##### 



Exhibit 99.3
     -s- Richard B. Clark
    

-s- Craig J. LaurieRichard B. Clark
    
    Craig J. LauriePresident and Chief Executive Officer
    
    Senior Vice President and Chief Financial OfficerFebruary 8, 2006
       Toronto, Canada
    

(DELOITTE & TOUCHE LLP)February 8, 2006
    
    Independent Registered Chartered Accountants
 52




---



##### 



December 31 (US Millions)
    
    Note
    
    
    2005
    
    
    2004(1)AssetsCommercial properties
    
    
    5
    
    
    $
    7,430
    
    
    $
    6,555Development properties
    
    
    6
    
    
    
    615
    
    
    
    716Receivables and other
    
    
    7
    
    
    
    955
    
    
    
    739Restricted cash and deposits
    
    
    8
    
    
    
    316
    
    
    
    297Marketable securities
    
    
    9
    
    
    
    58
    
    
    
    285Cash and cash equivalents
    
    
    
    
    
    
    64
    
    
    
    112Assets related to discontinued operations
    
    
    10
    
    
    
    75
    
    
    
    96$
    9,513
    
    
    $
    8,800LiabilitiesCommercial property debt
    
    
    11
    
    
    $
    5,216
    
    
    $
    4,754Accounts payable and other liabilities
    
    
    12
    
    
    
    626
    
    
    
    452Future income tax liability
    
    
    13
    
    
    
    188
    
    
    
    96Liabilities related to discontinued operations
    
    
    10
    
    
    
    51
    
    
    
    64Capital securities
    
    
    14
    
    
    
    1,101
    
    
    
    1,069Noncontrolling interests
    
    
    15
    
    
    
    59
    
    
    
    53Preferred equity  subsidiaries
    
    
    16
    
    
    
    329
    
    
    
    320Shareholders equityPreferred equity  corporate
    
    
    17
    
    
    
    45
    
    
    
    45Common equity
    
    
    18
    
    
    
    1,898
    
    
    
    1,947$
    9,513
    
    
    $
    8,800
 (1)
    
Certain comparative information has been restated to conform with current year
presentation  see Notes 2, 8 and 10
See accompanying notes to the consolidated financial
statements On behalf of the Board,-s- Gordon E. Arnell
    

-s- Richard B. ClarkGordon E. Arnell
    
    Richard B. ClarkChairman
    
    President and Chief Executive Officer
 53




---



##### 



December 31 (US Millions, except per share amounts)
    
    Note
    
    
    2005
    
    
    2004(1)Total revenue
    
    
    20
    
    
    $
    1,549
    
    
    $
    1,442Net operating incomeCommercial property operations
    
    
    20Operating income from properties
    
    
    
    
    
    $
    680
    
    
    $
    671Lease termination income
    
    
    
    
    
    
    
    
    
    
    60Total commercial property operations
    
    
    
    
    
    
    680
    
    
    
    731Residential development operations
    
    
    20
    
    
    
    106
    
    
    
    42Interest and other
    
    
    
    
    
    
    37
    
    
    
    47823
    
    
    
    820ExpensesInterest
    
    
    
    
    
    
    330
    
    
    
    304General and administrative
    
    
    
    
    
    
    48
    
    
    
    41Non-controlling interests expense
    
    
    
    
    
    
    16
    
    
    
    20429
    
    
    
    455Depreciation and amortization
    
    
    
    
    
    
    163
    
    
    
    140Unrealized foreign exchange on preferred share restatement
    
    
    
    
    
    
    
    
    63Future income taxes and other provisions
    
    
    13
    
    
    
    103
    
    
    
    116Net income from continuing operations
    
    
    
    
    
    $
    163
    
    
    $
    136Discontinued operations
    
    
    10
    
    
    
    1
    
    
    
    2Net income
    
    
    
    
    
    $
    164
    
    
    $
    138Net income per common share
    
    
    18Basic
    
    
    
    
    
    $
    0.70
    
    
    $
    0.58Diluted
    
    
    
    
    
    $
    0.69
    
    
    $
    0.58
 (1)
    
Certain comparative information has been restated to conform with current year
presentation  see Notes 2 and 10
See accompanying notes to the consolidated financial
statements  December 31 (US Millions)
    
    Note
    
    
    2005
    
    
    2004(1)Retained earnings  beginning of year
    
    
    
    
    
    $
    787
    
    
    $
    777Net income
    
    
    
    
    
    
    164
    
    
    
    138Shareholder distributionsPreferred shares dividends  corporate
    
    
    
    
    
    
    (2
    )
    
    
    (2
    )Common share dividends
    
    
    
    
    
    
    (150
    )
    
    
    (96
    )Amount paid in excess of the book value of commonshares purchased for cancellation
    
    
    
    
    
