##### 



Managements Responsibility for the Financial Statements
    -s- Richard B. Clark
    

-s- Craig J. LaurieRichard B. Clark
    
    Craig J. LauriePresident and Chief Executive Officer
    
    Senior Vice President and Chief Financial OfficerMarch 7, 2007
 Report of Independent Registered Chartered Accountants
 To the Board of Directors and Shareholders of Brookfield Properties Corporation
     Toronto, Canada
March 7, 2007
    

(DELITTE & TOUCH LLP)Independent Registered Chartered Accountants
 66




---



##### 



Managements Report on Internal Control over Financial Reporting
     -s- Richard B. Clark
    
    -s- Craig J. LaurieRichard B. Clark
    
    Craig J. LauriePresident and Chief Executive Officer
    
    Senior Vice President and Chief Financial OfficerMarch 7, 2007
 67




---



##### 



Report of Independent Registered Chartered Accountants
 To the Board of Directors and Shareholders of Brookfield Properties Corporation
 Managements Report on
Internal Control over Financial Reporting Managements Report
on Internal Control over Financial Reporting
      Toronto, Canada
March 7, 2007
    

(DELITTE & TOUCH LLP)Independent Registered Chartered Accountants
 68




---



##### 



Consolidated Balance Sheets
 December 31 (US Millions)
    
    Note
    
    
    2006
    
    
    2005AssetsCommercial properties
    
    
    5
    
    
    $
    15,287
    
    
    $
    7,430Commercial developments
    
    
    6
    
    
    
    735
    
    
    
    224Residential developments
    
    
    6
    
    
    
    706
    
    
    
    391Receivables and other
    
    
    7
    
    
    
    974
    
    
    
    830Intangible assets
    
    
    8
    
    
    
    853
    
    
    
    125Restricted cash and deposits
    
    
    9
    
    
    
    507
    
    
    
    316Marketable securities
    
    
    10
    
    
    
    
    
    
    
    58Cash and cash equivalents
    
    
    
    
    
    
    188
    
    
    
    64Assets related to discontinued operations
    
    
    11
    
    
    
    64
    
    
    
    75$
    19,314
    
    
    $
    9,513LiabilitiesCommercial property debt
    
    
    12
    
    
    $
    11,185
    
    
    $
    5,216Accounts payable and other liabilities
    
    
    13
    
    
    
    923
    
    
    
    500Intangible liabilities
    
    
    14
    
    
    
    919
    
    
    
    126Future income tax liabilities
    
    
    15
    
    
    
    584
    
    
    
    188Liabilities related to discontinued operations
    
    
    11
    
    
    
    36
    
    
    
    51Capital securities  corporate
    
    
    16
    
    
    
    1,093
    
    
    
    1,101Capital securities  fund subsidiaries
    
    
    17
    
    
    
    803
    
    
    
    Non-controlling interests  fund subsidiaries
    
    
    17
    
    
    
    266
    
    
    
    Non-controlling interests  other subsidiaries
    
    
    18
    
    
    
    67
    
    
    
    59Preferred equity  subsidiaries
    
    
    19
    
    
    
    326
    
    
    
    329Shareholders equityPreferred equity  corporate
    
    
    20
    
    
    
    45
    
    
    
    45Common equity
    
    
    21
    
    
    
    3,067
    
    
    
    1,898$
    19,314
    
    
    $
    9,513
 See accompanying notes to the consolidated financial statements
 On behalf of the Board,(-s- Gordon E. Arnell)
    

(-s- Richard B. Clark)Gordon E. Arnell 
Chairman
    
    Richard B. ClarkPresident and Chief Executive Officer
 69




---



##### 



Consolidated Statement of Income
 December 31 (US Millions, except per share amounts)
    
    Note
    
    
    2006
    
    
    2005Total revenue
    
    
    23
    
    
    $
    1,923
    
    
    $
    1,529Net operating incomeCommercial property operations
    
    
    23
    
    
    $
    840
    
    
    $
    674Residential development operations
    
    
    23
    
    
    
    144
    
    
    
    106Interest and other
    
    
    
    
    
    
    44
    
    
    
    371,028
    
    
    
    817ExpensesInterestCommercial property debt
    
    
    
    
    
    
    424
    
    
    
    273Capital securities  corporate
    
    
    16
    
    
    
    59
    
    
    
    54Capital securities  fund subsidiaries
    
    
    17
    
    
    
    (19
    )
    
    
    General and administrative
    
    
    
    
    
    
    67
    
    
    
    48Transaction costs
    
    
    4
    
    
    
    15
    
    
    
    Non-controlling interestsFund subsidiaries
    
    
    17
    
    
    
    (14
    )
    
    
    Other subsidiaries
    
    
    
    
    
    
    21
    
    
    
    16Depreciation and amortization
    
    
    
    
    
    
    281
    
    
    
    161Future income taxes
    
    
    15
    
    
    
    91
    
    
    
    103Net income from continuing operations
    
    
    
    
    
    $
    103
    
    
    $
    162Discontinued operations
    
    
    11
    
    
    
    32
    
    
    
    2Net income
    
    
    
    
    
    $
    135
    
    
    $
    164Net income from continuing operations per common shareBasic
    
    
    21
    
    
    $
    0.43
    
    
    $
    0.69Diluted
    
    
    
    
    
    $
    0.42
    
    
    $
    0.68Net income per common share
    
    
    21Basic
    
    
    
    
    
    $
    0.57
    
    
    $
    0.70Diluted
    
    
    
    
    
    $
    0.56
    
    
    $
    0.69See accompanying notes to the consolidated financial statements
 Consolidated Statement of Retained Earnings
 December 31 (US Millions)
    
    Note
    
    
    2006
    
    
    2005Retained earnings  beginning of year
    
    
    
    
    
    $
    747
    
    
    $
    787Net income
    
    
    
    
    
    
    135
    
    
    
    164Shareholder distributionsPreferred shares dividends  corporate
    
    
    
    
    
    
    (3
    )
    
    
    (2
    )Common share dividends
    
    
    
    
    
    
    (173
    )
    
    
    (150
    )Amount paid in excess of the book value of common
shares purchased for cancellation
    
    
    
    
    
    
    
    
    
    
    (52
    )Retained earnings  end of year
    
    
    21
    
    
    $
    706
    
    
    $
    747
 See accompanying notes to the consolidated financial statements
 70




---



##### 



Consolidated Statement of Cashflow
 December 31 (US Millions)
    
    Note
    
    
    2006
    
    
    2005Operating activitiesNet income
    
    
    
    
    
    $
    135
    
    
    $
    164Depreciation and amortization
    
    
    
    
    
    
    284
    
    
    
    168Future income taxes
    
    
    
    
    
    
    107
    
    
    
    103Property disposition gains
    
    
    
    
    
    
    (44
    )
    
    
    Amortization of value of acquired operating leases to rental revenue, net
    
    
    
    
    
    
    (44
    )
    
    
    (4
    )Non-controlling interests  fund and other subsidiaries
    
    
    
    
    
    
    7
    
    
    
    16Non-cash component of capital securities  fund subsidiaries
    
    
    
    
    
    
    (30
    )
    
    
    Income from equity-accounting investments
    
    
    
    
    
    
    (4
    )
    
    
    (12
    )Distributions received from equity-accounting investments
    
    
    
    
    
    
    9
    
    
    
    7Deferred leasing costs
    
    
    
    
    
    
    (27
    )
    
    
    (15
    )Increase in housing and land inventory and related working capital
    
    
    
    
    
    
    (258
    )
    
    
    (137
    )Other
    
    
    
    
    
    
    (69
    )
    
    
    (60
    )66
    
    
    
    230Financing activities and capital distributionsCommercial property debt arranged
    
    
    
    
    
    
    517
    
    
    
    476Commercial property debt repayments
    
    
    
    
    
    
    (248
    )
    
    
    (463
    )Corporate credit facilities arranged
    
    
    
    
    
    
    1,086
    
    
    
    568Corporate credit facilities repayments
    
    
    
    
    
    
    (1,110
    )
    
    
    (294
    )Capital
securities arranged fund subsidiaries
    
    
    
    
    
    
    764
    
    
    
    Non-controlling interest contributions arranged  fund subsidiaries
    
    
    
    
    
    
    278
    
    
    
    Trizec acquisition financing arranged
    
    
    
    
    
    
    3,702
    
    
    
    Land development debt, net
    
    
    
