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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549
 FORM 10-K  þ
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934    o
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934  Commission File Number : 001-16765 TRIZEC PROPERTIES, INC. (Exact name of registrant as specified in its charter) Delaware
    
    33-0387846(State or other jurisdiction of
    
    (I.R.S. Employer Identification No.)incorporation or organization)
 10 South Riverside PlazaChicago, IL
    
    60606(Address of principal executive offices)
    
    (Zip Code)
 312-798-6000(Registrants telephone number, including area code)
 Securities registered pursuant to Section 12(b) of the Act: Title of Each Class
    
    Name of Exchange on Which RegisteredCommon Stock, $0.01 par value
    
    New York Stock Exchange
 Securities registered pursuant to Section 12(g) of the Act:None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes þ No o Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is
not contained herein, and will not be contained, to the best of registrants knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. þ Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act
Rule 12b-2).
Yes þ No o The aggregate market value of the registrants outstanding common stock held by non-affiliates of
the registrant on June 30, 2004 was $1,486.7 million based on a closing price of $16.26 as quoted on
the New York Stock Exchange on that date. As of March 4, 2005, 153,834,587 shares of common stock, par value $0.01 per share, were issued and
outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Proxy Statement for the Annual Meeting of Stockholders to be held on May 19, 2005
are incorporated herein by reference in Part III of this Form 10-K.




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Table of Contents PagePART I
    
    
    4Item 1. Business
    
    
    4Item 2. Properties
    
    
    25Item 3. Legal Proceedings
    
    
    33Item 4. Submission of Matters to a Vote of Security Holders
    
    
    34PART II
    
    
    34Item 5. Market for Registrants Common Equity and Related Stockholder Matters
    
    
    34Item 6. Selected Financial Data
    
    
    35Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    39Item 7A. Quantitative and Qualitative Disclosures About Market Risk
    
    
    75Item 8. Financial Statements and Supplementary Data
    
    
    75Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    75Item 9A. Controls and Procedures
    
    
    75Item 9B. Other Information
    
    
    76PART III
    
    
    76Item 10. Directors and Executive Officers of the Registrant
    
    
    76Item 11. Executive Compensation
    
    
    76Item 12. Security Ownership of Certain Beneficial Owners and Management
    
    
    76Item 13. Certain Relationships and Related Transactions
    
    
    76Item 14. Principal Accountant Fees and Services
    
    
    77PART IV
    
    
    77Item 15.
Exhibits and Financial Statement Schedules
    
    
    77Employment Arrangement Letter - Ted JadwinFirst Amendment to 2002 Long-Term Incentive PlanSecond Amendment to Deferred Compensation PlanFirst Amendment to Non-Employee Directors Deferred Compensation Plan2004 Non-Employee Director Fees and Other CompensationSchedule of Compensation for Named Executive DirectorsComputation of Ratio of Earnings to Combined Fixed Charges and Preferred DividendsSubsidiairiesConsent of PricewaterhouseCoopers LLPRule 13a-14(a)/15d-14(a) Certification of CEORule 13a-14(a)/15d-14(a) Certification of CFOSection 1350 Certification of CEOSection 1350 Certification of CFO
  FORWARD-LOOKING STATEMENTS This Form 10-K contains forward-looking statements, within the meaning of Section 21E of the
Securities Exchange Act of 1934 (the Exchange Act), relating to our business and financial
outlook which are based on our current expectations, beliefs, projections, forecasts, future plans
and strategies, and anticipated events or trends. In some cases, you can identify forward-looking
statements by terms such as may, will, should, expects, plans, anticipates, believes,
estimates, predicts, potential or the negative of these terms or other comparable
terminology. We intend these forward-looking statements, which are not guarantees of future
performance and financial condition, to be covered by the safe harbor provisions for
forward-looking statements contained in Section 21E of the Exchange Act. Forward-looking
statements are not historical facts. Instead, such statements reflect estimates and assumptions
and are subject to certain risks and uncertainties that are difficult to predict or anticipate.
Therefore, actual outcomes and results may differ materially from those projected or anticipated in
these forward-looking statements. You should not place undue reliance on these forward-looking
statements, which speak only as of the date this Form 10-K is filed with the Securities and
Exchange Commission. A number of important factors could cause actual results to differ materially
from those indicated by the forward-looking statements, including, without limitation, the risks
described under Item 1. Business  Risk Factors in this Form 10-K. These factors include,
without limitation, the following:  
    changes in national and local economic conditions, including those economic conditions
in our seven core markets;
    the extent, duration and strength of any economic recovery;
    our ability to maintain occupancy and to timely lease or re-lease office space;
    the extent of any tenant bankruptcies and insolvencies; 2




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
    our ability to sell our non-core office properties in a timely manner;
    our ability to acquire office properties selectively in our core markets;
    our ability to maintain REIT qualification and changes to U.S. tax laws that affect REITs;
    Canadian tax laws that affect treatment of investment in U.S. real estate companies;
    competitive environment in which we operate;
    the cost and availability of debt and equity financing;
    the effect of any impairment charges associated with asset dispositions or changes in market conditions;
    the sale or other disposition of shares of our common stock
owned by Trizec Canada Inc.;
    our ability to obtain, at a reasonable cost, adequate insurance coverage for
catastrophic events, such as earthquakes and terrorist acts; and
    other risks and uncertainties detailed from time to time in our filings with the
Securities and Exchange Commission. 3




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PART I In this report, the terms we, us, our, our company and Trizec refer to Trizec
Properties, Inc. and its consolidated subsidiaries. 
 Item 1. Business Overview Trizec Properties, Inc. is one of the largest fully integrated, self-managed, publicly traded
real estate investment trusts, or REITs, in the United States. We are engaged in owning and
managing office properties in the United States. At December 31, 2004, we had total assets of
approximately $4.5 billion and owned interests in and managed 52 U.S. office properties containing
approximately 37.3 million square feet, or approximately 33.8 million square feet based on our pro
rata economic ownership interest in unconsolidated real estate joint ventures. Our office
properties are concentrated in seven core markets in the United States, located in the following
major metropolitan areas: Atlanta, Georgia; Chicago, Illinois; Dallas, Texas; Houston, Texas; Los
Angeles, California; New York, New York; and Washington, D.C. We were originally incorporated as Trizec (USA) Holdings, Inc. in Delaware on October 25,
1989. We changed our name to TrizecHahn (USA) Corporation in 1996 and then to Trizec Properties,
Inc. in 2002. Our principal executive offices are located at 10 South Riverside Plaza, Suite 1100,
Chicago, Illinois 60606 and our telephone number at that address is (312) 798-6000. The Corporate Reorganization On May 8, 2002, a plan of arrangement implementing a corporate reorganization of Canada-based
TrizecHahn Corporation, our former parent company, became effective. As a result of this
reorganization, we became a U.S.-based publicly traded REIT owning, primarily, the U.S. assets that
TrizecHahn Corporation and its subsidiaries owned prior to the reorganization. As a REIT, we are
generally not subject to U.S. federal income tax if we distribute 100% of our taxable income and
comply with a number of organizational and operational requirements. The corporate reorganization was designed to create a publicly traded REIT while reducing
withholding tax liabilities and minimizing the recognition of potential tax liabilities on
unrealized appreciation in value that were present in TrizecHahn Corporations ownership structure
prior to the reorganization. The corporate reorganization was also intended to create economic
equivalence between shares of our common stock and Trizec Canada Inc. subordinate voting shares or
multiple voting shares. The reorganization was implemented pursuant to a plan of arrangement that was approved by the
Ontario Superior Court of Justice and TrizecHahn Corporations shareholders. Upon implementation
of the plan of arrangement, holders of TrizecHahn Corporations subordinate voting shares exchanged
their shares, on a one-for-one basis, for one or more of the following securities:  
    shares of our common stock;
    exchange certificates representing underlying shares of our common stock; or
    Trizec Canada subordinate voting shares. Generally, in exchange for their TrizecHahn Corporation shares, holders of TrizecHahn
Corporation subordinate voting shares who certified that they were qualifying U.S. persons received
shares of our common stock and all other holders received a combination of our exchange
certificates and Trizec Canada subordinate voting shares. The exchange certificates were
exchangeable for our common stock on a one-for-one basis on the condition that the holder provided
us with certification that it was a qualifying U.S. person. At the end of the three-month exchange
period, all exchange certificates that remained outstanding expired, and the shares of common stock
underlying those exchange certificates were sold on the open market to qualifying U.S. persons. As
a result, approximately 60% of our common stock is owned primarily by qualifying U.S. persons. The
remaining 4




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approximately 40% of our common stock is owned indirectly by Trizec Canada through its
subsidiaries, with the result that Trizec Canada indirectly holds one share of our common stock for
each outstanding Trizec Canada subordinate voting share. In addition to owning shares of our common stock, Trizec Canada, indirectly through its
subsidiaries, owns all shares of our Class F convertible stock and special voting stock. Trizec
Canadas indirect ownership of our Class F convertible stock and special voting stock is intended
to maintain the economic equivalence described above. The Class F convertible stock is convertible
into our common stock in certain tax-related circumstances so that Trizec Canada and its
subsidiaries, on the one hand, and our other stockholders, on the other hand, may share ratably
certain future taxes that TrizecHahn Corporation, Trizec Canada or their subsidiaries may incur in
those specified circumstances. The conversion feature applies to taxes incurred in connection with
the corporate reorganization or with specified major corporate transactions entered into within 66
months after the corporate reorganization and specified transactions or events following the 63rd
month after the corporate reorganization. In addition, to address certain non-Canadian tax
liabilities of Trizec Canadas indirect, wholly-owned Hungarian subsidiary and its direct and
indirect shareholders, Trizec Canada receives, directly or indirectly, dividends on our special
voting stock. These dividends, when aggregated with dividends received by the Hungarian subsidiary
on our common stock and after deducting related non-Canadian taxes, equal the dividends received by
our U.S. stockholders on our common stock on a per share basis. Dividends on our special voting
stock are payable only in connection with common stock dividends paid within 66 months after the
corporate reorganization. Our special voting stock also entitles its holder to votes that, when aggregated with votes of
shares of common stock held by Trizec Canada or its subsidiaries, represent a majority of the votes
in elections of our board of directors. As a result of the special voting right, provided that
Trizec Canada holds at least 5% of our common stock, Trizec Canada and its majority shareholder
will have voting control over the election of our directors, even though Trizec Canada will not own
a majority of our common stock. This special voting right will expire on January 1, 2008. Outstanding options to purchase subordinate voting shares of TrizecHahn Corporation were
cancelled and replaced as part of the corporate reorganization. Under the plan of arrangement, all
outstanding stock options of TrizecHahn Corporation were cancelled and exchanged for either (1)
options to purchase our common stock, (2) warrants to purchase our common stock or (3) options to
purchase Trizec Canada subordinate voting shares. Consistent with the one-for-one exchange ratio,
the intrinsic value of each of our options or warrants or each Trizec Canada option immediately
after the corporate reorganization was substantially the same as the intrinsic value of the
replaced TrizecHahn Corporation option immediately prior to the corporate reorganization. By
intrinsic value, we mean the then current market value of the shares subject to the option or
warrant less the exercise price. Additionally, to preserve the economic equivalence between one share of our common stock and
one Trizec Canada subordinate voting share, Trizec Canada or a wholly-owned subsidiary of Trizec
Canada received warrants to purchase one share of our common stock for each Trizec Canada option
issued in the corporate reorganization. All warrants to purchase our shares have a fixed term that
is not contingent on continued service with us or Trizec Canada as an employee, officer or
director. The warrants are freely transferable and fully vested and exercisable. UPREIT Structure On December 22, 2004, we completed the reorganization of our operating structure by converting
to an umbrella partnership real estate investment trust, or UPREIT, structure (the UPREIT
Conversion). In connection with the UPREIT Conversion, we formed a new operating entity, Trizec
Holdings Operating LLC, a Delaware limited liability company (the Operating Company), and entered
into a contribution agreement and an assignment and assumption agreement with the Operating Company
pursuant to which we contributed substantially all of our assets to the Operating Company in
exchange for (a) a combination of common units, special voting units and Series F convertible units
of limited liability company interest in the Operating Company and (b) the assumption by the
Operating Company of substantially all of our liabilities. We now conduct and intend to continue
to conduct our business, and own and intend to continue to own substantially all of our assets,
through the Operating Company. As the sole managing member of the Operating Company, we generally
have the exclusive power under the limited liability company agreement to manage and conduct the
business of the Operating Company, subject to certain 5




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limited approval and voting rights of other members that may be admitted in the future.
Currently, the Operating Company is wholly owned by us. Business and Growth Strategies Our overall goal is to increase stockholder value. We can achieve this goal by creating
sustained growth in operating cash flow and maximizing the value of our assets. We believe we can
accomplish this using the following strategies:  
    intensively leasing and managing our properties to maximize property rent revenue
and minimize property operating expenses;
    vigorously engaging in asset management to enhance the value of our properties;
    actively managing our portfolio to maximize total value of our properties;
    improving the efficiency and productivity of our operations; and
    maintaining a prudent and flexible capital plan. Intensively Leasing and Managing Our Properties By intensively leasing and managing our properties, we expect to maximize property rent
revenue and minimize property operating expenses. To maximize property rent revenue and minimize
property operating expenses, we have focused on:  
    providing appropriate, profitable tenant services;
    where market rents exceed in-place rents, narrowing the gap between market rents and
in-place rents as leases for our properties expire;
    increasing occupancy in our properties;
    renewing leases with existing tenants;
    carefully controlling operating costs; and
    carefully managing investments in tenant improvements. In 2004, average gross rental rates on approximately 5.9 million square feet of new and
renewal leases for our total portfolio decreased by approximately $1.41 per square foot. The
average gross rental rates on approximately 5.5 million square feet of new and renewal leases,
based on our pro rata economic ownership interest in unconsolidated joint ventures, decreased by
approximately $1.51 per square foot. This decrease generally reflected the impact of re-leasing
space in properties at lower average rents than the average rents in effect at lease expiration. Vacant space in our consolidated portfolio of approximately 10.2%, or approximately 3.1
million square feet, vacant space in our total portfolio of approximately 10.7%, or approximately
4.0 million square feet, and vacant space of approximately 10.5%, or approximately 3.5 million
square feet, including our pro rata economic ownership interest in unconsolidated joint ventures,
represents an opportunity to increase our cash flow. Cash received on our rental revenue has and will continue to benefit from contractual rental
increases, opportunistic lease terminations and the execution of blend and extend strategies,
which allow early lease renewals at rates that blend the rents of the current lease with the rents
for the renewal term. Vigorously Engaging in Asset Management Our asset management strategy is to invest capital in our existing portfolio to increase its
value and marketability. To accomplish this strategy, we engage in such activities as acquiring
ground leases and air rights ancillary to existing properties and renovating and upgrading office
properties. In 2004, we incurred approximately $121.8 million for our consolidated portfolio, or
approximately $128.0 million including our pro rata economic ownership interest in unconsolidated
joint ventures, to renovate and upgrade 6




