2016 Annual Report. Timbercreek Global Real Estate Income Fund

Transcription

1 2016 Annual Report Timbercreek Global Real Estate Income Fund

2 CORPORATE PROFILE The Fund aims to generate income for investors and preserve capital, while providing the opportunity for long-term capital appreciation. Managed by an experienced global team, Timbercreek Global Real Estate Income Fund (the Fund) provides investors with exposure to the global real estate market by owning a diversified portfolio of dividend-paying real estate securities in developed markets from around the world. The Fund invests in the common equity, preferred equity and debt securities issued by real estate investment trusts (REITs) and other real estate issuers.

3 This annual management report of fund performance contains financial highlights but does not contain the interim or annual financial statements of Timbercreek Global Real Estate Income Fund (the Fund ). You can obtain a copy of the interim or annual financial statements at your request, at no cost, by any of the following: PHONE Carrie Morris, Managing Director, Capital Markets & Corporate Communications (416) (call collect if long distance) INTERNET Visiting SEDAR at or MAIL Writing to the Fund at: Timbercreek Global Real Estate Income Fund Attention: Corporate Communications 25 Price Street Toronto, Ontario M4W 1Z1 Unitholders may also contact us using one of these methods to request a copy of the Fund s interim or annual financial statements, proxy voting policies and procedures, proxy voting disclosure record, or quarterly portfolio disclosure. TIMBERCREEK GLOBAL REAL ESTATE INCOME FUND 1

4 Annual Management Report of Fund Performance (In thousands of Canadian dollars, except per unit) As at December 31, 2016 FORWARD-LOOKING STATEMENTS Caution regarding forward-looking statements The terms the Fund, we, us and our in the following Management Report of Fund Performance ( MRFP ) refer to the Fund and its financial position and results of operations for the year ended December 31, 2016 (the Year ). Financial data provided has been prepared in accordance with International Financial Reporting Standards ( IFRS ) as required by Canadian securities legislation and the Canadian Accounting Standards Board. This MRFP should be read in conjunction with the Fund s financial statements for the year ended December 31, 2016 and 2015, both of which have been prepared in accordance with IFRS. Copies of these documents have been filed electronically with securities regulators in Canada through the System for Electronic Document Analysis and Retrieval ( SEDAR ) and may be accessed through the SEDAR website at Historical results and percentage relationships contained in the Fund s financial statements and MRFP related thereto, including trends which might appear, should not be taken as indicative of future operations. Forward-looking statement advisory This document may contain forward-looking statements relating to anticipated future events, results, circumstances, performance or expectations that are not historical facts but instead represent our beliefs regarding future events. These statements are typically identified by expressions like believes, expects, anticipates, would, will, intends, projected, in our opinion and similar expressions. By their nature, forward-looking statements require us to make assumptions which include, among other things, (i) the Fund will have sufficient capital under management to effect its investment strategies and pay its targeted distributions, (ii) the Fund s investment strategies will produce the results intended by Timbercreek Asset Management Ltd. (the Manager ), (iii) markets will react and perform in a manner consistent with the investment strategies, and (iv) the Fund is able to acquire publicly traded real estate securities that will generate returns that meet and/or exceed the Fund s targeted investment returns. Forward-looking statements are subject to inherent risks and uncertainties. There is significant risk that forecasts and other forward-looking statements will prove to not be accurate. We caution readers of this document not to place undue reliance on our forward-looking statements as a number of factors could cause actual future results, conditions, actions or events to differ materially from the targets, expectations, estimates or intentions expressed or implied in the forward-looking statements. Actual results may differ materially from management expectations as projected in such forward-looking statements for a variety of reasons, including but not limited to, general global market conditions, general risks relating to real estate and the risks detailed from time to time in the Fund s prospectus. We caution that the foregoing list of factors is not exhaustive and that when relying on forward-looking statements to make decisions with respect to investing in the Fund, investors and others should carefully consider these factors, as well as other uncertainties, potential events and the inherent uncertainty of forwardlooking statements. Due to the potential impact of these factors, the Fund and the Manager do not undertake, and specifically disclaim any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, unless required by applicable law. TIMBERCREEK GLOBAL REAL ESTATE INCOME FUND 2

5 Annual Management Report of Fund Performance (In thousands of Canadian dollars, except per unit) As at December 31, 2016 MANAGEMENT DISCUSSION OF FUND PERFORMANCE This Management Report of Fund Performance presents management s view of the significant factors and developments during the past twelve months that have affected the performance and outlook of the Fund and should be read in conjunction with the annual financial statements of the Fund for the year ended December 31, 2016 and 2015, together with the notes related thereto. This MRFP is not intended to provide legal, accounting, tax or investment advice. Investment Objectives and Strategies The Fund is an investment trust which was created under the laws of the Province of Ontario pursuant to a Declaration of Trust as amended and restated on June 27, 2016 (the Trust Agreement ). Timbercreek Asset Management Ltd. is the trustee and portfolio advisor of the Fund (the Trustee ). The fundamental investment objectives of the Fund are to: Provide unitholders with quarterly distributions; and Preserve capital while providing the opportunity for long-term capital appreciation for unitholders. The Fund intends on meeting its investment objectives by investing in the common equity, preferred equity and debt securities issued by real estate investment trusts (REITs) and other real estate investment issuers. The Fund provides unit holders with exposure to the global real estate market by owning a diversified portfolio of dividend paying real estate securities in developed markets from around the world. Risk No changes affecting the overall level of risk associated with investing in the Fund were made during the period. The risks of this Fund remain as discussed in the Fund s most recent simplified prospectus dated June 27, 2016 Results of Operations The performance of all classes is shown in the Past Performance section of this report. Where class returns differ, it is primarily due to different levels of fees and expenses charged to each class, or because securities of a class were not issued and outstanding for the entire reporting period. At each quarter-end, unitholders are entitled to a distribution equal to the net income and net realized capital gains of the Fund payable to holders of units of that class, multiplied by the proportion of units in that class. Unless a unitholder requests cash payment in advance, in writing, distributions are reinvested in additional units of the same class of units of the Fund. During the year, the Fund out-performed its benchmark, FTSE EPRA NAREIT Developed World Index. The return from Class A units was 5.5% compared to the index return of 2.1%. The Fund generated a positive return in 2016, up 6.6% on a net basis, outperforming its customized benchmark by 443 basis points. Performance for the year was primarily driven by the Fund s common equity holdings, led by markets such as Canada, the United States, Hong Kong and Australia. Canadian REITs benefited from depressed valuations to start the year while U.S. REITs benefited from continued strength in economic conditions and real estate fundamentals. In Hong Kong, REITs owning middle-income, mass market shopping centers saw their shares outperform while in Australia REITs owning office properties in Sydney outperformed driven by resurgence in demand. Towards the end of 2016, the Fund established its first private debt and equity TIMBERCREEK GLOBAL REAL ESTATE INCOME FUND 3

