Dundee REIT Annual Report 2009

Plain-text annual report

DUNDEE REIT 2009 Annual Report Contents 1 2 4 Highlights Letter to unitholders Portfolio listing 6 Management’s discussion and analysis 6 6 7 7 8 9 10 11 11 12 12 SECTION I — OBJECTIVES AND FINANCIAL HIGHLIGHTS Basis of presentation Our objectives Our strategy Our assets Our equity Key performance indicators Financial overview Outlook 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 35 Our results of operations Income statement results Rental properties revenue Interest and fee income Rental properties operating expenses Interest expense Depreciation of rental properties Amortization of 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 41 42 Selected annual information Quarterly information 44 SECTION III — DISCLOSURE CONTROLS AND PROCEDURES 45 45 45 46 46 46 47 47 48 48 SECTION IV — RISKS AND OUR STRATEGY TO MANAGE Real estate ownership Illiquidity of real estate investments Competition in the office and industrial real estate market Environmental risk Financing risk Insurance Joint venture, partnership and co-ownership agreements SECTION V — CRITICAL ACCOUNTING POLICIES Critical accounting estimates Impairment of long-lived assets Impairment of amounts receivable Purchase price allocations Intangible assets and liabilities Depreciation Leasing costs and tenant improvements Income taxes 50 Changes in accounting policies 58 Management’s responsibility for financial statements 59 Auditors’ report 60 Consolidated financial statements 65 Notes to the consolidated financial statements 94 Trustees and officers IBC Corporate information DUNDEE REIT 2009 Annual Report Highlights PORTFOLIO OVERVIEW December 31, 2009 (thousands of square feet) Yellowknife 326 Office Saskatoon 193 Office Regina 329 Office Edmonton 387 Industrial Vancouver 519 Office Calgary 2,878 Office 1,273 Industrial Ofﬁce 5,734 Industrial 1,660 Portfolio 7,394 Toronto 1,250 Office Ottawa 239 Office Dundee Real Estate Investment Trust Dundee REIT is an unincorporated, open-ended real estate investment trust. We own approximately 7.4 million square feet of high-quality, affordable business premises located across Canada. TOTAL ASSETS (IN MILLIONS OF DOLLARS) OCCUPANCY 05 06 07 08 09 $1,508 $2,128 $1,156 $1,316 $1,335 05 96.3% 06 96.4% 07 96.7% 08 94.0% 09 95.4% FUNDS FROM OPERATIONS PER UNIT 05 06 07 08 09 $2.61 $2.82 $3.00 $3.06 $3.04 05 06 07 08 09 05 06 07 08 09 05 06 07 08 09 PAGE 1 DUNDEE REIT 2009 Annual Report Letter to unitholders MICHAEL J. COOPER Vice Chairman and Chief Executive Ofﬁcer “During a challenging economic time our portfolio produced solid results.” PAGE 2 We are pleased with our operational and ﬁnancial performance in 2009. During a challenging economic time our portfolio produced solid results, we improved the quality of our cash ﬂow and we strengthened our ﬁnancial ﬂexibility. Our occupancy rate remained strong throughout the year, reﬂecting our success in renewing leases with existing tenants and attracting new tenants to our portfolio. Incremental improvements in occupancy as well as acquisitions contributed to increased net operating income both from the comparative portfolio and the overall portfolio on a quarterly basis and year-over-year. An impressive increase in our unit price throughout the year coupled with the completion of equity offerings has signiﬁcantly increased our public ﬂoat and has allowed us to grow our portfolio without increasing our leverage. The property acquisitions completed in the fourth quarter and subsequent to year-end have brought greater geographic diversiﬁcation to our national portfolio and are improving the overall quality of our cash ﬂows. In short, from all perspectives our business is getting stronger and our units are providing a very attractive investment option for those seeking a stable and reliable return. According to Statistics Canada, our economy grew by 5% in the fourth quarter of 2009, an important indicator that the economic recovery is much stronger than initially anticipated. In fact, this was the largest quarterly increase since the third quarter of 2000, and suggests strong momentum going into 2010. The recession in Canada, which lasted for three quarters until mid-2009, played out very differently than in the United States. Conﬁdence and liquidity have returned to the debt and capital markets and we believe that 2010 will prove to be a year of improving economic and leasing fundamentals. The Calgary market remains challenging and increased competition for downtown ofﬁce space has resulted in a signiﬁcant decline in market rents. Our properties, however, are maintaining steady occupancy rates that are well above the average market rate and are producing consistent cash ﬂow. We believe that Calgary-based businesses are performing well and are actually becoming more optimistic in their business outlook. The new supply of ofﬁce space being delivered to the market will keep pressure on rental rates, but there is real demand for ofﬁce space and we believe that in the longer term, once this market begins to improve it will likely do so more quickly than predicted. However, reducing our exposure to Calgary remains a priority. A couple of years ago, about 60% of our operating income was derived from the Calgary ofﬁce segment. With the completion of our recent acquisitions, this has been reduced to less than 40%. As we continue to diversify our portfolio and reduce the percentage of our income derived from Calgary, its effect on our business as a whole will become less signiﬁcant. DUNDEE REIT 2009 Annual Report We look to the year ahead with optimism about our ability to capture rental rate uplifts as the recovery continues and pursue opportunities to grow our portfolio. We’re of the view that properties acquired today will perform well against the generally conservative acquisition assumptions that reﬂect the current modest operating environment. The properties acquired over the last few months increase the overall quality of our asset base and the quality of our cash ﬂow. Over time, we expect growing cash ﬂow from these properties as they offer some leasing opportunities with respect to vacant space and have in-place rents that are below market. The assets we are currently looking at offer reasonable levered returns, but also have increasing, accretive cash ﬂow. Given the current market conditions, we expect to acquire an additional $400 million of assets this year that meet our criteria with respect to overall asset quality and accretive cash ﬂow. In the past we have not discussed our initiatives with respect to reducing the environmental impact of our operations. We recognize the role we must play with respect to environmental stewardship and sound environmental practices and are working to develop a corporate responsibility and sustainability reporting framework that will effectively convey our current practices, as well as our goals and objectives and our progress towards their achievement. While that framework is not yet ready, we wanted to provide a view into our current practices. The Building Owners and Managers Association (“BOMA”) has designed a national program called BOMA BESt (Building Environmental Standards) to address an industry need for realistic standards for energy and environmental performance of existing buildings based on accurate, independently veriﬁed information. To date, 3.2 million square feet of our ofﬁce properties, representing about 50% of our ofﬁce gross leasable area, have achieved the BOMA BESt green building certiﬁcation and we anticipate certifying another 1.3 million square feet or 20% in 2010. Achieving certiﬁcation demonstrates our compliance with industry best practices and includes performing energy and water audits, continually monitoring resource consumption and having a preventative maintenance program in place. The energy and water audits provide us with an in-depth look at current practices and what we can do to improve them. The next step is to develop and execute implementation plans to reduce electricity, gas and water consumption on a building by building basis. Our stringent preventative maintenance practices not only ensure the efﬁciency of our systems but also keep us on top of any issues as they arise and allow us to correct problems while they are still in their early stages. In addition, we have established environmental policies and procedures to help ensure that we meet or exceed all environmental laws and regulations in the management of our properties. Policy statements have been developed for waste reduction and diversion, water consumption and the use of environmentally friendly products and services. In 2008, we received two awards recognizing environmental excellence related to the major retroﬁt of the exterior cladding of a building in Yellowknife. In addition to improving tenant comfort, we achieved signiﬁcant improvements in fuel and power consumption. I am very pleased with the progress achieved over the past year. Dundee REIT is in signiﬁcantly better shape as a business and as a public enterprise than I would have expected at this time last year. Given the uncertainty in the general markets and the poor returns investors have received in the stock market over the last couple of years, reliable cash ﬂow is very attractive. The task at hand is to grow Dundee REIT and make it more valuable, and to do so in a way that gives investors the assurance they need that it is a safe investment. As long as we are able to raise new equity at a fair price and retain a conservative balance sheet, we can grow our business in a manner that makes it safer regardless of the economic environment. We are conﬁdent that 2010 will be a good year for investing in Canada’s key real estate markets and that we will have the opportunity to once again grow Dundee REIT into a large diversiﬁed business and make it more valuable on a per unit basis. MICHAEL J. COOPER Vice Chairman and Chief Executive Ofﬁcer PAGE 3 DUNDEE REIT 2009 Annual Report Portfolio listing December 31, 2009 Ofﬁce properties Station Tower, Surrey 4400 Dominion Street, Burnaby 625 Agnes Street, New Westminster 4370 Dominion Street, Burnaby 960 Quayside Drive, New Westminster TELUS Tower, Calgary 840-7th Avenue SW, Calgary McFarlane Tower, Calgary Life Plaza, Calgary Airport Corporate Centre, Calgary Franklin Atrium, Calgary Roslyn Building, Calgary IBM Corporate Park 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 3510 29th Street NE, Calgary 2175 29th Street NE, Calgary 2256 29th Street NE, Calgary Mount Royal Place, Calgary 2121 29th Street NE, 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 Scotia Centre, Yellowknife Precambrian Building, Yellowknife Northwest Tower, Yellowknife Preston Centre, Saskatoon Bellanca Building, Yellowknife 6655-6725 Airport Road, Mississauga AIR MILES Tower, Toronto 720 Bay Street, Toronto State Street Financial Centre, Toronto 2645 Skymark Avenue, Mississauga Gateway Business Park, Ottawa 1125 Innovation Drive, Ottawa OWNERSHIP INTEREST (%) OWNED SHARE OF TOTAL GLA (SQ. FT.) OCCUPANCY (%) SIGNIFICANT TENANTS 100 100 100 100 100 50 100 100 100 100 100 100 33 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 50 100 100 100 217,887 91,875 85,629 63,944 59,880 354,315 267,714 240,138 236,847 148,253 145,879 132,043 117,625 110,138 109,636 105,190 98,713 88,737 87,368 77,417 76,755 64,897 58,156 58,015 57,411 57,050 50,577 44,230 36,428 27,180 27,016 185,104 144,165 130,991 100,121 88,351 85,748 61,810 52,285 329,728 322,557 247,743 206,973 142,487 120,600 118,653 97.0 88.2 93.2 100.0 98.3 100.0 96.1 95.0 90.4 94.7 93.7 93.1 100.0 95.0 92.7 98.5 100.0 86.9 100.0 100.0 100.0 81.3 81.9 86.6 86.8 100.0 95.2 100.0 100.0 100.0 100.0 100.0 100.0 99.1 96.8 100.0 98.4 92.0 100.0 100.0 99.1 100.0 100.0 100.0 91.2 100.0 Government of British Columbia; Government of Canada Keystone Environment Ltd.; Syspro Software Ltd.; Kelron Distribution Government of British Columbia; Government of Canada Jacques Whitford Environment; Odenza Marketing Group Inc.; Bayshore Home Support Westminster Savings Credit Union; Royal Bank of Canada; Government of Canada TELUS Communications; Bantrel Co.; SNC Lavalin; Norwest Corporation; Government of Alberta Hatch Optima Ltd. Government of Alberta; Saxon Energy Services; Tusk Energy MEG Energy Corp; Standard Land Government of Canada; Government of Alberta Care Factor Computer Services; Guest-Tek Interactive Entertainment Ensign Resource Service Group Newalta Corporation; IBM Canada Ltd. Gemini Corporation Gemini Corporation Wawanesa Mutual Insurance AMEC Americas Ltd. Energy & Mining Phoenix Technologies Services; Profound Energy Inc.; Zapata Energy Corporation Yellow Pages Group Co. IBI Group SNC Lavalin; Precision Drilling Corp. Schlumberger Canada Ltd. Mentor Engineering Inc. P&H Mine Pro First Calgary Petroleum Ltd. Lifemark Health Management Inc. TELUS Communications Inc. Weatherford Canada Partnership ARAM Systems Ltd. Royal Bank of Canada Shell Canada Energy Ltd.; Fortis Alberta Inc.; Western Hockey League Co-operators Life Insurance; Conexus Credit Union; CGI Group Government of Saskatchewan Government of Canada Government of NWT BHP Billiton Diamond Inc.; Government of NWT Government of NWT; Bell Canada UMA Engineering Ltd. Government of Canada Winners Merchants International; Aditya Birla Minacs; Livingston International Inc. Loyalty Management; TIC Travel Insurance; Smart & Biggar Management Ltd.; Dutton Brock LLP Government of Ontario State Street Trust Company; International Financial Data Services; Dundee Realty Management Corp. WorleyParsons Canada: Fashion Distributors Academie de Linguistique; Eion Inc.; Cryptocard Corporation Edgewater Computer Systems Inc.; CAE Professional Services Inc.; Skywave Mobile Communication Total office properties 5,734,259 96.7% PAGE 4 DUNDEE REIT 2009 Annual Report December 31, 2009 OWNERSHIP INTEREST (%) OWNED SHARE OF TOTAL GLA (SQ. FT.) OCCUPANCY (%) SIGNIFICANT TENANTS Industrial properties 7102-7220 Barlow Trail SE, Calgary 7004-7042 30th Street SE, Calgary 4710-4760 14th Street NE, Calgary 2777 23rd Avenue NE, Calgary 2150 29th Street NE, Calgary 1139-1165 40th Avenue NE, Calgary 2151 32nd Street NE, Calgary 501-529 36th Avenue SE, Calgary 4504-4576 14th Street NE, Calgary 2928 Sunridge Way NE, Calgary 4402-4434 10th Street NE, Calgary 2985 23rd Avenue NE, Calgary 535-561 36th Avenue SE, Calgary 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 15303-128th Avenue, Edmonton Alberta Park, Edmonton Park 19, Edmonton Wood Group ESP, Edmonton 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 Total industrial properties Total office and industrial properties 222,590 94,208 72,790 67,250 59,554 57,344 57,198 57,152 57,026 56,917 54,000 53,110 41,440 30,000 30,000 28,792 28,667 25,200 24,000 21,552 21,172 18,900 15,787 15,600 14,340 13,240 13,200 11,400 5,400 5,400 178,000 130,162 48,365 30,353 1,660,109 7,394,368 Ice River Springs; Vaman Enterprises Ltd.; Sea NG Management Corp. Control Chemical (1989) Corp.; Artic Truck Parts & Service; Aspen Grove Woodcraft Collega International; Riomar Holdings Inc.; Royal Canadian Legion Sleep Country Canada LP Zedi Inc.; ROE Logistics Inc.; Pitney Bowes of Canada Ltd. Instabox Alberta Inc. Coast Wholesale Appliances LP; Hafele Canada Inc.; Corporate Express Canada Inc. Icon Stone and Tile Inc.; East West Plastic and Electric; DWA Interior Furnishings Inc. McGregor & Thompson Hardware Ltd.; Alberta Dampproofing and Waterproofing Ltd.; Unlimited Video Staging Everserve International Products Inc.; A.M.P.M. Services; Dawson’s Coffee Services Ltd. Budrich Industries; Scholastic Book Fairs Canada; Hydra Lawn & Garden Inc. Sembiosys Genetics Inc. The Flower Market Khalliday Holdings Inc. o/a Spindle, Stairs & Railings; Entreprise Robert Thibert Inc. Ametek (Canada) Inc. Tac Mobility; Metro Hardwood Floors Ltd.; No Limits A.F.C. Inc. Chateau Exteriors Ltd.; Gaults Distributors Inc.; Fitness Depot Wolseley Canada Inc.; 2 Clean Inc.; Cal Spas & Billiards Ian Heggie o/a JJ Lawncare; Rising Edge Engineering Ltd.; Kanas Corp. International Furniture Wholesale; Avina Fresh Mushrooms Inc.; Hampton Construction Productive Office Space Ltd.; Focus Canada Forwarders; The University of Calgary Beauty Depot Enterprises; Jon William’s Art Studio; Gainsborough Gallery/Framing Mobile Augers & Research Ltd.; Anwalt International Ltd.; Everharvest Enterprise Ltd. East-West Express Inc.; Koch Tractor; Kullar Trucking Ltd. Mars Blinds & Shutters Ltd.; Gourmet Royal; Windshield Surgeons Calgary Ltd. Eureka-Tech Inc.; Barudan Canada Inc.; Damarco Services & Restoration Alpine Autowerks; Western High Voltage; Tinting Illusions Audio Video Interiors Ltd.; Chinook Auto Upholstery Thermo Design Insulation Ltd.; Sunset Fireworks It’s A Work Inc. o/a Storm Wrestling Academy; Libertas Industries Inc.; Mettler–Toledo Inc. Highland Moving & Storage Ltd. McLeod Windows; North American Construction; Elite Marble & Granite Boden Fabricating Wood Group ESP (Canada) Ltd. 100.0 89.1 90.9 100.0 100.0 92.9 89.3 100.0 94.9 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 62.4 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 35.0 98.0 100.0 100.0 90.6% 95.4% Redevelopment properties and properties held for sale 110 Sheppard Avenue East, Toronto 50 78,294 Gallery Building, Yellowknife 100 12,960 Total redevelopment properties and properties held for sale 91,254 PAGE 5 DUNDEE REIT 2009 Annual Report Management’s discussion and analysis (All dollar amounts in our tables are presented in thousands, except rental rates, unit and per unit amounts) SECTION I — OBJECTIVES AND FINANCIAL HIGHLIGHTS BASIS OF PRESENTATION Our discussion and analysis of the ﬁnancial position and results of operations of Dundee Real Estate Investment Trust (“Dundee REIT” or the “Trust”) should be read in conjunction with the audited consolidated ﬁnancial statements of Dundee REIT for the year ended December 31, 2009. This management’s discussion and analysis has been dated as at January 31, 2010, 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 Class B Units, Series 1 • “Units”, meaning REIT Units, Series A; REIT Units, Series B; LP Class B Units, Series 1; and Special Trust Units, collectively Certain market information has been obtained from the CB Richard Ellis MarketView, Fourth Quarter 2009, a publication prepared by a commercial ﬁrm that provides information relating to the real estate industry. Although we believe this information is reliable, the accuracy and completeness of this information is not guaranteed. We have not independently veriﬁed this information and make no representation as to its accuracy. Certain information herein contains or incorporates comments that constitute forward-looking information within the meaning of applicable securities legislation. Forward-looking information is based upon a number of assumptions and is subject to a number of risks and uncertainties, many of which are beyond Dundee REIT’s control, that could cause actual results to differ materially from those that are disclosed in or implied by such forward-looking information. These risks and uncertainties include, but are not limited to, general and local economic and business conditions; the ﬁnancial condition of tenants; our ability to reﬁnance maturing debt; leasing risks, including those associated with the ability to lease vacant space; our ability to source and complete accretive acquisitions; and interest and currency rate ﬂuctuations. Although the forward-looking statements contained in this management’s discussion and analysis are based upon what we believe are reasonable assumptions, there can be no assurance that actual results will be consistent with these forward-looking statements. Factors that could cause actual results to differ materially from those set forth in the forward-looking statements and information include, but are not limited to, general economic conditions; local real estate conditions, including the development of properties in close proximity to the Trust’s properties; timely leasing of vacant space and re-leasing of occupied space upon expiration; dependence on tenants’ ﬁnancial condition; the uncertainties of acquisition activity; the ability to effectively integrate acquisitions; interest rates; availability of equity and debt ﬁnancing; that the speciﬁed investment ﬂow-through trust (“SIFT”) Rules and the normal growth guidelines are not applicable to us; and other risks and factors described from time to time in the documents ﬁled by the Trust with the securities regulators. All forward-looking information is as of January 31, 2010, 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 6 DUNDEE REIT 2009 Annual Report OUR OBJECTIVES We are committed to: • managing our business 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; • providing predictable and sustainable cash distributions to unitholders and prudently managing distributions over time; 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. 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. Unitholders who enrol in the DRIP receive a bonus distribution of 4% with each reinvestment. At January 31, 2010, approximately 8% of our total units were enrolled in the DRIP, including 8% of the REIT A Units and 9% of the LP B Units. There is no equivalent program for the REIT B Units (see a description of Our Equity on page 9). 2009 Jan Feb Mar Apr May June July Aug Sept Oct Nov Dec Distribution rate $0.183 $0.183 $0.183 $0.183 $0.183 $0.183 $0.183 $0.183 $0.183 $0.183 $0.183 $0.183 Month-end closing price $11.89 $13.75 $12.75 $13.40 $15.05 $15.15 $16.50 $19.30 $19.46 $19.25 $19.17 $20.75 OUR STRATEGY Dundee REIT’s core strategy is to invest in the ofﬁce and industrial sectors in key markets across Canada, providing a solid platform for stable and growing cash ﬂows. The execution of that strategy, however, is continuously reviewed including acquisitions and dispositions, our capital structure, as well as our analysis of current economic conditions. Our executive team has worked together for many years and has experience operating through a number of real estate cycles. We are highly motivated to continue to increase the value of our portfolio and maintain a sharp focus on providing stable and reliable returns for our unitholders. In addition, Dundee REIT was among the ﬁrst REITs to qualify as a real estate investment trust under the SIFT legislation and we are steadfast in maintaining that status. Dundee REIT’s methodology to meet its strategy and objectives includes: Investing in high-quality ofﬁce and industrial properties Our portfolio is concentrated in Canada’s key urban markets and is comprised of properties that are well located, attractively priced and produce consistent cash ﬂow. When considering acquisition opportunities we look for quality tenancies, strong occupancy, the appeal of the property to future tenants, how it complements our existing portfolio and how we can create additional value. PAGE 7 DUNDEE REIT 2009 Annual Report Optimizing the performance, value and cash ﬂow of our portfolio We manage our properties to optimize long-term cash ﬂow and value. With fully internalized property management, we offer a strong team of highly experienced real estate professionals who are focused on achieving more from our assets. Occupancy rates across our portfolio have remained steady and strong for a number of years. We view this as strong evidence of the appeal of our properties and our ability to meet and exceed tenant expectations. Dundee REIT has a proven ability to identify and execute value-add opportunities and a track record for outperforming the real estate index. Diversifying our portfolio to mitigate risk With the acquisitions completed in 2009 and those that closed subsequent to year-end, we have demonstrated our commitment to once again achieving greater geographic diversiﬁcation across our portfolio. We will continue to pursue growth by acquiring properties that enhance our overall portfolio, further improve the sustainability of distributions, strengthen our tenant proﬁle and help mitigate risk. We have experience in each of Canada’s key markets and have the ﬂexibility to pursue the acquisition of ofﬁce and industrial properties in whichever markets offer compelling investment opportunities. Maintaining and strengthening our conservative ﬁnancial proﬁle We have always operated our business in a disciplined manner, with a keen eye on ﬁnancial analysis and balance sheet management to ensure that we maintain a prudent capital structure. We continue to generate cash ﬂows sufﬁcient to fund our distributions while maintaining a conservative debt ratio and balanced debt maturities. 