Dream Gobal REIT Annual Report 2012

Plain-text annual report

2012 annual report 2012 annual report 2012 annual report 2012 annual report dundee international reit aBC Bogen, HamBurg DunDee international 2012 Annual Report letter to unitHolders 2012 was Dundee International REIT’s first full year of operations. Our strategy for the year was to purposefully grow our asset base by adding buildings that improve the overall quality of the portfolio and create diversity both by lenders and tenants. With our acquisitions of 20 office properties since February 2012, comprising three million square feet of gross leasable area in key office markets in Germany, including Munich, Hamburg, Frankfurt, Düsseldorf and Berlin, we have transformed our company and set the tone for growth and security. Our focus for the year was to improve the quality of our portfolio and the Trust’s long-term cash flow, mitigate our exposure to our largest tenant and consistently move towards a more staggered lease maturity profile. We added high-quality tenants to our roster, including AIG, ERGO Direkt Lebensversicherungs AG, Google, BNP Paribas Fortis and Maersk. As a result, gross rental income (“GRI”) contributed by Deutsche Post, our largest tenant, was reduced from 85% of the REIT’s overall GRI at the end of 2011, to 65% at the end of 2012, to approximately 42% to date. To support our growth, we have been active on the financing front. We ended 2012 with a conservative debt-to-gross book value of 52% and a weighted average interest rate of 3.98%, an improvement year-over-year from 56% and 4.36%, respectively. Mortgage financing from European lenders continues to be available to us at attractive rates, reflecting low German government bond yields as well as the quality of our target acquisitions. In 2012, we obtained mortgages in the amount of approximately €117 million ($152 million) at an average face rate of 2.7% and an average term to maturity of 5.7 years. Year-to-date in 2013, we obtained additional mortgage financing of €331 million ($442 million) at an average term to maturity of 7.1 years and an annual interest rate of 2.6%. Germany is one of the most stable economies in Europe and is expected to be among the most desirable investment locations for commercial real estate in 2013. Three German cities – Munich, Berlin and Hamburg – are among the top five investment locations in Europe, according to an emerging trend study jointly published by the Urban Land Institute and PricewaterhouseCoopers. Key drivers for Germany’s success and stability are its continued low unemployment rate and strong exports, which have contributed to monthly increases in the country’s business confidence indicators in 2013. Vacancy rates in Germany’s top five office markets declined from 10.7% at the end of 2011 to 9.8% at the end of 2012, largely as a result of the strong labour market and limited new supply of office space. The opportunity to grow our business remains exceptional and we have made progress enhancing our platform. With various groups of real estate owners having to dispose of their assets due to government fund regulations, we see how large the opportunity is in Germany to buy high-quality real estate at good capitalization rates and on attractive borrowing terms. On average, the spread between the going-in capitalization rate for our acquisitions and the interest rates we obtained for mortgage financing was approximately 400 basis points. By acting quickly and taking advantage of these opportunities, we have added $1 billion of accretive assets to our portfolio and have established a reputation as a reliable buyer within the German real estate community in the past year. 2012 was a transformational year for Dundee International REIT. We added value to our company by demonstrating our ability to execute on our strategy and delivered a 17.3% total return to our investors. We expanded our operating platform and strengthened our team by increasing the number of our staff dedicated to our operations and growth in Germany. With the ongoing support of our Board of Trustees, colleagues, employees and investors, I look forward to the next phase of Dundee International REIT and the continued transformation of our business. P. Jane gavan President and Chief Executive Officer March 15, 2013 PaGe I at-a-glanCe DECEmbER 31, 2012 Dundee International REIT is an unincorporated, open-ended real estate investment trust that provides investors with the opportunity to invest in commercial real estate exclusively outside of Canada. At December 31, 2012, Dundee International REIT’s portfolio consisted of 293 properties located in Germany comprising 13.3 million square feet of gross leasable area across the country. 2012 total unitHolders’ return 17.3% 20% 15% 10% 5% 0% listed on tHe toronto stoCk exCHange REIT UnITs: di.un 5.5% ConvERTIblE DEbEnTUREs: di.dB PaGe II ToTal assETs $1.4 b ToTal lIabIlITIEs $0.8 b maRkET CapITalIzaTIon $0.8 b loCally managED poRTfolIo ThRoUgh 5 offICEs In gERmany 293 pRopERTIEs DunDee international 2012 Annual Report 2012 aCquisitions gRammophon büRopaRk | $34.7 m düsseldorf HamBurg Hannover am sanDToRkaI 37 | $34.8 m Berlin gREIfswalDER sTRassE 154–156 (golDpUnkT-haUs) | $36.9 m frankfurt DEREnDoRfER allEE 4–4a (DoUblEU) | $56.0 m nuremBerg kaRl-maRTEll-sTRassE 60 | $62.8 m lEopolDsTRassE 252, 252a anD 252b | $33.9 m muniCH PaGe III CÄCilienkloster 2, 6, 8, 10, Cologne Contents management’s disCussion and analysis ......................................................... 1 seCtion i — overvieW and finanCial HigHligHts ................................ 1 Basis of presentation ....................................................................................................... 2 Background .................................................................................................................................. 3 our oBjectives ........................................................................................................................ 3 our strategy .................................................................................................................................4 our assets ........................................................................................................................................5 tenants ................................................................................................................................................7 Market overview — gerMany .......................................................................................9 outlook ...........................................................................................................................................10 seCtion ii — exeCuting tHe strategy .............................................................11 Westendstrasse 160, 162/BartHstrasse 24, 26, muniCH our operations ..........................................................................................................................11 our resources and financial condition ...................................................15 our capital .................................................................................................................................. 17 our results of operations ..................................................................................... 24 quarterly inforMation ................................................................................................ 31 seCtion iii — disClosure Controls and ProCedures and internal Controls over finanCial rePorting ............... 32 seCtion iv — risks and our strategy to manage ...................... 32 seCtion v — CritiCal aCCounting PoliCies ........................................ 37 critical accounting judgMents, estiMates and assuMptions in applying accounting policies ................................. 37 changes in accounting estiMates and changes in accounting policies ....................................................................................................... 37 management’s resPonsiBility for finanCial statements ........................................................................................... 38 indePendent auditor’s rePort .............................................................................. 39 Consolidated finanCial statements ............................................................ 40 notes to tHe Consolidated finanCial statements ..................... 44 aPPendix ........................................................................................................................................... 75 trustees and offiCers .................................................................................................. 80 CorPorate information .............................................................................................. ibC z-uP, stuttgart DUNDEE INTERNATIONAL 2012 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 ﬁ nancial highlights (cid:129) Acquired six ofﬁ ce properties for approximately $259 million in some of Germany’s largest ofﬁ ce markets in 2012 with an additional $788 million of ofﬁ ce properties closed or under contract as at February 20, 2013; (cid:129) Diversiﬁ ed tenant proﬁ le with the REIT’s largest tenant Deutsche Post contributing 65% to the overall gross rental income (“GRI”) at the end of 2012, down from 85% at the end of 2011; (cid:129) Reached 110,000 square feet of net absorption in 2012; (cid:129) Closed three equity offerings for total gross proceeds of $208 million and announced $220 million equity offering on February 4, 2013. Operations Occupancy rate (period-end)(2) In-place rent per square foot Operating results Investment properties revenue Net rental income Funds from operations (“FFO”)(3) Adjusted funds from operations (“AFFO”)(4) Distributions Declared distributions and interest on Exchangeable Notes Distributions paid and payable in cash (including interest on Exchangeable Notes)(5) Financing Weighted average interest rate (period-end) Interest coverage ratio Per unit amounts Basic:(6) FFO(3) AFFO(4) Distribution rate Basic (excluding impact of undeployed cash): FFO(3) AFFO(4) For the three months ended December 31, 2012(1) For the three months ended December 31, 2011(1) For the year ended December 31, 2012(1) For the period from August 3, 2011 to December 31, 2011(1) 83% 8.20 $ 88% 7.13 $ $ 35,926 $ 31,726 $ 138,661 $ 54,274 22,057 12,348 11,887 20,969 10,600 10,240 85,439 48,320 46,164 34,500 18,100 16,965 $ 12,953 $ 10,391 $ 46,064 $ 17,082 11,888 10,195 44,095 16,802 3.98% 3.23 times 4.36% 2.57 times 3.98% 3.03 times 4.36% 2.67 times $ $ 0.20 0.20 0.20 $ 0.19 0.19 0.20 0.24 0.24 $ 0.35 0.33 0.33 0.84 0.80 0.80 0.98 0.94 FFO and AFFO are key measures of performance used by real estate operating companies; however, they are not deﬁ ned under International Financial Reporting Standards (“IFRS”), do not have standard meanings and may not be comparable with other industries or income trusts. (1) Results from operations were converted into Canadian dollars from euros using the following average exchange rates: the three-month and year ended December 31, 2012 periods were converted at $1.2861:€1 and $1.285:€1, respectively; for 2011, the three-month and August 3 to December 31, 2011 periods were converted at $1.379:€1 and $1.383:€1, respectively. (2) Including the head lease results in an 89% occupancy rate as at December 31, 2012. (3) FFO – The reconciliation of FFO to net income can be found on page 28. (4) AFFO – The reconciliation of AFFO to FFO and net income can be found on page 28. (5) Exchangeable Notes were exchanged in April and September 2012. (6) A description of the determination of basic and diluted amounts per unit can be found on page 29. PAGE 1 DUNDEE INTERNATIONAL 2012 Annual Report Basis of presentation Our discussion and analysis of the ﬁ nancial 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 ﬁ nancial statements for the year ended December 31, 2012. The Trust’s basis of ﬁ nancial reporting is International Financial Reporting Standards (“IFRS”). This management’s discussion and analysis has been dated as at February 4, 2013, except where otherwise noted. For simplicity, throughout this discussion, we may make reference to the following: (cid:129) “Debentures”, meaning the 5.5% convertible unsecured subordinated debentures of the Trust due July 31, 2018; (cid:129) “Exchangeable Notes”, meaning the Exchangeable Notes, Series A and the Exchangeable Notes, Series B issued by a subsidiary of Dundee International REIT; (cid:129) “GLA”, meaning gross leasable area; (cid:129) “GRI”, meaning gross rental revenue; (cid:129) “Initial Properties”, meaning the income-producing properties we acquired on August 3, 2011; and (cid:129) “Units”, meaning the Units of the Trust. Certain information has been obtained from CB Richard Ellis Germany (“CBRE”), a commercial ﬁ rm 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 veriﬁ ed this information and make no representation as to its accuracy. When we refer to Deutsche Post as being the lessee or the tenant of the Initial Properties, we are referring to DPI, which is a wholly owned subsidiary of Deutsche Post. Deutsche Post has provided a letter of support with respect to DPI and its ability to carry out its obligations under leases for the Initial Properties. In addition, certain disclosure incorporated by reference into this report includes information regarding Deutsche Post, Deutsche Postbank, ERGO Direkt Lebensversicherungs AG, Maersk Deutschland, GroupM Germany GmbH and Deutsche Telekom that has been obtained from publicly available information. We have not independently veriﬁ ed any of such information. 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 ﬁ nancial condition of tenants; concentration of our tenants; our ability to reﬁ nance 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 and other laws or the application thereof; and interest and currency rate ﬂ uctuations. 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’ ﬁ nancial condition; the uncertainties of acquisition activity; the ability to effectively integrate acquisitions; interest rates; availability of equity and debt ﬁ nancing; that the Trust is exempt from the speciﬁ ed investment ﬂ ow-through trust (“SIFT”) rules under the Income Tax Act (Canada); and other risks and factors described from time to time in the documents ﬁ led by the Trust with the securities regulators. PAGE 2 DUNDEE INTERNATIONAL 2012 Annual Report All forward-looking information is as of February 4, 2013, except where otherwise noted. 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 ﬁ lings with securities regulators. These ﬁ lings are also available on our website at www.dundeeinternational.com. 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. As at December 31, 2012, our portfolio consisted of 293 ofﬁ ce, mixed use and industrial properties comprising approximately 13.3 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 ﬂ exibility in terms of the nature and scope of our investments and other activities. Because we do not own taxable Canadian property, as deﬁ ned 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: (cid:129) managing our investments to provide stable, sustainable and growing cash ﬂ ows through investments in commercial real estate located outside of Canada; (cid:129) building a diversiﬁ ed, growth-oriented portfolio of commercial properties based on an initial portfolio in Germany; (cid:129) capitalizing on internal growth and seeking accretive acquisition opportunities in our target markets; (cid:129) growing the value of our assets and maximizing the long-term value of our Units through the active and efﬁ cient management of our assets; and (cid:129) providing predictable and growing cash distributions per unit, on a tax-efﬁ cient basis. Distributions We currently pay monthly distributions to unitholders of $0.06667 per unit, or $0.80 per unit on an annual basis. At December 31, 2012, approximately 9.3% of our total Units were enrolled in the Distribution Reinvestment and Unit Purchase Plan (“DRIP”). 2011 2012 Distribution rate ($) 0.0667 0.0667 0.0667 0.0667 0.0667 0.0667 0.0667 0.0667 0.0667 0.0667 0.0667 0.0667 0.0667 Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Month-end closing price ($) 10.00 10.25 10.35 10.11 10.00 9.79 9.94 10.73 10.59 11.00 11.15 10.29 10.93 PAGE 3 DUNDEE INTERNATIONAL 2012 Annual Report Our strategy Our core strategy is to invest in income-producing properties outside of Canada that provide stable, sustainable and growing cash ﬂ ows. Our methodology to execute our strategy and to meet our objectives includes: Optimizing the performance, value and long-term cash ﬂ ow of our properties We manage our properties to optimize their performance, value and long-term cash ﬂ ow. 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 Initial Properties, continuity with our major tenant, deep market knowledge and established relationships with other market participants. Leasing, capital expenditure and construction initiatives are internally managed by us, while property management services, including general maintenance, rent collection and administration of operating expenses and tenant leases, are carried out by third-party service providers. Diversifying our portfolio to mitigate risk We continuously seek to diversify our portfolio to increase value on a per unit basis, further improve the sustainability of our distributions and strengthen our tenant proﬁ le. Our proﬁ le in Europe, our relationships, our management team in Germany and Luxembourg, and the expertise of our board members and senior management team are providing 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 ﬂ ows, and enable us to realize synergies within 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 ﬁ nancial proﬁ le We operate our investments in a disciplined manner, with a focus on ﬁ nancial analysis and balance sheet management to ensure that we maintain a prudent capital structure and conservative ﬁ nancial proﬁ le. We intend to generate stable cash ﬂ ows sufﬁ cient 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 reﬁ nancing 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 debenture holders. PAGE 4 DUNDEE INTERNATIONAL 2012 Annual Report Our assets As at December 31, 2012, our assets consisted of a portfolio of 293 ofﬁ ce, mixed use and industrial properties, with a small residential component, comprising approximately 13.3 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: Ofﬁ ce As at December 31, 2012, this category included six ofﬁ ce properties acquired in 2012 as well as eight regional administration headquarters pertaining to the Initial Properties acquired in August 2011. The Initial Properties contain national and regional administration ofﬁ ces of Deutsche Post, are generally located just outside major city centres and typically have higher rental rates than the other two asset categories listed below. The properties acquired in 2012 are high-quality properties located in the largest ofﬁ ce markets in Germany and are generally newer or recently refurbished buildings. Mixed use This category includes mixed use retail, banking and distribution properties that contain mail and distribution centres and administration ofﬁ ces of Deutsche Post. The properties are generally strategically located near central train stations and main retail areas and are easily accessible by public transport. Industrial This category includes regional logistics headquarters. The properties in this category are typically used as strategic logistics facilities which are critical elements of Deutsche Post’s distribution network. The properties are mostly located near major cities and have access to signiﬁ cant infrastructure, including railways and highways. PAGE 5 DUNDEE INTERNATIONAL 2012 Annual Report The map below shows the locations of our assets in Germany. North Sea North Sea Bremen 6 properties Hamburg 8properties Kiel Schleswig-Holstein 11 properties Hamburg Schwerin Mecklenburg- West Pomerania 2 properties Bremen Niedersachsen 42 properties Hannover Brandenburg 8 properties Poland Poland Berlin Netherlands Netherlands Dortmund Essen Düsseldorf North Rhine–Westphalia 72properties Cologne Belgium m Rhineland-Palatinate 14 properties Hesse 14 properties Frankfurt Saarland 8 properties Stuttgart France France Baden- Württemberg 42 properties Switzerland Switzerland Magdeburg Saxony-Anhalt 12 properties Berlin 3properties Saxony 16 properties Dresden Erfurt Thuringia 4 properties Czech Republic Czech Republic Bavaria 36 properties Munich Austria Austria 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 70% of our overall GLA is located in these ﬁ ve states. PAGE 6 DUNDEE INTERNATIONAL 2012 Annual Report The table below highlights the geographic diversiﬁ cation of our properties as at December 31, 2012. 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.) 1,593,871 1,843,298 304,006 141,370 328,108 600,303 1,041,238 34,347 1,809,546 2,907,638 501,275 482,961 644,414 449,226 536,904 127,267 Total GLA (%) Weighted average occupancy (%) 12% 14% 2% 1% 2% 4% 8% –% 14% 22% 4% 4% 5% 3% 4% 1% 93% 87% 83% 88% 88% 90% 79% 100% 69% 91% 62% 84% 79% 57% 92% 72% 83% 13,345,772 100% Tenants In 2012, the Trust diversiﬁ ed its tenant base through an active acquisitions and dispositions program. The table and charts below highlight the diversiﬁ cation away from the single-tenant nature of our portfolio: Tenant Deutsche Post ERGO Direkt Lebensversicherungs AG Maersk Deutschland A/S & Co. KG GroupM Germany GmbH Deutsche Telekom Other 2012 TENANTS (December 31, 2012) Other 23.1% (cid:129) Deutsche Telekom 2.1% (cid:129) GroupM Germany GmbH 2.1% (cid:129) Maersk Deutschland A/S & Co. KG 2.2% (cid:129) ERGO Direkt Lebensversicherungs AG 5.1% (cid:129) December 31, 2011 GLA (%) 74.6 – – – 1.4 24.0 100 GRI (%) 85.0 – – – 2.5 12.5 100 December 31, 2012 GLA (%) 61.5 2.0 0.6 0.6 1.3 34.0 100 GRI (%) 65.4 5.1 2.2 2.1 2.1 23.1 100 2011 TENANTS (December 31, 2011) Other 12.5% (cid:129) Deutsche Telekom 2.5% (cid:129) Deutsche Post 65.4% (cid:129) Deutsche Post 85.0% (cid:129) PAGE 7 DUNDEE INTERNATIONAL 2012 Annual Report 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 DHL has become a global logistics market leader. It employs approximately 470,000 people in more than 220 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 65 million letters and 3 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.