FOURTH QUARTER RESULTS 2015

FOURTH QUARTER RESULTS Q4 MANAGEMENT S DISCUSSION AND ANALYSIS AND CONSOLIDATED FINANCIAL STATEMENTS

MANAGEMENT S DISCUSSION AND ANALYSIS DECEMBER 31, PART I BASIS OF PRESENTATION Financial data included in this Management s Discussion and Analysis ( MD&A ) for the year ended December 31,, includes material information up to February 17, 2016. Except as outlined below, financial data provided has been prepared in accordance with International Financial Reporting Standards ( IFRS ) IAS 34, "Interim Financial Reporting", as issued by the International Accounting Standards Board ( IASB ). In this MD&A, the discussion of the operating results of Morguard Real Estate Investment Trust ( the Trust ) is based on financial information developed using proportionate consolidation for all the Trust s joint arrangements, including those joint ventures accounted for using the equity method, as required by IFRS 11. Management believes that presenting the operating and financial results of the Trust s joint arrangements using proportionate consolidation provides more useful information to both current and prospective investors to assist them with their understanding of the Trust s financial performance. From time to time, the Trust will undertake to actively dispose of certain assets. In these circumstances management has determined that the performance of ongoing operations is of greatest importance to its stakeholders. As a result, in this MD&A, the discussion of the Trust s property performance for the purpose of some measures is focused on income producing properties ("IPP"), which exclude properties held for sale. The following discussion and analysis is intended to provide readers with an assessment of the performance of the Trust over the three months, as well as its financial position and future prospects. This discussion should be read in conjunction with the audited consolidated financial statements and accompanying notes for the year ended December 31,. Historical results, including trends that might appear, should not be taken as indicative of future operations or results. All dollar references, unless otherwise stated, are in thousands of Canadian dollars, except per unit amounts. PART XI provides reconciliations between selected financial information from the Trust s consolidated financial statements and the financial information used in this MD&A. FORWARD-LOOKING DISCLAIMER Certain information in this MD&A may constitute forward-looking statements that involve a number of risks and uncertainties, including statements regarding the outlook for the Trust s business results of operations. Forward-looking statements use the words believe, expect, anticipate, may, should, intend, estimate and other similar terms, which do not relate to historical matters. Such forward-looking statements involve known and unknown risks and uncertainties and other factors that may cause the actual results to differ materially from those indicated. Such factors include, but are not limited to, general economic conditions, the availability of new competitive supply of commercial real estate that may become available either through construction or sublease, the Trust s ability to maintain occupancy and to lease or re-lease space on a timely basis at current or anticipated rates, tenant bankruptcies, financial difficulties and defaults, changes in interest rates, changes in operating costs, the Trust s ability to obtain adequate insurance coverage at a reasonable cost and the availability of financing. The Trust believes that the expectations reflected in forward-looking statements are based on reasonable assumptions; however, the Trust can give no assurance that actual results will be consistent with these forward-looking statements. Except as required by applicable law, the Trust disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise. Readers should be cautioned not to place undue reliance on the forward-looking statements. 2

MANAGEMENT S DISCUSSION AND ANALYSIS DECEMBER 31, FINANCIAL MEASURES The Trust uses supplemental measures such as net operating income ( NOI ), funds from operations ( FFO ) and adjusted funds from operations ( AFFO ) to manage its financial performance. These measures are not defined by IFRS and therefore should not be construed as substitutes for net income or cash flows from operating activities calculated in accordance with IFRS. Furthermore, the Trust s method of calculating these supplemental measures may differ from other issuers methods and, accordingly, may not be comparable to measures reported by other issuers. SUMMARY OF SELECTED ANNUAL INFORMATION The selected annual information highlights certain key metrics for the Trust over the most recently completed five years. These measures from time to time may reflect fluctuations caused by the underlying impact of seasonal or non-recurring items, including acquisitions, divestitures, developments, leasing and maintenance expenditures, along with any associated financing requirements. These items along with the ongoing financing activities for the existing portfolio can dramatically affect the results. ADOPTION OF ACCOUNTING STANDARDS IAS 40, INVESTMENT PROPERTY ( IAS 40 ) On January 1,, the Trust adopted an amendment with respect to the description of ancillary services in IAS 40, which differentiates between investment property and owner-occupied property (i.e., property, plant and equipment). The amendment is applied prospectively and clarifies that IFRS 3, Business Combinations, and not the description of ancillary services in IAS 40, is used to determine if the transaction is the purchase of an asset or a business combination. This amendment did not result in a material impact to the consolidated financial statements. IFRS 8, OPERATING SEGMENTS ( IFRS 8 ) On January 1,, the Trust adopted the amendments to IFRS 8. The amendments are applied retrospectively and clarify that: An entity must disclose the judgments made by management in applying the aggregation criteria in paragraph 12 of IFRS 8, including a brief description of operating segments that have been aggregated and the economic characteristics (e.g., sales and gross margins) used to assess whether the segments are similar. The reconciliation of segment assets to total assets is required to be disclosed only if the reconciliation is reported to the chief operating decision-maker, similar to the required disclosure for segment liabilities. These amendments did not result in a material impact to the consolidated financial statements. ADDITIONAL INFORMATION Additional information relating to the Trust, including the audited consolidated financial statements, Annual Information Form ( AIF ), Material Change Reports and all other continuous disclosure documents required by securities regulators, are filed on the System for Electronic Document Analysis and Retrieval ("SEDAR") and can be accessed electronically at www.sedar.com. REVIEW AND APPROVAL BY THE BOARD OF TRUSTEES The Board of Trustees ( Trustees ), upon the recommendation of its Audit Committee, approved the contents of this MD&A on February 17, 2016. 3

