Parkit Enterprise Inc. — Audit Report / Information 2020

Mar 20, 2021

BUSINESS ACQUISITION REPORT Form 51-102F4

Item 1 Identity of Company

1.1 Name and Address of Company

Parkit Enterprise Inc. (the “Company”) 666 Burrard St, Suite 500 Vancouver, BC V6C 2X8

1.2 Executive Officer

For further information in respect of this report and the significant acquisition described herein, please contact:

Avi Geller

Chief Executive Officer of Parkit Enterprise Inc.

Item 2 Details of Acquisition

2.1 Nature of Business Acquired

Effective December 29, 2020, the Company, acquired 5600 Finch Ave East (the “Property”) from a third-party seller (the “Seller”).

The Property includes the building with 128,582 square feet of gross leasable area on 6.08 acres of land.

2.2 Acquisition Date

The effective date of the acquisition of the Property was December 29, 2020 (the “Closing Date”). The date of the acquisition for accounting purposes is the Closing Date.

2.3 Consideration

The purchase price of $18,750,000 for the Property (exclusive of closing and transaction costs) was satisfied with: (i) a $5,000,000 payment in 20,000,000 shares of the Company, (ii) $8,450,000 assumption of mortgage by the Company, and the balance (iii) $5,300,000 in a vendor take back loan.

Concurrently with the closing of the acquisitions, Parkit completed a nonbrokered private placement offering of 40,000,000 common shares at a price of $0.25 per common share, for gross proceeds of $10,000,000 (the "Private Placement"). The net proceeds of the Private Placement will be used for future acquisitions, expansions, and general working capital. The securities issued in connection with the Private Placement were issued pursuant to applicable exemptions from the prospectus requirements under applicable securities laws. Such securities are subject to a four month hold period which will expire on April 30, 2021.

Further information about the acquisition can be found in the Company's press releases dated November 24, 2020 and December 29, 2020, the Purchase Agreement dated November 24, 2020 and the Company's material change reports dated December 4, 2020 and December 30, 2020, copies of which have been filed under the Company’s profile on SEDAR at www.sedar.com.

2.4 Effect on Financial Position

The Company has no current plans or proposals for material changes in its business affairs or the affairs of the Property which may have a significant effect on the results of operations and financial position of the Company and, in particular, there are no current proposals to liquidate the Property, to sell, lease or exchange all or a substantial part of its assets, to amalgamate its business with any other business organization or to make any material changes to the Company’s business or the Property such as changes in corporate structure, management or personnel.

2.5 Prior Valuations

Not applicable.

2.6 Parties to Transaction

The Company indirectly acquired the Property from the Seller. The transaction was not with an “informed person” (as such term is defined in Section 1.1 of National Instrument 51-102 – Continuous Disclosure Obligations ), associate or affiliate of the Company.

2.7 Date of Report

This report is dated March 17, 2021.

Item 3 Financial Statements

The following have been included with this report:

Schedule A: Audited Property Carve-out Financial Statements for the year ended October 31, 2020

SCHEDULE "A"

5600 Finch Ave East Carve-out Financial Statements for the year ended October 31, 2020

(see attached)

Carve-out Financial Statements (In Canadian dollars)

5600 Finch Ave East

For the year ended October 31, 2020

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Baker Tilly WM LLP 1500 - 401 Bay Street Toronto, Ontario Canada M5H 2Y4 T: +1 416.368.7990 F: +1 416.368.0886

toronto@bakertilly.ca www.bakertilly.ca

Independent Auditor’s Report To the Directors of Parkit Enterprise Inc.

Opinion

We have audited the carve-out financial statements of 5600 Finch Avenue East, Toronto, Ontario (the “Property”), which comprise the carve-out statement of financial position as at October 31, 2020, and the carve-out statement of net income and comprehensive income, carve-out statement of changes in net owner investment and carve-out statement of cash flows for the year then ended, and notes to the carveout financial statements, including a summary of significant accounting policies.