(1) Deutsche Postbank (“Postbank”) Postbank is a public company controlled by Deutsche Bank and is integral to its retail banking business. Postbank offers retail ﬁ nancial services in its branches within Deutsche Post’s network, which generates increased trafﬁ c through the postal services offered in those branches. Our portfolio features approximately 194 Postbank branches, allowing for the delivery of integrated ﬁ nancial and postal services. Postbank branches are typically located at ground level with a view to attracting a high volume of retail and business customers seeking ﬁ nancial 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, and an automated postal/banking services station or traditional banking teller service. ERGO Direkt Lebensversicherungs AG (“ERGO”) After Deutsche Post, ERGO is the second largest tenant in our portfolio as measured by GRI. With approximately 50,000 employees, it is one of the largest insurance companies in Germany. ERGO belongs to the Munich RE group of companies.(2) ERGO occupies approximately 2.0% of the GLA of our properties and currently generates approximately 5.1% of the portfolio’s overall GRI. The Maersk Group (“Maersk”) Maersk, the world’s largest ocean carrier, operates mainly in two industries: shipping and oil and gas. Through its various divisions, the group employs approximately 117,000 people, and generated over US$60 billion in revenues in 2011.(3) Maersk Deutschland A/S & Co. KG is the REIT’s third largest tenant and occupies approximately 71% of the GLA in Humboldt House, a property located at Am Sandtorkai 37 in Hamburg. Maersk occupies approximately 0.6% of the REIT’s overall GLA and generates approximately 2.2% of the overall GRI. GroupM Germany GmbH (“GroupM”) GroupM is a leading global media investment management group with over 400 ofﬁ ces in 81 countries, billings of more than US$90 billion and over 21,000 employees.(4) GroupM is the REIT’s fourth largest tenant and occupies approximately 56% of the GLA in doubleU, a property located at Derendorfer Allee 4 in Düsseldorf. GroupM occupies approximately 0.6% of the REIT’s overall GLA and generates approximately 2.1% of the overall GRI. Deutsche Telekom Deutsche Telekom is one of the world’s leading telecommunications and information technology service companies. In 2011, Deutsche Telekom Group generated revenue of approximately €58 billion, and had approximately 236,000 employees in total as of December 31, 2011.(5) Deutsche Telekom, the REIT’s ﬁ fth largest tenant, occupies approximately 1.3% of the GLA of our properties and currently generates approximately 2.1% 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. (1) As disclosed at Deutsche Post DHL’s website www.dp.dhl.com. (2) As disclosed at ERGO’s website www.ergo.com. (3) As disclosed at Maersk’s website www.maersk.com. (4) As disclosed at GroupM’s website www.groupm.com. (5) As disclosed at Deutsche Telekom’s website www.telekom.com. PAGE 8 DUNDEE INTERNATIONAL 2012 Annual Report Market overview – Germany German economy The German economy has long been a driver as well as a beneﬁ ciary of a globalized economy. Germany has established itself as a key 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 ﬁ nancial stability and provides an attractive climate for long-term investment. Recent developments Overall, the German economy remained stable in 2012 with German GDP increasing by 0.7%(1) according to the German government. Germany’s unemployment rate continues to remain low with a rate of 6.7%(1) in December 2012. The strong labour market has been one of the main drivers of growth in Germany and remains one of the healthiest within the European Union. Economic impact on the German real estate sector The commercial real estate market in Germany continued to perform well in 2012. The stability in the ofﬁ ce market is supported by a relatively moderate degree of new space coming to market as well as the redevelopment of vacant ofﬁ ce space for alternative use. With limited new supply, overall ofﬁ ce vacancies further decreased year-over-year in the ﬁ ve largest ofﬁ ce markets from 10.7% at the end of 2011 to 9.8% at the end of 2012.(2) Due to a year-end rally, overall commercial real estate investments in Germany increased by 11% in 2012 to approximately €25.2 billion, with €10.7 billion of transactions taking place in the fourth quarter of 2012 alone. The ofﬁ ce sector was dominant with more than €11 billion of transactions in 2012 alone, accounting for 44% of the overall commercial properties transactions. Over half of all transactions took place in the top ﬁ ve locations, with Berlin accounting for the largest transaction volume.(3) (1) Statistisches Bundesamt Deutschland (“Destatis”). (2) CBRE Ofﬁ ce Market Overview Q4 2012. (3) CBRE MarketView, Germany Investment Quarterly Q4 2012. PAGE 9 DUNDEE INTERNATIONAL 2012 Annual Report Outlook 2012 was a transformative year for Dundee International REIT and set the tone for continuous growth and diversiﬁ cation of our business. We acquired six ofﬁ ce properties in Germany’s largest ofﬁ ce markets for approximately $259 million. In addition, during the ﬁ rst seven weeks of 2013, we closed or have under contract an additional $788 million of assets, including a portfolio of 11 German ofﬁ ce properties the REIT is acquiring from investment funds managed by SEB Asset Management (“SEB”). Through these acquisitions, we have improved the quality of our portfolio, diversiﬁ ed our tenant base and improved the Trust’s long-term cash ﬂ ow. Most signiﬁ cantly, the gross rental income (“GRI”) contributed by our largest tenant Deutsche Post was reduced from 85% of the REIT’s overall GRI at the end of 2011 to 65% at the end of 2012 and will further decrease to approximately 42% after we close the acquisitions we currently have under contract. We also continue to be quite active on the ﬁ nancing front. We ﬁ nalized three public offerings to sell, on a bought-deal basis, $208 million of units in 2012 and announced a $220 million equity offering on February 4, 2013, scheduled to close in early March 2013. All our offerings have been very well received by the investment community and in each of the public offerings that closed to date, additional units were sold as part of an over-allotment option granted to the underwriting syndicate. To provide further ﬂ exibility with respect to our growth, the Trust obtained a revolving credit facility with a Canadian bank providing additional ﬁ nancing capacity of €10 million of operating funds and up to €35 million as a bridge-to-mortgage ﬁ nancing. To date, no amount has been drawn down on this facility. In addition, the Trust obtained mortgage ﬁ nancings in 2012 in the amount of approximately €117 million ($152 million) from European lenders at an average face rate of 2.7% and an average term to maturity of 5.7 years. The ﬁ rst full year of Dundee International REIT was a year of growth and diversiﬁ cation. We made signiﬁ cant progress growing our platform in Europe. With various groups of real estate owners having to dispose of their assets, we had started to see how big the opportunity was in Germany to buy high-quality real estate at good cap rates and attractive borrowing rates. By acting quickly and taking advantage of these opportunities, we will have added over $1 billion of accretive assets to our portfolio once current acquisitions under contract close. We continue to see a healthy acquisition pipeline and will seek further growth in Germany, one of the most stable economies in Europe. PAGE 10 DUNDEE INTERNATIONAL 2012 Annual Report Section II — Executing the strategy Our operations The following key performance indicators related to our operations inﬂ uence the cash generated from operating activities. Performance indicators Occupancy rate(1) In-place rental rates (per sq. ft/year) Tenant maturity proﬁ le – average term to maturity December 31, 2012 $ 83% 8.20 5.5 years December 31, 2011 $ 88% 7.13 5.9 years (1) Includes in-place occupancy at December 31, 2012; terminated space for which the Trust receives a head lease is reﬂ ected as vacant space as at December 31, 2012, as the termination with respect to 17 properties became effective at the beginning of July 2012, the same time payments under the head lease commenced. Including the head lease, the occupancy is 89%. Occupancy Effective July 1, 2012, Deutsche Post terminated 17 leases in connection with its early termination rights. The Trust receives payments pursuant to a head lease for the terminated space in these properties until June of 2014 and effectively receives rent for 88.9% of space in the portfolio, including new acquisitions. Excluding the impact of the acquisitions, dispositions and Deutsche Post terminations, occupancy in our Initial Portfolio, on a comparative basis, would have increased to 88.4% at the end of the fourth quarter of 2012 compared to 87.9% at the end of the prior year fourth quarter, reﬂ ecting positive absorption. The table below details the percentage of occupied and committed space for the total portfolio as well as the comparative portfolio. (percent) Ofﬁ ce Mixed use Industrial Total Q4 2012(1) Total portfolio Q4 2011 Comparative properties Q4 2012(1) Q4 2011 84.8 81.7 87.7 83.2 84.4 88.3 87.2 87.8 72.6 81.7 87.7 82.1 84.4 88.4 87.2 87.9 (1) Includes in-place occupancy at December 31, 2012; terminated space for which the Trust receives a head lease is reﬂ ected as vacant space. The table below details the percentage of occupied and committed space for the previous six quarters for the total portfolio, including new acquisitions. (percent) Ofﬁ ce Mixed use Industrial Total Q4 2012(1) Q3 2012(1) Q2 2012 Q1 2012 Q4 2011 Q3 2011 84.8 81.7 87.7 83.2 80.2 81.1 88.1 82.2 90.0 88.1 87.8 88.3 86.5 88.0 87.7 87.8 84.4 88.3 87.2 87.8 84.2 88.2 87.0 87.7 (1) Includes in-place occupancy at December 31, 2012; terminated space for which the Trust receives a head lease is reﬂ ected as vacant space. PAGE 11 DUNDEE INTERNATIONAL 2012 Annual Report Vacancy schedule The tables below highlight our leasing activity. During the fourth quarter of 2012, our overall space available for lease decreased by 56,271 square feet to 2,245,524 square feet, reﬂ ecting positive absorption as well as lower overall vacancy due to the sale of a number of properties with above average vacancy rates. A total of 122,986 square feet of expiries, terminations and bankruptcies, and remeasurements was offset by 46,359 square feet of renewals and 30,873 square feet of new leases. At the end of 2012, approximately 95,952 square feet was committed for future leases, leaving approximately 2,245,524 square feet available for lease. (in square feet) Ofﬁ ce Mixed use Industrial Total For the three months ended December 31, 2012 Available for lease – October 1, 2012 Acquisitions Dispositions Remeasurements Expiries DPI terminations Early termination and bankruptcies New leases Renewals Future leases 299,895 52,796 – 5,908 38,238 – – (4,548) (318) (82,847) 1,734,298 267,602 2,301,795 – (58,869) 2,462 60,158 – 2,131 (25,272) (44,410) (10,785) – – 642 13,447 – – (1,053) (1,631) (2,320) 52,796 (58,869) 9,012 111,843 – 2,131 (30,873) (46,359) (95,952) Available for lease – December 31, 2012 309,124 1,659,713 276,687 2,245,524 (in square feet) Ofﬁ ce Mixed use Industrial Total For the year ended December 31, 2012 Available for lease – January 1, 2012 Acquisitions Dispositions Remeasurements Expiries DPI terminations Early termination and bankruptcies New leases Renewals Future leases 138,976 66,721 – 3,329 130,077 160,104 17,258 (42,255) (82,239) (82,847) 1,074,452 287,059 1,500,487 – (71,797) 8,038 496,376 699,950 19,357 (176,588) (379,290) (10,785) – – 3,221 25,691 – 3,555 (32,467) (8,052) (2,320) 66,721 (71,797) 14,588 652,144 860,054 40,170 (251,310) (469,581) (95,952) Available for lease – December 31, 2012 309,124 1,659,713 276,687 2,245,524 PAGE 12 DUNDEE INTERNATIONAL 2012 Annual Report In-place rental rates The following chart and table provide a comparison between in-place rents and market rents in our portfolio as at December 31, 2012. Market rents are management’s estimates of rental rates that could be achieved for space in our properties. In-place rents in our ofﬁ ce segment have increased in the fourth quarter largely due to acquisitions completed during the quarter. In-place rents in the mixed use and industrial segments remain below market rents, allowing for rental uplifts as space is renewed or re-leased. Overall, average market rents in our portfolio remain approximately 7% above in-place rents. In-place rent and market rent comparison In-place rent Market rent $15.00 12.00 9.00 6.00 3.00 (per square foot/year) Ofﬁ ce Mixed use Industrial Overall (1) Excludes rent received under head lease guarantee. In-place rent(1) € € 10.84 $ 14.22 5.56 4.85 6.25 $ 7.29 6.36 8.20 € € 0 Office Mixed use Industrial Total December 31, 2012 Market rent 10.84 $ 14.22 6.04 5.47 6.69 $ 7.93 7.17 8.78 Leasing and tenant proﬁ le At December 31, 2012, the weighted average remaining term of all leases was approximately 5.5 years. Average remaining lease term (years) Ofﬁ ce Mixed use Industrial Overall December 31, 2012 December 31, 2011 6.54 5.35 5.34 5.54 5.07 5.83 6.27 5.86 Lease rollover proﬁ le The following table outlines our lease maturity proﬁ le by asset type as at December 31, 2012. In 2013, 277,958 square feet of our leases expire, accounting for approximately 2.1% of the overall space. (in square feet) Ofﬁ ce Mixed use Industrial Total Current vacancy Month-to- month 2013 2014 2015 2016 2017 to 2031 Total 309,124 29,091 68,689 71,491 42,953 216,214 1,301,258 2,038,820 1,659,713 278,019 180,646 70,468 140,241 61,944 6,668,244 9,059,275 276,687 60,879 28,623 18,353 53,968 17,124 1,792,043 2,247,677 2,245,524 367,989 277,958 160,312 237,162 295,282 9,761,545 13,345,772 PAGE 13 DUNDEE INTERNATIONAL 2012 Annual Report 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 62% of the GLA and account for approximately 65% of the portfolio’s GRI. Rent adjustment The rents under the Deutsche Post leases are subject to automatic adjustments (up or down) in relation to the consumer price index for Germany. If the consumer price index for Germany changes by more than 4.7 index points as compared to the index at the commencement of the applicable lease or the previous rent adjustment, the rent payable under the Deutsche Post leases is automatically adjusted by 100% of the index change of 4.7 points, with effect as of the time of the index change. The hurdle rate for an upward adjustment was last reached in December 2011. Termination rights and head lease In general, the Deutsche Post leases have a ﬁ xed term of ten years, expiring on June 30, 2018. Certain 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. The right of Deutsche Post to terminate a Deutsche Post lease is limited by various tests which apply collectively to the Deutsche Post leases and the leases in respect of the remaining properties forming the portfolio of approximately 1,200 properties that the vendor acquired from Deutsche Post in July 2008 (the “Caroline DP Leases”), considered as a whole. On June 30, 2011, Deutsche Post gave notice to terminate 17 leases with respect to the 2012 termination rights, comprising approximately 9.9% of our GRI and 1.1 million square feet (approximately 8.0% of our GLA), and waived its second termination right in respect of 21 leases (effective June 30, 2014). On June 30, 2012, Deutsche Post gave notice to terminate one additional lease subject to its 2012 termination rights which will become effective as at July 1, 2013 and for which we will receive an additional payment under the head lease. In addition, Deutsche Post waived its second termination right in respect of 24 leases (effective June 30, 2014). Deutsche Post may terminate Deutsche Post leases and Caroline DP Leases aggregating no more than 20% of the total annual Reference Rent payable under all of the Deutsche Post leases and Caroline DP Leases on June 30, 2014, and no more than an additional 10% of such rent on June 30, 2016. The “Reference Rent” for a lease is an amount set out in a speciﬁ ed notarial deed and may differ from the actual rent payable under the lease. To the extent that Deutsche Post does not exercise all of its available early termination rights with respect to any particular effective termination date, the unused portion may be carried forward, provided that Deutsche Post cannot terminate Deutsche Post leases and Caroline DP Leases aggregating more than 20% of the total Reference Rent of all Deutsche Post leases and Caroline DP Leases, considered as a whole, during any lease year. One property, for which Deutsche Post has not waived its termination right in 2014, was sold in September 2012. This means that Deutsche Post has the right to terminate up to 65 leases in 2014 and up to an additional 45 leases in 2016 (110 leases in total), subject to certain limitations. Although we think it is unlikely that Deutsche Post will terminate the maximum amount of space that it is entitled to terminate (being approximately 2.8 million square feet or 21% of our GLA), if it were to do so, and not re-lease any of the terminated space, our GRI would be reduced by 22%. In light of the 2012 terminations, the vendor of the properties has set aside an amount of €17.3 million to lease the vacant space resulting from all 2012 terminations for the period commencing on July 1, 2012 to, and including, June 30, 2014. The Trust receives a portion of this amount each month for two years, until June 2014. In addition, the vendor committed to pay an additional €0.2 million in connection with the termination of one additional lease pertaining to the 2012 termination rights. In connection with the 17 leases terminated in 2012, Postbank re-leased space in 12 of the 15 properties that feature Postbank branches, and Deutsche Post re-leased space in seven of the 17 properties, ﬁ ve of which feature Postbank branches, for an aggregated total of 202,000 square feet, or 17.2% of the originally terminated space, for an average lease term of 4.8 years. PAGE 14 DUNDEE INTERNATIONAL 2012 Annual Report Our resources and ﬁ nancial condition Investment properties The fair value of our investment property portfolio at December 31, 2012 was $1,183 million. Since December 31, 2011, the fair value of our investment properties increased by $241.3 million. The largest item contributing to the change is the acquisition of six properties for $259.1 million excluding transaction costs. We also invested $3.4 million in building improvements and lease incentive costs. During the year, we disposed of ﬁ ve properties which had a fair value of $7.4 million and entered into agreements to dispose of another eight properties deemed to be non-core holdings. Under IFRS accounting rules, we reduced the value of acquired properties by $11.6 million, representing the capitalized transaction costs and a further $3.4 million in building improvement and lease incentive costs. A further fair value loss of $6.7 million was also recognized for Initial Properties due to existing vacancies and the impact of termination rights exercised by Deutsche Post. The balance of the reduction relates to foreign exchange and other minor adjustments. Fair values were determined using the capitalization method which is based upon the capitalization of stabilized net operating income (“NOI”) and incorporates allowances for vacancy and re-leasing assumptions. Stabilized NOI is capitalized taking into consideration the yields for comparable market transactions. Stabilized NOI reﬂ ects all non-recoverable expenses and incorporates a provision for structural vacancy. The resulting capitalized value was further adjusted for non-recoverable capital expenditures and leasing costs, where applicable. Acquisitions During 2012, Dundee International REIT completed six ofﬁ ce property acquisitions for approximately $259.1 million (excluding transaction costs), comprising approximately 1.1 million square feet of ofﬁ ce space. Occupancy at Property Property type Acquired GLA (sq. ft.) Grammophon Büropark, Hannover Karl-Martell-Strasse 60, Nuremberg ofﬁ ce ofﬁ ce Derendorfer Allee 4–4a (doubleU), Düsseldorf ofﬁ ce 212,047 268,936 141,744 Greifswalder Strasse 154–156 (Goldpunkt-Haus), Berlin Am Sandtorkai 37, Hamburg ofﬁ ce ofﬁ ce Leopoldstrasse 252, 252a and 252b, Munich ofﬁ ce Total (1) Excludes transaction costs. 250,239 112,361 153,435 1,138,762 acquisition(1) (%) 95 100 100 88 90 97 95 Purchase price(1) Purchase price(1) Date acquired $ 34,732 € 62,761 55,951 25,800 February 29, 2012 48,200 45,100 April 26, 2012 July 19, 2012 36,900 34,784 33,923 28,830 December 7, 2012 26,516 December 31, 2012 25,860 December 31, 2012 $ 259,051 € 200,306 PAGE 15 DUNDEE INTERNATIONAL 2012 Annual Report Acquisitions closed and under contract subsequent to year-end On January 31, 2013, we completed the acquisition of a property located at Hammer Strasse 30–34 in Hamburg for $56.3 million (excluding acquisition costs). The property comprises approximately 172,300 square feet of GLA, has an occupancy rate of 100% and a weighted average remaining lease term of 10.1 years. On February 15, 2013, we completed the acquisition of a property located at Neue Mainzer Strasse 28 in Frankfurt for $83.3 million (excluding acquisition costs). The property comprises approximately 123,300 square feet of GLA, has an occupancy rate of 90% and a weighted average remaining lease term of 3.0 years. As at February 20, 2013, we have two properties under contract in Munich and Berlin for an aggregate purchase price of approximately €60 million ($81 million) as disclosed in the table below. We expect to close on these acquisitions in the ﬁ rst quarter of 2013. On February 4, 2013, the Trust announced the acquisition of a 1.5 million square foot portfolio of ofﬁ ce properties in Germany for approximately €420 million ($567 million) from investment funds managed by SEB Asset Management (“SEB”), the SEB Group’s specialist real estate asset manager in Germany. The properties are located in desirable locations in some of Germany’s largest ofﬁ ce markets, have a current occupancy rate of 94% and a weighted average lease term of over 5.4 years. Acquisitions under contract Dillwächter Strasse 5 and Tübinger Strasse 11, Munich Beuthstrasse 6–8, Seydelstrasse 2–5 (Löwenkontor), Berlin SEB Portfolio (11 properties) Total Approx. GLA (sq. ft.) 81,900 258,000 1,476,500 1,816,400 Dispositions Dundee International REIT completed the sale of ﬁ ve small properties in 2012 for an aggregate sales price of approximately €5.7 million ($7.4 million). These properties are located at Bahnhofplatz 4 in Traunstein; Ziegelstrasse 15 in Ravensburg; Bahnhofstrasse 12 in Pullendorf; Mecklenburgstrasse 4–6 in Schwerin; and Eichendorffstrasse 14 in Traunreut. Subsequent to year-end, we sold two properties for an aggregate sales price of approximately $2.2 million and are a party to agreements to sell six properties comprising approximately 178,000 square feet of GLA. 