MORGUARD REAL ESTATE INVESTMENT TRUST

2014 ANNUAL REPORT

MANAGING FOR PERFORMANCE MORGUARD REAL ESTATE INVESTMENT TRUST

Morguard Real Estate Investment Trust is a closed-end trust listed on the Stock Exchange (TSX) under the symbol MRT.UN. The Trust has total assets of $3.0 billion as at December 31, 2014. The mandate of the Trust is to accumulate a Canadian portfolio of high-quality real estate assets – then actively manage the portfolio to generate steady, dependable returns for unitholders, through a stable and increasing cash flow. The Trust owns a diversified real estate portfolio (excluding properties held for sale) of 49 commercial properties consisting of approximately 8.6 million square feet of gross leasable area located in six provinces. The real estate portfolio includes well-located, high-quality office properties in major urban centres, large enclosed full-scale regional shopping malls that are dominant in their respective markets, neighbourhood and community shopping centres, and a small group of industrial properties.

On our cover: Heritage Place, , ON FELLOW UNITHOLDERS

In 2014, Morguard Real Estate Investment Trust extended its long record of delivering attractive returns to unitholders, through the prudent management of its high-quality portfolio of commercial real estate.

The Trust’s portfolio has been carefully diversified – geographically across Canada, as well as by asset class, with a mix of retail, office and industrial properties. Strong financial performance in 2014 was supported by significant acquisitions in prior years. High levels of occupancy in the Trust’s office and retail properties and a historically low cost of financing contributed to the Trust’s results. In the year ahead, our focus remains on generating dependable distributions to our unitholders. While our efforts include managing to mitigate risk, we will also seek opportunities to enhance the Trust’s portfolio.

K. (RAI) SAHI President and Chief Executive Officer 2 MORGUARD REIT

DELIVER

STRONG FINANCIAL ING PERFORMANCE

Standard Life Centre, Ottawa, ON 2014 ANNUAL REPORT 3

TOTAL REVENUE FINANCIAL PERFORMANCE THROUGH STRONG PORTFOLIO MANAGEMENT $299 $280 Since December 31, 2011, the Trust has increased revenue from $236 $245 $235.5 million to $298.5 million (December 31, 2014). This represents an increase of 26.8% or $63.0 million. During this same period, net operating income (revenue from real estate properties less operating expenses, property taxes and property management fees) has grown $36.1 million from $133.6 million to $169.7 million. This represents an increase of 27.0%. The growth in both revenue and net operating income is the result 11 12 13 14 of a focused acquisition program that has improved the quality of the (in millions of dollars) real estate portfolio and provided accretive returns. At the same time, the Trust has disposed of properties where both the cash flows and values have been maximized. In addition to managing the structure of NET OPERATING INCOME the portfolio, management has been delivering increased revenue and net operating income within the core portfolio by increasing occupancy $170 $161 levels and market rents through a prudent program to remerchandise

$134 $137 retail properties and enhance the office real estate portfolio.

11 12 13 14

(in millions of dollars)

The Trust continues to deliver on its mandate to generate a stable and increasing cash flow, resulting in reliable monthly distributions to our unitholders.

FINANCIAL HIGHLIGHTS

(in thousands of dollars, except per-unit amounts) 2011 2012 2013 2014

Revenue from real estate properties $235,460 $244,876 $279,651 $298,461 Net operating income 133,628 136,964 161,336 169,739 Funds from operations 78,355 85,982 100,763 106,516 Adjusted funds from operations 56,511 43,681 65,342 79,272 Funds from operations per unit – basic $1.37 $1.44 $1.59 $1.71 Adjusted funds from operations per unit – basic $0.99 $0.73 $1.03 $1.28 Cash distributions per unit $0.90 $0.95 $0.96 $0.96 4 MORGUARD REIT

