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
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DUNDEE REAL ESTATE INVESTMENT TRUST
State Street Financial Centre
30 Adelaide Street East, Suite 1600
Toronto, Ontario M5C 3H1
www.dundeereit.com