##### 



Managements Discussion and Analysis

OVERVIEW

Brookfield is a publicly-traded North American commercial real estate company
listed on both the New York and Toronto stock exchanges under the symbol BPO.
At December 31, 2002, the book value of Brookfields assets was $8.3 billion,
90% of which was invested in premier office properties. This included $879
million of assets of Brookfield Homes Corporation (Brookfield Homes) which
was distributed to shareholders on January 6, 2003. The company generated $447
million of funds from operations and gains or $2.63 per share in 2002,
including $0.45 per share from Brookfield Homes.

On January 6, 2003, the company distributed all of the common shares of
Brookfield Homes to common shareholders of record on January 2, 2003. Common
shareholders received one common share of Brookfield Homes for each five common
shares of Brookfield held on the date of record and was recorded as a
distribution to shareholders at the carried value of the companys investment
in Brookfield Homes. Consequently, the companys results for the year 2002 and
prior periods include the results of Brookfield Homes which have been
classified as a discontinued operation.

The following review of the consolidated financial condition and results of
operations should be read in conjunction with the consolidated financial
statements and appended notes. All figures are expressed in US dollars unless
otherwise noted. Brookfields financial results, both including and excluding
Brookfield Homes, are as follows:

|                                          |                                              |      |       |       |  |      |       |       |  |      |       |       |  |   |       |       |  |   |       |       | 
|----------------------------------------- | -------------------------------------------- | ---- | ----- | ----- |  | ---- | ----- | ----- |  | ---- | ----- | ----- |  | - | ----- | ----- |  | - | ----- | ----- | 
|(Millions, except per share amounts)      |                                              | 2002 |       | 2001  |  | 2000 |       | 1999  |  | 1998
|                                          |                                              |      |       |       |  |      |       |       |  |     
|Continuing
operations(1)                  |                                              |      |       |       |  |      |       |       |  |      |       |       |  |   |       |       |  |   |       |      
|Funds from continuing operations          |                                              |      |       |       |  |      |       |       |  |      |       |       |  |   |       |       |  |   |       |      
|                                          | Prior to lease termination income and gains  |      | $     | 322   |  |      | $     | 286   |  |      | $     | 250   |  |   | $     | 195   |  |   | $     | 173   | 
|                                          | Including lease termination income and gains |      |       | 374   |  |      |       | 334   |  |      |       | 268   |  |   |       | 213   |  |   |       | 173   | 
|Funds from operations per share           |                                              |      |       |       |  |      |       |       |  |      |       |       |  |   |       |       |  |   |       |      
|                                          | Prior to lease termination income and gains  |      | $     | 1.87  |  |      | $     | 1.63  |  |      | $     | 1.45  |  |   | $     | 1.12  |  |   | $     | 0.98  | 
|                                          | Including lease termination income and gains |      |       | 2.18  |  |      |       | 1.92  |  |      |       | 1.56  |  |   |       | 1.23  |  |   |       | 0.98  | 
|Earnings per share  diluted              |                                              |      | 1.34  |       |  |      | 1.12  |       |  |      | 0.76  |       |  |   | 0.67  |       |  |   | 0.61  |      
|Dividends per share                       |                                              |      | 0.40  |       |  |      | 0.33  |       |  |      | 0.25  |       |  |   | 0.21  |       |  |   | 0.16  |      
|Balance sheet data                       
|                                          | Commercial property assets                   |      | $     | 5,661 |  |      | $     | 5,802 |  |      | $     | 6,368 |  |   | $     | 5,930 |  |   | $     | 5,977 | 
|                                          | Total assets                                 |      |       | 7,450 |  |      |       | 7,419 |  |      |       | 8,123 |  |   |       | 7,535 |  |   |       | 7,200 | 
|                                          | Capital base                                 |      |       | 2,433 |  |      |       | 2,353 |  |      |       | 2,390 |  |   |       | 2,293 |  |   |       | 2,114 | 
|                                          |                                              |      |       |       |  |      |       |       |  |      |       |       |  |   |      
|Consolidated(2)                           |                                              |      |       |       |  |      |       |       |  |      |       |       |  |   |       |       |  |   |       |      
|Funds from operations and gains           |                                              | $    | 447   |       |  | $    | 399   |       |  | $    | 318   |       |  | $ | 259   |       |  | $ | 197   |      
|Funds from operations per share  diluted |                                              |      | 2.63  |       |  |      | 2.32  |       |  |      | 1.88  |       |  |   | 1.52  |       |  |   | 1.13  |      
|Earnings per share  diluted              |                                              |      | 1.61  |       |  |      | 1.36  |       |  |      | 0.95  |       |  |   | 0.85  |       |  |   | 0.70  |      
|Total assets                              |                                              | $    | 8,329 |       |  | $    | 8,291 |       |  | $    | 8,885 |       |  | $ | 8,291 |       |  | $ | 7,953 |      
|                                          |                                              |      |       |       |  |      |       |       |  |      |       |       |  |   |      



|(1) |  | Excludes the assets, liabilities and results of
operations of Brookfield Homes
|--- |  | ------------------------------------------------------------------------------
|   
|(2) |  | Includes assets, liabilities and results of operations of Brookfield
Homes    

Commercial properties

Brookfields strategy is to own, develop and manage premier commercial
properties in downtown locations of select cities in North America.
Brookfields portfolio consists of 50 properties and development sites,
predominantly office buildings, comprising 46 million square feet of rentable
area and development capacity in which Brookfield has an ownership interest in
35 million square feet.

Other operations

Brookfield operates ancillary real estate service businesses which focus on
enhancing the value and returns from the core commercial property business
through high-quality tenant service and amenities. Brookfield currently manages
in excess of 130 million square feet of space across North America, including
its own assets. This scale provides Brookfield with the platform to deliver
superior service offerings to tenants across the portfolio.

Brookfield also operates a development business including a number of low-cost
commercial development sites in Toronto and Manhattan, of which approximately
two million square feet is under construction. In Western Canada, the company
owns a small land development operation focused primarily on the development of
lots for sale to third-party homebuilders.

17





---



##### 



ASSET PROFILE
Total assets were $8.3 billion at December 31, 2002, or $7.5 billion on a pro
forma basis, when the assets of Brookfield Homes are excluded. Total book value
of assets remain consistent with 2001 as a result of the acquisition of 1.2
million square feet at Three World Financial Center and the additional costs
realized on the construction of the 300 Madison Avenue office tower in Midtown
Manhattan, offset by the sale of partial interests in two commercial properties
and the disposition of the balance of the companys retail portfolio in Canada.
The book value of the companys assets, segmented by areas of operation, is as
follows:

|                           |  |            |       |            |  |      |       |      |  |      |       |  |  |  |     |   |  |  |     |  
|-------------------------- |  | ---------- | ----- | ---------- |  | ---- | ----- | ---- |  | ---- | ----- |  |  |  | --- | - |  |  | --- | -
|                           |  | Pro Forma* |       |            |  |      |       |      |  |      |       |  |  |  |     |   |  | 
|                           |  | Book Value |       | Book Value
|                           |  |            |       |           
|(Millions)                 |  | 2002       |       | 2002       |  | 2001 |       | 2002 |  | 2001
|                           |  |            |       |            |  |      |       |      |  |     
|Operating assets           |  |            |       |            |  |      |       |      |  |      |       |  |  |  |     |   |  |  |     |  
|Commercial properties      |  | $          | 5,661 |            |  | $    | 5,661 |      |  | $    | 5,802 |  |  |  | 86  | % |  |  | 91  | %
|Development properties     |  |            | 944   |            |  |      | 944   |      |  |      | 575   |  |  |  | 14  | % |  |  | 9   | %
|                           |  |            |       |            |  |      |       |      |  |      |       |  |  |  |     |   |  |  |     |  
|                           |  |            | 6,605 |            |  |      | 6,605 |      |  |      | 6,377 |  |  |  | 100 | % |  |  | 100 | %
|Other assets               |  |            |       |            |  |      |       |      |  |      |       |  |  |  |     |   |  |  |     |  
|Receivables and other      |  |            | 726   |            |  |      | 726   |      |  |      | 757   |  |  |  |     |   |  |  |     |  
|Future income tax assets   |  |            | 43    |            |  |      | 43    |      |  |      | 90    |  |  |  |     |   |  |  |     |  
|Cash and cash equivalents  |  |            | 76    |            |  |      | 76    |      |  |      | 195   |  |  |  |     |   |  |  |     |  
|Assets of Brookfield Homes |  |            |      |            |  |      | 879   |      |  |      | 872   |  |  |  |     |   |  |  |     |  
|                           |  |            |       |            |  |      |       |      |  |      |       |  |  |  |     |   |  |  |     |  
|                           |  | $          | 7,450 |            |  | $    | 8,329 |      |  | $    | 8,291 |  |  |  |     |   |  |  |     |  
|                           |  |            |       |            |  |      |       |      |  |      |       |  |  |  |     |   |  |  |     |  

*     Reflects distribution of Brookfield Homes completed on January 6, 2003

COMMERCIAL PROPERTIES
The commercial property portfolio is focused in six North American cities, with
New York, Toronto and Boston comprising 80% of the portfolio on a net asset
value basis, as follows:

|                       |                 |                 |        |                |  |            |        |            |  |      |       |  |  |   |       | 
|---------------------- | --------------- | --------------- | ------ | -------------- |  | ---------- | ------ | ---------- |  | ---- | ----- |  |  | - | ----- | 
|                       |                 |                 |        |                |  | Brookfield |        | 2002       |  | 2001
|                       |                 | Leasable Area   |        | Owned Interest |  | Book Value |        | Book Value
|Region                 | (000s Sq. Ft.) | (000s Sq. Ft.) |        | (Millions)     |  | (Millions)
|                       |                 |                 |        |                |  |            |        |           
|New York, New York     |                 |                 | 10,113 |                |  |            | 9,230  |            |  | $    | 3,295 |  |  | $ | 3,255 | 
|Toronto, Ontario       |                 |                 | 6,883  |                |  |            | 4,849  |            |  |      | 778   |  |  |   | 737   | 
|Boston, Massachusetts  |                 |                 | 2,163  |                |  |            | 1,103  |            |  |      | 332   |  |  |   | 333   | 
|Denver, Colorado       |                 |                 | 3,017  |                |  |            | 2,811  |            |  |      | 354   |  |  |   | 357   | 
|Calgary, Alberta       |                 |                 | 7,570  |                |  |            | 3,503  |            |  |      | 380   |  |  |   | 520   | 
|Minneapolis, Minnesota |                 |                 | 3,008  |                |  |            | 3,008  |            |  |      | 393   |  |  |   | 391   | 
|Other                  |                 |                 | 1,515  |                |  |            | 1,515  |            |  |      | 129   |  |  |   | 209   | 
|                       |                 |                 |        |                |  |            |        |            |  |      |       |  |  |   |       | 
|Total*                 |                 |                 | 34,269 |                |  |            | 26,019 |            |  | $    | 5,661 |  |  | $ | 5,802 | 
|                       |                 |                 |        |                |  |            |        |            |  |      |       |  |  |   |       | 

*     Excludes developments

The consolidated carrying value of Brookfields interest in 34.3 million square
feet of rentable area is approximately $215 per square foot, significantly less
than the estimated replacement cost of these assets. Brookfields core
properties average 1.4 million square feet in size.

During 2002, Brookfield continued to dispose of partial interests in mature
properties and dispose of non-core assets, generating gross proceeds of $397
million and $220 million of net capital. The following table details the assets
sold during 2002 and proceeds from these sales:

|                          |  |            |  |      |     |            |  |             |     |                 |     |   |    |   |     | 
|------------------------- |  | ---------- |  | ---- | --- | ---------- |  | ----------- | --- | --------------- | --- | - | -- | - | --- | 
|(Millions)                |  |            |  |      |     | Percentage |  | Gross       |     | Net Proceeds to
|Assets                    |  | Sale Date  |  | Sold |     | Proceeds   |  | Brookfield*
|                          |  |            |  |      |     |            |  |            
|Exchange Tower            |  | March 2002 |  |      | 50  | %          |  | $           | 100 |                 |     | $ | 55 |  
|Bankers Hall              |  | July 2002  |  |      | 50  | %          |  |             | 193 |                 |     |   | 72 |  
|Other non-core properties |  | Various    |  |      | 100 | %          |  |             | 104 |                 |     |   | 93 |  
|                          |  |            |  |      |     |            |  |             |     |                 |     |   |    |  
|                          |  |            |  |      |     |            |  |             |     | $               | 397 |   |    | $ | 220 | 
|                          |  |            |  |      |     |            |  |             |     |                 |     |   |    |  

*     Net of non-recourse commercial property debt

18



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##### 



The disposition of partial interests reflects Brookfields strategy to acquire
undervalued assets in its core markets, enhance the value through re-leasing
and financing initiatives, and sell partial interests in stable, long-term
leased properties to institutional investors looking for consistent yields.
Capital generated through the sale of these interests is targeted for
reinvestment in office properties, repurchasing shares or repayment of debt.

Results of operations

Total commercial property operations contributed $660 million of net operating
income and gains in 2002, a 2% decline over 2001 net operating income of $672
million. The decrease is due to the lower amount of capital invested in our
commercial property operations as a result of the sale of partial interests in
properties completed during the last two years, as well as the disposition of
the companys stand-alone retail assets in Canada. The reduction, due to sale
transactions, was offset by internal growth generated by contractual increases
embedded in long-term leases and the impact of the lease-up of vacant space in
recently acquired assets.

