Smart Real Estate Investment Trust - excerpt from Balance Sheet: 2015 2014 Assets Non-current assets Investment properties Note 4 8,016,247 6,696,487 Smart Real Estate Investment Trust -excerpt from Income Statement: 2015 2014 Other income and expenses Fair value gain on revaluation of investment properties Note 22 32,835 25,458 Loss on sale of investment properties (17) (853) Smart Real Estate Investment Trust - excerpt from Notes: 2.4 Investment properties Investment properties include income producing properties and properties under development (land or building, or part of a building, or both) that are held by the Trust, or by the Trust as a lessee under a finance lease, to earn rentals or for capital appreciation or both. Acquired investment properties are measured initially at cost, including related transaction costs in connection with asset acquisitions...... Borrowing costs that are incurred for the purpose of, and are directly attributable to, acquiring or constructing a qualifying investment property are capitalized as part of its cost. The amount of borrowing cost capitalized is determined first by reference to borrowings specific to the project, where relevant, and otherwise by applying a weighted average cost of borrowings to eligible expenditures after adjusting for borrowings associated with other specific developments......... After the initial recognition, investment properties are recorded at fair value, determined based on comparable transactions, if any. If comparable transactions are not available, the Trust uses alternative valuation methods, such as the direct income capitalization method or discounted cash flow projections. Valuations, where obtained externally, are performed either as of a June 30 valuation date or as of a December 31 valuation date with quarterly updates on capitalization rates by professional valuers who hold recognized and relevant professional qualifications and have recent experience in the location and category of the investment property being valued. Related fair value gains and losses are recorded in the consolidated statements of income and comprehensive income in the period in which they arise....... 4. Investment properties 2015 2014 Properties Properties Development 6,430,034 266,453 Total 6,696,487 Properties Properties Development 6,333,668 282, 172 Total 6,615,840 Balance - beginning of year Additions: Acquisition of investment properties Transfer from properties under development to income properties 969,252 249,285 1,218,537 80,820 100 80,920 3,593 _13,593) 42,906 (42,906) 7,836 10,547 development agreements (Note 4(b)) Additions to investment properties Dispositions Fair value gains (losses) Balance - end of year 50,880 (875) (17,886) 544,284 7,836 61,427 (875) 32,835 8,016,247 7,173 9,095 (107,889) 64,261 6,430,034 72,337 (6,447) (38,803) 266,453 7,173 81,432 (114,336 25,458 6,696,487 50,701 7,471,963 Comparison of PP&E Models: Assume: Office Building (used for head office) acquired January 1, 2012 at Cost of $1MM, a 20 year life and straight-line depreciation (for simplicity ignore componentization) Cost Model (000's) Balance Sheet as at PP&E, at cost Accumulated Depreciation Net Book Value 12/31/14 1,000 50 950 12/31/15 1,000 100 900 12/31/16 1,000 150 850 12/31/17 1,000 200 800 12/31/18 1,000 250 750 Income Statement, year ending Depreciation Expense 50 50 50 50 50 Revaluation Model (assume revalued at 12/31/16 for 1,020,000) 12/31/16 12/31/17 12/31/18 Balance Sheet as at PP&E Accumulated Depreciation Net Book Value 12/31/14 1,000 50 950 12/31/15 1,000 100 900 Income Statement, year ending Depreciation Expense 50 50 50 Other Comprehensive Income Revaluation Surplus Fair Value Model (must be Investment Property, assume revalued annually at 980,970, 1020, 1040 and 1030, respectively) 12/31/14 12/31/15 12/31/16 12/31/17 12/31/18 Balance Sheet as at PP&E Accumulated Depreciation Net Book Value Income Statement, year ending Depreciation Expense Fair value gain/(loss) on Investment properties Smart Real Estate Investment Trust - excerpt from Balance Sheet: 2015 2014 Assets Non-current assets Investment properties Note 4 8,016,247 6,696,487 Smart Real Estate Investment Trust -excerpt from Income Statement: 2015 2014 Other income and expenses Fair value gain on revaluation of investment properties Note 22 32,835 25,458 Loss on sale of investment properties (17) (853) Smart Real Estate Investment Trust - excerpt from Notes: 2.4 Investment properties Investment properties include income producing properties and properties under development (land or building, or part of a building, or both) that are held by the Trust, or by the Trust as a lessee under a finance lease, to earn rentals or for capital appreciation or both. Acquired investment properties are measured initially at cost, including related transaction costs in connection with asset acquisitions...... Borrowing costs that are incurred for the purpose of, and are directly attributable to, acquiring or constructing a qualifying investment property are capitalized as part of its cost. The amount of borrowing cost capitalized is determined first by reference to borrowings specific to the project, where relevant, and otherwise by applying a weighted average cost of borrowings to eligible expenditures after adjusting for borrowings associated with other specific developments......... After the initial recognition, investment properties are recorded at fair value, determined based on comparable transactions, if any. If comparable transactions are not available, the Trust uses alternative valuation methods, such as the direct income capitalization method or discounted cash flow projections. Valuations, where obtained externally, are performed either as of a June 30 valuation date or as of a December 31 valuation date with quarterly updates on capitalization rates by professional valuers who hold recognized and relevant professional qualifications and have recent experience in the location and category of the investment property being valued. Related fair value gains and losses are recorded in the consolidated statements of income and comprehensive income in the period in which they arise....... 4. Investment properties 2015 2014 Properties Properties Development 6,430,034 266,453 Total 6,696,487 Properties Properties Development 6,333,668 282, 172 Total 6,615,840 Balance - beginning of year Additions: Acquisition of investment properties Transfer from properties under development to income properties 969,252 249,285 1,218,537 80,820 100 80,920 3,593 _13,593) 42,906 (42,906) 7,836 10,547 development agreements (Note 4(b)) Additions to investment properties Dispositions Fair value gains (losses) Balance - end of year 50,880 (875) (17,886) 544,284 7,836 61,427 (875) 32,835 8,016,247 7,173 9,095 (107,889) 64,261 6,430,034 72,337 (6,447) (38,803) 266,453 7,173 81,432 (114,336 25,458 6,696,487 50,701 7,471,963 Comparison of PP&E Models: Assume: Office Building (used for head office) acquired January 1, 2012 at Cost of $1MM, a 20 year life and straight-line depreciation (for simplicity ignore componentization) Cost Model (000's) Balance Sheet as at PP&E, at cost Accumulated Depreciation Net Book Value 12/31/14 1,000 50 950 12/31/15 1,000 100 900 12/31/16 1,000 150 850 12/31/17 1,000 200 800 12/31/18 1,000 250 750 Income Statement, year ending Depreciation Expense 50 50 50 50 50 Revaluation Model (assume revalued at 12/31/16 for 1,020,000) 12/31/16 12/31/17 12/31/18 Balance Sheet as at PP&E Accumulated Depreciation Net Book Value 12/31/14 1,000 50 950 12/31/15 1,000 100 900 Income Statement, year ending Depreciation Expense 50 50 50 Other Comprehensive Income Revaluation Surplus Fair Value Model (must be Investment Property, assume revalued annually at 980,970, 1020, 1040 and 1030, respectively) 12/31/14 12/31/15 12/31/16 12/31/17 12/31/18 Balance Sheet as at PP&E Accumulated Depreciation Net Book Value Income Statement, year ending Depreciation Expense Fair value gain/(loss) on Investment properties