COMMITTED TO CANADIAN
COMMUNITIES
ANNUAL REPORT 2022
MESSAGE FROM THE
EXECUTIVE CHAIRMAN
AND CEO
DEAR FELLOW UNITHOLDERS,
Our commitment to helping Canadians save money on their weekly needs, such as food and
general merchandise, remains our greatest priority. From coast to coast, our network of 185
conveniently located SmartCentres shopping centres is the largest value-focused network of
retail properties in the country.
SmartCentres was created by Canadians, for Canadians. We offer Canadian households a
wide selection of retailers that offer among the lowest prices in the country; and, we believe
that value-focused goods and services are especially important now as consumers get back
to basics. This long-standing dedication to Canadian communities is now augmented by our
Mitchell Goldhar
Executive Chairman and CEO
on-site intensification program, and our diversification of asset classes delivered additional
growth and solid results across the entire business in 2022. This sets the stage for an even
stronger 2023.
Here are a few more of our differentiating factors:
• Occupancy: An industry-leading 98% occupancy level.
• Walmart: No Walmart store has ever relocated from or closed in a SmartCentres
shopping centre.
• Stability: Cash collections of 99% driven by a tenant base that is 95% comprised of the
strongest national and regional retailers in Canada.
• Access: 185 properties at key intersections in every province in Canada.
• Developer Expertise: In addition to being a large owner-operator, SmartCentres is a
premier developer in Canada, having developed in-house more than 60 million square feet
over the past 30 years.
• Development Pipeline: 97 of our 185 properties have mixed-use intensification
opportunities encompassing apartments, condominiums, townhomes, seniors’ residences,
office buildings and self-storage facilities.
• Strength of Balance Sheet: With $8.4 billion of unencumbered assets, less than 45% of
debt to total assets and $750 million in liquidity, SmartCentres maintains a strong
financial position.
Looking back at 2022, we saw a resurgence in both customer traffic and retailer interest,
driving demand across our value-oriented portfolio. We are once again welcoming new
retailers to our centres in various segments – a potent form of internal growth – allowing
us to provide a more compelling and diverse offering to every community we serve across
Canada. Additionally, over the past five years, our tenants have adapted their product mix,
complemented by strong e-commerce platforms, delivery and/or pickup channels,
to seamlessly meet the ever-evolving needs of Canadian consumers.
We achieved a significant 6.1 million square feet of additional mixed-use permissions in 2022,
a source of great long-term strategic value creation, stemming from the REIT’s original real
estate development DNA. We are tirelessly committed to unlocking the tremendous value
embedded in our existing owned lands, located in highly populated communities in nearly
every major market across Canada. We are confident that 2023 will see the completion of
new projects in all major asset classes. Our residential initiatives, in particular, will deliver
completed projects, including: condos at the SmartVMC, townhomes in Vaughan, and rental
projects in Mascouche and Laval. SmartLiving, our internal residential brand, will deliver
The Millway, an exciting purpose-built rental apartment project in the SmartVMC.
Over 45 projects are scheduled to commence construction in the next two to five years,
maximizing the huge opportunity that lies within our underutilized owned lands. Our ability
to unlock this value was recently strengthened by the hiring of an experienced team of
18 high-rise and mid-rise construction professionals, providing SmartCentres with its own
in-house general contracting resources to deliver our program on the most competitive
and timely basis.
Environmental, social and governance (ESG) principles have been part of our DNA since our
inception, and these elements have been applied throughout our portfolio, for example, in
our approach to building design, energy utilization, climate change, efficiencies, and social
interaction with tenants and their customers (especially evident during the pandemic). ESG
is embedded into our actions, guiding our vision over the past 30 years and continuing to
drive our vision into the future.
Moving into 2023 and beyond, we believe that our commitment to Canadians, the long-term
quality of our real estate, and our strategic vision, position us on the leading edge in the
evolving Canadian retail, commercial, residential and industrial markets.
Yours truly,
Mitchell Goldhar
Executive Chairman and CEO
SmartCentres REIT
1
SMARTCENTRES REAL ESTATE INVESTMENT TRUST 2022 ANNUAL REPORT
FROM
SHOPPING CENTRES
SmartCentres was founded over 30 years ago, because we believed that Canadians deserved
convenient and affordable access to the goods they need everyday. Starting from a single property
we have since grown to:
properties
in all Canadian
provinces
34.7
98.0%
$11.7
million income producing square feet
industry leading occupancy rate
billion in total assets
2
SMARTCENTRES REAL ESTATE INVESTMENT TRUST 2022 ANNUAL REPORT TO
CITY CENTRES
Canadians now need transit-connected homes with urban amenities. So, SmartCentres is evolving
and SmartLiving has emerged with a $14.9B transformation plan to enhance Canadian Communities.
billion
intensification
program1
274
56.1
development projects identified
million incremental square feet2
1 REIT share $10 billion
2 REIT share 41.2 million
3
SMARTCENTRES REAL ESTATE INVESTMENT TRUST 2022 ANNUAL REPORT TABLE OF CONTENTS
68
68
70
71
75
76
77
79
83
83
90
96
96
96
Section VII — Financing and
Capital Resources
Capital Resources and Liquidity
Maintenance Capital Requirements
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
97
Section X — Glossary of Terms
98
MANAGEMENT’S RESPONSIBILITY
FOR FINANCIAL REPORTING
99
INDEPENDENT AUDITOR’S REPORT
104
CONSOLIDATED BALANCE SHEETS
105
106
107
108
CONSOLIDATED STATEMENTS
OF INCOME AND COMPREHENSIVE
INCOME
CONSOLIDATED STATEMENTS
OF CASH FLOWS
CONSOLIDATED STATEMENTS
OF EQUITY
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
5
5
6
12
14
14
15
17
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, 2022
23
Quarterly Results and Trends
25
25
30
30
31
33
33
41
Section III — Development Activities
Mixed-Use Development Initiatives
Residential Development Inventory
Properties Under Development
Completed and Future Earnouts and
Developments on Existing Properties
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
51
General and Administrative Expense
52
Section V — Leasing Activities and
Lease Expiries
Leasing Activities
Tenant Profile
Lease Expiries
Section VI — Asset Profile
Investment Properties
Equity Accounted Investments
Amounts Receivable and Other,
and Prepaid Expenses, Deposits
and Deferred Financing Costs
Mortgages, Loans and Notes
Receivable
52
53
55
57
57
60
65
66
4
SMARTCENTRES REAL ESTATE INVESTMENT TRUST 2022 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
MANAGEMENT’S DISCUSSION AND ANALYSIS
FOR THE YEAR ENDED DECEMBER 31, 2022
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, 2022, 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, 2022 and 2021, and 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 for the year ended December 31, 2022 and 2021.
This MD&A is dated February 8, 2023, which is the date of the press release announcing the Trust’s results for the year ended
December 31, 2022. 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 include non-GAAP measures and other terms. The following terms
are non-GAAP measures used in this MD&A: Adjusted Cashflow From Operations (“ACFO”), ACFO with adjustments, ACFO
excluding impact of SmartVMC West, ACFO with adjustments excluding impact of TRS, condominium and townhome closings,
and SmartVMC West acquisition, Adjusted Debt, Adjusted Debt (excluding TRS 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 – non-GAAP, Debt to Aggregate Assets, Debt to Aggregate Assets excluding TRS debt and receivable, Debt to Gross
Book Value, Fixed Charge Coverage Ratio, Fixed Rate to Variable Rate Debt Ratio, Forecasted Annualized NOI, Funds From
Operations (“FFO”), FFO with adjustments, FFO with adjustments and Transactional FFO, FFO excluding condominium profits,
FFO with adjustments excluding impact of ECL, TRS, condominium and townhome closings, and SmartVMC West acquisition,
FFO per Unit, FFO with adjustments per Unit, FFO with adjustments and Transactional FFO per Unit, Interest Coverage Ratio,
Net Operating Income (“NOI”), Investment Properties – non-GAAP, Payout Ratio to ACFO, Proportionate Share Reconciliation,
Recovery Ratio, Same Properties NOI (“SPNOI”), Same Properties NOI excluding ECL, Total Proportionate Share, Transactional
FFO, Unencumbered Assets, Unencumbered Assets to Unsecured Debt, and Unsecured to Secured Debt Ratio. These non-
GAAP measures are defined in this MD&A and non-GAAP financial measures have been reconciled to the closest IFRS measure
in the consolidated financial statements of the Trust for the year ended December 31, 2022 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 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 similar measures
disclosed by other issuers. 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 | 2022 ANNUAL REPORT 1
5
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2022 ANNUAL REPORT and
ACFO with
adjustments
and
ACFO excluding
impact of
SmartVMC West LP
and
ACFO with
adjustments
excluding impact of
TRS, condominium
and townhome
closings, and
SmartVMC West
acquisition
Debt – non-GAAP
and
Adjusted Debt
and
Adjusted Debt
(excluding TRS
debt)
and
Net Debt
and
Net Debt (excluding
TRS debt)
MANAGEMENT’S DISCUSSION AND ANALYSIS
Non-GAAP Measures
The following table details the Trust’s non-GAAP 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 published in February 2019.
Reference to
Reconciliation
and/or Additional
Information
Section IV —
Business
Operations and
Performance,
“Other Measures 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 excluding impact of
SmartVMC West LP is defined as ACFO less earnings from SmartVMC West.
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.
Debt – non-GAAP is defined as the Trust’s total proportionate share of debt,
inclusive of the Trust’s share of debt in equity accounted investments. Adjusted
Debt is defined as Debt – non-GAAP net of mortgages and loans receivable and
cash-on-hand. Adjusted Debt (excluding TRS debt) is defined as Adjusted Debt
net of debt borrowed concurrent with entering the TRS agreement. Net Debt is
defined as Debt – non-GAAP net of cash-on-hand. Net Debt (excluding TRS
debt) is defined as Net Debt less debt borrowed concurrent with entering the
TRS agreement.
Section VII —
Financing and
Capital Resources,
“Debt”, “Financial
Covenants”
Debt – non-GAAP, Adjusted Debt, Adjusted Debt (excluding TRS debt), Net Debt
and Net Debt (excluding TRS 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
liabilities.
Management uses Adjusted Debt, Adjusted Debt (excluding TRS debt), Net Debt
and Net Debt (excluding TRS debt) to calculate certain covenant ratios, and to
assess the Trust’s level of indebtedness.
liquid assets are used
to reduce outstanding
Adjusted Debt to
Adjusted EBITDA
Adjusted Debt to Adjusted EBITDA is defined as Adjusted Debt divided by
Adjusted EBITDA. Adjusted Debt to Adjusted EBITDA (excluding TRS debt) is
defined as Adjusted Debt (excluding TRS debt) divided by Adjusted EBITDA.
and
Adjusted Debt to
Adjusted EBITDA
(excluding TRS
debt)
The ratios are 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 the
ratios to assess the Trust’s level of leverage and its capacity to borrow.
Section VII —
Financing and
Capital Resources,
“Financial
Covenants”
2 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2022 ANNUAL REPORT
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MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2022 ANNUAL REPORT MANAGEMENT’S DISCUSSION AND ANALYSIS
Non-GAAP Measures (Continued)
Measure
Definition and Intended Use
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
fair value changes associated with
financial
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
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.
Reference to
Reconciliation
and/or Additional
Information
Section IV —
Business
Operations and
Performance,
“Results of
Operations”
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.
Section VII —
Financing and
Capital Resources,
“Financial
Covenants”
Aggregate Assets
and
Aggregate Assets
(excluding TRS
receivable)
and
Gross Book Value
Aggregate Assets is defined as the Trust’s total proportionate share of assets,
less cash-on-hand. Aggregate Assets (excluding TRS receivable) is defined as
Aggregate Assets less TRS receivable. 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.
Section VII —
Financing and
Capital Resources,
“Financial
Covenants”
Aggregate Assets, Aggregate Assets (excluding TRS receivable) 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, Aggregate
Assets (excluding TRS receivable) and Gross Book Value to calculate certain
covenant ratios, and to assess the Trust’s ability to continue to grow.
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2022 ANNUAL REPORT 3
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MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2022 ANNUAL REPORT MANAGEMENT’S DISCUSSION AND ANALYSIS
Non-GAAP Measures (Continued)
Measure
Definition and Intended Use
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 extraordinary 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
and
Debt to Aggregate Assets is defined as Net Debt divided by Aggregate Assets.
Debt to Aggregate Assets (excluding TRS debt and receivable) is defined as Net
Debt (excluding TRS debt) divided by Aggregate Assets (excluding TRS
receivable).
Debt to Aggregate
Assets (excluding
TRS debt and
receivable)
Debt to Gross Book
Value
The ratios are intended to be used by investors to assess the leverage of the
Trust on a consolidated basis. Management uses the ratios to assess an
acceptable level of leverage for the Trust.
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 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.
Reference to
Reconciliation
and/or Additional
Information
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”
Fixed Rate to
Variable Rate Debt
Ratio
Fixed Rate to Variable Rate Debt Ratio is defined as the percentage of Fixed
Rate Debt out of total Debt compared with the percentage of Variable Rate Debt
(excluding interest rate swap agreements with fixed interest rates) out of total
Debt.
Section VII —
Financing and
Capital Resources,
“Debt”
The ratio is intended to be used by investors to assess the Trust’s ability to
service its debt against the fluctuation of interest rate.
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 the Trust’s future profitability.
Section VII —
Financing and
Capital Resources,
“Debt”
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8
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2022 ANNUAL REPORT MANAGEMENT’S DISCUSSION AND ANALYSIS
Reference to
Reconciliation
and/or Additional
Information
Section IV —
Business
Operations and
Performance,
“Other Measures of
Performance”
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 January 2022.
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,
yield maintenance costs on repayment of debt and related write-off of unamortized
financing costs, ECL, TRS gain (loss), FFO sourced from condominium and
townhome closings, and FFO sourced from SmartVMC West acquisition. 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.
FFO per Unit, FFO with adjustments per Unit, and FFO with adjustments and
Transactional FFO per Unit are defined as FFO, FFO with adjustments, and FFO
with adjustments and Transactional FFO divided by weighted average number of
Units.
and
FFO with
adjustments
and
FFO with
adjustments and
Transactional FFO
and
FFO with
adjustments
excluding impact of
ECL, TRS,
condominium and
townhome
closings, and
SmartVMC West
acquisition
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.
Investment
Properties – non-
GAAP
Investment Properties – non-GAAP is defined as the Trust’s total proportionate
share of investment properties, inclusive of the Trust’s share of investment
properties in equity accounted investments.
Net Operating
Income (“NOI”)
The measure is intended to be used by investors to measure the amount of the
Trust’s entire portfolio.
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 VI — Asset
Profile,
“Investment
Properties”
Section IV —
Business
Operations and
Performance,
“Results of
Operations”
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MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2022 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.
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
the cash
certain non-GAAP measures. As such, management believes
distributions are not an economic return of capital, but a distribution of
sustainable cash flow from operations.
Proportionate
Share
Reconciliation
and
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.
Total Proportionate
Share
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.
Reference to
Reconciliation
and/or Additional
Information
Section IV —
Business
Operations and
Performance,
“Other Measures of
Performance”
Section IV —
Business
Operations and
Performance,
“Results of
Operations”
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 and management to assess the
Trust’s ability to manage recoverable operating expenses for its investment
properties.
Same Properties
NOI (“SPNOI”)
and
Same Properties
NOI excluding ECL
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 the periods mentioned above, are excluded from Same Properties
NOI. Same Properties NOI excluding ECL is defined as SPNOI excluding the
impact of provision and/or reversal of ECL.
Same Properties NOI and SPNOI excluding ECL are intended to be used by
investors and management as profitability growth indicators on the Trust’s
existing investment property portfolio.
Section IV —
Business
Operations and
Performance,
“Results of
Operations”
Section IV —
Business
Operations and
Performance,
“Results of
Operations”
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.
Section IV —
Business
Operations and
Performance,
“Other Measures of
Performance”
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Non-GAAP Measures (Continued)
Measure
Definition and Intended Use
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 and management to assess the
Trust’s ability to secure additional financing. Management uses this measure to
calculate Unencumbered Assets to Unsecured Debt Ratio.
Unencumbered
Assets to
Unsecured Debt
Ratio
Unencumbered Assets to Unsecured Debt Ratio is defined as the Trust’s
Unencumbered Assets divided by the Trust’s unsecured Debt.
The ratio is intended to be used by investors to assess the Trust’s ability to use
investment properties to satisfy unsecured debt obligations. This ratio is a
significant financial covenant pursuant to the terms of the Trust’s revolving
operating facilities and other credit facilities.
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.
Reference to
Reconciliation
and/or Additional
Information
Section VII —
Financing and
Capital Resources,
“Debt”
Section VII —
Financing and
Capital Resources,
“Financial
Covenants”
Section VII —
Financing and
Capital Resources,
“Financial
Covenants”
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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, 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, 2022”, “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”, “Investment Properties”,
“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 Capital Requirements”,
“Debt” (which includes “Unencumbered Assets”), and “Risks and Uncertainties”.
More specifically, certain statements contained in this MD&A, 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; 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 capital requirements, 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; and statements
that contain words such as “could”, “should”, “can”, “anticipate”, “expect”, “believe”, “plan”, “potential”, “propose”, “schedule”,
“estimate”, “intend”, “project”, “will”, “may”, “continue”, “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 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.
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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 the Trust’s properties 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; a rising interest rate environment; 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; the timing and ability of
the Trust and its joint venture partners to pre-sell and close on the sale of condominium and townhome units as well as lease
available residential rental units; 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).
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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 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 continued to perform well. The occupancy rate (including committed deals) was 98.0% at
December 31, 2022.
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 has Evolved 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
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 focus on mixed-use development provides the Trust
with a foundation for growth of both NAV and FFO.
The Trust, together with Penguin, has designed and commenced the development of over 100 acres in its flagship Vaughan
Metropolitan Centre in Vaughan, Ontario (“SmartVMC”). SmartVMC serves as a model for other city centre projects that are now
in the Trust’s development pipeline. SmartVMC is an approximate 105-acre master-planned community that, once completed, is
expected to have over 20 million square feet of mixed-use space. The Trust has a 50% interest in the easterly approximately 52
acres, and in December 2021, the Trust acquired a two-thirds interest from unrelated parties in approximately 53 acres of
development lands in the western part of 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 completion of two AAA class office buildings, a new YMCA and community
centre, and the closings of the 1,763 condo and townhome units, these projects have already delivered significant FFO with
future phases expected to continue to contribute to FFO, including the Transit City 4 and 5 units which are expected to close in
March 2023. The Trust is now working on planning for similar city centre developments in Oakville, Scarborough, Pickering and
Cambridge, and Laval Quebec, with more to come.
In addition, the Trust has commenced integrating self-storage and industrial into communities where such needs arise.
An Illustration of SmartCentres’ Investment Strengths
The Trust has a formidable array of investment strengths for investors to consider. First and foremost, the Trust has evolved into
a diversified Real Estate Investment Trust (“REIT”) with recurring revenue from two major sources: i) core rental income from
retail, office, apartments, and self-storage, and ii) development income from condominium and townhome sales. The Trust’s
established national shopping centre portfolio continues to provide reliable and recurring core rental income from national well-
known retailers such as Walmart, Canadian Tire, Home Depot, Costco and Loblaws. The Trust has continued to introduce new
services to help ensure its open-format retail shopping centres remain vital and connected to 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 investment property portfolio is an
important strength that continues to enhance the quality of shopping, working and living at its properties. As of December 31,
2022, the Trust had an occupancy rate (including committed deals) of 98.0% at its shopping centres.
As SmartCentres expands its major mixed-use real estate development, it has partnered with experienced industry experts in
many real estate categories, including: rental apartments, condominiums, self-storage centres, seniors’ housing, office buildings,
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and recently industrial and warehouse space. The completed development of Transit City 1, 2 and 3 condominiums provided
additional FFO of approximately $45 million in 2020 and $18.8 million in 2021; and additional net profit of approximately $46.2
million of additional net profit in 2020 and approximately $19.5 million in 2021. Creating entire city centres has become a major
new growth avenue for SmartCentres. Workers around the world have discovered they can work productively and live away from
the downtown core of major cities in suburban environments where they enjoy the convenience of nearby retail shopping
centres, restaurants, recreational facilities, properly planned parkland and excellent transportation services.
Executing on a Strategic 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 and their customers. Management believes the Trust continues to be well-
positioned to provide reliable recurring income. But more significant to the growth of the REIT is the size and growth of the
Trust’s mixed-use development initiatives. See details in “Mixed-Use Development Initiatives” section.
Outlook
SmartCentres delivered solid results in 2022. Notable achievements during the year include: a) an industry-leading committed
occupancy rate of 98.0%, which was primarily due to the Trust’s portfolio of predominately Walmart-anchored shopping centres
that has continued to create strong traffic to the Trust’s properties; b) six newly completed self-storage projects that were
delivered on time and on budget, including the Aurora South facility that opened in December 2022; and c) significant progress
on the pipeline of mixed-use development initiatives, with planning and zoning entitlements advancing, including several projects
that were under construction over the course of 2022, all in the midst of the current inflationary cycle that has created financial
pressures on tenants and consumers alike.
The Trust expects that 2023 will be a similar year, with continued stability through its retail portfolio and continued strength in
occupancy across all of the Trust’s shopping centres. The Trust expects to continue to fortify its balance sheet and selectively
utilize its significant pool of unencumbered assets for certain funding ($8.4 billion at December 31, 2022) required to advance the
Trust’s development initiatives, particularly those where construction is expected to commence in 2023.
With the Canadian economy continuing to experience heightened levels of inflation and rising interest rates, the Trust remains
confident in its ability to manage through these challenges. While the Trust’s retail portfolio continues to act as the anchor to
cashflow, 82% of the Trust’s debt is fixed, with a staggered ladder of manageable maturities and strong relationships with
Canada’s lending community that should assure strong levels of liquidity for the future. New development initiatives will only
commence when market conditions permit and when appropriate financing has been arranged.
Leasing
The Trust’s 34.8 million square foot portfolio of predominately Walmart-anchored shopping centres continues to demonstrate
strong occupancy levels. Leasing activity has been brisk and a substantial portion of the space vacated during the pandemic is
either under contract or is expected to be re-leased in the near term. The Trust remains exceptionally well positioned to attract
high-quality tenants with strong covenants as Canada’s largest provider of retail space in Walmart-anchored open-format
shopping centres. With the significant traffic drivers, new tenants are also being attracted to each site.
Mixed-Use Development on SmartVMC
Since the commencement of the Trust’s SmartVMC development, a total of 1,763 condominium and townhome units have
closed. As a result, SmartVMC has become a community, with approximately 3,000 new residents in occupancy. In addition, the
22 pre-sold townhomes built as part of Transit City 1 and 2 were completed and closed during 2022 with the Trust’s share of
proceeds and earnings being $4.3 million and $1.4 million, and construction of the sold out 1,026 units of Transit City 4 and 5 is
nearing completion, with closings expected to begin in the first half of 2023. The Millway, the Trust’s first purpose-built 458-unit
residential rental building, is also expected to commence occupancy in early 2023. Upon their completion, these phases are
expected to provide accommodation for over 2,000 additional residents at SmartVMC. These residents will all benefit from,
among other things, the world-class YMCA, municipal library and community centre at SmartVMC which opened in Q2 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 TTC
subway station linking the site directly to downtown Toronto, a mass urban bus hub, and 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.
Mixed-Use Development on Other Initiatives
Construction is progressing on the next SmartStop project in Brampton (Kingspoint), with completion expected later in 2023.
When complete, the Trust expects approximately 464,000 square feet (at its share) of self-storage space to be available. These
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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, Ontario. In each case, existing lands have been or will be transferred to the
Trust’s partnership with SmartStop when municipal approvals are received. In addition, together with SmartStop, the Trust has
purchased three properties in Toronto, on Jane Street, Gilbert Avenue and Eglinton Avenue East, and one property in Burnaby,
British Columbia, on which, once zoning approvals are in place, it intends to build additional self-storage facilities.
During the second quarter of 2022, the Trust completed the purchase of approximately 38 acres of industrial lands in Pickering,
Ontario adjacent to Hwy 407. The Trust received approval to build 241,000 square feet of industrial space for the 16-acre Phase
1 development on these lands, of which 53% has already been pre-leased and construction is well underway. Upon completion
in 2023, yields from this initial phase of the project are expected to be in the range of 6.0%–6.5%.
The Trust, together with its partner, Penguin, have also commenced preliminary siteworks for a 215,000 square foot retail project
on Laird Avenue in Toronto. This project is expected to feature a flagship 190,000 square foot Canadian Tire store, together with
25,000 square feet of additional retail space. Canadian Tire is expected to take possession in 2024.
Investment Properties – Valuation
Notwithstanding recent increases in interest rates, the property market remains healthy and demand for institutional quality retail
real estate continues to be strong. With the Trust’s vast pipeline of mixed-use initiatives, the Trust expects to recognize fair value
enhancements over time through the planning, zoning and development progress for the intensification of many of its investment
properties.
No further changes were made in Q4 2022 to the Trust’s assumptions around capitalization rates used in determining the value
of the retail property portfolio at December 31, 2022. This reflects the Trust’s conservative assumptions as it relates to valuations
and was consistent with the assumptions used in external appraisals that the Trust regularly commissions from independent and
reputable appraisal firms. Nevertheless, the Trust will continue to monitor market trends and changes in capitalization rates and
other macro-assumptions, while working closely with the external appraisal community, to assess whether any changes to
valuation assumptions may be appropriate in 2023.
Financing
Current economic pressures, principally caused by the COVID-19 pandemic, have resulted in unparalleled global supply chain
constraints and an inflationary environment not experienced in almost 30 years. To combat inflation, the Bank of Canada has
been active in increasing its overnight interest rate. From January 1, 2022 up to February 8, 2023, the Bank of Canada has
increased its overnight rate eight times for a total of 425 bps to 4.50%. As a result of this unparalleled period of interest rate
hikes, short- and long-term borrowing costs have experienced significant increases over the past several months. Accordingly, as
at December 31, 2022, the Trust’s overall weighted average interest rate increased to 3.86% from 3.11% at December 31, 2021.
Approximately 18% of the Trust’s debt is at variable rates, a significant portion of which is linked to development projects.
In December 2022, Dominion Bond Rating Services confirmed the Trust’s BBB(high) credit rating and maintained its negative
trend, consistent with its report in December 2021. The Trust is continuing to work on various financing alternatives and debt
repayment initiatives with the intent to improve its credit rating further.
The Trust has continued to focus on its long-term mixed-use development initiatives, of which 11 projects are under construction
and 48 projects are expected to commence construction within the next two years. Each of these projects is subject to arranging
appropriate financing, market conditions and completing zoning entitlements. As Canadians continue to return to a new level of
“normalcy”, the Trust will continue to follow its credo of “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
future growth in both FFO and NAV.
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Key Business Development, Financial and Operational Highlights for the Year Ended December 31, 2022
Mixed-Use Development and New Growth at SmartVMC
•
•
•
•
Park Place condo pre-development is underway on the 53.0 acre SmartVMC West lands strategically acquired in
December 2021. Pre-sales for this development have commenced. The Trust’s acquisition in December 2021 of a two-
thirds interest in the SmartVMC West lands more than doubled the Trust’s holdings in the 105 acre SmartVMC city
centre development.
Construction nears completion on the 100% pre-sold Transit City 4 (45 storeys) and 5 (50 storeys) condo towers,
representing 1,026 residential units. Concrete, formwork and building envelope have been completed for both towers,
with interior finishes ongoing. First closings are expected to commence in March 2023.
Construction of the purpose-built rental project, The Millway (36 storeys), nears completion at SmartVMC. Formwork,
concrete and building envelope have been completed, with interior finishes underway. Initial occupancy is expected to
commence in February 2023.
ArtWalk condominium sales of 320 released units in Phase 1 are sold out with construction expected to begin in the
second half of 2023.
Other Business Development
•
•
•
•
•
•
•
Occupancy in the completed first phase of the two-phase, purpose-built residential rental project in Laval, Quebec,
ended the year with 98% of the 171 units leased. Pre-leasing has commenced on the next phase and construction
continues, with a target completion date of Q2 2023.
Initial occupancy in the two purpose-built residential rental towers (238 units) in Mascouche, Quebec began in July
2022, with the final floor opened in November. More than 147 units have been leased and current lease-up activity is in
line with initial expectations.
All of the five developed and operating self-storage facilities (Toronto (Leaside), Vaughan NW, Brampton, Oshawa
South and Scarborough East) have been very well-received by their local communities, with current occupancy levels
ahead of expectations. A sixth facility, Aurora, opened in December 2022.
Three self-storage facilities in Whitby, Markham and Brampton (Kingspoint) are currently under construction, with
Brampton (Kingspoint) expected to be completed in early 2023. Additional self-storage facilities have been approved by
the Board of Trustees and the Trust is in the process of obtaining municipal approvals in Stoney Creek and two
locations in Toronto (Gilbert Ave. and Jane St.). In addition, the municipal approval process is underway in New
Westminster and Burnaby, British Columbia.
Construction continues on a new retirement residence and a seniors’ apartment project, totalling 402 units, at the Trust's
Laurentian Place in Ottawa, with completion expected in Q1 2024.
By way of a Minister’s Zoning Order, the Trust has permissions that would allow for the redevelopment of the 73-acre
Cambridge retail property (which is subject to a leasehold interest with Penguin) including 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 million square feet of development.
The Trust, together with its partner, Penguin, has also commenced preliminary siteworks for the 215,000 square foot
retail project on Laird Drive in Toronto, that is expected to feature a flagship 190,000 square foot Canadian Tire store
together with 25,000 square feet of additional retail space. Canadian Tire is expected to take possession in 2024.
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Financial
•
Net income and comprehensive income(1) was $636.0 million in 2022 compared to $987.7 million in 2021, representing
a decrease of $351.7 million. This decrease was primarily attributed to: i) $476.8 million decrease in fair value
adjustment on revaluation of investment properties; and ii) $20.2 million decrease in net profit on condo and townhome
unit closings; and was partially offset by i) $125.5 million increase in fair value adjustments on financial instruments; and
ii) $20.6 million increase in net rental income and other mainly due to higher base rent in 2022.
•
•
•
•
•
•
•
•
•
•
Net income and comprehensive income per Unit(1) in 2022 decreased by $2.14 or 37.7% to $3.54 as compared to the
same period in 2021, primarily due to the reasons as noted above.
As at December 31, 2022, the Trust increased its unsecured/secured debt ratio(2)(3) to 74%/26% (December 31, 2021 –
71%/29%).
The Trust continues to add to its unencumbered pool of high-quality assets. As at December 31, 2022, this
unencumbered portfolio consisted of investment properties was valued at $8.4 billion (December 31, 2021 – $6.6
billion).
The Trust’s fixed rate/variable rate debt ratio(2)(3) was 82%/18% as at December 31, 2022 (December 31, 2021 –
89%/11%).
FFO per Unit with adjustments excluding the impact of ECL, TRS, condominium and townhome closings, and
SmartVMC West acquisition(2) was $2.14 (year ended December 31, 2021 – $2.09).
During the quarter, 693,900 additional notional TRS Units were added at a weighted average price of $26.37 per Unit.
For the year ended December 31, 2022, there was a surplus of cash flows provided by operating activities(1) over
distributions declared of $41.2 million (year ended December 31, 2021 – surplus of $52.9 million).
The Payout Ratio relating to cash flows provided by operating activities for the year ended December 31, 2022 was
88.9%, as compared to 85.8% for the year ended December 31, 2021.
For the year ended December 31, 2022, there was a surplus of ACFO(2) over distributions declared of $10.5 million
(year ended December 31, 2021 – surplus of $34.3 million).
The Payout Ratio to ACFO(2) for the year ended December 31, 2022 was 96.9%, as compared to 90.3% for the year
ended December 31, 2021. Excluding the impact of TRS, condominium and townhome closings, and SmartVMC West
acquisition, the Payout Ratio to ACFO(2) for the year ended December 31, 2022 was 92.6%, as compared to 96.5% for
the year ended December 31, 2021.
Operational
•
•
•
Rentals from investment properties and other(1) was $804.6 million, as compared to $780.8 million in 2021, representing
an increase of $23.8 million or 3.0%, primarily due to: (i) the acquisition of an additional interest in investment properties
in Q1 2022; (ii) higher rental income from Premium Outlets locations in both Toronto and Montreal; and (iii) additional
self-storage facility and parking rental revenue.
Same Properties NOI inclusive of ECL(2) increased by $16.5 million or 3.3% in 2022 as compared to 2021. Same
Properties NOI excluding ECL(2) increased by $9.5 million or 1.9% in 2022 as compared to the prior year.
In-place occupancy rate and occupancy rate with committed deals were 97.6% and 98.0%, respectively, as at
December 31, 2022 (December 31, 2021 – 97.4% and 97.6%, respectively).
Subsequent Event
•
The Trust together with an entity, PCVP, which is classified as investment in associates, entered into an agreement to
dispose approximately 6.4 acres of land located in Vaughan, Ontario (VMC) to an unrelated party, which closed in
February 2023, for gross proceeds of $95.6 million that was satisfied with cash. The Trust’s share of such proceeds was
$58.4 million, comprised of $42.3 million relating to the Trust’s two-thirds share of the 4.3 acres of land on western part
of SmartVMC which were previously consolidated in the Trust’s consolidated financial statements and presented as
assets held for sale at December 31, 2022, and $16.1 million relating to the Trust’s 50% share of 2.1 acres of land on
eastern part of SmartVMC which were previously recorded in equity accounted investments. Proceeds from the sale
were primarily used by the Trust to reduce indebtedness.
(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 $33.4 million as at December 31, 2022 for the purposes of calculating the applicable ratios.
14 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2022 ANNUAL REPORT
18
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2022 ANNUAL REPORT Selected Consolidated Operational, Mixed-Use Development and Financial Information
Key consolidated operational, mixed-use development and financial information shown in the table below includes the Trust’s
proportionate share of equity accounted investments:
(in thousands of dollars, except per Unit and other non-financial data)
December 31, 2022 December 31, 2021 December 31, 2020
MANAGEMENT’S DISCUSSION AND ANALYSIS
Portfolio Information
Number of retail properties
Number of office properties
Number of self-storage properties
Number of residential properties
Number of properties under development
Total number of properties with an ownership interest
Leasing and Operational Information(1)
Gross leasable retail and office area (in thousands of sq. ft.)
Occupied retail and office area (in thousands of sq. ft.)
Vacant retail and office area (in thousands of sq. ft.)
In-place occupancy rate (%)
In-place and committed occupancy rate (%)
Average lease term to maturity (in years)
Net annualized retail rental rate (per occupied sq. ft.) ($)
Net annualized retail rental rate excluding Anchors (per occupied sq. ft.) ($)
Mixed-Use Development Information
Trust’s share of future development area (in thousands of sq. ft.)
