##### 



ANNUAL REPORT 2003 p.17 Managements Discussion and Analysis INTRODUCTION 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, 2003, the book value of Brookfields assets was $8.1 billion,
90% of which was invested in premier office properties. The company generated
$460 million of funds from operations and gains or $2.78 per share in 2003. The following discussion and analysis is intended to provide readers with an
assessment of our performance over the past three years as well as our
financial position and future prospects. It should be read in conjunction with
the audited consolidated financial statements and appended notes which are
included on page 37 of this report. Much of the discussion of operating
performance is based on funds from operations for reasons discussed on page 30.
The company also provides a full reconciliation to net income and an assessment
of our performance on the same basis. Additional information, including the
companys Annual Information Form, is available on the companys Web site at
www.brookfieldproperties.com or on SEDARs Web site at www.sedar.com. All figures are expressed in US dollars unless otherwise noted. Brookfields
financial results, both including and excluding Brookfield Homes Corporation
(Brookfield Homes), are as follows: (Millions, except per share amounts)
    
    2003
    
    2002
    
    2001
    
    2000
    
    1999Continuing operations(1)Funds from continuing operationsPrior to lease termination income and gains
    
    $
    361
    
    
    $
    322
    
    
    $
    286
    
    
    $
    250
    
    
    $
    195Including lease termination income and gains
    
    
    460
    
    
    
    374
    
    
    
    334
    
    
    
    268
    
    
    
    213Funds from operations per share  dilutedPrior to lease termination income and gains
    
    $
    2.15
    
    
    $
    1.87
    
    
    $
    1.63
    
    
    $
    1.45
    
    
    $
    1.12Including lease termination income and gains
    
    
    2.78
    
    
    
    2.18
    
    
    
    1.92
    
    
    
    1.56
    
    
    
    1.23Net incomePrior to lease termination income and gains
    
    $
    209
    
    
    $
    194
    
    
    $
    166
    
    
    $
    128
    
    
    $
    113Including lease termination income and gains
    
    
    279
    
    
    
    236
    
    
    
    202
    
    
    
    140
    
    
    
    125Earnings per share  diluted
    
    
    1.63
    
    
    
    1.34
    
    
    
    1.12
    
    
    
    0.76
    
    
    
    0.67Dividends per share(2)
    
    
    0.50
    
    
    
    0.40
    
    
    
    0.33
    
    
    
    0.25
    
    
    
    0.21Balance sheet dataCommercial property assets
    
    $
    6,297
    
    
    $
    5,661
    
    
    $
    5,802
    
    
    $
    6,368
    
    
    $
    5,930Total assets
    
    
    8,097
    
    
    
    7,450
    
    
    
    7,419
    
    
    
    8,123
    
    
    
    7,535Capital base
    
    
    2,997
    
    
    
    2,433
    
    
    
    2,353
    
    
    
    2,390
    
    
    
    2,293Consolidated(3)Funds from operations and gains
    
    
    
    
    
    $
    447
    
    
    $
    399
    
    
    $
    318
    
    
    $
    259Funds from operations per share  diluted
    
    
    
    
    
    
    2.63
    
    
    
    2.32
    
    
    
    1.88
    
    
    
    1.52Earnings per share  diluted
    
    
    
    
    
    
    1.61
    
    
    
    1.36
    
    
    
    0.95
    
    
    
    0.85Total assets
    
    
    
    
    
    $
    8,329
    
    
    $
    8,291
    
    
    $
    8,885
    
    
    $
    8,291
  (1)
    
    Excludes the assets, liabilities and
results of operations of Brookfield Homes(2)
    
    Excludes the distribution of Brookfield
Homes(3)
    
    Includes the assets, liabilities and
results of operations of 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 the transaction 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. 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 48 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.




---



##### 



p.18 BROOKFIELD PROPERTIES 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 140 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. In addition, the company
owns a land development and housing operation. ASSET PROFILE Assets totaled $8.1 billion at December 31, 2003. The book value of assets
increased during the year with the acquisition of 1625 Eye Street, N.W. in
Washington, D.C., the completion of construction of the 300 Madison Avenue
development in Midtown Manhattan, and the impact of the higher Canadian dollar on Canadian assets, which in total more than
offset the sale of a 49% interest in 245 Park Avenue in New York. The book
value of the companys assets, segmented by areas of operation, are as follows: Pro FormaBook Value (Millions)
    
    2003
    
    2002*
    
    2002
    
    2003
    
    2002Operating assetsCommercial properties
    
    $
    6,297
    
    
    $
    5,661
    
    
    $
    5,661
    
    
    
    90
    %
    
    
    86
    %Development properties
    
    
    684
    
    
    
    944
    
    
    
    944
    
    
    
    10
    %
    
    
    14
    %6,981
    
    
    
    6,605
    
    
    
    6,605
    
    
    
    100
    %
    
    
    100
    %Other assetsReceivables and other
    
    
    717
    
    
    
    769
    
    
    
    769Cash and marketable securities
    
    
    399
    
    
    
    76
    
    
    
    76Assets of Brookfield Homes
    
    
    
    
    
    
    
    
    
    
    879$
    8,097
    
    
    $
    7,450
    
    
    $
    8,329
  *
    
    Excludes Brookfield Homes which was distributed to common shareholders on
January 6, 2003 COMMERCIAL PROPERTIES The commercial property portfolio is focused in six North American cities, with
New York, Boston, Toronto and Calgary comprising 85% of the portfolio on a net
asset value basis, as follows: Brookfield
    
    2003
    
    2002Leasable Area
    
    Owned Interest
    
    Book Value
    
    Book ValueRegion
    
    (000s Sq. Ft.)
    
    (000s Sq. Ft.)
    
    (Millions)
    
    (Millions)New York, New York
    
    
    11,262
    
    
    
    9,549
    
    
    $
    3,531
    
    
    $
    3,295Boston, Massachusetts
    
    
    2,163
    
    
    
    1,103
    
    
    
    333
    
    
    
    332Toronto, Ontario
    
    
    6,884
    
    
    
    4,850
    
    
    
    928
    
    
    
    778Calgary, Alberta
    
    
    7,454
    
    
    
    3,391
    
    
    
    450
    
    
    
    380Denver, Colorado
    
    
    3,017
    
    
    
    2,811
    
    
    
    372
    
    
    
    354Minneapolis, Minnesota
    
    
    3,008
    
    
    
    3,008
    
    
    
    400
    
    
    
    393Other
    
    
    1,851
    
    
    
    1,851
    
    
    
    283
    
    
    
    129Total*
    
    
    35,639
    
    
    
    26,563
    
    
    $
    6,297
    
    
    $
    5,661
  *
    
    Excludes developments The consolidated carrying value of Brookfields interest in 35.6 million square
feet of rentable area is approximately $235 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. In December 2003, the company completed the purchase of 1625 Eye Street, N.W.
in Washington, D.C for $157.5 million. Located two blocks from the White House,
construction of this 386,000 square-foot, 12-story office building with a
five-level underground parking garage was completed in April 2003. At year-end,
upon its completion, the 300 Madison Avenue development with a book value of
$558 million was reclassified from development property to income-producing
commercial property.




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##### 



ANNUAL REPORT 2003 p .19 During 2003, Brookfield continued to dispose of partial interests in mature
properties and dispose of non-core assets, generating gross proceeds of $467
million and $221 million of net capital. The following table details the assets
sold during 2003 and proceeds from these sales: (Millions)
    
    
    
    
    
    Percentage
    
    Gross
    
    Net Proceeds toAssets
    
    Sale Date
    
    Sold
    
    Proceeds
    
    Brookfield*245 Park Avenue
    
    
    October 2003
    
    
    
    49
    %
    
    $
    438
    
    
    $
    195Other non-core properties
    
    
    Various
    
    
    
    100
    %
    
    
    29
    
    
    
    26$
    467
    
    
    $
    221
  *
    
    Net of non-recourse commercial property debt 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 seeking consistent yields. Capital generated through the sale of
these interests is targeted for reinvestment in office properties, share
repurchases or repayment of debt. RESULTS OF OPERATIONS Total commercial property operations contributed $697 million of net operating
income and gains in 2003, a 6% increase over 2002 net operating income of $660
million. The increase is due to internal growth generated by contractual
increases embedded in long-term leases, the impact of the lease-up of vacant
space and the gain realized on the sale of a 49% interest in 245 Park Avenue,
offset partially by the reduction in net operating income forgone on the sale
of the companys partial interests and non-core properties. Net operating income contributed by the same commercial properties totaled $571
million in 2003, an increase of 3.5% over $552 million in 2002 and an increase
of 8.8% over $525 million in 2001. Total net operating income during 2003
included $26 million contributed by properties, or partial interests, disposed
of during 2003. These sold properties and partial interests, as well as
dispositions in 2002 and 2001, contributed net operating income of $48 million
in 2002 and $92 million in 2001. Year ended December 31 (Millions)
    
    2003
    
    2002
    
    2001Operating income from current properties
    
    $
    571
    
    
    $
    552
    
    
    $
    525Operating income from properties sold
    
    
    26
    
    
    
    48
    
    
    
