Dundee REIT

DUNDEE REIT 2006 Annual Report

I

D
u
n
d
e
e
R
E
T
2
0
0
6
A
n
n
u
a

l

R
e
p
o
r
t

Presence

COAST-TO-COAST PRESENCE*

Yellowknife

326

Office

Saskatoon

193

Office

Regina

326

Office

Surrey

214

Office

Edmonton

192

Office

993

Industrial

Calgary

1,949

Office

1,412

Industrial

All values shown are in thousands of square feet

*Excluding redevelopment properties

St. John’s

190

Office

National 
Capital Region

1,404

Office

103

Industrial

Québec

1,826

Office

3,336

Industrial

Toronto

3,502

Office

2,467

Industrial

OFFICE 10,122
INDUSTRIAL  8,311
PORTFOLIO 18,433

Total assets
In millions of dollars 

$2,128

Market cap
In millions of dollars 

$1,676

03 $ 997
04  $1,200
05 $1,508
06  $2,128

03 $ 452
04  $ 633
05 $ 740
06  $1,676

Total revenue
In millions of dollars  

Enterprise value

$291

03 $145
04  $187
05 $223
06  $291

$2.9B

PAGE 1 Introduction PAGE 2 Letter to unitholders PAGE 6 Vision PAGE 8 Quality PAGE 10 Performance PAGE 12 Portfolio
PAGE 20 Performance at-a-glance PAGE 23 Management’s discussion and analysis PAGE 65 Management’s responsibility for financial statements
PAGE 66 Auditors’ report PAGE 67 Consolidated financial statements PAGE 71 Notes to the consolidated financial statements
PAGE 95 Trustees and officers PAGE 96 Corporate information

DUNDEE REIT 2006 Annual Report

Presence
Confident in our strategy.
National in scale. Assured
of our ability to identify
opportunities, and then realize
them. Proven leader in customer
service. Committed to creating
exceptional unitholder value.
Recognized for our performance
and our potential. In a market
where only the best stand out,
Dundee REIT has presence.

Dundee Real Estate Investment Trust (“Dundee REIT”; TSX: D.UN) is an unincorporated,
open-ended real estate investment trust. We own approximately 19 million square feet of
high-quality, affordable office and industrial assets across Canada.

PAGE 1

DUNDEE REIT 2006 Annual Report

MARIO BARRAFATO

MICHAEL J. COOPER

MICHAEL KNOWLTON

Senior Vice President and Chief Financial Officer

Vice Chairman and Chief Executive Officer

President and Chief Operating Officer

Achievement
When 2006 ended, Dundee REIT
was larger, stronger and more valuable
than when it started. Here are some of
the year’s accomplishments.

DECEMBER 31, 2005

Unit price: $25.70

Market cap: $740 million

Total enterprise value: $1.7 billion

PAGE 2

Letter to unitholders

DUNDEE REIT 2006 Annual Report

Solid growth in each of our performance indicators
confirms the fundamental strength of our business.
We are very pleased that the disciplined execution of our
growth strategy is paying off and that our performance
is being recognized. The past year was one in which we
reached many milestones – both operationally and in the
capital markets. All of this translated into a year of
exceptional value creation for unitholders.

completed transactions

We have been very successful in growing Dundee
REIT through acquisitions. Throughout the year
we
totalling nearly
$600 million. The properties acquired have helped
improve our portfolio, increase diversification and
fuel our financial performance including, most
from operations
importantly, adjusted funds
(“AFFO”). Another valuable outcome of our
acquisitions strategy is the larger component
of office product in our portfolio. Additions to our
Calgary portfolio have led to an increased
weighting of nearly 40% of net operating income
being generated by properties across Western
Canada and have provided us with great exposure

to the rising rental rate environment in Calgary.
Entering into new markets has also proven valuable
with the properties in Yellowknife providing a
return on equity in excess of our expectations.

Overall, our properties are performing very well.
Total occupancy remains strong at 96.4% and rental
rates continue to edge upwards, presently averaging
$10.00 per square foot. Occupancy across our office
properties increased to 97.0% from 96.3% last year
while our industrial occupancy softened slightly to
95.6% from 96.2%. With the evolution of our
portfolio, our office assets generated 77% of our net
operating income in the fourth quarter and helped

JANUARY 2006

Acquired 412,000 square feet of office
and industrial properties in Edmonton,
Toronto and Québec

APRIL 2006

Raised $70 million,
issued 2.52 million units

MAY 2006

Completed Princeton Portfolio acquisition,
adding 530,000 square feet to our
Western Canada portfolio

Internalized the property management function

PAGE 3

DUNDEE REIT 2006 Annual Report

drive an impressive $4.4 million or 5% increase in
comparative net operating income over the prior
year. This is the sixth consecutive quarter in which
we produced comparative property growth.

Funds from operations continues to grow, indicating
an accretive acquisition program and the overall
strength of our business. Driving the 47% increase
in funds from operations was additional revenue
generated by acquisitions, strong occupancy across
our office portfolio, rising rental rates and a
reduction in our weighted average interest rate.
And, despite the growth in our units outstanding,
funds from operations per unit increased by 8%.

Adjusted funds from operations is a measure
used to evaluate the sustainability of distributions,
the goal being to produce AFFO in excess of the
distributions declared. We believe that in the second
half of 2006 our AFFO exceeded declared
distributions by a significant margin. Maintaining a
careful balance between the purchase price of
acquisitions, the current and anticipated revenue
generated by these properties and the cost of equity
used to complete the acquisitions contributed to the
14% improvement in AFFO per unit over the prior
year. Also contributing to the improvement was the
strong performance of our property management
services, which were fully internalized in May.

We continued to take advantage of low interest rates
during 2006. We assumed $103 million of debt
related to acquisitions with an average interest rate
of 5.35% and secured $297 million in new debt on
existing and acquired assets at a rate of 5.56%. The
overall result is that our cost of debt has declined to
5.95% from 7.19% at June 30, 2003. Debt-to-gross
book value has been reduced from a high of 62% in
the third quarter of 2005 to 51% at the end of 2006.
Although the decrease in debt may dampen growth
in AFFO, it provides us with downside protection,
more flexibility in the future and, ultimately, more
sustainability to our cash flow.

We are very pleased to see our accomplishments
recognized by the capital markets as reflected by the
eager participation in our equity offerings, the
appreciation in our unit price and our inclusion in
the S&P/TSX Composite Index. Throughout 2006,
we completed three equity offerings totalling
$320 million, all of which were well received by
investors. Our market capitalization increased to
$1.7 billion from $740 million at the end of 2005.
And, our unit price increased to $38.65 from $25.70.
Including distributions paid throughout the year, the

One-year unitholder return

59%

JUNE 2006

AUGUST 2006

SEPTEMBER 2006

Raised $100 million, issued 3.56 million units

Unit price rises above $30

Completed the Calgary Portfolio acquisition,
adding 822,000 square feet to our
office portfolio

AFFO reaches 55.3¢ per unit, exceeding
declared distributions

Acquired Aviva Corporate Centre in Toronto

PAGE 4

DUNDEE REIT 2006 Annual Report

overall unitholder return for 2006 was 59% –
the highest return of all Canadian commercial
property REITs.

As a result of ongoing merger and acquisition activity
in our sector, the number of real estate investment
trusts is dwindling. The desirability of real estate in
Canada continues to increase, with many sources of
capital eager for exposure to the Canadian real
estate market. Any way you look at this, it is positive
for Dundee REIT. Our team works very well together
and is managing our growth and the changes in the
market with expertise and dedication. Dundee REIT’s
reputation in the marketplace is very good and our
unit price reflects our progress. With fewer options
for exposure to the national office and industrial
markets and with the elimination of competition from
business trusts because of the new legislation, our
units are very desirable.

Our rapid growth continues in 2007. During the
first two months of 2007, we acquired two office
buildings in Toronto and an office building in B.C.
for a total of approximately $125.4 million. And, we
currently have under contract a 543,000 square foot
office portfolio in Calgary and 2,132,000 square feet
of office and industrial properties in Toronto for a
total of approximately $424.3 million. To help fund
these acquisitions we completed an equity offering
totalling $151 million.

Our interests are aligned with those of our investors.
Our senior officers and our Board of Trustees hold a
collective 4% interest in Dundee REIT on a diluted
basis. A significant number of our employees are
also unitholders. In addition to our individual
commitments to a job well done and to improving
our business every day, we have a vested interest in
the success of Dundee REIT.

The foundation of our business is our properties.
Maintaining the buildings and keeping them full are
the basic elements to achieving any degree of
success. It’s what we do beyond the basics that
makes the difference. How tenant relationships are
managed, how growth is pursued, how quickly and
efficiently that growth is integrated into our
operations, how our business is financed – and how
growth,
is funded. We are well
positioned with a healthy balance sheet and a
relatively low level of debt. With internal growth and
the returns provided by acquired assets, we expect
continued growth across our business in 2007.

in particular,

MICHAEL J. COOPER (signed)

Vice Chairman and Chief Executive Officer

NOVEMBER 2006

DECEMBER 2006

DECEMBER 2006

Acquired ACCW joint venture development
properties, adding 357,000 square feet to our
office portfolio

Raised $150 million, issued 4.11 million units

Unit price: $38.65

Inclusion in the S&P/TSX Composite Index

Market cap: $1.7 billion

Total enterprise value: $2.9 billion

PAGE 5

DUNDEE REIT 2006 Annual Report

Vision

Vision is the ability to see where you are
and where you want to go. Our vision
is to be Canada’s leading provider of
affordable business premises and the
investment of choice for those looking to
enjoy the benefits of owning commercial
real estate.

Funds from operations
per unit

$2.82

Net operating income by region
Three months ended December 31, 2006 

Toronto, State Street Financial Centre

03* $2.44
04  $2.50
05 $2.61
06  $2.82
*2003 is an annualized amount.

Québec 19%
National Capital Region 13%
Toronto Region 29%
Alberta 29%
Western Canada 10%

To achieve this vision, we focus on continually
improving the value of our business through sound
financial and operational management, growing our
portfolio through accretive acquisitions, providing
sustainable cash distributions, and increasing
distributions based on our performance. It is a simple
strategy, and certainly not unique to us, but our
execution and delivery set us apart.

From the start, we have worked to enhance our
overall worth – increasing our total enterprise value
from $836 million in June 2003 to $2.9 billion at the
end of 2006. We have established a reputation for

being able to see where the market is going and
identify opportunities. And, while we have grown,
we have remained nimble and flexible, in order to
act quickly on those opportunities and stay ahead of
the competition.

When acquiring property, we have been able to
adapt to changing circumstances: in some cases,
this resulted in our sourcing and acquiring
numerous
times,
we focused our resources on larger portfolio
acquisitions. The relationships we have built and the
reputation we have earned for being efficient,

individual assets; at other

PAGE 6

DUNDEE REIT 2006 Annual Report

PORTFOLIO GROWTH

 Thousands of square feet

5,163

5,969

4,547

1,697

1,059

03
04
05
06

Québec 
3,572 
3,790 
4,822
5,163

National Capital Region 
912 
945
1,600 
1,697

Greater Toronto Area 
3,084
4,006 
4,866 
5,969 

Alberta 
3,035
3,338 
3,528
4,547 

Western Canada
277 
275
275
1,059

By the end of 2006, Dundee REIT’s portfolio had grown to almost 19 million square feet. As you can see, our growth has
been focused primarily in Toronto, Alberta and Western Canada. Acquisition highlights in 2006 include a six-building office
portfolio in downtown and suburban Calgary, the Princeton six-building office and industrial portfolio in Western Canada,
and an office portfolio at the Airport Corporate Centre West in suburban Toronto.

Enterprise value

$2.9B

Calgary, 3250 Sunridge Way NE

diligent and true to our word has made it easier to
find opportunities, and has also brought deals to our
doorstep. Consequently, in 3½ years as a real estate
investment trust, we have been able to add nearly
$1.5 billion of high-quality assets to an already
strong portfolio.

Creating real value means more than just getting
bigger. It means growing in ways that make a
difference – to our current and prospective tenants
and to our unitholders. It means looking for
ways to deliver even better service to our tenants

in order to keep our buildings full. It means
striving to get the most from our properties by
achieving greater operational efficiencies. It means
pursuing accretive acquisitions – growing where
the market fundamentals are strong and where we
can build upon established economies of scale.
And, while there are benefits that come with
scale, we also work to keep a balanced, diversified
portfolio to ensure consistent performance. We are
focused on improving and growing our business,
but never at the cost of diluting value for our
existing unitholders.

PAGE 7

 
 
 
 
 
 
DUNDEE REIT 2006 Annual Report

Quality

As our portfolio has grown, the quality
of our assets has also increased. Our
national office and industrial portfolios
are stronger. We have a greater presence
in Western Canada and a tenant roster
that includes many instantly
recognizable names.

Acquisitions completed in 2006

$598M

including $400 million across Western Canada

Ottawa, Entrust Tower

A TSX-listed trust,
Dundee REIT was
added to the S&P/TSX
Composite Index in
December 2006

With a presence that extends from coast to coast,
Dundee REIT is well positioned to prosper in all of
its markets, and to expand in growing markets.
Currently, Montréal, Ottawa, Toronto, Calgary and
Edmonton – our core markets – constitute 93% of the
gross leasable area of our total portfolio. We also
operate in Surrey, Yellowknife, Regina, Saskatoon,
Québec City and St. John’s.

Calgary now has the strongest economy, and offers
the best growth prospects of any Canadian city.
We have been steadily expanding our position in this
market, and in 2006 we added just over 0.9 million
square feet of office space to our Calgary portfolio.

Our mid-2006 acquisition of the Princeton Portfolio,
with assets in Edmonton, Saskatoon and Yellowknife,
strengthened our presence in Western Canada. It also
made Dundee REIT the primary landlord of Class A
office space in Yellowknife, which offers a tenant base
dominated by the federal and territorial governments
and a strong, natural resource-driven economy.

Our western expansion included the acquisition
of 50 acres of prime industrial development land
In a tight acquisition market,
in Edmonton.
development projects provide Dundee REIT with
another avenue for growth. We are developing the
industrial land in Edmonton on our own, but also

PAGE 8

DUNDEE REIT 2006 Annual Report

TOP 10 TENANTS
While the scale of our business has increased, the composition of our tenant roster
has also changed considerably. The majority of our 100 largest tenants are nationally
recognizable names.

1

2

GOVERNMENT OF

GOVERNMENT OF

CANADA

Canada is among the

ten largest economies

ONTARIO

Ontario, Canada’s

economic engine,

the only G7 country

in surplus.

to Canada’s total

employment.

Moody’s Rating: Aaa.

Moody’s Rating: Aa1.

in the world and currently

contributes about 40%

Canada and the second

3

TELUS

4

AVIVA

TELUS Corporation is the

Aviva is one of the

5

BELL CANADA

Canada’s largest

largest telecommunications

leading Property and

communications network.

company in Western

Casualty insurance

groups in Canada.

Offering local, long

distance and wireless

largest in the country.

Moody’s Rating: Aa2.

telephone service,

6

GOVERNMENT OF

THE NORTHWEST

TERRITORIES

7

ENTRUST

Entrust is a global provider
of security software that

8

STATE STREET

TRUST COMPANY

The world’s leading

9

INTERNATIONAL

FINANCIAL DATA

SERVICES

internet, and satellite.

10

GOVERNMENT OF

BRITISH COLUMBIA

British Columbia produces

NWT is enjoying significant

secures digital identities

financial services specialist

From investor record-

approximately 12% of

economic growth in natural

and information.

focused on meeting the

keeping to complete

Canada’s total GDP and

resources and tourism. The

government is one of the

largest employers in NWT.

Moody’s Rating: Aa1.

needs of sophisticated

back office outsourcing,

is the third-largest province

investors throughout

IFDS offers investment

in terms of its population.

Canada and the world.

companies a powerful

Moody’s Rating: Aaa.

suite of trusted services.

Market cap

$1.7B

Edmonton, Lee Valley Building

have joint venture development projects underway
in Ontario. Joint venture development offers several
advantages: having a development partner helps
mitigate risk, Dundee REIT earns interest on the
mezzanine loans provided to the joint ventures, and
we have the opportunity to purchase the properties
once they are completed. We acquired our first joint
venture properties in the fourth quarter, which added
357,000 square feet to our office portfolio in the
Greater Toronto Area. The overall amount we may
invest in development properties is strictly limited
by our Declaration of Trust, and, without even being
close to this limit, the development opportunities in

our pipeline could translate into over 2 million
square feet of leasable space.

In addition to expanding our property portfolio,
we have enjoyed significant growth in other aspects
of our business. In 2006, we issued $320 million in
equity to fund our acquisition program and increased
our market capitalization from $740 million to
$1.7 billion. Our increased market capitalization
and the heavy volume of trading activity in our units
led to Dundee REIT’s addition to the S&P/TSX
Composite Index at the end of the year.

PAGE 9

DUNDEE REIT 2006 Annual Report

Performance

To evaluate a company’s strategy, measure
its performance. In 2006, Dundee REIT’s
strong performance – a steady 96%
occupancy rate, escalating in-place rents,
consistent growth in same-property net
operating income, growing funds from
operations and improvements in all
measures of debt management –
confirmed that our strategy was sound.

Net operating income by segment
Three months ended December 31, 2006 

Occupancy

96.4%

Calgary, Joffre Place

Office 77%
Industrial 23%

03 92.7%
04  94.5%
05 96.3%
06  96.4%

In 2006, Dundee REIT internalized all property
management services, and now benefits from
receiving 100% of the fees they generate. Our
nation-wide team of skilled real estate professionals
understands that in order to help us meet our
corporate objectives and fulfill our commitment to
our unitholders, we must keep our buildings full.
Consequently, Dundee REIT is committed to
providing industry-leading service. Our success
in meeting this commitment is demonstrated by a
consistently high occupancy rate across our
portfolio, and our ability to effectively manage
our lease maturity profile.

PAGE 10

Internal growth – generated by increased occupancy,
capturing higher rents on new leases and renewals,
and the operational efficiencies created through
scale – is also critical to our success. We have long
believed that the most valuable growth is seen on a
comparative property basis in those assets that
we have owned over successive reporting periods.
For six quarters in a row, Dundee REIT has produced
growth in net operating income on a comparative
property basis. And, we expect that we will continue
to enjoy strong comparative growth in 2007.

DUNDEE REIT 2006 Annual Report

TOTAL RETURN IN 2006

158.93

124.73

117.26

100.00

Dundee REIT

S&P/TSX Capped REIT Index

S&P/TSX Composite Index

12/2005

01/2006

02/2006

03/2006

04/2006

05/2006

06/2006

07/2006

08/2006

09/2006

10/2006

11/2006

12/2006

Calgary, Franklin Atrium

Another critical measure of performance in the trust
sector is whether adjusted funds from operations
exceed the amount of distributions declared to
unitholders. We reached this milestone in the third
quarter of 2006. Going forward, we fully anticipate
that our adjusted funds from operations will continue
to grow along with other performance indicators.

Equity issued

$320M

While 2006 was a year of significant acquisition
activity, we never lost sight of the importance of
maintaining a healthy bottom line. A carefully
executed strategy enabled us to add nearly
$600 million in assets to our portfolio while
reducing our overall percentage of debt. We were
also able to increase our interest coverage ratio,
and ended the year with a 50.6% debt-to-gross book
value and a much stronger balance sheet.

PAGE 11

 
DUNDEE REIT 2006 Annual Report

Portfolio overview

Laval, 400-480 boulevard Armand Frappier

Calgary, 3030 Sunridge Way NE

Regina, Sherwood Place

Ottawa, 700 Palladium Drive

Toronto, 2 St. Clair Avenue East

PAGE 12

DUNDEE REIT 2006 Annual Report

Calgary, McFarlane Tower

Edmonton, EPCOR Centre

Toronto, 720 Bay Street

Montréal, 3901 rue Jarry Est

Brampton, 400 Chrysler Drive

PAGE 13

DUNDEE REIT 2006 Annual Report

Portfolio listing

For the year ended December 31, 2006

Ownership
interest
(%)

Owned share

of total GLA Occupancy
(%)

(sq. ft.)

Significant tenants

Office properties

Scotia Centre, St. John’s
400-480 boulevard Armand Frappier, Laval
9975-9995 avenue Catania, Brossard
7400 boulevard les Galeries d’Anjou, Montréal
1000 boulevard Saint-Jean, Pointe-Claire
8250 boulevard Décarie, Montréal
30-56 du Vallon, Québec City
1400 de la Rive-Sud, Saint Romuald
3-243 Place Frontenac, Pointe-Claire
7450 boulevard les Galeries d’Anjou, Montréal
953-981 boulevard Saint-Jean, Pointe-Claire
8200 boulevard Décarie, Montréal
2800 avenue Marie-Curie, Montréal
25 rue de Lauzon, Boucherville
1 Place du Commerce, Brossard
11 Place du Commerce, Brossard
2310 boulevard Alfred-Nobel, Montréal
768-790 boulevard Décarie, Montréal
2 Place du Commerce, Brossard
9045 Chemin de la Côte de Liesse, Dorval
7150 rue Albert-Einstein, Montréal
8 Place du Commerce, Brossard
3 Place du Commerce, Brossard
1156 de la Rive-Sud, Saint Romuald
85 rue Bombardier, Boucherville
2650 avenue Marie-Curie, Montréal
3669-3681 boulevard des Sources,
Dollard-des-Ormeaux

2300 boulevard Alfred-Nobel, Montréal
2525 avenue Marie-Curie, Montréal
7290 rue Frederick-Banting, Montréal
7190 rue Frederick-Banting, Montréal
7200 rue Frederick-Banting, Montréal
7150 rue Frederick-Banting, Montréal
7170 rue Frederick-Banting, Montréal
5 Place du Commerce, Brossard
7210 rue Frederick-Banting, Montréal
9675 chemin de la Côte de Liesse, Dorval
9545 chemin de la Côte de Liesse, Montréal
7220 rue Frederick-Banting, Montréal
1301 Gay Lussac, Boucherville
1135 de la Rive-Sud, Saint Romuald
985 boulevard Saint-Jean, Montréal
975 boulevard Saint-Joseph, Gatineau
222-230 Queen Street (Capitol Square), Ottawa
110 O’Connor Street, Ottawa

PAGE 14

100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0

100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0

190,137
197,893
124,146
115,453
109,980
84,041
77,696
77,078
66,700
66,380
62,828
60,558
50,000
43,452
43,083
40,531
36,400
35,804
36,035
31,183
31,169
30,011
27,901
27,091
26,460
26,261

24,585
21,580
21,384
20,859
20,244
20,000
19,623
19,614
19,451
18,739
17,608
18,572
17,500
14,776
12,008
11,800
194,167
204,232
189,173

100.0
93.7
95.0
70.9
94.9
77.6
88.7
100.0
93.9
72.7
91.1
85.3
100.0
79.3
100.0
85.2
100.0
95.5
89.4
79.0
100.0
94.5
100.0
100.0
100.0
100.0

75.3
100.0
100.0
100.0
100.0
100.0
100.0
100.0
86.6
100.0
39.5
100.0
100.0
100.0
100.0
100.0
99.6
100.0
100.0

Bank of Nova Scotia; Husky Oil; Petro-Canada
20-20 Technologies; Labopharm
Construction F. Catania
Association de la Construction du Québec
Société Immobilière du Québec
Paging Network of Canada
Desjardins Securities Financial
Société Immobilière du Québec
DMSC Medcorp
CFE Desjardins
Clearwater Properties
Ericsson Communications
Solutions Mindready
Cegerco Constructeur
Société Immobilière du Québec
Société Immobilière du Québec
Theratechnologies Inc.
Starlims Canada
Industrielle Alliance
Equinox Marketing Services
Technoparc St. Laurent
Auto Prevention Association
Pub Fuzzy
Société Immobilière du Québec
ITR Acoustique
EXFO Protocol

Medias Transcontinental
ART Aerospatial Recherche & Technologies
Methylgene
Ecopia Biosciences
AstraZeneca
Thales Avionics
GlaxoSmithKline Biologicals
Phagetech Inc.
Maple Leaf Foods
Methylgene
Dicom Express
Rolls Royce
Methylgene
Clark, Drouin, Lefebvre
Ville de Levis
Buffet Vichy
Government of Canada; Amusement Anik
Government of Canada; Canada Foundation for Innovation
Bell Canada

DUNDEE REIT 2006 Annual Report

For the year ended December 31, 2006

Ownership
interest
(%)

Owned share

of total GLA Occupancy
(%)

(sq. ft.)

Significant tenants

Entrust Tower, Ottawa
25 Fitzgerald Road, Ottawa
1145 Hunt Club Road, Ottawa
770 Palladium Drive, Ottawa
750 Palladium Drive, Ottawa
1 Antares Drive, Ottawa
35 Fitzgerald Road, Ottawa
700 Palladium Drive, Ottawa
2465 St. Laurent Boulevard, Ottawa
21 Fitzgerald Road, Ottawa
Aviva Corporate Centre, Scarborough
Woodbine Steeles Corporate Centre, Markham
Centennial Centre, Toronto
56 Wellesley Street West, Toronto
State Street Financial Centre, Toronto

151 Bloor Street West, Toronto
2400 Skymark Avenue, Mississauga
2 St. Clair Avenue East, Toronto
5055 Satellite Drive, Mississauga

204 King Street East, Toronto
1625 Tech Avenue, Mississauga
1660-1680 Tech Avenue, Mississauga
2285 Speakman Drive, Mississauga
720 Bay Street, Toronto
1685-1705 Tech Avenue, Mississauga
2599 Speakman Drive, Mississauga
21 St. Clair Avenue East, Toronto
5110 Creekbank Road, Mississauga
5 Park Home Avenue, Toronto
110 Sheppard Avenue East, Toronto
1620 Tech Avenue, Mississauga
2121 Argentia Road, Mississauga
2400-2430 Meadowpine Boulevard, Mississauga
70 Richmond Street East, Toronto
2355 Skymark Avenue, Mississauga
40 Bramtree Court, Brampton
5345 Creekbank Road, Mississauga
EPCOR Centre, Edmonton
Telus Tower, Calgary
840-7th Avenue SW, Calgary
McFarlane Tower, Calgary
Franklin Atrium, Calgary
Roslyn Building, Calgary
Joffre Place, Calgary

100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
50.0

100.0
100.0
100.0
100.0

100.0
100.0
100.0
100.0
50.0
100.0
100.0
100.0
100.0
100.0
50.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
50.0
100.0
100.0
100.0
100.0
100.0

146,170
120,000
89,299
85,555
80,550
71,611
63,301
63,052
54,997
41,706
353,031
292,318
236,750
215,729
206,967

170,648
169,004
156,365
151,745

135,707
135,258
131,775
130,335
123,872
116,390
112,967
109,995
101,616
89,405
75,792
73,371
61,185
59,354
34,414
30,091
20,462
7,117
191,961
351,821
260,147
236,005
142,415
132,186
104,647

100.0
100.0
91.5
100.0
100.0
89.0
100.0
100.0
100.0
100.0
100.0
96.3
95.7
100.0
100.0

95.9
100.0
92.0
100.0

100.0
100.0
100.0
100.0
100.0
100.0
100.0
89.7
100.0
100.0
86.0
100.0
96.4
100.0
100.0
100.0
100.0
100.0
100.0
99.8
100.0
97.4
97.0
100.0
100.0

Entrust
Government of Canada
PRA
IBM Canada
Spirent Communications of Ottawa Ltd.
Synopsis
Government of Ontario
DRS Technologies Canada Company
Government of Ontario
Government of Canada
Aviva
CGI Group; Markham Executive Suites
HMV Canada
Government of Ontario; CMRRA
International Financial Data Services; State Street
Trust Company Canada; Dundee REIT
Government of Ontario
Pharmacia; Simplex Time Recorder; News America
S.I.C. Management
Bell Distribution; Loyalty Management Group;
Bell Mobility; Source Logistics
Alias
Symcor
NxCare, Unity Life of Canada
Atomic Energy of Canada
Government of Ontario
First Choice Canada Inc
Atomic Energy of Canada
Canadian Olympic Association
Centre of Excellence
Government of Ontario
Equifax Canada; Eckler Partners
Schawk
Diversicare Management
Kleinfeldt Consultants
St. Michael’s Hospital
Dictaphone Canada
Rockwell Automation Canada
Electrical and Utilities Safety Association of Ontario
EPCOR Utilities
Telus; Government of Alberta; SNC Lavalin; Bantrel
Hatch Ltd
Alberta Infrastructure
Care Factor Computer Services; Guest-Tek
Ensign Resource Service Group
Wawanesa Mutual Insurance

PAGE 15

DUNDEE REIT 2006 Annual Report

Portfolio listing

For the year ended December 31, 2006

Ownership
interest
(%)

Owned share

of total GLA Occupancy
(%)

(sq. ft.)

Significant tenants

2891 Sunridge Way, Calgary
Kensington House, Calgary
AltaLink Place, Calgary
ACC Centre, Calgary
2175 29th Street NE, Calgary
2256 29th Street NE, Calgary
2121 29th Street NE, Calgary
Mount Royal Place, Calgary
Franklin Building, Calgary
2886 Sunridge Way NE, Calgary
Geo-X Building, Calgary
3250 Sunridge Way NE, Calgary
3030 Sunridge Way NE, Calgary
Station Tower, Surrey

Sherwood Place, Regina
Victoria Tower, Regina
Princeton Tower, Saskatoon
Preston Centre, Saskatoon
Scotia Centre, Yellowknife
Precambrian Building, Yellowknife
Northwest Tower, Yellowknife
Bellanca Building, Yellowknife

Total office1

1 Excludes redevelopment properties.

Industrial properties

100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0

100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0

87,368
77,161
76,755
64,863
58,001
57,955
57,050
56,958
51,063
44,230
36,428
27,180
26,894
213,632

181,441
144,165
131,707
61,810
101,027
87,484
85,036
52,285

100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
99.6

100.0
100.0
81.3
100.0
95.2
90.2
99.7
100.0

Yellow Pages
IBI Leaseholds
SNC Lavalin
Alberta Computer & Cable
Mentor Engineering
Eaton Yale
Columbia Health Care
First Calgary
Telus Communications
Precision Drilling
Geo-X
Royal Bank Action Direct
Sure Northern Energy
Government of British Columbia; Government of Canada;
Fraser Health Authority
Conexus Credit Union; Co-operators Life Insurance; CGI
Saskatchewan Property Management
HMTQ
UMA Engineering
Commissioner of NWT
PWGSC
Municipal and Community Affairs
Department of Indian and Northern Affairs

10,121,765

97.0

22000 route Transcanadienne, Baie d’Urfé
3901 rue Jarry Est, Montréal
105-125 Montée de Liesse, Montréal
900-950 boulevard St-Martin, Laval
375-455 rue Deslauriers, Montréal
295-371 rue Deslauriers, Montréal
457-491 & 495-533 rue Deslauriers, Montréal
105-145 rue Deslauriers, Montréal
2580 avenue Dollard, Montréal
350-354 boulevard Lebeau, Montréal
2695 avenue Dollard, Montréal
1415-1531 rue Berlier, Laval
290-316 rue Benjamin-Hudon &
165 rue Deslauriers, Montréal

555 & 604-678 rue Deslauriers, Montréal
9601-9665 chemin de la Côte de Liesse, Dorval
9551-9599 chemin de la Côte de Liesse, Dorval

100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0

100.0
100.0
100.0
100.0

PAGE 16

316,243
174,013
159,848
142,693
138,646
134,673
134,561
116,611
89,500
73,800
70,853
69,856

67,075
66,896
66,542
64,312

100.0
100.0
40.1
100.0
88.5
95.5
100.0
100.0
100.0
100.0
100.0
100.0

100.0
100.0
90.3
84.0

Encore Gourmet Food Corp.
Groupe Deschene
Paktek Packaging
Comark; Québecor (Messageries Dynamiques)
Hostman Steinberg
Essilor Canada; Satellite Metal
Va-Yola Garments; Rideau Recognition Solutions
Centura Québec
Sandora; Groupe Compass
Socadis
Direct Source Special Products
Le Groupe Master

Prosol Distribution
Vignoni Tex
Les Emballages Esquire Inc.
Qualités Meubles

DUNDEE REIT 2006 Annual Report

For the year ended December 31, 2006

Ownership
interest
(%)

Owned share

of total GLA Occupancy
(%)

(sq. ft.)

