SHAREHOLDERS REPORT. The leading multidisciplinary. provider of independent. real estate consulting, professional advisory services

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1 The leading multidisciplinary provider of independent real estate consulting, professional advisory services and data, software and analytics, worldwide. FIRST QUARTER REPORT 2012 for the three months ended SHAREHOLDERS REPORT

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3 Management Discussion & Analysis The following management discussion and analysis ( MD&A ) is intended to assist readers in understanding Altus Group Limited (the Company or Altus ), its business environment, strategies, performance and the risk factors of Altus. It should be read in conjunction with our annual MD&A dated March 14, 2012 and our unaudited interim consolidated financial statements and accompanying notes (the financial statements ) for the three months ended, which have been prepared on the basis of International Financial Reporting Standards ( IFRS ) for interim financial statements and reported in Canadian dollars. Unless otherwise indicated herein, references to $ are to Canadian dollars. Unless the context indicates otherwise, all references to we, us, our or similar terms refer to Altus Group Limited, and, as appropriate, our consolidated operations. This MD&A is dated as of May 10, Forward Looking Information Certain information in this MD&A may constitute forward looking information within the meaning of applicable securities legislation. Generally, forward looking information can be identified by use of words such as may, will, expect, believe, plan, would, could and other similar terminology. Inherent in the forward looking information are known and unknown risks, uncertainties and other factors which could cause our actual results, performance or achievements, or industry results, to differ materially from any results, performance or achievements expressed or implied by such forward looking information. Those risks, uncertainties and other factors that could cause actual results to differ materially from the forward looking information include: general state of the economy; competition in the industry; ability to attract and retain professionals; integration of acquisitions; dependence on oil and gas sector; dependence on Canadian multi residential market; customer concentration; currency risk; interest rate risk; reliance on larger software transactions with longer and less predictable sales cycles; success of new product introductions; ability to respond to technological change and develop products on a timely basis; ability to maintain profitability and manage growth; revenue and cash flow volatility; credit risk; protection of intellectual property or defending against claims of intellectual property rights of others; weather; fixed price and contingency engagements; operating risks; performance of obligations/maintenance of client satisfaction; appraisal mandates; legislative and regulatory changes; risk of future legal proceedings; insurance limits; income tax matters; ability to meet solvency requirements to pay dividends; leverage and restrictive covenants; unpredictability and volatility of common share price; capital investment; and issuance of additional common shares diluting existing shareholders interests, as well as those described in our publicly filed documents, including the Annual Information Form (which are available on SEDAR at Given these risks, uncertainties and other factors, investors should not place undue reliance on forwardlooking information as a prediction of actual results. The forward looking information reflects management s current expectations and beliefs regarding future events and operating performance and is based on information currently available to management. Although we have attempted to identify important factors that could cause actual results to differ materially from the forward looking information contained herein, there are other factors that could cause results not to be as anticipated, estimated or intended. The forward looking information contained herein is current as of the date of this MD&A and, except as required under applicable law, we do not undertake to update or revise it to reflect 1

4 Management Discussion & Analysis new events or circumstances. Additionally, we undertake no obligation to comment on analyses, expectations or statements made by third parties in respect of Altus, our financial or operating results, or our securities. Non IFRS Measures We use certain non IFRS measures as indicators of financial performance. Readers are cautioned that they are not defined performance measures under IFRS and may differ from similar computations as reported by other similar entities and, accordingly, may not be comparable to financial measures as reported by those entities. We believe that these measures are useful supplemental measures that may assist investors in assessing an investment in our shares and provide more insight into our performance. Adjusted Earnings before Interest, Taxes, Depreciation and Amortization, ( Adjusted EBITDA ), represents operating profit (loss) adjusted for the effect of amortization of intangibles, depreciation of property, plant and equipment, acquisition related expenses (income), restructuring costs, corporation conversion and legal reorganization costs, share of profit or loss of associate, unrealized foreign exchange gains (losses), gains (losses) on sale of property, plant and equipment, asset impairments, the effect of stock options and other equity settled performance plans, gains (losses) on hedging transactions and other expenses or income of a non operating and/or non recurring nature. Refer to page 11 for a reconciliation of Adjusted EBITDA. Adjusted Earnings (Loss) per Share, ( Adjusted EPS ), represents basic earnings per share adjusted for the effect of amortization of intangibles acquired as part of business acquisitions, non cash finance costs (income) related to the revaluation of unitholders liabilities, distributions on unitholders liabilities, acquisition related expenses (income), restructuring costs, corporate conversion and legal reorganization costs, share of profit or loss of associate, unrealized foreign exchange gains (losses), gains (losses) on sale of property, plant and equipment, interest accretion on vendor payables, asset impairments, the effect of stock options and other equity settled performance plans, gains (losses) on hedging transactions and other expenses or income of a non operating and/or non recurring nature. All of the adjustments are made net of tax. Refer to page 13 for a reconciliation of Adjusted EPS. The definition of Adjusted EPS had been modified in the fourth quarter of 2011 to include adjustments relating to share of profit or loss of associate, unrealized foreign exchange gains (losses), gains (losses) on sale of property, plant and equipment and to adjust for the effect of amortization on intangibles acquired as part of business acquisitions only. These modifications were made to align the Adjusted EPS definition with that of Adjusted EBITDA. As a result, Adjusted EPS for the three months ended March 31, 2011 has been restated. Overview of the Business We are a leading multidisciplinary provider of independent real estate consulting, professional advisory services, technical services and front office and back office commercial real estate software applications and e business solutions. We conduct our business through five business units: Research, Valuation & Advisory; Cost Consulting & Project Management; Realty Tax Consulting; Geomatics; and Argus Software. Each business unit is considered a leader within its specific market. We operate in four 2