Net operating income contributed by the same commercial properties owned for
the years ended December 31, 2002, 2001 and 2000 increased to $585 million in
2002, an increase of 5.4% over $555 million in 2001 and an increase of 15.6%
over $506 million in 2000. Total net operating income during 2002 included $15
million contributed by properties, or partial interests, disposed of during
2002. These sold properties and partial interests, as well as dispositions in
2001 and 2000 contributed net operating income of $62 million in 2001 and $86
million in 2000.

|                                         |  |      |     |      |  |      |     |  |  |   |     | 
|---------------------------------------- |  | ---- | --- | ---- |  | ---- | --- |  |  | - | --- | 
|Year ended December 31 (Millions)        |  | 2002 |     | 2001 |  | 2000
|                                         |  |      |     |      |  |     
|Operating income from current properties |  | $    | 585 |      |  | $    | 555 |  |  | $ | 506 | 
|Operating income from properties sold    |  |      | 15  |      |  |      | 62  |  |  |   | 86  | 
|                                         |  |      |     |      |  |      |     |  |  |   |     | 
|                                         |  | $    | 600 |      |  | $    | 617 |  |  | $ | 592 | 
|                                         |  |      |     |      |  |      |     |  |  |   |     | 

Net operating income from commercial properties, including gains in 2002,
increased 8% over 2001 levels due to the impact of gains realized on the sale
of participating interests in core office projects offset by the reduction in
net operating income forgone on the sale of their partial interests and
non-core properties. The components of total net operating income including
gains are as follows:

|                                                                 |  |      |     |      |  |      |       |  |  |   |     | 
|---------------------------------------------------------------- |  | ---- | --- | ---- |  | ---- | ----- |  |  | - | --- | 
|Year ended December 31 (Millions)                                |  | 2002 |     | 2001 |  | 2000
|                                                                 |  |      |     |      |  |     
|Rental revenue                                                   |  | $    | 943 |      |  | $    | 1,007 |  |  | $ | 989 | 
|Property operating costs                                         |  |      | 343 |      |  |      | 390   |  |  |   | 397 | 
|                                                                 |  |      |     |      |  |      |       |  |  |   |     | 
|Net operating income prior to lease termination income and gains |  |      | 600 |      |  |      | 617   |  |  |   | 592 | 
|Lease termination income and gains                               |  |      | 60  |      |  |      | 55    |  |  |   | 19  | 
|                                                                 |  |      |     |      |  |      |       |  |  |   |     | 
|Net operating income                                             |  | $    | 660 |      |  | $    | 672   |  |  | $ | 611 | 
|                                                                 |  |      |     |      |  |      |       |  |  |   |     | 

Components of net operating
income

Net operating income growth is comprised of contractual increases on in-place
leases, rental increases achieved on in-place rents when re-leased, lease-up of
vacancies, and acquisitions, net of dispositions. The growth in net operating
income over the past three years is as follows:

|                                                                             |                                                                |      |     |      |   |      |     |     |   |   |     |    | 
|---------------------------------------------------------------------------- | -------------------------------------------------------------- | ---- | --- | ---- | - | ---- | --- | --- | - | - | --- | -- | 
|Year ended December 31 (Millions)                                            |                                                                | 2002 |     | 2001 |   | 2000
|                                                                             |                                                                |      |     |      |   |     
|Net operating income prior to lease termination income and gains,
prior year |                                                                | $    | 617 |      |   | $    | 592 |     |   | $ | 549 |   
|                                                                             | (a) Contractual increases on in-place leases                   |      |     | 17   |   |      |     | 13  |   |   |     | 16 | 
|                                                                             | (b) Rental increases achieved on in-place rents when re-leased |      |     | 8    |   |      |     | 17  |   |   |     | 13 | 
|                                                                             | (c) Lease-up of vacancies                                      |      |     | 5    |   |      |     | 15  |   |   |     | 7  | 
|                                                                             | (d) Acquisitions, net of dispositions                          |      |     | (47  | ) |      |     | (20 | ) |   |     | 7  | 
|                                                                             |                                                                |      |     |      |   |      |     |     |   |   |     |   
|                                                                             |                                                                |      | 600 |      |   |      | 617 |     |   |   | 592 |   
|                                                                             | (e) Lease termination income and gains                         |      |     | 60   |   |      |     | 55  |   |   |     | 19 | 
|                                                                             |                                                                |      |     |      |   |      |     |     |   |   |     |   
|Net operating income, end of year                                            |                                                                | $    | 660 |      |   | $    | 672 |     |   | $ | 611 |   
|                                                                             |                                                                |      |     |      |   |      |     |     |   |   |     |   

(a)  Contractual increases
on in-place leases

During 2002, net operating income increased $17 million due to contractual
increases in leases, compared with $13 million in 2001 and $16 million in 2000.
Brookfields leases generally have clauses which enable the company to collect
rental revenue in increased amounts every five years, with these increases
negotiated at the signing of the lease. Given the high-credit quality of
tenants in the companys portfolio, there is generally lower risk in realizing
these increases. The company records rental revenue in accordance with the
payment stream under the terms of its leases. Therefore, net operating income
from Brookfields

19





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##### 



commercial properties is conservative in nature as it represents actual cash
received as opposed to many real estate companies which straight-line rental
revenue, which includes future increases not received in cash until future
periods.

(b)  Rental increases achieved on in-place rents when re-leased

During the year, higher rental rates on the re-leasing of space in the
portfolio contributed $8 million of increased cashflow over 2001. At December
31, 2002, average in-place net rents throughout the portfolio remained at $21
per square foot compared with $21 per square foot at December 31, 2001 and $19
per square foot at December 31, 2000. Despite challenging leasing environments
in Brookfields major markets, the company was able to maintain its average
in-place net rental rate, largely a result of re-leasing initiatives which were
completed at an average rental uplift of $3 per square foot on space leased in
2001 and significant re-leasing initiatives in 2002 at equivalent rental rates.
2002 average market rents declined by $4 per square foot due to combined
pressure from sub-lease space and decreased tenant demand, primarily in Denver,
New York and Boston. However, given the low expiry rate of leases in the next
two years, this decrease in rental rates will not have a substantial immediate
impact on net operating income in the short term. The following table shows the
average in-place rents and estimated current market rents for similar space in
each of the companys markets:

|                       |          |  |                 |       |            |  |                 |    |                 |   |               |    |             |   |    |    | 
|---------------------- | -------- |  | --------------- | ----- | ---------- |  | --------------- | -- | --------------- | - | ------------- | -- | ----------- | - | -- | -- | 
|                       |          |  |                 |       |            |  |                 |    |                 |   | Avg. In-place |    | Avg. Market
|                       |          |  | Gross           |       | Average    |  | Net Rent        |    | Net Rent       
|                       |          |  | Leasable Area   |       | Lease Term |  | Dec. 31, 2002   |    | Dec. 31, 2002  
|                       |          |  | (000s Sq. Ft.) |       | (Years)    |  | ($ per Sq. Ft.) |    | ($ per Sq. Ft.)
|                       |          |  |                 |       |            |  |                 |    |                
|New York, New York    
|                       | Midtown  |  |                 | 1,693 |            |  |                 | 14 |                 |   | $             | 36 |             |   | $  | 55 | 
|                       | Downtown |  |                 | 8,420 |            |  |                 | 11 |                 |   |               | 32 |             |   |    | 34 | 
|Toronto, Ontario       |          |  | 6,883           |       |            |  | 7               |    |                 |   | 18            |    |             |   | 21 |   
|Boston, Massachusetts  |          |  | 2,163           |       |            |  | 5               |    |                 |   | 30            |    |             |   | 40 |   
|Denver, Colorado       |          |  | 3,017           |       |            |  | 5               |    |                 |   | 14            |    |             |   | 15 |   
|Calgary, Alberta       |          |  | 7,570           |       |            |  | 10              |    |                 |   | 11            |    |             |   | 15 |   
|Minneapolis, Minnesota |          |  | 3,008           |       |            |  | 5               |    |                 |   | 11            |    |             |   | 11 |   
|Other                  |          |  | 1,515           |       |            |  | 9               |    |                 |   | 9             |    |             |   | 14 |   
|                       |          |  |                 |       |            |  |                 |    |                 |   |               |    |             |   |    |   
|Total*                 |          |  | 34,269          |       |            |  | 10              |    |                 | $ | 21            |    |             | $ | 25 |   
|                       |          |  |                 |       |            |  |                 |    |                 |   |               |    |             |   |    |   

*     Excludes developments

(c)  Lease-up of
vacancies

A total of approximately 270,000 square feet of vacant space was leased in 2002
and 2001, contributing $5 million to net operating income during 2002.
Contributions to growth from vacancy lease-up were larger in 2001 because of
vacancies leased in properties acquired in 2000. Brookfields total portfolio
occupancy rate at December 31, 2002 declined from 97.3% to 95.5%, primarily due
to vacancy increases in New York, Boston, Denver and Minneapolis. A summary of
current and historical occupancy levels is as follows:

|                           |  |               |        |               |  |               |      |        |  |             |        |        |  |  |      |   |  |  |        |  |  |  |      |  
|-------------------------- |  | ------------- | ------ | ------------- |  | ------------- | ---- | ------ |  | ----------- | ------ | ------ |  |  | ---- | - |  |  | ------ |  |  |  | ---- | -
|                           |  | Dec. 31, 2002 |        | Dec. 31, 2001 |  | Dec. 31, 2000
|                           |  |               |        |               |  |              
|                           |  | Total         |        | %             |  | Total         |      | %      |  | Total       |        | %     
|(Thousands of square feet) |  | Square Feet   |        | Leased        |  | Square Feet   |      | Leased |  | Square Feet |        | Leased
|                           |  |               |        |               |  |               |      |        |  |             |        |       
|New York, New York         |  |               | 10,113 |               |  |               | 97.6 | %      |  |             | 10,113 |        |  |  | 99.6 | % |  |  | 9,846  |  |  |  | 99.6 | %
|Toronto, Ontario           |  |               | 6,883  |               |  |               | 96.3 | %      |  |             | 6,866  |        |  |  | 96.7 | % |  |  | 7,099  |  |  |  | 98.5 | %
|Boston, Massachusetts      |  |               | 2,163  |               |  |               | 97.4 | %      |  |             | 2,163  |        |  |  | 98.7 | % |  |  | 2,163  |  |  |  | 99.9 | %
|Denver, Colorado           |  |               | 3,017  |               |  |               | 90.1 | %      |  |             | 3,014  |        |  |  | 95.5 | % |  |  | 3,156  |  |  |  | 94.5 | %
|Calgary, Alberta           |  |               | 7,570  |               |  |               | 97.1 | %      |  |             | 6,330  |        |  |  | 95.8 | % |  |  | 6,471  |  |  |  | 93.5 | %
|Minneapolis, Minnesota     |  |               | 3,008  |               |  |               | 84.5 | %      |  |             | 3,008  |        |  |  | 94.5 | % |  |  | 3,008  |  |  |  | 95.5 | %
|Other                      |  |               | 1,515  |               |  |               | 97.1 | %      |  |             | 3,171  |        |  |  | 93.5 | % |  |  | 5,157  |  |  |  | 95.0 | %
|                           |  |               |        |               |  |               |      |        |  |             |        |        |  |  |      |   |  |  |        |  |  |  |      |  
|Total*                     |  |               | 34,269 |               |  |               | 95.5 | %      |  |             | 34,665 |        |  |  | 97.3 | % |  |  | 36,900 |  |  |  | 97.0 | %
|                           |  |               |        |               |  |               |      |        |  |             |        |        |  |  |      |   |  |  |        |  |  |  |      |  

*     Excludes developments

(d)  Acquisitions, net of
dispositions

The value created in Brookfields mature commercial properties provides the
company with the opportunity to generate additional gains and capital in order
to reinvest in other assets at higher returns. During 2002, Brookfield sold
participating interests in two of its core office properties, Exchange Tower in
Toronto and Bankers Hall in Calgary, in addition to the sale of non-core retail
assets, primarily in Canada. Participating interests and properties sold in
2002 contributed $15 million of net operating income

20





---



##### 



prior to their disposal. These sales were offset partly by the acquisition of a
20% interest in Gulf Canada Square in Calgary, a 1.1 million square foot Class
A building adjacent to Bankers Hall, for an investment of $22 million.

Total net operating income from commercial properties declined $47 million
during 2002 over 2001 as a result of the reduction of income from the disposal
of commercial properties during the year, in excess of the amount generated by
acquisitions, and prior to the effect of the deployment of that cashflow
elsewhere in the company.

(e)  Lease termination
income and gains
During 2002, Brookfield sold 50% interests in both the Exchange Tower and the
Bankers Hall complex, generating gains of $60 million prior to minority
interests and non-cash taxes. This compares with total gains of $54 million in
2001 realized on the sale of participating interests in Fifth Avenue Place, the
sale of a 49% interest in two Boston assets, and $1 million in lease
termination income. During 2000, $19 million in gains were realized on the
termination of leases in advance of their contractual maturities. Total
proceeds from the sales completed in 2002 were $293 million before property
specific debt.

