For Scott s REIT and our unitholders, small-box, continues to mean BIG RETURNS.

Scott s REIT is the premier small-box retail property owner as well as the largest quadruple-net lease landlord in Canada. With double digit increases in both revenue and net operating income in our 2010 results, we are demonstrating the inherent strength & consistency of our business model. Our strategy is to continue to focus on growing our asset base and creating long-term value for our unitholders. For Scott s REIT and our unitholders, small-box, continues to mean BIG RETURNS.

2010 HIGHLIGHTS NET OPERATING INCOME ($millions) TOTAL ASSETS ($millions) 20 67% 250 58% 16 200 12 150 8 100 4 50 0 2006 2007 2008 2009 2010 0 2006 2007 2008 2009 2010 REVENUE ($millions) CONSISTENT DISTRIBUTIONS RETURN OF CAPITAL 25 0.90 1.00 20 87% 0.80 0.80 88% 15 0.60 0.70 10 0.40 5 0.60 0.20 0 2006 2007 2008 2009 2010 0.50 2006 2007 2008 2009 2010 0.00 2006 2007 2008 2009 2010 2 SCOTT S REIT ANNUAL REPORT 201 0

220 PROPERTIES The 220 properties owned by the REIT are located in fast growing, high traffic centres in both urban and non-urban areas. Our portfolio includes properties in Ontario (85), Quebec (80), Nova Scotia (17), Alberta (14), New Brunswick (9), Manitoba (9) and British Columbia (6). SCOTT S REIT ANNUAL REPORT 201 0 3

Scott s REIT s properties are located in seven provinces across Canada, reducing its exposure to regional economic conditions that may affect one province or area. Properties are occupied by national brands including KFC, Taco Bell, Shoppers Drug Mart, Rexall Pharma Plus, Laurentian Bank, Tim Hortons, Staples and Subway.

2010 CHAIRMAN S LETTER During 2010 Scott s, Canada s leading small box REIT, completed a transformational acquisition, achieved its goal of doubling its asset base in 5 years and generated record net operating income. We now own approximately $260 million in retail assets across Canada. We also confirmed our tax exempt status as a REIT. The REIT s continuous year-over-year success is due to our ability to execute a sound, yet winning, strategy while concurrently mitigating our downside risk. For those of you who have been following the REIT for a long time, and we have many loyal long-time unitholders, you will be familiar with our three-prong strategy. It is a simple strategy and we have held true to it since our inception. It consists of growing i organically, ii through acquisitions, and iii through sale leasebacks. In terms of organic growth, the largest opportunity comes from land intensification, which allows us to increase the size and value of our portfolio through the addition of newly developed freestanding buildings on existing properties. As an example, during 2010, we commenced work on a land intensification project for Shoppers Drug Mart on one of our properties in Thunder Bay. This will provide additional rental income, increase the value of the property and improve our return on investment for years to come. With respect to acquisitions, since 2007 we have acquired 30 properties, including a new 24,500 square foot property in Okotoks, Alberta, (near Calgary), which was acquired last spring. The property has eight tenants in total, including major national brands such as Western Financial Bank, Tim Hortons, KFC/Taco Bell and Subway, in addition to local tenants. The highlight of 2010 for the Scott s REIT, however, was the completion of a milestone sale and leaseback. Through this transaction, we purchased 1 2 properties totalling 1 53,998 square feet of predominantly single-tenant retail space in Alberta, Manitoba, Ontario, Nova Scotia and Quebec. The properties are leased on a long-term basis to Shoppers Realty Inc. and operate under the Shoppers Drug Mart and Pharmaprix banners. It is our intention to pursue other sale leaseback transactions as we move forward. This $30 million sale and leaseback transaction with Shoppers Drug Mart Corporation, Canada s largest full-service retail drug store chain, represents the REIT s largest transaction to date. 6 SCOTT S REIT ANNUAL REPORT 201 0

We at Scott s REIT have a strategy and a long-term vision to increase our asset base through organic growth and the expansion of our current small box retail portfolio. At the time of our initial offering, we had $132 million in total assets with 429 thousand square feet of gross leasable area. As of December 31, 2010, Scott s REIT owned 220 properties with a gross book value of approximately $260 million, representing nearly one million square feet of gross leasable area in seven provinces across Canada. The REIT has completed approximately $1 13 million in acquisitions since our IPO. All of these new properties were accretive and they contributed almost $1 1.4 million in incremental revenue for us last year. At the heart of our growth strategy is our continued focus on diversification. When we started out, 99% of our properties were leased to one tenant in the quick service restaurant industry (QSR). Six years later, as a result of the steps we have taken to diversify, quick service restaurants now represent only 50% of the REIT s portfolio with the balance of the properties leased to full-service retail drug stores and other commercial retail tenants. We take pride in the fact that over the past five years we have been able to grow the business and make acquisitions that generate cash flow out of the gate, while simultaneously keeping our quality low-risk profile intact and protecting distributions. 2010 was a busy year for the REIT. We achieved everything we set out to accomplish and frankly, even more. Our focus continues to be on increasing unitholder value, which in 2010 we delivered by increasing our base of cash generating assets, paying $7.7 million in distributions and continuing to pursue our vision to be Canada s leading small-box retail REIT. As we move forward in 201 1, we will continue to look for other high return opportunities to further expand and diversify our portfolio in order to improve unitholder value. On behalf of the board and independent trustees, I would like to take this opportunity to thank the employees of Scott s REIT for their dedication and our tenants and unitholders for their loyalty. JOHN BITOVE Chairman & Chief Executive Officer SCOTT S REIT ANNUAL REPORT 201 0 7

2010 F I N A N C I A L R E V I E W Management s Discussion & Analysis 1 0 Management s Statement of Responsibility 44 Independent Auditor s Report 45 Financial Statements 46 Corporate Information 69

