##### 



ANNUAL REPORT 2003 p.37 Managements Responsibility for the Financial Statements The consolidated financial statements and managements financial analysis and
review contained in this annual report are the responsibility of the management
of the company. To fulfill this responsibility, the company maintains a system
of internal controls to ensure that its reporting practices and accounting and
administrative procedures are appropriate, and provide assurance that relevant
and reliable financial information is produced. The consolidated financial
statements have been prepared in conformity with Canadian generally accepted
accounting principles and, where appropriate, reflect estimates based on
managements best judgment in the circumstances. The financial information
presented throughout this annual report is consistent with the information
contained in the consolidated financial statements. Deloitte & Touche LLP, the independent auditors appointed by the shareholders,
have audited the consolidated financial statements in accordance with Canadian
generally accepted auditing standards to enable them to express to the
shareholders their opinion on the consolidated financial statements. Their
report as auditors is set out below. The consolidated financial statements have been further examined by the Board
of Directors and by its Audit Committee, which meets with the auditors and
management to review the activities of each and reports to the Board of
Directors. The auditors have direct and full access to the Audit Committee and
meet with the committee both with and without management present. The Board of
Directors, directly and through its Audit Committee, oversees management
responsibilities and is responsible for reviewing and approving the financial
statements. -s- Richard B. Clark
    
    -s- Craig J. LaurieRichard B. Clark
    
    Craig J. LauriePresident and Chief Executive Officer
    
    Senior Vice President and Chief Financial OfficerFebruary 5, 2004
 Auditors Report To the Shareholders, We have audited the consolidated balance sheets of Brookfield Properties
Corporation as at December 31, 2003, 2002 and 2001 and the consolidated
statements of income, retained earnings and cashflow for the years then ended.
These financial statements are the responsibility of the companys management.
Our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits in accordance with Canadian generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation. In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the company as at December 31,
2003, 2002 and 2001 and the results of its operations and its cashflows for the
years then ended in accordance with Canadian generally accepted accounting
principles.  Toronto, Canada
February 5, 2004
    

-s- Deloitte & Touche LLPChartered Accountants




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##### 



p.38 BROOKFIELD PROPERTIES Consolidated Balance Sheet December 31 (US Millions)
    
    note
    
    2003
    
    2002
    
    2001AssetsCommercial properties
    
    
    2
    
    
    $
    6,297
    
    
    $
    5,661
    
    
    $
    5,802Development properties
    
    
    3
    
    
    
    684
    
    
    
    944
    
    
    
    575Receivables and other
    
    
    4
    
    
    
    717
    
    
    
    769
    
    
    
    847Marketable securities
    
    
    5
    
    
    
    267
    
    
    
    
    
    
    
    Cash and cash equivalents
    
    
    1
    
    
    
    132
    
    
    
    76
    
    
    
    195Assets of Brookfield Homes Corporation
    
    
    6
    
    
    
    
    
    
    
    879
    
    
    
    872$
    8,097
    
    
    $
    8,329
    
    
    $
    8,291LiabilitiesCommercial property debt
    
    
    8
    
    
    $
    4,537
    
    
    $
    4,588
    
    
    $
    4,606Accounts payable and other liabilities
    
    
    9
    
    
    
    563
    
    
    
    429
    
    
    
    460Liabilities of Brookfield Homes Corporation
    
    
    6
    
    
    
    
    
    
    
    556
    
    
    
    583Shareholders interestsInterests of others in properties
    
    
    10
    
    
    
    81
    
    
    
    84
    
    
    
    113Preferred
shares  subsidiaries and corporate
    
    
    11
    
    
    
    1,001
    
    
    
    579
    
    
    
    585Common shares
    
    
    12
    
    
    
    1,915
    
    
    
    2,093
    
    
    
    1,944$
    8,097
    
    
    $
    8,329
    
    
    $
    8,291
 See accompanying notes to the consolidated financial statements On behalf of the Board, Gordon E. Arnell
    
    Richard B. ClarkGordon E. Arnell
    
    Richard B. ClarkChairman
    
    President and Chief Executive Officer




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##### 



ANNUAL REPORT 2003 p.39 Consolidated Statement of Income December 31 (US Millions, except per share amounts)
    
    note
    
    2003
    
    2002
    
    2001Total revenue and gains
    
    
    
    
    
    $
    1,363
    
    
    $
    1,372
    
    
    $
    1,428Net operating incomeCommercial property operations
    
    
    13Operating 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
    
    
    
    672Development and residential operations
    
    
    13
    
    
    
    31
    
    
    
    22
    
    
    
    20Interest and other
    
    
    
    
    
    
    62
    
    
    
    48
    
    
    
    42790
    
    
    
    730
    
    
    
    734ExpensesInterest
    
    
    
    
    
    
    265
    
    
    
    284
    
    
    
    328Administrative and development
    
    
    
    
    
    
    44
    
    
    
    42
    
    
    
    44Interest of others in properties
    
    
    
    
    
    
    21
    
    
    
    30
    
    
    
    28Income before undernoted
    
    
    
    
    
    
    460
    
    
    
    374
    
    
    
    334Depreciation and amortization
    
    
    
    
    
    
    79
    
    
    
    80
    
    
    
    76Taxes and other non-cash items
    
    
    7
    
    
    
    102
    
    
    
    58
    
    
    
    56Net income from continuing operations
    
    
    
    
    
    
    279
    
    
    
    236
    
    
    
    202Net income from discontinued operations
    
    
    6
    
    
    
    
    
    
    
    44
    
    
    
    39Net income
    
    
    
    
    
    $
    279
    
    
    $
    280
    
    
    $
    241Net
income per share  basic
    
    
    12Continuing operations
    
    
    
    
    
    $
    1.64
    
    
    $
    1.35
    
    
    $
    1.12Discontinued operations
    
    
    
    
    
    
    
    
    
    
    0.27
    
    
    
    0.25$
    1.64
    
    
    $
    1.62
    
    
    $
    1.37Net
income per share  diluted
    
    
    12Continuing operations
    
    
    
    
    
    $
    1.63
    
    
    $
    1.34
    
    
    $
    1.12Discontinued operations
    
    
    
    
    
    
    
    
    
    
    0.27
    
    
    
    0.24$
    1.63
    
    
    $
    1.61
    
    
    $
    1.36
 See accompanying notes to the consolidated financial statements Consolidated Statement of Retained Earnings December 31 (US Millions)
    
    note
    
    2003
    
    2002
    
    2001Retained
earnings  beginning of year
    
    
    
    
    
    $
    630
    
    
    $
    441
    
    
    $
    274Net income
    
    
    
    
    
    
    279
    
    
    
    280
    
    
    
    241Shareholder distributions
Preferred shares dividends and convertible debenture interest
    
    
    
    
    
    
    (20
    )
    
    
    (19
    )
    
    
    (21
    )Common share dividends
    
    
    
    
    
    
    (79
    )
    
    
    (64
    )
    
    
    (53
    )Amount paid in excess of the book value of common
shares purchased for cancellation
    
    
    
    
    
    
    (13
    )
    
    
    
    
    
    
    Accounting
policy change  stock-based compensation
    
    
    1
    
    
    
    
    
    
    
    (8
    )
    
    
    Retained
earnings  end of year
    
    
    12
    
    
    $
    797
    
    
    $
    630
    
    
    $
    441
 See accompanying notes to the consolidated financial statements




---



##### 



p.40 BROOKFIELD PROPERTIES Consolidated Statement of Cashflow December 31 (US Millions)
    
    note
    
    2003
    
    2002
    
    2001Operating activitiesNet income
    
    
    
    
    
    $
    279
    
    
    $
    280
    
    
    $
    241Depreciation and amortization
    
    
    
    
    
    
    79
    
    
    
    80
    
    
    
    76Taxes and other non-cash items
    
    
    
    
    
    
    102
    
    
    
    87
    
    
    
    82Funds from operations and gains
    
    
    
    
    
    
    460
    
    
    
    447
    
    
    
    399Gains
    
    
    
    
    
    
    (100
    )
    
    
    (60
    )
    
    
    (54
    )Income from discontinued operations, before tax
    
    
    
    
    
    
    
    
    
    
    (73
    )
    
    
    (65
    )Commercial property tenant improvements
    
    
    
    
    
    
    (26
    )
    
    
    (49
    )
    
    
    (50
    )Other
    
    
    
    
    
    
    
    
    
    
    (15
    )
    
    
    88Cashflow from operating activities
    
    
    
    
    
    
    334
    
    
    
    250
    
    
    
    318Financing activities and capital distributionsCommercial property debt arranged
    
    
    
    
    
    
    735
    
    
    
    557
    
    
    
    1,341Commercial property debt repayments
    
    
    
    
    
    
    (727
    )
    
    
    (632
    )
    
    
    (1,050
    )Subordinated note receivable
    
    
    6
    
    
    
    98
    
    
    
    
    
    
    
    Other advances
    
    
    
    
    
    
    (99
    )
    
    
    (59
    )
    
    
    (530
    )Common shares of Brookfield and subsidiaries acquired
    
    
    
    
    
    
    (106
    )
    
    
    (26
    )
    
    
    (102
    )Common shares issued
    
    
    
    
    
    
    8
    
    
    
    1
    
    
    
    25Preferred shares issued, net
    
    
    
    
    
    
    408
    
    
    
    123
    
    
    
    Preferred shares redeemed
    
    
    
    
    
    
    (74
    )
    
    
    (126
    )
    
    
    Cashflow (distributed to) retained from other shareholders
    
    
    
    
    
    
    (15
    )
    
    
    (30
    )
    
    
    14Preferred share dividends and convertible debenture interest
    
    
    
    
    
    
    (20
    )
    
    
    (19
    )
    
    
    (21
    )Common share dividends
    
    
    
    
    
    
    (79
    )
    
    
    (64
    )
    
    
    (53
    )Cashflow provided from (used in) financing activities
and capital distributions
    
    
    
    
    
    
    129
    
    
    
    (275
    )
    
    
    (376
    )Investing activitiesMarketable securities
    
    
    
    
    
    
    (267
    )
    
    
    
    
    
    
    Dispositions of real estate, net
    
    
    17
    
    
    
    50
    
    
    
    114
    
    
    
    137Development and redevelopment investments
    
    
    
    
    
    
    (174
    )
    
    
    (206
    )
    
    
    (101
    )Capital expenditures
    
    
    
    
    
    
    (16
    )
    
    
    (16
    )
    
    
    (14
    )Cashflow (used in) provided from investing activities
    
    
    
    
    
    
    (407
    )
    
    
    (108
    )
    
    
    22Discontinued operations
    
    
    6
    
    
    
    
    
    
    
    14
    
    
    
    30Increase (decrease) in cash resources
    
    
    