Tenant relationships

An important characteristic of Brookfields portfolio is the strong credit
quality of the tenants. Special attention is directed at credit quality in
order to ensure the long-term sustainability of rental revenues through
economic cycles. The following list shows the largest tenants by leasable area
in Brookfields portfolio and their respective lease commitments:

|                                         |  |                          |  |         |           |       |  |      |            |        |  |  |            |   |  |  |                | 
|---------------------------------------- |  | ------------------------ |  | ------- | --------- | ----- |  | ---- | ---------- | ------ |  |  | ---------- | - |  |  | -------------- | 
|                                         |  | Primary                  |  | Year of |           | 000s |  | % of |            | Credit
|Tenant                                   |  | Location                 |  |         | Expiry(1) |       |  |      | Sq. Ft.(2) |        |  |  | Sq. Ft.(2) |   |  |  | Rating(3)      | 
|                                         |  |                          |  |         |           |       |  |      |            |        |  |  |            |   |  |  |                | 
|Rated                                    |  |                          |  |         |           |       |  |      |            |        |  |  |            |   |  |  |                | 
|Merrill Lynch & Company                  |  | New York/Toronto         |  |         | 2013      |       |  |      | 4,363      |        |  |  | 12.7       | % |  |  | A+             | 
|CIBC/CIBC World Markets                  |  | New York/Toronto/Calgary |  |         | 2027      |       |  |      | 2,146      |        |  |  | 6.3        | % |  |  | A+             | 
|RBC Financial Group                      |  | Five markets             |  |         | Various   |       |  |      | 1,057      |        |  |  | 3.1        | % |  |  | AA-            | 
|Petro-Canada                             |  | Calgary                  |  |         | 2013      |       |  |      | 851        |        |  |  | 2.5        | % |  |  | BBB            | 
|J.P. Morgan Chase                        |  | New York                 |  |         | 2022      |       |  |      | 802        |        |  |  | 2.3        | % |  |  | A+             | 
|Lehman Brothers                          |  | New York                 |  |         | 2019      |       |  |      | 717        |        |  |  | 2.1        | % |  |  | A+             | 
|Imperial Oil                             |  | Calgary                  |  |         | 2011      |       |  |      | 565        |        |  |  | 1.6        | % |  |  | AAA            | 
|Conoco Canada Resources                  |  | Calgary                  |  |         | 2009      |       |  |      | 528        |        |  |  | 1.5        | % |  |  | A-             | 
|Target
Corporation (Dayton Hudson Corp.) |  | Minneapolis              |  |         | 2013      |       |  |      | 465        |        |  |  | 1.4        | % |  |  | A+             | 
|Talisman Energy                          |  | Calgary                  |  |         | 2015      |       |  |      | 406        |        |  |  | 1.2        | % |  |  | BBB+           | 
|Canadian Pacific Railway Co.             |  | Calgary                  |  |         | 2006      |       |  |      | 399        |        |  |  | 1.2        | % |  |  | A-             | 
|Goldman Sachs                            |  | New York                 |  |         | 2012      |       |  |      | 362        |        |  |  | 1.1        | % |  |  | A+             | 
|Bell West/Bell Canada                    |  | Calgary/Toronto          |  |         | 2009      |       |  |      | 337        |        |  |  | 1.0        | % |  |  | A              | 
|Teachers
Insurance Annuity Assoc.        |  | Denver                   |  |         | 2008      |       |  |      | 323        |        |  |  | 0.9        | % |  |  | AAA            | 
|Dow Jones & Company                      |  | New York                 |  |         | 2005      |       |  |      | 323        |        |  |  | 0.9        | % |  |  | A+             | 
|TD Canada Trust                          |  | Toronto/Calgary          |  |         | 2005      |       |  |      | 278        |        |  |  | 0.8        | % |  |  | A+             | 
|Canadian Natural Resources               |  | Calgary                  |  |         | 2011      |       |  |      | 257        |        |  |  | 0.7        | % |  |  | BBB+           | 
|Anadarko Canada Corporation              |  | Calgary                  |  |         | 2011      |       |  |      | 246        |        |  |  | 0.7        | % |  |  | Baa1           | 
|Bank of Nova Scotia                      |  | New York                 |  |         | 2014      |       |  |      | 230        |        |  |  | 0.7        | % |  |  | A+             | 
|Sovereign
Bank/Fleet National Bank       |  | Boston                   |  |         | 2008      |       |  |      | 213        |        |  |  | 0.6        | % |  |  | A+             | 
|EnCana Corporation                       |  | Calgary                  |  |         | 2013      |       |  |      | 212        |        |  |  | 0.6        | % |  |  | A-             | 
|Zurich Insurance                         |  | New York                 |  |         | 2017      |       |  |      | 208        |        |  |  | 0.6        | % |  |  | A+             | 
|Other investment grade                   |  | Various                  |  |         | Various   |       |  |      | 3,471      |        |  |  | 10.2       | % |  |  | BBB- or higher | 
|                                         |  |                          |  |         |           |       |  |      |            |        |  |  |            |   |  |  |                | 
|                                         |  |                          |  |         |           |       |  |      | 18,759     |        |  |  | 54.7       | % |  |  |                | 
|Unrated                                  |  |                          |  |         |           |       |  |      |            |        |  |  |            |   |  |  |                | 
|Goodwin Procter                          |  | Boston                   |  |         | 2006      |       |  |      | 360        |        |  |  | 1.1        | % |  |  |               | 
|Cleary,
Gottlieb, Steen & Hamilton       |  | New York                 |  |         | 2011      |       |  |      | 383        |        |  |  | 1.1        | % |  |  |               | 
|Wellington Management                    |  | Boston                   |  |         | 2011      |       |  |      | 330        |        |  |  | 1.0        | % |  |  |               | 
|National
Assoc. of Securities Dealers    |  | New York                 |  |         | 2021      |       |  |      | 277        |        |  |  | 0.8        | % |  |  |               | 
|Major League Baseball                    |  | New York                 |  |         | 2012      |       |  |      | 109        |        |  |  | 0.3        | % |  |  |               | 
|                                         |  |                          |  |         |           |       |  |      |            |        |  |  |            |   |  |  |                | 
|                                         |  |                          |  |         |           |       |  |      | 20,218     |        |  |  | 59.0       | % |  |  |                | 
|                                         |  |                          |  |         |           |       |  |      |            |        |  |  |            |   |  |  |                | 

(1)  Weighted average based on
square feet
(2) Prior to considering partnership interests in
partially-owned properties 
(3) From Standard and Poors or Moodys

21





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##### 



Brookfields strategy is to sign long-term leases in order to mitigate risk and
reduce overall retenanting costs in the portfolio. The company typically
commences discussions with tenants regarding their space requirements well in
advance of the contractual expiration, and while each market is different, the
majority of the companys leases, when signed, extend between 10 to 20-year
terms. As a result, approximately 5% of Brookfields leases mature annually.
New York and Boston are exceptions, where most of the 2002 to 2005 maturities
were forward-leased in 2000 and 2001. As a result, there are minimal scheduled
maturities of space during this period. Following is the breakdown of lease
maturities by market with associated in-place rental rates:



|                                 |               |         |                 |        |                 |           |     |         |          |   |       |           |  |  |        |       |          |  |     |      |     |   |    |    | 
|-------------------------------- | ------------- | ------- | --------------- | ------ | --------------- | --------- | --- | ------- | -------- | - | ----- | --------- |  |  | ------ | ----- | -------- |  | --- | ---- | --- | - | -- | -- | 
|                                 |               |         | Total Portfolio |        | New York/Boston
|                                 |               |         |                 |        |                
|                                 |               |         |                 |        |                 |           |     |         |          |   | Net   |           |  |  |        |       |          |  |     |      | Net
|                                 |               |         | 000s           |        |                 |           |     |         | Rate per |   | 000s |           |  |  |        |       | Rate per
|Year of Expiry                   |               | Sq. Ft. |                 | %      |                 | Sq. Ft.-$ |     | Sq. Ft. |          | % |       | Sq. Ft.-$
|                                 |               |         |                 |        |                 |           |     |         |          |   |       |          
|Currently Available              |               |         | 1,365           |        |                 |           | 4.5 | %       |          |   |       |           |  |  | 285    |       |          |  | 2.3 | %    |     |   |    |   
|                                 | 2003          |         |                 | 1,057  |                 |           |     | 3.6     | %        |   | $     | 14        |  |  |        | 61    |          |  |     | 0.5  | %   |   | $  | 44 | 
|                                 | 2004          |         |                 | 1,070  |                 |           |     | 3.5     | %        |   |       | 17        |  |  |        | 253   |          |  |     | 2.1  | %   |   |    | 32 | 
|                                 | 2005          |         |                 | 2,646  |                 |           |     | 8.7     | %        |   |       | 24        |  |  |        | 786   |          |  |     | 6.4  | %   |   |    | 41 | 
|                                 | 2006          |         |                 | 2,508  |                 |           |     | 8.2     | %        |   |       | 16        |  |  |        | 818   |          |  |     | 6.7  | %   |   |    | 25 | 
|                                 | 2007          |         |                 | 1,043  |                 |           |     | 3.5     | %        |   |       | 16        |  |  |        | 112   |          |  |     | 0.9  | %   |   |    | 35 | 
|                                 | 2008          |         |                 | 1,767  |                 |           |     | 5.7     | %        |   |       | 20        |  |  |        | 619   |          |  |     | 5.0  | %   |   |    | 31 | 
|                                 | 2009          |         |                 | 758    |                 |           |     | 2.5     | %        |   |       | 17        |  |  |        | 93    |          |  |     | 0.8  | %   |   |    | 33 | 
|                                 | 2010 & beyond |         |                 | 22,055 |                 |           |     | 59.8    | %        |   |       | 21        |  |  |        | 9,249 |          |  |     | 75.3 | %   |   |    | 32 | 
|                                 |               |         |                 |        |                 |           |     |         |          |   |       |           |  |  |        |       |          |  |     |      |     |   |    |    | 
|                                 |               |         | 34,269          |        |                 |           | 100 | %       |          | $ | 21    |           |  |  | 12,276 |       |          |  | 100 | %    |     | $ | 32 |   
|                                 |               |         |                 |        |                 |           |     |         |          |   |       |           |  |  |        |       |          |  |     |      |     |   |    |    | 
|Weighted average market net rent |               |         |                 |        |                 |           |     |         |          | $ | 25    |           |  |  |        |       |          |  |     |      |     | $ | 38 |   
|                                 |               |         |                 |        |                 |           |     |         |          |   |       |           |  |  |        |       |          |  |     |      |     |   |    |    | 

[Additional columns below]

[Continued from above table, first column(s) repeated]

|                                 |               |         |                           |       |                          |           |     |         |          |   |       |    |  |   |       |           |  |  |  |  |          |  |     |      |     |   |    |    | 
|-------------------------------- | ------------- | ------- | ------------------------- | ----- | ------------------------ | --------- | --- | ------- | -------- | - | ----- | -- |  | - | ----- | --------- |  |  |  |  | -------- |  | --- | ---- | --- | - | -- | -- | 
|                                 |               |         | Toronto/Calgary/Vancouver |       | Denver/Minneapolis/Other
|                                 |               |         |                           |       |                         
|                                 |               |         |                           |       |                          |           |     |         |          |   | Net   |    |  |   |       |           |  |  |  |  |          |  |     |      | Net
|                                 |               |         | 000s                     |       |                          |           |     |         | Rate per |   | 000s |    |  |   |       |           |  |  |  |  | Rate per
|Year of Expiry                   |               | Sq. Ft. |                           | %     |                          | Sq. Ft.-$ |     | Sq. Ft. |          |   |       |    |  | % |       | Sq. Ft.-$
|                                 |               |         |                           |       |                          |           |     |         |          |   |       |    |  |   |       |          
|Currently Available              |               |         | 412                       |       |                          |           | 2.9 | %       |          |   |       |    |  |   | 668   |           |  |  |  |  |          |  | 8.9 | %    |     |   |    |   
|                                 | 2003          |         |                           | 274   |                          |           |     | 1.9     | %        |   | $     | 13 |  |   |       | 722       |  |  |  |  |          |  |     | 9.6  | %   |   | $  | 12 | 
|                                 | 2004          |         |                           | 372   |                          |           |     | 2.6     | %        |   |       | 12 |  |   |       | 445       |  |  |  |  |          |  |     | 5.9  | %   |   |    | 12 | 
|                                 | 2005          |         |                           | 1,344 |                          |           |     | 9.3     | %        |   |       | 17 |  |   |       | 516       |  |  |  |  |          |  |     | 6.8  | %   |   |    | 16 | 
|                                 | 2006          |         |                           | 829   |                          |           |     | 5.7     | %        |   |       | 9  |  |   |       | 861       |  |  |  |  |          |  |     | 11.4 | %   |   |    | 13 | 
|                                 | 2007          |         |                           | 518   |                          |           |     | 3.6     | %        |   |       | 14 |  |   |       | 413       |  |  |  |  |          |  |     | 5.5  | %   |   |    | 14 | 
|                                 | 2008          |         |                           | 583   |                          |           |     | 4.0     | %        |   |       | 13 |  |   |       | 565       |  |  |  |  |          |  |     | 7.5  | %   |   |    | 16 | 
|                                 | 2009          |         |                           | 426   |                          |           |     | 2.9     | %        |   |       | 16 |  |   |       | 239       |  |  |  |  |          |  |     | 3.2  | %   |   |    | 15 | 
|                                 | 2010 & beyond |         |                           | 9,695 |                          |           |     | 67.1    | %        |   |       | 14 |  |   |       | 3,111     |  |  |  |  |          |  |     | 41.2 | %   |   |    | 12 | 
|                                 |               |         |                           |       |                          |           |     |         |          |   |       |    |  |   |       |           |  |  |  |  |          |  |     |      |     |   |    |    | 
|                                 |               |         | 14,453                    |       |                          |           | 100 | %       |          | $ | 14    |    |  |   | 7,540 |           |  |  |  |  |          |  | 100 | %    |     | $ | 12 |   
|                                 |               |         |                           |       |                          |           |     |         |          |   |       |    |  |   |       |           |  |  |  |  |          |  |     |      |     |   |    |    | 
|Weighted average market net rent |               |         |                           |       |                          |           |     |         |          | $ | 18    |    |  |   |       |           |  |  |  |  |          |  |     |      |     | $ | 13 |   
|                                 |               |         |                           |       |                          |           |     |         |          |   |       |    |  |   |       |           |  |  |  |  |          |  |     |      |     |   |    |    | 

Tenant installation costs and
capital expenditures

On the majority of leases signed, Brookfield provides tenant improvements for
leased space in order to accommodate the specific space requirements of the
tenant. In addition to this capital, leasing commissions are paid to
third-party brokers representing tenants in lease negotiations. Tenant
improvement costs are capitalized in the year incurred, amortized over the term
of the lease and recovered through rental payments. Expenditures for tenant
improvements in 2002 were $49 million, compared with the $50 million expended
in 2001 and $97 million in 2000 due to fewer leases expiring or being
renegotiated in advance of their contractual maturity.