    
    (52
    )
    
    
    (30
    )Retained earnings  end of year
    
    
    18
    
    
    $
    747
    
    
    $
    787
 (1)
    
Certain comparative information has been restated to conform with
current year presentation  see Note 2
See accompanying notes to the consolidated
financial statements 54




---



##### 



December 31 (US Millions)
    
    Note
    
    
    2005
    
    
    2004Operating activitiesNet income
    
    
    
    
    
    $
    164
    
    
    $
    138Depreciation and amortization
    
    
    
    
    
    
    168
    
    
    
    145Unrealized foreign exchange on preferred share restatement
    
    
    
    
    
    
    
    
    
    
    63Future income taxes and other provisions
    
    
    
    
    
    
    103
    
    
    
    116Commercial property tenant installation costs
    
    
    
    
    
    
    (123
    )
    
    
    (82
    )Other
    
    
    
    
    
    
    (206
    )
    
    
    79106
    
    
    
    459Financing activities and capital distributionsCommercial property debt arranged
    
    
    
    
    
    
    750
    
    
    
    452Commercial property debt repayments
    
    
    
    
    
    
    (463
    )
    
    
    (626
    )Land development debt, net
    
    
    
    
    
    
    (4
    )
    
    
    (8
    )Capital securities issued
    
    
    
    
    
    
    
    
    
    
    261Common shares issued
    
    
    
    
    
    
    8
    
    
    
    10Common shares repurchased
    
    
    
    
    
    
    (74
    )
    
    
    (43
    )Cashflow retained from (distributed to) non-controlling interests
    
    
    
    
    
    
    3
    
    
    
    (163
    )Preferred share dividends  corporate
    
    
    
    
    
    
    (2
    )
    
    
    (2
    )Common share dividends
    
    
    
    
    
    
    (150
    )
    
    
    (96
    )68
    
    
    
    (215
    )Investing activitiesMarketable securities
    
    
    
    
    
    
    227
    
    
    
    (18
    )Acquisitions of real estate, net
    
    
    23
    
    
    
    (366
    )
    
    
    (207
    )Dispositions of real estate, net
    
    
    23
    
    
    
    7
    
    
    
    63Development and redevelopment investments
    
    
    
    
    
    
    (50
    )
    
    
    (55
    )Restricted cash and deposits
    
    
    
    
    
    
    (19
    )
    
    
    (21
    )Capital expenditures
    
    
    
    
    
    
    (21
    )
    
    
    (26
    )(222
    )
    
    
    (264
    )Decrease in cash resources
    
    
    
    
    
    
    (48
    )
    
    
    (20
    )Opening cash and cash equivalents
    
    
    
    
    
    
    112
    
    
    
    132Closing cash and cash equivalents
    
    
    
    
    
    $
    64
    
    
    $
    112
 See accompanying notes to the consolidated financial statements
 55




---



##### 



NOTE 1: SUMMARY OF ACCOUNTING POLICIES
 (a) General
  (b) Principles of consolidation
  (i)
    
    the accounts of all subsidiaries of the company including its wholly-owned operations,
as well as BPO Properties Ltd. (BPO Properties) and Brookfield Financial Properties L.P.
(Brookfield Financial Properties); and(ii)
    
    the accounts of all subsidiaries incorporated and unincorporated joint ventures and
partnerships 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 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.
 (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 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 lives 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 development propertiesCommercial 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
 56




---



##### 



in circumstances indicate the carrying value may not be recoverable. 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.(iii)
    
    Residential development propertiesDevelopment 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, capital and Canadian large corporation 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
  57




---



##### 



(i) Reporting currency and foreign currency translation
   (j) Marketable securities
   (k) Use of estimates
  (l) Derivative financial instruments
     (m) Cash and cash equivalents
  (n) Comparative figures
  58




---



##### 



NOTE 2: CHANGES IN ACCOUNTING POLICIES
  (i) Liabilities and equity, CICA Handbook Section 3861
  (ii) Consolidation of variable interest entities, CICA AcG 15
  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
  59




---



##### 



(iv) Effect of Contingently Convertible Instruments on the Computation of Diluted Earnings Per
Share, Emerging Issues Committee Abstract 155
  (v) Implicit Variable Interests, Emerging Issues Committee Abstract 157
  (vi) Conditional Asset Retirement Obligations, Emerging Issues Committee Abstract 159
  NOTE 4: PROPERTY ACQUISITIONS
   Purchase Price(Millions)
    
    Book ValueCommercial 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 assumed
    
    
    (26
    )Commercial property debt assumed(2)
    
    
    (246
    )Total purchase price
    
    $
    182
 (1)
    
All intangibles are subject to amortization(2)
    
Includes acquisition financing of $110 million  60




---



##### 



NOTE 5: COMMERCIAL PROPERTIES
  (Millions)
    
