CANADIAN REAL ESTATE INVESTMENT TRUST
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005
Deloitte & Touche LLP BCE Place 181 Bay Street Suite 1400 Toronto ON M5J 2V1 Canada Tel: 416-601-6150 Fax: 416-601-6151 www.deloitte.ca
Auditors’ Report
To the Unitholders of Canadian Real Estate Investment Trust
We have audited the consolidated balance sheets of Canadian Real Estate Investment Trust as at December 31, 2005 and 2004 and the consolidated statements of income, Unitholders’ Equity and cash flows for the years then ended. These financial statements are the responsibility of the Trust’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Trust as at December 31, 2005 and 2004 and the results of its operations and its cash flows for the years then ended in accordance with Canadian generally accepted accounting principles.
Chartered Accountants Toronto, Ontario February 15, 2006
CREIT – Consolidated Financial Statements – December 31, 2005
CONSOLIDATED BALANCE SHEETS
As at December 31, 2005 and 2004
(Thousands of dollars) ASSETS Real estate assets Income properties (Note 3) Property under development Deferred charges (Note 4) Intangible assets (Note 5) Mortgages receivable (Note 6) Cash and cash equivalents Accounts receivable Accrued straight line rent receivable Deferred financing costs (Note 7) Other assets LIABILITIES Mortgages payable (Note 9) Debentures payable (Note 10) Bank loan (Note 11) Notes Payable (Note 12) Accounts payable and accrued liabilities Intangible liabilities (Note 5) Future income tax liability (Note 16) UNITHOLDERS’ EQUITY Unitholders’ equity (Note 14) Cumulative translation gain (loss) 603,858 (1,096) 602,762 $ 1,591,787 604,206 637 604,843 $ 1,468,705 $ 1,373,952 1,514 63,398 18,642 86,602 1,544,108 18,254 10,695 9,969 3,913 4,848 $ 1,591,787 $ 801,325 60,000 61,753 14,439 44,292 4,990 2,226 989,025 $ 1,338,005 51,241 17,895 33,681 1,440,822 3,457 11,683 4,815 2,790 5,138 $ 1,468,705 $ 716,080 99,474 43,175 3,112 2,021 863,862 2005 2004
Approved by the Trustees:
“Lawrence Morassutti”
......................................................... Lawrence Morassutti, C.A. Trustee
“Robert Hewett”
......................................................... Robert Hewett Trustee
Page 2 of 26
CREIT – Consolidated Financial Statements – December 31, 2005
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31, 2005 and 2004
(Thousands of dollars except per Unit amounts) REVENUES Property rental revenue (Note 15) Interest income Fee income Lease termination income EXPENSES Property operating expenses Realty taxes Property administrative expenses Property management fees Amortization of deferred maintenance costs Amortization of leasing costs Amortization of leasing costs on acquisition of properties Amortization of intangible assets on acquisition of properties Amortization of financing costs Depreciation Mortgage, debenture and bank loan interest (Note 13) General and administrative Income before the undernoted Gain on disposition of land Foreign currency translation gain Income before income tax expense and discontinued operations Income tax expense (Note 16) Current Future Income from continuing operations Discontinued operations (Note 17) Income from discontinued operations Gain on disposition of property NET INCOME Basic net income per Unit (Note 18) Continuing operations Discontinued operations Net Income Diluted net income per Unit (Note 18) Continuing operations Discontinued operations Net income
Page 3 of 26
2005 $ 233,410 5,945 2,013 394 241,762 37,521 42,810 8,389 433 1,869 7,012 2,553 3,410 1,172 34,236 48,445 2,133 189,983 51,779 1,180 1,911 54,870 327 282 609 54,261 480 4,271 4,751 $ 59,012 $ 0.96 0.08 $ 1.04 $ 0.96 0.08 $ 1.04
2004 $ 215,823 2,799 1,298 1,128 221,048 34,037 40,827 7,985 200 1,827 5,820 1,764 2,153 958 33,521 42,319 2,019 173,430 47,618 — 47,618 412 439 851 46,767 684 684 $ 47,451 $ 0.86 0.01 $ 0.87 $ 0.85 0.01 $ 0.86
CREIT – Consolidated Financial Statements – December 31, 2005
Consolidated Statements of Unitholders’ Equity
Years ended December 31, 2005 and 2004
(Thousands of dollars) UNITHOLDERS’ EQUITY DECEMBER 31, 2004 Subscriptions Issue costs Unit option compensation Net income Distributions UNITHOLDERS’ EQUITY DECEMBER 31, 2005 UNITHOLDERS’ EQUITY DECEMBER 31, 2003 Subscriptions Issue costs Net income Distributions UNITHOLDERS’ EQUITY DECEMBER 31, 2004 Trust Units $ 654,845 12,882 (77) (1) $ 667,649 $ 591,505 66,157 (2,817) $ 654,845 Net Income $ 325,079 59,012 $ 384,091 $ 277,628 47,451 $ 325,079 Distributions ($ 375,718) (72,164) ($ 447,882) ($ 307,457) (68,261) ($375,718) Total $ 604,206 12,882 (77) (1) 59,012 (72,164) $ 603,858 $ 561,676 66,157 (2,817) 47,451 (68,261) $ 604,206
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CREIT – Consolidated Financial Statements – December 31, 2005
Consolidated Statements of Cash Flow
Years ended December 31, 2005 and 2004
(Thousands of dollars) NET INFLOW (OUTFLOW) OF CASH RELATED TO THE FOLLOWING ACTIVITIES OPERATING Net income from continuing operations Items not affecting cash Depreciation Gain on disposition of land Future income tax expense Amortization of deferred maintenance costs Amortization of leasing costs Amortization of leasing costs on acquisition of properties Amortization of intangible assets on acquisition of properties Amortization of value of above- and below-market leases Amortization of financing costs Deferred leasing costs Deferred maintenance costs Changes in tenant receivables, net of allowance for doubtful accounts Changes in straight line rent receivables Foreign currency translation Changes in other non-cash operating items Total operating activities FINANCING Proceeds of new mortgage financing Mortgage principal repayments Discharge of mortgages Proceeds of new debenture financing Net proceeds from issue of new Units Distributions to Unitholders net of reinvested distributions Deferred financing costs Reduction in bank loan Notes payable Total financing activities INVESTING Additions to income properties Additions to properties under development Acquisition of properties Deferred leasing costs on acquisition of properties Intangible assets on acquisition of properties Intangible liabilities on acquisition of properties Net proceeds from disposition of land Mortgages receivable Other assets Total investing activities Foreign exchange loss on cash held in foreign currency Cash flow from discontinued operations (Note 17) Increase in cash and cash equivalents Cash and cash equivalents, beginning of year Cash and cas h equivalents, end of year 2005 2004
$ 54,261 34,236 (1,180) 282 1,869 7,012 2,553 3,410 (327) 1,172 (11,224) (6,008) 1,574 (5,244) (1,911) (1,501) 78,974 126,153 (18,101) (50,379) 60,000 5,245 (64,605) (2,303) (37,156) 14,439 33,293 (8,994) (1,514) (42,567) (7,032) (4,696) 2,614 3,517 (55,521) 101 (114,092) (20) 16,642 14,797 3,457 $ 18,254
$ 46,767 33,521 439 1,827 5,820 1,764 2,153 (208) 958 (8,413) (5,665) (1,183) (4,009) — 7,230 81,001 247,368 (15,295) (118,380) 59,263 (64,184) (1,929) (16,326) — 90,517 (14,229) (115,638) (12,148) (16,267) 3,106 (16,025) (311) (171,512) (21) 192 177 3,280 3,457
$
Page 5 of 26
CREIT – Consolidated Financial Statements – December 31, 2005
SUPPLEMENTAL CASH FLOW DISCLOSURE