MANAGEMENT S DISCUSSION AND ANALYSIS (All amounts, except Units and per Units amounts, expressed in thousands of Canadian dollars, unless otherwise noted) Management s discussion and analysis ( MD&A ) discusses the significant factors affecting the results of operations and financial position of Scott s Real Estate Investment Trust ( Scott s REIT or the REIT ) for the quarter ended December 31, 2010 (the fourth quarter ) and the year ended December 31, 2010 ( year-to-date ). This MD&A should be read in conjunction with the audited consolidated financial statements of Scott s REIT prepared as at and for the year ended December 31, 2010, including the notes thereto. The MD&A is based on the consolidated financial statements prepared in accordance with Canadian Generally Accepted Accounting Principles ( GAAP ). All dollar amounts except per Unit amounts are in thousands of dollars unless otherwise noted. Forward-Looking Disclaimer This MD&A contains certain information or statements that may constitute forward-looking information within the meaning of securities laws, which reflect the current view of Scott s REIT with respect to the REIT s objectives, plans, goals, strategies, future growth, results of operations, financial and operating performance and business prospectus and opportunities. In some cases, forward-looking information can be identified by the use of terms such as may, will, should, expect, plan, anticipate, believe, intend, estimate, predict, potential, continue or other similar expressions concerning matters that are not historical facts. In particular, forward-looking information included in this MD&A includes, but is not limited to, statements with respect to the REIT s ability to lease vacant property units, collect minimum rents, diversify its tenant base, undertake land intensification projects, refinance loans and mortgages at their maturity, complete accretive acquisitions, and maintain or grow monthly cash distribution levels, and also with respect to the timing of such events. Forwardlooking information should not be read as guarantees of future events, performance or results, and will not necessarily be accurate indications of whether, or the times at which, such events, performance or results will be achieved. All of the statements and information in this MD&A containing forward-looking information are qualified by these cautionary statements. Forward-looking statements are based on information available at the time they are made, underlying estimates and assumptions made by management and management s good faith belief with respect to future events, performance and results, and are subject to inherent risks and uncertainties surrounding future expectations generally which could cause actual results to differ materially from what is currently expected. Such risks and uncertainties include, but are not limited to the REIT s reliance on Priszm, the REIT s largest tenant in terms of rental revenue, risks associated with investment in real property, competition, reliance on key personnel, financing and refinancing risks, environmental matters, tenant risks, risks related to current economic conditions and other risk factors more particularly described in the REIT s most recent Annual Information Form available on SEDAR at www.sedar.com. Additional risks and uncertainties not presently known to the REIT or that the REIT currently believes to be less significant may also adversely affect the REIT. Scott s REIT cautions readers that the list of factors is not exhaustive and that should certain risks or uncertainties materialize, or should underlying estimates or assumptions prove incorrect, actual events, performance and results may vary significantly from those expected. There can be no assurance that the actual results, performance, events or activities anticipated by the REIT will be realized or, even if substantially realized, that they will have the expected consequences to, or effect on, the REIT. The reader should not place undue importance on forward-looking information and should not rely upon this information as of any other date. The REIT disclaims any intention or obligation to update or revise any forward-looking information, whether as a result of new information, future events or otherwise, except as required under applicable securities laws. 10 SCOTT S REIT ANNUAL REPORT 201 0

OVERVIEW Capitalization The REIT holds a 76% interest in Scott s Real Estate Limited Partnership ( Scott s LP ) and an indirect 100% interest in its general partner, Scott s GP Trust. Obelysk Inc. ( Obelysk ) holds the remaining interest in Scott s LP through its ownership of exchangeable Class B Units of Scott s LP ( Class B Units ). The REIT s trust units (the Units ) trade under the symbol SRQ.UN. Its 2007 convertible debentures (the 2007 Convertible Debentures ) trade under the symbol SRQ.DB, and its 2009 convertible debentures (the 2009 Convertible Debentures ) trade under the symbol SRQ.DB.A. The Units, the 2007 Convertible Debentures and the 2009 Convertible Debentures are each listed on the Toronto Stock Exchange (the TSX ). Objectives The objectives of Scott s REIT are: 1. to provide Unitholders with stable monthly cash distributions that are, to the maximum extent possible, tax deferred, through the ownership of a geographically diversified portfolio of small box retail properties and income-producing quick service restaurants ( QSR ) across Canada and elsewhere; 2. to maximize cash flow and Unit value, while minimizing Unitholder risk; 3. to expand the asset base of Scott s REIT through the acquisition of additional small box retail and QSR retail properties; and 4. to increase the Distributable Income of Scott s REIT through ongoing active management of the assets. The Trustees set out on an annual basis the targeted amount of Distributable Income to be distributed to Unitholders for that year (currently $0.85 per Unit on an annualized basis). Portfolio Summary As at December 31, 2010, the REIT owned 220 commercial small box retail properties located in the Canadian provinces of British Columbia, Alberta, Manitoba, Ontario, Quebec, New Brunswick and Nova Scotia with an aggregate of approximately 955,537 square feet of gross leasable area ( GLA ). GLA GROWTH SINCE IPO (Square Feet, in thousands) 1000 800 600 123% 400 200 0 IPO 6-Oct-05 31-Dec-10 SCOTT S REIT ANNUAL REPORT 201 0 11

