Funds from operations (“FFO”), adjusted funds from operations (“AFFO”) and net operating income (“NOI”) are not measures recognized under IFRS and do not have standardized meanings prescribed by IFRS. FFO, AFFO and NOI are supplemental measures of a Canadian real estate investment trust’s performance and the REIT believes that FFO, AFFO and NOI are relevant measures of its ability to earn and distribute cash returns to the unitholders. The IFRS measurements most directly comparable to FFO, AFFO and NOI are cash flow from operating activities and net income.
FFO is defined as net income in accordance with IFRS, excluding distributions on Class B LP Units, fair value adjustments relating to Class B LP Units, investment property and long-‐term investments, bargain purchase gain, expenses associated with business combinations, sales of investment property, and extraordinary items, plus depreciation and amortization, impairment provisions and after adjustments for equity accounted entities, joint ventures and non controlling interests, if any, calculated to reflect FFO on the same basis as consolidated properties. FFO calculated from net income in accordance with IFRS differs from FFO calculated from net income in accordance with Canadian GAAP as reported in prior MD&A’s. FFO, as currently presented, no longer includes net amortization of above and below market leases, as these items are included in the fair value of investment property in accordance with IFRS, and are not separately recorded and amortized. Additionally, depreciation expense associated with property and equipment is now added back to calculate FFO based on IFRS, and was previously excluded from the calculation based on Canadian GAAP.
AFFO is defined as FFO subject to certain adjustments, including: (i) amortization of fair value mark-‐to-‐market adjustments on mortgages acquired, amortization of deferred financing and leasing costs, and compensation expense related to unit plans; (ii) adjusting for any differences resulting from recognizing property incomes on a straight line basis; (iii) adjusting for non-‐recurring costs associated with the IFRS conversion, termination of the executive chairman position and rebranding costs; and (iv) deducting maintenance capital expenditures and leasing costs, as determined by the REIT, net of the allocation of cash from reserves for capital expenditure programs. Other adjustments may be made to AFFO as determined by the Trustees of the REIT in their discretion. There has been no significant change in calculated AFFO after adoption of IFRS, other than the exclusion of non-‐recurring costs associated with the IFRS conversion, and depreciation expense associated with property and equipment which is now added back to calculate AFFO based on IFRS, and was previously excluded from the calculation based on Canadian GAAP.
“NOI” is defined as property income, which includes rental income plus service charge income, less directly attributable property operating expenses. There has been no significant change in calculated NOI after adoption of IFRS, other than NOI no longer includes net amortization of above and below market leases, as these items are included in the fair value of investment property in accordance with IFRS, and are not separately recorded and amortized.
FFO, AFFO and NOI should not be construed as alternatives to net income or cash flow from operating activities determined in accordance with IFRS as indicators of the REIT’s performance. The REIT’s method of calculating FFO, AFFO and NOI may differ from other issuers’ methods and accordingly may not be comparable to measures used by other issuers.