1. On December 15, 2005, the Trust acquired a 50% interest in five retail properties located in Camrose, Alberta; Okotoks, Alberta; Fort McMurray, Alberta; Fort Saskatchewan, Alberta, and Prince Albert, Saskatchewan, for a total price of $65.3 million, paid partially with an assumption of mortgages in the amount of $35.7 million and the conversion of a mortgage receivable in the amount of $5.0 million. 2. On June 30, 2005, the Trust sold its 65% interest in Spruceland Shopping Centre, a retail property located in Prince George, British Columbia, for a price of $15.8 million, with the purchaser assuming the existing mortgage in the amount of $7.0 million. 3. On November 30, 2004, a 50% interest in 201 Chain Lake Drive, a retail property located in Halifax, Nova Scotia, was acquired at a price of $7.8 million, paid with an assumption of a mortgage in the amount of $2.0 million and the conversion of a mortgage receivable in the amount of $5.8 million. 4. On July 8, 2004, 555 Edinburgh Drive, an industrial building located in Moncton, New Brunswick, was acquired at a price of $1.4 million, paid partially with an assumption of a mortgage in the amount of $1.0 million. 5. On July 7, 2004, three retail properties – Halifax Park Centre, Lacewood Square and 182-192 Chain Lake Drive – and Greystone Court, an industrial property, all located in Halifax, Nova Scotia, were acquired at a price of $40.3 million, paid partially with an assumption of mortgages in the amount of $25.5 million. 6. The cash interest paid during the year ended December 31, 2005 was $47.6 million (2004 - $41.0 million). 7. The cash income tax paid during the year ended December 31, 2005 was $0.3 million (2004 – $0.6 million).
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CREIT – Consolidated Financial Statements – December 31, 2005
Notes to the Consolidated Financial Statements
December 31, 2005 and 2004 1. ORGANIZATION OF THE TRUST
Canadian Real Estate Investment Trust (the “Trust”) is a “closed-end” real estate investment trust created for the benefit of the Unitholders. The Trust commenced active operations on behalf of the Unitholders on April 1, 1984.
2.
SIGNIFICANT ACCOUNTING POLICIES
The Trust’s accounting policies and its standards of financial disclosure are in accordance with the recommendations of the Canadian Institute of Chartered Accountants. The more significant of these policies are described below: (a) Principles of Consolidation The consolidated financial statements include the accounts of the Trust and its wholly owned subsidiaries. The Trust’s investment in co-ownerships is accounted for using the proportionate consolidation method. Effective January 1, 2005, the Trust adopted new CICA Accounting Guideline 15. This Guideline requires enterprises to identify Variable Interest Entities (“VIEs”), determine whether they are the primary beneficiary of such entities and, if so, to consolidate them. A VIE is an entity in which the equity is not sufficient to permit that entity to finance its activities without external support or equity investors lack either voting control, an obligation to absorb future losses, or the right to receive future returns. The Trust has reviewed its current and future interests, particularly its joint venture, mezzanine financing and option arrangements, and determined that they do not qualify as VIEs, and that there is no impact on the Consolidated Financial Statements. (b) Income Properties Upon acquisition of income properties, the Trust assesses the fair value of acquired tangible and intangible assets (including land, buildings, “above-“ and “below-market” leases, prepaid origination costs, in-place leases, other identified intangible assets and assumed liabilities) in accordance with CICA Handbook Sections 1581 and 3062, and allocates the purchase price to the acquired assets and assumed liabilities. The Trust assesses and considers fair value based on estimated cash flow projections that utilize appropriate discount and or capitalization rates, as well as available market information. Estimates of future cash flows are based on a number of factors including the historical operating results and anticipated trends, local markets and economic conditions. The Trust considers acquired “above-” and “below-market” leases at their fair value (using a discount rate which reflects the risks associated with the leases acquired) equal to the difference between (1) the contractual amounts to be paid pursuant to each in-place lease and (2) management’s estimate of fair market lease rates for each corresponding in-place lease, measured over a period equal to the remaining term of the lease for above market leases and the initial term plus the term of any below-market fixed rate renewal options for below-market leases. The values of prepaid lease origination costs, included in deferred charges, are calculated based on the existing tenant leases. Factors considered include current market leasing costs,
Page 7 of 26
CREIT – Consolidated Financial Statements – December 31, 2005
probability associated with renewal of specific tenant, rentable area and terms for each lease, and costs to execute a similar lease. Values of in-place leases, equal to the present value of the net operating income lost during a hypothetical expected lease-up period required to replace the existing leases at the date of purchase, are recorded in intangible assets. Values of in-place leases are calculated based on the Trust’s evaluation of the specific characteristics of each tenant’s lease. Factors considered include estimates of the hypothetical expected lease-up period, current market rents and carrying costs, which include real estate taxes, insurance and other operating expenses, depending on local market conditions. The Trust also considers an allocation of purchase price to values of tenant relationships associated with the existing leases. These values reflect the present value of future benefits associated with expected lease renewals based on the nature and the extent of the existing relationship with the tenants and on their credit quality. The Trust reviews its long-lived assets, used in operations, for impairment annually, or more frequently when there is an event or change in circumstance that indicates impairment in value. An impairment loss is recognized if the carrying amount of the asset is not recoverable and exceeds the undiscounted estimated future net cash expected to be received from the ongoing use and residual worth of the asset. If such impairment is present, an impairment loss is recognized based on the excess of the carrying amount of the asset over its fair value. The evaluation of anticipated cash flows is highly subjective and is based in part on assumptions regarding future occupancy, rental rates and capital requirements that could differ materially from actual results in future periods. Qualifying assets and liabilities and the results of operations that have been sold, or otherwise qualify as “held for sale,” are presented as discontinued operations in all periods presented if the property operations are expected to be eliminated and the Trust will not have significant continuing involvement following the disposition. The components of the property’s net income that is reflected as discontinued operations include the net gain (or loss) upon the disposition of the property held for sale, operating results, depreciation and interest expense (if the property is subject to a secured mortgage). Following the classification of a property as discontinued operations, no further depreciation is recorded on the assets. The costs of land and buildings under development include specifically identifiable costs. The capitalized costs include pre-construction costs essential to the development of the property, development costs, construction costs, interest costs, real estate taxes, and other costs incurred during the period of development. The Trust considers a development project as substantially completed on the earlier of: i) ii) iii) the date on which the property achieved a break-even cash flow; the date on which a satisfactory occupancy level was attained; or two years from initial occupancy.