Significant tenants

10113-10161 chemin de la Côte de Liesse, Dorval 100.0
10205-10255 chemin de la Côte de Liesse, Dorval 100.0
100.0
2789-2855 boulevard Le Corbusier, Laval
100.0
4575-4605 rue Hickmore, Montréal
100.0
300 avenue Labrosse, Pointe-Claire
100.0
9501-9521 chemin de la Côte de Liesse, Dorval
115 boulevard Hymus, Montréal
100.0
295-341 rue Benjamin-Hudon &
255 rue Deslauriers, Montréal

9701-9745 chemin de la Côte de Liesse, Dorval
3961-4015 avenue Robert, Montréal
700-740 avenue Renaud, 9125 &

9135 chemin de la Côte de Liesse, Dorval
9 Place du Commerce, Brossard
601-623 rue Le Breton, Longueuil
601-631 rue Bériault, Longueuil
2115-2147 rue de la Provence, Longueuil
605-607 rue Deslauriers, Montréal
500-510 rue Deslauriers, Montréal
220-232 rue Lebeau, Montréal
470-472 rue Deslauriers, Montréal
9335-9395 chemin de la Côte de Liesse, Dorval
7 Place du Commerce, Brossard
9405-9475 chemin de la Côte de Liesse, Dorval
742 avenue Renaud, Dorval
35 rue de Lauzon, Boucherville
874-896 Place Trans-Canada, Longueuil
938-952 Place Trans-Canada, Longueuil
908-926 Place Trans-Canada, Longueuil
982-1002 Place Trans-Canada, Longueuil
200-210 rue Lebeau, Montréal
90 Marie Victorin, Boucherville
5205 Rideau, Québec City
750 Chemin Olivier, Saint Nicolas
735-743 avenue Renaud, Dorval
9010-9060 rue Ryan, Dorval
9245 & 9255 chemin de la Côte de Liesse, Dorval
10 Place du Commerce, Brossard
1351 Gay Lussac, Boucherville
1550 de Coulomb, Boucherville
780 Craig Street, Saint Nicolas
336 Montée Industrielle, Rimouski
2110-2160 Williams Parkway, Brampton
77 Fima Crescent, Toronto
2155 Steeles Avenue East &
7956 Torbram Road, Brampton

100.0
100.0
100.0

100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0

63,177
62,483
59,370
57,887
55,333
55,090
55,044

53,543
52,660
52,447

51,181
50,600
48,788
48,709
48,174
43,709
39,390
36,000
35,559
31,801
31,500
31,321
30,381
28,140
27,836
27,826
27,645
27,415
26,550
25,000
24,400
23,710
23,386
23,063
19,178
18,300
12,600
10,345
6,000
4,447
228,668
212,110

100.0
46.3
100.0
100.0
100.0
100.0
100.0

100.0
92.1
78.5

Induspac
Tree-Pack
Les Aliments El Bonita
Postes Destination
Flyght Canada
McCann Equipment
Encore Gourmet Food Group

Cuisine Uno
Caisse Populaire Desjardins
Salle de Reception il Giardino

Jason Industrial
100.0
Compumédia Design
100.0
Coalision
100.0
Exponent Microport
100.0
CIMA
100.0
Expo TCD
100.0
Laboratoires Colba
45.3
Boulangerie Andalos
100.0
Expo TCD (Presentoirs de Metal AWW)
100.0
Disques RSD
100.0
Alstom Canada
100.0
Constructal Hardware
69.7
Divicell
100.0
Etiquettes Profecta Labels
100.0
SP International
100.0
Distrivin
100.0
Specialités Industrielles Longueuil
100.0
Location Luber
100.0
IBM Canada
100.0
Air Liquide Canada
100.0
Federal Express Canada
100.0
ITR Acoustique
100.0
Canada Direct Database Marketing
100.0
Unisource Technology
70.7
Vesuvius Canada Refractories
100.0
Canada Post
100.0
Cameleon Informatique Robotics
100.0
Dermatus International
43.5
Jyga Concept
100.0
Air Liquide Canada
100.0
100.0 Mapei; Wollin Canada; W.G. Pro-Manufacturing; Eaton Yale
Samko Sales; National Rubber
100.0

100.0

154,152

96.4

J.E.T. Contracting; Smart Enterprises

PAGE 17

DUNDEE REIT 2006 Annual Report

Portfolio listing

For the year ended December 31, 2006

Ownership
interest
(%)

Owned share

of total GLA Occupancy
(%)

(sq. ft.)

Significant tenants

51 Caldari Road, Vaughan
1925 Williams Parkway, Brampton
7600 Danbro Crescent, Mississauga
25 Bramtree Court, Brampton
375-425 Britannia Road, Mississauga
100 Legacy Road, Ottawa
1219 Corporate Drive, Burlington
70 Disco Road, Toronto
1020 Birchmount Road, Scarborough
400 Chrysler Drive, Brampton
2440 Scanlan Street, London
1070-1100 Midway Boulevard, Mississauga
3915 Commerce Road, London
1820 Ironstone Drive, Burlington
199 Traders Boulevard East, Mississauga
35 Bramtree Court, Brampton
120 Valleywood Drive, Markham
4255 14th Avenue, Markham
1020 Lorimar Avenue &
7115 Tomken Road, Mississauga
147 Massey Road, Guelph
3820 Commerce Road, London
55 Idema Road, Markham
1500-1520 Trinity Drive, Mississauga
85 Idema Road, Markham
Ford Warehouse, Edmonton
15303 128th Avenue, Edmonton
Alberta Park, Edmonton
Bonaventure Centre, Edmonton
Lee Valley Building, Edmonton
Parkway East Building II, Edmonton
Park 19, Edmonton
Parkway East Building I, Edmonton
Central Web Offset, Edmonton
Wood Group ESP, Edmonton
Office 99, Edmonton

100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0

100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0

146,886
143,205
137,728
127,876
121,321
103,438
103,119
98,792
87,161
87,090
84,633
83,368
82,600
81,776
77,449
63,649
59,425
57,377

52,295
41,190
40,200
36,720
29,759
28,605
246,000
178,000
130,162
113,993
72,577
57,777
48,365
48,282
44,500
30,353
23,174

81.3
87.3
100.0
100.0
85.8
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
52.7
100.0
100.0
100.0
100.0

54.3
100.0
100.0
100.0
92.9
100.0
100.0
100.0
98.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0

Made in Italy Imports
Cascades Enviropac; US Consolidators
Contract Pharmaceuticals
Nico Warehousing; Park Avenue Interiors
Badenhurst Properties
Summit Food Service Distribution
ISPC Wheelabrator
Decoustics Limited; Daytech Manufacturing
Pfizer
Cheng Shin Rubber; Holland Imports; Flexcon Canada
Dofasco Tubular Products
ADM Cocoa Canada; Cimmaster
Intier Automotive
Pippard
Macro Engineering and Technology
Sun Rich Fresh Foods
POI
Abbey Store Fixtures Ltd.

Pax-All Manufacturing
Purolator
Thyssen Krupp Budd
Mikeway
The Drafting Clinic
Shaker-Tomlin Packagers
Ford Motor Company of Canada
Connect Logistics; Highland Moving
McLeod Windows
Bridge Brand Foods; Brink’s Canada
Lee Valley Tools Ltd.
The Salvation Army
Boden Fabricating
TNT High Pressure Waterworks
Central Web Offset
Wood Group ESP (Canada) Ltd.
Koko Beach Retail Group

PAGE 18

DUNDEE REIT 2006 Annual Report

For the year ended December 31, 2006

Ownership
interest
(%)

Owned share

of total GLA Occupancy
(%)

(sq. ft.)

Significant tenants

7102-7220 Barlow Trail SE, Calgary

100.0

222,570

2705-2737 57th Avenue SE, Calgary
7004-7042 30th Street SE, Calgary
4710-4760 14th Street NE, Calgary
2777 23rd Avenue NE, Calgary
2150 29th Street NE, Calgary
1139-1165 40th Avenue NE, Calgary
2151 32nd Street NE, Calgary
501-529 36th Avenue SE, Calgary
4504-4576 14th Street NE, Calgary
2928 Sunridge Way NE, Calgary
4402-4434 10th Street NE, Calgary
2985 23rd Avenue NE, Calgary
535-561 36th Avenue SE, Calgary
Highfield Industrial Building, Calgary
2876 Sunridge Way NE, Calgary
6804-6818 30th Street SE, Calgary
6023-6039 Centre Street South, Calgary
4502-4516 10th Street NE, Calgary
6043-6055 Centre Street South, Calgary
530-544 38A Avenue SE, Calgary
1135-1149 45th Avenue NE, Calgary
4620-4640 11th Street NE, Calgary
102-114 61st Avenue SW, Calgary
4001-4019 23rd Street NE, Calgary
2915-2925 58th Avenue SE, Calgary
4515-4519 1st Street SE, Calgary
3503-3521 62nd Avenue SE, Calgary
4501-4509 1st Street SE, Calgary
4523-4529 1st Street SE, Calgary
7122-7126 Barlow Trail SE, Calgary
7128-7132 Barlow Trail SE, Calgary

Total industrial

Total office and industrial

100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0

108,800
94,208
72,780
67,250
59,386
57,344
57,198
57,145
57,090
56,796
54,000
53,110
41,440
30,130
30,000
30,000
28,800
28,667
25,200
24,000
21,538
21,097
18,900
15,787
15,600
14,340
13,240
13,200
11,400
5,400
5,400

100.0

Magnum Designs; Ecco Heating Products;
Sea NG Management Corp.
Shanahan’s Alberta
100.0
Control Chemical; Arctic Truck Parts & Service
100.0
Collega
100.0
Sleep Country
100.0
Universal Measurements Solutions
100.0
Instabox
100.0
Coast Wholesale Appliances
100.0
Icon Stone and Tile
100.0
McGregor & Thompson Hardware
97.5
Eversource National Products
100.0
Budrich Industries
100.0
Sembiosys
100.0
The Flower Market
92.8
Air & Gas Compression Systems
100.0
Ametek
100.0
Enterprise Robert Thibert
100.0
Tac Mobility
100.0
Chateau Exteriors
100.0
Wolseley Canada
100.0
Korite Minerals
100.0
International Furniture
100.0
Tele-Mobility
100.0
Rapid Brake Centres; Great Northern Bedding Company
100.0
Mobile Augers & Research
100.0
East-West Express
100.0
Mars Blinds & Shutters
100.0
Eurika-Tech
100.0
100.0
Western High Voltage Test Centre
100.0 Chinook Auto Upholstery; 736859 Alberta (CR Techniques)
Thermo & Design Insulation; Sunset Fireworks
100.0
Libertas Industries; Mettler Toledo
100.0

8,311,701

95.6

18,433,466

96.4

Redevelopment properties

2280 boulevard Alfred-Nobel, Montréal
Gallery Building, Yellowknife
Greenbriar Mall, Atlanta

100.0
100.0
50.0

85,384
14,760
397,695

36.6
12.2
90.0

Total redevelopment

497,839

78.5

PAGE 19

DUNDEE REIT 2006 Annual Report

Performance at-a-glance

This at-a-glance highlights some of the more significant information that is found in
the Management’s Discussion and Analysis, which follows on page 23.

Annual acquisitions
In millions of dollars

$598

03 $108
04  $273
05 $351
06  $598

Development pipeline

Aside from fuelling our growth through acquisitions, we see value
to be gained from pursuing select development opportunities.
For the most part, this is accomplished through joint ventures
to help mitigate our risk exposure. These investments provide
us with a substantial development capacity of approximately
2.5 million square feet.

Since Dundee REIT’s inception in 2003, we have continuously
increased the volume of our acquisitions. In 2006 alone we
completed transactions totalling nearly $600 million, adding
3.4 million square feet of properties to our portfolio.

Redevelopment properties

Current development

Total

Investment

($000s)

31,620

19,594

51,214

$

$

Development

capacity

(sq. ft.)

508,000

2,035,000

2,543,000

A healthy balance sheet through
conservative debt management

Debt maturities
% of maturing debt

Since June 2003, we have continuously decreased our
weighted average interest rate from 7.19% to 5.95% at the
end of 2006. Our interest coverage ratio has risen steadily
to 2.46 times, reflecting a lower overall level of debt-to-gross
book value of 50.6% as well as a lower average interest rate
at the end of 2006.

2.4%
07
08  11.3%
09  12.6%
4.0%
10
11 16.4%
12+ 53.3%

6.3%*

53.3%

5.7%

*Line graph overlay represents average expiring interest rates.

PAGE 20

DUNDEE REIT 2006 Annual Report

NOI by segment
In millions of dollars

03 $ 41.8
03 $ 23.5
04  $ 58.7
04  $ 37.3*
05 $ 83.8
05 $ 33.5
06  $121.3
06  $ 41.1

Office

Industrial

$121.3

$41.1

*2004 included flex properties acquired during the year that were
 moved to the office segment in 2005.

Dundee REIT has increased its focus on office properties,
significantly growing the share of net operating income (“NOI”)
derived from our office portfolio.

Comparative properties NOI

+5%

in 2006

We continue to achieve impressive growth within our existing
portfolio, driven by leasing, rising rental rates and increased
operational efficiency. In total, our comparative properties
generated $102 million of NOI in 2006, an increase of 5%
over 2005. Acquisitions added another $52 million.

Rising rental rates

Average in-place net rent (per sq. ft.)

Office

Industrial

Portfolio average

2006
$ 13.67

5.47

10.00

2005

$ 13.58

5.24

9.36

AFFO per unit

+14%

in 2006

Occupancy increased to

96.4%

in 2006

Adjusted funds from operations (“AFFO”) is an important
measure of our economic performance and our ability to
pay distributions. It is generally accepted as one of the most
appropriate measures for assessing real estate performance.
Our AFFO increased from $1.92 per unit in 2005 to
$2.19 per unit in 2006. For more details and a reconciliation
of AFFO to cash generated from operating activities see
pages 40–42.

PAGE 21

DUNDEE REIT 2006 Annual Report

Contents

23 Management’s discussion

and analysis

58 Section III – Disclosure controls

and procedures

23 Section I – Objectives and

financial highlights
23 Basis of presentation
23 Our objectives
24 Our strategy
25 Our assets
26 Our equity
27 Key performance indicators
28 Financial overview
28 Outlook

29 Section II – Executing the strategy
29 Our resources and financial condition

Rental properties
Development and redevelopment properties
Liquidity and capital resources

Operating activities
Investing activities
Financing activities

49 Our results of operations
Rental properties revenue
Interest and fee income
Rental properties operating expenses
Interest expense
Depreciation of rental properties
Amortization of deferred leasing costs,
tenant improvements and intangibles
General and administrative expenses
Dilution gain
Income tax expense
Discontinued operations
Related-party transactions and arrangements
Net operating income
55 Selected annual information
56 Quarterly information

59 Section IV – Risks and our strategy to manage
59 Real estate ownership
59 Illiquidity of real estate investments
59 Competition in the office, industrial
and retail real estate market

60 Environmental risk
60 Financing risk
60 Insurance
61 Joint venture, partnership and
co-ownership agreements

61 Development risk
62 Taxation risk

62 Section V – Critical accounting policies
62 Impairment of assets
63 Purchase price allocations
63 Intangible assets and liabilities
63 Depreciation
63 Deferred costs
63 Land
64 Future changes in accounting policies

65 Management’s responsibility
for financial statements

66 Auditors’ report

67 Consolidated financial statements

71 Notes to the consolidated
financial statements

PAGE 22

DUNDEE REIT 2006 Annual Report

Management’s discussion and analysis

(All dollar amounts in tables are presented in thousands, with the exception of unit and per unit amounts)

Section I – Objectives and financial highlights

Basis of presentation
Our discussion and analysis of the financial position and results of operations of Dundee Real Estate Investment Trust
(“Dundee REIT”) is based on the consolidated financial statements of Dundee REIT for the years ended December 31, 2006,
and December 31, 2005. This discussion should be read in conjunction with those financial statements and related notes.

This revised Management’s Discussion and Analysis has been dated as at February 22, 2007. For simplicity, throughout this
discussion we may use “REIT Units” in reference to our REIT Units, Series A. Certain market information has been obtained
from CB Richard Ellis Market View, 4th Quarter 2006, a publication prepared by a commercial firm that provides information
relating to the real estate industry. Although we believe this information is reliable, the accuracy and completeness of this
information is not guaranteed. We have not independently verified this information and make no representation as to its accuracy.

Certain information herein contains or incorporates comments that constitute forward-looking information within the meaning
of applicable securities legislation. Forward-looking information is based upon a number of assumptions and is subject to a
number of risks and uncertainties, many of which are beyond Dundee REIT’s control, that 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, general and local economic and business conditions; the financial condition of tenants; our
ability to refinance maturing debt; leasing risks, including those associated with the ability to lease vacant space; our ability
to source and complete accretive acquisitions; and, interest and currency rate functions.

Although the forward-looking statements contained in this document are based upon what Dundee REIT believes are
reasonable assumptions, there can be no assurance that actual results will be consistent with these forward-looking
statements. Certain assumptions made in preparing forward-looking information and our objectives include the assumption
that the Canadian economy will remain stable in 2007 and that inflation will remain relatively low. We have also assumed that
interest rates will remain stable in 2007, that conditions within the real estate market, including competition for acquisitions,
will be consistent with the current climate and that the Canadian capital markets will continue to provide Dundee REIT with
access to equity and/or debt at reasonable rates.

All forward-looking information in this revised Management’s Discussion and Analysis speaks as of February 22, 2007. Dundee
REIT does not undertake to update any such forward-looking information whether as a result of new information, future
events or otherwise. Additional information about these assumptions and risks and uncertainties is contained in our filings
with securities regulators, including the latest annual information form of Dundee REIT. These filings are also available on our
website at www.dundeereit.com.

Our objectives
We are committed to:

• Providing predictable and sustainable cash distributions to unitholders;

• Improving the overall value of our enterprise through effective management of our business and through acquisitions; and

• Prudently increasing distributions as the performance of our underlying business warrants.

Distributions
We currently pay monthly distributions to unitholders of $0.183 per unit or $2.20 on an annual basis. We also have a Distribution
Reinvestment and Unit Purchase Plan (“DRIP”), which allows unitholders to have their distributions automatically reinvested
into additional units of the Trust. Unitholders who enrol in the DRIP receive a bonus distribution of 4% with each reinvestment.
At December 31, 2006, approximately 24% of our total units were enrolled in the DRIP or the equivalent plan for LP Class B
Units, Series 1 (“LP B Units”), including 6% of REIT Units, Series A and 100% of LP B Units (please see a description of our
equity on page 26).

Distribution rate

$0.183 $0.183 $0.183 $0.183 $0.183 $0.183 $0.183 $0.183 $0.183 $0.183 $0.183 $0.183

Month-end closing price

$26.49 $27.77 $27.80 $28.63 $28.11 $28.20 $28.75 $31.75 $34.58 $34.99 $36.45 $38.65

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

PAGE 23

DUNDEE REIT 2006 Annual Report

Our strategy
Our strategy is to become Canada’s leading provider of affordable business premises. Our methodology to meet our strategy
and objectives includes:

Effectively managing our business
We work to increase the value of our portfolio through continuous and active analysis of how our properties can achieve
optimal performance. We identify strengths and weaknesses of individual properties and our portfolio as a whole, which
allows us to quickly reposition assets when warranted. Through ongoing incremental improvements throughout our portfolio,
we minimize the requirement for large capital expenditures.

We stagger our debt maturities in order to mitigate interest rate exposure and to ensure that there are no significant maturities
in any given year. Lease maturities are similarly staggered to maintain continuity of income and to avoid significant lease
turnovers and their associated leasing costs in any given year.

Building and maintaining a diversified portfolio
Diversifying our real estate portfolio decreases the overall risk of our business. Our portfolio is well diversified by asset type,
geographic location and tenant mix. With approximately 1,800 tenants, renewals are frequent and the exposure to the loss of
any single large tenant is minimized.

Meeting the needs of our tenants
A strong relationship with our tenants is critical to our success. We strive to make Dundee REIT the preferred landlord by
meeting and anticipating our tenants’ needs. We believe that providing a consistent, high level of service puts us in a better
position to re-lease space to existing tenants and helps to attract new tenants to lease vacant space quickly and cost effectively.

Pursuing external growth strategy
We make acquisitions that represent an opportunity to improve the overall quality of our portfolio and enhance the
sustainability of distributions. Our growth strategy is to acquire office and industrial properties mainly in five key markets –
Montréal, Ottawa, Toronto, Calgary and Edmonton – and reposition existing properties where opportunities exist. This allows
us to capitalize on operational efficiencies and further increase our presence and critical mass in these key markets.

>30%

DRIP enrolment

Throughout 2006, participation in our Distribution
Reinvestment Plan averaged over 30% – a good indicator
of investor confidence in our business. Unitholders who
elected to reinvest their distributions benefit from a
4% bonus distribution in the form of additional units.
The Trust benefits from the contribution to our cash flow.

PAGE 24

DUNDEE REIT 2006 Annual Report

Our assets
We provide high-quality, affordable business premises with a primary focus on mid-sized urban and suburban office properties
as well as industrial and prestige industrial properties. The majority of our assets are concentrated in our target markets:
Montréal, Ottawa, Toronto, Calgary and Edmonton. These markets are attractive to us as they represent most of Canada’s
largest metropolitan areas, and they have relatively diverse and sound economies and good real estate liquidity. Acquisition
activity will generally be concentrated in these areas, as it enables us to take advantage of our established presence and
management expertise, build on our current critical mass and achieve even greater operational efficiencies. In the past year we
have also found compelling acquisition opportunities, offering lower risk and the potential for greater returns, beyond our
target markets.

We believe that diversifying our portfolio, balancing by asset type, geographic location and tenant mix, decreases our overall
risk profile. Industrial properties generally have lower rental rates and lower operating costs than office properties and, as a
result, are attractive as they offer greater stability and less downside during times of increased vacancy. Office properties,
although more expensive to carry than industrial properties during weak markets, are attractive as they generate more revenue
and offer greater potential for capital appreciation. Having both asset types in our portfolio helps us to realize our objective
of providing predictable and sustainable distributions to our unitholders.

During the fourth quarter, we purchased seven office buildings in Mississauga, a suburb west of Toronto. Six of the buildings
are located in the Airport Corporate Centre West (“ACCW”), in close proximity to Toronto’s Pearson International Airport
and were developed by and purchased from a joint venture partner. We also acquired an office property in Calgary. In total,
we acquired $103.3 million of properties during the fourth quarter, totalling 0.5 million square feet. During the year, we acquired
20 properties adding approximately 3.4 million square feet to our portfolio. The aggregate purchase price of the properties,
together with our investment in development properties, was $598.5 million.

December 31

Québec

National Capital Region

Toronto Region

Alberta

Western Canada
Total as at December 31

Office

Industrial

Total

1,826,477

1,593,950

3,501,663

2,141,088

1,058,587

3,336,110

103,438

2,467,154

2,404,999

–

5,162,587

1,697,388

5,968,817

4,546,087

1,058,587

2006

%

28

9

32

25

6

Owned gross leasable area (sq. ft.)|

1

Total

4,822,052

1,600,446

4,865,530

3,481,764

275,047

2005

%

32

11

32

23

2

10,121,765

8,311,701

18,433,466

100

15,044,839

100

Percentage
Total as at December 31, 2005

Percentage

55%

45%

100%

7,423,728

7,621,111

15,044,839

49%

51%

100%

1 Excludes redevelopment properties and discontinued operations.

Office rental properties
Dundee REIT owns 110 office properties (135 buildings) comprising approximately 10.1 million square feet, excluding
redevelopment properties, located in St. John’s, Québec City, Montréal, Ottawa, Toronto, Regina, Saskatoon, Calgary,
Edmonton, Yellowknife and Vancouver. Our office properties can generally be categorized as high-quality, yet affordable
suburban and downtown buildings. Acquisitions completed in 2006 have added 2.7 million square feet of well-occupied office
properties to our portfolio. These properties are of high quality and have low-maintenance capital expenditure requirements.

The Canadian national office market performed very well in 2006 with the lowest national vacancy rates in 20 years. The average
occupancy rate in our office portfolio increased to 97.0% from 96.3% at December 31, 2005, and remains well ahead of the national
industry average of 92.3% (CB Richard Ellis, Canadian Office Market View, 4th Quarter 2006). Our occupancy rate includes lease
commitments for space that is currently being readied for occupancy but for which rent is not yet being recognized.

PAGE 25

DUNDEE REIT 2006 Annual Report

Industrial rental properties
We own 126 prime suburban industrial and prestige industrial properties (143 buildings) comprising approximately 8.3 million
square feet, concentrated in Montréal, Toronto, Calgary and Edmonton. Our strategy is to own clusters of properties, allowing
us to respond quickly and efficiently to tenants’ needs during times of change in their operations or size of their workforce.
The acquisitions completed in 2006 have added 0.7 million square feet of well-occupied, high-quality industrial properties to
our portfolio.

At December 31, 2006, the average occupancy rate across our industrial portfolio was 95.6%, down slightly from 96.2% at
December 31, 2005, however, ahead of the national industry average of 94.6% (CB Richard Ellis, Canadian Industrial Market
View, 4th Quarter 2006).

Development and redevelopment properties
We are currently partners in two joint ventures to develop office and prestige industrial properties in major Canadian
markets. Other than those properties completed on a build-to-suit basis, we have the first option to purchase the properties
once they reach a predetermined occupancy requirement, at a discount to the then current market value. In addition,
we independently own 60 acres of commercial development land, the majority of which is in Edmonton and is in the early
stages of development.

Three of our properties are currently classified as redevelopment properties. Properties are generally classified as
redevelopment until the project is completed and produces positive cash flow after servicing specific debt.

Our equity

December 31

REIT Units, Series A

LP Class B Units, Series 1

Cumulative foreign currency translation adjustment
Total

2006

Number of units

Amount

Number of units

Unitholders’ equity

2005

Amount

34,854,553

$

745,348

20,449,209

$

376,842

8,565,095

–

147,879

(5,116)

8,337,365

149,056

–

(7,180)

43,419,648

$

888,111

28,786,574

$

518,718

Our Declaration of Trust authorizes the issuance of an unlimited number of two classes of units: REIT Units and Special Trust
Units. The Special Trust Units may only be issued to holders of LP B Units, are not transferable separately from these units,
and are used to provide voting rights with respect to Dundee REIT to persons holding LP B Units. The LP B Units are held by
Dundee Corporation, a related party to Dundee REIT. Both the REIT Units and Special Trust Units entitle the holder to one

“ As a landlord and property manager, one of our main objectives
is to have a sound understanding of our diverse tenant base.
Our mandate is to help tenants operate their business efficiently
by taking care of all of their real estate needs. Managing tenants’
expectations and providing exceptional service is key to
our success.”

FARID MALEK

Operations Manager

PAGE 26

DUNDEE REIT 2006 Annual Report

vote for each unit held at all meetings of the unitholders. The LP B Units are generally exchangeable on a one-for-one basis
for REIT Units, Series B at the option of the holder, which can then be converted into REIT Units, Series A. The LP B Units
and corresponding Special Trust Units together generally have economic and voting rights equivalent in all material respects
to REIT Units, Series A. The REIT Units, Series A and REIT Units, Series B generally have economic and voting rights
equivalent in all material respects to each other. There are no REIT Units, Series B outstanding.

Effective May 1, 2006, the terms of the LP B Units were amended to provide that they may not be transferred to a third
party, other than a subsidiary of Dundee Corporation. As a result, if Dundee Corporation wishes to transfer the LP B Units
to a third party, it must first convert the LP B Units into REIT Units, Series B. This amendment allows us to treat the
outstanding LP B Units as equity for financial statement purposes in accordance with Canadian generally accepted
accounting principles (“GAAP”). As a result, effective May 1, 2006, all LP B Units are presented as equity. Prior to this date,
the LP B Units were presented as non-controlling interest.

Key performance indicators
Performance is measured by these and other key indicators:

Operations

Occupancy rate (period end)1

In-place rent per square foot (office and industrial)1
Operating results

Rental properties revenue

Net operating income (“NOI”)2

Funds from operations (“FFO”)3

Adjusted funds from operations (“AFFO”)4
Distributions

Distributable income5

Reinvestment to distribution ratio6,7

Cash distribution ratio
Financing

Weighted average interest rate (period end)

Debt-to-gross book value
Per unit amounts

Basic:

FFO

Distributable income

Distribution rate

Total distributions as a % of distributable income

AFFO
Diluted:8

FFO

Distributable income

Three months ended December 31

Years ended December 31

2006

2005

2006

2005

$

$

$

$

96.4%

10.00

81,995

46,258

29,167

22,954

96.3%

9.36

60,391

32,008

17,839

13,646

$

287,794

$

220,615

162,441

97,269

75,402

117,257

66,330

48,830

$

26,654

$

16,546

$

89,002

$

60,430

30.6%

69.4%

43.0%

57.0%

26.4%

73.6%

5.95%

50.6%

0.74

0.67

0.55

83.9%

0.58

$

42.8%

57.2%

6.16%

59.3%

0.68

0.63

0.55

90.1%

0.52

$

$

$

$

2.82

2.58

2.20

87.0%

2.19

2.61

2.38

2.20

94.4%

1.92

2.47

2.28

$

0.71

0.65

$

0.64

0.60

$

2.69

2.48

NOI, FFO, distributable income and AFFO are key measures of performance used by real estate operating companies; however, they are not defined by GAAP, do not have standard meanings and

may not be comparable with other industries or income trusts.

1 Excludes redevelopment properties.
2 NOI – Rental property revenues less operating expenses, excluding redevelopment and discontinued operations.
3 FFO – The reconciliation of FFO to net income can be found on page 39.
4 AFFO – The reconciliation of AFFO to distributable income can be found on page 42.
5 The reconciliation of distributable income to cash generated from operating activities can be found on page 40.
6 These percentages do not include the additional 4% distributions available under the DRIP.
7 Includes January 15, 2007, reinvestment of distributions declared in December 2006.
8 Diluted amounts assume the conversion of the 6.5% and 5.7% Debentures.

PAGE 27

DUNDEE REIT 2006 Annual Report

Financial overview
Overall occupancy remained strong during 2006 at 96.4%, with tenant rollovers allowing us to take advantage of current market
rental rates, especially in our office portfolio. Our average office and industrial portfolio occupancy rates continue to be above
the national industry averages. Details of our leasing profile are provided on page 31.

During 2006, we continued to grow our operations through strategic acquisitions and effectively managing our existing
portfolio of properties. This has translated into NOI growth of $14.3 million or 45% in the fourth quarter and $45.2 million or
39% for the year when compared to the same periods in 2005. Details of our NOI are provided on page 51.

For the year, our distributable income increased to $89.0 million, on which we declared distributions of $76.5 million,
resulting in an 85% distribution rate – a favourable improvement from the 93% distribution rate in the prior year. As a result
of the high level of participation in our DRIP, our cash payout ratio for the year is 69.4% of declared distributions.

