S
M
A
R
T
C
E
N
T
R
E
S
R
E
A
L
E
S
T
A
T
E
I
N
V
E
S
T
M
E
N
T
T
R
U
S
T
2
0
2
1
A
N
N
U
A
L
R
E
P
O
R
T
TABLE OF CONTENTS
1
3
3
4
8
9
9
11
15
21
21
25
26
27
29
29
37
Message from the Executive Chairman
and CEO
60
Mortgages, Loans and Notes
Receivable
63
Total Return Swap Receivable
Section I — About this Management’s
Discussion and Analysis
Presentation of Certain Terms Including
Non-GAAP Measures
Non-GAAP Measures
Forward-Looking Statements
Section II — Business Overview, Outlook
and Strategic Direction
Creating Exceptional Places to Shop, Live
and Work in Canada
Outlook
Key Business Development, Financial and
Operational Highlights for the Year
Ended December 31, 2021
19
Quarterly Results and Trends
Section III — Development Activities
Mixed-Use Development Initiatives
Residential Development Inventory
Properties Under Development
Completed and Future Earnouts and
Developments on Existing Properties
64
64
66
67
71
72
73
75
79
79
86
92
93
93
Section VII — Financing and
Capital Resources
Capital Resources and Liquidity
Maintenance of Productive Capacity
Debt
Interest Income and Interest Expense
Financial Covenants
Unitholders’ Equity
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
Environmental, Social and Governance
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 – FFO,
Weighted Average Units, ACFO, Distributions
94
Section X — Glossary of Terms
95
MANAGEMENT’S RESPONSIBILITY
FOR FINANCIAL REPORTING
96
INDEPENDENT AUDITOR’S REPORT
101
CONSOLIDATED BALANCE SHEETS
45
General and Administrative Expense
46
Section V — Leasing Activities and
Lease Expiries
46
47
50
52
52
56
59
Leasing Activities
Tenant Profile
Lease Expiries
Section VI — Asset Profile
Investment Properties
Equity Accounted Investments
Amounts Receivable and Other, Deferred
Financing Costs, and Prepaid Expenses
and Deposits
102
103
104
105
CONSOLIDATED STATEMENTS
OF INCOME AND COMPREHENSIVE
INCOME
CONSOLIDATED STATEMENTS
OF CASH FLOWS
CONSOLIDATED STATEMENTS
OF EQUITY
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
MESSAGE FROM THE
EXECUTIVE CHAIRMAN
AND CEO
DEAR FELLOW UNITHOLDERS,
SmartCentres’ proven ability to maintain strong results throughout the real-life ‘stress test’
that was COVID-19 is a testament to the quality of our real estate. It also reaffirms that
certain physical retail fulfils a critical role in the future of cities and towns and, in that regard,
SmartCentres’ essential retail is very important.
Our shopping centres are all Walmart and/or grocery anchored and, along with our other
stable tenants, provide reliable income. Our retail business ended 2021 with a committed
occupancy rate of 97.6%, collection levels over 98.5% and rising, and NOI growth of 5.5%
(before condominium sales). This resilience informed our decision to maintain distribution
Mitchell Goldhar
Executive Chairman and CEO
levels through the duration of the pandemic.
And, while we highly value our recurring retail income, it is our unrivalled transformative
development program on our strategically located real estate, which includes over 58 million square feet of incremental built
density (over 40 million square feet at REIT share), that will drive our growth. We continue to accelerate zoning approvals,
mobilize construction schedules, and leverage our end-to-end in-house development expertise to establish a regular
cadence of residential and other new income-generating property completions across the country. We currently have over
3.1 million square feet under construction, with another 11 million expected to commence within the next two years; at REIT
share, this is 28% of our existing square footage.
SmartLiving, our new wholly owned residential development banner also represents SmartCentres’ future, augmenting
our residential development program. The SmartLiving pipeline already includes over 57,000 residential units across the
portfolio, designing low-rise, mid-rise and high-rise homes around public spaces and parks within pedestrian-focused,
transit-connected, master-planned communities on our existing properties. We are currently developing nearly 14,000
residential units, with an initial focus on the high-demand greater Toronto, Montreal and Ottawa markets. Our flagship 100+
acre SmartVMC property alone is one of Canada’s fastest growing mixed-use communities, expected to ultimately become
home to 45,000 residents.
At SmartCentres, we believe in focusing on the long-term quality of real estate first, providing options to react to change.
This approach has yielded many benefits over the past three decades, and it continues to pay dividends once again as we
reimagine our lands ‘From Shopping Centres to City Centres’.
Regards,
Mitchell Goldhar
Executive Chairman and CEO
SmartCentres REIT
1
SMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT MANAGEMENT’S
DISCUSSION
AND ANALYSIS
MANAGEMENT’S DISCUSSION AND ANALYSIS
MANAGEMENT’S DISCUSSION AND ANALYSIS
FOR THE YEAR ENDED DECEMBER 31, 2021
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, 2021, 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, 2021 and December 31, 2020, 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 15, 2022, which is the date of the press release announcing the Trust’s results for the year ended
December 31, 2021. 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 “Non-GAAP Measures” and
Section X – Glossary of Terms.
Presentation of Certain Terms Including Non-GAAP Measures
Readers are cautioned that certain terms used in this MD&A. This include non-GAAP financial measures and other terms. The
following terms are non-GAAP financial measures used in this MD&A: Adjusted Cashflow From Operations (“ACFO”), ACFO with
adjustments, ACFO per Unit, ACFO with adjustments per Unit, Adjusted Debt, Net Debt, Adjusted Debt to Adjusted EBITDA,
Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization Expense (“Adjusted EBITDA”), Adjusted Interest
Expense including Capitalized Interest, Debt Service Expense, Aggregate Assets, Gross Book Value, Annual Run-Rate NOI,
Debt to Aggregate Assets, Debt to Gross Book Value, Fixed Charge Coverage Ratio, Forecasted Annualized NOI, Funds From
Operations (“FFO”), FFO with adjustments, FFO with adjustments and Transactional FFO, FFO excluding condominium profits,
FFO per Unit, FFO with adjustments per Unit, FFO with adjustments and Transactional FFO per Unit, Interest Coverage Ratio,
Net Operating Income (“NOI”), Payout Ratio to ACFO, Proportionate Share Reconciliation, Recovery Ratio, Same Properties NOI
(“SPNOI”), Transactional FFO, Unsecured to Secured Debt Ratio. These non-GAAP financial measure 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, 2021 in “Non-GAAP Measures”. Readers should refer to “Non-GAAP Measures” for definitions and reconciliations
of the Trust’s non-GAAP financial measures.
The following are other terms used in this MD&A: “COVID-19”, Net Asset Value (“NAV”), 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”).
These non-GAAP financial measures and other terms are 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
where applicable. 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. For further details of these terms, see “Other Measures of
Performance”, “Net Operating Income”, “Debt”, “Financial Covenants”, and “Non-GAAP Measures”.
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT 1
3
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT and
ACFO with
adjustments
and
ACFO per Unit
and
ACFO with
adjustments per
Unit
Adjusted Debt
and
Net Debt
MANAGEMENT’S DISCUSSION AND ANALYSIS
Non-GAAP Measures
The following table details the Trust’s non-GAAP financial measures. The Trust’s method of calculating non-GAAP measures
may differ from other reporting issuers’ methods and, accordingly, may not be comparable.
Measure
Definition and Intended Use
Adjusted Cashflow
From Operations
(“ACFO”)
ACFO 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.
Reference to
Reconciliation
Section IV —
Business
Operations and
Performance,
“Other Measure of
Performance”
ACFO is defined as cash flows from operations adjusted for such items as, but
not limited to, changes in working capital, interest expense included in cash flow
from financing, capital expenditures, leasing costs, tenant improvements, non-
cash interest expense and income, acquisition-related gains (losses), and
distributions. ACFO with adjustments is defined as ACFO less costs associated
with vaccination centres and yield maintenance costs on repayment of debt and
related write-off of unamortized financing costs. ACFO per Unit is defined as
ACFO divided by
the weighted average units outstanding. ACFO with
adjustments per Unit is defined as ACFO with adjustments divided by the
weighted average units outstanding.
ACFO and ACFO with adjustments are intended to be used by investors as
sustainable, economic cash flow metrics. Management 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.
Adjusted Debt is defined as the Trust’s total proportionate share of debt, net of
mortgages and loans receivable and cash-on-hand. Net Debt is defined as the
total proportionate share of debt, net of cash-on-hand.
Adjusted Debt and Net Debt are intended to be used by investors as measures
of the level of indebtedness of the Trust and its ability to meet its obligations, as
liquid assets are used to reduce outstanding liabilities. Management uses
Adjusted Debt and Net Debt to calculate certain covenant ratios, and to assess
the Trust’s level of indebtedness.
Section VII —
Financing and
Capital Resources,
“Financial
Covenants”
Adjusted Debt to
Adjusted EBITDA
Adjusted Debt to Adjusted EBITDA is defined as Adjusted Debt divided by
Adjusted EBITDA.
The ratio is intended to be used by investors as a measure of the level of the
Trust’s debt versus the Trust’s ability to service that debt. Management uses this
ratio to assess the Trust’s level of leverage and its capacity to borrow.
Adjusted Earnings
Before Interest,
Taxes,
Depreciation and
Amortization
Expense
(“Adjusted
EBITDA”)
Adjusted EBITDA is defined as the Trust’s net income and comprehensive
income 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
financial
fair value changes associated with
instruments, and excludes extraordinary items such as, but not limited to, yield
maintenance on redemption of unsecured debentures and Transactional FFO –
gain on sale of land to co-owners.
investment properties and
Section VII —
Financing and
Capital Resources,
“Financial
Covenants”
Section IV —
Business
Operations and
Performance,
“Results of
Operations”
The measure is intended to be used by investors to help determine the Trust’s
ability to service its debt, finance capital expenditures and provide for
distributions to its Unitholders. Management uses this measure to assess the
Trust’s profitability, as it removes the non-cash impact of the fair value changes
and gains and losses on investment property dispositions.
2 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT
4
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT MANAGEMENT’S DISCUSSION AND ANALYSIS
Non-GAAP Measures (Continued)
Measure
Definition and Intended Use
Adjusted
Interest Expense
including
Capitalized Interest
and
Debt Service
Expense
Adjusted Interest Expense including Capitalized Interest is defined as the Trust’s
total proportionate share of interest expense, less distributions on vested
deferred units and Units classified as liabilities and interest income from
mortgages and loans receivable, plus capitalized interest. Debt Service Expense
is defined as the Trust’s total proportionate share of interest expense, less
distributions on vested deferred units and Units classified as liabilities and
interest income from mortgages and loans receivable, plus capitalized interest
and mortgage principal amortization payments.
Adjusted Interest Expense including Capitalized Interest and Debt Service
Expense are intended to be used by investors as measures of the interest
expense on the Trust’s debt. Management uses these to calculate certain
covenant ratios, and to assess the Trust’s ability to service its debt.
Reference to
Reconciliation
Section VII —
Financing and
Capital Resources,
“Financial
Covenants”
Aggregate Assets
and
Gross Book Value
Aggregate Assets is defined as the Trust’s total proportionate share of assets,
less cash-on-hand. Gross Book Value is defined as the total proportionate share
of debt, less cash-on-hand and fair value adjustments on investment properties
net of accumulated amortization.
Aggregate Assets and Gross Book Value are intended to be used by investors as
measures of the total value of assets managed by the Trust. Management uses
Aggregate Assets and Gross Book Value to calculate certain covenant ratios,
and to assess the Trust’s ability to continue to grow.
Section VII —
Financing and
Capital Resources,
“Financial
Covenants”
Annual Run-Rate
NOI
Annual Run-Rate NOI is defined as an annualized measure of the current
quarter’s NOI, adjusted for management’s estimate of the impact of straight-line
rent and other extraodinary items including but not limited to bad debt provisions
and termination fees.
The measure is intended to be used by investors as an estimate of normalized
and annualized profitability for future periods. Management uses this measure to
assess the future profitability of the Trust based on its existing assets.
Debt to Aggregate
Assets
Debt to Aggregate Assets is defined as Net Debt divided by Aggregate Assets.
The ratio is intended to be used by investors to assess the leverage of the Trust
on a consolidated basis. Management uses this ratio to assess an acceptable
level of leverage for the Trust.
Debt to Gross Book
Value
Debt to Gross Book Value is defined as Net Debt divided by Gross Book Value.
The ratio is intended to be used by investors to assess the leverage of the Trust
on a consolidated basis, while using the Trust’s cost basis for assets.
Management uses this ratio to assess an acceptable level of leverage for the
Trust.
Fixed Charge
Coverage Ratio
Fixed Charge Coverage Ratio is defined as Adjusted EBITDA divided by Debt
Service Expense.
The ratio is used intended to be used by investors to assess the Trust’s ability to
service its fixed charges. Management uses this ratio to manage the Trust’s cash
flows and fixed obligations.
Forecasted
Annualized NOI
Forecasted Annualized NOI is defined as management’s estimate of NOI for the
next fiscal year, based on the current period’s NOI.
The measure is intended to be used by investors to project the next year’s
operating income of the Trust. Management uses this measure as a benchmark
of Trust’s future profitability.
Section IV —
Business
Operations and
Performance,
“Results of
Operations”
Section VII —
Financing and
Capital Resources,
“Financial
Covenants”
Section VII —
Financing and
Capital Resources,
“Financial
Covenants”
Section VII —
Financing and
Capital Resources,
“Financial
Covenants”
Section VII —
Financing and
Capital Resources,
“Debt”
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT 3
5
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT Reference to
Reconciliation
Section IV —
Business
Operations and
Performance,
“Other Measure of
Performance”
MANAGEMENT’S DISCUSSION AND ANALYSIS
Non-GAAP Measures (Continued)
Measure
Definition and Intended Use
Funds From
Operations (“FFO”)
FFO is a 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.
FFO is defined as 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. FFO
with adjustments is defined as FFO less costs associated with vaccination
centres and yield maintenance costs on repayment of debt and related write-off
of unamortized financing costs. FFO with adjustments and Transactional FFO is
defined as FFO with adjustments, further adjusted for gain/(loss) on sale of land
to co-owners. FFO excluding condominium profits is defined as FFO less FFO
generated from sales of condominium.
These measures are intended to be used by investors to assess the operating
performance of the Trust. Management uses these measures to assess
profitability and performance of the Trust.
and
FFO with
adjustments
and
FFO with
adjustments and
Transactional FFO
and
FFO excluding
condominium
profits
and
FFO per Unit
and
FFO with
adjustments per
Unit
and
FFO with
adjustments and
Transactional FFO
per Unit
Interest Coverage
Ratio
Interest Coverage Ratio is defined as Adjusted EBITDA divided by Adjusted
Interest Expense including Capitalized Interest.
The ratio is intended to be used by investors to measure the Trust’s ability to
make interest payments on its existing debt. Management uses this ratio to
measure an acceptable level of interest expense relative to available earnings.
Net Operating
Income (“NOI”)
NOI from continuing operations is defined as: 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”.
The measure is intended to be used by investors to assess the Trust’s
profitability. Management uses NOI as a meaningful measure of economic
performance and profitability from continuing operations, as it excludes changes
in fair value of investment properties and financial instruments.
Section VII —
Financing and
Capital Resources,
“Financial
Covenants”
Section IV —
Business
Operations and
Performance,
“Results of
Operations”
4 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT
6
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT MANAGEMENT’S DISCUSSION AND ANALYSIS
Non-GAAP Measures (Continued)
Measure
Definition and Intended Use
Payout Ratio to
ACFO
Payout Ratio to ACFO is defined as distributions declared divided by ACFO. It is
the proportion of earnings paid out as dividends to Unitholders.
Proportionate
Share
Reconciliation
The measure is intended to be used by investors to assess the distribution rate of
the Trust. 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.
References made to a “total proportionate share” or “the Trust’s proportionate
share of EAI” 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.
The presentation is intended to be used by investors to assess the Trust’s
financial position and performance on a consolidated basis 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.
Recovery Ratio
The Recovery Ratio is defined as property operating cost recoveries divided by
recoverable costs.
The measure is intended to be used by investors to assess management’s ability
to manage recoverable operating expenses for its investment properties.
Same Properties
NOI (“SPNOI”)
To facilitate a more meaningful comparison of NOI between periods, SPNOI
amounts are defined 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.
The measure is intended to be used by investors as a profitability growth
indicator on the Trust’s existing investment property portfolio.
Transactional FFO Transactional FFO 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.
The measure is intended to be used by investors to assist in assessing the
profitability of the Trust. Management uses this measure to calculate FFO with
adjustments and Transactional FFO, a profitability measure.
Reference to
Reconciliation
Section IV —
Business
Operations and
Performance,
“Other Measure of
Performance”
Section IV —
Business
Operations and
Performance,
“Results of
Operations”
Section IV —
Business
Operations and
Performance,
“Results of
Operations”
Section IV —
Business
Operations and
Performance,
“Results of
Operations”
Section IV —
Business
Operations and
Performance,
“Other Measure of
Performance”
Unencumbered
Assets
Unencumbered Assets is defined as the Trust’s assets that are free and clear of
any encumbrances.
The measure is intended to be used by investors to assist in assessing the
Trust’s ability to secure financing.
Unsecured to
Secured Debt Ratio
Unsecured to Secured Debt Ratio is defined as the Trust’s unsecured debt
(including on equity accounted investments) divided by the Trust’s secured debt
(including on equity accounted investments).
The ratio is intended to be used by investors to assess the Trust’s composition of
debt. Management uses this ratio to determine the Trust’s ability to borrow
additional unsecured debt.
Section VII —
Financing and
Capital Resources,
“Financial
Covenants”
Section VII —
Financing and
Capital Resources,
“Financial
Covenants”
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT 5
7
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT MANAGEMENT’S DISCUSSION AND ANALYSIS
Forward-Looking Statements
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, Outlook and Strategic Direction”, “Outlook”, “Key Business Development, Financial and
Operational Highlights for the Year Ended December 31, 2021”, “Mixed-Use Development Initiatives”, “Residential Development
Inventory”, “Properties Under Development”, “Completed and Future Earnouts and Developments on Existing Properties”,
“Results of Operations”, “Other Measures of Performance”, “Leasing Activities and Lease Expiries”, “Equity Accounted
Investments”, “Amounts Receivable and Other, Deferred Financing Costs, and Prepaid Expenses and Deposits”, “Mortgages,
Loans and Notes Receivable”, “Capital Resources and Liquidity”, “Maintenance of Productive Capacity”, “Debt” (which includes
“Unencumbered Assets”), “Unitholders’ Equity”, “Risks and Uncertainties”, and “Environmental, Social and Governance”.
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; the Trust’s future growth
potential and the identification of development opportunities; future occupancy levels; the sustainability of COVID-related trends;
plans to extract additional sources of FFO and NAV; 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 expectations regarding future
potential mixed-use development opportunities, the timing of construction and costs thereof and returns therefrom; the Trust’s
ability to pay future distributions to Unitholders and expectations regarding monthly cash distribution levels, view of term
mortgage renewals including rates and refinancing 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; expectations
surrounding the timing of additional environmental, social, and governance (“ESG”) disclosure and reporting; and statements that
contain words such as “could”, “should”, “can”, “anticipate”, “expect”, “believe”, “plan”, “potential”, “propose”, “schedule”,
“estimate”, “intend”, “project”, “will”, “may”, “might”, “continue”, “timeline”, “forecast”, “outlook”, “direction”, “come” and similar
expressions or negative variations thereof 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 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; potential conflicts of interest; cyber security risk; debt
financing; interest and financing risk; joint venture risk; development and construction risk; credit risk; litigation and regulatory
risks; potential volatility of Unit prices; cash distributions are not guaranteed and will fluctuate with SmartCentres’ performance;
availability of cash flow; significant Unitholder risk; and tax-related risks. 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
can be found on the System for Electronic Document Analysis and Retrieval (“SEDAR”) (www.sedar.com).
6 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT
8
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT MANAGEMENT’S DISCUSSION AND ANALYSIS
Section II — Business Overview, Outlook and Strategic Direction
Creating Exceptional Places to Shop, Live and Work in Canada
The Trust’s Beginnings
From the Trust’s inception in 2001 and prior to 2015, its growth was principally a result of the acquisition and Earnout of
completed and fully leased open-format retail shopping centres, predominately with the Anchor or Shadow Anchor tenant (i.e.,
located within the shopping complex but not owned by the Trust) being Walmart. Even through the COVID-19 pandemic, the
Trust’s national open-format shopping centre portfolio continues to perform well with a current occupancy rate of 97.4%.
Furthermore, the Trust and its retail tenants are adapting to the changing needs of today’s customers who are incorporating
online shopping with in-store visits, with tenants offering curbside pick-up services and similar e-commerce solutions.
The Trust is Evolving into a Growth-Oriented Diversified REIT
In May of 2015, a major transformative event occurred: the Trust acquired the SmartCentres platform of development expertise
and the “SmartCentres” brand from Penguin. This brand has historically represented a family and value-oriented shopping
experience. More significantly, this acquisition resulted in the Trust acquiring a large team of experienced professionals working
in the areas of land acquisition, planning, development, leasing, construction and other complementary services. The Trust now
employs a team that, over the last 25 years, was responsible for the development, leasing and construction of more than 60.0
million square feet of real estate development. Today, this team is focused on the development of the Trust’s large and growing
mixed-use development initiatives as outlined below.
The Trust recognized that it could do so much more with its large open-format shopping centre portfolio. As a result of the Trust’s
2015 purchase of the Penguin platform of development expertise, the Trust announced the commencement of development of
mixed-use initiatives principally using lands already owned by the Trust. This team of professionals provides the Trust with a
foundation for strong development and NAV growth.
The Trust, together with Penguin, has designed and commenced the development of the Vaughan Metropolitan Centre
(“SmartVMC”) in Vaughan, Ontario. It is an approximate 105-acre master-planned community, of which the Trust has a 50%
interest in the easterly approximately 52 acres, and it serves as a model for other city centre projects that are now in the Trust’s
development pipeline. In December 2021, the Trust acquired a two-thirds interest from unrelated parties in the westerly
approximately 53 acres of development lands in SmartVMC. By virtue of this transaction, the Trust has become the largest
landowner in SmartVMC, Vaughan’s rapidly growing downtown.
SmartVMC aims to serve as an example of how to better serve urban residents with a thoughtfully designed and integrated living
space amidst a major transportation hub. With the previous completion of two AAA class office buildings, and the closings of the
first 1,110 condo units last year and an additional 631 condo units during the year ended December 31, 2021, these projects
have already delivered significant FFO with future phases continuing to contribute. The Trust is now working on planning for
similar city centre developments in Oakville, Scarborough, Pickering, Laval, QC, and Cambridge, with more to come.
An Illustration of SmartCentres’ Investment Strengths
The Trust has a formidable array of investment strengths for investors to consider. First and foremost, the Trust is now evolving
into a diversified Real Estate Investment Trust (“REIT”) with recurring revenue from two major sources: i) rental income from
retail, office, apartments, and self-storage, and ii) development income from condominium and townhome sales. The Trust has
established a national shopping centre portfolio that continues to provide reliable and recurring income from national well-known
retailers such as Walmart, Canadian Tire, Home Depot, Costco and Loblaws. The Trust has a program in place to assist retailers
requiring help through the COVID-19 pandemic and it is introducing a host of new services to help ensure its open-format retail
shopping centres remain vital and connected to their shoppers. This includes implementing curbside pick-up services, re-
purposing space for logistics, providing for expanding or contracting premises, electric vehicle charging stations and digital
signage. Professional management of the Trust’s portfolio is an important strength that continues to enhance the quality of
shopping, working and living at its properties. As of December 31, 2021, the Trust had an in-place occupancy rate of 97.4% at its
shopping centres.
As SmartCentres expands its major mixed-use real estate development, not only operating on its own, it has also partnered with
experienced industry experts in each category which includes rental apartments, condominiums, self-storage centres, seniors’
housing, and office buildings. The completed development of Transit City 1 and 2 condominiums provided approximately $45.0
million of additional FFO in 2020 and, in 2021, approximately $18.8 million from the closings of Transit City 3 (provided
approximately $46.2 million of additional net profit in 2020 and, in 2021, approximately $19.5 million of additional net profit from
closings of Transit City 3). Creating entire city centres has become a major new growth avenue for SmartCentres. Workers
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT 7
9
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT MANAGEMENT’S DISCUSSION AND ANALYSIS
around the world have discovered they can be productive working away from the downtown core of major cities. Operating from
their residences in secondary urban environments, they enjoy the convenience of nearby retail shopping centres, restaurants,
recreational facilities, properly planned parkland and excellent transportation services.
Executing on Established Growth Plan
The Trust’s retail portfolio has been well-managed through the pandemic and is continually being upgraded to meet the in-person
and online shopping requirements of its tenants’ customers. Management believes the Trust is well-positioned to provide reliable
recurring income. But more significant is the size and growth of the Trust’s mixed-use development initiatives. As the chart below
illustrates, a) the Trust has 59 projects that are underway out of a total of 283 projects that are planned, b) the Trust’s share of
total projected developments is estimated at 9.4 million square feet and that is expected to grow to 40.6 million square feet if all
current planned projects are completed, and c) the total projected cost, at the Trust’s share, is currently estimated at
approximately $5.0 billion and is expected to grow to approximately $9.8 billion as these projects are completed (for projects with
construction underway or expected to commence within the next five years).
Description
Residential Rental
Seniors’ Housing
Self-storage
Office Buildings
Hotels
Recurring income initiatives
Condominium developments
Townhome developments
Development income initiatives
Total
Planning entitlements(2) (#)
Total project area (in thousands of
sq. ft.) – at 100%(3)
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(3)
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)
20
4
9
—
—
33
24
2
26
59
45
24
9
10
1
—
44
24
3
27
71
45
60
14
17
7
3
101
47
5
52
153
88
Total
104
27
36
8
3
178
95
10
105
283
178
14,000
14,600
30,000
58,600
9,400
9,200
22,000
40,600
7,400
5,000
7,800
4,800
– (1)
– (1)
15,200
9,800
(1)
(2)
(3)
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.
Planning entitlements represent those projects whereby the official plan currently permits intended/proposed uses.
Square footage and cost figures provided at 100% pertain to projects for which the Trust has an ownership interest, and do not include related party projects to which the Trust does not
have an ownership interest.
8 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT
10
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
Outlook
Mixed-Use Development
In December 2021, the Trust completed the acquisition valued at $513.0 million of a two-thirds interest in approximately 53.0
acres of lands representing the western portion of SmartVMC (“SmartVMC West”) on which approximately 10.0 million square
feet of mixed-use space is expected to be built in the coming years. This strategic acquisition now permits the Trust, together
with Penguin, to master plan and develop the entire approximately 105.0 acre SmartVMC lands, which, when complete, are
expected to be comprised of mixed-use developments exceeding 20.0 million square feet. This acquisition was financed by the
issuance of $181.2 million in equity taken back by the vendors and $300.0 million cash was drawn from the Trust’s existing credit
facilities, which were subsequently repaid with the establishment of a new five-year unsecured $300.0 million facility in January
2022.
From a development perspective at SmartVMC, during Q4 2021 the Trust, together with Penguin commenced the pre-sale
program for the ArtWalk Condominiums, the first phase of condominium development to be built on the parcel of SmartVMC
formerly occupied by Walmart. To date, 309 units have been pre-sold out of the 320 released units. ArtWalk and future phases of
both high-rise condominium and rental residential development are expected to be developed by the Trust’s in-house platform.
Construction of this phase is expected to commence in 2022 with deliveries expected in 2025-2026. Also, during 2021, all 631
pre-sold units at Transit City 3 were closed, contributing $18.8 million in FFO ($0.11 per Unit). In addition, the 22 pre-sold
townhomes being built as part of Transit City 1 and 2 are in the final stages of completion and are expected to be delivered to
purchasers in Q2 2022. The table below provides details on actual and expected closings for units in the various phases of
condominium development that have been launched at SmartVMC:
Time of Actual/Expected
Closings
Transit City
1 & 2
Transit City
3
Transit City
4 & 5
Transit City 1
& 2
Townhomes
Total
Transit City
ArtWalk
2020
Q1 2021
Q2 2021
Q3 2021
Q4 2021
2022
Subtotal
2023
2025-2026
1,109
1
—
—
—
—
—
—
439
192
—
—
1,110
631
—
—
—
—
—
—
—
—
—
—
—
1,026
—
Total – 2020 to 2026
1,110
631
1,026
—
—
—
—
—
22
22
—
—
22
1,109
1
439
192
—
22
1,763
1,026
—
2,789
—
—
—
—
—
—
—
—
627
627
Total
1,109
1
439
192
0
22
1,763
1,026
627
3,416
As a % of
Total
32.5
—
12.9
5.6
—
0.6
51.6
30.0
18.4
100.0
SmartVMC has become a community, with approximately 3,000 new residents in occupancy. In addition, construction of Transit
City 4 and 5 continues with closings expected in 2023. The construction of the Trust’s first purpose-built rental building at
SmartVMC is expected to be completed in 2024. Upon their completion, these phases are expected to provide accommodation
for over 2,000 additional residents to SmartVMC.
The construction of the world-class YMCA at SmartVMC is complete and subject to COVID-related governmental restrictions, is
expected to open in 2022. The Trust is now also actively designing a future phase of office development at SmartVMC which is
expected to be built in conjunction with two new residential towers across from the SmartVMC Bus Terminal.
SmartVMC represents the emergence of a new city, anchored by three forms of public transit infrastructure, including a subway
station linking the site directly to downtown Toronto, a mass urban bus hub serviced by an efficient arterial road system which is
linked to two major high-speed highways. When fully complete, SmartVMC is expected to accommodate over 45,000 residents.
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT 9
11
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
The Trust’s residential development initiatives on other sites continue to progress and, subject to arranging satisfactory project
financing, the Trust, together with its partners, has commenced or expects to commence construction on a variety of new mixed-
use initiatives within the next six months including:
Description
Phase 2 Residential Rental Apartment
Vaughan NW Townhomes
Seniors’ Rental and Seniors’ Living Community
Phase 1 Residential Rental Apartments (2 Buildings)
Phase 1 Residential Rental Apartment
London Fox Hollow Townhomes
Location
Laval, Quebec
Vaughan, Ontario
Ottawa, Ontario
Mascouche, Quebec
Barrie, Ontario
London, Ontario
Units (#)
Partner
211
174
402
238
378
138
Jadco
Fieldgate Homes
Groupe Sélection
Cogir
Greenwin
TBD
In Laval, Quebec, approximately 90% of the rental units of the 171-unit, 15-storey first phase of the two-phase, purpose-built
residential rental project have been leased. Economic stabilization and permanent financing of this first tower are expected within
the next six months.
In 2019, together with Revera Inc. (“Revera”), the Trust announced the execution of an overall agreement to develop and own
new retirement-living residences across Canada. These retirement-living residences are very different in nature, level of care and
funding than government subsidized long-term care facilities. Executed specific site agreements are now in place to proceed with
the first three initiatives on properties that are currently owned by the Trust, in Vaughan (two initiatives) and Richmond Hill,
Ontario which in aggregate are expected to contain 683 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, the Trust announced additional Toronto area retirement-living residences to be built in
Markham and Oakville, each on properties owned by Revera. The Trust purchased a 50% interest in the Markham property in
2020 and it is currently working to obtain approvals regarding rezoning and similar entitlement requirements. In addition, together
with Groupe Sélection (formerly Réseau Sélection), the Trust has commenced construction on a two-tower seniors’ apartments/
retirement residences project on undeveloped lands at the Trust’s Laurentian Place shopping centre in Ottawa. This 402-unit
development is expected to be completed in 2023. The Trust is continuing to work with its partners and is at various stages of
identifying and moving forward with additional opportunities to develop retirement communities within its portfolio of shopping
centre locations.
With its partner SmartStop, construction is now complete on the first five self-storage projects in Toronto (Leaside), Vaughan NW,
Brampton, Oshawa South, and Scarborough East. Leasing in these locations continues to be ahead of original expectations.
Construction is progressing on the next SmartStop projects in Aurora, and Brampton (Kingspoint) with completions expected
over the next 12 months, by which time the Trust expects approximately 500,000 square feet (at its share) of self-storage space
to become available. These multi-level self-storage facilities range in size up to 140,000 square feet and will each have
approximately 1,000 units. Additional self-storage facilities have been approved by the Trust’s Board of Trustees for development
on its existing properties including locations at Whitby, Markham, and Stoney Creek. In each case, existing lands have been or
will be transferred to the partnership with SmartStop w municipal approvals are received. In addition, in 2021, together with
SmartStop, the Trust purchased two properties in Toronto, on Jane Street and Gilbert Avenue, on which, once zoning approvals
are in place, it intends to build two new self-storage facilities with approximately 100,000 square feet of available space in each
location.
Leasing
The Trust’s 34 million square foot portfolio of predominately Walmart-anchored shopping centres continues to demonstrate
strong occupancy levels. The overall occupancy level was 97.4% (inclusive of committed deals, the occupancy level was 97.6%)
at December 31, 2021 (December 31, 2020 – 97.0%, and 97.3% inclusive of committed deals). During the COVID-19 pandemic,
Walmart continued to demonstrate its industry-leading ability to drive high traffic levels to the Trust’s shopping centres across
Canada. This is best exemplified by the Trust’s core portfolio of shopping centres continuing to demonstrate strong resilience in
the face of adversity and, as at December 31, 2021, the Trust has renewed 85.4% of its expiring lease maturities (December 31,
2020 – 75.3%) with rental rates similar to those expiring rental rates. While some additional vacant space has resulted from the
pandemic, the Trust remains well-positioned as Canada’s largest provider of retail space in Walmart-anchored open-format
shopping centres. Additionally, because the pandemic has resulted in the deferral of most planned new retail expansion projects
in Canada, this limitation of new supply should assist the Trust in backfilling its additional vacant space over the next two to three
years with tenants that are seeking lower-cost, stable, open-format alternatives.
10 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT
12
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT MANAGEMENT’S DISCUSSION AND ANALYSIS
Collections
Collection levels have continued to improve, reaching approximately 98% for the year ended December 31, 2021. The
challenges associated with the COVID-19 pandemic have continued to impact the remaining 2%. Accordingly, during the year
ended December 31, 2021, the Trust recorded additional bad debt expense/expected credit loss (“ECL”) provisions totalling $3.7
million.
Investment Properties – Valuation
The following table identifies the change in fair values of investment property for the year ended December 31, 2021:
(in thousands of dollars)
Balance before fair value revaluation
adjustment as at March 31, 2021
Fair value adjustment on revaluation of
investment properties in Q1 2021
Income Properties Properties Under Development
Fair value
adjustments as
% of carrying
value
Amount
8,269,996
Fair value
adjustments as
% of carrying
value
Amount
604,930
Amount
8,874,926
Total
Fair value
adjustments as
% of carrying
value
(22,878)
(0.3) %
4,119
0.7 %
(18,759)
(0.2) %
Fair value as at March 31, 2021
8,247,118
Additional costs and other adjustments
29,754
Fair value adjustment on revaluation of
investment properties in Q2 2021
Fair value as at June 30, 2021
14,961
8,291,833
Additional costs and other adjustments
9,386
Fair value adjustment on revaluation of
investment properties in Q3 2021
59,741
0.7 %
Fair value as at September 30, 2021
8,360,960
Additional costs and other adjustments
(21,475)
609,049
(13,141)
8,856,167
16,613
0.2 %
(4,107)
(0.7) %
10,854
0.1 %
591,801
6,282
21,860
619,943
469,818
8,883,634
15,668
3.7 %
81,601
0.9 %
8,980,903
448,343
Fair value adjustment on revaluation of
investment properties in Q4 2021
55,592
0.7 %
362,240
58.4 %
417,832
Fair value as at December 31, 2021
8,395,077
1.3 %
1,452,001
62.1 %
9,847,078
4.7 %
5.5 %
For Q4 2021, there was a net fair value increase of approximately $55.6 million to income properties, and a net fair value
increase of approximately $362.2 million to properties under development. As driven by the Trust’s vast pipeline of mixed use
initiatives, the Trust expects to continue to recognize fair value increments through the planning, zoning, and development
progress of its investment properties.
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT 11
13
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
Financing
The pandemic resulted in reductions in benchmark Canadian interest rates. However, the Bank of Canada has now indicated
that it expects to raise rates in 2022 and 2023. Accordingly, notwithstanding that economists believe the pandemic will continue
to result in a challenging economic environment for at least the next 12–18 months, given the Bank of Canada’s messaging,
interest rates have begun to move higher. The Trust will continue, when appropriate, to take advantage of appropriate borrowing
conditions to enhance FFO, extend debt maturities and further mitigate exposure to interest rate and debt repayment/maturity
risk. In addition, the Trust expects to continue its strategy to repay most maturing mortgages and then term out selectively with
unsecured debentures or similar unsecured facilities, thus permitting the Trust’s unencumbered assets to increase in value. The
Trust’s unencumbered assets currently exceed $6.6 billion (December 31, 2020 – $5.8 billion).
Liquidity and having the ability to fund obligations during challenging periods is the principal reason that the Trust increased and
extended its unsecured revolving operating line of credit to $500.0 million in 2017, in addition to establishing a $250.0 million
accordion feature. As a result of its continued commitment to the balance sheet, late in 2019, the Trust received a credit rating
upgrade to BBB(high) from DBRS Morningstar. This achievement is significant as it reduces borrowing costs on existing
unsecured credit facilities and future issuances of unsecured debentures and permits a wider group of investors to invest in the
Trust’s bonds, which is of particular importance in periods such as those resulting from COVID-19. To assist in funding capital
requirements, during 2021 the Trust established an additional $150.0 million revolving unsecured operating line. In addition, as
noted above, subsequent to year-end, the Trust established a $300.0 million five-year unsecured facility to assist with the funding
requirements associated with the acquisition of the SmartVMC West lands. Principally, as a result of the additional debt required
to fund the acquisition of the SmartVMC West lands, in December 2021, DBRS confirmed the Trust’s BBB(high) rating and
changed the trend from stable to negative. The Trust is continuing to work on alternatives with the intent to further improve its
credit rating.
As at December 31, 2021, the Trust’s credit metrics (net of cash-on-hand) had the following strong attributes:
(in thousands of dollars)
Average stated interest rate (%)
Average duration of unsecured debt (in years)
Adjusted debt/Adjusted EBITDA
Debt/Total assets (%)
Interest coverage ratio
Maturing secured debt in 2022
Maturing unsecured debt in 2022
December 31, 2021
December 31, 2020
3.11
5.4
9.2X
42.9
3.4X
294,507
—
3.28
5.2
8.5X
44.6
3.2X
134,849
623,120
During this unprecedented period, the Trust has continued to focus on its long-term mixed-use development initiatives, 59 of
which are either underway or for which construction is expected to commence within the next two years, subject to arranging
appropriate financing and completing zoning entitlements. As also experienced in the prior year, in 2021, the Trust is in a unique
position whereby its distributions and related payout ratio reflect ACFO associated with condominium closings. During this period
of uncertainty, the FFO derived from these closings has offset much of the adverse impact associated with additional vacancies
and rent collection challenges related to the Trust’s small and mid-size tenants, some of which were forced to either close or
dramatically reduce their businesses at some point during the pandemic. As Canadians begin to return to a new level of
“normalcy”, the Trust will follow its credo by continuing to “focus on change”. Over the coming years, this continued evolution is
expected to result in additional mixed-use development opportunities, which in turn are expected to contribute to substantive
growth in both FFO and NAV.
12 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT
14
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
Key Business Development, Financial and Operational Highlights for the Year Ended December 31, 2021
Mixed-Use Development and Intensification at SmartVMC
•
•
•
•
•
Completed a strategic acquisition valued at $513.0 million of a two-thirds interest in 53.0 acres making up the westerly
half in SmartVMC West, more than doubling the Trust’s holdings in the 105-acre city centre development.
Construction continues on the 100% pre-sold Transit City 4 (45 storeys) and 5 (50 storeys) condo towers, representing
1,026 residential units. Good progress is being made above grade with concrete and formwork complete up to level 39
for Transit City 4 and level 30 for Transit City 5.
