nicola canadian real estate lp · the chart below shows the annual historical returns, by year, for...
TRANSCRIPT
NICOLA CANADIAN REAL ESTATE LP is an investment portfolio
comprised of office, retail, industrial, multi-family apartment,
seniors living and self-storage properties totaling over 4.6 million
square feet located in major Canadian markets, offered exclusively
to clients of Nicola Wealth.
NICOLA CANADIAN REAL ESTATE LP 2018 ANNUAL REPORT
www.nicolawealth.com
LIBRARY AT WATERFORD -BRIA PORTFOLIO
NICOLA CANADIAN REAL ESTATE LP | Annual Report 2018
3
2018 HIGHLIGHTS
RETURN(Net of Fees)
7.0%
ASSETS UNDER MANAGEMENT
$975.1m
NET ASSET VALUE
$551.6m
NET ASSET VALUE (per unit)
$128.4
REVENUE
$78.2m
NET INCOME
$34.2m
DEAR INVESTOR,
We are pleased to present our Annual Report for Nicola Canadian Real Estate LP (NCRELP), formerly SPIRE Real Estate LP for 2018. This comprehensive report outlines a clear picture of both the current financial position and the results for the year.
NCRELP generated a return of 7.0% (2017 10.6%) to investors after fees in 2018, a solid result in a competitive investing environment in Canada, as cap rates remain compressed and opportunities to acquire good assets limited. This return is comprised of an Income Return of 6.7% (2017 5.8%), Capital Return of -0.2% (2017 4.4%) and 0.5% (2017 0.4%) from our holding of Nicola US Real Estate LP. Whilst 7.0% is still a solid result for 2018, returns were impacted by the following factors:
• We invested in capital expenditure projects on various assets to secure quality tenants.
• We acquired 10 properties during the year, which has an up front impact on returns; however, we are confident these assets will be accretive to the portfolio over the medium to long term.
• Alberta’s economic performance continues to impact returns; however our portfolio’s geographic diversification has offset this factor with strong performance in Ontario and British Columbia.
Real estate is a long term investment and our historic performance with the portfolio has generated 9.5% since inception in 2005, and $100,000 invested since then is now worth $327,748.
Net Asset Value (NAV) per unit increased to $128.40 at December 31, 2018, up from $127.41 a year ago, which equates to a 0.8% increase. In addition, Distributions of $7.65 (2017 $7.33) were paid during 2018, 6% of the prior year NAV. Distributions are increasing to $7.70 to adjust to 6% of the year end NAV.
Assets Under Management (AUM) increased to $975 million from $803 million during 2018, a 21% increase, and Net Asset Value increased to $552 million from $477 million in 2017, a 16% year over year increase.
We have assembled an experienced and talented Asset Management team with an institutional grade technology platform to ensure the portfolio is managed to the highest standard. Senior Management invests their own equity into all the real estate products and have a “hands-on” approach on all major decisions, ensuring the properties are well-leased, professionally managed and the portfolio is focused on generating strong long term income returns. Our occupancy was 96% at the end of 2018, improved from 88% the previous year.
OBJECTIVE & STRATEGY
Our objective is to provide clients with access to a portfolio of direct ownership real estate, diversified by location and asset type that delivers consistent returns, reliable distributions and capital appreciation to achieve long-term wealth creation.
Our strategy is to invest in quality income producing real estate assets in primary and strong secondary markets in Canada, diversified by asset class and geographical markets. We invest in direct assets as well as in joint ventures with strategic operating partners, and pursue value-add strategies with hands on active management.
ASSETS UNDER MANAGEMENT($ millions at year end)
$462
$590
$691 $748
$803
$975
-
200
400
600
800
1,000
1,200
2013 2014 2015 2016 2017 2018
ASSETS UNDER MANAGEMENT($ millions at year-end)
NICOLA CANADIAN REAL ESTATE LP | Annual Report 2018
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PORTFOLIO HIGHLIGHTS
In 2018, we started with 33 properties valued at $702 million. During the year, we acquired 10 properties:
In addition we sold Clearspring Shopping Centre, Steinbach, MB.
We also split Cathedral into Cathedral Calgary and Cathedral Nisku, as the lease in these properties are now separated into two.
We ended the year with 43 properties valued at $885 million. We continue to hold an investment in Nicola US Real Estate LP, providing investors with exposure to both the US market and multi-family apartments; however, we will be winding down this investment in 2019.
Each quarter we submit our property performance data to MSCI (formerly IPD), the world’s leading independent real estate benchmarking service. As you will see in the graph on Page 8, we consistently outperform the benchmark on Income Return – we believe this strategy will continue to bear fruit over the long term as we continue to focus on active asset management, leasing and cash flow from the properties.
STRATEGIC OUTLOOK
The real estate market in Canada continues to be very competitive with strong demand from both domestic and international investors. In this environment where values are high and interest rates low, we are managing our portfolio to anticipate rising interest and cap rates. Our strategy is to proactively manage our tenancies, identify value creation opportunities and grow rental income. Our properties are regularly reviewed, future potential risks assessed, and those that no longer meet our underwriting guidelines sold. New Acquisitions are carefully underwritten and similarly stress tested to ensure the asset and income will be accretive to the portfolio.
We continue to focus on generating stable cash flow from a well diversified portfolio across multiple asset classes in major and strong secondary markets and we view this as a good defensive strategy.
If you have any further questions please do contact your advisor at Nicola Wealth.