    92Net operating income prior to lease termination income and gains
    
    $
    597
    
    
    $
    600
    
    
    $
    617
 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)
    
    2003
    
    2002
    
    2001Net operating income prior to lease termination income and gains, prior year
    
    $
    600
    
    
    $
    617
    
    
    $
    592(a) Contractual increases on in-place leases
    
    
    16
    
    
    
    17
    
    
    
    13(b) Rental increases achieved on in-place rents when re-leased
    
    
    10
    
    
    
    8
    
    
    
    17(c) Lease-up of vacancies
    
    
    3
    
    
    
    5
    
    
    
    15(d) Acquisitions, net of dispositions
    
    
    (32
    )
    
    
    (47
    )
    
    
    (20
    )597
    
    
    
    600
    
    
    
    617(e) Lease termination income and gains
    
    
    100
    
    
    
    60
    
    
    
    55Net operating income, end of year
    
    $
    697
    
    
    $
    660
    
    
    $
    672
 The components of total net operating income including gains are as follows: Year ended December 31 (Millions)
    
    2003
    
    2002
    
    2001Rental revenue
    
    $
    976
    
    
    $
    943
    
    
    $
    1,007Property operating costs
    
    
    379
    
    
    
    343
    
    
    
    390Net operating income prior to lease termination income and gains
    
    
    597
    
    
    
    600
    
    
    
    617Lease termination income and gains
    
    
    100
    
    
    
    60
    
    
    
    55Net operating income
    
    $
    697
    
    
    $
    660
    
    
    $
    672




---



##### 



p.20 BROOKFIELD PROPERTIES  (a)
    
    Contractual increases on in-place leases During 2003, net operating income increased $16 million due to contractual
increases, compared with $17 million in 2002 and $13 million in 2001.
Brookfields leases generally have clauses which provide for the collection of
rental revenues in amounts that increase every five years, with these increases
negotiated at the signing of the lease. The high-credit quality of tenants in
the companys portfolio in general lowers the risk in realizing these
increases. It is the companys policy to record revenues in accordance with the
actual payments received under the terms of its leases, which typically
increase over time due to the contractual increases in rental payments over the
term of the lease. However, accounting standards and industry practices are
expected to mandate straight-line rent recognition for 2004 which would have
the impact of realizing those contractual steps on a straight-line basis over
the term of the lease. For further discussion of future accounting policy
changes, refer to Note 1 on page 43.  (b)
    
    Rental increases achieved on in-place rents when re-leased During 2003, higher rental rates on the re-leasing of space in the portfolio
contributed $10 million of increased net operating income over 2002. At
December 31, 2003, average in-place net rents throughout the portfolio
increased to $22 per square foot compared with $21 per square foot at December
31, 2002 and 2001. Despite challenging leasing environments in Brookfields
major markets, the company was able to marginally increase its 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 and 2003 at equivalent rental rates.
The 2003 average market rents declined by $1 per square foot as the combined
pressure from sublease space and decreased tenant demand continued, primarily
in Denver, New York and Boston. However, given the low expiry rate of leases in
the next two years, relatively flat 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-placeNet Rent
    
    Avg. MarketGross
    
    Average
    
    Dec.
    
    Net RentLeasable Area
    
    Lease Term
    
    31, 2003
    
    Dec. 31, 2003(000s Sq. Ft.)
    
    (Years)
    
    ($ per Sq. Ft.)
    
    ($ per Sq. Ft.)New York, New YorkMidtown
    
    
    2,834
    
    
    
    18
    
    
    $
    40
    
    
    $
    50Downtown
    
    
    8,428
    
    
    
    10
    
    
    
    32
    
    
    
    25Boston, Massachusetts
    
    
    2,163
    
    
    
    6
    
    
    
    30
    
    
    
    35Toronto, Ontario
    
    
    6,884
    
    
    
    7
    
    
    
    18
    
    
    
    21Calgary, Alberta
    
    
    7,454
    
    
    
    9
    
    
    
    11
    
    
    
    15Denver, Colorado
    
    
    3,017
    
    
    
    4
    
    
    
    14
    
    
    
    16Minneapolis, Minnesota
    
    
    3,008
    
    
    
    8
    
    
    
    9
    
    
    
    13Other
    
    
    1,851
    
    
    
    10
    
    
    
    8
    
    
    
    18Total*
    
    
    35,639
    
    
    
    10
    
    
    $
    22
    
    
    $
    24
  *
    
    Excludes developments  (c)
    
    Lease-up of vacancies A total of approximately 6.5 million square feet of vacant space was leased in
2003 and 2002, contributing $3 million to net operating income during 2003.
Contributions from vacancy lease-ups was greater in previous years due to
vacancies leased in properties acquired in 2000. Brookfields total portfolio
occupancy rate at December 31, 2003 declined from 95.5% to 94.1%, primarily due
to vacancy increases in Denver and Minneapolis. A summary of current and
historical occupancy levels for the past three years is as follows: Dec. 31, 2003
    
    Dec. 31, 2002
    
    Dec. 31, 2001Total
    
    %
    
    Total
    
    %
    
    Total
    
    %(Thousands of square feet)
    
    Square Feet
    
    Leased
    
    Square Feet
    
    Leased
    
    Square Feet
    
    LeasedNew York, New York
    
    
    11,262
    
    
    
    97.7
    %
    
    
    10,113
    
    
    
    97.6
    %
    
    
    10,113
    
    
    
    99.6
    %Boston, Massachusetts
    
    
    2,163
    
    
    
    97.7
    %
    
    
    2,163
    
    
    
    97.4
    %
    
    
    2,163
    
    
    
    98.7
    %Toronto, Ontario
    
    
    6,884
    
    
    
    96.1
    %
    
    
    6,883
    
    
    
    96.3
    %
    
    
    6,866
    
    
    
    96.7
    %Calgary, Alberta
    
    
    7,454
    
    
    
    97.6
    %
    
    
    7,570
    
    
    
    97.1
    %
    
    
    6,330
    
    
    
    95.8
    %Denver, Colorado
    
    
    3,017
    
    
    
    82.9
    %
    
    
    3,017
    
    
    
    90.1
    %
    
    
    3,014
    
    
    
    95.5
    %Minneapolis, Minnesota
    
    
    3,008
    
    
    
    74.1
    %
    
    
    3,008
    
    
    
    84.5
    %
    
    
    3,008
    
    
    
    94.5
    %Other
    
    
    1,851
    
    
    
    90.5
    %
    
    
    1,515
    
    
    
    97.1
    %
    
    
    3,171
    
    
    
    93.5
    %Total*
    
    
    35,639
    
    
    
    94.1
    %
    
    
    34,269
    
    
    
    95.5
    %
    
    
    34,665
    
    
    
    97.3
    %
  *
    
    Excludes developments




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##### 



ANNUAL REPORT 2003 p.21  (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. The sale of properties reduced
net operating income by $32 million in 2003, $47 million in 2002 and $20
million in 2001. Brookfield sold a 49% interest in 245 Park Avenue in New York
based on a property valuation of $894 million for gross proceeds of $438
million and a $100 million gain. In addition,
Brookfield completed the development of 300 Madison Avenue during the last
quarter of 2003. This 1.2 million square foot property located in Midtown
Manhattan is fully leased for 30 years to CIBC World Markets, and
PricewaterhouseCoopers with a full CIBC covenant and will begin contributing to
rental revenue in 2004. In 2002, Brookfield sold partial interests in two of
its core properties, Exchange Tower in Toronto and Bankers Hall in Calgary.  (e)
    
    Lease termination income and gains Property gains during 2003 of $100 million relate to the sale of a 49% interest
in 245 Park Avenue as described above. During 2002, Brookfield generated $60
million of gains on the sale of partial interests in office properties referred
to above for proceeds of $293 million. There were no significant lease
termination payments during either 2003 or 2002. While these events are
opportunistic and difficult to predict, the dynamic tenant base, which is
typical of our buildings, should enable Brookfield to generate similar
opportunities in the future. TENANT RELATIONSHIPS An important characteristic of Brookfields portfolio is the strong credit
quality of its tenants. Special attention is directed at credit quality in
order to ensure the long-term sustainability of rental revenues through
economic cycles. The tenant profile on average represents an A credit rating.
Major tenants with over 400,000 square feet of space in the portfolio include
Merrill Lynch, CIBC, RBC Financial Group, Petro-Canada, Imperial Oil and
JPMorgan Chase. 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
    
    CreditTenant
    
    Location
    
    Expiry(1)
    
    Sq. Ft.(2)
    
    Sq. Ft.(2)
    
    Rating(3)RatedMerrill Lynch
    
    New York/Toronto
    
    
    2013
    
    
    
    4,363
    
    
    
    12.2
    %
    
    
    A+CIBC/CIBC World Markets
    
    New York/Toronto/Calgary
    
    
    2027
    
    
    
    1,983
    
    
    
    5.6
    %
    
    
    A+RBC Financial Group
    
    Five major markets
    
    
    2019
    
    
    
    976
    
    
    
    2.7
    %
    
    
    AA-Petro-Canada
    
    Calgary
    
    
    2013
    
    
    
    851
    
    
    
    2.4
    %
    
    
    BBBJPMorgan Chase
    
    New York
    
    
    2022
    
    
    
    802
    
    
    
    2.3
    %
    
    
    A+Lehman Brothers
    
    New York
    
    
    2019
    
    
    
    717
    
    
    
    2.0
    %
    
    
    A+Imperial Oil
    
    Calgary
    
    
    2011
    
    
    
    565
    
    
    
    1.6
    %
    
    
    AAATarget Corporation (Dayton Hudson Corp.)
    
