Dominion Energy
Annual Report 2015

Plain-text annual report

2015 Annual Report D R E A M O F F I C E R E I T 2 0 1 5 A N N U A L R E P O R T Dream Office REIT owns well-located, high-quality central business district and suburban office properties in major urban centres across Canada. Its portfolio is well diversified by geographic location and tenant mix. Cover image: State Street Financial Centre, Toronto, ON Letter to Unitholders P. Jane Gavan Chief Executive Officer 2015 was a challenging year for Canadian Office REITs, in particular those with exposure to the Alberta market, which continued to be impacted by record-low oil prices. Our focus on retaining and attracting new tenants enabled us to maintain strong leasing momentum through 2015, which accelerated in the latter part of the year and into 2016. We achieved an overall tenant retention ratio of 62%, completing 1.7 million square feet of renewals in 2015. In-place and committed occupancy remained above 91%, and continued to outperform the national industry average. Looking ahead, we have made excellent progress on our 2016 and 2017 leasing. To date, we have addressed over two- thirds of our 2016 lease expiries. By volume, this represents over 100% of the total leasing completed in 2015 and is the highest level of pre-leasing completed over the past five years. For Alberta, we have lease commitments in place for nearly two-thirds of our 2016 lease maturities. With respect to our 2017 lease expiries, we have already addressed approximately one-fifth of all maturities. In 2015, we embarked on a $75 million capital expenditure program to proactively invest in our buildings to improve tenant retention, attract tenants and reduce energy costs. This was the largest annual investment we have made and reflects our commitment to our tenants and to increasing the functionality and appeal of our buildings. We were also actively selling non-core assets to improve the overall quality of our portfolio. The proceeds were largely used to repurchase Trust units, as we recognized the disconnect between the private market valuations of many of our assets and the trading discount in respect of our units in the public markets. classified our portfolio into three types: core, private market and value-add. We have identified $1.2 billion of private market assets, which we intend to sell to crystallize the value for unitholders. We will use the proceeds from asset dispositions to repay debt and lower our overall leverage, making our company safer. Additionally, we have revised our distribution, eliminated our DRIP and secured an $800 million credit facility, all with the goal of providing us financial flexibility to execute on our strategic plan. As a result, we expect to have a higher quality Canadian office portfolio, supported by an industry-leading balance sheet and ample liquidity for undertaking long-term value-enhancing initiatives. While we foresee a challenging environment, we remain focused on proactively reaching out to existing tenants in renewal discussions, creatively attracting new tenants and continually improving the services we provide. We further expanded our focus on sustainability, which is integral to how we run our business and how we manage our social and environmental obligations, and recently issued our first Corporate Sustainability Report. 2016 will be an active year for the Trust and we believe that the execution of our key initiatives, in conjunction with our focus on leasing and improving our buildings, will lead to increased value for our unitholders. As always, I would like to thank you for your continued support and look forward to the upcoming year. In February 2016, we announced a multi-year strategic plan to close the valuation gap between our unit trading price and our view of the intrinsic value of the business. We have P. Jane Gavan Chief Executive Officer March 21, 2016 Portfolio at-a-Glance DECEMBER 31, 2015 Dream Office REIT owns and operates high-quality, well-located and competitively priced business premises. The portfolio comprises approximately 23 million square feet of central business district and suburban office properties located in Canada’s key office markets. High-Quality Tenants TENANT Bank of Nova Scotia Government of Canada Government of Ontario Bell Canada Telus Enbridge Pipelines Inc. State Street Trust Company Government of Saskatchewan Government of Alberta Newalta Corporation 2% NORTHWEST TERRITORIES 25% ALBERTA 5% BRITISH COLUMBIA 6% SASKATCHEWAN 5% QUÉBEC 54% ONTARIO 1% ATLANTIC CANADA 2% UNITED STATES Geographic Diversification (% of net operating income, excluding properties held for sale) OWNED AREA (%) 4.4 6.1 2.0 1.6 1.2 1.1 1.1 1.5 1.3 0.8 GROSS RENTAL REVENUE (%) 7.7 7.0 2.3 2.0 1.6 1.6 1.4 1.3 1.2 1.2 WEIGHTED AVERAGE REMAINING LEASE TERM (YEARS) 8.8 3.2 4.2 3.7 1.1 3.1 6.3 2.2 2.6 3.8 Diversified Tenant Base Net Operating Income Breakdown (excluding properties held for sale) Conservative Level of Debt (net debt-to-gross book value) 37% DIVERSIFIED 22% FINANCE & INSURANCE 8% MINING, OIL & GAS EXTRACTION 16% PUBLIC ADMINISTRATION 17% PROFESSIONAL, SCIENTIFIC & TECHNICAL SERVICES 55% 53% 51% 49% 47% 45% 20% SUBURBAN OFFICE 80% CENTRAL BUSINESS DISTRICT 47.8% 47.6% 47.5% 48.3% 2012 2013 2014 2015 91% OCCUPANCY (INCLUDING COMMITTED) IBM Corporate Park, Calgary, AB $7.3 billion TOTAL ASSETS (INCLUDING INVESTMENT IN JOINT VENTURES) Scotia Plaza Toronto 2.9x INTEREST COVERAGE RATIO 91% OCCUPANCY (INCLUDING COMMITTED) Adelaide Place, Toronto 23 million TOTAL GROSS LEASABLE AREA (SQUARE FEET) 2,175 NUMBER OF TENANTS 700 de la Gauchetière, Montréal, QC Table of Contents Management’s Discussion and Analysis Management’s Responsibility for the Consolidated Financial Statements Independent Auditor’s Report Consolidated Financial Statements Notes to the Consolidated Financial Statements Trustees Corporate Information 1 78 79 80 84 IBC IBC Management’s discussion and analysis (All dollar amounts in our tables are presented in thousands, except for rental rates, unit and per unit amounts) SECTION I – FINANCIAL HIGHLIGHTS AND OBJECTIVES FINANCIAL OVERVIEW The fourth quarter was another active quarter from a leasing, financing and dispositions perspective. During the quarter, approximately 915,700 square feet of leases commenced, compared to 759,100 square feet of leases that commenced in Q3 2015. Of the 915,700 square feet of leases that commenced during the quarter, 634,700 square feet were renewals, resulting in a tenant retention ratio of approximately 75%. To date, we continue to make good progress on securing future lease commitments, with approximately 69% of 2016 maturities leased, amounting to approximately 2.8 million square feet. Subsequent to year-end, leasing velocity has increased in the Calgary region, with three major lease commitments in Calgary downtown totalling approximately 111,400 square feet and one major lease commitment in Calgary suburban totalling 21,600 square feet. The three lease commitments in Calgary downtown include a 10.8-year lease for 55,800 square feet commencing in October 2016, a five-year lease commencing on April 1, 2016 and a ten-year lease commencing in December 2016, each comprising 27,800 square feet, respectively. The Trust has also signed a 10.5-year lease in the Calgary suburban region for 21,600 square feet effective as at January 1, 2016. In addition, we renewed or refinanced mortgages totalling $164.4 million and disposed of four non-core assets totalling $95.1 million. The fourth quarter results were better than our expectations. As at December 31, 2015, our comparative portfolio in-place occupancy was stable at 89.8% when compared to the prior quarter. During the quarter, Toronto downtown posted approximately 27,000 square feet of positive leasing absorption, representing a 50 basis points (“bps”) in-place occupancy increase, and Toronto suburban had over 53,000 square feet of positive leasing absorption, representing a 1.2% in-place occupancy increase. There were modest gains in Western and Eastern Canada while Calgary downtown and Calgary suburban experienced negative leasing absorption of 49,000 square feet and 19,100 square feet, respectively. At Q4 2015, our comparative portfolio in-place and committed occupancy was 91.3%, compared to 91.5% in Q3 2015. The decline was largely due to occupancy declines in Calgary downtown and Calgary suburban. When compared to the prior year, our comparative portfolio in-place and committed occupancy declined 1.5% from 92.8% to 91.3%. The decline was observed in all regions except for our largest market, Toronto downtown, which experienced a 70 bps increase, and our smallest market, Calgary suburban, with a 100 bps increase. Despite the decline, both our in-place and committed occupancy of 91.3% and in-place occupancy of 89.8% remain well above the industry average of 87.8% (CBRE, Canadian Market Statistics, Fourth Quarter 2015). Comparative portfolio average in-place and committed net rents across our comparative portfolio at December 31, 2015 were up $0.09 per square foot to $18.94 per square foot from $18.85 per square foot at September 30, 2015, reflecting rent uplifts in all regions except for the Calgary suburban and Toronto suburban regions. Comparative portfolio average in-place and committed net rents across our comparative portfolio at December 31, 2015 increased to $18.94 per square foot from $18.68 per square foot at December 31, 2014, reflecting rent uplifts in all regions except for Calgary suburban and Eastern Canada. Estimated average market rents continue to be above average in-place net rents by approximately 2.7%. Comparative net operating income (“NOI”) for the quarter was $111.7 million, compared to $112.6 million in Q4 2014. For the year ended December 31, 2015, comparative NOI was $447.4 million, compared to $449.9 million in the prior year comparative period. We continue to see strength in Toronto downtown, Calgary suburban and Eastern Canada, offset by declines in Western Canada, Calgary downtown and Toronto suburban. Funds from operations (“FFO”) (excluding Reorganization) for the three months and year ended December 31, 2015 was $79.7 million and $318.5 million, respectively, an increase of $1.5 million, or 1.9%, over the prior year comparative quarter and an increase of $5.7 million, or 1.8%, over the prior year comparative period. Diluted FFO (excluding Reorganization) on a per unit basis for the three months and year ended December 31, 2015 was $0.70 and $2.82, respectively, compared to $0.71 and $2.87 for the three months and year ended December 31, 2014. The modest decline when compared to the prior year comparative quarter and period was mainly due to the following reasons: • Decrease in comparative NOI; • Decrease in lease termination fees and other one-time property adjustments; • Disposition of properties; and • Incremental change in straight-line rent adjustment; Dream Office REIT 2015 Annual Report | 1 Partially offset by • General and administrative expense savings as a result of the elimination of the asset management agreement with Dream Asset Management Corporation (“DAM”) (the “Reorganization”), net of the dilution impact on issuance of 4.85 million subsidiary redeemable units to DAM pursuant to the Reorganization; • Interest rate savings upon refinancing of maturing debt; • Incremental increase in FFO from our investment in Dream Industrial REIT on a full-year basis; and • Compensation received on expropriation of a small parcel of land. Total adjusted funds from operations (“AFFO”) for the three months and year ended December 31, 2015 was $70.9 million and $281.4 million, respectively, an increase of $2.4 million, or 3.4%, over the prior year comparative quarter, and an increase of $8.4 million, or 3.1%, over the prior year comparative period. AFFO on a per unit basis for the three months and year ended December 31, 2015 was $0.62 and $2.50, respectively, a decline of one cent over the prior year comparative quarter and down two cents when compared to the prior year comparative period. The change in AFFO per unit for the three months and year ended December 31, 2015 was largely due to the same reasons as described above on the change in diluted FFO (excluding Reorganization) except for the incremental change in straight-line rent adjustment, which is added back in the determination of AFFO. We have continued our commitment to maintaining a strong and flexible balance sheet. We ended the quarter with a stable net total debt-to-gross book value ratio of 48.3%, net average debt-to-EBITDFV of 7.7 years and interest coverage ratio of 2.9 times. Our weighted average face rate of interest improved to 4.05%, compared to 4.11% at September 30, 2015 and 4.18% at December 31, 2014. The Trust’s pool of unencumbered assets was approximately $825 million as at December 31, 2015. During the quarter, the Trust was active from a financing perspective, renewing or refinancing mortgages totalling $164.4 million at an average fixed face rate of 2.94% per annum with an average term of 5.6 years. In addition, the Trust discharged mortgages totalling $162.8 million at an average face rate of 3.77% per annum with an average term of 6.0 years during the quarter. Overall, the renewals and refinancing of mortgages completed during the quarter represented interest savings of approximately 83 bps per annum over the mortgages discharged. For the three months ended December 31, 2015, the Trust has purchased for cancellation 1,203,373 REIT A Units under its normal course issuer bid (the “Bid”) at an average price of $19.19 per unit and a total cost of approximately $23.1 million (excluding transaction costs). For the year ended December 31, 2015, the Trust purchased for cancellation 4,486,473 REIT A Units under the Bid at an average price of $23.43 per unit (excluding transaction costs) and a total cost of approximately $105.1 million. Subsequent to quarter-end, the Trust purchased an additional 406,573 REIT A Units at an average price of $15.95 per unit (excluding transaction costs) and a total cost of approximately $6.5 million. On October 30, 2015, the Trust completed the sale of four properties located in Québec, totalling approximately 634,100 square feet, for gross proceeds net of adjustments and before transaction costs of $95.1 million. On February 18, 2016, the Trust announced a reduction to its monthly cash distribution from $0.18666 per unit to $0.125 per unit, or $1.50 per unit on an annualized basis, effective for the month of February 2016 distribution. The February 2016 distribution will be payable on March 15, 2016 to unitholders of record at February 29, 2016. On February 18, 2016, the Trust also announced the suspension of its Distribution Reinvestment and Unit Purchase Plan (“DRIP”) until further notice effective for the February 2016 distribution. Subsequent to year-end, the Trust has committed to a new three-year, $800 million revolving credit facility with a syndicate of major Canadian and global financial institutions with an expected closing date on or before March 4, 2016. This revolving credit facility is expected to replace the existing $171.5 million revolving credit facility due on March 5, 2016 and $183.5 million term loan facility due on August 15, 2016. The interest rate will be calculated in the form of rolling one-month bankers’ acceptances (“BAs”) bearing interest at the BA rate plus 170 bps or at the bank’s prime rate plus 70 bps. Dream Office REIT 2015 Annual Report | 2 KEY PERFORMANCE INDICATORS Performance is measured by these and other key indicators: Total Portfolio Number of properties(1) Gross leasable area (“GLA”) (1)(2) Occupancy rate – including committed (period-end)(1) Occupancy rate – in-place (period-end)(1) Average in-place and committed net rent per square foot (period-end)(1) Market rent/average in-place and committed net rent (%)(1) Comparative Portfolio Occupancy rate – including committed (period-end)(1)(3) Occupancy rate – in-place (period-end)(1)(3) Average in-place and committed net rent per square foot (period-end)(1)(3) Market rent/average in-place and committed net rent (%)(1)(3) December 31, 2015 September 30, 2015 December 31, 2014 As at 166 23,030 91.3 % 89.8 % 18.94 $ 2.7 % 91.3 % 89.8 % 18.94 $ 2.7 % 169 23,349 91.6 % 89.8 % 18.73 $ 5.0 % 91.5 % 89.7 % 18.85 $ 5.0 % 175 24,223 93.0 % 91.4 % 18.22 7.8 % 92.8 % 91.2 % 18.68 7.7 % $ $ Operating results Investment properties revenue(4) NOI(5) Comparative properties NOI(5) FFO (excluding Reorganization)(6) AFFO(7) Distributions Declared distributions DRIP participation ratio (for the period) Per unit amounts(8) Distribution rate Basic: FFO (excluding Reorganization)(6) AFFO(7) Diluted: FFO (excluding Reorganization)(6) Payout ratio (%):(9) FFO (excluding Reorganization) (basic) AFFO (basic) Three months ended December 31, 2014 2015 Year ended December 31, 2015 2014 $ $ $ 196,178 $ 108,297 111,731 79,672 70,922 205,186 $ 111,037 112,565 78,149 68,570 802,446 $ 436,579 447,383 318,511 281,445 63,335 $ 38% 62,622 $ 29% 250,656 $ 37% 0.56 $ 0.56 $ 2.24 $ 0.70 0.62 0.70 80% 90% 0.72 0.63 0.71 78% 89% 2.83 2.50 2.82 79% 90% 817,995 445,995 449,934 312,829 273,060 242,220 26% 2.24 2.88 2.52 2.87 78% 89% Dream Office REIT 2015 Annual Report | 3 Financing Weighted average effective interest rate on debt (period-end)(10) Weighted average face rate of interest on debt (period-end)(11) Interest coverage ratio (times)(12) Net average debt-to-EBITDFV (years)(12) Net debt-to-adjusted EBITDFV (years)(12) Level of debt (net total debt-to-gross book value)(12) Level of debt (net secured debt-to-gross book value)(12) Debt – average term to maturity (years) Unencumbered assets(13) Unsecured convertible and non-convertible debentures December 31, 2015 September 30, 2015 As at December 31, 2014 4.11 % 4.05 % 2.9 7.7 7.7 48.3 % 41.0 % 3.8 825,000 $ 534,097 $ 4.12 % 4.11 % 2.9 7.7 7.8 48.0 % 40.9 % 3.8 768,000 $ 534,038 $ 4.15 % 4.18 % 2.9 7.8 7.9 47.5 % 40.4 % 4.4 796,000 533,860 $ $ (1) Includes investment in joint ventures and excludes redevelopment properties and assets held for sale at period-end. (2) In thousands of square feet. (3) Comparative periods excludes properties sold and properties held for sale in Q4 2015. (4) On a non-GAAP basis as investment properties revenue includes investment in joint ventures. (5) NOI and comparative properties NOI (non-GAAP measures) – NOI is defined as total of net rental income, including the share of net rental income from investment in joint ventures and property management income, excluding net rental income from properties sold and assets held for sale. Comparative properties NOI includes the properties acquired prior to January 1, 2014 and excludes lease termination fees, one-time property adjustments, bad debt expenses, NOI of acquired properties and properties held for redevelopment, straight-line rent and amortization of lease incentives. The reconciliation of NOI to net rental income can be found in the section “Non-GAAP measures and other disclosures” under the heading “NOI”. (6) FFO (excluding Reorganization) (non-GAAP measure) – The reconciliation of FFO (excluding Reorganization) to net income can be found in the section “Our Results of Operations” under the heading “Funds from operations (excluding Reorganization) and adjusted funds from operations”. (7) AFFO (non-GAAP measure) – The reconciliation of AFFO to cash flow from operations can be found in the section “Non-GAAP measures and other disclosures” under the heading “Cash generated from operating activities to AFFO reconciliation”. (8) A description of the determination of basic and diluted amounts per unit can be found in the section “Non-GAAP measures and other disclosures” under the heading “Weighted average number of units”. (9) Payout ratio (non-GAAP measure) is calculated as the distribution rate as a percentage of basic FFO (excluding Reorganization) per unit and basic AFFO per unit. (10) Weighted average effective interest rate is calculated as the weighted average face rate of interest net of amortization of fair value adjustments and financing costs of all interest bearing debt, including debt related to investment in joint ventures, which are equity accounted. (11) Weighted average face interest rate is calculated as the weighted average face rate of all interest bearing debt, including investment in joint ventures that are equity accounted. (12) The calculation of the following non-GAAP measures – interest coverage ratio, net average debt-to-EBITDFV, net debt-to-adjusted EBITDFV and levels of debt – are included in the section “Non-GAAP measures and other disclosures”. (13) Unencumbered assets (non-GAAP measure) includes unencumbered investment properties related to wholly owned and co-owned properties and investment in joint ventures that are equity accounted. BASIS OF PRESENTATION Our discussion and analysis of the financial position and results of operations of Dream Office Real Estate Investment Trust (“Dream Office REIT” or the “Trust”) should be read in conjunction with the audited consolidated financial statements of Dream Office REIT for the year ended December 31, 2015. Unless otherwise indicated, our discussion of assets, liabilities, revenue and expenses includes our investment in joint ventures, which are equity accounted at our proportionate share of assets, liabilities, revenue and expenses. This management’s discussion and analysis (“MD&A”) is dated as at February 18, 2016. For simplicity, throughout this discussion we may make reference to the following: • “REIT A Units”, meaning the REIT Units, Series A • “REIT B Units”, meaning the REIT Units, Series B • “REIT Units”, meaning the REIT Units, Series A, and REIT Units, Series B • “LP B Units” and “subsidiary redeemable units”, meaning the LP Class B Units, Series 1 Dream Office REIT 2015 Annual Report | 4 Certain market information has been obtained from CBRE, Canadian Market Statistics, Fourth Quarter 2015, a publication prepared by a commercial firm that provides information relating to the real estate industry. Although we believe this information is reliable, its accuracy and completeness is not guaranteed. We have not independently verified this information and make no representation as to its accuracy. When we use terms such as “we”, “us” and “our”, we are referring to the Dream Office REIT and its subsidiaries. Market rents disclosed throughout the MD&A are management’s estimates and are based on current period leasing fundamentals. The current estimated market rents are at a point in time and are subject to change based on future market conditions. In addition, certain disclosure incorporated by reference into this report includes information regarding our largest tenants that has been obtained from publicly available information. We have not independently verified any such information. Certain information herein contains or incorporates comments that constitute forward-looking information within the meaning of applicable securities legislation, including but not limited to statements relating to the Trust’s objectives, strategies to achieve those objectives, the Trusts’ beliefs, plans, estimates, projections and intentions, and similar statements concerning anticipated future events, future growth, results of operations, performance, business prospects and opportunities, acquisitions or divestitures, tenant base, future maintenance and development plans and costs, capital investments, financing, the availability of financing sources, income taxes, vacancy and leasing assumptions, litigation and the real estate industry in general (including statements regarding our Strategic Plan, our disposition targets, the timing of proposed dispositions, the use of proceeds from dispositions, the timing of closing of our revolving credit facility, proposed debt repayments and unit repurchases and anticipating interest savings), in each case that are not historical facts. Forward-looking statements generally can be identified by words such as “outlook”, “objective”, “may”, “will”, “would”, “expect”, “intend”, “estimate”, “anticipate”, “believe”, “should”, “could”, “likely”, “plan”, “project”, “budget” or “continue” or similar expressions suggesting future outcomes or events. Forward-looking information is based on a number of assumptions and is subject to a number of risks and uncertainties, many of which are beyond Dream Office REIT’s control, which could cause actual results to differ materially from those disclosed in or implied by such forward-looking information. These risks and uncertainties include, but are not limited to, general and local economic and business conditions; the financial condition of tenants; our ability to execute our Strategic Plan and achieve its expected benefits; our ability to refinance maturing debt; our ability to sell investment properties at a price which reflects fair value; leasing risks, including those associated with the ability to lease vacant space; our ability to source and complete accretive acquisitions; and interest rates. Although the forward-looking statements contained in this MD&A are based on what we believe are reasonable assumptions, there can be no assurance that actual results will be consistent with these forward-looking statements. Forward-looking information is disclosed in this MD&A as part of the sections “Our Objectives”, “Our Strategy”, and “Our Results of Operations” under the heading “Adjusted funds from operations”. Factors that could cause actual results to differ materially from those set forth in the forward-looking statements and information include, but are not limited to, general economic conditions; local real estate conditions, including the development of properties in close proximity to the Trust’s properties; timely leasing of vacant space and re-leasing of occupied space upon expiration; dependence on tenants’ financial condition; the uncertainties of acquisition activity; the ability to effectively integrate acquisitions; interest rates; availability of equity and debt financing; our continued compliance with the real estate investment trust (“REIT”) exception under the specified investment flow-through trust (“SIFT”) legislation; and other risks and factors described from time to time in the documents filed by the Trust with securities regulators. All forward-looking information is as of February 18, 2016. Dream Office REIT does not undertake to update any such forward- looking information whether as a result of new information, future events or otherwise, except as required by applicable law. Additional information about these assumptions, risks and uncertainties is contained in our filings with securities regulators, including our latest Annual Report and Annual Information Form. Certain filings are also available on our website at www.dreamofficereit.ca. Dream Office REIT 2015 Annual Report | 5 OUR OBJECTIVES We have been committed to: • Managing our business to provide stable and growing cash flows and sustainable returns, through adapting our strategy and tactics to changes in the real estate industry and the economy; • Building and maintaining a diversified, growth-oriented portfolio of office properties in Canada, based on an established platform; • Providing predictable and sustainable cash distributions to unitholders and prudently managing distributions over time; and • Maintaining a REIT status that satisfies the REIT exception under the SIFT legislation in order to provide certainty to unitholders with respect to taxation of distributions. Although we remain committed to our objectives, as described below under “2016 Strategy Update” and as announced by the Trust today, we have determined that the best course of action is for the Trust to execute a mandate similar to that of a real estate private equity fund, to attempt to reduce the approximately 50% discount to equity (or “net asset value”). Distributions For the three months ended December 31, 2015, approximately 38% of our total units were enrolled in the DRIP. There is no equivalent program for the REIT B Units (for a description of distributions, refer to the section “Our Equity”). Annualized distribution rate Monthly distribution rate Period-end closing unit price Annualized distribution yield on period-end closing unit price (%)(1) Q4 2.24 $ Q3 2.24 $ Q2 2.24 $ 2015 Q1 2.24 $ Q4 2.24 $ Q3 2.24 $ Q2 2.24 $ 2014 Q1 2.24 0.187 $ 0.187 $ 0.187 $ 0.187 $ 0.187 $ 0.187 $ 0.187 $ 0.187 17.37 $ 21.20 $ 24.54 $ 26.35 $ 25.15 $ 27.96 $ 29.29 $ 29.06 $ $ $ 12.9 % 10.6 % 9.1 % 8.5 % 8.9 % 8.0 % 7.6 % 7.7 % (1) Annualized distribution yield is calculated as the annualized distribution rate divided by period-end closing unit price. OUR STRATEGY Dream Office REIT’s core strategy has been to invest in office properties in key markets across Canada, providing a solid platform for stable. We are the largest pure-play office REIT in Canada. The majority of our portfolio comprises central business district office properties concentrated in nine of Canada’s top ten office markets. The execution of our strategy is continuously reviewed, including acquisitions and dispositions, our capital structure and our analysis of current economic conditions – see “2016 Strategy Update” below. Our executive team is experienced, knowledgeable and highly motivated to continue to increase the value of our portfolio and provide stable, reliable returns for our unitholders. Dream Office REIT’s methodology to execute its strategy and to meet its objectives has traditionally included: Investing in high-quality office properties Dream Office REIT has an established presence in key urban markets across Canada. Our portfolio comprises high-quality office properties that are well-located and attractively priced and produce consistent cash flow. When considering acquisition opportunities, we look for quality tenancies, strong occupancy, the appeal of the property to future tenants, how it complements our existing portfolio and how we can create additional value. Optimizing the performance, value and cash flow of our portfolio We manage our properties to optimize long-term cash flow and value. With a fully internalized property manager, we offer a strong team of highly experienced real estate professionals who are focused on achieving more from our assets. Occupancy rates across our portfolio have remained steady and strong for a number of years and have been consistently above the national average. We view this as compelling evidence of the appeal of our properties and our ability to meet and exceed tenant expectations. Dream Office REIT has a proven ability to identify and execute on value-add opportunities. Dream Office REIT 2015 Annual Report | 6 Diversifying our portfolio to mitigate risk Since the credit crisis in 2008, we have carefully repositioned our portfolio through a significant number of accretive, high- quality acquisitions. In addition to expanding and diversifying our geographic footprint across the country, the acquisitions have served to enhance the stability of our business, diversify and strengthen the quality of our revenue stream and increase cash flow. Our existing tenant base is well diversified, representing a number of industries and different space requirements, and offers strong financial covenants. Our lease maturity profile is well staggered over the next five years. We may pursue opportunities for acquisitions, but only when it enhances our overall portfolio, further improves the sustainability of our distributions, strengthens our tenant profile and mitigates risk. We have experience in each of Canada’s key markets and have the flexibility to pursue acquisitions in markets that offer compelling investment opportunities. Maintaining and strengthening our conservative financial profile We have always operated our business in a disciplined manner, with a keen eye on financial analysis and balance sheet management to ensure that we maintain a prudent capital structure. Identifying opportunities within our portfolio for intensification and alternative uses We look at ways to generate additional revenue and value from our existing buildings through intensification and alternative uses, especially in our downtown buildings where urbanization allows for opportunities to increase revenue in both office and retail space. Investing capital in our portfolio The current leasing environment is challenging and requires us to look for new ways to retain tenants and increase revenue. A key to this strategy is investing capital in our buildings that improves the value and attractiveness to tenants as well as reduces operating costs. By doing so, our tenants will have a better experience at our buildings, leading to improved tenant retention, quicker leasing of available space and realization of higher rental rates. Divesting of non-core assets Dream Office REIT has an established presence in key urban markets across Canada. Our portfolio comprises high-quality office properties that are well-located and attractively priced and produce consistent cash flow. We continuously review our portfolio to identify opportunities to dispose of non-core assets, such as those that are special-purpose, peripherally located or in declining locations with lower potential for long-term income growth – see “2016 Strategy Update” below. Net proceeds from dispositions could be used to fund improvement initiatives, repay debt or buy back REIT A Units. 2016 Strategy Update We have reviewed a series of potential strategies that may surface value for the Trust’s unitholders. Based on the quality of many of the Trust's assets, the current state of economic uncertainty in Alberta and the private demand for many of the Trust ’s properties, we have determined that the best course of action is to execute a mandate similar to that of a real estate private equity fund, in an attempt to reduce the approximately 50% discount to current net asset value, through the execution of the following initiatives:  Effective with the February 2016 distribution, payable on March 15, 2016, we have revised our distribution from $2.24 per unit to $1.50 per unit, on an annualized basis, which will reflect a more conservative payout ratio of approximately 67% of 2016 analyst consensus AFFO. Concurrently, the Trust suspended the DRIP (currently at 38% participation ratio) to eliminate dilution and to preserve value.  We have received commitments from a syndicate of Canadian and global financial institutions to provide an $800 million revolving credit facility to replace the Trust’s existing credit facilities totalling $355 million. This new facility is expected to provide the Trust with operating flexibility through the execution of the strategic plan (the “Strategic Plan”) and significantly bolsters liquidity to manage the Trust’s business in the current environment.   The Trust is targeting to sell non-core assets currently valued at approximately $1.2 billion over the next three years to crystallize the value of the assets, which we anticipate will narrow the significant trading discount, which is approximately 50% to current net asset value. The Trust intends to use the proceeds from the dispositions to first pay down debt to reduce leverage and subsequently, if the current discount to net asset value persists, to reduce the number of outstanding units through repurchases under the Trust’s normal course issuer bid (“NCIB”). Dream Office REIT 2015 Annual Report | 7 We currently intend to continue the Strategic Plan until completion or the value of the Trust's units is significantly closer to the underlying net asset value. With our new $800 million revolving credit facility in place, together with our relatively low level of leverage (48% net total debt-to-gross book value) and a disposition program intended to fund further debt reductions and potentially units repurchases, we believe that the Trust will have a stronger and more flexible balance sheet. This Strategic Plan is premised on the classification of our portfolio into three types of assets (core assets, private market assets and value-add assets), with the following strategy for each:  Identification of irreplaceable assets (the “Core Assets”), currently expected to represent approximately $2.9 billion or 41% of the total portfolio value, and maintaining these as core holdings for the Trust. The Core Assets are primarily located in downtown Toronto, downtown Montréal, with 700 De la Gauchetière, 5001 Yonge in North York and Station Tower in suburban Vancouver. These assets are 97% leased with a weighted average lease term (“WALT”) of approximately six years and have an aggregate investment property value of approximately $2.9 billion as at December 31, 2015 with associated mortgages outstanding of approximately $1.2 billion. This group of assets amounts to approximately $1.7 billion of net asset value, or approximately $15.00 per unit, which approximates the Trust's recent trading prices;  We have identified good quality assets primarily in the Greater Toronto Area suburbs, Ottawa and Vancouver that management believes are fairly liquid, but not considered to be irreplaceable (the “Private Market Assets”). This classification currently is expected to represent approximately $2.6 billion or 37% of the total portfolio value, which have a higher degree of liquidity in the private market at a reasonable price. The $1.2 billion of planned disposition are expected to be from this classification; and  Active management of the balance of the assets (the “Value-Add Assets”), currently expected to represent approximately $1.5 billion or 22% of the total portfolio value, largely located in Alberta or considered value-add assets. The Value-Add Assets may require improvements in either occupancy and/or market fundamentals prior to improving their demand profile and liquidity in the private market. The hold period for these assets may extend beyond five years (longer if the market fundamentals improve), although we would expect to see some sales in the shorter term. We believe that the Trust’s assets located in Alberta are of good quality and that the current unit trading price of the Trust implies that a negative net asset value is currently being ascribed to these assets. The Trust will continue to actively stabilize these assets or wait for a change in the market conditions to realize value. OUR PROPERTIES Dream Office REIT provides high-quality, well-located and reasonably priced business premises. Our portfolio comprises central business district and suburban office properties predominantly located in major urban centres across Canada including Toronto, Calgary, Edmonton, Montréal, Ottawa and Vancouver. At December 31, 2015, our ownership interests included 170 office properties (198 buildings), which includes 166 office properties, one redevelopment property and three properties held for sale. The Trust owns approximately 23.4 million square feet of GLA, including 23.0 million square feet of office properties and 0.4 million square feet of redevelopment properties and properties held for sale. The occupancy rate across our office portfolio remains high at 91.3% at December 31, 2015, well ahead of the national industry average occupancy rate of 87.8% (CBRE, Canadian Market Statistics, Fourth Quarter 2015). Our occupancy rates include lease commitments for space that is currently being readied for occupancy but for which rent is not yet being recognized. Total portfolio(1) Western Canada Calgary – downtown Calgary – suburban Toronto – downtown Toronto – suburban Eastern Canada(2) Total Total 4,710 3,153 758 5,408 4,226 4,775 December 31, 2015 % 20 14 3 24 18 21 100 23,030 Total September 30, 2015 % 20 14 3 23 18 22 100 4,706 3,149 758 5,404 4,223 5,109 23,349 Owned GLA (in thousands of sq. ft.) December 31, 2014 Total 4,806 3,146 757 5,400 4,219 5,895 24,223 % 20 13 3 23 17 24 100 (1) Total portfolio excludes redevelopment properties and properties held for sale at the end of each period. (2) Includes two properties located in the United States. Dream Office REIT 2015 Annual Report | 8 SECTION II – EXECUTING THE STRATEGY OUR OPERATIONS The following key performance indicators related to our operations influence the cash generated from operating activities. Performance indicators Total portfolio(1) Occupancy rate – including committed (period-end) Occupancy rate – in-place (period-end) Average in-place and committed net rental rates (per sq. ft.) (period-end) Tenant maturity profile – average term to maturity (years) Comparative portfolio(2) Occupancy rate – including committed Occupancy rate – in place Average in-place and committed net rental rates (per sq. ft.) (period-end) Tenant maturity profile – average term to maturity (years) December 31, 2015 September 30, 2015 December 31, 2014 $ $ 91.3 % 89.8 % 18.94 $ 4.6 91.3 % 89.8 % 18.94 $ 4.6 91.6 % 89.8 % 18.73 $ 4.7 91.5 % 89.7 % 18.85 $ 4.7 93.0 % 91.4 % 18.22 5.0 92.8 % 91.2 % 18.68 4.7 (1) Total portfolio includes investment in joint ventures and excludes redevelopment properties and properties held for sale at the end of each period. (2) Comparative portfolio includes investment in joint ventures and excludes redevelopment properties, properties sold and properties held for sale in Q4 2015. As at December 31, 2015, our comparative portfolio in-place occupancy increased by 10 bps to 89.8% when compared to the prior quarter. During the quarter, our largest market, Toronto downtown, posted approximately 27,000 square feet of positive leasing absorption, representing a 50 bps in-place occupancy increase, and Toronto suburban had over 53,000 square feet of positive leasing absorption, representing a 1.2% in-place occupancy increase. There were modest gains in Western and Eastern Canada while Calgary downtown and Calgary suburban experienced negative leasing absorption of 49,000 square feet and 19,100 square feet, respectively. As at December 31, 2015, our comparative portfolio in-place and committed occupancy was 91.3%, compared to 91.5% in Q3 2015. The decline was largely due to occupancy declines in Calgary downtown and Calgary suburban. When compared to the prior year, our comparative portfolio in-place and committed occupancy declined 1.5% from 92.8% to 91.3%. The decline was observed in all regions except for our largest market, Toronto downtown, which experienced a 70 bps increase and our smallest market, Calgary suburban, with a 1% increase. Despite the decline, both our in-place and committed occupancy of 91.3% and in-place occupancy of 89.8% remain well above the industry average of 87.8% (CBRE, Canadian Market Statistics, Fourth Quarter 2015). (percent) Occupancy rate – including committed Western Canada Calgary – downtown Calgary – suburban Toronto – downtown Toronto – suburban Eastern Canada Total December 31, 2015 September 30, 2015 Total portfolio(1) December 31, 2014 December 31, 2015 Comparative portfolio(2) December 31, 2014 September 30, 2015 90.2 87.0 90.2 98.0 84.5 94.1 91.3 90.5 88.6 91.5 97.4 84.9 93.8 91.6 91.7 89.5 89.2 97.3 89.5 94.8 93.0 90.2 87.0 90.2 98.0 84.5 94.1 91.3 90.5 88.6 91.5 97.4 84.9 93.8 91.5 91.6 89.5 89.2 97.3 89.5 94.6 92.8 (1) Total portfolio includes investment in joint ventures and excludes redevelopment properties and properties held for sale at the end of each period. (2) Comparative portfolio includes investment in joint ventures and excludes redevelopment properties, properties sold and properties held for sale in Q4 2015. Dream Office REIT 2015 Annual Report | 9 The table below details the percentage of in-place and committed occupancy across our total portfolio and in-place occupancy for the last eight quarters compared to the national industry average in-place occupancy, demonstrating the strength and consistency of our portfolio to outperform the overall market. (percent) Occupancy rate – including committed (period-end)(1) Occupancy rate – in-place (period-end)(1) National industry average(2) Q4 91.3 89.8 87.8 Q3 91.6 89.8 88.2 Q2 92.8 91.0 88.6 2015 Q1 92.8 91.4 88.9 Q4 93.0 91.4 89.3 Q3 93.0 91.1 89.7 Q2 94.1 92.5 89.6 2014 Q1 94.2 92.5 89.7 (1) Includes investment in joint ventures and excludes redevelopment properties and properties held for sale at the end of each period. (2) National industry average in-place occupancy rates obtained from the CBRE, Canadian Market Statistics quarterly reports. Occupancy schedule The following table details the change in occupancy (including committed) for the three months and year ended December 31, 2015: Weighted Three months ended As a December 31, 2015 % of total GLA(1) in sq. ft.(1) Weighted Year ended average rate December 31, 2015 in sq. ft.