PORTFOLIO OCCUPANCY BY SF
(100,000)
400,000
900,000
1,400,000
1,900,000
2,400,000
Indus
trial
Office
Reside
ntial
Retail
Self S
torag
e
Senio
r Hou
sing
96%
Industrial Office Residential Retail Self-Storage
Senior Housing
95%
100%100% 98% 91%
-
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
1,600,000
Industrial Retail Office Seniors SelfStorage
Occupied Unoccupied
GROSS ASSET VALUEBY TYPE
Retail 9%
Office 23%
Industrial 34%
Other 2%
Self-Storage 12%
USRELP 6%
Development6%
Seniors 6%
Residential 2%
GROSS ASSET VALUEBY LOCATION
Alberta 25%
British Columbia
46%Ontario
18%
USRELP 6%
Manitoba 2%
Other 3%
• REX Building, Abbotsford, BC
• 12051 Riverside Way, Richmond, BC
• Pandora and Cook, Victoria, BC
• Barlow Centre, Calgary, AB
• 2433 Malaview Avenue , Sidney, BC
• Fifth Street, Sidney, BC
• JCCC Phase 3, Oakville, ON
• GTA West Industrial Portfolio, Mississauga & Etobicoke, ON
• Golden Drive, Coquitlam, BC
• Freeway Mini Storage, Vancouver, BC
Mark HannahManaging DirectorNicola Canadian Real Estate LP
NICOLA CANADIAN REAL ESTATE LP | Annual Report 2018
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MANAGEMENT’S REPORT ON PARTNERSHIP PERFORMANCE
TOTAL RETURN
For the Year ended December 31, 2018, the partnership generated a return of 7.0% (2017 10.6%), net of fees and expenses.
The table below shows the 1,3, 5, 10 year and since inception returns.
1 Year 3 Year 5 Year 10 Year Since Inception(November 14, 2005)
Total Returns 7.0% 9.2% 8.9% 9.6% 9.5%
The chart below shows the annual historical returns, by year, for Nicola Canadian Real Estate LP:
The chart below shows the value of $100,000 invested since inception through December 2018 (assuming all distributions were reinvested). As you can see, this has increased to $327,748. If you had invested into the TSX Capped REIT ETF, your value would be $249,609 over the same time frame.
$100,000 INVESTED SINCE INCEPTION
SUNRIDGE GARDENSLangley, BC
THE WATERFORDTsawwassen, BC
PLAZA 400Prince George, BC
DOMINIONCalgary, AB
$100,000
$130,000
$160,000
$190,000
$220,000
$250,000
$280,000
$310,000
$340,000
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
11.6%12.5%
4.3%
8.8%
11.4%
13.1%
8.2%
10.0%
8.4% 8.7%9.9%
10.6%
7.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
9.5%since inception
$327,748
6
NICOLA CANADIAN REAL ESTATE LP | Annual Report 2018
NET INCOME AND OPERATION RESULTS
Total Revenue for the year ended December 31, 2018 was $78.2 million (2017 $75.0 million). Net income from operating activities was $35.1 million (2017 $26.5 million). Gains, losses and fair value adjustments were ($0.9) million (2017 $21.6 million) resulting in net income for the year of $34.2 million (2017 $45.3 million). There is no incentive fee payable in 2018 (2017 $3.4 million).
Rental Properties at December 31, 2018 were valued at $884.2 million (2017 $702.3 million) and Net Asset Value was $551.6 million (2017 $477.3 million).
FINANCIAL HIGHLIGHTS
YEAR ENDED DECEMBER 31, 2018
$
YEAR ENDED DECEMBER 31, 2017
$
Property Revenue 65,931,538 70,615,866
Other Revenue 12,245,273 4,433,007
Total Revenue 78,176,811 75,048,873
Operating Expenses 25,995,015 33,424,212
Mortgage Interest 12,008,471 10,737,629
Management fees 4,616,799 3,974,866
General admin 445,387 391,653
Total Expenses 43,065,672 48,528,360
Income for the year before Undernoted items
35,111,139 26,520,513
Fair value adjustments including gains and losses on sale of rental properties
(916,842) 22,167,328
Incentive fee expense --- (3,430,654)
Net income for the year 34,194,297 45,257,187
As at December 31, 2018$
As at December 31, 2017$
Rental Properties 884,820,606 702,320,498
Other Investments 59,637,090 74,777,202
Other Assets 30,594,785 26,340,198
Total Assets 975,052,481 803,437,898
Mortgages and Loan payables 388,632,576 296,115,493
Other Liabilities 34,776,336 29,975,548
Total Liabilities 423,408,912 326,091,041
NET ASSET VALUE 551,643,569 477,346,857
CATHEDRAL ENERGYCalgary, AB
JOSHUA CREEKOakville, ON
MAPLE MEADOWSMaple Ridge, BC
VOICE CONSTRUCTION BUILDINGEdmonton, AB
NICOLA CANADIAN REAL ESTATE LP | Annual Report 2018
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CHANGE IN NET ASSET VALUE (NAV)
The Fund NAV increased to $128.40 per unit from $127.41 per unit compared to December 31, 2017, and increase of 0.8%.
DISTRIBUTIONS
During 2018, the Partnership made distributions of $7.6452 per unit, 6% of the NAV as of December 31, 2017. This resulted in total distributions of $30.4 million, of which 49%, or $14.8 million was reinvested into the fund through the Dividend Reinvestment Plan (DRIP). Each investor elects whether to receive distributions via cash or DRIP.
Effective for 2019, the distribution will increase to $7.7040 per unit, which represents 6% of the December 31, 2018 NAV. This represents a 0.8% increase in Distributions compared to 2018.
PARTNERS’ EQUITY
During 2018, $90.0 million of investors’ capital was raised (2017 $65.6 million), with 702,659 units (2017 527,350) issued, and $19.6 million of investors’ capital was redeemed (2017 $33.1 million) for 153,030 units (2017 266,566).
MORTGAGES
The partnership had a loan-to-value of 40% at the end of 2018, compared to 36% at year-end 2017.
We continue to maintain a line of credit with the Royal Bank of Canada, which enables us to manage our leverage and cash flow, and provides us with the ability to react quickly for any potential acquisition opportunities.
Our weighted average cost of debt remains the same as 2017 at 3.5% at the end of 2018. We carefully manage our debt, ensuring staggered loan maturities over a 5 to 10 year cycle.
LEASE EXPIRY PROFILE
We also manage our lease expiries in the Portfolio. We constantly review each asset’s expiry profile in order to mitigate vacancy risk. In some cases, early renewals are completed. In very active markets, expiries allow us to capitalize on improving revenues. In 2019 approximately 5.4% of the portfolio’s leases expire. Approximately 50% of leases expire in the next 5 years; and we are working proactively to renew existing tenants and/or secure new tenants.