GROWTH THROUGH ACQUISITIONS AND INCREASED VALUE WEIGHTED AVERAGE INTEREST RATE At December 31, 2014, the Trust’s total assets were $3.0 billion, versus $2.1 billion at December 31, 2010. At the end of 2010, as part of its 5.3% adoption of International Financial Reporting Standards (“IFRS”), the 4.9% Trust adjusted its balance sheet to reflect the fair value of its real estate 4.4% 4.2% portfolio. The Trust uses 2010 as its benchmark year to measure growth in its balance sheet. The increase in total assets has been driven by acquisitions and complemented by increases in the value of the same asset portfolio. These value increases are a combination of capital reinvestment, improved cash flows and compressed capitalization rates. 11 12 13 14 Acquisitions have allowed the Trust to balance its real estate portfolio between retail and office. At December 31, 2014, the Trust’s retail portfolio accounted for 54% of the net operating income from real estate properties (excluding properties held for sale), with office accounting for 45% and industrial at 1%. The Trust completed its acquisition program using retained cash, new financing and refinancing of existing assets. New financing was secured directly against acquisitions along with an additional $150.0 million raised through the placement of convertible debentures in 2012. Refinancing of assets raised additional funds by leveraging the value of the underlying secured assets. This meant the Trust’s debt ratios were maintained. The refinancing was completed at favourable rates allowing the Trust to significantly reduce its weighted average interest rate. As a result, The Trust reduced its weighted average interest rate from 5.3% (December 31, 2011) to 4.2% (December 31, 2014).

PORTFOLIO DIVERSIFICATION

The Trust’s portfolio is diversified by both asset class and location across Canada.

Retail 54%

GROSS LEASABLE AREA BY REGION

NET BC 14% OPERATING Office Alberta 25% INCOME 45% Manitoba 8% (NOI) Saskatchewan 6% 38% Quebec 9% Industrial 1% 2014 ANNUAL REPORT 5

Place Innovation, Saint-Laurent, QC

Petroleum Plaza, , AB , Cambridge, ON

FUNDS FROM OPERATIONS RESULTS FOR UNITHOLDERS

Per unit – basic Delivering on increased revenue and net operating income, while $1.71 $1.59 decreasing the weighted average interest rate on debt, has resulted $1.44 $1.37 in an increase in funds from operations (basic) from $1.37 per unit (December 31, 2011) to $1.71 per unit (December 31, 2014). This represents an increase of 24.8%. Adjusted funds from operations has grown from $0.99 per unit (December 31, 2011) to $1.28 per unit (December 31, 2014). This represents an increase of 29.3%.

11 12 13 14 For unitholders, improved funds from operations and adjusted funds from operations means an increase in cash distributions. In 2011, the Trust distributed $0.90 per unit, compared to $0.96 per unit in 2014. Over time, the Trust has chosen a conservative payout ratio (cash distributions to adjusted funds from operations). At December 31, 2014, this payout ratio was 75%. This conservative ratio ensures adequate funds are available for reinvestment in the properties and maintains a stable ADJUSTED FUNDS distribution to unitholders. FROM OPERATIONS Recognizing that the market does not always value the Trust’s units Per unit – basic $1.28 appropriately, the Trust uses its Normal Course Issuer Bid (“NCIB”) to buy units for cancellation. Since December 31, 2011, the Trust has repurchased $0.99 $1.03 2,013,116 units at an average weighted unit price of $16.38. Effective January 28, 2015, the TSX accepted the Trust’s notice of intention to $0.73 make a normal course issuer bid through the facilities of the TSX and/or alternative Canadian trading platforms. This notice provides that the Trust may, during the 12 months beginning January 28, 2015, purchase for cancellation up to 3,247,282 units in total, being approximately 10% 11 12 13 14 of the public float of outstanding units. 6 MORGUARD REIT

GROW ING RETURNS SINCE 1997

Penn West Plaza, , AB 2014 ANNUAL REPORT 7

Morguard Real Estate Investment Trust became one of Canada’s first institutional quality REITs when it was created in 1997. At its IPO, the Trust’s real estate portfolio was valued at approximately $370 million and heavily weighted toward office and industrial. With a strategic focus on improving the quality of the Trust’s portfolio, the Trust found that increased value and cash flow would come from retail and office investment. The Trust began a program to reduce its holding of industrial properties in favour of dominant regional enclosed shopping centres and large Class A office properties. To acquire the most prestigious assets, the Trust recognized the benefits of co-ownership. St. Laurent Centre, Ottawa, ON At December 31, 2014, the Trust had $2.9 billion of real estate assets. Its portfolio net operating income derives from approximately 54% retail properties, 45% office properties and 1% in industrial properties. The outcome of the Trust’s strategy is long-term positive returns for unitholders. Since its IPO in 1997, the Trust’s units have produced 12 .5% total returns of 12.5%. TOTAL RETURNS SINCE IPO

The Trust’s high-quality portfolio of commercial real estate properties is the outgrowth of a focused acquisition strategy.