    
    
    
    78
    
    
    
    (4
    )Distributions to non-controlling interests
    
    
    
    
    
    
    (12
    )
    
    
    (13
    )Common shares issued
    
    
    
    
    
    
    1,234
    
    
    
    8Common shares repurchased
    
    
    
    
    
    
    
    
    
    
    (74
    )Preferred share dividends
    
    
    
    
    
    
    (3
    )
    
    
    (2
    )Common share dividends
    
    
    
    
    
    
    (173
    )
    
    
    (150
    )6,113
    
    
    
    52Investing activitiesMarketable securities
    
    
    
    
    
    
    58
    
    
    
    227Loans receivable and other
    
    
    
    
    
    
    (24
    )
    
    
    Acquisition of Trizec, net of cash and cash equivalents acquired
    
    
    4,26
    
    
    
    (5,341
    )
    
    
    Acquisitions of real estate, net
    
    
    26
    
    
    
    (569
    )
    
    
    (366
    )Dispositions of real estate, net
    
    
    26
    
    
    
    82
    
    
    
    7Restricted cash and deposits
    
    
    
    
    
    
    (102
    )
    
    
    (19
    )Development and redevelopment investments
    
    
    
    
    
    
    (79
    )
    
    
    (50
    )Commercial property tenant improvements
    
    
    
    
    
    
    (55
    )
    
    
    (108
    )Capital expenditures
    
    
    
    
    
    
    (25
    )
    
    
    (21
    )(6,055
    )
    
    
    (330
    )Increase / (decrease) in cash resources
    
    
    
    
    
    
    124
    
    
    
    (48
    )Opening cash and cash equivalents
    
    
    
    
    
    
    64
    
    
    
    112Closing cash and cash equivalents
    
    
    
    
    
    $
    188
    
    
    $
    64
 See accompanying notes to the consolidated financial statements
 71




---



##### 



Notes to the Consolidated Financial Statements
 NOTE 1: SUMMARY OF ACCOUNTING POLICIES
 (a) General
  (b) Principles of consolidation
  (i)
    
    the accounts of all wholly-owned subsidiaries of the company and the accounts
of all such wholly-owned subsidiaries incorporated and unincorporated joint ventures
to the extent of the companys proportionate interest in their respective assets,
liabilities, revenue and expenses;(ii)
    
    the accounts of BPO Properties Ltd. (BPO Properties) and Brookfield
Financial Properties L.P. (Brookfield Financial Properties) and the accounts of BPO
Properties and Brookfield Financial Properties incorporated and unincorporated joint
ventures to the extent of the companys proportionate interest in their respective
assets, liabilities, revenue and expenses; and(iii)
    
    the accounts of Brookfield Properties Office Partners, Inc., TRZ Holdings
LLC, BPOP Holdings (US) LLC and BPOP (Canada) Inc. (collectively, the US Office
Fund) and the accounts of the US Office Funds incorporated and unincorporated joint
ventures to the extent of the companys proportionate interest in their respective
assets, liabilities, revenue and expenses.
  (i)
    
    Brookfield Financial Properties L.P.: The company owns a 99.4% limited
partnership interest and a 100% general partnership interest in Brookfield Financial
Properties L.P.(ii)
    
    BPO Properties Ltd.: The company owns 89% on an equity basis and 54.3% on a
voting basis of the common shares of BPO Properties Ltd.(iii)
    
    US Office Fund: The company owns an indirect 45% economic interest in the US Office
Fund.
 (c) Properties
 (i)
    
    Commercial propertiesCommercial properties held for investment are carried at cost less accumulated
depreciation. Upon acquisition, the company allocates the purchase price to the
components of the commercial properties acquired: the amount allocated to land is based
on its estimated fair value; buildings and existing tenant improvements are recorded at
depreciated replacement cost; above- and below-market in-place operating leases are
determined based on the present value of the difference between the rents payable under
the contractual terms of the leases and estimated market rents; lease origination costs
for in-place operating leases are determined based on the estimated costs that would be
incurred to put the existing leases in place under the same terms and conditions; and
tenant relationships are measured based on the present value of the estimated avoided net
costs if a tenant were to renew its lease at expiry, discounted by the probability of
such renewal.Depreciation on buildings is provided on a straight-line basis over the useful lives of
the properties to a maximum of 60 years. Depreciation is determined with reference to
each rental propertys carried value, remaining estimated useful life and residual
value. Acquired tenant improvements, above- and below-market in-place operating leases
and lease origination costs are amortized on a straight-line basis over the remaining
terms of the leases. The value associated with acquired tenant relationships is
amortized on a straight-line basis over the expected term of the relationships. All
other tenant improvements and re-leasing costs are deferred and amortized on a
straight-line basis over the terms of the leases to which they relate. Depreciation on
buildings and amortization of deferred leasing costs and tenant improvements that are
determined to be assets of the company are recorded in depreciation and amortization
expense. All other amounts are amortized to revenue.Properties are reviewed for impairment whenever events or changes in circumstances
indicate the carrying value may not be recoverable. For commercial properties, an
impairment loss is recognized when a propertys carrying value exceeds its undiscounted
future net cashflow. The impairment is measured as the amount by which the carrying
value exceeds the estimated fair value. Projections of future cashflow take into account
the specific business plan for each property and managements best estimate of the most
probable set of economic conditions anticipated to prevail in the market.(ii)
    
    Commercial developmentsCommercial properties under development consist of properties for which a major
repositioning program is being conducted and properties which are under construction.
These properties are recorded at cost, including pre-development expenditures. For
development properties, an impairment loss is recognized when a propertys carrying
value exceeds its undiscounted future net cashflow. Properties are reviewed for
impairment whenever events or changes in circumstances indicate the carrying value may
not be recoverable. The impairment is measured as the amount by which the carrying value
exceeds the
 72




---



##### 



estimated fair value. Projections of future cashflow take into account the specific
business plan for each property and managements best estimate of the most probable set
of economic conditions anticipated to prevail in the market.(iii)
    
    Residential developmentsDevelopment land is held for residential development and is recorded at the lower of
cost and estimated net realizable value. Costs are allocated to the saleable acreage of
each project or subdivision in proportion to the anticipated revenue.
 (d) Capitalized costs
  (e) Deferred financing costs
  (f) Stock-based compensation
  (g) Revenue recognition
 (i)
    
    Commercial propertiesThe company has retained substantially all of the risks and benefits of ownership of its
rental properties and therefore accounts for leases with its tenants as operating
leases. The total amount of contractual rent to be received from operating leases is
recognized on a straight-line basis over the term of the lease; a straight-line or free
rent receivable, as applicable, is recorded for the difference between the rental
revenue recorded and the contractual amount received. Rental revenue includes percentage
participating rents and recoveries of operating expenses, including property and capital
taxes. Percentage participating rents are recognized when tenants specified sales
targets have been met. Operating expense recoveries are recognized in the period that
recoverable costs are chargeable to tenants.Revenue from a commercial property is recognized upon the earlier of attaining a
break-even point in cashflow after debt servicing or the expiration of a reasonable
period of time, subject to the time limitation determined when the project is approved,
but no later than one year following substantial completion. Prior to this, the property
is categorized as a property under development, and related revenue is applied to reduce
development costs.(ii)
    
    Residential propertiesLand sales are recognized at the time that the risks and rewards of ownership have been
transferred, possession or title passes to the purchaser, all material conditions of the
sales contract have been met, and a significant cash down payment or appropriate security
is received.Revenue from the sale of homes is recognized when title passes to the purchaser upon
closing and at which time all proceeds are received or collectability is assured.
 (h) Income taxes
  (i) Reporting currency and foreign currency translation
  73




---



##### 



(j) Marketable securities
   (k) Use
of estimates
  (I) Derivative financial instruments
    st
 (m) Cash and cash equivalents
  NOTE 2: CHANGES IN ACCOUNTING POLICIES
  (i) Effect of Contingently Convertible Instruments on the Computation of Diluted Earnings Per
Share, Emerging Issues Committee Abstract 155
  (ii) Implicit Variable Interests, Emerging Issues Committee Abstract 157
  74




