Dundee REIT Annual Report 2010

Plain-text annual report

DUNDEE REIT 2010 ANNUAL REPORT Contents 1 2 4 Highlights Letter to unitholders Portfolio listing 6 Management’s discussion and analysis 6 6 7 7 8 10 11 12 13 14 14 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 Leasing profile Liquidity and capital resources Operating activities Investing activities Acquisitions completed during the fourth quarter Acquisitions completed subsequent to year-end Financial activities 36 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 43 Selected annual information 44 Quarterly information 46 SECTION III — DISCLOSURE CONTROLS AND PROCEDURES 47 47 47 47 48 48 48 49 50 50 50 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 Changes in accounting policies Future changes in accounting policies International Financial Reporting Standards IFRS conversion plan Impact of adoption of IFRS IFRS 1: First-Time Adoption of IFRS Impact of IFRS on consolidated statements of net income and comprehensive income 56 Management’s responsibility for financial statements 57 Independent auditor’s report 58 Consolidated financial statements 63 Notes to the consolidated financial statements 92 Trustees and officers IBC Corporate information DUNDEE REIT 2010 Annual Report Highlights PORTFOLIO OVERVIEW December 31, 2010 (thousands of square feet) Yellowknife 328 Office Edmonton 560 Office 387 Industrial Vancouver 720 Office Saskatoon 194 Office Calgary 2,908 Office 1,273 Industrial Regina 395 Office Ofﬁce 9,015 Industrial Portfolio 3,245 12,260 Halifax 61 Office 95 Industrial Ottawa 551 Office 115 Industrial Montréal 849 Industrial Toronto 3,298 Office 526 Industrial Dundee Real Estate Investment Trust Dundee REIT is an unincorporated, open-ended real estate investment trust. We own approximately 12.3 million square feet of high-quality, affordable business premises located across Canada. 2,500 2,000 1,500 1,000 500 0 TOTAL ASSETS (IN MILLIONS OF DOLLARS) 06 $ 2,128 07 $ 1,156 08 $ 1,316 09 $ 1,335 1 0 $ 2,317 175,000 140,000 105,000 70,000 35,000 0 06 07 08 09 10 100 80 60 40 20 0 OCCUPANCY 06 96.4% 07 96.7% 08 94.0% 09 95.4% 10 96.1% NET OPERATING INCOME (IN THOUSANDS OF DOLLARS) 06 $ 60,216 07 $ 97,171 08 $ 115,829 09 $ 120,954 10 $ 172,398 06 07 08 09 10 06 07 08 09 10 PAGE 1 DUNDEE REIT 2010 Annual Report Letter to unitholders In 2010, we continued to execute on our strategic objectives, and as a result, Dundee REIT is a signiﬁcantly different company today than it was in 2009. Over the past year and a half, we acquired $1.5 billion in assets – adding nearly ﬁve million square feet to our portfolio and doubling the size of our business. MICHAEL J. COOPER Vice Chairman and Chief Executive Ofﬁcer And, while the size, diversiﬁcation and quality of our portfolio have increased signiﬁcantly, our consistent focus on operational excellence remains unchanged as demonstrated through continued strong occupancy and growth in comparative property net operating income. As our asset base has grown, so has our our capital structure. With 54.3 million units outstanding today and impressive unit price appreciation, our market capitalization has risen to over $1.7 billion and the liquidity of our stock has greatly improved. Overall, it’s been a very good year for our unitholders. Operating performance remained strong in 2010. Overall occupancy increased to 96.1% from 95.4% a year ago, reﬂecting leasing activity as well as acquired properties with higher in-place occupancy. More telling is that comparative property occupancy, which only measures the occupancy of properties owned in both periods, increased to 95.9% from 95.4% a year earlier. This 50 basis point improvement signiﬁes the stability and strength of our operating platform. Leasing activity and acquisitions completed the year have also contributed throughout to lengthening the average remaining lease term of our overall portfolio to 5.9 years compared to 4.5 years in 2009. Our lease rollover proﬁle combined with average in-place rents below market rents are positive indicators for future growth. Financial performance in 2010 was in line with our expectations. Year-over-year, we produced 45% growth in rental property revenue and 43% growth in net operating income (“NOI”). NOI from comparable properties increased for the 22nd consecutive quarter, up by 2% over the prior year, reﬂecting continued strong occupancy. Adjusted funds from operations (“AFFO”) increased by $33.8 million, or 68%, over 2009. On a per unit basis, however, AFFO was impacted by the timing of capital deployment and was down slightly to $2.16 per unit from $2.24 per unit in the prior year. In 2010, we completed $922 million in acquisitions, comprising 3.4 million square feet of high-quality ofﬁce space and 1.6 million square feet of industrial space. Once again, we have a national presence, increasing our portfolios in Toronto, Edmonton and Saskatoon and re-entering the Ottawa and Montréal markets. To date in 2011, we have completed another $462 million of acquisitions, including the purchase of Realex Properties Corporation. Through this transaction we’ve added 24 ofﬁce and industrial assets in Ontario and Alberta, totalling 1.8 million square feet, to our portfolio. Seven of the properties, comprising 945,000 square feet of predominantly ofﬁce space, are located in the PAGE 2 downtown core of Kitchener and the University of Waterloo Technology Park in Waterloo, Ontario, giving us a signiﬁcant presence in the heart of Canada’s Technology Triangle. Also included in the portfolio were ﬁve ofﬁce properties in Calgary and six ofﬁce properties in Edmonton, Alberta, comprising 444,000 and 275,000 square feet, respectively, and two industrial buildings in Edmonton and four industrial properties located in smaller Alberta and British Columbia centres. This was a very complicated transaction but it provided a great opportunity to buy good quality real estate at a cap rate well in excess of 8%. Going forward, we will continue to seek growth through accretive acquisitions, although not likely at the same pace due to increased interest from both domestic and international investors. In order to ﬁnance all of this growth, we completed ﬁve equity offerings, issuing 24.3 million units for gross proceeds of $593 million. The equity offerings, together with an impressive 70% increase in our unit price, have almost tripled our market capitalization. During the year, we also completed new and assumed debt ﬁnancings totalling $467 million, reducing our weighted average interest rate by 32 basis points to 5.43%. We remain committed to improving the sustainability of our properties and reducing our carbon footprint. Our focus is to obtain BOMA BESt qualiﬁcations for our ofﬁce buildings, a measure designed by the Building Owners and Managers Association (“BOMA”) to address an industry need for realistic standards of energy and environmental performance for existing buildings. To date, we have received or are close to receiving qualiﬁcations on 68% of our ofﬁce portfolio (as measured by gross leasable area). In addition, we are moving towards a LEED EB qualiﬁcation with a major tenant at a Toronto-based ofﬁce building. And, together with another tenant, we are working on signiﬁcant energy-savings initiatives, including Enwave deep water cooling. We will continue to pursue sustainability initiatives and look for new ways to improve performance. Although our DUNDEE REIT 2010 Annual Report efforts to improve sustainability will ultimately be well rewarded by existing and future tenants, we remain mindful throughout this process of the balance between capital expenditures and the affordability of our properties. Simply stated, 2010 was a transformational year for Dundee REIT. Looking back, our goals for the year included adding value to our company through growth and diversiﬁcation, improving the quality of our cash ﬂows and increasing stock market liquidity. We are very pleased to have achieved success on each of these fronts. The properties recently acquired are high quality, located in central business districts and possess tremendous intrinsic growth potential, which we will work diligently to crystallize. We will stay focused on operational excellence, being responsive to our tenants and improving our sustainability. We are conﬁdent that the transformation of our company, coupled with the positive outlook for commercial real estate, has set the stage for continued growth. MICHAEL J. COOPER March 31, 2011 PAGE 3 DUNDEE REIT 2010 Annual Report Portfolio listing December 31, 2010 Office properties Station Tower, Surrey 4259-4299 Canada Way, Burnaby 4400 Dominion Street, Burnaby 625 Agnes Street, New Westminster 2665 Renfrew Street, Vancouver 4370 Dominion Street, Burnaby 960 Quayside Drive, New Westminster TELUS Tower, Calgary 10250-101 Street, Edmonton 840-7th Avenue SW, Calgary 10130-103 Street, Edmonton McFarlane Tower, Calgary Life Plaza, Calgary Airport Corporate Centre, Calgary Franklin Atrium, Calgary Roslyn Building, Calgary IBM Corporate Park, Calgary Atrium I, Calgary Atrium II, Calgary Joffre Place, Calgary Dominion Centre, Calgary 435 4th Avenue SW, Calgary 2891 Sunridge Way, Calgary Kensington House, Calgary 1035 7th Avenue SW, 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 110 Country Hills Landing NW, 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 Financial Building, Regina Preston Centre, Saskatoon Bellanca Building, Yellowknife Adelaide Place, Toronto State Street Financial Centre, Toronto Aviva Corporate Centre, Toronto 6655-6725 Airport Road, Mississauga AIR MILES Tower, Toronto 720 Bay Street, Toronto 2075 Kennedy Road, Toronto 30 Eglinton Avenue West, Mississauga 625 Cochrane Drive, Markham 2200-2204 Walkley Rd., Ottawa Valleywood Corporate Centre, Markham PAGE 4 OWNERSHIP OWNED SHARE OF TOTAL GLA (SQ. FT.) INTEREST (%) OCCUPANCY (%) SIGNIFICANT TENANTS 100 100 100 100 100 100 100 50 100 100 100 100 100 100 100 100 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 50 100 100 100 100 100 100 100 100 100 218,390 118,536 91,929 85,633 81,662 63,834 60,286 354,300 296,961 268,742 263,063 240,941 237,293 148,651 146,929 130,927 117,628 109,882 109,413 105,898 98,739 88,737 87,380 77,463 76,146 65,769 58,156 58,015 57,203 56,648 50,577 44,230 36,428 27,565 27,180 27,016 185,103 144,165 131,696 101,033 88,933 85,972 65,764 61,810 52,285 653,687 206,967 352,425 329,728 322,557 99.7 94.4 95.8 94.4 100.0 79.6 100.0 100.0 78.8 100.0 95.3 94.9 86.3 95.1 94.1 93.8 100.0 87.4 88.4 85.8 96.7 95.0 96.6 100.0 100.0 81.5 100.0 100.0 92.2 63.1 95.2 100.0 100.0 100.0 100.0 100.0 100.0 100.0 99.1 94.6 91.1 91.2 100.0 96.6 100.0 97.4 100.0 100.0 100.0 100.0 Government of British Columbia; Government of Canada HRDC; Webtech Wireless Keystone Environmental Ltd. Government of British Columbia; Government of Canada The Art Institute of Vancouver Jacques Whitford Stantec Westminster Savings Credit Union Bantrel Co.; SNC Lavalin Inc.; TELUS Communications Inc.; Norwest Corporation; Government of Alberta Aviva Canada Inc.; The City of Edmonton; HSBC Bank Canada Hatch Ltd.; Jacobs Canada Inc. Enbridge Pipelines Inc.; Government of Alberta Government of Alberta; Saxon Energy Services Inc.; Polar Star Canadian Oil & Gas Standard Lands Co. Inc.; Kemex Ltd. Government of Alberta; Government of Canada Care Factor Computer Services; Guest-Tek Interactive Ensign Drilling Inc. IBM Canada Ltd.; Newalta Corporation; London Life Insurance; Jardine Lloyd Thompson Canada Gemini Corporation Gemini Corporation Wawanesa Mutual Insurance AMEC Americas Limited Stratosphere Energy Corp. Yellow Pages Group Co. IBI Leaseholds Limited Precision Drilling Corporation; SNC Lavalin Inc. Extreme Engineering Mentor Engineering Inc. P&H Minepro Services Canada Ltd. Eni Canada Holding Lifemark Health Management Inc. Government of Alberta Weatherford Canada Partnership ARAM Systems Corporation Canadian Inspection Food Agency The City of Calgary Coffey Geotechnics Inc. Co-Operators Life Insurance Co.; CGI Group; Conexus Credit Union Government of Saskatchewan Government of Canada Government of NWT BHP Billiton Canada Inc. Government of NWT Government of Saskatchewan AECOM Canada Ltd. Government of Canada CIBC; DBRS; GCAN Insurance Company; Medcan Health Management Inc. International Financial Data Services; State Street Trust Company; Dundee Realty Management Corp. Aviva Canada Inc. Livingston International Inc.; Minacs Worldwide Inc.; Winners Merchants International Dutton Brock; Loyalty Management; Smart & Biggar Management Limited; TIC Travel Insurance 247,743 100.0 Government of Ontario 201,730 164,987 162,547 156,551 154,116 96.8 87.8 96.3 100.0 99.3 Carswell; Chase Paymentec; Dundee Securities Corporation; Sun Life Assurance Company Canada Dry Motts Delcan Corporation; Bank of Nova Scotia Government of Canada BDO Dunwoody LLP; Family Guidance Group Inc.; Miller Thomson; Solvay Pharma Inc. DUNDEE REIT 2010 Annual Report December 31, 2010 OWNERSHIP OWNED SHARE OF TOTAL GLA (SQ. FT.) INTEREST (%) OCCUPANCY (%) SIGNIFICANT TENANTS 2645 Skymark Ave., Mississauga Gateway Business Park, Ottawa 250 Dundas Street West, Toronto 1125 Innovation Drive, Ottawa 100 Gough Road, Markham 150 Metcalfe Street, Ottawa 236 Brownlow Avenue, Dartmouth 6509 Airport Road, Mississauga 2550 Argentia Road, Mississauga 2625 Queensview Drive, Ottawa 3035 Orlando Drive, Mississauga 100 100 100 100 100 100 100 100 100 100 100 142,487 120,407 119,188 118,653 111,840 109,398 60,794 60,000 51,639 46,156 16,754 100.0 Fashion Distributors; Worley Parsons Canada Ltd. 92.5 95.1 100.0 100.0 92.2 94.8 100.0 83.5 100.0 86.3 Eion Inc.; Academie de Formation Linguistique Government of Ontario; Toronto Central Community Care CAE Professional Services; Edgewater Computer Systems Inc. IBM Canada Ltd. Government of Canada Government of Canada; Lawton’s Drug Stores Limited Lafarge Canada Inc. Bridges GP Inc. Ottawa Centre for Research & Innovation The North West Company LP Total office properties1 9,015,265 95.8% December 31, 2010 OWNERSHIP OWNED SHARE OF TOTAL GLA (SQ. FT.) INTEREST (%) 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 1421 Rue Ampere, Boucherville 275 Wellington Street East, Aurora 8000 Av Blaise-Pascal, Montreal 1313 Autoroute Chomedey, Laval 2340 St. Laurent Blvd., Ottawa 580 Industrial Road, London 970 Fraser Drive, Burlington 105 Akerley Boulevard, Dartmouth 30 Simmonds Drive, Dartmouth 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 222,590 94,013 72,822 67,250 59,554 57,344 57,198 57,152 57,085 56,917 54,000 53,110 41,440 30,000 30,000 28,792 28,667 25,200 24,000 21,552 21,179 18,900 15,787 15,583 14,340 13,243 13,200 11,400 5,400 5,400 178,143 130,162 48,365 30,353 457,875 317,000 206,345 184,493 114,724 113,595 95,444 57,524 37,240 100.0 100.0 91.0 100.0 100.0 100.0 89.3 100.0 91.8 100.0 93.3 100.0 100.0 100.0 100.0 100.0 87.4 100.0 100.0 87.5 63.6 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 59.6 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 83.4 92.3 Total industrial properties1 3,244,381 96.9% Total office and industrial properties 12,259,646 96.1% (1) Excludes redevelopment properties. Ice River Springs Water Co.; Vaman Enterprises Ltd. Crane Carrie (Canada) Limited; Control Chemicals Collega International Sleep Country Canada Kilowatts Design Company Inc. Instabox Alberta Inc. Coast Wholesale Appliances LP Icon Stone and Tile Inc. Alberta Damproofing and Waterproofing Ltd. Eversource National Products Inc. Budrich Industries Sembiosys Genetics Inc. The Flower Market Spindle, Stairs & Railings Ametek (Canada) Inc. Tac Mobility Chateau Exteriors Ltd. Wolseley Canada Inc. Rising Edge Engineering Ltd. International Furniture Wholesalers Alberta Ltd. Core Corporate Relocations Inc. Beauty Depot Enterprises Mobile Augers and Research Ltd. Crazy Red's Transport Repair Mars Blinds and Shutters Ltd. Eureka-Tech Inc. Western High Voltage Audio Video Interiors Ltd. Thermo Design Insulation Ltd. Mettler-Toledo, Inc. Direct Right Cartage 2001 Inc.; Highland Moving & Storage Ltd.; McLeod Mercantile Ltd. Elite Marble & Granite Ltd.; North American Construction Boden Fabricating & Metal Prod Wood Group ESP Spectra Premium Industries Inc. Quebecor World Inc. Quebecor World Inc. Spectra Premium Industries Inc. The Dollco Corporation Colabor Limited Partnership Sound Design Technologies Ltd. Domtar Inc. Palmar Inc. PAGE 5 DUNDEE REIT 2010 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, 2010. This management’s discussion and analysis has been dated as at January 31, 2011, 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 2010, 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, which could cause actual results to differ materially from those that are disclosed in or implied by such forward-looking information. These risks and uncertainties include, but are not limited to, 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, 2011, 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 2010 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 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. At December 31, 2010, approximately 10% of our total units were enrolled in the Distribution Reinvestment and Unit Purchase Plan (“DRIP”), including 10% 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 10). 2010 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 $24.54 $25.14 $25.89 $25.70 $24.14 $24.45 $25.55 $25.43 $28.09 $29.21 $29.76 $30.20 OUR STRATEGY Dundee REIT’s core strategy remains unchanged — investing in the ofﬁce and industrial sectors in key markets across Canada and providing a solid platform for stable and growing cash ﬂows. The execution of that strategy, however, is continuously reviewed and includes acquisitions and dispositions, our capital structure and 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 to qualify as a real estate investment trust under the SIFT legislation, and we are steadfast in maintaining this status. Dundee REIT’s methodology to execute its strategy and to meet its objectives includes: Investing in high-quality ofﬁce and industrial properties Our portfolio is concentrated in Canada’s key urban markets and comprises high-quality 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. 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. PAGE 7 DUNDEE REIT 2010 Annual Report Diversifying our portfolio to mitigate risk With the acquisitions completed in 2009 and 2010, we have demonstrated our commitment once again to achieving greater geographic diversiﬁcation across our portfolio. We will continue to pursue growth but only when it enhances our overall portfolio, further improves the sustainability of distributions, strengthens our tenant proﬁle and mitigates risk. We have experience in each of Canada’s key markets and have the ﬂexibility to pursue acquisitions 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 Halifax, Montréal, Ottawa, London, Toronto, Saskatoon, Regina, Calgary, Edmonton, Vancouver and Yellowknife. December 31 British Columbia Alberta Saskatchewan & NWT Eastern Canada Total(1) Percentage Total as at Owned gross leasable area (sq. ft.) Ofﬁce Industrial Total 720,270 3,467,880 916,761 3,910,354 — 1,660,141 — 1,584,240 720,270 5,128,021 916,761 5,494,594 2010 % 6 42 7 45 Total 519,215 4,537,837 848,575 1,488,741 9,015,265 3,244,381 12,259,646 100 7,394,368 74% 26% 100% 2009 % 7 61 12 20 100 December 31, 2009 5,734,259 1,660,109 7,394,368 Percentage 78% 22% 100% (1) Excludes redevelopment properties. Subsequent to year-end, we have acquired approximately 385,000 square feet of ofﬁce space in Ottawa and Saskatoon. Additionally, we have acquired Realex Properties Corp. (“Realex”). Realex owned interests in 24 ofﬁce and industrial assets in Ontario, Alberta and British Columbia, totalling 1.8 million square feet, bringing our total gross leasable area to 14.5 million square feet. Seven of the properties, comprising 945,000 square feet of predominantly ofﬁce space, are located in the downtown core of Kitchener and the University of Waterloo Technology Park in Waterloo, Ontario. Realex also owned ﬁve ofﬁce properties in Calgary and six ofﬁce properties in Edmonton, Alberta, comprising 444,000 and 275,000 square feet, respectively. In addition, the portfolio included four industrial assets located in smaller Alberta and British Columbia centres and two industrial buildings in Edmonton, Alberta. The following table shows the impact of these acquisitions on our portfolio. PAGE 8 DUNDEE REIT 2010 Annual Report Owned gross leasable area (sq. ft.) Ofﬁce Industrial Total 720,270 4,187,125 1,126,361 5,030,341 17,405 1,824,771 — 1,584,240 737,675 6,011,896 1,126,361 6,614,581 11,064,097 3,426,416 14,490,513 76% 24% 100% % 5 41 8 46 100 February 8, 2011 British Columbia Alberta Saskatchewan & NWT Eastern Canada Total(1) Percentage (1) Excludes redevelopment properties. Ofﬁce rental properties At December 31, 2010, our ownership interests included 68 ofﬁce properties (86 buildings) comprising approximately 9.0 million square feet located in Halifax, Ottawa, Toronto, Saskatoon, Regina, Calgary, Edmonton, 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 95.8%, well ahead of the national industry average occupancy rate of 90.5% (CB Richard Ellis, Canadian Ofﬁce MarketView, Fourth Quarter 2010). Our occupancy rates include lease commitments for space that is currently being readied for occupancy but for which rent is not yet being recognized. During the fourth quarter, we acquired nine ofﬁce properties totalling 1.1 million square feet in Halifax, Ottawa, Toronto, Calgary, Edmonton and Vancouver. Subsequent to year-end, we acquired approximately 2.0 million square feet located in Calgary, Edmonton, Saskatoon, Kitchener and Ottawa. Industrial rental properties At December 31, 2010, our industrial portfolio consisted of 43 prime suburban industrial properties (46 buildings) comprising approximately 3.2 million square feet, in Calgary, Edmonton, London, Toronto, Ottawa, Montréal and Halifax. The occupancy rate across our industrial portfolio is 96.9%. The average industry occupancy rates in Calgary and Edmonton, our two major industrial markets, were 95.9% and 96.7%, respectively (CB Richard Ellis, Calgary and Edmonton Industrial MarketViews, Fourth Quarter 2010). During the fourth quarter, we acquired two industrial buildings in Halifax, one building in Burlington and one building in London, totalling 0.3 million square feet. Subsequent to year-end, we acquired approximately 0.2 million square feet, located in British Columbia and Alberta. PAGE 9 DUNDEE REIT 2010 Annual Report OUR EQUITY December 31 REIT Units, Series A REIT Units, Series B LP Class B Units, Series 1 Cumulative foreign currency translation adjustment 2010 Number of units Amount Number of units 45,896,203 16,316 3,481,733 $ 834,261 359 88,181 21,247,397 16,316 3,454,188 Unitholders’ equity 2009 Amount $ 312,743 362 92,656 — — — (6,609) Total 49,394,252 $ 922,801 24,717,901 $ 399,152 On February 4, 2011, we completed a public offering of 4.7 million REIT A units for gross proceeds of $143.9 million, less offering costs of $5.8 million. With this transaction, our total number of units outstanding is 54,182,641 units. 