6 Annual Management Report of Fund Performance (In thousands of Canadian dollars, except per unit) As at December 31, 2016 real estate holding in a portfolio of eight office buildings comprising 2.6 million square feet located in Chicago and Atlanta. Finally, the Fund s U.S. REIT preferred share holdings generated a negative total return in 2016 as higher interest rates negatively impacted U.S. fixed income markets. For the year, the Fund had investment income of $756 (December 31, 2015 $263), which consisted mainly of dividends of $1,192 (December 31, 2015 $174) and a loss of $502 (December 31, 2015 gain of $77) from net changes in the fair value of investments. Total operating expenses for the year were $696 (December 31, 2015 $290), of which $174 (December 31, 2015 $208) were absorbed by an affiliate of the Trustee. The absorption is at the discretion of, and terminable by, the affiliate of the Trustee, and includes costs relating to the Simplified Prospectus offering dated June 27, 2016 and the restructuring of the Fund in The Fund s net assets increased to $33,939 as at December 31, 2016 from $5,158 as at December 31, The increase is mainly attributed to the proceeds of $30,313 from the issuance of units and was offset in part by the redemptions of $1,596. Income available for distribution The following is a reconciliation of income available for distribution to actual distributions paid to unitholders, generated on the investment portfolio. The increase in net assets from operations is adjusted for net changes in fair value of investments. For distribution purposes, the Fund includes a portion of dividends received from real estate investment trusts as income available for distribution, which is included within the net changes in fair value of investments in the statement of comprehensive income. The Fund has generated sufficient distributable income from its investment activities to pay out its targeted distribution. The non-taxable portion of certain capital gains was retained within the Fund to eliminate the surplus income. No tax was payable within the Fund. December 31, 2016 December 31, 2015 Increase in net assets attributable to holders of redeemable units $ 233,543 $ 181,380 Add/(Less): Net changes in fair value of investments, net of commission and transaction costs 606,120 (59,036) Add: Portion of dividends earned from REITs, included in net changes in fair value of investments 116,196 22,417 Distributable income 955, ,761 Actual distributions 939, ,540 Surplus income/(over distribution) $ 16,265 $ (23,779) TIMBERCREEK GLOBAL REAL ESTATE INCOME FUND 4

7 Annual Management Report of Fund Performance (In thousands of Canadian dollars, except per unit) As at December 31, 2016 Related Party Transactions The related party transactions stated below are in the normal course of operations and are measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties. Management Fees The Fund incurs a management fee for each class as follows: - Class A Up to 2.00% per annum of the Class A net asset value of the Fund; - Class F Up to 1.00% per annum of the Class F net asset value of the Fund; - Class M Up to 1.00% per annum of the Class M net asset value of the Fund; - Class S 0.80% per annum of the Class S net asset value of the Fund; and - Class T No management fee payable. The management fee is calculated and accrued daily, aggregated and paid monthly in arrears, plus applicable taxes. Total management fees for the year ended December 31, 2016 were $214 (December 31, $21). The Fund incurred total expenses of $696 for the year ended December 31, 2016 (December 31, 2015 $289). Out of which, $174 (2015 $208) has been absorbed by Timbercreek Asset Management Inc. ( TAMI ), the parent company of the Trustee. Timbercreek Asset Management Inc. As at December 31, 2016, TAMI holds 85,312 Class T units of the Fund (December 31, ,303 Class T units). Independent Review Committee The Manager has established the Independent Review Committee (the IRC ) for its managed funds in accordance with the requirements of the OSC National Instrument Independent Review Committee for Investment Funds ( NI ) in order to review and provide recommendations or approval, as required, regarding certain conflict of interest matters referred to it by the Manager on behalf of its managed funds, including the Fund as of June 23, 2015, the date on which the Fund became a reporting issuer. The IRC is responsible for overseeing the Manager s decisions in situations where the Manager is faced with any present or perceived conflicts of interest, all in accordance with NI The IRC currently consists of three members, all of whom are independent of the Manager. Each member of the IRC earns an annual retainer fee, plus expenses for each meeting, if applicable. These fees and expenses, plus associated legal and insurance costs, are allocated among all of the funds managed by Manager. During the year, the Fund did not rely on a positive recommendation, or the approval, of the IRC. TIMBERCREEK GLOBAL REAL ESTATE INCOME FUND 5

8 Annual Management Report of Fund Performance (In thousands of Canadian dollars, except per unit) As at December 31, 2016 FINANCIAL HIGHLIGHTS The following tables show selected key financial information about the Fund and are intended to help you understand the Fund s financial performance for the year shown. The Fund s Net Assets per unit 1 CLASS A December 31, 2016 December 31, 2015 Net assets, beginning of year $ 9.90 $ Increase (decrease) from operations: Total revenue Total expenses (0.38) (0.07) Realized gains (losses) for the year (0.07) 0.06 Unrealized gains (losses) for the year Total increase (decrease) from operations Distributions: From income (excluding dividends) From dividends From capital gains 0.06 Return of capital 0.07 Total distributions for the year Net assets, at end of year $ $ 9.90 Ratios and supplemental data Total net asset value (000s) 4 $ 5,473 $ 1,165 Number of units outstanding 4 545, ,732 Management expense ratio % 2.29% Management expense ratio before waivers or absorptions % 5.97% Trading expense ratio % 0.31% Portfolio turnover rate % 48.08% Net asset value per unit $ $ 9.90 (1) This information is derived from the Fund s annual financial statements. (2) Net assets and distributions are based on the actual number of units outstanding for the relevant class at the relevant time. The increase/decrease from operations is based on the weighted average number of units outstanding for the relevant class over the financial year. This table is not intended to be a reconciliation of beginning to ending net assets per unit. (3) Distributions were reinvested for additional units of the Fund. (4) This information is provided at period end of the period shown. (5) Management expense ratio is based on total expenses (excluding foreign dividend withholding taxes and commissions and other portfolio transaction costs) for the stated year and is expressed as an annualized percentage of the daily average net asset value during the stated year. (6) The trading expense ratio represents total commissions and other portfolio transaction costs expressed as an annualized percentage of the daily average net asset value during the stated year. (7) The Fund s portfolio turnover rate indicates how actively the Fund s portfolio advisor manages its portfolio investments. A portfolio turnover rate of 100% is equivalent to the Fund buying and selling all of the securities in its portfolio once in the course of the stated year. The higher the Fund s portfolio turnover rate in a year, the greater the trading costs payable by the Fund in the year, and the greater the chance of an investor receiving taxable capital gains in the year. There is not necessarily a relationship between a high turnover rate and the performance of the Fund. (8) Management expense ratio before waivers or absorptions includes costs incurred relating to initial public offering and restructuring. TIMBERCREEK GLOBAL REAL ESTATE INCOME FUND 6

9 Annual Management Report of Fund Performance (In thousands of Canadian dollars, except per unit) As at December 31, 2016 The Fund s Net Assets per unit 1 CLASS F December 31, 2016 December 31, 2015 Net assets, beginning of year $ 9.93 $ Increase (decrease) from operations: Total revenue Total expenses (0.27) (0.10) Realized gains (losses) for the year (0.08) 0.09 Unrealized gains (losses) for the year Total increase (decrease) from operations Distributions: From income (excluding dividends) From dividends From capital gains 0.08 Return of capital 0.08 Total distributions for the year Net assets, at end of year $ $ 9.93 Ratios and supplemental data Total net asset value (000s) 4 $ 11,192 $ 2,276 Number of units outstanding 4 1,110, ,316 Management expense ratio % 1.33% Management expense ratio before waivers or absorptions % 6.68% Trading expense ratio % 0.46% Portfolio turnover rate % 48.08% Net asset value per unit $ $ 9.93 TIMBERCREEK GLOBAL REAL ESTATE INCOME FUND 7