MANAGEMENT S DISCUSSION AND ANALYSIS DECEMBER 31, SUMMARY OF SELECTED ANNUAL INFORMATION TABLE 1 2013 2012 2011 $290,982 $298,461 $279,651 $244,876 $235,460 Net operating income 165,930 169,739 161,336 136,964 133,628 Income before fair value (losses)/gains on real estate properties, loss/(gain) on sale of real estate properties and net income/(loss) from equity-accounted investments 103,153 102,700 97,080 82,103 78,254 Fair value (losses)/gains on real estate properties (78,977) 11,239 77,912 In thousands of dollars, except per unit amounts Revenue from real estate properties (Loss)/gain on sale of real estate properties Net income/(loss) from equity-accounted investments 107,641 142,683 (37) 2,058 2,441 (20) 5,602 3,660 2,136 Net income for the year 26,617 113,882 212,381 228,446 158,302 Funds from operations 106,385 106,516 100,763 85,982 78,355 79,524 79,272 65,342 43,681 56,511 Basic $0.43 $1.83 $3.35 $3.82 $2.77 Diluted $0.43 $1.72 $3.01 $3.81 $2.62 $1.72 $1.71 $1.59 $1.44 $1.37 $1.67 $1.67 $1.55 $1.44 $1.33 Basic $1.28 $1.28 $1.03 $0.73 $0.99 Diluted 1 $1.28 $1.27 $1.03 $0.73 $0.99 Cash distributions per unit $0.96 $0.96 $0.96 $0.95 $0.90 Adjusted funds from operations Amount presented on a per unit basis Net income for the year Funds from operations Basic Diluted 1 Adjusted funds from operations Payout ratio Adjusted funds from operations - basic 2 75.0 % 75.0 % 93.2 % 130.1 % 90.9 % Weighted average number of units (in thousands) Basic 61,779 62,168 63,456 59,778 57,079 Diluted 1 67,876 68,265 69,554 60,811 63,657 Total assets $2,920,155 $3,016,496 $2,942,799 $2,663,321 $2,093,401 Total liabilities $1,364,015 $1,409,415 $1,390,061 $1,232,538 $920,488 Total equity $1,556,140 $1,607,081 $1,552,738 $1,430,783 $1,172,913 Retail 4,710 4,775 4,771 4,299 4,296 Office 3,517 3,526 3,466 3,466 2,819 534 534 534 534 534 8,761 8,835 8,771 8,299 7,649 Balance sheets Gross leasable area as at December 31 (in thousands) 3 Industrial Total Occupancy as at the year-end date (%) 4 Retail 97 % 96 % 98 % 97 % 97 % Office 97 % 96 % 95 % 95 % 93 % Industrial 97 % 97 % 87 % 95 % 97 % Total 97 % 96 % 96 % 96 % 96 % 1. Includes the dilutive impact of convertible debentures. 2. Cash distributions per unit as a percentage of adjusted funds from operations. 3. Gross leasable area for income producing properties only. 4. Excludes properties held for sale, and components of properties not available for occupancy due to redevelopment or remerchandising. 4

MANAGEMENT S DISCUSSION AND ANALYSIS DECEMBER 31, PART II BUSINESS OVERVIEW AND STRATEGY The Trust s primary business goal is to accumulate a Canadian portfolio of high-quality real estate assets and then deliver the benefits of such real estate ownership to unitholders. The primary benefit is a reliable and, over time, increasing cash distribution. The Trust manages distributions to ensure sufficient cash is retained to meet fixed obligations while ensuring a stable cash flow to unitholders. The Trust is an unincorporated closed-end trust, governed by the laws of the Province of Ontario, created and constituted pursuant to an amended and restated Declaration of Trust dated May 5, ( Declaration of Trust ). The Trust was formed on June 18, 1997, and began operations on October 14, 1997. The Trust units are publicly traded and listed on the Toronto Stock Exchange ( TSX ) under the symbol MRT.UN. Morguard Corporation ( Morguard ) is the parent company of the trust, owning 50.41% of the outstanding units as at December 31,. Morguard is a real estate company that owns a diversified portfolio of multi-unit residential, retail, hotel, office and industrial properties in both Canada and the United States. The Trust s asset management team is focused on continually improving the returns from the assets currently owned and making quality acquisitions that are accretive in the long term. As part of its strategy to continually improve the quality of its property portfolio, the Trust undertakes the disposition of properties in cases where both the cash flows and values have been maximized, where the properties no longer fit the Trust s portfolio or where market trends indicate that superior investment return opportunities are available elsewhere. The Trust s management team is incentivized to maintain occupancy levels and rents that outperform local markets. The Trust has established standards for maintaining the quality of its portfolio and operating its properties at cost levels that are competitive in their respective markets. These efforts are enhanced through a sustainability program that tracks utility usage and savings over time. These savings are returned to our tenants through reduced operating costs, increasing the Trust s reputation as a responsible landlord. The Trust s management team is supported by contracted property management. The choice to contract for property management provides the Trust with a day-to-day operating platform that is both best-in-class and cost-effective. Property management services are delivered through a management agreement with Morguard Investments Limited ( MIL ). MIL is a full-service real estate advisory company wholly owned by Morguard. MIL also provides advisory and management services to institutional and other investors not related to Morguard or the Trust. The Trust s agreement with MIL provides property management services at predetermined rates based on a percentage of revenue. This provides predictability to a key component of operating costs. In addition, MIL provides the Trust with leasing services across the full portfolio. With MIL locations across the country, the Trust benefits from local market knowledge and local broker relationships. An annual review of this agreement, combined with MIL s institutional client base, ensures that rates for services reflect current market conditions. The Trust s long-term debt strategy involves the use of conventional property-specific secured mortgages or bonds, unsecured convertible debentures and secured floating-rate bank financing. The Trust currently targets a capital structure with an overall indebtedness ratio of not more than 50% of gross assets. Through its Declaration of Trust, the Trust has the ability to increase its overall indebtedness ratio to 60%. FOURTH QUARTER OVERVIEW The Trust s fully diluted FFO for the three months ended December 31, of $0.45 is up $0.01 from the same period ended. The Trust's fully diluted FFO for the year ended December 31, of $1.67 is unchanged from the same year ended. During the quarter the Trust benefited from reduced interest expense of $0.5 million and reduced general and administrative expense of the same amount. These reductions were sufficient to offset a decrease in net operating income of $0.4 million and a decrease in other income of $0.1 million. 5