    
    
    
    56
    
    
    
    (119
    )
    
    
    (6
    )Opening cash and cash equivalents
    
    
    
    
    
    
    76
    
    
    
    195
    
    
    
    201Closing cash and cash equivalents
    
    
    
    
    
    $
    132
    
    
    $
    76
    
    
    $
    195
 See accompanying notes to the consolidated financial statements




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##### 



ANNUAL REPORT 2003 p.41 Notes to the Consolidated Financial Statements NOTE 1: SIGNIFICANT ACCOUNTING POLICIES (a) General The consolidated financial statements of Brookfield Properties Corporation (the
company) are prepared in accordance with generally accepted accounting
principles as prescribed by the Canadian Institute of Chartered Accountants
(CICA). The companys accounting policies and its financial disclosure are
substantially in accordance with the recommendations of the Canadian Institute
of Public and Private Real Estate Companies (CIPPREC). (b) Principles of consolidation The consolidated financial statements include:  (i)
    
    the accounts of all subsidiaries of the company including its
wholly-owned operations, as well as BPO Properties Ltd.
(BPO Properties) and Brookfield Financial Properties L.P. (Brookfield
Financial Properties); and(ii)
    
    the accounts of all subsidiaries incorporated and unincorporated joint
ventures and partnerships to the extent of the companys proportionate
interest in their respective assets, liabilities, revenue and expenses. The companys ownership interests in operating entities which are not wholly
owned are as follows:  (i)
    
    Brookfield Financial Properties: The company owns a 99.4% (2002  98.5%
and 2001  94.7%) limited partnership equity and general partnership
interest in Brookfield Financial Properties.(ii)
    
    BPO Properties: The company owns 89% (2002 and 2001  87%) on an equity
basis and 54.3% (2002 and 2001  47%) on a voting basis of the common shares
of BPO Properties. (c) Properties  (i)
    
    Commercial propertiesCommercial properties held for investment are carried at the lower of
cost less accumulated depreciation and net recoverable amount. For
operating properties and properties held for long-term investment, a
write-down to estimated net recoverable amount is recognized when a
propertys undiscounted future cashflow is less than its carried value.
Projections of future cash-flow take into account the specific business
plan for each property and managements best estimate of the most
probable set of economic conditions anticipated to prevail in the market.Depreciation on buildings is provided on the sinking-fund basis over the
useful lives of the properties to a maximum of 60 years. The sinking-fund
method provides for a depreciation charge of an annual amount increasing
on a compounded basis of 5% per annum.
Depreciation is determined with reference to each rental propertys
carried value, remaining estimated useful life and residual value. Tenant
improvements and re-leasing costs are deferred and amortized over the
lives of the leases to which they relate.(ii)
    
    Development properties  commercialCommercial properties under development consist of properties for which a
major repositioning program is being conducted and properties which are
under construction. These properties are recorded at the lower of cost,
including pre-development expenditures, and the net recoverable amount.(iii)
    
    Development properties  residentialDevelopment land is held for residential development and is recorded at
the lower of cost and estimated net realizable value. Costs are allocated
to the saleable acreage of each project or subdivision in proportion to
the anticipated revenue.(iv)
    
    Properties held for saleProperties held for sale are recorded at the lower of cost and net
realizable value. (d) Capitalized costs Costs are capitalized on commercial and residential properties which are under
development and other properties held for sale, including all expenditures
incurred in connection with the acquisition, development, construction and
initial predetermined leasing period. These expenditures consist of all direct
costs, interest on debt that is related to these assets and certain
administrative expenses. Ancillary income relating specifically to such
properties during the development period is treated as a reduction of costs. (e) Revenue recognition Revenue from a commercial property is recognized upon the earlier of attaining
a break-even point in cashflow after debt servicing, or the expiration of a
reasonable period of time following substantial completion, subject to the time
limitation determined when the project is approved. Prior to this, the property
is categorized as a rental property under development, and related revenue is
applied to reduce development costs.




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##### 



p.42 BROOKFIELD PROPERTIES The company has retained substantially all of the risks and benefits of
ownership of its rental properties and therefore accounts for leases with its
tenants as operating leases. Rental revenue includes percentage participating
rents and recoveries of operating expenses, including property, capital and
large corporation taxes. Percentage participating rents are recognized when
tenants specified sales targets have been met. Operating expense recoveries
are recognized in the period that recoverable costs are chargeable to
tenants.

Revenue from the sale of land and other properties is recorded when the
collection of the sale proceeds is reasonably assured and all other significant
conditions are met. Properties which have been sold, but for which these
criteria have not been satisfied, are included in development property or
residential inventory assets. (f) Income taxes The company accounts for income taxes under the liability method. Under this
method, future income tax assets and liabilities are calculated based on: (i)
the temporary differences between the carrying values and the tax bases of
assets and liabilities, and (ii) unused income tax losses, measured using
substantively enacted income tax rates and laws that are expected to apply in
the future as temporary differences reverse and income tax losses are used. See
Note 7 for additional information on the composition of the income tax assets
(liabilities) and expense. (g) Reporting currency and foreign currency translation The consolidated financial statements have been presented in US dollars as the
companys principal investments and cashflow are influenced primarily by the US
dollar. Assets and liabilities denominated in foreign currencies are translated
into US dollars at the rate in effect at the balance sheet date. Revenues and
expenses are translated at the weighted average rate in effect for the period
presented. The companys operations in Canada are self-sustaining in nature and
as such, cumulative gains and losses arising from the consolidation of the
assets and liabilities of these operations are recorded as a separate component
of shareholders equity.


All amounts expressed in the financial statements are
in US dollars unless otherwise noted. (h) Per share calculations Net income per common share has been calculated after providing for preferred
share dividends using the weighted average number of basic common shares
outstanding of 157.4 million (2002  161.1 million, 2001  159.9 million) and
diluted common shares outstanding of 158.6 million (2002  162.3 million, 2001
- 163.5 million). (i) Cash and cash equivalents Cash and cash equivalents include $90 million (2002  $69 million, 2001  $156
million) which is designated for property-specific taxes and operating costs,
unless otherwise approved by the respective property mortgage holder. (j) Marketable securities Marketable securities are carried at the lower of cost and their estimated net
realizable value with any valuation adjustments charged to income. This policy
considers the companys intent to hold an investment through periods where
quoted market values may not fully reflect the underlying value of that
investment. Accordingly, there are periods where the fair value or the
quoted market value may be less than cost. In these circumstances, the
company reviews the relevant security to determine if it will recover its
carrying value within a reasonable period of time and adjust it, if necessary.
The company also considers the degree to which estimation is incorporated into
valuations and any potential impairment relative to the magnitude of the
related portfolio. In determining fair values, quoted market prices are generally used where
available and, where not available, management estimates the amounts which
could be recovered over time or through a transaction with knowledgeable and
willing third parties under no compulsion to act. (k) Use of estimates The preparation of financial statements, in conformity with Canadian generally
accepted accounting principles, requires estimates and assumptions that affect
the carried amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from estimates. Significant estimates are required in the
determination of cash flows and probabilities in assessing net recoverable
amounts and net realizable value, tax provisions, hedge effectiveness, and fair
value for disclosure purposes. (l) Funds from operations Funds from operations (FFO) is a measurement defined by CIPPREC as net income
before certain items including non-cash tax expenses, depreciation and
amortization. As a result, this amount has been included as a separate line on
the consolidated statement of cashflow. (m) Stock-based compensation Effective January 1, 2002, the company adopted the new accounting standard
issued by the CICA on stock-based compensation and other stock-based payments.
The new standard was applied retroactively without restatement of prior years
results. The company




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##### 



ANNUAL REPORT 2003 p.43 accounts for stock options using the fair value method, under which
compensation expense is measured at the grant date using an option pricing
model and recognized over the vesting period. The cumulative effect on opening
retained earnings was $8 million. (n) Derivative financial instruments The company and its subsidiaries utilize derivative financial instruments
primarily to manage financial risks, including interest rate, commodity and
foreign exchange risks. Realized and unrealized gains and losses on derivative
financial instruments designated as hedges of financial risks are included in
income in the same period as when the underlying asset, liability or
anticipated transaction affects income. Financial instruments that are not designated as hedges are carried at
estimated fair values, and gains and losses arising from changes in fair values
are recognized in income in the period the changes occur. The use of
non-hedging derivative contracts is governed by documented risk management
policies and approved limits. (o) Change in accounting policy Effective January 1, 2003, the company adopted a new accounting guideline
related to significant guarantees and indemnification agreements (Note 14). (p) Future accounting policy changes The following future accounting policy changes may have an impact on the
company, although the impact, if any, has not been determined at this time. In
December 2002, the Accounting Standards Board (AcSB) issued handbook section
3063, Impairment of Long-lived Assets, effective prospectively for years
beginning on or after April 1, 2003. This standard provides guidance on
recognizing, measuring and disclosing the impairment of long-lived assets. The
guidance requires that an impairment loss be recognized when the carrying value
of an asset exceeds the total undiscounted cash flows expected from its use and
eventual disposition. The impairment recognized is measured as the amount by
which the carrying value exceeds its fair value. It is not expected that
section 3063 would have a material impact on the companys financial
statements. In March 2003, the CICA issued section 3110, Asset Retirement Obligations,
effective for financial statements issued for fiscal years beginning on or
after January 1, 2004. Section 3110 addresses the recognition and
re-measurement of obligations associated with the retirement of a tangible
long-lived asset. This standard provides that obligations associated with the
retirement of tangible long-lived assets be recorded as liabilities when those
obligations are incurred, with the amount of the liability initially measured
at fair value. These obligations are capitalized to the book value of the
related long-lived assets and are depreciated over the useful life of the
related asset. It is not expected that section 3110 would have a material
impact on the consolidated financial statements of the company. In June 2003, the CICA issued Accounting Guideline (AcG) 15, Consolidation
of Variable Interest Entities (AcG 15), which is effective for fiscal year
2005 and provides guidance for applying the principles in section 1590,
Subsidiaries, to those entities defined as Variable Interest Entities (VIEs)
and more commonly referred to as Special Purpose Entities (SPEs), in which
either the equity at risk is not sufficient to permit that entity to finance
its activities without additional subordinated financial support from other
parties, or equity investors lack either voting control, an obligation to
absorb expected losses, or the right to relieve expected residual returns. AcG
15 requires consolidation of VIEs by the Primary Beneficiary. The Primary
Beneficiary is defined as the party who has exposure to the majority of a VIEs
expected losses and/or expected residual returns. The impact of AcG 15 on the
companys financial statements, if any, has not been determined at this time. In July 2003, the CICA issued handbook section 1100, Generally Accepted
Accounting Principles. The section establishes standards for financial
reporting in accordance with Canadian GAAP, and provides guidance on sources to
consult when selecting accounting policies and determining appropriate
disclosures when a matter is not dealt with explicitly in the primary sources
of Canadian GAAP. The company will implement the new section prospectively
beginning on January 1, 2004. Due to the prospective nature of this change,
there is no impact on the companys consolidated financial statements as of the
implementation date; however, the standard will require the company to record
income arising from tenant leases and depreciation on buildings on a
straight-line basis. In November 2003, the AcSB approved a revision to CICA section 3860, Financial
Instruments: Disclosure and Presentation, to require certain obligations that
must or could be settled with a variable number of the issuers own equity
instruments to be presented as a liability. It is expected that this will
require the reclassification of certain of the companys preferred shares that
are included in equity to liabilities, effective for the company on January 1,
2005. Effective January 1, 2004, the company will adopt Accounting Guideline 13,
Hedging Relationships, (AcG 13), the new accounting guideline issued by the
CICA addressing identification, designation, documentation and effectiveness of
hedging relationships for the purposes of applying hedge accounting. Under AcG
13, hedge designation of derivative financial instruments is only allowed if,
both at the inception of the hedge and throughout the hedge period, the changes
in the fair value or cash flows of the derivative instruments are expected to
substantially offset the fair value or cash flows of the underlying asset,
liability or anticipated transaction.