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. At December 31, 2010, Dundee Corporation, directly and indirectly through its subsidiaries, held 976,506 REIT A Units and 3,481,733 LP B Units, for a total ownership interest of approximately 9%. PAGE 10 DUNDEE REIT 2010 Annual Report 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 2010 2009 2010 2009 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 Financing Weighted average interest rate (period-end) Interest coverage ratio Per unit amounts Basic: FFO Distributable income (“DI”) Distribution rate Total distributions as a percentage of distributable income AFFO Diluted:(6) FFO Distributable income 96.1% 95.4% 14.29 $ 15.30 $ $ 81,162 48,484 30,381 25,245 $ 25,685 22,947 10% $ 50,156 30,791 17,363 13,033 $ 13,562 12,591 7% $ 279,352 172,398 105,071 83,572 $ 86,048 77,651 10% $ 192,083 120,954 67,633 49,783 $ 48,450 45,354 6% 5.43% 2.9 times 5.75% 2.4 times 2.8 times 2.3 times $ $ 0.66 0.61 0.55 90% 0.55 0.66 0.61 $ $ 0.70 0.59 0.55 93% 0.52 0.69 0.60 $ $ 2.71 2.41 2.20 91% 2.16 2.71 2.43 $ $ 3.04 2.55 2.20 86% 2.24 3.00 2.57 NOI, FFO, DI 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 properties. (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 38. (4) FFO — the reconciliation of FFO to net income can be found on page 24. (5) AFFO — the reconciliation of AFFO to distributable income can be found on page 27. (6) Diluted amounts assume the conversion of the 6.5%, 5.7% and 6.0% Debentures because they increase the outstanding number of units, although may not be dilutive to per unit amounts. PAGE 11 DUNDEE REIT 2010 Annual Report FINANCIAL OVERVIEW This has been a very busy and exciting year for Dundee REIT. We have continued to pursue our strategic objectives of growing our business to diversify the portfolio, maintaining occupancy and increasing cash ﬂow. During 2010, we made improvements on each of these fronts. We acquired approximately 4.9 million square feet of ofﬁce and industrial properties in 2010 and completed another 2.2 million square feet of acquisitions subsequent to year-end. We also completed ﬁve equity offerings in 2010, and one on February 4, 2011. These changes result in a very different portfolio compared to a year ago. AFFO increased by $33.8 million, or 68%, over 2009. On a per unit basis, AFFO decreased to $2.16 from $2.24 per unit in 2009, mainly due to the timing of deploying capital raised during the year. For the fourth quarter, AFFO increased by $12.2 million, or 94%, over 2009. On a per unit basis, AFFO increased to $0.55 from $0.52 in 2009 reﬂecting accretive acquisitions in 2010. Details of our FFO, DI and AFFO begin on page 24. NOI from comparable properties increased by 2% over the prior year reﬂecting continued strong occupancy. Our operations remain strong, with continued year-over-year growth in rental property revenue and NOI. In 2010, rental property revenue increased by 45% to $279.4 million, and NOI increased by 43% to $172.4 million, mainly reﬂecting the impact of acquisitions completed in 2009 and 2010. Details of our NOI begin on page 38. Overall occupancy increased to 96.1% from 95.4% a year ago. While occupancy across our ofﬁce portfolio decreased slightly to 95.8% compared to 96.7%, our industrial portfolio has improved signiﬁcantly with year-end occupancy reaching 96.9% compared to 90.6% a year earlier. Our comparative property occupancy increased to 95.9%, up 50 basis points over 2009, demonstrating the stability and strength of our operating platform. The average remaining lease term increased to 5.87 years, mainly due to acquisitions completed with an average remaining lease term of 7.64 years. Our average in-place rents remain below market rents, a positive indicator of future growth. Details of our leasing proﬁle begin on page 14. In 2010, we acquired $922.2 million of properties comprising 3.4 million square feet of high-quality ofﬁce space, together with 1.6 million square feet of industrial space. The acquisitions provide our portfolio with greater geographic diversiﬁcation and set the stage for continued AFFO growth in 2011. Details of our acquisitions begin on page 29. In 2010, we completed ﬁve equity offerings for gross proceeds of $593.0 million. We issued 24.3 million REIT A Units at prices ranging from $18.75 per unit to $29.85 per unit. Costs related to the offerings were approximately $26.8 million. These issuances, along with the increase in the price of our Units, have almost tripled our market capitalization since December 31, 2009. All of the proceeds have been deployed or are committed to be deployed. With respect to our mortgage debt, we placed $309.6 million of new debt at a weighted average interest rate of 4.63% and assumed an additional $156.8 million of mortgage debt at a weighted average interest rate of 5.17% upon acquiring nine properties during the year. This activity has reduced our weighted average interest rate to 5.43%, down from 5.75% in the prior year. Details of ﬁnancing activity and debt begin on page 31. PAGE 12 DUNDEE REIT 2010 Annual Report OUTLOOK The 18-month period from September 2009 to February 2011 has been a transformational time for Dundee REIT. In September 2009, Dundee REIT owned 6.8 million square feet of ofﬁce and industrial properties, and 64% of the net operating income was derived from our Calgary ofﬁce portfolio (a market that was in distress). We had 20.8 million units outstanding, a trading price of about $18 per unit, a market cap of approximately $375 million and the stock was relatively illiquid. While the ﬁnancial markets operated under a cloud of fear, it was clear to our management team that tenants were paying their rent, many were renewing their leases (some were even expanding) and we were attracting new tenants. Based on this, we decided to take advantage of market conditions to signiﬁcantly change the company. During the 18-month period, we added $1.5 billion of high-quality assets in prime locations, doubling the size of our business. Our NOI is more diversiﬁed with the Toronto ofﬁce portfolio contributing NOI equal to that of our Calgary ofﬁce portfolio. Our market cap has more than quadrupled to $1.6 billion, and with 54 million units outstanding, Dundee REIT’s stock is very liquid. In the fourth quarter, we closed on $277 million of acquisitions at a going-in cap rate of 7.0%, and subsequent to year-end, acquired Realex Properties Corporation, 400 Cumberland and Saskatoon Square for $462 million at a going-in cap rate of 7.9%. The following table was prepared to provide a better understanding of the impact of these acquisitions for the future. It also compares our business as at and for the quarter ended December 31, 2010, with pro forma results for the same period, assuming that all fourth quarter 2010 acquisitions and acquisitions completed up to February 8, 2011, had taken place on October 1, 2010. For the three months ended December 31, 2010 Actual Pro forma Balance sheet Units outstanding (end of period) Assets (book value) Debt Debt-to-gross book value Income statement Gross leasable area (square feet) Occupancy Rollover 2011 Square feet Percentage of total Weighted average remaining lease term In-place rent Market rent NOI(1) Interest Weighted average interest rate General and administrative $ $ 49,394,252 2,316,824 1,296,851 51.9% 54,143,752 $ 2,670,000 $ 1,507,000 53.1% 12,259,646 96.1% 14,490,513 96.2% 1,393,985 11.4% 5.87 14.29 14.82 44,112 16,271 5.43% 2,625 $ $ $ $ $ 1,586,930 11.0% 5.73 14.55 14.82 57,800 20,600 5.46% 3,000 $ $ $ $ $ (1) Does not include GAAP adjustments and lease termination fees. We look forward to 2011. Our team will continue to be responsive to our tenants, focus on asset management and look for transactions that will make our business more valuable. PAGE 13 DUNDEE REIT 2010 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 Eastern Canada Total Percentage Total as at 2010(1) 2009(1) Ofﬁce Industrial Total $ 151,294 $ 780,527 116,832 709,134 — $ 151,294 869,814 116,832 803,883 89,287 — 94,749 % 8 45 6 41 Total $ 99,834 736,517 107,754 235,195 $1,757,787 $ 184,036 $ 1,941,823 100 $ 1,179,300 % 9 62 9 20 100 91% 9% 100% December 31, 2009 $1,088,990 $ 90,310 $ 1,179,300 Percentage 92% 8% 100% (1) Excludes $14.2 million related to redevelopment properties (December 31, 2009 — excludes $17.6 million related to discontinued properties and $1.8 million related to other redevelopment properties). PORTFOLIO ASSET TYPE BY NET BOOK VALUE (AT DECEMBER 31, 2010) Office 91% • Industrial 9% • Leasing proﬁle GEOGRAPHIC DISTRIBUTION OF RENTAL PROPERTIES BY NET BOOK VALUE (AT DECEMBER 31, 2010) Alberta — Office 40% • Alberta — Industrial 5% • Eastern Canada — Industrial 5% • Saskatchewan & NWT 6% • British Columbia 8% • Eastern Canada — Office 36% • The following key performance indicators related to our leasing proﬁle inﬂuence the cash generated from operating activities. Performance indicators at December 31 2010 2009 Operating activities (ofﬁce and industrial average)(1) Occupancy rate Tenant maturity proﬁle — average term to maturity (years) In-place rental rates (1) Excludes redevelopment properties and discontinued properties. 96.1% 5.87 14.29 $ 95.4% 4.54 15.30 $ PAGE 14 DUNDEE REIT 2010 Annual Report Throughout the year, we continued to capture rental rate increases across most of our markets with the exception of Calgary. The overall average in-place rents decreased due to the lower average rental rates for properties acquired in Ontario and Québec, and remain approximately 4% below existing market rates. December 31 Ofﬁce British Columbia Alberta Saskatchewan & NWT Eastern Canada Total ofﬁce Industrial Alberta Eastern Canada Total industrial Overall In-place rent Market rent In-place rent 2010 2009 $ $ $ $ $ $ 17.83 18.12 18.47 15.45 19.91 $ 16.83 24.62 16.46 16.95 $ 17.72 $ 7.66 6.31 6.99 14.29 $ $ $ 7.80 $ 5.94 6.87 $ 14.82 $ 15.30 16.38 18.69 18.41 14.56 17.34 7.77 — 7.77 For the period-end, the percentage of occupied and committed space is as follows: (percentage) Ofﬁce Industrial Overall(2) Q4 2010 Q3 2010 Q2 2010 Q1 2010 Q4 2009 Q3 2009 Q2 2009 Q1 2009(1) 95.8 96.9 96.1 96.6 98.5 97.1 96.6 96.8 96.6 97.0 97.0 97.0 96.7 90.6 95.4 95.9 92.0 94.9 96.0 89.3 94.2 96.4 91.1 95.0 (1) 7102 Barlow Trail has been restated as continuing operations. (2) Excludes redevelopment properties and discontinued properties. The overall percentage of occupied and committed space across our rental properties portfolio was 96.1% at year-end, an increase of 70 basis points over 2009, due to leasing activity and the acquisition of 31 properties with a weighted average occupancy of 96.8%. Occupancy levels decreased from the third quarter mainly reﬂecting acquired vacancy at an ofﬁce property in Edmonton. Occupancy levels in our existing portfolio continue to be strong. In addition, occupancy levels in the acquired properties remain high, averaging 96.4%. The average occupancy rate across our ofﬁce portfolio is 95.8% and remains well above the national industry average of 90.5%. The average occupancy rate across our industrial portfolio is 96.9%, an increase of 6.3% over the fourth quarter of 2009, mainly reﬂecting properties acquired in Eastern Canada with higher occupancy and increased occupancy in the comparative properties for our Alberta industrial portfolio. The overall occupancy rates for industrial space in Calgary, Edmonton, Montréal and Halifax were 95.1%, 93.9%, 89.6% and 95.3%, respectively (CB Richard Ellis, Canadian Ofﬁce and Calgary, Edmonton, Montréal and Halifax Industrial MarketViews, Fourth Quarter 2010). Our occupancy rates discussed in this report include occupied and committed space at December 31, 2010. PAGE 15 DUNDEE REIT 2010 Annual Report (percentage) Ofﬁce British Columbia Alberta Saskatchewan & NWT Eastern Canada Total ofﬁce Industrial Alberta Eastern Canada Total industrial Overall(1) December 31, September 30, 2010 2010 December 31, 2009 December 31, September 30, 2010 2010 December 31, 2009 Total portfolio Comparative properties 96.0 93.2 97.4 97.8 95.8 94.7 99.2 96.9 96.1 96.5 94.9 97.5 98.0 96.6 97.4 100.0 98.5 97.1 95.3 95.2 98.7 99.1 96.7 90.6 — 90.6 95.4 95.7 94.4 97.2 99.4 96.2 94.7 — 94.7 95.9 96.5 94.8 97.3 99.2 96.5 97.4 — 97.4 96.7 95.3 95.2 98.7 99.1 96.7 90.6 — 90.6 95.4 (1) Excludes redevelopment properties and discontinued properties. On a comparative basis, our ofﬁce portfolio continues to demonstrate strong leasing activity, evidenced by strong occupancy quarter over quarter. Our comparative industrial portfolio occupancy decreased in the quarter from 97.4% to 94.7%, primarily as a result of a tenant occupying two spaces in September, while transitioning from a 50,000 square foot space to a 96,000 square foot space. Vacancy schedule In-place vacant space has remained steady since the beginning of the quarter. The following tables 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 531,000 square feet of leases expired or were terminated, and we completed approximately 529,000 square feet of renewals and new leasing. On a year-to-date basis, approximately 1,832,000 square feet expired or were terminated, and we completed a signiﬁcant number of renewals and new leasing of approximately 1,880,000 square feet. Of the vacant space at period-end, approximately 114,000 square feet, or 19.3%, is committed for future occupancy, leaving approximately 477,000 square feet available for lease. PAGE 16 (in square feet) Available for lease Vacancy committed for future leases Vacant space — October 1, 2010 Acquired vacancy Vacant space — restated Remeasurements Expiries Early terminations and bankruptcies New leases Renewals Vacant space — December 31, 2010 Vacancy committed for future leases Available for lease — December 31, 2010 (in square feet) Available for lease Vacancy committed for future leases Vacant space — January 1, 2010 Acquired vacancy Vacant space — restated Remeasurements Expiries Early terminations and bankruptcies New leases Renewals Vacant space — December 31, 2010 Vacancy committed for future leases Available for lease — December 31, 2010 DUNDEE REIT 2010 Annual Report For the three months ended December 31, 2010 Ofﬁce Industrial Total 270,913 139,455 410,368 93,963 504,331 (987) 338,353 13,764 (186,390) (191,031) 478,040 100,530 377,510 Ofﬁce 186,811 49,083 235,894 182,911 418,805 12,900 1,238,379 92,004 (526,600) (757,448) 478,040 100,530 377,510 43,313 31,511 74,824 10,964 85,788 133 124,213 54,963 (55,037) (96,156) 113,904 13,924 99,980 314,226 170,966 485,192 104,927 590,119 (854) 462,566 68,727 (241,427) (287,187) 591,944 114,454 477,490 For the year ended December 31, 2010 Industrial 156,463 41,852 198,315 10,964 209,279 (653) 422,281 79,363 (281,936) (314,430) 113,904 13,924 99,980 Total 343,274 90,935 434,209 193,875 628,084 12,247 1,660,660 171,367 (808,536) (1,071,878) 591,944 114,454 477,490 The following two tables detail our lease maturity proﬁle by asset type and geographic segment as at December 31, 2010. 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. For 2011, approximately 1,393,985 square feet of our leases will expire, of which approximately 365,171 square feet, or 26%, have been committed. PAGE 17 DUNDEE REIT 2010 Annual Report (in square feet) Current vacancy Current monthly tenancies 2011 2012 2013 2014 2015 to 2023 Total Ofﬁce — uncommitted 377,510 5,507 846,111 872,511 1,250,345 795,840 4,334,062 8,481,886 Ofﬁce — committed — — 321,648 50,209 — — 161,522 533,379 Total ofﬁce 377,510 5,507 1,167,759 922,720 1,250,345 795,840 4,495,584 9,015,265 Industrial — uncommitted 99,980 Industrial — committed Total industrial — 99,980 — — — 182,703 288,207 227,769 127,835 2,247,115 3,173,609 43,523 8,249 10,000 — 9,000 70,772 226,226 296,456 237,769 127,835 2,256,115 3,244,381 Total — uncommitted 477,490 5,507 1,028,814 1,160,718 1,478,114 923,675 6,581,177 11,655,495 Total — committed — — 365,171 58,458 10,000 — 170,522 604,151 Total 477,490 5,507 1,393,985 1,219,176 1,488,114 923,675 6,751,699 12,259,646 (in square feet) British Columbia — Current vacancy Current monthly tenancies 2011 2012 2013 2014 2015 to 2023 Total uncommitted 29,095 British Columbia — committed — Total British Columbia 29,095 — — — 110,818 34,012 92,443 86,137 338,364 690,869 14,113 — — — 15,289 29,402 124,931 34,012 92,443 86,137 353,653 720,271 Alberta — uncommitted 323,971 5,507 514,375 620,335 618,964 451,880 2,345,609 4,880,641 Alberta — committed — — 186,587 17,901 10,000 — 32,889 247,377 Total Alberta 323,971 5,507 700,962 638,236 628,964 451,880 2,378,498 5,128,018 Saskatchewan & NWT — uncommitted 24,164 Saskatchewan & NWT — committed — Total Saskatchewan & NWT 24,164 Eastern Canada — — — — 57,159 171,516 116,433 65,628 436,669 871,569 4,636 40,557 — — — 45,193 61,795 212,073 116,433 65,628 436,669 916,762 uncommitted 100,260 — 346,462 334,855 650,274 320,030 3,460,535 5,212,416 Eastern Canada — committed — Total Ontario & Québec 100,260 — — 159,835 — — — 122,344 282,179 506,297 334,855 650,274 320,030 3,582,879 5,494,595 Total — uncommitted 477,490 5,507 1,028,814 1,160,718 1,478,114 923,675 6,581,177 11,655,495 Total — committed — — 365,171 58,458 10,000 — 170,522 604,151 Total 477,490 5,507 1,393,985 1,219,176 1,488,114 923,675 6,751,699 12,259,646 PAGE 18 DUNDEE REIT 2010 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, 2010. Expiring rents and market rents represent base rates and do not include the impact of tenant inducements. Expiring rents Ofﬁce Industrial Portfolio average Market rents(1) Ofﬁce Industrial Market rent average Current monthly tenancies $ 22.39 — 22.39 $ 18.02 — 18.02 2011 2012 2013 2014 $ 16.01 8.28 14.63 $ 16.68 8.19 15.18 $ 19.61 7.11 16.50 $ 18.78 7.57 15.99 $ 18.65 9.51 17.24 $ 16.48 8.86 15.30 $ 18.90 9.62 17.62 $ 17.70 8.14 16.38 2015 to 2023 $ 18.39 7.81 14.98 $ 18.03 6.41 14.28 (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 Ofﬁce British Columbia Alberta Saskatchewan & NWT Eastern Canada Industrial Alberta Eastern Canada Portfolio average Market rents(1) Ofﬁce British Columbia Alberta Saskatchewan & NWT Eastern Canada Industrial Alberta Eastern Canada Market rent average Current monthly tenancies $ $ — 22.39 — — — — 22.39 — 18.02 — — — — 18.02 2011 2012 2013 2014 $ 14.79 16.59 22.50 14.51 9.12 5.50 14.63 $ 16.08 15.67 28.83 15.87 8.86 6.00 15.18 $ 14.77 20.93 22.62 17.19 7.14 5.58 16.50 $ 20.75 17.09 26.21 16.43 7.59 6.00 15.99 $ 17.76 22.03 21.12 16.24 9.60 6.00 17.24 $ 14.65 14.90 25.94 16.00 8.94 6.00 15.30 $ 13.32 18.80 27.62 18.71 10.20 5.79 17.62 $ 20.12 15.66 28.74 16.91 8.47 6.00 16.38 2015 to 2023 $ 22.30 20.10 17.82 16.52 8.13 7.64 14.98 $ 22.25 17.68 22.67 16.61 7.29 5.93 14.28 (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 19 DUNDEE REIT 2010 Annual Report The average remaining lease term and other portfolio information as at year-end is detailed below. December 31 Ofﬁce Industrial Portfolio average Average remaining lease term (years) 4.87 8.62 5.87 Average tenant size (sq. ft.) 9,838 14,424 10,750 2010(1) Average in-place net rent(2) (per sq. ft.) $ 16.95 6.99 14.29 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(2) (per sq. ft.) $ 17.34 7.77 15.30 (1) Excludes redevelopment properties. (2) Average in-place rents include straight-line rent adjustments. Tenant base profile Our tenant base includes a wide range of high-quality tenants such as municipal, provincial and federal governments, large international corporations and small entrepreneurial businesses across the country. With 1,096 tenants, our risk exposure to any single large lease or tenant is low. The average sizes of our ofﬁce and industrial tenants are 9,838 and 14,424 square feet, respectively. 