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 buildings / industrial projects
Total number of hotel projects
Total number of condominium developments
Total number of townhome developments
Total number of estimated future projects currently in development planning
stage
155
4
6
1
19
155
4
6
1
17
185
183
34,750
33,925
826
97.6
98.0
4.2
15.53
22.20
34,119
33,219
900
97.4
97.6
4.4
15.44
22.07
156
4
4
1
14
179
34,056
33,039
1,017
97.0
97.3
4.6
15.37
21.89
41,200
40,600
32,500
10,000
110
25
33
8
3
88
7
274
9,800
104
27
36
8
3
95
10
7,900
96
40
50
7
4
72
15
283
284
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2022 ANNUAL REPORT 15
19
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2022 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
(in thousands of dollars, except per Unit and other non-financial data)
December 31, 2022 December 31, 2021 December 31, 2020
Financial Information
Total assets – GAAP(2)
Total assets – non-GAAP(3)(4)
Investment properties – GAAP(2)
Investment properties – non-GAAP(3)(4)
Total unencumbered assets(3)
Debt – GAAP(2)
Debt – non-GAAP(3)(4)
Debt to Aggregate Assets (%)(3)(4)(5)
Debt to Gross Book Value (%)(3)(4)(5)
Unsecured to Secured Debt Ratio(3)(4)(5)
Unencumbered assets to unsecured debt(3)(4)(5)
Weighted average interest rate (%)(3)(4)
Weighted average term of debt (in years)
Interest coverage ratio(3)(4)(5)
Equity (book value)(2)
Weighted average number of units outstanding – diluted
11,702,153
12,083,941
10,250,392
11,223,796
8,415,900
4,983,265
5,260,053
43.6
52.0
11,293,248
11,494,377
9,847,078
10,684,529
6,640,600
4,854,527
4,983,078
42.9
50.8
10,724,492
10,874,900
8,850,390
9,400,584
5,835,600
5,210,123
5,261,360
44.6
50.1
74%/26%
71%/29%
68%/32%
2.2X
3.86
4.0
3.1X
1.9X
3.11
4.8
3.4X
1.9X
3.28
5.0
3.2X
6,163,101
179,657,455
5,841,315
5,166,975
173,748,819
172,971,603
(1)
(2)
(3)
(4)
(5)
Excluding residential and self-storage area.
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 assets held for sale and the Trust’s proportionate share of equity accounted investments.
As at December 31, 2022, cash-on-hand of $33.4 million was excluded for the purposes of calculating the applicable ratios (December 31, 2021 – $80.0 million, December 31, 2020 –
$754.4 million).
16 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2022 ANNUAL REPORT
20
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2022 ANNUAL REPORT 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, 2022 and
December 31, 2021:
MANAGEMENT’S DISCUSSION AND ANALYSIS
(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)
Earnings from other(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 from condominium and townhome closings and other adjustments(2)
NOI(2)
Change in net rental income and other(2)
Change in SPNOI(2)
Change in SPNOI excluding ECL(2)
FFO(2)(3)(4)(5)
Other adjustments
FFO with adjustments(2)(3)(4)
Adjusted for:
ECL
Loss (gain) on derivative – TRS
FFO sourced from condominium and townhome closings
FFO sourced from SmartVMC West acquisition
FFO with adjustments excluding impact of ECL, TRS, condominium and
townhome closings, and SmartVMC West acquisition(2)(3)(4)
FFO with adjustments and Transactional FFO(2)(3)(4)
ACFO(2)(3)(4)(5)
Other adjustments
ACFO with adjustments(2)(3)(4)
Adjusted for:
Loss (gain) on derivative – TRS
ACFO sourced from condominium and townhome closings
ACFO sourced from SmartVMC West acquisition
ACFO with adjustments excluding impact of TRS, condominium and townhome
closings, and SmartVMC West acquisition(2)(3)(4)
Distributions declared
Surplus of cash flows provided by operating activities over distributions
declared(2)
Surplus of ACFO over distributions declared(2)
Surplus of ACFO with adjustments excluding impact of TRS, condominium and
townhome closings, and SmartVMC West acquisition over distributions
declared(2)
Units outstanding(6)
Weighted average – basic
Weighted average – diluted(7)
2022
(A)
804,598
508,023
265,281
15,393
14,652
1,249
635,965
342,261
370,762
502,604
305
518,520
3.5 %
3.3 %
1.9 %
371,572
656
372,228
(3,257)
4,918
(680)
(984)
372,225
379,890
340,075
656
340,731
4,918
(305)
(984)
344,360
329,531
41,231
10,544
2021
(B)
780,796
494,992
253,032
17,891
14,843
38
987,676
342,609
371,624
485,840
20,471
518,122
5.4 %
3.5 %
(2.0) %
380,070
3,226
383,296
3,706
(5,642)
(18,747)
—
362,613
385,219
353,055
3,226
356,281
(5,642)
(20,471)
—
330,168
318,753
52,871
34,302
Variance
(A–B)
23,802
13,031
12,249
(2,498)
(191)
1,211
(351,711)
(348)
(862)
16,764
(20,166)
398
(1.9) %
(0.2) %
3.9 %
(8,498)
(2,570)
(11,068)
(6,963)
10,560
18,067
(984)
9,612
(5,329)
(12,980)
(2,570)
(15,550)
10,560
20,166
(984)
14,192
10,778
(11,640)
(23,758)
14,829
178,133,853
178,121,149
179,657,455
11,415
178,091,581
172,447,334
173,748,819
3,414
42,272
5,673,815
5,908,636
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2022 ANNUAL REPORT 17
21
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2022 ANNUAL REPORT MANAGEMENT’S DISCUSSION AND ANALYSIS
(in thousands of dollars, except per Unit information)
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)
Other non-recurring adjustments
FFO with adjustments(2)(3)(4)
2022
(A)
2021
(B)
Variance
(A–B)
$3.57/$3.54
$1.92/$1.91
$2.09/$2.07
$0.00/$0.00
$2.09/$2.07
$5.73/$5.68
$-2.16/$-2.14
$1.99/$1.97
$-0.07/$-0.06
$2.20/$2.19
$-0.11/$-0.12
$0.02/$0.02
$-0.02/$-0.02
$2.22/$2.21
$-0.13/$-0.14
FFO with adjustments excluding impact of ECL, TRS, condominium and
townhome closings, and SmartVMC West acquisition(2)(3)(4)
$2.16/$2.14
$2.10/$2.09
$0.06/$0.05
FFO with adjustments and Transactional FFO(2)(3)(4)
$2.13/$2.11
$2.23/$2.22
$-0.10/$-0.11
Distributions declared
Payout Ratio Information
Payout Ratio to cash flows provided by operating activities
Payout Ratio to ACFO(2)(3)(4)(5)
Payout Ratio to ACFO with adjustments(2)(3)(4)
Payout Ratio to ACFO with adjustments excluding impact of TRS,
condominium and townhome sales, and SmartVMC West acquisition(2)(3)(4)
$1.850
$1.850
$—
88.9 %
96.9 %
96.7 %
92.6 %
85.8 %
90.3 %
89.5 %
96.5 %
3.1 %
6.6 %
7.2 %
(3.9) %
(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 REALpac White Paper on
FFO issued in January 2022 and REALpac White Paper on ACFO issued in February 2019, 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.
18 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2022 ANNUAL REPORT
22
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2022 ANNUAL REPORT Quarterly Results and Trends
(in thousands of dollars, except percentage, square footage, Unit and per Unit amounts)
Q4
2021
Q2
2022
Q3
2022
Q1
2022
Q4
2022
MANAGEMENT’S DISCUSSION AND ANALYSIS
Q3
2021
Q2
2021
Q1
2021
Results of operations
Net income and comprehensive income
100,310
3,548
161,997
370,110
652,081
178,051
96,985
60,559
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(2)
Diluted(2)(3)
$0.56
$0.56
133,201
210,117
206,223
133,632
$0.02
$0.02
132,303
199,220
196,678
130,986
$0.91
$0.90
131,543
202,785
198,296
130,034
$2.08
$2.06
129,354
206,467
202,523
123,868
$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
102,471
88,403
88,464
92,235
97,452
97,887
100,457
84,275
$0.58
$0.57
$0.50
$0.49
$0.50
$0.49
$0.52
$0.51
$0.56
$0.56
$0.57
$0.56
$0.58
$0.58
$0.49
$0.49
FFO with adjustments and Transactional
FFO(2)
108,223
89,072
89,446
93,150
98,448
99,593
101,082
86,098
Per Unit
Basic(2)
Diluted(2)(3)
Cash flows provided by operating activities
ACFO(2)
ACFO with adjustments(2)
Distributions declared
Payout ratio to ACFO with adjustments
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 (%)
$0.61
$0.60
134,668
92,991
91,081
82,386
90.5 %
$0.50
$0.50
97,011
81,060
81,729
82,382
$0.50
$0.50
43,970
80,871
81,853
82,422
$0.52
$0.52
$0.57
$0.56
102,819
133,673
85,154
86,069
82,339
83,313
83,973
79,725
$0.58
$0.57
96,298
90,342
92,048
79,683
$0.59
$0.58
62,168
94,248
94,873
79,685
$0.50
$0.50
79,485
85,153
85,389
79,660
100.8 %
100.7 %
95.7 %
94.9 %
86.6 %
84.0 %
93.3 %
178,133,853 178,126,285 178,122,655 178,122,655 178,091,581 172,287,950 172,280,187 172,267,483
178,129,000 178,123,918 178,122,655 178,108,771 172,983,636 172,285,503 172,275,798 172,237,982
179,696,944 179,678,009 179,662,689 179,590,588 174,380,800 173,644,091 173,543,923 173,417,020
11,702,153
11,862,633
11,905,066
11,721,953
11,293,248
10,191,592
10,036,672
10,321,117
8,415,900
4,983,265
8,383,900
8,413,000
8,364,500
6,640,600
6,002,800
5,937,900
5,910,900
5,159,860
5,128,604
4,951,171
4,854,527
4,539,594
4,492,948
4,810,106
34,750,379
34,685,033
34,660,693
34,663,687
34,118,613
34,225,087
34,185,729
34,036,704
97.6
98.0
97.6
98.1
97.2
97.6
97.0
97.2
97.4
97.6
97.3
97.6
97.1
97.3
97.0
97.3
(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 | 2022 ANNUAL REPORT 19
23
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2022 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 do have an
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, the Trust’s
income producing property portfolio is quite stable. Quarterly fluctuations in revenue and operating results are mainly attributable
to ECL provisions, occupancy levels, Same Properties NOI growth, acquisitions, Earnouts, developments and dispositions. In
addition, the COVID-19 pandemic has had an adverse effect on results of operations for Q1 of 2021 through Q4 of 2022.
Sequentially, net income and comprehensive income increased by $96.8 million in Q4 2022 from Q3 2022. This increase was
mainly attributable to the $105.5 million higher investment property revaluation adjustments, and partially offset by $11.8 million
lower fair value gains on revaluation of financial instruments during Q4 2022. Year-over-year, net income and comprehensive
income decreased by $551.8 million in Q4 2022 compared to Q4 2021, primarily attributable to the fair value adjustments (gains)
of certain properties under development in Q4 2021 as a result of changes in the market and the progress made on planning
entitlement.
Other Measures of Performance
FFO increased by $14.1 million in Q4 2022 from Q3 2022, mainly attributable to the higher TRS gain in Q4. Year-over-year, FFO
increased by $5.0 million in Q4 2022 compared to Q4 2021, primarily due to increase in interest income and NOI, and partially
offset by increase in interest expense.
Units Outstanding
The increase in Units outstanding in Q4 2022 from Q3 2022 and compared to Q4 2021 was mainly due to the options exercised
in connection with Earnout transactions.
Total Assets and Debt
Total assets decreased by $160.5 million in Q4 2022 from Q3 2022, which was mainly due to: (i) a decrease in other financial
assets of $117.7 million mainly attributable to cash held as collateral for the TRS which was released and used to reduce
indebtedness; and (ii) a decrease of loans receivable of $100.9 million due to repayment; and partially offset by the increase of
investment properties of $39.0 million which was driven by development activities and fair value gains over the quarter. Total debt
decreased by $176.6 million in Q4 2022 from Q3 2022 as a result of repayment.
Total assets increased by $408.9 million in Q4 2022 compared to Q4 2021, principally attributable to acquisitions and capital
expenditures in investment properties, and fair value adjustments (gains) on revaluation of investment properties. Total debt
increased by $128.7 million in Q4 2022 compared to Q4 2021, mainly due to new unsecured credit facilities borrowed and
partially offset by repayment.
Leasing
The Trust’s occupancy rate (inclusive of committed deals) was 98.0% at the end of Q4 2022, representing a 10 basis point
decrease as compared to Q3 2022, mainly resulting from minor vacancies during the current quarter. The Trust’s occupancy rate
(inclusive of committed deals) was 98.1% and 97.6% at the end of Q3 2022 and Q2 2022, representing a 50 basis point increase
and a 40 basis point increase as compared to prior quarters, respectively, mainly resulting from increased demand for high traffic
shopping centres. The Trust’s occupancy rate (inclusive of committed deals) was 97.6% in Q4 2021. Strengthening retail leasing
is being experienced across all provinces with improved NOI and occupancy expected throughout 2023.
20 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2022 ANNUAL REPORT
24
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2022 ANNUAL REPORT Section III — Development Activities
Mixed-Use Development Initiatives
The following table summarizes the 274 identified mixed-use, recurring rental income and development income initiatives, which
are included in the Trust’s large development pipeline:
MANAGEMENT’S DISCUSSION AND ANALYSIS
Description
Section A
Number of projects in which the Trust
has an ownership interest
Residential Rental
Seniors’ Housing
Self-storage
Office Buildings / Industrial
Hotels
Subtotal – Recurring rental income
initiatives
Condominium developments
Townhome developments
Subtotal – Development income
initiatives
Total
Section B
Planning entitlements (#)(1)
Construction
expected to
commence within
next 2 years
Active
(Construction
expected to
commence within
next 3–5 years)
Future
(Construction
expected to
commence after 5
years)
Total
Under construction
Q4 2022 Q3 2022 Q4 2022 Q3 2022 Q4 2022 Q3 2022 Q4 2022 Q3 2022 Q4 2022 Q3 2022
3
1
3
1
5
1
3
1
—
—
8
2
1
3
11
10
2
1
3
13
22
24
24
20
3
7
—
—
32
15
1
16
48
3
9
—
—
36
21
1
22
58
7
8
1
8
7
1
—
—
40
25
2
27
67
36
20
1
21
57
61
14
15
6
3
99
46
3
58
13
16
7
3
97
46
5
110
107
25
33
8
3
25
35
9
3
179
179
88
7
89
8
97
49
51
95
148
148
274
276
11
13
38
45
47
39
86
85
182
182
Section C
Project area (in thousands of sq. ft.) – at 100%(2)
Recurring rental income initiatives
1,750 2,000 6,050 6,590 6,600 6,350 17,900 17,600 32,300 32,540
Development income initiatives
1,200 1,200 4,200 5,800 7,400 6,100 11,000 11,600 23,800 24,700
Total project area (in thousands of sq.
ft.) – at 100%
Trust’s share of project area (in
thousands of sq. ft.)
2,950 3,200 10,250 12,390 14,000 12,450 28,900 29,200 56,100 57,240
Recurring rental income initiatives
1,000 1,200 4,450 4,600 4,300 3,900 12,500 11,900 22,250 21,600
Development income initiatives
400
400 3,650 4,700 4,700 3,500 10,200 9,500 18,950 18,100
Total Trust’s share of project area (in
thousands of sq. ft.)
Section D
Total estimated costs (in millions of
dollars) – at 100% based on current
planning budgets(2)
Trust’s share of such estimated costs (in
millions of dollars)
1,400 1,600 8,100 9,300 9,000 7,400 22,700 21,400 41,200 39,700
1,200 1,250 5,700 6,900 8,000 7,100
550
550 4,450 5,250 5,000 4,050
– (3)
– (3)
– (3)
– (3)
14,900 15,250
10,000 9,850
(1)
(2)
(3)
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.
The Trust has not fully determined the costs attributable to future projects expected to commence after five years and as such they are not included in this table.
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. Please refer to the “Forward-Looking Statements” section for more information.
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MANAGEMENT’S DISCUSSION AND ANALYSIS
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) mid- and high-rise rental residential projects in Laval and Mascouche,
Quebec; iii) seniors’ apartments and retirement residences in the Greater Toronto Area and Ottawa, Ontario; iv) self-storage
locations throughout Ontario; v) a townhome project in Vaughan, Ontario; and vi) an industrial project in Pickering, 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.
The following table provides additional details on the Trust’s 11 development initiatives that are currently under construction (in
order of estimated initial occupancy/closing date):
Projects under construction
(Location/Project Name)
Vaughan / Transit City 4
Vaughan / Transit City 5
Vaughan / The Millway
Brampton / Kingspoint Plaza
Pickering (Seaton Lands)
Laval Centre
Markham East / Boxgrove
Whitby
Ottawa SW (1)
Ottawa SW (1)
Vaughan NW
Type
Condo
Apartment
Self Storage
Industrial
Apartment
Self Storage
Self Storage
Retirement Residence
Senior Apartments
Townhouse
Total Capital Spend To Date at 100% (3)
Estimated Cost to Complete at 100%
Total Expected Capital Spend by Completion at 100% (3)
Total Capital Spend To Date at Trust’s share (3)
Estimated Cost to Complete at Trust’s share
Total Expected Capital Spend by Completion at Trust’s share (3)
Trust’s
Share (%)
Estimated initial
occupancy /
closing date
% of
completion
GFA(2)
(sq. ft.)
No.
of units
25
50
50
100
50
50
50
50
50
Q1 2023
87 %
—
1,026
Q1 2023
Q1 2023
Q1 2023
Q2 2023
Q1 2024
Q1 2024
73 %
—
91 %
133,000
79 %
241,000
58 %
—
38 %
133,332
16 %
126,135
458
969
—
211
910
811
Q1 2024
26 %
—
402
Q3 2024
14 %
—
174
In millions of dollars
755.2
487.8
1,243.0
304.1
234.9
539.0
Figure represents capital spend of both retirement residence and senior apartments projects.
(1)
(2) GFA represents Gross Floor Area.
(3)
Total capital spent to date and total expected capital spend by completion include land value.
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 foot KPMG tower, with 98% of the office space leased;
the 225,000 square foot PwC-YMCA office and community-use complex, with fully occupied office space and
community-use space, including a new world-class YMCA facility and municipal library, both of which opened in 2022;
iii) the new 140,000 square foot Walmart store which opened in 2020; and
iv) the development of high-rise residential, with details of each previously announced residential phase discussed below.
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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 the City of Vaughan in September 2021. Pre-sale of the first phase
condo, ArtWalk, was launched in November 2021 and all of the 320 released units are sold;
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; and
iii) Park Place condominiums pre-sales launched in May 2022 on SmartVMC West lands.
The following table summarizes the associated mixed-use initiatives completed, under construction or currently being planned at
SmartVMC:
Project
KPMG Tower
KPMG Tower
PwC-YMCA Complex/Tower
Office Tower #3 – Proposed
Office Tower #4 – Proposed
The Millway
Transit City 1
Transit City 2
Storeys
15
N/A
9
TBD(2)
TBD(2)
Type
Office
Retail
Office
Office
Office
36
55
55
Apartments
Condo
Condo
Transit City 1 and 2 Townhomes
N/A Townhomes
Transit City 3
Transit City 4 and 5
ArtWalk
Park Place
Apple Mill Road and Jane Street
55
45 and 50
Condo
Condo
Condo/
38,18 and 6
Apartments
48 and 56
64
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.
458 units (3)
551 units
559 units
22 units
631 units
1,026 units (3)
627 units
1,094 units
798 units
5,766 units
Completed
Completed
Completed
2028
2029
2023
Completed (2020)
Completed (2020)
Completed (2022)
Completed (2021)
2023
2026–2027
2027
TBD
50
50
50
50
50
50
25
25
25
25
25
50
67
50
(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.
Ninety-two of the 458 units attributable to the purpose-built residential rental apartment, The Millway, are located in the podiums of Transit City 4 and 5. These 92 units are anticipated to
be completed commensurate with Transit City 4 and 5.
Residential and Other Mixed-Use Development Initiatives
In addition to the Trust’s 11 development initiatives that are currently under construction, the following table shows the mixed-use
development initiatives which have been completed during the last three years:
Type
Estimated Total Building Area
(sq. ft./units)
Year of Construction
Completion(1)
Trust’s
Share (%)
Project
Laval Phase 1 (QC)
Mascouche N Phase 1 (QC)
Residential rental
Residential rental
171 units
238 units
Leaside SmartStop (ON)
Self-storage facility
133,714 sq. ft. (998 units)
Vaughan NW SmartStop (ON)
Self-storage facility
118,067 sq. ft. (875 units)
Brampton SmartStop (ON)
Self-storage facility
134,687 sq. ft. (1,052 units)
Oshawa S SmartStop (ON)
Self-storage facility
132,812 sq. ft. (948 units)
Scarborough E SmartStop (ON)
Self-storage facility
136,969 sq. ft. (974 units)
Aurora SmartStop (ON)
Self-storage facility
140,000 sq. ft. (926 units)
2020
2022
2020
2021
2021
2021
2021
2022
50
80
50
50
50
50
50
50
(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.
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MANAGEMENT’S DISCUSSION AND ANALYSIS
In addition, 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. Completion, milestone or occupancy dates of each of the projects described
below may be delayed or adversely impacted.
i.
ii.
iii.
iv.
v.
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. Currently working with the City of
Vaughan on advancement of Weston & Highway 7 Secondary Plan;
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 zoning for five towers with a gross floor area of approximately 1,400,000 square feet and
site plan application for a three-tower mixed-use phase, approximating 700,000 square feet, approved by Council in
June 2022;
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 official plan and zoning amendment applications for an initial two-tower 587-unit residential
phase submitted in 2021, and a supporting site plan application submitted in March 2022;
the development of up to 2.6 million square feet of predominately residential space, in various forms, at the Westside
Mall in Toronto, Ontario, with a zoning application for the first 35-storey mixed-use tower submitted in 2021 and work
continuing collaboratively with the City. The by-law is anticipated to be presented at Council in spring/summer 2023 for
approval. A site plan application is being concurrently processed;
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. Approximately 60% of the 174 draft plan approved townhomes have
been pre-sold, lot servicing has been completed, and new home construction is soon expected to commence. Official
Plan and Zoning Approval was obtained in June 2022 for five mid-rise buildings, of which Site Plan Approval was
obtained for the Phase I development of a seniors’ apartment building and a separate retirement residence, both of
which are to be developed in partnership with Revera;
vi.
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, but subject to the urban planning revision process by the
city of Pointe-Claire;
vii.
the development of up to 200,000 square feet of residential townhomes at Oakville South in Oakville, Ontario;
viii.
the intensification of the Toronto StudioCentre (“StudioCentre”) in Toronto, Ontario (zoning allows for up to 1.2 million
square feet);
ix.
x.
xi.
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 June 2021. An application for a building permit was
submitted in July 2021. Environmental Risk Assessment was approved for the entire site in September 2021 and the
application of Certificate of Property Use was submitted in February 2022 and approved in September 2022;
the development of a 35-storey high-rise purpose-built residential rental tower containing 442 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. A third submission of these applications was made in March 2022. Zoning
approval was received in July 2022 and site plan approval is expected in Q2 2023;
the development of up to 1,600 residential units, in various forms, in Mascouche, Quebec, 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 the first four floors opened in July 2022, with the remaining six floors opened in sequence until the last and
10th floor was made available on November 1, 2022. Construction of a second phase is expected to commence in Q2
2023;
xii.
the development of residential density at the Trust’s shopping centre at 1900 Eglinton Avenue East in Scarborough,
Ontario, with Official Plan Approval obtained in August 2022 for 4.65 million square feet of density. Approval was also
obtained in August 2022 of a Phase I development to include two residential towers (46 and 48 storeys), permitting 975
residential units and up to 806,000 square feet. Site plan application and approvals for Phase I are ongoing. In addition,
applications for Phase II, consisting of approximately 1.4 million square feet were submitted in September 2022;
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MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2022 ANNUAL REPORT MANAGEMENT’S DISCUSSION AND ANALYSIS
xiii.
the development of the first phase, a 46-unit rental building, which is part of a multi-phase master plan in Alliston,
Ontario, with a rezoning application approved by Council in December 2020, a site plan application approved in July
2022, and the full building permit received in December 2022;
xiv. besides the nine self-storage projects completed or under construction, there are five additional self-storage facilities in
Ontario and British Columbia with the Trust’s partner, SmartStop, in Stoney Creek, Toronto (2), New Westminster and
Burnaby with zoning and/or site plan approval obtained or applications well underway. Project agreements for another
three locations are being finalized;
xv.
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 2023. Master plan of development for the site is subject to
approval;
xvi. the development of a new residential block consisting of three phases totalling 500 units at Laval Centre in Quebec. The
application for architecture approval for Phase 1 (155 units) and Phase 2 (155 units) was submitted in Q4 2021 and
approved in Q3 2022. The application for the construction permit was made in Q4 2022. Issuance of the construction
permit is expected in Q2 2023;
xvii. the Trust is planning the redevelopment of a portion of its 73-acre Cambridge retail property (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 on the overall property once completed. Work is underway to start the site plan approval process for an
initial phase for a high-rise condominium and a mid-rise apartment. Discussions with City staff continue as a site plan
application submission is anticipated in 2023;
xviii.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 nine-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;
xix. 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 and work is ongoing on a second
submission to respond to agency comments on the application;
xx.
the development of up to 900,000 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 in July 2021 and resubmitted in April 2022;
xxi. 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 an appeal was
filed in July 2022 for the initial Official Plan Amendment & Zoning By-law Amendment submission;
xxii. the development of approximately 900,000 square feet of residential density on the Trust’s Parkway Plaza Centre in
Stoney Creek, Ontario, with a rezoning application underway that includes a Phase 1 development of a two-tower (each
20 storeys), approximately 400,000 square foot, 494-unit condo project. The proposal was presented at the Hamilton
Design Review Panel in March 2022 and a public information meeting was held in May 2022. Design changes were
incorporated, and the rezoning application was resubmitted in Q4 2022; and
xxiii.during the second quarter of 2022, the Trust completed the purchase of approximately 38 acres of industrial lands in
Pickering, adjacent to Hwy 407, on which the Trust received approval to build 241,000 square feet of space for the 16-
acre Phase 1 development, of which 53% has already been pre-leased, and completion is currently scheduled for Q1
2023.
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Residential Development Inventory
Vaughan NW Residential Development
As reflected in the Trust’s consolidated financial statements for the year ended December 31, 2022, 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 December 31, 2022, approximately 60% of the planned 174 townhomes have been pre-sold within the
initial three phases of the sales program and closings are now expected in 2024.
The following table summarizes the activity in residential development inventory (at the Trust’s share):
(in thousands of dollars)
Balance – beginning of year
Development costs
Capitalized interest for the period
Balance – end of year
Properties Under Development
Year Ended
December 31, 2022
Year Ended
December 31, 2021
27,399
11,931
1,043
40,373
25,795
646
958
27,399
As at December 31, 2022, the fair value of properties under development including properties under development recorded in
equity accounted investments totalled $2,337.4 million as compared to $1,970.4 million at December 31, 2021, resulting in a net
increase of $367.0 million presented in the following table. The net increase of $367.0 million was primarily due to the
$237.7 million adjustment attributed to changes in the market and the progress made on planning entitlements recorded in Q1
2022, and the $161.9 million development expenditures incurred during the year ended December 31, 2022. For additional
details on the factors influencing this change, see “Investment Properties”.
(in thousands of dollars)
Developments
Earnouts subject to option agreements(1)
Total
Equity accounted investments
Total including equity accounted investments(2)
Less: properties under development classified as held for sale
Total including equity accounted investments (excluding properties
classified as held for sale)(2)
December 31, 2022
December 31, 2021
Variance ($)
1,698,652
54,847
1,753,499
583,898
2,337,397
(58,371)
1,391,301
307,351
60,700
(5,853)
1,452,001
518,427
1,970,428
301,498
65,471
366,969
—
(58,371)
2,279,026
1,970,428
308,598
(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, 2022. 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
2.2 million square feet. With respect to the future pipeline, commitments have been negotiated on 0.3 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,
2022:
(in thousands of square feet)
Committed
Years 0–2
Years 3–5
Beyond Year 5
Developments
Earnouts
Mezzanine Financing
242
18
260
—
260
576
26
602
—
602
620
77
697
—
697
124
—
124
488
612
(1) The estimated timing of development is based on management’s best estimates and can be adjusted based on changes in business conditions.
Total(1)
1,562
121
1,683
488
2,171
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MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2022 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
During the year ended December 31, 2022, the future retail properties under development pipeline increased by 0.1 million
square feet to a total of 1.7 million square feet. The change is summarized in the following table:
(in thousands of square feet)
Future retail properties under development pipeline – January 1, 2022
Add:
Net adjustment to project densities
Less:
Completion of Earnouts and Developments
Net change
Future retail properties under development pipeline – December 31, 2022
Total Area
1,540
654
(511)
143
1,683
Uncommitted Retail Pipeline
The following table summarizes the estimated future investment by the Trust in retail properties under development. It is
expected the future development costs will be spent over the next five years and beyond:
(in thousands of dollars)
Years 0–2
Years 3–5 Beyond Year 5
Total Estimated
Costs
Costs
Incurred
Developments
Earnouts
240,556
59,429
470,449
770,434
315,862
25,099
—
31,624
56,723
23,515
265,655
59,429
502,073
827,157
339,377
Future
Development
Costs
454,572
33,208
487,780
Approximately 6.9% of the retail properties under development, representing a proportion of gross investment cost (committed
and uncommitted) relating to Earnouts ($65.7 million, divided by total estimated costs of $946.8 million), representing 121,000
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 1.6 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, 2022, $87.5 million of Earnouts and Developments (including Developments relating
to equity accounted investments) were completed and transferred to income properties, as compared to $9.1 million in the same
period in 2021.
Earnouts
Retail Developments
Redevelopment – transfers from properties under
development to income properties
Developments – equity accounted investments
Self-storage facilities – equity accounted
investments
Three Months Ended December 31, 2022
Three Months Ended December 31, 2021
Area
(sq. ft.)
26,450
7,439
47,189
165,348
140,268
386,694
Investment
($ millions)
1.1
4.0
1.1
56.4
24.9
87.5
Area
(sq. ft.)
—
—
9,840
—
45,220
55,060
Investment
($ millions)
—
—
1.2
—
7.9
9.1
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MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2022 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the year ended December 31, 2022, $131.6 million of Earnouts and Developments (including Developments relating to
equity accounted investments) were completed and transferred to income properties, as compared to $94.6 million in the same
period in 2021.
Year Ended December 31, 2022
Year Ended December 31, 2021
Earnouts(1)
Retail Developments
Redevelopment – transfers from properties under
development to income properties
Developments – equity accounted investments
Self-storage facilities – equity accounted
investments
Area
(sq. ft.)
32,341
11,278
161,869
165,348
140,268
511,104
Investment
($ millions)
2.7
8.3
39.3
56.4
24.9
131.6
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
(1) The Earnouts for the year ended December 31, 2022 excluded one land parcel sale totalling $5.6 million of investment and the area for this parcel sale is not reflected in the table above (for
the year ended December 31, 2021: one land parcel sale totalling $4.7 million of investment was excluded).
The following table summarizes future retail Developments, Earnouts and Mezzanine Financing as at December 31, 2022:
Area
(sq. ft.)
Total
Area
(%)
Income
($000s)
Gross
Commitment
($000s)
Invested
To Date
($000s)
Net
Commitment
($000s)
Yield /
Cap Rate
(%)
Developments
Committed Developments
2023
2024 and beyond
71,952
4.3
1,073
170,347
10.1
4,889
Total Committed Developments
242,299
14.4
5,962
Uncommitted Developments
2023
2024 and beyond
159,919
9.5
2,063
1,159,682
68.9 24,758
Total Uncommitted Developments
1,319,601
78.4 26,821
23,270 (2)
87,329 (2)
110,599
51,287 (2)
419,162 (2)
470,449
1,561,900
92.8 32,783
581,048
11,118 (2)
29,711 (2)
40,829
33,793 (2)
120,794 (2)
154,587
195,416 (1)
12,152
57,617
69,769
17,494
298,368
315,862
4.6 (3)
5.6 (3)
5.4
4.0 (3)
5.9 (3)
5.7
385,631
5.6
Total Developments
Earnouts
Committed Earnouts
2022
2023 and beyond
Total Committed Earnouts
Uncommitted Earnouts
2022
2023 and beyond
17,205
747
17,952
9,181
93,823
1.1
—
1.1
524
23
547
0.5
5.6
6.1
138
2,045
2,183
8,656
357
9,013
2,079
29,544
31,623
4,718
1,096
5,814
421
7,687
8,108
Total Uncommitted Earnouts
103,004
Total Earnouts
120,956
7.2
2,730
40,636
13,922 (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
1,682,856
100.0 35,513
621,684
1,682,856
100.0 35,513
621,684
488,440
2,171,296
209,338
16,388 (1)
1,527,773 (1)
582,875 (1)
2,336,374 (1)
3,938
(739)
3,199
1,658
21,858
23,516
26,715
412,346
6.1
6.5
6.1
6.7
6.9
6.9
6.7
5.7
412,346
5.7
(1) Under “Completed and Future Earnouts and Developments on Existing Properties” in the MD&A for the year ended December 31, 2022, Earnouts of $54.8 million, Developments of
$1,698.7 million and Equity Accounted Investments of $582.9 million comprise the total amount of $2,336.4 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 4.5%, 5.4%, 3.5%, and 5.3%, respectively.
(4) Represents net liability currently recorded.
28 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2022 ANNUAL REPORT
32
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2022 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, 2022.
This information should be read in conjunction with the Trust’s consolidated financial statements for the year ended
December 31, 2022.
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)
Year Ended December 31, 2022
Year Ended December 31, 2021
Proportionate
Share
Reconciliation
(1)
Total
Proportionate
Share(2)
Proportionate
Share
Reconciliation
(1)
Total
Proportionate
Share(2)
GAAP Basis
GAAP Basis
Assets
Non-current assets
Investment properties
Equity accounted investments
Mortgages, loans and notes receivable
Other financial assets
Other assets
Intangible assets
Current assets
Assets held for sale
Residential development inventory
Current portion of mortgages, loans and
notes receivable
Amounts receivable and other
Prepaid expenses, deposits and deferred
financing costs
Cash and cash equivalents
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
10,208,071
957,354
11,165,425
9,847,078
837,451
10,684,529
680,999
238,099
171,807
83,230
43,807
(680,999)
—
654,442
(654,442)
—
(76,994)
161,105
345,089
(69,576)
275,513
—
171,807
8,977
—
92,207
43,807
97,148
80,940
45,139
—
7,465
—
97,148
88,405
45,139
11,426,013
208,338
11,634,351 11,069,836
120,898
11,190,734
42,321
40,373
86,593
57,124
14,474
35,255
16,050
113,207
58,371
153,580
—
—
—
27,399
67,828
95,227
—
(7,033)
15,807
35,419
86,593
50,091
30,281
70,674
71,947
49,542
12,289
62,235
—
(8,637)
13,118
7,922
71,947
40,905
25,407
70,157
276,140
173,450
449,590
223,412
80,231
303,643
11,702,153
381,788
12,083,941 11,293,248
201,129
11,494,377
4,523,987
212,928
4,736,915
4,176,121
93,465
4,269,586
277,400
17,265
—
—
277,400
326,085
17,265
18,243
—
—
326,085
18,243
4,818,652
212,928
5,031,580
4,520,449
93,465
4,613,914
459,278
63,860
523,138
678,406
35,086
713,492
261,122
720,400
105,000
168,860
366,122
253,078
72,578
325,656
889,260
931,484
107,664
1,039,148
5,539,052
381,788
5,920,840
5,451,933
201,129
5,653,062
5,126,197
1,036,904
6,163,101
—
—
—
5,126,197
1,036,904
4,877,961
963,354
6,163,101
5,841,315
—
—
—
4,877,961
963,354
5,841,315
Total liabilities and equity
11,702,153
381,788
12,083,941 11,293,248
201,129
11,494,377
(1)
(2)
Represents the Trust’s proportionate share of assets and liabilities in equity accounted investments.