Net operating income or losses of a development project are capitalized to the property until it is substantially completed. The Trust computes depreciation and amortization on assets using the straight-line method based on estimated useful asset lives as follows:
Page 8 of 26
CREIT – Consolidated Financial Statements – December 31, 2005
Asset Class Retail Income Property Industrial Income Property Office Income Property Furniture, Fixtures and Equipment (other assets)
Useful Life 35-55 years 35-55 years 50-60 years 1-5 years
The values of the above and below-market leases are amortized and recorded as either an increase (in the case of below-market leases) or a decrease (in the case of above-market leases) to property rental revenue over the remaining term of the respective lease. The value of prepaid lease origination costs and the value of in-place leases are amortized over the remaining term of the respective leases. The value of tenant relationships is amortized over the expected term of the relationship. The expected term of the relationship is determined based on an estimated probability of the lease renewal, and its estimated term. In the event a tenant vacates its leased premises prior to the contractual termination of the lease and no rental payments are being made under the lease, the unamortized balance of the related intangible assets and liabilities will be expensed in full. (c) Deferred Charges Deferred charges include leasing costs, deferred leasing costs on the acquisition of properties (described in note 2(b)) and deferred maintenance costs. Leasing costs include the direct fees and costs incurred in the successful negotiation of leases including third party brokerage, third party legal, tenant inducements and other costs which have been deferred and are being amortized on a straight-line basis over the terms of the respective leases. The unamortized balance is included in deferred charges. Leasing costs on the acquisition of properties include an allocation for prepaid lease origination costs, and are amortized on a straight -line basis over the terms of the respective leases. The unamortized balance is included in deferred charges. Maintenance and repair costs are expensed against operations, while deferred maintenance costs, which are major items of repair or replacement, are amortized on a straight-line basis over the expected useful life of such major repair or replacement. The unamortized balance is included in deferred charges. The unamortized balances of deferred charges are expensed in full in the event the property is sold or the lease is terminated prior to its contractual expiration date. (d) Financing Costs External fees and costs incurred to obtain debt financing have been deferred and are being amortized on a straight-line basis over the term of the respective indebtedness, or expensed in full in the event the property securing the indebtedness is sold or the indebtedness is discharged prior to its maturity. The unamortized balance is included in the deferred financing costs. (e) Revenue Recognition Certain leases provide for tenant occupancy during periods for which no rent is due (“free rent period”) or where minimum rent payments change during the term of the lease. The Trust records rental income for the full term of each lease on a straight -line basis. Accordingly, a receivable is recorded from tenants for the current difference between the straight-line rent and the rent that is contractually due from the tenant.
Page 9 of 26
CREIT – Consolidated Financial Statements – December 31, 2005
When a property is acquired, the term of existing leases is considered to commence as of the acquisition date for purposes of these calculations. Recoveries from tenants, consisting of amounts due from tenants for common area maintenance, real estate taxes and other recoverable costs are recognized as revenue in the period the expenses are incurred. (f) Lease Termination Income Lease termination income represents amounts received or receivable from tenants in connection with the early termination of their remaining lease obligation, and is recognized as revenue upon the legal termination of the lease. (g) Allowance for Doubtful Accounts Allowance for doubtful accounts is maintained for estimated losses resulting from the inability of certain tenants to meet the contractual obligation under their lease agreements. Management actively reviews tenant receivables and determines the probability of collection for receivables identified as potentially uncollectible. The amount of allowance takes into account any security deposits or outstanding letters of credit. (h) Translation of Foreign Currencies The Trust has a self-sustaining subsidiary in the United States, which is financially and operationally independent. Assets and liabilities of this investment are translated at the rate of exchange in effect at the balance sheet date. The resulting net gain or loss is reflected in the cumulative translation gain account in Unitholders’ Equity. Revenue and expense items are translated at the average exchange rate for the period. The Trust also uses forward exchange contracts to manage its foreign exchange risk exposures. The resulting gains or losses on forward exchange contracts are recorded in the Consolidated Statements of Income. (i) Income Taxes Income taxes are accounted for using the liability method. Under this method, future income taxes are recognized for the expected future tax consequences of differences between the carrying amount of balance sheet items and their corresponding tax values. Future income taxes are computed using substantively enacted income tax rates for the years in which the differences are expected to reverse. (j) Use of Estimates The preparation of financial statements in conformity with Canadian generally accepted accounting principles requires management to make estimates and assumptions that affect the recorded amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. (k) Unit Option Plan The Trust has a Unit Option Plan, as described in Note 13. Any consideration paid by the employees or Trustees on the exercise of Options or the purchase of Units is credited to Unitholders’ Equity. If Units or Unit Options are repurchased from employees or Trustees, the excess of the consideration paid over the carrying amount of the Unit or Unit Option cancelled is charged to Unitholders’ Equity.
Page 10 of 26
CREIT – Consolidated Financial Statements – December 31, 2005
The Trust accounts for Unit Options using the fair value method. Under the fair value method, compensation expense for Unit Options that are direct awards of Units is measured at fair value at the grant date using an option-pricing model and is recognized over the vesting period.
3.