(1) per sq. ft. average rate per sq. ft. $ (18.84) (15.45) 14.55 20.99 Occupancy (including committed) at beginning of period Vacancy committed for future leases Occupancy in-place at beginning of period Occupancy related to disposed properties and properties held for sale Remeasurements/reclassifications Occupancy at beginning of period – adjusted Expiries Early terminations and bankruptcies New leases Renewals Occupancy in place – December 31, 2015 Vacancy committed for future leases Occupancy (including committed) – December 31, 2015 21,382,050 (411,873 ) 20,970,177 91.6 % (1.8 )% 89.8 % (315,722 ) 884 20,655,339 (849,693 ) (45,359 ) 280,972 634,704 20,675,963 360,605 89.7 % (3.7 )% $ (0.2 )% 1.2 % 2.8 % 89.8 % 1.5 % (17.54) (16.62) 15.80 19.01 22,521,461 (382,470 ) 22,138,991 (1,147,824 ) (4,402 ) 20,986,765 (2,719,800 ) (148,576 ) 881,785 1,675,789 20,675,963 360,605 As a % of total GLA(1) 93.0 % (1.6 )% 91.4 % 91.1 % (11.8 )% (0.6 )% 3.8 % 7.3 % 89.8 % 1.5 % 21,036,568 91.3 % 21,036,568 91.3 % (1) Includes investment in joint ventures and excludes redevelopment properties and properties held for sale at period-end. During the quarter, overall comparative portfolio in-place occupancy increased by 10 bps to 89.8%. Tenants taking occupancy during the quarter included approximately 634,700 square feet of renewals and approximately 281,000 square feet of new leases, offset by approximately 849,700 square feet of lease expiries across the portfolio and approximately 45,400 square feet of early terminations and bankruptcies. At December 31, 2015, vacant space committed for future occupancy decreased from the beginning of the quarter by approximately 51,300 square feet to approximately 360,600 square feet, mainly due to previously committed space taking occupancy during the quarter. Of the total vacant space committed for future occupancy, approximately 352,000 square feet will take occupancy during 2016. Subsequent to year-end, leasing velocity has increased in the Calgary region with three major lease commitments in Calgary downtown totalling approximately 111,400 square feet and one major lease commitment in Calgary suburban totalling 21,600 square feet. The three lease commitments in Calgary downtown include a 10.8-year lease for 55,800 square feet commencing in October 2016, a five-year lease commencing on April 1, 2016 and a ten-year lease commencing in December 2016, each comprising 27,800 square feet, respectively. The Trust has also signed a 10.5-year lease in the Calgary suburban region for 21,600 square feet effective as at January 1, 2016. Dream Office REIT 2015 Annual Report | 10 Tenant retention ratio Expiring rents on renewed space (per sq. ft.) Renewal to expiring rent spread (per sq. ft.) Renewal rate (per sq. ft.) Renewal to expiring rent spread (%) Three months ended December 31, 2015 74.7 % 18.47 $ 2.52 $ 20.99 $ 13.6 % Year ended December 31, 2015 61.6 % 17.07 1.94 19.01 11.4 % $ $ $ For the three months ended December 31, 2015, our tenant retention ratio was 74.7%, with renewals completed at $20.99 per square foot, compared to expiring rents at $18.47 per square foot, for an increase of $2.52 per square foot, or 13.6%. For the year ended December 31, 2015, our tenant retention ratio was 61.6% and we completed renewals at $19.01 per square foot, compared to expiring rents at $17.07 per square foot, for an increase of $1.94 per square foot, or 11.4%. In-place net rental rates Average in-place and committed net rents across our comparative portfolio at December 31, 2015 were up $0.09 per square foot to $18.94 per square foot from $18.85 per square foot at September 30, 2015, reflecting rent uplifts in all regions except for the Calgary suburban and Toronto suburban regions. Average in-place and committed net rents across our comparative portfolio at December 31, 2015 increased to $18.94 per square foot from $18.68 per square foot at December 31, 2014, reflecting rent uplifts in all regions except for Calgary suburban and Eastern Canada. We estimate market rents with reference to recent leasing activity and external market data. We believe estimated market rents for our in-place and committed space are approximately 2.7% higher than our portfolio average. December 31, 2015(1) Market rent/ September 30, 2015(2) Market rent/ Average in-place and committed net rent (per sq. ft.) Market rent (per sq. ft.) 20.28 20.67 16.51 26.47 15.09 13.60 19.46 20.10 $ 21.60 16.69 24.39 14.79 13.41 18.94 $ $ Comparative portfolio Western Canada Calgary – downtown Calgary – suburban Toronto – downtown Toronto – suburban Eastern Canada Total $ average in-place and committed net rent (%) 0.9 $ (4.3 ) (1.1 ) 8.5 2.0 1.4 2.7 $ Average in-place and committed net rent (per sq. ft.) Market rent (per sq. ft.) 20.73 22.40 17.20 26.45 15.09 13.68 19.80 19.91 $ 21.40 17.19 24.25 14.82 13.38 18.85 $ average in-place and committed net rent (%) 4.1 $ 4.7 0.1 9.1 1.8 2.2 5.0 $ Average in-place and committed net rent (per sq. ft.) 19.86 $ 21.28 17.18 23.95 14.53 13.49 18.68 $ Market rent December 31, 2014(2) Market rent/ average in-place and committed net rent (%) 6.3 14.7 3.7 10.1 3.4 2.6 7.7 (per sq. ft.) 21.12 24.41 17.82 26.36 15.02 13.84 20.12 (1) Includes investment in joint ventures and excludes redevelopment properties and properties held for sale at period-end. (2) Comparative periods excludes redevelopment properties, properties sold and properties held for sale in Q4 2015. Market rent estimates for occupied and committed space across our comparative portfolio at December 31, 2015 decreased to $19.46 per square foot from $19.80 per square foot at September 30, 2015 and $20.12 per square foot at December 31, 2014. The spread between estimated market rents and our comparative portfolio average in-place and committed net rents has tightened over the past few quarters as we bring rents to market upon lease renewals and due to the impact of the continued downward pressure on market rents in the Calgary region and Edmonton in Western Canada, driven by softening market conditions in those regions. Dream Office REIT 2015 Annual Report | 11 Market rents – In-place occupancy and vacant space The following table details the market rents by geographic segments for the comparative portfolio, which includes both in-place occupancy and vacant space. Rent per square foot Western Canada Calgary – downtown Calgary – suburban Toronto – downtown Toronto – suburban Eastern Canada Total comparative portfolio(1) December 31, 2015 20.02 $ 20.45 16.51 26.41 14.82 13.60 19.18 $ September 30, 2015 20.44 $ 22.20 17.04 26.42 14.84 13.67 19.54 $ $ $ December 31, 2014 20.84 24.30 17.57 26.28 14.90 13.84 19.94 (1) Comparative portfolio includes investment in joint ventures and excludes redevelopment properties, properties sold and properties held for sale at Q4 2015. The overall estimated market rents for in-place and vacant space at December 31, 2015 decreased to $19.18 per square foot from $19.54 per square foot at September 30, 2015 and $19.94 per square foot at December 31, 2014. The decrease was mainly due to downward pressure on market rents in the Calgary region and Edmonton in Western Canada, resulting from softening market conditions in those regions. The remainder of the portfolio saw modest changes on a quarter-over-quarter and year-over-year basis. Leasing and tenant profile The average remaining lease term and other comparative portfolio information are detailed in the following table. The comparative portfolio average remaining lease term at December 31, 2015 is 4.6 years compared to 4.7 years at September 30, 2015 and December 31, 2014, largely reflecting the impact of new leases rolling on, offset by leases rolling off, during the period. Average remaining lease term (years) 3.4 3.6 3.5 5.7 4.3 5.6 4.6 Comparative portfolio Western Canada Calgary – downtown Calgary – suburban Toronto – downtown Toronto – suburban Eastern Canada Total Average Average December 31, 2015(1) Average Average tenant in-place and committed size (sq. ft.) 10,246 $ 10,864 6,633 10,341 10,446 16,951 11,109 $ (per sq. ft.) remaining net rent lease term (years) 3.4 3.6 3.2 5.8 4.4 5.8 4.7 20.10 21.60 16.69 24.39 14.79 13.41 18.94 tenant size September 30, 2015(2) Average in-place and Average committed remaining net rent lease term (years) 3.7 3.8 3.8 5.8 3.9 5.8 4.7 (per sq. ft.) 19.91 21.40 17.19 24.25 14.82 13.38 18.85 (sq. ft.) 10,295 $ 10,993 6,843 10,310 10,468 17,144 11,163 $ Average tenant size December 31, 2014(2) Average in-place and committed net rent (per sq. ft.) 19.86 21.28 17.18 23.95 14.53 13.49 18.68 (sq. ft.) 10,238 $ 10,857 7,067 10,519 11,071 16,904 11,323 $ (1) Includes investment in joint ventures and excludes redevelopment properties and properties held for sale at period-end. (2) Comparative periods excludes redevelopment properties, properties sold and properties held for sale in Q4 2015. The following table details our lease maturity profile, net of committed occupancy, by geographic segment at December 31, 2015. (in thousands of square feet) Western Canada Calgary – downtown Calgary – suburban Toronto – downtown Toronto – suburban Eastern Canada Total portfolio(1) Total GLA Total GLA (%) Current monthly/ short-term tenancies Vacancy 461 410 74 108 657 284 1 — — 2 — 1 2016 472 478 105 358 221 208 2017 809 311 96 782 926 546 2018 940 351 147 724 370 807 2019 559 643 50 328 309 304 2020 579 239 45 368 388 725 2021+ 889 721 241 2,738 1,355 1,900 1,994 8.7% 4 0.0 % 1,842 3,470 3,339 8.0% 15.1% 14.5% 2,193 9.5% 2,344 7,844 34.0% 10.2% Total 4,710 3,153 758 5,408 4,226 4,775 23,030 100% (1) Includes investment in joint ventures and excludes redevelopment properties and properties held for sale at period-end. Dream Office REIT 2015 Annual Report | 12 Our lease maturity profile, net of committed occupancy, remains staggered. Lease expiries, net of committed occupancy, as a percentage of total gross leasable area between 2016 and 2020, range from 8.0% to 15.1%. Expiring net rents The following table details the expiring net rent, including committed, by year and by geographic segment at December 31, 2015. (per square foot) Western Canada Calgary – downtown Calgary – suburban Toronto – downtown Toronto – suburban Eastern Canada Total portfolio(1) 2016 17.46 $ 20.72 14.10 21.89 14.11 15.09 18.30 $ 2017 21.45 $ 22.49 16.14 23.31 14.85 13.43 18.79 $ 2018 19.07 $ 24.63 20.20 24.27 15.17 16.73 19.83 $ 2019 20.27 $ 24.25 19.14 24.31 13.03 13.75 20.09 $ 2020 22.45 $ 19.06 14.65 24.57 16.43 13.21 18.43 $ 2021+ 23.35 21.46 18.73 29.09 16.97 13.35 21.52 $ $ (1) Includes investment in joint ventures and excludes redevelopment properties and properties held for sale at period-end. 2016 and 2017 lease expiry profile The following tables detail our 2016 and 2017 lease maturities, excluding current monthly and short-term tenancies that have been committed in each of the geographic segments. in thousands of square feet, except % 2016 expiries (as at December 31, 2015) Expiries committed for occupancy Expiries, net of commitments for occupancy (as at December 31, 2015) Total commitments as % of expiries (as at December 31, 2015) 2016 vacancy (as at December 31, 2015) Vacancy committed for occupancy 2016 vacancy, net of commitments for occupancy (as at December 31, 2015) Western Canada (961 ) 489 Calgary downtown (706 ) 228 Calgary suburban (127 ) 22 Toronto downtown (835 ) 477 Toronto suburban (897 ) 676 Eastern Canada (482 ) 274 Total Portfolio(1) (4,008 ) 2,166 (472 ) (478 ) (105 ) (358 ) (221 ) (208 ) (1,842 ) 50.9% (511 ) 50 32.3% (476 ) 66 17.3% (98 ) 24 57.1% (219 ) 110 75.4% (718 ) 54 56.8% (332 ) 48 54.0% (2,354 ) 352 (461 ) (410 ) (74 ) (109 ) (664 ) (284 ) (2,002 ) (1) Includes investment in joint ventures and excludes redevelopment properties and properties held for sale at period-end. As at December 31, 2015, the Trust had lease commitments of approximately 54.0% of 2016 maturities. in thousands of square feet, except % 2017 expiries (as at December 31, 2015) Expiries committed for occupancy Expiries, net of commitments for occupancy (as at December 31, 2015) Total commitments as % of expiries (as at December 31, 2015) 2017 vacancy (as at December 31, 2015) Vacancy committed for occupancy 2017 vacancy, net of commitments for occupancy (as at December 31, 2015) Western Calgary Canada downtown (439 ) (809 ) 128 — Calgary suburban (173 ) 77 Toronto downtown (935 ) 153 Toronto suburban (1,007 ) 81 Eastern Canada (789 ) 243 Total Portfolio(1) (4,152 ) 682 (809 ) (311 ) (96 ) (782 ) (926 ) (546 ) (3,470 ) 0.0% (461 ) — 29.2% (410 ) — 44.5% (74 ) — 16.4% (109 ) 1 8.0% (664 ) 7 30.8% (284 ) — 16.4% (2,002 ) 8 (461 ) (410 ) (74 ) (108 ) (657 ) (284 ) (1,994 ) (1) Includes investment in joint ventures and excludes redevelopment properties and properties held for sale at period-end. As at December 31, 2015, the Trust had lease commitments of approximately 16.4% of 2017 maturities. Dream Office REIT 2015 Annual Report | 13 2016 and 2017 expiring net rents versus market rents Expiring net rents and market rents represent base rents only and do not include the impact of lease incentives. Market rents reflect management’s best estimates with reference to recent leasing activity and external market data, which does not take into account allowance for increases in the future years. Market rents are subject to change from time to time depending on the market conditions at a particular point in time. The following tables compare 2016 and 2017 expiring in-place net rents to our respective estimated market rents by geographic segment as at December 31, 2015. Rent per square foot 2016 expiring rents Market rents associated with expiring rents Market rents/2016 expiring rents (%) $ Western Canada 17.46 $ 17.79 1.9% Calgary downtown Calgary suburban Toronto downtown Toronto suburban 20.72 $ 20.62 (0.5)% 14.10 $ 15.09 7.0% 21.89 $ 23.56 7.6% 14.11 $ 14.09 (0.2)% Eastern Canada 15.09 $ 14.45 (4.3)% Total portfolio(1) 18.30 18.67 2.0% (1) Includes investment in joint ventures and excludes redevelopment properties and properties held for sale at period-end. We believe estimated market rents are approximately 2.0% higher than our 2016 expiring in-place net rents. Estimated market rents are higher than 2016 expiring in-place net rents in all regions except for Calgary downtown, Toronto suburban and Eastern Canada. Rent per square foot $ 2017 expiring rents Market rents associated with expiring rents Market rents/2017 expiring rents (%) Western Canada 21.45 $ 18.97 (11.6)% Calgary downtown Calgary suburban Toronto downtown Toronto suburban 22.49 $ 20.95 (6.8)% 16.14 $ 15.14 (6.2)% 23.31 $ 25.32 8.6% 14.85 $ 14.57 (1.9)% Eastern Canada 13.43 $ 13.53 0.7% Total portfolio(1) 18.79 18.44 (1.9)% (1) Includes investment in joint ventures and excludes redevelopment properties and properties held for sale at period-end. We believe estimated market rents are approximately 1.9% lower than our 2017 expiring in-place net rents. Estimated market rents are lower than 2017 expiring in-place net rents in all regions except for Toronto downtown and Eastern Canada. Initial direct leasing costs and lease incentives Initial direct leasing costs include leasing fees and related costs and broker commissions incurred in negotiating and arranging tenant leases. Lease incentives include costs incurred to make leasehold improvements to tenant spaces and cash allowances. Initial direct leasing costs and lease incentives are dependent upon asset type, lease terminations and expiries, the mix of new leasing activity compared to renewals, portfolio growth and general market conditions. Short-term leases generally have lower costs than long-term leases, and leasing costs associated with office space are generally higher than costs associated with flex office and industrial space. For the three months and year ended December 31, 2015, approximately $13.3 million and $44.3 million, respectively, of leasing costs and lease incentives were attributable to leases that commenced during the periods, representing an average cost of $14.48 per square foot and $17.33 per square foot leased, respectively. When compared to the prior year, average leasing costs and lease incentives on a per square foot basis increased from $14.66 to $17.33, mainly attributable to the implementation of our proactive leasing strategies which commenced last year and continued into the current year to secure leases. We expect leasing costs and lease incentives to remain elevated in light of the current competitive office leasing environment. Dream Office REIT 2015 Annual Report | 14 Performance indicators Operating activities (total portfolio)(1) Portfolio size (in thousands of sq. ft.) Occupied and committed occupancy (period-end) Number of lease deals committed Leases that commenced during the period (sq. ft.) Average lease term for leases that commenced during the period (years) Initial direct leasing costs and lease incentives attributable to leases that commenced during the period (in thousands) Initial direct leasing costs and lease incentives attributable to leases that commenced during the period (per sq. ft.) Three months ended December 31, 2015 Year ended December 31, 2015 23,030 91.3 % 152 915,676 4.5 $ $ 13,260 $ 14.48 $ 23,030 91.3 % 484 2,557,574 4.8 44,319 17.33 (1) Includes investment in joint ventures and excludes redevelopment properties and properties held for sale. Tenant base profile Our tenant base includes municipal, provincial and federal governments as well as a wide range of high-quality large international corporations, including Canada’s major banks and three of Canada’s prominent law firms, and small to medium- sized businesses across Canada. With 2,175 tenants, our risk of exposure to any single large lease or tenant is mitigated. The average size of our office tenants is approximately 11,100 square feet. Effectively managing this diverse tenant base is one of our key strengths and has helped us to maintain occupancy levels above the national average and to capitalize on rental rate increases. The stability and quality of our cash flow is further enhanced by the fact that rental revenue from government and major financial institutions comprises approximately 22% of our total rental revenue. The list of our 20 largest tenants includes both federal and provincial governments as well as other nationally and internationally recognizable high-quality corporations and businesses. The following table outlines their contributions to our total rental revenue. Tenant Bank of Nova Scotia Government of Canada Government of Ontario Bell Canada Telus Enbridge Pipelines Inc. State Street Trust Company Government of Saskatchewan Government of Alberta Newalta Corporation Aviva Canada Inc. Borell Management Loyalty Management Government of British Columbia SNC-Lavalin Inc. Miller Thomson Cenovus Energy Government of NW Territories Cassels Brock Blackwell Government of Québec Total Owned area (sq. ft.) 1,002,340 1,411,488 464,232 376,694 287,803 248,577 244,936 340,019 304,079 187,297 335,900 124,795 194,018 210,828 203,383 137,149 140,605 139,516 94,507 164,362 6,612,528 Owned area (%) 4.4 6.1 2.0 1.6 1.2 1.1 1.1 1.5 1.3 0.8 1.5 0.5 0.8 0.9 0.9 0.6 0.6 0.6 0.4 0.7 28.6 Gross rental revenue (%) 7.7 7.0 2.3 2.0 1.6 1.6 1.4 1.3 1.2 1.2 1.2 1.1 1.0 1.0 0.9 0.9 0.8 0.8 0.8 0.7 36.5 Weighted average remaining lease term (years) 8.8 3.2 4.2 3.7 1.1 3.1 6.3 2.2 2.6 3.8 2.1 1.0 1.8 3.7 3.9 7.7 7.5 6.5 9.0 4.3 4.4 Credit rating(1) A+/A-/A-1 AAA/A-1+ A+/A-1+ BBB+ BBB+ A-1/BBB+ AA-/A/A-1+ AAA/A-1+ AA+/A-1+ N/R A+/A- N/R N/R AAA/A-1+ BBB N/R A-2/BBB N/R N/R A+/A-1+ (1) Credit ratings obtained from Standard & Poor’s and may reflect the parentʼs or a guarantorʼs credit rating. N/R – not rated Dream Office REIT 2015 Annual Report | 15 OUR RESOURCES AND FINANCIAL CONDITION Investment properties As at December 31, 2015, the value of our investment property comparative portfolio, which includes investment in joint ventures and excludes redevelopment properties, properties sold and assets held for sale, was $6,956.2 million (December 31, 2014 – $6,986.2 million). Fair values were determined using the direct capitalization method and/or the discounted cash flow method. The direct capitalization method applies a capitalization rate (“cap rate”) to stabilized NOI (non-GAAP measure) and incorporates allowances for vacancy and management fees. The resulting capitalized value is further adjusted for non-recurring costs to stabilize income and non-recoverable capital expenditures, where applicable. Individual properties across our comparative portfolio were valued using cap rates in the range of 4.65% to 8.25% as at December 31, 2015. The discounted cash flow method discounts the expected future cash flows, generally over a term of ten years, and uses discount rates and terminal cap rates specific to each property. The fair value of our investment properties, including investment in joint ventures, is set out below: Western Canada Calgary – downtown Calgary – suburban Toronto – downtown Toronto – suburban Eastern Canada Total comparative portfolio Add: Redevelopment properties Assets classified as held for sale/sold properties Total portfolio Less: Investment in joint ventures Wholly owned properties classified as assets held for sale Property classified as assets held for sale related to investment in joint ventures Total per consolidated balance sheets December 31, 2015 1,310,713 $ 1,068,134 165,977 2,543,398 951,030 916,937 6,956,189 September 30, 2015(1) 1,317,818 $ 1,080,964 165,530 2,529,198 964,709 920,313 6,978,532 10,000 44,638 7,010,827 $ 10,000 136,758 7,125,290 $ $ $ 1,099,594 44,638 — 1,092,680 92,003 — $ 5,866,595 $ 5,940,607 $ Total portfolio December 31, 2014(1) 1,373,110 1,162,981 183,969 2,409,667 960,268 896,213 6,986,208 10,000 208,388 7,204,596 1,062,776 — 2,750 6,139,070 (1) Comparative periods have been reclassified to exclude assets held for sale and properties sold in the current period. The carrying value of our total portfolio decreased by approximately $114.5 million during the quarter, mainly due to $79.4 million in fair value loss and $92.1 million relating to dispositions, offset by $57.1 million of building improvements and initial direct leasing costs and lease incentive additions and $0.1 million related to the amortization of lease incentives, foreign exchange and other adjustments. For the three months and year ended December 31, 2015, the $79.4 million and $190.0 million fair value losses recognized during these respective periods were mainly driven by changes in capital, market rental rate and leasing assumptions, mainly in Calgary downtown, Calgary suburban, Edmonton in Western Canada and Toronto suburban, to reflect the changing economics in those particular markets. The fair value losses for the year were offset by an increase in fair value related to properties in the Toronto downtown region due to cap rate compression. The weighted average cap rate across our total comparative portfolio compressed to 6.00% in Q4 2015 from 6.04% in Q3 2015 and 6.16% at December 31, 2014. Dream Office REIT 2015 Annual Report | 16 Changes in the value of our investment properties by region for the three months ended December 31, 2015 are summarized in the table below as follows: Three months ended Initial direct leasing costs and lease incentives Building improvements Fair value adjustments Amortization of lease incentives, foreign exchange and other adjustments Assets held for sale/sold properties — $ — — — — — — 2,826 $ 5,143 7 13,445 4,134 4,597 30,152 3,241 $ 3,247 795 9,084 4,598 5,687 26,652 (12,500 ) $ (20,100 ) (200 ) (7,700 ) (21,800 ) (16,700 ) (79,000 ) (672 ) $ (1,120 ) (155 ) (629 ) (611 ) 3,040 (147 ) $ September 30, 2015(1) 1,317,818 $ 1,080,964 165,530 2,529,198 964,709 920,313 6,978,532 December 31, 2015 1,310,713 1,068,134 165,977 2,543,398 951,030 916,937 6,956,189 10,000 — 136,758 7,125,290 $ (92,045 ) (92,045 ) $ — 18 — 246 30,170 $ 26,898 $ — — 10,000 (400 ) (79,400 ) $ 61 (86 ) $ 44,638 7,010,827 1,092,680 — 5,429 1,807 (240 ) (82 ) 1,099,594 92,003 (47,408 ) — — (60) 103 44,638 5,940,607 $ (44,637 ) $ 24,741 $ 25,091 $ (79,100 ) $ (107 ) $ 5,866,595 Western Canada Calgary – downtown Calgary – suburban Toronto – downtown Toronto – suburban Eastern Canada Total comparative portfolio Add: Redevelopment properties Assets classified as held for sale/sold properties $ Total portfolio Less: Investment in joint ventures Wholly owned properties classified as assets held for sale Total per consolidated balance sheet $ (1) Opening balances have been reclassified to exclude assets held for sale and sold properties during the period. Dream Office REIT 2015 Annual Report | 17 Changes in the value of our investment properties by region for the year ended December 31, 2015 are summarized in the table below as follows: January 1, 2015(1) Assets held for sale/sold properties Building improvements Initial direct leasing costs and lease incentives $ 1,373,110 $ 1,162,981 183,969 2,409,667 960,268 896,213 6,986,208 — $ — — — — — — 10,954 $ 10,865 931 35,037 7,187 8,044 73,018 10,565 $ 12,492 2,249 17,608 14,423 11,729 69,066 Year ended Amortization of lease incentives, foreign exchange Fair value adjustments (81,400 ) $ (114,300 ) (20,600 ) 83,200 (28,500 ) (16,000 ) (177,600 ) and other December 31, 2015 1,310,713 1,068,134 165,977 2,543,398 951,030 916,937 6,956,189 adjustments (2,516 ) $ (3,904 ) (572 ) (2,114 ) (2,348 ) 16,951 5,497 10,000 — — — — — 10,000 208,388 $ 7,204,596 $ (153,122 ) (153,122 ) $ 1,278 74,296 $ 508 69,574 $ (12,400 ) (190,000 ) $ (14 ) 5,483 $ 44,638 7,010,827 1,062,776 — 22,359 3,158 11,490 (189 ) 1,099,594 — 38,668 — — 5,970 — 44,638 Western Canada Calgary – downtown Calgary – suburban Toronto – downtown Toronto – suburban Eastern Canada Total comparative portfolio Add: Redevelopment properties Assets classified as held for sale/sold properties Total portfolio Less: Investment in joint ventures Wholly owned properties classified as assets held for sale Property classified as asset held for sale related to investment in joint ventures Total per consolidated balance sheet 2,750 (2,283 ) — — (460 ) (7 ) — $ 6,139,070 $ (189,507 ) $ 51,937 $ 66,416 $ (207,000 ) $ 5,679 $ 5,866,595 (1) Opening balances have been reclassified to exclude assets held for sale and sold properties during the year. Cap rates are a key metric used to value our investment properties and are set out in the table below by region: Capitalization rates Total portfolio December 31, 2014(1) Weighted average (%) Range (%) December 31, 2015 Weighted average (%) 6.60 6.43 7.00 5.10 6.52 6.47 6.00 9.00 Range (%) 5.25–8.25 5.75–7.50 6.75–7.50 4.65–6.25 5.75–7.50 5.50–8.25 4.65–8.25 N/A Range (%) September 30, 2015(1) Weighted average (%) 6.69 6.45 6.99 5.10 6.52 6.55 6.04 9.00 5.25–8.75 5.75–7.50 6.75–7.25 4.65–6.25 5.75–7.50 5.50–8.25 4.65–8.75 N/A 5.75–8.75 5.50–7.50 6.25–7.25 5.15–7.00 5.75–7.50 6.00–8.50 5.15–8.75 N/A 7.00–9.00 4.65–9.00 7.42 6.02 7.45–9.20 4.65–9.20 5.82 6.05 5.75–8.00 5.15–9.00 6.65 6.16 6.81 5.42 6.55 6.72 6.16 9.00 7.11 6.17 Western Canada Calgary – downtown Calgary – suburban Toronto – downtown Toronto – suburban Eastern Canada Total comparative portfolio Redevelopment properties Assets classified as held for sale/sold properties(2) Total portfolio (1) Comparative periods have been reclassified to exclude assets held for sale and sold properties during the period. (2) Cap rates on assets classified as held for sale/sold properties will vary depending on the composition of properties at period-end. N/A – not applicable Dream Office REIT 2015 Annual Report | 18 Building improvements Building improvements represent investments made to our properties to ensure optimal building performance, to improve the value and attractiveness to our tenants, as well as to reduce operating costs. For the three months and year ended December 31, 2015, we incurred $30.2 million and $74.3 million, respectively, in expenditures related to building improvements, the majority of which are recoverable from tenants under current terms of the leases. Recurring recoverable building improvements for the three months and year ended December 31, 2015 were $8.6 million and $20.9 million, respectively, and included safety enhancements, roof, heating, ventilation and air conditioning replacements as well as parking upgrades. Recurring recoverable enhancement projects include elevator modernization, recoverable lobby and common area upgrades and exterior enhancements. For the three months and year ended December 31, 2015, recurring recoverable enhancement projects were $13.4 million and $35.9 million, respectively. For the three months and year ended December 31, 2015, approximately $5.2 million and $12.4 million, respectively, were spent on sustainability and environmental initiatives, substantially all of which are recoverable from tenants. For the three months and year ended December 31, 2015, recurring non-recoverable building improvements were $0.4 million and $2.0 million, respectively, and included projects such as parkade and curtain wall restoration. Non-recurring and non-recoverable building improvements included capital expenditures such as window replacements that generally would not be expected to recur over the useful life of the building. Over the next three years, the Trust will be investing a significant amount of capital in Scotia Plaza, the Trust’s largest and most iconic asset in our Toronto downtown portfolio. The capital will be allocated across three major property enhancements: elevator modernization, common area revitalization and LEED recertification. All of these investments are targeted towards superior tenant experience. For the three months and year ended December 31, 2015, approximately $5.2 million and $21.7 million, respectively, of the amounts included in the following table pertained to Scotia Plaza and account for approximately 29.0% of the investments incurred during the year. The table below represents amounts either paid or accrued for the three months and year ended December 31, 2015 and December 31, 2014: Building improvements(1) Recurring recoverable Recurring recoverable enhancement projects Sustainability and environmental initiatives Recoverable – identified upon acquisition Recurring non-recoverable Non­recurring and non-recoverable Total Three months ended December 31, 2014 2015 Year ended December 31, 2015 2014 $ $ 8,596 13,411 5,168 — 422 2,573 30,170 $ $ 6,912 4,558 1,120 866 654 57 14,167 $ $ 20,929 35,915 12,405 — 2,031 3,016 74,296 $ $ 13,286 11,056 1,760 5,402 1,182 1,272 33,958 (1) Includes investment in joint ventures that are equity accounted and properties held for sale at period-end. As part of our broader strategy to invest capital in our buildings to improve the value and attractiveness to tenants as well as to reduce operating costs, we expect overall building improvements to remain elevated. By doing so, our tenants will have a better experience at our buildings, leading to improved tenant retention, quicker leasing of available space and realization of higher rental rates. Dream Office REIT 2015 Annual Report | 19 Dispositions Pursuant to our strategy of divesting non-core assets, we completed the following dispositions for the year ended December 31, 2015: Capital Centre, Edmonton(3) 8100 Granville Avenue, Vancouver 2200–2204 Walkley Road, Ottawa Québec City Portfolio(4) Total Disposed GLA Property Ownership (sq. ft.) (%) 16,029 $ 25 % 95,298 100 % 100 % 158,898 100 % 634,132 904,357 $ type office office office office Sales price(1) 2,340 $ 28,759 27,910 95,122 154,131 $ Mortgages discharged/ assumed — — 15,279 51,354 (5) 66,633 $ $ Loss on sale(2) (121 ) (714 ) (817 ) (2,121 ) (3,773 ) Date disposed March 12, 2015 July 15, 2015 August 27, 2015 October 30, 2015 (1) Sales price reflects gross proceeds net of adjustments and before transaction costs. (2) Loss on sale includes mainly the transaction costs and the write-off of a pro rata share of goodwill associated with the cash-generating unit. (3) The Trust held a 25% interest in the property through a partnership interest and accounted for this as an investment in joint venture. (4) Includes four properties in Québec City: 900 Place D’Youville, 580 Rue Grand Allée, 200 Chemin Sainte-Foy and 141 Saint Jean Street. (5) Of this mortgage amount, $21,959 was assumed by the purchaser on disposal of investment properties. On April 30, 2015, a parcel of land at 60 Columbia Way, Markham, Ontario, was expropriated by the City of Markham to build a highway off-ramp for total gross proceeds of $2.7 million. The gross proceeds represented fair market value. In addition to the gross proceeds, the Trust recorded a one-time compensation income of $0.6 million for the expropriation of the parcel of land. We completed the following dispositions of non-core assets for the year ended December 31, 2014: Riverbend Atrium, Calgary(3) Stockman Centre, Calgary(3) Plaza 124, Edmonton(3) 9705 Horton Road, Calgary 26229 Township Road 531, Edmonton(4) 11404 Winterburn Road NW, Edmonton(4) 16134 - 114th Avenue NW, Edmonton(4) 16104 - 114th Avenue NW, Edmonton(4) St. Albert Trail Centre, Edmonton Total Property Ownership (%) 25 % 25 % 25 % 100 % 100 % 100 % 100 % 100 % 50 % type office office office office flex flex flex flex office Disposed GLA (sq. ft.) 22,055 $ 15,656 38,590 55,363 89,165 81,917 48,353 28,759 48,402 428,260 $ Mortgages discharged/ assumed 1,173 $ 577 3,569 5,919(5) 5,529(5) 5,599(5) 2,651 2,030 6,389 33,436 $ Sales price(1) 4,850 $ 3,375 9,275 9,150 12,084 10,489 3,938 6,281 12,075 71,517 $ Loss on sale(2) (248 ) (12 ) (498 ) (173 ) (68 ) (24 ) (44 ) (5 ) (424 ) (1,496 ) Date disposed June 3, 2014 June 3, 2014 June 3, 2014 June 12, 2014 September 9, 2014 September 9, 2014 September 9, 2014 September 9, 2014 September 15, 2014 (1) Sales price reflects gross proceeds net of adjustments and before transaction costs. (2) Loss on sale includes mainly the transaction costs and the write-off of a pro rata share of goodwill associated with the cash-generating unit. (3) The Trust held a 25% interest in the property through a partnership interest and accounted for this as an investment in joint venture. (4) These investment properties were sold to Dream Industrial REIT. (5) Mortgages assumed by purchaser on disposal of investment properties. Assets held for sale Balance, beginning of period Add (deduct): Building improvements Lease incentives and initial direct leasing costs Investment property classified as held for sale during the year Investment properties disposed of during the year Fair value adjustment to investment properties Amortization of lease incentives Balance, end of period (1) Includes investment in joint ventures that are equity accounted. Year ended December 31, 2015 (1) 2,750 $ $ Year ended December 31, 2014 (1) 20,481 — — 159,473 (123,088 ) 5,510 (7) 44,638 $ $ 45 674 — (17,833 ) (557 ) (60 ) 2,750 Dream Office REIT 2015 Annual Report | 20 OUR FINANCING Our discussion of financing activities will be based on the debt balance, which includes debt related to investments in joint ventures that are equity accounted, at our proportionate ownership, and debt associated with assets held for sale. Where applicable, a reconciliation to our consolidated financial statements has been included in the following tables in this section. Liquidity and capital resources Dream Office REIT’s primary sources of capital are cash generated from operating activities, credit facilities, mortgage financing and refinancing, and equity and debt issuances. Our primary uses of capital include the payment of distributions, costs of attracting and retaining tenants, recurring property maintenance, major property improvements, debt principal repayments, interest payments and property acquisitions. We expect to meet all of our ongoing obligations with current cash and cash equivalents, cash flows generated from operations, credit facilities, conventional mortgage refinancing and, as growth requires and when appropriate, new equity or debt issuances. In our consolidated financial statements, our current liabilities exceeded our current assets by $680.9 million. Typically, real estate entities seek to address liquidity needs by having a balanced debt maturity schedule, undrawn credit facilities and a pool of unencumbered assets. We are able to use our credit facilities on short notice which eliminates the need to hold significant amounts of cash and cash equivalents on hand. Working capital balances can fluctuate significantly from period to period depending on the timing of receipts and payments. Debt obligations that are due within one year include debt maturities of $609.6 million (excluding debt related to investment in joint ventures which are equity accounted), which we typically refinance with term loan facilities and mortgages of terms between five and ten years. Amounts payable and accrued liabilities balances outstanding at the end of any reporting period depends primarily on the timing of leasing costs, capital expenditures incurred, as well as the impact of transaction costs incurred on any acquisitions or dispositions completed during the reporting period. Our unencumbered assets pool as at December 31, 2015 is approximately $825.0 million. We endeavour to maintain high levels of liquidity to ensure that we can meet distribution requirements and react quickly to potential investment opportunities. Debt Less debt related to: Investment in joint ventures Assets held for sale Debt (per consolidated financial statements) December 31, 2015 3,520,486 $ September 30, 2015 3,591,433 $ December 31, 2014 3,593,808 485,493 24,245 3,010,748 $ 490,782 51,458 3,049,193 $ 496,980 — 3,096,828 $ $ Dream Office REIT 2015 Annual Report | 21 A summary of debt The key performance indicators in the management of our debt are as follows: Financing and liquidity metrics Weighted average effective interest rate (period-end)(1) Weighted average face rate of interest (period-end)(2) Interest coverage ratio (times)(3) Net average debt-to-EBITDFV (years)(3) Net debt-to­adjusted EBITDFV (years)(3) Level of debt (net total debt-to-gross book value)(3) Level of debt (net secured debt-to-gross book value)(3) Secured debt to total investment properties(4) Debt – average term to maturity (years) Variable rate debt as percentage of total debt Secured debt(5) Unsecured convertible and non-convertible debentures Unencumbered assets(6) Cash and cash equivalents on hand(7) Undrawn demand revolving credit facilities December 31, 2015 September 30, 2015 December 31, 2014 4.11 % 4.05 % 2.9 7.7 7.7 48.3 % 41.0 % 42.6 % 3.8 7.6 % $ 2,986,389 $ 534,097 825,000 12,433 186,495 4.12 % 4.11 % 2.9 7.7 7.8 48.0 % 40.9 % 42.9 % 3.8 7.5 % 3,057,395 $ 534,038 768,000 13,280 184,995 4.15 % 4.18 % 2.9 7.8 7.9 47.5 % 40.4 % 42.5 % 4.4 7.6 % 3,059,948 533,860 796,000 20,889 251,540 (1) Weighted average effective interest rate is calculated as the weighted average face rate of interest net of amortization of fair value adjustments and financing costs of all interest bearing debt, including debt related to investment in joint ventures, which are equity accounted. (2) Weighted average face interest rate is calculated as the weighted average face rate of all interest bearing debt, including debt related to investment in joint ventures that are equity accounted. (3) The calculation of the following non-GAAP measures – interest coverage ratio, net average debt-to-EBITDFV, net debt-to-adjusted EBITDFV and levels of debt – are included in the “Non-GAAP measures and other disclosures” section of the MD&A. (4) Secured debt to total investment properties (non-GAAP measure) is calculated as total debt secured by investment properties related to wholly owned and co-owned properties and investment in joint ventures that are equity accounted, divided by total investment properties. Management believes this non- GAAP measurement is an important measure of our secured debt levels. (5) Secured debt (non-GAAP measure) includes debt secured by investment properties related to wholly owned and co-owned properties and investment in joint ventures that are equity accounted. (6) Unencumbered assets (non-GAAP measure) includes unencumbered investment properties related to wholly owned and co-owned properties and investment in joint ventures that are equity accounted. Management believes this non-GAAP measurement is an important measure of our unencumbered pool of assets. (7) Cash and cash equivalents on hand (non-GAAP measure) includes cash and cash equivalents related to investment in joint ventures that are equity accounted. We currently use cash flow performance and debt level indicators to assess our ability to meet our financing obligations. Our current interest coverage ratio remains strong at 2.9 times, demonstrating our ability to more than adequately cover interest expense requirements. We also monitor our debt-to-EBITDFV ratio to gauge our ability to repay existing debt. Our current net average debt-to-EBITDFV ratio improved to 7.7 years when compared to December 31, 2014. Our weighted average face rate of interest is 4.05% at December 31, 2015, down 6 bps when compared to September 30, 2015 and down 13 bps when compared to December 31, 2014. After accounting for fair value adjustments and financing costs, the weighted average effective interest rate for outstanding debt is 4.11% at December 31, 2015, down 1 bp when compared to September 30, 2015 and down 4 bps when compared to December 31, 2014. The decline in both the weighted average face rate and effective interest rates was mainly driven by the interest savings from disposed properties and interest rate savings upon refinancing of maturing debt during 2014 and 2015. Dream Office REIT 2015 Annual Report | 22 Financing activities during the quarter The following tables detail the total mortgages renewed, refinanced and discharged during the three months and year ended December 31, 2015: Financing activities for the three months ended December 31, 2015 Amount New term/discharged term Weighted average face interest rate (1) Excludes mortgages discharged due to dispositions. Mortgages renewed or refinanced Mortgages discharged(1) $ 164,354 $ 5.6 2.94% (162,794) 6.0 3.77 % During the quarter, the Trust renewed or refinanced seven mortgages totalling $164.4 million at an average fixed face rate of 2.94% per annum with an average term of 5.6 years. Overall, the renewals and refinancing of mortgages completed during the quarter represented interest savings of approximately 83 bps per annum over the mortgages discharged. Financing activities for the year ended December 31, 2015 Amount New term/discharged term Weighted average face interest rate (1) Excludes mortgages discharged due to dispositions. Mortgages renewed or refinanced Mortgages discharged(1) $ 282,708 $ 5.3 2.95% (272,213) 4.8 3.92 % For the year ended December 31, 2015, the Trust renewed or refinanced mortgages totalling $282.7 million at an average fixed face rate of 2.95% per annum with an average term of 5.3 years. Overall, the renewals and refinancing of mortgages completed during the year represented interest savings of approximately 97 bps per annum over the mortgages discharged. Subsequent to year-end, the Trust has committed to a new three-year, $800 million revolving credit facility with a syndicate of major Canadian and global financial institutions with an expected closing date on or before March 4, 2016. This revolving credit facility is expected to replace the existing $171.5 million revolving credit facility due on March 5, 2016 and $183.5 million term loan facility due on August 15, 2016. The interest rate will be calculated in the form of rolling one-month BAs bearing interest at the BA rate plus 170 bps or at the bank’s prime rate plus 70 bps. The revolving credit facility is expected to be secured by the properties currently included in the existing $171.5 million revolving credit facility and $183.5 million term loan facility and select properties in the current unencumbered asset pool. The Trust has complete discretion on the use of borrowings, which includes but is not limited to: repayment of debt, investment in existing or future properties and/or unit repurchases. The terms of the revolving credit facility will not limit the Trust’s ability to determine or revise its distribution policy in the future. Composition of debt As at December 31, 2015, variable rate debt as a percentage of total debt remained stable at 7.6% when compared to December 31, 2014. Mortgages Demand revolving credit facilities Term loan facility Convertible debentures Debentures Total Less: Debt related to investment in joint ventures Assets held for sale Fixed $ 2,714,921 $ — 129,459 50,923 358,396 $ 3,253,699 $ December 31, 2015 Fixed Total Variable 38,978 $ 2,753,899 $ 2,781,344 $ — 49,500 49,500 128,948 182,990 53,531 51,160 50,923 — 124,778 358,144 483,174 266,787 $ 3,520,486 $ 3,319,596 $ December 31, 2014 Variable Total 96,344 $ 2,877,688 — — 53,312 182,260 — 51,160 124,556 482,700 274,212 $ 3,593,808 485,493 24,245 — — 485,493 24,245 496,980 — — — 496,980 — Debt (per consolidated financial statements) Percentage of total debt(1) 92.4% 4.17% In-place face rate (year-end)(1) 4.0 Average term to maturity (years)(1) (1) Includes investment in joint ventures that are equity accounted. $ 2,743,961 $ 266,787 $ 3,010,748 $ 2,822,616 $ 100.0% 4.05% 3.8 92.4% 4.26% 4.6 7.6% 2.62% 1.3 274,212 $ 3,096,828 100.0% 4.18% 4.4 7.6% 3.13% 1.8 Dream Office REIT 2015 Annual Report | 23 Demand revolving credit facilities Secured investment properties Second- ranking Maturity date mortgages mortgages First- ranking Face interest rate December 31, 2015 December 31, 2014 Amount available Amount drawn Amount available Amount drawn March 5, 2016 Formula-based maximum not to exceed $171,500 Formula-based maximum not to exceed $27,690 Formula-based maximum not to exceed $15,000 November 1, 2016(5) Formula-based maximum not to exceed $55,000 November 1, 2016(5) April 30, 2016(3) 8 2 – 1 11 – 2.62 % (1) $ 156,500 (2) $ 15,000 $ 171,500 (2) $ – 3.55 % (3) 27,247 (4) – 27,247 (4) 2 3.40 % (5) 350 (6) 14,500 34,850 (6) 1 3 2.54 % (5) 2,398 (7) 186,495 20,000 $ 49,500 $ 17,943 (7) 251,540 $ $ – – – – – (1) In the form of rolling one-month BAs bearing interest at the BA rate plus 1.75% or at the bankʼs prime rate (2.70% as at December 31, 2015) plus 0.75%. (2) Formula-based amount available under this facility was $171,500 less $15,000 drawn as at December 31, 2015 and $171,500 as at December 31, 2014. (3) This facility matured on April 30, 2015 and was renewed to April 30, 2016 in the form of rolling one-month BAs bearing interest at the BA rate plus 1.85% or at the bankʼs prime rate (2.70% as at December 31, 2015) plus 0.85%. (4) Formula-based amount available under this facility was $27,690 less $443 in the form of a letter of credit (“LOC”) as at December 31, 2015 and December 31, 2014. (5) These facilities matured on June 30, 2015 and were renewed to November 1, 2016 in the form of rolling one-month BAs bearing interest at the BA rate plus 1.70% or at the bank’s prime rate (2.70% as at December 31, 2015) plus 0.70%. (6) Effective June 30, 2015, the formula-based maximum will not exceed $15,000. Formula-based amount available under this facility was $15,000 less $14,500 drawn and $150 in the form of LOC as at December 31, 2015, and under the previous facility, the formula-based amount available was $35,000 less $150 in the form of LOC as at December 31, 2014. (7) Effective June 30, 2015, the formula-based maximum will not exceed $55,000. Formula-based amount available under this facility was $55,000 less $20,000 drawn and $32,602 in the form of LOC as at December 31, 2015, and under the previous facility, the formula-based amount available was $35,000 less $17,057 in the form of LOC as at December 31, 2014. Dream Office REIT 2015 Annual Report | 24 Changes in debt levels, including debt related to investment in joint ventures that are equity accounted and assets held for sale, for the three months and year ended December 31, 2015, are as follows: Three months ended December 31, 2015 Mortgages $ 2,823,587 $ 164,354 (20,860 ) (162,794 ) (21,959 ) (29,395 ) (1,273 ) 2,404 (165 ) Debt as at September 30, 2015 New debt placed Scheduled repayments Lump sum repayments Lump sum repayment on property disposition Debt assumed by purchaser on disposal of investment properties Financing costs additions Foreign exchange adjustments Other adjustments(1) Debt as at December 31, 2015 Less: Debt related to investment in joint ventures Debt related to assets held for sale Debt (per consolidated financial statements) Term loan facility Demand revolving credit facilities 51,000 $ 182,808 $ 129,603 — (131,103 ) — — — — — Convertible debentures Debentures Total 50,983 $ 483,055 $ 3,591,433 293,957 (20,860 ) (293,897 ) (21,959 ) — — — — — — — — — — — — — — — 182 $ 2,753,899 $ 49,500 $ 182,990 $ 485,493 24,245 — — — — $ 2,244,161 $ 49,500 $ 182,990 $ — — — (60 ) — (29,395 ) — (1,273 ) 2,404 — 76 119 50,923 $ 483,174 $ 3,520,486 — — 485,493 24,245 50,923 $ 483,174 $ 3,010,748 — — (1) Other adjustments include amortization of financing costs and amortization of fair value adjustments. Year ended December 31, 2015 Convertible debentures Debentures Total 51,160 $ 482,700 $ 3,593,808 572,628 (75,867 ) (512,633 ) (37,239 ) — — — — — — — — — — — (237 ) — (29,395 ) — (1,987 ) 12,069 — 474 (898 ) 50,923 $ 483,174 $ 3,520,486 — — 485,493 24,245 50,923 $ 483,174 $ 3,010,748 — — Demand revolving credit facilities Term loan facility Mortgages Debt as at January 1, 2015 New debt placed Scheduled repayments Lump sum repayments Lump sum repayment on property disposition Debt assumed by purchaser on disposal of investment properties Financing costs additions Foreign exchange adjustments Other adjustments(1) Debt as at December 31, 2015 Less: Debt related to investment in joint ventures Debt related to assets held for sale $ 2,877,688 $ — $ 182,260 $ 282,708 (75,867 ) (272,213 ) (37,239 ) (29,395 ) (1,987 ) 12,069 (1,865 ) 289,920 — (240,420 ) — — — — — — — — — — — — 730 $ 2,753,899 $ 49,500 $ 182,990 $ 485,493 24,245 — — — — Debt (per consolidated financial statements) $ 2,244,161 $ 49,500 $ 182,990 $ (1) Other adjustments include amortization of financing costs and amortization of fair value adjustments. Dream Office REIT 2015 Annual Report | 25 Our current debt profile is balanced with staggered maturities over the next 13 years. The following tables summarize our debt maturity profile as at December 31, 2015: Demand revolving credit facilities — $ — — — — — — $ Outstanding balance 568,576 $ 412,659 382,770 426,024 522,107 801,086 3,113,222 Scheduled principal repayments on non­matured debt 72,722 $ 63,715 58,152 45,138 42,077 82,793 364,597 Amount 641,298 476,374 440,922 471,162 564,184 883,879 3,477,819 % 18.2 % 13.4 % 12.5 % 13.4 % 16.0 % 25.1 % 98.6 % Debt maturities 2016 2017 2018 2019 2020 2021–2028 Subtotal before undernoted item Demand revolving credit facilities Weighted average effective interest rate on balance due Weighted average face rate on balance due at maturity (%) at maturity (%) 4.37 % 4.29 % 3.87 % 3.33 % 3.75 % 4.42 % 4.07 % 4.37 % 4.18 % 4.01 % 3.64 % 3.90 % 4.43 % 4.13 % — $ 3,113,222 $ 2016 Subtotal Financing costs Fair value adjustments Subtotal Less: Debt related to investment in joint ventures Debt related to assets held for sale Debt (per consolidated financial statements) 49,500 49,500 $ — 49,500 364,597 $ 3,527,319 1.4 % 100.0 % 2.82 % 4.11 % 2.82 % 4.05 % (12,480 ) 5,647 3,520,486 485,493 24,245 $ 3,010,748 Debt maturities 2016 2017 2018 2019 2020 2021–2028 Subtotal Financing costs Fair value adjustments Subtotal Less: Debt related to investment in joint ventures Debt related to assets held for sale Debt (per consolidated financial statements) Demand revolving credit facilities 49,500 $ — — — — — 49,500 — — 49,500 $ Mortgages 422,845 $ 300,746 265,922 471,162 414,184 883,879 2,758,738 (10,060 ) 5,221 2,753,899 Term loan facility 183,453 $ — — — — — 183,453 (463 ) — 182,990 Convertible debentures Debentures — $ 50,628 — — — — 50,628 — 295 50,923 35,000 $ 125,000 175,000 — 150,000 — 485,000 (1,957 ) 131 483,174 485,493 24,245 $ 2,244,161 $ — — — — — — — — 49,500 $ 182,990 $ 50,923 $ 483,174 $ Total 690,798 476,374 440,922 471,162 564,184 883,879 3,527,319 (12,480 ) 5,647 3,520,486 485,493 24,245 3,010,748 Dream Office REIT 2015 Annual Report | 26 Term loan facility The total principal amount outstanding for the term loan facility is as follows: Term loan facility August 15, 2011 August 15, 2016 $ 188,000 Date issued Maturity date principal issued Original Weighted average face interest rate December 31, 2015 December 31, 2014 183,453 Outstanding principal amount 183,453 $ 3.28% $ Convertible debentures The total principal amounts outstanding for the convertible debentures are as follows: 5.5% Series H Debentures December 9, 2011 March 31, 2017 $ Date issued Maturity date Outstanding principal amount December 31, 2015 50,628 Outstanding principal amount February 18, 2016 $ 50,628 REIT A Units if converted February 18, 2016 1,379,941 The fair value of the conversion features of the convertible debentures is remeasured each period, with changes in fair value being recorded in comprehensive income. At December 31, 2015, the conversion feature amounted to a $0.04 million financial asset (December 31, 2014 – $0.8 million financial asset). Debentures The total principal amounts outstanding for debentures as at December 31, 2015 are as follows: Debentures Series A Series B Series C Series K Series L Total Date issued June 13, 2013 October 9, 2013 January 21, 2014 April 26, 2011 August 8, 2011 Maturity date June 13, 2018 January 9, 2017 January 21, 2020 April 26, 2016 September 30, 2016 Type Fixed Variable Fixed Fixed Fixed Face interest rate 3.42 % 2.50 % (1) 4.07 % 5.95 % 5.95 % Outstanding principal amount at December 31, 2015 175,000 $ 125,000 150,000 25,000 10,000 485,000 $ (1) Variable interest rate at three-month Canadian Dealer Offered Rate (“CDOR”) plus 1.7%. Short form base shelf prospectus On April 27, 2015, the Trust filed a short form base shelf prospectus, which is valid for a 25-month period, during which time the Trust may offer and issue, from time to time, debt securities, with an aggregate offering price of up to $2.0 billion. For the three months and year ended December 31, 2015, no debt securities had been issued under the short form base shelf prospectus. For the year ended December 31, 2014, the Trust completed the issuance of $150 million aggregate principal amount of senior unsecured debentures under the previous short form base shelf prospectus which expired on December 26, 2014. Dream Office REIT 2015 Annual Report | 27 Commitments and contingencies We are contingently liable with respect to guarantees that are issued in the normal course of business and with respect to litigation and claims that may arise from time to time. In the opinion of management, any liability that may arise from such contingencies would not have a material adverse effect on our consolidated financial statements. During the year, a subsidiary of the Trust received notices of reassessment from both the Canada Revenue Agency and the Alberta Minister of Finance with respect to its 2007, 2008 and 2010 taxation years. These reassessments relate to the deductibility of certain tax losses claimed by the subsidiary prior to its acquisition by the Trust. These federal and provincial reassessments if upheld could increase total current taxes payable including interest and penalties by $10.6 million. No cash payment is expected to be made unless it is ultimately established that the Trust has an obligation to make one. Management is of the view that there is a strong case to support the position as filed and has contested both the federal and provincial reassessments. Since management believes that it is more likely than not that its position will be sustained, no amounts related to these reassessments have been recorded in the consolidated financial statements as of December 31, 2015. In an effort to manage the volatility of electricity prices mainly in the Western Canada and Calgary regions, the Trust entered into fixed price contracts to purchase electricity for 60 properties. Furthermore, in an effort to manage the volatility of heating prices mainly in the Toronto downtown region, the Trust entered into fixed price contracts to purchase steam for nine properties. Dream Office REIT’s finance leases, fixed price contracts to purchase electricity and steam, and future minimum commitments under operating leases are as follows: Operating lease payments Finance lease payments Fixed price contracts – electricity Fixed price contracts – steam Total Minimum payments due < 1 year 784 195 2,873 315 4,167 $ $ 1–5 years 899 $ 38 — 1,576 2,513 $ $ > 5 years 8,165 — — 4,412 $ 12,577 Total 9,848 233 2,873 6,303 19,257 $ $ The Trust has entered into lease agreements whereby tenants currently in place may require the Trust to reimburse for tenant improvement costs totalling approximately $37.8 million. OUR EQUITY Our discussion of equity includes LP B Units (or subsidiary redeemable units), which are economically equivalent to REIT Units. Pursuant to IFRS, the LP B Units are classified as a liability in our consolidated financial statements. REIT Units, Series A Retained earnings Accumulated other comprehensive income Equity (per consolidated financial statements) Add: LP B Units Total equity(1) Number of Units 107,860,638 $ — — 107,860,638 5,233,823 113,094,461 $ December 31, 2015 Amount 3,168,915 301,324 11,575 3,481,814 90,912 3,572,726 Unitholders’ equity December 31, 2014 Number of Units 107,936,575 — — 107,936,575 602,434 108,539,009 $ $ Amount 3,171,794 601,495 4,228 3,777,517 15,151 3,792,668 (1) Total equity (non-GAAP measure) includes the subsidiary redeemable units. Our Declaration of Trust authorizes the issuance of an unlimited number of the following classes of units: REIT Units and Special Trust Units. The Special Trust Units may only be issued to holders of LP B Units, are not transferable separately from these Units, and are used to provide voting rights with respect to Dream Office REIT to persons holding LP B Units. The LP B Units are held by DAM, a related party to Dream Office REIT. Both the REIT Units and Special Trust Units entitle the holder to one vote for each Unit at all meetings of the unitholders. The LP B Units are exchangeable on a one-for-one basis for REIT B Units at the option of the holder, which can then be converted into REIT A Units. The LP B Units and corresponding Special Trust Units together have economic and voting rights equivalent in all material respects to REIT A Units. The REIT A Units and REIT B Units have economic and voting rights equivalent in all material respects to each other. Dream Office REIT 2015 Annual Report | 28 At December 31, 2015, DAM held 773,939 REIT A Units and 5,233,823 LP B Units for a total ownership interest of approximately 5.3%. Exchange of REIT B Units for REIT A Units On May 25, 2015, one of the holders surrendered 218,611 subsidiary redeemable units and received 218,611 REIT B Units. On the same day, such REIT B Units were converted by the holder into 218,611 REIT A Units. The exchanges were valued based on the carrying amount of the subsidiary redeemable units, the day prior to the surrender. On April 2, 2015, the Trust acquired a subsidiary of DAM, a subsidiary of Dream Unlimited Corp. which was a party to the Asset Management Agreement with the Trust, resulting in the elimination of the Trust’s obligation to pay asset management fees to DAM. In consideration for the acquisition, the Trust issued 4,850,000 subsidiary redeemable units to DAM. See “Related party transactions – Asset Management Agreement with DAM” under the section “Our Results of Operations” for further discussion. On July 23, 2014, one of the holders surrendered 2,936,023 subsidiary redeemable units and received 2,936,023 REIT B Units. On July 24, 2014, 2,936,023 REIT B Units were exchanged for 2,936,023 REIT A Units totalling $85.4 million. The exchange was valued