Dream Gobal REIT Annual Report 2011

Plain-text annual report

DUNDEE INTERNATIONAL REIT 2011 Annual Report 33 Management’s responsibility for financial statements 34 35 Independent auditor’s report Consolidated financial statements 39 Notes to the consolidated financial statements 66 Appendix 71 Trustees and officers IBC Corporate information Contents 1 3 Letter to unitholders Management’s discussion and analysis 3 4 5 5 5 6 8 9 SECTION I — OVERVIEW AND FINANCIAL HIGHLIGHTS Basis of presentation Background Our objectives Our strategy Our assets Tenants Market overview — Germany 10 Outlook 11 11 14 15 21 SECTION II — EXECUTING THE STRATEGY Our operations Our resources and ﬁnancial condition Our capital Our results of operations 26 SECTION III — DISCLOSURE CONTROLS AND PROCEDURES 27 SECTION IV — RISKS AND OUR STRATEGY TO MANAGE 32 32 SECTION V — CRITICAL ACCOUNTING POLICIES Critical accounting estimates and changes in accounting policies DUNDEE INTERNATIONAL 2011 Annual Report Letter to unitholders I am very pleased to present the ﬁrst annual report of Dundee International REIT. Dundee International REIT was created for the purpose of building an international real estate business managed by a team with a strong history, track record and reputation in the Canadian public markets. P. JANE GAVAN President and Chief Executive Ofﬁcer Dundee Corporation and Dundee Realty, the founders of Dundee International REIT, recognized an opportunity to export the disciplined REIT structure and management style developed by the same leadership team to real estate ownership outside of Canada. There is no doubt that returns from Canadian real estate, as supported by a strong Canadian economy, have been impressive over the last 15 years. As a result, relative property valuations in Canada as compared to those in Europe have been higher, making investment opportunities outside of Canada very attractive. Last year, we identiﬁed a portfolio of properties in Germany, predominantly occupied by Deutsche Post, that we were able to acquire at a reasonable price. This allowed us to provide our investors with a desirable return, even after paying all of the costs of creating the business. Since going public in August 2011, the spread in capitalization rates between Canada and Europe for our target assets has increased while interest rates have continued to decline. As a result, the opportunities to make attractive investments in Europe are even more compelling now than they were at the time of our IPO. The Dundee Group invested $120 million in Dundee International, at the same time and at the same price as other investors, and our IPO last August was one of the most successful REIT IPOs completed in Canada. Since then, we have expanded our operating platform in Germany and Luxembourg and made some key additions to our management team in Germany. We have met with our largest tenant, Deutsche Post, many times and at various levels of their organization. We continue to make progress in leasing our properties to new tenants and re-leasing space to Deutsche Post. In February, we completed the ﬁrst acquisition since the IPO and we are very pleased with the quality of the asset and the value it brings to the portfolio. We are currently at various stages of due diligence with respect to a number of property acquisitions that would provide attractive returns to our unitholders. The goal for 2012 is to diversify our business by properties, by lenders and by tenants in order to enhance the composition of the entire portfolio and signiﬁcantly reduce our reliance on the initial portfolio of assets. As we diversify away from the single tenant nature of our portfolio, we believe that our business will become even more valuable. To achieve this diversiﬁcation, we will continue to lease space within the original portfolio to tenants other than Deutsche Post, focus on reﬁnancing a portion of our original debt with other PAGE 1 DUNDEE INTERNATIONAL 2011 Annual Report lenders, and look for compelling acquisition opportunities — properties with good covenants and staggered lease terms. We continue to build relationships with new lenders in order to ﬁnance our upcoming acquisitions and to further diversify our lending pool. The opportunity to create and grow this business at this time is exceptional. In 2011, Germany had the highest GDP growth among all the G7 countries. There has been signiﬁcant net absorption of commercial space throughout the country; however, due to the ﬁnancial crisis and new banking regulations, the market is currently faced with tremendous de-leveraging. As a result, we believe that property valuations are more attractive than they otherwise would be, given the economic backdrop of Germany. We believe that the de-leveraging will continue for some time and, as a result, properties will remain attractively priced. All of our current growth efforts are focused in Germany, leveraging our strength when it comes to people, operations and local relationships, combined with the relative strength of the German economy. Once we have diversiﬁed our business within Germany, we will explore expanding our operations elsewhere. I would like to thank our Board of Trustees, colleagues, advisors, investors and lenders for helping us create Dundee International and for demonstrating such great conﬁdence in us. I look forward to your continued support as we grow our business together. P. JANE GAVAN President and Chief Executive Ofﬁcer March 15, 2012 PAGE 2 DUNDEE INTERNATIONAL 2011 Annual Report Management’s discussion and analysis (All dollar amounts in our tables are presented in thousands of Canadian dollars, except rental rates, unit and per unit amounts) SECTION I — OVERVIEW AND FINANCIAL HIGHLIGHTS • Solid results in line with expectations • Active acquisition pipeline with ﬁrst acquisition scheduled to close by the end of February 2012 • Expansion of European management platform with two highly experienced European real estate professionals joining the team • Improvements in occupancy to 87.8% from 87.7% in Q3 and from 87.2% at the time of the Trust’s initial public offering (“IPO”) in August 2011 For the period from August 3, 2011 to December 31, 2011 December 31, 2011 December 31, 2011 Financial forecast for the three months ended For the three months ended Financial forecast (pro-rated)(1) Operations Occupancy rate (period-end) In-place rent per square foot Operating results Investment properties revenue Net rental income Funds from operations (“FFO”)(2) Adjusted funds from operations (“AFFO”)(3) Distributions Declared distributions and interest $ $ 88% 7.13 — — — — — — 31,726 20,969 10,600 10,240 $ 35,482 20,729 11,374 10,694 $ 54,274 34,500 18,100 16,965 $ 57,882 33,676 18,282 17,160 on Exchangeable Notes $ 10,391 $ 9,400 $ 17,082 $ 15,568 Distributions paid and payable in cash (including Exchangeable Notes) 10,195 9,400 16,802 15,568 Financing Coupon interest rate (period-end) Interest coverage ratio Per unit amounts(4) Basic: FFO(2) AFFO(3) Distribution rate Basic (excluding impact of over-allotment): FFO AFFO 4.36% 2.67 times 4.45% 2.39 times 0.20 0.20 0.20 0.23 0.22 0.24 0.22 0.20 0.24 0.22 0.35 0.33 0.33 0.39 0.36 0.38 0.36 0.33 0.38 0.36 FFO and AFFO are key measures of performance used by real estate operating companies; however, they are not deﬁned under IFRS, do not have standard meanings and may not be comparable with other industries or income trusts. (1) Financial forecast — Refers to the ﬁnancial forecast for the six-month period ending December 31, 2011 included in our prospectus dated July 21, 2011; pro-rated to reﬂect our ownership commencing August 3, 2011. (2) FFO — The reconciliation of FFO to net income can be found on page 24. (3) AFFO — The reconciliation of AFFO to FFO and net income can be found on page 24. (4) A description of the determination of basic and diluted amounts per unit can be found on page 24. PAGE 3 DUNDEE INTERNATIONAL 2011 Annual Report BASIS OF PRESENTATION Our discussion and analysis of the ﬁnancial position and results of operations of Dundee International Real Estate Investment Trust (“Dundee International REIT” or the “Trust”) should be read in conjunction with the audited consolidated ﬁnancial statements of Dundee International REIT for the period ended December 31, 2011. The Trust’s basis of ﬁnancial reporting is International Financial Reporting Standards (“IFRS”). This management’s discussion and analysis has been dated as at January 31, 2012, except where otherwise noted. For simplicity, throughout this discussion, we may make reference to the following: • “Debentures”, meaning the 5.5% convertible unsecured subordinated debentures of the Trust due July 31, 2018; • “Exchangeable Notes”, meaning the Exchangeable Notes, Series A and the Exchangeable Notes, Series B issued by a subsidiary of Dundee International REIT; • “GLA”, meaning gross leasable area; and • “Units”, meaning the units of the Trust. Certain information has been obtained from Jones Lang LaSalle, Ofﬁce Market Overview Q4 2011, a publication prepared by a commercial ﬁrm that provides information relating to the German real estate industry. Although we believe this information is reliable, the accuracy and completeness of this information is not guaranteed. We have not independently veriﬁed this information and make no representation as to its accuracy. Certain information herein contains or incorporates comments that constitute forward-looking information within the meaning of applicable securities legislation. Forward-looking information is based upon a number of assumptions and is subject to a number of risks and uncertainties, many of which are beyond Dundee International REIT’s control, which could cause actual results to differ materially from those that are disclosed in or implied by such forward-looking information. These risks and uncertainties include, but are not limited to, global and local economic, business and government conditions; the ﬁnancial condition of tenants; concentration of our tenants; our ability to reﬁnance maturing debt; leasing risks, including those associated with the ability to lease vacant space and the timing of lease terminations; our ability to source and complete accretive acquisitions; changes in tax laws or the application thereof; and interest and currency rate ﬂuctuations. Although the forward-looking statements contained in this management’s discussion and analysis are based upon what we believe are reasonable assumptions, there can be no assurance that actual results will be consistent with these forward-looking statements. 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; that the Trust is exempt from the speciﬁed investment ﬂow-through trust (“SIFT”) rules under the Income Tax Act (Canada); and other risks and factors described from time to time in the documents ﬁled by the Trust with the securities regulators. All forward-looking information is as of January 31, 2012, except where otherwise noted. Except as required by securities law in connection with our ﬁnancial forecast included in our prospectus dated July 21, 2011, Dundee International REIT does not undertake to update any such forward-looking information whether as a result of new information, future events or otherwise. Additional information about these assumptions and risks and uncertainties is contained in our ﬁlings with securities regulators. These ﬁlings are also available on our website at www.dundeeinternational.com. PAGE 4 DUNDEE INTERNATIONAL 2011 Annual Report BACKGROUND Dundee International REIT is an unincorporated, open-ended real estate investment trust that was formed to provide investors with the opportunity to invest in real estate exclusively outside of Canada. Dundee International REIT was founded by Dundee Realty Corporation (“DRC”), which is our asset manager. Our Units are listed on the Toronto Stock Exchange under the trading symbol DI.UN. On August 3, 2011, Dundee International REIT completed an IPO of Units and Debentures for aggregate gross proceeds of $410 million. Concurrently with the IPO, Dundee Corporation and Dundee Realty Corporation purchased Units at an aggregate price of $120 million. These proceeds (net of issue costs and working capital requirements), together with approximately €58.6 million ($80 million) of proceeds from the sale of Exchangeable Notes and €328.5 million ($448 million) in term debt ﬁnancing, were used to fund the amount payable of $1,007 million for a portfolio of real estate assets located in Germany. At December 31, 2011, our portfolio consisted of 292 ofﬁce, mixed use and industrial properties comprising approximately 12.3 million square feet of GLA located in Germany. We will be exempt from the SIFT rules, taking into account all proposed amendments to such rules, as long as we comply at all times with our investment guidelines which, among other things, only permit us to invest in properties or assets located outside of Canada. We do not rely on the REIT exception under the Income Tax Act (Canada) in order to be exempt from the SIFT rules. As a result, we are not subject to the same restrictions on our activities as those that apply to Canadian real estate investment trusts that do rely on the REIT exception. This gives us ﬂexibility in terms of the nature and scope of our investments and other activities. Because we do not own taxable Canadian property (as deﬁned in the Income Tax Act (Canada)), we are not subject to restrictions on our ownership by non-Canadian investors. OUR OBJECTIVES We are committed to: • managing our investments to provide stable, sustainable and growing cash ﬂows through investments in commercial real estate located outside of Canada; • building a diversiﬁed, growth-oriented portfolio of commercial properties based on an initial portfolio in Germany; • capitalizing on internal growth and seeking accretive acquisition opportunities in our target markets; • growing the value of our assets and maximizing the long-term value of our Units through the active and efﬁcient management of our assets; and • providing predictable and growing cash distributions per Unit, on a tax-efﬁcient basis. OUR STRATEGY Our core strategy is to invest in income-producing properties outside of Canada that provide stable, sustainable and growing cash ﬂows. Our methodology to execute our strategy and to meet our objectives includes: Optimizing the performance, value and long-term cash ﬂow of our properties We manage our properties to optimize their performance, value and long-term cash ﬂow. We seek to do this by achieving high occupancy and rental rates. Together with our management team in Canada, we also have an established management team in Germany and Luxembourg, bringing a history with our properties, continuity with our major tenant and relationships with other market participants. Leasing, capital expenditure and construction initiatives are internally managed by us, while an afﬁliate of our major tenant continues to provide property management services for our properties and is responsible for all day-to-day operations, including the general maintenance, rent collection and administration of operating expenses and tenant leases. PAGE 5 DUNDEE INTERNATIONAL 2011 Annual Report Diversifying our portfolio to mitigate risk We seek to diversify our portfolio to increase value on a per unit basis, further improve the sustainability of our distributions and strengthen our tenant proﬁle. We anticipate that our proﬁle in Europe, our relationships, our management team in Germany and Luxembourg, and the expertise of our board members and senior management team will provide us with opportunities to take advantage of real estate transactions available in Germany and other European countries. Investing in stable income-producing properties outside of Canada When considering acquisition opportunities, we look for properties with quality tenancies and strong occupancy, and assess how acquisition opportunities complement our properties and have the potential to create additional value. We pursue acquisition opportunities independently as well as by partnering with existing local operators and by growing with Canadian groups as they expand their reach outside of Canada. In considering future acquisitions, we intend to focus on countries with a stable business and operating environment, a liquid market for real estate investments, a legal framework that provides adequate rights and protections for owners of property, and a manageable foreign investment regime. We will consider investment opportunities in income-producing properties that are accretive, provide stable, sustainable and growing cash ﬂows and enable us to realize synergies with our portfolio of properties. The execution of this strategy will be consistently reviewed and will also include engaging in dispositions of properties and optimizing our capital structure. Maintaining and strengthening a conservative ﬁnancial proﬁle We operate our investments in a disciplined manner, with a focus on ﬁnancial analysis and balance sheet management to ensure that we maintain a prudent capital structure and conservative ﬁnancial proﬁle. We intend to generate stable cash ﬂows sufﬁcient to fund our distributions while maintaining a conservative debt ratio. Our preference will be to ultimately stagger our debt maturities to mitigate our interest rate risk and limit reﬁnancing exposure in any particular period. We have also implemented a foreign exchange hedging strategy to provide greater certainty regarding the payment of distributions to unitholders and interest to debentureholders. OUR ASSETS Our assets consist of a portfolio of 292 ofﬁce, mixed use and industrial properties, with a small residential component, comprising approximately 12.3 million square feet of GLA located in Germany. Our properties are strategically located in major city and town centres, often on a central square in close proximity to the main train station and/or bus station. The locations typically provide excellent visibility, access to a major street and proximity to a transportation hub and city centre pedestrian/shopping areas. Throughout this document, we make reference to the following three asset categories: Ofﬁce This category includes regional administration headquarters. The properties contain national and regional administration ofﬁces and are generally located just outside major city centres and typically have the highest rental rates of the three asset categories. Mixed use This category includes mixed use retail, banking and distribution properties that contain mail and distribution centres and administration ofﬁces. The properties are generally strategically located near central train stations, main retail areas and are easily accessible by public transport. PAGE 6 DUNDEE INTERNATIONAL 2011 Annual Report Industrial This category includes regional logistics headquarters. The properties in this category are typically used as strategic logistics facilities that are critical elements of Deutsche Post’s distribution network. The properties are mostly located near major cities and have access to signiﬁcant infrastructure, including railways and highways. The map below shows the locations of our assets in Germany. Baltic Sea Baltic Sea North Sea North Sea Bremen 6 properties Hamburg 7 properties Kiel Schleswig-Holstein 11 properties Hamburg Schwerin Mecklenburg- West Pomerania 2 properties Bremen Niedersachsen 41 properties Hannover Netherlands Netherlands Brandenburg 8 properties Poland Poland Berlin Magdeburg Saxony-Anhalt 12 properties Berlin 2properties Saxony 16 properties Dresden Erfurt Thuringia 4 properties Czech Republic Czech Republic Bavaria 34properties Munich Austria Austria Dortmund Essen North Rhine–Westphalia 71 properties Düsseldorf Cologne Belgium m Rhineland-Palatinate 14 properties Hesse 14 properties Frankfurt Saarland 8 properties Stuttgart France France Baden- Württemberg 42 properties Switzerland Switzerland Our properties are located throughout Germany with a heavy concentration in the Western German states of North Rhine-Westphalia, Baden-Württemberg, Niedersachsen, Bavaria and Hesse. Approximately 60% of our overall GLA is located in these ﬁve states. PAGE 7 DUNDEE INTERNATIONAL 2011 Annual Report The table below highlights the geographic diversiﬁcation of our properties as of December 31, 2011. States Baden-Württemberg Bavaria Berlin Brandenburg Bremen Hamburg Hesse Mecklenburg-West Pomerania Niedersachsen North Rhine-Westphalia Rhineland-Palatinate Saarland Saxony Saxony-Anhalt Schleswig-Holstein Thuringia Total Total GLA (sq. ft.) 1,623,262 1,461,345 53,767 141,370 320,886 485,757 1,041,500 101,023 1,590,769 2,760,689 501,281 482,671 643,850 449,226 536,904 127,267 12,321,567 Total GLA Weighted average occupancy (%) (%) 13 12 1 1 3 4 8 1 13 22 4 4 5 4 4 1 100 92 87 91 88 83 90 90 87 80 92 86 91 78 85 96 70 88 A comprehensive list of all properties can be found in the Appendix starting on page 66 of this report. TENANTS Deutsche Post Our properties were formerly owned by Deutsche Post. Deutsche Post contributes at least 90% of the gross rental income (“GRI”) in 172 of our properties and between 50% and 90% of the GRI in 105 of our properties, leaving only 15 properties where less than 50% of the GRI is contributed by Deutsche Post. Deutsche Post is an integral part of the German economy and continues to be an important part of day-to-day life in Germany. Deutsche Post is Europe’s largest postal company and the only provider of universal postal services in Germany. Through its acquisition of DHL in 2002, Deutsche Post has become a global logistics market leader. It employs approximately 470,000 people in more than 200 countries and territories. As the only provider of universal postal services in Germany, Deutsche Post must provide certain minimum levels of service to German residents. On a daily basis, it serves two to three million customers through its retail outlets and delivers 66 million letters and 2.6 million parcels within Germany via mail and parcel sorting facilities. Its infrastructure network in Germany includes 82 mail centres, 33 parcel centres and 20,000 retail outlets and points of sale. As a result of the high barriers to entry, Deutsche Post holds an approximate 87% market share of the €6.0 billion domestic mail communication market in Germany, in addition to holding an approximate 39% market share of the €6.8 billion domestic parcel market. Deutsche Post’s position in the parcel market provides an opportunity for growth as businesses and consumer activities in on-line commerce continue to expand, thereby increasing non-letter mail volumes. PAGE 8 DUNDEE INTERNATIONAL 2011 Annual Report Deutsche Postbank Pursuant to a private agreement between Deutsche Post and Deutsche Postbank (“Postbank”), 202 of our properties feature branches of Postbank, allowing for the delivery of integrated ﬁnancial and postal services. The properties featuring Postbank branches are typically located at ground level with a view to attracting a high volume of retail and business customers seeking ﬁnancial or postal services. These locations may include retail space (where consumer staples are offered for sale), a banking or investment advisory area, mailboxes for rent, an automated postal/banking services station or traditional banking teller service. Many Postbank branches in our properties have recently undergone refurbishment and now feature contemporary designs, expanded retail sections, enhanced lighting and automated postal and ﬁnancial services centres. The delivery of banking and