On an annual basis, one to two million square feet of leases expire with an
average cost to replace these tenancies approximating $15 to $20 per square
foot, with each region of operation varying in actual cost per foot. The
average expenditure on tenant inducements over the last three years was $19 per
square foot, reflecting the higher cost associated with New York leasing, where
the majority of leasing during that period occurred. Tenant installation costs
are summarized as follows:

|                                              |  |      |    |      |  |      |    |  |  |   |    | 
|--------------------------------------------- |  | ---- | -- | ---- |  | ---- | -- |  |  | - | -- | 
|(Millions)                                    |  | 2002 |    | 2001 |  | 2000
|                                              |  |      |    |      |  |     
|Commercial property tenant improvements       |  |      |    |      |  |      |    |  |  |   |    | 
|Leasing commissions                           |  | $    | 9  |      |  | $    | 15 |  |  | $ | 28 | 
|Tenant improvements  first generation space  |  |      | 2  |      |  |      |   |  |  |   |   | 
|Tenant improvements  second generation space |  |      | 38 |      |  |      | 35 |  |  |   | 69 | 
|                                              |  |      |    |      |  |      |    |  |  |   |    | 
|                                              |  | $    | 49 |      |  | $    | 50 |  |  | $ | 97 | 
|                                              |  |      |    |      |  |      |    |  |  |   |    | 

Brookfield also invests in ongoing maintenance and capital improvement projects
to sustain the high quality of the infrastructure and tenant service amenities
in its properties. Due to the relatively recent construction or major
renovation of Brookfields core properties as well as high-quality construction
standards, recurring capital maintenance expenditures are lower than industry
norms. Capital maintenance expenditures totaled $16 million in 2002, an
increase of $2 million over 2001 due to re-glazing programs in two properties
in Calgary. These expenditures exclude repairs and maintenance costs which are
recovered through contractual tenant cost recovery payments. It is expected
that annualized non-revenue enhancing capital expenditures will remain
approximately $6 to $10 million annually.

22





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##### 



Revenue-enhancing capital expenditures, representing betterments to an asset or
those that will reconfigure space to increase rentable area or increase current
rental rates, as well as non-revenue enhancing expenditures, or those required
to maintain the service life of an asset, are summarized as follows:

|                      |  |      |    |      |  |      |    |  |  |   |    | 
|--------------------- |  | ---- | -- | ---- |  | ---- | -- |  |  | - | -- | 
|(Millions)            |  | 2002 |    | 2001 |  | 2000
|                      |  |      |    |      |  |     
|Capital expenditures  |  |      |    |      |  |      |    |  |  |   |    | 
|Revenue enhancing     |  | $    | 10 |      |  | $    | 8  |  |  | $ | 9  | 
|Non-revenue enhancing |  |      | 6  |      |  |      | 6  |  |  |   | 3  | 
|                      |  |      |    |      |  |      |    |  |  |   |    | 
|                      |  | $    | 16 |      |  | $    | 14 |  |  | $ | 12 | 
|                      |  |      |    |      |  |      |    |  |  |   |    | 

DEVELOPMENT PROPERTIES
Development properties consist of both commercial property development sites,
density rights and related infrastructure, as well as residential land and
infrastructure in the companys land development business and sold to builders
for residential resale. The total book value of this development land and
infrastructure was $944 million at December 31, 2002, an addition of $369
million over $575 million in 2001 and an increase of $575 million over $369
million in 2000. The majority of the increase in development properties is due
to the acquisition of a 51% interest in Three World Financial Center in Lower
Manhattan for $158 million in September 2002 and $197 million in additional
expenditures related to the construction costs for the companys 300 Madison
Avenue project in Midtown Manhattan, expected to be completed in the fall of
2003. The aggregate book value of Brookfields residential land under
development is $224 million. The details of the development property portfolio
are as follows:

|                                                |                |         |           |           |  |      |     |        |  |   |     |  |  |   |     |   | 
|----------------------------------------------- | -------------- | ------- | --------- | --------- |  | ---- | --- | ------ |  | - | --- |  |  | - | --- | - | 
|                                                |                |         | Buildable |           |  |      |     |        |  |   |     |  |  |   |    
|(Millions)                                      |                | Sq. Ft. |           | 2002      |  | 2001 |     | Change
|                                                |                |         |           |           |  |      |     |       
|Commercial developments and infrastructure      |                |         |           |           |  |      |     |        |  |   |     |  |  |   |     |  
|300 Madison Avenue                              |                |         | 1,200,000 |           |  | $    | 437 |        |  | $ | 240 |  |  | $ | 197 |  
|Three World Financial Center                    |                |         | 1,200,000 |           |  |      | 170 |        |  |   |    |  |  |   | 170 |  
|Bay-Adelaide Centre                             |                |         | 1,800,000 |           |  |      | 72  |        |  |   | 68  |  |  |   | 4   |  
|Hudsons Bay Centre                             |                |         | 1,092,000 |           |  |      | 20  |        |  |   | 14  |  |  |   | 6   |  
|Other                                           |                |         |           |           |  |      |     |        |  |   |     |  |  |   |     |  
|                                                | Penn Station   |         |           | 2,500,000 |  |      |     |        |  |   |     |  |  |   |     |   | 
|                                                | BCE Place III  |         |           | 800,000   |  |      |     |        |  |   |     |  |  |   |     |   | 
|                                                | Republic Plaza |         |           | 400,000   |  |      |     |        |  |   |     |  |  |   |     |   | 
|                                                |                |         |           |           |  |      |     |        |  |   |     |  |  |   |     |  
|                                                |                |         | 3,700,000 |           |  |      | 21  |        |  |   | 22  |  |  |   | (1  | )
|                                                |                |         |           |           |  |      |     |        |  |   |     |  |  |   |     |  
|                                                |                |         | 8,992,000 | *         |  |      | 720 |        |  |   | 344 |  |  |   | 376 |  
|Residential development land and infrastructure |                |         |           |           |  |      | 224 |        |  |   | 231 |  |  |   | (7  | )
|                                                |                |         |           |           |  |      |     |        |  |   |     |  |  |   |     |  
|                                                |                |         |           |           |  | $    | 944 |        |  | $ | 575 |  |  | $ | 369 |  
|                                                |                |         |           |           |  |      |     |        |  |   |     |  |  |   |     |  

*     Excludes rights which Brookfield holds on Site 26 at the World Financial
Center in New York

In September 2002, Brookfield acquired 1.2 million square feet of space in the
2.1 million square foot Three World Financial Center tower which is home to the
world headquarters of co-owner American Express. Brookfield has exclusive
rights to lease 1.2 million square feet of space and is not entitled to rents
attributable to the space occupied by American Express. Three World Financial
Center was acquired with all repairs completed to damage sustained as a result
of the collapse of the World Trade Center. However, substantial construction
remains to be completed prior to occupancy and will not proceed until a lead
tenant can be secured. As such, this property has been classified as a property
under development, and all direct costs of the tower, including interest costs
and property taxes, will be capitalized to the asset.

During 2001, Brookfield commenced construction of the approximately 1.2 million
square foot, 35-story 300 Madison Avenue office tower in Midtown Manhattan
following the leasing of the entire project to CIBC for a 30-year term. Ground
breaking on the site, which is located between 41st and 42nd Streets at Madison
Avenue, took place in the spring of 2001, with substantial completion currently
expected in the fall of 2003. During 2002, an additional $197 million of costs
were incurred in connection with the construction of the project and was funded
through a loan secured by the project, thereby minimizing Brookfields equity
investment. CIBC has an option to acquire a 49% interest in this project for
cost for two years following the substantial completion of the project.

In February 2001, Brookfield acquired a 50% interest in the Bay-Adelaide Centre
office and residential development project, located at the corner of Bay and
Adelaide Streets in downtown Toronto, for an initial investment of $40 million.
Brookfield subsequently acquired two small buildings adjacent to the site
fronting Bay Street to further enhance the value of the project.

23





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##### 



In addition to 300 Madison Avenue and Three World Financial Center in New York,
as well as the Bay-Adelaide Centre in Toronto, Brookfield has additional
commercial development sites which provide internal growth opportunities. The
status of each development project is as follows:

|                             |  |                                          |  |           |  |                   |   |        |  |                                                                    
|---------------------------- |  | ---------------------------------------- |  | --------- |  | ----------------- | - | ------ |  | -------------------------------------------------------------------
|                             |  | Location                                 |  | Ownership |  | Sq. Ft.           |   | Status
|                             |  |                                          |  |           |  |                   |   |       
|New York                     |  |                                          |  |           |  |                   |   |        |  |                                                                    
|                            
|300 Madison Avenue           |  | 42nd Street at Madison Avenue            |  | 100%      |  | 1,200,000         |   |       |  | Under construction; expected
delivery in fall 2003                 
|                             |  |                                          |  |           |  |                   |   |        |  |                                                                    
|Three World Financial Center |  | 200 Vesey Street at West Street          |  | 100%      |  | 1,200,000         |   |       |  | Under redevelopment                                                
|                            
|Penn Station                 |  | West 31st Street at 9th Avenue           |  | 100%      |  | 2,500,000         |   |       |  | Potentially being zoned for 2.5
million square feet of office      
|                             |  |                                          |  |           |  |                   |   |        |  |                                                                    
|Toronto                      |  |                                          |  |           |  |                   |   |        |  |                                                                    
|                            
|Bay-Adelaide Centre          |  | Bay and Adelaide Streets                 |  | 50%       |  | 1,000,000
800,000 |   | 
    |  | Office tower planning
Sale or joint venture for
residential project
|                             |  |                                          |  |           |  |                   |   |        |  |                                                                    
|BCE Place III                |  | Third tower of current
BCE Place project |  | 65%       |  | 800,000           |   |       |  | Planning                                                           
|                             |  |                                          |  |           |  |                   |   |        |  |                                                                    
|Hudsons Bay Centre          |  | Yonge and Bloor Streets                  |  | 25%       |  | 1,092,000         |   |       |  | Office and retail projects
under redevelopment                     
|                             |  |                                          |  |           |  |                   |   |        |  |                                                                    
|No. 10 Bellair               |  | Bloor and Bellair Streets                |  | 50%       |  | 400,000           |   |       |  | Residential condominiums,
retail complex                           
|                             |  |                                          |  |           |  |                   |   |        |  |                                                                    
|Denver                       |  |                                          |  |           |  |                   |   |        |  |                                                                    
|                            
|Republic Plaza               |  | Downtown Denver                          |  | 100%      |  | 400,000
9,392,000 | * |       |  | Planning                                                           
|                             |  |                                          |  |           |  |                   |   |        |  |                                                                    

*     Excludes rights which Brookfield holds on Site 26 at the World Financial
Center in New York

Brookfields land development operations are focused in four markets: Calgary,
Alberta; Toronto, Ontario; Edmonton, Alberta; and Denver, Colorado. The book
value of these investments at December 31, 2002 was $224 million, compared with
$231 million at the end of 2001.