10 Annual Management Report of Fund Performance (In thousands of Canadian dollars, except per unit) As at December 31, 2016 The Fund s Net Assets per unit 1 CLASS M December 31, 2016 December 31, 2015 Net assets, beginning of period $ $ N/A Increase (decrease) from operations: Total revenue 0.38 N/A Total expenses (0.17) N/A Realized gains (losses) for the year (0.15) N/A Unrealized gains (losses) for the year (0.38) N/A Total increase (decrease) from operations 2 (0.32) N/A Distributions: From income (excluding dividends) N/A From dividends 0.18 N/A From capital gains N/A Return of capital 0.06 N/A Total distributions for the year N/A Net assets, at end of period $ 9.78 $ N/A Ratios and supplemental data Total net asset value (000s) 4 $ 15,150 $ N/A Number of units outstanding 4 1,548,648 N/A Management expense ratio % N/A Management expense ratio before waivers or absorptions % N/A Trading expense ratio % N/A Portfolio turnover rate % N/A Net asset value per unit $ 9.78 $ N/A. TIMBERCREEK GLOBAL REAL ESTATE INCOME FUND 8

11 Annual Management Report of Fund Performance (In thousands of Canadian dollars, except per unit) As at December 31, 2016 The Fund s Net Assets per unit 1 CLASS S December 31, 2016 December 31, 2015 Net assets, beginning of year $ $ 9.91 Increase (decrease) from operations: Total revenue Total expenses (0.25) (0.36) Realized gains (losses) for the year (0.09) 0.31 Unrealized gains (losses) for the year Total increase (decrease) from operations Distributions: From income (excluding dividends) From dividends From capital gains 0.26 Return of capital 0.04 Total distributions for the year Net assets, at end of year $ $ Ratios and supplemental data Total net asset value (000s) 4 $ 1,205 $ 847 Number of units outstanding 4 114,984 82,165 Management expense ratio % 0.77% Management expense ratio before waivers or absorptions % 9.32% Trading expense ratio % 0.73% Portfolio turnover rate % 48.08% Net asset value per unit $ $ TIMBERCREEK GLOBAL REAL ESTATE INCOME FUND 9

12 Annual Management Report of Fund Performance (In thousands of Canadian dollars, except per unit) As at December 31, 2016 The Fund s Net Assets per unit 1 CLASS T December 31, 2016 December 31, 2015 Net assets, beginning of year $ $ Increase (decrease) from operations: Total revenue Total expenses (0.21) (0.52) Realized gains (losses) for the year (0.10) 0.45 Unrealized gains (losses) for the year Total increase (decrease) from operations Distributions: From income (excluding dividends) 0.01 From dividends From capital gains 0.38 Return of capital Total distributions for the year Net assets, at end of year $ $ Ratios and supplemental data Total net asset value (000 s) 4 $ 919 $ 868 Number of units outstanding 4 86,940 83,175 Management expense ratio % 0.06% Management expense ratio before waivers or absorptions % 12.09% Trading expense ratio % 1.02% Portfolio turnover rate % 48.08% Net asset value per unit $ $ TIMBERCREEK GLOBAL REAL ESTATE INCOME FUND 10

13 Annual Management Report of Fund Performance (In thousands of Canadian dollars, except per unit) As at December 31, 2016 PAST PERFORMANCE The performance information shown assumes that all distributions made by the Fund in the period shown were reinvested in additional securities of the Fund. The performance information does not take into account sales, redemptions, distribution or other optional charges that would have reduced returns or performance. How the Fund has performed in the past does not necessarily indicate how it will perform in the future. Year-by-Year Returns (1) The following bar chart shows the Fund s performance for the period shown. In percentage terms, the bar chart shows how much an investment made on the first day of the financial year would have grown or decreased by the last day of the financial year. CLASS A CLASS F 6.0% 5.0% 4.0% 5.5% 8.0% 7.0% 6.0% 5.0% 6.7% 3.0% 4.0% 2.0% 1.0% 3.0% 2.0% 1.0% 0.0% % 2016 CLASS S CLASS T 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% 7.1% % 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% 7.9% 2016 (1) In accordance with NI , no performance data has been shown for the period from January 1, 2015 to December 31, 2015 as the Fund was not a reporting issuer at all times during the year. In addition, no performance data has been shown for the Class M as it has been in operation for less than one full year. TIMBERCREEK GLOBAL REAL ESTATE INCOME FUND 11

14 Annual Management Report of Fund Performance (In thousands of Canadian dollars, except per unit) As at December 31, 2016 ANNUAL COMPOUND RETURNS The following table shows the Fund s historical annual compound total returns for the periods indicated ending on December 31, 2016, compared with the Fund s benchmarks, as described below: 1 year 3 years 5 years Since inception Class A 5.5% N/A N/A 4.8% Class F 6.7% N/A N/A 3.6% Class S 7.1% N/A N/A 9.8% Class T 7.9% N/A N/A 9.2% Product benchmarks: FTSE EPRA NAREIT Developed World Index 2.1% N/A N/A 14.8% (1) The FTSE EPRA NAREIT Developed World Index represents the universe of real estate companies listed in developed countries. The underlying securities of this index represent the bulk of the Fund s investable universe. (2) The Fund returns are reported net of all management fees and expenses for all classes, which should be considered when comparing the Fund s returns to the benchmark, which does not pay fees or incur expenses. TIMBERCREEK GLOBAL REAL ESTATE INCOME FUND 12

15 Annual Management Report of Fund Performance (In thousands of Canadian dollars, except per unit) As at December 31, 2016 SUMMARY OF INVESTMENT PORTFOLIO The Summary of Investment Portfolio may change due to ongoing portfolio transactions. Updates are available quarterly on our website at Summary of Top 25 Holdings Asset Class % of NAV* Mercialys Sa Common Equity 3.89 Dream Global REIT Common Equity 3.82 Wereldhave NV Common Equity 3.60 Dream Office REIT Common Equity 3.19 Fortune REIT Common Equity 3.07 CBL & Associates Properties Inc Common Equity 3.02 Eurocommercial Properties NV Common Equity 2.97 Spirit Realty Capital Inc Common Equity 2.85 STAG Industrial Inc Common Equity 2.85 LaSalle Hotel Properties Common Equity 2.78 Cache Logistics Trust Common Equity 2.77 CapitaRetail China Trust Common Equity 2.75 Care Capital Properties Common Equity 2.59 Citycon OYJ Common Equity 2.59 OneREIT Common Equity 2.53 Blackstone Mortgage Trust Inc Common Equity 2.48 Frasers Logistics & Industrial Common Equity 2.45 Vicinity Centres Common Equity 2.19 Sunlight REIT Common Equity 2.14 Charter Hall Retail REIT Common Equity 2.11 Frasers Centrepoint Trust Common Equity 2.09 Champion REIT Common Equity 2.09 Starwood Property Trust Inc Common Equity 1.97 Sabra Health Care Reit Inc Common Equity 1.93 STAG Industrial Inc Series B Pfd Preferred Shares 1.92 *This refers to transactional net asset value; therefore, weightings presented in the Statement of Investments will differ from the ones disclosed above. By Asset Type % of NAV* Investments Other assets/liabilities, net 0.68 Total 100.0% By Country % of NAV* United States Canada Singapore Hong Kong 7.30 Australia 6.88 Netherlands 6.56 France 3.89 Belgium 3.51 Finland 2.59 New Zealand 1.77 Germany 1.51 By Sector % of NAV* Diversified Shopping centre Office Regional mall Mortgage REITs Industrial Triple net lease 6.04 Hotel 4.70 Healthcare 4.53 Student housing 0.00 By Asset Class % of NAV* Common Equity 87.4 Preferred Shares 9.44 Direct 2.48 TIMBERCREEK GLOBAL REAL ESTATE INCOME FUND 13