---



##### 



(iii) Conditional Asset Retirement Obligations, Emerging Issues Committee Abstract 159
  (iv) Stock-Based Compensation for Employees Eligible to Retire Before the Vesting Date,
Emerging Issues Committee Abstract 162
  NOTE 3: FUTURE ACCOUNTING POLICY CHANGES
 (i) Comprehensive Income, CICA Handbook Section 1530
  (ii) Financial Instruments  Recognition and Measurement, CICA Handbook Section 3855
  (iii) Hedges, CICA Handbook Section 3865
  Impact
of adopting sections 1530, 3855 and 3865
  75




---



##### 



NOTE 4: BUSINESS ACQUISITIONS
 Trizec
Acquisition
    (Millions)Commercial and development properties
    
    $
    7,591Cash and cash equivalents
    
    
    325Restricted cash
    
    
    88Accounts receivable and other assets
    
    
    62Intangible
assets(1)
    
    
    739Accounts payable and other liabilities assumed
    
    
    (218
    )Intangible
liabilitie(1)
    
    
    (816
    )Future income tax liabilities
    
    
    (182
    )Non-controlling interests assumed
    
    
    (4
    )Preferred shares assumed
    
    
    (65
    )Commercial property debt assumed
    
    
    (1,854
    )Total purchase price
    
    $
    5,666
 All intangibles are subject to amortization
  (Millions)Investment by Fund partners and joint venture partner
    
    $
    1,042Acquisition financing
    
    
    3,702Brookfield Properties equity investment
    
    
    857Cash on hand utilized
    
    
    167Excess funding for working capital
    
    
    (102
    )Total purchase price
    
    $
    5,666
   76




---



##### 



Expected future costs
    
    
    Amount utilized during year
    
    

Balance as at Dec. 31, 2006Accrued on
    
    
    Expense as
    
    
    
    
    
    
    Accrued on
    
    
    Expense as
    
    
    
    
    
    
    Accrued on
    
    
    Expense as(Millions)
    
    acquisition
    
    
    incurred
    
    
    Total
    
    
    acquisition
    
    
    incurred
    
    
    Total
    
    
    acquisition
    
    
    incurred
    
    
    TotalSeverance costs
    
    $
    31
    
    
    $
    5
    
    
    $
    36
    
    
    $
    31
    
    
    $
    2
    
    
    $
    33
    
    
    $
    
    
    
    $
    3
    
    
    $
    3Retention costs
    
    
    7
    
    
    
    10
    
    
    
    17
    
    
    
    7
    
    
    
    9
    
    
    
    16
    
    
    
    
    
    
    
    1
    
    
    
    1Consulting and
integration
    
    
    
    
    
    
    7
    
    
    
    7
    
    
    
    
    
    
    
    4
    
    
    
    4
    
    
    
    
    
    
    
    3
    
    
    
    3Total
    
    $
    38
    
    
    $
    22
    
    
    $
    60
    
    
    $
    38
    
    
    $
    15
    
    
    $
    53
    
    
    $
    
    
    
    $
    7
    
    
    $
    7
  O&Y Acquisition
   (Millions)Commercial and development properties
    
    $
    495Accounts receivable and other assets
    
    
    14Intangible
assets(1)
    
    
    56Accounts payable and other liabilities assumed
    
    
    (14
    )Intangible liabilities(1)
    
    
    (97
    )Future income tax liabilities
    
    
    (26
    )Commercial property debt assumed
    
    
    (136
    )Total purchase price
    
    $
    292
 (1) All intangibles are subject to amortization
  (Millions)Sale of
marketable securities
    
    $
    182Acquisition
financing
    
    
    110Total purchase price
    
    $
    292
  NOTE 5: COMMERCIAL PROPERTIES
  (Millions)
    
    2006
    
    
    2005Commercial propertiesLand
    
    $
    2,769
    
    
    $
    998Building and improvements
    
    
    13,332
    
    
    
    7,139Total commercial properties
    
    
    16,101
    
    
    
    8,137Less: Accumulated depreciation
    
    
    (814
    )
    
    
    (707
    )Total
    
    $
    15,287
    
    
    $
    7,430
 77




---



##### 



(Millions)
    
    2006
    
    
    2005Assets
    
    $
    4,608
    
    
    $
    2,669Liabilities
    
    
    2,652
    
    
    
    1,611Operating revenues
    
    
    581
    
    
    
    381Operating expenses
    
    
    351
    
    
    
    151Net
income(1)
    
    
    146
    
    
    
    99Cashflow from operating activities
    
    
    175
    
    
    
    140Cashflow used in financing activities
    
    
    (92
    )
    
    
    (19
    )Cashflow used in investing activities
    
    
    (19
    )
    
    
    (174
    )
 
 (1)
    
    Future income taxes are not reflected here as they are recorded at the corporate level
 NOTE 6: COMMERCIAL AND RESIDENTIAL DEVELOPMENTS
  (Millions)
    
    2006
    
    2005Commercial developments
    
    
    $
    735
    
    
    $
    224Residential developments
    
    
    
    706
    
    
    
    391Total
    
    
    $
    1,441
    
    
    $
    615
     NOTE 7: RECEIVABLES AND OTHER
  (Millions)
    
    2006
    
    
    2005Receivables
    
    $
    432
    
    
    $
    371Real estate mortgages
    
    $
    86
    
    
    
    86Residential receivables and other assets
    
    
    245
    
    
    
    219Prepaid expenses and other assets
    
    
    211
    
    
    
    154Total
    
    $
    974
    
    
    $
    830
 78




---



##### 



NOTE 8: INTANGIBLE ASSETS
  (Millions)
    
    2006
    
    
    2005Intangible assetsLease origination costs
    
    $
    263
    
    
    $
    52Tenant relationships
    
    
    573
    
    
    
    80Above-market leases and below-market ground leases
    
    
    79
    
    
    
    3Less accumulated amortization
    
    
    915
    
    
    
    135Lease origination costs
    
    
    (32
    )
    
    
    (2
    )Tenant relationships
    
    
    (26
    )
    
    
    (8
    )Above-market leases and below-market ground leases
    
    
    (4
    )
    
    
    Total net
    
    $
    853
    
    
    $
    125
 NOTE 9: RESTRICTED CASH AND DEPOSITS
  NOTE 10: MARKETABLE SECURITIES
  NOTE 11: DISCONTINUED OPERATIONS
    (Millions, except per share information)
    
    2006
    
    
    2005Revenue
    
    $
    20
    
    
    $
    34Operating expenses
    
    
    (10
    )
    
    
    (17
    )10
    
    
    
    17Interest expense
    
    
    (3
    )
    
    
    (8
    )Depreciation and amortization
    
    
    (3
    )
    
    
    (7
    )Income from discontinued operations prior to gain and taxes
    
    
    4
    
    
    
    2Gain on sale of discontinued operations
    
    
    44
    
    
    
    Taxes related to discontinued operations
    
    
    (16
    )
    
    
    Income and gains from discontinued operations
    
    $
    32
    
    
    $
    2Income and gains from discontinued operations per share
    
    $
    0.14
    
    
    $
    0.01
 79




---



##### 



NOTE 12: COMMERCIAL PROPERTY DEBT
  Weighted AverageInterest Rate at
    
    
    Principal Repayments
    
    
    2012 &
    
    
    2006
    
    
    2005(Millions)
    
    Dec. 31, 2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    2011
    
    
    Beyond
    
    
    Total
    
    
    TotalCommercial property debt
    
    
    6.8
    %
    
    $
    806

(1)
    
    $
    960
    
    
    $
    609
    
    
    $
    212
    
    
    $
    4,968
    
    
    $
    3,664
    
    
    $
    11,219
    (1)
    
    $
    5,267
 
 (1)
    
    Includes $34 million of commercial property debt related to discontinued operations
at December 31, 2006 (2005  $51 million)
    NOTE 13: ACCOUNTS PAYABLE AND OTHER LIABILITIES
  (Millions)
    
    2006
    
    
    2005Accounts payable and accrued liabilities
    
    $
    549
    
    
    $
    227Residential payables and accrued liabilities
    
    
    138
    
    
    
    115Land development debt
    
    
    236
    
    
    
    158Total
    
    $
    923
    
    
    $
    500
   Weighted AverageInterest Rate at
    
    
    Principal Repayments
    
    
    2006
    
    
    2005(Millions)
    
    Dec. 31, 2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    2011
    
    
    Total
    
    
    TotalLand development debt
    
    
    6.2
    %
    
    $
    200
    
    
    $
    21
    
    
    $
    8
    
    
    $
    2
    
    
    $
    5
    
    
    $
    236
    
    
    $
    158
 NOTE 14: INTANGIBLE LIABILITIES
  (Millions)
    