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 | 2022 ANNUAL REPORT 29
33
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2022 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, 2022
Three Months Ended
December 31, 2021
GAAP Basis
Proportionate
Share
Reconciliation
Total
Proportionate
Share(1)
GAAP Basis
Proportionate
Share
Reconciliation
Total
Proportionate
Share(1)
Variance of
Total
Proportionate
Share(1)
Net rental income and other
Rentals from investment properties and other
206,223
8,441
214,664
192,850
5,974
198,824
15,840
Property operating costs and other
(77,062)
(3,779)
(80,841)
(65,896)
(3,144)
(69,040)
(11,801)
129,161
4,662
133,823
126,954
2,830
129,784
4,039
Condo and townhome closings revenue and
other(2)
Condo and townhome cost of sales and other
—
(10)
(10)
—
(181)
(181)
—
(191)
(191)
—
—
—
—
(67)
(67)
—
(67)
(67)
—
(124)
(124)
NOI
129,151
4,481
133,632
126,954
2,763
129,717
3,915
Other income and expenses
General and administrative expense, net
Earnings from equity accounted investments
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
(7,790)
(113)
—
113
(7,790)
—
(8,703)
(534)
(9,237)
1,447
160,049
(160,049)
—
—
13,377
(1,418)
531
(40,342)
5,496
—
—
—
—
(3,846)
1,408
(738)
—
—
11,959
531
(44,188)
6,904
(738)
420,418
160,289
580,707
(568,748)
(64)
—
(64)
595
(35,654)
(1,355)
(37,009)
(7,179)
2,745
11
2,756
—
(1,125)
(1,125)
4,148
387
—
—
(10,873)
(2,791)
—
—
(10,873)
10,873
(2,791)
2,791
Net income and comprehensive income
100,310
—
100,310
652,081
—
652,081
(551,771)
(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, 2022, net income and comprehensive income (as noted in the table above)
decreased by $551.8 million as compared to the same period in 2021. This decrease was primarily attributed to the following:
•
•
$568.7 million decrease in fair value adjustments on revaluation of investment properties, including adjustments relating
to assets held for sale, primarily due to increase in fair value of certain properties under development in Q4 2021 as a
result of changes in the market and the progress made on planning entitlements (see details in the “Investment
Property” section); and
$7.2 million increase in interest expense (see further details in the “Interest Income and Interest Expense” subsection);
Partially offset by the following:
•
$10.9 million increase in fair value adjustment on financial instruments primarily due to fluctuations in the Trust’s Unit
price;
$4.1 million increase in interest income mainly due to higher interest rates;
$3.9 million increase in NOI (see further details in the “Net Operating Income” subsection);
$2.8 million decrease in acquisition-related costs related to the SmartVMC West acquisition in 2021; and
$1.4 million decrease in general and administrative expenses (net) (see further details in the “General and
Administrative Expense” section).
•
•
•
•
30 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2022 ANNUAL REPORT
34
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2022 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
Year-to-Date Comparison to Prior Year
(in thousands of dollars)
Year Ended December 31, 2022
Year Ended December 31, 2021
GAAP Basis
Proportionate
Share
Reconciliation
Total
Proportionate
Share(1) GAAP Basis
Proportionate
Share
Reconciliation
Total
Proportionate
Share(1)
Variance of
Total
Proportionate
Share(1)
Net rental income and other
Rentals from investment properties and
other
Property operating costs and other
Condo and townhome closings revenue
and other(2)
Condo and townhome cost of sales and
other
NOI
Other income and expenses
General and administrative expense, net
Earnings from equity accounted
investments
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
804,598
28,643
(301,559)
(13,467)
503,039
15,176
833,241
(315,026)
518,215
780,796
21,530
802,326
30,915
(294,956)
(9,719)
(304,675)
(10,351)
485,840
11,811
497,651
20,564
—
4,524
4,524
—
76,837
76,837
(72,313)
(435)
(435)
(3,784)
740
(4,219)
305
—
—
(56,366)
(56,366)
52,147
20,471
20,471
(20,166)
502,604
15,916
518,520
485,840
32,282
518,122
398
(33,269)
(107)
(33,376)
(31,922)
(610)
(32,532)
(844)
4,199
(4,199)
—
211,420
(211,420)
—
—
201,834
315
624
(241)
(148,702)
(7,798)
18,036
453
—
(4,648)
202,458
74
(156,500)
18,489
(4,648)
491,528
187,728
679,256
(476,798)
27
—
27
47
(144,540)
(5,437)
(149,977)
(6,523)
12,341
75
12,416
6,073
—
(2,618)
(2,618)
(2,030)
91,246
(298)
—
—
91,246
(34,227)
(298)
(2,791)
—
—
(34,227)
125,473
(2,791)
2,493
Net income and comprehensive income
635,965
—
635,965
987,676
—
987,676
(351,711)
(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, 2022, net income and comprehensive income (as noted in the table above) decreased by
$351.7 million as compared to the same period in 2021. This decrease was primarily attributed to the following:
•
•
•
$476.8 million decrease in fair value adjustments on revaluation of investment properties primarily due to increase in fair
value of certain properties under development in Q4 2021 as a result of changes in the market and the progress made
on planning entitlements (see details in the “Investment Property” section);
$6.5 million increase in interest expense (see further details in the “Interest Income and Interest Expense”); and
$2.8 million increase in supplemental costs and in general and administrative expenses (net) (see further details in the
“General and Administrative Expense” section);
Partially offset by the following:
•
$125.5 million increase in fair value adjustment on financial instruments primarily due to fluctuations in the Trust’s Unit
price and increase in fair value adjustments pertaining to interest rate swap agreements due to fluctuation in the interest
rate (see further details in the “Debt” subsection);
$6.1 million increase in interest income mainly due to higher interest rates; and
$2.5 million decrease in acquisition-related costs related to the SmartVMC West acquisition in 2021.
•
•
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2022 ANNUAL REPORT 31
35
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2022 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
Net Operating Income
The following tables summarize NOI, related ratios and recovery ratios, provide additional information, and reflect the Trust’s
proportionate share of equity accounted investments, the sum of which represent a non-GAAP measure:
Quarterly Comparison to Prior Year
(in thousands of dollars)
Three Months Ended December 31, 2022 Three Months Ended December 31, 2021
Trust portion
excluding EAI
Equity
Accounted
Investments
Total
Proportionate
Share(1)
(A)
Trust portion
excluding EAI
Equity
Accounted
Investments
Total
Proportionate
Share(1)
(B)
Variance of
Total
Proportionate
Share(1)
(A–B)
127,941
5,260
133,201
125,037
3,534
128,571
Net base rent
Property tax and insurance recoveries
Property operating cost recoveries
Miscellaneous revenue
Rentals from investment properties
Service and other revenues
Earnings from other
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)
42,833
25,552
4,979
201,305
4,547
371
206,223
(43,818)
(28,662)
(1,090)
266
792
807
1,574
1,171
8,812
—
(371)
8,441
(755)
(1,311)
(314)
(1,317)
(82)
(72,512)
(3,779)
(4,550)
—
(77,062)
(3,779)
4,630
8,113
4,496
43,640
27,126
6,150
35,020
21,670
7,479
507
960
973
35,527
22,630
8,452
(2,302)
210,117
189,206
5,974
195,180
14,937
4,547
—
3,606
38
—
—
3,606
38
941
(38)
214,664
192,850
5,974
198,824
15,840
(44,573)
(29,973)
(1,404)
(1,051)
710
(76,291)
(4,550)
(80,841)
(36,015)
(25,165)
(586)
(2,094)
1,603
(547)
(36,562)
(1,051)
(26,216)
(215)
(1,273)
(58)
(801)
(3,367)
1,545
(8,011)
(3,757)
(603)
2,316
(835)
(62,257)
(3,144)
(65,401)
(10,890)
(3,639)
—
(3,639)
(911)
(65,896)
(3,144)
(69,040)
(11,801)
Net rental income and other
129,161
4,662
133,823
126,954
2,830
129,784
4,039
Condo and townhome closings revenue
Condo and townhome cost of sales
Marketing and selling costs
Net profit on condo and townhome closings
—
—
(10)
(10)
—
(181)
—
(181)
—
(181)
(10)
(191)
—
—
—
—
—
—
(67)
(67)
—
—
(67)
(67)
—
(181)
57
(124)
NOI(3)
129,151
4,481
133,632
126,954
2,763
129,717
3,915
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) (%)
101.0
88.6
100.5
101.5
80.1
100.9
64.2
52.9
63.7
67.1
47.4
66.5
62.6
55.2
94.4
115.2
91.5
132.8
62.3
94.9
92.7
65.8
47.4
65.3
92.7
91.8
92.6
92.6
114.9
93.0
(0.4)
(2.8)
(3.0)
2.3
(0.3)
(1)
(2)
(3)
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, 2022 and December 31, 2021. 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”.
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, 2022 increased by $3.9 million or 3.0% as compared to the same period in 2021.
This increase was primarily attributed to the following:
•
•
$4.6 million net increase in base rent, of which: i) $1.8 million relates to the acquisition of an additional interest in
investment properties in Q1 2022, ii) $1.3 million relates to self-storage facility and apartment rentals, iii) $0.4 million
relates to the Premium Outlet locations in both Toronto and Montreal, and iv) $1.1 million relates to other properties with
lease-up, higher short-term and parking revenue; and
$2.3 million decrease in non-recoverable operating costs mainly due to vaccination centre expenses;
Partially offset by the following:
•
$2.3 million decrease in miscellaneous revenue mainly due to lower lease termination revenue.
32 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2022 ANNUAL REPORT
36
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2022 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
Year-to-Date Comparison to Prior Year
(in thousands of dollars)
Year Ended December 31, 2022
Year Ended December 31, 2021
Net base rent
Property tax and insurance recoveries
Property operating cost recoveries
Miscellaneous revenue
Trust portion
excluding EAI
Equity
Accounted
Investments
Total
Proportionate
Share(1)
Trust portion
excluding EAI
Equity
Accounted
Investments
Total
Proportionate
Share(1)
Variance of
Total
Proportionate
Share(1)
(A)
(B)
(A–B)
508,023
171,874
93,407
15,393
18,378
526,401
494,992
13,098
508,090
18,311
3,029
4,681
3,804
174,903
169,180
2,354
171,534
3,369
98,088
19,197
83,852
17,891
3,389
2,689
87,241
10,847
20,580
(1,383)
Rentals from investment properties
788,697
29,892
818,589
765,915
21,530
787,445
31,144
Service and other revenues
Earnings from other
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
14,652
1,249
804,598
(176,876)
(102,721)
(4,288)
(6,465)
3,448
(1,249)
28,643
(3,042)
(4,535)
(1,004)
(4,695)
(191)
—
14,652
14,843
—
38
—
—
14,843
38
(191)
(38)
833,241
780,796
21,530
802,326
30,915
(179,918)
(176,239)
(2,360)
(178,599)
(1,319)
(107,256)
(91,468)
(3,364)
(94,832)
(12,424)
(5,292)
(11,160)
3,257
(1,469)
(7,246)
(3,652)
(688)
(2,157)
(3,253)
(10,499)
(54)
(3,706)
(3,135)
(661)
6,963
Property operating costs
(286,902)
(13,467)
(300,369)
(280,074)
(9,719)
(289,793)
(10,576)
Other expenses
Property operating costs and other(2)
(14,657)
—
(14,657)
(14,882)
—
(14,882)
225
(301,559)
(13,467)
(315,026)
(294,956)
(9,719)
(304,675)
(10,351)
Net rental income and other
503,039
15,176
518,215
485,840
11,811
497,651
20,564
Condo and townhome closings revenue
Condo and townhome cost of sales
Marketing and selling costs
Net profit on condo and townhome closings
—
—
(435)
(435)
4,524
(3,295)
(489)
740
4,524
(3,295)
(924)
305
—
—
—
—
76,837
76,837
(72,313)
(56,102)
(56,102)
52,807
(264)
(264)
(660)
20,471
20,471
(20,166)
NOI(3)
502,604
15,916
518,520
485,840
32,282
518,122
398
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) (%)
99.0
82.6
63.8
50.8
62.5
53.0
94.9
101.8
94.2
100.9
98.4
63.3
62.2
95.1
94.4
98.1
90.2
97.9
63.4
54.9
63.2
62.2
54.9
62.0
94.5
100.3
94.6
0.5
0.1
0.2
0.5
94.6
103.3
94.8
(0.4)
(1)
(2)
(3)
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, 2022 and December 31, 2021. 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”.
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 year ended December 31, 2022 increased by $0.4 million or 0.1% as compared to the same period in 2021. This
increase was primarily attributed to the following:
•
•
$18.3 million net increase in base rent, of which: i) $6.0 million relates to the acquisition of an additional interest in
investment properties in Q1 2022, ii) $3.9 million relates to self-storage facility and apartment rentals, iii) $2.1 million
relates to the Premium Outlet locations in both Toronto and Montreal, and iv) $6.3 million relates to other properties with
lease-up, higher short-term and parking revenue, and lower rent abatements provided in the comparable period; and
$7.0 million decrease in expected credit losses principally due to settlement of certain tenant receivables; and
Partially offset by the following:
•
•
•
$20.1 million decrease in net profit on condo and townhome unit closings;
$3.1 million increase in property management fees and costs; and
$1.4 million decrease in miscellaneous revenue mainly due to lower lease termination revenue.
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2022 ANNUAL REPORT 33
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MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2022 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
Same Properties NOI
NOI (a non-GAAP financial measure) from continuing operations represents: i) rentals from investment properties and other
revenues less property operating costs and other expenses, and ii) net profit from condominium sales. Disclosing the NOI
contribution from each of same properties, acquisitions, dispositions, Earnouts and Development activities highlights the impact
each component has on aggregate NOI. Straight-line rent, lease terminations and other adjustments, and amortization of tenant
incentives have been excluded from Same Properties NOI, as have NOI from acquisitions, dispositions, Earnouts and
Development activities, and ECL. This has been done in order to more directly highlight the impact of changes in occupancy, rent
uplift and productivity.
Quarterly Comparison to Prior Year
(in thousands of dollars)
Net rental income
Service and other revenues
Other expenses
NOI(1)
NOI from equity accounted investments(1)
Total portfolio NOI before adjustments(1)
Adjustments:
Royalties
Straight-line rent
Lease termination and other adjustments
Net profit on condo and townhome closings(3)
Amortization of tenant incentives
Total portfolio NOI after adjustments(1)
NOI sourced from:
Acquisitions
Dispositions
Earnouts and Developments
Same Properties NOI(1)
Add back: ECL
Same Properties NOI excluding ECL(1)
Three Months Ended
Three Months Ended
December 31, 2022
December 31, 2021
Variance ($)
Variance (%)
129,154
4,547
(4,550)
129,151
4,481
133,632
299
(34)
(82)
190
2,026
136,031
(2,161)
3
(384)
133,489
(710)
132,779
126,987
3,606
(3,639)
126,954
2,763
129,717
285
(154)
(3,476)
108
1,725
128,205
451
(280)
—
128,376
(1,545)
126,831
2,167
941
(911)
2,197
1,718
3,915
14
120
3,394
82
301
7,826
(2,612)
283
(384)
5,113
835
5,948
1.7
26.1
25.0
1.7
62.2
3.0
4.9
(77.9)
N/R(2)
75.9
17.4
6.1
N/R(2)
(101.1)
N/R(2)
4.0
(54.0)
4.7
(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.
Includes marketing costs.
“Same Properties” in the table above refers to those income properties that were owned by the Trust from October 1, 2021 to
December 31, 2021 and from October 1, 2022 to December 31, 2022.
The Same Properties NOI for the three months ended December 31, 2022 increased by $5.1 million or 4.0% as compared to the
same period in 2021, which was primarily due to the following:
•
•
$3.5 million increase in rental revenue mainly attributable to: i) $0.9 million higher retail rental revenue and percentage
rent principally due to the Premium Outlet locations in both Toronto and Montreal, ii) $2.2 million increase in other
properties due to lease-up, higher short-term and parking revenue, and iii) $0.4 million higher self-storage facility rental
revenue; and
$1.7 million decrease in non-recoverable operating costs primarily due to lower vaccination centre expenses.
Excluding the impact of ECL, Same Properties NOI would have been $132.8 million representing an increase of $5.9 million or
4.7% as compared to the same period in 2021.
34 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2022 ANNUAL REPORT
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MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2022 ANNUAL REPORT
Year-to-Date Comparison to Prior Year
(in thousands of dollars)
Net rental income
Service and other revenues
Other expenses
NOI(1)
NOI from equity accounted investments(1)
Total portfolio NOI before adjustments(1)
Adjustments:
Royalties
Straight-line rent
Lease termination and other adjustments
Net profit on condo and townhome closings(3)
Amortization of tenant incentives
Total portfolio NOI after adjustments(1)
Less NOI sourced from:
Acquisitions
Dispositions
Earnouts and Developments
Same Properties NOI(1)
Add back: ECL
Same Properties NOI excluding ECL(1)
MANAGEMENT’S DISCUSSION AND ANALYSIS
Year Ended
Year Ended
December 31, 2022
December 31, 2021
Variance ($)
Variance (%)
502,609
14,652
(14,657)
502,604
15,916
518,520
1,115
(437)
(214)
(242)
7,646
526,388
(7,835)
(9)
(4,300)
514,244
(3,257)
510,987
485,879
14,843
(14,882)
485,840
32,282
518,122
960
(883)
(5,240)
(20,425)
7,614
500,148
524
(1,744)
(1,142)
497,786
3,706
501,492
16,730
(191)
225
16,764
(16,366)
398
155
446
5,026
20,183
32
26,240
(8,359)
1,735
(3,158)
16,458
(6,963)
9,495
3.4
(1.3)
1.5
3.5
(50.7)
0.1
16.1
(50.5)
(95.9)
(98.8)
0.4
5.2
N/R(2)
(99.5)
N/R(2)
3.3
N/R(2)
1.9
(1)
(2)
(3)
Represents a non-GAAP measure. The Trust’s method of calculating non-GAAP measures may differ from other reporting issuers’ methods and, accordingly, may not be comparable. For
definitions and basis of presentation of the Trust’s non-GAAP measures, refer to “Presentation of Certain Terms Including Non-GAAP Measures” and “Non-GAAP Measures”.
N/R – Not representative.
Includes marketing costs.
“Same Properties” in the table above refers to those income properties that were owned by the Trust from January 1, 2021 to
December 31, 2021 and from January 1, 2022 to December 31, 2022.
The Same Properties NOI for the year ended December 31, 2022 increased by $16.5 million or 3.3% as compared to the same
period in 2021, which was primarily due to the following:
•
•
$11.4 million increase in rental revenue mainly attributable to: i) $4.7 million higher retail rental revenue and percentage
rent due principally to the Premium Outlet locations in both Toronto and Montreal, ii) $5.5 million increase in other
properties due to lease-up, higher short-term and parking revenue, and iii) $1.2 million higher self-storage facility rental
revenue; and
$7.0 million decrease in expected credit losses, which was higher in the comparative period to reflect the continued
impact of the COVID-19 pandemic;
Partially offset by the following:
•
$1.9 million increase in non-recoverable operating costs primarily due to management fees, costs related to marketing
and non-retail expenses from self-storage properties and apartments.
Excluding the impact of ECL, Same Properties NOI would have been $511.0 million representing an increase of $9.5 million or
1.9% as compared to the same period in 2021.
Due to the various uncertainties pertaining to the COVID-19 pandemic, management is unable to reliably and accurately predict
the impact it will have on certain aspects of results of operations, including Annual Run-Rate NOI and the related sensitivity
analysis at this time.
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2022 ANNUAL REPORT 35
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MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2022 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
Adjusted EBITDA
The following table presents a reconciliation of net income and comprehensive income to Adjusted EBITDA:
(in thousands of dollars)
Net income and comprehensive income
Add (deduct) the following items:
Interest expense
Interest income
Amortization of equipment and intangible assets
Amortization of tenant improvements
Fair value adjustments on revaluation of investment properties
Fair value adjustments on revaluation of financial instruments
Fair value adjustment on TRS
Adjustment for supplemental costs
Gain on sale of investment properties
Gain on sale of land to co-owners (Transactional FFO)
Acquisition-related costs
Adjusted EBITDA(1)
Less: Condo and townhome closings
Add: ECL
12 Months Ended
12 Months Ended
December 31, 2022
December 31, 2021
635,965
987,676
Variance ($)
(351,711)
156,500
(18,036)
3,604
7,474
(202,458)
(91,246)
(4,918)
4,648
(74)
—
298
491,757
(305)
(3,257)
149,977
(12,341)
3,778
7,872
(679,256)
34,227
5,642
2,618
(27)
1,923
2,791
504,880
(20,471)
3,706
6,523
(5,695)
(174)
(398)
476,798
(125,473)
(10,560)
2,030
(47)
(1,923)
(2,493)
(13,123)
20,166
(6,963)
Adjusted EBITDA excluding condo and townhome closings and
ECL(1)
488,195
488,115
80
(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”.
36 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2022 ANNUAL REPORT
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MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2022 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, 2022 and December 31, 2021, unless otherwise stated, do
not include any assumptions and 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 January
2022. 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 following tables present FFO excluding anomalous transactions:
(in thousands of dollars)
FFO with adjustments(1)
Adjusted for:
ECL
Three Months Ended December 31
Year Ended December 31
2022
2021 Variance ($)
2022
2021 Variance ($)
100,561
98,112
2,449 372,228 383,296
(11,068)
(710)
(1,545)
835
(3,257)
3,706
(6,963)
Loss (gain) on derivative – TRS
(6,221)
(4,180)
(2,041)
4,918
(5,642)
FFO sourced from condominium and townhome closings
FFO sourced from SmartVMC West acquisition
180
(371)
66
—
114
(371)
(680)
(18,747)
(984)
—
(984)
10,560
18,067
FFO with adjustments excluding impact of ECL, TRS,
condominium and townhome closings, and SmartVMC West
acquisition(1)
93,439
92,453
986 372,225 362,613
9,612
(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”.
Per Unit Information (Basic/Diluted)
FFO with adjustments(1)
FFO with adjustments and Transactional FFO(1)
FFO with adjustments excluding impact of ECL,
TRS, condominium and townhome closings, and
SmartVMC West acquisition(1)
Three Months Ended December 31
Year Ended December 31
2022
2021
Variance ($)
2022
2021 Variance ($)
$0.56/$0.56
$0.57/$0.56
$-0.01/$0.00
$2.09/$2.07
$2.22/$2.21 $-0.13/$-0.14
$0.61/$0.60
$0.57/$0.56
0.04/0.04
$2.13/$2.11
$2.23/$2.22
-0.10/-0.11
$0.54/$0.54
$0.54/$0.53
$0.00/$0.01
$2.16/$2.14
$2.10/$2.09
$0.06/$0.05
(1)
Represents a non-GAAP measure. The Trust’s method of calculating non-GAAP measures may differ from other reporting issuers’ methods and, accordingly, may not be comparable. For
definitions and basis of presentation of the Trust’s non-GAAP measures, refer to “Presentation of Certain Terms Including Non-GAAP Measures” and “Non-GAAP Measures”.
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2022 ANNUAL REPORT 37
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MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2022 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
The tables and analyses below illustrate a reconciliation of the Trust’s net income and comprehensive income (GAAP measures)
to FFO (non-GAAP measures).
Quarterly Comparison to Prior Year
(in thousands of dollars, except per Unit amounts)
December 31, 2022
December 31, 2021
Variance ($) Variance (%)
Net income and comprehensive income
100,310
652,081
(551,771)
(84.6)
Three Months Ended
Three Months Ended
Add (deduct):
Fair value adjustment on revaluation of investment
properties(1)
Fair value adjustment on financial instruments(2)
(Loss) gain on derivative – TRS
Loss (gain) on sale of investment properties
Amortization of intangible assets
Amortization of tenant improvement allowance and other
Distributions on Units classified as liabilities recorded as
interest expense
Distributions on 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)
Fair value adjustment on revaluation of investment
properties
Adjustment for supplemental costs
FFO(5)
Other non-recurring adjustments(6)
FFO with adjustments(5)
Transactional FFO – gain on sale of land to co-owners
FFO with adjustments and Transactional FFO(5)
(13,377)
(420,418)
407,041
—
6,221
(531)
333
2,005
1,083
724
1,514
—
98
1,935
1,418
738
102,471
(1,910)
100,561
7,662
108,223
10,873
4,180
64
333
1,608
1,008
1,045
1,063
2,791
(10,873)
2,041
(595)
—
397
75
(321)
451
(2,791)
62
1,926
36
9
(160,289)
161,707
1,125
97,452
660
98,112
336
98,448
(387)
5,019
(2,570)
2,449
7,326
9,775
(96.8)
N/R(7)
48.8
N/R(7)
—
24.7
7.4
(30.7)
42.4
N/R(7)
58.1
0.5
N/R(7)
(34.4)
5.2
N/R(7)
2.5
N/R(7)
9.9
(1)
(2)
(3)
(4)
(5)
(6)
(7)
Fair value adjustment on revaluation of investment properties is described in “Investment Properties”.
Fair value adjustment on financial instruments comprises the following financial instruments: units classified as liabilities, Earnout options, deferred unit plan (“DUP”), equity incentive plan
(“EIP”), long term incentive plan (“LTIP”), TRS, interest rate swap agreement(s), and loans receivable and Earnout options recorded in the same period in 2021. 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, 2022. For details, please see discussion in “Results of Operations” above.
Salaries and related costs attributed to leasing activities of $1.5 million were incurred in the three months ended December 31, 2022 (three months ended December 31, 2021 – $1.1
million) and were eligible to be added back to FFO based on the definition of FFO, in the REALpac White Paper published in January 2022, 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 $1.9 million of reversal of costs associated with COVID-19 vaccination centres (three months ended December 31, 2021 – $0.7 million of costs
associated with COVID-19 vaccination centres).
N/R – Not representative.
For the three months ended December 31, 2022, FFO increased by $5.0 million or 5.2% to $102.5 million. This increase was
primarily attributed to: ;
•
•
•
•
$4.1 million increase in interest income;
$3.9 million increase in NOI (see details in the “Net Operating Income” subsection);
$2.0 million decrease in net general and administrative expense; and
$2.0 million increase in gain on TRS resulting from fluctuations in the Trust’s Unit price;
Partially offset by:
•
$7.2 million net increase in interest expense.
38 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2022 ANNUAL REPORT
42
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2022 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the three months ended December 31, 2022, FFO with adjustments increased by $2.4 million or 2.5% to $100.6 million as
compared to the same period in 2021, which was primarily due to the items previously identified plus the $2.6 million decrease in
the other adjustments.
The following table presents per Unit FFO and per Unit FFO with certain adjustments (non-GAAP measure):
Three Months Ended Three Months Ended
December 31, 2021
December 31, 2022
Variance ($)
Variance (%)
Per Unit – basic/diluted(1):
FFO(2)
FFO excluding impact of TRS(2)
FFO with adjustments(2)
FFO with adjustments and Transactional FFO(2)
FFO with adjustments excluding impact of ECL, TRS,
condominium and townhome closings, and
SmartVMC West acquisition(2)(3)
$0.58/$0.57
$0.54/$0.54
$0.56/$0.56
$0.61/$0.60
$0.56/$0.56
0.02/0.01
$0.54/$0.54
—/—
$0.57/$0.56
-0.01/—
$0.57/$0.56
0.04/0.04
3.6/1.8
—/—
-1.8/—
7.0/7.1
$0.54/$0.54
$0.54/$0.53
—/0.01
—/1.9
(1)
(2)
(3)
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, 2022, 1,567,944 vested deferred units are added back to the weighted
average Units outstanding (three months ended December 31, 2021 – 1,397,164 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”.
For the three months ended December 31, 2022, FFO with adjustments excludes the earnings from SmartVMC West of $0.4 million, and the per Unit calculation excludes the
corresponding 5,797,101 SmartVMC West LP Class D Units (three months ended December 31, 2021 – 693,131 SmartVMC West LP Class D Units).
Year-to-Date Comparison to Prior Year
(in thousands of dollars, except per Unit amounts)
Net income and comprehensive income
Add (deduct):
Fair value adjustment on revaluation of investment properties(1)
Fair value adjustment on financial instruments(2)
(Loss) gain on derivative – TRS
Loss (gain) on sale of investment properties
Amortization of intangible assets
Amortization of tenant improvement allowance and other
Distributions on Units classified as liabilities recorded as
interest expense
Distributions on vested deferred units recorded as interest
expense
Adjustment on debt modification
Salaries and related costs attributed to leasing activities(3)
Acquisition-related costs
Adjustments relating to equity accounted investments:
Rental revenue adjustment – tenant improvement
amortization
Indirect interest with respect to the development portion(4)
Adjustment to capitalized interest with respect to Transit City
condo closings(4)
Fair value adjustment on revaluation of investment
properties
Loss on sale of investment properties
Adjustment for supplemental costs
FFO(5)
Other non-recurring adjustments(6)
FFO with adjustments(5)
Transactional FFO – gain on sale of land to co-owners
FFO with adjustments and Transactional FFO(5)
Year Ended
December 31, 2022
Year Ended
December 31, 2021
Variance ($) Variance (%)
635,965
987,676
(351,711)
(35.6)
(201,834)
(91,246)
(4,918)
(315)
1,332
7,203
4,293
2,847
(1,960)
7,508
298
387
7,747
—
(624)
241
4,648
371,572
656
372,228
7,662
379,890
(491,528)
289,694
34,227
(125,473)
5,642
(10,560)
(271)
1,331
7,038
3,919
2,424
—
5,196
2,791
360
7,050
(675)
(44)
1
165
374
423
(1,960)
2,312
(2,493)
27
697
675
(187,728)
187,104
—
2,618
380,070
3,226
241
2,030
(8,498)
(2,570)
383,296
(11,068)
1,923
385,219
5,739
(5,329)
(58.9)
N/R(7)
N/R(7)
16.2
0.1
2.3
9.5
17.5
N/R(7)
44.5
(89.3)
7.5
9.9
N/R(7)
(99.7)
N/R(7)
77.5
(2.2)
(79.7)
(2.9)
N/R(7)
(1.4)
(1)
(2)
(3)
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 2021. 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, 2022. For details, please see discussion in
“Results of Operations” above.
Salaries and related costs attributed to leasing activities of $7.5 million were incurred in the year ended December 31, 2022 (year ended December 31, 2021 – $5.2 million) and were
eligible to be added back to FFO based on the definition of FFO, in the REALpac White Paper published in January 2022, which provided for an adjustment to incremental leasing
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2022 ANNUAL REPORT 39
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MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2022 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
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 $0.7 million of costs associated with COVID-19 vaccination centres (year ended December 31, 2021 – $0.9 million of compensation costs relating to
previous CEO and $2.3 million of costs associated with COVID-19 vaccination centres).
N/R – Not representative.
(4)
(5)
(6)
(7)
For the year ended December 31, 2022, FFO decreased by $8.5 million or 2.2% to $371.6 million. This decrease was primarily
attributed to:
•
•
$10.6 million decrease in gain on TRS resulting from fluctuations in the Trust’s Unit price; and
$20.2 million decrease in Net Condo and townhome closing income;
Partially offset by:;
•
$20.6 million increase in Net Rental Income from investment properties.
For the year ended December 31, 2022, FFO with adjustments decreased by $11.1 million or 2.9% to $372.2 million as
compared to the same period in 2021, which was primarily due to the items previously identified.
The following table presents per Unit FFO and per Unit FFO with certain adjustments (non-GAAP measure):
Per Unit – basic/diluted(1):
FFO(2)
FFO excluding impact of TRS(2)
FFO with adjustments(2)
FFO with adjustments and Transactional FFO(2)
FFO with adjustments excluding impact of ECL, TRS,
condominium and townhome closings, and SmartVMC
West acquisition(2)(3)
Year Ended
Year Ended
December 31, 2022 December 31, 2021
Variance ($) Variance (%)
$2.09/$2.07
$2.11/$2.10
$2.09/$2.07
$2.13/$2.11
$2.20/$2.19
-0.11/-0.12
$2.17/$2.16
-0.06/-0.06
$2.22/$2.21
-0.13/-0.14
$2.23/$2.22
-0.10/-0.11
-5.0/-5.5
-2.8/-2.8
-5.9/-6.3
-4.5/-5.0
$2.16/$2.14
$2.10/$2.09
0.06/0.05
2.9/2.4
(1)
(2)
(3)
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, 2022, 1,536,306 vested deferred units are added back to the weighted average
Units outstanding (year ended December 31, 2021 – 1,301,485 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”.
For the year ended December 31, 2022, FFO with adjustments excludes the earnings from SmartVMC West of $1.0 million, and the per Unit calculation excludes the corresponding
5,797,101 SmartVMC West LP Class D Units (year ended December 31, 2021 – 174,707 SmartVMC West LP Class D Units).