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. Our assets are located in major urban centres across Canada including: Ottawa, Toronto, Saskatoon, Regina, Calgary, Edmonton, Vancouver and Yellowknife. December 31 British Columbia Alberta Saskatchewan & NWT Ontario Total(1) Percentage Total as at Owned gross leasable area (sq. ft.) Ofﬁce Industrial Total 519,215 2,877,728 848,575 1,488,741 — 1,660,109 — — 519,215 4,537,837 848,575 1,488,741 2009 % 7 61 12 20 Total 514,864 4,724,573 849,329 728,874 5,734,259 1,660,109 7,394,368 100 6,817,640 2008 % 8 69 12 11 100 78% 22% 100% December 31, 2008(2) 4,969,858 1,847,782 6,817,640 Percentage 73% 27% 100% (1) Excludes redevelopment properties and properties held for sale. (2) 7102 Barlow Trail has been restated as continuing operations. Subsequent to year-end, we acquired approximately 1.1 million square feet of ofﬁce space in Ontario. The addition of these properties reduces our exposure to the Alberta market from 61% of owned gross leasable area (“GLA”) to 54%. PAGE 8 DUNDEE REIT 2009 Annual Report Ofﬁce rental properties Dundee REIT owns interests in 46 ofﬁce properties (57 buildings) comprising approximately 5.7 million square feet, excluding redevelopment properties, located in Ottawa, Toronto, Saskatoon, Regina, Calgary, Vancouver and Yellowknife. These ofﬁce properties can generally be categorized as high-quality, affordable, suburban and downtown buildings. The occupancy rate across our ofﬁce portfolio remains high at 96.7%, well ahead of the national industry average occupancy rate of 90.1% (CB Richard Ellis, Canadian Ofﬁce MarketView, Fourth Quarter 2009). Our occupancy rates include lease commitments for space which is currently being readied for occupancy but for which rent is not yet being recognized. Subsequent to December 31, 2009, we acquired Adelaide Place, a two-tower Class A ofﬁce complex in downtown Toronto comprising 655,000 square feet with an occupancy rate of 97%. We also acquired the Aviva Corporate Centre in Toronto, a four-building ofﬁce complex comprising 439,000 square feet with an occupancy rate of 99%. Additionally, in the second quarter of 2010, we will be purchasing a fully leased building located in suburban Toronto that will further geographically diversify our portfolio. Industrial rental properties Our industrial portfolio consists of 34 prime suburban industrial properties (37 buildings) comprising approximately 1.7 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. The occupancy rate across our industrial portfolio has softened to 90.6%, from 92.0% at the end of the third quarter. The industry average occupancy rates in our two industrial markets, Calgary and Edmonton, were 94.8% and 96.2%, respectively (CB Richard Ellis, Calgary and Edmonton Industrial MarketView, Fourth Quarter 2009). OUR EQUITY December 31 REIT Units, Series A REIT Units, Series B LP Class B Units, Series 1 Cumulative foreign currency translation adjustment 2009 Number of units Amount Number of units 21,247,397 16,316 3,454,188 $ 312,743 362 92,656 16,947,240 16,316 3,454,188 Unitholders’ equity 2008 Amount $ 271,087 371 98,260 — (6,609) — (5,275) Total 24,717,901 $ 399,152 20,417,744 $ 364,443 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 (“DRC”), related parties to Dundee REIT. Both the REIT Units and Special Trust Units entitle the holder to one vote for each unit at all meetings of the unitholders. The LP B Units are exchangeable on a one-for-one basis for REIT B Units, at the option of the holder, which can then be converted into REIT A Units. The LP B Units and corresponding Special Trust Units together have economic and voting rights equivalent in all material respects to REIT A Units. The REIT A Units and REIT B Units have economic and voting rights equivalent in all material respects to each other. PAGE 9 DUNDEE REIT 2009 Annual Report At December 31, 2009, Dundee Corporation, directly and indirectly through its subsidiaries, held 921,299 REIT A Units and 3,454,188 LP B Units. KEY PERFORMANCE INDICATORS Performance is measured by these and other key indicators: For the three months ended December 31 For the years ended December 31 2009 2008 2009 2008 Operations Occupancy rate (period-end)(1) In-place rent per square foot (ofﬁce and industrial)(1) Operating results Rental properties revenue(2) Net operating income (“NOI”)(3) Funds from operations (“FFO”)(4) Adjusted funds from operations (“AFFO”)(5) Distributions Declared distributions Distributions paid in cash DRIP participation ratio Deferral rate Financing Weighted average interest rate (period-end) Interest coverage ratio Per unit amounts Basic: FFO Distributable income Distribution rate Total distributions as a percentage of distributable income AFFO Diluted:(6) FFO Distributable income $ $ $ $ $ 95.4% 94.0% 15.30 $ 15.30 50,156 30,791 17,363 13,033 13,562 12,591 7% $ 48,385 30,203 16,985 11,745 $ 11,194 10,266 8% $ 192,083 120,954 67,633 49,783 $ 48,450 45,354 6% 77% $ 179,779 113,753 64,652 43,856 $ 45,756 37,112 19% 93% 5.75% 2.4 times 5.83% 2.3 times 2.3 times 2.3 times 0.70 0.59 0.55 93% 0.52 0.69 0.60 $ $ 0.82 0.65 0.55 85% 0.57 0.80 0.65 $ $ 3.04 2.55 2.20 86% 2.24 3.00 2.57 $ $ 3.06 2.40 2.20 92% 2.08 3.01 2.40 NOI, FFO, distributable income and AFFO are key measures of performance used by real estate operating companies; however, they are not deﬁned by Canadian generally accepted accounting principles (“GAAP”), do not have standard meanings and may not be comparable with other industries or income trusts. (1) Excludes redevelopment properties and discontinued property. (2) Prior year comparatives have been restated for discontinued operations. (3) 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 37. (4) FFO — the reconciliation of FFO to net income can be found on page 25. (5) AFFO — the reconciliation of AFFO to distributable income can be found on page 28. (6) Diluted amounts assume the conversion of the 6.5%, 5.7% and 6.0% Debentures. PAGE 10 DUNDEE REIT 2009 Annual Report FINANCIAL OVERVIEW Overall occupancy increased to 95.4% from 94.0% at the end of the prior year. Occupancy across our ofﬁce portfolio has remained stable at 96.7% compared to last year, while our industrial portfolio has improved to 90.6% from 87.0%. Our operations remain strong, with continued year-over-year growth in our rental property revenue and NOI. Rental property revenue increased year-over-year by 7% to $192.1 million and NOI increased by 6% to $121.0 million. On a quarterly basis, rental property revenue and NOI grew by $1.8 million and $0.6 million, respectively, reﬂecting our ability to effectively manage our business as well as accretive leasing activity coming on-line. Details of our NOI begin on page 37. We have a successful track record for managing our lease rollover activity. Renewal and new leasing activity have allowed us to take advantage of generally higher market rates in many of our market segments. The market rental rates in the Calgary ofﬁce segment have declined over the past year; however, at 95.2%, our Alberta ofﬁce portfolio occupancy remains well above the industry average. Details of our leasing proﬁle are provided on page 14. For the year, AFFO increased 14% to $49.8 million, or $2.24 per unit, largely reﬂecting solid growth in NOI, lower interest expense and the impact of deploying our capital. In the fourth quarter we acquired $96.9 million of ofﬁce properties, bringing total acquisitions for the year to $122.9 million. The acquisitions, comprising 596,000 square feet in Toronto and 239,000 square feet in Ottawa, provided our portfolio with greater geographic diversiﬁcation and set the stage for further growth in 2010. Financing activity for the year included the placement of $36.0 million of new mortgage ﬁnancing, $26.7 million of assumed mortgages related to property acquisitions, $15.5 million of principal repayments and $54.5 million of mortgages discharged at maturity. Overall, the weighted average interest rate of our mortgage debt is 5.75%, down slightly from 5.83% in the prior year. We also raised $67.3 million, net of costs, from an equity offering on September 9, 2009. Details of ﬁnancing activity and debt begin on page 31. OUTLOOK We began the year with a great deal of uncertainty with respect to general economic conditions and their potential effect on our tenants, the credit markets and our business. A year later, the Canadian economy is outperforming that of many other countries and our business is performing soundly. Our occupancy rate has improved, our tenants continue to operate their businesses, we’ve successfully managed our debt maturities and we are growing our portfolio. Each of our key performance metrics demonstrates stability and, with the addition of high-quality Ontario-based assets bringing greater geographic diversity to our portfolio, our stock price is also on the rise. Year-over-year, overall occupancy has increased with both the ofﬁce and industrial portfolios performing well. The Calgary market represents our greatest challenge, as increased competition for downtown ofﬁce space has resulted in a signiﬁcant decline in market rents. We have been actively working with tenants well in advance of their expiries to secure commitments to renew or identify leasing opportunities and to ensure the continuity of our cash ﬂow. While deterioration is expected to continue in this market, our occupancy rate is currently well above the average market rate and we have a proven ability to retain and attract tenants. In addition, the characteristics of our portfolio and tenant base are such that we don’t believe we will be impacted to the same extent as the broader market. Further, as we continue to grow our portfolio, any changes in this market will have less of an impact on our overall performance. Going into 2010, we are pleased with the condition of our company. We feel that conﬁdence and liquidity have returned to the debt and capital markets and we no longer need to maintain a signiﬁcant amount of cash on hand. Our team has a proven track record for creating value and, in many ways, Dundee REIT is ideally positioned to take advantage of opportunities that will become available in an improving economy. We look to the year ahead with optimism about our capability to grow our portfolio and improve our business. PAGE 11 DUNDEE REIT 2009 Annual Report SECTION II — EXECUTING THE STRATEGY OUR RESOURCES AND FINANCIAL CONDITION Rental properties The net book value of segmented rental properties by geographic location and asset type is set out below. December 31 British Columbia Alberta Saskatchewan & NWT Ontario Total Percentage Total as at 2009(1) 2008(1) Ofﬁce Industrial Total $ 99,834 $ 646,207 107,754 235,195 — $ 99,834 736,517 107,754 235,195 90,310 — — % 9 62 9 20 Total $ 101,485 761,650 109,490 149,611 % 9 68 10 13 $1,088,990 $ 90,310 $ 1,179,300 100 $ 1,122,236 100 92% 8% 100% December 31, 2008 $ 1,019,280 $ 102,956 $ 1,122,236 Percentage 91% 9% 100% (1) Excludes $1.8 million related to redevelopment properties and $17.6 million related to discontinued properties (December 31, 2008 — excludes $22.8 million related to Greenbriar Mall and $1.0 million related to other redevelopment properties). PORTFOLIO ASSET TYPE BY NET BOOK VALUE (AT DECEMBER 31, 2009) Office 92% • Industrial 8% • Market information GEOGRAPHIC DISTRIBUTION OF RENTAL PROPERTIES BY NET BOOK VALUE (AT DECEMBER 31, 2009) Alberta 62% • British Columbia 9% • Saskatchewan & NWT 9% • Ontario 20% • 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 MarketView, Fourth Quarter 2009. Market information for Saskatchewan and the Northwest Territories is based on local estimates. British Columbia The downtown Vancouver ofﬁce market experienced a surge in leasing activity in the last part of the year, pushing the vacancy rate down to 5.8%. The amount of sublease space on the market also declined signiﬁcantly, down 34%. Leasing activity in suburban Vancouver was mixed with the Surrey market remaining relatively strong but the Burnaby market experiencing weakness. Little activity is expected in the ﬁrst half of 2010; however, it is anticipated that the economy will show some improvement in the second half of the year. PAGE 12 DUNDEE REIT 2009 Annual Report Alberta In Calgary, the combined effect of 1.2 million square feet of new ofﬁce supply coming on stream in 2009 and weakening demand for space from oil and gas companies resulted in rising vacancy rates and weakening rental rates throughout the year. Vacancy at year-end averaged about 15.6% across all classes with sublet space accounting for approximately 47% of total vacancy. It is anticipated that rental rates will continue to trend down as landlords work to maintain their tenant base. Slightly positive absorption in the fourth quarter indicates that there may be some demand for ofﬁce space in 2010; however, the next 24 months will see another 2.5 million square feet added to the ofﬁce inventory causing vacancy to continue to rise. In Edmonton, a number of industrial projects comprising 1.3 million square feet were completed and added to inventory applying upward pressure on vacancy rates which rose to 3.8%. Looking ahead, it is anticipated that demand for industrial space will increase and that existing inventory will remain static as new speculative construction has dried up. The Edmonton ofﬁce market remains strong with downtown vacancy at 7.9%. Saskatchewan and NWT Saskatoon’s GDP growth in 2009, while ﬂat, led the nation and is expected to continue doing so in the year ahead. Inventory in the downtown ofﬁce market grew in 2009, ending the year at just over two million square feet. The demand for ofﬁce space remains strong and even though vacancy has increased slightly to 6.1%, it remains low and there is continued upward pressure on rental rates. The Regina market continues to offer stability and growth. It is expected that the high pace of infrastructure activity and potential spin-off effects from federal infrastructure spending will bode well for Regina in 2010. This ofﬁce market comprises approximately 3.4 million square feet with virtually no vacancy. An announcement regarding the construction of at least one new ofﬁce tower is expected in early 2010. Since it will not be ready for tenant occupancy until 2012, vacancy rates are expected to remain low with continued upward pressure on rental rates. The economy of the Northwest Territories is driven by the government and resource-based businesses. With the resource sector expected to show modest growth and increased infrastructure spending, the outlook for Yellowknife calls for sustained gradual growth. Vacancy remains very tight in this market and we anticipate that rental rates will continue to increase throughout 2010. Ontario Although the economy has demonstrated some improvements, the addition of 3.2 million square feet of new ofﬁce space in Toronto’s ﬁnancial core and a general weakening in demand continue to impact vacancy rates, which rose for the fourth consecutive quarter to 7.3% at year-end. The vacancy rate in suburban Toronto also increased to 11.7%. Net absorption is expected to return to positive levels by 2011. The Ottawa ofﬁce market remained relatively stable throughout 2009. Improvements in occupancy in the suburban east and west markets led to an improvement across the overall region with vacancy dropping to 5.7% at year-end. Overall, the region experienced positive absorption and asking rental rates increased. PAGE 13 DUNDEE REIT 2009 Annual Report Leasing proﬁle The following key performance indicators related to our leasing proﬁle inﬂuence the cash generated from operating activities. Performance indicators at December 31 2009 2008(1) Operating activities (ofﬁce and industrial average)(2) Occupancy level Tenant maturity proﬁle — average term to maturity (years) In-place rental rates (1) 7102 Barlow Trail has been restated as continuing operations. (2) Excludes redevelopment properties and properties held for sale. 95.4% 4.5 15.30 $ 94.0%(1) 4.5 15.30 $ Throughout the year we continued to capture rental rate increases across most of our markets. The average in-place rent in Ontario, however, was impacted by acquisitions completed during the fourth quarter that carried an average in-place rental rate of $11.69, which lowered the average rate for Ontario and caused our overall average in-place rental rate to remain unchanged year-over-year. In-place rental rates at December 31 British Columbia Alberta Saskatchewan & NWT Ontario Total ofﬁce Industrial Alberta Overall $ $ 2009 16.38 18.69 18.41 14.56 17.34 2008 15.59 18.47 17.93 17.49 17.94 7.77 7.35 $ 15.30 $ 15.30 For the period-end, the percentage of occupied and committed space is as follows: (percentage) Ofﬁce Industrial Overall(2) Q4 2009 Q3 2009 Q2 2009 Q1 2009(1) Q4 2008(1) Q3 2008 Q2 2008 Q1 2008 96.7 90.6 95.4 95.9 92.0 94.9 96.0 89.3 94.2 96.4 91.1 95.0 96.6 87.0 94.0 97.6 90.9 95.8 97.4 94.1 96.5 96.0 92.3 95.0 (1) 7102 Barlow Trail has been restated as continuing operations. (2) Excludes redevelopment properties and properties held for sale. PAGE 14 DUNDEE REIT 2009 Annual Report The overall percentage of occupied and committed space across our rental properties portfolio was 95.4% at quarter-end. The average occupancy rate across our ofﬁce portfolio is 96.7%, an increase over the last quarter and the prior year and well above the national industry average of 90.1%. The average occupancy rate across our industrial portfolio is 90.6%, down from the last quarter due to a 24,000 square foot increase in vacancy, but an improvement over the prior year. The overall occupancy rates for industrial space in Calgary and Edmonton were 94.8% and 96.2%, respectively (CB Richard Ellis, Canadian ofﬁce and Calgary and Edmonton Industrial MarketViews, Fourth Quarter 2009). Our occupancy rates discussed in this report include occupied and committed space at December 31, 2009. (percentage) Ofﬁce British Columbia Alberta Saskatchewan & NWT Ontario Total ofﬁce Industrial Alberta Overall(2) December 31, September 30, 2009 2009 Total portfolio December 31, 2008(1) Comparative properties December 31, September 30, 2009 2009 December 31, 2008(1) 95.3 95.2 98.7 99.1 96.7 90.6 95.4 93.5 95.1 99.3 96.4 95.9 92.2 94.9 96.9 96.4 98.2 95.2 96.6 87.0 94.0 95.3 95.2 98.7 99.6 96.4 90.6 94.9 93.5 95.1 99.3 99.6 96.3 92.0 95.2 96.9 96.4 98.2 98.6 97.1 85.6 94.2 (1) 7102 Barlow Trail has been restated as continuing operations. (2) Excludes redevelopment properties. PAGE 15 DUNDEE REIT 2009 Annual Report Vacancy schedule The tables below distinguish between space that is currently vacant and space that is committed for future occupancy, and provide a continuity for the vacant space component. During the fourth quarter, approximately 206,000 square feet of leases expired or were terminated, and we completed approximately 239,000 square feet of renewals and new leasing. Overall, we reduced vacancy by 51,000 square feet. Throughout the year approximately 1,216,000 square feet of leases expired or were terminated and we completed 1,260,000 square feet of renewals and new leasing. Of the vacant space at period-end, approximately 90,000 square feet, or 21%, is committed for future occupancy, leaving approximately 343,000 square feet available for lease. For the three months ended December 31, 2009 (in square feet) Available for lease Vacancy committed for future leases Vacant space — October 1, 2009 Acquired/Disposed vacancy Remeasurements Expiries Early terminations and bankruptcies New leases Renewals Vacant space — December 31, 2009 Vacancy committed for future leases Available for lease — December 31, 2009 (in square feet) Available for lease Vacancy committed for future leases Vacant space — January 1, 2009 Vacancy on property previously held for sale Vacant space — January 1, 2009 (restated) Acquired/Disposed vacancy Remeasurements Expiries Early terminations and bankruptcies New leases Renewals Vacant space — December 31, 2009 Vacancy committed for future leases Available for lease — December 31, 2009 PAGE 16 Ofﬁce 210,732 67,392 278,124 (17,655) (461) 96,001 14,337 (72,587) (61,865) 235,894 49,083 186,811 Ofﬁce 169,479 85,138 254,617 — 254,617 (17,655) 2,965 751,691 62,612 (279,680) (538,656) 235,894 49,083 186,811 Industrial 132,338 74,992 207,330 — — 80,202 15,280 (84,361) (20,136) 198,315 41,852 156,463 Total 343,070 142,384 485,454 (17,655) (461) 176,203 29,617 (156,948) (82,001) 434,209 90,935 343,274 For the year ended December 31, 2009 Industrial 48,079 10,440 58,519 191,240 Total 217,558 95,578 313,136 191,240 249,759 504,376 (6,707) (4,734) 358,475 43,040 (322,103) (119,415) 198,315 41,852 156,463 (24,362) (1,769) 1,110,166 105,652 (601,783) (658,071) 434,209 90,935 343,274 DUNDEE REIT 2009 Annual Report The following two tables detail our lease maturity proﬁle by asset type and geographic segment as at December 31, 2009. The tables distinguish between lease maturities that have yet to be renewed or re-leased and maturities for which we have a leasing commitment. The uncommitted line should be referenced when considering future leasing risks or opportunities and the committed line should be referenced when considering the impact of leasing activity. We have a long and successful track record in managing our lease rollovers. During 2010, approximately 13% of our leases will expire. Of these expiries, approximately 26% have been renewed as of year-end, leaving 74% to be renewed by the end of 2010. (in square feet) Office — uncommitted Office — committed Current vacancy 186,811 — Current monthly tenancies 2010 2011 2012 2013 2014 to 2022 Total 29,122 490,853 — 202,343 661,024 604,702 93,589 59,378 867,210 2,500,070 5,339,792 31,928 394,467 7,229 Total ofﬁce 186,811 29,122 693,196 720,402 698,291 874,439 2,531,998 5,734,259 Industrial — uncommitted 156,463 — Industrial — committed 15,200 211,930 — 46,600 227,150 14,100 346,013 — 203,139 — 439,514 1,599,409 — 60,700 Total industrial 156,463 15,200 258,530 241,250 346,013 203,139 439,514 1,660,109 Total — uncommitted Total — committed 343,274 — 44,322 702,783 — 248,943 888,174 73,478 950,715 1,070,349 2,939,584 6,939,201 455,167 93,589 31,928 7,229 Total 343,274 44,322 951,726 961,652 1,044,304 1,077,578 2,971,512 7,394,368 (in square feet) British Columbia — Current vacancy Current monthly tenancies 2010 2011 2012 2013 2014 to 2022 Total uncommitted 24,200 10,799 34,346 94,916 28,969 60,797 265,188 519,215 British Columbia — committed — — — — — — — — Total British Columbia 24,200 10,799 34,346 94,916 28,969 60,797 265,188 519,215 Alberta — uncommitted 294,938 — Alberta — committed 33,408 — 619,956 648,443 57,073 176,381 653,037 — 569,784 1,474,415 4,293,981 243,856 7,229 3,173 Total Alberta 294,938 33,408 796,337 705,516 653,037 577,013 1,477,588 4,537,837 Saskatchewan & NWT — uncommitted 10,691 115 19,773 74,531 207,828 125,723 334,676 773,337 Saskatchewan & NWT — committed — — 70,602 4,636 — — — 75,238 Total Saskatchewan & NWT Ontario — uncommitted Ontario — committed Total Ontario 10,691 13,445 — 13,445 115 90,375 79,167 207,828 125,723 334,676 848,575 — — — 28,708 1,960 70,284 11,769 60,881 93,589 314,045 — 865,305 1,352,668 136,073 28,755 30,668 82,053 154,470 314,045 894,060 1,488,741 Total — uncommitted Total — committed 343,274 — 44,322 702,783 — 248,943 888,174 73,478 950,715 1,070,349 2,939,584 6,939,201 455,167 93,589 31,928 7,229 Total 343,274 44,322 951,726 961,652 1,044,304 1,077,578 2,971,512 7,394,368 PAGE 17 DUNDEE REIT 2009 Annual Report The following tables provide expiring rents across our portfolio as well as our estimate of average market rents based on current leasing activity in comparable properties as at December 31, 2009. Expiring rents Ofﬁce Industrial Portfolio average Market rents(1) Ofﬁce Industrial Market rent average Current monthly tenancies $ 19.08 7.27 15.03 $ 19.39 8.57 15.68 2010 2011 2012 2013 $ 16.98 8.91 14.55 $ 16.62 9.31 14.41 $ 18.06 8.09 15.51 $ 16.69 9.94 14.96 $ 20.43 6.75 15.45 $ 18.88 7.62 14.78 $ 18.73 9.77 17.03 $ 16.03 9.13 14.72 2014 to 2022 $ 18.22 8.59 16.80 $ 17.90 6.91 16.28 (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. Expiring rents British Columbia Alberta ofﬁce Saskatchewan & NWT Ontario Alberta industrial Portfolio average Market rents(1) British Columbia Alberta ofﬁce Saskatchewan & NWT Ontario Alberta industrial Market rent average Current monthly tenancies $ 19.99 18.18 74.67 — 7.27 15.03 $ 25.00 16.06 20.00 — 8.57 15.68 2010 2011 2012 2013 $ 12.98 17.36 24.52 11.18 8.91 14.55 $ 16.09 16.59 25.75 11.39 9.31 14.41 $ 15.47 19.24 18.25 14.25 8.09 15.51 $ 17.17 15.47 25.09 14.41 9.94 14.96 $ 15.38 21.55 21.13 14.83 6.75 15.45 $ 21.35 17.05 22.79 13.62 7.62 14.78 $ 17.11 21.33 20.55 15.27 9.77 17.03 $ 14.54 15.71 22.54 14.09 9.13 14.72 2014 to 2022 $ 18.92 20.07 17.44 16.11 8.59 16.80 $ 21.03 17.58 20.35 16.45 6.91 16.28 (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. PAGE 18 DUNDEE REIT 2009 Annual Report The average remaining lease term and other portfolio information as at December 31 is detailed below. December 31 Ofﬁce Industrial Portfolio average Average remaining lease term (years) 4.75 3.83 4.54 Average tenant size (sq. ft.) 10,198 7,335 9,414 2009(1) Average in-place net rent (per sq. ft.)(2) $ 17.34 7.77 15.30 Average remaining lease term (years) 4.89 3.39 4.52 Average tenant size (sq. ft.) 9,544 7,404 8,907 2008(1) Average in-place net rent (per sq. ft.)