DUNDEE REIT 2007 Annual Report DUNDEE REIT 2007 Annual Report FOLLOW YOUR INSTINCTS There is justifiable reason for following the conventional wisdom. At Dundee REIT, however, we believe that sometimes it pays to do things a little differently. This approach has helped us to pursue opportunities that others might overlook, and it has given us a record of strong performance that not many can match. It's why we believe there's value when you follow your instincts. DUNDEE REAL ESTATE INVESTMENT TRUST Dundee REIT is an unincorporated, open-ended real estate investment trust. We own over six million square feet of high-quality, affordable business premises located primarily in Western Canada. TOTAL ASSETS (IN MILLIONS OF DOLLARS) MARKET CAP (IN MILLIONS OF DOLLARS) OCCUPANCY 03 $997 04 $1,200 05 $1,508 06 $2,128 07 $1,156 03 $452 04 $633 05 $740 06 $1,676 07 $704 03 92.7% 04 94.5% 05 96.3% 06 96.4% 07 96.7% 03 04 05 06 07 03 04 05 06 07 03 04 05 06 07 2007 ACQUISITIONS $665M SALE OF EASTERN PORTFOLIO GROSS LEASEABLE AREA (SQ. FT.) $2.3B 6.3M 1 Introduction 2 Letter to unitholders 4 Many ideas. One purpose 6 You can’t move ahead by staying still 8 Following our instincts 10 Portfolio 14 Performance at-a-glance 17 Management’s discussion and analysis 59 Management’s responsibility for financial statements 60 Auditors’ report 61 Consolidated financial statements 65 Notes to the consolidated financial statements 92 Trustees and officers IBC Corporate information PAGE 1 DUNDEE REIT 2007 Annual Report DUNDEE REIT 2007 Annual Report Michael J. Cooper Vice Chairman and Chief Executive Officer Michael Knowlton Mario Barrafato President and Chief Operating Officer Senior Vice President and Chief Financial Officer LETTER TO UNITHOLDERS We believe in thinking strategically and acting decisively. This year was no exception. Early in 2007, we decided to sell a significant portion of our portfolio. After announcing the transaction in June, the markets changed dramatically lending credence to the saying timing is everything. Some say the timing of our transaction was smart, others say we were lucky. We believe that our strategy was smart and admit that our timing was fortunate. Either way, we were able to sell two-thirds of our portfolio for $2.3 billion, to re-align our portfolio with a focus on Western Canada and to return $1.6 billion to our unitholders. In addition to the sale transaction, we added $665.5 million of high-quality properties to our portfolio in 2007. Driven by solid occupancy and impressive uplifts in rental rates achieved in connection with leasing activity, our portfolio produced steady growth in net operating income on a same property basis. Over 70% of our assets are now in Alberta, and we continue to benefit from the province’s strong economy. While the second half of 2007 saw some softening in the Calgary market, growth is expected to continue at a slightly slower, but probably more sustainable pace. Still, with the average market rent well above our expiring rents, our lease maturity profile positions us to benefit from significant rental uplifts as leases mature or are terminated. Acknowledging market uncertainty, we aggressively refinanced most of our 2008 debt maturities, lowering our weighted average interest rate to 5.76% and extending our average term to maturity to just over six years. Heading into 2008, we have a debt-to-enterprise value of 50.6%, an interest coverage ratio of 2.5 times and only 5% of our debt coming due. Early in 2008, we completed a $125.0 million convertible debenture offering, and we have an untouched $50.0 million revolving credit facility. The strength of our balance sheet puts us in a good position to pursue accretive acquisition opportunities as they arise. During 2007, we amended our Declaration of Trust and other governing documents, essentially ridding ourselves of a number of self-imposed restrictions in order to gain more control in managing our enterprise and to have greater flexibility in our pursuit of growth. We will continue to operate within the parameters of the Income Tax Act and maintain our status as a mutual fund trust. The completion of our reorganization in December 2007 confirmed our status as a real estate investment trust under the SIFT Rules. The first among our peers to qualify, Dundee REIT can provide its investors with certainty regarding the taxation of their distributions. We are also uniquely positioned to raise equity and potentially grow beyond the Normal Growth Guidelines. Inevitably, the volatility of public markets in 2007 had an impact on Dundee REIT. Our current trading price is around $34, about a 15% decline since the beginning of 2007. However, this decline is not indicative of our performance as it does not reflect the impact of the sale transaction and the returns experienced by investors who were paid $47.50 per unit for a portion of their investment. Generally speaking, Dundee REIT has experienced less volatility and fared well compared to our peers, particularly since the transaction in August. Until the market settles down, it is difficult to interpret relative valuations; however, I believe that Dundee REIT is far more competitive than it was a year ago. With property prices at or near all-time highs and REIT prices well below net asset value, it will be difficult for many REITs to compete in the acquisition market if they need to raise capital. We begin 2008 very well capitalized and plan to turn this capital advantage into a performance advantage. We intend to either buy properties that will provide excellent returns on an opportunistic basis or to pursue higher quality properties with institutional partners so we can enhance our rental revenue income with property management income. Our portfolio has tremendous intrinsic value and we expect continued same property growth as we capture the difference between in-place and market rents. We also plan to complement our organic growth with accretive acquisitions. While our portfolio is currently focused on Western Canada, Dundee REIT is not tied to any single market or to any single strategy for building value. We will continue to pursue strategic acquisitions, which may include acquiring individual assets or portfolios, either on our own or with partners. Whatever the circumstances, we will be guided by what makes the best sense in terms of existing market conditions. Over the last five years, guided by our instincts and our knowledge of the market, we have added considerable value to Dundee REIT. In 2007, we were able to monetize and return a significant portion of this value to our investors. Looking ahead, we will continue to deploy capital strategically, to pursue growth opportunistically, to benefit from the potential embedded in our portfolio, and to create value for our unitholders. Michael J. Cooper Vice Chairman and Chief Executive Officer PAGE 2 PAGE 3 DUNDEE REIT 2007 Annual Report DUNDEE REIT 2007 Annual Report MANY IDEAS. ONE PURPOSE The business of real estate does not change much between different companies. What sets one apart from another is management and performance. We have a strong and experienced team at Dundee REIT, with a proven track record for creating value. In an environment that is always changing and increasingly competitive, our approach — entrepreneurial and opportunistic but grounded by financial acumen — has served our unitholders well. $1.6 billion returned to unitholders 30 ADELAIDE STREET EAST, TORONTO Dundee was responsible for the innovative redevelopment of an obsolete and vacant property, creating a new downtown office complex with suburban campus amenities at an affordable price. Our ongoing success is largely due to the individual expertise of our people and their capacity to create value through collaboration. We provide our staff with effective leadership, access to management and plenty of autonomy, which enables them to do what they do best. We also encourage creativity and provide an environment in which everyone can express their ideas and opinions. The result is an engaged and effective team distinguished by a great sense of ownership in its work and pride in what it does. In 2007, we completed the most significant transaction in our history — selling nearly two-thirds of our assets and reducing our outstanding share capital by a proportionate amount. Selling our portfolio in Eastern Canada freed us of mature assets that offered consistent performance but which lacked the desired level of internal growth potential. Our current portfolio is based in Western Canada and possesses tremendous embedded growth potential. The transaction was quite unique in that the majority of our assets were sold, those possessing the greatest growth potential were retained and $1.6 billion was returned to investors. The externalization of management has ensured that unitholders will continue to benefit from the expertise of the team that has driven Dundee REIT’s success from its beginning. Having reduced the size of our enterprise by nearly two-thirds, Dundee REIT would not have been able to sustain a team of this size and calibre without the benefit of a management contract. Our transaction team examines every aspect of an acquisition – including the quality of the building, its location, capital expenditure requirements, and cash flow projections – to determine its future impact on AFFO and whether it would add value to our portfolio both in the short and long terms. Tang Liu Vice President, Research and Analysis ENTERPRISE VALUE (IN MILLIONS OF DOLLARS) Dec 03 $1,027 Dec 04 $1,309 Dec 05 $1,667 Dec 06 $2,759 Jun 07 $3,694 Dec 07 $1,346 Dec 03 Dec 04 Dec 05 Dec 06 Jun 07 Dec 07 PAGE 4 PAGE 5 DUNDEE REIT 2007 Annual Report DUNDEE REIT 2007 Annual Report 840 7th AVENUE, CALGARY Located in downtown Calgary, we took 13,000 square feet back from a tenant in 2007 and re-leased the space for more than double the rent. YOU CAN’T MOVE AHEAD BY STAYING STILL Over the years our ultimate goal has remained the same — create increasing value for investors. In pursuing this goal, our tactics have occasionally changed, but we have proven to be consistently successful. Over the past ten years, Dundee has raised about $1.2 billion, given about $2.0 billion back to investors and continues as a public enterprise with a market capitalization over $700 million. Our estimate of market rents for office space in Calgary is more than double our current expiring rents. In 2008, over 225,000 square feet of space is up for renewal in this market, providing us with a tremendous opportunity to capitalize on rent escalations. Randy Cameron Senior Vice President, Western Canada We began 2007 with a critical mass of office and industrial properties in key urban markets across the country. Following the strategic re-alignment of our portfolio, our assets are now concentrated in Western Canada with a heavier weighting in the office segment. The profile of our portfolio positions us to benefit from the economic vitality of Western Canada in general, and the strong economy of Alberta, in particular. Alberta remains the most vibrant market in the country with Calgary currently being Canada’s most expensive office market. Some analysts may feel that the rapid growth experienced in this market is not sustainable, but we remain bullish. Over 70% of our assets are concentrated in Alberta, and we will continue to capitalize on the difference between in-place and market rents by capturing significant rental uplifts as leases mature or are terminated over the next several years. The quality of our performance is supported by the diversity and strength of our tenants. Our properties house a wide range of high-quality tenants, including large international corporations and small entrepreneurial businesses as well as a significant number of government offices and government agencies. With a large number of tenants occupying smaller than average lease areas, our risk exposure to any single lease or tenant is relatively low. Our emphasis on tenant relations and our strong reputation in the marketplace with both brokers and tenants has helped us to manage this diversity and enabled us to maintain consistently high occupancy levels. ACQUISITIONS (IN MILLIONS OF DOLLARS) 03 $108 04 $273 05 $351 06 $598 07 $665 03 04 05 06 07 +9% comparative properties NOI PAGE 6 PAGE 7 DUNDEE REIT 2007 Annual Report DUNDEE REIT 2007 Annual Report FOLLOWING OUR INSTINCTS A priority for us in the fourth quarter of 2007 was strengthening our balance sheet. With the volatility in the stock market and the uncertainty in the debt and credit markets producing a higher cost of capital, we felt it prudent to refinance most of our debt coming due in 2008. We ended the year with a lower average interest rate, minimal renewal exposure in 2008, a small proportion of variable rate debt and a longer average term to maturity. $2.20 annual distributions TOTAL RETURN Dundee REIT S&P/TSX Composite Index 262 217 100 Jun 03 Sep 03 Dec 03 Mar 04 Jun 04 Sep 04 Dec 04 Mar 05 Jun 05 Sep 05 Dec 05 Mar 06 Jun 06 Sep 06 Dec 06 Mar 07 Jun 07 Sep 07 Dec 07 Early in 2008, our balance sheet was further strengthened by the completion of a $125 million convertible debenture offering and the reinstatement of our distribution reinvestment plan (the “DRIP”). Participation in our DRIP is about 25% — which translates into an annual cash reinvestment of approximately $11 million. Having officially qualified as a real estate investment trust well ahead of the 2011 deadline, we start 2008 free of any limitations related to the income trust legislation, and are no longer subject to the Normal Growth Guidelines. Overall, we are in great financial shape and, at a time when cash is king, we are in the enviable position of being able to wait out any turbulence in the markets while having the flexibility to take advantage of opportunities that may arise. We have great confidence in the strength of our team, our portfolio, and our potential for growth. Our intrinsic growth potential coupled with our proven ability to complete accretive acquisitions provides us with a solid foundation for growing returns throughout 2008. Looking ahead, we intend to broaden our exposure in other markets and will be opportunistic in our pursuit of creating value. This may include acquiring individual assets or portfolios, either on our own or with partners — whatever makes the best sense in the given circumstances. As always, we will continue to be creative in enhancing unitholder returns while retaining a low tolerance for risk. We will approach all opportunities with the knowledge and judgment that come from years of industry experience and we will follow our instincts that have served our investors so well in the past. Dundee REIT was quickly short-listed when the AIR MILES Tower became available. We pursued this property because of its high-quality, desirable amenities and location. The building is 92% occupied, with nearly 60% of the space under a long-term lease to AIR MILES, and also offers upside potential as we lease the upper floors. This acquisition underscores our commitment to the Toronto market. Katy Choi Manager, Research and Analysis AIR MILES TOWER, TORONTO This Class A office building is located downtown at the corner of University Avenue and Dundas Street. It features three levels of underground parking as well as a direct connection to the subway. PAGE 8 PAGE 9 DUNDEE REIT 2007 Annual Report Lee Valley Building Edmonton, Alberta Station Tower Surrey, British Columbia DUNDEE REIT 2007 Annual Report 720 Bay Street Toronto, Ontario PORTFOLIO OVERVIEW High-quality, affordable business premises. We have a strong presence in Calgary, and also have valuable assets in Vancouver, Edmonton, Saskatoon, Regina, Yellowknife and Toronto. 3250 Sunridge Way NE Calgary, Alberta Sherwood Place Regina, Saskatchewan PAGE 10 4400 Dominion Street Burnaby, British Columbia Joffre Place Calgary, Alberta Telus Tower Calgary, Alberta PAGE 11 DUNDEE REIT 2007 Annual Report DUNDEE REIT 2007 Annual Report PORTFOLIO LISTING December 31, 2007 OWNERSHIP INTEREST (%) OWNED SHARE OF TOTAL GLA (SQ. FT.) OCCUPANCY (%) SIGNIFICANT TENANTS December 31, 2007 OWNERSHIP INTEREST (%) OWNED SHARE OF TOTAL GLA (SQ. FT.) OCCUPANCY (%) SIGNIFICANT TENANTS Office property Station Tower, Surrey 4400 Dominion Street, Burnaby 625 Agnes Street, New Westminster 960 Quayside Drive, New Westminster Telus Tower, Calgary 840 7th Avenue SW, Calgary McFarlane Tower, Calgary Life Plaza, Calgary Airport Corporate Centre Franklin Atrium, Calgary Roslyn Building, Calgary Atrium I, Calgary Atrium II, Calgary Joffre Place, Calgary Dominion Centre, Calgary 435 4th Avenue SW, Calgary 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 ARAM Building, Calgary 3250 Sunridge Way NE, Calgary 3030 Sunridge Way NE, Calgary Sherwood Place, Regina Victoria Tower, Regina Princeton Tower, Saskatoon Preston Centre, Saskatoon Scotia Centre, Yellowknife Precambrian Building, Yellowknife Northwest Tower, Yellowknife Bellanca Building, Yellowknife State Street Financial Centre, Toronto 720 Bay Street, Toronto 110 Sheppard Avenue East, Toronto Total office1 1 Excludes redevelopment properties 100 100 100 100 50 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 50 50 50 213,978 91,039 85,042 59,880 353,835 260,171 237,873 236,257 148,363 144,274 132,186 109,890 109,595 104,830 98,597 88,738 87,368 77,279 76,755 64,897 58,001 57,955 57,050 57,018 50,577 44,230 36,428 27,180 26,894 184,985 144,165 131,796 61,810 101,296 87,484 85,036 52,285 206,967 123,872 75,465 99.9 92.8 94.7 95.1 99.8 94.9 98.2 98.4 100.0 91.6 98.4 100.0 80.0 97.6 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 96.4 100.0 100.0 100.0 100.0 100.0 100.0 100.0 91.3 97.5 95.0 80.3 99.7 100.0 86.1 100.0 93.1 Government of British Columbia; Government of Canada; Fraser Health Authority Keystone Environmental Ltd. Government of British Columbia; Government of Canada Westminster Savings Credit Union Telus Communications; SNC Lavalin Inc.; Bantrel; Northwest Corporation; Public Works Hatch Optima Ltd. Alberta Infrastructure; Tusk Energy; Saxon Energy Solutions Ashton Jenkins Mann; MEG Energy Corp. Government of Canada; Calgary Health Region; WestJet Care Factor Computer Services, Guest-Tek Ensign Resource Service Group Gemini Corp. Gemini Corp. Wawanesa Mutual Insurance AMEC Americas Ltd. Energy Phoenix Technology Services Inc. Yellow Pages IBI Leaseholds SNC Lavalin Alberta Computer & Cable Mentor Engineering Eaton Yale Lifemark Health Management Inc. First Calgary Petroleums Ltd. Telus Communications Weatherford Canada Partnership ARAM Systems Ltd. Royal Bank Action Direct Sure Northern Energy Ltd. Conexus Credit Union, Co-operators Life Insurance, CGI Saskatchewan Property Management Government of Canada UMA Engineering Commissioner of NWT Capitol Theatres Commissioner of NWT; NorthWestel Federal Government of Canada International Financial Data Services; State Street Trust Company Canada; Dundee REIT Government of Ontario Equifax Canada; Eckler Partners Ltd. 4,451,341 96.7% Industrial property 7102-7220 Barlow Trail SE, Calgary 15303 128th Avenue, Edmonton Alberta Park, Edmonton Bonaventure Centre, Edmonton 7004-7042 30th Street SE, Calgary 4710-4760 14th Street NE, Calgary Lee Valley Building, Edmonton 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 Park 19, Edmonton 535-561 36th Avenue SE, Calgary Wood Group ESP, Edmonton 6804-6818 30th Street SE, Calgary 2876 Sunridge Way NE, 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 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 222,570 178,000 130,162 115,318 94,208 72,780 72,577 67,250 59,386 57,344 57,198 57,145 57,090 56,796 54,000 53,110 48,365 41,440 30,353 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 74.1 100.0 98.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Magnum Designs; Sea NG Management Corp. Connect Logistics; Highland Moving and Storage McLeod Windows; North American Construction Brink’s Canada; Dansons Inc. Control Chemical; Arctic Truck Parts & Service Collega International Lee Valley Tools Ltd. Sleep Country Inc. Universal Measurements Solutions Instabox (Alberta) Limited Coast Wholesale Appliances Icon Stone and Tile McGregor & Thompson Hardware Eversource National Products Budrich Industries Sembiosys Genetics Inc. Boden Fabricating The Flower Market Wood Group ESP (Canada) Ltd. Spindle, Stairs & Railings Ametek (Canada) Inc. Tac Mobility Chateau Exteriors Ltd. Westburne-Wolseley Canada Inc. Kansas Corporation; Rising Edge Engineering; JJ Lawncare and Maintenance and Bradbosh Lawn Services Inc. International Furniture Wholesalers Mona Art Deco Corp. Rapid Brake Centres; Great Northern Bedding Company Mobile Augers & Research Ltd. East-West Express Inc. Mars Blinds & Shutters Eurika-Tech Inc. Western High Voltage Test Centre Inc.; Alpine Autowerks Audio Video Interiors Ltd. Thermo & Design Insulation; Sunset Fireworks; Comokero Enterprises Libertas Industries Inc.; Mettler Toledo Inc.; Storm Wrestling Academy 1,847,661 6,299,002 96.7% 96.7% Redevelopment properties Gallery Building, Yellowknife Greenbriar Mall, Atlanta 100% 50% Total redevelopment 12,960 397,695 410,655 PAGE 12 PAGE 13 DUNDEE REIT 2007 Annual Report DUNDEE REIT 2007 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 17. A HEALTHY BALANCE SHEET AND DECREASING INTEREST RATES Since June 2003, we have continuously decreased our weighted average interest rate from 7.19% to 5.76% at the end of 2007. Over the same time, our interest coverage ratio has risen steadily to 2.51 times, reflecting the Trust’s ability to cover interest expense requirements. ANNUAL ACQUISITIONS (IN MILLIONS OF DOLLARS) 03 $108 04 $273 05 $351 06 $598 07 $665 03 04 05 06 07 With $2 billion in acquisitions since 2003, we have added considerable value to Dundee REIT. In 2007 alone we completed transactions totalling $665 million, adding 3.7 million square feet of properties to our portfolio. Return of DEBT MATURITIES (% OF MATURING DEBT) $1.6B to unitholders 7.43%* 08 4.8% 09 9.6% 10 3.0% 12.5% 11 12 16.5% 13+ 53.6% 5.64% In August 2007, Dundee REIT sold the Eastern Portfolio and returned $1.6 billion to its unitholders. In connection with this strategic sale, we re-aligned our portfolio with a focus on Western Canada. 08 09 10 11 12 13+ *Line graph overlay represents ave rage expiring interest rates. NOI BY SEGMENT (%) 03 58% 33% 04 58% 37% 05 60% 36% 06 75% 25% 07 88% 12% • Office • Industrial 03 04 05 06 07 Comparative properties NOI +9% in 2007 As a result of the strategic re-alignment of our portfolio, the office segment now generates approximately 88% of our net operating income. We continue to achieve impressive organic growth, driven mainly by rising rental rates across both our office and industrial portfolios. NOI from our comparative office portfolio increased by 8% and the industrial portfolio by 13%. RISING RENTAL RATES Average in-place net rent (per sq. ft.) Office Industrial Portfolio average $ 2007 16.30 6.71 13.49 $ 2006 13.67 5.47 10.00 Occupancy increased to 96.7% in 2007 AFFO per unit +5% in 2007 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 $2.19 per unit in 2006 to $2.29 per unit in 2007. For more details and a reconciliation of AFFO to cash generated from operating activities see pages 34–36. PAGE 14 PAGE 15 DUNDEE REIT 2007 Annual Report DUNDEE REIT 2007 Annual Report CONTENTS 17 Management’s discussion and analysis 52 SECTION III — DISCLOSURE CONTROLS AND PROCEDURES 17 SECTION I — OBJECTIVES AND FINANCIAL HIGHLIGHTS 17 Basis of presentation 18 Our objectives 18 Our strategy Our assets 19 20 Our equity 22 23 23 Key performance indicators Financial overview Outlook 24 24 42 43 SECTION II — EXECUTING THE STRATEGY Our resources and financial condition Rental properties Market information Leasing profile Liquidity and capital resources Operating activities Investing activities Financing activities Sale of the Eastern Portfolio to GE Real Estate 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 Income tax expense Discontinued operations Related-party transactions Net operating income NOI comparative portfolio Comparative office portfolio Comparative industrial portfolio NOI prior quarter comparison 49 Selected annual information 50 Quarterly information Calculation of funds from operations and distributable income 52 52 53 53 53 53 54 54 SECTION IV — RISKS AND OUR STRATEGY TO MANAGE Real estate ownership Illiquidity of real estate investments Competition in the office, industrial and retail real estate market Environmental risk Financing risk Insurance Joint venture, partnership and co-ownership agreements 55 Taxation risk 55 55 55 55 56 56 56 57 58 SECTION V — CRITICAL ACCOUNTING POLICIES Critical accounting estimates Impairment of assets Purchase price allocations Intangible assets and liabilities Depreciation Deferred costs Income taxes Changes in accounting policies 59 Management’s responsibility for financial statements 60 Auditors’ report 61 Consolidated financial statements 65 Notes to the consolidated financial statements Management’s discussion and analysis (All dollar amounts in tables are presented in thousands, except rental rates, unit or 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” or the “Trust”) should be read in conjunction with the audited consolidated financial statements of Dundee REIT for the years ended December 31, 2007, and December 31, 2006. This management’s discussion and analysis has been dated as at January 31, 2008, except where otherwise noted. For simplicity, throughout this discussion we may make reference to the following: • “REIT A Units”, meaning the REIT Units, Series A • “REIT B Units”, meaning the REIT Units, Series B • “REIT Units”, meaning the REIT Units, Series A and REIT Units, Series B • “LP B Units”, meaning the LP B Units, Series 1 • “Units”, meaning REIT Units, Series A; REIT Units, Series B; and, Special Trust Units, collectively Certain market information has been obtained from the CB Richard Ellis Market View, 4th Quarter 2007, 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. On August 24, 2007, Dundee REIT completed the sale of its portfolio of real estate assets located principally in Ontario, Québec and Newfoundland (the “Eastern Portfolio”) to GE Real Estate (“GE”) for a total purchase price of approximately $2.3 billion, including the assumption of liabilities by GE relating to the Eastern Portfolio (the “Transaction”). Dundee REIT’s portfolio now comprises office and industrial properties located primarily in Western Canada with an estimated market value of approximately $1.5 billion. As a result of this Transaction, Dundee REIT has transformed into a more growth-oriented, opportunistic real estate investment trust. Dundee REIT continues to own the property manager that manages the assets of the REIT. The cash proceeds received on closing were used to redeem approximately 29.9 million outstanding units for $47.50 per unit (the “Redemption”). In addition, GE purchased approximately 3.5 million outstanding units at a purchase price of $47.50 per unit (the “Transfer”). 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 fluctuations. Although the forward-looking statements contained in this management’s discussion and analysis are based upon what we believe are reasonable assumptions, there can be no assurance that actual results will be consistent with these forward-looking statements. Certain assumptions made in preparing forward-looking information and our objectives include the assumption that the Canadian economy will remain stable in 2008 and that inflation will remain relatively low. We have also assumed that interest rates will remain stable in 2008, that conditions within the real estate market, including competition for acquisitions and estimated market rental rates, will be consistent with the current climate, that the Canadian capital markets will continue to provide us with access to equity and/or debt at reasonable rates and that the specified investment flow-through trust (“SIFT”) Rules and the Normal Growth Guidelines are not applicable to us. All forward-looking information speaks as of January 31, 2008, except where otherwise noted. 