    Minneapolis
    
    
    2013
    
    
    
    465
    
    
    
    1.3
    %
    
    
    A+Canadian Pacific Railway Co.
    
    Calgary
    
    
    2013
    
    
    
    447
    
    
    
    1.3
    %
    
    
    A-Talisman Energy
    
    Calgary
    
    
    2015
    
    
    
    446
    
    
    
    1.3
    %
    
    
    BBB+Conoco Canada Resources
    
    Calgary
    
    
    2010
    
    
    
    444
    
    
    
    1.2
    %
    
    
    A-Goldman Sachs
    
    New York
    
    
    2012
    
    
    
    362
    
    
    
    1.0
    %
    
    
    A+Bell West/Bell Canada
    
    Calgary/Toronto
    
    
    2009
    
    
    
    323
    
    
    
    0.9
    %
    
    
    ATeachers Insurance Annuity Assoc.
    
    Denver
    
    
    2008
    
    
    
    323
    
    
    
    0.9
    %
    
    
    AAADow Jones & Company
    
    New York
    
    
    2012
    
    
    
    323
    
    
    
    0.9
    %
    
    
    A+TD Canada Trust
    
    Toronto/Calgary
    
    
    2005
    
    
    
    278
    
    
    
    0.8
    %
    
    
    A+Anadarko Canada Corporation
    
    Calgary
    
    
    2011
    
    
    
    269
    
    
    
    0.8
    %
    
    
    Baa1Canadian Natural Resources
    
    Calgary
    
    
    2011
    
    
    
    257
    
    
    
    0.7
    %
    
    
    BBB+Bank of Nova Scotia
    
    New York
    
    
    2014
    
    
    
    230
    
    
    
    0.6
    %
    
    
    A+EnCana Corporation
    
    Calgary
    
    
    2013
    
    
    
    229
    
    
    
    0.6
    %
    
    
    A-Sovereign Bank/Fleet National Bank
    
    Boston
    
    
    2008
    
    
    
    213
    
    
    
    0.6
    %
    
    
    A+Zurich Insurance
    
    New York
    
    
    2017
    
    
    
    208
    
    
    
    0.6
    %
    
    
    A+Other investment grade
    
    Various
    
    Various
    
    
    3,949
    
    
    
    11.1
    %
    
    
    BBB- or higher19,023
    
    
    
    53.4
    %UnratedCleary, Gottlieb, Steen & Hamilton
    
    New York
    
    
    2011
    
    
    
    402
    
    
    
    1.1
    %
    
    
    Goodwin Procter
    
    Boston
    
    
    2015
    
    
    
    359
    
    
    
    0.9
    %
    
    
    Wellington Management
    
    Boston
    
    
    2011
    
    
    
    330
    
    
    
    0.9
    %
    
    
    National Assoc. of Securities Dealers
    
    New York/Denver
    
    
    2021
    
    
    
    277
    
    
    
    0.8
    %
    
    
    Major League Baseball
    
    New York
    
    
    2012
    
    
    
    109
    
    
    
    0.4
    %
    
    
    20,500
    
    
    
    57.5
    %
  (1)
    
    Weighted average based on square feet(2)
    
    Prior to considering partnership interests in partially-owned properties(3)
    
    From Standard & Poors, Moodys or Dominion Bond Rating Service (DBRS)




---



##### 



p.22 BROOKFIELD PROPERTIES 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.
Following is the breakdown of lease maturities by market with associated
in-place rental rates: Total Portfolio
    
    New York/Boston
    
    Toronto/Calgary
    
    Denver/Minneapolis/OtherNet
    
    
    
    
    
    
    
    
    
    Net
    
    
    
    
    
    
    
    
    
    Net
    
    
    
    
    
    
    
    
    
    Net000s
    
    
    
    
    
    Rate per
    
    000s
    
    
    
    
    
    Rate per
    
    000s
    
    
    
    
    
    Rate per
    
    000s
    
    
    
    
    
    Rate perYear of Expiry
    
    Sq. Ft.
    
    %
    
    Sq. Ft.-$.
    
    Sq. Ft
    
    %
    
    Sq. Ft $
    
    Sq. Ft.
    
    %
    
    Sq. Ft.$
    
    Sq.Ft.
    
    %
    
    Sq. Ft.-$Currently available
    
    
    1,845
    
    
    
    5.9
    %
    
    
    
    
    
    
    292
    
    
    
    2.2
    %
    
    
    
    
    
    
    388
    
    
    
    2.7
    %
    
    
    
    
    
    
    1,165
    
    
    
    14.8
    %2004
    
    
    1,080
    
    
    
    3.4
    %
    
    $
    15
    
    
    
    227
    
    
    
    1.7
    %
    
    $
    30
    
    
    
    501
    
    
    
    3.5
    %
    
    $
    12
    
    
    
    352
    
    
    
    4.5
    %
    
    $
    92005
    
    
    2,295
    
    
    
    7.2
    %
    
    
    24
    
    
    
    615
    
    
    
    4.6
    %
    
    
    41
    
    
    
    1,298
    
    
    
    9.1
    %
    
    
    20
    
    
    
    382
    
    
    
    4.9
    %
    
    
    142006
    
    
    1,496
    
    
    
    4.7
    %
    
    
    16
    
    
    
    491
    
    
    
    3.7
    %
    
    
    25
    
    
    
    539
    
    
    
    3.8
    %
    
    
    13
    
    
    
    466
    
    
    
    5.9
    %
    
    
    112007
    
    
    1,192
    
    
    
    3.8
    %
    
    
    17
    
    
    
    111
    
    
    
    0.8
    %
    
    
    35
    
    
    
    656
    
    
    
    4.6
    %
    
    
    15
    
    
    
    425
    
    
    
    5.4
    %
    
    
    152008
    
    
    1,903
    
    
    
    6.0
    %
    
    
    21
    
    
    
    615
    
    
    
    4.6
    %
    
    
    32
    
    
    
    644
    
    
    
    4.5
    %
    
    
    18
    
    
    
    644
    
    
    
    8.2
    %
    
    
    142009
    
    
    766
    
    
    
    2.4
    %
    
    
    19
    
    
    
    89
    
    
    
    0.7
    %
    
    
    37
    
    
    
    448
    
    
    
    3.1
    %
    
    
    20
    
    
    
    229
    
    
    
    2.9
    %
    
    
    122010
    
    
    1,904
    
    
    
    6.0
    %
    
    
    23
    
    
    
    577
    
    
    
    4.3
    %
    
    
    42
    
    
    
    1,115
    
    
    
    7.8
    %
    
    
    14
    
    
    
    212
    
    
    
    2.7
    %
    
    
    202011 & beyond
    
    
    23,158
    
    
    
    60.6
    %
    
    
    22
    
    
    
    10,408
    
    
    
    77.4
    %
    
    
    34
    
    
    
    8,749
    
    
    
    60.9
    %
    
    
    14
    
    
    
    4,001
    
    
    
    50.7
    %
    
    
    1135,639
    
    
    
    100.0
    %
    
    $
    22
    
    
    
    13,425
    
    
    
    100.0
    %
    
    $
    34
    
    
    
    14,338
    
    
    
    100.0
    %
    
    $
    16
    
    
    
    7,876
    
    
    
    100.0
    %
    
    $
    11Weighted average
market net rent
    
    
    
    
    
    
    
    
    
    $
    24
    
    
    
    
    
    
    
    
    
    
    $
    32
    
    
    
    
    
    
    
    
    
    
    $
    18
    
    
    
    
    
    
    
    
    
    
    $
    16
 TENANT INSTALLATION COSTS AND CAPITAL EXPENDITURES Upon the signing of the majority of its leases, 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 2003 totaled $26 million, compared with the $49 million
expended in 2002 and $50 million in 2001 due to fewer lease expiries or leases
being renegotiated in advance of their contractual maturity. On an annual basis, one to two million square feet of leases expire on average
with a cost to replace these tenancies approximating $15 to $20 per square
foot, with each region of operation varying in actual cost per square foot. The
average expenditure on tenant inducements across the portfolio over the last
three years was $15 per square foot. Tenant installation costs are summarized
as follows: (Millions)
    
    2003
    
    2002
    
    2001Commercial property tenant improvementsLeasing commissions
    
    $
    8
    
    
    $
    9
    
    
    $
    15Tenant improvements  first generation space
    
    
    
    
    
    
    2
    
    
    
    Tenant improvements  second generation space
    
    
    18
    
    
    
    38
    
    
    
    35Total
    
    $
    26
    
    
    $
    49
    
    
    $
    50
 Brookfield also invests in on-going 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 and
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
2003, consistent with 2002. 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. Revenue-enhancing capital expenditures represent improvements to an asset,
reconfiguration of space to increase rentable area or increase current rental
rates, non-revenue enhancing expenditures, and those required to maintain the
service life of an asset, are summarized as follows: (Millions)
    
    2003
    
    2002
    
    2001Capital expendituresRevenue enhancing
    
    $
    9
    
    
    $
    10
    
    
    $
    8Non-revenue enhancing
    
    
    7
    
    
    
    6
    
    
    
    6Total
    
    $
    16
    
    
    $
    16
    
    
    $
    14




---



##### 



ANNUAL REPORT 2003 p.23 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 to be sold to
builders for residential resale. The total book value of this development land
and infrastructure was $684 million at December 31, 2003, a reduction of $260
million from $944 million in 2002. The majority of the decrease is due to the
reclassification of the companys 300 Madison project as a commercial property
in the fourth quarter of 2003 upon its substantial completion. The aggregate
book value of Brookfields residential land under development is $335 million.
The details of the development property portfolio are as follows: Buildable(Millions)
    
    Sq. Ft.
    