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. 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, 2010) Other 23% • Administrative support, waste Retail trade 4% • management and remediation services 6% • Manufacturing 7% • Mining and oil and gas extraction 8% • • Professional, scientific and technical services 16% • Public administration 14% • Finance and insurance 13% • Other services (except public administration) 9% The diversity of our tenant base helps to ensure that those 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 speciﬁc to an industry sector as much as it is to the impact of the oil and gas sector on the general economy of Alberta. In 2010, we acquired 29 properties outside of Alberta, improving the geographic diversiﬁcation of our portfolio, and reduced our exposure to the Calgary ofﬁce market from 51% at the beginning of the year to 31% at the end of the year, based on NOI. We are very proactive in analyzing our portfolio and tenancies, and are focused on tenant retention and leasing. The stability and quality of our cash ﬂow is enhanced by the fact that government and government agencies contribute 15.3% to our total gross rental revenue. Our ten largest tenants feature both federal and provincial governments as well as other nationally and internationally recognizable high-quality businesses. The following table outlines their contributions to our rental revenues. PAGE 20 DUNDEE REIT 2010 Annual Report % of owned area % of gross rental revenue Average remaining lease term (years) 3.5 2.7 2.5 2.8 1.5 1.5 1.5 1.0 1.7 1.0 4.3 3.4 3.4 3.0 2.9 2.1 1.9 1.7 1.7 1.6 6.2 3.0 5.0 5.5 9.7 6.8 5.2 10.6 6.8 2.2 5.8 Tenant Government of Ontario Government of Canada TELUS Communications Aviva Enbridge Pipelines Inc. Loyalty Management Group Government of British Columbia State Street Trust Company Government of Saskatchewan Government of Northwest Territories Owned area in sq. ft. 434,135 336,187 311,253 342,771 189,232 183,014 178,646 122,344 200,720 114,465 Total 2,412,767 19.7 26.0 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 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 2010, only $5.2 million of our mortgage debt matured, of which $2.7 million matured in the fourth quarter. During 2011, a further $79.7 million is scheduled to mature, representing 6.2% of our total debt. 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 (utilized) from ﬁnancing activities Increase (decrease) in cash and cash equivalents For the three months ended December 31 For the years ended December 31 2010 2009 2010 2009 $ 19,591 (211,416) $ 11,342 (85,750) $ 79,383 (747,321) $ 59,507 (104,977) 199,343 (22,940) 773,022 (11,577) $ 7,518 $ (97,348) $ 105,084 $ (57,047) At December 31, 2010, cash and cash equivalents were $117.3 million, an increase of $105.1 million since December 31, 2009, mainly reﬂecting $566.7 million of net proceeds from equity offerings and $307.0 million in proceeds of mortgage ﬁnancings completed in 2010, less $732.0 million utilized to fund acquisitions. For the quarter, cash and cash equivalents increased by $7.5 million over the third quarter of 2010, mainly reﬂecting $110.3 million of net proceeds from equity offerings and $120.5 million of proceeds from mortgage ﬁnancing, less $199.3 million utilized to fund acquisitions. We also have a further $36.1 million, less letters of guarantee, available through our revolving credit facility, and 15 unencumbered properties that can be leveraged. Subsequent to year-end, we acquired two additional unencumbered properties. All of the cash on hand at December 31, 2010, was used to purchase properties subsequent to year-end. See discussion under Acquisitions on page 29. PAGE 21 DUNDEE REIT 2010 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 2010 2009 2010 2009 $ 5,722 $ 6,606 $ 26,990 $ 13,420 Depreciation of rental properties Amortization of market rent adjustments on acquired leases All other depreciation and amortization Loss (gain) on disposal of rental properties Deferred unit compensation expense Future income taxes Straight-line rent adjustment Leasing costs incurred Change in non-cash working capital 11,342 7,075 40,656 28,283 (2,335) 12,868 499 582 — (857) 27,821 (3,368) (4,862) (2,297) 5,828 662 220 (2,623) (412) 15,059 (1,273) (2,444) (10,820) 40,402 (2,296) 1,547 — (3,771) 92,708 (8,265) (5,060) (10,276) 23,043 7,258 858 (3,739) (1,053) 57,794 (4,296) 6,009 Cash generated from operating activities $ 19,591 $ 11,342 $ 79,383 $ 59,507 Cash generated from operations for the quarter and for the year increased relative to the comparative period, reﬂecting growth from acquired properties, net of leasing costs incurred 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 since 2006. Below-market leases are recorded as intangible liabilities and are amortized to rental property revenue over the terms of the related leases. 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 amounts receivable. Leasing costs include fees, commissions, tenant inducements and related costs. Tenant inducements are amortized on a straight-line basis over the term of the applicable lease to rental property revenue, while other leasing costs are amortized on a straight-line basis to amortization expense. PAGE 22 DUNDEE REIT 2010 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 2010, we incurred $17.2 million for leasing costs and tenant improvements, of which $3.2 million related to prior year leasing activity or leases that will commence in 2011. We incurred $13.9 million for leasing costs and tenant improvements related to approximately 1.9 million square feet of space that was leased and occupied during 2010, representing an average per square foot cost of $8.42 for ofﬁce space and $5.24 for industrial space. The leasing costs for our ofﬁce portfolio are higher than our estimates due to leasing of an additional 0.6 million square feet of space, and mostly pertaining to acquisitions for which the leasing costs were factored into our underwriting decision of the properties on purchase. Similarly, industrial leasing costs are higher than our estimates due to acquisitions as well as $1.0 million incurred for the leasing of 0.1 million square feet at an Edmonton property, which is now 100% committed until 2025. Performance indicators Ofﬁce Industrial Total Operating activities (continuing portfolio) Portfolio size (sq. ft.)(1) Occupied and committed Square footage leased and occupied in 2010 Leasing costs Tenant improvements (1) Excludes redevelopment properties. 9,015,265 95.8% 1,284,048 4,897 5,921 $ $ 3,244,381 96.9% 596,366 1,608 1,516 $ $ 12,259,646 96.1% 1,880,414 6,505 7,437 $ $ 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 2011 2012 2013 2014 Total Operating lease payments Capital lease payments $ $ 1,012 865 727 16 133 133 132 — $ 2,620 $ 398 Effective February 1, 2010, we entered into three ﬁxed price contracts to purchase electricity for 14 ofﬁce properties in Calgary. The contracted volumes are based on historical electricity consumption of each of the buildings and allow us to effectively manage our operating expenses. The contracts expire on January 31, 2013, and commit the Trust to total minimum payments of $2.2 million for each of 2011 and 2012, and $0.2 million for 2013. 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 commit the Trust to total minimum payments of $0.6 million annually for 2011 and 2012. PAGE 23 DUNDEE REIT 2010 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 2010 2009 2010 2009 $ 5,722 $ 6,606 $ 26,990 $ 13,420 Depreciation of rental properties Amortization of leasing costs, tenant improvements and intangibles Loss (gain) on disposal of rental properties Future income taxes Amortization of costs not speciﬁc to real estate operations incurred subsequent to June 30, 2003 Leasing costs and intangibles expensed on lease termination 11,342 7,075 40,656 28,283 12,632 499 — (54) 240 5,683 662 (2,623) 39,685 (2,296) — 22,583 7,258 (3,739) (40) (204) (172) — 240 — FFO $ 30,381 $ 17,363 $ 105,071 $ 67,633 FFO per unit — basic FFO per unit — diluted $ $ 0.66 0.66 $ $ 0.70 0.69 $ $ 2.71 2.71 $ $ 3.04 3.00 FFO per unit was $0.66 for the quarter, down 6% compared to $0.70 in 2009, mainly as a result of the timing of ﬁnancings and deployment of capital during the year. Total FFO increased by 75% to $30.4 million in the quarter, driven by NOI growth from accretive acquisitions and comparative properties. Additionally, we recognized $1.5 million of termination income in the quarter. Above- and below-market rents, which result in a non-cash amortization to our operating results, contributed $2.3 million to FFO in the quarter. FFO per unit was $2.71 for the year, down 11% compared to $3.04 in 2009, mainly as a result of timing of ﬁnancings and deployment of capital during the year. Total FFO increased by $37.4 million in the year, driven by NOI growth from accretive acquisitions and comparative properties, and $1.5 million of termination income. Above- and below-market rents, which result in a non-cash amortization to our operating results, contributed $10.8 million in the year. 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 46,054,582 and 49,596,634, respectively. Diluted FFO includes interest and amortization adjustments related to convertible debentures of $2.4 million for the quarter and $9.3 million for the year. Year-to-date, the weighted average number of units outstanding for the calculation of basic and diluted FFO are 38,757,113 and 42,280,715, respectively. The basic and diluted weighted average number of units outstanding include 127,329 vested deferred trust units for the quarter and 106,107 for the year. PAGE 24 DUNDEE REIT 2010 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 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. We include the impact of vendor head lease income that has not been recognized in net income. Distributable income Funds from operations Add (deduct): Amortization of marked-to-market adjustments on acquired debt Amortization of ﬁnancing costs incurred prior to June 30, 2003 Deferred compensation expense Straight-line rent Amortization of above-market rent Amortization of below-market rent Amortization of tenant inducements Amortization of ﬁnancing costs incurred For the three months ended December 31 For the years ended December 31 2010 2009 2010 2009 $ 30,381 $ 17,363 $ 105,071 $ 67,633 (175) (182) (764) (800) 410 582 (857) 607 (2,942) 98 327 220 (412) 126 (2,423) 57 1,481 1,547 (3,771) 1,581 (12,401) 268 1,260 858 (1,053) 421 (10,697) 256 subsequent to June 30, 2003 (391) (315) (1,393) (1,193) Amortization of non-recoverable costs incurred subsequent to June 30, 2003 Vendor head lease income Revenue supplement from vendor on acquisition (10) 171 — (14) — — (42) 608 1,122 (46) — — $ 27,874 $ 14,747 $ 93,307 $ 56,639 Distributable income per unit — basic Distributable income per unit — diluted Distributions per unit $ $ $ 0.61 0.61 0.55 $ $ $ 0.59 0.60 0.55 $ $ $ 2.41 2.43 2.20 $ $ $ 2.55 2.57 2.20 For the quarter ended December 31, 2010, distributable income per unit was $0.61 and declared distributions per unit were $0.55, representing a 90% payout ratio. In the prior year comparative period, distributable income per unit was $0.59 and declared distributions per unit were $0.55, representing a 93% payout ratio. Distributable income exceeded distributions paid and payable by $2.1 million for the quarter. For the year ended December 31, 2010, basic and diluted distributable income per unit was $2.41 and $2.43, respectively, representing a 91% payout ratio. In the prior year, basic and diluted distributable income per unit was $2.55 and $2.57, respectively, representing an 86% payout ratio. Distributable income exceeded distributions paid and payable by $6.9 million for the year. We retain a portion of our distributable income in order to fund capital requirements related to leasing, rental property improvements and working capital. PAGE 25 DUNDEE REIT 2010 Annual Report Distributable income is not deﬁned by GAAP and therefore may not be comparable to similar measures presented by other real estate investment trusts. In compliance with the Canadian Securities Administrators Staff Notice 52-306 (Revised), “Non-GAAP Financial Measures”, the table below reconciles distributable income to cash generated from operating activities. Cash generated from operating activities Add (deduct): Leasing costs incurred Amortization of ﬁnancing costs incurred For the three months ended December 31 For the years ended December 31 2010 2009 2010 2009 $ 19,591 $ 11,342 $ 79,383 $ 59,507 3,368 1,273 8,265 4,296 prior to June 30, 2003 Amortization of non-recoverable deferred costs incurred prior to June 30, 2003 Amortization of tenant inducements Leasing costs and intangibles expensed on lease termination 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 Vendor head lease income Revenue supplement from vendor 20 (11) 98 240 (54) (411) 4,862 171 12 (12) 56 — (41) (327) 2,444 — 88 (43) 268 240 (203) (1,481) 5,060 608 67 (45) 255 — (172) (1,260) (6,009) — on acquisition Distributable income — — 1,122 — $ 27,874 $ 14,747 $ 93,307 $ 56,639 Distributions The distributions presented in the table below comprise $78.7 million relating to REIT Units and $7.6 million relating to LP B Units. 2010 distributions Paid in cash or reinvested in units Payable at December 31, 2010 Total distributions 2010 reinvestment Reinvested to December 31, 2010 Reinvested on January 15, 2011 Total distributions reinvested Distributions paid in cash Reinvestment to distribution ratio Cash distribution payout ratio PAGE 26 Declared distributions 4% bonus distributions Total 291 34 325 291 34 325 $ 77,300 9,073 $ 86,373 $ 7,560 1,162 $ 8,722 $ 77,009 9,039 $ $ 86,048 $ $ $ $ $ $ 7,269 1,128 8,397 77,651 9.8% 90.2% DUNDEE REIT 2010 Annual Report Distributions declared for the year ended December 31, 2010, totalled $86.0 million, an increase of $37.6 million over the comparative period. Distributions declared for the quarter ended December 31, 2010, were $25.7 million, an increase of $12.1 million over the prior year comparative quarter. The increase reﬂects a larger number of units outstanding as a result of the equity issues completed in 2010 as well as distributions reinvested in additional units and vested deferred trust units exchanged for REIT A Units. Of the distributions declared for the year, $8.4 million, or approximately 9.8 %, were reinvested in additional units resulting in a cash payout ratio of 90.2%. 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. For the three months ended December 31 For the years ended December 31 Net income Cash ﬂow from operating activities Distributions paid and payable Excess (shortfall) of cash ﬂow from operating $ 2010 5,722 19,591 25,785 $ 2009 6,606 11,342 13,594 2010 $ 26,990 79,383 86,373 $ 2009 13,420 59,507 48,566 activities over distributions paid and payable (6,194) (2,252) (6,990) 10,941 Distributions paid and payable exceeded cash ﬂow from operations by $6.2 million for the quarter and by $7.0 million for the year. 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 $20.1 million for the quarter and by $59.4 million for the year. This excess was mainly a result of a non-cash depreciation and amortization expense, which are not considered in determining our cash distribution policy. Adjusted funds from operations Distributable income Adjusted for: Normalized leasing costs and tenant improvements Normalized non-recoverable recurring capital expenditures For the three months ended December 31 For the years ended December 31 2010 2009 2010 2009 $ 27,874 $ 14,747 $ 93,307 $ 56,639 2,554 75 1,514 200 9,435 6,056 300 800 AFFO $ 25,245 $ 13,033 $ 83,572 $ 49,783 AFFO per unit — basic $ 0.55 $ 0.52 $ 2.16 $ 2.24 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 25, which reconciles distributable income to cash ﬂow from operating activities. PAGE 27 DUNDEE REIT 2010 Annual Report 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 2010, adjusted for properties that have been acquired or 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 $0.55 for the quarter, an increase of 6% compared to $0.52 in 2009, mainly due to the impact of acquisitions completed in 2009 and 2010. AFFO per unit was $2.16 for the year, a decrease of 4% compared to $2.24 in 2009, mainly due to equity issues late in the year for which cash had not yet been deployed. 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 2010 2009 2010 2009 Investment in rental properties Investment in tenant improvements Acquisition of rental properties Acquisition deposit on rental properties Net proceeds from disposal of rental properties Change in restricted cash, net $ (5,771) (2,807) (199,323) (3,515) — — $ (2,699) (1,300) (68,045) (13,755) (10) 59 $ (13,864) (8,936) (731,974) (3,750) 10,850 353 $ (5,921) (6,121) (94,526) (13,755) 14,927 419 Cash utilized in investing activities $ (211,416) $ (85,750) $ (747,321) $ (104,977) Key performance indicators in the management of our investing activities are: Investing activities Acquisition of rental properties Building improvements Development For the three months ended December 31 For the years ended December 31 2010 2009 2010 2009 $ 282,682 2,094 3,876 $ 96,939 1,993 626 $ 922,171 8,397 6,706 $ 122,887 5,410 734 PAGE 28 DUNDEE REIT 2010 Annual Report Acquisitions During 2010, we completed the following acquisitions: For the year ended December 31, 2010 Property type Interest acquired (%) Acquired Occupancy on GLA (1) acquisition (%) (sq. ft.) Purchase price Date acquired Adelaide Place, Toronto Aviva Corporate Centre, Toronto 10130-103 Street, Edmonton 2340 St. Laurent Boulevard, Ottawa 4915-52 Street, Yellowknife Financial Building, Regina 30 Eglinton Avenue West, Mississauga 625 Cochrane Drive, Markham Valleywood Corporate Centre, Markham 275 Wellington Street East, Aurora 8000 av Blaise-Pascal, Montréal 6509 Airport Road, Mississauga 3035 Orlando Drive, Mississauga 2075 Kennedy Road, Toronto 1421 Rue Ampère, Boucherville 1313 Autoroute Chomedey, Laval 150 Metcalfe Street, Ottawa 236 Brownlow Avenue, Dartmouth 970 Fraser Drive, Burlington 2200 & 2204 Walkley Road, Ottawa 2625 Queensview Drive, Ottawa 30 Simmonds Drive, Dartmouth 105 Akerley Boulevard, Dartmouth 4259-4299 Canada Way, Burnaby 2665 Renfrew Street, Vancouver AFIAA Portfolio, Toronto, Mississauga and Calgary 10250-101 Street, Edmonton 100 Gough Road, Toronto 580 Industrial Road, London ofﬁce ofﬁce/redevelopment ofﬁce industrial land ofﬁce ofﬁce ofﬁce ofﬁce industrial industrial ofﬁce ofﬁce ofﬁce industrial industrial ofﬁce ofﬁce industrial ofﬁce ofﬁce industrial industrial ofﬁce ofﬁce ofﬁce ofﬁce ofﬁce industrial 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 654,249 436,704 265,625 114,724 — 65,763 164,987 161,997 154,116 317,000 206,305 60,000 16,754 201,730 457,875 184,493 109,374 60,739 95,444 156,551 46,156 37,240 57,524 118,536 81,662 198,392 296,961 111,840 113,595 $ 98 99(2) 95 100 — 100 90 100 98 100 100 100 86 96 100 100 91 95 100 100 100 88 88 96 100 95 79 100 100 217,708 45,660 90,007 11,344 678 14,222 38,543 29,917 31,645 25,438 11,296 12,295 2,410 31,750 29,381 12,716 34,540 7,455 7,090 23,653 8,656 1,621 3,101 26,280 34,649 45,348 84,619 30,475 9,674 January 18, 2010 February 10, 2010 April 16, 2010 April 26, 2010 April 30, 2010 May 4, 2010 May 31, 2010 June 18, 2010 June 18, 2010 July 30, 2010 July 30, 2010 August 3, 2010 August 3, 2010 August 12, 2010 September 2, 2010 September 2, 2010 September 16, 2010 October 5, 2010 October 19, 2010 November 2, 2010 November 5, 2010 November 22, 2010 November 22, 2010 December 15, 2010 December 21, 2010 December 21, 2010 December 22, 2010 December 30, 2010 December 30, 2010 Total 4,946,336 97 $ 922,171 (1) Gross leasable area (“GLA”). (2) Excludes redevelopment component of the property. The Trust assumed mortgages with a fair value of $159 million on nine properties acquired in 2010. During 2009, we completed the following acquisitions: For the year ended December 31, 2009 720 Bay Street, Toronto 1125-1145 Innovation Drive, Ottawa 6655-6725 Airport Road, Mississauga Gateway Business Park, Ottawa 2645 Skymark Avenue, Mississauga Total Property type Interest acquired (%) Acquired Occupancy on GLA acquisition (%) (sq. ft.) Purchase price Date acquired ofﬁce ofﬁce ofﬁce ofﬁce ofﬁce 50 100 100 100 100 123,870 118,563 329,728 120,600 142,487 835,248 100 $ 100 100 91 100 25,948 16,679 50,637 14,700 14,923 99 $ 122,887 September 1, 2009 December 16, 2009 December 18, 2009 December 30, 2009 December 30, 2009 The Trust assumed mortgages with a fair value of $27 million on one property acquired in 2009. PAGE 29 DUNDEE REIT 2010 Annual Report Acquisitions completed during the fourth quarter On October 5, 2010, we completed the purchase of Brownlow Centre in Dartmouth, Nova Scotia, for approximately $7.5 million. The property comprises 60,739 square feet of ofﬁce space and is located in an ofﬁce park in the greater Halifax area. At the time of acquisition, the property was 95% occupied and had an average remaining lease term of 3.6 years. On