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 web site at www.dundeereit.com. PAGE 16 PAGE 17 DUNDEE REIT 2007 Annual Report DUNDEE REIT 2007 Annual Report OUR OBJECTIVES We are committed to: • managing our activities to provide growing cash flow and stable and sustainable returns through adapting our strategy and tactics to changes in the real estate industry and the economy; • building a diversified, growth-oriented portfolio of office and industrial properties in Canada, based on an established platform in Western Canada; • providing predictable and sustainable cash distributions to unitholders and prudently increasing distributions over time, allowing investors to benefit from the growth in its real estate operations; and • maintaining a REIT that satisfies the REIT Exception under the new SIFT legislation in order to provide certainty to unitholders with respect to taxation of distributions and be more competitive in the real estate industry than other REITs which have not satisfied the REIT Exception. 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 (see a description of Our Equity on page 20). In connection with the Transaction, the DRIP was suspended in June 2007 and Dundee REIT has since paid all distributions in cash rather than allowing unitholders to reinvest distributions in additional units of Dundee REIT. Starting with the January 2008 distribution payable on February 15, 2008, the DRIP has been reinstated. All terms and conditions of the DRIP remain the same. 2007 Distribution rate Month-end closing price OUR STRATEGY Jan Feb Mar Apr May Jun July Aug Sept Oct Nov Dec $0.183 $0.183 $0.183 $0.183 $0.183 $0.183 $0.183 $0.183 $0.183 $0.183 $0.183 $0.183 $39.95 $40.68 $39.70 $40.10 $39.64 $46.00 $43.35 $37.23 $38.73 $36.75 $36.43 $33.72 Dundee REIT’s strategy is to rely on a core portfolio of office and industrial properties that provides a solid platform for We actively manage our debt levels and interest rates in order to minimize financing and interest rate risk while maximizing overall performance. Dundee REIT manages its 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 managed to maintain continuity of income and to avoid significant lease turnovers and their associated leasing costs in any given year. Pursuing growth Dundee REIT will achieve growth by acquiring properties that enhance its overall portfolio, further improve the sustainability of distributions and help it mitigate risk. Dundee REIT’s growth strategy is to acquire office and industrial properties in those Canadian markets that offer compelling investment opportunities and reposition existing properties where opportunities exist. Dundee REIT continuously evaluates individual properties, portfolios and entities with a view to maximizing performance and achieving the best value and growth potential. Meeting the needs of our tenants Dundee REIT has a committed team of in-house property management professionals. A strong relationship with our tenants is critical to our success. We strive to be 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 attract new tenants to lease vacant space quickly and cost-effectively. 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 Western Canada, primarily in Calgary as well as Vancouver, Edmonton, Saskatoon, Regina, Yellowknife and Toronto. December 31 British Columbia Alberta Saskatchewan & NWT Ontario Sold properties Office Industrial Total 449,939 2,746,241 848,857 406,304 — 4,451,341 — 1,847,661 — — — 449,939 4,593,902 848,857 406,304 — 2007 % 7 73 14 6 — Owned gross leasable area (sq. ft.)|1 Total 213,632 3,952,545 844,955 406,631 13,015,703 2006 % 1 21 5 2 71 stable and growing returns. Consistent with our strategy in the past, management intends to increase cash flow by adding value Total as at December 31, 2007 1,847,661 6,299,002 100 18,433,466 100 to existing properties, pursuing accretive acquisitions and identifying new trends and opportunities in the real estate market. In addition, our strategy will continue to include working within the capital markets to enhance value through the efficient use of capital and utilizing private and public debt and public equity to provide unitholders with the highest possible returns. Percentage 71% 29% 100% Total as at December 31, 2006 10,121,765 8,311,701 18,433,466 Percentage 55% 45% 100% Our track record includes issuing equity at increasing prices to finance rapid growth, increasing and decreasing our level of 1 Excludes redevelopment properties. debt based on the relative cost of debt and equity, selling major portions of our portfolio when the value was high, increasing the growth potential of our remaining operations and returning capital to our unitholders when we had excess capital. Dundee REIT’s methodology to meet its strategy and objectives includes: Effectively managing our business We manage our properties to optimize long-term cash flow and value. Dundee REIT benefits from the expertise of a group of highly experienced real estate professionals through our internal property management function. In addition, through the asset management agreement, Dundee REIT benefits from the expertise of Dundee Realty Corporation (“DRC”), which provides the strategy, leadership and execution of Dundee REIT’s operating plan. All of these professionals have worked together for many years and will continue to work together to increase the value of Dundee REIT’s portfolio through continuous and active analysis of how its properties and its portfolio as a whole can achieve optimal performance. We will continue to identify strengths and weaknesses of individual properties and our portfolio as a whole, which allows us to quickly reposition assets when desirable. Office rental properties Dundee REIT owns 40 office properties (42 buildings) comprising approximately 4.5 million square feet, excluding redevelopment properties, located in Vancouver, Calgary, Edmonton, Regina, Saskatoon, Yellowknife and Toronto. These office properties can generally be categorized as high-quality, affordable, suburban and downtown buildings. At December 31, 2007, the average occupancy rate across our office portfolio was 96.7%. Our occupancy rates include lease commitments for space that is currently being readied for occupancy but for which rent is not yet being recognized. The national industry average occupancy rate was 93.3% (CB Richard Ellis, Canadian Office Market View, 4th Quarter 2007). Industrial rental properties Our industrial portfolio consists of 36 prime suburban industrial properties (40 buildings) comprising approximately 1.8 million square feet, concentrated in Calgary and Edmonton. Dundee REIT’s strategy is to own clusters of properties, allowing it to respond quickly and efficiently to tenants’ needs during times of change in their operations or size of their workforce. At December 31, 2007, the average occupancy rate across our industrial portfolio was 96.7%. The market vacancy rate in both Calgary and Edmonton as at December 31, 2007, was 2.2% and 2.5%, respectively (CB Richard Ellis, Canadian Industrial Market View, 4th Quarter 2007). PAGE 18 PAGE 19 DUNDEE REIT 2007 Annual Report DUNDEE REIT 2007 Annual Report Development and redevelopment properties We were partners in two joint ventures to develop office and prestige industrial properties in major Canadian markets. Effective November 1, 2007, we completed the sale of our interest in Barker Business Park (Phase II) in Richmond Hill, Ontario, and Tullamore Business Park in Caledon, Ontario, for proceeds of approximately $16.8 million. In connection with the sale of our interest in the Barker Business Park (Phase II), we provided subordinate mortgage financing to our former joint venture partner in the amount of approximately $11.7 million at an interest rate of 11% to finance the construction of certain improvements on those lands. These mortgages were subsequently repaid in February 2008. In addition, we agreed to acquire, on completion and subject to the satisfaction of certain conditions, a 63,000 square foot office building situated on 5.7 acres, Amendments to Declaration of Trust and other governing documents Together with the Transaction, we made certain amendments to our Declaration of Trust and to other governing documents of the Trust and its subsidiaries. In general, the Trust and its subsidiaries cannot take any action that would prevent it from qualifying as a “real estate investment trust” (as defined in the Income Tax Act) and the Trust could not take any action that at any time prior to January 1, 2008, would cause it to exceed “normal growth” as determined by the Normal Growth Guidelines pertaining to specified investment flow-through trusts or partnerships (“SIFTs”), or to be subject to tax under paragraph 122(1) (b) of the Income Tax Act, which specifies taxes payable by a SIFT entity. Also, amendments were made to provide for the surrender, exchange for purchase or cancellation, or transfer of LP Class A Units, Series 1, and LP Class B which is subject to a long-term lease with a multi-national tenant for a purchase price of approximately $20.8 million. Units, Series 2, in connection with the Redemption and Transfer. Two of our properties are currently classified as redevelopment properties. Properties are generally classified as Amendments made to the Declaration of Trust included: redevelopment until the project is completed and produces positive cash flow after servicing specific debt. OUR EQUITY December 31 REIT Units, Series A REIT Units, Series B LP Class B Units, Series 1 Cumulative foreign currency translation adjustment Total Unitholders’ equity 2007 Number of units Amount Number of units 17,072,154 476,316 3,315,349 — $ 300,216 14,376 99,791 (6,243) 34,854,553 — 8,565,095 — $ 2006 Amount 745,348 — 147,879 (5,116) 20,863,819 $ 408,140 43,419,648 $ 888,111 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 and Dundee Realty Corporation, related parties to Dundee REIT, and the REIT B Units are held by GE. Both the REIT A Units and Special Trust Units entitle the holder to one vote for each unit held at all meetings of the unitholders. The LP B Units are exchangeable on a one-for-one basis for REIT B Units, at the option of the holder, which can then be converted into REIT A Units. The LP B Units and corresponding Special Trust Units together have economic and voting rights equivalent in all material respects to REIT A Units. The REIT A Units and REIT B Units have economic and voting rights equivalent in all material respects to each other. 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 subsidiaries of Dundee Corporation and Dundee Realty Corporation. As a result, if Dundee Corporation and Dundee Realty Corporation wish to transfer the LP B Units to a third party, they must first convert the LP B Units into REIT B Units. 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. • providing Dundee Corporation the right to appoint up to a majority of trustees less one provided it owns at least an aggregate of two million REIT A Units, REIT B Units and/or LP B Units; • granting pre-emptive rights on the issuance of REIT A Units or any securities convertible into or exchangeable for REIT A Units to both Dundee Corporation and GE to maintain their same proportionate interest in the Trust; and • permitting our investment committee to delegate investment decisions to our senior management (including those acting on our behalf pursuant to the asset management agreement). Amendments made to the Partnership Agreement of Dundee Properties Limited Partnership (“DPLP”) included: • the business of DPLP must be located exclusively in Canada; • DPLP may only invest in equity interests in office and industrial revenue-producing properties; • DPLP may invest in up to 25% of equity of non-qualifying investments subject to meeting the general REIT qualifications discussed above; • certain restrictions regarding acquisitions, investments in joint ventures, holding securities, investments in operating businesses, investments in partnerships, and investments in mortgages or mortgage bonds were removed; • DPLP is permitted to undertake construction and development activities for the maintenance of real property or enhancing the revenue stream from real property provided it is not on a brownfield site; • removal of limitations on the maximum amount of total debt as a percentage of the Trust’s gross book value, the maximum amount of floating rate debt as a percentage of total debt and the limitation of the maximum amount of new debt as a percentage of the market value of a specific property; and • DPLP will maintain an interest coverage ratio of no less than 1.4 times. PAGE 20 PAGE 21 DUNDEE REIT 2007 Annual Report DUNDEE REIT 2007 Annual Report KEY PERFORMANCE INDICATORS Performance is measured by these and other key indicators: Three months ended December 31 Years ended December 31 2007 2006 2007 2006 Operations Occupancy rate (period-end)1 In-place rent per square foot (office and industrial)1 Operating results Rental properties revenue Net operating income2 (“NOI”) Funds from operations3 (“FFO”) Adjusted funds from operations4 (“AFFO”) Distributions Distributable income5 Reinvestment to distribution ratio6 Cash distribution ratio7 Financing Weighted average interest rate (period-end) Interest coverage ratio Per unit amounts Basic: FFO Distributable income Distribution rate Total distributions as a % of distributable income AFFO Diluted:8 FFO Distributable income $ $ $ $ $ 96.7% 13.49 42,921 26,456 16,127 11,054 12,320 n/a 100% $ $ $ 96.4% 10.00 32,242 19,106 29,167 22,954 26,654 26.4% 73.6% 5.76% 2.51 times 5.95% 2.46 times 0.76 0.58 0.55 92.9% 0.52 0.76 0.58 $ $ 0.74 0.67 0.55 83.9% 0.58 $ 0.71 0.65 $ $ $ 155,161 97,679 114,539 87,484 99,305 14.9% 85.1% 3.00 2.60 2.20 80.6% 2.29 2.95 2.57 $ $ $ $ 102,389 60,216 97,269 75,402 89,002 30.6% 69.4% 2.82 2.58 2.20 87.0% 2.19 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. Prior year comparatives have been restated as a result of discontinued operations. The reconciliation of NOI to net income can be found on page 45. 3 FFO — the reconciliation of FFO to net income can be found on page 33. 4 AFFO — the reconciliation of AFFO to distributable income can be found on page 36. 5 The reconciliation of distributable income to cash generated from operating activities can be found on page 34. 6 These percentages do not include the additional 4% distributions available under the DRIP. 7 Cash distribution ratio represents the amount of distribution paid in cash and not reinvested through the DRIP. The ratio calculation can be found on page 35. 8 Diluted amounts assume the conversion of the 6.5% and 5.7% Debentures. FINANCIAL OVERVIEW Overall occupancy remains very strong at 96.7%, with lease rollover activity allowing us to take advantage of generally higher market rental rates, especially in our Calgary office portfolio. Our average office portfolio occupancy rate remains well above the national industry average. Details of our leasing profile are provided on page 26. During the second quarter, we made the strategic decision to sell our portfolio of assets located primarily in Ontario, Québec and Newfoundland and to re-align our portfolio with a focus on Western Canada. This transaction was completed in the third quarter. Our continuing operations demonstrate strong financial results as evidenced by NOI growth of $7.3 million or 38% compared to the same period in 2006. For the year, NOI increased $37.5 million or 62% compared to the same period in 2006. The office portfolio now generates nearly 88% of our NOI. Details of our NOI begin on page 45. For the quarter, distributable income decreased 54% to $12.3 million, on which we declared distributions of $11.5 million. For the year, distributable income increased 12% to $99.3 million, on which we declared distributions of $79.5 million. As a result of the participation in our DRIP, our year-to-date cash payout ratio is 85.1% of declared distributions. Details of our distributions and distributable income begin on page 34. For the quarter, AFFO decreased $11.9 million or $0.06 per unit, largely reflecting the impact of the Transaction. For the year, AFFO increased $12.1 million or $0.10 per unit, a 16% increase over the prior year period. The improvement reflects our commitment to grow our AFFO through acquisitions and effectively manage our leasing and capital costs. Details of our AFFO are provided on page 36. OUTLOOK The past year was monumental for Dundee REIT and its unitholders. We completed another year of record-breaking acquisitions, adding $665.5 million of high-quality properties to our portfolio, and completed the sale of approximately two-thirds of our portfolio for $2.3 billion. In connection with the strategic sale of our Eastern Portfolio, we returned approximately $1.6 billion to unitholders, and realigned our portfolio with a focus on Western Canada. The changes made to our organizational structure in August 2007 provide us with greater control over how we manage our enterprise and greater flexibility in our pursuit of growth. We felt confident making these changes with the knowledge and certainty that we will always be governed by the Income Tax Act and the requirements of maintaining our mutual fund trust status. And, with the completion of our reorganization in December 2007, Dundee REIT now qualifies as a REIT under the SIFT Rules. This positions us uniquely amongst our peers as Dundee REIT is the first to qualify. Qualifying as a REIT provides investors with certainty regarding the taxation of distributions and allows us to raise equity and grow beyond the Normal Growth Guidelines. Alberta remains the strongest market in the country. Over 70% of our assets are concentrated in this province and our portfolio continues to produce solid growth. The second half of 2007 brought some softening in demand for space in Calgary; however, growth is expected to continue at a slightly slower, more sustainable pace. Regardless, with the average market rent well above our expiring rents, our lease maturity profile positions us to capture significant rental uplifts as leases mature or are terminated. There is a degree of economic uncertainty in the Canadian marketplace as a result of the sub-prime issues and the related fears of a recession in the U.S. The impact in Canada has been volatility in both stock market and the credit markets, producing a higher cost of capital. In the fourth quarter we completed a significant amount of refinancing at lower rates on debt coming due in 2008. Early in 2008, we completed a $125.0 million convertible debenture offering. In addition, we have a $50.0 million demand revolving credit facility that is presently undrawn. We are confident that with the strength of our balance sheet we are well-positioned to pursue accretive acquisition opportunities as they arise. In 2008, our existing portfolio offers tremendous organic growth potential on its own. We will, however, continue to pursue opportunities to grow our portfolio and create value. While our portfolio is currently focused on Western Canada, Dundee REIT is not committed to any single market nor are we committed to any single strategy in seeking the appropriate acquisitions. As in the past, we will pursue strategic acquisitions opportunistically. This may include acquiring individual assets or portfolio acquisitions, either on our own or with partners — whatever makes the best sense given the then current market conditions. . PAGE 22 PAGE 23 DUNDEE REIT 2007 Annual Report DUNDEE REIT 2007 Annual Report SECTION II — EXECUTING THE STRATEGY Alberta OUR RESOURCES AND FINANCIAL CONDITION Rental properties During the fourth quarter, we acquired two office properties comprising 149,000 square feet for approximately $52.5 million. Throughout 2007, we completed $665.5 million of acquisitions comprising 3.7 million square feet of office and industrial properties. Calgary has become Canada’s most expensive office market and 2007 was another strong year. High labour costs, low unemployment and high construction costs, however, have also created challenges. While demand for space has softened somewhat during the second half of 2007, growth is expected to continue at a slightly slower, more sustainable pace. The Calgary downtown office market showed an increase in overall vacancy to 3.4% from a historical low of 0.5% at the end of 2006. Given that approximately 1.5 million square feet of new product, comprising four buildings, was added to this market in 2007, this remains a very healthy marketplace. The Calgary suburban market showed a slight increase in overall During the third quarter, we sold our Eastern Portfolio to GE for a total purchase price of approximately $2.3 billion, including vacancy in the fourth quarter to 3.8% due to the completion of new construction projects; however, overall absorption the assumption of liabilities by GE relating to the Eastern Portfolio. Our operating portfolio now comprises office and industrial remained positive with large downtown tenants opting to relocate to the suburbs. properties located primarily in Western Canada. Further detail on the Transaction is provided on page 42. The net book value of segmented rental properties by geography and asset type is set out below. $ $ $ December 31 British Columbia Alberta Saskatchewan & NWT Ontario Sold properties Office Industrial $ 94,072 606,782 111,813 66,551 — — $ 105,134 — — — Total 94,072 711,916 111,813 66,551 — 2007|1 % 10 72 11 7 — $ Total 51,594 501,772 112,910 66,799 1,052,116 2006|1 % 3 28 6 4 59 Total as at December 31, 2007 $ 879,218 Percentage 89% Total as at December 31, 2006 $ 1,381,034 105,134 $ 984,352 100 $ 1,785,191 100 11% 100% 404,157 $ 1,785,191 Percentage 77% 23% 100% 1 Excludes $19.0 million related to Greenbriar Mall and $0.9 million related to other redevelopment properties totalling $19.9 million (December 31, 2006 — $31.6 million). PORTFOLIO ASSET TYPE BY NET BOOK VALUE (AT DECEMBER 31, 2007) • Office 89% • Industrial 11% GEOGRAPHIC DISTRIBUTION OF RENTAL PROPERTIES BY NET BOOK VALUE (AT DECEMBER 31, 2007) • Alberta 72% • Saskatchewan & NWT 11% • British Columbia 10% • Ontario 7% Market information In an effort to give additional context for our portfolio, provided below is some general information with respect to those markets where we have established a critical mass of properties. The source for market occupancy, vacancy, availability and rental rates for British Columbia, Alberta and Ontario is CB Richard Ellis Market View, 4th Quarter 2007. Market information for Saskatchewan and the Northwest Territories is based on local estimates. The majority of our assets are concentrated in Western Canada, with over 70% located in the province of Alberta alone. The properties are leased to a wide range of high-quality office and industrial tenants. The ever-rising global demand for oil has had a significant impact on Alberta’s real estate market. While Alberta is expected to remain the driving force of Canada’s economy, we believe that provinces surrounding Alberta will also benefit from the buoyant economy. British Columbia The Greater Vancouver office market remained strong in the fourth quarter and vacancy rates continued to drop. At year-end, the overall vacancy rate for the Vancouver region was 6.3%. With nearly one million square feet of absorption throughout 2007, Vancouver continues to be a popular place to do business. Overall, vacancy rates have declined in the suburbs as well. However, a number of large vacancies in the Surrey and New Westminster submarkets have kept the vacancy rates in these markets abnormally high. The Calgary industrial market remained extremely tight in the fourth quarter. The year-end overall vacancy rate decreased to an all-time low of 0.9%. New construction added an additional 3.7 million square feet of industrial inventory in 2007. Edmonton’s industrial market enjoyed continuous growth in 2007, driven by the demand for logistic and warehouse space resulting from investments in the oil sands infrastructure. The market finished the year strong with year-to-date absorption of 4.6 million square feet, the highest level of industrial absorption on record, and with vacancy remaining flat year-over-year. Industrial lease rates have shown remarkable increases in 2007 with demand outpacing supply for most of the year. Average rental rates range between $6.50—$14.00 per square foot. It’s not anticipated that the vacancy rate will climb significantly in 2008, as space is absorbed from across the 2.9 million square feet of new developments that are currently under construction. Saskatchewan and Northwest Territories The natural resources sector continues to fuel not only the Alberta economy but also that of the surrounding provinces. The Saskatchewan market demonstrated exceptional growth in 2007 and this trend is expected to continue. Strong demand kept vacancy rates low with Regina recording the second lowest vacancy rate in the country after Calgary. Saskatoon was Canada’s hottest housing market and benefited from major projects such as the PotashCorp mine expansion. Saskatoon’s downtown office market remains active as the vacancy rate continues to decline to an estimated 4.8% at the end of 2007. There are limited options available within the downtown core for any tenancies, in particular those with space requirements over 10,000 square feet. Over the last quarter, the lack of space has translated into moderately higher rental rates in quality downtown buildings. The office market in Regina remained strong in 2007 with the reported vacancy rate of 2.1% at year-end. In connection with increased demand from both public and private sector tenants, rates are steadily increasing. Rental rates for all classes are averaging $12.00—$23.00 per square foot. With the lack of available space and the demand for office space expected to remain strong, tenants are forced to contemplate new construction in order to accommodate their requirements. Oil and gas exploration and production, diamond and gold mining, government administration and tourism largely drive the economy in Yellowknife. The office market in Yellowknife continues to be stable. There has been a minor increase in both federal and territorial activity; however, it seems that many groups and agencies are waiting for announcements regarding the Mackenzie Pipeline and Canada’s northern defense initiative. Both are expected to have a major impact on employment and office requirements in this city. The vacancy rate at the end of the fourth quarter was approximately 4.0%. Ontario Toronto’s office market remained upbeat in 2007 despite growing concerns in the manufacturing sector due to the rise of the Canadian dollar and signs of recession in the United States. Job losses in the manufacturing sector, however, were offset by jobs created in the construction and services industry, particularly with respect to the condominium boom. The Greater Toronto Area (“GTA”) office market posted its lowest ever vacancy rate of 7.2%. As a direct consequence, the overall quoted asking net rental rate increased to $15.92 per square foot. The downtown Toronto vacancy rate followed this trend also achieving an historic low vacancy rate of 5.5% in the fourth quarter. The North Toronto market vacancy rate increased slightly to 5.4%, but the overall quoted asking net rental rate in this market increased to $15.16 per square foot in the fourth quarter. PAGE 24 PAGE 25 DUNDEE REIT 2007 Annual Report DUNDEE REIT 2007 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 311 2007 2006 Operating activities (office and industrial average) Occupancy level Tenant maturity profile — average term to maturity (years) In-place rental rates 1 Excludes redevelopment properties. For the period-end, the percentage of occupied and committed space is as follows: 96.7% 3.9 years 13.49 $ 96.4% 4.6 years 10.00 $ (Percentage) Office Industrial Overall Excludes redevelopment properties. Q4 2007 Q3 2007 Q2 2007 Q1 2007 Q4 2006 Q3 2006 Q2 2006 Q1 2006 96.7 96.7 96.7 98.3 94.0 97.0 96.5 95.8 96.2 97.0 97.0 97.0 97.0 95.6 96.4 96.4 95.9 96.2 96.1 95.7 95.9 96.1 95.2 95.6 The overall percentage of occupied and committed space across our rental properties portfolio was 96.7% at quarter-end. Our average office portfolio occupancy rate declined slightly to 96.7%; however, remains well ahead of the national industry average of 93.3%. The average occupancy rate across our industrial portfolio increased to 96.7%. The market availability rates for industrial space in Calgary and Edmonton were 2.2% and 2.5%, respectively (CB Richard Ellis, Canadian Office and Industrial Market Views, 4th Quarter 2007). The Dundee REIT occupancy rates discussed in this report include occupied and committed space at December 31, 2007, and exclude space to which the rent supplement is applied. Total portfolio Comparative properties (Percentage) December 31 Office British Columbia Alberta Saskatchewan & NWT Ontario Sold properties Total office Industrial Alberta Sold properties Total industrial Overall Excludes redevelopment properties. 