In our opinion, the accompanying carve-out financial statements present fairly, in all material respects, the carve-out financial position of the Property as at October 31, 2020, and the results of its carve-out operations and its carve-out cash flows for the year then ended in accordance with International Financial Reporting Standards (“IFRS”).

Basis for Opinion

We conducted our audit in accordance with the Canadian generally accepted auditing standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Carve-Out Financial Statements section of our report. We are independent of the Property in accordance with the ethical requirements that are relevant to our audit of the carve-out 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 Matter - Comparative Information

The accompanying carve-out statement of financial position of the Property as at October 31, 2019 and the carve-out statement of net income and comprehensive income, carve-out statement of changes in net owner investment and carve-out statement of cash flows for the year ended October 31, 2019 are unaudited and were not subject to a review engagement or an audit engagement, and accordingly, we do not express an opinion or any other form of assurance on the comparative figures.

Responsibilities of Management for the Carve-out Financial Statements

Management is responsible for the preparation and fair presentation of these carve-out financial statements in accordance with IFRS, and for such internal control as management determines is necessary to enable the preparation of carve-out financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the carve-out financial statements, management is responsible for assessing the Property’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 Property or to cease operations, or has no realistic alternative but to do so.

ASSURANCE • TAX • ADVISORY

Baker Tilly WM LLP is a member of Baker Tilly Canada Cooperative, which is a member of the global network of Baker Tilly International Limited. All members of Baker Tilly Canada Cooperative and Baker Tilly International Limited are separate and independent legal entities.

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Those charged with governance are responsible for overseeing the Property’s financial reporting process.

Auditor’s Responsibilities for the Audit of the Carve-out Financial Statements

Our objectives are to obtain reasonable assurance about whether these carve-out 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 carve-out financial statements.

As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain skepticism throughout the audit. We also:

• Identify and assess the risks of material misstatement of the carve-out 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 Property’s internal control.

• 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 Property’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 carve-out 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 Property to cease to continue as a going concern.

• Evaluate the overall presentation, structure and content of the carve-out financial statements, including the disclosures, and whether the carve-out financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

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.

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Chartered Professional Accountants Licensed Public Accountants

Toronto, Ontario March 17, 2021

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5600 FINCH AVE EAST

Carve-out Statement of Financial Position

(In Canadian dollars) as at

5600 FINCH AVE EAST Carve-out Statement of Financial Position (In Canadian dollars) as at
	October 31, 2020		October	31, 2019
			(Unaudited)
Assets
Non-current asset:
Investment property (note 5)	$	18,750,000	$	18,500,000
Current asset:
Prepaid property tax		31,245		31,783
Due from third-partyseller		88,913		88,913
		120,158		120,696
Total assets	$	18,870,158	$	18,620,696
Liabilities and Owner Equity
Non-current liabilities:
Mortgages payable (note 7)	$	8,220,122	$	11,616,749
Securitydeposits		88,913		88,913
		8,309,035		11,705,662
Current liabilities:
Mortgages payable (note 7)		3,413,027		203,835
Amountspayable and accrued liabilities(note 6)		30,173		30,837
		3,443,200		234,672
Total liabilities		11,752,235		11,940,334
Net owner investment		7,117,923		6,680,362
Total liabilities and net owner investment	$	18,870,158	$	18,620,696

Commitments and Contingencies (note 10)

Approved by the Board of Directors

“Avi Geller” signed “Iqbal Khan” signed

See accompanying notes to carve-out financial statements.

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5600 FINCH AVE EAST

Carve-out Statement of Net Income and Comprehensive Income

(In Canadian dollars)

		Year	ended	ended
		October 31,
		2020		2019
				(Unaudited)
Investment property revenue (note 8)	$	1,009,892	$	932,493
Expenses (income):
Operating		248,699		247,240
Fair value increase to investment property (note 5)		(222,292)		(241,547)
Finance costs (note 9)		659,351		606,101
Net income and comprehensive income	$	324,134	$	320,699

See accompanying notes to carve-out financial statements.