    2005
    
    
    2004Commercial properties
    
    $
    8,137
    
    
    $
    7,093Less: Accumulated depreciation
    
    
    (707
    )
    
    
    (538
    )Total
    
    $
    7,430
    
    
    $
    6,555
   (Millions)
    
    2005
    
    
    2004Assets
    
    $
    2,669
    
    
    $
    2,173Liabilities
    
    
    1,611
    
    
    
    1,254Operating revenues
    
    
    381
    
    
    
    363Operating expenses
    
    
    151
    
    
    
    141Net income
    
    
    99
    
    
    
    110Cashflow from operating activities
    
    
    140
    
    
    
    146Cashflow from financing activities
    
    
    (19
    )
    
    
    Cashflow (used in) from investing activities
    
    
    (174
    )
    
    
    25
 NOTE 6: DEVELOPMENT PROPERTIES
  (Millions)
    
    2005
    
    
    2004Commercial developments
    
    $
    224
    
    
    $
    399Residential development land
    
    
    391
    
    
    
    317Total
    
    $
    615
    
    
    $
    716
   NOTE 7: RECEIVABLES AND OTHER
  (Millions)
    
    2005
    
    
    2004Receivables and real estate mortgages
    
    $
    551
    
    
    $
    435Prepaid expenses and other assets
    
    
    279
    
    
    
    234Intangible assets
    
    
    125
    
    
    
    70Total
    
    $
    955
    
    
    $
    739
  61




---



##### 



NOTE 8: RESTRICTED CASH AND DEPOSITS
  NOTE 9: MARKETABLE SECURITIES
  NOTE 10: DISCONTINUED OPERATIONS
    (Millions, except per share information)
    
    2005
    
    
    2004Revenue
    
    $
    20
    
    
    $
    21Operating expenses
    
    
    9
    
    
    
    9$
    11
    
    
    $
    12Interest expense
    
    
    (5
    )
    
    
    (5
    )$
    6
    
    
    $
    7Depreciation and amortization
    
    
    (5
    )
    
    
    (5
    )Income from discontinued operations
    
    $
    1
    
    
    $
    2Income from discontinued operations per common share
    
    $
    
    
    
    $
    
 NOTE 11: COMMERCIAL PROPERTY DEBT
  WeightedAverageInterest Rate at
    
    
    
    
    
    
    Principal Repayments
    
    
    
    
    
    
    2011 &
    
    
    2005
    
    
    2004(Millions)
    
    Dec. 31, 2005
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    Beyond
    
    
    Total
    
    
    TotalCommercial property debt
    
    
    6.5
    %
    
    $
    270
    
    
    $
    634
    
    
    $
    377
    
    
    $
    837
    
    
    $
    189
    
    
    $
    2,909
    
    
    $
    5,216
    
    
    $
    4,754




---



##### 



NOTE 12: ACCOUNTS PAYABLE AND OTHER LIABILITIES
  (Millions)
    
    2005
    
    
    2004Accounts payable
    
    $
    342
    
    
    $
    289Land development debt
    
    
    158
    
    
    
    135Intangible liabilities
    
    
    126
    
    
    
    28Total
    
    $
    626
    
    
    $
    452
  NOTE 13: FUTURE INCOME TAXES
  (Millions)
    
    2005
    
    
    2004Future income tax liabilities related to difference in tax and book basis, net
    
    $
    (541
    )
    
    $
    (568
    )Future income tax assets related to non-capital losses and capital losses
    
    
    353
    
    
    
    472Total
    
    $
    (188
    )
    
    $
    (96
    )
   (Millions)
    
    2005
    
    
    2004Income tax expense at the Canadian federal and provincial income
tax rate of 35% (2004  35%)
    
    $
    94
    
    
    $
    89Increase (decrease) in income tax expense due to the following:Non-deductible preferred share dividends
    
    
    19
    
    
    
    14Higher income tax rates in other jurisdictions
    
    
    1
    
    
    
    6Minority shareholders interests in income tax expense
    
    
    (2
    )
    
    
    (4
    )Tax assets previously not recognized
    
    
    (18
    )
    
    
    (25
    )Non-taxable portion of capital gains
    
    
    
    
    
    
    (1
    )Foreign exchange on preferred share restatement
    
    
    
    
    
    
    22Other
    
    
    9
    
    
    
    15Total
    
    $
    103
    
    
    $
    116
 NOTE 14: CAPITAL SECURITIES
  Shares
    
    
    Shares
    
    
    Cumulative(Millions, except share information)
    
    Authorized
    
    
    Outstanding
    
    
    Dividend Rate
    
    2005
    
    
    2004Class AAA Series E
    
    
    8,000,000
    
    
    