based on the carrying amount of the subsidiary redeemable units, the day prior to the exchange to REIT B Units. Conversion of 5.5% Series H Debentures For the year ended December 31, 2015, no debentures were converted. For the year ended December 31, 2014, $0.5 million of 5.5% Series H Debentures were converted for 13,628 REIT A Units. Outstanding equity The following table summarizes the changes in our outstanding equity: Total Units issued and outstanding on January 1, 2015 Units issued pursuant to DRIP Units issued pursuant to the Unit Purchase Plan Units issued pursuant to Deferred Unit Incentive Plan (“DUIP”) Units issued pursuant to reorganization of the Trustʼs management structure LP B Units surrendered and exchanged for REIT A Units Cancellation of REIT A Units Total Units issued and outstanding on December 31, 2015 Percentage of all Units Units issued pursuant to DRIP on January 15, 2016 Units issued pursuant to DRIP on February 15, 2016 Units issued pursuant to Unit Purchase Plan Cancellation of REIT A Units Total Units issued and outstanding on February 18, 2016 Percentage of all Units REIT A Units 107,936,575 4,040,965 13,727 137,233 — 218,611 (4,486,473 ) 107,860,638 95.4 % 571,077 551,336 362 (406,573 ) 108,576,840 95.4 % LP B Units 602,434 — — — 4,850,000 (218,611 ) — 5,233,823 4.6 % — — — — 5,233,823 4.6 % Total 108,539,009 4,040,965 13,727 137,233 4,850,000 — (4,486,473 ) 113,094,461 100.0 % 571,077 551,336 362 (406,573 ) 113,810,663 100.0 % As at December 31, 2015, there were 847,071 deferred trust units and income deferred trust units outstanding (December 31, 2014 – 791,299). Normal course issuer bid On June 22, 2015, the Trust renewed its normal course issuer bid which expired on June 19, 2015. The Bid will remain in effect until the earlier of June 21, 2016 or the date on which the Trust has purchased the maximum number of REIT A Units permitted under the Bid. Under the Bid, the Trust has the ability to purchase for cancellation up to a maximum of 10,648,031 REIT A Units (representing 10% of the Trust’s public float of 106,480,305 REIT A Units at the time of entering the Bid through the facilities of the TSX). Daily purchases are limited to 73,273 REIT A Units, other than purchases pursuant to applicable block purchase exceptions. For the year ended December 31, 2015, 4,486,473 REIT A Units had been purchased and subsequently cancelled under the Bid for a total cost of $105.1 million (December 31, 2014 – 832,200 REIT A Units cancelled for $20.9 million). Subsequent to year-end, the Trust purchased an additional 406,573 REIT A Units under the normal course issuer bid for cancellation for a cost of $6.5 million. Dream Office REIT 2015 Annual Report | 29 Distribution policy Our Declaration of Trust provides our trustees with the discretion to determine the percentage payout of income that would be in the best interest of the Trust, which allows for any unforeseen expenditures and the variability in cash distributions as a result of additional units issued pursuant to the Trust’s DRIP. The Trust determines the distribution rate by, among other considerations, its assessment of cash flow as determined using adjusted cash flows from operating activities (a non-GAAP measure), which includes cash flows from operating activities of our investments in joint ventures that are equity accounted and excludes the fluctuations in non-cash working capital, transaction costs on business combinations and investment in lease incentives and initial direct leasing costs. As such, the Trust believes the cash distributions are not an economic return of capital, but a distribution of sustainable adjusted cash flow from operating activities. The table below summarizes the distributions for the three months and year ended December 31, 2015: 2015 distributions(2) Paid in cash or reinvested in units Payable at December 31, 2015 Total distributions 2015 reinvestment(2) Reinvested to December 31, 2015 Reinvested on January 15, 2016 Total distributions reinvested Distributions paid in cash(2) Reinvestment to distribution ratio Cash payout ratio Three months ended December 31, 2015 Year ended December 31, 2015 Declared distributions 4% bonus distributions(1) Total Declared distributions 4% bonus distributions(1) $ $ $ 42,201 $ 21,134 63,335 15,684 8,374 24,058 $ 39,277 38.0% 62.0% 629 $ 301 930 629 311 940 $ 42,830 $ 21,435 64,265 16,313 8,685 24,998 $ $ 229,522 $ 21,134 250,656 83,650 8,374 92,024 $ 158,632 36.7% 63.3% 3,346 $ 301 3,647 3,346 311 3,657 $ Total 232,868 21,435 254,303 86,996 8,685 95,681 (1) Unitholders who participate in the DRIP receive an additional distribution of units equal to 4% of each cash distribution that was reinvested. (2) Includes distributions on LP B Units. Distributions declared for the three months ended December 31, 2015 were $63.3 million, up $0.7 million over the prior year comparative quarter. Distributions declared for the year ended December 31, 2015 were $250.7 million, up $8.4 million over the prior year. The increase mainly reflects a larger number of Units outstanding as a result of the 4,850,000 subsidiary redeemable units issued pursuant to the reorganization of the Trust’s management structure on April 2, 2015, distributions reinvested in additional Units and vested deferred trust units exchanged for REIT A Units, offset by REIT A Units buyback. Of the distributions declared for the three months ended December 31, 2015, $24.1 million, or approximately 38.0%, was reinvested in additional REIT A Units (year ended December 31, 2015 – $92.0 million, or approximately 36.7%, was reinvested in additional REIT A Units), resulting in the three months ended December 31, 2015 cash payout ratio of 62.0% (year ended December 31, 2015 – 63.3%). The Trust is committed to preserving a strong balance sheet and bolstering its liquidity position. In consideration of these objectives, the Trust announced on February 18, 2016 a reduction to its monthly cash distribution from $0.18666 per unit to $0.125 per unit, or $1.50 per unit on an annualized basis, effective for the month of February 2016 distribution. The February 2016 distribution will be payable on March 15, 2016 to unitholders of record at February 29, 2016. In addition, in consideration of the current discount to the net asset value of the Dream Office REIT, the Trust also announced on February 18, 2016 the suspension of its DRIP until further notice effective for the February 2016 distribution. Dream Office REIT 2015 Annual Report | 30 OUR RESULTS OF OPERATIONS Basis of accounting The Trust’s proportionate share of the results of operations of its investment in joint ventures, which are accounted for using the equity method in the consolidated financial statements, are presented and discussed throughout the MD&A using the proportionate consolidation method and are, therefore, non-GAAP measures. A reconciliation of the results of operations to the consolidated statements of comprehensive income is included in the following tables. Statement of comprehensive income (loss) reconciliation to consolidated financial statements 2015 Three months ended December 31, 2014 Amounts included in consolidated financial statements 168,349 $ (73,662 ) 94,687 Share of income from investment in joint ventures 27,829 $ (12,907 ) 14,922 Amounts included in consolidated financial statements Share of income from investment in joint ventures Total 196,178 $ (86,569 ) 109,609 176,460 $ (77,702 ) 98,758 Total 28,726 $ 205,186 (13,313 ) (91,015 ) 114,171 15,413 Investment properties revenue Investment properties operating expenses Net rental income Other income Share of net income (loss) and dilution loss from $ investment in Dream Industrial REIT Share of net income from investment in joint ventures Interest and fee income Other expenses General and administrative Interest: Debt Subsidiary redeemable units Amortization of external management contracts and depreciation on property and equipment Fair value adjustments, net losses on transactions and other activities Fair value adjustments to investment properties Fair value adjustments to financial instruments Net losses on transactions and other activities Income (loss) before income taxes Deferred income tax expense Net income (loss) for the period Other comprehensive income (loss) Unrealized gain (loss) on interest rate swaps, net of tax Unrealized foreign currency translation gain, net of tax Comprehensive income (loss) for the period $ (5,923 ) — (5,923 ) 3,699 — 3,699 10,186 914 5,177 (10,186 ) 15 (10,171 ) — 929 (4,994 ) 10,343 908 14,950 (10,343 ) — (10,343 ) — 908 4,607 (1,899 ) (47 ) (1,946 ) (5,879 ) (3 ) (5,882 ) (32,302 ) (2,931 ) (779 ) (37,911 ) (79,100 ) 20,695 (57,169 ) (115,574 ) (53,621 ) (516 ) (54,137 ) (4,286 ) — (36,588 ) (2,931 ) (33,091 ) (338 ) (4,734 ) — (37,825 ) (338 ) (3 ) (4,336 ) (782 ) (42,247 ) (800 ) (40,108 ) — (4,737 ) (800 ) (44,845 ) (300 ) — (115 ) (415 ) — — — (79,400 ) 20,695 (57,284 ) (115,989 ) (53,621 ) (516 ) (54,137 ) (67,100 ) 2,689 (1,583 ) (65,994 ) 7,606 (300 ) 7,306 (200 ) — (133 ) (333 ) — — — (67,300 ) 2,689 (1,716 ) (66,327 ) 7,606 (300 ) 7,306 377 — 377 (323 ) — (323 ) 1,406 1,783 (52,354 ) $ — — — $ 1,406 1,783 (52,354 ) $ 1,675 1,352 8,658 $ — — — $ 1,675 1,352 8,658 Dream Office REIT 2015 Annual Report | 31 Amounts per consolidated financial statements 690,962 $ (303,449 ) 387,513 Share of income from investment in joint ventures 111,484 $ (51,693 ) 59,791 2015 Total 802,446 $ (355,142 ) 447,304 Year ended December 31, 2014 Amounts per consolidated financial statements 705,279 $ (303,771 ) 401,508 Share of income from investment in joint ventures 112,716 $ (52,274 ) 60,442 Total 817,995 (356,045 ) 461,950 6,112 — 6,112 15,965 — 15,965 53,136 3,005 62,253 (53,136 ) 68 (53,068 ) — 3,073 9,185 37,611 3,199 56,775 (37,611 ) 35 (37,576 ) — 3,234 19,199 (12,196 ) (47 ) (12,243 ) (24,393 ) (3 ) (24,396 ) (131,818 ) (9,171 ) (17,266 ) — (149,084 ) (9,171 ) (134,952 ) (4,638 ) (17,725 ) — (152,677 ) (4,638 ) (2,949 ) (156,134 ) (24 ) (17,337 ) (2,973 ) (173,471 ) (2,970 ) (166,953 ) — (17,728 ) (2,970 ) (184,681 ) (201,030 ) 48,890 (194,836 ) (346,976 ) (53,344 ) (1,695 ) (55,039 ) (139 ) 7,486 7,347 (47,692 ) $ 11,030 — (416 ) 10,614 — — — (190,000 ) 48,890 (195,252 ) (336,362 ) (53,344 ) (1,695 ) (55,039 ) (124,303 ) 2,749 (9,848 ) (131,402 ) 159,928 (638 ) 159,290 (4,153 ) — (985 ) (5,138 ) — — — (128,456 ) 2,749 (10,833 ) (136,540 ) 159,928 (638 ) 159,290 — — — — $ (139 ) (666 ) 7,486 7,347 (47,692 ) $ 3,210 2,544 161,834 $ — — — — $ (666 ) 3,210 2,544 161,834 $ Investment properties revenue Investment properties operating expenses Net rental income Other income Share of net income and dilution loss from investment in Dream Industrial REIT Share of net income from investment in joint ventures Interest and fee income Other expenses General and administrative Interest: Debt Subsidiary redeemable units Amortization of external management contracts and depreciation on property and equipment Fair value adjustments, net losses on transactions and other activities Fair value adjustments to investment properties Fair value adjustments to financial instruments Net losses on transactions and other activities Income (loss) before income taxes Deferred income tax expense Net income (loss) for the year Other comprehensive income (loss) Unrealized loss on interest rate swaps, net of tax Unrealized foreign currency translation gain, net of tax Comprehensive income (loss) for the year $ Dream Office REIT 2015 Annual Report | 32 Investment properties revenue Investment properties revenue includes base rent from investment properties as well as the recovery of operating costs and property taxes from tenants. Investment properties revenue for the quarter was $196.2 million, a decrease of $9.0 million, or 4.4%, over the prior year comparative quarter (for the year ended December 31, 2015 – $802.4 million, a decrease of $15.5 million, or 1.9%, over the prior year), primarily driven by dispositions during the current year and 2014, lower in-place occupancy, decrease in straight- line rent and an increase in amortization of lease incentives. Investment properties operating expenses Investment properties operating expenses comprises of occupancy costs and property taxes as well as certain expenses that are not recoverable from tenants, the majority of which are related to leasing. Operating expenses fluctuate with changes in occupancy levels, expenses that are seasonal in nature and the level of repairs and maintenance incurred during the period. Investment properties operating expenses for the quarter were $86.6 million, a decrease of $4.4 million, or 4.9%, over the prior year comparative quarter (for the year ended December 31, 2015 – $355.1 million, a decrease of $0.9 million, or 0.3%, over the prior year), primarily driven by lower operating expenses as a result of dispositions during the current year and 2014, offset by higher operating expenses that are associated with planned maintenance work and seasonal in nature. Interest and fee income Interest and fee income comprises fees earned from third-party property management, including management, construction and leasing fees, and interest earned on bank accounts and related fees. Except for the third-party property management fees, the income included in interest and fee income is not necessarily of a recurring nature and the amounts may vary quarter- over-quarter. Interest and fee income for the quarter was $0.9 million, flat when compared to the prior year comparative quarter. For the year ended December 31, 2015, interest and fee income was $3.1 million, a decrease of $0.2 million, or 5.0%, over the prior year mainly due to lower third-party property management fees from sale of third-party managed properties and lower interest income on cash balances. General and administrative expenses The following table summarizes the nature of expenses included: Management Services Agreement Asset management fees Salaries Deferred compensation expense Other(1) General and administrative expenses Three months ended December 31, Year ended December 31, $ $ 2015 (133 ) $ — (152 ) (494 ) (1,167 ) (1,946 ) $ 2014 — $ (4,244 ) — (787 ) (851 ) (5,882 ) $ 2015 (435 ) $ (4,338 ) (346 ) (2,638 ) (4,486 ) (12,243 ) $ 2014 — (17,093 ) — (3,707 ) (3,596 ) (24,396 ) (1) Other comprises professional service fees, Board of Trusteesʼ fees and expenses, investor relations and compliance and regulatory costs. General and administrative (“G&A”) expenses for the quarter were $1.9 million, a decrease of $3.9 million, or 66.9%, over the prior year comparative quarter (for the year ended December 31, 2015 – $12.2 million, a decrease of $12.2 million, or 49.8%, over the prior year), mainly attributable to the elimination of the Trust’s obligation to pay asset management fees to DAM, and lower fair value adjustments to vested DUIP units during the year, offset by fees related to the Management Services Agreement, higher salaries, investor relations and compliance and regulatory costs. Interest expense – debt Interest expense on debt for the quarter was $36.6 million, a decrease of $1.2 million, or 3.3%, over the prior year comparative quarter (for the year ended December 31, 2015 – $149.1 million, a decrease of $3.6 million, or 2.4%, over the prior year). The decrease in interest expense was due to the discharge of debt related to the disposed properties in 2014 and 2015, and the refinancing of maturing debt at lower interest rates in 2014 and in 2015. Dream Office REIT 2015 Annual Report | 33 Interest expense – subsidiary redeemable units Interest expense on subsidiary redeemable units for the quarter was $2.9 million, an increase of $2.6 million, or 767.2%, over the prior year comparative quarter (for the year ended December 31, 2015 – $9.2 million, an increase of $4.5 million, or 97.7%, over the prior year), mainly due to the issuance of 4,850,000 subsidiary redeemable units to DAM on April 2, 2015, offset by one of the holders of the subsidiary redeemable units surrendering 2,936,023 subsidiary redeemable units and receiving 2,936,023 REIT A Units on July 24, 2014 and surrendering an additional 218,611 subsidiary redeemable units and receiving 218,611 REIT A Units on May 25, 2015. Amortization of external management contracts and depreciation on property and equipment Amortization of external management contracts and depreciation on property and equipment expense for the three months and year ended December 31, 2015 was $0.8 million and $3.0 million, respectively, which remained relatively flat when compared to the prior year. Fair value adjustments to investment properties The $79.4 million fair value loss recognized during the quarter (for the year ended December 31, 2015 – $190.0 million loss) was mainly driven by changes made in capital, market rental rate and leasing assumptions in Calgary downtown, Calgary suburban, Edmonton in Western Canada and Toronto suburban, to reflect the changing economics in those particular markets. The fair value loss for the year was offset by an increase in fair value related to properties in the Toronto downtown region due to cap rate compression. Fair value adjustments to financial instruments Fair value adjustments to financial instruments include remeasurement on the conversion feature of the convertible debenture, remeasurement of the carrying value of subsidiary redeemable units and remeasurement of deferred trust units. Our remeasurement of the conversion feature of the convertible debenture resulted in a loss of $1.5 million during the quarter (loss of $0.7 million for the year ended December 31, 2015), mainly as a result of fluctuations in the inputs used to value the conversion feature of the convertible debenture. Our remeasurement of the carrying value of subsidiary redeemable units resulted in a gain of $20.0 million during the quarter (gain of $25.7 million for the year ended December 31, 2015), mainly as a result of a decrease in the unit price during the quarter and for the year ended December 31, 2015. The remeasurement of the deferred trust units resulted in a gain of $2.1 million during the quarter (gain of $3.9 million for the year ended December 31, 2015), mainly as a result of a decrease in the unit price during the quarter and for the year ended December 31, 2015. Net losses on transactions and other activities The following table summarizes the nature of expenses included: Debt settlement costs, net Net loss on sale of investment properties Internal leasing costs Business transformation costs Cost on Reorganization Impairment of goodwill Other activities Total $ $ $ Three months ended December 31, 2014 (683 ) — (758 ) (275 ) — — — (1,716 ) 2015 (1,136 ) (2,121 ) (2,442 ) (373 ) — (51,212 ) — (57,284 ) $ Year ended December 31, 2015 (1,999 ) $ (3,773 ) (9,246 ) (1,490 ) (128,132 ) (51,212 ) 600 (195,252 ) $ $ $ 2014 (1,892 ) (1,496 ) (6,345 ) (1,100 ) — — — (10,833 ) Net losses on transactions and other activities for the quarter was $57.3 million, an increase of $55.6 million over the prior year comparative quarter, mainly due to the $51.2 million goodwill impairment charge, higher debt settlement costs incurred in relation to a property disposition during the quarter, higher net loss on sale of investment properties and higher internal leasing costs. The goodwill impairment was mainly attributable to the significant increase in the weighted average cost of capital of the Trust during the fourth quarter of 2015, resulting from the unfavourable external market conditions. For the year ended December 31, 2015, net losses on transactions and other activities was $195.3 million, an increase of $184.4 million over the prior year, primarily due to the $128.1 million related to the cost on Reorganization whereby on April 2, 2015, the Trust’s obligation to pay asset management fees to DAM was eliminated, and the goodwill impairment charge of $51.2 million as at December 31, 2015. Dream Office REIT 2015 Annual Report | 34 The business transformation costs relate to process and technology improvement costs. This initiative will transform our operating platform to allow us to improve data integrity, realize operating efficiencies, establish business analytic tools and ultimately generate better business outcomes. This initiative will also form the foundation of our continuous improvement culture. Related party transactions From time to time, Dream Office REIT and its subsidiaries enter into transactions with related parties that are conducted under normal commercial terms. Agreements with DAM On April 2, 2015, the Trust and DAM also entered into a Management Services Agreement pursuant to which DAM will provide strategic oversight of the Trust and the services of a Chief Executive Officer as requested on a cost recovery basis. In accordance with the termination provisions of the Management Services Agreement, the Trust is subject to an incentive fee payable which is based on 15% of the Trust’s Aggregate Adjusted Funds from Operations (as defined in the Management Services Agreement), including the net gain on sale of any properties during the term of the agreement, and the deemed sale of the remaining portfolio upon termination, in excess of $2.65 per REIT A Unit. As the termination of the Management Services Agreement for the first three years is solely at the discretion of the Trust and the Trust currently has no intention to terminate the Management Services Agreement, the Trust has determined that it is not probable that the incentive fee is payable and accordingly, no amounts related to the incentive fee have been recorded in the consolidated financial statements as at December 31, 2015. On August 24, 2007, Dream Office REIT had an asset management agreement (the “Asset Management Agreement”) with DAM pursuant to which DAM provided certain asset management services to Dream Office REIT and its subsidiaries. On April 2, 2015, the Trust acquired a subsidiary of DAM which was a party to the Asset Management Agreement with the Trust, resulting in the elimination of the Trust’s obligation to pay asset management, acquisition and capital expenditure fees to DAM. In consideration for the Reorganization, the Trust issued 4,850,000 subsidiary redeemable units to DAM, representing total consideration of $127,313 using the closing price of REIT A Units at the date of the transaction. The total consideration of $127,313 and costs related to the Reorganization totalling $819 were charged to net income in the consolidated statement of comprehensive income. On December 1, 2013, Dream Office REIT and DAM entered into a Shared Services and Cost Sharing Agreement. Pursuant to the Reorganization, the Trust and DAM amended the existing Shared Services and Cost Sharing Agreement as of April 2, 2015. According to the terms of the amended arrangement, DAM will continue to provide administrative and support services on an as-needed basis and will receive an annual fee to reimburse it for all expenses incurred. The Trust will continue to reimburse DAM for any shared costs allocated in each calendar year. This amended agreement provides for the automatic reappointment of DAM for additional one-year terms commencing on January 1 unless and until terminated in accordance with its terms or by mutual agreement of the parties. Dream Office REIT, Dream Office Management LP (a wholly owned subsidiary of Dream Office LP) and DAM were parties to an administrative services agreement (the “Services Agreement with DAM”). Effective April 2, 2015, as part of the Reorganization, the existing Services Agreement with DAM was terminated and Dream Office Management Corp. (“DOMC”), a wholly owned subsidiary of Dream Office Management LP, and DAM entered into an amended Administrative Services Agreement pursuant to which DOMC will continue to provide certain administrative and support services to DAM. The terms of the agreement provide for DOMC to be reimbursed by DAM for the actual costs incurred by it in carrying out these activities on behalf of DAM. This agreement is for one-year terms unless and until terminated in accordance with its terms or by mutual agreement of the parties. Management Services Agreement with DAM The following is a summary of fees incurred for the three months and years ended December 31, 2015 and December 31, 2014: Senior management compensation (included in G&A expenses) Expense reimbursements related to financing arrangements (included in debt) Expense reimbursements related to disposition arrangements (included in net loss on sale of investment properties) Total incurred under the Management Services Agreement Three months ended December 31, 2014 — $ 2015 133 $ $ Year ended December 31, 2015 435 $ 2014 — 122 — 359 119 374 $ $ — — $ 300 1,094 $ — — — Dream Office REIT 2015 Annual Report | 35 Asset Management Agreement with DAM The Asset Management Agreement provided for a broad range of asset management services for the following fees: • base annual management fee calculated and payable on a monthly basis, equal to 0.25% of the gross asset value of properties, defined as the fair value of the properties at August 23, 2007 (the date of the sale of our portfolio of properties in Eastern Canada) plus the purchase price of properties acquired subsequent to that date, adjusted for any properties sold; • incentive fee equal to 15% of Dream Office REIT’s adjusted funds from operations per unit (as defined in the Asset Management Agreement) in excess of $2.65 per unit; • capital expenditures fee equal to 5% of all hard construction costs incurred on each capital project with costs in excess of $1 million, excluding work done on behalf of tenants or any maintenance capital expenditures; • acquisition fee, calculated over a fiscal year based on the anniversary date of the Asset Management Agreement, equal to: (i) 1.0% of the purchase price of a property on the first $100 million of properties acquired; (ii) 0.75% of the purchase price of a property on the next $100 million of properties acquired; and (iii) 0.50% of the purchase price of a property acquired in excess of $200 million of properties acquired; and • financing fee equal to the lesser of actual expenses incurred by DAM in supplying services relating to financing transactions and 0.25% of the debt and equity of all financing transactions completed on behalf of Dream Office REIT. The following is a summary of fees incurred for the three months and years ended December 31, 2015 and December 31, 2014 prior to the elimination of the Asset Management Agreement with DAM as part of the Reorganization on April 2, 2015: Base annual management fee (included in G&A expenses) Expense reimbursements (recovery) related to financing arrangements (included in debt) Total incurred under the Asset Management Agreement Three months ended December 31, 2014 4,244 $ — $ 2015 $ Year ended December 31, 2015 4,338 $ 2014 17,093 — — $ (245 ) 3,999 $ — 4,338 $ 319 17,412 $ Shared Services and Cost Sharing Agreement with DAM The following is a summary of fees billed by DAM for the three months and years ended December 31, 2015 and December 31, 2014. Amounts billed by DAM prior to April 2, 2015 are included pursuant to the original agreement: Business transformation costs Strategic services and other Total costs incurred under the Shared Services and Cost Sharing Agreement Three months ended December 31, 2014 275 $ 97 2015 373 $ 352 $ Year ended December 31, 2015 1,490 $ 889 2014 1,100 405 $ 725 $ 372 $ 2,379 $ 1,505 The Trust’s expected future commitment under the Shared Services and Cost Sharing Agreement, which expires on December 1, 2020, is $2,463. Dream Office REIT 2015 Annual Report | 36 Administrative Services Agreement with DAM The following is a summary of fees received from or paid to DAM and costs incurred by DAM or the Trust on behalf of the other party for the three months and years ended December 31, 2015 and December 31, 2014. Amounts incurred prior to April 2, 2015 are included pursuant to the original agreement: Certain costs processed on behalf of DAM Operating and administration costs of regional offices processed on behalf of DAM Total costs processed on behalf of DAM under the Administrative Services Agreement Certain costs processed by DAM on behalf of the Trust under the Administrative Services Agreement Three months ended December 31, 2014 988 $ 2015 1,495 $ $ Year ended December 31, 2015 5,560 $ 2014 5,007 810 574 2,979 8,705 $ $ 2,305 $ 1,562 $ 8,539 $ 13,712 476 $ — $ 610 $ 37 Services Agreement with Dream Industrial REIT Dream Office Management Corp. has entered into a separate Services Agreement with Dream Industrial REIT, in which the Trust provides certain services to Dream Industrial REIT on a cost-recovery basis. The following is a summary of the cost recoveries from Dream Industrial REIT for the three months and year ended December 31, 2015 and December 31, 2014: Total cost recoveries from Dream Industrial REIT Three months ended December 31, 2014 1,640 $ 2015 806 $ $ Year ended December 31, 2015 3,471 $ 2014 5,999 Deferred income taxes expense Deferred income taxes expense for the three months and year ended December 31, 2015 were $0.5 million and $1.7 million, respectively, which related to the two investment properties located in the United States (“U.S.”). Other comprehensive income (loss) Other comprehensive income (loss) comprises unrealized gain (loss) on interest rate swaps and unrealized foreign currency translation gain related to the two properties located in the U.S. For the three months and year ended December 31, 2015, other comprehensive income amounted to $1.8 million and $7.3 million, respectively. The increase in overall comprehensive income (loss) for the three months and year ended December 31, 2015 was mainly driven by the strong U.S. dollar in relation to the Canadian dollar during the respective period. Dream Office REIT 2015 Annual Report | 37 Net operating income (“NOI”) NOI is defined as the total of net rental income, including the share of net rental income from investment in joint ventures and property management income, excluding net rental income from properties sold and assets held for sale. The following pie chart illustrates comparative properties NOI by region as a percentage of comparative properties NOI, excluding properties sold and properties held for sale, for the three months ended December 31, 2015. COMPARATIVE PROPERTIES NOI BY REGION (Three months ended December 31, 2015) NOI comparative portfolio NOI shown below details comparative and non-comparative items to assist in understanding the impact each component has on NOI. The comparative properties disclosed in the following table are properties acquired prior to January 1, 2014. Income from properties sold and properties held for sale contributing to NOI in comparative periods are shown separately. Comparative NOI excludes lease termination fees, bad debt expense, one-time property adjustments, straight-line rents and amortization of lease incentives. For the three months ended December 31, 2015, NOI from comparative properties decreased by 0.7%, or $0.8 million, over the prior year comparative quarter (for the year ended December 31, 2015 – a decrease of 0.6%, or $2.6 million, over the prior year), with decreases mainly in Western Canada, Calgary downtown and Toronto suburban regions. The overall decrease was mainly driven by lower occupancy. Dream Office REIT 2015 Annual Report | 38 Three months ended December 31, Change % (1.6 ) $ (6.6 ) 4.3 2.3 (4.0 ) 2.6 (0.7 ) 2014 23,951 $ 18,309 3,107 35,138 15,487 16,573 112,565 546 (126 ) 778 (2,726 ) 111,037 Amount (381 ) (1,201 ) 135 798 (620 ) 435 (834 ) (511 ) 5 (294 ) (1,106 ) (2,740 ) (2.5 ) Year ended December 31, 2015 2014 93,772 $ 95,927 $ 76,722 70,801 11,627 12,789 141,734 136,391 63,324 60,432 65,943 67,855 447,383 449,934 1,869 16 (468 ) (432 ) 4,612 2,852 (9,952 ) (13,240 ) 436,579 445,995 Amount (2,155 ) (5,921 ) 1,162 5,343 (2,892 ) 1,912 (2,551 ) (1,853 ) 36 (1,760 ) (3,288 ) (9,416 ) Change % (2.2 ) (7.7 ) 10.0 3.9 (4.6 ) 2.9 (0.6 ) (2.1 ) 2015 $ 23,570 $ 17,108 3,242 35,936 14,867 17,008 111,731 35 (121 ) 484 (3,832 ) 108,297 1,312 3,134 (1,822 ) 10,725 15,955 (5,230 ) Western Canada Calgary – downtown Calgary – suburban Toronto – downtown Toronto – suburban Eastern Canada Comparative properties NOI(1) Lease termination fees and other Properties held for redevelopment Straight-line rent Amortization of lease incentives NOI(1) NOI from properties sold and properties held for sale NOI including income from properties sold and assets held for sale $ 109,609 $ 114,171 $ (4,562 ) (4.0 ) $ 447,304 $ 461,950 $ (14,646 ) (3.2 ) (1) Comparative properties NOI and NOI (non-GAAP measures) – The reconciliation of NOI to net rental income can be found in the section “Non-GAAP measures and other disclosures” under the heading “NOI”. Western Canada decreased by 1.6%, or $0.4 million, over the prior year comparative quarter (for the year ended December 31, 2015 – a decrease of 2.2%, or $2.2 million, over the prior year), largely due to a decline in weighted average in-place occupancy of approximately 66,000 square feet, partially offset by higher rents on renewals and step-up in rental rates for certain tenants. Calgary downtown decreased by 6.6%, or $1.2 million, over the prior year comparative quarter (for the year ended December 31, 2015 – a decrease of 7.7%, or $5.9 million, over the prior year), primarily due to a decline in weighted average in- place occupancy of approximately 114,000 square feet. Calgary suburban increased by 4.3%, or $0.1 million, over the prior year comparative quarter (for the year ended December 31, 2015 – an increase of 10.0%, or $1.2 million, over the prior year), mainly due to higher weighted average in-place occupancy of approximately 26,000 square feet. Toronto downtown increased by 2.3%, or $0.8 million, over the prior year comparative quarter (for the year ended December 31, 2015 – an increase of 3.9%, or $5.3 million, over the prior year), mainly due to higher rents on renewals and step-up in rental rates for certain tenants. Toronto suburban decreased by 4.0%, or $0.6 million, over the prior year comparative quarter (for the year ended December 31, 2015 – a decrease of 4.6%, or $2.9 million, over the prior year), mainly due to 196,200 square feet of previously identified vacancy that took effect at the beginning of Q3 2015. Eastern Canada increased by 2.6%, or $0.4 million, over the prior year comparative quarter (for the year ended December 31, 2015 – an increase of 2.9%, or $1.9 million, over the prior year), mainly due to higher weighted average in-place occupancy of approximately 57,000 square feet and favourable foreign exchange adjustments in our U.S. properties. For the three months and year ended December 31, 2015, lease termination fees and other adjustments amounted to income of $0.04 million and $0.02 million, respectively (three months and year ended December 31, 2014 – income of $0.5 million and $1.9 million, respectively). Dream Office REIT 2015 Annual Report | 39 NOI prior quarter comparison The comparative properties disclosed in the following table include properties acquired prior to July 1, 2015. Western Canada Calgary – downtown Calgary – suburban Toronto – downtown Toronto – suburban Eastern Canada Comparative properties NOI(1) Lease termination fees and other Properties held for redevelopment Straight­line rent Amortization of lease incentives NOI(1) NOI from properties sold and properties held for sale NOI including income from properties sold and assets held for sale December 31, 2015 23,570 $ 17,108 3,242 35,936 14,867 17,008 111,731 35 (121 ) 484 (3,832 ) 108,297 1,312 109,609 $ September 30, 2015 23,232 $ 17,672 3,275 35,315 14,506 16,897 110,897 (361 ) (58 ) 544 (3,382 ) 107,640 2,672 110,312 $ $ $ Three months ended Change % 1.5 (3.2 ) (1.0 ) 1.8 2.5 0.7 0.8 Amount 338 (564 ) (33 ) 621 361 111 834 396 (63 ) (60 ) (450 ) 657 (1,360 ) (703 ) 0.6 (0.6 ) (1) Comparative properties NOI and NOI (non-GAAP measures) – The reconciliation of NOI to net rental income can be found in the section “Non-GAAP measures and other disclosures” under the heading “NOI”. Comparative properties NOI increased by 0.8%, or $0.8 million, over the prior quarter. Western Canada increased by 1.5%, or $0.3 million, over the prior quarter, largely due to an increase in weighted average in-place occupancy of approximately 9,000 square feet and higher rents on renewals and step-up in rental rates for certain tenants. Calgary downtown decreased by 3.2%, or $0.6 million, over the prior quarter, largely due to a decline in weighted average in-place occupancy of approximately 46,000 square feet. Toronto downtown increased by 1.8%, or $0.6 million, over the prior quarter, largely due to an increase in weighted average in-place occupancy of approximately 15,000 square feet and higher rents on renewals and step-up in rental rates for certain tenants. Toronto suburban increased by 2.5%, or $0.4 million, over the prior quarter, largely due to an increase in weighted average in- place occupancy of approximately 24,000 square feet. Eastern Canada increased by 0.7%, or $0.1 million, over the prior quarter, largely due to higher rents on renewals and favourable foreign exchange adjustments in our U.S. properties. Calgary suburban remained relatively stable over the prior quarter. For the three months ended December 31, 2015, lease termination fees and other adjustments amounted to income of $0.04 million (three months ended September 30, 2015 – loss of $0.4 million). Dream Office REIT 2015 Annual Report | 40 Funds from operations (excluding Reorganization) and adjusted funds from operations Net income (loss) for the period Add (deduct): Share of net loss (income) and dilution loss from investment in Dream Industrial REIT Share of FFO from investment in Dream Industrial REIT Depreciation and amortization Net loss on sale of investment properties Interest expense on subsidiary redeemable units Fair value adjustments to investment properties Fair value adjustments to financial instruments and DUIP included in G&A expenses Debt settlement costs, net Internal leasing costs Deferred income taxes expense Impairment of goodwill Other FFO Add: Cost on Reorganization FFO (excluding Reorganization)(1) Funds from operations (excluding Reorganization) Add (deduct): Share of FFO from investment in Dream Industrial REIT Share of AFFO from investment in Dream Industrial REIT Amortization of fair value adjustments on assumed debt Deferred unit compensation expense Straight-line rent Business transformation costs Other Three months ended December 31, 2014 7,306 $ 2015 (54,137 ) $ $ Year ended December 31, 2015 (55,039 ) $ 2014 159,290 5,923 4,519 4,614 2,121 2,931 79,400 (21,046 ) 1,136 2,442 516 51,212 41 79,672 $ — 79,672 $ (3,699 ) 4,565 3,526 — 338 67,300 (2,918 ) 683 758 300 — (10 ) 78,149 $ — 78,149 $ (6,112 ) 18,056 16,213 3,773 9,171 190,000 (49,851 ) 1,999 9,246 1,695 51,212 16 190,379 $ 128,132 318,511 $ (15,965 ) 16,412 12,922 1,496 4,638 128,456 (3,441 ) 1,892 6,345 638 — 146 312,829 — 312,829 79,672 $ 78,149 $ 318,511 $ 312,829 (4,519 ) 3,902 (796 ) 845 (484 ) 373 (18 ) 78,975 (4,565 ) 3,767 (1,110 ) 1,016 (778 ) 275 (54 ) 76,700 (18,056 ) 15,437 (4,060 ) 3,599 (2,852 ) 1,490 (129 ) 313,940 (16,412 ) 13,511 (4,754 ) 4,399 (4,612 ) 1,100 (433 ) 305,628 $ $ $ Deduct: Normalized initial direct leasing costs and lease incentives AFFO(2) (8,053 ) 70,922 $ $ (8,130 ) 68,570 $ (32,495 ) 281,445 $ (32,568 ) 273,060 (1) FFO (excluding Reorganization) (non-GAAP measure) – refer to the section “Non-GAAP measures and other disclosures” under the heading “Funds from operations (“FFO”) (excluding Reorganization)” for further details. (2) AFFO (non-GAAP measure) – The reconciliation of AFFO to cash flow from operations can be found in the section “Non-GAAP measures and other disclosures” under the heading “Cash generated from operating activities to AFFO reconciliation”. Funds from operations (excluding Reorganization) FFO (excluding Reorganization) FFO (excluding Reorganization) per unit – basic(1) FFO (excluding Reorganization) per unit – diluted(1) Three months ended December 31, 2015 79,672 0.70 0.70 $ $ $ $ $ $ 2014 78,149 $ 0.72 $ 0.71 $ (1) The LP B Units are included in the calculation of basic and diluted FFO (excluding Reorganization) per unit. Year ended December 31, 2015 318,511 2.83 2.82 2014 312,829 2.88 2.87 $ $ $ Total FFO (excluding Reorganization) for the three months and year ended December 31, 2015 was $79.7 million and $318.5 million, respectively, an increase of $1.5 million, or 1.9%, over the prior year comparative quarter and an increase of $5.7 million, or 1.8%, over the prior year comparative period. Dream Office REIT 2015 Annual Report | 41 Diluted FFO (excluding Reorganization) on a per unit basis for the three months and year ended December 31, 2015 was $0.70 and $2.82, respectively, compared to $0.71 and $2.87 for the three months and year ended December 31, 2014. The modest decline when compared to the prior year comparative quarter and period was mainly due to the following reasons: • Decrease in comparative NOI; • Decrease in lease termination fees and other one-time property adjustments; • Disposition of properties; and • Incremental change in straight-line rent adjustment; Partially offset by • General and administrative expense savings as a result of the elimination of the asset management agreement with DAM, net of the dilution impact on issuance of 4.85 million subsidiary redeemable units to DAM pursuant to the Reorganization; • Interest rate savings upon refinancing of maturing debt; • Incremental increase in FFO from our investment in Dream Industrial REIT on a full-year basis; and • Compensation received on expropriation of a small parcel of land. Adjusted funds from operations AFFO AFFO per unit – basic(1) (1) The LP B Units are included in the calculation of basic AFFO per unit. $ $ Three months ended December 31, 2015 70,922 0.62 $ $ 2014 68,570 $ 0.63 $ Year ended December 31, 2015 281,445 2.50 2014 273,060 2.52 $ $ Total AFFO for the three months and year ended December 31, 2015 was $70.9 million and $281.4 million, respectively, an increase of $2.4 million, or 3.4%, over the prior year comparative quarter and an increase of $8.4 million, or 3.1%, over the prior year. AFFO on a per unit basis for the three months and year ended December 31, 2015 was $0.62 and $2.50, respectively, down slightly from $0.63 over the prior year comparative quarter and $2.52 when compared to the prior year. The change in AFFO per unit for the year ended December 31, 2015 was largely due to the same reasons as described above on change in diluted FFO (excluding Reorganization) except for the incremental change in straight-line rent adjustment as this is added back in the determination of AFFO. SELECTED ANNUAL INFORMATION The following table provides selected financial information for the past three years: Investment properties revenue(1) Net income (loss) Total assets(1) Non-current debt(1) Total debt(1) Distributions declared Distribution rate (per unit) Units outstanding: REIT Units, Series A LP Class B Units, Series 1 $ 2015 802,446 $ (55,039 ) 7,286,037 2,811,936 3,520,486 250,656 2.24 2014 817,995 $ 159,290 7,558,895 3,215,878 3,593,808 242,220 2.24 2013 800,531 445,011 7,667,742 3,380,891 3,662,543 235,751 2.23 107,860,638 5,233,823 107,936,575 602,434 103,420,221 3,538,457 (1) Includes investment in joint ventures, which are equity accounted, and properties held for sale. Dream Office REIT 2015 Annual Report | 42 QUARTERLY INFORMATION The following tables show quarterly information since January 1, 2014. Key leasing, financing, portfolio and results of operations quarterly information Leasing – total portfolio Occupancy – including committed (period-end) Occupancy – in place (period-end) Occupancy – national industry average Tenant retention ratio Average in-place and committed net rent per square foot (period-end) Market rent/in-place and committed rent (%) Financing Weighted average effective interest rate on debt (period-end) Weighted average face rate of interest on debt (period-end) Interest coverage ratio (times) Net average debt-to-EBITDFV (years) Level of debt (net total debt-to-gross book value) Debt – average term to maturity (years) Unencumbered assets (in millions) Portfolio(1) Number of properties GLA (millions of sq. ft.) Q4 Q3 Q2 2015 Q1 Q4 Q3 Q2 91.3 % 89.8 % 87.8 % 74.7 % 91.6 % 89.8 % 88.2 % 53.4 % 92.8 % 91.0 % 88.6 % 61.8 % 92.8 % 91.4 % 88.9 % 51.5 % 93.0 % 91.4 % 89.3 % 64.4 % 93.0 % 91.1 % 89.7 % 34.5 % 94.1 % 92.5 % 89.6 % 54.8 % 2014 Q1 94.2 % 92.5 % 89.7 % 62.6 % $ 18.94 $ 2.7 % 18.73 $ 5.0 % 18.28 $ 6.4 % 18.24 $ 7.5 % 18.22 $ 7.8 % 18.21 $ 8.2 % 18.14 $ 8.0 % 17.97 8.9 % 4.11 % 4.12 % 4.13 % 4.15 % 4.15 % 4.20 % 4.19 % 4.19 % 4.05 % 2.9 7.7 48.3 % 3.8 825 $ 4.11 % 2.9 7.7 48.0 % 3.8 768 $ 4.13 % 2.9 7.6 47.9 % 3.9 820 $ 4.16 % 2.9 7.9 47.6 % 4.1 820 $ 4.18 % 2.9 7.8 47.5 % 4.4 796 $ 4.21 % 2.9 7.8 46.9 % 4.2 794 $ 4.22 % 2.9 7.9 47.3 % 4.4 793 $ 4.23 % 2.9 8.0 47.6 % 4.6 771 $ 166 23.0 169 23.3 174 24.1 174 24.1 175 24.2 175 24.2 180 24.5 181 24.6 (1) Excludes redevelopment properties and properties held for sale at period-end. Results of operations (in thousands of Canadian dollars) Investment properties revenue Investment properties operating expenses Net rental income Other income Other expenses Fair value adjustments, net losses on transactions and other activities Income (loss) before income taxes Deferred income taxes expense Net income (loss) for the period Other comprehensive income (loss) Comprehensive income (loss) for the period $ 2015 Q1 Q1 $ 168,349 $ 174,370 $ 174,402 $ 173,841 $ 176,460 $ 173,724 $ 176,432 $ 178,663 Q4 Q2 Q3 Q2 Q3 Q4 2014 (73,662 ) 94,687 5,177 (37,911 ) (78,734 ) 95,636 19,099 (38,741 ) (75,275 ) 99,127 15,894 (39,185 ) (75,778 ) 98,063 22,083 (40,297 ) (77,702 ) 98,758 14,950 (40,108 ) (74,449 ) 99,275 12,784 (40,548 ) (74,339 ) (77,281 ) 102,093 101,382 14,678 14,363 (43,507 ) (42,790 ) (115,574 ) (53,621 ) (516 ) (54,137 ) (49,259 ) 26,735 (522 ) 26,213 (164,345 ) (88,509 ) (328 ) (88,837 ) (17,798 ) 62,051 (329 ) 61,722 (65,994 ) 7,606 (300 ) 7,306 (16,608 ) 54,903 (36 ) 54,867 (26,226 ) 46,723 (155 ) 46,568 (22,574 ) 50,696 (147 ) 50,549 1,783 3,315 (59 ) 2,308 1,352 1,708 (1,523 ) 1,007 (52,354 ) $ 29,528 $ (88,896 ) $ 64,030 $ 8,658 $ 56,575 $ 45,045 $ 51,556 Dream Office REIT 2015 Annual Report | 43 Calculation of funds from operations (excluding Reorganization) (in thousands of Canadian dollars except for unit and per unit amounts) Net income (loss) for the period Add (deduct): Share of net loss (income) and dilution loss from investment in Dream Industrial REIT Share of FFO from investment in Dream Industrial REIT Depreciation and amortization Net loss on sale of investment properties Interest expense on subsidiary Q4 (54,137) $ $ Q3 Q2 2015 Q1 Q4 Q3 Q2 2014 Q1 26,213 $ (88,837) $ 61,722 $ 7,306 $ 54,867 $ 46,568 $ 50,549 5,923 (3,303) (4,305) (4,427) (3,699) (3,291) (5,386) (3,589) 4,519 4,614 4,506 4,125 4,517 3,915 4,514 3,561 4,565 3,526 4,070 3,515 3,946 3,065 3,831 2,817 2,121 1,531 — 121 — 565 931 — redeemable units 2,931 2,931 2,972 337 338 337 1,982 1,981 Fair value adjustments to investment properties Fair value adjustments to financial instruments and DUIP included in G&A Debt settlement costs, net Internal leasing costs Deferred income taxes expense Impairment of goodwill Other FFO Add: Cost on Reorganization FFO (excluding Reorganization)(1) FFO per unit (excluding Reorganization) – basic(2) FFO per unit (excluding Reorganization) – diluted(2) $ $ $ $ 79,400 58,200 44,100 8,300 67,300 17,644 25,197 18,315 (21,046) 1,136 2,442 516 51,212 41 79,672 $ — 79,672 $ 746 — 933 — (2,285) — (10,647) — (19,091) 863 2,411 522 — 9 1,016 1,209 1,900 147 — (72) 78,917 $ (45,659) $ 77,439 $ 78,149 $ 77,389 $ 79,187 $ 78,104 — 78,917 $ 82,473 $ 77,439 $ 78,149 $ 77,389 $ 79,187 $ 78,104 (2,918) 683 758 300 — (10) 1,969 36 — (38) 2,342 328 — (44) 1,718 155 — 265 2,051 329 — (2) — 128,132 — — — — 0.70 $ 0.70 $ 0.73 $ 0.71 $ 0.72 $ 0.71 $ 0.73 $ 0.73 0.70 $ 0.69 $ 0.72 $ 0.71 $ 0.71 $ 0.71 $ 0.73 $ 0.72 (1) FFO (excluding Reorganization) (non-GAAP measure) – refer to the section “Non-GAAP measures and other disclosures” under the heading “Funds from operations (“FFO”) (excluding Reorganization)” for further details. (2) The LP B Units are included in the calculation of basic and diluted FFO (excluding Reorganization) per unit. Dream Office REIT 2015 Annual Report | 44 Calculation of adjusted funds from operations (in thousands of Canadian dollars except for unit and per unit amounts) Funds from operations (excluding Reorganization) Add (deduct): Share of FFO from investment in Dream Industrial REIT Share of AFFO from investment in Dream Industrial REIT Amortization of fair value adjustments on assumed debt Deferred unit compensation expense Straight­line rent Business transformation costs Other Q4 Q3 Q2 2015 Q1 Q4 Q3 Q2 2014 Q1 $ 79,672 $ 78,917 $ 82,473 $ 77,439 $ 78,149 $ 77,389 $ 79,187 $ 78,104 (4,519) (4,506) (4,517) (4,514) (4,565) (4,070) (3,946) (3,831) 3,902 3,863 3,881 3,791 3,767 3,325 3,277 3,142 (796) (1,033) (1,124) (1,107) (1,110) (1,166) (1,217) (1,261) 845 (484) 373 (18) 78,975 809 (544) 372 (25) 77,853 966 (739) 373 (38) 979 (1,085) 372 (48) 1,016 (778) 275 (54) 1,016 (513) 275 (55) 1,307 (1,489) 274 (69) 81,275 75,827 76,700 76,201 77,324 1,060 (1,832) 276 (255) 75,403 (8,053) Deduct: Normalized initial direct leasing costs and lease incentives (8,130) Adjusted funds from operations(1) $ 70,922 $ 69,741 $ 73,128 $ 67,644 $ 68,570 $ AFFO per unit – basic(2) 0.63 $ Weighted average units outstanding 107,728 113,664 Basic (in thousands) 109,231 115,256 Diluted (in thousands) (1) AFFO (non-GAAP measure) – The reconciliation of AFFO to cash flow from operations can be found in the section “Non-GAAP measures and other (8,141) (8,112) 68,060 $ 69,139 $ 67,291 0.62 108,301 109,938 108,718 110,352 109,232 110,849 113,532 115,075 113,483 115,019 108,758 110,375 (8,185) (8,183) (8,147) (8,112) 0.63 $ 0.62 $ 0.64 $ 0.64 $ 0.62 $ 0.61 $ $ disclosures” under the heading “Cash generated from operating activities to AFFO reconciliation”. (2) The LP B Units are included in the calculation of basic AFFO per unit. NON-GAAP MEASURES AND OTHER DISCLOSURES The following non-GAAP measures are important measures used by management in evaluating the Trust’s underlying operating performance and debt management. These non-GAAP measures are not defined by IFRS, do not have a standardized meaning and may not be comparable with similar measures presented by other income trusts. Funds from operations (“FFO”) (excluding Reorganization) Management believes FFO (excluding Reorganization) is an important measure of our operating performance. This non-GAAP measurement is a commonly used measure of performance of real estate operations; however, it does not represent net income nor cash generated from operating activities, as defined by IFRS, and is not necessarily indicative of cash available to fund Dream Office REIT’s needs. In compliance with Canadian Securities Administrators Staff Notice 52-306 (Revised), “Non-GAAP Financial Measures and Additional GAAP Measures”, FFO (excluding Reorganization) has been reconciled to net income in the section “Our Results of Operations” under the heading “Funds from operations (excluding Reorganization) and adjusted funds from operations”. Adjusted funds from operations (“AFFO”) Management believes AFFO is an important measure of our economic performance and is indicative of our ability to pay distributions. This non-GAAP measurement is commonly used for assessing real estate performance; however, it does not represent cash generated from operating activities, as defined by IFRS, and is not necessarily indicative of cash available to fund Dream Office REIT’s needs. Dream Office REIT 2015 Annual Report | 45 Our calculation of AFFO includes a deduction for an estimated amount of normalized initial direct leasing costs and lease incentives that we expect to incur based on our current portfolio, lease maturity profile and expected renewals and new leasing activity. Our estimates of initial direct leasing costs and lease incentives are based on our expected renewals and new leasing activity multiplied by the average normalized cost per square foot