---



##### 



p.44 BROOKFIELD PROPERTIES Realized and unrealized gains and losses on derivative financial instruments
designated as hedges of financial risks will be included in income in the same
period as when the underlying asset, liability or anticipated transaction
affects income. It is expected that AcG 13 would not have a material impact on
the companys financial statements. NOTE 2: COMMERCIAL PROPERTIES (Millions)
    
    2003
    
    2002
    
    2001Commercial properties
    
    $
    6,748
    
    
    $
    6,029
    
    
    $
    6,117Less: accumulated depreciation
    
    
    (451
    )
    
    
    (368
    )
    
    
    (315
    )Total
    
    $
    6,297
    
    
    $
    5,661
    
    
    $
    5,802
 (a)Commercial properties, carried at a net book value of approximately $2,380
million, are situated on land held under leases or other agreements largely
expiring after the year 2069. Minimum rental payments on land leases are
approximately $22 million annually for the next five years and $996 million in
total on an undiscounted basis. During the year, the company disposed of whole and partial interests in
properties for proceeds totaling $469 million. In addition, the company
reclassified $558 million from development properties to commercial properties
in respect of a commercial property for which the development period was
substantially completed on December 31, 2003. The company also acquired a
property in Washington, D.C., for $157.5 million. (b)Construction costs of $7 million (2002  $9 million, 2001  $17 million),
interest costs of nil (2002 and 2001  nil) and general and administrative
expenses of nil (2002  nil, 2001  $1 million) were capitalized to the
commercial property portfolio for properties undergoing redevelopment in 2003. (c)The following amounts represent the companys proportionate interest in
incorporated and unincorporated joint ventures and partnerships, reflected in
the companys commercial and development properties: (Millions)
    
    2003
    
    2002
    
    2001Assets
    
    $
    2,164
    
    
    $
    1,705
    
    
    $
    1,362Liabilities
    
    
    1,267
    
    
    
    965
    
    
    
    758Operating revenues
    
    
    296
    
    
    
    231
    
    
    
    174Operating expenses
    
    
    120
    
    
    
    91
    
    
    
    61Net income
    
    
    87
    
    
    
    70
    
    
    
    59Cashflow from operating activities
    
    
    132
    
    
    
    81
    
    
    
    76Cashflow from financing activities
    
    
    21
    
    
    
    4
    
    
    
    4Cashflow used in investing activities
    
    
    (16
    )
    
    
    (31
    )
    
    
    (73
    )
 NOTE 3: DEVELOPMENT PROPERTIES Development properties include commercial developments, primarily for office
development and residential land under and held for development. (Millions)
    
    2003
    
    2002
    
    2001Commercial developments
    
    $
    349
    
    
    $
    720
    
    
    $
    344Residential development land
    
    
    335
    
    
    
    224
    
    
    
    231Total
    
    $
    684
    
    
    $
    944
    
    
    $
    575
 Commercial developments include commercial land, and rights and options which
represent developable land and construction costs. Residential development land
includes fully entitled lots and land in processing. The company capitalizes
interest and administrative and development costs to both commercial and
residential development properties. During 2003, the company capitalized
construction and related costs of $123 million (2002  $189 million, 2001  $61
million) and $44 million (2002  $28 million, 2001  $17 million) of interest
to its commercial development sites. During 2003, after interest recoveries of
nil (2002  $20 million, 2001  $35 million), the company capitalized to its
residential land operations a net $9 million (2002  recovered net $9 million,
2001  recovered net $11 million) of interest and capitalized a net of nil
(2002 and 2001  nil) of administrative and development costs. In connection
with residential land development operations, these costs are expensed as land
is sold.




---



##### 



ANNUAL REPORT 2003 p.45 The company, through its subsidiaries, is contingently liable for obligations
of its associates in its residential development land joint ventures. In each
case, all of the assets of the joint venture are available first for the
purpose of satisfying these obligations with the balance shared among the
participants in accordance with predetermined joint-venture arrangements As
detailed in Note 2, the company reclassified $558 million from development
properties to commercial properties during the year. NOTE 4: RECEIVABLES AND OTHER A description of these assets is as follows: (Millions)
    
    2003
    
    2002
    
    2001Real estate operating receivables and mortgages
    
    $
    499
    
    
    $
    465
    
    
    $
    506Prepaid expenses and other assets
    
    
    212
    
    
    
    210
    
    
    
    210Non-core real estate assets held for sale
    
    
    6
    
    
    
    51
    
    
    
    41Future income tax assets (Note 7)
    
    
    
    
    
    
    43
    
    
    
    90Total
    
    $
    717
    
    
    $
    769
    
    
    $
    847
 NOTE 5: MARKETABLE SECURITIES Marketable securities are comprised of a portfolio of fixed-rate corporate
bonds which are carried at cost with a fair value equal to their book value and
an average yield of 2.4% which mature over the period of 2005 to 2006. NOTE 6: DISCONTINUED OPERATIONS On October 29, 2002, the Board of Directors approved the special distribution
of the companys U.S. residential home building business, Brookfield Homes
Corporation (Brookfield Homes). On January 6, 2003, the distribution date, the companys common shareholders of
record on January 2, 2003 received a special distribution equivalent to
one-fifth of a Brookfield Homes share for each common share of the company that
they owned. The value of the special distribution, based on a book value of
$323 million of equity, was $2.00 per Brookfield common share. The distribution
was in the form of a return of capital, as approved by the companys
shareholders on December 16, 2002, totaling $323 million, and resulted in a
reduction of the common equity of the company of $323 million. Summarized
financial information for Brookfield Homes at the time of the distribution was
as follows: December 31 (Millions)
    
    2002
    
    2001Residential housing inventory
    
    $
    734
    
    
    $
    749Development properties
    
    
    40
    
    
    
    18Other assets
    
    
    105
    
    
    
    105Total assets
    
    
    879
    
    
    
    872Residential construction financing
    
    
    345
    
    
    
    318Accounts payable and other
    
    
    113
    
    
    
    50Subordinated debt
    
    
    98
    
    
    
    215Net assets of discontinued operations
    
    $
    323
    
    
    $
    289Revenue
    
    $
    897
    
    
    $
    852Net income from discontinued operations, before taxes
    
    $
    73
    
    
    $
    65Income taxes
    
    
    29
    
    
    
    26Results of discontinued operations
    
    $
    44
    
    
    $
    39Cashflow used in operating activities
    
    $
    (13
    )
    
    $
    (69
    )Cashflow provided by financing activities
    
    
    27
    
    
    
    99Cashflow used in investing activities
    
    
    
    
    
    
    Cashflow provided by discontinued operations
    
    $
    14
    
    
    $
    30
 The subordinated note receivable from Brookfield Homes Corporation which was
included in real estate operating receivables and mortgages was repaid in 2003
(2002  $98 million, 2001  $215 million). During 2002, after interest recoveries of $39 million (2001  $40 million), the
company recovered from its residential development operations a net of $9
million (2001  $4 million) of interest. In connection with residential
development operations, these costs are expensed as building lots and homes are
sold.




---



##### 



p.46 BROOKFIELD PROPERTIES At December 31, 2002, residential construction financing totaled $345 million
(2001  $318 million). Residential construction financing related to
construction and development loans which were repaid out of the proceeds from
the sale of building lots, single-family and condominium homes. As new homes
were constructed, further loan facilities were arranged on a rolling basis. The
weighted average interest rate on these facilities as at December 31, 2002 was
4.7% (2001  5.1%) and the balances were due prior to 2006. NOTE 7: INCOME TAXES Future income tax assets (liabilities) consist of the following: (Millions)
    
    2003
    
    2002
    
    2001Future income tax assets related to non-capital and capital losses
    
    $
    469
    
    
    $
    385
    
    
    $
    421Future income tax liabilities related to differences in tax and book basis, net
    
    
    (487
    )
    
    
    (342
    )
    
    
    (331
    )Total
    
    $
    (18
    )
    
    $
    43
    
    
    $
    90
 The future income tax assets (liabilities) relate primarily to non-capital
losses available to reduce taxable income which may arise in the future. The
company and its Canadian subsidiaries have future income tax assets of $235
million (2002  $154 million, 2001   $153 million) that relate to non-capital
losses which expire over the next seven years, and $40 million (2002  $30
million, 2001   $30 million) that relate to capital losses which have no
expiry. The companys U.S. subsidiaries have future income tax assets of $194
million (2002  $201 million, 2001  $238 million) that relate to net operating
losses which expire over the next 17 years. The amount of non-capital losses
and deductible temporary differences, for which no future income tax assets
have been recognized, is approximately $436 million (2002  $443 million, 2001
- $588 million). Future income tax expense consists of the following: (Millions)
    
    2003
    
    2002
    
    2001Income tax expense at the Canadian federal and provincial income
tax rate of 35.0% (2002  37.5%, 2001  40.6%)
    
    $
    141
    
    
    $
    118
    
    
    $
    114Increase (decrease) in income tax expense due to the following:Higher (lower) income taxes in other jurisdictions
    
    
    7
    
    
    
    4
    
    
    
    (2
    )Other shareholders interests in income tax expense
    
    
    (2
    )
    
    
    (5
    )
    
    
    (5
    )Changes in Canadian tax rates
    
    
    (23
    )
    
    
    
    
    
    
    34Tax assets previously not recognized
    
    
    (28
    )
    
    
    (54
    )
    