16 INDEPENDENT AUDITORS REPORT To the Unitholders of Timbercreek Global Real Estate Income Fund We have audited the accompanying financial statements of Timbercreek Global Real Estate Income Fund, which comprise the statements of financial position as at December 31, 2016 and 2015, the statements of comprehensive income, changes in net assets and cash flows for the years then ended, and notes, comprising a summary of significant accounting policies and other explanatory information. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards, 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. Auditors' Responsibility 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 comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity's preparation and fair presentation of the financial statements 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. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements present fairly, in all material respects, the financial position of Timbercreek Global Real Estate Income Fund as at December 31, 2016 and 2015, and its financial performance and its cash flows for the years then ended in accordance with International Financial Reporting Standards. Chartered Professional Accountants, Licensed Public Accountants March 27, 2017 Toronto, Canada KPMG LLP, is a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. KPMG Canada provides services to KPMG LLP. TIMBERCREEK GLOBAL REAL ESTATE INCOME FUND 14

17 STATEMENTS OF FINANCIAL POSITION December 31, 2016 and 2015 ASSETS December 31, 2016 December 31, 2015 Investments, at fair value (note 10) $ 33,369,716 $ 4,947,346 Cash 304, ,052 Subscriptions receivable 175, ,118 Due from Manager 79 14,498 Dividends and interest receivable 238,288 35,738 Receivable for portfolio assets sold (note 5) 809 LIABILITIES 34,088,031 5,419,561 Payable for portfolio assets purchased (note 6) 229,156 Accounts payable and accrued liabilities 45,239 19,675 Distributions payable 71,280 11,549 Redemptions payable 32,480 1, , ,630 Net assets attributable to holders of redeemable units $ 33,939,032 $ 5,157,931 Net assets attributable to holders of redeemable units per Class: Class A units $ 5,473,107 $ 1,165,100 Class F units 11,192,469 2,276,913 Class M units 15,149,655 Class S units 1,205, ,762 Class T units 918, ,156 Units outstanding (note 8): Class A units 545, ,732 Class F units 1,110, ,316 Class M units 1,548,648 Class S units 114,984 82,165 Class T units 86,940 83,175 Net assets attributable to holders of redeemable units per unit: Class A units $ $ 9.90 Class F units Class M units 9.78 Class S units Class T units The accompanying notes are an integral part of these financial statements. TIMBERCREEK GLOBAL REAL ESTATE INCOME FUND 15

18 STATEMENTS OF COMPREHENSIVE INCOME Years ended December 31, 2016 and 2015 Investment income Dividend income $ 1,192,210 $ 173,980 Interest income, for distribution purposes 66,102 12,730 Net changes in fair value of investments (note 12) (502,376) 76,672 Expenses 755, ,382 Management fees (note 7) 213,543 21,023 Commissions and other portfolio transaction costs 103,744 17,636 Fund administration fees 37,663 19,593 Accounting fees 73,970 50,541 Audit fees 20,860 16,401 Professional fees 49, ,922 Trailer fees 30,771 3,059 Bank charges and interest 4,128 Foreign dividend withholding tax 166,539 42, , ,544 Amount absorbed by an affiliate of the Trustee (note 7) (173,878) (207,542) 522,393 82,002 Increase in net assets attributable to holders of redeemable units $ 233,543 $ 181,380 Increase/(decrease) in net assets attributable to holders of redeemable units per Class (note 11): Class A units $ 148,722 $ 10,173 Class F units 326,644 32,789 Class M units (373,707) Class S units 71,501 49,217 Class T units 60,383 89,201 Increase/(decrease) in net assets per unit attributable to holders of redeemable units (note 11): Class A units $ 0.48 $ 0.17 Class F units Class M units (0.32) Class S units Class T units The accompanying notes are an integral part of these financial statements. TIMBERCREEK GLOBAL REAL ESTATE INCOME FUND 16

19 STATEMENTS OF CHANGES IN NET ASSETS Years ended December 31, 2016 and Class A units Class F units Class M units Class S units Class T units Net assets attributable to holders of redeemable units, beginning of period $ 1,165,100 $ 2,276,913 $ $ 847,762 $ 868,156 $ 5,157,931 Issuance of units 4,611,537 9,194,085 16,033, ,141 30,312,821 Redemptions of units (415,147) (479,215) (509,695) (188,197) (3,443) (1,595,697) Distributions to unitholders (142,029) (341,322) (352,833) (53,283) (50,127) (939,594) Reinvestment of distributions 104, , ,832 53,282 43, ,028 Increase/(decrease) in net assets attributable to holders of redeemable units 148, ,644 (373,707) 71,501 60, ,543 Net assets attributable to holders of redeemable units, end of period $ 5,473,107 $ 11,192,469 $ 15,149,655 $ 1,205,206 $ 918,595 $ 33,939,032 Total 2015 Class A units Class F units Class S units Class T units Net assets attributable to holders of redeemable units, beginning of period $ $ $ 448,627 $ 778,955 $ 1,227,582 Issuance of units 1,255,213 2,362, ,965 4,041,558 Redemptions of units (97,949) (109,044) (74,047) (281,040) Distributions to unitholders (13,237) (42,222) (44,403) (68,678) (168,540) Reinvestment of distributions 10,900 33,010 44,403 68, ,991 Increase in net assets attributable to holders of redeemable units 10,173 32,789 49,217 89, ,380 Net assets attributable to holders of redeemable units, end of period $ 1,165,100 $ 2,276,913 $ 847,762 $ 868,156 $ 5,157,931 The accompanying notes are an integral part of these financial statements. Total TIMBERCREEK GLOBAL REAL ESTATE INCOME FUND 17

20 STATEMENTS OF CASH FLOWS Years ended December 31, 2016 and 2015 Cash provided by (used in): OPERATING ACTIVITIES Increase in net assets from operations $ 233,543 $ 181,380 Adjustments for: Net changes in fair value of investments 502,376 (76,672) Proceeds from sale of investments 9,936,985 1,420,427 Purchases of investments (38,969,416) (5,119,916) Commissions and other portfolio transaction costs 103,744 17,636 Change in non-cash operating items: Increase in dividends and interest receivable (202,550) (26,814) Decrease (increase) in due from Manager 14,419 (14,498) Increase in accounts payable and accrued liabilities 25,564 15,663 Decrease (increase) in receivable for portfolio assets sold 809 (809) (Decrease) increase in payable for portfolio assets purchased (229,156) 229,156 FINANCING ACTIVITIES (28,583,682) (3,374,447) Redemptions of units (1,564,467) (281,736) Distributions to unitholders (109,835) Proceeds from issuances of units 30,249,573 3,960,503 28,575,271 3,678,767 Increase (decrease) in cash (8,411) 304,320 Net foreign exchange gain on cash accounts 3,941 8,025 Cash and cash equivalents, beginning of year 309,052 (3,293) Cash and cash equivalents, end of year $ 304,582 $ 309,052 SUPPLEMENTAL INFORMATION Interest paid $ $ 42 Interest received 65,349 12,735 Dividends received, net of withholding tax 823, ,918 The accompanying notes are an integral part of these financial statements. TIMBERCREEK GLOBAL REAL ESTATE INCOME FUND 18