that we expect to incur over the long term, adjusted for properties that have been acquired or sold. These assumptions are evaluated and adjusted from time to time based on actual experience over the long term. An alternative approach is to calculate AFFO by deducting the actual initial direct leasing costs and lease incentives incurred and a portion of building improvement costs incurred for the three months and year ended December 31, 2015. Management does not believe this approach to be appropriate for the purpose of determining AFFO as there can be a large degree of variability in the actual amounts incurred in any given period due to timing and extent of the leasing activity and building improvement projects. In addition, current spending on initial direct leasing costs, lease incentives and building improvements may not be indicative of a normalized long-term trend. In compliance with Canadian Securities Administrators Staff Notice 52-306 (Revised), “Non-GAAP Financial Measures and Additional GAAP Measures”, AFFO has been reconciled to cash generated from operating activities in this section under the heading “Cash generated from operating activities to AFFO reconciliation”. NOI NOI is defined by the Trust as the total investment property revenue less investment property operating expenses, including the share of net rental income from investment in joint ventures and property management income. This non-GAAP measurement is an important measure used by the Trust in evaluating property operating performance; however, it is not defined by IFRS, does not have a standard meaning and may not be comparable with similar measures presented by other income trusts. In compliance with Canadian Securities Administrators Staff Notice 52-306 (Revised), “Non-GAAP Financial Measures and Additional GAAP Measures”, NOI has been reconciled to net rental income in the table below: Net rental income (per consolidated financial statements) Add: Share of net rental income from investments in joint ventures NOI Less: NOI from properties sold and properties held for sale NOI (excluding properties sold and properties held for sale) Three months ended December 31, 2014 98,758 $ 15,413 114,171 3,134 111,037 $ 2015 94,687 $ 14,922 109,609 1,312 108,297 $ $ $ $ Year ended December 31, 2015 387,513 59,791 447,304 10,725 436,579 2014 401,508 60,442 461,950 15,955 445,995 $ Comparative properties NOI Comparative properties NOI includes NOI of the same properties owned by the Trust in (i) the current and prior year comparative period and (ii) the current and prior quarter, and excludes lease termination fees, one-time property adjustments, bad debt expenses, NOI of properties sold, properties held for sale and properties held for redevelopment, straight-line rent and amortization of lease incentives. Comparative properties NOI is an important non-GAAP measure used by management to evaluate the performance of the same properties owned by the Trust in the current, comparative period and prior quarter as presented. This non-GAAP measure is not defined by IFRS, does not have a standard meaning and may not be comparable with similar measures presented by other income trusts. Stabilized NOI Stabilized NOI for an individual property is defined by the Trust as investment property revenues less property operating expenses, including the share of net rental income from investment in joint ventures and property management income, adjusted for items such as average lease up costs, long-term vacancy rates, non-recoverable capital expenditures, management fees, straight-line rents and other non-recurring items. This non-GAAP measurement is an important measure used by the Trust in determining the fair value of certain investment properties that are valued using the direct capitalization method; however, it is not defined by IFRS, does not have a standard meaning and may not be comparable with similar measures presented by other income trusts. Dream Office REIT 2015 Annual Report | 46 Weighted average number of units The basic weighted average number of units outstanding used in the FFO (excluding Reorganization) and AFFO per unit calculations includes the weighted average number of all REIT Units, LP B Units, and vested but unissued deferred trust units and income deferred trust units. The diluted weighted average number of units for the three months and year ended December 31, 2015 assumes the conversion of the 5.5% Series H Debentures, as they are dilutive. Diluted FFO (excluding Reorganization) per unit for the three months and year ended December 31, 2015 excludes $0.7 million and $2.8 million, respectively, in interest related to convertible debentures (for the three months and year ended December 31, 2014 ̶ $0.7 million and $2.8 million, respectively). Weighted average units outstanding for basic per unit amounts (in thousands) Weighted average units outstanding for diluted per unit amounts (in thousands) Three months ended December 31, 2014 2015 Year ended December 31, 2015 2014 113,483 109,232 112,370 108,484 115,019 110,849 113,927 110,100 Adjusted cash flows from operating activities When the Trust determines its cash available for distribution, it uses adjusted cash flows from operating activities which includes cash flows from operating activities of our investments in joint ventures that are equity accounted and excludes fluctuations in working capital, investment in lease incentives and initial direct leasing costs. The Trust funds its working capital needs and investments in lease incentives and initial direct leasing costs with cash and cash equivalents on hand and our credit facilities. Accordingly, management believes adjusted cash flows from operating activities is an important measure that reflects our ability to pay cash distributions. This non-GAAP measurement does not represent cash generated from (utilized in) operating activities (as per consolidated financial statements), as defined by IFRS. In compliance with Canadian Securities Administrators Staff Notice 52-306 (Revised), “Non-GAAP Financial Measures and Additional GAAP Measures”, the table within this section under the heading “Cash flows from operating activities and distributions declared” reconciles adjusted cash flows from operating activities to cash generated from (utilized in) operating activities (as per consolidated financial statements). Cash flows from operating activities (including investments in joint ventures) When the Trust determines its cash available for distribution, it uses adjusted cash flows from operating activities. One of the components of adjusted cash flows from operating activities is cash flows from operating activities of our investments in joint ventures that are equity accounted. Management believes it is important to include cash flows from operating activities of our investments in joint ventures that are equity accounted as it forms part of the Trust’s determination of its cash available for distribution. This non-GAAP measurement does not represent cash generated from (utilized in) operating activities (as per consolidated financial statements), as defined by IFRS. In compliance with Canadian Securities Administrators Staff Notice 52-306 (Revised), “Non-GAAP Financial Measures and Additional GAAP Measures”, the table within this section under the heading “Cash flows from operating activities and distributions declared” reconciles cash flows from operating activities (including investments in joint ventures) to cash generated from (utilized in) operating activities (as per consolidated financial statements). Dream Office REIT 2015 Annual Report | 47 Investment in joint ventures and debt associated with assets held for sale The Trust’s proportionate share of the financial position and results of operations of its investment in joint ventures, which are accounted for using the equity method in the consolidated financial statements and as presented and discussed throughout the MD&A using the proportionate consolidation method, are non-GAAP measures. The reconciliation of debt tables are included in the “Our Financing” section of this MD&A. The reconciliation of the consolidated statements of comprehensive income is included in the “Our Results of Operations” section of this MD&A under the heading “Statement of comprehensive income (loss) reconciliation to consolidated financial statements”. A reconciliation of the financial position and results of operations to the consolidated balance sheets is included in the following table. Balance sheet reconciliation to consolidated financial statements December 31, 2015 December 31, 2014 Amounts per consolidated financial statements Share from investment in joint ventures Amounts per consolidated financial statements Share from investment in joint ventures Total Total Assets NON-CURRENT ASSETS Investment properties Investment in Dream Industrial REIT Investment in joint ventures Other non-current assets $ 5,866,595 $ 1,099,594 $ 6,966,189 $ 184,817 — 54,249 7,205,255 184,817 595,203 49,984 6,696,599 — (595,203 ) 4,265 508,656 6,139,070 $ 191,691 553,141 106,803 6,990,705 1,062,776 $ 7,201,846 191,691 — 115,310 7,508,847 — (553,141 ) 8,507 518,142 CURRENT ASSETS Amounts receivable Prepaid expenses and other assets Cash and cash equivalents Assets held for sale Total assets Liabilities NON-CURRENT LIABILITIES Debt Subsidiary redeemable units Deferred Unit Incentive Plan Deferred tax liabilities, net Other non-current liabilities CURRENT LIABILITIES Debt Amounts payable and accrued liabilities Liabilities related to assets held for sale Total liabilities Equity Unitholders’ equity Retained earnings Accumulated other comprehensive income Total equity Total liabilities and equity 10,258 9,052 2,051 21,361 44,914 $ 6,762,874 $ 3,785 340 10,382 14,507 — 14,043 9,392 12,433 35,868 44,914 523,163 $ 7,286,037 $ 16,565 8,593 10,920 36,078 2,968 7,029,751 $ 682 351 9,969 11,002 — 17,247 8,944 20,889 47,080 2,968 529,144 $ 7,558,895 $ 2,401,104 $ 90,912 12,596 9,038 20,284 2,533,934 410,832 $ 2,811,936 $ 90,912 12,596 9,038 20,775 2,945,257 — — — 491 411,323 2,730,973 $ 15,151 17,082 6,183 19,468 2,788,857 484,905 $ 3,215,878 15,151 17,082 6,183 19,846 3,274,140 — — — 378 485,283 609,644 74,661 684,305 365,855 12,075 377,930 112,980 722,624 24,502 $ 3,281,060 $ 37,179 111,840 150,159 834,464 97,522 463,377 31,786 43,861 129,308 507,238 — 24,502 523,163 $ 3,804,223 $ — 3,252,234 $ — — 529,144 $ 3,781,378 3,168,915 301,324 — — 3,168,915 301,324 3,171,794 601,495 — — 3,171,794 601,495 11,575 3,481,814 $ 6,762,874 $ — — 11,575 3,481,814 523,163 $ 7,286,037 $ 4,228 3,777,517 7,029,751 $ — — 4,228 3,777,517 529,144 $ 7,558,895 Dream Office REIT 2015 Annual Report | 48 Cash generated from operating activities to AFFO reconciliation In compliance with Canadian Securities Administrators Staff Notice 52-306 (Revised), “Non-GAAP Financial Measures and Additional GAAP Measures”, the table below reconciles AFFO to cash generated from (utilized in) operating activities. Cash generated from (utilized in) operating activities (per consolidated financial statements) $ 53,778 $ 55,103 $ 192,509 $ 203,354 Three months ended December 31, 2015 2014 Year ended December 31, 2015 2014 Add (deduct): Share of AFFO from investment in Dream Industrial REIT Share of net income from investment in joint ventures Initial direct leasing costs and lease incentives Amortization of financing costs Transaction costs related to the Reorganization Internal leasing costs Business transformation costs Change in non-cash working capital Adjustments for investment in joint ventures: Fair value adjustments to investment properties Straight-line rent Amortization of lease incentives Internal leasing costs Net loss on sale of investment properties Normalized initial direct leasing costs and lease incentives Other AFFO $ 3,902 10,186 22,799 (748 ) — 2,327 373 (14,025 ) 300 (139 ) 79 115 — (8,053 ) 28 70,922 $ 3,767 10,343 18,295 (786 ) — 625 275 (11,039 ) 200 (174 ) 57 133 — (8,130 ) (99 ) 68,570 $ 15,437 53,136 63,895 (3,060 ) 819 8,951 1,490 (8,203 ) (11,030 ) (539 ) 208 295 121 (32,495 ) (89 ) 281,445 $ 13,511 37,611 49,116 (3,178 ) — 6,118 1,100 (5,648 ) 4,153 (683 ) 59 227 758 (32,568 ) (870 ) 273,060 Cash flows from operating activities and distributions declared In any given period, actual distributions declared may differ from cash generated from (utilized in) operating activities, primarily due to seasonal fluctuations in non-cash working capital and the impact of leasing costs, which fluctuate with lease maturities, renewal terms and the type of asset being leased. These seasonal or short-term fluctuations are funded with our cash and cash equivalents on hand and, if necessary, with our existing credit facilities. The Trust determines the distribution rate by, among other considerations, its assessment of cash flow as determined using adjusted cash flows from operating activities (a non- GAAP measure), which includes cash flows from operating activities of our investments in joint ventures that are equity accounted and excludes the fluctuations in non-cash working capital, and investment in lease incentives and initial direct leasing costs. As such, the Trust believes the cash distributions are not an economic return of capital, but a distribution of sustainable adjusted cash flow from operating activities. In any given period, the Trust anticipates that total distributions will, in the foreseeable future, continue to vary from net income as net income includes non-cash items such as fair value adjustments to investment properties and fair value adjustments to financial instruments. Accordingly, the Trust does not use net income as a proxy for distributions. As required by National Policy 41-201, “Income Trusts and Other Indirect Offerings”, the following table outlines the differences between cash generated from (utilized in) operating activities (per consolidated financial statements) and total distributions, as well as the differences between net income and total distributions, in accordance with the guidelines. Dream Office REIT 2015 Annual Report | 49 As the Trust uses adjusted cash flows from operating activities (a non-GAAP measure) in determining its cash available for distribution, the following table also outlines the differences between adjusted cash flow from operating activities and total distributions. Net income (loss) for the period Cash generated from operating activities (per consolidated financial statements) Add: Investment in joint venturesʼ cash flows from operating activities Cash flows from operating activities (including investment in joint ventures) Add (deduct): Investment in lease incentives and initial direct leasing costs Change in non-cash working capital Adjusted cash flows from operating activities Total distributions(2) Adjusted cash flows from operating activities over total distributions Shortfall of net income (loss) over total distributions Shortfall of cash generated from operating activities (per consolidated financial statements) over total Three months ended December 31, 2014(1) 7,306 $ 2015 (54,137 ) $ $ Year ended December 31, 2014(1) 159,290 2015 (55,039 ) $ 53,778 55,103 192,509 203,354 7,270 3,091 46,419 37,596 61,048 58,194 238,928 240,950 24,653 (12,591 ) 73,110 64,265 18,645 (9,021 ) 67,818 63,347 67,145 (15,454 ) 290,619 254,303 51,001 (8,697 ) 283,254 244,698 8,845 4,471 36,316 38,556 (118,402 ) (56,041 ) (309,342 ) (85,408 ) distributions $ (10,487 ) $ (8,244 ) $ (61,794 ) $ (41,344 ) (1) Comparative figures have been reclassified to conform to the current period presentation. (2) Includes distributions declared on LP B Units and 4% bonus on distributions reinvested. For the three months and year ended December 31, 2015, adjusted cash flows from operating activities exceeded total distributions by $8.8 million and $36.3 million, respectively (for the three months and year ended December 31, 2014 – $4.5 million and $38.6 million, respectively). For the three months and year ended December 31, 2015, total distributions exceeded cash generated from (utilized in) operating activities (per consolidated financial statements) by $10.5 million and $61.8 million, respectively. The shortfall of cash generated from (utilized in) operating activities over total distributions is mainly due to the fact that cash flows from operating activities of our investments in joint ventures that are equity accounted are excluded from this calculation despite the fact that they form part of the Trust’s determination of its cash available for distribution. For the three months ended December 31, 2015, total distributions exceeded cash flows from operating activities (including investment in joint ventures) by $3.2 million. For the year ended December 31, 2015, total distributions exceeded cash flows from operating activities (including investment in joint ventures) by $15.4 million. The shortfall in the current period was mainly driven by the short-term fluctuations in our investment in lease incentives and initial direct leasing costs. These investments were funded by cash and cash equivalents and our existing credit facilities. For the three months and year ended December 31, 2014, total distributions exceeded cash flows from operating activities (including investment in joint ventures) by $5.2 million and $3.7 million, respectively). Of the total distributions for the three months and year ended December 31, 2015, $25.0 million and $95.7 million, respectively, were reinvested in units pursuant to the DRIP. Over time, reinvestments pursuant to the DRIP will increase the number of units outstanding, thereby increasing the total cash distributions. Our Declaration of Trust provides our trustees with the discretion to determine the percentage payout of income that would be in the best interest of the Trust, which allows for any unforeseen expenditures and the variability in cash distributions as a result of additional units issued pursuant to the Trust’s DRIP. Accordingly, the Trust believes this does not constitute an economic return of capital. Dream Office REIT 2015 Annual Report | 50 For the three months and year ended December 31, 2015, total distributions exceeded net loss by $118.4 million and $309.3 million, respectively, primarily due to non-cash components of net loss, which include the cost on the Reorganization of $127.3 million, goodwill impairment charge of $51.2 million, fair value loss to investment properties of $79.4 million and $190.0 million, respectively, and fair value adjustments to financial instruments of $20.7 million and $48.9 million, respectively. For the three months and year ended December 31, 2014, total distributions exceeded net income by $56.0 million and $85.4 million, respectively, primarily due to non-cash components of net income, which include the fair value loss to investment properties of $67.3 million and $128.5 million, respectively, and fair value adjustments to financial instruments of $2.7 million and $2.7 million, respectively. Level of debt (net total debt-to-gross book value and net secured debt-to-gross book value) Management believes these non-GAAP measurements are important measures in the management of our debt levels. Net total debt-to-gross book value as shown below is determined as total debt (net of cash on hand), which includes debt related to investment in joint ventures that are equity accounted and debt related to assets held for sale, divided by total assets. Net secured debt-to-gross book value as shown below is determined as secured debt (net of unsecured debt and cash on hand), which includes debt related to investment in joint ventures that are equity accounted and debt related to assets held for sale, divided by total assets. Total assets include assets of investment in joint ventures that are equity accounted and the reversal of accumulated depreciation of property and equipment and cash on hand. In compliance with Canadian Securities Administrators Staff Notice 52-306 (Revised), “Non-GAAP Financial Measures and Additional GAAP Measures”, the following tables calculate the level of debt (net total debt-to-gross book value and net secured debt-to-gross book value) as at December 31, 2015 and December 31, 2014. As at December 31, 2015 $ Non-current debt Current debt Debt before undernoted items Add: Debt related to assets held for sale Add: Overdraft (cash on hand)(1) Total debt (net of cash on hand) Less: Unsecured debt Total secured debt (net of cash on hand) Amounts per consolidated financial statements 2,401,104 609,644 3,010,748 24,245 2,485 3,037,478 (534,097 ) 2,503,381 6,762,874 6,471 2,485 (2) Share of amounts from investment in joint ventures $ 410,832 $ 74,661 485,493 – – 485,493 – 485,493 523,163 – – Total 2,811,936 684,305 3,496,241 24,245 2,485 3,522,971 (534,097 ) 2,988,874 7,286,037 6,471 2,485 (3) Total assets Add: Accumulated depreciation of property and equipment Add: Overdraft (cash on hand)(1) Total assets (excluding accumulated depreciation of property and equipment and cash on hand) Net total debt-to-gross book value Net secured debt-to-gross book value (1) Overdraft (cash on hand) represents overdraft (cash) at period-end, excluding cash held in joint ventures and co-owned properties. (2) Includes net assets of investment in joint ventures that are equity accounted. (3) Total assets are determined as total assets, including assets related to investment in joint ventures that are equity accounted and assets held for sale at 523,163 $ 6,771,830 7,294,993 48.3% 41.0% $ $ year-end. Dream Office REIT 2015 Annual Report | 51 Non-current debt Current debt Debt before undernoted items Less: Cash on hand(1) Total debt (net of cash on hand) Less: Unsecured debt Total secured debt (net of cash on hand) $ Amounts per consolidated financial statements 2,730,973 365,855 3,096,828 (5,466) 3,091,362 (533,860) 2,557,502 7,029,751 4,813 (5,466) (2) As at December 31, 2014 Share of amounts from investment in joint ventures $ Total 3,215,878 377,930 3,593,808 (5,466) 3,588,342 (533,860) 3,054,482 (3) 484,905 $ 12,075 496,980 — 496,980 — 496,980 529,144 — — Total assets Add: Accumulated depreciation of property and equipment Less: Cash on hand(1) Total assets (excluding accumulated depreciation of property and equipment and cash on hand) Net total debt-to-gross book value Net secured debt-to-gross book value (1) Cash on hand represents cash at year-end, excluding cash held in joint ventures and co-owned properties. (2) Includes net assets of investment in joint ventures that are equity accounted. (3) Total assets are determined as total assets, including assets related to investment in joint ventures that are equity accounted and assets held for sale at 7,558,242 47.5% 40.4% 7,558,895 4,813 (5,466) 529,144 $ 7,029,098 $ $ year-end. Interest coverage ratio Management believes this non-GAAP measurement is an important measure in determining our ability to cover interest expense based on our operating performance. Interest coverage ratio for the years ended December 31, 2015 and December 31, 2014 includes the results from investment in joint ventures that are equity accounted. Interest coverage ratio as shown below is calculated as net rental income plus interest and fee income, less general and administrative expenses, all divided by interest expense on total debt. In compliance with Canadian Securities Administrators Staff Notice 52-306 (Revised), “Non-GAAP Financial Measures and Additional GAAP Measures”, the following tables calculate the interest coverage ratio for the years ended December 31, 2015 and December 31, 2014. For the year ended December 31, 2015 Net rental income Add: Interest and fee income Less: General and administrative expenses Total Interest expense – debt Interest coverage ratio (times) Net rental income Add: Interest and fee income Less: General and administrative expenses Total Interest expense – debt Interest coverage ratio (times) $ $ $ $ Amounts per consolidated financial statements Share of amounts from investment in joint ventures 387,513 $ 3,005 (12,196 ) 378,322 131,818 $ 59,791 $ 68 (47 ) 59,812 17,266 $ Total 447,304 3,073 (12,243 ) 438,134 149,084 2.9 For the year ended December 31, 2014 Amounts per consolidated financial statements Share of amounts from investment in joint ventures 401,508 $ 3,199 (24,393 ) 380,314 134,952 $ 60,442 $ 35 (3 ) 60,474 17,725 $ Total 461,950 3,234 (24,396 ) 440,788 152,677 2.9 Dream Office REIT 2015 Annual Report | 52 Net average debt-to-EBITDFV Management believes this non-GAAP measurement is an important measure in determining the time it takes the Trust, based on its historical operating performance, to repay our average debt. Net average debt-to-EBITDFV as shown below is calculated as total average debt (net of cash on hand), which includes debt related to investment in joint ventures that are equity accounted and debt related to assets held for sale, divided by annualized EBITDFV for the current quarter. EBITDFV – annualized is calculated as net income for the period adjusted for: lease termination fees and other, non-cash items included in investment properties revenue, fair value adjustments to investment properties and financial instruments, share of net income and dilution gain (loss) from Dream Industrial REIT, distributions received from Dream Industrial REIT, interest expense, amortization of external management contracts and depreciation on property and equipment, net gains (losses) on transactions and other activities, and income taxes. Net debt-to-adjusted EBITDFV Management believes this non-GAAP measurement is an important measure in determining the time it takes the Trust, on a go forward basis, based on its normalized operating performance, to repay our debt. Net debt-to-adjusted EBITDFV as shown below is calculated as total debt (net of cash on hand), which includes debt related to investment in joint ventures that are equity accounted and debt related to assets held for sale, divided by adjusted EBITDFV – annualized. Adjusted EBITDFV – annualized is calculated as EBITDFV – annualized plus normalized NOI of acquired properties for the quarter. In compliance with Canadian Securities Administrators Staff Notice 52-306 (Revised), “Non-GAAP Financial Measures and Additional GAAP Measures”, the following tables calculate the annualized net average debt-to-EBITDFV and annualized net debt-to-adjusted EBITDFV for the years ended December 31, 2015 and December 31, 2014. Dream Office REIT 2015 Annual Report | 53 Non-current debt Current debt Debt before undernoted items Add: Debt related to assets held for sale Add: Weighted average debt adjustment(1) Add: Overdraft (cash on hand)(2) Net average debt Less: Weighted average debt adjustment(1) Net debt Net income (loss) for the period Add (deduct): Lease termination fees and other Non-cash items included in investment properties revenue(3) Fair value adjustments to investment properties Fair value adjustments to financial instruments Share of net loss from Dream Industrial REIT Distributions received from Dream Industrial REIT Interest – debt Interest – subsidiary redeemable units Amortization of external management contracts and depreciation on property and equipment Net loss on transactions and other activities Deferred income taxes EBITDFV – quarterly Normalized NOI of acquired (disposed) properties for the quarter Adjusted EBITDFV – quarterly EBITDFV – annualized Adjusted EBITDFV – annualized Net average debt-to-EBITDFV (years) Net debt-to-adjusted EBITDFV (years) Amounts included in consolidated financial statements 2,401,104 $ 609,644 3,010,748 24,245 8,430 2,485 3,045,908 $ (8,430 ) 3,037,478 $ (64,323 ) (35 ) 3,408 79,100 (20,695 ) 5,923 3,247 32,302 2,931 779 57,169 516 100,322 $ (494 ) 99,828 $ $ $ $ $ $ $ Share of amounts from investment in joint ventures 410,832 74,661 485,493 — — — 485,493 — 485,493 10,186 $ $ — (60 ) 300 — — — 4,286 — 3 115 — 14,830 — 14,830 $ $ $ $ December 31, 2015 Total 2,811,936 684,305 3,496,241 24,245 8,430 2,485 3,531,401 (8,430 ) 3,522,971 (54,137 ) (35 ) 3,348 79,400 (20,695 ) 5,923 3,247 36,588 2,931 782 57,284 516 115,152 (494 ) 114,658 460,608 458,632 7.7 7.7 (1) Weighted average debt adjustment reflects outstanding debt at period-end, pro-rated for the number of days outstanding during the period. (2) Overdraft (cash on hand) represents overdraft (cash) at period-end, excluding cash held in joint ventures and co-owned properties. (3) Includes adjustments for straight-line rent and amortization of lease incentives. Dream Office REIT 2015 Annual Report | 54 Non-current debt Current debt Debt before undernoted items Less: Weighted average debt adjustment(1) Less: Cash on hand(2) Net average debt Add-back: Weighted average debt adjustment(1) Net debt Net income (loss) for the period Add (deduct): Lease termination fees and other Non-cash items included in investment properties revenue(3) Fair value adjustments to investment properties Fair value adjustments to financial instruments Share of net income and dilution loss from Dream Industrial REIT Distributions received from Dream Industrial REIT Interest – debt Interest – subsidiary redeemable units Amortization of external management contracts and depreciation on property and equipment Net loss on transactions and other activities Deferred income taxes EBITDFV – quarterly Normalized NOI of acquired (disposed) properties for the quarter Adjusted EBITDFV – quarterly EBITDFV – annualized Adjusted EBITDFV – annualized Net average debt-to-EBITDFV (years) Net debt-to-adjusted EBITDFV (years) Amounts included in consolidated financial statements $ 2,730,973 $ 365,855 3,096,828 (41,386 ) (5,466 ) 3,049,976 $ 41,386 3,091,362 $ (3,037 ) (546 ) 2,065 67,100 (2,689 ) (3,699 ) 3,247 33,091 338 800 1,583 300 98,553 $ — 98,553 $ $ $ $ $ December 31, 2014 Share of amounts from investment in joint ventures 484,905 $ 12,075 496,980 — — 496,980 $ — 496,980 $ 10,343 — (117 ) 200 — — — 4,734 — — 133 — 15,293 $ — 15,293 $ $ $ Total 3,215,878 377,930 3,593,808 (41,386 ) (5,466 ) 3,546,956 41,386 3,588,342 7,306 (546 ) 1,948 67,300 (2,689 ) (3,699 ) 3,247 37,825 338 800 1,716 300 113,846 — 113,846 455,384 455,384 7.8 7.9 (1) Weighted average debt adjustment reflects outstanding debt at period-end, pro-rated for the number of days outstanding during the period. (2) Cash on hand represents cash at year-end, excluding cash held in joint ventures and co-owned properties. (3) Includes adjustments for straight-line rent and amortization of lease incentives. Dream Office REIT 2015 Annual Report | 55 SECTION III – DISCLOSURE CONTROLS AND PROCEDURES At December 31, 2015, financial year-end, the Chief Executive Officer and the Chief Financial Officer (the “Certifying Officers”), together with other members of management, have evaluated the design and operational effectiveness of Dream Office REIT’s disclosure controls and procedures, as defined in National Instrument 52-109 – Certification of Disclosure in Issuers’ Annual and Interim Filings (“NI 52-109”). The Certifying Officers have concluded that the disclosure controls and procedures are adequate and effective in order to provide reasonable assurance that material information has been accumulated and communicated to management, to allow timely decisions of required disclosures by Dream Office REIT and its consolidated subsidiary entities, within the required time periods. Dream Office REIT’s internal control over financial reporting (as defined in NI 52-109) is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with IFRS. Using the framework established in “Risk Management and Governance: Guidance on Control (COCO Framework)”, published by the Chartered Professional Accountants Canada, the Certifying Officers, together with other members of management, have evaluated the design and operation of Dream Office REIT’s internal control over financial reporting. Based on that evaluation, the Certifying Officers have concluded that Dream Office REIT’s internal control over financial reporting was effective as at December 31, 2015. There were no changes in Dream Office REIT’s internal control over financial reporting during the financial year ended December 31, 2015 that have materially affected, or are reasonably likely to materially affect, Dream Office REIT’s internal control over financial reporting. SECTION IV – RISKS AND OUR STRATEGY TO MANAGE Dream Office REIT is exposed to various risks and uncertainties, many of which are beyond our control. For a full list and explanation of our risks and uncertainties, please refer to our 2014 Annual Report or our Annual Information Form filed on SEDAR (www.sedar.com). REAL ESTATE OWNERSHIP Real estate ownership is generally subject to numerous factors and risks, including changes in general economic conditions (such as the availability, terms and cost of mortgage financings and other types of credit), local economic conditions (such as an oversupply of office and other commercial properties or a reduction in demand for real estate in the area), the attractiveness of properties to potential tenants or purchasers, competition with other landlords with similar available space, and the ability of the owner to provide adequate maintenance at competitive costs. An investment in real estate is relatively illiquid. Such illiquidity will tend to limit our ability to vary our portfolio promptly in response to changing economic or investment conditions. In recessionary times, it may be difficult to dispose of certain types of real estate. The costs of holding real estate are considerable, and during an economic recession, we may be faced with ongoing expenditures with a declining prospect of incoming receipts. In such circumstances, it may be necessary for us to dispose of properties at lower prices in order to generate sufficient cash from operations and make distributions and interest payments. Certain significant expenditures (e.g., property taxes, maintenance costs, mortgage payments, insurance costs and related charges) must be made throughout the period of ownership of real property, regardless of whether the property is producing sufficient income to pay such expenses. In order to retain desirable rentable space and to generate adequate revenue over the long term, we must maintain or, in some cases, improve each property’s condition to meet market demand. Maintaining a rental property in accordance with market standards can entail significant costs, which we may not be able to pass on to our tenants. Numerous factors, including the age of the relevant building structure, the material and substances used at the time of construction, or currently unknown building code violations, could result in substantial unbudgeted costs for refurbishment or modernization. In the course of acquiring a property, undisclosed defects in design or construction or other risks might not have been recognized or correctly evaluated during the pre-acquisition due diligence process. These circumstances could lead to additional costs and could have an adverse effect on our proceeds from sales and rental income of the relevant properties. Dream Office REIT 2015 Annual Report | 56 ROLLOVER OF LEASES Upon the expiry of any lease, there can be no assurance that the lease will be renewed or the tenant replaced. Furthermore, the terms of any subsequent lease may be less favourable than those of the existing lease. Our cash flows and financial position would be adversely affected if our tenants were to become unable to meet their obligations under their leases or if a significant amount of available space in our properties could not be leased on economically favourable lease terms. In the event of default by a tenant, we may experience delays or limitations in enforcing our rights as lessor and incur substantial costs in protecting our investment. Furthermore, at any time, a tenant may seek the protection of bankruptcy, insolvency or similar laws which could result in the rejection and termination of the lease of the tenant and, thereby, cause a reduction in the cash flows available to us. CONCENTRATION OF PROPERTIES AND TENANTS Currently, principally all of our properties are located in Canada and, as a result, are impacted by economic and other factors specifically affecting the real estate markets in Canada. These factors may differ from those affecting the real estate markets in other regions. Due to the concentrated nature of our properties, a number of our properties could experience any of the same conditions at the same time. If real estate conditions in Canada decline relative to real estate conditions in other regions, our cash flows and financial condition may be more adversely affected than those of companies that have more geographically diversified portfolios of properties. Given the prominence of the oil and gas industry in the Province of Alberta, the economy of this province can be significantly impacted by the price of oil. As at December 31, 2015, approximately 18% of our comparative properties NOI was generated from Calgary and approximately 7% was generated from Edmonton. Accordingly, any substantial decline or prolonged weakness in the price of oil could also adversely affect the Trust’s operating results and its ability to renew or refinance mortgages as it relates to the properties in these cities. We continuously evaluate the economic health of the markets in which we operate through various means to ensure that we have identified and, where possible, mitigate risks to the Trust, including the potential impacts of changes in the price of oil. As of December 31, 2015, the Trust had not identified any material adverse effect on our business as a result of the current softening of oil prices. FINANCING We require access to capital to maintain our properties as well as to fund our growth strategy and significant capital expenditures. There is no assurance that capital will be available when needed or on favourable terms. Our access to third- party financing will be subject to a number of factors, including general market conditions; the market’s perception of our growth potential; our current and expected future earnings; our cash flow and cash distributions, and cash interest payments; and the market price of our Units. A significant portion of our financing is debt. Accordingly, we are subject to the risks associated with debt financing, including the risk that our cash flows will be insufficient to meet required payments of principal and interest, and that, on maturities of such debt, we may not be able to refinance the outstanding principal under such debt or that the terms of such refinancing will be more onerous than those of the existing debt. If we are unable to refinance debt at maturity on terms acceptable to us or at all, we may be forced to dispose of one or more of our properties on disadvantageous terms, which may result in losses and could alter our debt-to-equity ratio or be dilutive to unitholders. Such losses could have a material adverse effect on our financial position or cash flows. The degree to which we are leveraged could have important consequences to our operations. A high level of debt will reduce the amount of funds available for the payment of distributions to unitholders and interest payments on our debentures; limit our flexibility in planning for and reacting to changes in the economy and in the industry, and increase our vulnerability to general adverse economic and industry conditions; limit our ability to borrow additional funds, dispose of assets, encumber our assets and make potential investments; place us at a competitive disadvantage compared to other owners of similar real estate assets that are less leveraged and, therefore, may be able to take advantage of opportunities that our indebtedness would prevent us from pursuing; make it more likely that a reduction in our borrowing base following a periodic valuation (or redetermination) could require us to repay a portion of then outstanding borrowings; and impair our ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions, general trust or other purposes. Dream Office REIT 2015 Annual Report | 57 CHANGES IN LAW We are subject to applicable federal, provincial, municipal, local and common laws and regulations governing the ownership and leasing of real property, employment standards, environmental matters, taxes and other matters. It is possible that future changes in such laws or regulations, or changes in their application, enforcement or regulatory interpretation, could result in changes in the legal requirements affecting us (including with retroactive effect). In addition, the political conditions in the jurisdictions in which we operate are also subject to change. Any changes in investment policies or shifts in political attitudes may adversely affect our investments. Any changes in the laws to which we are subject in the jurisdictions in which we operate could materially affect our rights and title in and to the properties and the revenues we are able to generate from our investments. INTEREST RATES When entering into financing agreements or extending such agreements, we depend on our ability to agree on terms for interest payments that will not impair our desired profit, and on amortization schedules that do not restrict our ability to pay distributions on our Units and interest payments on our debentures. In addition to existing variable rate portions of our financing agreements, we may enter into future financing agreements with variable interest rates. An increase in interest rates could result in a significant increase in the amount we pay to service debt, which could limit our ability to pay distributions to unitholders and could impact the market price of the Units and/or the debentures. We have implemented an active hedging program in order to offset the risk of revenue losses and to provide more certainty regarding the payment of distributions to unitholders and cash interest payments under the debentures should current variable interest rates increase. However, to the extent that we fail to adequately manage these risks, including if any such hedging arrangements do not effectively or completely hedge increases in variable interest rates, our financial results, our ability to pay distributions to unitholders and cash interest payments under our financing arrangements, and the debentures and future financings may be negatively affected. Hedging transactions involve inherent risks. Increases in interest rates generally cause a decrease in demand for properties. Higher interest rates and more stringent borrowing requirements, whether mandated by law or required by banks, could have a significant negative effect on our ability to sell any of our properties. ENVIRONMENTAL RISK As an owner of real property, we are subject to various federal, provincial and municipal laws relating to environmental matters. Such laws provide a range of potential liability, including potentially significant penalties, and potential liability for the costs of removal or remediation of certain hazardous substances. The presence of such substances, if any, could adversely affect our ability to sell or redevelop such real estate or to borrow using such real estate as collateral and, potentially, could also result in civil claims against us. In order to obtain financing for the purchase of a new property through traditional channels, we may be requested to arrange for an environmental audit to be conducted. Although such an audit provides us and our lenders with some assurance, we may become subject to liability for undetected pollution or other environmental hazards on our properties against which we cannot insure, or against which we may elect not to insure where premium costs are disproportionate to our perception of relative risk. We have formal policies and procedures to review and monitor environmental exposure. These policies include the requirement to obtain a Phase I Environmental Site Assessment, conducted by an independent and qualified environmental consultant, before acquiring any real property or any interest therein. JOINT ARRANGEMENTS We are a participant in jointly controlled entities and co-ownerships, combined (“joint arrangements”) with third parties. A joint arrangement involves certain additional risks, including: (i) (ii) the possibility that such third parties may at any time have economic or business interests or goals that will be inconsistent with ours, or take actions contrary to our instructions or requests or to our policies or objectives with respect to our real estate investments; the risk that such third parties could experience financial difficulties or seek the protection of bankruptcy, insolvency or other laws, which could result in additional financial demands on us to maintain and operate such properties or repay the third parties’ share of property debt guaranteed by us or for which we will be liable, and/or result in our suffering or incurring delays, expenses and other problems associated with obtaining court approval of the joint arrangement; (iii) the risk that such third parties may, through their activities on behalf of or in the name of the joint arrangements, expose or subject us to liability; and Dream Office REIT 2015 Annual Report | 58 (iv) the need to obtain third parties’ consents with respect to certain major decisions, including the decision to distribute cash generated from such properties or to refinance or sell a property. In addition, the sale or transfer of interests in certain of the joint arrangements may be subject to rights of first refusal or first offer, and certain of the joint venture and partnership agreements may provide for buy-sell or similar arrangements. Such rights may be triggered at a time when we may not desire to sell but may be forced to do so because we do not have the cash to purchase the other party’s interests. Such rights may also inhibit our ability to sell an interest in a property or a joint arrangement within the time frame or otherwise on the basis we desire. Our investment in properties through joint arrangements is subject to the investment guidelines set out in our Declaration of Trust. COMPETITION The real estate market in Canada is highly competitive and fragmented, and we compete for real property acquisitions with individuals, corporations, institutions and other entities that may seek real property investments similar to those we desire. An increase in the availability of investment funds or an increase in interest in real property investments may increase competition for real property investments, thereby increasing purchase prices and reducing the yield on them. If competing properties of a similar type are built in the area where one of our properties is located or if similar properties located in the vicinity of one of our properties are substantially refurbished, the net operating income derived from and the value of such property could be reduced. Numerous other developers, managers and owners of properties will compete with us in seeking tenants. To the extent that our competitors own properties that are in better locations, of better quality or less leveraged than the properties owned by us, they may be in a better position to attract tenants who might otherwise lease space in our properties. To the extent that our competitors are better capitalized or financially stronger, they would be in a better position to withstand an economic downturn. The existence of competition for tenants could have an adverse effect on our ability to lease space in our properties and on the rents charged or concessions granted, and could materially and adversely affect our cash flows, operating results and financial condition. INSURANCE We carry general liability, umbrella liability and excess liability insurance with limits that are typically obtained for similar real estate portfolios in Canada and otherwise acceptable to our trustees. For the property risks, we carry “All Risks” property insurance including, but not limited to, flood, earthquake and loss of rental income insurance (with at least a 24-month indemnity period). We also carry boiler and machinery insurance covering all boilers, pressure vessels, HVAC systems and equipment breakdown. However, certain types of risks (generally of a catastrophic nature such as from war or nuclear accident) are uninsurable under any insurance policy. Furthermore, there are other risks that are not economically viable to insure at this time. We partially self-insure against terrorism risk for our entire portfolio. We have insurance for earthquake risks, subject to certain policy limits, deductibles and self-insurance arrangements. Should an uninsured or underinsured loss occur, we could lose our investment in, and anticipated profits and cash flows from, one or more of our properties, but we would continue to be obligated to repay any recourse mortgage indebtedness on such properties. We do not carry title insurance on our properties. If a loss occurs resulting from a title defect with respect to a property where there is no title insurance or the loss is in excess of insured limits, we could lose all or part of our investment in, and anticipated profits and cash flows from, such property. RELIANCE ON DAM FOR CERTAIN MANAGEMENT SERVICES We rely on DAM for certain management services, including the services of a Chief Executive Officer, as requested. DAM has the right, upon 180 days’ notice, to terminate our Management Services Agreement for any reason: (i) at any time on or after April 2, 2018; and (ii) at any time on or after April 2, 2017 if the Shared Services and Cost Sharing Agreement has been terminated by Dream Office LP. Our Management Services Agreement may also be terminated in other circumstances, such as in the event of default or insolvency of DAM within the meaning of such agreement. Accordingly, there can be no assurance that DAM will continue to provide management services. If DAM should cease for whatever reason to provide such services, this may adversely impact our ability to meet our objectives and execute our strategy. The Management Services Agreement does not obligate DAM to provide the services of any particular person to Dream Office REIT, including the services of our current senior management team. However, we have no reason to believe the services of our current senior management team will not continue to be provided by DAM. Dream Office REIT 2015 Annual Report | 59 IMPLEMENTING THE TRUST’S STRATEGIC PLAN The Trust’s Strategic Plan is intended to surface value for unitholders by reducing the current 50% discount to net asset value and creating a stronger and more flexible balance sheet. However, there can be no assurance that the Trust will be successful in executing the Strategic Plan and achieving its expected benefits. If we are unable to successfully execute the Strategic Plan, whether because we are unable to complete dispositions of our investment properties contemplated by the Strategic Plan on favourable terms or at prices which reflect fair value, because one or more of the assumptions underlying the Strategic Plan proves to be incorrect, or as a result of events outside the Trust’s control that were not anticipated or expected when the Strategic Plan was implemented or for other reasons, or if the benefits of the Strategic Plan are not fully achieved or take longer to realize than anticipated, it could have a material adverse effect on the Trust’s financial condition and results of operations. SECTION V – CRITICAL ACCOUNTING POLICIES CRITICAL ACCOUNTING JUDGMENTS, ESTIMATES AND ASSUMPTIONS IN APPLYING ACCOUNTING POLICIES Preparing the consolidated financial statements requires management to make judgments, estimates and assumptions that affect the amounts reported. Management bases its judgments and estimates on historical experience and other factors it believes to be reasonable under the circumstances, but which are inherently uncertain and unpredictable, the result of which forms the basis of the carrying amounts of assets and liabilities. However, uncertainty about these assumptions and estimates could result in outcomes that could require a material adjustment to the carrying amount of the affected asset or liability in the future. Critical accounting judgments The following are the critical accounting judgments used in applying the Trust’s accounting policies that have the most significant effect on the amounts in the consolidated financial statements: Investment properties Critical judgments are made in respect of the fair values of investment properties and the investment properties held in equity accounted investments. The fair values of these investments are reviewed regularly by management with reference to independent property valuations and market conditions existing at the reporting date, using generally accepted market practices. The independent valuators are experienced, nationally recognized and qualified in the professional valuation of office buildings in their respective geographic areas. Judgment is also applied in determining the extent and frequency of independent appraisals. At each annual reporting period, a select number of properties, determined on a rotational basis, will be valued by qualified valuation professionals. For properties not subject to independent appraisals, valuations are prepared internally during each reporting period. Critical assumptions relating to the estimates of fair values of investment properties include the receipt of contractual rents, expected future market rents, renewal rates, maintenance requirements, discount rates that reflect current market uncertainties, capitalization rates, and current and recent property investment prices. If there is any change in these assumptions or regional, national or international economic conditions, the fair value of investment properties may change materially. The Trust 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 lessee- or 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 included in the carrying amount of investment properties and are amortized as a reduction of rental revenue on a straight- line basis over the term of the lease. Judgment is also applied in determining whether certain costs are additions to the carrying amount of the investment property and, for properties under development, identifying the point at which practical completion of the property occurs and identifying the directly attributable borrowing costs to be included in the carrying amount of the development property. Dream Office REIT 2015 Annual Report | 60 Impairment The Trust assesses the possibility and amount of any impairment loss or write-down as it relates to the investment in Dream Industrial REIT, amounts receivable, property and equipment, external management contracts and goodwill. IAS 39, “Financial Instruments: Recognition and Measurement”, requires management to use judgment in determining if the Trust’s financial assets are impaired. In making this judgment, the Trust evaluates, among other factors, the duration and extent to which the fair value of the investment is less than its carrying amount; and the financial health of and short-term business outlook for the investee, including factors such as industry and sector performance, changes in technology, and operational and financing cash flow. IAS 36, “Impairment of Assets” (“IAS 36”), requires management to use judgment in determining the recoverable amount of assets and equity accounted investments that are tested for impairment, including goodwill, the investment in Dream Industrial REIT and the investment in joint ventures. Judgment is involved in estimating the fair value less cost to sell or value-in-use of the cash-generating units (“CGUs”) to which goodwill has been allocated, including estimates of growth rates, discount rates and terminal rates. Judgment is also involved in estimating the value-in-use of the investment in Dream Industrial REIT, including estimates of future cash flows, discount rates and terminal rates. The values assigned to these key assumptions reflect past experience and are consistent with external sources of information. The Trust’s goodwill balance is allocated to the office properties group of CGUs by geographical segment (herein referred to as the goodwill CGU). The recoverable amount of the Trust’s goodwill CGU is determined based on the value-in-use approach. For the purpose of this impairment test, the Trust uses cash flow projections forecasted out for a ten-year period, consistent with the internal financial budgets approved by management on a property-by-property basis. The key assumptions used in determining the value-in-use of the goodwill CGU are the estimated growth rate, discount rate and terminal rate. In arriving at the growth rate, the Trust considers past experience and inflation, as well as industry trends. The Trust utilizes weighted average cost of capital (“WACC”) to determine the discount rate and terminal rate. The WACC reflects specific risks that would be attributable to the Trust. As the Trust is not subject to taxation, no adjustment is required to adjust the WACC on a pre-tax basis. Estimates and assumptions The Trust makes estimates and assumptions that affect the carrying amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported amount of earnings for the period. Actual results could differ from these estimates. The estimates and assumptions that are critical in determining the amounts reported in the consolidated financial statements relate to the following: Valuation of financial instruments The Trust makes estimates and assumptions relating to the fair value measurement of the subsidiary redeemable units, the deferred trust units, the convertible debenture conversion feature, interest rate swaps and the fair value disclosure of the convertible debentures, mortgages and term debt. The critical assumptions underlying the fair value measurements and disclosures include the market price of REIT Units, market interest rates for mortgages, term debt and unsecured debentures, and assessment of the effectiveness of hedging relationships. For certain financial instruments, including cash and cash equivalents, amounts receivable, amounts payable and accrued liabilities, deposits and distributions payable, the carrying amounts approximate fair values due to their immediate or short- term maturity. The fair values of mortgages, term debt and interest rate swaps are determined based on discounted cash flows using discount rates that reflect current market conditions for instruments with similar terms and risks. The fair value of convertible debentures is determined by reference to quoted market prices from an active market. FUTURE ACCOUNTING POLICY CHANGES Revenue recognition IFRS 15, “Revenue from Contracts with Customers” (“IFRS 15”), provides a comprehensive five-step revenue recognition model for all contracts with customers. The IFRS 15 revenue recognition model requires management to exercise significant judgment and make estimates that affect revenue recognition. IFRS 15 is effective for annual periods beginning on or after January 1, 2018, with earlier application permitted. The Trust is currently evaluating the impact of adopting this standard on the consolidated financial statements. Dream Office REIT 2015 Annual Report | 61 Financial instruments The final version of IFRS 9, “Financial Instruments” (“IFRS 9”), was issued by the IASB in July 2014 and will replace IAS 39, “Financial Instruments: Recognition and Measurement” (“IAS 39”). 