5 Management Discussion & Analysis geographic regions: Canada, the United States (the US ), the United Kingdom (the UK ) and the Asia Pacific region ( Asia Pacific ). Altus Group Limited was formed by way of a plan of arrangement under the Business Corporations Act (Ontario) pursuant to an information circular dated November 8, 2010, whereby Altus Group Income Fund was converted from an unincorporated open ended limited purpose trust into a corporate structure (the Corporate Conversion ). The Corporate Conversion through a series of transactions involved the exchange, on a one for one basis, of the units of Altus Group Income Fund (the Fund Units ) and the Class B limited partnership units of Altus Group Limited Partnership ( Altus LP ) for our common shares. As a result of this reorganization, Altus LP, Altus Operating Trust and Altus Group Income Fund were liquidated and dissolved. The effective date of the Corporate Conversion was January 1, We continue to operate the business of Altus Group Income Fund. Research, Valuation & Advisory ( RVA ) The valuation of office, retail, industrial and multi residential properties occurs on a regular basis in the real estate industry as a result of acquisitions, dispositions, new financings, covenants of existing financings, expropriation and/or litigation, IFRS requirements and general portfolio management. Research is central to the valuation process and research based product offerings are becoming significant complements to our service portfolio. RVA offers database management, analysis of lease and sale transaction data and provision of customized services, such as impact analysis of mergers on office space demand, consolidation of tenant rosters and lease expiry schedules, feasibility analysis, occupancy strategies, asset benchmarking and vacancy forecasts. Cost Consulting & Project Management ( Cost ) Accurate and reliable cost consulting and project management is integral to the financial success of a capital development project. Given the significant fluctuation in construction and development costs, property developers and owners rely on cost consulting specialists to obtain the most efficient cost structure for their property development projects and to understand and manage the risks associated with the development cost side of real estate. In addition, within the cost consulting group, services such as capital planning, physical condition assessments and infrastructure services assist clients with ongoing solutions to develop and maintain the long term financial stability of their assets, both vertical and linear. Project Management covers the four main phases of a development project: initiation and concept; planning and development; implementation and execution; and handover and evaluation. Realty Tax Consulting ( Realty Tax ) Property tax is typically the largest cost in property ownership after debt service. Realty tax regimes vary significantly between provincial, state and local jurisdictions. Given the magnitude and complexity of this expense, property managers and owners are increasingly seeking professional expertise to manage and help reduce operating costs across multiple jurisdictions. Equipped with a full spectrum of real estate tax consulting services, this unit includes assessment appeal (including expert witness) services, tax due diligence, vacancy rebate counsel, new construction/preliminary property assessment studies as well as on going property tax management and budgeting. 3

6 Management Discussion & Analysis Geomatics Geomatics is the practice of recording and managing spatially referenced information, including land surveying, geographic information systems ( GIS ), global positioning systems ( GPS ) and light detection and ranging ( LIDAR ). Land surveys and geomatics services are fundamental to the ownership and management of land: setting property boundaries, confirming route and corridor selection, land settlement surveys, mapping, construction and well site surveys, and oilfield surveys. This team of professionals, based in Western Canada, is engaged primarily in exploration and development activity in the oil and gas sector, as well as in pipeline and utility corridors, land development and municipal sectors. Argus Software Argus Software offers software and solutions for analysis and management of commercial real estate investments. Clients depend on Argus software to support critical business processes and decisions, including real estate asset management, valuation, portfolio management, budgeting, forecasting, reporting and lease management solutions. Geographic Coverage As at, we had operations in over 60 cities across Canada, the US, the UK and Asia Pacific. Consultants included: 369 advisory staff members in RVA; 420 consultants in Cost; 293 advisory staff members in Realty Tax; and 424 professional and technical staff members in Geomatics. Argus Software had a total of 116 staff members. Clients Our clients include banking institutions, pension funds, insurance companies, accounting firms, public real estate organizations (including real estate investment trusts) and industrial companies, as well as foreign and domestic private investors, asset and fund managers, real estate developers, governmental institutions and firms in the oil and gas sector. Business Focus Our decision to acquire Realm Solutions, Inc. ( Realm ) and its related technology products under the Argus brand (the Argus acquisition ) represented a transformative strategic acquisition for us. We expect this investment to complement and expand our portfolio of existing services with state of the art software solutions and data based analytics. Having completed the Argus acquisition during the second quarter of 2011, our management is now focused on: integrating client facing capabilities and products of Argus in order to broaden our range of data and analytic services; internally utilizing Argus Software solutions within our business units to better service clients; generating more revenue and improving operating margins in our existing businesses; and aggressively paying down debt and solidifying our capital structure. 4