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our properties, including tenant improvements. We intend to continue to actively engage in
these and similar activities as appropriate and as market conditions warrant. Actively Managing Our Portfolio Our portfolio strategy is to invest in office properties in our core markets, which all
represent major metropolitan areas that have historically demonstrated high job growth. For the
year ended December 31, 2004, our seven core markets accounted for approximately 82.8% of our total
office property rental revenue. We believe that focusing on office properties in our core markets
will allow us to achieve economies of scale across a diverse base of tenants and to enjoy a
significant leasing presence in our markets. By maintaining a wider range of properties in a
market, we believe that we are also able to attract a broader tenant base, which provides a more
sustainable cash flow. As part of our focus on office properties in our core markets and core
submarkets, we sold fifteen non-core office assets, a partial interest in one office property, a
partial interest in a joint venture development, two retail assets, and residual land parcels in
2004. With the sales of the retail assets we completed our transformation to a REIT focused solely
on office properties. With the sales of the non-core office assets we have exited several non-core
markets and submarkets where we had owned single office property assets, including Columbus,
Pittsburgh, Baltimore and Sacramento. As part of our long-term strategy, we intend to continue to acquire additional office
properties, as opportunities arise, capital becomes available and market conditions permit,
particularly in these core markets. We may acquire properties individually or as part of a
portfolio, or as joint ventures or other business combinations. We may also acquire additional
equity partners interests on selected properties. As opportunities arise and market conditions
dictate, we may dispose of properties, including non-core assets that are not complementary to this
strategy. We may also dispose of currently owned properties and acquire new ones within our core
markets, or explore entry into other similar markets, based on our view of the direction of the
office properties market. Improving the Efficiency and Productivity of Our Operations The careful control of both property operating expenses as well as general and administrative
expenses is key to achieving our goal of maximizing our operating cash flow. We continue to
evaluate and improve our operational structure and have implemented policies and procedures to
increase productivity. We intend to continue to seek ways to generate general and administrative
expense savings over time. Maintaining a Prudent and Flexible Capital Plan We believe that, in order to maximize our cash flow growth, our asset management and operating
strategies must be complemented by a capital strategy designed to maximize the return on our
capital. Our capital strategy is to:  
    maintain adequate working capital and lines of credit to ensure liquidity and flexibility;
    employ an appropriate degree of leverage;
    maintain floating rate debt at a level that allows us to take advantage of lower
interest costs and minimize loan pre-payment costs when possible; and
    actively manage our exposure to interest rate volatility through the use of
long-term fixed-rate debt and various hedging strategies. We regularly review various credit ratios such as outstanding debt-to-book value, outstanding
debt-to-asset value, fixed charge ratio and interest coverage ratio to monitor our leverage. We
are also aware of the risk of interest rate increases. In order to mitigate the risk of rising
interest rates, we may pursue fixed rate financing. In addition, from time to time, we may enter
into interest rate derivative contracts in order to limit our exposure to increasing interest
rates. At December 31, 2004, by way of interest rate swap agreements, we had fixed the interest
rates on $150.0 million of variable rate debt at a weighted average interest rate of 6.02%. We
monitor both the amount of our leverage and the mix of our fixed/floating-rate debt to provide a
more reliable stream of earnings. 7




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An important source of liquidity for us is our $750.0 million unsecured credit facility that
we entered into in June 2004. The unsecured credit facility consists of a $600.0 million revolving
component and a $150.0 million term component, bears interest at LIBOR plus a spread of 1.15% to
2.0% based on our total leverage, and matures in June 2007. The unsecured credit facility includes
numerous financial covenants that govern our ability to borrow under the facility and the amount of
borrowings that are available under the facility. As of December 31, 2004, the amount eligible to
be borrowed under this facility was approximately $484.9 million, $150.0 million of which was
outstanding. We also have available an effective shelf-registration statement under which we may offer and
sell of up to an aggregate amount of $750.0 million of common stock, preferred stock, depositary
shares representing shares of our preferred stock and warrants exercisable for common stock or
preferred stock. However, our ability to raise funds through sales of common stock, preferred
stock, depositary shares representing shares of our preferred stock and common and preferred stock
warrants is dependent upon, among other things, general market conditions for REITs, market
perceptions about our company, the current trading price of our stock and the current interest
rates. The proceeds from the sale of shares of common stock, preferred stock, depositary shares
representing shares of our preferred stock or common and preferred stock warrants, if any, would be
used for general corporate purposes, which may include, among other things, the acquisition of
additional properties or the repayment of outstanding indebtedness. To the extent we believe it necessary and efficient, we may raise capital through a variety of
means in addition to our traditional secured debt, including but not limited to selling assets,
entering into joint ventures or partnerships with equity providers, issuing equity securities or a
combination of these methods. Competition The leasing of real estate is highly competitive. We compete for tenants with property
owners, lessors and developers of similar properties located in our respective markets primarily on
the basis of location, rent charged, services provided, and the design and condition of our
buildings. We also experience competition when attempting to acquire real estate, including
competition from domestic and foreign financial institutions, other REITs, life insurance
companies, pension trusts, trust funds, partnerships and individual investors. Industry Segments and Seasonality Our primary business is the ownership and management of office properties. Our long-term
tenants are in a variety of businesses and no single tenant is significant to our business. Our
properties are concentrated in seven core markets with similar economic characteristics.
Information by geographic segment for the years ended December 31, 2004, 2003 and 2002 is set forth
in Note 25 to the consolidated financial statements included in this Form 10-K. Our business is
not seasonal. Employees and Organizational Structure At March 4, 2004, we had approximately 740 employees. Of these employees,approximately 175
were employed in our corporate offices, with the remainder employed regionally and locally in the
operation of our property portfolio. Consistent with our focus on core cities, we have dedicated
regional leasing and property management teams based in Atlanta, Georgia; Chicago, Illinois;
Dallas, Texas; Houston, Texas; Los Angeles, California; New York, New York; and Washington, D.C.
Additionally, approximately 120 of our employees who are employed in our office portfolio
operations are represented by labor unions. We consider our labor relations to be positive and
anticipate maintaining agreements with our labor unions on terms satisfactory to all parties. Environmental Matters We are subject to various federal, state and local laws and regulations relating to
environmental matters. Under these laws, we are exposed to liability primarily as an owner or
operator of real property and, as such, we may be responsible for the cleanup or other remediation
of contaminated property. Contamination for which we may be liable could include historic
contamination, spills of hazardous materials in the course of our tenants regular 8




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business operations and spills or releases of hydraulic or other toxic oils. An owner or
operator can be liable for contamination or hazardous or toxic substances in some circumstances
whether or not the owner or operator knew of, or was responsible for, the presence of such
contamination or hazardous or toxic substances. In addition, the presence of contamination or
hazardous or toxic substances on property, or the failure to properly clean up or remediate such
contamination or hazardous or toxic substances when present, may materially and adversely affect
our ability to sell or lease such contaminated property or to borrow using such property as
collateral. Asbestos-containing material, or ACM, is present in some of our properties. Environmental
laws govern the presence, maintenance and removal of asbestos. We believe that we manage ACM in
accordance with applicable laws. We plan to continue managing ACM as appropriate and in accordance
with applicable laws and believe that the cost to do so will not be material. Compliance with existing environmental laws has not had a material adverse effect on our
financial condition and results of operations, and we do not believe it will have such an impact in
the future. In addition, we have not incurred, and do not expect to incur any material costs or
liabilities due to environmental contamination at properties we currently own or have owned in the
past. However, we cannot predict the impact of new or changed laws or regulations on our current
properties or on properties that we may acquire in the future. We have no current plans for
substantial capital expenditures with respect to compliance with environmental laws. Available Information A copy of this Annual Report on Form 10-K, as well as our Quarterly Reports on Form 10-Q,
Current Reports on Form 8-K and any amendments to these reports, are available free of charge on
the Internet at our website, www.trz.com, as soon as reasonably practicable (generally, within one
day) after we electronically file these reports with, or furnish these reports to, the Securities
and Exchange Commission. The reference to our website address does not constitute incorporation by
reference of the information contained on the website and that information should not be considered
part of this document. In addition, we have posted the charters for our Audit Committee, Compensation Committee,
Corporate Governance Committee and Nominating Committee, as well as our Corporate Governance
Principles and our Code of Business Conduct and Ethics, on our website at www.trz.com under the
headings Investors  Corporate Governance. We will also provide a print copy of these documents
to stockholders upon request. RISK FACTORS You should carefully consider the risks described below. These risks are not the only ones
that we may face. Additional risks not presently known to us or that we currently consider
immaterial may also impair our results of operations, financial condition and business operations
generally, and hinder our ability to make distributions to our stockholders. Risks Relating To Our Business Our operating and financial performance and our financial condition, as well as the value of
our real estate assets, are subject to the risks incidental to the ownership and operation of real
estate properties. Our results of operations and financial condition, the value of our real estate assets, and
the value of your investment are subject to the risks normally associated with the ownership and
operation of real estate properties. These risks include, but are not limited to, the following:  
    adverse changes in the national and regional economic climate, as well as the local
economic conditions in core markets in which our properties are located;
    cyclical nature of the real estate industry, particularly in the commercial office
sector, and possible oversupply of, or reduced demand for, office space in our core
markets;
    negative trends in employment levels;
    competition from other commercial office real estate owners who own properties in
our core markets; 9




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
    unfavorable changes in market rental rates and our ability to rent space on favorable terms;
    bankruptcy, insolvency or credit deterioration of our tenants;
    increase in interest rates and lack of availability of financing;
    increases in operating costs, including costs incurred for periodic renovations and
repairs that are necessary as our properties age;
    illiquidity of real estate assets, which may make it difficult for us to sell our
real estate investments in response to changes in the economic climate and real estate
industry;
    civil unrest, acts of terrorism, earthquakes and other natural disasters or acts of
God that may result in uninsured losses;
    attractiveness of our properties to tenants; and
    changes in the availability and affordability of insurance on commercially
reasonable terms, in levels of coverage for our real estate assets and in exclusions
from insurance policies for our real estate assets. In addition, applicable federal, state and local regulations, zoning and tax laws and
potential liability under environmental and other laws may affect real estate values. Further, we
must make significant expenditures, including property taxes, maintenance costs, mortgage payments,
insurance costs and related charges, throughout the period that we own real property regardless of
whether the property is producing any income. The risks associated with real estate investments
may adversely affect our operating results and financial position, and, therefore, may adversely
affect the amount of our dividends or our ability to pay those dividends. If we are not able to renew leases or enter into new leases on favorable terms or at all as
our existing leases expire, our revenue, operating results and cash flows will be reduced. Scheduled lease expirations in our office portfolio over the next five years average
approximately 9.7% annually on a consolidated basis at December 31, 2004. In particular, we expect
significant lease expirations during 2005 for our office properties in the Atlanta, New York and
Washington D.C. markets. We may be unable to promptly renew leases with our existing tenants or
enter into new leases with new tenants as our existing leases expire due to economic and other
factors. In addition, even if we were able to renew existing leases or enter into new leases in a
timely manner, the terms of those leases may be less favorable to us than the terms of expiring
leases because:  
    the rental rates of the renewal or new leases may be significantly lower than those
of the expiring leases; or  
    substantial tenant installation costs, including the cost of required renovations or
concessions to tenants, may be significant. If we are unable to enter into lease renewals or new leases on favorable terms or in a timely
manner for all or a substantial portion of space that is subject to expiring leases, our revenue,
operating results and cash flows will be adversely affected. If a significant number of our tenants defaulted on their leases or sought bankruptcy
protection, our cash flows and operating results would suffer. Our tenants may experience a downturn in their business, which could weaken their financial
condition and result in the tenants inability to make rental payments in a timely manner. In some
cases, a tenant that is facing financial difficulty may simply cease making rental payments.
Either of these events will significantly harm our revenues and negatively affect our operating
results. In addition, a tenant may seek the protection of bankruptcy, insolvency or similar laws
and as part of the bankruptcy proceeding, a court may authorize the tenant to reject and terminate
its lease with us. In such a case, our claim against the tenant for unpaid, future rent would be
subject to a statutory cap that might be substantially less than the remaining rent owed under the
lease. In any event, it is unlikely that a bankrupt tenant will pay in full the amounts it owes us
under a lease. The resulting loss of rental payments and costs associated with re-leasing those
leasable spaces could adversely affect our cash flows and operating results, thereby reducing the
amount of our dividends. 10




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Our business is substantially dependent on the economic climates of seven core markets and the
adverse conditions in these markets, or in the national economy generally, may adversely impact our
results of operations and financial condition. Our real estate portfolio consists of office properties in seven core markets, located in the
following major metropolitan areas: Atlanta, Georgia; Chicago, Illinois; Dallas, Texas; Houston,
Texas; Los Angeles, California; New York, New York; and Washington, D.C. As a result, our business
is substantially dependent on the economic climate within these markets. A continuing, prolonged
downturn in the economies of these core markets, or the impact that a downturn in the overall
national economy may have on these markets, could result in further reduced demand for office
space. A downturn in demand for office space in any one of our core markets could have a material
impact on our ability to lease the office space in our portfolio and may adversely impact our
financial results and our cash flows. Provisions for losses of real estate investments may negatively affect our operating results. Under the relevant accounting rules, if we decide to sell one or more of our real estate
assets, we are required to re-assess the fair value of those properties based on the anticipated
operating income that such properties will generate in light of the reduction of their holding
period. In addition, with respect to our properties that we intend to continue to own, we also are
required to periodically assess the performance and prospects of each such property. Based on
reassessment, we are required to reflect on our financial statements the lower of either fair value
or carrying (or book) value of these properties. To the extent that the fair value of these
properties exceeds their carrying value, we are further required to recognize an impairment charge
equal to such excess amount. During 2004, we recognized an aggregate impairment charge of
approximately $121.7 million for our properties held for sale and certain of our operating
properties. As we continue to monitor the performance of our properties and implement our
repositioning strategy in the future, we may recognize additional impairment charges that are
significant, which would adversely affect our results of operation. We may have difficulty selling our properties due to economic, tax and other reasons. As a
result, we may not be able to sell our properties when appropriate and our repositioning strategy
may be negatively impacted. We implemented a repositioning strategy pursuant to which we commenced selectively disposing
of our non-core properties in core and non-core markets. As part of our repositioning strategy, we
sold fifteen office properties, a partial interest in one office property, a partial interest in a
joint venture development, two retail properties and three land parcels, generating aggregate net
proceeds of approximately $959.9 million during 2004. We intend to continue to pursue our
repositioning strategy throughout 2005 and from time to time opportunistically sell other non-core
properties as part of our overall business. However, real estate investments, especially large and
high quality office properties like the ones that we own, can be difficult to sell quickly or at
all, especially if market conditions are unfavorable. This may limit our ability to change our
portfolio promptly in response to changes in economic or other conditions and continue to implement
our repositioning strategy. In addition, federal tax laws impact our decisions to sell many of our
properties. In this regard, under certain circumstances we could incur federal income tax
liability upon the sale of properties that we have owned for fewer than four years and, until 2011,
we are subject to federal income tax upon the sale of properties that we owned on January 1, 2001,
which was the first day of our first year in which we were taxed as a REIT, but only on the
built-in gain that existed with respect to those properties as of January 1, 2001. Further, for
2005, 2006 and 2007, if we recognize net capital gain on the sale of our office properties, we are
required to reimburse Trizec Canada Inc. and its affiliates for the 35% federal income tax
withholding that would apply to the portion of the net capital gain distributed to Trizec Canada
Inc. and its affiliates. Also, we may enter into tax protection agreements with joint venture
partners that would restrict our ability to sell the affected property in a taxable transaction for
a limited period of time. These potential tax related costs and restrictions may affect our
ability to sell properties in taxable transactions without adversely affecting returns to our
stockholders. If we choose to sell our properties in tax-free exchanges we will not incur these
tax costs, but we will be required to acquire additional properties within a specified statutory
time-frame. These restrictions reduce our ability to respond promptly to changes in the
performance of our investments and could adversely affect our financial condition and results of
operations. 11