(2) $ 17.94 7.35 15.30 (1) Excludes redevelopment properties. (2) Average in-place rents include straight-line rent adjustments. Impact of Adelaide Place and Aviva Corporate Centre on portfolio indicators Subsequent to December 31, 2009, we acquired Adelaide Place and Aviva Corporate Centre in Toronto. Overall, the acquisitions have the effect of generally improving the difference between expiring and market rents. The pro forma impact of these acquisitions on our portfolio rents is summarized below. Current monthly tenancies 2010 2011 2012 2013 2014 to 2023 Expiring rents At December 31, 2009 Pro forma 2010 acquisitions Market rents At December 31, 2009 Pro forma 2010 acquisitions $ 15.03 15.03 $ 14.55 14.46 $ 15.51 13.96 $ 15.45 16.27 $ 17.03 17.36 $ 16.80 16.32 $ 15.68 15.68 $ 14.41 14.61 $ 14.96 13.89 $ 14.78 15.97 $ 14.72 15.47 $ 16.28 18.17 Acquisitions completed subsequent to year-end will lengthen the average remaining lease term and increase the average in-place rental rate. December 31, 2009 Ofﬁce Portfolio average Average remaining lease term (years) 4.81 4.61 Pro forma 2010 acquisitions Average tenant size (sq. ft.) 10,173 11,123 Average net rent (per sq. ft.) $ 17.07 15.33 Tenant base profile Our tenant base includes a wide range of high-quality tenants such as the government, large international corporations and small entrepreneurial businesses across the country. With 749 tenants, our risk exposure to any single large lease or tenant is low. The average sizes of our ofﬁce and industrial tenants are approximately 10,200 and 7,300 square feet, respectively, placing us at the lower end of our peer group. Effectively managing this diverse tenant base is one of our key strengths and has helped us maintain consistently high occupancy levels and to continually capitalize on rental rate uplifts. PAGE 19 DUNDEE REIT 2009 Annual Report The following chart 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, 2009) Other 22% • Administrative support, waste management Manufacturing 3% • Transportation and warehousing 4% • and remedial services 8% • Finance and insurance 9% • • Professional, scientific and technical services 19% • Public administration 14% • Mining and oil and gas extraction 11% • Information and cultural industries 10% The diversity of our tenant base helps to ensure segments that undergo greater than average stress do not unduly impact us. Much of the Alberta economy is inﬂuenced by the oil and gas sector, therefore our greatest area of vulnerability for this segment of our portfolio is not necessarily with respect to a speciﬁc industry sector as much as it is to the impact of the oil and gas sector on the general economy of Alberta. In the fourth quarter we completed four acquisitions in Ontario and, subsequent to year-end, we have completed two more in Toronto. The addition of these properties improves the geographic diversiﬁcation of our portfolio and reduces our exposure to the Alberta market to 54% from 61% based on owned gross leasable area. We are very proactive in analyzing our portfolio and tenancies, and are focused on tenant retention and leasing. The manufacturing sector continues to feel the greatest impact from the current economic conditions and strengthening in the Canadian dollar. As indicated by the chart above, manufacturing comprises only a minor component of our portfolio. The stability and quality of our cash ﬂow is enhanced by the fact that government and government agencies contribute 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 and high-quality businesses. The table below sets out our ten largest tenants and outlines their contributions to our rental revenues. Tenant TELUS Communications Government of Ontario Government of Canada Loyalty Management Group Government of British Columbia State Street Trust Company Government of Northwest Territories Winners Merchants International Government of Saskatchewan Hatch Optima Ltd. Owned area in sq. ft. 311,253 247,743 279,497 183,014 181,944 122,344 121,793 178,418 141,469 94,388 4.2 3.3 3.8 2.5 2.5 1.7 1.6 2.4 1.9 1.3 Total 1,861,863 25.2 PAGE 20 % of owned area % of gross rental revenue Expiry 2013—2016 2014 2010—2019 2017 2010—2014 2022 2010—2014 2010—2015 2011—2018 2016 5.4 4.3 4.3 3.2 3.1 2.7 2.7 2.2 1.8 1.8 31.5 DUNDEE REIT 2009 Annual Report Liquidity and capital resources Dundee REIT’s primary sources of capital are cash generated from operating activities, credit facilities, mortgage ﬁnancing and reﬁnancing, and equity and debt issues. Our primary uses of capital include the payment of distributions, costs of attracting and retaining tenants, recurring property maintenance, major property improvements, debt principal and interest payments and property acquisitions. We expect to meet all of our ongoing obligations through current cash and cash equivalents, cash ﬂows from operations, conventional mortgage reﬁnancings and, as growth requires and when appropriate, new equity or debt issues. During the fourth quarter, only $6.0 million of mortgage debt matured and was repaid with available cash. An additional $11.7 million will mature in 2010. While the credit markets have increased the availability of capital, we remain cautious in managing our debt; however, we remain conﬁdent in our ability to reﬁnance our maturities. Further discussion and information is provided on page 31 under “Financing activities”. The following table details the change in cash and cash equivalents. Cash generated from operating activities Cash utilized in investing activities Cash generated from (utilized in) For the three months ended December 31 For the years ended December 31 2009 $ 11,342 (85,750) $ 2008 7,266 (3,942) 2009 2008 $ 59,507 (104,977) $ 41,126 (150,865) ﬁnancing activities (22,940) (30,550) (11,577) 141,279 Increase (decrease) in cash and cash equivalents $ (97,348) $ (27,226) $ (57,047) $ 31,540 At December 31, 2009, cash and cash equivalents were $12.0 million, a decrease of $57.2 million year-over-year, reﬂecting cash utilized for acquisitions and the repayment of $54.5 million of maturing debt, partially offset by $67.3 million of net proceeds from the equity offering completed in the third quarter. Funds utilized during the fourth quarter included $68.0 million to purchase four properties and $13.8 million used as deposits on two additional properties that closed in the ﬁrst quarter of 2010. With over $12.0 million in cash, a further $32.6 million, less letters of guarantee, available through our revolving credit facility and six unencumbered properties that can be leveraged, we are conﬁdent that we have adequate capital resources for 2010 and beyond. PAGE 21 DUNDEE REIT 2009 Annual Report Operating activities The following table details the cash generated from operating activities. Net income Non-cash items: For the three months ended December 31 For the years ended December 31 2009 2008 2009 2008 $ 6,606 $ 3,566 $ 13,420 $ 10,460 Amortization of market rent adjustments on acquired leases All other depreciation and amortization (Gain) loss on disposal of rental properties Provision for impairment in value of discontinued assets Deferred unit compensation expense Future income taxes Straight-line rent adjustment Leasing costs incurred Change in non-cash working capital (2,297) 12,903 30 2,212 220 (4,203) (412) 15,059 (1,273) (2,444) (3,270) 13,732 (336) — 151 221 (298) 13,766 (1,465) (5,035) (10,276) 51,326 (4,255) 11,513 858 (3,739) (1,053) 57,794 (4,296) 6,009 (12,736) 54,652 (79) — 399 327 (1,026) 51,997 (4,993) (5,878) Cash generated from operating activities $ 11,342 $ 7,266 $ 59,507 $ 41,126 Cash generated from operations for the quarter increased relative to the comparative period, mainly reﬂecting growth in NOI and ﬂuctuations in non-cash working capital. The amortization of market rent adjustments on acquired leases mainly represents the impact of leases with below-market rents, largely related to certain properties acquired from 2006 to 2009. Below-market leases are recorded as intangible liabilities and are amortized to rental property revenue over the terms of the related leases. Dundee REIT distributes 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 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 sheets and consolidated statements of income and comprehensive income. On December 31, 2009, we effected the transfer of our interest in a property held in a taxable Canadian subsidiary to an entity that distributes taxable earnings to unitholders. In addition, on February 5, 2010, we sold our interest in the U.S. subsidiary. As a result of these transactions, we are no longer exposed to the tax-related costs of those entities for periods subsequent to their respective transaction dates. 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. Leasing costs include fees and related costs, except for initial leasing costs that are included in rental properties, and leasing costs associated with acquisitions. Leasing costs are amortized on a straight-line basis over the term of the applicable lease to amortization expense. PAGE 22 DUNDEE REIT 2009 Annual Report 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 general market conditions. Short-term leases generally have lower costs than long-term leases, and leasing costs associated with ofﬁce space are generally higher than costs associated with industrial space. During the year, 1.3 million square feet were leased and occupied, and we incurred $9.7 million in leasing costs and tenant improvements. Included in this amount is $1.0 million incurred at IBM Corporate Park in Calgary for which we received a credit to the purchase price when the property was acquired in 2008. Excluding these costs, leasing costs and tenant improvements were $8.7 million, or an average per square foot of $9.40 for ofﬁce and $2.34 for industrial space. The leasing costs related to ofﬁce space are higher than normal due to the completion of several large long-term leasing deals. Performance indicators Ofﬁce Industrial Total Operating activities (continuing portfolio) Portfolio size (sq. ft.) Occupied and committed Square footage leased and occupied in 2009 Leasing costs Tenant improvements Excludes redevelopment properties. 5,734,259 96.7% 818,336 3,513 5,177 $ $ 1,660,109 90.6% 441,518 476 559 $ $ 7,394,368 95.4% 1,259,854 3,989 5,736 $ $ 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, 2009, 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 Ofﬁce 696,000 10.75 7,500 $ $ Industrial 311,000 2.75 900 $ $ PAGE 23 DUNDEE REIT 2009 Annual Report Other assets and liabilities Other assets consist of leasing costs and tenant improvements, prepaid expenses, intangible assets and liabilities, deposits and restricted cash. Other liabilities consist of intangible liabilities related to leases acquired with below-market rates. Leasing costs and tenant improvements increased by $6.2 million for the year to $39.6 million. This change includes an approximate $8.2 million increase related to acquisitions and $9.7 million related to current year leasing activity, less $9.8 million in amortization and $1.9 million related to the reclassiﬁcation of properties sold or held for sale. Complete details of leasing costs and tenant improvements are provided in Note 5 of the consolidated 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 8 of the consolidated ﬁnancial statements. During the year, net intangible assets increased by $7.6 million to $57.6 million, mainly due to $21.3 million of acquisitions, offset by $13.4 million of amortization and $0.3 million of dispositions. Net intangible liabilities decreased $6.9 million during the year to $35.0 million, as a result of approximately $10.7 million related to amortization, offset by a $3.8 million increase related to acquisitions. Deposits represent cash amounts held for the repayment of tenant security deposits as required by various lending agreements and deposits for potential acquisitions. As of December 31, 2009, the balance was $13.9 million (December 31, 2008 — $nil) comprising deposits paid for acquisitions completed in 2010. Restricted cash primarily represents tenant rent deposits and cash held as security for certain mortgages. As of December 31, 2009, the balance is $1.7 million, a decrease of $1.5 million from December 31, 2008. Commitments and contingencies We are contingently liable with respect to guarantees that are issued in the normal course of business and with respect to litigation and claims that may arise from time to time. In the opinion of management, any liability that may arise from such contingencies would not have a material adverse effect on our consolidated ﬁnancial statements. Our future minimum commitments under operating and capital leases are as follows: For the years ending December 31 2010 2011 2012 2013 Total Operating lease payments Capital lease payments $ $ 1,103 968 827 687 $ 3,585 $ 142 106 — — 248 Effective September 1, 2009, we entered into three ﬁxed price contracts to purchase natural gas with respect to 14 ofﬁce properties in Calgary. The contracts expire on December 31, 2012, and guarantee total minimum payments of $0.6 million annually for each of the years 2010, 2011 and 2012. PAGE 24 DUNDEE REIT 2009 Annual Report Funds from operations Management believes FFO is an important measure of our operating performance. This non-GAAP measurement is a commonly used measure of performance of real estate operations; however, it does not represent cash ﬂow from operating activities as deﬁned by GAAP and is not necessarily indicative of cash available to fund Dundee REIT’s needs. Net income Add (deduct): For the three months ended December 31 For the years ended December 31 2009 2008 2009 2008 $ 6,606 $ 3,566 $ 13,420 $ 10,460 Depreciation of rental properties Amortization of deferred leasing costs, tenant improvements and intangibles Imputed amortization of leasing costs related to the rent supplement Provision for impairment in value of discontinued assets Gain on disposal of rental property Future income taxes Amortization of costs not speciﬁc to real estate operations incurred subsequent to June 30, 2003 FFO FFO per unit — basic FFO per unit — diluted 7,075 6,993 28,283 27,106 5,683 6,621 22,583 27,109 — 2,212 30 (4,203) — — (336) 221 — 11,513 (4,255) (3,739) 17 — (79) 327 (40) 17,363 0.70 0.69 $ $ $ $ $ $ (80) (172) (288) 16,985 $ 67,633 $ 64,652 0.82 0.80 $ $ 3.04 3.00 $ $ 3.06 3.01 FFO per unit was $0.70 for the quarter, down 15% compared to the same period in 2008, mainly as a result of the dilutive effect of the equity offering completed in the third quarter. Total FFO increased by 2.2% to $17.4 million in the quarter driven by NOI growth from comparative properties and accretive acquisitions. Below-market rents, which result in a non-cash amortization to our operating results, contributed $2.4 million and $10.7 to FFO in the quarter and year, respectively. Diluted FFO, distributable income and AFFO per unit amounts assume the conversion of the 6.5%, 5.7% and 6.0% Debentures. The weighted average number of units outstanding for basic and diluted FFO calculations for the quarter are 24,967,255 and 28,417,078, respectively. For the year, the weighted average number of units outstanding for basic and diluted FFO calculations are 22,216,344 and 25,645,266, respectively. Diluted FFO includes interest and amortization adjustments of $2.3 million and $9.2 million for the three- and twelve-month periods, respectively. The basic and diluted weighted average number of units outstanding include 52,988 and 71,484 vested deferred trust units for the quarter and the twelve-month period, respectively. PAGE 25 DUNDEE REIT 2009 Annual Report Distributions and distributable income Our Declaration of Trust provides our trustees with the discretion to determine the percentage payout of distributable income that would be in the best interest of the Trust. Amounts retained in excess of the declared distributions are used to fund leasing costs and capital expenditure requirements. Given that working capital tends to ﬂuctuate over time and should not affect our distribution policy, we disregard it when determining 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. Distributable income Cash generated from operating activities Add (deduct): Leasing costs incurred Amortization of ﬁnancing costs incurred prior to June 30, 2003 Amortization of non-recoverable deferred costs incurred prior to June 30, 2003 Amortization of tenant inducements Amortization of costs not speciﬁc to real estate operations incurred subsequent to June 30, 2003 Amortization of ﬁnancing costs Change in non-cash working capital Distributable income Distributable income per unit — basic Distributable income per unit — diluted Distributions per unit $ $ $ $ For the three months ended December 31 For the years ended December 31 2009 2008 2009 2008 $ 11,342 $ 7,266 $ 59,507 $ 41,126 1,273 1,465 4,296 4,993 12 (12) 55 (40) (327) 2,444 14,747 0.59 0.60 0.55 21 (7) 68 (80) (309) 5,035 13,459 0.65 0.65 0.55 $ $ $ $ 67 (45) 255 (172) (1,260) (6,009) 56,639 2.55 2.57 2.20 $ $ $ $ $ $ $ $ 67 (7) 200 (289) (1,256) 5,878 50,712 2.40 2.40 2.20 Distributable income is not deﬁned by GAAP and therefore may not be comparable to similar measures presented by other real estate investment trusts. Distributable income is deﬁned in our Declaration of Trust to facilitate the determination of distributions to our unitholders. 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. For the quarter ended December 31, 2009, distributable income per unit was $0.59 and declared distributions per unit were $0.55, representing a 93% payout ratio. In the prior year comparative period, distributable income per unit was $0.65 and declared distributions per unit were $0.55, representing an 84% payout ratio. Distributable income exceeded distributions paid and payable by $1.2 million for the quarter. We retain a portion of our distributable income in order to fund capital requirements related to leasing, rental property improvements and working capital. PAGE 26 DUNDEE REIT 2009 Annual Report Distributions The distributions presented in the table below comprise $41.0 million relating to REIT Units and $7.6 million relating to LP B Units. 2009 distributions Paid in cash or reinvested in units Payable at December 31, 2009 Total distributions 2009 reinvestment Reinvested to December 31, 2009 Reinvested on January 15, 2010 Total distributions reinvested Distributions paid in cash Reinvestment to distribution ratio Cash distribution payout ratio Declared distributions 4% bonus distributions $ $ $ $ 105 11 116 105 11 116 $ $ $ $ $ 43,927 4,523 48,450 2,627 469 3,096 45,354 6.4% 93.6% Total 44,032 4,534 48,566 2,732 480 3,212 $ $ $ $ Distributions declared in the period ended December 31, 2009, totalled $48.5 million, up $2.7 million over the comparative period. The increase reﬂects a higher number of units outstanding as a result of the equity issue completed in September 2009, as well as distributions reinvested in additional units and vested deferred trust units exchanged for REIT A Units, offset by the purchase and cancellation of units under the normal course issuer bid in the second half of 2008. Of this amount, $3.1 million, or approximately 6.4%, was reinvested in additional units resulting in a cash payout ratio of 93.6%. As required by National Policy 41-201, “Income Trusts and Other Indirect Offerings”, the following table outlines the differences between cash ﬂow from operating activities and cash distributions as well as the differences between net income and cash distributions in accordance with the guidelines. Net income Cash ﬂow from operating activities Distributions paid and payable Excess (shortfall) of cash ﬂow from For the three months ended December 31 For the years ended December 31 $ 2009 6,606 11,342 13,594 $ 2008 3,566 7,266 11,225 $ 2009 13,420 59,507 48,566 $ 2008 10,460 41,126 46,102 operating activities over cash distributions $ (2,252) $ (3,959) $ 10,941 $ (4,976) For the quarter, distributions paid and payable exceeded cash ﬂow from operations as a result of changes in non-cash working capital balances. In establishing distribution payments, we do not take ﬂuctuations in working capital into consideration and use a normalized amount as a proxy for leasing costs. Distributions paid and payable exceeded net income by $7.0 million for the quarter and $35.1 million for the year. This excess was mainly a result of a provision for impairment on a discontinued property and non-cash depreciation and amortization expense, which are not considered in determining our cash distribution policy. PAGE 27 DUNDEE REIT 2009 Annual Report Adjusted funds from operations Distributable income Adjusted for: Normalized leasing costs and tenant improvements Normalized non-recoverable recurring capital expenditures AFFO AFFO per unit — basic For the three months ended December 31 For the years ended December 31 2009 2008 2009 2008 $ 14,747 $ 13,459 $ 56,639 $ 50,712 (1,514) (1,514) (6,056) (6,056) (200) 13,033 0.52 $ $ $ $ (200) (800) (800) 11,745 $ 49,783 $ 43,856 0.57 $ 2.24 $ 2.08 Management believes that AFFO is an important measure of our economic performance and is indicative of our ability to pay distributions. This non-GAAP measurement is commonly used for assessing real estate performance; however, it does not represent cash 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 26, which reconciles distributable income to cash ﬂow from operating activities. Our calculation of AFFO starts with distributable income adjusted for an estimated amount of normalized non-recoverable maintenance capital expenditures, leasing costs and tenant improvements that we expect to incur based on our current portfolio and expected average leasing activity. Our estimates of normalized leasing costs and tenant improvements are based on the average of our expected leasing activity over the next two to three years and multiplied by the average cost per square foot that we incurred and committed to in 2008, adjusted for properties that have been sold. Our estimates of normalized non-recoverable capital expenditures are based on our expected average expenditures for our current property portfolio. This estimate will differ from actual experience due to the timing of expenditures and any growth in our business resulting from property acquisitions. AFFO per unit was $0.52 for the quarter, down 9% compared to the same period in 2008 mainly due to the dilutive impact of the equity offering completed in the third quarter. Investing activities The following table details our cash utilized in investing activities. For the three months ended December 31 For the years ended December 31 $ Investment in rental properties Investment in tenant improvements Acquisition of rental properties Acquisition deposit on rental properties Repayment of promissory note Net proceeds from disposal of rental properties Change in restricted cash, net 2009 (2,699) (1,300) (68,045) (13,755) — (10) 59 $ 2008 (2,897) (889) — — — — (156) 2009 2008 $ (5,921) (6,121) (94,526) (13,755) — 14,927 419 $ (5,843) (2,731) (155,348) — 12,116 — 941 Cash utilized in investing activities $ (85,750) $ (3,942) $ (104,977) $ (150,865) PAGE 28 DUNDEE REIT 2009 Annual Report Key performance indicators in the management of our investing activities are: For the three months ended December 31 For the years ended December 31 2009 2008 2009 2008 Investing activities Acquisition of rental properties Building improvements $ 96,939 2,619 $ — 2,973 $ 122,887 6,144 $ 160,772 5,784 Acquisitions and dispositions During 2009, we completed the following acquisitions: For the year ended December 31, 2009 720 Bay Street, Toronto Property type Interest acquired (%) Occupancy Acquired on acquisition (%) GLA (sq. ft.) Fair value Purchase of mortgage assumed price Date acquired ofﬁce 50 123,870 100 $ 25,948 $ — Sept. 1, 2009 1125-1145 Innovation Drive, Ottawa ofﬁce 100 118,563 100 16,679 — Dec. 16, 2009 6655-6725 Airport Road, Mississauga ofﬁce 100 329,728 100 50,637 26,717 Dec. 18, 2009 Gateway Business Park, Ottawa ofﬁce 100 120,600 91 14,700 — Dec. 30, 2009 2645 Skymark Avenue, Mississauga ofﬁce 100 142,487 100 14,923 — Dec. 30, 2009 Total 835,248 99 $ 122,887 $ 26,717 On December 30, 2009, we acquired 2645 Skymark Avenue in Mississauga for $14.9 million. This building is located in the Airport Corporate Centre near the Toronto Pearson International Airport and comprises approximately 143,000 square feet of ofﬁce and ﬂex space. On December 30, 2009, we acquired Gateway Ofﬁce Park in Ottawa for $14.7 million. This three-building ofﬁce complex is located in the Kanata submarket in western Ottawa. The property was built between 1987 and 1989 and comprises approximately 121,000 square feet. On December 18, 2009, we acquired 6655-6725 Airport Road in Mississauga for $50.6 million and assumed two mortgages totalling $26.7 million. This four-building ofﬁce complex is located opposite Toronto’s Pearson International Airport. The property, which was built between 1983 and 1987, comprises approximately 330,000 square feet of space. On December 16, 2009, we acquired 1125-1145 Innovation Drive in Ottawa for $16.7 million. The property consists of three linked suburban ofﬁce buildings in the Kanata submarket. The property, which was built in 2001, contains approximately 119,000 square feet of space fully occupied by three tenants. Together with the acquisition of Gateway Ofﬁce park, these properties will help Dundee REIT to re-establish a presence in Ottawa. On September 1, 2009, we purchased our partner’s 50% interest in 720 Bay Street in Toronto for $25.9 million, inclusive of transaction costs. As the mortgage matured on the acquisition closing date, we and our former partner elected to repay the balance outstanding and therefore, there is no debt related to this property. We sold two industrial properties located in Edmonton on August 21, 2009. These dispositions, along with adjustments from prior year sales, resulted in net consideration of $14.9 million and gain on sale of $4.3 million. PAGE 29 DUNDEE REIT 2009 Annual Report Acquisitions completed subsequent to year-end: On January 18, 2010, we purchased Adelaide Place, comprising 181 University Avenue and 150 York Street in Toronto, for $211.5 million before transaction costs. This two-tower Class A ofﬁce complex is located in the ﬁnancial core of Toronto, on the north side of Adelaide Street West between York Street and University Avenue, and is connected to Toronto’s PATH underground walkway system. It contains approximately 655,000 square feet of space, the vast majority of which is ofﬁce but also includes some retail and a bank branch at grade level. Both towers were extensively retroﬁtted in 2001, including a full exterior re-cladding and re-glazing and connection to the Enwave Deep Lake Water Cooling System. The buildings are certiﬁed BOMA BEST Level 3. On February 10, 2010, we acquired the Aviva Corporate Centre in Toronto, a 438,000 square foot multi-tenant ofﬁce complex with ancillary warehouse space for $45.7 million before transaction costs. Three ofﬁce buildings comprise approximately 351,000 square feet, the majority of which is leased to Aviva, one of the world’s largest insurance companies. The fourth building, which comprises approximately 87,000 square feet of warehouse space, is currently vacant and offers some redevelopment potential. Dundee REIT previously acquired this property in 2006 but it was included in the sale of our portfolio of properties in eastern Canada in 2007. Building improvements Building improvements: Recurring recoverable Recurring non-recoverable Non-recurring Total For the three months ended December 31 For the years ended December 31 2009 2008 2009 2008 $ $ 1,774 — 845 2,619 $ 2,381 20 572 $ 5,102 32 1,010 $ 4,315 179 1,290 $ 2,973 $ 6,144 $ 5,784 Building improvements represent investments made in our rental properties to ensure our buildings are operating at an optimal level. Non-recurring building improvements represent expenditures for major capital additions that generally would not be expected to re-occur over the useful life of the building. These expenditures represent major structural improvements, development and re-development costs. Capital expenditures or expenditures accrued for rental property building improvements and equipment were $2.6 million for the three-month period (December 31, 2008 — $3.0 million), and $6.1 million for the year (December 31, 2008 — $5.8 million). Recurring recoverable expenditures incurred include elevator modernization, rooﬁng upgrades, lighting and ﬁre panel upgrades. Non-recurring capital expenditures of $1.0 million include approximately $0.7 million for development of an ofﬁce building in Yellowknife, and $0.1 million for the exterior wall restoration of an ofﬁce building in Saskatchewan. Purchase obligations We have an agreement to purchase, from a former joint venture partner, a fully leased ofﬁce building, currently under construction, at a future date for $20.8 million. Maximum adjustments to the closing price will not exceed $0.5 million. The closing is expected to take place in the ﬁrst half of 2010. Funding for this purchase is available through cash on hand and an available line of credit. Construction obligation We have agreed to construct an ofﬁce building in Yellowknife, that is fully leased to the Government of Canada for a ten-year term. Construction costs are estimated to be $20.0 million and will be funded by cash on hand and our line of credit. PAGE 30 DUNDEE REIT 2009 Annual Report 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. During the fourth quarter of 2009, we repaid $6.0 million of matured mortgage debt. 