7 Management Discussion & Analysis Operating Highlights Revenue from professional services is fee based and we are typically engaged on either an hourly based, fixed price or contingency based arrangement. We are usually retained on a project by project basis, although some clients have annual or multi year arrangements for the provision of services. Revenue generated from software sales is based on license fees, support and maintenance fees and/or related training and consulting services. Our largest operating expense is compensation, including salaries, performance based bonuses, benefits and payroll taxes. Selected Financial Information For the three months ended March 31, In thousands of dollars, except for per share amounts (unaudited) (unaudited) Operations Revenues $ 86,178 $ 68,097 Adjusted EBITDA 13,863 7,385 Operating profit (loss) 8,691 (1,114) Profit (loss) 2,868 (3,564) Earnings (loss) per share: Basic Diluted Adjusted $0.12 $0.09 $0.27 $(0.16) $(0.16) $0.04 Dividends declared per share $0.15 $0.30 At (unaudited) At December 31, 2011 (unaudited) Balance sheet Total assets $ 455,626 $ 466,470 Long term liabilities (excluding deferred income taxes) 181, ,419 Revenues were $86.2 million for the three months ended, up 26.6% or $18.1 million from $68.1 million in the same period in Organic growth and increases in the billing of subcontractor fees contributed 7.0% and 9.2% of total revenue growth, respectively. In addition, the 2011 Argus acquisition contributed 10.4% of total revenue growth. Adjusted EBITDA was $13.9 million for the three months ended, up 87.7% or $6.5 million from $7.4 million in the same period in The increase was driven by revenue growth combined with operating margin improvements across most business segments. Profit for the three months ended was $2.9 million and included $1.8 million in restructuring costs and a gain on sale of $1.5 million from a sale leaseback transaction. 5

8 Management Discussion & Analysis On March 30, 2012, we completed a sale leaseback transaction on four properties occupied by Geomatics staff for gross proceeds of $5.2 million. Discussion of Operations Three months ended March 31, In thousands of dollars, except for per share amounts (unaudited) (unaudited) Revenues Revenues $ 86,178 $ 68,097 Less: disbursements 12,638 8,007 Net revenue 73,540 60,090 Expenses Employee compensation 47,769 42,801 Occupancy 3,218 3,220 Office and other operating 6,069 7,486 Depreciation and amortization 5,607 5,731 Acquisition related expenses (income) 1,416 Share of (profit) loss of associate Corporate conversion and legal reorganization costs 89 Restructuring costs 1,786 Operating profit (loss) 8,691 (1,114) Finance costs (income), net 5,230 1,430 Profit (loss) before income tax 3,461 (2,544) Income tax expense (recovery) 593 1,020 Profit (loss) for the period 2,868 (3,564) 6

9 Management Discussion & Analysis Revenues Three months ended March 31, (1) In thousands of dollars (unaudited) (unaudited) % Change North America RVA $ 17,455 $ 16, % North America Realty Tax 14,447 13, % North America Cost 15,319 10, % North America Geomatics 18,371 14, % Argus Software (2) 7, % UK 5,015 4, % Asia Pacific Cost (3) 8,545 9,259 (7.7%) Eliminations (84) (176) 52.3% Revenues $ 86,178 $ 68, % (1) Presentation of prior year balances has been adjusted to reflect elimination entries on consolidation to conform to the current presentation. (2) Consolidated revenue for the three months ended March 31, 2011 for Realm, prior to the Argus acquisition, was $6,444. (3) Includes Hawaii North America RVA Revenue was $17.5 million for the three months ended, up 5.4% or $0.9 million from $16.6 million in the same period in The increase was driven by the Canadian operations experiencing strong revenue growth across various service offerings, including advisory services, litigation support, due diligence work and subscription services. North America Realty Tax Revenue was $14.4 million for the three months ended, up 8.8% or $1.1 million from $13.3 million in the same period in Higher revenues were experienced in the US, Manitoba, Edmonton and London. Higher revenues in the US were due to increased volume of contingency appeal settlements. In Manitoba, the first quarter of 2012 represented the beginning of a two year assessment cycle. North America Cost Revenue was $15.3 million for the three months ended, up 53.0% or $5.3 million from $10.0 million in the same period in The increase in revenue was primarily as a result of increased subcontractor fees within the infrastructure services business. North America Geomatics Revenue was $18.4 million for the three months ended, up 23.4% or $3.5 million from $14.9 million in the same period in The robust organic growth was driven by continued strengthening in Western Canada s oil industry. In addition, growth was supported by the provision of surveying services in the potash sector in Saskatchewan. 7