    
    (45
    )Non-taxable portion of capital gains
    
    
    (1
    )
    
    
    (13
    )
    
    
    (15
    )Other
    
    
    8
    
    
    
    8
    
    
    
    (25
    )Future income tax expense and other non-cash items
    
    $
    102
    
    
    $
    58
    
    
    $
    56
 NOTE 8: COMMERCIAL PROPERTY DEBT The companys commercial property debt outstanding and principal repayments at
December 31, 2003 are as follows: Weighted Average
    
    Principal RepaymentsInterest Rate at
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2009 &
    
    2003
    
    2002
    2001(Millions)
    
    Dec. 31, 2003
    
    2004
    
    2005
    
    2006
    
    2007
    
    2008
    
    Beyond
    
    Total
    
    Total
    TotalCommercial
property debt
    
    
    6.6
    %
    
    $
    265
    
    
    $
    432
    
    
    $
    155
    
    
    $
    611
    
    
    $
    251
    
    
    $
    2,823
    
    
    $
    4,537
    
    
    $
    4,588
    
    
    $
    4,606
 Commercial
property debt includes $1,104 million (2002 
$798 million, 2001  $964 million) repayable in Canadian dollars of C$1,435 million (2002  C$1,260
million, 2001  C$1,532 million). The weighted average interest rate at
December 31, 2003 was 6.6% (2002 and 2001  7.0%). The companys bank credit facility is in the form of a three-year revolving
facility totaling $150 million, which is fully drawn at December 31, 2003. This
facility is floating rate and has a weighted average interest rate of 2.5%. During the year, the company disposed of whole and partial interests in
properties for consideration of cash and the assumption of $246 million of
debt.




---



##### 



ANNUAL REPORT 2003 p.47 NOTE 9: ACCOUNTS PAYABLE AND OTHER LIABILITIES Accounts payable and other liabilities consist of the following: (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
 Advances represent credit facilities which are primarily recourse in nature to
subsidiaries of the company. The revolving five-year term facility is borrowed from a shareholder and bears
interest based on the prime rate. This revolving facility is convertible at
either partys option into a fixed-rate financing at 9.75% repayable in 2015.
Interest expense includes $3 million (2002   $2 million, 2001  $4 million)
relating to these advances. Other advances are comprised mainly of debt attributable to the land
development business of $150 million (2002  $85 million, 2001  $126 million).
The weighted average interest rate on these advances as at December 31, 2003
was 4.4% (2002  4.8 %, 2001   4.2%). Advances totaling $124 million are due
by the end of 2004, and the remaining balances are due prior to 2007. NOTE 10: INTERESTS OF OTHERS IN PROPERTIES Interests of others in properties include the amounts of common equity related
to other shareholders interests in property ownership entities which are
consolidated in the companys accounts. The balances are as follows: Equity(Millions)
    
    Ownership
    
    2003
    
    2002
    
    2001Participation by other shareholders in properties through:Common shares of BPO Properties
    
    
    11.0
    %
    
    $
    72
    
    
    $
    64
    
    
    $
    52Limited partnership units of Brookfield Financial Properties
    
    
    0.6
    %
    
    
    9
    
    
    
    20
    
    
    
    61Total
    
    
    
    
    
    $
    81
    
    
    $
    84
    
    
    $
    113
 NOTE 11: PREFERRED SHARES  SUBSIDIARIES AND CORPORATE Subsidiaries and corporate preferred shares outstanding total $1,001 million
(2002  $579 million, 2001  $585 million) as follows: (a)Subsidiaries of the company have issued the following preferred shares: (Millions)
    
    2003
    
    2002
    
    2001Preferred shares of subsidiaries owned by other shareholdersBPO Properties
    
    $
    294
    
    
    $
    241
    
    
    $
    240100%-owned subsidiaries
    
    
    121
    
    
    
    100
    
    
    
    99Total subsidiary preferred shares
    
    $
    415
    
    
    $
    341
    
    
    $
    339
  (b)
    
    The company has the following preferred shares authorized and outstanding: (Millions, except share information)
    
    Cumulative Dividend Rate
    
    2003
    
    2002
    
    2001Authorized
    
    Outstanding6,312,000
    
    
    6,312,000
    
    
    Class A redeemable voting
    
    
    7.50
    %
    
    $
    11
    
    
    $
    11
    
    
    $
    112,000,000
    
    
    2,000,000
    
    
    Class AA Series E
    
    70%of bank prime
    
    
    34
    
    
    
    34
    
    
    
    343,000,000
    
    
    
    
    
    Class AAA Series A
    
    
    9.00
    %
    
    
    
    
    
    
    
    
    
    
    503,000,000
    
    
    
    
    
    Class AAA Series B
    
    
    9.00
    %
    
    
    
    
    
    
    
    
    
    
    506,000,000
    
    
    
    
    
    Class AAA Series C and D
    
    
    8.00
    %
    
    
    
    
    
    
    67
    
    
    
    1018,000,000
    
    
    8,000,000
    
    
    Class AAA Series F
    
    
    6.00
    %
    
    
    126
    
    
    
    126
    
    
    
    6,000,000
    
    
    4,400,000
    
    
    Class AAA Series G
    
    
    5.25
    %
    
    
    110
    
    
    
    
    
    
    
    8,000,000
    
    
    8,000,000
    
    
    Class AAA Series H
    
    
    5.75
    %
    
    
    151
    
    
    
    
    
    
    
    8,000,000
    
    
    8,000,000
    
    
    Class AAA Series I
    
    
    5.20
    %
    
    
    154
    
    
    
    
    
    
    
    Total corporate preferred shares
    
    
    
    
    
    
    
    
    
    
    
    $
    586
    
    
    $
    238
    
    
    $
    246




---



##### 



p .48 BROOKFIELD PROPERTIES Cumulative preferred dividends are payable quarterly, as and when declared by
the Board of Directors, on the last day of March, June, September and December. The holders of Class A preferred shares are entitled to receive notice of and
to attend all shareholders meetings and for all purposes are entitled to one
vote for each Class A preferred share held, except in respect of the election
of directors, where cumulative voting will apply in the same manner as for the
common shares. Upon giving at least 30 days notice prior to the date set for
redemption, the company may redeem all, or from time to time any part, of the
outstanding Class A preferred shares on payment to the holders thereof, for
each share to be redeemed of an amount equal to C$2.50 per share, together with
all accrued and unpaid cumulative dividends thereon. 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. The terms of the Class AAA Preferred Shares are as follows: Redemption Date(1)
    
    Redemption Price(2)
    
    Companys Option(3)
    
    Holders Option(4)Series F
    
    September 30, 2009
    
    C $25.75
    
    September 30, 2009
    
    March 31, 2013Series G
    
    June 30, 2011
    
    US $26.00
    
    June 30, 2011
    
    September 30, 2015Series H
    
    December 31, 2011
    
    C $26.00
    
    December 31, 2011
    
    December 31, 2015Series I
    
    December 31, 2008
    
    C $25.75
    
    December 31, 2008
    
    December 31, 2010
  (1)
    
    Subject to applicable law and rights of the corporation, the company may,
on or after the dates specified above, redeem Class AAA preferred shares for
cash as follows: the Series F at a price of C$25.75, if redeemed during the 12
months commencing September 30, 2009 and decreasing by C$0.25 each 12-month
period thereafter to a price per share of C$25.00 if redeemed on or after
September 30, 2012; the Series G at a price of US$26.00, if redeemed during the
12 months commencing June 30, 2011 and decreasing by US$0.33 each 12-month
period thereafter to a price per share of US$25.00 if redeemed on or after June
30, 2014; the Series H at a price of C$26.00, if redeemed during the 12 months
commencing December 31, 2011 and decreasing by C$0.33 each 12-month period
thereafter to a price per share of C$25.00 if redeemed on or after December 31,
2014; the Series I at a price of C$25.75, if redeemed during the 12 months
commencing December 31, 2008 and decreasing by C$0.25 each 12-month period
thereafter to a price per share of C$25.00 if redeemed on or after December 31,
2010.(2)
    
    Subject to applicable law and rights of the corporation, the company may
purchase Class AAA preferred shares for cancellation at the lowest price or
prices at which, in the opinion of the Board of Directors of the company, such
shares are obtainable.(3)
    
    Subject to the approval of the Toronto Stock Exchange
(Series G  New York
Stock Exchange) the company may, on or after the dates specified above, convert
the Class AAA, Series F, G, H and I into common shares of the company. The
Class AAA, Series F, G, H and I preferred shares may be converted into that
number of common shares determined by dividing the then-applicable redemption
price by the greater of C$2.00 (Series G  US$2.00) or 95% of the weighted
average trading price of common shares at such time.(4)
    
    Subject to the companys right to redeem or find substitute purchasers, the
holder may, on or after the dates specified above, convert Class AAA, Series F,
G, H and I preferred shares into that number of common shares determined by
dividing the then-applicable redemption price by the greater of C$2.00 (Series
G  US$2.00) or 95% of the weighted average trading price of common shares at
such time. NOTE 12: COMMON SHARES The authorized common share capital consists of an unlimited number of common
voting shares. The issued and outstanding common share capital consists of: (Millions)
    
    2003
    
    2002
    
    2001Common shares
    
    $
    1,084
    
    
    $
    1,448
    
    
    $
    1,459Retained earnings, contributed surplus, and cumulative
translation adjustment
    
    
    831
    
    
    
    645
    
    
    
    485Total
    
    $
    1,915
    
    
    $
    2,093
    
    
    $
    1,944




---



##### 



ANNUAL REPORT 2003 p.49 On October 29, 2002, the Board of Directors approved the special distribution
of the companys U.S. residential home building business, Brookfield Homes. The
distribution was in the form of a return of capital, representing the shares of
Brookfield Homes, and was approved by the companys shareholders on December
16, 2002. This special distribution totaled $323 million and was completed on
January 6, 2003 to shareholders of record on January 2, 2003, as discussed in
Note 6. Retained earnings, contributed surplus and cumulative translation adjustment
include a foreign currency cumulative translation adjustment of $34 million
(2002  $(36) million, 2001  $(27) million) and contributed surplus of nil
(2002  $51 million, 2001   $71 million). During the year, contributed surplus
decreased by $58 million (2002  $14 million, 2001  $21 million) from the
repurchase of the companys common shares, $8 million (2002  $3 million, 2001
- nil) from preferred share issue costs, nil (2002  $3 million) from
transaction costs related to the distribution of Brookfield Homes, nil (2002 -
nil) pursuant to the exercise of options under the market growth feature and
increased by $2 million from stock compensation expense.The amount paid in
excess of the book value of common shares purchased for cancellation was $13
million (2002 and 2001  nil). (a) Common shares During the years 2003, 2002 and 2001, common shares issued and outstanding
changed as follows: 2003
    