    2006
    
    
    2005Intangible liabilitiesBelow-market leases
    
    $
    902
    
    
    $
    56Above-market ground lease obligations
    
    
    70
    
    
    
    74Less accumulated amortization
    
    
    972
    
    
    
    130Below-market leases
    
    
    (46
    )
    
    
    (1
    )Above-market ground lease obligations
    
    
    (7
    )
    
    
    (3
    )Total net
    
    $
    919
    
    
    $
    126
 NOTE 15: FUTURE INCOME TAXES
  (Millions)
    
    2006
    
    
    2005Future income tax liabilities related to difference in tax and book basis, net
    
    $
    (935
    )
    
    $
    (541
    )Future income tax assets related to non-capital losses and capital losses
    
    
    351
    
    
    
    353Total
    
    $
    (584
    )
    
    $
    (188
    )
 80




---



##### 



(Millions)
    
    2006
    
    
    2005Income tax expense at the Canadian federal and provincial income
tax rate of 35% (2005  35%)
    
    $
    68
    
    
    $
    94Increase (decrease) in income tax expense due to the following:Non-deductible preferred share dividends
    
    
    16
    
    
    
    19(Lower) / higher income tax rates in other jurisdictions
    
    
    (8
    )
    
    
    1Non-controlling interests in income tax expense
    
    
    (2
    )
    
    
    (2
    )Tax assets previously not recognized
    
    
    
    
    
    
    (18
    )Change in future Canadian tax rates
    
    
    16
    
    
    
    Other
    
    
    1
    
    
    
    9Total
    
    $
    91
    
    
    $
    103
 NOTE 16: CAPITAL SECURITIES  CORPORATE
  Shares
    
    
    Shares
    
    
    Cumulative(Millions, except share information)
    
    Authorized
    
    
    Outstanding
    
    
    Dividend Rate
    
    
    2006
    
    
    2005Class AAA Series E
    
    
    8,000,000
    
    
    
    8,000,000
    
    
    70% of bank prime
    
    
    $
    171
    
    
    $
    172Class AAA Series F
    
    
    8,000,000
    
    
    
    8,000,000
    
    
    
    6.00
    %
    
    
    171
    
    
    
    172Class AAA Series G
    
    
    6,000,000
    
    
    
    4,400,000
    
    
    
    5.25
    %
    
    
    110
    
    
    
    110Class AAA Series H
    
    
    8,000,000
    
    
    
    8,000,000
    
    
    
    5.75
    %
    
    
    171
    
    
    
    173Class AAA Series I
    
    
    8,000,000
    
    
    
    8,000,000
    
    
    
    5.20
    %
    
    
    171
    
    
    
    172Class AAA Series J
    
    
    8,000,000
    
    
    
    8,000,000
    
    
    
    5.00
    %
    
    
    171
    
    
    
    172Class AAA Series K
    
    
    6,000,000
    
    
    
    6,000,000
    
    
    
    5.20
    %
    
    
    128
    
    
    
    130Total
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    1,093
    
    
    $
    1,101
  Redemption Date(1)
    
    Redemption
Price(2)
    
    Companys
Option(3)
    
    Holders
Option(4)Series E
    
    Retractable at par
    
    
    
    
    
    Series F
    
    September 30, 2009
    
    C $25.75
    
    September 30, 2009
    
    March 31, 2013Series G
    
    June 30, 2011
    
    US $26.00
    
    June 30, 2011
    
    September 30, 2015Series H
    
    December 31, 2011
    
    C $26.00
    
    December 31, 2011
    
    December 31, 2015Series I
    
    December 31, 2008
    
    C $25.75
    
    December 31, 2008
    
    December 31, 2010Series J
    
    June 30, 2010
    
    C $26.00
    
    June 30, 2010
    
    December 31, 2014Series K
    
    December 31, 2012
    
    C $26.00
    
    December 31, 2012
    
    December 31, 2016
 (1) Subject to applicable law and rights of the company, the company may, on or
after the dates specified above, redeem Class AAA preferred shares for cash as follows:
the Series F at a price of C$25.75, if redeemed during the 12 months commencing
September 30, 2009 and decreasing by C$0.25 each 12-month period thereafter to a price
per share of C$25.00 if redeemed on or after September 30, 2012; the Series G at a price
of US$26.00, if redeemed during the 12 months commencing June 30, 2011 and decreasing by
US$0.33 each 12-month period thereafter to a price per share of US$25.00 if redeemed on
or after June 30, 2014; the Series H at a price of C$26.00, if redeemed during the 12
months commencing December 31, 2011 and decreasing by C$0.33 each 12-month period
thereafter to a price per share of C$25.00 if redeemed on or after December 31, 2014;
the Series I at a price of C$25.75, if redeemed during the 12 months commencing December
31, 2008 and decreasing by C$0.25 each 12-month period thereafter to a price per share
of C$25.00 if redeemed on or after December 31, 2010; the Series J at a price of C$26.00
if redeemed during the 12 months commencing June 30, 2010 and decreasing by C$0.25 each
12-month period thereafter to a price per share of C$25.00 if redeemed on or after June
30, 2014; the Series K at a price of C$26.00 if redeemed during the 12-months commencing
December 31, 2012 and decreasing by C$0.33 each 12-month period thereafter to a price
per share of $C25.00 if redeemed on or after December 31, 2015.
 81




---



##### 



(2) Subject to applicable law and rights of the company, the company may purchase
Class AAA preferred shares for cancellation at the
lowest price or prices at which, in the opinion of the Board of Directors of the company,
such shares are obtainable.(3) Subject to the approval of the Toronto Stock Exchange the company may, on or
after the dates specified above, convert the Class AAA,
Series F, G, H, I, J and K into common shares of the company. The Class AAA, Series F, G, H,
I, J and K preferred shares may be
converted into that number of common shares determined by dividing the then-applicable
redemption price by the greater of C$2.00
(Series G  US$2.00) or 95% of the weighted average trading price of common shares at such
time.(4) Subject to the companys right to redeem or find substitute purchasers, the
holder may, on or after the dates specified above, convert
Class AAA, Series F, G, H, I, J and K preferred shares into that number of common shares
determined by dividing the then-applicable
redemption price by the greater of C$2.00 (Series G  US$2.00) or 95% of the weighted
average trading price of common shares at
such time.
   (Millions)
    
    2006
    
    
    2005Series E(1)
    
    $
    7
    
    
    $
    5Series F through K
    
    
    52
    
    
    
    49Total
    
    $
    59
    
    
    $
    54
 (1)
    
    Owned by Brookfield Asset Management  refer to Note 26(c)
 NOTE 17: U.S. OFFICE FUND
  (Millions)
    
    2006
    
    2005Capital securities  fund subsidiariesDebt securities
    
    
    $
    257
    
    Redeemable equity interests
    
    
    
    546
    
    803
    
    Non-controlling interests  fund subsidiaries
    
    
    
    266
    
    Total
    
    $
    $
    1,069
    
    
    82




---



##### 



The income statement effect of the aforementioned interests in the Fund is as follows:
 (Millions)
    
    2006
    
    
    2005Interest on debt securities
    
    $
    7
    
    
    
    Interest on redeemable equity interests
    
    
    4
    
    
    
    11
    
    
    
    Non-cash component(1)
    
    
    (30
    )
    
    
    Total interest expense  capital securities  fund subsidiaries
    
    $
    (19
    )
    
    
    
 (1)
    
    Represents co-investors share of non-cash items, such as depreciation and amortization
 (Millions)
    
    2006
    
    
    2005Non-controlling interests
    
    $
    1
    
    
    
    Non-cash component(1)
    
    
    (15
    )
    
    
    Total
non-controlling interests fund subsidiaries
    
    $
    (14
    )
    
    
    
 (1)
    
    Represents co-investors share of non-cash items, such as depreciation and
amortization
 NOTE 18: NON-CONTROLLING INTERESTS  OTHER SUBSIDIARIES
  (Millions)
    
    Others' Equity Ownership
    
    
    2006
    
    
    2005Common
shares of BPO
Properties(1)
    
    
    11.0
    %
    
    $
    55
    
    
    $
    47Limited partnership units of
Brookfield Financial Properties
    
    
    0.6
    %
    
    
    12
    
    
    
    12Total
    
    
    
    
    
    $
    67
    
    
    $
    59
 (1)
    