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Actual or perceived threat of terrorism may adversely affect operating results from our
properties. Our portfolio is concentrated in large metropolitan areas, some of which have been or may be
perceived to be subject to terrorist attacks. Furthermore, many of our properties consist of
high-rise buildings, which may also be subject to this actual or perceived threat, which could be
heightened in the event that the U.S. engages in additional armed conflict. This could have a
material adverse affect on our ability to lease the office space in our portfolio. Furthermore,
the implementation of increased security measures at our properties increases property costs,
which, in some cases, we may not be able to fully pass on to tenants. Each of these factors could
have a material adverse impact on our operating results and cash flow, as well as the amount of our
dividends. Compliance with our tax cooperation agreement for the benefit of Trizec Canada Inc. may limit
our flexibility in making real estate investments and conducting our business. In connection with our 2002 corporate reorganization, we entered into a tax cooperation
agreement with TrizecHahn Office Properties Ltd., a wholly-owned, Canadian subsidiary of TrizecHahn
Corporation. Under the agreement, we have agreed to continue to conduct our business activities
with regard to the consequences to Trizec Canada Inc. and its affiliates under Canadian tax laws,
as they may be amended from time to time. Compliance with this agreement may require us to conduct
our business in a manner that may not always be the most efficient or effective because of
potential adverse Canadian tax consequences to Trizec Canada Inc. and its affiliates. Furthermore,
we may incur incremental costs due to the need to reimburse Trizec Canada Inc. and its affiliates
for tax liabilities incurred by them as a result of our operations. The tax cooperation agreement
terminates on December 31, 2007. Our financial covenants could adversely affect our financial condition and results of
operations. The financings secured by our properties contain customary covenants such as those that limit
our ability, without the prior consent of the lender, to further mortgage the applicable property
or to discontinue insurance coverage. In addition, our unsecured credit facility
contains certain customary restrictions, requirements and other limitations on our ability to incur
indebtedness, including debt ratios that we are required to maintain. We expect to rely on borrowings under the unsecured credit facility for working capital,
liquidity, funds for dividends and to finance potential future acquisition and development
activities. Our ability to borrow under the unsecured credit facility is subject to compliance
with our financial and other covenants. If we are unable to borrow under the unsecured credit
facility, or to refinance existing indebtedness, our financial condition and results of operations
would likely be adversely impacted. If we breach covenants in a debt agreement, the lender can
declare a default and require us to repay the debt immediately and, if the debt is secured, can
take possession of the property securing the loan. In addition, some of our financings may be
cross-defaulted or cross-accelerated to our other indebtedness. A cross-default or
cross-acceleration may give the lenders under those financings the right also to declare a default
or accelerate payment of the loan. Our degree of leverage may adversely affect our business and the market price of our common
stock. At December 31, 2004, our leverage, which we define as the ratio of our mortgage debt and
other loans to the sum of net debt and the book value of stockholders equity, was approximately
53.1%. Our degree of leverage could adversely affect our ability to obtain additional financing for
working capital, capital expenditures, acquisitions, developments or other general corporate
purposes. Our degree of leverage could also make us more vulnerable to a downturn in our business
or the economy generally. We do not currently have a policy limiting our degree of leverage, nor
do our organizational documents contain such limits. We have entered into certain financial
agreements that contain financial and operating covenants limiting our ability under certain
circumstances to incur additional indebtedness. There is also a risk that a significant increase
in the ratio of our indebtedness to the measures of asset value used by financial analysts may have
an adverse effect on the market price of our common stock. 12




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Our historical financial information may not be representative of our financial position,
operating results and cash flows as a separate company. Our combined consolidated financial statements for periods prior to the effective date of our
2002 corporate reorganization have been carved out from the consolidated financial statements of
TrizecHahn Corporation using the historical operating results and historical bases of the assets
and liabilities of the businesses that we comprise. Accordingly, the historical financial
information that we have included in this report does not necessarily reflect what our financial
position, operating results and cash flows would have been had we been a separate, stand-alone
public entity during all of the periods presented. Prior to the effective date of our 2002 corporate reorganization, TrizecHahn Corporation
accounted for us as, and we operated as, a separate, stand-alone entity. Our costs and expenses
include payments made to TrizecHahn Corporation for direct reimbursement of third-party purchased
services and a portion of salaries, for certain employees, for direct services rendered. We
consider these charges to be reasonable reflections of the use of services provided to us for the
benefit that we received. Our historical financial information is not necessarily indicative of what our operating
results, financial position and cash flows will be in the future. We have not made adjustments to
our historical financial information to reflect changes that have occurred in our cost structure as
a result of our 2002 corporate reorganization, including increased costs associated with being a
publicly traded, stand-alone company. These incremental costs included, but are not limited to,
additional senior management compensation expense to supplement the existing management team, and
internal and external public company corporate compliance costs. If we are unable to manage our interest rate risk effectively, our cash flows and operating
results may suffer. At December 31, 2004 we had approximately $108.8 million of debt outstanding subject to
variable interest rates, and we may incur additional debt that bears interest at variable rates.
Accordingly, if interest rates increase, our debt costs will also increase. To manage our overall
interest rate risk, we enter into fixed rate loans and floating rate loans. We also enter into
interest rate protection agreements consisting of swap contracts and cap contracts in order to
mitigate the effect of increasing rates on a portion of our floating rate debt. Developing an
effective interest rate strategy, however, is complex, and no strategy can completely insulate us
from the risks associated with interest rate fluctuations. Despite our hedging activities, we
cannot assure you that we will be able to manage our interest rate risk effectively or that our
variable rate exposure will not have a material adverse effect on our cash flows, operating results
and cash available for distribution. Furthermore, our interest rate hedging arrangements may
expose us to additional risks, including additional costs, such as transaction fees or breakage
costs, or requirements to post collateral for hedges that may have decreased in value since
execution. Although our interest rate risk management policy establishes minimum credit ratings
for counterparties, this does not eliminate the risk that a counterparty may fail to honor its
obligations. We cannot assure you that our hedging activities will have the desired beneficial
impact on our results of operations or financial condition. Our insurance may not cover some potential losses or may not be obtainable at commercially
reasonable rates, which could adversely affect our financial condition and results of operations. We carry insurance on our properties of types and in amounts that we believe are in line with
coverage customarily obtained by owners of similar properties. The property insurance that has
been maintained historically has been on an all risk basis, which until 2003 included losses
caused by acts of terrorism. Following the terrorist activity of September 11, 2001 and the
resulting uncertainty in the insurance market, insurance companies generally excluded insurance
against acts of terrorism from their all risk policies. As a result, our all risk insurance
coverage contained specific exclusions for losses attributable to acts of terrorism. In light of
this development, for 2003 we purchased stand-alone terrorism insurance on a portfolio-wide basis
with an annual aggregate limit of $250 million. Effective December 31, 2003, we amended our
insurance coverage for acts of terrorism as a result of the Terrorism Risk Insurance Act of 2002
(TRIA) enacted by Congress and signed into law by President Bush in November 2002. Effective
December 31, 2003, we formed a wholly-owned taxable REIT subsidiary, Concord Insurance Limited
(Concord), to act as a captive insurance company and be the primary carrier with respect to our
terrorism insurance program. Our expired terrorism insurance program that provided a limit of $250
million in the aggregate per year was replaced with a terrorism insurance program with a limit of
$500 million per occurrence, as 13




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prescribed under the provisions of TRIA. This current terrorism insurance program provides
coverage for certified nuclear, chemical and biological exposure, whereas the previous insurance
coverage did not cover such exposure. Under TRIA, we have a per occurrence deductible of $0.1
million and retain responsibility for 10% of the cost of each nuclear, chemical and biological
certified event up to a maximum of $50 million per occurrence. If the certified terrorism event is
not found to be a nuclear, chemical or biological event, our 10% exposure is limited to the $0.1
million deductible. The federal government is obligated to cover the remaining 90% of the loss
above the deductible up to $100 billion in the aggregate annually. Since the limit with respect to
our portfolio may be less than the value of the affected properties, terrorist acts could result in
property damage in excess of our current coverage, which could result in significant losses to us
due to the loss of capital invested in the property, the loss of revenues from the impacted
property and the capital that would have to be invested in that property. Any such circumstance
could have a material adverse effect on our financial condition and results of our operations. In
the future, we may obtain different coverage depending on the availability and cost of third party
insurance in the marketplace. During 2003, we received notices to the effect that our insurance coverage against acts of
terrorism may not comply with loan covenants under certain debt agreements. We reviewed our
coverage and believe that it complied with these documents and that our insurance coverage
adequately protected the lenders interests. We initiated discussions with these lenders to
satisfy their concerns and assure that their interests and our interests are adequately protected.
As a result of our discussions, the lenders who sent notices in 2003 accepted the insurance
coverage that we provided, one of whom did so with a formal written irrevocable waiver for the 2003
policies. The new terrorism insurance program described above became effective on December 31, 2003.
Because the program relies upon TRIA, which was not signed into law until November 2002, it does
not conform to the formal insurance requirements of the loan covenants that pre-dated TRIA. If a
lender takes the position that our insurance program is not in compliance with covenants in a debt
agreement, we could be deemed to be in default under the agreement. In that case, we may decide to
obtain insurance to replace or supplement our insurance program in order to fulfill the lenders
request. In the future, our ability to obtain debt financing, or the terms of such financing, may
be adversely affected if lenders insist upon additional requirements or greater insurance coverage
against acts of terrorism than may be available to us in the marketplace at rates or on terms that
are commercially reasonable. Effective May 1, 2004, we elected to also utilize Concord to underwrite our general liability
and workers compensation insurance programs. Under such insurance programs, we are generally
responsible for up to $0.3 million per claim for both general liability and workers compensation.
We maintain excess liability insurance with independent insurance carriers to minimize risks
related to catastrophic claims. Liabilities associated with the risks that are retained by us are
estimated, in part, by considering historical claims experience, demographic factors, severity
factors and other actuarial assumptions. The estimated accruals for these liabilities could be
significantly affected if future occurrences and claims differ from these assumptions and
historical trends. Insofar as we own Concord, we are responsible for its liquidity and capital resources, and the
accounts of Concord are part of our consolidated financial statements. If we experience a loss and
Concord is required to pay under its insurance policies, we would ultimately record the loss to the
extent of Concords required payment. Effective December 31, 2004, we formed Concordia Insurance LLC and Chapman Insurance LLC to
underwrite terrorism, general liability and workers compensation insurance programs for our wholly
owned and joint venture properties, respectively. Effective December 31, 2004, Concord underwrote
terrorism, general liability and workers compensation insurance programs only for properties for
which we have third party management agreements. Our earthquake insurance on our properties located in areas known to be subject to earthquakes
is in an amount and subject to deductibles that we believe is commercially reasonable. However,
the amount of earthquake insurance coverage may not be sufficient to cover all losses from
earthquakes. Since the limit with respect to our portfolio may be less than the value of the
affected properties, earthquakes could result in property damage in excess of our current coverage,
which could result in significant losses to us due to the loss of capital invested in the property,
the loss of revenues from the impacted property and the capital that would have to be invested in
that property. Any such circumstance could have a material adverse effect on our financial
condition and results of 14




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operations. As a result of increased costs of coverage and decreased availability, the
amounts of the third party earthquake insurance we may be able to purchase on commercially
reasonable terms may be reduced. In addition, we may discontinue earthquake insurance on some or
all of our properties in the future if the premiums exceed our estimate of the value of the
coverage. There are other types of losses, such as from acts of war, acts of bio-terrorism or the
presence of mold at our properties, for which coverage is not available in the market to us or
other purchasers of commercial insurance policies. With respect to such losses and losses from
acts of terrorism, earthquakes or other catastrophic events, if we experience a loss that is
uninsured or that exceeds policy limits, we could lose the capital invested in the damaged
properties, as well as the anticipated future revenues from those properties. Depending on the
specific circumstances of each affected property, it is possible that we could be liable for
mortgage indebtedness or other obligations related to the property. Any such loss could materially
and adversely affect our business and financial condition and results of operations. Additionally, although we generally obtain owners title insurance policies with respect to
our properties, the amount of coverage under such policies may be less than the full value of such
properties. If a loss occurs resulting from a title defect with respect to a property where there
is no title insurance or the loss is in excess of insured limits, we could lose all or part of our
investment in, and anticipated income and cash flows from, such property. Fixed real estate costs may intensify revenue losses when income from our properties
decreases. Our financial results depend primarily on leasing space in our office properties to tenants on
terms favorable to us. Costs associated with real estate investments, such as real estate taxes
and maintenance and other operating costs, generally do not decrease even when a property is not
fully occupied or other circumstances cause a reduction in income from the property. Cash flow and
income from the operations of our properties may be reduced if a tenant does not pay its rent.
Under those circumstances, we might not be able to enforce our rights as landlord without delays,
we may be unable to re-lease properties on favorable terms and we might incur substantial legal
costs. Additionally, new properties that we may acquire or develop may not produce significant
revenue immediately, and the cash flow from existing operations may be insufficient to pay the
operating expenses and debt service associated with that property until the property is fully
leased. Each of these circumstances can further reduce cash flows and operating results by
requiring us to expend capital to cover our fixed real estate costs, thereby reducing the amount of
our dividends. Competition may adversely affect the ability to lease our properties, which may cause our cash
flows and operating results to suffer. We face significant competition from developers, managers, operators and owners of office and
mixed-use properties in seeking tenants for our properties. These competing properties may have
vacancy rates higher than our properties, which may result in their owners being willing to make
space available at lower prices than the space in our properties, particularly if there is an
oversupply of space available in the market. Competition for tenants could have a material adverse
effect on our ability to lease our properties and on the rents that we may charge or concessions
that we must grant. If our competitors adversely impact our ability to lease our properties, our
cash flows and operating results may suffer, and consequently we may reduce the amount of our
dividends. We face significant competition for acquisitions which could adversely affect our growth
strategy. Assuming we are able to obtain capital on commercially reasonable terms and the market
conditions are favorable, we may selectively acquire new office properties in our core markets and
other key locations as part of our growth and repositioning strategy. However, we face significant
competition from other well-capitalized real estate investors, including both publicly traded and
private REITs, investment banks, and institutional investment funds for attractive investment
opportunities. Such competition may significantly increase the purchase price of new acquisitions
or prevent us from acquiring a desired property, which would adversely affect our operating results
and adversely affect our growth and repositioning strategy. 15