2007 2006 2007 96.8 97.7 95.8 91.6 — 96.7 96.7 — 96.7 96.7 99.6 99.4 95.5 97.4 96.4 97.0 99.6 94.3 95.6 96.4 99.9 98.1 95.8 91.6 — 96.9 96.7 — 96.7 96.8 2006 99.6 99.4 95.5 97.4 — 98.2 99.6 — 99.6 98.7 The percentage of occupied and committed space across our portfolio remains strong. While rates across a large part of our western Canadian portfolio represent virtually full economic occupancy, we currently have a vacancy in a downtown Toronto property due to a lease expiry. The following tables provide a summary of leasing activity in our continuing portfolio to December 31, 2007. (in square feet) Vacant space available — October 1, 2007 Remeasurements Acquisitions Leases terminated/expiring Total space available for lease New tenants Renewals Total space leased Total space available for lease — December 31, 2007 For the three months ended December 31, 2007 Office 71,056 804 2,909 168,368 243,137 41,192 55,577 96,769 146,368 Industrial 117,856 1,325 — 142,801 261,982 164,605 37,121 201,726 60,256 Total 188,912 2,129 2,909 311,169 505,119 205,797 92,698 298,495 206,624 Net (increase) decrease in vacant space (75,312) 57,600 (17,712) (in square feet) Vacant space available — January 1, 2007 Net impact of sale of Eastern Portfolio Remeasurements Acquisitions Leases terminated/expiring Total space available for lease New tenants Renewals Total space leased Total space available for lease — December 31, 2007 For the year ended December 31, 2007 Office Industrial Total 301,707 (240,726) 60,981 7,340 29,268 454,415 552,004 192,218 213,418 405,636 146,368 367,202 (360,106) 7,096 (45) — 494,357 501,408 232,009 209,143 441,152 60,256 668,909 (600,832) 68,077 7,295 29,268 948,772 1,053,412 424,227 422,561 846,788 206,624 Net increase in vacant space (85,387) (53,160) (138,547) During the fourth quarter, approximately 311,000 square feet of leases expired or were terminated, and we completed approximately 298,000 square feet of renewals and new leasing, resulting in an 18,000 square foot increase in vacant space. Throughout the year, approximately 949,000 square feet of leases expired or were terminated, 29,000 square feet of vacant space was acquired, and we completed 847,000 square feet of renewals and new leasing, resulting in a 139,000 square foot increase in vacant space. PAGE 26 PAGE 27 DUNDEE REIT 2007 Annual Report DUNDEE REIT 2007 Annual Report Lease maturity profile as at December 31, 2007, by asset type and geographic segment: (in square feet) Office Industrial Total Current vacancy 146,368 60,256 206,624 Current monthly tenancies 64,376 60,150 124,526 2008 2009 2010 2011 555,076 249,365 804,441 607,857 291,593 899,450 642,825 237,742 880,567 567,038 316,166 2012 and thereafter 1,867,801 632,389 Total 4,451,341 1,847,661 883,204 2,500,190 6,299,002 Percentage 3.3% 2.0% 12.7% 14.3% 14.0% 14.0% 39.7% 100.0% Excludes redevelopment properties. (in square feet) British Columbia Alberta Saskatchewan & NWT Ontario Total Current vacancy 14,186 122,904 35,600 33,934 Current monthly tenancies 7,287 116,941 — 298 206,624 124,526 2008 39,168 476,301 266,519 22,453 804,441 2009 127,298 548,827 75,386 147,939 2010 28,403 751,254 85,914 14,996 2011 74,652 743,942 2012 and thereafter 158,945 1,833,733 Total 449,939 4,593,902 61,223 3,387 324,215 183,297 848,857 406,304 899,450 880,567 883,204 2,500,190 6,299,002 Our estimate of the average 2008 market rental rate is approximately 59% higher than our 2008 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 specific market and the amount of space rolling into the higher net rental rates. Average remaining lease term and other portfolio information is as follows: December 31 2007 2006 Average remaining lease term (years) Average tenant size (sq. ft.) Average in-place net rent (per sq. ft.)|1 Average remaining lease term (years) Average tenant size (sq. ft.) Average in-place net rent (per sq. ft.)|1 Office Industrial Portfolio average 4.08 3.50 3.91 9,121 7,909 8,728 $ $ $ 16.30 6.71 13.49 4.72 4.36 4.56 8,554 13,024 10,105 $ $ $ 13.67 5.47 10.00 All amounts exclude redevelopment properties. 1 Average in-place rents include straight-line rent adjustments. The sale of the Eastern Portfolio and the change in the composition of our portfolio had a significant impact on our average in-place rents and also impacted the average tenant size and average remaining lease term. We view our lease maturity profile as an opportunity to capture an uplift on below market rents as the leases roll over. Our tenant base includes a wide range of high-quality tenants, including government, large international corporations and Percentage 3.3% 2.0% 12.7% 14.3% 14.0% 14.0% 39.7% 100.0% small entrepreneurial businesses across the country. With 698 tenants, our risk exposure to any single large lease or tenant Excludes redevelopment properties. We have a long and successful track record in managing our lease rollovers. In 2008, approximately 13% of our leases will be up for renewal. With average market rents well above expiring rents, particularly in Alberta where the majority of our properties are located, our lease maturity profile affords us the opportunity to take advantage of the market conditions. As a result, we anticipate generating substantially higher cash flow as space is re-leased. The following table provides expiring rents across our portfolio as well as an estimate of average market rents as at December 31, 2007: Current monthly tenancies Expiring rents Office Industrial Portfolio average $ Market rents1 Office Industrial Market rent average $ $ $ 11.03 5.62 8.41 27.89 6.13 17.38 2008 12.89 5.90 10.72 21.01 8.18 17.04 $ $ 2009 15.44 5.57 12.24 21.85 7.17 17.09 $ $ 2010 14.96 8.60 13.25 26.49 10.33 22.13 $ $ 2011 18.95 7.26 14.77 26.71 9.33 20.49 2012 and thereafter 19.45 7.46 16.42 26.56 7.68 21.78 $ $ 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. Current monthly tenancies Expiring rents British Columbia Alberta Saskatchewan & NWT Ontario Portfolio average Market rents1 British Columbia Alberta Saskatchewan $ $ & NWT Ontario Market rent average $ $ 13.74 8.10 — — 8.41 14.51 17.57 — — 17.38 2008 14.23 8.69 13.64 13.06 10.72 14.43 18.18 15.76 12.50 17.04 $ $ 2009 19.95 8.79 19.57 14.69 12.24 20.71 15.97 22.40 15.43 17.09 $ $ 2010 15.35 12.71 17.98 8.87 13.25 18.80 22.65 20.28 12.50 22.13 $ $ 2011 14.20 14.26 21.87 10.04 14.77 15.77 20.85 22.32 12.50 20.49 $ $ 2012 and thereafter 15.43 15.64 17.70 22.83 16.42 19.00 22.44 18.37 23.68 21.78 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. is low. The average sizes of our office and industrial tenants are approximately 9,100 and 7,900 square feet, respectively, placing us at the lower end of our peer group. Effectively managing this diverse tenant base 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, 2007) • Other 23% • Professional, scientific and technical services 15% • Information and cultural industries 14% • Public administration 12% • Mining and oil and gas extraction 11% • Finance and insurance 10% • Transportation and warehousing 6% • Manufacturing 5% • Wholesale trade 4% PAGE 28 PAGE 29 DUNDEE REIT 2007 Annual Report DUNDEE REIT 2007 Annual Report The stability and quality of our cash flow is further enhanced by government and government agencies contributing 18% to our total 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 TELUS Communications Government of Canada Government of British Columbia Government of Northwest Territories Government of Ontario State Street Trust Company SNC Lavalin International Financial Data Services Government of Saskatchewan Hatch Optima Ltd. Total Owned area in sq. ft. 311,479 281,216 168,365 109,937 123,872 93,589 87,382 67,262 139,529 68,691 1,451,322 % of owned area % of gross rental revenue 4.9% 4.5% 2.7% 1.7% 2.0% 1.5% 1.4% 1.1% 2.2% 1.1% 23.1% 6.9% 5.8% 3.5% 3.0% 2.9% 2.8% 2.1% 1.9% 1.8% 1.5% 32.2% Expiry 2013—2016 2008—2016 2008—2014 2008—2012 2009 2012 2012 2013 2008 2011—2016 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 Operating activities The following table details the cash generated from operating activities: Net income Non-cash items: Amortization of market rent adjustments on acquired leases All other depreciation and amortization Provision for (reversal of) impairment in value of rental properties Internalization of property manager (Gain) loss on disposal of rental properties and land Deferred unit compensation expense Future income taxes Straight-line rent adjustment Non-controlling interest Deferred leasing costs incurred Change in non-cash working capital Cash generated from operating activities $ For the three months ended December 31 For the year ended December 31 2007 $ 29,224 $ 2006 7,952 2007 $ 762,302 $ 2006 11,218 (3,393) 13,287 (6,298) — (4,968) — (15,539) (200) — 12,113 (690) (1,471) 9,952 (1,622) 20,590 — 615 4 354 (111) (767) — 27,015 (2,352) (660) (11,833) 83,053 1,352 1,230 (733,816) 1,177 (823) (2,946) — 99,696 (5,628) (10,101) (4,124) 70,591 — 13,678 (3,009) 1,170 2,314 (3,164) 1,876 90,550 (6,097) 3,409 $ 24,003 $ 83,967 $ 87,862 attracting and retaining tenants, recurring property maintenance, major property improvements, debt principal and interest Cash generated from operations for the year decreased as a result of the loss of contribution from the Eastern Portfolio, payments, mezzanine loans and property acquisitions. We expect to meet all of our ongoing obligations through current cash partially offset by the contribution of acquisitions completed in Western Canada. and cash equivalents, cash flows from operations, conventional mortgage refinancings and, as growth requires, new equity or debt issues. The following table details the change in cash and cash equivalents: For the three months ended December 31 For the year ended December 31 Cash generated from operating activities Cash generated (utilized) in investing activities Cash generated (utilized) from financing activities $ 2007 9,952 (30,045) 49,857 Increase (decrease) in cash and cash equivalents $ 29,764 $ $ 2006 24,003 (93,260) 127,141 2007 2006 $ 83,967 925,746 (1,042,983) $ $ 87,862 (470,595) 437,214 54,481 57,884 $ (33,270) At December 31, 2007, cash and cash equivalents were $37.7 million, an increase of $29.8 million compared to the third quarter, and a decrease of $33.3 million compared to December 31, 2006. The decrease was a result of the cash flows indicated above, including the impact of acquisitions, new financing activity, equity issues and the impact of the Transaction. We have a total of $50.0 million in revolving credit facilities, of which approximately $49.8 million is available to provide further funding for working capital or as a bridge facility to fund acquisitions. The gain on disposal of rental properties and land is primarily due to the sale of our Eastern Portfolio, which resulted in a gain on sale of $721.9 million. The amortization of market rent adjustments on acquired leases represents the impact of leases with below market rents, mainly related to certain properties acquired in Alberta during 2006 and 2007. Below market leases are recorded as intangible liabilities and are amortized to rental property revenue over the terms of the related leases. As of June 12, 2007, amendments were made to the Income Tax Act, modifying the tax treatment of certain publicly traded trusts and partnerships that are SIFTs, such that certain distributions and income, other than taxable dividends, or capital gains from non-portfolio properties (as defined in the Income Tax Act) will not be deductible for tax purposes. Certain real estate investment trusts that satisfy specified conditions are excluded from the SIFT definition and therefore will not be subject to the SIFT Rules (the “REIT Exception”). As the Trust did not meet the technical REIT Exception as at June 12, 2007, a future income tax liability in the amount of $40.0 million was recorded as at June 12, 2007, based on the temporary differences that were expected to reverse on or after January 1, 2011. The future income tax liability was recorded as a charge to the consolidated statement of net income and comprehensive income for the quarter ended June 30, 2007. During the quarter ended September 30, 2007, a future income tax liability in the amount of $25.0 million relating to assets sold during the quarter was reversed and recorded as a component of discontinued operations. During the quarter ended December 31, 2007, as a result of modifying the organizational structure of Dundee REIT, the Trust now meets the REIT Exception as at December 31, 2007, and accordingly the remaining $15.0 million of the future income tax liability was reversed and recorded as a recovery through the consolidated statement of net income and comprehensive income. Dundee REIT distributes or designates all taxable earnings to unitholders and as such, under current legislation, the obligation to pay tax rests with each unitholder and no current tax provision is currently required on the majority of Dundee REIT’s income. Certain of our Canadian and U.S. subsidiaries are taxable and any tax-related costs are reflected in the consolidated balance sheet and consolidated statement of income and comprehensive income. 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 related costs, except for initial leasing costs that are included in rental properties, and deferred leasing costs associated with acquisitions. Deferred leasing costs are amortized on a straight-line basis over the term of the applicable lease to amortization expense. PAGE 30 PAGE 31 DUNDEE REIT 2007 Annual Report DUNDEE REIT 2007 Annual Report In the second quarter of 2006, we fully internalized our property management function through the purchase of the remaining Deposits of $2.6 million represent cash amounts held for the repayment of tenant security deposits as required by various 50% interest of Dundee Management Limited Partnership (“DMLP”). On closing, 92,000 LP B Units were issued, placed in lending agreements and deposits for potential acquisitions. As of December 31, 2007, the balance is down $1.4 million from trust and enrolled in the DRIP to satisfy the maximum number of units that DRC could be entitled to receive on June 30, 2007, December 31, 2006, mainly due to the sale of properties. as a result of completing qualifying property acquisitions. The cost of these units was expensed and added to cumulative capital as qualifying properties were acquired. As of June 30, 2007, DRC received the maximum 100,000 LP B Units that it was entitled to receive. Leasing costs and tenant improvements Leasing costs include leasing fees and related costs, broker commissions and tenant inducements. Tenant improvements include costs incurred to make leasehold improvements. Leasing costs 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 Restricted cash primarily represents tenant rent deposits and cash held as security for certain mortgages. As of December 31, 2007, the balance is $4.2 million, down $1.4 million from December 31, 2006. 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. general market conditions. Short-term leases generally have lower costs than long-term leases, and leasing costs associated Our future minimum commitments under operating and capital leases are as follows: with office space are generally higher than costs associated with industrial space. For the ongoing properties, leasing costs for the year ended December 31, 2007, decreased 13% to $5.1 million, while leasing activity increased 35% and resulted in 847,000 square feet of leasing commitments. While both the office and industrial portfolios experienced increased leasing activity, a reduction in leasing costs in the office portfolio resulting from very strong markets was slightly offset by increased industrial leasing costs. The higher industrial leasing costs mainly relate to a new lease at a mixed-use building in Edmonton. These expenditures related to the office component of the building and resulted in a significant increase in NOI compared to the previous tenant. Performance indicators Operating activities (continuing portfolio) Portfolio size (sq. ft.) Occupied and committed Square footage leased and occupied in 2007 Leasing costs Tenant improvements 1 Excludes redevelopment properties. Office|1 Industrial Total 4,451,341 96.7% 408,549 1,442 930 $ $ 1,847,661 96.7% 507,131 645 2,037 $ $ 6,299,002 96.7% 915,680 2,087 2,967 $ $ 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 December 31, 2007, 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 Other assets and liabilities Office 616,000 8.75 5,386 Industrial 335,000 2.00 670 $ $ $ $ Other assets consist of deferred costs, prepaid expenses, intangible assets and liabilities, mezzanine loans, deposits and restricted cash. Other liabilities consist of intangible liabilities related to leases acquired with below market rates. Year-to-date deferred costs declined $42.0 million. This change includes an approximate $47.7 million decrease related to dispositions, a $15.9 million increase in deferred charges related to acquisitions and a $12.7 million increase in additional deferred expenditures, less $16.5 million in amortization and $7.0 million of deferred financing costs that was transferred to the related debt upon adopting new accounting policies for financial instruments in the first quarter of 2007. 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. During the year, net intangible liabilities increased by $3.5 million, mainly comprising a $13.5 million reduction related to dispositions and $12.8 million of amortization, offset by $29.8 million related to acquisitions. Net intangible assets decreased $34.0 million during the year, comprising approximately $71.3 million related to dispositions and $27.2 million in amortization expense, offset by $64.5 million in acquisitions. Effective November 1, 2007, the Trust sold its 60% interest in two joint venture projects. As part of the transaction, all mezzanine loans were repaid and the related agreements were terminated. PAGE 32 Year ending December 31 2008 2009 2010 2011 2012 2013 and thereafter Total Funds from operations Operating lease payments Capital lease payments $ 1,046 843 738 722 682 615 $ 4,646 $ $ 142 142 142 106 — — 532 Management believes FFO is an important measure of our operating performance. 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 as we have, our computation of FFO may not be comparable to other REITs or income trusts. For the three months ended December 31 For the year ended December 31 2007 $ 29,224 $ 2007 $ 762,302 $ Net income 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 (Gain) loss on disposal of rental property and land Provision for (reversal of) impairment in value of rental property Future income tax Amortization of costs not specific to real estate operations incurred subsequent to June 30, 2003 Income tax expense incurred as a result of the Transaction Non-controlling interest FFO FFO per unit — basic FFO per unit — diluted 6,193 7,286 6 — (4,968) (6,298) (15,539) (77) 300 — 16,127 0.76 0.76 $ $ $ 2006 7,952 11,259 9,384 81 615 4 — (111) (17) — — $ $ $ 29,167 0.74 0.71 $ $ $ 42,984 40,942 234 1,230 (733,816) 1,352 (823) (166) 300 — 114,539 3.00 2.95 $ $ $ 2006 11,218 39,908 30,643 694 13,678 (3,009) — 2,314 (53) — 1,876 97,269 2.82 2.69 PAGE 33 DUNDEE REIT 2007 Annual Report DUNDEE REIT 2007 Annual Report The 6.0% increase in FFO per unit for the twelve-month period is primarily due to revenue generated by acquisitions as well Distributable income is not defined by GAAP and therefore may not be comparable to similar measures presented by other as rising rental rates. Below market rents, which result in a non-cash amortization to our operating results, positively impacted real estate investment trusts. Distributable income is defined in our Declaration of Trust to facilitate the determination of FFO by $3.4 million and $11.8 million for the three- and twelve-month periods, respectively. Diluted FFO per unit amounts assume the conversion of the 6.5% and 5.7% Debentures. The weighted average number of distributions to our unitholders. In compliance with the Canadian Securities Administrators Staff Notice 52-306 (Revised) “Non-GAAP Financial Measures”, our table reconciles distributable income to cash generated from operating activities. Units outstanding for basic and diluted FFO calculations for the quarter are 21,107,542 and 21,566,798, respectively. Diluted Distributable income exceeds distributions paid and payable by $0.9 million and $19.3 million for the quarter and year-to-date, FFO includes interest and amortization adjustments of $0.2 million. Year-to-date, the weighted average number of Units respectively. We retain a portion of our distributable income in order to fund capital requirements related to leasing, rental outstanding for basic and diluted FFO calculations are 38,218,427 and 39,790,023, respectively. Diluted FFO includes interest property improvements and working capital. and amortization adjustments of $2.8 million. The basic and diluted weighted average number of units outstanding include 263,905 and 147,565 vested deferred trust units for the three- and twelve-month periods, respectively. Distributions and distributable income Distributions The distributions presented in the table below comprise $66.2 million relating to REIT A Units, $0.5 million relating to REIT B Units and $13.3 million relating to LP B Units. Prior to June 28, 2007, cash distributions were only paid to holders of the REIT A Units Our Declaration of Trust requires us to make monthly cash distributions to our unitholders equal to at least 80% of as there were no REIT B Units outstanding and all of the LP B Units were enrolled in the DRIP. As of June 28, 2007, the DRIP distributable income (“DI”) on an annual basis. Amounts retained in excess of the distributions are used to fund leasing costs was temporarily suspended in connection with the sale of the Eastern Portfolio. As a result, all distributions paid on and and capital expenditure requirements. Given that working capital tends to fluctuate with time and should not affect our after July 15, 2007, were paid in cash. The DRIP was reinstated in January 2008. distribution policy, we disregard it when determining distributable income. We also exclude the impact of deferred leasing costs, which fluctuate with lease maturities, renewal terms and the type of asset being leased. We evaluate the impact of leasing activity based on averages for our portfolio over a two- to three-year time frame. Additionally, we exclude the impact of the amortization of deferred financing and non-recoverable costs that were incurred prior to the formation of the Trust, but deduct amortization of non-real estate assets such as software, office equipment and building improvement costs incurred after the formation of the Trust. For the year ended December 31, 2007, distributable income per unit was $2.60 and declared distributions were $2.20, representing an 85% payout ratio on a per unit basis. In the prior year comparative period, distributable income per unit was $2.58 and declared distributions were $2.20, also representing an 85% payout ratio on a per unit basis. 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 Income tax expense incurred as a result of the Transaction Distributable income Distributable income per unit — basic Distributable income per unit — diluted Distributions For the three months ended December 31 For the year ended December 31 2007 2006 2007 2006 $ 9,952 $ 24,003 $ 83,967 $ 87,862 690 2,352 5,628 6,097 20 (4) 25 (77) (57) 1,471 300 12,320 0.58 0.58 0.55 $ $ $ $ 65 16 20 (17) (445) 660 — 26,654 0.67 0.65 0.55 $ $ $ $ 269 31 113 (166) (938) 10,101 300 99,305 2.60 2.57 2.20 $ $ $ $ 335 73 19 (53) (1,922) (3,409) — 89,002 2.58 2.48 2.20 $ $ $ $ 2007 distributions Paid in cash or reinvested in units Payable at December 31, 2007 Total distributions 2007 reinvestment Reinvested to December 31, 2007 Reinvested on January 15, 2008 Total distributions reinvested Distributions paid in cash Reinvestment to distribution ratio Cash distribution payout ratio Declared distributions 4% additional distributions 474 — 474 474 — 474 $ $ $ $ $ $ $ $ $ $ $ $ $ 75,716 3,818 79,534 11,844 — 11,844 67,690 14.9% 85.1% Total 76,190 3,818 80,008 12,318 — 12,318 Distributions declared in the year ended December 31, 2007, totalled $79.5 million, an increase of $3.0 million over the comparative period. Of this amount, $11.8 million or 14.9% was reinvested in additional units. As a result of the temporary suspension of the DRIP, our cash payout ratio for our distributions rose to 85.1% (2006 — 69.4%). The increase in declared distributions is the result of an incremental increase in Units generated through the DRIP, REIT A Units issued as part of public offerings completed in 2006 and 2007, as well as REIT A Units issued on the conversion of debentures, offset by the impact of the Redemption that occurred prior to the record date of the August distribution. Effective July 6, 2007, the Canadian Securities Administrators announced amendments to National Policy 41-201 Income Trusts and Other Indirect Offerings, providing additional guidance with respect to disclosure around distributable cash. The following table outlines the differences between cash flow from operating activities and cash distributions as well as the differences between net income and cash distributions in accordance with the guidelines: Net income Cash flow from operating activities Distributions paid and payable Excess/(shortfall) of cash flow from operating activities over cash distributions Excess/(shortfall) of net income over cash distributions For the three months ended December 31 For the year ended December 31 2007 29,224 9,952 11,450 (1,498) 17,774 $ $ $ $ $ 2006 7,952 24,003 22,373 2007 $ 762,302 83,967 $ 80,008 $ 1,630 $ 3,959 (14,421) $ 682,294 $ $ $ $ $ 2006 11,218 87,862 77,449 10,413 (66,231) $ $ $ $ $ PAGE 34 PAGE 35 DUNDEE REIT 2007 Annual Report DUNDEE REIT 2007 Annual Report For the twelve-month period, cash flow from operating activities exceeded distributions paid and payable by $4.0 million, Key performance indicators in the management of our investment activities are: reflecting our ability to fund distributions from cash from operating activities. During the quarter, distributions paid and payable exceeded cash flow from operating activities by $1.5 million mainly due to the decrease in accounts payable since September 30, 2007. This shortfall was funded by our cash and cash equivalents. We do not expect cash distributions to exceed cash flow from operating activities in the future, other than for changes in non-cash working capital balances. In 2007, net income exceeded distributions paid and payable by $17.8 million and $682.3 million for the three and twelve months, respectively. This excess was mainly a result of non-cash depreciation, amortization expense, gains on sale and future income taxes, which are not considered in determining our cash distribution policy. 