    8,000,000
    
    
    70% of bank prime
    
    $
    172
    
    
    $
    167Class AAA Series F
    
    
    8,000,000
    
    
    
    8,000,000
    
    
    
    6.00
    %
    
    
    172
    
    
    
    167Class AAA Series G
    
    
    6,000,000
    
    
    
    4,400,000
    
    
    
    5.25
    %
    
    
    110
    
    
    
    110Class AAA Series H
    
    
    8,000,000
    
    
    
    8,000,000
    
    
    
    5.75
    %
    
    
    173
    
    
    
    167Class AAA Series I
    
    
    8,000,000
    
    
    
    8,000,000
    
    
    
    5.20
    %
    
    
    172
    
    
    
    167Class AAA Series J
    
    
    8,000,000
    
    
    
    8,000,000
    
    
    
    5.00
    %
    
    
    172
    
    
    
    167Class AAA Series K
    
    
    6,000,000
    
    
    
    6,000,000
    
    
    
    5.20
    %
    
    
    130
    
    
    
    124Total
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    1,101
    
    
    $
    1,069




---



##### 



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
    U
    S $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 corporation, 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.(2)
    
    Subject to applicable law and rights of the corporation, 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.  NOTE 15: NON-CONTROLLING INTERESTS
  (Millions)
    
    Others Equity Ownership
    
    
    2005
    
    
    2004Common shares of BPO Properties(1)
    
    
    11.0
    %
    
    $
    47
    
    
    $
    42Limited partnership units of Brookfield Financial Properties
    
    
    0.6
    %
    
    
    12
    
    
    
    11Total
    
    
    
    
    
    $
    59
    
    
    $
    53
 (1) Canadian dollar denominated




---



##### 



NOTE 16: PREFERRED EQUITY  SUBSIDIARIES
  Shares
    
    
    Preferred
    
    
    Cumulative(Millions, except share information)
    
    Outstanding
    
    
    Shares Series
    
    
    Dividend Rate
    
    
    2005
    
    
    2004BPO Properties
    
    
    1,805,489
    
    
    Series G
    
    70% of bank prime
    
    $
    39
    
    
    $
    383,816,527
    
    
    Series J
    
    70% of bank prime
    
    
    82
    
    
    
    80300
    
    
    Series K
    
    30-day BA + 0.4%
    
    
    129
    
    
    
    1242,847,711
    
    
    Series M
    
    70% of bank prime
    
    
    62
    
    
    
    59800,000
    
    
    Series N
    
    30-day BA + 0.4%
    
    
    17
    
    
    
    17$
    329
    
    
    $
    318100%-owned subsidiaries
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2Total
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    329
    
    
    $
    320
      NOTE 17: PREFERRED EQUITY  CORPORATE
  Shares
    
    
    Cumulative(Millions, except share information)
    
    Outstanding
    
    
    Dividend Rate
    
    
    2005
    
    
    2004Class 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 18: COMMON EQUITY
  (Millions)
    
    2005
    
    
    2004(1)Common shares
    
    $
    1,066
    
    
    $
    1,080Retained earnings and cumulative translation adjustment
    
    
    832
    
    
    
    867Total
    
    $
    1,898
    
    
    $
    1,947
 (1)
    
    Certain comparative information has been restated due to adoption of an amendment
to the CICA Handbook Section 3861, Financial Instruments  Disclosure and Presentation
(See Note 2)
  (a) Common shares
  2005
    
    
    2004Common shares outstanding, beginning of year
    
    
    233,387,780
    
    
    
    234,370,052Addition of shares as a result of exercise of options
    
    
    515,345
    
    
    
    1,132,578Deduction of shares as a result of repurchases made
    
    
    (2,693,500
    )
    
    
    (2,114,850
    )Common shares outstanding, end of year
    
    
    231,209,625
    
    
    
    233,387,780
  (b) Earnings per share
  (Millions, except per share amounts)
    
    2005
    
    
    2004Net income
    
    $
    164
    
    
    $
    138Preferred share dividends
    
    
    (2
    )
    
    
    (2
    )Net income available to common shareholders
    
    $
    162
    
    
    $
    136Weighted average shares outstanding  basic
    
    
    232.1
    
    
    
    234.0Net income per share  basic
    
    $
    0.70
    
    
    $
    0.58Weighted average shares outstanding  diluted
    
    
    234.2
    
    
    
    235.7Net income per share  diluted
    
    $
    0.69
    
    
    $
    0.58Weighted average shares outstanding  basic
    
    
    232.1
    
    
    
    234.0Unexercised options
    
    
    2.1
    
    
    
    1.7Weighted average shares outstanding  diluted
    
    
    234.2
    
    
    