Full Interest 12.5% TOTAL RETURNS SINCE IPO Dominant in Existing Class A Office Class A Office Regional Shopping Property Dominant Portfolio Centre Class A Office Regional

Diversified Portfolio Shopping Centre Retail Portfolio ACQUISITIONS IPO Portfolio

1997 2000 2003 2006/07 2010 2011/12 2013 2014 8 MORGUARD REIT

MODERN

77 BLOOR WEST IZING TORONTO, ON

77 Bloor Street West, Toronto, ON 2014 ANNUAL REPORT 9

THE OPPORTUNITY

Retrofit a 40-year-old, 21-storey, 393,000-square-foot office building in downtown Toronto to LEED Gold Standard for Existing Buildings by improving the energy and environmental performance.

THE VALUE PROPOSITION

Following the acquisition of the landmark building in 2009, the Trust and its co-owner identified the potential for real value growth through a significant retrofit at 77 Bloor Street West. To realize the vision, a detailed baseline analysis was undertaken. The outcome of the analysis pointed 77 Bloor Street West, Toronto, ON to an optimization strategy that would: • add leasable area to the building • significantly reduce operating costs • improve tenant comfort • align with tenants’ business, financial and operational goals

Modernizing a major commercial property co-owned by the Trust has unlocked substantial value – including an increase in leasable space and dramatic savings in operating costs.

THE RESULT

Increased cash flow and property value through the renewal of a 10-year lease with the primary tenant, TD Waterhouse, and added almost 20,000 leasable square feet. % Improved tenant comfort and satisfaction. There was immediate engagement by tenants in environmental programs in support of energy 33.5 and water savings. REDUCTION IN ENERGY USAGE Achieved a 33.5% reduction in energy usage in 2014 over the baseline year of 2012, resulting in savings of almost half a million dollars in annual operational cost. This performance was recognized with a CivicAction Race to Reduce 2014 Energy Reduction award. 10 MORGUARD REIT

SHOWCAS

WOODBRIDGE SQUARE ING VAUGHAN, ON

Woodbridge Square, Vaughan, ON 2014 ANNUAL REPORT 11

THE OPPORTUNITY

Woodbridge Square, a 113,000-square-foot community shopping centre in Vaughan, ON, required a strategic repositioning to maintain market share and better compete against new retail development in the growing community north of Toronto. The 25-year-old centre was challenged with rising vacancy and decreasing cash flow.

THE VALUE PROPOSITION

The Trust created a fully managed plan that would realize value creation from redevelopment, remerchandising, and transitioning the property back Woodbridge Square, Vaughan, ON to its original roots as a grocery-anchored community shopping centre. The plan identified three main initiatives to deliver the desired results: • renovate the facade to achieve a more contemporary look • secure a new grocery anchor tenant • lead a remerchandising strategy identifying a co-tenancy mix that would improve the property’s performance and draw new customers

Our expertise in both retailing and development gave a fresh look to this community shopping centre located north of Toronto and co-owned by the Trust.

THE RESULT

Achieved 100% occupancy, secured a long-term grocery anchor (Nations Fresh Food) and increased rental rates. Additionally, the property is positioned to unlock future value by leveraging entitlements for high density, mixed-use purposes in alignment with the new City % of Vaughan Official Master Plan. 30 Increased property value by 30%, which allowed full project funding INCREASE IN secured by a 10-year mortgage and long-term cash flow stability for PROPERTY VALUE unitholders and the co-owner. Created a contemporary and well-trafficked, grocery-anchored community shopping centre that has successfully attracted new customers from its primary and secondary trade areas. 12 MORGUARD REIT

PORTFOLIO SUMMARY

Morguard Real Estate Investment Trust owns a diversified real estate portfolio (excluding properties held for sale) of 49 commercial properties located in six provinces across Canada. The real estate portfolio primarily includes well-located, high-quality office properties in major urban centres, dominant regional enclosed shopping centres, neighbourhood and community shopping centres, and a small group of industrial properties.