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5600 FINCH AVE EAST

Carve-out Statement of Changes in Net Owner Investment

(In Canadian dollars)

Balance as at October 31, 2018 (Unaudited)	$	13,882,102
Net income and comprehensive income (Unaudited)		320,699
Distribution to owner(Unaudited)		(7,522,439)
Balance as at October 31, 2019 (Unaudited)		6,680,362
Net income and comprehensive income		324,134
Contributions from owner		113,427
Balance as at October31,2020	$	7,117,923

See accompanying notes to carve-out financial statements.

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5600 FINCH AVE EAST

Carve-Out Statement of Cash Flows

(In Canadian dollars)

		Year	Year	ended
		October 31,
		2020		2019
				(Unaudited)
Cash flows from operating activities:
Net income	$	324,134	$	320,699
Finance costs (note 9)		659,351		606,101
Increase in fair value of investment property (note 5)		(222,292)		(241,547)
Adjustments for movements in working capital:
Decrease inprepaidpropertytax		538		30,724
Cash provided by operating activities		761,731		715,977
Cash flows from financing activities:
Repayment of mortgages payable		(203,835)		(147,083)
Repayment of business operating line		-		(4,400,000)
Proceeds from mortgage		-		12,000,000
Payment of finance costs		(643,615)		(638,002)
(Distribution to)contribution from owner		113,427		(7,522,439)
Cash used in financing activities		(734,023)		(707,524)
Cash flows from investing activities:
Additions to investmentproperty, includinglease incentives(note 5)		(27,708)		(8,453)
Cash used in investing activities		(27,708)		(8,453)
(Decrease) increase in cash		-		-
Cash,beginningofyear(Unaudited)		-		-
Cash, end of year	$	-	$	-

See accompanying notes to carve-out financial statements.

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5600 FINCH AVE EAST

Notes to Carve-out Financial Statements (continued) (In Canadian dollars) For the year ended October 31, 2020

1. General information

5600 Finch Ave East ("the Property") as presented in these carve-out financial statements is not a legal entity. It represents the carve-out of an industrial building, land, and related rental activities located at 5600 Finch Ave East in Toronto, Ontario, Canada. Effective December 29, 2020, Parkit Enterprise Inc. (“the Company”) acquired control of the investment property included in the Property financial statements. Subsequent to that date, the financial position, and results of operations of the Property are reported in the financial statements of the Company.

2. Basis of presentation

(a) Statement of compliance:

These carve-out financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) including IFRS 1, First-time Adoption of IFRS, as issued by the International Accounting Standards Board ("IASB").

These are the first set of financial statements being prepared in accordance with IFRS, and the Property adopted IFRS in accordance with IFRS 1, First-Time Adoption of International Reporting Standards. An explanation or reconciliation of how the transition to IFRS has affected the Property’s carve-out financial position, performance, and cash flows has not been presented as management of the property (“the Management”) has not presented carve-out financial statements in previous years for the Property under Canadian GAAP before for general use and distribution. The date of transition to IFRS was November 1, 2018.

(b) Basis of measurement and presentation:

These carve-out financial statements have been prepared on a carve-out basis from the financial statements of the third-party seller (“the Seller”) of these properties to account solely for the properties which were acquired by the Company on December 29, 2020. In particular, these carve-out financial statements have been prepared for the specific purpose of reporting on the assets, liabilities, revenues, expenses, and the net owner investment in the net assets of the Property for inclusion in the Business Acquisition Report to be filed with the Ontario Securities Commission under National Instrument 51-102. These carve-out financial statements present the financial position, results of operations and cash flows of the Property for the periods presented and have been prepared as if the Property had been accounted for on a standalone basis.

These carve-out financial statements are not necessarily indicative of the results that would have been attained if the Property had been operated as a separate legal entity during the periods presented and are not necessarily indicative of future operating results.