    235.7




---



##### 



NOTE 19: STOCK-BASED COMPENSATION
    WeightedIssue
    
    Expiry
    
    
    Number
    
    
    AverageDate
    
    Date
    
    
    of Shares
    
    
    Exercise Price1998
    
    
    2008
    
    
    
    347,750
    
    
    $
    9.421999
    
    
    2009
    
    
    
    43,950
    
    
    
    6.812000
    
    
    2010
    
    
    
    321,560
    
    
    
    7.822001
    
    
    2011
    
    
    
    636,370
    
    
    
    11.952002
    
    
    2012
    
    
    
    806,296
    
    
    
    12.662003
    
    
    2013
    
    
    
    673,685
    
    
    
    13.442004
    
    
    2014
    
    
    
    1,125,747
    
    
    
    20.272005
    
    
    2015
    
    
    
    686,604
    
    
    
    24.89Total
    
    
    
    
    
    
    4,641,962
    
    
    $
    15.70
  2005
    
    
    

    2004Weighted
    
    
    
    
    
    
    WeightedNumber
    
    
    Average
    
    
    Number
    
    
    Averageof Options
    
    
    Exercise Price
    
    
    of Options
    
    
    Exercise PriceOutstanding, beginning of year
    
    
    4,692,869
    
    
    $
    14.03
    
    
    
    4,863,360
    
    
    $
    10.69Granted
    
    
    763,000
    
    
    
    24.40
    
    
    
    1,462,500
    
    
    
    19.61Exercised
    
    
    (515,345
    )
    
    
    (12.44
    )
    
    
    (1,132,578
    )
    
    
    (8.81
    )Cancelled
    
    
    (298,562
    )
    
    
    (20.63
    )
    
    
    (500,413
    )
    
    
    (13.13
    )Outstanding, end of year
    
    
    4,641,962
    
    
    $
    15.70
    
    
    
    4,692,869
    
    
    $
    14.03Exercisable at end of year
    
    
    2,875,041
    
    
    $
    13.30
    
    
    
    2,371,086
    
    
    $
    11.83




---



##### 



NOTE 20: COMMERCIAL PROPERTY AND RESIDENTIAL DEVELOPMENT OPERATIONS
 (a) Revenue
  (Millions)
    
    2005
    
    
    2004Revenue from commercial property operations
    
    $
    1,123
    
    
    $
    1,134Revenue from residential development operations
    
    
    389
    
    
    
    261Revenue from commercial property and residential development operations
    
    
    1,512
    
    
    
    1,395Interest and other
    
    
    37
    
    
    
    47Total
    
    $
    1,549
    
    
    $
    1,442
 (b) Commercial property operations
  (Millions)
    
    2005
    
    
    2004Revenue from current properties
    
    $
    1,103
    
    
    $
    1,053Property operating costs
    
    
    (423
    )
    
    
    (382
    )Net operating income
    
    
    680
    
    
    
    671Lease termination income
    
    
    
    
    
    
    60Net operating income including lease termination income
    
    $
    680
    
    
    $
    731
    (c) Residential development operations
  (Millions)
    
    2005
    
    
    2004Revenue
    
    $
    389
    
    
    $
    261Expenses
    
    
    283
    
    
    
    219Total
    
    $
    106
    
    
    $
    42




---



##### 



NOTE 21: DIFFERENCES FROM UNITED STATES ACCOUNTING PRINCIPLES
  (a) Income statement differences
   (Millions, except per share information)
    
    Note
    
    
    2005
    
    
    2004Net income as reported under Canadian GAAP(1)
    
    
    
    
    
    $
    164
    
    
    $
    138Adjustments:Decreased commercial property income
    
    
    (i)
    
    
    
    (15
    )
    
    
    (18
    )Decreased commercial property depreciation
    
    (ii)
    
    
    
    8
    
    
    
    7(Decreased) increased commercial property lease termination
income and gains
    
    (iii)
    
    
    
    (2
    )
    
    
    42Unrealized foreign exchange on preferred share restatement
    
    (iv)
        
    
    
    
    
    
    63Decreased interest expense
    
    
    (v)
    
    
    
    49
    
    
    
    39Decreased residential development income
    
    (vi)
    
    
    
    (26
    )
    
    
    Increased deferred income taxes
    
    (vii)
    
    
    
    (5
    )
    
    
    (12
    )Net income under US GAAP(1)
    
    
    
    
    
    $
    173
    
    
    $
    259Net income per shareBasic
    
    
    
    
    
    $
    0.52
    
    
    $
    0.93Diluted
    
    
    
    
    
    $
    0.52
    
    
    $
    0.92
 (1)
    
    Included in net income under both Canadian and US GAAP is $1 million from
discontinued operations in 2005 (2004  $2 million)
  (i) Decreased commercial property income
  (ii) Decreased commercial property depreciation
  (iii) (Decreased) Increased commercial property lease termination income and gains
  (iv) Unrealized foreign exchange on preferred share restatement