    2002
    
    2001Common shares outstanding, beginning of year
    
    
    160,364,416
    
    
    
    161,678,406
    
    
    
    158,746,008Add shares issued on:Exercise of options
    
    
    888,985
    
    
    
    13,913
    
    
    
    195,329Exercise of warrants
    
    
    
    
    
    
    57,997
    
    
    
    2,500,000Conversion of debentures
    
    
    
    
    
    
    
    
    
    
    2,622,100In exchange for shares of BPO Properties
    
    
    
    
    
    
    
    
    
    
    17,669Deduction of shares as a result of repurchases made
    
    
    (5,006,700
    )
    
    
    (1,385,900
    )
    
    
    (2,402,700
    )Common shares outstanding, end of year
    
    
    156,246,701
    
    
    
    160,364,416
    
    
    
    161,678,406
 During 2003, the exercise of options issued under the companys share option
plan generated cash proceeds of $9.4 million (2002  $0.2 million, 2001  $1.4
million). In 2001, 17,669 common shares of the company were issued in
conjunction with deficient tenders. Warrants to acquire common shares of the
company that were exercised during 2002 generated proceeds of $0.5 million
(2001  $24.2 million). During 2003, common shares of the company were acquired
for cancellation pursuant to the normal course issuer bid at an average price
of $21.10 per share (2002  $18.49, 2001  $ 17.30). (b) Earnings per share The components of basic and diluted earnings per share are summarized in the
following table: (Millions, except per share information)
    
    2003
    
    2002
    
    2001Net income
    
    $
    279
    
    
    $
    280
    
    
    $
    241Preferred dividends
    
    
    (20
    )
    
    
    (19
    )
    
    
    (19
    )Total
    
    $
    259
    
    
    $
    261
    
    
    $
    222Weighted average shares outstanding  basic
    
    
    157.4
    
    
    
    161.1
    
    
    
    159.9Dilutive effect of the conversion of warrants and options
    
    
    1.2
    
    
    
    1.2
    
    
    
    3.6Weighted average shares outstanding  diluted
    
    
    158.6
    
    
    
    162.3
    
    
    
    163.5
 (c) Stock-based compensation The company has a management share option plan in which options vest
proportionately over five years and expire 10 years after the grant date. The
exercise price is equal to the market price at the time they are granted.
Compensation expense was calculated using the Black-Scholes model of valuation,
assuming a 10-year term, 22.8% volatility and an interest rate of 5.1%. Pursuant to the distribution of Brookfield Homes on January 6, 2003, the Board
of Directors approved a methodology for adjusting downward the exercise price
of all outstanding stock options at that date, to give effect to this
distribution. This methodology, developed in consultation with the Toronto
Stock Exchange, resulted in the exercise price of all outstanding stock options
being reduced by $1.00 effective February 4, 2003.




---



##### 



p.50 BROOKFIELD PROPERTIES The following table sets out the number of common shares which the company may
issue under the management share option plan: Issue
    
    Expiry
    
    Number
    
    Weighted AverageDate
    
    Date
    
    of Shares
    
    Exercise Price1997
    
    
    2008
    
    
    
    5,000
    
    
    $
    7.631998
    
    
    2009
    
    
    
    440,000
    
    
    
    11.971999
    
    
    2009
    
    
    
    29,300
    
    
    
    9.282000
    
    
    2010
    
    
    
    650,946
    
    
    
    10.652001
    
    
    2011
    
    
    
    694,257
    
    
    
    16.862002
    
    
    2012
    
    
    
    841,496
    
    
    
    18.642003
    
    
    2013
    
    
    
    581,241
    
    
    
    20.753,242,240
    
    
    $
    16.03
 The change in the number of options during the year is as follows: Weighted AverageNumber of
    
    ExerciseOptions
    
    PriceOutstanding, beginning of year
    
    
    3,504,791
    
    
    $
    12.99Granted
    
    
    1,000,000
    
    
    
    18.38Exercised
    
    
    (888,985
    )
    
    
    (8.44
    )Cancelled
    
    
    (373,566
    )
    
    
    (17.05
    )Outstanding, at end of year
    
    
    3,242,240
    
    
    $
    16.03Exercisable at end of year
    
    
    1,136,968
    
    
    $
    13.42
 A Restricted Share Unit Plan is offered to executive officers and non-employee
directors of the company. Under this plan, each officer and director may choose
to receive all or a percentage of his or her annual incentive bonus or
directors fees in the form of deferred share units (DSUs). The DSUs are
vested over a five year period and accumulate additional DSUs at the same rate
as dividends on common shares. Officers and directors are not permitted to
convert the DSUs into cash until retirement or cessation of employment. The
value of the vested and non-vested DSUs, when converted to cash, will be
equivalent to the market value of the common shares at the time the conversion
takes place. Employee compensation expense for these plans is charged against
income over the vesting period of the DSUs. Changes in the amount payable by
the company in respect of vested DSUs as a result of dividends and share price
movements are recorded as employee compensation expense in the period of the
change. Employee compensation expense related to these plans for the year ended
December 31, 2003 was $3 million (2002 and 2001  $2 million). NOTE
13: COMMERCIAL PROPERTY AND RESIDENTIAL DEVELOPMENT OPERATIONS(a) Commercial property operations The results of the companys commercial property operations are as follows: (Millions)
    
    2003
    
    2002
    
    2001Commercial property operations
    
    $
    976
    
    
    $
    943
    
    
    $
    1,007Expenses
    
    
    (379
    )
    
    
    (343
    )
    
    
    (390
    )Lease termination income and gains
    
    
    100
    
    
    
    60
    
    
    
    55Total
    
    $
    697
    
    
    $
    660
    
    
    $
    672
 Due to the events of September 11, 2001 and the impact on the companys
properties in Lower Manhattan, commercial property income includes $11 million
(2002 and 2001  $49 million) of business interruption insurance claims as a
result of loss of revenue.




---



##### 



ANNUAL REPORT 2003 p.51 (b) Development and residential operations Development and residential operations results for the year are as follows: (Millions)
    
    2003
    
    2002
    
    2001Revenue
    
    $
    225
    
    
    $
    321
    
    
    $
    324Expenses
    
    
    (194
    )
    
    
    (299
    )
    
    
    (304
    )Total
    
    $
    31
    
    
    $
    22
    
    
    $
    20
 NOTE 14: GUARANTEES In the normal course of operations, the company and its consolidated
subsidiaries execute agreements that provide for indemnification and guarantees
to third parties in transactions such as business dispositions, business
acquisitions, sales of assets, sales of services, securitization agreements and
underwriting and agency agreements. In particular, the company provided income
guarantees to the co-owners in connection with the sale of certain properties
in prior years. These guarantees are based on a specified level of contractual
occupancy until July 2007 and a specified rate of return until July 2005. Based
on estimated levels of contractual occupancy and rate of return, the company
has provided for potential payments of $2 million at the time of sale. The company has also agreed to indemnify its directors and certain of its
officers and employees. The nature of substantially all of the indemnification
undertakings prevent the company from making a reasonable estimate of the
maximum potential amount that could be required to pay third parties as the
agreements do not specify a maximum amount and the amounts are dependent upon
the outcome of future contingent events, the nature and likelihood of which
cannot be determined at this time. Historically, neither the company nor its
consolidated subsidiaries have made significant payments nor do they expect to
make any significant payments under such indemnification agreements. OTHER INFORMATION NOTE 15: DIFFERENCES FROM UNITED STATES ACCOUNTING PRINCIPLES Canadian generally accepted accounting principles (Canadian GAAP) differ in
some respects from the principles that the company would follow if its
consolidated financial statements were prepared in accordance with accounting
principles generally accepted in the United States (US GAAP). The effects of
significant accounting differences on the companys balance sheet and
statements of income, retained earnings and cashflow are quantified and
described in the accompanying notes. (a) Income statement differences The incorporation of the significant differences in accounting principles in
the companys income statements for the years ended December 31, 2003, 2002 and
2001 under US GAAP would result in net income under US GAAP of $254 million
(2002  $251 million, 2001  $173 million). The main differences between
Canadian GAAP and US GAAP are summarized in the following table: Years ended December 31 (Millions, except per share information)
    
    2003
    
    2002
    
    2001Net income as reported under Canadian GAAP
    
    $
    279
    
    
    $
    280
    
    
    $
    241Adjustments:(i) Increased commercial property income
    
    
    9
    
    
    
    14
    
    
    
    14(ii) Increased commercial property depreciation
    
    
    (60
    )
    
    
    (64
    )
    
    
    (69
    )(iii) Increased commercial property gains
    
    
    9
    
    
    
    
    
    
    
    16(iv) (Increased) decreased deferred income taxes
    
    
    17
    
    
    
    19
    
    
    
    (25
    )(v) Subordinated convertible debenture interest
    
    
    
    
    
    
    
    
    
    
    (2
    )(vi) Stock option expense
    
    
    
    
    
    
    
    
    
    
    (4
    )(vii) Decreased other shareholders interests
    
    
    
    
    
    
    2
    
    
    
    2Net income under US GAAP*
    
    $
    254
    
    
    $
    251
    
    
    $
    173Net income per shareBasic
    
    $
    1.49
    
    
    $
    1.44
    
    
    $
    0.96Diluted
    
    $
    1.48
    
    
    $
    1.43
    
    
    $
    0.95
 * There are no extraordinary items included in these results Other significant differences are outlined in each category between Canadian
GAAP and US GAAP as follows:  (i)
    
    Increased commercial property incomeUnder current Canadian GAAP, rental revenue is recognized over the term
of the lease as it becomes due where increases in rent are intended to
offset the estimated effects of inflation. Under US GAAP, rental revenue
is recognized on a straight-line basis over the term of the lease. The
net impact of using the straight-line method on the income of the company
would be to increase the commercial property revenue by $9 million (2002
  $14 million, 2001  $14 million).