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Our acquisitions may fail to perform as expected. Even if we are able to find and acquire suitable office properties, those properties may fail
to perform as expected. For example, we may underestimate the costs necessary to bring an acquired
property up to standards established for its intended market position or may be unable to quickly
and efficiently integrate new acquisitions into our existing operations. We may also acquire
properties subject to liabilities and without any recourse, or with only limited recourse, with
respect to unknown liabilities. Each of these factors could have an adverse affect on our results
of operations and financial condition. Because we must distribute a substantial portion of our net income to qualify as a REIT, we
will be dependent on third-party sources of capital to fund our future capital needs. To qualify as a REIT, we generally must distribute to our stockholders at least 90% of our net
taxable income each year, excluding capital gains. Because of this distribution requirement, it is
not likely that we will be able to fund all of our future capital needs, including capital for
property acquisitions and developments, from our net income. In addition, we may not have
sufficient cash or other liquid assets on hand to satisfy our distribution requirements in any one
year. Therefore, we will have to rely on third-party sources of capital to fund these obligations,
which may not be available on favorable terms or at all. Our access to third-party sources of
capital depends on a number of things, including the markets perception of our growth potential
and our current and potential future earnings. If we are not able to obtain third-party sources of
capital on favorable terms, our results of operations could be adversely affected, which could
result in a decline in the market value of our securities. If we are not able to obtain capital
from third-parties at all, our results of operations likely would be adversely affected, and our
ability to make distributions to our stockholders and qualify as a REIT could be jeopardized.
Moreover, additional equity offerings may result in substantial dilution of our stockholders
interests, and additional debt financing may substantially increase our leverage. We face risks associated with the use of debt to finance our business, including refinancing
risk. We incur debt in the ordinary course of our business. We expect that we will repay prior to
maturity only a small portion of the principal of our debt. We therefore plan to meet our maturing
debt obligations partly with existing cash and available credit, cash flows from operations and
sales of non-core assets, but primarily through the refinancing of maturing debt obligations with
other debt. We are subject to risks normally associated with debt financing, and our ability to
refinance our debt will depend on:  
    our financial position;
    the estimated cash flow of our properties;
    the value of our properties;
    liquidity in the debt markets;
    the availability on commercially acceptable terms of insurance coverage required by lenders;
    general economic and real estate market conditions; and
    financial, competitive, business and other factors, including factors beyond our control. We cannot assure you that any refinancing of debt with other debt will be possible on terms
that are favorable or acceptable to us. If we cannot refinance, extend or pay principal payments
due at maturity with the proceeds of other capital transactions, such as new equity capital, our
cash flows will not be sufficient in all years to repay debt as it matures. Restrictions in loan agreements may limit the distributions we receive from our operating
subsidiaries and the amounts available for distributions to you as dividends on our common stock. We conduct our operations through operating subsidiaries. We and some of our subsidiaries,
including subsidiaries that carry on a substantial part of our overall business, are parties to
loan agreements containing provisions that require the maintenance of financial ratios and impose
limitations on additional indebtedness and distributions in respect of capital stock. These
provisions may limit the amount and flexibility of our current and future financings, the receipt
of cash distributions from some of our subsidiaries and, therefore, the amounts that will 16




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be available for distributions to you as dividends on our common stock. In addition, to
qualify as a REIT, we generally must distribute to our stockholders at least 90% of our net taxable
income each year, excluding capital gains. The provisions in loan agreements discussed above may
impair our ability to make the requisite distributions to our stockholders and may force us to
borrow funds on a short-term basis to meet the distribution requirements. We cannot assure you
that we will be able to borrow funds on terms that are favorable to us. Our success depends on key personnel whose continued service is not guaranteed. We depend on the efforts of executive officers and other key personnel, particularly Timothy
H. Callahan, our president and chief executive officer. Among the reasons that they are important
to our success is that each has a national reputation which attracts business and investment
opportunities and assists us in negotiations with lenders. Our regional executive officers also
have strong regional reputations. Their reputations aid us in identifying opportunities, having
opportunities brought to us, and negotiating with tenants and build-to-suit prospects. While we
believe we could find replacements for these key personnel, the loss of their services could
adversely impact our relationships with potential tenants, lenders and industry personnel. Environmental problems at our properties are possible and may be costly. We are subject to various federal, state and local laws and regulations relating to
environmental matters, as described in more detail above under Item 1  Business  Environmental
Matters. Under these laws, we are exposed to liability primarily as an owner or operator of real
property and, as such, we may be responsible for the cleanup or other remediation of contaminated
property, which could result in substantial costs that could adversely affect our operating results
and cash flow. We believe that our exposure to environmental liabilities under currently applicable laws is
not material. We cannot assure you, however, that we currently know of all circumstances that may
give rise to such exposure. Furthermore, environmental laws and regulations can change rapidly,
and we may become subject to more stringent environmental laws and regulations in the future.
Compliance with more stringent environmental laws and regulations could have a material adverse
effect on our operating results or financial condition. Additional regulations applicable to our properties could require us to make substantial
expenditures to ensure compliance, which could adversely affect our cash flows and operating
results. Our properties are, and properties that we may acquire in the future will be, subject to
various federal, state and local regulatory requirements such as local building codes and other
similar regulations. If we fail to comply with these requirements, governmental authorities may
impose fines on us or private litigants may be awarded damages against us. We believe that our properties are currently in substantial compliance with all applicable
regulatory requirements. New regulations or changes in existing regulations applicable to our
properties, however, may require us to make substantial expenditures to ensure regulatory
compliance, which would adversely affect our cash flows and operating results. Compliance with changing regulation of corporate governance and public disclosure may result
in additional expense. Changing laws, regulations and standards relating to corporate governance and public
disclosure, including the Sarbanes-Oxley Act of 2002, new SEC regulations and New York Stock
Exchange rules, are creating uncertainty for companies such as ours. These new or changed laws,
regulations and standards are subject to varying interpretations in many cases due to their lack of
specificity, and as a result, their application in practice may evolve over time as new guidance is
provided by regulatory and governing bodies, which could result in continuing uncertainty regarding
compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance
practices. We are committed to maintaining high standards of corporate governance and public
disclosure. As a result, our efforts to comply with evolving laws, regulations and standards have
resulted in, and are likely to continue to result in, increased general and administrative expenses
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and attention from revenue-generating activities to compliance activities. In particular, our
efforts to comply with Section 404 of the Sarbanes-Oxley Act of 2002 and the related regulations
regarding our required assessment of our internal controls over financial reporting and our
external auditors audit of that assessment has required the commitment of significant financial
and managerial resources. In addition, it has become more difficult and more expensive for us to
obtain director and officer liability insurance, and we have purchased reduced coverage at
substantially higher costs than in past. We expect these efforts to require the continued
commitment of significant resources. Further, our board members, chief executive officer and chief
financial officer could face an increased risk of personal liability in connection with the
performance of their duties. As a result, we may have difficulty attracting and retaining
qualified board members and executive officers, which could harm our business. If our efforts to
comply with new or changed laws, regulations, and standards differ from the activities intended by
regulatory or governing bodies due to ambiguities related to practice, our reputation may be
harmed. We do not have sole control over the properties that we hold with co-venturers or partners or
over the revenues and certain decisions associated with those properties, which may limit our
flexibility with respect to these investments. As of December 31, 2004, we owned interests in seven unconsolidated real estate joint ventures
and one unconsolidated development joint venture. The office properties that we own through
unconsolidated real estate joint ventures or partnerships totaled approximately 7.0 million square
feet, with our ownership interest totaling approximately 3.5 million square feet. In addition, we
owned interests in two consolidated real estate joint ventures totaling approximately 900,000
square feet. A joint venture or partnership involves risks, including the risk that a co-venturer
or partner:  
    may have economic or business interests or goals that are inconsistent with our
economic or business interests or goals;
    may take actions contrary to our instructions or requests, or contrary to our
policies or objectives with respect to our real estate investments (including actions
that may be inconsistent with our REIT status);
    may have to give its consent with respect to certain major decisions, including the
decision to distribute cash, refinance a property or sell a property; and
    may become bankrupt, limiting its ability to meet calls for capital contributions
and potentially making it more difficult to refinance or sell the property. We do not have sole control of certain major decisions relating to the properties that we own
through joint ventures, including decisions relating to:  
    the sale of the properties;
    refinancing;
    timing and amount of distributions of cash from such properties to us;
    capital improvements; and
    calling for capital contributions. In some instances, although we are the property manager for a joint venture, the other joint
venturer retains approval rights over specific leases or our leasing plan. In addition, the sale
or transfer of interests in some of our joint ventures and partnerships is subject to rights of
first refusal or first offer and some joint venture and partnership agreements provide for buy-sell
or similar arrangements. Such rights may be triggered at a time when we may not want to sell but
may be forced to do so because we may not have the financial resources at that time to purchase the
other partys interest. Such rights may also inhibit our ability to sell our interest in a
property or a joint venture or partnership within our desired time frame or on any other desired
basis. Our failure to qualify as a REIT would decrease the funds available for distribution to our
stockholders and adversely affect the market price of our common stock. We believe that we have qualified for taxation as a REIT since 2001. We intend to continue to
meet the requirements for taxation as a REIT, but we cannot assure stockholders that we will
qualify as a REIT. If we fail to 18




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qualify for taxation as a REIT in any taxable year, we will face serious tax consequences that
will substantially reduce the funds available for dividend distributions due to the following
reasons:  
    we will be subject to tax on our taxable income at regular corporate rates;
    we will not be able to deduct, and will not be required to make, distributions to
stockholders in any year in which we fail to qualify as a REIT;
    we could be subject to federal alternative minimum tax or increased state and local
taxes; and
    unless we are entitled to relief under specific statutory provisions, we will be
disqualified from taxation as a REIT for the four taxable years following the year
during which we lost our qualification. Furthermore, if we failed to qualify as a REIT for 2007, the conversion rights of the holder of our
Class F convertible stock, Trizec Canada Inc. and its affiliates, could be triggered and, as a
result, your interest in us would be immediately diluted and the value of our common stock would be
adversely affected. In addition, failing to qualify as a REIT likely would impair our ability to
raise capital and expand our business, and likely would adversely affect the market price of our
common stock. Determination of REIT status is highly technical and complex. Even a technical or inadvertent
mistake could endanger our REIT status. The determination that we qualify as a REIT requires an
ongoing analysis of various factual matters and circumstances, some of which may not be within our
control. For example, to qualify as a REIT, at least 95% of our gross income must come from
sources that are itemized in the REIT tax laws, and we are prohibited from owning specified amounts
of debt or equity securities of some issuers. We are also required to distribute to shareholders
at least 90% of our REIT taxable income, excluding capital gains. The fact that we hold some of
our assets through joint ventures and our ongoing reliance on factual determinations, such as
determinations related to the valuation of our assets, further complicate the application of the
REIT requirements. Furthermore, the Internal Revenue Service, or IRS, could change tax laws and
regulations or the courts may issue new rulings that make it more difficult or impossible for us to
maintain REIT status. We do not believe that any pending or proposed law changes could change our
REIT status. We cannot guarantee, however, that we will continue to be qualified and taxed as a
REIT because our qualification and taxation as a REIT will depend upon our ability to meet the
requirements imposed under the Internal Revenue Code of 1986, as amended, on an ongoing basis. Risks Relating To Our Capital Stock P.M. Capital Inc., a corporation controlled by Peter Munk, our chairman, maintains an
ownership interest in Trizec Canada Inc. by which Mr. Munk will control the election of members of
our board of directors until January 1, 2008. Mr. Munk, our chairman and the chairman of Trizec Canada Inc., controls P.M. Capital Inc.
P.M. Capital, through its ownership of Trizec Canada Inc.s multiple voting shares, has a majority
of the votes in elections of Trizec Canada Inc.s board of directors and on other matters to be
voted on by Trizec Canada shareholders. Trizec Canada Inc., through its indirect ownership of our
common stock and special voting stock, has a majority of the votes in elections of our board of
directors until January 1, 2008, provided that Trizec Canada Inc. or its subsidiaries hold our
special voting stock until such time. Mr. Munks effective control of Trizec Canada Inc. will
therefore enable him to elect our entire board of directors. Although a nominating committee
composed of independent members of our board of directors nominates candidates for election to our
board, until January 1, 2008, Mr. Munk may exercise his control over us to elect alternative
candidates. Additionally, as long as Mr. Munk has this right to elect directors, he also has the
power at any time, under Delaware law, to remove one or more directors. Limitations on ownership of our capital stock by stockholders that are not qualifying U.S.
Persons may adversely affect the market price of our common stock. Our certificate of incorporation contains an ownership limitation that is designed to enable
us to qualify in the future as a domestically-controlled REIT within the meaning of Section
897(h)(4)(B) of the Internal Revenue Code of 1986, as amended. This limitation restricts any
person that is not a qualifying U.S. person (as defined in our certificate of incorporation) from
beneficially owning our capital stock if that persons holdings, when aggregated with shares of our
capital stock beneficially owned by all other persons that are not qualifying U.S. 19




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persons, would exceed 45% by value of our issued and outstanding capital stock. Our
certificate of incorporation defines U.S. Person for this purpose as a person that falls within
at least one of the following 16 categories:  
    a U.S. citizen;
    a U.S. resident individual;
    an S corporation;
    a partnership, limited liability company (or other entity classified as a
partnership for U.S. federal income tax purposes) (a) that is created or organized
in or under the laws of the United States or any State or the District of Columbia
and (b) at least 95% (by value) of the interest in which are owned by U.S. Persons;
    a corporation or business trust (or other entity classified as a corporation for
United States federal income tax purposes) (a) that is created or organized in or
under the laws of the United States or any State or the District of Columbia and
(b) at least 95% (by value) of the shares, units or other ownership interests in
which are owned by U.S. Persons;
    an estate if (a) its income is subject to U.S. tax regardless of source and (b)
at least 95% of amounts distributable by it are distributable to U.S. Persons;
    a registered investment company (as defined in Section 851 of the Code) that is
offered for sale only in the United States;
    a trust if (a) a court within the United States is able to exercise primary
jurisdiction over its administration, (b) one or more United States persons (as
defined in Section 7701(a)(30) of the Code) have the authority to control all
substantial decisions of the trust, and (c) at least 95% of amounts distributable
by it are distributable to U.S. Persons;
    a corporation, fund, foundation or other organization organized under the laws
of the United States or any State or the District of Columbia and that is generally
exempt from tax therein and is described in Section 501(c)(3) of the Code;
    a legal person organized under the laws of the United States or any State or the
District of Columbia and that is generally exempt from tax therein and is
established and maintained to provide pensions or other similar benefits in
connection with employment pursuant to a plan (including, without limitation, (a) a
trust described in Section 401(a) of the Code and (b) an eligible deferred
compensation plan as defined in Section 457 of the Code in respect of which the
employer is a U.S. Person);
    a simplified employee pension plan described in Section 408(k) of the Code, an
individual retirement account, an account described in Section 408(p) of the Code,
an annuity plan described in Section 403 of the Code, and any similar plan
permitted under the Code in respect of individual retirement benefits or similar
benefits, provided that in each case at least 95% of all amounts payable under such
plan are payable to U.S. Persons;
    a group trust in which assets of persons described in paragraph (10) or (11)
above are pooled;
    a Keough plan, provided that at least 95% of all amounts payable under such plan
are payable to U.S. Persons;
    a governmental entity consisting of any of: (a) any governing body of the United
States, or of a political subdivision or local authority of the United States; (b)
a person that is wholly owned, 20