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 Convertible debentures issued, net of costs Distributions paid on Units Purchase of REIT A Units under normal course issuer bid Units issued, net of costs Cash generated from (utilized in) For the three months ended December 31 For the years ended December 31 2009 2008 2009 2008 $ $ $ (255) (3,937) (5,958) (30) — (12,797) — 37 1 (3,758) — (18) — (10,358) (16,428) 11 $ 35,993 (15,498) (54,496) (126) — (44,730) — 67,280 95,312 (13,934) (508) (106) 119,200 (37,501) (21,798) 614 ﬁnancing activities $ (22,940) $ (30,550) $ (11,577) $ 141,279 Debt The key performance indicators in the management of our debt are: December 31 Financing activities Average interest rate Level of debt (debt-to-gross book value) Interest coverage ratio(1) Proportion of total debt due in current year Debt — average term to maturity (years) Variable rate debt as percentage of total debt 2009 2008 5.75% 59.3% 2.3 times 3.4% 4.9 3.7% 5.83% 61.4% 2.3 times 10.2% 5.5 5.8% (1) The interest coverage ratio is calculated as NOI from continuing operations plus interest and fee income, less general and administrative expense from continuing operations, divided by interest expense. We currently use cash ﬂow performance indicators, including the interest coverage ratio, to assess our ability to meet our ﬁnancing obligations. Our Declaration of Trust requires that we maintain an interest coverage ratio of no less than 1.4 times. Our current interest coverage ratio is 2.3 times, and reﬂects our ability to cover interest expense requirements. Our average interest rate as at December 31, 2009, was 5.75%, down slightly from the start of the year, mainly reﬂecting lower interest rates on variable rate mortgages. The new and assumed mortgages related to the Adelaide Place and Aviva Corporate Centre acquisitions completed subsequent to year-end will signiﬁcantly reduce our weighted average interest rate to 5.64% and slightly lengthen our average term to maturity. Our debt-to-gross book value and interest coverage ratio will remain consistent with the ratios reported at December 31, 2009. PAGE 31 DUNDEE REIT 2009 Annual Report Effective June 30, 2009, we classiﬁed our 50% interest in Greenbriar Mall located in Atlanta, Georgia, as a discontinued asset as discussed in Note 20 of the consolidated ﬁnancial statements. As a result, we have excluded $16.8 million of related mortgage debt from our analysis due to its non-recourse nature. Variable rate debt as a percentage of total debt decreased to 3.7% as a result of the reclassiﬁcation of Greenbriar Mall as a discontinued asset. December 31 Mortgages Term debt 6.5% Debentures 5.7% Debentures 6.0% Debentures Total Percentage Fixed Variable 2009 Total $ $ 695,608 219 3,293 7,743 118,904 31,293 — — — — $ 726,901 219 3,293 7,743 118,904 $ Fixed $ 703,409 345 3,277 7,703 117,922 Variable 51,039 — — — — 2008 Total $ 754,448 345 3,277 7,703 117,922 $ 825,767 $ 31,293 $ 857,060 $ 832,656 $ 51,039 $ 883,695 96.3% 3.7% 100% 94.2% 5.8% 100% Mortgages payable include $2.7 million of fair value adjustments on mortgages assumed in connection with acquisitions (December 31, 2008 — $3.8 million). Amounts recorded as at December 31, 2009 for the 6.5%, 5.7% and 6.0% Debentures are net of $1.7 million of premiums allocated to their conversion features (December 31, 2008 — $2.0 million). The fair value adjustments and premiums are amortized to interest expense over the term to maturity of the related debt using the effective interest rate method. Debt financing activity During the quarter, we made scheduled repayments of $4.0 million on mortgages and term debt and repaid an additional $6.0 million upon the maturity of a mortgage related to one property. A demand revolving credit facility is available up to a formula-based maximum not to exceed $40.0 million, bearing interest generally at the bank prime rate (2.25% as at December 31, 2009) plus 1.5%, or bankers’ acceptance rates, plus 3.0%. As a result of the sale of two properties which provided collateral security for the facility, as at December 31, 2009, the formula-based amount available is $32.6 million. The facility is now secured by a ﬁrst-ranking collateral mortgage on two properties and a second-ranking collateral mortgage on one property. Currently, $1.1 million of the facility is being utilized in the form of letters of guarantee. The facility matures on April 30, 2010. We have not commenced the renewal process but are conﬁdent that we will renew this facility at a level that meets the needs of our acquisition strategy for 2010. We currently have $12.0 million in cash, a revolving credit facility and six unencumbered properties which may be leveraged to provide additional ﬁnancing. Subsequent to year-end, we placed $120.0 million of mortgage ﬁnancing contemporaneously with the acquisition of Adelaide Place with a face rate of 4.795% and term of ﬁve years. We also assumed a $30.6 million mortgage with a face rate of 5.3% upon acquiring Aviva Corporate Centre. PAGE 32 DUNDEE REIT 2009 Annual Report Changes in debt levels are as follows: For the three months ended December 31, 2009 Mortgages Term debt Debt as at September 30, 2009 New debt assumed on rental property acquisitions Scheduled repayments Lump sum repayments Amortization and other adjustments $ 710,474 26,717 (3,937) (5,958) (395) $ Debt as at December 31, 2009 $ 726,901 $ 249 — (30) — — 219 Mortgages Term debt Debt as at December 31, 2008 New debt assumed on rental property acquisitions New debt placed Scheduled repayments Lump sum repayments Discontinued liability Amortization and other adjustments $ 754,448 26,717 36,779 (15,498) (54,496) (16,825) (4,224) $ 345 — — (126) — — — Convertible debentures $ 129,654 — — — 286 Total $ 840,377 26,717 (3,967) (5,958) (109) $ 129,940 $ 857,060 For the year ended December 31, 2009 Convertible debentures $ 128,902 — — — — — 1,038 Total $ 883,695 26,717 36,779 (15,624) (54,496) (16,825) (3,186) Debt as at December 31, 2009 $ 726,901 $ 219 $ 129,940 $ 857,060 Scheduled principal repayments on non-matured debt $ 17,603 17,293 15,303 11,956 10,019 19,816 $ Debt maturities 11,691 71,987 99,994 102,480 191,570 293,497 $ Amount 29,294 89,280 115,297 114,436 201,589 313,313 2010 2011 2012 2013 2014 2015 and thereafter Total $ 771,219 $ 91,990 863,209 Fair value adjustments Transaction costs Total 947 (7,096) $ 857,060 Weighted average interest rate on balance due at maturity % Weighted average face rate on balance due at maturity % 5.38 6.01 5.57 4.79 6.72 5.53 5.38 6.79 5.46 5.17 5.96 5.48 5.68 % 3.4 10.3 13.4 13.3 23.3 36.3 100 PAGE 33 DUNDEE REIT 2009 Annual Report Convertible debentures With respect to the 6.0% Debentures, the total principal outstanding at January 31, 2010, was $125.0 million, and is convertible into approximately 3,019,323 REIT A Units. For the 5.7% Debentures, the total principal outstanding at January 31, 2010, was $7.8 million and is convertible into approximately 260,200 REIT A Units. For the 6.5% debentures, the total principal outstanding was $3.5 million and is convertible to approximately 139,520 REIT A Units. Equity The following table summarizes the changes in our outstanding equity: REIT A Units REIT B Units LP B Units Total Units issued and outstanding on December 31, 2008 Units issued pursuant to DRIP Units issued pursuant to the Unit Purchase Plan Units issued pursuant to Deferred Unit Incentive Plan Units issued pursuant to public offering Unit redemption 16,947,240 196,987 10,997 239,873 3,852,500 (200) 16,316 — — 3,454,188 — — 20,417,744 196,987 10,997 — — — — — — 239,873 3,852,500 (200) Total units outstanding on December 31, 2009 21,247,397 16,316 3,454,188 24,717,901 Percentage of all units 86.0% Units issued pursuant to DRIP on January 15, 2010 Units issued pursuant to the Unit Purchase Plan Units issued pursuant to public offering 18,004 — 5,520,000 —% — — — 14.0% 2,494 — — 100.0% 20,498 — 5,520,000 Total units outstanding on January 31, 2010 26,785,401 16,316 3,456,682 30,258,399 Percentage of all units 89% —% 11% 100% Public offering of units On September 9, 2009, we completed a public offering of 3,350,000 REIT A Units at a price of $18.35 per unit, for gross cash proceeds of $61.5 million. On September 29, 2009, we issued an additional 502,500 REIT A Units, pursuant to the exercise of the over-allotment option granted to the underwriters for gross proceeds of approximately $9.2 million. Costs related to the offering of $3.6 million were charged directly to unitholders’ equity. On January 7, 2010, we completed a public offering of 5,520,000 REIT A Units at a price of $18.75 per unit, for gross proceeds of $103.5 million. Costs related to the offering were approximately $4.9 million. Normal course issuer bid On September 23, 2009, the Trust renewed its normal course issuer bid. Under the bid, Dundee REIT has the ability to purchase for cancellation up to a maximum of 1,648,026 REIT A Units (representing 10% of the REIT’s public ﬂoat, comprising 16,480,260 REIT A Units on September 17, 2009) through the facilities of the TSX. The bid commenced on September 26, 2009, and will remain in effect until the earlier of September 25, 2010, or the date on which the Trust has purchased the maximum number of units permitted under the bid. As of December 31, 2009, the maximum number of REIT A Units remaining for purchase under the bid is 1,648,026. Based on the closing price of the REIT A Units on December 31, 2009, the Trust may purchase up to $34.2 million worth of REIT A Units. No units were acquired in 2009 pursuant to this bid. PAGE 34 DUNDEE REIT 2009 Annual Report OUR RESULTS OF OPERATIONS Revenues Rental properties revenue Interest and fee income Expenses Rental properties operating expenses Interest Depreciation of rental properties Amortization of leasing costs, tenant improvements and intangibles General and administrative Income before income taxes Income taxes Current income taxes Future income taxes Income before discontinued operations Discontinued operations For the three months ended December 31 For the years ended December 31 2009 2008 2009 2008 $ 50,156 409 50,565 $ 48,385 786 $ 192,083 1,676 $ 179,779 3,663 49,171 193,759 183,442 19,365 12,190 7,025 5,665 1,608 45,853 4,712 2 (2,232) (2,230) 6,942 (336) 18,182 12,642 6,711 6,485 1,875 45,895 3,276 9 150 159 3,117 449 71,129 49,736 27,512 22,231 6,706 177,314 16,445 12 (1,768) (1,756) 18,201 (4,781) 66,026 48,226 26,018 26,609 6,740 173,619 9,823 13 349 362 9,461 999 Net income $ 6,606 $ 3,566 $ 13,420 $ 10,460 Income statement results Rental properties revenue Revenues include net rental income from rental properties as well as the recovery of operating costs and property taxes from tenants. Revenue generated by acquisitions completed in the second half of 2008 and in 2009 and comparative property growth were the primary drivers of the $1.8 million, or 3.7%, increase in rental property revenue over the comparative quarter. Similarily, for the twelve-month period, rental properties revenue increased by $12.3 million or 6.8%. Interest and fee income Interest and fee income represents amounts for items such as fees earned from third-party property management including management, construction and leasing fees, and interest on bank accounts and related fees. These revenues and expenses are not necessarily of a recurring nature and the amounts will vary from quarter to quarter. The $0.4 million decrease over the comparative quarter is mainly a result of investing undeployed cash at generally lower interest rates. For the year, the $2.0 million decrease is a result of deploying our cash through property acquisitions and paying down maturing debt. PAGE 35 DUNDEE REIT 2009 Annual Report Rental properties operating expenses Operating expenses mainly comprise occupancy costs and property taxes as well as certain expenses that are not recoverable from tenants, the majority of which are related to leasing. Operating expenses ﬂuctuate with occupancy levels, weather, utility costs, taxes, and repairs and maintenance. Expenses for the quarter increased $1.2 million, or 6.5%, reﬂecting higher recoverable operating costs and the additional costs associated with properties acquired over the course of 2008. For the year, operating expenses increased by $5.1 million or 7.7%, mainly reﬂecting the impact of acquisitions. Interest expense Interest expense for the quarter declined $0.5 million over the comparative quarter, mainly reﬂecting the repayment of mortgage debt in the current and prior quarters. The interest coverage ratio, which reﬂects our ability to cover our interest expense requirements, remains strong at 2.3 times. For the year, interest expense increased by $1.5 million or 3.1%, mainly reﬂecting a full year of interest related to debt placed on the AIR MILES Tower in July 2008. Depreciation of rental properties Acquisitions completed in 2008 and 2009 resulted in a $0.3 million, or 4.7%, increase in depreciation over the comparative period. For the year, depreciation increased by $1.5 million or 5.7%, reﬂecting the impact of acquired properties. Amortization of leasing costs, tenant improvements and intangibles Amortization decreased $0.8 million, or 12.6%, over the comparative quarter, largely due to asset write-offs at the time of lease expiries. Similarily, for the year, amortization decreased by $4.4 million or 16.5%. 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 quarter were $1.6 million, a decrease of $0.3 million or 14.2% from the comparative period. For the year, expenses decreased by 1%. 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 were taxable and any tax-related costs are reﬂected in the consolidated balance sheets and consolidated statements of income. On December 31, 2009, we effected the transfer of our interest in a property held in a taxable Canadian subsidiary to an entity that distributes taxable earnings to unitholders. In addition, on February 5, 2010, we disposed of our interest in the U.S. subsidiary. As a result of these transactions we are no longer exposed to the tax-related costs of those entities for periods subsequent to their respective transaction dates. For the three- and twelve-month periods, we recovered $2.1 million of future taxes related to the re-organization of a taxable Canadian subsidiary. PAGE 36 DUNDEE REIT 2009 Annual Report Discontinued operations Discontinued operations include assets that have been sold or classiﬁed as held for sale and meet speciﬁc criteria as discontinued assets in accordance with GAAP. These operations are disclosed separately on the consolidated statements of net income. Discontinued operations include two industrial properties sold for gross proceeds of $15.1 million in the third quarter, and the classiﬁcation of a joint venture ofﬁce property in Toronto classiﬁed as held for sale in the fourth quarter. The disposition of our interest in Greenbriar Mall, which was classiﬁed as held for sale in June 2009, was completed on February 5, 2010 for proceeds of $0.3 million. Further information is provided in Note 20 to the consolidated ﬁnancial statements. Related-party transactions From time to time, Dundee REIT and its subsidiaries enter into transactions with related parties that are conducted under normal commercial terms and as disclosed in Note 19 to the consolidated ﬁnancial statements. During the twelve-month period, we received $1.9 million related to the DRC Services Agreement. Other costs recovered from DRC include $3.4 million for staff, operating and administrative costs. We paid $6.0 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. Net income Add (deduct): For the three months ended December 31 For the years ended December 31 2009 2008 2009 2008 $ 6,606 $ 3,566 $ 13,420 $ 10,460 Interest expense Depreciation of rental properties Amortization of leasing costs, tenant improvements and intangibles General and administrative expenses Interest and fee income Income taxes Depreciation, amortization, interest, gain (loss) on disposal of rental properties and impairment loss, included in discontinued operations 12,190 7,025 5,665 1,608 (409) (2,230) 12,642 6,711 6,485 1,875 (786) 159 49,736 27,512 22,231 6,706 (1,676) (1,756) 48,226 26,018 26,609 6,740 (3,663) 362 402 529 7,043 2,937 NOI including discontinued operations $ 30,857 $ 31,181 $ 123,216 $ 117,689 We deﬁne NOI as the total of rental property revenues, including property management income, less rental property operating expenses. NOI, before discontinued operations, increased 2% for the quarter over the comparative period. The increase is attributable to strong comparable property growth and income generated by properties acquired in 2008 and 2009. Discontinued operations includes the results of two industrial buildings in Edmonton that were sold August 31, 2009, the results of our 50% interest in a Toronto-based ofﬁce property, and the results and impairment loss of Greenbriar Mall effective June 30, 2009. PAGE 37 DUNDEE REIT 2009 Annual Report For the three months ended December 31 For the years ended December 31 Growth Growth 2009 2008 Amount % 2009 2008 Amount Ofﬁce Industrial $ 27,854 $ 27,623 2,580 2,937 $ NOI Discontinued operations 30,791 66 30,203 978 231 357 588 (912) 1 14 2 $ 109,823 11,131 $ 103,055 10,698 $ 6,768 433 120,954 2,262 113,753 3,936 7,201 (1,674) % 7 4 6 NOI including discontinued operations $ 30,857 $ 31,181 $ (324) (1) $ 123,216 $ 117,689 $ 5,527 5 For the three months ended December 31 For the years ended December 31 2009 2008 Amount British Columbia Alberta Saskatchewan & NWT Ontario $ 2,493 19,584 4,394 4,320 NOI Discontinued operations 30,791 66 $ 2,411 20,406 4,212 3,174 30,203 978 $ 82 (822) 182 1,146 588 (912) NOI including discontinued Growth Growth % 3 (4) 4 36 2 2009 2008 Amount % $ 10,010 $ 9,200 $ 78,461 17,227 15,256 120,954 2,262 77,528 15,266 11,759 113,753 3,936 810 933 1,961 3,497 7,201 (1,674) 9 1 13 30 6 operations $ 30,857 $ 31,181 $ (324) (1) $ 123,216 $ 117,689 $ 5,527 5 NOI BY SEGMENT (THREE MONTHS ENDED DECEMBER 31, 2009) NOI BY REGION (THREE MONTHS ENDED DECEMBER 31, 2009) Office 90% • Industrial 10% • Alberta 64% • British Columbia 8% • Saskatchewan & NWT 14% • Ontario 14% • PAGE 38 DUNDEE REIT 2009 Annual Report NOI comparative portfolio NOI shown below details comparative and non-comparative items to assist in understanding the impact each component has on NOI. The comparative properties disclosed in the following tables are properties acquired prior to January 1, 2008. Discontinued operations contributing to NOI in comparative periods are shown separately to conform to the required income statement presentation. Comparative NOI and acquisitions exclude GAAP adjustments that relate to straight-line rents and amortization of market rent adjustments on acquired leases. For the three months ended December 31 For the years ended December 31 Growth Growth 2009 2008 Amount % 2009 2008 Amount Ofﬁce Industrial $ 21,918 2,906 $ 21,733 2,592 $ Comparative properties Acquisitions Rent supplement GAAP adjustments NOI Discontinued operations 24,824 3,399 — 2,568 30,791 66 NOI including discontinued 24,325 2,425 — 3,453 30,203 978 185 314 499 974 — (885) 588 (912) 1 12 2 2 $ 87,593 11,007 $ 82,400 $ 10,615 5,193 392 98,600 11,332 — 11,022 120,954 2,262 93,015 7,215 34 13,489 113,753 3,936 5,585 4,117 (34) (2,467) 7,201 (1,674) operations $ 30,857 $ 31,181 $ (324) (1) $ 123,216 $ 117,689 $ 5,527 % 6 4 6 6 5 For the three months ended December 31 For the year ended December 31 Growth Growth 2009 2008 Amount % 2009 2008 Amount % British Columbia Alberta Saskatchewan & NWT Ontario $ 2,190 $ 2,028 16,581 16,615 4,129 4,318 1,587 1,701 $ Comparative properties Acquisitions Rent supplement GAAP adjustments NOI Discontinued operations 24,824 3,399 — 2,568 30,791 66 NOI including discontinued 24,325 2,425 — 3,453 30,203 978 162 34 189 114 499 974 — (885) 588 (912) 8 — 5 7 2 2 $ 8,593 65,980 16,890 7,137 98,600 11,332 — 11,022 120,954 2,262 $ 8,390 $ 63,564 14,954 6,107 203 2,416 1,936 1,030 93,015 7,215 34 13,489 113,753 3,936 5,585 4,117 (34) (2,467) 7,201 (1,674) operations $ 30,857 $ 31,181 $ (324) (1) $ 123,216 $ 117,689 $ 5,527 2 4 13 17 6 6 5 Overall, comparative properties are achieving incremental improvements in both occupancy and rental rates as reﬂected by increases in NOI of 2% and 6% on a quarterly and annual basis, respectively. Comparative ofﬁce NOI increased by $0.2 million or 1% for the quarter, reﬂecting both occupancy and rental rate increases. Our industrial portfolio increased by $0.3 million or 12%, reﬂecting rental rate increases and slightly higher occupancy. Properties acquired in 2008 and 2009 contributed $1.0 million to NOI growth. PAGE 39 DUNDEE REIT 2009 Annual Report Comparative ofﬁce portfolio For the three months ended December 31 For the years ended December 31 Growth Growth 2009 2008 Amount British Columbia Alberta Saskatchewan & NWT Ontario $ 2,190 $ 2,028 13,989 4,129 1,587 13,709 4,318 1,701 $ Comparative properties Acquisitions Rent supplement GAAP adjustments 21,918 3,399 — 2,537 21,733 2,425 — 3,465 162 (280) 189 114 185 974 — (928) $ % 8 (2) 5 7 1 2009 2008 Amount % 8,593 54,973 16,890 7,137 87,593 11,332 — 10,898 $ 8,390 $ 52,949 14,954 6,107 203 2,024 1,936 1,030 82,400 7,215 34 13,406 5,193 4,117 (34) (2,508) 2 4 13 17 6 Ofﬁce NOI $ 27,854 $ 27,623 $ 231 1 $ 109,823 $ 103,055 $ 6,768 7 We achieved growth across our comparative ofﬁce portfolio for both the three- and twelve-month periods. Our properties in British Columbia continued to perform well with growth in rental income offsetting a slight reduction in occupancy. Our portfolio in Saskatchewan and the Northwest Territories also produced strong growth due to rental rate increases and an occupancy increase at a building in Saskatoon. The Ontario portfolio produced strong NOI growth driven by the leasing of two previously vacant ﬂoors at State Street Financial Centre, which offset increased vacancy elsewhere. NOI from our ofﬁce portfolio in Alberta was up on an annual basis, however, decreased by $0.3 million, or 2%, compared to the same quarter in 2008, mainly as a result of a signiﬁcant vacancy at the Airport Corporate Centre in Calgary. Comparative industrial portfolio For the three months ended December 31 For the years ended December 31 2009 2008 Amount Alberta $ 2,906 $ 2,592 $ Comparative properties GAAP adjustments 2,906 31 2,592 (12) 314 314 43 Growth % 12 12 2009 2008 Amount $ 11,007 $ 10,615 $ 11,007 124 10,615 83 Industrial NOI $ 2,937 $ 2,580 $ 357 14 $ 11,131 $ 10,698 $ Growth % 4 4 4 392 392 41 433 Comparative industrial NOI increased by 12% on a quarterly basis, largely as a result of rental rate increases and occupancy increasing to 90.6% from 85.6%. The improved occupancy reﬂects leasing at our Barlow Trail properties in Calgary, offset by vacancy in Edmonton. NOI prior quarter comparison The comparative properties disclosed in the following tables are properties acquired prior to July 1, 2009. Comparative property NOI increased by 2%, or $0.6 million, mainly as a result of occupancy increases in our ofﬁce portfolio together with increases in property management and leasing fees earned by our property management business. NOI from the ofﬁce portfolio increased by $0.5 million or 2% mainly reﬂecting improved occupancy at two ofﬁce properties in Calgary. Our industrial portfolio’s results were in line with the previous quarter. PAGE 40 DUNDEE REIT 2009 Annual Report For the three months ended Growth December 31, September 30, 2009 2009 Amount % Ofﬁce Industrial Comparative properties Acquisitions GAAP adjustments NOI Discontinued operations $ 24,564 $ 24,017 2,898 2,906 $ 27,470 753 2,568 30,791 66 26,915 159 2,772 29,846 261 547 8 555 594 (204) 945 (195) NOI including discontinued operations $ 30,857 $ 30,107 $ 750 2 — 2 3 2 For the three months ended Growth British Columbia Alberta Saskatchewan & NWT Ontario Comparative properties Acquisitions GAAP adjustments NOI Discontinued operations December 31, September 30, 2009 2009 Amount $ $ 2,418 17,428 4,318 3,306 27,470 753 2,568 30,791 66 $ 2,397 16,851 4,293 3,374 26,915 159 2,772 29,846 261 21 577 25 (68) 555 594 (204) 945 (195) NOI including discontinued operations $ 30,857 $ 30,107 $ 750 % 1 3 1 (2) 2 3 2 SELECTED ANNUAL INFORMATION The following table provides select ﬁnancial information for the past three years: December 31 2009 2008 2007 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 $ 193,759 18,201 13,420 1,335,242 857,060 48,450 $ 0.82 0.60 0.82 0.60 $ 183,442 9,461 10,460 1,315,987 883,695 45,756 $ 0.45 0.50 0.45 0.50 $ 157,154 11,058 762,302 1,156,441 680,479 79,534 $ 0.29 19.95 0.29 19.94 PAGE 41 DUNDEE REIT 2009 Annual Report QUARTERLY INFORMATION The following tables show quarterly information since January 1, 2008. Q4 2009 Q3 2009 Q2 2009 Q1 2009 Q4 2008 Q3 2008 Q2 2008 Q1 2008 Revenues Rental properties revenue $ 50,156 $ 47,398 $ 46,387 $ 48,142 $ 48,385 $ 45,801 $ 43,471 $ 42,122 Interest and fee income 409 299 491 477 786 969 745 1,163 50,565 47,697 46,878 48,619 49,171 46,770 44,216 43,285 Expenses Rental properties operating expenses Interest Depreciation of rental properties Amortization of leasing costs, tenant improvements 19,365 12,190 17,551 12,487 16,219 12,552 17,994 12,507 18,182 12,642 16,918 12,694 15,286 11,716 15,640 11,174 7,025 6,935 6,767 6,785 6,711 6,719 6,495 6,093 and intangibles General and administrative 5,665 1,608 5,338 1,667 5,608 1,710 5,620 1,721 6,485 1,875 6,865 1,750 6,723 1,694 6,536 1,421 45,853 43,978 42,856 44,627 45,895 44,946 41,914 40,864 Income before income and large corporations taxes 4,712 3,719 4,022 3,992 3,276 1,824 2,302 2,421 Income taxes (recovery) Current income and large corporations taxes Future income taxes Income tax expense (recovery) Income before 2 (2,232) (2,230) 4 87 91 — 137 137 6 240 246 discontinued operations Discontinued operations 6,942 (336) 3,628 4,099 3,885 (8,657) 3,746 113 9 150 159 3,117 449 63 7 70 (4) 95 (55) 97 91 42 1,754 371 2,211 (104) 2,379 283 Net income (loss) $ 6,606 $ 7,727 $ (4,772) $ 3,859 $ 3,566 $ 2,125 $ 2,107 $ 2,662 Net income (loss) per unit Basic Diluted(1) $ $ 0.26 $ 0.26 $ 0.35 $ 0.35 $ (0.23) $ (0.23) $ 0.18 $ 0.18 $ 0.17 $ 0.17 $ 0.10 $ 0.10 $ 0.10 $ 0.10 $ 0.13 0.13 (1) Excludes impact of 6.5%, 5.7% and 6.0% Debentures, which are currently not dilutive to net income. PAGE 42 DUNDEE REIT 2009 Annual Report Calculation of funds from operations and distributable income Net income (loss) Add (deduct): Depreciation of rental properties Amortization of leasing costs, tenant improvements and intangibles Future income taxes Imputed amortization of leasing costs related to the rent supplement Amortization of costs not speciﬁc to real estate operations incurred subsequent to June 30, 2003 (Gain) loss on disposal of rental Q4 2009 Q3 2009 Q2 2009 Q1 2009 Q4 2008 Q3 2008 Q2 2008 Q1 2008 $ 6,606 $ 7,727 $ (4,772) $ 3,859 $ 3,566 $ 2,125 $ 2,107 $ 2,662 7,075 7,021 7,095 7,092 6,993 6,990 6,763 6,360 5,683 (4,203) 5,377 107 5,779 67 5,744 290 6,621 221 6,985 (38) 6,850 76 6,653 68 — — — — — — 8 10 (40) (35) (35) (61) (80) (66) (87) (56) properties and land held for sale 30 (4,285) — Provision for (reversal of) impairment in value of rental property 2,212 297 9,004 — — (336) (169) 426 — — — — — Funds from operations $ 17,363 $ 16,209 $ 17,138 $ 16,924 $ 16,985 $ 15,827 $ 16,143 $ 15,697 Funds from operations per unit(2) Basic(1) Diluted Cash generated from operating activities $ $ $ 0.70 0.69 11,342 $ $ $ 0.74 0.73 $ $ 0.82 0.80 15,973 $ 14,807 $ $ $ 0.81 0.79 17,385 $ $ $ 0.82 0.80 7,266 $ $ $ 0.75 0.73 12,631 $ $ $ 0.76 0.74 9,644 $ $ $ 0.74 0.72 11,585 Add (deduct): Deferred leasing costs incurred Amortization of ﬁnancing costs incurred prior to June 30, 2003 Amortization of non-recoverable costs incurred prior to June 30, 2003 Amortization of tenant inducements Amortization of costs not speciﬁc to real estate operations incurred subsequent to June 30, 2003 Amortization of ﬁnancing costs Change in non-cash 1,273 1,166 1,012 12 11 21 (12) 55 (12) 60 (12) 58 845 23 (9) 81 21 (7) 68 17 — 43 18 — 41 1,465 1,788 980 760 (40) (327) (35) (302) (35) (326) (61) (305) (80) (309) (66) (302) (87) (332) 11 — 37 (56) (313) 325 working capital 2,444 (3,400) (1,098) (3,955) 5,035 (1,681) 2,199 Distributable income (“DI”) $ 14,747 $ 13,461 $ 14,427 $ 14,004 $ 13,459 $ 12,430 $ 12,463 $ 12,349 Distributable income per unit(2) Basic(1) Diluted Weighted average units outstanding for FFO and DI $ $ 0.59 0.60 $ $ 0.62 0.62 $ $ 0.69 0.68 $ $ 0.67 0.67 $ $ 0.65 0.65 $ $ 0.59 0.59 $ $ 0.59 0.59 $ $ 0.58 0.58 Basic Diluted 24,967,255 28,417,078 21,883,358 25,312,351 21,018,003 24,456,839 20,956,343 24,392,013 20,720,901 24,144,476 21,248,773 24,676,672 21,300,089 21,179,939 24,719,316 24,609,778 (1) The LP Class B Units, Series 1, are included in the calculation of basic FFO per unit and basic DI per unit. (2) Please see pages 25 and 26 for further discussion on FFO and distributable income. PAGE 43 DUNDEE REIT 2009 Annual Report SECTION III — DISCLOSURE CONTROLS AND PROCEDURES For the December 31, 2009, ﬁnancial year-end, the Chief Executive Ofﬁcer and the Chief Financial Ofﬁcer (the “Certifying Ofﬁcers”), together with other members of management, have evaluated the design and operational effectiveness of Dundee REIT’s disclosure controls and procedures, as deﬁned in National Instrument 52-109. The Certifying Ofﬁcers have concluded that the disclosure controls and procedures for recording, processing and summarizing material information are adequate and effective in order to provide reasonable assurance that material information has been accumulated and communicated to management, to allow timely decisions of required disclosures by Dundee REIT and its consolidated subsidiary entities, within the required time periods. The internal controls over ﬁnancial reporting are designed to provide reasonable assurance regarding the reliability of ﬁnancial reporting and the preparation of ﬁnancial statements for external purposes in accordance with Canadian Generally Accepted Accounting Principles. Using the framework established in “Risk Management and Governance: Guidance on Control (COCO Framework)”, published by the CICA, the Certifying Ofﬁcers, together with other members of management, have evaluated and concluded that the design and operation of Dundee REIT’s internal controls over ﬁnancial reporting are effective for the ﬁnancial year-end December 31, 2009. There were no changes in the internal controls over ﬁnancial reporting during the ﬁnancial year-end December 31, 2009 that have materially affected, or are reasonably likely to materially affect, the REIT’s internal controls over ﬁnancial reporting. PAGE 44 DUNDEE REIT 2009 Annual Report SECTION IV — RISKS AND OUR STRATEGY TO MANAGE Dundee REIT is exposed to various risks and uncertainties. Risks and uncertainties inherent in an investment in our units include but are not limited to the following: REAL ESTATE OWNERSHIP Real estate ownership is generally subject to numerous risks, including changes in general economic conditions, such as the availability and cost of mortgage funds, local economic conditions such as an oversupply of ofﬁce, industrial and retail properties or a reduction in demand for real estate in the area, the attractiveness of properties to potential tenants or purchasers, competition of others with available space, the ability of the owner to provide adequate maintenance at an economic cost and other factors. Our portfolio of properties generates income through rent payments made by our tenants. Upon the expiry of any lease, there can be no assurance that the lease will be renewed or the tenant replaced for a number of reasons. Furthermore, the terms of any subsequent lease may be less favourable than the existing lease. Our ﬁnancial position would be adversely affected if a number of tenants were to become unable to meet their obligations under their leases or if a signiﬁcant amount of available space in the properties were not able to be leased on economically favourable lease terms. In the event of default by a tenant, delays or limitations in enforcing rights as lessor may be experienced and substantial costs in protecting our investment may be incurred. Furthermore, at any time, a tenant may seek the protection of bankruptcy, insolvency or similar laws which could result in the rejection and termination of the lease of such tenant and, thereby, cause a reduction in the cash ﬂow available to us. Our properties are located primarily in Western Canada, with a signiﬁcant majority of our properties, measured by gross leasable area, located in the province of Alberta. As a result, our properties are impacted by factors speciﬁcally affecting the real estate markets in Alberta, British Columbia, Saskatchewan and the Northwest Territories. These factors may differ from those affecting the real estate markets in other regions of Canada. If real estate conditions in Western Canada were to decline relative to real estate conditions in other regions, this could more adversely impact our revenues and results of operations than those of other more diversiﬁed REITs in Canada. Our ability to manage risk through geographical diversiﬁcation is currently limited. ILLIQUIDITY OF REAL ESTATE INVESTMENTS An investment in real estate is relatively illiquid. Such illiquidity will tend to limit our ability to vary our portfolio promptly in response to changing economic or investment conditions. In recessionary times it may be difﬁcult to dispose of certain types of real estate. The costs of holding real estate are considerable and during an economic recession we may be faced with ongoing expenditures with a declining prospect of incoming receipts. In such circumstances, it may be necessary for us to dispose of properties at lower prices in order to generate sufﬁcient cash for operations and making distributions. We manage our portfolio actively and are attentive to market conditions and property values. We review our properties on an ongoing basis to identify strengths and weaknesses of individual properties and our portfolio as a whole, allowing us to quickly reposition assets when warranted or identify non-core or underperforming assets for disposition. PAGE 45 DUNDEE REIT 2009 Annual Report COMPETITION IN THE OFFICE AND INDUSTRIAL 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 and industrial 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 are disproportionate to our perception of relative risk. We have formal policies and procedures to review and monitor environmental exposure. These policies include the requirement to obtain a Phase I Environmental Site Assessment, conducted by an independent and qualiﬁed environmental consultant, before acquiring any real property or any interest therein. FINANCING RISK Upon the expiry of the term of the ﬁnancing of any particular property, operating or acquisition debt facility, reﬁnancing may not be available in the amounts required or may be available only on terms less favourable to us than existing ﬁnancing. We may require additional ﬁnancing in order to grow and expand our operations. It is possible that such ﬁnancing will not be available or, if it is available, will not be available on favourable terms. Future ﬁnancing may take many forms, including debt or equity ﬁnancing, which could alter the current debt-to-equity ratio or which could be dilutive to our unitholders. It is our intent to reduce the interest rate risk associated with reﬁnancing by ensuring that debt maturities are scheduled over several years, with limited exposure in any given year. PAGE 46 DUNDEE REIT 2009 Annual Report INSURANCE We carry general liability, umbrella liability and excess liability insurance with a total limit of $76.0 million. For the property risks we carry “All Risks” property insurance including but not limited to ﬂood, earthquake and loss of rental income insurance (with a 24-month indemnity period). We also carry Boiler and Machinery insurance covering all boilers, pressure vessels, HVAC systems and equipment breakdown. There are, however, certain types of risks (generally of a catastrophic nature such as from war or nuclear accident) that are uninsurable under any insurance policy. Furthermore, there are other risks that are not economically viable to insure at this time. We currently self-insure against terrorism risk for the entire Canadian portfolio. We have insurance for earthquake risks, subject to certain policy limits, deductibles and self-insurance arrangements. Should an uninsured or underinsured loss occur, we could lose our investment in, and anticipated proﬁts and cash ﬂows from, one or more of the properties, but we would continue to be obligated to repay any recourse mortgage indebtedness on such properties. Additionally, we generally have owners’ title insurance policies with respect to our properties located in the United States. However, the amount of coverage under such policies may be less than the full value of such properties. If a loss occurs resulting from a title defect with respect to a property where there is no title insurance or the loss is in excess of insured limits, we could lose all or part of our investment in, and anticipated proﬁts and cash ﬂows from, such property. JOINT VENTURE, PARTNERSHIP AND CO-OWNERSHIP AGREEMENTS We are a participant in joint ventures and partnerships with third parties in respect of four properties. A joint venture or partnership involves certain additional risks, including: (i) (ii) (iii) (iv) the possibility that such co-venturers/partners may at any time have economic or business interests or goals that will be inconsistent with ours or take actions contrary to our instructions or requests or to our policies or objectives with respect to our real estate investments; the risk that such co-venturers/partners could experience ﬁnancial difﬁculties or seek the protection of bankruptcy, insolvency or other laws, which could result in additional ﬁnancial demands on us to maintain and operate such properties or repay the co-venturers’/partners’ share of property debt guaranteed by us or for which we will be liable and/or result in our suffering or incurring delays, expenses and other problems associated with obtaining court approval of joint venture or partnership decisions; 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 the need to obtain co-venturers’/partners’ consents with respect to certain major decisions, including the decision to distribute cash generated from such properties or to reﬁnance or sell a property. In addition, the sale or transfer of interests in certain of the joint ventures and partnerships may be subject to rights of ﬁrst refusal or ﬁrst offer and certain of the joint venture and partnership agreements may provide for buy-sell or similar arrangements. Such rights may be triggered at a time when we may not desire to sell but may be forced to do so because we do not have the cash to purchase the other party’s interests. Such rights may also inhibit our ability to sell an interest in a property or a joint venture/partnership within the time frame or otherwise on the basis we desire. Our investment in properties through joint venture and partnership agreements is subject to the investment guidelines set out in our Declaration of Trust. PAGE 47 DUNDEE REIT 2009 Annual Report SECTION V — CRITICAL ACCOUNTING POLICIES CRITICAL ACCOUNTING ESTIMATES Management of Dundee REIT believes the policies outlined below are those most subject to estimation and management’s judgment. Impairment of long-lived assets Under Canadian GAAP, management is required to write down to fair value any long-lived asset that is determined to have been impaired. Dundee REIT’s long-lived assets consist of rental properties, intangible assets and liabilities, and leasing costs and tenant improvements relating to those properties. The fair value of rental properties and their associated leasing costs and tenant improvements is dependent upon anticipated future cash ﬂows from operations over the anticipated holding period. The review of anticipated cash ﬂows involves subjective assumptions of estimated occupancy, rental rates and a residual value. In addition to reviewing anticipated cash ﬂows, management assesses changes in business climates and other factors that may affect the ultimate value of the property. These assumptions are subjective and may not ultimately be achieved. In the event these factors result in a carrying value that exceeds the sum of the undiscounted cash ﬂows expected to result from the direct use and eventual disposition of the property, an impairment loss would be recognized. Impairment of amounts receivable Trade receivables are recognized initially at fair value. A provision for impairment is established when there is objective evidence that collection will not be possible under the original terms of the contract. Indicators of impairment include delinquency of payment and signiﬁcant ﬁnancial difﬁculty of the tenant. The carrying amount of the asset is reduced through an allowance account, and the amount of the loss is recognized in the consolidated income statements within operating expenses. Bad debt write-offs occur when the Trust determines collection is not possible. Any subsequent recoveries of amounts previously written off are credited against operating expenses in the consolidated income statements. Trade receivables that are less than three months past due are not considered impaired unless there is evidence that collection is not possible. Purchase price allocations For acquisitions initiated on or after September 12, 2003, the purchase price of a rental property is allocated based on estimated fair market values to land, building, deferred leasing costs acquired, lease origination costs associated with in-place leases, the value of above- and below-market leases and other intangible lease assets. Other intangible lease assets include the value of in-place leases and the value of tenant relationships, if any. For acquisitions initiated prior to September 12, 2003, the purchase price was allocated to land and building based on their respective fair market values. Intangible assets and liabilities Intangible assets and liabilities include the value of above- and below-market leases, in-place leases, lease origination costs and tenant relationships. Intangible assets and liabilities are stated at historic cost less accumulated amortization and impairment charges, if any. The values of the above- and below-market leases are amortized on a straight-line basis to rental property revenues over the remaining term of the associated lease. The value associated with in-place leases and tenant relationships is amortized on a straight-line basis over the expected term of the relationship, which includes an estimated probability of the lease renewal and the estimated term. Lease origination costs are amortized on PAGE 48 DUNDEE REIT 2009 Annual Report a straight-line basis over the term of the applicable lease. In the event a tenant vacates its leased space prior to the contractual termination of the lease and no rental payments are being made on the lease, any unamortized balance of the related intangible will be expensed. Depreciation The Trust uses the straight-line method of depreciation for rental properties, initial leasing costs and major expansions and renovations. The estimated useful life of the properties continues to be between 30 and 40 years. A signiﬁcant portion of the acquisition cost of each property is allocated to building. The allocation of the acquisition cost to building and the determination of the useful life are based upon management’s estimates. In the event the allocation to building is inappropriate or the estimated useful life of buildings proves incorrect, the computation of depreciation will not be appropriately reﬂected over future periods. Leasing costs and tenant improvements Leasing costs and tenant improvements may include: • 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; and • 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. 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 Trust to distribute all of its taxable income to its unitholders, which currently enables the Trust to deduct such distributions for income tax purposes. Canadian and U.S.-based incorporated subsidiaries are subject to tax on their 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. 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. PAGE 49 DUNDEE REIT 2009 Annual Report 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. CHANGES IN ACCOUNTING POLICIES Deferred recoverable costs On January 1, 2009, the Trust adopted amendments to The Canadian Institute of Chartered Accountants (“CICA”) Handbook Section 1000, “Financial Statement Concepts” and new CICA Handbook Section 3064, “Goodwill and Intangible Assets”, which replaced CICA Handbook Section 3062, “Goodwill and Other Intangible Assets”, and 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. Under these amendments, the deferral and matching of operating expenses over future revenues is no longer appropriate. The impact of these amendments increased revenue properties by $1.9 million, decreased deferred costs by $2.1 million and decreased unitholders’ equity by approximately $0.2 million. The decrease in unitholder equity is due to deferred recoverable costs that are short-term and recurring maintenance costs which are better classiﬁed as operating expenses. The remainder of deferred recoverable costs has been reclassiﬁed to building improvements. These costs are considered to be betterments to the properties. Future changes in accounting policies Business Combinations In January 2009, the CICA issued CICA Handbook Section 1582, “Business Combinations”, Section 1601, “Consolidations”, and Section 1602, “Non-controlling Interests”. These sections replace the former CICA Handbook Section 1581, “Business Combinations”, and Section 1600, “Consolidated Financial Statements”, and establish a new section for accounting for a non-controlling interest in a subsidiary. CICA Handbook Section 1582 establishes accounting standards for a business combination. It provides the Canadian equivalent to IFRS 3, “Business Combinations”. The section applies prospectively to business combinations for which the acquisition date is on or after the beginning of the ﬁrst annual reporting period beginning on or after January 1, 2011. PAGE 50 DUNDEE REIT 2009 Annual Report CICA Handbook Section 1601 establishes standards for the preparation of consolidated ﬁnancial statements. CICA Handbook Section 1602 establishes accounting standards for a non-controlling interest in a subsidiary in consolidated ﬁnancial statements subsequent to a business combination. It is equivalent to the corresponding provisions of IFRS IAS 27, “Consolidated and Separate Financial Statements”. CICA Handbook Section 1601 and Section 1602 apply to interim and annual consolidated ﬁnancial statements relating to ﬁscal years beginning on or after January 1, 2011. Earlier adoption of these sections is permitted as of the beginning of a ﬁscal year. All three sections must be adopted concurrently. The Trust is currently evaluating the impact of adopting these sections. International Financial Reporting Standards In February 2008, the Canadian Accounting Standards Board (“ASB”) conﬁrmed that International Financial Reporting Standards (“IFRS”) will replace current accounting standards and interpretations for public companies for ﬁscal years beginning on or after January 1, 2011. IFRS are premised on a conceptual framework similar to Canadian GAAP; however, signiﬁcant differences exist in certain matters of recognition, measurement and disclosure. The Trust has not yet determined the full accounting effects of adopting IFRS, since some key accounting policy alternatives and implementation decisions are still being evaluated. We do not expect the adoption of IFRS to have a material impact on the reported cash ﬂows of the Trust, but it is expected to have a material impact on the consolidated balance sheet and statement of net income including IFRS transition adjustments against opening retained earnings for retrospective application of standards, where required. The conversion from Canadian GAAP to IFRS will be applicable in the ﬁrst quarter of 2011, when the current and comparative information will be prepared under IFRS. We have performed an initial assessment of the impact of IFRS and expect signiﬁcant accounting policy changes pertaining to investment property, joint ventures, equity and revenue recognition upon transition. The transition process will consist of three primary phases: the scoping and diagnostic phase; the impact analysis, evaluation and design phase; and the implementation and review phase. The diagnostic phase of the project was completed in 2008, which included identifying major accounting differences or their relevance and formulating key IFRS conversion issues to be resolved in the second phase of the project. We have provided IFRS education for key employees responsible for ﬁnancial reporting. The impact analysis, evaluation and design phase of the project is currently progressing through the establishment of functional implementation teams who are responsible for effecting required changes to business and accounting processes and systems. This second phase is currently ongoing and is expected to be completed by mid-2010. The implementation and review phase includes implementing recommendations that were approved during the second phase. Phase three will ensure that all policies that require changes are properly implemented and that training is provided to all stakeholders. PAGE 51 DUNDEE REIT 2009 Annual Report The following table summarizes the key elements identiﬁed in phases two and three and timing for transitioning to IFRS and the progress made with respect to each activity: Key activities Milestones Status Financial statement presentation: • Identify differences between IFRS and the Trust’s existing policies and procedures under Canadian accounting standards • Quantify the effects of conversion to IFRS • Analyze and select one-time policy choice exemptions to be adopted at the transition date • Assess and implement revisions to accounting and procedures manuals where required • Prepare ﬁnancial statements and related note disclosures in compliance with IFRS Training and communication: • Develop awareness of the likely effects of the transition throughout the company • Provide company speciﬁc training on revised policies and procedures to affected personnel • Provide timely communication on the impacts of our conversion to external stakeholders • Provide topic speciﬁc training to key employees involved in implementation standards on business activities • Develop a valuation process for investment properties • Identify impact of conversion on contracts including ﬁnancial covenants and employee compensation plans • Complete any required changes to affected agreements Information technology and data systems: • Identify changes required to information systems and implement solutions • Determine and implement solutions for capturing information relating to the parallel run of Canadian GAAP and IFRS ﬁnancial information Control environment: • For all changes to policies and procedures identiﬁed, assess effectiveness of internal controls over ﬁnancial reporting (“ICFR”) and disclosure controls and procedures (“DC&P”) and implement any necessary changes • Design and implement internal controls over the IFRS changeover process PAGE 52 • Assessment and quantiﬁcation of the signiﬁcant effects of the conversion will be completed by Q3 2010 • Revised accounting policy and procedures manuals in place by January 1, 2011 • Completed the identiﬁcation of signiﬁcant IFRS differences • Selection of one-time policy choices have been identiﬁed • Evaluation and selection of accounting policy alternatives has commenced and will continue to be assessed • Revised accounting policy and procedures manuals will be drafted throughout 2010 • Preparation of IFRS ﬁnancial statements and notes disclosure has commenced • Speciﬁc detailed training to be rolled out • Key employees involved in the IFRS in Q2 and Q3 2010 • Changes related to conversion to be communicated to affected employees throughout 2010 conversion team have attended training courses in 2008 and 2009 • Training and resource documents have been updated for recent amendments and interpretations • Continuous communication to external stakeholders through MD&A disclosures. Future disclosures will provide further detail on the impacts of the transition once key accounting policy and implementation decisions have been made • Valuation of investment properties at January 1, 2010 has been substantially completed • Signiﬁcant IFRS differences have been identiﬁed, including potential impacts on the Declaration of Trust, co-ownership and partnership agreements, debt agreements and lease agreements • Necessary changes to information systems implemented by Q4 2010 • Solution for capturing ﬁnancial information under dual GAAP reporting to be ﬁnalized by Q2 2010 • Required changes to information systems and data collection processes are being identiﬁed as each work stream progresses • Document and design key controls over investment property valuation process • Internal controls over IFRS changeover • Design of investment property valuation process has commenced • IFRS differences with process impacts process