postal services are integrated such that customers can purchase consumer staples, send or receive mail or parcels and attend to their ﬁnancial services needs, including by making deposits, loans, transfers, investments and purchasing insurance. Postbank is a public company controlled by Deutsche Bank and is integral to their retail banking business. Postbank offers retail ﬁnancial services in their branches within Deutsche Post’s network, which generates increased trafﬁc through the postal services offered in those branches. There are 4,500 branches of Deutsche Post in which selected Postbank ﬁnancial services are available. Postbank offers comprehensive ﬁnancial services as well as postal services in its own 1,100 branches. With 14 million active domestic customers and over 20,000 employees, Postbank is one of Germany’s major ﬁnancial services providers. Postbank’s focus is on its retail business with private customers. Postbank has the densest branch network of any bank in Germany, which makes it conveniently accessible and attractive to its retail banking customer base. Deutsche Telekom After Deutsche Post, Deutsche Telekom is the second-largest tenant in our properties. Deutsche Telekom occupies approximately 1.4% of the GLA of our properties and currently generates approximately 2.5% of the portfolio’s overall GRI. The occupied space is mainly used for server and cable rooms, forming an integral part of Deutsche Telekom’s infrastructure. Deutsche Telekom is one of the world’s leading telecommunications and information technology service companies. In 2010, Deutsche Telekom Group generated revenue of approximately €62 billion, and had approximately 247,000 employees in total as of December 31, 2010. MARKET OVERVIEW — GERMANY German economy The German economy has long been a driver as well as a beneﬁciary of a globalized economy. Germany has established itself as a vital location for production sites and is a country with a favourable business environment. Similar to Canada, Germany is a country with a history of political, legal and ﬁnancial stability and provides an attractive climate for long-term investment. Recent developments Overall, the German economy was remarkably strong in 2011 despite the ongoing uncertainty in Europe. Germany’s GDP growth of 3%(1), which marked the second straight year of annual growth at or above 3%, was the highest GDP increase in 2011 of all G7 countries. While domestic demand was the main driver of growth, the country’s export strength also helped to escape the worst effects of Europe’s ongoing debt crisis. In addition, Germany’s labour market continued to show resilience with an unemployment rate of 6.8%(2) in December 2011. Economic activity in Germany is expected to remain stable. (1) Statistisches Bundesamt Deutschland (“Destatis”). (2) Deutsche Bundesbank. PAGE 9 DUNDEE INTERNATIONAL 2011 Annual Report Economic impact on the German real estate sector The commercial real estate market in Germany performed well in 2011 with prime rents increasing in ﬁve of the seven German key markets. In addition, at €23 billion, the transaction volume was approximately 22% higher than in 2010. There is little evidence that the European debt crisis and concerns about a global economic slowdown negatively impacted the ofﬁce sector in 2011. Demand for space continued to be strong and vacancies in the ofﬁce markets declined in ﬁve of the seven key markets. OUTLOOK Since our IPO in August 2011, we have developed valuable relationships with lenders, vendors and brokers in Europe and continue to see opportunities for growth despite the ongoing challenging environment. We believe the economic climate has slowed leasing volumes in our portfolio. In addition, completing transactions in this environment requires more time. With respect to the Trust’s capital structure, we continue to focus on strengthening relationships with lenders and intend to enter into long-term loans at ﬁxed rates when borrowing conditions are favourable. We are currently in discussions with several lenders in Germany to reﬁnance a signiﬁcant portion of our term loan credit facility for terms ranging from three to ﬁve years. And while access to debt ﬁnancing is currently challenging in Germany, interest rates remain at historically low levels and approximately 75 to 100 bps lower than when we completed our IPO. We recently entered into an agreement to acquire a 211,000 square foot ofﬁce building in the city of Hannover, Germany. The acquisition is scheduled to close by the end of February 2012 at a capitalization rate accretive to the overall AFFO of the Trust. In addition, we are actively pursuing acquisition opportunities in Germany. Overall, the acquisition pipeline remains very active. We are an active asset manager and continuously review our existing portfolio for opportunities to sell or reposition assets where we can add the most value or redeploy proceeds more accretively. In addition, we are proactively working with our largest tenant, Deutsche Post, not only to lease back space in the 17 properties previously terminated by Deutsche Post, but also to anticipate and accommodate their future space requirements. In order to set the stage for growth, two senior real estate professionals in Germany have joined our team to focus on asset management and acquisitions. With their extensive relationships and on-the-ground experience in European commercial real estate, operations, asset and property management, and acquisitions, these two executives will be instrumental in optimizing the portfolio, pursuing our growth strategy and further enhancing our European management platform. PAGE 10 DUNDEE INTERNATIONAL 2011 Annual Report 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 Occupancy rate(1) In-place rental rates Tenant maturity proﬁle — average term to maturity(2) (1) Includes in-place occupancy at December 31, 2011. (2) Includes termination notice received in June 2011 in respect of 17 properties. December 31, 2011 $ 88% 7.13 5.9 years Occupancy The overall weighted average occupancy rate across our portfolio remained stable at 87.8% at December 31, 2011, compared to 87.7% at the end of the third quarter, and increased from the weighted average occupancy rate of 87.2% at the time of our initial investment. Overall occupied space remained unchanged at 10.8 million square feet compared with the end of the third quarter and increased slightly from 10.7 million square feet at the time of our initial investment out of a total GLA of 12.3 million square feet. Vacancy schedule The tables below highlight our leasing activity. During the fourth quarter, we reduced our overall vacancy by 16,072 square feet to 1,519,971 square feet as at December 31, 2011. During the quarter, approximately 25,941 square feet expired or were terminated, offset by 17,292 square feet of new leases and 3,258 square feet of renewals. For the period from August 3 to December 31, 2011, approximately 77,768 square feet expired or were terminated, offset by 98,271 square feet of new leases and 40,876 square feet of renewals. Of the vacant space at the end of the year, approximately 19,484 square feet were committed for future leases, leaving approximately 1,500,487 square feet available for lease. (in square feet) Ofﬁce Mixed use Industrial Total For the three months ended December 31, 2011 Vacant space — October 1, 2011 Vacancy committed for future leases Available for lease Remeasurements Expiries Early terminations and bankruptcies New leases Renewals Vacant space — December 31, 2011 Vacancy committed for future leases 141,124 — 141,124 — — — (2,148) — 138,976 — 1,099,358 (15,276) 1,084,082 (1,764) 7,407 15,537 (11,141) (2,289) 1,091,832 (17,380) 295,561 (4,423) 291,138 — 2,997 — (4,003) (969) 289,163 (2,104) 1,536,043 (19,699) 1,516,344 (1,764) 10,404 15,537 (17,292) (3,258) 1,519,972 (19,484) Available for lease — December 31, 2011 138,976 1,074,452 287,059 1,500,487 PAGE 11 DUNDEE INTERNATIONAL 2011 Annual Report Vacant space — August 3, 2011 Remeasurements Expiries Early termination and bankruptcies New leases Renewals Vacant space — December 31, 2011 Vacancy committed for future leases For the period August 3, 2011 to December 31, 2011 Ofﬁce Mixed use Industrial Total 141,380 — — — (2,404) — 138,976 — 1,141,229 528 44,720 19,211 (83,401) (30,455) 1,091,832 (17,380) 297,548 665 12,449 1,388 (12,466) (10,421) 289,163 (2,104) 1,580,157 1,193 57,169 20,599 (98,271) (40,876) 1,519,971 (19,484) Available for leases — December 31, 2011 138,976 1,074,452 287,059 1,500,487 In-place rental rates The following table and chart provide a comparison between in-place rents and market rents in our portfolio. Market rents are management’s estimates of rental rates that could be achieved for space in our properties. In-place rents in each of our segments are below market rents, allowing for rental uplifts as space gets renewed or re-leased. Current market rents are approximately 14% above in-place rents. Since the Trust’s IPO, renewals have been completed at approximately 8.5% above expiring rents. On a euro basis, both in-place rents and market rents are consistent with the rents at acquisition. The impact of the depreciation of the euro is mitigated by our active hedging program. $12.00 9.00 6.00 3.00 0 IN-PLACE RENT AND MARKET RENT COMPARISON IN-PLACE RENT MARKET RENT € € 7.56 5.38 4.67 5.40 In-place rent $ € 9.98 7.10 6.16 $ 7.13 € Office Mixed Industrial Total use December 31, 2011 Market rent 8.08 6.14 5.45 6.15 $ 10.66 8.10 7.19 $ 8.11 Ofﬁce Mixed use Industrial Overall PAGE 12 DUNDEE INTERNATIONAL 2011 Annual Report Leasing and tenant proﬁle At December 31, 2011, the weighted average remaining term of all leases was approximately 5.9 years, which factors in the termination of 17 leases in June 2012 by Deutsche Post pursuant to its termination rights. As there is a rent guarantee in place for these leases until June 2014, these leases are reﬂected as June 2014 expiries in the schedule below. Ofﬁce Mixed use Industrial Overall December 31, 2011 Average remaining lease term (years) 5.07 5.83 6.27 5.86 Lease rollover proﬁle The following table outlines our lease maturity proﬁle by asset type as at December 31, 2011. In 2012, 178,130 square feet of our leases expire, accounting for approximately 1.4% of the overall space. (in square feet) Ofﬁce Mixed use Industrial Total Current Month-to- month vacancy 2012 2013 2014 2015 2016 to 2026 Total 138,976 1,074,452 287,059 44,436 321,586 73,081 26,123 146,435 5,572 10,225 181,251 89,128 954,909 23,221 12,578 17,009 472,802 890,822 92,127 6,508,276 9,186,913 42,967 1,799,354 2,243,832 1,500,487 439,103 178,130 111,931 1,159,381 152,103 8,780,432 12,321,567 Deutsche Post leases The leases with Deutsche Post, which generally expire on June 30, 2018 (many of which provide Deutsche Post with an option to extend the term until June 30, 2023), comprise approximately 75% of the GLA and account for more than 85% of the portfolio’s GRI. Termination rights and rent guarantee In general, the Deutsche Post leases have a ﬁxed term of ten years, expiring on June 30, 2018. 129 of the leases entitle Deutsche Post to terminate space in June 2012, 2014 and 2016, subject to certain limitations and requirements, including that Deutsche Post provide 12 months’ prior written notice to us. On June 30, 2011, Deutsche Post gave notice to terminate 17 leases with respect to the 2012 termination rights, comprising approximately 13% of the GRI and a GLA of approximately 1.1 million square feet, and waived its second termination right in respect of 21 leases (effective June 30, 2014). We are currently in discussions with Deutsche Post and Postbank regarding leasing back up to 20% of the GLA of the properties in respect of which Deutsche Post has exercised its termination right for an average lease term of approximately 3.5 years. However, Deutsche Post is a sophisticated, ﬂexible organization and there can be no assurance that these discussions will result in a deﬁnitive agreement or, if they do, what the terms (including the amount of GLA and term) of any such leasing arrangements will be. Based on our discussions to date with Deutsche Post and Postbank, of the 17 terminated properties, we understand that Postbank wishes to remain in 12 of the 15 properties that feature Postbank branches and Deutsche Post wishes to lease space in nine of the 17 properties, six of which feature Postbank branches. To the extent that Deutsche Post does not exercise all of its early termination rights with respect to any particular effective termination date, the unused portion may be carried forward. This means that Deutsche Post has the right to terminate up to 91 leases in 2014 and up to 112 leases in 2016, subject to certain limitations. PAGE 13 DUNDEE INTERNATIONAL 2011 Annual Report In light of the 2012 terminations, the vendor of the properties had agreed to pay us an amount equal to the lost gross rent resulting from all 2012 terminations for the period commencing on July 1, 2012, to and including June 30, 2014, provided that the amount payable by the vendor would be reduced: (i) in the event of a sale of a terminated property, by the amount which would otherwise have been payable by the vendor in respect of such property, and (ii) in respect of a new lease in a terminated property, by the amount of rental income achievable from such new lease. We recently renegotiated this arrangement with the vendor such that the vendor of the properties has agreed to pay us the full amount of €17,329,135 plus all interest accrued thereon, regardless of whether we sell, or re-lease space in, any terminated properties. This amount has been set aside by the vendor in a bank account out of which we will be paid on a monthly basis (or otherwise as we request), starting from July 1, 2012 (or such earlier date as we may determine), the net rent plus prepayments of operating costs which would otherwise have been payable under the Deutsche Post leases in respect of all 2012 terminations. For a more detailed description of the Deutsche Post leases and termination rights, please refer to our prospectus dated July 21, 2011, which is available on SEDAR at www.sedar.com. OUR RESOURCES AND FINANCIAL CONDITION Investment properties The fair value of our investment property portfolio at December 31, 2011, was $941.4 million, representing an average Cap Rate of 8.5% for the portfolio. We acquired our properties on August 3, 2011 for $997.8 million, representing a Cap Rate of approximately 8.2%. Since acquisition, our properties decreased in value by $56.4 million, of which $33.7 million is attributable to the weakening of the euro against the Canadian dollar and $23.1 million is mostly attributable to an increase in Cap Rates and the impact of an increase in German real estate transaction taxes. Fair values were determined using the direct capitalization method. The direct capitalization method applies a capitalization rate to stabilized NOI and incorporates allowances for vacancy and management fees. The resulting capitalized value was further adjusted for extraordinary costs to stabilize income and non-recoverable capital expenditures, where applicable. Building improvements Building improvements represent investments made in our rental properties to ensure our buildings are operating at an optimal level. 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 on 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. For the period from August 3, 2011 to December 31, 2011, we leased or renewed approximately 139,147 square feet of space for which we incurred $1.2 million of leasing costs. Commitments and contingencies We are contingently liable 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. PAGE 14 DUNDEE INTERNATIONAL 2011 Annual Report Dundee International REIT’s future minimum commitments under operating and ﬁnance leases, including equity accounted investments, are as follows: Less than 1 year 1–5 years Longer than 5 years Total December 31, 2011 Operating lease payments $ 365 1,458 365 $ 2,188 During the period the Trust paid $0.2 million in minimum lease payments, which have been included in comprehensive income for the period. On March 17, 2011, the previous owner of the portfolio entered into agreements with Imtech Contracting GmbH (“Imtech”) under which Imtech provides the entire energy requirements (cooling, air, light and electricity) for the properties, unless there are existing obligations. As part of the contract, Imtech leases the central heating room and the energy supply facilities at the properties, and may lease the roof area on selected buildings for installation of solar panels. The term of the contract, which commenced on July 1, 2011, is 15.5 years. Imtech has guaranteed savings in heating costs of 5% of the actual 2008 base costs within three years. In addition, the previous owner had entered into two energy supply agreements with GDF SUEZ Energie Deutschland AG and Watt Deutschland GmbH to purchase all the electricity requirements of the properties, each of which has a term expiring on December 31, 2012. OUR CAPITAL Liquidity and capital resources Dundee International REIT’s primary sources of capital are cash generated from operating activities, credit facilities, and equity and debt issues. Our primary uses of capital include the payment of distributions, costs of attracting and retaining tenants, recurring property maintenance, major property improvements, debt interest payments, and property acquisitions. We expect to meet all of our ongoing obligations through current cash and cash equivalents, cash ﬂows from operations, debt reﬁnancings and, as growth requires and when appropriate, new equity or debt issues. We currently have $87.9 million of cash available. After reserving for current payables and operating requirements, approximately $71.6 million is available for acquisitions. Our debt-to-book value is 56%, which is well within our target range. Financing activities On August 3, 2011, we completed an IPO of 27 million Units and $140 million principal amount of Debentures for aggregate gross proceeds of $410 million. Concurrent with the offering, Dundee Corporation and DRC purchased 12 million Units at an aggregate price of $120 million. These proceeds (net of issue costs and working capital requirements), together with $80 million (€58.6 million) of proceeds from the sale of Exchangeable Notes and additional debt ﬁnancing, were used to fund the purchase price for a portfolio of real estate assets located in Germany. On August 29, 2011, pursuant to the over-allotment option provided to the underwriters in connection with the offering, we issued an additional 4.05 million Units and $21 million principal amount of Debentures for aggregate gross proceeds of $61 million. Concurrent with the closing of the IPO, we obtained a term loan credit facility (the “Facility”) from a syndicate of German and French banks for gross proceeds of $448.4 million (€328.5 million) for a term of ﬁve years. We entered into arrangements with an arm’s length counterparty in order to hedge a substantial portion of the Facility by entering into an interest rate swap. Pursuant to these arrangements, we exchanged 80% of our PAGE 15 DUNDEE INTERNATIONAL 2011 Annual Report variable rate interest obligations for ﬁxed rate interest obligations for ﬁve years. We also hedged an additional 10% of our variable rate interest with a cap not to exceed 5% per annum (excluding the margin). Our executive committee reviews our interest rate hedging strategy from time to time and makes recommendations to our Board of Trustees. On November 8, 2011, the Trust entered into an interest rate swap to pay a ﬁxed rate of 3.38% on the variable rate portion of the Facility comprising 20% of the overall loan for one year, effective as of December 30, 2011. Essentially, under the Facility, we will pay a blended ﬁxed rate of 3.91% in 2012. In conjunction with the closing of the offering, a subsidiary of the Trust issued Exchangeable Notes for gross proceeds of €58.6 million (the euro equivalent of $80 million based on the same exchange rate as the proceeds of the offering were converted into euros). Each €7.326 principal amount of Exchangeable Notes (the euro equivalent of $10.00, based on the same exchange rate as the proceeds of the offering, was converted into euros) is exchangeable for one Unit, subject to customary anti-dilutional adjustments. The Exchangeable Notes and corresponding Special Trust Units together have economic and voting rights equivalent in all material respects to the Units. Debt Debt strategy Our debt strategy is to obtain secured mortgage ﬁnancing on a ﬁxed rate basis, with a term to maturity that is appropriate in relation to the lease maturity proﬁle of our portfolio. Our preference is to have staggered debt maturities to mitigate interest rate risk and limit reﬁnancing exposure in any particular period. We also intend to enter into long-term loans at ﬁxed rates when borrowing conditions are favourable. This strategy will be complemented with the use of unsecured convertible debentures and ﬂoating rate credit facilities. We intend to target a debt level in a range of 55% to 60% of the historical purchase price of properties including convertible debentures. In the future, as we secure mortgages on individual properties in excess of this range, we will be in a position to accumulate unencumbered properties. These properties will provide added ﬂexibility to our capital structure as we will be able to place ﬁnancing on them to take advantage of a buying opportunity or to replace expiring debt when reﬁnancing options are limited or expensive. The key performance indicators in the management of our debt are: Financing activities Average coupon interest rate(1) Level of debt (debt-to-book value)(2) Interest coverage ratio(3) Debt-to-EBITDFV (years)(4) Proportion of total debt due in current year Debt — average term to maturity (years) Variable rate debt as percentage of total debt December 31, 2011 4.36% 56% 2.67 times 8.0 —% 5.1 15% (1) Average interest rate is calculated as the weighted average interest rate of all interest bearing debt. (2) Debt-to-book value is determined as total debt divided by total assets. (3) The interest coverage ratio for the quarter is calculated as net rental income plus interest and fee income, less portfolio management and general and administrative expenses, divided by interest expense. (4) Debt-to-EBITDFV is calculated as total debt divided by annualized EBITDFV for the current quarter. EBITDFV is calculated as net income less non-cash items included in revenue plus interest expense, depreciation, fair value adjustments and acquisition related costs. We currently use cash ﬂow performance and debt level indicators to assess our ability to meet our ﬁnancing obligations. Our current interest coverage ratio is 2.67 times, and reﬂects our ability to cover interest expense requirements. We also monitor our debt-to-EBITDFV ratio to gauge our ability to pay off existing debt. PAGE 16 DUNDEE INTERNATIONAL 2011 Annual Report Our current debt-to-EBITDFV ratio is 8.0 years and reﬂects the approximate amount of time to pay off all debt. After accounting for market adjustments and ﬁnancing costs, the weighted average effective interest rate is 4.86%. Term loan credit “Facility”(1) Debentures Total Percentage December 31, 2011 Variable Fixed Total $ 86,469 — $ 345,879 146,658 $ 432,348 146,658 $ 86,469 $ 492,537 $ 579,006 15% 85% 100% (1) The portion of the Facility subject to the interest rate swap has been presented as ﬁxed