21 SCHEDULE OF INVESTMENTS December 31, 2016 Description Shares units Average cost Fair value % net assets COMMON EQUITIES Australia Charter Hall Retail REIT 173,189 $ 758,374 $ 711, Dexus Property Group 46, , , Folkestone Education Trust 176, , , Vicinity Centres 254, , , Canada 2,403,444 2,318, Cominar REIT 43, , , Dream Global REIT 135,780 1,178,431 1,283, Dream Office REIT 54, ,405 1,070, OneREIT 237, , , RioCan REIT 23, , , Europe 4,268,507 4,467, Befimmo SA 8, , , Citycon OYJ 263, , , Eurocommercial Properties NV 19,262 1,074, , Intervest Offices & Warehouses NV 15, , , Mercialys SA 48,029 1,396,193 1,309, TLG Immobilien AG 20, , , Wereldhave NV 19,978 1,248,609 1,210, Hong Kong 6,305,305 6,078, Champion REIT 965, , , Fortune REIT 666,950 1,013,067 1,029, Sunlight REIT 925, , , New Zealand 2,428,730 2,448, Kiwi Property Group Limited 460, , , Singapore Cache Logistics Trust 1,238,600 1,059, , CapitaLand Retail China Trust 725,151 1,049, , Frasers Centrepoint Trust 398, , , Frasers Logistics & Industrial Trust 958, , , ,777,175 3,378, TIMBERCREEK GLOBAL REAL ESTATE INCOME FUND 19

22 SCHEDULE OF INVESTMENTS December 31, 2016 Description Shares units Average cost Fair value % net assets COMMON EQUITIES (continued) United States of America Apollo Commercial Real Estate Finance 23, , , Blackstone Mortgage Trust Inc. 20, , , Care Capital Properties Inc. 25, , , CBL & Associates Properties Inc 65,587 1,014,079 1,012, LaSalle Hotel Properties 22, , , MFA Financial, Inc. 57, , , MGM Growth Properties LLC 18, , , NorthStar Realty Finance Corp. 26, , , Sabra Health Care REIT, Inc. 19, , , Spirit Realty Capital, Inc. 65,633 1,026, , STAG Industrial Inc. 29, , , Starwood Property Trust Inc. 22, , , Two Harbors Investment Corp. 35, , , Western Asset Mortgage Capital Corp. 37, , , ,745,101 10,078, Total common equities 29,556,198 29,366, PREFERRED SHARES United States of America Cedar Realty Trust, Inc. Series B 7.25% 18, , , Pennsylvania REIT Series A 8.25% 18, , , Retail Properties of America Inc. Series A 7.0% 19, , , STAG Industrial Inc. Series B 6.62% 19, , , Sunstone Hotel Investors Inc. Series E 6.95% 18, , , Total preferred shares 3,240,829 3,170, Total equities 32,797,027 32,537, TIMBERCREEK GLOBAL REAL ESTATE INCOME FUND 20

23 SCHEDULE OF INVESTMENTS December 31, 2016 Description Shares/units Average cost Fair value % net assets PRIVATE INVESTMENTS United States of America Private Common Equity Adventus Capital Partners Ltd. 1,380 27,396 27, Adventus Realty Limited Partnership 1, Adventus Realty Trust 26, , , Private Convertible Debt 548, , Adventus Capital Partners Ltd. 10.5% DEC ,629 14,315 14, Adventus Realty LP 10.5% 22DEC Adventus Realty Trust 10.5% 22DEC , , , , , Total private investments 835, , Total investments 33,632,060 33,369, Commissions and other portfolio transaction costs (note 3(c)) (76,964) Total net investments $33,555,096 $33,369, Other assets, net 569, Net Assets Attributable to Holders of Reedemable Units $33,939, The accompanying notes are an integral part of these financial statements. TIMBERCREEK GLOBAL REAL ESTATE INCOME FUND 21

24 Notes to Financial Statements Years ended December 31, 2016 and FUND INFORMATION Timbercreek Global Real Estate Income Fund (the Fund ) is an investment trust which was created under the laws of the Province of Ontario pursuant to a Declaration of Trust as amended and restated on June 27, 2016 (the Trust Agreement ). The address of the Fund s registered office is at 25 Price Street, Toronto, Ontario, Canada M4W 1Z1. Timbercreek Asset Management Ltd. is the trustee and portfolio advisor of the Fund (the Trustee ). The Trustee provides management and investment advisory services to the Fund. The Fund commenced active operations on June 18, Effective October 24, 2014, the Trustee amended and restated the Declaration of Trust in order to change the name of the Fund; re-designate Class A units of the Fund outstanding on that date to Class S units; redesignate Class B units outstanding on that date to Class T units; create new classes A and F units of the Fund; and to change the Fund s fundamental investment objectives and make other non-material amendments. Effective June 27, 2016, the Trustee amended and restated the Declaration of Trust to add new class M units. The fundamental investment objectives of the Fund are to: (i) provide unitholders with quarterly cash distributions; and (ii) preserve capital while providing the opportunity for long-term capital appreciation for unitholders, by investing in common equity, preferred equity and debt securities issued by real estate investment trusts and other real estate investment issuers. The Fund provides unitholders with exposure to the global real estate market by owning a diversified portfolio of dividend paying real estate securities in developed markets from around the world. 2. BASIS OF PRESENTATION (a) Basis of preparation These financial statements have been prepared in accordance with International Financial Reporting Standards ( IFRS ) as issued by the International Accounting Standards Board ( IASB ). The financial statements were authorized by the Board of Directors of the Trustee on March 27, (b) Basis of measurement These financial statements have been prepared on a historical cost basis, except for financial assets and financial liabilities at fair value through profit or loss, which are presented at fair value. (c) Functional and presentation currency The Fund s financial statements are presented in Canadian dollars, which is the functional currency of the Fund. TIMBERCREEK GLOBAL REAL ESTATE INCOME FUND 22

25 Notes to Financial Statements Years ended December 31, 2016 and SIGNIFICANT ACCOUNTING POLICIES (a) Financial assets and financial liabilities (i) Classification The Fund classifies its financial assets and financial liabilities upon initial recognition into the following categories: Financial instruments measured at fair value (i) Financial assets and financial liabilities held for trading: A financial asset or financial liability is classified as held for trading if it is acquired or incurred principally for the purpose of selling or repurchasing in the near term or if on initial recognition is part of a portfolio of identifiable financial investments that are managed together and for which there is evidence of a recent actual pattern of short-term profit taking. The Fund does not hold any financial instruments that were classified as held for trading. (ii) Financial assets and financial liabilities designated at fair value through profit or loss at inception: Financial assets and financial liabilities designated at fair value through profit or loss at inception are financial instruments that are not classified as held for trading but are managed, and their performance is evaluated on a fair value basis in accordance with the Fund s documented investment strategy. These include the portfolio of investments held by the Fund, as presented in the statements of financial position. Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. The Fund includes in this category due from broker, subscriptions receivable and dividends and interest receivable. The fair value of these financial assets approximate their carrying amounts. Other financial liabilities This category includes all financial liabilities, other than those classified as fair value through profit or loss. These include due to broker, accounts payable and accrued liabilities, and redemptions payable. The fair value of these financial liabilities approximate their carrying amounts. (ii) Recognition and initial measurement Financial investments measured at fair value through profit or loss are initially recognized on the trade date, which is the date on which the Fund becomes a party to the contractual provisions of the instrument. Other financial assets and financial liabilities are recognized on the date on which they are originated. Financial investments measured at fair value through profit or loss are initially measured at fair value, with transaction costs recognized in profit or loss. Financial investments not measured at fair value through profit or loss are initially measured at fair value plus transaction costs that are directly attributable to their acquisition or issue. (iii) Subsequent measurement After initial measurement, the Fund measures financial instruments which are classified at fair value through profit or loss at fair value. Subsequent changes in the fair value of these financial instruments are recorded in net changes in fair value of investments at fair value through profit or loss. Interest and dividends earned or paid on these instruments are recorded separately in interest income and dividend income. TIMBERCREEK GLOBAL REAL ESTATE INCOME FUND 23