in place by Q3 2010 have been identiﬁed • Conduct implementation audit by internal control during Q4 2010 • Update CEO/CFO certiﬁcation process by Q4 2010 Business impact assessments: • Determine impact of IFRS accounting • Impact on contracts identiﬁed by Q2 2010 • Complete opening balance sheet by Q3 2010 DUNDEE REIT 2009 Annual Report As we continue to evaluate the impact of adopting IFRS on our business activities, processes and accounting policies, we will continue to revisit the conversion plan. Accordingly, changes to the plan may be required as more information becomes known. Impact of adoption of IFRS Adoption of IFRS will initially require retrospective application as of the transition date, on the basis that an entity has prepared its ﬁnancial statements in accordance with IFRS since its formation. Certain adoptive relief mechanisms are available under IFRS to assist with difﬁculties associated with reformulating historical accounting information. The general relief mechanism is to allow for prospective, rather than retrospective treatment, under certain conditions as prescribed by IFRS 1, “First-time Adoption of International Financial Reporting Standards”. The standard speciﬁes that adjustments arising on the conversion to IFRS from Canadian GAAP should be recognized in opening retained earnings. IFRS 1: First-time Adoption of International Financial Reporting Standards (“IFRS 1”) The adoption of IFRS requires application of IFRS 1, which provides guidance for an entity’s initial adoption of IFRS. IFRS 1 generally requires an entity to apply all IFRSs effective at the end of its ﬁrst IFRS reporting period retrospectively. However, IFRS 1 provides certain mandatory exceptions and permits limited optional exemptions in speciﬁed areas of certain standards from this general requirement. Certain exemptions including cumulative translation differences, designation of previously recognized ﬁnancial instruments and arrangements containing a lease are not expected to be applicable to the Trust. Certain relevant ﬁrst-time adoption options are discussed below. Business combinations (refer to discussion under IFRS Accounting Standards) IFRS 1 generally provides for the business combinations standard to be applied either retrospectively or prospectively from the date of transition to IFRS (or to restate all business combinations after a selected date). Retrospective application would require an entity to restate all prior transactions that meet the deﬁnition of a business under IFRS. Pending the outcome of the decision to early adopt CICA Handbook Section 1582, “Business Combinations”, which is the equivalent of the IFRS standard, this exception may not be applicable to the Trust. Leases Adoption of the IFRS Leases standard will initially require retrospective application as of the transition date, on the basis that an entity has prepared its ﬁnancial statements in accordance with IFRS since its formation. As discussed below under IFRS Accounting Standards, Leases, there will be Canadian GAAP IFRS differences relating to the calculation of rental revenue on a straight-line basis and the income statement classiﬁcation of the amortization of tenant incentives against rental revenue. Share-based payments Generally an entity may elect prospective application for options granted on or after November 7, 2002, or for grants after November 7, 2002, that vested before the later of: (i) the date of transition to IFRS; and (ii) January 1, 2005. Although the impact is not expected to be signiﬁcant, Dundee is still in the process of assessing the application of this ﬁrst-time adoption option. PAGE 53 DUNDEE REIT 2009 Annual Report Borrowing costs Prior to January 1, 2009, the capitalization of borrowing costs was optional under IFRS. At adoption, an entity may designate any date on or before January 1, 2010 to commence capitalization of borrowing costs relating to all qualifying development projects commencing after such date. It is currently expected that this ﬁrst-time adoption option will have no application to Dundee due to the application of fair value on transition. IFRS accounting standards IFRS is premised on a conceptual framework similar to Canadian GAAP; however, signiﬁcant differences exist in certain areas of recognition, measurement and disclosure. The following paragraphs outline the signiﬁcant accounting policies, which are required, or we currently expect to apply upon adoption of IFRS, that will be signiﬁcantly different than Canadian GAAP accounting policies. As discussed below, we currently expect that certain IFRS accounting standards will signiﬁcantly impact net income. We also expect that the IFRS standard will impact key performance indicators such as NOI, FFO, AFFO, interest coverage ratio and debt-to-gross book value. We cannot quantify at this time the impact that the future adoption of these IFRS standards will have on our ﬁnancial statements and operating performance measures; however, we expect the impact to be material. This discussion has been prepared using the standards and interpretations currently issued and expected to be effective for Dundee’s ﬁrst annual reporting period under IFRS for the year ended December 31, 2011 and for each quarter commencing March 31, 2011. Certain accounting policies currently expected to be adopted under IFRS, and the application of such policies to certain transactions or circumstances may be modiﬁed and, as a result, the impact may be different than our current expectations. Further, the IASB is currently in the process of amending, or expects to amend, numerous accounting standards that will be applicable to the Trust. As these IFRS standards are amended, and as the Trust continues to evaluate the impact of adoption on its processes and accounting policies, Dundee will provide updated disclosure where appropriate. PAGE 54 DUNDEE REIT 2009 Annual Report Investment property IFRS deﬁnes an investment property as a property held to earn rental revenue or for capital appreciation or both. A key characteristic of an investment property is that it generates cash ﬂows largely independently of the other assets held by an entity. All of Dundee’s rental properties will qualify as investment property. As with Canadian GAAP, investment property is initially measured at cost; however subsequent to initial recognition, IFRS requires that an entity choose either the cost or fair value model to account for its investment property. (a) The fair value model requires an entity to record a gain or loss in net earnings arising from a change in the fair value of investment property in the period of change. The determination of fair value is based upon, among other things, rental revenue from current leases, and reasonable and supportable assumptions that represent what knowledgeable, willing parties would assume about rental revenue from future leases in the light of current conditions, less future cash outﬂows in respect of tenant improvement costs and the investment property operations. Under the fair value model, lease- and tenant-related amounts currently reported under Canadian GAAP as Deferred Costs, Intangible Assets and Intangible Liabilities would be presented as an investment property component (see discussions below). No depreciation related to investment property is recognized under the fair value model. (b) The cost model is generally consistent with Canadian GAAP in that separate components are recognized for each signiﬁcant part of an asset, which is carried at its cost less any accumulated depreciation and any accumulated impairment losses. It is expected that the balance sheet categorization of certain components, such as the differential between contractual and market rents which are currently reported by the Trust as Intangible Assets and Liabilities for Canadian GAAP presentation, would be presented as an investment property component under IFRS. Tenant improvement costs that are currently presented as Deferred Costs may be re-characterized as tenant incentives and would be presented with Prepaid Expenses and Other Assets. Where an entity selects the cost model, it is required to disclose, at least annually, the fair value of investment property in the notes to its ﬁnancial statements. PAGE 55 DUNDEE REIT 2009 Annual Report Impairment Under Canadian GAAP, impairment is recognized for non-ﬁnancial assets based on estimated fair value when the undiscounted future cash ﬂows from an asset, or group of assets, is less than the carrying value. Under IFRS, an entity is required to recognize an impairment charge if the recoverable amount, determined as the higher of the estimated fair value less costs to sell or value-in-use, is less than its carrying value. Value-in-use is the discounted present value of estimated future cash ﬂows expected to arise from the planned use of an asset and from its disposal at the end of its useful life. This standard would only be applicable to the Trust if the cost model is adopted. Business combinations Both IFRS and current Canadian GAAP require the acquisition method of accounting for all business combinations, however signiﬁcant differences exist between the two frameworks in other areas. The most signiﬁcant differences are that under IFRS transaction costs are expensed immediately whereas under Canadian GAAP such amounts are included in the cost of the asset. Further, IFRS requires the purchaser to measure any non-controlling interest in the acquiree at either fair value or at the non-controlling interest’s proportionate share of the fair value of the acquiree’s identiﬁable net assets, whereas Canadian GAAP requires minority interest to be measured at the non-controlling interest’s proportionate share of the historic carrying value of the acquiree’s identiﬁable net assets. Additionally, contingent consideration under IFRS is recognized at fair value on the date of acquisition, with subsequent changes generally recognized in net earnings. Under Canadian GAAP contingent consideration is recognized initially to the extent such amounts are assured beyond a reasonable doubt, and any change is recognized in the carrying cost of the asset. The IFRS deﬁnition of a business is broader than the current Canadian GAAP deﬁnition and may capture single asset acquisitions. By deﬁnition investment property includes all ancillary processes that may not be signiﬁcant to the overall operation of the investment property. In circumstances where only some minor ancillary processes are acquired with an investment property, this may lead to an assessment that such investment property acquisitions are the acquisition of an asset, rather than the acquisition of a business. Under Canadian GAAP, the Trust accounts for its property acquisitions as asset acquisitions, rather than a business combination. The Trust is in the process of assessing which of its rental properties will qualify as asset acquisitions versus the acquisition of a business; however, it does not expect that the standard will have a material impact. In January 2009, the CICA issued CICA Handbook Section 1582, “Business Combinations”. This section is the equivalent of the IFRS standard and applies prospectively to business combinations for which the acquisition date is on or after the beginning of the ﬁrst annual reporting period beginning on or after January 1, 2011, but may be early adopted at the beginning of a ﬁscal year. The Trust is currently evaluating whether or not to early adopt this standard. PAGE 56 DUNDEE REIT 2009 Annual Report Leases Both Canadian GAAP and IFRS require tenant incentives to be recorded as a reduction of rental revenue. However, the IFRS deﬁnition of tenant incentives differs from what the Trust currently applies under Canadian GAAP, which may result in more tenant improvement costs being amortized against revenue. Consequently, management currently expects a reduction in the rental revenue as a result of this change under IFRS; however it cannot quantify the impact of any adjustment at the present time. IFRS requires rental revenue to be determined on a straight-line basis considering all rents from the inception of the lease, whereas Canadian GAAP only required rental revenue to be recognized on a straight-line basis prospectively commencing on January 1, 2004. As a result, the Trust expects that this difference, applied retrospectively, will result in a reduction of straight-line rental revenue under IFRS; however, management cannot quantify the impact of this adjustment at the present time. If the fair value model is selected, the Trust would cease to account for the differential between contractual and market rents on the acquisition of investment property thereby reducing rental revenue and net operating income under IFRS; however, management cannot quantify the impact of this adjustment at the present time. Basis of consolidation The International Accounting Standards Board is in the process of amending certain IFRS that will, if implemented in their current form, prohibit proportionate consolidation of joint ventures that are held through a legal entity, or where the venturers do not have rights to individual assets or obligations of the venture, because joint venturers in these circumstances do not have a direct ownership of the underlying net assets of the joint venture. IFRS currently allows joint ventures in these circumstances to be either proportionately consolidated or equity accounted. Where the Trust’s joint venture activities are jointly controlled assets, wherein the Trust has an undivided interest in the net assets, it is currently expected that Dundee will continue to proportionately consolidate these activities. Where the Trust controls an entity, like Canadian GAAP, it will continue to consolidate that entity under IFRS. The Trust is in the process of assessing the implication of these proposed amendments to certain IFRS on its co-ownership activities. Additional information relating to Dundee REIT, including the latest annual information form of Dundee REIT, is available on SEDAR at www.sedar.com. PAGE 57 DUNDEE REIT 2009 Annual Report Management’s responsibility for financial statements The accompanying consolidated ﬁnancial statements, the notes thereto and other ﬁnancial information contained in this Annual Report have been prepared by, and are the responsibility of, the management of Dundee Real Estate Investment Trust. These ﬁnancial statements have been prepared in accordance with Canadian GAAP, using management’s best estimates and judgments when appropriate. The Board of Trustees is responsible for ensuring that management fulﬁlls its responsibility for ﬁnancial reporting and internal control. The audit committee, which is comprised of trustees, meets with management as well as the external auditors to satisfy itself that management is properly discharging its ﬁnancial responsibilities and to review its consolidated ﬁnancial statements and the report of the auditors. The audit committee reports its ﬁndings to the Board of Trustees, which approves the consolidated ﬁnancial statements. PricewaterhouseCoopers LLP, the independent auditors, have audited the consolidated ﬁnancial statements in accordance with Canadian generally accepted auditing standards. The auditors have full and unrestricted access to the audit committee, with or without management present. MICHAEL J. COOPER Vice Chairman and Chief Executive Ofﬁcer MARIO BARRAFATO Senior Vice President and Chief Financial Ofﬁcer Toronto, Ontario, February 23, 2010 PAGE 58 DUNDEE REIT 2009 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, 2009 and 2008 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, 2009 and 2008 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 23, 2010 PAGE 59 DUNDEE REIT 2009 Annual Report Consolidated balance sheets (in thousands of dollars) December 31 Note 2009 2008 Assets Rental properties Leasing costs and tenant improvements Amounts receivable Prepaid expenses and other assets Cash and cash equivalents Intangible assets Assets held for sale Liabilities Debt Amounts payable and accrued liabilities Distributions payable Future income tax liability Intangible liabilities Liabilities related to assets held for sale Unitholders’ equity 4 5 6 7 8 20 9 10 11 15 8 20 12 (Restated, see Note 2) $ 1,181,058 39,589 8,881 17,718 12,022 57,558 18,416 $ 1,145,993 33,438 11,877 5,443 69,267 49,969 — $ 1,335,242 $ 1,315,987 $ 857,060 22,525 4,534 — 35,031 16,940 936,090 399,152 $ 883,695 18,772 3,749 3,387 41,941 — 951,544 364,443 $ 1,335,242 $ 1,315,987 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 Consolidated statements of net income and comprehensive income (in thousands of dollars, except per unit amounts) For the years ended December 31 Note 2009 2008 DUNDEE REIT 2009 Annual Report Revenues Rental properties revenue Interest and fee income Expenses Rental properties operating expenses Interest Depreciation of rental properties Amortization of leasing costs, tenant improvements and intangibles General and administrative Income before income taxes Provision for (recovery of) income taxes Current income taxes Future income taxes Income before discontinued operations Discontinued operations Net income Basic and diluted income (loss) per unit Continuing operations Discontinued operations Net income Net income Other comprehensive income (loss) Change in foreign currency translation adjustment Comprehensive income See accompanying notes to the consolidated ﬁnancial statements 14 15 20 16 $ 192,083 1,676 $ 179,779 3,663 193,759 183,442 71,129 49,736 27,512 22,231 6,706 177,314 16,445 12 (1,768) (1,756) 18,201 (4,781) 66,026 48,226 26,018 26,609 6,740 173,619 9,823 13 349 362 9,461 999 $ 13,420 $ 10,460 $ $ $ 0.82 (0.22) 0.60 13,420 $ $ $ 0.45 0.05 0.50 10,460 (1,334) 968 $ 12,086 $ 11,428 PAGE 61 DUNDEE REIT 2009 Annual Report Consolidated statements of unitholders’ equity Note Number of units Cumulative capital Cumulative net income Accumulated other Cumulative comprehensive loss distributions Total 20,417,744 $ 536,093 $ 806,598 $ (972,790) $ (5,275) $ 364,626 2 11 11 — — (183) — — (183) 20,417,744 — — — 536,093 — — — 806,415 13,420 — — (972,790) — (44,032) (4,534) (5,275) — — — 364,443 13,420 (44,032) (4,534) (in thousands of dollars, except number of units) Unitholders’ equity, January 1, 2009 Adjustment to opening unitholders’ equity to comply with new accounting standards Unitholders’ equity, January 1, 2009 (restated) Net income Distributions paid Distributions payable Public offering of REIT A Units Distribution — — — — — — — — — — — — — — — — — — — — — — — 70,693 3,051 180 858 — (3,590) (3) (1,334) (1,334) 24,717,901 $ 607,282 $ 819,835 $(1,021,356) $ (6,609) $ 399,152 12 3,852,500 70,693 Reinvestment Plan 12 Unit Purchase Plan 12 Deferred Unit Incentive Plan 12 Deferred Units exchanged 196,987 10,997 — 3,051 180 858 for REIT A Units Issue costs Unit redemption Change in foreign currency translation adjustment Unitholders’ equity, December 31, 2009 12 12 239,873 — (200) — (3,590) (3) — — See accompanying notes to the consolidated ﬁnancial statements PAGE 62 DUNDEE REIT 2009 Annual Report (in thousands of dollars, except number of units) Note Number of units Cumulative capital Cumulative net income Accumulated other Cumulative comprehensive income (loss) distributions Total Unitholders’ equity, January 1, 2008 Adjustment to opening unitholders’ equity to comply with new accounting standards Unitholders’ equity, January 1, 2008 (restated) Net income Distributions paid Distributions payable Distribution 20,863,819 $ 544,850 $ 796,138 $ (926,605) $ (6,243) $ 408,140 2 — — (183) — — (183) 20,863,819 — — — 544,850 — — — 795,955 10,460 — — (926,605) — (42,353) (3,749) (6,243) — — — 407,957 10,460 (42,353) (3,749) Reinvestment Plan 12 12 Unit Purchase Plan Deferred Unit Incentive Plan 12 Deferred Units exchanged for REIT A Units Normal course issuer bid Conversion of 6.5% Debentures Conversion of 5.7% Debentures 12 12 12 Issue costs Equity portion of 6.0% Debentures Change in foreign currency 305,799 23,222 — 8,670 700 399 10,492 (826,900) — (21,715) 24,920 623 16,392 — — 492 (86) 2,160 translation adjustment — — — — — — — — — — — — — — — — (83) — — — — — — — — — — — — — — 8,670 700 399 — (21,798) 623 492 (86) 2,160 968 968 Unitholders’ equity, December 31, 2008 20,417,744 $ 536,093 $ 806,415 $ (972,790) $ (5,275) $ 364,443 See accompanying notes to the consolidated ﬁnancial statements PAGE 63 DUNDEE REIT 2009 Annual Report Consolidated statements of cash flows (in thousands of dollars) For the years ended December 31 Note 2009 2008 Generated from (utilized in) operating activities Net income Non-cash items: Depreciation of rental properties Amortization of leasing costs, tenant improvements and intangibles Amortization of ﬁnancing costs Amortization of fair value adjustment on acquired debt Gain on disposal of rental properties Provision for impairment in value of discontinued assets Deferred unit compensation expense Future income taxes Amortization of market rent adjustments on acquired leases Straight-line rent adjustment Deferred leasing costs incurred Change in non-cash working capital Generated from (utilized in) investing activities Investment in rental properties Investment in tenant improvements Acquisition of rental properties Acquisition deposit on rental properties Net proceeds from disposal of rental properties Repayment of promissory note 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 Convertible debentures issued, net of costs Distributions paid on Units Purchase of REIT A Units under normal course issuer bid 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 Cash and cash equivalents from continuing operations Cash and cash equivalents from assets held for sale Cash and cash equivalents, end of year See accompanying notes to the consolidated ﬁnancial statements PAGE 64 20 20 22 3 20 11 $ 13,420 $ 10,460 28,283 27,106 22,583 1,260 (800) (4,255) 11,513 858 (3,739) (10,276) (1,053) 57,794 (4,296) 6,009 59,507 (5,921) (6,121) (94,526) (13,755) 14,927 — 419 27,109 1,256 (819) (79) — 399 327 (12,736) (1,026) 51,997 (4,993) (5,878) 41,126 (5,843) (2,731) (155,348) — — 12,116 941 (104,977) (150,865) 35,993 (15,498) (54,496) (126) — (44,730) — 67,280 (11,577) (57,047) 69,267 12,220 12,022 198 95,312 (13,934) (508) (106) 119,200 (37,501) (21,798) 614 141,279 31,540 37,727 69,267 69,267 — $ $ 12,220 $ 69,267 $ $ $ DUNDEE REIT 2009 Annual Report Notes to the consolidated financial statements (All dollar amounts in thousands, except unit or per unit amounts) 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. Equity is described in Note 12; however, for simplicity, throughout the Notes reference is made 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 Class B Units, Series 1 • “Units”, meaning REIT Units, Series A; REIT Units, Series B; LP Class B Units, Series 1; and Special Trust Units, collectively At December 31, 2009, Dundee Corporation, the majority shareholder of Dundee Realty Corporation (“DRC”), directly and indirectly through its subsidiaries, held 921,299 REIT A Units and 3,454,188 LP B Units (December 31, 2008 — 780,851 and 3,454,188 Units, respectively). Note 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of accounting 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. Signiﬁcant estimates and assumptions include impairment of accounts receivable, impairment of long-lived assets, impairment of intangible assets and liabilities and the purchase price allocations used for acquired properties. Actual results could differ from those estimates. Principles of consolidation The consolidated ﬁnancial statements include the accounts of the Trust and its wholly owned subsidiaries. The Trust carries certain of its activities through co-ownerships and joint ventures, and records its proportionate share of the respective assets, liabilities, revenue and expenses of those ventures. Revenue recognition 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 PAGE 65 DUNDEE REIT 2009 Annual Report 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 Trust’s recovery experience 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 include 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. 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 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 straight-line basis over their estimated useful lives ranging from ﬁve to ten years. Building improvements are depreciated over their estimated useful lives, which range from 10 to 20 years depending on the type of improvement. Purchase price allocations As a result of revised CICA accounting and disclosure standards for acquisitions initiated on or after September 12, 2003, the purchase price of a rental property is allocated, based on estimated fair 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. 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 and tenant relationships. Intangible assets and liabilities are stated at historic cost less accumulated amortization and impairment charges, if any. The values of above- and below-market leases are amortized on a straight-line basis to rental property revenues over the remaining term of the associated lease. The value associated with in-place leases is amortized on a straight-line basis over the remaining term of the lease. The value of tenant relationships is amortized on a straight-line basis over the remaining term of the lease plus an estimated renewal term. Lease origination costs are amortized on a straight-line basis over the term of the applicable lease. In the event a tenant vacates its 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 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. PAGE 66 DUNDEE REIT 2009 Annual Report Leasing costs and tenant improvements Deferred costs may include: • leasing costs, which include leasing fees and costs, except for initial leasing costs that are included in rental properties, and deferred leasing costs acquired. 