---



##### 



(v) Decreased interest expense
  (vi) Decreased residential development income
  (vii) Increased deferred income taxes
    (Millions, except per share information)
    
    2005
    
    
    2004Net income under US GAAP
    
    $
    173
    
    
    $
    259Preferred share dividends(1)
    
    
    (51
    )
    
    
    (41
    )Net income available to common shareholders under US GAAP
    
    $
    122
    
    
    $
    218Earnings per share under US GAAPBasic
    
    $
    0.52
    
    
    $
    0.93Diluted
    
    $
    0.52
    
    
    $
    0.92
 (1)
    
    Preferred share dividends for Canadian GAAP purposes were $2 million (2004  $2
million)
 (b) Comprehensive income
    (Millions)
    
    2005
    
    
    2004Net income under US GAAP
    
    $
    173
    
    
    $
    259Foreign currency translation adjustment under US GAAP
    
    
    11
    
    
    
    71Comprehensive income using US GAAP amounts
    
    $
    184
    
    
    $
    330




---



##### 



(c) Balance sheet differences
  (Millions)
    
    Note
    
    
    2005
    
    
    2004AssetsCommercial properties
    
    
    (i)
    
    
    $
    7,025
    
    
    $
    6,145Development properties
    
    (ii)
    
    
    
    642
    
    
    
    716Receivables and other
    
    (iii)
    
    
    
    977
    
    
    
    831Restricted cash and deposits
    
    
    
    
    
    
    316
    
    
    
    297Marketable securities
    
    
    
    
    
    
    58
    
    
    
    285Cash and cash equivalents
    
    
    
    
    
    
    64
    
    
    
    112Deferred income tax asset
    
    (iv)
    
    
    
    
    
    
    
    6Assets related to discontinued operations
    
    
    (i)
    
    
    
    69
    
    
    
    90Total assets under US GAAP
    
    
    
    
    
    $
    9,151
    
    
    $
    8,482LiabilitiesCommercial property debt
    
    
    
    
    
    $
    5,216
    
    
    $
    4,754Accounts payable and other liabilities
    
    
    (v)
    
    
    
    766
    
    
    
    586Deferred income tax liability
    
    (iv)
    
    
    
    92
    
    
    
    Liabilities related to discontinued operations
    
    
    
    
    
    
    51
    
    
    
    64Non-controlling interests
    
    
    
    
    
    
    64
    
    
    
    58Preferred equity  subsidiaries
    
    
    
    
    
    
    329
    
    
    
    320Shareholders equityPreferred equity  corporate
    
    (vi)
    
    
    
    865
    
    
    
    865Common equity
    
    (vii)
    
    
    
    1,768
    
    
    
    1,835Total liabilities and shareholders
equity under US GAAP
    
    
    
    
    
    $
    9,151
    
    
    $
    8,482
  (i) Commercial properties
  (Millions)
    
    2005
    
    
    2004Commercial properties under Canadian GAAP
    
    $
    7,430
    
    
    $
    6,555Additional accumulated depreciation under US GAAP
    
    
    (405
    )
    
    
    (410
    )Commercial properties under US GAAP
    
    $
    7,025
    
    
    $
    6,145




---



##### 



(Millions)
    
    2005
    
    
    2004Assets related to discontinued operations under Canadian GAAP
    
    $
    75
    
    
    $
    96Additional accumulated depreciation under US GAAP
    
    
    (6
    )
    
    
    (6
    )Assets related to discontinued operations under US GAAP
    
    $
    69
    
    
    $
    90
 (ii) Development properties
  (Millions)
    
    2005
    
    
    2004Development properties under Canadian GAAP
    
    $
    615
    
    
    $
    716Residential inventory adjustment
    
    
    27
    
    
    
    Development properties under US GAAP
    
    $
    642
    
    
    $
    716
 (iii) Receivables and other
  (Millions)
    
    2005
    
    
    2004Receivables and other under Canadian GAAP
    
    $
    955
    
    
    $
    739Straight-line rent receivable adjustment
    
    
    76
    
    
    
    92Residential receivable adjustment
    
    
    (54
    )
    
    
    Receivables and other under US GAAP
    
    $
    977
    
    
    $
    831
 (iv) Deferred income taxes
  (Millions)
    
    2005
    
    
    2004Tax assets related to net operating and capital losses
    
    $
    489
    
    
    $
    612Tax liabilities related to differences in tax and book basis
    
    
    (442
    )
    
    
    (458
    )Valuation allowance
    
    
    (139
    )
    
    
    (148
    )Deferred income tax (liability) asset under US GAAP
    
    $
    (92
    )
    
    $
    6
 (v) Accounts payable and other liabilities
  (Millions)
    