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 For the three months ended December 31 For the year ended December 31 2007 2006 2007 2006 $ 12,320 $ 26,654 $ 99,305 $ 89,002 (1,149) (3,350) (10,732) (12,200) (117) 11,054 0.52 $ $ (350) 22,954 0.58 $ $ (1,089) 87,484 2.29 $ $ (1,400) 75,402 2.19 $ $ Management believes that 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 34, which reconciles distributable income to cash flow from operating activities. 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. The decline in AFFO was largely as a result of the sale of the Eastern Portfolio. The continuing portfolio comprises growth- oriented assets where the narrowing between market and in-place rents will translate into future AFFO growth. Investing activities The following table details our cash 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 Receipt of mezzanine loan Investment in promissory note Vendor take-back mortgage repayment Net proceeds from disposal of rental properties and land Change in restricted cash, net Cash generated from (utilized) in investing activities For the three months ended December 31 For the year ended December 31 $ 2007 (1,647) (656) (138) (43,004) (1,700) 3,918 (11,747) — 24,740 189 $ 2006 (2,659) (3,662) (1,047) (98,140) (3,600) 13,142 — 3,450 (78) (666) 2007 2006 $ (11,295) (6,424) (3,111) (560,324) (2,600) 3,450 (11,747) — 1,516,385 1,412 $ (9,173) (7,667) (2,103) (484,667) (3,600) 9,487 — 3,450 24,922 (1,244) $ (30,045) $ (93,260) $ 925,746 $ (470,595) Performance indicators 2007 2006 2007 2006 For the three months ended December 31 For the year ended December 31 Investing activities Acquisition of rental properties and land Building improvements Acquisitions and dispositions $ $ 52,461 1,615 $ $ 103,259 3,444 $ 665,478 10,575 $ $ $ 598,489 9,028 During the fourth quarter, we completed two acquisitions for $52.5 million, adding approximately 149,000 square feet to our portfolio. Throughout 2007, we completed acquisitions totalling $665.5 million. During the third quarter, we sold our Eastern Portfolio to GE for a total purchase price of approximately $2.3 billion, including the assumption of liabilities by GE relating to the Eastern Portfolio. Our operating portfolio now comprises office and industrial properties located primarily in Western Canada. Further detail on the Transaction is provided on page 42. During the third quarter, we sold a 174,000 square foot industrial property located in Montréal, Québec, for proceeds of $8.0 million. During the fourth quarter we sold a 109,000 square foot industrial property in Calgary, Alberta, for $8.2 million and disposed of our interest in two joint-venture projects, Barker Business Park (Phase II) in Richmond Hill, Ontario, and Tullamore Business Park in Caledon, Ontario, for proceeds of approximately $16.8 million. For the year ended December 31, 2007 30 and 55 St. Clair Avenue West, Toronto1 625 Agnes Street, New Westminster Aspen Portfolio, Calgary HCI Portfolio, Vaughan, Burlington and Mississauga1 501 Applewood Crescent, Vaughan1 154 University Avenue, Toronto1 4400 Dominion Street, Burnaby Airport Corporate Centre, Calgary Development property, Yellowknife 435-4th Avenue, Calgary 960 Quayside Drive, New Westminster Total 1 Disposed of as a part of the Eastern Portfolio. Interest Property acquired (%) type Occupancy on Acquired acquisition (%) GLA (sq. ft.) Purchase price Fair value of mortgage assumed Date acquired office 100 426,000 96 $ 110,798 $ — January 9, 2007 office office 100 100 83,000 543,000 industrial 100 2,100,000 industrial office office office office office 100 100 100 100 100 100 76,000 67,000 91,000 148,000 — 89,000 office 100 60,000 88 99 98 100 100 93 100 — 100 95 14,587 172,130 — 29,225 January 24, 2007 March 13, 2007 237,721 56,528 May 1, 2007 6,787 13,784 18,637 38,207 366 35,735 16,726 — 5,487 — — — 9,457 May 1, 2007 May 10, 2007 June 27, 2007 July 6, 2007 August 30, 2007 October 9, 2007 — November 29, 2007 3,683,000 98 $ 665,478 $ 100,697 PAGE 36 PAGE 37 DUNDEE REIT 2007 Annual Report DUNDEE REIT 2007 Annual Report Acquisitions and dispositions subsequent to year-end On January 31, 2008, we completed the purchase of the AIR MILES Tower, a 322,000 square foot office building located at 438 University Avenue in downtown Toronto, for a purchase price of approximately $92.4 million. Building improvements Building improvements: Recurring recoverable Recurring non-recoverable Non-recurring Total For the three months ended December 31 For the year ended December 31 2007 2006 2007 2006 $ $ 404 2 1,209 1,615 $ $ 2,306 440 698 3,444 $ $ 4,236 1,562 4,777 10,575 $ $ 5,066 637 3,325 9,028 The following table details our cash generated from 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 Demand revolving credit facility Distributions paid on REIT Units Redemption of units Deferred trust and income deferred units cancelled Units issued, net of costs For the three months ended December 31 For the year ended December 31 $ 2007 155,093 (2,784) (47,205) 21 (6,921) 6 (36,901) (11,442) — — (10) $ 2006 48,323 (6,917) (32,429) (66) — 44 (10,362) (15,138) — — 143,686 2007 2006 $ 391,266 (24,896) (68,983) (65) (6,921) 84 — (70,534) (1,420,980) (5,492) 163,538 $ 294,985 (25,380) (79,486) (364) (14,957) 6,139 — (50,074) — — 306,351 For the three-month period, capital expenditures or expenditures accrued for rental property building improvements and Cash generated from (utilized in) financing activities $ 49,857 $ 127,141 $(1,042,983) $ 437,214 equipment were $1.6 million (December 31, 2006 — $3.4 million). The $0.4 million recurring recoverable costs incurred in the quarter included $0.1 million for elevator repair, $0.1 million for boiler work, and $0.2 million for general building maintenance required throughout the portfolio. Non-recurring expenditures of $1.2 million in the quarter included $0.7 million to re-clad an office property in the continuing portfolio. For the year, expenditures on building improvements totalled $10.6 million (December 31, 2006 — $9.0 million). Recurring recoverable costs totalled $4.2 million, of which $2.2 million relates to the continuing portfolio, comprising $0.7 million for air conditioning work, $0.4 million for various roof replacements, and $1.1 million for general building maintenance. Year-to-date, $1.6 million in recurring non-recoverable costs were incurred, of which only $0.1 million relates to the continuing portfolio. Non-recurring expenditures of $4.8 million for the year include approximately $1.6 million that relates to the continuing portfolio, comprising approximately $1.4 million to re-clad an office property and $0.2 million for general maintenance and construction costs. 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. Anticipated non-recoverable capital expenditures associated with both the current quarter and year-to-date acquisitions are expected to be approximately $1.7 million and will be incurred over the next two to three years. These expenditures were factored into the purchase price paid for our acquisitions. Financing activities We finance the ownership of our assets using equity as well as conventional mortgage financing, term debt, floating rate credit facilities and convertible debentures. Our debt strategy includes managing 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. As part of the Transaction, the cash proceeds received on the sale of our Eastern Portfolio were used to redeem 29,915,284 outstanding Units for $47.50 per unit. In addition, GE purchased 3,473,687 outstanding units at a purchase price of $47.50 per unit. Debt The key performance indicators in the management of our debt are: December 31 Financing activities Average interest rate Level of debt (debt-to-enterprise value) Interest coverage ratio Proportion of total debt due within one year Debt — average term to maturity (years) Variable rate debt as percentage of total debt 2007 2006 5.76% 50.6% 2.51 times 4.8% 6.1 2.4% 5.95% 41.8% 2.46 times 4.7% 5.8 2.2% Our amended Declaration of Trust requires that we maintain an interest coverage ratio of no less than 1.4 times. This ratio is calculated by dividing NOI from continuing operations plus interest and fee income, less general and administrative expenses by interest expense from continuing operations. The interest coverage ratio replaces the limit on our overall debt-to-gross book value in our Declaration of Trust as a key metric in evaluating the management of our debt. The interest coverage ratio is 2.51 times as at December 31, 2007, and reflects our ability to cover interest expense requirements. The slight decline in the interest coverage ratio from the 2.59 times achieved in the third quarter reflects the impact of the sale of the Eastern Portfolio as well as having undeployed cash during the quarter. Our average interest rate as at December 31, 2007, was 5.76%, an improvement over both the prior quarter and the prior year (Q3 — 5.87%, 2006 — 5.95%). The improvement is mainly due to mortgage financing activity, the proceeds of which were partially used to repay credit facilities at higher interest rates. Variable rate debt as a percentage of total debt decreased during the quarter as a result of repaying revolving credit facilities, but is slightly higher than in 2006, mainly as a result of the sale of the Eastern Portfolio. December 31 Mortgages Term debt 6.5% Debentures 5.7% Debentures Total Fixed 651,844 451 3,857 7,983 664,135 $ $ $ $ Variable 16,344 — — — 16,344 2007 Total $ 668,188 451 3,857 7,983 $ 680,479 Fixed $ 1,036,909 2,238 24,438 65,281 $ 1,128,866 $ $ Variable 19,402 5,526 — — 24,928 2006 Total $ 1,056,311 7,764 24,438 65,281 $ 1,153,794 Percentage 97.6% 2.4% 100% 97.8% 2.2% 100% PAGE 38 PAGE 39 DUNDEE REIT 2007 Annual Report DUNDEE REIT 2007 Annual Report Mortgages payable include a $4.8 million fair value adjustment (December 31, 2006 — $9.6 million) reflecting the fair value Effective January 1, 2007, we adopted new accounting standards for recognizing and measuring financial assets and liabilities of mortgages assumed in connection with acquisitions. During the year, $78.1 million of debentures were converted into on our balance sheet. This standard is applied prospectively and does not permit the restatement of prior periods. As a 2,739,923 REIT A Units. Amounts recorded as at December 31, 2007, for the 6.5% and 5.7% Debentures are net of the result of adopting the standard, deferred financing costs of $3.6 million and $3.7 million have been deducted from mortgages $0.1 million premiums allocated to their conversion features. The fair value adjustment and premium are amortized to interest and convertible debentures, respectively. expense over the term to maturity of the related debt using the effective interest rate method. Further details on the conversions are provided on page 41. Debt financing activity During the year we secured approximately $393.1 million in new mortgage financing of which $218.7 million related to the continuing portfolio. The new financings relating to the continuing portfolio were completed with an average term to maturity of 6.9 years and an average interest rate of 5.6%. As a result, our overall average interest rate decreased to 5.76% and our average term to maturity was extended to 6.1 years. A demand revolving credit facility is available up to a formula-based maximum of $50.0 million, bearing interest generally at the bank prime rate (6.0% as at December 31, 2007) plus 0.375% or bankers’ acceptance rates. The expiration of the facility was extended to April 30, 2008, and is secured by a first-ranking collateral mortgage on four of the Trust’s properties and a second-ranking collateral mortgage on one property. As at December 31, 2007, $nil was drawn. Changes in debt levels are as follows: Debt as at September 30, 2007 New debt assumed on rental property acquisitions New debt placed Scheduled repayments Lump sum repayments Conversion to unit equity Amortization and other adjustments Mortgages Term debt For the three months ended December 31, 2007 Revolving|1 credit facilities Convertible debentures Total $ 553,859 $ 7,756 $ 36,901 $ 13,068 $ 611,584 9,457 155,599 (2,784) (47,205) — (738) — 293 — (7,619) — 21 — — — (36,901) — — — — — — (1,284) 56 9,457 155,892 (2,784) (91,725) (1,284) (661) In connection with the sale of the Eastern Portfolio, $774.7 million in mortgages were repaid or assumed by GE. During the fourth quarter, we assumed a $9.5 million mortgage related to a property acquired in Calgary. December 31 2008 2009 2010 2011 2012 2013 and thereafter Total Fair value adjustments Deferred financing costs Total Scheduled principal repayments on Debt maturities non-matured debt $ $ 19,304 51,766 5,867 70,348 99,997 334,601 $ 581,883 $ 13,447 13,661 14,359 14,231 12,085 28,929 96,712 $ Amount 32,751 65,427 20,226 84,579 112,082 363,530 678,595 4,716 (2,832) $ 680,479 Weighted average interest rate on balance due at maturity % 7.43 6.22 5.24 6.03 5.57 5.64 5.78 % 4.8 9.6 3.0 12.5 16.5 53.6 100.0 Convertible debentures During the year we issued 2,739,923 REIT A Units upon the conversion of $78.1 million of the principal amount of 6.5% and 5.7% Debentures. With respect to the 6.5% Debentures, we issued 818,880 REIT A Units upon the conversion of $20.5 million of the principal amount. Subsequent to year-end, we issued an additional 3,480 REIT A Units upon the conversion of $0.1 million of the principal amount. The total principal amount outstanding at January 31, 2008, was $4.0 million, and is convertible into Debt as at December 31, 2007 $ 668,188 $ 451 $ — $ 11,840 $ 680,479 160,960 REIT A Units. Mortgages Term debt For the year ended December 31, 2007 Revolving|1 credit facilities Convertible debentures Total $ 1,056,311 $ 7,764 $ Debt as at December 31, 2006 Adjustment on adoption of new financial instrument accounting standard New debt assumed on rental property acquisitions New debt placed Scheduled repayments Lump sum repayments Assumed by purchaser (3,596) 97,457 393,099 (24,896) (68,983) on property dispositions Conversion to unit equity Amortization and other adjustments (774,735) — (6,469) Debt as at December 31, 2007 $ 668,188 $ 451 $ 1 Our credit facilities have not exceeded the maximum amounts available at any time during the year. — — 371 (65) (7,619) — — — — — — 237,562 — (237,562) — — — — $ 89,719 $ 1,153,794 (3,746) (7,342) — — — — — (78,105) 3,972 97,457 631,032 (24,961) (314,164) (774,735) (78,105) (2,497) $ 11,840 $ 680,479 With respect to the 5.7% Debentures, we issued 1,921,043 REIT Units upon the conversion of $57.6 million of the principal amount. Subsequent to year-end, we issued an additional 3,698 REIT A Units upon the conversion of $0.1 million of the principal amount. The total principal amount outstanding at January 31, 2008, was $8.2 million, and is convertible into approximately 272,900 REIT A Units. Effective January 14, 2008, the Trust completed a public offering of $125.0 million principal amount of convertible unsecured subordinated debentures with a coupon rate of 6% per annum payable semi-annually on June 30 and December 31, commencing on June 30, 2008, and due on December 31, 2014. A portion of the principal relating to the conversion feature will be classified as a component of unitholders’ equity. PAGE 40 PAGE 41 DUNDEE REIT 2007 Annual Report DUNDEE REIT 2007 Annual Report Equity The following table summarizes the changes in our outstanding equity: REIT Units, Series A REIT Units, Series B LP Class B Units, Series 1 Total Units issued and outstanding on December 31, 2006 Units issued pursuant to public offerings Units issued pursuant to internalization of property manager Units issued pursuant to DRIP Unit Purchase Plan Units issued pursuant to Deferred Unit Incentive Plan Unit redemption Conversion of 6.5% Debentures Conversion of 5.7% Debentures Exchange of units Total units outstanding on December 31, 2007 Percentage of all units Units issued pursuant Deferred Unit Incentive Plan Conversion of 6.5% Debentures Conversion of 5.7% Debentures Total units outstanding on January 31, 2008 Percentage of all units 34,854,553 4,195,000 — 335,159 1,170 30,370 (25,813,362) 818,880 1,921,043 729,341 17,072,154 81.8% 9,758 3,480 3,698 17,089,090 81.8% — — 8,565,095 — 43,419,648 4,195,000 — — — — (4,102,022) — — 4,578,338 44,674 13,259 — — — — — (5,307,679) 44,674 348,418 1,170 30,370 (29,915,384) 818,880 1,921,043 — 476,316 3,315,349 20,863,819 2.3% — — — 476,316 2.3% 15.9% — — — 100% 9,758 3,480 3,698 3,315,349 20,880,755 15.9% 100% Normal course issuer bid On August 30, 2007, we filed with the Toronto Stock Exchange (“TSX”) a Notice of Intention to make a normal course issuer bid. Under the bid, Dundee REIT will have the ability to purchase for cancellation up to a maximum of 1,359,844 of its REIT A Units (representing 10% of the REIT’s public float of 13,598,446 REIT A Units on August 30, 2007) through the facilities of the TSX. The bid commenced on September 5, 2007, and will remain in effect until the earlier of September 4, 2008, or the date on which the REIT has purchased the maximum number of units permitted under the bid. The Trust’s average daily trading volume for the then most recently completed six months was 360,465 REIT A Units. As of December 31, 2007, the number of issued and outstanding REIT A Units is 17,072,154. Based on the December 31, 2007, closing price of the REIT A Units, the Trust may purchase up to $45.9 million worth of REIT A Units. To date the Trust has not made any acquisition pursuant to this bid. SALE OF THE EASTERN PORTFOLIO TO GE REAL ESTATE On August 24, 2007, we completed the sale of the Eastern Portfolio to GE for a total purchase price of $2.3 billion, including the assumption of liabilities by GE relating to this portfolio (the “Transaction”). Dundee REIT continues to own a portfolio of office and industrial properties located primarily in Western Canada, with an estimated market value of approximately $1.5 billion, and a subsidiary of Dundee REIT continues to perform the property management function. On closing, Dundee REIT received cash of approximately $1.5 billion. The cash consideration received was approximately $100 million less than the anticipated $1.6 billion as a result of certain properties that we were not able to transfer to GE on closing due to the purchase rights of our co-owners or certain tenants (“Holdback Properties”). The cash proceeds received on closing were used to redeem approximately 29.9 million outstanding units for $47.50 per unit (the “Redemption”). In addition, GE purchased approximately 3.5 million outstanding units at a purchase price of $47.50 per unit (the “Transfer”), which gave GE an approximate 16% equity interest in the Trust. Dundee REIT incurred transaction costs of approximately $18.5 million in relation to the Transaction. These costs include $4.3 million related to accelerated vesting of deferred trust units and income deferred trust units, $2.1 million relating to the purchase and cancellation of deferred trust units and income trust units from trustees, senior officers and transferring employees who had elected such purchases, and $3.9 million related to the special award of deferred trust units in connection with the Transaction. On closing, Dundee REIT entered into an asset management agreement with DRC (the “Asset Management Agreement”) pursuant to which DRC provides asset management services to Dundee REIT with respect to the Western Portfolio. The Asset Management Agreement is for an initial term of five years and is renewable for further five-year terms in accordance with the Termination and Term provisions of the agreement. Also on closing, DRC and GE entered into an asset management agreement pursuant to which DRC provides asset management services to GE with respect to the Eastern Portfolio. On closing, GE also entered into an administrative services agreement with Dundee REIT, pursuant to which DMLP will, for up to a two-year term, provide certain general office support services, including information systems support, human resources and payroll services, regulatory compliance services, accounting services and such other services as GE may reasonably request from time to time. The Transaction was approved by more than 99% of the votes cast by unitholders, including over 99% of the votes cast by minority unitholders, at a special unitholder meeting held on August 15, 2007. Unitholders also approved various amendments to the governing documents of Dundee REIT and its subsidiaries in respect of the governance and operation of the Trust, including the modification of Dundee Corporation’s existing board appointment rights and changes to the investment guidelines and operating policies of Dundee REIT’s operating subsidiary, DPLP. Subsequent to August 24, 2007, we sold one property to its tenant for proceeds of $8.0 million. We have retained our interest in the remaining Holdback Properties located in Toronto and Atlanta. OUR RESULTS OF OPERATIONS For the three months ended December 31 For the year ended December 31 2007 2006 2007 2006 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 (loss) before the undernoted item Internalization of property manager Gain on disposal of rental property and land Reversal of (provision for) impairment of rental property previously recorded as held for sale Income (loss) before income taxes Income taxes Current income Future income taxes Income (loss) before non-controlling interest and discontinued operations Income attributable to non-controlling interest Income (loss) before discontinued operations Discontinued operations Net income $ 42,921 1,023 43,944 16,035 10,154 6,180 7,282 1,534 41,185 2,759 — — 6,298 9,057 8 (15,539) (15,531) 24,588 — 24,588 4,636 29,224 $ $ 32,242 1,252 33,494 12,364 9,295 5,087 3,650 1,861 32,257 1,237 (615) 9 — 631 22 (111) (89) 720 — 720 7,232 7,952 $ 155,161 2,941 158,102 55,603 37,822 23,361 23,346 7,600 147,732 10,370 (1,230) 2,328 (1,352) 10,116 30 (823) (793) 10,909 — 10,909 751,393 $ 102,389 3,631 106,020 38,978 34,032 16,567 12,397 6,812 108,786 (2,766) (13,678) (220) — (16,664) 62 2,314 2,376 (19,040) (1,003) (20,043) 31,261 $ 762,302 $ 11,218 PAGE 42 PAGE 43 DUNDEE REIT 2007 Annual Report DUNDEE REIT 2007 Annual Report Rental properties revenue Revenues include net rental or basic income from rental properties as well as the recovery of operating costs, property Discontinued operations Discontinued operations include assets that have been categorized as held for sale or sold and meet specific criteria as discontinued taxes, parking revenues and other miscellaneous revenues from tenants. The $52.8 million or 52% increase in rental property assets in accordance with GAAP. These operations are disclosed separately on the income statement. Discontinued operations revenue is primarily a result of additional revenues generated by acquisitions. primarily refers to the Eastern Portfolio and includes the net gain recorded on the sale. Interest and fee income Interest and fee income represents amounts for items such as fees earned from third-party property management including Related-party transactions From time to time Dundee REIT and its subsidiaries enter into transactions with related parties that are conducted under management, construction and leasing fees, and interest on bank accounts and related fees. These revenues and expenses normal commercial terms. Effective August 24, 2007, Dundee REIT entered into the Asset Management Agreement with DRC are not necessarily of a recurring nature and the amounts will vary from quarter to quarter. Reduced interest on smaller pursuant to which DRC provides certain asset management services to Dundee REIT and its subsidiaries as disclosed in bank balances and mezzanine loans resulted in a $0.7 million decline in interest. Rental properties operating expenses Operating expenses mainly comprise occupancy costs and property taxes as well as certain expenses that are not recoverable Note 20 to the financial statements. Prior to May 1, 2006, Dundee REIT, DPLP (an indirect subsidiary of Dundee REIT), DMLP (an indirect subsidiary of Dundee REIT), 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 from tenants, the majority of which are related to leasing. Operating expenses fluctuate with occupancy levels, weather, a result, DRC is no longer party to the Management Agreement, other than to its rent supplement obligation, and the Services utility costs, taxes, repairs and maintenance. Expenses for the twelve months increased $16.6 million or 43%, mainly reflecting Agreement. DMLP and DRC have extended the term of the DRC Services Agreement until June 30, 2013. the additional costs associated with acquired properties; however, this is offset by 52% growth in rental properties revenue. Interest expense Interest expense for the twelve-month period increased $3.8 million reflecting debt assumed on acquisitions and financing activity completed during the year. The interest coverage ratio, which reflects our ability to cover our interest expense requirements, is 2.51 times as at December 31, 2007. Depreciation of rental properties Depreciation increased by $6.8 million or 41% compared with the same year in 2006 mainly as a result of acquisitions. Amortization of deferred leasing costs, tenant improvements and intangibles Amortization for the year was $23.3 million, an increase of $11 million or 88% over the comparative year. The increase is largely due to the allocation of a portion of the purchase price to intangibles on new acquisitions since 2006. General and administrative expenses General and administrative expenses primarily comprise the expenses related to corporate management, trustees’ fees and expenses, and investor relations. Expenses for the year were $7.6 million, an increase of $0.8 million or 12% over the comparative year resulting from increased management expenses including executive compensation, listing fees, and audit and consulting expenses. Income tax expense Dundee REIT distributes or designates all taxable earnings to unitholders and as such, under current legislation, the obligation to pay tax rests with each unitholder and no tax provision is currently required on the majority of Dundee REIT’s income. Certain of our Canadian and U.S. subsidiaries are taxable and any tax-related costs are reflected in the balance sheet and income statement. As the Trust did not meet the technical REIT Exception as at June 12, 2007, a future income tax liability in the amount of $40.0 million was recorded as at June 12, 2007, based on the temporary differences that were expected to reverse on or after January 1, 2011. The future income tax liability was recorded as a charge to the consolidated statement of net income and comprehensive income for the quarter ended June 30, 2007. During the quarter ended September 30, 2007, a future income tax liability in the amount of $25.0 million relating to assets sold during the quarter was reversed and recorded as a component of discontinued operations. As a result of modifying our organizational structure in December 2007, the Trust has met the REIT Exception as at December 31, 2007, and accordingly the remaining $15.0 million of the future income tax liability was reversed and recorded as a recovery through the consolidated statement of net income and comprehensive income. During the year, we received $0.4 million in fees related to the rent supplement and $1.9 million related to the DRC Services Agreement and paid $2.1 million related to the Asset Management Agreement. Net operating income Net operating income is an important measure used by management to evaluate the operating performance of the properties; however, it is not defined by GAAP, does not have a standard meaning and may not be comparable with other income trusts. Provided below is our reconciliation of NOI to net income: For the three months ended December 31 For the year ended December 31 Net income Add (deduct): Interest expense Depreciation of rental properties Amortization of deferred leasing costs, tenant improvements and intangibles General and administrative expenses Gain on disposal of rental property and land Provision for (reversal of) impairment in value of rental