MANAGEMENT S DISCUSSION AND ANALYSIS DECEMBER 31, Lower interest expense is largely the result of properties sold during the year and regular amortizations on outstanding mortgages. The reduction in general and administrative expense derives from additional compensation costs in compared to the same three months ended. The Trust s net operating income continued to be challenged by the exit of Target Canada Corporation ("Target") from Canada ($0.8 million) and the bankruptcy of Everest College ($0.2 million). During the quarter the Trust made a strategic decision to redevelop the former Target space at Cambridge Centre, The Centre @ Circle & 8th, Brandon Shoppers Mall and Prairie Mall, as well as the former Everest College space at St. Laurent Centre. The Trust now classifies these spaces as under development. After adjusting net operating income for the space under development as well as other one-time non-recurring items, net operating income for the three months ended December 31, was $43.3 million which is up $0.7 million from the same period ended. Increases in the Trust s same asset net operating income ($1.2 million) and properties under development ($0.1 million) were offset by decreases to net operating income due to dispositions ($0.6 million). The favourable result in same asset net operating income was largely due to improved performance within the enclosed regional centres as a result of operating efficiencies. The recognition of these efficiencies in the fourth quarter allowed the Trust to accelerate the recovery of capital expenditures made in previous quarters. Occupancy levels improved during the quarter (excluding the area under development) with the Trust completing over 278,000 square feet of leasing. The Trust s ability to close the year ended December 31, with fully diluted FFO equal to the same period ended December 31, demonstrates its strength. The challenges provided by Target and Everest College were overcome through a determined effort to improve operating efficiencies which have allowed for the accelerated recovery of capital expenditures and improvements in same asset net operating income. A strategic disposition program brought in additional funds ($29.6 million), which the Trust used to repurchase just over 1.3 million units ($20.0 million) and complete the revitalization project at St. Laurent Centre. As at December 31, the Trust had $26.3 million of cash available to: repurchase additional units, reinvest in the development projects or reduce debt levels. 6

MANAGEMENT S DISCUSSION AND ANALYSIS DECEMBER 31, PORTFOLIO OVERVIEW The risk and reliability characteristics of real estate asset classes are different, and delivering on the primary business goal requires a mix of assets that balance risk and rewards. As at December 31,, the Trust owned a diversified income producing property portfolio of 49 retail, office and industrial properties consisting of approximately 8.8 million square feet of gross leasable area ( GLA ) located in the provinces of British Columbia, Alberta, Saskatchewan, Manitoba, Ontario and Quebec. Retail: The retail portfolio includes two broad categories of income producing properties: enclosed full-scale, regional shopping centres that are dominant in their respective markets; and neighbourhood and community shopping centres that are primarily anchored by food retailers, discount department stores and banking institutions. Investing across these two broad categories of retail assets allows the Trust to spread its tenant base, reducing its exposure to a single category retailer. Office: The office portfolio is focused on well-located, high-quality properties in major Canadian urban centres. The portfolio is balanced between single-tenant properties under long-term lease to government and large national tenants that work to secure the Trust s cash flow, and multi-tenant properties with well-distributed lease expiries that allow the Trust to benefit from increased rental rates on lease renewal. Industrial: The Trust has an interest in five industrial properties located in Ontario and Quebec. PORTFOLIO COMPOSITION BY ASSET TYPE AND LOCATION TABLE 2 AT THE TRUST'S OWNERSHIP SHARE Retail Number of Properties British Columbia 2 Alberta Saskatchewan Manitoba Ontario Location Office GLA (000's) Number of Properties 533 3 5 818 1 490 3 658 9 2,211 Industrial Total GLA (000's) Number of Properties GLA (000's) Number of Properties 600 GLA (000's) 5 1,133 10 1,319 15 2,137 1 490 3 658 9 1,023 4 291 22 3,525 Quebec 2 575 1 243 3 818 Income producing properties 20 4,710 24 3,517 5 534 49 8,761 Properties under development Total real estate properties 1 67 1 67 21 4,777 24 3,517 5 534 50 8,828 7

MANAGEMENT S DISCUSSION AND ANALYSIS DECEMBER 31, PART III PROPERTY PERFORMANCE NET OPERATING INCOME NOI is used as a key indicator of performance as it represents a measure over which management has control. NOI is an additional GAAP ("Generally Accepted Accounting Principles") measure and is defined by the Trust as revenue from real estate properties less property operating expenses, property taxes and property management fees. For the year ended December 31,, the Trust s retail properties accounted for more than 50% of NOI from income producing properties (52%), with the office portfolio accounting for 46%. The Trust s industrial portfolio accounts for only 2% of the Trust s NOI from income producing properties. NET OPERATING INCOME BY ASSET TYPE AND LOCATION TABLE 3 AT THE TRUST'S OWNERSHIP SHARE Retail Office Number of Properties NOI (000's) British Columbia 2 Alberta 5 Saskatchewan Manitoba Industrial Total Number of Properties NOI (000's) Number of Properties NOI (000's) $9,682 3 $12,589 13,656 10 39,792 1 7,699 3 10,687 Ontario 9 45,617 9 Quebec 2 Income producing properties 20 87,341 24 1 846 Location Properties under development Number of Properties NOI (000's) $ 5 $22,271 15 53,448 1 7,699 3 10,687 17,998 4 1,630 22 65,245 8,309 1 1,393 3 9,702 78,688 5 3,023 49 169,052 1 839 (7) Properties held for sale 136 292 428 Total real estate properties 21 $88,187 24 $78,824 5 $3,308 50 $170,319 A complete reconciliation of NOI discussed in this MD&A to NOI per the consolidated financial statements is provided in Part XI (Table 60). 8

MANAGEMENT S DISCUSSION AND ANALYSIS DECEMBER 31, COMPARATIVE NET OPERATING INCOME ANALYSIS TABLE 4 AT THE TRUST'S OWNERSHIP SHARE Three Months Ended December 31 Revenue from real estate properties Variance $1,226 Year Ended December 31 % Variance % 1.7% $74,824 $73,598 $287,221 $285,363 $1,858 0.7% Property operating expenses 17,003 17,461 (458) (2.6)% 63,941 63,538 403 0.6% Property taxes 12,669 12,240 429 3.5 % 50,338 49,161 1,177 2,457 2,405 52 2.2 % 9,361 10,174 $42,695 $41,492 $1,203 $163,581 $162,490 Property management fees Net operating income same assets 2.9% (813) $1,091 2.4% (8.0%) 0.7% The components of net operating income same assets are displayed in the table above. For comparability, the NOI is focused on same assets. Assets acquired, disposed of and developed over the comparable periods are removed, along with the impact of step rents, lease cancellation fees and other one-time events. In the fourth quarter, the Trust made a strategic decision to redevelop the former Target space at Cambridge Centre, The Centre @ Circle & 8th, Brandon Shoppers Mall and Prairie Mall, as well as the former Everest College space at St. Laurent Centre. The Trust now classifies these spaces as under development. As a result, net operating income same assets excludes net operating income associated with the former Target and Everest College space. Property management fees are the direct result of the Trust s management agreement with MIL. The property management agreement permits property management fees to be charged, at variable rates, on revenue from real estate properties based on asset type. Fees average 3.25% of revenue from real estate properties. With few exceptions, these fees are recoverable from tenants. COMPARATIVE NET OPERATING INCOME BY ASSET TYPE FOR INCOME PRODUCING PROPERTIES TABLE 5 AT THE TRUST'S OWNERSHIP SHARE Three Months Ended December 31 Year Ended December 31 Variance % Retail $22,959 $21,867 $1,092 5.0% $85,059 $85,181 ($122) Office 19,053 18,916 137 0.7% 75,488 74,623 865 1.2% 683 709 (26) (3.7%) 3,034 2,686 348 13.0% $42,695 $41,492 $163,581 $162,490 $1,091 0.7% Industrial Net operating income same assets $1,203 2.9% Variance % (0.1%) COMPARATIVE NET OPERATING INCOME BY ASSET TYPE FOR RETAIL PROPERTIES TABLE 6 AT THE TRUST'S OWNERSHIP SHARE Three Months Ended December 31 Enclosed regional centres Community strip centres Net operating income same assets Year Ended December 31 Variance % $18,108 $16,953 $1,155 6.8% $65,414 $66,134 4,851 4,914 $22,959 $21,867 (63) $1,092 Variance ($720) % (1.1%) (1.3%) 19,645 19,047 598 3.1% 5.0% $85,059 $85,181 ($122) (0.1%) The Trust's retail portfolio is diversified through the investment in enclosed regional centres and community strip centres. ENCLOSED REGIONAL CENTRES OVERVIEW At December 31,, the Trust s enclosed regional centres portfolio totalled 3.5 million square feet of GLA, which comprises a 100% interest in six regional centres totalling 3.4 million square feet and a 50% interest in one additional centre totalling 0.1 million square feet. 9

