## SECTION IV 

## CRITICAL ACCOUNTING ESTIMATES 

The preparation of the Trusts’ combined financial statements requires management to make estimates and judgements that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenue and expenses during the reporting period. The Trusts’ combined financial statements have been prepared in accordance with Canadian GAAP. 

Management believes the policies which are most subject to estimation and judgements are outlined below. For a detailed description of these and other accounting policies refer to note 1 of the December 31, 2010 audited combined financial statements of the Trusts. 

## Impairment of Assets 

The REIT is required to write down to fair value any of its income properties that were determined to have been impaired. The analysis required is dependent upon a review of estimated undiscounted future cash flows from operations over the anticipated holding period. This review involves subjective assumptions of, among other things, estimated occupancy and rental rates, all of which can affect the ultimate value of the property. In the event these factors result in a carrying value that exceeds the sum of future undiscounted cash flows expected to result from the ongoing use and ultimate residual value of the properties, an impairment would be recognized. During 2010, the REIT recorded an impairment loss of $14.9 million relating to two properties formerly tenanted by A&P. During 2009, the REIT recorded an impairment loss of $14.8 million relating to four properties formerly tenanted by Circuit City and Bruno’s Supermarkets LLC. 

The REIT also evaluates the fair value of mortgages receivable to determine whether any impairment provisions are required. Impairment is recognized when the carrying value of the mortgage receivable will not be recovered as determined by the economic value of the underlying security and/or the financial covenant of the issuer of the security. No impairments of mortgages receivable were recorded during 2010 or 2009. 

## Depreciation of Income Properties 

Upon the acquisition of a property, a significant portion of the cost is allocated per management’s determination to the building component of the property. In addition, the REIT is required to assess the useful lives of its income properties in order to determine the amount of building depreciation to record on a quarterly and annual basis. 

The REIT depreciates its income properties and building improvements on a straight-line basis over their estimated useful lives. In the event the allocation to either the building or paving and equipment component is inappropriate or the estimated useful life of the properties are not correct, the amount of depreciation expensed quarterly and annually, which affects the REIT’s future net earnings might not be appropriate. 

## Property Acquisitions 

For acquisitions of properties initiated on or after September 12, 2003, the CICA has issued guidance for accounting for operating leases assumed in connection with these acquisitions. Through management’s judgment and estimates, the purchase price must be allocated to land site improvements, building, the above- and below-market value of in-place operating leases, the fair value of tenant improvements, in-place leasing costs and the value of the relationship with the existing tenants. 

These estimates will impact rentals from income properties, depreciation expense and amortization expense recorded on both a quarterly and annual basis. 

## Income Tax 

During the second quarter of 2010, the REIT completed necessary restructuring to qualify for the REIT Exemption commencing January 1, 2011. The REIT will not be subject to the SIFT Rules provided that the REIT qualifies for the REIT Exemption at all times after 2010. See the “Tax Risk” section for further discussion. Accordingly, the net future income tax liability of $125.3 million recorded as at March 31, 2010, was reversed into net earnings as at June 30, 2010. 