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directly or indirectly, by the United States or a political subdivision or local
authority of the United States provided (i) it is created or organized in or under
the laws of the United States, or of any State or the District of Columbia, (ii) its
earnings are credited to its own account with no portion of its income inuring to
the benefit of any private person, and (iii) its assets vest in the United States or
a political subdivision or local authority of the United States upon dissolution;
and (c) a pension trust or fund of a person described in subparagraph (a) or (b)
that is created or organized in or under the laws of the United States or of any
State or of the District of Columbia and that is constituted and operated
exclusively to administer or provide pension benefits to individuals in respect of
services rendered to such person in the discharge of functions of a governmental
nature;
    a common trust fund as defined in Section 584 of the Code or separate account,
respectively, (a) established by a bank or insurance company, respectively,
organized in the United States or under the laws of the United States or any State
or the District of Columbia and (b) at least 95% (by value) of the interests in
which are owned by U.S. Persons; or
    an investment club or similar entity (a) that is created or organized in or
under the laws of the United States or any State or the District of Columbia and
(b) at least 95% (by value) of the interests in which are owned by U.S. Persons. As a result of our enforcement of this ownership limitation, persons other than qualifying
U.S. Persons are effectively excluded from the market for our common stock. Moreover, beneficial
holders of 2% or more of our outstanding stock are required to provide certain information to us on
an ongoing basis in order to avoid the presumption that such beneficial holder is not a qualifying
U.S. Person. The inability of holders of our common stock to sell their shares to persons other
than qualifying U.S. Persons may adversely affect the market price of our common stock. Higher market interest rates may adversely affect the market price of our common stock. One of the factors that investors may consider important in deciding whether to buy or sell
shares of a REIT is the dividend with respect to such REITs shares as a percentage of the price of
those shares, relative to market interest rates. If market interest rates go up, prospective
purchasers of shares of our common stock may require a higher yield on our common stock. Higher
market interest rates would not, however, result in more funds for us to distribute and, to the
contrary, would likely increase our borrowing costs and potentially decrease funds available for
distribution. Thus, higher market interest rates could adversely affect the market price of our
common stock. The sale or availability for sale of approximately 60 million shares of our common stock owned
indirectly by Trizec Canada Inc. or shares of our common stock that may be issued hereafter could
adversely affect the market price of our common stock. As a result of our 2002 corporate reorganization, approximately 60 million shares, or
approximately 40% of the outstanding shares of our common stock, are held by Trizec Canada Inc.
through an indirect, wholly-owned Hungarian subsidiary. Dispositions of this common stock may
occur in the following circumstances:  
    Trizec Canada Inc. shareholders will have the right to redeem their shares from time
to time, and Trizec Canada Inc. will have the option of satisfying these redemptions
with shares of our common stock held by the Hungarian subsidiary.
    Trizec Canada Inc. may cause the Hungarian subsidiary to dispose of some or all of
the shares of our common stock held by the Hungarian subsidiary at any time for any
reason. In this regard, it should be noted that it is expected that we will qualify as
a domestically-controlled REIT in mid to late 2007, at which time the Hungarian
subsidiary could sell its shares of our common stock without incurring U.S. federal
income tax liability with respect to such stock. 21




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We may issue additional shares of our common stock:  
    upon exercises of our stock options and warrants; and  
    upon conversions of our Class F convertible stock (for additional information on the
conversion of our Class F convertible stock, see Risk FactorsThe issuance of
additional shares of our common stock pursuant to the terms of our Class F convertible
stock may dilute your interest in our company and adversely affect the market price of
our common stock below). To permit market sales of our common stock in the circumstances described above, including by
subsequent holders, we have registered or agreed to register under the Securities Act of 1933, as
amended, all of the common stock described above. In addition, Trizec Canada Inc.s Hungarian subsidiary has pledged as collateral for secured
credit facilities of TrizecHahn Corporation a portion of the shares of our common stock that it
holds, and in the event of a default the pledgee under those facilities may realize on the pledge
and sell the shares. We cannot predict what effect, if any, market sales of shares of our common stock held
indirectly by Trizec Canada Inc. or issued upon exercises of our stock options or warrants or upon
conversions of our Class F convertible stock would have on the market price of our common stock.
We are also unable to predict what effect, if any, the availability of any of these shares for
future sale may have on the market price of our common stock. Future sales of substantial amounts
of our common stock, or the perception that these sales could occur, may adversely affect the
market price of our common stock. Limits on changes of control may discourage takeover attempts that may be beneficial to
holders of our common stock. Provisions of our certificate of incorporation and bylaws, as well as provisions of the
Internal Revenue Code of 1986, as amended, and Delaware corporate law, may:  
    delay or prevent a change of control over us or a tender offer for our common stock,
even if those actions might be beneficial to holders of our common stock; and  
    limit our stockholders opportunity to receive a potential premium for their shares
of common stock over then-prevailing market prices. For example, primarily to facilitate the maintenance of our qualification as a REIT, our
certificate of incorporation generally prohibits ownership, directly or indirectly, by any single
stockholder of more than 9.9% of the value of outstanding shares of our capital stock. Our board
of directors may modify or waive the application of this ownership limit with respect to one or
more persons if it receives a ruling from the Internal Revenue Service or an opinion of counsel
concluding that ownership in excess of this limit with respect to one or more persons will not
jeopardize our status as a REIT. The ownership limit, however, may nevertheless have the effect of
inhibiting or impeding a change of control over us or a tender offer for our common stock.
Similarly, our certificate of incorporation prohibits more than 45% of the value of our outstanding
equity stock from being owned by stockholders who are not qualifying U.S. Persons (as defined in
our certificate of incorporation). This provision also could inhibit change of control
transactions or a tender offer for our common stock, as could the existence of our Class F
convertible stock. (For additional information on the conversion of our Class F convertible stock,
see Risk FactorsThe issuance of additional shares of our common stock pursuant to the terms of
our Class F convertible stock may dilute your interest in our company and adversely affect the
market price of our common stock below). Dividends payable on our special voting stock may decrease the amount of our dividends on our
common stock and there may be an increase in the amount of dividends on our special voting stock as
a result of anticipated changes in the U.S.-Hungary income tax treaty. As a result of our 2002 corporate reorganization, Trizec Canada Inc. owns indirectly
approximately 40% of our common stock. Substantially all of the 40% interest is owned through an
indirect, wholly-owned Hungarian subsidiary and a small number of shares are owned through an
indirect, wholly-owned Canadian subsidiary of 22




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Trizec Canada Inc. The Trizec Canada Inc. subsidiaries will be subject to taxes, expected to
be only U.S. and Hungarian cross-border withholding taxes, in respect of dividends paid by us to
the Canadian subsidiary and the Hungarian subsidiary and by the Hungarian subsidiary to the
Canadian subsidiary. The Hungarian subsidiary currently holds all of our special voting stock. As the holder of
this stock, the Hungarian subsidiary is entitled to dividends from us that, when aggregated with
dividends received by the Hungarian subsidiary on our common stock and after deducting related
non-Canadian taxes, including the withholding taxes described above, will equal the dividends
received by our U.S. stockholders on our common stock on a per share basis. Dividends on our
special voting stock will be payable only in connection with common stock dividends paid by us
prior to December 2007. The U.S.-Hungary income tax treaty generally provides for a reduced rate of U.S. cross-border
withholding taxes applicable to dividends paid by us to the Hungarian subsidiary. The income tax
treaty is currently being renegotiated. We expect that as a result of the renegotiation, the
effective rate of U.S. and Hungarian cross-border withholding taxes required to be paid on the
aforementioned common stock and special voting stock ordinary income
dividends could increase from
approximately 10% to approximately 30% (and possibly up to approximately 35% if Trizec Canada Inc.
were not to restructure its Hungarian subsidiary). We do not presently know how long the
renegotiation process will take. If, however, an increased tax rate took effect at any time prior
to the expiration of the dividend right on our special voting stock, any dividends paid on our
special voting stock would increase, thereby decreasing the amount available for dividends on our
common stock. The issuance of additional shares of our common stock pursuant to the terms of our Class F
convertible stock may dilute your interest in our company and adversely affect the market price of
our common stock. In order that Trizec Canada Inc. and its subsidiaries, on the one hand, and our other
stockholders, on the other hand, will share ratably any FIRPTA tax, as described below, that Trizec
Canada Inc. and its affiliates may incur, we have issued all outstanding shares of our Class F
convertible stock to the indirect, wholly-owned Hungarian subsidiary of Trizec Canada Inc. Under
the terms of the Class F convertible stock, this stock is convertible into shares of our common
stock if Trizec Canada Inc. or its affiliates or their subsidiaries incur FIRPTA tax and any
related costs, interest and penalties in connection with:  
    the 2002 corporate reorganization; or
    specified future transactions or events that allow for the conversion of our Class F
convertible stock into common stock, including:  
    dispositions of our common stock in connection with major corporate
transactions or events, such as mergers, requiring the approval of a specified
portion of our common stockholders or the tendering of a specified portion of our
common stock to affect those transactions or events, and
    transactions or events during a specified period after the end of the
five-year period ending in 2007, after which it is expected that we will qualify as
a domestically-controlled REIT. In general, a foreign corporation disposing of a U.S. real property interest, including shares
of U.S. corporations whose principal assets are U.S. real estate, is subject to a tax, known as
FIRPTA tax, equal to 35% of the gain recognized on the disposition of that property interest. If,
however, the interest being disposed of is an interest in a REIT that qualifies as a
domestically-controlled REIT within the meaning of Section 897(h)(4)(B) of the Internal Revenue
Code of 1986, as amended, no FIRPTA tax is payable. We will qualify as a domestically-controlled
REIT only if less than 50% of our capital stock, by value, has been owned directly or indirectly by
non-U.S. persons during a continuous five-year period ending on the date of the disposition. If Trizec Canada Inc. or its affiliates incur FIRPTA tax in connection with the circumstances
discussed above, our Class F convertible stock will be convertible into additional shares of our
common stock in an amount sufficient to fund the payment of the FIRPTA tax, plus reasonable costs
and expenses in connection with the payment of the tax. If we are required to issue additional
shares of our common stock pursuant to the terms of our Class F convertible stock, all shares of
our common stock, including those held indirectly by Trizec Canada Inc., would suffer immediate
dilution, which could be substantial. In addition, the sale of our common stock by Trizec Canada
Inc. or its subsidiaries to fund the payment of FIRPTA tax in the circumstances discussed above may
adversely affect the market price of our common stock. We do not believe that Trizec Canada Inc.
and its affiliates 23




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should incur a material amount of FIRPTA tax in connection with any of the transfers made as
part of our 2002 corporate reorganization. We cannot assure you, however, that no material amount
of FIRPTA tax would be payable. We are not currently planning to undertake any transactions or events that would allow for the
conversion of our Class F convertible stock, including any transactions or events requiring the
approval of a specified portion of our common stockholders or the tendering of a specified portion
of our common stock to affect those transactions or events. We cannot assure you, however, that
any of those transactions or events will not take place during the five-year period required for
our qualification as a domestically-controlled REIT. If any such transactions or events were to
take place at such time, Trizec Canada Inc. or its subsidiaries might incur at least some amount of
FIRPTA tax. Furthermore, the existence of our Class F convertible stock may have the effect of
inhibiting or impeding a change of control over us or a tender offer for our common stock. Our certificate of incorporation and corporate policies are designed to enable us to qualify
as a domestically-controlled REIT after the end of the five-year period described above.
Accordingly, we believe that after the end of the five-year period required for our qualification
as a domestically-controlled REIT, neither Trizec Canada Inc. nor its subsidiaries should incur a
material amount of FIRPTA tax under circumstances that would allow the holder of our Class F
convertible stock to exercise its conversion right. The ownership restrictions relating to
non-U.S. Persons in our certificate of incorporation are intended to prohibit ownership by persons
if such ownership would cause us to violate the requirements for being a domestically-controlled
REIT. We believe these provisions will be effective, although certainty in this regard is not
possible. Legislative developments during the relevant five-year qualification period could also
affect our ability to qualify as a domestically-controlled REIT. Therefore, we cannot assure you
that we will become a domestically-controlled REIT as planned. The reduction of the tax rate on certain dividends from non-REIT C corporations may adversely
affect us and our stockholders. The maximum tax rate on certain corporate dividends received by individuals through December
31, 2008 has been reduced to 15%. This change has reduced substantially the so-called double
taxation (that is, taxation at both the corporate and shareholder levels) that had generally
applied to non-REIT corporations but not to REITs. REIT dividends are not eligible for the new,
lower income tax rates, except in certain circumstances where the dividends are attributable to
income that has been subject to corporate-level tax. This legislation could cause individual
investors to view stock in non-REIT corporations that pay dividends as more attractive than stock
in REITs, which may negatively affect the value of our common stock. We cannot predict what
effect, if any, the reduction in the tax rate on certain non-REIT dividends may have on the value
of our stock, either in terms of price or relative to other potential investments. Even if we qualify as a REIT, we are required to pay some taxes, which may result in less cash
available for distribution to stockholders. Even if we qualify as a REIT for federal income tax purposes, we are required to pay some
federal, state and local taxes on our income and property. We were a C corporation prior to our
first REIT year in 2001 and we still own interests in appreciated assets that we held before the
REIT conversion. If such appreciated property is sold within the ten-year period following the REIT
conversion, or prior to January 1, 2011, we generally will be subject to tax at regular corporate
rates on the built-in gain in that property at the time of the REIT conversion. The total amount of
gain on which we can be taxed is limited to the excess of the aggregate fair market value of our
assets on January 1, 2001 over the adjusted tax bases of those assets at that time. This tax could
be material. As a result, we might decide to seek to avoid a taxable disposition prior to January
1, 2011, of any significant asset owned by us at the time of the REIT conversion. This could be
true with respect to a particular disposition even if the potential disposition would have been
advantageous if it were not for the potential tax liability. We are not, however, obligated to
avoid dispositions of our built-in gain assets. We also may be subject to the alternative minimum
tax under some circumstances. If we are subject to tax due to the sale of a built-in gain asset,
as described above, or are subject to tax in certain other circumstances, a portion of the
dividends paid by us to our stockholders who are taxed as individuals during the following year may
be subject to tax at reduced capital gain rates, rather than at ordinary income rates. 24




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In addition, if we have net income from prohibited transactions, that income will be subject
to a 100% federal tax. In general, prohibited transactions are sales or other dispositions of
property held primarily for sale to customers in the ordinary course of business. The
determination as to whether a particular sale is a prohibited transaction depends on the facts and
circumstances related to that sale. While we undertake sales of assets if those assets become
inconsistent with our long-term strategic or return objectives, we do not believe that those sales
should be considered prohibited transactions. There can be no assurance, however, that the IRS
would not contend otherwise. In addition, we may have to pay some state or local income taxes
because not all states and localities treat REITs the same as they are treated for federal income
tax purposes. Several of our corporate subsidiaries have elected to be treated as taxable REIT
subsidiaries for federal income tax purposes. A taxable REIT subsidiary is a fully taxable
corporation and is limited in its ability to deduct interest payments made to us. In addition, we
will be subject to a 100% penalty tax on some payments that we receive if the economic arrangements
among our tenants, our taxable REIT subsidiaries and us are not comparable to similar arrangements
among unrelated parties. To the extent that we, or any taxable REIT subsidiary, are required to
pay federal, state or local taxes, we will have less cash available for distribution to
stockholders. 
 Item 2. Properties Office Property Portfolio The supply of, and demand for, office space affect the performance of our office property
portfolio. Macroeconomic conditions, such as current and expected economic trends, business and
consumer confidence and employment levels, drive this demand. Over the next several years, we plan to continue to concentrate our capital on our core
markets and to exit selectively from investments in our secondary markets in an orderly fashion as
we have done in the past. We expect principally to redeploy proceeds from sales into debt
repayment and investment in Class A office buildings in our core markets. We consider Class A
office buildings to be buildings that are professionally managed and maintained, that attract
high-quality tenants and command upper-tier rental rates and that are modern structures or have
been modernized to compete with newer buildings. Geographic Diversity Our geographically diversified asset base makes it more likely that we will be able to
generate sustainable cash flows throughout the various phases of economic cycles than if we were
less diversified. The following table summarizes the major city focus and geographic distribution
of our office property portfolio at December 31, 2004. 25




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Office Portfolio Summary (At December 31, 2004)
 OWNED AREA(1)OccupancyMarket
    
    
    at
    
    
    In-placeNo. of
    
    
    Distribution
    
    
    December
    
    
    Gross RentProperties
    
    
    000s sq. ft.
    