property Internalization of property manager Interest and fee income Income taxes Non-controlling interest Depreciation, amortization, interest, provision for impairment, future income taxes, gain or loss on disposition, and non-controlling interest included in discontinued operations NOI including redevelopment and discontinued operations 2007 $ 29,224 $ 10,154 6,180 7,282 1,534 — (6,298) — (1,023) (15,531) — 2006 7,952 10,262 5,849 3,852 1,861 220 — 615 (1,252) 1,967 393 2007 $ 762,302 $ 37,822 23,361 23,346 7,600 (2,328) 1,352 1,230 (2,941) (793) — 2006 11,218 34,032 16,567 12,397 6,812 220 — 13,678 (3,631) 2,376 1,003 (4,682) 15,317 (669,055) 71,234 $ 26,840 $ 47,036 $ 181,896 $ 165,906 PAGE 44 PAGE 45 DUNDEE REIT 2007 Annual Report DUNDEE REIT 2007 Annual Report We define NOI as the total of rental property revenues less rental property operating expenses. NOI, before redevelopment and discontinued operations, for the quarter increased 38% over the comparative period, primarily due to income generated NOI comparative portfolio NOI shown below highlights comparative and non-comparative items to assist in understanding the impact each component by properties acquired in 2006 and 2007. NOI generated by our comparative portfolio increased $0.7 million or 7% for the has on NOI. The Eastern Portfolio is classified as discontinued operations. The discontinued operations that contributed to quarter and $3.6 million or 9% for the year, largely driven by increased occupancy and higher rental rates achieved on NOI are shown separately to conform to the required income statement presentation. The following review of operations renewals and new leasing. Discontinued operations mainly reflects the results of the Eastern Portfolio. focuses on our continuing portfolio. Comparative NOI and acquisitions exclude GAAP adjustments that relate to straight-line For the three months ended December 31 For the years ended December 31 rents and amortization of market rent adjustments on acquired leases. Growth Growth For the three months ended December 31 For the years ended December 31 Office Industrial NOI Redevelopment Discontinued operations NOI including redevelopment and discontinued operations $ $ 2007 23,468 2,988 26,456 430 2006 Amount $ 16,307 2,799 19,106 772 7,161 189 7,350 (342) $ % 44 7 38 2007 85,595 12,084 97,679 1,879 $ 2006 Amount $ 49,699 10,517 60,216 3,195 35,896 1,567 37,463 (1,316) % 72 15 62 (46) 27,158 (27,204) 82,338 102,495 (20,157) $ 26,840 $ 47,036 $ (20,196) (43) $ 181,896 $ 165,906 $ 15,990 10 For the three months ended December 31 For the years ended December 31 $ 2007 1,929 18,997 3,546 1,984 26,456 430 $ 2006 1,172 12,615 3,423 1,896 19,106 772 Growth Amount 757 6,382 123 88 7,350 (342) % 65 51 4 5 38 $ $ 2007 6,702 68,746 14,242 7,989 97,679 1,879 $ 2006 4,696 39,095 8,728 7,697 60,216 3,195 Growth Amount 2,006 29,651 5,514 292 37,463 (1,316) % 43 76 63 4 62 (46) 27,158 (27,204) 82,338 102,495 (20,157) $ 26,840 $ 47,036 $ (20,196) (43) $ 181,896 $ 165,906 $ 15,990 10 NOI BY REGION (THREE MONTHS ENDED DECEMBER 31, 2007) • Alberta 72% • Saskatchewan & NWT 13% • Ontario 8% • British Columbia 7% British Columbia Alberta Saskatchewan & NWT Ontario $ NOI Redevelopment Discontinued operations NOI including redevelopment and discontinued operations NOI BY SEGMENT (THREE MONTHS ENDED DECEMBER 31, 2007) • Office 89% • Industrial 11% Office Industrial $ Comparative properties Acquisitions Rent supplement GAAP adjustments $ 2007 7,915 2,704 10,619 12,262 22 3,553 NOI Redevelopment Discontinued operations 26,456 430 (46) Growth Growth 2006 7,437 2,497 9,934 7,363 23 1,786 19,106 772 27,158 $ % 6 8 7 $ Amount 478 207 685 4,899 (1) 1,767 38 7,350 (342) (27,204) $ 2007 31,435 10,808 42,243 43,426 86 11,924 97,679 1,879 82,338 2006 Amount $ 29,014 9,596 38,610 16,777 43 4,786 60,216 3,195 102,495 2,421 1,212 3,633 26,649 43 7,138 37,463 (1,316) (20,157) % 8 13 9 62 NOI including redevelopment and discontinued operations $ 26,840 $ 47,036 $ (20,196) (43) $ 181,896 $ 165,906 $ 15,990 10 $ Alberta British Columbia Saskatchewan & NWT Ontario Comparative properties Acquisitions Rent supplement GAAP adjustments $ 2007 7,340 1,120 185 1,974 10,619 12,262 22 3,553 NOI Redevelopment Discontinued operations 26,456 430 (46) For the three months ended December 31 For the years ended December 31 $ 2006 6,733 1,155 208 1,838 9,934 7,363 23 1,786 19,106 772 27,158 Growth Amount % $ 9 (3) (11) 7 7 607 (35) (23) 136 685 4,899 (1) 1,767 38 7,350 (342) (27,204) $ 2007 28,729 4,822 812 7,880 42,243 43,426 86 11,924 97,679 1,879 82,338 Growth 2006 Amount $ 25,796 4,646 768 7,400 38,610 16,777 43 4,786 60,216 3,195 102,495 2,933 176 44 480 3,633 26,649 43 7,138 37,463 (1,316) (20,157) % 11 4 6 6 9 62 NOI including redevelopment and discontinued operations $ 26,840 $ 47,036 $ (20,196) (43) $ 181,896 $ 165,906 $ 15,990 10 Comparative NOI growth was driven by rising rental rates across our office and industrial portfolios nationally. PAGE 46 PAGE 47 DUNDEE REIT 2007 Annual Report DUNDEE REIT 2007 Annual Report Comparative office portfolio For the three months ended December 31 For the years ended December 31 British Columbia Alberta Saskatchewan & NWT Ontario $ Comparative properties Acquisitions Rent supplement GAAP adjustments $ 2007 1,120 4,636 185 1,974 7,915 12,034 22 3,497 $ 2006 1,155 4,236 208 1,838 7,437 7,125 23 1,722 Growth Amount % (3) $ 9 (11) 7 6 (35) 400 (23) 136 478 4,909 (1) 1,775 $ 2007 4,822 17,921 812 7,880 31,435 42,437 86 11,637 Growth 2006 Amount $ 4,646 16,200 768 7,400 29,014 16,121 90 4,474 176 1,721 44 480 2,421 26,316 (4) 7,163 % 4 11 6 6 8 Office NOI $ 23,468 $ 16,307 $ 7,161 44 $ 85,595 $ 49,699 $ 35,896 72 Our comparative office portfolio remains well occupied with most Western markets boasting virtually full economic occupancy. Strong comparative NOI growth in the office portfolio is largely a result of higher rental rates achieved on renewals and new leasing. The Alberta office portfolio leads our growth, benefiting from leasing activity and rising rental rates. Occupancy in the comparative Alberta office portfolio is at 98.0% at period-end compared to 99.4% in the prior year comparative period. Comparative industrial portfolio For the three months ended December 31 For the years ended December 31 Growth Growth Alberta $ Comparative properties Acquisitions Rent supplement GAAP adjustments $ 2007 2,704 2,704 228 — 56 Industrial NOI $ 2,988 $ 2006 2,497 2,497 238 — 64 2,799 $ $ Amount 207 207 (10) — (8) 189 % 8 8 2007 2006 Amount $ 10,808 $ 9,596 $ 10,808 989 — 287 9,596 656 (47) 312 1,212 1,212 333 47 (25) % 13 13 7 $ 12,084 $ 10,517 $ 1,567 15 Our comparative industrial portfolio contributed strong results in the three- and twelve-month periods due to the impact of higher rental rates achieved on leasing. NOI prior quarter comparison The comparative properties disclosed in the following table are based on properties that were acquired prior to July 1, 2007. Overall, comparative properties are maintaining a high level of occupancy, achieving incremental improvements in rental rates and producing modest growth in NOI. Comparative property NOI was up $0.3 million in the quarter primarily due to rental rate increases in Alberta. The increase in NOI was offset by reduced economies of scale in operating our property management platform as a result of the sale of our Eastern Portfolio. The incremental cost of adding more properties will be minimal as our platform has the capability of managing a much larger portfolio so the costs per square foot of managing our portfolio will be reduced with each new property acquired. Office Industrial Comparative properties Acquisitions Rent supplement GAAP adjustments NOI Redevelopment Discontinued operations For the three months ended Growth December 31, 2007 September 30, 2007 $ $ 18,760 2,932 21,692 1,189 22 3,553 26,456 430 (46) 18,852 3,022 21,874 605 17 3,162 25,658 426 20,487 $ Amount % (92) — (3) (90) (1) 3 (182) 584 5 391 798 4 (20,533) NOI including redevelopment and discontinued operations $ 26,840 $ 46,571 $ (19,731) (42) Alberta British Columbia Saskatchewan & NWT Ontario Comparative properties Acquisitions Rent supplement GAAP adjustments NOI Redevelopment Discontinued operations NOI including redevelopment and discontinued operations For the three months ended Growth December 31, 2007 September 30, 2007 $ $ $ 14,396 1,798 3,495 2,003 21,692 1,189 22 3,553 26,456 430 (46) 26,840 $ 14,454 1,798 3,624 1,998 21,874 605 17 3,162 25,658 426 20,487 46,571 $ Amount % (58) — — (4) — — (129) 5 (1) 3 (182) 584 5 391 798 4 (20,533) $ (19,731) (42) NOI from the office portfolio decreased $0.1 million mainly as a result of higher seasonal operating costs. NOI from the industrial portfolio decreased mainly as a result of a vacancy at an industrial property in Edmonton that has since been re-leased with the lease scheduled to commence in March 2008. 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 2007 2006 $ $ 158,102 10,909 762,302 1,156,441 680,479 79,534 0.29 19.95 0.29 19.94 $ $ 291,440 7,848 11,218 2,127,920 1,153,794 76,511 0.25 0.35 0.25 0.35 $ $ 2005 222,759 6,566 4,309 1,507,713 943,621 56,072 0.38 0.25 0.29 0.16 PAGE 48 PAGE 49 DUNDEE REIT 2007 Annual Report DUNDEE REIT 2007 Annual Report QUARTERLY INFORMATION The following tables show quarterly information since December 31, 2005. 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 Gain (loss) on disposal of rental property and land held for sale Reversal of (provision for) impairment of rental Q4 2007 Q3 2007 Q2 2007 Q1 2007 Q4 2006 Q3 2006 Q2 2006 Q1 2006 $ 42,921 $ 40,464 $ 38,334 $ 33,442 $ 32,242 $ 30,431 $ 21,388 $ 18,328 1,023 574 680 664 1,252 1,032 849 498 43,944 41,038 39,014 34,106 33,494 31,463 22,237 18,826 16,035 10,154 6,180 7,282 1,534 41,185 2,759 — — 14,379 9,794 6,135 5,862 1,887 38,057 2,981 — 13,139 9,168 5,823 6,004 1,977 36,111 2,903 — 854 1,474 12,050 8,706 5,223 4,198 2,202 12,364 9,295 5,087 3,650 1,861 11,174 9,968 4,996 4,507 1,687 7,997 7,780 3,549 2,384 1,756 7,443 6,989 2,935 1,856 1,508 32,379 32,257 32,332 23,466 20,731 1,727 (1,230) 1,237 (615) (869) (1,229) (1,905) 27 (13,090) — — 9 — (445) — 216 — — — — property previously held for sale 6,298 (7,650) — Calculation of funds from operations and distributable income Net income (loss) Add (deduct): Q4 2007 Q3 2007 Q2 2007 Q1 2007 Q4 2006 Q3 2006 Q2 2006 Q1 2006 $ 29,224 $ 752,450 $ (27,790) $ 8,418 $ 7,952 $ 6,823 $ (6,746) $ 3,189 Depreciation of rental properties 6,193 10,960 13,495 12,336 11,259 10,824 9,255 8,570 Amortization of deferred leasing costs, tenant improvements and intangibles Future income tax Imputed amortization of leasing costs 7,286 10,825 (15,539) (25,198) 12,988 40,031 9,843 (117) 9,384 (111) 9,007 (202) 6,527 2,453 5,725 174 related to the rent supplement 6 61 88 Amortization of costs not specific to real estate operations incurred subsequent to June 30, 2003 (77) (42) (29) (Gain) loss on disposal of rental properties and land held for sale (4,968) (727,374) (1,474) Provision for (reversal of) impairment in value of rental property (6,298) 7,650 Internalization of property manager Income tax expense incurred as a result of the Transaction Non-controlling interest Funds from operations — 300 — — — — — — — — 79 (18) — — 1,230 — — 81 (17) 4 — 615 — — 68 (18) 289 256 (13) 415 (3,453) — (27) — — — 13,090 — 527 (5) 24 — — — 1,349 $ 16,127 $ 29,332 $ 37,309 $ 31,771 $ 29,167 $ 26,890 $ 21,929 $ 19,282 Income (loss) before income and large corporations taxes Income taxes 9,057 (3,815) 4,377 497 631 (1,287) (14,103) (1,905) Current income and large corporations taxes 8 7 10 Future income taxes (recovery) (15,539) (25,198) 40,031 Income tax expense (recovery) (15,531) (25,191) 40,041 5 (117) (112) 22 (111) (89) (82) (202) (284) 77 2,453 2,530 45 174 219 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 Basic Diluted1 24,588 21,376 (35,664) 609 720 (1,003) (16,633) (2,124) — 24,588 4,636 — — 21,376 (35,664) 731,074 7,874 — 609 7,809 — 720 7,232 — (1,342) 339 (1,003) (17,975) 7,826 11,229 (1,785) 4,974 $ 29,224 $ 752,450 $ (27,790) $ 8,418 $ 7,952 $ 6,823 $ (6,746) $ 3,189 $ $ 1.38 $ 1.38 $ 19.82 $ (0.57) $ 19.81 $ (0.57) $ 0.19 $ 0.19 $ 0.24 $ 0.24 $ 0.19 $ 0.19 $ (0.23) $ (0.23) $ 0.15 0.15 Funds from operations per unit Basic1 Diluted Cash generated from operating activities Add (deduct): $ $ $ 0.76 $ 0.76 $ 0.77 $ 0.76 $ 0.76 $ 0.75 $ 0.71 $ 0.69 $ 0.74 $ 0.71 $ 0.74 $ 0.70 $ 0.67 $ 0.64 $ 0.67 0.63 9,952 $ 6,794 $ 35,150 $ 32,071 $ 24,003 $ 22,058 $ 24,634 $ 17,167 Deferred leasing costs incurred 690 2,026 1,554 1,358 2,352 972 1,739 1,034 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 Loss (gain) on disposal of rental property Amortization of deferred financing costs Income tax expense incurred as a result of the Transaction Change in non-cash working capital 20 (4) 25 (77) — (57) 67 5 31 (42) — (259) 94 13 33 (29) — (316) 87 16 26 (18) — 65 16 20 (17) — (306) (445) 300 1,471 — 16,412 — — (3,517) (4,265) — 660 81 17 — (18) — (619) — 1,378 94 19 — (13) (25) (425) — (5,524) 94 21 — (5) 24 (433) — 78 1 Excludes impact of 6.5% and 5.7% Debentures, which are currently not dilutive to net income. Distributable income $ 12,320 $ 25,034 $ 32,982 $ 28,969 $ 26,654 $ 23,869 $ 20,499 $ 17,980 Distributable income per unit Basic1 Diluted Weighted average units outstanding for FFO and DI Basic Diluted $ $ 0.58 $ 0.58 $ 0.66 $ 0.65 $ 0.67 $ 0.66 $ 0.64 $ 0.63 $ 0.67 $ 0.65 $ 0.66 $ 0.63 $ 0.63 $ 0.60 $ 0.62 0.59 21,107,542 37,961,439 49,115,213 44,954,392 39,588,295 36,350,417 32,727,091 28,968,219 21,566,798 39,020,277 51,306,940 47,732,198 43,447,393 42,292,776 38,953,240 35,281,362 1 The LP Class B Units, Series 1, are included in the calculation of basic FFO per unit and basic DI per unit. PAGE 50 PAGE 51 DUNDEE REIT 2007 Annual Report DUNDEE REIT 2007 Annual Report SECTION III — DISCLOSURE CONTROLS AND PROCEDURES 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 As of December 31, 2007, the Chief Executive Officer and the Chief Financial Officer, together with other members of response to changing economic or investment conditions. In recessionary times it may be difficult to dispose of certain management, have evaluated the design and operational effectiveness of Dundee REIT’s disclosure controls and procedures, types of real estate. The costs of holding real estate are considerable and during an economic recession we may be faced as defined in Multilateral Instrument 52-109. They have concluded that the disclosure controls and procedures were adequate with ongoing expenditures with a declining prospect of incoming receipts. In such circumstances, it may be necessary for and effective to provide reasonable assurance that information required to be disclosed by Dundee REIT in its annual filings, us to dispose of properties at lower prices in order to generate sufficient cash for operations and making distributions. We interim filings or other reports filed or submitted by it under applicable Canadian securities laws is recorded, processed, manage our portfolio actively and are attentive to market conditions and property values. We review our properties on an summarized and reported within the time periods specified by such laws. In addition, as of December 31, 2007, 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 as defined in Multilateral Instrument 52-109. The internal controls over financial reporting 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 internal controls over financial reporting were appropriately designed. There were no changes made to the internal controls in 2007 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting. 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. 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 underperforming 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. 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 Our portfolio of properties generates income through rent payments made by our tenants. Upon the expiry of any lease, there are disproportionate to our perception of relative risk. 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. 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 Our properties are located primarily in Western Canada, with a significant majority of our properties, measured by gross such financing will not be available or, if it is available, will not be available on favourable terms. Future financing may take leaseable area, located in the province of Alberta. As a result, our properties are impacted by factors specifically affecting many forms, including debt or equity financing, which could alter the current debt-to-equity ratio or which could be dilutive the real estate markets in Alberta, British Columbia, Saskatchewan and the Northwest Territories. These factors may differ to our unitholders. It is our intent to reduce the interest rate risk associated with refinancing by ensuring that debt maturities from those affecting the real estate markets in other regions of Canada. If real estate conditions in Western Canada were to are staggered over several years, with limited exposure in any given year. In 2008, our exposure is limited to $19.3 million decline relative to real estate conditions in other regions, this could more adversely impact our revenues and results of rolling at a 7.43% weighted average interest rate, which in the context of our business is not significant. For further operations than those of other more diversified REITs in Canada. Our ability to manage risk through geographical information, please see the Our Resources and Financial Condition discussion beginning on page 24. diversification is currently limited. PAGE 52 PAGE 53 DUNDEE REIT 2007 Annual Report DUNDEE REIT 2007 Annual Report INSURANCE We carry general liability, umbrella liability and excess liability insurance with a total limit of $80.0 million. For the property risks we carry “All Risks” property insurance including but not limited to flood, earthquake and loss of rental income insurance TAXATION RISK On June 12, 2007, amendments to the Income Tax Act were substantively enacted and subsequently received Royal Assent on June 22, 2007, which modify the tax treatment of certain publicly traded trusts and partnerships that are SIFTs. See our (with a 24-month indemnity period). We also carry Boiler and Machinery insurance covering all boilers, pressure vessels, discussion on income taxes under Critical Accounting Policies for details of SIFT Rules. 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 Under the SIFT Rules, a publicly traded REIT will be considered a SIFT unless it qualifies for the REIT Exception described under Critical Accounting Estimates. As a result of the reorganization completed on December 31, 2007, Dundee REIT has met the REIT Exception therefore the SIFT Rules and the Normal Growth Guidelines should not apply to Dundee REIT after 2007; however, no assurances can be made in this regard. If Dundee REIT does not qualify continuously for the REIT Exception, the SIFT Rules and the Normal Growth Guidelines may have an adverse impact on Dundee REIT and the holders of Units, on the value of the Units and the ability of Dundee REIT to undertake financings and acquisitions, and if the SIFT Rules were to apply, distributable cash of Dundee REIT may be materially reduced. The effect of the recently enacted SIFT Rules on the market for the Units is uncertain. 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 Since the SIFT Rules have only recently been enacted, the Canada Revenue Agency’s administrative policies regarding the from, such property. JOINT VENTURE, PARTNERSHIP AND CO-OWNERSHIP AGREEMENTS interpretation of the SIFT Rules and their application to the trusts and partnerships in which a publicly traded income fund holds a direct or indirect interest are still under review. As such, there may be a possible interpretation of the legislation under which the Trusts’ subsidiary partnerships (“Partnerships”) would be viewed as SIFTs. Management does not believe this We are a participant in joint ventures and partnerships with third parties in respect of four of the properties. A joint venture to be the intent of the legislation and believes there to be valid technical arguments supporting the fact the Partnerships or partnership involves certain additional risks, including, are not SIFTs. (i) 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; SECTION V — CRITICAL ACCOUNTING POLICIES (ii) the risk that such co-venturers/partners could experience financial difficulties or seek the protection of bankruptcy, CRITICAL ACCOUNTING ESTIMATES insolvency or other laws, which could result in additional financial demands on us to maintain and operate such properties Management of Dundee REIT believes the policies outlined below are those most subject to estimation and management’s or repay the co-venturers’/partners’ share of property debt guaranteed by us or for which we will be liable and/or result judgment. in our suffering or incurring delays, expenses and other problems associated with obtaining court approval of joint venture or partnership decisions; IMPAIRMENT OF ASSETS (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 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 (iv) the need to obtain co-venturers’/partners’ consents with respect to certain major decisions, including the decision to flows from operations over the anticipated holding period. 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 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. purchase the other party’s interests. Such rights may also inhibit our ability to sell an interest in a property or a joint In the event these factors result in a carrying value that exceeds the sum of the undiscounted cash flows expected to result venture/partnership within the time frame or otherwise on the basis we desire. from the direct use and eventual disposition of the property, an impairment loss would be recognized. Our investment in properties through joint venture and partnership agreements is subject to the investment guidelines set out in our Declaration of Trust. 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. PAGE 54 PAGE 55 DUNDEE REIT 2007 Annual Report DUNDEE REIT 2007 Annual Report 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. INCOME TAXES On June 12, 2007, amendments to the Income Tax Act (Canada) were substantively enacted, which modify the tax treatment of certain publicly traded trusts and partnerships that are SIFTs. Dundee REIT is taxed as a mutual fund trust for Canadian income tax purposes. The Trust is required by its Declaration of The values of the above and below market leases are amortized on a straight-line basis to rental property revenues over the Trust to distribute all of its taxable income to its unitholders, which currently enables the Trust to deduct such distributions remaining term of the associated lease. The value associated with in-place leases and tenant relationships is amortized on for income tax purposes. Canadian and U.S.-based incorporated subsidiaries are subject to tax on their respective taxable a straight-line basis over the expected term of the relationship, which includes an estimated probability of the lease renewal income at their corresponding legislated rates. Accordingly, prior to June 12, 2007, the only provision for income taxes and the estimated term. Lease origination costs are amortized on a straight-line basis over the term of the applicable lease. recorded in the consolidated financial statements was to reflect the future tax obligations of these incorporated subsidiaries In the event a tenant vacates its leased space prior to the contractual termination of the lease and no rental payments are and comprise the amounts resulting from the differences in tax and book values relating to the underlying rental properties. 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 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; • deferred recoverable operating expenses, which are amortized to operating expenses over the period during which they are recoverable from tenants; • prior to January 1, 2007, deferred financing costs, which included debt issue fees and expenses that were 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. In the prior 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. 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. Under the SIFT Rules, certain distributions by a SIFT entity relating to income from a business carried on in Canada by the SIFT and income, other than taxable dividends, or capital gains from non-portfolio properties (as defined in the Income Tax Act) will not be deductible for tax purposes and will accordingly will be taxed in the SIFT entity at a rate that is generally comparable to the combined provincial/federal corporate income tax rate for ordinary business income. Allocations or distributions of income and capital gains that are subject to the SIFT Rules will be treated as a taxable dividend from a taxable Canadian corporation in the hands of the beneficiaries or partners of the SIFT. For Canadian resident beneficiaries or partners, such dividend will be taxed as an eligible dividend and will be subject to the applicable gross-up and dividend tax credit rules. Pursuant to the normal growth guidelines issued in a press release by the Department of Finance (Canada) on December 15, 2006 (the “Normal Growth Guidelines”), the SIFT Rules will not apply until the 2011 taxation year to trusts or partnerships that would have been SIFTs on October 31, 2006, if the “SIFT trust” and “SIFT partnership” definitions in the Income Tax Act had been in force as of that date. Certain real estate investment trusts that satisfy certain specified conditions (the “REIT Exception”) are excluded from the SIFT definition and therefore will not be subject to the SIFT Rules. In order to qualify for the REIT Exception in respect of a taxation year, the REIT (i) must not, at any time in that taxation year, hold non-portfolio property other than “qualified REIT properties” (as defined in the Income Tax Act); (ii) must derive at least 95% of the REIT’s revenues for that taxation year from rent generated by real or immovable properties, interest, capital gains from dispositions of real or immovable properties, dividends and royalties; (iii) must derive at least 75% of the REIT’s revenues for that taxation year from rent, interest, mortgages or hypothecs on, and capital gains from the disposition of, real or immovable properties situated in Canada; and (iv) must, throughout the taxation year, hold real or immovable properties situated in Canada, cash and certain government-guaranteed debt with a total fair market value that is not less than 75% of the REIT’s equity value. As the Trust did not meet the technical REIT Exception as at June 12, 2007, a future income tax liability in the amount of $40.0 million was recorded as at June 30, 2007, based on the temporary differences that were expected to reverse on or after January 1, 2011. The future income tax liability was recorded as a charge to the consolidated statement of net income and comprehensive income, for the period ended June 30, 2007. During the third quarter, a future income tax liability in the amount of $25.0 million relating to the assets sold during the quarter was reversed and recorded as a component of discontinued operations. During the quarter ended December 31, 2007, as a result of modifying the organizational structure of Dundee REIT, the Trust has met the REIT Exception as at December 31, 2007, and accordingly, the remaining $15.0 million was reversed and recorded as a recovery. PAGE 56 PAGE 57 DUNDEE REIT 2007 Annual Report DUNDEE REIT 2007 Annual Report CHANGES IN ACCOUNTING POLICIES Financial Instruments On January 1, 2007, the Trust adopted Canadian Institute of Chartered Accountants (“CICA”) accounting standards 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 comprising CICA Handbook Section 3855, “Financial Instruments — Recognition and Measurement”, and Section 1530, and judgments when appropriate. “Comprehensive Income”. The Board of Trustees is responsible for ensuring that management fulfills its responsibility for financial reporting and internal Section 3855, “Financial Instruments — Recognition and Measurements” prescribes when a financial asset, financial liability control. The audit committee, which is comprised of trustees, meets with management as well as the external auditors to or non-financial derivative is to be recognized on the balance sheet, and at what amount. The standards require that all satisfy itself that management is properly discharging its financial responsibilities and to review its consolidated financial financial assets be classified as held for trading, available for sale, held to maturity or loans and receivables. In addition, the statements and the report of the auditors. The audit committee reports its findings to the Board of Trustees, which approves standards require that all financial assets be measured at fair value, with the exception of loans, receivables and investments the consolidated financial statements. Management’s responsibility for financial statements intended to be, and classified as, held to maturity, which are required to be measured at amortized cost. Any adjustment to the Trust’s financial statements as a result of adopting Section 3855 was recognized by restating the balance of opening unitholders’ equity. Comparative periods are not permitted to be restated. The Trust was impacted as follows: • Deferred financing costs have been reclassified to reduce the outstanding debt balances to which they relate with interest recognized based on the new effective interest rate derived from the resulting balance. Deferred financing costs of $7.0 million that were outstanding at the end of 2006 have been reclassified by reducing mortgages and convertible debentures by $3.6 million and $3.7 million, respectively, and by increasing prepaid expenses by $0.1 million. Unitholders’ equity was increased by $0.4 million to adjust for the additional interest expense that was recognized in prior periods by amortizing deferred financing costs using the straight-line method compared to the interest expense that would have been recognized using the effective interest rate method. • Guarantees provided by the Trust were not assigned any value, as it was determined that the likelihood that the guarantee would be called was minimal. • The Trust completed a review of its significant lease, debt and energy contracts and has determined that no material embedded derivatives exist. In conjunction with Section 3855, the Trust also adopted CICA Handbook Section 1530, “Comprehensive Income”, which requires the Trust to disclose Other Comprehensive Income (“OCI”) in its financial statements. The Trust has included this disclosure on its statement of net income. Foreign currency translation losses of $1.1 million related to the net investment in Greenbriar Mall are 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 were restated by reclassifying the opening cumulative foreign currency translation adjustment of $5.1 million to accumulated other comprehensive income on the statement of unitholders’ equity, with 2006 being restated to conform with the new presentation. Additional information relating to Dundee REIT, including the latest annual information form of Dundee REIT, is available on SEDAR at www.sedar.com. 