rate debt in this table. Amounts recorded as at December 31, 2011, for the Debentures are net of $7.7 million of premiums allocated to their conversion features on issuance. The premiums are amortized to interest expense over the term to maturity of the related debt using the effective interest rate method. Term loan credit facility The term of the Facility is ﬁve years with a two-year renewal option. Variable rate interest is payable quarterly under the Facility at a rate equal to the three-month EURIBOR, plus margin and agency fees of 200 and 10 basis points (“bps”), respectively. As discussed under “Financing activities”, pursuant to the requirements of the Facility, we entered into an interest rate swap to ﬁx 80% of the interest payments at 1.89% plus margin and agency fees and purchased an instrument to cap 10% of the Facility, such that interest does not exceed 5%. Concurrent with entering into the interest rate swap, the Trust received $9.5 million (€7 million) from the vendor of the properties and used the proceeds to buy down the swap rate by 54 bps to reﬂect the difference between the cost of the Facility and the negotiated cost. We have accounted for this receipt as an increase to the Facility, which is recognized as a reduction to interest expense over the term of the Facility. Costs relating to the Facility are $10.8 million and are charged directly to the Facility. Effective December 30, 2011 we entered into an interest rate swap to ﬁx the remaining 20% of the interest payments under the Facility at 3.38%. The weighted average rate of the Facility is 3.98%. Including costs, net of the payment received from the vendor, the effective interest rate under the Facility is 4.04%. The Facility requires that at each interest rate payment date the debt service coverage ratio is equal to or above 145% and that the loan-to-value does not exceed 59% during the ﬁrst three years the loan is outstanding and 54% during the ﬁnal two years. As at December 31, 2011, we were in compliance with these covenants. We are required to repay €100 million plus an applicable prepayment premium of 15% through dispositions or reﬁnancings of a portion of the portfolio within the ﬁrst two years following the closing of the ﬁnancing, failing which we will be required to pay additional interest of 1% on the portion of the €100 million not repaid by the second anniversary of the closing. We are currently in discussions with various banks in respect of reﬁnancing portions of the Facility for terms ranging from three to ﬁve years and in some cases even longer. Although there is currently limited access to debt ﬁnancing in Germany, interest rates in Germany remain at historically low levels. Convertible debentures As at December 31, 2011, the total principal amount of Debentures outstanding was $161.0 million, convertible into an aggregate of 12,384,619 Units. The Debentures bear interest at 5.5% per annum, are payable semi-annually on July 31 and January 31 each year, and mature on July 31, 2018. Each Debenture is convertible at any time by the holder thereof into 76.9231 Units per one thousand dollars of face value, representing a conversion price of $13.00 per Unit. On or after August 31, 2014, and prior to August 31, 2016, the Debentures may be redeemed by the holders thereof, in whole or in part, at a price equal to the principal amount plus accrued and unpaid interest on not more than 60 days’ and not less than 30 days’ prior written notice, provided the weighted average trading price for the Units for the 20 consecutive trading days, ending on the ﬁfth trading PAGE 17 DUNDEE INTERNATIONAL 2011 Annual Report day immediately preceding the date on which notice of redemption is given, is not less than 125% of the conversion price. On or after August 31, 2016, and prior to July 31, 2018, the maturity date, the Debentures may be redeemed by the Trust at a price equal to the principal amount plus accrued and unpaid interest. An amount of $8.1 million has been allocated to the conversion feature to reﬂect its fair value at the date of issuance. Costs relating to the issuance of Debentures, including underwriters’ fees, are $6.9 million and are charged to the Debentures. Including costs and the amount allocated to the conversion feature, the effective interest rate is 7.31%. The conversion feature of the Debentures is remeasured in each reporting period to fair value, with changes in fair value being recorded in comprehensive income. During the period, the fair value attributed to the conversion feature decreased by $1.5 million. The table below highlights the maturity and interest rate proﬁle of our debt: Scheduled principal repayments on non-matured debt Debt maturities $ — $ — — — 427,624 161,000 — $ — 1,164 2,873 1,729 — Total — — 1,164 2,873 429,353 161,000 2012 2013 2014 2015 2016 2017 and thereafter Total $ 588,624 $ 5,766 594,390 Fair value adjustments Transaction costs Total (7,741) (7,643) $ 579,006 Weighted Weighted average average face rate on interest rate on balance due at balance due at maturity (%) maturity (%) — — — — 4.04 7.31 4.93 — — — — 3.98 5.5 4.39 % — — 0.2 0.5 72.2 27.1 100 Equity Our discussion of equity is inclusive of Exchangeable Notes, which are economically equivalent to our Units. In our consolidated ﬁnancial statements the Exchangeable Notes are classiﬁed as a liability under IFRS because of the redemption feature upon the exchange for a Unit. Units Add: Exchangeable Notes Total Unitholders’ equity December 31, 2011 Number of Units Amount 43,872,316 8,000,000 $ 346,671 80,000 51,872,316 $ 426,671 Units Our Declaration of Trust authorizes the issuance of an unlimited number of two classes of units: Units and Special Trust Units. The Special Trust Units may only be issued to holders of securities exchangeable for Units, are not transferable, and are used to provide holders of such securities with voting rights with respect to Dundee International REIT. Each Unit and Special Trust Unit entitles the holder thereof to one vote for each Unit at all meetings of unitholders of the Trust. PAGE 18 DUNDEE INTERNATIONAL 2011 Annual Report On April 21, 2011, 800,000 Units were issued to DRC for $0.4 million. On August 3, 2011, the Trust completed an IPO of 27 million Units at a price of $10.00 per unit for gross proceeds of $270.0 million. Concurrent with the offering, Dundee Corporation and its subsidiaries (including DRC) purchased an aggregate of 12 million Units at a price of $10.00 per Unit. On August 29, 2011, pursuant to the over-allotment option provided to the underwriters, the Trust issued an additional 4.05 million Units at a price of $10.00 per Unit. Costs related to the IPO totalled $24.1 million and were charged directly to unitholders’ equity. The Trust has a Deferred Unit Incentive Plan (“DUIP”) that provides for the grant of deferred trust units and income deferred trust units to trustees, ofﬁcers, employees, afﬁliates and their service providers, including DRC, the Trust’s asset manager. On August 3, 2011, DRC elected to receive the base asset management fees payable on the properties acquired on August 3, 2011 by way of deferred trust units under the Asset Management Agreement for the next ﬁve years. The deferred trust units granted to DRC vest 20% annually, commencing on the ﬁfth anniversary date of being granted. On termination of the Asset Management Agreement, unvested trust units granted to DRC vest immediately. The following table summarizes the changes in our outstanding equity: Units issued upon formation of the Trust Units issued to Dundee Corporation and DRC, concurrently with IPO Units issued pursuant to the IPO and over-allotment Units issued pursuant to the DRIP(1) Total Units outstanding on September 30, 2011 Units issuable upon exchange of Exchangeable Notes Total Units outstanding (on a fully exchanged basis) on December 31, 2011 Units issued pursuant to the DRIP on January 15, 2012 Total Units outstanding (on a fully exchanged basis) on January 31, 2012 (1) Distribution Reinvestment and Unit Purchase Plan. Units 800,000 12,000,000 31,050,000 22,316 43,872,316 8,000,000 51,872,316 6,540 51,878,856 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. Amounts retained in excess of the declared distributions are used to fund leasing costs and capital expenditure requirements. Given that working capital tends to ﬂuctuate over time and should not affect our distribution policy, we disregard it when determining our distributions. We also exclude the impact of leasing costs, which ﬂuctuate with lease maturities, renewal terms and the type of asset being leased. We evaluate the impact of leasing activity based on averages for our portfolio over a two- to three-year time frame. We exclude the impact of transaction costs expensed on business combinations as these are considered to be non-recurring. Additionally, we exclude the impact of the amortization of deferred ﬁnancing costs and non-recoverable costs that were incurred prior to the formation of the Trust, but deduct amortization of non–real estate assets such as software and ofﬁce equipment incurred after the formation of the Trust. In order to ensure the predictability of distributions to our unitholders and debentureholders, we have established an active foreign exchange hedging program on a rolling 24-month period. The average exchange rate on these 24 contracts is 1.368 as at December 31, 2011. PAGE 19 DUNDEE INTERNATIONAL 2011 Annual Report Asset management fee On August 3, 2011, DRC elected to receive the base asset management fees payable on the properties acquired on August 3, 2011 by way of deferred trust units under the Asset Management Agreement for the next ﬁve years. The deferred trust units granted to DRC vest 20% annually, commencing on the ﬁfth anniversary date of being granted. On termination of the Asset Management Agreement, unvested trust units granted to DRC vest immediately. During the period from August 3, 2011 to December 31, 2011, $841 of asset management fees were recorded and included in general and administrative expenses. They were settled by the grant of 117,188 deferred units during the period and 29,348 deferred units on January 15, 2012. At December 31, 2011, 147,717 unvested deferred and income deferred units were outstanding with respect to the asset management fee. Distributions and Exchangeable Notes interest Exchangeable Notes are economically equivalent to our Units in all material respects. Interest payable to the holder of Exchangeable Notes is therefore included in the table below. For the period from August 3, 2011 to December 31, 2011 2011 distributions and interest expense Paid in cash or reinvested in Units Payable at December 31, 2011 Total distributions and interest expense 2011 reinvestment Reinvested to December 31, 2011 Reinvested on January 13, 2012 Total distributions reinvested Distributions and interest paid in cash Reinvestment to distribution ratio Cash payout ratio Declared amounts 4% bonus distributions 8 — 8 8 — 8 $ $ $ $ $ $ $ $ $ $ $ $ $ 13,623 3,451 17,074 209 63 272 16,802 1.6% 98.4% Total 13,631 3,451 17,082 217 63 280 Distributions declared and interest expensed on the Exchangeable Notes for the period from August 3, 2011, to December 31, 2011, were $17,074. Of these amounts approximately $272, or 1.6%, were reinvested in additional Units pursuant to the DRIP resulting in a cash payout ratio of 98.4%. During the fourth quarter, we declared distributions and interest expenses for the Exchangeable Notes of $10,383 of which $188 were reinvested in additional Units resulting in a cash payout ratio of 98.2%. On closing of the offering, in order to provide more certainty regarding distribution and interest payments to holders of Units and Debentures, we entered into a series of foreign currency contracts to sell €2.6 million each month at a rate of 1.3639 for an initial period of 24 months. On settlement of a contract, we realize a gain or loss on the difference between the forward rate and the spot rate; this amounted to a loss of $0.1 million in the quarter. We also mark the contracts to market quarterly and realized a gain of $1.8 million during the period of our ownership. As we settle each contract, we enter into a new contract; consequently we entered into contracts to sell €2.6 million in each of September, October, November and December of 2013. The average rate of the contracts in place as at December 31, 2011 is 1.368. We currently pay monthly distributions to unitholders of $0.06667 per Unit, or $0.80 per Unit on an annual basis. At December 31, 2011, approximately 2.1% of our total Units were enrolled in the DRIP. PAGE 20 DUNDEE INTERNATIONAL 2011 Annual Report As required by National Policy 41-201, “Income Trusts and Other Indirect Offerings”, the following table outlines the differences between cash ﬂow from operating activities and cash distributions, as well as the differences between net income and cash distributions in accordance with the guidelines. Net loss Cash ﬂow from operating activities Distributions paid and payable (including Exchangeable Notes) Excess of cash ﬂow from operating activities For the period from August 3, 2011, to December 31, 2011 December 31, 2011 For the three months ended $ (25,976) 10,803 10,195 $ (23,201) 22,611 16,802 over distributions paid and payable 608 5,809 Cash ﬂow from operations exceeded distributions paid and payable for the quarter by $0.6 million and for the period from August 3, 2011 to December 31, 2011 by $5.8 million. The cash ﬂow from operating activities includes changes in non-cash working capital. Distributions paid and payable exceeded net loss by $36.2 million for the quarter and by $40.0 million for the period from August 3, 2011, to December 31, 2011, mainly as a result of fair value adjustments to ﬁnancial instruments and investment properties. In establishing distribution payments, we do not take ﬂuctuations in working capital into consideration and we use a normalized amount as a proxy for leasing and building improvement costs. OUR RESULTS OF OPERATIONS For the period from months ended August 3, 2011, to December 31, 2011 December 31, 2011 December 31, 2011 December 31, 2011(1) Financial forecast for the three For the three months ended Financial forecast for the period from August 3, 2011, to $ Investment properties revenue Investment properties operating expenses $ Net rental income Portfolio management General and administrative Fair value adjustments to investment properties Interest expense Interest and other income Share of net losses from equity accounted investments Transaction costs Fair value adjustments to ﬁnancial instruments Income (loss) before income taxes Deferred income taxes Net income (loss) Foreign currency translation adjustment 31,726 10,757 20,969 (894) (2,253) (31,704) (8,591) 122 32 (467) (8,557) (31,343) 5,367 (25,976) (20,342) $ 35,482 14,753 20,729 (1,194) (943) — (8,974) — — — — 9,618 (954) 8,664 — $ 54,274 19,774 34,500 (1,566) (3,114) (23,147) (13,856) 132 7 (7,853) (14,567) (29,464) 6,263 (23,201) (18,558) Comprehensive income (loss) for the period $ (46,318) $ 8,664 $ (41,759) $ (1) Pro-rated to reﬂect our ownership commencing August 3, 2011. 57,882 24,206 33,676 (1,960) (1,548) — (14,690) — — (6,389) — 9,089 (1,579) 7,510 — 7,510 PAGE 21 DUNDEE INTERNATIONAL 2011 Annual Report Statement of comprehensive income results Net rental income For the period from August 3 to December 31, 2011, net rental income increased by approximately $0.8 million compared to the pro-rated forecast due to a slight increase in occupancy, a favourable exchange rate for the reporting period compared to the forecast and overall lower level of property operating expenses. For similar reasons, net rental income for the quarter ended December 31, 2011 also increased by approximately $0.2 million compared to forecast. Portfolio management Portfolio management expenses decreased by approximately $0.4 million and $0.3 million compared to the pro-rated forecast for the period August 3, 2011 to December 31, 2011 and for the quarter ended December 31, 2011, respectively, mainly due to the reclassiﬁcation of certain costs to general and administrative expenses. General and administrative General and administrative expenses increased by approximately $1.6 million and $1.3 million for the period August 3, 2011 to December 31, 2011 and for the quarter ended December 31, 2011, respectively. An increase in the valuation of deferred units granted to DRC for payment of asset management fees accounted for $0.6 million and $0.7 million of the increase, respectively. The ﬁxed nature of certain annual expenses and reclassiﬁcation of costs from portfolio management accounted for the remaining variance. Fair value adjustment to investment properties The unrealized loss on the change in the fair value of investment properties amounted to $23.1 million for the period August 3, 2011 to December 31, 2011 and $31.7 million for the quarter ended December 31, 2011. The fair value of our investment property portfolio at December 31, 2011, was $941.4 million, representing, a capitalization rate of 8.5% for the portfolio. We acquired our properties on August 3, 2011 for $1,006.3 million, representing a capitalization rate of approximately 8.2%. Since acquisition, our properties decreased in value by $56.3 million of which $33.7 million is attributable to the weakening of the euro against the Canadian dollar and $23.1 million attributable to an increase in Cap Rates and the impact of an increase in German real estate transaction taxes. Interest expense Interest expense decreased by $0.8 million and $0.4 million, respectively, compared to the pro-rated forecast for the period August 3, 2011 to December 31, 2011 and for the quarter ended December 31, 2011, mainly due to a reduction in the realized interest rate on the credit facility partially offset by additional interest related to the over-allotment of the Debentures and appreciation of the euro compared to the forecast. The actual weighted average interest rate realized on the Facility for the period August 3, 2011 to December 31, 2011 and for the quarter ended December 31, 2011, was 3.97% and 3.98%, respectively, compared to 4.10% that we expected to realize in the forecast. Additionally, on an effective interest rate basis, we realized a rate of 4.02% for the period August 3, 2011 to December 31, 2011 and 4.04% for the quarter ended December 31, 2011, compared to 4.60% in the forecast, mainly reﬂecting the receipt of $9.5 million from the vendor for the purchase of an in-the-money swap. This increase was partially offset by additional interest related to $21 million of Debentures issued pursuant to the over-allotment. Transaction costs Transaction costs of $7.9 million were incurred for the period from August 3, 2011 to December 31, 2011. During the quarter, we incurred $0.5 million of transaction costs. Transaction costs mainly represent legal, accounting and tax advisory fees in relation to the purchase of our properties. The forecast anticipated transaction costs of $6.4 million. PAGE 22 DUNDEE INTERNATIONAL 2011 Annual Report Fair value adjustment to ﬁnancial instruments For the period from August 3, 2011 to December 31, 2011, we incurred an unrealized net loss on the change in the fair value of ﬁnancial instruments of $14.6 million. The net loss is composed of a $17.9 million loss related to the fair value change in the interest rate swap and cap as a result of a signiﬁcant decrease in the forward price of interest rates since acquiring the in-the-money swap on August 3, 2011. The loss was partially offset by unrealized fair value gains of approximately $1.8 million related to our foreign currency forward contracts due to a depreciation of the euro compared to the Canadian dollar and by an unrealized gain of $1.5 million related to the conversion feature of the Debentures. For the quarter, we incurred an unrealized net loss on the change in the fair value of ﬁnancial instruments of $8.6 million. The net loss is composed of the following: a $4.7 million loss related to the fair value change in the interest rate swap and cap that were entered into pursuant to the requirements of our credit facility as a result of a signiﬁcant decrease in the forward price of interest rates since September 30, 2011; an unrealized loss of $5.7 million related to the conversion feature of the Debentures; and an unrealized loss of $2.5 million related to a fair value change on the Exchangeable Notes. The losses were partially offset by unrealized fair value gains of approximately $4.3 million related to our foreign currency forward contracts due to a depreciation of the euro compared to the Canadian dollar. Income taxes We recognized a deferred income tax recovery of $6.3 million and $5.4 million, respectively, for the period August 3, 2011 to December 31, 2011 and for the quarter ended December 31, 2011, respectively, compared to a deferred tax expense of $1.6 million and $1.0 million for the respective forecast periods. The difference is mainly as a result of the tax impact associated with the fair value change related to investment properties and ﬁnancial instruments. Impact of foreign exchange There was a foreign currency translation loss of $18.6 million and $20.3 million for the period August 3, 2011 to December 31, 2011 and for the quarter ended December 31, 2011, respectively. The exchange rates decreased from 1.365 at the time of acquisition to 1.3193 as at the end of December 2011. Net rental income Ofﬁce Mixed use Industrial Net rental income For the period from August 3, 2011, to December 31, 2011 December 31, 2011 For the three months ended $ 1,888 15,620 3,461 $ 3,144 25,962 5,394 $ 20,969 $ 34,500 Our portfolio management team is comprised of the employees of our advisory subsidiaries in Germany and Luxembourg who are responsible for providing asset management services for the investment properties, including asset strategy and leasing activities. The costs of these activities are not allocated to net rental income. PAGE 23 DUNDEE INTERNATIONAL 2011 Annual Report Funds from operations and adjusted funds from operations NET INCOME Add (deduct): Amortization related to investment in joint ventures Interest expense on Exchangeable Notes Transaction costs Deferred income taxes Term debt swap settlement Loss on settlement of foreign currency contracts Fair value adjustments to investment properties Fair value adjustments to ﬁnancial instruments FFO Add (deduct): Amortization of ﬁnancing costs Deferred unit compensation expense Deferred asset management fees Straight-line rent Deduct: Normalized leasing costs and tenant incentives Normalized non-recoverable recurring capital expenditures AFFO For the period from August 3, 2011, to December 31, 2011 December 31, 2011 For the three months ended $ (25,976) $ (23,201) 7 1,609 467 (5,367) (317) (84) 31,704 8,557 13 2,641 (7,853) (6,263) (573) (84) 23,147 14,567 $ 10,600 $ 18,100 488 88 831 (142) 790 88 841 (187) $ 11,865 $ 19,632 (1,025) (600) (1,682) (985) $ 10,240 $ 16,965 Funds from operations and adjusted funds from operations per Unit amounts The basic weighted average number of Units outstanding used in the FFO and AFFO calculations include all Units and the aggregate number of Units issuable upon the exchange of Exchangeable Notes. The diluted weighted average number of Units assumes the conversion of the Debentures. The incremental unvested deferred trust units represent the potential Units that would have to be purchased in the open market to fund the unvested obligation. The weighted average