Our AFFO increased 54% to $75.4 million for the year, representing $2.19 per unit. In the fourth quarter AFFO was $0.58 per unit.
This is a significant milestone for Dundee REIT as it marks the second quarter that AFFO has met or exceeded our declared
distributions. The improvement reflects our commitment to grow our AFFO through acquisitions and effectively managing our
leasing and capital costs.

Outlook
Solid growth in each of our key performance indicators confirms that 2006 was a great year for Dundee REIT. Occupancy
rates across our portfolio are strong and rental rates continue to edge upwards. Comparative property growth, driven by
leasing, rising rental rates and increased operational efficiency, is perhaps the most important and economically efficient way
to boost our performance. We have now reported six consecutive quarters of growth from comparative properties.

We remain disciplined in the execution of our growth strategy, completing accretive acquisitions in our target markets or
those markets with solid economies that offer growth potential. In 2006, we completed nearly $600 million of acquisitions
and added 3.4 million square feet of properties to our portfolio. The quality and volume of acquisitions completed not only this
year but over the past few years have had a noticeable impact on our performance – from increased portfolio occupancy and
rental rates, to revenue growth and stronger net operating income and funds from operations. Entering into new markets has
proven valuable, with the properties in Yellowknife, for example, providing a higher than average return on our investment.
And, the acquisitions in Calgary, a traditional target market, have provided us with great exposure to the rising rental rate
environment. With $125.4 million of acquisitions completed so far in 2007 and $424.3 million of properties under contract,
we are quite confident that our continued growth will match or exceed that achieved in this past year.

In general, the Canadian economy remains sound, with Alberta experiencing the strongest period of economic growth ever
recorded by a Canadian province. Perhaps with the exception of our Montréal portfolio, we anticipate continued strong
performance across our portfolio.

Our business is stronger than ever. With a healthy balance sheet, continued strong performance across our portfolio and
numerous acquisition opportunities, we anticipate sustained growth throughout the year ahead.

PAGE 28

DUNDEE REIT 2006 Annual Report

Section II – Executing the strategy

Our resources and financial condition
Rental properties
During the fourth quarter, we completed three acquisitions for $103.3 million, adding approximately 0.5 million square feet to
our portfolio. Two of the acquisitions completed are in Mississauga and one is in Calgary. Throughout 2006 we completed
20 transactions, adding approximately 3.4 million square feet to our portfolio. The aggregate purchase price of the properties,
including development assets, was $598.5 million. The majority of our activity was in our key markets – Toronto, Calgary,
Edmonton and Ottawa; however, we also completed accretive acquisitions in other markets including Québec City, Yellowknife
and Regina.

In the second quarter of 2006, we sold Kameyosek Shopping Centre in Edmonton, and a 50% interest in Greenbriar Mall in
Atlanta. The new co-owner has assumed the property management services for the mall. As they are redeveloping the property,
we have reclassified this asset as “redevelopment”.

In the first quarter of 2006, we evaluated the classification and presentation of the properties in our portfolio. As a result of
our analysis we determined that 19 properties, then classified as industrial, actually possess the characteristics of office space.
These properties are fully air conditioned and built out as office space, or in some cases as laboratory or research and
development space, with little or no typical industrial uses such as warehousing or light manufacturing. These properties also
attract higher rental rates than typical industrial rental rates.

The net book value of segmented rental properties by geography and asset type is set out below.

December 31

Québec

National Capital Region

Toronto Region

Alberta

Western Canada
Total as at December 31

2006|

1,2

Office

Industrial

Total

$

178,643

$

132,402

$

311,045

228,007

406,595

404,479

163,310

8,215

135,418

128,122

–

236,222

542,013

532,601

163,310

%

18

13

30

30

9

Total

$

289,797

232,775

416,996

281,002

58,424

2005|

1,2

%

23

18

32

22

5

$ 1,381,034

$

404,157

$ 1,785,191

100

$ 1,278,994

100

Percentage
Total as at December 31, 2005

77%

23%

100%

$

913,866

$

365,128

$ 1,278,994

Percentage

71%

29%

100%

1 Excludes $24,234 related to Greenbriar Mall and $7,386 related to other redevelopment properties (December 31, 2005 – $49,401).
2 Excludes discontinued operations.

Portfolio asset type
by net book value
At December 31, 2006

Geographic distribution of rental
properties by net book value
At December 31, 2006

Office 77%
Industrial 23%

Québec 18%
National Capital Region 13%
Toronto Region 30%
Alberta 30%
Western Canada 9%

PAGE 29

DUNDEE REIT 2006 Annual Report

Market information
In an effort to give additional context for our portfolio we provide below some general information with respect to those
markets where we have established a critical mass of properties. The source for market occupancy, vacancy and availability
rates referenced is CB Richard Ellis Market View, 4th Quarter 2006. It is important to note that occupancy rates for the office
market inventory are based on Class A occupancy rates and for the industrial market inventory were derived from CB Richard
Ellis’ availability rates.

Dundee REIT

Market

Average

lease term

% total

remaining

(sq. ft.)

(years)

Average

in-place

Estimated

net rent

Occupancy (%)

market rent|

1 Occupancy (%)

9.9

8.6

19.0

10.6

18.1

13.4

7.7

5.4

4.3

4.1

5.1

5.4

4.8

4.5

3.7

3.6

$ 12.47

14.64

12.28

15.47

4.83

5.96

6.39

4.97

90.7

99.0

98.1

99.4

93.2

94.8

99.7

99.7

$ 11.07

15.53

12.84

24.68

4.74

6.10

7.50

4.91

87.9

95.4

91.1

99.0

92.3

94.7

98.3

96.0

(sq. ft.)

1,826,477

1,593,950

3,501,663

1,949,127

3,336,110

2,467,154

1,411,816

993,183

Office

Montréal Region

Ottawa

Toronto Region

Calgary

Industrial

Montréal Region

Toronto Region

Calgary

Edmonton

1 Estimates only; subject to change with market conditions.

Montréal
The Montréal suburban office market did not show any significant change in 2006 with current vacancy levels indicating
healthy supply options for prospective tenants. The occupancy rate in our Montréal portfolio remained flat at 90.7% but was
ahead of the market rate. The industrial market showed relatively strong performance in 2006. And, although year-end
absorption was substantially lower than in 2005, net asking rents remained stable. Occupancy in our industrial portfolio
decreased slightly to 93.2% but also remained ahead of the market rate.

Ottawa
The overall occupancy rate for office space in Ottawa increased substantially in 2006, with significant improvements in the
Kanata and West/Nepean and South/Airport sub-markets, where a significant number of our properties are located. With
occupancy at 99.0%, our portfolio is virtually fully leased. The only industrial property we own in this market, which was
acquired in the third quarter of 2006, is fully leased.

Toronto
The office market showed improvements with overall occupancy rates across the Greater Toronto Area (“GTA”) rising. The
occupancy rates in our office portfolio increased significantly during the year to a healthy 98.1%. The overall industrial market
looked relatively stable in 2006 with availability rates of just over 5% across the GTA. At 94.8%, our portfolio occupancy was
in line with the overall market conditions.

Calgary
Calgary continues to outpace all other downtown office markets in North America and the Province of Alberta is experiencing
the strongest period of economic growth ever recorded by any Canadian province. Overall vacancy in the Calgary office market
declined to just 1.0%. Our portfolio reflected this positive trend with a 99.4% occupancy rate. The overall availability rate of
industrial space remains equally low at 1.7%. With an occupancy rate of 99.7%, our portfolio remains virtually fully leased.

Edmonton
The Edmonton office market continues on an upward trend with increasing occupancy and rental rates across the city. Our
only office building in downtown Edmonton remains fully leased. The industrial market continues to be driven by businesses
catering to the energy sector and is also performing very well. At an occupancy rate of 99.7%, our industrial portfolio was
virtually fully leased at the end of 2006.

PAGE 30

DUNDEE REIT 2006 Annual Report

Leasing profile
The following key performance indicators related to our leasing profile influence the cash generated from operating activities:

Performance indicators at December 31
Operating activities (office and industrial average)

Occupancy level1

Tenant maturity profile – average term to maturity (years)

In-place rental rates

1 Includes occupied and committed space.
2 Excludes properties under redevelopment and discontinued operations.

2006|

2

96.4%

4.6 years

2005|

2

96.3%

4.6 years

$

10.00

$

9.36

The overall percentage of occupied and committed space across our rental properties portfolio was 96.4% at year-end –
consistent with prior year. Both our average office and industrial portfolio occupancy rates are currently above the national
industry averages of 92.3% and 94.6%, respectively (CB Richard Ellis, Canadian Office and Industrial Market Views, 4th Quarter
2006). The Dundee REIT occupancy rates discussed in this report include occupied and committed space at December 31, 2006,
and exclude space to which the rent supplement (as described on page 52) is applied.

Total portfolio

Comparative properties

(%) December 31
Office

Québec

National Capital Region

Toronto Region

Alberta

Western Canada
Total office

Industrial

Québec

Toronto Region

Alberta
Total industrial

Overall

Excludes redevelopment properties.

ALISON FILLINGHAM

Leasing Representative

2006

90.7

99.0

98.1

99.5

96.3

97.0

93.2

94.8

99.7

95.6

96.4

2005

90.7

99.1

96.2

99.3

99.1

96.3

94.8

96.5

98.0

96.2

96.3

2006

89.9

99.0

97.6

99.9

99.7

96.7

93.2

93.8

99.5

95.2

95.9

2005

90.7

99.1

96.2

99.3

99.1

96.3

94.8

96.5

98.0

96.2

96.3

“ Building and maintaining good relationships with tenants
as well as the brokerage community is a fundamental element
of our success as a real estate company. In 2006, we renewed
nearly 2 million square feet of leases with existing tenants and
completed over 1 million square feet of new deals – increasing
our overall occupancy at higher rental rates.”

PAGE 31

DUNDEE REIT 2006 Annual Report

The percentage of occupied and committed space across our portfolio remains strong. Occupancy across our office portfolio
trended upward throughout the year, both for the total portfolio as well as for the comparative properties. Occupancy in the
Toronto Region office portfolio gained strength throughout the year, showing the results of concentrated leasing efforts in
our midtown portfolio. The apparent year-over-year decline in occupancy in the Western Canada office portfolio is a result
of properties acquired with vacancy during the year, which will allow us to take advantage of leasing opportunities and
increasing rental rates in these markets. The comparative properties in both the Alberta and Western Canada portfolios
remain virtually fully leased.

The industrial markets in central Canada continue to feel the impact of overall economic conditions and the strong
Canadian dollar. The Québec industrial occupancy rate, while down compared to the prior year, has gained some strength
since the first quarter. Occupancy in the Toronto Region industrial portfolio was consistent with that of the prior year for
much of 2006. The decline in the latter part of the year is the result of the anticipated departure of several large tenancies
on the expiry of their leases.

Summary of leasing activity to December 31, 2006:

(In square feet)

Vacant space available – January 1, 2006

Remeasurements

Acquisitions

Leases terminated/expiring

Total space available for lease

New tenants

Renewals

Total space leased

Total space available for lease – December 31, 2006

Office

Industrial

Total

277,203

(2,988)

81,461

1,183,659

1,539,335

490,176

747,453

1,237,629

301,706

289,668

(15,576)

9,310

2,071,723

2,355,125

839,181

1,148,742

1,987,923

367,202

566,871

(18,564)

90,771

3,255,382

3,894,460

1,329,357

1,896,195

3,225,552

668,908

Net increase in vacant space

24,503

77,534

102,037

As a result of acquisitions completed throughout the year, our portfolio increased in size by 23% or 3.4 million square feet,
including 0.1 million square feet of vacancy. During the fourth quarter, approximately 1.2 million square feet of leases expired or
were terminated and we completed approximately 1.2 million square feet of renewals and new leases. Overall, we experienced
healthy leasing activity across our portfolio and achieved slightly higher rental rates on both renewals and new leasing.

Lease maturity profile as at December 31, 2006 by asset type:

(In square feet)

Office

Industrial
Total

Percentage

Current

Current

vacancy

monthly tenancies

2007

2008

2009

2010

2011 and

thereafter

Total

301,706

367,202

668,908

3.6%

66,201

95,178

952,559

942,418

1,538,606

1,309,957

5,010,318

10,121,765

1,384,811

1,283,139

1,242,358

792,932

3,146,081

8,311,701

161,379

2,337,370

2,225,557

2,780,964

2,102,889

8,156,399

18,433,466

0.9%

12.7%

12.1%

15.1%

11.4%

44.2%

100.0%

Excludes redevelopment properties.

Looking ahead to 2007, 13% of our leases will be up for renewal. We have a long and successful track record in managing our
lease rollovers. With average market rents increasing across the country, particularly in Calgary, our lease maturity profile
affords us the opportunity to take advantage of buoyant economic conditions. As a result, we anticipate generating increased
cash flow as space is re-leased.

PAGE 32

DUNDEE REIT 2006 Annual Report

The following table provides average expiring rents across our portfolio as well as an estimate of average market rents as at
December 31, 2006:

Office

Industrial
Portfolio average

Market rents1

Office

Industrial
Market rent average

Current

monthly tenancies

2007

2008

2009

2010

2011 and

thereafter

$

$

8.51

3.67

5.66

9.03

4.79

6.53

$ 12.60

$ 12.15

$ 12.90

$ 13.84

$ 14.42

4.82

7.99

4.82

7.92

4.99

9.37

6.06

10.91

6.11

11.22

$ 14.90

$ 14.43

$ 15.12

$ 16.65

$

17.06

5.03

9.04

5.08

9.04

5.37

10.76

6.12

12.68

6.24

12.89

1 Estimate only, based on current market rents with no allowance for increases in future years and subject to change with market conditions in each market segment.

Our tenant maturity profile has remained consistent over a long period of time. The small decrease in the average term to
maturity in the office portfolio to 4.7 years from 4.8 years reflects the impact of month-to-month tenancies as well as the time
elapsed since year-end, partially offset by new leasing activity. Average remaining lease term and other portfolio information
is as follows:

December 31

Office

Industrial
Portfolio average

2006

Average in-place

Average remaining

Average tenant

lease term (years)

size (sq. ft.)

net rent

Average remaining

1
(per sq. ft.)|

lease term (years)

Average tenant

size (sq. ft.)

4.72

4.36

4.56

8,554

13,024

10,105

$ 13.67

$

5.47

$ 10.00

4.78

4.33

4.55

9,405

12,750

10,765

2005

Average in-place

net rent

1
(per sq. ft.)|

$ 13.58

$

$

5.24

9.36

All amounts exclude redevelopment properties and discontinued operations.

1 Average in-place rents include straight-line rent adjustments.

Our estimate of the current average market rental rate is approximately 13% higher than our 2007 expiring rental rate. While
this is a positive indicator, the marketplace remains competitive and any uplift in our overall average rent will depend on the
amount of space rolling into the higher net rental rates.

Our tenant base includes a wide range of high-quality tenants including government, large international corporations and
small entrepreneurial businesses across the country. With approximately 1,800 tenants, our risk exposure to any single large
lease or tenant is low. The average sizes of our office and industrial tenants are approximately 8,600 and 13,000 square feet,
respectively, placing us at the lower end of our peer group. Effectively managing this diverse tenant group has become a key
strength and has helped us to maintain consistently high occupancy levels.

The following graph illustrates the diversity of our tenant base broken down by the percentage contribution to total contract
rent. Tenants have been classified according to their North American Industry Classification System (“NAICS”) codes. NAICS
is a system used for classifying the industry in which tenants operate.

Tenant base by percentage contribution to total contract rent
At December 31, 2006

Professional, Scientific and Technical Services 26%
Public Administration 16%
Manufacturing 15%
Finance and Insurance 7%
Wholesale Trade 6%

Information and Cultural Industries 5%
Retail Trade 4%
Transportation and Warehousing 3%
Other 18%

PAGE 33

DUNDEE REIT 2006 Annual Report

The stability and quality of our cash flow is further enhanced by government agencies contributing 16% to our gross
rental revenue. Our ten largest tenants feature both federal and provincial governments as well as other nationally and
internationally recognizable businesses. The table below highlights the quality of these tenancies and outlines their
contribution to our cash flow.

Tenant

Government of Canada

Government of Ontario

Telus Communications

Aviva

Bell Canada

Government of Northwest Territories

Entrust

State Street Trust Company

International Financial Data Services

Government of British Columbia
Total

Development and redevelopment properties

December 31

Land under development

Land held for future development

Land held for sale
Total

Owned area

in sq. ft.

867,200

508,600

311,100

316,000

307,100

108,700

146,200

93,600

96,000

102,000

2,856,500

% of

owned area

% of gross

rental revenue

4.7

2.8

1.7

1.7

1.7

0.6

0.8

0.5

0.5

0.6

6.3

4.2

3.1

2.4

2.1

1.3

1.3

1.3

1.2

1.1

15.6

24.3

Expiry

2007–2015

2007–2015

2013–2016

2016

2007–2010

2007–2012

2015

2012

2007–2013

2009

$

2006
31,991

1,021

8,383

$

41,395

$

$

2005

–

–

–

–

These assets consist of land acquired in 2006 for the purpose of development, as well as capitalized development costs incurred
in 2006.

A key component of our strategy is to grow our portfolio. Joint venture development activities where we provide mezzanine
financing offer prudent opportunities for us to expand our portfolio while mitigating development and leasing risks.

In 2004, we provided mezzanine financing with respect to the development of a six-building portfolio in Airport Corporate Centre
West in Mississauga. In November of this year, we acquired all of the properties for a purchase price of $66.3 million, including
a 2% discount to the negotiated market value of the properties. At the time of acquisition, the properties were 86% leased.
Additional leasing activity completed subsequent to year-end has increased committed occupancy to approximately 97%.

On May 26, 2006, we entered into a joint venture agreement with a development partner to acquire land and develop office and
prestige industrial properties in major Canadian markets. We have a 60% ownership interest in the joint venture. Other than
those properties constructed on a build-to-suit basis for third parties, we have the first option to acquire the completed
properties, once they reach a predetermined occupancy requirement, at a discount to the market value at the date of
acquisition. As part of the agreement, we are to provide mezzanine financing equal to 90% of any funding requirement not
otherwise provided by third-party lenders, up to a maximum of $45 million. We are also required to guarantee, when necessary,
90% of financing obtained from third parties. As at December 31, 2006, we have funded $9.2 million and provided a guarantee
on $8.3 million of third-party financing related to two development projects in suburban Toronto that we expect will yield
about 60 acres of developable lands.

The acquisition of the Princeton Portfolio on May 16, 2006, included approximately 60 acres of commercial land in Western
Canada for which we paid $18.9 million. Included in this total are approximately 50 acres of serviced commercial land in the
Sunwapta Business Park in Edmonton. We intend to develop 39 of the 50 acres that are zoned for office and industrial and sell
the remaining 11 acres that are zoned for retail. The remaining 10 acres are mainly located in Yellowknife and will be held for
future development.

PAGE 34

DUNDEE REIT 2006 Annual Report

Property type

Acres

Investment

Development

capacity (sq. ft.)

Status

Location
Redevelopment properties

2280 boul. Alfred Nobel, Montréal

Gallery Building, Yellowknife

Greenbriar Mall, Atlanta

office

office

retail

Current development

Barker Business Park, Richmond Hill (JV)

office/ind.

Tullamore Business Park, Caledon (JV)

Sunwapta Business Park, Edmonton

industrial

office/ind.

Development opportunities

Palladium Lands, Ottawa

10089 and 10079 Jasper Ave., Edmonton

Speakman Project, Mississauga

Station Tower Lands, Surrey

Niven Lake Lands, Yellowknife

Held for sale

Sunwapta Business Park, Edmonton

19th Street Lands, Saskatoon

office

office

office

office

–

retail

retail

–

–

–

–

40

19

39

98

3

–

14

3

10

30

$

7,019

85,000

367

24,234

25,000

398,000

$ 31,620

508,000

Construction is complete
and the property is 37% leased

Planning

Property being redeveloped
by our co-owner

Site work, pre-leasing

Site work, pre-leasing

Site work, pre-leasing

$

6,204

2,997

10,393

860,000

375,000

800,000

$ 19,594

2,035,000

$

833

4,683

–

3,841

711

81,000

250,000

100,000

500,000

200,000

$ 10,068

1,131,000

11

0.5

11.5

$

$

7,572

811

8,383

200,000

–

200,000

Liquidity and capital resources
Dundee REIT’s primary sources of capital are cash generated from operating activities, credit facilities, mortgage financing
and refinancing, 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 principal and interest
payments, mezzanine loans and property acquisitions. We expect to meet all of our ongoing obligations through current cash
and cash equivalents, cash flows from operations, conventional mortgage refinancings and, as growth requires, new equity
or debt issues.

“ We have become focused on ‘green’ building and construction
standards. Dundee REIT is currently targeting LEED Silver
Certification (Leadership in Energy and Environmental Design)
for a new development in suburban Toronto. One of its features
will be recycling rain water captured from the roof and using
it in the irrigation system for the benefit of the property.”

PAGE 35

BARRY WHITE

Project Manager, Construction

DUNDEE REIT 2006 Annual Report

The following table details the change in cash and cash equivalents:

Cash generated from operating activities

Cash utilized in investing activities

Cash generated from financing activities
Increase (decrease) in cash and cash equivalents

Three months ended December 31

Years ended December 31

2006

2005

(restated)

2006

2005

(restated)

$

24,003

$

13,204

$

87,862

$

62,992

(93,260)

127,141

$

57,884

$

(56,491)

53,845

10,558

(470,595)

437,214

(276,725)

212,918

$

54,481

$

(815)

At December 31, 2006, cash and cash equivalents were $71.0 million, an increase of $57.9 million compared to the prior quarter
and $54.5 million compared to December 31, 2005. The increase was a result of the cash flows indicated above, including the
impact of acquisitions, new financing activity and equity issues. The large cash balance on hand at December 31, 2006, was
mainly residual from the proceeds from the public offering completed on December 12, 2006, which was mainly used to fund
the acquisition of 30 and 55 St. Clair Avenue West, Toronto, completed on January 9, 2007. We have an $80 million revolving
credit facility, of which approximately $79.3 million is available to provide further funding for working capital or as a bridge
facility to fund acquisitions.

Operating activities
The following table details the cash generated from operating activities:

Three months ended December 31

Years ended December 31

Net income

Non-cash items:

Amortization of market rent adjustments on acquired leases

All other depreciation and amortization

Provision for impairment in value of rental properties

Internalization of property manager

Loss (gain) on disposal of rental properties

Deferred unit compensation expense

Future income taxes

Straight-line rent adjustment

Dilution gain

Non-controlling interest

Deferred leasing costs incurred

Change in non-cash working capital
Cash generated from operating activities

2006

$

7,952

$

(1,622)

20,590

–

615

4

354

(111)

(767)

–

–

27,015

(2,352)

(660)

2005

(restated)

(5,015)

(81)

14,032

11,533

–

3,837

243

(4,287)

(839)

(296)

(2,281)

16,846

(1,602)

(2,040)

2006

$

11,218

$

(4,124)

70,591

–

13,678

(3,009)

1,170

2,314

(3,164)

–

1,876

90,550

(6,097)

3,409

87,862

2005

(restated)

4,309

(331)

49,267

11,533

–

3,620

830

(3,653)

(3,688)

(1,890)

1,523

61,520

(4,440)

5,912

$

24,003

$

13,204

$

$

62,992

The change in cash generated from operations during the three- and twelve-month periods primarily reflects the impact
of acquisitions.

The amortization of market rent adjustments on acquired leases represents the impact of leases with below market rents,
related to certain properties acquired in Alberta during the year. Below market leases are recorded as intangible liabilities
and are amortized to rental property revenue over the terms of the related leases.

In the fourth quarter of 2005, when we entered into the commitment to sell 50% of Greenbriar Mall, we recognized a provision
for the impairment in value of 50% of our investment in the property. Because the expected proceeds of the sale were less than
the carrying amount of the property, the difference was recognized as an impairment loss. The sale was completed in the
second quarter of 2006, at which time we recognized an additional $0.2 million loss.

PAGE 36

DUNDEE REIT 2006 Annual Report

In the second quarter of 2006, we fully internalized our property management function through the purchase of the remaining
50% interest of Dundee Management Limited Partnership (“DMLP”) for $12.6 million. Of this amount, $12.2 million was
expensed and $0.4 million was allocated to the net tangible assets acquired. The amount expensed includes $12.2 million
related to the 450,000 LP B Units issued on closing. The issue price per LP B Unit of $27.54 was estimated based on the five-day
weighted average trading price of REIT Units on the Toronto Stock Exchange, with the midpoint being May 4, 2006 (the date
the substantive terms of the internalization were publicly announced), net of a discount for implied issuance costs. Also on
closing, 92,000 LP B Units were issued, placed in trust and enrolled in the DRIP to satisfy the maximum number of units that
Dundee Realty Corporation (“DRC”) may be entitled to receive on June 30, 2007, as a result of qualifying property acquisitions
being completed by us. The cost of these units will be expensed and added to cumulative capital as qualifying properties are
acquired by Dundee REIT. Any units that are not ultimately issued to DRC as additional consideration will be returned to
DMLP for cancellation. During the year ended December 31, 2006, we acquired $340.6 million of qualifying properties and
accordingly $1.5 million was expensed and added to cumulative capital representing the cost of the additional 55,326 LP B
Units that DRC will be entitled to receive on June 30, 2007.

The straight-line rent adjustment represents the difference between the straight-line method of rental revenue recognition
and the cash rents received. Any cumulative difference is included in accounts receivable.

Deferred leasing costs include fees and costs, except for initial leasing costs that are included in rental properties,
and deferred leasing costs acquired. Deferred leasing costs are amortized on a straight-line basis over the term of the
applicable lease to amortization expense. Deferred leasing costs for the year increased by $1.7 million compared to 2005
due to increased leasing activity.

The variance in the change in non-cash working capital over the prior quarter and prior year mainly reflects the increase in
accounts receivable. We expect to meet all working capital requirements from cash generated from operating activities.

Leasing costs and tenant improvements
Leasing costs include leasing fees and costs, broker commissions and tenant inducements. Tenant improvements include
costs incurred to make leasehold improvements to the leased space. Leasing cost and tenant improvement expenditures 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, and leasing costs
associated with office space are generally higher than costs associated with industrial space.

As a result of new accounting rules, we have reclassified tenant improvements to investing activities on the statement of cash
flows. Leasing costs and tenant improvements were $6.0 million and $13.8 million for the respective three- and twelve-month
periods representing increases of $1.9 million and $0.3 million, respectively. Included in leasing costs and tenant improvements
in 2006 is $0.3 million related to redevelopment properties.

During 2006, office leasing activity increased 58% and resulted in 1.1 million square feet of new leasing and renewals. Related
expenditures incurred during this period only increased by 47%, reflecting our continued commitment to managing
expenditures. Industrial leasing activity decreased 8% and resulted in 1.7 million square feet of new leases and renewals.
Related expenditures decreased by $1.2 million mainly due to short-term renewals on which we do not incur leasing costs
as well as our commitment to managing expenditures.

Performance indicators
Operating activities

Portfolio size (sq. ft.)

Occupied and committed

Square footage leased and occupied in 2006

Leasing costs ($000s)

Tenant improvements ($000s)

1 Excludes redevelopment properties.

Office|

1

Industrial

Total

10,121,765

8,311,701

18,433,466

97.0%

1,111,362

$

$

4,396

5,552

95.6%

1,657,627

$

$

1,683

1,833

96.4%

2,768,989

$

$

6,079

7,385

PAGE 37

DUNDEE REIT 2006 Annual Report

The following table summarizes our leasing activity for 2006:

2006

Prepaid

Committed

expenditures

leasing costs

leasing costs

Incurred

(prepaid)

prior year

Office

Industrial
Total

$ 9,948

$ 1,385

$ 1,548

3,516

590

197

$ 13,464

$ 1,975

$ 1,745

$

$

412

$ 9,699

1,111,362 $

(278)

3,401

1,657,627

134

$ 13,100

2,768,989 $

Total

Sq. ft. leased

Cost per

leasing costs

and occupied

sq. ft.

8.73

2.05

4.73

The table below provides our annualized estimates of expected leasing activity and leasing costs over a two- to three-year
time horizon. These estimates are based on our portfolio at the end of 2006 and assume that market conditions remain
consistent with our current experience.

Estimated average annual leasing activity (sq. ft.)

Average leasing costs (per sq. ft.)

Expected average annual leasing costs ($000s)

Office

Industrial

1,180,000

1,790,000

$

$

8.95

10,561

$

$

2.10

3,259

Other assets and liabilities
Other assets consist of deferred costs, prepaid expenses, intangible assets and liabilities, mezzanine loans, a vendor loan,
deposits and restricted cash. Other liabilities consist of intangible liabilities related to below market leases acquired. A full
description of these assets and liabilities is provided in Note 2 of the financial statements.

The net increase in deferred costs during 2006 was $8.2 million. This change includes increases in deferred charges of
approximately $14.8 million related to acquisitions and $15.0 million in additional deferred expenditures incurred during the
year, net of $4.0 million in dispositions and $17.6 million in amortization. Complete details of deferred costs are provided in
Note 5 of the financial statements.

Intangible assets and liabilities include the value of above and below market leases, in-place leases, lease origination costs
and tenant relationships. Complete details of these assets and liabilities are provided in Note 9 of the financial statements.
As of December 31, 2006, net assets increased $2.3 million from the prior year. This increase is mainly a result of
approximately $15.0 million related to acquisitions, offset by $13.0 million in amortization expense.

As at December 31, 2006, we had $3.9 million in mezzanine loans outstanding related to our joint venture developments,
as discussed in “Development and redevelopment properties” on page 34. In the fourth quarter our mezzanine loan investment
with respect to the ACCW project in Mississauga was repaid when we exercised our option to acquire the related properties.

On December 14, 2006, the $3.5 million vendor loan with respect to the sale of Northgate Mall in December 2004 was repaid in full.

Deposits of $4.6 million represent cash amounts held for repayment of tenant security deposits as required by various lending
agreements. The $3.3 million net increase for the year is primarily due to the acquisitions completed during the year.

Restricted cash primarily represents tenant rent deposits and cash held as security for certain mortgages. The balance as of
December 31, 2006, is $5.6 million, an increase of $1.2 million from the prior year.

PAGE 38

DUNDEE REIT 2006 Annual Report

Commitments and contingencies
We are contingently liable with respect to guarantees that are issued in the normal course of business and with respect to
litigation and claims that 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 financial statements.

Our future minimum commitments under operating, capital and ground leases are as follows:

Years ending December 31

Operating lease payments

Capital lease payments

Ground lease payments

2007

2008

2009

2010

2011

2012 and thereafter
Total

$

$

1,315

1,154

962

668

660

1,300

6,059

$

128

117

–

–

–

–

$

1,141

1,113

1,112

573

32

33

$

245

$

4,004

Funds from operations
Management believes FFO is an important measure of our operating performance and is indicative of our cash-generating
activities. This measurement is generally accepted as one of the most meaningful and useful measures of performance of real
estate operations; however, it does not represent cash flow from operating activities as defined by GAAP and is not necessarily
indicative of cash available to fund Dundee REIT’s needs.

In 2005, the Real Property Association of Canada (“REALpac”) provided guidelines on the definition of FFO to help promote
more consistent disclosure. Until such time as all income trusts adopt this policy, our computation of FFO may not be
comparable to other REITs or income trusts.