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. In 2012, we leased or renewed approximately 817,000 square feet of space and as at December 31, 2012, we had commitments for $5.8 million of leasing costs, of which $1 million was paid during the year. PAGE 16 DUNDEE INTERNATIONAL 2012 Annual Report 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 ﬁ nancial statements. As at December 31, 2012, the REIT’s future minimum commitments under operating leases are as follows: Less than 1 year 1–5 years Longer than 5 years Total Operating lease payments $ 484 1,890 473 $ 2,847 During the period, the Trust paid $0.5 million in minimum lease payments, which have been included in comprehensive income for the period. On March 17, 2011, the previous owner of the Initial Properties entered into agreements with Imtech Contracting GmbH (“Imtech”) under which Imtech provides the entire energy requirements (heating, 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. 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 had a term expiring on December 31, 2012. During the third quarter of 2012, the Trust entered into a new contract with GDF SUEZ Energie Deutschland AG to purchase all electricity requirements for properties leased to Deutsche Post for a two-year term starting on January 1, 2013. 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 ﬂ ows from operations, debt reﬁ nancings and, as growth requires and when appropriate, new equity or debt issues. As at December 31, 2012, we had $181.6 million of cash on hand. After reserving for current payables, operating requirements and acquisitions under contract, approximately $50 million is available for general purposes. Our debt-to- book value at year-end was 52%. Financing activities We ﬁ nance our ownership of assets using equity as well as conventional mortgage ﬁ nancing, term debt, ﬂ oating rate credit facilities and convertible debentures. Equity issues On April 17, 2012, we completed a public offering of Units pursuant to which we issued 4,600,000 Units, and the holder of the Exchangeable Notes exchanged the equivalent of $46.0 million principal value of Exchangeable Notes into 4,600,000 Units, all of which were sold to the syndicate of underwriters at a price of $10.10 per unit. The issued amount included the exercise of the over-allotment option of 1,200,000 Units. PAGE 17 DUNDEE INTERNATIONAL 2012 Annual Report On September 5, 2012, we completed a public offering pursuant to which we issued 4,420,000 Units and the holder of Exchangeable Notes exchanged the equivalent of $34.0 million in principal value of Exchangeable Notes into 3,400,000 Units at a price of $10.55 per unit. The number of Units issued included the exercise of the over-allotment option of 1,020,000 Units. On November 8, 2012, 12,875 Units were issued for the year ended December 31, 2012 to ofﬁ cers and employees pursuant to the Deferred Unit Incentive Plan, at a price of $10.74 per unit. On December 7, 2012, we completed a public offering of 11,166,500 Units, including an over-allotment option, at a price of $10.30 per unit. New debt On September 27, 2012, we obtained a revolving credit facility with a Canadian bank for €10 million plus a senior credit facility for up to €35 million secured by investment properties. The revolving credit facility has a term of two years and was not drawn upon during 2012. During the year we obtained the following new mortgages: Property Mortgage ($’000) Grammophon Büropark, Hannover(1) Karl-Martell-Strasse 60, Nuremberg $ 20,805 € 34,734 Derendorfer Allee 4–4a (doubleU), Düsseldorf 32,256 Mortgage (€’000) 15,454 26,675 26,000 Face rate Date of funding Date of maturity 4.17% February 29, 2012 February 28, 2015 2.45% 2.09% May 25, 2012 June 30, 2017 July 19, 2012 July 31, 2017 Greifswalder Strasse 154–156 (Goldpunkt-Haus), Berlin Am Sandtorkai 37 (Humboldt-Haus), Hamburg Leopoldstrasse 252, 252a and 252b, Munich Total 21,758 17,000 3.22% December 7, 2012 December 31, 2022 22,300 17,000 2.27% December 31, 2012 December 31, 2017 19,841 15,125 2.21% December 31, 2012 September 30, 2019 $ 151,694 € 117,254 (1) Mortgage assumed on acquisition. Effective interest rate was marked down to 2.41%. Debt Debt strategy Our debt strategy is to obtain secured mortgage ﬁ nancing on a ﬁ xed rate basis, with a term to maturity that is appropriate in relation to the lease maturity proﬁ le of our portfolio. Our preference is to have staggered debt maturities to mitigate interest rate risk and limit reﬁ nancing exposure in any particular period. We also intend to enter into long-term loans at ﬁ xed rates when borrowing conditions are favourable. This strategy will be complemented with the use of unsecured convertible debentures and ﬂ oating 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. PAGE 18 DUNDEE INTERNATIONAL 2012 Annual Report The key performance indicators in the management of our debt are: Financing activities Weighted average 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, 2012 December 31, 2011 3.98% 52% 4.36% 56% 3.03 times 2.67 times 9.3 0.4% 4.4 11% 8.0 – 5.1 15% (1) Average interest rate (face 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 (total assets include $181.6 million of cash). (3) The interest coverage ratio for the year is calculated as net rental income plus interest and fee income, less portfolio management and general and administrative expenses, divided by interest expense (excluding interest on Exchangeable Notes). (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 ﬂ ow performance and debt level indicators to assess our ability to meet our ﬁ nancing obligations. Our current interest coverage ratio for the year is 3.03 times, and reﬂ ects our ability to cover interest expense requirements. We also monitor our debt-to-EBITDFV ratio to gauge our ability to pay off existing debt. Our current debt-to-EBITDFV ratio is 9.3 years and reﬂ ects the approximate amount of time to pay off all debt. After accounting for market adjustments and ﬁ nancing costs, the weighted average effective interest rate is 4.39%. Term loan credit facility(1) Mortgage debt Debentures Total Percentage Variable Fixed Total Variable Fixed Total December 31, 2012 December 31, 2011 $ 82,512(1) $ – – 344,028(2) $ 151,862 148,428 426,540 151,862 148,428 $ 86,469 $ 345,879 $ 432,348 – – – – 146,658 146,658 $ 82,512 $ 644,318 $ 726,830 $ 86,469 $ 492,537 $ 579,006 11% 89% 100% 15% 85% 100% (1) 20% of the term loan credit facility is subject to an interest rate swap until December 31, 2012 and has been presented as variable rate debt due to the short duration of the swap agreement. (2) 80% of the term loan credit facility is subject to an interest rate swap in place until August 3, 2016 pursuant to the term loan credit facility agreement and has been presented as ﬁ xed rate debt. Amounts recorded as at December 31, 2012 for the Debentures are net of $6.8 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. PAGE 19 DUNDEE INTERNATIONAL 2012 Annual Report Term loan credit facility Concurrent with the closing of our Initial Public Offering, we obtained a term loan credit facility (the “Facility”) from a syndicate of German and French banks for gross proceeds of €328.5 million ($448.4 million). During the year ended December 31, 2012, we repaid $3.4 million (€2.7 million) on disposal of ﬁ ve properties, including a prepayment premium. As at December 31, 2012, the remaining principal balance on the term loan credit facility was $427.4 million (€325.8 million). The initial term of the Facility is ﬁ ve 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 a margin of 200 basis points and agency fees of 10 basis points. Pursuant to the requirements of the Facility, we entered into an interest rate swap to ﬁ x 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% of that portion. Effective December 30, 2011, we entered into an interest rate swap to ﬁ x the remaining 20% of the interest payments under the Facility at 3.37% for a period of one year. This contract expired on December 31, 2012. As at December 31, 2012, the weighted average rate of the Facility is 3.91%. Including costs, net of the payment received from the vendor, the effective interest rate under the Facility is 3.98%. On January 1, 2013, as the three-month EURIBOR decreased to 0.184%, the variable rate the Trust pays on the 20% of the Facility decreased to 2.32%. As a result, the Trust paid a blended face rate of 3.7% on January 1, 2013. 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 ﬁ rst three years the loan is outstanding and 54% during the ﬁ nal two years. As at December 31, 2012, we were in compliance with these covenants. Under the terms of the Facility, we have the option to repay €100 million plus an applicable prepayment premium of 15% through dispositions or reﬁ nancings of a portion of the portfolio by August 3, 2013, failing which we will be required to pay additional interest of 1% on the portion of the €100 million not repaid beginning August 3, 2013. Management will explore reﬁ nancing options. Revolving credit facility On September 27, 2012, the Trust obtained a revolving credit facility with a Canadian bank in an aggregate amount not exceeding €10 million, and a €15 million senior secured credit facility to provide interim bridge ﬁ nancing for the acquisition of investment properties in Germany on a property by property basis. The latter facility may be increased by an additional €20 million, subject to prior approval and 30 days’ notice. The interest rate on Canadian dollar advances is prime plus 200 basis points and/or bankers’ acceptance rates plus 300 basis points. The interest rate for euro advances is 300 basis points over the three-month EURIBOR rate. The revolving credit facility has a term of two years. No amount has been drawn on this facility during the year. Convertible debentures As at December 31, 2012, 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 $1,000 principal amount of the debentures is convertible at any time by the holder thereof into 76.9231 Units, 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 Trust, 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 ﬁ fth 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. PAGE 20 DUNDEE INTERNATIONAL 2012 Annual Report 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 year, the fair value attributed to the conversion feature decreased by $2.4 million. The table below highlights the maturity and interest rate proﬁ le of our debt: Scheduled principal repayments on non-matured debt $ 2,711 $ 7,317 11,573 7,278 2,064 2,347 Total 2,711 7,317 30,379 417,471 83,290 200,138 $ Debt maturities – – 18,806 410,193 81,226 197,791 Weighted average Weighted average face rate on balance due at maturity (%) effective rate on balance due at maturity (%) % 0.4 1.0 4.1 56.3 11.2 27.0 – – 2.41% 3.98% 2.62% 6.50% 4.49% – – 4.17% 3.91% 2.27% 4.99% 4.03% $ 708,016 $ 33,290 741,306 100.0 (6,050) (8,426) $ 726,830 2013 2014 2015 2016 2017 2018 and thereafter Total Fair value adjustments Transaction costs Total Equity Our discussion of equity is inclusive of Exchangeable Notes, which are economically equivalent to our Units. In our consolidated ﬁ nancial statements, the Exchangeable Notes are classiﬁ ed as a liability under IFRS because of the redemption feature upon the exchange for a Unit. Units Exchangeable Notes Total December 31, 2012 Unitholders’ equity December 31, 2011 Number of Units Amount Number of Units Amount 72,232,494 $ 596,078 43,872,316 $ 350,809 – – 8,000,000 80,000 72,232,494 $ 596,078 51,872,316 $ 430,809 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. 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, ofﬁ cers, employees, afﬁ liates and their service providers, including DRC, our asset manager. On August 3, 2011, DRC elected to receive the base asset management fees of the ﬁ rst $3.5 million payable on the properties acquired on August 3, 2011 by way of deferred trust units under the Asset Management Agreement for the next ﬁ ve years. The deferred trust units granted to DRC vest 20% annually, commencing on the ﬁ fth anniversary date of being granted. On termination of the Asset Management Agreement, unvested trust units granted to DRC vest immediately. PAGE 21 DUNDEE INTERNATIONAL 2012 Annual Report The following table summarizes the changes in our outstanding equity: Total Units outstanding on December 31, 2011 Units issuable upon exchange of Exchangeable Notes Total Units outstanding (on a fully exchanged basis) on December 31, 2011 Exchange of Exchangeable Notes Units issued pursuant to public offering(1) Units issued pursuant to the DUIP Units issued pursuant to the DRIP(2) Total Units outstanding on December 31, 2012 Units issued pursuant to the DRIP on January 15, 2013 Total Units outstanding on January 31, 2013 (1) Includes secondary offering of 8,000,000 Units issued upon the exchange of Exchangeable Notes. (2) Distribution Reinvestment and Unit Purchase Plan. Units 43,872,316 8,000,000 51,872,316 (8,000,000) 28,186,500 12,875 160,803 72,232,494 42,805 72,275,299 On April 17, 2012, the Trust closed a public offering of Units pursuant to which the Trust issued 4,600,000 Units, and LSF REIT Holdings S.à.r.l. (“LSF”) exchanged the equivalent of $46.0 million principal value of Exchangeable Notes into 4,600,000 Units, resulting in a total of 9,200,000 Units having been sold to a syndicate of underwriters. On September 5, 2012, the Trust closed a public offering of Units pursuant to which the Trust issued 4,420,000 Units, and LSF exchanged the equivalent of $34.0 million principal value of its remaining Exchangeable Notes into 3,400,000 Units, resulting in a total of 7,820,000 Units having been sold to a syndicate of underwriters. On December 7, 2012, the Trust closed a public offering of Units pursuant to which the Trust issued 11,166,500 Units which were sold to a syndicate of underwriters. For the year ended December 31, 2012, 12,875 Units were issued pursuant to the Deferred Unit Incentive Plan (December 31, 2011 – nil). 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 ﬂ uctuate 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 ﬂ uctuate 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. In order to manage the exposure to currency risk to unitholders and holders of debentures, the Trust has entered into foreign exchange forward contracts. The Trust currently has foreign exchange forward contracts to sell €3,100 in January 2013, €3,700 each month from February 2013 to December 2014, and €1,550 each month from January 2015 to December 2015 at an average exchange rate of $1.327:€1. Asset management fee On August 3, 2011, DRC elected to receive the base asset management fees payable on the Initial Properties acquired on August 3, 2011 by way of deferred trust units under the Asset Management Agreement for up to $3.5 million per year for the next ﬁ ve years. These deferred trust units vest 20% annually, commencing on the ﬁ fth anniversary date of being granted. On termination of the Asset Management Agreement, unvested trust units will vest immediately. PAGE 22 DUNDEE INTERNATIONAL 2012 Annual Report During the year ended December 31, 2012, pursuant to the provisions of the Asset Management Agreement, $1.9 million of asset management expense on the Initial Properties was recognized, for which 330,423 deferred units were granted during the year and 26,747 deferred units were granted on January 1, 2013. As at January 1, 2013, 504,887 unvested deferred and income deferred units were outstanding with respect to the Asset Management Agreement. The asset management fees were recorded based on the fair value of the deferred units issued, with an appropriate discount applied to reﬂ ect the restricted period of exercise. In addition, the Trust paid an asset management fee of $0.3 million for properties acquired in 2012, a ﬁ nancing fee of $0.4 million related to new debt arranged in the year, and acquisition fees of $2.4 million related to properties acquired during the year. Distributions and Exchangeable Notes interest Exchangeable Notes were economically equivalent to our Units in all material respects. Interest payable to the holder of Exchangeable Notes is therefore included in the table below. On September 5, 2012, the holder of the Exchangeable Notes exchanged its remaining holdings and therefore received its last interest payment on September 15, 2012. For the three months ended December 31, 2012 For the year ended December 31, 2012 Declared amounts 4% bonus distribution Total Declared amounts 4% bonus distribution Total 2012 distributions and interest expense Paid in cash or reinvested in Units $ 8,137 $ 25 $ 8,162 $ 41,248 $ 61 $ 41,309 Payable at December 31, 2012 4,816 – 4,816 4,816 – 4,816 Total distributions and interest expense 2012 reinvestment $ 12,953 $ 25 $ 12,978 $ 46,064 $ 61 $ 46,125 Reinvested to December 31, 2012 $ Reinvested on January 15, 2013 $ 615 450 $ 25 18 640 468 $ 1,519 $ 450 $ 61 18 1,580 468 Total distributions reinvested $ 1,065 $ 43 $ 1,108 $ 1,969 $ 79 $ 2,048 Distributions and interest expense paid in cash $ 11,888 Reinvestment to distribution ratio Cash payout ratio 8.2% 91.8% $ 44,095 4.3% 95.7% Distributions declared and interest expense on Exchangeable Notes for the year ended December 31, 2012, were $46.1 million. Of this amount, $2.0 million, or approximately 4.3%, was reinvested in additional Units pursuant to the DRIP, resulting in a cash payout ratio of 95.7%. For the quarter ended December 31, 2012, distributions declared and interest expense on Exchangeable Notes amounted to $13.0 million. Of this amount, $1.1 million, or approximately 8.2%, was reinvested in additional Units pursuant to the DRIP, resulting in a cash payout ratio of 91.8%. At December 31, 2012, we had various currency forward contracts in place to sell euros for Canadian dollars for the next 36 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 gain of $2.4 million in the year. We also mark the contracts to market quarterly and realized a gain of $0.5 million in the current year. The Trust currently has foreign exchange forward contracts to sell €3.1 million in January 2013, €3.7 million each month from February 2013 to December 2014, and €1.5 million each month from January 2015 to December 2015 at an average exchange rate of $1.327:€1. We currently pay monthly distributions to unitholders of $0.06667 per unit, or $0.80 per unit on an annual basis. At December 31, 2012, approximately 9.3% of our total Units were enrolled in the DRIP. PAGE 23 DUNDEE INTERNATIONAL 2012 Annual Report As required by National Policy 41-201, “Income Trusts and Other Indirect Offerings”, the following table outlines the differences between cash ﬂ ow from operating activities and cash distributions, as well as the differences between net income and cash distributions, in accordance with the guidelines. Net income Cash ﬂ ow from operating activities Distributions paid and payable (including Exchangeable Notes) Surplus of cash ﬂ ow from operating activities over distributions paid and payable Shortfall of net income over distributions paid and payable For the three months ended December 31, 2012 For the year ended December 31, 2012 $ (8,687) $ 10,916 16,712 12,953 3,759 (21,640) 52,320 46,064 6,256 (35,148) Cash ﬂ ow from operations exceeded distributions paid and payable by $3.8 million and $6.3 million for the three months and year ended December 31, 2012, respectively. Distributions paid and payable exceeded net income by $21.6 million and $35.1 million for the three months and year ended December 31, 2012, respectively. Net income for the respective periods reﬂ ect fair value adjustments to ﬁ nancial instruments and investment properties. In establishing distribution payments, we do not take ﬂ uctuations in working capital into consideration and we use a normalized amount as a proxy for leasing and building improvement costs. Our results of operations 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 Interest expense Interest and other income Share of income from equity accounted investment Depreciation and amortization Fair value adjustments to ﬁ nancial instruments Acquisition related costs, net Loss on sale of investment property Income before income taxes Income taxes Current income taxes Deferred income taxes Income tax expense (recovery) Net income (loss) Foreign currency translation adjustment For the three months ended December 31, 2012(1) For the three months ended December 31, 2011(1) For the year ended December 31, 2012(1) For the period from August 3, 2011 to December 31, 2011(1) $ 35,926 $ 31,726 $ 138,661 $ 54,274 13,869 22,057 (1,019) (1,638) (16,870) (6,100) 289 11 (7) (6,736) – (258) 10,757 20,969 (894) (2,253) (31,704) (8,591) 122 32 – (8,557) (467) – (10,271) (31,343) 84 (1,668) (1,584) (8,687) 20,758 – (5,367) (5,367) (25,976) (20,342) 53,222 85,439 (4,201) (6,579) (23,349) (27,379) 503 21 (53) (15,214) – (320) 8,868 226 (2,274) (2,048) 10,916 (4,388) 19,774 34,500 (1,566) (3,114) (23,147) (13,856) 132 7 – (14,567) (7,853) – (29,464) – (6,263) (6,263) (23,201) (18,558) Comprehensive income (loss) $ 12,071 $ (46,318) $ 6,528 $ (41,759) (1) Results from operations were converted into Canadian dollars from euros using the following average exchange rates: the three-month and year ended December 31, 2012 periods were converted at $1.2861:€1 and $1.285:€1, respectively; for 2011, the three-month and August 3 to December 31, 2011 periods were converted at $1.379:€1 and $1.383:€1, respectively . PAGE 24 DUNDEE INTERNATIONAL 2012 Annual Report Statement of comprehensive income results Net rental income Ofﬁ ce Mixed use Industrial For the three months ended December 31, 2012 For the three months ended December 31, 2011 For the year ended December 31, 2012 For the period from August 3, 2011 to December 31, 2011 $ 4,698 $ 1,888 $ 14,147 $ 3,144 14,971 2,388 15,620 3,461 59,152 12,140 25,962 5,394 Net rental income $ 22,057 $ 20,969 $ 85,439 $ 34,500 Our portfolio management team comprises 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. For the year ended December 31, 2012, net rental income was $85.4 million, representing an increase of $50.9 million compared to the period from April 21 to December 31, 2011. After adjusting 2011 to a full year of operations and excluding the $6.5 million negative impact of the weakened euro, the net