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