RECEIVABLES AND OTHER
Receivables and other assets decreased to $769 million at December 31, 2002,
down from $847 million at December 31, 2001 and $1,017 million in 2000 as a
result of decreases in the companys future income tax assets as tax losses are
utilized to shelter taxable income, and from repayments received on a
subordinated note with Brookfield Homes which had a balance of $98 million at
December 31, 2002, $215 million at the end of 2001 and $261 million at the end
of 2000. The note bears interest at 10%, is due in 2005 and is subordinated to
all other obligations of Brookfield Homes. The components of receivables and
other assets are as follows:

|                                          |  |      |     |      |  |      |     |  |  |   |       | 
|----------------------------------------- |  | ---- | --- | ---- |  | ---- | --- |  |  | - | ----- | 
|(Millions)                                |  | 2002 |     | 2001 |  | 2000
|                                          |  |      |     |      |  |     
|Real estate mortgages and receivables     |  | $    | 465 |      |  | $    | 506 |  |  | $ | 606   | 
|Non-core real estate assets held for sale |  |      | 51  |      |  |      | 41  |  |  |   | 35    | 
|Prepaid expenses and other assets         |  |      | 210 |      |  |      | 210 |  |  |   | 205   | 
|Future income tax assets                  |  |      | 43  |      |  |      | 90  |  |  |   | 171   | 
|                                          |  |      |     |      |  |      |     |  |  |   |       | 
|Total                                     |  | $    | 769 |      |  | $    | 847 |  |  | $ | 1,017 | 
|                                          |  |      |     |      |  |      |     |  |  |   |       | 

24



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##### 



LIABILITIES AND SHAREHOLDERS INTERESTS

Brookfields asset base of $8.3 billion, or $7.5 billion excluding the
liabilities of Brookfield Homes on a pro forma basis, is financed with a
combination of debt, preferred shares and common equity as follows:

|                                       |                                               |      |            |       |  |      |       |       |  |   |       |       |  |   |       |       | 
|-------------------------------------- | --------------------------------------------- | ---- | ---------- | ----- |  | ---- | ----- | ----- |  | - | ----- | ----- |  | - | ----- | ----- | 
|                                       |                                               |      | Pro forma* |       |  |      |       |       |  |   |       |       |  |   |      
|(Millions)                             |                                               | 2002 |            | 2002  |  | 2001 |       | 2000 
|                                       |                                               |      |            |       |  |      |       |      
|Commercial property debt               |                                               | $    | 4,038      |       |  | $    | 4,038 |       |  | $ | 4,376 |       |  | $ | 4,542 |      
|Commercial development property debt   |                                               |      | 550        |       |  |      | 550   |       |  |   | 230   |       |  |   | 160   |      
|Accounts payable and other liabilities |                                               |      | 429        |       |  |      | 429   |       |  |   | 460   |       |  |   | 1,031 |      
|Liabilities of Brookfield Homes        |                                               |      |           |       |  |      | 556   |       |  |   | 583   |       |  |   | 549   |      
|Shareholders interests                |                                               |      |            |       |  |      |       |       |  |   |       |       |  |   |       |      
|                                       | Interest of others in properties              |      |            | 84    |  |      |       | 84    |  |   |       | 113   |  |   |       | 159   | 
|                                       | Preferred
shares  corporate and subsidiaries |      |            | 579   |  |      |       | 579   |  |   |       | 585   |  |   |       | 607   | 
|                                       | Convertible debentures                        |      |            |      |  |      |       |      |  |   |       |      |  |   |       | 50    | 
|                                       | Common shares                                 |      |            | 1,770 |  |      |       | 2,093 |  |   |       | 1,944 |  |   |       | 1,787 | 
|                                       |                                               |      |            |       |  |      |       |       |  |   |       |       |  |   |       |      
|                                       |                                               | $    | 7,450      |       |  | $    | 8,329 |       |  | $ | 8,291 |       |  | $ | 8,885 |      
|                                       |                                               |      |            |       |  |      |       |       |  |   |       |       |  |   |       |      

|* |  | Reflects the distribution of Brookfield Homes completed on January 6, 2003
|- |  | --------------------------------------------------------------------------

Commercial property and commercial development property debt

Total commercial property debt was $4.0 billion at December 31, 2002, compared
with $4.4 billion at December 31, 2001 and $4.5 billion at the end of 2000.
During 2002, sales of participating interests and the impact of contractual
principal amortizations reduced debt by $518 million, offset by $180 million of
additional financing on remaining assets. The commercial property debt at
December 31, 2002 had an average interest rate of 7% and an average term to
maturity of 10 years. Virtually all of Brookfields commercial property debt is
recourse only to specific properties, thereby reducing the overall financial
risk to the company. Commercial property debt maturities for the next five
years are as follows:

|                    |  |               |     |            |  |       |       |               |  |   |       |                  |  |                  |     |  
|------------------- |  | ------------- | --- | ---------- |  | ----- | ----- | ------------- |  | - | ----- | ---------------- |  | ---------------- | --- | -
|                    |  |               |     |            |  |       |       |               |  |   |       |                  |  | Weighted Average
|(Millions)          |  | Scheduled     |     |            |  |       |       |               |  |   |       | Interest Rate at
|Year                |  | Amortizations |     | Maturities |  | Total |       | Dec. 31, 2002
|                    |  |               |     |            |  |       |       |              
|2003                |  | $             | 97  |            |  | $     | 482   |               |  | $ | 579   |                  |  |                  | 7.5 | %
|2004                |  |               | 114 |            |  |       | 24    |               |  |   | 138   |                  |  |                  | 6.7 | %
|2005                |  |               | 122 |            |  |       | 128   |               |  |   | 250   |                  |  |                  | 6.0 | %
|2006                |  |               | 130 |            |  |       | 178   |               |  |   | 308   |                  |  |                  | 8.1 | %
|2007                |  |               | 134 |            |  |       | 145   |               |  |   | 279   |                  |  |                  | 7.0 | %
|2008 and thereafter |  |               |    |            |  |       | 2,484 |               |  |   | 2,484 |                  |  |                  | 6.9 | %
|                    |  |               |     |            |  |       |       |               |  |   |       |                  |  |                  |     |  
|                    |  | $             | 597 |            |  | $     | 3,441 |               |  | $ | 4,038 |                  |  |                  | 7.0 | %
|                    |  |               |     |            |  |       |       |               |  |   |       |                  |  |                  |     |  

The only significant maturity in the next five years is a $402 million
non-recourse mortgage on One World Financial Center. It is expected that this
mortgage will be refinanced on a short-term, floating rate basis with partial
recourse, to facilitate flexibility in tenant discussions on this project and
to minimize borrowing costs.

Total commercial development property debt was $550 million at December 31,
2002 compared with $230 million at December 31, 2001 and $160 million at the
end of 2000. The increase is due in part to debt incurred of $150 million on
the acquisition of Three World Financial Center. The 300 Madison Avenue
development project was refinanced for a 30-year term in April 2002 for $400
million.

25





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##### 



The largest property and development property mortgages, in order of maturity,
are as follows:

|                                                    |  |             |  |   |      |          |  |            |      |                  |  |               |     |            |       |                          |  |               |  | 
|--------------------------------------------------- |  | ----------- |  | - | ---- | -------- |  | ---------- | ---- | ---------------- |  | ------------- | --- | ---------- | ----- | ------------------------ |  | ------------- |  | 
|                                                    |  |             |  |   |      |          |  |            |      |                  |  |               |     | Brookfield |       |                          |  |              
|                                                    |  |             |  |   |      | Interest |  |            |      |                  |  | Proportionate |     |            |       |                         
|                                                    |  |             |  |   |      | Rate     |  | Maturity   |      | Mortgage Share   |  |               |     |           
|Commercial Property                                 |  | Location    |  | % |      | Date     |  | (Millions) |      | Mortgage Details
|                                                    |  |             |  |   |      |          |  |            |      |                 
|One World Financial Center                          |  | New York    |  |   | 7.51 |          |  |            | 2003 |                  |  | $             | 402 |            |       | Non-recourse, fixed rate
|Republic Plaza                                      |  | Denver      |  |   | 9.00 |          |  |            | 2006 |                  |  |               | 192 |            |       | Non-recourse, fixed rate
|Canada Trust Tower                                  |  | Toronto     |  |   | 7.07 |          |  |            | 2007 |                  |  |               | 65  |            |       | Non-recourse, fixed rate
|Trade Center Denver                                 |  | Denver      |  |   | 7.00 |          |  |            | 2007 |                  |  |               | 55  |            |       | Non-recourse, fixed rate
|Petro-Canada Centre                                 |  | Calgary     |  |   | 6.66 |          |  |            | 2008 |                  |  |               | 65  |            |       | Non-recourse, fixed rate
|Fifth Avenue Place                                  |  | Calgary     |  |   | 7.59 |          |  |            | 2011 |                  |  |               | 51  |            |       | Non-recourse, fixed rate
|245 Park Avenue                                     |  | New York    |  |   | 6.65 |          |  |            | 2011 |                  |  |               | 500 |            |       | Non-recourse, fixed rate
|One Liberty Plaza                                   |  | New York    |  |   | 6.75 |          |  |            | 2011 |                  |  |               | 423 |            |       | Non-recourse, fixed rate
|Exchange Tower                                      |  | Toronto     |  |   | 6.83 |          |  |            | 2012 |                  |  |               | 44  |            |       | Non-recourse, fixed rate
|Bay Wellington Tower                                |  | Toronto     |  |   | 6.49 |          |  |            | 2013 |                  |  |               | 232 |            |       | Non-recourse, fixed rate
|Two World Financial Center                          |  | New York    |  |   | 6.91 |          |  |            | 2013 |                  |  |               | 786 |            |       | Non-recourse, fixed rate
|Four World Financial Center                         |  | New York    |  |   | 6.95 |          |  |            | 2013 |                  |  |               | 427 |            |       | Non-recourse, fixed rate
|Bankers Hall                                        |  | Calgary     |  |   | 7.20 |          |  |            | 2013 |                  |  |               | 118 |            |       | Non-recourse, fixed rate
|Royal Centre                                        |  | Vancouver   |  |   | 7.50 |          |  |            | 2022 |                  |  |               | 35  |            |       | Non-recourse, fixed rate
|53 State Street                                     |  | Boston      |  |   | 6.91 |          |  |            | 2023 |                  |  |               | 78  |            |       | Non-recourse, fixed rate
|33 South Sixth Street                               |  | Minneapolis |  |   | 6.83 |          |  |            | 2027 |                  |  |               | 127 |            |       | Non-recourse, fixed rate
|Dain Plaza                                          |  | Minneapolis |  |   | 7.37 |          |  |            | 2027 |                  |  |               | 85  |            |       | Non-recourse, fixed rate
|75 State Street                                     |  | Boston      |  |   | 7.00 |          |  |            | 2028 |                  |  |               | 90  |            |       | Non-recourse, fixed rate
|300 Madison Avenue                                  |  | New York    |  |   | 7.26 |          |  |            | 2032 |                  |  |               | 400 |            |       | Non-recourse, fixed rate
|Other property mortgages                            |  |             |  |   |      |          |  |            |      |                  |  |               |     |            | 413   |                          |  | Various terms
|                                                    |  |             |  |   |      |          |  |            |      |                  |  |               |     |            |       |                          |  |               |  | 
|Total commercial and
development property
mortgages |  |             |  |   |      |          |  |            |      |                  |  |               |     | $          | 4,588 |                          |  |               |  | 
|                                                    |  |             |  |   |      |          |  |            |      |                  |  |               |     |            |       |                          |  |               |  | 

During 2002, Brookfield refinanced $454 million of commercial property and
development property mortgages following the successful completion of
value-enhancement programs. These refinancings included the following:

|                     |  |          |     |            |  |               |     |               |  |  |      |   |  |  |      |  
|-------------------- |  | -------- | --- | ---------- |  | ------------- | --- | ------------- |  |  | ---- | - |  |  | ---- | -
|                     |  | Previous |     | Refinanced |  | Previous      |     | Refinanced   
|Property (Millions)  |  | Mortgage |     | Mortgage   |  | Interest Rate |     | Interest Rate
|                     |  |          |     |            |  |               |     |              
|300 Madison Avenue   |  | $        | 230 |            |  | $             | 400 |               |  |  | 8.00 | % |  |  | 7.26 | %
|Bay Wellington Tower |  |          | 187 |            |  |               | 232 |               |  |  | 6.40 | % |  |  | 6.49 | %
|Trade Center Denver  |  |          | 37  |            |  |               | 55  |               |  |  | 7.00 | % |  |  | 7.00 | %
|                     |  |          |     |            |  |               |     |               |  |  |      |   |  |  |      |  
|                     |  | $        | 454 |            |  | $             | 687 |               |  |  | 7.26 | % |  |  | 6.98 | %
|                     |  |          |     |            |  |               |     |               |  |  |      |   |  |  |      |  

The refinancing of 300 Madison Avenue was completed with two tranches; the
first $400 million refinanced the initial construction loan and provided
additional proceeds to advance construction of the project. A second tranche,
estimated to be approximately $160 million, will be funded through a commercial
paper conduit facility and will be drawn to finance completion of the project.
The final balance of this financing is subject to costs to complete the
construction of this project.

Accounts payable and other liabilities

Accounts payable and other liabilities totaled $429 million, compared with $460
million in 2001. Advances represent credit facilities which are primarily
recourse in nature to subsidiaries of the company and totaled $183 million in
2002, compared with $241 million in 2001. Total debt attributable to the land
development business at December 31, 2002 was $85 million, compared with $126
million in 2001. This financing carried an average interest rate of 4.8% and
relates to construction and development loans which are repaid from the sales proceeds of building lots and homes and other short-term
advances. As new homes are constructed, loans are funded on a rolling basis.

Shareholder advances, included in these balances, bear interest at floating
rates and can be drawn under a five-year termable revolving facility. Up to
$150 million of this facility is convertible at either partys option into
fixed-rate financing at 9.75% repayable in 2015.

26





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##### 



Interests of others in properties

In addition to 100% owned subsidiaries, Brookfield conducts its commercial
property operations through BPO Properties in Canada and through Brookfield
Financial Properties, which holds the majority of companys interests in its
New York and Boston assets. The following table details the components of
interests of other shareholders as follows:

|                                |  |      |    |      |  |      |     |  |  |   |     | 
|------------------------------- |  | ---- | -- | ---- |  | ---- | --- |  |  | - | --- | 
|(Millions)                      |  | 2002 |    | 2001 |  | 2000
|                                |  |      |    |      |  |     
|BPO Properties                  |  | $    | 64 |      |  | $    | 52  |  |  | $ | 49  | 
|Brookfield Financial Properties |  |      | 20 |      |  |      | 61  |  |  |   | 110 | 
|                                |  |      |    |      |  |      |     |  |  |   |     | 
|                                |  | $    | 84 |      |  | $    | 113 |  |  | $ | 159 | 
|                                |  |      |    |      |  |      |     |  |  |   |     | 

The interests of other shareholders in Brookfield Financial Properties declined
in 2002 due to the redemption of one of the partners of Brookfield Financial
Properties for $56 million. Following the redemption, each of the remaining
partners percentage interest increased on a pro rata basis, with the companys
ownership interest increasing to 98.5%.