Net income (loss)

Add (deduct):

Depreciation of rental properties

Amortization of deferred leasing costs,
tenant improvements and intangibles

Imputed amortization of leasing costs
related to the rent supplement

Internalization of property manager

Loss (gain) on disposal of rental properties

Provision for impairment in value of rental property

Future income tax

Amortization of costs not specific to real estate operations
incurred subsequent to June 30, 2003

Dilution gain

Non-controlling interest

FFO

FFO per unit – basic

FFO per unit – diluted

Three months ended December 31

Years ended December 31

2006
7,952

$

2005

$

(5,015)

$

2006
11,218

2005

4,309

$

11,259

9,384

81

615

4

–

(111)

(17)

–

–

$

$

$

29,167

0.74

0.71

$

$

$

8,117

5,918

318

–

3,837

11,533

(4,286)

(6)

(296)

(2,281)

17,839

0.68

0.64

39,908

30,643

694

13,678

(3,009)

–

2,314

(53)

–

1,876

97,269

2.82

2.69

$

$

$

29,743

19,985

1,176

–

3,620

11,533

(3,653)

(16)

(1,890)

1,523

66,330

2.61

2.47

$

$

$

The increase in FFO per unit in both the three- and twelve-month periods is primarily due to additional revenue generated by
acquisitions as well as growth in occupancy and rising rental rates. A reduction in our weighted average interest rate also had
a positive impact on FFO. Below market rents, which result in a non-cash amortization to our operating results, positively
impact our FFO. The impact of below market rents on diluted FFO per unit was $0.04 and $0.13 for the respective three- and
twelve-month periods.

PAGE 39

DUNDEE REIT 2006 Annual Report

Diluted FFO per unit amounts assume the conversion of the 6.5% and 5.7% Debentures. The weighted average number of units
outstanding for basic and diluted FFO calculations for the fourth quarter are 39,588,295 and 43,447,393, respectively. Diluted
FFO includes interest and amortization adjustments of $1.8 million. Year-to-date, the weighted average number of units
outstanding for basic and diluted FFO calculations are 34,446,486 and 40,004,679, respectively. Diluted FFO includes interest
and amortization adjustments of $10.2 million.

Distributions and distributable income
Our Declaration of Trust requires us to make monthly cash distributions to our unitholders equal to at least 80% of distributable
income (“DI”) on an annual basis. Amounts retained in excess of the distributions are used to fund leasing costs and capital
expenditure requirements. Given that working capital tends to fluctuate with time and should not affect our distribution policy,
we disregard it when determining distributable income. In times of working capital deficiency, the high participation in our
DRIP program provides the necessary cash to temporarily fund cash shortfalls.

Distributable income per unit for the year was $2.58 and declared distributions were $2.20, representing an 85% payout ratio.
In the prior year comparative period, distributable income per unit was $2.38 per unit and declared distributions were $2.20,
representing a 93% payout ratio.

Distributable income

Cash generated from operating activities

Add (deduct):

Deferred leasing costs incurred

Amortization of deferred financing costs
incurred prior to June 30, 2003

Amortization of non-recoverable deferred costs
incurred prior to June 30, 2003

Amortization of tenant inducement

Amortization of costs not specific to real estate operations
incurred subsequent to June 30, 2003

Amortization of deferred financing costs

Change in non-cash working capital

Distributable income

Distributable income per unit – basic

Distributable income per unit – diluted

Distributions

Three months ended December 31

Years ended December 31

2006
24,003

$

2005

$

13,204

$

2006
87,862

2005

$

62,992

2,352

1,602

6,097

4,440

65

16

20

(17)

(445)

660

26,654

0.67

0.65

0.55

$

$

$

$

94

25

–

(4)

(415)

2,040

16,546

0.63

0.60

0.55

$

$

$

$

335

73

19

(53)

(1,922)

(3,409)

89,002

2.58

2.48

2.20

$

$

$

$

366

111

–

(16)

(1,551)

(5,912)

60,430

2.38

2.28

2.20

$

$

$

$

Funds from operations
per unit

$2.82

03* $2.44
04  $2.50
05 $2.61
06  $2.82
*2003 is an annualized amount.

PAGE 40

Funds from operations per unit is a key measure of our
operating performance. Since the inception of the Trust in
2003, we have been able to continuously increase our
annual funds from operations – a positive indicator of an
accretive acquisition program and the overall strength of
our business.

DUNDEE REIT 2006 Annual Report

Distributable income is not a measure defined by GAAP and therefore may not be comparable to similar measures presented
by other real estate investment trusts. Distributable income is defined in our Declaration of Trust to facilitate the determination
of distributions to our unitholders. On August 4, 2006, the Canadian Securities Administrators (the “CSA”) issued CSA Staff
Notice 52-306 (Revised), “Non-GAAP Financial Measures” (the “Notice”). The Notice provides that in the view of CSA staff,
all distributable cash presentations should begin with cash flows from operating activities. In compliance with the Notice,
our table reconciles distributable income, as defined by our Declaration of Trust, to cash generated from operating activities.

Distributions
The distributions presented in the table below comprise $57.8 million relating to REIT Units and $19.7 million relating to
LP B Units. Cash distributions were only paid to holders of REIT Units as all of the LP B Units are enrolled in the DRIP.

2006 distributions

Paid in cash or reinvested in units

Payable at December 31, 2006
Total distributions

2006 reinvestment

Reinvested to December 31, 2006

Reinvested on January 15, 2007
Total distributions reinvested

Distributions paid in cash

Reinvestment to distribution ratio

Cash distribution payout ratio

Declared distributions

4% additional

distributions

$

$

$

$

861

77

938

861

77

938

$

$

$

$

$

68,575

7,936

76,511

21,528

1,912

23,440

53,071

30.6%

69.4%

Total

69,436

8,013

77,449

22,389

1,989

24,378

$

$

$

$

Distributions declared in the year ended December 31, 2006, totalled $76.5 million or 85% of distributable income, an increase
of $20.4 million over the comparative period. Of this amount, $23.4 million or 30.6% was reinvested in additional units.
The increase in declared distributions arises from an incremental increase in units generated through the DRIP, REIT Units
issued as part of public offerings completed in April, June and December 2006, as well as REIT Units issued on the conversion
of debentures. As a result of the high level of participation in the DRIP, our cash payout ratio for our distributions is 69.4%.

In the year ended December 31, 2006, we declared $19.7 million in distributions on LP B Units, which was satisfied by the
issuance of 618,853 REIT Units and 61,092 LP B Units.

Distributable income
In millions of dollars

03* $42.6
03* $38.1
04  $52.1
04  $52.6
05 $60.4
05 $56.1
06  $89.0
06  $76.5
*2003 is an annualized amount.

Distributable
income

Declared
distributions

$89.0

$76.5

Over the years the dollar amount of declared distributions
has increased, corresponding with our expanding
unitholder base. Yet, with the strength of our financial
performance, the growth in distributable income has
outpaced the growth in declared distributions. Our
Declaration of Trust requires us to pay out at least 80% of
our distributable income. In 2006, we paid out 85% of our
distributable income, compared to 93% in 2005.

PAGE 41

DUNDEE REIT 2006 Annual Report

Adjusted funds from operations

Distributable income

Adjusted for:

Normalized leasing costs and tenant improvements

Normalized non-recoverable recurring capital expenditures

AFFO

AFFO per unit – Basic

Three months ended December 31

Years ended December 31

2006
26,654

2005

$

16,546

(3,350)

(350)

22,954

0.58

(2,600)

(300)

13,646

0.52

$

$

$

$

$

2006
89,002

(12,200)

(1,400)

75,402

2.19

$

$

$

2005

$

60,430

(10,400)

(1,200)

48,830

1.92

$

$

Management believes adjusted funds from operations (“AFFO”) is an important measure of our economic performance and
is indicative of our ability to pay distributions. This measurement is generally accepted as one of the most appropriate
measures for assessing real estate performance; however, it does not represent cash flow from operating activities as defined
by GAAP and is not necessarily indicative of cash available to fund Dundee REIT’s needs. Please see our description of
distributable income, on page 40, which reconciles distributable income to cash flow from operations.

Our calculation of AFFO starts with our distributable income and then deducts an estimate of normalized non-recoverable
maintenance capital expenditures, leasing costs and tenant improvements that we expect to incur based on our current
portfolio and expected average leasing activity. Our estimates of normalized leasing costs and tenant improvements are based
on the average of our expected leasing activity over the next two to three years and multiplied by the average cost per square
foot that we incurred and committed to in 2006. Our estimates of normalized non-recoverable capital expenditures are based
on our expected average expenditure for our current property portfolio. This estimate will differ from actual experience due
to the timing of expenditures and the growth in our business resulting from property acquisitions.

Adjusted funds from 
operations per unit

$0.58

$0.55

Q1  $0.51
Q2  $0.53
Q3  $0.55
Q4  $0.58

PAGE 42

An important objective is to generate adjusted funds
from operations in excess of distributions declared to
unitholders. During the year, we achieved this important
target. We anticipate continued growth in our performance
measures in 2007.

DUNDEE REIT 2006 Annual Report

Investing activities
The following table details our cash utilized in investing activities:

Investment in rental properties

Investment in tenant improvement

Investment in land development

Acquisition of rental properties and land

Acquisition deposit on rental properties

Receipt of mezzanine loan

Vendor take-back mortgage repayment

Net proceeds from disposal of rental properties

Change in restricted cash, net
Cash utilized in investing activities

Three months ended December 31

Years ended December 31

$

2006

(2,659)

(3,662)

(1,047)

(98,140)

(3,600)

13,142

3,450

(78)

(666)

$

2005

(restated)

(3,709)

(2,508)

–

(54,521)

(705)

–

–

5,864

(912)

2006

$

(9,173)

(7,667)

(2,103)

$

2005

(restated)

(7,833)

(9,033)

–

(484,667)

(275,024)

(3,600)

9,487

3,450

24,922

(1,244)

(880)

(750)

–

8,118

8,677

$

(93,260)

$

(56,491)

$ (470,595)

$ (276,725)

Key performance indicators in the management of our investment activities are:

Performance indicators
Investing activities

Acquisition of rental properties

Building improvements

Acquisition of land

Three months ended December 31

Years ended December 31

2006

$

$

$

103,259

3,444

–

$

$

$

2005

71,550

4,555

–

2006

2005

$

$

$

559,197

9,028

39,292

$

$

$

349,903

8,529

718

Acquisitions and dispositions
During the fourth quarter of 2006, we acquired $103.3 million of rental properties, land and related intangible assets funded
by $98.1 million in cash. For the year, we completed acquisitions totalling $598.5 million funded by $484.7 million in cash and
$103.0 million in assumed mortgages. Acquisitions completed during 2005 and 2006 have increased net operating income by
approximately $12.0 million and $38.5 million for the three- and twelve-month periods, respectively.

A component of our acquisition strategy is to acquire properties in our key markets, allowing us to capitalize on our operational
efficiencies, further increase our presence and critical mass in our target markets and improve the overall quality and rental
income stability of our portfolio. Since the formation of the REIT on July 1, 2003, we have invested over $1.3 billion in
high-quality properties that are accretive to our performance.

“ 2006 was a very active year on the acquisition front. Throughout
the year we completed transactions totalling nearly $600 million,
adding over 3 million square feet of gross leasable area to our
portfolio. Two significant portfolio acquisitions substantially
increased our exposure to the booming markets in Western
Canada and Calgary in particular.”

BONNIE CREWS & SUHAN HANNAN

Managers, Investments

PAGE 43

DUNDEE REIT 2006 Annual Report

On June 29, 2006, we completed the sale of Kameyosek Shopping Centre, a 46,143 square foot retail property. We received
proceeds of $8.4 million and recognized a gain on sale of $3.3 million. On June 2, 2006, we completed the sale of a 50% interest
in Greenbriar Mall, Atlanta, for net proceeds of $16.7 million and recognized a $0.2 million loss on the sale. As a result of the
disposition, a $3.7 million cumulative foreign currency loss was released from the foreign currency translation adjustment
that was recognized as part of the loss on disposal. In the year ended December 31, 2005, we recorded an impairment loss of
$11.5 million relating to Greenbriar Mall. The disposition of Greenbriar Mall has not been presented as a discontinued
operation as we still have a significant continuing involvement in its operations.

Interest

acquired

Occupancy

on

Acquired

acquisition

Property type

(%)

GLA (sq. ft.)

(%)

Purchase price

Fair value

of mortgage

assumed

Date acquired

100 $

2,726 $

–

January 10, 2006

Year ended December 31, 2006
Park 19, Edmonton

70 Disco Road, Toronto

SEC Portfolio, Québec

2440 Scanlan Street, London

Sherwood Place, Regina

1400 boul. de la Rive Sud, Québec City

4255 14th Avenue, Markham

industrial

industrial

office/industrial

industrial

office

office

industrial

Princeton Portfolio, Western Canada

office/industrial/land

10089 Jasper Avenue, Edmonton

Barker Business Park (Phase II), Toronto

Calgary Office Portfolio, Calgary

Tullamore Business Park, Caledon

Victoria Tower, Regina

100 Legacy Road, Ottawa

10079 Jasper Avenue, Edmonton

land

land

office

land

office

industrial

land

Aviva Corporate Centre, Toronto

office/industrial

Station Tower Lands, Surrey

2121 Argentia Road, Mississauga

Airport Corporate Centre West, Mississauga

2891 Sunridge Way NE, Calgary
Total

land

office

office

office

100

100

100

100

100

100

100

100

100

60

48,000

99,000

265,000

85,000

182,000

77,000

57,000

530,000

86,000

–

100

822,000

–

144,000

103,000

–

438,000

–

61,000

357,000

60

100

100

10

100

100

100

100

100

100

99

100

99

100

100

94

–

–

98

–

100

100

–

100

–

96

86

7,577

21,306

6,266

33,206

12,062

5,914

96,818

4,160

8,994

3,117

6,199

3,477

14,442

–

–

43,835

–

–

January 12, 2006

January 27, 2006

April 20, 2006

April 21, 2006

May 1, 2006

May 1, 2006

May 17, 2006

May 29, 2006

June 7, 2006

218,257

23,339

June 15, 2006

3,224

17,815

8,906

310

43,961

3,728

11,270

66,253

25,736

–

8,621

–

–

July 4, 2006

July 21, 2006

August 1, 2006

August 4, 2006

– September 13, 2006

– September 21, 2006

– November 16, 2006

– November 28, 2006

– December 20, 2006

88,000

100

3,442,000

98 $ 598,489 $ 103,030

Acquisitions subsequent to year-end
Subsequent to year-end, we acquired two office buildings in Toronto, Ontario, totalling 426,000 square feet for approximately
$110.8 million, and an 83,000 square foot office building in New Westminster, B.C., for approximately $14.6 million.

We currently have under contract, subject to a variety of conditions, approximately $424.3 million of office and industrial
properties totalling 2.7 million square feet.

Building improvements

Building improvements

Recurring recoverable

Recurring non-recoverable

Non-recurring
Total

PAGE 44

Three months ended December 31

Years ended December 31

2006

2,306

440

698
3,444

$

$

2005

1,855

348

2,352

4,555

$

$

2006

5,066

637

3,325
9,028

$

$

2005

2,569

1,169

4,791

8,529

$

$

DUNDEE REIT 2006 Annual Report

For the three-month period, capital expenditures or expenditures accrued for rental property building improvements and
equipment were $3.4 million (December 31, 2005 – $4.5 million). Recurring recoverable costs incurred in the quarter included
$2.3 million for various roof, chiller and elevator replacements, as well as general building maintenance. Non-recurring costs
in the quarter included $0.7 million of construction costs related to various projects in our Montréal industrial portfolio. For
the year, non-recurring costs included $0.3 million of recoverable costs, $1.3 million to complete a build-to-suit project and
$0.9 million in capitalized carrying costs for a property under redevelopment with the remainder relating to miscellaneous
construction projects. The tenant took occupancy of the build-to-suit project and began paying rent in May 2006.

As part of our acquisition due diligence, we endeavour to identify any near-term capital expenditure requirements and factor
those costs into our investment analysis and purchase price negotiations. Such potential expenditures are approved in the
acquisition process and will be identified as incurred. There are no expected non-recoverable capital expenditures associated
with acquisitions completed in the fourth quarter. Anticipated non-recoverable capital expenditures associated with acquisitions
completed throughout 2006 are expected to be approximately $7.8 million.

Financing activities
We finance the ownership of our assets using equity as well as utilizing conventional mortgage financing, term debt, floating
rate credit facilities and convertible debentures. Our debt strategy includes staggering our maturity schedule to help mitigate
interest rate risk and limit exposure in any given year, as well as fixing the rates and extending loan terms as long as possible
when interest rates are favourable.

The following table details our cash generated from financing activities:

Three months ended December 31

Years ended December 31

Mortgages placed, net of costs

Mortgage principal repayments

Mortgage lump sum repayments

Term debt principal repayments

Term debt lump sum repayments

Term debt placed, net of costs

Convertible debentures issued, net of costs

Demand revolving credit facility, net

Demand non-revolving credit facility

Distributions paid on REIT Units

Units issued, net of costs
Cash generated from financing activities

2005

$

28,821

$

$

2006
48,323

(6,917)

(32,429)

(66)

–

44

–

(10,362)

–

(15,138)

143,686

$

127,141

$

(5,204)

(6,378)

(121)

(5,417)

–

(9)

(21,577)

–

(7,909)

71,639

53,845

2006
294,985

(25,380)

(79,486)

(364)

(14,957)

6,139

–

–

–

(50,074)

306,351

2005

$

155,621

(17,957)

(46,076)

(501)

(7,492)

–

95,443

–

(6,107)

(31,700)

71,687

$

437,214

$

212,918

2006

5.95%

50.6%

2005

6.16%

59.3%

2.46 times

2.22 times

4.7%

5.8

2.2%

7.2%

5.9

1.6%

Debt
The key performance indicators in the management of our debt are:

December 31
Financing activities

Average interest rate

Level of debt (debt-to-gross book value)

Interest coverage ratio

Proportion of total debt due with one year

Debt – average term to maturity (years)

Variable rate debt as percentage of total debt

The interest coverage ratio, which reflects our ability to cover interest expense requirements, has improved steadily over the
year to 2.46 times. This improvement reflects the reduction in our overall level of debt-to-gross book value to 50.6%, from
59.3% at the beginning of the year, as well as the lower average interest rate, now at 5.95% compared to 6.16% at the beginning
of the year.

PAGE 45

DUNDEE REIT 2006 Annual Report

As a result of refinancing activity during the quarter, the proportion of total debt due in 2007 decreased to 4.7%. Our variable
rate debt as a percentage of total debt increased during the year as a result of a variable rate mortgage placed on a
redevelopment property. During the year, we drew $58.1 million from our revolving credit facility, which we repaid by
December 31, 2006. The facility is used as an interim measure until conventional mortgage debt or other long-term financing
is in place.

December 31

Mortgages

Term debt

Demand revolving credit facility

Debenture – 6.5%

Debenture – 5.7%
Total

Percentage

Fixed

Variable

2006

Total

Fixed

Variable

2005

Total

$ 1,036,909

$

19,402

$ 1,056,311

$

756,920

$

–

$

756,920

2,238

–

24,438

65,281

5,526

–

–

–

7,764

–

24,438

65,281

271

–

72,478

98,890

15,062

15,333

–

–

–

–

72,478

98,890

$ 1,128,866

$

24,928

$ 1,153,794

$

928,559

$

15,062

$

943,621

97.8%

2.2%

100%

98.4%

1.6%

100%

Mortgages payable include a $9.6 million marked-to-market adjustment (December 31, 2005 – $8.5 million) reflecting the fair
value of mortgages assumed in connection with acquisitions. The marked-to-market adjustment and discount are amortized
to interest expense over the term to maturity of the related debt. During the year, $82.5 million of debentures were converted
into 3,071,257 REIT Units. Amounts recorded as at December 31, 2006 for the 6.5% and 5.7% Debentures are net of the
$0.8 million premiums allocated to their conversion features. Further detail on the conversions is provided on page 47.

Debt-to-gross book value
Our Declaration of Trust limits our overall debt to 65% of gross book value. At December 31, 2006, our debt-to-gross book
value decreased to 50.6% (December 31, 2005 – 59.3%) mainly as a result of funding $598.5 million of acquisitions with the
proceeds of equity offerings totalling $306.4 million, combined with net proceeds from dispositions totalling $24.9 million.
In addition, as a result of the rising trading price of our units, we experienced a large volume of debenture conversions, which
also contributed to a significant reduction in our debt-to-gross book value.

December 31

Total assets

Accumulated depreciation

Accumulated amortization of acquired intangibles and leasing costs
Gross book value

Outstanding debt

Unamortized discount component of convertible debentures
Total debt

Debt-to-gross book value

2006
$ 2,127,920

120,353

32,559

$ 2,280,832

$ 1,153,794

794

$ 1,154,588

50.6%

We consider our convertible debentures to be debt and treat them as such when computing our debt ratios. Assuming the
conversion of all of the 6.5% and 5.7% Debentures, our debt-to-gross book value would decrease to 46.7%. Commencing
January 1, 2006, we have included the accumulated amortization of tangible and intangible components related to acquired
properties in our calculation of debt-to-gross book value to reflect the total cost added to the asset base. Comparative ratios
have not been restated.

Financing activity
During the fourth quarter we secured approximately $48.5 million in new mortgage financing, resulting in a year-to-date total
of approximately $296.8 million in new mortgages. The new financing was completed with an average term to maturity of
8.3 years and an average interest rate of 5.56%. As a result, our overall average interest rate decreased to 5.95% and our average
term to maturity was extended to 5.8 years.

PAGE 46

DUNDEE REIT 2006 Annual Report

Changes in debt levels since December 31, 2005, result from:

Mortgages

Term debt

Revolving

credit facility

Convertible

debentures

Total

Debt as at December 31, 2005

$

756,920

$

15,333

$

New debt assumed on rental property acquisitions

New debt placed

Vendor take-back term loan

Scheduled repayments

Lump sum repayments

Conversion to unit equity

103,030

296,845

5,355

(25,380)

(79,486)

–

Marked-to-market and other adjustments
Debt as at December 31, 2006

(973)
$ 1,056,311

$

217

6,139

1,395

(363)

–

–

58,096

–

–

(14,957)

(58,096)

–

–
7,764

$

–

–
–

$

171,368

$

943,621

–

–

–

–

–

(82,460)

103,247

361,080

6,750

(25,743)

(152,539)

(82,460)

811
89,719

(162)
$ 1,153,794

$

In connection with acquisitions completed during the year, we assumed $103.0 million in mortgages, with an average 3.3-year
term to maturity and a weighted average interest rate of 5.35%.

December 31

2007

2008

2009

2010

2011

2012 and thereafter
Total

Scheduled principal

repayments on

Debt maturities

non-matured debt

Amount

$

23,649

$

30,538

$

54,187

110,155

122,963

38,629

160,496

519,905

30,421

26,560

23,819

19,759

46,900

140,576

149,523

62,448

180,255

566,805

%

4.7

12.2

13.0

5.4

15.6

49.1

$

975,797

$

177,997

$ 1,153,794

100.0

2006

Weighted average

interest rate on

balance due at

maturity %

6.27

6.51

6.50

5.58

6.30

5.67

5.98

$

2005

Amount

67,801

53,582

111,186

131,354

53,516

526,182

$

943,621

Convertible debentures
Throughout the year we issued 3,071,257 REIT Units upon the conversion of $82.5 million of the principal amount of
6.5% Debentures and 5.7% Debentures.

With respect to the 6.5% Debenture, during the fourth quarter, we issued 177,400 REIT Units upon the conversion of $4.4 million
of the principal amount. In total, we issued 1,935,640 REIT Units upon the conversion of $48.4 million of the principal amount in
2006. Subsequent to year-end, we issued an additional 119,960 REIT Units upon the conversion of $3.0 million of the principal
amount. The total principal amount outstanding at January 31, 2007, was $21.6 million, and is convertible into 863,360 REIT Units.

50.6%

debt-to-gross book value

Throughout a year of exceptional growth we have remained
focused on a healthy balance sheet. Our debt renewals and
new debt financings resulted in a further reduction of our
weighted average interest rate to 5.95% and a steady
improvement of the interest coverage ratio to 2.46 times.

PAGE 47

DUNDEE REIT 2006 Annual Report

With respect to the 5.7% Debenture, during the fourth quarter, we issued 1,132,652 REIT Units upon the conversion of
$34.0 million of the principal amount. In total, we issued 1,135,617 REIT Units upon the conversion of $34.1 million of the
principal amount in 2006. Subsequent to year-end, we issued an additional 374,458 REIT Units upon the conversion of
$11.2 million of the principal amount. The total principal amount outstanding at January 31, 2007, was $54.7 million, and is
convertible into 1,823,233 REIT Units.

Equity
The following table summarizes the changes in our outstanding equity:

REIT Units, Series A

LP Class B Units, Series 1

Units issued and outstanding on December 31, 2005

Units issued pursuant to public offerings

Units issued pursuant to internalization of property manager

Units issued pursuant to DRIP

Units issued pursuant to Deferred Unit Incentive Plan

Units issued pursuant to Unit Purchase Plan

Conversion of 6.5% Debentures

Conversion of 5.7% Debentures

Exchange of LP B Units
Total units outstanding on December 31, 2006

Percentage of all units

Units issued pursuant to DRIP on January 15, 2007

Units issued pursuant to Unit Purchase Plan

Conversion of 6.5% Debentures

Conversion of 5.7% Debentures

Exchange of LP B Units

Redemption of REIT Units

Total units outstanding on January 31, 2007
Percentage of all units

20,449,209

10,190,000

–

811,261

22,888

13,087

1,935,640

1,135,617

296,851
34,854,553

80.3%

49,060

–

119,960

374,458

487,409

(100)

35,885,340

81.6%

8,337,365

–

505,326

19,255

–

–

–

–

(296,851)
8,565,095

19.7%

2,307

–

–

–

(487,409)

–

8,079,993

18.4%

Total

28,786,574

10,190,000

505,326

830,516

22,888

13,087

1,935,640

1,135,617

–
43,419,648

100.0%

51,367

–

119,960

374,458

–

(100)

43,965,333

100%

Public offering of units
On December 12, 2006, we completed a public offering of 4,110,000 REIT Units for gross cash proceeds of $150.0 million at a
price of $36.50 per unit. Costs related to the offering were $6.5 million and were charged to unitholders’ equity.

On June 8, 2006, we completed a public offering of 3,560,000 REIT Units for gross cash proceeds of $100.0 million at a price
of $28.10 per unit. Costs relating to the offering were $4.4 million and were charged directly to unitholders’ equity.

On April 7, 2006, we completed a public offering of 2,200,000 REIT Units for gross cash proceeds of $61.0 million at a price of
$27.75 per unit. On April 28, 2006, we issued an additional 320,000 REIT Units for gross proceeds of approximately $8.9 million

$320

million of equity offerings

In 2006, we completed three equity offerings totalling
$320 million and issued 10.2 million units. The offerings
were very well received and helped increase our market
capitalization to $1.7 billion at year-end, up from
$740 million a year ago. As a result of our increased
market capitalization and heavier trading activity in our
units, Dundee REIT was added to the S&P/TSX Composite
Index in December.

PAGE 48

DUNDEE REIT 2006 Annual Report

pursuant to the exercise of the over-allotment option granted to the underwriters. The exercise of the over-allotment option
increased the total gross proceeds of the offering to approximately $69.9 million. Costs relating to the offering were $3.2 million
and were charged directly to unitholders’ equity.

On February 12, 2007 we announced that we have entered into an agreement to issue 3,700,000 REIT Units, at a price of
$40.75 per unit for gross proceeds of $150.8 million. Costs relating to the offering are estimated to be $6.6 million. In addition,
we have granted the underwriters an over-allotment option up to an additional 555,000 REIT Units, which, if exercised, would
increase the gross offering to $173.4 million.

Our results of operations

Revenues

Rental properties revenue

Interest and fee income

Expenses

Rental properties operating expenses

Interest

Depreciation of rental properties

Amortization of deferred leasing costs,
tenant improvements and intangibles

General and administrative

Income before the undernoted items

Internalization of property manager

Loss on disposal of rental property

Provision for impairment in value of rental property

Dilution gain
Income (loss) before income and large corporations taxes

Income taxes

Current income and large corporations taxes

Future income taxes

Income (loss) before non-controlling interest and
discontinued operations

(Income) loss attributable to non-controlling interest

Income (loss) before discontinued operations

Discontinued operations

Net income (loss)

$

Three months ended December 31

Years ended December 31

2006

2005

2006

2005

$

81,995

$

60,391

$

287,794

$

220,615

1,257

83,252

34,959

17,307

11,259

9,384

1,861

74,770

8,482

(615)

9

–

–

7,876

22

(111)

(89)

7,965

–

7,965

(13)

7,952

397

60,788

27,190

14,701

8,088

5,908

1,640

57,527

3,261

–

–

(11,533)

296

(7,976)

49

(4,287)

(4,238)

(3,738)

1,192

(2,546)

(2,469)

(5,015)

$

3,646

291,440

122,150

66,052

39,850

30,614

6,812

265,478

25,962

(13,678)

(220)

–

–

12,064

62

2,314

2,376

9,688

(1,840)

7,848

3,370

$

11,218

$

2,144

222,759

99,176

53,960

29,459

19,508

5,408

207,511

15,248

–

–

(11,533)

1,890

5,605

181

(3,653)

(3,472)

9,077

(2,511)

6,566

(2,257)

4,309

Rental properties revenue
Revenues include net rental or basic income from rental properties as well as the recovery of operating costs, property taxes,
parking revenues and other miscellaneous revenues from tenants. The increase in rental property revenue is primarily a
result of additional revenues generated by acquisitions as well as receiving 100% of the fees earned by the property manager,
effective May 1, 2006.

Interest and fee income
Interest and fee income represents amounts for items such as fees earned from third-party property management including
management, construction and leasing fees, and interest on bank accounts and related fees. These revenues and expenses are
not necessarily of a recurring nature and the amounts will vary from quarter to quarter. Our results for the quarter include
$0.2 million in one-time leasing fees.

PAGE 49

DUNDEE REIT 2006 Annual Report

Rental properties operating expenses
Operating expenses mainly comprise occupancy costs and property taxes as well as certain expenses that are not recoverable
from tenants, the majority of which are related to leasing. Operating expenses fluctuate with occupancy levels, weather, utility
costs, taxes, repairs and maintenance. The $7.8 million or 29% increase in operating expenses over the comparative quarter
mainly reflects the additional costs of managing a larger portfolio of properties.

Interest expense
The $2.6 million or 18% increase in interest expense for the three-month period was mainly the result of additional debt
incurred in connection with acquisitions. Although the overall dollar amount of our debt increased, the impact on interest
expense was mitigated to some extent by the reduction in our weighted average interest rate to 5.95% compared with 6.16%
at December 31, 2005.

Depreciation of rental properties
Depreciation increased by $3.2 million or 39% compared with the same quarter in 2005 mainly as a result of acquisitions.

Amortization of deferred leasing costs, tenant improvements and intangibles
Amortization increased by $3.5 million or 59% over the comparative period, largely due to the allocation of a portion of the
purchase price on new acquisitions to intangibles, and the write-off of amounts related to a tenant whose lease was renegotiated.

General and administrative expenses
General and administrative expenses primarily comprise the expenses related to corporate management, trustees’ fees and
expenses, and investor relations for the Trust and its subsidiaries. Expenses for the quarter were $1.9 million, an increase of
$0.2 million or 13% over the comparative period reflecting the growth of our business and the additional costs resulting from
the internalization of the property manager. The increase in expense is offset by increased property management fees as we
now own 100% of the property manager.

Dilution gain
The dilution gain in 2005 resulted from the additional LP B Units issued pursuant to the DRIP, which caused the dilution of
our ownership of Dundee Properties Limited Partnership (“DPLP”). As of August 2005, the holders of LP B Units have
elected to reinvest their distributions in REIT Units, and as a result our ownership is no longer being diluted. The holder
of the LP B Units issued on the internalization of the property manager, including the issued units held in trust, reinvests
their distributions in LP B Units. As a result of the reclassification of the LP B Units to equity effective May 1, 2006, no
further dilution gain will be reported.