rental income would have increased by $8.6 million, mainly a result of contributions from newly acquired properties in 2012. For the three months ended December 31, 2012, net rental income was $22.1 million, representing an increase of $1.1 million compared to the same quarter of 2011. Excluding the $1.6 million negative impact of the weakened euro, the net rental income would have increased by $2.7 million, mainly a result of positive leasing absorption and contributions from newly acquired properties in 2012. Portfolio management Portfolio management expenses totalled $4.2 million for the year ended December 31, 2012, an increase of $2.6 million compared to the period from April 21 to December 31, 2011. After adjusting 2011 to a full year of operations, the increase would be $0.4 million, representing higher personnel costs incurred in 2012. Portfolio management expenses were $1.0 million for the three months ended December 31, 2012, an increase of approximately $0.1 million compared to the three months ended December 31, 2011. General and administrative General and administrative expenses totalled $6.6 million for the year ended December 31, 2012, an increase of $3.5 million compared to the period from April 21 to December 31, 2011. After adjusting 2011 to a full year of operations, the general and administrative expenses would have decreased by $0.9 million, mainly reﬂ ecting lower asset management fee expenses and corporate expenses. General and administrative expenses totalled $1.6 million in the last quarter of 2012, a decrease of $0.6 million from the same quarter last year for similar reasons as a result of lower regulatory and corporate expenses. PAGE 25 DUNDEE INTERNATIONAL 2012 Annual Report Fair value adjustment to investment properties The fair value loss adjustment of investment properties amounted to $23.3 million for the year ended December 31, 2012, compared to a loss of $23.1 million for the period from April 21 to December 31, 2011. $11.6 million of the loss relates to transaction costs capitalized on the six acquisitions completed during the year, and $1.7 million of the loss (excluding payments received under head lease arrangements) relates to fair value adjustments to the properties sold or under contracts for sale. $3.4 million of the loss relates to capital costs incurred during the year and the remaining $6.7 million reﬂ ects the current vacancies in the Initial Properties and impact of termination rights exercised by Deutsche Post in 2012. The $23.1 million loss in fair value for the period from April 21 to December 31, 2011 reﬂ ected an increase in cap rates since acquisition of the Initial Properties and the impact of an increase in German real estate transaction taxes. The loss in fair value adjustment of investment properties amounted to $16.9 million for the three months ended December 31, 2012, compared to a loss of $31.7 million in the same quarter last year. Interest expense Interest expense was $27.4 million for the year ended December 31, 2012, an increase of $13.5 million compared to the period from April 21 to December 31, 2011. After adjusting 2011 to a full year of operation, the interest expense would have decreased by $6.1 million. Adjusting for the $1.3 million impact of favourable exchange rates realized, interest expense would have been $4.8 million lower than in 2011. The decrease is a result of the reduction in interest expense of $3.2 million on the Facility, as the three-month EURIBOR rates decreased from 1.544% in December 2011 to 0.222% in December 2012. Offsetting the decrease was mortgage interest expense of $1.5 million due to mortgages for properties acquired in 2012 and stand-by charge on the corporate revolving line of credit of $0.1 million in 2012. We ﬁ x our variable rate positions using interest rate swaps, and the cash outlays on the settlement of the swap contracts are presented as a component of fair value adjustments of ﬁ nancial instruments. During the year ended December 31, 2012, $4.3 million of swap settlements were paid, compared to $0.6 million paid in the period from April 21 to December 31, 2011. Including these payments, interest expenses on the credit facility were in line with the last year. Interest expense was $6.1 million for the quarter, a decrease of $2.5 million compared to the same quarter last year. After adjusting for the $0.2 million impact of favourable exchange rates realized, interest expense was $2.3 million lower than in the same quarter last year. The decrease is a result of interest on Exchangeable Notes being $1.6 million lower in the current quarter compared to the same quarter last year, as the holder of the Exchangeable Notes exchanged the remaining Exchangeable Notes for REIT Units by September 2012. In addition, interest on our term loan credit facility was lower by $1.6 million, as the three-month EURIBOR rates dropped from 0.652% in September 2012 to 0.222% in December 2012. Offsetting the decrease was mortgage interest expense of $0.8 million due to mortgage debts on acquired properties in 2012 and interest on the corporate revolving line of credit of $0.1 million in 2012. During the quarter, $1.7 million of swap settlements were paid compared to $0.3 million paid in the same quarter last year. Including these payments, interest expense on the credit facility in the current quarter was in line with the same quarter last year. The actual weighted average interest on the Facility for the three months ended December 31, 2012 was 3.91%. On an effective interest rate basis, the rate was 3.98%. Fair value adjustment to ﬁ nancial instruments For the year ended December 31, 2012, we incurred an unrealized net loss in fair value of ﬁ nancial instruments of $15.2 million. The net loss comprises a $15.5 million loss recognized on the fair value change in the interest rate swaps and cap as a result of a signiﬁ cant decrease in the forward price of interest rates during the year. A $17.9 million loss was recognized in 2011 for the same reasons. The REIT recognized a $2.4 million fair value gain on the conversion feature of the convertible debentures, a $2.3 million loss on the fair value adjustment on the Exchangeable Notes, and a $0.5 million unrealized gain related to our foreign currency forward contracts. For the period from April 21 to December 31, 2011, the Trust recorded a gain of $1.5 million in the fair value adjustment on the conversion feature of the convertible debentures, and a $1.8 million unrealized gain related to our foreign currency forward contracts due to a signiﬁ cant depreciation of the euro compared to the Canadian dollar in 2011. PAGE 26 DUNDEE INTERNATIONAL 2012 Annual Report For the three months ended December 31, 2012, we incurred an unrealized net loss in fair value of ﬁ nancial instruments of $6.7 million. The net loss comprises a $2.0 million loss recognized on the fair value change in the interest rate swaps and cap as a result of a decrease in the forward price of interest rates during the quarter. A $4.7 million loss was recognized in the same quarter last year for the same reason. The REIT recognized a $0.7 million fair value adjustment loss on the conversion feature of the convertible debentures and a $4.0 million unrealized loss related to our foreign currency forward contracts due to an appreciation of the euro compared to the Canadian dollar during the quarter. The comparative quarter comprises a loss of $5.7 million in the fair value adjustment on the conversion feature of the convertible debentures and a $2.4 million loss on the fair value adjustment on the Exchangeable Notes. During the same quarter last year, the REIT recognized a $4.3 million unrealized gain related to our foreign currency forward contracts due to a signiﬁ cant depreciation of the euro compared to the Canadian dollar. Income taxes We recognized an income tax recovery of $2.0 million for the year ended December 31, 2012, compared to an income tax recovery of $6.3 million for the period from August 3 to December 31, 2011. The difference is mainly a result of the deferred income tax impact associated with the loss carry-forwards and fair value change related to ﬁ nancial instruments. We recognized an income tax recovery of $1.6 million for the three months ended December 31, 2012, compared to an income tax recovery of $5.4 million for the same quarter last year. The difference in the income tax provision is mainly a result of the deferred income tax impact associated with the fair value change related to investment properties and ﬁ nancial instruments. Impact of foreign exchange Comprehensive income was impacted by a foreign currency translation loss of $4.4 million for the year ended December 31, 2012. The exchange rates decreased slightly from $1.3193:€1 as at December 31, 2011 to $1.3118:€1 as at December 31, 2012. The results of our euro-denominated operations included in net income for the year were translated at an average exchange rate of $1.2850:€1 compared to $1.3830:€1 for the period from April 21 to December 31, 2011. Comprehensive income was impacted by a foreign currency translation gain of $20.7 million for the three months ended December 31, 2012. The exchange rates increased from $1.2646:€1 as at September 30, 2012 to $1.3118:€1 as at December 31, 2012. The results of our euro-denominated operations included in net income for the quarter were translated at an average exchange rate of $1.2861:€1 compared to $1.3788:€1 in the same quarter last year. PAGE 27 DUNDEE INTERNATIONAL 2012 Annual Report Funds from operations and adjusted funds from operations Net income (loss) Add (deduct): Depreciation of property and equipment Amortization of lease incentives Interest expense on Exchangeable Notes Acquisition related costs, net Loss on sale of investment property Deferred income taxes Term debt swap settlement Gain on settlement of foreign currency contracts Fair value adjustments to investment properties Fair value adjustments to ﬁ nancial instruments FFO Add (deduct): For the three months ended December 31, 2012 For the three months ended December 31, 2011 For the year ended December 31, 2012 For the period from August 3, 2011 to December 31, 2011 $ (8,687) $ (25,976) $ 10,916 $ (23,201) 9 9 – – 258 (1,668) (1,660) 481 16,870 6,736 7 – 1,609 467 – (5,367) (317) (84) 31,704 8,557 69 17 2,558 – 320 (2,274) (4,255) 2,406 23,349 15,214 13 – 2,641 7,853 – (6,263) (573) (84) 23,147 14,567 $ 12,348 $ 10,600 $ 48,320 $ 18,100 Amortization of ﬁ nancing costs Accretion of debenture conversion feature Amortization of fair value adjustment of assumed debt Deferred unit compensation expense Deferred asset management fees Straight-line rent 366 240 (26) 138 502 (56) 265 223 – 88 831 (142) 1,183 930 (206) 628 1,907 (98) 424 366 – 88 841 (187) $ 13,512 $ 11,865 $ 52,664 $ 19,632 Deduct: Normalized leasing costs and tenant incentives Normalized non-recoverable recurring capital expenditures (1,025) (600) (1,025) (600) (4,100) (2,400) (1,682) (985) AFFO $ 11,887 $ 10,240 $ 46,164 $ 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 three months ended December 31, 2012 is 64,064,093 and 77,017,591, respectively. Diluted FFO includes interest and amortization adjustments related to the Debentures of $2.7 million for the three months ended December 31, 2012. The weighted average number of Units outstanding for basic and diluted FFO calculations for the year ended December 31, 2012 is 57,379,400 and 70,201,274, respectively. Diluted FFO includes interest and amortization adjustments related to the Debentures of $10.7 million for the year ended December 31, 2012. On average for the quarter, the REIT had approximately $115.0 million of cash available for acquisitions. Over the course of the year, the REIT had approximately $73.0 million of cash available for acquisitions. Consistent with our newly acquired investment properties, we estimate that these funds, if invested, would generate a return on equity of approximately 11.0% and would have contributed $3.2 million and $8.0 million, respectively, to FFO and AFFO for the quarter and year ended December 31, 2012, respectively. PAGE 28 DUNDEE INTERNATIONAL 2012 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 ﬂ ow from operating activities as deﬁ ned 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 undeployed cash: FFO per unit – basic FFO per unit – diluted Adjusted funds from operations AFFO AFFO per unit – basic Excluding the impact of undeployed cash: For the three months ended December 31, 2012 $ $ $ $ $ 12,348 0.19 0.19 0.24 0.24 For the three months ended December 31, 2011 $ $ $ 10,600 0.20 0.20 For the year ended December 31, 2012 For the period from August 3, 2011 to December 31, 2011 $ $ $ $ $ 48,320 0.84 0.84 $ $ $ 18,100 0.35 0.35 0.98 0.95 For the three months ended December 31, 2012 $ $ 11,887 0.19 For the three months ended December 31, 2011 For the year ended December 31, 2012 For the period from August 3, 2011 to December 31, 2011 $ $ 10,240 0.20 $ $ 46,164 0.80 $ $ 16,965 0.33 AFFO per unit – basic $ 0.24 $ 0.94 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 ﬂ ow from operating activities as deﬁ ned 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, which 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 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 29 DUNDEE INTERNATIONAL 2012 Annual Report FFO and AFFO are not deﬁ ned 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 months ended December 31, 2012 For the three months ended December 31, 2011 For the year ended December 31, 2012 For the period from August 3, 2011 to December 31, 2011 $ 16,712 $ 10,803 $ 52,320 $ 22,611 – (3,488) 13 (248) 523 (1,025) (600) 467 477 39 32 47 (1,025) (600) – (287) 37 (417) 1,011 (4,100) (2,400) 7,853 (10,931) 20 32 47 (1,682) (985) AFFO $ 11,887 $ 10,240 $ 46,164 $ 16,965 Selected annual information The following table provides selected information for the past two years: For the year ended December 31, 2012 For the period from August 3, 2011 to December 31, 2011 $ 138,661 $ 54,274 10,916 10,916 1,400,269 726,830 43,568 (23,201) (23,201) 1,039,340 579,006 14,441 72,232,494 – 43,872,316 8,000,000 Revenues Income (loss) before discontinued operations Net income (loss) Total Assets Debt Distributions declared Units Outstanding: REIT Units Exchangeable Notes PAGE 30 DUNDEE INTERNATIONAL 2012 Annual Report Quarterly information The following tables show quarterly information since August 3, 2011: REVENUES Investment properties revenue Investment properties operating expenses $ NET RENTAL INCOME OTHER INCOME AND EXPENSES Portfolio management Interest and other income Interest expense General and administrative Fair value adjustments to investment properties Fair value adjustments to ﬁ nancial instruments Depreciation and amortization Acquisition related gain, net Loss on sale of investment property Share of net losses from equity accounted investments Income before taxes Current income taxes Deferred income taxes NET INCOME (LOSS) Add (deduct): Depreciation of property and equipment Amortization of lease incentives Interest on Exchangeable Notes Acquisition related gain, net Loss on sale of investment property Deferred income taxes Term debt swap settlement Deferred gain/loss on settlement of Forex contracts Fair value adjustments to investment properties Fair value adjustments to ﬁ nancial instruments FFO FFO per unit – basic FFO per unit – diluted Funds from operations Add (deduct): Amortization of ﬁ nancing costs Accretion of debenture conversion feature Amortization of FV adjustment of debt Deferred compensation expense Deferred asset management expense Straight-line rent Deduct: Normalized initial direct leasing costs and tenant incentives Normalized non-recoverable recurring capital expenditures AFFO AFFO per unit – basic AFFO per unit – diluted $ $ $ $ $ Q4 2012 Q3 2012 Q2 2012 Q1 2012 Q4 2011 Q3 2011 $ 35,926 13,869 22,057 $ 33,765 12,024 21,741 $ 34,896 13,992 20,904 $ 34,074 13,337 20,737 $ 31,726 10,757 20,969 22,548 9,017 13,531 (1,019) 289 (6,100) (1,638) (16,870) (6,736) (7) – (258) 11 (10,271) 84 (1,668) (1,096) 59 (6,531) (1,856) (2,574) (5,950) (35) – (62) (13) 3,683 77 (57) (1,051) 63 (6,629) (1,598) (3,010) 130 (11) – – 12 8,810 29 (334) (1,035) 92 (8,119) (1,487) (895) (2,658) – – – 11 6,646 36 (215) (894) 122 (8,591) (2,253) (31,704) (8,557) – (467) – 32 (31,343) – (5,367) $ (8,687) $ 3,663 $ 9,115 $ 6,825 $ (25,976) $ 9 9 – – 258 (1,668) (1,660) 481 16,870 6,736 12,348 0.19 0.19 $ $ 38 8 406 – 62 (57) (1,155) 954 2,574 5,950 12,443 0.22 0.21 $ $ 16 – 632 – – (334) (1,038) 496 3,010 (130) 11,767 0.21 0.21 6 – 1,520 – – (215) (402) 475 895 $ $ 2,658 11,762 0.23 0.22 $ $ 7 – 1,609 467 – (5,367) (317) (84) 31,704 8,557 10,600 0.2 0.2 $ $ 12,348 $ 12,443 $ 11,767 $ 11,762 $ 10,600 $ 366 240 (26) 138 502 (56) 279 235 (76) 180 504 (78) 273 230 (78) 158 488 18 265 225 (26) 152 413 18 265 223 – 88 831 (142) (672) 10 (5,265) (861) 8,557 (6,010) – (7,386) – (25) 1,879 – (896) 2,775 6 – 1,032 7,386 – (896) (256) – (8,557) 6,010 7,500 0.15 0.15 7,500 159 143 – – 10 (45) 13,512 13,487 12,856 12,809 11,865 7,767 (1,025) (600) 11,887 0.19 0.19 $ $ (1,025) (1,025) (1,025) (1,025) (600) 11,862 0.21 0.20 $ $ (600) 11,231 0.20 0.20 $ $ (600) 11,184 0.22 0.21 $ $ (600) 10,240 0.20 0.20 $ $ (657) (385) 6,725 0.13 0.13 Weighted average number of units Basic Diluted Quarterly average exchange rate ($:€1) 64,064,093 77,017,591 1.286 57,795,412 70,666,219 55,697,600 68,474,767 51,882,467 64,565,100 51,862,716 64,396,562 50,066,374 61,739,125 1.245 1.296 1.313 1.379 1.389 PAGE 31 DUNDEE INTERNATIONAL 2012 Annual Report Section III – Disclosure controls and procedures and internal controls over ﬁ nancial reporting Our Chief Executive Ofﬁ cer and Chief Financial Ofﬁ cer have designed, or caused to be designed under their direct supervision, the Trust’s Disclosure Controls and Procedures (as deﬁ ned in National Instrument 52-109, “Certiﬁ cation of Disclosure in Issuers’ Annual and Interim Filings” (“NI 52-109”)) to provide reasonable assurance that: (i) material information relating to the Trust and its consolidated subsidiaries is made known to them by others, particularly during the period in which the interim ﬁ lings are being prepared; and (ii) information required to be disclosed by the Trust in its annual ﬁ lings, interim ﬁ lings or other reports ﬁ led or submitted by it under securities legislation is recorded, processed, summarized and reported on a timely basis. Our Chief Executive Ofﬁ cer and Chief Financial Ofﬁ cer have also designed, or caused to be designed under their direct supervision, the Trust’s Internal Control over Financial Reporting (as deﬁ ned in NI 52-109) to provide reasonable assurance regarding the reliability of ﬁ nancial reporting and the preparation of ﬁ nancial statements for external purposes in accordance with IFRS. Because of its inherent limitations, internal control over ﬁ nancial reporting can provide only reasonable assurance and may not prevent or detect misstatements. The Trust is continually reviewing and evaluating its systems of controls and procedures and, subject to inherent limitations noted above, has concluded that they were effective as at December 31, 2012. Section IV – Risks and our strategy to manage We are exposed to various risks and uncertainties, many of which are beyond our control. For a full list and explanation of our risks and uncertainties, please refer to our 2011 Annual Report or our Annual Information Form dated March 30, 2012, ﬁ led on SEDAR (www.sedar.com). Real estate ownership Real estate ownership is generally subject to numerous factors and risks, including changes in general economic conditions (such as the availability, terms and cost of mortgage ﬁ nancings and other types of credit), local economic conditions (such as an oversupply of ofﬁ ce 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 difﬁ cult 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 sufﬁ cient cash for operations and for making distributions and interest payments. Certain signiﬁ cant 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 sufﬁ cient 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 signiﬁ cant 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. PAGE 32 DUNDEE INTERNATIONAL 2012 Annual Report 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 ﬂ ows and ﬁ nancial position would be adversely affected if our tenants were to become unable to meet their obligations under their leases or if a signiﬁ cant 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 ﬂ ows 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 21% of the Trust’s GLA at December 31, 2012. 