INCOME PROPERTIES
Income properties consist of the following:
(Thousands of dollars) Cost Freehold properties Land Buildings Leasehold properties Discontinued operations $ 245,299 1,140,400 1,385,699 94,764 1,480,463 1,533 $ 1,481,996 (Thousands of dollars) Cost Freehold properties Land Buildings Leasehold properties Accumulated Depreciation $ 73,458 73,458 2,246 $ 75,704 $ 103,832 103,832 4,024 107,856 188 $ 108,044 $ 245,299 1,036,568 1,281,867 90,740 1,372,607 1,345 $ 1,373,952 2004 Net Book Value $ 232,329 1,013,157 1,245,486 92,519 $ 1,338,005 Accumulated Depreciation 2005 Net Book Value
$ 232,329 1,086,615 1,318,944 94,765 $ 1,413,709
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CREIT – Consolidated Financial Statements – December 31, 2005
4.
DEFERRED CHARGES
Deferred charges consist of the following:
(Thousands of dollars) Cost Deferred leasing costs Deferred leasing costs on acquisition of properties Deferred maintenance costs $ 47,328 19,556 23,069 $ 89,953 (Thousands of dollars) Cost Deferred leasing cos ts Deferred leasing costs on acquisition of properties Deferred maintenance costs $40,354 13,398 18,199 $71,951 Accumulated Amortization $15,018 1,701 3,991 $20,710 Accumulated Amortization $ 18,127 3,443 4,985 $ 26,555 2005 Net Book Value $ 29,201 16,113 18,084 $ 63,398 2004 Net Book Value $25,336 11,697 14,208 $51,241
5.
INTANGIBLE ASSETS AND LIABILITIES
Intangible assets and liabilities consist of the following:
(Thousands of dollars) Cost Intangible assets Value of above-market leases Value of in-place leases Value of tenant relationships Intangible liabilities Value of below-market leases (Thousands of dollars) Cost Intangible assets Value of above-market leases Value of in-place leases Value of tenant relationships Intangible liabilities Value of below-market leases $ 3,605 $ 493 $ 3,112 $ 1,422 8,839 9,989 $ 20,250 Accumulated Amortization $ 239 1,454 662 $ 2,355 $ 5,946 $ 956 $ 4,990 2004 Net Book Value $ 1,183 7,385 9,327 $ 17,895 $ 1,886 10,337 11,196 $ 23,419 Accumulated Amortization $ 421 2,756 1,600 $ 4,777 2005 Net Book Value $ 1,465 7,581 9,596 $ 18,642
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CREIT – Consolidated Financial Statements – December 31, 2005
6.
MORTGAGES RECEIVABLE
Maturity Interest Rate (%) 2005 2004
(Thousands of dollars) SECURITY 1 3075 and 3083 Highway #7, Markham Ontario 3075 and 3083 Highway #7, Markham, Ontario 1280 Fanshawe Park and 1287 Hyde Park Road, London, Ontario 801 St. Clair Street, Chatham, Ontario 9757 Airport Road, Brampton, Ontario Creekside Shopping Centre, Calgary, Alberta Kenaston Centre, Winnipeg, Manitoba Grange Shopping Centre, Edmonton, Alberta Pinebush Road, Cambridge, Ontario 3455 North Service Road, Burlington, Ontario 410 Business Centre, Brampton, Ontario Ellice Avenue Centre, Winnipeg, Manitoba St. James Shopping Centre, Winnipeg, Manitoba Sierra Springs Shopping Centre, Airdrie, Alberta Eastlake Industrial Centre, Calgary, Alberta 201 Chain Lake Drive, Halifax, Nova Scotia 209 Chain Lake Drive, Halifax Nova Scotia
June 26, 2006 July 3, 2006 August 15, 2007 January 28, 2008 February 7, 2008 February 24, 2008 March 31, 2008 June 9, 2008 June 13, 2008 June 13, 2008 June 30, 2008 July 18, 2008 August 30, 2008 December 19, 2008 November 1, 2009 December 1, 2009 December 1, 2009
7.0 10.0 10.0 10.0 9.5 9.5 9.5 9.5 9.5 9.5 9.5 9.5 9.5 9.5 9.0 10.0 10.0
$
16,662 6,332 13,860 8,328 3,133 1,995 4,178 8,404 2,163 190 4,413 11,120 4,466 1,358
$ 2,662 2,575 15,084 1,531 6,005 4,466 1,358 $ 33,681
$ 86,602
1. The mortgages receivable’s security is subordinated to a prior charge.
7.
DEFERRED FINANCING COSTS
Deferred financing costs are net of accumulated amortization of $2.0 million (December 31, 2004 – $1.5 million).
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CREIT – Consolidated Financial Statements – December 31, 2005
8.
CO-OWNERSHIPS
The following amounts represent the Trust's interest in Co-ownerships: Continuing Operations
(Thousands of dollars) Assets Liabilities Revenues Expenses Cash flow from (applied to): Operating activities Financing activities Investing activities 2005 $ 485,952 314,080 63,930 51,434 24,177 8,098 (32,460) 2004 $421,316 270,693 54,507 42,085 24,368 74,015 (124,214)
Discontinued Operations
(Thousands of dollars) Revenues Gain on disposition of property Expenses Cash flow from (applied to): Operating activities Financing activities Investing activities 2005 $ 1,017 2,560 928 374 (152) 8,598 2004 $ 1,951 1,809 900 (288)
The Trust is contingently liable for the obligations of its associates in certain co-ownerships. The assets of the co-ownerships are available and are sufficient for the purpose of satisfying such obligations.
9.
MORTGAGES PAYABLE
Mortgages payable bear interest at a weighted average rate of 5.94% (December 31, 2004 – 6.16%) per annum. Mortgages payable are secured by first charges on the Trust’s interest in income properties and contain various clauses including an assignment of leases and amounts due from property rentals. Included in mortgages payable is a U.S. $26.8 million; Cdn. $31.2 million (December 31, 2004 – U.S. $27.2 million; Cdn. $32.7 million) mortgage obligation secured by a U.S. property which bears interest at a rate of 5.07% (December 31, 2004 – 5.07%). All mortgages payable bear interest at fixed rates except the first mortgages payable secured by Blue Bonnets Power Centre, Baymac Shopping Centre, and a retail property located in Fort Saskatchewan, Alberta in the amounts of $0.6 million, $0.6 million, and $4.0 million respectively (December 31, 2004 – $0.6 million, nil, and nil), of which Blue Bonnets Power Centre bears interest at prime plus 1.50%, Baymac Shopping Centre bears interest at prime plus 0.75% and the retail property located in Fort Saskatchewan, Alberta bears interest at prime plus 0.50%.