Income tax expense
Dundee REIT distributes or designates all taxable earnings to unitholders and as such, under current legislation, the obligation
for tax rests with each unitholder and no tax provision is currently required on the majority of Dundee REIT’s income. Certain
Canadian and U.S. subsidiaries of Dundee REIT are taxable and any tax-related costs are reflected in the balance sheet and
income statement.

Discontinued operations
Discontinued operations include assets that have been categorized as held for sale or sold and meet specific criteria as
discontinued assets in accordance with GAAP. These assets and operations are disclosed separately on the income statement
and balance sheet.

Related-party transactions and arrangements
From time to time Dundee REIT and its subsidiaries enter into transactions with related parties that are conducted under
normal commercial terms. Prior to May 1, 2006, Dundee REIT, DPLP, DMLP and DRC were parties to a property management
agreement and an administrative services agreement (the “Management Agreement” and the “Services Agreement”). In addition,
DMLP and DRC are parties to a separate administrative services agreement. Effective May 1, 2006, the Trust acquired DRC’s 50%
interest in DMLP. As a result, DRC is no longer party to the Management Agreement, other than to its rent supplement obligation,
and the Services Agreement. DMLP and DRC have extended the term of the DRC Services Agreement to June 30, 2013.

PAGE 50

DUNDEE REIT 2006 Annual Report

During the year, we received $1.3 million in fees related to the rent supplement and $1.4 million related to the DRC services
agreement. We also incurred $1.9 million of management fee expenses paid under the Management Agreement prior to
May 1, 2006.

Net operating income
Net operating income (“NOI”) is an important measure used by management to evaluate the operating performance of the
properties. We define NOI as the total of rental property revenues less rental property operating expenses. NOI for the quarter
increased 45% over the comparative period, primarily due to income generated by properties acquired in 2006, and properties
acquired in the fourth quarter of 2005 that are contributing to the full quarter this year. NOI for the year increased 39% or
$45.2 million reflecting strong growth in our comparative office portfolio and the impact of acquisitions completed over the
last two years. Our comparative industrial portfolio performance remained stable for the year with growth coming from
acquisitions. Redevelopment properties include the results of Greenbriar Mall, Atlanta. Discontinued operations reflects the
results of Kameyosek Shopping Centre which was sold on June 29, 2006, and 2301 and 2311 Royal Windsor Drive and Simcoe
Town Centre, sold in 2005.

Three months ended December 31

Years ended December 31

$

2006
35,699

10,559

46,258

778

–

2005

Amount

$

23,380

$

12,319

8,628

32,008

1,192

356

1,931

14,250

(414)

(356)

Growth

%

53

22

45

$

2006
121,347

41,094

162,441

3,203

263

2005

Amount

$

83,793

$

37,554

33,464

117,257

4,182

1,386

7,630

45,184

(979)

(1,123)

Growth

%

45

23

39

$

47,036

$

33,556

$

13,480

40

$

165,907

$

122,825

$

43,082

35

Three months ended December 31

Years ended December 31

2006
8,569

$

2005

$

7,600

$

6,183

13,310

13,612

4,584

46,258

778

–

5,099

10,841

7,132

1,336

32,008

1,192

356

Growth

%

13

21

23

91

Amount

969

1,084

2,469

6,480

3,248 243

14,250

45

(414)

(356)

$

2006
34,210

24,210

47,895

42,747

13,379

162,441

3,203

263

2005

$

27,515

$

17,013

40,054

27,410

5,265

117,257

4,182

1,386

Growth

%

24

42

20

56

Amount

6,695

7,197

7,841

15,337

8,114 154

45,184

39

(979)

(1,123)

$

47,036

$

33,556

$

13,480

40

$

165,907

$

122,825

$

43,082

35

Office

Industrial
NOI

Redevelopment

Discontinued operations
NOI including
redevelopment
and discontinued
operations

Québec

National Capital Region

Toronto Region

Alberta

Western Canada
NOI

Redevelopment

Discontinued operations
NOI including
redevelopment
and discontinued
operations

NOI by segment
Three months ended December 31, 2006

NOI by region
Three months ended December 31, 2006

Office 77%
Industrial 23%

Québec 19%
National Capital Region 13%
Toronto Region 29%
Alberta 29%
Western Canada 10%

PAGE 51

DUNDEE REIT 2006 Annual Report

NOI comparative portfolio
NOI shown below highlights comparative and non-comparative items to assist in understanding the impact each component
has on NOI. We have classified our remaining interest in Greenbriar Mall as a redevelopment property, reflecting the fact that
we no longer actively manage the property, which is being redeveloped by our partner. The discontinued operations
that contributed to NOI are shown separately to conform with the required income statement presentation. Comparative NOI
and acquisitions exclude GAAP adjustments that relate to straight-line rents and amortization of market rent adjustments on
acquired leases.

Three months ended December 31

Years ended December 31

2006
18,584

7,328

25,912

17,840

150

2,356

46,258

778

–

2005

$

17,612

$

7,193

24,805

5,840

458

905

32,008

1,192

356

Growth

%

6

2

4

$

Amount

972

135

1,107

12,000

(308)

1,451

14,250

45

(414)

(356)

2006
72,691

28,874

101,565

52,394

1,336

7,146

162,441

3,203

263

2005

$

68,689

$

28,463

97,152

13,882

2,272

3,951

117,257

4,182

1,386

Growth

%

6

1

5

Amount

4,002

411

4,413

38,512

(936)

3,195

45,184

39

(979)

(1,123)

$

47,036

$

33,556

$

13,480

40

$

165,907

$

122,825

$

43,082

35

2006
5,072

$

$

3,712

8,868

6,896

1,364

25,912

17,840

150

2,356

46,258

778

–

Three months ended December 31

$

2005

5,183

3,299

8,612

6,366

1,345

24,805

5,840

458

905

32,008

1,192

356

Growth

%
(2) $
13

3

8

1

4

Amount

(111)

413

256

530

19

1,107

12,000

(308)

1,451

14,250

45

(414)

(356)

2006
20,491

14,419

34,530

26,711

5,414

101,565

52,394

1,336

7,146

162,441

3,203

263

Years ended December 31

Growth

%

1

8

4

6

3

5

Amount

107

1,108

1,438

1,583

177

4,413

38,512

(936)

3,195

45,184

39

(979)

(1,123)

2005

$

20,384

$

13,311

33,092

25,128

5,237

97,152

13,882

2,272

3,951

117,257

4,182

1,386

$

47,036

$

33,556

$

13,480

40

$

165,907

$

122,825

$

43,082

35

Office

$

Industrial
Comparative properties

Acquisitions

Rent supplement

GAAP adjustments
NOI

Redevelopment

Discontinued operations
NOI including

redevelopment
and discontinued
operations

Québec

National Capital Region

Toronto Region

Alberta

Western Canada
Comparative properties

Acquisitions

Rent supplement

GAAP adjustments
NOI

Redevelopment

Discontinued operations
NOI including

redevelopment
and discontinued
operations

The increase in comparative NOI was driven by strong performance by our office portfolio nationally, and reflects occupancy
growth as well as rising rental rates.

The rent supplement from DRC contributed $0.2 million for the quarter. The rent supplement represents amounts funded by
DRC based on specific vacancies as previously agreed to upon the formation of Dundee REIT and as included in the property
management agreement. This rent supplement will fluctuate as leasing of supplemented space occurs. The supplement
commenced July 1, 2003, and is effective for five years for office and three years for industrial space. The rent supplement
decreased in the quarter as a result of leasing activity in supplemented office space, and the expiry of the supplement period
for industrial properties on June 30, 2006.

PAGE 52

DUNDEE REIT 2006 Annual Report

Comparative office portfolio

2006
2,660

$

$

3,712

6,961

3,887

1,364

18,584

14,928

149

2,038

Three months ended December 31

Growth

%
(4) $
13

5

8

1

6

$

2005

2,763

3,299

6,617

3,588

1,345

17,612

4,609

376

783

Amount

(103)

413

344

299

19

972

10,319

(227)

1,255

2006
11,140

14,419

26,612

15,106

5,414

72,691

42,224

555

5,877

Years ended December 31

Growth

%

3

8

7

6

3

6

Amount

279

1,108

1,643

795

177

4,002

31,758

(949)

2,743

2005

$

10,861

$

13,311

24,969

14,311

5,237

68,689

10,466

1,504

3,134

$

35,699

$

23,380

$

12,319

53

$

121,347

$

83,793

$

37,554

45

Québec

National Capital Region

Toronto Region

Alberta

Western Canada
Comparative properties

Acquisitions

Rent supplement

GAAP adjustments
Office NOI

Our comparative office portfolio remains well occupied with the National Capital Region, Alberta and Western Canada portfolios
offering less than 4% vacancy. Growth in comparative NOI from the office portfolio is largely a result of improved occupancy
and higher rental rates achieved on renewals and new leasing. Our Québec office portfolio reported modest NOI growth for the
year mainly as a result of an increase in occupancy offset by a $0.2 million bad debt provision related to a single tenant in the
fourth quarter. Growth in the National Capital Region was mainly due to increases in rental rates and additional recovery
revenue on gross leases that were converted to net leases. Growth in the Toronto Region reflects improved occupancy as well
as renewals and new leasing occurring at market rates. In the prior year, the Toronto Region’s results were impacted by a
$0.4 million one-time expense. Our Alberta portfolio is virtually fully occupied, reflecting the market in general. Given the
current state of the Alberta rental market, we are well positioned to convert tenant expiries at market rental rates. In 2006,
approximately 6% of our Alberta portfolio expired; 2007 expiries are approximately 10% of our portfolio allowing us to continue
to re-lease at market rental rates. Total office NOI grew by $12.3 million and $37.6 million in the respective three- and
twelve-month periods fuelled by the contribution from acquisitions.

Comparative properties NOI

+5%

in 2006

Internal growth – driven by occupancy and rising rental
rates – is a critical driver of our success. For six quarters
in a row we have produced growth in net operating income
on a comparative property basis. And, we expect that the
performance of our comparative properties will continue
to grow in 2007.

PAGE 53

DUNDEE REIT 2006 Annual Report

Comparative industrial portfolio

2006
2,412

$

$

1,907

3,009

7,328

2,912

1

318

Three months ended December 31

$

2005

2,420

1,995

2,778

7,193

1,231

82

122

Growth

%

–

(4)

8

2

Amount

(8)

(88)

231

135

1,681

(81)

196

2006
9,351

$

$

7,918

11,605

28,874

10,170

781

1,269

Years ended December 31

Growth

$

2005

9,523

8,123

10,817

28,463

3,416

768

817

%

(2)

(3)

7

1

Amount

(172)

(205)

788

411

6,754

13

452

$

10,559

$

8,628

$

1,931

22

$

41,094

$

33,464

$

7,630

23

Québec

Toronto Region

Alberta
Comparative properties

Acquisitions

Rent supplement

GAAP adjustments
Industrial NOI

Comparative industrial property performance increased marginally for both the three- and twelve-month periods. Strong
occupancy driven results in Alberta offset slightly weaker results in the balance of our industrial portfolio. In our Alberta
portfolio, enhanced performance was driven by increased occupancy as well as rental rate uplifts achieved on renewals and
new leasing. The decrease in the Québec and Toronto Region portfolios is attributable to a slight decline in occupancy mainly
related to isolated tenant failures during 2006. Total NOI improved by $1.9 million and $7.6 million in the respective three-
and twelve-month periods, again fuelled by the contribution from acquisitions. Effective July 1, 2006, the rent supplement for
industrial space expired.

NOI prior quarter comparison
Overall, comparative properties are maintaining a high level of occupancy, achieving incremental improvements in rental
rates and producing modest growth in NOI. Total NOI grew 3% quarter-over-quarter largely reflecting the impact of acquisitions
as well as leasing activity in Alberta.

Three months ended

Office

Industrial
Comparative properties

Acquisitions

Rent supplement

GAAP adjustments
NOI

Redevelopment

Discontinued operations
NOI including discontinued operations

December 31, 2006
18,584

$

September 30,

2006

$

18,259

$

7,328

25,912

17,840

150

2,356

46,258

778

–

7,394

25,653

16,189

323

2,797

44,962

436

(55)

Amount

325

(66)

259

1,651

(173)

(441)

1,296

342

55

$

47,036

$

45,343

$

1,693

Growth

%

2

(1)

1

3

4

PAGE 54

Three months ended

Québec

National Capital Region

Toronto Region

Alberta

Western Canada
Comparative properties

Acquisitions

Rent supplement

GAAP adjustments
NOI

Redevelopment

Discontinued operations
NOI including discontinued operations

DUNDEE REIT 2006 Annual Report

December 31, 2006
5,072

$

$

3,712

8,868

6,896

1,364

25,912

17,840

150

2,356

46,258

778

–

September 30,

2006

5,208

3,620

8,807

6,678

1,340

25,653

16,189

323

2,797

44,962

436

(55)

Growth

Amount

(136)

%

(3)

$

92

61

218

24

259

1,651

(173)

(441)

1,296

342

55

3

1

3

2

1

3

4

$

47,036

$

45,343

$

1,693

Quarter-over-quarter comparative property NOI remained relatively consistent with increased occupancy and rental rates in
our office portfolio driving the $0.3 million improvement in the fourth quarter. Current and prior year acquisitions contributed
an increase of $1.7 million compared to the prior quarter.

Selected annual information
The following table provides select financial information for the past three years:

December 31

Revenues

Income before discontinued operations

Net income

Total assets

Debt

Distributions declared

Per unit amounts:

Basic income from continuing operations

Basic net income

Diluted income from continuing operations

Diluted net income

$

$

2006
291,440

7,848

11,218

2,127,920

1,153,794

76,511

2005

2004

$

222,759

$

186,756

6,566

4,309

14,813

4,353

1,507,713

1,199,792

943,621

56,072

693,155

52,595

$

0.25

0.35

0.25

0.35

$

0.38

0.25

0.29

0.16

0.92

0.27

0.82

0.18

PAGE 55

DUNDEE REIT 2006 Annual Report

Quarterly information
The following tables show quarterly information since January 1, 2005.

Q4 2006

Q3 2006

Q2 2006

Q1 2006

Q4 2005

Q3 2005

Q2 2005

Q1 2005

Revenues

Rental properties revenue

$ 81,995

$ 76,778

$ 66,051

$ 62,970

$ 60,391

$ 57,385 $ 52,720

$ 50,119

Interest and fee income

Expenses

Rental properties
operating expenses

Interest

Depreciation of rental properties

Amortization of deferred leasing
costs, tenant improvements
and intangibles

General and administrative

Income before

the undernoted items

Provision for impairment in
value of rental property

Internalization of property manager

Gain (loss) on disposal of
rental property

Dilution gain
Income (loss) before income
and large corporations taxes

Income taxes

Current income and

large corporations taxes

Future income taxes (recovery)

Income tax expense (recovery)
Income (loss) before

non-controlling interest and
discontinued operations

Loss (income) attributable to

non-controlling interest
Income (loss) before

discontinued operations

Discontinued operations
Net income (loss)

Net income (loss) per unit

1,257

83,252

1,038

77,816

852

499

397

410

619

718

66,903

63,469

60,788

57,795

53,339

50,837

34,959

17,307

11,259

9,384

1,861

74,770

8,482

–

(615)

9

–

31,380

17,934

10,824

27,744

15,833

9,227

28,067

14,978

8,540

27,190

14,701

8,087

25,216

14,378

7,967

23,427

13,215

6,800

23,343

11,666

6,604

9,007

1,688

6,513

1,755

5,710

1,508

5,907

1,641

5,565

1,362

4,405

1,245

3,630

1,161

70,833

61,072

58,803

57,526

54,488

49,092

46,404

6,983

5,831

4,666

3,262

3,307

4,247

4,433

–

27

–

(13,090)

(445)

–

216

–

–

–

–

–

(11,533)

–

–

–

–

–

–

–

–

–

–

–

296

269

652

673

7,876

6,565

(7,043)

4,666

(7,975)

3,576

4,899

5,106

22

(111)

(89)

7,965

–

7,965

(13)

(81)

(202)

(283)

76

2,453

2,529

45

174

219

49

(4,286)

(4,237)

44

259

303

41

183

224

47

192

239

6,848

(9,572)

4,447

(3,738)

3,273

4,675

4,867

–

(517)

(1,323)

1,192

(1,007)

(1,330)

(1,366)

6,848

(10,089)

(25)

3,343

3,124

65

(2,546)

(2,469)

2,266

(43)

3,345

75

3,501

180

$

7,952

$ 6,823

$ (6,746) $ 3,189

$ (5,015) $ 2,223 $

3,420

$ 3,681

Basic

Diluted1

$

$

0.24

0.24

$

$

0.19

0.19

$

$

(0.23) $

(0.23) $

0.15

0.15

$

$

(0.28) $

0.13 $

(0.29) $

0.12 $

0.20

0.17

$

$

0.22

0.18

1 Excludes impact of 6.5% Debentures and 5.7% Debentures, which are currently not dilutive to net income.

PAGE 56

DUNDEE REIT 2006 Annual Report

Calculation of funds from operations and distributable income

Net income (loss)

Add (deduct):

Q4 2006
7,952

$

Q3 2006

Q2 2006

Q1 2006

Q4 2005

Q3 2005

Q2 2005

Q1 2005

$

6,823

$ (6,746)

$

3,189

$ (5,015)

$

2,223 $

3,420

$

3,681

Depreciation of rental properties

11,259

10,824

9,255

8,570

8,117

8,053

6,884

6,689

Amortization of deferred
leasing costs and intangibles

Future income tax

Imputed amortization of leasing costs
related to the rent supplement

Amortization of costs not specific to
real estate operations incurred
subsequent to June 30, 2003

Dilution gain

(Gain) loss on disposal of
rental properties

Provision for impairment in
value of rental property

Internalization of property manager

Non-controlling interest

Funds from operations

Funds from operations per unit

Basic1

Diluted

Cash generated from
operating activities

Add (deduct):

81

(17)

–

4

–

615

–

9,384

(111)

9,007

(202)

6,527

2,453

5,725

174

5,918

(4,286)

5,765

259

4,524

183

3,778

192

68

289

256

318

168

204

487

(18)

–

(13)

–

(5)

–

(6)

(296)

(4)

(269)

(3)

(652)

415

(3,453)

24

3,837

–

13,090

–

–

11,533

–

–

(27)

–

–

–

–

25

–

–

527

1,349

(2,281)

986

1,367

1,451

$ 29,167

$ 26,890

$ 21,929

$ 19,282

$ 17,839

$ 17,181 $

15,952

$ 15,358

$

$

0.74

0.71

$

$

0.74

0.70

$

$

0.67

0.64

$

$

0.67

0.63

$

$

0.68

0.64

$

$

0.68 $

0.63 $

0.64

0.60

$

$

0.62

0.60

$ 24,003

$ 22,058

$ 24,634

$ 17,167

$ 13,204

$ 16,351 $

19,862

$ 13,575

(5)

(673)

(242)

–

–

Deferred leasing costs incurred

2,352

972

1,739

1,034

1,602

831

1,034

973

Amortization of deferred financing costs

incurred prior to June 30, 2003

Amortization of non-recoverable deferred
costs incurred prior to June 30, 2003

Amortization of tenant inducements

Amortization of costs not specific
to real estate operations incurred
subsequent to June 30, 2003

Amortization of deferred leasing costs
incurred subsequent to June 30, 2003

Imputed amortization of leasing costs

related to the rent supplement

Loss (gain) on disposal of rental property

Amortization of deferred financing costs

Change in non-cash working capital

65

16

20

81

17

–

94

19

–

94

21

–

94

25

–

98

78

–

87

4

–

87

4

–

(17)

(18)

(13)

(5)

(4)

(4)

(3)

(5)

–

–

–

–

–

–

(445)

660

(619)

1,378

–

–

(25)

(425)

(5,524)

–

–

25

(433)

77

–

–

–

–

–

–

–

–

–

–

–

–

(415)

2,040

(440)

(924)

(401)

(6,374)

(296)

(654)

Distributable income

$ 26,654

$ 23,869

$ 20,499

$ 17,980

$ 16,546

$ 15,990 $

14,209

$ 13,684

Distributable income per unit

Basic1

Diluted

Weighted average units

outstanding for FFO and DI

Basic

Diluted

$

$

0.67

0.65

$

$

0.66

0.63

$

$

0.63

0.60

$

$

0.62

0.59

$

$

0.63

0.60

$

$

0.63 $

0.59 $

0.57

0.54

$

$

0.55

0.54

39,588,295 36,350,417 32,727,091 28,968,219 26,266,118 25,387,969 25,081,201 24,865,912

43,447,393 42,292,776 38,953,240 35,281,362 32,562,042 31,712,785 31,480,407 27,924,777

1 The LP Class B Units, Series 1 are included in the calculation of Basic FFO per unit and Basic DI per unit.

PAGE 57

DUNDEE REIT 2006 Annual Report

For the period-end, occupied and committed space is as follows:
Q4 2006
97.0

Office

Q3 2006

Q2 2006

96.4

96.1

(%)

Industrial

Overall

95.6

96.4

95.9

96.2

95.7

95.9

Excludes properties under redevelopment and properties held for sale for the respective period.

Q1 2006

Q4 2005

Q3 2005

Q2 2005

Q1 2005

96.1

95.2

95.6

96.3

96.2

96.3

95.5

97.0

96.1

95.7

96.3

95.8

94.7

96.0

95.2

Section III – Disclosure controls and procedures
As of December 31, 2006, the Chief Executive Officer and the Chief Financial Officer, together with other members of management,
have evaluated the design and effectiveness of Dundee REIT’s disclosure controls and procedures, as defined in Multilateral
Instrument 52-109. They have concluded that the disclosure controls and procedures were adequate and effective to provide
reasonable assurance that material information relating to Dundee REIT and its consolidated subsidiary entities for the year ended
December 31, 2006, would have been made known to them.

In addition, as of December 31, 2006, the Chief Executive Officer and the Chief Financial Officer, together with other members
of management, have evaluated the design of the Dundee REIT’s internal controls over financial reporting. The internal
controls were designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements in accordance with Canadian generally accepted accounting principles. They have concluded that the
design of the internal controls over financial reporting were adequate and effective to provide reasonable assurance that
financial information is recorded, processed, summarized and reported in a timely manner. There were no significant changes
made to the internal controls in 2006.

Occupancy

03 92.7%
04  94.5%
05 96.3%
06  96.4%

PAGE 58

96.4%

Our overall occupancy reached an all-time high of 96.4%
at year-end. The occupancy rate of our office portfolio, at
97.0%, remains well ahead of the national industry
average. And, our industrial portfolio occupancy remains
strong at 95.6%, also slightly ahead of the industry average.

DUNDEE REIT 2006 Annual Report

Section IV – Risks and our strategy to manage
Dundee REIT is exposed to various risks and uncertainties. Risks and uncertainties inherent in an investment in our units
include but are not limited to the following:

Real estate ownership
Real estate ownership is generally subject to numerous risks, including changes in general economic conditions, such as the
availability and cost of mortgage funds, local economic conditions (such as an oversupply of office, industrial and retail
properties or a reduction in demand for real estate in the area), the attractiveness of properties to potential tenants or
purchasers, competition of others with available space, the ability of the owner to provide adequate maintenance at an
economic cost and other factors.

Our portfolio of properties generates income through rent payments made by our tenants. Upon the expiry of any lease,
there can be no assurance that the lease will be renewed or the tenant replaced for a number of reasons. Furthermore, the
terms of any subsequent lease may be less favourable than the existing lease. Our financial position would be adversely
affected if a number of tenants were to become unable to meet their obligations under their leases or if a significant amount
of available space in the properties were not able to be leased on economically favourable lease terms. In the event of default
by a tenant, delays or limitations in enforcing rights as lessor may be experienced and substantial costs in protecting our
investment may be incurred. 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 such tenant and, thereby, cause a reduction in the cash
flow available to us.

Diversity mitigates risk. The diversity of our portfolio by asset type and geographic location helps to minimize our exposure
to any single market or asset class. We also attempt to stagger lease maturities to protect against large vacancies in any
given year or market. Further, Dundee REIT has a broad tenant base with the largest tenant occupying less than 5% of gross
leaseable area and comprising 6.3% of our gross rental revenue. For further information, please see the “Leasing profile”
discussion beginning on page 31.

Illiquidity of real estate investments
An investment in real estate is relatively illiquid. Such illiquidity will tend to limit our ability to vary our portfolio promptly in
response to changing economic or investment conditions. In recessionary times it may be difficult to dispose of certain types
of real estate. The costs of holding real estate are considerable and during an economic recession we may be faced with
ongoing expenditures with a declining prospect of incoming receipts. In such circumstances, it may be necessary for us to
dispose of properties at lower prices in order to generate sufficient cash for operations and making distributions. We manage
our portfolio actively and are attentive to market conditions and property values. We review our properties on an ongoing
basis to identify strengths and weaknesses of individual properties and our portfolio as a whole, allowing us to quickly
reposition assets when warranted or identify non-core or under-performing assets for disposition.

Competition in the office, industrial and retail real estate market
We compete with other investors, managers and owners of properties in seeking tenants and for the purchase and development
of desirable real estate properties. Some of the commercial office, industrial and retail properties of our competitors are
newer, better located or better capitalized than our properties. Certain of these competitors have greater financial and other
resources and greater operating flexibility than us. The existence of competing managers and owners could have a material
adverse effect on our ability to lease space in our properties and on the rents we are able to charge, and could adversely affect
our revenues and our ability to meet our obligations. We strive to deliver a level of service that meets or exceeds tenant
expectations. We believe that providing a consistent, high level of service puts us in a better position to re-lease space to
existing tenants and helps to attract new tenants to lease vacant space quickly and cost effectively.

PAGE 59

DUNDEE REIT 2006 Annual Report

Environmental risk
As an owner of real property, we are subject to various federal, provincial, state and municipal laws relating to environmental
matters. Such laws provide a range of potential liability, including potentially significant penalties, and potential liability for
the costs of removal or remediation of certain hazardous substances. The presence of such substances, if any, could adversely
affect our ability to sell or redevelop such real estate or to borrow using such real estate as collateral and, potentially, could
also result in civil claims against us. In order to obtain financing for the purchase of a new property through traditional
channels, we may be requested to arrange for an environmental audit to be conducted. Although such an audit provides us and
our lenders with some assurance, we may become subject to liability for undetected pollution or other environmental hazards
on our properties against which we cannot insure, or against which we may elect not to insure where premium costs are
disproportionate to our perception of relative risk.

We have formal policies and procedures to review and monitor environmental exposure. These policies include the
requirement to obtain a Phase I Environmental Site Assessment, conducted by an independent and qualified environmental
consultant, before acquiring any real property or any interest therein.

Financing risk
Upon the expiry of the term of the financing or refinancing of any particular property or operating or acquisition debt facilities,
refinancing may not be available in the amounts required or may be available only on terms less favourable to us than existing
financing. We may require additional financing in order to grow and expand our operations. It is possible that such financing
will not be available or, if it is available, will not be available on favourable terms. Future financing may take many forms,
including debt or equity financing, which could alter the current debt-to-equity ratio or which could be dilutive to our
unitholders. It is our intent to reduce the interest rate risk associated with refinancing by ensuring that debt maturities are
staggered over several years, with limited exposure in any given year. In 2007, our exposure is limited to $54.2 million rolling
at a 6.24% weighted average interest rate, which in the context of our business is not significant. For further information,
please see the “Our resources and financial condition” discussion beginning on page 29.

Insurance
We carry general liability, umbrella liability and excess liability insurance with a total limit of $61,000,000. For the property
risks we carry “All Risks” property insurance including but not limited to flood, earthquake and loss of rental income insurance
(with a 24-month indemnity period). We also carry Boiler and Machinery insurance covering all boilers, pressure vessels,
HVAC systems and equipment breakdown. There are, however, certain types of risks (generally of a catastrophic nature such
as from war or nuclear accident) that are uninsurable under any insurance policy. Furthermore there are other risks that are
not economically viable to insure at this time. We currently self-insure against terrorism risk for the entire Canadian portfolio.
We have insurance for earthquake risks, subject to certain policy limits, deductibles and self-insurance arrangements. Should
an uninsured or underinsured loss occur, we could lose our investment in, and anticipated profits and cash flows from, one
or more of the properties, but we would continue to be obligated to repay any recourse mortgage indebtedness on such
properties. Additionally, we generally have owners’ title insurance policies with respect to our properties located in the
United States. However, the amount of coverage under such policies may be less than the full value of such properties. If a loss
occurs resulting from a title defect with respect to a property where there is no title insurance or the loss is in excess of
insured limits, we could lose all or part of our investment in, and anticipated profits and cash flows from, such property.

PAGE 60

DUNDEE REIT 2006 Annual Report

Joint venture, partnership and co-ownership agreements
We are a participant in joint ventures and partnerships with third parties in respect of four of the properties. A joint venture
or partnership involves certain additional risks, including,

i

ii

the possibility that such co-venturers/partners may at any time have economic or business interests or goals that will be
inconsistent with ours or take actions contrary to our instructions or requests or to our policies or objectives with respect
to our real estate investments;

the risk that such co-venturers/partners could experience financial difficulties or seek the protection of bankruptcy,
insolvency or other laws, which could result in additional financial demands on us to maintain and operate such properties
or repay the co-venturers’/partners’ share of property debt guaranteed by us or for which we will be liable and/or result
in our suffering or incurring delays, expenses and other problems associated with obtaining court approval of joint venture
or partnership decisions;

iii the risk that such co-venturers/partners may, through their activities on behalf of or in the name of the ventures or

partnerships, expose or subject us to liability; and

iv the need to obtain co-venturers’/partners’ consents with respect to certain major decisions, including the decision to
distribute cash generated from such properties or to refinance or sell a property. In addition, the sale or transfer of interests
in certain of the joint ventures and partnerships may be subject to rights of first refusal or first offer and certain of the joint
venture and partnership agreements may provide for buy-sell or similar arrangements. Such rights may be triggered at a
time when we may not desire to sell but may be forced to do so because we do not have the cash to purchase the other
party’s interests. Such rights may also inhibit our ability to sell an interest in a property or a joint venture/partnership
within the time frame or otherwise on the basis we desire.

Our investment in properties through joint venture and partnership agreements is subject to the investment guidelines set
out in our Declaration of Trust.

Development risk
Due to our involvement in development activities, we are subject to related risks that include,

i

ii

the potential insolvency of a developer;

the developer’s failure to use advanced funds in payment of construction costs;

iii construction or unanticipated delays;

iv incurring construction costs before ensuring rental revenues will be earned from the project;

v

cost over-runs on the project; and

vi the failure of tenants to occupy and pay rent in accordance with lease arrangements.

Such risks are minimized by generally not commencing construction until satisfactory levels of pre-leasing/sales are achieved.
Our risk exposure is further mitigated by our Declaration of Trust, which limits the amount we are able to commit to development
activity at any one time to no more than 10% of unitholders’ equity adjusted for accumulated depreciation and amortization.

PAGE 61

DUNDEE REIT 2006 Annual Report

Taxation risk
On December 21, 2006, the Canadian federal Department of Finance (“Finance”) released draft legislation to amend the Canadian
Income Tax Act to implement the new tax regime for income trusts, royalty trusts and other “specified investment flow-throughs”
or “SIFTs”. The changes were first announced in a release from Finance on October 31, 2006. The draft legislation will disallow
the deductibility of certain distributions made by publicly traded income trusts and partnerships. Certain real estate investment
trusts (“REITs”) are excluded from the SIFT definition and therefore would not be subject to the draft legislation (the “REIT
Exception”). Based on the draft legislation it would appear that Dundee REIT, as currently structured, would not qualify for the
REIT Exception. The proposals do not fully accommodate the current business structure used by many Canadian REITs and
contain a number of technical tests that many Canadian REITs may find difficult to satisfy. Finance’s stated intention is to exempt
certain REITs from taxation as SIFTs; therefore, it is possible that changes to these technical tests will be made prior to their
enactment in order to accommodate some of the existing REITs, including Dundee REIT. There can be no assurance that the draft
legislation will be enacted in the form proposed nor of its impact on Dundee REIT, or as to whether Dundee REIT will have the
ability to restructure or reorganize its assets and operations in a way that would not materially and adversely affect the amount
of income available to distribute to unitholders and the net after-tax cash position of unitholders.