Construction of the purpose-built rental project, The Millway (36 storeys), continues at SmartVMC, with concrete and
formwork up to level 15.
As part of Transit City 1 and 2 projects, construction of the 22 townhomes, all of which are pre-sold, is well underway
and delivery is expected in early 2022.
Successful launch of ArtWalk condominium development with over 300 units pre-sold, representing over 90% of
released units.
Other Business Development
•
•
•
•
•
•
Leasing continues on 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 90% of the
171-unit building has been leased. Construction of the next phase commenced in October 2021.
The Trust completed the construction of its fifth self-storage facility with the opening of its Scarborough East facility in
November 2021. All of the five developed and operating self-storage facilities have been very well-received by their
local communities, with current occupancy levels ahead of expectations.
Two self-storage facilities in Brampton (Kingspoint) and Aurora are currently under construction. Both facilities are
expected to be completed in 2022. Additional self-storage facilities have been approved by the Board of Trustees and
the Trust is in the process of obtaining municipal approvals in Whitby, Markham, Stoney Creek and two locations in
Toronto (Gilbert Ave. and Jane St.).
Construction is on schedule for two purpose-built residential rental towers (238 units) in Mascouche, Quebec with joint
venture partner Cogir.
Construction commenced for a new retirement residence and a seniors’ apartment project, totalling 402 units, in 2021
with joint venture partner Selection Group on the Trust's Laurentian Place in Ottawa, with completion expected in 2023.
The Trust has commenced the redevelopment of a portion of its 73-acre Cambridge retail property (which is subject to a
leasehold interest with Penguin) which now allows various forms of residential, retail, office, institutional, and
commercial uses providing for the creation of a vibrant urban community with the potential for over 12.0 million square
feet of development.
Financial
•
Net income and comprehensive income(1) was $987.7 million as compared to $89.9 million in 2020, representing an
increase of $897.7 million. This increase was primarily attributed to: i) $944.9 million increase in fair value adjustments
on revaluation of investment properties, of which $766.6 million relates to the Trust's investment properties and $178.3
million relates to the Trust's proportionate share of equity accounted investments, ii) $14.7 million decrease in interest
expenses, and partially offset by i) $51.9 million decrease in fair value adjustments on financial instruments, ii) $3.9
million increase in general and administrative expenses (net), iii) $3.6 million decrease in interest income, iv) $1.0
million decrease in NOI, v) $1.1 million increase in supplemental costs and acquisition-related costs, and vi) $0.4 million
decrease in gain on sale of investment properties.
•
•
•
Key debt metrics include Debt to Aggregate Assets(2)(3) of 42.9%, Interest Coverage Ratio multiple(2) of 3.4X(2), and
Adjusted Debt to Adjusted EBITDA multiple(2)(3) of 9.2X.
The Trust improved its unsecured/secured debt ratio(2) to 71%/29% (December 31, 2020 – 68%/32%).
The Trust continues to add to its unencumbered pool of high-quality assets. As at December 31, 2021, this
unencumbered portfolio consisted of income properties valued at $6.6 billion (December 31, 2020 – $5.8 billion).
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT 13
15
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT MANAGEMENT’S DISCUSSION AND ANALYSIS
•
•
•
•
•
•
•
•
•
FFO(2) increased by $12.1 million or 3.3% to $380.1 million as compared to 2020, primarily due to $14.7 million net
decrease in interest expense ($12.0 million yield maintenance costs included in 2020) and $5.6 million increase in gain
on TRS, partially offset by $3.9 million increase in G&A expenses (net), $3.6 million decrease in interest income, and
$1.0 million decrease in NOI.
Net income and comprehensive income per Unit(1) increased by $5.16 to $5.68 as compared to 2020, primarily due to
the reasons noted above.
FFO per Unit(2) increased by $0.06 or 2.8% to 2.19 as compared to 2020, primarily due to the reasons noted above for
the increase in FFO.
FFO with adjustments(2) increased by $3.4 million or 0.9% to $383.3 million as compared to 2020. FFO per Unit with
adjustments(2) increased by $0.01 or 0.5% to $2.21 as compared to 2020.
Cash flows provided by operating activities(1) increased by $75.6 million or 25.6% to $371.6 million as compared to
2020 primarily due to lower working capital requirements, in addition to an increase in tenant prepaid rent, deposits, and
other payables.
The Payout Ratio relating to cash flows provided by operating activities for the 12 months ended December 31, 2021
was 85.8%, as compared to 107.7% in 2020.
ACFO(2) decreased by $0.4 million or 0.1% to $353.1 million as compared to 2020 primarily due to the contribution of
the Transit City 1 and 2 condo closings in 2020.
ACFO(2) exceeded distributions declared by $34.3 million (2020 – surplus of ACFO over distributions declared of $34.7
million).
The Payout Ratio relating to ACFO(2) for the 12 months ended December 31, 2021 was 90.3%, as compared to 90.2%
in 2020.
Operational
•
•
•
Rentals from investment properties and other(1) was $780.8 million, as compared to $781.3 million in 2020, representing
a decrease of $0.5 million or 0.1%. This decrease was primarily due to lower net base rents, and was partially offset by
short-term rental revenue and percentage rent revenue.
In-place and committed occupancy rates were 97.4% and 97.6%, respectively, as at December 31, 2021 (December 31,
2020 – 97.0% and 97.3%, respectively).
Same Properties NOI inclusive of ECL provisions increased by $16.9 million or 3.5% as compared to 2020. Same
Properties NOI excluding ECL(2) decreased by $10.2 million or 2.0% as compared to the prior year.
Subsequent Events
•
•
In January 2022, the Trust acquired, from its unrelated partner, a 50% interest in each of three co-owned properties
located in Ottawa (Laurentian), Ontario, Edmonton Capilano, Alberta, and Lachenaie, Quebec. The acquisition was
funded with the Trust’s existing operating facilities. Upon completion of the acquisition, the Trust became the 100%
owner of these properties.
In January 2022, the Trust entered into a $300.0 million unsecured credit facility agreement with a syndicate of
Canadian financial institutions, from which $285.0 million was drawn. This facility matures in January 2027 and bears an
interest rate of Canadian Banker's Acceptance rate plus 120 basis points.
(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” and “Non-GAAP Measures”.
Net of cash-on-hand of $80.0 million as at December 31, 2021 for the purposes of calculating the applicable ratios.
14 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT
16
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT MANAGEMENT’S DISCUSSION AND ANALYSIS
Selected Consolidated Operational, Mixed-Use Development and Financial Information
Key consolidated operational, mixed-use development and financial information shown in the table below includes the Trust’s
proportionate share of equity accounted investments:
(in thousands of dollars, except per Unit and other non-financial data)
December 31, 2021 December 31, 2020 December 31, 2019
Portfolio Information
Total number of properties with an ownership interest
174
167
165
Leasing and Operational Information
Gross leasable area including retail and office space (in thousands of sq. ft.)
Occupied area including retail and office space (in thousands of sq. ft.)
Vacant area including retail and office space (in thousands of sq. ft.)
In-place occupancy rate (%)
Committed occupancy rate (%)
Average lease term to maturity (in years)
Net retail rental rate (per occupied sq. ft.) ($)
Net retail rental rate excluding Anchors (per occupied sq. ft.) ($)
34,119
33,219
900
97.4
97.6
4.4
15.44
22.07
34,056
33,039
1,017
97.0
97.3
4.6
15.37
21.89
34,337
33,678
659
98.1
98.2
4.9
15.49
22.13
Mixed-Use Development Information
Trust’s share of future development area (in thousands of sq. ft.)
40,600
32,500
27,900
Trust’s share of estimated costs of future projects currently under
construction, or for which construction is expected to commence within the
next five years (in millions of dollars)
Total number of residential rental projects
Total number of seniors’ housing projects
Total number of self-storage projects
Total number of office building projects
Total number of hotel projects
Total number of condominium developments
Total number of townhome developments
Total number of future projects currently in development planning stage
9,800
104
27
36
8
3
95
10
283
96
40
50
7
4
72
15
284
7,900
5,500
88
45
48
10
5
46
14
256
9,928,467
9,050,066
9,466,501
5,696,100
4,225,933
4,290,826
42.3
49.0
11,293,248
9,847,078
10,684,529
6,640,600
4,854,527
4,983,078
42.9
50.8
10,724,492
8,850,390
9,400,584
5,835,600
5,210,123
5,261,360
44.6
50.1
71%/29%
68%/32%
63%/37%
1.9X
3.11
4.8
3.4X
9.2X
1.9X
3.28
5.0
3.2X
8.5X
2.1X
3.55
5.0
3.5X
8.0X
5,841,315
173,748,819
5,166,975
5,367,752
172,971,603
170,581,531
Financial Information
Total assets(1)
Investment properties – GAAP
Investment properties – non-GAAP(3)
Total unencumbered assets(2)
Debt – GAAP
Debt – non-GAAP(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)
Adjusted Debt to Adjusted EBITDA (net of cash)(2)(3)(4)
Equity (book value)(1)
Weighted average number of units outstanding – diluted
(1)
(2)
(3)
(4)
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” and “Non-GAAP Measures”.
Includes the Trust’s proportionate share of equity accounted investments.
As at December 31, 2021, cash-on-hand of $80.0 million was excluded for the purposes of calculating the applicable ratios (December 31, 2020 – $754.4 million, December 31, 2019 –
$37.0 million).
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT 15
17
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 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, 2021 and
December 31, 2020:
(in thousands of dollars, except per Unit information)
Financial Information
Rentals from investment properties and other(1)
Net base rent(1)
Total recoveries(1)
Miscellaneous revenue(1)
Service and other revenues(1)
Net income and comprehensive income(1)
Net income and comprehensive income excluding fair value adjustments(2)(3)
Cash flows provided by operating activities(1)
Net rental income and other(1)
NOI(2)
NOI excluding condominium sales(2)
Change in net rental income and other(2)
Change in SPNOI(2)
Change in SPNOI excluding ECL(2)
FFO(2)(3)(4)(5)
FFO with adjustments(2)(3)(4)
FFO with adjustments and Transactional FFO(2)(3)(4)
FFO excluding condominium sales(2)(3)(4)
FFO with adjustments excluding condominium sales(2)(3)(4)
ACFO(2)(3)(4)(5)
ACFO with adjustments(2)(3)(4)
ACFO excluding condominium sales(2)(3)(4)
Distributions declared
Surplus (shortfall) of cash provided by operating activities over distributions
declared(2)
Surplus of ACFO over distributions declared(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 adjustments(2)(3)(4)
FFO with adjustments and Transactional FFO(2)(3)(4)
Distributions declared
Payout Ratio Information
Payout Ratio to ACFO(2)(3)(4)(5)
Payout Ratio to ACFO with adjustments(2)(3)(4)
2021
(A)
780,758
494,992
253,032
17,891
14,843
987,676
342,609
371,624
485,802
518,084
497,613
5.4 %
3.5 %
(2.0) %
380,070
383,296
385,219
361,323
364,549
353,055
356,281
332,585
318,753
52,871
34,302
2020
(B)
781,253
496,135
263,802
11,182
10,134
89,940
337,863
295,982
460,711
519,105
471,548
(8.8) %
(6.9) %
(1.1) %
367,967
379,921
380,665
323,188
335,142
353,409
365,363
305,852
318,758
(22,776)
34,651
Variance
(A–B)
(495)
(1,143)
(10,770)
6,709
4,709
897,736
4,746
75,642
25,091
(1,021)
26,065
14.2 %
10.4 %
(0.9) %
12,103
3,375
4,554
38,135
29,407
(354)
(9,082)
26,733
(5)
75,647
(349)
178,091,581
172,447,334
173,748,819
$5.73/$5.68
$1.99/$1.97
$2.20/$2.19
$2.22/$2.21
$2.23/$2.22
$1.850
172,221,212
171,973,301
172,971,603
5,870,369
474,033
777,216
$0.52/$0.52
$5.21/$5.16
$1.96/$1.95
$2.14/$2.13
$2.21/$2.20
$2.21/$2.20
$1.850
$0.03/$0.02
$0.06/$0.06
$0.01/$0.01
$0.02/$0.02
$—
90.3 %
89.5 %
90.2 %
87.2 %
0.1 %
2.3 %
(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” and “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.
16 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT
18
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT Quarterly Results and Trends
(in thousands of dollars, except percentage, square footage, Unit and per Unit amounts)
Q4
2020
Q1
2021
Q3
2021
Q2
2021
Q4
2021
MANAGEMENT’S DISCUSSION AND ANALYSIS
Q3
2020
Q2
2020
Q1
2020
Results of operations
Net income (loss) and comprehensive income
(loss)
Per Unit
Basic
Diluted(3)
Net base rent(1)(2)
Rentals from investment properties(1)(2)
Rentals from investment properties and other
NOI(1)(2)
Other measures of performance
FFO(2)
Per Unit
Basic
Diluted(3)
FFO with adjustments(2)
Per Unit
Basic
Diluted(3)
652,081
178,051
96,985
60,559
48,380
111,033
(133,674)
64,201
$3.77
$3.74
128,571
195,180
192,812
129,679
$1.03
$1.03
128,487
195,749
195,171
133,333
$0.56
$0.56
126,658
195,532
193,937
136,091
$0.35
$0.35
124,374
200,984
198,838
118,981
$0.28
$0.28
126,663
199,609
197,897
137,002
$0.65
$0.64
126,045
188,981
186,344
147,612
($0.78)
($0.78)
125,558
192,607
190,285
108,094
$0.37
$0.37
128,901
208,735
206,727
126,397
97,452
97,887
100,457
84,275
86,697
110,107
75,199
95,964
$0.56
$0.56
98,112
$0.57
$0.56
$0.57
$0.56
$0.58
$0.58
$0.49
$0.49
$0.50
$0.50
$0.64
$0.64
$0.44
$0.43
$0.56
$0.56
99,593
101,082
84,511
98,651
110,107
75,199
95,964
$0.58
$0.57
$0.59
$0.58
$0.49
$0.49
$0.57
$0.57
$0.64
$0.64
$0.44
$0.43
$0.56
$0.56
FFO with adjustments and Transactional
FFO(2)
98,448
99,593
101,082
86,098
98,651
110,851
75,199
95,964
Per Unit
Basic
Diluted(3)
Cash flows provided by operating activities
Per Unit
Basic
Diluted(3)
ACFO(2)
Per Unit
Basic
Diluted(3)
ACFO with adjustments(2)
Per Unit
Basic
Diluted(3)
Distributions declared
Units outstanding(4)
Weighted average Units outstanding
Basic
Diluted(3)
Total assets
Total unencumbered assets(2)
Debt
Total leasable area (sq. ft.)
In-place occupancy rate (%)
Occupancy rate with committed deals (%)
$0.57
$0.56
133,673
$0.77
$0.77
83,313
$0.48
$0.48
83,973
$0.49
$0.48
79,725
$0.58
$0.57
$0.59
$0.58
$0.50
$0.50
$0.57
$0.57
$0.64
$0.64
$0.44
$0.43
$0.56
$0.56
96,298
62,168
79,485
91,371
79,100
46,349
79,162
$0.56
$0.55
$0.36
$0.36
$0.46
$0.46
$0.53
$0.53
$0.46
$0.46
$0.27
$0.27
$0.46
$0.46
90,342
94,248
85,153
83,943
101,752
74,923
92,790
$0.52
$0.52
$0.55
$0.54
$0.49
$0.49
$0.49
$0.48
$0.59
$0.59
$0.44
$0.43
$0.54
$0.54
92,048
94,873
85,389
95,897
101,752
74,923
92,790
$0.53
$0.53
$0.55
$0.55
$0.50
$0.49
$0.56
$0.55
$0.59
$0.59
$0.44
$0.43
$0.54
$0.54
79,683
79,685
79,660
79,657
79,621
79,562
79,918
178,091,581 172,287,950 172,280,187 172,267,483 172,221,212 172,220,387 172,046,139 171,865,757
172,983,636 172,285,503 172,275,798 172,237,982 172,220,907 172,112,821 171,988,473 171,566,750
174,380,800 173,644,091 173,543,923 173,417,020 173,264,654 173,120,316 172,980,866 172,515,723
11,293,248
10,191,592
10,036,672
10,321,117
10,724,492
10,365,651
10,382,902
10,430,793
6,640,600
4,854,527
6,002,800
5,937,900
5,910,900
5,835,600
5,763,400
5,644,500
5,647,800
4,539,594
4,492,948
4,810,106
5,210,123
4,821,695
4,895,151
4,753,137
34,118,613
34,225,087
34,185,729
34,036,704
34,056,064
34,051,210
34,168,636
34,174,010
97.4
97.6
97.3
97.6
97.1
97.3
97.0
97.3
97.0
97.3
97.1
97.4
97.6
97.8
97.8
98.0
(1)
(2)
(3)
(4)
Includes the Trust’s proportionate share of 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” and “Non-GAAP Measures”.
Diluted metrics 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.
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT 17
19
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT MANAGEMENT’S DISCUSSION AND ANALYSIS
Results of Operations
Net income and comprehensive income, net base rent, rentals from investment properties, NOI, FFO, 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 (since Q2 2020) do have an adverse impact on the demand for space, occupancy and collection
levels and, consequently, impact net base rent, common area maintenance (“CAM”) and realty tax recoveries, property
valuations and ultimately operating performance. Overall, quarterly fluctuations in revenue and operating results are mainly
attributable to ECL provisions, occupancy levels and Same Properties NOI growth, Acquisitions, Developments, Earnouts, and
dispositions. In addition, the COVID-19 pandemic has had an adverse effect on results of operations for Q2 of 2020 through Q4
of 2021.
Net income and comprehensive income increased by $474.0 million in Q4 2021 from Q3 2021, while FFO declined by $0.4
million during the same period. The increase in net income and comprehensive income was mainly attributable to the increase in
fair value adjustment on revaluation of investment properties of $495.2 million, partially offset by the decrease in fair value
adjustment on financial instruments of $12.7 million and higher condominium sales profit of $6.5 million in Q3 2021. Net income
and comprehensive income increased in Q3 2021 from Q2 2021 mainly due to the increase in fair value adjustment on
revaluation of investment properties and on financial instruments. Net income and comprehensive income increased in Q1 2021
from Q4 2020 primarily due to higher interest costs accrued in Q4 2020 related to the redemption of Series M and Series Q
unsecured debentures and decrease in fair value loss on revaluation of investment properties. Net income and comprehensive
income declined in Q4 2020 from Q3 2020, primarily due to fair value loss on revaluation of properties under development, fair
value loss on financial instruments attributed to the increase in the Trust’s Unit price, and an increase in interest expense. Net
income (loss) and comprehensive income (loss) in Q3 2020 surpassed each of the other six quarters except for Q3 2021, largely
due to profits 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 impacts of the COVID-19 pandemic.
Other Measures of Performance
FFO declined in Q4 2021 from Q3 2021, primarily due to less condominium sales profit as noted above, partially offset by $3.8
million higher TRS fair value gains and $2.9 million higher net rental income in the quarter. FFO was higher in Q3 and Q2 of
2021 principally due to the Transit City 3 condominium closings in those quarters. FFO decreased in Q1 2021 from Q4 2020,
primarily attributed to the recognition of condominium sales profits in Q4 2020 and partially offset by lower interest expenses in
Q1 2021 due to the higher interest costs accrued in Q4 2020 related to the redemption of Series M and Series Q unsecured
debentures. FFO decreased in Q4 2020 from Q3 2020, primarily due to a decrease in earnings from equity accounted
investments 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. 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.
Units Outstanding
Quarterly increases in Units outstanding and weighted average Units outstanding (basic and diluted) can be attributed to Units
issued pursuant to: i) the distribution reinvestment plan (“DRIP”) (ended April 2020); ii) Earnouts; iii) deferred units exchanged for
Trust Units; and iv) unit issuances associated with the acquisition of SmartVMC West lands in Q4 2021.
Total Assets and Debt
Total assets increased by $1,101.7 million in Q4 2021 from Q3 2021, which was mainly attributable to: i) increase in fair value
adjustment on revaluation of investment properties of $476.4 million, of which $153.8 million was reflected in equity accounted
investments; ii) $494.3 million acquisition of SmartVMC West land parcel; and iii) increase in mortgages, loans and notes
receivable of $35.5 million as a result of new loans issued for self-storage projects and a vendor take-back loan in connection
with the Innisfil property disposition. Total debt increased by $314.9 million in Q4 2021 from Q3 2021 as a result of operating
facilities drawn in Q4 2021 to finance the acquisition of SmartVMC West properties. Total assets increased by $154.9 million in
Q3 2021 from Q2 2021, resulting from: i) investment properties (including classified as held for sale) value increase of $97.3
million mainly attributable to revaluation gains; ii) increase in equity accounted investments of $21.4 million primarily as a result
of Q3 2021 earnings; iii) increase in total return swap receivable amounting to $18.0 million; and iv) increase in cash and cash
equivalent principally attributable to higher cash flows provided by operating activities in Q3 2021. Total debt increased in Q3
2021 from Q2 2021 primarily due to new borrowings. Total assets and debt declined in Q2 2021 from Q1 2021 and in Q1 2021
from Q4 2020, primarily due to the use of cash to redeem unsecured debentures. Total assets and debt increased in Q4 2020
from Q3 2020, principally due to the proceeds from issuance of unsecured debentures, net of repayments. Total assets and debt
decreased in Q3 2020 as a result of a reduction in cash and cash equivalents principally from the repayment of secured and
unsecured debt.
18 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT
20
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT MANAGEMENT’S DISCUSSION AND ANALYSIS
Leasing
The Trust’s occupancy rate (inclusive of committed deals) of 97.6% in Q4 2021 is consistent with last quarter. Occupancy rate
(inclusive of committed deals) increased by 0.3% in Q3 2021 from Q2 2021, mainly attributable to new entrants to the market
looking for opportunities in high traffic centres. 2020 was a challenging year in leasing with a number of bankruptcies and
closures. Essential service tenants did, however, continue to expand their footprint during this period, upgrading weaker locations
in other centres to newer SmartCentres sites.
Section III — Development Activities
Mixed-Use Development Initiatives
The following table summarizes the 283 identified mixed-use, recurring rental income and development income 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 rental
income initiatives
Condominium developments
Townhome developments
Subtotal – Development income
initiatives
Total
Section B
Planning entitlements (#)(2)
Section C
Project area (in thousands of sq.
ft.) – at 100%(3)
Recurring rental 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 rental 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(3)
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
20
4
9
—
—
33
24
2
26
59
45
24
9
10
1
—
44
24
3
27
71
45
60
14
17
7
3
101
47
5
52
153
88
104
27
36
8
3
178
95
10
105
283
178
6,400
7,600
7,500
7,100
18,100
11,900
32,000
26,600
14,000
14,600
30,000
58,600
3,600
5,800
9,400
7,400
5,000
4,900
4,300
9,200
7,800
4,800
12,000
10,000
20,500
20,100
22,000
40,600
– (1)
– (1)
15,200
9,800
(1)
(2)
(3)
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.
Planning entitlements represent those projects whereby the official plan currently permits intended/proposed uses.
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.
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT 19
21
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 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. Please refer to the
“Forward-Looking Statements” section for more information.
The Trust’s mixed-use development initiatives have resulted in the Trust participating in various construction development
projects. This includes construction at: i) SmartVMC; ii) several mid- and high-rise rental residential projects in Laval and
Mascouche, Quebec; iii) several seniors’ apartments and retirement residences in the Greater Toronto Area and Ottawa, Ontario;
and iv) 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 developments located in Ontario and Quebec.
SmartVMC Development Initiatives
In December 2021, the Trust acquired a two-thirds interest in approximately 53.0 acres in SmartVMC valued at $513.0 million.
Existing permissions on the property include multi-residential, condominium, seniors’ housing, office, retail, schools, recreational,
entertainment and other uses; although further entitlements or permissions may be required as specific developments are
planned. The Trust now has an ownership interest in approximately 105.0 acres in the Vaughan Metropolitan Centre. When
completed, SmartVMC is planned to consist of approximately 20.0 million square feet (11.5 million square feet at the Trust’s
share) of mixed-use development, anchored by public transit infrastructure spending by the various levels of government of over
$3.0 billion including the VMC subway station. 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
early 2022;
iii) the new 140,000 square-foot Walmart store which opened in October 2020; and
iv) the development of high-rise residential, with details of each previously announced residential phase discussed below.
The Trust is actively pursuing additional initiatives at SmartVMC, which include:
i)
ii)
the development of more than 4.0 million square feet (4,600 units) of residential density on the land at SmartVMC
previously occupied by a Walmart store, with zoning and site plan applications submitted in 2020 for approval of Phase
1 of 550,000 square feet. Zoning was approved by City of Vaughan in September 2021. Pre-sale of the first phase
condo, ArtWalk, was launched in November 2021 and over 90% of the released units were sold by the end of 2021; and
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 following table summarizes the associated mixed-use initiatives completed, under construction or currently being planned at
SmartVMC:
Project
KPMG Tower
PwC-YMCA Complex/Tower
Office Tower #3 – Proposed
Office Tower #4 – Proposed
Storeys
15
9
TBD(2)
TBD(2)
Type
Office
Retail
Office
Office
Office
The Millway
Transit City 1
Transit City 2
Transit City 1 and 2 Townhomes
Transit City 3
Transit City 4 and 5
ArtWalk Condominiums
Future residential
36
55
55
N/A
55
45 and 50
38
TBD(2)
Apartments
Condo
Condo
Townhomes
Condo
Condo
Condo
Condo
Estimated Total Building Area
(sq. ft./units)
Expected
Completion Year
Trust’s
Share (%)
330,000 sq. ft.
30,000 sq. ft.
225,000 sq. ft. (1)
500,000 sq. ft.
500,000 sq. ft.
1,585,000 sq. ft.
454 units (3)
551 units
559 units
22 units
631 units
1,026 units (3)
627 units
798 units
4,668 units
Completed
Completed
Completed
2027
2029
2023–2024
Completed (2020)
Completed (2020)
2022
Completed (2021)
2023
2025–2026
2027
50.0
50.0
50.0
50.0
50.0
50.0
25.0
25.0
25.0
25.0
25.0
50.0
50.0
(1)
(2)
(3)
Includes 112,000 square feet of YMCA, library and community-use space.
The number of storeys for this project has not been finalized.
92 of the 454 units attributable to the purpose-built residential rental apartment, The Millway, will be located in a podium connecting the Transit City 4 and 5 phases. These 92 units are
anticipated to be completed commensurate with Transit City 4 and 5.
20 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT
22
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
Residential and Other Development Initiatives
In addition, the Trust has recently completed or is in the process of constructing the following development initiatives:
Laval Phase 1 (QC)
# Project
1
2 Mascouche N Phase 1 (QC)
Laval Phase 2 (QC)
3
Laurentian Place – Ottawa (ON)
4
Laurentian Place – Ottawa (ON)
5
6
Leaside SmartStop (ON)
7 Vaughan NW SmartStop (ON)
8 Brampton SmartStop (ON)
9 Oshawa S SmartStop (ON)
10 Scarborough E SmartStop (ON)
Type
Residential rental
Residential rental
Residential rental
Seniors’ apartment
Retirement residence
Self-storage facility
Self-storage facility
Self-storage facility
Self-storage facility
Self-storage facility
Estimated Total Building
Area
(sq. ft./units)
171 units
238 units
211 units
174 units
228 units
133,714 sq. ft. (998 units)
118,067 sq. ft. (875 units)
134,687 sq. ft. (1,052 units)
132,812 sq. ft. (948 units)
136,969 sq. ft. (974 units)
Expected Year of
Construction
Completion(1)
Completed (2020)
2022
2023
2023
2023
Completed (2020)
Completed (2021)
Completed (2021)
Completed (2021)
Completed (2021)
11 Brampton (Kingspoint) SmartStop (ON)
12 Aurora SmartStop (ON)
Self-storage facility
Self-storage facility
133,000 sq. ft. (969 units)
140,000 sq. ft. (926 units)
2022
2022
Trust’s
Share (%)
50.0
80.0
50.0
50.0
50.0
50.0
50.0
50.0
50.0
50.0
50.0
50.0
(1) Economic stabilization is achieved at 92% to 98% occupancy which varies by asset class and unique project-based factors. Residential rental and seniors’ housing projects are generally
expected to achieve economic stabilization in 2-3 years after construction completion. Self-storage projects are generally expected to achieve economic stabilization in 4-5 years after
construction completion.
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 is currently working on initiatives for the development of many properties, for which final municipal approvals have
been obtained or are being actively pursued including:
a.
b.
c.
d.
e.
f.
g.
h.
i.
j.
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 residential buildings totalling 1,742 units submitted in October 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 submitted in April
2021;
the development of up to 2.55 million square feet of predominately residential space, in various forms, at the Westside
Mall in Toronto, Ontario, with an application for the first 35-storey mixed-use tower submitted in Q1 2021;
the development of up to 1.5 million square feet of residential space in various forms on the Trust’s undeveloped lands
at the Vaughan NW property in Vaughan, Ontario. The first release of 82 townhomes out of 174 Draft Plan Approved
townhomes has been pre-sold. Applications have also been submitted for a seniors’ apartment building and separate
retirement residence to be developed in partnership with Revera, along with three residential buildings;
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 200,000 square feet of residential townhomes at Oakville South in Oakville, Ontario, with a
third-party homebuilder;
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 1,700 units with
Greenwin, in Barrie, Ontario, for which a zoning application was approved by Barrie City Council in January 2021 with
the site plan approved for Phase 1 by Barrie City Council in Q1 2022. An application for a building permit was submitted
in July 2021. Environmental Risk Assessment for the entire site was received in September 2021;
the development of a 35-storey high-rise purpose-built residential rental tower containing 439 units, on Balliol Street in
midtown Toronto, Ontario, with zoning and site plan applications submitted in September 2020. A second submission of
these applications was made in July 2021;
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT 21
23
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT MANAGEMENT’S DISCUSSION AND ANALYSIS
k.
l.
the development of up to 1,600 residential units, in various forms, in Mascouche, Quebec and as noted in the table
above, with the first phase consisting of 238 units in two 10-storey rental towers approved by municipal council in
August 2020. Construction began in April 2021, and opening is anticipated in July 2022. The work on a second phase is
expected to commence in 2022;
the development of residential density at the Trust’s shopping centre at 1900 Eglinton Avenue East in Scarborough with
rezoning applications for the first two residential towers (38 and 40 storeys) submitted in January 2021. Site plan
application for both buildings was submitted in December 2021;
m.
the development of up to 270,000 square feet of residential space in 138 townhomes at London Fox Hollow in London,
Ontario, with site plan approval applications submitted in December 2020 and approval is expected to be obtained in Q1
2022. All zoning approval for the project was completed in Q4 2021;
n.
o.
p.
q.
r.
s.
t.
u.
v.
w.
the development of the first phase, 46-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.
The site plan application was resubmitted in March 2021 and again in July 2021 with approvals expected in Q1 2022.
The building permit application was submitted in October 2021;
the development of five additional self-storage facilities in Ontario with the Trust’s partner, SmartStop, in Markham,
Stoney Creek, Toronto (2) and Whitby, with zoning and/or site plan approval obtained or applications well underway.
Project agreements for another five locations are being finalized;
the Q4 2020 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 Premium Outlets Montreal in Mirabel, Quebec, for
the ultimate development of residential density of up to 4,500 units. Site plan applications for the first phase rental
building with 168 units expected to be submitted in Q1 2022. Master Plan of development is subject to approval;
the development of a new residential block consisting of a 155-unit condo building in Phase 1 and approximately 345
rental units in Phases 2 and 3 at Laval Centre in Quebec. Application for architecture approval was submitted for the
Phase 1 condo and another 155 units in the Phase 2 rental building in Q4 2021;
the Trust has commenced the redevelopment of a portion of its 73-acre Cambridge retail property (which is subject to a
leasehold interest with Penguin) which now allows various forms of residential, retail, office, institutional and commercial
uses providing for the creation of a vibrant urban community with the potential for over 12.0 million square feet of
development;
the development of a retirement living residence at the Trust’s shopping centre at Bayview and Major Mackenzie in
Richmond Hill, Ontario, with a rezoning application for a 9-storey retirement residences building submitted in Q1 2021
and a site plan application submitted in Q4 2021, to be developed in partnership with the existing partner and Revera;
the development of 1.5 million square feet of residential density adjacent to the new South Keys light rail train station at
the Trust’s Ottawa South Keys centre, consistent with current zoning permissions. Site plan application for the first
phase rental complex with 446 units was submitted and deemed complete in Q4 2021;
the development of up to 720,000 square feet of predominately residential space on Yonge St. in Aurora, Ontario, with
rezoning applications for the entire site and site plan submitted for Phase 1 for 498,000 square feet in July 2021;
the Q4 2020 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; and
the development of approximately 1.0 million square feet of residential density on the Trust’s Parkway Plaza centre in
Stoney Creek, Ontario, with an application for a Phase 1 development for a two-tower (15 and 14 storeys), 429,000
square foot, 520-unit condo project submitted in Q4 2021.
22 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT
24
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT MANAGEMENT’S DISCUSSION AND ANALYSIS
Residential Development Inventory
Vaughan NW Residential Development
As reflected in the Trust’s consolidated financial statements for the year ended December 31, 2021, 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 phased sales program for the Vaughan NW Townhomes was launched in
December 2021. As of January 28, 2022, 82 of the planned 174 townhomes have been pre-sold within the initial three phases of
the sales program.
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
December 31, 2021
December 31, 2020
25,795
646
958
27,399
24,564
317
914
25,795
SmartVMC Residential Development
Taking into account the Trust’s proportionate share in equity accounted investments (non-GAAP), residential development
inventory refers to the residential development concerning SmartVMC, which are recorded as equity accounted investments
(investment in associates) in the Trust’s consolidated financial statements for the year ended December 31, 2021 (included in
Note 5(a) in the Trust’s consolidated financial statements for the year ended December 31, 2021). The following summarizes the
status of condominium closings at Transit City:
Total units available, sold, and closed
% of units closed
Year Ended
Year Ended
December 31, 2021
December 31, 2020
Transit City 3
Transit City 1 & 2
631
100.0 %
1,109
99.9 %
The following table summarizes the net profits and FFO from the closings of Transit City:
(in thousands of dollars)
Condominium sales revenue
Cost of goods sold
Marketing and selling expenses
Other
NOI before additional partnership profit(3)
Additional partnership profit(1)(3)
NOI(3)
General and administrative expenses(2)
Net profit
Adjustment for previously capitalized interest associated with
Transit City 3 closings
FFO(3)
Per Unit – basic/diluted(4):
FFO(3)
Year Ended
Year Ended
December 31, 2021
December 31, 2020
Transit City 3
Transit City 1 & 2
Total
Trust’s share
Total
Trust’s share
296,232
(224,408)
(789)
1,033
72,068
—
72,068
—
72,068
539,992
(374,832)
(751)
255
164,664
N/A
164,664
—
164,664
74,058
(56,102)
(197)
258
18,017
2,521
20,538
(1,050)
19,488
(675)
18,813
134,998
(93,708)
(188)
64
41,166
6,862
48,028
(1,842)
46,186
(940)
45,246
$0.11/$0.11
$0.26/$0.26
(1)
(2)
(3)
(4)
Additional profit allocated to the Trust for Transit City closings pursuant to the development agreement and limited partnership agreement.
See the “General and Administrative Expense” section for further 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” and “Non-GAAP Measures”.
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, 2021,
1,301,485 vested deferred units are added back to the weighted average Units outstanding.
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT 23
25
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
Properties Under Development
As at December 31, 2021, the fair value of properties under development including properties under development recorded in
equity accounted investments totalled $1,970.4 million as compared to $898.6 million at December 31, 2020, resulting in a net
increase of $1,071.8 million presented in the following table. The net increase of $1,071.8 million was primarily due to: i) the
acquisition of SmartVMC West lands in December 2021 of approximately $494.3 million, and ii) the fair value adjustment on
certain properties under development of $496.8 million, for additional details on the factors influencing this change, see
“Investment Properties”.
(in thousands of dollars)
December 31, 2020
December 31, 2021
Variance ($)
Developments
Earnouts subject to option agreements(1)
Total
Equity accounted investments
Total including equity accounted investments(2)
1,391,301
60,700
1,452,001
518,427
1,970,428
521,149
61,811
582,960
315,628
898,588
870,152
(1,111)
869,041
202,799
1,071,840
(1)
(2)
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, 2021. 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 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.
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” and “Non-GAAP Measures”.
Future Retail Developments, Earnouts and Mezzanine Financing
Total future Retail Developments, Earnouts and Mezzanine Financing could increase the existing Trust portfolio by an additional
2.0 million square feet. With respect to the future pipeline, commitments have been negotiated on 0.2 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,
2021:
(in thousands of square feet)
Developments
Earnouts
Beyond Year 5
Committed
Years 3–5
Years 0–2
134
21
155
—
155
868
62
930
—
930
278
48
326
—
326
129
—
129
488
617
Total(1)
1,409
131
1,540
488
2,028
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, 2021, the future retail properties under development pipeline increased by 0.1 million
square feet to a total of 1.5 million square feet. The change is summarized in the following table:
(in thousands of square feet)
Future retail properties under development pipeline – January 1, 2021
Net adjustment to project densities
Completion of Earnouts and Developments
Net change
Future retail properties under development pipeline – December 31, 2021
Total Area
1,445
482
(390)
95
1,540
Committed Retail Pipeline
The following table summarizes the committed investment by the Trust in retail properties under development as at
December 31, 2021:
(in thousands of dollars)
Developments
Earnouts
Square Feet (in
thousands)
Total Estimated
Costs
Costs Incurred
Estimated Future
Development Costs
134
21
155
39,443
10,665
50,108
24,179
1,499
25,678
15,264
9,166
24,430
The completion of these committed Earnouts and Developments as currently scheduled is expected to have an average
estimated yield of 6.1% in 2022 and 5.7% in 2023.
24 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT
26
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
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
Developments
Earnouts
289,846
110,738
51,367
18,929
12,369
—
308,775
123,107
51,367
451,951
31,298
483,249
Costs
Incurred
164,248
3,583
167,831
Future
Development
Costs
287,703
27,715
315,418
Approximately 7.9% of the retail properties under development, representing a proportion of gross investment cost (committed
and uncommitted) relating to Earnouts ($42.0 million, divided by total estimated costs of $533.4 million), representing 131,000
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 1.4 million square feet of future space will be developed as the Trust leases space and finances the related
construction costs.
Completed and Future Earnouts and Developments on Existing Properties
For the three months ended December 31, 2021, $9.1 million of Developments (including Developments relating to equity
accounted investments) were completed and transferred to income properties, including redevelopment in St. Catharines
(approximately 10,000 square feet) and completion of the Scarborough East self-storage facility (approximately 45,000 square
feet) as compared to $36.3 million in the same period in 2020.
Retail Developments
Redevelopment – transfers from properties under
development to income properties
Developments – equity accounted investments
Self-storage facilities – equity accounted
investments
Three Months Ended December 31, 2021
Three Months Ended December 31, 2020
Area
(sq. ft.)
—
9,840
—
45,220
55,060
Investment
($ millions)
—
1.2
—
7.9
9.1
Area
(sq. ft.)
23,245
—
200,152
—
223,397
Investment
($ millions)
7.5
—
28.8
—
36.3
For the year ended December 31, 2021, $94.6 million of Earnouts and Developments (including Developments relating to equity
accounted investments) were completed and transferred to income properties, including the Trust’s share of approximately
183,000 square feet in four self-storage facilities located in Brampton, Vaughan, Oshawa, and Scarborough, Ontario, as
compared to $116.2 million in the same period in 2020.
Year Ended December 31, 2021
Year Ended December 31, 2020
Earnouts(1)
Retail Developments
Redevelopment – transfers from properties under
development to income properties
Developments – equity accounted investments
Self-storage facilities – equity accounted
investments
Area
(sq. ft.)
47,631
5,379
142,217
12,032
182,752
390,011
Investment
($ millions)
14.7
3.1
30.4
13.0
33.4
94.6
Area
(sq. ft.)