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 an entity’s 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. The entity’s own credit changes can be early adopted in isolation without otherwise changing the accounting for financial instruments. Lastly, a third measurement category for financial assets – “fair value through other comprehensive income” – will exist. IFRS 9 is effective for annual periods beginning on or after January 1, 2018; however, it is available for early adoption. The Trust is currently evaluating the impact of adopting this standard on the consolidated financial statements. Financial instruments – disclosures IFRS 7, “Financial Instruments: Disclosures” (“IFRS 7”), has been amended by the IASB to require additional disclosures on transition from IAS 39 to IFRS 9. The amendment to IFRS 7 is effective for annual periods beginning on or after January 1, 2018. The Trust is currently evaluating the impact of adopting this standard on the consolidated financial statements. Presentation of financial statements IAS 1, “Presentation of Financial Statements” (“IAS 1”), was amended by the IASB to clarify guidance on materiality and aggregation, the presentation of subtotals, the structure of financial statements and disclosure of accounting policies. The amendment gives guidance that information within the consolidated balance sheets and statements of comprehensive income should not be aggregated or disaggregated in a manner that obscures useful information, and that disaggregation may be required in the statement of comprehensive income in the form of additional subtotals as they are relevant to understanding the entity’s financial position or performance. The amendment to IAS 1 are effective for annual periods beginning on or after January 1, 2016. This amendment to IAS 1 has no material impact on the Trust’s consolidated financial statements or note disclosures. Acquisitions of interests in joint operations IFRS 11, “Joint Arrangements” (“IFRS 11”), has been amended to require the application of IFRS 3 to transactions where an investor obtains an interest in a joint operation that constitutes a business. The amendment to IFRS 11 is effective for annual periods beginning on or after January 1, 2016. This amendment to IFRS 11 has no material impact on the Trust’s consolidated financial statements or note disclosures. Leases IFRS 16, “Leases” (“IFRS 16”), sets out the principles for the recognition, measurement and disclosure of leases. IFRS 16 provides revised guidance on identifying a lease and for separating lease and non-lease components of a contract. IFRS 16 introduces a single accounting model for all lessees and requires a lessee to recognize right-of-use assets and lease liabilities for leases with terms of more than 12 months, unless the underlying asset is of low value. Under IFRS 16, lessor accounting for operating and finance leases will remain substantially unchanged. IFRS 16 is effective for annual periods beginning on or after January 1, 2019, with earlier application permitted for entities that apply IFRS 15. The Trust is currently evaluating the impact of adopting this standard on the consolidated financial statements. ADDITIONAL INFORMATION Additional information relating to Dream Office REIT, including the latest Annual Information Form of Dream Office REIT, is available on SEDAR at www.sedar.com. Dream Office REIT 2015 Annual Report | 62 SECTION VI – SUPPLEMENTARY INFORMATION The following tables within this section include supplementary information on our portfolio as at December 31, 2015. Asset listing Property Ownership HSBC Bank Place, Edmonton Enbridge Place, Edmonton Saskatoon Square, Saskatoon Station Tower, Surrey 100.0% 100.0% 100.0% 100.0% Total GLA in square feet 300,860 262,456 228,312 219,638 Owned share of total GLA in square feet 300,860 262,456 228,312 219,638 Year built/ renovated 1981 1981 1980 1994 1900 Sherwood Place, Regina 100.0% 185,104 185,104 1992/2003 Milner Building, Edmonton 887 Great Northern Way, Vancouver 2257 & 2301 Premier Way, Sherwood Park 2121 & 2181 Premier Way, Sherwood Park Victoria Tower, Regina 100.0% 100.0% 174,383 164,364 174,383 164,364 100.0% 156,166 156,166 1957 1999 2003 100.0% 151,387 151,387 2005–2006 100.0% 144,165 144,165 Baker Centre, Edmonton 100.0% 142,791 142,791 Princeton Tower, Saskatoon 100.0% 134,461 134,461 340-450 3rd Avenue N., Saskatoon HSBC Building, Edmonton 100.0% 130,724 130,724 1980/1993 100.0% 118,838 118,838 1974 4259-4299 Canada Way, Burnaby 100.0% 119,570 119,570 1973/1998 1976 1958 1988 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 116,530 107,973 104,629 93,095 116,530 107,973 104,629 93,095 92,730 92,730 87,965 87,965 87,994 85,534 87,994 85,534 82,489 82,489 82,264 81,808 82,264 81,808 81,662 81,662 2008 1991 1978 1977/2000 and 2006 1976 2007 1991 1981 1999 1973 2007 2009 13888 Wireless Way, Richmond Scotia Centre, Yellowknife Highfield Place, Edmonton 4400 Dominion Street, Burnaby Precambrian Building, Yellowknife 2055 Premier Way, Strathcona County Northwest Tower, Yellowknife 625 Agnes Street, New Westminster 2899 Broadmoor Blvd., Strathcona County 1914 Hamilton Street, Regina 2693 Broadmoor Blvd., Strathcona County 2665 Renfrew Street, Vancouver 350-450 Lansdowne Street, Kamloops(4) 2833 Broadmoor Blvd., Strathcona County 2261 Keating Cross Road, Victoria(4) Financial Building, Regina 4370 Dominion Street, Burnaby Total site area in acres 1.6 0.7 0.6 1.0 3.0 0.9 2.3 8.7 7.8 0.8 0.7 0.6 1.1 0.4 3.2 4.8 0.7 0.3 1.9 0.8 4.3 0.3 0.6 3.5 0.4 4.1 3.3 Owned share of site area in acres Description of asset 1.6 19-storey downtown office building with commercial parkade 0.7 22-storey downtown office building 0.6 18-storey downtown office building 1.0 18-storey office building with grade level retail 3.0 One 9-storey and one 2-storey downtown office building 0.9 12-storey downtown office building 2.3 8-storey office building 8.7 2-storey suburban office building 7.8 2-storey suburban office building 0.8 15-storey downtown government office building 0.7 16-storey downtown office building with parkade 0.6 11-storey downtown office building with grade level retail 1.1 2-storey office building 0.4 12-storey downtown office building with underground parking 3.2 Two 2-storey suburban office buildings 4.8 3-storey suburban office building 0.7 11-storey office building 0.3 10-storey downtown office building 1.9 5-storey suburban office building 0.8 11-storey office building 4.3 2-storey flex office building 0.3 11-storey office building 0.6 5-storey suburban office building 3.5 2-storey suburban office building 0.4 14-storey downtown office building 4.1 2-storey suburban office building 3.3 2-storey suburban office building 40.0% 190,665 76,266 1970/2008 11.9 4.8 One 1-storey, one 2-storey and one 100.0% 74,649 74,649 40.0% 181,601 72,640 2000 1999 100.0% 100.0% 65,739 63,930 65,739 63,930 1958/1992 1983/1999 3.2 4.9 0.6 1.0 4-storey retail and office complex 3.2 2-storey flex office building 2.0 One 2-storey and one 4-storey suburban office building 0.6 8-storey downtown office building 1.0 6-storey suburban office building Dream Office REIT 2015 Annual Report | 63 Property Ownership Preston Centre, Saskatoon 960 Quayside Drive, New Westminster 2755 Broadmoor Blvd., Sherwood Park 10199 - 101st Street NW, Edmonton(4) 2220 College Avenue, Regina Morgex Building, Edmonton Gallery Building, Yellowknife 13183 - 146th Street NW, Edmonton Harbour Landing, Phase 2, Regina 2400 College Avenue, Regina Royal Centre, Saskatoon 2208 Scarth Street, Regina Royal Centre, Saskatoon 2445 - 13th Avenue, Regina 234 - 1st Avenue South, Saskatoon Western Canada IBM Corporate Park, Calgary F1RST Tower (formerly Telus Tower), Calgary (3) 840 - 7th Avenue SW, Calgary 444 - 7th Building, Calgary McFarlane Tower, Calgary Life Plaza, Calgary Rocky Mountain Plaza, Calgary Northland Building, Calgary 606 4th Building & Barclay Parkade, Calgary Roslyn Building, Calgary Atrium I, Calgary Atrium II, Calgary 510 - 5th Street SW, Calgary Joffre Place, Calgary Dominion Centre, Calgary 435 - 4th Avenue SW, Calgary 1035 - 7th Ave SW, Calgary Mount Royal Place, Calgary 441 - 5th Avenue SW, Calgary Calgary Downtown Airport Corporate Centre, Calgary Franklin Atrium, Calgary 2891 Sunridge Way, Calgary Kensington House, Calgary 3115 - 12th Street NE, Calgary Owned share of total GLA in square feet 61,867 Year built/ renovated 1988/2003 Total site area in acres 3.1 Total GLA in square feet 61,867 50.0% 121,357 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 94.3% 100.0% 61,849 61,849 61,255 59,590 53,000 48,265 38,561 61,255 60,679 59,590 53,000 48,265 38,561 38,738 38,738 35,528 32,128 25,129 16,411 16,316 9,567 35,528 32,128 25,129 16,411 16,316 9,567 4,994,037 357,277 4,709,999 357,277 50.0% 710,243 355,122 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 89.9% 100.0% 272,266 254,545 242,263 236,688 205,254 146,602 132,697 131,764 109,793 109,542 109,181 107,261 98,712 88,737 75,129 59,363 60,787 3,508,104 149,771 272,266 254,545 242,263 236,688 205,254 146,602 132,697 131,764 109,793 109,542 109,181 107,261 98,712 88,737 75,129 59,363 60,787 3,152,983 149,771 100.0% 150,312 150,312 100.0% 100.0% 100.0% 87,246 77,816 87,246 77,816 72,753 72,753 1988 2005 1985 1976 1982/1995 2012 2005 2013 1977 1952 1974 1952 1975 1971 2002 1983 1979/2001 1963/1998 1979/2003 1980/1992 1972 1982 1969/1998 1966/2003 1978 1979 1981 1980 1979 1978 1979/2002 1979/2004 1973 2000 1981 2001 1982/2002 to 2003 1981 1.8 2.9 0.7 0.6 4.8 0.1 2.6 2.3 0.5 0.7 3.2 0.3 0.4 0.7 104.7 2.4 1.7 0.4 0.8 0.7 0.5 0.9 0.4 0.3 0.5 0.5 0.4 0.2 0.6 0.3 0.4 0.6 0.5 0.2 12.3 — 7.9 5.1 0.6 2.3 Dream Office REIT 2015 Annual Report | 64 Owned share of site area in acres Description of asset 3.1 3-storey suburban office building with grade level retail 1.8 4-storey suburban office building 2.9 2-storey suburban office building 0.4 5-storey downtown office building 0.6 7-storey suburban office building 4.8 1-storey suburban office building 0.1 3-storey office building 2.6 2-storey suburban office building 2.3 3-storey suburban office building 0.5 5-storey suburban office building 0.7 4-storey downtown office/retail complex 3.2 2-storey suburban office building 0.3 Retail component of office/retail complex 0.4 3-storey downtown office building 0.7 4-storey parking garage with grade level retail 94.4 2.4 One 5-storey and two 6-storey downtown office buildings 0.9 28-storey downtown office building 0.4 20-storey downtown office building 0.8 10-storey downtown office building 0.7 18-storey downtown office building 0.5 18-storey downtown office building 0.9 14-storey downtown office building 0.4 14-storey downtown office building 0.3 14-storey downtown office building and parkade 0.5 10-storey downtown office building 0.5 8-storey downtown office building 0.4 8-storey downtown office building 0.2 18-storey downtown office building 0.6 6-storey downtown office building 0.3 11-storey downtown office building 0.4 7-storey downtown office building 0.6 6-storey downtown office building 0.5 6-storey downtown office building 0.2 10-storey downtown office building 11.5 — 8-storey suburban office building 7.9 Two 2-storey suburban office buildings 5.1 3-storey suburban office building 0.6 5-storey suburban office building with grade level retail 2.3 4-storey suburban office building Owned share of total GLA in square feet 61,272 Total GLA in square feet 61,272 54,924 54,924 Year built/ renovated 2000 1982 Total site area in acres 2.2 Owned share of site area in acres Description of asset 2.2 3-storey office building 0.3 0.3 6-storey suburban office building Property Ownership 14505 Bannister Road, SE, Calgary Braithwaite Boyle Centre, Calgary Franklin Building, Calgary 2816 - 11th Street NE, Calgary Centre 70, Calgary(4) Calgary Suburban Scotia Plaza (40 King Street West), Toronto(3) 100.0% 100.0% 100.0% 100.0% 15.0% 87.0% 66.7% 50,577 33,435 133,219 871,325 1,577,071 50,577 33,435 19,983 758,089 1,051,433 1978/2001 1981 1977 1989/2011 2.6 0.9 2.0 23.9 2.4 2.6 2-storey suburban office building 0.9 3-storey suburban office building 0.3 8-storey suburban office building 22.2 1.6 68-storey, 5-storey and 3-storey downtown office buildings with below grade retail concourse 2.1 One 22-storey and one 20-storey downtown office building 1.3 17-storey downtown office building 0.7 20-storey downtown office building 1.3 17-storey downtown office building 0.4 26-storey downtown office building 0.4 10-storey commercial office building 0.6 11-storey downtown office building 0.5 13-storey downtown office building 0.5 18-storey downtown office building 0.2 17-storey downtown office building 0.4 One 16-storey and one 11-storey downtown office building 0.4 15-storey commercial office building 0.2 21-storey downtown office building 0.6 8-storey downtown office building 0.2 20-storey downtown office building 0.6 5-storey downtown office building 0.4 6-storey downtown historical office building 0.2 10-storey downtown office building 0.1 10-storey downtown office building 0.1 14-storey downtown office building 0.1 13-storey downtown office building 0.2 7-storey downtown office building 0.1 12-storey downtown office building 0.4 7-storey downtown office building 0.1 10-storey downtown office building 0.04 7-storey downtown office building 0.1 3-storey downtown office building with grade level retail 2.1 1.3 0.7 1.3 0.6 0.4 0.6 0.5 0.5 0.3 0.4 0.4 0.2 0.6 0.2 0.6 0.4 0.2 0.1 0.1 0.1 0.2 0.1 1.1 0.1 0.1 0.1 Adelaide Place, Toronto 100.0% 659,533 659,533 1982/2001 100.0% 413,933 413,933 1958/2001 State Street Financial Centre, Toronto AIR MILES Tower, Toronto 655 Bay Street, Toronto Scotia Plaza (44 King Street West), Toronto(3) 74 Victoria St/137 Yonge St, Toronto 720 Bay Street, Toronto 36 Toronto Street, Toronto 100.0% 100.0% 66.7% 322,669 298,372 401,705 322,669 298,372 267,817 100.0% 265,956 265,956 100.0% 100.0% 247,743 213,993 247,743 213,993 18 King Street East, Toronto 100.0% 232,365 232,365 100 Yonge Street, Toronto(3) 330 Bay Street, Toronto 66.7% 100.0% 244,787 162,229 163,199 162,229 20 Toronto St/33 Victoria St, Toronto 8 King Street East, Toronto 100.0% 157,852 157,852 100.0% 150,113 150,113 121,593 101,421 121,593 101,421 83,527 73,277 63,529 58,328 57,476 52,796 50,158 83,527 73,277 63,529 58,328 57,476 52,796 50,158 36,364 36,364 87,105 32,338 60,255 34,842 32,338 24,102 250 Dundas Street West, Toronto Victory Building, Toronto 425 Bloor Street East, Toronto 212 King Street West, Toronto 357 Bay Street, Toronto 360 Bay Street, Toronto 10 King Street East, Toronto 350 Bay Street, Toronto 67 Richmond Street West, Toronto 366 Bay Street, Toronto 49 Ontario Street, Toronto(4) 56 Temperance Street, Toronto 10 Lower Spadina Avenue, Toronto(4) 83 Yonge Street, Toronto Toronto Downtown 5915-5935 Airport Road, Mississauga 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 40.0% 100.0% 40.0% 100.0% 86.7% 100.0% 1992 1990 1951/2011 1958/1968 and 2011 1989 1875/2008 to 2009 1967/2008 to 2009 1989 1926 1965/2009 to 2011 1914/2006 and 2008 1983 1925/2007 to 2008 1986 1908/1980 1921/2008 1955/2007 and 2009 1965/2010 1928/1987 1940 1959/2006 and 2009 1972 1984/2008 1988 11,504 11,504 1857/2006 6,237,992 499,934 5,408,462 499,934 15.7 10.5 13.8 10.5 11-storey suburban office building 1983 Dream Office REIT 2015 Annual Report | 65 Property Ownership Aviva Corporate Centre, Toronto 100.0% Total GLA in square feet 352,425 Owned share of total GLA in square feet 352,425 6655-6725 Airport Road, Mississauga 5001 Yonge Street, Toronto 2075 Kennedy Road, Toronto 5945-5955 Airport Road, Mississauga 50 Burnhamthorpe Road West, Mississauga (Sussex Centre)(4) 30 Eglinton Avenue West, Mississauga 401 & 405 The West Mall, Toronto (Commerce West)(4) 300, 302 & 304 The East Mall, Toronto (Valhalla Executive Centre)(4) 625 Cochrane Drive, Markham Valleywood Corporate Centre, Markham 90 Burnhamthorpe Road West, Mississauga (Sussex Centre)(4) 185 The West Mall, Toronto(4) 2645 Skymark Ave., Mississauga 100 Gough Road, Markham 6299 Airport Road, Mississauga 1020 Birchmount Road, Toronto 6303 Airport Road, Mississauga 195 The West Mall, Toronto(4) 191 The West Mall, Toronto(4) 586 Argus Road, Oakville 2810 Matheson Boulevard East, Mississauga(4) 6509 Airport Road, Mississauga 2550 Argentia Road, Mississauga 6501 Mississauga Road, Mississauga(4) 2010 Winston Park Drive, Oakville(4) 6531 Mississauga Road, Mississauga(4) 80 Whitehall Drive, Markham(4) 3035 Orlando Drive, Mississauga Toronto Suburban 700 De la Gauchetière Street West, Montréal 445 Opus Industrial Boulevard, Mount Juliet, Nashville Market Square, Kitchener Year built/ renovated 1987 1983 1992 1991 1981 1987 1989 100.0% 331,372 331,372 100.0% 100.0% 100.0% 308,568 205,949 177,960 308,568 205,949 177,960 49.9% 350,525 174,912 100.0% 165,012 165,012 40.0% 411,842 164,737 1985/2007 49.9% 326,401 162,874 1973 100.0% 100.0% 162,792 154,774 162,792 154,774 49.9% 304,774 152,082 1989 1990 1989 49.9% 100.0% 100.0% 100.0% 100.0% 100.0% 49.9% 49.9% 100.0% 49.9% 100.0% 100.0% 40.0% 297,292 142,436 111,840 90,779 89,208 80,325 160,812 158,260 74,570 139,035 60,000 51,639 84,725 148,349 142,436 111,840 90,779 89,208 80,325 80,245 78,972 74,570 69,378 60,000 51,639 33,890 40.0% 79,137 31,655 40.0% 71,192 28,477 40.0% 100.0% 76.5% 100.0% 60,805 16,754 5,521,137 956,725 24,322 16,754 4,226,230 956,725 1989/2006 1984 1980 1975/2007 1952 1979/2007 1984 1985 1992/2011 1989 1981/2010 1987 1982 1990 1978 1990 1991 1983/2003 and 2010 100.0% 241,341 241,341 1975/1986 Total site area in acres 9.8 12.6 1.0 5.4 6.8 2.1 6.3 4.6 4.5 Owned share of site area in acres Description of asset 9.8 3-storey, 2-storey and 7-storey suburban office complex 12.6 6-storey and 7-storey suburban office buildings, 1-storey and 2-storey flex buildings 1.0 20-storey office building 5.4 13-storey suburban office building 6.8 3-storey suburban office complex 1.0 15-storey suburban office building with retail space 6.3 8-storey suburban office building 1.8 Two 11-storey suburban office buildings 2.2 9-storey and two 6-storey suburban office buildings 5.8 16.6 5.8 10-storey suburban office building 16.6 9-storey suburban office building 0.9 9.3 6.6 9.2 2.1 3.7 1.8 5.1 5.0 2.6 5.3 2.9 4.9 7.6 3.8 6.5 1.1 2.4 166.8 1.6 0.5 16-storey suburban office building with retail space 4.6 16-storey suburban office building 6.6 2-storey suburban office building with warehouse 9.2 2-storey suburban data centre 2.1 7-storey suburban office building 3.7 1-storey industrial building 1.8 5-storey suburban office building 2.5 11-storey suburban office building 2.5 11-storey suburban office building 2.6 2-storey suburban office building 2.6 8-storey suburban office building with grade level retail 2.9 2-storey suburban office building 4.9 2-storey suburban office building 3.0 1-storey suburban office building 1.5 5-storey suburban office building 2.6 1-storey suburban office building 0.4 2-storey suburban office building 2.4 1-storey suburban office building 136.2 1.6 28-storey downtown office building 4.0 1.8 4.0 3-storey downtown office/retail building 1.8 10-storey downtown office building 100.0% 717,160 717,160 2010 16.5 16.5 1-storey industrial building 101 Frederick Street, Kitchener 100.0% 239,428 239,428 1981/2005 Dream Office REIT 2015 Annual Report | 66 Property 1 Riverside Drive, Windsor Ownership 100.0% Total GLA in square feet 235,915 Owned share of total GLA in square feet 235,915 Year built/ renovated 2002 Total site area in acres 1.8 Owned share of site area in acres Description of asset 1.8 14-storey office building with ground floor podium and below grade retail 1.1 One 21-storey and one 23-storey downtown office building 10.0 5-storey office building with parking 0.5 11-storey downtown office building 0.9 11-storey downtown office building 1.1 12-storey downtown office building 0.4 13-storey downtown office building 6.0 Three 6-storey suburban office buildings 7.0 One 3-storey and two 2-storey suburban office buildings 0.2 22-storey downtown office building 4.3 2-storey suburban office building 0.3 11-storey downtown office building 0.6 6-storey downtown office building with underground parking 0.7 12-storey downtown office building 5.5 3-storey office building 1.4 4-storey office building 1.8 5-storey office building with underground parking 0.1 14-storey downtown office building 4.2 1-storey suburban office building 2.7 2-storey suburban office building 3.6 1-storey office building with parking 1.3 3-storey suburban office building 1.6 3-storey suburban office building 1.3 3-level retail podium 4.1 1-storey neighbourhood shopping plaza 1.5 3-storey suburban office building 1.5 1-storey retail plaza 0.9 1-storey retail restaurant building 0.2 2-storey office/retail complex 0.5 0.9 1.1 0.4 6.0 7.0 0.2 4.3 0.3 0.6 0.7 5.5 1.4 1.8 0.3 4.2 2.7 3.6 1.3 1.6 1.6 8.3 3.7 4.2 0.9 0.6 1992 1968 1987 2000 1991 2001 1966/2010 1973/1999 2006 1999 1971 1965 1987 1983 2005 2002 1983 1983/2003 and 2010 2003 2008 1994 275 Dundas Street West, London (London City Centre)(4) 12800 Foster Street, Overland Park 400 Cumberland Road, Ottawa 50 Queen Street North, Kitchener 55 King Street West, Kitchener 130 Slater Street, Ottawa Gateway Business Park, Ottawa 40.0% 540,785 216,314 1974 2.8 100.0% 185,178 185,178 2006 10.0 100.0% 100.0% 100.0% 100.0% 100.0% 174,274 170,333 126,071 122,906 121,142 174,274 170,333 1972/2000 1978/2004 126,071 122,906 121,142 1125 Innovation Drive, Ottawa 100.0% 116,936 116,936 150 Metcalfe Street, Ottawa 22 Varennes Street, Gatineau 360 Laurier Avenue West, Ottawa 100.0% 100.0% 100.0% 109,006 107,783 107,298 109,006 107,783 107,298 235 King Street East, Kitchener 100.0% 100,797 100,797 1977 22 Frederick Street, Kitchener Accelerator Building, Waterloo 250 King Street, Fredericton 277 Pleasant Street, Dartmouth 219 Laurier Avenue West, Ottawa(4) 236 Brownlow Avenue, Dartmouth 2625 Queensview Drive, Ottawa 180 Keil Drive South, Chatham Seven Capella Court, Ottawa 111 Ilsley Avenue, Dartmouth 700 De la Gauchetière Street West, Montréal 680 Broadway Street, Tillsonburg (Tillsonburg Gateway Centre)(4) 460 Two Nations Crossing, Fredericton(4) 117 Kearney Lake Road, Halifax(4) 70 King Street East, Kitchener 55 Norfolk Street South, Simcoe(4) Eastern Canada(1) Total(2) Redevelopment properties: Bellanca Building, Yellowknife Redevelopment properties 100.0% 100.0% 100.0% 100.0% 95,855 92,862 80,162 76,527 95,855 92,862 80,162 76,527 40.0% 187,783 75,113 60,739 60,739 46,156 46,156 36,927 31,693 27,428 39,669 36,927 31,693 27,428 31,418 47,016 23,461 50,945 20,378 36,353 12,724 100.0% 100.0% 100.0% 100.0% 100.0% 79.2% 49.9% 40.0% 35.0% 100.0% 40.0% 90.0% 87.1% 100.0% 100.0% 9,485 12,887 9,485 5,155 1977/2009 1987/2000 5,305,565 26,438,160 4,774,690 23,030,453 102.2 425.6 90.5 368.6 52,285 52,285 52,285 52,285 1973/1996 0.6 0.6 0.6 10-storey office building 0.6 Dream Office REIT 2015 Annual Report | 67 Ownership Total GLA in square feet Owned share of total GLA in square feet Year built/ renovated Total site area in acres Owned share of site area in acres Description of asset 100.0% 66,397 66,397 2001/2005 100.0% 37,266 37,266 1957/1991 100.0% 231,500 231,500 1959/1967 100.0% 335,163 335,163 2.8 0.3 5.4 8.5 2.8 0.3 2-storey suburban office building 5-storey office building with parking 5.4 Two 5-storey office buildings 8.5 87.3% 26,825,608 23,417,901 434.7 377.7 Property Held for sale properties: 8550 Newman Boulevard, Montréal 1305 Chemin Sainte-Foy, Québec City 2450 Rue Girouard, Saint- Hyacinthe Held for sale properties Total including redevelopment and held for sale properties (1) Includes properties in southwestern Ontario and U.S. (2) Excludes redevelopment properties and held for sale properties. (3) Investment in joint venture. (4) Co-owned property. Dream Office REIT 2015 Annual Report | 68 Occupancy by asset Property HSBC Bank Place, Edmonton Enbridge Place, Edmonton Saskatoon Square, Saskatoon Station Tower, Surrey 1900 Sherwood Place, Regina Milner Building, Edmonton 887 Great Northern Way, Vancouver 2257 & 2301 Premier Way, Sherwood Park 2121 & 2181 Premier Way, Sherwood Park Victoria Tower, Regina Baker Centre, Edmonton Princeton Tower, Saskatoon 340-450 3rd Avenue N., Saskatoon HSBC Building, Edmonton 4259-4299 Canada Way, Burnaby 13888 Wireless Way, Richmond Highfield Place, Edmonton Scotia Centre, Yellowknife 4400 Dominion Street, Burnaby Precambrian Building, Yellowknife 2055 Premier Way, Strathcona County Northwest Tower, Yellowknife 625 Agnes Street, New Westminster 2899 Broadmoor Blvd., Strathcona County 2693 Broadmoor Blvd., Strathcona County 1914 Hamilton Street, Regina 2665 Renfrew Street, Vancouver 350-450 Lansdowne Street, Kamloops(5) 2833 Broadmoor Blvd., Strathcona County 2261 Keating Cross Road, Victoria(5) Financial Building, Regina 4370 Dominion Street, Burnaby Preston Centre, Saskatoon 960 Quayside Drive, New Westminster 2755 Broadmoor Blvd., Sherwood Park 10199 - 101st Street NW, Edmonton(5) 2220 College Avenue, Regina Morgex Building, Edmonton Gallery Building, Yellowknife 13183 - 146th Street NW, Edmonton Harbour Landing, Phase 2, Regina 2400 College Avenue, Regina Owned share of total GLA in square feet 300,860 262,456 228,312 219,638 185,104 174,383 164,364 156,166 No. of tenants 19 5 14 19 7 4 5 15 Total GLA in square feet 300,860 262,456 228,312 219,638 185,104 174,383 164,364 156,166 Average tenant size in square feet 14,231 52,491 15,156 10,705 26,443 42,936 32,873 9,054 Average lease term remaining in years 3.3 3.0 2.5 4.7 2.9 2.5 4.7 2.7 Owned share vacancy in square feet 30,470 — 16,133 16,241 — 2,639 — 20,357 151,387 151,387 144,165 142,791 134,461 130,724 118,838 119,570 116,530 104,629 107,973 93,095 92,730 87,965 87,994 85,534 82,489 144,165 142,791 134,461 130,724 118,838 119,570 116,530 104,629 107,973 93,095 92,730 87,965 87,994 85,534 82,489 81,808 81,808 82,264 81,662 190,665 82,264 81,662 76,266 74,649 74,649 181,601 65,739 63,930 61,867 61,849 72,640 65,739 63,930 61,867 61,849 61,255 61,255 121,357 59,590 53,000 48,265 38,561 38,738 35,528 60,679 59,590 53,000 48,265 38,561 38,738 35,528 15 2 24 18 4 21 18 2 5 15 19 7 10 13 13 6 8 7 1 29 15 6 2 9 13 13 16 1 1 1 2 5 2 4 9,864 72,083 5,074 6,564 21,872 5,219 4,904 58,265 5,504 7,067 4,765 11,337 8,123 6,225 5,564 13,748 8,787 11,752 81,662 5,586 3,989 24,511 32,870 4,307 4,759 4,670 3,828 65,532 59,590 53,000 24,133 7,164 19,369 7,062 Dream Office REIT 2015 Annual Report | 69 3.9 2.8 3.1 5.2 4.0 2.9 2.0 2.3 1.8 7.1 2.7 5.3 3.9 4.7 4.5 2.0 1.6 3.7 4.5 4.0 3.8 1.6 0.1 2.8 4.2 1.4 3.0 1.8 0.6 3.8 6.2 3.2 7.6 4.5 3,428 — 21,019 16,302 43,237 9,243 31,292 — 77,110 1,975 2,563 13,371 6,740 7,070 13,200 — 11,509 — — 11,467 14,811 13,813 — 25,164 — 1,143 — 27,913 — — — 2,739 — 7,281 Owned share occupancy in square feet 270,390 262,456 212,179 203,397 185,104 171,744 164,364 135,809 147,959 144,165 121,772 118,159 87,487 109,595 88,278 116,530 27,519 105,998 90,532 79,359 81,225 80,924 72,334 82,489 70,299 82,264 81,662 64,799 59,838 58,827 65,739 38,766 61,867 60,706 61,255 32,766 59,590 53,000 48,265 35,822 38,738 28,247 Occupancy(1) 89.9% 100.0% 92.9% 92.6% 100.0% 98.5% 100.0% 87.0% 97.7% 100.0% 85.3% 87.9% 66.9% 92.2% 73.8% 100.0% 26.3% 98.2% 97.2% 85.6% 92.3% 92.0% 84.6% 100.0% 85.9% 100.0% 100.0% 85.0% 80.2% 81.0% 100.0% 60.6% 100.0% 98.2% 100.0% 54.0% 100.0% 100.0% 100.0% 92.9% 100.0% 79.5%  Property Royal Centre, Saskatoon 2208 Scarth Street, Regina Royal Centre, Saskatoon 2445 - 13th Avenue, Regina 234 - 1st Avenue South, Saskatoon Western Canada IBM Corporate Park, Calgary F1RST Tower (formerly Telus Tower), Calgary(4) 840 - 7th Avenue SW, Calgary 444 - 7th Building, Calgary McFarlane Tower, Calgary Life Plaza, Calgary Rocky Mountain Plaza, Calgary Northland Building, Calgary 606 4th Building & Barclay Parkade, Calgary Roslyn Building, Calgary Atrium I, Calgary Atrium II, Calgary 510 - 5th Street SW, Calgary Joffre Place, Calgary Dominion Centre, Calgary 435 - 4th Avenue SW, Calgary 1035 - 7th Ave SW, Calgary Mount Royal Place, Calgary 441 - 5th Avenue SW, Calgary Calgary Downtown Airport Corporate Centre, Calgary Franklin Atrium, Calgary 2891 Sunridge Way, Calgary Kensington House, Calgary 3115 - 12th Street NE, Calgary 14505 Bannister Road, SE, Calgary Braithwaite Boyle Centre, Calgary Franklin Building, Calgary 2816 - 11th Street NE, Calgary Centre 70, Calgary(5) Calgary Suburban Scotia Plaza (40 King Street West), Toronto(4) Adelaide Place, Toronto State Street Financial Centre, Toronto AIR MILES Tower, Toronto 655 Bay Street, Toronto Scotia Plaza (44 King Street West), Toronto(4) 74 Victoria St/137 Yonge St, Toronto 720 Bay Street, Toronto 18 King Street East, Toronto Owned share of total GLA in square feet 32,128 25,129 16,411 16,316 9,567 4,709,999 357,277 355,122 No. of tenants 2 3 7 5 4 436 10 7 Total GLA in square feet 32,128 25,129 16,411 16,316 9,567 4,994,037 357,277 710,243 272,266 254,545 242,263 236,688 205,254 146,602 132,697 131,764 109,793 109,542 109,181 107,261 98,712 88,737 75,129 59,363 60,787 3,508,104 149,771 150,312 87,246 77,816 72,753 61,272 54,924 50,577 33,435 133,219 871,325 1,577,071 659,533 413,933 322,669 298,372 401,705 265,956 247,743 232,365 272,266 254,545 242,263 236,688 205,254 146,602 132,697 131,764 109,793 109,542 109,181 107,261 98,712 88,737 75,129 59,363 60,787 3,152,983 149,771 150,312 87,246 77,816 72,753 61,272 54,924 50,577 33,435 19,983 758,089 1,051,433 659,533 413,933 322,669 298,372 267,817 265,956 247,743 232,365 21 8 30 36 12 20 14 13 7 13 26 12 6 14 3 19 14 285 11 10 4 15 15 4 9 3 5 41 117 67 73 9 20 25 1 5 1 28 Average tenant size in square feet 16,064 7,313 2,344 1,644 1,994 10,246 35,728 100,968 8,371 23,865 7,480 4,903 16,050 5,948 7,728 8,120 15,685 6,759 3,746 7,027 16,452 6,039 23,903 3,124 3,250 10,864 13,272 14,301 21,812 3,336 4,147 15,318 4,936 16,859 4,542 2,649 6,633 23,538 8,567 45,993 15,981 11,907 401,705 53,191 247,743 8,296 Average lease term remaining in years 3.2 3.4 1.7 2.2 6.0 3.4 3.0 2.1 Owned share vacancy in square feet — 3,190 — 8,094 1,590 461,104 — 1,734 4.3 6.9 3.1 3.0 6.1 3.7 2.5 4.6 3.7 4.1 2.3 4.0 4.1 2.9 1.9 2.8 2.8 3.6 5.2 2.8 2.9 2.8 3.4 5.2 2.5 1.9 2.4 2.7 3.5 7.2 5.7 8.6 4.3 4.4 11.5 4.9 5.0 2.7 96,473 63,628 17,878 60,181 12,654 27,638 24,501 26,205 — 21,669 11,789 22,936 — 4,195 3,420 — 15,285 410,186 3,774 7,298 — 27,780 10,551 — 10,496 — 10,723 3,690 74,312 — 34,113 — 3,044 707 — — — 64 Dream Office REIT 2015 Annual Report | 70 Owned share occupancy in square feet 32,128 21,939 16,411 8,222 7,977 4,248,895 357,277 353,388 175,793 190,917 224,385 176,507 192,600 118,964 108,196 105,559 109,793 87,873 97,392 84,325 98,712 84,542 71,709 59,363 45,502 2,742,797 145,997 143,014 87,246 50,036 62,202 61,272 44,428 50,577 22,712 16,293 683,777 1,051,433 625,420 413,933 319,625 297,665 267,817 265,956 247,743 232,301 Occupancy(1) 100.0% 87.3% 100.0% 50.4% 83.4% 90.2% 100.0% 99.5% 64.6% 75.0% 92.6% 74.6% 93.8% 81.1% 81.5% 80.1% 100.0% 80.2% 89.2% 78.6% 100.0% 95.3% 95.4% 100.0% 74.9% 87.0% 97.5% 95.1% 100.0% 64.3% 85.5% 100.0% 80.9% 100.0% 67.9% 81.5% 90.2% 100.0% 94.8% 100.0% 99.1% 99.8% 100.0% 100.0% 100.0% 100.0%  Property 36 Toronto Street, Toronto 100 Yonge Street, Toronto(4) 330 Bay Street, Toronto 20 Toronto St/33 Victoria St, Toronto 8 King Street East, Toronto 250 Dundas Street West, Toronto Victory Building, Toronto 425 Bloor Street East, Toronto 212 King Street West, Toronto 357 Bay Street, Toronto 360 Bay Street, Toronto 10 King Street East, Toronto 350 Bay Street, Toronto 67 Richmond Street West, Toronto 366 Bay Street, Toronto 49 Ontario Street, Toronto(5) 56 Temperance Street, Toronto 10 Lower Spadina Avenue, Toronto(5) 83 Yonge Street, Toronto Toronto Downtown 5915-5935 Airport Road, Mississauga Aviva Corporate Centre, Toronto 6655-6725 Airport Road, Mississauga 5001 Yonge Street, Toronto 2075 Kennedy Road, Toronto 5945-5955 Airport Road, Mississauga 50 Burnhamthorpe Road West, Mississauga(5) 30 Eglinton Avenue West, Mississauga 401 & 405 The West Mall, Toronto(5) 300, 302 & 304 The East Mall, Toronto(5) 625 Cochrane Drive, Markham Valleywood Corporate Centre, Markham 90 Burnhamthorpe Road West, Mississauga(5) 185 The West Mall, Toronto(5) 2645 Skymark Ave., Mississauga 100 Gough Road, Markham 6299 Airport Road, Mississauga 1020 Birchmount Road, Toronto 6303 Airport Road, Mississauga 195 The West Mall, Toronto(5) 191 The West Mall, Toronto(5) 586 Argus Road, Oakville 2810 Matheson Boulevard East, Mississauga(5) 6509 Airport Road, Mississauga 2550 Argentia Road, Mississauga Owned share of total GLA in square feet 213,993 163,199 162,229 157,852 150,113 121,593 101,421 83,527 73,277 63,529 58,328 57,476 52,796 50,158 36,364 34,842 32,338 24,102 11,504 5,408,462 499,934 352,425 331,372 308,568 205,949 177,960 174,912 Total GLA in square feet 213,993 244,787 162,229 157,852 150,113 121,593 101,421 83,527 73,277 63,529 58,328 57,476 52,796 50,158 36,364 87,105 32,338 60,255 11,504 6,237,992 499,934 352,425 331,372 308,568 205,949 177,960 350,525 No. of tenants 36 14 42 28 51 18 45 9 10 22 16 22 13 5 10 2 9 7 4 592 48 7 5 19 13 36 36 165,012 411,842 326,401 162,792 154,774 165,012 164,737 162,874 162,792 154,774 304,774 152,082 297,292 142,436 111,840 90,779 89,208 80,325 160,812 158,260 74,570 139,035 60,000 51,639 148,349 142,436 111,840 90,779 89,208 80,325 80,245 78,972 74,570 69,378 60,000 51,639 43 21 25 12 15 20 20 2 1 23 1 9 1 9 5 8 1 15 Average tenant size in square feet 5,793 17,485 3,779 5,611 2,685 6,675 2,227 8,066 7,328 2,011 3,597 2,613 4,061 10,032 3,019 43,553 3,337 6,744 2,876 10,341 7,951 49,407 25,181 15,866 12,389 4,284 8,231 3,724 17,321 10,277 13,326 9,860 13,388 13,698 42,282 111,840 3,326 89,208 8,606 160,812 16,684 14,914 13,237 60,000 2,462 Average lease term remaining in years 3.8 7.0 3.3 5.6 3.6 3.7 3.0 3.4 3.9 2.4 3.7 3.4 3.1 4.3 2.1 2.2 2.7 3.3 4.4 5.7 5.8 1.8 2.3 2.4 4.9 3.9 4.7 Owned share vacancy in square feet 5,449 — 3,517 737 13,177 1,449 1,219 10,936 — 19,288 774 — — — 6,175 — 2,305 5,218 — 108,172 118,297 6,579 205,467 7,121 44,897 23,729 27,052 5.0 3.9 3.2 5.7 3.1 5.2 4.7 5.6 10.7 4.2 3.1 5.0 5.0 3.5 2.7 6.4 5.0 4.7 4,869 19,244 34,674 2,883 6,872 18,468 11,646 57,872 — 14,276 — 2,869 — 4,045 — 16,537 — 14,703 Dream Office REIT 2015 Annual Report | 71 Owned share occupancy in square feet 208,544 163,199 158,712 157,115 136,936 120,144 100,202 72,591 73,277 44,241 57,554 57,476 52,796 50,158 30,189 34,842 30,033 18,884 11,504 5,300,290 381,637 345,846 125,905 301,447 161,052 154,231 147,860 160,143 145,493 128,200 159,909 147,902 133,614 136,703 84,564 111,840 76,503 89,208 77,456 80,245 74,927 74,570 52,841 60,000 36,936 Occupancy(1) 97.5% 100.0% 97.8% 99.5% 91.2% 98.8% 98.8% 86.9% 100.0% 69.6% 98.7% 100.0% 100.0% 100.0% 83.0% 100.0% 92.9% 78.4% 100.0% 98.0% 76.3% 98.1% 38.0% 97.7% 78.2% 86.7% 84.5% 97.0% 88.3% 78.7% 98.2% 95.6% 87.9% 92.1% 59.4% 100.0% 84.3% 100.0% 96.4% 100.0% 94.9% 100.0% 76.2% 100.0% 71.5%  Property 6501 Mississauga Road, Mississauga(5) 2010 Winston Park Drive, Oakville(5) 6531 Mississauga Road, Mississauga(5) 80 Whitehall Drive, Markham(5) 3035 Orlando Drive, Mississauga Toronto Suburban 700 De la Gauchetière Street West, Montréal 445 Opus Industrial Boulevard, Mount Juliet, Nashville Market Square, Kitchener 101 Frederick Street, Kitchener 1 Riverside Drive, Windsor 275 Dundas Street West, London(5) 12800 Foster Street, Overland Park 400 Cumberland Road, Ottawa 50 Queen Street North, Kitchener 55 King Street West, Kitchener 130 Slater Street, Ottawa Gateway Business Park, Ottawa 1125 Innovation Drive, Ottawa 150 Metcalfe Street, Ottawa 22 Varennes Street, Gatineau 360 Laurier Avenue West, Ottawa 235 King Street East, Kitchener 22 Frederick Street, Kitchener Accelerator Building, Waterloo 250 King Street, Fredericton 277 Pleasant Street, Dartmouth 219 Laurier Avenue West, Ottawa(5) 236 Brownlow Avenue, Dartmouth 2625 Queensview Drive, Ottawa 180 Keil Drive South, Chatham Seven Capella Court, Ottawa 111 Ilsley Avenue, Dartmouth 700 De la Gauchetière Street West, Montréal 680 Broadway Street, Tillsonburg(5) 460 Two Nations Crossing, Fredericton(5) 117 Kearney Lake Road, Halifax(5) 70 King Street East, Kitchener 55 Norfolk Street South, Simcoe(5) Eastern Canada(2) Total(3) Owned share of total GLA in square feet 33,890 31,655 28,477 24,322 16,754 4,226,230 956,725 No. of tenants 25 8 19 2 1 450 13 Total GLA in square feet 84,725 79,137 71,192 60,805 16,754 5,521,137 956,725 Average tenant size in square feet 3,282 8,463 2,572 30,403 16,754 10,446 71,988 Average lease term remaining in years 3.0 6.2 3.7 4.0 6.4 4.3 6.4 Owned share vacancy in square feet 1,066 4,572 8,930 — — 656,668 20,881 Owned share occupancy in square feet 32,824 27,083 19,547 24,322 16,754 3,569,562 935,844 Occupancy(1) 96.9% 85.6% 68.6% 100.0% 100.0% 84.5% 97.8% 717,160 717,160 1 717,160 241,341 239,428 235,915 540,785 185,178 174,274 170,333 126,071 122,906 121,142 116,936 109,006 107,783 107,298 100,797 95,855 92,862 80,162 76,527 187,783 60,739 46,156 36,927 31,693 27,428 39,669 47,016 50,945 241,341 239,428 235,915 216,314 185,178 174,274 170,333 126,071 122,906 121,142 116,936 109,006 107,783 107,298 100,797 95,855 92,862 80,162 76,527 75,113 60,739 46,156 36,927 31,693 27,428 31,418 23,461 20,378 19 17 8 19 1 3 13 11 22 39 4 21 1 7 4 16 4 3 4 5 2 5 1 2 4 27 4 1 12,724 36,353 9,485 9,485 5,155 12,887 5,305,565 4,774,690 26,438,160 23,030,453 12 1 1 295 2,175 12,525 10,758 25,536 26,798 185,178 58,091 11,493 10,877 5,074 2,896 29,234 4,751 107,783 15,328 19,645 3,865 23,216 26,721 15,685 37,557 19,595 8,427 36,927 15,847 5,532 1,469 11,754 50,945 2,693 9,485 12,887 16,951 11,109 10.3 2.9 3.6 5.9 6.5 4.9 2.0 2.9 4.3 3.6 4.3 5.1 3.2 1.8 2.2 3.7 3.5 6.6 3.8 2.3 11.6 0.6 2.9 2.3 8.4 1.0 6.5 7.2 12.6 3.9 3.3 1.2 5.6 4.6 — 100.0% 717,160 3,373 56,550 31,630 12,646 — — 20,922 6,420 11,285 8,194 — 9,244 — — 22,216 34,010 — — 13,788 — 21,550 4,021 — — 5,300 — — — 1,413 — — 283,443 1,993,885 98.6% 76.4% 86.6% 94.2% 100.0% 100.0% 87.7% 94.9% 90.8% 93.2% 100.0% 91.5% 100.0% 100.0% 78.0% 64.5% 100.0% 100.0% 82.0% 100.0% 64.5% 91.3% 100.0% 100.0% 80.7% 100.0% 100.0% 100.0% 88.9% 100.0% 100.0% 94.1% 91.3% 237,968 182,878 204,285 203,668 185,178 174,274 149,411 119,651 111,621 112,948 116,936 99,762 107,783 107,298 78,581 61,845 92,862 80,162 62,739 75,113 39,189 42,135 36,927 31,693 22,128 31,418 23,461 20,378 11,311 9,485 5,155 4,491,247 21,036,568 Includes properties in southwestern Ontario and U.S. (1) Occupancy includes in-place and committed. (2) (3) Excludes redevelopment properties and held for sale properties. (4) (5) Co-owned property. Investment in joint venture. Dream Office REIT 2015 Annual Report | 72 Largest tenants by GLA Tenant Government of Canada Bank of Nova Scotia Nissan North America Inc. Government of Ontario Bell Canada Government of Saskatchewan Aviva Canada Inc. Government of Alberta Telus Enbridge Pipelines Inc. State Street Trust Company Government of British Columbia SNC-Lavalin Inc. Loyalty Management Dream Office Management Corp. Owned area of total GLA in square feet Properties 1,411,488 2 Properties 1 Property 1 Property 4 Properties 3 Properties 1 Properties 5 Properties 3 Properties 5 Properties 1 Property 1,002,340 1 Property 1 Property 2 Properties 6 Properties 1 Property 2 Properties 2 Properties 717,160 445 Opus Industrial Boulevard 464,232 6 Properties 1 Property 1 Property 376,694 Northwest Tower 350-450 Lansdowne Street Enbridge Place Scotia Plaza Gateway Business Park 700 De la Gauchetière Street West 340,019 6 Properties 1 Property 335,900 HSBC Bank Place 2200-2206 Eglinton Avenue East 304,079 8 Properties 3 Properties 287,803 2261 Keating Cross Road F1RST Tower (formerly Telus Tower) 248,577 Enbridge Place 244,936 State Street Financial Centre 18 King Street East 210,828 Station Tower 2 Properties 4370 Dominion Street 2261 Keating Cross Road 350-450 Lansdowne Street 203,383 1 Property 1 Property 4 Properties 194,018 AIR MILES Tower 191,096 2 Properties 1 Property 1 Property 2 Properties 1 Property 7 Properties 2 Properties Dream Office REIT 2015 Annual Report | 73 City Yellowknife Surrey New Westminster Saskatoon Calgary Edmonton Toronto Kitchener Ottawa Windsor Yellowknife Calgary Saskatoon Toronto Markham Mississauga Kitchener Mount Juliet Toronto Ottawa Kitchener Yellowknife Kamloops Edmonton Toronto Ottawa Montréal Regina Saskatoon Edmonton Toronto Calgary Edmonton Victoria Calgary Edmonton Toronto Toronto Surrey New Westminster Burnaby Victoria Kamloops Yellowknife Calgary Toronto Toronto Yellowknife Surrey New Westminster Saskatoon Regina Calgary Edmonton Province/State Northwest Territories British Columbia British Columbia Saskatchewan Alberta Alberta Ontario Ontario Ontario Ontario Northwest Territories Alberta Saskatchewan Ontario Ontario Ontario Ontario Tennessee, U.S. Ontario Ontario Ontario Northwest Territories British Columbia Alberta Ontario Ontario Québec Saskatchewan Saskatchewan Alberta Ontario Alberta Alberta British Columbia Alberta Alberta Ontario Ontario British Columbia British Columbia British Columbia British Columbia British Columbia Northwest Territories Alberta Ontario Ontario Northwest Territories British Columbia British Columbia Saskatchewan Saskatchewan Alberta Alberta Tenant Owned area of total GLA in square feet Properties 7 Properties 1 Property 4 Properties 4 Properties 1 Property 1 Property Newalta Corporation TD Canada Trust U.S. Bank National Association AON Canada Inc. Government of Québec IBM Canada Ltd. The City of Edmonton ATCO Group AECOM Canada Ltd. Cenovus Energy Inc. Government of Northwest Territories Miller Thomson Daimler Chrysler Canada Inc. Borell Management Goodlife Fitness Centre Inc. International Financial Data Services Stantec Consulting Ltd. Minacs Worldwide Inc. Government of New Brunswick Total 187,297 3 Properties 185,870 Saskatoon Square 1914 Hamilton Street 300, 302 & 304 The East Mall 275 Dundas Street West 185,178 12800 Foster Street 166,609 700 De la Gauchetière Street West 164,362 700 De la Gauchetière Street West 163,608 IBM Corporate Park 100 Gough Road 156,106 HSBC Bank Place 146,942 Milner Building 143,993 2 Properties Preston Centre 140,605 Rocky Mountain Plaza 139,516 3 Properties 137,149 Valleywood Corporate Centre Accelerator Building Scotia Plaza 132,500 1 Riverside Drive 124,795 Scotia Plaza 117,893 Market Square 5 Properties 107,490 State Street Financial Centre 103,851 Station Tower Market Square 2261 Keating Cross Road 103,658 6655-6725 Airport Road 180 Keil Drive South 100,540 2 Properties 9,240,515 City Toronto Ottawa Mississauga Kitchener Windsor Montréal Calgary Saskatoon Regina Toronto London Overland Park Montréal Montréal Calgary Markham Edmonton Edmonton Edmonton Saskatoon Calgary Yellowknife Markham Waterloo Toronto Windsor Toronto Kitchener Toronto Toronto Surrey Kitchener Victoria Mississauga Chatham Fredericton Province/State Ontario Ontario Ontario Ontario Ontario Québec Alberta Saskatchewan Saskatchewan Ontario Ontario Kansas, U.S. Québec Québec Alberta Ontario Alberta Alberta Alberta Saskatchewan Alberta Northwest Territories Ontario Kitchener Ontario Ontario Ontario Ontario Ontario Ontario British Columbia Ontario British Columbia Ontario Ontario New Brunswick Dream Office REIT 2015 Annual Report | 74 Cumulative gross contractual rents $104.1 million Largest tenants by annualized gross rent (Includes all tenants where projected annualized gross contractual rent exceeds $1.0 million) Rank Tenant $2.5 million or greater: 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 Bank of Nova Scotia Government of Canada Government of Ontario Bell Canada Telus Enbridge Pipelines Inc. State Street Trust Company Government of Saskatchewan Government of Alberta Newalta Corporation Aviva Canada Inc. Borell Management Loyalty Management Government of British Columbia Dream Office Management Corp. SNC-Lavalin Inc. Miller Thomson Cenovus Energy Government of Northwest Territories Cassels Brock Blackwell Government of Québec Daimler Chrysler Canada Inc. ATCO Group IBM Canada Ltd. AON Canada Inc. The City of Edmonton Penn West Energy Trust International Financial Data Services TD Canada Trust U.S. Bank National Association Discovery Parks Holdings Ltd. AECOM Canada Ltd. Royal Bank of Canada Goodlife Fitness Centre Inc. Nissan North America Inc. Medcan Health Management Inc. The Art Institute of Vancouver Co-operators Life Insurance Hatch Optima Ltd Stantec Consulting Ltd. Bank of Montreal CIBC CB Richard Ellis Limited Sage Software Canada Ltd. National Bank of Canada Cumulative gross contractual rents Rank Tenant $367.6 million Between $1.0 million and $2.5 million: Great West Life Assurance Co. Gemini Corporation BDO Dunwoody Agence Metropolitaine de Transport Carswell Livingston International Inc. Minacs Worldwide Inc. Rogers Communication Inc. DBRS Encana Corporation Bereskin & Parr Management MCAP Services Corporation Ensign Resource Service Group Raymond James Ltd. Mark Anthony Group Maple Leaf Foods Government of New Brunswick Delcan Corporation International Civil Aviation Organization Canadian Energy Services LP Government of Nova Scotia Intact Financial Corporation CGI Group Cardinia Real Estate Canada Inc. Edward D. Jones & Co. AMEC Americas Ltd Energy Conexus Credit Union Care Factor Computer Services Gardiner Roberts Trident Exploration Corp. Reg. Municipality of Waterloo Johnson Inc. CAE Professional Services Inc. Toronto Central Community Care Canadian Western Bank Stewart Weir and Co. Yellow Pages Wells Fargo Foothill Canada Saskatchewan Telecommunication Dutton Brock Exchange Solutions Inc. GCAN Insurance Company Jardine Lloyd Thompson Canada MKRT Management Corporation Wardrop Engineering Inc. Lindt & Sprungli (Canada), Inc BHP Billiton Diamonds IMV Projects Inc. Bantrel Precision Drilling Corp. Wawanesa Mutual Insurance Technicolor Creative Services MLT Management Inc. 