October 19, 2010, we completed the purchase of 970 Fraser Drive in Burlington, Ontario, for approximately $7.1 million. The property comprises 95,444 square feet of industrial space and is located in the west end of the Greater Toronto Area. At the time of acquisition, the property was 100% leased and had an average remaining lease term of 17.3 years. On November 2, 2010, we completed the purchase of 2200 & 2204 Walkley Road in Ottawa, Ontario, for approximately $23.7 million. The properties comprise 156,551 square feet of ofﬁce space and are located in the Ottawa east ofﬁce node. At the time of acquisition, the properties were 100% leased and had an average remaining lease term of 4.6 years. On November 5, 2010, we completed the purchase of 2625 Queensview Drive in Ottawa, Ontario, for approximately $8.7 million. The property comprises 46,156 square feet of ofﬁce space and is located in the west end of Ottawa. At the time of acquisition, the property was 100% leased and had an average remaining lease term of 6.6 years. On November 22, 2010, we completed the purchase of 30 Simmonds Drive and 105 Akerley Boulevard in Dartmouth, Nova Scotia, for approximately $4.7 million. The properties comprise 94,764 square feet of ﬂex-industrial space and are located in the greater Halifax area. At the time of acquisition, the properties were 88% leased and had an average remaining lease term of 1.9 years. On December 15, 2010, we completed the purchase of 4259-4299 Canada Way in Burnaby, British Columbia, for approximately $26.3 million. The property comprises 118,536 square feet of ofﬁce space and is located in the greater Vancouver area. At the time of acquisition, the property was 96% leased and had an average remaining lease term of 3.9 years. On December 21, 2010, we completed the purchase of 2665 Renfrew Street in Vancouver, British Columbia, for approximately $34.6 million. The property comprises 81,662 square feet of ofﬁce space and is located in the east end of Vancouver. At the time of acquisition, the property was 100% leased and had an average remaining lease term of 9.5 years. On December 21, 2010, we completed the purchase of the AFIAA Portfolio in Toronto, Mississauga and Calgary for approximately $45.3 million. The properties comprise 198,392 square feet of ofﬁce space and are located in the Toronto, Mississauga and Calgary. At the time of acquisition, the properties were 95% leased and had an average remaining lease term of 5.3 years. On December 22, 2010, we completed the purchase of 10250–101 Street in Edmonton, Alberta, for approximately $84.6 million. The property comprises 296,961 square feet of ofﬁce space and is located in the central business district of Edmonton. At the time of acquisition, the property was 80% leased and had an average remaining lease term of 4.6 years. On December 30, 2010, we completed the purchase of 100 Gough Road in Toronto, Ontario, for approximately $30.5 million. The property comprises 111,840 square feet of data centre space and is located in the north end of the Greater Toronto Area. At the time of acquisition, the property was 100% leased and had an average remaining lease term of 5.8 years. PAGE 30 DUNDEE REIT 2010 Annual Report On December 30, 2010, we completed the purchase of 580 Industrial Road in London, Ontario, for approximately $9.7 million. The property comprises 113,595 square feet of industrial space and is located near Dundas Street and Airport Road in London. At the time of acquisition, the property was 100% leased and had an average remaining lease term of 6.3 years. Acquisitions completed subsequent to year-end Effective February 8, 2011, the Trust completed the acquisition of Realex. Realex owned interests in 24 ofﬁce and industrial assets in Ontario and Alberta, consisting of approximately 1.8 million square feet. The Trust acquired all 18,712,663 outstanding common shares of Realex for $8.25 per common share, for approximately $154.4 million, and assumed mortgages of approximately $210.0 million. Effective January 17, 2011, the Trust completed the acquisition of an ofﬁce building in Ottawa, Ontario, consisting of approximately 175,000 square feet. The purchase price of the property, excluding transaction costs, was approximately $38.3 million. Effective January 4, 2011, the Trust completed the acquisition of an ofﬁce building in Saskatoon, Saskatchewan, consisting of approximately 210,000 square feet. The purchase price of the property, excluding transaction costs, was approximately $50 million. Building improvements During 2010, we incurred $8.4 million of expenditures related to improvements to our properties of which $7.7 million related to expenditures that will be recovered from tenants. The table below represents amounts paid and accrued during the year. Building improvements: Recurring recoverable Recurring non-recoverable Non-recurring For the three months ended December 31 For the years ended December 31 2010 2009 2010 2009 $ 1,892 — 202 $ 1,774 — 219 $ 7,653 175 569 $ 5,102 32 276 Total $ 2,094 $ 1,993 $ 8,397 $ 5,410 Building improvements represent investments made in our rental properties to ensure our buildings are operating at an optimal level. Recurring recoverable expenditures of $7.7 million and $1.9 million for the year and quarter, respectively, included elevator modernization, rooﬁng upgrades, lighting, and ﬁre panel upgrades. Non-recurring building improvements represent expenditures for major capital additions that generally would not be expected to recur over the useful life of the building. Development During 2010, we incurred $6.7 million of expenditures related to buildings being developed, of which $6.3 million for the year and $3.6 million for the quarter relate to the construction of an ofﬁce building in Yellowknife. 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 (excluding ﬁnancing costs) and will be funded by cash on hand and our line of credit. 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 PAGE 31 DUNDEE REIT 2010 Annual Report extending loan terms as long as possible when interest rates are favourable. In the fourth quarter, we placed $121.8 million of new mortgage ﬁnancing at a weighted average interest rate of 4.27% and an average term to maturity of eight years and assumed an additional $77.2 million at a weighted average interest rate of 4.96% and an average term to maturity of four years. During 2010, we placed $309.6 million of new mortgage ﬁnancing at a weighted average interest rate of 4.63% and an average term to maturity of seven years and assumed an additional $156.8 million of mortgage debt at a weighted average rate of 5.17% and an average term to maturity of six years on acquisition of nine properties. We also made scheduled payments of $6.2 million and a lump sum payment of $2.7 million related to mortgage debt for the fourth quarter, and scheduled repayments of $21.5 million and a lump sum repayment of $5.2 million for the year. 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 Distributions paid on Units Units issued, net of costs Cash generated from (utilized in) For the three months ended December 31 For the years ended December 31 2010 2009 2010 2009 $ $ 120,541 (6,154) (2,657) (26) (22,613) 110,252 (255) (3,937) (5,958) (30) (12,797) 37 $ 306,977 (21,496) (5,224) (103) (73,806) 566,674 $ 35,993 (15,498) (54,496) (126) (44,730) 67,280 ﬁnancing activities $ 199,343 $ (22,940) $ 773,022 $ (11,577) Debt The key performance indicators in the management of our debt are: December 31 2010 2009 Financing activities Average interest rate Level of debt (debt-to-gross book value) Interest coverage ratio(1) Debt-to-EBITDA (years)(2) Proportion of total debt due in current year Debt — average term to maturity (years) Variable rate debt as percentage of total debt 5.43% 51.9% 2.8 times 7.48 8.4% 4.8 2.2% 5.75% 59.3% 2.3 times 9.43 3.4% 4.9 3.7% (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. (2) Debt-to-EBITDA is calculated as total debt divided by annualized EBITDA for the current quarter. EBITDA is calculated as net income less non-cash items included in revenue plus interest expense, depreciation, amortization and a provision for income taxes. We currently use cash ﬂow performance and debt level indicators 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 2.8 times for the year and 2.9 times for the quarter, and reﬂects our ability to cover interest expense requirements. We also monitor our debt-to-EBITDA ratio to gauge our ability to pay off existing debt. Our current debt-to-EBITDA ratio is 7.48 years and reﬂects the approximate amount of time to pay off all debt. Our average interest rate as at December 31, 2010, was 5.43%, down slightly from the start of the year, mainly reﬂecting the impact of new and assumed mortgage ﬁnancing completed at a weighted average rate of 4.81% and 4.54% for the year and the quarter, respectively. After accounting for market adjustments and ﬁnancing costs, the weighted average effective interest rate is 4.79% and 4.35% for the year and the quarter, respectively. PAGE 32 DUNDEE REIT 2010 Annual Report Variable rate debt as a percentage of total debt decreased to 2.2% as a result of ﬁxed term mortgage ﬁnancing placed and assumed in the year. December 31 Mortgages Term debt 6.5% Debentures 5.7% Debentures 6.0% Debentures Total Percentage Fixed Variable 2010 Total Fixed Variable 2009 Total $ 1,136,906 $ 28,737 — — — — 341 3,192 7,752 119,923 $ 1,165,643 $ 695,608 219 3,293 7,743 118,904 341 3,192 7,752 119,923 $ 31,293 — — — — $ 726,901 219 3,293 7,743 118,904 $ 1,268,114 $ 28,737 $ 1,296,851 $ 825,767 $ 31,293 $ 857,060 97.8% 2.2% 100.0% 96.3% 3.7% 100.0% Mortgages payable include $3.6 million of fair value adjustments on mortgages assumed in connection with acquisitions (December 31, 2009 — $2.7 million). Amounts recorded as at December 31, 2010, for the 6.5%, 5.7% and 6.0% Debentures are net of $1.4 million of premiums allocated to their conversion features (December 31, 2009 — $1.7 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 New and assumed mortgage ﬁnancing: New mortgages placed New mortgages assumed on rental property acquisitions Overall New mortgages placed New mortgages assumed on rental property acquisitions Overall For the three months ended December 31, 2010 Average term to maturity (years) Weighted average interest rate (%) Weighted average effective rate (%) (1) $ 121,800 7.92 77,236 $ 199,036 4.42 6.56 4.27 4.96 4.54 4.46 4.18 4.35 For the year ended December 31, 2010 Average term to maturity (years) Weighted average interest rate (%) Weighted average effective rate (%) (1) $ 309,562 7.24 156,836 $ 466,398 5.54 6.67 4.63 5.17 4.81 4.79 4.79 4.79 (1) After accounting for the impact of ﬁnancing costs and marked-to-market of mortgages assumed. A demand revolving credit facility is available up to a formula-based maximum not to exceed $40.0 million, generally bearing interest at the bank prime rate (3.0% as at December 31, 2010) plus 1.5%, or bankers’ acceptance rates, plus 3.0%. As at December 31, 2010, the formula-based amount available is $36.1 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, $1.5 million of the facility is being utilized in the form of letters of guarantee. At December 31, 2010, we had $117.3 million in cash (all of which was used subsequent to quarter-end to acquire approximately 385,000 square feet of space in Saskatoon and Ottawa and an additional 1.8 million square feet for Realex, as discussed on page 8), a revolving credit facility and 15 unencumbered properties, which may be leveraged to provide additional ﬁnancing. PAGE 33 DUNDEE REIT 2010 Annual Report Changes in debt levels are as follows: Debt as at September 30, 2010 New debt assumed on rental property acquisitions New debt placed Scheduled repayments Lump sum repayments Conversion to unit equity Amortization and other adjustments For the three months ended December 31, 2010 Mortgages Term debt Convertible debentures Total $ 974,723 $ 367 $ 130,662 $ 1,105,752 77,236 121,800 (6,154) (2,657) — 695 — — (26) — — — 341 — — — — (99) 304 77,236 121,800 (6,180) (2,657) (99) 999 $ 130,867 $ 1,296,851 For the year ended December 31, 2010 Convertible debentures Total Debt as at December 31, 2010 $ 1,165,643 $ Mortgages Term debt Debt as at December 31, 2009 New debt assumed on rental property acquisitions New debt placed Scheduled repayments Lump sum repayment Conversion to unit equity Amortization and other adjustments $ 726,901 $ 219 $ 129,940 $ 857,060 156,836 309,562 (21,496) (5,224) — (936) — 225 (103) — — — — — — — (174) 1,101 156,836 309,787 (21,599) (5,224) (174) 165 Debt as at December 31, 2010 $ 1,165,643 $ 341 $ 130,867 $ 1,296,851 Scheduled principal repayments on non-matured debt $ 29,521 27,907 24,890 23,446 20,030 36,039 Debt maturities $ 79,692 116,087 99,914 191,398 205,882 448,028 $ Amount 109,213 143,994 124,804 214,844 225,912 484,067 % 8.3 11.1 9.6 16.5 17.3 37.2 2011 2012 2013 2014 2015 2016 and thereafter Total $ 1,141,001 $ 161,833 1,302,834 100.0 Fair value adjustments Transaction costs Total 2,216 (8,199) $ 1,296,851 Weighted average interest rate on balance due at Weighted average face rate on balance due maturity (%) at maturity (%) 5.78 5.31 5.10 6.72 4.82 5.31 6.42 5.46 5.48 5.96 4.75 5.28 5.41 PAGE 34 DUNDEE REIT 2010 Annual Report Convertible debentures With respect to the 6.0% Debentures, the total principal outstanding at January 31, 2011, was $125 million and is convertible into approximately 3,018,478 REIT A Units. For the 5.7% Debentures, the total principal outstanding at January 31, 2011, was $7.8 million and is convertible into approximately 260,200 REIT A Units. For the 6.5% Debentures, the total principal outstanding was $3.3 million and is convertible into approximately 133,040 REIT A Units. Financing commitments As of December 31, 2010, we had entered into agreements for new mortgage ﬁnancing totalling approximately $4.85 million, which closed January 14, 2011. Currently we have another $90.7 million under negotiation. 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, 2009 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 Conversion of debentures 21,247,397 278,950 15,739 19,463 24,328,250 6,404 Total units outstanding on December 31, 2010 45,896,203 Percentage of all units 92.9% Units issued pursuant to DRIP on January 15, 2011 Units issued pursuant to Unit Purchase Plan Conversion of debentures Units issued pursuant to public offering 34,960 985 920 4,749,500 16,316 — — — — — 16,316 0.1% — — — — 3,454,188 27,545 — 24,717,901 306,495 15,739 — — — 19,463 24,328,250 6,404 3,481,733 49,394,252 7.0% 2,024 — — — 100.0% 36,984 985 920 4,749,500 Total units outstanding on February 4, 2011 50,682,568 16,316 3,483,757 54,182,641 Percentage of all units 93.5% 0.1% 6.4% 100% Public offering of units On December 21, 2010, the Trust completed a public offering of 3,864,000 REIT A Units at a price of $29.85 per unit, for gross proceeds of $115.3 million. Costs related to the offering totalled $5.2 million and were charged directly to unitholders’ equity. On September 2, 2010, the Trust completed a public offering of 5,669,500 REIT A Units at a price of $25.40 per unit, for gross proceeds of $144.0 million. Costs related to the offering totalled $6.3 million and were charged directly to unitholders’ equity. On June 2, 2010, the Trust completed a public offering of 4,100,000 REIT A Units at a price of $24.40 per unit, for gross proceeds of $100.0 million. On June 17, 2010, the Trust issued an additional 615,000 REIT A Units, pursuant to the exercise of the over-allotment option granted to the underwriter for gross proceeds of approximately $15.0 million. Costs related to the offering totalled $5.2 million and were charged directly to unitholders’ equity. On March 16, 2010, the Trust completed a public offering of 3,965,000 REIT A Units at a price of $25.25 per unit, for gross proceeds of $100.0 million. On March 26, 2010, the Trust issued an additional 594,750 REIT A Units, pursuant to the exercise of the over-allotment option granted to the underwriter for gross proceeds of approximately $15.0 million. Costs related to the offering totalled $5.2 million and were charged directly to unitholders’ equity. PAGE 35 DUNDEE REIT 2010 Annual Report 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 $103.5 million. Costs related to the offering totalled $4.7 million and were charged directly to unitholders’ equity. Public offering completed subsequent to year-end On February 4, 2011, the Trust completed a public offering of 4,749,500 units at a price of $30.30 per unit, for gross proceeds of $143.9 million. Costs related to the offering totalled $5.8 million and were charged directly to unitholders’ equity. Normal course issuer bid The Trust renewed its normal course issuer bid, which commenced on November 3, 2010, and will remain in effect until the earlier of November 2, 2011, 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 4,010,675 REIT A Units (representing 10% of the REIT’s public ﬂoat of 40,106,751 REIT A Units at the time of renewal through the facilities of the TSX). As of December 31, 2010, no purchases had been made. Based on the closing price of REIT A Units on December 31, 2010, the Trust may purchase up to $121.1 million worth of REIT A Units. For the year ended December 31, 2009, the Trust did not purchase any REIT A Units pursuant to its previous bid, which expired on September 25, 2010. 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 2010 2009 2010 2009 $ 81,162 537 81,699 $ 50,156 409 $ 279,352 1,577 $ 192,083 1,676 50,565 280,929 193,759 32,678 16,271 11,342 12,632 2,625 75,548 6,151 3 — 3 6,148 (426) 19,365 12,190 7,025 5,665 1,608 45,853 4,712 2 (2,232) (2,230) 6,942 (336) 106,954 59,732 40,656 39,685 9,317 256,344 24,585 13 — 13 24,572 2,418 71,129 49,736 27,512 22,231 6,706 177,314 16,445 12 (1,768) (1,756) 18,201 (4,781) Net income $ 5,722 $ 6,606 $ 26,990 $ 13,420 PAGE 36 DUNDEE REIT 2010 Annual Report 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 2009 and throughout 2010 and comparative property growth were the primary drivers of the $31.0 million, or 62%, increase in rental property revenue over the comparative quarter and $87.3 million, or 45%, for the year. 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 earned on bank accounts and related fees. These revenues are not necessarily of a recurring nature and the amounts will vary from quarter to quarter and year-over-year. The $0.1 million decrease over the prior year is mainly a result of investing underdeployed cash at lower rates in the ﬁrst two quarters of 2010. The $0.1 million increase over the comparative quarter is mainly a result of interest earned on cash balances that were used to acquire properties early in the ﬁrst quarter of 2011. 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, realty taxes, and repairs and maintenance. Expenses increased $13.3 million, or 69%, for the quarter and $35.8 million, or 50%, for the year, reﬂecting the additional costs associated with properties acquired and higher recoverable operating costs. Interest expense Interest expense increased $4.1 million, or 33%, for the quarter, and $10.0 million, or 20%, for the year, mainly reﬂecting the additional mortgage debt related to acquired properties as well as new ﬁnancing entered into over 2010. The interest coverage ratio, which reﬂects our ability to cover our interest expense requirements, remains strong at 2.8 times. Depreciation of rental properties Acquisitions completed in 2009 and 2010 resulted in a $4.3 million, or 61%, increase in depreciation over the comparative quarter, and $13.1 million, or 48%, over the prior year. Amortization of leasing costs, tenant improvements and intangibles Amortization increased $7.0 million, or 123%, over the comparative quarter, and $17.5 million, or 79%, over the prior year, largely due to acquisitions. 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 $2.6 million, an increase of $1.0 million, or 63%, over the comparative quarter, mostly due an increase in asset management fees as a result of acquisitions and $0.2 million of non-cash deferred unit incentive plan expenses. Expenses for the year were $9.3 million, an increase of $2.6 million, or 39%, over the prior year, mostly due to an increase in asset management fees as a result of acquisitions. PAGE 37 DUNDEE REIT 2010 Annual Report 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. 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. 