    2003
    
    2002
    
    ChangeCommercial developments and infrastructureThree World Financial Center
    
    
    1,200,000
    
    
    $
    212
    
    
    $
    170
    
    
    $
    42Bay-Adelaide Centre
    
    
    1,800,000
    
    
    
    90
    
    
    
    72
    
    
    
    18Hudsons Bay Centre
    
    
    1,092,000
    
    
    
    26
    
    
    
    20
    
    
    
    6300 Madison Avenue
    
    
    
    
    
    
    
    
    
    
    437
    
    
    
    (437
    )OtherPenn Station
    
    
    2,500,000BCE Place III
    
    
    800,000Republic Plaza
    
    
    400,0003,700,000
    
    
    
    21
    
    
    
    21
    
    
    
    7,792,000
    *
    
    
    349
    
    
    
    720
    
    
    
    (371
    )Residential development land and infrastructureUnder development
    
    
    
    
    
    
    210
    
    
    
    112
    
    
    
    98Held for development
    
    
    
    
    
    
    125
    
    
    
    112
    
    
    
    13Total
    
    
    
    
    
    $
    684
    
    
    $
    944
    
    
    $
    (260
    )
  *
    
    Excludes rights which Brookfield holds on Site 26 at the World Financial
Center in New York Although Brookfield is not a speculative developer, the company is a
full-service real estate company with in-house development expertise. With
approximately 8 million square feet of high-quality, centrally-located
development properties in New York and Toronto, the company generally
undertakes developments only when the risk-adjusted returns are adequate and
significant pre-leasing for at least 50% to 60% of the space has been achieved. 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 is 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 1.2 million square foot,
35-story 300 Madison Avenue office tower in Midtown Manhattan following the
leasing of the entire project to CIBC World Markets 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 at the
end of 2003. During 2003, an additional $121 million of costs were incurred in
connection with the construction of the project which was funded through a loan
secured by the project, thereby minimizing Brookfields equity investment. At
December 31, 2003, the company reclassified the total cost of $558 million from
development properties to commercial properties upon substantial completion of the project. Subsequent to the
year-end, the company announced that PricewaterhouseCoopers is subleasing
800,000 square feet of space from CIBC World Markets, which will continue to
occupy the remainder space of the building. 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. In addition to Three World Financial Center in New York and the Bay-Adelaide
Centre in Toronto, Brookfield has additional commercial development sites which
provide internal growth opportunities.




---



##### 



p.24 BROOKFIELD PROPERTIES The status of each development project is as follows: Location
    
    Ownership
    
    Sq. Ft.
    
    StatusNew YorkThree World Financial Center
    
    200 Vesey Street at West Street
    
    
    100
    %
    
    
    1,200,000
    
    
     Under redevelopmentPenn Station
    
    West 31st Street at 9th Avenue
    
    
    100
    %
    
    
    2,500,000
    
    
     Being zoned for potentially 2.5 million square feet of officeTorontoBay-Adelaide Centre
    
    Bay and Adelaide Streets
    
    
    50
    %
    
    
    1,000,000
    
    
     Office tower planning800,000
    
    
     Sale or joint venture for residential projectBCE Place III
    
    Third tower of current
    
    
    65
    %
    
    
    800,000
    
    
     PlanningBCE Place projectHudsons Bay Centre
    
    Yonge and Bloor Streets
    
    
    25
    %
    
    
    1,092,000
    
    
     Office and retail projects under redevelopmentDenverRepublic Plaza
    
    Downtown Denver
    
    
    100
    %
    
    
    400,000
    
    
     Planning7,792,000
    *
  *
    
    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, 2003 was $335 million, compared with
$224 million at the end of 2002. RECEIVABLES AND OTHER Receivables and other assets decreased to $717 million at December 31, 2003,
from $769 million at December 31, 2002 and $847 million at December 31, 2001 as
a result of decreases in the companys future income tax assets as tax losses
are utilized to shelter taxable income, and the repayment of a subordinated
note from Brookfield Homes which had a balance of $98 million at December 31,
2002. The components of receivables and other assets are as follows: (Millions)
    
    2003
    
    2002
    
    2001Real estate mortgages and receivables
    
    $
    499
    
    
    $
    465
    
    
    $
    506Prepaid expenses and other assets
    
    
    212
    
    
    
    210
    
    
    
    210Non-core real estate assets held for sale
    
    
    6
    
    
    
    51
    
    
    
    41Future income tax assets
    
    
    
    
    
    
    43
    
    
    
    90Total
    
    $
    717
    
    
    $
    769
    
    
    $
    847
 CASH AND MARKETABLE SECURITIES Brookfield maintains high levels of liquidity to ensure that it can react
quickly to potential investment opportunities. This liquidity consists of cash
and marketable securities which contribute investment returns, as well as
committed lines of credit. To ensure the company maximizes its returns, cash
balances are generally carried at a modest level and excess cash is used to
repay revolving credit lines and invested in shorter term marketable
securities, which provide a source of liquidity to fund investment initiatives.
As at December 31, 2003, cash balances totaled $132 million and marketable
securities totaled $267 million. FOREIGN EXCHANGE FLUCTUATIONS While approximately 25% 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.




---



##### 



ANNUAL REPORT 2003 p.25 LIABILITIES AND SHAREHOLDERS INTERESTS Brookfields asset base of $8.1 billion is financed with a combination of debt,
preferred shares and common equity as follows: Pro forma(Millions)
    
    2003
    
    2002*
    
    2002
    
    2001Commercial property debt
    
    $
    4,537
    
    
    $
    4,588
    
    
    $
    4,588
    
    
    $
    4,606Accounts payable and other liabilities
    
    
    563
    
    
    
    429
    
    
    
    429
    
    
    
    460Liabilities of Brookfield Homes Corporation
    
    
    
    
    
    
    
    
    
    
    556
    
    
    
    583Shareholders interestsInterest of others in properties
    
    
    81
    
    
    
    84
    
    
    
    84
    
    
    
    113Preferred shares  corporate and subsidiaries
    
    
    1,001
    
    
    
    579
    
    
    
    579
    
    
    
    585Common shares
    
    
    1,915
    
    
    
    1,770
    
    
    
    2,093
    
    
    
    1,944$
    8,097
    
    
    $
    7,450
    
    
    $
    8,329
    
    
    $
    8,291
  *
    
    Excludes Brookfield Homes which was distributed to common shareholders on
January 6, 2003 COMMERCIAL PROPERTY DEBT Commercial property debt totaled $4.5 billion at December 31, 2003, compared
with $4.6 billion at December 31, 2002 and 2001. During 2003, the sale of
participating interest and other non-core properties, as well as the impact of
contractual principal amortizations reduced debt by $329 million, offset by $51
million of additional financing on remaining assets. The commercial property
debt at December 31, 2003 had an average interest rate of 6.6% and an average
term to maturity of 12 years. Predominantly 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 and thereafter are as follows: Weighted Average(Millions)
    
    Scheduled
    
    
    
    
    
    
    
    
    
    Interest Rate atYear
    
    Amortizations
    
    Maturities
    
    Total
    
    Dec. 31, 20032004
    
    $
    124
    
    
    $
    141
    
    
    $
    265
    
    
    
    6.9
    %2005
    
    
    130
    
    
    
    302
    
    
    
    432
    
    
    
    7.3
    %2006
    
    
    139
    
    
    
    16
    
    
    
    155
    
    
    
    7.4
    %2007
    
    
    137
    
    
    
    474
    
    
    
    611
    
    
    
    5.1
    %2008
    
    
    152
    
    
    
    99
    

    
    
    251
    
    
    
    6.8
    %2009 and thereafter
    
    
    
    
    
    
    2,823
    
    
    
    2,823
    
    
    
    6.6
    %$
    682
    
    
    $
    3,855
    
    
    $
    4,537
    
    
    