    Canadian dollar denominated
 NOTE 19: PREFERRED EQUITY  SUBSIDIARIES
  Shares
    
    
    Preferred
    
    Cumulative(Millions, except share information)
    
    Outstanding
    
    
    Shares Series
    
    Dividend Rate
    
    2006
    
    
    2005BPO Properties
    
    
    1,805,489
    
    
    Series G
    
    70% of bank prime
    
    $
    39
    
    
    $
    393,816,527
    
    
    Series J
    
    70% of bank prime
    
    
    82
    
    
    
    82300
    
    
    Series K
    
    30-day BA + 0.4%
    
    
    127
    
    
    
    1292,847,711
    
    
    Series M
    
    70% of bank prime
    
    
    61
    
    
    
    62800,000
    
    
    Series N
    
    30-day BA + 0.4%
    
    
    17
    
    
    
    17Total
    
    
    
    
    
    
    
    
    
    $
    326
    
    
    $
    329
      83




---



##### 



NOTE 20: PREFERRED EQUITY  CORPORATE
  Cumulative(Millions, except share information)
    
    Shares Outstanding
    
    
    Dividend Rate
    
    2006
    
    2005Class A redeemable voting
    
    
    6,312,000
    
    
    7.50%
    
    $      11
    
    $
    11Class AA Series E
    
    
    2,000,000
    
    
    70% of bank prime
    
    34
    
    
    34Total
    
    
    
    
    
    
    
    $      45
    
    $
    45
    NOTE 21: COMMON EQUITY
  (Millions)
    
    2006
    
    
    2005Common shares
    
    $
    2,305
    
    
    $
    1,066Retained earnings
    
    
    706
    
    
    
    747Cumulative translation adjustment
    
    
    56
    
    
    
    85Total
    
    $
    3,067
    
    
    $
    1,898
 (a)
    
    Common shares
  2006
    
    
    2005Common shares outstanding, beginning of year
    
    
    231,209,625
    
    
    
    233,387,780Addition of shares as a result of exercise of options
    
    
    369,346
    
    
    
    515,345Addition of shares as a result of equity offering
    
    
    33,000,000
    
    
    
    Deduction of shares as a result of repurchases made
    
    
    
    
    
    
    (2,693,500
    )Common shares outstanding, end of year
    
    
    264,578,971
    
    
    
    231,209,625
   84




---



##### 



(b) Earnings per share
  (Millions, except per share amounts)
    
    2006
    
    
    2005Net income from continuing operations
    
    $
    103
    
    
    $
    162Preferred share dividends
    
    
    (3
    )
    
    
    (2
    )Net income from continuing operations available to common shareholders
    
    $
    100
    
    
    $
    160Net income
    
    $
    135
    
    
    $
    164Preferred share dividends
    
    
    (3
    )
    
    
    (2
    )Net income available to common shareholders
    
    $
    132
    
    
    $
    162Weighted average shares outstanding  basic
    
    
    232.4
    
    
    
    232.1Unexercised dilutive options
    
    
    2.9
    
    
    
    2.1Weighted average shares outstanding  diluted
    
    
    235.3
    
    
    
    234.2
 NOTE 22: STOCK-BASED COMPENSATION
    WeightedIssue
    
    Expiry
    
    
    Number
    
    
    AverageDate
    
    Date
    
    
    of Shares
    
    
    Exercise Price1998
    
    
    2008
    
    
    
    313,250
    
    
    $
    9.481999
    
    
    2009
    
    
    
    29,300
    
    
    
    6.732000
    
    
    2010
    
    
    
    289,766
    
    
    
    7.642001
    
    
    2011
    
    
    
    522,818
    
    
    
    11.712002
    
    
    2012
    
    
    
    734,015
    
    
    
    12.422003
    
    
    2013
    
    
    
    616,262
    
    
    
    13.232004
    
    
    2014
    
    
    
    1,055,132
    
    
    
    20.162005
    
    
    2015
    
    
    
    653,075
    
    
    
    24.772006
    
    
    2016
    
    
    
    572,688
    
    
    
    30.15Total
    
    
    
    
    
    
    4,786,306
    
    
    $
    17.44
  2006
    
    
    2005Weighted
    
    
    
    
    
    
    WeightedNumber
    
    
    Average
    
    
    Number
    
    
    Averageof Options
    
    
    Exercise Price
    
    
    of Options
    
    
    Exercise PriceOutstanding, beginning of year
    
    
    4,641,962
    
    
    $
    15.70
    
    
    
    4,692,869
    
    
    $
    14.03Granted
    
    
    589,891
    
    
    
    30.26
    
    
    
    763,000
    
    
    
    24.40Exercised
    
    
    (369,346
    )
    
    
    (14.42
    )
    
    
    (515,345
    )
    
    
    (12.44
    )Cancelled
    
    
    (76,201
    )
    
    
    (22.93
    )
    
    
    (298,562
    )
    
    
    (20.63
    )Outstanding, end of year
    
    
    4,786,306
    
    
    $
    17.44
    
    
    
    4,641,962
    
    
    $
    15.70Exercisable at end of year
    
    
    3,329,932
    
    
    $
    14.66
    
    
    
    2,875,041
    
    
    $
    13.30
 85




---



##### 



NOTE 23: COMMERCIAL PROPERTY AND RESIDENTIAL DEVELOPMENT OPERATIONS
 (a) Revenue
  (Millions)
    
    
    
    
    
    
    
    
    
    
    2006
    
    
    2005Revenue from commercial property operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    1,419
    
    
    $
    1,103Revenue from residential development operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    460
    
    
    
    389Revenue from commercial property and residential development operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,879
    
    
    
    1,492Interest and other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    44
    
    
    
    37Total
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    1,923
    
    
    $
    1,529
 (b) Commercial property operations
  (Millions)
    
    
    
    
    
    
    
    
    
    
    2006
    
    
    2005Revenue
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    1,419
    
    
    $
    1,103Property operating costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (579
    )
    
    
    (429
    )Net operating income
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    840
    
    
    $
    674
      (Millions)
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    2011Rental revenue
    
    $
    1,233
    
    
    $
    1,210
    
    
    $
    1,157
    
    
    $
    1,079
    
    
    $
    980
 (c) Residential development operations
  (Millions)
    
    
    
    
    
    
    
    
    
    
    2006
    
    
    2005Revenue
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    460
    
    
    $
    389Expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (316
    )
    
    
    (283
    )Total
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    144
    
    
    $
    106
 86




---



##### 



NOTE 24: DIFFERENCES FROM UNITED STATES ACCOUNTING PRINCIPLES
  (a) Income statement differences
   (Millions, except per share information)
    
    Note
    
    
    2006
    
    
    2005Net income as reported under Canadian GAAP
    
    
    
    
    
    $
    135
    
    
    $
    164Adjustments:Decreased commercial property income
    
    
    (i
    )
    
    
    (17
    )
    
    
    (15
    )Decreased commercial property depreciation
    
    
    (ii
    )
    
    
    7
    
    
    
    8Increased (decreased) commercial property lease termination
income and property disposition gains
    
    
    (iii
    )
    
    
    3
    
    
    
    (2
    )Foreign exchange and dividends on convertible preferred shares
    
    
    (iv
    )
    
    
    44
    
    
    
    49Decreased residential development income
    
    
    (v
    )
    
    
    (31
    )
    
    
    (26
    )Increased deferred income taxes
    
    
    (vi
    )
    
    
    (3
    )
    
    
    (5
    )Net income under US GAAP
    
    
    
    
    
    $
    138
    
    
    $
    173Preferred share dividends
    
    
    
    
    
    
    (55
    )
    
    
    (51
    )Net income available to common shareholders under US GAAP
    
    
    
    
    
    $
    83
    
    
    $
    122Net income per share under US GAAPBasic
    
    
    
    
    
    $
    0.34
    
    
    $
    0.52Diluted
    
    
    
    
    
    $
    0.34
    
    
    $
    0.52
  (i)
    
    Decreased commercial property income
Prior to January 1, 2004, rental revenue was recognized under Canadian GAAP over the term of the
lease as it became due where increases in rent are intended to offset the estimated effects of
inflation. Effective January 1, 2004, rental revenue is recognized on a straight-line basis over the
term of the lease on a prospective basis. Under US GAAP, rental revenue has always been recognized
on a straight-line basis. The net impact on the current year income of the company had the
straight-line method always been used under Canadian GAAP would be a decrease in commercial property
revenue of $17 million (2005  $15 million).(ii)
    