The decrease in the interests owned by other shareholders at December 31, 2001
compared with December 31, 2000 resulted from Brookfield increasing its
interest in Brookfield Financial Properties to 94.7% in June 2001 for a net
investment of $60 million.

Preferred shares  corporate and subsidiaries

The company has $579 million of preferred equity outstanding as at December 31,
2002  $238 million issued by Brookfield and $341 million issued by
consolidated subsidiaries. This equity represents low cost capital for the
company, without dilution to the common equity base. Dividends paid on
preferred shares of the company are accounted for as capital distributions
while dividends paid on preferred shares issued by subsidiaries are a component
of minority interest expense. The details of these interests are as follows:

|                                                   |                         |      |     |      |  |      |     |     |  |   |     |     | 
|-------------------------------------------------- | ----------------------- | ---- | --- | ---- |  | ---- | --- | --- |  | - | --- | --- | 
|(Millions)                                         |                         | 2002 |     | 2001 |  | 2000
|                                                   |                         |      |     |      |  |     
|Redeemable preferred shares issued by subsidiaries |                         |      |     |      |  |      |     |     |  |   |     |    
|                                                   | BPO Properties          |      | $   | 241  |  |      | $   | 240 |  |   | $   | 256 | 
|                                                   | 100%-owned subsidiaries |      |     | 100  |  |      |     | 99  |  |   |     | 105 | 
|                                                   |                         |      |     |      |  |      |     |     |  |   |     |     | 
|                                                   |                         |      | 341 |      |  |      | 339 |     |  |   | 361 |    
|Preferred shares issued by Brookfield              |                         |      | 238 |      |  |      | 246 |     |  |   | 246 |    
|                                                   |                         |      |     |      |  |      |     |     |  |   |     |     | 
|                                                   |                         | $    | 579 |      |  | $    | 585 |     |  | $ | 607 |    
|                                                   |                         |      |     |      |  |      |     |     |  |   |     |     | 

During 2002, the company issued eight million Class AAA, Series F preferred
shares at a price of C$25.00 per share to yield 6% per annum. The net proceeds
were used to redeem C$200 million of Class AAA preferred shares outstanding
with an average coupon of 8.75% and held by Brascan Corporation. The Series F
preferred shares commenced trading on the Toronto Stock Exchange on September
25, 2002 under the symbol BPO.PR.F with the first dividend on this new issue
being paid on December 31, 2002. $67 million of Brookfields preferred shares
have exchange features which permit holders to tender them as currency in
subscribing for common shares at the prevailing issue price under any share
offerings completed by the company.

Subordinated convertible debentures

There are no subordinated convertible debentures outstanding at the end of 2002
or 2001. In August 2001, $50 million of 6% convertible debentures, due in June
2008, were converted into 2,622,100 common shares of the company in accordance
with their terms. In June 2000, Brookfields February 2007, 6% convertible
debentures, with a face value of $201 million, were converted into 19,986,682
common shares in accordance with their terms.

27





---



##### 



Common shares

The company has 160.4 million issued and outstanding common shares. On a fully
diluted basis, the company has 163.9 million common shares outstanding,
calculated as follows:

|                                          |                        |  |             |           |       |  |          |       |      |  |             |           |  |  |             |           |  |  |             |           | 
|----------------------------------------- | ---------------------- |  | ----------- | --------- | ----- |  | -------- | ----- | ---- |  | ----------- | --------- |  |  | ----------- | --------- |  |  | ----------- | --------- | 
|                                          |                        |  |             |           |       |  | Exercise |       |      |  |             |           |  |  |             |           |  |  |            
|                                          |                        |  | Expiry Date |           | Price |  | 2002     |       | 2001 |  | 2000       
|                                          |                        |  |             |           |       |  |          |       |      |  |            
|Common shares outstanding                 |                        |  |             |           |       |  |          |       |      |  | 160,364,416 |           |  |  | 161,678,406 |           |  |  | 158,746,008 |          
|Add:                                      |                        |  |             |           |       |  |          |       |      |  |             |           |  |  |             |           |  |  |             |          
|                                          | Unexercised options    |  |             | 20082012 |       |  | $        | 12.99 |      |  |             | 3,504,791 |  |  |             | 3,282,889 |  |  |             | 3,436,529 | 
|                                          | Convertible debentures |  |             | 2008      |       |  | $        | 19.07 |      |  |             |          |  |  |             |          |  |  |             | 2,622,100 | 
|                                          | Warrants               |  |             | May 2003  |       |  | $        | 8.51  |      |  |             | 64,000    |  |  |             | 121,997   |  |  |             | 2,621,997 | 
|                                          |                        |  |             |           |       |  |          |       |      |  |             |           |  |  |             |           |  |  |             |          
|Common
shares outstanding  fully diluted |                        |  |             |           |       |  |          |       |      |  | 163,933,207 |           |  |  | 165,083,292 |           |  |  | 167,426,634 |          
|                                          |                        |  |             |           |       |  |          |       |      |  |             |           |  |  |             |           |  |  |             |          
|Common shares repurchased                 |                        |  |             |           |       |  |          |       |      |  | 1,385,900   |           |  |  | 2,402,700   |           |  |  | 1,586,300   |          
|                                          |                        |  |             |           |       |  |          |       |      |  |             |           |  |  |             |           |  |  |             |          

The fully diluted book value per common share at December 31, 2002 was $13.07
per share compared with $12.02 at December 31, 2001 and $11.34 at December 31,
2000. The book value of Brookfields common equity was $2.1 billion at December
31, 2002, compared with a market equity capitalization of $3.5 billion,
calculated as total common shares multiplied by $20.20, the closing price per
common share on the New York Stock Exchange on December 31, 2002, plus
preferred shares outstanding. This is prior to considering the impact of the
distribution of Brookfield Homes which will reduce the companys book equity by
$323 million, or approximately $2 per share.

In September 2002, Brookfield renewed its normal course issuer bid which
permitted the company to acquire up to 5% of the common shares of Brookfield.
During 2002, 1,385,900 of the common shares were acquired at an average price
of $18.49. Between January 1, 2003 and February 4, 2003, Brookfield has
acquired a further 150,600 shares at an average price of $18.18 per share.

During 2002, 57,997 common shares were issued on the exercise of warrants.
During 2001, 2,622,100 common shares were issued as a result of the conversion
of the June 2008, 6% convertible debentures, and a further 2,500,000 common
shares were issued on the exercise of warrants to purchase common shares.

Pursuant to the distribution of Brookfield Homes on January 6, 2003, the Board
of Directors approved a methodology for adjusting downward the exercise price
of all outstanding stock options at that date, to give effect to this
distribution. This methodology, developed in consultation with the Toronto
Stock Exchange, resulted in the exercise price of all outstanding stock options
being reduced by $1.00 effective February 4, 2003. In addition, the exercise
price of the outstanding warrants were adjusted downward by C$1.56 in
accordance with their terms.

Discontinued operations

On October 29, 2002, the Board of Directors approved the special distribution
of the companys U.S. residential home building business, Brookfield Homes
Corporation (Brookfield Homes). Brookfield Homes commenced trading on the
NYSE under the symbol BHS on January 7, 2003. This transaction allows
Brookfield to focus on its core business of owning and operating premier office
properties in select North American city centers, as well as enabling
shareholders to maximize the value of their interest in Brookfields U.S.
residential home building operations by continuing as a shareholder or
monetizing their investment.

Common shareholders of record on January 2, 2003, received a special
distribution equivalent to one-fifth of a Brookfield Homes share for each
Brookfield common share that they owned. The value of the special dividend,
based on a book value of $323 million of equity, was $2.00 per Brookfield
common share and resulted in a reduction in the stated value of the companys
common equity of $323 million, as approved by the companys shareholders on
December 16, 2002. The company has not retained any common share ownership of
Brookfield Homes, however, it retains a $98 million subordinated note
receivable maturing on December 31, 2005, which bears interest at 10%.

At December 31, 2002, total assets of Brookfield Homes included in the
companys assets were $879 million, an increase of $7 million over 2001 and
$117 million over 2000. These assets are financed at the asset level by $556
million in construction debt facilities, payables and subordinated debt at
December 31, 2002. Reflecting the distribution as if it were completed at
December 31, 2002, the pro forma balance sheet of Brookfield Homes is as
follows:

28





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|                                       |  |      |     |      |  |      |     |  |  |   |     | 
|-------------------------------------- |  | ---- | --- | ---- |  | ---- | --- |  |  | - | --- | 
|(Millions)                             |  | 2002 |     | 2001 |  | 2000
|                                       |  |      |     |      |  |     
|Assets                                 |  |      |     |      |  |      |     |  |  |   |     | 
|Residential housing inventory          |  | $    | 734 |      |  | $    | 749 |  |  | $ | 632 | 
|Development properties                 |  |      | 40  |      |  |      | 18  |  |  |   | 27  | 
|Receivables and other                  |  |      | 105 |      |  |      | 105 |  |  |   | 103 | 
|                                       |  |      |     |      |  |      |     |  |  |   |     | 
|                                       |  | $    | 879 |      |  | $    | 872 |  |  | $ | 762 | 
|                                       |  |      |     |      |  |      |     |  |  |   |     | 
|Liabilities                            |  |      |     |      |  |      |     |  |  |   |     | 
|Residential construction financing     |  | $    | 345 |      |  | $    | 318 |  |  | $ | 219 | 
|Accounts payable and other liabilities |  |      | 113 |      |  |      | 50  |  |  |   | 69  | 
|Subordinated debt                      |  |      | 98  |      |  |      | 215 |  |  |   | 261 | 
|Common shares                          |  |      | 323 |      |  |      | 289 |  |  |   | 213 | 
|                                       |  |      |     |      |  |      |     |  |  |   |     | 
|                                       |  | $    | 879 |      |  | $    | 872 |  |  | $ | 762 | 
|                                       |  |      |     |      |  |      |     |  |  |   |     | 

Contributions to income from discontinued operations are comprised entirely of
the results of operations from Brookfields U.S. residential home building
business. This contribution to total funds from operations increased to $73
million in 2002 from $65 million in 2001 and $50 million in 2000 as continued
low interest rates increased demand for homes in Brookfield Homes markets
throughout California and Northern Virginia. After considering the impact of
future income taxes, Brookfield Homes contributed $44 million to net income, an
increase of 13% over 2001 and 47% over 2000.

LIQUIDITY AND CAPITAL RESOURCES

Brookfield employs a broad range of financing strategies to facilitate growth
and manage financial risk, with particular focus on the overall reduction of
the weighted average cost of capital, thereby enhancing returns for common
shareholders.

Brookfields funds from operations, defined as income from commercial
properties prior to non-cash taxes and depreciation, represents the primary
source of liquidity to fund debt service, dividend payments, and recurring
capital and leasing costs in our commercial property portfolio. Sufficient
cashflows are generated by the companys properties to service these
obligations. In addition, Brookfields tax status as a corporation and
substantial tax loss pools allow it to reinvest and retain cash generated by
operations without incurring cash taxes.

During 2002, Brookfield generated in excess of $530 million in additional
capital through the sale of participating interests in select properties and
non-core assets, corporate and property-specific financing initiatives
including the issuance of $123 million in preferred share capital and
establishment of an additional $100 million in term credit facilities. In the
short term, cash generated from these initiatives was utilized to fund
acquisitions, repay corporate debt, redeem higher rate preferred shares and
repurchase common shares.

It is expected that in 2003, in addition to over $250 million of cashflow
generated from operations, the company will generate in excess of $300 million
in additional capital through further sales of participating interests for
reinvestment in the business or common shares of Brookfield.

Cost of capital

Brookfield continually strives to reduce the weighted average cost of capital
and improve common shareholders equity returns through value-enhancement
initiatives and the consistent monitoring of the balance between debt and
equity financing.

Brookfields weighted average cost of capital, utilizing a 20% return on
equity, is 9.73%. Brookfields cost of capital is lower than many of its peers
because of the greater amount of investment-grade financing which can be placed
on the companys assets, a function of the high-quality assets and tenant base
which comprise the majority of Brookfields portfolio.

Commercial property debt assumed by Brookfield is primarily fixed rate and
non-recourse to the company. These investment-grade financings are typically
structured on a 50% to 60% loan to appraised value basis. In addition, in
certain circumstances where a building is leased almost exclusively to a
high-quality tenant, a higher loan to value financing, based on the tenants credit quality, is put
in place at rates commensurate with the cost of funds for the tenant. This
reduces the companys equity requirements to finance the property, and as a
result, enhances equity returns.

29





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##### 



RESULTS OF OPERATIONS
Funds from operations

Funds from operations (FFO) is defined as net income, prior to extraordinary
items, non-cash items and depreciation and amortization of capital assets.
While Brookfield believes that funds from operations is the most relevant
measure to analyze real estate, based on the fact that commercial properties
generally appreciate rather than depreciate, the company believes that both
funds from operations and net income are relevant measures. The company
computes funds from operations in accordance with the definitions of the
National Association of Real Estate Investment Trusts (NAREIT) in the United
States and the Canadian Institute of Public and Private Real Estate Company
(CIPPREC) in Canada. Funds from operations does not represent cash generated
from operating activities determined in accordance with Generally Accepted
Accounting Principles (GAAP) in the United States or Canada and should not be
considered as an alternative to net income determined in accordance with GAAP.

Funds from operations as defined by NAREIT and CIPPREC includes the
contribution from discontinued operations. However, for purposes of
comparability and consistency with current and future financial statement
presentation, the following discussion excludes amounts related to Brookfield
Homes, which has been presented as a discontinued operation in the companys
consolidated financial results.