26 Notes to Financial Statements Years ended December 31, 2016 and 2015 Loans and receivables and other financial liabilities are measured at amortized cost. (iv) Offsetting financial instruments Financial assets and financial liabilities are offset and the net amount reported in the statements of financial position when there is a legally enforceable right to offset the recognized amounts and there is an intention to settle on a net basis, or to realize the asset and settle the liability simultaneously. (v) Derecognition The Fund derecognizes a financial liability when its contractual obligations are discharged or cancelled, or expire. (b) Fair value measurements The Fund measures financial instruments at fair value at each statement of financial position date. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either: In the principal market for the asset or liability, or In the absence of a principal market, in the most advantageous market for the asset or liability The principal or the most advantageous market must be accessible by the Fund. The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability assuming that market participants act in their economic best interests. A fair value measurement of a non-financial asset takes into account a market participant s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use. The Fund uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs. All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorized within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole: Level 1 Quoted (unadjusted) market prices in active markets for identical assets or liabilities; Level 2 Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable; and Level 3 Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable. For assets and liabilities that are recognized in the financial statements on a recurring basis, the Fund determines whether transfers have occurred between levels in the hierarchy by re-assessing categorization (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period. For the purpose of fair value disclosures, the Fund has determined classes of assets and liabilities on the basis of the nature, characteristics and risks of the asset or liability and the level of the fair value hierarchy as explained above. TIMBERCREEK GLOBAL REAL ESTATE INCOME FUND 24

27 Notes to Financial Statements Years ended December 31, 2016 and 2015 Investments in securities listed on a public securities exchange or traded on an over-the-counter market are valued at the closing price. Securities with no available closing trade price are valued at the mid price. The Fund invests in private direct real estate investments through equity interests held in limited partnerships or trusts, which are recorded at net asset value per unit of the respective entity. In other cases, fair value may be determined based on the recent market transactions. The Fund also invests in private direct real estate by way of investing in debt instruments or debentures of limited partnerships or trusts. The real estate investments underlying the entity s units are recorded at cost from the date of acquisition until receipt of the first appraisal; thereafter, they are valued at fair value based on appraisals. Appraisals for real estate investments are obtained from qualified independent appraisers up to twice per year for each property following the period of acquisition. Other real estate investments, including private debt investments, may be held by these entities and are recorded at fair value. (c) Transaction costs Commissions and other portfolio transaction costs, which are incurred on the purchase and sale of an investment, such as fees and commissions paid to agents, advisors, brokers and dealers and exchange fees, are expensed and included in commissions and other portfolio transaction costs in the statements of comprehensive income. (d) Investment transactions and income recognition Investment transactions are accounted for on a trade-date basis; that is, on the day that a buy or sell order is executed. Interest income for distribution purposes is accrued daily and dividend income is recognized on the ex-dividend date along with withholding taxes on foreign dividends, if any. Distributions from investment trusts are recorded when declared. Realized gains and losses from investment transactions are calculated as proceeds of disposition less their average cost. The cost of investments represents the amount paid for each security and is determined on an average cost basis, excluding transaction costs. Average cost does not include amortization of premiums or discounts on fixed income securities. (e) Translation of foreign currencies Foreign currency transactions during the period, including purchases and sales of securities, income and expenses, are translated at the exchange rate prevailing on the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated at the functional currency rate of exchange at that date. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated into the functional currency at the exchange rate at the date on which the fair value was determined. Foreign currency transaction gains and losses on financial instruments classified as at fair value through profit or loss are included in profit or loss in the statement of comprehensive income as part of net changes in fair value of investments. TIMBERCREEK GLOBAL REAL ESTATE INCOME FUND 25

28 Notes to Financial Statements Years ended December 31, 2016 and 2015 (f) Withholding tax expense The Fund generally incurs withholding taxes imposed by certain countries on investment income and capital gains. Such income and gains are recorded on a gross basis and the related withholding taxes are shown as a separate expense in the statements of comprehensive income. (g) Income taxes The Fund has qualified and is expected to continue to qualify as a mutual fund trust under the income Tax Act (Canada) and, accordingly, is not taxed on the portion of taxable income that is paid or made payable to unitholders. Income tax on net realized capital gains not paid or made payable to unitholders may be recoverable by the Fund in future periods. It is the intention of the Fund to distribute all of its future income and sufficient net realized capital gains so that the Fund will not be subject to income tax. (h) Redeemable units and net assets attributable to holders of redeemable units The Fund issues redeemable units in various classes with varied fees structures, which are redeemable at the holder s option at the redemption date. As a result, redeemable units are classified as liabilities in the statements of financial position. For each Fund unit sold, the Fund receives an amount equal to the net asset value per unit at the date of sale, which is included in net assets attributable to holders of redeemable units. For each unit redeemed, net assets attributable to holders of redeemable units is reduced by the net asset value of the unit at the date of redemption. The redeemable shares are measured at the current value of the Fund s net assets and are considered a residual amount of the net assets attributable to holders of redeemable units. The Fund s net asset value ( NAV ) per unit on each valuation date is calculated by dividing the net assets attributable to holders of redeemable units with the total number of outstanding redeemable units for that class. There is no difference between the Fund s NAV per unit and net assets attributable to holders of redeemable units per unit. The increase in net assets attributable to holders of redeemable units per unit by class in the statement of comprehensive income represents the change in net assets attributable to holders of redeemable units divided by the weighted average number of units of that class outstanding during the reporting period. (i) Future accounting changes The final version of IFRS 9, Financial Instruments, was issued by the IASB in July 2014 and will replace IAS 39 Financial Instruments: Recognition and Measurement. IFRS 9 introduces a model for classification and measurement, a single, forward-looking expected loss impairment model and a substantially reformed approach to hedge accounting. The new single, principle-based approach for determining the classification of financial assets is driven by cash flow characteristics and the business model in which an asset is held. The new model also results in a single impairment model being applied to all financial instruments, which will require more timely recognition of expected credit losses. It also includes changes in respect of own credit risk in measuring liabilities elected to be measured at fair value, so that gains caused by the deterioration of an entity s own credit risk on such liabilities are no longer recognized in profit or loss. IFRS 9 is effective for annual periods beginning on or after January 1, 2018, but is available for early adoption. In addition, the own credit risk changes can be applied early in isolation without otherwise changing the accounting for financial instruments. The extent of the impact of adoption of the standard has not yet been determined. TIMBERCREEK GLOBAL REAL ESTATE INCOME FUND 26