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 quarter, we received $0.5 million related to the DRC Services Agreement. Other costs recovered from DRC include $1.3 million for operating and administrative costs of regional ofﬁces. We paid $3.9 million related to the Asset Management Agreement. During the year, we received $2.1 million related to the DRC Services Agreement. Other costs recovered from DRC include $4.2 million for operating and administrative costs of regional ofﬁces. We paid $12.5 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. Below is our reconciliation of NOI to net income. Net income Add (deduct): 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 on disposal of rental properties and future income taxes, included in discontinued operations For the three months ended December 31 For the years ended December 31 2010 2009 2010 2009 $ 5,722 $ 6,606 $ 26,990 $ 13,420 16,271 11,342 12,632 2,625 (537) 3 12,190 7,025 5,665 1,608 (409) (2,230) 59,732 40,656 39,685 9,317 (1,577) 13 49,736 27,512 22,231 6,706 (1,676) (1,756) 499 402 (2,296) 7,043 NOI including discontinued operations $ 48,557 $ 30,857 $ 172,520 $ 123,216 PAGE 38 DUNDEE REIT 2010 Annual Report We deﬁne NOI as the total of rental property revenues, including property management income, less rental property operating expenses. NOI, before discontinued operations, increased 57% for the quarter and 43% for the year over the comparative periods. The increase is mainly attributable to income generated by properties acquired in 2009 and 2010 along with modest comparable property growth and a lease termination fee of $1.5 million received in the fourth quarter of 2010. The quarterly impact of the terminated lease is a decrease in NOI of $0.2 million. The space is expected to be leased by the third quarter of 2011. For the three months ended December 31 For the years ended December 31 Growth Growth 2010 2009 Amount % 2010 2009 Amount % Ofﬁce Industrial $ 43,065 5,419 $ 27,854 $ 2,937 15,211 2,482 NOI Discontinued operations 48,484 73 30,791 66 17,693 7 55 85 57 $ 156,676 $ 109,823 $ 46,853 4,591 15,722 11,131 172,398 122 120,954 2,262 51,444 (2,140) 43 41 43 NOI including discontinued operations $ 48,557 $ 30,857 $ 17,700 57 $ 172,520 $ 123,216 $ 49,304 40 For the three months ended December 31 For the years ended December 31 Growth Growth 2010 2009 Amount % 2010 2009 Amount % British Columbia Alberta Saskatchewan & NWT Eastern Canada $ 2,724 $ 2,493 19,584 4,394 4,320 20,470 4,674 20,616 $ NOI Discontinued operations 48,484 73 30,791 66 231 886 280 16,296 17,693 7 9 5 6 377 57 $ 10,413 81,063 18,345 62,577 $ 10,010 $ 78,461 17,227 15,256 403 2,602 1,118 47,321 172,398 122 120,954 2,262 51,444 (2,140) 4 3 6 310 43 NOI including discontinued operations $ 48,557 $ 30,857 $ 17,700 57 $ 172,520 $ 123,216 $ 49,304 40 NOI BY REGION (FOR THE THREE MONTHS ENDED DECEMBER 31, 2010) Eastern Canada — Office 38% • British Columbia 5% • Eastern Canada — Industrial 5% • Alberta — Industrial 6% • Saskatchewan & NWT 10% • Alberta — Office 36% • PAGE 39 % 1 8 2 DUNDEE REIT 2010 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, 2009. 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. Additionally, it excludes lease termination fees. For the three months ended December 31 For the years ended December 31 Growth Growth Ofﬁce Industrial $ 24,569 3,098 $ 24,518 2,906 $ 51 192 — $ 98,717 11,926 7 $ 97,791 11,007 $ 926 919 2010 2009 Amount % 2010 2009 Amount Comparative properties Lease termination fees Acquisitions GAAP adjustments NOI Discontinued operations 27,667 1,519 16,445 2,853 48,484 73 27,424 46 753 2,568 30,791 66 243 1,473 15,692 285 17,693 7 1 57 110,643 1,689 45,986 14,080 172,398 122 108,798 223 911 11,022 120,954 2,262 1,845 1,466 45,075 3,058 51,444 (2,140) 43 NOI including discontinued operations $ 48,557 $ 30,857 $ 17,700 57 $ 172,520 $ 123,216 $ 49,304 40 For the three months ended December 31 For the years ended December 31 Growth Growth 2010 2009 Amount % 2010 2009 Amount % British Columbia Alberta Saskatchewan & NWT Eastern Canada $ 2,514 $ 17,229 4,319 3,605 2,418 17,394 4,306 3,306 $ 96 (165) 13 299 4 $ 9,923 69,129 (1) 17,283 — 14,308 9 $ 9,512 69,086 16,866 13,334 $ Comparative properties Lease termination fees Acquisitions GAAP adjustments NOI Discontinued operations 27,667 1,519 16,445 2,853 48,484 73 27,424 46 753 2,568 30,791 66 243 1,473 15,692 285 17,693 7 1 57 110,643 1,689 45,986 14,080 172,398 122 108,798 223 911 11,022 120,954 2,262 4 0 2 7 2 411 43 417 974 1,845 1,466 45,075 3,058 51,444 (2,140) 43 NOI including discontinued operations $ 48,557 $ 30,857 $ 17,700 57 $ 172,520 $ 123,216 $ 49,304 40 Overall, NOI from comparative properties increased by 1% to $27.7 million in the fourth quarter and by 2% to $110.6 million for the year. Industrial comparative properties grew by 7% and 8% for the quarter and the year, respectively, primarily as a result of increased occupancy. Comparative ofﬁce NOI remained consistent with the prior year comparative periods. Properties acquired in 2009 and 2010 contributed $15.7 million to NOI growth in the quarter and $45.1 million in the year. In the quarter, a lease was terminated at State Street Financial Centre in downtown Toronto, resulting in lease termination fees of $1.5 million being recognized. PAGE 40 DUNDEE REIT 2010 Annual Report Comparative ofﬁce portfolio For the three months ended December 31 For the years ended December 31 Growth Growth 2010 2009 Amount % 2010 2009 Amount British Columbia Alberta Saskatchewan & NWT Eastern Canada $ 2,514 $ 14,131 4,319 3,605 Comparative properties Lease termination fees Acquisitions GAAP adjustments 24,569 1,514 14,251 2,731 2,418 14,488 4,306 3,306 24,518 46 753 2,537 $ 96 (357) 13 299 4 $ 9,923 57,203 (2) 17,283 — 14,308 9 $ 9,512 58,079 16,866 13,334 $ — 51 1,468 13,498 194 98,717 1,683 42,549 13,727 97,791 223 911 10,898 411 (876) 417 974 926 1,460 41,638 2,829 % 4 (2) 2 7 1 Ofﬁce NOI $ 43,065 $ 27,854 $ 15,211 55 $ 156,676 $ 109,823 $ 46,853 43 NOI from our comparative ofﬁce portfolio was $24.6 million for the quarter and $98.7 million for the year, an increase of $0.1 million and $0.9 million over the comparative periods. While we continue to experience occupancy declines in our Calgary region, this has been mitigated by an upside experience in our British Columbia and Eastern Canada ofﬁce markets. In Eastern Canada (comparative properties consist of three buildings in downtown Toronto) NOI increased $0.3 million for the quarter and $1.0 million for the year, or 9% and 7%, respectively. This was a result of increases in average in-place rents. British Columbia continues to provide comparable property growth because of increases in average in-place rents at a building in Vancouver for the quarter. Year-over-year, we had a 40 basis point increase in occupancy and increases in in-place rents in British Columbia. Comparative industrial portfolio For the three months ended December 31 For the years ended December 31 2010 2009 Amount Alberta $ 3,098 $ 2,906 $ 192 Comparative properties Lease termination fees Acquisitions GAAP adjustments 3,098 5 2,194 122 2,906 — — 31 192 5 2,194 91 Growth % 7 7 Growth % 8 8 2010 2009 Amount $ 11,926 $ 11,007 $ 919 11,926 6 3,437 353 11,007 — — 124 919 6 3,437 229 Industrial NOI $ 5,419 $ 2,937 $ 2,482 85 $ 15,722 $ 11,131 $ 4,591 41 We experienced growth in our industrial portfolio in both the three- and 12-month comparative prior year periods, contributing $0.2 million and $0.9 million, respectively, to the overall comparative property growth. This is primarily a result of increased occupancy in our Calgary properties. PAGE 41 DUNDEE REIT 2010 Annual Report NOI prior quarter comparison The comparative properties disclosed in the following tables are properties acquired prior to July 1, 2010. Comparative property NOI increased by $0.6 million, or 1%, over the third quarter of 2010. For the three months ended Growth Ofﬁce Industrial Comparative properties Lease termination fees Acquisitions GAAP adjustments NOI Discontinued operations December 31, September 30, 2010 2010 Amount $ 36,691 3,325 $ 36,264 $ 3,162 427 163 40,016 1,519 4,096 2,853 48,484 73 39,426 8 1,171 4,185 44,790 — 590 1,511 2,925 (1,332) 3,694 73 NOI including discontinued operations $ 48,557 $ 44,790 $ 3,767 % 1 5 1 8 8 For the three months ended Growth December 31, September 30, 2010 2010 Amount % British Columbia Alberta Saskatchewan & NWT Eastern Canada Comparative properties Lease termination fees Acquisitions GAAP adjustments NOI Discontinued operations $ $ 2,514 $ 2,497 18,347 4,618 13,964 19,005 4,601 13,896 40,016 1,519 4,096 2,853 48,484 73 39,426 8 1,171 4,185 44,790 — 17 658 (17) (68) 590 1,511 2,925 (1,332) 3,694 73 NOI including discontinued operations $ 48,557 $ 44,790 $ 3,767 1 4 — — 1 8 8 NOI from the ofﬁce portfolio grew by $0.4 million, or 1%, over the prior quarter primarily from an increase in comparative property NOI due to the expiration of free rent periods of tenants in certain Edmonton and Toronto properties of $0.6 million. Offsetting this the Trust incurred $0.3 million of non-recoverable expenses in the quarter. The industrial portfolio also experienced growth during this period of $0.2 million, or 5%, resulting from a decrease in non-recoverable expenses over the prior quarter. PAGE 42 DUNDEE REIT 2010 Annual Report SELECTED ANNUAL INFORMATION The following table provides selected ﬁnancial information for the past three years: December 31 2010 2009 2008 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 $ 280,929 24,572 26,990 2,316,824 1,296,851 86,048 $ 0.64 0.70 0.64 0.70 $ 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 PAGE 43 DUNDEE REIT 2010 Annual Report QUARTERLY INFORMATION The following tables show quarterly information since January 1, 2009. Q4 2010 Q3 2010 Q2 2010 Q1 2010 Q4 2009 Q3 2009 Q2 2009 Q1 2009 Revenues Rental properties revenue $ 81,162 $ 72,806 $ 64,374 $ 61,010 $ 50,156 $ 47,398 $ 46,387 $ 48,142 477 415 Interest and fee income 409 299 268 537 357 491 Expenses Rental properties operating expenses Interest Depreciation of rental properties Amortization of leasing costs, tenant improvements 81,699 73,163 64,789 61,278 50,565 47,697 46,878 48,619 32,678 16,271 28,016 15,234 22,875 14,509 23,385 13,718 19,365 12,190 17,551 12,487 16,219 12,552 17,994 12,507 11,342 11,147 9,632 8,535 7,025 6,935 6,767 6,785 and intangibles General and administrative 12,632 2,625 9,786 2,326 8,464 2,301 8,803 2,065 5,665 1,608 5,338 1,667 5,608 1,710 5,620 1,721 75,548 66,509 57,781 56,506 45,853 43,978 42,856 44,627 Income before income and large corporations taxes 6,151 6,654 7,008 4,772 4,712 3,719 4,022 3,992 Income taxes (recovery) Current income and large corporations taxes Future income taxes Income tax expense (recovery) Income before 3 — 3 3 — 3 3 — 3 4 — 4 2 (2,232) (2,230) 4 87 91 — 137 137 6 240 246 discontinued operations Discontinued operations 6,148 (426) 6,651 7,005 3 (2) 4,768 2,843 6,942 (336) 3,628 4,099 3,885 (8,657) 3,746 113 Net income (loss) $ 5,722 $ 6,654 $ 7,003 $ 7,611 $ 6,606 $ 7,727 $ (4,772) $ 3,859 Net income (loss) per unit Basic Diluted(1) $ $ 0.12 $ 0.12 $ 0.16 $ 0.16 $ 0.19 $ 0.19 $ 0.25 $ 0.25 $ 0.26 $ 0.26 $ 0.35 $ 0.35 $ (0.23) $ (0.23) $ 0.18 0.18 (1) Excludes impact of 6.5%, 5.7% and 6.0% Debentures, which are currently not dilutive to net income. PAGE 44 DUNDEE REIT 2010 Annual Report Calculation of funds from operations and distributable income Q4 2010 Q3 2010 Q2 2010 Q1 2010 Q4 2009 Q3 2009 Q2 2009 Q1 2009 $ 5,722 $ 6,654 $ 7,003 $ 7,611 $ 6,606 $ 7,727 $ (4,772) $ 3,859 11,342 11,147 9,632 8,535 7,075 7,021 7,095 7,092 Net income (loss) Add (deduct): Depreciation of rental properties Amortization of leasing costs, tenant improvements and intangibles Future income taxes Amortization of costs not speciﬁc to real estate operations incurred subsequent to June 30, 2003 Gain on disposal of rental 12,632 — 9,786 — 8,464 — 8,803 — 5,683 (2,623) 5,377 87 5,779 (1,493) 5,744 290 (54) (52) (54) (44) (40) (35) (35) (61) properties and land held for sale 499 Leasing costs and intangibles expensed on lease termination 240 (3) — 9 — (2,801) 662 (3,967) 10,564 — — — — — — Funds from operations $ 30,381 $ 27,532 $ 25,054 $ 22,104 $ 17,363 $ 16,209 $ 17,138 $ 16,924 Funds from operations per unit Basic(1) Diluted $ $ 0.66 0.66 $ $ 0.66 0.66 $ $ 0.69 0.69 $ $ 0.72 0.71 Funds from operations $ 30,381 $ 27,532 $ 25,054 $ 22,104 $ $ $ 0.70 0.69 17,363 $ $ $ 0.74 0.73 16,209 $ $ $ 0.82 0.80 17,138 $ $ $ 0.81 0.79 16,924 Add (deduct): Amortization of marked-to-market adjustment on acquired debt $ Amortization of deferred (175) $ (215) $ (168) $ (206) $ (182) $ (198) $ (196) $ (222) ﬁnancing costs incurred prior to June 30, 2003 410 Deferred compensation expense 582 Straight-line rent (857) 607 Amortization of above-market rent Amortization of below-market rent (2,942) Amortization of tenant inducements 98 Amortization of deferred ﬁnancing 370 351 (1,564) 468 (3,155) 66 364 394 (1,178) 239 (2,728) 55 337 220 (172) 267 (3,576) 49 327 221 (411) 126 (2,426) 57 301 220 (241) 97 (2,684) 59 326 221 (187) 99 (2,715) 58 305 197 (213) 99 (2,876) 81 amortization costs incurred subsequent to June 30, 2003 Amortization of non-recoverable costs incurred subsequent to June 30, 2003 Vendor head lease income and revenue supplement (391) (349) (344) (309) (315) (291) (305) (282) (10) 171 (11) 677 (12) 787 (9) 95 (13) — (11) — (12) — (9) — Distributable income $ 27,874 $ 24,170 $ 22,463 $ 18,800 $ 14,747 $ 13,461 $ 14,427 $ 14,004 Distributable income per unit Basic(1) Diluted $ $ 0.61 0.61 $ $ 0.58 0.59 $ $ 0.62 0.62 Distributable income $ 27,874 $ 24,170 $ 22,463 $ $ $ 0.61 0.62 18,800 $ $ $ 0.59 0.60 14,747 $ $ $ 0.62 0.62 13,461 $ $ $ 0.69 0.68 14,427 $ $ $ 0.67 0.67 14,004 Adjusted for: Normalized leasing cost and tenant improvements 2,554 2,505 2,287 2,089 Normalized non-recoverable recurring capital expenditures 75 75 75 75 1,514 200 1,514 200 1,514 200 1,514 200 Adjusted funds from operations $ 25,245 $ 21,590 $ 20,101 $ 16,636 $ 13,033 $ 11,747 $ 12,713 $ 12,290 AFFO per unit Basic(1) Weighted average units outstanding for FFO and DI $ 0.55 $ 0.52 $ 0.55 $ 0.54 $ 0.52 $ 0.54 $ 0.61 $ 0.59 Basic Diluted 46,054,582 49,596,634 41,627,961 45,106,887 36,418,168 39,871,032 30,713,775 34,175,445 24,967,255 28,417,078 21,883,358 25,312,351 21,018,003 24,456,839 20,956,343 24,392,013 (1) The LP Class B Units, Series 1, are included in the calculation of basic FFO per unit and basic DI per unit. PAGE 45 DUNDEE REIT 2010 Annual Report SECTION III — DISCLOSURE CONTROLS AND PROCEDURES For the December 31, 2010, 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 GAAP. Using the framework established in “Risk Management and Governance: Guidance on Control (COCO Framework)”, published by 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, 2010. There were no changes in the internal controls over ﬁnancial reporting during the ﬁnancial year-end December 31, 2010, which have materially affected, or are reasonably likely to materially affect, the REIT’s internal controls over ﬁnancial reporting. PAGE 46 DUNDEE REIT 2010 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 could not 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. 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. 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 compared to us. The existence of competing managers and owners could have a material adverse effect on our ability to lease space in our properties and on the rents we are able to charge, and could adversely affect our revenues and our ability to meet our obligations. We strive to deliver a level of service that meets or exceeds tenant expectations. We believe that providing a consistent, high level of service puts us in a better position to re-lease space to existing tenants and helps to attract new tenants to lease vacant space quickly and cost-effectively. PAGE 47 DUNDEE REIT 2010 Annual Report ENVIRONMENTAL RISK As an owner of real property, we are subject to various federal, provincial, state and municipal laws relating to environmental matters. Such laws provide a range of potential liability, including potentially signiﬁcant penalties, and potential liability for the costs of removal or remediation of certain hazardous substances. The presence of such substances, if any, could adversely affect our ability to sell or redevelop such real estate or to borrow using such real estate as collateral and, potentially, could also result in civil claims against us. In order to obtain ﬁnancing for the purchase of a new property through traditional channels, we may be requested to arrange for an environmental audit to be conducted. Although such an audit provides us and our lenders with some assurance, we may become subject to liability for undetected pollution or other environmental hazards on our properties against which we cannot insure, or against which we may elect not to insure where premium costs are disproportionate to our perception of relative risk. We have formal policies and procedures to review and monitor environmental exposure. These policies include the requirement to obtain a Phase I Environmental Site Assessment, conducted by an independent and qualiﬁed environmental consultant, before acquiring any real property or any interest therein. FINANCING RISK Upon the expiry of the term of the ﬁnancing 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. 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. PAGE 48 DUNDEE REIT 2010 Annual Report JOINT VENTURE, PARTNERSHIP AND CO-OWNERSHIP AGREEMENTS We are a participant in joint ventures and partnerships with third parties in respect of three 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 49 DUNDEE REIT 2010 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 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. CHANGES IN ACCOUNTING POLICIES 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 prospectively applies 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 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. Dundee REIT will not be adopting these policies prior to January 1, 2011. PAGE 50 DUNDEE REIT 2010 Annual Report International Financial Reporting Standards International Financial Reporting Standards (“IFRS”) will become mandatory for Canadian public companies for ﬁnancial periods beginning on or after January 1, 2011. The Trust will report under IFRS, commencing with its interim ﬁnancial statements for the three months ending March 31, 2011. These ﬁnancial statements will also include comparative results for the three months ended March 31, 2010. IFRS conversion plan The Trust has followed a three-phase IFRS conversion plan that addresses changes in accounting policies, the restatement of comparative periods, various education and training sessions on the adoption of IFRS as well as required changes to business processes and internal controls. The transition process consists 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 for their relevance and formulating key IFRS conversion issues to be resolved in the second phase of the project. We have provided IFRS education to key employees responsible for ﬁnancial reporting. The impact analysis, evaluation and design phase of the project was completed in August 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. Phase three activities are substantially complete. New controls are being put into place to address certain unique IFRS accounting and disclosure requirements; however, the Trust does not anticipate comprehensive changes to its current accounting and consolidation systems, its internal controls, or its disclosure control process as a result of the conversion to IFRS, except for new processes around the valuation of rental properties. Impact of adoption of IFRS The International Financial Reporting Standards are premised on a conceptual framework similar to GAAP, although signiﬁcant differences exist in certain matters of recognition, measurement and disclosure. While the adoption of IFRS will not have an impact on the Trust’s reported net cash ﬂows, it will have a material impact on its consolidated balance sheets and statement of comprehensive income; the Trust is continuing to evaluate the impact of IFRS to the presentation and classiﬁcation in its consolidated statements of cash ﬂow. In particular, the Trust’s opening consolidated balance sheet will reﬂect the revaluation of all investment properties to fair value. In addition, the Trust’s intangible assets and liabilities will no longer be separately recognized. Also, the Trust’s joint venture properties, which are currently proportionately consolidated, will be recorded as investments, accounted for using the equity method. Finally, the LP B Units, deferred trust units and the conversion feature attributed to the convertible debentures will be presented as liabilities because of the redemption feature of REIT Units. The Trust currently expects that the impact of all these differences on its January 1, 2010 opening balance sheet under IFRS compared to its December 31, 2009 balance sheet under GAAP will result in an increase in unitholders’ equity from $399 million to approximately $502 million. IFRS 1: First-Time Adoption of IFRS The Trust’s adoption of IFRS will require the application of IFRS 1, “First-time Adoption of International Financial Reporting Standards” (“IFRS 1”), which provides guidance for an entity’s initial adoption of IFRS. IFRS 1 generally requires that an entity applies all IFRS effective at the end of its ﬁrst IFRS reporting period, retrospectively. However, IFRS 1 does require certain mandatory exceptions, and permits limited optional exemptions. The following is the optional exemption available under IFRS 1, which is signiﬁcant to the Trust and which the Trust expects to apply in preparation of its ﬁrst ﬁnancial statements under IFRS: PAGE 51 DUNDEE REIT 2010 Annual Report Foreign currency translation adjustments International Accounting Standards (“IAS”) 21, “The Effects of Changes in Foreign Exchange Rates”, requires an entity to determine the translation