Brookfields strong tenant base, proactive leasing strategies and gains on
sales of partial interests in the companys core office portfolio contributed
to an increase in funds from continuing operations and gains of 12% to $374
million in 2002, compared with $334 million in 2001. Excluding lease
termination income and gains, funds from continuing operations increased 15% to
$1.87 per share, compared with $1.63 in 2001. Net income from continuing
operations increased by 17% to $236 million or $1.34 per share on a diluted
basis. A summary of the components of Brookfields funds from operations and
net income are as follows:

|                                           |                                                                     |      |       |      |  |      |       |      |  |   |       |      | 
|------------------------------------------ | ------------------------------------------------------------------- | ---- | ----- | ---- |  | ---- | ----- | ---- |  | - | ----- | ---- | 
|(Millions)                                 |                                                                     | 2002 |       | 2001 |  | 2000
|                                           |                                                                     |      |       |      |  |     
|Total revenue                              |                                                                     | $    | 1,372 |      |  | $    | 1,428 |      |  | $ | 1,369 |     
|                                           |                                                                     |      |       |      |  |      |       |      |  |   |       |     
|Net operating income                       |                                                                     |      |       |      |  |      |       |      |  |   |       |     
|                                           | Commercial property operations                                      |      | $     | 660  |  |      | $     | 672  |  |   | $     | 611  | 
|                                           | Development and residential operations                              |      |       | 22   |  |      |       | 20   |  |   |       | 27   | 
|                                           | Interest and other income                                           |      |       | 48   |  |      |       | 42   |  |   |       | 45   | 
|                                           |                                                                     |      |       |      |  |      |       |      |  |   |       |     
|                                           |                                                                     |      | 730   |      |  |      | 734   |      |  |   | 683   |     
|Unallocated costs                          |                                                                     |      | 356   |      |  |      | 400   |      |  |   | 415   |     
|                                           |                                                                     |      |       |      |  |      |       |      |  |   |       |     
|Funds from continuing operations and gains |                                                                     |      | 374   |      |  |      | 334   |      |  |   | 268   |     
|                                           |                                                                     |      |       |      |  |      |       |      |  |   |       |     
|Depreciation and amortization              |                                                                     |      | 80    |      |  |      | 76    |      |  |   | 66    |     
|Non-cash taxes and other provisions        |                                                                     |      | 58    |      |  |      | 56    |      |  |   | 62    |     
|                                           |                                                                     |      |       |      |  |      |       |      |  |   |       |     
|Net income before discontinued operations  |                                                                     | $    | 236   |      |  | $    | 202   |      |  | $ | 140   |     
|                                           |                                                                     |      |       |      |  |      |       |      |  |   |       |     
|Income from discontinued operations        |                                                                     |      | 44    |      |  |      | 39    |      |  |   | 30    |     
|                                           |                                                                     |      |       |      |  |      |       |      |  |   |       |     
|Net income                                 |                                                                     | $    | 280   |      |  | $    | 241   |      |  | $ | 170   |     
|                                           |                                                                     |      |       |      |  |      |       |      |  |   |       |     
|Funds from operations per share  diluted  |                                                                     |      |       |      |  |      |       |      |  |   |       |     
|                                           | Continuing operations  prior to lease termination income and gains |      | $     | 1.87 |  |      | $     | 1.63 |  |   | $     | 1.45 | 
|                                           | Lease termination income and gains                                  |      |       | 0.31 |  |      |       | 0.29 |  |   |       | 0.11 | 
|                                           | Discontinued operations                                             |      |       | 0.45 |  |      |       | 0.40 |  |   |       | 0.32 | 
|                                           |                                                                     |      |       |      |  |      |       |      |  |   |       |     
|                                           |                                                                     | $    | 2.63  |      |  | $    | 2.32  |      |  | $ | 1.88  |     
|                                           |                                                                     |      |       |      |  |      |       |      |  |   |       |     
|Net income per share  diluted             |                                                                     |      |       |      |  |      |       |      |  |   |       |     
|                                           | Continuing operations  prior to lease termination income and gains |      | $     | 1.09 |  |      | $     | 0.90 |  |   | $     | 0.68 | 
|                                           | Lease termination income and gains                                  |      |       | 0.25 |  |      |       | 0.22 |  |   |       | 0.08 | 
|                                           | Discontinued operations                                             |      |       | 0.27 |  |      |       | 0.24 |  |   |       | 0.19 | 
|                                           |                                                                     |      |       |      |  |      |       |      |  |   |       |     
|                                           |                                                                     | $    | 1.61  |      |  | $    | 1.36  |      |  | $ | 0.95  |     
|                                           |                                                                     |      |       |      |  |      |       |      |  |   |       |     

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After providing for preferred share dividends, Brookfields FFO per diluted
share, prior to and including income from lease terminations and gains, is
determined as follows:

|                                     |  |       |       |       |  |           |       |       |  |       |       |           |  |   |       |   |  |           |       |   |  |   |       |  
|------------------------------------ |  | ----- | ----- | ----- |  | --------- | ----- | ----- |  | ----- | ----- | --------- |  | - | ----- | - |  | --------- | ----- | - |  | - | ----- | -
|                                     |  | 2002  |       | 2001  |  | 2000     
|                                     |  |       |       |       |  |          
|                                     |  |       |       |       |  | Excluding |       |       |  |       |       | Excluding |  |   |       |   |  | Excluding
|(Millions, except per share amounts) |  | Total |       | Gains |  | Total     |       | Gains |  | Total |       | Gains    
|                                     |  |       |       |       |  |           |       |       |  |       |       |          
|Funds from continuing operations     |  | $     | 374   |       |  | $         | 322   |       |  | $     | 334   |           |  | $ | 286   |   |  | $         | 268   |   |  | $ | 250   |  
|Preferred share dividends            |  |       | (19   | )     |  |           | (19   | )     |  |       | (19   | )         |  |   | ( 19  | ) |  |           | (20   | ) |  |   | (20   | )
|                                     |  |       |       |       |  |           |       |       |  |       |       |           |  |   |       |   |  |           |       |   |  |   |       |  
|                                     |  | $     | 355   |       |  | $         | 303   |       |  | $     | 315   |           |  | $ | 267   |   |  | $         | 248   |   |  | $ | 230   |  
|                                     |  |       |       |       |  |           |       |       |  |       |       |           |  |   |       |   |  |           |       |   |  |   |       |  
|Weighted average shares outstanding  |  |       | 162.3 |       |  |           | 162.3 |       |  |       | 163.5 |           |  |   | 163.5 |   |  |           | 158.5 |   |  |   | 158.5 |  
|FFO per share                        |  | $     | 2.18  |       |  | $         | 1.87  |       |  | $     | 1.92  |           |  | $ | 1.63  |   |  | $         | 1.56  |   |  | $ | 1.45  |  
|                                     |  |       |       |       |  |           |       |       |  |       |       |           |  |   |       |   |  |           |       |   |  |   |       |  

Net income

Brookfields net income per share from continuing operations increased 20% in
2002, to $1.34 per diluted share including gains and 21% to $1.09 per diluted
share excluding gains, calculated as follows:

|                                      |  |       |       |       |  |           |       |       |  |       |       |           |  |   |       |   |  |           |       |   |  |   |       |  
|------------------------------------- |  | ----- | ----- | ----- |  | --------- | ----- | ----- |  | ----- | ----- | --------- |  | - | ----- | - |  | --------- | ----- | - |  | - | ----- | -
|                                      |  | 2002  |       | 2001  |  | 2000     
|                                      |  |       |       |       |  |          
|                                      |  |       |       |       |  | Excluding |       |       |  |       |       | Excluding |  |   |       |   |  | Excluding
|(Millions, except per share amounts)  |  | Total |       | Gains |  | Total     |       | Gains |  | Total |       | Gains    
|                                      |  |       |       |       |  |           |       |       |  |       |       |          
|Net income from
continuing operations |  | $     | 236   |       |  | $         | 194   |       |  | $     | 202   |           |  | $ | 166   |   |  | $         | 140   |   |  | $ | 128   |  
|Preferred share dividends             |  |       | (19   | )     |  |           | (19   | )     |  |       | (19   | )         |  |   | (19   | ) |  |           | ( 20  | ) |  |   | ( 20  | )
|                                      |  |       |       |       |  |           |       |       |  |       |       |           |  |   |       |   |  |           |       |   |  |   |       |  
|Net income for common shares          |  | $     | 217   |       |  | $         | 175   |       |  | $     | 183   |           |  | $ | 147   |   |  | $         | 120   |   |  | $ | 108   |  
|                                      |  |       |       |       |  |           |       |       |  |       |       |           |  |   |       |   |  |           |       |   |  |   |       |  
|Weighted average shares outstanding   |  |       | 162.3 |       |  |           | 162.3 |       |  |       | 163.5 |           |  |   | 163.5 |   |  |           | 158.5 |   |  |   | 158.5 |  
|Net income per share  diluted        |  | $     | 1.34  |       |  | $         | 1.09  |       |  | $     | 1.12  |           |  | $ | 0.90  |   |  | $         | 0.76  |   |  | $ | 0.68  |  
|                                      |  |       |       |       |  |           |       |       |  |       |       |           |  |   |       |   |  |           |       |   |  |   |       |  

It should be noted that challenges of comparability of net income exist among
various real estate companies, as those entities structured as corporations,
such as Brookfield, are required to charge their earnings with tax expense,
despite the presence of tax losses which reduce the cash tax obligation. This
differs from those entities which operate as real estate investment trusts
(REITS), as REITS are not subject to taxation, provided they remain in
compliance with specific tax codes. If the impact of taxes on net income was
eliminated, net income from continuing operations would increase to $1.70 per
share on a diluted basis in 2002, $1.46 per share on a diluted basis in 2001
and $1.15 per share on a diluted basis in 2000.

Commercial property operations

During 2002, commercial property operations contributed $660 million of
operating income, compared with $672 million in 2001 and $611 million in 2000.
The components of the contribution from the commercial property operations are
as follows:

|                                     |                                          |      |     |      |  |      |     |     |  |   |     |     | 
|------------------------------------ | ---------------------------------------- | ---- | --- | ---- |  | ---- | --- | --- |  | - | --- | --- | 
|(Millions)                           |                                          | 2002 |     | 2001 |  | 2000
|                                     |                                          |      |     |      |  |     
|Commercial property operations       |                                          |      |     |      |  |      |     |     |  |   |     |    
|                                     | Operating income from current properties |      | $   | 585  |  |      | $   | 555 |  |   | $   | 506 | 
|                                     | Operating income from properties sold    |      |     | 15   |  |      |     | 62  |  |   |     | 86  | 
|                                     | Lease termination income and gains       |      |     | 60   |  |      |     | 55  |  |   |     | 19  | 
|                                     |                                          |      |     |      |  |      |     |     |  |   |     |     | 
|Total commercial property operations |                                          | $    | 660 |      |  | $    | 672 |     |  | $ | 611 |    
|                                     |                                          |      |     |      |  |      |     |     |  |   |     |     | 

The financial results for the companys commercial property operations are
discussed in greater detail on page 18 of this report.

Development and residential operations

Earnings from Brookfields development operations are derived solely from the
residential land development operations. Brookfields residential land
development operations are focused on four markets:
Calgary, Alberta; Toronto, Ontario; Edmonton, Alberta; and Denver, Colorado.
Development income increased to $22 million in 2002, compared with $20 million
in 2001 as low interest rates continued to make home ownership very affordable,
therefore increasing demand. Lot and home sales for 2002, including lots sold
to third-party homebuilders, totaled 3,279, compared with 2,278 in 2001 and
2,956 in 2000. With continued low interest rates and strong demand,
contributions from these operations could increase by as much as 10% in 2003.

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Interest and other income

Interest and other income includes interest charged on loans receivable,
interest received on cash balances and transactional gains and losses realized
on the disposal of non-core assets. Interest and other income increased to $48
million in 2002 compared with $42 million in 2001 due to gains realized on the
sale of non-core assets and higher loan balances as a result of the impact of
vendor financing on the sale of selected properties.

Unallocated costs

Unallocated costs were $356 million for the year ended December 31, 2002,
compared with $400 million in 2001. The amounts are comprised of interest
expense, administrative and development expenses and other shareholders
interests, as follows:

Interest expense

Interest expense declined 13% to $284 million in 2002, compared with $328
million in 2001. This decrease is largely a result of the reduction of debt on
the sale of participating interests in the core commercial property portfolio,
offset partially by the placement of higher levels of investment-grade debt on
properties.

Administrative and development expenses

Administrative costs for 2002 declined by $3 million over 2001 and 2000, due to
the reduction in operational overheads in the commercial property group, offset
by $1 million of compensation expense related to stock options granted in 2002.
Brookfield adopted the new Canadian accounting standard effective January 1,
2002 and commenced expensing the cost of stock options. Under this new
accounting policy, opening retained earnings was reduced by $8 million
representing the cumulative cost of the companys stock options granted and
outstanding at January 1, 2002.

Other shareholders interests  expenses

Other shareholders interests in the income from properties, consolidated in
the companys accounts, consist of earnings attributable to properties
represented by the interests not owned by Brookfield in BPO Properties and
Brookfield Financial Properties, as well as dividends on preferred shares of
these and other wholly-owned subsidiaries held by other shareholders.