MANAGEMENT S DISCUSSION AND ANALYSIS DECEMBER 31, The space tied to the former Target (approximately 380,000 square feet) and Everest College (approximately 32,000 square feet) units will remain available for lease during the redevelopment; however, the space ("development space") will not be available for occupancy until after the redevelopment concludes. As a result, the Trust excludes this area (412,000 square feet) to track lease activity and current vacancy. ENCLOSED REGIONAL CENTRES NET OPERATING INCOME TABLE 7 Three Months Ended December 31 Revenue from real estate properties Variance $1,500 Year Ended December 31 % Variance 5.0% % $31,457 $29,957 $115,455 $115,409 $46 % Property operating expenses 7,111 7,178 (67) (0.9%) 26,137 25,168 969 3.9% Property taxes 5,227 4,817 410 8.5% 20,158 19,455 703 3.6% Property management fees 1,011 1,009 2 0.2% 3,746 4,652 (906) (19.5%) $18,108 $16,953 $1,155 6.8% $65,414 $66,134 ($720) (1.1%) Net operating income same assets The Trust s enclosed regional centres net operating income same assets for the three months ended December 31,, was $18.1 million versus $17.0 million for the same period in. This represents an increase of 6.8%. This increase was largely the result of improved operating efficiencies at Parkland Mall, Brandon Shoppers Mall, and Cambridge Centre. The Trust s enclosed regional centres net operating income same assets for the year ended December 31,, was $65.4 million versus $66.1 million for the same period in. This represents a decrease of 1.1%. This decrease was largely due to higher vacancy costs of $1.0 million at St. Laurent Centre, offset by reduced non-recoverable costs of $0.3 million during the year. ENCLOSED REGIONAL CENTRES LEASE PROFILE TABLE 8 SF Weighted Average Contract Rent % of Portfolio 2016 580,734 18.9% $18.71 2017 206,039 6.7% 37.70 2018 241,219 7.8% 30.35 2019 94,789 3.1% 39.91 Thereafter 1,863,171 60.5% 21.36 Current vacancy 91,659 3.0% 3,077,611 100.0% $23.25 Total Weighted average remaining lease term (years) 4.55 The Trust has the opportunity to increase rental rates on lease maturity where the current contract rent is less than the going market rate. The table to the left provides a summary of the lease maturities net of committed renewals, for the next four years and thereafter, along with the associated contract rents at maturity. Current vacancy excludes 412,000 square feet associated with the units under redevelopment. Lower weighted average contract rent displayed in 2016 and thereafter is the result of anchor tenant maturities. The following table provides a quarterly summary of the 2016 expiries net of committed renewals, along with the associated contract rents, for the Trust s enclosed regional centres. ENCLOSED REGIONAL CENTRES 2016 EXPIRIES (NET OF RENEWALS) TABLE 9 Total Gross leasable area Average net rent per SF Q1 Q2 Q3 Q4 2016 327,570 50,758 103,532 98,874 580,734 $17.13 $26.09 $16.16 $21.31 $18.71 10

MANAGEMENT S DISCUSSION AND ANALYSIS DECEMBER 31, ENCLOSED REGIONAL CENTRES LEASE ACTIVITY TABLE 10 Opening vacancy (SF) Q4 YTD 523,933 136,770 Opening occupancy 85% The table to the left provides a summary of the leasing activity for the three months and the year ended December 31,. 96% EXPIRING LEASES: Square feet Average net rent per SF 142,651 489,706 $19.59 $22.08 5,953 431,592 $48.62 $10.13 135,067 386,232 $17.98 $21.52 For the three months ended December 31,, the Trust realized an average decrease of $1.61 per square foot on renewals, while maintaining a 95.1% retention rate for existing tenants. EARLY TERMINATIONS: Square feet Average net rent per SF For the year ended December 31,, the Trust realized an average decrease of $0.56 per square foot on renewals, while maintaining a 79.5% retention rate for existing tenants. In addition, the Trust realized an average uplift of $6.44 per square foot on new leasing. RENEWALS: Square feet Average net rent per SF Retention rate 95.1% 79.5% During the quarter, the enclosed regional centres portfolio was adjusted to exclude 412,000 square feet of GLA relating to former Target (380,000) and Everest College (32,000) units not available for lease due to redevelopment or remerchandising programs under way. NEW LEASING: Square feet 33,477 167,843 Average net rent per SF $34.49 $28.52 (412,334) (412,334) 91,659 91,659 OTHER ADJUSTMENTS: Square feet Ending vacancy (SF) Ending occupancy 97% At December 31,, occupancy was 97%, (excluding the development space) versus the opening occupancy position of 96%. 97% ENCLOSED REGIONAL CENTRES GLA OCCUPIED, PREVIOUS EIGHT QUARTERS TRENDING TABLE 11 In thousands of SF Enclosed regional centres GLA % GLA occupied Q1 Q2 Q3 Q4 Q1 Q2 3,488 3,491 3,488 3,485 3,485 3,488 97% 97% 96% 96% 95% 85% Q3 3,489 85% Q4 3,078 97% The enclosed regional centres square footage and quarterly occupancy for the past eight quarters are outlined in Table 11. Occupancy levels, which have historically remained high with little volatility, were adjusted in the second quarter to fully reflect four of the Trust s regional shopping centres affected by either disclaimed or acquired Target leases. During the quarter, the enclosed regional centres portfolio was adjusted to exclude development space (412,000 square feet of GLA). As at December 31,, this adjustment increased occupancy from 86% to 97%. 11