$115.09$117.93
$122.18
$127.41 $128.40
2014 2015 2016 2017 2018
NAV PER UNIT(at year end)
51%49%
CASH vs DRIP
Cash
DRIP
CASH vs DRIP
304363
426477
552
-
100
200
300
400
500
600
2014 2015 2016 2017 2018
PARTNERS’ EQUITY($ millions at year-end)
65
42
70 74
38
100
-
20
40
60
80
100
120
2019 2020 2021 2022 2023 2024+
MORTGAGE EXPIRY ($M)
LEASE EXPIRATIONS(% of SF)
5% 7%13%
18%
8%
48%
0%
10%
20%
30%
40%
50%
60%
2019 2020 2021 2022 2023 2024+
8
NICOLA CANADIAN REAL ESTATE LP | Annual Report 2018
MANAGEMENT EXPENSE RATIO
VALUATION POLICY
In accordance with industry best standards, REALpac guidelines and MSCI reporting requirements, all of our properties are appraised by a reputable independent third party appraisal firm, at least once every 12 months.
MSCI BENCHMARKING AND REALpac
We submit our property financials to MSCI, the world leader in real estate performance and benchmarking. The chart below illustrates the relative performance of our portfolio to the Canadian All Fund Index. The chart shows the direct unlevered property income returns since 2005 in red and the NCRELP performance in blue.
We are also a member of REALpac, Canada’s senior national industry association for owners and managers of investment real estate.
This chart is reproduced with the permission of MSCI.
MANAGEMENT AND INCENTIVE FEES
The partnership pays the following fees in relation to the NCRELP to the GP:
• Asset Management fee of 1.00% per annum of NAV, charged monthly
• Acquisition fee of 0.50% of the acquisition prices of our asset, or our ownership share in the case of joint ventures
• Incentive fee of 25% of any return greater than 8% in any calendar year
The Management Expense Ratio (MER) is relatively constant for Asset Management fees and Professional & Admin fees as these are the cost to maintain the partnership. Acquisition costs depend on the volume of acquisitions, whilst the Incentive fee will vary year on year based on the fund performance. They were as follows:
2018 2017
Asset Management fees 0.89% 0.89%
Professional & Admin fees 0.09% 0.09%
Acquisition fees 0.17% 0.06%
Incentive fees 0.00% 0.77%
Total MER 1.15% 1.81%
0.01.0
2.0
3.0
4.05.0
6.0
7.08.0
9.0
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
NCRELP
MSCI Benchmark
Portfolio Benchmark Relative
1 Year 5.4 4.4 1.0
3 Years 6.0 4.5 1.5
5 Years 5.8 4.7 1.1
10 Years 6.1 5.2 0.8
INCOME RETURNS %ALL BENCHMARKED ASSETS
-
0.20
0.40
0.60
0.80
1.00
1.20
1.40
1.60
1.80
2.00
2014 2015 2016 2017 2018
Asset Management Fee Incentive Fee
Professional & Admin Fee Acquisition Fee
NICOLA CANADIAN REAL ESTATE LP | Annual Report 2018
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ACQUISITIONS
REX BUILDING, 33689 KING ROAD, ABBOTSFORD, BC (Partner: Primex Investments Ltd.)
In January, we acquired this new multi-family project comprising over 204 suites in 3 buildings that will be ready for occupancy by late 2019. The asset is situated in Abbotsford, directly off the TransCanada Highway at the McCallum Road Interchange, adjacent to the Abbotsford Events Centre and the University of Fraser Valley.
12051 RIVERSIDE WAY, RICHMOND, BC In April, we acquired this two-storey office building. It is located in Riverside Business Park in Richmond, immediately adjacent to our Advanced Self Storage Riverside Way property. Originally constructed in 2002 and later expanded in 2013, the property is 100% leased to FLIR Systems, a leading company specializing in the design and production of thermal imaging cameras, components, and imaging sensors. This property will provide secure cash flow with contractual rent escalations in the tenant’s lease.
PANDORA AND COOK, VICTORIA, BC (Partner: Primex Investments Ltd.)In May, we acquired two-storey retail/residential heritage building. The site comprises 30,880 sf and is located at the northwest corner of Cook Street & Pandora Avenue at the convergence of the Harris Green and North Park communities.
BARLOW CENTRE – 8080 36TH STREET SE, CALGARY, AB In August, we acquired the multi-tenant industrial portfolio. The portfolio comprises 403,232 sf on 20 acres of land. The asset is 92% leased to a diversified roster of industrial tenants at below market rents. The Calgary industrial vacancy rate is only 5.2% and provides a great opportunity to grow the revenue on renewals and new leasing with hands on asset management. This is a quality asset with secure cash flow and long term re-development potential. The property is situated in a prime industrial node at the intersection of Glenmore Trail and Barlow Trail.
2433 MALAVIEW AVENUE, SIDNEY, BC (Partner: Primex Investments Ltd.)
In September, we purchased a 50% interest in this property. It has an existing apartment building comprised of 60 suites characterized by below market rents. The Sidney vacancy rate is 0% coupled with a growing population and there is currently a lack of new supply planned in the future. The property is situated only blocks from the main retail strip, waterfront and only minutes from Victoria International Airport.
FIFTH STREET, SIDNEY, BC (Partner: Primex Investments Ltd.)
In September, we purchased a 50% interest in this land, total 0.87 acres with zoning that permits a new 3 storey purpose built rental building for 76 units plus underground parking.
REX BUILDING33689 KING ROAD
Abbotsford, BC
NEW
12051 RIVERSIDE WAY Richmond, BC
NEW
PANDORA AND COOK Victoria, BC
NEW
2433 MALAVIEW AVENUE Sidney, BC
NEW
FIFTH STREET Sidney, BC
NEW
BARLOW CENTRE 8080 36th STREET SE
Calgary, AB
NEW
10
NICOLA CANADIAN REAL ESTATE LP | Annual Report 2018
ACQUISITIONS continued
JCCC PHASE 3, 1333 NORTH SERVICE ROAD EAST, OAKVILLE, ON
In July 2018, we completed on the acquisition of this brand new, 55,000 sf office building, 100% leased on a long term basis to the second largest general insurer in Canada. This transaction also includes two acres of excess land on which a second office building of approximately 35,000 sf can be constructed.