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CREIT – Consolidated Financial Statements – December 31, 2005
The mortgages are repayable as follows:
(Thousands of dollars) 2006 2007 2008 2009 2010 Thereafter $ 108,152 79,166 34,940 96,170 67,238 415,659 $ 801,325
10. DEBENTURES PAYAB LE
(Thousands of dollars) Series A senior, unsecured, maturity of May 20, 2008, bearing interest at 4.15% per annum, payable semi-annually Series B senior, unsecured, maturity of May 21, 2013, bearing interest at 5.31% per annum, payable semi-annually 2005 $ 35,000 25,000 $ 60,000 2004 $ $
11. BANK LOAN
The Trust has a revolving credit facility limited to $135 million for acquisition and operating purposes, which is secured by mortgages on 48 properties. The credit facility is subject to annual renewal. The majority of funds drawn under this facility are at LIBOR and Bankers’ Acceptance rates. As at December 31, 2005, a total of approximately $61.8 million, including U.S. $14.3 million, had been drawn (December 31, 2004 – a total of $99.5 million, including U.S. $14.1 million). As at December 31, 2005, the weighted average interest rate on amounts drawn under the credit facility is 4.61% (December 31, 2004 – 3.73%).
12. NOTES PAYABLE
Notes payable are in relation to a retail portfolio acquisition, bear interest at 3.5% per annum, and are due on demand.
13. INTEREST ON DEBT
Interest incurred on all sources of financing is broken down as follows:
(Thousands of dollars) Interest expensed on mortgages, debentures and bank loan Discontinued operations Interest capitalized to properties under development Total interest incurred during the year 2005 $ 48,445 206 3 $ 48,654 2004 $ 42,319 436 580 $ 43,335
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CREIT – Consolidated Financial Statements – December 31, 2005
14. UNITHOLDERS’ EQUITY
(a) Units Issued and Outstanding
2005 Balance, beginning of year Issued for cash Issued for reinvested distributions Unit Options exercised Balance, end of year 56,154,828 23,095 390,616 417,568 56,986,107 2004 52,175,838 3,519,889 260,935 198,166 56,154,828
(b) Unit Option Plan On June 5, 1998 the Unitholders passed a resolution implementing a Unit Option Plan (“the Plan”) in favour of the officers, employees and Trustees of the Trust and officers, employees and directors of the former property manager and certain subsidiaries of the Trust. Options granted to participants of the Plan, other than Trustees of the Trust, will vest over a 3-year period from the grant date. Options granted to Trustees vest on the grant date. Pursuant to the vesting provision, participants of the Plan, other than Trustees of the Trust, are committed, at the time they join the Plan, to invest certain minimum amounts in Units of the Trust over a 5-year period. On June 25, 2003, 1,048,135 units reserved for issuance under the Plan were allocated to reserves for issuance under the Long Term Incentive Plan. As a result no further options will be issued under the Plan. Pursuant to the Plan, the following activity occurred during the year ended December 31, 2005 and 2004.
Unit Options Range of Exercise Price Outstanding at December 31, 2004 Unit Options Granted Unit Options Exercised Unit Options Cancelled Unit Options Outstanding at December 31, 2005 Unit Options Vested at December 31, 2005 Weighted Average Exercise Price per Unit Weighted Average Remaining Life (Years)
$9.68–10.50 $11.00–11.82 $12.05–12.84 $13.24
73,370 405,030 323,169 2,000 803,569
Unit Options
23,370 205,030 188,168 1,000 417,568
50,000 200,000 135,001 1,000 386,001
Unit Options
50,000 200,000 135,001 1,000 386,001
Unit Options Vested at December 31, 2004
$
9.68
1.00 1.00 1.47 1.02
$ 11.25 $ 12.35 $ 13.24
Weighted Average Exercise Price per Unit
Weighted Average Remaining Life (Years)
Range of Exercise Price
Outstanding at December 31, 2003
Unit Options Granted
Unit Options Exercised
Unit Options Cancelled
Outstanding at December 31, 2004
$9.68–10.50 $11.00–11.82 $12.05–12.84 $13.24
137,038 476,363 393,667 3,000 1,010,068
63,668 63,000 70,498 1,000 198,166
8,333 8,333
73,370 405,030 323,169 2,000 803,569
73,370 405,030 323,169 2,000 803,569
$
9.79
5.08 4.46 6.94 7.41
$ 11.26 $ 12.35 $ 13.24
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CREIT – Consolidated Financial Statements – December 31, 2005
(c) Long Term Incentive Plan On June 25, 2003, Unitholders of the Trust passed a resolution implementing a Long Term Incentive Plan in favour of certain officers and key employees of the Trust. Participants may subscribe for Units of the Trust for a purchase price equal to the “market price” for Units, which purchase price will be payable in cash installments, over a term not to exceed 10 years. Participants are required to apply cash distributions received by them, in respect of the Long Term Incentive Plan, towards payments of interest, incremental income tax payable on the distributions and the remaining instalments. An aggregate of 1,200,000 Units are reserved for issuance (including 1,048,135 units allocated from the Unit Option Plan), pursuant to the Long Term Incentive Plan. No Units have been issued as at December 31, 2005. (d) Employee Unit Purchase Plan On June 25, 2003, Unitholders of the Trust passed a resolution implementing an Employee Unit Purchase Plan. The number of Units each participant would be entitled to acquire is limited to 5% of their respective salaries. In addition, if a participant has participated in the Employee Unit Purchase Plan for 12 consecutive months, the Trust will match a certain portion of the employee contributions to a maximum of not more than $1,000, which matching amount shall be applied to purchase additional Units for the participant. An aggregate of 150,000 Units are reserved for issuance under the Employee Unit Purchase Plan. 20,731 Units have been issued for the year ended December 31, 2005.
15. PROPERTY RENTAL REVENUE
Included in property rental revenue are recoveries for the year ended December 31, 2005 of $82.7 million (December 31, 2004 – $74.8 million), which represent common area maintenance, real estate taxes and other recoverable costs.