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 speciﬁ cally 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 ﬂ ows and ﬁ nancial condition may be more adversely affected than those of companies that have more geographically diversiﬁ ed portfolios of properties. We derive a signiﬁ cant portion of our rental income from Deutsche Post. Consequently, these 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 signiﬁ cant capital expenditures. There is no assurance that capital will be available when needed or on favourable terms. Our access to third- party ﬁ nancing 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 ﬂ ow and cash distributions; cash interest payments; and the market price of our Units. A signiﬁ cant portion of our ﬁ nancing is debt. Accordingly, we are subject to the risks associated with debt ﬁ nancing, including the risk that our cash ﬂ ows will be insufﬁ cient to meet required payments of principal and interest, and that on maturities of such debt we may not be able to reﬁ nance the outstanding principal under such debt or that the terms of such reﬁ nancing will be more onerous than those of the existing debt. If we are unable to reﬁ nance 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 ﬁ nancial position or cash ﬂ ows. The degree to which we are leveraged could have important consequences for 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 ﬂ exibility 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 the then outstanding borrowings; and impair our ability to obtain additional ﬁ nancing in the future for working capital, capital expenditures, acquisitions, general trust or other purposes. PAGE 33 DUNDEE INTERNATIONAL 2012 Annual Report 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 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 ﬁ nancing agreements with third parties and afﬁ liates 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 clariﬁ ed 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 the event 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 ﬂ uctuations 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, ﬂ uctuations in such foreign currencies against the Canadian dollar could have a material adverse effect on our ﬁ nancial 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 ﬁ nancial 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 ﬁ nancial institutions, may be PAGE 34 DUNDEE INTERNATIONAL 2012 Annual Report 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. Interest rates When entering into ﬁ nancing agreements or extending such agreements, we depend on our ability to agree on terms for interest payments that will not impair our desired proﬁ t 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 ﬁ nancing agreements, we may enter into future ﬁ nancing agreements with variable interest rates. An increase in interest rates could result in a signiﬁ cant 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 ﬁ nancial results, our ability to pay distributions to unitholders and cash interest payments under our ﬁ nancing arrangements, the debentures and future ﬁ nancings 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 signiﬁ cant negative effect on our ability to sell any of our properties. See “Foreign exchange rate ﬂ uctuations” 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 ﬁ xtures 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. PAGE 35 DUNDEE INTERNATIONAL 2012 Annual Report 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 Initial 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 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 ﬁ ling tax returns and shared employee matters will require the approval of a majority of the directors. Each of the directors has a ﬁ duciary 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 ﬂ ows, ﬁ nancial 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 ﬂ ows, ﬁ nancial 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. New properties acquired by the Trust are held through Luxembourg limited liability entities outside of the Lorac arrangement. 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 ﬁ nancially, 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 ﬂ ows, operating results and ﬁ nancial condition. PAGE 36 DUNDEE INTERNATIONAL 2012 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, ﬂ ood, 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 proﬁ ts and cash ﬂ ows 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 proﬁ ts and cash ﬂ ows from, such property. Section V – Critical accounting policies Critical accounting judgments, estimates and assumptions in applying accounting policies Preparing the consolidated ﬁnancial statements requires management to make judgments, estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and the disclosures of contingent liabilities. Management bases its judgments and estimates on historical experience and other factors it believes to be reasonable under the circumstances, but that are inherently uncertain and unpredictable, the result of which forms the basis of the carrying amounts of assets and liabilities. However, uncertainty about these assumptions and estimates could result in outcomes that could require a material adjustment to the carrying amounts of the asset or liability affected in the future. Dundee International REIT’s critical accounting judgments, estimates and assumptions in applying accounting policies are described in Note 4 in the consolidated ﬁnancial statements. Changes in accounting estimates and changes in accounting policies Future accounting policy changes Dundee International REIT’s future accounting policy changes are described in Note 5 in the consolidated ﬁ nancial statements. Additional information relating to Dundee International REIT, including our Annual Information Form dated March 30, 2012, is available on SEDAR at www.sedar.com. PAGE 37 DUNDEE INTERNATIONAL 2012 Annual Report Management’s responsibility for ﬁ nancial statements The accompanying consolidated ﬁ nancial statements, the notes thereto and other ﬁ nancial 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 ﬁ nancial 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 fulﬁ lls its responsibility for ﬁ nancial reporting and internal control. The audit committee, which comprises trustees, meets with management as well as the external auditors to satisfy itself that management is properly discharging its ﬁ nancial responsibilities and to review its consolidated ﬁ nancial statements and the report of the auditors. The audit committee reports its ﬁ ndings to the Board of Trustees, which approves the consolidated ﬁ nancial statements. PricewaterhouseCoopers LLP, the independent auditors, have audited the consolidated ﬁ nancial 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 RENE D. GULLIVER President and Chief Executive Ofﬁ cer Chief Financial Ofﬁ cer Toronto, Ontario, February 21, 2013 PAGE 38 DUNDEE INTERNATIONAL 2012 Annual Report Independent auditor’s report To the Unitholders of Dundee International Real Estate Investment Trust We have audited the accompanying consolidated ﬁ nancial statements of Dundee International Real Estate Investment Trust and its subsidiaries, which comprise the consolidated balance sheets as at December 31, 2012 and December 31, 2011 and the consolidated statements of comprehensive income (loss), changes in equity and cash ﬂ ows for the year then ended December 31, 2012 and the period from April 21, 2011 to December 31, 2011, and the related notes, which comprise a summary of signiﬁ cant accounting policies and other explanatory information. Management’s responsibility for the consolidated ﬁ nancial statements Management is responsible for the preparation and fair presentation of these consolidated ﬁ nancial statements in accordance with International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of consolidated ﬁ nancial 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 ﬁ nancial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated ﬁ nancial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated ﬁ nancial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated ﬁ nancial 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 ﬁ nancial 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 ﬁ nancial statements. We believe that the audit evidence we have obtained in our audits is sufﬁ cient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the consolidated ﬁ nancial statements present fairly, in all material respects, the ﬁ nancial position of Dundee International Real Estate Investment Trust and its subsidiaries, as at December 31, 2012 and December 31, 2011, and their ﬁ nancial performance and their cash ﬂ ows for the year then ended December 31, 2012 and 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 21, 2013 PAGE 39 DUNDEE INTERNATIONAL 2012 Annual Report Consolidated balance sheets (in thousands of Canadian dollars) Assets NON-CURRENT ASSETS Investment properties Amount in escrow Deferred income tax assets Other non-current assets CURRENT ASSETS Amounts receivable Prepaid expenses Amount in escrow Cash Total assets Liabilities NON-CURRENT LIABILITIES Debt Exchangeable Notes Deferred rent Deposits Derivative ﬁ nancial instruments Deferred Unit Incentive Plan CURRENT LIABILITIES Debt Amounts payable and accrued liabilities Income tax payable Deferred rent Distributions payable Total liabilities Equity Unitholders’ equity Deﬁ cit Accumulated other comprehensive loss Total equity Total liabilities and equity Note December 31, 2012 December 31, 2011 8 9 21 10 11 9 12 13 9 14 15 12 16 9 17 18 $ $ 1,182,757 5,568 8,491 548 1,197,364 4,822 4,354 12,110 181,619 202,905 941,442 – 7,034 364 948,840 2,010 583 – 87,907 90,500 $ 1,400,269 $ 1,039,340 $ 724,119 – 5,568 895 23,076 3,629 757,287 2,711 26,863 404 12,110 4,816 46,904 $ 579,006 80,000 – 481 11,754 945 672,186 – 13,420 – – 2,925 16,345 804,191 688,531 689,318 (70,294) (22,946) 596,078 407,009 (37,642) (18,558) 350,809 $ 1,400,269 $ 1,039,340 See accompanying notes to the consolidated ﬁ nancial statements On behalf of the Board of Trustees of Dundee International Real Estate Investment Trust: MICHAEL J. COOPER Trustee PAGE 40 P. JANE GAVAN Trustee Consolidated statements of comprehensive income (loss) (in thousands of Canadian dollars) DUNDEE INTERNATIONAL 2012 Annual Report 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 Depreciation and amortization Loss on sale of investment property Share of income from equity accounted investment Acquisition related costs, net Interest and other income Interest expense Fair value adjustments to ﬁ nancial instruments Income before income taxes Current income taxes Deferred income taxes Provision for (recovery of) income taxes Net income (loss) Foreign currency translation adjustment Comprehensive income (loss) See accompanying notes to the consolidated ﬁ nancial statements Note 8 8 10 19 20 21 For the year ended December 31, 2012 For the period from April 21 to December 31, 2011 $ 138,661 $ 54,274 53,222 85,439 (4,201) (6,579) (23,349) (53) (320) 21 – 503 (27,379) (15,214) 8,868 226 (2,274) (2,048) 10,916 (4,388) 19,774 34,500 (1,566) (3,114) (23,147) – – 7 (7,853) 132 (13,856) (14,567) (29,464) – (6,263) (6,263) (23,201) (18,558) $ 6,528 $ (41,759) PAGE 41 DUNDEE INTERNATIONAL 2012 Annual Report Consolidated statement of changes in equity (in thousands of Canadian dollars, except number of Units) Attributable to unitholders of the Trust Note Number of Units Unitholders’ equity Deﬁ cit Accumulated other comprehensive loss Balance at January 1, 2012 43,872,316 $ 407,009 $ (37,642) $ (18,558) $ Net income for the year Distributions paid Distributions payable Public offering of Units Distribution Reinvestment Plan Unit Purchase Plan Deferred Unit Incentive Plan Issue costs Foreign currency translation adjustment 17 17 18 18 18 18 – – – 28,186,500 157,432 3,371 12,875 – – – – – 10,916 (38,752) (4,816) 290,436 1,644 36 138 (9,945) – – – – – – – – – – – – – – – (4,388) Total 350,809 10,916 (38,752) (4,816) 290,436 1,644 36 138 (9,945) (4,388) Balance at December 31, 2012 72,232,494 $ 689,318 $ (70,294) $ (22,946) $ 596,078 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 Attributable to unitholders of the Trust Note Number of Units Unitholders’ equity Deﬁ cit Accumulated other comprehensive loss – $ – $ 18 800,000 400 $ – – 17 17 18 18 18 – – – – – – (23,201) (11,516) (2,925) 43,050,000 430,500 22,316 – – 217 (24,108) – – – – – $ – – – – – – – – (18,558) Total – 400 (23,201) (11,516) (2,925) 430,500 217 (24,108) (18,558) Balance at December 31, 2011 43,872,316 $ 407,009 $ (37,642) $ (18,558) $ 350,809 See accompanying notes to the consolidated ﬁ nancial statements PAGE 42 Consolidated statements of cash ﬂ ows (in thousands of Canadian dollars) Generated from (utilized in) operating activities Net income (loss) Non-cash items: Share of income from equity accounted investment Deferred income taxes Amortization of lease incentives Amortization of ﬁ nancing costs Amortization of fair value adjustment on acquired debt Amortization of initial discount on convertible debentures Loss on sale of investment property Depreciation and amortization Deferred unit compensation expense and asset management fees Straight-line rent adjustment Fair value adjustments to ﬁ nancial instruments Fair value adjustments to investment properties Cash settlement on foreign exchange contracts Interest 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 Prepaid transaction costs on investment properties Proceeds from disposal of investment property Generated from (utilized in) ﬁ nancing activities Purchase of derivative instruments Proceeds from vendor for ﬁ nancing charges Mortgages placed Financing costs on debts placed Mortgage principal repayments Lump sum repayment Issue of convertible debentures, net of costs Proceeds of term debt, net of costs Issue of Exchangeable Notes Units issued for cash Unit issue costs Distributions paid on Units Interest on Exchangeable Notes Increase in cash Effect of exchange rate changes on cash Cash, beginning of period Cash, end of period See accompanying notes to the consolidated ﬁ nancial statements DUNDEE INTERNATIONAL 2012 Annual Report For the year ended December 31, 2012 For the period from April 21 to December 31, 2011 Note $ 10,916 $ (23,201) (21) (2,274) 17 1,183 (206) 930 320 53 2,535 (98) 15,214 23,349 2,822 2,558 (4,255) (1,010) 287 52,320 (2,391) (241,032) (2,969) 7,095 (239,297) – – 130,889 (2,330) (908) (3,426) – – – 208,142 (8,961) (40,033) (2,558) 280,815 93,838 (126) 87,907 181,619 (7) (6,263) – 424 – 366 – – 929 (187) 14,567 23,147 (116) 2,641 (573) (47) 10,931 22,611 (488) (998,266) – – (998,754) (9,986) 9,555 – – – – 154,069 438,163 80,000 430,900 (23,838) (11,299) (2,641) 1,064,923 88,780 (873) – 87,907 $ PAGE 43 15 20 19 23 8 6, 7 19 $ DUNDEE INTERNATIONAL 2012 Annual Report Notes to the consolidated ﬁ nancial 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 ﬁ nancial statements of the REIT include the accounts of the REIT and its consolidated subsidiaries. The REIT’s portfolio comprises ofﬁ ce, industrial and mixed use properties located in Germany. The address of the Trust’s registered ofﬁ ce 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 ﬁ nancial statements for the year ended December 31, 2012, were authorized for issue by the Board of Trustees on February 21, 2013, after which date the consolidated ﬁ nancial statements may only be amended with Board approval. On April 11, 2011, 800,000 Units were issued to Dundee Realty Corporation (“DRC”) for $400 cash. During the period from April 21, 2011 to August 2, 2011, the Trust had no operating activity. At December 31, 2012, Dundee Corporation, the majority shareholder of DRC, directly and indirectly through its subsidiaries, held 12,800,000 Units. Note 2 Summary of signiﬁ cant accounting policies Statement of compliance These consolidated ﬁ nancial statements 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 ﬁ nancial statements are prepared on a going concern basis and have been presented in Canadian dollars, which is also the Trust’s functional currency. All ﬁ nancial 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 ﬁ nancial statements but not yet effective for the current accounting period are described in Note 5. The consolidated ﬁ nancial statements have been prepared on the historical cost basis except for investment properties, the conversion feature of the convertible debentures, Exchangeable Notes, ﬁ nancial derivatives, and the Deferred Unit Incentive Plan, which are measured at carrying values impacted by fair values. Basis of consolidation The consolidated ﬁ nancial statements comprise the ﬁ nancial 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 ﬁ nancial and operating policies of an entity so as to obtain beneﬁ t 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 ﬁ nancial 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 44 DUNDEE INTERNATIONAL 2012 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 sheets at cost, adjusted for the Trust’s proportionate share of post-acquisition proﬁ ts 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 identiﬁ ed impairment loss. The Trust’s share of proﬁ ts and losses is recognized in the share of net earnings from equity accounted investments in the consolidated statements of comprehensive income (loss). 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 proﬁ ts and losses are eliminated to the extent of the Trust’s interest in the investment. Balances outstanding between the Trust and equity accounted investments in which it has an interest are not eliminated in the consolidated balance sheets. Note 3 Accounting policies selected and applied for signiﬁ cant transactions and events The signiﬁ cant accounting policies used in the preparation of these consolidated ﬁ nancial statements are described below: Investment properties Investment properties are initially recorded at cost including related transaction costs in connection with asset acquisitions, except if acquired in a business combination, in which case they are initially recorded at fair value, and include ofﬁ ce, 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 reﬂ ecting market conditions at the consolidated balance sheet date, less future estimated cash outﬂ ows in respect of such properties. To determine fair value, the Trust ﬁ rst 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 insufﬁ cient market evidence on which to base investment property valuation using this approach and has therefore determined to use the income approach. 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 ﬂ ow 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 properties and are amortized on a straight- line basis over the term of the lease as a reduction of investment properties revenue. PAGE 45 DUNDEE INTERNATIONAL 2012 Annual Report 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 65% of the gross rental income generated by the Trust’s properties for the year ended December 31, 2012 (December 31, 2011 – 85%). Foreign currency translation Functional and presentation currency Items included in the ﬁ nancial 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 ﬁ nancial 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 statements of comprehensive income except when deferred in other comprehensive income as qualifying cash ﬂ ow hedges and qualifying net investment hedges. Foreign exchange gains and losses are presented in the consolidated statements of comprehensive income. Group companies The results and ﬁ nancial 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) assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet; (ii) 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 statements of income as part of the gain or loss on sale. 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 46 DUNDEE INTERNATIONAL 2012 Annual Report Other non-current assets Other non-current assets include equity accounted investments, property and equipment, and straight-line rent receivables. 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 ﬁ nancial 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 beneﬁ ts associated with the item will ﬂ ow 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 ﬁ nancial period in which they are incurred. Other non-current assets are derecognized upon disposal or when no future economic beneﬁ ts 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 outﬂ ow 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 reﬂ ects current market assessments of the time value of money and the risk speciﬁ c 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 beneﬁ ts 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 recognized and the contractual amount received. Recoveries from tenants are recognized as revenues in the period in which the corresponding costs are incurred and collectability reasonably assured. Other revenues are recorded as earned. 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 beneﬁ ts 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. Business combinations The purchase method of accounting is used for acquisitions meeting the deﬁ nition of a business. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued, and liabilities incurred or assumed at the date of exchange. Identiﬁ able 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 identiﬁ able 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. PAGE 47 DUNDEE INTERNATIONAL 2012 Annual Report Distributions Distributions to unitholders are recognized as a liability in the period in which the distributions are approved by the Board of Trustees and are recorded as an increase to the deﬁ cit. Income taxes The REIT is taxed as a mutual fund trust under the Income Tax Act (Canada). The REIT is not a speciﬁ ed investment ﬂ ow-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 ﬁ nancial 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 asset and liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated ﬁ nancial 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 proﬁ t will be available against which the temporary differences can be utilized. Unit-based compensation plan The Trust has a Deferred Unit Incentive Plan (“DUIP”), as described in Note 18, that provides for the grant of deferred trust units and income deferred trust units to trustees, ofﬁ cers, employees, afﬁ liates 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, ofﬁ cers and employees are recognized as compensation expense and included in general and administrative expense. 