The October 31 release stated that, while there is no intention to prevent existing trusts from normal growth prior to 2011, any
undue expansion of an existing trust could cause the undue expansion rule to apply. On December 15, 2006, Finance provided
further guidance as to what is meant by “normal growth” in the context of the undue expansion rule. Finance stated that it
would not recommend any changes to when an entity would be considered a SIFT as long as its equity capital growth, as a
result of equity issuances, does not exceed an objective “safe harbour”. We believe that offerings made by us since October 31,
2006, will fall within the safe harbour, including the offering announced on February 12, 2007. The undue expansion rule would
only be relevant to Dundee REIT if it did not meet the REIT Exception. As the legislation is still in draft form, there can be no
assurance that any additions to the capital or assets of Dundee REIT will not, alone or in combination with each other,
constitute an undue expansion.

Section V – Critical accounting policies
Management of Dundee REIT believes the policies outlined below are those most subject to estimation and management’s
judgment.

Impairment of assets
Under Canadian GAAP, management is required to write down to fair value any long-lived asset that is determined to have been
permanently impaired. Dundee REIT’s long-lived assets consist of rental properties and deferred costs relating to those
properties. The fair value of rental properties and their associated deferred costs is dependent upon anticipated future cash
flows from operations over the anticipated holding period.

The review of anticipated cash flows involves subjective assumptions of estimated occupancy, rental rates and a residual
value. In addition to reviewing anticipated cash flows, management assesses changes in business climates and other factors
that may affect the ultimate value of the property. These assumptions are subjective and may not ultimately be achieved.

In the event these factors result in a carrying value that exceeds the sum of the undiscounted cash flows expected to result
from the direct use and eventual disposition of the property, an impairment loss would be recognized.

On December 21, 2005, the Trust entered into a commitment to sell a 50% interest in a retail rental property located in the
United States, which closed in 2006. The carrying amount of the 50% interest exceeds the expected proceeds from the sale,
the difference of which was recognized as an impairment loss by reducing the carrying amount of the rental property.

PAGE 62

DUNDEE REIT 2006 Annual Report

Purchase price allocations
For acquisitions initiated on or after September 12, 2003, the purchase price of a rental property is allocated based on estimated
fair market values to land, building, deferred leasing costs acquired, lease origination costs associated with in-place leases, the
value of above and below market leases and other intangible lease assets. Other intangible lease assets include the value of
in-place leases and the value of tenant relationships, if any. For acquisitions initiated prior to September 12, 2003, the purchase
price was allocated to land and building based on their respective fair market values.

Intangible assets and liabilities
Intangible assets and liabilities include the value of above and below market leases, in-place leases, lease origination costs and
tenant relationships. Intangible assets and liabilities are stated at historic cost less accumulated amortization and impairment
charges, if any.

The values of the above and below market leases are amortized on a straight-line basis to rental property revenues over the
remaining term of the associated lease. The value associated with in-place leases and tenant relationships is amortized on a
straight-line basis over the expected term of the relationship, which includes an estimated probability of the lease renewal and
the estimated term. Lease origination costs are amortized on a straight-line basis over the term of the applicable lease. In the
event a tenant vacates its leased space prior to the contractual termination of the lease and no rental payments are being
made on the lease, any unamortized balance of the related intangible will be expensed.

Depreciation
The Trust uses the straight-line method of depreciation for rental properties, initial leasing costs and major expansions and
renovations. The estimated useful life of the properties continues to be between 30 and 40 years. A significant portion of the
acquisition cost of each property is allocated to building. The allocation of the acquisition cost to building and the
determination of the useful life are based upon management’s estimates. In the event the allocation to building is inappropriate
or the estimated useful life of buildings proves incorrect, the computation of depreciation will not be appropriately reflected
over future periods.

Deferred costs
During the year, as a result of implementing the provisions of Emerging Issues Committee Abstract No. 156, “Accounting by a
Vendor for Consideration Given to a Customer” (“EIC-156”), we have reclassified tenant improvements, which were previously
included in deferred leasing costs, and presented tenant improvements as an investing activity on the statement of cash flows.
We have also reclassified comparative figures to conform to the current period’s presentation. The adoption of EIC-156 had the
effect during the year ended December 31, 2006, of reducing deferred leasing costs incurred, increasing cash generated from
operating activities and increasing cash utilized in investing activities by $7.7 million (December 31, 2005 – $9.0 million).

Land
During 2006, we acquired development land, which we account for as follows:

• Land under development includes all related development costs, interest on property-specific and general debt, property taxes
and applicable general and administrative expenses incurred during construction, less miscellaneous revenue earned during
the construction period.

• Land held for development includes acquisition costs, pre-development costs, interest on specific debt and property taxes, less
miscellaneous revenue earned. Interest on general debt and general and administrative expenses are not capitalized to land
held for development.

• Land held for sale includes acquisition costs, pre-development costs, interest on specific debt and property taxes, less
miscellaneous revenue earned. Interest on general debt and general and administrative expenses are not capitalized to land
held for sale.

PAGE 63

DUNDEE REIT 2006 Annual Report

Future changes in accounting policies
Financial instruments
CICA Handbook Section 3855, “Financial Instruments – Recognition and Measurements”, prescribes when a financial asset,
financial liability or non-financial derivative is to be recognized on the balance sheet, and at what amount, sometimes using
fair value, other times using cost-based measures. The Trust will be impacted as follows:

i Deferred financing costs related to debt will be netted against the related debt with interest recognized at the new effective

interest rate;

ii Guarantees provided by the Trust will be recorded as a liability estimated to be the premium that could be charged for

providing the guarantee; and

iii any features embedded in debt or lease contracts that act as a derivative would be valued at market.

Dundee REIT has completed a review of its significant contracts and has determined there are no material embedded derivatives
within the contracts reviewed. Any adjustments to the Trust’s financial statements as a result of adopting Section 3855 will be
recognized by restating the balance of opening retained earnings. Comparative periods are not required to be restated.

In conjunction with Section 3855, the Trust will also adopt CICA Section 1530, “Comprehensive Income”, which will require
the Trust to disclose Other Comprehensive Income (“OCI”) in its financial statements. The Trust has determined that
accumulated foreign currency gains and losses related to its net investment in Greenbriar Mall will be disclosed as OCI.
Previously these amounts were disclosed as a component of unitholders’ equity. Any change as a result of a reduction in the
net investment will be disclosed as comprehensive income. The comparative financial statements will be restated by
reclassifying the cumulative foreign currency translation adjustment to OCI. These standards are applicable to the Trust
commencing January 1, 2007.

Additional information relating to Dundee REIT, including the latest annual information form of Dundee REIT, is available on
SEDAR at www.sedar.com

PAGE 64

DUNDEE REIT 2006 Annual Report

Management’s responsibility for financial statements

The accompanying consolidated financial statements, the notes thereto and other financial information contained in this
Annual Report have been prepared by, and are the responsibility of, the management of Dundee Real Estate Investment Trust.
These financial statements have been prepared in accordance with Canadian GAAP, using management’s best estimates and
judgments when appropriate.

The Board of Trustees is responsible for ensuring that management fulfills its responsibility for financial reporting and internal
control. The audit committee, which is comprised of trustees, meets with management as well as the external auditors to
satisfy itself that management is properly discharging its financial responsibilities and to review its consolidated financial
statements and the report of the auditors. The audit committee reports its findings to the Board of Trustees, which approves
the consolidated financial statements.

PricewaterhouseCoopers LLP, the independent auditors, have audited the consolidated financial statements in accordance with
Canadian generally accepted auditing standards. The auditors have full and unrestricted access to the audit committee, with or
without management present.

MICHAEL J. COOPER (signed)
Vice Chairman and Chief Executive Officer

MARIO BARRAFATO (signed)
Senior Vice President and Chief Financial Officer

Toronto, Ontario, February 22, 2007

PAGE 65

DUNDEE REIT 2006 Annual Report

Auditors’ report

To the unitholders of Dundee Real Estate Investment Trust

We have audited the consolidated balance sheets of Dundee Real Estate Investment Trust as at December 31, 2006 and 2005
and the consolidated statements of net income, unitholders’ equity and cash flows for the years then ended. These financial
statements are the responsibility of Dundee Real Estate Investment Trust’s management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we
plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation.

In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of
Dundee Real Estate Investment Trust as at December 31, 2006 and 2005 and the results of its operations and its cash flows for
the years then ended in accordance with Canadian generally accepted accounting principles.

CHARTERED ACCOUNTANTS (signed)

Toronto, Ontario, February 22, 2007

PAGE 66

DUNDEE REIT 2006 Annual Report

Note

2006

2005

4

5

6

7

8

9

10

11

12

16

9

13

13

$ 1,816,811

$ 1,328,395

73,455

41,395

18,606

20,240

70,997

86,416

65,285

–

13,378

27,175

16,516

56,964

$ 2,127,920

$ 1,507,713

$ 1,153,794

$

943,621

40,701

8,013

3,950

33,351

1,239,809

32,260

5,356

1,577

6,181

988,995

–

146,976

888,111

371,742

$ 2,127,920

$ 1,507,713

Consolidated balance sheets

(In thousands of dollars) December 31
Assets

Rental properties

Deferred costs

Land

Amounts receivable

Prepaid expenses and other assets

Cash and cash equivalents

Intangible assets

Liabilities

Debt

Amounts payable and accrued liabilities

Distributions payable

Future income tax liability

Intangible liabilities

Non-controlling interest

Unitholders’ equity

See accompanying notes to the consolidated financial statements

On behalf of the Board of Trustees of Dundee Real Estate Investment Trust:

NED GOODMAN (signed)
Trustee

MICHAEL J. COOPER (signed)
Trustee

PAGE 67

DUNDEE REIT 2006 Annual Report

Consolidated statements of net income

(In thousands of dollars, except per unit amounts) For the years ended December 31
Revenues

Rental properties revenue

Interest and fee income

Expenses

Rental properties operating expenses

Interest

Depreciation of rental properties

Amortization of deferred leasing costs, tenant improvements and intangibles

General and administrative

Income before the undernoted items

Internalization of property manager

Loss on disposal of rental property

Provision for impairment in value of rental property

Dilution gain
Income before income and large corporations taxes

Income taxes

Current income and large corporations taxes

Future income taxes

Income before non-controlling interest and discontinued operations

Income attributable to non-controlling interest

Income before discontinued operations

Discontinued operations

Net income

Basic income (loss) per unit

Continuing operations

Discontinued operations
Net income

Diluted income (loss) per unit

Continuing operations

Discontinued operations
Net income

See accompanying notes to the consolidated financial statements

PAGE 68

Note

2006

2005

$

287,794

$

220,615

3,646

291,440

122,150

66,052

39,850

30,614

6,812

265,478

25,962

(13,678)

(220)

–

–

12,064

62

2,314

2,376

9,688

(1,840)

7,848

3,370

11,218

0.25

0.10

0.35

0.25

0.10

0.35

$

$

$

$

$

2,144

222,759

99,176

53,960

29,459

19,508

5,408

207,511

15,248

–

–

(11,533)

1,890

5,605

181

(3,653)

(3,472)

9,077

(2,511)

6,566

(2,257)

4,309

0.38

(0.13)

0.25

0.29

(0.13)

0.16

$

$

$

$

$

15

25

26

26

13

16

22

17

17

Consolidated statements of unitholders’ equity

DUNDEE REIT 2006 Annual Report

Note

Number of units

Cumulative

capital

Cumulative

net income

Cumulative

distributions

Cumulative

foreign currency

translation

adjustment

Total

20,449,209

$ 446,678

$

15,844

$ (85,680)

$

(5,100)

$ 371,742

–

–

–

–

–

–

10,190,000

830,516

13,087

319,981

24,717

359

1,935,640

48,391

1,135,617

34,069

505,326

22,888

–

–

–

13,917

1,170

(18,041)

–

–

11,218

–

–

–

–

–

–

–

–

–

–

–

–

–

(63,089)

(8,013)

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

11,218

(63,089)

(8,013)

319,981

24,717

359

48,391

34,069

13,917

1,170

(18,041)

3,686

3,686

(1,329)

(1,329)

(In thousands of dollars,

except number of units)

Unitholders’
equity, January 1, 2006

Net income

Distributions paid

Distributions payable

Public offering of REIT Units

Distribution Reinvestment Plan

Unit Purchase Plan

Conversion of
6.5% Debentures

Conversion of
5.7% Debentures

Issue of units on internalization
of property manager

Deferred Unit Incentive Plan

Issue costs

12

12

13

13

13

13

13

25

13

Release of cumulative foreign

currency translation adjustment
on disposition of revenue property 26
Change in foreign currency

translation adjustment

Reclassification of
LP Class B Units, Series 1

Unitholders’

13

8,337,365

195,884

6,326

(50,504)

(2,373)

149,333

equity, December 31, 2006

43,419,648

$ 1,067,125

$

33,388

$ (207,286)

$

(5,116)

$ 888,111

(In thousands of dollars,

except number of units)
Unitholders’
equity, January 1, 2005

Net income

Distributions paid

Distributions payable

Public offering of REIT Units

Distribution Reinvestment Plan

Unit Purchase Plan

Conversion of
6.5% Debentures

Redemption of REIT Units

Deferred Unit Incentive Plan

Issue costs

Equity component of
5.7% Debentures

Change in foreign currency
translation adjustment

Unitholders’

Note

Number of units

Cumulative

capital

Cumulative

net income

Cumulative

distributions

Cumulative

foreign currency

translation

adjustment

Total

16,819,963

$ 357,585

$

11,535

$

(47,449)

$

(3,126)

$ 318,545

–

–

–

2,990,000

532,817

8,725

81,040

(100)

16,764

–

–

–

13

13

13

13

13

10

–

–

–

74,750

13,785

232

2,026

(2)

830

(3,728)

1,200

–

4,309

–

–

–

–

–

–

–

–

–

–

–

–

(34,462)

(3,769)

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

4,309

(34,462)

(3,769)

74,750

13,785

232

2,026

(2)

830

(3,728)

1,200

(1,974)

(1,974)

equity, December 31, 2005

20,449,209

$ 446,678

$

15,844

$

(85,680)

$

(5,100)

$ 371,742

See accompanying notes to the consolidated financial statements

PAGE 69

DUNDEE REIT 2006 Annual Report

Consolidated statements of cash flows

(In thousands of dollars) For the years ended December 31
Generated from (utilized in) operating activities

Net income

Non-cash items:

Depreciation of rental properties

Amortization of deferred leasing costs, tenant improvements and intangibles

Amortization of deferred financing costs

Amortization of marked-to-market adjustment on acquired debt

Provision for impairment in value of rental properties

Internalization of property manager

Loss (gain) on disposal of rental properties

Deferred unit compensation expense

Future income taxes

Amortization of market rent adjustments on acquired leases

Straight-line rent adjustment

Dilution gain

Non-controlling interest

Deferred leasing costs incurred

Change in non-cash working capital

Generated from (utilized in) investing activities

Investment in rental properties

Investment in tenant improvements

Investment in land development

Acquisition of rental properties and land

Acquisition deposit on rental properties

Investment in mezzanine loan

Receipt of mezzanine loan

Vendor take-back mortgage repayment

Net proceeds from disposal of rental properties

Change in restricted cash, net

Generated from (utilized in) financing activities

Mortgages placed, net of costs

Mortgage principal repayments

Mortgage lump sum repayments

Term debt principal repayments

Term debt lump sum repayments

Term debt placed, net of costs

Convertible debentures issued, net of costs

Demand non-revolving credit facility

Distributions paid on REIT Units

Units issued for cash, net of costs

Increase (decrease) in cash and cash equivalents

Cash and cash equivalents, beginning of year

Cash and cash equivalents, end of year

See accompanying notes to the consolidated financial statements

PAGE 70

Note

2006

2005

(restated, see Note 2)

$

11,218

$

4,309

39,908

30,643

1,922

(1,882)

–

13,678

(3,009)

1,170

2,314

(4,124)

(3,164)

–

1,876

90,550

(6,097)

3,409

87,862

(9,173)

(7,667)

(2,103)

29,743

19,985

1,551

(2,012)

11,533

–

3,620

830

(3,653)

(331)

(3,688)

(1,890)

1,523

61,520

(4,440)

5,912

62,992

(7,833)

(9,033)

–

(484,667)

(275,024)

(3,600)

(3,680)

13,167

3,450

24,922

(1,244)

(470,595)

294,985

(25,380)

(79,486)

(364)

(14,957)

6,139

–

–

(50,074)

306,351

437,214

54,481

16,516

70,997

$

(880)

(750)

–

–

8,118

8,677

(276,725)

155,621

(17,957)

(46,076)

(501)

(7,492)

–

95,443

(6,107)

(31,700)

71,687

212,918

(815)

17,331

16,516

$

24

2

3

12

DUNDEE REIT 2006 Annual Report

Notes to the consolidated financial statements

(All dollar amounts in thousands, except unit or per unit amounts)

1.
Organization
Dundee Real Estate Investment Trust (“Dundee REIT” or the “Trust”) is an open-ended investment trust created pursuant to
a Declaration of Trust, as amended and restated, under the laws of the Province of Ontario.

The consolidated financial statements of Dundee REIT include the accounts of Dundee REIT and its subsidiaries, together with
Dundee REIT’s proportionate share of the assets and liabilities, and revenues and expenses of joint ventures in which it
participates. Included in these accounts are the assets and liabilities acquired by Dundee Properties Limited Partnership
(“DPLP”), an indirect subsidiary of Dundee REIT, from Dundee Realty Corporation (“DRC”) on June 30, 2003, comprising:

• a portfolio of office, industrial and retail rental properties together with their related assets and liabilities; and

• a 50% interest in Dundee Management Limited Partnership (“DMLP”), a joint venture with DRC comprising property

management operations relating to revenue properties.

On May 12, 2006, the Trust acquired the remaining 50% interest in DMLP as discussed in Note 25.

At December 31, 2006, Dundee Corporation, the majority shareholder of DRC, indirectly held 127,955 REIT Units, Series A
(“REIT Units”) and 8,565,095 LP Class B Units, Series 1 (“LP B Units”), which includes 55,326 LP B Units it is entitled to receive
but that are held in trust (2005 – 317,403, 8,337,365 and nil units, respectively).

2.
Summary of significant accounting policies
These consolidated financial statements have been prepared in accordance with the accounting recommendations of
The Canadian Institute of Chartered Accountants (“CICA”). The preparation of consolidated financial statements in conformity
with Canadian generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions
that affect the recorded amounts of assets and liabilities and the disclosure of contingent assets and liabilities as at the date
of the consolidated financial statements, as well as the reported amounts of revenues and expenses during the reporting
period. Actual results may differ from those estimates.

Revenue recognition
Properties are considered operational at the earlier of the achievement of a predetermined level of occupancy or at the expiry
of a reasonable period following substantial completion. The Trust has retained substantially all of the benefits and risks of
ownership of its rental properties and therefore accounts for leases as operating leases.

Revenues from rental properties include base rents, recoveries of operating expenses including property taxes, percentage
participation rents, lease cancellation fees, parking income and incidental income. The Trust uses the straight-line method of
rental revenue recognition whereby the total of cash rents due over the initial term of a lease is recognized in income evenly
over that term. The difference between the amount recorded as revenue under the straight-line method and cash rents received
is included in amounts receivable. Recoveries from tenants are recognized as revenues in the period in which the
corresponding costs are incurred. Percentage participation rents are recognized on an accrual basis once tenant sales revenues
exceed contractual thresholds. Other revenues are recorded as earned. The Trust provides an allowance for doubtful accounts
against that portion of amounts receivable that is estimated to be uncollectible. Such allowances are reviewed periodically
based on the recovery experience of the Trust and the creditworthiness of the debtor.

Rental properties
Rental properties are stated at historical cost less accumulated depreciation and impairment charges, if any. Rental properties
under development includes interest on project-specific and general debt, property taxes, carrying charges and applicable
general and administrative expenses incurred in the pre-development and construction periods, and initial leasing costs, less
incidental revenues and expenses earned prior to the project being declared operational.

PAGE 71

DUNDEE REIT 2006 Annual Report

The Trust uses the straight-line method of depreciation for rental properties, building improvements, initial leasing costs and
major expansions and renovations. The estimated useful life of the properties is between 30 and 40 years. Vehicles, office
premises improvements, furniture and computer equipment are depreciated on a declining balance basis over their estimated
useful lives, which range from 8% to 30% per annum. Building improvements are depreciated over their estimated useful lives,
ranging from 10 to 20 years depending on the type of improvement.

Land
Land under development includes all related development costs, interest on property-specific and general debt, property taxes
and applicable general and administrative expenses incurred during construction, less miscellaneous revenue earned during
the construction period.

Land held for development includes acquisition costs, pre-development costs, interest on specific debt and property taxes, less
miscellaneous revenue earned. Interest on general debt and general and administrative expenses are not capitalized to land
held for development.

Land held for sale includes acquisition costs, pre-development costs, interest on specific debt and property taxes, less
miscellaneous revenue earned. Interest on general debt and general and administrative expenses are not capitalized to land
held for sale.

Purchase price allocations
For acquisitions initiated on or after September 12, 2003, the purchase price of a rental property is allocated based on estimated
fair market values to land, building, deferred leasing costs acquired, lease origination costs associated with in-place leases, the
value of above and below market leases and other intangible lease assets. Other intangible lease assets include the value of
in-place leases and the value of tenant relationships, if any. For acquisitions initiated prior to September 12, 2003, the purchase
price was allocated to land and buildings based on their respective fair market values.

Intangible assets and liabilities
Intangible assets and liabilities include the value of above and below market leases, in-place leases, lease origination costs and
tenant relationships. Intangible assets and liabilities are stated at historic cost less accumulated amortization and impairment
charges, if any.

The values of above and below market leases are amortized on a straight-line basis to rental property revenues over the
remaining term of the associated lease. The value associated with in-place leases is amortized on a straight-line basis over the
remaining term of the lease. The value of tenant relationships is amortized on a straight-line basis over the remaining term of
the lease plus an estimated renewal term. Lease origination costs are amortized on a straight-line basis over the term of the
applicable lease. In the event a tenant vacates its leased space prior to the contractual termination of the lease and no rental
payments are being made on the lease, any unamortized balance of the related intangible will be expensed.

Impairment of long-lived assets
The Trust uses a two-step process for determining when an impairment of rental properties, land under development, land held
for development and intangible assets should be recognized in the consolidated financial statements. If events or circumstances
indicate that the carrying value of a property may be impaired, a recoverability analysis is performed based on estimated
undiscounted future cash flows to be generated from property operations and the property’s projected disposition. If the analysis
indicates that the carrying value is not recoverable from future cash flows, the property is written down to its estimated fair
value and an impairment loss is recognized. Land held for sale is carried at the lower of capitalized cost and net realizable value.

PAGE 72

DUNDEE REIT 2006 Annual Report

Deferred costs
Deferred costs may include:

• Deferred leasing costs, which include leasing fees and costs, except for initial leasing costs that are included in rental properties,
and deferred leasing costs acquired. Deferred leasing costs are amortized on a straight-line basis over the term of the applicable
lease to amortization expense;

• Tenant inducements, which are payments for which the tenant has no obligation to make leasehold improvements to the leased
space and which are amortized against rental properties revenue on a straight-line basis over the term of the applicable lease;

• Tenant improvements, which include costs incurred to make leasehold improvements to tenants’ space and which are amortized
on a straight-line basis over the term of the applicable lease to amortization expense. During the year, as a result of implementing
the provisions of Emerging Issues Committee Abstract No. 156, “Accounting by a Vendor for Consideration Given to a Customer”
(“EIC-156”), the Trust has reclassified tenant improvements, which were previously included in deferred leasing costs, and
presented tenant improvements as an investing activity on the statement of cash flows. The Trust has reclassified comparative
figures to conform to the current period’s presentation. The adoption of EIC-156 had the effect during the year ended December
31, 2006, of reducing deferred leasing costs incurred, increasing cash generated from operating activities and increasing cash
utilized in investing activities by $7,667 (December 31, 2005 – $9,033);

• Deferred recoverable operating expenses, which are amortized to operating expenses over the period during which they are

recoverable from tenants;

• Deferred financing costs, which include debt issue fees and expenses that are amortized to interest expense on a straight-line

basis over the term of the debt; and

• Direct acquisition fees and costs, which exclude general and administrative costs, and which are deferred until the acquisition
is completed and the costs are capitalized to the acquisition, or the acquisition is abandoned and the costs are written off.

Impairment of loans receivable
Loans receivable are classified as impaired when, in the opinion of management, there is a reasonable doubt as to the timely
collection of principal, interest and the underlying security of the loan. The carrying amount of a loan receivable classified as
impaired is reduced to its estimated fair value.

Discontinued operations
The Trust classifies properties that meet certain criteria as held for sale and separately discloses any net income/loss and
gain/loss on disposal for current and prior periods as discontinued operations. A property is classified as held for sale at the
point in time when it is available for immediate sale, management has committed to a plan to sell the property and is actively
locating a buyer for the property at a sales price that is reasonable in relation to the current estimated fair value of the property,
and the sale is expected to be completed within a one-year period. Properties held for sale are carried at the lower of their
carrying values and estimated fair values less costs to sell. In addition, assets held for sale are no longer depreciated.

Convertible debentures
Upon issuance, convertible debentures are separated into debt and equity components. These components are measured based
on their respective estimated fair values at the date of issuance. The fair value of the debt component 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. The value assigned to the equity component is the estimated fair value ascribed
to the holders’ option to convert the debentures into REIT Units. The difference between the fair value of the debt and the face
value is recognized as interest expense on a straight-line basis over the term to maturity of the debentures with corresponding
accretion to the principal of the debt.

Foreign currency translation
The Trust’s foreign operations are considered financially self-sustaining and operationally independent. Accordingly, assets and
liabilities denominated in foreign currencies are translated into Canadian dollars at the rate of exchange in effect at the balance
sheet date. Revenues and expenses are translated at the average rate for the period. Translation gains and losses are deferred
as a separate component of unitholders’ equity until there is a realized reduction in the net investment in the foreign operation.

PAGE 73

DUNDEE REIT 2006 Annual Report

Income taxes
Dundee REIT uses the liability method of accounting for future income taxes of its incorporated subsidiaries. The net future
income tax liability represents the cumulative amount of taxes applicable to temporary differences between the carrying
amount of these incorporated subsidiaries’ assets and liabilities and their carrying amounts for tax purposes. In addition, the
benefit of tax losses available to be carried forward to future years for tax purposes, which are more likely than not to be
realized, are recognized as a reduction of the income tax liability. Future income taxes are measured at the tax rates expected
to apply in the future as temporary differences reverse and tax losses are utilized. Changes to future income taxes related to
changes in tax rates are recognized in income in the period when the tax rate change is substantively enacted.

Unit-based compensation plan
Dundee REIT has a Deferred Unit Incentive Plan, as described in Note 13, that provides for the grant of Deferred Trust Units
and Income Deferred Trust Units to trustees, officers and employees, and affiliates and their service providers. The Trust
recognizes compensation expense on a straight-line basis over the period that the deferred units vest, based on the market
price of REIT Units on the date of grant. Deferred Trust Units that have vested but for which the corresponding REIT Units
have not been issued, and where the ultimate issuance of such REIT Units is simply a matter of the passage of time, are
considered to be outstanding units from the date of vesting for basic income per unit calculations.

Cash and cash equivalents
For the purposes of the statements of cash flows, the Trust considers all short-term investments with an original maturity of
three months or less to be cash equivalents, and excludes cash subject to restrictions that prevent its use for current purposes.
As at December 31, 2006, cash and cash equivalents includes the Trust’s proportionate share of cash balances of joint ventures
of $2,688 (December 31, 2005 – $4,509). Excluded from cash and cash equivalents are amounts held for repayment of tenant
security deposits as required by various lending agreements.

Non-controlling interest
On January 19, 2005, the Emerging Issues Committee of the CICA issued EIC-151, “Exchangeable Securities Issued by Subsidiaries
of Income Trusts”, which requires income trusts with exchangeable securities issued by their subsidiaries to evaluate whether
the exchangeable securities should be presented as unitholders’ equity or non-controlling interest on the consolidated balance
sheet. In order to be presented as unitholders’ equity, the exchangeable securities must have distributions that are economically
equivalent to distributions on units issued directly by the income trust and must also ultimately be exchanged for units of the
income trust. The distributions on the LP B Units are economically equivalent to distributions on the REIT Units. On May 12, 2006,
the terms of the LP B Units were amended to restrict the transfer of such units except to a subsidiary of the holder. As a result,
if an existing holder of LP B Units wants to transfer the LP B Units to a third party, they must first be converted to REIT Units,
Series B. This amendment permits the Trust to classify the outstanding LP B Units as equity for financial statement purposes in
accordance with Canadian GAAP. Prior to the effective date of the amendment on May 1, 2006, because the LP B Units contained
no conditions requiring either the conversion to REIT Units or restricting their transferability to third parties, the LP B Units
were presented as non-controlling interest in the consolidated financial statements. As a result, the Trust had accounted for
the investment of the net proceeds from equity offerings in DPLP using the purchase method. In addition, the issuance of
LP B Units under the Distribution Reinvestment Plan had resulted in a dilution of the Trust’s ownership of DPLP.

Variable Interest Entities
On January 1, 2005, the Trust adopted the requirements of CICA Accounting Guideline 15, “Consolidation of Variable Interest
Entities” (“AcG-15”), which provides guidance for applying the principles in Section 1590, “Subsidiaries”, to those entities
defined as Variable Interest Entities (“VIEs”). This standard considers a VIE to be an entity in which either the equity at risk
is not sufficient to permit it to finance its activities without additional subordinated financial support from other parties, or
equity investors lack either voting control, or an obligation to absorb expected losses or the right to receive expected residual
returns. AcG-15 requires consolidation of VIEs by the Primary Beneficiary. The Primary Beneficiary is defined as the party
who has exposure to the majority of a VIE’s expected losses and/or expected residual returns. The adoption of AcG-15 did not
have an impact on the Trust.

Comparative figures
Certain of the prior year’s figures have been reclassified to conform with the current year’s financial statement presentation.

PAGE 74

DUNDEE REIT 2006 Annual Report

3.
Property acquisitions
The Trust completed the following acquisitions during the year ended December 31, 2006 and 2005, which have contributed
to operating results from the date of acquisition:

Interest

acquired

Occupancy

on

Acquired

acquisition

Property type

(%)

GLA (sq. ft.)