16. INCOME TAXES
The Trust is taxed as a "Mutual Fund Trust" for Canadian income tax purposes. Pursuant to the Declaration of Trust, the Trustees intend to distribute or designate all taxable income to the Unitholders of the Trust and to deduct such distributions and designations for Canadian income tax purposes. The Trust is subject to taxation in the United States in connection with income earned in the United States. Such taxes paid, to the extent permitted, will be designated as a foreign tax credit to Unitholders of the Trust. The Trust’s U.S. subsidiary is subject to tax on its taxable income at a rate of 38.8%. The future income tax liability arises from the temporary differences between carrying value and the tax basis of the net assets of the U.S. subsidiary. The carrying value of the Trust’s net assets, excluding the Oakbrook, Illinois, property, exceeds the tax basis by approximately $ 189.9 million at December 31, 2005 (2004 - $151.8 million).
17. DISCONTINUED OPERATIONS
The operating results for the following properties have been reclassified as discontinued operations to comply with the disclosure requirements of the CICA Handbook Section 3475: On March 1, 2005, the Trust disposed of its 100% interest in 555 Edinburgh Drive, Moncton, New Brunswick for gross proceeds of $1.3 million.
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CREIT – Consolidated Financial Statements – December 31, 2005
On June 29, 2005, the Trust disposed of its 100% interest in 655 University Avenue, Charlottetown, Prince Edward Island, for gross proceeds of $3.2 million. On June 30, 2005, the Trust disposed of its 65% interest in Spruceland Shopping Centre, Prince George, British Columbia, for gross proceeds of $15.8 million. On September 7, 2005, the Trust entered into a binding agreement to dispose of its 100% interest in 10010-132nd Avenue in Edmonton, Alberta, for gross proceeds of $2.2 million. The closing was completed on January 3, 2006. On December 30, 2005, the Trust disposed of its 100% interest in 3939 – 54 Street, Calgary, Alberta for gross proceeds of $2.9 million. Statements of Income
(Thousands of dollars) Revenues Property rental revenue Expenses Property operating expenses Realty taxes Property management fees Amortization of maintenance costs Amortization of leasing costs Amortization of leasing costs on acquisition of properties Amortization of intangible assets on acquisition of properties Amortization of financing costs Depreciation Mortgage, debenture, and bank loan interest 202 305 49 21 53 4 3 2 517 206 1,362 Income before the undernoted Gain on disposition of property Income from discontinued operations 480 4,271 $ 4,751 288 522 85 28 89 11 11 3 918 436 2,391 684 $ 684 $ 1,842 $ 3,075 2005 2004
th
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CREIT – Consolidated Financial Statements – December 31, 2005
Statements of Cash Flow
(Thousands of dollars) NET INFLOW (OUTFLOW) OF CASH RELATED TO THE FOLLOWING ACTIVITIES OPERATING Net income Items not affecting cash Depreciation Gain on disposition of property Amortization of leasing costs Amortization of leasing costs on acquisition of properties Amortization of intangible assets on acquisition of properties Amortization of value of above- and below-market leases Amortization of deferred maintenance Amortization of financing costs Deferred leasing costs Deferred maintenance costs Changes in tenant receivables, net of allowance for doubtful accounts Changes in straight line rent receivables Changes in other non-cash operating items Total Operating Activities FINANCING Mortgage principal repayments Discharge of mortgage Total Financing Activities INVESTING Additions to income properties on acquis ition of properties Deferred leasing costs on acquisition of properties Intangible assets on acquisition of properties Intangible liabilities on acquisition of properties Net proceeds from disposition of properties Other assets Total investing activities Increase in cash and cash equivalents from discontinued operations 15,871 (1) 15,870 $ 16,642 (294) (74) (159) 21 (506) $ 192 (152) (152) (289) (950) (1,239) 517 (4,271) 53 4 3 (1) 21 2 (11) 6 (4) (146) 924 918 89 11 11 (3) 28 3 (8) (102) 8 (12) 310 1,937 $ 4,751 $ 684 2005 2004
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CREIT – Consolidated Financial Statements – December 31, 2005
18. PER UNIT CALCULATIONS
Basic per Unit information is calculated based on the weighted average number of Units outstanding for the period. The calculation of per Unit information on a diluted basis considers the potential exercise of outstanding Unit purchase Options, to the extent that each Option is dilutive. The following table provides a reconciliation between the weighted average number of Units used to calculate basic and diluted net income per Unit.
2005 Weighted average number of Units Effect of dilutive Unit options Weighted average number of diluted Units outstanding 56,701,819 192,466 56,894,285
2004 54,801,026 277,723 55,078,749
No options to purchase Units have been excluded from the diluted calculation for the years ended December 31, 2005 and 2004.
19. RISK MANAGEMENT AND FAIR VALUES
RISK MANAGEMENT In the normal course of its business, the Trust is exposed to a number of risks that can affect its operating performance. These risks, and the actions taken to manage them, are as follows: (a) Interest Rate Risk Floating rate debt is generally restricted by the Trust’s operating plan to an amount equal to 10% of total assets plus accumulated depreciation. In addition, the Trust attempts to structure its financings so as to stagger the maturities of its fixed rate debt, thereby mitigating its exposure to interest rate fluctuations. From time to time, the Trust may enter into interest rate swap contracts to modify the interest rate profile of its outstanding debt without an exchange of the underlying principal amount. As of December 31, 2005, the Trust had no interest rate swap contracts in place. There is a risk that interest rates will fluctuate from the date the Trust commits to a debt, to the date the interest rate is set with the lender. From time to time, the Trust will mitigate this risk by entering into bond forward contracts to effectively establish the interest rate at the time of commitment. At December 31, 2005, the Trust had no bond forward contracts in place. (b) Credit Risk Credit risk arises from the possibility that tenants may experience financial difficulty and be unable to fulfill their lease commitments. The Trust mitigates the risk of credit loss by ensuring that its tenant mix is diversified and by limiting its exposure to any one tenant. Thorough credit assessments are conducted in respect of all new leasing. Further risks arise in the event that borrowers default on the repayment of their mortgages to the Trust. The Trust endeavours to ensure that adequate security has been provided in support of mortgages receivable. (c) Currency Risk The Trust is exposed to currency risk as it relates to its self-sustaining U.S. subsidiary. Changes in the applicable exchange rate may result in a decrease or increase in income or expense. The Trust mitigates this risk by matching foreign currency debt with foreign currency assets.