29 Notes to Financial Statements Years ended December 31, 2016 and CRITICAL JUDGMENTS AND ESTIMATES In the preparation of these financial statements, the Trustee has made judgments, estimates and assumptions that affect the application of the Fund s accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. In making estimates and judgments, the Trustee relies on external information and observable conditions where possible. There are no known trends, commitments, events or uncertainties that the Trustee believes will materially affect the methodology or assumptions utilized in making those estimates and judgments in these financial statements. 5. RECEIVABLE FOR PORTFOLIO ASSETS SOLD Receivable for portfolio assets sold represent amounts receivable for unsettled trades. 6. PAYABLE FOR PORTFOLIO ASSETS PURCHASED Payable for portfolio assets purchased represent amounts payable for unsettled trades. 7. RELATED PARTY TRANSACTIONS Management fee The Fund incurs a management fee for each class as follows: - Class A units up to 2.00% per annum of the Class A net asset value; - Class F units up to 1.00% per annum of the Class F net asset value; - Class M units up to 1.00% per annum of the Class M net asset value; - Class S units 0.80% per annum of the Class S net asset value; and - Class T units no management fee payable. The management fee is calculated and accrued daily, aggregated and paid monthly in arrears, plus applicable taxes. Total management fees for the year ended December 31, 2016 were $213,543 (December 31, $21,023). The Fund incurred total expenses of $696,271 for the year ended December 31, 2016 (December 31, 2015 $289,544). Out of which, $173,878 (December 31, 2015 $207,542) has been absorbed by Timbercreek Asset Management Inc. ( TAMI ), the parent company of the Trustee. Timbercreek Asset Management Inc. As at December 31, 2016, TAMI holds 85,312 Class T units of the Fund (December 31, ,303 Class T units). TIMBERCREEK GLOBAL REAL ESTATE INCOME FUND 27

30 Notes to Financial Statements Years ended December 31, 2016 and REDEEMABLE UNITS OF THE FUND The Fund is divided into units of participation which may be issued in one or more classes as determined by the Trustee of the Fund. The Trustee can issue an unlimited number of units of any class authorized to be issued by the Fund. All units of the Fund are voting and vote equally with each other. In accordance with the Trust Agreement, the Fund is authorized to issue an unlimited number of Class A, Class F, Class S, Class T and Class M units. During the year ended December 31, 2016, the changes in units were as follows: Class A units Class F units Class M units Class S units Class T units Redeemable units outstanding, January 1, , ,316 82,165 83,175 Issued 459, ,344 1,564,900 45,652 Redeemed (41,858) (46,096) (51,593) (17,883) (329) Reinvested distributions 10,578 22,022 35,341 5,050 4,094 Redeemable units, outstanding, December 31, ,603 1,110,586 1,548, ,984 86,940 During the year ended December 31, 2015, the changes in units were as follows: Class A units Class F units Class S units Class T units Redeemable units outstanding, January 1, ,256 76,567 Issued 126, ,720 39,536 Redeemed (9,990) (10,737) (6,957) Reinvested distributions 1,105 3,333 4,330 6,608 Redeemable units outstanding, December 31, , ,316 82,165 83,175 (a) Subscriptions The units and fractional units may be issued from time to time by the Trustee on behalf of the Fund but only on a valuation date. The subscription price per unit of the class of units subscribed for pursuant to an application received and accepted by the Trustee prior to the valuation time on a valuation date will be the class net asset value per unit determined on the valuation date; and after such time on a valuation date or at any time on a date other than a valuation date will be class net asset value per unit determined on the next valuation date following such receipt and acceptance. TIMBERCREEK GLOBAL REAL ESTATE INCOME FUND 28

31 Notes to Financial Statements Years ended December 31, 2016 and 2015 (b) Redemptions Each unitholder is entitled, at any time, to require the Fund to redeem all or any part of a unitholder s units for an amount equal to the class net asset value per unit (as defined in the Trust Agreement), subject to certain restrictions. The Trustee will deduct from the redemption amount any fees or charges to be paid by the unitholder of a class upon redemption of such units in such form as the Trustee shall reasonably determine from time to time. (c) Distributions At each quarter-end, the Fund distributes income to unitholders of the Fund and additionally net realized capital gains prior to the fiscal year-end. Unless a unitholder requests cash payment in advance, in writing, distributions are reinvested in additional units of the same class of units of the Fund. 9. CAPITAL AND FINANCIAL RISK MANAGEMENT (a) Capital management The Trustee manages the capital of the Fund, which consists of the net assets attributable to holders of redeemable units of the Fund, in accordance with the investment objectives set out in the Trust Agreement. The Fund is not subject to externally imposed capital requirements. In the normal course of business, the Fund is exposed to a variety of financial risks: credit risk, liquidity risk and market risk (including interest rate risk, market price risk and currency risk). The value of investments within the Fund s portfolio can fluctuate on a daily basis as a result of changes in interest rates, general economic conditions and company news related to specific securities within the Fund. The level of risk depends on the Fund s investment objective and the type of securities in which it invests. (b) Risk management The Trustee seeks to minimize the potential adverse effects of risk on the Fund s performance by retaining professional, experienced portfolio advisors and analysts, monitoring the Fund s positions and market events and diversifying the investment portfolio within the parameters of the investment objectives. To assist in managing risk, the Trustee uses internal guidelines that identify the target exposures for each type of security, while adhering to the investment restrictions of the Fund. For concentration of risk, refer to the schedule of investments. (i) Credit risk Credit risk is the risk that the counterparty to a financial instrument will fail to discharge an obligation or commitment that it has entered into with the Fund. The maximum exposure to credit risk is represented by the total assets of the Fund. All transactions executed by the Fund in listed securities are settled/paid for upon delivery using approved brokers. The risk of default is considered minimal, as delivery of securities sold is only made once the broker has received payment. Payment is made on a purchase once the securities have been received by the broker. The trade will fail if either party fails to meet its obligation. The Fund is exposed to credit risk in preferred share and convertible debt securities which are disclosed in the Fund s schedule of investments. The preferred shares and convertible debt securities are unrated. Given the TIMBERCREEK GLOBAL REAL ESTATE INCOME FUND 29

32 Notes to Financial Statements Years ended December 31, 2016 and 2015 nature of the real estate industry, many companies traditionally obtain debt financing through mortgages secured by real property and in certain circumstances will issue publicly listed debentures. For those companies which do not have public debt securities, they are typically not rated by the rating agencies. As such, to minimize the risk associated with a fixed return, the Trustee conducts a thorough analysis of the issuer to determine their creditworthiness. Specifically, the Trustee will conduct an analysis of each company analyzing the loan-to-value ratios, debt service coverage ratio and the quality of the company s real estate holdings. (ii) Liquidity risk Liquidity risk is defined as the risk that the Fund may not be able to settle or meet its obligation associated with financial liabilities. The Fund s exposure to liquidity risk is concentrated in the periodic cash redemptions of units. The Fund primarily invests in securities that are traded in active markets and can be readily disposed of to pay for redemptions. All financial liabilities mature within twelve months. (iii) Market risk Interest rate risk Interest rate risk arises from the possibility that changes in interest rates will affect future cash flows or fair values of financial instruments. Interest rate risk arises when the Fund invests in interest-bearing financial instruments. The Fund is exposed to the risk that the value of such financial instruments will fluctuate due to changes in the prevailing levels of market interest rates. There is minimal sensitivity to interest rate fluctuations on any cash and cash equivalents invested at short-term market interest rates. Market price risk Market price risk is the risk that the fair value or future cash flows of financial instruments will fluctuate because of changes in market prices (other than those arising from interest rate risk or currency risk). All investments present a risk of loss of capital, specifically the market price risk arising from investment in public securities. If equity prices on the respective stock exchanges for these securities had increased or decreased by 5% at December 31, 2016 with all other variables held constant, the net assets attributable to holders of redeemable units of the Fund would have increased or decreased, respectively, by approximately $1,626,861 (December 31, 2015 $247,367). In practice, actual results may differ from this sensitivity analysis and the difference could be material. The Trustee aims to moderate this risk through careful selection and diversification of securities and other financial instruments in accordance with the Fund s investment objectives. The Fund s overall market positions are monitored on a daily basis by the Trustee. Financial instruments held by the Fund are susceptible to market price risk arising from uncertainties about future prices of the instruments. TIMBERCREEK GLOBAL REAL ESTATE INCOME FUND 30