—
95,859
28,314
280,080
49,304
453,557
Investment
($ millions)
13.6
34.9
7.5
49.7
10.5
116.2
(1) The Earnouts for the year ended December 31, 2021 included one land parcel sale totalling $4.7 million of investment and, as a result, the area for this parcel sale is not reflected in the
table above (for the year ended December 31, 2020: four land parcel sales totalling $13.6 million of investment are excluded).
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT 25
27
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
The following table summarizes future retail Developments, Earnouts and Mezzanine Financing as at December 31, 2021:
Area
(sq. ft.)
Total
Area
(%)
Income
($000s)
Gross
Commitment
($000s)
Invested
To Date
($000s)
Net
Commitment
($000s)
Yield /
Cap Rate
(%)
Developments
Committed Developments
2022
2023 and beyond
Total Committed Developments
Uncommitted Developments
2022
2023 and beyond
Total Developments
Earnouts
Committed Earnouts
2022
2023 and beyond
Total Committed Earnouts
Uncommitted Earnouts
2022
2023 and beyond
Total Uncommitted Earnouts
105,915
27,723
133,638
6.9
1.8
8.7
1,847
497
2,344
30,543 (2)
8,900 (2)
39,443
21,855 (2)
2,324 (2)
24,179
Total Uncommitted Developments
1,275,436
82.8 23,221
1,409,074
91.5 25,565
491,393
406,410
869,026
26.4
5,453
56.4 17,768
102,092 (2)
349,858 (2)
451,950
65,452 (2)
98,796 (2)
164,248
188,427 (1)
6,266
14,947
21,213
0.4
1.0
1.4
196
456
652
1,866
107,639
109,505
0.1
7.0
7.1
35
2,136
2,171
3,105
7,560
10,665
543
30,756
31,299
465
1,034
1,499
59
3,522
3,581
Total Earnouts
130,718
8.5
2,823
41,964
5,080 (1)
Total before non-cash Development Cost
Non-cash development cost (4)
Land / Intensification projects
Equity accounted investments
Total
Options through Mezzanine Financing
Total Potential Pipeline
1,539,792
100.0 28,388
533,357
1,539,792
100.0 28,388
533,357
488,440
2,028,232
193,507
(18,532) (1)
1,277,026 (1)
518,427 (1)
1,970,428 (1)
8,688
6,576
15,264
36,640
251,062
287,702
6.0 (3)
5.6 (3)
5.9
5.3 (3)
5.1 (3)
5.1
302,966
5.2
2,640
6,526
9,166
484
27,234
27,718
36,884
339,850
6.3
6.0
6.1
6.4
6.9
6.9
6.7
5.3
339,850
5.3
(1) Under “Completed and Future Earnouts and Developments on Existing Properties” in the MD&A for the years ended December 31, 2021, Earnouts of $60.7 million, Developments of
$1,391.3 million and Equity Accounted Investments of $518.4 million comprise the total amount of $1,970.4 million. The amounts in the table above have been adjusted for Earnouts that
are expected to be completed after the expiry of the Earnout options being reclassified as Developments.
Includes fair value adjustment for land.
(2)
(3) On a cost basis, the yield would be 5.1%, 5.3%, 4.6%, and 4.6%, respectively.
(4) Represents net liability currently recorded.
26 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT
28
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
Section IV — Business Operations and Performance
Results of Operations
Below is a summary of selected financial information concerning the Trust’s operations for the year ended December 31, 2021.
This information should be read in conjunction with the Trust’s consolidated financial statements for the year ended
December 31, 2021.
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, 2021
December 31, 2020
GAAP Basis
Proportionate
Share
Reconciliation
Total
Proportionate
Share(1) GAAP Basis
Proportionate
Share
Reconciliation
Total
Proportionate
Share(1)
Assets
Non-current assets
Investment properties
9,847,078
837,451
10,684,529
8,850,390
550,194
9,400,584
Equity accounted investments
654,442
(654,442)
—
463,204
(463,204)
—
Mortgages, loans and notes receivable
345,089
(69,576)
275,513
263,558
(67,345)
196,213
Other assets
Other financial assets
Intangible assets
Current assets
80,940
97,148
45,139
7,465
—
—
88,405
97,148
45,139
88,141
7,437
95,578
—
46,470
—
—
—
46,470
11,069,836
120,898
11,190,734
9,711,763
27,082
9,738,845
Residential development inventory
27,399
67,828
95,227
25,795
88,783
114,578
Current portion of mortgages, loans and
notes receivable
Amounts receivable and other
Deferred financing costs
Prepaid expenses and deposits
Cash and cash equivalents
71,947
49,542
1,269
11,020
62,235
223,412
—
71,947
125,254
—
125,254
(8,637)
40,905
58,644
(3,767)
1,173
7,269
79
9,527
54,877
1,252
16,796
50
13,068
7,922
80,231
1,319
24,088
70,157
794,594
28,704
823,298
303,643
1,012,729
123,326
1,136,055
Total assets
Liabilities
Non-current liabilities
Debt
Other financial liabilities
Other payables
Current liabilities
Current portion of debt
Accounts payable and current portion of
other payables
Total liabilities
Equity
Trust Unit equity
Non-controlling interests
11,293,248
201,129
11,494,377 10,724,492
150,408
10,874,900
4,176,121
93,465
4,269,586
4,355,862
45,189
4,401,051
326,085
18,243
—
—
326,085
18,243
86,728
19,385
—
—
86,728
19,385
4,520,449
93,465
4,613,914
4,461,975
45,189
4,507,164
678,406
35,086
713,492
854,261
6,048
860,309
253,078
931,484
72,578
325,656
241,281
99,171
340,452
107,664
1,039,148
1,095,542
105,219
1,200,761
5,451,933
201,129
5,653,062
5,557,517
150,408
5,707,925
4,877,961
963,354
5,841,315
—
—
—
4,877,961
4,317,357
963,354
849,618
5,841,315
5,166,975
—
—
—
4,317,357
849,618
5,166,975
Total liabilities and equity
11,293,248
201,129
11,494,377 10,724,492
150,408
10,874,900
(1)
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” and “Non-GAAP Measures”.
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT 27
29
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 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, 2021 Three Months Ended December 31, 2020
GAAP Basis
Proportionate
Share
Reconciliation
Total
Proportionate
Share(1)
GAAP Basis
Proportionate
Share
Reconciliation
Total
Proportionate
Share(1)
Variance
Net rental income and other
Rentals from investment properties and
other
Property operating costs and other
Condominium sales revenue and other(2)
Condominium cost of sales and other
192,812
(65,896)
126,916
—
—
—
5,974
198,786
197,897
5,023
202,920
(4,134)
(3,144)
(69,040)
(79,836)
(2,167)
(82,003)
12,963
2,830
129,746
118,061
2,856
120,917
8,829
—
(67)
(67)
—
(67)
(67)
—
—
—
47,136
47,136
(47,136)
(31,051)
(31,051)
30,984
16,085
16,085
(16,152)
Net rental income and other
126,916
2,763
129,679
118,061
18,941
137,002
(7,323)
Other income and expenses
General and administrative expense, net
(8,703)
(534)
(9,237)
(7,766)
—
(7,766)
(1,471)
Earnings from equity accounted
investments
Earnings from other
Fair value adjustment on revaluation of
investment properties
Gain (loss) on sale of investment
properties
Interest expense
Interest income
Supplemental costs
Fair value adjustment on financial
instruments
Acquisition-related costs
Net income and comprehensive
income
160,049
(160,049)
38
—
—
38
20,150
(20,150)
—
—
—
—
—
38
420,418
160,289
580,707
(16,539)
3,050
(13,489) 594,196
(64)
—
(64)
(1)
26
25
(89)
(35,654)
(1,355)
(37,009)
(51,519)
(1,310)
(52,829)
15,820
2,745
11
—
(1,125)
2,756
(1,125)
4,137
34
4,171
(1,415)
—
(591)
(591)
(534)
(10,873)
(2,791)
—
—
(10,873)
(17,977)
(2,791)
(166)
—
—
(17,977)
7,104
(166)
(2,625)
652,081
—
652,081
48,380
—
48,380 603,701
(1)
(2)
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” and “Non-GAAP Measures”.
Includes additional partnership profit and other revenues.
For the three months ended December 31, 2021, net income and comprehensive income (as noted in the table above) increased
by $603.7 million as compared to the same period last year. This increase was primarily attributed to the following:
•
•
•
$594.2 million increase in fair value adjustments on revaluation of investment properties, of which: i) $496.8 million
relates to the fair value adjustment associated with certain properties under development, and ii) $97.4 million relates to
the revaluation of investment properties, principally driven by compression in discount rates as well as higher
revaluation loss in the prior year comparable period (see details in the “Investment Property” section);
$7.1 million increase in fair value adjustment on financial instruments, principally due to: i) $9.5 million increase in fair
value adjustment relating to interest rate swap agreements; ii) $4.2 million increase in fair value adjustment relating to
total return swap (“TRS”); and partially offset by iii) $4.2 million decrease in fair value adjustment relating to Units
classified as liabilities; iv) $2.4 million decrease in fair value adjustment relating to LTIP, Deferred Unit Plan (“DUP”) and
Equity Incentive Plan (“EIP”) as a result of fluctuations in the Trust’s Unit price; and
$15.8 million decrease in interest expenses primarily due to the yield maintenance costs incurred in the prior year;
Partially offset by the following:
•
•
•
•
•
$7.3 million decrease in NOI (see further details in the “Net Operating Income” subsection, including impact of ECL);
$2.6 million increase in acquisition-related costs (principally resulting from the acquisition of SmartVMC West property);
$1.5 million increase in general and administrative expenses (net) (see further details in the “General and Administrative
Expense” section);
$1.4 million decrease in interest income; and
$0.6 million increase in supplemental costs.
28 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT
30
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
Year-to-Date Comparison to Prior Year
(in thousands of dollars)
Year Ended December 31, 2021
Year Ended December 31, 2020
GAAP Basis
Proportionate
Share
Reconciliation
Total
Proportionate
Share(1)
GAAP Basis
Proportionate
Share
Reconciliation
Total
Proportionate
Share(1)
Variance
Net rental income and other
Rentals from investment properties and
other
780,758
21,530
802,288
781,253
18,813
800,066
2,222
Property operating costs and other
(294,956)
(9,719)
(304,675)
(320,542)
(7,976)
(328,518)
23,843
Condominium sales revenue and other(2)
Condominium cost of sales and other
485,802
11,811
497,613
460,711
10,837
471,548
26,065
—
—
—
76,837
76,837
(56,366)
(56,366)
20,471
20,471
—
—
—
141,557
141,557
(64,720)
(94,000)
(94,000)
37,634
47,557
47,557
(27,086)
Net rental income and other
485,802
32,282
518,084
460,711
58,394
519,105
(1,021)
Other income and expenses
General and administrative expense, net
(31,922)
(610)
(32,532)
(28,682)
—
(28,682)
(3,850)
Earnings from equity accounted
investments
Earnings from other
Fair value adjustment on revaluation of
investment properties
211,420
(211,420)
38
—
—
38
61,972
(61,972)
—
—
—
—
—
38
491,528
187,728
679,256
(275,051)
9,406
(265,645) 944,901
Gain on sale of investment properties
27
—
27
418
26
444
(417)
Interest expense
Interest income
Supplemental costs
Fair value adjustment on financial
instruments
Acquisition-related costs
Net income and comprehensive
income
(144,540)
(5,437)
(149,977)
(160,044)
(4,625)
(164,669)
14,692
12,341
75
12,416
15,241
802
16,043
(3,627)
—
(2,618)
(2,618)
—
(2,031)
(2,031)
(587)
(34,227)
(2,791)
—
—
(34,227)
17,722
(2,791)
(2,347)
—
—
17,722
(51,949)
(2,347)
(444)
987,676
—
987,676
89,940
—
89,940 897,736
(1)
(2)
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” and “Non-GAAP Measures”.
Includes additional partnership profit and other revenues.
For the year ended December 31, 2021, net income and comprehensive income (as noted in the table above) increased by
$897.7 million as compared to the same period last year. This increase was primarily attributed to the following:
•
•
$944.9 million increase in fair value adjustments on revaluation of investment properties, principally due to: i) $496.8
million fair value adjustment associated with certain properties under development, and ii) $448.1 million relates to the
compression of discount rates, and unfavourable fair value adjustment recorded in 2020, which reflected the adverse
changes in leasing and cash flow assumptions at the inception of the COVID-19 pandemic; and
$14.7 million decrease in interest expense primarily due to the yield maintenance costs incurred in the prior year;
Partially offset by the following:
•
•
•
•
•
•
$51.9 million decrease in fair value adjustment on financial instruments primarily due to: i) $41.5 million decrease in fair
value adjustment relating to Units classified as liabilities and $23.0 million decrease in fair value adjustment relating to
DUP, as a result of fluctuations in the Trust’s Unit price; ii) $3.3 million decrease in fair value adjustment relating to
equity incentive plan; iii) $0.2 million decrease in fair value adjustment relating to loans receivable and Earnout options
recorded in the same period in 2020, and partially offset by iv) $9.6 million increase in fair value adjustment relating to
interest rate swap agreements; v) $5.7 million increase on TRS fair value; and vi) $0.8 million increase in fair value
adjustment relating to LTIP;
$3.9 million increase in general and administrative expenses (net) (see further details in the “General and Administrative
Expense” section);
$3.6 million decrease in interest income;
$1.0 million decrease in NOI (see further details in the “Net Operating Income” subsection, including impact of ECL);
$0.9 million increase in supplemental costs and acquisition-related costs; and
$0.4 million decrease in gain on sale of investment properties.
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT 29
31
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 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)
Net base rent
Property tax and insurance recoveries
Property operating cost recoveries
Miscellaneous revenue
Rentals from investment properties
Service and other revenues
Rentals from investment properties and other(2)
Recoverable tax and insurance costs
Recoverable CAM costs
Property management fees and costs
Non-recoverable operating costs
ECL
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
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) (%)
Three Months Ended December 31, 2021 Three Months Ended December 31, 2020
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)
125,037
3,534
128,571
123,649
3,014
126,663
1,908
35,020
21,670
7,479
189,206
3,606
192,812
(36,015)
(25,165)
(586)
(2,094)
1,603
(62,257)
(3,639)
(65,896)
126,916
—
—
—
—
507
960
973
35,527
22,630
8,452
43,584
22,891
4,462
489
983
537
44,073
(8,546)
23,874
(1,244)
4,999
3,453
5,974
195,180
194,586
5,023
199,609
(4,429)
—
3,606
3,311
—
3,311
295
5,974
198,786
197,897
5,023
202,920
(4,134)
(547)
(1,051)
(215)
(1,273)
(58)
(36,562)
(26,216)
(801)
(3,367)
1,545
(41,801)
(27,967)
(311)
(1,144)
(5,301)
(646)
(834)
(189)
(456)
(42)
(42,447)
(28,801)
5,885
2,585
(500)
(301)
(1,600)
(1,767)
(5,343)
6,888
(3,144)
(65,401)
(76,524)
(2,167)
(78,691)
13,290
—
(3,639)
(3,312)
—
(3,312)
(327)
(3,144)
2,830
—
—
(67)
(67)
(69,040)
(79,836)
(2,167)
(82,003)
12,963
129,746
118,061
2,856
120,917
8,829
—
—
(67)
(67)
—
—
—
—
47,136
47,136
(47,136)
(31,038)
(31,038)
31,038
(13)
(13)
(54)
16,085
16,085
(16,152)
126,916
2,763
129,679
118,061
18,941
137,002
(7,323)
101.5
67.1
65.8
92.7
80.1
47.4
47.4
91.8
92.7
95.2
100.9
95.5
94.8
95.5
66.5
60.7
56.9
60.6
5.4
5.9
65.3
92.6
92.8
59.7
56.9
59.6
5.7
95.3
99.5
95.4
(2.8)
94.7
104.1
94.9
(2.1)
(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” and “Non-GAAP Measures”.
NOI for the three months ended December 31, 2021 decreased by $7.3 million or 5.3% as compared to the same period in 2020.
This decrease was primarily attributed to the following:
•
•
•
$16.2 million decrease in profit on condominium unit sales;
$2.6 million increase in net CAM and realty tax recovery shortfall primarily due to higher vacancy; and
$0.7 million increase in other non-recoverable operating costs related to vaccination centres;
Partially offset by the following:
•
•
•
•
•
$6.8 million decrease in bad debt and expected credit losses;
$3.0 million increase in lease termination fees;
$1.3 million net increase in base rent primarily due to the contribution from contractual rental steps;
$0.6 million increase in self-storage and apartment rentals; and
$0.5 million increase in short-term rental revenue.
30 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT
32
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
Year-to-Date Comparison to Prior Year
(in thousands of dollars)
Year Ended December 31, 2021
Year Ended December 31, 2020
Trust portion
excluding
EAI
Equity
Accounted
Investments
Total
Proportionate
Share(1)
Trust portion
excluding EAI
Equity
Accounted
Investments
Total
Proportionate
Share(1)
Net base rent
Property tax and insurance recoveries
Property operating cost recoveries
Miscellaneous revenue
494,992
169,180
83,852
17,891
(A)
(B)
13,098
508,090
496,135
11,032
507,167
2,354
3,389
2,689
171,534
180,181
2,368
182,549
(11,015)
87,241
20,580
83,621
11,182
3,255
2,158
86,876
13,340
365
7,240
Variance(1)
(A–B)
923
Rentals from investment properties
765,915
21,530
787,445
771,119
18,813
789,932
(2,487)
Service and other revenues
Rentals from investment properties and other(2)
14,843
—
14,843
10,134
—
10,134
780,758
21,530
802,288
781,253
18,813
800,066
Recoverable tax and insurance costs
Recoverable CAM costs
Property management fees and costs
Non-recoverable operating costs
ECL
(176,239)
(91,468)
(1,469)
(7,246)
(3,652)
(2,360)
(3,364)
(688)
(3,253)
(54)
(178,599)
(186,517)
(2,455)
(188,972)
(94,832)
(87,670)
(2,922)
(90,592)
(2,157)
(10,499)
(1,340)
(4,060)
(617)
(1,859)
(1,957)
(5,919)
(3,706)
(30,817)
(123)
(30,940)
Property operating costs
(280,074)
(9,719)
(289,793)
(310,404)
(7,976)
(318,380)
4,709
2,222
10,373
(4,240)
(200)
(4,580)
27,234
28,587
Other expenses
Property operating costs and other(2)
(14,882)
—
(14,882)
(10,138)
—
(10,138)
(4,744)
(294,956)
(9,719)
(304,675)
(320,542)
(7,976)
(328,518)
Net rental income and other
485,802
11,811
497,613
460,711
10,837
471,548
23,843
26,065
Condominium sales revenue
Condominium cost of sales
Condominium marketing and selling costs
Net profit on condominium sales(3)
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) (%)
—
—
—
—
485,802
76,837
(56,102)
(264)
20,471
32,282
76,837
(56,102)
(264)
20,471
—
—
—
—
141,557
141,557
(64,720)
(93,709)
(93,709)
37,607
(291)
(291)
27
47,557
47,557
(27,086)
518,084
460,711
58,394
519,105
(1,021)
98.1
90.2
63.4
54.9
62.2
54.9
94.5
100.3
94.6
103.3
97.9
63.2
62.0
94.6
94.8
92.9
98.2
93.0
59.7
57.6
59.7
4.9
3.5
59.0
57.6
58.9
3.1
96.2
104.6
96.4
96.1
105.9
96.3
(1.8)
(1.5)
(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, 2021 and December 31, 2020. 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.
During the year ended December 31, 2021, net profit on condominium sales is primarily due to the Transit City 3 closings totalling $20.5 million. For details, see “SmartVMC Residential
Development” above.
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” and “Non-GAAP Measures”.
NOI for the year ended December 31, 2021 decreased by $1.0 million or 0.2% as compared to the same period in 2020. This
decrease was primarily attributed to the following:
•
•
•
•
•
$27.1 million decrease in profit on condominium unit sales;
$6.7 million increase in net CAM and realty tax recovery shortfall primarily due to higher vacancy;
$4.8 million decrease in base rent primarily due to tenant base rent reductions and higher vacancy;
$2.3 million increase in other non-recoverable operating costs related to vaccination centres; and
$0.6 million increase in tenant incentive costs;
Partially offset by the following:
•
•
•
•
•
$27.0 million decrease in bad debt and expected credit losses;
$4.2 million increase in straight-line rent;
$3.8 million increase in lease termination fees;
$3.4 million increase in percentage rent and other miscellaneous revenue; and
$2.1 million increase in self-storage and apartment rentals.
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT 31
33
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
Same Properties NOI
NOI (a non-GAAP financial measure) from continuing operations represents: i) rentals from investment properties and other
revenues less property operating costs and other expenses, and ii) net profit from condominium sales. Disclosing the NOI
contribution from each of same properties, acquisitions, dispositions, Earnouts and Development activities highlights the impact
each component has on aggregate NOI. Straight-line rent, lease terminations and other adjustments, and amortization of tenant
incentives have been excluded from Same Properties NOI, as have NOI from acquisitions, dispositions, Earnouts and
Development activities, and ECL. This has been done in order to more directly highlight the impact of changes in occupancy, rent
uplift and productivity.
Quarterly Comparison to Prior Year
(in thousands of dollars)
Net rental income
Service and other revenues
Other expenses
NOI(1)
NOI from equity accounted investments(1)
Total portfolio NOI before adjustments(1)
Adjustments:
Royalties
Straight-line rent
Lease termination and other adjustments
Net profit on condominium sales
Amortization of tenant incentives
Total portfolio NOI after adjustments(1)
NOI sourced from:
Acquisitions
Dispositions
Earnouts and Developments
Same Properties NOI(1)
Add back: Bad debt expense/ECL(3)
Same Properties NOI excluding ECL(1)
Three Months Ended
Three Months Ended
December 31, 2021
December 31, 2020
Variance ($)
Variance (%)
126,949
3,606
(3,639)
126,916
2,763
129,679
285
(154)
(3,476)
67
1,766
128,167
(18)
(280)
(669)
127,200
(1,523)
125,677
118,062
3,311
(3,312)
118,061
18,941
137,002
243
(448)
(477)
(16,085)
1,825
122,060
(24)
(455)
(200)
121,381
5,301
126,682
8,887
295
(327)
8,855
(16,178)
(7,323)
42
294
(2,999)
16,152
(59)
6,107
6
175
(469)
5,819
(6,824)
(1,005)
7.5
8.9
9.9
7.5
(85.4)
(5.3)
17.3
(65.6)
N/R(2)
N/R(2)
(3.2)
5.0
(25.0)
(38.5)
N/R(2)
4.8
N/R(2)
(0.8)
(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” and “Non-GAAP Measures”.
N/R – Not representative.
Amounts for the three months ended December 31, 2021 and December 31, 2020 reflect, principally, the impact of the COVID-19 pandemic on collections.
“Same Properties” in the table above refers to those income properties that were owned by the Trust from October 1, 2020 to
December 31, 2020 and from October 1, 2021 to December 31, 2021. The Same Properties NOI for the three months ended
December 31, 2021 increased by $5.8 million or 4.8% as compared to the same period in 2020, which was primarily due to the
following:
•
$6.8 million decrease in bad debt expense and expected credit losses, which was higher in the comparative period to
reflect the impact of the COVID-19 pandemic; and
$2.6 million increase in rent step-up and lease-up, higher percentage rent, higher short-term rental and other
miscellaneous revenue, and rent abatements and reductions in comparative period;
•
Partially offset by the following:
•
•
$1.9 million increase in miscellaneous expense; and
$1.6 million increase in CAM and realty tax recoveries shortfall mainly due to higher vacancy.
Excluding the impact of ECL, Same Properties NOI would have been $125.7 million representing a decrease of $1.0 million or
0.8% as compared to the same period in 2020.
32 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT
34
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT
Year-to-Date Comparison to Prior Year
(in thousands of dollars)
Net rental income
Service and other revenues
Other expenses
NOI(1)
NOI from equity accounted investments(1)
Total portfolio NOI before adjustments(1)
Adjustments:
Royalties
Straight-line rent
Lease termination and other adjustments
Net profit on condominium sales
Amortization of tenant incentives
Total portfolio NOI after adjustments(1)
NOI sourced from:
Acquisitions
Dispositions
Earnouts and Developments
Same Properties NOI(1)
Add back: Bad debt expense/ECL(3)
Same Properties NOI excluding ECL(1)
MANAGEMENT’S DISCUSSION AND ANALYSIS
Year Ended
Year Ended
December 31, 2021
December 31, 2020
Variance ($)
Variance (%)
485,841
14,843
(14,882)
485,802
32,282
518,084
960
(883)
(5,240)
(20,471)
7,660
500,110
(251)
(1,745)
(4,691)
493,423
3,802
497,225
460,715
10,134
(10,138)
460,711
58,394
519,105
835
3,363
(1,483)
(47,557)
7,564
481,827
(120)
(2,010)
(3,127)
476,570
30,817
507,387
25,126
4,709
(4,744)
25,091
(26,112)
(1,021)
125
(4,246)
(3,757)
27,086
96
18,283
(131)
265
(1,564)
16,853
(27,015)
(10,162)
5.5
46.5
(46.8)
5.4
(44.7)
(0.2)
15.0
N/R(2)
N/R(2)
57.0
1.3
3.8
N/R(2)
(13.2)
(50.0)
3.5
(87.7)
(2.0)
(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” and “Non-GAAP Measures”.
N/R – Not representative.
Amounts for the year ended December 31, 2021 and December 31, 2020 reflect, principally, the adverse impact of the COVID-19 pandemic on collections.
“Same Properties” in the table above refers to those income properties that were owned by the Trust from January 1, 2020 to
December 31, 2020 and from January 1, 2021 to December 31, 2021.
The Same Properties NOI for the year ended December 31, 2021 increased by $16.9 million or 3.5% as compared to the same
period in 2020, which was primarily due to the following:
•
•
$27.0 million decrease in bad debt expense and expected credit losses, which was higher in the comparative period to
reflect the continued impact of the COVID-19 pandemic; and
$3.2 million increase in short-term rental, percentage rent, and other miscellaneous revenue;
Partially offset by the following:
•
•
•
$5.5 million net decrease in rental revenue mainly due to rent reductions of certain tenants, rent abatements not
provided and other vacancies/rent reductions as a result of the continued impact of the COVID-19 pandemic;
$4.7 million increase in CAM and realty tax recoveries shortfall mainly due to higher vacancy; and
$3.1 million higher expenses primarily due to COVID-19 vaccination centre costs, partially offset by lower management
fees.
Excluding the bad debt expense and ECL, Same Properties NOI would have been $497.2 million representing a decrease of
$10.2 million or 2.0% as compared to the same period in 2020.
Due to the various uncertainties pertaining to the COVID-19 pandemic, management is unable to predict reliably and accurately
the impact it will have on certain aspects of results of operations, including Annual Run-Rate NOI and the related sensitivity
analysis at this time.
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT 33
35
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
Adjusted EBITDA
The following table presents a reconciliation of net income and comprehensive income to Adjusted EBITDA:
(in thousands of dollars)
Net income and comprehensive income
Add (deduct) the following items:
Interest expense
Interest income
Yield maintenance costs
Amortization of equipment and intangible assets
Amortization of tenant improvements
Fair value adjustments
Fair value adjustment on TRS
Adjustment for supplemental costs
Gain on sale of investment properties
Gain on sale of land to co-owners (Transactional FFO)
Acquisition-related costs
Adjusted EBITDA(1)
Adjusted EBITDA(1)
Less: Condominium closing profits
Add: Expected credit loss
Adjusted EBITDA excluding condominium closing profits and
ECL(1)
12 Months Ended
12 Months Ended
December 31, 2021
December 31, 2020
987,676
89,940
Variance ($)
897,736
149,977
(12,341)
—
3,778
7,872
(645,029)
5,642
2,618
(27)
1,923
2,791
504,880
504,880
(20,471)
3,802
488,211
152,715
(15,241)
11,954
3,714
7,320
247,923
—
2,031
(444)
744
2,347
503,003
503,003
(47,557)
30,817
(2,738)
2,900
(11,954)
64
552
(892,952)
5,642
587
417
1,179
444
1,877
1,877
27,086
(27,015)
486,263
1,948
(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” and “Non-GAAP Measures”.
34 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT
36
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 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, 2021 and December 31, 2020, unless otherwise stated, do
not include any assumptions, do not include any forward-looking information and are consistent with prior reporting years.
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.
The tables and analyses below illustrate a reconciliation of the Trust’s net income and comprehensive income (GAAP measures)
to FFO (non-GAAP measures).
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT 35
37
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT MANAGEMENT’S DISCUSSION AND ANALYSIS
Quarterly Comparison to Prior Year
(in thousands of dollars, except per Unit amounts)
December 31, 2021
December 31, 2020
Net income and comprehensive income
652,081
48,380
Variance ($) Variance (%)
N/R(7)
603,701
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 derivative – TRS
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
Adjustment for supplemental costs
FFO(5)
Other adjustments(6)
FFO with adjustments(5)
Transactional FFO – gain on sale of land to co-owners
FFO with adjustments and Transactional FFO(5)
(420,418)
10,873
4,180
64
333
1,608
2,053
1,063
2,791
62
1,926
—
16,539
17,839
—
1
332
1,668
1,521
1,200
166
100
1,676
(240)
(436,957)
(6,966)
4,180
63
1
(60)
532
(137)
2,625
(38)
250
240
(160,289)
(3,050)
(157,239)
—
1,125
97,452
660
98,112
336
98,448
(26)
591
86,697
11,954
98,651
—
98,651
26
534
10,755
(11,294)
(539)
336
(203)
N/R(7)
N/R(7)
N/R(7)
N/R(7)
0.3
(3.6)
35.0
(11.4)
N/R(7)
(38.0)
14.9
N/R(7)
N/R(7)
N/R(7)
90.4
12.4
(94.5)
(0.5)
N/R(7)
(0.2)
(1)
(2)
(3)
(4)
(5)
(6)
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, DUP, EIP, LTIP, TRS, interest rate swap
agreement(s), and loans receivable and Earnout options recorded in the same period in 2020. 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 years ended December 31, 2021. For details please see discussion in
the “Results of Operations” above.
Salaries and related costs attributed to leasing activities of $1.1 million were incurred in the three months ended December 31, 2021 (three months ended December 31, 2020 – $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” and “Non-GAAP Measures”.
Represents adjustments relating to: i) $0.7 million of costs associated with COVID-19 vaccination centres (three months ended December 31, 2020 – $nil), and ii) $12.0 million yield
maintenance costs on repayment of debt and related write-off of unamortized financing costs during the three months ended December 31, 2020.
N/R – Not representative.
(7)
For the three months ended December 31, 2021, FFO increased by $10.8 million or 12.4% to $97.5 million. This increase was
primarily attributed to:
•
$15.8 million net decrease in interest expense, which was primarily due to the yield maintenance costs incurred in the
same period prior year;
$4.2 million increase in gain on TRS;
$0.5 million net increase in adjustment for supplemental costs;
$0.3 million increase in add back for indirect interest incurred in respect of equity accounted development projects; and
$0.2 million decrease in adjustment of indirect interest relating to closed Transit City condominium units in comparative
period in 2020;
•
•
•
•
Partially offset by:
•
•
•
$7.3 million decrease in NOI (see details in the “Net Operating Income” subsection);
$1.5 million increase in net general and administrative expense;
$1.4 million decrease in interest income.
For the three months ended December 31, 2021, FFO with adjustments decreased by $0.5 million or 0.5% to $98.1 million.
36 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT
38
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
The following table presents per unit FFO (non-GAAP measure):
Per Unit – basic/diluted(1):
FFO(2)
FFO with adjustments(2)
FFO with adjustments and Transactional FFO(2)
Three Months Ended Three Months Ended
December 31, 2020
December 31, 2021
Variance ($)
Variance (%)
$0.56/$0.56
$0.57/$0.56
$0.57/$0.56
$0.50/$0.50
0.06/0.06
12.0/12.0
$0.57/$0.57
$0.57/$0.57
—/(0.01)
—/(0.01)
—/(1.8)
—/(1.8)
(1)
(2)
Diluted FFO is adjusted for the dilutive effect of vested deferred units, which are not dilutive for net income purposes. The calculation of diluted FFO is a non-GAAP measure and does not
consider the impact of unvested deferred units. To calculate diluted FFO for the three months ended December 31, 2021, 1,397,164 vested deferred units are added back to the weighted
average Units outstanding (three months ended December 31, 2020 – 1,043,747 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” and “Non-GAAP Measures”.
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 derivative – TRS
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
Gain on sale of investment properties
Adjustment for supplemental costs
FFO(5)
Other adjustments(6)
FFO with adjustments(5)
Transactional FFO – gain on sale of land to co-owners
FFO with adjustments and Transactional FFO(5)
Year Ended
December 31, 2021
Year Ended
December 31, 2020
987,676
89,940
Variance ($) Variance (%)
N/R(7)
897,736
(491,528)
34,227
5,642
(271)
1,331
7,038
6,343
5,196
2,791
360
7,050
(675)
(187,728)
—
2,618
380,070
3,226
383,296
1,923
385,219
275,051
(766,579)
(17,722)
—
(418)
1,331
6,926
5,785
5,853
2,347
394
6,821
51,949
5,642
147
—
112
558
(657)
444
(34)
229
N/R(7)
N/R(7)
N/R(7)
(35.2)
—
1.6
9.6
(11.2)
18.9
(8.6)
3.4
(940)
265
(28.2)
(9,406)
(178,322)
(26)
2,031
26
587
367,967
12,103
N/R(7)
N/R(7)
28.9
3.3
11,954
(8,728)
(73.0)
379,921
744
380,665
3,375
1,179
4,554
0.9
N/R(7)
1.2
(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, DUP, EIP, LTIP, TRS, interest rate swap
agreement(s), and loans receivable and Earnout options recorded in the same period in 2020. 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, 2021. For details please see discussion
in “Results of Operations” above.
Salaries and related costs attributed to leasing activities of $5.2 million were incurred in the year ended December 31, 2021 (year ended December 31, 2020 – $5.9 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” and “Non-GAAP Measures”.
Represents adjustments relating to: i) $0.9 million of compensation costs relating to previous CEO (year ended December 31, 2020 – $nil), ii) $2.3 million of costs associated with
COVID-19 vaccination centres (year ended December 31, 2020 – $nil), and iii) $12.0 million yield maintenance costs on repayment of debt and related write-off of unamortized financing
costs during the year ended December 31, 2020.
N/R – Not representative.
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT 37
39
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the year ended December 31, 2021, FFO increased by $12.1 million or 3.3% to $380.1 million. This increase was primarily
attributed to:
•
•
•
•
•
$14.7 million net decrease in interest expense, which was primarily due to the yield maintenance costs incurred in the
prior year;
$5.6 million increase in gain of TRS;
$0.6 million increase in adjustment for supplemental costs;
$0.2 million increase in adjustment to indirect interest relating to closed Transit City condominium units in prior year; and
$0.2 million increase in add back for indirect interest incurred in respect of equity accounted development projects;
Partially offset by:
$3.9 million increase in net general and administrative expense;
$3.6 million decrease in interest income;
$1.0 million decrease in NOI (see details in the “Net Operating Income” subsection); and
$0.7 million decrease in FFO add back for salaries and related costs attributed to leasing activities.
•
•
•
•
•
For the year ended December 31, 2021, FFO with adjustments increased by $3.4 million or 0.9% to $383.3 million.
The following table presents per unit FFO and FFO with Transactional FFO (non-GAAP measures):
Per Unit – basic/diluted(1):
FFO(2)
FFO with adjustments(2)
FFO with adjustments and Transactional FFO(2)
Year Ended
Year Ended
December 31, 2021 December 31, 2020
Variance ($) Variance (%)
$2.20/$2.19
$2.22/$2.21
$2.23/$2.22
$2.14/$2.13
$2.21/$2.20
$2.21/$2.20
0.06/0.06
0.01/0.01
0.02/0.02
2.8/2.8
0.5/0.5
0.9/0.9
(1)
(2)
Diluted FFO is adjusted for the dilutive effect of vested deferred units, which are not dilutive for net income purposes. The calculation of diluted FFO is a non-GAAP measure and does not
consider the impact of unvested deferred units. To calculate diluted FFO for the year ended December 31, 2021, 1,301,485 vested deferred units are added back to the weighted average
Units outstanding (year ended December 31, 2020 – 998,302 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” and “Non-GAAP Measures”.
The following table presents FFO excluding condominium profits for the years ended December 31, 2021 and December 31,
2020 (for further details, see the “SmartVMC Residential Development” subsection):
(in thousands of dollars)
FFO(1)
Less:
FFO sourced from condominium profits(1)
FFO excluding condominium profits(1)
Three Months Ended
December 31, 2021
Three Months Ended
December 31, 2020
Year Ended
December 31, 2021
Year Ended
December 31, 2020
97,452
86,697
380,070
367,967
(66)
97,518
19,418
67,279
18,747
361,323
44,779
323,188
(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” and “Non-GAAP Measures”.
38 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT
40
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
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 DUP unless they are anti-dilutive. To calculate diluted FFO per Unit for the years ended December 31,
2021 and December 31, 2020, 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 D Series 1 VMC West LP Units
Class D Series 2 VMC West LP Units
Class B Boxgrove LP Units
Three Months Ended December 31
Year Ended December 31
2021
2020
Variance
2021
2020
Variance
144,621,347
144,618,352
2,995
144,619,385
144,543,393
75,992
16,424,430
16,416,667
7,763
16,419,964
16,416,667
3,297
311,022
8,708
756,525
4,039,184
3,093,910
710,416
260,417
374,223
433,207
259,924
170,000
311,022
8,708
756,525
4,006,661
3,067,593
710,416
260,417
374,223
—
—
—
32,523
26,317
—
—
—
—
—
433,207
259,924
170,000
311,022
8,708
756,525
4,034,079
3,087,565
710,416
260,417
374,223
109,192
65,515
170,000
311,022
8,405
756,525
3,945,328
3,067,593
710,416
260,417
374,223
—
303
—
88,751
19,972
—
—
—
—
—
109,192
65,515
58,989
111,011
1,248,140
1,248,140
132,881
139,302
132,881
139,302
—
—
—
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
—
—
—
—
Total Exchangeable LP Units
28,362,289
27,602,555
759,734
27,827,949
27,429,908
398,041
Total Units – Basic
Vested deferred units
Total Units and vested deferred
units – Diluted
172,983,636
172,220,907
762,729
172,447,334
171,973,301
474,033
1,397,164
1,043,747
353,417
1,301,485
998,302
303,183
174,380,800
173,264,654
1,116,146
173,748,819
172,971,603
777,216
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT 39
41
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
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. While the Trust calculates ACFO in accordance with the White
Paper, other issuers may not. Accordingly, the Trust’s method of calculating ACFO may differ from the methods used by other
issuers.
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, net of other financing costs
Non-cash interest income
Acquisition-related costs, 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 including working
capital adjustments
Notional interest capitalization(2)
Adjustment to indirect interest with respect to Transit City
condo closings(2)
Actual sustaining capital and leasing expenditures
Non-cash interest expense
ACFO(3)
Other adjustments(5)
ACFO with adjustments(3)
ACFO(3)
Distributions declared
Surplus of ACFO over distributions declared
Payout Ratio Information:
Payout Ratio to ACFO(3)
Payout Ratio to ACFO with adjustments(3)
Three Months Ended
December 31, 2021
Three Months Ended
December 31, 2020 Variance ($) Variance (%)
133,674
(48,678)
2,053
2,050
—
(10,323)
(742)
(1,217)
9,594
(7,110)
2,791
336
(732)
(236)
1,926
—
(103)
30
83,313
660
83,973
83,313
79,725
3,588
91,371
42,303
(21,921)
(26,757)
1,521
2,178
(386)
(4,686)
(738)
(1,466)
(3,504)
2,222
166
—
(3,473)
21,305
1,676
(240)
(73)
(9)
83,943
11,954
95,897
83,943
79,656
4,287
532
(128)
386
(5,637)
(4)
249
13,098
(9,332)
2,625
336
2,741
(21,541)
250
240
(30)
39
(630)
(11,294)
(11,924)
(630)
69
(699)
46.3
N/R(4)
35.0
(5.9)
N/R(4)
N/R(4)
0.5
(17.0)
N/R(4)
N/R(4)
N/R(4)
N/R(4)
(78.9)
N/R(4)
14.9
N/R(4)
41.1
N/R(4)
(0.8)
(94.5)
(12.4)
(0.8)
0.1
(16.3)
95.7 %
94.9 %
94.9 %
83.1 %
N/A
N/A
0.8 %
11.8 %
(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” line items as presented in the “Funds From Operations” 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” and “Non-GAAP Measures”.