Tenant Base Scott s REIT s strategy is to broaden its tenant base primarily through acquisitions and land intensification. When the REIT was formed, 83% of its tenant base was comprised of KFC standalone stores; however, since then, the REIT s tenant base has been greatly diversified. Through the REIT s acquisition and diversification strategy, the percentage of KFC standalone restaurants has been reduced to 36%. The remaining balance of 64% is occupied by national brand retailers such as Shopper s Drug Mart, Pharma Plus, Staples, Laurentian Bank, Home Outfitters, Casey s and East Side Mario s ( Prime Restaurants ). The graphs below illustrate the breakdown of the REIT s tenant base by GLA as at December 31, 2010: TENANT MIX BY GLA At IPO TENANT MIX BY GLA As at December 31, 2010 KFC- Taco Bell 9% Other 2% Financial Institutions 2% Home Outfitters 4% Staples 3% Prime Restaurants 1% KFC Standalone 36% KFC- Pizza Hut 6% KFC Standalone 83% Other QSR 4% KFC-Pizza Hut 3% KFC-Taco Bell 6% Pharma Plus 6% Other 15% Shopper s Drug Mart 20% In addition, upon formation of the REIT, 99% of its GLA was occupied by QSR tenants. As a result of the steps the REIT has taken to diversify and mitigate economic exposure to one industry, as of December 31, 2010, and as illustrated in the graphs below, the REIT s tenant base, by GLA, is comprised of 51% QSR, 26% full-service retail drug stores and 23% other commercial retail tenants. TENANT BASE BY GLA QSR VERSUS OTHER COMMERCIAL RETAIL At IPO TENANT BASE BY GLA QSR VERSUS OTHER COMMERCIAL RETAIL As at December 31, 2010 Financial Institutions 1% Pharmacies 1% Other 22% QSR 51% QSR 99% Pharmacies 26% In executing its acquisition and diversification strategy, the REIT has concentrated on acquiring high quality national tenants. 12 SCOTT S REIT ANNUAL REPORT 201 0

Geographic Distribution As at December 31, 2010, the REIT s GLA segmented by province was as follows: Number of GLA Percentage Province Properties (sq.ft.) of GLA British Columbia 6 10,442 1.1% Alberta 14 63,679 6.7% Manitoba 9 37,596 3.9% Ontario 85 341,352 35.7% Quebec 80 440,968 *46.1% New Brunswick 9 16,593 1.8% Nova Scotia 17 44,907 4.7% Total 220 955,537 100.0% * Contains a land lease for 51,081 square feet. The geographic diversification of the REIT s annual minimum rent, the minimum rent provided by all of the REIT s leases, is shown in the chart below: MINIMUM RENT BY PROVINCE As at December 31, 2010 NS 4% NB 3% ON 40% MB 4% BC 2% AB 9% QC 38% Management believes that Scott s REIT is the only public REIT in Canada, with the majority of its real estate portfolio comprised of quadruple-net leases. The industry standard is a triple-net lease, which means that a tenant pays rent, realty taxes and common area maintenance costs. The other type of lease is known as a gross lease, wherein a tenant just pays rent. Under a quadruple-net lease, a tenant also pays for capital expenditure maintenance and any other repair or replacement costs. In essence, quadruple-net leases improve the value of Scott s REIT s assets at the tenants cost. As at December 31, 2010, Scott s REIT had just over 75% of its minimum rent being derived from quadruple-net leases. SCOTT S REIT ANNUAL REPORT 201 0 13

TYPE OF LEASE BY GLA Gross 0.6% TYPE OF LEASE BY MINIMUM RENT Gross 0.3% Triple 33.7% Triple 24.6% Quadruple 65.7% Quadruple 75.1% In Scott s REIT s portfolio, 174 properties, representing approximately 86% of the GLA or 88% of the minimum rent, are in desirable primary and secondary markets. Approximately 61% of the REIT s GLA is in primary markets and approximately 62% of the REIT s minimum rent is derived from such locations. Primary, secondary and tertiary markets are defined according to population statistics in markets where the property is located. Tertiary markets are ones that have less than 20,000 people. Secondary markets have populations ranging from 20,000 to 149,999 people. Primary markets have populations of more than 150,000 people. PROPERTIES BY MARKET TYPE 140 120 124 70% 60% 100 50% 80 40% 60 50 46 30% 40 20% 20 10% 0 Primary Secondary Tertiary 0% Number of Properties % of Minimum Rent % of GLA 14 SCOTT S REIT ANNUAL REPORT 201 0

Lease Maturities The terms of the REIT s leases have various maturity dates (see chart below), expiring as late as March 31, 2030. There is approximately 1% of minimum rent expiring over each of the next two years. The average remaining lease term for Scott s REIT is approximately 7.0 years. Management attempts to take a portfolio approach on its leasing initiatives by staggering lease maturities where possible to reduce risk while concurrently attempting to secure long-term leases with national tenants. LEASE MATURITIES 150 40% 50% 120 40% 90 30% 60 13% 15% 20% 30 0 1% 11 1% 12 4% 13 2% 14 2% 15 10% 16 17 18 2% 19 0% 20 21 YEAR 2% 22 1% 23 0% 24 4% 25 0% 26 4% 27 0% 0% 1% 28 29 30 10% 0% Number of Units % of Minimum Rent Expiring % of GLA Expiring Historical Weighted Average Portfolio Occupancy In total, there were six property units that were vacant as at December 31, 2010 within the Scott s REIT portfolio, representing 12,936 square feet of GLA. Scott s REIT s occupancy is calculated by dividing the GLA that is occupied by the total amount of GLA that is available for lease. During the fourth quarter, the REIT leased two of these vacant units, both in Thunder Bay, Ontario. Both new leases are expected to be income-producing in the first quarter of 201 1. The REIT currently anticipates that it will be able to lease out the remaining four units within the next 12 months, one of which was leased subsequent to year end. Seven units are coming up for renewal within the next 12 months. See Forward-Looking Disclaimer, Risks and Uncertainties and Subsequent Events. OCCUPANCY % BY QUARTER 100 99.3% 99.3% 98.8% 99.0% 98.4% 98 96 98.4% 98.8% 98.5% 98.5% 98.8% 98.1% 97.7% 97.7% 97.8% 96.8% 97.6% 94 92 90 Q1 07 Q2 07 Q3 07 Q4 07 Q1 08 Q2 08 Q3 08 Q4 08 Q1 09 Q2 09 Q3 09 Q4 09 Q1 10 Q2 10 Q3 10 Q4 10 SCOTT S REIT ANNUAL REPORT 201 0 15