33 Notes to Financial Statements Years ended December 31, 2016 and 2015 Currency risk Currency risk is the risk that the value of a financial instrument will fluctuate due to changes in foreign exchange rates. Currency risk arises from financial instruments (including cash and cash equivalents) that are denominated in a currency other than Canadian dollars, which represents the functional currency of the Fund. As at December 31, 2016, if the Canadian dollar had strengthened or weakened by 1% in relation to the foreign currencies listed below with all other variables being held constant, the Fund s net assets attributable to holders of redeemable units would have decreased or increased, respectively, by approximately $289,566 or 0.9% of net assets (December 31, 2015 $41,038 or 0.8% of net assets). In practice, actual results may differ from this sensitivity analysis and the differences could be material. As at December 31, 2016 Fair value of investments Cash Net foreign currency exposure Percentage of net assets Australian Dollar $ 2,318,764 $ 8,054 $ 2,326, % British Pound % Euro 6,078,279 26,889 6,105, % Hong Kong Dollar 2,448, ,448, % New Zealand Dollar 596, , % Singapore Dollar 3,378,830 3,378, % United States Dollar 14,082,032 19,265 14,101, % As at December 31, 2015 Fair value of investments Cash Net foreign currency exposure Percentage of net assets Australian Dollar $ 407,452 $ (17,812) $389, % Euro 952,805 4, , % Hong Kong Dollar 365, , % New Zealand Dollar 103,628 (14,309) 89, % Singapore Dollar 398,550 1, , % United States Dollar 1,923,920 (21,969) 1,901, % TIMBERCREEK GLOBAL REAL ESTATE INCOME FUND 31

34 Notes to Financial Statements Years ended December 31, 2016 and CLASSIFICATION OF FINANCIAL INSTRUMENTS FAIR VALUE MEASUREMENTS The following table shows an analysis of financial instruments recorded at fair value by level of the fair value hierarchy at December 31, 2016: Level 1 Level 2 Level 3 Total Financial assets: Equities $ 32,537,226 $ $ $ 32,537,226 Private common equities 546, ,495 Private convertible debt 285, ,995 $ 32,537,226 $ $ 832,490 $ 33,369,716 During the year ended December 31, 2016, no financial instruments were transferred between any levels. The following table shows an analysis of financial instruments recorded at fair value by level of the fair value hierarchy at December 31, 2015: Level 1 Level 2 Level 3 Total Financial assets: Equities $ 4,947,346 $ $ $ 4,947,346 During the year ended December 31, 2015, no financial instruments were transferred between any levels. The following table shows a reconciliation of the opening and closing balance of financial instruments recorded in Level 3 for the year ended December 31, 2016: Financial assets: As at January 1, 2016 Realized fair value gain/(loss) Unrealized fair value loss Purchases As at December 31, 2016 Private common equity $ $ $ (2,543) $ 549,038 $ 546,495 Private convertible debt $ 285,995 $ 285,995 $ $ $ (2,543) $ 835,033 $ 832,490 TIMBERCREEK GLOBAL REAL ESTATE INCOME FUND 32

35 Notes to Financial Statements Years ended December 31, 2016 and 2015 Significant unobservable inputs used in measuring fair value The table below sets out information about significant unobservable inputs used at December 31, 2016 in measuring financial instruments categorized as Level 3 in the fair value hierarchy. Sensitivity to Fair value at Range changes in December Unobservable (weighted significant Description 31, 2016 Valuation technique input average) unobservable inputs Unlisted private investments $ 546,495 Net asset value or recent transactions. The Fund has determined that the reported net asset value and/or value from recent transactions represents fair value at the end of the reporting year. n/a n/a n/a Private convertible debt $ 285,995 Recent market transaction, representing fair value at year end. n/a n/a n/a 11. INCREASE/(DECREASE) IN NET ASSETS ATTRIBUTABLE TO HOLDERS OF REDEEMABLE UNITS PER UNIT The increase (decrease) in net assets attributable to holders of redeemable units per unit for the year ended December 31, 2016 is calculated as follows: 2016 Class A Class F Class M Class S Class T Increase/(decrease) in net assets attributable to holders of redeemable units $ 148,722 $ 326,644 $ (373,707) $ 71,501 $ 60,383 Weighted average of redeemable units outstanding during the year 308, ,959 1,177, ,418 84,621 Increase(decrease) in net assets attributable to holders of redeemable units $ 0.48 $ 0.54 $ (0.32) $ 0.71 $ 0.71 The increase in net assets attributable to holders of redeemable units per unit for the year ended December 31, 2015 is calculated as follows: 2015 Class A Class F Class S Class T Increase in net assets attributable to holders of redeemable units $ 10,173 $ 32,789 $ 49,217 $ 89,201 Weighted average of redeemable units outstanding during the year 61, ,087 61,897 77,357 Increase in net assets attributable to holders of redeemable units $ 0.17 $ 0.23 $ 0.80 $ 1.15 TIMBERCREEK GLOBAL REAL ESTATE INCOME FUND 33

36 Notes to Financial Statements Years ended December 31, 2016 and NET CHANGES IN FAIR VALUE OF INVESTMENTS Year ended December 31, 2016 Year ended December 31, 2015 Net change from financial assets and liabilities held for trading: Net realized loss on forward contracts (119,153) Net change from financial assets designated as fair value through profit or loss: Net realized (loss) gain on sale of investments, including foreign exchange adjustments (149,202) 71, ,,07 3 Unrealized (depreciation) appreciation in value of investments, including foreign exchange adjustments (234,021) 5,599 (502,376) 76, INVOLVEMENT WITH UNCONSOLIDATED STRUCTURED ENTITIES The Fund has determined that the underlying funds in which the Fund invests are unconsolidated structured entities. The Fund does not provide and has not committed to providing any additional significant financial or other support to the unconsolidated structured entities other than its investment in the unconsolidated structured entities. The maximum exposure to loss is the carrying amount of the financial assets held. The Fund has no significant influence or control over subsidiaries, associates or unconsolidated structured entities. 14. COMPARATIVE INFORMATION Ceratin prior year financial statement line items have been renamed to comply with the current year presentation of the financial statements. TIMBERCREEK GLOBAL REAL ESTATE INCOME FUND 34

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39 Head Office 25 Price Street Toronto, ON M4W 1Z1 T E info@timbercreek.com timbercreek.com Registrar SGGG Fund Services Inc. Toronto, ON Auditors KPMG LLP Photography courtesy of the following companies in which the Fund has an investment: Dream Global REIT, MGM Growth Properties, Timbercreek Asset Management Inc., Vicinity Centres, Fortune REIT and Sunlight REIT.

40 timbercreek.com