregate principal of 2.876% Series Q senior unsecured debentures. In addition to paying accrued interest of $2,652
and $1,324, respectively, the Trust paid yield maintenance fees of $7,029 and $4,055, respectively, in connection with the
redemptions. The redemptions were funded from proceeds raised from the issuance of Series X and Series Y senior unsecured
debentures.
In January 2021, the Trust granted 900,000 Performance Units to Mitchell Goldhar through the Equity Incentive Plan, subject to
the achievement of Unit price thresholds. The performance period for the EIP is from January 1, 2021 to December 31, 2027.
Distributions on Performance Units will accumulate from January 1, 2021 and they and the Performance Units vest for the lesser
of three years after they are earned or on December 31, 2027. Performance Units will be exchanged for Trust Units or paid out in
cash (see also Note 21, “Related party transactions”).
On February 2, 2021, the Trust entered into a total return swap agreement for up to 6.5 million Trust Units with a notional value of
approximately $156,000 for a 48-month period, which, subject to certain conditions, may be unwound prior to its maturity, either
in whole or in part. The counterparty to this swap agreement is a highly rated Canadian financial institution.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT CORPORATE
INFORMATION
TRUSTEES
Mitchell Goldhar 2
Executive Chairman of the Board
SmartCentres Real Estate Investment Trust,
Owner
The Penguin Group of Companies
Peter Forde
President & CEO
SmartCentres Real Estate Investment Trust
Garry Foster 1, 2
Chief Executive Officer
Cortleigh Capital Inc.
Gregory Howard 2, 3
Partner
Davies Ward Phillips & Vineberg LLP
Jamie McVicar 1, 3
Trustee
Sharm Powell 2
Trustee
Kevin Pshebniski 1, 2
President
Hopewell Development Corporation
Michael Young 2, 3
Principal
Quadrant Capital Partners Inc.
Rudy Gobin
Executive Vice President
Portfolio Management & Investments
Paula Bustard
Executive Vice President of Development
Allan Scully
Executive Vice President of Development
BANKERS
BMO Capital Markets
Canaccord Genuity Corp.
CIBC World Markets
Desjardins Securities Inc.
HSBC Bank Canada
National Bank of Canada
Raymond James Ltd.
RBC Capital Markets
Scotia Capital
TD Bank Financial Group
AUDITORS
PricewaterhouseCoopers LLP
Toronto, Ontario
LEGAL COUNSEL
Osler Hoskin & Harcourt LLP
Toronto, Ontario
1 Audit Committee
2 Investment Committee
3 Corporate Governance and Compensation Committee
Davies Ward Phillips & Vineberg LLP
Toronto, Ontario
EXECUTIVE OFFICERS
Mitchell Goldhar
Executive Chairman of the Board
Peter Forde
President & CEO
Peter Sweeney
Chief Financial Officer
Mauro Pambianchi
Chief Development Officer
168
REGISTRAR &
TRANSFER AGENT
Computershare Trust Company of Canada
Toronto, Ontario
INVESTOR RELATIONS
Peter Sweeney
Chief Financial Officer
Tel: 905 326 6400 x7865
Fax: 905 326 0783
TSX: SRU.UN
SMARTCENTRES REAL ESTATE INVESTMENT TRUST 2020 ANNUAL REPORT