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; and • 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. Impairment of amounts receivable Trade receivables are recognized initially at fair value. A provision for impairment is established when there is objective evidence that collection will not be possible under the original terms of the contract. Indicators of impairment include delinquency of payment and signiﬁcant ﬁnancial difﬁculty of the tenant. The carrying amount of the asset is reduced through an allowance account, and the amount of the loss is recognized in the consolidated statements of net income within operating expenses. Bad debt write-offs occur when the Trust determines collection is not possible. Any subsequent recoveries of amounts previously written off are credited against operating expenses in the consolidated statements of net income. Trade receivables that are less than three months past due are not considered impaired unless there is evidence that collection is not possible. Impairment of loans receivable Loans receivable are classiﬁed as impaired when, in the opinion of management, there is a reasonable doubt as to the timely collection of principal, interest and the underlying security of the loan. The carrying amount of a loan receivable when classiﬁed as impaired is reduced to its estimated fair value. Foreign currency translation The Trust’s foreign operations are considered ﬁnancially self-sustaining and operationally independent. Accordingly, assets and liabilities denominated in foreign currencies are translated into Canadian dollars at the rate of exchange in effect at the balance sheet date. Revenues and expenses are translated at the average rate for the period. Translation gains and losses are deferred as a separate component of unitholders’ equity until there is a realized reduction in the net investment in the foreign operation. Income taxes Dundee REIT uses the liability method of accounting for future income taxes relating to incorporated subsidiaries. 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, is 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 rate change is substantively enacted. Unit-based compensation plan As described in Note 12, Dundee REIT has a Deferred Unit Incentive Plan 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. PAGE 67 DUNDEE REIT 2009 Annual Report 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 consolidated 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, 2009, cash and cash equivalents includes $4,294, representing the Trust’s proportionate share of cash balances of joint ventures (December 31, 2008 — $1,232). Excluded from cash and cash equivalents are amounts held for repayment of tenant security deposits as required by various lending agreements. Financial instruments The Trust follows CICA accounting standards for ﬁnancial instruments 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. 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. 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. Interest expense related to ﬁnancial liabilities, including deferred ﬁnancing costs, is recognized using the effective interest rate method. Section 3862 of the Handbook, “Financial Instruments — Disclosures”, outlines the criteria under which the fair value of ﬁnancial instruments is recognized and measured. In June 2009, the CICA issued amendments to Section 3862. The standard expands disclosure requirements regarding the reliability of the inputs used in the measurement of ﬁnancial instruments. The section has also been amended to require disclosure of the three levels of fair value hierarchy for the recognized ﬁnancial instruments as well as additional liquidity disclosures. Adoption of this standard did not have an impact on the ﬁnancial position or the results of operations of the Trust except for additional disclosure. Financial assets are comprised of cash and cash equivalents and amounts receivables. Financial liabilities are comprised of mortgages payable, convertible debentures and amounts payables. For certain ﬁnancial instruments, including cash and cash equivalents, amounts receivable, amounts payable and accrued liabilities, and distributions payable, the carrying amounts approximate fair values due to their immediate or short-term maturity. The fair values of 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. 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 PAGE 68 DUNDEE REIT 2009 Annual Report 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. 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. 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. Changes in accounting policies in 2009 Deferred recoverable costs 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 matching revenues and expenses to eliminate the current practice of recognizing as assets those items that do not meet the deﬁnition and recognition criteria. Under these changes, effective January 1, 2009, the deferral and matching of recoverable operating expenses over future revenues is no longer appropriate. The impact of this accounting change, which was applied on a retroactive basis, increased rental properties by $1,943 and decreased deferred costs by $2,126. Unitholders’ equity also decreased by $183 for maintenance costs previously capitalized as deferred recoverable costs but which are now required to be expensed under the revised accounting pronouncements. PAGE 69 DUNDEE REIT 2009 Annual Report Future changes in accounting policies International Financial Reporting Standards (“IFRS”) In January 2006, the CICA Accounting Standards Board (“ASB”) adopted a strategic plan for the direction of accounting standards in Canada. As part of that plan, accounting standards for public companies are required to comply with IFRS for ﬁscal years beginning on or after January 1, 2011, with comparative ﬁgures presented on the same basis. In February 2008, the CICA ASB conﬁrmed that January 1, 2011, would be the effective date for the initial adoption of IFRS. IFRS are premised on a conceptual framework similar to Canadian GAAP, however, signiﬁcant differences exist in certain matters of recognition, measurement and disclosure. While the adoption of IFRS will not have a material impact on the reported cash ﬂows of the Trust, it will have a material impact on the Trust’s consolidated balance sheet and statements of net income and comprehensive income. The Trust has performed an initial assessment of the impact of IFRS and has identiﬁed signiﬁcant accounting policy changes pertaining to investment property, joint ventures and lease incentives that will be required or are currently expected to be applied by the Trust upon its adoption of IFRS that will be signiﬁcantly different than its Canadian GAAP accounting policies. Business Combinations In January 2009, the CICA issued CICA Handbook Section 1582, “Business Combinations”, Section 1601, “Consolidations”, and Section 1602, “Non-controlling Interests”. These sections replace the former CICA Handbook Section 1581, “Business Combinations”, and Section 1600, “Consolidated Financial Statements”, and establish a new section for accounting for a non-controlling interest in a subsidiary. CICA Handbook Section 1582 establishes accounting standards for a business combination. It provides the Canadian equivalent to IFRS 3, “Business Combinations”. The section applies prospectively to business combinations for which the acquisition date is on or after the beginning of the ﬁrst annual reporting period beginning on or after January 1, 2011. CICA Handbook Section 1601 establishes standards for the preparation of consolidated ﬁnancial statements. CICA Handbook Section 1602 establishes accounting standards for a non-controlling interest in a subsidiary in consolidated ﬁnancial statements subsequent to a business combination. It is equivalent to the corresponding provisions of IFRS IAS 27, “Consolidated and Separate Financial Statements”. CICA Handbook Section 1601 and Section 1602 apply to interim and annual consolidated ﬁnancial statements relating to ﬁscal years beginning on or after January 1, 2011. Earlier adoption of these sections is permitted as of the beginning of a ﬁscal year. All three sections must be adopted concurrently. The Trust is currently evaluating the impact of adopting these sections. PAGE 70 DUNDEE REIT 2009 Annual Report Note 3 PROPERTY ACQUISITIONS Below are the acquisitions completed during the years ended December 31, 2009 and December 31, 2008. For the year ended December 31, 2009 Interest Property acquired (%) type Acquired Occupancy on GLA acquisition (%) (sq. ft.) Fair value of mortgage assumed Purchase price Date acquired 720 Bay Street, Toronto ofﬁce 1125-1145 Innovation Drive, Ottawa ofﬁce 50 100 123,870 118,563 100 $ 25,948 $ — September 1, 2009 100 16,679 — December 16, 2009 6655-6725 Airport Road, Mississauga Gateway Business Park, Ottawa 2645 Skymark Avenue, Mississauga Total ofﬁce ofﬁce 100 329,728 100 120,600 100 91 50,637 14,700 26,717 December 18, 2009 — December 30, 2009 ofﬁce 100 142,487 100 14,923 — December 30, 2009 835,248 99 $ 122,887 $ 26,717 For the year ended December 31, 2008 Interest Property acquired (%) type Acquired Occupancy on GLA acquisition (%) (sq. ft.) Purchase price AIR MILES Tower, Toronto IBM Corporate Park, Calgary 4370 Dominion Street, Burnaby ofﬁce ofﬁce ofﬁce 100 322,557 92 $ 91,988 $ 33 100 118,804 63,943 100 99 57,300 11,484 Total 505,304 95 $ 160,772 $ Fair value of mortgage assumed — — 2,111 2,111 Date acquired January 31, 2008 May 14, 2008 July 10, 2008 PAGE 71 DUNDEE REIT 2009 Annual Report The assets acquired and liabilities assumed in these transactions were allocated as follows: For the years ended December 31 2009 2008 Rental properties Land Buildings 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 The consideration paid consists of: For the years ended December 31 Cash Paid during the year Deposit Assumed mortgages at fair value Assumed accounts payable, accrued liabilities and adjustments to purchase price Total consideration $ 20,418 76,846 97,264 8,181 6,714 2,176 1,471 10,909 126,715 $ 30,531 126,440 156,971 6,271 7,431 2,012 419 5,944 179,048 (3,828) (18,276) $ 122,887 $ 160,772 2009 2008 $ 94,526 — $ 155,348 2,350 94,526 26,717 157,698 2,111 1,644 963 $ 122,887 $ 160,772 The allocation of the purchase price to fair values of assets acquired and liabilities assumed for the property acquisition completed during the current year has not been ﬁnalized and will be subject to adjustment. Note 4 RENTAL PROPERTIES December 31 Land Buildings and improvements Fixed assets and equipment Rental properties Cost Accumulated depreciation 2009 Net book value 2008 (Restated, see Note 2) Cost Accumulated depreciation Net book value $ 235,025 1,053,465 2,011 $ — $ 235,025 943,107 1,168 (110,358) (843) $ 223,382 1,013,958 2,439 $ — $ 223,382 920,030 1,557 (93,928) (882) under development 1,758 — 1,758 1,024 — 1,024 Total $ 1,292,259 $ (111,201) $ 1,181,058 $1,240,803 $ (94,810) $ 1,145,993 PAGE 72 DUNDEE REIT 2009 Annual Report Note 5 LEASING COSTS AND TENANT IMPROVEMENTS December 31 Cost Accumulated amortization 2009 Net book value Leasing costs Tenant improvements $ 14,214 $ 49,418 (4,292) $ (19,751) 9,922 29,667 $ 2008 (Restated, see Note 2) Accumulated amortization Net book value $ (3,765) $ (18,114) 8,690 24,748 Cost 12,455 42,862 Total $ 63,632 $ (24,043) $ 39,589 $ 55,317 $ (21,879) $ 33,438 Note 6 AMOUNTS RECEIVABLE Amounts receivable are net of credit adjustments totalling $2,972 (December 31, 2008 — $2,805). December 31 Trade receivables, net Straight-line rent receivables Other accounts receivable (payable) December 31 Trade receivables Less: Provision for impairment of trade receivables Trade receivables, net $ 2009 2,048 7,409 (576) $ 2008 2,372 6,714 2,791 $ 8,881 $ 11,877 2009 3,141 (1,093) 2,048 $ $ 2008 2,921 (549) 2,372 $ $ The movement in the provision for impairment of trade receivables during the years ended December 31, was as follows: As at January 1 Provision for impairment of trade receivables Receivables written off during the year as uncollectible Reduction of other receivables written off during the year Translation adjustment As at December 31 $ $ 2009 549 1,428 (884) — — $ 1,093 $ 2008 413 543 (218) (216) 27 549 As at December 31, 2009, trade receivables of approximately $325 were past due but not considered impaired. The Trust has ongoing relationships with these tenants and default is not expected. PAGE 73 DUNDEE REIT 2009 Annual Report Note 7 PREPAID EXPENSES AND OTHER ASSETS December 31 Prepaid expenses Deposits Restricted cash Total $ 2009 2,110 13,887 1,721 $ 2008 2,175 24 3,244 $ 17,718 $ 5,443 Deposits largely represents amounts provided by the Trust in connection with property acquisitions completed in 2010. See Note 24 — “Subsequent events” for further details. Restricted cash primarily represents tenant rent deposits and cash held as security for certain mortgages. Note 8 INTANGIBLE ASSETS AND LIABILITIES December 31 Intangible assets Value of above-market Cost Accumulated amortization 2009 Net book value Cost Accumulated amortization 2008 Net book value rent leases $ 3,914 $ (1,140) $ 2,774 $ Value of in-place leases Lease origination costs Value of tenant relationships 37,727 9,383 39,635 (17,625) (3,718) (10,618) 20,102 5,665 29,017 2,754 $ 39,561 8,284 32,901 (1,058) $ (19,462) (3,402) (9,609) 1,696 20,099 4,882 23,292 Total $ 90,659 $ (33,101) $ 57,558 $ 83,500 $ (33,531) $ 49,969 Intangible liabilities Value of below-market rent leases $ 60,854 $ (25,823) $ 35,031 $ 68,654 $ (26,713) $ 41,941 PAGE 74 Note 9 DEBT December 31 Mortgages Convertible debentures Term debt Total DUNDEE REIT 2009 Annual Report 2009 2008 $ 726,901 129,940 219 $ 754,448 128,902 345 $ 857,060 $ 883,695 At December 31, 2009, convertible debentures comprised $118,904 of 6.0% Debentures, $7,743 of 5.7% Debentures and $3,293 of 6.5% Debentures (December 31, 2008 — $117,922, $7,703 and $3,277, respectively). Mortgages are secured by charges on speciﬁc rental properties. On January 14, 2008, the Trust issued $125,000 principal amount convertible unsecured subordinated debentures (the “6.0% Debentures”). The 6.0% Debentures bear interest at 6.0% per annum, payable semi-annually on June 30 and December 31 each year, and mature on December 31, 2014. Each 6.0% Debenture is convertible at any time by the debenture holder into 24.15459 REIT A Units, per one thousand dollars of face value, representing a conversion price of $41.40 per unit. The 6.0% Debentures may not be redeemed prior to December 31, 2010. On or after December 31, 2010, and prior to December 31, 2012, the 6.0% 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 weighted average trading price for the Trust’s units for the 20 consecutive trading days, ending on the ﬁfth trading day immediately preceding the date on which notice of redemption is given, is not less than 125% of the conversion price. On or after December 31, 2012, and prior to December 31, 2014, the 6.0% Debentures may be redeemed by the Trust at a price equal to the principal amount plus accrued and unpaid interest. In accordance with Section 3863 of the CICA Handbook, the 6.0% Debentures were initially recorded on the consolidated balance sheet as debt of $122,840 less costs of $5,800, and equity of $2,160. As at December 31, 2009, the outstanding principal amount is $125,000 (December 31, 2008 — $125,000). 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 A 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 3863 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. As at December 31, 2009, the outstanding principal amount is $7,806 (December 31, 2008 — $7,806). 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 A 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 PAGE 75 DUNDEE REIT 2009 Annual Report with Section 3863 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. As at December 31, 2009, the outstanding principal amount is $3,488 (December 31, 2008 — $3,488). A demand revolving credit facility was renewed on May 31, 2009, and is available up to a formula-based maximum not to exceed $40,000, bearing interest generally at the bank prime rate (2.25% as at December 31, 2009) plus 1.5% or bankers’ acceptance rates plus 3.0%. The facility is secured by a ﬁrst-ranking collateral mortgage on two of the Trust’s properties and a second-ranking collateral mortgage on one property. As at December 31, 2009, the formula-based amount available under this facility was $32,608, less $1,090 drawn in the form of letters of guarantee (December 31, 2008 — $nil drawn). The facility expires on April 30, 2010. 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 Total variable rate debt Total debt Weighted average interest rates Debt amount 2009 2008 Maturity dates 2009 2008 5.68% 7.03% 9.03% 5.90% 2.01% 2.01% 5.75% 5.70% 2010—2019 7.03% 2014—2015 9.03% 2010—2011 $ 695,608 129,940 219 $ 703,409 128,902 345 5.90% 4.54% 4.54% 5.83% 825,767 832,656 2013 31,293 31,293 51,039 51,039 $ 857,060 $ 883,695 The scheduled principal repayments and debt maturities are as follows: For the years ending December 31 Mortgages Term debt 2010 2011 2012 2013 2014 2015 and thereafter Financing costs and fair value adjustments $ $ 29,178 89,177 115,297 114,436 73,101 305,507 726,696 205 $ 726,901 $ 116 103 — — — — 219 — 219 $ Convertible debentures — — — — 128,488 7,806 136,294 (6,354) $ Total 29,294 89,280 115,297 114,436 201,589 313,313 863,209 (6,149) $ 129,940 $ 857,060 Included in mortgages is $2,671 in fair value adjustments (December 31, 2008 — $3,755), which reﬂects the fair value adjustments for mortgages assumed as part of acquisitions, net of $2,465 of unamortized ﬁnancing costs (December 31, 2008 — $2,263). The convertible debentures are reduced by a $1,724 premium allocated to their conversion features (December 31, 2008 — $2,008) and $4,630 of unamortized ﬁnancing costs (December 31, 2008 — $5,384). The fair value adjustment, premium and ﬁnancing costs are amortized to interest expense over the term to maturity of the related debt using the effective interest rate method. The fair value of mortgages and debentures are estimated based on discounted future cash ﬂows using discount rates that reﬂect current market conditions for instruments with similar terms and risks. The fair value of debentures uses quoted market prices from an active market. PAGE 76 The estimated fair value of debt is as follows: December 31 Mortgages Convertible debentures Term debt Total Note 10 AMOUNTS PAYABLE AND ACCRUED LIABILITIES December 31 Trade payables Accrued liabilities and other payables Accrued interest Deposits Rent received in advance Total DUNDEE REIT 2009 Annual Report 2009 2008 $ 730,809 134,923 219 $ 705,088 95,181 345 $ 865,951 $ 800,614 $ 2009 1,602 9,521 3,426 6,159 1,817 $ 2008 183 9,086 3,571 5,030 902 $ 22,525 $ 18,772 Note 11 DISTRIBUTIONS The following table breaks down distribution payments for the year ended December 31, 2009: REIT Units, Series A REIT Units, Series B LP Class B Units, Series 1 Paid in cash Paid by way of reinvestment in units Less: Payable at December 31, 2008 Plus: Payable at December 31, 2009 Total $ $ 37,109 3,051 (3,114) 3,899 $ 40,945 $ 36 — (3) 3 36 $ 7,585 — (632) 632 Total $ 44,730 3,051 (3,749) 4,534 $ 7,585 $ 48,566 The amount payable at December 31, 2009, was satisﬁed on January 15, 2010, by $4,073 in cash, $412 of 18,004 REIT A Units and $57 of 2,494 LP B Units. Included in the total distributions is $105 representing the 4% bonus distribution that forms part of the Distribution Reinvestment and Unit Purchase Plan (“DRIP”). Dundee REIT’s Declaration of Trust endeavours to maintain monthly distribution payments to unitholders payable on or about the 15th day of the following month. The amount of the annualized distribution to be paid is based on a percentage of distributable income. Distributable income is deﬁned in the Declaration of Trust and the percentage is determined by the trustees, at their sole discretion, based on what they consider appropriate given the circumstances of the Trust. Distributions may be adjusted for amounts paid in prior periods if the actual distributable income for those prior periods is greater or lesser 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. The Trust declares distributions of $0.183 per unit per month, or $2.20 per year. PAGE 77 DUNDEE REIT 2009 Annual Report Note 12 UNITHOLDERS’ EQUITY December 31 REIT Units, Series A REIT Units, Series B LP Class B Units, Series 1 Cumulative foreign currency translation adjustment Total Number of units Amount Number of units Amount 2009 2008 (Restated, see Note 2) 21,247,397 16,316 3,454,188 $ 312,743 362 92,656 16,947,240 $ 271,087 371 98,260 16,316 3,454,188 — (6,609) — (5,275) 24,717,901 $ 399,152 20,417,744 $ 364,443 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. For the years ended December 31, 2009 and 2008, there were no exchanges made by Dundee Corporation of LP B Units for REIT B Units and subsequently to REIT A Units. In the fourth quarter of 2008, DRC acquired 460,000 REIT B Units from a third party, and subsequently converted these units to REIT A 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, 2009, 3,454,188 Special Trust Units were issued and outstanding (December 31, 2008 — 3,454,188 issued and outstanding). Dundee REIT’s Declaration of Trust provides each of Dundee Corporation and GE Real Estate (“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. PAGE 78 DUNDEE REIT 2009 Annual Report 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. 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, 2009, 20,787,397 LP Class A Units (December 31, 2008 — 16,487,240), 3,454,188 LP Class B Units, Series 1 (December 31, 2008 — 3,454,188) and 476,316 LP Class B Units, Series 2 (December 31, 2008 — 476,316) were issued and outstanding. As at December 31, 2009 and December 31, 2008, 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 Unitholders’ equity, January 1, 2009 16,947,240 $ 271,221 16,316 $ 371 3,454,188 $ 98,309 $ (5,275) 20,417,744 $ 364,626 Adjustment to opening unitholders’ equity to comply with new accounting standards — (134) — — — (49) — — (183) Unitholders’ equity, January 1, 2009 (restated) 16,947,240 271,087 16,316 Net income Distributions paid Distributions payable — — — Public offering of REIT A Units 3,852,500 11,412 (37,046) (3,899) 70,693 3,051 180 858 — 196,987 10,997 — 239,873 — (3,590) (200) — (3) — — — — — — — — — — — — 371 27 (33) (3) — — — — — — — — 3,454,188 98,260 (5,275) 20,417,744 364,443 — — — — — — — — — — — 1,981 (6,953) (632) — — — — — — — — — — — — — — — — — — — — — 3,852,500 196,987 10,997 — 239,873 13,420 (44,032) (4,534) 70,693 3,051 180 858 — — (3,590) (200) (3) (1,334) — (1,334) Distribution Reinvestment Plan Unit Purchase Plan Deferred Unit Incentive Plan Deferred Units exchanged for REIT A Units Issue costs Unit redemption Change in foreign currency translation adjustment Unitholders’ equity, December 31, 2009 21,247,397 $ 312,743 16,316 $ 362 3,454,188 $ 92,656 $ (6,609) 24,717,901 $ 399,152 PAGE 79 DUNDEE REIT 2009 Annual Report Public offering of REIT A Units On September 9, 2009, the Trust completed a public offering of 3,350,000 REIT A Units at a price of $18.35 per unit for gross cash proceeds of $61,473. On September 29, 2009, the Trust issued an additional 502,500 REIT A Units, pursuant to the exercise of the over-allotment option granted to the underwriters for gross proceeds of approximately $9,220. Costs related to the offering totalled $3,590 and were charged directly to unitholders’ equity. Distribution Reinvestment and Unit Purchase Plan The Distribution Reinvestment Plan (“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, 2009, 196,987 REIT A Units and nil LP B Units were issued under the DRIP for $3,051 (December 31, 2008 — 166,960 REIT A Units and 138,839 LP B Units for $8,670). The Unit Purchase Plan feature of the DRIP facilitates the purchase of additional REIT A Units by existing unitholders. Participation in the Unit Purchase Plan is optional and subject to certain limitations on the maximum number of additional REIT A Units that may be acquired. The price per unit is calculated in 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, 2009, 10,997 REIT A Units were issued under the Unit Purchase Plan for $180 (December 31, 2008 — 23,222 REIT A Units for $700). Conversion of debentures During the year ended December 31, 2009, no debentures were converted. During the period ended December 31, 2008, the Trust issued 24,920 REIT A Units upon conversion of $623 of the 6.5% Debentures and 16,392 REIT A Units upon conversion of $492 of the 5.7% Debentures. Deferred Unit Incentive Plan The Deferred Unit Incentive Plan provides for the grant of deferred trust units to trustees, ofﬁcers and employees, as well as afﬁliates and their service providers, including the asset manager. Deferred trust units are granted at the discretion of the trustees and earn income deferred trust units based on the payment of distributions. Once issued, each deferred trust unit and the related income deferred trust units vest evenly over a three- or ﬁve-year period on the anniversary date of the grant. Subject to an election option available for certain participants to postpone receipt of REIT A Units, such units will be issued immediately 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 earned over the vesting period or the remaining service period of the participant, whichever is less. PAGE 80 DUNDEE REIT 2009 Annual Report During the year ended December 31, 2009, $858 of compensation expense was recorded (December 31, 2008 — $399) and included in general and administrative expenses. Income deferred trust units are accounted for as a distribution and an issuance of REIT A Units when the related deferred trust units vest. No amount related to income deferred trust units is recognized in net income. Outstanding at January 1, 2008 Granted during the year Cancelled REIT A Units issued Fractional units paid in cash Outstanding at January 1, 2009 Granted during the year REIT A Units issued Fractional units paid in cash Weighted average grant date value Deferred trust units Income deferred trust units $ $ 32.66 33.45 30.68 30.61 — 32.94 13.49 27.92 — 233,511 84,846 (450) (8,681) — 309,226 98,003 (189,311) — 35,086 33,437 (5) (1,811) (47) 66,660 32,126 (50,562) (9) Total units 268,597 118,283 (455) (10,492) (47) 375,886 130,129 (239,873) (9) Outstanding and payable at December 31, 2009 $ 28.55 217,918 48,215 266,133 Vested but not issued at December 31, 2009 $ 30.88 53,438 20,132 73,570 On January 2, 2009, trustees and senior management elected to have 233,293 REIT A Units issued for vested deferred trust units and income deferred trust units. An additional 6,580 units were exchanged in the second quarter of 2009. For the year ended December 31, 2008, a total of 10,492 REIT A Units were issued for vested deferred trust units and income deferred trust units. On February 17, 2009, 79,100 deferred trust units were granted to trustees and senior managers. A further 18,903 deferred trust units were granted to trustees who elected to receive their 2009 annual retainer in the form of deferred trust units rather than cash. Normal course issuer bid The Trust renewed its normal course issuer bid which commenced on September 26, 2009, and will remain in effect until the earlier of September 25, 2010, or the date on which the Trust has purchased the maximum number of units permitted under the bid. Under the bid, the Trust has the ability to purchase for cancellation up to a maximum of 1,648,026 REIT A Units (representing 10% of the REIT’s public ﬂoat of 16,480,260 REIT A Units at the time of renewal through the facilities of the TSX). As of December 31, 2009, no purchases had been made. Based on the closing price of the REIT A Units on December 31, 2009, the Trust may purchase up to $34,197 worth of REIT A Units. For the year ended December 31, 2008, the Trust purchased 826,900 REIT A Units for $21,798, pursuant to its previous bid which expired on September 25, 2009. PAGE 81 DUNDEE REIT 2009 Annual Report Note 13 JOINT VENTURES AND CO-OWNERSHIPS The Trust participates in incorporated and unincorporated joint ventures, partnerships and co-ownerships (the “joint ventures”) with other parties and accounts for its interests using the proportionate consolidation method. The following amounts represent the total assets and liabilities of rental property joint ventures in which the Trust participates and its proportionate share of the assets, liabilities, revenues, expenses and cash ﬂows therein. These amounts include the joint venture properties classiﬁed as held for sale in 2009. Amounts relating to a property that was previously held as a joint venture but which is now entirely owned by the Trust have been excluded. 