---



##### 



p .52 BROOKFIELD PROPERTIES  (ii)
    
    Increased commercial property depreciationUnder current Canadian GAAP, commercial properties have been depreciated
using the sinking-fund method. Under US GAAP, commercial properties are
depreciated on a straight-line basis. In recalculating depreciation on a
straight-line basis, the additional depreciation expense would be $60
million (2002  $64 million, 2001  $69 million).(iii)
    
    Increased commercial property gainsUnder US GAAP, the book values of commercial property assets differ from
Canadian GAAP as a result of rental revenue recognition and commercial
property depreciation methods, as explained in (i) and (ii). The net
impact of these amounts would be an increase in commercial property gains
of $9 million (2002  nil, 2001  $16 million).(iv)
    
    (Increased) decreased deferred income taxesIncome taxes are accounted for using the liability method under Canadian
and US GAAP. For the year ended December 31, 2003, a reduction of
deferred income tax expense of $17 million (2002 
$19 million, 2001  $31 million) would be recorded under US GAAP due to the tax effect of the
stated differences between Canadian and US GAAP described above.Under current Canadian and US GAAP, the impact of changes in income tax
rates to the tax asset or liability account is reflected in the current
years statement of income. Under Canadian GAAP, the impact of the change
is reflected when the legislation affecting the tax
rate change is substantively enacted, whereas the impact under US GAAP is
reflected when legislation is enacted. In 2000, legislation implementing
a decrease in certain Canadian income tax rates was proposed but not
enacted. This legislation was enacted in 2001. Accordingly, in 2001 an
additional tax expense of $56 million is recorded under US GAAP.(v)
    
    Subordinated convertible debenture interestUnder current Canadian GAAP, the companys subordinated convertible
debentures, which were redeemed in 2001, were recorded as a component of
the companys capital base and the related interest paid recorded as a
distribution from retained earnings, as a result of the companys option
of repaying these debentures by delivering its common shares to the
holders and meeting interest obligations by issuing common shares. The
corresponding interest charge in 2001 was recorded as a charge to income
under US GAAP compared with a distribution from retained earnings of $2
million under Canadian GAAP. There was no effect on basic or diluted net
income per share.(vi)
    
    Stock option expenseUnder Canadian GAAP, a new accounting standard on stock-based
compensation was issued in 2001 and was adopted by the company effective
January 1, 2002 which substantially harmonized Canadian GAAP with US
GAAP. The new standard was applied retroactively without restatement;
therefore, no expense adjustment from Canadian to US GAAP was required
for 2002 and 2003.Under US GAAP, the company adopted the recommendations of the Statement
of Financial Accounting Standards No. 123 (SFAS 123) entitled
Accounting for Stock-Based Compensation which establishes financial
accounting and reporting standards for stock-based employee compensation
plans.Under SFAS 123, the company accounts for stock options or similar equity
instruments under a fair value methodology. Under this method, options
are valued using an acceptable valuation method and the charge on an
annual basis is reflected in the income statement. In 2001, using the
Black-Scholes model of valuation, assuming a 10-year term, 18% volatility
and an interest rate of 5.5%, the cost of stock compensation would be $4
million. This amount has been recorded as an expense under US GAAP.(vii)
    
    Decreased other shareholders interestsUnder US GAAP, other shareholders interests are adjusted for the
differences from Canadian GAAP. The total adjustment results in a
decrease in other shareholders interests of nil (2002 and 2001  $2
million), which relate to a recovery of nil (2002  $3 million, 2001  $4
million) from increased commercial property depreciation, offset by nil
(2002 and 2001  $1 million) relating to the other shareholders
interests in straight-line rental income, and nil (2002  nil, 2001   $1
million) from increased commercial property gains.




---



##### 



ANNUAL REPORT 2003 p.53 (b) Comprehensive income Under US GAAP, the Financial Accounting Standards Board (FASB) issued SFAS
130 entitled Reporting Comprehensive Income. Comprehensive income, which
incorporates net income, includes all changes in equity during the year, and
accordingly, the change in the companys cumulative translation adjustment is
reflected in the companys calculation of comprehensive income for fiscal 2003,
2002 and 2001: Years Ended December 31 (Millions)
    
    2003
    
    2002
    
    2001Net income under Canadian GAAP
    
    $
    279
    
    
    $
    280
    
    
    $
    241Foreign currency translation adjustment under Canadian GAAP
    
    
    70
    
    
    
    (9
    )
    
    
    (39
    )Comprehensive income using Canadian GAAP amounts
    
    $
    349
    
    
    $
    271
    
    
    $
    202
 Comprehensive income using US GAAP amounts is $308 million (2002  $257
million, 2001  $134 million). Differences arise from the application of the
current rate method of currency translation under US GAAP to all periods
presented pursuant to the adoption of the US dollar as the companys reporting
currency, and from other differences between Canadian and US GAAP as described
above under Income statement differences. (c) Balance sheet differences There are differences in the treatment of balance sheet items between Canadian
GAAP and US GAAP. The incorporation of the significant differences in
accounting principles in the companys financial statements as at December 31,
2003, 2002 and 2001 would result in the following balance sheet presentation
under US GAAP: As at December 31 (Millions)
    
    2003
    
    2002
    
    2001AssetsCommercial properties
    
    $
    5,877
    
    
    $
    5,281
    
    
    $
    5,476Development properties
    
    
    684
    
    
    
    944
    
    
    
    575Receivables and other
    
    
    824
    
    
    
    835
    
    
    
    857Deferred income taxes
    
    
    116
    
    
    
    160
    
    
    
    188Marketable securities
    
    
    267
    
    
    
    
    
    
    
    Cash and cash equivalents
    
    
    132
    
    
    
    76
    
    
    
    195Assets of Brookfield Homes Corporation
    
    
    
    
    
    
    879
    
    
    
    872Total assets under US GAAP
    
    $
    7,900
    
    
    $
    8,175
    
    
    $
    8,163Liabilities and shareholders equityCommercial property debt
    
    $
    4,537
    
    
    $
    4,588
    
    
    $
    4,606Notes and shareholders advances
    
    
    119
    
    
    
    98
    
    
    
    115Accounts payable and other liabilities
    
    
    426
    
    
    
    331
    
    
    
    353Liabilities of Brookfield Homes Corporation
    
    
    
    
    
    
    556
    
    
    
    583Interests of others in properties
    
    
    86
    
    
    
    77
    
    
    
    103Preferred sharesSubsidiaries
    
    
    415
    
    
    
    341
    
    
    
    339Corporate
    
    
    598
    
    
    
    250
    
    
    
    273Common shares
    
    
    1,719
    
    
    
    1,934
    
    
    
    1,791Total liabilities and equity under US GAAP
    
    $
    7,900
    
    
    $
    8,175
    
    
    $
    8,163
 Significant differences between Canadian GAAP and US GAAP are as follows: Commercial properties As at December 31 (Millions)
    
    2003
    
    2002
    
    2001Commercial properties under Canadian GAAP
    
    $
    6,297
    
    
    $
    5,661
    
    
    $
    5,802Additional accumulated depreciation under US GAAP
    
    
    (420
    )
    
    
    (380
    )
    
    
    (326
    )Commercial properties under US GAAP
    
    $
    5,877
    
    
    $
    5,281
    
    
    $
    5,476
 There are two principal differences between Canadian GAAP and US GAAP affecting
the carrying value of commercial properties. The first difference relates to US
GAAP requiring straight-line depreciation to be applied to depreciable assets
rather than the sinking-fund method of depreciation. At December 31, 2003, this
would result in a cumulative adjustment of $420 million (2002  $380 million,
2001  $326 million). The second difference relates to the method of accounting
for joint ventures and partnerships. Under Canadian




---



##### 



p .54 BROOKFIELD PROPERTIES GAAP, the accounts of all incorporated and unincorporated joint ventures and
partnerships are proportionately consolidated according to the companys
ownership interest. Under US GAAP, the equity method of accounting is applied.
In circumstances where a joint venture is an operating entity and the
significant financial and operating policies are, by contractual arrangement,
jointly controlled by all parties having an equity interest in the entity, US
regulations do not require adjustment to equity
account the joint ventures. The presentation of the companys joint ventures
does not require adjustment to the equity method. Under Canadian GAAP, commercial properties held for investment purposes are
carried at the lower of cost and net recoverable amount as disclosed in Note
1(c). Under US GAAP, these assets, on an identifiable unit basis, are required
to be reviewed for impairment in accordance with the requirements under SFAS
144 entitled, Accounting for the Impairment or Disposal of Long-Lived Assets.
There is no material impact as a result of this standard as at December 31,
2003, 2002 and 2001. Receivables and other The principal differences in the accounting for receivables and other under US
GAAP are the inclusion of a straight-line rent receivable of $107 million (2002
 $109 million, 2001  $100 million) which would result under US GAAP if the
company straight-lined its revenue and the reclassification of deferred income
taxes. December 31 (Millions)
    
    2003
    
    2002
    
    2001Receivables and other under Canadian GAAP
    
    $
    717
    
    
    $
    769
    
    
    $
    847Straight-line rent receivable
    
    
    107
    
    
    
    109
    
    
    
    100Reclassification of deferred income taxes
    
    
    
    
    
    
    (43
    )
    
    
    (90
    )Receivables and other under US GAAP
    
    $
    824
    
    
    $
    835
    
    
    $
    857
 Deferred income taxes Under US GAAP, the company has a deferred tax asset of $116 million (2002 -
$160 million, 2001  $188 million). The offsetting balance created by this
adjustment decreases accounts payable and other by $18 million (2002  $43
million decrease in receivables and other, 2001  $90 million decrease in
receivables and other), decreases cumulative translation adjustment by $41
million (2002   $9 million, 2001  $5 million) and increases shareholders
equity by $139 million (2002  $122 million, 2001  $103 million). The deferred income tax asset under US GAAP is as follows: December 31 (Millions)
    
    2003
    
    2002
    
    2001Tax assets related to net operating and capital losses
    
    $
    609
    
    
    $
    546
    
    
    $
    587Tax liabilities related to differences in tax and book basis
    
    
    (333
    )
    
    
    (222
    )
    
    
    (179
    )Valuation allowance
    
    
    (160
    )
    
    
    (164
    )
    
    
    (220
    )Deferred income tax asset under US GAAP
    
    $
    116
    
    
    $
    160
    
    
    $
    188
 Common shareholders equity The cumulative impact of US GAAP adjustments to common shareholders equity is
as follows: December 31 (Millions)
    
    2003
    
    2002
    
    2001Common shareholders equity under Canadian GAAP
    
    $
    1,915
    
    
    $
    2,093
    
    
    $
    1,944Adjustment to accumulated depreciation under US GAAP
    
    
    (420
    )
    
    
    (380
    )
    
    
    (326
    )Adjustment to deferred income tax asset under US GAAP
    
    
    134
    
    
    
    117
    
    
    
    98Rental revenue adjustments under US GAAP
    
    
    107
    
    
    
    109
    
    
    
    100Stock option expense adjustments under US GAAP
    
    
    
    
    
    
    
    
    
    
    (8
    )Other shareholders interests
    
    
    
    
    
    
    6
    
    
    
    10Foreign currency translation adjustments, net
    
    
    (17
    )
    
    
    (11
    )
    
    
    (27
    )Common shareholders equity under US GAAP
    
    $
    1,719
    
    
    $
    1,934
    
    
    $
    1,791
 The components of common shareholders equity under US GAAP, after the
adjustments in the previous table, are as follows: December 31 (Millions)
    