N/R – Not representative.
Represents adjustments relating to $0.7 million of costs associated with COVID-19 vaccination centres (three months ended December 31, 2020 – $nil), and $12.0 million yield
maintenance costs on repayment of debt and related write-off of unamortized financing costs during the year ended December 31, 2020.
40 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT
42
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT
For the three months ended December 31, 2021, ACFO decreased by $0.6 million or 0.8% to $83.3 million compared to the
same period in 2020, which was primarily due to the items previously identified (see “Results of Operations”).
MANAGEMENT’S DISCUSSION AND ANALYSIS
Year Ended
December 31, 2021
Year Ended
December 31, 2020
Variance ($) Variance (%)
295,982
75,642
25.6
14,039
(54,835)
N/R(2)
Year-to-Date 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, net of other financing costs
Non-cash interest income
Acquisition-related costs, 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 including working
capital adjustments
Notional interest capitalization(3)
Adjustment to indirect interest with respect to Transit City
condo closings(3)
Actual sustaining capital and leasing expenditures
Non-cash interest expense
ACFO(4)
Other adjustments(5)
ACFO with adjustments(4)
ACFO(4)
Distributions declared
Surplus of ACFO over distributions declared
Payout Ratio Information:
Payout Ratio to ACFO(4)
Payout Ratio to ACFO with adjustments(4)
371,624
(40,796)
6,343
5,927
730
(17,331)
(3,071)
(2,903)
7,160
(5,307)
2,791
1,923
(4,072)
23,819
7,050
(675)
(207)
50
353,055
3,226
356,281
353,055
318,753
34,302
5,785
5,462
1,897
(8,445)
(1,732)
(3,829)
(19,966)
9,739
166
744
(4,770)
52,547
6,821
(940)
(185)
94
353,409
11,954
365,363
353,409
318,758
34,651
558
465
(1,167)
(8,886)
(1,339)
926
27,126
(15,046)
2,625
1,179
698
(28,728)
229
265
(22)
(44)
(354)
(8,728)
(9,082)
(354)
(5)
(349)
N/A
N/A
9.6
8.5
(61.5)
N/R(2)
77.3
(24.2)
N/R(2)
N/R(2)
N/R(2)
N/R(2)
(14.6)
(54.7)
3.4
(28.2)
11.9
(46.8)
(0.1)
(73.0)
(2.5)
(0.1)
0.0
(1.0)
0.1 %
2.3 %
90.3 %
89.5 %
90.2 %
87.2 %
(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.
N/R – Not representative.
See the “Indirect interest with respect to the development portion” as presented in the “Funds From Operations” 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” and “Non-GAAP Measures”.
Represents adjustments relating to: i) $0.9 million of compensation costs relating to previous CEO (year ended December 31, 2020 – $nil), ii) $2.3 million of costs associated with
COVID-19 vaccination centres (year ended December 31, 2020 – $nil), and iii) $12.0 million yield maintenance costs on repayment of debt and related write-off of unamortized financing
costs during the year ended December 31, 2020.
For the year ended December 31, 2021, ACFO decreased by $0.4 million or 0.1% to $353.1 million compared to the same period
in 2020, which was primarily due to the items previously identified (see “Results of Operations”).
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT 41
43
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
Determination of Distributions
Pursuant to the Trust’s declaration of trust (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 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
has indicated that barring any unexpected events, the Trust currently intends to maintain its monthly cash distribution levels.
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 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.
Distributions and ACFO Highlights
Three Months Ended December 31
Year Ended December 31
(in thousands of dollars)
2021
2020 Variance ($)
2021
2020 Variance ($)
Cash flows provided by operating activities
133,674
91,371
42,303
371,624
295,982
75,642
Distributions declared
ACFO(1)
79,725
79,656
69
318,753
318,758
83,313
83,943
(630)
353,055
353,409
(5)
(354)
Surplus (shortfall) of cash flows provided by operating
activities over distributions declared
53,949
11,715
42,234
52,871
(22,776)
75,647
Surplus of ACFO over distributions declared
3,588
4,287
(699)
34,302
34,651
(349)
(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” and “Non-GAAP Measures”.
For the year ended December 31, 2021, the $52.9 million surplus of cash flows provided by operating activities over distributions
declared was primarily due to lower working capital requirements, in addition to an increase in tenant prepaid rent, deposits, and
other payables.
The following tables illustrate: i) the annualized surplus of cash flows provided by operating activities over distributions declared,
ii) ACFO, and iii) ACFO-related payout ratios, for the 12 and 24 months ended December 31, 2021 and December 31, 2020:
(in thousands of dollars)
Cash flows provided by operating activities
Distributions declared
ACFO
Surplus (shortfall) of cash provided by operating activities over distributions declared
Surplus of ACFO over distributions declared
Payout Ratio to Cash flows provided by operating activities
Payout Ratio to ACFO(1)
(A)
(B)
(C)
(A – B)
(C – B)
12 Months Ended
December 31, 2021
December 31, 2020
371,624
318,753
353,056
52,871
34,303
85.8 %
90.3 %
295,982
318,758
353,408
(22,776)
34,650
107.7 %
90.2 %
(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” and “Non-GAAP Measures”.
42 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT
44
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT
Cash flows provided by operating activities
Distributions declared
ACFO
Surplus of cash provided by operating activities over distributions declared
Surplus of ACFO over distributions declared
Payout Ratio to Cash flows provided by operating activities
Payout Ratio to ACFO(1)
MANAGEMENT’S DISCUSSION AND ANALYSIS
(A)
(B)
(C)
(A – B)
(C – B)
24 Months Ended
December 31, 2021
December 31, 2020
667,606
637,511
706,464
30,095
68,953
95.5 %
90.2 %
641,593
629,408
688,054
12,185
58,646
98.1 %
91.5 %
(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” and “Non-GAAP Measures”.
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, 2021)
general and administrative expense excluding internal leasing expense, and general and administrative expense, net as a
percentage of rental from investment properties:
Year-to-Date Comparison to Prior Year
(in thousands of dollars)
Salaries and benefits
Performance compensation (EIP, LTIP)
DUP
Services fee – by Penguin
Professional fees
Public company costs
Amortization of intangible assets
Office rent, information technology, marketing,
communications and other employee expenses
Other costs
Subtotal
Previously capitalized general and administrative costs –
Transit City phases
Previously capitalized general and administrative expenses
on sale of real estate assets
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
Note(1)
22
8
22
22
22
(A)
(B)
(C)
Total amounts allocated, capitalized and charged
General and administrative expense, net
(D = B + C)
(E = A + D)
Year Ended
Year Ended
December 31, 2021 December 31, 2020 Variance ($)
3,801
50,459
54,260
8,095
3,990
7,062
6,338
1,681
1,331
9,546
2,702
95,005
1,050
946
895
2,892
6,880
6,093
1,708
1,331
7,200
1,098
182
245
(27)
—
8,195
1,351
1,946
756
80,399
14,606
1,842
(792)
—
946
97,001
82,241
14,760
(15,434)
(36,465)
(51,899)
—
(12,034)
(1,146)
(13,180)
(65,079)
31,922
(13,949)
(1,485)
(29,476)
(43,425)
(6,989)
(8,474)
(833)
833
(8,538)
(3,496)
(763)
(383)
(10,134)
(3,046)
(53,559)
(11,520)
28,682
3,240
(1)
The Note reference relates to the corresponding Note disclosure in the consolidated financial statements for the year ended December 31, 2021.
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT 43
45
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
Total general and administrative expense before allocation
For the year ended December 31, 2021, total general and administrative expense before allocation was $97.0 million,
representing an increase of $14.8 million or 17.9% as compared to the same period in 2020. This increase can be attributed
primarily to:
•
•
•
•
•
$7.1 million increase in EIP expense (Mitchell Goldhar – $5.2 million and eligible associates – $1.9 million);
$3.8 million increase in salary and related costs;
$2.4 million increase in professional fees and other costs;
$1.3 million increase in DUP and LTIP expense; and
$0.2 million net increase in previously capitalized expenses on completed condo developments relating to VMC
Residences (equity accounted investments) and other real estate assets sold.
Total amounts allocated, capitalized and charged
For the year ended December 31, 2021, total amounts allocated, capitalized and charged to Penguin and others was $65.1
million, representing an increase of $11.5 million or 21.5% as compared to the same period in 2020. This increase can be
attributed primarily to:
•
•
$7.0 million increase in the amounts capitalized to properties under development and other assets; and
$4.5 million increase in General and Administrative capitalization associated with external development and other
service fees.
Section V — Leasing Activities and Lease Expiries
Leasing Activities
Occupancy
Consumer spending strengthened throughout the last quarter of 2021 and into the Christmas shopping season despite higher
inflation levels. The Trust’s value-oriented portfolio not only provided an attractive place to shop, but Tenant confidence grew with
the improving traffic and new locations were being sought in all markets and for all store sizes. Tenants continue to find new
ways to enhance their customers’ experience through flexible hours, reconfiguration of store layouts, click and collect, and
convenient delivery. In addition to the regular staple of value-oriented tenants continuing to seek more space in Walmart-
anchored sites, new uses also continue to enhance each centre’s offering with medical, daycare, health foods, furniture,
entertainment, pet supplies, takeout food, specialty foods and more. This led to the Trust’s strong occupancy levels at 97.6%
(inclusive of committed leases for future occupancy) and 97.4% (in place).
Occupancy
Total Leasable Area (in sq. ft.)
In-place Occupancy Rate (%)
Committed Occupancy Rate (%)
December 31, 2021
December 31, 2020
Variance
34,118,613
34,056,064
62,549
97.4
97.6
97.0
97.3
0.4
0.3
New Leasing Activity
During the three months ended December 31, 2021, the Trust completed deals with a wide variety of tenants, with uses such as
medical, food service, entertainment, warehousing and logistics and wellness. Many of the Trust’s existing tenants continued
their growth plans with retailers in pharmacy, general merchandise, pet stores and home furnishings expanding their brick-and-
mortar footprint nationally. During the fourth quarter, the Trust executed 175,486 square feet of new leasing, primarily tied to
backfilling vacant units. The following table presents a continuity of the Trust’s in-place occupancy level for the three months
ended December 31, 2021:
(in square feet)
Beginning balance – October 1, 2021
New vacancies
New leases
Subtotal
Acquisitions
Dispositions
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 (%)
912,595
213,694
(175,486)
33,312,492
34,225,087
97.3
(213,694)
175,486
—
—
950,803
33,274,284
34,225,087
—
(49,175)
103,296
(167,452)
103,296
(216,627)
—
9,840
9,840
(1,888)
249
(1,488)
144
(3,376)
393
Ending balance – December 31, 2021
899,989
33,218,624
34,118,613
97.4
44 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT
46
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
The following table presents a continuity of the Trust’s in-place occupancy level for the year ended December 31, 2021:
(in square feet)
Vacant Area
Occupied Area
Leasable Area
In-place Occupancy
Level (%)
Beginning balance – January 1, 2021
1,016,894
33,039,170
34,056,064
97.0
New vacancies
New leases
Subtotal
Acquisitions
Dispositions
Transferred from properties under development to
income properties
Transferred from income properties to properties
under development
Other including unit area remeasurements
824,495
(862,068)
(824,495)
862,068
—
—
979,321
33,076,743
34,056,064
—
(49,175)
103,296
(167,452)
103,296
(216,627)
—
207,259
207,259
(30,445)
288
(1,488)
266
(31,933)
554
Ending balance – December 31, 2021
899,989
33,218,624
34,118,613
97.4
Renewal Activity
For the year ended December 31, 2021, the Trust achieved a tenant renewal rate of 85.4% (December 31, 2020 – 75.3%) for
tenants with expiring leases.
Renewal Summary
Space expiring in calendar year (in sq. ft.)
Renewed (in sq. ft.)
Near completion (in sq. ft.)
Total renewed and near completion (in sq. ft.)
Retention rate (including near completion) (%)
Renewed rental rate (in dollars per sq. ft.) – including Anchors
Renewed rental rate (in dollars per sq. ft.) – excluding Anchors
Renewed rent change (including Anchors, %)
Renewed rent change (excluding Anchors, %)
Tenant Profile
December 31, 2021
December 31, 2020
Variance
4,330,499
3,586,309
113,122
3,699,431
85.4
13.32
19.08
0.9
0.7
4,096,297
234,202
2,897,874
688,435
187,598
(74,476)
3,085,472
613,959
75.3
13.09
18.76
2.6
3.3
10.1
0.23
0.32
(1.7)
(2.6)
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 have in-place occupancy
of 97.1% and 96.7% respectively, and account for nearly 90% of revenue and fair value, properties in the secondary markets
reflect higher in-place occupancy levels of 99.3%.
Portfolio Summary by Market Type
Market
Greater-VECTOM
Primary
Secondary
Total
Number of
Properties
Area
(000 sq. ft.)
Gross Revenue
(%)
Income Property
Fair Value
(%)
In-place
Occupancy (%)
108
31
27
166
22,828
6,579
4,711
34,118
72.3
16.8
10.9
100.0
75.6
13.9
10.5
100.0
97.1
96.7
99.3
97.4
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT 45
47
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
Tenant Categories
The portfolio is represented by strong individual shopping centres in every major market in Canada, with a diverse mix of tenant
and service offerings, reflecting almost every retail category.
Annualized Gross Rent by Category for Tenants In-Place as at December 31, 2021
Category
General merchandise with grocery & pharmacy
Apparel
Home improvement & housewares
Restaurant
Stand-alone grocery & liquor
Leisure (sporting goods, toys)
Specialty (fitness, electronics, pet)
Pharmacy & personal services
Financial services
Other
Total
Total
(%)
Greater-VECTOM
(%)
28.6
15.0
9.4
9.2
9.1
6.5
6.1
5.6
4.5
6.0
23.9
15.7
10.1
10.3
9.5
6.5
5.9
6.6
4.9
6.6
Primary
(%)
35.5
14.1
8.5
7.0
8.2
7.7
6.6
3.6
4.0
4.8
Secondary
(%)
47.5
12.0
6.7
6.0
8.2
4.5
6.3
2.5
2.7
3.6
100.0
100.0
100.0
100.0
The following graph represents the Trust’s portfolio exposure by annualized gross rent by category as at December 31, 2021.
Financial services, 4.5%
Other, 6.0%
Pharmacy & personal services, 5.6%
General merchandise with grocery & pharmacy, 28.6%
Specialty (fitness, electronics, pet), 6.1%
Leisure (sporting goods, toys), 6.5%
Stand-alone grocery & liquor, 9.1%
Restaurant, 9.2%
Home improvement & housewares, 9.4%
Apparel, 15.0%
46 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT
48
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT Top 25 Tenants
The 25 largest tenants (by annualized gross rental revenue) accounted for 62.4% of portfolio revenue as at December 31, 2021
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
Dollarama
Lowes, RONA
LCBO
Best Buy
Michaels
Recipe Unlimited
Staples
Gap Inc.
Reitmans(2)
Bulk Barn
Bonnie Togs
Toys R Us
GoodLife Fitness Clubs
CIBC
The Brick
Sleep Country
Metro
Dollar Tree, Dollar Giant
PetSmart
Bank of Nova Scotia
Number of
Stores
Annualized
Gross
Rental Revenue
($ millions)
Percentage of
Total Annualized
Gross Rental
Revenue (%)
Leased
Area
(sq. ft.)
100
201.3
25.2
13,957,945
Leased Area as
a % of Total
Gross Leasable
Area (%)
40.9
64
56
24
16
57
8
37
19
24
56
21
26
60
52
42
7
11
27
9
38
9
26
15
23
36.8
35.1
22.4
16.5
15.6
15.3
13.2
12.4
12.1
11.8
11.0
9.2
8.7
8.2
7.6
7.5
7.4
7.4
6.9
6.8
6.7
6.6
6.1
5.8
4.6
4.4
2.8
2.1
2.0
1.9
1.7
1.5
1.5
1.5
1.4
1.2
1.1
1.0
1.0
0.9
0.9
0.9
0.9
0.8
0.8
0.8
0.8
0.7
1,394,405
1,390,839
899,056
698,818
555,838
870,545
350,225
451,226
467,059
278,024
449,599
269,742
313,975
242,998
198,843
268,880
249,432
147,298
258,244
181,572
315,438
217,286
197,362
120,461
4.1
4.1
2.6
2.0
1.6
2.6
1.0
1.3
1.4
0.8
1.3
0.8
0.9
0.7
0.6
0.8
0.7
0.4
0.8
0.5
0.9
0.6
0.6
0.4
(1)
(2)
The Trust has a total of 100 Walmart locations under lease, of which 98 are Supercentres that represent stores that carry all merchandise that Walmart department stores offer including a
full assortment of groceries. 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 25 of its locations situated within the Trust’s portfolio.
827
498.4
62.4
24,745,110
72.4
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT 47
49
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
Lease Expiries
The following table presents total retail and office lease expiries for the portfolio as at December 31, 2021:
Year of Expiry
Month-to-month and holdovers
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
Beyond
Vacant
Total retail
Total office
Total retail and office
Total Area
(sq. ft.)
678,622
2,193,630
4,681,359
4,968,411
4,495,044
4,078,450
4,125,715
1,487,937
2,273,196
975,707
962,483
1,132,976
919,604
899,989
33,873,123
245,490
34,118,613
Percentage of
Total Area
(%)
1.9
6.4
13.7
14.6
13.2
12.0
12.1
4.4
6.7
2.9
2.8
3.3
2.7
2.6
99.3
0.7
100.0
Annualized
Base Rent
($000s)
Average Base Rent
psf(1)
($)
13,824
31,238
76,555
77,528
62,581
59,590
54,320
27,978
38,136
19,290
17,195
17,932
13,089
—
509,256
20.37
14.24
16.35
15.60
13.92
14.61
13.17
18.80
16.78
19.77
17.87
15.83
14.23
—
15.44
(1)
The total average base rent per square foot excludes vacant space of 899,989 square feet.
The following table presents total retail and office lease expiries for the portfolio excluding Anchor tenants as at December 31,
2021:
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
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
Beyond
Vacant
Total retail
Total office
Total retail and office
(sq. ft.)
426,295
1,224,532
2,549,883
2,199,373
1,982,414
1,451,709
1,097,961
721,171
725,989
412,510
475,323
198,630
111,888
828,791
14,406,469
69,064
14,475,533
(%)
1.3
3.6
7.5
6.4
5.8
4.3
3.2
2.1
2.1
1.2
1.4
0.6
0.3
2.5
42.3
0.2
42.5
(%)
2.9
8.5
17.6
15.2
13.7
10.0
7.6
5.0
5.0
2.8
3.3
1.4
0.8
5.7
99.5
0.5
100.0
(1)
The total average base rent per square foot excludes vacant space of 828,791 square feet.
Annualized
Base Rent
($000s)
Average Base Rent
psf(1)
($)
10,175
22,759
54,650
48,680
40,778
32,585
24,220
18,063
19,396
10,633
10,935
4,236
2,562
—
299,672
23.87
18.59
21.43
22.13
20.57
22.45
22.06
25.05
26.72
25.78
23.01
21.33
22.90
—
22.07
48 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT
50
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 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
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036
2037
B eyond
Walmart
Other Anchors
Non-Anchor
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT 49
51
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
Section VI — Asset Profile
Investment Properties
The following table summarizes the changes in fair values of investment properties including the Trust’s proportionate share of
equity accounted investments:
Year Ended December 31, 2021
Year Ended December 31, 2020
(in thousands of dollars)
Investment properties
Balance – beginning of year
Additions (deductions):
Acquisitions, Earnouts and related adjustments of
investment properties
Earnout Fees on properties subject to development
management agreements
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
Capital expenditures
Leasing costs
Development expenditures (1)
Capitalized interest
Dispositions
Income
Properties
Properties
Under
Development
Total
Investment
Properties
Income
Properties
Properties
Under
Development
Total
Investment
Properties
8,267,430
582,960 8,850,390 8,488,669
561,397 9,050,066
—
22,015
499,700
521,715
—
21,678
21,678
2,397
—
2,397
291
—
291
40,555
(40,555)
—
39,748
(39,748)
(2,400)
2,400
—
(70,236)
70,236
—
—
—
(6,850)
(6,850)
—
(6,125)
(6,125)
17,472
3,057
—
—
(62,865)
—
—
17,472
8,445
3,057
1,732
—
—
8,445
1,732
53,186
53,186
14,333
(37,285)
14,333
(100,150)
—
—
—
50,728
50,728
17,689
17,689
(19,063)
(19,063)
Fair value adjustment on revaluation of investment
properties
107,416
384,112
491,528 (201,219)
(73,832)
(275,051)
Balance – end of year (A)
8,395,077
1,452,001 9,847,078 8,267,430
582,960 8,850,390
Investment properties classified as equity accounted investments(2)
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’s investment properties
Capital expenditures
Development expenditures (1)
Capitalized interest
Dispositions
Fair value adjustment on revaluation of investment
properties
Balance – end of year (B)
Total balance (including investment
properties classified as equity accounted investments)
– end of period (A + B)(2)
234,566
315,628
550,194 186,204
230,231 416,435
—
11,791
11,791
—
58,302
58,302
46,579
(46,579)
—
55,568
(55,568)
—
—
139
—
—
74
—
—
(16,600)
16,600
6,850
6,850
—
139
77,645
77,645
3,030
3,030
—
74
—
106
—
—
—
6,125
6,125
—
106
58,656
58,656
1,164
1,164
—
—
—
—
37,666
150,062
187,728
9,288
118
9,406
319,024
518,427
837,451 234,566
315,628 550,194
8,714,101
1,970,428 10,684,529 8,501,996
898,588 9,400,584
Includes development expenditures provided by external contractors, capitalized CAM costs and realty tax, and capitalized general and administrative expenses.
(1)
(2) 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” and “Non-GAAP Measures”.
50 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT
52
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
The portfolio consists of 34.1 million square feet of gross leasable retail and office area and 1.5 million square feet of future
potential gross leasable retail area in 174 properties and the option to acquire a 50.0% interest in four investment properties and
25.0% interest in another investment property (0.5 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 ten provinces. By selecting well-located centres, the
Trust seeks to attract high-quality tenants at market rental rates.
Valuation Methodology
From January 1, 2019 to December 31, 2021, the Trust has had approximately 61.2% (by value) or 51.7% (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,
ECL 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, 2021 for further
discussion).
Fair values were primarily determined through the discounted cash flows approach, which is an estimate of the present value of
future cash flows over a specified horizon. For the year ended December 31, 2021, the Trust applied a change in the valuation
method used to estimate the value of properties under development. 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 properties under development based
on expectations of changes in rental rates, occupancy rates, lease renewal rates, downtime on lease expiries, among others, as
a result of the impact of the COVID-19 pandemic. This change in valuation method for properties under development also aligns
with the valuation method used to determine fair value for income properties.
Investment properties (including properties under development) as recorded in the Trust’s consolidated financial statements for
the year ended December 31, 2021, with a total carrying value of $2,195.9 million (December 31, 2020 – $1,426.2 million) were
valued by external national appraisers, and investment properties with a total carrying value of $7,651.2 million (December 31,
2020 – $7,424.2 million) were internally valued by the Trust. Based on these valuations, the weighted average discount rate on
the Trust’s income properties portfolio as at December 31, 2021 was 6.34% (December 31, 2020 – 6.46%).
The following table summarizes significant assumptions in Level 3 valuations along with corresponding fair values for income
properties (excluding investment properties recorded in equity accounted investments):
(in thousands of dollars)
December 31, 2021
Valuation Method
Discounted cash flow
Terminal Capitalization Rate
Discount Rate
Carrying Value
Weighted
Average (%)
Range (%)
Weighted
Average (%)
Range (%)
8,395,077
5.83
4.18 – 7.43
6.34
4.58 – 7.93
(in thousands of dollars)
December 31, 2020
Valuation Method
Discounted cash flow
Terminal Capitalization Rate
Discount Rate
Carrying Value
Weighted
Average (%)
Range (%)
Weighted
Average (%)
Range (%)
8,267,430
5.94
4.25 – 7.79
6.46
4.65 – 8.54
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT 51
53
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
The following table summarizes significant assumptions in Level 3 valuations along with corresponding fair values for properties
under development (excluding properties under development recorded in equity accounted investments):
(in thousands of dollars)
Valuation Method
Land, development and construction costs recorded at market value
Discounted cash flow
(in thousands of dollars)
Valuation Method
Land, development and construction costs recorded at market value
Direct income capitalization
December 31, 2021
Carrying Value
Weighted Average
Discount Rate (%)
1,324,263
127,738
1,452,001
N/A
5.92
December 31, 2020
Carrying Value
Weighted Average
Capitalization Rate (%)
416,964
165,996
582,960
N/A
6.22
As at December 31, 2021, including investment properties recorded in equity accounted investments, due to changes in the
market and the progress made on planning entitlements, the Trust increased the fair value of certain properties under
development to $496.8 million. As driven by the Trust’s vast pipeline of mixed use initiatives, the Trust expects to continue to
recognize fair value increments through the planning, zoning, and development progress of its investment properties.
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
investment properties based on the Trust’s continued ability to lease and generate NOI in the foreseeable future. This re-
assessment has resulted in a net fair value adjustment (gain) on revaluation of investment properties of $491.5 million (excluding
investment properties recorded in equity accounted investments) for the year ended December 31, 2021, which was primarily
attributed to the revaluation of certain properties under development, and the compression of discount rate by 0.075% during the
year ended December 31, 2021, as management believes this adjustment in discount rate reflects long-term yield trends on the
investment real estate market and risks associated with future cash flow of the Trust’s portfolio, partially offset by increases in the
term of assumed vacancy. See further discussion on the impact of COVID-19 on the Trust’s operations in the “Results of
Operations” section above.
Acquisitions of Investment Properties
In February 2021, the Trust acquired a parcel of land totalling 7.6 acres in Aurora, Ontario, to develop a residential property, for a
purchase price of $12.2 million, paid in cash and adjusted for costs of acquisition and other working capital amounts.
In April and June 2021, the Trust acquired two parcels of residential land in Hamilton, Ontario, to develop a residential property
for a total purchase price of $1.1 million, paid in cash and adjusted for costs of acquisition and other working capital amounts.
In December 2021, the Trust acquired a 50.0% interest in a parcel of land for retail development in Toronto (Leaside), Ontario, for
a total purchase price of $12.8 million, paid in cash and adjusted for costs of acquisition and other working capital amounts. The
remaining 50.0% interest is held by Penguin.
In December 2021, the Trust acquired a 66.67% interest in a parcel of land adjacent to the Vaughan Metropolitan Centre in
Vaughan, Ontario, from unrelated parties for a purchase price of $494.3 million. The purchase price of this parcel of land
(“SmartVMC West”) was satisfied by: i) $300.0 million of cash, ii) $181.2 million through the issuance of 3,623,188 Class D
Series 1 LP Units and 2,173,913 Class D Series 2 LP Units of SmartVMC West Limited Partnership, and iii) $13.1 million through
the assumption of mortgages. The Trust’s ownership interest in SmartVMC West represents 66.67%, 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,
2021.
In addition, see “Equity Accounted Investments” below for acquisitions/property contributions completed during the year ended
December 31, 2021 that are recorded in investment in joint ventures.
52 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT
54
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
Dispositions of Investment Properties
In January 2021, the Trust sold a parcel of land totalling 13.2 acres located in Niagara Falls, Ontario, for gross proceeds of $4.7
million, of which $1.4 million was paid in cash and the balance was granted as an interest-bearing loan to the purchaser. See
also Note 3, “Acquisitions and Earnouts” and Note 6, “Mortgages, loans and notes receivable” in the Trust’s consolidated
financial statements for the year ended December 31, 2021.
In February 2021, the Trust contributed its interest in a parcel of land totalling 1.5 acres located in Brampton, Ontario, for a value
of $3.3 million to a joint venture, Kingspoint Self Storage LP, for development of a self-storage facility (see also, Note 5(b) in the
Trust’s consolidated financial statements for the year ended December 31, 2021).
In March 2021, the Trust sold a parcel of land totalling 2.4 acres located in Mascouche, Quebec, for gross proceeds of $3.1
million, which was satisfied by cash.
In March 2021, the Trust contributed its interest in a parcel of land totalling 2.7 acres located in Mascouche, Quebec for a value
of $3.6 million to a joint venture, Mascouche North Apartments Limited Partnership, for development of a rental apartment
complex (see also, Note 5(b) in the Trust’s consolidated financial statements for the year ended December 31, 2021).
In September 2021, the Trust sold a parcel of land totalling 1.4 acres located in Stouffville, Ontario, for gross proceeds of $2.7
million, which was satisfied by cash.
In October 2021, the Trust, together with its 50% partner Penguin, sold a parcel of land totalling 78.4 acres (39.2 acres at the
Trust’s share) located in Innisfil, Ontario, for gross proceeds of $21.6 million (at the Trust’s share), which was satisfied by a
vendor take-back mortgage bearing interest at 4% per annum, with a term of two years, in the amount of $15.1 million (at the
Trust’s share, see also Note 6(b), footnote 11 in the Trust’s consolidated financial statements for the year ended December 31,
2021), with the balance paid in cash adjusted for other working capital amounts.
In December 2021, the Trust sold a property, consisting of an investment property and a property under development, located in
Maple Ridge, British Columbia, for gross proceeds of $67.5 million, which was satisfied by cash, adjusted for transaction costs
and other working capital amounts.
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT 53
55
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 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 (loss)
Distributions – VMC Residences
condominium unit closings(1)
Distributions – operating activities
Financing Activities:
Fair value adjustment on loan
Loan repayment
Investing Activities:
Cash contribution (return of contributions)
Property contribution
Acquisition and related costs(2)
Year Ended December 31, 2021
Year Ended December 31, 2020
Investment in
Associates
Investment in
Joint Ventures
Total
Investment in
Associates
Investment in
Joint Ventures
Total
354,992
108,212
463,204
294,499
50,877
345,376
183,660
27,760
211,420
62,369
(397)
61,972
(52,824)
(3,358)
3,995
—
1,878
—
—
—
(52,824)
—
—
—
(714)
(4,072)
(3,987)
(783)
(4,770)
—
—
3,995
—
4,218
(3,987)
—
—
4,218
(3,987)
23,991
6,850
—
25,869
6,850
4,061
—
—
(2,181)
(7,121)
2,036
63,600
(3,060)
2,036
61,419
Investment – end of year
488,343
166,099
654,442
354,992
108,212
463,204
(1)
(2)
During the year ended December 31, 2021, the distribution in the amount of $52.8 million was satisfied by a non-cash settlement of the PCVP (defined below) loan payable, see also the
“Debt” section.
Represents the contribution of funds to acquire an interest in equity accounted investments.
The following table summarizes the asset profile of the Trust’s equity accounted investments, grouped by their business focus:
Residential development inventory
—
—
269,714
(1) Consists of loans receivable of $158.1 million in connection with the 700 Applewood purchase (see also the “Debt” section), and cash and cash equivalents of $6.5 million.
(2) Consists of notes receivable of $87.7 million in connection with the Transit City condominium closings, and cash and cash equivalents of $6.9 million.
691,165
990,886
269,714
311,882
As at December 31, 2021
(in thousands of dollars)
Rental
Residential
Self-storage facilities
Retail
Office
Mixed-use
As at December 31, 2020
(in thousands of dollars)
Rental
Residential
Self-storage facilities
Retail
Office
Mixed-use
Income
Properties
Properties
Under
Development
Residential
Development
Inventory
Other Assets
Total Assets
74,025
139,300
135,611
45,494
132,795
4,533
220,002
11,178
128,732
790,381
—
—
—
—
—
11,382
2,082
2,732
23,778
167,930 (1)
103,978 (2)
224,707
183,187
140,060
254,958
1,087,043
373,692
2,263,647
Income
Properties
Properties
Under
Development
Residential
Development
Inventory
Other Assets
Total Assets
42,023
55,081
116,946
98,092
49,873
4,470
205,310
13,445
96,550
434,114
—
—
—
—
—
4,298
1,326
2,474
20,290
170,374 (1)
277,560 (2)
144,413
106,280
123,890
239,045
701,038
632,691
Residential development inventory
—
—
355,131
(1) Consists of loans receivable of $156.4 million in connection with the 700 Applewood purchase (see also the “Debt” section), and cash and cash equivalents of $10.6 million.
(2) Consists of notes receivable of $186.0 million in connection with the Transit City condominium closings, and cash and cash equivalents of $80.1 million.
515,910
599,994
355,131
476,322
1,947,357
54 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT
56
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
Investment in associates
The following table summarizes the Trust’s ownership interest in investment in associates as reflected in the Trust’s consolidated
financial statements for the year ended December 31, 2021:
Business Focus
Partner(s)
Principal Intended Activity
December 31, 2021 December 31, 2020
Ownership Interest (%), As at
Mixed-use real estate development
Penguin-Calloway Vaughan
Partnership (“PCVP”)
Penguin(1)
Residential condominium developments
VMC Residences Limited
Partnership (“Residences
LP”)
Residences III LP
East Block Residences LP
Penguin(1),
CentreCourt
Penguin(1),
CentreCourt
Penguin(1),
CentreCourt
Residences (One) LP
Penguin(1)
Own, develop and operate investment
properties in the SmartVMC (Eastern 52.0
acres)
50.0
50.0
Own, develop and sell two residential
condominium towers and 22 townhomes
(Transit City 1 and 2) at SmartVMC
Own, develop and sell a residential
condominium tower (Transit City 3) at
SmartVMC
Own, develop and sell two residential
condominium towers (Transit City 4 and 5) at
SmartVMC
Own, develop and sell residential condominium
towers (ArtWalk)
25.0
25.0
25.0
50.0
25.0
25.0
25.0
N/A
(1) See also Note 22, “Related party transactions” in the Trust’s consolidated financial statements for the year ended December 31, 2021.
In 2019, the Trust acquired, as part of a 50:50 joint arrangement with Penguin, through PCVP, a 50% interest in a parcel of land
(“700 Applewood”) with approximately 15.5 acres in Vaughan, Ontario, proximate to SmartVMC to relocate Walmart from
SmartVMC and for other future developments, for a purchase price of $109.2 million paid in cash, adjusted for other working
capital amounts. In connection with this acquisition, an interest-free loan receivable with a principal amount of $100.4 million and
a maturity of December 2029 was extended to Penguin to finance its interest in PCVP’s acquisition of 700 Applewood. In March
2020, the Trust assumed this loan receivable from Penguin (see also Note 6(b), footnote 4 in the Trust’s consolidated financial
statements for the year ended December 31, 2021), along with an offsetting non-interest-bearing note payable of an equal
amount (see Note 12(b)(iii), footnote 2 in the Trust’s consolidated financial statements for the year ended December 31, 2021).
Note that the limited partnerships involved in residential condominium developments, as noted in the above table: Residences
LP, Residences III LP, East Block Residences LP, and Residences (One) LP, are herein collectively referred to as “VMC
Residences”. For details on SmartVMC residential development, see “Residential Development Inventory”.
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT 55
57
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT MANAGEMENT’S DISCUSSION AND ANALYSIS
Investment in joint ventures
The following table summarizes the Trust’s ownership interest in each joint venture investment grouped by their principal
intended activities as reflected in the Trust’s consolidated financial statements for the year ended December 31, 2021:
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, Kingspoint Self
Storage LP, Jane Self Storage LP, and Gilbert Self
Storage LP
SmartStop
December 31, 2021
December 31, 2020
Joint Venture
Partner
Number of
Projects
Ownership
Interest (%)
Number of
Projects
Ownership
Interest (%)
1
10
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
LPs), Hopedale RR (PropCo and OpCo LPs), Baymac
RR PropCo LP, Oakville Garden Drive RR PropCo LP
and Markham Main Street RR PropCo LP
Revera
Joint Ventures: Ottawa SW (PropCo and OpCo LPs)
Selection Group
Residential apartments
Joint Venture: Laval C Apartments LP
Joint Venture: Balliol/Pailton LP
Joint Venture: Mascouche North Apartments LP
Total
Jadco
Greenwin
Cogir
5
1
1
1
1
21
50.0
50.0
50.0
75.0
80.0
1
8
1
6
1
1
1
—
19
30.0
50.0
50.0
50.0
50.0
50.0
75.0
—
Acquisitions/new property contributions completed during the year ended December 31, 2021
In February 2021, pursuant to the 50:50 joint venture previously formed with SmartStop known as Kingspoint Self Storage
Limited Partnership, the Trust contributed development land of $3.3 million and SmartStop contributed cash into the joint venture,
for development of a self-storage facility which is located in Brampton, Ontario, totalling 1.5 acres.
In March 2021, the Trust formed an 80:20 joint venture with Cogir, and pursuant to the joint venture agreement, the Trust
contributed its interest in a parcel of land of $3.6 million totalling 2.7 acres located in Mascouche, Quebec into the joint venture
while Cogir contributed cash. The purpose of this joint venture is to develop and operate a rental apartment complex.
In April 2021, pursuant to the 50:50 joint venture formed with SmartStop known as Jane Self Storage Limited Partnership, each
joint venture party contributed $4.3 million into the joint venture to fund the purchase of a parcel of land located in Toronto,
Ontario, totalling 2.67 acres with the intention to develop and operate a self-storage facility.
In December 2021, pursuant to the 50:50 joint venture formed with SmartStop known as Gilbert Self Storage Limited
Partnership, each joint venture party contributed $7.4 million into the joint venture to fund the purchase of properties located in
Toronto, Ontario, totalling 1.0 acre with the intention to develop and operate a self-storage facility.
See also Note 4, “Investment properties”, in the Trust’s consolidated financial statements for the year ended December 31, 2021.
56 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT
58
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
Amounts Receivable and Other, Deferred Financing Costs, and Prepaid Expenses and Deposits
The timely collection of amounts receivable is a critical component associated with the Trust’s cash and treasury management
functions. The following table presents the components of amounts receivable and other, deferred financing costs, and prepaid
expenses and deposits:
(in thousands of dollars)
Amounts receivable and other
Tenant receivables
Unbilled other tenant receivables
Receivables from related party – excluding equity accounted investments
Receivables from related party – equity accounted investments
Other non-tenant receivables
Other(1)
Allowance for ECL
Amounts receivable and other, net of ECL
Deferred financing costs
Prepaid expenses and deposits
December 31, 2021
December 31, 2020
Variance ($)
36,305
11,847
6,966
581
1,414
11,383
68,496
(18,954)
49,542
1,269
11,020
61,831
57,563
(21,258)
8,287
1,311
—
2,898
8,327
78,386
(19,742)
58,644
1,173
7,269
67,086
3,560
5,655
581
(1,484)
3,056
(9,890)
788
(9,102)
—
96
3,751
(5,255)
(1) The amount includes a related party amount of $8.0 million (December 31, 2020 – $4.5 million).
As at December 31, 2021, total amounts receivable and other, deferred financing costs, and prepaid expenses and deposits
decreased by $5.3 million as compared to December 31, 2020. This decrease was primarily attributed to the following:
•
•
•
$10.0 million credit applied to tenant receivables principally due to prior year annual CAM and realty tax billing
reconciliations;
$5.7 million credit applied to tenant receivables principally due to collections, rent abatements and other rent
adjustments provided to tenants; and
$5.6 million tenant receivable collections and related write-offs that pertain to tenant lease settlements.