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 ﬁ nancial instruments. Deferred units granted to DRC for payment of asset management fees are included in general and administrative expense 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 being recognized in comprehensive income as fair value adjustment to ﬁ nancial 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. PAGE 48 DUNDEE INTERNATIONAL 2012 Annual Report Financial instruments Designation of ﬁ nancial instruments The following summarizes the Trust’s classiﬁ cation and measurement of ﬁ nancial assets, liabilities and ﬁ nancial derivatives: Classiﬁ cation Measurement Financial assets Amounts receivable Restricted cash and deposits Cash and cash equivalents Financial liabilities Mortgage debt Term loan credit facility Convertible debentures – host instrument Exchangeable Notes Deposits Deferred Unit Incentive Plan Amounts payable and accrued liabilities Distributions payable Income taxes payable Financial derivatives Derivative assets Derivative liabilities Convertible debentures – conversion feature Loans and receivables Loans and receivables Loans and receivables Other liabilities Other liabilities Other liabilities Other liabilities Other liabilities Other liabilities Other liabilities Other liabilities Other liabilities Fair value through proﬁ t and loss Fair value through proﬁ t and loss Fair value through proﬁ t and loss Amortized cost Amortized cost Amortized cost Amortized cost Amortized cost Amortized cost Amortized cost Amortized cost Amortized cost Amortized cost Amortized cost Amortized cost Fair value Fair value Fair value Financial assets The Trust classiﬁ es its ﬁ nancial assets upon initial recognition as loans and receivables. All ﬁ nancial assets are initially measured at fair value, less any related transaction costs. Subsequently, ﬁ nancial assets are measured at amortized cost. Amounts receivable are initially measured at fair value and are subsequently measured at amortized cost less provision for impairment. A provision for impairment is established when there is objective evidence that collection will not be possible under the original terms of the contract. Indicators of impairment include delinquency of payment and signiﬁ cant ﬁ nancial difﬁ culty 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 statements 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 ﬂ ows from the ﬁ nancial asset expire or the Trust transfers substantially all risks and rewards of ownership. PAGE 49 DUNDEE INTERNATIONAL 2012 Annual Report Financial liabilities The Trust classiﬁ es its ﬁ nancial 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). Financial liabilities classiﬁ ed 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 ﬁ nancial liabilities are recognized in comprehensive income over the expected life of the debt. The Trust’s ﬁ nancial liabilities that are classiﬁ ed 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 ﬁ nancial liability components: the host instrument and the conversion feature. This presentation is required because the conversion feature permits the holder to convert the debenture into 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 reclassiﬁ ed to unitholders’ equity in proportion to the units converted over the total equivalent units outstanding. The DUIP and the Exchangeable Notes are measured at amortized cost because they are settled in Units, which in accordance with IAS 32 are liabilities. Consequently, the DUIP and Exchangeable Notes are remeasured each period based on the fair value of Units, with changes in the liabilities recorded in comprehensive income. Distributions paid on Exchangeable Notes are recorded as interest expense in comprehensive income. The Trust considers interest expense on the Exchangeable Notes to be a ﬁ nancing activity in the statements of cash ﬂ ows. A ﬁ nancial 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 sheets 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 ﬁ nancial instruments. The Trust has not designated any derivatives as hedges for accounting purposes. Interest Interest on debt includes coupon interest on term loans and mortgage debt, 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 net settlement of ﬁ nancial interest rate derivatives and interest on Exchangeable Notes. Finance costs are amortized to interest expense unless they relate to a qualifying asset. PAGE 50 DUNDEE INTERNATIONAL 2012 Annual Report Equity The Trust classiﬁ es the Units as equity. Under IAS 32 the Units are considered a puttable ﬁ nancial 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 classiﬁ ed as equity and not ﬁ nancial liabilities because the Units have the following features, as deﬁ ned in IAS 32 (hereinafter referred to as the “puttable exemption”): (cid:129) 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. (cid:129) 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. (cid:129) All instruments in the class of instruments that are subordinate to all other classes of instruments have identical features. (cid:129) Apart from the contractual obligation for the Trust to redeem the Units for cash or another ﬁ nancial asset, the Units do not include any contractual obligation to deliver cash or another ﬁ nancial asset to another entity, or to exchange ﬁ nancial assets or ﬁ nancial 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. (cid:129) The total expected cash ﬂ ows attributable to the Units over their life are based substantially on the proﬁ t 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 ﬁ nancial instrument or contract that has total cash ﬂ ows based substantially on the proﬁ t 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 ﬁ nancial instrument or contract that has the effect of substantially restricting or ﬁ xing the residual return to unitholders. 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 ﬁ nancial 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 signiﬁ cant effect on the amounts in the consolidated ﬁ nancial statements: PAGE 51 DUNDEE INTERNATIONAL 2012 Annual Report 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 qualiﬁ ed in the professional valuation of ofﬁ ce, 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 ﬁ nance leases. The Trust has determined that all of its leases are operating leases. Income tax treatment The REIT indirectly owns a majority of its properties through 15 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 signiﬁ cant 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 ﬁ nancial statements on that basis. On January 30, 2013, the German federal government approved a draft of an Investment Tax Act reform bill. Based on the draft bill, it is considered likely that foreign investment funds such as the FCPs will become subject to corporate income tax in Germany. Although the draft bill is subject to change and the consequences of such bill are still to be deﬁ nitively determined, the REIT does not believe that the draft bill will have a material impact. Further, the REIT believes that the consequences of the draft would be the same from a German corporate tax perspective irrespective of whether it is the FCPs or the FCP unitholders that are determined to be the taxpayer. The Trust computes current and deferred income taxes included in the consolidated ﬁ nancial statements based on the following: (cid:129) The rate of corporate tax payable on German taxable income is 15.825%, including a 5.5% solidarity surcharge; (cid:129) 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; (cid:129) 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 (cid:129) The deduction of interest expense, which must reﬂ ect 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. PAGE 52 DUNDEE INTERNATIONAL 2012 Annual Report 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 and has presented the Exchangeable Notes 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 deﬁ ned 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 beneﬁ ts 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. When determining whether the acquisition of an investment property or a portfolio of investment properties is a business combination or an asset acquisition, the Trust applies judgment when considering the following: (cid:129) whether the investment property or properties are capable of producing outputs (cid:129) whether the market participant could produce outputs if missing elements exist In particular, the Trust considers the following: (cid:129) whether employees were assumed in the acquisition (cid:129) whether an operating platform has been acquired Currently, when the Trust acquires properties or a portfolio of properties, does not take on or assume employees or does not acquire an operating platform, it classiﬁ es the acquisition 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 ﬁ nancial 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 reﬂ ect current market uncertainties, capitalization rates, and current and recent property investment prices. If there is any change in these assumptions or regional, national or international economic conditions, the fair value of investment properties may change materially. PAGE 53 DUNDEE INTERNATIONAL 2012 Annual Report Valuation of ﬁ nancial 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 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 ﬁ nancial instruments, including cash and cash equivalents, amounts receivable, amounts payable and accrued liabilities, income taxes payable, and distributions payable, the carrying amounts approximate fair values due to their immediate or short-term maturity. The fair value of term loans and mortgage debt is determined based on discounted cash ﬂ ows using discount rates that reﬂ ect 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 The following are future accounting policy changes to be implemented by the Trust in future years: Financial instruments IFRS 9, “Financial Instruments” (“IFRS 9”), was issued by the IASB on November 12, 2009, and upon adoption will replace IAS 39, “Financial Instruments: Recognition and Measurement” (“IAS 39”). IFRS 9 provides guidance on the classiﬁcation and measurement of ﬁnancial assets and ﬁnancial liabilities and the derecognition of ﬁ nancial instruments. IFRS 9 is effective for annual periods beginning on or after January 1, 2015. The Trust does not expect any impact on its consolidated ﬁ nancial statements upon the adoption of IFRS 9. IFRS 7, “Financial Instruments: Disclosures” (“IFRS 7”), has been amended to require additional disclosures on transition from IAS 39 to IFRS 9. 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”, and eliminates the option to proportionately consolidate interests in certain types of joint ventures. The Trust will start the application of IFRS 11 in the consolidated ﬁ nancial statements effective January 1, 2013. The Trust does not expect any impact on its consolidated ﬁ nancial statements upon the adoption of IFRS 11. Financial instruments: Disclosures (amendment regarding disclosures on transfer of ﬁ nancial assets and presentation) IFRS 7 requires the Trust to provide disclosures related to offsetting ﬁ nancial assets and liabilities. The Trust is currently evaluating the impact of IFRS 7 on its consolidated ﬁ nancial statements and will start the application of this amendment on January 1, 2013. IAS 32, “Financial Instruments: Presentation” (“IAS 32”), has been amended to clarify requirements for offsetting ﬁ nancial assets and ﬁ nancial liabilities. The Trust will start the application of this amendment on January 1, 2014, and will report the required disclosures in its consolidated ﬁnancial statements. Consolidated ﬁ nancial statements IFRS 10, “Consolidated Financial Statements” (“IFRS 10”), replaces the guidance on control and consolidation in the current IAS 27, “Consolidated and Separate Financial Statements”. IFRS 10 changes the deﬁ nition of control under IFRS so that the same criteria are applied to all entities to determine control. 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 consolidated ﬁ nancial statements effective January 1, 2013, and does not expect it to have any impact on the consolidated ﬁnancial statements. PAGE 54 DUNDEE INTERNATIONAL 2012 Annual Report 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 consolidated ﬁ nancial statements effective January 1, 2013, and does not expect it to have an impact on the consolidated ﬁnancial statements. Fair value measurement IFRS 13, “Fair Value Measurement” (“IFRS 13”), deﬁnes fair value, provides guidance on its determination and introduces consistent requirements for disclosures on fair value measurement. The Trust will start the application of IFRS 13 in the consolidated ﬁ nancial statements effective January 1, 2013, and will report the required disclosures as per IFRS 13 on its consolidated ﬁ nancial statements. Presentation of items of other comprehensive income Amendments to IAS 1, “Presentation of Financial Statements” (“IAS 1”), provide guidance on the presentation of items contained in other comprehensive income, including a requirement to separate items presented in other comprehensive income into two groups based on whether or not they may be recycled to proﬁ t or loss in the future. The Trust will start the application of this amendment in the consolidated ﬁnancial statements effective January 1, 2013, and does not expect it to have an impact on the consolidated ﬁnancial statements as a result of adopting this standard. Note 6 Property acquisitions Detailed below are the acquisitions during the year ended December 31, 2012: For the year ended December 31, 2012 Grammophon Büropark, Hannover Karl-Martell-Strasse 60, Nuremberg Derendorfer Allee 4–4a (doubleU), Düsseldorf Greifswalder Str. 154–156 and Erich-Weinert-Str. 145, (Goldpunkt-Haus), Berlin Am Sandtorkai 37, (Humboldt-Haus), Hamburg Leopoldstrasse 252, 252a and 252b (Leo252), Munich Total (1) Includes transaction costs. Property type Interest acquired Purchase price(1) Date acquired ofﬁ ce ofﬁ ce ofﬁ ce ofﬁ ce ofﬁ ce ofﬁ ce 100% 100% 100% 100% 100% 100% $ 35,632 February 29, 2012 65,935 56,620 April 26, 2012 July 19, 2012 39,570 December 7, 2012 37,074 December 31, 2012 35,830 December 31, 2012 $ 270,661 On February 29, 2012, the REIT acquired Grammophon Büropark, an ofﬁ ce property located in Hannover, Germany, for $35,632. The acquisition was partially ﬁ nanced by assuming a mortgage with a fair value of $21,803. After working capital adjustments, the REIT paid $13,692 for the acquisition in cash. On April 26, 2012, the REIT acquired Karl-Martell-Strasse 60, an ofﬁ ce property located in Nuremberg, Germany, for $65,935. In May 2012, mortgage ﬁ nancing was obtained for this property in the amount of $34,196, net of costs of $538. On July 19, 2012, the REIT acquired doubleU, an ofﬁ ce property located at Derendorfer Allee 4 in Düsseldorf, Germany, for a price of $56,620. The acquisition was partially ﬁ nanced by a new mortgage for $31,956, net of costs of $300. On December 7, 2012, the REIT acquired Goldpunkt-Haus, an ofﬁ ce and retail complex located in Berlin, Germany, for $39,570. The acquisition was partially ﬁ nanced by a new mortgage for $21,406, net of costs of $352. On December 31, 2012, the REIT acquired Humboldt-Haus, an ofﬁ ce building located in Hamburg, Germany, for $37,074. The acquisition was partially ﬁ nanced by a new mortgage for $21,861, net of costs of $439. On December 31, 2012, the REIT also acquired Leo252, an ofﬁ ce building located in Munich, Germany, for $35,830. The acquisition was partially ﬁ nanced by a new mortgage of $19,643, net of costs of $198. PAGE 55 DUNDEE INTERNATIONAL 2012 Annual Report The assets acquired and liabilities assumed in the transaction were allocated as follows: Investment properties(1) Total purchase price The consideration paid consists of: Cash Assumed non-cash working capital Fair value of mortgage debt assumed Transaction costs accrued Total consideration (1) Includes transaction costs. For the year ended December 31, 2012 $ $ 270,661 270,661 $ 241,032 812 21,803 7,014 For the period from April 21 to December 31, 2011 $ $ $ – – – – – – – $ 270,661 $ Note 7 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 ﬁ nanced 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 identiﬁ able 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 For the year ended December 31, 2012 $ $ – – – – – – – For the period from April 21 to December 31, 2011 $ 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 56 Note 8 Investment properties Balance at beginning of period Additions: Acquisitions Building improvements Lease incentives and initial direct leasing costs Amortization of lease incentives Disposals Fair value adjustment Foreign currency translation Balance at end of period DUNDEE INTERNATIONAL 2012 Annual Report For the year ended December 31, 2012 For the period from April 21 to December 31, 2011 $ 941,442 $ – 270,661 997,777 2,391 1,011 (17) (7,415) (23,349) (1,967) 488 47 – – (23,147) (33,723) $ 1,182,757 $ 941,442 The fair value of investment properties has been reduced by $278 (December 31, 2011 – $177) as a result of straight-line rent receivable being reclassiﬁ ed to other non-current assets. Investment properties with an aggregate fair value of $1,182,757 at December 31, 2012 (December 31, 2011 – $941,442), were valued by qualiﬁ ed valuation professionals during the year. During 2012, six investment properties were acquired for $270,661 representing a capitalization rate of approximately 7.22%; refer to Note 6 for details of the acquisitions. During 2012, the REIT also disposed of ﬁ ve investment properties valued at $7,415. These properties were acquired in 2011 as part of the Initial Properties. On September 13, 2012, the Trust sold a property located at Bahnhofplatz 4 in Traunstein, for net proceeds of $1,027. A loss of $55 was recorded for this transaction in connection with transaction costs. On November 13, 2012, the Trust sold a property located at Ziegelstr. 15, 15A in Ravensburg for net proceeds of $1,815. A loss of $77 was recorded for this transaction in connection with transaction costs. On November 30, 2012, the Trust sold a property located at Bahnhofstr. 12 in Pullendorf for net proceeds of $803. A loss of $39 was recorded in connection with transaction costs. On December 28, 2012, the Trust sold a property located at Eichendorffstr. 14 in Traunreut for net proceeds of $877. A loss of $42 was recorded in connection with transaction costs. On December 31, 2012, the Trust sold a property located at Mecklenburgstr. 4–6 in Schwerin for net proceeds of $2,548. A loss of $107 was recorded in connection with transaction costs. On December 31, 2012, the fair values of the investment properties were adjusted downwards by $23,349, of which $11,582 related to capitalized transaction costs associated with the six property acquisitions. Another write-down amount of $3,402 related to building improvement and leasing costs incurred during the year and $1,661 pertained to the ﬁ ve properties sold and properties under contract for sale. The remaining $6,704 pertained to the decrease in fair value of the Initial Properties since the end of 2011. During the year ended December 31, 2012, the value of investment properties decreased by $1,967 due to the slight depreciation of the euro against the Canadian dollar from 2011. PAGE 57 DUNDEE INTERNATIONAL 2012 Annual Report 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 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. Fair values at December 31, 2012 and 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. If the cap rates were to increase by 25 bps, the investment properties balance would decrease by $39,164. If cap rates were to decrease by 25 bps, the investment properties balance would increase by $41,942. The Initial 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, to $997,777. Future minimum contractual rent (excluding service charges) under current operating leases is as follows: December 31, 2012(1) $ 103,070 339,624 115,947 $ 558,641 December 31, 2012 $ 17,678 $ $ 12,110 5,568 17,678 12,110 $ 5,568 December 31, 2011 $ $ $ $ – – – – – – Less than 1 year 1–5 years Longer than 5 years Total (1) Includes income from head lease. Note 9 Amount in escrow and deferred rent Amount in escrow Less: current portion Non-current portion Deferred rent Less: current portion Non-current portion PAGE 58 DUNDEE INTERNATIONAL 2012 Annual Report On June 30, 2011, Deutsche Post gave notice to terminate 17 leases with respect to its 2012 termination rights. In light of these terminations, the vendor of the properties has entered into a lease agreement with the Trust for the space and has paid an amount of $22,372 (€17,329) plus all interest accrued thereon for the rent covering the period commencing on July 1, 2012 to, and including, June 30, 2014. This amount has been set aside by the vendor in a bank account out of which the REIT will be paid on a monthly basis, starting from July 1, 2012, the net rent payable for two years plus prepayments of operating costs. On June 30, 2012, Deutsche Post gave notice to terminate one additional lease, pursuant to their 2012 termination rights. This termination, for which we received an additional payment from the vendor of approximately $218 (€169), will become effective as at July 1, 2013. During the year ended December 31, 2012, the Trust has received $10,424 out of escrow. Note 10 Other non-current assets Equity accounted investment Computer equipment Straight-line rent receivable Total December 31, 2012 December 31, 2011 $ $ 192 78 278 548 $ $ 173 14 177 364 Investment in joint ventures The Trust participates in a jointly controlled corporate entity (the “joint venture”) with other parties and accounts for its interests using the equity accounting method. Details of the Trust’s joint venture: Name Principal activity Location Ownership interest (%) December 31, 2012 Lorac Investment Management S.à r.l. Investment management Luxembourg 50 Note 11 Amounts receivable Trade receivables Less: Provision for impairment of trade receivables Trade receivables, net Other amounts receivable Total December 31, 2012 December 31, 2011 $ 247 (239) 8 4,814 $ 1,607 (76) 1,531 479 $ 4,822 $ 2,010 At December 31, 2012, other amounts receivable includes proceeds receivable from the sale of a property at Mecklenburgstr. 