    6.6
    %
 The only significant maturities in the next five years are the refinancing of
the recourse floating-rate mortgages placed on One World Financial Center and
Republic Plaza during 2003 in order to facilitate flexibility in tenant
discussions on these projects and to minimize borrowing costs. It is expected
that both projects will be refinanced in the future with long-term, fixed-rate
debt. The companys bank credit facility is in the form of a three-year revolving
facility totaling $150 million as at December 31, 2003. This facilitys
floating rate has a weighted average interest rate of 2.5% and was fully drawn
as at December 31, 2003. Credit Ratings Brookfield is currently rated by two agencies. The company is committed to
arranging its affairs to maintain these ratings as well as to improve them
further over time. The credit ratings for the company at December 31, 2003 and
at the date of this report were as follows: DBRS
    
    S&PCorporate rating
    
    BBB(high)
    
    BBBPreferred shares
    
    Pfd-3(high)
    
    P3(high)




---



##### 



p.26 BROOKFIELD PROPERTIES The largest property debt, in order of maturity, are as follows: Interest
    
    
    
    
    
    BrookfieldRate
    
    Maturity
    
    Proportionate ShareCommercial Property
    
    Location
    
    %
    
    Date
    
    (Millions)
    
    DetailsRepublic Plaza
    
    Denver
    
    
    3.22
    
    
    
    2005
    
    
    $
    156
    
    
    Non-recourse, floating rateOne World Financial Center
    
    New York
    
    
    3.15
    
    
    
    2007
    
    
    
    300
    
    
    Recourse, floating rateCanada Trust Tower
    
    Toronto
    
    
    6.55
    
    
    
    2007
    
    
    
    103
    
    
    Non-recourse, fixed rateTrade Center Denver
    
    Denver
    
    
    7.00
    
    
    
    2007
    
    
    
    52
    
    
    Non-recourse, fixed ratePetro-Canada Centre
    
    Calgary
    
    
    6.43
    
    
    
    2008
    
    
    
    105
    
    
    Non-recourse, fixed rate245 Park Avenue
    
    New York
    
    
    6.65
    
    
    
    2011
    
    
    
    252
    
    
    Non-recourse, fixed rateOne Liberty Plaza
    
    New York
    
    
    6.75
    
    
    
    2011
    
    
    
    418
    
    
    Non-recourse, fixed rateFifth Avenue Place
    
    Calgary
    
    
    7.59
    
    
    
    2011
    
    
    
    61
    
    
    Non-recourse, fixed rateExchange Tower
    
    Toronto
    
    
    6.83
    
    
    
    2012
    
    
    
    53
    
    
    Non-recourse, fixed rateTwo World Financial Center
    
    New York
    
    
    6.91
    
    
    
    2013
    
    
    
    751
    
    
    Non-recourse, fixed rateFour World Financial Center
    
    New York
    
    
    6.95
    
    
    
    2013
    
    
    
    402
    
    
    Non-recourse, fixed rateBay Wellington Tower
    
    Toronto
    
    
    6.49
    
    
    
    2013
    
    
    
    279
    
    
    Non-recourse, fixed rateBankers Hall
    
    Calgary
    
    
    7.20
    
    
    
    2013
    
    
    
    142
    
    
    Non-recourse, fixed rateRoyal Centre
    
    Vancouver
    
    
    7.50
    
    
    
    2022
    
    
    
    42
    
    
    Non-recourse, fixed rate53 State Street
    
    Boston
    
    
    6.91
    
    
    
    2023
    
    
    
    76
    
    
    Non-recourse, fixed rate33 South Sixth Street
    
    Minneapolis
    
    
    6.83
    
    
    
    2027
    
    
    
    101
    
    
    Non-recourse, fixed rateDain Plaza
    
    Minneapolis
    
    
    7.37
    
    
    
    2027
    
    
    
    85
    
    
    Non-recourse, fixed rate75 State Street
    
    Boston
    
    
    7.00
    
    
    
    2028
    
    
    
    89
    
    
    Non-recourse, fixed rate300 Madison Avenue
    
    New York
    
    
    7.26
    
    
    
    2032
    
    
    
    515
    
    
    Non-recourse, fixed rateCorporate credit facility
    
    
    
    
    
    
    
    
    
    
    
    
    131
    
    
    Recourse, floating rateDevelopment debt
    
    
    
    
    
    
    
    
    
    
    
    
    150
    
    
    Recourse, floating rateOther
    
    
    
    
    
    
    
    
    
    
    
    
    274
    
    
    Various termsTotal commercial property debt
    
    
    
    
    6.56
    %
    
    
    
    
    
    $
    4,537
 During 2003, Brookfield refinanced $737 million of commercial property debt
following the successful completion of value-enhancement programs. These
refinancings included the following: Previous
    
    Refinanced
    
    Previous
    
    RefinancedProperty (Millions)
    
    Mortgage
    
    Mortgage
    
    Interest Rate
    
    Interest RateOne World Financial Center
    
    $
    402
    
    
    $
    300
    
    
    
    7.51
    %
    
    
    3.15
    %Republic Plaza
    
    
    178
    
    
    
    140
    
    
    
    9.00
    %
    
    
    3.22
    %Petro Canada Centre
    
    
    77
    
    
    
    105
    
    
    
    6.66
    %
    
    
    6.43
    %Canada Trust Tower
    
    
    80
    
    
    
    103
    
    
    
    7.07
    %
    
    
    6.55
    %$
    737
    
    
    $
    648
    
    
    
    7.73
    %
    
    
    4.24
    %
 ACCOUNTS PAYABLE AND OTHER LIABILITIES Accounts payable and other liabilities totaled $563 million, compared with $429
million in 2002. Advances represent credit facilities which are primarily
recourse in nature to subsidiaries of the company and totaled $269 million in
2003, compared with $183 million in 2002. Shareholder advances, included in these balances, bear interest at floating
rates and can be drawn under a five-year termable revolving facility. This
facility is convertible at either partys option into fixed-rate financing at
9.75% repayable in 2015. Total debt attributable to the land development business at December 31, 2003
was $150 million, compared with $85 million in 2002. This financing carried an
average interest rate of 4.4% 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.




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##### 



ANNUAL REPORT 2003 p.27 A breakdown of accounts payable and other liabilities are as follows: (Millions)
    
    2003
    
    2002
    
    2001Accounts payable
    
    $
    276
    
    
    $
    246
    
    
    $
    219AdvancesRevolving five-year term facilities
    
    
    119
    
    
    
    98
    
    
    
    115Other
    
    
    150
    
    
    
    85
    
    
    
    126Future income tax liabilities
    
    
    18
    
    
    
    
    
    
    
    Total
    
    $
    563
    
    
    $
    429
    
    
    $
    460
 INTERESTS OF OTHERS IN PROPERTIES In addition to 100% owned subsidiaries, Brookfield conducts its commercial
property operations through BPO Properties Ltd. (BPO Properties) in Canada
and through Brookfield Financial Properties L.P. (Brookfield Financial
Properties) in the U.S., which holds substantially all of the companys
interests in its New York, Boston and Washington assets. The following table
details the components of interests of other shareholders: (Millions)
    
    2003
    
    2002
    
    2001BPO Properties
    
    $
    72
    
    
    $
    64
    
    
    $
    52Brookfield Financial Properties
    
    
    9
    
    
    
    20
    
    
    
    61Total
    
    $
    81
    
    
    $
    84
    
    
    $
    113
 During 2003, Brookfield Financial Properties completed a redemption of certain
of its outstanding Partnership Units for cash consideration of $10 million. In
2002, redemptions totaled $56 million. And as a result, each remaining
partners percentage interest increased on a pro rata basis. The company
currently holds 99.4% of the outstanding Partnership Units of Brookfield
Financial Properties. Also during 2003, the company acquired an additional 574,900 voting common
shares of BPO Properties in a private transaction at a cost of C$27.00 per BPO
Properties share. The transaction increased Brookfields equity interest in BPO
Properties from 87% to 89%. A wholly-owned subsidiary of Brookfield acquired
these additional shares by issuing C$15.5 million of retractable preferred
shares. The preferred shares are retractable until April 25, 2005 for either
cash or, at the option of the holder, 474,466 common shares of Brookfield and
94,893 common shares of Brookfield Homes Corporation, subject to certain
adjustments. PREFERRED SHARES  CORPORATE AND SUBSIDIARIES The company has $1.0 billion of preferred equity outstanding as at December 31,
2003  $586 million issued by Brookfield and $415 million issued by its
consolidated subsidiaries. This equity represents low cost capital for the
company, without dilution to the common equity base. Dividends paid on
preferred shares issued by 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)
    
    2003
    
    2002
    
    2001Preferred shares issued by subsidiariesBPO Properties
    
    $
    294
    
    
    $
    241
    
    
    $
    240100% owned subsidiaries
    
    
    121
    
    
    
    100
    
    
    
    99415
    
    
    
    341
    
    
    
    339Preferred shares issued by Brookfield
    
    
    586
    
    
    
    238
    
    
    
    246Total
    
    $
    1,001
    
    
    $
    579
    
    
    $
    585
 During 2003, the company issued 4,400,000 Class AAA, Series G preferred shares,
8,000,000 Class AAA, Series H preferred shares, and 8,000,000 Class AAA, Series
I preferred shares for total proceeds of $415 million. In June 2003, 4,000,000
Class AAA, Series C and D preferred shares were redeemed for $74 million. During 2002, the company issued 8,000,000 Class AAA, Series F preferred shares
for proceeds of $126 million. Proceeds of the issue were utilized to redeem
3,000,000 Class AAA, Series A preferred shares, 3,000,000 Class AAA, Series B
preferred shares and 2,000,000 Class AAA, Series C preferred shares for total
cash of $126 million.