GTA WEST INDUSTRIAL PORTFOLIO, MISSISSAUGA & ETOBICOKE, ON (Partner: Northbridge)
In October, we acquired this multi-tenant industrial portfolio, which comprises 13 buildings totaling over 502,500 SF on 25.80 acres of land in the Toronto GTA. The asset is 100% leased to a diversified roster of industrial tenants at below market rents. This quality portfolio offers secure cash flow and long term re-development potential. The portfolio is well located and in close proximity to Toronto Pearson International Airport.
GOLDEN DRIVE, COQUITLAM, BC
In December, we acquired this prime industrial property. The site comprises 7.05 acres and features a modern 38,000 SF industrial building plus outdoor storage. The deal was structured on a 5 year leaseback with a further extension at pre-determined rents. The property is located in the Mayfair Industrial Park which is one of the most central and strategic industrial nodes in Greater Vancouver. There is direct access to the Trans-Canada Highway, Lougheed Highway and Mary Hill Bypass. This asset offers flexibility for future re-development.
FREEWAY MINI STORAGE – 3555 EAST 5TH AVENUE, VANCOUVER, BC
In December, we acquired this existing self-storage property. It is highly visible from the Trans-Canada Highway and is close to the major intersection of Boundary Road and Lougheed Highway. It is also well positioned to benefit from the significant growth in the Brentwood Town Centre only minutes to the east, which includes 15 new residential hi-rise towers with an additional 20 towers in the planning stages. This asset will be re-branded within our Advanced Self Storage portfolio and will benefit from the existing platform and hands on management.
DISPOSITIONS
CLEARSPRING SHOPPING CENTRE, STEINBACH, MB
This property was under contract for sale in 2017 and we are pleased to report this sale duly completed in March. Originally purchased in 2006 as one of the first properties in the portfolio, it generated an IRR of approximately 12% over the holding period. As a result of this we have reduced our exposure to retail to 10% and have also exited a tertiary market.
GTA WEST INDUSTRIAL PORTFOLIO
Mississauga & Etobicoke, ON
NEW
JCCC PHASE 3 1333 NORTH SERVICE ROAD EAST
Oakville, ON
NEW
GOLDEN DRIVE Coquitlam, BC
NEW
FREEWAY MINI STORAGE 3555 EAST 5TH AVENUE
Vancouver, BC
NEW
CLEARSPRING SHOPPING CENTRE
Steinbach, MB
SOLD
NICOLA CANADIAN REAL ESTATE LP | Annual Report 2018
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SUMMARY OF INVESTMENT PORTFOLIO
The following table summarizes all properties held by the Partnership as at December 31, 2018.
RENTAL PROPERTIES OWNERSHIP PROPERTY TYPE PROV SQUARE
FOOTAGE
10239 Grace Road, Surrey 100% Industrial BC 64,064
500 Brooksbank Avenue, North Vancouver 90% Industrial BC 95,955
Golden Avenue, Coquitlam 100% Industrial BC 38,000
Riverside Building, Richmond 100% Industrial BC 51,958
Plaza 400, Prince George 100% Office BC 144,374
Malaview (Robert Manor Apartments) 50% Residential BC 80,216
Pandora Cook 50% Residential BC 15,161
Dover Pointe Shopping Centre, Nanaimo 100% Retail BC 75,592
Lougheed Super Centre, Coquitlam 100% Retail BC 81,142
Woodgrove Shopping Centre, Nanaimo 100% Retail BC 59,459
Bria – Magnolia Gardens, Langley 50% Senior Housing BC 73,666
Bria – Sunridge Gardens, Murrayville 50% Senior Housing BC 76,596
Bria – The Waterford, Tsawwassen 50% Senior Housing BC 75,664
Bria – Wexford, Tsawwassen 50% Senior Housing BC 38,709
Freeway, Vancouver 100% Self-Storage BC 51,134
Maple Meadows, Maple Ridge 100% Self-Storage BC 57,035
North Vancouver U-Lok, North Vancouver 100% Self-Storage BC 77,125
Riverside Self Storage, Richmond 100% Self-Storage BC 108,200
Westgate, Maple Ridge 100% Self-Storage BC 60,066
Harbour Towers, Victoria 100% Development BC 264,400
Fifth Street, Sydney 50% Development BC 0
REX, Victoria 50% Development BC 0
British Columbia Total 1,588,516
40th Street (Dominion), Calgary 100% Industrial AB 247,093
47th Street (Enerflex), Calgary 100% Industrial AB 316,369
Barlow Centre, Calgary 100% Industrial AB 403,232
Cathedral Energy Calgary, Calgary 100% Industrial AB 71,192
Cathedral Energy Nisku, Edmonton 100% Industrial AB 34,235
Voice Construction Building, Edmonton 100% Industrial AB 174,597
Sunpark Plaza, Calgary 100% Office AB 124,692
Volker Stevin Building, Calgary 100% Office AB 37,340
Deerfoot Junction I and II, Calgary 100% Office AB 92,342
Deerfoot Junction III, Calgary 100% Office AB 80,016
Alberta Total 1,581,108
THE WEXFORDTsawwassen, BC
25 & 75 WATLINEMississauga, ON
NORTH VANCOUVER U-LOKNorth Vancouver, BC
1450 MOUNTAIN AVENUEWinnipeg, MB
12
NICOLA CANADIAN REAL ESTATE LP | Annual Report 2018
RENTAL PROPERTIES OWNERSHIP PROPERTY TYPE PROV SQUARE
FOOTAGE
Mountain Avenue, Winnipeg 100% Industrial MB 263,400
Manitoba Total 263,400
Aero Portfolio, Mississauga 100% Industrial ON 398,718
Toronto GTA West Portfolio, Mississauga & Etobicoke 70% Industrial ON 502,572
25 & 75 Watline, Mississauga 100% Office ON 154,390
JCCC 3, Oakville 100% Office ON 55,000
Joshua Creek, Oakville 100% Office ON 119,579
Ontario Total 1,230,259
Grand Total 4,663,283
RIVERSIDE SELF-STORAGERichmond, BC
SUNPARK PLAZACalgary, AB
COLERAINE DRIVEBrampton, ON
MAGNOLIA GARDENSLangley, BC
NICOLA CANADIAN REAL ESTATE LP | Annual Report 2018
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INDEPENDENT AUDITOR'S REPORT To the Partners of Nicola Canadian Real Estate Limited Partnership Opinion We have audited the consolidated financial statements of Nicola Canadian Real Estate Limited Partnership, which comprise the consolidated balance sheet as at December 31, 2018, and the consolidated statement of operations, consolidated statement of partners’ capital and consolidated statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies. In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the entity as at December 31, 2018, and its results of operations and its cash flows for the year then ended in accordance with the financial reporting provisions of section 11.4 of the Limited Partnership Agreement. 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 Financial Statements section of our report. We are independent of the entity in accordance with the ethical requirements that are relevant to our audit of the financial statements in Canada, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Other Information Without modifying our opinion, we draw attention to note 2 to the consolidated financial statements, which describes the basis of accounting. The consolidated financial statements are prepared to assist Nicola Canadian Real Estate Limited Partnership meet the financial reporting provisions of section 11.4 of the Limited Partnership Agreement. As a result, the consolidated financial statements may not be suitable for another purpose. Our report is intended solely for Nicola Canadian Real Estate Limited Partnership and its partners and should not be used by parties other than Nicola Canadian Real Estate Limited Partnership and its partners.