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5600 FINCH AVE EAST

Notes to Carve-out Financial Statements (continued) (In Canadian dollars) For the year ended October 31, 2020

Basis of Measurement

These carve-out financial statements have been prepared on a historical cost basis except for the investment property which is measured at fair value. The carve-out financial statements are presented in Canadian dollars, which is also the functional currency of the Property.

Basis of Presentation

Management holds its interest in the Property in limited liability companies (“LLCs”) which are commonly managed by the Seller.

These carve-out financial statements were authorized for issue by the board of directors of the Company (the “Board of Directors”) on March 17, 2021.

3. Significant accounting policies

• (a) Due from third-party seller:

Due from third-party seller pertains to funds for security deposits received from tenants by the Seller.

(b) Investment property:

The investment property is initially recorded at cost, including related transaction costs in the case of asset acquisitions, and includes primarily industrial investment property held to earn rental revenue and/or for capital appreciation. The Management has selected the fair value method of accounting to account for real estate classified as investment property. As such, subsequent to initial recognition, the investment property is carried at fair value, with gains and losses arising from changes in fair value recognized in the carve-out statements of net income and comprehensive income during the year in which they arise.

The investment property includes land, buildings, improvements to investment property and all direct leasing costs incurred in obtaining and retaining property tenants.

Capital expenditures, including tenant improvements, are added to the carrying value of the investment property only when it is probable that future economic benefits will flow to the investment property and cost can be measured reliably. Repairs and maintenance expenditures are expensed when incurred.

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5600 FINCH AVE EAST

Notes to Carve-out Financial Statements (continued) (In Canadian dollars) For the year ended October 31, 2020

(c) Fair value measurement:

Management measures non-financial assets, such as investment property, 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.

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 considers 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.

Management 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

• 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 at fair value in the financial statements on a recurring basis, Management 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.

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5600 FINCH AVE EAST

Notes to Carve-out Financial Statements (continued) (In Canadian dollars) For the year ended October 31, 2020

For the purpose of fair value disclosures, Management 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.

(d) Revenue recognition:

Management accounts for tenant leases as operating leases given that it has retained substantially all of the risks and benefits of ownership of its investment property.

Revenue from investment property includes base rents that each tenant pays in accordance with the terms of its respective lease, recoveries of operating expenses, including property taxes, common area maintenance, lease termination fees and other incidental income. Revenue recognition under a lease commences when the tenant has the right to use the investment property.

The total amount of contractual rent to be received from operating leases is recognized on a straight-line basis over the term of the lease, resulting in an accrual recording the cumulative difference between the rental revenue as recorded on a straight-line basis and rents received from tenants in accordance with their respective lease terms. This accrual is presented as a straight-line rent receivable and forms a component of investment property.

Recoveries of operating expenses from tenants are recognized as revenue in accordance with the terms of the underlying leases, which is generally in the year in which the corresponding costs are incurred. Other revenue is recorded at the time the service is provided.

An allowance for doubtful accounts is maintained for estimated losses resulting from the inability of tenants to meet the contractual obligations under their lease agreements. Such allowances are reviewed periodically based on the recovery experience of the Property and the creditworthiness of the tenants.

(e) Financial instruments:

• (i) Designation of financial instruments:

The following summarizes the Property's measurement of financial assets and financial liabilities:

Financial assets and liabilities	Measurement
Due from third-party seller	Amortized cost
Mortgages payable	Amortized cost
Security deposits	Amortized cost
Amounts payables and accrued liabilities	Amortized cost

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5600 FINCH AVE EAST

Notes to Carve-out Financial Statements (continued) (In Canadian dollars) For the year ended October 31, 2020

(ii) Financial assets:

Financial assets are classified and measured based on amortized cost. Transaction costs that are directly attributable to the acquisition of a financial asset, are accounted for as part of the respective asset’s carrying value at inception and amortized over the expected life of the financial instrument using the effective interest method.

An allowance for expected credit losses (“ECL”) is recognized at each statement of financial position date for all financial assets measured at amortized cost. The ECL model requires considerable judgment, including consideration of how changes in economic factors affect ECLs, which are determined on a probability-weighted basis.