differences in accordance with IFRS from the date on which a subsidiary was formed or acquired. IFRS 1 allows foreign currency translation adjustments for all foreign operations to be deemed zero at the date of transition to IFRS, with future gains or losses on subsequent disposal of any foreign operations to exclude translation differences arising from periods prior to the date of transition to IFRS. The Trust will elect to deem all foreign currency translation adjustments totalling $6.6 million at January 1, 2010, to be zero on transition to IFRS. Business combinations The Trust has applied the business combinations exemption in IFRS 1 to not apply IFRS 3, “Business Combinations” retrospectively to past business combinations. The Trust has determined that property acquisitions completed to date do not meet the deﬁnition of a business combination. IFRS 1 allows for certain other optional exemptions; however, the Trust does not expect such exemptions to be signiﬁcant to its adoption of IFRS. Impact of IFRS on ﬁnancial position The following paragraphs quantify and describe the expected impact of signiﬁcant differences between the Trust’s December 31, 2009 balance sheet under GAAP and its January 1, 2010 opening balance sheet under IFRS. This discussion has been prepared using the standards and interpretations currently issued and expected to be effective at the end of the Trust’s ﬁrst annual IFRS reporting period. Certain accounting policies expected to be adopted under IFRS may not be adopted and the application of such policies to certain transactions or circumstances may be modiﬁed and, as a result, the impact of the Trust’s conversion to IFRS may be different than its current expectation. The amounts have not been audited or subject to review by the Trust’s external auditor. The underlying values presented below are prepared using the procedures and assumptions that the Trust intends to follow in preparing its opening balance sheet upon adoption of IFRS. Rental properties The Trust considers its rental properties to be investment properties under IAS 40, “Investment Property” (“IAS 40”). Investment property includes land and buildings held primarily to earn rental income or for capital appreciation, or both, rather than for use in the production or supply of goods or for sale in the ordinary course of business. Similar to GAAP, investment property is initially recorded at cost under IAS 40. However, subsequent to initial recognition, IFRS requires that an entity choose either the cost or fair value model to account for its investment property. The Trust has elected to use the fair value model when preparing its ﬁnancial statements under IFRS. As at January 1, 2010, the Trust expects the fair value of its rental property portfolio, including joint venture properties previously proportionately consolidated, to be approximately $176 million greater than their carrying value under GAAP, inclusive of corresponding intangible assets and liabilities recorded under GAAP. The offsetting adjustment is recorded directly to opening equity. However, this increase will be offset by the deconsolidation of certain of the Trust’s joint venture properties that are discussed further below (see Investments in Joint Ventures on page 53). As at January 1, 2011, the Trust expects the fair value of its rental property portfolio, including joint venture properties previously proportionately consolidated, to be approximately $412 million greater than their carrying value under GAAP, inclusive of corresponding intangible assets and liabilities recorded under GAAP. The offsetting adjustment comprises the opening valuation adjustment of $176 million, which is recorded directly to opening equity at January 1, 2010, and the balance of $236 million will be disclosed as a fair value adjustment, increasing net income for the year ended December 31, 2010. PAGE 52 DUNDEE REIT 2010 Annual Report For the valuation prepared at January 1, 2010, the Trust determined the fair value of each investment property based upon, among other things, rental income from current leases and assumptions about rental income from future leases reﬂecting market conditions at January 1, 2010, less future cash outﬂows in respect of such leases. Fair values were determined using the discounted cash ﬂow method and/or the direct capitalization method. The discounted cash ﬂow method discounts the expected future cash ﬂows, generally over a term of ten years, and using discount rates ranging between 8.0% and 10.5% and terminal capitalization rates ranging between 7.25% and 9.75%. The direct capitalization method applies a capitalization rate to stabilized NOI and incorporates allowances for vacancy and management fees. The resulting capitalized value was further adjusted for extraordinary costs to stabilize income and non-recoverable capital expenditures, where applicable. Individual properties were valued using capitalization rates in the range of 6.75% to 9.50%. The weighted average capitalization rate for our property portfolio at January 1, 2010, is 8.00%. For the valuation prepared at January 1, 2011, the Trust determined the fair value of each investment property based upon, among other things, rental income from current leases and assumptions about rental income from future leases reﬂecting market conditions at January 1, 2011, less future cash outﬂows in respect of such leases. Fair values were determined using the discounted cash ﬂow method and/or by the direct capitalization method. The discounted cash ﬂow method discounts the expected future cash ﬂows, generally over a term of ten years, and using discount rates ranging between 6.75% and 10.50% and terminal capitalization rates ranging between 6.25% and 9.75%. The direct capitalization method applies a capitalization rate to stabilized NOI and incorporates allowances for vacancy and management fees. The resulting capitalized value was further adjusted for extraordinary costs to stabilize income and non-recoverable capital expenditures, where applicable. Individual properties were valued using capitalization rates in the range of 6.00% to 9.50%. The weighted average capitalization rate for our property portfolio at January 1, 2011, is 7.25%. Investments in joint ventures The Trust expects to have investments in joint ventures at January 1, 2010, of approximately $94.8 million under IFRS, inclusive of $30.0 million of fair value adjustments and net of liabilities reclassiﬁed to investments in joint ventures. These investments relate to investments in properties held through limited partnership structures that are proportionately consolidated under GAAP that will be equity accounted under IFRS and accordingly included in the investment in joint ventures account. Intangible assets and liabilities With the adoption of IFRS, the Trust will derecognize its intangible assets and liabilities that relate to assets or obligations otherwise considered in the determination of fair value of investment properties at January 1, 2010. The Trust expects this will result in a decrease to intangible assets and liabilities of $58 million and $35 million, respectively. Debt The Trust expects the reported balances of property-speciﬁc mortgages at January 1, 2010, to decrease by approximately $100 million under IFRS compared to balances reported in accordance with GAAP. The decrease primarily relates to the deconsolidation of debt related to investments in properties that are proportionately consolidated under GAAP that will be equity accounted under IFRS. Subsidiary redeemable units The Trust will be required under IAS 32, “Financial Instruments Presentation”, to present the LP B Units as a liability measured at amortized cost upon initial adoption of IFRS. The Trust expects to have subsidiary redeemable units at January 1, 2010, of approximately $72 million under IFRS. The presentation is required because each LP B Unit is exchangeable for a REIT Unit that, except for the available exemption under IAS 32, would normally be presented as a liability because of the redemption feature attached to the REIT Units. The LP B Units are presented as a component of unitholders’ equity under GAAP. PAGE 53 DUNDEE REIT 2010 Annual Report Conversion feature of convertible debentures The Trust will be required under IAS 32, “Financial Instruments: Presentation”, to present the conversion feature of the convertible debentures as a liability measured at fair value upon initial adoption of IFRS. The Trust expects the value of the conversion liability at January 1, 2010, to be approximately $5 million under IFRS. The presentation is required because the conversion feature permits the holder to convert the debenture into a REIT A Unit that, except for the available exemption under IAS 32, would normally be presented as a liability because of the redemption feature attached to the Trust Units. The conversion features were previously included as a component of unitholders’ equity under GAAP. Deferred trust units The Trust will be required under IAS 32, “Financial Instruments: Presentation”, to present deferred trust units as a liability measured at fair value upon initial adoption of IFRS. The Trust expects the value of this liability at January 1, 2010, to be approximately $3 million under IFRS. The presentation is required because the deferred trusts units are exchangeable for a REIT A Unit that, except for the available exemption under IAS 32, would normally be presented as a liability because of the redemption feature attached to the REIT Units. The vested deferred trust units were previously included as a component of unitholders’ equity under GAAP. Assets held for sale The Trust expects assets held for sale to increase by $6.6 million as a result the Trust’s IFRS 1 election deeming foreign currency translation adjustments to be zero on transition to IFRS. The increase relates to the provision for the foreign currency translation adjustment associated with the investment in the net assets of the related property. Impact of IFRS on consolidated statements of net income and comprehensive income The following paragraphs highlight the signiﬁcant differences between GAAP and IFRS that will affect net income. This discussion has been prepared on a basis consistent with all known IFRS to GAAP differences using the accounting policies expected to be applied by the Trust on its adoption of IFRS using the standards anticipated to be in effect at December 31, 2011. Consequently, to the extent the accounting policies expected to be applied by the Trust on adoption of IFRS change, new standards are issued that are required to be adopted by the Trust, or to the extent the Trust identiﬁes additional differences as it ﬁnalizes its assessment of IFRS, the discussion below may be impacted. Fair value changes of investment property The Trust has elected to measure investment property using the fair value model under IAS 40, “Investment Property”, which requires a gain or loss arising from a change in the fair value of investment property in the period to be recognized in income. Net income during any given period may be greater or less than as determined under GAAP depending on whether an increase or decrease in fair value occurs during the period of measurement. Depreciation and amortization expense Under the fair value model, depreciation of investment properties is not recorded. Additionally, the transition to IFRS in conjunction with the use of the fair value model will result in historic intangible balances established under GAAP in respect of asset acquisitions to no longer be separately recognized, and accordingly, not amortized under IFRS. The impact of no longer amortizing historic intangible balances along with no longer recording depreciation expense on the Trust’s rental properties would result in an increase to net income. PAGE 54 DUNDEE REIT 2010 Annual Report Revenue recognition IFRS requires rental revenue to be determined on a straight-line basis considering all rentals from the inception of the lease, whereas GAAP only required rental income to be recognized on a straight-line basis prospectively, commencing January 1, 2004. The Trust expects that this difference, applied retrospectively, would be insigniﬁcant. Also, as the Trust will no longer separately account for intangible assets and liabilities relating to acquired above- and below-market tenant leases, the related amortization of these balances to rental property revenue will be eliminated under IFRS. Finally, tenant improvements will be amortized over their lease terms as a reduction of revenue; however, because tenant improvements are included in the fair value of the property, there is a corresponding offset to the fair value adjustment. Distributions on subsidiary redeemable units IFRS requires that the LP B Units be presented as a liability. Because of this requirement, distributions on the LP B Units will be presented as interest expense on subsidiary redeemable units and included in the statements of net income. Under GAAP, these distributions were included directly in unitholders’ equity. Subsidiary redeemable units The Trust will be required under IAS 39, “Financial Instruments Recognition and Measurement”, to measure the liability related to the LP B Units at amortized cost at each reporting period, which will effectively result in a gain or loss arising from a change in the fair value of the LP B Units in the period to be recognized in income. Net income during any given period may be greater or less than as determined under GAAP depending on whether an increase or decrease in fair value occurs during the period of measurement. Conversion feature of convertible debentures The Trust will be required under IAS 39, “Financial Instruments Recognition and Measurement”, to measure the liability related to the conversion feature of the convertible debentures at fair value at each reporting period, and will require a gain or loss arising from a change in the fair value of the liability in the period to be recognized in income. Net income during any given period may be greater or less than as determined under GAAP depending on whether an increase or decrease in fair value occurs during the period of measurement. Deferred trust units The Trust will be required under IAS 39, “Financial Instruments Recognition and Measurement”, to measure the liability related to the deferred trust units over their vesting period and thereafter at fair value at each reporting period and will require any gain or loss arising from a change in the fair value of the liability in the period to be recognized in income as compensation expense. Net income during any given period may be greater or less than as determined under GAAP depending on whether an increase or decrease in fair value occurs during the period of measurement. For a more detailed project plan and interim assessment of the impact on reporting, please refer to our 2009 Annual Report. Additional information relating to Dundee REIT, including the latest annual information form of Dundee REIT, is available on SEDAR at www.sedar.com. PAGE 55 DUNDEE REIT 2010 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 24, 2011 PAGE 56 DUNDEE REIT 2010 Annual Report Independent auditor’s report To the Unitholders of Dundee Real Estate Investment Trust We have audited the accompanying consolidated ﬁnancial statements of Dundee Real Estate Investment Trust (the Trust) and its subsidiaries, which comprise the consolidated balance sheets as at December 31, 2010 and December 31, 2009 and the consolidated statements of net income and comprehensive income, unitholders’ equity and cash ﬂows for the years then ended, and the related notes including a summary of signiﬁcant accounting policies. Management’s responsibility for the consolidated ﬁnancial statements Management is responsible for the preparation and fair presentation of these consolidated ﬁnancial statements in accordance with Canadian generally accepted accounting principles, and for such internal control as management determines is necessary to enable the preparation of consolidated ﬁnancial statements that are free from material misstatement, whether due to fraud or error. Auditor’s responsibility Our responsibility is to express an opinion on these consolidated ﬁnancial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated ﬁnancial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated ﬁnancial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated ﬁnancial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated ﬁnancial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated ﬁnancial statements. We believe that the audit evidence we have obtained in our audits is sufﬁcient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the consolidated ﬁnancial statements present fairly, in all material respects, the ﬁnancial position of the Trust and its subsidiaries as at December 31, 2010 and December 31, 2009 and the results of their operations and their cash ﬂows for the years then ended in accordance with Canadian generally accepted accounting principles. CHARTERED ACCOUNTANTS, LICENSED PUBLIC ACCOUNTANTS Toronto, Ontario, February 24, 2011 PAGE 57 DUNDEE REIT 2010 Annual Report Consolidated balance sheets (in thousands of dollars) December 31 Note 2010 2009 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 Intangible liabilities Liabilities related to assets held for sale Unitholders’ equity 4 5 6 7 8 20 9 10 11 8 20 12 $1,955,980 76,099 14,499 9,529 117,304 143,413 — $ 1,181,058 39,589 8,881 17,718 12,022 57,558 18,416 $2,316,824 $ 1,335,242 $ 1,296,851 40,350 9,073 47,749 — 1,394,023 922,801 $ 857,060 22,525 4,534 35,031 16,940 936,090 399,152 $2,316,824 $ 1,335,242 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 58 Consolidated statements of net income and comprehensive income (in thousands of dollars, except per unit amounts) For the years ended December 31 Note 2010 2009 DUNDEE REIT 2010 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 Net income (loss) from discontinued operations Net income Basic and diluted income (loss) per unit Continuing operations Discontinued operations Net income Net income Other comprehensive income Change in foreign currency translation adjustment Transfer foreign currency translation adjustment to net income on sale of property Comprehensive income See accompanying notes to the consolidated ﬁnancial statements 14 15 20 16 $ 279,352 1,577 $ 192,083 1,676 280,929 193,759 106,954 59,732 40,656 39,685 9,317 256,344 24,585 13 — 13 24,572 2,418 71,129 49,736 27,512 22,231 6,706 177,314 16,445 12 (1,768) (1,756) 18,201 (4,781) $ 26,990 $ 13,420 $ $ 0.64 0.06 0.70 $ 26,990 $ $ $ 0.82 (0.22) 0.60 13,420 — (1,334) 20 6,609 — $ 33,599 $ 12,086 PAGE 59 DUNDEE REIT 2010 Annual Report Consolidated statements of unitholders’ equity (in thousands of dollars, except number of units) Note Number of units Cumulative capital Cumulative net income Accumulated other Cumulative comprehensive loss distributions Total Unitholders’ equity, January 1, 2010 Net income Distributions paid Distributions payable Public offering of REIT A Units Distribution Reinvestment Plan 12 12 Unit Purchase Plan Deferred Unit Incentive Plan 12 Deferred Units exchanged for REIT A Units Conversion of 6.5% Debentures Conversion of 6.0% Debentures Issue costs Transfer foreign currency translation adjustment to net income on sale of property Unitholders’ equity, December 31, 2010 24,717,901 $ 607,282 $ 819,835 $(1,021,356) $ 11 11 — — — — — — 26,990 — — — (77,300) (9,073) (6,609) $ 399,152 26,990 (77,300) (9,073) — — — 12 24,328,250 593,025 306,495 15,739 — 19,463 5,560 8,028 412 1,547 — 139 844 — 35 (26,763) 12 12 12 12 20 — — — — — — — — — — — — — — — — — — — — — — — — — — — 593,025 8,028 412 1,547 — 139 35 (26,763) — 6,609 6,609 49,394,252 $1,183,705 $ 846,825 $(1,107,729) $ — $ 922,801 See accompanying notes to the consolidated ﬁnancial statements PAGE 60 DUNDEE REIT 2010 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 20,417,744 $ 536,093 $ 806,415 $ (972,790) $ — — — — — — 13,420 — — — (44,032) (4,534) (5,275) $ 364,443 13,420 (44,032) (4,534) — — — Unitholders’ equity, January 1, 2009 Net income Distributions paid Distributions payable Public offering of REIT A Units Distribution 12 3,852,500 70,693 Reinvestment Plan 12 12 Unit Purchase Plan 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) — — — — — — — — — — — — — — — — — — — — — — — — — 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 See accompanying notes to the consolidated ﬁnancial statements PAGE 61 DUNDEE REIT 2010 Annual Report Consolidated statements of cash flows (in thousands of dollars) For the years ended December 31 Note 2010 2009 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) loss on disposal of rental properties Deferred unit compensation expense Future income taxes Amortization of market rent adjustments on acquired leases Straight-line rent adjustment 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 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 Distributions paid on Units Units issued for cash, net of costs Increase (decrease) in cash and cash equivalents Cash and cash equivalents, beginning of year — continuing operations Cash and cash equivalents, beginning of year — from assets held for sale $ 26,990 $ 13,420 40,656 39,685 1,481 (764) (2,296) 1,547 — (10,820) (3,771) 92,708 (8,265) (5,060) 79,383 (13,864) (8,936) (731,974) (3,750) 10,850 353 (747,321) 306,977 (21,496) (5,224) (103) (73,806) 566,674 773,022 105,084 12,022 198 28,283 22,583 1,260 (800) 7,258 858 (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 (104,977) 35,993 (15,498) (54,496) (126) (44,730) 67,280 (11,577) (57,047) 69,267 — 20 22 3 20 11 12 Cash and cash equivalents, end of year $ 117,304 $ 12,220 See accompanying notes to the consolidated ﬁnancial statements PAGE 62 DUNDEE REIT 2010 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. The Trust’s 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, 2010, Dundee Corporation, the majority shareholder of Dundee Realty Corporation (“DRC”), directly and indirectly through its subsidiaries, held 976,506 REIT A Units and 3,481,733 LP B Units (December 31, 2009 — 921,299 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, estimates of useful lives of rental properties, impairment of long-lived assets, impairment of intangible assets and the determination of 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 on certain of its activities through co-ownerships and joint ventures, and records its proportionate share of the respective assets, liabilities, revenues 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. PAGE 63 DUNDEE REIT 2010 Annual Report Percentage participation rents are recognized on an accrual basis once tenant sales revenues exceed contractual thresholds. Other revenues are recorded as earned. The Trust provides an allowance for doubtful accounts against that portion of amounts receivable that is estimated to be uncollectible. Such allowances are reviewed periodically based on the 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 achieving its accounting completion date. Properties are considered to have achieved their accounting completion date at the earlier of the achievement of a predetermined level of occupancy or at the expiry of a reasonable period following substantial completion of construction. 