NICOLA CANADIAN REAL ESTATE LP | Annual Report 2018
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Responsibilities of Management and Those Charged with Governance for the Financial Statements Management is responsible for the preparation and fair presentation of the financial statements in accordance with the financial reporting provisions of section 11.4 of the Limited Partnership Agreement, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, management is responsible for assessing the entity’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the entity or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the entity’s financial reporting process. Auditor’s Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the 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 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 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 entity’s internal control.
NICOLA CANADIAN REAL ESTATE LP | Annual Report 2018
15
• 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 entity’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 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 entity to cease to continue as a going concern.
• Evaluate the overall presentation, structure and content of the financial
statements, including the disclosures, and whether the 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 Group to express an opinion on the 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.
CHARTERED PROFESSIONAL ACCOUNTANTS Vancouver, Canada March 27, 2019
NICOLA CANADIAN REAL ESTATE LP | Annual Report 2018
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NICOLA CANADIAN REAL ESTATE LIMITED PARTNERSHIP CONSOLIDATED BALANCE SHEET
DECEMBER 31, 2018
See accompanying notes to the consolidated financial statements.
ASSETS 2018 2017 Rental properties (note 3) $ 884,820,606 $ 702,320,498 Investments in limited partnerships (note 4) 57,272,090 50,262,452 Development property (note 5) 2,365,000 3,503,750 Loans receivable (note 6) --- 21,011,000 Cash 17,750,347 16,865,620 Receivables and other assets (note 7) 12,574,651 9,234,555 Due from Nicola U.S. Real Estate Limited Partnership 269,787 240,023 $ 975,052,481 $ 803,437,898 LIABILITIES
Mortgages and loan payable (note 8) $ 388,632,576 $ 296,115,493 Accounts payable and accrued liabilities (note 9) 34,776,336 29,975,548 423,408,912 326,091,041 PARTNERS’ CAPITAL
Partners' capital (note 10) 551,643,569 477,346,857 $ 975,052,481 $ 803,437,898 Net asset value per unit $ 128 $ 127 Number of units 4,296,182 3,746,553
Approved on behalf of the limited partnership by Nicola Real Estate General Partner Ltd., General Partner , Director , Director
NICOLA CANADIAN REAL ESTATE LP | Annual Report 2018
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NICOLA CANADIAN REAL ESTATE LIMITED PARTNERSHIP CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2018
See accompanying notes to the consolidated financial statements.
2018 2017 Revenue Rentals and expense recoveries $ 65,931,538 $ 70,615,866 Restaurant and food services, net of direct costs --- 1,176,775 Income from limited partnerships, net 10,154,449 1,705,769 Interest and other 2,090,824 1,550,463 78,176,811 75,048,873 Expenses Administration 445,387 391,653 Management fees (note 11(d)) 4,616,799 3,974,866 Mortgage and loan interest 12,008,471 10,737,629 Other operating costs 25,542,009 32,607,618 Professional fees 453,006 816,594 43,065,672 48,528,360 Income for the year before undernoted items 35,111,139 26,520,513 Fair value adjustments including gains and losses on sale of rental properties (916,842) 22,167,328 Incentive fee expense (note 11(d)) --- (3,430,654) Net income for the year $ 34,194,297 $ 45,257,187
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NICOLA CANADIAN REAL ESTATE LIMITED PARTNERSHIP CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL
FOR THE YEAR ENDED DECEMBER 31, 2018
See accompanying notes to the consolidated financial statements.
Limited Partners Number of General Units Amount Partner Total Balance, December 31, 2016 3,485,769 $ 425,817,598 $ 13,569 $ 425,831,167 Contributions during the year 527,350 65,645,604 --- 65,645,604 Redemptions during the year (266,566) (33,157,965) --- (33,157,965) Net income for the year --- 45,257,142 45 45,257,187 Distributions during the year --- (26,229,136) --- (26,229,136) Balance, December 31, 2017 3,746,553 477,333,243 13,614 477,346,857 Contributions during the year 702,659 90,036,124 --- 90,036,124 Redemptions during the year (153,030) (19,579,296) --- (19,579,296) Net income for the year --- 34,194,263 34 34,194,297 Distributions during the year --- (30,354,413) --- (30,354,413) Balance, December 31, 2018 4,296,182 $ 551,629,921 $ 13,648 $ 551,643,569
NICOLA CANADIAN REAL ESTATE LP | Annual Report 2018
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NICOLA CANADIAN REAL ESTATE LIMITED PARTNERSHIP CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2018
See accompanying notes to the consolidated financial statements.