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 Dream Office REIT 2015 Annual Report | 75 Rank Tenant Cumulative gross contractual rents Rank Tenant Cumulative gross contractual rents 99 100 101 102 103 104 105 106 107 108 109 110 111 112 113 114 115 HSBC Bank Canada Family Guidance Group Inc. Yardi Systems Inc. The Insurance Institute of Canada Cambridge Mercantile Corp. Tartan Engineering Gilliland, Gold, Young Consulting Lafarge Canada Inc. Ontario Bar Association Trader Corporation The Record City of Windsor Connor, Clark & Lunn Financial Smart & Biggar Management Parmalat Canada Inc. Saxon Energy Services Inmet Mining Corporation All tenants with annualized owned rent in excess of $2.5 million: Total annualized owned net rental income Total annualized owned gross rental income Total GLA in square feet (owned share) Average base rent (PSF) Average recoveries (PSF) Entire owned portfolio: Total annualized owned net rental income Total annualized owned gross rental income Total occupied and committed GLA in square feet Average base rent (PSF) Average recoveries (PSF) $198.8 million $367.6 million 10,089,680 $19.70 $16.73 $398.4 million $747.8 million 21,036,568 $18.94 $16.61 Dream Office REIT 2015 Annual Report | 76 Portfolio tenant base (by NAICS codes) Sector Finance and Insurance Professional, Scientific and Technical Services Public Administration Information and Cultural Industries Mining and Oil and Gas Extraction Manufacturing Administrative & Support, Waste Management & Remediation Services Retail Trade Transportation and Warehousing Other Total By GLA 20.1 % 17.6 % 15.8 % 7.3 % 6.6 % 6.2 % 4.8 % 3.3 % 3.2 % 15.1 % 100.0 % By contractual rent By contractual rent 22.1 % 17.2 % 16.4 % 6.8 % 7.8 % 3.1 % 4.9 % 3.6 % 2.9 % 15.2 % 100.0 % Dream Office REIT 2015 Annual Report | 77 Management’s responsibility for the consolidated financial statements The accompanying consolidated financial statements, the notes thereto and other financial information contained in this Annual Report have been prepared by, and are the responsibility of, the management of Dream Office Real Estate Investment Trust. These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards, using management’s best estimates and judgments when appropriate. The Board of Trustees is responsible for ensuring that management fulfills its responsibility for financial reporting and internal control. The audit committee, which comprises trustees, meets with management as well as the external auditor to satisfy itself that management is properly discharging its financial responsibilities and to review its consolidated financial statements and the report of the auditor. The audit committee reports its findings to the Board of Trustees, which approves the consolidated financial statements. PricewaterhouseCoopers LLP, the independent auditor, has audited the consolidated financial statements in accordance with Canadian generally accepted auditing standards. The auditor has full and unrestricted access to the audit committee, with or without management present. P. Jane Gavan Chief Executive Officer Rajeev Viswanathan Chief Financial Officer Toronto, Ontario, February 18, 2016 Dream Office REIT 2015 Annual Report | 78 Independent auditor’s report To the Unitholders of Dream Office Real Estate Investment Trust We have audited the accompanying consolidated financial statements of Dream Office Real Estate Investment Trust and its subsidiaries (together, Dream Office REIT), which comprise the consolidated balance sheets as at December 31, 2015 and December 31, 2014 and the consolidated statements of comprehensive income, changes in equity and cash flows for the years then ended, and the related notes, which comprise a summary of significant accounting policies and other explanatory information. Management’s responsibility for the consolidated financial statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditor’s responsibility Our responsibility is to express an opinion on these consolidated 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 consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated 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 consolidated 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 consolidated financial statements present fairly, in all material respects, the financial position of Dream Office REIT as at December 31, 2015 and December 31, 2014 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 Toronto, Ontario, February 18, 2016 Dream Office REIT 2015 Annual Report | 79 Consolidated balance sheets (in thousands of Canadian dollars) Assets NON-CURRENT ASSETS Investment properties Investment in Dream Industrial REIT Investment in joint ventures Other non-current assets CURRENT ASSETS Amounts receivable Prepaid expenses and other assets Cash and cash equivalents Assets held for sale Total assets Liabilities NON-CURRENT LIABILITIES Debt Subsidiary redeemable units Deferred Unit Incentive Plan Deferred tax liabilities, net Other non-current liabilities CURRENT LIABILITIES Debt Amounts payable and accrued liabilities Liabilities related to assets held for sale Total liabilities Equity Unitholders’ equity Retained earnings Accumulated other comprehensive income Total equity Total liabilities and equity Note December 31, 2015 December 31, 2014 6 7 8 9 10 18 11 12 13 21 14 11 15 18 17 17 17, 26 17 $ $ $ $ 5,866,595 $ 184,817 595,203 49,984 6,696,599 10,258 9,052 2,051 21,361 44,914 6,762,874 $ 2,401,104 $ 90,912 12,596 9,038 20,284 2,533,934 609,644 112,980 722,624 24,502 3,281,060 3,168,915 301,324 11,575 3,481,814 6,762,874 $ 6,139,070 191,691 553,141 106,803 6,990,705 16,565 8,593 10,920 36,078 2,968 7,029,751 2,730,973 15,151 17,082 6,183 19,468 2,788,857 365,855 97,522 463,377 — 3,252,234 3,171,794 601,495 4,228 3,777,517 7,029,751 See accompanying notes to the consolidated financial statements. On behalf of the Board of Trustees of Dream Office Real Estate Investment Trust: JOANNE FERSTMAN Trustee MICHAEL J. COOPER Trustee Dream Office REIT 2015 Annual Report | 80 Consolidated statements of comprehensive income (loss) (in thousands of Canadian dollars) Investment properties revenue Investment properties operating expenses Net rental income Other income Share of net income and dilution loss from investment in Dream Industrial REIT Share of net income from investment in joint ventures Interest and fee income Other expenses General and administrative Interest: Debt Subsidiary redeemable units Amortization of external management contracts and depreciation on property and equipment Fair value adjustments, net losses on transactions and other activities Fair value adjustments to investment properties Fair value adjustments to financial instruments Net losses on transactions and other activities Income (loss) before income taxes Deferred income taxes Net income (loss) for the year Other comprehensive income (loss) Items that will be reclassified subsequently to net income: Unrealized loss on interest rate swaps, net of tax Unrealized foreign currency translation gain, net of tax Comprehensive income (loss) for the year See accompanying notes to the consolidated financial statements. Note $ Year ended December 31, 2015 2014 705,279 690,962 $ (303,449 ) (303,771 ) 401,508 387,513 7 8 6,112 53,136 3,005 62,253 15,965 37,611 3,199 56,775 23 (12,196 ) (24,393 ) 19 19 20 31 21 (131,818 ) (9,171 ) (2,949 ) (156,134 ) (201,030 ) 48,890 (194,836 ) (346,976 ) (53,344 ) (1,695 ) (55,039 ) (134,952 ) (4,638 ) (2,970 ) (166,953 ) (124,303 ) 2,749 (9,848 ) (131,402 ) 159,928 (638 ) 159,290 26 26 $ (139 ) 7,486 7,347 (47,692 ) $ (666 ) 3,210 2,544 161,834 Dream Office REIT 2015 Annual Report | 81 Consolidated statements of changes in equity (in thousands of Canadian dollars, except for number of units) Year ended December 31, 2015 Balance at January 1, 2015 Net loss for the year Distributions paid and payable Distribution Reinvestment Plan Unit Purchase Plan Deferred units exchanged for REIT A Units REIT B Units exchanged for REIT A Units Cancellation of REIT A Units Issue costs Other comprehensive income Balance at December 31, 2015 Note 16 17 17 13 17 17 26 Number of REIT A Units 107,936,575 $ — — 4,040,965 13,727 137,233 218,611 (4,486,473 ) — — 107,860,638 $ Unitholdersʼ equity 3,171,794 $ — — 93,122 343 3,269 5,795 (105,114 ) (294 ) — 3,168,915 $ Year ended December 31, 2014 Balance at January 1, 2014 Net income for the year Distributions paid and payable Distribution Reinvestment Plan Unit Purchase Plan Deferred units exchanged for REIT A Units REIT B Units exchanged for REIT A Units Cancellation of REIT A Units Conversion of debentures Conversion feature on converted debentures Issue costs Other comprehensive income Balance at December 31, 2014 Note Number of REIT A Units 103,420,221 $ Unitholdersʼ equity 3,039,189 $ — — 2,236,530 4,765 157,608 2,936,023 (832,200 ) 13,628 — — — 16 17 17 13 17 17 17 26 — — 63,248 135 4,338 85,350 (20,924 ) 500 (7 ) (35 ) — 107,936,575 $ 3,171,794 $ See accompanying notes to the consolidated financial statements. Attributable to unitholders of the Trust Accumulated other comprehensive income 4,228 $ — — — — — — — — 7,347 11,575 $ Retained earnings 601,495 $ (55,039 ) (245,132 ) — — — — — — — 301,324 $ Total equity 3,777,517 (55,039 ) (245,132 ) 93,122 343 3,269 5,795 (105,114 ) (294 ) 7,347 3,481,814 Attributable to unitholders of the Trust Accumulated other comprehensive income 1,684 $ — — — — — — — — — — 2,544 4,228 $ Retained earnings 682,265 $ 159,290 (240,060 ) — — — — — — — — — 601,495 $ Total equity 3,723,138 159,290 (240,060 ) 63,248 135 4,338 85,350 (20,924 ) 500 (7 ) (35 ) 2,544 3,777,517 Dream Office REIT 2015 Annual Report | 82 Consolidated statements of cash flow (in thousands of Canadian dollars) Generated from (utilized in) operating activities Net income (loss) for the year Non-cash items: Share of net income and dilution loss from investment in Dream Industrial REIT Share of net income from investment in joint ventures Amortization and depreciation Fair value adjustments to investment properties Fair value adjustments to financial instruments Other adjustments Investment in lease incentives and initial direct leasing costs Interest expense on subsidiary redeemable units Change in non-cash working capital Generated from (utilized in) investing activities Investment in building improvements Investment in property and equipment Net proceeds from disposal of investment properties and expropriation of land Net proceeds from disposal of equity accounted investments Distributions from investment in Dream Industrial REIT Distributions from investment in joint ventures Contributions to investment in joint ventures Change in restricted cash Generated from (utilized in) financing activities Borrowings Principal repayments Lump sum repayments Lump sum repayments on property disposition Financing costs Distributions paid on Units Interest paid on subsidiary redeemable units Cancellation of REIT A Units REIT A Units issued for cash Debt settlement and REIT A Unit issue costs Decrease in cash and cash equivalents Foreign exchange gain on cash held in foreign currency Cash and cash equivalents, beginning of year Cash and cash equivalents, end of year See accompanying notes to the consolidated financial statements. Note Year ended December 31, 2015 2014 $ (55,039 ) $ 159,290 7 8 25 20 25 19 25 11 11 11 11 11 16 19, 25 17 17 $ (6,112 ) (53,136 ) 14,981 201,030 (48,890 ) 186,196 (63,895 ) 9,171 8,203 192,509 (44,755 ) (1,450 ) 130,582 — 12,986 33,577 (19,535 ) 2,101 113,506 572,628 (63,792 ) (512,633 ) (44,674 ) (1,987 ) (151,945 ) (8,306 ) (105,114 ) 343 (1,408 ) (316,888 ) (10,873 ) 2,004 10,920 2,051 $ (15,965 ) (37,611 ) 11,287 124,303 (2,749 ) 3,081 (49,116 ) 4,638 6,196 203,354 (31,255 ) (1,367 ) 14,957 12,843 11,795 55,644 (43,919 ) (942 ) 17,756 460,054 (67,135 ) (416,431 ) (11,070 ) (3,007 ) (175,912 ) (5,186 ) (20,924 ) 135 (1,927 ) (241,403 ) (20,293 ) 196 31,017 10,920 Dream Office REIT 2015 Annual Report | 83 Notes to the consolidated financial statements (All dollar amounts in thousands of Canadian dollars, except for unit or per unit amounts) Note 1 ORGANIZATION Dream Office Real Estate Investment Trust (“Dream Office REIT” or the “Trust”) is an open-ended investment trust created pursuant to a Declaration of Trust, as amended and restated, under the laws of the Province of Ontario. The consolidated financial statements of Dream Office REIT include the accounts of Dream Office REIT and its consolidated subsidiaries. Dream Office REIT’s portfolio comprises office properties located in urban centres across Canada and the United States (“U.S.”). A subsidiary of Dream Office REIT performs the property management function. The principal office and centre of administration of the Trust is 30 Adelaide Street East, Suite 301, State Street Financial Centre, Toronto, ON M5C 3H1. The Trust is listed on the Toronto Stock Exchange under the symbol “D.UN”. Dream Office REIT’s consolidated financial statements for the year ended December 31, 2015 were authorized for issuance by the Board of Trustees on February 18, 2016, after which they may only be amended with the Board of Trustees’ approval. For simplicity, throughout the Notes, reference is made to the units of the Trust as follows: • “REIT A Units”, meaning the REIT Units, Series A • “REIT B Units”, meaning the REIT Units, Series B • “REIT Units”, meaning the REIT Units, Series A, and REIT Units, Series B, collectively • “Units”, meaning REIT Units, Series A, REIT Units, Series B, and Special Trust Units, collectively • “subsidiary redeemable units”, meaning the LP Class B Units, Series 1, limited partnership units of Dream Office LP On April 2, 2015, 4,850,000 subsidiary redeemable units were issued to Dream Asset Management Corporation (“DAM”), a subsidiary of Dream Unlimited Corp., pursuant to the reorganization of the Trust’s management structure (see Note 24). At December 31, 2015, DAM held 773,939 REIT A Units and 5,233,823 subsidiary redeemable units (December 31, 2014 – 773,939 REIT A Units and 383,823 subsidiary redeemable units). Note 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all years presented, unless otherwise stated. Basis of presentation and statement of compliance The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). Basis of consolidation The consolidated financial statements comprise the financial statements of Dream Office REIT and its subsidiaries. Subsidiaries are fully consolidated from the date of acquisition, the date on which the Trust obtains control, and continue to be consolidated until the date such control ceases. Control exists when the Trust is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. All intercompany balances, income and expenses, and unrealized gains and losses resulting from intercompany transactions are eliminated in full. Equity accounted investments Equity accounted investments are investments over which the Trust has significant influence, but not control. Generally, the Trust is considered to exert significant influence when it holds more than a 20% interest in an entity. However, determining significant influence is a matter of judgment and specific circumstances and, from time to time, the Trust may hold an interest of more than 20% in an entity without exerting significant influence. Conversely, the Trust may hold an interest of less than 20% and exert significant influence through representation on the Board of Trustees, direction of management or through contractual agreements. Dream Office REIT 2015 Annual Report | 84 The financial results of the Trust’s equity accounted investments are included in the Trust’s consolidated financial statements using the equity method, whereby the investment is carried on the consolidated balance sheets at cost, adjusted for the Trust ’s proportionate share of post-acquisition profits and losses and for post-acquisition changes in excess of the Trust’s carrying amount of its investment over the net assets of the equity accounted investments, less any identified impairment loss. The Trust’s share of profits and losses is recognized in the share of net earnings from equity accounted investments in the consolidated statements of comprehensive income. Dilution gains and losses arising from changes in the Trust’s interest in equity accounted investments are recognized in earnings. If the Trust’s investment is reduced to zero, additional losses are not provided for, and a liability is not recognized, unless the Trust has incurred legal or constructive obligations, or made payments on behalf of the equity accounted investment. At each reporting date, the Trust evaluates whether there is objective evidence that its interest in an equity accounted investment is impaired. The entire carrying amount of the equity accounted investment is compared to the recoverable amount, which is the higher of the value-in-use or fair value less costs to sell. The recoverable amount of each investment is considered separately. Where the Trust transacts with its equity accounted investments, unrealized profits and losses are eliminated to the extent of the Trust’s interest in the investment. Balances outstanding between the Trust and equity accounted investments in which it has an interest are not eliminated in the consolidated balance sheets. Joint arrangements The Trust enters into joint arrangements via joint operations and joint ventures. A joint arrangement is a contractual arrangement pursuant to which the Trust and other parties undertake an economic activity that is subject to joint control, whereby the strategic financial and operating policy decisions relating to the activities of the joint arrangement require the unanimous consent of the parties sharing control, and that is referred to as joint operations. Joint arrangements that involve the establishment of a separate entity in which each party to the venture has rights to the net assets of the arrangements are referred to as joint ventures. In a co-ownership arrangement the Trust owns jointly one or more investment properties with another party and has direct rights to the investment property, and obligations for the liabilities relating to the co-ownership. The Trust reports its interests in joint ventures using the equity method of accounting as previously described under “Equity accounted investments”. The Trust reports its interests in co-ownerships as joint operations by accounting for its share of the assets, liabilities, revenues and expenses. Under this method, the Trust’s consolidated financial statements reflect only the Trust’s proportionate share of the assets, its share of any liabilities incurred jointly with the other ventures as well as any liabilities incurred directly, its share of any revenues earned or expenses incurred by the joint operation and any expenses incurred directly. Note 3 ACCOUNTING POLICIES SELECTED AND APPLIED FOR SIGNIFICANT TRANSACTIONS AND EVENTS The significant accounting policies used in the preparation of these consolidated financial statements are described below: Investment properties Investment properties are initially recorded at cost, including related transaction costs in connection with asset acquisitions and include office properties held to earn rental income and/or for capital appreciation and properties that are being constructed or developed for future use as investment properties. Subsequent to initial recognition, investment properties are accounted for at fair value. Investment properties and properties under development are measured at fair value, determined based on available market evidence, at the consolidated balance sheet dates. Related fair value gains and losses are recorded in net income in the period in which they arise. The fair value of each investment property is based on, among other things, rental income from current leases and assumptions about rental income from future leases reflecting market conditions at the consolidated balance sheet dates, less future estimated cash outflows in respect of such properties. To determine fair value, the Trust first considers whether it can use current prices in an active market for a similar property in the same location and condition, which is subject to similar leases and other contracts. The Trust has concluded there is insufficient market evidence on which to base investment property valuation using this approach, and has therefore determined that using the income approach is more appropriate. Dream Office REIT 2015 Annual Report | 85 The income approach is one in which the fair value is estimated by capitalizing the net rental income that the property can reasonably be expected to produce over its remaining economic life. The income approach is derived from two methods: the overall capitalization rate method, whereby the stabilized net operating income is capitalized at the requisite overall capitalization rate, and/or the discounted cash flow method, in which the income and expenses are projected over the anticipated term of the investment plus a terminal value discounted using an appropriate discount rate. Active properties under development are measured using a discounted cash flow model, net of costs to complete, as of the consolidated balance sheet dates. Development sites in the planning phases are measured using comparable market prices for similar assets. The initial cost of properties under development includes the acquisition cost of the property, direct development costs, realty taxes and borrowing costs directly attributable to properties under development. Borrowing costs associated with direct expenditures on properties under development are capitalized. The amount of capitalized borrowing costs is determined first by reference to project-specific borrowings, where relevant, and otherwise by applying a weighted average cost of borrowings to eligible expenditures after adjusting for borrowings associated with other specific developments. Where borrowings are associated with specific developments, the amount capitalized is the gross cost incurred on those borrowings less any investment income arising on their temporary investment. Borrowing costs are capitalized from the commencement of the development until the date of practical completion when the property is substantially ready for its intended use or sale. The capitalization of borrowing costs is suspended if there are prolonged periods when development activity is interrupted. Practical completion is when the property is capable of operating in the manner intended by management. Generally, this occurs on completion of construction and receipt of all necessary occupancy and other material permits. If the Trust has pre-leased space at or prior to the start of the development, and the lease requires tenant improvements that enhance the value of the property, practical completion is considered to occur when such improvements are completed. Initial direct leasing costs incurred in negotiating and arranging tenant leases are added to the carrying amount of investment properties. Lease incentives, which include costs incurred to make leasehold improvements to tenants’ space and cash allowances provided to tenants, are added to the carrying amount of investment properties and are amortized on a straight- line basis over the term of the lease as a reduction of investment properties revenue. Internal leasing costs are expensed in the period that they are incurred. Segment reporting A reportable operating segment is a distinguishable component of the Trust that is engaged either in providing related products or services (geographic segment) or in providing products or services within a particular economic environment (geographical segment), which is subject to risks and rewards that are different from those of other reportable segments. The Trust’s primary format for segment reporting is based on geographic segments. The business segments, office properties, are based on the Trust’s management and internal reporting structure. Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker, determined to be the Chief Executive Officer (“CEO”) of the Trust. The operating segments derive their revenue primarily from rental income from lessees. All of the Trust’s business activities and operating segments are reported within the geographic segments. Other non-current assets Other non-current assets include property and equipment, deposits, restricted cash, straight-line rent receivables, external management contracts and goodwill. Property and equipment are stated at cost less accumulated depreciation and accumulated impairment losses. Depreciation of property and equipment is calculated using the straight-line method to allocate their cost, net of their residual values, over their expected useful lives of four to ten years. The residual values and useful lives of all assets are reviewed and adjusted, if appropriate, at least at each financial year-end. Cost includes expenditures that are directly attributable to the acquisition and expenditures for replacing part of the property and equipment when that cost is incurred, if the recognition criteria are met. Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Trust and the cost of the item can be measured reliably. All other repairs and maintenance are charged to comprehensive income during the financial period in which they are incurred. Other non-current assets are derecognized on disposal or when no future economic benefits are expected from their use or disposal. Any gain or loss arising on derecognition of an asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the consolidated statements of comprehensive income in the year the asset is derecognized. Dream Office REIT 2015 Annual Report | 86 Revenue recognition The Trust accounts for tenant leases as operating leases given that it has retained substantially all of the risks and benefits of ownership of its investment properties. Revenues from investment properties include base rents, recoveries of operating expenses including property taxes, percentage participation rents, lease termination fees, parking income and incidental income. Revenue recognition under a lease commences when the tenant has a right to use the leased asset. 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; a straight-line rent receivable, which is included in other non-current assets, is recorded for the difference between the rental revenue recognized and the contractual amount received. Recoveries from tenants are recognized as revenues in the period in which the corresponding costs are incurred and collectability reasonably assured. Percentage participation rents are recognized on an accrual basis once tenant sales revenues exceed contractual thresholds. Other revenues are recorded as earned. Goodwill Goodwill arises on the acquisition of businesses and represents the excess of the consideration transferred over and above the Trust’s interest in the fair value of the net identifiable assets, liabilities and contingent liabilities of the acquiree and the fair value of the non-controlling interest in the acquiree. For the purpose of impairment testing, goodwill acquired in a business combination is allocated to each of the cash-generating units or groups of cash-generating units that are expected to benefit from the synergies of the combination. Each unit or group of units to which the goodwill is allocated represents the lowest level within the entity at which the goodwill is monitored for internal management purposes. Goodwill is monitored by the Trust at the geographical segment level. Goodwill impairment reviews are undertaken annually or more frequently if events or changes in circumstances indicate a potential impairment. The carrying value of goodwill is compared to the recoverable amount, which is the higher of value-in- use and the fair value less costs to sell. Any impairment is recognized immediately as an expense and is not subsequently reversed. External property management contracts External property management contracts assumed in a business combination are recorded on the consolidated balance sheets and arise when the Trust acquires less than 100% of an investment property, but manages the investment property and earns a property management fee from the co-owner. External property management contracts are in place as long as the property is co-owned by the Trust and are amortized on a straight-line basis into comprehensive income over the life of the contract. Distributions Distributions to unitholders are recognized as a liability in the period in which the distributions are approved by the Board of Trustees and are recorded as a reduction of retained earnings. Income taxes Dream Office REIT is taxed as a mutual fund trust for Canadian income tax purposes. The Trust expects to distribute all of its taxable income to its unitholders, which enables it to deduct such distributions for income tax purposes. As the income tax obligations relating to the distributions are those of the individual unitholder, no provision for income taxes is required on such amounts. The Trust expects to continue to distribute its taxable income and to qualify as a real estate investment trust (“REIT”) for the foreseeable future. For U.S. subsidiaries, income taxes are accounted for using the asset and liability method. Under this method, deferred income taxes are recognized for the expected future tax consequences of temporary differences between the carrying value of balance sheet items and their corresponding tax values. Deferred income taxes are computed using substantively enacted income tax rates or laws for the years in which the temporary differences are expected to reverse or settle. Deferred tax assets are recognized only to the extent that they are realizable. Unit-based compensation plan As described in Note 13, the Trust has a Deferred Unit Incentive Plan (“DUIP”) that provides for the granting of deferred trust units and income deferred trust units to trustees, officers, employees and affiliates. Unvested deferred trust units are recorded as a liability, and compensation expense is recognized over the vesting period at amortized cost based on the fair value of the units. Once vested, the liability is remeasured at each reporting date at amortized cost, based on the fair value of the corresponding REIT A Units, with changes in fair value recognized in comprehensive income as a fair value adjustment to financial instruments. Deferred trust units and income deferred units are only settled in REIT A Units. Dream Office REIT 2015 Annual Report | 87 Cash and cash equivalents Cash and cash equivalents include all short-term investments with an original maturity of three months or less, and exclude cash subject to restrictions that prevent its use for current purposes. Excluded from cash and cash equivalents are amounts held for repayment of tenant security deposits, as required by various lending agreements. Deposits are included in other non-current assets. Financial instruments Designation of financial instruments The following summarizes the Trust’s classification and measurement of financial assets and financial liabilities: Financial assets Amounts receivable Restricted cash and deposits Cash and cash equivalents Financial liabilities Mortgages Term loan and revolving credit facilities Debentures Subsidiary redeemable units Tenant security deposits Deferred Unit Incentive Plan Amounts payable and accrued liabilities Distributions payable Convertible debentures – host instrument Convertible debentures – conversion feature Interest rate swaps Classification Measurement Loans and receivables Loans and receivables Loans and receivables Other liabilities Other liabilities Other liabilities Other liabilities Other liabilities Other liabilities Other liabilities Other liabilities Other liabilities Fair value through profit or loss Cash flow hedge Amortized cost Amortized cost Amortized cost Amortized cost Amortized cost Amortized cost Amortized cost Amortized cost Amortized cost Amortized cost Amortized cost Amortized cost Fair value Fair value Financial assets The Trust classifies its non-derivative financial assets with fixed or determinable payments that are not quoted in an active market as loans and receivables. All financial assets are initially measured at fair value, less any related transaction costs, and are subsequently measured at amortized cost. Amounts receivable are initially measured at fair value and are subsequently measured at amortized cost less provision for impairment. A provision for impairment is established when there is objective evidence that collection of all principal and interest is unlikely under the original terms of the contract. Indicators of impairment include payment delinquency and significant financial difficulty of the tenant. The carrying amount of the financial asset is reduced through an allowance account, and the amount of the loss is recognized in the consolidated statements of comprehensive income within investment properties operating expenses. Bad debt write-offs occur when the Trust determines collection is not possible. Any subsequent recoveries of amounts previously written off are credited against investment properties operating expenses in the consolidated statements of comprehensive income. Trade receivables that are less than three months past due are not considered impaired unless there is evidence collection is not possible. If in a subsequent period when the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed to the extent that the carrying amount of the asset does not exceed its amortized cost at the reversal date. Any subsequent reversal of an impairment loss is recognized in profit or loss. Financial assets are derecognized only when the contractual rights to the cash flows from the financial asset expire or the Trust transfers substantially all risks and rewards of ownership. Dream Office REIT 2015 Annual Report | 88 Financial liabilities The Trust classifies its financial liabilities on initial recognition as either fair value through profit or loss or other liabilities measured at amortized cost. Financial liabilities are initially recognized at fair value less related transaction costs. Financial liabilities classified as other liabilities are measured at amortized cost using the effective interest rate method. Under the effective interest rate method, any transaction fees, costs, discounts and premiums directly related to the financial liabilities are recognized in comprehensive income over the expected life of the debt. The Trust’s financial liabilities that are classified as fair value through profit or loss are initially recognized at fair value and are subsequently remeasured at fair value each reporting period, with changes in the fair value recognized in comprehensive income. Mortgages, term debt and debentures are initially recognized at fair value less related transaction costs, or at fair value when assumed in a business or asset acquisition. Subsequent to initial recognition, mortgages and term debt are recognized at amortized cost. Borrowing costs that are directly attributable to investment properties under development are capitalized. On issuance, convertible debentures are separated into two financial liability components: the host instrument and the conversion feature. This presentation is required because the conversion feature permits the holder to convert the debenture into REIT Units that, except for the available exemption under International Accounting Standard (“IAS”) 32, “Financial Instruments: Presentation” (“IAS 32”), would normally be presented as a financial liability because of the redemption feature attached to the REIT A Units. Both components are measured based on their respective estimated fair values at the date of issuance. The fair value of the host instrument is net of any related transaction costs. The fair value of the host instrument is estimated based on the present value of future interest and principal payments due under the terms of the debenture using a discount rate for similar debt instruments without a conversion feature. Subsequent to initial recognition, the host instrument is accounted for at amortized cost. The conversion feature is accounted for at fair value with changes in fair value recognized in comprehensive income each period. When the holder of a convertible debenture converts its interest into REIT A Units, the host instrument and conversion feature are reclassified to unitholders’ equity in proportion to the units converted over the total equivalent units outstanding. Deferred trust units and the subsidiary redeemable units are measured at amortized cost because they are settled in REIT A Units and REIT B Units, which in accordance with IAS 32 are considered liabilities. Consequently, the deferred units and subsidiary redeemable units are remeasured each reporting period based on the fair value of REIT Units, with changes in the liabilities recorded in comprehensive income. Distributions paid on subsidiary redeemable units are recorded as interest expense in comprehensive income. A financial liability is derecognized when the obligation under the liability is discharged, cancelled or expired. Derivative financial instruments and hedging activities Derivative financial instruments are initially recognized at fair value on the date a derivative contract is entered into and subsequently remeasured at fair value. The method of recognizing the resulting gain or loss depends on whether the derivative financial instrument is designated as a hedging instrument and, if so, the nature of the item being hedged. The Trust has designated its interest rate swaps as a hedge of the interest under the term loan facility. At the inception of the transaction, the Trust documents the relationship between hedging instruments and hedged items, as well as its risk management objectives and strategy for undertaking various hedging transactions. The Trust also documents, both at hedge inception and on an ongoing basis, its assessment of whether the derivatives used in hedging transactions are highly effective in offsetting changes in cash flows of hedged items. The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognized in other comprehensive income. The gain or loss relating to the ineffective portion is recognized immediately in the consolidated statements of comprehensive income. Amounts accumulated in equity are reclassified to other comprehensive income or loss in the periods when the hedged item affects profit or loss. When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gains or losses existing in equity at that time are recognized in the consolidated statements of comprehensive income immediately. Interest on debt Interest on debt includes coupon interest, amortization of premiums allocated to the conversion features of the convertible debentures, and amortization of ancillary costs incurred in connection with the arrangement of borrowings. Finance costs are amortized to interest expense unless they relate to a qualifying asset in which case they are capitalized. Dream Office REIT 2015 Annual Report | 89 Equity The Trust presents REIT Units as equity, notwithstanding the fact that the Trust’s REIT Units meet the definition of a financial liability. Under IAS 32, the REIT Units are considered a puttable financial instrument because of the holder’s option to redeem REIT Units, generally at any time, subject to certain restrictions, at a redemption price per unit equal to the lesser of 90% of a 20-day weighted average closing price prior to the redemption date or 100% of the closing market price on the redemption date. The total amount payable by Dream Office REIT in any calendar month will not exceed $50 unless waived by Dream Office REIT’s Board of Trustees at their sole discretion. The Trust has determined the REIT Units can be presented as equity and not financial liabilities because the REIT Units have all of the following features, as defined in IAS 32 (hereinafter referred to as the “puttable exemption”): • REIT Units entitle the holder to a pro rata share of the Trust’s net assets in the event of its liquidation. Net assets are those assets that remain after deducting all other claims on the assets. • REIT Units are the class of instruments that are subordinate to all other classes of instruments because they have no priority over other claims to the assets of the Trust on liquidation, and do not need to be converted into another instrument before they are in the class of instruments that is subordinate to all other classes of instruments. • All instruments in the class of instruments that is subordinate to all other classes of instruments have identical features. • Apart from the contractual obligation for the Trust to redeem the REIT Units for cash or another financial asset, the REIT Units do not include any contractual obligation to deliver cash or another financial asset to another entity, or to exchange financial assets or financial liabilities with another entity under conditions that are potentially unfavourable to the Trust, and it is not a contract that will or may be settled in the Trust’s own instruments. • The total expected cash flows attributable to the REIT Units over their lives are based substantially on the profit or loss, and the change in the recognized net assets and unrecognized net assets of the Trust over the life of the REIT Units. • REIT Units are initially recognized at the fair value of the consideration received by the Trust. Any transaction costs arising on the issuance of REIT Units are recognized directly in unitholders’ equity as a reduction of the proceeds received. Provisions Provisions for legal claims are recognized when the Trust has a present legal or constructive obligation as a result of past events; it is probable an outflow of resources will be required to settle the obligation; and the amount has been reliably estimated. Provisions are not recognized for future operating losses. Where there are a number of similar obligations, the likelihood an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognized even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small. Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to passage of time is recognized as interest expense. Assets held for sale Assets and liabilities (or disposal groups) are classified as held for sale when their carrying amount is to be recovered principally through a sale transaction and a sale is considered highly probable. Investment properties continue to be measured at fair value and the remainder of the disposal group is stated at the lower of the carrying amount and fair value less costs to sell. Foreign currencies The consolidated financial statements are presented in Canadian dollars, which is the functional currency of the Trust and the presentation currency for the consolidated financial statements. Assets and liabilities related to properties held in a foreign entity with a functional currency other than the Canadian dollar are translated at the rate of exchange at the consolidated balance sheet dates. Revenues and expenses are translated at average rates for the period, unless exchange rates fluctuate significantly during the period in which case the exchange rates at the dates of the transactions are used. The resulting foreign currency translation adjustments are recognized in other comprehensive income. Dream Office REIT 2015 Annual Report | 90 Note 4 CRITICAL ACCOUNTING JUDGMENTS, ESTIMATES AND ASSUMPTIONS IN APPLYING ACCOUNTING POLICIES Preparing the consolidated financial statements requires management to make judgments, estimates and assumptions that affect the amounts reported. Management bases its judgments and estimates on historical experience and other factors it believes to be reasonable under the circumstances, but which are inherently uncertain and unpredictable, the result of which forms the basis of the carrying amounts of assets and liabilities. However, uncertainty about these assumptions and estimates could result in outcomes that could require a material adjustment to the carrying amount of the affected asset or liability in the future. Critical accounting judgments The following are the critical accounting judgments used in applying the Trust’s accounting policies that have the most significant effect on the amounts in the consolidated financial statements: Investment properties Critical judgments are made in respect of the fair values of investment properties and the investment properties held in equity accounted investments. The fair values of these investments are reviewed regularly by management with reference to independent property valuations and market conditions existing at the reporting date, using generally accepted market practices. The independent valuators are experienced, nationally recognized and qualified in the professional valuation of office buildings in their respective geographic areas. Judgment is also applied in determining the extent and frequency of independent appraisals. At each annual reporting period, a select number of properties, determined on a rotational basis, will be valued by qualified valuation professionals. For properties not subject to independent appraisals, valuations are prepared internally during each reporting period. Critical assumptions relating to the estimates of fair values of investment properties include the receipt of contractual rents, expected future market rents, renewal rates, maintenance requirements, discount rates that reflect current market uncertainties, capitalization rates, and current and recent property investment prices. If there is any change in these assumptions or regional, national or international economic conditions, the fair value of investment properties may change materially. The Trust 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 lessee- or 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 included in the carrying amount of investment properties and are amortized as a reduction of rental revenue on a straight- line basis over the term of the lease. Judgment is also applied in determining whether certain costs are additions to the carrying amount of the investment property and, for properties under development, identifying the point at which practical completion of the property occurs and identifying the directly attributable borrowing costs to be included in the carrying amount of the development property. Impairment The Trust assesses the possibility and amount of any impairment loss or write-down as it relates to the investment in Dream Industrial REIT, amounts receivable, property and equipment, external management contracts and goodwill. IAS 39, “Financial Instruments: Recognition and Measurement”, requires management to use judgment in determining if the Trust’s financial assets are impaired. In making this judgment, the Trust evaluates, among other factors, the duration and extent to which the fair value of the investment is less than its carrying amount; and the financial health of and short-term business outlook for the investee, including factors such as industry and sector performance, changes in technology, and operational and financing cash flow. IAS 36, “Impairment of Assets” (“IAS 36”), requires management to use judgment in determining the recoverable amount of assets and equity accounted investments that are tested for impairment, including goodwill, the investment in Dream Industrial REIT and the investment in joint ventures. Judgment is involved in estimating the fair value less cost to sell or value-in-use of the cash-generating units (“CGUs”) to which goodwill has been allocated, including estimates of growth rates, discount rates and terminal rates. Judgment is also involved in estimating the value-in-use of the investment in Dream Industrial REIT, including estimates of future cash flows, discount rates and terminal rates. The values assigned to these key assumptions reflect past experience and are consistent with external sources of information. Dream Office REIT 2015 Annual Report | 91 The Trust’s goodwill balance is allocated to the office properties group of CGUs by geographical segment (herein referred to as the goodwill CGU). The recoverable amount of the Trust’s goodwill CGU is determined based on the value-in-use approach. For the purpose of this impairment test, the Trust uses cash flow projections forecasted out for a ten-year period, consistent with the internal financial budgets approved by management on a property-by-property basis. The key assumptions used in determining the value-in-use of the goodwill CGU are the estimated growth rate, discount rate and terminal rate. In arriving at the growth rate, the Trust considers past experience and inflation, as well as industry trends. The Trust utilizes weighted average cost of capital (“WACC”) to determine the discount rate and terminal rate. The WACC reflects specific risks that would be attributable to the Trust. As the Trust is not subject to taxation, no adjustment is required to adjust the WACC on a pre-tax basis. Estimates and assumptions The Trust makes estimates and assumptions that affect the carrying amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported amount of earnings for the period. Actual results could differ from these estimates. The estimates and assumptions that are critical in determining the amounts reported in the consolidated financial statements relate to the following: Valuation of financial instruments The Trust makes estimates and assumptions relating to the fair value measurement of the subsidiary redeemable units, the deferred trust units, the convertible debenture conversion feature, interest rate swaps and the fair value disclosure of the convertible debentures, mortgages and term debt. The critical assumptions underlying the fair value measurements and disclosures include the market price of REIT Units, market interest rates for mortgages, term debt and unsecured debentures, and assessment of the effectiveness of hedging relationships. For certain financial instruments, including cash and cash equivalents, amounts receivable, amounts payable and accrued liabilities, deposits and distributions payable, the carrying amounts approximate fair values due to their immediate or short- term maturity. The fair values of mortgages, term debt and interest rate swaps are determined based on discounted cash flows using discount rates that reflect current market conditions for instruments with similar terms and risks. The fair value of convertible debentures is determined by reference to quoted market prices from an active market. Dream Office REIT 2015 Annual Report | 92 Note 5 FUTURE ACCOUNTING POLICY CHANGES Revenue recognition IFRS 15, “Revenue from Contracts with Customers” (“IFRS 15”), provides a comprehensive five-step revenue recognition model for all contracts with customers. The IFRS 15 revenue recognition model requires management to exercise significant judgment and make estimates that affect revenue recognition. IFRS 15 is effective for annual periods beginning on or after January 1, 2018, with earlier application permitted. The Trust is currently evaluating the impact of adopting this standard on the consolidated financial statements. Financial instruments The final version of IFRS 9, “Financial Instruments” (“IFRS 9”), was issued by the IASB in July 2014 and will replace IAS 39, “Financial Instruments: Recognition and Measurement” (“IAS 39”). 