number of Units outstanding for basic and diluted FFO calculations for the period from August 3, 2011 to December 31, 2011 is 51,160,834 and 63,363,664, respectively. The weighted average number of Units outstanding for the basic and diluted FFO calculation for the quarter ended December 31, 2011 is 51,862,716 and 64,396,562, respectively. Diluted FFO includes interest and amortization adjustments related to the Debentures of $4.3 million for the quarter. To allow a better comparison with the ﬁnancial forecast, the impact of the over-allotment was excluded. Excluding proceeds of $40.5 million received for Units and $21.0 million for Debentures, the weighted average number of units outstanding for basic and diluted FFO per unit calculation for the period August 3 to December 31, 2011 is 47,808,185 and 58,673,776, respectively. The weighted average number of units outstanding for basic and diluted FFO per unit calculation for the quarter ended December 31, 2011 is 47,812,716 and 58,731,177, respectively. In calculating basic FFO, $0.4 million and $0.3 million were added back to FFO for the interest paid on the over-allotment of Debentures for the period August 3 to December 31, 2011 and the quarter ended December 31, 2011, respectively. Diluted FFO includes interest and amortization adjustments related to the Debentures of $3.9 million and $2.4 million for the period August 3, 2011 to December 31, 2011 and for the quarter ended December 31, 2011, respectively. PAGE 24 DUNDEE INTERNATIONAL 2011 Annual Report Funds from operations Management believes FFO is an important measure of our operating performance. This non-IFRS measurement is a commonly used measure of performance of real estate operations; however, it does not represent cash ﬂow from operating activities as deﬁned by IFRS and is not necessarily indicative of cash available to fund Dundee International REIT’s needs. FFO FFO per unit — basic FFO per unit — diluted Excluding the impact of uninvested over-allotment proceeds: FFO per unit — basic FFO per unit — diluted Adjusted funds from operations AFFO AFFO per unit — basic For the three For the period from months ended August 3, 2011, to December 31, 2011 December 31, 2011 $ $ $ $ $ 10,600 0.20 0.20 0.23 0.22 $ $ $ $ $ 18,100 0.35 0.35 0.39 0.37 For the three For the period from months ended August 3, 2011, to December 31, 2011 December 31, 2011 $ $ 10,240 0.20 $ $ 16,965 0.33 Excluding the impact of uninvested over-allotment proceeds: AFFO per unit — basic $ 0.22 $ 0.36 AFFO is an important measure of our economic performance and is indicative of our ability to pay distributions. This non-IFRS measurement is commonly used for assessing real estate performance; however, it does not represent cash ﬂow from operating activities as deﬁned by IFRS and is not necessarily indicative of cash available to fund Dundee International REIT’s needs. Our calculation of AFFO includes an estimated amount of normalized non-recoverable maintenance capital expenditures, initial direct leasing costs and tenant incentives that we expect to incur based on our current portfolio and expected average leasing activity. Our estimates of initial direct leasing costs and lease incentives are based on the average of our expected leasing activity over the next two to three years and multiplied by the average cost per square foot that we expect to incur. Our estimates of normalized non-recoverable capital expenditures are based on our expected average expenditures for our current property portfolio. This estimate will differ from actual experience due to the timing of expenditures and any growth in our business resulting from property acquisitions. PAGE 25 DUNDEE INTERNATIONAL 2011 Annual Report AFFO is not deﬁned by IFRS and therefore may not be comparable to similar measures presented by other real estate investment trusts. In compliance with the Canadian Securities Administrators Staff Notice 52-306 (Revised), “Non-GAAP Financial Measures”, the table below reconciles AFFO to cash generated from operating activities. Cash generated from operating activities Add (deduct): Transaction costs on acquired properties Change in non-cash working capital Share of general and administrative expenses from equity accounted investments Deferred gain/loss on settlement of foreign exchange contracts Investment in lease incentives and initial direct leasing costs Normalized leasing costs and lease incentives Normalized non-recoverable recurring capital expenditures For the three For the period from months ended August 3, 2011, to December 31, 2011 December 31, 2011 $ 10,803 $ 22,611 467 477 39 32 47 (1,025) (600) 7,853 (10,931) 20 32 47 (1,682) (985) AFFO $ 10,240 $ 16,965 SECTION III — DISCLOSURE CONTROLS AND PROCEDURES In accordance with section 3.3(1)(c) of National Instrument 51-109, the Chief Executive Ofﬁcer and Chief Financial Ofﬁcer have limited the scope of our design of Disclosure Controls and Procedures and Internal Controls over Financial Reporting to exclude controls, policies and procedures related to the portfolio of properties we acquired on August 3, 2011, as they form the business that we acquired less than 365 days before our ﬁnancial year-end. The results of the acquired business, which forms our entire business, are included in our consolidated ﬁnancial statements for the period ended December 31, 2011. We intend to complete our design of Disclosure Controls and Procedures and Internal Controls over Financial Reporting by the end of our ﬁrst quarter in 2012. Subject to the above limitation, the Chief Executive Ofﬁcer and Chief Financial Ofﬁcer have evaluated our Disclosure Controls and Procedures and our Internal Controls over Financial Reporting, and in each case concluded they were effective as at December 31, 2011. Internal controls over ﬁnancial reporting The REIT’s Chief Executive Ofﬁcer and Chief Financial Ofﬁcer are designing the REIT’s internal control over ﬁnancial reporting (as deﬁned by National Instrument 52-109, “Certiﬁcation of Disclosure in Issuers’ Annual and Interim Filings”) to provide reasonable assurance regarding the reliability of ﬁnancial reporting and the preparation of ﬁnancial statements for external purposes in accordance with IFRS. PAGE 26 DUNDEE INTERNATIONAL 2011 Annual Report SECTION IV — RISKS AND OUR STRATEGY TO MANAGE We are exposed to various risks and uncertainties, many of which are beyond our control. The following is a review of the material risks and uncertainties that could materially affect our operations and future performance. A more detailed description of our business environment and the risks and uncertainties that could affect our operations and future performance are contained in our prospectus dated July 21, 2011, which is available at 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 for operations and making 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. 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. The majority of the Deutsche Post leases expire in 2018. Deutsche Post has early termination rights entitling it to terminate certain leases prior to their expiry upon 12 months’ prior notice. As of the date hereof, these termination rights pertain to approximately 30% of Deutsche Post’s GLA. PAGE 27 DUNDEE INTERNATIONAL 2011 Annual Report Concentration of properties and tenants Currently, all of our properties are located in Germany and as a result are impacted by economic and other factors speciﬁcally affecting the real estate markets in Germany. 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 Germany 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. We derive a signiﬁcant portion of our rental income from Deutsche Post. Consequently, our revenues are dependent on the ability of Deutsche Post to meet its rent obligations and our ability to collect rent from Deutsche Post. 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. Tax matters Although we have been structured with the objective of maximizing after-tax distributions, tax charges and withholding taxes in various jurisdictions in which we invest will affect the level of distributions made to us by our subsidiaries. No assurance can be given as to the level of taxation suffered by us or our subsidiaries. Currently, our revenues are derived from our investments located in Germany. It is possible that certain of our subsidiaries could be subject to German corporate income tax on their net rental income and capital gains from the sale of properties. Although we have managed our tax affairs on the assumption that certain of our subsidiaries will be subject to German corporate income tax (with a view to minimizing, to the extent possible, the amount of taxable income from operations in Germany), there is no certainty that we will not pay German corporate income tax. In addition, German real estate transfer tax (“RETT”) is triggered when among other PAGE 28 DUNDEE INTERNATIONAL 2011 Annual Report things there is a transfer of legal title of properties from one legal person to another. In the case of the initial reallocation of our properties, legal title was not transferred and, consequently, no RETT should be payable in connection therewith. However, if, unexpectedly, RETT does become payable as a result of the reallocation of our properties, we will be required to pay 50% of such RETT. Our debt ﬁnancing agreements with third parties and afﬁliates require us to pay principal and interest. Several rules in German tax laws restrict the tax deductibility of interest expenses for corporate income and municipal trade tax purposes. Such rules have been changed considerably on several occasions in the recent past. As a result, major uncertainties exist as to the interpretation and application of such rules, which are not yet clariﬁed by the tax authorities and the tax courts. Accordingly, there is a risk of additional taxes being triggered on the rental income and capital gains in case the tax authorities or the tax courts adopt deviating views on such rules. We have structured our affairs to ensure that none of the Luxembourg entities through which we hold our real property investment in Germany (our “FCPs”) has a permanent establishment in Germany, which is relevant for determining whether they would also be liable to municipal trade tax. If it is determined that any of our subsidiaries does have a permanent establishment in one or more German municipalities, the overall rate of German income tax applicable to taxable income could materially increase. Changes in law We are subject to applicable federal, state, 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. Foreign exchange rate ﬂuctuations Substantially all of our investments and operations will be conducted in currencies other than Canadian dollars; however, we pay distributions to unitholders and interest payments on our Debentures in Canadian dollars. We also raise funds primarily in Canada from the sale of securities in Canadian dollars and invest such funds indirectly through our subsidiaries in currencies other than Canadian dollars. As a result, ﬂuctuations in such foreign currencies against the Canadian dollar could have a material adverse effect on our ﬁnancial results, which will be denominated and reported in Canadian dollars, and on our ability to pay cash distributions to unitholders and cash interest payments on our Debentures. We have implemented active hedging programs in order to offset the risk of revenue losses and to provide more certainty regarding the payment of distributions to unitholders and interest payments on our Debentures if the Canadian dollar increases in value compared to foreign currencies. However, to the extent that we fail to adequately manage these risks, including if any such hedging arrangements do not effectively or completely hedge changes in foreign currency rates, our ﬁnancial results, and our ability to pay distributions to unitholders and cash interest payments on our Debentures, may be negatively impacted. Hedging transactions involve the risk that counterparties, which are generally ﬁnancial institutions, may be unable to satisfy their obligations. If any counterparties default on their obligations under the hedging contracts or seek bankruptcy protection, it could have an adverse effect on our ability to fund planned activities and could result in a larger percentage of future revenue being subject to currency changes. PAGE 29 DUNDEE INTERNATIONAL 2011 Annual Report 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 paid by us 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, and our ability to pay distributions to unitholders and cash interest payments under our ﬁnancing arrangements, 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. See “Foreign exchange rate ﬂuctuations” above. Environmental risk We are subject to various laws relating to environmental matters. Our properties may contain ground contamination, hazardous substances, wartime relics or other residual pollution and environmental risks. Buildings and their ﬁxtures might contain asbestos or other hazardous substances above the allowable or recommended thresholds, or the buildings could bear other environmental risks. Actual and contingent liabilities may be imposed on us under applicable environmental laws to assess and, if required, undertake remedial action on contaminated sites and in contaminated buildings. These obligations may relate to sites we currently own or operate, sites we formerly owned or operated, or sites where waste from our operations has been deposited. Furthermore, actions for damages or remediation measures may be brought against us, including under the German Federal Soil Protection Act (Bundesbodenschutzgesetz). According to this Act, not only the polluter but also its legal successor, the owner of the contaminated site and certain previous owners may be held liable for soil contamination. The costs of any removal, investigation or remediation of any residual pollution on such sites or in such buildings, as well as costs related to legal proceedings, including potential damages, regarding such matters, may be substantial, and it may be impossible, for a number of reasons, for us to have recourse against a polluter and/or former seller of a contaminated site or building or the party that may otherwise be responsible for the contamination. Furthermore, the discovery of any residual pollution on the sites and/or in the buildings, particularly in connection with the lease or sale of properties or borrowing using the real estate as security, could trigger claims for rent reductions or termination of leases for cause, for damages or other breach of warranty claims against us. Environmental laws may also impose liability on us for the release of certain materials into the air or water from a property, including asbestos, and such release could form the basis for liability to third persons for personal injury or other damages. Organizational structure We hold a 50% equity interest in Lorac, which is the manager of our FCPs and the registered owner on title to our properties. Lorac is also the manager of another fund and the registered owner on title to a portfolio of properties on behalf of that other fund. We and the owner of the remaining Lorac shares have entered into a shareholders’ agreement, which provides us with the right to appoint three of the six directors of Lorac. In addition, the directors of Lorac have adopted governance rules pursuant to which, subject to applicable law, our appointed directors generally have responsibility for matters relating to our properties, and the other three directors, who are nominated by the other owner of the Lorac shares, generally have responsibility for matters PAGE 30 DUNDEE INTERNATIONAL 2011 Annual Report affecting other properties of which Lorac is the registered owner on title. Pursuant to such shareholders’ agreement and the governance rules, certain matters such as ﬁling tax returns and shared employee matters will require the approval of a majority of the directors. Each of the directors has a ﬁduciary duty to act in the best interests of Lorac and Lorac has a duty to manage our FCPs and the other fund in the best interests of the respective unitholders. However, it is possible that we will need the approval of a majority of the directors of Lorac with respect to certain matters involving our properties and there can be no assurance that such matters will be approved at all or on the terms requested. Any matter with respect to which our appointed directors and those appointed by the other owner of the Lorac shares cannot agree will be submitted to the Lorac shareholders. However, since we have only 50% of the voting shares of Lorac, there can be no assurance that any such matter will be approved in the manner in which we would hope. Such dispute could have a material and adverse effect on our cash ﬂows, ﬁnancial condition and results of operations, and on our ability to make distributions on the Units or cash interest payments on the Debentures. As manager of the other fund since 2008, Lorac has incurred and will continue to incur liabilities as a result of managing that other fund and its assets. To the extent that the other fund is unable to satisfy such liabilities, a third party could seek recourse against Lorac. If Lorac is unable to satisfy such liabilities, Lorac could be required to seek protection from creditors under applicable bankruptcy or insolvency legislation. Taking such steps could result in Lorac being replaced as the manager of our FCPs with the result that legal title to our properties would be required to be transferred to a new manager. This would result in the payment of RETT in Germany. The amount of such taxes could have a material and adverse effect on our cash ﬂows, ﬁnancial condition and results of operations. We have negotiated certain limited indemnities from the other fund in connection with any prior existing liabilities of the other fund and with those that may arise as a result of actions or omissions of the other fund. In addition to the foregoing, we have been advised by our Luxembourg counsel that creditors of the other fund could only seek recourse against the assets of the other fund and could not seek recourse against the assets of our FCPs regardless of the fact that Lorac may have entered into the contract on behalf of the other fund or our FCPs creating such right to a claim. Competition The real estate market in Germany 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 better located, 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 stronger ﬁnancially, they will be better able 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. PAGE 31 DUNDEE INTERNATIONAL 2011 Annual Report Insurance We carry general liability, umbrella liability and excess liability insurance with limits that are typically obtained for similar real estate portfolios in Germany 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. SECTION V — CRITICAL ACCOUNTING POLICIES CRITICAL ACCOUNTING ESTIMATES AND CHANGES IN ACCOUNTING POLICIES Management of Dundee International REIT believes that certain policies may be subject to estimation and management’s judgment. For a list and explanation of these policies refer to Note 4 of the consolidated ﬁnancial statements. For a list and explanation of future accounting policy changes, refer to Note 5 of the ﬁnancial statements. Additional information relating to Dundee International REIT is available on SEDAR at www.sedar.com. PAGE 32 DUNDEE INTERNATIONAL 2011 Annual Report Management’s responsibility for 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 Dundee International Real Estate Investment Trust. These 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 is comprised of trustees, meets with management as well as the external auditors to satisfy itself that management is properly discharging its ﬁnancial responsibilities and to review its consolidated ﬁnancial statements and the report of the auditors. The audit committee reports its ﬁndings to the Board of Trustees, which approves the consolidated ﬁnancial statements. PricewaterhouseCoopers LLP, the independent auditors, have audited the consolidated ﬁnancial statements in accordance with Canadian generally accepted auditing standards. The auditors have full and unrestricted access to the audit committee, with or without management present. P. JANE GAVAN President and Chief Executive Ofﬁcer DOUGLAS P. QUESNEL Chief Financial Ofﬁcer Toronto, Ontario, February 23, 2012 PAGE 33 DUNDEE INTERNATIONAL 2011 Annual Report Independent auditor’s report To the Unitholders of Dundee International Real Estate Investment Trust We have audited the accompanying consolidated ﬁnancial statements of Dundee International Real Estate Investment Trust and its subsidiaries, which comprise the consolidated balance sheet as at December 31, 2011 and the consolidated statements of comprehensive loss, changes in equity and cash ﬂows for the period from April 21, 2011 to December 31, 2011, 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 audit. We conducted our audit 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 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 Dundee International Real Estate Investment Trust and its subsidiaries, as at December 31, 2011 and their ﬁnancial performance and their cash ﬂows for the period from April 21, 2011 to December 31, 2011 in accordance with International Financial Reporting Standards. CHARTERED ACCOUNTANTS, LICENSED PUBLIC ACCOUNTANTS Toronto, Ontario, February 23, 2012 PAGE 34 DUNDEE INTERNATIONAL 2011 Annual Report Note December 31, 2011 Consolidated balance sheet (in thousands of Canadian dollars) Assets NON-CURRENT ASSETS Investment properties Deferred income tax assets Other non-current assets CURRENT ASSETS Amounts receivable Prepaid expenses Cash Total assets Liabilities NON-CURRENT LIABILITIES Debt Exchangeable Notes Deposits Derivative ﬁnancial instruments Deferred Unit Incentive Plan CURRENT LIABILITIES Amounts payable and accrued liabilities Distributions payable Total liabilities Equity Unitholders’ equity Deﬁcit Accumulated other comprehensive loss Total equity Total liabilities and equity See accompanying notes to the consolidated ﬁnancial statements 7 19 8 9 10 11 12 13 14 15 16 On behalf of the Board of Trustees of Dundee International Real Estate Investment Trust: MICHAEL J. COOPER Trustee P. JANE GAVAN Trustee $ 941,442 7,034 364 948,840 2,010 583 87,907 90,500 $ 1,039,340 $ 579,006 80,000 481 11,754 945 672,186 13,420 2,925 16,345 688,531 407,009 (37,642) (18,558) 350,809 $ 1,039,340 PAGE 35 DUNDEE INTERNATIONAL 2011 Annual Report Consolidated statement of comprehensive loss (in thousands of Canadian dollars) Note Investment properties revenue Investment properties operating expenses Net rental income Other income and expenses Portfolio management General and administrative Fair value adjustments to investment properties Transaction costs Interest expense Share of income from equity accounted investments Interest and other income Fair value adjustments to ﬁnancial instruments Loss before income taxes Recovery of taxes Net loss Foreign currency translation adjustment Comprehensive loss See accompanying notes to the consolidated ﬁnancial statements 7 6 17 8 18 19 For the period from April 21, 2011, to December 31, 2011 $ 54,274 19,774 34,500 (1,566) (3,114) (23,147) (7,853) (13,856) 7 132 (14,567) (29,464) 6,263 (23,201) (18,558) $ (41,759) PAGE 36 DUNDEE INTERNATIONAL 2011 Annual Report Consolidated statement of changes in equity (in thousands