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 Vice Chairman and Chief Executive Office MARIO BARRAFATO Senior Vice President and Chief Financial Officer Toronto, Ontario, February 21, 2008 PAGE 58 PAGE 59 DUNDEE REIT 2007 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 (the “Trust”) as at December 31, 2007 and 2006 and the consolidated statements of net income and comprehensive income, unitholders’ equity and cash flows for the years then ended. These financial statements are the responsibility of the 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 the Trust as at December 31, 2007 and 2006 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, LICENSED PUBLIC ACCOUNTANTS Toronto, Ontario, February 21, 2008 DUNDEE REIT 2007 Annual Report Note 2007 2006 4 5 6 7 8 9 10 11 12 16 9 13 $ 1,004,198 31,433 — 9,761 20,928 37,727 52,394 $ 1,816,811 73,455 41,395 18,606 20,240 70,997 86,416 $ 1,156,441 $ 2,127,920 $ 680,479 24,389 3,818 2,746 36,869 $ 1,153,794 40,701 8,013 3,950 33,351 748,301 1,239,809 408,140 888,111 $ 1,156,441 $ 2,127,920 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 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 Trustee MICHAEL J. COOPER Trustee PAGE 60 PAGE 61 DUNDEE REIT 2007 Annual Report DUNDEE REIT 2007 Annual Report Consolidated statements of net income and comprehensive income Consolidated statements of unitholders' equity (in thousands of dollars, except per unit amounts) For the years ended December 31 Note 2007 2006 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 (loss) before the undernoted items Internalization of property manager Gain on disposition of land Loss on disposition of rental property Provision for impairment of rental property previously recorded as held for sale Income (loss) before income taxes Provision for (recovery of) income taxes Current income taxes Future income taxes Income (loss) before non-controlling interest and discontinued operations Income attributable to non-controlling interest Income (loss) 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 Net income Other comprehensive loss Change in foreign currency translation adjustment Comprehensive income See accompanying notes to the consolidated financial statements 15 24 26 21 16 13 21 17 17 $ 102,389 3,631 106,020 $ 155,161 2,941 158,102 55,603 37,822 23,361 23,346 7,600 147,732 10,370 (1,230) 2,328 — (1,352) 10,116 30 (823) (793) 10,909 — 10,909 751,393 $ 762,302 $ $ $ $ 0.29 19.66 19.95 0.29 19.65 19.94 $ 762,302 (1,127) $ 761,175 $ $ $ $ $ $ $ 38,978 34,032 16,567 12,397 6,812 108,786 (2,766) (13,678) — (220) — (16,664) 62 2,314 2,376 (19,040) (1,003) (20,043) 31,261 11,218 (0.63) 0.98 0.35 (0.63) 0.98 0.35 11,218 (16) 11,202 (in thousands of dollars, except number of units) Unitholders’ equity, January 1, 2007 Adjustment to opening unitholders’ equity to comply with new accounting standard Unitholders’ equity, January 1, 2007 (restated) Net income Distributions paid Distributions payable Public offering of REIT A Units Distribution Reinvestment Plan Unit Purchase Plan Deferred Unit Incentive Plan Conversion of 6.5% Debentures Conversion of 5.7% Debentures Units issued on internalization of property manager Issue costs Unit redemptions Change in foreign currency translation adjustment Unitholders’ equity, December 31, 2007 (in thousands of dollars, except number of units) Unitholders’ equity, January 1, 2006 Net income Distributions paid Distributions payable Public offering of REIT A 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 Release of cumulative foreign currency translation adjustment on disposition of revenue property Change in foreign currency translation adjustment 2 12 12 13 13 13 13 13 13 13 13 13 13 13 24 13 Note Number of units Cumulative capital Cumulative net income Cumulative distributions Accumulated other comprehensive loss Total 43,419,648 $ 1,067,125 $ 33,388 $ (207,286) $ (5,116) $ 888,111 — — 448 — — 448 43,419,648 — — — 4,195,000 348,418 1,170 30,370 818,880 1,921,043 1,067,125 — — — 170,946 14,304 51 6,031 20,472 57,631 24 44,674 — 13 (29,915,384) 1,230 (11,271) (781,669) — — 33,836 762,302 — — — — — — — — — — — — (207,286) — (76,190) (3,818) — — — — — — — — (639,311) (5,116) — — — — — — — — — 888,559 762,302 (76,190) (3,818) 170,946 14,304 51 6,031 20,472 57,631 1,230 — — (11,271) — (1,420,980) — (1,127) (1,127) 20,863,819 $ 544,850 $ 796,138 $ (926,605) $ (6,243) $ 408,140 Note Number of units Cumulative capital Cumulative net income Cumulative distributions Accumulated other comprehensive loss $ 20,449,209 — — — 10,190,000 830,516 13,087 1,935,640 1,135,617 $ 446,678 — — — 319,981 24,717 359 48,391 34,069 15,844 11,218 — — — — — — — $ (85,680) $ — (63,089) (8,013) — — — — — 505,326 22,888 — 13,917 1,170 (18,041) — — — — — — — — Total 371,742 11,218 (63,089) (8,013) 319,981 24,717 359 48,391 34,069 13,917 1,170 (18,041) (5,100) $ — — — — — — — — — — — 26 — — 3,686 3,686 Reclassification of LP B Units 13 Unitholders’ equity, December 31, 2006 — 8,337,365 — 195,884 — 6,326 — (50,504) (1,329) (2,373) (1,329) 149,333 43,419,648 $ 1,067,125 $ 33,388 $ (207,286) $ (5,116) $ 888,111 PAGE 62 PAGE 63 See accompanying notes to the consolidated financial statements DUNDEE REIT 2007 Annual Report DUNDEE REIT 2007 Annual Report Consolidated statements of cash flows Notes to the consolidated financial statements (All dollar amounts in thousands, except unit or per unit amounts) (in thousands of dollars) For the years ended December 31 Note 2007 2006 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 fair value adjustment on acquired debt Internalization of property manager Gain on disposition of rental properties Gain on disposition of land Provision for impairment in value of rental property previously held for sale Deferred unit compensation expense Future income taxes Amortization of market rent adjustments on acquired leases Straight-line rent adjustment 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 Issuance of promissory note Vendor take-back mortgage repayment Net proceeds from disposition of rental properties Net proceeds from disposition of land 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 Distributions paid on Units Redemption of Units Deferred trust units and income deferred trust units purchased and cancelled 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 $ 762,302 $ 11,218 42,984 40,942 938 (1,811) 1,230 (731,488) (2,328) 1,352 1,177 (823) (11,833) (2,946) — 99,696 (5,628) (10,101) 83,967 (11,295) (6,424) (3,111) (560,324) (2,600) (570) 4,020 (11,747) — 1,496,351 20,034 1,412 925,746 391,266 (24,896) (68,983) (65) (6,921) 84 (70,534) (1,420,980) (5,492) 163,538 (1,042,983) (33,270) 70,997 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) (484,667) (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 $ 37,727 $ 70,997 23 3 21 12 13 21 Note 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. Our equity is fully described in Note 13; however, for simplicity, throughout the Notes we may make reference to the following: • “REIT A Units”, meaning the REIT Units, Series A • “REIT B Units”, meaning the REIT Units, Series B • “REIT Units”, meaning the REIT Units, Series A and REIT Units, Series B, collectively • “LP B Units”, meaning the LP B Units, Series 1 • “Units”, meaning REIT Units, Series A; REIT Units, Series B; and, Special Trust Units, collectively On December 12, 2007, the Trust announced that its unitholders approved, at a special meeting of unitholders, a special resolution relating to the modification of the organizational structure of Dundee REIT (the “Reorganization”). The Reorganization was proposed in order to provide greater certainty that Dundee REIT would be able to qualify as a “real estate investment trust” by January 1, 2008, for the purposes of the amendments to the Income Tax Act that modify the tax treatment of publicly traded specified investment flow-through trusts or partnerships (“SIFTs”) that were implemented by the Canadian federal government on June 22, 2007. A trust that satisfies the definition of “real estate investment trust” throughout its taxation year is exempt from the taxes and the restricted growth that would otherwise apply under the SIFT rules. The Reorganization was completed on December 31, 2007, the effect of which eliminated the trusts through which Dundee REIT holds its interest in Dundee Properties Limited Partnership (“DPLP”), the entity that holds the commercial revenue-producing properties, and replaced it with two limited partnerships. As a result of modifying the organizational structure, Dundee REIT qualifies as a real estate investment trust. On August 24, 2007, the Trust completed the sale of its portfolio of real estate assets located principally in Ontario, Québec and Newfoundland (the “Eastern Portfolio”) to GE Real Estate (“GE”) including the assumption of liabilities by GE relating to the Eastern Portfolio (the “Transaction”). Dundee REIT’s portfolio now comprises office and industrial properties located primarily in Western Canada, and a subsidiary of Dundee REIT continues to perform the property management function. The cash proceeds received on closing were used to redeem approximately 29.9 million outstanding Units for $47.50 per unit (the “Redemption”). In addition, GE purchased approximately 3.5 million outstanding Units at a purchase price of $47.50 per unit (the “Transfer”), which gave GE an approximate 16% equity interest in the Trust. Pursuant to the Transaction, the Trust made certain amendments to its Declaration of Trust and to other governing documents of the Trust and its subsidiaries. In general, the Trust and its subsidiaries cannot take any action that would prevent it from qualifying as a “real estate investment trust” and the Trust could not take any action that at any time prior to January 1, 2008, would cause it to exceed “normal growth” as determined by the normal growth guidelines pertaining to SIFTs, or to be subject to tax under paragraph 122(1) (b) of the Income Tax Act, which specifies taxes payable by a SIFT entity. Also, amendments were made to provide for the surrender, exchange for purchase or cancellation, or transfer of LP Class A Units, Series 1 and LP Class B Units, Series 2, in connection with the Redemption and Transfer. Amendments made to the Declaration of Trust included: • providing Dundee Corporation the right to appoint up to a majority of trustees less one, provided it owns at least two million REIT A Units, REIT B Units and/or LP B Units; • granting pre-emptive rights on the issuance of REIT A Units or any securities convertible into or exchangeable for REIT A Units to both Dundee Corporation and GE Real Estate to maintain their same proportionate interest in the Trust; and • permitting our investment committee to delegate investment decisions to our senior management (including those acting on our behalf pursuant to the asset management agreement). PAGE 64 PAGE 65 DUNDEE REIT 2007 Annual Report DUNDEE REIT 2007 Annual Report Amendments made to the Partnership Agreement of DPLP included: • the business of DPLP must be located exclusively in Canada; • DPLP may only invest in equity interests in office and industrial revenue-producing properties; • DPLP may invest in up to 25% of the equity of non-qualifying investments subject to meeting the general REIT qualifications discussed above; • certain restrictions regarding acquisitions, investments in joint ventures, holding securities, investments in operating businesses, investments in partnerships and investments in mortgages or mortgage bonds were removed; • DPLP is permitted to undertake construction and development activities for the maintenance of real property or enhancing the revenue stream from real property, provided it is not on a brownfield site; • limitations on the maximum amount of total debt as a percentage of the Trust’s gross book value, the maximum amount of floating rate debt as a percentage of total debt and the maximum amount of new debt as a percentage of the market value of a specific property have been removed; and • DPLP will maintain an interest coverage ratio of no less than 1.4 times. On May 12, 2006, the Trust acquired the remaining 50% interest in Dundee Management Limited Partnership (“DMLP”), a joint venture with Dundee Realty Corporation (“DRC”), comprising property management operations relating to revenue properties. As discussed in Note 24 — “Internalization of property manager”, this transaction increased the Trust’s ownership of DMLP to 100%. At December 31, 2007, Dundee Corporation, the majority shareholder of DRC, directly and indirectly through its subsidiaries held 333,520 REIT A Units and 3,315,349 LP B Units (December 31, 2006 — 127,955 and 8,565,095 units, respectively, including 55,326 units it was entitled to receive on June 30, 2007). Dundee Corporation purchased REIT A Units in the market through the year to satisfy its obligations with respect to its exchangeable debentures. At December 31, 2007, GE held 2,997,371 REIT A Units and 476,316 REIT B Units. Note 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. On January 1, 2007, the Trust adopted CICA Handbook Section 1506 “Accounting Changes”, which prescribes the criteria for changing accounting policies, together with the accounting treatment and disclosure of changes in accounting policies, changes in accounting estimates and the correction of errors. This standard did not affect the Trust’s consolidated financial position, results of operations or cash flows. CICA Handbook Section 1535, “Capital Disclosures”, requires that an entity disclose information that enables users of its financial statements to evaluate an entity’s objectives, policies and processes for managing capital, including disclosures of any externally imposed capital requirements and the consequences of non-compliance. The new standard applies to interim and annual financial statements relating to fiscal years beginning on or after October 1, 2007, specifically January 1, 2008, for the Trust. This standard will impact the Trust’s disclosures but will not affect its consolidated financial position, results of operations or cash flows. CICA Handbook Section 3862, “Financial Instruments — Disclosures” and Section 3863, “Financial Instruments — Presentation” replace Section 3861, “Financial Instruments — Disclosure and Presentation”, revising and enhancing its disclosure requirements and carrying forward its presentation requirements unchanged. These new sections place increased emphasis on disclosures about the nature and extent of risks arising from financial instruments and how the Trust manages those risks. The new standards apply to interim and annual financial statements relating to fiscal years beginning on or after October 1, 2007, specifically January 1, 2008, for the Trust. This standard will impact the Trust’s disclosure but will not affect its consolidated financial position, results of operations or cash flows. Amendments to CICA Handbook Section 1000, “Financial Statement Concepts” and new CICA Handbook Section 3064, “Goodwill and Intangible Assets”, which replaces CICA Handbook Section 3062, “Goodwill and Other Intangible Assets”, have been issued and apply to interim and annual financial statements relating to fiscal years beginning on or after October 1, 2008. The objectives of these amendments and new section are to: • reinforce the principle-based approach to the recognition of assets only in accordance with the definition of an asset and the criteria for asset recognition; and • clarify the application of the concept of matching revenues and expenses, such that the current practice of recognizing as assets items that do not meet the definition and recognition criteria is eliminated. The Trust is currently evaluating the impact of this standard on its consolidated financial statements. 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 are 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. 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 ranging from 8% to 30% per annum. Building improvements are depreciated over their estimated useful lives, which range 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. PAGE 66 PAGE 67 DUNDEE REIT 2007 Annual Report DUNDEE REIT 2007 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 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 estimated fair values to land, building, deferred leasing costs acquired, lease origination costs associated with in-place leases, collection of principal, interest and the underlying security of the loan. The carrying amount of a loan receivable classified the value of above and below market leases and other intangible lease assets. Other intangible lease assets include the value as impaired is reduced to its estimated fair value. of in-place leases and the value of tenant relationships, if any. The fair value of buildings is determined using the depreciated replacement cost approach. 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 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 and tenant relationships. Intangible assets and liabilities are stated at historic cost less accumulated amortization and foreign operation. 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 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 is 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. 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; • deferred recoverable operating expenses, which are amortized to operating expenses over the period during which they are recoverable from tenants; • prior to January 1, 2007, deferred financing costs, which included debt issue fees and expenses that were 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 amounts receivable Trade receivables are recognized initially at fair value with provisions for impairments. A provision for impairment is established when there is objective evidence that collection will not be possible under the original terms of the contract. The carrying amount of the asset is reduced through an allowance account, and the amount of the loss is recognized in the income statement within operating expenses. Subsequent recoveries of amounts previously written off are credited against operating expenses in the income statement. Income taxes Dundee REIT uses the liability method of accounting for future income taxes. The net future income tax liability represents the cumulative amount of taxes applicable to temporary differences between the reported carrying amount of 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 (including the asset manager). 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 A Units on the date of grant. Deferred trust units that have vested but for which the corresponding REIT A Units have not been issued, and where the ultimate issuance of such REIT A Units is simply a matter of the passage of time, are considered to be outstanding 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, 2007, cash and cash equivalents includes the Trust’s proportionate share of cash balances of joint ventures of $2,116 (December 31, 2006 — $2,688). 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 A 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 B Units. 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 B 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. PAGE 68 PAGE 69 DUNDEE REIT 2007 Annual Report DUNDEE REIT 2007 Annual Report Financial instruments On January 1, 2007, the Trust adopted new CICA accounting standards comprising Section 3855, “Financial Instruments — Recognition and Measurement”, Section 1530, “Comprehensive Income”, and Section 3251, “Equity”. The standards require that all financial assets be classified as held for trading, available for sale, held to maturity or loans and receivables. In addition, the standards require that all financial assets be measured at fair value, with the exception of loans, receivables and investments intended to be, and classified as, held to maturity, which are required to be measured at amortized cost. Financial liabilities are classified either as held for trading, which are measured at fair value, or other liabilities, which are measured at amortized cost. Any adjustment to the Trust’s financial statements as a result of adopting Section 3855 is recognized by restating the balance of opening unitholders’ equity. Comparative periods are not permitted to be restated. Accumulated other comprehensive income is included as a separate component of unitholders’ equity and comprises only accumulated foreign currency gains and losses related to the Trust’s net investment in Greenbriar Mall in Atlanta, Georgia. In accordance with Section 1530, the comparative financial statements have been restated by reclassifying the cumulative foreign currency translation adjustment to accumulated other comprehensive income. All loans and receivables and all financial liabilities are recorded at amortized cost. Upon initial recognition, these instruments are recorded at fair value less any related transaction costs. As a result, effective January 1, 2007, financial liabilities were reduced by related deferred financing costs that were previously disclosed as a component of deferred costs (see Note 5). Deferred financing costs of $6,966 that related to outstanding debt at January 1, 2007, have been reclassified by reducing mortgages and convertible debentures by $3,596 and $3,746, respectively, and in the case of deferred financing costs related to revolving lines of credit, increasing prepaid expenses by $72. As required by the accounting standards, prior year comparative figures have not been restated. 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. A property that is subsequently reclassified as held and in use is measured at the lower of: (a) its carrying amount before it was classified as held for sale, adjusted for any amortization expense that would have been recognized had it been continuously classified as held and in use; and (b) its estimated fair value at the date of the subsequent decision not to sell. Variable interest entities The Trust follows the requirements of CICA Accounting Guideline 15, “Consolidation of Variable Interest Entities” (“AcG-15”), which provides guidance for applying the principles in CICA Handbook 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. Note 3 PROPERTY ACQUISITIONS Interest expense related to financial liabilities, including deferred financing costs, is recognized using the effective interest The Trust completed the following acquisitions during the twelve months ended December 31, 2007 and 2006, which have rate method. Prior to January 1, 2007, the deferred financing costs and the premium allocated to the conversion feature of contributed to operating results from the date of acquisition: the convertible debentures were amortized to interest expense on a straight-line basis over the life of the instrument to which the costs related. This had the effect of increasing interest expense by $448 (comprising $361 from the change in amortization of deferred financing costs and $87 from the change in amortization of the premium allocated to the conversion feature of the convertible debentures), compared to the interest expense that would have been recognized under the effective interest rate method. With the adoption of this new policy, these amounts have been recorded as a $448 increase in unitholders’ equity as at January 1, 2007. As required by the accounting standards, prior year comparative figures have not been restated. The fair values of the mezzanine loans, mortgages and term debt are determined by discounting the future contractual cash flows under current financing arrangements. The discount rates represent management’s best estimate of borrowing rates presently available to the Trust for loans with similar terms and maturities. The fair value of the convertible debentures is based on the market value of the debentures. For certain of the Trust’s financial instruments, including cash and cash equivalents and short-term deposits, amounts receivable, amounts payable and accrued liabilities, and distributions payable, the carrying amounts approximate fair values due to their immediate or short-term maturity. Convertible debentures Upon issuance, convertible debentures are separated into debt and equity components and recorded at amortized cost. These components are measured based on their respective estimated fair values at the date of issuance, less any related transaction costs. 