    Decreased commercial property depreciation
Prior to January 1, 2004, commercial properties were depreciated under Canadian GAAP using the
sinking-fund method. Effective January 1, 2004, depreciation of rental properties is recorded using the straight-line method on a
prospective basis. Under US GAAP, commercial properties have been depreciated on a straight-line
basis from inception. As a result of the higher carrying value under
Canadian GAAP at January 1, 2004
when the accounting standard changed, straight-line depreciation is higher under Canadian GAAP by
$7 million for (2005  $8 million).(iii)
    
    Increased (decreased) commercial property lease termination income and property disposition
gains
Under US GAAP, the book values of commercial property assets differ from Canadian GAAP as a result
of historical rental revenue recognition and commercial property depreciation methods, as explained
in (i) and (ii). Further, termination of a previously-existing
lease at One World Financial Center in
New York resulted in additional lease termination income under US
GAAP in 2004 whereas under Canadian GAAP this amount is amortized into income over the life of the lease. The net impact of these
amounts would be an increase in commercial property lease termination income and gains of $3
million (2005  decrease of $2 million).(iv)
    
    Foreign exchange and dividends on convertible preferred shares
Effective January 1, 2005, the company adopted an amendment to CICA Handbook Section 3860. The
amendment requires certain of the companys preferred share obligations that could be settled with a
variable number of the Companys common equity to be classified as liabilities and corresponding distributions as interest expense for Canadian GAAP,
whereas under US GAAP, they continue to be treated as equity with the corresponding distributions
classified as dividends. Under Canadian GAAP, these preferred share liabilities are converted into
the companys functional currency at current rates. Under US
GAAP, these preferred shares are treated as equity and are converted
into the companys functional currency at historical rates. The net impact would
be an increase in income of $44 million (2005  $49million).
 87




---



##### 



The Class AAA preferred shares contain a beneficial conversion feature in favor of the holder
(refer to Note 16 for details of the conversion feature). The beneficial conversion feature was
measured at its intrinsic value at the date of issuance of the shares and is being recognized as a
return to the preferred shareholders through a charge to retained earnings, over the period from
the date of issuance to the earliest date when the conversion becomes exercisable by the holder.
The charge during the current year was $4 million. Although there is no impact on net income, the
charge to retained earnings affects the computation of both basic and diluted EPS for US GAAP in
the same way that dividends on the preferred shares do.(v)
    
    Decreased residential development income
The companys revenue recognition policy for land sales
requires, in part, that the significant risks and rewards of
ownership have passed to the purchaser prior to the recognition of revenue by the vendor. Primarily in the province of
Alberta, land sales transactions substantially transfer the risks and rewards of ownership to the
purchaser when both parties are bound to the terms of the sale agreement and possession passes to
the purchaser. In certain instances, title may not have transferred. Under FAS No. 66, Sales of
Real Estate, transfer of title is a requirement for recognizing revenue under US GAAP.
Accordingly, residential development income would decrease by $31 million for US GAAP purposes
(2005  $26 million).(vi)
    
    Increased deferred income taxes
Income taxes are accounted for using the liability method under Canadian and US GAAP. For the year
ended December 31, 2006, an increase of deferred income tax expense of $3 million (2005  $5
million) would be recorded under US GAAP due to the tax effect of the stated differences between
Canadian and US GAAP described above.
  (b) Comprehensive income
    (Millions)
    
    2006
    
    
    2005Net income under US GAAP
    
    $
    138
    
    
    $
    173Foreign currency translation adjustment under US GAAP
    
    
    (17
    )
    
    
    1Comprehensive income using US GAAP amounts
    
    $
    121
    
    
    $
    184
 88




---



##### 



(c) Balance sheet differences
  (Millions)
    
    Note
    
    
    2006
    
    
    2005AssetsCommercial properties
    
    
    (i
    )
    
    $
    14,892
    
    
    $
    7,025Commercial developments
    
    
    
    
    
    
    735
    
    
    
    224Residential developments
    
    
    (ii
    )
    
    
    753
    
    
    
    418Receivables and other
    
    
    (iii
    )
    
    
    914
    
    
    
    842Intangible assets
    
    
    
    
    
    
    853
    
    
    
    125Restricted cash and deposits
    
    
    
    
    
    
    507
    
    
    
    316Marketable securities
    
    
    
    
    
    
    
    
    
    
    58Cash and cash equivalents
    
    
    
    
    
    
    188
    
    
    
    64Assets held for sale
    
    
    
    
    
    
    64
    
    
    
    69Total assets under US GAAP
    
    
    
    
    
    $
    18,906
    
    
    $
    9,141LiabilitiesCommercial property debt
    
    
    
    
    
    $
    11,185
    
    
    $
    5,216Accounts payable and other liabilities
    
    
    (v
    )
    
    
    893
    
    
    
    468Intangible liabilities
    
    
    
    
    
    
    919
    
    
    
    126Deferred tax liabilities
    
    
    (iv
    )
    
    
    488
    
    
    
    92Liabilities related to assets held for sale
    
    
    
    
    
    
    36
    
    
    
    51Capital securities  corporate
    
    
    (vi
    )
    
    
    171
    
    
    
    172Capital securities  fund subsidiaries
    
    
    (vii
    )
    
    
    257
    
    
    
    Minority interests  fund subsidiaries
    
    
    
    
    
    
    266
    
    
    
    Minority interests  other subsidiaries
    
    
    (viii
    )
    
    
    72
    
    
    
    64Redeemable equity interests
    
    
    (vii
    )
    
    
    546
    
    
    
    Preferred
equity  subsidiaries
    
    
    
    
    
    
    326
    
    
    
    329Shareholders equityPreferred
equity  corporate
    
    
    (ix
    )
    
    
    855
    
    
    
    855Common equity
    
    
    (x
    )
    
    
    2,892
    
    
    
    1,768Total liabilities and shareholders
equity under US GAAP
    
    
    
    
    
    $
    18,906
    
    
    $
    9,141
  (i)
    
    Commercial properties
There are two principal differences between Canadian GAAP and US GAAP affecting the carrying value
of commercial properties. The first difference relates to historical differences in the method of
depreciation to be applied to depreciable assets as described in Note 24(a)(ii). At December 31,
2006, this would result in a cumulative adjustment of
$395 million (2005  $405 million). The
second difference relates to the method of accounting for joint ventures. Under Canadian GAAP, the
accounts of all incorporated and unincorporated joint ventures are proportionately consolidated
according to the companys ownership interest. Under US GAAP,
the equity method of accounting is applied. In circumstances where a joint venture is
an operating entity and the significant financial and operating policies are, by contractual
arrangement, jointly controlled by all parties having an equity interest in the entity, SEC
regulations do not require adjustment to equity account the joint ventures. As a result,
presentation of the companys joint ventures has not been
adjusted to the equity method.
 (Millions)
    
    
    
    
    2006
    
    
    2005Commercial properties under Canadian GAAP
    
    
    
    
    
    $
    15,287
    
    
    $
    7,430Additional accumulated depreciation under US GAAP
    
    
    
    
    
    
    (395
    )
    
    
    (405
    )Commercial properties under US GAAP
    
    
    
    
    
    $
    14,892
    
    
    $
    7,025
 (ii)
    
    Residential developments
The impact on residential developments related to differences described in Note 24(a)(v) is as follows:
 (Millions)
    
    
    
    
    2006
    
    
    2005Residential developments under Canadian GAAP
    
    
    
    
    
    $
    706
    
    
    $
    391Residential inventory adjustment
    
    
    
    
    
    
    47
    
    
    
    27Residential developments under US GAAP
    
    
    
    
    
    $
    753
    
    
    $
    418
 89




---



##### 



(iii)
    
    Receivables and other
The principal differences in the accounting for receivables and other under US GAAP is the
inclusion of a straight-line rent receivable had the company always straight-lined its revenue, the
reclassification of share issue costs of preferred shares classified
as liabilities under Canadian GAAP
and the deferral of residential income. Refer to Notes 24(a)(i), 24(a)(iv) and 24(a)(vi).
 (Millions)
    
    2006
    
    
    2005Receivables and other under Canadian GAAP
    
    $
    974
    
    
    $
    830Straight-line rent receivable adjustment
    
    
    55
    
    
    
    76Preferred share issue costs reclassified to preferred shares
    
    
    (10
    )
    