    
    %
    
    
    31, 2004
    
    
    $ per sq. ft.(2)Core MarketsAtlanta
    
    
    5
    
    
    
    3,481
    
    
    
    10
    %
    
    
    89.0
    %
    
    $
    22.90Chicago
    
    
    4
    
    
    
    2,434
    
    
    
    7
    %
    
    
    94.0
    %
    
    
    27.80Dallas
    
    
    4
    
    
    
    4,510
    
    
    
    13
    %
    
    
    85.2
    %
    
    
    19.40Houston
    
    
    5
    
    
    
    5,645
    
    
    
    17
    %
    
    
    84.4
    %
    
    
    20.20Los Angeles Area
    
    
    5
    
    
    
    3,684
    
    
    
    11
    %
    
    
    88.4
    %
    
    
    26.70New York Area
    
    
    6
    
    
    
    5,594
    
    
    
    17
    %
    
    
    96.8
    %
    
    
    31.80Washington, D.C. Area
    
    
    18
    
    
    
    4,444
    
    
    
    13
    %
    
    
    95.0
    %
    
    
    27.20Total Core Markets
    
    
    47
    
    
    
    29,792
    
    
    
    88
    %
    
    
    90.2
    %
    
    $
    25.30Secondary MarketsCharlotte
    
    
    2
    
    
    
    1,368
    
    
    
    4
    %
    
    
    94.4
    %
    
    $
    19.20Minneapolis
    
    
    1
    
    
    
    813
    
    
    
    3
    %
    
    
    67.3
    %
    
    
    11.80St. Louis
    
    
    1
    
    
    
    1,041
    
    
    
    3
    %
    
    
    87.1
    %
    
    
    19.80Tulsa
    
    
    1
    
    
    
    770
    
    
    
    2
    %
    
    
    78.4
    %
    
    
    14.00Total Secondary Markets
    
    
    5
    
    
    
    3,992
    
    
    
    12
    %
    
    
    83.9
    %
    
    $
    17.50Total Office Properties
    
    
    52
    
    
    
    33,784
    
    
    
    100
    %
    
    
    89.5
    %
    
    $
    24.40
 TOTAL AREA(3)OccupancyMarket
    
    
    at
    
    
    In-placeNo. of
    
    
    Distribution
    
    
    December
    
    
    Gross RentProperties
    
    
    000s sq. ft.
    
    
    %
    
    
    31, 2004
    
    
    $ per sq. ft.(2)Consolidated Properties (3)
    
    
    45
    
    
    
    30,288
    
    
    
    81
    %
    
    
    89.8
    %
    
    $
    23.70Unconsolidated JV
Properties(3)
    
    
    7
    
    
    
    7,020
    
    
    
    19
    %
    
    
    86.9
    %
    
    
    30.80Total Office Properties
    
    
    52
    
    
    
    37,308
    
    
    
    100
    %
    
    
    89.3
    %
    
    $
    25.00
   (1)
    
    For purposes of this table and elsewhere in this annual report on
Form 10-K, owned area is the sum of the total square footage of all of our
consolidated properties and our pro rata share of the square footage of our
unconsolidated joint venture properties calculated based on our ownership interest in
such joint ventures. For example, if a joint venture property has 100,000 square feet
of gross leasable area and our interest in the joint venture is 50%, 50,000 square feet
has been included in owned area.(2)
    
    Based on our owned area that is occupied. Represents average current
in-place base rents, including expense reimbursements. Excludes straight-line rent.(3)
    
    For purposes of this table and elsewhere in this annual report on Form
10-K, consolidated properties represents properties which are consolidated in
accordance with U.S. GAAP. Unconsolidated joint venture properties represents
properties accounted for under the equity method of accounting. Total area
represents 100% of our unconsolidated joint venture properties and our consolidated
properties combined. In 2004, based upon our total portfolio area, leases expired at an average gross rent of
approximately $23.22 per square foot and were generally being signed at an average gross rent per
square foot of approximately $21.81. Including our pro rata economic ownership interest in
unconsolidated joint ventures, leases expired at an average gross rent of approximately $23.06 per
square foot and were generally being signed at an average gross rent per square foot of
approximately $21.55. 26




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##### Table of Contents



Lease Profile Over the next five years, beginning in 2005, scheduled lease expirations in our office
portfolio average approximately 9.7% annually on a consolidated basis. Scheduled Annual Expirations of Office Leases(1) (At December 31, 2004)
 2005 Expirations
    
    
    
    2006 Expirations
    
    
    
    2007 Expirations000s
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    000s
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    000ssq. ft.
    
    
    %
    
    

$ psf
    
    
    %
    
    
    
    sq. ft
    
    
    %
    
    

$ psf
    
    
    %
    
    
    
    sq. ft
    
    
    %
    
    

$ psf
    
    
    %Core MarketsAtlanta
    
    
    506
    
    
    
    14.5
    %
    
    $
    21.50
    
    
    
    15.3
    %
    
    
    
    504
    
    
    
    14.5
    %
    
    $
    23.54
    
    
    
    16.7
    %
    
    
    
    499
    
    
    
    14.3
    %
    
    $
    23.04
    
    
    
    16.2
    %Chicago
    
    
    254
    
    
    
    10.4
    %
    
    
    28.09
    
    
    
    11.2
    %
    
    
    
    269
    
    
    
    11.1
    %
    
    
    21.35
    
    
    
    9.0
    %
    
    
    
    192
    
    
    
    7.9
    %
    
    
    25.56
    
    
    
    7.7
    %Dallas
    
    
    352
    
    
    
    7.8
    %
    
    
    21.98
    
    
    
    10.4
    %
    
    
    
    264
    
    
    
    5.9
    %
    
    
    18.90
    
    
    
    6.7
    %
    
    
    
    778
    
    
    
    17.3
    %
    
    
    18.79
    
    
    
    19.6
    %Houston
    
    
    423
    
    
    
    7.5
    %
    
    
    21.53
    
    
    
    9.5
    %
    
    
    
    302
    
    
    
    5.3
    %
    
    
    20.34
    
    
    
    6.4
    %
    
    
    
    530
    
    
    
    9.4
    %
    
    
    19.70
    
    
    
    10.9
    %Los Angeles Area
    
    
    222
    
    
    
    6.0
    %
    
    
    25.53
    
    
    
    6.5
    %
    
    
    
    589
    
    
    
    16.0
    %
    
    
    25.14
    
    
    
    17.0
    %
    
    
    
    197
    
    
    
    5.3
    %
    
    
    26.04
    
    
    
    5.9
    %New York Area
    
    
    623
    
    
    
    11.1
    %
    
    
    28.87
    
    
    
    10.4
    %
    
    
    
    224
    
    
    
    4.0
    %
    
    
    39.59
    
    
    
    5.1
    %
    
    
    
    185
    
    
    
    3.3
    %
    
    
    34.19
    
    
    
    3.7
    %Washington, D.C. Area
    
    
    632
    
    
    
    14.2
    %
    
    
    24.28
    
    
    
    13.4
    %
    
    
    
    282
    
    
    
    6.3
    %
    
    
    31.28
    
    
    
    7.7
    %
    
    
    
    692
    
    
    
    15.6
    %
    
    
    32.15
    
    
    
    19.5
    %Total Core Markets
    
    
    3,012
    
    
    
    10.1
    %
    
    $
    24.52
    
    
    
    10.9
    %
    
    
    
    2,434
    
    
    
    8.2
    %
    
    $
    25.16
    
    
    
    9.0
    %
    
    
    
    3,073
    
    
    
    10.3
    %
    
    $
    24.46
    
    
    
    11.1
    %Secondary Markets
    
    
    372
    
    
    
    9.3
    %
    
    
    16.45
    
    
    
    10.4
    %
    
    
    
    444
    
    
    
    11.1
    %
    
    
    23.22
    
    
    
    17.6
    %
    
    
    
    260
    
    
    
    6.5
    %
    
    
    15.60
    
    
    
    6.9
    %Total  Owned Area
    
    
    3,384
    
    
    
    10.0
    %
    
    $
    23.63
    
    
    
    10.8
    %
    
    
    
    2,878
    
    
    
    8.5
    %
    
    $
    24.86
    
    
    
    9.7
    %
    
    
    
    3,333
    
    
    
    9.9
    %
    
    $
    23.77
    
    
    
    10.7
    %Total  Consolidated
Properties
    
    
    3,195
    
    
    
    10.5
    %
    
    $
    22.64
    
    
    
    11.2
    %
    
    
    
    2,687
    
    
    
    8.9
    %
    
    $
    24.42
    
    
    
    10.2
    %
    
    
    
    3,037
    
    
    
    10.0
    %
    
    $
    24.08
    
    
    
    11.4
    %Total  Unconsolidated JV
Properties
    
    
    377
    
    
    
    5.4
    %
    
    $
    40.53
    
    
    
    8.1
    %
    
    
    
    387
    
    
    
    5.5
    %
    
    $
    31.06
    
    
    
    6.4
    %
    
    
    
    594
    
    
    
    8.5
    %
    
    $
    20.65
    
    
    
    6.5
    %Total Area
    
    
    3,572
    
    
    
    9.6
    %
    
    $
    24.53
    
    
    
    10.5
    %
    
    
    
    3,074
    
    
    
    8.2
    %
    
    $
    25.25
    
    
    
    9.3
    %
    
    
    
    3,631
    
    
    
    9.7
    %
    
    $
    23.52
    
    
    
    10.3
    %
 2008 Expirations
    
    
    
    2009 Expirations000s
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    000ssq. ft
    
    
    %
    
    

$ psf
    
    
    %
    
    
    
    sq. ft
    
    
    %
    
    

$ psf
    
    
    %Core MarketsAtlanta
    
    
    338
    
    
    
    9.7
    %
    
    $
    23.31
    
    
    
    11.1
    %
    
    
    
    296
    
    
    
    8.5
    %
    
    $
    21.74
    
    
    
    9.1
    %Chicago
    
    
    143
    
    
    
    5.9
    %
    
    
    24.69
    
    
    
    5.6
    %
    
    
    
    26
    
    
    
    1.1
    %
    
    
    21.54
    
    
    
    0.9
    %Dallas
    
    
    257
    
    
    
    5.7
    %
    
    
    21.82
    
    
    
    7.5
    %
    
    
    
    310
    
    
    
    6.9
    %
    
    
    21.43
    
    
    
    8.9
    %Houston
    
    
    492
    
    
    
    8.7
    %
    
    
    23.74
    
    
    
    12.1
    %
    
    
    
    223
    
    
    
    4.0
    %
    
    
    21.74
    
    
    
    5.0
    %Los Angeles Area
    
    
    208
    
    
    
    5.6
    %
    
    
    24.47
    
    
    
    5.9
    %
    
    
    
    214
    
    
    
    5.8
    %
    
    
    27.95
    
    
    
    6.9
    %New York Area
    
    
    206
    
    
    
    3.7
    %
    
    
    41.53
    
    
    
    5.0
    %
    
    
    
    1,163
    
    
    
    20.8
    %
    
    
    33.29
    
    
    
    22.5
    %Washington, D.C. Area
    
    
    576
    
    
    
    13.0
    %
    
    
    31.72
    
    
    
    16.0
    %
    
    
    
    597
    
    
    
    13.4
    %
    
    
    27.86
    
    
    
    14.5
    %Total Core Markets
    
    
    2,220
    
    
    
    7.5
    %
    
    $
    27.30
    
    
    
    8.9
    %
    
    
    
    2,829
    
    
    
    9.5
    %
    
    $
    28.21
    
    
    
    11.8
    %Secondary Markets
    
    
    435
    
    
    
    10.9
    %
    
    
    17.86
    
    
    
    13.3
    %
    
    
    
    666
    
    
    
    16.7
    %
    
    
    12.87
    
    
    
    14.6
    %Total  Owned Area
    
    
    2,655
    
    
    
    7.9
    %
    
    $
    25.75
    
    
    
    9.3
    %
    
    
    
    3,495
    
    
    
    10.3
    %
    
    $
    25.29
    
    
    
    12.0
    %Total  Consolidated
Properties
    
    
    2,472
    
    
    
    8.2
    %
    
    $
    24.92
    
    
    
    9.6
    %
    
    
    
    3,259
    
    
    
    10.8
    %
    
    $
    24.69
    
    
    
    12.5
    %Total  Unconsolidated
JV Properties
    
    
    368
    
    
    
    5.2
    %
    
    $
    37.04
    
    
    
    7.3
    %
    
    
    
    473
    
    
    
    6.7
    %
    
    $
    33.64
    
    
    
    8.5
    %Total Area
    
    
    2,840
    
    
    
    7.6
    %
    
    $
    26.49
    
    
    
    9.0
    %
    
    
    
    3,732
    
    
    
    10.0
    %
    
    $
    25.82
    
    
    
    11.6
    %
   (1)
    
    Expiring rental rates per square foot represent base rents at time of
expiry plus current expense reimbursements and exclude straight-line rent. Over the last three years, we have leased approximately 18.2 million square feet of new
and renewal space, based on our owned area. Occupancy for the entire portfolio based on owned area
was approximately 89.5% at December 31, 2004, up from approximately 86.6% at December 31, 2003. 27




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##### Table of Contents



Tenant Diversity Our diversified tenant base adds to the durability of our future cash flow. The following
table summarizes the breadth and diversity by industry of the approximately 2,000 tenants in the
portfolio at December 31, 2004. Industry
    
    % Owned AreaBanking/Securities Brokers
    
    
    19
    %Legal Services
    
    
    13
    %Oil & Gas
    
    
    7
    %Computers/Communications
    
    
    7
    %Miscellaneous Business Services
    
    
    6
    %Insurance/Non-Bank Financial
    
    
    6
    %Wholesalers/Retailers
    
    
    5
    %Engineering/Architectural Services
    
    
    4
    %Government
    
    
    4
    %Accounting
    
    
    3
    %
 This large tenant base and strong position in key markets allows us to take advantage of
economies of scale and drive internal growth in the areas of parking, telecommunications and
antennas, specialty retail leasing, signage and branding opportunities, energy and national
purchasing contracts. Our ten largest tenants accounted for approximately 21.6% of our gross rent revenue, excluding
straight-line rent adjustments for the year ended December 31, 2004. No single tenant accounted
for more than approximately 4.6% of our gross rent revenue, excluding straight-line rent
adjustments for the year ended December 31, 2004. The following table sets forth information
concerning our ten largest tenants at December 31, 2004. % RentTop Ten Tenants by Rent Revenue
    
    Revenue(1)
    