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 A Units. In accordance with CICA Handbook Section 3855, effective January 1, 2007, the difference between the fair value of the debt and the face value is recognized as interest expense on an effective interest rate basis over the term to maturity of the debentures with corresponding accretion to the principal of the debt. Prior to January 1, 2007, this difference was recognized as interest expense on a straight-line basis. For the year ended December 31, 2007 30 and 55 St. Clair Avenue West, Toronto1 625 Agnes Street, New Westminster Aspen Portfolio, Calgary HCI Portfolio, Vaughan, Burlington and Mississauga1 501 Applewood Crescent, Vaughan1 154 University Avenue, Toronto1 4400 Dominion Street, Burnaby Airport Corporate Centre, Calgary Development property, Yellowknife 435-4th Avenue, Calgary 960 Quayside Drive, New Westminster Total 1 Disposed of as a part of the Eastern Portfolio. Interest Property acquired (%) type Occupancy on Acquired acquisition (%) GLA (sq. ft.) Purchase price Fair value of mortgage assumed Date acquired office 100 426,000 96 $ 110,798 $ — January 9, 2007 office office 100 100 83,000 543,000 industrial 100 2,100,000 industrial office office 100 100 100 76,000 67,000 91,000 office 100 148,000 office office 100 100 — 89,000 office 100 60,000 88 99 98 100 100 93 100 — 100 95 14,587 172,130 — 29,225 January 24, 2007 March 13, 2007 237,721 56,528 May 1, 2007 6,787 13,784 18,637 — 5,487 — May 1, 2007 May 10, 2007 June 27, 2007 38,207 — July 6, 2007 366 35,735 16,726 — 9,457 August 30, 2007 October 9, 2007 — November 29, 2007 3,683,000 98 $ 665,478 $ 100,697 PAGE 70 PAGE 71 DUNDEE REIT 2007 Annual Report DUNDEE REIT 2007 Annual Report Interest Property acquired (%) type Occupancy on Acquired acquisition (%) GLA (sq. ft.) Purchase price Fair value of mortgage assumed Date acquired 48,000 99,000 100 $ 100 2,726 $ 7,577 — 3,117 January 10, 2006 January 12, 2006 For the year ended December 31, 2006 Park 19, Edmonton 70 Disco Road, Toronto1 SEC Portfolio, Québec1 2440 Scanlan Street, London1 Sherwood Place, Regina 1400 boul. de la Rive Sud, Québec City1 4255 14th Avenue, Markham1 Princeton Portfolio, Western Canada 10089 Jasper Avenue, Edmonton1 industrial industrial office/ industrial industrial office office industrial office/ industrial/land Barker Business Park (Phase II), Toronto Calgary Office Portfolio, Calgary Tullamore Business Park, Brampton Victoria Tower, Regina 100 Legacy Road, Ottawa1 10079 Jasper Avenue, Edmonton1 Aviva Corporate Centre, Toronto1 Station Tower Lands, Surrey1 2121 Argentia Road, Mississauga1 Airport Corporate Centre West, Mississauga1 2891 Sunridge Way NE, Calgary Total land office land office industrial land office/ industrial land office office office 1 Disposed of as a part of the Eastern Portfolio. 100 530,000 land 100 86,000 100 100 100 100 100 100 100 265,000 85,000 182,000 77,000 57,000 60 100 60 100 100 10 100 100 100 100 100 — 822,000 — 144,000 103,000 — 438,000 — 61,000 357,000 88,000 99 100 99 100 100 94 — — 98 — 100 100 — 100 — 96 86 100 21,306 6,266 33,206 12,062 5,914 6,199 3,477 14,442 January 27, 2006 April 20, 2006 April 21, 2006 — — May 1, 2006 May 1, 2006 96,818 43,835 May 17, 2006 4,160 — May 29, 2006 8,994 218,257 — 23,339 June 7, 2006 June 15, 2006 3,224 17,815 8,906 310 43,961 3,728 11,270 66,253 25,736 — 8,621 — — July 14, 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 3,442,000 98 $ 598,489 $ 103,030 The assets acquired and liabilities assumed in these transactions were allocated as follows: For the years ended December 31 Rental properties Land Buildings Equipment Properties under development Land Under development Held for development Held for sale Third-party management contracts Tenant improvements acquired 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 2007 2006 $ $ 180,693 434,290 — — 614,983 — — — — 15,851 31,609 5,313 1,460 26,096 695,312 70,585 458,119 403 301 529,408 29,925 1,015 8,352 195 14,567 25,149 5,512 2,020 14,574 630,717 (29,834) (32,228) $ 665,478 $ 598,489 The consideration paid consists of: For the years ended December 31 Cash Paid during the period Deposit Assumed mortgages at fair value Vendor loan Assumed accounts payable and accrued liabilities Total consideration 2007 2006 $ 560,324 3,600 563,924 $ 484,667 710 485,377 100,697 — 857 103,030 6,750 3,332 $ 665,478 $ 598,489 Note 4 RENTAL PROPERTIES December 31 Land Buildings and improvements Fixed assets and equipment Rental properties under development $ Cost 191,935 875,619 1,985 Accumulated depreciation Net book value Cost 2007 2006 Accumulated depreciation Net book value $ — $ (65,690) (502) 191,935 809,929 1,483 $ 300,553 1,627,185 2,040 $ — $ 300,553 1,507,605 1,267 (119,580) (773) 851 — 851 7,386 — 7,386 Total $ 1,070,390 $ (66,192) $ 1,004,198 $ 1,937,164 $ (120,353) $ 1,816,811 Note 5 DEFERRED COSTS December 31 Deferred leasing costs Tenant improvements Deferred recoverable costs Deferred financing costs Other deferred costs $ Accumulated amortization Net book value 2007 $ (4,710) $ (10,352) (2,007) — (505) $ 2,929 25,763 2,739 — 2 Cost 7,639 36,115 4,746 — 507 Cost 20,903 72,690 13,816 11,705 1,847 2006 Accumulated amortization Net book value $ (7,490) $ (26,733) (7,409) (4,739) (1,135) 13,413 45,957 6,407 6,966 712 73,455 Total $ 49,007 $ (17,574) $ 31,433 $ 120,961 $ (47,506) $ Amortization of deferred recoverable costs included in operating expenses for the year ended December 31, 2007, was $1,578 (December 31, 2006 — $1,872). Effective January 1, 2007, deferred financing costs are deducted from the specific debt carrying values to which they relate (see Notes 2 and 10). Note 6 LAND December 31 Land under development Land held for development Land held for sale Total 2007 — — — — 2006 18,607 1,021 21,767 41,395 $ $ $ $ PAGE 72 PAGE 73 DUNDEE REIT 2007 Annual Report DUNDEE REIT 2007 Annual Report Note 7 AMOUNTS RECEIVABLE Amounts receivable are net of credit adjustments of $2,871 (December 31, 2006 — $6,659). December 31 Trade receivables Straight-line rents receivables Other accounts receivables December 31 Trade receivables Less: provision for impairment of trade receivables Trade receivable, net 2007 1,867 5,857 2,037 9,761 2007 2,280 (413) 1,867 $ $ $ $ 2006 3,660 12,874 2,072 18,606 2006 5,093 (1,433) 3,660 $ $ $ $ The movement in the provision for impairment of trade receivables during the year ended December 31, 2007, is as follows: As at January 1, 2007 Provision for impairment of trade receivables Receivables written off during the year as uncollectible Reduction due to sale of discontinued operations Translation adjustment As at December 31, 2007 Note 8 PREPAID EXPENSES AND OTHER ASSETS December 31 Prepaid expenses Mezzanine loans Promissory notes Deposits Restricted cash Total $ $ $ 1,433 133 (12) (1,117) (24) 413 2006 6,729 3,893 — 4,020 5,598 $ 2007 2,170 — 11,963 2,609 4,186 $ 20,928 $ 20,240 Effective November 1, 2007, the Trust sold its 60% interest in two joint venture projects (see Note 21). As part of the transaction, all mezzanine loans were repaid and related agreements terminated. Consideration for the sale included second and third mortgages totalling $11,747 bearing interest at 11.0% secured by the lands owned by the purchaser. On November 2, 2007, the Trust assigned the mortgages to DRC for a purchase price equal to the mortgage amounts. As consideration, the Trust received two promissory notes from DRC that bear interest at 10.9% compounded monthly. Restricted cash primarily represents tenant rent deposits and cash held as security for certain mortgages. Note 9 INTANGIBLE ASSETS AND LIABILITIES December 31 2007 Cost Accumulated amortization Net book value Cost 2006 Accumulated amortization Net book value Intangible assets Value of above market rent leases $ Value of in-place leases Lease origination costs Value of tenant relationships 2,481 36,469 6,680 29,818 $ (735) $ (13,947) (2,129) (6,243) $ 1,746 22,522 4,551 23,575 7,134 53,558 13,974 42,168 $ (2,190) $ (16,343) (3,768) (8,117) Total $ 75,448 $ (23,054) $ 52,394 $ 116,834 $ (30,418) $ 4,944 37,215 10,206 34,051 86,416 Intangible liabilities Value of below market rent leases $ 53,786 $ (16,917) $ 36,869 $ 40,049 $ (6,698) $ 33,351 Note 10 DEBT December 31 Mortgages Convertible debentures Term debt Total $ 2007 668,188 11,840 451 2006 $ 1,056,311 89,719 7,764 $ 680,479 $ 1,153,794 Mortgages are secured by charges on specific rental properties. 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 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. 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. Convertible debentures comprise $7,983 of the 5.7% Debentures and $3,857 of the 6.5% Debentures. PAGE 74 PAGE 75 DUNDEE REIT 2007 Annual Report DUNDEE REIT 2007 Annual Report A demand revolving credit facility is available up to a formula-based maximum not to exceed $50,000, bearing interest generally at the bank prime rate (6.0% as at December 31, 2007) plus 0.375% or bankers’ acceptance rates. The facility expires on April 30, 2008, and is secured by a first ranking collateral mortgage on four of the Trust’s properties and a second ranking collateral mortgage on one property. As at December 31, 2007, the formula-based amount available under this facility was $49,779, of which $nil was drawn and $nil was utilized in the form of letters of guarantee (December 31, 2006 — $nil and $733, respectively). 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 Total variable rate debt Total debt Weighted average interest rates Debt amount 2007 2006 Maturity dates 2007 2006 5.70% 6.59% 9.03% 5.71% 7.70% — 7.70% 5.76% 5.89% 6.08% 7.17% 5.90% 8.40% 7.00% 8.09% 5.95% $ 2008–2019 2014–2015 2008–2011 651,844 11,840 451 664,135 $ 1,036,909 89,719 2,238 1,128,866 2008 2007 16,344 — 16,344 19,402 5,526 24,928 $ 680,479 $ 1,153,794 The scheduled principal repayments and debt maturities are as follows: For the years ending December 31 Mortgages Term debt 2008 2009 2010 2011 2012 2013 and thereafter Deferred financing cost and fair value adjustments $ $ 32,645 65,311 20,099 84,477 112,082 351,121 665,735 2,453 $ 668,188 $ 106 116 127 102 — — 451 — 451 $ Convertible debentures — — — — — 12,409 12,409 (569) $ Total 32,751 65,427 20,226 84,579 112,082 363,530 678,595 1,884 $ 11,840 $ 680,479 Effective January 1, 2007, mortgages and convertible debentures were reduced by $7,342 in deferred financing costs comprising $6,894 that was outstanding at December 31, 2006, plus an adjustment of $448 to restate the balance to that which would have resulted using the effective interest rate method. As of December 31, 2007, $2,832 of deferred financing costs are included in mortgages and convertible debentures. As a result of this accounting policy change, interest is now recognized using the effective interest rate method. Included in mortgages are $4,827 in fair value adjustments (December 31, 2006 — $9,567), which reflect the fair value adjustments for mortgages assumed as part of acquisitions. The convertible debentures are net of a $111 premium allocated to their conversion features and $458 of unamortized deferred financing costs. The fair value adjustment, discount and deferred financing costs are amortized to interest expense over the term to maturity of the related debt using the effective interest rate method. The estimated fair value of debt is as follows: December 31 Mortgages Convertible debentures Term debt Total PAGE 76 $ 2007 681,896 15,365 443 2006 $ 1,081,535 121,881 7,733 $ 697,704 $ 1,211,149 Note 11 AMOUNTS PAYABLE AND ACCRUED LIABILITIES December 31 Trade payables Accrued liabilities and other payables Accrued interest Deposits Rent received in advance Total $ $ 2007 270 14,762 3,068 4,422 1,867 $ 24,389 $ 2006 1,664 20,104 6,072 9,863 2,998 40,701 Note 12 DISTRIBUTIONS The following table sets out distribution payments for the year ended December 31, 2007: Paid in cash Reimbursement from GE Paid by way of reinvestment in REIT A Units Paid by way of reinvestment in LP B Units Less: payable at December 31, 2006 Plus: payable at December 31, 2007 $ $ REIT Units, Series A 64,870 (548) 5,185 — (6,393) 3,124 Total $ 66,238 $ REIT Units, Series B LP Class B Units, Series 1 472 (87) — — — 87 472 $ 5,192 — 8,577 542 (1,620) 607 $ Total 70,534 (635) 13,762 542 (8,013) 3,818 $ 13,298 $ 80,008 The amount payable at December 31, 2007, was satisfied on January 15, 2007, by way of $3,818 in cash. Included in the total distributions is $474 representing the 4% bonus distribution that forms part of the Distribution Reinvestment Plan (“DRIP”). In connection with the Transaction, effective June 28, 2007, the DRIP was temporarily suspended. Prior to suspension of the DRIP, the holders of LP B Units elected to receive their distribution reinvestment in the form of REIT A Units, except for those units issued to DRC on the internalization of the property manager, which DRC elected to receive in the form of LP B Units. The DRIP was reinstated for the January 2008 distribution, which was payable February 15, 2008. GE was entitled to distributions of $635 for the month of August; however, pursuant to the Transaction Purchase Agreement, GE agreed to reimburse the Trust for the August distributions payment. Our Declaration of Trust requires monthly cash distributions to unitholders of at least 80% of distributable income on an annual basis. The Trust may reduce the percentage of distributable income if the trustees determine it would be in the best interest of the Trust. Distributions may be adjusted for amounts paid in prior periods if the actual distributable income for those prior periods is greater or less than the estimates used for those prior periods. In addition, the trustees may declare distributions out of the income, net realized capital gains, net recapture income and capital of the Trust to the extent that such amounts have not already been paid, allocated or distributed. 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 unitholders. The Trust declares distributions of $0.183 per unit per month, or $0.549 per quarter. PAGE 77 DUNDEE REIT 2007 Annual Report DUNDEE REIT 2007 Annual Report Note 13 UNITHOLDERS’ EQUITY December 31 Number of units Amount Number of units 2007 REIT Units, Series A REIT Units, Series B LP Class B Units, Series 1 Cumulative foreign currency translation adjustment 17,072,154 476,316 3,315,349 — $ 300,216 14,376 99,791 (6,243) Total 20,863,819 $ 408,140 34,854,553 — 8,565,095 — 43,419,648 $ 2006 Amount 745,348 — 147,879 (5,116) $ 888,111 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. 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. 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 B Units. This amendment permits the Trust to classify the outstanding LP B Units as equity for financial statement purposes in accordance with 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. For the year ended December 31, 2006, net income of $1,003 was attributable to the non-controlling interest in the consolidated statement of net income, and $873 was attributable to non-controlling interest in discontinued operations. During the year ended December 31, 2007, 729,341 LP B Units were exchanged indirectly by Dundee Corporation for 729,341 REIT B Units which were then exchanged for 729,341 REIT A Units. The exchanges were valued at a pro rata carrying amount of the LP B Units. On August 24, 2007, the Trust completed the Redemption and cancellation of 29,915,284 units for $47.50 per unit. These included 25,813,262 REIT A Units and 4,102,022 REIT B Units. The REIT B Units were initially exchanged from LP B Units and were valued at a pro rata carrying amount of the LP B Units. In addition, GE purchased 3,473,687 outstanding units at a purchase price of $47.50 per unit. These include 2,997,371 REIT A Units and 476,316 REIT B Units. The REIT B Units were initially exchanged from LP B Units and were valued at a pro rata carrying amount of the LP B Units. Special Trust Units are issued in connection 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 B Units that may be obtained upon the surrender or exchange of the LP B Units to which they relate. At December 31, 2007, 3,315,349 Special Trust Units were issued and outstanding (December 31, 2006 — 8,565,095 issued and outstanding). At December 31, 2006, 92,000 Special Trust Units were held in trust pursuant to the internalization of DMLP (see Note 24), 55,326 of which are included in the outstanding Special Trust Units at December 31, 2006. On June 30, 2006, DRC received the 100,000 Special Trust Units held in trust. All Special Trust Units are recorded at a nominal value. Dundee REIT’s Declaration of Trust provides Dundee Corporation and GE with a pre-emptive right pursuant to which Dundee REIT will not issue any REIT A Units, or any securities convertible into or exchangeable for REIT A Units, to any person without first making an offer to Dundee Corporation and GE to issue that number of REIT A Units, 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 or GE at the date of offer. 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, 2007, 17,072,154 LP Class A Units (December 31, 2006 — 34,557,702), 3,315,349 LP Class B Units, Series 1 (December 31, 2006 — 8,565,095), and nil LP Class B Units, Series 2 (December 31, 2006 — 296,852), 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. On June 30, 2007, 100,000 LP B Units were released from in trust and issued to DRC (see Note 24). As at December 31, 2007, and December 31, 2006, all issued and outstanding LP Class A Units and LP Class B Units, Series 2, are owned indirectly by Dundee REIT and have been eliminated in the consolidated balance sheets. REIT Units, Series A REIT Units, Series B LP Class B Units, Series 1 Number of units Amount Number of units Amount Number of units Amount Accumulated other comprehensive loss Number of units Total Amount 34,854,553 $ 745,348 — $ — 8,565,095 $ 147,879 $ (5,116) 43,419,648 $ 888,111 Unitholders’ equity, January 1, 2007 Adjustment to opening unitholders’ equity to comply with new accounting standard (Note 2) Unitholders’ equity, January 1, 2007 (restated) 34,854,553 745,708 Net income Distributions paid Distributions payable — — — 641,622 (63,114) (3,124) Public offering of REIT A Units 4,195,000 170,946 Distribution Reinvestment Plan Unit Purchase Plan Deferred Unit Incentive Plan Conversion of 6.5% Debentures 335,159 1,170 30,370 818,880 Conversion of 5.7% Debentures 1,921,043 13,762 51 6,031 20,472 57,631 — 360 — — 88 — — 448 — 8,565,095 (5,116) 43,419,648 — — — — — — — — — — — — — 10,839 (385) (87) — — — — — — — — — — — — 13,259 — — — — 147,967 109,841 (12,691) (607) — 542 — — — — 888,559 762,302 (76,190) (3,818) — — — 4,195,000 170,946 348,418 14,304 1,170 30,370 818,880 1,921,043 44,674 — — 51 6,031 20,472 57,631 1,230 (11,271) — — — — — — — — — — — — — Units issued on internalization of property manager (Note 24) Issue costs Exchange of Units Unit redemptions Change in foreign currency — — — (11,271) 44,674 — 1,230 — 729,341 11,536 4,578,338 134,955 (5,307,679) (146,491) (25,813,362) (1,290,034) (4,102,022) (130,946) translation adjustment — — — — Unitholders’ equity, — — — — — (29,915,384) (1,420,980) (1,127) — (1,127) PAGE 78 PAGE 79 December 31, 2007 17,072,154 $ 300,216 476,316 $ 14,376 3,315,349 $ 99,791 $ (6,243) 20,863,819 $ 408,140 DUNDEE REIT 2007 Annual Report DUNDEE REIT 2007 Annual Report Public offering of REIT A Units On March 12, 2007, the Trust completed a public offering of 3,700,000 REIT A Units at a price of $40.75 per unit for gross Deferred Unit Incentive Plan The Deferred Unit Incentive Plan provides for the grant of deferred trust units and income deferred trust units to trustees, cash proceeds of $150,775. On March 29, 2007, the Trust issued an additional 495,000 REIT A Units pursuant to the exercise officers and employees, and affiliates and their service providers (including the asset manager). Deferred trust units are of the over-allotment option granted to the underwriters for gross proceeds of approximately $20,171. The exercise of the granted at the discretion of the trustees while income deferred trust units are credited to holders of deferred trust units over-allotment option increased the total gross proceeds of the offering to approximately $170,946. Costs relating to based on distributions paid on Units. Once vested, each deferred trust unit vests evenly over a three- or five-year period on the offering of $7,413 were charged directly to unitholders’ equity. On December 12, 2006, the Trust completed a public offering of 4,110,000 REIT A Units at a price of $36.50 per unit for gross proceeds of $150,015. Costs relating to the offering of $6,531 were charged to unitholders’ equity. 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 A Units, such units will be issued immediately upon vesting. Up to a maximum of one million deferred trust units are issuable under the Deferred Unit Incentive Plan. Compensation expense is recorded based on the fair market value of a REIT A Unit at the date of grant and amortized as On June 8, 2006, the Trust completed a public offering of 3,560,000 REIT A Units for gross cash proceeds of $100,036 at earned over the vesting period or the remaining service period of the participant, whichever is less. 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 B Units as equity effective May 1, 2006, no further purchase price adjustments resulted from investing the net proceeds in DPLP. During the year ended December 31, 2007, $1,177 of compensation expense was recorded (December 31, 2006 — $1,170) and is included in general and administrative expenses. An additional $4,280 was recognized as a transaction cost related to the sale of the Eastern Portfolio as a result of the accelerated vesting of the deferred trust units. Income deferred trust On April 7, 2006, the Trust completed a public offering of 2,200,000 REIT A Units for gross cash proceeds of $61,050 at a units are accounted for as a distribution and an issuance of REIT A Units when the related deferred trust units vest. No price of $27.75 per unit. On April 28, 2006, the Trust issued an additional 320,000 REIT A Units for gross proceeds of amount in relation to income deferred trust units is recognized in net income. 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. Distribution Reinvestment and Unit Purchase Plan In August 2003, Dundee REIT established a Distribution Reinvestment and Unit Purchase Plan for holders of REIT A Units and LP B Units. On June 28, 2007, the DRIP was temporarily suspended in connection with the sale of the Eastern Portfolio to GE. The DRIP was reinstated for the January 2008 distribution payable on February 15, 2008. The DRIP allows holders of REIT A Units or LP B Units, 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 units equal to 4% of each cash distribution that was reinvested. The price per unit is calculated by reference to a five-day weighted average closing price of the REIT A Units on the Toronto Stock Exchange preceding the relevant distribution date, which typically is on or about the 15th day of the month following the declaration. For the year ended December 31, 2007, 335,158 REIT A Units and 13,259 LP B Units were issued under the DRIP for $14,304 (December 31, 2006 — 811,261 REIT A Units and 19,255 LP B Units for $24,717). Unit Purchase Plan The Unit Purchase Plan feature of the DRIP allows existing unitholders to purchase additional REIT A Units. Participation in the Unit Purchase Plan is optional and subject to certain limitations on the maximum number of additional REIT A Units that may be acquired. The price per unit is calculated in 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 feature of the DRIP. For the year ended December 31, 2007, 1,170 REIT A Units were issued under the Unit Purchase Plan for $51 (December 31, 2006 — 13,087 REIT A Units for $359). Conversion of debentures During the year ended December 31, 2007, the Trust issued 818,880 REIT A Units upon conversion of $20,472 principal amount of the 6.5% Debentures (December 31, 2006 — issued 1,935,640 REIT A Units upon conversion of $48,391 principal amount) and 1,921,043 REIT A Units upon conversion of $57,631 principal amount of the 5.7% Debentures (December 31, 2006 — issued 1,135,617 REIT A Units upon conversion of $34,069 principal amount). Outstanding at December 31, 2005 Granted during the period Cancelled REIT A Units issued on vesting Fractional units paid in cash Outstanding at December 31, 2006 Granted during the period (see Note 21) REIT A Units issued on vesting Vested deferred units cancelled by management (see Note 21) Fractional units paid in cash Outstanding and payable at December 31, 2007 Vested but not issued at December 31, 2007 Weighted average grant date value $ $ $ 23.60 36.37 23.60 23.67 — 27.87 42.69 31.80 29.56 — 32.66 32.66 Deferred trust units 200,167 88,300 (3,000) (19,265) (2) 266,200 94,200 (27,715) (99,156) (18) 233,511 233,511 Income deferred trust units 25,041 16,919 (237) (3,623) (24) 38,076 16,136 (2,655) (16,468) (3) 35,086 35,086 Total units 225,208 105,219 (3,237) (22,888) (26) 304,276 110,336 (30,370) (115,624) (21) 268,597 268,597 Normal course issuer bid On August 30, 2007, the Trust filed with the Toronto Stock Exchange (“TSX”) a Notice of Intention to make a normal course issuer bid. Under the bid, Dundee REIT will have the ability to purchase for cancellation up to a maximum of 1,359,844 REIT A Units (representing 10% of the REIT’s public float of 13,598,446 REIT A Units on August 30, 2007) through the facilities of the TSX. The bid commenced on September 5, 2007, and will remain in effect until the earlier of September 4, 2008, or the date on which the Trust has purchased the maximum number of units permitted under the bid. The Trust’s average daily trading volume for the then most recently completed six months was 360,465 REIT A Units. As of December 31, 2007, the number of issued and outstanding REIT A Units is 17,072,154. Based on the closing price of the REIT A Units on December 31, 2007, the Trust may purchase up to $45,854 worth of REIT A Units. To date the Trust has not made any purchases pursuant to this bid. PAGE 80 PAGE 81 DUNDEE REIT 2007 Annual Report DUNDEE REIT 2007 Annual Report Note 14 JOINT VENTURES AND CO-OWNERSHIPS Note 16 INCOME TAXES The Trust participates in incorporated and unincorporated joint ventures, partnerships and co-ownerships (the “joint ventures”) Dundee REIT is taxed as a mutual fund trust for Canadian income tax purposes. The Trust is required by its Declaration with other parties and accounts for its interests using the proportionate consolidation method. The following amounts of Trust to distribute all of its taxable income to its unitholders, which currently enables the Trust to deduct such represent the total assets and liabilities of rental property joint ventures in which the Trust participates and its proportionate distributions for income tax purposes. Canadian and U.S.