MANAGEMENT S DISCUSSION AND ANALYSIS DECEMBER 31, COMMUNITY STRIP CENTRES OVERVIEW At December 31,, the Trust's community strip centres portfolio totalled 1.2 million square feet of GLA comprising a 100% interest in 12 such properties totalling 1.1 million square feet, as well as a 50% interest in one additional property totalling 0.1 million square feet. COMMUNITY STRIP CENTRES NET OPERATING INCOME TABLE 12 Three Months Ended December 31 Variance Year Ended December 31 % Variance $765 % $8,014 $7,694 $320 4.2% $31,093 $30,328 Property operating expenses 1,483 1,252 231 18.5% 4,799 4,884 (85) (1.7%) Property taxes 1,366 1,235 131 10.6% 5,443 5,238 205 3.9% 314 293 21 7.2% 1,206 1,159 47 4.1% $4,851 $4,914 ($63) (1.3%) $19,645 $19,047 $598 3.1% Revenue from real estate properties Property management fees Net operating income same assets 2.5% The Trust s community strip centres net operating income same assets remained stable at $4.9 million for the three months ended December 31,, and for the same period in. The Trust s community strip centres net operating income same assets for the year ended December 31,, was $19.6 million versus $19.0 million for the same period in. This represents an increase of 3.1%. This increase was mainly due to higher basic rents on renewals, which amounted to $0.4 million, and decreased vacancy costs of $0.2 million during the early part of the year. COMMUNITY STRIP CENTRES LEASE PROFILE TABLE 13 SF Weighted Average Contract Rent % of Portfolio 2016 145,472 11.9% $17.43 2017 182,705 15.0% 19.29 2018 115,738 9.5% 21.91 2019 84,952 7.0% 21.89 Thereafter 664,514 54.4% 15.54 Current vacancy 26,471 2.2% 1,219,852 100.0% $17.42 Total Weighted average remaining lease term (years) The Trust has the opportunity to increase rental rates on lease maturity where the current contract rent is less than the going market rate. The table to the left provides a summary of the lease maturities net of committed renewals for the next four years and thereafter, along with the associated contract rents at maturity. Lower weighted average contract rent displayed in 2016 and thereafter is the result of anchor tenant maturities. 4.87 The following table provides a quarterly summary of the 2016 expiries net of committed renewals, along with the associated contract rents, for the Trust s community strip centres. COMMUNITY STRIP CENTRES 2016 EXPIRIES (NET OF RENEWALS) TABLE 14 Total Gross leasable area Average net rent per SF Q1 Q2 Q3 Q4 2016 101,761 5,212 9,977 28,522 145,472 $15.18 $23.61 $26.27 $21.22 $17.43 12

MANAGEMENT S DISCUSSION AND ANALYSIS DECEMBER 31, COMMUNITY STRIP CENTRES LEASE ACTIVITY TABLE 15 Q4 Opening vacancy (SF) YTD 26,873 Opening occupancy The table to the left provides a summary of the leasing activity for the three months and the year ended December 31,. 36,997 98% 97% EXPIRING LEASES: Square feet 13,144 66,315 Average net rent per SF $20.27 $21.42 1,375 7,008 $24.00 $23.96 Square feet 13,688 67,454 Average net rent per SF $22.47 $23.90 For the three months ended December 31,, the Trust realized an average uplift of $2.20 per square foot on renewals, while maintaining a 104.1% retention rate for existing tenants. During the period an existing tenant expanded within the centre. EARLY TERMINATIONS: Square feet Average net rent per SF For the year ended December 31,, the Trust realized an average uplift of $2.48 per square foot on renewals, while maintaining a 90.5% retention rate for existing tenants. In addition, the Trust realized an average uplift of $0.77 per square foot on new leasing. RENEWALS: Retention rate 104.1% 90.5% Ending occupancy improved by 1% over the same period in, closing at 98%. NEW LEASING: Square feet Average net rent per SF Ending vacancy (SF) 1,233 16,395 $35.50 $22.19 26,471 26,471 Ending occupancy 98% 98% COMMUNITY STRIP CENTRES GLA OCCUPIED, PREVIOUS EIGHT QUARTERS TRENDING TABLE 16 In thousands of SF Community strip centres GLA % GLA occupied Q1 Q2 Q3 Q4 Q1 Q2 1,290 1,290 1,290 1,290 1,290 1,287 97% 97% 97% 97% 98% 97% Q3 1,287 97% Q4 1,219 98% The community strip centres square footage and quarterly occupancy for the past eight quarters are outlined in Table 16. Occupancy levels throughout the period remained high, with little volatility. The differential between the highest and lowest level of portfolio occupancy over this two-year period is only 100 basis points (98% being the highest and 97% being the lowest). 13