$2.9B 28 21 REAL ESTATE OFFICE AND INDUSTRIAL RETAIL PROPERTIES PROPERTIES PROPERTIES

49 8.6M 96% TOTAL PROPERTIES GROSS LEASABLE PORTFOLIO AREA (SF) OCCUPANCY 2014 ANNUAL REPORT 13

The Centre at Circle and Eighth, , SK

Parkland Mall, Red Deer, AB Cambridge Centre, Cambridge, ON

RETAIL PORTFOLIO

Ownership Gross Interest Leasable Occupancy Property City Prov. (%) Area (SF)1 (%) Major Tenants

Shelbourne Plaza Victoria BC 100 57,000 100 Fairway Market, TD Canada Trust, Scotiabank Burquitlam Plaza Coquitlam BC 100 67,500 96 Shoppers Drug Mart, Dollarama, CIBC Pine Centre Mall Prince George BC 100 476,000 99 Sears, Sport Chek, Shoppers Drug Mart Prairie Mall Grande Prairie AB 50 148,000 96 Mark’s Work Wearhouse, Shoppers Drug Mart, Dollarama Airdrie Co-op Centre Airdrie AB 100 65,000 100 Co-op Grocery Store, TD Canada Trust, Co-op Liquor Store Airdrie Rona Centre Airdrie AB 100 44,000 100 Rona Heritage Towne Centre Calgary AB 100 133,500 95 Home Outfitters, Ashley Furniture, Dollarama Parkland Mall Red Deer AB 100 429,500 90 Walmart, Sport Chek, Dollarama The Centre at Circle and Eighth Saskatoon SK 100 489,500 95 Saskatoon Co-op Food Store, Sport Chek, Shoppers Drug Mart Brandon Shoppers Mall Brandon MB 100 366,500 98 Capitol Theatre, Sport Chek Charleswood Centre Winnipeg MB 100 116,000 100 , Shoppers Drug Mart, Dollarama Southdale Mall Winnipeg MB 100 175,500 97 Dollarama, Rexall, Bank of Montreal Wonderland Corners London ON 100 47,500 91 Swiss Chalet Cambridge Centre Cambridge ON 100 726,500 96 Sears, Hudson’s Bay, Sport Chek, H&M Kingsbury Centre ON 100 70,000 95 Longo’s, Shoppers Drug Mart Woodbridge Square Vaughan ON 50 56,500 98 Nations Fresh Foods, Party Packagers, Scotiabank Aurora Centre Aurora ON 100 288,500 99 , Cineplex Odeon Market Square Kanata ON 100 58,000 100 Farm Boy, LCBO, TD Canada Trust Hampton Park Ottawa ON 100 102,000 89 Food Basics, Rexall, Swiss Chalet Home Base Ottawa ON 100 10,000 100 Royal Bank St. Laurent Centre Ottawa ON 100 850,000 97 Hudson’s Bay, Sears, Toys “R” Us TOTAL RETAIL 4,777,000 96

1 GLA represents the Trust’s ownership share. 14 MORGUARD REIT

Scotia Place, Edmonton, AB Place Innovation, Saint-Laurent, QC

OFFICE PORTFOLIO

Ownership Gross Interest Leasable Occupancy Property City Prov. (%) Area (SF)1 (%) Major Tenants

Seymour Place Victoria BC 100 239,000 100 Province of British Columbia Chancery Place BC 100 142,500 100 Ministry of Citizens’ Service and Open Government 111 Dunsmuir Vancouver BC 100 222,000 100 AMEC Americas, Stantec Consulting Alberta Treasury Calgary AB 100 41,500 100 Alberta Treasury Branches Centre 810 Calgary AB 100 77,500 95 Tektelic Communications Inc., The MI Group, Brisbin & Sentis Citadel West Calgary AB 100 78,500 100 CH2M Hill Canada Deerport Centre Calgary AB 100 47,500 100 Colleaux Engineering, Aerotek, State Farm Duncan Building Calgary AB 100 81,000 100 RCMP 7315 – Eighth Street Calgary AB 100 19,500 100 Genesis Land Development 505 Third Street Calgary AB 50 71,000 100 Horizon Logistics, Strike Energy, Step Energy Penn West Plaza Calgary AB 100 636,500 100 Penn West Petroleum Petroleum Plaza Edmonton AB 50 152,000 100 Alberta Infrastructure Scotia Place Edmonton AB 20 114,500 85 City of Edmonton, Duncan and Craig, APEGA, Grant Thornton 77 Bloor Street West Toronto ON 50 196,500 98 TD Waterhouse, Harry Rosen, Realstar 200 Yorkland Toronto ON 100 149,000 87 Ferring, Investors Group, AG Simpson 525 Coventry Ottawa ON 100 42,500 100 TD Waterhouse Green Valley Office Park Ottawa ON 100 123,000 94 Ottawa Fertility Centre, Canadian Centre for Ethics in Sports Heritage Place Ottawa ON 50 113,500 81 Public Works 301 Laurier Ave Ottawa ON 50 13,000 100 Unifor St. Laurent Business Centre Ottawa ON 100 88,000 69 Intact Insurance Co., The Pythian Group Standard Life Centre Ottawa ON 50 190,500 99 Public Works Time Square Ottawa ON 100 111,000 98 Public Works, Le Droit, Empire Grill Centre de la Cité Montreal QC 100 127,500 79 Sun Life Assurance, Jeffrey Simbrow Assoc. Place Innovation Saint-Laurent QC 50 448,000 100 Bombardier, AJW Technique, Amdocs TOTAL OFFICE 3,525,500 96