    
    (10
    )Residential receivable adjustment
    
    
    (105
    )
    
    
    (54
    )Receivables and other under US GAAP
    
    $
    914
    
    
    $
    842
 (iv)
    
    Deferred tax liabilities
The deferred tax liabilities under US GAAP is calculated as follows:
 (Millions)
    
    2006
    
    
    2005Tax assets related to net operating and capital losses
    
    $
    (459
    )
    
    $
    (489
    )Tax liabilities related to differences in tax and book basis
    
    
    820
    
    
    
    442Valuation allowance
    
    
    127
    
    
    
    139Deferred tax liabilities under US GAAP
    
    $
    488
    
    
    $
    92
 (v)
    
    Accounts payable and other liabilities
The principal difference under US GAAP relates to deferred income relating to a lease transaction
at One World Financial Center in New York (refer to Note 24(a)(iii)). The accounts payable and
other liabilities under US GAAP is as follows:
 (Millions)
    
    2006
    
    
    2005Accounts payable and other liabilities under Canadian GAAP
    
    $
    923
    
    
    $
    500Tenant inducement
    
    
    (30
    )
    
    
    (32
    )Accounts payable and other liabilities under US GAAP
    
    $
    893
    
    
    $
    468
 (vi)
    
    Capital securities  corporate
Under US GAAP, only the companys Class AAA Series E
preferred shares are classified as liabilities, under the caption capital securities  corporate,
while under Canadian GAAP, all of the companys Class AAA
preferred shares are included in this caption. Capital securities  corporate under US
GAAP is as follows:
 (Millions)
    
    2006
    
    
    2005Capital securities  corporate under Canadian GAAP
    
    $
    1,093
    
    
    $
    1,101Classification of capital securities to preferred equity
    
    
    (922
    )
    
    
    (929
    )Preferred shares  corporate under US GAAP
    
    $
    171
    
    
    $
    172
 (vii)
    
    Capital securities  fund subsidiaries
For US GAAP purposes $546 of the companys capital securities
 fund subsidiaries are classified as
redeemable equity interests whereas for Canadian GAAP these are classified as liabilities under the
caption  capital securities  fund subsidiaries. There is no overall income statement effect,
however for Canadian GAAP purposes the minority interest expense is treated as interest expense.(viii)
    
    Minority interests  other subsidiaries
Minority interests  other subsidiaries includes the effect of adjustments relating non-wholly
owned subsidiaries.(ix)
    
    Preferred equity  corporate
Under US GAAP, the companys Class AAA preferred shares,
with the exception of Series E, are included in preferred equity  corporate. Effective
January 1, 2005, the company reclassified certain of these shares to liabilities under the caption
capital securities  corporate under Canadian GAAP in accordance with CICA Handbook Section
3861. Preferred equity  corporate under US GAAP is as follows:
 (Millions)
    
    2006
    
    
    2005Preferred equity  corporate under Canadian GAAP
    
    $
    45
    
    
    $
    45Classification of capital securities as preferred equity, net of issue costs
    
    
    810
    
    
    
    810Preferred equity  corporate under US GAAP
    
    $
    855
    
    
    $
    855
 90




---



##### 



(x)
    
    Common shareholders equity
The cumulative impact of US GAAP adjustments to common
shareholders equity is as follows:
 (Millions)
    
    2006
    
    
    2005Common shareholders equity under Canadian GAAP
    
    $
    3,067
    
    
    $
    1,898Adjustment to accumulated depreciation under US GAAP
    
    
    (403
    )
    
    
    (411
    )Adjustment to accounts payable and other liabilities under US GAAP
    
    
    30
    
    
    
    32Adjustment to deferred income tax asset under US GAAP
    
    
    101
    
    
    
    95Rental revenue adjustments under US GAAP
    
    
    53
    
    
    
    74Residential revenue adjustment under US GAAP
    
    
    (56
    )
    
    
    (27
    )Foreign currency translation adjustments(1)
    
    
    100
    
    
    
    107Common shareholders equity under US GAAP
    
    $
    2,892
    
    
    $
    1,768
 (1)
    
    Includes foreign currency effects related to all other US GAAP adjustments
  (Millions)
    
    2006
    
    
    2005Common shares
    
    $
    2,168
    
    
    $
    1,159Additional paid-in capital
    
    
    242
    
    
    
    236Accumulated other comprehensive income
    
    
    (22
    )
    
    
    (5
    )Retained earnings
    
    
    504
    
    
    
    378Common shareholders equity under US GAAP
    
    $
    2,892
    
    
    $
    1,768
 (d) Cashflow statement differences
  (Millions)
    
    2006
    
    
    2005Cash provided from (used in) the following activitiesOperating
    
    $
    118
    
    
    $
    279Financing
    
    
    6,061
    
    
    
    3Investing
    
    
    (6,055
    )
    
    
    (330
    )Increase (decrease) in cash
    
    $
    124
    
    
    $
    (48
    )
 (e) Change in accounting policies
 (i) SFAS
123R, Share-Based Payment
  (ii) Staff Accounting Bulletin (SAB) 108
 91




---



##### 



(f) Future accounting policy changes
 (i) FASB Interpretation no. 48
 (ii) SFAS157
 NOTE 25: GUARANTEES, CONTINGENCIES AND OTHER
        92




---



##### 



NOTE 26: OTHER INFORMATION
   Balance at(Millions)
    
    Maturity
    
    
    Rate
    
    
    Dec. 31, 2006West 31st Street
    
    
    2007
    

    6 Month LIBOR + 200bps
    
    

    $
    102O&Y acquisition debt
    
    
    2007
    
    
    
    5.09
    %
    
    
    57O&Y acquisition debt
    
    
    2007
    
    
    
    5.44
    %
    
    
    15Total
    
    
    
    
    
    
    
    
    
    $
    174
     93




---



##### 



Years ended December 31 (Millions)
    
    2006
    
    
    2005Acquisition of Trizec(1)
    
    $
    (5,666
    )
    
    
    Cash and cash equivalents acquired
    
    
    325
    
    
    
    Net acquisition of Trizec
    
    $
    (5,341
    )
    
    
    Acquisitions of real estate
    
    $
    (667
    )
    
    $
    (653
    )Mortgages and other balances assumed on acquisition
    
    
    98
    
    
    
    287Net acquisitions
    
    $
    (569
    )
    
    $
    (366
    )Dispositions of real estate
    
    $
    169
    
    
    $
    19Mortgages assumed by purchasers
    
    
    (87
    )
    
    
    (12
    )Net dispositions
    
    $
    82
    
    
    $
    7Cash taxes paid
    
    $
    5
    
    
    $
    9Cash interest paid (excluding dividends paid on capital securities)
    
    $
    452
    
    
    $
    265
 (1)
    
    Refer to Note 4     NOTE 27: SUBSEQUENT EVENTS
  94




---



##### 



NOTE 28: SEGMENTED INFORMATION
 Commercial
    
    
    
    ResidentialUnited States
    

    
    Canada
    

    
    Development
    

    
    Total(Millions)
    
    2006
    
    2005
    
    
    
    2006
    
    2005
    
    
    
    2006
    
    2005
    
    
    
    2006
    
    2005AssetsCommercial properties
    
    $
    13,136
    
    
    $
    5,289
    
    
    
    $
    2,151
    
    
    $
    2,141
    
    
    
    $
    
    
    
    $
    
    
    
    
    $
    15,287
    
    
    $
    7,430Development properties
    
    
    433
    
    
    
    29
    
    
    
    
    302
    
    
    
    195
    
    
    
    
    706
    
    
    
    391
    
    
    
    
    1,441
    
    
    
    615Receivables and other
    
    
    516
    
    
    
    337
    
    
    
    
    213
    
    
    
    320
    
    
    
    
    245
    
    
    
    173
    
    
    
    
    974
    
    
    
    830Intangible assets
    
    
    799
    
    
    
    70
    
    
    
    
    54
    
    
    
    55
    
    
    
    
    
    
    
    
    
    
    
    
    
    853
    
    
    
    125Restricted cash and deposits
    
    
    497
    
    
    
    314
    
    
    
    
    10
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    
    
    507
    
    
    
    316Marketable securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    58
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    58Cash and cash equivalents
    
    
    166
    
    
    
    33
    
    
    
    
    21
    
    
    
    25
    
    
    
    
    1
    
    
    
    6
    
    
    