    
    % Owned AreaWachovia Securities Financial Holdings
    
    
    4.6
    %
    
    
    4.2
    %The Goldman Sachs Group
    
    
    2.7
    %
    
    
    1.7
    %Government Services Administration
    
    
    2.5
    %
    
    
    1.9
    %Bank of America
    
    
    2.1
    %
    
    
    2.4
    %Continental Airlines
    
    
    2.0
    %
    
    
    2.2
    %Devon Energy Corporation
    
    
    1.8
    %
    
    
    1.7
    %Ernst & Young
    
    
    1.8
    %
    
    
    1.1
    %Fried, Frank, Harris
    
    
    1.7
    %
    
    
    1.0
    %The Capital Group Corporation
    
    
    1.3
    %
    
    
    1.0
    %JP Morgan Chase
    
    
    1.1
    %
    
    
    0.9
    %Total Top Ten Tenants
    
    
    21.6
    %
    
    
    18.1
    %
   (1)
    
    Represents base rent plus expense reimbursements and excludes
straight-line rent. Our Top Office Properties The following table summarizes our top ten properties based on contribution to our rent
revenue for the year ended December 31, 2004. All of the properties in the table are 100% owned
unless otherwise indicated. 28




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##### Table of Contents



Top Ten Properties by
    
    
    
    % RentRental Revenue Contribution
    
    
    
    Revenue(1)

    
    % Owned AreaOne New York Plaza
    
    New York, NY
    
    
    8.3
    %
    
    
    7.3
    %Allen Center
    
    Houston, TX
    
    
    7.4
    %
    
    
    9.4
    %The Grace Building (50%)
    
    New York, NY
    
    
    4.1
    %
    
    
    2.2
    %Galleria Towers
    
    Dallas, TX
    
    
    3.6
    %
    
    
    4.2
    %Ernst & Young Plaza
    
    Los Angeles, CA
    
    
    3.5
    %
    
    
    3.7
    %Renaissance Tower
    
    Dallas, TX
    
    
    3.3
    %
    
    
    5.2
    %Newport Tower
    
    Jersey City, NJ
    
    
    3.1
    %
    
    
    3.1
    %1411 Broadway (50%)
    
    New York, NY
    
    
    3.0
    %
    
    
    1.7
    %Metropolitan Square
    
    St. Louis, MO
    
    
    2.3
    %
    
    
    3.1
    %120 South Riverside
    
    Chicago, IL
    
    
    2.2
    %
    
    
    2.0
    %Total Top Ten Properties
    
    
    
    
    40.8
    %
    
    
    41.9
    %
   (1)
    
    Represents base rent plus expense reimbursements and includes
straight-line rent. Retail/Entertainment Properties At December 31, 2003, we owned one retail/entertainment property, Hollywood & Highland in Los
Angeles, California, which is a 645,000-square-foot complex. We also developed a 640-room hotel as
part of the complex, which is being held in a joint venture that is consolidated in our financial
statements as of December 31, 2003. The complex opened on November 8, 2001. The hotel opened on
December 26, 2001. On February 27, 2004, we sold the Hollywood & Highland complex for gross
proceeds of approximately $201.0 million. In conjunction with the sale, we paid off and retired
approximately $214.1 million of mortgage debt related to the Hollywood & Highland complex. DESCRIPTION OF CERTAIN INDEBTEDNESS Unsecured Credit Facility We entered into a three-year, $350.0 million revolving credit facility (the 2001 Revolving
Credit Facility) with a group of banks in the fourth quarter of 2001. In the fourth quarter of
2002, the group of banks unanimously agreed to amend and restate the 2001 Revolving Credit Facility
(the 2002 Revolving Credit Facility). Generally, in exchange for the receipt of collateral, the
group of banks agreed to provide more flexible financial covenants than had been originally
negotiated. In June 2004, we retired the 2002 Revolving Credit Facility and entered into a $750.0
million unsecured credit facility with a group of banks (the 2004 Unsecured Credit Facility).
The 2004 Unsecured Credit Facility consists of a $600.0 million revolving component and a $150.0
million term component, bears interest at LIBOR plus a spread of 1.15% to 2.0% based on our total
leverage, and matures in June 2007. The 2004 Unsecured Credit Facility is available for our
general corporate purposes, including dividends and distributions to our stockholders, subject to
certain restrictions on our making any such dividends or distributions. Interest will be
calculated periodically on the borrowings outstanding under the facility on a variable rate basis
using a spread over LIBOR. The spread will be dependent on our total leverage. In addition, we
must pay to the lenders a fee based on the unused portion of the credit facility. The amount of the 2004 Unsecured Credit Facility available to be borrowed at any time is
determined by the encumbered properties we, or our subsidiaries that guarantee the credit facility,
own that satisfy certain conditions of eligible properties. These conditions are not uncommon for
credit facilities of this nature. As of December 31, 2004, the amount eligible to be borrowed was
approximately $484.9 million, of which $150.0 million was outstanding. During 2005, the amount
available to be borrowed will likely fluctuate. The capacity under the 2004 Unsecured Credit
Facility may decrease as we sell or place permanent debt on assets currently supporting the
facility. In addition, the capacity may decrease if assets no longer meet certain eligibility
requirements. Likewise, the capacity under the 2004 Unsecured Credit Facility may increase as
certain assets become encumbered by the facility or otherwise meet the eligibility requirements of
the facility. During 2005, we expect the outstanding balance to fluctuate. The outstanding balance
will likely increase from time to time as we use funds from the facility to meet a variety of
liquidity requirements such as dividend payments, tenant installation costs, future tax payments
and acquisitions that may not be fully met through operations. Likewise, any outstanding balance
may be reduced 29




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##### Table of Contents



as a result of proceeds generated from asset sales, secured borrowings, operating cash flow
and other sources of liquidity. The financial covenants, as defined in the 2004 Unsecured Credit Facility, include the
quarterly requirements for the total leverage ratio not to exceed 65.0% during year one, 62.5%
during year two and 60.0% during year three; the requirement for the interest coverage ratio to be
greater than 2.0 times; the requirement for the fixed charge coverage ratio to be greater than 1.5
times; and the requirement for net worth to be in excess of $1.5 billion. The financial covenants
also include a restriction on dividends or distributions of more than 90% of our funds from
operations (as defined in the 2004 Unsecured Credit Facility Agreement). If we are in default in
respect of our obligations under the 2004 Unsecured Credit Facility Agreement, dividends will be
limited to the amount necessary to maintain REIT status. We anticipated we would not meet all
requirements with respect to the dividend restriction covenant under the 2004 Unsecured Credit
Facility Agreement for the nine months ended September 30, 2004 and the year ended December 31,
2004. As such, we requested and received a waiver from the lenders of the 2004 Unsecured Credit
Facility which waives said requirements for such covenant for the nine months ended September 30,
2004 and the year ended December 31, 2004. Other than noted, at December 31, 2004, we were in
compliance with these financial covenants. Certain conditions of the 2004 Unsecured Credit
Facility may restrict the amount eligible to be borrowed at any time. TrizecHahn Office Properties Trust Commercial Mortgage Pass-Through Certificates In May 2001, we refinanced approximately $1.16 billion of existing long-term debt through the
private placement issuance by a special-purpose vehicle created by one of our subsidiaries of
approximately $1.44 billion of commercial mortgage pass-through certificates. In July 2004, we
paid off approximately $444.1 million of our variable rate commercial mortgage pass-through
certificates. This repayment removed encumbrances on seven assets making up part of a
cross-collateralized and cross-defaulted office property pool that secured the commercial mortgage
pass-through certificates. As of December 31, 2004, the balance of these certificates was
approximately $948.3 million. The certificates are backed by mortgages that secure non-recourse
loans on 19 of our office properties and have remaining maturities of four and seven years. At
December 31, 2004, the weighted average interest rate on this debt was approximately 6.61%. One New York Plaza Trust Commercial Mortgage Pass-Through Certificates In May 1999, we entered into a non-recourse acquisition loan in the amount of approximately
$245.9 million to fund a portion of the purchase price for One New York Plaza. The loan is secured
by a first mortgage on the property, bears an interest rate of 7.27% and matures in May 2006.
Subsequently, the loan was securitized through the private issuance of approximately $245.9 million
of commercial mortgage pass-through certificates. The certificates are backed by the non-recourse
mortgage loan on the property. At December 31, 2004, approximately $232.1 million was outstanding
under this facility. Mortgage Debt and Other Loans The following table sets forth information concerning mortgage debt and other loans as of
December 31, 2004. The economic interest of our owning entity is 100% unless otherwise noted. 30




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##### Table of Contents



Maturity
    
    
    Current
    
    
    Principal
    
    
    Term toProperty/(Ownership)(1)
    
    F/V(2)
    
    Date
    
    
    Rate
    
    
    Balance
    
    
    Maturity(At December 31, 2004)
    
    
    
    
    
    
    
    
    
    ($ 000s)
    
    
    (Years)CMBS TransactionClass A-2
    
    F
    
    May-11
    
    
    6.09
    %
    
    $
    59,154
    
    
    
    6.4Class A-3 FL
    
    V
    
    Mar-08
    
    
    2.48
    %
    
    
    91,884
    
    
    
    3.2Class A-3
    
    F
    
    Mar-08
    
    
    6.21
    %
    
    
    78,900
    
    
    
    3.2Class A-4
    
    F
    
    May-11
    
    
    6.53
    %
    
    
    240,600
    
    
    
    6.4Class B-3 FL
    
    V
    
    Mar-08
    
    
    2.63
    %
    
    
    16,886
    
    
    
    3.2Class B-3
    
    F
    
    Mar-08
    
    
    6.36
    %
    
    
    14,500
    
    
    
    3.2Class B-4
    
    F
    
    May-11
    
    
    6.72
    %
    
    
    47,000
    
    
    
    6.4Class C-3
    
    F
    
    Mar-08
    
    
    6.52
    %
    
    
    101,400
    
    
    
    3.2Class C-4
    
    F
    
    May-11
    
    
    6.89
    %
    
    
    45,600
    
    
    
    6.4Class D-3
    
    F
    
    Mar-08
    
    
    6.94
    %
    
    
    106,100
    
    
    
    3.2Class D-4
    
    F
    
    May-11
    
    

    7.28
    %
    
    
    40,700
    
    
    
    6.4Class E-3
    
    F
    
    Mar-08
    
    
    7.25
    %
    
    
    73,300
    
    
    
    3.2Class E-4
    
    F
    
    May-11
    
    
    7.60
    %
    
    
    32,300
    
    
    
    6.4Pre-swap:
    
    
    
    
    
    
    
    
    6.21
    %
    
    $
    948,324
    
    
    
    4.8Post-swap: (3)
    
    
    
    
    
    
    
    
    6.61
    %
    
    $
    948,324
    
    
    
    4.8Renaissance Tower
    
    F
    
    Jan-10
    
    
    4.98
    %
    
    $
    92,000
    
    
    
    5.0Ernst & Young Plaza
    
    F
    
    Feb-14
    
    
    5.07
    %
    
    
    118,617
    
    
    
    9.1One New York Plaza
    
    F
    
    May-06
    
    
    7.27
    %
    
    
    232,119
    
    
    
    1.32000 L Street, N.W.
    
    F
    
    Aug-07
    
    
    6.26
    %
    
    
    56,100
    
    
    
    2.6Watergate Office Building
    
    F
    
    Feb-07
    
    
    8.02
    %
    
    
    16,915
    
    
    
    2.11400 K Street, N.W.
    
    F
    
    May-06
    
    
    7.20
    %
    
    
    21,246
    
    
    
    1.3Bethesda Crescent
    
    F
    
    Jan-08
    
    
    7.10
    %
    
    
    32,454
    
    
    
    3.0Bethesda Crescent
    
    F
    
    Jan-08
    
    
    6.70
    %
    
    
    2,689
    
    
    
    3.0Twinbrook Metro Plaza
    
    F
    
    Sep-08
    
    
    6.65
    %
    
    
    16,289
    
    
    
    3.7Two Ballston Plaza
    
    F
    
    Jun-08
    
    
    6.91
    %
    
    
    26,413
    
    
    
    3.4Sunrise Tech Park
    
    F
    
    Jan-06
    
    
    6.75
    %
    
    
    22,806
    
    
    
    1.0Metropolitan Square
    
    F
    
    Jan-08
    
    
    7.05
    %
    
    
    83,035
    
    
    
    3.0Bank of America Plaza (Los Angeles)
    
    F
    
    Sep-14
    
    
    5.31
    %
    
    
    242,000
    
    
    
    9.72001 M Street (98%)(4)
    
    F
    
    Dec-14
    
    
    5.25
    %
    
    
    44,500
    
    
    
    10.0One Alliance Center
    
    F
    
    Jul-13
    
    
    4.78
    %
    
    
    68,548
    
    
    
    8.5Unsecured Credit Facility
    
    V(5)
    
    Jun-07
    
    
    4.76
    %
    
    
    150,000
    
    
    
    2.5Other  Fixed
    
    F
    
    Various
    
    
    6.43
    %
    
    
    45,227
    
    
    
    2.3Total Consolidated Debt
    
    
    
    
    
    
    
    
    6.21
    %
    
    $
    2,219,282
    
    
    
    5.0Bank One Center (50%)
    
    V
    
    Dec-05
    
    
    4.52
    %
    
    $
    54,495
    
    
    
    0.9Marina Towers (50%)
    
    F
    
    Aug-07
    
    
    7.92
    %
    
    
    15,121
    
    
    
    2.6The Grace Building (50%)
    
    F
    
    Jul-14
    
    
    5.54
    %
    
    
    190,119
    
    
    
    9.51411 Broadway (50%)
    
    F
    
    Jul-14
    
    
    5.50
    %
    
    
    109,281
    
    
    
    9.51460 Broadway (50%)
    
    V
    
    May-05
    
    
    3.81
    %
    
    
    12,475
    
    
    
    0.4Waterview (25%)
    
    V
    
    Sept-05
    
    
    6.25
    %
    
    
    4,669
    
    
    
    0.7Plaza of the Americas (50%)
    
    F
    
    Jul-11
    
    
    5.12
    %
    
    
    34,000
    
    
    
    6.5Unconsolidated Real Estate Joint
Venture Mortgage Debt
    
    
    
    
    
    
    
    
    5.41
    %
    
    $
    420,160
    
    
    
    7.5
   (1)
    
    The economic interest of our owning entity in the associated asset
is 100% unless otherwise noted.(2)
    
    F refers to fixed rate debt, V refers to variable rate debt. References
to V represent the underlying loan, some of which have been fixed through hedging
instruments.(3)
    
    $108.8 million of the seven-year floating rate tranche of the CMBS
loan has been swapped from one-month LIBOR plus various spreads to 5.99% fixed
rate.(4)
    
    Consolidated entity.(5)
    
    Reflects notional allocation of $41.2 million of the floating rate
unsecured credit facility debt that has been swapped from one-month LIBOR plus
spread to 7.12% fixed rate. 31




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##### Table of Contents



PROPERTY PORTFOLIO U.S. Office Properties Operating Properties The following table sets forth key information as of December 31, 2004 with respect to our
operating U.S. office properties. The economic interest of our owning entity is 100% unless
otherwise noted. The total occupancy rates for the markets and portfolio as a whole in the table
are weighted based on owned area. Year of
    
    
    
    
    
    
    Ownedcompletion/
    
    
    Total area
    
    
    area
    
    
    Occupancy weightedName (Ownership)(1)
    
    Location
    
    
    renovation
    
    
    (sq. ft.)
    