4–6 in Schwerin for $2,420, which was subsequently received on January 8, 2013. It also includes amounts receivable from tenants regarding operating cost recoveries of $1,404. The carrying amount of amounts receivable approximates fair value due to their current nature. PAGE 59 DUNDEE INTERNATIONAL 2012 Annual Report Note 12 Debt Mortgage debt Convertible debentures Term loan credit facility Total Less: Current portion Non-current debt December 31, 2012 December 31, 2011 $ 151,862 $ – 148,428 426,540 726,830 2,711 146,658 432,348 579,006 – $ 724,119 $ 579,006 First-ranking mortgages on all of the investment properties have been provided as security for either the mortgage debt or the term loan credit facility. Mortgage debt On February 29, 2012, the Trust assumed a mortgage with a principal balance of €15,454 ($20,805) at a ﬁ xed interest rate of 4.17% per annum maturing on February 28, 2015, in connection with the acquisition of Grammophon Büropark. The mortgage requires monthly repayments with a principal amortization of 2.00% per year. As a result of the non-market rate debt assumed, a fair value adjustment of $998 was recorded. On May 25, 2012, the Trust obtained a mortgage with a principal balance of €26,675 ($34,734) at a ﬁ xed interest rate of 2.45% per annum maturing June 30, 2017, on the newly acquired property Karl-Martell-Strasse 60. The mortgage requires monthly repayments with principal amortization increasing from 2% to 4% incrementally starting from July 2012 to maturity. On July 19, 2012, the Trust obtained a mortgage with a principal balance of €26,000 ($32,256) at a ﬁ xed interest rate of 2.09% per annum maturing July 31, 2017, on the newly acquired property doubleU. The mortgage requires monthly repayments with principal amortization of 1.4% per annum throughout the term. On December 7, 2012, the Trust obtained a mortgage with a principal balance of €17,000 ($21,758) at a ﬁ xed rate of 3.22% per annum maturing December 31, 2022, on acquisition of Goldpunkt-Haus. The mortgage requires quarterly payments with principal repayments of 1.75% of the initial loan amount. On December 31, 2012, the Trust obtained a mortgage with a principal balance of €17,000 ($22,300) at a ﬁ xed rate of 2.27% per annum maturing December 31, 2017, on acquisition of Humboldt-Haus. The mortgage requires quarterly payments with principal repayments of 2%. On the same day, the Trust obtained another mortgage with a principal balance of €15,125 ($19,841) at a ﬁ xed rate of 2.21% per annum maturing September 30, 2019, on acquisition of Leo252. The mortgage requires monthly payments with principal repayments of 1%. Convertible debentures 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 debenture holder into 76.9231 Units per one thousand dollars of face value, representing a conversion price of $13.00 per REIT Unit. On or after August 31, 2014, and prior to August 31, 2016, the Debentures may be redeemed by the Trust, 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 Trust’s Units for the 20 consecutive trading days, ending on the ﬁ fth 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, PAGE 60 DUNDEE INTERNATIONAL 2012 Annual Report 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. In addition, the Trust allocated $8,106 to the conversion feature upon initial recognition. The conversion feature will be accreted to the principal amount of the Debenture over its term. As at December 31, 2012, the outstanding principal amount is $161,000 (December 31, 2011 – $161,000). Term loan credit facility On August 3, 2011, the Trust obtained a term loan credit facility (the “Facility”) for gross proceeds of €328,500 ($448,395). Costs relating to the Facility were $10,832. During the year ended December 31, 2012, additional costs of $64 were incurred. These costs were reduced by proceeds received from the vendor to compensate the Trust for higher than expected ﬁ nancing costs in the amount of $9,555. The Facility has a term of ﬁ ve 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 ﬁ xed 80% of the variable interest rate payable under the Facility at a ﬁ xed 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 ﬁ xed 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. In December 2011, the Trust entered into another interest rate swap to pay a ﬁ xed rate of 3.37% on the 20% variable portion of the Facility for 2012. This contract expired on December 31, 2012. As at December 31, 2012, the Trust paid a ﬁ xed rate of 4.05% (December 31, 2011 – 4.05%) on 80% and a variable rate of 3.37% (December 31, 2011 – 3.69%) on the remaining 20% of the Facility. As a result, the Trust paid a blended rate of 3.91% in 2012. No amortization of principal under the Facility is required during the ﬁ rst 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 has the option to repay between 110% and 125% (with the average being 115%) of a principal amount of €100,000 through dispositions and reﬁ nancing of a portion of the Initial Properties by August 3, 2013. The applicable prepayment fee decreases from 1.5% of the repayment amounts for repayment made prior to August 3, 2012, to 0.95% for repayments made prior to August 3, 2013, to 0.6% for repayments made prior to August 3, 2014 and to 0.25% for repayments made prior to August 3, 2015. There is no repayment fee for repayments made in the ﬁ nal year of the Facility. If the full optional principal repayment is not repaid by August 3, 2013, the Trust will be required to pay additional interest of 1% on the portion of the €100,000 that has not been repaid, starting on August 3, 2013. During the year ended December 31, 2012, the Trust repaid €2,665 in connection with the disposition of ﬁ ve properties of the Initial Properties, including prepayment premiums, in accordance with the terms of the Facility. The Facility requires that certain bank accounts are to be pledged, and that all net rental income from the Initial Properties be paid into a rent collections account established by the Trust, 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 are calculated on a quarterly basis. The Facility agreement requires the debt service coverage ratio to be equal to or above 145% at each interest payment date. If these ratios are not met at any time, the lenders may withhold 50% of the excess cash ﬂ ow on a monthly basis as additional security for the Facility until the ratios are once again satisﬁ ed. Upon satisfaction of the relevant ratio, the excess cash ﬂ ow 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 satisﬁ ed for two consecutive quarters. As at December 31, 2012, the Trust was in compliance with its loan covenants. PAGE 61 DUNDEE INTERNATIONAL 2012 Annual Report 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. Revolving credit facility On September 27, 2012, the Trust obtained a revolving credit facility with a Canadian bank for an aggregate amount not exceeding €10,000 for general corporate purposes, available by way of EURIBOR-based loans in euros, Canadian dollar prime loans and/or Canadian dollar bankers’ acceptances, and a €15,000 senior credit facility secured by a ﬁ rst charge on investment properties to provide interim bridge ﬁ nancing for acquisitions of such properties in Germany on a property by property basis. The latter facility may be increased by an additional €20,000, subject to prior approval and 30 days’ notice. The advances are to be repaid when permanent ﬁ nancing is in place or within six months from the date of the advance. Amounts in excess of €15,000 are to be repaid within a year. The interest rate on any Canadian dollar advances is prime plus 200 basis points and/or bankers’ acceptance rates plus 300 basis points. For euro advances, the rate is 300 basis points over the three-month EURIBOR rate. The facility required an upfront fee payment of €187. Total ﬁ nancing costs incurred amounted to $439 in 2012. An additional 35 basis point fee will be payable per advance, up to a maximum of €150, for advances drawn in excess of €15,000. Undrawn amounts under the facility will be subject to a stand-by fee of 75 basis points. Funding requests in excess of €15,000 from this facility will be subject to a 75 basis point stand- by fee if the advance has not been made within 45 days of the funding request. The revolving credit facility agreement requires the Trust to maintain a debt-to-book value rating not to exceed 0.6:1; a minimum interest coverage ratio of 2:1; and a minimum net worth of $300,000. The revolving credit facility has a term of two years. As at December 31, 2012, the outstanding balance of the credit facility was $nil and the Trust is in compliance with the covenants of the revolving credit facility. The weighted average interest rates for the ﬁ xed and ﬂ oating components of debt are as follows: Face interest rates Weighted average effective interest rates Dec. 31, 2012 Dec. 31, 2011 Dec. 31, 2012 Dec. 31, 2011 Maturity dates Dec. 31, 2012 Debt amount Dec. 31, 2011 $ – 345,879 146,658 492,537 86,469 86,469 FIXED RATE Mortgage debt Term loan credit facility(1) Convertible debentures Total ﬁ xed rate debt VARIABLE RATE Term loan credit facility(2) Total variable rate debt Total debt 2.66% 4.05% 5.50% 4.05% 3.37% 3.37% 3.98% – 4.05% 5.50% 2.69% 4.12% 7.31% 4.48% 4.52% 3.69% 3.43% 3.69% 3.43% 4.36% 4.39% – 2015–2022 $ 2016 2018 2016 4.11% 7.31% 5.06% 3.75% 3.75% 4.86% 151,862 344,028 148,428 644,318 82,512 82,512 $ 726,830 $ 579,006 (1) 80% of the Facility is subject to an interest rate swap in place until August 3, 2016, pursuant to the Facility agreement and has been presented as ﬁ xed rate debt. (2) 20% of the Facility is subject to an interest rate swap until December 31, 2012, and has been presented as variable rate debt due to the short duration of the swap agreement. PAGE 62 DUNDEE INTERNATIONAL 2012 Annual Report The scheduled principal repayments and debt maturities are as follows: $ Mortgage 2,711 3,008 21,760 2,969 83,290 39,138 Term debt Convertible debentures $ – $ 4,309 8,619 414,502 – – – – – – – 161,000 $ Total 2,711 7,317 30,379 417,471 83,290 200,138 $ 152,876 $ 427,430 $ 161,000 $ 741,306 2013 2014 2015 2016 2017 2018 and thereafter Acquisition date fair value adjustments Transaction costs Note 13 Exchangeable Notes The Trust had the following Exchangeable Notes outstanding: Balance at beginning of period Conversion to REIT Units Remeasurement of carrying amount Balance at end of period (6,050) (8,426) $ 726,830 December 31, 2012 December 31, 2011 $ 80,000 $ 80,000 (82,330) 2,330 – – $ – $ 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) principal amount of Exchangeable Notes is exchangeable by the holder for one Unit, subject to customary anti-dilutive adjustments. The Exchangeable Notes and corresponding Special Trust Units (see Note 18) together have economic and voting rights equivalent in all material respects to the Units. On April 17, 2012, $46,000 principal amount of Exchangeable Notes was exchanged into 4,600,000 Units and concurrently these Units were sold as part of the public offering completed on April 17, 2012, when a total of 9,200,000 Units were issued and sold to the public at an issue price of $10.10 per unit. Issue costs related to the 4,600,000 Units sold by the Exchangeable Notes holder were borne by the holder. On September 5, 2012, $34,000 principal amount of Exchangeable Notes was exchanged into 3,400,000 Units and concurrently these Units were sold as part of the public offering completed on September 5, 2012, when a total of 7,820,000 Units were issued and sold to the public at an issue price of $10.55 per unit. Issue costs related to the 3,400,000 Units sold by the Exchangeable Notes holder were borne by the holder. Interest was 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 cash distribution declared for each Unit on such month, converted into euros at an exchange rate equivalent to the rate of the foreign exchange contract the Trust entered for payment of monthly distributions to holders of Units. During the year ended December 31, 2012, the Trust incurred $2,558 as interest on the Exchangeable Notes (period ended December 31, 2011 – $2,641), which is included as interest expense in comprehensive income. As at December 31, 2012, the Trust no longer had any Exchangeable Notes outstanding. PAGE 63 DUNDEE INTERNATIONAL 2012 Annual Report Note 14 Derivative ﬁ nancial instruments Interest rate swaps (Note 26) Interest rate cap (Note 26) Foreign exchange forward contracts (Note 26) Conversion feature of the Debentures Total December 31, 2012 December 31, 2011 $ 18,513 $ 7,204 (11) 429 4,145 (97) (1,942) 6,589 $ 23,076 $ 11,754 The movement in the conversion feature on the convertible debentures for the period was as follows: Balance at beginning of period Remeasurement of conversion feature Balance at end of period For the year ended December 31, 2012 For the period from April 21 to December 31, 2011 $ 6,589 $ 8,106 (2,444) (1,517) $ 4,145 $ 6,589 The Trust currently has foreign exchange forward contracts to sell €3,100 in January 2013, €3,700 each month from February 2013 to December 2014, and €1,550 each month from January 2015 to December 2015 at an average exchange rate of $1.327 per euro. Note 15 Deferred Unit Incentive Plan The movement in the Deferred Unit Incentive Plan (see Note 18) balance was as follows: Opening liability at April 21, 2011 Compensation during the period Asset management fees during the period Remeasurements of carrying value As at December 31, 2011 Compensation during the period Asset management fees during the period Issue of deferred units Remeasurements of carrying value As at December 31, 2012 $ – 88 841 16 945 628 1,907 (138) 287 $ 3,629 On August 3, 2011, DRC elected to receive the ﬁ rst $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 ﬁ ve years. The deferred trust units granted to DRC vest annually over ﬁ ve years, commencing on the ﬁ fth anniversary date of being granted. On termination of the Asset Management Agreement, unvested trust units granted to DRC vest immediately. PAGE 64 DUNDEE INTERNATIONAL 2012 Annual Report During the year ended December 31, 2012, $1,907 (period ended December 31, 2011 – $841) of asset management fees were recorded based on the fair value of the deferred units issued with an appropriate discount to reﬂ ect the restricted period of exercise and included in general and administrative expenses. The fees were settled by the grant of 357,170 deferred trust units (for the period ended December 31, 2011 – 147,717 deferred trust units). At December 31, 2012, 504,887 unvested deferred trust units and income deferred units (December 31, 2011 – 147,717) 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 trustees and 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 values for the deferred units of the two grants were $9.65 and $9.84, respectively. Deferred units granted to DRC for payment of asset management fees are initially measured, and subsequently remeasured at each reporting date, at fair value. The deferred units are considered to be restricted stock and the fair value is estimated by applying a discount to the market price of the corresponding Units. The discount is estimated based upon a hypothetical put-call option, valued using a Black-Scholes option-pricing model which takes into consideration the volatility of the Canadian REIT and the German real estate equity markets, the respective holding period of the deferred units, and the risk-free interest rate. The carrying value of the deferred units granted to DRC is most sensitive to changes in volatility and the relative weighting of the put option and call option values. Note 16 Amounts payable and accrued liabilities Trade payables Accrued liabilities and other payables Accrued interest Total December 31, 2012 December 31, 2011 $ 7,398 $ 15,551 3,914 2,675 6,555 4,190 $ 26,863 $ 13,420 Note 17 Distributions The following table breaks down distribution payments for the periods ended December 31: Paid in cash Paid by way of reinvestment in Units Less: Payable at December 31, 2011 Plus: Payable at December 31, 2012 (December 31, 2011) Total For the year ended December 31, 2012 For the period from April 21 to December 31, 2011 $ 40,033 $ 11,299 1,644 (2,925) 4,816 217 – 2,925 $ 43,568 $ 14,441 PAGE 65 DUNDEE INTERNATIONAL 2012 Annual Report The distribution for the month of December 2012 in the amount of $0.06667 per unit, declared on December 31, 2012, and payable on January 15, 2013, amounted to $4,816. The amount payable at December 31, 2012, was satisﬁ ed on January 15, 2013, by $4,366 cash, and $450 through the issuance of 40,958 Units. The distribution for the months of January 2013 and February 2013 were declared in the amount of $0.06667 per unit per month, payable on February 15, 2013 and March 15, 2013, 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 ﬂ uctuate 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 ﬂ uctuate 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 ofﬁ ce equipment incurred after the formation of the Trust. The Trust declared distributions of $0.06237 per unit for the month of August 2011 and $0.06667 per unit per month for the months of September to December 2011, or $14,441 in 2011. The Trust declared distributions of $0.06667 per unit per month for the months of January to December 2012, or $43,568 in 2012. Note 18 Equity Total December 31, 2012 December 31, 2011 Number of Units Amount Number of Units Amount 72,232,494 $ 596,078 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 were issued in connection with Exchangeable Notes. The Special Trust Units were not transferable separately from the Exchangeable Notes to which they related and were automatically redeemed for a nominal amount and cancelled upon the settlement of the Exchangeable Notes. Each Special Trust Unit entitled the holder to the number of votes at any meeting of unitholders that was equal to the number of Units that could be obtained upon the surrender or exchange of the Exchangeable Notes to which they related. As at December 31, 2012, there were no Special Trust Units outstanding (December 31, 2011 – 8 million). On April 21, 2011, 800,000 Units were issued to DRC for $400 cash. Public offering of REIT Units On December 7, 2012, the REIT completed a public offering of 11,166,500 Units, including an over-allotment option, at a price of $10.30 per unit. The Trust received gross proceeds of $115,015. Costs related to the offering totalled $5,362 and were charged directly to unitholders’ equity. PAGE 66 DUNDEE INTERNATIONAL 2012 Annual Report On September 5, 2012, the REIT completed a public offering of 7,820,000 Units, including an over-allotment option, at a price of $10.55 per unit. The offering included the 3,400,000 Units offered for sale by the Exchangeable Notes holder, who had concurrently exchanged 3,400,000 Exchangeable Notes for 3,400,000 Units. The Trust received gross proceeds of $46,631. Costs related to the offering totalled $2,278 and were charged directly to unitholders’ equity. On April 17, 2012, the REIT completed a public offering of 9,200,000 Units, including an over-allotment option, at a price of $10.10 per unit. The offering included the 4,600,000 Units offered for sale by the Exchangeable Notes holder, who had concurrently exchanged 4,600,000 Exchangeable Notes for 4,600,000 Units. The Trust received gross proceeds of $46,460. Costs related to the offering totalled $2,277 and were charged directly to unitholders’ equity. On August 3, 2011, the REIT completed a public offering of 27,000,000 Units at a price of $10.00 per unit for gross proceeds of $270,000. On August 29, 2011, the REIT issued an additional 4,050,000 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, 10,000,000 Units were purchased by Dundee Corporation at the offering price and 2,000,000 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 ﬁ ve-day weighted average closing price of the Units on the Toronto Stock Exchange preceding the relevant distribution date, which is typically on or about the 15th day of the month following the declaration. For the year ended December 31, 2012, 157,432 Units were issued pursuant to the DRIP for $1,644 (December 31, 2011 – 22,316 Units were issued 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. For the year ended December 31, 2012, 3,371 Units were issued under the Unit Purchase Plan for $36 (December 31, 2011 – $nil). Deferred Unit Incentive Plan The Deferred Unit Incentive Plan provides for the grant of deferred trust units to trustees, ofﬁ cers and employees as well as afﬁ liates 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 ﬁ ve-year period on the anniversary date of the grant except for certain deferred 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. For the year ended December 31, 2012, 12,875 Units were issued to ofﬁ cers and employees pursuant to the Deferred Unit Incentive Plan for $138 (December 31, 2011 – $nil). PAGE 67 DUNDEE INTERNATIONAL 2012 Annual Report Note 19 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 Interest on mortgage debt Interest on bank indebtedness Amortization of ﬁ nancing costs and discounts Interest on Exchangeable Notes Interest expense For the year ended December 31, 2012 For the period from April 21 to December 31, 2011 $ 12,348 $ 8,887 1,551 128 1,907 2,558 6,840 3,585 – – 790 2,641 $ 27,379 $ 13,856 Interest on Exchangeable Notes Interest payments on the Exchangeable Notes charged to comprehensive income is recorded as follows: For the year ended December 31, 2012 For the period from April 21 to December 31, 2011 $ 2,558 $ 2,115 – 526 $ 2,558 $ 2,641 For the year ended December 31, 2012 For the period from April 21 to December 31, 2011 $ (15,493) $ (17,895) 2,444 (287) (2,330) 452 1,517 (16) – 1,827 $ (15,214) $ (14,567) Paid in cash Plus: Payable at December 31 Total Note 20 Fair value adjustments to ﬁ nancial 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 Exchangeable Notes Fair value adjustment on foreign exchange forward contracts PAGE 68 Note 21 Income taxes Reconciliation of tax expense Income before income taxes 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 Tax beneﬁ ts not previously recognized Other items Income taxes (recovery of taxes) Deferred income tax assets consist of the following: DUNDEE INTERNATIONAL 2012 Annual Report For the year ended December 31, 2012 $ 8,868 1,403 – 369 (119) (3,473) (220) (8) For the period from April 21 to December 31, 2011 $ (29,464) (4,662) – 81 (93) (1,528) – (61) $ (2,048) $ (6,263) December 31, 2012 December 31, 2011 Deferred tax asset related to difference in tax and book basis of investment properties $ 1,812 $ 2,065 Deferred tax asset related to difference in tax and book basis of Exchangeable Notes Deferred tax asset related to difference in tax and book basis of ﬁ nancial instruments Deferred tax asset related to tax loss carry-forwards Deferred tax asset related to differences in tax and book basis of deferred ﬁ nancing costs – 4,045 1,603 1,031 771 2,537 319 1,342 Total deferred income tax assets $ 8,491 $ 7,034 Note 22 Related party transactions and arrangements 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: (cid:129) base annual management fee calculated and payable on a monthly basis, equal to 0.35% of the historical purchase price of the properties; (cid:129) 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; (cid:129) 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; (cid:129) acquisition fee equal to: (a) 1.0% of the purchase price of a property, on the ﬁ rst $100,000 of properties in each ﬁ scal year; (b) 0.75% of the purchase price of a property on the next $100,000 of properties acquired in each ﬁ scal year; and (c) 0.50% of the purchase price on properties in excess of $200,000 in each ﬁ scal year. DRC did not receive an acquisition fee in respect of the acquisition of the Initial Properties; and (cid:129) ﬁ nancing fee equal to 0.25% of the debt and equity of all ﬁ nancing transactions completed on behalf of the REIT to a maximum of actual expenses incurred by DRC in supplying services relating to ﬁ nancing transactions. DRC did not receive a ﬁ nancing fee in respect of the acquisition of the Initial Properties. PAGE 69 DUNDEE INTERNATIONAL 2012 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 ﬁ ve trading days immediately preceding the relevant payment date. The deferred trust units will vest on a ﬁ ve-year schedule, pursuant to which one-ﬁ fth of the deferred trust units will vest, starting on the sixth anniversary date of the grant date for deferred trust units granted during the ﬁ rst ﬁ ve years of the Asset Management Agreement and starting on the ﬁ rst 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 ﬁ ve-year schedule as their corresponding deferred trust units. For accounting purposes, the deferred units relate to services provided during the period and the corresponding expense is recognized during the period. DRC has irrevocably elected to receive the ﬁ rst $3,500 of the fees payable to it in