of Canadian dollars, except number of Units) Note Number of Units Unitholders’ equity Attributable to unitholders of the Trust Accumulated other Retained earnings comprehensive loss (deﬁcit) Total Balance at April 21, 2011 Units issued on formation Net loss for the period Distributions paid Distributions payable Public offering of Units Distribution reinvestment plan Issue costs Foreign currency translation adjustment — $ — $ 16 15 15 16 16 16 800,000 — — — 43,050,000 22,316 — 400 — — — 430,500 217 (24,108) — $ — (23,201) (11,516) (2,925) — — — — $ — — — — — — — — 400 (23,201) (11,516) (2,925) 430,500 217 (24,108) — — — (18,558) (18,558) Balance at December 31, 2011 43,872,316 $ 407,009 $ (37,642) $ (18,558) $ 350,809 See accompanying notes to the consolidated ﬁnancial statements PAGE 37 DUNDEE INTERNATIONAL 2011 Annual Report Consolidated statement of cash flows (in thousands of Canadian dollars) Note 13 18 21 7 6 Generated from (utilized in) operating activities Net loss Non-cash items: Share of income from equity accounted investment Deferred income taxes Amortization of ﬁnancing costs Amortization of initial discount on convertible debentures Deferred unit compensation expense and asset management fees Settlement on foreign exchange contracts Straight-line rent adjustment Fair value adjustments to ﬁnancial instruments Fair value adjustments to investment properties Interest paid on Exchangeable Notes Cash settlement on interest rate swap Lease incentives and initial direct leasing costs Change in non-cash working capital Generated from (utilized in) investing activities Investment in building improvements Acquisition of investment properties Generated from (utilized in) ﬁnancing activities Purchase of derivative instruments Proceeds from vendor for ﬁnancing charges Issue of convertible debentures, net of costs Proceeds of term debt, net of costs Issue of Exchangeable Notes Units issued for cash, net of costs Distributions paid on Units Interest paid on Exchangeable Notes Increase in cash Effect of exchange rate changes on cash Cash, end of period See accompanying notes to the consolidated ﬁnancial statements PAGE 38 For the period from April 21, 2011, to December 31, 2011 $ (23,201) (7) (6,263) 424 366 929 (116) (187) 14,567 23,147 2,641 (573) (47) 10,931 22,611 (488) (998,266) (998,754) (9,986) 9,555 154,069 438,163 80,000 407,062 (11,299) (2,641) 1,064,923 88,780 (873) $ 87,907 DUNDEE INTERNATIONAL 2011 Annual Report Notes to the consolidated financial statements (All dollar amounts in thousands of Canadian dollars, except unit or per unit amounts) Note 1 ORGANIZATION Dundee International Real Estate Investment Trust (the “REIT” or the “Trust”) is an open-ended investment trust created pursuant to a Declaration of Trust dated April 21, 2011, under the laws of the Province of Ontario, and is domiciled in Ontario. The consolidated ﬁnancial statements of the REIT include the accounts of the REIT and its consolidated subsidiaries. The REIT’s portfolio comprises ofﬁce, industrial and mixed use properties located in Germany. The address of the Trust’s registered ofﬁce is 30 Adelaide Street East, Suite 1600, Toronto, Ontario, Canada M5C 3H1. The Trust is listed on the Toronto Stock Exchange under the symbol “DI.UN”. The Trust’s consolidated ﬁnancial statements for the period ended December 31, 2011, were authorized for issue by the Board of Trustees on February 23, 2012, after which date the consolidated ﬁnancial statements may only be amended with Board approval. At December 31, 2011, Dundee Corporation, the majority shareholder of Dundee Realty Corporation (“DRC”), directly and indirectly through its subsidiaries held 12,800,000 Units. Note 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Statement of compliance These consolidated ﬁnancial statements of the Trust have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). Basis of presentation The consolidated ﬁnancial statements are prepared on a going concern basis and have been presented in Canadian dollars, which is also the Trust’s functional currency. All ﬁnancial information has been rounded to the nearest thousand except when otherwise indicated. The accounting policies set out below have been applied consistently in all material respects. Certain new accounting standards and guidelines relevant to the Trust that were issued at the date of approval of the ﬁnancial statements but not yet effective for the current accounting period are described in Note 5. The consolidated ﬁnancial statements have been prepared on the historical cost basis except for investment properties, the conversion feature of the convertible debentures, Exchangeable Notes, ﬁnancial derivatives, and the Deferred Unit Incentive Plan, which are measured at carrying values impacted by fair values. Basis of consolidation The consolidated ﬁnancial statements comprise the ﬁnancial statements of the REIT and its subsidiaries. Subsidiaries are fully consolidated from the date of acquisition, which is the date on which the Trust obtains control, and continue to be consolidated until the date that such control ceases. Control exists when the Trust has the power, directly or indirectly, to govern the ﬁnancial and operating policies of an entity so as to obtain beneﬁt from its activities. All intercompany balances, income and expenses, and unrealized gains and losses resulting from intercompany transactions are eliminated in full. Joint arrangements A joint venture 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 venture require the unanimous consent of the parties sharing control. Joint venture arrangements that involve the establishment of a separate entity in which each venture has an interest are referred to as jointly controlled entities. PAGE 39 DUNDEE INTERNATIONAL 2011 Annual Report The Trust reports its interests in jointly controlled entities using the equity method of accounting. Under the equity method, equity accounted investments are carried on the consolidated balance sheet 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 income/loss from equity accounted investments in the consolidated statement of comprehensive income. At each period-end, 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. When the Trust’s share of losses of an equity accounted investment equals or exceeds its interest in that investment, the Trust discontinues recognizing its share of further losses. Any additional share of losses is provided for and a liability is recognized only to the extent that the Trust has incurred legal or constructive obligations to fund the entity or made payments on behalf of that entity. Accounting policies of equity accounted investments have been changed where necessary to ensure consistency with the policies adopted by the Trust. Where the Trust transacts with its equity 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 sheet. 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, except if acquired in a business combination, in which case they are initially recorded at fair value, and include ofﬁce, industrial and other commercial properties held to earn rental income and/or for capital appreciation. Investment properties are subsequently measured at fair value, determined based on available market evidence, at the consolidated balance sheet date. Related fair value gains and losses are recorded in comprehensive 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 date, 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, and 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 the use of the income approach is more appropriate. The income approach is one in which the fair value is estimated by capitalizing the net operating 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 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. Valuations of investment properties are most sensitive to changes in discount rates and capitalization rates. 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 PAGE 40 DUNDEE INTERNATIONAL 2011 Annual Report properties and are amortized on a straight-line basis over the term of the lease as a reduction of investment properties revenue. Segment reporting The Trust owns and operates investment properties located in Germany. In measuring performance, the Trust does not distinguish or group its operations on a geographic or any other basis and, accordingly, has a single reportable segment for disclosure purposes. The Trust’s major tenant is Deutsche Post, accounting for approximately 85% of the gross rental income generated by the Trust’s properties for the period ended December 31, 2011. Foreign currency translation Functional and presentation currency Items included in the ﬁnancial statements of each of the group’s entities are measured using the currency of the primary economic environment in which the entity operates (“the functional currency”). The functional currency of the REIT’s operating subsidiaries is euros. The consolidated ﬁnancial statements are presented in Canadian dollars, which is the group’s presentation currency. Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions or valuation where items are remeasured. Foreign exchange gains and losses resulting from the settlement of such transactions, and from the translation at period-end exchange rates of monetary assets and liabilities denominated in foreign currencies, are recognized in the statement of comprehensive income except when deferred in other comprehensive income as qualifying cash ﬂow hedges and qualifying net investment hedges. Foreign exchange gains and losses are presented in the consolidated statement of comprehensive income. Group companies The results and ﬁnancial position of all the group entities that have a functional currency different from the presentation currency are translated into the presentation currency as follows: (i) (ii) assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet; income and expenses for each statement of comprehensive income are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the rate on the dates of the transactions); and (iii) all resulting exchange differences are recognized in other comprehensive income. On consolidation, exchange differences arising from the translation of the net investment in foreign operations, and of borrowings and other currency instruments designated as hedges of such investments, are taken to other comprehensive income. When a foreign operation is partially disposed of or sold, exchange differences that were recorded in equity are recognized in the consolidated statement of income as part of the gain or loss on sale. For accounting purposes, the Trust has not entered into any qualifying hedges. Fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate. PAGE 41 DUNDEE INTERNATIONAL 2011 Annual Report Other non-current assets Other non-current assets include property and equipment and straight-line rent receivables as well as an equity accounted investment. 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 three 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 upon 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 comprehensive income in the year the asset is derecognized. 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 that 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. 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 risk speciﬁc to the obligation. The increase in the provision due to passage of time is recognized as interest expense. Revenue recognition The Trust accounts for leases with tenants as operating leases, as 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, 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 earned and the contractual amount received or receivable. Recoveries from tenants are recognized as revenues in the period in which the corresponding costs are incurred. Other revenues are recorded as earned. 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 property. 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 value of investment properties and are amortized as a reduction of rental revenue on a straight-line basis over the term of the lease. PAGE 42 DUNDEE INTERNATIONAL 2011 Annual Report Business combinations The purchase method of accounting is used for acquisitions meeting the deﬁnition of a business. The consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the acquisition date fair values of the assets transferred by the acquirer, the liabilities incurred by the acquirer to former owners of the acquiree, and the interests issued by the acquirer. Identiﬁable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their acquisition date fair values irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value of the Trust’s share of the identiﬁable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the Trust’s share of the net assets acquired, the difference is recognized directly in comprehensive income for the year as an acquisition gain. Any transaction costs incurred with respect to the business combination are expensed in the period incurred. 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 in retained earnings (deﬁcit). Income taxes The REIT is taxed as a mutual fund trust under the Income Tax Act (Canada). The REIT is not a speciﬁed investment ﬂow-through trust (“SIFT”), and will not be, provided that the REIT complies at all times with its investment restrictions which preclude the REIT from investing in any entity other than a portfolio investment entity or from holding any non-portfolio property. The Trust intends to distribute all taxable income directly earned by the REIT to unitholders and to deduct such distributions for income tax purposes. The tax deductibility of the REIT’s distributions to unitholders represents, in substance, an exception from current Canadian tax, and from deferred tax relating to temporary differences in the REIT, so long as the REIT continues to expect to distribute all of its taxable income and taxable capital gains to its unitholders. Accordingly, no net current Canadian income tax expense or deferred income tax assets or liabilities have been recorded in these consolidated ﬁnancial statements. The tax expense related to non-Canadian taxable subsidiaries for the period comprises current and deferred taxes. The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date where the subsidiaries operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities. Deferred income tax is recognized, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated ﬁnancial statements. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the balance sheet date, and are expected to apply when the related deferred income tax asset is realized or the deferred income tax liability is settled. Deferred income tax assets are recognized only to the extent that it is probable that future taxable proﬁt will be available against which the temporary differences can be utilized. The REIT indirectly owns its properties through several FCPs (fonds commun de placement). The income tax treatment of non-German residents, such as the FCP unitholders indirectly owned by the REIT, is not entirely clear and is subject to signiﬁcant judgment, and accordingly it is not currently possible to determine with certainty whether the FCP unitholders will or will not be taxable in Germany on their net rental income and capital gains. In light of this uncertainty, the REIT has structured its affairs assuming that the FCP unitholders would be subject to corporate income tax in Germany, and has prepared these consolidated ﬁnancial statements on that basis. PAGE 43 DUNDEE INTERNATIONAL 2011 Annual Report Unit-based compensation plan The Trust has a Deferred Unit Incentive Plan (“DUIP”), as described in Note 16, that provides for the grant of deferred trust units and income deferred trust units to trustees, ofﬁcers, employees, afﬁliates and their service providers (including the asset manager). Unvested deferred trust units are recorded as a liability and compensation expense and, where applicable, asset management expense. Grants to trustees, ofﬁcers and employees are recognized as compensation expense and included in general and administrative expenses. They are recognized over the vesting period at the 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 Units, with changes in fair value being recognized in comprehensive income, as a fair value adjustment to ﬁnancial instruments. Deferred units granted to DRC for payment of asset management fees are included in general and administrative expenses during the period for accounting purposes as they relate to services provided during the period and the units and fees are initially measured by applying a discount to the fair value of the corresponding Units. The discount is estimated by applying the Black-Scholes model, taking into consideration the volatility of the Canadian REIT equity market and the German real estate industry. Once recognized, the liability is remeasured at each reporting date at a discount to the fair values of the corresponding Units, with the change in value being recognized in comprehensive income as fair value adjustment to ﬁnancial instruments. 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, liabilities and ﬁnancial derivatives: Classiﬁcation Measurement Loans and receivables Loans and receivables Amortized cost Amortized cost Financial assets Amounts receivable Cash and cash equivalents Financial liabilities Term loan credit facility Convertible debentures – host instrument Exchangeable Notes Deposits Deferred Unit Incentive Plan Amounts payable and accrued liabilities Distributions payable Other liabilities Other liabilities Fair value through proﬁt and loss Other liabilities Other liabilities Other liabilities Other liabilities Financial derivatives Derivative assets Derivative liabilities Convertible debentures — conversion feature Fair value through proﬁt and loss Fair value through proﬁt and loss Fair value through proﬁt and loss Amortized cost Amortized cost Fair value Amortized cost Amortized cost Amortized cost Amortized cost Fair value Fair value Fair value Financial assets The Trust classiﬁes its ﬁnancial assets upon initial recognition as loans and receivables. All ﬁnancial assets are initially measured at fair value, less any related transaction costs. Subsequently, loans and receivables are measured at amortized cost. PAGE 44 DUNDEE INTERNATIONAL 2011 Annual Report 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 will not be possible under the original terms of the contract. Indicators of impairment include delinquency of payment and signiﬁcant ﬁnancial difﬁculty of the tenant. The carrying amount of the asset is reduced through an allowance account, and the amount of the loss is recognized in the consolidated statements of comprehensive income within investment property 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 property operating expenses in the consolidated statement of comprehensive income. Trade receivables that are less than three months past due are not considered impaired unless there is evidence that collection is not possible. If in a subsequent period 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 value of the asset does not exceed its amortized cost at the reversal date. Any subsequent reversal of an impairment loss is recognized in income 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. Financial liabilities The Trust classiﬁes its ﬁnancial liabilities upon initial recognition as either fair value through income and loss or other liabilities measured at amortized cost. Financial liabilities are initially recognized at fair value (net of transaction costs if measured at amortized cost). 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 income and 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. Term loans are initially recognized at fair value less attributable transaction costs, or at fair value when assumed in a business or asset acquisition. Subsequent to initial recognition, term loans are recognized at amortized cost. Upon 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 Debentures into Units that, except for the available exemption under IAS 32, “Financial Instruments: Presentation” (“IAS 32”), would normally be presented as a liability because of the redemption feature attached to the 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 Units, the host instrument and conversion feature are reclassiﬁed to unitholders’ equity in proportion to the units converted over the total equivalent units outstanding. The DUIP is measured at amortized cost because it is settled in Units, which in accordance with IAS 32 are liabilities. Consequently, the DUIP is remeasured each period based on the fair value of Units, with changes in the liability recorded in comprehensive income. The Exchangeable Notes contain certain embedded derivatives, the fair value of which cannot be reliably measured. Accordingly, the Exchangeable Notes are classiﬁed as at fair value through proﬁt and loss, with fair value based upon the fair value of the Units that the notes are exchangeable into and changes in the liability are recorded in comprehensive income. Distributions paid on Exchangeable Notes are recorded as interest expense in comprehensive income. PAGE 45 DUNDEE INTERNATIONAL 2011 Annual Report The Trust considers interest expense on the Exchangeable Notes to be a ﬁnancial activity in the statement of cash ﬂows. A ﬁnancial liability is derecognized when the obligation under the liability is discharged, cancelled or expired. Financial derivatives Derivatives are initially recognized at fair value on the date a derivative contract is entered into and are subsequently remeasured at their fair value. The method of recognizing the resulting gain or loss depends on whether the derivative is designated as a hedging instrument and, if so, the nature of the item being hedged. Derivative instruments are recorded in the consolidated balance sheet at fair value. Changes in fair value of derivative instruments that are not designated as hedges for accounting purposes are recognized in fair value adjustments to ﬁnancial instruments in the statement of comprehensive income. The Trust has not designated any derivatives as hedges for accounting purposes. Interest Interest on debt includes coupon interest on term loans, amortization of premiums allocated to the conversion features of the convertible debentures, amortization of ancillary costs incurred in connection with the arrangement of borrowings and interest on Exchangeable Notes. Finance costs are amortized to interest expense unless they relate to a qualifying asset. Equity The Trust classiﬁes the Units as equity. Under IAS 32 the Units are considered a puttable ﬁnancial instrument because of the holder’s option to redeem 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 the REIT in any calendar month shall not exceed $50 unless waived by the REIT’s trustees at their sole discretion. The Trust has determined that the Units can be classiﬁed as equity and not ﬁnancial liabilities because the Units have the following features, as deﬁned in IAS 32 (hereinafter referred to as the “puttable exemption”): • Units entitle the holder to a pro rata share of the Trust’s net assets in the event of the Trust’s liquidation. The Trust’s net assets are those assets that remain after deducting all other claims on its assets. • 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 are subordinate to all other classes of instruments have identical features. • Apart from the contractual obligation for the Trust to redeem