Partially offset by:
•
•
•
•
•
$4.5 million increase in receivables from related parties;
$3.8 million increase in prepaid expenses and deposits and deferred financing costs;
$3.6 million increase in unbilled other tenant receivables;
$3.3 million increase in other non-tenant receivables and other; and
$0.8 million net reduction in ECL.
Tenant receivables
Approximately 60% of the Trust’s tenant base are businesses offering “essential” services and approximately 97% of the Trust’s
tenant billings for the year ended December 31, 2021 have been collected. The Trust and its tenants are well-positioned for the
economy’s return to pre-pandemic levels and as the Trust identifies tenants for its vacant space, it also continues to work with its
existing tenants on rent collections and payment solutions.
The table below represents a summary of total tenant receivables and ECL balances as at December 31, 2021 and
December 31, 2020:
(in thousands of dollars)
Tenant receivables
Unbilled other tenant amounts
Total tenant receivables
Less: Allowance for ECL
Total tenant receivables net of ECL provisions
December 31, 2021
December 31, 2020
36,305
11,847
48,152
18,954
29,198
57,563
8,287
65,850
19,742
46,108
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT 57
59
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
Mortgages, Loans and Notes Receivable
The following table summarizes mortgages, loans and notes receivable:
(in thousands of dollars)
Mortgages, loans and notes receivable
Mortgages receivable (Mezzanine Financing)(1)
Loans receivable(2)
Notes receivable(1)
December 31, 2021 December 31, 2020 Variance ($)
139,589
274,523
2,924
417,036
144,205
(4,616)
241,683
32,840
2,924
—
388,812
28,224
(1)
(2)
The amount is due from Penguin.
Includes $117.0 million due from Penguin (December 31, 2020 – $104.1 million), see “Loans Receivable” subsection.
Mortgages Receivable (Mezzanine Financing)
The following table presents the details of the mortgages receivable (by maturity date) provided to Penguin:
(in thousands of dollars)
Property
Aurora (South), ON(5)(8)
Innisfil, ON(2)(7)(9)
Salmon Arm, BC(2)(4)
Pitt Meadows, BC(6)(8)
Vaughan (7 & 427), ON(5)(8)
Caledon (Mayfield), ON(7)(8)
Toronto (StudioCentre),
ON(2)(6)(8)
Amount
Outstanding
($)
Including:
Interest
Accrued
($)
Committed
($)
Amount
Guaranteed
by Penguin
($) Maturity Date
Annual
Variable
Interest
Rate at
Year-
End (%)
Extended
Maturity
Date(3)
17,940
2,988
37,503
17,940
March 2022
August 2028
16,642
3,717
33,349
16,642
May 2022 October 2023
15,860
8,170
29,920
15,860
May 2022
August 2028
31,894
6,473
85,653
31,894 November 2023
August 2028
19,588
5,222
36,100
19,588 December 2023
August 2028
10,750
2,120
26,689
10,750
April 2024
August 2028
3.43
4.01
4.18
3.85
3.57
3.71
Potential
Area Upon
Exercising
Purchase
Option
(sq. ft.)
57,741
—
—
25,003
76,000
101,865
26,915
2,009
51,582
26,915
June 2024
August 2028
139,589
30,699
300,796
139,589
3.54
3.74 (1)
227,831
488,440
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
Represents the weighted average interest rate on the loan balance.
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 dates for these mortgages are 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 Canadian 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, 2021, 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%.
This property was disposed in October 2021, and $6.2 million of interest accrued on this mortgage receivable was repaid upon the disposition. A vendor take-back loan was issued to the
purchaser, with Penguin assigning its 50% interest in the vendor take-back loan to the Trust as security for the mortgage receivable (see also Note 6, “Mortgages, loans and notes
receivable” in the Trust’s consolidated financial statements for the year ended December 31, 2021).
58 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT
60
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
Mortgages receivable amendments
On December 9, 2020, there were two mortgages receivable (Innisfil, Ontario and Salmon Arm, British Columbia) for which the
maturity dates were extended to May 31, 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 Innisfil, Ontario property was disposed in October 2021, and $6.2 million of this mortgage receivable
was repaid, with the balance expected to be repaid on or before October 2023.
The committed facilities on these mortgages receivable were amended to reflect an increase from $279.0 million to $312.8
million as at December 31, 2020 which has been reduced to $300.8 million resulting from $12.0 million in payments received
during the year ended December 31, 2021.
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 date of each mortgage, at a variable rate based on the Canadian
Banker's Acceptance rate plus 2.75% to 4.20%; and from the maturity date of each mortgage to the extended maturity date
(August 31, 2028), at a variable rate based on the Canadian Banker's Acceptance rate plus 4.00% to 5.00%. Prior to December
9, 2020, interest on these mortgages accrued as follows: i) at a variable rate based on the Canadian Banker's Acceptance rate
plus 1.75% to 4.20% or at the Trust’s cost of capital (as defined in the applicable mortgage agreement) plus 0.25%; or ii) at fixed
rates of 6.35% to 7.50% which was added to the outstanding principal up to a predetermined maximum accrual after which it was
payable in cash on a monthly or quarterly basis. Additional interest of $103.8 million (December 31, 2020 – $109.2 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, 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 amounts that
are guaranteed decrease on achievement of certain specified value-enhancing events. Management considers all mortgages
receivable to be fully collectible.
The following table illustrates the activity in mortgages receivable:
(in thousands of dollars)
Balance – beginning of year
Interest accrued
Interest payments
Principal advances
Principal repayments
Balance – end of year
Year Ended December 31
2021
144,205
5,363
(10,766)
2,003
(1,216)
139,589
2020
138,762
6,744
(499)
—
(802)
144,205
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT 59
61
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT
Committed
Maturity Date Interest Rate (%)
Note(12)
December 31, 2021 December 31, 2020
MANAGEMENT’S DISCUSSION AND ANALYSIS
Loans Receivable
The following table summarizes loans receivable:
(in thousands of dollars)
Issued to
Penguin(1)
Penguin(2)
Penguin(3)
Penguin(4)
Penguin(5)
N/A
19,148
26,227
N/A
18,450
January 2021
Interest-free
March 2022
June 2022
Variable
Variable
22
22
22
December 2029
Interest-free 22,12(b)(iii)
August 2030
Variable
22
Total loans issued to Penguin
PCVP(6)
Self-storage facilities(7)
N/A
115,100
June 2022
May 2024
2.76
22
Variable
Total loans issued to equity accounted investments
Selection Group
Other(8)
Greenwin(9)
Greenwin(10)
Other(11)
N/A
N/A
11,694
1,280
N/A
April 2021
January 2023
September 2024
January 2025
October 2023
Variable
5.00
Variable
Variable
4.00
Total loans issued to unrelated parties
—
9,707
14,027
77,828
15,404
116,966
47,214
91,938
139,152
—
3,308
—
—
15,097
18,405
274,523
3,460
9,349
14,587
76,747
—
104,143
95,008
39,682
134,690
2,850
—
—
—
—
2,850
241,683
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
(11)
(12)
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.
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 ten 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. The loan receivable’s maturity was extended from June 2021 to August 2021, subsequently to December 2021, and presently
to March 2022.
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 Canadian 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 were to be repaid in full in June 2021. The loan receivable’s maturity was extended from June 2021 to December 2021, and subsequently to June 2022.
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 $100.4 million, is non-interest-bearing, and is repayable at the end of ten years. As at
December 31, 2021, the loan balance of $77.8 million is net of a cumulative fair value adjustment totalling $22.6 million. See also 12(b)(iii) “Debt” in the consolidated financial statements
for the year ended December 31, 2021 reflecting the corresponding loan payable amount.
This loan receivable was provided in December 2021 in connection with the acquisition of a 50% interest in development lands in Toronto (Leaside), Ontario. The loan bears interest at: i)
the Canadian Banker’s Acceptance rate plus 220 basis points, up to 60% of the facility limit, and ii) the Canadian Banker’s Acceptance rate plus 370 basis points, for the remainder.
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 were to be repaid in full in June 2021. The loan receivable’s maturity was extended from June 2021 to December 2021, and subsequently to June 2022. The
Trust reflects the activity from the PCVP as an equity accounted investment (see also Note 5, “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, 2021.
In July 2020, the Trust entered into a master credit loan agreement with its partner SmartStop to provide funding for the development of self-storage facilities. The master credit loan
agreement matures in July 2023 and bears interest at a variable rate based on the Canadian Banker’s Acceptance rate plus 245 basis points. In April 2021, this master credit loan
agreement was amended which resulted in an increase to total committed amounts from $65.5 million to $80.8 million, and the maturity was extended to May 2024. Also in April 2021, the
Trust entered into a second master credit loan agreement with SmartStop to provide funding for the development of additional self-storage facilities. This second master credit loan
agreement matures in May 2024 with a committed amount of $34.3 million. See further details in Note 5(b) “Equity accounted investments” in the consolidated financial statements for the
year ended December 31, 2021.
In January 2021, the Trust entered into a loan agreement pursuant to the closing of the Niagara Falls parcel sale to a third party. The Trust agreed to take back a first charge as security for
the loan. The loan agreement matures in January 2023 and bears interest at 5.0% per annum, calculated semi-annually.
In September 2019, the Trust entered into a loan agreement with Greenwin in connection with the acquisition of a 50% interest in development lands in Barrie, Ontario. As at December
31, 2021, 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 the acquisition of its 25% interest in development lands in Toronto,
Ontario (see also Note 5, “Equity accounted investments”). As at December 31, 2021, 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.
In October 2021, the Trust entered into a loan agreement pursuant to the sale of the Innisfil property to a third party. The Trust agreed to take back a first charge as security for the loan.
The loan matures in October 2023 and bears interest at 4.00% per annum, calculated annually. Penguin has assigned its 50% interest in the vendor take-back loan to the Trust as security
for the mortgage receivable.
The Note reference relates to the corresponding Note disclosure in the consolidated financial statements for the year ended December 31, 2021.
60 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT
62
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT
The following table illustrates the activity in loans receivable:
(in thousands of dollars)
Balance – beginning of year
Loans issued
Advances
Interest accrued
Fair value adjustments(1)
Repayments
Balance – end of year
MANAGEMENT’S DISCUSSION AND ANALYSIS
Year Ended December 31
2021
241,683
33,790
50,983
3,986
4,440
(60,359)
274,523
2020
131,119
122,153
9,762
3,633
3,416
(28,400)
241,683
(1)
$4.4 million recorded during the year ended December 31, 2021 (year ended December 31, 2020 – $3.4 million) in connection with the loan issued as part of the 700 Applewood purchase.
Notes Receivable
Notes receivable of $2.9 million (December 31, 2020 – $2.9 million) have been granted to Penguin (see also, “Related Party
Transactions”). These secured demand notes bear interest at 9.00% per annum (December 31, 2020 – 9.00%).
Total Return Swap Receivable
A total return swap is a contractual agreement to exchange payments based on a specified notional amount and the underlying
financial assets for a specific period. On February 2, 2021, the Trust entered into a TRS agreement in respect to its Trust Units
with a return based on a notional amount of up to 6.5 million Trust Units with a notional value of approximately $156.0 million for
a 48-month period, which, subject to certain conditions, may be unwound prior to its maturity, either in whole or in part. The
counterparty to the TRS is a Canadian financial institution.
The TRS receivable reflects the market value of the swap agreement, and is determined by reference to the value of the
underlying notional Trust Units at each reporting date. The gain (loss) will be realized when the TRS matures or is unwound.
The following table summarizes the activity in the TRS receivable for the year ended December 31, 2021:
(in thousands of dollars, except Unit amounts)
Notional Trust Units (#)
Carrying Value ($)
Balance – January 1, 2021
Additions
Fair value adjustments
Balance – December 31, 2021
—
1,456,000
N/A
1,456,000
—
41,227
5,642
46,869
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT 61
63
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
Section VII — Financing and Capital Resources
Capital Resources and Liquidity
The following table presents the Trust’s capital resources available:
(in thousands of dollars)
Cash and cash equivalents
Remaining operating facilities(1)
Operating facility – accordion feature
December 31, 2021
December 31, 2020
Variance ($)
62,235
341,715
403,950
250,000
653,950
794,594
491,373
1,285,967
250,000
(732,359)
(149,658)
(882,017)
—
1,535,967
(882,017)
(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 and issuances 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, 2021, the Trust’s cash and cash equivalents decreased by $732.4 million as compared to December 31,
2020, which is primarily due to the following:
•
•
•
•
•
$734.9 million representing net repayment of debt, which is principally due to the $646.1 million repayment of
unsecured debt, and $88.7 million repayment of secured debt;
$322.6 million of distributions paid on Trust Units, non-controlling interests and Units classified as liabilities;
$433.5 million representing net additions to investing activities including investment properties, equity accounted
investments, equipment, and Earnouts and Developments;
$10.7 million relating to repayments of mortgages and loans receivable net of advances; and
$1.9 million relating to the payment of lease liabilities;
Partially offset by the following:
•
•
•
$371.6 million of cash provided by operating activities;
$368.5 million relating to the proceeds from unsecured debt (including $300.0 million from revolving facilities); and
$81.4 million of net proceeds from sale of investment properties.
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, 2021 is 50.8% (December 31, 2020 – 50.1%). Including the Trust’s
capital resources as at December 31, 2021, the Trust could invest an additional $1,511.0 million (December 31, 2020 – $1,571.5
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 $6.1 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, 2021.
62 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT
64
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 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, 2021:
Secured debt
1,296,063
337,019
186,512
151,032
453,532
98,121
69,847
Total
2022
2023
2024
2025
2026
Thereafter
Unsecured debt
Revolving operating facilities(1)
Interest obligations(2)
Accounts payable
Other payable
Long term incentive plan
Interest rate swap agreements
Mortgage receivable advances
(repayments)(3)
3,315,283
37,475
200,000
287,000
590,000
400,000 1,800,808
300,000
300,000
—
—
—
—
—
672,818
146,537
138,738
123,973
104,522
82,164
76,884
240,554
240,554
—
41,919
13,109
8,037
697
—
8,000
3,926
697
307
—
72
—
—
10,701
—
—
—
—
—
10,000
—
(437)
515
1,122
2,567
5,875,334 1,078,620
534,291
561,640 1,159,270
581,407 1,960,106
161,207
15,949
5,663
28,868
(33,803)
6,238
138,292
Development obligations (commitments)
14,934
14,934
—
—
—
—
—
Total
6,051,475 1,109,503
539,954
590,508 1,125,467
587,645 2,098,398
(1)
(2)
(3)
In December 2021, $300.0 million was drawn from the Trust’s existing credit facilities, which were subsequently repaid with the establishment of a new five-year unsecured $300.0 million
facility in January 2022.
Interest obligations represent expected interest payments on secured debt, unsecured debt, and revolving operating facilities under the assumption that the balances are repaid at
maturity, and do not represent a separate contractual obligation.
Mortgages receivable of $139.6 million at December 31, 2021, and further forecasted commitments of $161.2 million, mature over a period extending to 2028 if the Trust does not exercise
its option to acquire the investment properties. Refer to Note 6, “Mortgages, loans and notes receivable”, in the Trust’s consolidated financial statements for the year ended December 31,
2021, for timing of principal repayments.
The following table presents the estimated amount and timing of certain of the equity accounted investments’ future obligations
including development obligations as at December 31, 2021:
(in thousands of dollars)
Total
2022
2023
2024
2025
2026
Thereafter
Secured and unsecured debt
Development obligations (commitments)(1)
547,307
290,518
18,233
35,517
70,960
140,622
87,422
93,464
222,278
20,903
6,748
12
141,666
—
Total
837,825
53,750
211,582
180,886
243,181
6,760
141,666
(1)
The Trust is in the process of refining its estimates of development obligations for the years subsequent to 2021. 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
investments’ future obligations including development obligations as at December 31, 2021:
(in thousands of dollars)
Total
2022
2023
2024
2025
2026
Thereafter
Secured and unsecured debt
Development obligations (commitments)(1)
240,035
121,929
8,648
33,933
22,897
110,601
2,811
61,145
15,956
63,100
32,410
10,454
9
—
Total Trust’s share
361,964
24,604
97,033
55,307
121,055
2,820
61,145
(1)
The Trust is in the process of refining its estimates of development obligations for the years subsequent to 2021. 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:
(in thousands of dollars)
Current assets
Less: Current liabilities
Working capital deficiency
Adjusted by: Current portion of debt
Net working capital surplus
December 31, 2021
December 31, 2020
223,412
(931,484)
(708,072)
(678,406)
(29,666)
1,012,729
(1,095,542)
(82,813)
(854,261)
771,448
As at December 31, 2021 the Trust experienced a working capital deficiency of $708.1 million (December 31, 2020 – $82.8
million deficiency). This deficiency includes mortgages, unsecured debentures and operating lines of credit of $678.4 million
(December 31, 2020 – $854.3 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 $29.7
million as at December 31, 2021 (December 31, 2020 – $771.4 million surplus).
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT 63
65
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
The Trust has an unencumbered asset pool with an approximate fair value totalling $6.6 billion, which could generate gross
financing proceeds on income properties of approximately $4.2 billion using a 65% loan to value. It is anticipated that 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 issuances of unsecured debentures,
and equity, as necessary.
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 “Completed and Future Earnouts and Developments on Existing Properties” in this 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 this 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.
Three Months Ended December 31
Year Ended December 31
(in thousands of dollars, except per Unit and other Unit
amounts)
2021
2020
Variance
Adjusted salaries and related costs attributed to leasing
1,063
1,200
(137)
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
742
1,217
3,022
738
1,466
3,404
4
(249)
(382)
2021
5,196
3,071
2,903
2020
Variance
5,853
1,732
3,829
(657)
1,339
(926)
(244)
11,170
11,414
10,323
4,686
5,637
17,331
8,445
8,886
13,345
8,090
5,255
28,501
19,859
8,642
Weighted average number of Units outstanding – diluted 174,380,800 173,264,654 1,116,146 173,748,819 172,971,603
777,216
Per Unit – diluted ($)
0.08
0.05
0.03
0.16
0.11
0.05
For the three months ended December 31, 2021, the total sustaining leasing costs and capital expenditures were $13.3 million,
as compared to $8.1 million in the same period in 2020, representing an increase of $5.3 million. This increase is due to the
following:
•
$5.6 million increase 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; and partially offset by
$0.3 million net decrease in both tenant improvements and leasing and related costs.
•
For the year ended December 31, 2021, the total sustaining leasing costs and capital expenditures were $28.5 million, as
compared to $19.9 million in the same period in 2020, representing an increase of $8.6 million. This increase is due to the
following:
•
$8.9 million increase 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 partially offset by
$0.3 million net decrease in leasing and related costs.
•
64 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT
66
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT
Debt
The following table summarizes total debt including debt associated with equity accounted investments:
As at
December 31, 2021
December 31, 2020
MANAGEMENT’S DISCUSSION AND ANALYSIS
Weighted
Average Term
of Debt (in
years)
Weighted
Average
Interest Rate
of Debt (%)
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 facilities
Total debt before equity accounted
investments
Less: Unsecured loan from equity
accounted investments(1)
Subtotal
Share of secured debt (equity accounted
investments)
Share of unsecured debt (equity
accounted investments)
Share of debt classified as equity
accounted investments
Balance
1,294,546
3,066,794
195,562
297,625
4,854,527
(111,484)
4,743,043
117,946
122,089
240,035
Total debt including equity accounted
investments
4,983,078
(1)
This represents the Trust’s share of a loan from equity accounted investments.
3.2
5.4
N/A
3.4
N/A
N/A
4.7
11.5
2.2
6.7
4.8
Balance
1,327,760
3,670,929
211,434
—
3.49
3.24
—
1.49
—
5,210,123
—
(134,687)
3.14
5,075,436
3.8
5.2
N/A
—
N/A
N/A
4.9
3.26
134,336
11.1
1.87
51,588
2.55
185,924
3.11
5,261,360
1.1
8.3
5.0
3.67
3.22
—
—
—
—
3.29
3.34
2.19
3.02
3.28
The following table summarizes the activities in debt including debt recorded in equity accounted investments, for the year ended
December 31, 2021:
(in thousands of dollars)
Balance – January 1, 2021
Borrowings
Loans assumed
Scheduled amortization
Repayments
Amortization of acquisition fair value adjustments
Financing costs incurred, net of additions
Secured
Debt
Unsecured
Debt
Revolving
Operating
facilities
Loan from
Equity
Accounted
Investments
Equity
Accounted
Investments
Total
1,327,760
3,670,929
—
76,747
185,924
5,261,360
14,025
27,000
297,625
10,690
56,555
405,895
42,191
(45,696)
—
—
(43,976)
(633,120)
(527)
769
—
1,985
—
—
—
—
—
—
—
—
42,191
(2,304)
(48,000)
(3,359)
—
(680,455)
—
—
(151)
11
(678)
2,765
Balance – December 31, 2021
1,294,546
3,066,794
297,625
84,078
240,035
4,983,078
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT 65
67
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 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 (%)
2022
2023
2024
2025
2026
Thereafter
Total
Acquisition date fair value adjustment
Unamortized financing costs
42,512
38,113
32,336
21,736
11,240
21,649
294,507 (1)
148,399
118,696
431,796 (2)
86,881
48,198
337,019
186,512
151,032
453,532
98,121
69,847
26
14
12
35
8
5
167,586
1,128,477
1,296,063
100
1,014
(2,531)
1,294,546
2.96
4.37
3.63
3.20
3.86
4.84
3.49
3.49
(1) Includes construction loans in the amount of $70.3 million, which bear interest at Canadian Banker's Acceptance rate plus 120 or 170 basis points.
(2) Includes loan in the amount of $42.2 million entered concurrently with the TRS.
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, 2021 December 31, 2020
2,650,571
416,223
3,271,625
399,304
3,066,794
3,670,929
195,562
3,262,356
211,434
3,882,363
a) Unsecured debentures
The following table summarizes unsecured debentures issued and outstanding:
(in thousands of dollars)
Series
Series I
Series M
Series N
Series O
Series P
Series Q
Series S
Series T
Series U
Series V
Series W
Series X
Series Y
Maturity Date
May 30, 2023
July 22, 2022
February 06, 2025
August 28, 2024
August 28, 2026
March 21, 2022
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
3.834
2.757
3.526
3.192
3.648
1.740
2.307
3.167 (1)
Unamortized financing costs
December 31, 2021
December 31, 2020
200,000
—
160,000
100,000
250,000
—
250,000
—
450,000
300,000
300,000
350,000
300,000
2,660,000
(9,429)
2,650,571
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
(1)
Represents the weighted average annual interest rate and excludes deferred financing costs.
66 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT
68
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
Unsecured debenture activities for the year ended December 31, 2021
Redemptions and Maturity
In January 2021, the Trust completed the redemption of its 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 yield maintenance costs of $11.1 million relating to the
redemptions were recorded in the Trust’s consolidated financial statements for the year ended December 31, 2020.
In June 2021, the Trust’s 2.757% Series T senior unsecured debentures matured. There was $323.1 million aggregate
principal amount of 2.757% Series T senior unsecured debentures outstanding on the maturity date and payment to holders
was funded by cash-on-hand.
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”. In December 2021, DBRS confirmed the Trust’s BBB(high) rating and changed the trend from
stable to negative.
b) Credit facilities
The following table summarizes the activity for unsecured credit facilities:
(in thousands of dollars)
(Issued in)
Maturity Date
Annual
Interest Rate (%)
Facility
Amount December 31, 2021 December 31, 2020
Non-revolving:
August 2018(1)
March 2019(1)
May 2019(1)
Revolving:
May 2020
January 31, 2025
July 31, 2026
June 24, 2024
2.980
3.520
3.146
80,000
150,000
170,000
May 11, 2024
BA + 1.20
60,000
Less: Unamortized financing costs
80,000
150,000
170,000
17,000
417,000
(777)
416,223
80,000
150,000
170,000
—
400,000
(696)
399,304
(1)
The Trust entered into interest rate swap agreements to convert the variable interest rate of the Canadian Banker's Acceptance rate plus 1.20% into a weighted average fixed
interest rate of 3.25% per annum. The weighted average term to maturity of the interest rate swaps is 2.49 years. Hedge accounting has not been applied to the interest rate swap
agreements.
c) Other unsecured debt from equity accounted investments
Other unsecured debt net of fair value adjustments totalling $195.6 million (December 31, 2020 – $211.4 million) 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.
Revolving Operating Facilities
As at December 31, 2021, the Trust had:
i) 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 Canadian Banker's Acceptance rate plus 120 basis points, which matures on August 20, 2026 (in
addition, the Trust has an 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); and
ii) a $150.0 million revolving senior unsecured term facility under which the Trust has the ability to draw funds based on bank
prime rates and Canadian Banker's Acceptance rate for Canadian dollar-denominated borrowings, and LIBOR rates or U.S.
prime rates for U.S. dollar-denominated borrowings. Concurrently with the U.S. dollar draws, the Trust enters into cross currency
swaps to exchange its U.S. dollar borrowings into Canadian dollar borrowings.
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT 67
69
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
The following table summarizes components of the Trust’s revolving operating facilities:
Annual
Interest Rate (%)
Facility
Amount
Amount
Drawn
Outstanding
Letters of
Credit
Remaining Undrawn Facilities
December 31,
2021
December 31,
2020
Revolving facility maturing August 2026
BA + 1.20
500,000 150,000
8,285
341,715
491,373
Revolving facility maturing February 2024(1)
US$ LIBOR + 1.20
150,000 147,625
—
—
—
(1) The Trust has drawn in U.S. dollars the equivalent of CAD $150.0 million, which was translated to $147.6 million as at December 31, 2021.
In addition to the letters of credit outstanding on the Trust’s revolving operating facilities (see above), the Trust also has $26.5
million of letters of credit outstanding with other financial institutions as at December 31, 2021 (December 31, 2020 – $20.6
million).
297,625
341,715
491,373
Unencumbered Assets
As at December 31, 2021, the Trust had $6.6 billion of unencumbered assets (December 31, 2020 – $5.8 billion), which reflects
the Trust’s share of the value of investment properties. Expressed as a percentage, the Trust earned approximately 62.6% of its
NOI from unencumbered assets (December 31, 2020 – 59.4%).
In connection with this pool of unencumbered assets, management estimates the total Forecasted Annualized NOI for 2022 to be
$327.9 million (December 31, 2020 – $325.9 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” section.
Debt Maturities
The following graph illustrates the debt maturities for secured debt and unsecured debentures as at December 31, 2021:
Debt Maturities (in $ millions)
1250
1000
750
500
250
0
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
Secured Debt
Unsecured Debentures
68 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT
70
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
Interest Income and Interest Expense
Interest Income
The following table summarizes the components of interest income:
(in thousands of dollars)
Mortgage interest
Loan interest
Notes receivable interest
Bank interest
Three Months Ended December 31
2021
1,318
1,214
66
147
2,745
2020
1,575
1,261
67
1,234
4,137
Variance ($)
(257)
(47)
(1)
(1,087)
(1,392)
Year Ended December 31
2021
5,363
4,575
263
2,140
12,341
2020
6,744
4,717
268
3,512
15,241
Variance ($)
(1,381)
(142)
(5)
(1,372)
(2,900)
For the year ended December 31, 2021, interest income decreased by $2.9 million as compared to the year ended
December 31, 2020. This decrease was primarily attributed to:
•
•
•
$1.4 million decrease in mortgage interest principally due to lower interest rates being charged on mortgages receivable
associated with the loan amendments pursuant to the Omnibus Agreement made in December 2020 (see “Related
Party Transactions”) and lower Canadian Banker's Acceptance rates;
$1.4 million decrease in bank interest as a result of cash used in repayment and redemption of unsecured debentures
(see “Debt” subsection for details); and
$0.1 million decrease in loan interest mainly due to a lower loan balance issued to PCVP and repayment of loans by
certain unrelated parties during the prior year, partially offset by higher interest from loans issued under self-storage
facilities.
Interest Expense
The following table summarizes the components of interest expense:
(in thousands of dollars)
Interest at stated rates
Amortization of acquisition date fair value
adjustments on assumed debt
Amortization of deferred financing costs
Yield maintenance costs on redemption of debt and
related write-off of unamortized financing costs
Distributions on vested deferred units and Units
classified as liabilities
Three Months Ended December 31
Year Ended December 31
2021
2020 Variance ($)
2021
2020 Variance ($)
36,512
41,071
(4,559) 150,187 157,635
(7,448)
(127)
(191)
64
(527)
(857)
898
1,087
(189)
3,828
4,130
330
(302)
—
11,954
(11,954)
—
11,954
(11,954)
2,053
1,521
532
6,343
5,785
558
Total interest expense before interest capitalized
(A)
39,336
55,442
(16,106) 159,831 178,647
(18,816)
Less:
Interest capitalized to properties under development
(3,440)
(3,693)
253
(14,333)
(17,689)
3,356
Interest capitalized to residential development
inventory
Total interest capitalized
Total interest expense
Capitalized interest as a percentage of interest
expense
(242)
(230)
(12)
(958)
(914)
(44)
(B)
(3,682)
(3,923)
241
(15,291)
(18,603)
3,312
(C = A + B)
35,654
51,519
(15,865) 144,540 160,044
(15,504)
(D = B / A)
9.4 %
7.1 %
2.3 %
9.6 %
10.4 %
(0.8) %
For the year ended December 31, 2021, interest expense totalled $144.5 million, representing a decrease of $15.5 million as
compared to the year ended December 31, 2020, which was primarily due to the following:
•
$18.8 million decrease in interest at stated rates, yield maintenance costs on redemption of debt and related write-off of
unamortized financing costs, and amortization of deferred financing costs, which was primarily due to the repayment
and redemption of unsecured debentures totalling $276.9 million in December 2020, $300.0 million in January 2021 and
$323.1 million in June 2021 (see “Debt” subsection for details), and $12.0 million of yield maintenance costs on
redemption of debt and related write-off of unamortized financing costs recorded in last year;
Partially offset by:
•
$3.3 million decrease in interest capitalized to properties under development.
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT 69
71
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
Financial Covenants
The Trust’s revolving operating facilities 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 facilities 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 facilities 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 and may not be comparable to similarly titled
measures presented by other publicly traded entities. See “Presentation of Certain Terms Including Non-GAAP Measures” and
“Glossary – Non-GAAP Measures.”
For the year ended December 31, 2021, the Trust was in compliance with all financial covenants.
Ratio
Interest coverage(1)
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)
Calculation
Threshold
December 31, 2021
December 31, 2020
Adjusted EBITDA / Adjusted
interest expense including
capitalized interest(6)
Adjusted EBITDA / Debt service
expense(7)
Net debt / Aggregate assets(8)
Net debt / Gross book value(9)
Net debt / Gross book value(10)
Secured debt including EAI /
Aggregate assets(11)
Unsecured debt including EAI /
Secured debt including EAI(12)
Unencumbered assets /
Unsecured debt including EAI(13)
Adjusted debt / Adjusted
EBITDA(14)
≥ 1.65X
≥ 1.5X
≤ 65%
≤ 60%
≤ 65%
≤ 40%
N/A
≥ 1.3X
N/A
3.4X
2.6X
42.9 %
50.8 %
50.8 %
12.4 %
3.2X
2.5X
44.6 %
50.1 %
50.1 %
14.5 %
71%/29%
68%/32%
1.9X
9.2X
1.9X
8.5X
≥ $2,000,000
$5,841,315
$5,166,975
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
(11)
(12)
(13)
(14)
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 the Trust’s revolving operating facilities and other credit facilities.
This ratio is stipulated by the Declaration of Trust.
As at December 31, 2021, cash-on-hand of $80.0 million (December 31, 2020 – $754.4 million) was excluded for the purposes of calculating the ratios.
This ratio is calculated as: Adjusted EBITDA/Adjusted interest expense including capitalized interest. The calculation of Adjusted EBITDA is referenced in the “Glossary of Terms.” Adjusted
interest expense including capitalized interest is calculated as total interest expense as per the proportionate income statement, less distributions on vested deferred units and Units
classified as liabilities and interest income from mortgages and loans receivable, plus capitalized interest.
This ratio is calculated as: Adjusted EBITDA/Debt service expense. The calculation of Adjusted EBITDA is referenced in the “Glossary of Terms.” Debt service expense is calculated as
total interest expense as per the proportionate income statement, less distributions on vested deferred units and Units classified as liabilities and interest income from mortgages and
loans receivable, plus capitalized interest and mortgage principal amortization payments.
This ratio is calculated as: Net debt/Aggregate assets. Net debt is calculated as total debt including equity accounted investments as referenced in “Debt,” less excess cash-on-hand.
Aggregate assets is calculated as total assets as per the proportionate balance sheet, less excess cash-on-hand.
This ratio is calculated as: Net debt/Gross Book Value. Net debt is calculated as total debt including equity accounted investments as referenced in “Debt,” less excess cash-on-hand.
Gross Book Value is calculated as total assets as per the proportionate balance sheet, less excess cash-on-hand and fair value adjustment net of accumulated amortization.
This ratio is calculated as: Net debt/Gross Book Value. Net debt is calculated as total debt including equity accounted investments as referenced in “Debt,” less excess cash-on-hand.
Gross Book Value is calculated as total assets as per the proportionate balance sheet, less excess cash-on-hand and fair value adjustment net of accumulated amortization.
This ratio is calculated as: Secured debt including EAI/Aggregate assets. Secured debt is calculated as the Trust’s secured debt plus secured debt on equity accounted investments as
referenced in “Debt.” Aggregate assets is calculated as total assets as per the proportionate balance sheet, less excess cash-on-hand.
This ratio is calculated as: Unsecured debt including EAI/Secured debt including EAI. Unsecured debt is calculated as the Trust’s unsecured debt plus unsecured debt on equity accounted
investments as referenced in “Debt.” Secured debt is calculated as the Trust’s secured debt plus secured debt on equity accounted investments as referenced in “Debt.”
This ratio is calculated as: Unencumbered assets/Unsecured debt including EAI. Unencumbered assets is calculated as referenced in “Debt.” Unsecured debt is calculated as the Trust’s
unsecured debt plus unsecured debt on equity accounted investments as referenced in “Debt.”
This ratio is calculated as: Adjusted Debt/Adjusted EBITDA. Adjusted debt is calculated as total debt including equity accounted investments as referenced in “Debt,” less excess cash-on-
hand and less loans receivable. The calculation of Adjusted EBITDA is referenced in the “Glossary of Terms.”
70 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT
72
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 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:
December 31, 2021
December 31, 2020
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
SmartVMC West Limited Partnership
SmartVMC West Limited Partnership
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
Class D Series 1
Class D Series 2
144,625,322
14,746,176
957,822
720,432
756,525
706,591
572,337
627,640
434,598
1,698,018
3,093,910
710,416
374,223
170,000
170,194,010
311,022
8,708
260,417
1,248,140
132,881
139,302
3,623,188
2,173,913
7,897,571
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
311,022
8,708
260,417
1,248,140
132,881
139,302
—
—
2,100,470
Variance (#)
6,665
—
7,763
—
—
1,171
—
31,352
—
—
26,317
—
—
—
—
—
—
—
—
—
3,623,188
2,173,913
5,797,101
5,870,369
170,120,742
73,268
Total Units
178,091,581
172,221,212
As of February 15, 2022, the Trust has 170,206,429 Units outstanding which are classified as equity, and 7,897,571 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
Unit issuance costs
Deferred Units exchanged 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
December 31, 2021
Year Ended
December 31, 2020
5,166,975
—
(18)
198
1,738
987,676
—
(315,254)
5,841,315
5,367,752
17,354
(19)
32
6,848
89,940
(55)
(314,877)
5,166,975
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT 71
73
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
Distributions
The Trust’s Board of Trustees is responsible for approving distributions. See also details in the “Determination of Distributions”
subsection.
Effective April 13, 2020, the Trust suspended its DRIP. Beginning with the April 2020 distribution, plan participants have received
distributions in cash.
For the year ended December 31, 2021, the Trust paid $319.2 million in cash distributions (for the year ended December 31,
2020 – $301.4 million in cash distributions and the balance of $17.3 million by issuing 578,744 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
Other non-controlling interest
Distributions on Units classified as equity
Distributions on LP 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
2021
2020
267,552
47,282
420
315,254
3,919
319,173
—
319,173
—%
267,976
46,901
—
314,877
3,881
318,758
(17,335)
301,423
5.4%
Normal Course Issuer Bid
The Trust renewed its normal course issuer bid (“NCIB”) program on March 31, 2021. The NCIB program will terminate on March
30, 2022, or on such earlier date as the Trust may complete its purchases pursuant to a Notice of Intention filed with the Toronto
Stock Exchange (“TSX”). Under the NCIB program, the Trust is authorized to purchase up to 12,935,063 of its Trust Units
representing approximately 10% of the public float as at March 19, 2021 by way of normal course purchases effected through the
facilities of the TSX and/or alternative Canadian trading systems. Purchases made under the NCIB program will be in
accordance with the requirements of the TSX and the price which the Trust will pay for any such Trust Units will be the market
price of any such Trust Units at the time of acquisition, or such other price as may be permitted by the TSX. In connection with
the NCIB program, the Trust entered into an automatic repurchase plan with its designated broker to allow for purchases of Trust
Units during certain pre-determined black-out periods, subject to certain parameters as to price and number of Trust Units.
Outside of these pre-determined black-out periods, Trust Units acquired under the NCIB program will be repurchased in
accordance with management’s discretion, subject to applicable law. For purposes of the TSX rules, a maximum of 158,197 Trust
Units may be purchased by the Trust on any one day under the NCIB, except where purchases are made in accordance with the
“block purchase exception” of the TSX rules. The average daily trading volume for the six months ended February 2021 was
632,790 Trust Units. All Trust Units purchased by the Trust will be cancelled. During the year ended December 31, 2021, the
Trust did not purchase for cancellation any Trust Units under this NCIB program.
72 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT
74
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 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, 2021, there were
8,163,976 additional Special Voting Units outstanding (December 31, 2020 – 8,241,544). 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 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 SEDAR.
As at December 31, 2021, Penguin owned 20.8% 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 24.6% 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, 2021, 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 Services
b)
Agreement related to Penguin’s interest in properties sold by the Trust,
for future SmartVMC commercial phases and certain properties currently owned by Penguin (for which the Trust has
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, British Columbia, the Trust will be paid
50% of the management and leasing fees, and 100% of costs associated with the Trust’s 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 $1.0 million (subject to inflation-related increments after 2018) and ii) an annual
variable fee between $1.5 million and $3.5 million (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 amounts between the parties.
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT 73
75
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 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 6 “Mortgages, loans and notes receivable” in the Trust’s
consolidated financial statements for the year ended December 31, 2021). 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 replaced and superseded the previous non-competition agreement extending
the term by five years and broadening restricted competing initiatives to include various forms of mixed-use development.
Executive Employment Agreement
This 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 DUP and the EIP (see below).
Equity Incentive Plan
In January 2021, the Trust granted 900,000 performance units to Mitchell Goldhar pursuant to the EIP adopted by Unitholders
effective December 9, 2020, which are subject to the achievement of Unit price thresholds (ranging from $26.00 to $34.00). 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 measure 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 22, “Related
party transactions”, in the Trust’s consolidated financial statements for the year ended December 31, 2021). Under the January
2021 grant to Mitchell Goldhar, the $26.00 Unit price threshold was achieved on April 5, 2021, the $28.00 Unit price threshold
was achieved on May 18, 2021, and the $30.00 Unit price threshold was achieved on September 22, 2021. The performance
units for these Unit price thresholds will vest on April 4, 2024, May 17, 2024 and September 21, 2024, respectively.
The following table summarizes the change in the carrying value of the EIP granted to Mitchell Goldhar:
Balance – beginning of year
Amortization costs capitalized to properties under development(1)
Fair value adjustment to financial instruments
Balance – end of year
Year Ended December 31, 2021
—
5,198
3,302
8,500
(1) These amounts were capitalized to properties under development in connection with Mitchell Goldhar’s role in leading and completing development activities.