SELECTED FINANCIAL PERFORMANCE The following is a summary of selected financial information: Three-month period ended Twelve-month period ended December 31, 2010 2009 2010 2009 2008 (in thousands of dollars, except Unit and per Unit amounts) Revenue $ 5,740 $ 4,550 $ 22,489 $ 19,472 $ 18,187 Net loss before non-controlling interest (1) (846) (1,180) (3,023) (2,1 19) (775) Net loss per Unit basic and diluted (0.09) (0.16) (0.34) (0.29) (0.101) Total assets as at period end 221,908 194,861 221,908 194,861 186,642 Total liabilities as at period end 174,361 150,739 174,361 150,739 134,904 FFO (2) 1,706 952 6,557 6,055 6,946 FFO per Unit 0.19 0.13 0.73 0.83 0.92 Distributable Income (3) 1,896 1,215 7,383 6,707 6,812 AFFO (4) 1,896 1,215 7,383 6,557 6,812 AFFO per Unit 0.21 0.17 0.83 0.90 0.90 Total distributions declared to Unitholders 1,964 1,541 7,706 6,163 6,434 Total distributions per Unit 0.21 0.21 0.85 0.85 0.85 Payout ratio (5) 103.5% 126.8% 102.9% 91.9% 94.4% Notes: (1) Refer to this Annual Report for a discussion and analysis of the fourth quarter and year-to-date compared to the corresponding periods in the previous year. (2) A non-gaap measure for which a reconciliation to net loss can be found in this Annual Report in the discussion under Funds from Operations ( FFO ) on page 27. (3) A non-gaap measure for which a reconciliation to net loss can be found in this Annual Report in the discussion under Distributable Income on page 24. (4) A non-gaap measure for which a reconciliation to net loss can be found in this Annual Report in the discussion under Adjusted Funds from Operations ( AFFO ) on page 27. (5) A non-gaap measure calculated by dividing distributions paid to Unitholders by AFFO as defined on page 27 of this Annual Report. In the real estate sector, Distributable Income, FFO and AFFO are non-gaap measures commonly used to assist in evaluating a REIT s performance. Net loss, which contains amortization, a non-cash item, may not be representative of the REIT s financial performance and abilities. 16 SCOTT S REIT ANNUAL REPORT 201 0

2010 FOURTH QUARTER HIGHLIGHTS Leasing & Development Initiatives During the fourth quarter, the REIT signed two 10-year leases with a national tanning salon chain to occupy two units (one that is 1,300 square feet and one that is 1,100 square feet). These two new leases are expected to be income-producing in the first quarter of 201 1. Mortgages The REIT obtained an extension on its $65,000 mortgage (the IPO First Mortgage ), which was due on January 1, 201 1. The terms and rates remain unchanged. With the extension, the IPO First Mortgage matured on February 1, 201 1. However, subsequent to December 31, 2010, a further extension was obtained. See Subsequent Events Mortgages. Scott s REIT paid an extension fee of 0.5% on the outstanding balance of the IPO First Mortgage; however, only one-sixth of that fee was considered earned by the lender under the current one-month extension. The remaining prepayment will be applied against the principal balance outstanding under the IPO First Mortgage should no further extensions be provided. In connection with its refinancing efforts, the REIT incurred costs of $1,237 relating to new appraisals, environmental reports and legal fees associated with the new loan documents. See Risks and Uncertainties Financing. Scott s REIT currently believes that the credit market environment and the factors that affect the availability and terms of refinancing to be favourable with respect to the refinancing of the IPO First Mortgage; however, no assurances can be provided. See Forward-Looking Disclaimer. Priszm Limited Partnership ( Priszm ) Priszm, the REIT s largest tenant, issued several news releases during the fourth quarter, which raised significant doubt about Priszm s ability to continue to make payments on its debt obligations as they come due. See Subsequent Events and Risks and Uncertainties Reliance on Priszm. SUBSEQUENT EVENTS Leasing Subsequent to December 31, 2010, the REIT leased one of its vacant units to a café. This new five-year lease, which relates to a 2,000 square foot unit in Thunder Bay, Ontario is expected to be income-producing in the first quarter of 201 1. Mortgages IPO First Mortgage Subsequent to year end, the REIT obtained a five-month extension on its IPO First Mortgage, which was due on February 1, 201 1, and made a $1,000 payment on the principal balance. The remaining balance of $64,000 is open for payment at any time during the five-month extension period. Should the REIT choose to extend the IPO First Mortgage beyond April 1, 201 1, it will need to make an additional $5,000 payment on the principal balance outstanding. If the full extension is utilized, the principal balance remaining on the IPO First Mortgage will be $59,000 on July 1, 201 1. As part of the one-month extension given on December 31, 2010, Scott s REIT paid an extension fee of 0.5%. SCOTT S REIT ANNUAL REPORT 201 0 17