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 ten 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 acquisition 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 that 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 intangibles 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 in the consolidated statement of net income. PAGE 64 DUNDEE REIT 2010 Annual Report Leasing costs and tenant improvements Certain leasing costs and tenant improvements are included on the consolidated balance sheets of the Trust: • leasing costs include leasing fees and costs, except for initial leasing costs that are included in rental properties, and leasing costs acquired. These 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 that 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 that 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. Foreign currency translation In the current year, the Trust does not have any foreign operations that are considered ﬁnancially self-sustaining and operationally independent. As a result, translation gains and losses are recognized in net income in the period they are incurred. Assets and liabilities denominated in foreign currencies are translated into Canadian dollars at the rate of exchange in effect at the consolidated balance sheet date. Revenues and expenses are translated at the average rate for the period. For the comparative year, the Trust had U.S. operations and the foreign currency translations were deferred as a separate component of unitholders’ equity. The Trust has divested from those U.S. operations in 2010 and, as a result, the carried forward accumulated foreign currency translation adjustments have been transferred from accumulated other comprehensive loss to net income. Income taxes Dundee REIT is taxed as a mutual fund trust for Canadian income tax purposes. The Trust distributes all of its taxable income to its unitholders, which 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. In the comparative period, Dundee REIT used 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. PAGE 65 DUNDEE REIT 2010 Annual Report 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. 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, 2010, cash and cash equivalents includes $8,735, representing the Trust’s proportionate share of cash balances of joint ventures (December 31, 2009 — $4,294). 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 loss is included as a separate component of unitholders’ equity. The balance carried forward from the prior year 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. Financial assets comprise cash and cash equivalents and amounts receivable. Financial liabilities comprise mortgages payable, term debt, convertible debentures, amounts payable and accrued liabilities, and distributions payable. 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 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 PAGE 66 DUNDEE REIT 2010 Annual Report 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 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: (i) 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 (ii) 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. 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 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 identiﬁed signiﬁcant accounting policy changes that it expects to apply upon adoption of IFRS which are signiﬁcantly different than its GAAP policies. The Trust continues to evaluate the impact of these IFRS accounting policy changes, and is executing its convergence plan with the intent to prepare its ﬁrst consolidated ﬁnancial statements in accordance with IFRS for the three month period ending March 31, 2011. These consolidated ﬁnancial statements will include comparative results for the periods commencing January 1, 2010. PAGE 67 DUNDEE REIT 2010 Annual Report 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 preparing 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. Dundee REIT did not adopt these policies prior to January 1, 2011. PAGE 68 DUNDEE REIT 2010 Annual Report Note 3 PROPERTY ACQUISITIONS Below are the acquisitions completed during the years ended December 31, 2010, and December 31, 2009. These acquisitions have been accounted for using the purchase method. The earnings from the properties acquired have been included in the consolidated statement of net income and comprehensive income for the year commencing on their date of acquisition. For the year ended December 31, 2010 Interest Property acquired (%) type Acquired Occupancy on GLA acquisition (%) (sq. ft.)(2) Fair value of mortgage assumed Purchase price Date acquired ofﬁce 100 654,249 98 $ 217,708 $ — January 18, 2010 Adelaide Place, Toronto Aviva Corporate Centre, Toronto 10130-103 Street, Edmonton 2340 St. Laurent Boulevard, Ottawa 4915-52 Street, Yellowknife Financial Building, Regina 30 Eglinton Avenue West, Mississauga 625 Cochrane Drive, Markham Valleywood Corporate Centre, Markham 275 Wellington Street East, Aurora 8000 av Blaise-Pascal, Montréal 6509 Airport Road, Mississauga 3035 Orlando Drive, Mississauga 2075 Kennedy Road, Toronto 1421 rue Ampère, Boucherville 1313 Autoroute Chomedey, Laval 150 Metcalfe Street, Ottawa 236 Brownlow Avenue, Dartmouth 970 Fraser Drive, Burlington 2200-2204 Walkley Road, Ottawa 2625 Queensview Drive, Ottawa 30 Simmonds Drive, Dartmouth 105 Akerley Boulevard, Dartmouth 4259-4299 Canada Way, Burnaby 2665 Renfrew Street, Vancouver AFIAA Portfolio, ofﬁce/redevelopment ofﬁce industrial land ofﬁce ofﬁce ofﬁce ofﬁce industrial industrial ofﬁce ofﬁce ofﬁce industrial industrial ofﬁce ofﬁce industrial ofﬁce ofﬁce industrial industrial ofﬁce ofﬁce Toronto, Mississauga and Calgary 10250–101 Street, Edmonton 100 Gough Road, Toronto 580 Industrial Road, London ofﬁce ofﬁce ofﬁce industrial 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 436,704 265,625 114,724 — 65,763 164,987 161,997 154,116 317,000 206,305 60,000 16,754 201,730 457,875 184,493 109,374 60,739 95,444 156,551 46,156 37,240 57,524 118,536 81,662 198,392 296,961 111,840 113,595 99(1) 95 100 — 100 90 100 98 100 100 100 86 96 100 100 91 95 100 100 100 88 88 96 100 95 79 100 100 45,660 90,007 11,344 678 14,222 38,543 29,917 31,645 25,438 11,296 12,295 2,410 31,750 29,381 12,716 34,540 7,455 7,090 23,653 8,656 1,621 3,101 26,280 34,649 45,348 84,619 30,475 9,674 30,321 27,794 — — — 21,496 — — — — — — — — — — — — 18,242 — — — 17,184 — — 25,957 13,094 4,780 February 10, 2010 April 16, 2010 April 26, 2010 April 30, 2010 May 4, 2010 May 31, 2010 June 18, 2010 June 18, 2010 July 30, 2010 July 30, 2010 August 3, 2010 August 3, 2010 August 12, 2010 September 2, 2010 September 2, 2010 September 16, 2010 October 5, 2010 October 19, 2010 November 2, 2010 November 5, 2010 November 22, 2010 November 22, 2010 December 15, 2010 December 21, 2010 December 21, 2010 December 22, 2010 December 30, 2010 December 30, 2010 Total 4,946,336 97 $ 922,171 $ 158,868 (1) Excludes redevelopment component of the property. (2) Gross leasable area (“GLA”). For the year ended December 31, 2009 720 Bay Street, Toronto 1125-1145 Innovation Drive, Ottawa 6655-6725 Airport Road, Mississauga Gateway Business Park, Ottawa 2645 Skymark Avenue, Mississauga Total Interest Property acquired (%) type ofﬁce ofﬁce ofﬁce ofﬁce ofﬁce 50 100 100 100 100 Acquired Occupancy on GLA acquisition (%) (sq. ft.) 123,870 118,563 329,728 120,600 142,487 835,248 Fair value of mortgage assumed — — 26,717 — — $ Purchase price 25,948 16,679 50,637 14,700 14,923 Date acquired September 1, 2009 December 16, 2009 December 18, 2009 December 30, 2009 December 30, 2009 100 $ 100 100 91 100 99 $ 122,887 $ 26,717 PAGE 69 DUNDEE REIT 2010 Annual Report The assets acquired and liabilities assumed in these transactions were allocated as follows: For the years ended December 31 Rental properties Land Buildings Properties under development 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 period Deposits applied Assumed mortgages at fair value Assumed non-cash working capital and adjustments to purchase price Total consideration 2010 2009 $ 112,811 681,693 5,693 800,197 34,392 44,712 8,325 18,968 40,696 947,290 $ 20,418 76,846 — 97,264 8,181 6,714 2,176 1,471 10,909 126,715 (25,119) (3,828) $ 922,171 $ 122,887 2010 2009 $ 731,974 13,755 $ 94,526 — 745,729 158,868 17,574 94,526 26,717 1,644 $ 922,171 $ 122,887 During 2010, the allocation of the purchase price of properties acquired in 2009 was ﬁnalized. The value of intangible assets and liabilities and leasing costs has been reduced by approximately $9,700; the value of land has been reduced by approximately $4,900; and the value of buildings has increased by approximately $14,600. The allocation of the purchase price of properties acquired in 2010 was ﬁnalized in the fourth quarter of 2010. The value of intangible assets has been increased by approximately $11,800; the value of land has been reduced by approximately $1,300; and the value of buildings has been reduced by approximately $10,500. These adjustments are the result of ﬁnalized valuator appraisals received for the acquired properties. PAGE 70 DUNDEE REIT 2010 Annual Report Note 4 RENTAL PROPERTIES December 31 Cost Accumulated depreciation 2010 Net book value Cost Accumulated depreciation 2009 Net book value Land Buildings and improvements Fixed assets and equipment Rental properties $ 347,834 $ 1,743,059 1,980 — $ 347,834 $ 235,025 1,053,465 2,011 1,592,727 1,262 (150,332) (718) $ — $ 235,025 943,107 1,168 (110,358) (843) under development 14,157 — 14,157 1,758 — 1,758 Total $2,107,030 $ (151,050) $1,955,980 $ 1,292,259 $ (111,201) $ 1,181,058 Rental properties with a net book value of $1,730,582 are pledged as security for mortgages. Rental properties with a net book value of $27,969 are pledged as ﬁrst-ranking collateral and a rental property with a net book value of $69,016 is pledged as second-ranking collateral against the demand revolving credit facility. Note 5 LEASING COSTS AND TENANT IMPROVEMENTS December 31 Cost Accumulated depreciation 2010 Net book value Cost Accumulated depreciation 2009 Net book value Leasing costs Tenant improvements $ 20,564 $ 87,561 (5,444) $ (26,582) 15,120 $ 60,979 14,214 $ 49,418 (4,292) $ (19,751) 9,922 29,667 Total $ 108,125 $ (32,026) $ 76,099 $ 63,632 $ (24,043) $ 39,589 Note 6 AMOUNTS RECEIVABLE Amounts receivable are net of credit adjustments totalling $4,157 (December 31, 2009 — $2,972). December 31 Trade receivables, net Straight-line rent receivables Other amounts receivable (payable) Total December 31 Trade receivables Less: Provision for impairment of trade receivables Trade receivables, net $ 2010 2,587 11,208 704 $ 2009 2,048 7,409 (576) $ 14,499 $ 8,881 2010 3,134 (547) 2,587 $ $ 2009 3,141 (1,093) 2,048 $ $ PAGE 71 DUNDEE REIT 2010 Annual Report The movement in the provision for impairment of trade receivables during the year ended December 31 was as follows: As at January 1 Provision for impairment of trade receivables Receivables written off during the year as uncollectible As at December 31 2010 1,093 496 (1,042) $ 2009 549 1,428 (884) 547 $ 1,093 $ $ The carrying amount of amounts receivable is reduced through the use of an allowance account and any loss is recognized within property operating expenses. Where a receivable balance is considered uncollectible, it is written off against the allowance for accounts receivable. Any subsequent recovery of amounts previously written off is credited against operating expenses in the consolidated statement of net income. Note 7 PREPAID EXPENSES AND OTHER ASSETS December 31 Prepaid expenses Deposits Restricted cash Total $ 2010 3,414 4,747 1,368 $ 2009 2,110 13,887 1,721 $ 9,529 $ 17,718 Deposits largely represent amounts provided by the Trust in connection with property acquisitions. Restricted cash primarily represents tenant rent deposits and cash held as security for certain mortgages. Note 8 INTANGIBLE ASSETS AND LIABILITIES December 31 Cost Accumulated amortization Intangible assets Value of above-market rent leases Value of in-place leases Lease origination costs Value of tenant relationships $ 22,721 75,245 16,799 76,803 $ (2,559) $ (24,274) (5,198) (16,124) 2010 Net book value 20,162 50,971 11,601 60,679 Cost Accumulated amortization $ 3,914 $ (1,140) $ 37,727 9,383 39,635 (17,625) (3,718) (10,618) 2009 Net book value 2,774 20,102 5,665 29,017 Total $ 191,568 $ (48,155) $ 143,413 $ 90,659 $ (33,101) $ 57,558 Intangible liabilities Value of below-market rent leases $ 78,717 $ (30,968) $ 47,749 $ 60,854 $ (25,823) $ 35,031 PAGE 72 Note 9 DEBT December 31 Mortgages Convertible debentures Term debt Total DUNDEE REIT 2010 Annual Report 2010 2009 $ 1,165,643 130,867 341 $ 726,901 129,940 219 $ 1,296,851 $ 857,060 Mortgages are secured by charges on speciﬁc rental properties. As at December 31, 2010, convertible debentures comprise $119,923 of the 6.0% Debentures, $7,752 of the 5.7% Debentures and $3,192 of the 6.5% Debentures (December 31, 2009 — $118,904, $7,743 and $3,293, respectively). 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 “Financial Instruments — Presentation”, 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, 2010, the outstanding principal amount was $124,965 (December 31, 2009 — $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, less costs of $4,558, and equity of $1,200. As at December 31, 2010, the outstanding principal amount was $7,806 (December 31, 2009 — $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 PAGE 73 DUNDEE REIT 2010 Annual Report whole or in part, at a price equal to the principal amount plus accrued and unpaid interest, provided the market price for the Trust’s units is not less than $31.25. On or after June 30, 2010, the 6.5% Debentures may be redeemed by the Trust at a price equal to the principal amount plus accrued and unpaid interest. In accordance with Section 3863 of the CICA Handbook, the 6.5% Debentures were initially recorded on the consolidated balance sheet as debt of $74,400, less costs of $3,605, and equity of $600. As at December 31, 2010, the outstanding principal amount was $3,349 (December 31, 2009 — $3,488). A demand revolving credit facility is available up to a formula-based maximum not to exceed $40,000, bearing interest generally at the bank prime rate (3.0% as at December 31, 2010) 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, 2010, the formula-based amount available under this facility was $36,075, less $1,540 drawn in the form of letters of guarantee (December 31, 2009 — $1,090 drawn). 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 2010 2009 Maturity dates 2010 2009 5.32% 7.03% 8.77% 5.49% 2.82% 2.82% 5.43% 5.68% 2011—2020 $1,136,906 130,867 7.03% 2014—2015 341 2013 9.03% $ 695,608 129,940 219 5.90% 2.01% 2.01% 5.75% 1,268,114 825,767 2013 28,737 28,737 31,293 31,293 $ 1,296,851 $ 857,060 The scheduled principal repayments and debt maturities are as follows: 2011 2012 2013 2014 2015 2016 and thereafter Financing costs and fair value adjustments Mortgages Term debt $ $ 109,115 143,878 124,677 86,530 218,106 484,067 1,166,373 (730) $ 1,165,643 $ 98 116 127 — — — 341 — 341 $ Convertible debentures — — — 128,314 7,806 — Total $ 109,213 143,994 124,804 214,844 225,912 484,067 136,120 (5,253) 1,302,834 (5,983) $ 130,867 $ 1,296,851 Included in mortgages is $3,637 in fair value adjustments (December 31, 2009 — $2,671), which reﬂects the fair value adjustments for mortgages assumed as part of acquisitions, reduced by $4,367 of unamortized ﬁnancing costs (December 31, 2009 — $2,465). The convertible debentures are reduced by a $1,421 premium allocated to their conversion features (December 31, 2009 — $1,724) and $3,832 of unamortized ﬁnancing costs (December 31, 2009 — $4,630). 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. PAGE 74 DUNDEE REIT 2010 Annual Report The fair value of mortgages and term debt is 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. 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 2010 2009 $1,200,049 141,381 341 $ 730,809 134,923 219 $ 1,341,771 $ 865,951 $ 2010 2,375 21,626 5,273 7,833 3,243 $ 2009 1,602 9,521 3,426 6,159 1,817 $ 40,350 $ 22,525 Note 11 DISTRIBUTIONS The following table breaks down distribution payments for the year ended December 31, 2010: REIT Units, Series A REIT Units, Series B LP Class B Units, Series 1 Paid in cash Paid by way of reinvestment in REIT A Units Paid by way of reinvestment in LP B Units Less: Payable at December 31, 2009 Plus: Payable at December 31, 2010 $ 66,843 7,314 — (3,899) 8,430 $ Total $ 78,688 $ 36 — — (3) 3 36 $ 6,927 — 714 (632) 640 Total $ 73,806 7,314 714 (4,534) 9,073 $ 7,649 $ 86,373 The amount payable at December 31, 2010, was satisﬁed on January 15, 2011, by $7,945 in cash, $1,066 of 34,960 REIT A Units and $62 of 2,023 LP B Units. Included in the total distributions is $325 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 declared distributions of $0.183 per unit per month, or $2.20 per year, during 2009 and 2010. PAGE 75 DUNDEE REIT 2010 Annual Report Note 12 UNITHOLDERS’ EQUITY December 31 Number of units Amount Number of units Amount 2010 2009 REIT Units, Series A REIT Units, Series B LP Class B Units, Series 1 Cumulative foreign currency translation adjustment 45,896,203 16,316 3,481,733 — $ 834,261 359 88,181 — 21,247,397 16,316 3,454,188 — $ 312,743 362 92,656 (6,609) Total 49,394,252 $ 922,801 24,717,901 $ 399,152 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 or 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, 2010 and 2009, there were no exchanges made by Dundee Corporation of LP B Units for REIT B Units and subsequently for 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, 2010, 3,481,733 Special Trust Units were issued and outstanding (December 31, 2009 — 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 76 DUNDEE REIT 2010 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 holders 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, 2010, 45,436,203 LP Class A Units (December 31, 2009 — 20,787,397), 3,481,733 LP Class B Units, Series 1 (December 31, 2009 — 3,454,188) and 476,316 LP Class B Units, Series 2 (December 31, 2009 — 476,316) were issued and outstanding. As at December 31, 2010 and December 31, 2009, 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, 2010 Net income Distributions paid Distributions payable Public offering of REIT A Units Distribution Reinvestment Plan Unit Purchase Plan Deferred Unit Incentive Plan Deferred Units exchanged for REIT A Units Conversion of 6.5% Debentures Conversion of 6.0% Debentures Issue costs Transfer foreign currency translation adjustment to net income on sale of property Unitholders’ equity, December 31, 2010 21,247,397 $ 312,743 24,497 (70,258) (8,430) — — — 16,316 $ — — — 362 33 (33) (3) 3,454,188 $ 92,656 2,460 (7,009) (640) — — — $ (6,609) 24,717,901 $ 399,152 26,990 (77,300) (9,073) — — — — — — 24,328,250 593,025 278,950 15,739 — 19,463 5,560 7,314 412 1,547 — 139 844 — 35 (26,763) — — — — — — — — — — — — — — — — — — — — — 27,545 — — — — — — — — 714 — — — — — — — — 24,328,250 593,025 — — — — — — — 306,495 15,739 — 19,463 5,560 8,028 412 1,547 — 139 844 — 35 (26,763) 6,609 — 6,609 45,896,203 $ 834,261 16,316 $ 359 3,481,733 $ 88,181 $ — 49,394,252 $ 922,801 Public offering of REIT A Units On December 21, 2010, the Trust completed a public offering of 3,864,000 REIT A Units at a price of $29.85 per unit, for gross proceeds of $115,340. Costs related to the offering totalled $5,179 and were charged directly to unitholders’ equity. On September 2, 2010, the Trust completed a public offering of 5,669,500 REIT A Units at a price of $25.40 per unit, for gross proceeds of $144,005. Costs related to the offering totalled $6,325 and were charged directly to unitholders’ equity. On June 2, 2010, the Trust completed a public offering of 4,100,000 REIT A Units at a price of $24.40 per unit for gross proceeds of $100,040. On June 17, 2010, the Trust issued an additional 615,000 REIT A Units, pursuant to the exercise of the over-allotment option granted to the underwriter, for gross proceeds of approximately $15,007. Costs related to the offering totalled $5,157 and were charged directly to unitholders’ equity. PAGE 77 DUNDEE REIT 2010 Annual Report On March 16, 2010, the Trust completed a public offering of 3,965,000 REIT A Units at a price of $25.25 per unit for gross proceeds of $100,116. On March 26, 2010, the Trust issued an additional 594,750 REIT A Units, pursuant to the exercise of the over-allotment option granted to the underwriter, for gross proceeds of approximately $15,017. Costs related to the offering totalled $5,180 and were charged directly to unitholders’ equity. 