View Annual Report

FROM SHOPPING CENTRES TO CITY CENTRES 2019 Annual Report SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2019 ANNUAL REPORT 1 2 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2019 ANNUAL REPORT FROM SHOPPING CENTRES properties in all Canadian 165 provinces 34.3 98.2% $9.9 million income industry leading billion in total assets producing square feet occupancy rate TO CITY CENTRES billion $ intensification 12.1 program 1 256 59.3 $3.0-$3.6 development projects million incremental billion potential identified square feet 2 value creation 3 1 REIT share $5.5 billion 2 REIT share 27.9 million 3 REIT share $1.3B - $1.5B SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2019 ANNUAL REPORT 3 4 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2019 ANNUAL REPORT TABLE OF CONTENTS 6 MANAGEMENT DISCUSSION 56 Related Party Transactions & ANALYSIS 59 Capital Resources and Liquidity 6 About this Management’s Discussion 61 Debt and Analysis 64 Financial Covenants 6 Presentation of Non-GAAP Measures 65 Unitholders’ Equity 7 Forward-Looking Statements 67 Quarterly Results and Trends 8 Business Overview and Strategic Direction 69 Income Taxes and the REIT Exception 10 Outlook 69 Disclosure Controls and Procedures and 14 Key Business Development, Operational Internal Control Over Financial Reporting – and Financial Highlights for the Year Ended National Instrument 52-109 Compliance December 31, 2019 70 Significant Accounting Estimates and 19 Mixed-Use Development Initiatives Policies 22 Results of Operations 74 Future Changes in Accounting Policies 30 Leasing Activities and Lease Expiries 74 Base Shelf Prospectus 34 Other Measures of Performance 75 Risks and Uncertainties 42 Amounts Receivable, Allowance for 79 Subsequent Events Expected Credit Loss, Prepaid Expenses and Deposits, Deferred Financing Costs 80 Glossary of Terms and Other 84 MANAGEMENT’S RESPONSIBILITY 43 Mortgages, Loans and Notes Receivable, FOR FINANCIAL REPORTING and Interest Income 85 INDEPENDENT AUDITOR’S REPORT 46 Interest Expense 88 CONSOLIDATED BALANCE SHEETS 47 General and Administrative Expense 89 CONSOLIDATED STATEMENTS OF INCOME 48 Earnouts and Developments Completed AND COMPREHENSIVE INCOME on Existing Properties 90 CONSOLIDATED STATEMENTS 48 Maintenance of Productive Capacity OF CASH FLOWS 50 Investment Properties 91 CONSOLIDATED STATEMENTS OF EQUITY 52 Properties Under Development 92 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 53 Residential Development Inventory 54 Equity Accounted Investments SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2019 ANNUAL REPORT 5 MANAGEMENT’S DISCUSSION AND ANALYSIS MANAGEMENT’S DISCUSSION AND ANALYSIS FOR THE YEAR ENDED DECEMBER 31, 2019 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, 2019, 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, 2019 and December 31, 2018, the notes contained therein, and the Trust’s annual information form. Such consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the Internationals Accounting Standards Board (“IASB”). The Canadian dollar is the functional and reporting currency for purposes of preparing the consolidated financial statements. This MD&A is dated February 12, 2020, which is the date of the press release announcing the Trust’s results for the year ended December 31, 2019. 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 the “Glossary” section. Presentation of Non-GAAP Measures Readers are cautioned that certain terms used in this MD&A such as Funds From Operations (“FFO”), “FFO per Unit growth”, Transactional FFO, Net Asset Value (“NAV”), Adjusted Cashflow From Operations (“ACFO”), Net Operating Income (“NOI”), “Annual Run-Rate NOI”, “Same Property NOI”, “Interest Coverage”, “Aggregate Assets”, “Gross Book Value”, “Debt to Service”, Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (“Adjusted EBITDA”), “Secured Indebtedness”, “Payout Ratio”, and any related per Variable Voting Unit of the Trust (a “Trust Unit”) and per unit of the Trust’s subsidiary limited partnerships (an “LP Unit”) (where management discloses the combination of Trust Units and LP Units, combined units are referred to as “a Unit” or “Units”) are amounts used by management to measure, compare and explain the operating results and financial performance of the Trust and do not have any standardized meaning prescribed under IFRS and, therefore, should not be construed as alternatives to net income or cash flow from