The following outlines the dividends and earnings paid or attributable to other
shareholders of subsidiaries of Brookfield:

|                                                     |  |                              |  |      |    |      |    |      |    |   |    |   |    |   |    | 
|---------------------------------------------------- |  | ---------------------------- |  | ---- | -- | ---- | -- | ---- | -- | - | -- | - | -- | - | -- | 
|(Millions)                                           |  | Type                         |  | 2002 |    | 2001 |    | 2000
|                                                     |  |                              |  |      |    |      |    |     
|BPO Properties                                       |  | Redeemable preferred shares* |  | $    | 7  |      |    | $    | 11 |   |    | $ | 14 |  
|100%-owned subsidiaries                              |  | Redeemable preferred shares* |  |      | 4  |      |    |      | 5  |   |    |   | 9  |  
|                                                     |  |                              |  |      |    |      |    |      |    |   |    |   |    |  
|Dividends  preferred shares of subsidiaries         |  |                              |  |      |    |      | 11 |      |    |   | 16 |   |    |   | 23 | 
|                                                     |  |                              |  |      |    |      |    |      |    |   |    |   |    |  
|BPO Properties                                       |  | Participating interests      |  |      | 12 |      |    |      | 7  |   |    |   | 7  |  
|Brookfield Financial Properties                      |  | Participating interests      |  |      | 7  |      |    |      | 5  |   |    |   | 16 |  
|Brookfield residential operations                    |  | Participating interests      |  |      |   |      |    |      |   |   |    |   | 1  |  
|                                                     |  |                              |  |      |    |      |    |      |    |   |    |   |    |  
|Other shareholders interests in subsidiary earnings |  |                              |  |      |    |      | 19 |      |    |   | 12 |   |    |   | 24 | 
|                                                     |  |                              |  |      |    |      |    |      |    |   |    |   |    |  
|Total                                                |  |                              |  |      |    | $    | 30 |      |    | $ | 28 |   |    | $ | 47 | 
|                                                     |  |                              |  |      |    |      |    |      |    |   |    |   |    |  



|* |  | Non-participating
|- |  | -----------------

Dividends paid on preferred shares have declined over the past two years from
$23 million in 2000 to $11 million in 2002 due to the decline in interest
rates, as these obligations are floating in nature.

Other shareholders interests increased to $19 million in 2002 from $12 million
in 2001 due to the gains realized on sales of participating interests in assets
held by BPO Properties, specifically Exchange Tower in Toronto and Bankers Hall
in Calgary. Other shareholders interests attributable to Brookfield Financial
Properties declined over 2000 levels due to an increase in ownership interest
by Brookfield during this period to 98.5%.

REAL ESTATE INDUSTRY AND RISKS

Brookfields strategy is to invest in high-quality commercial properties
defined by the physical characteristics of the asset, but more importantly, the
certainty of receiving rental payments generated by
the tenants of those assets. However, Brookfield remains exposed to certain
risks inherent in the commercial property business.

In evaluating Brookfield and its business, the following challenges and risk
factors should be considered in addition to the other information contained in
this annual report.

Real estate industry

Real estate investments are generally subject to varying degrees of risk
depending on the nature of the property. These risks include changes in general
economic conditions (such as the availability and cost of mortgage funds),
local conditions (such as an

32





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##### 



oversupply of space or a reduction in demand for real estate in the area), the
attractiveness of the properties to tenants, competition from others with
available space and the ability of the owner to provide adequate maintenance at
an economical cost.

Certain significant expenditures, including property taxes, maintenance costs,
mortgage payments, insurance costs and related charges must be made regardless
of whether or not a property is producing sufficient income to service these
expenses. Brookfields properties are subject to mortgages, which require
significant debt service payments. If Brookfield were unable or unwilling to
meet mortgage payments on any property, losses could be sustained as a result
of the mortgagees exercise of its rights of foreclosure or of sale.

Real estate is relatively illiquid. Such illiquidity will tend to limit
Brookfields ability to vary its portfolio promptly in response to changing
economic or investment conditions. Also, financial difficulties of other
property owners resulting in distressed sales could depress real estate values
in the markets in which Brookfield operates in times of illiquidity.

Financing

Upon the expiry of the term of the financing on any particular property owned
by Brookfield, refinancing on a conventional mortgage loan basis may not be
available in the amounts required or may be available only on terms less
favorable to Brookfield than the existing financing. This will be dependent
upon the economic circumstances prevailing at such time. To mitigate the risks
of refinancing, Brookfield has reduced loan to value ratios, fixed interest
rates, increased cashflow coverages and extended the term of most of its loans.
Despite this, Brookfield relies on lenders to refinance long-term property
mortgages as they come due. Also, a credit disruption in the capital markets
could have an adverse impact on Brookfields ability to implement its current
leasing plans. Brookfield currently has $615 million of debt with variable
interest rates, therefore operating performance would be negatively affected if
interest rates increase.

Commercial properties

Brookfields income-producing properties generate revenue through rental
payments made by tenants of the properties. Upon the expiry of any lease, there
can be no assurance that the lease will be renewed or the tenant replaced. The
terms of any subsequent lease may be less favorable to Brookfield than the
existing lease. Brookfield could be adversely affected, in particular, if any
major tenant ceases to be a tenant and cannot be replaced on similar or better
terms.

Brookfield is dependent on leasing market conditions to ensure that vacant
commercial space is leased, expiring leases are renewed and new tenants are
found to fill vacancies. While it is not expected that markets will
significantly change in the near future, a disruption in the economy could have
a significant impact on how much space tenants will lease and the rental rates
paid by tenants. This would affect the income produced by Brookfields
commercial property group as a result of downward pressure on net effective
rents.

Environmental matters

As an owner and manager of real property, Brookfield is subject to various
United States and Canadian federal, provincial, state and municipal laws
relating to environmental matters. These laws could hold Brookfield liable for
the costs of removal and remediation of certain hazardous substances or wastes
released or deposited on or in its properties or disposed of at other
locations. The failure to remove or remediate such substances, if any, could
adversely affect Brookfields ability to sell its real estate or to borrow
using real estate as collateral, and could potentially also result in claims or
other proceedings against Brookfield. Brookfield is not aware of any material
non-compliance with environmental laws at any of its properties. Brookfield is
also not aware of any pending or threatened investigations or actions by
environmental regulatory authorities in connection with any of its properties
or any material pending or threatened claims relating to environmental
conditions at its properties. Brookfield has formal policies and procedures to
review and monitor environmental exposure. Brookfield has made and will
continue to make the necessary capital expenditures for compliance with
environmental laws and regulations. Environmental laws and regulations can
change rapidly and Brookfield may become subject to more stringent
environmental laws and regulations in the future. Compliance with more
stringent environmental laws and regulations could have a material adverse
effect on its business, financial condition or results of operation.

Foreign exchange fluctuations

While 20% of Brookfields assets and revenues originate in Canada, Brookfield
has substantially matched its Canadian assets with Canadian liabilities. As a
result, Brookfield is generally not materially impacted by the movement in the
Canadian to US dollar exchange rate.

Ground lease risks

Six of Brookfields major properties are subject to long-term ground leases and
similar arrangements in which the underlying land is owned by a third party and
leased to Brookfield and any co-venturers or partners. Under the terms of a
typical ground lease, Brookfield and any co-venturers or partners pay rent for
the use of the land and are generally responsible for all costs and expenses

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associated with the building and improvements. Unless the lease term is
extended, the land together with all improvements made will revert to the owner
of the land upon the expiration of the lease term. Four properties in New York,
in which Brookfield has an ownership interest through Brookfield Financial
Properties, are subject to land leases held by the Battery Park City Authority
in New York. These four ground leases expire in 2069. If possible, Brookfield
will attempt to purchase these leases as they become available, but cannot be
assured of this. The fifth major ground lease is on the land under the Bay
Wellington Tower in BCE Place in Toronto which expires in 2085. The company
holds the right of first purchase to acquire this ground lease. The sixth
ground lease is on the land under 53 State Street in Boston in which Brookfield
has an ownership interest through Brookfield Financial Properties. This ground
lease expires in 2039. The company has a purchase option to acquire this ground
lease exercisable in 2029. An event of default by Brookfield under the terms of
a ground lease could also result in a loss of the property subject to such
ground lease should the default not be rectified in a reasonable period of
time.

Competition

Each segment of the real estate business is competitive. Numerous other
developers, managers and owners of office properties compete with Brookfield in
seeking tenants, management revenues and prospective purchasers. Although it is
Brookfields strategy to own premier office properties in each market in which
it operates, some of the office properties of Brookfields competitors may be
newer, better located or better capitalized. The existence of competing
developers, managers and owners for Brookfields tenants could have a material
adverse effect on Brookfields ability to lease space in its properties and on
the rents charged or concessions granted. This could adversely affect
Brookfields revenues and its ability to meet its obligations.

Insurance covering acts of terrorism

Brookfield has insurance covering certain acts of terrorism for up to $300
million of damage and business interruption costs. Brookfield continues to seek
additional coverage equal to the full replacement cost of its assets; however,
until this type of coverage becomes commercially available on an economically
reasonable basis, any damage or business interruption costs as a result of
uninsured acts of terrorism could result in a material cost to the company.
Brookfield believes it is in compliance with all of its loan covenants, despite
not being able to acquire terrorism coverage for the full replacement cost of
the companys properties.

General uninsured losses

Brookfield carries comprehensive general liability, fire, flood, extended
coverage and rental loss insurance with policy specifications, limits and
deductibles customarily carried for similar properties. Brookfield also self
insures a portion of certain of these risks. There are, however, certain types
of risks (generally of a catastrophic nature such as war or environmental
contamination) which are either uninsurable or not economically insurable.
Brookfield currently has insurance for earthquake risks, subject to certain
policy limits, deductibles and self insurance arrangements, and will continue
to carry such insurance if it is economical to do so. Should an uninsured or
underinsured loss occur, Brookfield could lose its investment in, and
anticipated profits and cashflows from, one or more of its properties, and
Brookfield would continue to be obligated to repay any recourse mortgage
indebtedness on such properties, although at December 31, 2002, minimal
recourse mortgage debt existed. Additionally, although Brookfield generally
obtains owners title insurance policies for its U.S. properties, the amount of
coverage under these policies may be less than the full value of the
properties. If a loss occurs resulting from a title defect with respect to a
property where there is no title insurance or the loss is in excess of insured
limits, Brookfield could lose all or part of its investment in, and anticipated
profits and cashflows from, such a property.

Tenant defaults

At any time a tenant of any of Brookfields properties may seek the protection
of bankruptcy, insolvency or similar laws, which could result in the rejection
and termination of the tenants lease and thereby cause a reduction in the
cashflow available to Brookfield. Although Brookfield has not experienced
material losses from tenant bankruptcies, no assurance can be given that
tenants will not file for bankruptcy or similar protection in the future or, if
any tenants do file for protection, that they will affirm their leases and
continue to make rental payments in a timely manner. In addition, a tenant from
time to time may experience a downturn in its business which may cause the loss
of the tenant or may weaken its financial condition and result in the failure
to make rental payments when due or, for retail tenants, a reduction in
percentage rent payable. Merrill Lynch, which is rated Aa3 by Moodys and A+ by
Standard & Poors, is a
major tenant of Brookfield and occupies approximately 13% of the effective
square feet owned by Brookfield. If Merrill Lynch were not in a position to
make rental payments, this could have an adverse effect on the profits and
cashflow of Brookfields operations.

Impact of September 11, 2001

On September 11, 2001, Brookfield owned eight million square feet of space in
four office towers surrounding the World Trade Center site  One Liberty Plaza
and One, Two and Four World Financial Center. The physical damage sustained by
these properties was mainly cosmetic as a result of the attack on and
subsequent collapse of the World Trade Center and consisted primarily of
replacement of broken windows and some repair to the granite façade on the
World Financial Center. While there was no structural damage to these four
office towers, the glass-enclosed Winter Garden atrium at the center of the
World Financial Center

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suffered more significant damage from falling debris than other areas of the
complex. This component of the World Financial Center was fully restored and
opened in September 2002.

To date, approximately $182 million has been received for property and business
interruption claims relating to One Liberty Plaza, One World Financial Center,
the Winter Garden and common areas of the World Financial Center. Two and Four
World Financial Center are covered by insurance in place under the tenant
triple-net leases with Merrill Lynch. Brookfields insurance claim adjustment
process is ongoing due to the complexity of the issues involved. However,
Brookfield anticipates recovery of all material amounts relating to the
restoration and business interruption costs of its properties.

To date, there have been no material lease cancellations in the New York office
portfolio as a result of September 11, 2001. Brookfield conducted a full review
of all its leases with various outside legal experts and concluded that it has
complied with all conditions necessary to maintain its leases in good standing.

Forward-looking statements

The companys annual report contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. The words believe,
expect, anticipate, intend, estimate and other expressions which are
predictions of or indicate future events and trends and which do not relate to
historical matter, identify forward-looking statements. Reliance should not be
placed on forward-looking statements because they involve known and unknown
risks, uncertainties and other factors, which may cause the actual results,
performance or achievements of the company to differ materially from
anticipated future results, performance or achievement expressed or implied by
such forward-looking statements. Factors that could cause actual results to
differ materially from those set forth in the forward-looking statements
include general economic conditions, local real estate conditions, timely
re-leasing of occupied square footage upon expiration, interest rates,
availability of equity and debt financing and other risks detailed from time to
time in the documents filed by the company with the securities regulators in
Canada and the United States. The company undertakes no obligation to publicly
update or revise any forward-looking statement, whether as a result of new
information, future events or otherwise.

OUTLOOK

The company remains focused on delivering on performance targets and creating
shareholder value. With a strong financial position, a solid growth strategy
and a dedicated team, Brookfield is poised to deliver on its commitments to
shareholders.

[-s- Steven J. Douglas]Steven J. DouglasExecutive Vice President and Chief Financial Officer

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