    2005
    
    
    2004Accounts payable and other liabilities under Canadian GAAP
    
    $
    626
    
    
    $
    452Classification of Class AAA, Series E preferred shares(1)
    
    
    172
    
    
    
    167Tenant inducement
    
    
    (32
    )
    
    
    (33
    )Accounts payable and other liabilities under US GAAP
    
    $
    766
    
    
    $
    586
 (1) Classified as capital securities for Canadian GAAP purposes
 (vi)  Preferred
equity  corporate
  (Millions)
    
    2005
    
    
    2004Preferred
shares  corporate under Canadian GAAP
    
    $
    45
    
    
    $
    45Classification of capital securities as preferred equity
    
    
    820
    
    
    
    820Preferred
shares  corporate under US GAAP
    
    $
    865
    
    
    $
    865
 72




---



##### 



(vii) Common shareholders equity
  (Millions)
    
    2005
    
    
    2004Common shareholders equity under Canadian GAAP
    
    $
    1,898
    
    
    $
    1,947Adjustment to accumulated depreciation under US GAAP
    
    
    (411
    )
    
    
    (416
    )Adjustment to accounts payable and other liabilities under US GAAP
    
    
    32
    
    
    
    33Adjustment to deferred income tax asset under US GAAP
    
    
    95
    
    
    
    102Rental revenue adjustments under US GAAP
    
    
    74
    
    
    
    92Residential revenue adjustment under US GAAP
    
    
    (27
    )
    
    
    Foreign currency translation adjustments, net
    
    
    27
    
    
    
    (3
    )Net effect on equity of amendment to CICA Handbook
Section 3861 not required for US GAAP
    
    
    80
    
    
    
    80Common shareholders equity under US GAAP
    
    $
    1,768
    
    
    $
    1,835
  (Millions)
    
    2005
    
    
    2004Common shares
    
    $
    1,159
    
    
    $
    1,173Additional paid-in capital, net of retained earnings
    
    
    847
    
    
    
    871Cumulative translation adjustment
    
    
    (18
    )
    
    
    (29
    )Cumulative adjustments to net income and retained earnings
    
    
    (220
    )
    
    
    (180
    )Common shareholders equity under US GAAP
    
    $
    1,768
    
    
    $
    1,835
 Joint ventures
  (d) Cashflow statement differences
  (Millions)
    
    2005
    
    
    2004Cash provided from (used in) the following activitiesOperating
    
    $
    155
    
    
    $
    498Financing
    
    
    19
    
    
    
    (254
    )Investing
    
    
    (222
    )
    
    
    (264
    )Decrease in cash
    
    $
    (48
    )
    
    $
    (20
    )
 (e) Change in accounting policies
 (i) EITF 03-6, Participating Securities and the Two-Class Method under FASB
Statement No. 128, Earnings per Share
  (ii) FASB Interpretation 47, Accounting for Conditional Asset Retirement Obligations
  73




---



##### 



(f) Future accounting policy changes
 (i) SFAS 154, Accounting Changes and Error Corrections
  (ii) SFAS 123R, Share-Based Payment
    NOTE 22: GUARANTEES, CONTINGENCIES AND OTHER
   74




---



##### 



NOTE 23: OTHER INFORMATION
    75




---



##### 



Years ended December 31 (Millions)
    
    2005
    
    
    2004Acquisitions of real estate
    
    $
    (653
    )
    
    $
    (359
    )Mortgages and other balances assumed on acquisition
    
    
    287
    
    
    
    152Net acquisitions
    
    $
    (366
    )
    
    $
    (207
    )Dispositions of real estate
    
    $
    19
    
    
    $
    99Mortgages assumed by purchasers
    
    
    (12
    )
    
    
    (36
    )Net dispositions
    
    $
    7
    
    
    $
    63Cash taxes paid
    
    $
    9
    
    
    $
    7Cash interest paid (excluding dividends paid on capital securities)
    
    $
    265
    
    
    $
    273
   NOTE 24: SUBSEQUENT EVENTS
   76




---



##### 



NOTE 25: SEGMENTED INFORMATION
  Commercial
    
    
    
    ResidentialUnited States
    
    
    
    Canada
    
    
    
    Development
    
    
    
    Commercial(Millions)
    
    2005
    
    
    2004
    
    
    
    2005
    
    
    2004
    
    
    
    2005
    
    
    2004
    
    
    
    2005
    
    
    2004AssetsProperties
    
    $
    5,318
    
    
    $
    5,224
    
    
    
    $
    2,336
    
    
    $
    1,730
    
    
    
    $
    391
    
    
    $
    317
    
    
    
    $
    8,045
    
    
    $
    7,271Receivables and other
    
    
    407
    
    
    
    339
    
    
    
    
    375
    
    
    
    316
    
    
    