40 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2022 ANNUAL REPORT
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MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2022 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,
2022 and December 31, 2021, 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 including and excluding SmartVMC West LP
Class D Units 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
Three Months Ended December 31
Year Ended December 31
2022
2021
Variance
2022
2021
Variance
144,625,322 144,621,347
3,975 144,625,322 144,619,385
16,424,430 16,424,430
— 16,424,430 16,419,964
311,022
311,022
8,708
8,708
756,525
756,525
—
—
—
311,022
311,022
8,708
8,708
756,525
756,525
4,057,948
4,039,184
18,764
4,052,908
4,034,079
3,112,565
3,093,910
18,655
3,109,754
3,087,565
710,416
260,417
374,223
710,416
260,417
374,223
—
—
—
710,416
260,417
374,223
710,416
260,417
374,223
5,937
4,466
—
—
—
18,829
22,189
—
—
—
Class D Series 1 VMC West LP Units
Class D Series 2 VMC West LP Units
(A)
(B)
3,623,188
433,207
3,189,981
3,623,188
109,192
3,513,996
2,173,913
259,924
1,913,989
2,173,913
65,515
2,108,398
Class B Boxgrove LP Units
Class B Series ONR LP Units
Class B Series 1 ONR LP I Units
Class B Series 2 ONR LP I Units
Total Exchangeable LP Units
Total Units – Basic
Vested deferred units
Total Units and vested deferred
units – Diluted
170,000
170,000
1,248,140
1,248,140
132,881
139,302
132,881
139,302
—
—
—
—
170,000
170,000
1,248,140
1,248,140
132,881
139,302
132,881
139,302
—
—
—
—
33,503,678 28,362,289
5,141,389 33,495,827 27,827,949
5,667,878
(C)
178,129,000 172,983,636
5,145,364 178,121,149 172,447,334
5,673,815
1,567,944
1,397,164
170,780
1,536,306
1,301,485
234,821
(D)
179,696,944 174,380,800
5,316,144 179,657,455 173,748,819
5,908,636
Total Units excluding SmartVMC
West LP Class D Units – Basic
(E = C -
A - B)
Total Units and vested deferred
units excluding SmartVMC West
LP Class D Units – Diluted
(F = D -
A - B)
172,331,899 172,290,505
41,394 172,324,048 172,272,627
51,421
173,899,843 173,687,669
212,174 173,860,354 173,574,112
286,242
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2022 ANNUAL REPORT 41
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MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2022 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 published 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 and 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 following table presents ACFO excluding anomalous transactions:
(in thousands of dollars)
ACFO with adjustments(1)
Adjusted for:
Three Months Ended December 31
Year Ended December 31
2022
2021 Variance ($)
2022
2021 Variance ($)
91,081
83,973
7,108 340,731 356,281
(15,550)
Loss (gain) on derivative – TRS
(6,221)
(4,180)
(2,041)
4,918
(5,642)
10,560
ACFO sourced from condominium and townhome closings
ACFO sourced from SmartVMC West acquisition
191
(371)
67
—
124
(305)
(20,471)
20,166
(371)
(984)
—
(984)
ACFO with adjustments excluding impact of TRS, condominium
and townhome closings, and SmartVMC West acquisition(1)
84,680
79,860
4,820 344,360 330,168
14,192
(1)
Represents a non-GAAP measure. The Trust’s method of calculating non-GAAP measures may differ from other reporting issuers’ methods and, accordingly, may not be comparable. For
definitions and basis of presentation of the Trust’s non-GAAP measures, refer to “Presentation of Certain Terms Including Non-GAAP Measures” and “Non-GAAP Measures”.
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MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2022 ANNUAL REPORT
The tables and analyses below illustrate a reconciliation of the Trust’s cash flows provided by operating activities (GAAP
measure) to ACFO (non-GAAP measure).
MANAGEMENT’S DISCUSSION AND ANALYSIS
Three Months Ended
December 31, 2022
Three Months Ended
December 31, 2021
Variance ($)/
(%)
994
133,674
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 recorded as interest expense
Distributions on 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)
Actual sustaining capital and leasing expenditures
Non-cash interest expense
ACFO(3)
Other non-recurring adjustments(4)
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)
Payout Ratio to ACFO with adjustments excluding impact of TRS,
condominium and townhome closings, and SmartVMC West
acquisition(3)(5)
134,668
(35,451)
1,083
724
3,108
(646)
(11,434)
(800)
(2,587)
10,238
(29,571)
—
7,662
12,406
1,658
1,935
1
(3)
92,991
(1,910)
91,081
92,991
82,386
10,605
88.6 %
90.5 %
94.1 %
(48,678)
13,227
1,008
1,045
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
75
(321)
1,058
(646)
(1,111)
(58)
(1,370)
644
(22,461)
(2,791)
7,326
13,138
1,894
9
104
(33)
9,678
(2,570)
7,108
9,678
2,661
7,017
95.7 %
94.9 %
(7.1) %
(4.4) %
99.8 %
(5.7) %
(1)
(2)
(3)
(4)
(5)
Adjustments to working capital items include, but are not limited to, changes in prepaid expenses and deposits, accounts receivables, accounts payables and other working capital items
that are not indicative of sustainable cash available for distribution.
See the “Indirect interest with respect to the development portion” as presented in the “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 $1.9 million of reversal of costs associated with COVID-19 vaccination centres (three months ended December 31, 2021 – $0.7 million of costs
associated with COVID-19 vaccination centres).
For the three months ended December 31, 2022, excludes $2.7 million of distributions declared in connection with SmartVMC West LP Class D Units (three months ended December 31,
2021 – $0.04 million).
For the three months ended December 31, 2022, ACFO with adjustments increased by $7.1 million, which was primarily due to
the increase of FFO with adjustments and Transactional FFO, offset by increases in actual sustaining capital expenditures,
leasing commissions and tenant improvements.
The Payout Ratio to ACFO for the three months ended December 31, 2022 decreased by 7.1% to 88.6% as compared to the
same period in 2021, which was primarily due to the items previously identified. The Payout Ratio to ACFO with adjustments
excluding impact of TRS, condominium and townhome closings, and the SmartVMC West acquisition for the three months ended
December 31, 2022 decreased by 5.7% to 94.1% as compared to the same period in 2021.
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2022 ANNUAL REPORT 43
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MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2022 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
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 recorded as interest expense
Distributions on 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 capitalized interest with respect to Transit City condo
closings(2)
Actual sustaining capital and leasing expenditures
Non-cash interest expense
ACFO(3)
Other non-recurring adjustments(4)
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)
Payout Ratio to ACFO with adjustments excluding impact of TRS,
condominium and townhome closings, and SmartVMC West acquisition(3)(5)
Year Ended
December 31, 2022
Year Ended
December 31, 2021
370,762
371,624
Variance ($)/
(%)
(862)
(2,293)
4,293
2,847
9,860
1,897
(19,111)
(2,389)
(7,796)
(9,156)
(26,083)
298
7,662
(4,784)
6,662
7,747
—
(329)
(12)
340,075
656
340,731
340,075
329,531
10,544
(40,796)
38,503
3,919
2,424
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
374
423
3,933
1,167
(1,780)
682
(4,893)
(16,316)
(20,776)
(2,493)
5,739
(712)
(17,157)
697
675
(122)
(62)
(12,980)
(2,570)
(15,550)
(12,980)
10,778
(23,758)
96.9 %
96.7 %
92.6 %
90.3 %
89.5 %
6.6 %
7.2 %
96.5 %
(3.9) %
(1)
(2)
(3)
(4)
(5)
Adjustments to working capital items include, but are not limited to, changes in prepaid expenses and deposits, accounts receivables, accounts payables and other working capital items
that are not indicative of sustainable cash available for distribution.
See the “Indirect interest with respect to the development portion” as presented in the “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 $0.7 million of costs associated with COVID-19 vaccination centres (year ended December 31, 2021 – $0.9 million of compensation costs relating to
previous CEO, and $2.3 million of costs associated with COVID-19 vaccination centres).
For the year ended December 31, 2022, excludes $10.7 million of distributions declared in connection with SmartVMC West LP Class D Units (year ended December 31, 2021 – $0.04
million).
For the year ended December 31, 2022, ACFO with adjustments decreased by $15.6 million, which was primarily due to the
decrease of FFO with adjustments and Transactional FFO as well as increases in actual sustaining capital expenditures, leasing
commissions and tenant improvements, and other.
The Payout Ratio to ACFO for the year ended December 31, 2022 increased by 6.6% to 96.9% as compared to the same period
in 2021, which was primarily due to the items previously identified. The Payout Ratio to ACFO with adjustments excluding impact
of TRS, condominium and townhome closings, and the SmartVMC West acquisition for the year ended December 31, 2022
decreased by 3.9% to 92.6% as compared to the same period in 2021.
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MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2022 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, 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 capital
requirements. Accordingly, the Trust does not use IFRS net income and comprehensive income as a proxy for distributions.
Distributions and ACFO Highlights
(in thousands of dollars)
2022
2021 Variance ($)
2022
2021 Variance ($)
Three Months Ended December 31
Year Ended December 31
Cash flows provided by operating activities
134,668
133,674
994 370,762
371,624
Distributions declared
ACFO(1)
Surplus of cash flows provided by operating activities over
distributions declared
Surplus of ACFO over distributions declared
Cash flows provided by operating activities excluding
impact of SmartVMC West LP
Distributions declared excluding impact of SmartVMC
West LP Class D distributions
ACFO excluding impact of SmartVMC West LP(1)
Surplus of cash flows provided by operating activities over
distributions declared excluding impact of SmartVMC
West LP Class D distributions
Surplus of ACFO over distributions declared excluding
impact of SmartVMC West LP Class D distributions
82,386
92,991
52,282
10,605
79,725
83,313
53,949
3,588
2,661 329,531
318,753
9,678 340,075
353,055
(1,667)
41,231
7,017
10,544
52,871
34,302
(862)
10,778
(12,980)
(11,640)
(23,758)
134,297
133,674
623 369,778
371,624
(1,846)
79,705
92,620
79,687
83,313
18 318,806
318,715
91
9,307 339,091
353,055
(13,964)
54,592
53,987
605
50,972
52,909
(1,937)
12,915
3,626
9,289
20,285
34,340
(14,055)
(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 three months and year ended December 31, 2022, there was a surplus of cash flows provided by operating activities
over distributions declared, and a surplus of ACFO over distributions declared.
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49
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2022 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
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 rolling 24 months ended December 31, 2022 and December 31, 2021:
(in thousands of dollars)
Cash flows provided by operating activities
Distributions declared
ACFO(1)
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)
Cash flows provided by operating activities excluding impact of SmartVMC West LP
Distributions declared excluding impact of SmartVMC West LP Class D distributions
ACFO excluding impact of SmartVMC West LP(1)
Surplus of cash provided by operating activities over distributions declared excluding
impact of SmartVMC West LP Class D distributions
Surplus of ACFO over distributions declared excluding impact of SmartVMC West LP
Class D distributions
Payout Ratio to Cash flows provided by operating activities excluding impact of
SmartVMC West LP Class D Units
Payout Ratio to ACFO excluding impact of SmartVMC West LP Class D Units(1)
(A)
(B)
(C)
(A – B)
(C – B)
(D)
(E)
(F)
(D – E)
(F – E)
Rolling 24 Months Ended
December 31, 2022
December 31, 2021
750,092
648,282
693,132
101,810
44,850
86.4 %
93.5 %
749,108
637,557
692,148
111,551
54,591
85.1 %
92.1 %
667,606
637,511
706,464
30,095
68,953
95.5 %
90.2 %
667,606
637,511
706,464
30,095
68,953
95.5 %
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”.
46 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2022 ANNUAL REPORT
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MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2022 ANNUAL REPORT
General and Administrative Expense
The following tables summarize general and administrative expense before allocation, and general and administrative expense,
net (as presented in the consolidated statements of income and comprehensive income for the year ended December 31, 2022):
MANAGEMENT’S DISCUSSION AND ANALYSIS
Note(1)
December 31, 2022 December 31, 2021 Variance ($)
Year Ended
Year Ended
61,833
54,260
7,573
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(2)
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
Time billings, leasing, management fees, development fees
and other fees
Shared service costs charged to Penguin
Total amounts charged
20
8
20
20
(A)
(B)
(C)
8,192
3,582
7,416
6,172
1,343
1,332
10,655
479
101,004
60
332
8,095
3,990
7,062
6,338
1,681
1,331
97
(408)
354
(166)
(338)
1
9,546
1,109
2,702
(2,223)
95,005
5,999
1,050
(990)
946
(614)
101,396
97,001
4,395
(18,558)
(35,394)
(53,952)
(12,982)
(1,193)
(14,175)
(68,127)
33,269
(15,434)
(3,124)
(36,465)
1,071
(51,899)
(2,053)
(12,034)
(1,146)
(13,180)
(948)
(47)
(995)
(65,079)
(3,048)
31,922
1,347
Total amounts allocated, capitalized and charged
General and administrative expense, net
(D = B + C)
(E = A + D)
(1)
(2)
The Note reference relates to the corresponding Note disclosure in the consolidated financial statements for the year ended December 31, 2022.
Other costs represent previously capitalized general and administrative costs for development projects that have been discontinued.
Total general and administrative expense before allocation
For the year ended December 31, 2022, total general and administrative expense before allocation was $101.4 million,
representing an increase of $4.4 million or 4.5% as compared to the same period in 2021. This increase can be attributed
primarily to:
•
•
$7.6 million increase in salaries and related costs; and
$1.1 million increase in rent, information technology, marketing, communications and other employee expenses;
Partially offset by:
•
•
$2.2 million decrease in costs previously capitalized for development projects which have been discontinued; and
$1.6 million net decrease 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, 2022, total amounts allocated, capitalized and charged to Penguin and others was $68.1
million, representing an increase of $3.0 million or 4.7% as compared to the same period in 2021. This increase can be attributed
primarily to $3.1 million higher general and administrative expense being allocated to property operating costs.
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2022 ANNUAL REPORT 47
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MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2022 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
Section V — Leasing Activities and Lease Expiries
Leasing Activities
Occupancy
The Trust’s value-oriented portfolio continued to provide an attractive place to shop as tenants witnessed customer traffic
returning to pre-pandemic levels. With most if not all COVID-19-related measures now lifted, tenants have retained many of the
strategic changes established during the pandemic including reconfigured store layouts and click and collect to enhance the
customer shopping experience. Tenant confidence continued to grow with the improving customer traffic resulting in demand for
new locations in all markets and for all store sizes. In addition to the regular staple of value-oriented tenants continuing to seek
more space in Walmart-anchored sites, new uses are also enhancing each centre’s offering with entertainment/experiential, pet
supplies, furniture and specialty and takeout food all growing their store counts. U.S.-based tenants are also re-engaging their
search for new store openings in Canada.
As at December 31, 2022, the Trust’s occupancy levels inclusive of in-place and committed leases was 98.0% (versus 97.6% as
at December 31, 2021). The increase in occupancy was principally driven by the higher demand for high traffic shopping centres,
anchored by Walmart, Canadian Tire, TJX banners, grocery and home improvement anchors.
Occupancy
Total leasable area (in sq. ft.)
In-place occupancy rate (%)
In-place and committed occupancy rate (%)
December 31, 2022
December 31, 2021
Variance
34,750,379
34,118,613
631,766
97.6
98.0
97.4
97.6
0.2
0.4
New Leasing Activity
During the three months ended December 31, 2022, the Trust completed new leases with a wide variety of tenants, with uses
such as sporting goods and apparel, dollar stores and food service. Many of the Trust’s existing tenants continued their growth
plans with retailers in furniture, general merchandise and pet stores expanding their brick-and-mortar footprint nationally. During
the fourth quarter of 2022, the Trust executed 94,256 square feet of new leasing.
The following table presents a continuity of the Trust’s in-place occupancy rate for the three months ended December 31, 2022:
(in square feet)
Vacant Area
Occupied Area
Leasable Area
In-place Occupancy
Rate (%)
Beginning balance – October 1, 2022
842,034
33,842,999
34,685,033
97.6
New vacancies
New leases
Subtotal
Transferred from properties under development to
income properties
Other including unit area remeasurements
81,328
(94,256)
(81,328)
94,256
—
—
829,106
33,855,927
34,685,033
—
(3,575)
65,785
3,136
65,785
(439)
Ending balance – December 31, 2022
825,531
33,924,848
34,750,379
97.6
The following table presents a continuity of the Trust’s in-place occupancy rate for the year ended December 31, 2022:
(in square feet)
Beginning balance – January 1, 2022
New vacancies
New leases
Subtotal
Acquisitions
Vacant Area
Occupied Area
Leasable Area
In-place Occupancy
Rate (%)
899,989
536,049
(612,531)
823,507
22,300
33,218,624
34,118,613
97.4
(536,049)
612,531
—
—
33,295,106
34,118,613
442,534
464,834
Transferred from properties under development to
income properties
Transferred from income properties to properties
under development
Other including unit area remeasurements
—
177,616
177,616
(14,411)
(5,865)
—
9,592
(14,411)
3,727
Ending balance – December 31, 2022
825,531
33,924,848
34,750,379
97.6
48 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2022 ANNUAL REPORT
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MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2022 ANNUAL REPORT
Renewal Activity
For the year ended December 31, 2022, the Trust achieved a tenant renewal rate of 88.3% (December 31, 2021 – 85.4%) for
tenants with expiring leases.
MANAGEMENT’S DISCUSSION AND ANALYSIS
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.)
Renewal 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, 2022
December 31, 2021
Variance
5,059,578
4,303,022
164,736
4,467,758
88.3
13.19
19.51
3.0
3.6
4,330,499
729,079
3,586,309
716,713
113,122
51,614
3,699,431
768,327
85.4
13.32
19.08
0.9
0.7
2.9
(0.13)
0.43
2.1
2.9
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 97.2% and 97.9%, respectively, and account for 88.4% of revenue and 89.8% of fair value, properties in the secondary
markets reflect a higher in-place occupancy rate of 99.3%.
Portfolio Summary by Market Type
Market
Greater-VECTOM
Primary
Secondary
Total
Number of
Income Producing
Properties
Area
(000 sq. ft.)
Gross Revenue
(%)
Income Property
Fair Value
(%)
In-place
Occupancy (%)
108
31
27
166
23,383
6,624
4,743
34,750
71.8
16.6
11.6
100.0
76.3
13.5
10.2
100.0
97.2
97.9
99.3
97.6
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, 2022
Category
General merchandise including in-store
grocery & pharmacy
Apparel
Home improvement & housewares
Stand-alone grocery & liquor
Restaurant
Leisure (sporting goods, toys)
Specialty (fitness, electronics, pet)
Pharmacy & personal services
Financial services
Other
Total
Total
(%)
Greater-VECTOM
(%)
Primary
(%)
Secondary
(%)
28.6
14.8
9.2
9.3
9.2
6.6
6.2
5.7
4.5
5.9
24.2
15.3
9.7
9.8
10.3
6.6
6.0
6.6
5.0
6.5
35.6
13.6
8.7
8.4
6.6
8.0
6.7
3.9
4.0
4.5
46.1
13.4
6.8
8.1
5.8
4.1
6.9
2.5
2.5
3.8
100.0
100.0
100.0
100.0
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MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2022 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
The following graph represents the Trust’s portfolio exposure by annualized gross rent by category as at December 31, 2022.
Other, 5.9%
Financial services, 4.5%
Pharmacy & personal services, 5.7%
General merchandise including in-store
grocery & pharmacy, 28.6%
Specialty (fitness, electronics, pet), 6.2%
Leisure (sporting goods, toys), 6.6%
Restaurant, 9.2%
Apparel, 14.8%
Stand-alone grocery & liquor, 9.3%
Home improvement & housewares, 9.2%
Top 25 Tenants
The 25 largest tenants (by annualized gross rental revenue) accounted for 61.8% of portfolio revenue as at December 31, 2022
and are presented in the following table:
#
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
Michaels
Best Buy
Recipe Unlimited
Staples
Gap Inc.
Reitmans
Bulk Barn
Bonnie Togs
GoodLife Fitness Clubs
CIBC
Toys R Us
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
205.1
25.2
14,182,181
Leased Area as
a % of Total
Gross Leasable
Area (%)
40.8
72
55
25
16
59
8
38
24
18
56
21
26
59
52
42
11
27
7
9
38
9
26
16
23
36.3
35.6
22.7
16.8
16.2
15.2
13.4
12.4
12.0
11.8
10.3
9.1
8.7
8.3
7.5
7.5
7.5
7.4
7.1
6.8
6.7
6.6
6.5
5.9
4.5
4.4
2.8
2.1
2.0
1.9
1.6
1.5
1.5
1.4
1.3
1.1
1.1
1.0
0.9
0.9
0.9
0.9
0.9
0.8
0.8
0.8
0.8
0.7
1,433,435
1,406,180
909,054
722,818
576,410
870,545
356,427
478,041
437,074
278,785
449,599
269,742
309,446
245,545
255,759
196,183
149,560
268,880
258,244
181,572
315,438
217,286
209,678
123,002
4.1
4.0
2.6
2.1
1.7
2.5
1.0
1.4
1.3
0.8
1.3
0.8
0.9
0.7
0.7
0.6
0.4
0.8
0.7
0.5
0.9
0.6
0.6
0.4
(1)
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.
837
503.4
61.8
25,100,884
72.2
50 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2022 ANNUAL REPORT
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MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2022 ANNUAL REPORT
Lease Expiries
The following table presents total retail and office lease expiries for the portfolio as at December 31, 2022:
MANAGEMENT’S DISCUSSION AND ANALYSIS
Year of Expiry
Month-to-month and holdovers
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
Beyond
Vacant
Total retail
Total office
Total retail and office
Total Area
(sq. ft.)
513,786
2,878,354
5,226,031
4,744,594
4,105,895
5,231,025
3,205,829
2,299,611
1,005,519
1,073,901
1,859,577
615,267
817,710
825,531
34,402,630
347,749
34,750,379
Percentage of
Total Area
(%)
1.5
8.3
15.0
13.6
11.8
15.1
9.2
6.6
2.9
3.1
5.3
1.8
2.4
2.4
99.0
1.0
100.0
Annualized
Base Rent
($000s)
Average Base Rent
psf(1)
($)
11,222
43,960
80,748
68,377
60,643
72,053
55,408
38,864
20,208
19,780
30,027
9,450
10,699
—
521,439
21.77
15.27
15.45
14.41
14.77
13.77
17.28
16.90
20.10
18.42
16.15
15.36
13.08
—
15.53
(1)
The total average base rent per square foot excludes vacant space of 825,531 square feet.
The following table presents total retail and office lease expiries for the portfolio excluding Anchor tenants as at December 31,
2022:
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
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
Beyond
Vacant
Total retail
Total office
Total retail and office
(sq. ft.)
395,538
1,609,108
2,395,262
2,186,087
1,527,891
1,615,671
1,633,255
752,404
442,322
458,765
540,916
260,805
93,420
664,708
14,576,152
161,902
14,738,054
(%)
1.1
4.6
6.9
6.3
4.4
4.6
4.7
2.2
1.3
1.3
1.6
0.8
0.3
1.9
42.0
0.5
42.5
(%)
2.7
10.9
16.2
14.8
10.4
11.0
11.1
5.1
3.0
3.1
3.7
1.8
0.6
4.5
98.9
1.1
100.0
(1)
The total average base rent per square foot excludes vacant space of 664,708 square feet.
Annualized
Base Rent
($000s)
Average Base Rent
psf(1)
($)
9,397
31,369
51,509
45,648
34,835
36,249
36,674
20,072
11,551
11,059
13,110
5,586
1,763
—
308,822
23.65
19.49
21.50
20.88
22.80
22.44
22.45
26.68
26.12
24.11
24.24
21.42
18.87
—
22.20
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55
MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2022 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
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036
2037
2038
B eyond
Walmart
Other Anchors
Non-Anchor
52 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2022 ANNUAL REPORT
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MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2022 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 for the years ended December 31, 2022 and December 31, 2021:
(in thousands of dollars)
Investment properties
Opening balance
Transfer from properties under development
to income properties
Transfer from income properties to
properties under development
Transfer from properties under development
to equity accounted investments
Acquisitions, Earnouts, and related
adjustments of investment properties
Dispositions
Fair value adjustment
Others
Ending balance
Investment properties classified as equity
accounted investments
Year Ended December 31, 2022
Year Ended December 31, 2021
Income
Properties
Properties
Under
Development
Total
Investment
Properties
Income
Properties
Properties
Under
Development
Total
Investment
Properties
8,395,077
1,452,001
9,847,078
8,267,429
582,960
8,850,389
39,707
(39,707)
(7,887)
7,887
—
—
40,555
(40,555)
(2,400)
2,400
—
—
—
(25,000)
(25,000)
—
(6,850)
(6,850)
101,993
(777)
(54,122)
22,902
28,679
(40,726)
255,956
114,409
130,672
(41,503)
201,834
137,311
22,015
(62,865)
107,416
22,927
499,700
521,715
(37,285)
(100,150)
384,112
67,519
491,528
90,446
8,496,893
1,753,499
10,250,392
8,395,077
1,452,001
9,847,078
Opening balance
319,024
518,427
837,451
234,566
315,628
550,194
Transfer from properties under development
to income properties
Transfer from properties under development
to equity accounted investments
Acquisitions, Earnouts, and related
adjustments of investment properties
Dispositions
Fair value adjustment
Others
Ending balance
Total balance (including investment
properties classified as equity
accounted investments) – end of
period (Investment Properties – non-
GAAP)(1)
Investment properties(1)
Investment properties classified as held for
sale(1)
24,736
(24,736)
—
46,579
(46,579)
—
—
—
(8)
624
45,130
389,506
12,500
12,500
5,325
5,325
(14,805)
(14,813)
—
87,187
583,898
624
132,317
973,404
—
—
74
37,666
139
319,024
4,505
4,505
14,136
14,136
—
150,062
80,675
518,427
74
187,728
80,814
837,451
8,886,399
2,337,397
11,223,796
8,714,101
1,970,428
10,684,529
8,886,399
2,279,026
11,165,425
8,714,101
1,970,428
10,684,529
—
58,371
58,371
—
—
—
8,886,399
2,337,397
11,223,796
8,714,101
1,970,428
10,684,529
(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”.
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2022 ANNUAL REPORT 53
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MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2022 ANNUAL REPORT MANAGEMENT’S DISCUSSION AND ANALYSIS
The gross leasable retail and office area consists of 34.8 million square feet. In addition, the Trust may acquire 1.7 million square
feet of future potential gross leasable retail area and has the option to acquire an additional 50.0% interest in four investment
properties and a 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, 2020 to December 31, 2022, the Trust has had approximately 67.0% (by value) or 53.4% (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, 2022 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 land, development and construction costs recorded at market value, fair values
were marked to market, factoring in development risks such as planning, zoning, timing and market conditions.
Investment properties (including properties under development and properties classified as held for sale) as recorded in the
Trust’s consolidated financial statements for the year ended December 31, 2022, with a total carrying value of $1,454.9 million
(December 31, 2021 – $2,195.9 million) were valued by external national appraisers, and investment properties with a total
carrying value of $8,795.5 million (December 31, 2021 – $7,651.2 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, 2022 was 6.43%
(December 31, 2021 – 6.34%).
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, 2022
Valuation Method
Discounted cash flow
Terminal Capitalization Rate
Discount Rate
Carrying Value
Weighted
Average (%)
Range (%)
Weighted
Average (%)
Range (%)
8,496,893
5.92
4.18 – 7.53
6.43
4.58 – 8.03
(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
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MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2022 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)
December 31, 2022
Valuation Method
Land, development and construction costs
recorded at market value
Discounted cash flow
Total
Carrying Value
Weighted
Average (%)
1,627,880
125,619
1,753,499
N/A
6.06
Range (%)
N/A
5.53 – 7.40
Weighted
Average (%)
Range (%)
N/A
6.66
N/A
6.03 – 7.90
Terminal Capitalization Rate
Discount Rate
(in thousands of dollars)
December 31, 2021
Valuation Method
Land, development and construction costs
recorded at market value
Discounted cash flow
Total
Terminal Capitalization Rate
Discount Rate
Carrying Value
Weighted
Average (%)
Range (%)
Weighted
Average (%)
Range (%)
1,324,263
127,738
1,452,001
N/A
5.92
N/A
4.89 – 7.30
N/A
6.53
N/A
5.64 – 7.80
During the year ended December 31, 2022, due to changes in the market and the progress made on planning entitlements, the
Trust increased the fair value of certain properties under development by $237.7 million, which is in addition to the increase in
fair value of $496.8 million realized in Q4 2021 (which includes the Trust’s share of related fair value adjustments for equity
accounted investments). 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.
Management’s reassessment of the valuation of certain investment properties based on the Trust’s continued ability to lease and
generate NOI in the foreseeable future, has resulted in a net fair value adjustment (loss) on revaluation of investment properties
of $35.9 million (excluding fair value adjustments on properties under development as noted above, and investment properties
recorded in equity accounted investments) for the year ended December 31, 2022, which was primarily attributed to: i) In Q2
2022, the Trust applied an increase in cap rate of 50 bps for enclosed shopping malls, which resulted in a value decrease of
$14.9 million for the properties; ii) In Q3 2022, the Trust applied an increase in cap rate of 10 bps across most retail properties in
the portfolio, with certain exclusions relating to intensification projects, outlet centres and offices, which resulted in a fair value
decrease of approximately $123.5 million; and iii) The loss was primarily offset by a fair value gain of $102.5 million due to
leasing activities throughout the year (of which $41.7 million was attributed to the Premium Outlets in Toronto and Montreal
emanating from robust leasing performance).
Acquisitions of Investment Properties
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, for a total purchase price of $100.0 million
and adjusted for costs of acquisition and other working capital amounts, which was paid in cash and funded from 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 acquired a 25% interest in parcels of land from its unrelated partner located in Mirabel, Quebec, for a
purchase price of $2.6 million, paid in cash and adjusted for costs of acquisition. Upon completion of the acquisition, the Trust’s
interest in these parcels of land increased to 50%.
In June 2022, the Trust acquired a parcel of land in Pickering, Ontario, for investment property development for gross proceeds
of $16.6 million, paid in cash and adjusted for costs of acquisition and other working capital amounts.
See also Note 3, “Acquisitions and Earnouts”, in the Trust’s consolidated financial statements for the year ended December 31,
2022.
In addition, see “Equity Accounted Investments” below for acquisitions completed during the year ended December 31, 2022 that
are recorded in investment in joint ventures.
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MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2022 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
Dispositions of Investment Properties
In January 2022, the Trust sold its 40% interest in a parcel of land totalling 1.39 acres located in Markham, Ontario, for gross
proceeds of $0.8 million to a joint venture, Boxgrove Self Storage Limited Partnership, 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, 2022).
In March 2022, the Trust sold a parcel of land totalling 4.62 acres located in Laval East, Quebec, for gross proceeds of $5.6
million, which was satisfied by cash.
In April 2022, the Trust sold a parcel of land totalling 6.48 acres located in Stouffville, Ontario, for gross proceeds of $18.4 million,
which was satisfied by cash.
In September 2022, the Trust sold a parcel of land totalling 6.86 acres located in London, Ontario, for gross proceeds of $15.2
million, which was satisfied by cash.
In December 2022, the Trust contributed its interest in a parcel of land totalling 2.31 acres located in Vaughan, Ontario, for a
value of $25.0 million to a joint venture, Vaughan NW RR PropCo LP, for development of a retirement residence (see also, Note
5(b) in the Trust’s consolidated financial statements for the year ended December 31, 2022).
Investment properties held for sale
As at December 31, 2022, investment properties classified as held for sale in amount of $58.4 million include land parcels
located in Vaughan, Ontario (VMC), of which $42.3 million represented the Trust’s interests in co-ownership and was
proportionately consolidated in the Trust’s consolidated financial statements and $16.1 million was recorded in equity accounted
investments.
Equity Accounted Investments
The following table summarizes key components relating to the Trust’s equity accounted investments:
Investment – beginning of year
489,230
165,212
654,442
354,992
108,212
463,204
Year Ended December 31, 2022
Year Ended December 31, 2021
Investment in
Associates
Investment in
Joint Ventures
Investment in
Associates
Investment in
Joint Ventures
Total
Total
Operating Activities:
Earnings (losses)
Distributions – VMC Residences
condominium unit closings(1)
Distributions – operating activities
Financing Activities:
4,932
(733)
4,199
183,431
27,989
211,420
(24,322)
(4,550)
—
(24,322)
(52,824)
—
(52,824)
(234)
(4,784)
(3,358)
(714)
(4,072)
Fair value adjustment on loan
3,690
—
3,690
3,995
—
3,995
Investing Activities:
Cash contribution
Property contribution
Development distributions
Investment – end of year
23,154
—
(33,362)
32,982
25,000
56,136
25,000
6,355
29,589
—
6,850
35,944
6,850
—
(33,362)
(3,361)
(6,714)
(10,075)
458,772
222,227
680,999
489,230
165,212
654,442
(1)
During the year ended December 31, 2022, the distribution in the amount of $24.3 million was satisfied by a non-cash settlement of the Residence III LP loan payable (for the year ended
December 31, 2021 – $52.8 million). See also the “Debt” section.
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MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2022 ANNUAL REPORT
As at December 31, 2022
(in thousands of dollars)
Rental
Residential
Self-storage facilities
Retail
Office
Mixed-use
The following table summarizes the asset profile (at 100%) of the Trust’s equity accounted investments, grouped by their
business focus:
MANAGEMENT’S DISCUSSION AND ANALYSIS
Income
Properties
Properties
Under
Development
Residential
Development
Inventory
Other Assets
Total Assets
145,603
190,331
160,844
131,020
219,975
68,770
7,742
—
130,792
870,529
—
—
—
—
—
37,457
6,201
3,335
21,369
138,296 (1)
59,698 (2)
373,391
235,815
142,097
241,344
1,139,617
472,006
2,604,270
Condominium and townhome residential
development inventory
—
—
412,308
(1) Consists of loans receivable of $129.2 million in connection with the 700 Applewood purchase (see also the “Debt” section), and cash and cash equivalents of $8.2 million.
(2) Consists of notes receivable of $2.3 million in connection with the Transit City condominium closings, and cash and cash equivalents of $50.5 million.
788,234
1,137,372
412,308
266,356
As at December 31, 2021
(in thousands of dollars)
Rental
Residential
Self-storage facilities
Retail
Office
Mixed-use
Condominium and townhome residential
development inventory
Income
Properties
Properties
Under
Development
Residential
Development
Inventory
Other Assets
Total Assets
74,025
139,300
135,611
132,795
220,002
45,494
4,533
—
128,732
801,559
—
—
—
—
—
11,382
2,082
2,732
23,778
224,707
183,187
140,060
243,780
167,930 (1)
1,098,221
—
—
269,714
103,978 (2)
691,165
990,886
269,714
311,882
373,692
2,263,647
(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.
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, 2022:
Business Focus
Partner(s)
Principal Intended Activity
December 31, 2022 December 31, 2021
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)
Residences (Two) 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)
Own, develop and sell residential condominium
towers (Park Place)
25.0
25.0
25.0
50.0
66.7
25.0
25.0
25.0
50.0
—
(1) See also Note 22, “Related party transactions” in the Trust’s consolidated financial statements for the year ended December 31, 2022.
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MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2022 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
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 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 with a principal amount of $81.4 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 3 in the Trust’s consolidated
financial statements for the year ended December 31, 2022), along with an offsetting non-interest-bearing note payable of an
equal amount (see Note 12(b)(iv), footnote 2 in the Trust’s consolidated financial statements for the year ended December 31,
2022).
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, Residences (One) LP and Residences (Two) LP, are herein collectively
referred to as “VMC Residences”. For details on SmartVMC residential development, see the “Mixed-Use Development
Initiatives” section.
Summary of development credit facilities
The development financing relating to PCVP and VMC Residences comprise pre-development, construction and letters of credit
facilities. With respect to the development credit facilities relating to 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.
PCVP and VMC Residences had the following credit facilities available:
As at
(in thousands of dollars)
PCVP
Development credit facility
Construction credit facility
Letters of credit facility(2)
VMC Residences
Development credit facility
Development credit facility
Development facilities – end of year
Amount drawn on development credit facilities
Letters of credit – outstanding
Remaining unused development credit facilities
Maturity in
Annual
Interest Rate
(%)(1)
February 2023
BA + 1.35
June 2027
BA + 1.20
May 2023
N/A
April 2022
BA + 1.75
September 2023
BA + 1.60
December 31, 2022
December 31, 2021
Facility Amount
Facility Amount
15,876
400,000
60,000
475,876
—
279,264
279,264
755,140
(515,287)
(63,083)
176,770
15,876
386,766
60,000
462,642
11,656
279,264
290,920
753,562
(317,105)
(42,832)
393,625
Trust’s share of remaining unused development credit facilities
67,634
146,742
(1) Annual interest rate is a function of Canadian Banker’s Acceptance rate (“BA”) plus a premium.