The carrying amount of the financial asset is reduced through an allowance account, and the amount of the loss is recognized in the carve-out statements of net income and comprehensive income within investment property operating expenses. Bad debt writeoffs occur when management determines collection is not possible. Any subsequent recoveries of amounts previously written off are credited against investment property operating expenses in the carve-out statements of net income and comprehensive income.

(iii) Financial liabilities:

Financial liabilities are classified on initial recognition as other liabilities measured at amortized cost. Borrowings are initially recognized on the date they are originated. All other financial liabilities are recognized initially on the trade date at which the Property becomes party to the contractual provisions of the instrument. Mortgages payable and other financial liabilities are initially recognized at fair value less directly attributable transaction costs. Subsequent to initial recognition, these financial liabilities are recognized at amortized cost using the effective interest rate method.

The Property derecognizes a financial liability when its contractual obligations are discharged, cancelled, or expired.

(iv) Finance costs:

Finance costs include interest expense on debt and amortization associated with financing costs incurred in connection with obtaining long-term financings. Financing costs incurred are amortized using the effective interest rate method over the term of the related debt. Financing costs incurred are fully amortized when debt is retired before maturity.

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5600 FINCH AVE EAST

Notes to Carve-out Financial Statements (continued) (In Canadian dollars) For the year ended October 31, 2020

(f) Income taxes:

No provision for income taxes has been recorded in the accompanying carve-out financial statements. The property held is wholly owned with the net owner investment in the Property subject to the necessary tax reporting and earnings obligations from the Property’s earnings. The Sellers tax returns, and the amounts of allocable income or loss are subject to examination by taxing authorities. If such examinations result in changes to income tax or loss, the tax liability of those entitled to the net owner investment of the Property could be changed accordingly.

Management evaluates the uncertainties of tax positions taken or expected to be taken on a return based on the probability of whether the position taken will be sustained upon examination by tax authorities. As at October 31, 2020 and 2019 (Unaudited), the Property had no amounts related to unrecognized income tax benefits and no amounts related to the accrued interest and penalties. Management recognizes tax positions taken or to be taken in a tax return when they become probable. Management concluded that it has no material uncertain tax liabilities to be recognized as of October 31, 2020 or 2019 (Unaudited).

(g) Critical accounting judgments, estimates and assumptions

Preparing the carve-out financial statements requires management to make judgments, estimates and assumptions in the application of the policies outlined above. Management bases its judgments and estimates on historical experience and other factors it believes to be reasonable under the circumstances. However, uncertainty about these assumptions and estimates could result in outcomes that could require a material adjustment to the carrying amount of the asset or the liability affected in the future.

(h) Critical accounting judgments

The following are the critical judgments used in applying Property’s accounting policies that have the most significant effect on the amounts in the carve-out financial statements:

(a) Investment property:

Management makes judgments with respect to whether lease incentives provided in connection with a lease enhance the value of the leased space, which determines whether or not such amounts are treated as tenant improvements and added to investment properties. Lease incentives, such as cash, rent-free periods, and lesseeor lessor-owned improvements, may be provided to lessees to enter into an operating lease. Lease incentives that do not provide benefits beyond the initial lease term are amortized as a reduction of rental revenue on a straight-line basis over the term of the lease.

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5600 FINCH AVE EAST

Notes to Carve-out Financial Statements (continued) (In Canadian dollars) For the year ended October 31, 2020

Judgment is also applied in determining whether improvements to the investment property and costs incurred in obtaining and retaining property tenants are additions to the carrying amounts of the investment property.

• (b) Leases:

Management uses judgment in determining whether certain leases, in particular those with long contractual terms where the lessee is the sole tenant in an investment property where the Property is the lessor and long-term ground leases, are operating or finance leases. Management has determined that all of its leases are operating leases as the Property has retained substantially all of the risks and benefits of ownership.