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##### 



p.28 BROOKFIELD PROPERTIES The company has the following preferred shares outstanding: Shares
    
    Cumulative(Millions except share information)
    
    Outstanding
    
    Dividend Rate
    
    2003
    
    2002
    
    2001Class A redeemable voting
    
    
    6,312,000
    
    
    
    7.50
    %
    
    $
    11
    
    
    $
    11
    
    
    $
    11Class AA Series E
    
    
    2,000,000
    
    
    70% of bank prime
    
    
    34
    
    
    
    34
    
    
    
    34Class AAA Series A
    
    
    
    
    
    
    9.00
    %
    
    
    
    
    
    
    
    
    
    
    50Class AAA Series B
    
    
    
    
    
    
    9.00
    %
    
    
    
    
    
    
    
    
    
    
    50Class AAA Series C and D
    
    
    
    
    
    
    8.00
    %
    
    
    
    
    
    
    67
    
    
    
    101Class AAA Series F
    
    
    8,000,000
    
    
    
    6.00
    %
    
    
    126
    
    
    
    126
    
    
    
    Class AAA Series G
    
    
    4,400,000
    
    
    
    5.25
    %
    
    
    110
    
    
    
    
    
    
    
    Class AAA Series H
    
    
    8,000,000
    
    
    
    5.75
    %
    
    
    151
    
    
    
    
    
    
    
    Class AAA Series I
    
    
    8,000,000
    
    
    
    5.20
    %
    
    
    154
    
    
    
    
    
    
    
    Total
    
    
    
    
    
    
    
    
    
    $
    586
    
    
    $
    238
    
    
    $
    246
 COMMON SHARES The company has 156.2 million issued and outstanding common shares. On a fully
diluted basis, the company has 159.6 million common shares outstanding,
calculated as follows: 2003
    
    2002
    
    2001Common shares outstanding
    
    
    156,246,701
    
    
    
    160,364,416
    
    
    
    161,678,406Unexercised options and warrants
    
    
    3,306,240
    
    
    
    3,568,791
    
    
    
    3,404,886Common shares outstanding  fully diluted
    
    
    159,552,941
    
    
    
    163,933,207
    
    
    
    165,083,292Common shares repurchased
    
    
    5,006,700
    
    
    
    1,385,900
    
    
    
    2,402,700
 The fully diluted book value per common share at December 31, 2003 was $12.31
per share compared with $13.07 at December 31, 2002 and $12.02 at December 31,
2001. The decrease in 2003 was due to the Brookfield Homes distribution. The
book value of Brookfields common equity was $1.9 billion at December 31, 2003,
compared with a market equity capitalization of $5.5 billion, calculated as
total common shares outstanding multiplied by $28.70, the closing price per
common share on the New York Stock Exchange on December 31, 2003, plus
preferred shares outstanding. In September 2003, Brookfield renewed its normal course issuer bid which
permits the company to acquire up to 5% of the common shares of Brookfield.
During 2003, 5,006,700 of the common shares were acquired at an average price
of $21.10. Between January 1, 2004 and February 5, 2004, Brookfield acquired a
further 160,100 shares at an average price of $28.19 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 a reduction of the exercise price of all
outstanding stock options by $1.00 effective February 4, 2003. In addition, the
exercise price of the outstanding warrants was 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 Brookfield Homes, the companys U.S. residential home building business.
Brookfield Homes commenced trading on the NYSE under the symbol BHS on
January 7, 2003. This transaction allowed 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
remaining 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




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##### 



ANNUAL REPORT 2003 p.29 share ownership of Brookfield Homes; however, it did retain a $98 million
subordinated note receivable that was set to mature on December 31, 2005, which
bore interest at 10%. This note was subsequently repaid in 2003. 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. These
assets were 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 was as follows: (Millions)
    
    2002
    
    2001AssetsResidential housing inventory
    
    $
    734
    
    
    $
    749Development properties
    
    
    40
    
    
    
    18Receivables and other
    
    
    105
    
    
    
    105$
    879
    
    
    $
    872LiabilitiesResidential construction financing
    
    $
    345
    
    
    $
    318Accounts payable and other liabilities
    
    
    113
    
    
    
    50Subordinated debt
    
    
    98
    
    
    
    215Common shares
    
    
    323
    
    
    
    289$
    879
    
    
    $
    872
 Contributions to income from discontinued operations was 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 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 in 2002, an increase of
13% over 2001. 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 the companys 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 2003, Brookfield generated in excess of $1 billion 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 $415 million in preferred share capital and the addition of $50
million to the corporate credit facility. 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. 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. As
at December 31, 2003, Brookfield had approximately $562 million (2002  $283
million, 2001  $382 million) of unsecured indebtedness outstanding to related
parties, comprised of $443 million (2002 
$185 million, 2001  $267 million)
outstanding to Brascan Financial and its subsidiaries, and $119 million (2002 
$98 million, 2001  $115 million) outstanding to Brascan Corporation
(Brascan) and its affiliates, other than Brascan Financial and its
subsidiaries. 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.




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##### 



p.30 BROOKFIELD PROPERTIES Brookfields weighted average cost of capital, utilizing a 20% return on
equity, is 9.3%. 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 Brookfields portfolio. CORPORATE GUARANTEES AND CONTINGENT OBLIGATIONS Brookfield conducts its operations through entities that are fully or
proportionately consolidated in our financial statements other than
equity-accounted investments. Equity-accounted investments include our 40%
investment in Brookfield LePage Facilities Management. The company may be contingently liable with respect to litigation and claims
that arise in the normal course of business. In addition, the company may
execute agreements that provide for indemnifications and guarantees to third
parties. Disclosure of commitments, guarantees and contingencies can be found
in the notes to the financial statements. UTILIZATION OF CASH RESOURCES The following table illustrates the utilization of free cashflow generated by
our operations and financing initiatives as well as the reallocation of capital
and the repurchase of common equity and other shareholder interests: (Millions)
    
    2003
    
    2002
    
    2001
    
    TotalCashflow from operations
    
    $
    334
    
    
    $
    250
    
    
    $
    318
    
    
    $
    902FinancingBorrowings, net of repayments
    
    
    7
    
    
    
    (134
    )
    
    
    (239
    )
    
    
    (366
    )Net issuance (repurchase) of preferred shares
    
    
    334
    
    
    
    (3
    )
    
    
    
    
    
    
    331Net repurchase of common shares
    
    
    (98
    )
    
    
    (25
    )
    
    
    (77
    )
    
    
    (200
    )Shareholder distributions
    
    
    (114
    )
    
    
    (113
    )
    
    
    (60
    )
    
    
    (287
    )129
    
    
    
    (275
    )
    
    
    (376
    )
    
    
    (522
    )InvestingMarketable securities
    
    
    (267
    )
    
    
    
    
    
    
    
    
    
    
    (267
    )Dispositions of real estate, net
    
    
    50
    
    
    
    114
    
    
    
    137
    
    
    
    301Development and redevelopment
    
    
    (174
    )
    
    
    (206
    )
    
    
    (101
    )
    
    
    (481
    )Capital expenditures
    
    
    (16
    )
    
    
    (16
    )
    
    
    (14
    )
    
    
    (46
    )(407
    )
    
    
    (108
    )
    
    
    22
    
    
    
    (493
    )Discontinued operations
    
    
    
    
    
    
    14
    
    
    
    30
    
    
    
    44Increase (decrease) in cash
    
    $
    56
    
    
    $
    (119
    )
    
    $
    (6
    )
    
    $
    (69
    )
 FUNDS FROM OPERATIONS Funds from operations (FFO) is defined as net income, prior to 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 provided by the National Association of Real Estate
Investment Trusts (NAREIT) in the United States and the Canadian Institute of
Public and Private Real Estate Companies (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 include the contribution
from discontinued operations. However, for purposes of comparability and
consistency with current and future financial statement presentations, 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, pro-active 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 23% to $460
million in 2003, compared with $374 million in 2002. Excluding lease
termination income and gains, funds from continuing operations increased 15% to
$2.15 per share, compared with $1.87 in 2002. Net income from continuing
operations increased by 13% to $267 million or $1.56 per share on a diluted
basis.