74 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT
76
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT
Related party transactions and balances are also disclosed elsewhere in the Trust’s consolidated financial statements for the
year ended December 31, 2021, which include:
MANAGEMENT’S DISCUSSION AND ANALYSIS
•
•
•
•
•
•
•
•
•
•
•
Note 3(c) referring to the purchase of Earnouts
Note 4(c) referring to Leasehold property interests
Note 6 referring to Mortgages, loans and notes receivable
Note 5(a)(ii) referring to a supplemental development fee agreement
Note 7 referring to Other assets
Note 11 referring to Amounts receivable and other
Note 13 referring to Other financial liabilities
Note 14 referring to Accounts payable and other payables
Note 18 referring to Rentals from investment properties and other
Note 19 referring to Property operating costs and other, and
Note 20 relating to General and administrative expenses.
The following table summarizes related party transactions and balances with Penguin and other related parties, including
amounts relating to the Trust’s share in equity accounted investments:
Related party transactions with Penguin
Acquisitions and Earnouts:
Earnouts
Revenues:
Service and other revenues:
Transition services fee revenue
Management fee and other services revenue pursuant to the Development and Services
Agreement
Supplement to the Development Service Agreement fees – time billings
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 $271 (year ended December 31, 2020 – $245))
Expenses and other payments:
Fees paid – capitalized to properties under development
EIP – capitalized to properties under development
Development fees and interest expense (capitalized to investment properties)
Opportunity fees capitalized to properties under development(2)
Marketing, time billings and other administrative costs (included in general and administrative
expense and property operating costs)
Disposition fees (included in general and administration expenses)
Expenditures on tenant inducement
18
6
20
Year Ended December 31
Note(1)
2021
2020
16,274
13,907
—
6,309
5,097
1,466
12,872
6,209
828
19,909
7,062
5,198
115
1,839
84
979
77
833
4,935
2,021
763
8,552
7,626
1,078
17,256
6,831
—
10
3,006
112
49
72
15,354
10,080
Related party transactions with PCVP
Revenues:
Interest income from mortgages and loans receivable
6
1,935
2,580
Expenses and other payments:
Rent and operating costs (included in general and administrative expense and property
operating costs)
19, 20
2,625
2,634
(1)
(2)
Relates to the corresponding Note disclosure in the Trust’s consolidated financial statements for the year ended December 31, 2021.
These amounts include prepaid land costs that will offset the purchase price of future Earnouts.
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT 75
77
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
(in thousands of dollars)
Note(1)
December 31, 2021
December 31, 2020
Related party balances with Penguin disclosed elsewhere in the financial statements
Receivables:
Amounts receivable and other(2)
Mortgages receivable
Loans receivable
Notes receivable
Total receivables
Payables and other accruals:
Accounts payable and accrued liabilities
Future land development obligations
Total payables and other accruals
11
6(a)
6(b)
6(c)
14
14
14,953
139,589
116,966
2,924
274,432
3,370
18,931
22,301
5,767
144,205
104,143
2,924
257,039
6,406
18,410
24,816
(1)
(2)
The Note reference relates to the corresponding Note disclosure in the Trust’s consolidated financial statements for the year ended December 31, 2021.
Excludes amounts receivable presented below as part of balances with equity accounted investments. This amount includes amounts receivable of $9,321 and other of $5,179.
The following table summarizes the related party balances with the Trust’s equity accounted investments:
As at
Note(1)
December 31, 2021
December 31, 2020
Related party balances disclosed elsewhere in the financial statements
Amounts receivable(2)
Loans receivable(3)
Other unsecured debt(4)
11
6(b)
12(b)(iii)
581
139,152
195,562
—
134,690
211,434
(1)
(2)
(3)
(4)
The Note reference relates to the corresponding Note disclosure in the Trust’s consolidated financial statements for the year ended December 31, 2021.
Amounts receivable includes Penguin’s portion, which represents $0.004 million (December 31, 2020 – $nil) relating to Penguin’s 50% investment in the PCVP and 25% investment in
Residences LP.
Loans receivable includes Penguin’s portion, which represents $23.6 million (December 31, 2020 – $47.5 million) relating to Penguin’s 50% investment in the PCVP.
Other unsecured debt includes Penguin’s portion, which represents $6.2 million (December 31, 2020 – $13.4 million) relating to Penguin’s 25% investment in Residences LP.
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
2021
2020
2,628
2,129
4,757
2,214
1,887
4,101
76 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT
78
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 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 items requiring
estimates are discussed in the Trust’s consolidated financial statements for the year ended December 31, 2021, and the notes
contained therein.
The Trust’s MD&A for the year ended December 31, 2020 also contains a discussion of the significant accounting policies most
affected by estimates and judgments used in the preparation of the audited consolidated financial statements for the year ended
December 31, 2020. Management determined that as at December 31, 2021, there is no change to the assessment of significant
accounting policies most affected by estimates and judgments described in the Trust’s MD&A for the year ended December 31,
2020, with the following additions:
Total return swap
The total return swap is a contractual agreement to exchange payments based on a specified notional amount and the
underlying financial assets for a specific period. The total return to the Trust includes the total return generated by the underlying
notional Trust Units, plus any appreciation, if there is any, in the market value of the notional Trust Units, less the amount equal
to any decline, if there is any, in the market value of the underlying notional Trust Units. The total return swap agreement requires
the exchange of net contractual payments periodically without the exchange of the notional principal amounts on which the
payments are based. Changes in market value are recorded in net income and comprehensive income.
The Trust has funded the total return swap agreement by a loan from the counterparty. The loan is measured at amortized cost.
The total return swap receivable reflects the market value of the swap agreement, and is determined by reference to the value of
the underlying notional Trust Units at each reporting date. The gain (loss) will be realized when the total return swap agreement
matures or is unwound.
The Trust’s accounting policy for the initial recognition of its total return swap agreements is included under Note 2.11 of the
Trust’s consolidated financial statements for the year ended December 31, 2021.
Interest Rate Benchmark Reform
On January 1, 2021, the Trust adopted amendments to IFRS 9, IAS 39, IFRS 7 and IFRS 16 Interest Rate Benchmark Reform –
Phase 2 as issued in August 2020. For financial instruments measured using amortized cost, changes to the basis for
determining the contractual cash flows required by interest rate benchmark reform were reflected by adjusting their effective
interest rate. Accordingly, no immediate gain or loss was recognized.
The Trust’s exposure to the interest rate benchmark reform as at December 31, 2021 include all variable-rate financial
instruments, and are presented in the table below:
As at
December 31, 2021
Financial instruments measured at amortized cost
Balance yet to transition to an alternative benchmark interest rate
Financial liabilities
Secured debt
Unsecured debt
Revolving operating facilities
112,469
17,000
297,625
427,094
The Trust is managing risks arising from the interest rate benchmark reform through: i) managing the maturities of its debt
agreements, ii) designating successor rates, and iii) holding onto CDOR and LIBOR rates for as long as practicable, prior to
transitioning its financial and debt instruments to successor rates.
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:
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT 77
79
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
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, net of land and development costs
incurred by the Trust (see Note 4(d)(ii) in the Trust’s consolidated financial statements for the year ended December 31, 2021).
The completion of an Earnout is reflected as an additional purchase in Note 3, “Acquisitions and Earnouts” in the Trust’s
consolidated financial statements for the year ended December 31, 2021. 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 discounted cash
flow valuation method, and ii) land, development and construction costs recorded at market value. 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 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.
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
78 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT
80
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT MANAGEMENT’S DISCUSSION AND ANALYSIS
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 18 in the Trust’s
consolidated financial statements for the year ended December 31, 2021 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.
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”).
The following table summarizes the Trust’s classification and measurement of financial assets and liabilities:
Note
Classification under IFRS 9
Financial assets
Mortgages, loans and notes receivable
Amounts receivable and other
Cash and cash equivalents
Cash held as collateral
Total return swap receivable
Financial liabilities
Accounts payable and other payables
Secured debt
Revolving operating facilities
Unsecured debt
Units classified as liabilities
Earnout options
Deferred unit plan
Long term incentive plan (“LTIP”)
Equity incentive plan (“EIP”)
Currency swap agreement
Interest rate swap agreements
2.10
2.13
2.13
2.13
2.13
Amortized cost
Amortized cost
Amortized cost
Amortized cost
FVTPL
Amortized cost
Amortized cost
Amortized cost
Amortized cost
FVTPL
FVTPL
FVTPL
FVTPL
FVTPL
FVTPL
FVTPL
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT 79
81
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
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 15, “Fair value of financial
instruments” in the Trust’s consolidated financial statements for the year ended December 31, 2021.
d) Currency swap agreement
The currency swap is a contractual agreement to exchange payments based on specified notional amounts in two currencies,
Canadian dollars and US dollars, for a specific period. The currency swap agreement requires the exchange of net contractual
payments periodically without the exchange of the notional principal amounts on which the payments are based. Changes in
market value are recorded in net income and comprehensive income.
The currency swap payable reflects the fair value of the swap agreement, and is determined as the difference between the
foreign exchange rate between Canadian dollars and US dollars as per the swap agreement and the foreign exchange rate at
the reporting date on the specified notional amount. The gain (loss) will be realized when the currency swap agreement matures
or is unwound.
e) 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.
The fair value of interest rate swap agreements is determined using the discounted cash flow valuation technique on the
expected cash flows of the derivatives. The future fixed cash payments and the expected variable cash receipts are discounted
to the reporting date, and then netted to determine the fair value of each interest rate swap agreement. The expected variable
cash receipts are based on expectations of future interest rates, which are derived from yield curves based on observable market
data.
f) Total return swap (“TRS”) receivable
The total return swap is a contractual agreement to exchange payments based on a specified notional amount and the
underlying financial assets for a specific period. The total return to the Trust includes the total return generated by the underlying
notional Trust Units, plus any appreciation, if there is any, in the market value of the notional Trust Units, less the amount equal
to any decline, if there is any, in the market value of the underlying notional Trust Units. The total return swap agreement requires
the exchange of net contractual payments periodically without the exchange of the notional principal amounts on which the
payments are based. Changes in market value are recorded in net income and comprehensive income.
The Trust has funded the total return swap agreement by a loan from the counterparty. The loan is measured at amortized cost.
The total return swap receivable reflects the market value of the swap agreement, and is determined by reference to the value of
the underlying notional Trust Units at each reporting date. The gain (loss) will be realized when the total return swap agreement
matures or is unwound.
g) 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.
80 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT
82
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT MANAGEMENT’S DISCUSSION AND ANALYSIS
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.
h) 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.
i) Cash held as collateral
The Trust, from time to time, pledges cash and cash equivalents as security for derivative instruments with financial institutions.
This balance is classified as cash held as collateral, a non-current financial asset, and are restricted from being exchanged or
used to settle a liability for at least twelve months after the reporting period.
j) 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 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
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT 81
83
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT MANAGEMENT’S DISCUSSION AND ANALYSIS
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
The Trust’s equity accounted investments generated revenue from condominium sales. The Trust’s equity accounted
investments’ 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
The Trust’s equity accounted investments allocate inventory costs associated with the development of condominiums 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.
Foreign currency translation
a) Functional currency
The Trust’s properties and operations are all within Canada, which is also its primary economic environment. Accordingly,
the functional currency of the Trust is determined to be the Canadian dollar.
b) Foreign currency translation
The Trust records foreign currency transactions initially at the rate of exchange at the date of the transaction. If the
transaction spans over a period of time, the Trust records the foreign currency transaction at the average rate of exchange
for the transaction period.
At each reporting date, foreign currency monetary amounts are reported using the closing rate, which is the spot exchange rate
at the end of the reporting period.
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: i) projected future cash flows for income properties and properties
under development, and ii) land, development and construction costs for properties under development, and discount rates
applicable to those assets. The projected cash flows 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” in the Trust’s consolidated financial statements for the year ended December 31, 2021.
82 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT
84
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT MANAGEMENT’S DISCUSSION AND ANALYSIS
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 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 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 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 facilities
The fair values of secured debt and the revolving operating facilities 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.
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 is assessing the impact of the amendments to IAS 1 on
the required effective date of January 1, 2023.
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT 83
85
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT MANAGEMENT’S DISCUSSION AND ANALYSIS
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 is assessing the
impact of the amendments to IAS 37 on the required effective date of January 1, 2022.
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 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 (which
ended on September 30, 2020), 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 pandemic.
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 development of
variants of concern, 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 initially resulting in a severe
economic downturn and subsequent economic fluctuations which have had significant impacts on many tenant businesses and
their ability to meet payment obligations, including rent. The duration of these economic fluctuations 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 developed vaccines and other treatment options, the ultimate efficacy, adoption,
84 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT
86
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT MANAGEMENT’S DISCUSSION AND ANALYSIS
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.
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
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT 85
87
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT MANAGEMENT’S DISCUSSION AND ANALYSIS
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 facilities. 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
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, $0.9 billion of liabilities (including
$678.4 million of secured and unsecured debt and $253.1 million 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 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 facilities, 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 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, 2021, the Trust had: i) cash and cash equivalents of $62.2 million; ii) the remaining funds available to be drawn
from its $650,000 in operating facilities and its $250,000 accordion feature; iii) project-specific financing arrangements; and iv)
approximately $6.6 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 or equity 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 tenant 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.
86 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT
88
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT MANAGEMENT’S DISCUSSION AND ANALYSIS
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 which 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.
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 impacted by 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 facilities provides lenders with first charge security interests on most of the income-producing properties in its
portfolio. This credit facilities 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 facilities contain 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 facilities 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 facilities 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 2021, DBRS confirmed the Trust’s BBB(high) rating and changed the trend
from stable to negative. 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 of the Trust to maintain its cash flow from
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT 87
89
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT MANAGEMENT’S DISCUSSION AND ANALYSIS
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 0.1 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,
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, seniors’ housing 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 and subsequent fluctuations.
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
88 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT
90
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT MANAGEMENT’S DISCUSSION AND ANALYSIS
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.
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, 2021 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 Trust Unit Prices
The price for the Trust 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’ securities and that often has been unrelated to the operating performance of such
issuers. These market fluctuations may adversely affect the market price of the Trust Units.
A publicly traded REIT will not necessarily trade at values determined solely by reference to the underlying value of its real estate
assets. Accordingly, the Trust 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 Trust Units is market interest rates relative to the monthly cash
distributions 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 Trust Units. In addition, the market price for the Trust 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 the Trust’s 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
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT 89
91
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT MANAGEMENT’S DISCUSSION AND ANALYSIS
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.
Significant Unitholder Risk
According to reports filed under applicable Canadian securities legislation, as at December 31, 2021, Mitchell Goldhar (“Mr.
Goldhar”) of Vaughan, Ontario beneficially owned or controlled a number of the outstanding Units which, together with the
securities he beneficially owned or controlled that are exchangeable at his option for Trust Units for no additional consideration
and the associated Special Voting Units, represented an approximate 20.8% voting interest in the Trust. Further, according to the
above-mentioned reports, as at December 31, 2021, Mr. Goldhar beneficially owned or controlled 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 24.6%. 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, 2021. 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 REIT Exception is based upon
revenues of the REIT and the value of the REIT’s assets that may fluctuate during the year. The Trust intends to monitor its
revenues and the value of its assets and 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
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 Income Tax Act (Canada) (the “Tax Act”). For specified investment flow-
through trusts (each a “SIFT”), 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); 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, 2021.
90 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT
92
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT MANAGEMENT’S DISCUSSION AND ANALYSIS
Environmental, Social and Governance
The Trust reviews and analyzes environmental, social and governance initiatives of all levels of government and industry
associations and has piloted and adopted various energy efficiency and sustainability practices. The Trust continues to evaluate
its ESG strategy and additional disclosure and reporting is expected to be forthcoming in 2022.
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, 2021
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, 2021, 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, 2021, 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.
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT 91
93
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT MANAGEMENT’S DISCUSSION AND ANALYSIS
Section X — Glossary of Terms
Term
Anchors
CAM
ECL
Exchangeable Securities
Definition
Anchors are defined as tenants within a retail or office property with gross
leasable area greater than 30,000 square feet.
Defined as common area maintenance expenses.
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.
Net Asset Value (“NAV”)
NAV represents the total assets less total liabilities of the Trust.
Penguin
Shadow Anchor
Total Return Swap (“TRS”)
Voting Top-Up Right
Penguin refers to entities controlled by Mitchell Goldhar, a Trustee, Executive
Chairman, Chief Executive Officer and significant Unitholder of the Trust.
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.
A contractual agreement to exchange payments based on a specified notional
amount and the underlying financial assets for a specific period. The Trust has a
total return swap agreement with a Canadian financial institution to exchange
returns based on a notional amount of 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.
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 may issue 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 annual meeting of
Unitholders in December 2020, Unitholders approved an extension of the Voting
Top-Up Right to December 31, 2025.
92 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT
94
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 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.
Mitchell Goldhar
Executive Chairman & CEO
Peter Sweeney
Chief Financial Officer
95
SMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT
Independent auditor’s report
Independent auditor’s report
To the Unitholders of SmartCentres Real Estate Investment Trust
To the Unitholders of SmartCentres Real Estate Investment Trust
Our opinion
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
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, 2021 and 2020, and its
Trust) as at December 31, 2021 and 2020, and its financial performance and its cash flows for the years
financial performance and its cash flows for the years then ended in accordance with International Financial Reporting Standards
then ended in accordance with International Financial Reporting Standards as issued by the International
as issued by the International Accounting Standards Board (IFRS).
Accounting Standards Board (IFRS).
What we have audited
The Trust’s consolidated financial statements comprise:
What we have audited
The Trustʼs consolidated financial statements comprise:
the consolidated balance sheets as at December 31, 2021 and 2020;
a.
b.
c.
d.
e.
●
the consolidated balance sheets as at December 31, 2021 and 2020;
the consolidated statements of income and comprehensive income for the years then ended;
●
the consolidated statements of income and comprehensive income for the years then ended;
the consolidated statements of cash flows for the years then ended;
●
the consolidated statements of cash flows for the years then ended;
the consolidated statements of equity for the years then ended; and
●
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.
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 Auditor’s responsibilities for the audit of the consolidated financial statements section of
our report.
Basis for opinion
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our 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.
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.
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.
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, 2021. 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.
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.
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT 1
96
SMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT 97
SMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORTKey audit matter How our audit addressed the key audit matter Valuation of investment propertiesRefer 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, 2021, total investment properties were valued at $9,847 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 or the discounted cash flow valuation method; and income properties are valued using the discounted cash flow valuation method. Management applied significant judgment in determining the fair values of investment properties using the two 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 discounted cash flow valuation method include estimated future cash flows over an average period of 10 years, discount rates and terminal capitalization rates. The significant assumptions used in the discounted cash flow valuation method for PUD also include construction costs to complete. 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 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 used by management. In addition, the audit effort involved the use of professionals with specialized skill and knowledge in the field of real estate valuations.Our approach to addressing the matter included the following procedures, among others: For a sample of investment properties, tested how management determined the fair value, which included the following: ● Tested the underlying data used in the valuations. ● 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 comparing assumptions, such as expected changes in 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 testing the accuracy of the calculation and comparing the expected credit losses to the actual credit losses for the current year. ● 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, terminal capitalization rates, changes in rental rates, lease renewal rates and downtime on existing lease expiries. ● 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. Key audit mattersKey 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, 2021. 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 matterHow our audit addressed the key audit matterValuation of investment propertiesRefer 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, 2021, total investment properties were valued at $9,847 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 or the discounted cash flow valuation method and income properties are valued using the discounted cash flow valuation method. Management applied significant judgment in determining the fair values of investment properties using the two 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 discounted cash flow valuation method include estimated future cash flows over an average period of 10 years, discount rates and terminal capitalization rates. The significant assumptions used in the discounted cash flow valuation method for PUD also include construction costs to complete. 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 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 used by management. In addition, the audit effort involved the use of professionals with specialized skill and knowledge in the field of real estate valuations.Our approach to addressing the matter included the following procedures, among others:For a sample of investment properties, tested how management determined the fair value, which included the following:•Tested the underlying data used in the valuations.•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 comparing assumptions, such as expected changes in 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 testing the accuracy of the calculation and comparing the expected credit losses to the actual credit losses for the current year.•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, terminal capitalization rates, changes in rental rates, lease renewal rates and downtime on existing lease expiries.•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.2 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT Other information
Management is responsible for the other information. The other information comprises the Management’s Discussion and
Analysis, which we obtained prior to the date of this auditor’s report and the information, other than the consolidated financial
statements and our auditor’s 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 and will not express an
opinion or 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.
Other information
If, based on the work we have performed on the other information that we obtained prior to the date of this auditor’s report, 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 auditor’s 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.
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.
Responsibilities of management and those charged with governance for the consolidated financial statements
Our opinion on the consolidated financial statements does not cover the other information and we do not
and will not express an opinion or any form of assurance conclusion thereon.
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 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
In preparing the consolidated financial statements, management is responsible for assessing the Trust’s ability to continue as a
inconsistent with the consolidated financial statements or our knowledge obtained in the audit, or
going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting
otherwise appears to be materially misstated.
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 Trust’s financial reporting process.
Auditor’s responsibilities for the audit of the consolidated financial statements
If, based on the work we have performed on the other information that we obtained prior to the date of this
auditorʼs report, 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
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from
than the consolidated financial statements and our auditorʼs report thereon, included in the annual report,
material misstatement, whether due to fraud or error, and to issue an auditor’s 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
if we conclude that there is a material misstatement therein, we are required to communicate the matter to
accepted auditing standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or
those charged with governance.
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:
Responsibilities of management and those charged with governance for the
consolidated financial statements
•
•
•
•
•
•
Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or
Management is responsible for the preparation and fair presentation of the consolidated financial
error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and
statements in accordance with IFRS, and for such internal control as management determines is
appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is
necessary to enable the preparation of consolidated financial statements that are free from material
higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions,
misstatement, whether due to fraud or error.
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 preparing the consolidated financial statements, management is responsible for assessing the Trustʼs
in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Trust’s internal
ability to continue as a going concern, disclosing, as applicable, matters related to going concern and
control.
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.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related
disclosures made by management.
Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the
Those charged with governance are responsible for overseeing the Trustʼs financial reporting process.
audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant
doubt on the Trust’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are
required to draw attention in our auditor’s report to 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 auditor’s report. However, future events or conditions may cause the Trust to cease to continue as a
going concern.
Evaluate the overall presentation, structure and content of the consolidated financial statements, including the
disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a
manner that achieves fair presentation.
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 are responsible for the direction,
supervision and performance of the group audit. We remain solely responsible for our audit opinion.
98
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT 3
SMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT NTD - Blank page to accommodate Audit Opinion
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.
● Conclude on the appropriateness of management’s use of the going concern basis of accounting and,
based on the audit evidence obtained, whether a material uncertainty exists related to events or
conditions that may cast significant doubt on the 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
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
auditorʼs report. However, future events or conditions may cause the Trust to cease to continue as a
going concern.
● Evaluate the overall presentation, structure and content of the consolidated financial statements,
including the disclosures, and whether the consolidated financial statements represent the underlying
transactions and events in a manner that achieves fair presentation.
● 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
are responsible for the direction, supervision and performance of the group audit. We remain solely
responsible for our audit opinion.
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
control that we identify during our audit.
4 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT
99
SMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT 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 control that we identify during our audit.
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 matters that may reasonably be thought to
bear on our independence, and where applicable, related safeguards.
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 are therefore the key audit matters. We describe
these matters in our auditor’s report unless law or 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
doing so would reasonably be expected to outweigh the public interest benefits of such communication.
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
matters that may reasonably be thought to bear on our independence, and where applicable, related
safeguards.
The engagement partner on the audit resulting in this independent auditor’s report is Daniel D'Archivio.
DRAFT
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
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
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.
Chartered Professional Accountants, Licensed Public Accountants
The engagement partner on the audit resulting in this independent auditorʼs report is Daniel D'Archivio.
Vaughan, Ontario
February 15, 2022
/s/PricewaterhouseCoopers LLP
Chartered Professional Accountants, Licensed Public Accountants
Vaughan, Ontario
February 15, 2022
100
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT 5
SMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT SMARTCENTRES REAL ESTATE INVESTMENT TRUST
SMARTCENTRES REAL ESTATE INVESTMENT TRUST
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED BALANCE SHEETS
(in thousands of Canadian dollars)
(in thousands of Canadian dollars)
As at December 31,
As at December 31,
Assets
Assets
Non-current assets
Non-current assets
Investment properties
Investment properties
Equity accounted investments
Equity accounted investments
Mortgages, loans and notes receivable
Mortgages, loans and notes receivable
Other assets
Other assets
Other financial assets
Other financial 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 financial liabilities
Other financial liabilities
Other payables
Other payables
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
Note
Note
2021
2021
2020
2020
4
4
5
5
6
6
7
7
8
8
9
9
10
10
6
6
11
11
11
11
11
11
12
12
13
13
14
14
12
12
14
14
9,847,078
9,847,078
654,442
654,442
345,089
345,089
80,940
80,940
97,148
97,148
45,139
45,139
11,069,836
11,069,836
27,399
27,399
71,947
71,947
49,542
49,542
1,269
1,269
11,020
11,020
62,235
62,235
223,412
223,412
11,293,248
11,293,248
4,176,121
4,176,121
326,085
326,085
18,243
18,243
4,520,449
4,520,449
678,406
678,406
253,078
253,078
931,484
931,484
5,451,933
5,451,933
4,877,961
4,877,961
963,354
963,354
5,841,315
5,841,315
11,293,248
11,293,248
8,850,390
8,850,390
463,204
463,204
263,558
263,558
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
86,728
86,728
19,385
19,385
4,461,975
4,461,975
854,261
854,261
241,281
241,281
1,095,542
1,095,542
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
Commitments and contingencies (Note 28)
Commitments and contingencies (Note 28)
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 | 2021 ANNUAL REPORT
6 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT
101
SMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT
SMARTCENTRES REAL ESTATE INVESTMENT TRUST
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(in thousands of Canadian dollars)
For the years ended December 31,
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
Earnings from other
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
Note
2021
2020
18
19
20
5
780,758
(294,956)
485,802
781,253
(320,542)
460,711
(31,922)
211,420
38
(28,682)
61,972
—
26
491,528
(275,051)
27
418
12(d)
(144,540)
(160,044)
26
12,341
(34,227)
(2,791)
987,676
827,976
159,700
987,676
15,241
17,722
(2,347)
89,940
75,288
14,652
89,940
The accompanying notes are an integral part of the consolidated financial statements.
102
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT 7
SMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT
SMARTCENTRES REAL ESTATE INVESTMENT TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of Canadian dollars)
For the years ended December 31,
Cash provided by (used in)
Operating activities
Net income and comprehensive income
Items not affecting cash and other items
Cash interest paid
Interest received
Distributions from equity accounted investments
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 unsecured debt
Proceeds from revolving operating facilities
Repayments of secured debt
Repayments of other unsecured debt
Distributions paid on Trust Units
Distributions paid on non-controlling interests and Units classified as liabilities
Payment of lease liability
Cash flows (used in) provided by financing activities
Investing activities
Acquisitions and Earnouts of investment properties
Additions to investment properties
Additions to equity accounted investments
Additions to equipment
Increase in cash held as collateral
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
(Decrease) 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 21)
The accompanying notes are an integral part of the consolidated financial statements.
Note
2021
2020
21
12(d)
5
21
12(b)
12(b)
12(c)
3
7
8
987,676
(519,801)
(150,554)
17,648
4,072
(5,927)
(730)
39,240
371,624
—
(623,120)
68,532
300,000
(88,749)
(23,015)
(267,552)
(55,032)
(1,875)
(690,809)
(328,765)
(78,627)
(25,871)
(349)
(50,279)
(68,371)
57,685
81,403
(413,174)
(732,359)
794,594
62,235
89,940
358,206
(138,847)
5,502
4,770
(5,462)
(1,897)
(16,230)
295,982
1,245,265
(276,880)
504,252
23,000
(120,915)
(474,404)
(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
8 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT
103
SMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT
SMARTCENTRES REAL ESTATE INVESTMENT TRUST
CONSOLIDATED STATEMENTS OF EQUITY
(in thousands of Canadian dollars)
Attributable to Unitholders
Attributable to LP Units
Classified as Non-Controlling
Interests
Note
Trust
Units Retained
Earnings
(Note 16)
Unit
Equity
LP Units Retained
(Note 16)
Earnings
LP Unit
Equity
Other Non-
Controlling
Interest
(Note 22)
Total
Equity
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
Unit issuance costs
16
17,386
—
17,386
6,848
— 6,848
—
24,234
16
(19)
—
(19)
—
—
—
—
(19)
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
17
— (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
Equity – January 1, 2021
3,090,188 1,227,169 4,317,357
640,206 205,927 846,133
3,485 5,166,975
Issuance of Units
Unit issuance costs
16
16
198
(18)
—
—
198
(18)
1,738
— 1,738
—
—
—
—
—
1,936
(18)
Net income and comprehensive income
— 827,976 827,976
— 159,320 159,320
380 987,676
Distributions
17
— (267,552) (267,552)
— (47,282) (47,282)
(420) (315,254)
Equity – December 31, 2021
3,090,368 1,787,593 4,877,961
641,944 317,965 959,909
3,445 5,841,315
The accompanying notes are an integral part of the consolidated financial statements.
104
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT 9
SMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SMARTCENTRES REAL ESTATE INVESTMENT TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2021 and December 31, 2020
(in thousands of Canadian dollars, except Unit, square foot and per Unit amounts)
1. Organization
SmartCentres Real Estate Investment Trust and its subsidiaries (collectively, “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, ONR Limited Partnership I, and SmartVMC West Limited Partnership (see also Note 13, “Other financial liabilities”).
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 16(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 15, 2022. The
Board of Trustees has the power to amend the consolidated financial statements after issue.
As at December 31, 2021, the Penguin Group of Companies (“Penguin”), owned by Mitchell Goldhar, owned approximately
20.8% (December 31, 2020 – 21.4%) of the issued and outstanding Units of the Trust and Limited Partnerships (see also Note
22, “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-entity 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
10 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT
105
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT these co-ownerships in the respective lines in the consolidated financial statements (see Note 24, “Co-ownership
interests”).
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2.3
Equity accounted investments
a) Investment in associates
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
The Trust’s equity accounted investments generated revenue from condominium sales. The Trust’s equity accounted
investments’ 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
The Trust’s equity accounted investments allocate inventory costs associated with the development of condominiums 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
106
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT 11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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,
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 discounted cash flow valuation method, and ii) land, development and construction costs recorded at market
value. 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).
12 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT
107
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2.6
2.7
2.8
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.
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.
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.
108
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT 13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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”), Class B Limited Partnership Units of Smart Boxgrove Limited
Partnership (referred to herein as “Smart Boxgrove LP Units”), and Class D Limited Partnership Units of
SmartVMC West Limited Partnership (referred to herein as “SmartVMC West 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 such 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, Class B ONR LP I Units, and Class D SmartVMC West LP
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.
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”).
14 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT
109
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT The following table summarizes the Trust’s classification and measurement of financial assets and liabilities:
Note
Classification under IFRS 9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Financial assets
Mortgages, loans and notes receivable
Amounts receivable and other
Cash and cash equivalents
Cash held as collateral
Total return swap receivable
Financial liabilities
Accounts payable and other payables
Secured debt
Revolving operating facilities
Unsecured debt
Units classified as liabilities
Earnout options
Deferred unit plan
Long term incentive plan (“LTIP”)
Equity incentive plan (“EIP”)
Currency swap agreement
Interest rate swap agreements
a) Financing costs
2.10
2.13
2.13
2.13
2.13
Amortized cost
Amortized cost
Amortized cost
Amortized cost
FVTPL
Amortized cost
Amortized cost
Amortized cost
Amortized cost
FVTPL
FVTPL
FVTPL
FVTPL
FVTPL
FVTPL
FVTPL
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 15, “Fair value of financial instruments”.
d) Currency swap agreement
The currency swap is a contractual agreement to exchange payments based on specified notional amounts in two
currencies, Canadian dollars and U.S. dollars, for a specific period. The currency swap agreement requires the
exchange of net contractual payments periodically without the exchange of the notional principal amounts on
which the payments are based. Changes in market value are recorded in net income and comprehensive income.
The currency swap payable reflects the fair value of the swap agreement, and is determined as the difference
between the foreign exchange rate between Canadian dollars and U.S. dollars as per the swap agreement and
the foreign exchange rate at the reporting date on the specified notional amount. The gain (loss) will be realized
when the currency swap agreement matures or is unwound.
110
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT 15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
e) 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.
The fair value of interest rate swap agreements is determined using the discounted cash flow valuation technique
on the expected cash flows of the derivatives. The future fixed cash payments and the expected variable cash
receipts are discounted to the reporting date, and then netted to determine the fair value of each interest rate
swap agreement. The expected variable cash receipts are based on expectations of future interest rates, which
are derived from yield curves based on observable market data.
f) Total return swap (“TRS”) receivable
The total return swap is a contractual agreement to exchange payments based on a specified notional amount
and the underlying financial assets for a specific period. The total return to the Trust includes the total return
generated by the underlying notional Trust Units, plus any appreciation, if there is any, in the market value of the
notional Trust Units, less the amount equal to any decline, if there is any, in the market value of the underlying
notional Trust Units. The total return swap agreement requires the exchange of net contractual payments
periodically without the exchange of the notional principal amounts on which the payments are based. Changes in
market value are recorded in net income and comprehensive income.
The Trust has funded the total return swap agreement by a loan from the counterparty. The loan is measured at
amortized cost.
The total return swap receivable reflects the market value of the swap agreement, and is determined by reference
to the value of the underlying notional Trust Units at each reporting date. The gain (loss) will be realized when the
total return swap agreement matures or is unwound.
g) 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.
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.
h) 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.
16 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT
111
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
i) Cash held as collateral
The Trust, from time to time, pledges cash and cash equivalents as security for derivative instruments with
financial institutions. This balance is classified as cash held as collateral, a non-current financial asset, and are
restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period.
j) 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.
2.12
2.13
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 2.23(b) i)).
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
2.23(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
112
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT 17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 2.23(b)(iv)).
d) Equity Incentive Plan
The Trust has an Equity Incentive Plan 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.
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 2.23(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 stand-
alone 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.
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 18 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.
18 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT
113
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2.15
2.16
2.17
2.18
2.19
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.
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-maker is
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.
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 stand-alone 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
Foreign currency translation
a) Functional currency
The Trust’s properties and operations are all within Canada, which is also its primary economic environment.
Accordingly, the functional currency of the Trust is determined to be the Canadian dollar.
b) Foreign currency translation
The Trust records foreign currency transactions initially at the rate of exchange at the date of the transaction. If the
transaction spans over a period of time, the Trust records the foreign currency transaction at the average rate of
exchange for the transaction period.
At each reporting date, foreign currency monetary amounts are reported using the closing rate, which is the spot
exchange rate at the end of the reporting period.
114
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT 19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2.21
Interest Rate Benchmark Reform
On January 1, 2021, the Trust adopted amendments to IFRS 9, IAS 39, IFRS 7 and IFRS 16 Interest Rate Benchmark
Reform – Phase 2 as issued in August 2020. For financial instruments measured using amortized cost, changes to the
basis for determining the contractual cash flows required by interest rate benchmark reform were reflected by adjusting
their effective interest rate. Accordingly, no immediate gain or loss was recognized.
The Trust’s exposure to the interest rate benchmark reform as at December 31, 2021 include all variable-rate financial
instruments, and are presented in the table below:
As at
December 31, 2021
Financial instruments measured at amortized cost
Balance yet to transition to an alternative benchmark interest rate
Financial liabilities
Secured debt
Unsecured debt
Revolving operating facilities
112,469
17,000
297,625
427,094
The Trust is managing risks arising from the interest rate benchmark reform through: i) managing the maturities of its
debt agreements, ii) designating successor rates, and iii) holding onto CDOR and LIBOR rates for as long as
practicable, prior to transitioning its financial and debt instruments to successor rates.
2.22
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 5, “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.
20 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT
115
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
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 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.
2.23
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: i) projected future cash flows for income properties and
properties under development, and ii) land, development and construction costs for properties under development,
and discount rates applicable to those assets. The projected cash flows 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.
116
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT 21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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
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 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 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 facilities
The fair values of secured debt and the revolving operating facilities 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.
Reclassification of comparative figures
The comparative figures relating to the LTIP liability, in the amount of $1,540, have been reclassified from other
payables (see also Note 14, “Accounts and other payables”) to other financial liabilities (see also Note 13, “Other
financial liabilities”) to conform with the current period presentation.
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 is assessing the impact of
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 is assessing the impact of the amendments to IAS 37 on the required effective date of January 1,
2022.
2.24
2.25
22 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT
117
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. Acquisitions and Earnouts
Acquisitions and Earnouts completed during the year ended December 31, 2021
a)
In February 2021, the Trust acquired a parcel of land totalling 7.6 acres in Aurora, Ontario for a purchase price of $12,237,
paid in cash and adjusted for costs of acquisition and other working capital amounts.
b)
c)
d)
e)
In April and June 2021, the Trust acquired two parcels of residential land in Hamilton, Ontario, for a total purchase price of
$1,085, paid in cash and adjusted for costs of acquisition and other working capital amounts.
In December 2021, the Trust acquired a 50.0% interest in a parcel of land for retail development in Toronto (Leaside),
Ontario, for a total purchase price of $12,750, paid in cash and adjusted for costs of acquisition and other working capital
amounts. The remaining 50.0% interest is held by Penguin.
In December 2021, the Trust acquired a 66.67% interest in a parcel of land adjacent to the Vaughan Metropolitan Centre in
Vaughan, Ontario, from unrelated parties for a purchase price of $494,312. The purchase price of this parcel of land
(“SmartVMC West”) was satisfied by: i) $300,000 of cash, ii) $181,236 through the issuance of 3,623,188 Class D Series 1
LP Units and 2,173,913 Class D Series 2 LP Units of SmartVMC West Limited Partnership, and iii) $13,076 through the
assumption of mortgages. The Trust’s ownership interest in SmartVMC West represents 66.67%, while the remaining
33.33% interest is held by Penguin.
During the year ended December 31, 2021, pursuant to development management agreements referred to in Note 4,
“Investment properties” (see also Note 22, “Related party transactions”), the Trust completed the purchase of:
i)
An Earnout transaction on a parcel of land totalling 13.2 acres located in Niagara Falls, Ontario. The purchase price
was $1,415, of which $466 was satisfied through the issuance of 19,954 Class B Series 6 Smart LP III Units (see also
Note 13(b)) and the balance was paid in cash, adjusted for other working capital amounts. This parcel of land was
subsequently disposed of (see also, Note 4, “Investment properties”).
ii)
Earnout transactions totalling 24,619 square feet of development space with a purchase price of $8,925, of which
$1,042 was satisfied through the issuance of 12,569 Class B Smart LP III Units and 26,317 Class B Smart LP IV Units
(see also Note 13(b)) and the balance paid in cash, adjusted for other working capital amounts (see also, Note
4(d)(ii)).
iii) An Earnout transaction on 23,012 square feet of retail space in Stouffville, Ontario. The purchase price was $5,934, of
which $229 was satisfied through the issuance of 7,763 Class B Series 2 Smart LP Units (see also Note 13(b)) and
the balance was paid in cash, adjusted for development costs funded by the Trust and other amounts.
The following table summarizes the consideration for Acquisitions and Earnouts completed for the year ended December 31,
2021:
Cash
LP Units issued
Mortgages assumed
Adjustments for other working capital amounts
Acquisitions -
SmartVMC
West
300,000
181,236
Acquisitions -
other
26,611
—
Note
4(d)(ii)
13,076
(76)
—
9
326,611
181,236
13,076
(67)
Total
Acquisitions
Earnouts
Total
Acquisitions
and Earnouts
328,765
182,974
13,076
12,315
537,130
2,154
1,738
—
12,382
16,274
494,236
26,620
520,856
118
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT 23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 22, “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(b)) 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.
ii) An Earnout transaction representing a 50% interest in a parcel of land totalling 2.25 acres in Ottawa, Ontario that was
transferred to a joint venture, Ottawa SW PropCo LP, which is recorded in 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 (see
also Note 13(b)) and the balance was paid by cash, with adjustments made for development costs paid by the Trust and
other working capital amounts (see also Note 22, “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 6,
“Mortgages, loans and notes receivable”), to finance a portion of its share of the purchase price and closing costs for the
above acquisition.
iii) An Earnout of a 40% interest in approximately 11.0 acres of land with a purchase price of $7,452, of which:
i)
ii)
iii)
$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 had 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 6(b), Note 14 “Accounts and other payables”, and Note 16(a)(ii)); and
the balance of $483 was paid in cash adjusted for other working capital amounts.