• (i) Estimates and assumptions:

Critical assumptions relating to the estimates of fair values of investment property include discount rates that reflect current market uncertainties and capitalization rates. If there is any change in these assumptions (refer to note 5 for additional disclosure on the sensitivity of the assumptions) or regional, national, or international economic conditions, the fair value of investment property may change materially.

4. New accounting pronouncements

In the current period, the Property has applied the below amendments to IFRS Standards and Interpretations issued by the International Accounting Standards Board (“IASB”) that are effective for an annual period that begins on or after January 1, 2019. The Property adopted IFRS 16 Leases, on November 1, 2019 and the adoption did not have any material impact on the disclosures or on the amounts reported in these carve-out financial statements as the guidance for lessors remained substantially unchanged from IAS 17, Leases. Additionally, other new standards and interpretations listed below that were effective, did not have any material impact on the disclosures or on the amounts reported in these financial statements.

• i. IFRS 3 and IFRS 11 – Amendments resulting from Annual Improvements 2015 – 2017 Cycle (remeasurement of previously held interests)

• ii. Amendments to IFRS 9 - Prepayment features with negative compensation and modifications of financial liabilities

• iii. IAS 12 - Amendments resulting from Annual Improvements 2015–2017 Cycle (income tax consequences of dividends)

• iv. IAS 19 - Amendments regarding plan amendments, curtailments or settlements

• v. IAS 23 - Amendments resulting from Annual Improvements 2015–2017 Cycle (borrowing costs eligible for capitalization)

• vi. IAS 28 - Amendments regarding long-term interests in associates and joint ventures

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5600 FINCH AVE EAST

Notes to Carve-out Financial Statements (continued) (In Canadian dollars) For the year ended October 31, 2020

New and revised IFRS Standards in issue but not yet effective

At the date of approval of these financial statements, Management has not applied the following new and revised IFRS Standards that have been issued but are not yet effective:

• Amendments to References to the Conceptual Framework in IFRS Standards

• Amendments to IAS 1 and IAS 8 - Definition of material

• IFRS 9, IAS 39, and IFRS 7 - Interest rate benchmark reform amendments

• IFRS 17 Insurance Contracts

• IFRS 10 and IAS 28 (amendments) - Sale or Contribution of Assets between an Investor and its Associate or Joint Venture

• Amendments to IAS 1 - Classification of Liabilities as Current or Non-current

• Amendments to IFRS 3 - Definition of a business and Reference to the Conceptual Framework

• Amendments to IAS 16 Property, Plant and Equipment—Proceeds before Intended Use

• Amendments to IAS 37 Onerous Contracts – Cost of Fulfilling a Contract

• Annual Improvements to IFRS Standards 2018-2020 Cycle - Amendments to IFRS 1 Firsttime Adoption of International Financial Reporting Standards, IFRS 9 Financial Instruments, IFRS 16 Leases, and IAS 41 Agriculture

• Annual Improvements to IFRS Standards 2018–2020 – Amendments to IFRS 1 First-time Adoption of International Financial Reporting Standards, IFRS 9 Financial Instruments, IFRS 16 Leases and IAS 41 Agriculture

It is not expected that the adoption of the Standards listed above will have a material impact on the carve-out financial statements of the Property.

5. Investment property

The reconciliation of the carrying amount of the investment property for the years ended October 31, 2020 and 2019 are set out below:

		2020		2019
				(Unaudited)
Balance, beginning of period (Unaudited)	$	18,500,000	$	18,250,000
Additions to investment property		27,708		8,453
Fair value increase to investment property		222,292		241,547
	$	18,750,000		$18,500,000

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5600 FINCH AVE EAST

Notes to Carve-out Financial Statements (continued) (In Canadian dollars) For the year ended October 31, 2020

The investment property includes the current fair value of the land, building, improvements to the investment property, all direct leasing costs incurred in obtaining and retaining property tenants and investment property under development. Management determines the fair value of an investment property at the end of each reporting period by preparing a valuation using an average of two methods, one being a direct comparison approach, wherein the value is based on the price per square foot of comparable property transactions, the other being the discounted cash flow model, which discounts the expected future cash flows, including a terminal value, based on the application of a terminal capitalization rate to the assumed final year's estimated cash flows, and reviewing the key assumptions and updating the value for changes in the property cash flow, physical condition and changes in market conditions. Refer to note 11 for the fair value hierarchy of the investment property measured at fair value in the carve-out statements of financial position.