On March 7, 201 1, the REIT superseded the last extension when it negotiated a $32,000 principal repayment as discussed below. Through that negotiation, the REIT is not required to pay the $5,000 on April 1, 201 1. On March 7, 201 1, the REIT also entered into a first and second mortgage with Firm Capital Corporation for $33,000 in proceeds, secured by 70 properties located in Ontario which are tenanted primarily by Priszm. These properties had been used as security on a first mortgage for the $64,000 loan, maturing on July 1, 201 1. The majority of the proceeds were used to pay down the $64,000 loan which has resulted in a remaining balance owing of $32,000. The new loan bears interest at the greater of 6.25% or prime plus 2% in the first 12 months and increasing each year thereafter. The loan is open for payment at any time during the 2.5 year term. Financing fees paid were 1% of the loan balance. As part of this new agreement, the REIT received a further extension for its IPO First Mortgage loan balance of $32,000 until February 1, 2012. The terms and conditions remain the same on the loan. Bridge Facility The REIT s $20,000 bridge facility (the Bridge Facility ), which was scheduled to mature on March 4, 201 1, has now been extended until June 30, 201 1. This extension was granted on the same terms as the original loan, with the exception of the interest rate, which was reduced to Bankers Acceptances ( BA ) plus 325 basis points until June 15, 201 1. For the last two weeks of the extension, from June 16, 201 1 through to June 30, 201 1, the interest rate will increase to BA plus 500 basis points. The REIT is continuing its discussions with lenders to refinance the IPO First Mortgage and the Bridge Facility. Although no assurance can be provided that these discussions will be concluded on favourable terms, the REIT believes it is well advanced in negotiating the terms of these financings and is encouraged by the positive discussions to date. Priszm Transfer Requests On January 31, 201 1, the REIT received notice and a request from its largest tenant, Priszm, to assign eight master leases affecting 79 properties that the REIT owns due to a proposed sale of their British Columbia and Ontario operations. Six of the properties are located in British Columbia, three in Quebec and the remainder in Ontario. The REIT s Governance Committee, which is made up of the three independent trustees, will coordinate all requests and negotiations with Priszm related to this issue. See Risks and Uncertainties. RISKS AND UNCERTAINTIES The results of operations, business prospects and financial condition of the REIT are subject to a number of risks and uncertainties, and are affected by various factors outside of the control of management. In addition to the significant risk factors discussed in this MD&A, readers are advised to review the risk factors discussed by the REIT in its most recent Annual Information Form, available at www.sedar.com, for a complete discussion of the risks affecting the REIT s business. Information contained in this MD&A concerning Priszm is based solely upon information publicly disclosed by Priszm Income Fund and the REIT has relied on such information without independent verification. 18 SCOTT S REIT ANNUAL REPORT 201 0

Financing A portion of the cash flow generated by the REIT s property portfolio is devoted to servicing debt and there can be no assurance that the REIT will continue to generate sufficient cash flow from operations to meet required interest and principal payments, or continue to make distributions at current levels. The REIT is required to refinance or retire its debt obligations as they mature, including mortgages secured by the REIT s properties, notably the IPO First Mortgage in the amount of $32,000, which was originally scheduled to mature on October 1, 2010, and the $20,000 Bridge Facility, which was to originally mature on March 4, 201 1. See Subsequent Events IPO First Mortgage. The REIT has been granted an extension for the Bridge Facility until June 30, 201 1. There has been no change from the original terms, with the exception of the interest rate, which was reduced to BA plus 325 basis points until June 15, 201 1. For the last two weeks of the extension, the interest rate will increase to BA plus 500 basis points. The REIT has also been granted an extension of the IPO First Mortgage under the same terms as the original mortgage at an interest rate of 4.9%, which is payable monthly. The full principal amount of the mortgage is due on February 1, 2012. This mortgage was originally secured by the REIT s original 190 properties, which are primarily tenanted by Priszm (see Subsequent Events IPO First Mortgage and Risks and Uncertainties Reliance on Priszm ) and was incurred at the time of the REIT s initial public offering. The REIT currently expects that it will be able to refinance both the Bridge Facility and the IPO First Mortgage as they mature, but there can be no assurance that it will be able to do so, or that any such refinancing will be on terms favourable or otherwise satisfactory, to the REIT. If the terms of any such refinancing are less favourable than the terms of the existing loans, or if the REIT is not able to refinance its loans, or any of its other debt obligations, then the financial condition of the REIT, as well as the ability of the REIT to continue to pay distributions to Unitholders at current levels, or at all, would be materially adversely affected. See Fourth Quarter Highlights and Risks and Uncertainties Reliance on Priszm and Subsequent Events Priszm Transfer Request. Reliance on Priszm On October 19, 2010, Priszm Income Fund ( The Fund ), a significant tenant of the REIT, operating KFC, Pizza Hut and Taco Bell restaurants at 188 of the REIT s 220 properties and guarantor of three of the REIT s properties that operate as KFC restaurants, announced its third quarter 2010 financial results and cautioned there are circumstances that raise significant doubt as to the ability of the Fund to meet its obligations as they come due and, accordingly, the ultimate appropriateness of the use of accounting principles applicable to a going concern. Further, the Fund announced it was unable to comply with a minimum level of earnings before interest, income taxes, depreciation and amortization (EBITDA) as required by its lender, with the consequence that its senior facility with an outstanding amount of approximately $65,000 became due on demand. In addition, the Fund did not pay its franchise renewal fee with respect to certain operating locations, which expired, and has put required capital upgrades specified in the franchise agreement on hold. The Fund also announced it was actively pursuing refinancing strategies for its term debt, which may include disposition of the Fund s operating restaurants and use of the proceeds to pay down its obligations. On December 13, 2010, the Fund announced the execution of an asset purchase agreement to sell 232 of its operating restaurants, which includes 79 restaurants operated in properties owned by the REIT. On December 31, 2010, the Fund announced it was withholding the interest payment on its $30,000 convertible debenture and had previously disclosed it had withheld the interest payment on its senior facility due in December 2010. On January 7, 201 1, the Fund announced it had withheld the continuing fee payment owing to its franchisor, which was due on January 5, 201 1. SCOTT S REIT ANNUAL REPORT 201 0 19