---



##### 



ANNUAL REPORT 2003 p.31 A summary of the components of Brookfields funds from operations and net
income are as follows: (Millions)
    
    2003
    
    2002
    
    2001Total revenue and gains
    
    $
    1,363
    
    
    $
    1,372
    
    
    $
    1,428Net operating incomeCommercial property operations
    
    $
    697
    
    
    $
    660
    
    
    $
    672Development and residential operations
    
    
    31
    
    
    
    22
    
    
    
    20Interest and other income
    
    
    62
    
    
    
    48
    
    
    
    42790
    
    
    
    730
    
    
    
    734Unallocated costs
    
    
    330
    
    
    
    356
    
    
    
    400Funds from continuing operations and gains
    
    
    460
    
    
    
    374
    
    
    
    334Depreciation and amortization
    
    
    79
    
    
    
    80
    
    
    
    76Taxes and other non-cash items
    
    
    102
    
    
    
    58
    
    
    
    56Net income before discontinued operations
    
    
    279
    
    
    
    236
    
    
    
    202Net income from discontinued operations
    
    
    
    
    
    
    44
    
    
    
    39Net income
    
    $
    279
    
    
    $
    280
    
    
    $
    241Funds from
operations per share  dilutedContinuing
operations  prior to lease termination income and gains
    
    $
    2.15
    
    
    $
    1.87
    
    
    $
    1.63Lease termination income and gains
    
    
    0.63
    
    
    
    0.31
    
    
    
    0.29Discontinued operations
    
    
    
    
    
    
    0.45
    
    
    
    0.40$
    2.78
    
    
    $
    2.63
    
    
    $
    2.32Net income
per share  dilutedContinuing
operations  prior to lease termination income and gains
    
    $
    1.19
    
    
    $
    1.09
    
    
    $
    0.90Lease termination income and gains
    
    
    0.44
    
    
    
    0.25
    
    
    
    0.22Discontinued operations
    
    
    
    
    
    
    0.27
    
    
    
    0.24$
    1.63
    
    
    $
    1.61
    
    
    $
    1.36
 After providing for preferred share dividends, Brookfields FFO per diluted
share, prior to and including income from lease terminations and gains, is as
follows: 2003
    
    2002
    
    2001Excluding
    
    
    
    
    
    Excluding
    
    
    
    
    
    Excluding(Millions, except per share amounts)
    
    Total
    
    Gains
    
    Total
    
    Gains
    
    Total
    
    GainsFunds from continuing operations
    
    $
    460
    
    
    $
    361
    
    
    $
    374
    
    
    $
    322
    
    
    $
    334
    
    
    $
    286Preferred share dividends
    
    
    (20
    )
    
    
    (20
    )
    
    
    (19
    )
    
    
    (19
    )
    
    
    (19
    )
    
    
    (19
    )$
    440
    
    
    $
    341
    
    
    $
    355
    
    
    $
    303
    
    
    $
    315
    
    
    $
    267Weighted average shares outstanding
    
    
    158.6
    
    
    
    158.6
    
    
    
    162.3
    
    
    
    162.3
    
    
    
    163.5
    
    
    
    163.5FFO per share
    
    $
    2.78
    
    
    $
    2.15
    
    
    $
    2.18
    
    
    $
    1.87
    
    
    $
    1.92
    
    
    $
    1.63
 Property gains during 2003 related to the sale of a 49% interest in 245 Park
Avenue totaled $100 million, or $0.63 per share. The 2002 gains related to the
sale of 50% interests in Exchange Tower in Toronto and Bankers Hall in Calgary,
totaling $60 million or $0.31 per share. The 2001 gains and lease termination
income totaled $55 million or $0.29 per share, of which $54 million related to
the sale of 50% in Fifth Avenue Place in Calgary and 49% interest in 53 and 75
State Street in Boston, and $1 million in lease termination income.




---



##### 



p.32 BROOKFIELD PROPERTIES NET INCOME Brookfields net income per share from continuing operations increased 22% in
2003, to $1.63 per diluted share including gains and 9% to $1.19 per diluted
share excluding gains, calculated as follows: 2003
    
    2002
    
    2001Excluding
    
    
    
    
    
    Excluding
    
    
    
    
    
    Excluding(Millions, except per share amounts)
    
    Total
    
    Gains
    
    Total
    
    Gains
    
    Total
    
    GainsNet income from continuing operations
    
    $
    279
    
    
    $
    209
    
    
    $
    236
    
    
    $
    194
    
    
    $
    202
    
    
    $
    166Preferred share dividends
    
    
    (20
    )
    
    
    (20
    )
    
    
    (19
    )
    
    
    (19
    )
    
    
    (19
    )
    
    
    (19
    )Net income for common shares
    
    $
    259
    
    
    $
    189
    
    
    $
    217
    
    
    $
    175
    
    
    $
    183
    
    
    $
    147Weighted average shares outstanding
    
    
    158.6
    
    
    
    158.6
    
    
    
    162.3
    
    
    
    162.3
    
    
    
    163.5
    
    
    
    163.5Net income
per share  diluted
    
    $
    1.63
    
    
    $
    1.19
    
    
    $
    1.34
    
    
    $
    1.09
    
    
    $
    1.12
    
    
    $
    0.90
 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 was eliminated, net
income from continuing operations would increase to $2.27 per share on a
diluted basis in 2003, $1.70 per share on a diluted basis in 2002 and $1.46 per
share on a diluted basis in 2001. COMMERCIAL PROPERTY OPERATIONS During 2003, commercial property operations contributed $697 million of
operating income, compared with $660 million in 2002 and $672 million in 2001.
The components of the contribution from the commercial property operations are
as follows: (Millions)
    
    2003
    
    2002
    
    2001Commercial property operationsOperating income from current properties
    
    $
    571
    
    
    $
    552
    
    
    $
    525Operating income from properties sold
    
    
    26
    
    
    
    48
    
    
    
    92Lease termination income and gains
    
    
    100
    
    
    
    60
    
    
    
    55Total commercial property operations
    
    $
    697
    
    
    $
    660
    
    
    $
    672
 The financial results for the companys commercial property operations are
discussed in greater detail on page 19 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; Edmonton,
Alberta; Toronto, Ontario; and Denver, Colorado. Development income increased
to $31 million in 2003, compared with $22 million in 2002, as low interest
rates continued to make home ownership very affordable, therefore increasing
demand. Lot and home sales for 2003, including lots sold to third-party
homebuilders, totaled 2,957, compared with 3,060 in 2002 and 2,278 in 2001.
With continued low interest rates and strong demand, contributions from these
operations could meet or exceed 2003s results in 2004. 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 $62
million in 2003 compared with $48 million in 2002 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.




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##### 



ANNUAL REPORT 2003 p.33 UNALLOCATED COSTS Unallocated costs were $330 million for the year ended December 31, 2003,
compared with $356 million in 2002. The amounts are comprised of interest
expense, administrative and development expenses and other shareholders
interests, as follows: Interest expense Interest expense declined 7% to $265 million in 2003, compared with $284
million in 2002. This decrease is largely a result of the reduction of debt
through amortization and 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 and property development and
acquisitions. Administrative and development expenses Administrative costs for 2003 increased to $44 million from $42 million in
2002. The company will be working to reduce its administrative costs in 2004. 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 table outlines the dividends and earnings paid or attributable to
other shareholders of subsidiaries of Brookfield: (Millions)
    
    Type
    
    2003
    
    2002
    
    2001BPO Properties
    
    Redeemable preferred shares*
    
    $
    9
    
    
    $
    7
    
    
    $
    11BPO Properties
    
    Common shares
    
    
    1
    
    
    
    
    
    
    
    100%-owned subsidiaries
    
    Redeemable preferred shares*
    
    
    4
    
    
    
    4
    
    
    
    5Dividends
 preferred shares of subsidiaries
    
    
    
    
    14
    
    
    
    11
    
    
    
    16BPO Properties
    
    Participating interests
    
    
    5
    
    
    
    12
    
    
    
    7Brookfield Financial Properties
    
    Participating interests
    
    
    2
    
    
    
    7
    
    
    
    5Other shareholders interests in subsidiary earnings
    
    
    
    
    7
    
    
    
    19
    
    
    
    12Total
    
    
    
    $
    21
    
    
    $
    30
    
    
    $
    28
 * Non-participating Dividends paid on preferred shares increased to $14 million in 2003 from $11
million in 2002 due to the strengthening of the Canadian dollar compared to the
US dollar, as well as dividends paid on the common shares of BPO Properties,
which commenced in September 2003. Other shareholders interests decreased to $7 million in 2003 from $19 million
in 2002 which included 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 2002 levels due to an increase in
ownership interest by Brookfield during 2003 to 99.4%. SEGMENTED INFORMATION The company and its subsidiaries operate in the U.S. and Canada within the
commercial property business and the residential land development business. The
commercial markets in which the company operates are primarily New York,
Boston, Denver and Minneapolis in the U.S., and Toronto and Calgary in Canada.
Approximately 72% of the companys net operating income or 68% of the companys
funds from operations are derived from the U.S. The companys residential land
development operations are focused on four markets: Calgary, Edmonton and
Toronto in Canada and Denver in the U.S. Details of the segmented financial
information for the companys principal areas of business by industry and
geographic location are provided in Note 19 on page 58 of the consolidated
financial statements.