(%)

Purchase price

Fair value

of mortgage

assumed

Date acquired

100 $

2,726 $

–

January 10, 2006

Year ended December 31, 2006
Park 19, Edmonton

70 Disco Road, Toronto

SEC Portfolio, Québec

2440 Scanlan Street, London

Sherwood Place, Regina

1400 boul. de la Rive Sud, Québec City

4255 14th Avenue, Markham

industrial

industrial

office/industrial

industrial

office

office

industrial

Princeton Portfolio, Western Canada

office/industrial/land

10089 Jasper Avenue, Edmonton

Barker Business Park (Phase II), Toronto

Calgary Office Portfolio, Calgary

Tullamore Business Park, Caledon

Victoria Tower, Regina

100 Legacy Road, Ottawa

10079 Jasper Avenue, Edmonton

land

land

office

land

office

industrial

land

Aviva Corporate Centre, Toronto

office/industrial

Station Tower Lands, Surrey

2121 Argentia Road, Mississauga

Airport Corporate Centre West, Mississauga

2891 Sunridge Way NE, Calgary
Total

land

office

office

office

100

100

100

100

100

100

100

100

100

60

48,000

99,000

265,000

85,000

182,000

77,000

57,000

530,000

86,000

–

100

822,000

–

144,000

103,000

–

438,000

–

61,000

357,000

60

100

100

10

100

100

100

100

100

100

99

100

99

100

100

94

–

–

98

–

100

100

–

100

–

96

86

7,577

21,306

6,266

33,206

12,062

5,914

96,818

4,160

8,994

3,117

6,199

3,477

14,442

–

–

43,835

–

–

January 12, 2006

January 27, 2006

April 20, 2006

April 21, 2006

May 1, 2006

May 1, 2006

May 17, 2006

May 29, 2006

June 7, 2006

218,257

23,339

June 15, 2006

3,224

17,815

8,906

310

43,961

3,728

11,270

66,253

25,736

–

8,621

–

–

July 4, 2006

July 21, 2006

August 1, 2006

August 4, 2006

– September 13, 2006

– September 21, 2006

– November 16, 2006

– November 28, 2006

– December 20, 2006

88,000

100

3,442,000

98 $ 598,489 $ 103,030

PAGE 75

DUNDEE REIT 2006 Annual Report

Year ended December 31, 2005

Property type

(%)

GLA (sq. ft.)

(%)

Purchase price

Interest

acquired

Occupancy

on

Acquired

acquisition

Fair value

of mortgage

assumed

Date acquired

2599 Speakman Drive, Mississauga

1219 Corporate Drive, Burlington

204 King Street East, Toronto

2580 avenue Dollard, Montréal

Epcor Centre, Edmonton

2465 St. Laurent Blvd., Ottawa

56 Wellesley Street West, Toronto

120 Valleywood Drive, Markham

office

industrial

office

industrial

office

office

office

100

100

100

100

114,000

103,000

135,000

90,000

10|
1

19,000

100

62,000

50|

1 108,000

industrial

50|
1

30,000

100 $

9,617 $

4,655

January 13, 2005

100

100

100

100

100

100

100

–

98

100

100

99

96

99

94

100

100

100

95

100

–

95

100

100

–

100

100

100

6,640

20,475

4,700

1,334

8,612

14,150

1,670

5,472

–

–

January 31, 2005

February 25, 2005

2,600

–

3,222

4,364

828

–

March 2, 2005

March 4, 2005

March 8, 2005

April 1, 2005

April 1, 2005

April 8, 2005

16,133

6,762

April 14, 2005

24,548

4,430

10,485

18,310

25,945

35,526

13,161

7,246

33,370

15,984

540

718

6,884

11,927

4,601

833

8,134

6,586

32,590

–

–

3,269

9,680

14,483

–

–

–

–

April 18, 2005

May 5, 2005

May 30, 2005

June 2, 2005

June 17, 2005

June 20, 2005

June 27, 2005

August 9, 2005

August 18, 2005

7,616

August 30, 2005

–

August 30, 2005

– September 23, 2005

3,248

7,348

November 8, 2005

November 9, 2005

–

November 17, 2005

– December 16, 2005

4,415 December 20, 2005

1,988 December 23, 2005

– December 23, 2005

100

100

100

100

100

100

100

100

100

100

100

100

100

100

100

100

100

100

100

100

100

86,000

112,000

371,000

64,000

121,000

111,000

194,000

198,000

131,000

77,000

190,000

124,000

6,000

–

65,000

63,000

71,000

–

81,000

83,000

146,000

2,955,000

99 $ 350,621 $ 74,478

2280 boul. Alfred-Nobel, Montréal

under development

1000 boul. Saint-Jean, Montréal

22000 Trans-Canada Hwy. and
115 boul. Hymus, Montréal

1415-1511 rue Berlier, Laval

375-425 Britannia Road, Mississauga

Joffre Place, Calgary

975 boul. Saint-Joseph, Gatineau

400-480 boul. Armand Frappier, Laval

2285 Speakman Drive, Mississauga

199 Traders Blvd. East, Mississauga

Scotia Centre, St. John’s

9975-9995 boul. de Catania, Brossard

1523-1531 rue Berlier, Laval

office

industrial

industrial

industrial

office

office

office

office

industrial

office

industrial

industrial

3913-3917 81st Avenue, Leduc

under development

ACC Centre, Calgary

35 Fitzgerald Road, Ottawa

2695 avenue Dollard, Montréal

industrial

office

industrial

Palladium Phase III Land, Ottawa

held for development

3820 Commerce Road, London and
147 Massey Road, Guelph

3915 Commerce Road, London

Entrust Tower, Ottawa
Total

industrial

industrial

office

1 As a result of this acquisition, the Trust now owns 100% of this property.

PAGE 76

DUNDEE REIT 2006 Annual Report

2006

2005

$

70,585

$

38,673

458,119

403

301

529,408

29,925

1,015

8,352

195

14,567

–

25,149

5,512

2,020

14,574

630,717

261,449

–

6,189

306,311

–

–

–

–

12,056

177

16,662

4,214

1,788

13,467

354,675

(32,228)

(4,054)

$

598,489

$

350,621

$

484,667

$

275,024

710

485,377

103,030

6,750

3,332

450

275,474

74,478

–

669

$

598,489

$

350,621

The assets acquired and liabilities assumed in these transactions were allocated as follows:

For the years ended December 31

Rental properties

Land

Buildings

Fixed assets and equipment

Properties under development

Land

Under development

Held for development

Held for sale

Third-party management contracts

Tenant improvements acquired

Tenant loan receivables

Intangible assets

Value of in-place leases

Lease origination costs

Value of above market rent leases

Value of tenant relationships

Intangible liabilities

Value of below market rent leases

Total purchase price

The consideration paid consists of:

Cash

Paid during the period

Deposit

Assumed mortgages at fair value

Vendor loan

Assumed accounts payable and accrued liabilities
Total consideration

4.
Rental properties

December 31

2006

Accumulated

Cost

depreciation

Net book value

Cost

2005

Accumulated

depreciation

Net book value

Land

Buildings and improvements

Fixed assets and equipment

Rental properties under development
Total

$

300,553

$

–

$

300,553

$

233,502

$

–

$

233,502

1,627,185

(119,580)

1,507,605

1,170,111

(84,412)

1,085,699

2,040

7,386

(773)

–

1,267

7,386

2,661

8,460

(1,927)

–

734

8,460

$ 1,937,164

$ (120,353) $ 1,816,811

$ 1,414,734

$

(86,339) $ 1,328,395

PAGE 77

DUNDEE REIT 2006 Annual Report

5.
Deferred costs

December 31

Deferred leasing costs

Tenant improvements

Deferred recoverable costs

Deferred financing costs

Other deferred costs
Total

2006

Accumulated

Cost

amortization

Net book value

Cost

2005

Accumulated

amortization

Net book value

$

20,903

$

(7,490) $

72,690

13,816

11,705

1,847

(26,733)

(7,409)

(4,739)

(1,135)

13,413

45,957

6,407

6,966

712

$

16,347

$

(5,457) $

54,786

13,462

13,819

1,617

(18,592)

(5,970)

(3,881)

(846)

10,890

36,194

7,492

9,938

771

$

120,961

$

(47,506) $

73,455

$

100,031

$

(34,746) $

65,285

Amortization of deferred recoverable costs included in operating expenses for the twelve months ended December 31, 2006
is $1,872 (December 31, 2005 – $1,751).

6.
Land

December 31

Land under development

Land held for development

Land held for sale
Total

$

2006
31,991

1,021

8,383

$

41,395

$

$

2005

–

–

–

–

7.
Amounts receivable
Amounts receivable include straight-line rents receivable of $12,874 (December 31, 2005 – $9,944) and is net of credit
adjustments of $6,659 (December 31, 2005 – $3,718).

8.
Prepaid expenses and other assets

December 31

Prepaid expenses

Mezzanine loans

Vendor loan

Deposits

Restricted cash
Total

$

2006
6,729

3,893

–

4,020

5,598

$

2005

5,576

12,513

3,450

1,282

4,354

$

20,240

$

27,175

The Trust had provided an $11,226 mezzanine loan to the Airport Corporate Centre West (“ACCW”) joint venture to finance
certain development projects. The loan and all accrued interest was repaid in full in November 2006.

On May 26, 2006, the Trust entered into a joint venture agreement with a development partner to jointly own and develop prestige
industrial and office properties in its target markets. The Trust has a 60% ownership interest in the joint venture. As part of the
agreement, the Trust is required to provide mezzanine financing equal to 90% of any funding requirement, up to a maximum of
$45,000, not otherwise provided by third-party lenders. The Trust is also required to guarantee, when necessary, 90% of financing
obtained from third parties. As at December 31, 2006, the Trust had advanced $9,201 of the funding requirement for the purchase
of approximately 60 acres of serviced land in suburban Toronto. The amount invested is accounted for and comprises a mezzanine
loan of $3,893 and land under development of $13,384, net of term debt of $7,534 and accrued liabilities of $542. The Trust has
also provided an $8,289 guarantee on the financing provided by a third-party lender of which $5,526 is included in term debt.

PAGE 78

DUNDEE REIT 2006 Annual Report

The Trust has the right to purchase the completed properties, other than any build-to-suit properties that will be sold to third
parties. The mezzanine loan to the joint venture bears interest at a rate of 11%, for which no payment has been received to date.
As at December 31, 2006, the mezzanine loan comprises principal of $3,681 and interest of $212, which is receivable by June 7,
2011, unless extended under the terms of the mezzanine loan agreement. The estimated fair value of the loan is $4,346.

A vendor loan in the principal amount of $3,450 formed a portion of the proceeds from the sale of Northgate Mall in
December 2004. The loan was repaid in full on December 14, 2006.

Restricted cash primarily represents tenant rent deposits and cash held as security for certain mortgages.

9.
Intangible assets and liabilities

December 31

Intangible assets

2006

Accumulated

Cost

amortization

Net book value

Cost

2005

Accumulated

amortization

Net book value

Value of above market rent leases

$

7,134

$

(2,190) $

4,944

$

5,113

$

(1,256) $

Value of in-place leases

Lease origination costs

Value of tenant relationships
Total

Intangible liabilities

53,558

13,974

42,168

(16,343)

(3,768)

(8,117)

$

116,834

$

(30,418) $

37,215

10,206

34,051

86,416

Value of below market rent leases

$

40,049

$

(6,698) $

33,351

$

$

10.
Debt

December 31

Mortgages

Convertible debentures

Demand revolving credit facility

Term debt
Total

28,614

8,465

27,418

(6,413)

(1,683)

(3,294)

69,610

$

(12,646) $

3,857

22,201

6,782

24,124

56,964

7,843

$

(1,662) $

6,181

2006
$ 1,056,311

89,719

–

7,764

2005

$

756,920

171,368

–

15,333

$ 1,153,794

$

943,621

Mortgages are secured by charges on specific rental properties. DRC continues to be contingently liable for certain debt
obligations of Dundee REIT. Term debt is secured by charges on specific development lands and rental properties with certain
flexibility to repay floating rate debt without incurring a penalty.

On May 26, 2006, the Trust entered into a joint venture agreement to jointly own and develop industrial and office properties.
The Trust’s share of term debt of the joint venture as at December 31, 2006, is $7,534, of which $5,526 relates to a demand loan
bearing interest at the prime rate plus 1% and is due no later than May 30, 2009. The balance of $2,008 is made up of the Trust’s
share of mezzanine financing provided to the joint venture by the co-owner and a vendor loan.

On April 1, 2005, the Trust issued $100,000 principal amount convertible unsecured subordinated debentures (the
“5.7% Debentures”). The 5.7% Debentures bear interest at 5.7% per annum, payable semi-annually on March 31 and September 30
each year, and mature on March 31, 2015. Each 5.7% Debenture is convertible at any time by the debenture holder into
33.33 REIT Units per one thousand dollars of face value, representing a conversion price of $30.00 per unit. The 5.7% Debentures
may not be redeemed prior to March 31, 2009. On or after March 31, 2009, but prior to March 31, 2011, the 5.7% 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, provided
that the market price for the Trust’s units is not less than $37.50. On or after March 31, 2011, the 5.7% Debentures may be
redeemed by the Trust at a price equal to the principal amount plus accrued and unpaid interest. In accordance with Section 3860
of the CICA Handbook, the 5.7% Debentures were initially recorded on the consolidated balance sheet as debt of $98,800 and
equity of $1,200. Issue costs of $4,707 and the discount related to the offering are amortized to interest expense over ten years.

PAGE 79

DUNDEE REIT 2006 Annual Report

On June 21, 2004, the Trust issued $75,000 principal amount convertible unsecured subordinated debentures (the
“6.5% Debentures”). The 6.5% Debentures bear interest at 6.5% per annum, payable semi-annually on June 30 and December 31
each year, and mature on June 30, 2014. Each 6.5% Debenture is convertible at any time by the debenture holder into 40 REIT
Units per one thousand dollars of face value, representing a conversion price of $25.00 per unit. The 6.5% Debentures may not
be redeemed prior to June 30, 2008. On or after June 30, 2008, but prior to June 30, 2010, the 6.5% 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, provided the market
price for the Trust’s units is not less than $31.25. On or after June 30, 2010, the 6.5% Debentures may be redeemed by the Trust
at a price equal to the principal amount plus accrued and unpaid interest. In accordance with Section 3860 of the CICA
Handbook, the 6.5% Debentures were initially recorded on the consolidated balance sheet as debt of $74,400 and equity of $600.
Issue costs of $3,605 and the discount related to the offering are amortized to interest expense over ten years.

In 2006, conversions of the 5.7% Debentures resulted in the transfer of $34,069 to equity (2005 – nil). The resulting carrying
value at December 31, 2006, net of amortized marked-to-market adjustments, was $65,281 (December 31, 2005 – $98,890).
Conversions of the 6.5% Debentures resulted in the transfer of $48,391 to equity (2005 – $2,026). The resulting carrying value
at December 31, 2006, net of amortized marked-to-market adjustments, was $24,438 (December 31, 2005 – $72,478).

A demand revolving credit facility is available up to a formula-based maximum not to exceed $80,000, bearing interest generally
at the bank prime rate (6.00% as at December 31, 2006) plus 0.375% or bankers’ acceptance rates. The facility expires on
June 19, 2007, and is secured by a first ranking collateral mortgage on nine of the Trust’s properties and a second ranking
collateral mortgage on one property. As at December 31, 2006, the maximum amount available under this facility was $80,000,
of which $733 was utilized in the form of letters of guarantee (December 31, 2005 – $59). As at December 31, 2006, the amount
still available under this facility was $79,267.

The weighted average interest rates for the fixed and floating components of debt are as follows:

December 31
Fixed rate

Mortgages

Convertible debentures

Term debt
Total fixed rate debt

Variable rate

Mortgages

Term debt

Demand revolving credit facility
Total variable rate debt

Total debt

Weighted average interest rates

2006

2005

Maturity dates

2006

Debt amount

2005

5.89%

6.08%

7.17%

5.90%

8.40%

7.00%

–

8.09%

5.95%

6.17%

6.19%

6.70%

6.17%

–

5.65%

–

5.65%

6.16%

2007–2019

$ 1,036,909

$

756,920

2014–2015

2008–2011

2008

2007

–

89,719

2,238

1,128,866

19,402

5,526

–

24,928

171,368

271

928,559

–

15,062

–

15,062

$ 1,153,794

$

943,621

The variable rate mortgage debt outstanding at December 31, 2006, bears interest generally at the rate of LIBOR plus 3.05%
up to a maximum of 8.75%. At December 31, 2006, the LIBOR rate was 5.35%. The variable rate term debt outstanding at
December 31, 2006, bears interest at prime plus 1%. At December 31, 2006, the prime rate was 6%.

The scheduled principal repayments and debt maturities are as follows:

For the years ending December 31

2007

2008

2009

2010

2011

2012 and thereafter

PAGE 80

Mortgages

Term debt

$

52,676

$

1,511

$

140,463

143,997

62,448

179,641

477,086

113

5,526

–

614

–

Convertible

debentures

–

–

–

–

–

89,719

Total

$

54,187

140,576

149,523

62,448

180,255

566,805

$ 1,056,311

$

7,764

$

89,719

$ 1,153,794

DUNDEE REIT 2006 Annual Report

Included in mortgages are $9,567 in marked-to-market adjustments (December 31, 2005 – $8,488) reflecting the fair value
of mortgages assumed as part of acquisitions. The 6.5% and 5.7% Debentures are net of a $794 premium allocated to their
conversion features. The marked-to-market adjustment and discount are amortized to interest expense over the term to
maturity of the related debt.

The estimated fair value of debt is as follows:

December 31

Mortgages

Convertible debentures

Term debt
Total

11.
Amounts payable and accrued liabilities

December 31

Trade payables

Accrued liabilities and other payables

Accrued interest

Deposits

Rent received in advance
Total

12.
Distributions

2006
$ 1,081,535

121,881

7,733

2005

$

788,995

170,771

15,354

$ 1,211,149

$

975,120

$

2006
1,664

20,104

6,072

9,863

2,998

$

2005

2,074

15,787

5,428

6,646

2,325

$

40,701

$

32,260

The following table sets out distribution payments for the year ended December 31, 2006.

Paid in cash

Paid by way of reinvestment in REIT Units

Paid by way of reinvestment in LP B Units

Less: Payable at December 31, 2005

Plus: Payable at December 31, 2006
Total

REIT Units,

LP Class B Units,

Series A

Series 1

$

50,074

$

–

$

5,093

–

(3,769)

6,393

19,013

612

(1,587)

1,620

$

57,791

$

19,658

$

Total

50,074

24,106

612

(5,356)

8,013

77,449

The amount payable at December 31, 2006, was satisfied on January 15, 2006, by way of $6,024 in cash and $369 by way of
9,530 REIT Units, and $1,620 by way of 41,837 LP B Units. Included in the total distributions is $951 representing the 4% bonus
distribution that forms part of the Distribution Reinvestment Plan. As of August 15, 2005, the holders of LP B Units elected to
receive their distributions in the form of REIT Units. Holders of LP B Units issued on the internalization of the property manager
elected to receive their distributions in the form of LP B Units.

PAGE 81

DUNDEE REIT 2006 Annual Report

13.
Unitholders’ equity

December 31

REIT Units, Series A

LP Class B Units, Series 1

Cumulative foreign currency translation adjustment
Total

2006

Number of units

Amount

Number of units

2005|

1

Amount

34,854,553

$

745,348

20,449,209

$

376,842

8,565,095

–

147,879

(5,116)

8,337,365

149,056

–

(7,180)

43,419,648

$

888,111

28,786,574

$

518,718

1 In 2005, the 149,056 LP B Units and $2,080 of the cumulative foreign currency translation adjustment, for a total of $146,976, were presented as non-controlling interest.

Dundee REIT Units
Dundee REIT is authorized to issue an unlimited number of REIT Units and an unlimited number of Special Trust Units.
The REIT Units are divided into and issuable in two series: REIT Units, Series A and REIT Units, Series B. REIT Units are
redeemable at the option of the holder, generally at any time, subject to certain restrictions, at a redemption price per REIT
Unit equal to the lesser of 90% of a 20-day weighted average closing price prior to the redemption date and 100% of the closing
market price on the redemption date. The total amount payable by Dundee REIT in any calendar month shall not exceed
$50 unless waived by Dundee REIT’s trustees at their sole discretion. Any dollar amount in excess of this monthly dollar
maximum, unless waived, will be paid by notes of one of Dundee REIT’s subsidiaries, Dundee Properties Operating Trust A
or Dundee Properties Operating Trust B.

REIT Units, Series A and REIT Units, Series B represent an undivided beneficial interest in Dundee REIT and in distributions
made by Dundee REIT. No REIT Unit, Series A or REIT Unit, Series B has preference or priority over any other. Each REIT
Unit, Series A and REIT Unit, Series B entitles the holder to one vote held at all meetings of unitholders.

At Dundee REIT’s annual and special meeting held on May 5, 2005, unitholders approved an amendment to the Declaration
of Trust authorizing REIT Units, Series B to be convertible at any time at the option of the holder into REIT Units, Series A
on a one-for-one basis. Previously, the Trust was obligated to list the REIT Units, Series B separately on the Toronto Stock
Exchange. During the year, 296,851 LP B Units were exchanged indirectly by Dundee Corporation for 296,851 REIT Units,
Series B, which were then exchanged for 296,851 REIT Units, Series A. The exchanges were measured at a pro rata carrying
amount of the LP B Units.

On May 12, 2006, the terms of the LP B Units were amended to restrict the transfer of such units except to a subsidiary of the
holder. As a result, if an existing holder of LP B Units wants to transfer the LP B Units to a third party, they must first be
converted into REIT Units, Series B. This amendment permits the Trust to classify the outstanding LP B Units as equity for
financial statement purposes in accordance with Canadian GAAP. As a result, effective May 1, 2006, the LP B Units are
presented as unitholders’ equity. Prior to this date, the LP B Units were presented as non-controlling interest.

Special Trust Units are issued in conjunction with LP B Units. The Special Trust Units are not transferable separately from the
LP B Units to which they relate and will be automatically redeemed for a nominal amount and cancelled upon surrender or
exchange of such LP B Units. Each Special Trust Unit entitles the holder to the number of votes at any meeting of unitholders
that is equal to the number of REIT Units, Series B that may be obtained upon the surrender or exchange of the LP B Units to
which they relate. At December 31, 2006, 8,565,095 Special Trust Units were issued and outstanding (December 31,
2005 – 8,337,365 issued and outstanding). At December 31, 2006, 92,000 Special Trust Units were held in trust pursuant to the
internalization of DMLP (see Note 25), 55,326 of which are included in the outstanding Special Trust Units at December 31,
2006. DRC is currently entitled to receive the Special Trust Units held in trust on June 30, 2007. These Special Trust Units are
recorded at a nominal value.

Dundee REIT’s Declaration of Trust provides Dundee Corporation with a pre-emptive right pursuant to which Dundee REIT
will not issue any REIT Units, or any securities convertible into REIT Units, to any person without first making an offer to
Dundee Corporation to issue that number of REIT Units, or securities or a comparable number of LP B Units necessary to
maintain the percentage of the outstanding voting interest in Dundee REIT held by Dundee Corporation and its affiliates at
the date of offer.

PAGE 82

DUNDEE REIT 2006 Annual Report

DPLP units
DPLP is authorized to issue an unlimited number of LP Class A and an unlimited number of LP Class B limited partnership units
and such other classes as the general partner of DPLP, a wholly owned subsidiary of Dundee REIT, may decide. The LP Class B
Units have been issued in two series: LP Class B Units, Series 1 and LP Class B Units, Series 2.

The LP Class B Units, Series 1, together with the accompanying Special Trust Units, have economic and voting rights equivalent
in all material respects to the REIT Units, Series A and REIT Units, Series B. Generally, each LP Class B Unit, Series 1 entitles
the holder to a distribution equal to distributions declared on REIT Units, Series B or, if no such distribution is declared,
on REIT Units, Series A. LP Class B Units, Series 1 may be surrendered or indirectly exchanged on a one-for-one basis at the
option of the holder, generally at any time, subject to certain restrictions, for REIT Units, Series B. The LP Class B Units,
Series 1 are not entitled to vote at any meeting of the limited partners of DPLP. Prior to May 1, 2006, the LP Class B Units, Series 1
were classified as non-controlling interest in accordance with EIC-151.

The LP Class A Units and LP Class B Units, Series 2 are entitled to vote at meetings of the limited partners of DPLP and each unit
entitles the holder to a distribution equal to distributions on the LP Class B Units, Series 1. At December 31, 2006, 34,557,702 LP
Class A Units (December 31, 2005 – 20,449,209), 8,565,095 LP Class B Units, Series 1 (December 31, 2005 – 8,337,365) and
296,852 LP Class B Units, Series 2 (December 31, 2005 – 1) were issued and outstanding. At December 31, 2006, 92,000 LP
Class B Units, Series 1 were held in trust pursuant to the internalization of DMLP, 55,326 of which are included in the outstanding
LP Class B Units, Series 1 at December 31, 2006. DRC is currently entitled to receive the units held in trust on June 30, 2007 (see
Note 25). As at December 31, 2006, and December 31, 2005, all issued and outstanding LP Class A Units and LP Class B Units,
Series 2 of DPLP are owned indirectly by Dundee REIT and have been eliminated in the consolidated balance sheets.

REIT Units, Series A

LP Class B Units, Series 1

Cumulative

foreign currency

translation

Number of units

Amount

Number of units

Amount

adjustment

Number of units

Total

Amount

20,449,209

$ 376,842

–

–

–

811,261

13,087

22,888

–

–

9,961

(51,399)

(6,393)

319,981

24,106

359

1,170

(18,041)

–

–

–

–

–

19,255

–

–

–

$

–

$ (5,100) 20,449,209

$ 371,742

1,257

(11,690)

(1,620)

–

611

–

–

–

–

–

–

–

–

–

–

–

–

–

–

10,190,000

830,516

13,087

22,888

11,218

(63,089)

(8,013)

319,981

24,717

359

1,170

–

(18,041)

–

8,337,365

151,706

(2,373)

8,337,365

149,333

Public offering of REIT Units

10,190,000

Unitholders’
equity, January 1, 2006

Net income

Distributions paid

Distributions payable

Distribution Reinvestment Plan

Unit Purchase Plan

Deferred Unit Incentive Plan

Issue costs

Reclassification of LP B Units

Conversion of
6.5% Debentures

Conversion of
5.7% Debentures

Issue of units on internalization
of property manager

1,935,640

48,391

1,135,617

34,069

–

–

–

–

505,326

–

–

13,917

(6,302)

–

–

–

–

Exchange of LP B Units

296,851

6,302

(296,851)

Release of cumulative foreign currency
translation adjustment on disposition
of revenue property (Note 26)

Change in foreign currency

translation adjustment

Unitholders’

–

–

–

–

–

–

–

–

3,686

(1,329)

1,935,640

48,391

1,135,617

34,069

505,326

13,917

–

–

–

–

3,686

(1,329)

equity, December 31, 2006

34,854,553

$ 745,348

8,565,095

$ 147,879

$ (5,116) 43,419,648

$ 888,111

PAGE 83

DUNDEE REIT 2006 Annual Report

LP Class B Units, Series 1 and non-controlling interest

Non-controlling interest, January 1, 2006

Income from continuing and discontinued operations

Distributions paid

Impact of dilution

Change in foreign currency translation adjustment

Reclassification to unitholders’ equity
Non-controlling interest, December 31, 2006

LP Class B Units, Series 1

Number of units

Amount

Cumulative

foreign currency

translation

adjustment

Total

8,337,365

$ 149,056

$ (2,080) $ 146,976

–

–

–

–

1,876

(6,347)

7,121

–

(8,337,365)

(151,706)

–

–

–

(293)

2,373

1,876

(6,347)

7,121

(293)

(149,333)

–

$

–

$

–

$

–

Public offering of REIT Units
On December 12, 2006, the Trust completed a public offering of 4,110,000 REIT Units for gross proceeds of $150,015 at a price
of $36.50 per REIT Unit. Costs relating to the offering of $6,531 were charged directly to unitholders’ equity.

On June 8, 2006, the Trust completed a public offering of 3,560,000 REIT Units for gross cash proceeds of $100,036 at a price
of $28.10 per unit. Costs relating to the offering of $4,426 were charged directly to unitholders’ equity. As a result of classifying
the LP Class B Units, Series 1 as equity, no further purchase price adjustments will result from investing the net proceeds
in DPLP.

On April 7, 2006, the Trust completed a public offering of 2,200,000 REIT Units for gross cash proceeds of $61,050 at a price of
$27.75 per unit. On April 28, 2006, the Trust issued an additional 320,000 REIT Units for gross proceeds of approximately $8,880
pursuant to the exercise of the over-allotment option granted to the underwriters. The exercise of the over-allotment option
increased the total gross proceeds of the offering to approximately $69,930. Costs relating to the offering of $3,247 were charged
directly to unitholders’ equity. Prior to May 1, 2006, the Trust used the purchase method to account for the investment of the
net proceeds in DPLP and recorded a purchase adjustment relating to the fair value increment of rental properties acquired
of $5,898.

On December 14, 2005, Dundee REIT completed a public offering for gross cash proceeds of $65,000 through the issuance of
2,600,000 REIT Units at a price of $25.00 per unit. On December 22, 2005, Dundee REIT issued an additional 390,000 REIT Units
for gross proceeds of $9,750 pursuant to the exercise of the over-allotment option. The exercise of the over-allotment option
increased the total gross proceeds of the offering to $74,750. Costs relating to the offering totalled $3,440 and were charged
directly to unitholders’ equity. The Trust used the purchase method to account for the investment of the net proceeds in DPLP
and recorded a purchase adjustment relating to the fair value increment of rental properties acquired of $5,412.

Distribution Reinvestment and Unit Purchase Plan
In August 2003, Dundee REIT established a Distribution Reinvestment Plan (“DRIP”) and Unit Purchase Plan for holders of
REIT Units, Series A and REIT Units, Series B.

The DRIP allows unitholders, other than unitholders who are resident of or present in the United States, to elect to have all
cash distributions from Dundee REIT reinvested in additional units. Unitholders who participate in the DRIP receive an
additional distribution of REIT Units equal to 4% of each cash distribution that was reinvested. A similar distribution
reinvestment arrangement exists for holders of LP B Units. The price per unit is calculated by reference to a five-day weighted
average closing price of the REIT Units on the Toronto Stock Exchange preceding the relevant distribution date, which
typically is on or about the 15th day of the month following the declaration.

PAGE 84

DUNDEE REIT 2006 Annual Report

For the year ended December 31, 2006, 811,261 REIT Units and 19,255 LP B Units were issued under the DRIP for $24,717
(December 31, 2005 – 532,817 REIT Units and 413,281 LP B Units for $24,576).

Prior to August 15, 2005, holders of LP B Units had their units enrolled in the LP B Unit DRIP. This was dilutive to the Trust’s
effective ownership in DPLP and accordingly the Trust recognized a $1,890 dilution gain in 2005. Since that time, holders of
LP B Units have elected to receive their distributions in the form of REIT Units, which are not dilutive to the Trust. In addition,
no further dilution gains will be reported as a result of reclassifying the LP B Units as equity.

Unit Purchase Plan
The Unit Purchase Plan feature of the DRIP allows existing unitholders to purchase additional REIT Units of Dundee REIT.
Participation in the Unit Purchase Plan is optional and subject to certain limitations on the maximum number of additional
REIT 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, 2006, 13,087 REIT Units were issued under the Unit Purchase Plan for $359 (December 31,
2005 – 8,725 REIT Units for $232).

Conversion of debentures
During the year ended December 31, 2006, the Trust issued 1,935,640 REIT Units upon conversion of $48,391 principal amount
of the 6.5% Debentures (December 31, 2005 – issued 81,040 REIT Units upon conversion of $2,026 principal amount) and
1,135,617 REIT Units upon conversion of $34,069 principal amount of the 5.7% Debentures (December 31, 2005 – nil).