-based incorporated subsidiaries are subject to tax on their share of the assets, liabilities, revenues, expenses and cash flows therein. December 31 Assets Liabilities For the years ended December 31 Revenues Expenses For the years ended December 31 Cash flow generated from (utilized in): Operating activities Financing activities Investing activities Decrease in cash and cash equivalents 2007 Total 2006 2007 Proportionate share $ 319,291 233,596 $ 350,555 255,571 $ 160,252 116,954 $ 2006 185,230 130,257 2007 31,816 29,522 2,294 2007 4,422 16,014 (21,007) (571) $ $ $ $ Proportionate share 2006 29,927 25,880 4,047 2006 7,944 5,466 (15,231) (1,821) $ $ $ $ The Trust is contingently liable for the obligations of the other owners of the unincorporated joint ventures at December 31, 2007, in the aggregate amount of $113,092 (December 31, 2006 — $122,001). In each case, however, the co-owners’ share of assets is available to satisfy these obligations. Note 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 Amortization of fair value adjustments on acquired debt Interest capitalized Interest expense $ 2007 38,120 693 (968) (23) $ 2006 33,313 1,450 (643) (88) $ 37,822 $ 34,032 Certain debt assumed in connection with acquisitions has been adjusted to fair value using the estimated market interest rate at the time of the acquisition (“fair value adjustment”). This fair value adjustment is amortized to interest expense over the remaining life of the debt using the effective interest rate method. Interest capitalized includes interest on specified and respective taxable income at their corresponding legislated rates. Accordingly, prior to June 12, 2007, the only provision for income taxes recorded in the consolidated financial statements was to reflect the future tax obligations of these incorporated subsidiaries and comprise the amounts resulting from the differences in tax and book values relating to the underlying rental properties. On June 12, 2007, amendments to the Income Tax Act were substantively enacted and subsequently received Royal Assent on June 22, 2007, which modify the tax treatment of certain publicly traded trusts and partnerships that are SIFTs. Under the SIFT Rules, certain distributions by a SIFT entity relating to income from a business carried on in Canada by the SIFT and income, other than taxable dividends, or capital gains from non-portfolio properties (as defined in the Income Tax Act) will not be deductible for tax purposes and accordingly will be taxed in the SIFT entity at a rate that is generally comparable to the combined provincial/federal corporate income tax rate for ordinary business income. Allocations or distributions of income and capital gains that are subject to the SIFT Rules will be treated as a taxable dividend from a taxable Canadian corporation in the hands of the beneficiaries or partners of the SIFT. For Canadian resident beneficiaries or partners, such dividend will be taxed as an eligible dividend and will be subject to the applicable gross-up and dividend tax credit rules. Pursuant to the normal growth guidelines issued in a press release by the Department of Finance (Canada) on December 15, 2006 (the “Normal Growth Guidelines”), the SIFT Rules will not apply until the 2011 taxation year to trusts or partnerships that would have been SIFTs on October 31, 2006, if the “SIFT trust” and “SIFT partnership” definitions in the Income Tax Act had been in force as of that date. Certain real estate investment trusts that satisfy certain specified conditions (the “REIT Exception”) are excluded from the SIFT definition and therefore will not be subject to the SIFT Rules. In order to qualify for the REIT Exception in respect of a taxation year, the REIT (i) must not at any time in that taxation year hold non-portfolio property other than “qualified REIT properties” (as defined in the Income Tax Act); (ii) must derive at least 95% of the REIT’s revenues for that taxation year from rent generated by real or immovable properties, interest, capital gains from dispositions of real or immovable properties, dividends and royalties; (iii) must derive at least 75% of the REIT’s revenues for that taxation year from rent, interest, mortgages or hypothecs on, and capital gains from the disposition of, real or immovable properties situated in Canada; and (iv) must, throughout the taxation year, hold real or immovable properties situated in Canada, cash and certain government-guaranteed debt with a total fair market value that is not less than 75% of the REIT’s equity value. As the Trust did not meet the technical REIT Exception as at June 12, 2007, a future income tax liability in the amount of $40,000 was recorded as at June 30, 2007, based on the temporary differences that were expected to reverse on or after January 1, 2011. The future income tax liability was recorded as a charge to the consolidated statement of net income and comprehensive income for the period ended June 30, 2007. During the quarter ended September 30, 2007, a future income tax liability in the amount of $25,000 relating to assets sold during the quarter was reversed and recorded as a component of discontinued operations. During the quarter ended December 31, 2007, as a result of modifying the organizational structure of Dundee REIT, the Trust has met the REIT Exception as at December 31, 2007, and anticipates that it will continue to meet the REIT Exception in the future, and accordingly the remaining $15,000 of the future income tax liability was reversed and recorded as a recovery through the consolidated statement of net income and comprehensive income. general debt attributed to a recently acquired property considered to be under redevelopment and land under development. As the Trust has met the REIT Exception, and the Trust is not currently taxable, no current income taxes, other than those related to Canadian and U.S. subsidiaries, have been recorded for the year ended December 31, 2007. Since the SIFT Rules have only recently been enacted, the Canada Revenue Agency’s administrative policies regarding the interpretation of the SIFT Rules and their application to the trusts and partnerships in which a publicly traded income fund holds a direct or indirect interest are still under review. As such, there may be an interpretation of the legislation under which the Trusts’ subsidiary partnerships (“Partnerships”) would be viewed as SIFTs. Management does not believe this to be the intent of the legislation and believes there to be valid technical arguments supporting the fact that the Partnerships are not SIFTs. PAGE 82 PAGE 83 DUNDEE REIT 2007 Annual Report DUNDEE REIT 2007 Annual Report 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, 2007, of $2,746 (December 31, 2006 — $3,950) has been Note 19 SEGMENTED INFORMATION recorded to reflect the future tax obligations of these subsidiaries and comprises amounts resulting from the differences in tax The Trust’s rental properties have been segmented into office and industrial components. The Trust does not allocate interest and book values relating to the underlying rental properties. The reported carrying amount of Dundee REIT’s net assets, expense to these segments since leverage is viewed as a corporate function. The decision as to where to incur the debt is excluding those in incorporated subsidiaries at December 31, 2007, exceeds the corresponding tax cost by approximately largely based on minimizing the cost of debt and is not specifically related to the segments. Similarly, income taxes and $24,000 (December 31, 2006 — $154,000). A reconciliation of income tax expense for the period: For the years ended December 31 Income (loss) before income taxes Income before income taxes from discontinued operations Less: income allocable to unitholders Income subject to Canadian tax in consolidated entity Tax thereon at 31.62% current statutory rate (2006 — 32.50%) Foreign current and future tax expense (recovery) in respect of foreign entities Other Less: total income tax expense from discontinued operations Total income tax provision (recovery) from continuing operations $ $ 2007 10,116 751,693 761,809 (760,500) 1,309 414 (923) 16 (493) 300 (793) 2006 (16,664) 31,261 14,597 (13,141) 1,456 473 2,104 (201) 2,376 — 2,376 $ $ Note 17 INCOME (LOSS) PER UNIT The weighted average number of units outstanding was as follows: For the years ended December 31 REIT A Units and REIT B Units LP B Units Vested deferred trust units Total weighted average number of units outstanding for basic income per unit amounts Add incremental units: Unvested deferred trust units Income deferred trust units 2007 2006 31,794,371 6,276,491 147,565 38,218,427 25,764,527 5,864,880 53,185 31,682,592 — 17,366 26,896 26,243 Total weighted average number of units outstanding for diluted income per unit amounts 38,235,793 31,735,731 The 2,763,894 incremental LP B Units for the period January 1, 2006, to April 30, 2006, have been excluded from the calculation of diluted net income per unit as they were anti-dilutive. The 1,554,745 incremental REIT A Units to be issued upon an assumed conversion of both debenture issues at December 31, 2007 (December 31, 2006 — 5,505,054 incremental REIT A Units) have been excluded from the calculation of diluted net income per unit as they are anti-dilutive. Note 18 EMPLOYEE FUTURE BENEFITS The Trust has an optional 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., DRC 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 2007, the total cost recognized and cash payments for employee future benefits, consisting of cash contributed to the defined contribution plan, was $175 (2006 — $191). general and administrative expenses are not allocated to the segment expenses. In June 2006, the Trust sold 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 classified these operations as “Other”. Also, because the Trust’s remaining interest in Greenbriar Mall is not significant, the Trust does not disclose segments by country as virtually all of its operations are conducted in Canada. Discontinued operations are not allocated to individual segments. For the year ended December 31, 2007 Office Industrial Segment total Other Total Operations Revenues Operating expenses Net operating income Depreciation of rental properties Amortization of deferred $ $ 134,081 48,486 85,595 19,846 leasing costs, tenant improvements and intangibles 21,283 Segment income $ 44,466 $ 16,968 4,884 12,084 2,977 1,898 7,209 $ $ 151,049 53,370 97,679 22,823 23,181 51,675 Interest expense General and administrative expenses Internalization of property manager Gain on disposition of land Provision for impairment of rental property previously recorded as held for sale Interest and fee income Income taxes Discontinued operations Net income Segment rental properties $ 879,218 $ 105,125 $ 984,343 Capital expenditures Investment in rental properties Investment in tenant improvements Investment in land development Acquisition of rental properties and land Deferred leasing costs $ (7,284) (3,500) — $ (2,152) (2,751) — $ (9,436) (6,251) — (377,664) (3,222) (182,294) (1,484) (559,958) (4,706) $ $ $ $ 4,112 2,233 1,879 538 165 1,176 $ 155,161 55,603 99,558 23,361 23,346 52,851 (37,822) (7,600) (1,230) 2,328 (1,352) 2,941 793 751,393 $ 762,302 19,855 $ 1,004,198 (1,859) (173) (3,111) (366) (922) $ (11,295) (6,424) (3,111) (560,324) (5,628) Total capital expenditures $ (391,670) $ (188,681) $ (580,351) $ (6,431) $ (586,782) PAGE 84 PAGE 85 DUNDEE REIT 2007 Annual Report DUNDEE REIT 2007 Annual Report For the year ended December 31, 2006 Office Industrial Segment total Other Total Operations Revenues Operating expenses Net operating income Depreciation of rental properties Amortization of deferred leasing costs, tenant improvements and intangibles Segment income $ $ 80,099 30,400 49,699 12,673 10,097 26,929 $ $ 15,788 5,271 10,517 2,834 2,041 5,642 $ $ 95,887 35,671 60,216 15,507 12,138 32,571 Interest expense General and administrative expenses Internalization of property manager Loss on disposition of rental property Interest and fee income Income taxes Income attributable to non-controlling interest Discontinued operations Net income Segment rental properties $ 1,381,034 $ 404,157 $ 1,785,191 Capital expenditures Investment in rental properties Investment in tenant improvements Investment in land development Acquisition of rental properties and land Deferred leasing costs $ (5,128) (5,552) — $ (408,878) (4,396) (3,968) (1,833) — (37,892) (1,683) $ (9,096) (7,385) — $ $ $ $ $ 102,389 38,978 63,411 16,567 6,502 3,307 3,195 1,060 259 1,876 12,397 34,447 (34,032) (6,812) (13,678) (220) 3,631 (2,376) (1,003) 31,261 11,218 1,816,811 (9,173) (7,667) (2,103) $ $ $ 31,620 (77) (282) (2,103) The Trust received total fees of $2,279 from DRC for the year ended December 31, 2007. These fees relate to the rent supplement received under the Management Agreement and fees under the Services Agreement. In the prior year, the Trust received total fees from DRC of $2,767 for the year. These fees relate to the rent supplement received under the Management Agreement and rental income and cost recoveries under the Services Agreement. Pursuant to the Asset Management Agreement, the Trust paid to DRC total fees of $2,122 for the year ended December 31, 2007. In the prior year, the Trust paid to DRC total fees of $1,912 representing fees payable under the Management Agreement and Services Agreement prior to May 1, 2006, when the Trust purchased the remaining 50% of DMLP it did not already own. Included in amounts receivable at December 31, 2007, is $15 related to the DRC Services Agreement (December 31, 2006 — $231). Accrued liabilities and other payables at December 31, 2007, include $363 for amounts related to the Asset Management Agreement (December 31, 2006 — $nil) and $751 for other amounts collected on behalf of DRC (December 31, 2006 — $316). Included in prepaid expenses and other assets, the Trust has two promissory notes from DRC totalling $11,963, including $0.2 million of accrued interest, that bears interest at 10.9% compounded monthly. The principal outstanding may be repaid at any time in whole or in part without penalty or bonus. DRC has assigned second and third mortgages (see Note 8) to the Trust as security for the promissory notes. Note 21 DISCONTINUED OPERATIONS The fulfillment of obligations and realization of assets related to the properties noted below have been reclassified as discontinued operations to comply with the disclosure requirements of the CICA Handbook Section 3475. The results of operations of any property that has been sold and identified as discontinued operations are reported separately and comparative amounts are also reclassified as discontinued operations. Properties that are classified as held for sale are recorded at the lower of carrying amount or fair value less estimated costs to sell and are not depreciated while classified as held for sale. The results of these operations are identified separately as discontinued operations and comparative amounts (446,770) (6,079) (37,897) (18) (484,667) (6,097) are also reclassified. Total capital expenditures $ (423,954) $ (45,376) $ (469,330) $ (40,377) $ (509,707) On August 24, 2007, the Trust completed the sale of the Eastern Portfolio to GE for gross proceeds of $2,256,700 less Note 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 24). As a result, DRC is no longer party to the Management Agreement, other than its rent supplement obligation, and the Services Agreement. Asset Management Agreement Effective August 24, 2007, Dundee REIT entered into an asset management agreement with DRC pursuant to which DRC provides certain asset management services to Dundee REIT and its subsidiaries (the “Asset Management Agreement”). The Asset Management Agreement provides for a broad range of asset management services for the following fees: • base annual management fee calculated and payable on a monthly basis, equal to 0.25% of the gross asset value of properties. • incentive fee equal to 15% of Dundee REIT’s adjusted funds from operations per unit in excess of $2.65 per unit. • capital expenditures fee equal to 5% of all hard construction costs incurred on each capital project with costs in excess of $1,000, excluding work done on behalf of tenants or any maintenance capital expenditures. • acquisition fee equal to: (i) 1.0% of the purchase price of a property, on the first $100,000 of properties in each fiscal year; (ii) 0.75% of the purchase price of a property on the next $100,000 of properties acquired in each fiscal year; and (iii) 0.50% of the purchase price on properties in excess of $200,000 in each fiscal year. • financing fee equal to 0.25% of the debt and equity of all financing transactions completed on behalf of Dundee REIT to a maximum of actual expenses incurred by DRC in supplying services relating to financing transactions. estimated working capital adjustments net of capital expenditure adjustments of $3,288. Net proceeds include cash consideration of $1,483,622, which includes $9,468 of adjustments relating to the sale, and the assumption of liabilities of $771,116 by GE relating to this portfolio. The total disposition includes $1,550,017 of assets and $808,070 of liabilities. The Trust recognized a gain on sale of $721,867 that includes transaction costs of $18,481. Included in transaction costs is $4,280 relating to the accelerated vesting of 194,933 deferred trust units and 28,047 income deferred trust units; $2,135 relating to the purchase and cancellation by the Trust of 99,156 deferred trust units and 16,468 income deferred trust units from trustees, senior officers and employees transferred to DRC who had elected such purchases, the value of which represents the difference between $47.50 per unit and the grant date unit values; and $ 3,931 related to the special award of 92,000 deferred trust units in connection with the Transaction. The Transaction was undertaken to provide unitholders an attractive redemption price, based on the proceeds of the disposition of the Eastern Portfolio, while keeping a portfolio of office and industrial properties located primarily in Western Canada. The new structure will allow the Trust to be a more growth-oriented and opportunistic real estate investment trust. PAGE 86 PAGE 87 DUNDEE REIT 2007 Annual Report DUNDEE REIT 2007 Annual Report The assets comprising the Eastern Portfolio were previously included in the office and industrial segments in the segmented The following table summarizes the income from discontinued operations: information. The following table presents the assets and liabilities sold pursuant to the Transaction. 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 Intangible liabilities $ 1,383,546 47,032 27,561 12,289 8,291 5 71,293 $ 1,550,017 $ 775,145 19,454 13,471 $ 808,070 Related to the Transaction, on August 31, 2007, the Trust completed the sale of 3901 rue Jarry, Montréal, to its tenant, which exercised its first right to purchase the property. The Trust completed the sale for proceeds of $8,000 and recognized a gain of $4,653. During the third quarter, the Trust had classified its remaining 50% interest in Greenbriar Mall located in Atlanta as held for sale as the finalization of its sale to GE was only pending consent of the property’s mortgage lender, which the Trust expected to receive in the fourth quarter of 2007. The Trust had recorded the property at the lower of carrying value and fair value, less the estimated cost to sell and recognized an impairment loss of $1,352. The Trust had also decreased the carrying value of the property by an additional $6,298 relating to the cumulative foreign currency translation loss that was expected to be realized on the anticipated sale and realized reduction in the net investment in the foreign operation. As of December 31, 2007, it was determined that the sale of Greenbriar Mall to GE would not be completed as management did not believe that the required consent of the property’s mortgage lender would be obtained. The extension period to complete the sale expired as of January 15, 2008. As the property is not being actively marketed, it has been reclassified as held and in use. As a result, the $6,298 write-down relating to the cumulative foreign currency translation has been reversed. Effective November 1, 2007, the Trust sold its 60% interest in two joint venture projects to its former joint venture partner for total consideration of $16,770, in which all outstanding mezzanine loans were repaid and related agreements terminated. The Trust recognized a gain on sale of $2,553. Consideration for the sale included second and third mortgages totalling $11,747 secured by the lands owned by the purchaser. On October 31, 2007, the Trust completed the sale of 2705–2737 57th Ave SE, a 20,711 square foot industrial property in Calgary, Alberta. The Trust received proceeds of $8,200 and recognized a gain on sale of $2,423. 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. 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 Income before the undernoted items Gain on disposition of rental properties, net Current income taxes expense Income from discontinued operations before non-controlling interest Income attributable to non-controlling interest $ 147,578 3 147,581 65,240 24,917 19,623 17,596 127,376 20,205 731,488 300 751,393 — 2007 2006 $ 185,581 15 185,596 83,086 32,020 23,341 18,244 156,691 28,905 3,229 — 32,134 (873) 31,261 Income from discontinued operations $ 751,393 $ Note 22 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 and capital leases are as follows: Year ending December 31 2008 2009 2010 2011 2012 2013 and thereafter Total Operating lease payments Capital lease payments $ $ 1,046 843 738 722 682 615 $ 4,646 $ 142 142 142 106 — — 532 Purchase and other obligations The Trust has entered into lease agreements that require tenant improvement costs of $878. 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 a fixed price utility contract with respect to four office properties in Calgary. The contract is for a period of two years and locks the Trust in for total minimum payments of $1,635. The Trust has entered into an agreement to purchase from a former joint venture partner an office building, currently under construction, at a future date for $20,788, with maximum adjustments to the closing price of $500. The closing date will be determined when the vendor notifies the Trust that the building is substantially complete, at which time, the Trust is permitted 20 days for due diligence. PAGE 88 PAGE 89 DUNDEE REIT 2007 Annual Report DUNDEE REIT 2007 Annual Report Note 23 SUPPLEMENTARY CASH FLOW INFORMATION For the years ended December 31 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 (decrease) 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 taxes Note 24 INTERNALIZATION OF PROPERTY MANAGER $ 2007 (689) 224 (3,764) (5,902) 30 $ 2006 (2,511) 1,249 (2,052) 7,769 (1,046) $ (10,101) $ 3,409 $ 2007 38,265 38 $ 2006 32,957 175 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 to the Trust. The transaction was effective May 1, 2006, and increased the Trust’s ownership of DMLP to 100%. 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 acquired of DMLP 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 the REIT A 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 would be entitled to receive on June 30, 2007. The cost of these units was expensed and added to cumulative capital as qualifying properties were acquired. In the first quarter of 2007, DPLP acquired $214,432 (year ended December 31, 2006 — $340,568) of qualifying properties and accordingly $1,230 (year ended December 31, 2006 — $1,524) was expensed and added to cumulative capital representing the cost of the additional 44,674 LP B Units (year ended December 31, 2006 — 55,326 LP B Units) that DRC was entitled to receive on June 30, 2007. As of March 31, 2007, DRC had earned the maximum cumulative additional 100,000 LP B Units that it was entitled to receive, and subsequently these units were released from trust on June 30, 2007, to DRC. Note 25 RISK MANAGEMENT The Trust has some exposure to interest rate risk primarily as a result of its variable rate debt. Variable rate debt at December 31, 2007, was 2.4% of the Trust’s total debt (December 31, 2006 — 2.2%). In order to manage exposure to interest rate risk, the Trust endeavours to maintain an appropriate mix of fixed and floating rate debt, manage maturities of fixed rate debt and match the nature of the debt with the cash flow characteristics of the underlying asset. Due to fluctuations in the exchange rate between the Canadian and U.S. dollars, the Trust is exposed to foreign exchange risk relating to its self-sustaining U.S. operations. 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. The Trust currently does not employ hedging activities to manage its financial risks. 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. Note 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. 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. Note 27 SUBSEQUENT EVENTS Effective January 31, 2008, the Trust completed the purchase of the AIR MILES Tower, a 322,450 square foot office building located at 438 University Avenue in downtown Toronto, for a purchase price of approximately $92,362. Effective January 14, 2008, the Trust completed a public offering of $125,000 principal amount of convertible unsecured subordinated debentures with a coupon rate of 6% per annum payable semi-annually on June 30 and December 31, commencing on June 30, 2008, and due on December 31, 2014. A portion of the principal relating to the conversion feature will be classified as a component of unitholders’ equity. PAGE 90 PAGE 91 DUNDEE REIT 2007 Annual Report Trustees and officers Trustees Dr. Günther Bautz1 ULM, GERMANY David J. Goodman TORONTO, ONTARIO Counsellor on Intellectual Property, Braun GmbH President and Chief Executive Officer DundeeWealth Inc. Detlef Bierbaum2, 4 KÖLN, GERMANY Ned Goodman2, 3, 5 INNISFIL, ONTARIO Officers Ned Goodman CHAIRMAN Michael J. Cooper VICE CHAIRMAN AND CHIEF EXECUTIVE OFFICER Partner, Bankhaus Sal. Oppenheim jr. & Cie President and Chief Executive Officer, Dundee Corporation Michael Knowlton PRESIDENT AND CHIEF OPERATING OFFICER Donald K. Charter TORONTO, ONTARIO Duncan Jackman4 TORONTO, ONTARIO Corporate Director and President, 3C’s Corporation Chairman and CEO E-L Financial Corporation Limited Michael J. Cooper2 TORONTO, ONTARIO Robert Tweedy4 TORONTO, ONTARIO Vice Chairman and Chief Executive Officer, Dundee REIT Chairman, Useppa Holdings Limited Mario Barrafato SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER Jane Gavan CORPORATE SECRETARY Peter A. Crossgrove1, 3, 4 TORONTO, ONTARIO Corporate Director Joanne Ferstman TORONTO, ONTARIO Executive Vice President and Chief Financial Officer, Dundee Corporation Robert G. Goodall1, 3 MISSISSAUGA, ONTARIO President, Canadian Mortgage Capital 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 PAGE 92 . L I M m o k i f a r g : g n i t n i r P n o s l o h c i N y d n a S : y h p a r g o t 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 : n g i s e D d n a t p e c n o C 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 Fax: (416) 365-6565 Transfer agent (for change of address, registration or other unitholder inquiries) COMPUTERSHARE TRUST COMPANY OF CANADA 100 University Avenue, 9th Floor Toronto, Ontario M5J 2Y1 Phone: (514) 982-7555 or 1 800 564-6253 Fax: (416) 263-9394 or 1 888 453-0330 E-mail: service@computershare.com 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, 2007, are taxed as follows: January–August 2007 Other income: 88.2% Taxable capital gains: 1.8% Return of capital: 10.0% September–December 2007 Other income: 36.7% Taxable capital gains: 5.1% Return of capital: 58.2% Management estimates that 75% of the distributions to be made by the REIT in 2008 will be tax deferred. Stock exchange listing THE TORONTO STOCK EXCHANGE Listing symbols REIT Units, Series A: D.UN 6.5% Convertible Debentures: D.DB 5.7% Convertible Debentures: D.DB.A 6.0% Convertible Debentures: D.DB.B Annual and special meeting of unitholders Wednesday, May 7, 2008, at 2:00 pm (MDT) Fairmont Palliser Hotel Turner Valley Room 133 9th Avenue SW Calgary, Alberta Distribution Reinvestment and Unit Purchase Plan The purpose of our Distribution Reinvestment and Unit Purchase Plan (“DRIP”) is to provide Unitholders with a convenient way of investing in additional units without incurring transaction costs such as commissions, service charges or brokerage fees. By participating in the Plan, you may invest in additional units in two ways: Distribution reinvestment: Unitholders will have cash distributions from Dundee REIT reinvested in additional units as and when cash distributions are made. Cash purchase: Unitholders may invest in additional units by making cash purchases. If you register in the DRIP you will also receive a “bonus” distribution of Units equal to 4% of the amount of your cash distribution reinvested pursuant to the Plan. In other words, for every $1.00 of cash distributions reinvested by you under the Plan, $1.04 worth of Units will be purchased. To enrol, contact: COMPUTERSHARE TRUST COMPANY OF CANADA 100 University Avenue, 9th Floor Toronto, Ontario 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 DUNDEE REAL ESTATE INVESTMENT TRUST State Street Financial Centre 30 Adelaide Street East, Suite 1600 Toronto, Ontario M5C 3H1 www.dundeereit.com