10 Management Discussion & Analysis Argus Software Revenue was $7.1 million for the three months ended. Included in revenues were unfavourable fair value adjustments to acquired deferred revenue of $0.2 million. Acquisition accounting requires the book value of deferred revenue at the time of acquisition to be written down to its fair value. Consequently, the amount of deferred revenue being recognized as revenue is discounted by the value of this adjustment. Revenues include licensing and maintenance revenues from the new Argus Enterprise product in addition to revenue streams from the legacy products. Revenue before fair value adjustments exceeded prior year results by 12.7%. Prior to the Argus acquisition, revenue for the three months ended March 31, 2011 was generated by Realm. UK Revenue was $5.0 million for the three months ended, up 17.4% or $0.7 million from $4.3 million in the same period in Revenue growth over the previous year was mainly due to higher revenues in the realty tax and agency businesses. Higher revenue in realty tax was due to improved activity within the tax business and the implementation of improved procedural practices in dealing with UK realty tax authorities. Despite recessionary challenges in the UK, the agency business closed a few significant transactions in the quarter. Asia Pacific Cost Revenue was $8.5 million for the three months ended, down 7.7% or $0.8 million from $9.3 million in the same period in The decrease was primarily due to lower revenues in Dubai, China and India, partially offset by higher revenues in Hong Kong, Australia and Hawaii. As part of the global Cost restructuring, offices in Dubai, Singapore and India are being closed as existing projects are completed. Disbursements, including subcontractor costs, represent expenses directly related to the provision of services to a client. Consistent with most professional services firms, these costs are billed back to the client. Disbursements were $12.6 million for the three months ended, up 57.8% or $4.6 million from $8.0 million in the same period in Higher disbursements were mainly due to higher subcontractor fees relating to North America Cost, partially offset by lower appeal fees paid in North America Tax and lower subcontractor costs in North America RVA and Asia Pacific Cost. For the three months ended, disbursements as a ratio to revenue increased to 14.7% from 11.8% in the same period in Employee Compensation was $47.8 million for the three months ended, up 11.6% or $5.0 million from $42.8 million in the same period in The 2011 Argus acquisition represented 11.1% of the increase in employee compensation. Increased volume of work in Geomatics resulted in higher employee compensation, partially offset by lower expenses in Asia Pacific Cost and the UK, as a result of lower headcount. For the three months ended, employee compensation as a percentage of revenues decreased to 55.4% from 62.9% in the same period in Occupancy was $3.2 million for the three months ended, consistent with the same period in Savings from duplicate Toronto office occupancy costs in 2011 were offset by additional occupancy costs resulting from the 2011 Argus acquisition and higher expenses as a result of general 8

11 Management Discussion & Analysis increases in rental rates. For the three months ended, occupancy as a percentage of revenues decreased to 3.7% from 4.7% in the same period in Office and Other Operating costs were $6.1 million for the three months ended, down 18.9% or $1.4 million from $7.5 million in the same period in The decrease in office and other operating costs was primarily due to unrealized foreign exchange gains of $1.2 million mainly due to translation of the US convertible debentures (as defined herein) and a gain on sale of $1.5 million as a result of a sale leaseback transaction on properties occupied by Geomatics, partially offset by additional expenses related to the 2011 Argus acquisition of $1.2 million. For the three months ended March 31, 2012, office and other operating costs as a percentage of revenues decreased to 7.0% from 11.0% in the same period in Adjusted EBITDA (1) Three months ended March 31, (2) In thousands of dollars (unaudited) (unaudited) % Change North America RVA $ 3,742 $ 2, % North America Realty Tax 4,032 3, % North America Cost 2,354 3,001 (21.6%) North America Geomatics 5,849 3, % Argus Software % UK 1, % Asia Pacific Cost (3) 628 (355) 276.9% Corporate (4,654) (4,590) (1.4%) Eliminations (38) (176) 78.4% Adjusted EBITDA $ 13,863 $ 7, % (1) Refer to page 11 for a reconciliation of Adjusted EBITDA (2) Presentation of prior year balances has been adjusted to reflect elimination entries on consolidation to conform to the current presentation. (3) Includes Hawaii North America RVA Adjusted EBITDA was $3.7 million for the three months ended, up 58.2% or $1.3 million from $2.4 million in the same period in The increase in earnings was driven by higher revenues in Canadian operations, partially offset by lower contributions by US operations, as increased investments in staffing were made in anticipation of future work. North America Realty Tax Adjusted EBITDA was $4.0 million for the three months ended, up 17.7% or $0.6 million from $3.4 million in the same period in The increase was primarily due to higher revenues and reduced appeal fees, partially offset by higher bad debt expense. 9

12 Management Discussion & Analysis North America Cost Adjusted EBITDA was $2.4 million for the three months ended, down 21.6% or $0.6 million from $3.0 million in the same period in The decrease was mainly due to lower earnings from capital planning, partially offset by earnings growth in infrastructure services. Earnings from cost consulting services were comparable to those experienced in the previous year. North America Geomatics Adjusted EBITDA was $5.8 million for the three months ended, up 66.4% or $2.3 million from $3.5 million in the same period in The increase was due to higher revenues, partially offset by the variable costs incurred to earn the higher revenue. Argus Software For the three months ended, Adjusted EBITDA was $0.8 million, which includes unfavourable fair value adjustments to acquired deferred revenue of $0.2 million. In addition, a higher investment in staffing was made to support future releases of Argus Enterprise and other software applications in upcoming quarters. UK Adjusted EBITDA was $1.2 million for the three months ended, up 495.4% or $1.0 million from $0.2 million in the same period in The increase was primarily due to higher revenues, lower bad debt expense and lower employee compensation following headcount reductions in Asia Pacific Cost Adjusted EBITDA was $0.6 million for the three months ended, up 276.9% or $1.0 million from $(0.4) million in the same period in The increase in Adjusted EBITDA benefited from the global cost restructuring initiatives and was primarily driven by lower employee compensation, lower bad debt expense and reduced general administrative expenses. Corporate Corporate costs were $4.7 million for the three months ended, up 1.4% or $0.1 million from $4.6 million in the same period in A discretionary bonus accrual of $1.6 million was made during the quarter as compared to $1.0 million in the prior year. The allocation to various business units will be made at year end. The increase in corporate costs was mainly due to higher discretionary bonus accruals as a result of improved year over year performance, offset by lower occupancy costs in the absence of duplicate rents which were recorded in the prior year. 10