the Units for cash or another ﬁnancial asset, the 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 Units over their life is based substantially on the proﬁt or loss, the change in the recognized net assets and unrecognized net assets of the Trust over the life of the Units. In addition to the Units meeting all of the above criteria, the REIT has determined it has no other ﬁnancial instrument or contract that has total cash ﬂows based substantially on the proﬁt or loss, the change in the recognized assets, or the change in the fair value of the recognized and unrecognized net assets of the REIT. The REIT also has no other ﬁnancial instrument or contract that has the effect of substantially restricting or ﬁxing the residual return to unitholders. PAGE 46 DUNDEE INTERNATIONAL 2011 Annual Report Units are initially recognized at the fair value of the consideration received by the Trust. Any transaction costs arising on the issue of Units are recognized directly in unitholders’ equity as a reduction of the proceeds received. Note 4 CRITICAL ACCOUNTING JUDGMENTS, ESTIMATES AND ASSUMPTIONS IN APPLYING ACCOUNTING POLICIES The preparation of the consolidated ﬁnancial statements requires management to make judgments, estimates and assumptions that affect the amounts reported. Management bases its judgments and estimates on experience in the industry and other various 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 values 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 asset or liability affected in the future. Critical accounting judgments The following are the critical judgments made 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 by the Trust in respect of the fair values of investment properties. The fair value of these investments is 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 and nationally recognized and qualiﬁed in the professional valuation of ofﬁce, industrial and other commercial buildings in the geographic areas of the properties held by the Trust. Judgment is also applied in determining the extent and frequency of independent appraisals. Judgment is also applied in determining whether certain costs are additions to the carrying amount of the investment property or are of a repair and maintenance nature. Leases In applying the revenue recognition policy, the Trust makes judgments with respect to whether tenant improvements provided in connection with a lease enhance the value of the leased space, which determines whether or not such amounts are treated as additions to the investment property. The Trust also makes judgments in determining whether certain leases, in particular those with long contractual terms where the lessee is the sole tenant in a property and those long-term ground leases where the Trust is lessor, are operating or ﬁnance leases. The Trust has determined that all of its leases are operating leases. Income tax treatment The REIT indirectly owns the properties through several FCPs (fonds commun de placement). The income tax treatment of non-German residents, such as the FCP unitholders indirectly owned by the REIT, is not entirely clear and is subject to signiﬁcant judgment, and accordingly it is not currently possible to determine with certainty whether the FCP unitholders will or will not be taxable in Germany on their net rental income and capital gains. In light of this uncertainty, the REIT has structured its affairs assuming that the FCP unitholders would be subject to corporate income tax in Germany. The Trust computes current and deferred income taxes included in the consolidated ﬁnancial statements based on the following: • The rate of corporate tax payable on German taxable income is 15.825%, including a 5.5% solidarity surcharge; • Taxable income for German corporate income tax purposes is determined by deducting certain expenses incurred in connection with the acquisition and ownership of real property as well as certain operating expenses, provided that the costs are incurred under arm’s length terms; PAGE 47 DUNDEE INTERNATIONAL 2011 Annual Report • Buildings can generally be amortized on a straight-line basis at a rate of 2% to 3% depending on the age of the property; and • The deduction of interest expense, which must reﬂect arm’s length terms, is generally restricted by the so-called “interest capping rules”. These rules apply to limit the deduction of all interest expense incurred up to a maximum of 30% of the taxable earnings before interest, tax, depreciation and amortization. However, an exception is available when annual interest expense is less than €3,000 for each taxpayer. For this purpose, each FCP Unitholder is a separate taxpayer and therefore the total interest deductible under the current structure is approximately $59,369. Treatment of Units The Trust has considered the criteria in IAS 32 and has presented the Units as equity because of the puttable exemption. Treatment of Exchangeable Notes The Trust has considered the criteria in IAS 32; the Exchangeable Notes are classiﬁed as liabilities because they do not have identical features to Units, and are not the most subordinated instrument. Business combinations Accounting for business combinations under IFRS 3, “Business Combinations” (“IFRS 3”), only applies if it is considered that a business has been acquired. Under IFRS 3, a business is deﬁned as an integrated set of activities and assets conducted and managed for the purpose of providing a return to investors or lower costs or other economic beneﬁts directly and proportionately to the Trust. A business generally consists of inputs, processes applied to those inputs, and resulting outputs that are, or will be, used to generate revenues. In the absence of such criteria, a group of assets is deemed to have been acquired. If goodwill is present in a transferred set of activities and assets, the transferred set is presumed to be a business. The Trust applies judgment in determining whether property acquisitions qualify as a business combination in accordance with IFRS 3 or as an asset acquisition. Impairment The Trust assesses the possibility and amount of any impairment loss or write-down as it relates to amounts receivable and other assets. Estimates and assumptions The Trust makes estimates and assumptions that affect carrying amounts of assets and liabilities, disclosure of contingent assets and liabilities, and the reported amount of other comprehensive income for the period. Actual results could differ from estimates. The estimates and assumptions critical to the determination of the amounts reported in the consolidated ﬁnancial statements relate to the following: Valuation of investment property The Trust’s 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 in regional, national or international economic conditions, the fair value of investment properties may change materially. Valuation of ﬁnancial instruments The Trust makes estimates and assumptions relating to the fair value measurement of the Exchangeable Notes, the Deferred Unit Incentive Plan, the convertible debenture conversion feature, derivative instruments, and PAGE 48 DUNDEE INTERNATIONAL 2011 Annual Report the fair value disclosure of the convertible debentures, mortgages and term loans. The critical assumptions underlying the fair value measurements and disclosures include the market price of Units, market interest rates for debt and interest rate derivatives, unsecured debentures and foreign currency derivatives. For certain ﬁnancial instruments, including cash and cash equivalents, amounts receivable, amounts payable and accrued liabilities, and distributions payable, the carrying amounts approximate fair values due to their immediate or short-term maturity. The fair value of term loans is 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 uses quoted market prices from an active market. Note 5 FUTURE ACCOUNTING POLICY CHANGES Financial instruments IFRS 9, “Financial Instruments” (“IFRS 9”), was issued by the International Accounting Standards Board (“IASB”) on November 12, 2009, and will replace IAS 39, “Financial Instruments: Recognition and Measurements” (“IAS 39”). IFRS 9 provides guidance on the classiﬁcation and measurement of ﬁnancial assets and ﬁnancial liabilities. IFRS 9 is effective for annual periods beginning on or after January 1, 2015. The Trust is currently evaluating the impact of IFRS 9 on its consolidated ﬁnancial statements. Income taxes In December 2010, the IASB made amendments to IAS 12, “Income Taxes” (“IAS 12”), that are applicable to the measurement of deferred tax liabilities and deferred tax assets where investment property is measured using the fair value model in IAS 40, “Investment Property”. The amendments introduce a rebuttable presumption that, for purposes of determining deferred tax consequences associated with temporary differences relating to investment properties, the carrying amount of an investment property is recovered entirely through sale. This presumption is rebutted if the investment property is held within a business model whose objective is to consume substantially all of the economic beneﬁts embodied in the investment property over time, rather than through sale. The amendments to IAS 12 are effective for annual periods beginning on or after January 1, 2012. The Trust does not expect any impact on its consolidated ﬁnancial statements as a result of the amendment to IAS 12. Joint arrangements On May 12, 2011, the IASB issued IFRS 11, “Joint Arrangements” (“IFRS 11”). This new standard replaces IAS 31, “Interests in Joint Ventures” (“IAS 31”). The new standard eliminates the option to proportionately consolidate interests in certain types of joint ventures. IFRS 11 is effective from January 1, 2013. The Trust is currently evaluating the impact of this standard on the consolidated ﬁnancial statements. Financial instruments: Disclosures, amendment regarding disclosures on transfer of ﬁnancial assets IFRS 7, “Financial Instruments: Disclosures, Amendment regarding Disclosures on Transfer of Financial Assets” (“IFRS 7”), requires that the Trust provides the disclosures for all transferred ﬁnancial assets that are not derecognized and for a continuing involvement in a transferred ﬁnancial asset existing at the reporting date, irrespective of when the related transfer transaction occurred. In addition IFRS 7 requires that the Trust provides disclosures related to offsetting ﬁnancial assets and liabilities. The Trust will start the application of this amendment January 1, 2013. The Trust is currently evaluating the impact of IFRS 7 on its consolidated ﬁnancial statements. PAGE 49 DUNDEE INTERNATIONAL 2011 Annual Report Consolidated ﬁnancial statements IFRS 10, “Consolidated Financial Statements” (“IFRS 10”), replaces the current IAS 27, “Consolidated and Separate Financial Statements” (“IAS 27”). The standard identiﬁes the concept of control as the determining factor in whether an entity should be included within the consolidated ﬁnancial statements of the parent company. The Trust will start the application of IFRS 10 in the ﬁnancial statements effective January 1, 2013. The Trust is currently evaluating the impact of IFRS 10 on its consolidated ﬁnancial statements. Disclosure of interests in other entities IFRS 12, “Disclosure of Interests in Other Entities” (“IFRS 12”), requires disclosures relating to an entity’s interests in subsidiaries. The Trust will start the application of IFRS 12 in the ﬁnancial statements effective from January 1, 2013. The Trust is currently evaluating the impact to the consolidated ﬁnancial statements as a result of adopting this standard. Fair value measurements IFRS 13, “Fair Value Measurements” (“IFRS 13”), deﬁnes fair value, provides guidance on its determination, and introduces consistent requirements for disclosures on fair value measurements. The Trust will start the application of IFRS 13 in the consolidated ﬁnancial statements effective January 1, 2013. The Trust has not yet evaluated the impact on the consolidated ﬁnancial statements. Presentation of items of other comprehensive income Amendments to IAS 1, “Presentation of Items of Financial Statements” (“IAS 1”), provide guidance on the presentation of items contained in other comprehensive income (“OCI”) and their classiﬁcation within OCI. The Trust will start the application of this amendment in the consolidated ﬁnancial statements effective from January 1, 2013. The Trust is currently evaluating the impact to the consolidated ﬁnancial statements as a result of adopting this standard. Note 6 BUSINESS COMBINATIONS On August 3, 2011, the REIT indirectly, through a wholly owned subsidiary, acquired 292 commercial properties (the “properties”) located in Germany. Costs relating to the acquisition were $7,853 and were charged directly to comprehensive income as acquisition related costs. The acquisition was ﬁnanced by way of net proceeds from the offering of Units, a term loan credit facility and Units issued to DRC and Dundee Corporation, and the issuance of Exchangeable Notes, Series A and Exchangeable Notes, Series B (“Exchangeable Notes”). The following are the recognized amounts of identiﬁable assets acquired and liabilities assumed, measured at their respective fair values: Investment properties Vendor payment for capital costs Equity Investments Working capital adjustments Cash Fair value of consideration transferred $ 1,006,334 (8,557) 997,777 221 268 998,266 $ 998,266 In conjunction with the acquisition, the REIT received payment from the vendor totalling $8,557 which related to adjustments for capital costs at certain properties. The accounting treatment of the payment received for capital costs reduced the fair value of the investment properties below the appraised value on acquisition. PAGE 50 DUNDEE INTERNATIONAL 2011 Annual Report The initial accounting for the assets and liabilities recognized with respect to the acquisition of the properties has been completed provisionally and has not been ﬁnalized, and is therefore subject to adjustment. Note 7 INVESTMENT PROPERTIES Balance at beginning of period Acquisitions through business combination Building improvements Initial direct leasing costs Fair value adjustment Foreign currency translation Balance at period-end For the period April 21, 2011, to December 31, 2011 $ — 997,777 488 47 (23,147) (33,723) $ 941,442 Investment properties have been reduced by $177 related to straight-line rent receivable, which has been reclassiﬁed to other non-current assets. Investment properties with an aggregate fair value of $941,442 at December 31, 2011, were valued by qualiﬁed valuation professionals. The investment properties were acquired on August 3, 2011, for $1,006,334 representing a capitalization rate of approximately 8.2%. An amount of $8,557 received from the vendor at the time of closing for capital costs reduced the acquisition price by the same amount resulting in investment property amounting to $997,777 being acquired. As at December 31, 2011, the value decreased by $33,723 attributable to the weakening of the euro against the Canadian dollar and $23,147 attributable to an increase in Cap Rates and the impact of an increase in German real estate transaction taxes. The valuation methodology adopted in the calculation of fair values of investment properties is European-based and is different from the methodology adopted in North America. The methodology commonly used by European valuators is a net basis whereas in North America a gross basis is used. The primary difference in approaches is the adjustment to values for transaction costs including real estate transfer taxes, which results in a lower valuation under a net basis. In measuring fair value, it is appropriate to use the valuation approach used in the market where the real estate is located rather than the method practised in the market where the entity reports. The cost adjustments that brought the value of investment properties to a net basis amounted to $63,739 at December 31, 2011. Fair values at December 31, 2011 were determined using the direct capitalization method. The direct capitalization method applies a capitalization rate to stabilized NOI and incorporates allowances for vacancy and management fees. The resulting capitalized value was further adjusted for extraordinary costs to stabilize income and non-recoverable capital expenditures, where applicable. Individual properties were valued using an average Cap Rate of 8.5% for the portfolio. All investment properties with a fair value of $941,442 are pledged as ﬁrst-ranking mortgages on the term loan credit facility. The Trust has entered into commercial property leases with its tenants typically for a period between three- and ten-year terms. They include clauses for periodic upwards revisions of rental charges according to prevailing market conditions. Some leases contain options to break before the end of the term. PAGE 51 DUNDEE INTERNATIONAL 2011 Annual Report Future minimum rentals (excluding service charges) under current operating leases are as follows : Not later than 1 year Later than 1 year and not later than 5 years Later than 5 years Total Note 8 OTHER NON-CURRENT ASSETS Equity accounted investment Computer equipment Straight-line rent receivable Total December 31, 2011 $ 74,948 264,687 106,411 $ 446,046 December 31, 2011 $ $ 173 14 177 364 Investment in joint ventures The Trust participates in a jointly controlled corporate entity (the “joint ventures”) with other parties and accounts for its interests using the equity accounting method. Details of the Trust’s joint ventures: Name Principal activity Location Ownership interest (%) December 31, 2011 Lorac Investment Management S.à r.l. Investment management Luxembourg 50.00 The following amounts represent the proportionate share of assets, liabilities, revenues and expenses of the joint venture. Non-current assets Equipment Current assets Prepaid expenses Cash and cash equivalents Total assets Current liabilities Amounts payable and accrued liabilities Net assets PAGE 52 December 31, 2011 $ $ 131 3 37 40 171 (2) 173 Other income and expenses General and administrative Amortization expense Income Note 9 AMOUNTS RECEIVABLE Trade receivables Less: Provision for impairment of trade receivables Trade receivables, net Other amounts receivable DUNDEE INTERNATIONAL 2011 Annual Report For the period from April 21, 2011, to December 31, 2011 $ $ 19 (12) 7 December 31, 2011 $ 1,607 (76) 1,531 479 $ 2,010 The carrying amount of amounts receivable approximates fair value due to their current nature. Note 10 DEBT Convertible debentures Term loan credit facility Total December 31, 2011 $ 146,658 432,348 $ 579,006 The term loan credit facility is secured by ﬁrst-ranking mortgages on all of the investment properties. On August 3, 2011, the Trust issued $140,000 principal amount of convertible unsecured subordinated debentures (the “Debentures”). On August 29, 2011, the Trust issued an additional $21,000 principal amount of Debentures. The Debentures bear interest at 5.5% per annum, payable semi-annually on July 31 and January 31 each year, and mature on July 31, 2018. Each Debenture is convertible at any time by the debentureholder into 76.9231 Units, per one thousand dollars of face value, representing a conversion price of $13.00 per Unit. On or after August 31, 2014, and prior to August 31, 2016, the Debentures may be redeemed by the debentureholders, in whole or in part, at a price equal to the principal amount plus accrued and unpaid interest on not more than 60 days and not less than 30 days prior to written notice, provided the weighted average trading price for the Trust’s Units for the 20 consecutive trading days, ending on the ﬁfth trading day immediately preceding the date on which notice of redemption is given, is not less than 125% of the conversion price. On or after August 31, 2016, and prior to July 31, 2018, the maturity date, the Debentures may be redeemed by the Trust at a price equal to the principal amount plus accrued and unpaid interest. The Debentures were initially recorded on the consolidated balance sheet as debt of $152,894 less costs of $6,931. The Trust has allocated $8,106 to the conversion feature that will be accreted to the principal portion of the Debenture over its term along with costs of $6,931. As at December 31, 2011, the outstanding principal amount is $161,000. PAGE 53 DUNDEE INTERNATIONAL 2011 Annual Report On August 3, 2011, the Trust obtained a term loan credit facility (the “Facility”) for gross proceeds of €328,500. Costs relating to the Facility are $10,832. These costs have been reduced by proceeds received from the vendor to compensate the Trust for higher than expected ﬁnancial costs on closing in the amount of $9,555. The Facility has a term of ﬁve years, which may be extended for a further two years, subject to the satisfaction of certain conditions precedent at the time of the extension. Variable rate interest is calculated and payable quarterly under the Facility at a rate equal to the aggregate of the three-month EURIBOR plus a margin of 200 basis points (the “margin”) and an agency fee of 10 basis points. Pursuant to the Facility, the Trust was required to enter into an interest rate swap that ﬁxed 80% of the variable interest rate payable under the Facility at a ﬁxed interest rate not to exceed 3.5%, excluding the margin, and was required to purchase a cap instrument to cover 10% of the variable rate interest payable so that such interest rate does not exceed 5% (excluding the margin). The remaining 10% of interest payable would continue to be calculated quarterly on a variable rate basis. To comply with the Facility’s requirement, on the day of closing, the Trust entered into an interest rate swap to pay a ﬁxed rate of 4.05% on 80% of the Facility and an interest rate cap of 5.00% on 10% of the Facility at a cost of $9,986. As at December 31, 2011, the Trust paid a ﬁxed rate of 4.05% on 80% and a variable rate of 3.69% on the remaining 20% of the Facility. To further take advantage of the current interest rate environment, the Trust entered into another interest swap to pay a ﬁxed rate of 3.38% on the 20% variable portion of the Facility in 2012. As a result, the Facility will pay a blended ﬁxed rate of 3.91% in 2012. No amortization of principal under the term loan credit facility is required during the ﬁrst three years after closing. Thereafter, interest together with amortization of principal equal to 2% per annum of the initial loan amount will be payable on a quarterly basis (including the extension term, if any). In addition, the Trust is required to repay up to €100 million plus an applicable prepayment premium of 15% through dispositions or reﬁnancings of a portion of the investment properties within the ﬁrst two years following closing. If the full €100 million is not repaid by the second anniversary of the closing, the Trust will be required to pay additional interest of 1% on the portion of this €100 million that has not been repaid, starting on the second anniversary of the closing. The Facility requires that all net rental income from the properties be paid into a rent collections account that the Trust established, to be released only after budgeted non-recoverable operating expenses (including an agreed property and asset management fee) are paid. The Facility includes default and cash trap covenants requiring the Trust to maintain certain loan-to-value and debt service coverage ratios, each of which will be tested on a quarterly basis. If these ratios are not met at any time, the lenders