On January 17, 201 1, the Fund announced that initial conditions related to the sale agreement were met, however, at this time not all conditions had been satisfied and the Fund continues to work with the purchaser to satisfy all conditions with an expected closing of on or before March 31, 201 1. In addition, the Fund announced it has extended its forbearance and financing agreements with its senior lender to May 20, 201 1, subject to certain terms and conditions, and additional credit facilities were made available to the Fund. Further, the Fund announced it had engaged Canaccord Genuity to explore the sale of its remaining operating locations. While there is no assurance the Fund will be able to achieve the intended outcomes in a manner sufficient to ensure repayment of its obligations as they come due, the Fund has continued, through to March 9, 201 1, to meet its lease payment obligations to the REIT. In the event the Fund or successor operators of its restaurants are unable to meet the lease payment obligations of the REIT as they come due, this could have significant impacts on the REIT, which could be material, including on the REIT s cash flow and liquidity. See Risks and Uncertainties Financing. On February 8, 201 1, the REIT announced it had received notice and a request from the Fund to assign eight master leases and one lease affecting 79 REIT properties that are subject to the December 13, 2010 asset purchase agreement. The REIT is evaluating the financial covenant of the proposed transferee. Although no assurances can be provided in respect of the Fund s efforts and the impact on the REIT, the REIT continues to consider all options available to it under the terms of the leases with the Fund, including engaging a third party to actively pursue alternative tenants, all to minimize any potential negative impacts on the REIT. The business of Priszm is subject to a number of additional risks and uncertainties outside the control of the REIT. For a description of the risks and uncertainties concerning Priszm s business, please refer to Priszm s press releases and regulatory filings available at www.sedar.com. Real Property Ownership Real property investments are relatively illiquid and, as a result, could limit the ability of Scott s REIT to respond to changing economic or investment conditions. By specializing in a particular type of real estate, such as QSR and retail properties, Scott s REIT is exposed to adverse effects on these segments of the real estate market, and does not benefit from a diversification of its portfolio by property type. All real property investments are subject to elements of risk. Such investments are affected by general economic conditions, local real estate markets, changing demographics, supply and demand for leased premises, the availability of other premises and various other factors. Risks Related to Current Economic Conditions The realities of a global recession and tightening in the credit markets continue to create adverse effects in the Canadian economy, including the QSR and retail industries. As a result, the financial health of Scott s REIT s tenants may suffer, which in turn, could cause Scott s REIT to experience a higher than normal default on its leases and to have difficulties leasing vacant properties or renewing expiring leases. If any of these effects materialize, the REIT s financial performance and cash distributions could be adversely affected. Any further tightening in credit markets could require Scott s REIT to seek additional or alternative sources of financing which may not be available, or if available, may not be available on favourable terms. See Risks and Uncertainties Financing above. 20 SCOTT S REIT ANNUAL REPORT 201 0

ANALYSIS OF OPERATING RESULTS Fourth Quarter and Year-to-Date Financial Results with Comparison to the Previous Fourth Quarter and Year-to-Date Financial Results Three-month period ended Twelve-month period ended December 31, 2010 2009 Variance 2010 2009 Variance Revenue $ 5,740 $ 4,550 $ 1,190 $ 22,489 $ 19,472 $ 3,017 Operating expenses 914 843 (71) 3,688 3,227 (461) Net operating income (1) 4,826 3,707 1,1 19 18,801 16,245 2,556 Amortization 2,552 2,132 (420) 9,480 8,174 (1,306) Interest expense 2,715 2,417 (298) 10,604 8,375 (2,229) General and administrative 405 338 (67) 1,740 1,815 75 5,672 4,887 (785) 21,824 18,364 (3,460) Loss before non-controlling interest (846) (1,180) 334 (3,023) (2,1 19) (904) Non-controlling interest of Class B exchangeable Units (206) (367) (161) (769) (659) 1 10 Net loss for the period (640) (813) 173 (2,254) (1,460) (794) Basic and diluted loss per Unit $ (0.092) $ (0.163) $ 0.071 $ (0.338) $ (0.292) $ (0.046) Units outstanding, end of period (2) 9,236,945 7,248,873 1,988,072 9,236,945 7,248,873 1,988,072 Notes: (1) A non-gaap measurement. See section entitled Revenue and Net Operating Income. (2) Assumes the exchange of all Class B Units for Units of the REIT. The operating results of Scott s REIT for the quarter and year ended December 31, 2010, as compared to the prior period, were affected by the following: (i) the increased amortization expense related to the properties acquired during fiscal 2010, including the 12 properties tenanted by Shopper s Drug Mart and the property located in Okotoks, Alberta; (ii) the additional interest expense relating to the debt against the portfolio of Shopper s Drug Mart tenanted properties; and (iii) the increase in deferred financing fees relating to the financing for the acquisition of 12 properties from Shopper s Drug Mart Corporation in March 2010. In addition, earnings (loss) per share was diluted as a result of the issuance of an additional 1,974,000 Units pursuant to the $15,000 equity raise Scott s REIT completed in February 2010. Most of the proceeds from the equity raise were used to finance the purchase of the property located Okotoks, Alberta. SCOTT S REIT ANNUAL REPORT 201 0 21

Revenue and Net Operating Income Revenue from income-producing properties includes all amounts earned from tenants related to lease agreements, including basic rent, operating costs and realty tax recoveries as well as adjustments for the straight-lining of rents. Property operating expenses include items such as realty taxes, interior and exterior maintenance, HVAC system maintenance, insurance, utilities and management fees. Net Operating Income ( NOI ) is not a measure recognized under GAAP and does not have a standardized meaning prescribed by GAAP. NOI is presented in this MD&A because the management of Scott s REIT believes that this non-gaap measure is a relevant measure of Scott s REIT s ability to earn and distribute cash to Unitholders. NOI as computed by Scott s REIT may differ from similar computations reported by other similar organizations and, accordingly, may not be comparable. As indicated in the following table, leasing initiatives and acquisitions have contributed to revenue and NOI growth over the same period last year. 2010 2009 Three-months ended December 31, Same Asset (1) Acquisitions Same Asset (1) Acquisitions Rental revenue $ 4,767 $ 854 $ 4,575 $ - Amortization of above/below market rents 35 1 (85) - Straight-line rent 45 38 60 - Total revenue 4,847 893 4,550 - Operating expenses 834 80 843 - NOI 4,013 813 3,707 - Share of NOI 83.2% 16.8% 100.0% - Note: (1) Same asset includes income-producing properties owned by Scott s REIT on the first day of the reporting period. During the fourth quarter, NOI has increased by 8.3% on a same asset basis as compared to last year. This was due to the leasing that has been completed during the year at higher renewal rates and also as a result of leasing several vacant units. By removing the non-cash items from the calculation (amortization of below market rents and straight-line rents), the REIT s NOI increased by 5.4% on a same asset basis. NOI from acquisitions increased to $813 in the fourth quarter of 2010 from zero in the comparable prior year quarter. This is due to the favourable contribution of the 13 properties that were acquired in 2010. 22 SCOTT S REIT ANNUAL REPORT 201 0