13 Management Discussion & Analysis Profit (Loss) The following table provides a reconciliation between Adjusted EBITDA and profit (loss): Three months ended March 31, In thousands of dollars (unaudited) (unaudited) Adjusted EBITDA $ 13,863 $ 7,385 Depreciation and amortization (5,607) (5,731) Acquisition related (expenses) income (1,416) Corporate conversion and legal reorganization costs (89) Share of profit (loss) of associate (400) (461) Unrealized foreign exchange gain (loss) (1) 1,410 (51) Gain (loss) on sale of property, plant and equipment (1) 1,451 (20) Gain (loss) on hedging transactions (1) 190 Stock options and other equity settled performance plan costs (2) (55) (731) Restructuring costs (1,786) Other non operating and/or non recurring costs (3) (375) Operating profit (loss) 8,691 (1,114) Finance (costs) income, net (5,230) (1,430) Profit (loss) before income tax 3,461 (2,544) Income tax recovery (expense) (593) (1,020) Profit (loss) for the period $ 2,868 $ (3,564) (1) Included in office and other operating in the statements of comprehensive income (loss). (2) Included in employee compensation in the statements of comprehensive income (loss). (3) Other non operating and/or non recurring costs for the three months ended include the following: (i) $367 of amounts owed to former owners of Altus Quebec and Altus InSite (as defined herein) included in office and other operating; and, (ii) $8 of other termination related costs included in office and other operating. A total of $367 was incurred with respect to consulting agreements with former owners of Altus Quebec and Altus InSite, acquired in 2005 and 2006, respectively. Management has excluded these amounts from Adjusted EBITDA as these are considered to be non operational and similar in nature to acquisition related expenses (income). Depreciation and Amortization was $5.6 million for the three months ended, as compared to $5.7 million in the same period in Lower depreciation of property, plant and equipment was partially offset by higher amortization of intangibles. In the first quarter of 2011, depreciation was accelerated on assets pertaining to the former Toronto offices. The increase in amortization of intangibles was due to additional intangibles related to the 2011 Argus acquisition. Acquisition Related Expenses (Income) was $Nil for the three months ended, as compared to $1.4 million in the same period in Acquisition related expenses from the previous year represent transaction costs related to the 2011 Argus acquisition. 11

14 Management Discussion & Analysis Corporate Conversion and Legal Reorganization Costs was $Nil for the three months ended March 31, 2012, as compared to $0.09 million in the same period in As a result of the Corporate Conversion in 2011, we incurred legal and professional fees associated with the dissolution of the former trust structure. Share of Profit (Loss) of Associate was $(0.4) million for the three months ended, as compared to $(0.5) million in the same period in This represents our proportionate share of Real Matters Inc. s ( Real Matters ) loss for the period. Stock Options and Other Equity Settled Performance Plan Costs was $0.1 million for the three months ended, as compared to $0.7 million in the same period in This decrease was mainly due to no accruals being made under the Equity Compensation Plan in During the quarter, there were no decisions made with respect to significant incremental executive compensation. Restructuring Costs was $1.8 million for the three months ended, as compared to $Nil in the same period in Costs incurred were a result of the global Cost restructuring plan and the initiative to reduce corporate costs. Finance Costs (Income), Net Three months ended March 31, In thousands of dollars (unaudited) (unaudited) % Change Interest on borrowings $ 4,211 $ 1, % Unwinding of discount (11.4%) Distributions on unitholders liabilities (52.3%) Change in fair value of unitholders liabilities 1,399 (754) 285.5% Change in fair value of interest rate swap (not designated as cash flow hedge) (602) (100.0%) Other, net costs (income) (3) (48) (93.8%) Finance costs (income), net $ 5,230 $ 1, % Finance Costs, Net for the three months ended was $5.2 million, up 265.7% or $3.8 million from $1.4 million in the same period in The overall increase in finance costs was primarily due to higher interest on borrowings and an unfavourable change in fair value of unitholders liabilities, partially offset by a favourable change in fair value of an interest rate swap not designated as a cash flow hedge. The increase in interest on borrowings was mainly due to a higher borrowings balance. For the three months ended, borrowings increased 74.7% as average borrowings outstanding was $221.6 million, as compared to $126.9 million in the same period in In addition, the effective annual interest rate on borrowings increased to 6.3% in the three months ended from 6.1% in the same period in The change in the fair value of unitholders liabilities was derived from the mark to market adjustment on Altus UK Limited Liability Partnership Class B and D units. The value of these units is tied to the value of our common shares. Income Tax Expense for the three months ended was $0.6 million, as compared to $1.0 million in the same period in

15 Management Discussion & Analysis Profit (Loss) during the three months ended was $2.9 million and $0.12 per share, basic and $0.09 per share, diluted, as compared to $(3.6) million and $(0.16) per share, basic and diluted in the same period in Adjusted Earnings (Loss) Per Share Three months ended March 31, (1) Amounts shown on a per share basis (unaudited) (unaudited) Earnings (loss) per share basic $ 0.12 $ (0.16) Amortization of intangibles of acquired businesses Non cash finance cost (income) of unitholders liabilities 0.06 (0.03) Share of (profit) loss of associate Unrealized foreign exchange (gain) loss (0.06) (Gain) loss on sale of property, plant and equipment (0.06) Distributions on unitholders liabilities 0.01 Acquisition related expenses (income) 0.06 Stock options and other equity settled performance plan costs 0.03 Interest accretion on vendor payables Losses (gains) on hedging transactions (0.04) Restructuring costs 0.08 Other non operating and/or non recurring costs 0.02 Tax impact on above (0.06) (0.08) Adjusted earnings (loss) per share $ 0.27 $ 0.04 (1) The definition of Adjusted EPS had been modified in the fourth quarter of 2011 to include adjustments relating to share of profit or loss of associate, unrealized foreign exchange gains (losses), gains (losses) on sale of property, plant and equipment and to adjust for the effect of amortization on intangibles acquired as part of business acquisitions only. These modifications were made to align the Adjusted EPS definition with that of Adjusted EBITDA. As a result, Adjusted EPS for the three months ended March 31, 2011 has been restated. 13