2018 2017 Cash provided by operating activities Net income for the year $ 34,194,297 $ 45,257,187 Items not involving cash Income from limited partnerships, net (10,154,449) (1,705,769) Intangible costs incurred (2,877,725) (364,963) Fair value adjustments including gains and losses on sale of rental properties 916,842 (22,167,328) 22,078,956 21,019,127 Net change in non-cash working capital balances Decrease (increase) in receivables and other assets (5,199,108) 446,435 Increase in accounts payable and accrued liabilities 5,303,171 2,889,868 22,183,028 24,355,430 Cash used in investing activities Acquisition of rental properties (214,885,514) (55,861,701) Proceeds of disposition of rental properties and
development property 35,485,039 34,550,152 Proceeds on disposition of hotel assets and other equipment --- 173,647 Investments in limited partnerships, net 3,144,811 3,041,444 Increase (decrease) in loans receivable 21,011,000 (21,011,000) Cash held in trust (172,472) 109,280 Due from Nicola U.S. Real Estate Limited Partnership (29,764) (4,495) (155,446,900) (39,002,673) Cash from (used in) financing activities Increase (decrease) in mortgages and loan payable, net 92,517,083 (4,308,435) Partners' capital contributions 77,234,925 47,655,710 Partners' capital redemptions (19,762,480) (33,631,780) Partners' capital distributions (15,840,929) (14,043,915) 134,148,599 (4,328,420) Increase (decrease) in cash during the year 884,727 (18,975,663) Cash, beginning of the year 16,865,620 35,841,283 Cash, end of the year $ 17,750,347 $ 16,865,620
NICOLA CANADIAN REAL ESTATE LP | Annual Report 2018
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NICOLA CANADIAN REAL ESTATE LIMITED PARTNERSHIP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2018
1. General information The partnership was formed under the Partnership Act of British Columbia on
November 15, 2005 to invest in commercial real estate and mortgages. Any income of the partnership is allocated to the limited partners and the General
Partner by multiplying the aggregate income or loss, as the case may be, by the sum of the “Time Weighted Proportions” as defined in the limited partnership agreement, of all units held by such partner.
The accompanying financial statements only present the financial position and the
results of the operations of the partnership. They do not include other assets, liabilities, revenue and expenses of the partners. No provision for income tax has been made as the partnership is not a taxable entity.
Subsequent to the year-end, the partnership changed its name to Nicola Canadian Real
Estate Limited Partnership. 2. Basis of accounting and significant accounting policies The Limited Partnership Agreement requires that the consolidated financial statements
be prepared in accordance with Canadian accounting standards for private enterprises (“ASPE”), except as modified, to reflect a fair value basis of accounting for the partnership’s assets and liabilities.
a) Net asset value
The net asset value (“NAV”) is determined in accordance with section 11.4 of the Limited Partnership Agreement, which requires the values of assets and liabilities of the partnership at the fiscal year-end to be determined by the General Partner in accordance with the following principles:
i) Rental Properties
Rental properties held by the partnership, where the partnership’s interest represents $10 million or greater, are valued based on the gross asset value of such rental property as determined by an accredited third party appraiser no less frequently than on an annual basis. For any property purchased in the calendar year, the General Partner may, in its sole discretion, consider the gross asset value of such property to be equal to the purchase price of such property. If the partnership holds an interest in a rental property representing less than $10 million based on gross asset value of such rental property, such rental property is valued no less frequently than on an annual basis either by an accredited third party appraiser or by applying a market cap rate to the net operating income of such rental property, as calculated by the General Partner.
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NICOLA CANADIAN REAL ESTATE LIMITED PARTNERSHIP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2018
2. Basis of accounting and significant accounting policies - continued a) Net asset value – continued
ii) Investments in limited partnerships
If the partnership invests in a limited partnership that records its assets at fair market value, and reports on a net asset value basis, at least annually, the partnership will value the investment at its net asset value.
iii) Development property
The fair market value of development property is valued using a standard methodology that is appropriate for the particular development being valued.
iv) Portfolio investments
The fair market value of any security which is listed on a stock exchange is determined by (a) in the case of a security which was traded on the day as of which the NAV of the partnership is being determined, the closing sale price; (b) in the case of a security which was not traded on the day as of which the NAV of the partnership is being determined, a price which is the average of the closing recorded bid and asked prices; or (c) if no bid or asked quotation is available, the price last determined for such security for the purpose of calculating the NAV of the partnership. The value of inter-listed securities is computed in accordance with directions laid down from time to time by the General Partner; and provided however that if, in the opinion of the General Partner, stock exchange or over-the-counter quotations do not properly reflect the prices which would be received by the partnership upon the disposal of securities necessary to effect any redemptions of units, the General Partner may place such value upon such securities as appears to the General Partner to most closely reflect the fair market value of such securities.
v) Other financial assets
The fair market value of any cash, cash held in trust, receivables, deposits, due from related parties, prepaid expenses, and interest accrued and not yet received is deemed to be the cost thereof unless the General Partner determines that any such asset is not worth the cost amount thereof, in which event the value shall be deemed to be lesser of cost and net realizable value.
vi) Foreign exchange
The fair market value of all assets and liabilities of the partnership valued in terms of a currency other than Canadian currency is translated to Canadian currency at the Bank of Canada noon rate of exchange on the valuation date.