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 totalled $4,887 and were charged directly to unitholders’ equity. 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 of America, 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, 2010, 278,950 REIT A Units and 27,545 LP B Units were issued under the DRIP for $8,028 (December 31, 2009 — 196,987 REIT A Units and nil LP B Units for $3,051). 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 features of the DRIP. For the year ended December 31, 2010, 15,739 REIT A Units were issued under the Unit Purchase Plan for $412 (December 31, 2009 — 10,997 REIT A Units for $180). Debenture conversions During the year ended December 31, 2010, the Trust issued 5,560 REIT A Units upon conversion of $139 of the principal amount of the 6.5% Debentures (December 31, 2009 — nil) and 844 REIT A Units upon the conversion of $35 of the 6.0% Debentures (December 31, 2009 — nil). 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 distribution of 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 78 DUNDEE REIT 2010 Annual Report During the year ended December 31, 2010, $1,547 of compensation expense was recorded (December 31, 2009 — $858) 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, 2009 Granted during the year REIT A Units issued Fractional units paid in cash Outstanding at January 1, 2010 Granted during the year Cancelled REIT A Units issued Fractional units paid in cash Weighted average grant date value Deferred trust units Income deferred trust units $ $ 32.94 13.49 27.92 — 28.55 24.96 13.49 23.16 — 309,226 98,003 (189,311) — 217,918 98,666 (200) (15,937) — 66,660 32,126 (50,562) (9) 48,215 29,502 (27) (3,526) (13) Total units 375,886 130,129 (239,873) (9) 266,133 128,168 (227) (19,463) (13) Outstanding and payable at December 31, 2010 $ 27.67 300,447 74,151 374,598 Vested but not issued at December 31, 2010 $ 30.10 63,949 37,916 101,865 On February 23, 2010, 88,450 deferred trust units were granted to trustees and senior managers. A further 10,216 deferred trust units were granted to trustees who elected to receive their 2010 annual retainer in the form of deferred trust units rather than cash. 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. 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 November 3, 2010, and will remain in effect until the earlier of November 2, 2011, 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 4,010,675 REIT A Units (representing 10% of the REIT’s public ﬂoat of 40,106,751 REIT A Units at the time of renewal through the facilities of the TSX). As of December 31, 2010, no purchases had been made. Based on the closing price of REIT A Units on December 31, 2010, the Trust may purchase up to $121,122 worth of REIT A Units. For the year ended December 31, 2009, the Trust did not purchase any REIT A Units pursuant to its previous bid, which expired on September 25, 2010. PAGE 79 DUNDEE REIT 2010 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. 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 2010 Total 2009 Proportionate share 2010 2009 $ 414,903 244,350 $ 458,889 291,986 $ 176,246 104,604 $ 193,139 126,426 Proportionate share 2010 $ 30,477 16,039 $ 14,438 2010 $ 13,658 8,443 (17,662) $ $ $ 2009 35,488 40,242 (4,754) 2009 11,279 (1,816) (7,090) Increase in cash and cash equivalents $ 4,439 $ 2,373 The Trust is contingently liable for the obligations of the other owners of the unincorporated joint ventures at December 31, 2010, in the aggregate amount of $123,527 (December 31, 2009 — $147,446). 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 2010 2009 $ 59,322 1,481 (764) (307) $ 49,332 1,229 (800) (25) $ 59,732 $ 49,736 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 non-cash adjustment to net income in determining cash ﬂow from operating activities. PAGE 80 DUNDEE REIT 2010 Annual Report Note 15 INCOME TAXES In 2009, Canadian and U.S.-based incorporated subsidiaries were subject to tax on their respective taxable incomes at their corresponding legislated rates. On December 31, 2009, the Trust effected the transfer of its interest in a property held in a taxable Canadian subsidiary to an entity that distributes taxable earnings to unitholders. On February 5, 2010, the Trust disposed of its interest in the U.S. entity. As a result of these transactions, the Trust is no longer exposed to the tax-related costs of those entities for periods subsequent to their respective transaction dates. The reported carrying amount of Dundee REIT’s net assets, excluding those in incorporated subsidiaries at December 31, 2010, exceeds the corresponding tax cost by approximately $24,000 (December 31, 2009 — $46,000). 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 (2009 — 29%) 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 Total income tax provision (recovery) from continuing operations $ $ 2010 $ 24,585 2,418 27,003 (26,958) 45 13 — — 13 — 13 2009 16,445 (6,705) 9,740 (8,440) 1,300 377 (1,924) (2,133) (3,680) (1,924) $ (1,756) PAGE 81 DUNDEE REIT 2010 Annual Report Note 16 INCOME 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 2010 2009 35,183,224 3,468,485 105,404 18,690,672 3,454,188 71,484 38,757,113 22,216,344 93,049 13,058 — 9,812 Total weighted average number of units outstanding for diluted income per unit amounts 38,863,220 22,226,156 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 A 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 3,412,638 incremental REIT A Units to be issued upon an assumed conversion of all debentures outstanding at December 31, 2010 (December 31, 2009 — 3,419,043) have been excluded from the calculation of diluted net income 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 2010, the total cost recognized and cash payments for employee future beneﬁts, consisting of cash contributed to the deﬁned contribution plan, was $147 (2009 — $107). PAGE 82 DUNDEE REIT 2010 Annual Report Note 18 SEGMENTED INFORMATION The Trust’s rental properties have been segmented into ofﬁce and industrial components. The “other” category represents rental properties under development. 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, 2010 Ofﬁce Industrial Segment total Other Total Operations Rental properties revenue Rental properties operating expenses Net operating income Depreciation of rental properties Amortization of leasing costs, tenant improvements and intangibles $ 257,704 $ 21,648 $ 279,352 $ 101,028 156,676 37,123 5,926 15,722 3,533 106,954 172,398 40,656 37,863 1,822 39,685 Segment income $ 81,690 $ 10,367 $ 92,057 $ Interest expense General and administrative expenses Interest and fee income Income taxes Discontinued operations Net income — — — — — — $ 279,352 106,954 172,398 40,656 39,685 92,057 (59,732) (9,317) 1,577 (13) 2,418 $ 26,990 Segment rental properties $1,757,787 $ 184,036 $ 1,941,823 $ 14,157 $1,955,980 Capital expenditures Investment in rental properties Investment in tenant improvements Acquisition of rental properties Leasing costs $ (6,516) $ (1,713) $ (8,229) $ (5,635) $ (13,864) (7,285) (620,787) (6,517) (1,651) (104,178) (1,727) (8,936) (724,965) (8,244) — (7,009) (21) (8,936) (731,974) (8,265) Total capital expenditures $ (641,105) $ (109,269) $ (750,374) $ (12,665) $ (763,039) PAGE 83 DUNDEE REIT 2010 Annual Report For the year ended December 31, 2009 Ofﬁce Industrial Segment total Other Total Operations Rental properties revenue Rental properties operating expenses Net operating income Depreciation of rental properties Amortization of leasing costs, tenant improvements and intangibles $ 175,635 $ 16,448 $ 192,083 $ 65,812 109,823 24,611 5,317 11,131 2,901 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 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 84 DUNDEE REIT 2010 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, 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 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) 1.00% 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. Related-party transactions For the year ended December 31, 2010, the Trust received total fees from DRC of $2,051 (December 31, 2009 — $1,903). These fees relate to cost recoveries under the Services Agreement. Other costs recovered from DRC for the year ended December 31, 2010, include $4,182 for operating and administrative costs of regional ofﬁces (December 31, 2009 — $3,405), which are included in operating expenses of the Trust. For the year ended December 31, 2010, the Trust incurred total fees of $12,506 (December 31, 2009 — $6,020) under the Asset Management Agreement. Of this amount, $5,843 (December 31, 2009 — $4,551) is included in general and administrative expenses; $5,547 (December 31, 2009 — $954) is included in property acquisitions; $841 (December 31, 2009 — $515) is included in ﬁnancing costs and reported with debt; $252 (December 31, 2009 — $nil) is capitalized to properties under development; and $23 (December 31, 2009 — $nil) is included in rental properties operating expense. Included in amounts receivable at December 31, 2010, is $(128) related to the Services Agreement (December 31, 2009 — $(155)); $328 related to the Asset Management Agreement (December 31, 2009 — $224); and $115 related to other amounts owed by DRC (December 31, 2009 — $158). Accrued liabilities and other payables at December 31, 2010, include $775 for amounts related to the Asset Management Agreement (December 31, 2009 — $954). Included in rental properties revenue are amounts received from Dundee Securities Corporation, a subsidiary of Dundee Corporation, for the rental of ofﬁce premises of $260 for the year ended December 31, 2010 (December 31, 2009 — $nil). These amounts have been recorded at the exchange amount. PAGE 85 DUNDEE REIT 2010 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 relevant period. During the fourth quarter of 2010, the Trust recognized an additional $499 in expenses for costs related to the sale of properties to GE Real Estate in 2007. These costs relate to the settlement of claims made by third parties, prior to the sale, on the sold properties. On March 1, 2010, the Trust sold its 50% interest in a joint venture ofﬁce property located in Toronto, Ontario. It received net proceeds of $10,665 and recognized a gain of $2,200. 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 net proceeds of $185. The Trust is now discharged from all rights and obligations relating to the property. 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. The sale closed in 2010 resulting in a net gain of $595 for the current year including the reclassiﬁcation of the foreign currency translation adjustment from other comprehensive income. 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. There were no assets held for sale at December 31, 2010. PAGE 86 DUNDEE REIT 2010 Annual Report The following table presents the assets and liabilities of the discontinued properties as at December 31, 2009. Assets Rental properties Leasing costs and tenant improvements Prepaid expenses and other assets Cash and short-term deposits Liabilities Mortgages payable Amounts payable and accrued liabilities The following table summarizes the net income 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 leasing costs, tenant improvements and intangibles General and administrative Income before undernoted (Gain) loss on disposal of rental properties Current income taxes Future income tax recovery $ 2010 422 — 422 300 — — — — 300 122 (2,296) — — $ 17,644 561 13 198 18,416 16,825 115 $ 16,940 $ 2009 8,825 17 8,842 6,563 586 771 352 17 8,289 553 7,258 47 (1,971) Net income (loss) from discontinued operations $ 2,418 $ (4,781) PAGE 87 DUNDEE REIT 2010 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 2011 2012 2013 2014 Total Operating lease payments Capital lease payments $ $ 1,012 865 727 16 133 133 132 — $ 2,620 $ 398 Purchase and other obligations The Trust has entered into lease agreements that require tenant improvement costs of approximately $6,500. Effective February 1, 2010, the Trust entered into three ﬁxed price contracts to purchase electricity for 14 ofﬁce properties in Calgary. The contracts expire on January 31, 2013, and commit the Trust to total minimum payments of $2,200 for each of 2011 and 2012, and $200 for 2013. 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 $600 annually for each of 2011 and 2012. 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, of which $6,700 has been incurred to date. Funding for this development is available through cash on hand and an available line of credit. PAGE 88 DUNDEE REIT 2010 Annual Report Note 22 SUPPLEMENTARY CASH FLOW INFORMATION For the years ended December 31 Decrease in amounts receivable Decrease in tenant inducements Increase in prepaid expenses and other assets, excluding restricted cash Increase (decrease) in amounts payable and accrued liabilities (excluding leasing costs) Decrease in amounts payable relating to leasing costs $ 2010 2,083 267 (2,158) (4,014) (1,238) $ 2009 3,537 373 (56) 2,375 (220) Change in non-cash working capital $ (5,060) $ 6,009 The following amounts were paid on account of interest and income taxes: For the years ended December 31 Interest Income taxes $ 2010 57,531 19 2009 $ 49,975 21 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 expenditures and working capital requirements. Management monitors distributions through various ratios to ensure adequate resources are available. These include the proportion of distributions paid in cash, DRIP participation ratio, total distributions as a percentage of distributable income and distributable income per unit. The Trust’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, 2010, the Trust’s interest coverage ratio was 2.8 times (December 31, 2009 — 2.3 times), reﬂecting its ability to cover interest expense requirements. PAGE 89 DUNDEE REIT 2010 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 2010 2009 $ 279,352 106,954 $ 192,083 71,129 172,398 1,577 9,317 120,954 1,676 6,706 $ 164,658 $ 115,924 $ 59,732 $ 49,736 2.8 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. In addition, there is interest rate risk associated with the Trust’s ﬁxed rate debt due to the expected requirement to reﬁnance such debts in the year of maturity. Variable rate debt at December 31, 2010, was 2.2% of the Trust’s total debt (December 31, 2009 — 3.7%). 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 liabilities and ﬁxed rate debt maturing within one year, for the year ended December 31, 2010. A 1% change is considered a reasonable level of ﬂuctuation on variable rate assets and debts as well as for reﬁnanced ﬁxed rate debts. Carrying amount Income –1% Equity Interest rate risk +1% Equity Income $ 28,737 $ 287 $ 287 $ (287) $ (287) Financial liabilities Variable rate mortgages(1) Fixed rate mortgages due within one year 79,692 797 797 (797) (797) (1) Variable rate mortgages include a ﬂoating rate mortgage at a rate of LIBOR plus 0.62%. PAGE 90 DUNDEE REIT 2010 Annual Report The Trust is not exposed to currency risk. The Trust currently does not employ hedging activities to manage its ﬁnancial risks. The Trust’s assets consist of ofﬁce and industrial rental properties. Credit risk arises from the possibility that tenants in rental properties may not fulﬁll their lease or contractual obligations. 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. 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 Effective February 8, 2011, the Trust completed the acquisition of Realex Properties Corporation (Realex). Realex owned interests in 24 ofﬁce and industrial assets in Ontario and Alberta, totalling approximately 1.8 million square feet. The Trust acquired all 18,712,663 outstanding common shares of Realex for $8.25 per common share, or approximately $154,379 excluding transaction costs, and assumed mortgages of approximately $210,128. On February 4, 2011, the Trust completed a public offering of 4,749,500 REIT A Units at a price of $30.30 per unit, for gross proceeds of $143,910. Costs related to the offering totalled $5,756 and were charged directly to unitholders’ equity. Effective January 17, 2011, the Trust completed the acquisition of an ofﬁce building in Ottawa, Ontario, consisting of approximately 175,000 square feet. The purchase price of the property, excluding transaction costs, was approximately $38,300. Effective January 4, 2011, the Trust completed the acquisition of an ofﬁce building in Saskatoon, Saskatchewan, consisting of approximately 210,000 square feet. The purchase price of the property, excluding transaction costs, was approximately $50,000. PAGE 91 DUNDEE REIT 2010 Annual Report Trustees and officers Trustees Detlef Bierbaum2, 4 KÖLN, GERMANY David J. Goodman TORONTO, ONTARIO Member of the Supervisory Board, Sal Oppenheim KAG President and Chief Executive Ofﬁcer, DundeeWealth Inc. Donald K. Charter TORONTO, ONTARIO Ned Goodman2, 5 INNISFIL, ONTARIO Ofﬁcers Ned Goodman CHAIRMAN Michael J. Cooper VICE CHAIRMAN AND CHIEF EXECUTIVE OFFICER President and Chief Executive Ofﬁcer, Corsa Capital Ltd. President and Chief Executive Ofﬁcer, Dundee Corporation Michael Knowlton PRESIDENT AND CHIEF OPERATING OFFICER Mario Barrafato SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER Jane Gavan CORPORATE SECRETARY Michael J. Cooper2 TORONTO, ONTARIO Duncan Jackman1, 4 TORONTO, ONTARIO Vice Chairman and Chief Executive Ofﬁcer, Dundee REIT Chairman, President and CEO, E-L Financial Corporation Limited Peter A. Crossgrove1, 3, 4 TORONTO, ONTARIO K. Kellie Leitch TORONTO, ONTARIO Chairman and Interim Chief Executive Ofﬁcer, Excellon Resources Inc. Joanne Ferstman TORONTO, ONTARIO President and Chief Executive Ofﬁcer, Dundee Capital Markets Inc. Orthopaedic Paediatric Surgeon, Hospital for Sick Children and Professor, University of Toronto Robert Tweedy4 TORONTO, ONTARIO Chairman, Useppa Holdings Limited Robert G. Goodall1, 3 MISSISSAUGA, ONTARIO President, Canadian Mortgage Capital Corporation 1 Member of the Audit Committee 2 Member of the Investment Committee 3 Member of the Compensation Committee 4 Member of the Governance and Environmental Committee 5 Chairman of the Board of Trustees PAGE 92 Corporate information Head ofﬁce Investor relations Annual meeting of unitholders DUNDEE REAL ESTATE INVESTMENT TRUST Phone: (416) 365-3536 Thursday, May 12, 2011, at 4:00 pm (EST) 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 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, 2010, are taxed as follows: Other income: 27.5% Taxable capital gains: 0.6% Return of capital: 71.9% Management estimates that 60% of the distributions to be made by the REIT in 2011 will be tax deferred. Stock exchange listing THE TORONTO STOCK EXCHANGE 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 Auditors Listing symbols cash distributions are made. 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, Suite 6100 Toronto, Ontario M5X 1B8 Cash purchase: Unitholders may invest in additional units by making cash purchases. If you register in the DRIP you will also receive a “bonus” distribution of units equal to 4% of the amount of your cash distribution reinvested pursuant to the Plan. In other words, for every $1.00 of cash distributions reinvested by you under the Plan, $1.04 worth of units will be purchased. To enrol, contact: COMPUTERSHARE TRUST COMPANY OF CANADA 100 University Avenue, 9th Floor Toronto, Ontario M5J 2Y1 Attention: Dividend Reinvestment Services Or call their Customer Contact Centre at 1 800 564-6253 (toll free) or (514) 982-7555 For more information, you may also visit our web site: www.dundeereit.com . m o c . n g i s e d s k r o w w w w S K R O W E H T : n g i s e D d n a t p e c n o C DUNDEE REAL ESTATE INVESTMENT TRUST State Street Financial Centre 30 Adelaide Street East, Suite 1600 Toronto, Ontario M5C 3H1 www.dundeereit.com

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