16 Management Discussion & Analysis Summary of Quarterly Results In thousands of dollars, except Mar 31 Dec 31 Sep 30 Jun 30 Mar 31 Dec 31 Sep 30 Jun 30 for per share amounts (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) Results of Operations Revenues $ 86,178 $ 86,279 $ 76,610 $ 70,172 $ 68,097 $ 68,012 $ 61,244 $ 62,448 Profit (loss) for the period 2,868 2,335 (4,458) (12,623) (3,564) 1,496 (7,603) 5,057 Earnings (loss) per share: Basic Diluted $0.12 $0.09 $0.10 $0.08 (1) $(0.19) $(0.19) $(0.56) $(0.56) $(0.16) $(0.16) $0.07 $(0.07) $(0.38) $(0.38) $0.26 $0.08 Weighted average number shares ( 000s): Basic Diluted 23,042 26,450 23,036 26,455 (1) 22,995 22,995 22,648 22,648 22,618 22,618 20,205 23,010 20,077 20,077 19,821 22,450 (1) Diluted earnings (loss) per share and diluted weighted average number of shares have been adjusted from $0.10 and 23,324, respectively, to reflect the dilutive impact of the US convertible debentures (as defined herein). Certain segments of our operations are subject to seasonal variations. Geomatics projects tend to be on remote undeveloped land in western Canada which is most accessible in the winter and summer months and least accessible in the spring months when ground conditions are soft and wet. Revenues for Geomatics tend to peak in the third and fourth quarters of the year in line with higher activity levels during these periods. In the UK, the Realty Tax practice has a higher proportion of property tax appeals resolved and revenue recognized, in the first and fourth quarters of the year, due to the March 31 fiscal year end for UK municipalities. Liquidity and Capital Resources Cash Flow Three months ended March 31, In thousands of dollars (unaudited) (unaudited) Cash from operating activities $ 1,578 $ 1,366 Cash from financing activities (7,481) (11,627) Cash from investing activities 3,109 (4,600) Effect of foreign currency translation 119 (551) Change in cash position during the period $ (2,675) $ (15,412) Dividends paid $ 3,456 $ We expect to fund operations from cash derived from operating activities. Deficiencies arising from shortterm working capital requirements and capital expenditures may be financed on a short term basis with bank indebtedness or on a permanent basis with offerings of securities. Significant erosion in the general state of the economy could affect our liquidity by reducing cash generated from operating activities or by limiting access to short term financing as a result of tightening credit markets. 14

17 Management Discussion & Analysis Cash from operating activities Working Capital December 31, 2011 In thousands of dollars (unaudited) (unaudited) Current assets $ 110,877 $ 110,756 Current liabilities 125,482 78,465 Working capital $ (14,605) $ 32,291 Current assets are composed primarily of cash and cash equivalents, trade and other receivables and current income taxes recoverable. Current liabilities include trade and other payables, current income taxes payable, current portion of borrowings and provisions. As at, current liabilities also include the US$49.4 million convertible unsecured subordinated debentures ( US convertible debentures ) issued in connection with the 2011 Argus acquisition. The US convertible debentures were acquired and cancelled on May 1, 2012 with the net proceeds from the issuance of $48.0 million aggregate principal amount of convertible unsecured subordinated debentures issued on April 19, 2012 (the 2012 convertible debentures ). Refer to Subsequent Events for further details. Trade receivables and unbilled revenue on customer contracts increased 2.4% from December 31, 2011 to. As a percentage of trailing 12 months revenues, trade receivables and unbilled revenue on customer contracts was 30.9% as at, as compared to 32.0% as at December 31, 2011, a four day decrease in the number of days revenue outstanding. Current and long term liabilities include amounts owing to the vendors of acquired businesses on account of excess working capital, deferred purchase price payments and other closing adjustments. As at, the amounts owing to the vendors of acquired businesses were approximately the same as the amounts owing as at December 31, 2011, being $6.6 million. We require acquired businesses to have sufficient working capital to fund operating cash flow on an uninterrupted basis. The purchase and sale agreements for the acquired businesses require that excess working capital be paid back to the vendors once it is monetized. Any working capital deficiency is withheld from the deferred purchase payment. Additionally, the purchase and sale agreements generally provide that liabilities incurred prior to closing are obligations of the vendors and any liabilities identified post closing are withheld from the deferred purchase payment, with settlement ranging from one to three years from the acquisition date. We intend to fund the deferred purchase price payments through the Revolving Term Facility (as described below) or cash on hand. We are able to satisfy the balance of our current liabilities through the realization of our current assets. 15