Deferred Unit Incentive Plan
The Deferred Unit Incentive Plan provides for the grant of Deferred Trust Units and Income Deferred Trust Units to trustees,
officers and employees, and affiliates and their service providers. Deferred Trust Units are granted at the discretion of the
trustees while Income Deferred Trust Units are credited to holders of Deferred Trust Units based on distributions paid on
the REIT Units. Once vested, each Deferred Trust Unit and Income Deferred Trust Unit entitles the holder to receive a REIT
Unit at no cost. Deferred Trust Units vest evenly over a three- or five-year period on the anniversary date of the grant, while
Income Deferred Trust Units vest on the same date as the associated Deferred Trust Unit. Subject to an election for certain
participants to postpone receipt of REIT Units, such units will be issued immediately upon vesting. Up to a maximum of
500,000 Deferred Trust Units are issuable under the Deferred Unit Incentive Plan. Compensation expense is recorded based
on the fair market value of a REIT Unit at the date of grant and amortized as earned over the vesting period or the remaining
service period of the participant, whichever period is less. During the year ended December 31, 2006, $1,170 (December 31,
2005 – $830) of compensation expense was recorded and is included in general and administrative expenses. Income Deferred
Trust Units are accounted as a distribution and an issuance of REIT Units when the related Deferred Trust Units vest.
No amount in relation to Income Deferred Trust Units is recognized in net income.

Outstanding at January 1, 2005

Granted during the period

Cancelled

Issuance of REIT Units on vesting

Fractional units paid in cash

Outstanding at December 31, 2005

Granted during the period

Cancelled

Issuance of REIT Units on vesting

Fractional units paid in cash
Outstanding and payable at December 31, 2006

Weighted average

grant date value

$ 22.70

25.67

23.60

22.70

–

23.60

36.37

23.60

23.67
–

$ 27.87

Deferred

Trust Units

151,143

65,300

(1,600)

(14,665)

(11)

200,167

88,300

(3,000)

(19,265)
(2)

266,200

Income Deferred

Trust Units

12,542

14,753

(146)

(2,099)

(9)

25,041

16,919

(237)

(3,623)
(24)

38,076

Total units

163,685

80,053

(1,746)

(16,764)

(20)

225,208

105,219

(3,237)

(22,888)
(26)

304,276

Vested but not issued at December 31, 2006

$ 22.76

72,267

18,459

90,726

PAGE 85

DUNDEE REIT 2006 Annual Report

14.
Joint ventures and co-ownerships
The Trust participates in incorporated and unincorporated joint ventures, partnerships and co-ownerships (the “joint
ventures”) with other parties and accounts for its interests using the proportionate consolidation method. The following
amounts represent the total assets and liabilities of rental property joint ventures in which the Trust participates and its
proportionate share of the assets, liabilities, revenues, expenses and cash flows therein.

December 31

Assets

Liabilities

For the years ended December 31

Revenues

Expenses

Cash flow generated from (utilized in):

Operating activities

Financing activities

Investing activities

(Decrease) increase in cash and cash equivalents

$

2006
350,555

255,571

Total

2005

$

302,028

$

213,300

$

$

$

$

2006
185,230

130,257

2006
29,927

25,880

4,047

7,944

5,466

(15,231)

(1,821)

Proportionate share

2005

$

151,831

106,789

Proportionate share

2005

27,603

22,225

5,378

9,375

(10,492)

1,376

259

$

$

$

$

The Trust is contingently liable for the obligations of the other owners of the unincorporated joint ventures at December 31,
2006, in the aggregate amount of $122,001 (December 31, 2005 – $101,944). In each case, however, the co-owners’ share of
assets is available to satisfy these obligations.

15.
Interest
Interest incurred and charged to earnings is recorded as follows:

For the years ended December 31

Interest expense incurred, at stated rate of debt

Amortization of deferred financing costs

Marked-to-market rate adjustment

Interest capitalized
Interest expense

2006
67,487

$

2005

$

54,703

1,922

(1,882)

(1,475)

1,523

(2,012)

(254)

$

66,052

$

53,960

Certain debt assumed on acquisitions has been adjusted to fair value using the market interest rate at the time of the acquisition
(“marked-to-market”). This marked-to-market adjustment is amortized to interest expense over the remaining life of the debt.
Interest capitalized includes interest on specified and general debt attributed to a recently acquired property considered to be
under redevelopment and land under development.

PAGE 86

DUNDEE REIT 2006 Annual Report

16.
Income and large corporations taxes
Dundee REIT
Dundee REIT is taxed as a mutual fund trust for income tax purposes. Pursuant to the Declaration of Trust, the Trustees of Dundee
REIT will make distributions of, or will designate, all taxable income earned by Dundee REIT, including the taxable portion of net
realized capital gains, to unitholders and will deduct such distributions and designations for income tax purposes. As the income
tax obligations relating to the distributions are those of the unitholders, no provision for income taxes is required on such amounts.

Canadian and U.S. based incorporated subsidiaries are subject to tax on their respective taxable income at their
corresponding legislated rates. A future income tax liability as at December 31, 2006, of $3,950 (December 31, 2005 – $1,577)
has been recorded to reflect the future tax obligations of these subsidiaries and comprises amounts resulting from
the differences in tax and book values relating to the underlying rental properties. The reported carrying amount of
Dundee REIT’s net assets, excluding those in incorporated subsidiaries at December 31, 2006, exceeds the corresponding tax
cost by approximately $154,000 (December 31, 2005 – $164,000). During the current year, the Trust recognized a $2,378 future
income tax expense related to the sale of a 50% interest in Greenbriar Mall. During the prior year, the Trust recorded a $4,514
future tax recovery as a result of a provision for impairment in value of rental property recognized on its U.S. retail property.

17.
Income per unit
The weighted average number of units outstanding was as follows:

For the years ended December 31

REIT Units

LP B Units

Vested Deferred Trust Units

Total weighted average number of units outstanding for basic income per unit amounts

Add incremental units:

LP B Units

Unvested Deferred Trust Units

Income Deferred Trust Units

2006
25,764,527

5,864,880

53,185

31,682,592

–

26,896

26,243

2005

17,162,997

–

22,352

17,185,349

8,218,753

31,632

15,496

Total weighted average number of units outstanding for diluted income per unit amounts

31,735,731

25,451,230

A reconciliation of income before discontinued operations for basic and diluted per unit amount computations is as follows:

For the years ended December 31

Income before discontinued operations for basic income per unit amounts

Add: Income attributable to non-controlling interest

Depreciation expense

Deduct: Dilution gain
Income before discontinued operations for diluted per unit amounts

2006
7,848

$

–

–

–

$

7,848

2005

6,566

2,511

111

(1,890)

7,298

$

$

The 2,763,894 incremental LP B Units for the period from January 1, 2006, to April 30, 2006, have been excluded from the
calculation of diluted net income per unit as they are anti-dilutive.

The 5,505,054 incremental units of an assumed conversion of both debenture issues for the year ended December 31, 2006
(December 31, 2005 – 5,478,393 incremental units) have been excluded from the calculation of diluted net income per unit as
they are anti-dilutive.

18.
Employee future benefits
The Trust has a defined contribution pension plan available to all full-time employees who have been employed by the Trust
for one year. The pension plan covers employees of the Trust, Dundee Realty Management Corp. and any other entity as
appointed by the sponsor of the plan. The plan is sponsored by Dundee Realty Management Corp., a wholly owned subsidiary
of DMLP. For 2006, the total cost recognized and cash payments for employee future benefits, consisting of cash contributed
to the defined contribution plan, was $191 (2005 – $108).

PAGE 87

DUNDEE REIT 2006 Annual Report

19.
Segmented information
The Trust’s rental properties have been segmented into office and industrial components. The accounting policies of the
segments are as described in the summary of significant accounting policies. Certain of the prior year’s figures have been
reclassified to conform with the current year’s presentation as a result of reclassifying 19 flex properties from the industrial
segment to the office segment because they possess characteristics closer to office properties. The Trust does not allocate
interest expense to these segments, since leverage is viewed as a corporate function. The decision as to where to incur the debt
is largely based on minimizing the cost of debt and is not specifically related to the segments. Similarly, income taxes and
general and administrative expenses are not allocated to the segment expenses. Discontinued operations are not allocated to
individual segments.

In June 2006, the Trust disposed of Kameyosek Shopping Centre in Edmonton and a 50% interest in Greenbriar Mall in Atlanta.
As a result, the Trust no longer actively operates in the retail segment and has reclassified the remaining operations as “Other”
in comparative figures to conform to the current period’s presentation. Also, because the Trust’s remaining interest in
Greenbriar Mall is not significant, the Trust no longer discloses segments by country as virtually all of its operations are
conducted in Canada. The category titled “Other” represents the results of operations of the Trust’s interest in redevelopment
properties prior to designation for redevelopment.
For the year ended December 31, 2006
Operations

Segment total

Industrial

Office

Other

Total

Revenues

Operating expenses

Net operating income

Depreciation of rental properties

Amortization of deferred leasing costs,
tenant improvements and intangibles
Segment income

Interest expense

General and administrative

Internalization of property manager

Loss on disposal of rental property

Interest and fee income

Income taxes

Income attributable to non-controlling interest

Discontinued operations
Net income

$

217,199

$

64,092

$

281,291

$

95,852

121,347

29,017

22,998

41,094

9,773

118,850

162,441

38,790

24,691

5,663

30,354

$

67,639

$

25,658

$

93,297

$

6,503

3,300

3,203

1,060

260

1,883

$

287,794

122,150

165,644

39,850

30,614

95,180

(66,052)

(6,812)

(13,678)

(220)

3,646

(2,376)

(1,840)

3,370

$

11,218

Segment rental properties

$ 1,381,034

$

404,157

$ 1,785,191

$

31,620

$ 1,816,811

Capital expenditures

Investment in rental properties

Investment in tenant improvements

Investment in land development

Acquisition of rental properties and land

Deferred leasing costs
Total capital expenditures

$

(5,128) $

(3,968) $

(9,096) $

(77) $

(5,552)

(1,833)

(7,385)

–

(408,878)

(4,396)

–

(37,892)

(1,683)

–

(446,770)

(6,079)

(282)

(2,103)

(37,897)

(18)

(9,173)

(7,667)

(2,103)

(484,667)

(6,097)

$ (423,954) $

(45,376) $ (469,330) $

(40,377) $ (509,707)

PAGE 88

DUNDEE REIT 2006 Annual Report

Office

Industrial

Segment total

Other

Total

$

158,105

$

53,532

$

211,637

$

74,312

83,793

19,675

20,068

33,464

8,172

94,380

117,257

27,847

14,668

4,526

19,194

$

49,450

$

20,766

$

70,216

$

8,978

4,796

4,182

1,612

314

2,256

$

220,615

99,176

121,439

29,459

19,508

72,472

(53,960)

(5,408)

1,890

(11,533)

2,144

3,472

(2,511)

(2,257)

4,309

$

For the year ended December 31, 2005
Operations

Revenues

Operating expenses

Net operating income

Depreciation of rental properties

Amortization of deferred leasing costs,
tenant improvements and intangibles
Segment income

Interest expense

General and administrative

Dilution gain

Provision for impairment in value of rental property

Interest and fee income

Income taxes

Income attributable to non-controlling interest

Discontinued operations
Net income

Segment rental properties

$

913,866

$

365,128

$ 1,278,994

$

49,401

$ 1,328,395

Capital expenditures

Investment in rental properties

Investment in tenant improvements

Acquisition of rental properties and land

Deferred leasing costs
Total capital expenditures

$

(3,609) $

(3,722) $

(7,331) $

(502) $

(5,599)

(195,970)

(2,391)

(2,805)

(79,054)

(1,659)

(8,404)

(275,024)

(4,050)

(629)

–

(390)

(7,833)

(9,033)

(275,024)

(4,440)

$

(207,569) $

(87,240) $ (294,809) $

(1,521) $ (296,330)

20.
Related-party transactions and arrangements
From time to time Dundee REIT and its subsidiaries enter into transactions with related parties that are conducted under
normal commercial terms. Prior to May 1, 2006, Dundee REIT, DPLP, DMLP and DRC were parties to a property management
agreement and an administrative services agreement (the “Management Agreement” and the “Services Agreement”).
In addition, DMLP and DRC are parties to a separate administrative services agreement. Effective May 1, 2006, the Trust
acquired DRC’s 50% interest in DMLP (see Note 25). As a result, DRC is no longer party to the Management Agreement, other
than its rent supplement obligation and the Services Agreement.

Master property management agreement
DPLP has entered into a Management Agreement with DMLP to provide customary property management services to DPLP.
The Management Agreement also authorizes DMLP, subject to certain restrictions, to contract on behalf of DPLP with third
parties for the provision of certain services as provided for in DMLP’s annual operating plan. DMLP is entitled to be reimbursed
by DPLP for its reasonable costs for such services. The Management Agreement provides for a base management fee of 3.5%
of gross revenues generated from the managed properties, as well as construction fees, and leasing administration fees for
services provided. The initial term of the Management Agreement, which commenced on July 1, 2003, is five years. With the
consent of DMLP, the Management Agreement will be automatically extended for a further five-year period. Upon expiry of
the first extension term and with the mutual consent of DMLP and DPLP, the Management Agreement will be automatically
extended for further five-year periods until terminated by the parties.

PAGE 89

DUNDEE REIT 2006 Annual Report

This Management Agreement also provides that DRC will pay a rent supplement to DPLP for a five-year period ending June 30,
2008, in the case of certain specified office and retail premises and a three-year period ended June 30, 2006, in the case of certain
specified industrial premises. DRC will pay an amount equal to the difference between: (i) the amount that is the total net rent
less amortized leasing costs with respect to the specified premises plus the additional rents that would be payable with respect
to such premises if such premises were leased pursuant to the applicable standard lease for each premises; and (ii) the amount
that is the actual base rent and additional rent received by DPLP for such premises, after deduction for amortization of leasing
costs including, but not limited to, tenant inducements, landlord’s work, free rent and leasing commissions paid by DPLP to lease
any such premises.

If at any time any of the premises to which the rent supplement applies is either sold by DPLP or ceases to be managed by
DMLP, the amount of the rent supplement will be reduced by the amount attributed to such premises. If DPLP enters into a
lease with a tenant, for any of the premises to which the rent supplement applies, that extends beyond the terms of the
supplement for such premises, and the tenant meets credit quality thresholds, has occupied the premises and has commenced
full rental payment under the lease, the amount of the supplement will be permanently reduced by the actual base rent and
additional rent received by DPLP for such premises after deducting amortization of leasing costs.

Administrative services agreement
Dundee REIT and certain subsidiaries have entered into a Services Agreement with DMLP whereby DMLP will provide certain
administrative services to Dundee REIT and its subsidiaries. The Services Agreement provides for a broad range of
management and general administrative services, certain asset management services and certain administrative and support
services. The agreement provides for a fee sufficient to reimburse DMLP for the actual costs incurred and is not intended to
have a profit component. In addition, DMLP will provide, for a fee, services related to property acquisition, property financing
or refinancing and equity financing. This agreement is for an initial five-year period, which commenced on July 1, 2003, and
will terminate on termination of the Management Agreement.

DMLP has also entered into a similar administration and support services agreement with DRC to provide certain
administration services to DRC and its subsidiaries (“DRC Services Agreement”), the term of which has been extended until
June 30, 2013.

The portion of fees received from or paid to related parties under the above arrangements were as follows:
2006

For the years ended December 31
Fees received

2005

Rent supplement received by Dundee REIT
under the Management Agreement (included in rental properties revenue)

Fees, cost recovery and rental income received by Dundee REIT
under the DRC Services Agreement (included as a reduction of operating expenses)

Fees paid

Fees paid by Dundee REIT under the Management Agreement prior to May 1, 2006

Management fees, included in rental properties’ operating expenses

Construction fees, capitalized to the related assets

Lease administration fees, included in deferred leasing costs

Fees paid by Dundee REIT under the Services Agreement prior to May 1, 2006

Acquisition and financing fees, capitalized to the related assets

$

1,336

$

2,272

1,431

534

1,346

98

251

217

3,634

485

839

588

Included in amounts receivable at December 31, 2006, is $231 related to the DRC Services Agreement (December 31, 2005 – $215),
as well as $136 related to additional services provided to DRC. Included in accrued liabilities and other payables at December 31,
2006, is nil related to the Management and Services Agreements (December 31, 2005 – $251). Accrued liabilities and other
payables at December 31, 2006, also include $316 for amounts collected on behalf of DRC (December 31, 2005 – nil). Included in
interest and fee income is $224 related to management services provided to Dundee Corporation, of which the full amount is
included in amounts receivable at December 31, 2006.

PAGE 90

DUNDEE REIT 2006 Annual Report

21.
Financial instruments and risk management
For certain of the Trust’s financial instruments, including cash and short-term deposits, amounts receivable, vendor loan,
amounts payable and accrued liabilities, and distributions payable, carrying amounts approximate fair values due to their
immediate or short-term maturity. The fair values of the mezzanine loans, mortgages and term debt are determined by
discounting the future contractual cash flows under current financing arrangements at discount rates that represent
management’s best estimate of borrowing rates presently available to the Trust for loans with similar terms and maturities.
Specific fair values are disclosed in the related notes. The fair value of convertible debentures is based on the market value
of the debentures on December 31, 2006.

The Trust has some exposure to interest rate risk primarily as a result of its variable rate debt. Variable rate debt at
December 31, 2006, was 2.2% of the Trust’s total debt (December 31, 2005 – 1.6%). In order to manage exposure to interest rate
risk, the Trust endeavours to maintain an appropriate mix of fixed and floating rate debt, stagger maturities of fixed rate debt
and match the nature of the debt with the cash flow characteristics of the underlying asset.

The Trust is exposed to foreign exchange risk as it relates to its self-sustaining U.S. operations due to fluctuations in the
exchange rate between the Canadian and U.S. dollars. The impact of foreign exchange fluctuations is deferred as a separate
component of equity until there is a realized reduction in the net investment in the foreign operation. Effective from April 1,
2004 to May 31, 2005, the Trust had designated the U.S. dollar loan drawn under the demand non-revolving credit facility as a
hedge of a portion of its net investment in its U.S. self-sustaining operation. Gains and losses on translation of the loan have
been deferred as a separate component of unitholders’ equity, offsetting translation gains and losses on the net investment in
the foreign operation, until there is a realized reduction in the net investment in the foreign operation.

The Trust formally documents all relationships between hedging instruments and hedged items, as well as its risk management
objective and strategy for applying hedge accounting. The Trust formally assesses the hedge relationship, both at the hedge’s
inception and on an ongoing basis to ensure the hedge is highly effective.

The Trust’s assets consist of office and industrial rental properties. Credit risk arises from the possibility that tenants in rental
properties may not fulfill their lease or contractual obligations. Further risks arise in the event that borrowers default on the
repayment of their loans to the Trust. The Trust mitigates its credit risks by attracting tenants of sound financial standing,
diversifying its mix of tenants and ensuring that adequate security has been provided in support of loans.

As an owner of real property, the Trust is subject to various federal, provincial, state and municipal laws relating to
environmental matters. Such laws provide a range of potential liability, including potentially significant penalties, and potential
liability for the costs of removal or remediation of certain hazardous substances. The presence of such substances, if any,
could adversely affect the Trust’s ability to sell or redevelop such real estate or to borrow using such real estate as collateral
and, potentially, could also result in civil claims against the Trust.

22.
Discontinued operations
The fulfillment of obligations and realization of assets of properties noted below that were sold in prior periods have been
reclassified as discontinued operations to comply with the disclosure requirements of the CICA Handbook Section 3475.

• On January 14, 2005, the Trust completed the sale of its 25% interest in 2301 and 2311 Royal Windsor Drive, two industrial

buildings located in Mississauga, Ontario. A $217 gain was recognized in 2005 on the sale.

• On November 15, 2005, the Trust completed the sale of Simcoe Town Centre, a 128,000 square foot retail property. A $3,837 loss

was recognized in 2005 on the sale.

• On June 29, 2006, the Trust completed the sale of Kameyosek Shopping Centre, a 46,143 square foot retail property. The Trust

received proceeds of $8,375 and recognized a gain on sale of $3,274.

PAGE 91

DUNDEE REIT 2006 Annual Report

For the years ended December 31
Revenues

Rental properties revenue
Expenses

Rental properties operating expenses

Interest

Depreciation of rental properties

Amortization of deferred leasing costs

Income before the undernoted item

Gain (loss) on sale of rental properties, net

Income (loss) from discontinued operations before non-controlling interest

(Income) loss attributable to non-controlling interest
Income (loss) from discontinued operations

2006

2005

$

177

$

2,285

(87)

–

58

29

–

177

3,229

3,406

(36)

898

251

284

477

1,910

375

(3,620)

(3,245)

988

$

3,370

$

(2,257)

23.
Commitments and contingencies
Dundee 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 financial statements of Dundee REIT.

Dundee REIT’s future minimum commitments under operating, capital and ground leases are as follows:

Years ending December 31

Operating lease payments

Capital lease payments

Ground lease payments

2007

2008

2009

2010

2011

2012 and thereafter
Total

$

$

1,315

1,154

962

668

660

1,300

6,059

$

128

117

–

–

–

–

$

1,141

1,113

1,112

573

32

33

$

245

$

4,004

Dundee REIT has four ground leases on three properties. The terms of the first two leases extend to 2083 and 2076; the last two
extend to 2060, including renewals. The leases are at fixed rates for the entire term with respect to the first and the third lease,
until September 30, 2007, for the second lease and until June 30, 2010, for the fourth. The renewal terms beyond these dates for
the second and fourth leases are defined as variable percentages of the market value of these properties at the date of the renewal.

Purchase and other obligations
As part of an acquisition in 2004, the Trust acquired leases relating to three buildings in Montréal that allow the tenants, subject
to various conditions, to purchase the building they occupy from the Trust. Proceeds from these sales will be at amounts that
approximate fair market value. In addition, through acquisitions completed in 2004 and 2005, the Trust has acquired leases
that provide, in certain circumstances, for some tenants to require the Trust to expand their existing premises through building
construction on certain existing and certain adjacent lands. The terms of these leases include various provisions including
renewal obligations on the tenants’ existing premises and agreement on the terms of the new space. Furthermore, certain of
these leases include provisions that would allow the Trust to charge rates to recover a reasonable return on its investment.

The Trust has entered into lease agreements that require tenant improvement costs of $2,088. The amounts are expected to
be paid in 2007.

The Trust has entered into a co-ownership agreement that includes typical rights of the co-owners for dispute resolution and
a one-time put option exercisable by its co-owner. The put, if exercised, would require Dundee REIT to purchase the remaining
50% of the building, effective April 1, 2009, at the price paid by the Trust for its initial 50% interest in the property.

The Trust has entered into conditional contracts to acquire an additional $424,309 of rental properties.

PAGE 92

24.
Supplementary cash flow information

For the years ended December 31

Decrease (increase) in accounts receivable

Decrease in deferred costs (other than leasing costs)

Increase in prepaid expenses and other assets (excluding restricted cash and mezzanine loans)

Increase in accounts payable and accrued liabilities (excluding leasing costs)

Increase (decrease) in accounts payable relating to leasing costs
Change in non-cash working capital

The following amounts were paid on account of interest and income taxes:

For the years ended December 31

Interest

Income and large corporations taxes

DUNDEE REIT 2006 Annual Report

$

$

$

2006
(2,511)

1,249

(2,052)

7,769

(1,046)

3,409

2005

306

560

(1,723)

5,867

902

5,912

$

$

2006
66,855

175

2005

$

52,446

186

25.
Internalization of property manager
On May 12, 2006, through DPLP, the Trust acquired DRC’s 50% interest in DMLP, the entity that provides property management
and real estate advisory services. The transaction was effective May 1, 2006, and increased the Trust’s ownership of DMLP to
100%. The consideration for the acquisition will be satisfied through the issuance of:

a) 450,000 LP B Units that were delivered on closing; and

b) up to a formula-based maximum of 100,000 LP B Units held in trust, which may include a maximum of 8,000 REIT Units,
to be delivered on June 30, 2007. The number of units to be released is based on the aggregate purchase price of properties
acquired by DPLP between April 1, 2006, and June 30, 2007 (other than properties that were subject to existing purchase
commitments) as follows:

i

ii

if the aggregate purchase price is less than $315,000, DRC will receive that number of LP B Units equal to 50,000 multiplied
by a fraction, the numerator of which is the aggregate purchase price and the denominator of which is $315,000; and

if the aggregate purchase price is equal to or more than $315,000, DRC will receive 50,000 LP B Units plus that number
of additional LP B Units (not exceeding 50,000) equal to 50,000 multiplied by a fraction, the numerator of which is the
aggregate purchase price minus $315,000 and the denominator of which is $240,000.

In conjunction with the transaction, DMLP and DRC agreed to extend the term of the DRC Services Agreement under which
DMLP provides administrative and advisory services to DRC for an additional five years to June 30, 2013 (see Note 20). Also,
the terms of the LP B Units were amended to provide that they may not be transferred to a third party other than a subsidiary
of the holder (see Note 13).

On closing, 450,000 LP B Units were issued for total consideration of $12,393, of which $417 was allocated to the net tangible
assets of DMLP acquired and $12,154 (including $178 of transaction costs) was expensed. The $27.54 issue price per LP B Unit
was estimated based on a five-day weighted average trading price of REIT Units on the Toronto Stock Exchange with the
midpoint being May 4, 2006, the date the substantive terms of the internalization were publicly announced, net of an implied
discount for issuance costs.

Also on closing, 92,000 LP B Units were issued, placed in trust and enrolled in the DRIP to satisfy the maximum number of
units that DRC may be entitled to receive on June 30, 2007. The cost of these units will be expensed and added to cumulative
capital as qualifying properties are acquired. Any units that are not ultimately issued to DRC as additional consideration will
be returned to DMLP for cancellation. During the year ended December 31, 2006, DPLP acquired $340,568 of qualifying
properties and accordingly $1,524 was expensed and added to cumulative capital representing the cost of the additional
55,326 LP B Units DRC will be entitled to receive on June 30, 2007.

PAGE 93

DUNDEE REIT 2006 Annual Report

26.
Disposition of revenue property
On June 2, 2006, the Trust completed the sale of a 50% interest in Greenbriar Mall located in Atlanta for net proceeds of
$16,681 and recorded a $220 loss on the sale. As a result of the disposition, the Trust released a $3,686 cumulative foreign
currency loss from its foreign currency translation adjustment, which was recognized as part of the loss on disposal. In the
year ended December 31, 2005, the Trust recorded an impairment loss of $11,533 relating to Greenbriar Mall. The disposition
of Greenbriar Mall has not been presented as a discontinued operation as the Trust still has a significant continuing
involvement in its operations.

27.
Subsequent events
Effective January 9, 2007, the Trust completed the purchase of 30 and 55 St. Clair Avenue West in Toronto, Ontario, for a
purchase price of $110,752. The properties consist of two office buildings totalling 426,000 square feet.

Effective January 24, 2007, the Trust completed the purchase of 625 Agnes Street, New Westminster, B.C., for a purchase price
of $14,598. The property consists of a 83,000 square foot multi-tenant office building.

On February 12, 2007, the Trust announced that it had entered into an agreement to issue 3,700,000 REIT Units at a price of
$40.75 per unit for gross proceeds of $150,775. Costs relating to the offering are estimated to be $6,605 and will be charged
directly to unitholders’ equity. In addition, the Trust has granted the underwriters an over-allotment option up to an additional
555,000 REIT Units, which, if exercised, would increase the gross proceeds to $173,391.

PAGE 94

Trustees and officers

Trustees

Dr. Günther Bautz1
Ulm, Germany
Counsellor on Intellectual Property, Braun GmbH

Detlef Bierbaum2,4
Köln, Germany
Partner, Bankhaus Sal. Oppenheim jr. & Cie, KGaA

Donald K. Charter
Toronto, Ontario
Corporate Director and President, 3C’s Corporation

Michael J. Cooper2
Toronto, Ontario
Vice Chairman and Chief Executive Officer
Dundee REIT

Peter A. Crossgrove1,3,4
Toronto, Ontario
Corporate Director

Robert G. Goodall1,3
Mississauga, Ontario
President, Canadian Mortgage Capital Corporation

David J. Goodman
Toronto, Ontario
President and Chief Executive Officer
Goodman & Company

Ned Goodman2,3,5
Innisfil, Ontario
President and Chief Executive Officer, Dundee Corporation

Duncan Jackman4
Toronto, Ontario
Chairman and Chief Executive Officer
E-L Financial Corporation Limited

Robert Tweedy4
Toronto, Ontario
Chairman, Useppa Holdings Limited and
Chairman, Sklar Peppler Furniture Corporation

1 Member of the Audit Committee
2 Member of the Investment Committee
3 Member of the Compensation Committee
4 Member of the Governance and Environmental Committee
5 Chairman of the Board of Trustees

DUNDEE REIT 2006 Annual Report

Officers

Ned Goodman
Chairman

Michael J. Cooper
Vice Chairman and Chief Executive Officer

Michael Knowlton
President and Chief Operating Officer

Mario Barrafato
Senior Vice President and Chief Financial Officer

Jane Gavan
Corporate Secretary

PAGE 95

DUNDEE REIT 2006 Annual Report

Corporate information

Head office
Dundee Real Estate Investment Trust
State Street Financial Centre
30 Adelaide Street East, Suite 1600
Toronto, Ontario M5C 3H1
Phone: (416) 365-3535
(416) 365-6565
Fax:

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

Fax:

1 800 564-6253
(416) 263-9394 or
1 888 453-0330

E-mail: service@computershare.com

Auditors
PricewaterhouseCoopers LLP
Royal Trust Tower, Suite 3000
Toronto-Dominion Centre
77 King Street West
Toronto, Ontario M5K 1G8

Corporate counsel
Osler, Hoskin & Harcourt LLP
Box 50, 1 First Canadian Place
Toronto, Ontario M5X 1B8

Investor relations
Phone:
(416) 365-3536
Toll free: 1 877 365-3535
E-mail: info@dundeereit.com
Web site: www.dundeereit.com

Taxation of distributions
Distributions paid to unitholders in respect of the tax year
ending December 31, 2006, are taxed as follows:
Other income:
28.9%
Taxable capital gains: 1.8%
Return of capital:
69.3%
Management estimates that 60% of the distributions to be
made by the REIT in 2007 will be tax deferred.

PAGE 96

Stock exchange listing
The Toronto Stock Exchange

Listing symbols
REIT Units, Series A: D.UN
D.DB
6.5% Debentures:
D.DB.A
5.7% Debentures:

Annual Meeting of Unitholders
Thursday, May 3, 2007, at 4:00 p.m.
TSX Broadcast Centre – Gallery
The Exchange Tower
130 King Street West
Toronto, Ontario

Distribution Reinvestment and
Unit Purchase Plan (“DRIP”)
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 REIT reinvested in additional
units as and when cash distributions are made.

Cash purchase: Unitholders may invest in additional
units by making cash purchases.

If you register in the DRIP you will also receive a “bonus”
distribution of REIT 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 REIT Units will be purchased.

To enrol contact:
Computershare Trust Company of Canada
100 University Avenue, 9th Floor
Toronto, ON M5J 2Y1
Attention: Dividend Reinvestment Services

Or call their Customer Contact Centre
at 1 800 564-6253 (toll free) or (514) 982-7555

For more information you may also visit our web site:
www.dundeereit.com

.

L
I
M
m
o
k
fi
a
r
g

:
g
n
i
t
n
i
r

P

l

n
a
m
x
e
P
w
e
h
t
t
a
M

t

:
y
h
p
a
r
g
o
o
h
P
e
v
i
t
u
c
e
x
E

.

m
o
c
n
g
i
s
e
d
s
k
r
o
w
w
w
w

.

S
K
R
O
W
E
H
T

i

:
n
g
s
e
D
d
n
a

t

p
e
c
n
o
C

I

D
u
n
d
e
e
R
E
T
2
0
0
6
A
n
n
u
a

l

R
e
p
o
r
t

Dundee Real Estate Investment Trust
State Street Financial Centre
30 Adelaide Street East, Suite 1600
Toronto, Ontario M5C 3H1

www.dundeereit.com