MANAGEMENT S DISCUSSION AND ANALYSIS DECEMBER 31, COMPARATIVE NET OPERATING INCOME BY ASSET TYPE FOR OFFICE PROPERTIES TABLE 17 AT THE TRUST'S OWNERSHIP SHARE Three Months Ended December 31 Single/dual tenant buildings Multi-tenant buildings Net operating income same assets Variance $13,963 $14,206 ($243) 5,090 4,710 380 $19,053 $18,916 $137 Year Ended December 31 % Variance % (1.7%) $56,439 $56,279 $160 0.3% 8.1% 19,049 18,344 705 3.8% 0.7% $75,488 $74,623 $865 1.2% The Trust's office portfolio is diversified through investment in single/dual tenant buildings and multi-tenant buildings. SINGLE/DUAL TENANT BUILDINGS OVERVIEW At December 31,, the Trust s single/dual tenant buildings portfolio totalled 2.4 million square feet of GLA, which comprises a 100% interest in nine properties totalling 1.5 million square feet and a 50% interest in four properties totalling 0.9 million square feet. SINGLE/DUAL TENANT BUILDINGS NET OPERATING INCOME TABLE 18 Three Months Ended December 31 $24,131 $25,382 ($1,251) (4.9%) $97,754 $98,288 ($534) (0.5%) Property operating expenses 5,314 6,005 (691) (11.5%) 21,110 21,874 (764) (3.5%) Property taxes 4,095 4,393 (298) (6.8%) 17,233 17,128 105 0.6% (35) (1.2%) Revenue from real estate properties Property management fees Net operating income same assets Variance Year Ended December 31 % 759 778 (19) (2.4%) 2,972 3,007 $13,963 $14,206 ($243) (1.7%) $56,439 $56,279 Variance $160 % 0.3% Single/dual tenant buildings net operating income same assets decreased by 1.7% to $14.0 million for the three months ended December 31,, from $14.2 million for the same period in. Single/dual tenant buildings net operating income same assets increased by 0.3% to $56.4 million for the year ended December 31,, from $56.3 million for the same period in. SINGLE/DUAL TENANT BUILDINGS LEASE PROFILE TABLE 19 SF % of Portfolio Weighted Average Contract Rent 2016 159,980 6.7% $25.36 2017 92,054 3.8% $35.78 2018 42,322 1.8% $38.13 2019 70,273 2.9% $31.96 Thereafter 2,012,471 83.9% $23.12 Current vacancy 20,994 0.9% Total 2,398,094 100.0% $24.29 Weighted average remaining lease term (years) The Trust has the opportunity to increase rental rates on lease maturity where the current contract rent is less than the going market rate. The table to the left provides a summary of the lease maturities net of committed renewals over the next four years and thereafter, along with the associated contract rents at maturity. 8.06 14

MANAGEMENT S DISCUSSION AND ANALYSIS DECEMBER 31, The following table provides a quarterly summary of the 2016 expiries net of committed renewals, along with the associated contract rents, for the Trust s single/dual tenant buildings. SINGLE/DUAL TENANT BUILDINGS 2016 EXPIRIES (NET OF RENEWALS) TABLE 20 Total Q1 Q2 Q3 Q4 2016 Gross leasable area 45,527 Average net rent per SF $16.04 44,513 4,274 65,666 159,980 $40.13 $30.23 $21.50 $25.36 SINGLE/DUAL TENANT BUILDINGS LEASE ACTIVITY TABLE 21 Q4 Opening vacancy (SF) Opening occupancy 31,080 99% YTD 23,323 99% EXPIRING LEASES: Square feet Average net rent per SF 2,011 8,604 $21.50 $18.74 9,782 $ $30.00 EARLY TERMINATIONS: Square feet Average net rent per SF RENEWALS: Square feet Average net rent per SF Retention rate 423 7,414 $21.50 $25.96 27.3% 56.1% NEW LEASING: Square feet 11,674 13,301 Average net rent per SF $18.50 $20.24 20,994 20,994 Ending vacancy (SF) Ending occupancy 99% The table to the left provides a summary of the leasing activity for the three months and the year ended December 31,. For the three months ended December 31,, there was no change in average rental rates on renewals, while maintaining a 27.3% retention rate for existing tenants. In addition, the Trust realized an average decrease of $3.00 per square foot on new leasing. For the year ended December 31,, the Trust realized an average uplift of $7.22 per square foot on renewals, while maintaining a 56.1% retention rate for existing tenants. In addition, the Trust realized an average uplift of $1.50 per square foot on new leasing. Ending occupancy remained stable at 99%. 99% 15

MANAGEMENT S DISCUSSION AND ANALYSIS DECEMBER 31, SINGLE/DUAL TENANT BUILDINGS GLA OCCUPIED, PREVIOUS EIGHT QUARTERS TRENDING TABLE 22 In thousands of SF Single/dual tenant buildings GLA % GLA occupied Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2,372 2,372 2,409 2,407 2,406 2,398 2,398 2,398 99% 99% 99% 99% 99% 99% 99% 99% The single/dual tenant buildings square footage and quarterly occupancy for the past eight quarters are outlined in Table 22. Occupancy levels throughout the period remained high and unchanged at 99%. MULTI-TENANT BUILDINGS OVERVIEW At December 31,, the Trust s multi-tenant buildings portfolio totalled 1.1 million square feet of GLA, which comprises a 100% interest in seven properties totalling 0.7 million square feet, a 50% interest in three properties totalling 0.3 million square feet and a 20% interest in one property totalling 0.1 million square feet. MULTI-TENANT BUILDINGS NET OPERATING INCOME TABLE 23 Three Months Ended December 31 Variance $567 Year Ended December 31 % Variance % $9,973 $9,406 6.0% $37,919 $36,625 $1,294 3.5% Property operating expenses 2,811 2,855 (44) (1.5%) 11,072 10,729 343 3.2% Property taxes 1,729 1,539 190 12.3% 6,497 6,316 181 2.9% 343 302 41 13.6% 1,301 1,236 65 5.3% $5,090 $4,710 $380 8.1% $19,049 $18,344 $705 3.8% Revenue from real estate properties Property management fees Net operating income same assets Multi-tenant buildings net operating income same assets increased by 8.1% to $5.1 million for the three months ended December 31,, from $4.7 million for the same period in. This increase in NOI is mainly due to improved operating efficiencies at 77 Bloor Street that allowed for the earlier recovery of capital costs. Multi-tenant buildings net operating income same assets increased by 3.8% to $19.0 million for the year ended December 31,, from $18.3 million for the same period in. This increase in NOI is mainly due to modest increases in basic rent of $0.6 million coupled with a decrease in non-recoverable operating costs of $0.2 million. 16

MANAGEMENT S DISCUSSION AND ANALYSIS DECEMBER 31, MULTI-TENANT BUILDINGS LEASE PROFILE TABLE 24 SF Weighted Average Contract Rent % of Portfolio 2016 124,227 11.1% $18.00 2017 194,463 17.4% $17.10 2018 154,601 13.8% $17.68 2019 102,120 9.1% $17.95 Thereafter 451,528 40.3% $20.64 Current vacancy 92,412 8.3% Total 1,119,351 100.0% $18.94 Weighted average remaining lease term (years) The Trust has the opportunity to increase rental rates on lease maturity where the current contract rent is less than the going market rate. The table to the left provides a summary of the lease maturities net of committed renewals over the next four years and thereafter, along with the associated contract rents at maturity. 4.51 The following table provides a quarterly summary of the 2016 expiries net of committed renewals, along with the associated contract rents, for the Trust s multi-tenant buildings. MULTI-TENANT BUILDINGS 2016 EXPIRIES (NET OF RENEWALS) TABLE 25 Total Q1 Q2 Q3 Q4 2016 Gross leasable area 28,055 24,388 45,955 25,829 124,227 Average net rent per SF $23.04 $17.40 $15.31 $17.90 $18.00 17