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 and other adjustments
4(d)(ii)
6(b), 14, 16(a)(ii)
7,910
—
—
152
8,062
3,318
6,925
3,460
204
13,907
Note
Acquisitions
Earnouts
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.
See also Note 5, “Equity accounted investments”, for additional details on acquisitions/new property contributions reflected in
equity accounted investments.
24 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT
119
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. Investment properties
The following table summarizes the activities in investment properties:
Balance – beginning of year
Additions (deductions):
Acquisitions, Earnouts and related adjustments of
investment properties
Earnout Fees on properties subject to development
management agreements
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
Capital expenditures
Leasing costs
Development expenditures
Capitalized interest
Dispositions
Year Ended December 31, 2021
Year Ended December 31, 2020
Note
Income
Properties
Properties
Under
Development
Income
Properties
Total
Properties
Under
Development
Total
8,267,430
582,960 8,850,390 8,488,669
561,397 9,050,066
—
22,015
499,700 521,715
—
21,678
21,678
4(d)(ii)
2,397
—
2,397
291
—
291
40,555
(40,555)
—
39,748
(39,748)
(2,400)
2,400
—
(70,236)
70,236
—
—
—
(6,850)
(6,850)
—
(6,125)
(6,125)
17,472
3,057
—
—
17,472
8,445
3,057
1,732
—
—
8,445
1,732
—
—
53,186
53,186
14,333
14,333
(62,865)
(37,285) (100,150)
—
—
—
50,728
50,728
17,689
17,689
(19,063)
(19,063)
Fair value adjustment on revaluation of investment
properties
Balance – end of year
26
107,416
384,112 491,528 (201,219)
(73,832) (275,051)
8,395,077
1,452,001 9,847,078 8,267,430
582,960 8,850,390
The historical costs of both income properties and properties under development as at December 31, 2021 totalled $6,603,696
and $1,273,350, respectively (December 31, 2020 – $6,570,845 and $793,666, respectively).
Secured debt with a carrying value of $1,294,546 (December 31, 2020 – $1,327,760) is secured by investment properties with a
fair value of $3,206,478 (December 31, 2020 – $3,014,790).
Presented separately from investment properties is $76,042 (December 31, 2020 – $81,511) 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.
a) Valuation methods underlying management’s estimation of fair value
i) Income properties
The Trust applies 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 applies this 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.
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
120
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT 25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
The following table summarizes significant assumptions in Level 3 valuations along with corresponding fair values for
income properties:
Valuation Method
Carrying Value
December 31, 2021
Terminal Capitalization Rate
Discount Rate
Weighted
Average (%)
Range (%)
Weighted
Average (%)
Range (%)
Discounted cash flow
8,395,077
5.83
4.18 – 7.43
6.34
4.58 – 7.93
Valuation Method
Carrying Value
December 31, 2020
Terminal Capitalization Rate
Discount Rate
Weighted
Average (%)
Range (%)
Weighted
Average (%)
Range (%)
Discounted cash flow
8,267,430
5.94
4.25 – 7.79
6.46
4.65 – 8.54
ii) Properties under development
Valuation method for the year ended December 31, 2021
For the year ended December 31, 2021, the Trust applied a change in the valuation method used to estimate the value
of properties under development. Properties under development are valued using two primary methods: i) discounted
cash flow method, factoring in future cash inflows and outflows such as construction costs to complete development,
leasing costs and other fees, and Earnout Fees, if any; or ii) land, development and construction costs are recorded at
market value, factoring in development risks such as planning, zoning, timing and market conditions. 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 properties under development based on expectations of changes in rental rates, occupancy rates, lease
renewal rates, downtime on lease expiries, among others, as a result of the impact of the COVID-19 pandemic. This
change in valuation method for properties under development also aligns with the valuation method used to determine
fair value for income properties.
Using the discounted cash flow valuation method, the fair value of properties under development 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, construction costs, 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 NOI. The sum of the present value of future cash flows, including its
discounted terminal value, represents the estimated fair value of each property.
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, 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.
26 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT
121
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
The following table summarizes significant assumptions in Level 3 valuations along with corresponding fair values for
properties under development:
Valuation Method
Land, development and construction costs recorded at market value
Discounted cash flow
Valuation Method
Land, development and construction costs recorded at market value
Direct income capitalization
December 31, 2021
Weighted Average
Discount
Rate (%)
N/A
5.92
Carrying Value
1,324,263
127,738
1,452,001
December 31, 2020
Weighted Average
Capitalization
Rate (%)
N/A
6.22
Carrying Value
416,964
165,996
582,960
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 and in assuming no changes in other assumptions.
Rate Sensitivity (%)
(1.00)
(0.50)
(0.25)
+0.25
+0.50
+1.00
Increase (decrease) in fair value of income properties due to:
Changes in discount rates
1,876,400
846,800
403,500
(369,100)
(709,700)
(1,312,100)
Forecasted Future Cash Flows Sensitivity (%)
(10.00)
(5.00)
(2.50)
+2.50
+5.00
+10.00
Increase (decrease) in fair value of income properties due to:
Changes in forecasted future cash flows
(858,400)
(429,300)
(214,800)
214,800
428,700
858,500
b) Dispositions
Disposition of investment properties during the year ended December 31, 2021
In January 2021, the Trust sold a parcel of land totalling 13.2 acres located in Niagara Falls, Ontario, for gross proceeds of
$4,725, of which $1,415 was paid in cash and the balance was granted as an interest-bearing loan to the purchaser. See
also Note 3, “Acquisitions and Earnouts” and Note 6, “Mortgages, loans and notes receivable”.
In February 2021, the Trust contributed its interest in a parcel of land totalling 1.5 acres located in Brampton, Ontario, for a
value of $3,250 to a joint venture, Kingspoint Self Storage LP, for development of a self-storage facility (see also, Note 5(b)).
In March 2021, the Trust sold a parcel of land totalling 2.4 acres located in Mascouche, Quebec, for gross proceeds of
$3,068, which was satisfied by cash.
In March 2021, the Trust contributed its interest in a parcel of land totalling 2.7 acres located in Mascouche, Quebec for a
value of $3,600 to a joint venture, Mascouche North Apartments Limited Partnership, for development of a rental apartment
complex (see also, Note 5(b)).
122
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT 27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In September 2021, the Trust sold a parcel of land totalling 1.4 acres located in Stouffville, Ontario, for gross proceeds of
$2,715, which was satisfied by cash.
In October 2021, the Trust, together with its 50% partner Penguin, sold a parcel of land totalling 78.4 acres (39.2 acres at
the Trust’s share) located in Innisfil, Ontario, for gross proceeds of $21,572 (at the Trust’s share), which was satisfied by a
vendor take-back mortgage bearing interest at 4% per annum, with a term of two years, in the amount of $15,097 (at the
Trust’s share, see also Note 6(b), footnote 11), with the balance paid in cash adjusted for other working capital amounts.
In December 2021, the Trust sold a property, consisting of an investment property and a property under development,
located in Maple Ridge, British Columbia, for gross proceeds of $67,500, which was satisfied by cash, adjusted for
transaction costs and other working capital amounts.
Disposition of investment properties during the year ended December 31, 2020
In April 2020, the Trust sold a 50% interest in a parcel of land totalling 2.25 acres in Ottawa, Ontario, that was transferred to
a joint venture, Ottawa SW PropCo LP, which is recorded in equity accounted investments, to develop one retirement and
seniors’ housing community and one multi-residential rental tower (see Note 3, “Acquisitions and Earnouts”, and Note 5,
“Equity accounted investments”).
In August 2020, the Trust conveyed a parcel of land totalling 1.16 acres in Scarborough, Ontario, that 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”.
c) Leasehold property interests
At December 31, 2021, 16 (December 31, 2020 – 16) investment properties with a fair value of $977,376 (December 31,
2020 – $978,410) 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 (see also Note 22,
“Related party transactions”) in the amount of $889,931 (December 31, 2020 – $889,931), including prepaid land
rent of $229,846 (December 31, 2020 – $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 22,
“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, 2020 – $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 $2,145
(December 31, 2020 – $1,957), net of imputed interest at 9.18% of $7,855 (December 31, 2020 – $8,043) (see also
Note 14, “Accounts and other payables”).
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 in the amount of $6,138 (December 31, 2020 – $6,211), net of imputed interest
at 6.25% of $649 (December 31, 2020 – $1,027) (see also Note 14, “Accounts and other payables”).
28 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT
123
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT 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)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2021
December 31, 2020
1,391,301
60,700
1,452,001
521,149
61,811
582,960
For the year ended December 31, 2021, the Trust capitalized a total of $14,333 (year ended December 31, 2020 – $17,689)
of borrowing costs related to properties under development.
i)
Properties under development not subject to development management agreements
During the year ended December 31, 2021, 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, 2021, the Trust incurred land and development costs of $26,328 (year ended
December 31, 2020 – $39,430).
ii) Properties under development subject to development management agreements (Earnout 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 ten 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 any additional development costs not previously incurred by the Trust, 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 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”.
124
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT 29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes the Earnout options that were elected to exercise which resulted in proceeds (see
also Note 13(b)):
Unit Type
Smart Limited Partnership
Smart Limited Partnership
Smart Limited Partnership III
Smart Limited Partnership III
Smart Limited Partnership IV
Smart Boxgrove Limited Partnership
Class and Series
Class F Series 3
Class B Series 2
Class B Series 4
Class B Series 6
Class B Series 1
Class B Series 1
Year Ended December 31
2021
—
229
34
780
695
—
1,738
2020
77
—
715
2,624
—
3,509
6,925
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
Year Ended December 31
2021
12,902
2,397
15,299
2020
13,616
291
13,907
30 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT
125
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. Equity accounted investments
The following table summarizes key components relating to the Trust’s equity accounted investments:
Investment – beginning of year
354,992
108,212
463,204
294,499
50,877
345,376
Year Ended December 31, 2021
Year Ended December 31, 2020
Investment in
Associates
Investment in
Joint Ventures
Investment in
Associates
Investment in
Joint Ventures
Total
Total
Operating Activities:
Earnings (loss)
Distributions – VMC Residences
condominium unit closings(1)
Distributions – operating activities
Financing Activities:
Fair value adjustment on loan
Loan repayment
Investing Activities:
Cash contribution (return of contributions)
Property contribution
Acquisition and related costs(2)
183,660
27,760
211,420
62,369
(397)
61,972
(52,824)
(3,358)
3,995
—
1,878
—
—
—
(52,824)
—
—
—
(714)
(4,072)
(3,987)
(783)
(4,770)
—
—
3,995
4,218
—
(3,987)
—
—
4,218
(3,987)
23,991
6,850
—
25,869
6,850
4,061
—
(7,121)
2,036
—
(2,181)
63,600
(3,060)
2,036
61,419
Investment – end of year
488,343
166,099
654,442
354,992
108,212
463,204
(1)
(2)
a)
During the year ended December 31, 2021, the distribution in the amount of $52,824 was satisfied by a non-cash settlement of the PCVP loan payable (see Note 12(b)(iii)).
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 investment in associates as reflected in the Trust’s
consolidated financial statements:
Business Focus
Partner(s)
Principal Intended Activity
December 31, 2021 December 31, 2020
Ownership Interest (%), As at
Mixed-use real estate development
Penguin-Calloway Vaughan
Partnership (“PCVP”)
Penguin(1)
Residential condominium developments
VMC Residences Limited
Partnership (“Residences
LP”)
Residences III LP
East Block Residences LP
Penguin(1),
CentreCourt
Penguin(1),
CentreCourt
Penguin(1),
CentreCourt
Residences (One) LP
Penguin(1)
(1)
See also Note 22, “Related party transactions”.
Own, develop and operate investment
properties in the SmartVMC (Eastern 52.0
acres)
Own, develop and sell two residential
condominium towers and 22 townhomes
(Transit City 1 and 2) at SmartVMC
Own, develop and sell a residential
condominium tower (Transit City 3) at
SmartVMC
Own, develop and sell two residential
condominium towers (Transit City 4 and 5)
at SmartVMC
Own, develop and sell residential
condominium towers (ArtWalk)
50.0
50.0
25.0
25.0
25.0
50.0
25.0
25.0
25.0
N/A
In December 2019, the Trust acquired, as part of a 50:50 joint arrangement with Penguin, through PCVP, a 50% interest in a
parcel of land (“700 Applewood”) with approximately 15.5 acres in Vaughan, Ontario, proximate to SmartVMC to relocate
Walmart from SmartVMC and for other future development, for a purchase price of $109,218 paid in cash, adjusted for other
working capital amounts. In connection with this acquisition, an interest-free loan receivable with a principal amount of
$100,404 and a maturity of December 2029 was extended to Penguin to finance its interest in PCVP’s acquisition of 700
Applewood. In March 2020, the Trust assumed this loan receivable from Penguin (see also Note 6(b), footnote 4), along with
an offsetting non-interest-bearing note payable of an equal amount (see Note 12(b)(iii), footnote 2).
Note that the limited partnerships involved in residential condominium developments, as noted in the above table:
Residences LP, Residences III LP, East Block Residences LP and Residences (One) LP, are herein collectively referred to
as “VMC Residences”.
126
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT 31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, 2021
PCVP
VMC
Residences
Total
PCVP
December 31, 2020
VMC
Residences
Total
1,322,717
— 1,322,717
920,064
—
920,064
19,284
371,898
391,182
20,019
632,691
652,710
1,342,001
371,898 1,713,899
940,083
632,691 1,572,774
327,443
81,203
408,646
171,382
28,268
199,650
111,782
157,715
269,497
197,187
360,690
557,877
439,225
238,918
678,143
368,569
388,958
757,527
Net assets
902,776
132,980 1,035,756
571,514
243,733
815,247
Trust’s share of net assets before adjustments
451,388
33,245
484,633
285,757
60,934
346,691
Trust’s additional investment
Fair value adjustment on loan
Trust’s share of net assets
—
—
—
—
6,862
1,218
2,492
3,710
1,439
—
6,862
1,439
452,606
35,737
488,343
287,196
67,796
354,992
(1)
Balance as at December 31, 2021 includes loan payable to the Trust of $47,214 (December 31, 2020 – $95,008), see also Note 6(b).
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, 2021
December 31, 2020
Commitments
Trust’s Share
Commitments
Trust’s Share
87,712
—
—
128,923
216,635
43,856
—
—
32,231
76,087
25,070
9,199
15,449
86,554
136,272
12,535
2,300
3,862
21,638
40,335
ii) Summary of earnings
The following table summarizes the earnings for investment in associates for:
Revenue
Rental revenue(1)
Condominium sales revenue(2)
Operating expense
Rental operating costs
Condominium cost of sales
Year Ended December 31, 2021
Year Ended December 31, 2020
PCVP
VMC
Residences
Total
PCVP
VMC
Residences
Total
28,919
—
28,919
28,295
—
28,295
—
297,299
297,299
—
538,778
538,778
(12,421)
—
(12,421)
(11,175)
—
(11,175)
—
(224,576)
(224,576)
—
(375,985)
(375,985)
Revenue net of operating expense
16,498
72,723
89,221
17,120
162,793
179,913
Fair value adjustment on revaluation of investment
properties
Interest (expense) income
Gain on sale of investment properties
Earnings
Trust’s share of earnings before supplemental cost
and additional profit sharing
Additional Trust’s share of earnings(3)
Supplemental cost
321,146
(6,619)
—
—
321,146
20,930
—
20,930
254
—
(6,365)
(5,976)
3,105
(2,871)
—
52
—
52
331,025
72,977
404,002
32,126
165,898
198,024
165,513
18,243
183,756
16,063
41,475
57,538
—
2,522
2,522
—
6,862
6,862
(2,618)
—
(2,618)
(2,031)
—
(2,031)
Trust’s share of earnings
162,895
20,765
183,660
14,032
48,337
62,369
(1)
(2)
Includes office rental revenue from the Trust in the amount of $2,625 for the year ended December 31, 2021 (year ended December 31, 2020 – $2,634).
Includes condominium sales revenue recognized on the closings of 631 units in Transit City 3 (year ended December 31, 2020 – condominium sales revenue recognized on
the closings of 1,109 units in Transit City 1 and 2).
(3) Additional profit allocated to the Trust for Transit City condominium closings pursuant to the development agreement and limited partnership agreement.
32 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT
127
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In accordance with the Supplemental Development Fee Agreement, the Trust invoiced PCVP a net amount of $5,237
related to associated development fees for the year ended December 31, 2021 (year ended December 31, 2020 –
$4,061).
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.
The following table shows the development facilities available:
As at
Development facilities – beginning of year
Reduction
Repayments
Letters of credit released
Additional development credit facilities obtained
Development facilities – end of year
Amount drawn on development credit facilities
Letters of credit – outstanding
December 31, 2021
December 31, 2020
796,740
(131,154)
(48,500)
(21,024)
157,500
753,562
(317,105)
(42,832)
393,625
768,302
(36,072)
(204,390)
(1,100)
270,000
796,740
(227,327)
(79,816)
489,597
Trust’s share of remaining unused development credit facilities
146,742
177,884
The PCVP and VMC Residences had the following credit facilities available:
As at
PCVP
Maturity in
Annual
Interest Rate
(%)(1)
Facility
Amount
The Trust’s
Share
Facility
Amount
The Trust’s
Share
December 31, 2021
December 31, 2020
Development credit facility
December 2022
Development credit facility
Construction credit facility
Letters of credit facility(2)
June 2021
May 2024
May 2022
BA + 1.35
BA + 1.45
15,876
—
7,938
—
15,876
48,500
7,938
24,250
BA + 1.45
386,766
193,383
270,000
135,000
N/A
60,000
30,000
35,000
17,500
VMC Residences
Development credit facility
April 2022
Development credit facility
February 2022
Development credit facility
September 2023
BA + 1.75
BA + 1.75
BA + 1.60
462,642
231,321
369,376
184,688
11,656
—
279,264
290,920
2,914
—
69,816
72,730
14,512
132,688
280,164
3,628
33,172
70,041
427,364
106,841
753,562
304,051
796,740
291,529
(1) Annual interest rate is a function of Canadian Banker's Acceptance rate (“BA”) rates plus a premium.
(2)
Letter of credit fee rate is 0.75%.
128
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT 33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
b)
Investment in joint ventures
The following table summarizes the Trust’s ownership interest in each joint venture investment 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
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, Kingspoint Self Storage LP, Jane Self Storage LP,
and Gilbert Self Storage LP
Seniors’ apartments
Joint Venture: Vaughan NW SA PropCo LP
Retirement residences
Joint Ventures: Vaughan NW RR (PropCo and OpCo LPs),
Hopedale RR (PropCo and OpCo LPs), Baymac RR PropCo LP,
Oakville Garden Drive RR PropCo LP and Markham Main Street
RR PropCo LP
Joint Ventures: Ottawa SW (PropCo and OpCo LPs)
Residential apartments
Joint Venture: Laval C Apartments LP
Joint Venture: Balliol/Pailton LP
Joint Venture: Mascouche North Apartments LP
Total
December 31, 2021
December 31, 2020
Joint Venture
Partner
Number of
Projects
Ownership
Interest (%)
Number of
Projects
Ownership
Interest (%)
Fieldgate
SmartStop
Revera
Revera
Selection
Group
Jadco
Greenwin
Cogir
1
10
30.0
50.0
1
50.0
5
1
1
1
1
21
50.0
50.0
50.0
75.0
80.0
1
8
1
6
1
1
1
—
19
30.0
50.0
50.0
50.0
50.0
50.0
75.0
0.0
Acquisitions/new property contributions completed during the year ended December 31, 2021
In February 2021, pursuant to the 50:50 joint venture previously formed with SmartStop known as Kingspoint Self Storage
Limited Partnership, the Trust contributed development land of $3,250 and SmartStop contributed cash into the joint venture,
for development of a self-storage facility which is located in Brampton, Ontario, totalling 1.5 acres.
In March 2021, the Trust formed an 80:20 joint venture with Cogir, and pursuant to the joint venture agreement, the Trust
contributed its interest in a parcel of land of $3,600 totalling 2.7 acres located in Mascouche, Quebec into the joint venture
while Cogir contributed cash. The purpose of this joint venture is to develop and operate a rental apartment complex.
In April 2021, pursuant to the 50:50 joint venture formed with SmartStop known as Jane Self Storage Limited Partnership,
each joint venture party contributed $4,250 into the joint venture to fund the purchase of a parcel of land located in Toronto,
Ontario, totalling 2.67 acres with the intention to develop and operate a self-storage facility.
In December 2021, pursuant to the 50:50 joint venture formed with SmartStop known as Gilbert Self Storage Limited
Partnership, each joint venture party contributed $7,358 into the joint venture to fund the purchase of properties located in
Toronto, Ontario, totalling 1.0 acre with the intention to develop and operate a self-storage facility.
See also Note 4, “Investment properties”.
34 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT
129
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 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, 2021
December 31, 2020
545,946
3,802
549,748
163,840
66,676
230,516
319,232
166,099
370,555
4,028
374,583
139,155
28,781
167,936
206,647
108,212
The joint ventures listed above have entered into various development construction contracts with existing commitments
totalling $77,053, of which the Trust’s share is $47,497 (December 31, 2020 – $21,498, of which the Trust’s share is
$10,777).
ii) Summary of earnings (losses)
The following table summarizes the earnings (losses) for investment in joint ventures for:
Revenue
Operating expense
Revenue net of operating expense
Fair value adjustments on revaluation of investment properties
Interest expense
Earnings (loss)
Trust’s share of earnings (loss)
iii) Summary of credit facilities
Year Ended December 31
2021
16,383
(7,696)
8,687
60,635
(5,135)
64,187
27,760
2020
10,975
(4,330)
6,645
(3,596)
(3,428)
(379)
(397)
Development financing includes a credit facility relating to Laval C Apartments comprising a pre-development and
construction facility, and a construction facility relating to additional self-storage facilities. From time to time, the facilities
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 facilities – 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 – Markham Main Street
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, 2021
December 31, 2020
95,417
69,100
164,517
(35,417)
(10,000)
(85,213)
(887)
33,000
16,500
35,417
60,000
95,417
(35,417)
—
(39,682)
(706)
19,612
9,806
(1)
This additional development facility was provided by the Trust to fund construction costs relating to additional self-storage facilities. See details in table below.
130
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT 35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As at December 31, 2021 and December 31, 2020, the Trust’s joint ventures had the following credit facilities:
As at
December 31, 2021
December 31, 2020
Maturity in
Annual
Interest Rate
(%)(1)
Facility
Amount
The Trust’s
Share
Facility
Amount
The Trust’s
Share
Laval C Apartments LP
Pre-development and construction
facility(2)
SmartStop
Construction facility(3)
Markham Main Street
Development facility
February 2022
BA + 1.60
35,417
17,709
35,417
17,709
May 2024
BA + 2.20
118,100
59,050
60,000
30,000
December 2023
BA + 1.75
11,000
5,500
—
—
164,517
82,259
95,417
47,709
(1) Annual interest rate is a function of BA rates plus a premium.
(2) Management is renegotiating the facility.
(3) This construction facility was provided by the Trust and is used to fund construction costs for the following Ontario-based SmartStop locations: Toronto (Leaside), Brampton
(Kingspoint), Brampton (Bramport), Vaughan NW, Oshawa South, Toronto (Dupont), Scarborough East and Aurora.
6. 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
Note
22
22
December 31, 2021
December 31, 2020
139,589
274,523
2,924
417,036
71,947
345,089
417,036
144,205
241,683
2,924
388,812
125,254
263,558
388,812
a) Mortgages receivable of $139,589 (December 31, 2020 – $144,205) are provided pursuant to agreements with Penguin (see
also Note 22, “Related party transactions”). These amounts are provided to fund costs associated with both the original
acquisition and development of seven properties (December 31, 2020 – seven properties). The Trust is committed to lend up
to $300,796 (December 31, 2020 – $312,778) to assist with the further development of these properties.
36 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT
131
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 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)(8)(9)
Salmon Arm, BC(2)(4)
Pitt Meadows, BC(6)
Vaughan (7 & 427), ON(5)
Caledon (Mayfield), ON(7)
Toronto (StudioCentre), ON(2)(6)
Committed Maturity Date
Annual
Variable
Interest
Rate at
Year-
End (%)
Extended
Maturity
Date(3)
Purchase
Option of
Property
(%)
(1)
37,503
March 2022 August 2028
33,349
29,920
May 2022 October 2023
May 2022 August 2028
85,653 November 2023 August 2028
36,100 December 2023 August 2028
26,689
51,582
300,796
April 2024 August 2028
June 2024 August 2028
3.43
4.01
4.18
3.85
3.57
3.71
3.54
3.74 (9)
50
—
—
50
50
50
25
December 31,
2021
December 31,
2020
17,940
16,642
15,860
31,894
19,588
10,750
26,915
16,858
22,164
15,370
30,669
18,908
10,363
29,873
139,589
144,205
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
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, 2021, 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 dates for these mortgages are 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 Canadian 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%.
This property was disposed in October 2021, and $6,243 of this mortgage receivable was repaid upon the disposition. A vendor take-back loan was issued to the purchaser, with
Penguin assigning its 50% interest in the vendor take-back loan to the Trust as security for the mortgage receivable.
Represents the weighted average interest rate on the loan balance.
Mortgages receivable amendments
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 as at December
31, 2020 which has been reduced to $300,796 resulting from $11,982 in payments received during the year ended
December 31, 2021.
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 date of each mortgage, at a variable rate based on the Canadian
Banker's Acceptance rate plus 2.75% to 4.20%; and from the maturity date of each mortgage to the extended maturity date
(August 31, 2028), at a variable rate based on the Canadian Banker's Acceptance rate plus 4.00% to 5.00%. Prior to
December 9, 2020, interest on these mortgages accrued as follows: i) at a variable rate based on the Canadian Banker's
Acceptance rate plus 1.75% to 4.20% or at the Trust’s cost of capital (as defined in the applicable mortgage agreement) plus
0.25%; or ii) at fixed rates of 6.35% to 7.50%, which was added to the outstanding principal up to a predetermined maximum
accrual, after which it was payable in cash on a monthly or quarterly basis. Additional interest of $103,808 (December 31,
2020 – $109,171) 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, 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 amounts that are guaranteed decrease on achievement of certain specified value-enhancing events. Management
considers all mortgages receivable to be fully collectible.
132
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT 37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
b) The following table presents loans receivable (by maturity date):
Issued to
Penguin(1)
Penguin(2)
Penguin(3)
Penguin(4)
Penguin(5)
Committed
Maturity Date Interest Rate (%)
Note
N/A
19,148
26,227
N/A
18,450
January 2021
Interest-free
March 2022
June 2022
Variable
Variable
22
22
22
December 2029
Interest-free
22,12(b)(iii)
August 2030
Variable
22
December 31,
2021
December 31,
2020
—
9,707
14,027
77,828
15,404
3,460
9,349
14,587
76,747
—
Total loans issued to Penguin
116,966
104,143
PCVP(6)
Self-storage facilities(7)
N/A
115,100
June 2022
May 2024
2.76
22
Variable
Total loans issued to equity accounted investments
N/A
N/A
Selection Group
Other(8)
Greenwin(9)
Greenwin(10)
Other(11)
Total loans issued to unrelated parties(12)
11,694
1,280
N/A
April 2021
January 2023
September 2024
January 2025
October 2023
Variable
5.00
Variable
Variable
4.00
47,214
91,938
139,152
—
3,308
—
—
15,097
18,405
274,523
95,008
39,682
134,690
2,850
—
—
—
—
2,850
241,683
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
(11)
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.
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 ten 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. The loan receivable’s maturity was extended from June 2021 to August 2021, subsequently to December 2021,
and presently to March 2022.
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 Canadian 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 were to be repaid in full in June 2021. The loan receivable’s maturity was extended from June 2021 to December 2021, and
subsequently to June 2022.
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 $100,404, is non-interest-bearing, and is repayable at the end of ten
years. As at December 31, 2021, the loan balance of $77,828 is net of a cumulative fair value adjustment totalling $22,576. See also Note 12(b)(iii) reflecting the corresponding non-
interest-bearing loan payable amount.
This loan receivable was provided in December 2021 in connection with the acquisition of a 50% interest in development lands in Toronto (Leaside), Ontario. The loan bears interest
at: i) the Canadian Banker’s Acceptance rate plus 220 basis points, up to 60% of the facility limit, and ii) the Canadian Banker’s Acceptance rate plus 370 basis points, for the
remainder.
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 were to be repaid in full in June 2021. The loan receivable’s maturity was extended from June 2021 to December 2021, and
subsequently to June 2022. The Trust reflects the activity from the PCVP as an equity accounted investment (see also Note 5, “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, 2021.
In July 2020, the Trust entered into a master credit loan agreement with its partner SmartStop to provide funding for the development of certain self-storage facilities. The master
credit loan agreement matures in July 2023 and bears interest at a variable rate based on the Canadian Banker’s Acceptance rate plus 245 basis points. In April 2021, this master
credit loan agreement was amended which resulted in an increase to total committed amounts from $65,500 to $80,800, and the maturity was extended to May 2024. Also in April
2021, the Trust entered into a second master credit loan agreement with SmartStop to provide funding for the development of additional self-storage facilities. This second master
credit loan agreement matures in May 2024 with a committed amount of $34,300. See further details in Note 5(b).
In January 2021, the Trust entered into a loan agreement pursuant to the closing of the Niagara Falls parcel sale to a third party. The Trust agreed to take back a first charge as
security for the loan. The loan agreement matures in January 2023 and bears interest at 5.0% per annum, calculated semi-annually.
In September 2019, the Trust entered into a loan agreement with Greenwin in connection with the acquisition of a 50% interest in development lands in Barrie, Ontario. As at
December 31, 2021, 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 the acquisition of its 25% interest in development lands in
Toronto, Ontario (see also Note 5, “Equity accounted investments”). As at December 31, 2021, 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.
In October 2021, the Trust entered into a loan agreement pursuant to the sale of the Innisfil property to a third party. The Trust agreed to take back a first charge as security for the
loan. The loan matures in October 2023 and bears interest at 4.00% per annum, calculated annually. Penguin has assigned its 50% interest in the vendor take-back loan to the
Trust as security for the mortgage receivable.
(12) Management considers all loans issued to unrelated parties to be fully collectible.
38 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT
133
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
c) Notes receivable of $2,924 (December 31, 2020 – $2,924) have been granted to Penguin (see also Note 22, “Related party
transactions”). As at December 31, 2021, these secured demand notes bear interest at the rate of 9.00% per annum
(December 31, 2020 – 9.00%). 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 15, “Fair value of
financial instruments”.
7. Other assets
The following table summarizes the activity in other assets:
Straight-line rent receivables
Tenant incentives
Equipment
Right-of-use assets
December 31, 2020
Additions
Write-offs
Amortization and
other adjustments December 31, 2021
44,786
36,725
81,511
1,273
5,357
88,141
10,851
(2,247)
3,583
(633)
14,434
(2,880)
349
96
—
—
14,879
(2,880)
(9,826)
(7,197)
(17,023)
(337)
(1,840)
(19,200)
43,564
32,478
76,042
1,285
3,613
80,940
8. Other financial assets
The following table summarizes the activity in the components of other financial assets:
As at
Cash held as collateral (a)
Total return swap receivable (b)
a) Cash held as collateral
December 31, 2021
December 31, 2020
50,279
46,869
97,148
—
—
—
The Trust has pledged $50,279 of cash and cash equivalents with a Canadian financial institution as collateral to secure the
payment and performance of all secured obligations under the total return swap agreement, see also Note 8(b).
b) Total return swap receivable
The following table summarizes the activity in the total return swap receivable:
Total return swap receivable
—
41,227
5,642
46,869
December 31, 2020
Additions
adjustments December 31, 2021
Fair value
9. 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, 2021
Cost
Accumulated
Amortization
36,944
2,995
39,939
13,979
53,918
8,121
658
8,779
—
8,779
Net
28,823
2,337
31,160
13,979
45,139
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
The total amortization expense recognized for the year ended December 31, 2021 amounted to $1,331 (year ended
December 31, 2020 – $1,331).
134
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT 39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. 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:
As at
Balance – beginning of year
Development costs
Capitalized interest
Balance – end of year
December 31, 2021
December 31, 2020
25,795
646
958
27,399
24,564
317
914
25,795
11. 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(1)
Allowance for ECL
Amounts receivable and other, net of allowance for ECL
Deferred financing costs
Prepaid expenses and deposits
(1) The amount includes a related party amount of $7,967 (December 31, 2020 – $4,456).
December 31, 2021
December 31, 2020
36,305
11,847
6,966
581
1,414
11,383
68,496
(18,954)
49,542
1,269
11,020
61,831
57,563
8,287
1,311
—
2,898
8,327
78,386
(19,742)
58,644
1,173
7,269
67,086
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:
Balance – beginning of year
Net allowance recognized as expense
Tenant receivables written off
Balance – end of year
Year Ended December 31
2021
19,742
2,841
(3,629)
18,954
2020
3,061
24,383
(7,702)
19,742
40 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT
135
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT
12. Debt
The following table presents debt balances:
As at
Secured debt (a)
Unsecured debt (b)
Revolving operating facilities (c)
Current
Non-current
a) Secured debt
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2021
December 31, 2020
1,294,546
3,262,356
297,625
4,854,527
678,406
4,176,121
4,854,527
1,327,760
3,882,363
—
5,210,123
854,261
4,355,862
5,210,123
Secured debt bears interest at a weighted average interest rate of 3.49% as at December 31, 2021 (December 31, 2020 –
3.67%). Total secured debt of $1,294,546 (December 31, 2020 – $1,327,760) includes $1,182,078 (December 31, 2020 –
$1,269,900) at fixed interest rates, $70,277 (December 31, 2020 – $57,860) at variable interest rates of the Canadian
Banker's Acceptance rate plus 120 or 170 basis points, and $42,191 (December 31, 2020 – $nil) at a variable interest rate of
CDOR plus 106 basis points. Except for the $42,191 variable rate secured debt noted above, secured debt matures at
various dates between 2022 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.
During the year ended December 31, 2021, secured debt of $42,191 was issued, which carries variable rate interest at a
rate of CDOR plus 106 basis points and is secured by the Trust’s security bank deposit. The Trust borrowed this non-cash
secured debt from a Canadian financial institution concurrent with entering the TRS agreement. The interest on this secured
debt includes floating amounts that are payable at each May, August, November and February commencing in May 2021 to
the date the TRS agreement matures or is unwound. See also the asset associated with the TRS in Note 2, “Summary of
significant accounting policies” and Note 8(b), “Other financial assets”, for further details.
The following table presents principal repayment requirements for secured debt:
2022
2023
2024
2025
2026
Thereafter
Instalment
Payments
42,512
38,113
32,336
21,736
11,240
21,649
167,586
Lump Sum
Payments
at Maturity
294,507 (1)
148,399
118,696
431,796
86,881
48,198
1,128,477
Unamortized acquisition date fair value adjustments
Unamortized financing costs
(1) Includes construction loans in the amount of $70,277, which bear interest at Canadian Banker's Acceptance rate plus 120 or 170 basis points.
b) Unsecured debt
The following table summarizes the components of unsecured debt:
Total
337,019
186,512
151,032
453,532
98,121
69,847
1,296,063
1,014
(2,531)
1,294,546
As at
Unsecured debentures i)
Credit facilities ii)
Other unsecured debt iii)
December 31, 2021
December 31, 2020
2,650,571
416,223
195,562
3,262,356
3,271,625
399,304
211,434
3,882,363
i) Unsecured debentures
As at December 31, 2021, unsecured debentures totalled $2,650,571 (December 31, 2020 – $3,271,625). Unsecured
debentures mature at various dates between 2023 and 2030, with interest rates ranging from 1.74% to 3.99%, and a
weighted average interest rate of 3.17% as at December 31, 2021 (December 31, 2020 – 3.14%).
136
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT 41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes the components of unsecured debentures:
Series
Series I
Series M
Series N
Series O
Series P
Series Q
Series S
Series T
Series U
Series V
Maturity Date
May 30, 2023
July 22, 2022
February 06, 2025
August 28, 2024
August 28, 2026
March 21, 2022
December 21, 2027
June 23, 2021
December 20, 2029
June 11, 2027
Series W
December 11, 2030
Series X
Series Y
December 16, 2025
December 18, 2028
Annual
Interest Rate
(%)
Interest Payment Dates December 31, 2021
December 31, 2020
3.985
3.730
3.556
2.987
3.444
2.876
3.834
2.757
3.526
3.192
3.648
1.740
2.307
3.167 (1)
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
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
Unamortized financing costs
200,000
—
160,000
100,000
250,000
—
250,000
—
450,000
300,000
300,000
350,000
300,000
2,660,000
(9,429)
2,650,571
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
(1)
Represents the weighted average annual interest rate and excludes deferred financing costs.
Unsecured debenture activities for the year ended December 31, 2021
Redemptions and Maturity
In January 2021, the Trust completed the redemption of its 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 yield maintenance costs of $11,084 relating to the redemptions
were recorded in the Trust’s consolidated financial statements for the year ended December 31, 2020.
In June 2021, the Trust’s 2.757% Series T senior unsecured debentures (the “Senior T Debentures”) matured. There was
$323,120 aggregate principal amount of Senior T Debentures outstanding on the maturity date.
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”. In December 2021, DBRS confirmed the Trust’s BBB(high) rating and changed the trend
from stable to negative.
ii) Credit facilities
The following table summarizes the activity for unsecured credit facilities:
(Issued In)
Non-revolving:
August 2018(1)
March 2019(1)
May 2019(1)
Revolving:
May 2020
Maturity Date
Annual
Interest Rate
(%)
Facility
Amount December 31, 2021 December 31, 2020
January 31, 2025
July 31, 2026
June 24, 2024
2.980
3.520
3.146
80,000
150,000
170,000
May 11, 2024
BA + 1.20
60,000
Less: Unamortized financing costs
80,000
150,000
170,000
17,000
417,000
(777)
416,223
80,000
150,000
170,000
—
400,000
(696)
399,304
(1)
The Trust entered into interest rate swap agreements to convert the variable interest rate of the Canadian Banker's Acceptance rate plus 1.20% into a weighted average fixed
interest rate of 3.25% per annum. The weighted average term to maturity of the interest rate swaps is 2.49 years. Hedge accounting has not been applied to the interest rate
swap agreements.
42 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT
137
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
iii) Other unsecured debt
Other unsecured debt net of fair value adjustments totalling $195,562 (December 31, 2020 – $211,434) 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.
The following table summarizes components of the Trust’s other unsecured debt:
As at
PCVP (5.00% discount rate)(1)
PCVP (5.75% discount rate)(2)
Laval C Apartment LP
Self-storage joint ventures
Vaughan NW RR PropCo LP
VMC Residences(3)
December 31, 2021
December 31, 2020
80,259
77,828
—
—
12,500
24,975
195,562
79,624
76,747
1,321
265
—
53,477
211,434
(1)
(2)
(3)
In connection with the 700 Applewood purchase, in December 2019, the loan has a principal amount outstanding of $100,404 (December 31, 2020 – $103,764), is non-interest-
bearing, and is repayable at the end of ten years. As at December 31, 2021, the loan balance of $80,259 is net of a fair value adjustment totalling $20,145 (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
$100,404 (December 31, 2020 – $103,764), is non-interest bearing, and is repayable at the end of ten years. As at December 31, 2021, the loan balance of $77,828 is net of a
fair value adjustment totalling $22,576 (December 31, 2020 – the loan balance of $76,747 is net of a fair value adjustment totalling $27,017). See also Note 6(b) reflecting
offsetting loan receivable amount.