2010 2009 Year ended December 31, Same Asset (1) Acquisitions Same Asset (1) Acquisitions Rental revenue $ 19,493 $ 2,591 $ 19,270 $ - Above/below market rents 94 24 (1 1 1) - Straight-line rent 160 127 313 - Total revenue 19,747 2,742 19,472 - Operating expenses 3,491 197 3,227 - NOI 16,256 2,545 16,245 - Share of NOI 86.5% 13.5% 100.0% - Notes: (1) Same asset includes income-producing properties owned by the REIT on the first day of the reporting period. In fiscal 2010 NOI increased by 0.1% on a same asset basis as compared to last year. By removing the non-cash items from the calculation (amortization of below market rents and straight-line rents), the REIT s NOI was lower by 0.2%. Due to the leasing of two vacant units, which will be income-producing in the first quarter of 201 1, the REIT anticipates that NOI will improve in the next quarter. See Forward-Looking Disclaimer. NOI from acquisitions increased to $2,545 in fiscal 2010 from zero in the prior year. This is due to the effect of the 13 properties that were acquired in 2010. Revenue of $5,740 for the fourth quarter was favourable by $1,190 (F2010 $22,489 and favourable by $3,017) compared to the same quarter of last year. The primary reason for the increase was due to the acquisition of twelve properties leased to Shopper s Drug Mart which closed in March 2010, the acquisition of the property located in Okotoks, Alberta, which closed in May 2010 and fewer vacant units as compared with the prior year fourth quarter. In accordance with GAAP, Scott s REIT accounts for rent step-ups by recording the incremental increases on a straight-line basis over the term of the non-cancelable lease. During the fourth quarter, straight-line rent of $83 increased by $23 compared to last year s fourth quarter of $60 (F2010 $287 and unfavourable by $26). With respect to the acquisition of properties, Scott s REIT records intangible assets and liabilities resulting from above/below market rent leases. These intangibles are amortized over the term of the related leases. During the fourth quarter, the amortization of above/below market rent was $36, which was higher than last year s fourth quarter of $(85) (F2010 $1 18 and favourable by $229). This market rent adjustment increase is a result of the acquisition of twelve properties leased to Shopper s Drug Mart which closed in the first quarter and the acquisition of the property located in Okotoks, Alberta, which closed in the second quarter, where a large intangible was recorded in below market rents. SCOTT S REIT ANNUAL REPORT 201 0 23

Operating Costs Operating expenses of $914 for the fourth quarter were $71 higher than during the same quarter of 2009 (F2010 $3,688 and unfavourable by $461). The increase in operating expenses is a result of the properties that were acquired during the first and second quarters of 2010. All of these expenses are recoverable from the tenants, except for the property management fee, which is paid to JBM Properties Inc. See Related Parties. Amortization At the time of acquisition, Scott s REIT allocates a portion of the purchase price of the acquired property to income-producing properties and a portion to intangible assets. Income-producing properties are amortized on a straight-line basis over their estimated useful lives. Intangible assets, such as the value of in-place operating leases and customer relationships are amortized on a straight-line basis over the term of the underlying lease agreements and the expected customer relationship, respectively. Amortization expenses of $2,552 for the fourth quarter were higher by $420 (F2010 $9,480 and unfavourable by $1,306) compared to the same quarter in 2009. The increase was due to the acquisition of twelve properties tenanted by Shopper s Drug Mart and the acquisition of a property in Okotoks, Alberta. Interest Expense Interest expense consists of interest paid on first mortgages on income-producing properties, the amortization of deferred financing fees, interest accretion on the 2007 Convertible Debentures and on the 2009 Convertible Debentures, net of interest earned on term deposits. Interest expense of $2,715 in the fourth quarter was $298 higher than during the same quarter last year (F2010 $10,604 and unfavourable by $2,229), as a result of first mortgages obtained and assumed for a total of $20,000 in March 2010 related to the Shopper s Drug Mart sale leaseback. General and Administrative Expenses General and administrative expenses of $405 in the fourth quarter were $67 higher than during the same quarter last year (F2010 $1,740 and favourable by $75). The main reason for the increase in the quarter is due to the increased expenses associated with asset management, as a result of the acquisitions, and increases in professional fees and expenses related to the preparation for, and compliance with, International Financial Reporting Standards ( IFRS ). Expenses decreased in fiscal 2010 due to lower legal fees and the fact that in fiscal 2009 there were expenses relating to an attempted acquisition which were written off. DISTRIBUTABLE INCOME Distributable Income is not a measure recognized under GAAP and does not have a standardized meaning prescribed by GAAP. Distributable Income is presented in this MD&A because management of Scott s REIT believes this non-gaap measure is a relevant measure of the ability of Scott s REIT to earn and distribute cash returns to Unitholders. Distributable Income as computed by Scott s REIT may differ from similar computations reported by other similar organizations and, accordingly, may not be comparable. Distributable Income in this MD&A represents income before non-controlling interest of Scott s REIT, plus amortization expense, income taxes, stock based compensation, less the straight-line revenue accrual, deferred financing costs, amortization of deferred transaction costs, above/below market rents, acquisition write-offs and interest accretion. 24 SCOTT S REIT ANNUAL REPORT 201 0