MANAGEMENT S DISCUSSION AND ANALYSIS DECEMBER 31, MULTI-TENANT BUILDINGS LEASE ACTIVITY TABLE 26 Q4 Opening vacancy (SF) YTD 99,829 Opening occupancy The table to the left provides a summary of the leasing activity for the three months and the year ended December 31,. 106,892 91% 92% EXPIRING LEASES: Square feet 28,948 275,630 Average net rent per SF $20.96 $18.77 6,393 17,540 $13.16 $22.22 Square feet 24,732 233,429 Average net rent per SF $18.54 $17.96 For the three months ended December 31,, the Trust realized an average decrease of $2.42 per square foot on renewals, while maintaining an 80.1% retention rate for existing tenants. In addition, the Trust realized an average uplift of $0.33 per square foot on new leasing. EARLY TERMINATIONS: Square feet Average net rent per SF For the year ended December 31,, the Trust realized an average decrease of $0.81 per square foot on renewals, while maintaining an 83.7% retention rate for existing tenants. In addition, the Trust realized an average uplift of $0.47 per square foot on new leasing. RENEWALS: Retention rate 80.1% 83.7% NEW LEASING: Square feet 18,026 74,221 Average net rent per SF $21.29 $19.24 92,412 92,412 Ending vacancy (SF) Ending occupancy 92% Ending occupancy remained stable at 92%. 92% MULTI-TENANT BUILDINGS GLA OCCUPIED, PREVIOUS EIGHT QUARTERS TRENDING TABLE 27 In thousands of SF Multi-tenant buildings GLA % GLA occupied Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 1,099 1,110 1,111 1,119 1,119 1,118 1,118 1,119 89% 90% 90% 90% 91% 90% 91% 92% The multi-tenant buildings square footage and quarterly occupancy for the past eight quarters are outlined in Table 27. Occupancy levels throughout the period remained high with little volatility. The differential between the highest and lowest level of portfolio occupancy over this two-year period is only 300 basis points (92% being the highest and 89% being the lowest). 18

MANAGEMENT S DISCUSSION AND ANALYSIS DECEMBER 31, INDUSTRIAL OVERVIEW The Trust s industrial portfolio includes 100% interests in four industrial properties comprising 0.3 million square feet and a 50% interest in one industrial property comprising 0.2 million square feet. INDUSTRIAL NET OPERATING INCOME TABLE 28 Three Months Ended December 31 Revenue from real estate properties Variance Year Ended December 31 % Variance $287 % $1,249 $1,159 $90 7.8% $5,000 $4,713 Property operating expenses 284 171 113 66.1% 823 883 (60) Property taxes 252 256 (4) (1.6%) 1,007 1,024 (17) (1.7%) 30 23 7 30.4% 136 120 16 13.3% $683 $709 $3,034 $2,686 $348 13.0% Property management fees Net operating income same assets ($26) (3.7%) 6.1% (6.8%) Industrial net operating income same assets remained stable at $0.7 million for the three months ended December 31,, and for the same period in. Industrial net operating income same assets increased by 13% to $3.0 million for the year ended December 31,, from $2.7 million for the same period in. This increase was mainly due to decreased vacancy costs of $0.2 million during the year. On September 30,, the Trust revised its view on 2041-2141 McCowan as a long-term hold. As a result, the property was reclassified to same assets as a part of the Trust's industrial portfolio. INDUSTRIAL LEASE PROFILE TABLE 29 SF Weighted Average Contract Rent % of Portfolio 2016 46,144 8.6% $5.98 2017 73,438 13.7% 7.58 2018 61,775 11.6% 6.27 2019 7,472 1.4% 6.39 Thereafter 330,102 61.8% 5.68 Current vacancy 15,271 2.9% Total 534,202 100.0% $6.06 Weighted average remaining lease term (years) The table to the left provides a summary of the lease maturities net of committed renewals, over the next four years and thereafter, along with the associated contract rents at maturity. Lower weighted average contract rent displayed in thereafter is mainly the result of a long-term lease at one of the Quebec industrial properties due to expire in 2022. The lease was originally entered into in 2002. 5.04 The following table provides a quarterly summary of the 2016 expiries net of committed renewals, along with the associated contract rents, for the Trust s industrial portfolio. INDUSTRIAL 2016 EXPIRIES (NET OF RENEWALS) TABLE 30 Total Q1 Q2 Q3 Q4 2016 Gross leasable area 7,525 29,928 3,725 4,966 46,144 Average net rent per SF $8.43 $4.41 $9.03 $9.40 $5.98 19

MANAGEMENT S DISCUSSION AND ANALYSIS DECEMBER 31, INDUSTRIAL LEASE ACTIVITY TABLE 31 Q4 Opening vacancy (SF) YTD 15,016 Opening occupancy 1,900 97% 99% EXPIRING LEASES: Square feet Average net rent per SF 39,908 48,482 $4.60 $5.37 35,205 43,779 $4.39 $5.39 EARLY TERMINATIONS: Square feet RENEWALS: Square feet Average net rent per SF Retention rate 88.2% 90.3% The table to the left provides a summary of the leasing activity for the three months and the year ended December 31,. For the three months ended December 31,, the Trust realized an average decrease of $0.21 per square foot on renewals, while maintaining an 88.2% retention rate for existing tenants. In addition, the Trust realized an average uplift of $3.99 per square foot on new leasing. For the year ended December 31,, the Trust realized an average uplift of $0.02 per square foot on renewals, while maintaining a 90.3% retention rate for existing tenants. In addition, the Trust realized an average uplift of $3.22 per square foot on new leasing. NEW LEASING: Square feet 4,448 4,448 Average net rent per SF $8.59 $8.59 13,116 15,271 15,271 OTHER ADJUSTMENTS: Square feet Ending vacancy (SF) Ending occupancy 97% On September 30,, as part of the reclassification of 2041-2141 McCowan to same assets, the 13,116 vacant square feet for this property were reclassified to the Trust's industrial portfolio to form part of ending vacancy. Ending occupancy remained stable at 97%. 97% INDUSTRIAL GLA OCCUPIED, PREVIOUS EIGHT QUARTERS TRENDING TABLE 32 In thousands of SF Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Industrial GLA 534 534 534 534 534 534 534 534 % GLA occupied 87% 91% 93% 97% 97% 97% 97% 97% The industrial square footage and quarterly occupancy for the past eight quarters are outlined in Table 32. The differential between the highest and lowest level of portfolio occupancy over this two-year period was 1,000 basis points (97% being the highest and 87% being the lowest). On September 30,, as part of the reclassification of 2041-2141 McCowan to same assets, the historical GLA and occupancy for this property were reclassified to the Trust's industrial portfolio for the past eight quarters. 20