2009 Total 2008 Proportionate share 2009 2008 $ 458,889 291,986 $ 519,514 354,539 $ 193,139 126,426 $ 228,138 157,326 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 Investing activities Financing activities $ $ $ Proportionate share 2009 35,488 40,242 2008 $ 34,689 30,772 (4,754) $ 3,917 2009 2008 11,279 (1,816) (7,090) $ $ 7,177 (1,275) (6,096) (194) Increase (decrease) in cash and cash equivalents $ 2,373 The Trust is contingently liable for the obligations of the other owners of the unincorporated joint ventures at December 31, 2009, in the aggregate amount of $147,446 (December 31, 2008 — $174,963). In each case, however, the co-owners’ share of assets is available to satisfy these obligations. Note 14 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 ﬁnancing costs Amortization of fair value adjustments on acquired debt Interest capitalized Interest expense 2009 2008 $ 49,332 1,229 (800) (25) $ 47,983 1,116 (819) (54) $ 49,736 $ 48,226 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 general debt attributed to a property considered to be under redevelopment. Non-cash adjustments to interest expense are recorded as a change in non-cash working capital in the consolidated statements of cash ﬂows. PAGE 82 DUNDEE REIT 2009 Annual Report Note 15 INCOME TAXES Dundee REIT is taxed as a mutual fund trust for Canadian income tax purposes. The Trust is required by its Declaration of Trust to distribute all of its taxable income to its unitholders, which currently enables the Trust to deduct such distributions for income tax purposes. As the income tax obligations relating to the distributions are those of the unitholders, no provision for income taxes is required on such amounts. Canadian and U.S.-based incorporated subsidiaries are subject to tax on their respective taxable income at their corresponding legislated rates. Certain of our Canadian and U.S. subsidiaries are taxable and any tax-related costs are reﬂected in the consolidated balance sheets and consolidated statements of income and comprehensive income. On December 31, 2009, we effected the transfer of our interest in a property held in a taxable Canadian subsidiary to an entity that distributes taxable earnings to unitholders. On February 5, 2010, we disposed of our interest in the U.S. entity. As a result of these transactions we are no longer exposed to the tax-related costs of those entities for periods subsequent to their respective transaction dates. A future income tax liability as at December 31, 2009, of $nil (December 31, 2008 — $3,387) has been recorded to reﬂect the future tax obligations of these subsidiaries and comprises amounts resulting from the differences in tax and book values relating to the underlying rental properties. The reported carrying amount of Dundee REIT’s net assets, excluding those in incorporated subsidiaries at December 31, 2009, exceeds the corresponding tax cost by approximately $46,000 (December 31, 2008 — $37,000). A reconciliation of income tax expense for the year is as follows: For the years ended December 31 Income before income taxes Income (loss) before income taxes from discontinued operations $ Less: income allocable to unitholders Income subject to Canadian tax in consolidated entity Tax thereon at 29% current statutory rate (2008 — 29.5%) Foreign current and future tax recovery in respect of foreign entities Elimination of future tax liability in connection with reorganization Less: total income tax recovery from discontinued operations 2009 16,445 (6,705) 9,740 (8,440) 1,300 377 (1,924) (2,133) (3,680) (1,924) Total income tax provision (recovery) from continuing operations $ (1,756) $ $ 2008 9,823 976 10,799 (9,827) 972 289 (23) 73 339 (23) 362 PAGE 83 DUNDEE REIT 2009 Annual Report Note 16 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 2009 2008 18,690,672 3,454,188 71,484 17,439,521 3,402,438 269,769 22,216,344 21,111,728 — 9,812 4,521 1,087 Total weighted average number of units outstanding for diluted income per unit amounts 22,226,156 21,117,336 Income per unit information is based on the weighted average number of Units outstanding for the year. The calculation of diluted per unit information considers the potential exercise of outstanding unvested deferred trust units and income deferred trust units, and the incremental REIT Units to be issued upon an assumed conversion of all outstanding debentures, to the extent that these are dilutive. The incremental unvested deferred trust units represent the potential units that would have to be purchased in the open market to fund the unvested obligation of the weighted average number of unvested deferred trust units outstanding for the year. The 3,419,043 incremental REIT A Units to be issued upon an assumed conversion of all debentures outstanding at year-end (December 31, 2008 — 3,419,043) have been excluded from the calculation of diluted net income (loss) per unit as they are anti-dilutive. Note 17 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 a minimum of 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 Dundee Management Limited Partnership (“DMLP”). For 2009, the total cost recognized and cash payments for employee future beneﬁts, consisting of cash contributed to the deﬁned contribution plan, was $107 (2008 — $101). PAGE 84 DUNDEE REIT 2009 Annual Report Note 18 SEGMENTED INFORMATION The Trust’s rental properties have been segmented into ofﬁce and industrial components. The Trust does not allocate interest expense to these segments since leverage is viewed as a corporate function. The decision as to where to incur the debt is largely based on minimizing the cost of debt and is not speciﬁcally related to the segments. Similarly, income taxes and general and administrative expenses are not allocated to the segment expenses. For the year ended December 31, 2009 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 $ 175,635 65,812 $ 109,823 24,611 16,448 5,317 11,131 2,901 $ 192,083 71,129 $ 120,954 27,512 20,673 1,558 22,231 Segment income $ 64,539 $ 6,672 $ 71,211 $ Interest expense General and administrative expenses Interest and fee income Income taxes Discontinued operations Net income Segment rental properties $1,088,990 $ 90,310 $ 1,179,300 — — — — — — $ 192,083 71,129 120,954 27,512 22,231 71,211 (49,736) (6,706) 1,676 1,756 (4,781) $ 13,420 1,758 $ 1,181,058 (711) $ (5,921) $ $ Capital expenditures Investment in rental properties Investment in tenant improvements Acquisition of rental properties Deferred leasing costs $ (4,993) $ (217) $ (5,210) (5,177) (94,526) (3,513) (559) — (476) (5,736) (94,526) (3,989) (385) — (307) (6,121) (94,526) (4,296) Total capital expenditures $ (108,209) $ (1,252) $ (109,461) $ (1,403) $ (110,864) PAGE 85 DUNDEE REIT 2009 Annual Report For the year ended December 31, 2008 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 $ 163,834 60,779 $ 103,055 23,272 15,945 5,247 10,698 2,746 $ 179,779 66,026 $ 113,753 26,018 25,011 1,598 26,609 Segment income $ 54,772 $ 6,354 $ 61,126 $ Interest expense General and administrative expenses Interest and fee income Income taxes Discontinued operations Net income — — — — — — $ 179,779 66,026 113,753 26,018 26,609 61,126 (48,226) (6,740) 3,663 (362) 999 $ 10,460 Segment rental properties $ 1,019,280 $ 102,956 $ 1,122,236 $ 23,757 $ 1,145,993 Capital expenditures Investment in rental properties Investment in tenant improvements Acquisition of rental properties Deferred leasing costs $ (5,545) $ (120) $ (5,665) $ (178) $ (5,843) (2,249) (155,348) (3,962) (345) — (1,027) (2,594) (155,348) (4,989) (137) — (4) (319) (2,731) (155,348) (4,993) $ (168,915) Total capital expenditures $ (167,104) $ (1,492) $ (168,596) $ PAGE 86 DUNDEE REIT 2009 Annual Report Note 19 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. Dundee REIT, Dundee Management Limited Partnership (“DMLP”) and DRC are parties to an administrative services agreement (the “Services Agreement”) that is in effect until June 30, 2013. Effective August 24, 2007, Dundee REIT also has an asset management agreement (the “Asset Management Agreement”) with DRC pursuant to which DRC provides certain asset management services to Dundee REIT and its subsidiaries. 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, reﬂecting the market value of the properties at August 23, 2007 (the date of the sale of our portfolio of properties in eastern Canada) and the purchase price of properties acquired subsequent to that date, adjusted for any properties sold; • 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, calculated over a ﬁscal year based on the anniversary date of the Asset Management Agreement, equal to (i) 1.0% of the purchase price of a property, on the ﬁrst $100,000 of properties acquired; (ii) 0.75% of the purchase price of a property on the next $100,000 of properties acquired; and (iii) 0.50% of the purchase price on properties acquired in excess of $200,000; and • 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. For the year ended December 31, 2009, the Trust received total fees from DRC of $1,903 (December 31, 2008 — $1,942). These fees relate to cost recoveries under the Services Agreement. Other costs recovered from DRC for the period ended December 31, 2009, include $3,405 for staff, operating and administration costs (December 31, 2008 — $3,047). The Trust incurred total fees of $6,020 in the year ended December 31, 2009 (December 31, 2008 — $6,213), under the Asset Management Agreement. Included in amounts receivable at December 31, 2009, is $(155) related to the Services Agreement (December 31, 2008 — $(43)), $224 related to the Asset Management Agreement (December 31, 2008 — $210) and $158 related to other amounts owed by DRC (December 31, 2008 — $156). Accrued liabilities and other payables at December 31, 2009, include $954 for amounts related to the Asset Management Agreement (December 31, 2008 — $nil) and $nil for other amounts collected on behalf of DRC (December 31, 2008 — $nil). PAGE 87 DUNDEE REIT 2009 Annual Report Note 20 ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS The results of operations of any property that has been sold and identiﬁed as discontinued operations are reported separately and comparative amounts are reclassiﬁed as discontinued operations. Any property identiﬁed as held for sale is also reported separately in the current year. During the fourth quarter of 2009, the Trust classiﬁed a joint venture ofﬁce property as held for sale. The property’s carrying value was established to be the lower of its carrying value and its estimated fair value less selling costs. No impairment was recognized on the transfer of the property to assets held for sale. On August 31, 2009, the Trust sold two industrial properties located in Edmonton, Alberta, for which it received $14,927, net of adjustments for prior year sales, and recognized a $4,255 gain. Subsequent to year-end, on February 5, 2010, the Trust completed the sale of its 50% interest in Greenbriar Mall in Atlanta, Georgia, to its joint venture partner, for which it received $250 including reimbursement for certain costs. The Trust is now discharged from all rights and obligations relating to the property. Previously, on June 9, 2009, the lender had begun foreclosure proceedings on the property after management concluded that any additional funds required to meet the lender’s debt-to-market value requirements were not warranted from a business perspective and allowed the mortgage to go into default. As at December 31, 2009, a total provision for impairment of $11,513 was recognized, including a $4,904 write-down in the carrying value of the net assets of the property, and a $6,609 provision for the accumulated foreign currency translation adjustment associated with the investment in the net assets of the property. The future tax liability of $1,971 associated with the U.S. operations was also written off. Accordingly, discontinued assets in the amount of $9,953 reported at year-end represent the Trust’s carrying value of the property based on its estimated fair value and the $16,825 discontinued liability represents the mortgage liability. During the fourth quarter of 2008, the Trust classiﬁed an industrial property located in Alberta as held for sale. The property’s carrying value was established to be the lower of its carrying value or its estimated fair value less selling costs. No impairment was recognized on the transfer of the property to assets held for sale. During the second quarter of 2009, a new tenant entered into a lease agreement and a separate agreement to purchase the property after November 1, 2012. As a result, the property has been reclassiﬁed as continuing operations. The property’s carrying value, adjusted for depreciation and amortization expense that would have been recognized had it been continuously classiﬁed as held and used as a rental property, is established to be the lower of its carrying value or its estimated fair value at the end of the second quarter of 2009. For the year ending December 31, 2008, the Trust recognized an additional $79 of net gains, reﬂecting revisions to its prior year cost of sale estimate associated with previously sold properties. PAGE 88 DUNDEE REIT 2009 Annual Report The following table presents the assets and liabilities of the discontinued properties as at December 31, 2009. Assets Rental properties Deferred costs Prepaid expenses and other assets Cash and short-term deposits Liabilities Mortgages payable Accounts payable, accrued liabilities and other $ 17,644 561 13 198 $ 18,416 $ 16,825 115 $ 16,940 The following table summarizes the net income (loss) from discontinued operations: For the years ended December 31 Revenues Rental properties revenue Interest and other 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 undernoted Provision for impairment in value of discontinued assets Gain on disposal of rental properties Current income taxes Future income tax recovery 2009 2008 $ 8,825 17 8,842 6,563 586 771 352 17 8,289 553 11,513 (4,255) 47 (1,971) $ 8,212 39 8,251 4,275 1,490 1,088 501 — 7,354 897 — (79) — (23) Net income (loss) from discontinued operations $ (4,781) $ 999 PAGE 89 DUNDEE REIT 2009 Annual Report Note 21 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 consolidated ﬁnancial statements of Dundee REIT. Dundee REIT’s future minimum commitments under operating and capital leases are as follows: Years ending December 31 2010 2011 2012 2013 2014 Total Operating lease payments Capital lease payments $ $ 1,103 968 827 687 — $ 3,585 $ 142 106 — — — 248 Purchase and other obligations The Trust has entered into lease agreements that require tenant improvement costs of approximately $4,300. Effective September 1, 2009, the Trust entered into three ﬁxed price contracts to purchase natural gas with respect to 14 ofﬁce properties in Calgary. The contracts expire on December 31, 2012, and commit the Trust to total minimum payments of $598 annually for each of the years 2010, 2011 and 2012. The Trust has entered into an agreement to purchase, from a former joint venture partner, a fully leased ofﬁce building currently under construction, at a future date for $20,788, with maximum adjustments to the closing price not to exceed $500. The closing date is expected to be in the ﬁrst half of 2010. Funding for this development is available through cash on hand and an available line of credit. During the second quarter of 2009, the Trust committed to construct an ofﬁce property in Yellowknife, Northwest Territories, which is fully leased for a ten-year term to the Government of Canada. Estimated construction costs are $20,000. Funding for this development is available through cash on hand and an available line of credit. PAGE 90 DUNDEE REIT 2009 Annual Report Note 22 SUPPLEMENTARY CASH FLOW INFORMATION For the years ended December 31 Decrease (increase) in accounts receivable Decrease in deferred costs (other than leasing costs) Decrease (increase) in prepaid expenses and other assets (excluding restricted cash and promissory notes) 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 $ 2009 3,537 373 $ 2008 (1,760) 672 (56) 77 2,375 (220) (5,170) 303 $ 6,009 $ (5,878) 2009 2008 $ 49,975 21 $ 48,827 166 Note 23 CAPITAL MANAGEMENT AND FINANCIAL INSTRUMENTS RISK MANAGEMENT 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. The Trust’s capital consists of debt, including mortgages, convertible debentures and lines of credit, and unitholders’ equity. The Trust’s objectives in managing capital are to ensure adequate operating funds are available to maintain consistent and sustainable unitholder distributions, to fund leasing costs and capital expenditure requirements, and to provide for resources needed to acquire new properties. Various debt, equity and earnings distribution ratios are used to ensure capital adequacy and monitor capital requirements. The primary ratios used for assessing capital management are the interest coverage ratio and net debt-to-gross book value. Other signiﬁcant indicators include weighted average interest rate, average term to maturity of debt and variable debt as a portion to total debt. These indicators assist the Trust in assessing that the debt level maintained is sufﬁcient to provide adequate cash ﬂows for unitholder distributions, capital expenditures and for evaluating the need to raise funds for further expansion. Various mortgages have debt covenant requirements that are monitored by the Trust to ensure there are no defaults. These include loan to value ratios, cash ﬂow coverage ratios, interest coverage ratios and debt service coverage ratios. These covenants are measured at the subsidiary general partner level, and all have been complied with. The Trust’s equity consists of Units, in which the carrying value is impacted by earnings and unitholder distributions. The Trust endeavours to make annual distributions of $2.20 per unit. Amounts retained in excess of the distributions are used to fund leasing costs, capital expenditure and working capital requirements. Management monitors distributions through various ratios to ensure adequate resources are available. These include the proportion of distributions paid in cash, DRIP participation ratio, total distributions as a percent of distributable income and distributable income per unit. The Trust’s Declaration of Trust limits its interest coverage ratio to no less than 1.4 times. The interest coverage ratio is calculated as net operating income from continuing operations plus interest and fee income less general and administrative expenses, divided by interest expense from continuing operations. At December 31, 2009, the Trust’s interest coverage ratio was 2.3 times, reﬂecting its ability to cover interest expense requirements. PAGE 91 DUNDEE REIT 2009 Annual Report For the years ended December 31 Rental properties revenue Rental properties operating expense Net operating income Add: interest and fee income Less: general and administrative expenses Interest expense Interest coverage ratio 2009 2008 $ 192,083 71,129 $ 179,779 66,026 120,954 1,676 6,706 113,753 3,663 6,740 $ 115,924 $ 110,676 $ 49,736 $ 48,226 2.3 times 2.3 times CICA Handbook Section 3862, “Financial Instruments — Disclosures”, places increased emphasis on disclosures about the nature and extent of risks arising from ﬁnancial instruments and how the Trust manages those risks, including market, credit and liquidity risk. Market risk is the risk that the fair value or future cash ﬂows of a ﬁnancial instrument will ﬂuctuate because of changes in market prices. Market risk consists of interest rate risk, currency risk and other market price risk. The Trust has some exposure to interest rate risk primarily as a result of its variable rate debt. Variable rate debt at December 31, 2009, was 3.7% of the Trust’s total debt (December 31, 2008 — 5.9%). 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. The following interest rate sensitivity table outlines the potential impact of a 1% change in the interest rate on variable rate assets and liabilities for the year ended December 31, 2009. A 1% change is considered a reasonable level of ﬂuctuation on variable rate assets and debts. Interest rate risk Carrying amount Income –1% Equity Income Financial assets Cash and cash equivalents(1) Financial liabilities Variable rate mortgages(2) $ $ 12,022 31,293 $ $ (120) 313 $ $ (120) 313 $ $ 120 (313) $ $ +1% Equity 120 (313) (1) Cash and cash equivalents are short-term investments with an original maturity of three months or less, and exclude cash subject to restrictions that prevent its use for current purposes. These balances generally receive bank prime less 1.85%. Cash and cash equivalents are short term in nature and the current balance may not be representative of the balance for the rest of the year. (2) Variable rate mortgages include a ﬂoating rate mortgage at a rate of LIBOR plus 0.355%, to a maximum of 8.75% and a ﬂoating rate mortgage at a rate of LIBOR plus 0.62%. PAGE 92 DUNDEE REIT 2009 Annual Report 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 unitholders’ 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, and the associated currency risks are considered immaterial. 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. The Trust mitigates its credit risks by attracting tenants of sound ﬁnancial standing and by diversifying its mix of tenants. It also monitors tenant payment patterns and discusses potential tenant issues with property managers on a regular basis. A further description of credit risk relating to tenants is disclosed in Note 6. Cash and cash equivalents, deposits and restricted cash carry minimal credit risk, as all funds are maintained with highly reputable ﬁnancial institutions. Liquidity risk is the risk that the Trust will encounter difﬁculty in meeting obligations associated with the maturity of ﬁnancial obligations. The Trust manages maturities of the ﬁxed rate debts, and monitors the repayment dates to ensure sufﬁcient capital will be available to cover obligations. A schedule of principal repayments and debt maturities is provided in Note 9. Note 24 SUBSEQUENT EVENTS On January 7, 2010, the Trust completed a public offering of 5,520,000 REIT A Units at a price of $18.75 per unit, for gross proceeds of $103,500. Costs related to the offering were approximately $4,885. Effective January 18, 2010, the Trust completed the purchase of Adelaide Place, an ofﬁce property located in Toronto, consisting of two buildings of approximately 655,000 square feet. The purchase price for the property excluding transaction costs was approximately $211,500. Effective February 5, 2010, the Trust transferred its interest in Greenbriar Mall, a retail property located in Atlanta, Georgia, to its joint venture partner. The Trust received proceeds of $250 for the transfer and has been discharged of all obligations and rights related to the property. On February 10, 2010, the Trust completed the purchase of Aviva Corporate Centre, a four-building ofﬁce property located in Toronto, consisting of approximately 438,000 square feet. The purchase price for the property, excluding transaction costs, was approximately $45,700, and the Trust assumed a mortgage of approximately $30,600 at a face rate of 5.3% maturing in February 2017. PAGE 93 DUNDEE REIT 2009 Annual Report Trustees and officers Trustees Dr. Günther Bautz1 ULM, GERMANY David J. Goodman TORONTO, ONTARIO Counsellor on Intellectual Property to Braun GmbH President and Chief Executive Ofﬁcer, DundeeWealth Inc. Detlef Bierbaum2, 4 KÖLN, GERMANY Ned Goodman2, 5 INNISFIL, ONTARIO Ofﬁcers Ned Goodman CHAIRMAN Michael J. Cooper VICE CHAIRMAN AND CHIEF EXECUTIVE OFFICER Member of the Supervisory Board, Bankhaus Sal. Oppenheim jr. & Cie. KGaA 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, 3Cs Corporation Chairman, President 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 Chairman and Interim Chief Executive Ofﬁcer, Excellon Resources Inc. Joanne Ferstman TORONTO, ONTARIO Vice Chairman and Head of Capital Markets, DundeeWealth Inc. 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 94 DUNDEE REIT 2009 Annual Report Notes PAGE 95 DUNDEE REIT 2009 Annual Report Notes PAGE 96 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 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, 2009, are taxed as follows: Other income: 18.3% Taxable capital gains: 4.3% Return of capital: 77.4% Management estimates that 65% of the distributions to be made by the REIT in 2010 will be tax deferred. Stock exchange listing THE TORONTO STOCK EXCHANGE Auditors Listing symbols PRICEWATERHOUSECOOPERS LLP 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 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 Annual meeting of unitholders Thursday, May 6, 2010, at 4:00 pm (EST) The Toronto Board of Trade East Ballroom 1 First Canadian Place 100 King Street West Toronto, Ontario 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 . 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 DUNDEE REAL ESTATE INVESTMENT TRUST State Street Financial Centre 30 Adelaide Street East, Suite 1600 Toronto, Ontario M5C 3H1 www.dundeereit.com

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