The key valuation metrics for investment property is set out below:

	October	31,	2020	October 31, 2019
				(Unaudited)
Weighted average terminal capitalization rate			4.75%	4.75%
Weighted average discount rate			5.25%	5.25%

The fair value of the investment property is most sensitive to changes in the discount and terminal capitalization rates. Changes in the terminal capitalization rates and discount rates would result in a change to the fair value of the investment property as set out below as at October 31, 2020:

Weighted average terminal capitalization rate:		(Decrease)/ Increase
25-basis point increase	$	(650,362)
25-basis point decrease	$	695,126
Weighted average discount rate:
25-basis point increase	$	(381,857)
25-basis point decrease	$	365,032

6. Amounts payable and accrued liabilities

Amounts payable and accrued liabilities consist of the following as at October 31, 2020 and 2019:

		2020		2019
			(Unaudited)
Accrued interest	$	30,173	$	30,837
	$	30,173	$	30,837

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5600 FINCH AVE EAST

Notes to Carve-out Financial Statements (continued) (In Canadian dollars) For the year ended October 31, 2020

7. Mortgages payable

Mortgages payable consist of the following as at October 31, 2020 and 2019:

		2020		2019
				(Unaudited)
Mortgage (a)	$	8,449,082	$	8,652,917
Second Mortgage (b)		3,200,000		3,200,000
Mortgages payable	$	11,649,082	$	11,852,917
Financingcosts,net		(15,933)		(32,333)
Carrying value		11,633,149		11,820,584
Less current portion		(3,413,027)		(203,835)
Long-termportion	$	8,220,122	$	11,616,749

Mortgages payable that are due and payable within 12 months after the date of the carve-out statements of financial position presented, including scheduled principal payments on the mortgages payable, are classified as current liabilities.

• (a) The mortgage is collateralized by a first charge on the Property. As at October 31, 2020 and 2019, mortgages payable bore interest at 4.46% per annum (2019 – 4.46% per annum). The mortgage term is 5 years and amortization term is 25 years with instalments payable monthly.

Future contractual cash flows of mortgage principal and interest are as follows as at October 31, 2020:

			Principal			Interest		Total
			Payments			Payments		Payments
2021		$	213,027	$		369,094	$	582,121
2022	and onwards		8,236,055			90,789		8,326,844
		$	8,449,082		$	459,883	$	8,908,965

• (b) The second mortgage is collateralized by a second charge on the Property and is guaranteed by a related party (controlling party). The interest rate to the mortgage is 8.25% per annum calculated monthly. Interest only payments are payable monthly for a term of 24 months, with the principal amount due in January 2021. The carrying amount of $ 3,200,000 has been classified as current.

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5600 FINCH AVE EAST

Notes to Carve-out Financial Statements (continued) (In Canadian dollars) For the year ended October 31, 2020

8. Investment Property Revenue

Management enters into long-term lease contracts with tenants for space in its Property. Leases generally provide for the tenant to pay base rent, with provisions for contractual increases in base rent over the term of the lease, plus operating costs, property tax and insurance recoveries. Revenues earned are recorded for the years ended October 31, 2020 and 2019 as follows:

		2020		2019
				(Unaudited)
Base rent	$	745,926	$	668,918
Recovery of property operating expenses		263,966		263,575
	$	1,009,892	$	932,493

Management leases its investment property to tenants under non-cancellable operating leases. The leases have various terms, escalation clauses and renewal rights as well as early termination fees.

One tenant accounted for more than 76% of the Property’s total rental revenue for the years ended October 31, 2020 (2019 – 73% (Unaudited)).