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 an entity’s 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. The entity’s own credit changes can be early adopted in isolation without otherwise changing the accounting for financial instruments. Lastly, a third measurement category for financial assets – “fair value through other comprehensive income” – will exist. IFRS 9 is effective for annual periods beginning on or after January 1, 2018; however, it is available for early adoption. The Trust is currently evaluating the impact of adopting this standard on the consolidated financial statements. Financial instruments – disclosures IFRS 7, “Financial Instruments: Disclosures” (“IFRS 7”), has been amended by the IASB to require additional disclosures on transition from IAS 39 to IFRS 9. The amendment to IFRS 7 is effective for annual periods beginning on or after January 1, 2018. The Trust is currently evaluating the impact of adopting this standard on the consolidated financial statements. Presentation of financial statements IAS 1, “Presentation of Financial Statements” (“IAS 1”), was amended by the IASB to clarify guidance on materiality and aggregation, the presentation of subtotals, the structure of financial statements and disclosure of accounting policies. The amendment gives guidance that information within the consolidated balance sheets and statements of comprehensive income should not be aggregated or disaggregated in a manner that obscures useful information, and that disaggregation may be required in the statement of comprehensive income in the form of additional subtotals as they are relevant to understanding the entity’s financial position or performance. The amendment to IAS 1 is effective for annual periods beginning on or after January 1, 2016. This amendment to IAS 1 has no material impact on the Trust’s consolidated financial statements or note disclosures. Acquisitions of interests in joint operations IFRS 11, “Joint Arrangements” (“IFRS 11”), has been amended to require the application of IFRS 3 to transactions where an investor obtains an interest in a joint operation that constitutes a business. The amendment to IFRS 11 is effective for annual periods beginning on or after January 1, 2016. This amendment to IFRS 11 has no material impact on the Trust’s consolidated financial statements or note disclosures. Leases IFRS 16, “Leases” (“IFRS 16”), sets out the principles for the recognition, measurement and disclosure of leases. IFRS 16 provides revised guidance on identifying a lease and for separating lease and non-lease components of a contract. IFRS 16 introduces a single accounting model for all lessees and requires a lessee to recognize right-of-use assets and lease liabilities for leases with terms of more than 12 months, unless the underlying asset is of low value. Under IFRS 16, lessor accounting for operating and finance leases will remain substantially unchanged. IFRS 16 is effective for annual periods beginning on or after January 1, 2019, with earlier application permitted for entities that apply IFRS 15. The Trust is currently evaluating the impact of adopting this standard on the consolidated financial statements. Dream Office REIT 2015 Annual Report | 93 Note 6 INVESTMENT PROPERTIES Balance at beginning of year Additions: Building improvements Lease incentives and initial direct leasing costs Total additions to investment properties Dispositions and assets held for sale Investment properties and land disposed of during the year Investment properties classified as held for sale during the year Total investment properties and land disposed and classified as held for sale Losses included in net income: Fair value adjustments to investment properties Amortization of lease incentives Total losses included in net income Gains included in other comprehensive income: Foreign currency translation gain and other Total gains included in other comprehensive income Balance at end of year Change in unrealized losses included in net income for the year Change in fair value of investment properties Year ended December 31, 2015 6,139,070 $ 2014 6,241,685 $ 51,937 66,416 118,353 (30,034 ) (159,473 ) (189,507 ) (207,000 ) (13,032 ) (220,032 ) 29,979 47,414 77,393 (53,947 ) — (53,947 ) (124,303 ) (9,893 ) (134,196 ) 18,711 18,711 5,866,595 $ 8,135 8,135 6,139,070 $ $ (195,866 ) $ (123,064 ) Investment properties have been reduced by $32,536 (December 31, 2014 – $33,382) related to straight-line rent receivables, which have been reclassified to other non-current assets. The key valuation metrics for investment properties, including investment in joint ventures, are set out below: Capitalization rate (“cap rate”) Investment properties Investment in joint ventures Total portfolio December 31, 2015 Weighted average (%) 6.21 4.89 6.02 Range (%) 5.00–8.25 4.65–6.25 4.65–9.00 December 31, 2014 Range (%) 5.15–9.00 5.15–6.00 5.15–9.00 Weighted average (%) 6.32 5.29 6.17 Generally, an increase in stabilized net operating income (“NOI”) will result in an increase to the fair value of an investment property. An increase in the cap rate will result in a decrease to the fair value of an investment property. The cap rate magnifies the effect of a change in stabilized NOI, with a lower rate resulting in a greater impact to the fair value of an investment property than a higher rate. If the weighted average cap rate were to increase by 25 basis points (“bps”), the value of investment properties (excluding joint ventures and assets held for sale) would decrease by $284,424. If the cap rate were to decrease by 25 bps, the value of investment properties (excluding joint ventures and assets held for sale) would increase by $310,268. Investment properties, including investment in joint ventures and excluding assets held for sale, with an aggregate fair value of $2,992,179 for the year ended December 31, 2015 (for the year ended December 31, 2014 – $2,475,687) were valued by qualified external valuation professionals. Investment properties, including investment in joint ventures and excluding assets held for sale, with a fair value of $5,505,881 as at December 31, 2015 (December 31, 2014 – $5,768,109), are pledged as security for the mortgages. Investment properties, including investment in joint ventures and excluding assets held for sale, with a fair value of $912,227 as at December 31, 2015 (December 31, 2014 – $928,707), are pledged as security for demand revolving credit facilities and the term loan facility. Dream Office REIT 2015 Annual Report | 94 Note 7 INVESTMENT IN DREAM INDUSTRIAL REIT Dream Industrial REIT is an unincorporated, open-ended real estate investment trust listed on the Toronto Stock Exchange under the symbol “DIR.UN”. Dream Industrial REIT owns a portfolio of 219 primarily light industrial properties comprising approximately 17.0 million square feet of gross leasable area. On September 9, 2014, the Trust completed the sale of four investment properties to Dream Industrial REIT for a sale price of $33,000, net of mark-to-market adjustments on mortgages assumed by Dream Industrial REIT. The sale price was satisfied by receipt of 2,269,759 Class B limited partnership units of Dream Industrial LP (a subsidiary of Dream Industrial REIT) at $9.40 per unit, which are exchangeable for units of Dream Industrial REIT, offset by mortgages assumed on disposition. As part of Dream Industrial REIT’s distribution reinvestment plan, deferred unit incentive plan, and other transactions entered during the years ended December 31, 2015 and December 31, 2014, Dream Industrial REIT issued additional units, which resulted in a net change to the Trust’s ownership to 24.0% and 24.2%, respectively. Balance as at beginning of year Units received on sale of properties to Dream Industrial REIT Distributions received Share of net income from investment in Dream Industrial REIT Dilution loss Balance as at end of year Dream Industrial LP Class B limited partnership units held, end of year Ownership %, end of year $ $ Year ended December 31, 2015 191,691 $ — (12,986 ) 6,112 — 184,817 $ 18,551,855 24.0 % 2014 166,317 21,336 (11,927 ) 16,225 (260 ) 191,691 18,551,855 24.2 % The fair value of the Trust’s interest in Dream Industrial REIT of $133,202 (December 31, 2014 – $156,206) was determined using the Dream Industrial REIT closing unit price at period-end multiplied by the number of units held by the Trust as at December 31, 2015. Pursuant to the reorganization of the Trust’s management structure (see Note 24), the Trust has granted DAM a right of first offer to purchase up to 18,551,855 Dream Industrial LP Class B limited partnership units, in the event the Trust sells its interest in Dream Industrial REIT. External market conditions have caused a decline in the unit price of Dream Industrial REIT since the second quarter of 2013, resulting in the carrying value to be above the market value. Under IAS 39, “Financial Instruments”, a significant or prolonged decline in the fair value of an investment in an equity instrument above its cost is an indicator of impairment. As a result, the Trust performed an impairment test as at December 31, 2015, by comparing the recoverable amount of its investment in Dream Industrial REIT using the value-in-use approach to its carrying value. Based on the impairment test performed, the Trust concluded that no impairment existed as at December 31, 2015. The following amounts represent the Trust’s ownership interest in the assets, liabilities, revenues, expenses and cash flows of Dream Industrial REIT: Non-current assets Current assets Total assets Non-current liabilities Current liabilities Total liabilities Net assets Add-back: Subsidiary redeemable units Investment in Dream Industrial REIT At 100% At % ownership interest December 31, December 31, 2015 1,701,307 19,613 1,720,920 900,326 193,711 1,094,037 626,883 $ $ $ $ 2014 1,723,693 19,017 1,742,710 947,970 166,089 1,114,059 628,651 $ $ $ $ 2015 413,110 4,762 417,872 319,475 46,782 366,257 51,615 133,202 184,817 $ $ $ $ $ 2014 399,025 4,402 403,427 339,496 28,446 367,942 35,485 156,206 191,691 $ $ $ $ $ Dream Office REIT 2015 Annual Report | 95  $ $ Net rental income Other revenue and expenses, fair value adjustments and other items Net income before the undernoted adjustments Add-back: Interest on subsidiary redeemable units Fair value adjustments to subsidiary redeemable units Share of net income from investment in Dream Industrial REIT Add (deduct): Dilution loss Share of net income and dilution loss from investment in Dream Industrial REIT At 100 % At % ownership interest Year ended December 31, Year ended December 31, 2015 119,446 $ 2014 112,764 $ 2015 29,004 $ 2014 26,104 (84,257 ) 35,189 $ (44,763 ) 68,001 $ (12,874 ) 16,130 $ (11,967 ) 14,137 12,986 (23,004 ) 6,112 $ 11,927 (9,839 ) 16,225 $ — (260 ) $ 6,112 $ 15,965 Note 8 JOINT ARRANGEMENTS Investment in joint ventures The Trust participates in partnerships (“joint ventures”) with other parties that own investment properties and accounts for its interests using the equity method. The investment properties that the joint ventures hold are consistent in terms of the class and type of properties held in the Trust’s portfolio. Property Scotia Plaza Other joint ventures: 100 Yonge Street F1RST Tower (formerly Telus Tower) Location Toronto, Ontario Toronto, Ontario Calgary, Alberta Property Scotia Plaza Other joint ventures Total net assets Property Scotia Plaza Other joint ventures Share of net income from investment in joint ventures Ownership interest (%) December 31, 2015 66.7 66.7 50.0 December 31, 2014 66.7 66.7 50.0 Net assets at % ownership interest as at December 31, 2015 491,603 $ 103,600 595,203 $ 2014 448,906 104,235 553,141 Share of net income at % ownership interest for the year ended December 31, 2015 46,465 $ 6,671 53,136 $ 2014 31,345 6,266 37,611 $ $ $ $ Dream Office REIT 2015 Annual Report | 96 The following amounts represent 100% and the Trust’s ownership interest in the assets, liabilities, revenues, expenses and cash flows in the equity accounted investments in which the Trust participates, excluding the interest in Dream Industrial REIT, which is disclosed separately in Note 7. Non-current assets Current assets Total assets Non-current liabilities Current liabilities Total liabilities Net assets Scotia Plaza At 100% Scotia Plaza At 66.7% December 31, December 31, 2015 1,367,333 17,661 1,384,994 585,380 62,210 647,590 737,404 $ $ $ $ 2014 1,316,805 14,150 1,330,955 599,255 58,341 657,596 673,359 $ $ $ $ $ $ $ $ 2015 911,555 11,774 923,329 390,253 41,473 431,726 491,603 $ $ $ $ 2014 877,870 9,433 887,303 399,503 38,894 438,397 448,906 Net rental income Other income and expenses, fair value adjustments, net losses on transactions and other activities Net income for the year $ $ Scotia Plaza At 100% Scotia Plaza At 66.7% Year ended December 31, Year ended December 31, 2015 70,813 $ 2014 70,404 $ 2015 47,209 $ 2014 46,936 (1,116 ) 69,697 $ (23,387 ) 47,017 $ (744 ) 46,465 $ (15,591 ) 31,345 Scotia Plaza At 100% Scotia Plaza At 66.7% Year ended December 31, Year ended December 31, 2015 2014 2015 2014 Cash flows generated from (utilized in): Operating activities Investing activities Financing activities Increase (decrease) in cash and cash equivalents $ $ 51,426 $ (32,900 ) (20,298 ) (1,772 ) $ 43,976 (710 ) (33,468 ) 9,798 $ $ 34,284 (21,933 ) (13,532 ) (1,181 ) $ $ 29,317 (473 ) (22,312 ) 6,532 Dream Office REIT 2015 Annual Report | 97 Non-current assets Current assets Total assets Non-current liabilities Current liabilities Total liabilities Net assets Other joint ventures At 100% Other joint ventures At proportionate share December 31, December 31, 2015 356,618 5,009 361,627 31,605 139,871 171,476 190,151 $ $ $ $ 2014 360,801 2,879 363,680 160,704 9,139 169,843 193,837 $ $ $ $ 2015 192,304 2,733 195,037 21,070 70,367 91,437 103,600 $ $ $ $ 2014 193,413 1,569 194,982 85,780 4,967 90,747 104,235 $ $ $ $ Net rental income Other income and expenses, fair value adjustments, net losses on transactions and other activities Net income for the year $ $ Other joint ventures At 100% Other joint ventures At proportionate share Year ended December 31, Year ended December 31, 2015 23,727 $ 2014 26,694 $ 2015 12,582 $ 2014 13,506 (13,882 ) 9,845 $ (16,879 ) 9,815 $ (5,911 ) 6,671 $ (7,240 ) 6,266 Other joint ventures At 100% Other joint ventures At proportionate share Year ended December 31, Year ended December 31, 2015 2014 2015 2014 Cash flows generated from (utilized in): Operating activities Investing activities Financing activities Increase (decrease) in cash and cash equivalents $ $ 23,330 8,730 (30,422 ) 1,638 $ $ 13,373 64,504 (80,419 ) (2,542 ) $ $ 12,135 1,916 (12,847 ) 1,204 $ $ 8,279 14,442 (22,996 ) (275 ) Dream Office REIT 2015 Annual Report | 98 Co-owned investment properties The Trust’s interests in co-owned investment properties are accounted for based on the Trust’s share of interest in the assets, liabilities, revenues and expenses of the properties. Property 10199 - 101st Street North West 2810 Matheson Boulevard East 50 & 90 Burnhamthorpe Road (Sussex Centre) 300, 302 & 304 The East Mall (Valhalla Executive Centre) 680 Broadway Street (Tillsonburg Gateway Centre) 185-195 The West Mall 460 Two Nations Crossing 350-450 Lansdowne Street 275 Dundas Street West (London City Centre) 80 Whitehall Drive 6501-6523 Mississauga Road 6531-6559 Mississauga Road 2010 Winston Park Drive 219 Laurier Avenue West 55 Norfolk Street South 10 Lower Spadina Avenue 49 Ontario Street 401 & 405 The West Mall (Commerce West) 2261 Keating Cross Road 117 Kearney Lake Road Centre 70 Location Edmonton, Alberta Mississauga, Ontario Mississauga, Ontario Mississauga, Ontario Tillsonburg, Ontario Toronto, Ontario Fredericton, New Brunswick Kamloops, British Columbia London, Ontario Markham, Ontario Mississauga, Ontario Mississauga, Ontario Oakville, Ontario Ottawa, Ontario Simcoe, Ontario Toronto, Ontario Toronto, Ontario Toronto, Ontario Victoria, British Columbia Halifax, Nova Scotia Calgary, Alberta Ownership interest (%) December 31, December 31, 2015 50.0 49.9 49.9 49.9 49.9 49.9 40.0 40.0 40.0 40.0 40.0 40.0 40.0 40.0 40.0 40.0 40.0 40.0 40.0 35.0 15.0 2014 50.0 49.9 49.9 49.9 49.9 49.9 40.0 40.0 40.0 40.0 40.0 40.0 40.0 40.0 40.0 40.0 40.0 40.0 40.0 35.0 15.0 The following amounts represent the Trust’s ownership interest in the assets, liabilities, revenues and expenses of the co- owned properties in which the Trust participates. Non-current assets Current assets Total assets Non-current liabilities Current liabilities Total liabilities Net assets December 31, 2015 446,827 4,804 451,631 191,617 29,828 221,445 230,186 $ $ $ $ $ $ December 31, 2014 445,314 8,315 453,629 160,553 68,445 228,998 224,631 $ $ $ $ Year ended December 31, 2015 24,433 $ (15,629 ) 2014 24,753 (12,652 ) 12,101 8,804 $ Net rental income Other income and expenses, fair value adjustments, net losses on transactions and other activities Share of net income from investment in co-owned properties $ $ Dream Office REIT 2015 Annual Report | 99 Note 9 OTHER NON-CURRENT ASSETS Property and equipment, net of accumulated depreciation of $6,471 (December 31, 2014 – $4,813) Deposits Restricted cash Straight-line rent receivable External management contracts, net of accumulated amortization of $5,040 $ (December 31, 2014 – $3,749) Goodwill Total $ December 31, 2015 6,190 $ 1,838 1,458 32,536 7,962 — 49,984 $ December 31, 2014 6,398 2,125 3,559 33,382 9,253 52,086 106,803 Deposits largely represent amounts provided by the Trust in connection with utility deposits. Restricted cash primarily represents tenant rent deposits and cash held as security for certain mortgages. The Trust leases various vehicles and machinery under non-cancellable finance lease agreements. The remaining term of these leases is one year. As a result of the Trust’s disposition of assets during the year ended December 31, 2015 (see Note 18), goodwill associated with the cash-generating unit of $874 (December 31, 2014 – $285) was derecognized and included in the determination of the net loss on sale of investment properties. External management contracts and goodwill As at January 1, 2014 Amortization of external management contracts Derecognition of goodwill due to investment properties disposed of during the year As at December 31, 2014 Amortization of external management contracts Derecognition of goodwill due to investment properties disposed of during the year Impairment of goodwill As at December 31, 2015 External management contracts 10,545 $ (1,292 ) — 9,253 (1,291 ) — — 7,962 $ $ $ Goodwill 52,371 — (285 ) 52,086 — (874 ) (51,212 ) — The Trust performed its annual goodwill impairment test as at December 31, 2015 in accordance with the methodology set out in IAS 36, by comparing the recoverable amount of the goodwill CGU using the value-in-use approach to its carrying amount. The carrying amount of goodwill associated with each geographical segment was: Western Canada Calgary downtown Calgary suburban Toronto downtown Toronto suburban Eastern Canada Total goodwill $ $ 10,225 8,517 1,301 16,735 6,848 7,586 51,212 For the purpose of this impairment test, management used projected financial forecasts for a period of ten years. The key assumptions used included weighted average cost of capital, estimated growth, discount and terminal rates. The weighted average cost of capital, discount and terminal rates used in this impairment test ranged from 7.06% to 8.96% depending on the geographic segment. Dream Office REIT 2015 Annual Report | 100 Based on the impairment test performed on each of the geographic segments, the Trust concluded that goodwill for each of the geographic segments was impaired as at December 31, 2015. As a result, the Trust has recognized a goodwill impairment loss of $51,212 in the consolidated statement of comprehensive income. The goodwill impairment was mainly attributable to the significant increase in the weighted average cost of capital of the Trust during the fourth quarter of 2015, resulting from the unfavourable external market conditions. Note 10 AMOUNTS RECEIVABLE Amounts receivable are net of credit adjustments aggregating $6,674 (December 31, 2014 – $5,992). Trade receivables Less: Provision for impairment of trade receivables Trade receivables, net Other amounts receivable Total Note 24 December 31, 2015 4,932 $ (1,615 ) 3,317 6,941 10,258 $ December 31, 2014 8,296 (2,419 ) 5,877 10,688 16,565 $ $ The movement in the provision for impairment of trade receivables during the year ended December 31 was as follows: Balance at beginning of year Provision for impairment of trade receivables Reversal of provision for previously impaired trade receivables Receivables written off during the year as uncollectible Balance at end of year Year ended December 31, 2014 2,113 1,812 (589 ) (917 ) 2,419 2015 2,419 $ 1,785 (869 ) (1,720 ) 1,615 $ $ $ The carrying value of amounts receivable approximates fair value due to their current nature. As at December 31, 2015, trade receivables of approximately $2,785 (December 31, 2014 – $2,642) were past due but not considered impaired as the Trust has ongoing relationships with these tenants and the aging of these trade receivables is not indicative of expected default. The Trust leases office properties to tenants under operating leases. Minimum rental commitments, including joint operations, on non-cancellable tenant operating leases over their remaining terms are as follows: $ December 31, 2015 378,737 1,139,047 399,902 1,917,686 $ No more than 1 year 1–5 years 5+ years Dream Office REIT 2015 Annual Report | 101 Note 11 DEBT Mortgages(1)(2) Demand revolving credit facilities(2) Term loan facility(2) Convertible debentures Debentures Total Less: Current portion Non-current debt December 31, 2015 2,244,161 $ 49,500 182,990 50,923 483,174 3,010,748 609,644 2,401,104 $ December 31, 2014 2,380,708 — 182,260 51,160 482,700 3,096,828 365,855 2,730,973 $ $ (1) Net of financing costs of $8,248 (December 31, 2014 – $7,943). (2) Secured by charges on specific investment properties (refer to Note 6). Demand revolving credit facilities The amounts available and drawn under the demand revolving credit facilities are as follows: Secured investment properties Second- ranking Maturity date mortgages mortgages First- ranking Face interest rate December 31, 2015 December 31, 2014 Amount available Amount drawn Amount available Amount drawn Formula-based maximum not to exceed $171,500 Formula-based maximum not to exceed $27,690 Formula-based maximum not to exceed $15,000 Formula-based maximum not to exceed $55,000 March 5, 2016 April 30, 2016(3) November 1, 2016(5) November 1, 2016(5) 8 2 — 1 11 — 2.62% (1) $ 156,500 (2) $ 15,000 $ 171,500 (2) $ — — 3.55% (3) 27,247 (4) — 27,247 (4) — 2 3.40% (5) 350 (6) 14,500 34,850 (6) — 1 3 2.54% (5) $ 2,398 (7) 186,495 $ 20,000 49,500 $ 17,943 (7) 251,540 — $ — (1) In the form of rolling one-month bankersʼ acceptances (“BAs”) bearing interest at the BA rate plus 1.75% or at the bankʼs prime rate (2.70% as at December 31, 2015) plus 0.75%. (2) Formula-based amount available under this facility was $171,500 less $15,000 drawn as at December 31, 2015 and $171,500 as at December 31, 2014. (3) This facility matured on April 30, 2015 and was renewed to April 30, 2016 in the form of rolling one-month BAs bearing interest at the BA rate plus 1.85% or at the bankʼs prime rate (2.70% as at December 31, 2015) plus 0.85%. (4) Formula-based amount available under this facility was $27,690 less $443 in the form of a letter of credit (“LOC”) as at December 31, 2015 and December 31, 2014. (5) These facilities matured on June 30, 2015 and were renewed to November 1, 2016 in the form of rolling one-month BAs bearing interest at the BA rate plus 1.70% or at the bank’s prime rate (2.70% as at December 31, 2015) plus 0.70%. (6) Effective June 30, 2015, the formula-based maximum will not exceed $15,000. Formula-based amount available under this facility was $15,000 less $14,500 drawn and $150 in the form of LOC as at December 31, 2015, and under the previous facility, the formula-based amount available was $35,000 less $150 in the form of LOC as at December 31, 2014. (7) Effective June 30, 2015, the formula-based maximum will not exceed $55,000. Formula-based amount available under this facility was $55,000 less $20,000 drawn and $32,602 in the form of LOC as at December 31, 2015, and under the previous facility, the formula-based amount available was $35,000 less $17,057 in the form of LOC as at December 31, 2014. Dream Office REIT 2015 Annual Report | 102 Term loan facility On August 15, 2011, the Trust entered into a term loan facility for $188,000 in the form of rolling one-month BA rates. The term loan facility bears interest at BA rates plus 1.85% payable monthly. The term loan facility was originally secured by first-ranking collateral mortgages on nine properties. On August 15, 2012, the Trust repaid $4,547 on the term loan facility as one of the properties securing the facility was sold. At December 31, 2015, $183,453 was outstanding on the term loan facility, secured by first-ranking collateral mortgages on eight properties. The term loan facility expires on August 15, 2016. On August 15, 2011, the Trust entered into two interest rate swap agreements to modify the interest rate profile of the current variable rate debt on the $188,000 term loan facility, without an exchange of the underlying principal amounts. The first interest rate swap agreement is for a five-year term on a notional balance of $133,000, fixing interest at a BA rate of 1.67% plus a spread of 185 bps and the second interest rate swap agreement is for a three-year term on a notional balance of $55,000, fixing interest at a BA rate of 1.28% plus a spread of 185 bps. On August 15, 2014, the three-year interest rate swap expired and was not subsequently renewed. On December 31, 2015, the notional amount of interest rate swap agreement hedged against the term loan facility was $129,783. The Trust has applied hedge accounting to this relationship, whereby the change in fair value of the effective portion of the hedging derivative is recognized in other comprehensive income. Settlement of both the fixed and variable portions of the interest rate swaps occurs on a monthly basis. The principal amount and the carrying value for the term loan facility is as follows: Maturity date August 15, 2016 $ Original principal issued 188,000 Term loan facility Date issued August 15, 2011 Term loan facility Weighted average face interest rate 3.28 % $ Outstanding principal amount December 31, 2014 183,453 December 31, 2015 183,453 $ December 31, 2015 182,990 $ $ Carrying value December 31, 2014 182,260 Convertible debentures 5.5% Series H Debentures The 5.5% Series H Debentures are convertible at the request of the holder, subject to certain terms and conditions, into 27.25648 REIT A Units per one thousand dollars of face value, representing a conversion price of $36.69 per unit. The 5.5% Series H Debentures are redeemable at the principal amount at the Trust’s option, subject to certain terms and conditions, from March 31, 2015, and prior to March 31, 2016, provided the 20-day weighted average trading price of the Units is at least $45.87, and on and after March 31, 2016 at their principal amount. Interest on the 5.5% Series H Debentures is payable semi- annually on March 31 and September 30. For the year ended December 31, 2015, no debentures were converted. For the year ended December 31, 2014, $500 of 5.5% Series H Debentures were converted to REIT A Units (see Note 17). The principal amount outstanding and the carrying value for the convertible debentures is as follows: 5.5% Series H Debentures December 9, 2011 March 31, 2017 $ Date issued Maturity date Original principal issued 51,650 5.5% Series H Debentures Face interest rate 5.50 % $ Outstanding principal amount December 31, 2014 50,628 December 31, 2015 50,628 $ December 31, 2015 50,923 $ $ Carrying value December 31, 2014 51,160 Dream Office REIT 2015 Annual Report | 103 Debentures Series A Debentures On June 13, 2013, the Trust completed the issuance of $175,000 aggregate principal amount of Series A senior unsecured debentures (“Series A Debentures”). The Series A Debentures bear interest at a coupon rate of 3.424% per annum with a maturity date of June 13, 2018. Interest on the Series A Debentures is payable semi-annually on June 13 and December 13, with the first payment commencing on December 13, 2013. Costs related to the issuance of the Series A Debentures totalled $1,590. The Trust has the option to redeem the Series A Debentures at a redemption price equal to the greater of Canada Yield Price and par plus any accrued and unpaid interest. The Canada Yield Price is defined as the amount that would return a yield on investment for the remaining term to maturity equal to the Canada bond rate with equal term to maturity plus a spread of 0.475%. Series B Debentures On October 9, 2013, the Trust completed the issuance of $125,000 aggregate principal amount of Series B floating senior unsecured debentures (“Series B Debentures”). The Series B Debentures bear interest at a three-month CDOR rate plus 1.7% per annum with a maturity date of January 9, 2017. Interest on the Series B Debentures is payable quarterly in arrears on January 9, April 9, July 9 and October 9, with the first payment commencing on January 9, 2014. Costs related to the issuance of the Series B Debentures totalled $720. Series C Debentures On January 21, 2014, the Trust completed the issuance of $150,000 aggregate principal amount of Series C senior unsecured debentures (“Series C Debentures”). The Series C Debentures bear interest at a rate of 4.074% with a maturity date of January 21, 2020. Interest on the Series C Debentures is payable semi-annually on January 21 and July 21, with the first payment commencing on July 21, 2014. Costs related to the issuance of the Series C Debentures totalled $1,400. The Trust has the option to redeem the Series C Debentures at a redemption price equal to the greater of Canada Yield Price and par plus any accrued and unpaid interest. The Canada Yield Price is defined as the amount that would return a yield on investment for the remaining term to maturity equal to the Canada bond rate with equal term to maturity plus a spread of 0.525%. Series K and Series L Debentures The Series K and Series L Debentures are redeemable at the Trust’s option, subject to certain terms and conditions. Interest is payable monthly. The principal amount outstanding and the carrying value for each series of debentures are as follows: Debentures Series A Debentures Series B Debentures Series C Debentures Series K Debentures Series L Debentures Date issued Maturity date principal issued Original Face interest rate December 31, 2015 Outstanding principal Carrying value December 31, 2014 Carrying value June 13, 2013 June 13, 2018 $ 175,000 3.42 % $ 175,000 $ 174,218 $ 173,900 October 9, 2013 January 9, 2017 125,000 2.50 % (1) 125,000 124,778 January 21, 2014 January 21, 2020 150,000 4.07 % 150,000 149,047 April 26, 2011 April 26, 2016 35,000 5.95 % 25,000 25,097 August 8, 2011 September 30, 2016 $ 10,000 495,000 5.95 % 10,000 $ 485,000 $ 10,034 483,174 $ 124,556 148,813 25,312 10,119 482,700 (1) Variable interest rate at three-month Canadian Dealer Offered Rate (“CDOR”) plus 1.7%. Dream Office REIT 2015 Annual Report | 104 The following tables provide a continuity of debt for the years ended December 31, 2015 and December 31, 2014: Year ended December 31, 2015 Balance as at January 1, 2015 Borrowings Principal repayments Lump sum repayments Lump sum repayments on property disposition Debt assumed by purchaser on disposal of investment properties Financing costs additions Debt classified as assets held for sale Foreign exchange adjustments Other adjustments(1) Balance as at December 31, 2015 Mortgages $ 2,380,708 $ 282,708 (63,792 ) (272,213 ) (44,674 ) (21,959 ) (1,987 ) (24,245 ) 12,069 (2,454 ) $ 2,244,161 $ Demand revolving credit facilities — $ 289,920 — (240,420 ) Term loan Convertible debentures facility 182,260 $ — — — Debentures 51,160 $ — — — 482,700 $ — — — — — — — — 49,500 $ — — — — 730 182,990 $ — — — — (237 ) 50,923 $ — — — — 474 483,174 $ Total 3,096,828 572,628 (63,792 ) (512,633 ) (44,674 ) (21,959 ) (1,987 ) (24,245 ) 12,069 (1,487 ) 3,010,748 (1) Other adjustments include amortization of financing costs and amortization of fair value adjustments. Balance as at January 1, 2014 Borrowings Principal repayments Lump sum repayments Lump sum repayments on property disposition Debt assumed by purchaser on disposal of investment properties Financing costs additions Conversion to REIT A Units Foreign exchange adjustments Other adjustments(1) Balance as at December 31, 2014 Mortgages $ 2,477,183 $ 231,707 (66,843 ) (234,084 ) (11,070 ) (17,047 ) (1,607 ) — 4,743 (2,274 ) $ 2,380,708 $ Demand revolving credit facilities 103,946 $ 78,347 — (182,347 ) — — — — — 54 — $ Year ended December 31, 2014 Term loan Convertible facility debentures 181,530 $ — — — — — — — — 730 182,260 $ 51,885 $ — — — — — — (500 ) — (225 ) 51,160 $ Debentures 333,647 $ 150,000 — — — — (1,400 ) — — 453 482,700 $ Total 3,148,191 460,054 (66,843 ) (416,431 ) (11,070 ) (17,047 ) (3,007 ) (500 ) 4,743 (1,262 ) 3,096,828 (1) Other adjustments include amortization of financing costs and amortization of fair value adjustments. Dream Office REIT 2015 Annual Report | 105 Debt weighted average effective interest rates and maturities Fixed rate Mortgages Term loan facility(2) Convertible debentures Debentures Total fixed rate debt Variable rate Mortgages Demand revolving credit facilities Term loan facility(3) Series B Debentures Total variable rate debt Total debt Weighted average effective interest rates(1) December 31, December 31, 2014 2015 4.38 % 3.83 % 3.80 % 4.04 % 4.30 % 2.98 % 2.82 % 3.83 % 3.09 % 3.21 % 4.20 % 4.43 % 3.83 % 3.80 % 4.04 % 4.34 % 3.65 % — 3.83 % 3.09 % 3.43 % 4.26 % Maturity dates December 31, 2015 Debt amount December 31, 2014 2016–2028 $ 2016 2017 2016–2020 2018 2016 2016 2017 $ 2,205,183 $ 129,459 50,923 358,396 2,743,961 38,978 49,500 53,531 124,778 266,787 3,010,748 $ 2,284,364 128,948 51,160 358,144 2,822,616 96,344 — 53,312 124,556 274,212 3,096,828 (1) The effective interest rate method includes the impact of fair value adjustments on assumed debt and financing costs. (2) Under a hedging arrangement, the Trust has entered into an interest rate swap agreement to fix the interest rate of a portion of the term loan facility: a five-year interest rate swap on a notional balance of $129,783, fixing interest at a BA rate of 1.67% plus a spread of 185 bps. The effective interest rate on the term loan facility is 3.83% after accounting for financing costs. (3) The notional balance of $53,670 bears interest at the one-month BA rate plus 185 bps. The following table summarizes the aggregate of the scheduled principal repayments and debt maturities: 2016 2017 2018 2019 2020 2021–2028 Financing costs Fair value adjustments Mortgages 341,691 $ 286,861 234,422 99,360 413,372 872,300 2,248,006 (8,248 ) 4,403 2,244,161 $ $ $ Demand revolving credit facility 49,500 $ — — — — — 49,500 — — Term loan facility 183,453 $ — — — — — 183,453 (463 ) — 49,500 $ 182,990 $ Convertible debentures Debentures — $ 50,628 — — — — 50,628 — 295 50,923 $ 35,000 $ 125,000 175,000 — 150,000 — 485,000 (1,957 ) 131 483,174 $ Total 609,644 462,489 409,422 99,360 563,372 872,300 3,016,587 (10,668 ) 4,829 3,010,748 Other financial instruments The Trust has other financial instruments included as part of other non-current liabilities as follows (see Note 14): Fair value of interest rate swaps – liability Conversion feature on the convertible debentures – asset Other financial instruments – net liabilities (assets) December 31, 2015 770 $ (38 ) 732 $ $ $ December 31, 2014 592 (760 ) (168 ) The Trust’s interest rate swap agreements are subject to master netting agreements that create a legally enforceable right to offset, by the counterparty, the related interest rate swap financial assets and liabilities. Dream Office REIT 2015 Annual Report | 106 Interest rate swap The following table summarizes the details of the interest rate swap that is outstanding at December 31, 2015: Transaction date August 15, 2011 Term loan facility principal amount (notional) 129,783 $ Fixed interest rate Maturity date Financial instrument classification 3.52 % August 15, 2016 Cash flow hedge $ Fair value 770 For the interest rate swap designated as cash flow hedge, the Trust has assessed that there is no ineffectiveness in the hedge of its interest rate exposure. The effectiveness of the hedging relationship is reviewed on a quarterly basis. As an effective hedge, unrealized gains or losses on the interest rate swap agreements are recognized in other comprehensive income. The associated unrealized gains or losses that are recognized in other comprehensive income will be reclassified into net income in the same period or periods during which the interest payments on the hedged item affect net income. On August 15, 2014, the three-year interest rate swap on the notional balance of $53,670 expired and was not subsequently renewed. As a result, the associated unrealized loss of $8 included in accumulated other comprehensive income was reclassified into net income during the year. At December 31, 2015, the fair value of the remaining interest rate swap amounted to a $770 financial liability (December 31, 2014 – $592 financial liability). Conversion feature on the convertible debentures The movement in the conversion feature on the convertible debentures for the year is as follows: Balance at beginning of year Reduction of conversion feature on the convertible debentures converted during the year Remeasurement of conversion feature on convertible debentures Balance at end of year Note $ 20 $ Year ended December 31, 2015 2014 (760 ) $ (317 ) — 7 722 (450 ) (38 ) $ (760 ) Short form base shelf prospectus On April 27, 2015, the Trust filed a short form base shelf prospectus, which is valid for a 25-month period, during which time the Trust may offer and issue, from time to time, debt securities, with an aggregate offering price of up to $2.0 billion. For the year ended December 31, 2015, no debt securities had been issued under the short form base shelf prospectus. For the year ended December 31, 2014, the Trust completed the issuance of $150,000 aggregate principal amount of senior unsecured debentures under the previous short form base shelf prospectus, which expired on December 26, 2014. Note 12 SUBSIDIARY REDEEMABLE UNITS The Trust has the following subsidiary redeemable units outstanding: Year ended December 31, 2015 Year ended December 31, 2014 Balance at beginning of year Units issued pursuant to the Reorganization Subsidiary redeemable units surrendered Remeasurement of carrying value of subsidiary redeemable units Balance at end of year 24 20 Note Number of units issued and outstanding 602,434 $ 4,850,000 (218,611 ) Amount 15,151 127,313 (5,795 ) — 5,233,823 $ (45,757 ) 90,912 Number of units issued and outstanding 3,538,457 $ — (2,936,023 ) — 602,434 $ Amount 101,978 — (85,350 ) (1,477 ) 15,151 During the year ended December 31, 2015, the Trust incurred $9,171 (December 31, 2014 – $4,638) in distributions on the subsidiary redeemable units, which is included as interest expense in comprehensive income (see Note 19). Dream Office REIT 2015 Annual Report | 107 Dream Office LP, a subsidiary of Dream Office REIT, is authorized to issue an unlimited number of LP Class B limited partnership units. These units have been issued in two series: subsidiary redeemable units and LP Class B Units, Series 2. The subsidiary redeemable units, together with the accompanying Special Trust Units, have economic and voting rights equivalent in all material respects to REIT A Units. Generally, each subsidiary redeemable unit entitles the holder to a distribution equal to distributions declared on REIT Units, Series B, or if no such distribution is declared, on REIT Units, Series A. Subsidiary redeemable units may be surrendered or indirectly exchanged on a one-for-one basis at the option of the holder, generally at any time subject to certain restrictions, for REIT Units, Series B. Holders of the LP Class B Units, Series 2 are entitled to vote at meetings of the limited partners of Dream Office LP and each Unit entitles the holder to a distribution equal to distributions on the subsidiary redeemable units. As at December 31, 2015 and December 31, 2014, all issued and outstanding LP Class B Units, Series 2 are owned indirectly by the Trust and have been eliminated in the consolidated balance sheets. On May 25, 2015, one of the holders surrendered 218,611 subsidiary redeemable units and received 218,611 REIT B Units. On the same day, such REIT B Units were converted by the holder into 218,611 REIT A Units. The exchanges were valued based on the carrying amount of the subsidiary redeemable units on the day prior to the surrender. On April 2, 2015, the Trust acquired a subsidiary of DAM which was a party to the Asset Management Agreement with the Trust, resulting in the elimination of the Trust’s obligation to pay asset management, acquisition and capital expenditure fees to DAM (the “Reorganization”). In consideration for the Reorganization, the Trust issued 4,850,000 subsidiary redeemable units at $26.25 per unit to DAM, representing total consideration of $127,313. On July 23, 2014, one of the holders surrendered 2,936,023 subsidiary redeemable units and received 2,936,023 REIT B Units. On July 24, 2014, such REIT B Units were converted by the holder into 2,936,023 REIT A Units. The exchanges were valued based on the carrying amount of the subsidiary redeemable units, the day prior to the exchange to REIT B Units. Special Trust Units are issued in connection with subsidiary redeemable units. The Special Trust Units are not transferable separately from the subsidiary redeemable units to which they relate and will be automatically redeemed for a nominal amount and cancelled on surrender or exchange of such subsidiary redeemable units. Each Special Trust Unit entitles the holder to the number of votes at any meeting of unitholders that is equal to the number of REIT B Units that may be obtained on the surrender or exchange of the subsidiary redeemable units to which they relate. As at December 31, 2015, 5,233,823 Special Trust Units were issued and outstanding (December 31, 2014 – 602,434). Note 13 DEFERRED UNIT INCENTIVE PLAN The Deferred Unit Incentive Plan (“DUIP”) provides for the grant of deferred trust units to trustees, officers and employees as well as affiliates. Deferred trust units are granted at the discretion of the trustees and earn income deferred trust units based on the payment of distributions. Once granted, each deferred trust unit and the related distribution of income deferred trust units vest evenly over a three- or five-year period on the anniversary date of the grant. Subject to an election option available for certain participants to postpone receipt of REIT A Units, such units will be issued immediately on vesting. As at December 31, 2015, up to a maximum of 1.75 million (December 31, 2014 – 1.75 million) deferred trust units are issuable under the DUIP. The movement in the DUIP balance was as follows: As at January 1, 2014 Compensation expense REIT A Units issued for vested deferred trust units Remeasurements of carrying value of deferred trust units As at December 31, 2014 Compensation expense REIT A Units issued for vested deferred trust units Remeasurements of carrying value of deferred trust units As at December 31, 2015 Note $ 20 20 $ 18,535 3,707 (4,338 ) (822 ) 17,082 2,638 (3,269 ) (3,855 ) 12,596 Dream Office REIT 2015 Annual Report | 108 During the year ended December 31, 2015, $2,638 of compensation expense was recorded (December 31, 2014 – $3,707) and included in general and administrative (“G&A”) expenses. For the same period, a fair value gain of $3,855 (December 31, 2014 – fair value gain of $822) was recognized, representing the remeasurement of the DUIP liability during the year. Outstanding and payable as at January 1, 2014 Granted Income deferred units REIT A Units issued Fractional Units paid in cash Cancelled Outstanding and payable as at December 31, 2014 Granted Income deferred units REIT A Units issued Fractional Units paid in cash Cancelled Outstanding and payable as at December 31, 2015 Vested but not issued as at December 31, 2015 Total units 766,038 122,386 62,726 (157,608) (66) (2,177) 791,299 131,833 79,652 (137,233) (6) (18,474) 847,071 421,649 For the year ended December 31, 2015, 131,833 deferred trust units were granted to trustees, officers and employees as well as affiliates with the grant price ranging from $17.59 to $27.34 per unit. For the year ended December 31, 2014, 122,386 deferred trust units were granted to trustees, officers and employees as well as affiliates with the grant price ranging from $28.96 to $29.36 per unit. For the year ended December 31, 2015, 18,474 deferred trust units were cancelled (December 31, 2014 – 2,177). Note 14 OTHER NON-CURRENT LIABILITIES Tenant security deposits Finance leases Other financial instruments – net liabilities (assets) Total Note 15 AMOUNTS PAYABLE AND ACCRUED LIABILITIES Trade payables Accrued liabilities and other payables Accrued interest Rent received in advance Distributions payable Total Note 11 Note 24 16 $ $ $ $ December 31, 2015 19,319 $ 233 732 20,284 $ December 31, 2014 19,103 533 (168 ) 19,468 December 31, 2015 3,460 $ 59,662 13,603 15,797 20,458 112,980 $ December 31, 2014 3,013 49,972 12,654 11,490 20,393 97,522 Dream Office REIT 2015 Annual Report | 109 Note 16 DISTRIBUTIONS Dream Office REIT’s Declaration of Trust endeavours to maintain monthly distribution payments to unitholders payable on or about the 15th day of the following month. The Trust determines the distribution rate by, among other considerations, its assessment of cash flow as determined using adjusted cash flows from operating activities, which includes cash flows from operating activities of our investments in joint ventures that are equity accounted and excludes the fluctuations in non-cash working capital, transaction costs on business combinations and investment in lease incentives and initial direct leasing costs. Adjusted cash flows from operating activities is not a measure defined by IFRS and therefore may not be comparable to similar measures presented by other real estate investment trusts. The distribution rate is determined by the trustees, at their sole discretion, based on what they consider appropriate given the circumstances of the Trust. Distributions may be adjusted for amounts paid in prior periods if the actual adjusted cash flows from operating activities for those prior periods is greater or less than the estimates used for those prior periods. In addition, the trustees may declare distributions out of the income, net realized capital gains, net recapture income and capital of the Trust, to the extent such amounts have not already been paid, allocated or distributed. The following table summarizes distribution payments for the year ended December 31: Paid in cash Paid by way of reinvestment in REIT A Units Less: Payable at December 31, 2014 (December 31, 2013) Plus: Payable at December 31, 2015 (December 31, 2014) Total 2015 151,945 $ 93,122 (20,393) 20,458 245,132 $ $ $ Total 2014 175,912 63,248 (19,493 ) 20,393 240,060 On February 18, 2016, the Trust announced a reduction to its monthly cash distribution from $0.18666 per REIT A Unit to $0.125 per REIT A Unit, or $1.50 per REIT A Unit on an annualized basis, effective for the month of February 2016 distribution. The February 2016 distribution will be payable on March 15, 2016 to unitholders of record at February 29, 2016. On January 19, 2016, the Trust announced a cash distribution of $0.18666 per REIT A Unit for the month of January 2016. The January 2016 distribution was satisfied on February 15, 2016 by $12,159 in cash and $8,325 in connection with the issuance of 551,336 REIT A Units. On December 17, 2015, the Trust announced a cash distribution of $0.18666 per REIT A Unit for the month of December 2015. The amount payable at December 31, 2015 was satisfied on January 15, 2016 by $11,759 in cash and $8,709 in connection with the issuance of 571,077 REIT A Units. During 2015 and 2014, the Trust declared monthly distributions of $0.18666 per unit, or $2.24 per unit for the years ended December 31, 2015 and December 31, 2014. Note 17 EQUITY REIT A Units Retained earnings Accumulated other comprehensive income Total December 31, 2015 December 31, 2014 Note 26 Number of REIT A Units 107,860,638 $ — — 107,860,638 $ Amount 3,168,915 301,324 11,575 3,481,814 Number of REIT A Units 107,936,575 $ — — 107,936,575 $ Amount 3,171,794 601,495 4,228 3,777,517 Dream Office REIT Units Dream Office REIT is authorized to issue an unlimited number of REIT Units and an unlimited number of Special Trust Units. The REIT Units are divided into and issuable in two series: REIT Units, Series A and REIT Units, Series B. The Special Trust Units may only be issued to holders of subsidiary redeemable units. REIT Units, Series A and REIT Units, Series B represent an undivided beneficial interest in Dream Office REIT and in distributions made by Dream Office REIT. No REIT Unit, Series A or REIT Unit, Series B has preference or priority over any other. Each REIT Unit, Series A and REIT Unit, Series B entitles the holder to one vote at all meetings of unitholders. Dream Office REIT 2015 Annual Report | 110 Distribution Reinvestment and Unit Purchase Plan The Distribution Reinvestment Plan (“DRIP”) allows holders of REIT A Units or subsidiary redeemable units, other than unitholders who are resident of or present in the U.S., to elect to have all cash distributions from Dream Office REIT reinvested in additional units. Unitholders who participate in the DRIP receive an additional distribution of units equal to 4% of each cash distribution that was reinvested. The price per unit is calculated by reference to a five-day weighted average closing price of the REIT A Units on the Toronto Stock Exchange (“TSX”) preceding the relevant distribution date, which typically is on or about the 15th day of the month following the declaration. For the year ended December 31, 2015, 4,040,965 REIT A Units were issued under the DRIP for $93,122 (December 31, 2014 – 2,236,530 REIT A Units for $63,248). On February 18, 2016, the Trust announced the suspension of its DRIP until further notice effective for the February 2016 distribution. The Unit Purchase Plan feature of the DRIP facilitates the purchase of additional REIT A Units by existing unitholders. Participation in the Unit Purchase Plan is optional and subject to certain limitations on the maximum number of additional REIT A Units that may be acquired. The price per unit is calculated in the same manner as the DRIP. No commission, service charges or brokerage fees are payable by participants in connection with either the reinvestment or purchase features of the DRIP. For the year ended December 31, 2015, 13,727 REIT A Units were issued under the Unit Purchase Plan for $343 (December 31, 2014 – 4,765 REIT A Units for $135). Debenture conversions For the year ended December 31, 2015, no debentures were converted. For the year ended December 31, 2014, $500 of 5.5% Series H Debentures were converted for 13,628 REIT A Units. Exchange of REIT B Units for REIT A Units On May 25, 2015, 218,611 REIT B Units were exchanged for 218,611 REIT A Units totalling $5,795. The exchange was valued based on the carrying amount of the subsidiary redeemable units on the day prior to the exchange for REIT B Units. On July 24, 2014, 2,936,023 REIT B Units were exchanged for 2,936,023 REIT A Units totalling $85,350. The exchange was valued based on the carrying amount of the subsidiary redeemable units on the day prior to the exchange for REIT B Units. Normal course issuer bid On June 22, 2015, the Trust renewed its normal course issuer bid (the “Bid”) which expired on June 19, 2015. The Bid will remain in effect until the earlier of June 21, 2016 or the date on which the Trust has purchased the maximum number of REIT A Units permitted under the Bid. Under the Bid, the Trust has the ability to purchase for cancellation up to a maximum of 10,648,031 REIT A Units (representing 10% of the Trust’s public float of 106,480,305 REIT A Units at the time of entering the bid through the facilities of the TSX). Daily purchases are limited to 73,273 REIT A Units, other than purchases pursuant to applicable block purchase exceptions. For the year ended