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CREIT – Consolidated Financial Statements – December 31, 2005
The Trust entered into forward exchange contracts to manage foreign exchange risk exposures relating to its U.S. subsidiary. At December 31, 2005, there were outstanding forward exchange contracts to sell a notional amount of U.S.$0.8 million, maturing over the next 12 months at an exchange rate of Cdn.$1.1751. FAIR VALUES The fair values of the majority of the Trust’s financial assets and liabilities, representing net working capital, approximate their recorded values at December 31, 2005 and 2004 due to their short-term nature. The fair value of the Trust’s mortgages receivable approximates carrying value. The fair value of the Trust’s mortgages payable exceeds the recorded value by approximately $28.6 million at December 31, 2005 (December 31, 2004 – fair value exceeded recorded value by approximately $24.8 million) due to changes in interest rates since the dates on which the individual mortgages were assumed. The fair value of mortgages payable has been estimated based on the current market rates for mortgages with similar terms and conditions. The recorded value of the Trust’s debentures payable exceeds the fair value by approximately $0.5 million at December 31, 2005 (December 31, 2004 – nil) due to changes in interest rates since the date on which the debentures were assumed. The fair value of debentures payable has been estimated based on the current market rate for debentures with similar terms and conditions. The fair value of the outstanding forward exchange contracts, based on cash settlement requirements at December 31, 2005, is a positive amount of nine thousand dollars (December 31, 2004 – positive value of twenty one thousand dollars) due to changes in the foreign currency exchange rate since the date on which the contracts were made.
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CREIT – Consolidated Financial Statements – December 31, 2005
20. SEGMENTED FINANCIAL INFORMATION
The Trust’s operations cover various types of income properties. The following summaries present segmented financial information for these property types and geographical locations:
(Thousands of dollars) Year ended December 31, 2005 Property rental revenue Property operating expenses Realty taxes Property management fees Amortization of deferred maintenance Property net operating income (loss) Amortization of leasing costs Amortization of leasing costs on acquisition of properties Amortization of intangible assets on acquisition of properties Property net effective income (loss) Property administrative expenses Fee income Lease termination income Income from property operations Income properties Accumulated depreciation Income properties before accumulated depreciation Deferred leasing costs Deferred leasing costs on acquisition of properties Intangible assets Deferred maintenance costs 8,325 4,843 2,537 $ 742,640 6,564 10,749 11,241 $ 539,372 1,224 3,050 4,937 $ 282,595 $ — — — 60 — — (631) ($ 631) 16,113 18,642 18,084 $1,564,036 721,167 5,768 493,794 17,024 267,035 6,349 — 60 — — 1,481,996 29,201 565 59,999 1,006 — 142 $ 59,135 $ 673,473 47,694 2,465 41,983 1,052 256 106 $ 41,293 $ 461,705 32,089 380 28,273 501 28 146 $ 27,946 $ 238,774 28,261 $ — (60) 5,830 9,336 — $ 3,446 — — $ $ — 7,607 — (7,607) — — — — $ 3,410 137,802 8,389 2,013 394 131,820 108,044 $ 1,373,952 424 1,868 261 — — 2,553 Retail $ 91,796 8,270 17,752 3,002 335 62,437 1,449 Office $ 95,914 24,200 17,528 3,246 1,121 49,819 3,503 Industrial $ 45,700 5,044 7,530 1,572 633 30,921 2,007 Trust $ — 7 — — — (7) 53 InterSegment Consolidated $ — — — (7,387) (220) 7,607 — $ 233,410 37,521 42,810 433 1,869 150,777 7,012
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CREIT – Consolidated Financial Statements – December 31, 2005
(Thousands of dollars) Year ended December 31, 2004 Property rental revenue Property operating expenses Realty taxes Property management fees Amortization of deferred maintenance Property net operating income (loss) Amortization of leasing costs Amortization of leasing costs on acquisition of properties Amortization of intangible assets on acquisitions of properties Property net effective income (loss) Property administrative expenses Fee income Lease termination income Income from property operations Income properties Accumulated depreciation Income properties before accumulated depreciation Deferred leasing costs Deferred leasing costs on acquisition of properties Intangible assets Deferred maintenance costs 2,590 3,184 2,244 $688,136 8,432 13,546 8,021 $538,149 675 1,165 4,473 $256,978 $ 112 (530) ($ 530) 11,697 17,895 14,208 $1,482,845 674,234 5,884 493,778 14,372 245,697 4,968 112 1,413,709 25,336 356 58,009 892 46 151 $ 57,314 $638,049 36,185 1,637 40,773 917 133 794 $ 40,783 $472,990 20,788 160 23,852 388 – 183 $ 23,647 $226,966 18,731 (285) 5,788 7,965 – $ 1,892 $ $ $ 6,846 – (6,846) 2,153 129,195 7,985 1,298 1,128 $ 123,636 $1,338,005 75,704 264 1,375 125 1,764 Retail $ 87,657 7,745 17,015 2,588 279 60,030 1,401 Office $ 90,038 21,929 17,259 3,052 1,171 46,627 2,842 Industrial $ 38,128 4,130 6,553 1,291 492 25,662 1,525 Trust $ 233 (233) 52 Inter-Segment $ (6,731) (115) 6,846 Consolidated $ 215,823 34,037 40,827 200 1,827 138,932 5,820
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CREIT – Consolidated Financial Statements – December 31, 2005
(Thousands of dollars) Year ended December 31, 2005
Property rental revenue Property operating expenses Realty taxes Property management fees Amortization of deferred maintenance Property net operating income (loss) Amortization of leasing costs Amortization of leasing costs on acquisition of properties Amortization of intangible assets on acquisition of properties Property net effective income (loss) Property administrative expenses Fee income Lease termination income Income from property operations Income properties Accumulated depreciation Income properties before accumulated depreciation Deferred leasing costs Deferred leasing costs on acquisition of properties Intangible assets Deferred maintenance costs
CANADA B.C. Alberta Prairies Ontario Quebec Atlantic U.S. Trust Intersegment Consolidated
$ 27,101 3,487 5,070 824 142 17,578 1,051 — — 16,527 222 — —
$ 53,451 7,857 7,600 1,876 477 35,641 1,479 1,797 2,088 30,277 658 238 —
$ 3,788 1,382 842 110 48 1,406 167 — — 1,239 35 7 — $ 1,211 $37,508 2,091 39,599 422 2,057 642 156 $42,876