    
    173
    
    
    
    84
    
    
    
    
    955
    
    
    
    739Restricted cash and deposits
    
    
    314
    
    
    
    297
    
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    316
    
    
    
    297Marketable securities
    
    
    
    
    
    
    285
    
    
    
    
    58
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    58
    
    
    
    285Cash and cash equivalents
    
    
    33
    
    
    
    49
    
    
    
    
    25
    
    
    
    59
    
    
    
    
    6
    
    
    
    4
    
    
    
    
    64
    
    
    
    112Assets related to discontinued operations
    
    
    75
    
    
    
    96
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    75
    
    
    
    96Total
    
    $
    6,147
    
    
    $
    6,290
    
    
    
    $
    2,796
    
    
    $
    2,105
    
    
    
    $
    570
    
    
    $
    405
    
    
    
    $
    9,513
    
    
    $
    8,800
  Commercial
    
    
    
    ResidentialUnited States
    
    
    
    Canada
    
    
    
    Development
    
    
    
    Total(Millions)
    
    2005
    
    
    2004
    
    
    
    2005
    
    
    2004
    
    
    
    2005
    
    
    2004
    
    
    
    2005
    
    
    2004Revenues
    
    $
    787
    
    
    $
    752
    
    
    
    $
    316
    
    
    $
    301
    
    
    
    $
    389
    
    
    $
    261
    
    
    
    $
    1,492
    
    
    $
    1,314Lease termination income
    
    
    
    
    
    
    60
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    60Expenses
    
    
    292
    
    
    
    253
    
    
    
    
    131
    
    
    
    129
    
    
    
    
    283
    
    
    
    219
    
    
    
    
    706
    
    
    
    601495
    
    
    
    559
    
    
    
    
    185
    
    
    
    172
    
    
    
    
    106
    
    
    
    42
    
    
    
    
    786
    
    
    
    773Other revenues
    
    
    6
    
    
    
    14
    
    
    
    
    27
    
    
    
    33
    
    
    
    
    4
    
    
    
    
    
    
    
    
    37
    
    
    
    47Net operating income from continuing
operations
    
    
    501
    
    
    
    573
    
    
    
    
    212
    
    
    
    205
    
    
    
    
    110
    
    
    
    42
    
    
    
    
    823
    
    
    
    820Interest expense
    
    
    231
    
    
    
    243
    
    
    
    
    99
    
    
    
    61
    
    
    
    
    
    
    
    
    
    
    
    
    
    330
    
    
    
    304General and administrative
    
    
    26
    
    
    
    20
    
    
    
    
    22
    
    
    
    21
    
    
    
    
    
    
    
    
    
    
    
    
    
    48
    
    
    
    41Non-controlling interests expense
    
    
    
    
    
    
    4
    
    
    
    
    16
    
    
    
    16
    
    
    
    
    
    
    
    
    
    
    
    
    
    16
    
    
    
    20Income before undernoted
    
    
    244
    
    
    
    306
    
    
    
    
    75
    
    
    
    107
    
    
    
    
    110
    
    
    
    42
    
    
    
    
    429
    
    
    
    455Depreciation and amortization
    
    
    126
    
    
    
    98
    
    
    
    
    37
    
    
    
    42
    
    
    
    
    
    
    
    
    
    
    
    
    
    163
    
    
    
    140Income before unallocated costs
    
    
    118
    
    
    
    208
    
    
    
    
    38
    
    
    
    65
    
    
    
    
    110
    
    
    
    42
    
    
    
    
    266
    
    
    
    315Unrealized foreign exchange on preferred
share restatement
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    63Future income taxes and other provisions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    103
    
    
    
    116Net income from continuing operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    163
    
    
    $
    136Discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    2Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    164
    
    
    $
    138Acquisitions of real estate, net
    
    $
    
    
    
    $
    124
    
    
    
    $
    254
    
    
    $
    83
    
    
    
    $
    
    
    
    $
    
    
    
    
    $
    254
    
    
    $
    207Dispositions of real estate, net
    
    
    (7
    )
    
    
    (31
    )
    
    
    
    
    
    
    
    (32
    )
    
    
    
    
    
    
    
    
    
    
    
    
    (7
    )
    
    
    (63
    )Commercial property tenant improvements
    
    
    108
    
    
    
    69
    
    
    
    
    15
    
    
    
    13
    
    
    
    
    
    
    
    
    
    
    
    
    
    123
    
    
    
    82Development and redevelopment
    
    
    41
    
    
    
    51
    
    
    
    
    9
    
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    
    
    50
    
    
    
    55Capital expenditures
    
    
    8
    
    
    
    13
    
    
    
    
    13
    
    
    
    13
    
    
    
    
    
    
    
    
    
    
    
    
    
    21
    
    
    
    26
  77