Net Loss Before Non-Controlling Interest Reconciliation to Distributable Income Three-months ended Twelve-months ended December 31, 2010 2009 2010 2009 Loss before non-controlling interest $ (846) $ (1,180) $ (3,023) $ (2,1 19) Add (deduct): Amortization of income-producing properties and intangible assets 2,552 2,132 9,480 8,174 Employee bonuses (long-term incentive plan) - - 100 - Straight-line revenue accrual (83) (60) (287) (313) Amortization of deferred transaction costs 246 171 944 524 Interest accretion 59 59 237 101 Amortization of tenant inducements and leasing fees/commissions 4 8 50 23 Amortization of above/below market rents (36) 85 (1 18) 1 1 1 Write-off of acquisition costs - - - 206 Distributable Income $ 1,896 $ 1,215 $ 7,383 $ 6,707 Distributable Income Per Unit (1) $ 0.205 $ 0.168 $ 0.826 $ 0.925 Distributable Income Payout Ratio (2) 103.5% 126.8% 102.9% 91.9% Notes: (1) Distributable Income per Unit is calculated by dividing Distributable Income by the weighted average number of Units outstanding assuming full conversion of the Class B Units during the relevant period end. (2) Distributable Income payout ratio is calculated by dividing Distributable Income by the weighted average number of Units outstanding assuming full conversion of the Class B Units during the relevant period end divided by the actual distributions per Unit made during the period. The increase in the Distributable Income from last year s fourth quarter was due to the the two accretive acquisitions made during the first and second quarters of 2010, including 12 properties tenanted by Shopper s Drug Mart and one property located in Okotoks, Alberta, respectively. SCOTT S REIT ANNUAL REPORT 201 0 25

Reconciliation of Cash Provided by Operating Activities to Distributable Income Three-months ended Twelve-months ended December 31, 2010 2009 2010 2009 Cash provided by (used in) operating activities $ 981 $ 1,074 $ 8,082 $ 6,765 Net change in non-cash working capital 915 141 (699) (58) Distributable Income 1,896 1,215 7,383 6,707 Distributions declared 1,964 1,541 7,706 6,163 Distributable Income per Unit 0.205 0.168 0.826 0.925 Distributions per Unit 0.213 0.213 0.850 0.850 Distributable Income Payout Ratio (1) 103.5% 126.8% 102.9% 91.9% Note: (1) Distributable Income payout ratio is calculated by dividing Distributable Income by the weighted average number of Units outstanding assuming full conversion of the Class B Units during the relevant period end divided by the distributions per Unit paid during the period. Distributable Income is lower than distributions paid as a result of an equity offering that was completed in February 2010. The proceeds from the equity offering were primarily used to fund the acquisition in Okotoks, Alberta, which closed in May 2010. Once Scott s REIT places debt on that property and deploys the capital for further accretive acquisitions, the Distributable Income payout ratio is expected to fall below 100%. See Forward-Looking Disclaimer. DISTRIBUTABLE INCOME PAYOUT RATIO 140 120 100 80 90.3% 77.6% 85.7% 126.8% 117.6% 99.8% 95.3% 103.5% 60 40 20 0 Q1 09 Q2 09 Q3 09 Q4 09 Q1 10 Q2 10 Q3 10 Q4 10 Over the last several quarters, there have been fluctuations in the Distributable Income payout ratio that were caused by: (i) the issuance of the 2009 Convertible Debentures early in the fourth quarter of 2009, which increased interest expense; and (ii) raising equity in the first quarter of 2010, which increased the total distributions declared and paid. Over time, Scott s REIT has improved its payout ratio by using the cash from the issuance of its convertible debentures and additional equity for the acquisition of income-producing properties. The REIT anticipates that this trend will continue once it deploys all of its capital into accretive acquisitions. See Forward-Looking Disclaimer. 26 SCOTT S REIT ANNUAL REPORT 201 0

FUNDS FROM OPERATIONS AND ADJUSTED FUNDS FROM OPERATIONS Funds from operations ( FFO ) and adjusted funds from operations ( AFFO ) are not measures recognized under GAAP and do not have standardized meanings prescribed by GAAP. FFO and AFFO are presented in this MD&A because management of Scott s REIT believes these non-gaap measures are relevant measures of the ability of Scott s REIT to earn and distribute cash returns to Unitholders. FFO and AFFO as computed by Scott s REIT may differ from similar computations reported by other similar organizations and, accordingly, may not be comparable. FFO and AFFO are computed in chart format as seen below. Net Loss Before Non-Controlling Interest Reconciliation to FFO and AFFO Three-months ended Twelve-months ended December 31, 2010 2009 2010 2009 Loss before non-controlling interest $ (846) $ (1,180) $ (3,023) $ (2,1 19) Add: Amortization of income-producing properties and intangible assets 2,552 2,132 9,480 8,174 Employee Bonuses (long-term incentive plan) - - 100 - FFO $ 1,706 $ 952 $ 6,557 $ 6,055 FFO Per Unit (1) $ 0.185 $ 0.13 $ 0.733 $ 0.83 Add (deduct): Straight-line revenue accrual (83) (60) (287) (313) Amortization of deferred financing fees 246 171 944 524 Interest accretion 59 59 237 101 Amortization of deferred costs 4 8 50 23 Amortization of above/below market rents (36) 85 (1 18) 1 1 1 Lease termination fee - - - (150) Write-off of acquisition costs - - - 206 AFFO $ 1,896 $ 1,215 $ 7,383 $ 6,557 AFFO Per Unit (1) $ 0.205 $ 0.168 $ 0.826 $ 0.925 AFFO Payout Ratio (2) 103.5% 126.8% 102.9% 91.9% Notes: (1) Based on the weighted average number of Units outstanding during the quarter and year-to-date. (2) AFFO payout ratio is calculated by dividing AFFO by the weighted average number of Units outstanding and assuming full conversion of the exchangeable Units during the relevant time period divided by the actual distributions per Unit made during the period. FFO per Unit increased by 22.5% in the fourth quarter of 2010 compared to the same period last year (F2010 decrease by 8.8%). The fourth quarter variance was caused by the issuance of the 2009 Convertible Debentures in the fourth quarter of 2009. It was not until the first quarter of 2010 that the acquisition of twelve properties tenanted by Shopper s Drug Mart was SCOTT S REIT ANNUAL REPORT 201 0 27