may withhold 50% of the excess cash ﬂow on a monthly basis as additional security for the Facility until such time as the ratios are once again satisﬁed. Upon satisfaction of the relevant ratio, the excess cash ﬂow may again be distributed to the Trust; however, any cash previously trapped will not be released and will be used at the time of each future quarterly testing date until the ratio is satisﬁed for two consecutive quarters. In addition, the Facility requires that DRC and Dundee Corporation combined maintain at least $120,000 of equity in the REIT for a two-year period from closing and at least $48,000 of equity for the remainder of the term of the Facility. As at December 31, 2011, the Trust is in compliance with its loan convenants. PAGE 54 DUNDEE INTERNATIONAL 2011 Annual Report The weighted average interest rates for the ﬁxed and ﬂoating components of debt are as follows: FIXED RATE Term loan credit facility(1) Convertible debentures Total ﬁxed rate debt VARIABLE RATE Term loan credit facility Total variable rate debt Total debt Face interest rates Weighted average effective interest rates Debt amount Maturity December 31, 2011 dates December 31, 2011 4.05% 5.50% 4.48% 3.69% 3.69% 4.36% 4.11% 7.31% 5.06% 3.75% 3.75% 4.86% 2016 2018 $ 345,879 146,658 2016 492,537 86,469 86,469 $ 579,006 (1) The portion of the Facility subject to the interest rate swap outstanding during the year has been presented as ﬁxed rate debt in this table. The scheduled principal repayments and debt maturities are as follows: 2012 2013 2014 2015 2016 2017 and thereafter Fair value adjustments Transaction costs Note 11 EXCHANGEABLE NOTES The Trust has the following Exchangeable Notes outstanding: As at August 3, 2011 Ending balance $ Term debt — — 1,164 2,873 429,353 — $ Convertible debentures — — — — — 161,000 $ 433,390 $ 161,000 $ Total — — 1,164 2,873 429,353 161,000 $ 594,390 (7,741) (7,643) $ 579,006 For the period from April 21, 2011, to December 31, 2011 $ 80,000 $ 80,000 In conjunction with the initial public offering (the “Offering”), a subsidiary of the Trust issued Exchangeable Notes for gross proceeds of $80,000. Each €7.326 (the euro equivalent of $10.00 based on the same exchange rate as the proceeds of the Offering were converted into euros) principal amount of Exchangeable Notes is exchangeable by the holder for one Unit, subject to customary anti-dilutive adjustments. The holder of Exchangeable Notes is committed not to exercise the right of exchange within six months from the date of issuance. The Exchangeable Notes and corresponding Special Trust Units (see Note 16) together have economic and voting rights equivalent in all material respects to the Units. The Exchangeable Notes mature on August 5, 2021. On the maturity date, PAGE 55 DUNDEE INTERNATIONAL 2011 Annual Report the Trust may elect to redeem the Exchangeable Notes in whole or in part, in cash or in Trust Units, pursuant to the terms of the agreement. The Trust may require the holder of the Exchangeable Notes to exchange all of the Exchangeable Notes for Units in limited circumstances pursuant to the exchange agreement. Interest is payable at an amount per month equal to the product of the aggregate number of units for which the outstanding Exchangeable Notes are exchangeable multiplied by the Currency Adjusted Equivalent Amount of any cash distribution paid on units in such month. During the period from August 3, 2011, to December 31, 2011, the Trust incurred $2,641 in interest on the Exchangeable Notes, which is included as interest expense in comprehensive loss. Note 12 DERIVATIVE FINANCIAL INSTRUMENTS Interest rate swaps (Note 24) Interest rate cap (Note 24) Foreign exchange forward contracts (Note 24) Conversion feature of the Debentures Total December 31, 2011 $ 7,204 (97) (1,942) 6,589 $ 11,754 The movement in the conversion feature on the convertible debentures for the period was as follows: As at August 3, 2011 Remeasurement of conversion feature Ending balance Note 13 DEFERRED UNIT INCENTIVE PLAN The movement in the Deferred Unit Incentive Plan balance was as follows: Opening liability at August 3, 2011 Compensation during the period Asset management fees during the period Remeasurements of carrying value Total liability at December 31, 2011 For the period from April 21, 2011, to December 31, 2011 $ $ 8,106 (1,517) 6,589 Deferred trust and income units $ — 88 841 16 $ 945 On August 3, 2011, DRC elected to receive the ﬁrst $3,500 of the base asset management fees payable on the properties acquired on August 3, 2011, by way of deferred trust units under the Asset Management Agreement in each year for the next ﬁve years. The deferred trust units granted to DRC vest annually over ﬁve years, commencing on the ﬁfth anniversary date of being granted. On termination of the Asset Management Agreement, unvested trust units granted to DRC vest immediately. During the period from August 3, 2011, to December 31, 2011, $841 of asset management fees were recorded based upon the fair value of the deferred units issued with an appropriate discount to reﬂect the restricted PAGE 56 DUNDEE INTERNATIONAL 2011 Annual Report period of exercise and were included in general and administrative expenses. They were settled by the grant of 117,188 deferred units during the period and 29,348 deferred units on January 15, 2012. At December 31, 2011, 147,717 unvested deferred trust units and income deferred units were outstanding with respect to the asset management fee. On November 8 and December 8, 2011, 87,000 and 33,784 deferred trust units were granted to senior management and trustees, respectively. Of the 87,000 units granted, 66,000 relate to key management personnel. The 33,784 deferred trust units were granted to trustees who elected to receive their 2011 and 2012 annual retainer in the form of deferred trust units rather than cash. The grant date value of these deferred trust units was $9.65 and $9.84, respectively. Note 14 AMOUNTS PAYABLE AND ACCRUED LIABILITIES Trade payables Accrued liabilities and other payables Accrued interest Total December 31, 2011 $ 2,675 6,555 4,190 $ 13,420 Note 15 DISTRIBUTIONS The following table breaks down distribution payments for the period ended December 31, 2011: Paid in cash Paid by way of reinvestment in Units Plus: Payable at December 31, 2011 Total Distribution $ 11,299 217 2,925 $ 14,441 The distribution for the month of December in the amount of $0.06667 per unit, declared on December 31, 2011, and payable on January 15, 2012, amounted to $2,925. The amount payable at December 31, 2011, was satisﬁed on January 15, 2012, by $2,862 in cash, and $63 through the issuance of 6,540 Units. The distributions for the month of January 2012 and February 2012 were declared in the amount of $0.06667 per unit per month, payable on February 15, 2012, and March 15, 2012, respectively. The 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 Declaration of Trust provides the trustees with the discretion to determine the percentage payout of income that would be in the best interest of the Trust. Amounts retained in excess of the declared distributions are used to fund the leasing costs and capital expenditure requirements. Given that working capital tends to ﬂuctuate over time and should not affect the REIT’s distribution policy, the REIT disregards it when determining its distributions. The REIT also excludes the impact of leasing costs, which ﬂuctuate with lease maturities, renewal terms and the type of asset being leased. The REIT evaluates the impact of leasing activity based on averages for its portfolio over a two- to three-year time frame. The REIT excludes the impact of transaction costs expensed on business combinations as these are considered to be non-recurring. Additionally, the REIT deducts amortization of non–real estate assets such as software and ofﬁce equipment incurred after the formation of the Trust. The Trust declared distributions of $0.06237 per Unit for the month of August and $0.06667 per Unit per month for the months of September to December, or $14,441 in 2011. PAGE 57 DUNDEE INTERNATIONAL 2011 Annual Report Note 16 EQUITY Total December 31, 2011 Number of Units Amount 43,872,316 $ 350,809 REIT Units The REIT is authorized to issue an unlimited number of Units and an unlimited number of Special Trust Units. The Special Trust Units may only be issued to holders of Exchangeable Notes. Special Trust Units are issued in connection with Exchangeable Notes. The Special Trust Units are not transferable separately from the Exchangeable Notes to which they relate and will be automatically redeemed for a nominal amount and cancelled upon settlement, surrender or exchange of such Exchangeable Notes. Each Special Trust Unit entitles the holder to the number of votes at any meeting of unitholders that is equal to the number of Units that may be obtained upon the surrender or exchange of the Exchangeable Notes to which they relate. At December 31, 2011, 8 million Special Trust Units were issued and outstanding. On April 21, 2011, 800,000 Units were issued to DRC for $400 cash. Public offering of Units On August 3, 2011, the Trust completed a public offering of 27 million Units at a price of $10.00 per unit for gross proceeds of $270,000. On August 29, 2011, the Trust issued an additional 4.05 million Units at a price of $10.00 per unit. Costs related to the offering totalled $24,078 and were charged directly to unitholders’ equity. In addition to the initial public offering, 10 million Units were purchased by Dundee Corporation at the offering price and 2 million Units were purchased by DRC at the offering price. Distribution Reinvestment and Unit Purchase Plan The Distribution Reinvestment Plan (“DRIP”) allows holders of Units, other than unitholders who are resident of or present in the United States of America, to elect to have all cash distributions from the 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 Units on the Toronto Stock Exchange preceding the relevant distribution date, which typically is on or about the 15th day of the month following the declaration. For the period from August 3, 2011, to December 31, 2011, 22,316 Units were issued pursuant to the DRIP for $217. The Unit Purchase Plan feature of the DRIP facilitates the purchase of additional Units by existing unitholders. Participation in the Unit Purchase Plan is optional and subject to certain limitations on the maximum number of additional Units that may be acquired. The price per unit is calculated in a similar manner to 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. No Units were issued under the Unit Purchase Plan during the period to December 31, 2011. Deferred Unit Incentive Plan The Deferred Unit Incentive Plan provides for the grant of deferred trust units to trustees, ofﬁcers and employees as well as afﬁliates and their service providers, including the asset manager. Deferred trust units are granted at the discretion of the trustees and earn income deferred trust units based on the payment of distributions. Once issued, 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, except for certain deferred PAGE 58 DUNDEE INTERNATIONAL 2011 Annual Report trust units granted to DRC under the Asset Management Agreement. Subject to an election option available for certain participants to postpone receipt of units, such units will be issued immediately upon vesting. Up to a maximum of 2,074,000 deferred trust units are issuable under the Deferred Unit Incentive Plan. Note 17 INTEREST EXPENSE Interest on debt Interest on debt incurred and charged to comprehensive income is recorded as follows: Interest on term loan credit facility Interest on convertible debentures Amortization of ﬁnancing costs and discounts Interest on Exchangeable Notes Interest expense For the period from April 21, 2011, to December 31, 2011 $ 6,840 3,585 790 2,641 $ 13,856 Interest on Exchangeable Notes Interest payments on the Exchangeable Notes charged to comprehensive income for the period from August 3, 2011, to December 31, 2011, comprise: Paid in cash Plus: Payable at December 31 Total Note 18 FAIR VALUE ADJUSTMENTS TO FINANCIAL INSTRUMENTS Fair value adjustment on interest rate swaps and cap Fair value adjustment on conversion feature of convertible debentures Fair value adjustment on Deferred Unit Incentive Plan Fair value adjustment on foreign exchange forward contracts For the period from April 21, 2011, to December 31, 2011 $ $ 2,115 526 2,641 For the period from April 21, 2011, to December 31, 2011 $ (17,895) 1,517 (16) 1,827 $ (14,567) PAGE 59 DUNDEE INTERNATIONAL 2011 Annual Report Note 19 INCOME TAXES Reconciliation of tax expense Net loss before tax Tax calculated at the German corporate tax rate of 15.825% Increase (decrease) resulting from: Expenses not deductible for tax Effect of different tax rates in countries in which the group operates Income distributed and taxable to unitholders Other items Income taxes (recovery of taxes) Deferred income tax assets consist of the following: Deferred asset liability related to difference in tax and book basis of investment properties Deferred asset liability related to difference in tax and book basis of Exchangeable Notes Deferred tax asset related to difference in tax and book basis of ﬁnancial instruments Deferred tax asset related to tax loss carry-forwards Deferred asset liability related to differences in tax and book basis of deferred ﬁnancing costs Total deferred income tax assets For the period from April 21, 2011, to December 31, 2011 $ (29,464) (4,662) 81 (93) (1,528) (61) $ (6,263) December 31, 2011 $ 2,065 771 2,537 319 1,342 $ 7,034 Note 20 RELATED PARTY TRANSACTIONS AND ARRANGEMENTS Asset Management Agreement The REIT entered into an asset management agreement with DRC (“Asset Management Agreement”) pursuant to which DRC provides certain asset management services to the REIT and its subsidiaries. The Asset Management Agreement provides 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 0.35% of the historical purchase price of the properties; • incentive fee equal to 15% of the REIT’s adjusted funds from operations per Unit in excess of $0.93 per Unit; increasing annually by 50% of the increase in the weighted average consumer price index (or other similar metric as determined by the trustees) of the jurisdictions in which the properties are located; • 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 equal to: (a) 1.0% of the purchase price of a property on the ﬁrst $100,000 of properties in each ﬁscal year; (b) 0.75% of the purchase price of a property on the next $100,000 of properties acquired in each ﬁscal year, and (c) 0.50% of the purchase price on properties in excess of $200,000 in each ﬁscal year. DRC will not receive an acquisition fee in respect of the acquisition of the initial properties; and • ﬁnancing fee equal to 0.25% of the debt and equity of all ﬁnancing transactions completed on behalf of the REIT to a maximum of actual expenses incurred by DRC in supplying services relating to ﬁnancing transactions. DRC will not receive a ﬁnancing fee in respect of the acquisition of the initial properties. PAGE 60 DUNDEE INTERNATIONAL 2011 Annual Report Pursuant to the Asset Management Agreement, DRC may elect to receive all or part of the fees payable to it for its asset management services in deferred trust units under the Deferred Unit Incentive Plan. The number of deferred trust units issued to DRC will be calculated by dividing the fees payable to DRC by the fair value for this purpose on the relevant payment date of the Units. Fair value for this purpose is the weighted average closing price of the Units on the principal market on which the Units are quoted for trading for the ﬁve trading days immediately preceding the relevant payment date. The deferred trust units will vest on a ﬁve-year schedule, pursuant to which one-ﬁfth of the deferred trust units will vest, starting on the sixth anniversary date of the grant date for deferred trust units granted during the ﬁrst ﬁve years of the Asset Management Agreement and starting on the ﬁrst anniversary date of the grant date thereafter. Income deferred trust units will be credited to DRC based on distributions paid by the Trust on the Units and such income deferred trust units will vest on the same ﬁve-year schedule as their corresponding deferred trust units. For accounting purposes, the deferred units relate to services provided during the period and, accordingly, the corresponding expense is recognized during the period. DRC has irrevocably elected to receive the ﬁrst $3,500 of the fees payable to it in each year for the ﬁrst ﬁve years for its asset management services in deferred trust units. During the period ended December 31, 2011, the REIT recognized $841 in general and administrative expense in relation to asset management fees under the Asset Management Agreement with DRC. As at January 15, 2012, 147,717 deferred trust and income units were granted under this agreement and remained unvested. Compensation of key management personnel for the period ended December 31 is as follows : Salary(1) Unit-based awards(2) Total compensation For the period from April 21, 2011, to December 31, 2011 $ $ 150 21 171 (1) Represents the portion of salary paid by Dundee Realty Corporation attributable to time spent on the activities of Dundee International REIT. (2) 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 21 SUPPLEMENTARY CASH FLOW INFORMATION Increase in amounts receivable Increase in prepaid expenses Increase in amounts payable and accrued liabilities Change in non-cash working capital The following amounts were paid on account of interest: Debt Exchangeable Notes December 31, 2011 $ (1,276) (583) 12,790 $ 10,931 December 31, 2011 $ $ 6,641 2,115 PAGE 61 DUNDEE INTERNATIONAL 2011 Annual Report Note 22 COMMITMENTS AND CONTINGENCIES The 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 the REIT. As at December 31, 2011, the REIT’s future minimum commitments under operating leases are as follows: Years ending December 31 No longer than 1 year 1–5 years Longer than 5 years Total Operating lease payments $ 365 1,458 365 $ 2,188 During the period the Trust paid $237 in minimum lease payments, which have been included in comprehensive income for the period. Note 23 CAPITAL MANAGEMENT The primary objective of the Trust’s capital management is to ensure that it remains within its quantitative banking covenants and maintains a strong credit rating. The Trust’s capital consists of debt, Exchangeable Notes, 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 and to fund leasing costs and capital expenditure requirements. 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 debt-to-book 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. The Trust’s equity consists of Units, in which the carrying value is impacted by earnings and unitholder distributions. The Trust endeavours to make annual distributions of $0.80 per unit. Amounts retained in excess of the distributions are used to fund leasing costs, capital expenditure and working capital requirements. Management monitors distributions through various ratios to ensure adequate resources are available. These include the proportion of distributions paid in cash, DRIP participation ratio, total distributions as a percentage of distributable income, and distributable income per unit. The Trust monitors capital primarily using a debt-to-book value ratio, which is calculated as the amount of outstanding debt divided by total assets. During the period the Trust did not breach any of its loan covenants, nor did it default on any other of its obligations under its loan agreements. The term loan credit facility agreement requires the debt service coverage ratio to be equal to or above 145% at each interest rate payment date. For the quarter ended December 31, 2011, the REIT’s debt service coverage ratio was 267% and therefore in compliance with the term loan credit facility requirement. PAGE 62 DUNDEE INTERNATIONAL 2011 Annual Report Note 24 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 risk. Market risk is the risk that the fair value or future cash ﬂows of a ﬁnancial instrument will ﬂuctuate because of changes in market prices. Market risk consists of interest rate risk, currency risk and other market price risk. The Trust has exposure to interest rate risk primarily as a result of its term loan credit facility which has a variable rate of interest. In order to manage exposure to interest rate risk, the Trust endeavours to maintain an appropriate mix of ﬁxed and ﬂoating rate debt, manage maturities of ﬁxed rate debt and match the nature of the debt with the cash ﬂow characteristics of the underlying asset. Additionally, the Trust has entered into interest rate swaps and caps to economically hedge the variable rate debt and has entered into foreign exchange forward contracts to manage its currency risk from paying distributions and debt servicing in Canadian dollars. The Trust is also exposed to interest rate risk on its derivatives. The following interest rate sensitivity table outlines the potential impact of a 1% change in the interest rate on variable rate assets and liabilities for a prospective twelve-month period. A 1% change is considered a reasonable level of ﬂuctuation on variable rate assets and debts. Carrying amount Income Financial assets Cash and cash equivalents(1) Financial liabilities Term loan credit facility $ 87,907 $ 86,469 $ $ (879) 867 $ $ -1% Equity (879) 867 Interest rate risk Income $ $ 879 (867) $ $ 1% Equity 879 (867) (1) Cash and cash equivalents include 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. These balances generally receive interest income at bank prime 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 exposed to currency risk. The Trust’s functional and presentation currency is Canadian dollars. The Trust’s operating subsidiaries’ functional currency is the euro; accordingly the assets and liabilities are translated at the prevailing rate at period-end, and comprehensive income is translated at the average rate for the period. In order to manage the exposure to currency risk of unitholders and holders of Debentures, the Trust has entered into foreign exchange forward contracts. The term of the contracts is for 24 months whereby the Trust is required to sell €2,600 per month at an average rate of €1.368 per Canadian dollar. The Trust is exposed to credit risk from its leasing activities and from its ﬁnancing activities and derivatives. The Trust manages credit risk by requiring tenants to pay rents in advance and monitoring the credit quality of the tenants on a regular basis. The Trust monitors tenant payment patterns and discusses potential tenant issues with property managers on a regular basis. Credit risk with respect to ﬁnancing activities and derivatives is managed by entering into arrangements with highly reputable institutions. The Trust does not use derivatives for speculative purposes. Liquidity risk is the risk that the Trust will encounter difﬁculty in meeting obligations associated with the maturity of ﬁnancial obligations. The Trust manages maturities of its debts, and monitors the repayment dates to ensure sufﬁcient capital will be available to cover obligations. PAGE 63 DUNDEE INTERNATIONAL 2011 Annual Report Interest rate derivatives The following table provides details on interest rate derivatives outstanding as at December 31, 2011: Hedging item Interest rate swap Interest rate swap Interest rate cap Notional $ 346,712 86,678 43,339 $ 476,729 Rate 4.05% 3.38% 5.00% Maturity Carrying value 2016 2012 2016 $ (7,065) (139) 97 $ (7,107) Foreign currency derivatives The following table provides details on foreign currency hedging (foreign currency forward contracts) outstanding as at December 31, 2011: Hedging currency Notional amount Exchange rate Option start date Option end date Carrying value October 1, 2012 January 3, 2012 February 1, 2012 March 1, 2012 April 2, 2012 May 2, 2012 June 1, 2012 July 3, 2012 August 1, 2012 January 13, 2012 February 15, 2012 March 15, 2012 April 13, 2012 May 15, 2012 June 15, 2012 July 13, 2012 August 15, 2012 September 4, 2012 September 14, 2012 October 15, 2012 November 1, 2012 November 15, 2012 December 3, 2012 December 14, 2012 January 15, 2013 February 15, 2013 March 15, 2013 April 15, 2013 May 15, 2013 June 14, 2013 July 15, 2013 August 15, 2013 September 3, 2013 September 13, 2013 October 15, 2013 November 1, 2013 November 15, 2013 December 2, 2013 December 16, 2013 January 2, 2013 February 1, 2013 March 1, 2013 April 2, 2013 May 2, 2013 June 3, 2013 July 2, 2013 August 1, 2013 October 1, 2013 $ 115 110 106 102 98 93 90 85 81 77 73 70 66 62 59 56 53 50 47 45 123 136 90 22 $ $ 1,909 33 1,942 Euro Euro Euro Euro Euro Euro Euro Euro Euro Euro Euro Euro Euro Euro Euro Euro Euro Euro Euro Euro Euro Euro Euro Euro € 2,600 2,600 2,600 2,600 2,600 2,600 2,600 2,600 2,600 2,600 2,600 2,600 2,600 2,600 2,600 2,600 2,600 2,600 2,600 2,600 2,600 2,600 2,600 2,600 1.3639 1.3639 1.3639 1.3639 1.3639 1.3639 1.3639 1.3639 1.3639 1.3639 1.3639 1.3639 1.3639 1.3639 1.3639 1.3639 1.3639 1.3639 1.3639 1.3639 1.4005 1.4079 1.3880 1.3577 Cash settlement on foreign exchange contracts € 62,400 PAGE 64 DUNDEE INTERNATIONAL 2011 Annual Report Fair value of ﬁnancial instruments Financial assets Amounts receivable Cash and cash equivalents December 31, 2011 Carrying value Fair value $ 2,010 87,907 $ 2,010 87,907 Financial liabilities Convertible debentures including conversion feature Term loan credit facility Exchangeable Notes Derivative ﬁnancial instruments, excluding conversion feature of the Debentures Deferred Unit Incentive Plan Deposits Amounts payable and accrued liabilities Distributions payable 153,247 432,348 80,000 5,165 945 481 13,420 2,925 157,394 432,348 80,000 5,165 945 481 13,420 2,925 Fair value hierarchy The following table shows an analysis of the fair values of ﬁnancial instruments recognized in the consolidated balance sheet at fair value by level of fair value hierarchy. Financial instruments Exchangeable Notes Interest rate derivatives Foreign currency derivatives Conversion feature of Debentures Level 1 Level 2 Level 3 December 31, 2011 $ $ — — — — $ (80,000) (7,107) 1,942 (6,589) — — — — Level 1 — Quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date; Level 2 — Use of a model with inputs (other than quoted prices included in Level 1) that are directly or indirectly observable market data; Level 3 — Use of a model with inputs that are not based on observable market data. PAGE 65 DUNDEE INTERNATIONAL 2011 Annual Report Appendix December 31, 2011 Office properties Gradestr. 