each year for the ﬁ rst ﬁ ve years for its asset management services in deferred trust units. During the year ended December 31, 2012, the REIT recognized $2,251 (period ended December 31, 2011 – $841) in general and administrative expense in relation to asset management fees under the Asset Management Agreement with DRC, of which $1,907 (period ended December 31, 2011 – $841) was payable in deferred trust units and $344 (period ended December 31, 2011 – $nil) was payable in cash. The REIT also paid $2,430 for asset acquisition fees incurred on acquisition of Grammophon, Karl-Martell-Strasse, doubleU, Goldpunkt-Haus, Humboldt-Haus and Leo252 during the year, which were capitalized as acquisition costs. The REIT also incurred $358 in ﬁ nancing fees related to the September and December equity offerings. The fees were charged against equity as equity issue costs. As at December 31, 2012, 504,887 deferred trust and income units were granted under this agreement and remained unvested. Included in amounts payable at December 31, 2012, is $490 (December 31, 2011 – $nil) related to the Asset Management Agreement, and general and administrative expenses DRC has incurred on behalf of the Trust. Note 23 Supplementary cash ﬂ ow information Increase in amounts receivable Increase in prepaid expenses and other assets Increase (decrease) in amounts payable and accrued liabilities Increase in deposits Change in non-cash working capital The following amounts were paid on account of interest: Debt Exchangeable Notes PAGE 70 For the year ended December 31, 2012 For the period from April 21 to December 31, 2011 $ (2,622) $ – (440) 3,057 292 287 (1,276) (583) 12,790 $ 10,931 $ For the year ended December 31, 2012 $ $ 22,663 3,084 For the period from April 21 to December 31, 2011 $ $ 6,641 2,115 DUNDEE INTERNATIONAL 2012 Annual Report Note 24 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 ﬁ nancial statements of the REIT. As at December 31, 2012, the REIT’s future minimum commitments under operating leases are as follows: Less than 1 year 1–5 years Longer than 5 years Total Operating lease payments $ 484 1,890 473 $ 2,847 During the period the Trust paid $497 in minimum lease payments, which have been included in comprehensive income for the period. The REIT also has commitments for lease incentives and initial direct leasing costs of approximately $4,807. Note 25 Capital management The primary objective of the Trust’s capital management is to ensure that it remains within its quantitative banking covenants. At December 31, 2012, the Trust’s capital consists of debt 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 and debt-to-book value ratios. Other signiﬁ cant 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 sufﬁ cient to provide adequate cash ﬂ ows 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 year ended December 31, 2012, the REIT’s debt service coverage ratio was 303% and therefore in compliance with the term loan credit facility’s requirement. PAGE 71 DUNDEE INTERNATIONAL 2012 Annual Report Note 26 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 ﬁ nancial 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 ﬂ ows of a ﬁ nancial instrument will ﬂ uctuate 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 ﬁ xed and ﬂ oating rate debt, manage maturities of ﬁ xed rate debt and match the nature of the debt with the cash ﬂ ow 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 12-month period. A 1% change is considered a reasonable level of ﬂ uctuation on variable rate assets and debts. Financial assets Cash(1) Amount in escrow Financial liabilities Term loan credit facility Carrying amount Income –1% Equity Interest rate risk 1% Equity Income $ 181,619 $ (1,816) $ (1,816) $ 1,816 $ 1,816 17,678 (177) (177) 177 177 $ 82,512 $ 825 $ (825) $ (825) $ 825 (1) Cash excludes 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 to unitholders and holders of Debentures, the Trust has entered into foreign exchange forward contracts. The Trust currently has foreign exchange forward contracts to sell €3,100 in January 2013, €3,700 each month from February 2013 to December 2014, and €1,550 each month from January 2015 to December 2015 at an average exchange rate of $1.327:€1. The Trust is exposed to credit risk from its leasing activities and from its ﬁ nancing 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 ﬁ nancing 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 difﬁ culty in meeting obligations associated with the maturity of ﬁ nancial obligations. The Trust manages maturities of its debts, and monitors the repayment dates to ensure sufﬁ cient capital will be available to cover obligations. PAGE 72 DUNDEE INTERNATIONAL 2012 Annual Report Interest rate derivatives The following table provides details on interest rate derivatives outstanding as at December 31, 2012: Hedging item Interest rate swap Interest rate cap Notional $ 344,741 41,345 $ 386,086 Rate 4.05% 5.00% Maturity Carrying value 2016 2016 $ (18,513) 11 $ (18,502) Foreign currency derivatives The following table provides details on foreign currency hedging (foreign currency forward contracts) outstanding as at December 31, 2012 and December 31, 2011: Hedging currency Euro Hedging currency Euro Notional amount of future contracts Blended exchange rate Forward contracts start date Forward contracts end date Carrying value 106,800 1.327 January 2, 2013 December 15, 2015 $ (429) For the year ended December 31, 2012 Notional amount of future contracts Blended exchange rate Forward contracts start date Forward contracts end date Carrying value 62,400 1.368 January 3, 2012 December 16, 2013 $ 1,942 For the period ended December 31, 2011 Fair value of ﬁ nancial instruments Financial assets Amounts receivable Cash and cash equivalents Financial liabilities Convertible debentures including conversion feature Mortgage debt Term loan credit facility Exchangeable Notes Derivative ﬁ nancial instruments, excluding conversion feature of the Debentures Deferred Unit Incentive Plan Deposits Amounts payable and accrued liabilities Distributions payable Income taxes payable December 31, 2012 December 31, 2011 Carrying value Fair value Carrying value Fair value $ 4,822 $ 4,822 $ 2,010 $ 2,010 181,619 181,619 87,907 87,907 152,573 151,862 426,540 – 18,931 3,629 895 26,863 4,816 404 165,717 152,012 426,540 – 18,931 3,629 895 26,863 4,816 404 153,247 157,394 – 432,348 80,000 5,165 945 481 13,420 2,925 – – 432,348 80,000 5,165 945 481 13,420 2,925 – PAGE 73 DUNDEE INTERNATIONAL 2012 Annual Report Fair value hierarchy The following table shows an analysis of the fair values of ﬁ nancial instruments recognized in the consolidated balance sheet at fair value by level of fair value hierarchy. Level 1 Level 2 Level 3 Level 1 Level 2 Level 3 December 31, 2012 December 31, 2011 Financial instruments Exchangeable Notes Interest rate derivatives Foreign currency derivatives Conversion feature of Debentures $ – – – – $ – $ (18,502) (429) (4,145) $ – – – – – – – – $ (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. Note 27 Subsequent events On January 31, 2013, the REIT acquired an ofﬁ ce building, located at Hammer Strasse 30–34 in Hamburg, Germany, for €41,500. The acquisition was partially ﬁ nanced by a new mortgage of €24,900 at a face interest rate of 2.41%. On February 14, 2013, the REIT ﬁ led its ﬁ nal prospectus in connection with the issuance of 20,200,000 Units at a price of $10.90 per unit for a net proceed of approximately $210,853, with an over-allotment option of issuing an additional 3,030,000 Units at the same price per unit for additional net proceed of $31,706. The offering is expected to close on March 5, 2013. On February 15, 2013, the REIT acquired an ofﬁ ce building located at Neue Mainzer Strasse 28 in Frankfurt for €60,625. The acquisition was partially ﬁ nanced by a new mortgage of €37,700 at a face rate of 2.92%. PAGE 74 Appendix (unaudited) December 31, 2012 Ofﬁ ce properties Karl-Martell-Str. 60 Greifwalder Str. 154-156 Grammophon Büropark Gradestr. 22 Kurfürstenallee 130 Überseering 17/Mexikoring 22 Leopoldstr. 252 Derendorfer Allee 4-4a Am Sandtorkai 37 Zimmermannstr. 2/Eisenstr. Saalburgallee 19 Wiener Str. 43 Koblenzer Str. 67 Ölmühlweg 12 Total ofﬁ ce 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. 2b 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 Berliner Platz 35-37 Husemannstr. 1 Stresemannstr. 15 Bahnhofsring 2 Heinrich-von-Bibra-Platz 5-9 Bahnhofplatz 10 Kaiser-Karl-Ring 59-63/Dorotheenstr. Bürgerreuther Str. 1 Logenstr. 37 Bahnhofsplatz 1 Bahnhofstr. 9 Rathausplatz 2 Bahnhofstr. 40 Niemeyerstr. 1 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 Bahnhofsplatz 9 Kavalierstr. 30-32 Friedrich-Ebert-Str. 75-79 Baarstr. 5 Hainstr. 5A Europaplatz 17 Rathausplatz 4 DUNDEE INTERNATIONAL 2012 Annual Report CITY STATE GLA (sf) OCCUPANCY Nürnberg Berlin Hannover Hannover Bremen Hamburg Munich Düsseldorf Hamburg Marburg Frankfurt Stuttgart Bonn Königstein Dortmund Saarbrücken Darmstadt Regensburg Mannheim Gießen Halle Offenbach am Main Karlsruhe Dresden Siegen Gütersloh Goslar Hildesheim Mülheim Plauen Böblingen Münster Gelsenkirchen Wuppertal Leer Fulda Fürth Bonn Bayreuth Kaiserslautern Schweinfurt Ingolstadt Wilhelmshaven Flensburg Hannover Stuttgart Leverkusen Salzgitter Pinneberg Detmold Bautzen Helmstedt Landau Emden Dessau Bremerhaven Iserlohn Bad Hersfeld Bad Kreuznach Lüdenscheid Bavaria Berlin Niedersachsen Niedersachsen Bremen Hamburg Bavaria Nordrhein-Westfalen Hamburg Hessen Hessen Baden-Württemberg Nordrhein-Westfalen Hessen Nordrhein-Westfalen Saarland Hessen Bayern Baden-Württemberg Hessen Sachsen-Anhalt Hessen Baden-Württemberg Sachsen Nordrhein-Westfalen Nordrhein-Westfalen Niedersachsen Niedersachsen Nordrhein-Westfalen Sachsen Baden-Württemberg Nordrhein-Westfalen Nordrhein-Westfalen Nordrhein-Westfalen Niedersachsen Hessen Bayern Nordrhein-Westfalen Bayern Rheinland-Pfalz Bayern Bayern Niedersachsen Schleswig-Holstein Niedersachsen Baden-Württemberg Nordrhein-Westfalen Niedersachsen Schleswig-Holstein Nordrhein-Westfalen Sachsen Niedersachsen Rheinland-Pfalz Niedersachsen Sachsen-Anhalt Bremen Nordrhein-Westfalen Hessen Rheinland-Pfalz Nordrhein-Westfalen 268,936 250,239 212,047 195,783 195,163 160,785 153,435 142,145 112,361 99,751 98,224 72,192 42,774 34,984 2,038,820 299,567 290,901 230,681 229,827 227,298 156,378 152,661 114,114 111,778 110,434 99,027 94,488 87,460 86,343 84,303 83,867 82,628 80,975 80,591 79,185 78,259 77,606 77,246 75,815 75,534 72,198 67,503 67,432 64,970 61,826 61,692 61,194 61,011 61,887 59,218 57,614 57,571 53,468 53,401 53,327 52,206 51,727 51,472 51,207 50,704 50,050 100% 84% 95% 4% 82% 94% 99% 100% 90% 98% 96% 88% 100% 100% 85% 100% 91% 37% 71% 96% 88% 1% 96% 93% 86% 90% 61% 23% 9% 79% 76% 100% 92% 94% 100% 92% 100% 49% 100% 100% 6% 87% 100% 97% 98% 74% 93% 89% 63% 100% 77% 74% 52% 94% 86% 90% 97% 78% 100% 38% 42% PAGE 75 DUNDEE INTERNATIONAL 2012 Annual Report December 31, 2012 CITY STATE GLA (sf) OCCUPANCY Mixed use properties (continued) Marktstr. 9 Zuffenhäuser Kelterplatz 1 Unter den Zwicken 1-3 Stadtparkstr. 2 Schützenstr. 17, 19 Bahnhofstr. 2 Theodor-Heuss-Platz 13 Stembergstr. 27-29 Poststr. 14 Bahnhofplatz 3, 5 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 Hauptstr. 279/Hommelstr. 2 Stuttgarter Str. 5, 7 Bismarckstr. 21-23 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. Bahnhofsplatz 10, 12, 14 Goethestr. 2-6 Zwieseler Str. 27-29 Gustav-König-Str. 42 Lotzbeckstr. 4 Kieler Str. 501 Bahnhofsplatz 4 Große Str. 29-33 Worthingtonstr. 15 Hellersdorfer Str. 78 Kreuzstr. 20-24 Völklingen Stuttgart Halberstadt Schwabach Peine Cham Neuss Arnsberg Rastatt Heidenheim Gummersbach Auerbach Rottweil Hamburg Nordhausen Bad Kissingen Recklinghausen Bietigheim-Bissingen Bremen Ahlen Rheine Düsseldorf Köln Deggendorf Balingen Freising Paderborn Torgau Weinheim Betzdorf Idar-Oberstein Fellbach Bünde Naumburg Bocholt Delmenhorst Hof Bad Oldesloe Hamburg Neunkirchen Saarland Baden-Württemberg Sachsen-Anhalt Bayern Niedersachsen Bayern Nordrhein-Westfalen Nordrhein-Westfalen Baden-Württemberg Baden-Württemberg Nordrhein-Westfalen Sachsen Baden-Württemberg Hamburg Thüringen Bayern Nordrhein-Westfalen Baden-Württemberg Bremen Nordrhein-Westfalen Nordrhein-Westfalen Nordrhein-Westfalen Nordrhein-Westfalen Bayern Baden-Württemberg Bayern Nordrhein-Westfalen Sachsen Baden-Württemberg Rheinland-Pfalz Rheinland-Pfalz Baden-Württemberg Nordrhein-Westfalen Sachsen-Anhalt Nordrhein-Westfalen Niedersachsen Bayern Schleswig-Holstein Hamburg Saarland Castrop-Rauxel Nordrhein-Westfalen Eschwege Nienburg Lünen Leipzig Nordhorn Kaufbeuren Kleve Duisburg Regen Sonneberg Lahr Hamburg Homburg Rotenburg Crailsheim Berlin Bonn Hessen Niedersachsen Nordrhein-Westfalen Sachsen Niedersachsen Bayern Nordrhein-Westfalen Nordrhein-Westfalen Bayern Thüringen Baden-Württemberg Hamburg Saarland Niedersachsen Baden-Württemberg Berlin Nordrhein-Westfalen Baden-Württemberg Bayern Baden-Württemberg Schleswig-Holstein Bahnhofstr. 6/Luisenstr. 4-5 Villingen-Schwenningen Münchener Str. 38 Poststr. 30 Tunnelweg 1 PAGE 76 Neuburg Albstadt Husum 49,577 47,552 47,145 46,799 46,996 46,129 46,128 45,820 45,659 45,656 45,558 45,504 45,494 45,371 44,699 43,971 43,807 43,620 43,484 43,382 42,191 41,781 41,645 41,640 41,487 41,139 40,927 40,745 40,540 39,972 39,041 38,288 38,276 37,612 37,512 37,266 36,687 36,290 36,273 35,971 35,795 35,433 35,313 35,290 35,234 35,189 34,894 34,871 34,839 34,174 33,959 33,511 33,511 33,241 33,240 33,136 32,580 32,253 32,191 31,486 31,263 31,116 9% 82% 76% 77% 87% 61% 95% 99% 92% 83% 98% 54% 88% 90% 82% 74% 82% 99% 90% 83% 100% 52% 97% 96% 94% 95% 93% 86% 91% 89% 10% 96% 96% 91% 93% 99% 65% 41% 97% 100% 88% 53% 79% 100% 97% 79% 90% 100% 88% 90% 46% 70% 81% 98% 94% 100% 64% 99% 97% 70% 84% 89% DUNDEE INTERNATIONAL 2012 Annual Report December 31, 2012 CITY STATE GLA (sf) 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 Poststr. 12 Neugr. Bahnhofstr. 26/Scheideholzw. Speckweg 24-26 Marktplatz 5 Kasseler Str. 1-7 Bahnhofstr. 58/Giselbertstr. 6 Poststr. 5 Lindauer Str. 34 Eisenbahnstr. 15 Konrad-Adenauer-Str. 10 Hamburg Berchtesgaden Meißen Herborn Neustadt Merseburg Ratingen Alsfeld Meppen Lehrte Heilbad Heiligenstadt Einbeck Stuttgart Pirna Wittenberg Korbach Wesel St. Ingbert Gifhorn Schwetzingen Gelsenkirchen Kamp-Lintfort Radevormwald Olpe Annaberg-Buchholz Quakenbrück Grünstadt Neustadt Höxter Sindelﬁ ngen Marktredwitz Sulzbach-Rosenberg Unna Pfaffenhofen Oranienburg Andernach Öhringen Miltenberg Pfarrkirchen Grevenbroich Dortmund Lauf Ibbenbüren Papenburg Emmerich Köln Hattingen Selb Norden Pulheim Fürstenwalde Saarbrücken Schmölln Hamburg Mannheim Nordenham Warburg Buxtehude Walsrode Wangen Tuttlingen Langenhagen Hamburg Bayern Sachsen Hessen Schleswig-Holstein Sachsen-Anhalt Nordrhein-Westfalen Hessen Niedersachsen Niedersachsen Thüringen Niedersachsen Baden-Württemberg Sachsen Sachsen-Anhalt Hessen Nordrhein-Westfalen Saarland Niedersachsen Baden-Württemberg Nordrhein-Westfalen Nordrhein-Westfalen Nordrhein-Westfalen Nordrhein-Westfalen Sachsen Niedersachsen Rheinland-Pfalz Bayern Nordrhein-Westfalen Baden-Württemberg Bayern Bayern Nordrhein-Westfalen Bayern Brandenburg Rheinland-Pfalz Baden-Württemberg Bayern Bayern Nordrhein-Westfalen Nordrhein-Westfalen Bayern Nordrhein-Westfalen Niedersachsen Nordrhein-Westfalen Nordrhein-Westfalen Nordrhein-Westfalen Bayern Niedersachsen Nordrhein-Westfalen Brandenburg Saarland Thüringen Hamburg Baden-Württemberg Niedersachsen Nordrhein-Westfalen Niedersachsen Niedersachsen Baden-Württemberg Baden-Württemberg 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 20,403 20,213 20,128 20,109 19,985 19,800 19,697 19,510 19,047 18,892 91% 42% 78% 91% 90% 83% 100% 74% 90% 93% 77% 72% 91% 73% 78% 88% 100% 87% 79% 100% 100% 77% 74% 92% 75% 97% 66% 100% 79% 100% 99% 76% 100% 88% 76% 88% 96% 89% 88% 71% 96% 100% 100% 88% 100% 100% 100% 78% 81% 77% 59% 92% 88% 81% 90% 100% 86% 94% 93% 97% 97% 100% PAGE 77 DUNDEE INTERNATIONAL 2012 Annual Report December 31, 2012 CITY STATE GLA (sf) OCCUPANCY Beckum Meschede Osterburken Riesa Monheim Wedel Brilon Osterode Essen Alsdorf Freudenstadt Minden Lübbecke Borken Bochum Laatzen Rheda-Wiedenbrück Hemer Daun Meldorf Bretten Schönebeck Spremberg Syke Dinkelsbühl Eberbach Georgsmarienhütte Geisenheim Ludwigsfelde Bremerhaven Löhne Bremen Herzogenrath Erftstadt Bremen Jüterbog Zerbst Alpirsbach Düsseldorf Barsinghausen Dannenberg Seevetal Porta Westfalica Aalen Weiden St. Georgen Germersheim Bad Schwartau Dillingen Springe Wangerooge Stuhr Grafenwöhr Herdecke Nordrhein-Westfalen Nordrhein-Westfalen Baden-Württemberg Sachsen Nordrhein-Westfalen Schleswig-Holstein Nordrhein-Westfalen Niedersachsen Nordrhein-Westfalen Nordrhein-Westfalen Baden-Württemberg Nordrhein-Westfalen Nordrhein-Westfalen Nordrhein-Westfalen Nordrhein-Westfalen Niedersachsen Nordrhein-Westfalen Nordrhein-Westfalen Rheinland-Pfalz Schleswig-Holstein Baden-Württemberg Sachsen-Anhalt Brandenburg Niedersachsen Bayern Baden-Württemberg Niedersachsen Hessen Brandenburg Bremen Nordrhein-Westfalen Bremen Nordrhein-Westfalen Nordrhein-Westfalen Bremen Brandenburg Sachsen-Anhalt Baden-Württemberg Nordrhein-Westfalen Niedersachsen Niedersachsen Niedersachsen Nordrhein-Westfalen Baden-Württemberg Bayern Baden-Württemberg Rheinland-Pfalz Schleswig-Holstein Saarland Niedersachsen Niedersachsen Niedersachsen Bayern Nordrhein-Westfalen 18,831 18,683 18,498 18,275 18,156 17,771 17,733 17,690 17,661 16,991 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 8,995 8,881 8,382 8,196 7,980 7,702 9,059,275 100% 100% 100% 90% 100% 94% 68% 100% 100% 100% 92% 80% 100% 100% 100% 100% 100% 100% 93% 97% 90% 71% 80% 99% 82% 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% 100% 100% 100% 100% 82% Mixed use properties (continued) Poststr. 6 Lagerstr. 1 Bahnhofstr. 3 Bahnhofstr. 43 Friedrichstr. 2 Bahnhofstr. 18a 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 13b 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 De-Lenoncourt-Str. 2 Rosenstr. 1/Fünfhausenstr. 19/21 Elisabeth-Anna-Str. 11 Melcherstätte 8 Alte Amberger Str. 28 Wetterstr. 20/Poststr. 2 Total mixed use PAGE 78 December 31, 2012 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 Bismarckstr. 12/Fr.Hoffmann-Str. Chiemseestr. 25 Bahnhofstr. 33 U 33A Trierer Str. 4-6 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 DUNDEE INTERNATIONAL 2012 Annual Report CITY STATE GLA (sf) OCCUPANCY Kiel Weiden Hamburg Heidelberg Oberhausen Koblenz Einbeck Duisburg Osnabrück Celle Aschaffenburg Zwickau Heide Waiblingen Lippstadt Frankfurt am Main Norderstedt Bergisch Gladbach Neubrandenburg Frankfurt an der Oder Remagen Tübingen Dresden Hameln Leipzig Aschaffenburg Chemnitz Bitterfeld Hilden Landstuhl Berlin Magdeburg Baden-Baden Bitburg Steinfurt Traunstein Stendal Heusweiler Vilshofen Görlitz Sulz Backnang Halle Hannover Potsdam Titisee-Neustadt Albstadt Fürstenfeldbruck Bautzen Mittenwalde Hannover Bonn Bochum Bad Säckingen Schleswig-Holstein Bayern Hamburg Baden-Württemberg Nordrhein-Westfalen Rheinland-Pfalz Niedersachsen Nordrhein-Westfalen Niedersachsen Niedersachsen Bayern Sachsen Schleswig-Holstein Baden-Württemberg Nordrhein-Westfalen Hessen Schleswig-Holstein Nordrhein-Westfalen Mecklenburg-Vorpommern Brandenburg Rheinland-Pfalz Baden-Württemberg Sachsen Niedersachsen Sachsen Bayern Sachsen Sachsen-Anhalt Nordrhein-Westfalen Rheinland-Pfalz Berlin Sachsen-Anhalt Baden-Württemberg Rheinland-Pfalz Nordrhein-Westfalen Bayern Sachsen-Anhalt Saarland Bayern Sachsen Baden-Württemberg Baden-Württemberg Sachsen-Anhalt Niedersachsen Brandenburg Baden-Württemberg Baden-Württemberg Bayern Sachsen Brandenburg Niedersachsen Nordrhein-Westfalen Nordrhein-Westfalen Baden-Württemberg Bad Neuenahr-Ahrweiler Rheinland-Pfalz 181,004 166,601 160,720 133,909 97,606 94,569 81,206 80,122 77,515 74,954 64,264 60,738 53,363 53,220 44,341 43,409 41,249 34,737 34,347 32,330 29,819 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 18,800 18,488 18,200 16,867 16,619 16,279 15,774 14,634 14,533 14,504 14,042 14,142 13,816 13,326 12,686 12,631 12,494 12,311 10,732 9,717 9,023 2,247,677 13,345,772 96% 100% 88% 90% 74% 68% 67% 100% 22% 98% 94% 59% 92% 100% 100% 64% 98% 100% 100% 97% 76% 98% 100% 93% 79% 95% 78% 86% 87% 99% 100% 100% 93% 99% 100% 98% 93% 92% 69% 100% 76% 99% 100% 100% 100% 100% 100% 100% 100% 100% 94% 100% 100% 100% 100% 88% 83% PAGE 79 Ofﬁ cers DETLEF BIERBAUM Chairman MICHAEL J. COOPER Vice Chairman P. JANE GAVAN President and Chief Executive Ofﬁ cer RENE D. GULLIVER Chief Financial Ofﬁ cer DOUGLAS P. QUESNEL Chief Accounting Ofﬁ cer 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 DUNDEE INTERNATIONAL 2012 Annual Report Trustees and ofﬁ cers Trustees DETLEF BIERBAUM1, 2, 5 Köln, Germany Corporate Director OLIVIER BRAHIN3, 4 London, England Senior Managing Director, Head of European Real Estate Investments, Lone Star Europe Acquisitions LLP MICHAEL J. COOPER2 Toronto, Ontario Vice Chairman, Dundee International REIT BRYDON CRUISE1, 3, 4 Toronto, Ontario President and Managing Partner, Brookﬁ eld Financial P. JANE GAVAN2 Utah, United States of America President and Chief Executive Ofﬁ cer, Dundee International REIT NED GOODMAN2 Innisﬁ l, Ontario President and Chief Executive Ofﬁ cer, Dundee Corporation DUNCAN JACKMAN1, 3, 4 Toronto, Ontario Chairman, President and CEO, E-L Financial Corporation Limited JOHN SULLIVAN Toronto, Ontario President and Chief Executive Ofﬁ cer, Cadillac Fairview Corporation Limited PAGE 80 Corporate information Head ofﬁ ce Auditors DUNDEE INTERNATIONAL PRICEWATERHOUSECOOPERS LLP Annual meeting of unitholders REAL ESTATE INVESTMENT TRUST PwC Tower, 18 York Street, Suite 2600 Thursday, May 9, 2013, State Street Financial Centre Toronto, Ontario M5J 0B2 30 Adelaide Street East, Suite 1600 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, 2012, are taxed as follows: Foreign business income: 39.0% Return of capital: 61.0% Management estimates that 55% of the distributions to be made by the REIT in 2013 will be tax deferred. Stock exchange listing THE TORONTO STOCK EXCHANGE Listing symbols: REIT Units: DI.UN at 4:00 pm (EST) Toronto Board of Trade First Canadian Place, Suite 350 77 Adelaide Street West 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 5.5% Convertible Debentures: DI.DB 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. 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 i . m o c . n g 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 S E D S K R O W E H T I I i : n g 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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