    2003
    
    2002
    
    2001Common shares
    
    $
    1,177
    
    
    $
    1,541
    
    
    $
    1,551Additional paid-in capital, net*
    
    
    825
    
    
    
    695
    
    
    
    526Cumulative translation adjustment
    
    
    (100
    )
    
    
    (154
    )
    
    
    (160
    )Cumulative adjustments to net income and retained earnings
    
    
    (183
    )
    
    
    (148
    )
    
    
    (126
    )Common shareholders equity under US GAAP
    
    $
    1,719
    
    
    $
    1,934
    
    
    $
    1,791
 * Net of retained earnings of $526 million (2002  $332 million, 2001  $133
million)




---



##### 



ANNUAL REPORT 2003 p.55 Joint ventures The following amounts represent the companys proportionate interest in
incorporated and unincorporated joint ventures reflected in the companys
balance sheet for US GAAP purposes: As at December 31 (Millions)
    
    2003
    
    2002
    
    2001Assets
    
    $
    1,865
    
    
    $
    1,441
    
    
    $
    1,115Liabilities
    
    
    1,267
    
    
    
    750
    
    
    
    539Operating revenue
    
    
    258
    
    
    
    191
    
    
    
    133Operating expenses
    
    
    109
    
    
    
    81
    
    
    
    50Net income
    
    
    74
    
    
    
    50
    
    
    
    39Cashflows from operating activities
    
    
    116
    
    
    
    65
    
    
    
    61Cashflows provided from investing activities
    
    
    21
    
    
    
    4
    
    
    
    4Cashflows used in financing activities
    
    
    (16
    )
    
    
    (31
    )
    
    
    (73
    )
 (d) Cashflow statement differences The statement of cashflow prepared under US GAAP differs from Canadian GAAP
because US GAAP requires reclassification of interest on convertible debentures
from a financing item to an operating item. As a result, the summarized
cashflow statement under US GAAP is as follows: Years ended December 31 (Millions)
    
    2003
    
    2002
    
    2001Cashflows provided from (used in) the following activitiesOperating
    
    $
    334
    
    
    $
    250
    
    
    
    316Financing
    
    
    129
    
    
    
    (275
    )
    
    
    (374
    )Investing
    
    
    (407
    )
    
    
    (108
    )
    
    
    22Discontinued operations
    
    
    
    
    
    
    14
    
    
    
    30Net increase (decrease) in cash and cash equivalents
    
    $
    56
    
    
    $
    (119
    )
    
    $
    (6
    )
 (e) Change in accounting policies In April 2002, FASB issued SFAS 145, Rescission of FASB Statements 4, 44 and
64, Amendment of FASB Statement No. 13, and Technical Corrections. First, SFAS
145 rescinds SFAS 4, Reporting Gains and Losses from Extinguishment of Debt,
and an amendment of that statement, SFAS 64, Extinguishment of Debt Made to
Satisfy Sinking-Fund Requirements. Because of the rescission of SFAS 4 and
SFAS 64, the gains and losses from the extinguishment of debt are no longer
required to be classified as extraordinary items. Second, SFAS 145 rescinds
SFAS 44, Accounting for Intangible Assets of Motor Carriers. Third, SFAS 145
amends SFAS 13, Accounting for Leases, to require sale-leaseback accounting
for certain lease modifications that have economic effects that are similar to
sale-leaseback transactions. Lastly, SFAS 145 makes various technical
corrections to existing pronouncements that are not substantive in nature. The
company adopted the new standards as of January 1, 2003. In June 2002, FASB issued SFAS 146, Accounting for Costs Associated with Exit
or Disposal Activities. This statement requires a liability to be recognized
for costs associated with exit or disposal activities when they are incurred
rather than at the date upon which a company commits to an exit plan. In November 2002, FASB issued Interpretation No. 45, Guarantors Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others, which elaborates on the disclosure to be made by a
guarantor about its obligations under certain guarantees issued. There is also
a new requirement that a guarantor must recognize, at the inception of a
guarantee, a liability for the fair value of the obligation undertaken in
issuing the guarantee. The interpretation does identify several situations
where the recognition of a liability at inception for a guarantors obligation
is not required. In April 2003, FASB issued SFAS No. 149, Amendment of SFAS No. 133 on
Derivative Instruments and Hedging Activities (SFAS 149). SFAS 149 amends
and clarifies accounting for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging activities
under SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities (SFAS 133). In particular, it clarifies under what circumstances
a contract with an initial net investment meets the characteristic of a
derivative, clarifies when a derivative contains a financing component, amends
the definition of an underlying, and amends certain other existing
pronouncements. The adoption of SFAS No. 149 by the company has not had a
material impact on the results of operations or financial condition. In May 2003, FASB issued SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and Equity (SFAS 150).
SFAS 150 establishes standards for how an issuer classifies and measures
certain financial instruments with characteristics of both liabilities and
equity. It requires that an issuer classify a certain financial instrument that
is within its scope




---



##### 



p.56 BROOKFIELD PROPERTIES as a liability (or an asset in some circumstances). Many of those instruments
were previously classified as equity. Some of the provisions of this statement
are consistent with the current definition of liabilities in FASB Concepts
Statement No. 6, Elements of Financial Statements. The remaining provisions
of this statement are consistent with the proposal to revise that definition to
encompass certain obligations that a reporting entity can or must settle by
issuing its own equity shares, depending on the nature of the relationship
established between the holder and the issuer. The adoption of SFAS No. 150 by
the company has not had a material impact on the consolidated financial
statements. In December 2003, the FASB issued revised Interpretation 46 (FIN 46R),
Consolidation of Variable Interest Entities (VIEs), an Interpretation of
Accounting Research Bulletin 51, Consolidated Financial Statements, and
replaces the previous version of FASB Interpretation 46 issued in January, 2003
(FIN 46). This interpretation applied immediately to VIEs created after
January 31, 2003. A company that holds a variable interest in a VIE it acquired
before February 1, 2003 shall apply the provision of this interpretation no
later than the first fiscal year or interim period ending after March 15, 2004
unless those entities are considered to be special purpose entities in which
the application is to be no later than the end of the first reporting period
that ends after December 15, 2003. This interpretation may be applied
prospectively with a cumulative-effect adjustment as of the date on which it is
first applied or by restating previously issued financial statements for one or
more years with a cumulative-effect adjustment as of the beginning of the first
year restated. The decision whether to consolidate a VIE begins with
establishing that a VIE exists. A VIE exists when either the total equity
investment at risk is not sufficient to permit the entity to finance its
activities by itself, or the equity investor lacks one of three characteristics
associated with owning a controlling financial interest. Those characteristics
are the direct or indirect ability to make decisions about the entitys
activities through voting rights or similar rights, the obligation to absorb
the expected losses of an entity, and the right to receive the expected
residual returns. The entity with the majority of the expected losses or
expected residual return is considered to be primary beneficiary of the entity
and is required to consolidate such entity. FIN 46R is effective for the
company on January 1, 2004. The company has not yet completed its evaluation of
the impact of FIN 46R on its financial position or results of operations. NOTE 16: CONTINGENCIES AND OTHER (a)The company and its operating subsidiaries are contingently liable with
respect to litigation and claims that arise from time to time in the normal
course of business. In the opinion of management, any liability which may arise
from such contingencies would not have a material adverse effect on the
consolidated financial statements of the company. Brookfield does not conduct its operations, other than equity-accounted
investments, through entities that are not fully or proportionately
consolidated in its consolidated financial statements, and has not
guaranteed or otherwise contractually committed to support any material
financial obligations not reflected in its consolidated financial statements. Generally accepted accounting principles require that, where practical,
estimates be made with respect to the fair value of both on and off balance
sheet financial instruments. The financial assets of the company are generally
short-term floating rate loans receivable of a trade nature. At December 31,
2003, the fair value of loans receivable exceeded their book value by $1
million (2002  $4 million, 2001  $1 million). The fair value of mortgages and
loans payable is determined by references to current market rates for debt with
similar terms and risks. As at December 31, 2003, the fair value of mortgages
and loans payable exceeds the book value of these obligations by $178 million
(2002  exceeded the book value by $149 million, 2001  below the book value by
$86 million). The company uses interest rate and foreign exchange forward swaps to manage
risk. Management evaluates and monitors the credit risks of its derivative
financial instruments and endeavors to minimize credit risk through offset
arrangements, collateral, and other credit risk mitigation techniques. The
credit risk of derivative financial instruments is limited to the replacement
value of the instrument, and takes into account any replacement cost and future
credit exposure. The replacement value or cost of interest rate swap contracts
which form part of financing arrangements is calculated by way of discounted
cashflows using market rates adjusted for credit spreads. The company held interest rate swap contracts as at December 31, 2003, with a
total notional amount of $150 million. These interest rate swap contracts were
comprised of contracts with a replacement cost in excess of that recorded in
the companys accounts of $2 million. The interest rate swap transactions
include both fixed and variable rate instruments which mature in five years. (b)As at December 31, 2003, Brookfield has 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 and
its affiliates, other than Brascan Financial and its subsidiaries. The company
is currently in compliance with all terms of the agreements governing the
indebtedness.




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##### 



ANNUAL REPORT 2003 p .57 (c)On September 11, 2001, Brookfield owned eight million square feet of space
in four office towers surrounding the World Trade Center site  One Liberty
Plaza and One, Two and Four World Financial Center. The physical damage
sustained by these properties was mainly cosmetic as a result of the attack on
and subsequent collapse of the World Trade Center and consisted primarily of
replacement of broken windows and some repair to the granite façade on the
World Financial Center. While there was no structural damage to these four
office towers, the glass-enclosed Winter Garden atrium at the center of the
World Financial Center suffered more significant damage from falling debris
than other areas of the complex. This component of the World Financial Center
was fully restored and re-opened in September 2002. To date, approximately $202 million has been received for property and business
interruption claims relating to One Liberty Plaza, One World Financial Center,
the Winter Garden and common areas of the World Financial Center. Two and Four
World Financial Center are covered by insurance in place under the triple-net
leases with Merrill Lynch. Brookfields insurance claim adjustment process is
on-going due to the complexity of the issues involved. However, Brookfield
anticipates recovery of all material amounts relating to the restoration and
business interruption costs of its properties. One Liberty Plaza and Four World Financial Center reopened in October 2001 and
One and Two World Financial Center reopened in the first quarter of 2002. No
material lease cancellations in the New York portfolio occurred as a result of
the events of September 11. Brookfield has insurance covering certain acts of terrorism for up to $500
million of damage and business interruption costs. Brookfield continues to seek
additional coverage equal to the full replacement cost of its assets; however,
until this type of coverage becomes commercially available on an economically
reasonable basis, any damage or business interruption costs as a result of
uninsured acts of terrorism could result in a material cost to the company.
Brookfield believes it is in compliance with all of its loan covenants, despite
not being able to acquire terrorism coverage for the full replacement cost of
all of the companys properties. (d)Certain comparative figures have been reclassified to conform with the
current years presentation. NOTE 17: OTHER INFORMATION (a) Supplemental cashflow information Years ended December 31 (Millions)
    
    2003
    
    2002
    
    2001Investing activitiesDispositions of real estate, net
    
    $
    222
    
    
    $
    193
    
    
    $
    249Acquisitions of real estate, net
    
    
    (172
    )
    
    
    (79
    )
    
    
    (112
    )$
    50
    
    
    $
    114
    
    
    $
    137
 Cash taxes paid were $10 million (2002  $5 million, 2001  $4 million). Cash
interest paid totaled $308 million (2002  $312 million, 2001  $345 million). (b) Rental revenue During 2003, rental revenues from Merrill Lynch accounted for 14% (2002 and
2001  14%) of consolidated revenue. NOTE 18: SUBSEQUENT EVENT Subsequent to December 31, 2003, the company sold its interest in Gulf Canada
Square in Calgary based on a property valuation of C$222 million.