In connection with the Transit City condominium closings, the Trust received $24,322 that is non-interest bearing (December 31, 2020 – $53,477). During the year ended
December 31, 2021, $52,824 of this amount was settled (December 31, 2020 – $nil). See Note 5, “Equity accounted investments.”
c) Revolving operating facilities
As at December 31, 2021, the Trust had:
i) 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 Canadian Banker's Acceptance rate plus 120 basis points, which matures on August 20,
2026 (in addition, the Trust has an 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); and
ii) a $150,000 revolving senior unsecured term facility under which the Trust has the ability to draw funds based on bank
prime rates and Canadian Banker's Acceptance rate for Canadian dollar-denominated borrowings, and LIBOR rates or U.S.
prime rates for U.S. dollar-denominated borrowings. Concurrently with the U.S. dollar draws, the Trust enters into cross
currency swaps to exchange its U.S. dollar borrowings into Canadian dollar borrowings.
The following table summarizes components of the Trust’s revolving operating facilities:
Revolving facility maturing August
2026
Revolving facility maturing February
2024(1)
Annual
Interest Rate (%)
Facility
Amount
Amount
Drawn
Outstanding
Letters of
Credit
Remaining Undrawn Facilities
December 31,
2021
December 31,
2020
BA + 1.20
500,000
150,000
8,285
341,715
491,373
US$ LIBOR + 1.20
150,000
147,625
—
—
—
297,625
341,715
491,373
(1)
The Trust has drawn in U.S. dollars the equivalent of CAD $150,000, which was translated to $147,625 as at December 31, 2021.
138
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT 43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
d)
Interest expense
The following table summarizes interest expense:
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 maintenance costs on redemption of debt and related write-off of unamortized financing costs
(Note 12(b))
Distributions on vested deferred units and Units classified as liabilities
Year Ended December 31
2021
2020
150,187
157,635
(527)
3,828
153,488
(14,333)
(958)
138,197
—
138,197
6,343
144,540
(857)
4,130
160,908
(17,689)
(914)
142,305
11,954
154,259
5,785
160,044
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
2021
2020
144,540
160,044
527
(3,828)
(6,343)
15,658
150,554
857
(4,130)
(5,785)
(12,139)
138,847
For the year ended December 31, 2021, including cash interest paid of $150,554 (December 31, 2020 - $138,847) and
interest capitalized to both properties under development and residential development inventory of $15,291 (December 31,
2020 - $18,603), total interest paid was $165,845 (December 31, 2020 - $157,450).
e) Liquidity
The Trust’s liquidity position is monitored by management on a regular basis. The table below provides the contractual
maturities of the Trust’s material financial obligations including debentures, mortgage receivable advances and development
commitments:
Secured debt
Unsecured debt
Revolving operating facilities(1)
Interest obligations(2)
Accounts payable
Other payable
Long term incentive plan
Interest rate swap agreements
Total
2022
2023
2024
2025
2026 Thereafter
1,296,063 337,019 186,512 151,032 453,532
98,121
69,847
3,315,283
37,475 200,000 287,000 590,000
400,000 1,800,808
300,000 300,000
—
—
—
—
—
672,818 146,537 138,738 123,973 104,522
82,164
76,884
240,554 240,554
—
41,919
13,109
8,037
697
—
8,000
3,926
697
307
—
72
—
—
10,701
—
—
—
—
—
10,000
—
(437)
515
1,122
2,567
5,875,334 1,078,620 534,291 561,640 1,159,270
581,407 1,960,106
Mortgage receivable advances (repayments)(3)
Development obligations (commitments)
161,207
15,949
5,663
28,868
(33,803)
6,238
138,292
14,934
14,934
—
—
—
—
—
Total
6,051,475 1,109,503 539,954 590,508 1,125,467
587,645 2,098,398
(1)
(2)
In December 2021, $300,000 was drawn from the Trust’s existing credit facilities, which were subsequently repaid with the establishment of a new five-year unsecured $300,000
facility in January 2022.
Interest obligations represent expected interest payments on secured debt, unsecured debt, and revolving operating facilities under the assumption that the balances are repaid at
maturity, and do not represent a separate contractual obligation.
(3) Mortgages receivable of $139,589 at December 31, 2021, and further forecasted commitments of $161,207, mature over a period extending to 2028 if the Trust does not exercise its
option to acquire the investment properties. Refer to Note 6, “Mortgages, loans and notes receivable”, for timing of principal repayments.
44 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT
139
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT
13. Other financial liabilities
The following table summarizes the components of other financial liabilities:
As at
Units classified as liabilities (a)
Deferred unit plan (c)
LTIP (d)
EIP (e)
Currency swap agreement
Interest rate swap agreements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2021
December 31, 2020
254,223
50,660
697
10,377
2,374
7,754
326,085
48,479
28,051
1,540
—
—
8,658
86,728
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
Class D
Series 1
SmartVMC
West LP
Units
Class D
Series 2
SmartVMC
West LP
Units
Total
Balance – January 1, 2020
311,022
4,886 260,417 1,248,140 132,881 139,302
Options exercised
—
3,822
—
—
—
—
Balance – December 31, 2020
311,022
8,708 260,417 1,248,140 132,881 139,302
Balance – January 1, 2021
311,022
8,708 260,417 1,248,140 132,881 139,302
—
—
—
—
— 2,096,648
—
3,822
— 2,100,470
— 2,100,470
Issuance of LP Units
—
—
—
—
—
— 3,623,188 2,173,913 5,797,101
Balance – December 31, 2021 311,022
8,708 260,417 1,248,140 132,881 139,302 3,623,188 2,173,913 7,897,571
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 15, “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
Class D
Series 1
SmartVMC
West LP
Units
Class D
Series 2
SmartVMC
West LP
Units
Balance – January 1, 2020
9,707
152
8,128 38,955
4,147
4,347
Options exercised
—
77
—
—
—
—
Change in carrying value
(2,529)
(28)
(2,117) (10,147)
(1,080)
(1,133)
Balance – December 31, 2020
7,178
201
6,011 28,808
3,067
3,214
—
—
—
—
—
—
Total
65,436
77
(17,034)
—
48,479
—
48,479
Balance – January 1, 2021
Change in carrying value
Issuance of LP Units
7,178
2,833
—
201
6,011 28,808
3,067
3,214
79
—
2,372 11,371
1,211
1,269
3,358
2,015
24,508
—
—
—
— 113,273
67,963
181,236
Balance – December 31, 2021 10,011
280
8,383 40,179
4,278
4,483 116,631
69,978
254,223
140
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT 45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
46 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT
141
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT
The following table summarizes the change in Units outstanding and proceeds received:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Options
Outstanding at
January 1, 2021
Options
Cancelled
Options
Exercised
Options
Outstanding at
December 31, 2021
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
674,437
5,855,539
565,782
596,219
458,054
259,704
1,879,759
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(7,763)
—
(7,763)
(2,963)
—
(30,324)
—
(33,287)
55,604
53,458
1,348,223
1,457,285
1,354,153
2,226,949
1,592,237
674,437
5,847,776
562,819
596,219
427,730
259,704
1,846,472
May 2015
Market price
422,059
422,059
—
—
(24,516)
(24,516)
397,543
397,543
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
267,179
267,179
—
—
Market price
482,086
(52,487)
482,086
(52,487)
—
—
—
—
267,179
267,179
429,599
429,599
($)
—
—
—
—
—
—
229
—
229
34
—
780
—
814
695
695
—
—
—
—
—
—
—
—
Total Earnout options
10,655,914
(52,487)
(65,566)
10,537,861
1,738
(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 $20.10 per Unit or, on the
completion and rental of additional space on certain development properties, the Class F Series 3 Smart LP Units may be exchanged for Class B Smart LP Units.
Each option is represented by a corresponding Class C Smart LP III Unit.
Each option is represented by a corresponding Class C Smart LP IV Unit.
Each option is represented by a corresponding Class C Smart Oshawa South LP Unit or Class E Smart Oshawa South LP Unit.
Each option is represented by a corresponding Class C Smart Oshawa Taunton LP Unit or Class E Smart Oshawa Taunton LP Unit.
Each option is represented by a corresponding Class C Smart Boxgrove LP Unit.
Each option is represented by a corresponding Class C ONR LP I Unit.
142
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT 47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes the change in Units outstanding and proceeds received:
Strike Price
Options Outstanding
at January 1, 2020
Options
Granted
(Cancelled)
Options
Exercised
Options Outstanding at
December 31, 2020
Amounts from
Options
Exercised
($)
(#)
(#)
Options to acquire Trust Units
July 2005
December 2006
July 2007
20.10
29.55 to 33.55
29.55 to 33.00
55,604
53,458
1,348,223
1,457,285
(#)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(#)
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
20.10
29.55 to 30.55
29.55 to 33.00
1,354,153
2,226,949
1,600,000
20.10
680,227
(1,968)
(3,822)
5,861,329
(1,968)
(3,822)
Market price
Market price
Market price
Market price
598,913
596,219
560,071
259,704
—
—
(33,131)
—
— (102,017)
—
—
2,014,907
— (135,148)
1,879,759
Market price
422,059
422,059
—
—
—
—
422,059
422,059
Market price
26,585
26,585
—
—
—
—
26,585
26,585
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)
($)
—
—
—
—
—
—
—
77
77
715
—
2,624
—
3,339
—
—
—
—
—
May 2015
Market price
265,422
265,422
—
—
—
—
265,422
265,422
Options to acquire Class B
Smart Boxgrove LP Units(7)
May 2015
Market price
170,000
340,000 (242,821)
170,000
340,000 (242,821)
267,179
267,179
3,509
3,509
Options to acquire Class B
ONR LP I Units(8)
October 2017
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.
48 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT
143
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT
c) Deferred unit plan
The following table summarizes the number of outstanding deferred units:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Balance – January 1, 2020
Granted
Trustees
Eligible associates
Reinvested units from distributions
Vested
Exchanged for Trust Units
Redeemed for cash
Forfeited
Balance – December 31, 2020
Balance – January 1, 2021
Granted
Trustees
Eligible associates
Reinvested units from distributions
Vested
Exchanged for Trust Units
Redeemed for cash
Forfeited
Balance – December 31, 2021
Outstanding
1,025,582
Vested
868,183
Unvested
157,399
55,193
181,301
106,867
—
(1,550)
(59,263)
(2,855)
1,305,275
1,305,275
71,205
231,360
106,865
—
(6,665)
(34,671)
(5,948)
1,667,421
55,193
89,219
86,135
30,326
(1,550)
(59,263)
—
1,068,243
1,068,243
71,205
115,680
87,545
95,804
(6,665)
(34,671)
—
1,397,141
—
92,082
20,732
(30,326)
—
—
(2,855)
237,032
237,032
—
115,680
19,320
(95,804)
—
—
(5,948)
270,280
The following table summarizes the change in the carrying value of the deferred unit plan:
Carrying value – beginning of year
Deferred units granted for trustee fees
Deferred units granted for bonuses
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
d) LTIP
The following table summarizes the activity in the LTIP:
Balance – beginning of year
Amortization
Fair value adjustment
LTIP vested and paid out
Balance – end of year
Year Ended December 31
2021
28,051
886
2,702
2,424
3,990
(198)
(1,019)
13,824
50,660
2020
30,247
864
2,791
1,904
2,892
(32)
(1,459)
(9,156)
28,051
Year Ended December 31
2021
1,540
968
(808)
(1,003)
697
2020
645
895
—
—
1,540
144
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT 49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
e) EIP
During the year ended December 31, 2021, the Trust granted performance units in connection with the 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 on the performance units that have been granted. Performance units,
including distributions on performance units, vest for the lesser of three years after they are earned or on December 31,
2027. Upon vesting, performance units will be exchanged for Trust Units or paid out in cash.
The following summarizes outstanding performance units associated with the EIP:
Balance – January 1, 2021
Granted
Mitchell Goldhar(1)
Eligible associates(2)
Reinvested units from distributions
Terminated(3)
Balance – December 31, 2021
Number of Units
(Unvested)
—
900,000
471,000
66,696
(97,997)
1,339,699
(1)
(2)
(3)
Under the EIP granted to Mitchell Goldhar, the $26.00 Unit price threshold was achieved on April 5, 2021, the $28.00 Unit price threshold was achieved on May 18, 2021, and the
$30.00 Unit price threshold was achieved on September 22, 2021. The performance units for these Unit price thresholds will vest on April 4, 2024, May 17, 2024 and September 21,
2024, respectively.
Under the EIP granted to eligible associates, the $30.00 Unit price threshold was achieved on September 22, 2021 and the performance units for these Unit price thresholds will
vest on September 21, 2024.
The Trust’s former CEO passed away on September 4, 2021, which resulted in an adjustment as noted above.
The following table summarizes the change in the carrying value of the EIP:
Balance – beginning of year 2021
Amortization costs – Mitchell Goldhar(1)
Amortization costs – eligible associates
Fair value adjustment – Mitchell Goldhar(2)
Fair value adjustment – eligible associates(2)(3)
Balance – end of year 2021
(1)
(2)
(3)
These amounts were capitalized to properties under development in connection with Mitchell Goldhar’s role in leading and completing development activities.
Represent the fair value adjustments on EIP, see Note 26, “Fair value adjustments”.
The Trust’s former CEO passed away on September 4, 2021, which resulted in an adjustment as noted above.
Carrying Value
—
5,198
1,929
3,302
(52)
10,377
50 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT
145
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT
14. Accounts and other payables
The following table presents accounts payable and the current portion of other payables that are classified as current liabilities:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note
December 31, 2021
December 31, 2020
As at
Accounts payable
Accounts payable and accrued liabilities with Penguin
22
Tenant prepaid rent, deposits, and other payables
Accrued interest payable
Distributions payable
Realty taxes payable
Current portion of other payables
The following table presents other payables that are classified as non-current liabilities:
75,148
3,370
118,832
13,410
26,600
3,193
12,525
253,078
70,938
6,406
87,519
29,067
30,011
4,964
12,376
241,281
As at
Future land development obligations with Penguin
Lease liability – investment properties(1)
Lease liability – other
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
14(a)
4(c)(ii)
December 31, 2021
December 31, 2020
18,931
8,283
3,554
30,768
(12,525)
18,243
18,410
8,168
5,183
31,761
(12,376)
19,385
The future land development obligations represent payments required to be made to Penguin (see also Note 22, “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 2022 to 2025, which may be extended up 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, 2021, imputed interest of $630 (year ended December 31, 2020 – $867) was
capitalized to properties under development.
146
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT 51
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. 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, 2021
December 31, 2020
FVTPL Amortized cost
Total
FVTPL Amortized cost
Total
Financial assets
Mortgages, loans and notes receivable
Amounts receivable and other
Cash and cash equivalents
Cash held as collateral
—
—
—
—
Total return swap receivable
46,869
414,215
414,215
49,542
62,235
50,279
—
49,542
62,235
50,279
46,869
Financial liabilities
Accounts and other payables
Secured debt
Unsecured debt
Revolving operating facilities
Units classified as liabilities
Deferred unit plan
LTIP
EIP
Currency swap agreements
Interest rate swap agreements
—
—
—
—
253,078
253,078
1,344,257
1,344,257
3,284,160
3,284,160
297,625
297,625
254,223
50,660
697
10,377
2,374
7,754
—
—
—
—
—
—
254,223
50,660
697
10,377
2,374
7,754
48,479
28,051
1,540
—
—
8,658
—
—
—
—
—
—
—
—
—
388,812
388,812
58,644
58,644
794,594
794,594
—
—
—
—
241,281
241,281
1,413,571
1,413,571
4,044,737
4,044,737
—
—
—
—
—
—
—
—
48,479
28,051
1,540
—
—
8,658
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 asset
December 31, 2021
December 31, 2020
Level 1
Level 2
Level 3
Level 1
Level 2
Level 3
Fair value of total return swap agreements
—
46,869
Financial liabilities
Units classified as liabilities
Deferred unit plan
LTIP
EIP
Fair value of currency swap agreements
Fair value of interest rate swap agreements
—
—
—
—
—
—
254,223
50,660
697
10,377
2,374
7,754
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
48,479
28,051
1,540
—
—
8,658
—
—
—
—
—
—
—
Refer to Note 13, “Other financial liabilities”, for a reconciliation of fair value measurements.
52 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT
147
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
16. 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.
Number of Units Issued and
Outstanding (#)
Carrying Value ($)
Note Trust Units
Smart LP
Units
Total Units
Trust Units
Smart LP
Units
Total
Balance – January 1, 2020
144,038,363 25,148,180 169,186,543
3,072,821
633,358
3,706,179
Options exercised
4(d), 13(b)
—
353,905
353,905
—
6,848
6,848
Deferred Units exchanged for Trust
Units
13(c)
1,550
Distribution reinvestment plan
16(b), 17
578,744
Unit issuance costs
—
—
—
—
1,550
32
578,744
17,354
—
(19)
—
—
—
32
17,354
(19)
Balance – December 31, 2020
144,618,657 25,502,085 170,120,742 —
3,090,188
640,206
3,730,394
Balance – January 1, 2021
144,618,657 25,502,085 170,120,742
3,090,188
640,206
3,730,394
Options exercised
4(d), 13(b)
—
66,603
66,603
—
1,738
1,738
Deferred Units exchanged for Trust
Units
Unit issuance costs
13(c)
6,665
—
—
—
6,665
—
198
(18)
—
—
198
(18)
Balance – December 31, 2021
144,625,322 25,568,688 170,194,010
3,090,368
641,944
3,732,312
Table A: Number of LP Units issued and outstanding
The following table presents the number of LP Class B Units issued and outstanding:
LP Class B 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
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
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
Balance –
January 1, 2021
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
Options
Exercised (Note
13(b))
—
7,763
—
—
1,171
—
31,352
—
—
26,317
—
—
—
Balance –
December 31,
2021
14,746,176
957,822
720,432
756,525
706,591
572,337
627,640
434,598
1,698,018
3,093,910
710,416
374,223
170,000
25,502,085
66,603
25,568,688
148
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT 53
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
LP Class B 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
Balance – January
1, 2020
Options Exercised
(Note 13(b))
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
—
—
—
—
36,992
—
146,913
—
—
—
—
—
170,000
353,905
Table B: Carrying value of LP Units
The following table presents the carrying values of LP Class B Units issued and outstanding:
LP Class B 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, 2021
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
Value From
Options
Exercised (Note
13(b))
—
229
—
—
34
—
780
—
—
695
—
—
—
Balance –
December 31,
2020
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
Balance –
December 31,
2021
347,675
27,816
16,836
17,680
17,217
15,356
15,124
11,668
48,732
88,857
20,441
11,033
3,509
640,206
1,738
641,944
54 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT
149
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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
Class B Series 1
Class B Series 1
Balance – January
1, 2020
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
Value From
Options Exercised
(Note 13(b))
—
—
—
—
715
—
2,624
—
—
—
—
—
3,509
6,848
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
LP Class B 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
Smart Oshawa Taunton Limited Partnership
Smart Boxgrove Limited Partnership
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, 2021, there were 33,457,551 (December 31, 2020 – 27,593,847) 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 22 “Related party transactions”).
150
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT 55
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ii) Limited Partnership Units (authorized – unlimited)
The following tables summarize 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
SmartVMC West 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, 2021 December 31, 2020
75,062,169
75,062,169
281,892
263,303
12,556,688
12,556,688
6,469,215
3,168,190
637,895
860,095
397,438
4,902,569
2,168,190
637,895
—
397,438
3,912,943,532
3,912,943,532
38,000,010
38,000,010
December 31, 2021 December 31, 2020
25,568,688
25,502,085
1,248,140
1,248,140
132,881
139,302
132,881
139,302
(1)
(2)
(3)
(4)
(5)
(6)
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.
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, 2021 December 31, 2020
3,445,341
3,019,186
3,445,341
3,026,949
674,437
562,819
596,219
427,730
259,704
422,059
21,082
132,711
267,179
482,086
674,437
565,782
596,219
458,054
259,704
422,059
21,082
132,711
267,179
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 Smart Boxgrove LP Units were
cancelled in exchange of 120,563 Class G Series 1 Units (see further details below in footnote 8).
56 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT
151
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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
SmartVMC West Limited Partnership
SmartVMC West 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 D Series 1(1)(5)
Class D Series 2(1)(5)
Class G Series 1(3)(7)(8)
December 31, 2021 December 31, 2020
311,022
16,704
800,000
8,708
260,417
5,503
132,711
3,623,188
2,173,913
311,022
16,704
800,000
8,708
260,417
5,503
132,711
—
—
120,563
120,563
(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 6(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 14
“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)
c)
d)
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 ten 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 have received distributions in cash.
Trust Units issued for cash
During the year ended December 31, 2021, no Trust Units were issued for cash (Trust Units issued for cash for the year
ended December 31, 2020 – nil).
Normal Course Issuer Bid
The Trust renewed a normal course issuer bid (“NCIB”) program on March 31, 2021 with acceptance by the TSX. The
NCIB program will terminate on March 30, 2022, 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 12,935,063
(previously 6,500,835) of its Trust Units representing approximately 10% (previously 5%) of the public float as at March
21, 2021 (previously 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, 2021, the Trust did not purchase for cancellation any Trust Units under the NCIB
(Trust Units purchased for cancellation for the year ended December 31, 2020 – nil).
152
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT 57
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
17. 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
2021
2020
Trust Units
N/A
267,552
267,976
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
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
Class D Series 1
Class F Series 3
Class D Series 1
Class B
Class B Series 1
Class B Series 2
Smart VMC West Limited Partnership
Class D Series 1 and 2
Distributions on Units classified as liabilities
Total Unit distributions
Distributions paid through DRIP(1)
N/A
27,281
1,765
1,333
1,400
1,306
1,059
1,156
804
3,141
5,716
315
1,314
692
47,282
420
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
—
315,254
314,877
575
11
482
2,309
246
258
38
3,919
575
11
482
2,309
246
258
—
3,881
319,173
—
318,758
17,335
(1)
Effective April 13, 2020, the Trust suspended its DRIP. Beginning with the April 2020 distribution, plan participants have received distributions in cash.
On January 24, 2022, the Trust declared a distribution for the month of January 2022 of $0.15417 per Unit, representing $1.85
per Unit on an annualized basis, to Unitholders of record on January 31, 2022.
58 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT
153
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT
18. 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
Miscellaneous revenue
Rentals from investment properties
Service and other revenues(1)
Rentals from investment properties and other
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Year Ended December 31
2021
502,504
(7,512)
494,992
169,180
83,852
253,032
17,891
765,915
14,843
780,758
2020
503,061
(6,926)
496,135
180,181
83,621
263,802
11,182
771,119
10,134
781,253
(1)
For the year ended December 31, 2021, service and other revenues included $12,872 relating to the recovery of costs and billed as fees associated with the Development and Services
Agreement with Penguin (year ended December 31, 2020 – $8,552). See also Note 19, “Property operating costs and other” and Note 22, “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
2021
2022
2023
2024
2025
2026
Thereafter
19. 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)
Bad debt expenses/ECL
Non-recoverable costs
Property operating costs
Other expenses(3)
Property operating costs and other
December 31, 2021
December 31, 2020
—
485,283
427,676
355,231
287,942
224,936
522,909
479,825
436,475
363,707
291,336
229,658
174,995
428,585
Year Ended December 31
2021
2020
267,707
274,187
1,469
3,652
7,246
280,074
14,882
294,956
1,340
30,564
4,313
310,404
10,138
320,542
(1)
(2)
(3)
Include recoverable property tax and insurance costs.
For the year ended December 31, 2020, includes an adjustment for the Canada Emergency Wage Subsidy of $850.
Other expenses relate to service and other revenues as disclosed in Note 18, “Rentals from investment properties and other”.
154
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT 59
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
20. General and administrative expense, net
The following table summarizes the general and administrative expense, net:
Salaries and benefits
Services fee – by Penguin
Professional fees
Public company costs
Amortization of intangible assets
Other costs including office rent, information technology, marketing, communications, and other
employee expenses
Subtotal
Previously capitalized general and administrative expenses on completed developments
Previously capitalized general and administrative expenses on sale of real estate assets
Note
22
9
Year Ended December 31
2021
66,345
7,062
6,338
1,681
1,331
12,248
95,005
1,050
946
2020
53,449
6,880
6,093
2,505
1,331
10,141
80,399
1,842
—
Total general and administrative expense before allocation
97,001
82,241
Less:
Capitalized to properties under development and other assets
Allocated to property operating costs
Recoverable costs billed to Penguin and others
Total amounts capitalized, allocated and charged
General and administrative expense, net
(36,465)
(15,434)
(13,180)
(65,079)
31,922
(29,476)
(13,949)
(10,134)
(53,559)
28,682
21. Supplemental cash flow information
The following table presents items not affecting cash and other items relating to the Trust’s operating activities:
Fair value adjustments
Gain on sale of investment properties
Earnings from equity accounted investments
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
LTIP and EIP amortization, net of payment
Note
26
5
12(d)
13
13
Year Ended December 31
2021
2020
(457,301)
257,329
(27)
(211,420)
—
144,540
(1,146)
(12,341)
12,464
565
2,971
1,894
(418)
(61,972)
2,347
160,044
(1,231)
(15,241)
14,467
553
1,433
895
(519,801)
358,206
60 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT
155
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT
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
The following table presents the Trust’s non-cash investing and financing activities:
Non-cash investing and financing activities
Mortgage assumed on acquisition
Unit issued under DUP
Unit issued on acquisition
Distribution payable at year end
Liabilities assumed on acquisition, net of other assets
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note
11
11
11
14
14
14
Note
3
13(c)
3
14
3
Year Ended December 31
2021
9,102
(96)
(3,751)
1,175
(1,771)
31,313
3,268
39,240
2020
(21,965)
304
(2,022)
(8,844)
1,521
17,683
(2,907)
(16,230)
Year Ended December 31
2021
13,076
198
182,974
26,600
12,315
2020
—
32
6,925
30,011
3,460
156
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT 61
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
22. 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, 2021, which in total
represent approximately 20.8% of the issued and outstanding Units (December 31, 2020 – 21.4%) of the Trust:
Units owned by Penguin
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)
Class and Series
N/A
Class B Series 1
Class B Series 2
Class B Series 3
Class F Series 3
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
Class B Series 1
Class B Series 2
December 31, 2021 December 31, 2020
15,032,063
15,032,063
12,488,816
375,313
720,432
8,708
706,591
572,337
627,640
434,598
1,698,018
2,858,950
630,880
374,223
170,000
132,881
139,302
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
139,302
36,970,752
36,910,470
Year Ended December 31
2021
68,372
2020
66,799
Pursuant to the Declaration of Trust, provided certain ownership thresholds are met, the Trust is required to issue or cancel 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, 2021, there
were 8,163,976 additional Special Voting Units outstanding (December 31, 2020 – 8,241,544). 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 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 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, 2021 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
1,286,833
1,337,449
3,019,186
674,437
562,819
596,219
427,730
259,704
369,472
16,082
132,711
267,179
429,599
9,379,420
9,491,344
62 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT
157
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 2021, Penguin’s ownership would increase to 24.6% (December 31, 2020 – 25.4%) if Penguin were to exercise
all remaining Earnout options.
Pursuant to its rights under the Declaration of Trust, at December 31, 2021, 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 Services
b)
Agreement related to Penguin’s interest in properties sold by the Trust,
for future SmartVMC commercial phases and certain properties currently owned by Penguin (for which the Trust has
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, British Columbia, the Trust will be paid
50% of the management and leasing fees, and 100% of costs associated with the Trust’s 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 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 6, “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
Effective November 2020, a non-competition agreement with Penguin replaced and superseded the previous non-competition
agreement extending the term by five years and broadening restricted competing initiatives to include various forms of mixed-use
development.
158
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT 63
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Executive Employment Agreement
This 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 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 13, “Other financial liabilities”.
Related party transactions and balances are also disclosed elsewhere in these consolidated financial statements, which include:
•
•
•
•
•
•
•
•
•
•
•
Note 3(c) referring to the purchase of Earnouts
Note 4(c) referring to Leasehold property interests
Note 6 referring to Mortgages, loans and notes receivable
Note 5(a)(ii) referring to a Supplemental development fee agreement
Note 7 referring to Other assets
Note 11 referring to Amounts receivable and other
Note 13 referring to Other financial liabilities
Note 14 referring to Accounts payable and other payables (including future land obligations)
Note 18 referring to Rentals from investment properties and other
Note 19 referring to Property operating costs and other, and
Note 20 relating to General and administrative expenses.
64 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT
159
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT The following table summarizes related party transactions and balances with Penguin and other related parties, including
amounts relating to the Trust’s share in equity accounted investments:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Year Ended December 31
Note
2021
2020
16,274
13,907
Related party transactions with Penguin
Acquisitions and Earnouts:
Earnouts
Revenues:
Service and other revenues:
Transition services fee revenue
Management fee and other services revenue pursuant to the Development and Services
Agreement
Supplement to the Development Service Agreement fees – time billings
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 $271 (year ended December 31, 2020 – $245))
Expenses and other payments:
Fees paid – capitalized to properties under development
EIP – capitalized to properties under development
Development fees and interest expense (capitalized to investment properties)
Opportunity fees capitalized to properties under development(1)
Marketing, time billings and other administrative costs (included in general and administrative
expense and property operating costs)
Disposition fees (included in general and administration expenses)
Expenditures on tenant inducement
18
6
20
—
6,309
5,097
1,466
12,872
6,209
828
19,909
7,062
5,198
115
1,839
84
979
77
833
4,935
2,021
763
8,552
7,626
1,078
17,256
6,831
—
10
3,006
112
49
72
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)
(1)
These amounts include prepaid land costs that will offset the purchase price of future Earnouts.
15,354
10,080
6
19,
20
1,935
2,580
2,625
2,634
160
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT 65
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As at
Note
December 31, 2021
December 31, 2020
Related party balances with Penguin disclosed elsewhere in the financial
statements
Receivables:
Amounts receivable and other(1)
Mortgages receivable
Loans receivable
Notes receivable
Total receivables
Payables and other accruals:
Accounts payable and accrued liabilities
Future land development obligations
Total payables and other accruals
11
6(a)
6(b)
6(c)
14
14
14,953
139,589
116,966
2,924
274,432
3,370
18,931
22,301
5,767
144,205
104,143
2,924
257,039
6,406
18,410
24,816
(1)
Excludes amounts receivable presented below as part of balances with equity accounted investments. This amount includes amounts receivable of $9,321 and other of $5,179.
The following table summarizes the related party balances with the Trust’s equity accounted investments:
As at
Note
December 31, 2021
December 31, 2020
Related party balances disclosed elsewhere in the financial statements
Amounts receivable(1)
Loans receivable(2)
Other unsecured debt(3)
11
6(b)
12(b)(iii)
581
139,152
195,562
—
134,690
211,434
(1)
(2)
(3)
Amounts receivable includes Penguin’s portion, which represents $4 (December 31, 2020 – $nil) relating to Penguin’s 50% investment in the PCVP and 25% investment in Residences LP.
Loans receivable includes Penguin’s portion, which represents $23,607 (December 31, 2020 – $47,504) relating to Penguin’s 50% investment in the PCVP.
Other unsecured debt includes Penguin’s portion, which represents $6,243 (December 31, 2020 – $13,369) relating to Penguin’s 25% investment in the Residences LP.
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
Year Ended December 31
2021
2020
2,628
2,129
4,757
2,214
1,887
4,101
66 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT
161
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
23. 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 and
Chief Executive Officer (see also Note 22, “Related party transactions”), 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
EIP
LTIP
The following table presents the compensation relating to Trustees:
Trustee fees
Deferred unit plan
24. Co-owned property interests
Year Ended December 31
2021
3,278
3,706
10,157
160
17,301
2020
3,601
2,916
—
895
7,412
Year Ended December 31
2021
748
748
1,496
2020
797
797
1,594
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, 2021
December 31, 2020
Income properties
Properties under development
Mixed-use
Residential development
Total
Number of Co-owned
Properties(1)
18
4
1
2
25
Ownership
Interest (%)
40 – 60
25 – 67
67
50
Number of Co-owned
Properties(1)
18
4
—
2
24
Ownership
Interest (%)
40 – 60
25 – 67
N/A
50
(1)
Penguin is a co-owner of eight investment properties, consisting of four properties under development, three income properties and one mixed-use property (December 31, 2020 – seven
investment properties, consisting of four properties under development and three income properties) (see also Note 22, “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 25 co-owned property interests as at December 31, 2021 (24 co-ownership
property interests at December 31, 2020).
As at
Assets(1)
Liabilities
December 31, 2021
December 31, 2020
2,119,018
351,725
1,455,466
349,739
(1)
Includes cash and cash equivalents of $30,713 (December 31, 2020 – $28,527).
Subsequent to the year ended December 31, 2021, the Trust purchased an additional 50% interest in three co-owned income
properties. (See also Note 29, “Subsequent events.”)
162
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT 67
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 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 provided by (used in) investing activities
Year Ended December 31
2020
2021
96,225
45,732
50,493
149,171
199,664
54,136
(66,226)
14,276
95,498
52,847
42,651
42,617
85,268
39,617
(18,830)
(12,085)
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.
25. Segmented information
As at December 31, 2021, 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 25.2% of the Trust’s annualized rentals from investment properties for the
year ended December 31, 2021 (year ended December 31, 2020 – 25.6%).
26. Fair value adjustments
The following table summarizes the fair value adjustments:
Investment properties
Income properties
Properties under development
Fair value adjustment on revaluation of investment properties
Financial instruments
Total return swap receivable
Loans receivable
Units classified as liabilities
Earnout options
Deferred unit plan
Long term incentive plan
Equity incentive plan
Interest rate swap agreements
Fair value adjustment on financial instruments
Total fair value adjustments
27. Risk management
a) Financial risks
Year Ended December 31
Note
2021
2020
4
4
8
13(a)
13(b)
13(c)
13(d)
13(e)
13
107,416
384,112
491,528
(201,219)
(73,832)
(275,051)
5,642
—
(24,508)
—
(13,824)
808
(3,250)
905
(34,227)
—
138
17,034
52
9,156
—
—
(8,658)
17,722
457,301
(257,329)
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, 2021, approximately
8.59% (December 31, 2020 – 1.12%) of the Trust’s debt is financed at variable rates, which reflects minor exposure to
changes in interest rates on such debt.
68 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT
163
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 for secured debt, unsecured debt, and revolving operating facilities:
Change in interest rate of:
Net income increase (decrease) from variable-rate debt
+1.00%
4,271
-1.00%
(4,271)
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 and comprehensive income. The sensitivity analysis in the table below reflects the fair value gain
(loss) on interest rate swap agreements from possible changes in interest rates.
Change in interest rate of:
Fair value gain (loss) on interest rate swap agreements
+1.00%
24,546
-1.00%
(26,247)
The Trust’s exposure to interest rate risk is monitored by management on a regular basis (see also Note 12, “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 6, “Mortgages, loans and notes receivable”) and tenant receivables (see also Note 11,
“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 6, “Mortgages, loans and notes receivable”) and
tenant receivables (see also Note 11, “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, $931,484 of
liabilities (including $678,406 of secured and unsecured debt and $253,078 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 facilities, 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,
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.
164
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT 69
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 12, “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, 2021, the Trust had: a) cash and cash equivalents of $62,235; b) the remaining funds
available to be drawn from its $650,000 in operating facilities and its $250,000 accordion feature; c) project-specific
financing arrangements; and d) approximately $6,640,600 in unencumbered assets that could be used to obtain
additional secured financing to assist with its liquidity requirements.
iv) Currency risk
The Trust has drawn funds in U.S. dollars, and is exposed to currency risk in the fluctuation of the Canadian dollar to
U.S. dollar exchange rate when the liabilities are repaid. At December 31, 2021, approximately 3.05% (December 31,
2020 – nil) of the Trust’s debt is financed in U.S. dollar borrowings.
The Trust analyzes its exchange rate exposure on a regular basis. From time to time, the Trust may enter into currency
swaps as part of its strategy for managing certain currency risks. The Trust recognizes any change in fair value
associated with currency swap agreements in the consolidated statements of income and comprehensive income.
As currency gains or losses on the Trust’s debt are offset by fair value gains or losses in the currency swap
agreements, the Trust is not exposed to significant currency risk on a net basis.
The Trust’s exposure to currency risk is monitored by management on a regular basis (see also Note 12, “Debt”).
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, 2021, the Trust was in compliance with all financial covenants.
70 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT
165
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
28. Commitments and contingencies
The Trust has certain obligations and commitments pursuant to development management agreements to complete the
purchase of Earnouts totalling approximately 131,000 square feet (December 31, 2020 – 154,000 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, 2021, the carrying value of these obligations and commitments included in properties under development
was $60,700 (December 31, 2020 – $61,811). 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 $14,934 (December 31, 2020 –
$23,103) and commitments relating to equity accounted investments that total $293,688 (December 31, 2020 – $157,769), of
which the Trust’s share is $123,584 (December 31, 2020 – $51,113) – see Note 5, “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 6(a). The maximum amount that may be provided under the agreements totals $300,796 (December 31, 2020
– $312,778) (see also Note 6, “Mortgages, loans and notes receivable”), of which $139,589 has been provided as at
December 31, 2021 (December 31, 2020 – $144,205).
As at December 31, 2021, letters of credit totalling $34,783 (December 31, 2020 – $29,189) – including letters of credit drawn
down under the revolving operating facilities described in Note 12(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.
29. Subsequent events
In January 2022, the Trust acquired, from its unrelated partner, a 50% interest in each of three co-owned properties located in
Ottawa (Laurentian), Ontario, Edmonton Capilano, Alberta, and Lachenaie, Quebec. The $100,000 acquisition was funded with
the Trust’s existing operating facilities. Upon completion of the acquisition, the Trust became the 100% owner of these properties.
In January 2022, the Trust entered into a $300,000 unsecured credit facility agreement with a syndicate of Canadian financial
institutions, from which $285,000 was drawn. This facility matures in January 2027 and bears an interest rate of Canadian
Banker's Acceptance rate plus 120 basis points.
166
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2021 ANNUAL REPORT 71
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2021 ANNUAL REPORT CORPORATE
INFORMATION
TRUSTEES
Mitchell Goldhar 2
Executive Chairman and CEO
SmartCentres Real Estate Investment Trust,
Owner
The Penguin Group of Companies
Paula Bustard
Executive Vice President of Development
Allan Scully
Executive Vice President of Development
Janet Bannister 1
Managing Partner
Real Ventures
Garry Foster 1, 2
Chief Executive Officer
Cortleigh Capital Inc.
Gregory Howard 2, 3
Partner
Davies Ward Phillips & Vineberg LLP
Sylvie Lachance 1
Managing Director
Tribal Partners Canada Inc.
Jamie McVicar 1, 3
Trustee
Sharm Powell 2, 3
Trustee
Michael Young 2, 3
Principal
Quadrant Capital Partners Inc.
BANKERS
BMO Capital Markets
Canaccord Genuity Corp.
CIBC World Markets
Desjardins Securities Inc.
HSBC Bank Canada
Mizuho Bank, Ltd.
National Bank of Canada
RBC Capital Markets
Scotia Capital
TD Bank Financial Group
AUDITORS
PricewaterhouseCoopers LLP
Toronto, Ontario
LEGAL COUNSEL
Osler Hoskin & Harcourt LLP
Toronto, Ontario
Davies Ward Phillips & Vineberg LLP
Toronto, Ontario
1 Audit Committee
2 Investment Committee
3 Corporate Governance and Compensation Committee
REGISTRAR &
TRANSFER AGENT
Computershare Trust Company of Canada
Toronto, Ontario
EXECUTIVE OFFICERS
Mitchell Goldhar
Executive Chairman and CEO
Peter Sweeney
Chief Financial Officer
Mauro Pambianchi
Chief Development Officer
Rudy Gobin
Executive Vice President
Portfolio Management & Investments
INVESTOR RELATIONS
Peter Sweeney
Chief Financial Officer
Tel: 905 326 6400 x7865
Fax: 905 326 0783
TSX: SRU.UN
S
M
A
R
T
C
E
N
T
R
E
S
R
E
A
L
E
S
T
A
T
E
I
N
V
E
S
T
M
E
N
T
T
R
U
S
T
2
0
2
1
A
N
N
U
A
L
R
E
P
O
R
T