9. Finance costs

Finance costs incurred and charged to net income and comprehensive income for the years ended October 31, 2020 and 2019 are recorded as follows:

		2020		2019
				(Unaudited)
Interest on debt	$	642,951	$	592,434
Amortization of financing costs		16,400		13,667
	$	659,351	$	606,101

10. Commitment and contingencies

The Property is subject to claims and legal actions that arise in the ordinary course of business. It is the opinion of management that any ultimate liability that may arise from such matters would not have a significant adverse effect on the carve-out financial statements of the Property.

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5600 FINCH AVE EAST

Notes to Carve-out Financial Statements (continued) (In Canadian dollars) For the year ended October 31, 2020

11. Fair value measurement

The following table represents the fair value hierarchy of assets and liabilities measured at fair value in the carve-out statements of financial position after initial recognition as at October 31, 2020 and 2019:

	Level 1	Level 2	Level 3	Total
As at October 31, 2020
Assets:
Investment property	-	-	18,750,000	18,750,000
	Level 1	Level 2	Level 3	Total
As at October 31, 2019
(Unaudited)
Assets:
Investment property	-	-	18,500,000	18,500,000

The Property’s other financial assets and liabilities consisting of due from third-party seller, amounts payable and accrued liabilities are measured at amortized cost and their carrying value approximated fair value due to their short-term nature.

12. Capital management

The Property’s capital consists of net owner investment. The Property invests its capital to achieve its business objectives and to generate an acceptable long-term return to the Property’s investors. Primary uses of capital include property acquisition, capital improvements, funding leasing costs, debt principal repayments and distributions from net owner investment.

The Property’s principal objective with respect to debt financing is to minimize its overall borrowing costs while maintaining balance in its maturity schedule and diversity in its lender base. The actual level and type of future financings to fund the Property’s capital obligations will be determined based on prevailing interest rates, various costs of debt and/or equity capital, capital market conditions and management’s general view of the appropriate leverage for the business. The Property had no changes in its approach to capital management during the years ended October 31, 2020 and 2019 (Unaudited).

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5600 FINCH AVE EAST

Notes to Carve-out Financial Statements (continued) (In Canadian dollars) For the year ended October 31, 2020

13. Financial risk management

The Property’s activities expose it to market risk, credit risk and liquidity risk. Risk management is carried out by management of the Property.

• (a) Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk consists of interest rate risk, currency risk and other market price risk. There is interest rate risk associated with the Property's fixed interest rate mortgages payable due to the expected requirement to refinance such mortgages payable in the year of maturity. In order to manage exposure to interest rate risk, the Property endeavors to manage maturities of fixed interest rate mortgages payable and match the nature of the mortgages payable with the cash flow characteristics of the underlying asset. This risk is also minimized through the Property having mortgages payable in fixed term arrangements.

There is no interest rate risk associated with variable rate debt.

The Property has no material exposure to currency risk.

• (b) Credit risk arises from the possibility that tenants in investment property may not fulfill their lease or contractual obligations. The Property mitigates its credit risks by attracting tenants of sound financial standing and by diversifying its mix of tenants. It also monitors tenant payment patterns and discusses potential tenant issues with property managers on a regular basis. The carrying amount of financial assets represents the maximum credit exposure.

• (c) Liquidity risk is the risk that the Property will encounter difficulty in meeting obligations associated with the maturity of financial obligations. The Property manages maturities of the fixed interest rate mortgages payable and monitors the repayment dates to ensure sufficient capital will be available to cover obligations.

14. Subsequent events

Management has evaluated subsequent events from the carve-out financial position date through March 17, 2021, the date at which these carve-out financial statements were authorized for issue. The subsequent events include the acquisition of the Property by the Company on December 29, 2020 as discussed in Note 1. In addition, on January 1, 2021, the second mortgage amounting to $3,200,000 was discharged. The financing of the mortgage post the discharge is no longer directly related to the property.

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