(2)
Letter of credit fee rate is 0.75%.
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MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2022 ANNUAL REPORT
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, 2022:
MANAGEMENT’S DISCUSSION AND ANALYSIS
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, Gilbert Self Storage
LP, Boxgrove Self Storage LP, Whitby Self Storage LP
and Regent Self Storage LP
SmartStop
December 31, 2022
December 31, 2021
Joint Venture
Partner
Number of
Projects
Ownership
Interest (%)
Number of
Projects
Ownership
Interest (%)
1
13
30
50
Seniors’ apartments
—
—
Joint Venture: Vaughan NW SA PropCo LP
Revera
Retirement residences
Joint Ventures: Vaughan NW 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)(1)
Residential apartments
Joint Venture: Laval C Apartments LP
Joint Venture: Balliol/Pailton LP
Joint Venture: Mascouche North Apartments LP
Total
Revera
Groupe
Sélection
Jadco
Greenwin
Cogir
4
1
1
1
1
22
50
–(1)
50
75
80
1
10
1
5
1
1
1
1
21
30
50
50
50
50
50
75
80
(1) According to the limited partnership agreement entered into by the Trust and Groupe Sélection in April 2020, the ownership of this joint venture was 50:50. As at December 31, 2022, the
Trust contributed $24.4 million to this partnership, of which $5.3 million was characterized as special contributions. These special contributions have resulted in a corresponding increase to
the Trust’s equity entitlements in respect of the partnership.
Acquisitions/new property contributions completed during the year ended December 31, 2022
In January 2022, pursuant to a 50:50 joint venture formed with SmartStop known as Boxgrove Self Storage Limited Partnership,
each joint venture party contributed $1.0 million into the joint venture to fund the purchase of a parcel of land located in
Markham, Ontario, totalling 1.39 acres, in which the Trust had a 40% interest, with the intention to develop and operate a self-
storage facility.
In May 2022, the Trust formed a 50:50 joint venture with SmartStop known as Regent Self Storage Limited Partnership, and
pursuant to the joint venture agreement, each joint venture party contributed $3.5 million into the joint venture to fund the
purchase of a parcel of land located in Burnaby, British Columbia, totalling 0.89 acres with the intention to develop and operate a
self-storage facility.
In December 2022, pursuant to the 50:50 joint venture previously formed with Revera known as Vaughan NW RR PropCo
Limited Partnership, the Trust contributed its interest in a parcel of land totalling 2.31 acres to the joint venture for a value of
$25.0 million, while Revera contributed cash, with the intention to develop and operate a retirement residence which is located in
Vaughan, Ontario.
See also Note 4, “Investment properties”, in the Trust’s consolidated financial statements for the year ended December 31, 2022.
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MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2022 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
Summary of credit facilities
Development financing includes credit facilities relating to Laval C Apartments, Mascouche and Main Street Markham,
comprising pre-development and construction facilities, 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.
As at December 31, 2022 and December 31, 2021, the Trust’s joint ventures had the following credit facilities:
As at
December 31, 2022
December 31, 2021
(in thousands of dollars)
Laval C Apartments LP
Construction facility – Tower A
Construction facility – Tower B(2)
SmartStop
Construction facility
Markham Main Street
Development facility
Mascouche North Apartments LP
Construction facility
Amount drawn on development credit facilities
Letters of credit – outstanding
Remaining unused development credit facilities
Maturity in
Annual
Interest Rate
(%)(1)
February 2022
BA + 1.60
November 2024
BA + 1.60
Facility
Amount
—
48,822
Facility
Amount
35,417
—
May 2024
BA + 2.20
136,900
118,100
December 2023
BA + 1.75
11,000
11,000
August 2025
BA + 1.50
55,000
251,722
(181,610)
(1,648)
68,464
—
164,517
(130,630)
(887)
33,000
Trust’s share of remaining unused development credit facilities
40,234
16,500
(1) Annual interest rate is a function of BA rates plus a premium.
(2) Management is renegotiating the facility.
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MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2022 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
Amounts Receivable and Other, and Prepaid Expenses, Deposits and Deferred Financing Costs
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 allowance for ECL
Prepaid expenses, deposits and deferred financing costs
December 31, 2022
December 31, 2021
Variance ($)
26,735
11,100
11,899
616
1,954
13,591
65,895
(8,771)
57,124
14,474
71,598
36,305
11,847
6,966
581
1,414
11,383
68,496
(18,954)
49,542
12,289
61,831
(9,570)
(747)
4,933
35
540
2,208
(2,601)
10,183
7,582
2,185
9,767
(1) The amount includes a related party amount of $6.8 million (December 31, 2021 – $8.0 million).
‘
As at December 31, 2022, total amounts receivable and other, net of allowance for ECL, and prepaid expenses, deposits and
deferred financing costs increased by $9.8 million as compared to December 31, 2021. This increase was primarily attributed to
the following:
•
•
•
$5.7 million increase in non-tenant receivables;
$4.4 million increase in other amounts receivable, prepaid expenses, deposits and deferred financing costs; and
$0.6 million decrease in tenant receivables net of allowance for ECL due to improving existing and expected collections
on tenant receivables.
Tenant receivables
Approximately 60% of the Trust’s tenant base are businesses offering “essential” services and approximately 98.4% of the
Trust’s tenant billings for the year ended December 31, 2022 have been collected. The Trust and its tenants are well-positioned
for an expected return of the economy to pre-pandemic levels and as the Trust identifies tenants for its vacant space, it also
continues to work with its existing tenants on rent collections and payment solutions.
The table below represents a summary of total tenant receivables and ECL balances as at December 31, 2022 and
December 31, 2021:
(in thousands of dollars)
Tenant receivables
Unbilled other tenant receivables
Total tenant receivables
Less: Allowance for ECL
Total tenant receivables net of allowance for ECL
December 31, 2022
December 31, 2021
26,735
11,100
37,835
8,771
29,064
36,305
11,847
48,152
18,954
29,198
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MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2022 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
Mortgages, Loans and Notes Receivable
The following table summarizes mortgages, loans and notes receivable:
(in thousands of dollars)
Mortgages, loans and notes receivable
Mortgages receivable (Mezzanine Financing)(1)
Loans receivable(2)
Notes receivable(1)
December 31, 2022 December 31, 2021 Variance ($)
39,456
282,312
2,924
324,692
139,589
(100,133)
274,523
7,789
2,924
—
417,036
(92,344)
(1)
(2)
The amount is due from Penguin.
Includes $100.3 million due from Penguin (December 31, 2021 – $117.0 million), see “Loans Receivable” subsection.
Mortgages Receivable (Mezzanine Financing)
The following table presents the details of the mortgages receivable (by maturity date) provided to Penguin:
(in thousands of dollars)
Property
Caledon (Mayfield), ON(1)(3)(5)
Salmon Arm, BC(2)(3)
Aurora (South), ON(3)(5)
Innisfil, ON(2)(3)
Vaughan (7 & 427), ON(1)(3)(5)
Toronto (StudioCentre),
ON(2)(4)(5)
Pitt Meadows, BC(1)(4)(5)
Amount
Outstanding
($)
Including:
Interest
Accrued
($)
Amount
Guaranteed
by Penguin
($)
Committed
($)
Maturity Date
including
Extension Period
Annualized
Variable
Interest Rate
at Year-End
(%)
—
—
—
—
—
15,862
23,594
39,456
—
—
—
—
—
15,498
13,398
15,155
16,011
15,781
—
—
—
—
—
August 2028
August 2028
August 2028
October 2023
August 2028
98
39,224
15,862
August 2028
234
75,653
23,594
August 2028
332
190,720
39,456
7.00
6.50
6.75
7.00
6.75
6.90
6.90
6.90
Potential
Area Upon
Exercising
Purchase
Option
(sq. ft.)
101,865
—
57,741
—
76,000
227,831
25,003
488,440
(1)
(2)
(3)
(4)
(5)
Caledon, Vaughan and Pitt Meadows mortgages have original maturity dates of April 2024, December 2023 and November 2023, respectively. Their maturity dates 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 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.
Penguin fully repaid the outstanding balance of the mortgages in October 2022.
The weighted average interest rate on this mortgage is subject to an upper limit of 6.90%.
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, 2022, 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%.
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
2022
139,589
6,143
(36,510)
3,800
(73,566)
39,456
2021
144,205
5,363
(10,766)
2,003
(1,216)
139,589
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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
PCVP(5)
Self-storage facilities(6)
Equity accounted investments
Other(7)
Greenwin(8)
Greenwin(9)
Other(10)
Unrelated parties
Committed
Maturity Date
Interest Rate (%) December 31, 2022
December 31, 2021
12,493
26,227
January 2023
January 2023
Variable
2.76 %
N/A
December 2029
Interest-free
18,450
August 2030
Variable
N/A
January 2023
120,700
May 2024
N/A
January 2023
11,694
September 2024
1,280
N/A
January 2025
October 2023
2.76 %
Variable
5.00 %
Variable
Variable
4.00 %
7,389
13,266
62,986
16,638
100,279
48,532
116,096
164,628
2,308
—
—
15,097
17,405
282,312
9,707
14,027
77,828
15,404
116,966
47,214
91,938
139,152
3,308
—
—
15,097
18,405
274,523
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
This loan receivable was provided pursuant to a development management agreement with Penguin with a total loan facility of $12.5 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.
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.
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 regard to PCVP. The loan has a principal amount outstanding of $81.4 million, is non-interest-bearing, and is repayable at the end of ten years. As at
December 31, 2022, the loan balance of $63.0 million is net of a cumulative fair value adjustment totalling $18.5 million. See also 12(b)(iv) “Debt” in the consolidated financial statements
for the year ended December 31, 2022 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. 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, 2022.
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, 2022.
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, which bears interest at 5.0% per annum, calculated semi-annually. Subsequently, the loan was fully repaid in January 2023.
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, 2022, 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. As at December 31, 2022, 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.
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MANAGEMENT’S DISCUSSION AND ANALYSIS
The following table illustrates the activity in loans receivable:
(in thousands of dollars)
Balance – beginning of year
Loans issued
Principal advances
Interest accrued
Fair value adjustments(1)
Principal repayments
Balance – end of year
Year Ended December 31
2022
274,523
30,300
16,384
5,366
4,114
(48,375)
282,312
2021
241,683
33,790
50,983
3,986
4,440
(60,359)
274,523
(1)
$4.1 million recorded during the year ended December 31, 2022 (year ended December 31, 2021 – $4.4 million) in connection with the loan issued as part of the 700 Applewood purchase.
Notes Receivable
Notes receivable of $2.9 million (December 31, 2021 – $2.9 million) have been granted to Penguin (see also, “Related Party
Transactions”). These secured demand notes bear interest at 9.00% per annum (December 31, 2021 – 9.00%).
Section VII — Financing and Capital Resources
Capital Resources and Liquidity
The following table presents the Trust’s capital resources available:
(in thousands of dollars)
Cash and cash equivalents
Remaining operating facilities(1)
Operating facility – accordion feature
December 31, 2022
December 31, 2021
Variance ($)
35,255
553,343
588,598
250,000
838,598
62,235
341,715
403,950
250,000
653,950
(26,980)
211,628
184,648
—
184,648
(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, 2022, the Trust’s cash and cash equivalents decreased by $27.0 million as compared to December 31,
2021, which is primarily due to the following:
•
•
•
•
$1,046.9 million representing net repayment of debt, which is principally due to the $282.0 million repayment of secured
debt, $610.0 million repayment of revolving operating facility and $154.9 million repayment of other unsecured debt;
$319.6 million of distributions paid on Trust Units, non-controlling interests and Units classified as liabilities;
$283.8 million representing net additions to investing activities including investment properties, equity accounted
investments, equipment, and Earnouts and Developments; and
$1.9 million relating to the payment of lease liabilities;
Partially offset by the following:
•
•
•
•
•
•
$700.0 million new unsecured debt relating to both the establishment of a new financing facility for SmartVMC West and
draws on existing construction facilities;
$392.0 million relating to the proceeds from revolving unsecured debt facility;
$370.8 million of cash provided by operating activities;
$70.3 million repayments of mortgages and loans receivable net of advances;
$50.3 million net decrease in cash held as collateral pertaining to TRS purchase;and
$41.8 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, 2022 is 52% (December 31, 2021 – 50.8%). Including the Trust’s capital
resources as at December 31, 2022, the Trust could invest an additional $1,309.0 million (December 31, 2021 – $1,511.0 million)
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MANAGEMENT’S DISCUSSION AND ANALYSIS
in new investments and developments and remain at the midpoint of the Trust’s target Debt to Gross Book Value range of 55% to
60%.
Future obligations total $5.7 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, 2022.
The following table presents the estimated amount and timing of certain of the Trust’s future obligations including development
obligations as at December 31, 2022:
(in thousands of dollars)
Secured debt
Unsecured debt
Revolving operating facilities
Interest obligations(1)
Accounts payable
Other payable
Long term incentive plan
Total
2023
2024
2025
2026
2026 Thereafter
970,237 239,894 151,031 411,341
98,121
5,473
64,377
3,979,281 213,153 370,000 933,232 400,000
850,000 1,212,896
81,283
7,000
74,283
—
—
—
—
202,010
4,471 113,742
95,743
76,884
(32,724)
(56,106)
259,352 259,352
—
27,011
8,147
8,730
580
580
—
—
134
—
—
—
—
—
—
—
—
10,000
—
5,519,754 732,597 717,786 1,440,450 575,005
822,749 1,231,167
Mortgage receivable advances (repayments)(2)
Development obligations (commitments)
151,264
1,015
1,130
(15,880)
1,034
378
163,587
20,669
20,669
—
—
—
—
—
Total
5,691,687 754,281 718,916 1,424,570 576,039
823,127 1,394,754
(1)
(2)
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 $39.5 million at December 31, 2022, and further forecasted commitments of $151.3 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,
2022, 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, 2022:
(in thousands of dollars)
Total
2023
2024
2025
Secured and unsecured debt
Development obligations (commitments)(1)
803,228
200,956
224,908
125,596
339,210
70,528
50,904
4,832
2026
7,452
—
2027
Thereafter
51,252
—
129,502
—
Total
1,004,184
350,504
409,738
55,736
7,452
51,252
129,502
(1)
The Trust is in the process of refining its estimates of development obligations for the years subsequent to 2022. 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, 2022:
(in thousands of dollars)
Total
2023
2024
2025
2026
2027
Thereafter
Secured and unsecured debt
Development obligations (commitments)(1)
354,933
63,860
169,091
38,036
3,163
16,337
64,446
90,161
53,049
34,668
2,444
—
—
—
Total Trust’s share
445,094
116,909
203,759
40,480
3,163
16,337
64,446
(1)
The Trust is in the process of refining its estimates of development obligations for the years subsequent to 2022. 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 deficiency:
(in thousands of dollars)
Current assets
Less: Current liabilities
Working capital deficiency
Adjusted by: Current portion of debt included in current liabilities
Net working capital surplus (deficiency)
December 31, 2022
December 31, 2021
276,140
(720,400)
(444,260)
(459,278)
15,018
223,412
(931,484)
(708,072)
(678,406)
(29,666)
As at December 31, 2022 the Trust experienced a working capital deficiency of $444.3 million (December 31, 2021 – $708.1
million deficiency). This deficiency includes mortgages, unsecured debentures and operating lines of credit of $459.3 million
(December 31, 2021 – $678.4 million) that have maturity dates within 12 months of the balance sheet date. It is management’s
intention to either repay or refinance these maturing liabilities with cash and cash equivalents, newly issued secured or
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MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2022 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
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 experienced a net working capital deficiency of $15.0
million as at December 31, 2022 (December 31, 2021 – $29.7 million deficiency).
The Trust has an unencumbered asset pool (a non-GAAP financial measure) with an approximate fair value totalling $8.4 billion,
which could generate gross financing proceeds on income properties of approximately $5.4 billion using a 65% loan to value. It is
anticipated that requirements for 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 Capital Requirements
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 (revenue
enhancing capital expenditures). 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 January 2022. 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.
(in thousands of dollars, except per Unit and other
Unit amounts)
Adjusted salaries and related costs attributed to
leasing
Actual sustaining leasing commissions
Actual sustaining tenant improvements
Total actual sustaining leasing and related costs
Actual sustaining capital expenditures
(recoverable and non-recoverable)
Total actual sustaining leasing costs and
capital expenditures
Weighted average number of Units outstanding –
diluted
Per Unit – diluted ($)
Three Months Ended December 31
Year Ended December 31
2022
2021
Variance
2022
2021
Variance
1,514
800
2,587
4,901
1,063
742
1,217
3,022
451
58
1,370
1,879
7,508
2,389
7,796
5,196
3,071
2,903
17,693
11,170
2,312
(682)
4,893
6,523
11,434
10,323
1,111
19,111
17,331
1,780
16,335
13,345
2,990
36,804
28,501
8,303
179,696,944
174,380,800
5,316,144
179,657,455
173,748,819
5,908,636
0.09
0.08
0.01
0.20
0.16
0.04
For the year ended December 31, 2022, the total sustaining leasing costs and capital expenditures were $36.8 million, as
compared to $28.5 million in the same period in 2021, representing an increase of $8.3 million. This increase is primarily due to
the following:
•
•
$6.5 million net increase in both tenant improvements and leasing and related costs (note that the decrease in actual
sustaining leasing commissions of $0.7 million is attributed to a similar increase that occurred in the same period of
2021); and
$1.8 million increase in both recoverable and non-recoverable capital expenditures which primarily relate to the costs
associated with parking lot resurfacing, roof replacement 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.
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MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2022 ANNUAL REPORT
Debt
The following table summarizes total debt including debt associated with equity accounted investments:
As at
December 31, 2022
December 31, 2021
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
969,054
3,791,797
141,131
81,283
4,983,265
(78,145)
4,905,120
193,525
161,408
354,933
Total debt including equity accounted
investments
5,260,053
(1)
This represents the Trust’s share of a loan from equity accounted investments.
2.8
4.1
N/A
1.3
N/A
N/A
3.8
8.1
1.8
5.2
4.0
Balance
1,294,546
3,066,794
195,562
297,625
3.91
3.74
—
5.59
—
4,854,527
—
(111,484)
3.75
4,743,043
3.2
5.4
N/A
3.4
N/A
N/A
4.7
4.91
117,946
11.5
5.92
122,089
5.37
240,035
3.86
4,983,078
2.2
6.7
4.8
3.49
3.24
—
1.49
—
—
3.14
3.26
1.87
2.55
3.11
The following table summarizes the activities in debt including debt recorded in equity accounted investments, for the year ended
December 31, 2022:
(in thousands of dollars)
Balance – January 1, 2022
Borrowings
Reclassification to unsecured debt
Scheduled amortization
Repayments
Amortization of acquisition fair value adjustments
Financing costs incurred, net of additions
Adjustment
Currency translation
Secured
Debt
Unsecured
Debt
Revolving
Operating
Facilities
Equity
Accounted
Investments
Loan from
Equity
Accounted
Investments
Total
1,294,546
3,066,794
297,625
240,035
84,078
4,983,078
109,948
700,000
377,000
135,923
4,114
1,326,985
(143,232)
143,232
(43,087)
—
—
—
—
(2,398)
—
—
—
(45,485)
(249,457)
(117,000)
(610,000)
(18,500)
(18,956)
(1,013,913)
(460)
796
—
—
—
(1,229)
—
—
—
—
—
16,658
(140)
13
—
—
—
—
(600)
(420)
(6,250)
(6,250)
—
16,658
Balance – December 31, 2022
969,054
3,791,797
81,283
354,933
62,986
5,260,053
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MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2022 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)
2023
2024
2025
2026
2027
Thereafter
Total
Acquisition date fair value adjustment
Unamortized financing costs
Instalment
Payments
Lump Sum
Payments
at Maturity
38,599
32,336
21,736
11,240
5,473
16,176
125,560
201,295
118,696 (1)
389,605
86,881
—
48,200
844,677
Total
239,894
151,032
411,341
98,121
5,473
64,376
%
24.73
15.57
42.40
10.11
0.56
6.63
970,237
100.00
554
(1,737)
969,054
Weighted Average
Interest Rate of
Maturing Debt (%)
4.46
3.63
3.96
3.86
—
4.84
4.06
3.91
(1) Includes construction loans in the amount of $20.1 million, which bear interest at Canadian Banker's Acceptance rate plus 170 basis points.
Unsecured Debt
The following table summarizes the components of unsecured debt:
(in thousands of dollars)
Unsecured debentures (a)
Credit facilities (b)
TRS debt
Other unsecured debt from equity accounted investments (c)
December 31, 2022 December 31, 2021
2,652,327
996,238
2,650,571
416,223
3,648,565
3,066,794
143,232
141,131
3,932,928
—
195,562
3,262,356
a) Unsecured debentures
As at December 31, 2022, unsecured debentures totalled $2,652.3 million (December 31, 2021 – $2,650.6 million). The
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, 2022 (December 31, 2021 – 3.17%).
Unsecured debenture activities for the year ended December 31, 2022
There is no significant activity relating to unsecured debentures during the year ended December 31, 2022.
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 fulfil its obligations. An investment-grade rating must exceed “BB”, with the
highest rating being “AAA”. In December 2022, DBRS confirmed the Trust’s BBB(high) rating and maintained the negative
trend.
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MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2022 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
b) Credit facilities
The following table summarizes the activity for unsecured credit facilities:
(in thousands of dollars)
(Issued in)
Initial Maturity Date
Extended Maturity
Date
Annual
Interest Rate
(%)
Facility
Amount
December 31,
2022
December 31,
2021
Non-revolving:
August 2018(1)
March 2019(1)
May 2019(1)
January 2022(2)
December 2022(1)
December 2022
January 31, 2025
N/A
2.980
80,000
July 31, 2026
July 31, 2028
June 24, 2024 December 24, 2030
January 19, 2027
December 1, 2025
December 1, 2025
N/A
N/A
N/A
3.520
150,000
3.146
170,000
BA + 1.20
300,000
4.370
100,000
BA + 1.20
100,000
80,000
150,000
170,000
300,000
100,000
100,000
December 2022
December 20, 2025 December 20, 2026
BA + 1.20 or
CAD Prime
100,000
100,000
Revolving:
May 2020
May 11, 2024
May 11, 2026
BA + 1.20
100,000
—
1,100,000
1,000,000
80,000
150,000
170,000
—
—
—
—
17,000
417,000
Less:
Unamortized financing costs
Unamortized debt modification adjustments
(1,802)
(1,960)
(777)
—
996,238
416,223
(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 2.62% per annum. The weighted average term to maturity of the interest rate swaps is 2.39 years. Hedge accounting has not been applied to the interest rate swap
agreements. See additional details in the table below.
(2) The proceeds of this loan were mainly used for the acquisition of SmartVMC West in December 2021.
The following table summarizes the fair value gain (loss) as at December 31, 2022 and December 31, 2021, relating to the
mark to market adjustments associated with the interest rate swap agreements:
Facility
Amount
170,000
150,000
80,000
100,000
11,403
Maturity Date
June 24, 2024
July 31, 2026
January 31, 2025
December 1, 2025
November 3, 2025
Fixed
Interest Rate (%)
Variable
Interest Rate
December 31, 2022 December 31, 2021
3.146
3.520
2.980
4.370
3.470
BA + 1.20
BA + 1.20
BA + 1.20
BA + 1.20
BA + 1.20
16,225
10,151
6,161
1,120
624
34,281
(2,822)
(4,801)
(40)
—
(91)
(7,754)
c) Other unsecured debt from equity accounted investments
Other unsecured debt net of fair value adjustments totalling $141.1 million (December 31, 2021 – $195.6 million) at the
Trust’s share pertains to loans received from equity accounted investments in connection with contribution agreements
relating to joint ventures. The loans are non-interest-bearing with repayment terms based on the distributions that are to be
paid pursuant to the limited partnership agreements. The balances of the loans are expected to be paid at the end of their
respective terms.
Revolving Operating Facilities
The following table summarizes components of the Trust’s revolving operating facilities:
Revolving facility maturing August
2026
Revolving facility maturing
February 2024(1)
Annual
Interest Rate (%)
Facility
Amount
Amount
Drawn
Outstanding
Letters of
Credit
Remaining Undrawn Facilities
December 31, 2022 December 31, 2021
BA + 1.20
500,000
7,000
15,374
477,626
341,715
US$ LIBOR + 1.20
150,000
74,283
—
81,283
75,717
553,343
—
341,715
(1) The Trust has drawn in US$54.9 million which was translated to $74.3 million as at December 31, 2022 (December 31, 2021 – drawn in US$116.8 million which was translated to $147.6
million).
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MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2022 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
In addition to the letters of credit outstanding on the Trust’s revolving operating facilities (see above), the Trust also has $32.9
million of letters of credit outstanding with other financial institutions as at December 31, 2022 (December 31, 2021 – $26.5
million).
Unencumbered Assets
As at December 31, 2022, the Trust had $8.4 billion of unencumbered assets (a non-GAAP financial measure) (December 31,
2021 – $6.6 billion), which reflects the Trust’s share of the value of investment properties. Expressed as a percentage, the Trust
earned approximately 71.1% of its NOI from unencumbered assets (December 31, 2021 – 62.6%).
In connection with this pool of unencumbered assets, management estimates the total Forecasted Annualized NOI for 2023 to be
$368.8 million (December 31, 2021 – $327.9 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” and “Non-GAAP Measures”.
Debt Maturities
The following graph illustrates the debt maturities(1) as at December 31, 2022:
Debt Maturities (in $ millions)
1250
1000
750
500
250
0
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
Secured Debt
Unsecured Debentures
Unsecured Credit Facilities
(1) Excludes revolving operating facilities of $81.3 million.
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MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2022 ANNUAL REPORT Interest Income and Interest Expense
Interest Income
The following table summarizes the components of interest income:
Three Months Ended December 31
Year Ended December 31
MANAGEMENT’S DISCUSSION AND ANALYSIS
(in thousands of dollars)
Mortgage interest
Loan interest
Notes receivable interest
TRS deposit interest
Bank interest
2022
938
2,936
66
988
568
2021 Variance ($)
1,318
1,214
66
90
57
(380)
1,722
—
898
511
2022
6,143
8,459
263
2,223
2021 Variance ($)
5,363
780
4,575
3,884
263
271
—
1,952
(921)
948
1,869
For the year ended December 31, 2022, interest income increased by $5.7 million as compared to the year ended December 31,
2021. This increase was primarily attributed to the additional loans issued under self-storage facilities and higher interest rates.
5,496
2,745
2,751
18,036
12,341
5,695
Interest Expense
The following table summarizes the components of interest expense:
(in thousands of dollars)
Interest at stated rates
Amortization of acquisition date fair value
adjustments on assumed debt
Adjustment on debt modification
Amortization of deferred financing costs
Distributions on Units classified as liabilities
– excluding SmartVMC West
Distributions on Units classified as liabilities
– SmartVMC West
Distributions on vested deferred units
Total interest expense before capitalized
interest
Less:
Interest capitalized to properties under
development – excluding SmartVMC West
Interest capitalized to properties under
development – SmartVMC West
Interest capitalized to residential
development inventory
Distributions capitalized to properties under
development – SmartVMC West
Three Months Ended December 31
Year Ended December 31
2022
2021 Variance ($)
2022
2021 Variance ($)
46,082
36,512
9,570
166,181
150,187
15,994
(94)
—
851
(127)
—
898
33
—
(47)
(460)
(527)
67
(1,960)
3,606
—
(1,960)
3,828
(222)
970
1,008
(38)
3,842
3,919
(77)
2,681
—
2,681
10,725
—
10,725
724
1,045
(321)
2,847
2,424
423
(A)
51,214
39,336
11,878
184,781
159,831
24,950
(4,146)
(3,440)
(706)
(14,836)
(14,333)
(503)
(3,870)
—
(3,870)
(9,926)
—
(9,926)
(287)
(242)
(45)
(1,043)
(958)
(85)
(2,569)
—
(2,569)
(10,274)
—
(10,274)
Total capitalized interest
(B)
(10,872)
(3,682)
(7,190)
(36,079)
(15,291)
(20,788)
Interest expense net of capitalized
interest expense
Capitalized interest as a percentage of
interest expense
(C = A + B)
40,342
35,654
4,688
148,702
144,540
4,162
(D = B / A)
21.2 %
9.4 %
11.8 %
19.5 %
9.6 %
9.9 %
For the year ended December 31, 2022, interest expense net of capitalized interest totalled $148.7 million, representing an
increase of $4.2 million as compared to the year ended December 31, 2021, which was primarily due to the increase in interest
at the stated rates due to combined impact of increased interest rates and additional use of operating facilities and other bank
facilities.
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MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2022 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
“Non-GAAP Measures.”
For the year ended December 31, 2022, the Trust was in compliance with all financial covenants.
Ratio
Interest coverage ratio(1)
Fixed charge coverage ratio(3)
Debt to aggregate assets(3)(4)(5)
Calculation
Threshold
December
31, 2022
December
31, 2021
Adjusted EBITDA / Adjusted interest
expense including capitalized interest(6)
Adjusted EBITDA / Debt service expense(7)
Net debt / Aggregate assets(8)
≥ 1.65X
≥ 1.5X
≤ 65%
3.1X
2.3X
3.4X
2.6X
43.6 %
42.9 %
Debt to aggregate assets (excluding TRS debt
and receivable)(2)(5)
Net debt (excluding TRS debt)/ Aggregate
assets (excluding TRS receivable)(8)
≤ 65%
42.9 %
42.7 %
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)
Unitholders’ equity (in thousands)(1)(3)
Units classified as liabilities (in thousands)
Total Unitholders’ equity including Units classified
as liabilities (in thousands)
Net debt / Gross book value(9)
≤ 60%
52.0 %
50.8 %
Net debt / Gross book value(10)
≤ 65%
52.0 %
50.8 %
Secured debt including EAI / Aggregate
assets(11)
Unsecured debt including EAI / Secured
debt including EAI(12)
Unencumbered assets / Unsecured debt
including EAI(13)
≤ 40%
11.2 %
12.4 %
N/A
74%/26%
71%/29%
≥ 1.3X
2.2X
1.9X
≥ $2,000,000
$6,163,101
$5,841,315
N/A
$211,497
$254,223
N/A
$6,374,598
$6,095,538
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
(11)
(12)
(13)
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, 2022, cash-on-hand of $33.4 million (December 31, 2021 – $80.0 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 and Adjusted interest expense including
capitalized interest are referenced in the “Non-GAAP Measures.”
This ratio is calculated as: Adjusted EBITDA/Debt service expense. The calculation of Adjusted EBITDA is referenced in the “Non-GAAP Measures.” 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.
When calculating this ratio excluding TRS receivable and debt, Net debt as calculated above further minus debt borrowed concurrent with entering the TRS agreement as referenced in
“Debt”. Aggregate assets as calculated above further minus TRS receivable as referenced in “Total Return Swap Receivable”.
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.”
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MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2022 ANNUAL REPORT MANAGEMENT’S DISCUSSION AND ANALYSIS
Unitholders’ Equity
The Unitholders’ equity of the Trust is calculated based on the equity attributable to the holders of Trust Units and LP Units
(“Exchangeable Securities”) that are exchangeable into Trust Units on a one-for-one basis. These LP Units consist of certain
Class B Units of the Trust’s subsidiary limited partnerships. Certain of the Trust’s subsidiary limited partnerships also have Units
classified as liabilities that are exchangeable on a one-for-one basis for Units. The following table is a summary of the number of
Units outstanding:
Type
Trust Units
Smart Limited Partnership
Smart Limited Partnership
Smart Limited Partnership
Smart Limited Partnership II
Smart Limited Partnership III
Smart Limited Partnership III
Smart Limited Partnership III
Smart Limited Partnership III
Smart Limited Partnership III
Smart Limited Partnership IV
Smart Oshawa South Limited Partnership
Class and Series
N/A
Class B Series 1
Class B Series 2
Class B Series 3
Class B
Class B Series 4
Class B Series 5
Class B Series 6
Class B Series 7
Class B Series 8
Class B Series 1
Class B Series 1
Smart Oshawa Taunton Limited Partnership
Class B Series 1
Smart Boxgrove Limited Partnership
Class B Series 1
Total Units classified as equity
Smart Limited Partnership
Smart Limited Partnership
Smart Oshawa South Limited Partnership
ONR Limited Partnership
ONR Limited Partnership I
ONR Limited Partnership I
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
December 31, 2022
December 31, 2021
144,625,322
14,746,176
957,822
720,432
756,525
706,591
583,535
640,059
434,598
1,698,018
3,112,565
710,416
374,223
170,000
170,236,282
311,022
8,708
260,417
1,248,140
132,881
139,302
3,623,188
2,173,913
7,897,571
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
Variance (#)
—
—
—
—
—
—
11,198
12,419
—
—
18,655
—
—
—
170,194,010
42,272
311,022
8,708
260,417
1,248,140
132,881
139,302
3,623,188
2,173,913
7,897,571
—
—
—
—
—
—
—
—
—
Total Units
178,133,853
178,091,581
42,272
As of February 8, 2023, the Trust has 170,236,282 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
Unit issuance costs
Deferred Units exchanged for Trust Units
Issuance of LP Units classified as equity
Net income and comprehensive income
Distributions
Unitholders’ Equity – end of year
LP Units classified as liabilities – beginning of year
Issuance of LP Units
Change in carrying value
LP Units classified as liabilities – end of year
Year Ended
Year Ended
December 31, 2022
December 31, 2021
5,841,315
5,166,975
(250)
—
1,279
635,965
(315,208)
6,163,101
254,223
—
(42,726)
211,497
(18)
198
1,738
987,676
(315,254)
5,841,315
48,479
181,236
24,508
254,223
Unitholders’ Equity and LP Units classified as liabilities – end of period
6,374,598
6,095,538
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MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2022 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.
For the year ended December 31, 2022, the Trust paid $329.8 million in cash distributions (for the year ended December 31,
2021 – $319.2 million in cash distributions). The following table summarizes declared distributions:
(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 – excluding SmartVMC West
Distributions on LP Units classified as liabilities – SmartVMC West
Distributions on LP Units classified as liabilities
Year Ended December 31
2022
2021
267,563
47,363
282
315,208
3,881
10,725
14,606
267,552
47,282
420
315,254
3,881
38
3,919
Total distributions declared
329,814
319,173
Normal Course Issuer Bid
The normal course issuer bid (“NCIB”) program terminated on March 30, 2022. During the year ended December 31, 2022, the
Trust did not purchase for cancellation any Trust Units under this NCIB program.
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MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2022 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, 2022, there were
10,053,123 additional Special Voting Units outstanding (December 31, 2021 – 8,163,976). 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, 2022, 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, 2022, 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:
i)
ii)
Penguin shall be reimbursed for 50% of disposition fees otherwise payable pursuant to the Development Services
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,
iv)
iii) 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.
vi)
v)
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.