operating activities calculated in accordance with IFRS. These terms are defined in this MD&A and reconciled to the closest IFRS measure in the consolidated financial statements of the Trust for the year ended December 31, 2019. Such terms do not have a standardized meaning prescribed by IFRS and may not be comparable to similarly titled measures presented by other publicly traded entities. See “Other Measures of Performance”, “Net Operating Income”, “Debt” and “Financial Covenants”. Funds From Operations (FFO) FFO is a non-GAAP financial measure of operating performance widely used by the Canadian real estate industry based on the definition set forth by REALpac, which published a White Paper describing the intended use of FFO, last revised in February 2019. It is the Trust’s view that IFRS net income does not necessarily provide a complete measure of the Trust’s recurring operating performance. This is primarily because IFRS net income includes items such as fair value changes of investment property that are subject to market conditions and capitalization rate fluctuations and gains and losses on the disposal of investment properties, including associated transaction costs and taxes, which management believes are not representative of a company’s economic earnings. For these reasons, the Trust has adopted REALpac’s definition of FFO, which was created by the real estate industry as a supplemental measure of operating performance. FFO is computed as IFRS consolidated net income and comprehensive income attributable to Unitholders adjusted for items such as, but not limited to, unrealized changes in the fair value of investment properties and financial instruments and transaction gains and losses on the acquisition or disposal of investment properties calculated on a basis consistent with IFRS. Adjusted Cashflow From Operations (ACFO) ACFO is a non-GAAP financial measure of operating performance and may not be comparable to similar measures used by other real estate entities. The Trust calculates its ACFO in accordance with REALpac’s “White Paper on Adjusted Cashflow From Operations (ACFO)” for IFRS last revised in February 2019. The purpose of the White Paper is to provide reporting issuers and stakeholders with greater guidance on the definitions of ACFO and to help promote more consistent disclosure from reporting issuers. ACFO is intended to be used as a sustainable, economic cash flow metric. The Trust considers ACFO an input to determine the appropriate level of distributions to Unitholders as it adjusts cash flows from operations to better measure sustainable, economic cash flows. Prior to the initial issuance of the February 2017 White Paper on ACFO, there was no industry standard to calculate a sustainable, economic cash flow metric. SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2019 ANNUAL REPORT 3 6 SMARTCENTRES REAL ESTATE INVESTMENT TRUST | 2019 ANNUAL REPORT MANAGEMENT’S DISCUSSION AND ANALYSIS Proportionate Share of Equity Accounted Investments Certain disclosures in the MD&A are presented on a GAAP basis and on a total proportionate share basis (non-GAAP). References made to a “total proportionate share” or “the Trust’s proportionate share of equity accounted investments” refer to non-GAAP financial measures which represent the Trust's proportionate interest in the financial position and operating activity of its entire portfolio, which reflect the difference in accounting treatment between joint ventures using proportionate consolidation and equity accounting. Management believes this presentation to be more meaningful to users of the MD&A because it represents the way in which 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 associates and investments in joint ventures using the equity method of accounting. Forward-Looking Statements Certain statements in this MD&A are “forward-looking statements” that reflect management’s expectations regarding the Trust’s future growth, results of operations, performance and business prospects and opportunities, including those statements outlined under the headings “Business Overview and Strategic Direction”, “Outlook” and “Annual Run-Rate NOI”. More specifically, certain statements contained in this MD&A, including statements related to the Trust’s maintenance of productive capacity, estimated future development plans and joint venture projects, including the described type, scope, costs and other financial metrics related

Load more