December 31, 2015, 4,486,473 REIT A Units had been purchased and subsequently cancelled under the Bid for a total cost of $105,114 (December 31, 2014 – 832,200 REIT A Units cancelled for $20,924). Subsequent to year-end, the Trust purchased an additional 406,573 REIT A Units under the normal course issuer bid for cancellation for a cost of $6,486. Dream Office REIT 2015 Annual Report | 111 Note 18 ASSETS HELD FOR SALE AND DISPOSITIONS Assets held for sale As at December 31, 2015, the Trust classified three properties located in Québec as assets held for sale totalling $44,914 and their associated liabilities totalling $24,502. At December 31, 2015, management had committed to a plan of sale of the underlying properties and the sale was considered to be highly probable. As a result, these properties have been reclassified as assets held for sale. As at December 31, 2014, the Trust held an investment in a joint venture totalling $2,968 as assets held for sale. The Trust’s share of the joint venture’s assets and liabilities were $2,990 and $22, respectively. At December 31, 2014, management had committed to a plan of sale of the underlying properties and the sale was considered to be highly probable. As a result, the investment in the joint ventures had been reclassified as assets held for sale as at December 31, 2014. Non-current assets Current assets Total assets Non-current liabilities Current liabilities Total liabilities Net assets Investment properties held for sale Balance at beginning of year Add (deduct): Investment properties classified as held for sale during the year Investment properties disposed of during the year Fair value adjustment to investment properties Balance at end of year December 31, 2015 December 31, 2014 2,968 — 2,968 — — — 2,968 44,732 $ 182 44,914 $ 24,268 234 24,502 $ 20,412 $ $ $ $ $ Year ended December 31, 2015 — $ Year ended December 31, 2014 — 159,473 (120,805 ) 5,970 44,638 $ — — — — $ $ Dispositions For the year ended December 31, 2015, the Trust disposed of the following properties: 8100 Granville Avenue, Vancouver 2200–2204 Walkley Road, Ottawa Québec City Portfolio(3) Disposed GLA Property (sq. ft.) type 95,298 $ office office 158,898 office 634,132 888,328 $ Sales price(1) 28,759 $ 27,910 95,122 151,791 $ Loss on sale(2) (714 ) $ (817 ) (2,121 ) (3,652 ) $ Mortgages discharged/ assumed — 15,279 51,354 66,633 (4) Date disposed July 15, 2015 August 27, 2015 October 30, 2015 (1) Sales price reflects gross proceeds net of adjustments and before transaction costs. (2) Loss on sale includes mainly the transaction costs and the write-off of a pro rata share of goodwill associated with the cash-generating unit. (3) Includes four properties in Québec City: 900 Place D’Youville, 580 Rue Grand Allée, 200 Chemin Sainte-Foy and 141 Saint Jean Street. (4) Of this mortgage amount, $21,959 was assumed by the purchaser on disposal of investment properties. Dream Office REIT 2015 Annual Report | 112 On April 30, 2015, a parcel of land at 60 Columbia Way, Markham, Ontario, was expropriated by the City of Markham to build a highway off-ramp, for total gross proceeds of $2,674. The gross proceeds represented fair market value. In addition to the gross proceeds, the Trust recorded a one-time compensation income of $600 in its results for the year ended December 31, 2015 for the expropriation of the parcel of land. On March 12, 2015, the Trust disposed of its 25% interest in an investment property of Capital Centre, Edmonton (an investment in joint venture) for total gross proceeds of $2,340. As a result of the sale, the Trust recognized a net loss of $121, which was included in share of net income from investment in joint ventures. For the year ended December 31, 2014, the Trust disposed of the following properties: 9705 Horton Road, Calgary 26229 Township Road 531, Edmonton(4) 11404 Winterburn Road NW, Edmonton(4) 16134 - 114th Avenue NW, Edmonton(4) 16104 - 114th Avenue NW, Edmonton(4) St. Albert Trail Centre, Edmonton Total Property type office flex flex flex flex office Disposed GLA (sq. ft.) 55,363 $ 89,165 81,917 48,353 28,759 48,402 351,959 $ Sales price(1) 9,150 $ 12,084 10,489 3,938 6,281 12,075 54,017 $ Mortgages discharged/ assumed 5,919(3) 5,529(3) 5,599(3) 2,651 2,030 6,389 28,117 Loss on sale(2) (173 ) $ (68 ) (24 ) (44 ) (5 ) (424 ) (738 ) $ Date disposed June 12, 2014 September 9, 2014 September 9, 2014 September 9, 2014 September 9, 2014 September 15, 2014 (1) Sales price reflects gross proceeds net of adjustments and before transaction costs. (2) Loss on sale includes mainly the transaction costs and the write-off of a pro rata share of goodwill associated with the cash-generating unit. (3) Mortgage assumed by purchaser on disposal of investment property. (4) These investment properties were sold to Dream Industrial REIT. On June 3, 2014, the Trust disposed of its 25% investment in three joint ventures totalling $12,597. The Trust’s share of the disposed joint venture assets and liabilities were $18,179 and $5,582, respectively. As a result of the sale, the Trust recognized a net loss of $738. Note 19 INTEREST Interest on debt Interest on debt incurred and charged to comprehensive income is recorded as follows: Interest expense incurred, at contractual and hedged rate of debt Amortization of financing costs Amortization of fair value adjustments on assumed debt Interest expense Add (deduct): Amortization of financing costs Amortization of fair value adjustments on assumed debt Change in accrued interest Cash interest paid Year ended December 31, 2015 2014 136,528 132,818 $ 3,178 3,060 (4,060 ) (4,754 ) 134,952 131,818 (3,060 ) 4,060 545 133,363 $ (3,178 ) 4,754 (1,736 ) 134,792 $ $ Certain debts assumed in connection with acquisitions have been adjusted to fair value using the estimated market interest rate at the time of the acquisition (“fair value adjustments”). Fair value adjustments are amortized to interest expense over the expected life of the debt using the effective interest rate method. Non-cash adjustments to interest expense are recorded as a change in non-cash working capital in the consolidated statements of cash flows. Dream Office REIT 2015 Annual Report | 113 Interest on subsidiary redeemable units Interest payments charged to comprehensive income are recorded as follows: Paid in cash Less: Interest payable at December 31, 2014 (December 31, 2013) Plus: Interest payable at December 31, 2015 (December 31, 2014) Total Note 20 FAIR VALUE ADJUSTMENTS TO FINANCIAL INSTRUMENTS Remeasurement of conversion feature on convertible debentures Remeasurement of carrying value of subsidiary redeemable units Remeasurement of carrying value of deferred trust units Year ended December 31, 2015 2014 5,186 8,306 $ (112 ) (660 ) 112 977 4,638 9,171 $ $ $ Note 11 12 13 $ $ Year ended December 31, 2015 2014 (722 ) 450 1,477 45,757 3,855 822 2,749 48,890 $ $ Note 21 INCOME TAXES The Trust is subject to taxation in the U.S. on the taxable income earned by its investment properties located in the U.S. at a rate of approximately 38.46% (December 31, 2014 – 38.46%). A deferred tax asset arises from the loss carry-forwards of the U.S. subsidiaries, and is recognized only to the extent that it is realizable. A deferred tax liability arises from the temporary differences between the carrying value and the tax basis of the net assets of the U.S. subsidiaries. The tax effects of temporary differences arise from investment properties. As at December 31, 2015, the Trust had a deductible temporary difference of $4,434 (December 31, 2014 – $3,226) that was not recognized as a deferred tax asset as it did not meet the probable recognition criteria under IAS 12. However, the deductible temporary difference can be carried forward indefinitely. The loss carry-forwards and the tax effects of temporary differences that give rise to the recognition of deferred tax assets and liabilities are presented below: Deferred tax assets Deferred financing costs Financial instruments Loss carry-forwards Deferred tax liabilities Investment properties Deferred tax liabilities, net December 31, 2015 $ 331 $ 1,375 1,292 2,998 (12,036 ) (9,038 ) $ $ December 31, 2014 327 1,350 915 2,592 (8,775 ) (6,183 ) A reconciliation between the expected income taxes based upon the 2015 and 2014 statutory rates and the income tax expense recognized during the years ended December 31, 2015 and December 31, 2014 is as follows: Income taxes computed at the statutory rate of nil that is applicable to the Trust Deferred income tax expense on U.S. properties December 31, 2015 $ $ — $ 1,695 1,695 $ December 31, 2014 — 638 638 As part of the deferred tax balance, $1,160 is a result of foreign exchange differences for the U.S. properties. This amount is included as part of other comprehensive income under unrealized foreign currency translation gain. Dream Office REIT 2015 Annual Report | 114 Note 22 SEGMENTED INFORMATION For the years ended December 31, 2015 and December 31, 2014, the Trust’s reportable operating segments of its investment properties and results of operations were segmented geographically, namely Western Canada, Calgary downtown, Calgary suburban, Toronto downtown, Toronto suburban and Eastern Canada. Corporate amounts, lease termination fees, bad debt expense, straight-line rent and amortization of lease incentives, and revenue and expenses related to properties held for redevelopment, properties acquired after January 1, 2014, sold properties and assets held for sale at period-end, were included in “Other” for segment disclosure. The Trust did not allocate interest expense to these segments since leverage is viewed as a corporate function. The decision as to where to incur the debt is largely based on minimizing the cost of debt and is not specifically related to the segments. Similarly, other income, other expenses, fair value adjustments, net losses on transactions and other activities (excluding impairment of goodwill), and deferred income taxes were not allocated to the segments. For the years ended December 31, 2015 and December 31, 2014, the segments include the Trust’s proportionate share of its joint ventures. The column entitled “Reconciliation” adjusts the segmented results to account for these joint ventures using the equity method of accounting as applied in these consolidated financial statements. Year ended December 31, 2015 Operations Investment properties revenue Investment properties operating expenses Net rental income (segment income) Other income Other expenses Fair value adjustments, net losses on transactions and other activities Income (loss) before income taxes Deferred income taxes Net income (loss) for the year Year ended December 31, 2015 Capital expenditures(5) Investment properties Western Canada Calgary downtown Calgary suburban Toronto downtown Toronto suburban Eastern Canada Segment total(1) Other(2) Reconciliation(1) Total $ 152,835 $ 120,293 $ 22,642 $ 259,867 $ 111,009 $ 124,892 $ 791,538 $ 10,908 $ (111,484 ) $ 690,962 (59,063 ) (49,492 ) (9,853 ) (118,133 ) (50,577 ) (57,037 ) (344,155 ) (10,987 ) 93,772 — — 70,801 — — 12,789 — — 141,734 — — 60,432 — — 67,855 — — 447,383 — — (79 ) 9,185 (173,471 ) 51,693 (303,449 ) (59,791 ) 53,068 17,337 387,513 62,253 (156,134 ) (10,225 ) (8,517 ) (1,301 ) (16,735 ) (6,848 ) (7,586 ) (51,212 ) (285,150 ) (10,614 ) (346,976 ) 83,547 — 62,284 — 11,488 — 124,999 — 53,584 — 60,269 — 396,171 — (449,515 ) (1,695 ) — — (53,344 ) (1,695 ) $ 83,547 $ 62,284 $ 11,488 $ 124,999 $ 53,584 $ 60,269 $ 396,171 $ (451,210 ) $ — $ (55,039 ) Calgary downtown Western Canada 21,519 $ total(1) 142,084 $ $ $ 1,310,713 $ 1,068,134 $ 165,977 $ 2,543,398 $ 951,030 $ 916,937 $ 6,956,189 $ 52,645 $ 23,357 $ 3,180 $ Toronto suburban 21,610 $ Eastern Canada 19,773 $ Toronto downtown Calgary suburban Segment Other(3) 1,786 $ 54,638 $ Reconciliation(1)(4) Total 118,353 (1,144,232 ) $ 5,866,595 (25,517 ) $ (1) Includes the Trustʼs proportionate share of its joint ventures, accounted for using the equity method of accounting. (2) Includes corporate amounts, lease termination fees, bad debt expense, straight-line rent and amortization of lease incentives and revenue and expenses related to properties held for redevelopment, properties acquired after January 1, 2014, sold properties and assets held for sale at period-end. (3) Includes properties held for redevelopment, sold properties and assets held for sale at period-end. (4) Includes assets held for sale at period-end. (5) Includes building improvements and initial direct leasing costs and lease incentives. Dream Office REIT 2015 Annual Report | 115 Year ended December 31, 2014 Operations Investment properties revenue Investment properties operating expenses Net rental income (segment income) Other income Other expenses Fair value adjustments, net losses on transactions and other activities Income before income taxes Deferred income taxes Net income for the year Western Canada Calgary downtown Calgary suburban Toronto downtown Toronto suburban Eastern Canada Segment total(1) Other(2) Reconciliation(1) Total $ 154,316 $ 125,935 $ 21,273 $ 254,243 $ 114,293 $ 121,381 $ 791,441 $ 26,554 $ (112,716 ) $ 705,279 (58,389 ) (49,213 ) (9,646 ) (117,852 ) (50,969 ) (55,440 ) (341,509 ) (14,536 ) 95,927 — — 76,722 — — 11,627 — — 136,391 — — 63,324 — — 65,941 — — 449,932 — — 12,018 19,199 (184,681 ) 52,274 (303,771 ) (60,442 ) 37,576 17,728 401,508 56,775 (166,953 ) — — — — — — — (136,540 ) 5,138 (131,402 ) 95,927 — 76,722 — 11,627 — 136,391 — 63,324 — 65,941 — 449,932 — (290,004 ) (638 ) — — 159,928 (638 ) $ 95,927 $ 76,722 $ 11,627 $ 136,391 $ 63,324 $ 65,941 $ 449,932 $ (290,642 ) $ — $ 159,290 Calgary Year ended downtown December 31, 2014 17,685 $ Capital expenditures(5) $ Investment properties $ 1,395,943 $ 1,162,981 $ Western Canada 13,189 $ Calgary suburban 2,132 $ Toronto downtown 17,074 $ 183,969 $ 2,409,667 $ Segment Eastern Toronto total(1) Canada suburban 82,045 $ 17,473 $ 14,492 $ 962,942 $ 1,076,344 $ 7,191,846 $ Other(3) Reconciliation(1)(4) 1,155 $ 12,750 $ Total 77,393 (1,065,526 ) $ 6,139,070 (5,807 ) $ (1) Includes the Trustʼs proportionate share of its joint ventures, accounted for using the equity method of accounting. (2) Includes corporate amounts, lease termination fees, bad debt expense, straight-line rent and amortization of lease incentives and revenue and expenses related to properties held for redevelopment, properties acquired after January 1, 2014, sold properties and assets held for sale at period-end. (3) Includes properties held for redevelopment, sold properties and assets held for sale at period-end. (4) Includes assets held for sale at period-end. (5) Includes building improvements and initial direct leasing costs and lease incentives. Note 23 GENERAL AND ADMINSTRATIVE EXPENSES Management Services Agreement Asset management fees Salaries Deferred compensation expense Other(1) General and administrative expenses Note 24 24 $ $ Year ended December 31, 2014 — 17,093 — 3,707 3,593 24,393 2015 435 $ 4,338 346 2,638 4,439 12,196 $ (1) Other comprises professional service fees, Board of Trusteesʼ fees and expenses, investor relations, compliance and regulatory costs. Dream Office REIT 2015 Annual Report | 116 Note 24 RELATED PARTY TRANSACTIONS AND ARRANGEMENTS From time to time, Dream Office REIT and its subsidiaries enter into transactions with related parties that are conducted under normal commercial terms. Agreements with DAM On April 2, 2015, the Trust and DAM also entered into a Management Services Agreement pursuant to which DAM will provide strategic oversight of the Trust and the services of a Chief Executive Officer as requested on a cost recovery basis. In accordance with the termination provisions of the Management Services Agreement, the Trust is subject to an incentive fee payable which is based on 15% of the Trust’s Aggregate Adjusted Funds from Operations (as defined in the Management Services Agreement), including the net gain on sale of any properties during the term of the agreement, and the deemed sale of the remaining portfolio upon termination, in excess of $2.65 per REIT A Unit. As the termination of the Management Services Agreement for the first three years is solely at the discretion of the Trust and the Trust currently has no intention to terminate the Management Services Agreement, the Trust has determined that it is not probable that the incentive fee is payable and accordingly, no amounts related to the incentive fee have been recorded in the consolidated financial statements as at December 31, 2015. On August 24, 2007, Dream Office REIT had an asset management agreement (the “Asset Management Agreement”) with DAM pursuant to which DAM provided certain asset management services to Dream Office REIT and its subsidiaries. On April 2, 2015, the Trust acquired a subsidiary of DAM which was a party to the Asset Management Agreement with the Trust, resulting in the elimination of the Trust’s obligation to pay asset management, acquisition and capital expenditure fees to DAM. In consideration for the Reorganization, the Trust issued 4,850,000 subsidiary redeemable units to DAM, representing total consideration of $127,313 using the closing price of REIT A Units at the date of the transaction. The total consideration of $127,313 and costs related to the Reorganization totalling $819 were charged to net income in the consolidated statement of comprehensive income. On December 1, 2013, Dream Office REIT and DAM entered into a Shared Services and Cost Sharing Agreement. Pursuant to the Reorganization, the Trust and DAM amended the existing Shared Services and Cost Sharing Agreement as of April 2, 2015. According to the terms of the amended arrangement, DAM will continue to provide administrative and support services on an as-needed basis and will receive an annual fee to reimburse it for all expenses incurred. The Trust will continue to reimburse DAM for any shared costs allocated in each calendar year. This amended agreement provides for the automatic reappointment of DAM for additional one-year terms commencing on January 1 unless and until terminated in accordance with its terms or by mutual agreement of the parties. Dream Office REIT, Dream Office Management LP (a wholly owned subsidiary of Dream Office LP) and DAM were parties to an administrative services agreement (the “Services Agreement with DAM”). Effective April 2, 2015, as part of the Reorganization, the existing Services Agreement with DAM was terminated and Dream Office Management Corp. (“DOMC”), a wholly owned subsidiary of Dream Office Management LP, and DAM entered into an amended Administrative Services Agreement pursuant to which DOMC will continue to provide certain administrative and support services to DAM. The terms of the agreement provide for DOMC to be reimbursed by DAM for the actual costs incurred by it in carrying out these activities on behalf of DAM. This agreement is for one-year terms unless and until terminated in accordance with its terms or by mutual agreement of the parties. Management Services Agreement with DAM The following is a summary of fees incurred for the year ended December 31, 2015 and December 31, 2014: Senior management compensation (included in G&A expenses) Expense reimbursements related to financing arrangements (included in debt) Expense reimbursements related to disposition arrangements (included in net loss on sale of investment properties) Total incurred under the Management Services Agreement Year ended December 31, 2015 2014 — 435 — 359 $ 300 1,094 $ — — $ $ Dream Office REIT 2015 Annual Report | 117 Asset Management Agreement with DAM The Asset Management Agreement provided for a broad range of asset management services for the following fees: • base annual management fee calculated and payable on a monthly basis, equal to 0.25% of the gross asset value of properties, defined as the fair value of the properties at August 23, 2007 (the date of the sale of our portfolio of properties in Eastern Canada) plus the purchase price of properties acquired subsequent to that date, adjusted for any properties sold; • • incentive fee equal to 15% of Dream Office REIT’s adjusted funds from operations per unit (as defined in the Asset Management Agreement) in excess of $2.65 per unit; capital expenditures fee equal to 5% of all hard construction costs incurred on each capital project with costs in excess of $1,000, excluding work done on behalf of tenants or any maintenance capital expenditures; • acquisition fee calculated over a fiscal year based on the anniversary date of the Asset Management Agreement, equal to: (i) 1.0% of the purchase price of a property on the first $100,000 of properties acquired; (ii) 0.75% of the purchase price of a property on the next $100,000 of properties acquired; and (iii) 0.50% of the purchase price of a property acquired in excess of $200,000 of properties acquired; and • financing fee equal to the lesser of actual expenses incurred by DAM in supplying services relating to financing transactions and 0.25% of the debt and equity of all financing transactions completed on behalf of Dream Office REIT. The following is a summary of fees incurred for the years ended December 31, 2015 and December 31, 2014 prior to the elimination of the Asset Management Agreement with DAM as part of the Reorganization on April 2, 2015: Base annual management fee (included in G&A expenses) Expense reimbursements related to financing arrangements (included in debt) Total incurred under the Asset Management Agreement $ $ Year ended December 31, 2015 2014 17,093 4,338 — 319 4,338 17,412 $ $ Shared Services and Cost Sharing Agreement with DAM The following is a summary of fees billed by DAM for the years ended December 31, 2015 and December 31, 2014. Amounts billed by DAM prior to April 2, 2015 are included pursuant to the original agreement: Business transformation costs Strategic services and other Total costs incurred under the Shared Services and Cost Sharing Agreement $ $ Year ended December 31, 2015 2014 1,490 1,100 889 405 2,379 1,505 $ $ The Trust’s expected future commitment under the Shared Services and Cost Sharing Agreement, which expires on December 1, 2020, is $2,463. Administrative Services Agreement with DAM The following is a summary of fees received from or paid to DAM and costs incurred by DAM or the Trust on behalf of the other party for the years ended December 31, 2015 and December 31, 2014. Amounts incurred prior to April 2, 2015 are included pursuant to the original agreement: Shared services and costs processed on behalf of DAM Operating and administration costs of regional offices processed on behalf of DAM Total costs processed on behalf of DAM under the Administrative Services Agreement Costs processed by DAM on behalf of the Trust under the Administrative Services Agreement Year ended December 31, 2014 5,007 8,705 13,712 37 2015 5,560 $ 2,979 8,539 $ 610 $ $ $ $ Dream Office REIT 2015 Annual Report | 118 Services Agreement with Dream Industrial REIT Effective October 4, 2012, Dream Office Management Corp. and Dream Industrial REIT entered into a Services Agreement, in which the Trust provides certain services to Dream Industrial REIT on a cost recovery basis. The following is a summary of the cost recoveries from Dream Industrial REIT for the years ended December 31, 2015 and December 31, 2014: Total cost recoveries from Dream Industrial REIT Year ended December 31, 2015 2014 5,999 3,471 $ $ Other transactions with Dream Industrial REIT As discussed in Note 7 and Note 18, the Trust completed the sale of four investment properties to Dream Industrial REIT on September 9, 2014. A total loss of $141 was recognized in the statements of comprehensive income upon disposal and related to the write-off of financing costs and fair value adjustments associated with the debt discharged, transaction costs and the write-off of goodwill associated with the cash-generating unit. Amounts due from (to) related parties Amounts due from DAM Administrative Services Agreement with DAM Parking revenue received on behalf of the Trust Total amounts due from DAM Amounts due from (to) DAM Various agreements with DAM(1) Distributions payable to DAM(2) Subsidiary redeemable interest payable to DAM(3) Total amounts due to DAM December 31, 2015 December 31, 2014 552 $ 260 812 $ 447 546 993 December 31, December 31, 2014 2015 (2,536 ) $ (144 ) (977 ) (3,657 ) $ 148 (144 ) (72 ) (68 ) $ $ $ $ (1) Includes Management Services Agreement, Asset Management Agreement, Shared Services and Cost Sharing Agreement, and Administrative Services Agreement. (2) Distributions payable is in relation to the 773,939 REIT A Units held by DAM. (3) Subsidiary redeemable interest payable is in relation to the 5,233,823 subsidiary redeemable units held by DAM. Amounts due from Dream Industrial REIT Service Agreement with Dream Industrial REIT Distributions from Dream Industrial REIT Total amounts due from Dream Industrial REIT Total amounts due to Dream Industrial REIT related to Dream Industrial REIT properties December 31, 2015 December 31, 2014 $ $ $ 256 $ 1,082 1,338 $ (135 ) $ 808 1,082 1,890 (35 ) Dream Office REIT 2015 Annual Report | 119 Compensation of key management personnel Compensation of key management personnel for the years ended December 31 is as follows: Unit-based awards(1) Year ended December 31, 2015 1,405 $ 2014 925 $ (1) Deferred trust units granted vest over a five-year period with one-fifth of the deferred trust units vesting each year. Amounts are determined based on the grant date fair value of deferred trust units multiplied by the number of deferred trust units granted in the year. Note 25 SUPPLEMENTARY CASH FLOW INFORMATION The components of amortization and depreciation under operating activities include: Amortization of lease incentives Amortization of external management contracts Amortization of financing costs Amortization of fair value adjustments on assumed debt Depreciation on property and equipment Total amortization and depreciation The components of changes in other adjustments under operating activities include: Note 6 $ 9 19 19 $ $ Year ended December 31, 2015 2014 9,893 13,032 1,292 1,291 3,178 3,060 (4,060 ) (4,754 ) 1,678 1,658 11,287 14,981 $ Cost on Reorganization Debt settlement and Unit issue costs, net Net loss on sale of investment properties Deferred unit compensation expense Straight-line rent adjustment Deferred income taxes Impairment of goodwill Total other adjustments Note 24 $ 31 18, 31 13 21 9, 31 $ Year ended December 31, 2015 2014 127,313 $ — 1,927 1,999 3,652 738 3,707 2,638 (2,313 ) (3,929 ) 638 1,695 51,212 — 3,081 186,196 $ $ Year ended December 31, 2015 2014 12,043 6,155 857 (481 ) 287 794 2,026 (7,753 ) 255 216 6,196 8,203 $ The components of the changes in non-cash working capital under operating activities include: Decrease in amounts receivable Decrease (increase) in prepaid expenses and other assets Decrease in other non-current assets Increase (decrease) in amounts payable and accrued liabilities Increase in non-current liabilities Change in non-cash working capital $ $ Dream Office REIT 2015 Annual Report | 120 The following amounts were paid on account of interest: Interest: Debt Subsidiary redeemable units Note 26 ACCUMULATED OTHER COMPREHENSIVE INCOME Note Year ended December 31, 2015 2014 19 $ 19 133,363 8,306 $ 134,792 5,186 Unrealized loss on interest rate swaps, net of tax Unrealized foreign currency translation gain, net of tax Accumulated other comprehensive income Opening balance January 1 $ (1,002 ) $ Net change during the year (139 ) $ 2015 Closing balance December 31 Opening balance January 1 (1,141 ) $ (336 ) $ Net change during the Year ended December 31, 2014 Closing balance December 31 (1,002 ) year (666 ) $ 5,230 4,228 $ 7,486 7,347 $ 12,716 11,575 $ 2,020 1,684 $ 3,210 2,544 $ $ 5,230 4,228 Note 27 COMMITMENTS AND CONTINGENCIES Dream Office REIT and its operating subsidiaries are contingently liable under guarantees that are issued in the normal course of business and with respect to litigation and claims that arise from time to time. In the opinion of management, any liability that may arise from such contingencies would not have a material adverse effect on the consolidated financial statements of Dream Office REIT. During the year, a subsidiary of the Trust received notices of reassessment from both the Canada Revenue Agency and the Alberta Minister of Finance with respect to its 2007, 2008 and 2010 taxation years. These reassessments relate to the deductibility of certain tax losses claimed by the subsidiary prior to its acquisition by the Trust. These federal and provincial reassessments if upheld could increase total current taxes payable including interest and penalties by $10,619. No cash payment is expected to be made unless it is ultimately established that the Trust has an obligation to make one. Management is of the view that there is a strong case to support the position as filed and has contested both the federal and provincial reassessments. Since management believes that it is more likely than not that its position will be sustained, no amounts related to these reassessments have been recorded in the consolidated financial statements as of December 31, 2015. At December 31, 2015, Dream Office REIT’s future minimum commitments under operating leases, finance leases, and fixed price contracts to purchase electricity and steam are as follows: Operating lease payments Finance lease payments Fixed price contracts – electricity Fixed price contracts – steam Total $ < 1 year 784 195 2,873 315 4,167 $ $ 1–5 years 899 38 — 1,576 2,513 $ $ $ $ Minimum payments due Total 9,848 233 2,873 6,303 19,257 > 5 years 8,165 — — 4,412 12,577 $ During the year ended December 31, 2015, the Trust paid $817 (December 31, 2014 – $1,065) in minimum lease payments, which has been included in comprehensive income for the period. The Trust has entered into lease agreements that may require tenant improvement costs of approximately $37,825. The Trustʼs share of contingent liabilities for the obligation of the other owners of investments in joint ventures is $275,735 (December 31, 2014 – $282,738). Dream Office REIT 2015 Annual Report | 121 Note 28 CAPITAL MANAGEMENT The primary objectives of the Trust’s capital management are to ensure it remains within its quantitative banking covenants and to improve its credit rating. The Trust was assigned for the first time a credit rating of BBB (low) with a stable trend as part of the Series A and Series B Debentures offering during 2013. The Trust’s capital consists of debt, including mortgages, convertible debentures, debentures, subsidiary redeemable units and demand revolving credit facilities, and unitholders’ equity. The Trust’s objectives in managing capital are to ensure adequate operating funds are available to maintain consistent and sustainable unitholder distributions, to fund leasing costs and capital expenditure requirements, and to provide for resources needed to acquire new properties. The Trust’s maximum credit exposure is equal to the trade receivables at December 31, 2015. Various debt, equity and earnings distribution ratios are used to ensure capital adequacy and monitor capital requirements. The primary ratios used for assessing capital management are the interest coverage ratio and net debt-to-gross carrying value. Other significant indicators include weighted average interest rate, average term to maturity of debt and variable debt as a portion of total debt. These indicators assist the Trust in assessing that the debt level maintained is sufficient to provide adequate cash flows for unitholder distributions and capital expenditures, and for evaluating the need to raise funds for further expansion. Various mortgages have debt covenant requirements that are monitored by the Trust to ensure there are no defaults. These covenants include loan-to-value ratios, cash flow coverage ratios, interest coverage ratios and debt service coverage ratios. These covenants are measured at the subsidiary limited partnership level, and all have been complied with in all material respects. The Trust’s equity consists of Units, in which the carrying value is impacted by earnings and unitholder distributions. Amounts retained in excess of the distributions are used to fund leasing costs, capital expenditures and working capital requirements. Management monitors distributions through various ratios to ensure adequate resources are available. These ratios include the proportion of distributions paid in cash, DRIP participation ratio, and total distributions as a percent of distributable income and distributable income per unit. During the year, there were no events of default on any of the Trust’s obligations under its credit facilities or mortgage loans. Note 29 FINANCIAL INSTRUMENTS Risk management IFRS 7, “Presentation of Financial Statements” (“IFRS 7”), places emphasis on disclosures about the nature and extent of risks arising from financial instruments and how the Trust manages those risks, including market, credit and liquidity risks. Market risk is the risk 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. The Trust has some exposure to interest rate risk primarily as a result of its variable rate debt. In addition, there is interest rate risk associated with the Trust’s fixed rate debt due to the expected requirement to refinance such debts in the year of maturity. The Trust is exposed to the variability in market interest rates on maturing debt to be renewed. Variable rate debt at December 31, 2015 was 8.9% of the Trust’s total debt (December 31, 2014 – 8.9%). Included in fixed rate debt is the term loan facility of $183,453, which has a variable rate of interest at bankers’ acceptances plus 1.85% payable monthly. The Trust had entered into two interest rate swap agreements, one for three years at 3.03% for a notional value of $53,670 and one for five years at 3.52% for a notional value of $129,783, fixing the rate of interest at 3.38%. On August 15, 2014, the three-year interest rate swap on the notional balance of $53,670 expired and was not subsequently renewed. In order to manage exposure to interest rate risk, the Trust endeavours to maintain an appropriate mix of fixed and variable rate debt, manage maturities of fixed rate debt and match the nature of the debt with the cash flow characteristics of the underlying asset. Dream Office REIT 2015 Annual Report | 122 The following interest rate sensitivity table outlines the potential impact of a 1% change in the interest rate on variable rate financial assets and liabilities for the prospective 12-month period. A 1% change is considered a reasonable level of fluctuation on variable rate financial assets and liabilities. Financial assets Cash and cash equivalents(1) Financial liabilities Fixed rate debt due to mature in 2016 and total variable debt $ $ Amount Income -1 % Equity Income Interest rate risk +1% Equity 2,051 $ (21 ) $ (21 ) $ 21 $ 21 713,141 $ 7,131 $ 7,131 $ (7,131 ) $ (7,131 ) (1) Cash and cash equivalents are short-term investments with an original maturity of three months or less, and exclude cash subject to restrictions that prevent the Trustʼs use for current purposes. These balances generally receive interest income at the bankʼs prime rate less 1.85%. Cash and cash equivalents are short term in nature and the current balance may not be representative of the balance for the rest of the year. The Trust is not exposed to significant foreign exchange risks. The Trust’s assets consist of office properties. Credit risk arises from the possibility that tenants in investment properties may not fulfill their lease or contractual obligations. The Trust 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. Cash and cash equivalents, deposits and restricted cash carry minimal credit risk as all funds are maintained with highly reputable financial institutions. Liquidity risk is the risk the Trust will encounter difficulty in meeting obligations associated with the maturity of financial obligations. The Trust manages maturities of the fixed rate debts, and monitors the repayment dates to ensure sufficient capital will be available to cover obligations as they become due. Derivatives and hedging activities The Trust uses an interest rate swap to manage its cash flow associated with changes in interest rates on variable rate debt. As at December 31, 2015, the Trust had the following interest rate swap outstanding (December 31, 2014 – $129,783): Hedging item Notional Rate (%) Maturity Fair value Hedged item Interest rate swap $ 129,783 3.52 August 15, 2016 $ 770 Interest payments on forecasted issuance of bankersʼ acceptances The maximum term over which interest rate hedging gains and losses reflected in other comprehensive income will be recognized is five years as the hedged interest payments occur. Dream Office REIT 2015 Annual Report | 123 Note 30 FAIR VALUE MEASUREMENT Fair value of financial instruments Quoted market prices represent a Level 1 valuation. When quoted market prices are not available, the Trust maximizes the use of observable inputs. When all significant inputs are observable, the valuation is classified as Level 2. Valuations that require the significant use of unobservable inputs are considered Level 3. The Trust’s policy is to recognize transfers into and transfers out of fair value hierarchy levels as of the date of the event or change in circumstances that caused the transfer. There were no transfers between Levels 1, 2 and 3 during the year. The following tables summarize fair value measurements recognized in the consolidated financial statements by class of asset or liability and categorized by level according to the significance of the inputs used in making the measurements. Note Carrying value as at December 31, 2015 Level 1 Fair value as at December 31, 2015 Level 3 Level 2 Recurring measurements Non-financial assets Investment properties Financial liabilities (assets) Interest rate swaps Conversion feature on the convertible debentures 6 $ 5,866,595 $ — $ — $ 5,866,595 11 11 770 (38 ) — — 770 (38 ) — — Note Carrying value as at December 31, 2014 Level 1 Fair value as at December 31, 2014 Level 3 Level 2 Recurring measurements Non-financial assets Investment properties Financial liabilities (assets) Interest rate swaps Conversion feature on the convertible debentures 6 $ 6,139,070 $ — $ — $ 6,139,070 11 11 592 (760 ) — — 592 (760 ) — — Financial instruments carried at amortized cost where the carrying value does not approximate fair value are noted below: Fair values disclosed Mortgages Term loan facility Convertible debentures Debentures Investment in Dream Industrial REIT Fair values disclosed Mortgages Term loan facility Convertible debentures Debentures Investment in Dream Industrial REIT Note Carrying value as at December 31, 2015 Fair value as at December 31, 2015 Level 1 Level 2 Level 3 $ 11 11 11 11 7 2,244,161 $ 182,990 50,923 483,174 184,817 — $ — 50,628 485,000 — — $ 2,325,458 185,009 — — — — — — 133,202 Note Carrying value as at December 31, 2014 Fair value as at December 31, 2014 Level 1 Level 2 Level 3 $ 11 11 11 11 7 2,380,708 $ 182,260 51,160 482,700 191,691 — $ — 51,641 485,200 — — $ 2,491,411 186,069 — — — — — — 156,206 Amounts receivable, cash and cash equivalents, tenant security deposits, amounts payable and accrued liabilities, and distributions payable are carried at amortized cost which approximates fair value due to their short-term nature. Subsidiary redeemable units and Deferred Unit Incentive Plan are carried at amortized cost which approximates fair value as they are readily redeemable financial instruments. Dream Office REIT 2015 Annual Report | 124 Investment properties The Trust’s accounting policy as indicated in Note 3 is applied to fair value investment properties using the income approach, which is derived from two methods: overall capitalization rate method and discounted cash flow method, which result in these measurements being classified as Level 3 in the fair value hierarchy. Valuations of investment properties are most sensitive to changes in discount rates and capitalization rates. In applying the overall capitalization rate method the stabilized net operating income (“stabilized NOI”) of each property is divided by any appropriate capitalization rate (“cap rate”). The key assumptions in the valuation of investment properties are as follows: • Cap rate – based on actual location, size and quality of the properties and taking into account any available market data at • the valuation date. Stabilized NOI – revenues less property operating expenses adjusted for items such as average lease-up costs, long-term vacancy rates, non-recoverable capital expenditures, management fees, straight-line rents and other non-recurring items. • Discount rate – reflecting current market assessments of the uncertainty in the amount and timing of cash flows. • Terminal rate – taking into account assumptions regarding vacancy rates and market rents. • Cash flows – based on the actual location, type and quality of the properties and supported by the terms of any existing lease, other contracts or external evidence such as current market rents for similar properties. In accordance with IFRS 5, “Non-Current Assets Held for Sale and Discontinued Operations”, as at December 31, 2015, the Trust classified three properties located in Québec as assets held for sale totalling $44,914 and its associated liabilities totalling $24,502. The fair value of the assets held for sale approximates the carrying value of the net assets. Investment properties are valued on a highest-and-best-use basis. For all of the Trust’s investment properties the current use is considered the highest and best use. Investment properties valuation process The Trust is responsible for determining the fair value measurements included in the consolidated financial statements. To determine fair value, the Trust first considers whether it can use current prices in an active market for a similar property in the same location and condition, which is subject to similar leases and other contracts. The Trust has concluded there is insufficient market evidence on which to base investment property valuation using this approach, and has therefore determined that using the income approach is more appropriate. The Trust’s internal valuations team prepares a valuation of each investment property every quarter. The internal valuations team is headed by portfolio managers with valuations experience. On a quarterly basis, the Trust engages independent professionally qualified valuators who hold a recognized relevant professional qualification and have recent experience in the locations and categories of the investment properties to complete valuations of selected properties. The Trust’s objective is to have each property valued by an independent valuator at least once every three years. For properties subject to an independent valuation report, the internal valuations team verifies all major inputs to the valuation and reviews the results with the independent valuators. Changes in Level 3 fair values are analyzed at each reporting date. Convertible debentures and interest rate swaps The convertible debentures have two components of value – a conventional bond and a call on the equity of the Trust through conversion. Based on its terms (see Note 11) the conversion feature is an embedded derivative and has been separated from the host contract and classified as a financial liability or asset through profit and loss. The fair value of the conversion feature, categorized in Level 2, is calculated based on a market-based methodology. In this model, a convertible bond consists of two components, an equity component and a debt component, and these components have different default risks. The equity component is discounted at the risk-free rate. The equity component has no default risk since the Trust can always issue its own units. The debt component is discounted at the risk-free rate plus a credit spread. The fair value of the conversion feature on the convertible debentures was determined using a number of inputs. The critical inputs are the unit price, the units’ distribution yield, the underlying unit volatility, the risk-free rate and the assumed credit spread, all of which are observable. A qualified independent consultant calculates the fair value measurement for the financial liability classified as Level 2. The valuation processes and results are determined and reviewed by senior management. The inputs and processes used in the valuation and the results thereof are reviewed by senior management and discussed with the qualified independent consultant to ensure conformity with IFRS. Dream Office REIT 2015 Annual Report | 125 The significant observable inputs used in the fair value measurement of the conversion feature as at December 31, 2015 and December 31, 2014 are the following: • Volatility: Historical volatility as at December 31, 2015 and December 31, 2014 was derived from the historical prices of the Trust with maturity equal to the term to maturity of the convertible debentures. • Credit spread: The credit spread of the convertible debentures was imputed from the trade price of the convertible debentures as at December 31, 2015 and December 31, 2014. 5.5% Series H Debentures Credit spread Volatility December 31, December 31, 2015 4.55% 15.64% 2014 2.39 % 13.6 % A higher volatility will increase the value of the conversion option. A lower credit spread will decrease the value of the conversion option. The following table shows the changes in fair value of the conversion option from a 5% increase or decrease in volatility and a 100 bps increase or decrease in credit spread, holding all other inputs constant. Increase (decrease) in fair value as at December 31, 2015 $ Increase (decrease) in fair value as at December 31, 2014 $ Impact of change to volatility -5% — +5% — $ Impact of change to volatility -5% 3 +5% (44 ) $ Impact of change to credit spread +100 bps $ 38 $ -100 bps (460) Impact of change to credit spread +100 bps 461 $ -100 bps (481) $ The Trust also uses the following techniques in determining the fair value disclosed for the following financial liabilities classified as Level 1, 2 and 3: Mortgages and term loan facility The fair value of mortgages and term loan facility as at December 31, 2015 is determined by discounting the expected cash flows of each mortgage and term loan facility using spreads ranging from 1.85% to 2.40% (December 31, 2014 – 1.60% to 1.70%). The spreads are determined using the Government of Canada benchmark bond yield for instruments of similar maturity adjusted for the Trust’s specific credit risk. In determining the adjustment for credit risk, the Trust considers market conditions, the value of the properties that the mortgage is secured by and other indicators of the Trust’s creditworthiness. Convertible debentures The fair value of convertible debentures as at December 31, 2015 and December 31, 2014 is based on the convertible debentures’ trading price on or about December 31, 2015 and December 31, 2014, respectively. Debentures The fair value of debentures that are traded as at December 31, 2015 and December 31, 2014 is based on the debentures’ trading price on or about December 31, 2015 and December 31, 2014, respectively. The fair values of debentures that are non- trading as at December 31, 2015 are based on the debentures’ par value. Demand revolving credit facilities The fair value of the demand revolving credit facilities as at December 31, 2015 and December 31, 2014 approximates their carrying value due to their short-term nature. Dream Office REIT 2015 Annual Report | 126 Note 31 NET LOSSES ON TRANSACTIONS AND OTHER ACTIVITIES Debt settlement costs, net Net loss on sale of investment properties Internal leasing costs Business transformation costs Cost on Reorganization Impairment of goodwill Other activities Total Note $ 18 24 24 9 $ Year ended December 31, 2015 2014 (1,999 ) $ (1,892) (3,652 ) (738) (8,951 ) (6,118) (1,490 ) (1,100) — (128,132 ) — (51,212 ) — 600 (194,836 ) $ (9,848) Net debt settlement costs comprise of fees related to the discharge of mortgages prior to the original maturity dates during the year, offset by the write-off of associated fair value adjustments and financing costs. Net loss on sale of investment properties for the year mainly comprise of transaction costs and the write-off of a pro rata share of goodwill associated with the cash- generating unit. Business transformation costs related to process and technology improvement costs incurred pursuant to the Shared Services and Cost Sharing Agreement (see Note 24). In consideration for the Reorganization, the Trust issued 4,850,000 subsidiary redeemable units to DAM, representing total consideration of $127,313. The total consideration of $127,313 and costs related to the Reorganization totalling $819 were charged to net income in the consolidated statement of comprehensive income (see Note 24). Note 32 SUBSEQUENT EVENTS On February 18, 2016, the Trust announced a reduction to its monthly cash distribution from $0.18666 per REIT A Unit to $0.125 per REIT A Unit, or $1.50 per REIT A Unit on an annualized basis, effective for the month of February 2016 distribution. The February 2016 distribution will be payable on March 15, 2016 to unitholders of record at February 29, 2016. On February 18, 2016, the Trust announced the suspension of its DRIP until further notice effective for the February 2016 distribution. Subsequent to year-end, the Trust has committed to a new three-year, $800,000 revolving credit facility with an expected closing date on or before March 4, 2016. This revolving credit facility is expected to replace the existing $171,500 revolving credit facility due on March 5, 2016 and $183,453 term loan facility due on August 15, 2016. Dream Office REIT 2015 Annual Report | 127 (this page intentionally left blank) Dream Office REIT 2015 Annual Report | 128 Trustees Detlef Bierbaum 1,2 Köln, Germany Corporate Director Donald K. Charter 3 Toronto, Ontario Corporate Director Michael J. Cooper 2,4 Toronto, Ontario President and Chief Responsible Officer Dream Unlimited Corp. Joanne Ferstman 1,2 Toronto, Ontario Corporate Director The Hon. Dr. Kellie Leitch Creemore, Ontario Member of Parliament for Simcoe–Grey Robert G. Goodall 3 Toronto, Ontario President Canadian Mortgage Capital Corporation Karine MacIndoe 1 Toronto, Ontario Corporate Director Duncan Jackman 3 Toronto, Ontario Chairman, President and CEO E-L Financial Corporation Limited 1 Member of the Audit Committee 2 Member of the Investment Committee 3 Member of the Governance, Compensation and Environmental Committee 4 Chair of the Board of Trustees Corporate Information HEAD OFFICE AUDITORS Dream Office Real Estate Investment Trust State Street Financial Centre 30 Adelaide Street East, Suite 301 Toronto, Ontario M5C 3H1 Phone: (416) 365-3535 Fax: (416) 365-6565 TRANSFER AGENT (for change of address, registration or other unitholder enquiries) Computershare Trust Company of Canada 100 University Avenue, 8th Floor Toronto, Ontario M5J 2Y1 Phone: (514) 982-7555 or 1 800 564-6253 Fax: (416) 263-9394 or 1 888 453-0330 E-mail: service@computershare.com PricewaterhouseCoopers LLP PwC Tower, 18 York Street, Suite 2600 Toronto, Ontario M5J 0B2 CORPORATE COUNSEL Osler, Hoskin & Harcourt LLP Box 50, 1 First Canadian Place, Suite 6200 Toronto, Ontario M5X 1B8 INVESTOR RELATIONS Phone: (416) 365-3538 Toll free: 1 877 365-3535 E-mail: officeinfo@dream.ca Website: www.dreamofficereit.ca TAXATION OF DISTRIBUTIONS Distributions paid to unitholders in respect of the tax year ending December 31, 2015, are taxed as follows: Other income: 28.1% Capital gains: 14.3% Return of capital: 57.6% STOCK EXCHANGE LISTING The Toronto Stock Exchange Listing symbols: REIT Units, Series A: D.UN 5.5% Series H Convertible Debentures: D.DB.H 5.95% Senior Unsecured Debentures, Series K: D.DB.K m o c . n g i s e d s k r o w w w w . . I D T L S N O I T A C N U M M O C N G S E D S K R O W E H T I : n g i s e D D R E A M O F F I C E R E I T 2 0 1 5 A N N U A L R E P O R T Corporate Offices State Street Financial Centre 30 Adelaide Street East, Suite 301 Toronto, ON M5C 3H1 Phone: 416.365.3535 Fax: 416.365.6565 E-mail: officeinfo@dream.ca dreamofficereit.ca 

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