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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, 2022). 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 non-competition agreement with Penguin entered into in 2020 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, 2022). Under the award
granted to Mitchell Goldhar, the $26.00 Unit price threshold was achieved on April 5, 2021, and the $28.00 Unit price threshold
was achieved on May 18, 2021, and under the awards granted to Mitchell Goldhar and other eligible associates in 2021, the
$30.00 Unit price threshold was achieved on September 22, 2021, and the $32.00 Unit price threshold was achieved on April 5,
2022. The performance units for these Unit price thresholds will vest on April 4, 2024, May 17, 2024, September 21, 2024 and
April 4, 2025, respectively.
The following table summarizes the change in the carrying value of the EIP award 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, 2022
Year Ended
December 31, 2021
8,500
5,182
(302)
13,380
—
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.
Related party transactions and balances are also disclosed elsewhere in the Trust’s consolidated financial statements for the
year ended December 31, 2022, which include:
•
•
•
•
•
•
•
•
•
•
•
Note 3(c) referring to the purchase of Earnouts
Note 4(c) referring to Leasehold property interests
Note 5(a)(ii) referring to a supplemental development fee agreement
Note 6 referring to Mortgages, loans and notes receivable
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 and other payables (including future land development 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 expense, net.
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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:
MANAGEMENT’S DISCUSSION AND ANALYSIS
(in thousands of dollars)
Related party transactions with Penguin
Acquisitions and Earnouts:
Earnouts
Revenues:
Service and other revenues:
Management fee and other services revenue pursuant to the Development and Services
Agreement
Supplement to the Development Services 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 $355 (year ended December 31, 2021 – $271))
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 administrative expense)
Expenditures on tenant inducement
Related party transactions with PCVP
Revenues:
Interest income from mortgages and loans receivable
Expenses and other payments:
Year Ended December 31
2022
2021
9,210
16,274
3,670
8,042
1,192
12,904
7,857
893
21,654
7,416
5,182
354
60
76
612
—
6,309
5,097
1,466
12,872
6,209
828
19,909
7,062
5,198
115
1,839
84
979
77
13,700
15,354
1,318
1,935
Rent and operating costs (included in general and administrative expense and property
operating costs)
2,720
2,625
(1)
These amounts include prepaid land costs that will offset the purchase price of future Earnouts.
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MANAGEMENT’S DISCUSSION AND ANALYSIS
(in thousands of dollars)
December 31, 2022
December 31, 2021
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
18,734
39,456
100,280
2,924
161,394
3,504
17,646
21,150
14,953
139,589
116,966
2,924
274,432
3,370
18,931
22,301
(1)
Excludes amounts receivable presented below as part of balances with equity accounted investments. This amount includes amounts receivable of $11.9 million and other of $6.8 million
(December 31, 2021 – $7.0 million and other of $8.0 million).
The following table summarizes the related party balances with the Trust’s equity accounted investments:
(in thousands of dollars)
December 31, 2022
December 31, 2021
Related party balances disclosed elsewhere in the financial statements
Amounts receivable(1)
Loans receivable(2)
Other unsecured debt(3)
616
164,628
141,131
581
139,152
195,562
(1)
(2)
(3)
Amounts receivable includes Penguin’s portion, which represents $0.03 million (December 31, 2021 – $0.004 million) relating to Penguin’s 50% investment in PCVP and 25% investment
in Residences LP.
Loans receivable includes Penguin’s portion, which represents $24.3 million (December 31, 2021 – $23.6 million) relating to Penguin’s 50% investment in PCVP.
Other unsecured debt includes Penguin’s portion, which represents $0.2 million (December 31, 2021 – $6.2 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
2022
1,919
846
2,765
2021
2,628
2,129
4,757
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MANAGEMENT’S DISCUSSION AND ANALYSIS
Section IX — Accounting Policies, Risk Management and Compliance
Significant Accounting Estimates and Policies
In preparing the Trust’s consolidated financial statements and accompanying notes, it is necessary for management to make
estimates, assumptions and judgments that affect the reported amounts of assets and liabilities, the disclosure of contingent
assets and liabilities, and the reported amounts of revenue and expenses during the period. The significant accounting policies of
the Trust are as follows:
Investment properties
Investment properties include income properties and properties under development (land or building, or part of a building, or
both) that are held by the Trust, or leased by the Trust as a lessee, to earn rentals or for capital appreciation or both.
Acquired investment properties are measured initially at cost, including related transaction costs in connection with asset
acquisitions. Certain properties are developed by the Trust internally, and other properties are 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, 2022).
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, 2022. 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 properties 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.
An investment property is classified as held for sale when it is expected that its carrying amount will be recovered principally
through a sale transaction rather than through continuing use. For an investment property to be classified as held for sale: i) it
must be available for immediate sale in its present condition, subject only to terms that are usual and customary for sales of such
property, and ii) the sale must be highly probable, management must be committed to a plan to sell the assets, and the sale is
expected generally within one year of classification. The Trust continues to measure investment properties, including those
classified as held for sale, at fair value. Assets held for sale are presented separately on the consolidated balance sheets.
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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
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, 2022 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”).
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The following table summarizes the Trust’s classification and measurement of financial assets and liabilities:
Note(1)
Classification under IFRS 9
MANAGEMENT’S DISCUSSION AND ANALYSIS
Financial assets
Mortgages, loans and notes receivable
Amounts receivable and other
Cash and cash equivalents
Cash held as collateral
Total return swap receivable
Other financial assets
Financial liabilities
Accounts payable and other payables
Secured debt
Revolving operating facilities
Unsecured debt
Units classified as liabilities
Earnout options
Deferred unit plan (“DUP”)
Long term incentive plan (“LTIP”)
Equity incentive plan (“EIP”)
Other financial liabilities
2.12
2.10
2.13
2.13
2.13
2.13
Amortized cost
Amortized cost
Amortized cost
Amortized cost
FVTPL
FVTPL
Amortized cost
Amortized cost
Amortized cost
Amortized cost
FVTPL
FVTPL
FVTPL
FVTPL
FVTPL
FVTPL
(1)
The Note reference relates to the corresponding Note disclosure in the Trust’s consolidated financial statements for the year ended December 31, 2022.
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 and foreign currency
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, 2022.
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.
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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.
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 economic environment, including but not limited to the inflationary environment,
with rising interest rates. Accordingly, the Trust has not applied its existing ECL methodology mechanically. Instead, during the
current economic 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 is restricted from being exchanged or
used to settle a liability for at least 12 months after the reporting period.
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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
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
Some of 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.
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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, 2022.
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 that
are 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
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reporting date, and (iii) the total granted performance units under the EIP including performance units that are
reinvested. Any adjustments made to the accrued value of EIP are recorded in earnings.
Future Changes in Accounting Policies
The Trust monitors the potential changes proposed by the IASB and analyzes the effect that changes in the standards may have
on the Trust’s operations.
Standards issued but not yet effective up to the date of issuance of the consolidated financial statements for the year ended
December 31, 2022 are described below. This description is of the standards and interpretations issued that the Trust reasonably
expects to be applicable at a future date. The Trust intends to adopt these standards when they become effective.
Amendments to IAS 1, Presentation of Financial Statements – Classification of Liabilities as Current or Non-Current
In January 2020, the IASB issued amendments to IAS 1 to clarify the requirements for classifying liabilities as current or non-
current. The amendments clarify the classification of liabilities as current or non-current based on rights that are in existence at
the end of the reporting period and unaffected by the likelihood that an entity will exercise its right to defer settlement of the
liability for at least 12 months after the reporting period. The amendments also clarify the definition of “settlement” of a liability. In
October 2022, revised amendments in respect of non-current liabilities with covenants were issued. Both amendments are
effective on January 1, 2024 and should be applied retrospectively. Earlier application is permitted. Management is currently
assessing the impact of the amendments on the Trust’s financial statements.
Amendments to IAS 8, Definition of Accounting Estimates
In February 2021, the IASB issued amendments to IAS 8, in which it introduces the definition of “accounting estimates”. The
amendments clarify the distinction between changes in accounting estimates and changes in accounting policies and the
correction of errors. The amendments also clarify that the effects on an accounting estimate of a change in an input or a change
in a measurement technique are changes in accounting estimates unless they result from the correction of prior period errors.
The amendments are effective January 1, 2023, with early adoption permitted. Management is currently assessing the impact of
the amendments on the Trust’s financial statements.
Introduction of IFRS 17, Insurance contracts
In May 2017, the IASB issued the new IFRS 17 standard to replace IFRS 4. IFRS 17, Insurance contracts is a new standard that
sets out principles for the recognition, measurement, presentation and disclosure of insurance contracts within the scope of the
standard. The objective of IFRS 17 is to ensure that an entity provides relevant information that faithfully represents those
contracts. This information gives a basis for users of financial statements to assess the effect that insurance contracts have on
the entity’s financial position, financial performance and cash flows. The new standard is effective on January 1, 2023 and should
be applied retrospectively. Earlier application is permitted. Management is currently assessing the impact of the new standard on
the Trust’s financial statements.
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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”.
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, and the terms of any subsequent lease may be less favourable
to the Trust than the existing lease. In the event of default by a tenant, delays or limitations in enforcing rights as lessor, may be
experienced and substantial costs in protecting the Trust’s investment may be incurred. Furthermore, at any time, a tenant of any
of the Trust’s properties may seek the protection of bankruptcy, insolvency or similar laws that could result in the rejection and
termination of such tenant’s lease and thereby cause a reduction in the cash flow available to the Trust. The ability to rent
unleased space in the properties in which the Trust has an interest will be affected by many factors. Costs may be incurred in
making improvements or repairs to property. The failure to rent vacant space on a timely basis or at all would likely have an
adverse effect on the Trust’s financial condition.
Certain significant expenditures, including property taxes, maintenance costs, mortgage payments, insurance costs and related
charges must be made throughout the period of ownership of real property regardless of whether the property is producing any
income. If the Trust is unable to meet mortgage payments on any property, losses could be sustained as a result of the
mortgagee’s exercise of its rights of foreclosure or sale.
Real property investments tend to be relatively illiquid with the degree of liquidity generally fluctuating in relation to demand for,
and the perceived desirability of, such investments. If the Trust were to be required to liquidate its real property investments, the
proceeds to the Trust might be significantly less than the aggregate carrying value of its properties.
The Trust will be subject to the risks associated with debt financing on its properties and it may not be able to refinance its
properties on terms that are as favourable as the terms of existing indebtedness. In order to minimize this risk, the Trust attempts
to appropriately structure the timing of the renewal of significant tenant leases on the properties in relation to the time at which
mortgage indebtedness on such properties becomes due for refinancing. In addition, the Trust attempts to stagger the maturities
of its various levels of debt over an extended period of time.
Significant deterioration of the retail shopping centre market in general, or the financial health of Walmart and other key tenants
in particular, could have an adverse effect on the Trust’s business, financial condition or results of operations. Also, the
emergence of e-commerce as a platform for retail growth has caused many retailers to change their approach to attracting and
retaining customers. To the extent that some retailers are unsuccessful in attracting and retaining customers because of the
impact of e-commerce on their respective businesses, the Trust may experience additional vacancy and its resulting adverse
effects on financial condition and results of operations including occupancy rates, base rental income, tax and operating cost
recoveries, leasing and other similar costs.
With respect to residential rental properties, in addition to the risks highlighted above, the Trust is subject to the other risks
inherent in the multi-tenant rental property industry, including controlling bad debt exposure, rent control regulations, increases in
operating costs including the costs of utilities (residential leases are often “gross” leases under which the landlord is not able to
pass on costs to its residents), the imposition of increased taxes or new taxes and capital investment requirements.
Liquidity Risk
The Trust’s ability to meet its financial obligations as they become due represents the Trust’s exposure to liquidity risk. It is
management’s intention to either repay or refinance maturing liabilities with newly issued secured or unsecured debt, equity or, in
certain circumstances not expected to occur frequently, the disposition of certain assets. Any net working capital deficiencies are
funded with the Trust’s existing revolving operating facilities. Management expects to finance future acquisitions, including
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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, $720.4 million of liabilities (including
$459.3 million of secured and unsecured debt and $261.1 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.
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.
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.
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Potential Conflicts of Interest
The Trust may be subject to various conflicts of interest because of the fact that the Trustees and executive management, and
their associates, may be engaged in a wide range of real estate and other business activities. The Trust may become involved in
transactions which conflict with the interests of the foregoing. The Trustees, executive management and their associates or
affiliates may from time to time deal with persons, firms, institutions or corporations with which the Trust may be dealing, or which
may be seeking investments similar to those desired by the Trust. The interests of these persons could conflict with those of the
Trust. In addition, from time to time, these persons may be competing with the Trust for available investment opportunities. The
Declaration of Trust contains “conflicts of interest” provisions requiring Trustees or officers of the Trust to disclose material
interests in material contracts and transactions and refrain from voting.
Cyber Security
Cyber security has become an increasingly problematic issue for issuers and businesses in Canada and around the world,
including for the Trust and the real estate industry. Cyber attacks against large organizations are increasing in sophistication and
are often focused on financial fraud, compromising sensitive data for inappropriate use or disrupting business operations. Such
an attack could compromise the Trust’s confidential information as well as that of the Trust’s employees, tenants and third parties
with whom the Trust interacts and may result in negative consequences, including remediation costs, loss of revenue, additional
regulatory scrutiny, litigation and reputational damage. As a result, the Trust continually monitors for malicious threats and adapts
accordingly in an effort to ensure it maintains high privacy and security standards. The Trust invests in cyber-defence
technologies to support its business model and to protect its systems, employees and tenants and seeks to employ industry best
practices. The Trust’s investments continue to manage the risks it faces today and position the Trust for the evolving threat
landscape. The Trust also follows certain protocols when it engages software and hardware vendors concerning data security
and access controls.
Debt Financing
The ability of the Trust to make cash distributions or make other payments or advances is subject to applicable laws and
contractual restrictions contained in the instruments governing its indebtedness. The degree to which the Trust is leveraged
could have important consequences to the holders of its securities, including: that the Trust’s ability to obtain additional financing
for working capital, capital expenditures or acquisitions in the future may be limited; that a significant portion of the Trust’s cash
flow from operations may be dedicated to the payment of the principal of and interest on its indebtedness, thereby reducing
funds available for future operations and distributions; that certain of the Trust’s borrowings may be at variable rates of interest,
which exposes it to the risk of increased interest rates; and that the Trust may be 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 provide lenders with first charge security interests on most of the income-producing properties in its
portfolio. These credit facilities contain 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
As a means of curbing inflation, the Bank of Canada increased interest rates in 2022. Higher interest rates or downgrade in the
Trust’s credit rating 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 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 121,000 square feet of additional income properties at a cost determined by
capitalizing the rental income at predetermined rates. Subject to the ability of the Trust to obtain financing on acceptable terms,
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the Trust anticipates that it will finance these acquisitions by issuing additional debt and equity. Changes in interest rates will
have an impact on the return from these acquisitions should the rate exceed the capitalization rate used and could result in a
purchase not being accretive. This risk is mitigated as management has certain rights of approval over the developments and
acquisitions.
Operating facilities, secured debt and unsecured debt exist that are priced at a risk premium over short-term rates. Changes in
short-term interest rates will have an impact on the cost of financing. In addition, there is a risk the lenders will not refinance on
maturity. By restricting the amount of both variable interest rate debt and short-term debt, the Trust minimizes the impact of
changes in short-term rates on financial performance.
The Canadian capital markets are competitively priced. In addition, the secured debt market remains strong with lenders seeking
quality products. Due to the quality and location of the Trust’s real estate, management expects to meet its financial obligations.
Inflation Risk
Canada’s inflation rate remains at a historically high level. Recent inflationary pressures experienced domestically and globally,
external supply constraints, tight labour markets and strong demand for goods and resources, together with the imposition by
governments of higher interest rates as a means of curbing inflationary increases, will put pressure on the Trust’s development,
financing, operation and labour costs and could negatively impact levels of demand for real property. Accordingly, continued
inflationary pressures and the resulting economic impacts may adversely affect the Trust’s financial condition and results of
operations. If inflation at elevated levels persists and interest rates continue to climb, an economic contraction could be possible.
Higher inflation and the prospect of moderated growth also negatively impacts the debt and equity markets in which the Trust
seeks capital, and in turn might impact the Trust’s ability to obtain capital in the future on favourable terms, or at all. While the
Trust’s portfolio and market position, as well as its strong and stable tenant base, provide the Trust with flexibility to navigate
volatile economic conditions, there can be no assurances regarding the impact of a significant economic contraction on the
business, operations, and financial performance of the Trust and its tenants.
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 land parcel 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.
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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 fulfil their lease commitments. The Trust
mitigates this risk of credit loss by reviewing tenants’ covenants, ensuring its tenant mix is diversified and limiting its exposure to
any one tenant, except Walmart Canada because of its creditworthiness. Further risks arise in the event that borrowers may
default on the repayment of amounts owing to the Trust. The Trust endeavours to ensure adequate security has been provided in
support of mortgages and loans receivable. The failure of the Trust’s tenants or borrowers to pay the Trust amounts owing on a
timely basis or at all would have an adverse effect on the Trust’s financial condition.
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 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, 2022 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.
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MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2022 ANNUAL REPORT MANAGEMENT’S DISCUSSION AND ANALYSIS
Availability of Cash Flow
Cash distributions to Unitholders may be reduced from time to time if such distributions would exceed the cash obligations of the
Trust from time to time due to items such as principal repayments, tenant allowances, leasing commissions and capital
expenditures and redemption of Units, if any. The Trust may be required to use part of its debt capacity or to reduce distributions
in order to accommodate such items. The Trust anticipates temporarily funding such items, if necessary, through an operating
line of credit in expectation of refinancing long-term debt on its maturity.
Significant Unitholder Risk
According to reports filed under applicable Canadian securities legislation, as at December 31, 2022, Mitchell 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, 2022, 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, 2022. 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.
Public Health Crises Risks
Public health crises, including the 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; viii) the impact to the Trust’s financial covenants; and (ix) changing consumer habits and foot traffic to the Trust’s
properties and tenants’ stores.
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MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2022 ANNUAL REPORT MANAGEMENT’S DISCUSSION AND ANALYSIS
As global vaccination programs and other treatment options have advanced, governmental agencies, health agencies and
private sector participants have eased restrictive measures that were previously imposed to varying degrees in an effort to
contain the spread of COVID-19. Nevertheless, COVID-19 continues to impose risks and uncertainties on the Trust’s business,
operations and financial performance. The 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.
The Trust is 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.
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.
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, 2022.
Environmental, Social and Governance (“ESG”)
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. In addition, the Board of
Trustees established a sub-committee of its audit committee to focus on ESG issues. The Trust has published its 2022 ESG
report, which can be found on the Trust’s website (www.smartcentres.com). The information on SmartCentres’ website does not
form part of this MD&A.
Disclosure Controls and Procedures and Internal Controls 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 annual 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, 2022
that materially affected, or are reasonably likely to materially affect, the Trust’s internal controls 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, 2022, and concluded that it was effective.
Internal Controls 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, 2022, and concluded that it
was effective.
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MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2022 ANNUAL REPORT MANAGEMENT’S DISCUSSION AND ANALYSIS
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.
Section X — Glossary of Terms
Term
Definition
Anchors or Anchor tenants
Anchors or Anchor tenants are defined as tenants within a retail or office
property with gross leasable area greater than 30,000 square feet.
CAM
ECL
Exchangeable Securities
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 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.
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MANAGEMENT’S DISCUSSION AND ANALYSISSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2022 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 Slan
Chief Financial Officer
98
SMARTCENTRES REAL ESTATE INVESTMENT TRUST 2022 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
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects,
Our opinion
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
Trust) as at December 31, 2022 and 2021, and its financial performance and its cash flows for the years
SmartCentres Real Estate Investment Trust and its subsidiaries (together, the Trust) as at December 31, 2022 and 2021, and its
then ended in accordance with International Financial Reporting Standards as issued by the International
financial performance and its cash flows for the years then ended in accordance with International Financial Reporting Standards
Accounting Standards Board (IFRS).
as issued by the International Accounting Standards Board (IFRS).
What we have audited
The Trust’s consolidated financial statements comprise:
What we have audited
The Trust’s consolidated financial statements comprise:
• the consolidated balance sheets as at December 31, 2022 and 2021;
the consolidated balance sheets as at December 31, 2022 and 2021;
• 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 income and comprehensive income for the years then ended;
• the consolidated statements of equity for the years then ended; and
the consolidated statements of cash flows for the years then ended;
• the notes to the consolidated financial statements, which include significant accounting policies and other explanatory
information.
the consolidated statements of equity for the years then ended; and
the notes to the consolidated financial statements, which include significant accounting policies and
other explanatory information.
Basis for opinion
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.
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 Auditor’s responsibilities for the audit of
the consolidated financial statements section of our report.
Independence
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our opinion.
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
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 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, 2022. 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 matters
PricewaterhouseCoopers LLP
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, 2022. 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.
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.
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.
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SMARTCENTRES REAL ESTATE INVESTMENT TRUST 2022 ANNUAL REPORT 100
SMARTCENTRES REAL ESTATE INVESTMENT TRUST 2022 ANNUAL REPORTKey audit matter How our audit addressed the key audit matter Valuation of investment properties Refer to note 2 – Summary of significant accounting policies and note 4 – Investment properties to the consolidated financial statements. The Trust measures its investment properties at fair value and, as at December 31, 2022, total investment properties were valued at $10,250 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 determination of estimated future cash flows incorporates significant assumptions including expectations of changes in rental rates, occupancy rates, lease renewal rates 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 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. – 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. – Assessed the market value of land per acre used by management by comparing it to external market and industry data. 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, 2022, total investment properties were valued at $10,250 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 determination of estimated future cash flows incorporates significant assumptions including expectations of changes in rental rates, occupancy rates, lease renewal rates 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.– 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. • 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 | 2022 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 any
form of assurance conclusion thereon.
Key audit matter
How our audit addressed the key audit matter
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.
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.
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.
Other information
Responsibilities of management and those charged with governance for the consolidated financial
statements
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.
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.
Our opinion on the consolidated financial statements does not cover the other information and we do not
and will not express any form of assurance conclusion thereon.
In preparing the consolidated financial statements, management is responsible for assessing the Trust’s ability to continue as a
going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting
In connection with our audit of the consolidated financial statements, our responsibility is to read the other
unless management either intends to liquidate the Trust or to cease operations, or has no realistic alternative but to do so.
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.
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
auditor’s report, we conclude that there is a material misstatement of this other information, we are
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from
required to report that fact. We have nothing to report in this regard. When we read the information, other
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
than the consolidated financial statements and our auditor’s report thereon, included in the annual report,
accepted auditing standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or
if we conclude that there is a material misstatement therein, we are required to communicate the matter to
error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the
those charged with governance.
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
•
•
•
•
than
forgery,
from error, as
for one resulting
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
Management is responsible for the preparation and fair presentation of the consolidated financial
appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is
statements in accordance with IFRS, and for such internal control as management determines is
intentional omissions,
fraud may
higher
misrepresentations, or the override of internal control.
necessary to enable the preparation of consolidated financial statements that are free from material
misstatement, whether due to fraud or error.
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 Trust’s internal
In preparing the consolidated financial statements, management is responsible for assessing the Trust’s
control.
ability to continue as a going concern, disclosing, as applicable, matters related to going concern and
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related
using the going concern basis of accounting unless management either intends to liquidate the Trust or to
disclosures made by management.
cease operations, or has no realistic alternative but to do so.
involve collusion,
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
Those charged with governance are responsible for overseeing the Trust’s financial reporting process.
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.
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SMARTCENTRES REAL ESTATE INVESTMENT TRUST 2022 ANNUAL REPORT •
•
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.
Auditor’s 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 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 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 Trust’s internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by management.
Conclude on the appropriateness of management’s use of the going concern basis of accounting and,
based on the audit evidence obtained, whether a material uncertainty exists related to events or
conditions that may cast significant doubt on the 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.
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 | 2022 ANNUAL REPORT
102
SMARTCENTRES REAL ESTATE INVESTMENT TRUST 2022 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 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.
Chartered Professional Accountants, Licensed Public Accountants
Vaughan, Ontario
February 8, 2023
The engagement partner on the audit resulting in this independent auditor’s report is Daniel D’Archivio.
/s/ PricewaterhouseCoopers LLP
Chartered Professional Accountants, Licensed Public Accountants
Vaughan, Ontario
February 8, 2023
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2022 ANNUAL REPORT 5
103
SMARTCENTRES REAL ESTATE INVESTMENT TRUST 2022 ANNUAL REPORT 2022
2022
10,208,071
10,208,071
680,999
680,999
238,099
238,099
171,807
171,807
83,230
83,230
43,807
43,807
11,426,013
11,426,013
42,321
42,321
40,373
40,373
86,593
86,593
57,124
57,124
14,474
14,474
35,255
35,255
276,140
276,140
11,702,153
11,702,153
4,523,987
4,523,987
277,400
277,400
17,265
17,265
4,818,652
4,818,652
459,278
459,278
261,122
261,122
720,400
720,400
5,539,052
5,539,052
5,126,197
5,126,197
1,036,904
1,036,904
6,163,101
6,163,101
11,702,153
11,702,153
2021
2021
9,847,078
9,847,078
654,442
654,442
345,089
345,089
97,148
97,148
80,940
80,940
45,139
45,139
11,069,836
11,069,836
—
—
27,399
27,399
71,947
71,947
49,542
49,542
12,289
12,289
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
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
Note
Note
Investment properties
Investment properties
Equity accounted investments
Equity accounted investments
Mortgages, loans and notes receivable
Mortgages, loans and notes receivable
Other financial assets
Other financial assets
Other assets
Other assets
Intangible assets
Intangible assets
4
4
5
5
6
6
8
8
7
7
9
9
Current assets
Current assets
Assets held for sale
Assets held for sale
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
Prepaid expenses, deposits and deferred financing costs
Prepaid expenses, deposits and deferred financing costs
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
4
4
10
10
6
6
11
11
11
11
21
21
12
12
13
13
14
14
12
12
14
14
Total liabilities and equity
Total liabilities and equity
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
104
6 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2022 ANNUAL REPORT
6 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2022 ANNUAL REPORT
SMARTCENTRES REAL ESTATE INVESTMENT TRUST 2022 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
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
2022
2021
18
19
20
5
26
804,598
(301,994)
502,604
780,796
(294,956)
485,840
(33,269)
4,199
201,834
315
(31,922)
211,420
491,528
27
12(d)
(148,702)
(144,540)
26
18,036
91,246
(298)
635,965
516,049
119,916
635,965
12,341
(34,227)
(2,791)
987,676
827,976
159,700
987,676
The accompanying notes are an integral part of the consolidated financial statements.
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2022 ANNUAL REPORT 7
105
SMARTCENTRES REAL ESTATE INVESTMENT TRUST 2022 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
Repayment of unsecured debentures
Proceeds from unsecured debt
Proceeds from revolving operating facilities
Repayments of secured debt
Repayments of revolving operating facility
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 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
Decrease 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 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
2022
2021
21
12(d)
5
21
12(b)
3
7
8(b)
635,965
(154,639)
(139,693)
44,119
4,784
(9,860)
(1,897)
(8,017)
370,762
—
700,000
392,000
(281,983)
(610,000)
(154,913)
(267,563)
(52,007)
(1,883)
(276,349)
(128,389)
(131,057)
(22,774)
(1,589)
(94,821)
145,100
(50,485)
120,800
41,822
(121,393)
(26,980)
62,235
35,255
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)
(1,873)
(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
8 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2022 ANNUAL REPORT
106
SMARTCENTRES REAL ESTATE INVESTMENT TRUST 2022 ANNUAL REPORT
SMARTCENTRES REAL ESTATE INVESTMENT TRUST
CONSOLIDATED STATEMENTS OF EQUITY
For the years ended December 31, 2022 and December 31, 2021
(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, 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
Equity – January 1, 2022
3,090,368 1,787,593 4,877,961
641,944 317,965 959,909
3,445 5,841,315
Issuance of Units
Unit issuance costs
Net income and comprehensive income
Distributions
16
16
17
—
(250)
—
—
—
1,279
—
1,279
(250)
—
—
—
—
—
1,279
(250)
— 516,049 516,049
— 119,519 119,519
397 635,965
— (267,563) (267,563)
— (47,363) (47,363)
(282) (315,208)
Equity – December 31, 2022
3,090,118 2,036,079 5,126,197
643,223 390,121 1,033,344
3,560 6,163,101
The accompanying notes are an integral part of the consolidated financial statements.
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2022 ANNUAL REPORT 9
107
SMARTCENTRES REAL ESTATE INVESTMENT TRUST 2022 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SMARTCENTRES REAL ESTATE INVESTMENT TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2022 and December 31, 2021
(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, self-storage rental facilities, and industrial 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. 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 8, 2023. The Board
of Trustees has the power to amend the consolidated financial statements after issue.
As at December 31, 2022, the Penguin Group of Companies (“Penguin”), owned by Mitchell Goldhar, owned approximately
20.8% (December 31, 2021 – 20.8%) 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
these co-ownerships in the respective lines in the consolidated financial statements (see Note 24, “Co-owned property
interests”).
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108
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2022 ANNUAL REPORT 2.3
Equity accounted investments
a) Investment in associates
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Investment in associates includes entities over which the Trust has significant influence but not control or joint
control, generally accompanying an ownership of between 20% and 50% of the voting rights. Investment in
associates is accounted for using the equity method of accounting and recorded as equity accounted investments
on the consolidated balance sheet. Under the equity method, the investment is initially recognized at cost, and the
carrying amount is increased or decreased to recognize the investor’s share of the profit or loss of the investee,
including the Trust’s pro rata share of changes in fair value of investment property held by the associate from the
previous reporting period, after the date of acquisition. The Trust’s investment in associates includes any notional
goodwill identified on acquisition.
b) Investment in joint ventures
A joint venture is a joint arrangement whereby the parties that have joint control only have rights to the net assets
of the arrangement. Investment in joint ventures is accounted for using the equity method of accounting and
recorded as equity accounted investments on the consolidated balance sheet. Under the equity method, the
investment is initially recognized at cost, and the carrying amount is increased or decreased to recognize the
investor’s share of the profit or loss of the investee, including the Trust’s pro rata share of changes in fair value of
investment property held by the equity accounted investment from the previous reporting period, after the date of
acquisition. The Trust’s investment in joint ventures includes any notional goodwill identified on acquisition.
The Trust’s share of post-acquisition profit or loss is recognized in the consolidated statement of income and
comprehensive income with a corresponding adjustment to the carrying amount of the equity accounted investment.
When the Trust’s share of losses in an equity accounted investment equals or exceeds its interest in the equity
accounted investment, including any other unsecured receivables, the Trust does not recognize further losses, unless it
has incurred legal or constructive obligations or made payments on behalf of the equity accounted investment.
The Trust determines at each reporting date whether there is any objective evidence that the equity accounted
investment is impaired. If this is the case, the Trust calculates the amount of impairment as the difference between the
recoverable amount of the equity accounted investment and its carrying value and recognizes the amount in the
consolidated statement of income and comprehensive income.
Profits and losses resulting from upstream and downstream transactions between the Trust and its equity accounted
investment are recognized in the Trust’s consolidated financial statements only to the extent of an unrelated investor’s
interests in the equity accounted investment. Accounting policies of equity accounted investments are updated when
necessary to ensure consistency with the policies adopted by the Trust.
Condominium sales revenue
Some of 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
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,
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2022 ANNUAL REPORT 11
109
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2022 ANNUAL REPORT NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
net of land and development costs incurred by the Trust (see Note 4(d)(ii)). The completion of an Earnout is reflected as
an additional purchase in Note 3, “Acquisitions and Earnouts”. Costs capitalized to properties under development
include direct development and construction costs, Earnout Fees (“Earnout Fees”), borrowing costs, property taxes and
other carrying costs, as well as capitalized staff compensation and other costs directly attributable to property under
development.
Borrowing costs that are incurred for the purpose of, and are directly attributable to, acquiring or constructing a
qualifying investment property are capitalized as part of its cost. The amount of borrowing costs capitalized is
determined first by reference to borrowings specific to the project, where relevant, and otherwise by applying a weighted
average cost of borrowings to eligible expenditures after adjusting for borrowings associated with other specific
developments. Borrowing costs are capitalized while acquisition or construction is actively underway and cease once
the asset is ready for use as intended by management, or suspended if the development of the asset is suspended, as
identified by management.
After the initial recognition, investment properties are recorded at fair value, determined based on comparable
transactions, if any. If comparable transactions are not available, the Trust uses alternative valuation methods such as:
i) the 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.
An investment property is classified as held for sale when it is expected that its carrying amount will be recovered
principally through a sale transaction rather than through continuing use. For an investment property to be classified as
held for sale: i) it must be available for immediate sale in its present condition, subject only to terms that are usual and
customary for sales of such property, and ii) the sale must be highly probable, management must be committed to a
plan to sell the assets, and the sale is expected generally within one year of classification. The Trust continues to
measure investment properties, including those classified as held for sale, at fair value. Assets held for sale are
presented separately on the consolidated balance sheets.
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
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2.6
2.7
2.8
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).
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”.
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The Trust Units meet the Puttable Instrument Exemption criteria and accordingly are presented as equity in the
consolidated financial statements. The distributions on Trust Units are deducted from retained earnings.
b) Limited Partnership Units
The Class B General Partnership Units and Class D Limited Partnership Units of Smart Limited Partnership
(referred to herein as “Smart LP Units”), Class B Limited Partnership Units of Smart Limited Partnership II
(referred to herein as “Smart LP II Units”), Class B General Partnership Units of Smart Limited Partnership III
(referred to herein as “Smart LP III Units”), Class B General Partnership Units of Smart Limited Partnership IV
(referred to herein as “Smart LP IV Units”), Class B General Partnership Units and Class D Limited Partnership
Units of Smart Oshawa South Limited Partnership (referred to herein as “Smart Oshawa South LP Units”), Class B
General Partnership Units and Class D Limited Partnership Units of Smart Oshawa Taunton Limited Partnership
(referred to herein as “Smart Oshawa Taunton LP Units”), Class B Limited Partnership Units of ONR Limited
Partnership (referred to herein as “ONR LP Units”), Class B Limited Partnership Units of ONR Limited Partnership
I (referred to herein as “ONR LP I Units”), 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”).
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2022 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
Other financial assets
Financial liabilities
Accounts payable and other payables
Secured debt
Revolving operating facilities
Unsecured debt
Units classified as liabilities
Earnout options
Deferred unit plan (“DUP”)
Long term incentive plan (“LTIP”)
Equity incentive plan (“EIP”)
Other financial liabilities
a) Financing costs
2.12
2.10
2.13
2.13
2.13
2.13
Amortized cost
Amortized cost
Amortized cost
Amortized cost
FVTPL
FVTPL
Amortized cost
Amortized cost
Amortized cost
Amortized cost
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 and foreign
currency 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.
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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
economic environment, including but not limited to the inflationary environment, with rising interest rates.
Accordingly, the Trust has not applied its existing ECL methodology mechanically. Instead, during the current
economic 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.