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##### 



p.34 BROOKFIELD PROPERTIES QUARTERLY RESULTS The 2003 results by quarter are as follows: (Millions, except per share amounts)
    
    Q1
    
    Q2
    
    Q3
    
    Q4
    
    TotalTotal revenue and gains
    
    $
    295
    
    
    $
    301
    
    
    $
    320
    
    
    $
    447
    
    
    $
    1,363Net operating incomeCommercial property operationsOperating income from current properties
    
    $
    142
    
    
    $
    143
    
    
    $
    142
    
    
    $
    144
    
    
    $
    571Operating income from properties sold
    
    
    8
    
    
    
    9
    
    
    
    9
    
    
    
    
    
    
    
    26Lease termination income and gains
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    100
    
    
    
    100Total commercial property operations
    
    
    150
    
    
    
    152
    
    
    
    151
    
    
    
    244
    
    
    
    697Development and residential income
    
    
    7
    
    
    
    7
    
    
    
    7
    
    
    
    10
    
    
    
    31Interest and other
    
    
    15
    
    
    
    14
    
    
    
    16
    
    
    
    17
    
    
    
    62172
    
    
    
    173
    
    
    
    174
    
    
    
    271
    
    
    
    790ExpensesInterest
    
    
    70
    
    
    
    67
    
    
    
    66
    
    
    
    62
    
    
    
    265Administrative and development
    
    
    11
    
    
    
    11
    
    
    
    11
    
    
    
    11
    
    
    
    44Interests of others in properties
    
    
    5
    
    
    
    5
    
    
    
    6
    
    
    
    5
    
    
    
    21Income before non-cash items
    
    
    86
    
    
    
    90
    
    
    
    91
    
    
    
    193
    
    
    
    460Depreciation and amortization
    
    
    18
    
    
    
    20
    
    
    
    20
    
    
    
    21
    
    
    
    79Taxes and other non-cash items
    
    
    18
    
    
    
    17
    
    
    
    21
    
    
    
    46
    
    
    
    102Net income
    
    $
    50
    
    
    $
    53
    
    
    $
    50
    
    
    $
    126
    
    
    $
    279Funds
from operations per share  dilutedPrior to lease termination income and gains
    
    $
    0.51
    
    
    $
    0.53
    
    
    $
    0.55
    
    
    $
    0.56
    
    
    $
    2.15Lease termination income and gains
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.63
    
    
    
    0.63$
    0.51
    
    
    $
    0.53
    
    
    $
    0.55
    
    
    $
    1.19
    
    
    $
    2.78Net
income per share  dilutedPrior to lease termination income and gains
    
    $
    0.29
    
    
    $
    0.30
    
    
    $
    0.29
    
    
    $
    0.31
    
    
    $
    1.19Lease termination income and gains
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.44
    
    
    
    0.44$
    0.29
    
    
    $
    0.30
    
    
    $
    0.29
    
    
    $
    0.75
    
    
    $
    1.63
 Operating income from current properties in the fourth quarter of 2003 remained
consistent with previous quarters. The gain realized in the fourth quarter of
2003 relates to the sale of a 49% interest in 245 Park Avenue in New York,
while the gains realized in the first and third quarters of 2002 related to the
sale of 50% interests in the Exchange Tower in Toronto and Bankers Hall in
Calgary, respectively. Development and residential income increased in the fourth quarter of 2003
compared with previous quarters in 2003 and 2002 due to the continued strength
of the North American housing markets. Interest and other income increased in
each quarter in 2003 compared with 2002 as a result of interest earned on the
subordinated note receivable extended to Brookfield Homes at the time of
distribution on January 6, 2003, as well as the reinvestment of the proceeds of
the companys preferred share issuances in the last three quarters of 2003. Interest expense decreased in both the fourth quarter of 2003 and the fourth
quarter of 2002 with the sale of partial interests in the companys properties.
Administrative and development expenses remain consistent with prior quarters,
while interest of others in properties decreased in each quarter in 2003
compared with 2002 due to the increase in ownership in the companys New York
and Boston assets to 99.4% and in the companys significant Canadian operating
subsidiary to 89%. Taxes and other non-cash items as well as net income
increased in the fourth quarter of 2003 due to the gain on the sale of 49%
interest in 245 Park Avenue.




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##### 



ANNUAL REPORT 2003 p.35 The 2002 results by quarter are as follows: (Millions, except per share amounts)
    
    Q1
    
    Q2
    
    Q3
    
    Q4
    
    TotalTotal revenue and gains
    
    $
    345
    
    
    $
    322
    
    
    $
    315
    
    
    $
    390
    
    
    $
    1,372Net operating incomeCommercial property operationsOperating income from current properties
    
    $
    134
    
    
    $
    139
    
    
    $
    135
    
    
    $
    144
    
    
    $
    552Operating income from properties sold
    
    
    16
    
    
    
    13
    
    
    
    11
    
    
    
    8
    
    
    
    48Lease termination income and gains
    
    
    40
    
    
    
    
    
    
    
    20
    
    
    
    
    
    
    
    60Total commercial property operations
    
    
    190
    
    
    
    152
    
    
    
    166
    
    
    
    152
    
    
    
    660Development and residential income
    
    
    6
    
    
    
    7
    
    
    
    7
    
    
    
    2
    
    
    
    22Interest and other
    
    
    10
    
    
    
    12
    
    
    
    15
    
    
    
    11
    
    
    
    48206
    
    
    
    171
    
    
    
    188
    
    
    
    165
    
    
    
    730ExpensesInterest
    
    
    73
    
    
    
    72
    
    
    
    71
    
    
    
    68
    
    
    
    284Administrative and development
    
    
    11
    
    
    
    12
    
    
    
    10
    
    
    
    9
    
    
    
    42Interests of others in properties
    
    
    10
    
    
    
    5
    
    
    
    8
    
    
    
    7
    
    
    
    30Income before non-cash items
    
    
    112
    
    
    
    82
    
    
    
    99
    
    
    
    81
    
    
    
    374Depreciation and amortization
    
    
    19
    
    
    
    19
    
    
    
    20
    
    
    
    22
    
    
    
    80Taxes and other non-cash items
    
    
    21
    
    
    
    12
    
    
    
    16
    
    
    
    9
    
    
    
    58Net income from continuing operations
    
    
    72
    
    
    
    51
    
    
    
    63
    
    
    
    50
    
    
    
    236Net income from discontinued operations
    
    
    8
    
    
    
    9
    
    
    
    11
    
    
    
    16
    
    
    
    44Net income
    
    $
    80
    
    
    $
    60
    
    
    $
    74
    
    
    $
    66
    
    
    $
    280Funds
from operations per share  dilutedPrior to lease termination income and gains
    
    $
    0.45
    
    
    $
    0.47
    
    
    $
    0.48
    
    
    $
    0.47
    
    
    $
    1.87Lease termination income and gains
    
    
    0.21
    
    
    
    
    
    
    
    0.10
    
    
    
    
    
    
    
    0.31Discontinued operations
    
    
    0.08
    
    
    
    0.10
    
    
    
    0.11
    
    
    
    0.16
    
    
    
    0.45$
    0.74
    
    
    $
    0.57
    
    
    $
    0.69
    
    
    $
    0.63
    
    
    $
    2.63Net
income per share  dilutedPrior to lease termination income and gains
    
    $
    0.25
    
    
    $
    0.28
    
    
    $
    0.27
    
    
    $
    0.29
    
    
    $
    1.09Lease termination income and gains
    
    
    0.17
    
    
    
    
    
    
    
    0.08
    
    
    
    
    
    
    
    0.25Discontinued operations
    
    
    0.05
    
    
    
    0.05
    
    
    
    0.07
    
    
    
    0.10
    
    
    
    0.27$
    0.47
    
    
    $
    0.33
    
    
    $
    0.42
    
    
    $
    0.39
    
    
    $
    1.61
 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 from the tenants of those assets.
Brookfield remains exposed to certain risks inherent in the commercial property
business. In evaluating Brookfield and its business, the following is a brief review of
the potential impact these different factors may have on the companys
operations. Further discussion of the risk factors that should be considered
can be found in Brookfields Annual Information Form posted on the companys
Web site at www.brookfieldproperties.com or on SEDARs Web site at
www.sedar.com. 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 oversupply of space or a reduction in
demand for real estate in the markets in which the company operates), 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.




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##### 



p.36 BROOKFIELD PROPERTIES 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 commercial properties are subject to mortgages, which
require significant debt service payments. If the company is 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. Brookfields commercial properties generate a relatively stable source of
income from contractual tenant rent payments. Continued growth of rental income
is dependent on strong leasing markets to ensure expiring leases are renewed
and new tenants are found promptly to fill vacancies. While the outlook for commercial office rents is positive in the longer term,
2004 may not provide the same level of increases in rental rates on renewal as
compared to 2003. The company is, however, substantially protected against
these short-term market conditions, since most of our leases are long-term in
nature with an average term of 10 years. A protracted disruption in the
economy, such as the onset of a severe recession, could place downward pressure
on overall occupancy levels and net effective rents. Brookfields commercial properties operations have insurance covering certain
acts of terrorism for up to $500 million of damage and business interruption
costs. The company continues to seek additional coverage equal to the full
replacement cost of our 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. 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 believes that signs of tenants making longer-term decisions will
contribute to a stronger leasing market going forward as the economy improves.
The company remains focused on delivering on performance targets and creating
shareholder value. With a strong balance sheet, significant financial
flexibility, a solid growth strategy and a dedicated team, Brookfield is well
positioned to continue to deliver on its commitments to shareholders. -s- Craig J. Laurie Craig J. LaurieSenior Vice President and Chief Financial Officer