22 Kurfürstenallee 130 Überseering 17/Mexikoring 22 Zimmermannstr. 2/Eisenstr. Saalburgallee 19 Wiener Str. 43 Koblenzer Str. 67 Ölmühlweg 12 Total office Mixed use properties Grüne Str. 6-8/Kurfürstenstr. 2 Am Hauptbahnhof 16-18 Poststr. 4-6, Göbelstr. 30, Bismarckstr. Bahnhofstr. 16 H-v-Stephan-Str. 1-15/W-Brandt-Pl.13 Bahnhofstr. 82-86 E.-Kamieth-Str. 2 b Marienstr. 80 Rüppurrer Str. 81,87,89/Ettlinger 67 Gerokstr. 14-20 Hindenburgstr. 9/Heeserstr. 5 Kaiserstr. 24 Klubgartenstr. 10 Bahnhofsplatz 2,3,4, Pepperworth 7 Am Hauptbahnhof 2 Pausaer Str. 1-3 Bahnhofstr. 33 Husemannstr. 1 Berliner Platz 35-37 Stresemannstr. 15 Heinrich-von-Bibra-Platz 5-9 Bahnhofsring 2 Kaiser-Karl-Ring 59-63/Dorotheenstr. Bürgerreuther Str. 1 Bahnhofplatz 10 Logenstr. 37 Bahnhofsplatz 1 Bahnhofstr. 9 Mecklenburgstr. 4-6 Rathausplatz 2 Niemeyerstr. 1 Bahnhofstr. 40 Möhringer Landstr. 2/Emilienstr. 30 Heinrich-von-Stephan-Str. 8-10 Joachim-Campe-Str. 1.3/5/7, Posthof Friedrich-Ebert-Str. 28 Paulinenstr. 52 Postplatz 3 Poststr. 2 U 3 Ostbahnstr. 5 Kavalierstr. 30-32 Bahnhofsplatz 9 Friedrich-Ebert-Str. 75-79 Baarstr. 5 Hainstr. 5 A Europaplatz 17 Rathausplatz 4 Marktstr. 9 Zuffenhäuser Kelterplatz 1 Unter den Zwicken 1-3 PAGE 66 CITY STATE GLA OCCUPANCY Hannover Bremen Hamburg Marburg Frankfurt am Main Stuttgart Bonn Königstein Dortmund Saarbrücken Darmstadt Regensburg Mannheim Gießen Halle Niedersachsen Bremen Hamburg Hesse Hesse Baden-Württemberg North Rhine-Westphalia Hesse North Rhine-Westphalia Saarland Hesse Bavaria Baden-Württemberg Hesse Saxony-Anhalt Offenbach am Main Hesse Karlsruhe Dresden Siegen Gütersloh Goslar Hildesheim Mülheim Plauen Böblingen Gelsenkirchen Münster Wuppertal Fulda Leer Bonn Bayreuth Fürth Kaiserslautern Schweinfurt Ingolstadt Schwerin Wilhelmshaven Hannover Flensburg Stuttgart Leverkusen Salzgitter Pinneberg Detmold Bautzen Helmstedt Landau Dessau Emden Bremerhaven Iserlohn Bad Hersfeld Bad Kreuznach Lüdenscheid Völklingen Stuttgart Halberstadt Baden-Württemberg Saxony North Rhine-Westphalia North Rhine-Westphalia Niedersachsen Niedersachsen North Rhine-Westphalia Saxony Baden-Württemberg North Rhine-Westphalia North Rhine-Westphalia North Rhine-Westphalia Hesse Niedersachsen North Rhine-Westphalia Bavaria Bavaria Rhineland-Palatinate Bavaria Bavaria Mecklenburg-West Pomerania Niedersachsen Niedersachsen Schleswig-Holstein Baden-Württemberg North Rhine-Westphalia Niedersachsen Schleswig-Holstein North Rhine-Westphalia Saxony Niedersachsen Rhineland-Palatinate Saxony-Anhalt Niedersachsen Bremen North Rhine-Westphalia Hesse Rhineland-Palatinate North Rhine-Westphalia Saarland Baden-Württemberg Saxony-Anhalt 195,783 187,940 159,174 99,751 98,224 72,192 42,774 34,984 890,822 299,567 290,901 230,943 230,845 227,298 156,378 152,661 114,114 111,413 110,434 98,647 94,488 87,460 85,895 84,303 83,867 82,628 80,141 79,702 79,185 77,606 77,022 75,815 75,534 74,816 72,198 67,503 67,432 66,676 64,970 61,884 61,826 61,194 61,011 60,012 59,218 57,614 57,007 53,468 53,401 52,206 52,195 51,727 51,472 51,207 50,704 50,050 49,577 47,552 47,145 72% 73% 88% 98% 96% 88% 100% 100% 84% 100% 92% 89% 75% 96% 88% 83% 96% 93% 86% 89% 61% 64% 75% 95% 71% 100% 88% 86% 100% 100% 91% 100% 100% 100% 95% 87% 100% 80% 97% 73% 98% 93% 89% 56% 100% 75% 67% 52% 94% 90% 91% 97% 78% 100% 91% 95% 73% 80% 76% DUNDEE INTERNATIONAL 2011 Annual Report December 31, 2011 CITY STATE GLA OCCUPANCY Mixed use properties (continued) Stadtparkstr. 2 Schützenstr. 17,19 Bahnhofstr. 2 Theodor-Heuss-Platz 13 Poststr. 14 Bahnhofplatz 3,5 Stembergstr. 27-29 Poststr. 2 Willy-Brandt-Str. 6 Königstr. 12 Möllner Landstr. 47-49/Reclamstr. 20 Lutherplatz 5 Münchener Str. 1 Martinistr. 19 Bahnhofstr. 169 Vegesacker Heerstr. 111 Südbrede 1-5 Kardinal-Galen-Ring 84/86 Kalkumer Str. 70 Ehrenfeldgürtel 125 Poststr. 2 Robert-Wahl-Str. 7/7a Bahnhofplatz 1 Balhornstr. 15,17/B.Köthenbürger-Str. August-Bebel-Str. 6 Cavaillonstr. 2 Steinerother Str. 1 U 1a Bismarckstr. 21-23 Stuttgarter Str. 5,7 Heinrich-von-Stephan-Platz 6 Hindenburgstr. 8/Hohenstauf 9,17,19 Mühlenstr. 5-7 Alsenberger Str. 61 Lübecker Str. 23-25 Apostelweg 4-6 Brückenstr. 21 Lönsstr. 20-22 Friedrich-Wilhelm-Str. 52 U. 54 Verdener Str. 9 Kurt-Schumacher-Str. 5 Lilienstr. 3 Stadtring 3-5 Heinzelmannstr. 1/Hauberrisserstr. Bahnhofplatz 4 Bahnhofsplatz 10,12,14 Goethestr. 2-6 Gustav-König-Str. 42 Zwieseler Str. 27-29 Lotzbeckstr. 4 Bahnhofsplatz 4 Große Str. 29-33 Worthingtonstr. 15 Kieler Str. 501 Hellersdorfer Str. 78 Kreuzstr. 20-24 Schwabach Peine Cham Neuss Rastatt Heidenheim Arnsberg Gummersbach Auerbach Rottweil Hamburg Nordhausen Bad Kissingen Recklinghausen Bavaria Niedersachsen Bavaria North Rhine-Westphalia Baden-Württemberg Baden-Württemberg North Rhine-Westphalia North Rhine-Westphalia Saxony Baden-Württemberg Hamburg Thuringia Bavaria North Rhine-Westphalia Bietigheim-Bissingen Baden-Württemberg Bremen Ahlen Rheine Düsseldorf Köln Deggendorf Balingen Freising Paderborn Torgau Weinheim Betzdorf Bünde Fellbach Naumburg Bocholt Delmenhorst Hof Bad Oldesloe Hamburg Neunkirchen Bremen North Rhine-Westphalia North Rhine-Westphalia North Rhine-Westphalia North Rhine-Westphalia Bavaria Baden-Württemberg Bavaria North Rhine-Westphalia Saxony Baden-Württemberg Rhineland-Palatinate Rhineland-Palatinate North Rhine-Westphalia Baden-Württemberg Saxony-Anhalt North Rhine-Westphalia Niedersachsen Bavaria Schleswig-Holstein Hamburg Saarland Castrop-Rauxel North Rhine-Westphalia Eschwege Nienburg Lünen Leipzig Nordhorn Kaufbeuren Traunstein Kleve Duisburg Sonneberg Regen Lahr Homburg Rotenburg Crailsheim Hamburg Berlin Bonn Hesse Niedersachsen North Rhine-Westphalia Saxony Niedersachsen Bavaria Bavaria North Rhine-Westphalia North Rhine-Westphalia Thuringia Bavaria Baden-Württemberg Saarland Niedersachsen Baden-Württemberg Hamburg Berlin North Rhine-Westphalia Hauptstr. 279/Hommelstr. 2 Idar-Oberstein Bahnhofstr. 6/Luisenstr. 4-5 Villingen-Schwenningen Baden-Württemberg Münchener Str. 38 Poststr. 30 Tunnelweg 1 Neuburg Albstadt Husum Bavaria Baden-Württemberg Schleswig-Holstein 46,799 46,527 46,129 46,128 45,659 45,656 45,600 45,558 45,504 45,494 45,371 44,699 43,971 43,807 43,620 43,484 43,382 42,191 41,771 41,645 41,640 41,487 41,139 40,927 40,745 40,540 39,972 39,041 38,276 38,093 37,612 37,512 37,266 36,294 36,290 36,273 35,971 35,580 35,433 35,313 35,290 35,234 34,960 34,894 34,887 34,871 34,839 33,959 33,800 33,511 33,241 33,240 33,136 32,937 32,580 32,253 32,191 31,486 31,263 31,116 77% 91% 61% 95% 92% 86% 97% 84% 53% 88% 90% 82% 74% 82% 99% 92% 83% 100% 100% 97% 96% 94% 95% 84% 86% 91% 89% 96% 88% 96% 91% 93% 98% 77% 100% 97% 100% 86% 53% 80% 100% 97% 83% 90% 63% 100% 85% 46% 90% 70% 100% 94% 100% 92% 85% 99% 97% 70% 84% 89% PAGE 67 DUNDEE INTERNATIONAL 2011 Annual Report December 31, 2011 CITY STATE GLA OCCUPANCY Mixed use properties (continued) Volksdorfer Str. 5/Wohld. Str. 6 Bahnhofplatz 4 Poststr. 26 Bahnhofsplatz 2 Waschgrabenallee 3-5 König-Heinrich-Str. 11 Poststr. 24-26 Ludwigsplatz 1 Bahnhofstr. 29 Poststr. 12 Petristr. 26 Dr.-Friedrich-Uhde-Str. 18 Augsburger Str. 380 Gartenstr. 29/30 Wilhelm-Weber-Str. 1 Poststr. 1-3 Berliner-Tor-Platz 1 Poststr. 48 Bahnhofstr. 2 Bahnhofanlage 2-4 Königswiese 1 Wilhelmstr. 11/Kamperdickstr. 29 Kaiserstr. 140 In der Trift 10/12 Klosterstr. 6-10 Bahnhofstr. 6 Asselheimer Str. 26/Mörikestr. 1-3 Alleestr. 6 Uferstr. 2 Gartenstr. 16 Bahnhofsplatz 8 Bahnhofstr. 32 Bahnhofstr. 46 Stadtgraben 13 Bahnhofsplatz o. Nr. Breitestr. 62-66 Bahnhofstr. 27 Brückenstr. 26 Ringstr. 22/Dr. Bachl-Str. Lindenstr. 42 Hörder Semerteichstr. 175 Am Plärrer 11 Wilhelmstr. 5 Am Stadtpark 5 Geistmarkt 17 Lyoner Passage 14 Moltkestr. 6 Martin-Pöhlmann-Str. 5/Friedrich-e Am Markt 4-5 Steinstr. 6 Leistikowstr. 19 Saarbrücker Str. 292-294 Ziegelstr. 15, 15 A Poststr. 12 Neugr. Bahnhofstr. 26/Scheideholzw. Speckweg 24-26 Marktplatz 5 Kasseler Str. 1-7 Bahnhofstr. 58/Giselbertstr. 6 Poststr. 5 PAGE 68 Hamburg Berchtesgaden Meißen Herborn Neustadt Merseburg Ratingen Alsfeld Meppen Lehrte Hamburg Bavaria Saxony Hesse Schleswig-Holstein Saxony-Anhalt North Rhine-Westphalia Hesse Niedersachsen Niedersachsen Heilbad Heiligenstadt Thuringia Einbeck Stuttgart Pirna Wittenberg Korbach Wesel St Ingbert Gifhorn Schwetzingen Gelsenkirchen Kamp-Lintfort Radevormwald Olpe Niedersachsen Baden-Württemberg Saxony Saxony-Anhalt Hesse North Rhine-Westphalia Saarland Niedersachsen Baden-Württemberg North Rhine-Westphalia North Rhine-Westphalia North Rhine-Westphalia North Rhine-Westphalia Annaberg-Buchholz Saxony Quakenbrück Niedersachsen Grünstadt Neustadt Höxter Sindelfingen Marktredwitz Sulzbach-Rosenberg Unna Pfaffenhofen Oranienburg Andernach Öhringen Miltenberg Pfarrkirchen Grevenbroich Dortmund Lauf Ibbenbüren Papenburg Emmerich Köln Hattingen Selb Norden Pulheim Fürstenwalde Saarbrücken Ravensburg Schmölln Hamburg Mannheim Nordenham Warburg Buxtehude Walsrode Rhineland-Palatinate Bavaria North Rhine-Westphalia Baden-Württemberg Bavaria Bavaria North Rhine-Westphalia Bavaria Brandenburg Rhineland-Palatinate Baden-Württemberg Bavaria Bavaria North Rhine-Westphalia North Rhine-Westphalia Bavaria North Rhine-Westphalia Niedersachsen North Rhine-Westphalia North Rhine-Westphalia North Rhine-Westphalia Bavaria Niedersachsen North Rhine-Westphalia Brandenburg Saarland Baden-Württemberg Thuringia Hamburg Baden-Württemberg Niedersachsen North Rhine-Westphalia Niedersachsen Niedersachsen 31,068 31,007 30,101 29,746 29,739 29,472 29,445 29,125 29,056 28,764 28,205 27,793 27,775 27,771 27,658 27,463 27,052 26,975 26,894 26,658 26,468 25,973 25,653 25,414 25,336 24,446 23,560 23,495 23,240 23,121 22,710 22,634 22,627 22,513 22,153 22,119 22,027 22,017 21,980 21,668 21,659 21,603 21,031 20,950 20,942 20,742 20,681 20,681 20,668 20,517 20,437 20,433 20,420 20,403 20,213 20,128 20,109 19,985 19,800 19,697 91% 42% 78% 91% 90% 83% 100% 62% 94% 93% 68% 72% 93% 73% 78% 88% 100% 87% 92% 100% 100% 81% 74% 88% 75% 97% 66% 100% 79% 100% 99% 76% 100% 88% 76% 88% 92% 89% 86% 83% 87% 100% 100% 88% 100% 100% 100% 100% 81% 100% 59% 92% 90% 88% 81% 90% 100% 86% 94% 93% DUNDEE INTERNATIONAL 2011 Annual Report December 31, 2011 CITY STATE GLA OCCUPANCY Mixed use properties (continued) Lindauer Str. 34 Eisenbahnstr. 15 Konrad-Adenauer-Str. 10 Poststr. 6 Lagerstr. 1 Bahnhofstr. 3 Bahnhofstr. 43 Friedrichstr. 2 Bahnhofstr. 18 a Königstr. 20 Kornmarkt 15 Marktstr. 51 Übacher Weg 4 Karl-von-Hahn-Str. 1 Kaiserstr. 35 Niederwall 3 Bahnhofstr. 8-10 Hochstr. 31/Postgasse 5 Robert-Koch-Str. 3 Hauptstr. 141 Poststr. 28 Lindenstr. 9 Am Bahnhof 2 Melanchthonstr. 96 Republikstr. 34 Poststr. 1/2 Herrlichkeit 7 Luitpoldstr. 13 u 13 b Bahnhofstr. 41 Kolpingstr. 4 Schönbornstr. 1 Potsdamer Str. 9 Langener Landstr. 237-239 Bünder Str. 36 Berliner Freiheit 8 Albert-Steiner-Str. 10 Poststr. 1 Gorsemannstr. 22 Mönchenstr. 15-18 Fritz-Brandt-Str. 25 Bahnhofstr. 11 Märkische Str. 58 Poststr. 3-5 Prochaskaplatz 7 Kürbsweg 9 Hauptstr. 40 Bahnhofstr. 49/49a Steinweg 5 Am Markt 4 Sandstr. 4 Rensefelder Str. 2 Bahnhofstr. 12 Rosenstr. 1/Fünfhausenstr. 19/21 De-Lenoncourt-Str. 2 Elisabeth-Anna-Str. 11 Melcherstätte 8 Alte Amberger Str. 28 Eichendorffstr. 14 Wetterstr. 20/Poststr. 2 Total mixed use Wangen Tuttlingen Langenhagen Beckum Meschede Osterburken Riesa Monheim Wedel Brilon Osterode Essen Alsdorf Freudenstadt Minden Lübbecke Borken Bochum Laatzen Baden-Württemberg Baden-Württemberg Niedersachsen North Rhine-Westphalia North Rhine-Westphalia Baden-Württemberg Saxony North Rhine-Westphalia Schleswig-Holstein North Rhine-Westphalia Niedersachsen North Rhine-Westphalia North Rhine-Westphalia Baden-Württemberg North Rhine-Westphalia North Rhine-Westphalia North Rhine-Westphalia North Rhine-Westphalia Niedersachsen Rheda-Wiedenbrück North Rhine-Westphalia Hemer Daun Meldorf Bretten Schönebeck Spremberg Syke Dinkelsbühl Eberbach North Rhine-Westphalia Rhineland-Palatinate Schleswig-Holstein Baden-Württemberg Saxony-Anhalt Brandenburg Niedersachsen Bavaria Baden-Württemberg Georgsmarienhütte Niedersachsen Geisenheim Ludwigsfelde Bremerhaven Löhne Bremen Herzogenrath Erftstadt Bremen Jüterbog Zerbst Alpirsbach Düsseldorf Barsinghausen Dannenberg Seevetal Hesse Brandenburg Bremen North Rhine-Westphalia Bremen North Rhine-Westphalia North Rhine-Westphalia Bremen Brandenburg Saxony-Anhalt Baden-Württemberg North Rhine-Westphalia Niedersachsen Niedersachsen Niedersachsen Porta Westfalica North Rhine-Westphalia Aalen Weiden St. Georgen Germersheim Bad Schwartau Pfullendorf Springe Dillingen Wangerooge Stuhr Grafenwöhr Traunreut Herdecke Baden-Württemberg Bavaria Baden-Württemberg Rhineland-Palatinate Schleswig-Holstein Baden-Württemberg Niedersachsen Saarland Niedersachsen Niedersachsen Bavaria Bavaria North Rhine-Westphalia 19,510 19,047 18,892 18,831 18,683 18,498 18,275 18,156 17,771 17,733 17,690 17,661 16,870 16,699 16,624 16,563 16,385 16,359 16,126 16,082 15,782 15,689 15,549 15,501 14,985 14,763 14,560 14,421 13,936 13,725 13,117 12,885 12,803 12,625 12,553 12,538 12,498 12,379 12,128 12,117 12,112 11,997 11,597 11,334 11,175 11,133 11,050 10,974 10,324 10,132 9,777 9,720 8,881 8,705 8,382 8,196 7,980 7,711 7,702 9,186,913 97% 66% 100% 100% 100% 100% 90% 100% 94% 68% 100% 100% 100% 92% 80% 100% 100% 100% 100% 100% 100% 100% 87% 90% 71% 80% 99% 98% 100% 100% 100% 100% 100% 100% 100% 80% 100% 100% 100% 100% 98% 100% 100% 95% 100% 100% 100% 100% 100% 100% 100% 100% 100% 90% 100% 100% 100% 100% 100% 88% PAGE 69 DUNDEE INTERNATIONAL 2011 Annual Report CITY STATE GLA OCCUPANCY Kiel Weiden Hamburg Heidelberg Oberhausen Koblenz Einbeck Duisburg Osnabrück Celle Aschaffenburg Zwickau Heide Waiblingen Lippstadt Schleswig-Holstein Bavaria Hamburg Baden-Württemberg North Rhine-Westphalia Rhineland-Palatinate Niedersachsen North Rhine-Westphalia Niedersachsen Niedersachsen Bavaria Saxony Schleswig-Holstein Baden-Württemberg North Rhine-Westphalia Frankfurt am Main Hesse Norderstedt Schleswig-Holstein Bergisch Gladbach North Rhine-Westphalia Neubrandenburg Mecklenburg-West Pomerania Frankfurt an der Oder Brandenburg Remagen Tübingen Dresden Hameln Leipzig Aschaffenburg Chemnitz Bitterfeld Hilden Landstuhl Berlin Magdeburg Baden-Baden Bitburg Traunstein Stendal Heusweiler Steinfurt Vilshofen Görlitz Sulz Backnang Halle Hannover Potsdam Titisee-Neustadt Albstadt Fürstenfeldbruck Bautzen Mittenwalde Hannover Bonn Bochum Rhineland-Palatinate Baden-Württemberg Saxony Niedersachsen Saxony Bavaria Saxony Saxony-Anhalt North Rhine-Westphalia Rhineland-Palatinate Berlin Saxony-Anhalt Baden-Württemberg Rhineland-Palatinate Bavaria Saxony-Anhalt Saarland North Rhine-Westphalia Bavaria Saxony Baden-Württemberg Baden-Württemberg Saxony-Anhalt Niedersachsen Brandenburg Baden-Württemberg Baden-Württemberg Bavaria Saxony Brandenburg Niedersachsen North Rhine-Westphalia North Rhine-Westphalia Bad Säckingen Baden-Württemberg Bad Neuenahr-Ahrweiler Rhineland-Palatinate 181,004 166,601 160,720 133,909 97,606 94,569 81,206 80,122 77,515 73,423 64,264 60,738 53,363 53,220 44,341 43,409 41,249 34,737 34,347 32,330 29,825 29,341 29,236 26,895 26,214 25,153 24,422 23,183 22,454 21,709 21,187 19,454 19,444 19,340 18,488 18,200 16,867 16,666 16,619 16,279 15,774 14,634 14,533 14,504 14,042 13,955 13,816 13,326 12,686 12,631 12,494 12,311 10,732 9,717 9,023 2,243,832 12,321,567 96% 100% 88% 80% 74% 68% 67% 100% 51% 78% 94% 59% 95% 100% 100% 64% 98% 100% 100% 97% 63% 98% 100% 93% 79% 95% 78% 86% 87% 99% 100% 100% 93% 99% 98% 93% 92% 100% 69% 100% 76% 99% 100% 100% 100% 94% 100% 100% 100% 100% 94% 100% 100% 100% 100% 87% 88% December 31, 2011 Industrial properties Karlstal 1-21/Werftstr. 201 Franz-Zebisch-Str. 15 Am Neumarkt 40/Luetkensallee 49 Czernyring 15 Friedrich-Karl-Str. 1-7 Blücherstr. 12 Kapellenstr. 44 Kommandantenstr. 43-51 Dammstr. 2, Frankenstr. 21, 25a 77er Str. 54 Auhofstr. 21 Am Bahnhof 5 Poststr. 5-7 Mayenner Str. 63 Lippertor 6 Palleskestr. 38 Falkenbergstr. 17-23 Im Bungert 6-8 Gerstenstr. 5 Markendorfer Str. 10 Von-Lassaulx-Str. 14-18 Konrad-Adenauer-Str. 49-51 Feldschlößchenstr./Kunadstr. o. Nr. Ruthenstr. 19/21 Saßstr. 12 Goldbacher Str. 74 Zwickauer Str. 438 Lindenstr. 11 Poststr. 19-23 Lindenstr. 15 Innungsstr. 57-59 Lübecker Str./Wedringer Str. o. Nr. Ooser Karlstr. 21/23/25 Güterstr. 2-4 Chiemseestr. 25 Bahnhofstr. 33 U. 33 A Trierer Str. 4-6 Bismarckstr. 12/Fr.Hoffmann-Str. Aidenbacher Str. 41 Sattigstr. 33 Bahnhofstr. 33 Im Kusterfeld 1 Grenzstr. 24 Mercedesstr. 5 Am Buchhorst 35 Gutachstr. 56 Berliner Str. 4 Münchner Str. 50 Löbauer Str. 63 Dahmestr. 17 Heidering 23 Fraunhoferstr. 10 Unterstr. 14 Langfuhren 9 Weinbergstr. 50 Total industrial TOTAL PAGE 70 DUNDEE INTERNATIONAL 2011 Annual Report Trustees and officers Trustees Ofﬁcers Detlef Bierbaum1, 2, 5 KÖLN, GERMANY P. Jane Gavan2 UTAH, UNITED STATES OF AMERICA Detlef Bierbaum CHAIRMAN Member of the Supervisory Board, Sal Oppenheim KAG President and Chief Executive Ofﬁcer, Dundee International REIT Olivier Brahin3, 4 LONDON, ENGLAND Ned Goodman2 INNISFIL, ONTARIO Senior Managing Director, Head of European Real Estate Investments, Lone Star Management Europe Limited President and Chief Executive Ofﬁcer, Dundee Corporation Michael J. Cooper2 TORONTO, ONTARIO Vice Chairman, Dundee International REIT Brydon Cruise1, 3, 4 TORONTO, ONTARIO President and Managing Partner, Brookﬁeld Financial Duncan Jackman1, 3, 4 TORONTO, ONTARIO Chairman, President and CEO, E-L Financial Corporation Limited John Sullivan TORONTO, ONTARIO President and Chief Executive Ofﬁcer, Cadillac Fairview Corporation Limited Michael J. Cooper VICE CHAIRMAN P. Jane Gavan PRESIDENT AND CHIEF EXECUTIVE OFFICER Douglas P. Quesnel CHIEF FINANCIAL OFFICER 1 Member of the Audit Committee 2 Member of the Executive Committee 3 Member of the Compensation Committee 4 Member of the Governance and Environmental Committee 5 Chairman of the Board of Trustees PAGE 71 DUNDEE INTERNATIONAL 2011 Annual Report Notes PAGE 72 Corporate information Head ofﬁce Auditors Annual meeting of unitholders DUNDEE INTERNATIONAL PRICEWATERHOUSECOOPERS LLP Wednesday, May 2, 2012, at 4:00 p.m. (EST) REAL ESTATE INVESTMENT TRUST State Street Financial Centre 30 Adelaide Street East, Suite 1600 Toronto, Ontario M5C 3H1 Phone: (416) 365-3535 Fax: (416) 365-6565 Investor relations Phone: (416) 365-3538 Toll free: 1 877 365-3535 From Germany: 0 800 189-0344 E-mail: info@dundeeinternational.com Web site: www.dundeeinternational.com Transfer agent (for change of address, registration or other unitholder inquiries) COMPUTERSHARE TRUST COMPANY OF CANADA 100 University Avenue, 9th 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 PwC Tower 18 York Street, Suite 2600 Toronto, Ontario M5J 0B2 Corporate counsel OSLER, HOSKIN & HARCOURT LLP Box 50, 1 First Canadian Place, Suite 6100 Toronto, Ontario M5X 1B8 Taxation of distributions Distributions paid to unitholders in respect of the tax year ending December 31, 2011, are taxed as follows: Foreign business income: 44.9% Return of capital: 55.1% Management estimates that 55% of the distribution to be made by the REIT in 2012 will be tax deferred. Stock exchange listing THE TORONTO STOCK EXCHANGE Listing symbols: REIT Units: DI.UN 5.5% Convertible Debentures: DI.DB Sovereign Ballroom The King Edward Hotel 37 King Street East Toronto, Ontario, Canada Distribution Reinvestment and Unit Purchase Plan The purpose of our Distribution Reinvestment and Unit Purchase Plan (“DRIP”) is to provide unitholders with a convenient way of investing in additional units without incurring transaction costs such as commissions, service charges or brokerage fees. By participating in the Plan, you may invest in additional units in two ways: Distribution reinvestment: Unitholders will have cash distributions from Dundee International REIT reinvested in additional units as and when cash distributions are made. Cash purchase: Unitholders may invest in additional units by making cash purchases. If you register in the DRIP you will also receive a “bonus” distribution of units equal to 4% of the amount of your cash distribution reinvested pursuant to the Plan. In other words, for every $1.00 of cash distributions reinvested by you under the Plan, $1.04 worth of units will be purchased. . m o c . n g i s e d s k r o w w w w S N O I T A C N U M M O C N G I S E D S K R O W E H T I : n g i s e D d n a t p e c n o C DUNDEE INTERNATIONAL REIT State Street Financial Centre 30 Adelaide Street East, Suite 1600 Toronto, Ontario M5C 3H1 www.dundeeinternational.com

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