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2.13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 is
restricted from being exchanged or used to settle a liability for at least 12 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.
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
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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
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 rents receivable.
Lease incentives provided to tenants are deferred and 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.
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2.16
2.17
2.18
2.19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Trust recognizes non-lease component revenue to depict the transfer of goods or services to customers in
amounts that reflect the consideration to which the Trust expects to be entitled in exchange for those goods or
services. It applies to all contracts with customers, excluding leases, financial instruments and insurance
contracts.
Tenant receivables
Tenant receivables are recognized initially at fair value and subsequently are measured at amortized cost using the
effective interest method, less impairment provision. The carrying amount of tenant receivables is reduced through the
use of expected credit losses, and a loss is recorded in the consolidated statements of income and comprehensive
income within “Property operating costs”. The Trust records the expected credit loss to comply with IFRS 9’s simplified
approach for tenant receivables where its loss allowance is measured at initial recognition and throughout the life of the
receivable at an amount equal to lifetime expected credit loss.
Current and deferred income tax
The Trust is taxed as a mutual fund trust for Canadian income tax purposes. In accordance with the Declaration of
Trust, distributions to Unitholders are declared at the discretion of the Trustees. The Trust endeavours to declare
distributions in each taxation year in such an amount as is necessary to ensure that the Trust will not be subject to tax
on its net income and net capital gains under Part I of the Income Tax Act (Canada) (“Tax Act”).
The Trust qualifies for the REIT Exception under the specified investment flow-through (“SIFT”) trust rules for
accounting purposes. The Trust considers the tax deductibility of the Trust’s distributions to Unitholders to represent, in
substance, an exemption from current tax so long as the Trust continues to expect to distribute all of its taxable income
and taxable capital gains to its Unitholders. Accordingly, the Trust will not recognize any current tax or deferred income
tax assets or liabilities on temporary differences in the Trust’s financial statements.
Distributions
Distributions are recognized as a deduction from retained earnings for the Trust Units and the Limited Partnership Units
classified as equity, and as interest expense for the Units classified as liabilities and vested deferred units, in the Trust’s
consolidated financial statements in the period in which the distributions are approved.
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 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.
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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.
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, 2022 include all variable-rate financial
instruments, and are presented in the table below:
As at
December 31, 2022
Financial instruments measured at amortized cost
Balance yet to transition to an alternative benchmark interest rate
Financial assets
Mortgages receivable
Loans receivable
Financial liabilities
Secured debt
Unsecured debt
Revolving operating facilities
39,456
140,123
179,579
31,536
1,143,232
81,283
1,256,051
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.
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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.
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 Exemption 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”.
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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 that are reinvested. Any adjustments made to the accrued value of the 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 performance units under the EIP including
performance units that are reinvested. Any adjustments made to the accrued value of the EIP are recorded in
earnings.
2.24
Reclassification of comparative figures
The comparative figures relating to “Deferred financing costs”, in the amount of $1,269, have been grouped to “Prepaid
expenses and deposits” (see also Note 11, “Amounts receivable and other, prepaid expenses, deposits and deferred
financing costs”) to conform with the current period presentation.
The comparative figures relating to “Earnings from other”, in the amount of $38, have been grouped to “Rentals from
investment properties and other” (see also Note 18, “Rentals from investment properties and other”) to conform with the
current period presentation.
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Future changes in accounting policies
The Trust monitors the potential changes proposed by the IASB and analyzes the effect that changes in the standards
may have on the Trust’s operations.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Standards issued but not yet effective up to the date of issuance of the consolidated financial statements for the year
ended December 31, 2022 are described below. This description is of the standards and interpretations issued that the
Trust reasonably expects to be applicable at a future date. The Trust intends to adopt these standards when they
become effective.
Amendments to IAS 1, Presentation of Financial Statements – Classification of Liabilities as Current or Non-Current
In January 2020, the IASB issued amendments to IAS 1 to clarify the requirements for classifying liabilities as current or
non-current. The amendments clarify the classification of liabilities as current or non-current based on rights that are in
existence at the end of the reporting period and unaffected by the likelihood that an entity will exercise its right to defer
settlement of the liability for at least 12 months after the reporting period. The amendments also clarify the definition of
“settlement” of a liability. In October 2022, revised amendments in respect of non-current liabilities with covenants were
issued. Both amendments are effective on January 1, 2024 and should be applied retrospectively. Earlier application is
permitted. Management is currently assessing the impact of the amendments on the Trust’s financial statements.
Amendments to IAS 8, Definition of Accounting Estimates
In February 2021, the IASB issued amendments to IAS 8, in which it introduces the definition of “accounting estimates”.
The amendments clarify the distinction between changes in accounting estimates and changes in accounting policies
and the correction of errors. The amendments also clarify that the effects on an accounting estimate of a change in an
input or a change in a measurement technique are changes in accounting estimates unless they result from the
correction of prior period errors. The amendments are effective January 1, 2023, with early adoption permitted.
Management is currently assessing the impact of the amendments on the Trust’s financial statements.
Introduction of IFRS 17, Insurance contracts
In May 2017, the IASB issued the new IFRS 17 standard to replace IFRS 4. IFRS 17, Insurance contracts is a new
standard that sets out principles for the recognition, measurement, presentation and disclosure of insurance contracts
within the scope of the standard. The objective of IFRS 17 is to ensure that an entity provides relevant information that
faithfully represents those contracts. This information gives a basis for users of financial statements to assess the effect
that insurance contracts have on the entity’s financial position, financial performance and cash flows. The new standard
is effective on January 1, 2023 and should be applied retrospectively. Earlier application is permitted. Management is
currently assessing the impact of the new standard on the Trust’s financial statements.
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3. Acquisitions and Earnouts
Acquisitions and Earnouts completed during the year ended December 31, 2022
a.
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, for a total purchase price of
$100,000 and adjusted for costs of acquisition and other working capital amounts, which was paid in cash and funded from
the Trust’s existing operating facilities. Upon completion of the acquisition, the Trust became the 100% owner of these
properties.
b.
c.
d.
In January 2022, the Trust acquired a 25% interest in parcels of land from its unrelated partner located in Mirabel, Quebec,
for a purchase price of $2,609, paid in cash and adjusted for costs of acquisition. Upon completion of the acquisition, the
Trust’s interest in these parcels of land increased to 50%.
In June 2022, the Trust acquired a parcel of land in Pickering, Ontario, for investment property development for gross
proceeds of $16,635, paid in cash and adjusted for costs of acquisition and other working capital amounts.
During the year ended December 31, 2022, 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 Earnout
transactions on 7,114 square feet of retail space and three land parcels. The purchase price was $1,661 for retail space
and $7,549 for land parcels, of which $315 was satisfied through the issuance of 11,198 Class B Series 5 Smart LP III
Units, $964 was satisfied through the issuance of 18,655 Class B Series 1 Smart LP IV Units and 12,419 Class B Series 6
Smart LP III Units (see also Note 13(b) and Note 16, “Unit equity”), and the balance was paid in cash, adjusted for other
working capital amounts.
The following table summarizes the consideration for Acquisitions and Earnouts completed for the year ended December 31,
2022:
Cash
LP Units issued
Adjustments for other working capital amounts
Note
Acquisitions
Earnouts
4(d)(ii)
120,201
—
2,013
122,214
8,188
1,279
(257)
9,210
Total
128,389
1,279
1,756
131,424
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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,
2022:
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
See also Note 5, “Equity accounted investments”, for additional details on acquisitions reflected in equity accounted investments.
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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
Deferred leasing costs
Development expenditures
Capitalized interest
Dispositions
Year Ended December 31, 2022
Year Ended December 31, 2021
Note
Income
Properties
Properties
Under
Development
Income
Properties
Total
Properties
Under
Development
Total
8,395,077
1,452,001
9,847,078 8,267,430
582,960 8,850,390
101,993
28,679
130,672
22,015
499,700 521,715
4(d)(ii)
1,401
—
1,401
2,397
—
2,397
39,707
(39,707)
—
40,555
(40,555)
(7,887)
7,887
—
(2,400)
2,400
—
—
—
(25,000)
(25,000)
—
(6,850)
(6,850)
19,912
1,589
—
—
19,912
17,472
1,589
3,057
—
17,472
—
3,057
—
—
79,373
35,036
79,373
35,036
—
—
53,186
53,186
14,333
14,333
(777)
(40,726)
(41,503)
(62,865)
(37,285) (100,150)
Fair value adjustment on revaluation of investment
properties
Balance – end of year
Investment properties
26
(54,122)
255,956
201,834 107,416
384,112 491,528
8,496,893
1,753,499 10,250,392 8,395,077
1,452,001 9,847,078
8,496,893
1,711,178 10,208,071 8,395,077
1,452,001 9,847,078
Investment properties classified as held for sale
4(e)
—
42,321
42,321
—
—
—
8,496,893
1,753,499 10,250,392 8,395,077
1,452,001 9,847,078
The historical costs of both income properties and properties under development as at December 31, 2022 totalled $6,765,293
and $1,338,313, respectively (December 31, 2021 – $6,603,696 and $1,273,350, respectively).
Secured debt with a carrying value of $969,054 (December 31, 2021 – $1,294,546) is secured by investment properties with a
fair value of $2,807,896 (December 31, 2021 – $3,206,478).
Presented separately from investment properties is $78,820 (December 31, 2021 – $76,042) of net straight-line rents receivable
and tenant incentives (these amounts are included in Note 7, “Other assets”) 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.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The significant areas of estimation uncertainty in determining the fair value of income properties include the projected
cash flows and the discount rate for each property. The projected cash flows for each property are based on expected
inflows and outflows, and are based on the location, type and quality of the property and supported by the terms of any
existing leases, other contracts or external evidence such as current market rents for similar properties, and adjusted for
estimated vacancy rates based on current and expected future market conditions after expiry of any current leases and
expected maintenance costs. The discount rate for each property is based on the location, size and quality of the
property, taking into account market data at the valuation date.
ii) 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.
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.
The following table summarizes significant assumptions in Level 3 valuations along with corresponding fair values for
investment properties:
Valuation Method
Income properties
Discounted cash flow
Properties under development
Land, development and construction
costs recorded at market value
Discounted cash flow
Total
Valuation Method
Income properties
December 31, 2022
Terminal Capitalization Rate
Discount Rate
Carrying Value
Weighted
Average (%)
Range (%)
Weighted
Average (%)
Range (%)
8,496,893
5.92
4.18 – 7.53
6.43
4.58 – 8.03
N/A
6.06
N/A
5.53 – 7.40
N/A
6.66
N/A
6.03 – 7.90
1,627,880
125,619
1,753,499
10,250,392
December 31, 2021
Terminal Capitalization Rate
Discount Rate
Carrying Value
Weighted
Average (%)
Range (%)
Weighted
Average (%)
Range (%)
Discounted cash flow
8,395,077
5.83
4.18 – 7.43
6.34
4.58 – 7.93
Properties under development
Land, development and construction
costs recorded at market value
Discounted cash flow
1,324,263
127,738
1,452,001
9,847,078
N/A
5.92
N/A
4.89 – 7.30
N/A
6.53
N/A
5.64 – 7.80
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
Income properties
Rate Sensitivity (%)
Increase (decrease) in fair value of income properties due to:
(1.00)
(0.50)
(0.25)
+0.25
+0.50
+1.00
Changes in discount rates
1,821,700
823,500
392,800
(359,600)
(690,700)
(1,278,500)
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
(849,300)
(424,200)
(211,800)
212,700
423,900
849,200
Properties under development
Rate Sensitivity (%)
(1.00)
(0.50)
(0.25)
+0.25
+0.50
+1.00
Increase (decrease) in fair value of properties under development due to:
Changes in discount rates
28,600
13,000
6,200
(5,900)
(11,000)
(20,600)
Forecasted Future Cash Flows Sensitivity (%)
(10.00)
(5.00)
(2.50)
+2.50
+5.00
+10.00
Increase (decrease) in fair value of properties under development due to:
Changes in forecasted future cash flows
(12,500)
(6,200)
(3,200)
3,000
6,100
12,100
b) Dispositions
Disposition of investment properties during the year ended December 31, 2022
In January 2022, the Trust sold its 40% interest in a parcel of land totalling 1.39 acres located in Markham, Ontario, for gross
proceeds of $800 to a joint venture, Boxgrove Self Storage Limited Partnership, for development of a self-storage facility
(see also, Note 5(b)).
In March 2022, the Trust sold a parcel of land totalling 4.62 acres located in Laval East, Quebec, for gross proceeds of
$5,600, which was satisfied by cash.
In April 2022, the Trust sold a parcel of land totalling 6.48 acres located in Stouffville, Ontario, for gross proceeds of $18,365,
which was satisfied by cash.
In September 2022, the Trust sold a parcel of land totalling 6.86 acres located in London, Ontario, for gross proceeds of
$15,180, which was satisfied by cash.
In December 2022, the Trust contributed its interest in a parcel of land totalling 2.31 acres located in Vaughan, Ontario, for a
value of $25,000 to a joint venture, Vaughan NW RR PropCo LP, for development of a retirement residence (see also, Note
5(b)).
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)).
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
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
c) Leasehold property interests
At December 31, 2022, 16 (December 31, 2021 – 16) investment properties with a fair value of $964,916 (December 31,
2021 – $977,376) are leasehold property interests accounted for as leases.
i)
Leasehold property interests without bargain purchase options
The Trust previously 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, 2021 – $889,931), including prepaid
land rent of $229,846 (December 31, 2021 – $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, 2021 – $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 $2,350
(December 31, 2021 – $2,145), net of imputed interest at 9.18% of $7,650 (December 31, 2021 – $7,855) (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 $6,061 (December 31, 2021 – $6,138), net of imputed interest
at 6.25% of $314 (December 31, 2021 – $649) (see also Note 14, “Accounts and other payables”).
d) Properties under development
The following table presents properties under development:
As at
December 31, 2022
December 31, 2021
Properties under development not subject to development management agreements i)
Properties under development subject to development management agreements ii)
Less: properties under development classified as held for sale
1,698,652
54,847
1,753,499
42,321
1,711,178
1,391,301
60,700
1,452,001
—
1,452,001
For the year ended December 31, 2022, the Trust capitalized a total of $35,036 (year ended December 31, 2021 – $14,333)
of borrowing costs related to properties under development.
i)
Properties under development not subject to development management agreements
During the year ended December 31, 2022, 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, 2022, the Trust incurred land and development costs of $39,893 (year ended
December 31, 2021 – $26,328).
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
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
right for a period of up to 10 years to earn an Earnout Fee (subject to options and extensions in certain
circumstances). On completion and rental of additional space on these properties, the Trust is obligated to pay the
Earnout Fee and 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 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”.
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 III
Smart Limited Partnership III
Smart Limited Partnership III
Smart Limited Partnership IV
Class and Series
Class B Series 2
Class B Series 4
Class B Series 5
Class B Series 6
Class B Series 1
Year Ended December 31
2022
—
—
315
392
572
2021
229
34
—
780
695
1,279
1,738
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
2022
8,582
1,401
9,983
2021
12,902
2,397
15,299
e) Investment properties classified as held for sale
As at December 31, 2022, land parcels classified as held for sale had a carrying value of $42,321. Subsequent to
December 31, 2022, the Trust disposed of the land parcels classified as held for sale (see also Note 29, “Subsequent
events”).
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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
489,230
165,212
654,442
354,992
108,212
463,204
Year Ended December 31, 2022
Year Ended December 31, 2021
Investment in
Associates
Investment in
Joint Ventures
Investment in
Associates
Investment in
Joint Ventures
Total
Total
Operating Activities:
Earnings (losses)
Distributions – VMC Residences
condominium unit closings(1)
Distributions – operating activities
Financing Activities:
4,932
(733)
4,199
183,431
27,989
211,420
(24,322)
(4,550)
—
(24,322)
(52,824)
—
(52,824)
(234)
(4,784)
(3,358)
(714)
(4,072)
Fair value adjustment on loan
3,690
—
3,690
3,995
—
3,995
Investing Activities:
Cash contribution
Property contribution
Development distributions
Investment – end of year
23,154
—
(33,362)
32,982
25,000
56,136
25,000
6,355
29,589
35,944
—
6,850
6,850
—
(33,362)
(3,361)
(6,714)
(10,075)
458,772
222,227
680,999
489,230
165,212
654,442
(1)
a)
During the year ended December 31, 2022, the distribution in the amount of $24,322 was satisfied by a non-cash settlement of the Residence III LP loan payable (for the year ended
December 31, 2021 – the distribution in the amount of $52,824 was satisfied by a non-cash settlement of the Residence III LP loan payable) (see Note 12(b)(iv)).
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, 2022 December 31, 2021
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)
Residences (Two) 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)
Own, develop and sell residential
condominium towers (Park Place)
50.0
50.0
25.0
25.0
25.0
50.0
66.7
25.0
25.0
25.0
50.0
—
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 with a principal amount of $81,448 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 3), along with an offsetting
non-interest-bearing note payable of an equal amount (see Note 12(b)(iv), 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, Residences (One) LP, and Residences (Two) LP are herein
collectively referred to as “VMC Residences”.
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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(1)
Total assets
Non-current liabilities(2)
Current liabilities
Total liabilities
December 31, 2022
PCVP
VMC
Residences
Total
PCVP
December 31, 2021
VMC
Residences
Total
1,333,107
— 1,333,107 1,322,717
— 1,322,717
47,854
471,995
519,849
19,284
373,691
392,975
1,380,961
471,995 1,852,956 1,342,001
373,691 1,715,692
416,283
—
416,283
327,443
81,203
408,646
113,075
385,011
498,086
111,782
157,729
269,511
529,358
385,011
914,369
439,225
238,932
678,157
Net assets
851,603
86,984
938,587
902,776
134,759 1,037,535
Trust’s share of net assets before adjustments
425,802
31,565
457,367
451,387
34,135
485,522
Fair value adjustment on loan
Trust’s share of net assets
1,003
402
1,405
1,216
2,492
3,708
426,805
31,967
458,772
452,603
36,627
489,230
(1)
(2)
Balance as at December 31, 2022 includes investment properties classified as held for sale of $32,100, of which the Trust’s share is $16,050 (December 31, 2021 – $nil).
Balance as at December 31, 2022 includes loan payable to the Trust of $48,532 (December 31, 2021 – $47,214), see also Note 6(b).
The investment in associates listed above have entered into various development construction contracts with existing
commitments totalling $76,607, of which the Trust’s share is $29,151 (December 31, 2021 – $216,635, of which the
Trust’s share is $76,087).
ii) Summary of earnings
The following table summarizes the earnings for investment in associates for:
Revenue
Rental revenue(1)
Residential sales revenue
Operating expense
Rental operating costs
Residential cost of sales
Year Ended December 31, 2022
Year Ended December 31, 2021
PCVP
VMC
Residences
Total
PCVP
VMC
Residences
Total
33,122
—
—
17,415
33,122
17,415
28,919
—
28,919
—
297,299
297,299
(14,749)
—
(14,749)
(12,421)
—
(12,421)
—
(13,719)
(13,719)
—
(224,576)
(224,576)
Revenue net of operating expense
18,373
3,696
22,069
16,498
72,723
89,221
Fair value adjustment on revaluation of
investment properties
Interest (expense) income
Loss on sale of investment properties
Earnings
Trust’s share of earnings before
supplemental cost and additional profit
sharing
Additional Trust’s share of earnings(2)
Supplemental cost
Trust’s share of earnings
2,060
(7,563)
(482)
12,388
6,194
—
(2,231)
3,963
—
160
—
2,060
321,146
—
321,146
(7,403)
(6,619)
(482)
—
254
—
(6,365)
—
3,856
16,244
331,025
72,977
404,002
969
7,163
165,513
18,243
183,756
—
—
—
—
2,522
2,522
(2,231)
(2,618)
—
(2,618)
969
4,932
162,895
20,765
183,660
(1)
Includes office rental revenue from the Trust in the amount of $2,720 for the year ended December 31, 2022 (year ended December 31, 2021 – $2,625).
(2) Additional profit allocated to the Trust for Transit City condominium closings pursuant to the development agreement and limited partnership agreement.
In accordance with the VMC Supplemental Development Fee Agreement, the Trust invoiced PCVP a net amount of
$4,462 related to associated development fees for the year ended December 31, 2022 (year ended December 31, 2021
– $5,237).
iii) Summary of development credit facilities
The development financing relating to PCVP and VMC Residences comprise pre-development, construction and letters
of credit facilities. With respect to the development credit facilities relating to PCVP, the obligations are joint and several
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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. PCVP and VMC
Residences had the following credit facilities available:
As at
December 31, 2022
December 31, 2021
(in thousands of dollars)
Maturity in
Annual
Interest Rate
(%)(1)
Facility Amount
Facility Amount
PCVP
Development credit facility
Construction credit facility
Letters of credit facility(2)
VMC Residences
Development credit facility
Development credit facility
February 2023
June 2027
May 2023
BA + 1.35
BA + 1.20
N/A
April 2022
September 2023
BA + 1.75
BA + 1.60
Development facilities – end of year
Amount drawn on development credit facilities
Letters of credit – outstanding
Remaining unused development credit facilities
15,876
400,000
60,000
475,876
—
279,264
279,264
755,140
(515,287)
(63,083)
176,770
15,876
386,766
60,000
462,642
11,656
279,264
290,920
753,562
(317,105)
(42,832)
393,625
Trust’s share of remaining unused development credit facilities
67,634
146,742
(1) Annual interest rate is a function of Canadian Banker’s Acceptance rate (“BA”) plus a premium.
(2)
Letter of credit fee rate is 0.75%.
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
December 31, 2022
December 31, 2021
Joint Venture
Partner
Number of
Projects
Ownership
Interest (%)
Number of
Projects
Ownership
Interest (%)
Fieldgate
1
13
30
50
1
10
30
50
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, Gilbert Self Storage LP, Boxgrove Self Storage LP,
Whitby Self Storage LP and Regent Self Storage LP
Seniors’ apartments
Joint Venture: Vaughan NW SA PropCo LP
Retirement residences
SmartStop
Revera
Joint Ventures: Vaughan NW 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)(1)
Revera
Groupe Sélection
Residential apartments
Joint Venture: Laval C Apartments LP
Joint Venture: Balliol/Pailton LP
Joint Venture: Mascouche North Apartments LP
Total
Jadco
Greenwin
Cogir
—
—
1
50
4
1
1
1
1
22
50
–(1)
50
75
80
5
1
1
1
1
21
50
50
50
75
80
(1) According to the limited partnership agreement entered into by the Trust and Groupe Sélection in April 2020, the ownership of this joint venture was 50:50. As at December 31, 2022,
the Trust contributed $24,412 to this partnership, of which $5,319 was characterized as special contributions. These special contributions have resulted in a corresponding increase to
the Trust’s equity entitlements in respect of the partnership.
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Acquisitions completed during the year ended December 31, 2022
In January 2022, pursuant to a 50:50 joint venture formed with SmartStop known as Boxgrove Self Storage Limited
Partnership, each joint venture party contributed $1,000 into the joint venture to fund the purchase of a parcel of land located
in Markham, Ontario, totalling 1.39 acres, in which the Trust had a 40% interest, with the intention to develop and operate a
self-storage facility.
In May 2022, the Trust formed a 50:50 joint venture with SmartStop known as Regent Self Storage Limited Partnership, and
pursuant to the joint venture agreement, each joint venture party contributed $3,490 into the joint venture to fund the
purchase of a parcel of land located in Burnaby, British Columbia, totalling 0.89 acres with the intention to develop and
operate a self-storage facility.
In December 2022, pursuant to the 50:50 joint venture previously formed with Revera known as Vaughan NW RR PropCo
Limited Partnership, the Trust contributed its interest in a parcel of land totalling 2.31 acres to the joint venture for a value of
$25,000, while Revera contributed cash, with the intention to develop and operate a retirement residence which is located in
Vaughan, Ontario.
See also Note 4, “Investment properties”.
i) Summary of balance sheets
The following table summarizes the balance sheets for investment in joint ventures:
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, 2022
December 31, 2021
729,104
13,864
742,968
285,955
36,683
322,638
420,330
222,227
545,946
2,009
547,955
163,840
66,662
230,502
317,453
165,212
The joint ventures listed above have entered into various development construction contracts with existing commitments
totalling $124,349, of which the Trust’s share is $61,010 (December 31, 2021 – $77,053, of which the Trust’s share is
$47,497).
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
Trust’s share of earnings before supplemental cost
Supplemental cost
Trust’s share of earnings (losses)
Year Ended December 31
2022
26,127
(11,514)
14,613
(2,420)
(7,825)
4,368
2,927
(3,660)
(733)
2021
16,383
(7,696)
8,687
60,635
(5,135)
64,187
27,760
—
27,760
In accordance with the Supplemental Development and Construction Fee Agreements, the Trust invoiced certain
investments in joint ventures for a net amount of $7,321 related to associated supplemental development fees for the
year ended December 31, 2022 (year ended December 31, 2021 – $nil).
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
iii) Summary of credit facilities
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 December 31, 2022 and December 31, 2021, the Trust’s joint ventures had the following credit facilities:
As at
December 31, 2022
December 31, 2021
(in thousands of dollars)
Laval C Apartments LP
Construction facility – Tower A
Construction facility – Tower B(2)
SmartStop
Construction facility
Markham Main Street
Development facility
Mascouche North Apartments LP
Construction facility
Maturity in
Annual
Interest Rate
(%)(1)
February 2022
November 2024
BA + 1.60
BA + 1.60
Facility
Amount
—
48,822
Facility
Amount
35,417
—
May 2024
BA + 2.20
136,900
118,100
December 2023
BA + 1.75
11,000
11,000
Amount drawn on development credit facilities
Letters of credit – outstanding
Remaining unused development credit facilities
August 2025
BA + 1.50
55,000
251,722
(181,610)
(1,648)
68,464
—
164,517
(130,630)
(887)
33,000
Trust’s share of remaining unused development credit facilities
40,234
16,500
(1) Annual interest rate is a function of BA rates plus a premium.
(2) Management is renegotiating the facility.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, 2022
December 31, 2021
39,456
282,312
2,924
324,692
86,593
238,099
324,692
139,589
274,523
2,924
417,036
71,947
345,089
417,036
a) Mortgages receivable of $39,456 (December 31, 2021 – $139,589) 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, 2021 – seven properties). The Trust is committed to lend up
to $190,720 (December 31, 2021 – $300,796) to assist with the further development of these properties.
The following table provides further details on the mortgages receivable (by maturity date) provided to Penguin:
Property
Caledon (Mayfield), ON(5)
Salmon Arm, BC(3)(5)
Aurora (South), ON(5)
Innisfil, ON(3)(5)
Vaughan (7 & 427), ON(5)
Toronto (StudioCentre), ON(3)(4)
Pitt Meadows, BC(4)
Committed
Maturity Date
Annualized
Variable
Interest
Rate at
Year-End
(%)
The
Trust’s
Purchase
Option of
Property
(%)
Extended
Maturity
Date(1)
(2)
December
31, 2022
December
31, 2021
15,498
13,398
15,155
16,011
April 2024
August 2028
August 2028
August 2028
October 2023
N/A
N/A
N/A
15,781
December 2023
August 2028
39,224
August 2028
N/A
75,653
November 2023
August 2028
190,720
7.00
6.50
6.75
7.00
6.75
6.90
6.90
6.90
50
—
50
—
50
25
50
—
—
—
—
—
10,750
15,860
17,940
16,642
19,588
15,862
26,915
23,594
31,894
39,456
139,589
(1)
(2)
(3)
(4)
(5)
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 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, 2022, 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 weighted average interest rate on this mortgage is subject to an upper limit of 6.90%.
Penguin fully repaid the outstanding balance of the mortgages in October 2022.
Mortgages receivable amendments
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 $97,665 (December 31, 2021 – $103,808) 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.
36 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2022 ANNUAL REPORT
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2022 ANNUAL REPORT
b) The following table presents loans receivable (by maturity date):
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Committed
Maturity Date
Interest Rate
(%)
Note
December 31, 2022 December 31, 2021
Issued to
Penguin(1)
Penguin(2)
Penguin(3)
Penguin(4)
Total loans issued to Penguin
PCVP(5)
Self-storage facilities(6)
12,493
26,227
N/A
18,450
N/A
120,700
January 2023
January 2023
Variable
2.76 %
22
22
December 2029
Interest-free
12(b)(iv),
22
August 2030
Variable
22
January 2023
2.76 %
22
May 2024
Variable
Total loans issued to equity accounted investments
Other(7)
Greenwin(8)
Greenwin(9)
Other(10)
N/A
January 2023
11,694
September 2024
1,280
N/A
January 2025
October 2023
5.00 %
Variable
Variable
4.00 %
Total loans issued to unrelated parties
7,389
13,266
62,986
16,638
100,279
48,532
116,096
164,628
2,308
—
—
15,097
17,405
282,312
9,707
14,027
77,828
15,404
116,966
47,214
91,938
139,152
3,308
—
—
15,097
18,405
274,523
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
This loan receivable was provided pursuant to a development management agreement with Penguin with a total loan facility of $12,493. Repayment of the pro rata share of the
outstanding loan amount is due upon the completion of each Earnout event. The loan bears interest at 10 basis points plus the lower of: i) the Canadian prime rate plus 45 basis
points, and ii) the Canadian Dealer Offered Rate plus 145 basis points.
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.
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 $81,448, is non-interest-bearing, and is repayable at the end of 10
years. As at December 31, 2022, the loan balance of $62,986 is net of a cumulative fair value adjustment totalling $18,462. See also Note 12(b)(iv) 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. 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, 2022.
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, which bears interest at 5.0% per annum, calculated semi-annually. Subsequently, the loan was fully repaid in January 2023.
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, 2022, 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. As at December 31, 2022, 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.
Management considers all outstanding loans to be fully collectible.
c) Notes receivable of $2,924 (December 31, 2021 – $2,924) have been granted to Penguin (see also Note 22, “Related party
transactions”). As at December 31, 2022, these secured demand notes bear interest at the rate of 9.00% per annum
(December 31, 2021 – 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”.
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2022 ANNUAL REPORT 37
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2022 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. Other assets
The following table summarizes the activity in other assets:
Straight-line rents receivable
Tenant incentives
Equipment
Right-of-use assets
December 31, 2021
Additions
Write-offs
Amortization and
other adjustments December 31, 2022
43,564
32,478
76,042
1,285
3,613
80,940
8,311
9,368
17,679
1,589
312
(262)
(36)
(298)
—
—
19,580
(298)
(7,552)
(7,051)
(14,603)
(539)
(1,850)
(16,992)
44,061
34,759
78,820
2,335
2,075
83,230
8. Other financial assets
The following table summarizes the components of other financial assets:
As at
Total return swap receivable (a)
Interest rate swap agreements
Cash held as collateral (b)
Note
December 31, 2022
December 31, 2021
13
137,526
34,281
—
171,807
46,869
—
50,279
97,148
a) Total return swap receivable
The following table summarizes the activity in the total return swap receivable:
Balance – beginning of year
Additions
Distributions received
Fair value adjustments
Balance – end of year
b) Cash held as collateral
Year Ended December 31
2022
46,869
101,041
(5,466)
(4,918)
137,526
2021
—
42,342
(1,115)
5,642
46,869
Cash and cash equivalents were pledged 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(a). In December 2022, the
cash held as collateral of $145,100 was released. See also Note 12(b).
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, 2022
Cost
Accumulated
Amortization
36,944
2,995
39,939
13,979
53,918
9,353
758
10,111
—
10,111
Net
27,591
2,237
29,828
13,979
43,807
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
The total amortization expense recognized for the year ended December 31, 2022 amounted to $1,332 (year ended
December 31, 2021 – $1,331).
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2022 ANNUAL REPORT
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:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As at
Balance – beginning of year
Development costs
Capitalized interest
Balance – end of year
December 31, 2022
December 31, 2021
27,399
11,931
1,043
40,373
25,795
646
958
27,399
11. Amounts receivable and other, prepaid expenses, deposits and deferred financing costs
The following table presents the components of amounts receivable and other, prepaid expenses, deposits and financing costs:
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
Prepaid expenses, deposits and deferred financing costs(2)
(1) The amount includes a related party amount of $6,835 (December 31, 2021 – $7,987).
(2)
Includes prepaid realty tax of $1,468 (December 31, 2021 – $1,350).
December 31, 2022
December 31, 2021
26,735
11,100
11,899
616
1,954
13,591
65,895
(8,771)
57,124
14,474
71,598
36,305
11,847
6,966
581
1,414
11,383
68,496
(18,954)
49,542
12,289
61,831
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 (reversal)
Tenant receivables written off
Balance – end of year
Year Ended December 31
2022
18,954
(3,073)
(7,110)
8,771
2021
19,742
2,841
(3,629)
18,954
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2022 ANNUAL REPORT 39
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2022 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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
December 31, 2022
December 31, 2021
969,054
3,932,928
81,283
4,983,265
459,278
4,523,987
4,983,265
1,294,546
3,262,356
297,625
4,854,527
678,406
4,176,121
4,854,527
Secured debt bears interest at a weighted average interest rate of 3.91% as at December 31, 2022 (December 31, 2021 –
3.49%). Total secured debt of $969,054 (December 31, 2021 – $1,294,546) includes $948,921 (December 31, 2021 –
$1,182,078) at fixed interest rates, and $20,133 (December 31, 2021 – $70,277) at variable interest rates of the Canadian
Banker’s Acceptance rate plus 170 basis points. Secured debt matures at various dates between 2023 and 2031 and is
secured by first or second registered mortgages over specific income properties and properties under development and first
general assignments of leases, insurance and registered chattel mortgages.
The following table presents principal repayment requirements for secured debt:
2023
2024
2025
2026
2027
Thereafter
Instalment
Payments
38,599
32,336
21,736
11,240
5,473
16,176
125,560
Lump Sum
Payments
at Maturity
201,295 (1)
118,696
389,605
86,881
—
48,200
844,677
Unamortized acquisition date fair value adjustments
Unamortized financing costs
(1) Includes construction loans in the amount of $20,133, which bear interest at Canadian Banker’s Acceptance rate plus 170 basis points.
b) Unsecured debt
The following table summarizes the components of unsecured debt:
Total
239,894
151,032
411,341
98,121
5,473
64,376
970,237
554
(1,737)
969,054
As at
Unsecured debentures i)
Credit facilities ii)
TRS debt iii)
Other unsecured debt iv)
December 31, 2022
December 31, 2021
2,652,327
996,238
143,232
141,131
3,932,928
2,650,571
416,223
—
195,562
3,262,356
i) Unsecured debentures
As at December 31, 2022, unsecured debentures totalled $2,652,327 (December 31, 2021 – $2,650,571). 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, 2022 (December 31, 2021 – 3.17%).
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes the components of unsecured debentures:
Series
Series I
Series N
Series O
Series P
Maturity Date
May 30, 2023
February 6, 2025
August 28, 2024
August 28, 2026
Series S
December 21, 2027
Series U
December 20, 2029
Series V
June 11, 2027
Series W
December 11, 2030
Series X
December 16, 2025
Series Y
December 18, 2028
Annual
Interest Rate
(%)
Interest Payment Dates December 31, 2022 December 31, 2021
3.985
3.556
2.987
3.444
3.834
3.526
3.192
3.648
1.740
2.307
3.167 (1)
May 30 and November 30
February 6 and August 6
February 28 and August 28
February 28 and August 28
June 21 and December 21
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
(7,673)
2,652,327
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
(1)
Represents the weighted average annual interest rate and excludes deferred financing costs.