    
    188
    
    
    
    64Assets held for sale
    
    
    
    
    
    
    75
    
    
    
    
    64
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    64
    
    
    
    75Total
    
    $
    15,547
    
    
    $
    6,147
    
    
    
    $
    2,815
    
    
    $
    2,796
    
    
    
    $
    952
    
    
    $
    570
    
    
    
    $
    19,314
    
    
    $
    9,513
  Commercial
    
    
    
    ResidentialUnited States
    

    
    Canada
    

    
    Development
    

    
    Total(Millions)
    
    2006
    
    2005
    
    
    
    2006
    
    2005
    
    
    
    2006
    
    2005
    
    
    
    2006
    
    2005Revenues
    
    $
    994
    
    
    $
    787
    
    
    
    $
    425
    
    
    $
    316
    
    
    
    $
    460
    
    
    $
    389
    
    
    
    $
    1,879
    
    
    $
    1,492Expenses
    
    
    400
    
    
    
    297
    
    
    
    
    179
    
    
    
    132
    
    
    
    
    316
    
    
    
    283
    
    
    
    
    895
    
    
    
    712594
    
    
    
    490
    
    
    
    
    246
    
    
    
    184
    
    
    
    
    144
    
    
    
    106
    
    
    
    
    984
    
    
    
    780Other revenues
    
    
    19
    
    
    
    5
    
    
    
    
    16
    
    
    
    28
    
    
    
    
    9
    
    
    
    4
    
    
    
    
    44
    
    
    
    37Net operating income from continuing
operations
    
    
    613
    
    
    
    495
    
    
    
    
    262
    
    
    
    212
    
    
    
    
    153
    
    
    
    110
    
    
    
    
    1,028
    
    
    
    817Interest expenseCommercial property debt
    
    
    317
    
    
    
    178
    
    
    
    
    107
    
    
    
    95
    
    
    
    
    
    
    
    
    
    
    
    
    
    424
    
    
    
    273Capital
securities  corporate
    
    
    59
    
    
    
    54
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    59
    
    
    
    54Capital
securities  fund subsidiaries
    
    
    (19
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (19
    )
    
    
    General and administrative
    
    
    34
    
    
    
    28
    
    
    
    
    33
    
    
    
    20
    
    
    
    
    
    
    
    
    
    
    
    
    
    67
    
    
    
    48Transaction costs
    
    
    15
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15
    
    
    
    Non-controlling interestsFund subsidiaries
    
    
    (14
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (14
    )
    
    
    Other subsidiaries
    
    
    1
    
    
    
    
    
    
    
    
    20
    
    
    
    16
    
    
    
    
    
    
    
    
    
    
    
    
    
    21
    
    
    
    16Depreciation and amortization
    
    
    202
    
    
    
    124
    
    
    
    
    78
    
    
    
    37
    
    
    
    
    1
    
    
    
    
    
    
    
    
    281
    
    
    
    161Income before unallocated costs
    
    
    18
    
    
    
    111
    
    
    
    
    24
    
    
    
    44
    
    
    
    
    152
    
    
    
    110
    
    
    
    
    194
    
    
    
    265Future income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    91
    
    
    
    103Net income from continuing operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    103
    
    
    $
    162Discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    32
    
    
    
    2Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    135
    
    
    $
    164Acquisition of Trizec, net
    
    $
    5,341
    
    
    $
    
    
    
    
    $
    
    
    
    $
    
    
    
    
    $
    
    
    
    $
    
    
    
    
    $
    5,341
    
    
    $
    Acquisitions of real estate, net
    
    
    420
    
    
    
    
    
    
    
    
    149
    
    
    
    366
    
    
    
    
    
    
    
    
    
    
    
    
    
    569
    
    
    
    366Dispositions of real estate, net
    
    
    (61
    )
    
    
    (7
    )
    
    
    
    (21
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (82
    )
    
    
    (7
    )Commercial property tenant improvements
    
    
    47
    
    
    
    96
    
    
    
    
    8
    
    
    
    12
    
    
    
    
    
    
    
    
    
    
    
    
    
    55
    
    
    
    108Development and redevelopment
    
    
    29
    
    
    
    41
    
    
    
    
    50
    
    
    
    9
    
    
    
    
    
    
    
    
    
    
    
    
    
    79
    
    
    
    50Capital expenditures
    
    
    12
    
    
    
    8
    
    
    
    
    13
    
    
    
    13
    
    
    
    
    
    
    
    
    
    
    
    
    
    25
    
    
    
    21
  95




---



##### 



Selected Financial Information
 December 31 (US Millions, except per share information)
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002Financial results(1)Commercial property net operating income(2)
    
    $
    850
    
    
    $
    691
    
    
    $
    683
    
    
    $
    586
    
    
    $
    589Funds from operations
    
    
    443
    
    
    
    435
    
    
    
    403
    
    
    
    343
    
    
    
    314Net income
    
    
    135
    
    
    
    164
    
    
    
    138
    
    
    
    232
    
    
    
    236Total assets
    
    
    19,314
    
    
    
    9,513
    
    
    
    8,800
    
    
    
    8,382
    
    
    
    7,450Shareholders equity
    
    
    3,112
    
    
    
    1,943
    
    
    
    1,992
    
    
    
    1,938
    
    
    
    2,093Per diluted common share(1)Common shares outstanding
    
    
    232.4
    
    
    
    231.2
    
    
    
    233.4
    
    
    
    234.3
    
    
    
    240.6Fully diluted shares outstanding
    
    
    235.3
    
    
    
    235.9
    
    
    
    238.1
    
    
    
    239.4
    
    
    
    245.9Funds from operations and gains
    
    $
    2.06
    
    
    $
    1.85
    
    
    $
    1.95
    
    
    $
    1.85
    
    
    $
    1.45Funds from operations excluding lease termination income and gains
    
    
    1.87
    
    
    
    1.85
    
    
    
    1.70
    
    
    
    1.43
    
    
    
    1.25Net income
    
    
    0.56
    
    
    
    0.69
    
    
    
    0.58
    
    
    
    0.96
    
    
    
    0.89Dividends paid
    
    
    0.75
    
    
    
    0.65
    
    
    
    0.42
    
    
    
    0.34
    (3)
    
    
    0.28Shareholders equity  book value
    
    
    11.27
    
    
    
    8.35
    
    
    
    8.41
    
    
    
    8.12
    
    
    
    7.38Common share price at year end
    
    
    39.33
    
    
    
    29.42
    
    
    
    24.93
    
    
    
    19.13
    
    
    
    18.20Operating dataCommercial propertiesNumber of commercial properties
    
    
    116
    
    
    
    66
    
    
    
    40
    
    
    
    42
    
    
    
    44Rentable area (millions of sq. ft.)
    
    
    76
    
    
    
    48
    
    
    
    38
    
    
    
    38
    
    
    
    38Effective interest (millions of sq. ft.)
    
    
    58
    
    
    
    29
    
    
    
    30
    
    
    
    30
    
    
    
    30Average occupancy (%)
    
    
    95.1
    
    
    
    94.6
    
    
    
    92.7
    
    
    
    94.1
    
    
    
    95.5
 (1)
    
    Excludes the assets, liabilities and results of operations of Brookfield Homes
Corporation(2)
    
    Includes net operating income from discontinued operations(3)
    
    Excludes the distribution of Brookfield Homes Corporation 96




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##### 



Strengthening Corporate Governance
  Governance Policies
 
    
    The board has a majority of independent directors and a lead independent director
    
    The full board is elected annually; shareholders have cumulative voting rights in director elections
    
    The company does not have a poison pill in place
    
    The company expenses stock option grants on its income statement
    
    The positions of CEO and Chairman are separated
    
    The company has publicly-disclosed board guidelines
    
    Outside directors meet without the CEO or management present
    
    The audit committee is comprised solely of independent directors
 NYSE Rules
   Committee Membership
 Audit Committee
    
    Governance & Nominating Committee
    
    Human Resources & Compensation CommitteePaul D. McFarlane, Chair
    
    Allan S. Olson*, Chair
    
    Jack L. Cockwell, ChairWilliam T. Cahill
    
    William T. Cahill
    
    Paul D. McFarlaneAllan S. Olson
    
    Roderick D. Fraser
    
    Linda D. RabbittRobert L. Stelzl
    
    Samuel P.S. Pollock
    
    William C. Wheaton
 *
    
    Lead independent director 97