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NICOLA CANADIAN REAL ESTATE LIMITED PARTNERSHIP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2018
2. Basis of accounting and significant accounting policies - continued
a) Net asset value - continued
vii) Liabilities
The liabilities of the partnership as of the valuation date are deemed to include the following, recorded at amortized cost:
a) all operating and administrative expenses payable and/or accrued,
including but not limited to the fees payable under management and/or service agreements;
b) obligations for any payment, including any declared but unpaid
distributions;
c) reasonably estimated allowances as determined by the General Partner for maintenance of properties, taxes, future selling costs and any other contingent liability; and
d) mortgages and loans payable; except those mortgages or loans payable
assumed under a property purchase, which are marked to market upon acquisition of properties using the market interest rate at the time the mortgage is assumed.
b) Consolidation
The consolidated financial statements include the accounts of the partnership and of the following partnerships in which it is the only limited partner:
• Advanced Storage Centres Limited Partnership • Harbour Towers Limited Partnership • Spire Barlow Limited Partnership • Spire Brooksbank Limited Partnership • Spire Coleraine Limited Partnership • Spire Golden Limited Partnership • Spire Grace Road Limited Partnership • Spire GTA Industrial Limited Partnership • Spire JCCC Phase 3 Limited Partnership • Spire Malaview Limited Partnership • Spire Pandora Cook Limited Partnership • Spire Riverside Way Limited Partnership • Spire Seniors Limited Partnership • Spire Udistrict Apartments Limited Partnership • SPIRE US Multi-Family Limited Partnership (inactive) • Spire Watline Limited Partnership • Spire 10129 Fifth Street Limited Partnership
NICOLA CANADIAN REAL ESTATE LP | Annual Report 2018
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NICOLA CANADIAN REAL ESTATE LIMITED PARTNERSHIP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2018
2. Basis of accounting and significant accounting policies - continued In addition, there are several wholly-owned inactive companies which hold title to the partnership's rental properties. All inter-entity transactions with subsidiaries have been eliminated.
c) Revenue recognition
Rentals and expense recoveries revenue includes all amounts earned from tenants related to lease agreements, including property tax and operating cost recoveries. Rental revenue and expense recovery is recorded when it becomes receivable based on the terms of the lease. The partnership does not recognize rental revenue on a straight-line basis over the term of the respective lease agreements.
Interest is recorded as earned until such time as the related receivable is recognized
as impaired at which time interest ceases to be accrued. Other investment income is recognized as earned or declared.
Realized gains and losses on the sale of properties and other investments are
recognized when the partnership has transferred to the purchaser the significant risks and rewards of ownership of the asset.
d) Use of estimates
The preparation of consolidated financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities and 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.
Due to the significant judgements involved in determining fair values, the
partnership’s estimated values may differ from the fair values estimated by other parties and from the values ultimately realized on the sale of an asset or liability.
Critical assumptions in relation to the estimates of fair value of rental properties
include the receipt of contractual rents, expected structure market rents, renewal rates, maintenance requirements, discount rates that reflect current market factors, capitalization rates and comparable sales data, where available. If there are changes in these assumptions the fair value of rental properties may change materially.
The partnership makes estimates and assumptions relating to the fair value
measurements of mortgages and loans payable and the determination of its estimate of future selling costs and contingent liabilities. The critical assumptions underlying the fair value measurements and disclosures include current market interest rates for mortgages payable.
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NICOLA CANADIAN REAL ESTATE LIMITED PARTNERSHIP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2018
3. Rental properties 2018 2017 Balance, beginning of the year $ 702,320,498 $ 653,100,445 Additions: Acquisitions 183,951,352 55,282,567 Building improvements Leasing costs
28,841,044 1,588,853
1,516,860 472,154
Tenant inducements 1,218,978 798,592 Equipment Automobiles Computer hardware
752,131 67,891 38,998
168,763 ---
--- Land 2,658 --- Surface parking 1,500 250,812 Dispositions (33,500,000) (34,175,298) Fair value adjustments (463,297) 24,905,603 Balance, end of the year $ 884,820,606 $ 702,320,498
Rental properties is composed of the following:
2018 2017 Rental properties under development $ 55,752,276 $ --- Rental properties 829,068,330 702,320,498 $ 884,820,606 $ 702,320,498
See notes 8 and 11(d).
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NICOLA CANADIAN REAL ESTATE LIMITED PARTNERSHIP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2018
4. Investments in limited partnerships 2018 2017 Nicola U.S. Real Estate Limited Partnership - 6.44% (2017 – 7.59%) limited partner interest $ 56,679,599 $ 49,618,551 Trez N.P. Limited Partnership - 7.933% limited partner interest 592,491 643,901 $ 57,272,090 $ 50,262,452
The general partner of Nicola U.S. Real Estate Limited Partnership is Nicola Real
Estate General Partner Ltd. which is the general partner of the partnership. 5. Development property The development property is real estate acquired on the foreclosure of a mortgage
receivable. 6. Loans receivable
2018 2017 First Gulf North Service Limited $ --- $ 19,311,000 MDC Property Services Ltd. --- 1,700,000 $ ---
$ 21,011,000
The loans receivable were repaid during the year. 7. Receivables and other assets
2018 2017 Cash held in trust $ 253,638 $ 81,166 Contractual rents receivable 1,040,087 569,543 Contributions receivable 5,506,750 7,538,234 Deposits 4,708,994 243,242 Other assets 477,594 398,856 Prepaid expenses 587,588 403,514 $ 12,574,651 $ 9,234,555
The cash held in trust is held on behalf of the partnership pending the completion of
certain work by the partnership. 8. Mortgages and loan payable
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NICOLA CANADIAN REAL ESTATE LIMITED PARTNERSHIP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2018
The mortgages and loan payable ranging from $1,740,000 to $28,500,000 each, are
secured by land and buildings in British Columbia, Alberta and Ontario and assignments of rents, bear interest at rates from 2.59% to 6.90%, and have various maturity dates to December 1, 2028.
The principal repayment requirements are as follows:
2019 $ 65,047,294 2020 42,163,151 2021 70,128,725 2022 73,817,771 2023 37,510,091 2024 and subsequent 99,965,544 $ 388,632,576
9. Accounts payable and accrued liabilities
2018 2017 Accrued interest on mortgages $ 693,299 $ 425,919 Distributions payable 1,494,038 1,174,839 Future selling costs and other contingent liabilities 14,478,779 15,022,154 Management and incentive fees and acquisition fees --- 3,430,654 Other 413,400 214,199 Property operating costs 11,224,372 5,934,832 Redemptions payable 890,057 706,873 Remittances due to government agencies --- 70,243 Security deposits 3,258,056 2,319,259 Unearned revenue 2,324,335 676,576 $ 34,776,336 $ 29,975,548
10. Partners’ capital
The partners’ capital distributions consist of distributions of cash of $15,521,730 (2017 - $14,082,176) and distributions reinvested in units of the partnership of $14,832,683 (2017 - $12,146,960).