Unsecured debenture activities for the year ended December 31, 2022
There was no significant activity relating to unsecured debentures during the year ended December 31, 2022.
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.
Aggregate principal amount of Senior T Debentures outstanding was $323,120 and was fully repaid on maturity.
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 fulfil its obligations. An investment-grade rating must exceed “BB”,
with the highest rating being “AAA”. In December 2022, DBRS confirmed the Trust’s BBB(high) rating and maintained
the negative trend.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2022 ANNUAL REPORT NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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)
January 2022
December 2022(1)
December 2022
Initial Maturity Date
Annual
Interest Rate
(%)
Facility
Amount December 31, 2022 December 31, 2021
January 31, 2025
July 31, 2026
June 24, 2024
2.980
3.520
3.146
January 19, 2027
BA + 1.20
December 1, 2025
4.370
December 1, 2025
BA + 1.20
80,000
150,000
170,000
300,000
100,000
100,000
80,000
150,000
170,000
300,000
100,000
100,000
December 2022
December 20, 2025
BA + 1.20 or
CAD Prime
100,000
100,000
Revolving:
May 2020
May 11, 2024
BA + 1.20
100,000
Less:
Unamortized financing costs
Unamortized debt modification adjustments
—
1,000,000
(1,802)
(1,960)
996,238
80,000
150,000
170,000
—
—
—
—
17,000
417,000
(777)
—
416,223
(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 2.62% per annum. The weighted average term to maturity of the interest rate swaps is 2.39 years. Hedge accounting has not been applied to the interest rate
swap agreements.
iii) TRS Debt
The Trust borrowed TRS debt concurrent with entering the TRS agreement in February 2021. As at December 31, 2022,
TRS unsecured debt of $143,232 (December 31, 2021 – TRS secured debt of $42,191) carries variable rate interest at
a rate of CDOR plus 106 basis points. The interest on this TRS 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. In December 2022, the cash collateralized against the TRS debt was released and as a result the TRS debt
was reclassified from secured debt to unsecured debt as at December 31, 2022.
See also Note 8, “Other financial assets”, for further details.
iv) Other unsecured debt
Other unsecured debt net of fair value adjustments totalling $141,131 (December 31, 2021 – $195,562) 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)
Vaughan NW RR PropCo LP
VMC Residences(3)
December 31, 2022
December 31, 2021
64,992
62,986
12,500
653
141,131
80,259
77,828
12,500
24,975
195,562
(1)
(2)
(3)
In connection with the 700 Applewood purchase in December 2019, the loan has a principal amount outstanding of $81,448 (December 31, 2021 – $100,404), is non-
interest-bearing, and is repayable at the end of 10 years. As at December 31, 2022, the loan balance of $64,992 is net of the unamortized fair value adjustment totalling
$16,456 (December 31, 2021 – the loan balance of $80,259 is net of a fair value adjustment totalling $20,145).
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
$81,448 (December 31, 2021 – $100,404), is non-interest-bearing, and is repayable at the end of 10 years. As at December 31, 2022, the loan balance of $62,986 is net of
the unamortized fair value adjustment totalling $18,462 (December 31, 2021 – the loan balance of $77,828 is net of a fair value adjustment totalling $22,576). See also Note
6(b) reflecting offsetting loan receivable amount.
In connection with the Transit City condominium closings, $nil was received and $24,322 was settled during the year ended December 31, 2022 (year ended December 31,
2021 – $24,322 was received and $52,824 was settled). See Note 5, “Equity accounted investments.”
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
c) Revolving operating facilities
As at December 31, 2022, 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 $150,000 revolving senior unsecured term facility under which the Trust has the ability to draw funds based on bank
prime rates and Canadian Banker’s Acceptance rate for Canadian dollar-denominated borrowings, and LIBOR rates or U.S.
prime rates for U.S. dollar-denominated borrowings. Concurrently with the U.S. dollar draws, the Trust enters into cross
currency swaps to exchange its U.S. dollar borrowings into Canadian dollar borrowings.
The following table summarizes components of the Trust’s revolving operating facilities:
Revolving facility maturing
August 2026
Revolving facility maturing
February 2024(1)
Annual
Interest Rate (%)
Facility
Amount
Amount
Drawn
Outstanding
Letters of
Credit
Remaining Undrawn Facilities
December 31, 2022 December 31, 2021
BA + 1.20
500,000
7,000
15,374
477,626
341,715
US$ LIBOR + 1.20
150,000
74,283
—
81,283
75,717
553,343
—
341,715
(1) The Trust has drawn in US$54,873 which was translated to $74,283 as at December 31, 2022 (December 31, 2021 – drawn in US$116,786 which was translated to $147,625).
d)
Interest expense
The following table summarizes interest expense:
Interest at stated rates
Amortization of acquisition date fair value adjustments on assumed debt
Adjustment on debt modification
Amortization of deferred financing costs
Distributions on Units classified as liabilities and vested deferred units
Capitalized to properties under development
Capitalized to residential development inventory
Year Ended December 31
2022
2021
166,181
150,187
(460)
(1,960)
3,606
17,414
(527)
—
3,828
6,343
184,781
159,831
(35,036)
(14,333)
(1,043)
(958)
148,702
144,540
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
Adjustment on debt modification
Amortization of deferred financing costs
Distributions on Units classified as liabilities and vested deferred units, net of amounts capitalized
to properties under development
Change in accrued interest payable
Cash interest paid
Year Ended December 31
2022
2021
148,702
144,540
460
1,960
(3,606)
(7,139)
(684)
527
—
(3,828)
(6,343)
15,658
139,693
150,554
For the year ended December 31, 2022, including cash interest paid of $139,693 (year ended December 31, 2021 –
$150,554) and interest capitalized to both properties under development and residential development inventory of $36,079
(year ended December 31, 2021 – $15,291), total interest paid was $175,772 (year ended December 31, 2021 – $165,845).
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2022 ANNUAL REPORT 43
141
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2022 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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
Interest obligations(1)
Accounts payable
Other payable
Long term incentive plan
Total
2023
2024
2025
2026
2027 Thereafter
970,237 239,894 151,031 411,341
98,121
5,473
64,377
3,979,281 213,153 370,000 933,232 400,000
850,000 1,212,896
81,283
7,000
74,283
—
—
—
—
202,010
4,471 113,742
95,743
76,884
(32,724)
(56,106)
259,352 259,352
—
27,011
8,147
8,730
580
580
—
—
134
—
—
—
—
—
—
—
—
10,000
—
5,519,754 732,597 717,786 1,440,450 575,005
822,749 1,231,167
Mortgage receivable advances (repayments)(2)
Development obligations (commitments)
151,264
1,015
1,130
(15,880)
1,034
378
163,587
20,669
20,669
—
—
—
—
—
Total
5,691,687 754,281 718,916 1,424,570 576,039
823,127 1,394,754
(1)
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.
(2) Mortgages receivable of $39,456 at December 31, 2022, and further forecasted commitments of $151,264, 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.
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(1)
Interest rate swap agreements
Note
December 31, 2022
December 31, 2021
211,497
48,402
580
16,204
717
—
277,400
254,223
50,660
697
10,377
2,374
7,754
326,085
8
(1) The currency swap agreement has been recorded in the revolving operating facilities balance as reflected in Note 12(c) “Revolving operating facilities”.
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 F
Series 3
Smart
LP
Units
Class D
Series
1 Smart
Oshawa
South
LP Units
Class D
Series 1
Smart
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, 2021
311,022
8,708 260,417 1,248,140 132,881 139,302
—
— 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
Balance – January 1, 2022
311,022
Balance – December 31, 2022 311,022
8,708 260,417 1,248,140 132,881 139,302 3,623,188 2,173,913 7,897,571
8,708 260,417 1,248,140 132,881 139,302 3,623,188 2,173,913 7,897,571
44 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2022 ANNUAL REPORT
142
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2022 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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
Total
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
—
—
48,479
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
Balance – January 1, 2022
10,011
280
8,383 40,179
4,278
4,483 116,631
69,978
254,223
Change in carrying value
(1,683)
(47)
(1,409)
(6,752)
(719)
(754)
(19,601)
(11,761)
(42,726)
Balance – December 31, 2022
8,328
233
6,974 33,427
3,559
3,729
97,030
58,217
211,497
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.
The following tables summarize the changes in Units outstanding and proceeds received:
Options to acquire
Strike Price
Options
Outstanding at
January 1, 2022
Options
Cancelled
Options
Exercised
Options
Outstanding at
December 31, 2022
Amounts from
Options
Exercised
Trust Units
20.01 to 33.55
1,457,285
($)
(#)
(#)
—
(#)
—
(#)
1,457,285
Class B Smart LP Units, Class
D Smart LP Units and Class F
Smart LP Units(1)
Class B Smart LP III Units(2)
Class B Smart LP IV Units(3)
Class B Smart Oshawa South
LP Units and Class D Smart
Oshawa South LP Units(4)
Class B Smart Oshawa
Taunton LP Units and Class D
Smart Oshawa Taunton LP
Units(5)
20.10 to 33.00
Market price
Market price
5,847,776
1,846,472
—
—
— (154,392)
397,543
—
(21,785)
5,847,776
1,692,080
375,758
Market price
26,585
—
—
26,585
Market price
265,422
Class B and Class G Smart
Boxgrove LP Units(6)
Class B ONR LP I Units(7)
Market price
Market price
267,179
429,599
—
—
—
—
—
—
265,422
267,179
429,599
Total Earnout options
10,537,861
— (176,177)
10,361,684
1,279
(1)
(2)
(3)
Each option is represented by a corresponding Class C Smart LP Unit or Class E Smart LP Unit. For the options issued in June 2008, 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 $20.10 per Unit or, on the completion and rental of additional space on
certain development properties, the Class F Series 3 Smart LP Units may be exchanged for Class B Smart LP Units.
Each option is represented by a corresponding Class C Smart LP III Unit.
Each option is represented by a corresponding Class C Smart LP IV Unit.
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2022 ANNUAL REPORT 45
143
($)
—
—
707
572
—
—
—
—
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2022 ANNUAL REPORT
($)
—
229
814
695
—
—
—
—
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(4)
(5)
(6)
(7)
Each option is represented by a corresponding Class C Smart Oshawa South LP Unit or Class E Smart Oshawa South LP Unit.
Each option is represented by a corresponding Class C Smart Oshawa Taunton LP Unit or Class E Smart Oshawa Taunton LP Unit.
Each option is represented by a corresponding Class C Smart Boxgrove LP Unit.
Each option is represented by a corresponding Class C ONR LP I Unit.
Options to acquire
Strike Price
($)
Options
Outstanding at
January 1, 2021
(#)
Trust Units
20.01 to 33.55
1,457,285
Options
Cancelled
Options
Exercised
Options Outstanding
at December 31,
2021
Amounts from
Options
Exercised
(#)
—
(#)
—
(#)
1,457,285
Class B Smart LP Units, Class
D Smart LP Units and Class F
Smart LP Units(1)
Class B Smart LP III Units(2)
Class B Smart LP IV Units(3)
Class B Smart Oshawa South
LP Units and Class D Smart
Oshawa South LP Units(4)
Class B Smart Oshawa Taunton
LP Units and Class D Smart
Oshawa Taunton LP Units(5)
20.10 to 33.00
Market price
Market price
5,855,539
1,879,759
—
(7,763)
—
(33,287)
422,059
—
(24,516)
5,847,776
1,846,472
397,543
Market price
26,585
—
—
26,585
Class B and Class G Smart
Boxgrove LP Units(6)
Class B ONR LP I Units(7)
Market price
Market price
Market price
265,422
—
—
267,179
482,086
(52,487)
—
—
—
265,422
267,179
429,599
Total Earnout options
10,655,914
(52,487)
(65,566)
10,537,861
1,738
(1)
(2)
(3)
(4)
(5)
(6)
(7)
Each option is represented by a corresponding Class C Smart LP Unit or Class E Smart LP Unit. For the options issued in June 2008, 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.
c) Deferred unit plan
The following table summarizes the number of outstanding deferred units:
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
Balance – January 1, 2022
Granted
Trustees
Eligible associates
Reinvested units from distributions
Vested
Redeemed for cash
Forfeited
Balance – December 31, 2022
Outstanding
1,305,275
71,205
231,360
106,865
—
(6,665)
(34,671)
(5,948)
1,667,421
1,667,421
44,970
181,388
121,028
—
(110,867)
(15,431)
1,888,509
Vested
1,068,243
71,205
115,680
87,545
95,804
(6,665)
(34,671)
—
1,397,141
1,397,141
44,970
92,043
100,996
83,704
(110,867)
—
1,607,987
Unvested
237,032
—
115,680
19,320
(95,804)
—
—
(5,948)
270,280
270,280
—
89,345
20,032
(83,704)
—
(15,431)
280,522
46 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2022 ANNUAL REPORT
144
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2022 ANNUAL REPORT
The following table summarizes the change in the carrying value of the deferred unit plan:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Carrying value – beginning of year
Deferred units granted for trustee fees
Deferred units granted for bonuses
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 activities in the LTIP:
Balance – beginning of year
Amortization
Fair value adjustment
LTIP vested and paid out
Balance – end of year
e) Equity Incentive Plan
Year Ended December 31
2022
50,660
712
2,900
2,846
3,576
—
(3,372)
(8,920)
48,402
2021
28,051
886
2,702
2,424
3,990
(198)
(1,019)
13,824
50,660
Year Ended December 31
2022
697
280
(397)
—
580
2021
1,540
968
(808)
(1,003)
697
During the years ended December 31, 2022 and 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 the grant date to December
31 of the sixth anniversary. 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 the end of the applicable Performance Period. Upon vesting, performance units will be exchanged for Trust
Units or paid out in cash at the option of the holders.
The following summarizes the outstanding number of performance units associated with the EIP:
Balance – beginning of year(1)
Granted(2)
Reinvested units from distributions
Terminated
Balance – end of year
Year Ended December 31
2022
1,339,699
65,000
87,514
(121,673)
2021
—
1,371,000
66,696
(97,997)
1,370,540
1,339,699
(1)
(2)
The beginning balance of 2022 includes performance units that were granted to Mitchell Goldhar and eligible associates during the year ended December 31, 2021, as well as
performance units that were reinvested from distributions, and certain performance units that were terminated.
Under the EIP granted to Mitchell Goldhar in 2021 totalling 900,000 Units, the $26.00 Unit price threshold was achieved on April 5, 2021, and the $28.00 Unit price threshold was
achieved on May 18, 2021, and under the EIP granted to Mitchell Goldhar and other eligible associates in 2021, the $30.00 Unit price threshold was achieved on September 22,
2021, and the $32.00 Unit price threshold was achieved on April 5, 2022. The performance units for these Unit price thresholds will vest on April 4, 2024, May 17, 2024, September
21, 2024 and April 4, 2025, respectively.
The following table summarizes the change in the carrying value of the EIP:
Balance – beginning of year
Amortization costs
Fair value adjustment
Balance – end of year
Year Ended December 31
2022
10,377
7,912
(2,085)
16,204
2021
—
7,127
3,250
10,377
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2022 ANNUAL REPORT 47
145
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2022 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. Accounts and other payables
The following table presents accounts payable and the current portion of other payables that are classified as current liabilities:
As at
Accounts payable
Accounts payable and accrued liabilities with Penguin
22
Tenant prepaid rent, deposits, and other payables
Residential sales deposits
Accrued interest payable
Distributions payable
Realty taxes payable
Current portion of other payables
Note
December 31, 2022
December 31, 2021
83,088
3,504
108,364
11,690
14,094
26,569
2,946
10,867
261,122
75,148
3,370
118,457
375
13,410
26,600
3,193
12,525
253,078
The following table presents other payables that are classified as non-current liabilities:
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.
Note
December 31, 2022
December 31, 2021
4(c)(ii)
17,646
8,411
2,075
28,132
(10,867)
17,265
18,931
8,283
3,554
30,768
(12,525)
18,243
Future land development obligations
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, 2022, imputed interest of $423 (year ended December 31, 2021 – $630) was capitalized to
properties under development.
48 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2022 ANNUAL REPORT
146
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2022 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, 2022
December 31, 2021
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
Interest rate swap agreements
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
—
—
—
—
137,526
34,281
322,697
322,697
57,124
35,255
—
—
—
57,124
35,255
—
137,526
34,281
—
—
—
—
261,122
938,431
261,122
938,431
3,616,047
3,616,047
81,283
81,283
—
—
—
—
46,869
—
—
—
—
—
211,497
48,402
580
16,204
717
—
—
—
—
—
—
—
211,497
254,223
48,402
50,660
580
697
16,204
10,377
717
—
2,374
7,754
414,215
414,215
49,542
62,235
50,279
—
—
49,542
62,235
50,279
46,869
—
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
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 assets
Fair value of total return swap agreements
Fair value of interest rate swap agreements
Financial liabilities
Units classified as liabilities
Deferred unit plan
LTIP
EIP
Fair value of currency swap agreements
Fair value of interest rate swap agreements
December 31, 2022
December 31, 2021
Level 1
Level 2
Level 3
Level 1
Level 2
Level 3
—
—
137,526
34,281
—
—
—
—
—
—
211,497
48,402
580
16,204
717
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
46,869
—
254,223
50,660
697
10,377
2,374
7,754
—
—
—
—
—
—
—
—
Refer to Note 13, “Other financial liabilities”, for a reconciliation of fair value measurements.
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2022 ANNUAL REPORT 49
147
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2022 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, 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
Balance – January 1, 2022
144,625,322 25,568,688 170,194,010
3,090,368
641,944
3,732,312
Options exercised
Unit issuance costs
4(d), 13(b)
—
—
42,272
42,272
—
1,279
1,279
—
—
(250)
—
(250)
Balance – December 31, 2022
144,625,322 25,610,960 170,236,282
3,090,118
643,223
3,733,341
Table A: Number of LP Units issued and outstanding
The following table presents the number and 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
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, 2022
Options
Exercised (Note
13(b))
Balance –
December 31,
2022
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
—
—
—
—
—
11,198
12,419
—
—
18,655
—
—
—
14,746,176
957,822
720,432
756,525
706,591
583,535
640,059
434,598
1,698,018
3,112,565
710,416
374,223
170,000
25,568,688
42,272
25,610,960
50 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2022 ANNUAL REPORT
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2022 ANNUAL REPORT
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
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Balance – January 1,
2021
Options Exercised
(Note 13(b))
Balance –
December 31,
2021
14,746,176
—
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
7,763
—
—
1,171
—
31,352
—
—
26,317
—
—
—
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
Table B: Carrying values 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
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, 2022
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
Value From
Options
Exercised (Note
13(b))
—
—
—
—
—
315
392
—
—
572
—
—
—
Balance –
December 31,
2022
347,675
27,816
16,836
17,680
17,217
15,671
15,516
11,668
48,732
89,429
20,441
11,033
3,509
641,944
1,279
643,223
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2022 ANNUAL REPORT 51
149
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2022 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
Class B Series 1
Balance – January
1, 2021
Value From
Options Exercised
(Note 13(b))
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
—
229
—
—
34
—
780
—
—
695
—
—
—
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
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 Units 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, 2022, there were 33,499,823 (December 31, 2021 – 33,457,551) 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”).
52 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2022 ANNUAL REPORT
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2022 ANNUAL REPORT
ii)
Limited Partnership Units (authorized – unlimited)
The following tables summarize the Class A and Class B Limited Partnership Units:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, 2022 December 31, 2021
80,715,971
75,062,169
284,178
281,892
14,365,691
12,556,688
7,028,822
3,168,190
637,895
860,095
397,438
6,469,215
3,168,190
637,895
860,095
397,438
3,912,943,532
3,912,943,532
38,000,010
38,000,010
December 31, 2022 December 31, 2021
25,610,960
25,568,688
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, 2022 December 31, 2021
3,445,341
3,019,186
3,445,341
3,019,186
674,437
459,450
563,253
409,673
259,704
375,758
21,082
132,711
267,179
429,599
674,437
562,819
596,219
427,730
259,704
397,543
21,082
132,711
267,179
429,599
(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).
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2022 ANNUAL REPORT 53
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2022 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, 2022 December 31, 2021
311,022
16,704
800,000
8,708
260,417
5,503
132,711
3,623,188
2,173,913
120,563
311,022
16,704
800,000
8,708
260,417
5,503
132,711
3,623,188
2,173,913
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 distribution 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) Trust Units issued for cash
During the year ended December 31, 2022, no Trust Units were issued for cash (Trust Units issued for cash for the year
ended December 31, 2021 – nil).
c) 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 terminated on March 30, 2022. 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, 2022, the Trust did not purchase for cancellation any Trust Units under the NCIB (Trust
Units purchased for cancellation for the year ended December 31, 2021 – nil).
54 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2022 ANNUAL REPORT
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2022 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
2022
2021
Distributions on Units classified as equity:
Trust Units
N/A
267,563
267,552
Year Ended December 31
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
Smart VMC West Limited Partnership
Distributions on Units classified as liabilities
Total Unit distributions
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
and 2
27,281
27,281
1,772
1,333
1,400
1,307
1,064
1,184
804
3,141
5,756
315
1,314
692
47,363
282
315,208
575
11
482
2,309
246
258
10,725
14,606
329,814
1,765
1,333
1,400
1,306
1,059
1,156
804
3,141
5,716
315
1,314
692
47,282
420
315,254
575
11
482
2,309
246
258
38
3,919
319,173
On January 17, 2023, the Trust declared a distribution for the month of January 2023 of $0.15417 per Unit, representing $1.85
per Unit on an annualized basis, to Unitholders of record on January 31, 2023.
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2022 ANNUAL REPORT 55
153
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2022 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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)
Earnings from other
Year Ended December 31
2022
515,110
(7,087)
508,023
171,874
93,407
265,281
15,393
788,697
14,652
1,249
2021
502,504
(7,512)
494,992
169,180
83,852
253,032
17,891
765,915
14,843
38
Rentals from investment properties and other
804,598
780,796
(1)
For the year ended December 31, 2022, service and other revenues included $12,904 relating to the recovery of costs and billed as fees associated with the Development and Services
Agreement with Penguin (year ended December 31, 2021 – $12,872). 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
2022
2023
2024
2025
2026
2027
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
Expected credit loss/(recovery)
Non-recoverable costs
Property operating costs
Residential inventory marketing costs
Other expenses relating to service and other revenues(2)
Other expenses
Property operating costs and other
(1)
(2)
Includes recoverable property tax and insurance costs.
Relate to service and other revenues as disclosed in Note 18, “Rentals from investment properties and other”.
December 31, 2022
December 31, 2021
—
503,014
436,753
365,162
299,049
235,407
502,240
485,283
427,676
355,231
287,942
224,936
166,100
356,809
Year Ended December 31
2022
2021
279,597
267,707
4,288
(3,448)
6,465
1,469
3,652
7,246
286,902
280,074
435
14,657
15,092
40
14,842
14,882
301,994
294,956
56 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2022 ANNUAL REPORT
154
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2022 ANNUAL REPORT
20. General and administrative expense, net
The following table summarizes general and administrative expense, net:
Salaries and benefits
Services fee – to 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
Total general and administrative expense before allocation
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
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note
22
9
Year Ended December 31
2022
73,607
7,416
6,172
1,343
1,332
11,134
101,004
60
332
101,396
(35,394)
(18,558)
(14,175)
(68,127)
2021
66,345
7,062
6,338
1,681
1,331
12,248
95,005
1,050
946
97,001
(36,465)
(15,434)
(13,180)
(65,079)
General and administrative expense, net
33,269
31,922
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2022 ANNUAL REPORT 57
155
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2022 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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
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
The following table presents changes in other non-cash operating items:
Amounts receivable and other
Prepaid expenses, deposits and deferred financing costs
Accounts payable
Realty taxes payable
Tenant prepaid rent, deposits and other payables, and residential sales deposits
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
Total return swap receivable
Unit issued under DUP
Units issued on acquisition
Liabilities assumed on acquisition, net of other assets
Distributions payable at year end
Total return swap debt
Note
26
5
12(d)
13
13
Note
11
11
14
14
14
Note
3
8
13(c)
3
3
14
12
Year Ended December 31
2022
2021
(293,080)
(457,301)
(315)
(4,199)
148,702
(1,813)
(18,036)
10,310
578
204
3,010
(27)
(211,420)
144,540
(1,146)
(12,341)
12,464
565
2,971
1,894
(154,639)
(519,801)
Year Ended December 31
2022
(7,582)
(2,185)
8,074
(247)
1,222
(7,299)
(8,017)
2021
9,102
(3,847)
1,175
(1,771)
31,313
3,268
39,240
Year Ended December 31
2022
—
137,526
—
1,279
1,756
26,569
143,232
2021
13,076
46,869
198
182,974
12,315
26,600
42,191
The following table presents the composition of the Trust’s cash and cash equivalents:
As at
Cash
Cash and cash equivalents
December 31, 2022
December 31, 2021
35,255
35,255
62,235
62,235
58 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2022 ANNUAL REPORT
156
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2022 ANNUAL REPORT
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, 2022, which in total
represent approximately 20.8% of the issued and outstanding Units (December 31, 2021 – 20.8%) of the Trust:
Units owned by Penguin
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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
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, 2022 December 31, 2021
15,032,063
15,076,163
12,488,816
375,313
720,432
8,708
706,591
583,535
640,059
434,598
1,698,018
2,873,132
630,880
374,223
170,000
132,881
139,302
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
37,052,651
36,970,752
Year Ended
December 31, 2022
Year ended
December 31, 2021
68,471
68,372
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, 2022, there
were 10,053,123 additional Special Voting Units outstanding (December 31, 2021 – 8,163,976). 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, 2022 December 31, 2021
1,286,833
1,337,449
3,019,186
674,437
562,819
596,219
427,730
259,704
369,472
18,983
132,711
267,179
429,599
1,286,833
1,337,449
3,019,186
674,437
459,450
563,253
409,673
259,704
353,135
18,983
132,711
267,179
429,599
9,211,592
9,382,321
At December 31, 2022, Penguin’s ownership would increase to 24.6% (December 31, 2021 – 24.6%) if Penguin were to exercise
all remaining Earnout options.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2022 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Pursuant to its rights under the Declaration of Trust, at December 31, 2022, 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.
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).
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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 5(a)(ii) referring to a Supplemental Development Fee Agreement
Note 6 referring to Mortgages, loans and notes receivable
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 and other payables (including future land development 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 expense, net.
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:
Year Ended December 31
Note
2022
2021
Related party transactions with Penguin
Acquisitions and Earnouts:
Earnouts
Revenues:
Service and other revenues:
Management fee and other services revenue pursuant to the Development and Services
Agreement
Supplement to the Development Services 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 $355 (year ended December 31, 2021 – $271))
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 administrative expense)
Expenditures on tenant inducement
18
6
20
9,210
16,274
3,670
8,042
1,192
12,904
7,857
6,309
5,097
1,466
12,872
6,209
893
828
21,654
19,909
7,416
5,182
354
60
76
612
—
7,062
5,198
115
1,839
84
979
77
13,700
15,354
Related party transactions with PCVP
Revenues:
Interest income from mortgages and loans receivable
6
1,318
1,935
Expenses and other payments:
Rent and operating costs (included in general and administrative expense and property
operating costs)
19, 20
2,720
2,625
(1)
These amounts include prepaid land costs that will offset the purchase price of future Earnouts.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2022 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As at
Note
December 31, 2022
December 31, 2021
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
18,734
39,456
100,280
2,924
161,394
3,504
17,646
21,150
14,953
139,589
116,966
2,924
274,432
3,370
18,931
22,301
(1)
Excludes amounts receivable presented below as part of balances with equity accounted investments. This amount includes amounts receivable of $11,899 and other of $6,835
(December 31, 2021 – $6,966 and other of $7,987).
The following table summarizes the related party balances with the Trust’s equity accounted investments:
As at
Note
December 31, 2022
December 31, 2021
Related party balances disclosed elsewhere in the financial statements
Amounts receivable(1)
Loans receivable(2)
Other unsecured debt(3)
11
6(b)
12(b)(iv)
616
164,628
141,131
581
139,152
195,562
(1)
(2)
(3)
Amounts receivable includes Penguin’s portion, which represents $29 (December 31, 2021 – $4) relating to Penguin’s 50% investment in the PCVP and 50% in Residences (One) LP.
Loans receivable includes Penguin’s portion, which represents $24,266 (December 31, 2021 – $23,607) relating to Penguin’s 50% investment in the PCVP.
Other unsecured debt includes Penguin’s portion, which represents $163 (December 31, 2021 – $6,243) 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
2022
1,919
846
2,765
2021
2,628
2,129
4,757
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
23. Key management and Trustees’ 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, 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:
Trustees’ fees
Deferred unit plan
24. Co-owned property interests
Year Ended December 31
2022
2,720
2,936
5,477
(116)
11,017
2021
3,278
3,706
10,157
160
17,301
Year Ended December 31
2022
677
677
1,354
2021
748
748
1,496
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, 2022
December 31, 2021
Income properties(2)
Properties under development
Mixed-use
Residential development
Total
Number of Co-owned
Properties(1)
15
4
1
2
22
Ownership
Interest (%)
40 – 60
25 – 67
67
50
Number of Co-owned
Properties(1)
18
4
1
2
25
Ownership
Interest (%)
40 – 60
25 – 67
67
50
(1)
(2)
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, 2021 – eight
investment properties, consisting of four properties under development, three income properties and one mixed-use property) (see also Note 22, “Related party transactions”).
During the year ended December 31, 2022, the Trust acquired an additional 50% interest in three previously co-owned income properties.
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 22 co-owned property interests as at December 31, 2022 (25 co-ownership
property interests at December 31, 2021).
As at
Assets(1)(2)
Liabilities
December 31, 2022
December 31, 2021
2,084,066
184,993
2,119,018
351,725
(1)
(2)
Includes cash and cash equivalents of $37,275 (December 31, 2021 – $30,713).
Includes the Trust’s proportionate share of the investment properties classified as held for sale of $42,321 (December 31, 2021 – $nil).
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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 investing activities
Year Ended December 31
2021
2022
94,033
40,067
53,966
41,603
95,569
55,963
(148,691)
99,389
96,225
45,732
50,493
149,171
199,664
54,136
(66,226)
14,276
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, 2022, 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, 2022 (year ended December 31, 2021 – 25.2%).
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
Units classified as liabilities
Deferred unit plan
Long term incentive plan
Equity incentive plan
Interest rate swap agreements
Fair value adjustment on financial instruments
Total fair value adjustments
Year Ended December 31
Note
2022
2021
4
4
8
13(a)
13(c)
13(d)
13(e)
8, 13
(54,122)
255,956
201,834
(4,918)
42,726
8,920
397
2,085
42,036
91,246
293,080
107,416
384,112
491,528
5,642
(24,508)
(13,824)
808
(3,250)
905
(34,227)
457,301
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
27. Risk management
a) Financial risks
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, 2022, approximately
24.98% (December 31, 2021 – 8.59%) of the Trust’s debt is financed at variable rates, of which 10.04% is subject to
interest rate swap agreements with fixed interest rates. The remaining variable rate debt (14.94% of total debt) not
subject to interest rate swap agreements represents the Trust’s exposure to changes in interest rates on such debt.
The Trust analyzes its interest rate exposure on a regular basis. 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, revolving
operating facilities, and mortgages and loans receivable:
Change in interest rate of:
Net income increase (decrease) from variable-
rate debt
Net income increase (decrease) from variable-
rate mortgages and loans receivable
-1.50%
-1.00%
-0.50%
+0.50%
+1.00%
+1.50%
11,170
7,446
3,723
(3,723)
(7,446)
(11,170)
(2,773)
(1,849)
(924)
924
1,849
2,773
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.
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:
-1.50%
-1.00%
-0.50%
+0.50%
+1.00%
+1.50%
Fair value gain (loss) on interest rate swap agreements
(36,700)
(23,816)
(11,075)
13,991
26,324
38,527
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 fulfil 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
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
assumptions and estimates underlying the manner in which ECLs have been implemented historically may not be
appropriate in the current economic environment, including but not limit to the inflationary environment, rising interest
rates, etc. Accordingly, the Trust has not applied its existing ECL methodology mechanically. Instead, during the
current economic 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, $720,400 of
liabilities (including $459,278 of secured and unsecured debt and $261,122 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
Trust’s ability to meet its financial obligations as they become due represents the Trust’s exposure to liquidity risk. It is
management’s intention to either repay or refinance maturing liabilities with newly issued secured or unsecured debt,
equity or, in certain circumstances not expected to occur frequently, the disposition of certain assets. Any net working
capital deficiencies are funded with the Trust’s existing revolving operating facilities. As at December 31, 2022, the
Trust had: a) cash and cash equivalents of $35,255; 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) $8,415,900 in
unencumbered assets that could be used to obtain additional secured financing to assist with its liquidity requirements.
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.
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”.
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, 2022, approximately 1.49% (December 31,
2021 – 3.05%) 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
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2022 ANNUAL REPORT 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:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, 2022, the Trust was in compliance with all financial covenants.
28. Commitments and contingencies
The Trust has certain obligations and commitments pursuant to development management agreements to complete the
purchase of Earnouts totalling approximately 121,000 square feet (December 31, 2021 – 131,000 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, 2022, the carrying value of these obligations and commitments included in properties under development
was $54,847 (December 31, 2021 – $60,700). 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 $20,669 (December 31, 2021 –
$14,934) and commitments relating to equity accounted investments that total $200,956 (December 31, 2021 – $293,688), of
which the Trust’s share is $90,161 (December 31, 2021 – $123,584), 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 $190,720 (December 31, 2021
– $300,796) (see also Note 6, “Mortgages, loans and notes receivable”), of which $39,456 has been provided as at
December 31, 2022 (December 31, 2021 – $139,589).
As at December 31, 2022, letters of credit totalling $48,312 (December 31, 2021 – $34,783) – 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 event
The Trust together with an entity, PCVP, which is classified as investment in associates, entered into an agreement to dispose
approximately 6.4 acres of land located in Vaughan, Ontario (VMC) to an unrelated party, which closed in February 2023, for
gross proceeds of $95,550 that was satisfied with cash. The Trust’s share of such proceeds was $58,371, comprised of $42,321
relating to the Trust’s two-thirds share of the 4.3 acres of land on western part of SmartVMC which were previously consolidated
in the Trust’s consolidated financial statements and presented as assets held for sale at December 31, 2022, and $16,050
relating to the Trust’s 50% share of 2.1 acres of land on eastern part of SmartVMC which were previously recorded in equity
accounted investments.
SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2022 ANNUAL REPORT 67
165
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSMARTCENTRES REAL ESTATE INVESTMENT TRUST 2022 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 Slan
Chief Financial Officer
Rudy Gobin
Executive Vice President
Portfolio Management & Investments
INVESTOR RELATIONS
Peter Slan
Chief Financial Officer
Tel: 905 326 6400 x7571
Fax: 905 326 0783
TSX: SRU.UN