18 Management Discussion & Analysis Cash from financing activities Our bank credit facilities are summarized below: In thousands of dollars (unaudited) Revolving Operating Facility: Senior secured revolving operating facility for general corporate purposes, including letters of credit due on demand, which will mature December 31, $ 20,000 Revolving Term Facility: Senior secured revolving term facility to finance investments as permitted by the credit agreement, which will mature December 31, Certain provisions allow us to increase the limit further to $160, ,000 Non revolving Reducing Term Facility: Senior secured non revolving reducing term facility to finance the Argus acquisition. Quarterly repayments of $2,000 are required commencing December 31, These quarterly repayments increase to $3,500 starting from March 31, All remaining amounts are due December 31, ,000 $ 170,000 As at, our total borrowings on our bank credit facilities amounted to $128.8 million, a decrease of $3.5 million from December 31, For the three months ended, we repaid $1.5 million on the Revolving Term Facility and $2.0 million on the Non revolving Reducing Term Facility. We also have outstanding letters of credit under our bank credit facilities in the total amount of $0.9 million to secure a credit facility for operating leases. The cost of our facilities is tied to the Canadian Prime rate, Bankers Acceptance rate, US base rates or LIBOR rates. As at, $110.0 million of the bank credit facilities were subject to various interest rate swap agreements to fix the interest rate. The effective annual rate of interest for the three months ended on our bank credit facilities was 6.19%, as compared to 4.49% in the same period in As at, we were in compliance with the financial covenants of our bank credit facilities, which are summarized below: Funded debt to EBITDA (maximum of 3.35:1) 2.65:1 Minimum fixed charge coverage (minimum of 1.20:1) 2.01:1 Maximum funded debt to capitalization (maximum of 55%) 42% Other than long term debt and letters of credit, we are subject to contractual obligations for operating leases for office facilities and office equipment, as well as finance leases for office equipment. 16

19 Management Discussion & Analysis Contractual Obligations In thousands of dollars Payments Due by Period (undiscounted) Less than Total 1 year 1 to 3 years 4 to 5 years After 5 years Long term debt $ 129,947 $ 8,759 $ 17,645 $ 103,424 $ 119 Operating lease obligations 57,602 10,508 15,061 11,381 20,652 Finance lease obligations Payables to vendors 7, ,787 Convertible debentures (1) 99,269 49,269 50,000 Provisions 4,005 3, Other financial liabilities 54,370 50, ,296 Total Contractual Obligations $ 352,782 $ 123,022 $ 40,681 $ 115,012 $ 74,067 (1) Includes the US convertible debentures and the $50.0 million convertible unsecured subordinated debentures issued in December 2010 (the Canadian convertible debentures ). Cash from investing activities We invest in property, plant and equipment and intangible assets to support the activities of the business, such as computer equipment and software, trucks and field equipment and office equipment and furnishings. Capital expenditures for accounting purposes include property, plant and equipment in substance as well as form, including assets under finance lease and intangible assets comprising of computer application software. Capital expenditures are reconciled as follows: Capital Expenditures Three months ended March 31, In thousands of dollars (unaudited) (unaudited) Property, plant and equipment additions on Statement of Cash Flows $ 1,435 $ 4,158 Intangible asset additions on Statement of Cash Flows Proceeds on disposal of operational property, plant and equipment, reinvested (5,254) (28) Capital expenditures funded by cash from investing activities $ (3,109) $ 4,600 Share Data As at, there were 23,042,089 common shares outstanding. As at April 30, 2012, there were 23,042,089 common shares outstanding. As at, there were 926,054 share options outstanding (December 31, ,221 share options outstanding) at a weighted average exercise price of $10.90 per share (December 31, 2011 $10.92 per share) and 391,013 options were exercisable (December 31, ,513). All share options are exercisable into common shares on a one to one basis. On April 5, 2012, a total of 370,000 share options were granted with an exercise price of $7.25 per share, none of which were exercisable as at the date of this MD&A. 17

20 Management Discussion & Analysis As at, there were $50.0 million of Canadian convertible debentures outstanding that are exchangeable into common shares of the Company at the option of the holder at a conversion price of $18.60 per common share, equivalent to a maximum of 2,688,172 common shares. As at, there were US$49.4 million convertible debentures outstanding that were exchangeable into common shares of the Company at the option of the holder at a conversion price of US$14.73 per common share, equivalent to a maximum of 3,351,042 common shares. On May 1, 2012, the net proceeds from the issue and sale of the 2012 convertible debentures were used to acquire and cancel the outstanding US convertible debentures. Refer to Subsequent Events for further details. The 2012 convertible debentures are exchangeable into common shares of the Company at the option of the holder at a conversion price of $10.00 per common share, equivalent to a maximum of 4,800,000 common shares. Financial Instruments and Other Instruments Financial instruments held in the normal course of business included in our unaudited interim consolidated balance sheet as at consist of cash and cash equivalents, trade and other receivables (excluding prepayments and lease inducements), trade and other payables (excluding lease inducements and deferred revenue), contingent consideration payable, borrowings (including long term debt, convertible debentures and finance lease obligations), derivatives (cash flow hedges and foreign currency forward contracts) and unitholders liabilities. We do not enter into financial instrument arrangements for speculative purposes. The fair values of the short term financial instruments approximate their carrying values. The fair values of the long term debt and finance lease obligations are not significantly different than their carrying values, as these instruments bear interest at rates comparable to current market rates. The fair value of other long term liabilities and contingent consideration payable is estimated by discounting the future contractual cash flows at the cost of money to us, which is equal to their carrying value. The fair value of the Canadian convertible debentures as at was approximately $43.1 million, based on market quotes. The fair value of the US convertible debentures as at was approximately $49.4 million, calculated by discounting the expected future cash flows at the applicable estimated prevailing interest rates. The fair value of the unitholders liabilities as at was approximately $2.9 million, based on market quotes for our common shares. We are exposed to interest rate risk in the event of fluctuations in the Canadian Prime rate or Canadian Bankers Acceptance rate, US Base rate and LIBOR rate as the interest rates on the bank credit facilities fluctuate with changes in the Canadian Prime rate, Canadian Bankers Acceptance rate, US Base rate or LIBOR rate. To mitigate our exposure to interest rate fluctuations, we have entered into interest rate swap agreements in connection with our bank credit facilities. 18