For 2019, management has set the distribution rate at 6% of the December 31, 2018 NAV. As a result, the partnership expects total 2019 distributions, based on the number of units held at December 31, 2018, to approximate $33,100,000.
NICOLA CANADIAN REAL ESTATE LIMITED PARTNERSHIP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2018
4. Investments in limited partnerships 2018 2017 Nicola U.S. Real Estate Limited Partnership - 6.44% (2017 – 7.59%) limited partner interest $ 56,679,599 $ 49,618,551 Trez N.P. Limited Partnership - 7.933% limited partner interest 592,491 643,901 $ 57,272,090 $ 50,262,452
The general partner of Nicola U.S. Real Estate Limited Partnership is Nicola Real
Estate General Partner Ltd. which is the general partner of the partnership. 5. Development property The development property is real estate acquired on the foreclosure of a mortgage
receivable. 6. Loans receivable
2018 2017 First Gulf North Service Limited $ --- $ 19,311,000 MDC Property Services Ltd. --- 1,700,000 $ ---
$ 21,011,000
The loans receivable were repaid during the year. 7. Receivables and other assets
2018 2017 Cash held in trust $ 253,638 $ 81,166 Contractual rents receivable 1,040,087 569,543 Contributions receivable 5,506,750 7,538,234 Deposits 4,708,994 243,242 Other assets 477,594 398,856 Prepaid expenses 587,588 403,514 $ 12,574,651 $ 9,234,555
The cash held in trust is held on behalf of the partnership pending the completion of
certain work by the partnership. 8. Mortgages and loan payable
NICOLA CANADIAN REAL ESTATE LP | Annual Report 2018
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NICOLA CANADIAN REAL ESTATE LIMITED PARTNERSHIP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2018
11. Other information a) Related party transactions In addition to transactions and balances described elsewhere, the financial
statements include the following transactions with the General Partner: 2018 2017 Accounts payable and accrued liabilities $ --- $ 3,430,654 Management fees expense $ 4,626,066 $ 3,974,866 Incentive fee expense $ --- $ 3,430,654
During 2018, acquisition fees in the amount of $870,563 (2017 - $251,825) related to
the acquisition of rental properties were paid to the General Partner and included in the carrying value of rental properties. See note 12(d).
The partnership paid $103,315 (2017 - $89,427) as fund administrative fees to a
company related to the General Partner. Interest and other investment income for 2018 includes $53,482 (2017 - $60,250) of
loan guarantee fees from related partnerships. At December 31, 2018, parties related to the General Partner’s shareholder held
394,618 (2017 – 351,393) units of the partnership subscribed for at the same prices as for all other parties.
The transactions with related parties are measured at the exchange amount, which
is the amount of consideration established and agreed to between the parties. b) Financial instruments The main risks the partnership's financial instruments are exposed to include the
following: i) Credit risk - The financial instruments that potentially subject the partnership
to a significant concentration of credit risk consist primarily of cash, receivables and other assets and due from related parties. The partnership mitigates its exposure to credit loss on its mortgages receivable by closely monitoring its borrowers. A significant part of cash is held in an account with one financial institution. The partnership mitigates its exposure to credit loss by placing its cash with major financial institutions. The partnership routinely assesses the financial strength of its customers and related parties and, as a consequence, believes that its accounts receivable credit risk exposure is limited.
ii) Interest rate risk - The partnership is exposed to interest rate price risk to the
extent that a significant portion of mortgages payable are at fixed interest rates.
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NICOLA CANADIAN REAL ESTATE LIMITED PARTNERSHIP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2018
11. Other information - continued
b) Financial instruments - continued iii) Liquidity risk - Liquidity risk relates to the risk the partnership will encounter
difficulty in meeting its obligations associated with financial liabilities. The partnership's financial liabilities consist of mortgages and loan payable and accounts payable. Management closely monitors cash flow requirements to ensure that it has sufficient cash on demand to meet operational and financial obligations.
iv) Foreign currency risk - The partnership has invested in Nicola U.S. Real Estate
Limited Partnership which operates solely in the United States. Consequently the partnership is subject to the risk of fluctuating exchange rates.
v) Market risk - Market risk is the risk that changes in market prices and interest
rates will affect the partnership's net income and the value of financial instruments. These risks are generally outside the control of the partnership. The objective of the partnership is to mitigate market risk exposures within acceptable limits, while maximizing returns.
c) Line of credit
The partnership has a line of credit with a limit of $43,000,000 secured by rental
properties in Alberta, Manitoba and Ontario. At year-end no amount was drawn against the line of credit.
d) Commitments The General Partner is paid an annual asset management fee in an amount equal to
1% of the net assets, at fair market value, of the partnership. In addition, the General Partner is paid an incentive fee of 25% of the return of the partnership in excess of 8%. The General Partner is also paid an acquisition fee of 0.5%, based on the gross purchase price, on the completion of the purchase of properties.
NICOLA CANADIAN REAL ESTATE LP | Annual Report 2018
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- Past performance is not indicative of future results. - Returns are net of LP expenses. - This investment is only available for sale to residents of Canada who are accredited investors. Please read the Limited Partnership Agreement and subscription documents for additional details and important disclosure information. - Distributions are not guaranteed and may vary in amount and frequency over time.
- This does not constitute an offer of sale. - Please speak with a Nicola Wealth advisor to discuss if this investment is right for you. - Nicola Wealth is registered as a Portfolio Manager, Exempt Market Dealer and Investment Fund Manager with the required provincial securities’ commissions. - All investments contain risk and may gain or lose value.
Disclaimer
AUDITORS
BAKER TILLY WM LLP Suite 900, 400 Burrard StreetVancouver, British Columbia
V6C 3B7
WAYMAN CROSBYExecutive Director
Nicola Canadian Real Estate LP778.383.6941
MARK HANNAHManaging Director
Nicola Canadian Real Estate LP778.383.6937
MANAGEMENT
NICOLA CANADIAN REAL ESTATE LP5th Floor, 1508 West Broadway
Vancouver, BC V6J 1W8604.739.6450