MANAGEMENT S DISCUSSION AND ANALYSIS DECEMBER 31, PART IV TRUST PERFORMANCE FUNDS FROM OPERATIONS The Trust presents FFO in accordance with the Real Property Association of Canada ( REALpac ) white paper on funds from operations for IFRS issued April. In accordance with such white paper, the Trust defines FFO as net income adjusted for fair value changes on real estate properties and gains/(losses) on the sale of real estate properties. FFO is a non-gaap measure that is widely accepted as a supplemental measure of financial performance for real estate entities; however, it does not represent amounts available for capital programs, debt service obligations, commitments or uncertainties. FFO should not be interpreted as an indicator of cash generated from operating activities and is not indicative of cash available to fund operating expenditures, or for the payment of cash distributions. FFO is simply one measure of operating performance. FUNDS FROM OPERATIONS TABLE 33 Three Months Ended December 31 In thousands of dollars, except per unit amounts Net income for the year Year Ended December 31 $4,697 $23,487 $26,617 $113,882 23,985 4,645 79,768 Add/(deduct) items not affecting cash: Fair value losses/(gains) on real estate properties1 Loss on sale of real estate properties Basic funds from operations (7,403) 22 37 28,682 28,154 106,385 106,516 1,833 1,834 7,274 7,275 $30,515 $29,988 $113,659 $113,791 Basic $0.47 $0.45 $1.72 $1.71 Diluted2 $0.45 $0.44 $1.67 $1.67 Basic 61,212 62,161 61,779 62,168 Diluted2 67,309 68,258 67,876 68,265 Interest expense on convertible debentures Diluted funds from operations FUNDS FROM OPERATIONS PER UNIT WEIGHTED AVERAGE UNITS OUTSTANDING (IN THOUSANDS) 1. 2. Includes fair value gains on real estate properties included in net income/(loss) from equity-accounted investments. Includes the dilutive impact of convertible debentures. FFO was $0.47 per unit ($0.45 per unit - diluted) for the three months ended December 31,, compared to $0.45 per unit ($0.44 per unit - diluted) for the same period in. FFO was $1.72 per unit ($1.67 per unit - diluted) for the year ended December 31,, compared to $1.71 per unit ($1.67 per unit - diluted) for the same period in. This represents an increase of 1% or $0.01 per unit ($0.00 per unit - diluted). 21

MANAGEMENT S DISCUSSION AND ANALYSIS DECEMBER 31, FFO derives from net income. The key components of net income are presented in the table below: NET INCOME TABLE 34 Three Months Ended December 31 Net operating income from total real estate properties Interest expense General and administrative Other income Income before fair value (losses)/gains, loss on sale of real estate properties, and other expenses and fair value changes from equityaccounted investments Fair value (losses)/gains on real estate properties Loss on sale of real estate properties Year Ended December 31 $44,597 $44,943 $170,319 $174,885 14,667 15,172 58,981 62,000 1,066 1,523 4,367 5,414 (113) 28,977 (23,178) Other expenses and fair value changes from equity-accounted investments (1,102) Net income for the year $4,697 (207) 28,455 (894) (22) (4,052) $23,487 (571) (375) 107,542 107,846 (78,977) 11,239 (1,948) $26,617 (37) (5,166) $113,882 NET OPERATING INCOME The analysis of property performance in Part III was focused on same asset NOI, which is reconciled to NOI per the consolidated financial statements in Part XI (Table 60). Same asset NOI for the three months ended December 31,, was $42.7 million, an increase of $1.2 million from the same period in. Net operating income from all properties was $44.6 million for the three months ended December 31,, versus $44.9 million for the same period in, a decrease of $0.3 million. The remaining unfavourable change during the three months is $1.5 million, including the Trust s disposition programs. The Trust s disposition of Cedar Pointe Business Park in July, 5591-5631 Finch in April and 20-24 Lesmill in May resulted in a $0.6 million reduction in NOI. Outside of the disposition programs, during the three months ended December 31,, there was a reduction in one-time lease cancellation fees of $0.7 million versus the same period in. The Trust was also negatively impacted by a one-time adjustment of $0.5 million due to vacant target units. This was offset by $0.2 million from amortized step rents. Same asset NOI for the year ended December 31,, was $163.6 million, an increase of $1.1 million from the same period in. Net operating income from all properties was $170.3 million for the year ended December 31, versus $174.9 million for the same period in. The remaining unfavourable change during the year of $5.7 million is mainly the result of the Trust s disposition and acquisition programs. The Trust s disposition of Cedar Pointe Business Park in July, 350 Sparks/361 Queen in February, 5591-5631 Finch in April and 20-24 Lesmill in May resulted in a $3.2 million reduction in NOI. This was offset by a positive impact of $0.8 million from the Trust s acquisition of 301 Laurier Avenue in June and Citadel West in July. Outside of the disposition and acquisition programs, during the year ended December 31,, the Trust was negatively affected by a one-time adjustment of $2.9 million mainly due to vacant Target units ($1.9 million) and Everest College ($0.5 million) units and by $0.4 million from amortized step rents. INTEREST EXPENSE Interest expense totalled $14.7 million for the three months ended December 31,, compared to $15.2 million for the same period in. This decrease for the three months ended December 31,, was mainly the result of the Trust's disposition program, which eliminated $0.2 million of interest. Another factor reducing interest expense during the period include scheduled mortgage amortizations of $0.5 million. During the period, the Trust's refinancing program replaced $2.2 million of interest expense on matured debt with $1.3 million of interest expense on the same level of financing. Increased financing added $0.9 million of interest expense. Interest expense totalled $59.0 million for the year ended December 31,, compared to $62.0 million for the same period in. This decrease for the year ended December 31,, was mainly the result of the Trust's disposition program, which eliminated $1.6 million of interest. Other factors reducing interest expense during the period include interest capitalized to development projects of $0.4 million and scheduled mortgage amortizations of $1.5 million. During the period, the Trust's refinancing program replaced $7.3 million of interest expense on matured debt with $4.7 million of interest expense on the same level of financing. Increased financing added $2.9 million of interest expense. 22