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##### 



p .58 BROOKFIELD PROPERTIES NOTE 19: SEGMENTED INFORMATION The company and its subsidiaries operate in the U.S. within the commercial
property business and the residential land development business. The following
summary presents segmented financial information for the companys principal
areas of business by industry and geographic location: United States
    
    Canada
    
    Total(Millions)
    
    2003
    
    2002
    
    2001
    
    2003
    
    2002
    
    2001
    
    2003
    
    2002
    
    2001AssetsCommercial properties
    
    $
    4,842
    
    
    $
    4,430
    
    
    $
    4,392
    
    
    $
    1,455
    
    
    $
    1,231
    
    
    $
    1,410
    
    
    $
    6,297
    
    
    $
    5,661
    
    
    $
    5,802Development properties
    
    
    373
    
    
    
    711
    
    
    
    374
    
    
    
    311
    
    
    
    233
    
    
    
    201
    
    
    
    684
    
    
    
    944
    
    
    
    575Receivables and other
    
    
    334
    
    
    
    301
    
    
    
    428
    
    
    
    383
    
    
    
    468
    
    
    
    419
    
    
    
    717
    
    
    
    769
    
    
    
    847Marketable securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    267
    
    
    
    
    
    
    
    
    
    
    
    267
    
    
    
    
    
    
    
    Cash and cash equivalents
    
    
    101
    
    
    
    72
    
    
    
    195
    
    
    
    31
    
    
    
    4
    
    
    
    
    
    
    
    132
    
    
    
    76
    
    
    
    195Assets of Brookfield Homes
    
    
    
    
    
    
    879
    
    
    
    872
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    879
    
    
    
    872$
    5,650
    
    
    $
    6,393
    
    
    $
    6,261
    
    
    $
    2,447
    
    
    $
    1,936
    
    
    $
    2,030
    
    
    $
    8,097
    
    
    $
    8,329
    
    
    $
    8,291
 United States
    
    Canada
    
    Total(Millions)
    
    2003
    
    2002
    
    2001
    
    2003
    
    2002
    
    2001
    
    2003
    
    2002
    
    2001Commercial property operationsRental revenues
    
    $
    678
    
    
    $
    687
    
    
    $
    688
    
    
    $
    298
    
    
    $
    256
    
    
    $
    319
    
    
    $
    976
    
    
    $
    943
    
    
    $
    1,007Lease termination income
and gains
    
    
    97
    
    
    
    
    
    
    
    25
    
    
    
    3
    
    
    
    60
    
    
    
    30
    
    
    
    100
    
    
    
    60
    
    
    
    55Expenses
    
    
    244
    
    
    
    240
    
    
    
    254
    
    
    
    135
    
    
    
    103
    
    
    
    136
    
    
    
    379
    
    
    
    343
    
    
    
    390531
    
    
    
    447
    
    
    
    459
    
    
    
    166
    
    
    
    213
    
    
    
    213
    
    
    
    697
    
    
    
    660
    
    
    
    672Land and housingRevenues
    
    
    30
    
    
    
    157
    
    
    
    181
    
    
    
    195
    
    
    
    164
    
    
    
    143
    
    
    
    225
    
    
    
    321
    
    
    
    324Expenses
    
    
    27
    
    
    
    156
    
    
    
    180
    
    
    
    167
    
    
    
    143
    
    
    
    124
    
    
    
    194
    
    
    
    299
    
    
    
    3043
    
    
    
    1
    
    
    
    1
    
    
    
    28
    
    
    
    21
    
    
    
    19
    
    
    
    31
    
    
    
    22
    
    
    
    20Other revenues
    
    
    25
    
    
    
    9
    
    
    
    17
    
    
    
    37
    
    
    
    39
    
    
    
    25
    
    
    
    62
    
    
    
    48
    
    
    
    42Net operating income
    
    
    559
    
    
    
    457
    
    
    
    477
    
    
    
    231
    
    
    
    273
    
    
    
    257
    
    
    
    790
    
    
    
    730
    
    
    
    734Interest expense
    
    
    212
    
    
    
    235
    
    
    
    250
    
    
    
    53
    
    
    
    49
    
    
    
    78
    
    
    
    265
    
    
    
    284
    
    
    
    328Administrative and development
    
    
    20
    
    
    
    18
    
    
    
    22
    
    
    
    24
    
    
    
    24
    
    
    
    22
    
    
    
    44
    
    
    
    42
    
    
    
    44Interests of others in properties
    
    
    2
    
    
    
    7
    
    
    
    5
    
    
    
    19
    
    
    
    23
    
    
    
    23
    
    
    
    21
    
    
    
    30
    
    
    
    28Income before undernoted
    
    
    325
    
    
    
    197
    
    
    
    200
    
    
    
    135
    
    
    
    177
    
    
    
    134
    
    
    
    460
    
    
    
    374
    
    
    
    334Depreciation and amortization
    
    
    54
    
    
    
    52
    
    
    
    48
    
    
    
    25
    
    
    
    28
    
    
    
    28
    
    
    
    79
    
    
    
    80
    
    
    
    76Income before unallocated costs
    
    
    271
    
    
    
    145
    
    
    
    152
    
    
    
    110
    
    
    
    149
    
    
    
    106
    
    
    
    381
    
    
    
    294
    
    
    
    258Taxes and other non-cash items
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    102
    
    
    
    58
    
    
    
    56Net income from continuing operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    279
    
    
    
    236
    
    
    
    202Income from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    44
    
    
    
    39Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    279
    
    
    $
    280
    
    
    $
    241Acquisitions (dispositions)
of real estate, net (Note 17)
    
    $
    (24
    )
    
    $
    2
    
    
    $
    (97
    )
    
    $
    (26
    )
    
    $
    (116
    )
    
    $
    (40
    )
    
    $
    (50
    )
    
    $
    (114
    )
    
    $
    (137
    )Commercial property
tenant improvements
    
    
    13
    
    
    
    36
    
    
    
    24
    
    
    
    13
    
    
    
    13
    
    
    
    26
    
    
    
    26
    
    
    
    49
    
    
    
    50Development and redevelopment
investments
    
    
    167
    
    
    
    195
    
    
    
    75
    
    
    
    7
    
    
    
    11
    
    
    
    26
    
    
    
    174
    
    
    
    206
    
    
    
    101Capital expenditures
    
    
    7
    
    
    
    7
    
    
    
    6
    
    
    
    9
    
    
    
    9
    
    
    
    8
    
    
    
    16
    
    
    
    16
    
    
    
    14




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##### 



ANNUAL REPORT 2003 p .59 Selected Financial Information December 31 (Millions, except per share information)
    
    2003
    
    2002
    
    2001
    
    2000
    
    1999Financial results(1)Commercial property net operating income
    
    $
    697
    
    
    $
    660
    
    
    $
    672
    
    
    $
    611
    
    
    $
    569Funds from operations and gains  continuing operations
    
    
    460
    
    
    
    374
    
    
    
    334
    
    
    
    268
    
    
    
    213Net income from continuing operations
    
    
    279
    
    
    
    236
    
    
    
    202
    
    
    
    140
    
    
    
    125Total assets
    
    
    8,097
    
    
    
    7,450
    
    
    
    7,419
    
    
    
    8,123
    
    
    
    7,535Capital base
    
    
    2,997
    
    
    
    2,433
    
    
    
    2,353
    
    
    
    2,390
    
    
    
    2,293Per diluted common share(1)Common
shares outstanding (millions)
    
    
    156.2
    
    
    
    160.4
    
    
    
    161.7
    
    
    
    158.7
    
    
    
    132.7Fully diluted shares outstanding (millions)
    
    
    159.6
    
    
    
    163.9
    
    
    
    165.1
    
    
    
    167.4
    
    
    
    160.3Funds from operations and gains
    
    $
    2.78
    
    
    $
    2.18
    
    
    $
    1.92
    
    
    $
    1.56
    
    
    $
    1.23Funds from operations prior to lease
termination income and gains
    
    
    2.15
    
    
    
    1.87
    
    
    
    1.63
    
    
    
    1.45
    
    
    
    1.12Net income
    
    
    1.63
    
    
    
    1.34
    
    
    
    1.12
    
    
    
    0.76
    
    
    
    0.67Dividends paid(2)
    
    
    0.50
    
    
    
    0.40
    
    
    
    0.33
    
    
    
    0.25
    
    
    
    0.21Shareholders equity  book value
    
    
    12.31
    
    
    
    11.07
    
    
    
    10.27
    
    
    
    10.06
    
    
    
    8.77Common share price at year end
    
    
    28.70
    
    
    
    18.20
    
    
    
    15.45
    
    
    
    16.35
    
    
    
    8.78Operating dataCommercial propertiesNumber of properties
    
    
    48
    
    
    
    50
    
    
    
    50
    
    
    
    60
    
    
    
    46Rentable area (sq. ft.)
    
    
    46
    
    
    
    46
    
    
    
    45
    
    
    
    46
    
    
    
    33Effective interest (sq. ft.)
    
    
    36
    
    
    
    35
    
    
    
    37
    
    
    
    41
    
    
    
    29Average occupancy (%)
    
    
    94.1
    
    
    
    95.5
    
    
    
    97.3
    
    
    
    97.0
    
    
    
    95.7Property managementArea managed (sq. ft.)
    
    
    140
    
    
    
    130
    
    
    
    120
    
    
    
    120
    
    
    
    119
  (1)
    
    Excludes the assets, liabilities and results
of operations of Brookfield Homes Corporation(2)
    
    Excludes distribution of Brookfield Homes
Corporation