21 Management Discussion & Analysis In 2010, we entered into an interest rate swap agreement, effective August 31, 2011, for a notional amount of $75.0 million and a fixed interest rate of 2.77% per annum plus a stamping fee of 3.25% as at March 31, This agreement expires on August 31, As at, the fair value of this swap was $3.2 million in favor of the counterparty. In 2011, we entered into an interest rate swap agreement, effective June 8, 2011, for a notional amount of $35.0 million and a fixed interest rate of 2.376% per annum plus a stamping fee of 3.25% as at March 31, This agreement expires on December 31, This interest rate swap was not designated as a cash flow hedge. As at, the fair value of this swap was $1.1 million in favour of the counterparty. During the three months ended, we entered into foreign currency forward contract agreements to purchase US$46.0 million at a fixed price of $45.7 million (a rate of $ per US$1.00) at any time between May 1, 2012 and June 1, This was done in anticipation of acquiring the US convertible debentures on May 1, Hedge accounting was not applied to these agreements. We are exposed to credit risk with respect to our cash and cash equivalents and trade and other receivables, and more specifically our trade receivables. Credit risk is not concentrated with any particular customer. In certain parts of Asia, it is often common business practice to pay invoices over an extended period of time and/or at the completion of the project. This practice increases the risk and likelihood of future bad debts. In addition, the risk of non collection of trade receivables is greater in Asia Pacific compared to North American or European countries. Trade receivables are monitored on an ongoing basis with respect to their collectability and, where appropriate, a specific reserve is recorded. Liquidity risk is the risk that we will not be able to meet our financial obligations as they fall due. We manage liquidity risk through the management of our capital structure and financial leverage. We also manage liquidity risk by continuously monitoring actual and projected cash flows, taking into account the seasonality of our revenues and receipts and maturity profile of financial assets and liabilities. Our Board of Directors reviews and approves our operating and capital budgets, as well as any material transactions out of the ordinary course of business, including proposals relating to mergers, acquisitions or other major investments. We are also exposed to price risk as our unitholders liabilities are classified as fair value through profit or loss, and linked to the price of our own common shares. 19

22 Management Discussion & Analysis Related Party Transactions We entered into the following transactions with related parties during the three months ended March 31, 2012, which were in the normal course of operations and measured at the exchange amount: Three months ended March 31, In thousands of dollars (unaudited) (unaudited) Rent remitted to entities controlled by employee shareholders $ 78 $ 124 We entered into a consulting agreement with the principals of one of the original initial public offering entities, Altus Québec, pursuant to which the principals agreed to provide consulting services for a period of ten years in respect of certain information technology developed by the principals and acquired by us on May 19, In consideration for providing the consulting services, the principals are entitled to a fee, payable to the extent that earnings exceed certain thresholds. A total of $15,000 was expensed in office and other operating costs in respect of the three months ended (three months ended March 31, 2011 $79,000). Included in trade and other payables as at was $112,000 (December 31, 2011 $304,000). We also entered into a consulting agreement with the former owner of the business assets of InSite Real Estate Information Systems Inc. ( Altus InSite ) pursuant to which the former owner agreed to provide certain services, related to the business of Altus InSite, for a period of six years. The agreement provides that the former owner will be reimbursed, with no mark up, for all reasonable third party costs incurred in connection with the provision of the services. In consideration for providing the services, the former owner is entitled to a fee in years two through six of the agreement. The fee is payable only to the extent that earnings exceed certain thresholds. A total of $352,000 was expensed in office and other operating costs in respect of the three months ended (three months ended March 31, 2011 $Nil). Included in trade and other payables as at was $784,000 (December 31, 2011 $432,000). During the three months ended, we recorded expenses of $152,000 (three months ended March 31, 2011 $97,000), pursuant to the referral and services agreement between Altus Residential Limited and Real Matters (the Referral and Services Agreement ). As part of the Referral and Services Agreement, we have paid a sales and account management fee of $3.5 million with respect to services to be performed over the 20 year term of the agreement ending in April This amount has been included with trade and other receivables and is being amortized on a straight line basis over the term of the contract. Included in trade and other payables was $163,000 as at (December 31, 2011 $174,000). Included in trade and other receivables was $294,000 as at (December 31, 2011 $221,000). We provide appraisal services to Real Matters, an entity in which we hold a 20.70% equity interest as at. During the three months ended, we recorded revenues of $2,000 for appraisal services provided to Real Matters (three months ended March 31, 2011 $9,000). 20