1 GLA represents the Trust’s ownership share. 2014 ANNUAL REPORT 15

Alberta Treasury, Calgary, AB

Heritage Place, Ottawa, ON Prairie Mall, Grande Prairie, AB

INDUSTRIAL PORTFOLIO

Ownership Gross Interest Leasable Occupancy Property City Prov. (%) Area (SF)1 (%) Major Tenants

1875 Leslie Toronto ON 100 52,000 96 Body and Soul Fitness, Goose & Firkin 279 Yorkland Toronto ON 100 18,000 100 Loblaw Properties Inc. 285 Yorkland Toronto ON 100 25,000 100 Mitchell Partnerships 825 Des Érables Salaberry-de- QC 50 242,500 100 Diageo Valleyfield TOTAL INDUSTRIAL 337,500 99

TOTAL 8,640,000 96

1 GLA represents the Trust’s ownership share. CORPORATE INFORMATION MRT.DB MRT.UN Symbol (TSX) Toronto Exchange Stock Listing [email protected] 1-800-928-6255 or Tel: 905-281-4800 1M3 L5B ON Mississauga, Suite 1000 Drive Centre City 55 Investment Trust Real Estate Morguard Office Head Real Estate Consultant Catford A.J. Michael Fragin Holdings Limited President Berril R. Fraser INVESTOR INFORMATION Chief Executive Officer President and Sahi (Rai) K. Chairman King A. David OFFICERS TRUSTEES

1, 3, 4 1, 3,

1, 2, 3, 4 3, 1, 2, RRSP Eligibility Secretary General Counsel and Flynn G. Beverley Chief Financial Officer Pamela McLean Group Brookfield Corporate Director Kress C. Edward Corporate Director King A. David Corporate Director F.Paul Cobb [email protected] 1-800-387-0825 ofCompany Canada TrustComputershare Transfer Agent Toronto- Bank Bank of Montreal Principal Bankers &YoungErnst LLP Auditors TFSA RPP DPSP RRIF 1, 3 1, 2 1, 3, 4 1, 3, Corporate Director Antony K. Stephens Morguard Corporation Executive Officer and Chief Chairman Sahi (Rai) K. [email protected] 905-281-4800 Tel: Chief Financial Officer Pamela McLean [email protected] 905-281-4800 Tel: Secretary and General Counsel Flynn G. Beverley please contact: For information, additional at www.sedar.com SEDAR on filings our view or www.morguard.com at website our Visit Investor Relations President Vice Paul Miatello ManagementAsset President Vice John Levac 2

4 3 2 1 Corporate Director J. Walker Timothy L9T 2X5 L9T ON Milton, 25 Road Regional 5407 Club Golf Point Rattlesnake 9:45 a.m. at Wednesday, 13, May 2015 Meeting Annual Unitholder President Vice D. Wright Robert opnain and Compensation Governance Committee Audit Committee Investment Committee Independent Trustee

Design: www.jumpcommunicationsinc.com The selected annual financial information in the 2014 Annual Report highlights certain key metrics for the Trust. As a result, this Report should be read in conjunction with the Trust’s Consolidated Financial Statements for the year ended December 31, 2014, related Management’s Discussion and Analysis (“MD&A”) and the Annual Information Form (“AIF”). These documents are available on the Trust’s website at www.morguard.com. All continuous disclosure documents required by securities regulators are also filed on the System for Electronic Document Analysis and Retrieval (“SEDAR”) and can be accessed electronically at www.sedar.com. 55 City Centre Drive Suite 1000 Mississauga, ON L5B 1M3 905-281-4800

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