$ 95,754 $19,384 $ 28,294 $ 5,638 14,818 20,567 3,073 649 56,647 2,638 63 134 53,812 996 — 298 4,492 3,819 825 269 9,979 686 148 485 8,660 209 — 86 5,115 4,529 906 485 17,259 787 545 703 15,224 437 39 10 363 383 206 19 4,667 151 — — 4,516 2 — —
$
— 7 — — — (7) 53 — — (60)
$ — — — (7,387) (220) 7,607 — — — 7,607 — (7,607) — $ — $ — — — — — — (631)
$ 233,410 37,521 42,810 433 1,869 150,777 7,012 2,553 3,410 137,802 8,389 2,013 394 $ 131,820 $1,373,952 108,044 1,481,996 29,201 16,113 18,642 18,084
5,830 9,336 —
$ 16,305 $ 29,857 $173,079 $374,396 15,346 188,425 3,809 — — 820 25,765 400,161 4,778 11,228 13,379 4,002
$ 53,114 $ 8,537 $ 14,836 $ 4,514 $ 3,446 $537,165 $85,517 $123,698 $42,589 41,706 578,871 13,413 30 64 6,753 6,642 92,159 2,714 234 1,300 2,819 12,739 136,437 3,458 2,564 3,257 4,045 3,755 46,344 547 — — 120 $ $ — — — 60 — — — 60
$193,054 $433,548
$599,131 $99,226 $149,761 $47,011
($ 631) $1,564,036
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CREIT – Consolidated Financial Statements – December 31, 2005
(Thousands of dollars) Year ended December 31, 2004
Property rental revenue Property operating expenses Realty taxes Property management fees Amortization of deferred maintenance Property net operating income (loss) Amortization of leasing costs Amortization of leasing costs on acquisition of properties Amortization of intangible assets on acquisition of properties Property net effective income (loss) Property administrative expenses Fee income Lease termination income Income from property operations Income properties Accumulated depreciation Income properties before accumulated depreciation Deferred leasing costs Deferred leasing costs on acquisition of properties Intangible assets Deferred maintenance costs
Canada B.C. Alberta Prairies Ontario Quebec Atlantic U.S. Trust
Intersegment
Consolidated
$ 27,529 $ 41,741 3,473 5,246 833 112 17,865 953 — — 16,912 131 — — 5,129 6,308 1,473 550 28,281 1,241 1,036 938 25,066 488 82 140
$ 4,413 $ 94,531 $ 19,559 1,368 932 141 37 1,935 199 — — 1,736 — 12 268 14,535 20,881 2,980 343 4,739 3,586 656 172
$ 22,341 $ 5,709 4,165 3,473 710 702 13,291 694 328 429 11,840 452 55 48 395 401 138 26 4,749 162 — — 4,587 4 — —
$
— 233 — — —
$
— — —
$ 215,823 34,037 40,827 200 1,827 138,932 5,820 1,764 2,153 129,195 7,985 1,298 1,128 $ 123,636 $1,338,005 75,704 1,413,709 25,336 11,697 17,895 14,208 $1,482,845
(6,731) (115) 6,846 — — — 6,846 — (6,846) — $ — $ — — — — — — (530) ($ 530)
55,792 10,406 1,986 61 87 53,658 900 30 344 533 339 699 8,835 222 — 328
(233) 52 — — (285) 5,788 7,965 —
$ 16,781 $ 24,800 $187,156 $320,798 12,985 200,141 4,231 — — 1,100 16,988 337,786 3,607 8,050 11,706 3,024
$ 2,016 $ 53,132 $ 8,941 $ 18,662 $545,928 $87,872 1,508 20,170 513 — — 195 28,351 4,278
$ 11,491 $ 4,583 $1,892 $132,711 $44,878 $ 8,574 141,285 2,416 3,171 4,151 3,457 3,020 47,898 715 — — 42 — — — 112 — — —
574,279 92,150 11,256 94 198 4,928 2,486 382 1,840 1,992
$205,472 $364,173
$ 20,878 $590,755 $98,850
$154,480 $48,655 $ 112
A reconciliation of statement of income line items noted above to net income is not considered necessary as all other line items on the face of the Consolidated Statements of Income are not allocated by the Trust to defined segments.
21. COMMITMENTS AND GUARANTEES
(a) Letters of Credit As of December 31, 2005, the Trust had issued letters of credit in the amount of $3.9 million (December 31, 2004 – $5.0 million) (b) Expansion Lands, Acquisi tions, Redevelopments and Mortgage Commitments The Trust’s estimated commitments in respect of certain development projects and other commitments are as follows:
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CREIT – Consolidated Financial Statements – December 31, 2005
(Thousands of dollars) Industrial developments Retail intensification Industrial acquisition Redevelopment Future advances under mortgages receivable
2006 $ 5,677 775 — 1,425 14,176 $22,053 $
2007 — — — 3,446 8,755 $12,201
Total $ 5,677 775 — 4,871 22,931 $ 34,254 $
2004
143 7,206 4,100 6,528 $ 17,977
(c) Guarantees The Trust has implemented the requirements of Accounting Guideline 14 – “Disclosure of Guarantees”, issued by the Canadian Institute of Chartered Accountants, which requires a guarantor to disclose information about guarantees it has provided. Under this Guideline, a guarantee is defined as a contract or indemnification agreement that requires an entity to make payments to a third party contingent on future events. The disclosures are required even when the likelihood of the guarantor having to make any payment under the guarantee is remote. The Trust continues to guarantee certain debt assumed by purchasers in connection with historical dispositions of properties. These guarantees will remain until the debt is modified, refinanced or extinguished. The Trust has recourse under these guarantees in the event of default by the purchaser, in which case the Trust would have a claim against the underlying property. The estimated amount of debt subject to such guarantees at December 31, 2005 is $16.4 million, with an estimated weighted average remaining term of 2.7 years.
22. PENSION PLAN
The pension plan is a defined contribution pension plan. The Trust has incurred current service costs in the amount of two hundred and seventy six thousand dollars during the year ended December 31, 2005 (December 31, 2004 – two hundred and fifty two thousand dollars). No provision for future contributions is required and there is no amortization of past service costs included in the current service costs.
23. SUBSEQUENT EVENTS
1. Between January 4, 2006 and February 7, 2006, the Trust advanced $2.4 million towards industrial and retail property developments in Ontario, Manitoba, and Alberta, under promissory notes at an interest rate of 9.5%. The advance reduces the Trust’s future commitment toward advances under mortgages receivables. On January 17, 2006, the Trust entered into a binding agreement to dispose of its 100% interest in 15706-116 Avenue in Edmonton, Alberta, for gross proceeds of $2.4 million. The closing is scheduled for July 17, 2006.
2.
24. COMPARATIVE FIGURES
Certain comparative figures have been reclassified to conform to the current year’s presentation.
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Canadian Real Estate Investment Trust 130 Bloor Street West, Suite 1001 Toronto, Ontario M5S 1N5 Tel: 416-628-7771 Fax: 416-628-7777 Web site: www.creit.ca