    
    (sq. ft.)
    
    
    on owned area (2)Core MarketsAtlantaInterstate North Parkway
    
    Atlanta, GA
    
    
    1973/84/01
    
    
    
    955,000
    
    
    
    955,000
    
    
    
    93.3
    %Colony Square
    
    Atlanta, GA
    
    
    1970/73/95
    
    
    
    837,000
    
    
    
    837,000
    
    
    
    83.7
    %The Palisades
    
    Atlanta, GA
    
    
    1981/83/99
    
    
    
    627,000
    
    
    
    627,000
    
    
    
    86.1
    %One Alliance Center
    
    Atlanta, GA
    
    
    2001
    
    
    
    558,000
    
    
    
    558,000
    
    
    
    99.9
    %Midtown Plaza
    
    Atlanta, GA
    
    
    1984/85
    
    
    
    504,000
    
    
    
    504,000
    
    
    
    81.4
    %Total  Atlanta
    
    (5 properties)
    
    
    
    
    
    
    3,481,000
    
    
    
    3,481,000
    
    
    
    89.0
    %ChicagoTwo North LaSalle
    
    Chicago, IL
    
    
    1979/00
    
    
    
    692,000
    
    
    
    692,000
    
    
    
    94.5
    %10 South Riverside
    
    Chicago, IL
    
    
    1965/99
    
    
    
    685,000
    
    
    

    685,000
    
    
    
    87.9
    %120 South Riverside
    
    Chicago, IL
    
    
    1967/99
    
    
    
    685,000
    
    
    
    685,000
    
    
    
    98.7
    %550 West Washington
    
    Chicago, IL
    
    
    2000
    
    
    
    372,000
    
    
    
    372,000
    
    
    
    95.7
    %Total  Chicago
    
    (4 properties)
    
    
    
    
    
    
    2,434,000
    
    
    
    2,434,000
    
    
    
    94.0
    %DallasRenaissance Tower
    
    Dallas, TX
    
    
    1974/92
    
    
    
    1,739,000
    
    
    
    1,739,000
    
    
    
    83.7
    %Bank One Center (50%)
    
    Dallas, TX
    
    
    1987
    
    
    
    1,531,000
    
    
    
    765,000
    
    
    
    81.2
    %Galleria Towers I, II and III
    
    Dallas, TX
    
    
    1982/85/91
    
    
    
    1,418,000
    
    
    
    1,418,000
    
    
    
    95.5
    %Plaza of the Americas (50%)
    
    Dallas, TX
    
    
    1980
    
    
    
    1,176,000
    
    
    
    588,000
    
    
    
    69.6
    %Total  Dallas
    
    (4 properties)
    
    
    
    
    
    
    5,864,000
    
    
    
    4,510,000
    
    
    
    85.2
    %HoustonAllen Center
    
    Houston, TX
    
    
    1972/78/80/95
    
    
    
    3,184,000
    
    
    
    3,184,000
    
    
    
    87.6
    %Cullen CenterContinental Center I
    
    Houston, TX
    
    
    1984
    
    
    
    1,098,000
    
    
    
    1,098,000
    
    
    
    80.9
    %Continental Center II
    
    Houston, TX
    
    
    1971
    
    
    
    449,000
    
    
    
    449,000
    
    
    
    88.8
    %Kellogg Brown & Root Tower
(50%)
    
    Houston, TX
    
    
    1978
    
    
    
    1,048,000
    
    
    
    524,000
    
    
    
    87.6
    %500 Jefferson
    
    Houston, TX
    
    
    1962/83
    
    
    
    390,000
    
    
    
    390,000
    
    
    
    58.2
    %Total  Houston
    
    (5 properties)
    
    
    
    
    
    
    6,169,000
    
    
    
    5,645,000
    
    
    
    84.4
    %Los Angeles AreaBank of America Plaza
    
    Los Angeles, CA
    
    
    1974
    
    
    
    1,422,000
    
    
    
    1,422,000
    
    
    
    90.8
    %Ernst & Young Plaza
    
    Los Angeles, CA
    
    
    1985
    
    
    
    1,245,000
    
    
    
    1,245,000
    
    
    
    89.6
    %Marina Towers (50%)
    
    Los Angeles, CA
    
    
    1971/76
    
    
    
    381,000
    
    
    
    191,000
    
    
    
    79.9
    %Landmark Square
    
    Long Beach, CA
    
    
    1991
    
    
    
    443,000
    
    
    
    443,000
    
    
    
    85.2
    %Shoreline Square
    
    Long Beach, CA
    
    
    1988
    
    
    
    383,000
    
    
    
    383,000
    
    
    
    83.6
    %Total  Los Angeles Area
    
    (5 properties)
    
    
    
    
    
    
    3,874,000
    
    
    
    3,684,000
    
    
    
    88.4
    %New York AreaOne New York Plaza
    
    New York, NY
    
    
    1970/95
    
    
    
    2,458,000
    
    
    
    2,458,000
    
    
    
    99.6
    %The Grace Building (50%)
    
    New York, NY
    
    
    1971/02
    
    
    
    1,518,000
    
    
    
    758,000
    
    
    
    99.4
    %1411 Broadway (50%)
    
    New York, NY
    
    
    1970
    
    
    
    1,151,000
    
    
    
    574,000
    
    
    
    95.2
    %1065 Ave. of the Americas (99%)
    
    New York, NY
    
    
    1958
    
    
    
    665,000
    
    
    
    659,000
    
    
    
    81.8
    %1460 Broadway (50%)
    
    New York, NY
    
    
    1951/00
    
    
    
    215,000
    
    
    
    107,000
    
    
    
    100.0
    %Newport Tower
    
    Jersey City, NJ
    
    
    1990
    
    
    
    1,038,000
    
    
    
    1,038,000
    
    
    
    98.5
    %Total  New York Area
    
    (6 properties)
    
    
    
    
    
    
    7,045,000
    
    
    
    5,594,000
    
    
    
    96.8
    %Washington, D.C. Area2000 L Street, N.W.
    
    Washington, D.C.
    
    
    1968/98
    
    
    
    383,000
    
    
    
    383,000
    
    
    
    95.5
    %Watergate Office Building
    
    Washington, D.C.
    
    
    1965/91
    
    
    
    261,000
    
    
    
    261,000
    
    
    
    96.6
    %
 32




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##### Table of Contents



Year of
    
    
    
    
    
    
    Ownedcompletion/
    
    
    Total area
    
    
    area
    
    
    Occupancy weightedName
(Ownership)(1)
    
    Location
    
    
    renovation
    
    
    (sq. ft.)
    
    
    (sq. ft.)
    
    
    on owned area(2)1225 Connecticut, N.W.
    
    Washington, D.C.
    
    
    1968/94
    
    
    
    217,000
    
    
    
    217,000
    
    
    
    99.4
    %1400 K Street, N.W.
    
    Washington, D.C.
    
    
    1982/02
    
    
    
    189,000
    
    
    
    189,000
    
    
    
    87.6
    %1250 Connecticut, N.W.
    
    Washington, D.C.
    
    
    1964/96
    
    
    
    172,000
    
    
    
    172,000
    
    
    
    93.1
    %1250 23rd Street, N.W.
    
    Washington, D.C.
    
    
    1990
    
    
    
    116,000
    
    
    
    116,000
    
    
    
    100.0
    %2001 M Street (98%)
    
    Washington, D.C.
    
    
    1987
    
    
    
    229,000
    
    
    
    224,000
    
    
    
    99.6
    %2401 Pennsylvania
    
    Washington, D.C.
    
    
    1991
    
    
    
    77,000
    
    
    
    77,000
    
    
    
    93.4
    %Washington, D.C.
    
    (8 properties)
    
    
    
    
    
    
    1,644,000
    
    
    
    1,639,000
    
    
    
    95.8
    %Bethesda Crescent
    
    Bethesda, MD
    
    
    1987
    
    
    
    269,000
    
    
    
    269,000
    
    
    
    92.6
    %Twinbrook Metro Plaza
    
    Rockville, MD
    
    
    1986
    
    
    
    165,000
    
    
    
    165,000
    
    
    
    98.3
    %Silver Spring Metro Plaza
    
    Silver Spring, MD
    
    
    1986
    
    
    
    688,000
    
    
    
    688,000
    
    
    
    90.4
    %Suburban Maryland
    
    (3 properties)
    
    
    
    
    
    
    1,122,000
    
    
    
    1,122,000
    
    
    
    92.1
    %Beaumeade Corporate Park
    
    Ashburn, VA
    
    
    1990/98/00
    
    
    
    460,000
    
    
    
    460,000
    
    
    
    95.0
    %Two Ballston Plaza
    
    Arlington, VA
    
    
    1988
    
    
    
    223,000
    
    
    
    223,000
    
    
    
    99.8
    %1550 Wilson Boulevard
    
    Arlington, VA
    
    
    1983
    
    
    
    134,000
    
    
    
    134,000
    
    
    
    99.1
    %1560 Wilson Boulevard
    
    Arlington, VA
    
    
    1987
    
    
    
    128,000
    
    
    
    128,000
    
    
    
    91.2
    %Reston Unisys
    
    Reston, VA
    
    
    1980
    
    
    
    238,000
    
    
    
    238,000
    
    
    
    100.0
    %One Reston Crescent
    
    Reston, VA
    
    
    2000
    
    
    
    185,000
    
    
    
    185,000
    
    
    
    100.0
    %Sunrise Tech Park
    
    Reston, VA
    
    
    1983/85
    
    
    
    315,000
    
    
    
    315,000
    
    
    
    91.3
    %Northern Virginia
    
    (7 properties)
    
    
    
    
    
    
    1,683,000
    
    
    
    1,683,000
    
    
    
    96.1
    %Total  Washington, D.C. Area
    
    (18 properties)
    
    
    
    
    
    
    4,449,000
    
    
    
    4,444,000
    
    
    
    95.0
    %Secondary MarketsCharlotteBank of America Plaza
    
    Charlotte, NC
    
    
    1974
    
    
    
    891,000
    
    
    
    891,000
    
    
    
    99.8
    %First Citizens Plaza
    
    Charlotte, NC
    
    
    1985
    
    
    
    477,000
    
    
    
    477,000
    
    
    
    84.2
    %Total  Charlotte
    
    (2 properties)
    
    
    
    
    
    
    1,368,000
    
    
    
    1,368,000
    
    
    
    94.4
    %MinneapolisNorthstar Center
    
    Minneapolis, MN
    
    
    1916/62/86
    
    
    
    813,000
    
    
    
    813,000
    
    
    
    67.3
    %Total  Minneapolis
    
    (1 property)
    
    
    
    
    
    
    813,000
    
    
    
    813,000
    
    
    
    67.3
    %St. LouisMetropolitan Square
    
    St. Louis, MO
    
    
    1989
    
    
    
    1,041,000
    
    
    
    1,041,000
    
    
    
    87.1
    %Total  St. Louis
    
    (1 property)
    
    
    
    
    
    
    1,041,000
    
    
    
    1,041,000
    
    
    
    87.1
    %TulsaWilliams Center I & II
    
    Tulsa, OK
    
    
    1982/83
    
    
    
    770,000
    
    
    
    770,000
    
    
    
    78.4
    %Total  Tulsa
    
    (1 property)
    
    
    
    
    
    
    770,000
    
    
    
    770,000
    
    
    
    78.4
    %Total
    
    (52 properties)
    
    
    
    
    
    
    37,308,000
    
    
    
    33,784,000
    
    
    
    89.5

%(3)
   (1)
    
    The economic interest of our owning entity is 100% unless otherwise noted.(2)
    
    Total occupancy as shown is weighted average based on owned area.(3)
    

The occupancy for the consolidated properties was 89.8%. The occupancy for the
unconsolidated joint venture properties which is based on total area
was 86.9%. 
 Item 3. Legal Proceedings We are contingently liable under guarantees that are issued in the normal course of business
and with respect to litigation and claims that arise from time to time. While we cannot predict
with certainty the final outcome with respect to pending claims and litigation, in our opinion any
liability that may arise from such contingencies would not have a material adverse effect on our
financial position, results of operations or cash flows. 33




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##### Table of Contents



Item 4. Submission of Matters to a Vote of Security Holders. We did not submit any matters to a vote of our security holders during the fourth quarter
ended December 31, 2004. 
 PART II 
 Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Market for Our Common Stock Our common stock began regular trading on the New York Stock Exchange under the symbol TRZ
on May 8, 2002, the effective date of our corporate reorganization. Prior to that time, there was
no public market for our common stock. As of March 4, 2005, there were approximately 330 holders
of record of our common stock. This does not include beneficial owners of our common stock whose
shares are held in street name with a broker. The following table shows the high and low sale
prices per share of our common stock as reported on the New York Stock Exchange, as well as
dividends declared on our common stock, for the periods indicated: DividendsQuarterly Period Ended
    
    High
    
    
    Low
    
    
    DeclaredDecember 31, 2004
    
    $
    19.05
    
    
    $
    15.75
    
    
    $
    0.2000September 30, 2004
    
    
    17.55
    
    
    
    15.80
    
    
    
    0.2000June 30, 2004
    
    
    17.38
    
    
    
    13.50
    
    
    
    0.2000March 31, 2004
    
    
    17.15
    
    
    
    14.98
    
    
    
    0.2000December 31, 2003
    
    
    15.97
    
    
    
    12.25
    
    
    
    0.2000September 30, 2003
    
    
    12.50
    
    
    
    11.04
    
    
    
    0.2000June 30, 2003
    
    
    11.64
    
    
    
    8.58
    
    
    
    0.2000March 31, 2003
    
    
    10.05
    
    
    
    8.11
    
    
    
    0.2000
 Dividend Policy Our policy is to make distributions to the holders of our common stock in an amount that is at
least equal to the minimum amount required to maintain REIT status each year through regular
dividends. Under our existing credit facility, we are restricted from paying dividends or distributions
that would exceed 90% of our funds from operations (as defined in the unsecured credit facility
agreement), except as necessary to maintain our REIT status. Use of Proceeds On May 8, 2002, we commenced an offering of up to 8,700,000 shares of our common stock that
holders of our warrants may acquire upon exercise thereof. The warrants were issued in connection
with the corporate reorganization to (1) certain holders of then outstanding TrizecHahn Corporation
stock options in replacement of such options and (2) TrizecHahn Office Properties Ltd., an
indirect, wholly owned subsidiary of Trizec Canada, in an amount sufficient to allow TrizecHahn
Office Properties Ltd. to purchase one share of our common stock for each Trizec Canada stock
option granted in the corporate reorganization. The shares of common stock to be sold in the offering were registered under the Securities Act
of 1933, as amended, on a Registration Statement on Form S-11 (Registration No. 333-84878) that was
declared effective by the Securities and Exchange Commission on May 2, 2002. The Registration
Statement was amended by a Post-Effective Amendment No. 1 to Form S-11 on Form S-3 (Registration
No. 333-84878), which was declared effective on October 21, 2003. The shares of common stock are
being offered on a continuing basis pursuant to Rule 415 under the Securities Act of 1933, as
amended. We did not engage an underwriter for the offering and the aggregate price of the offering
amount registered was $143,115,000. 34




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##### Table of Contents



During the period from May 8, 2002 to December 31, 2004, 1,200,237 shares of our common stock
registered under the Registration Statement were acquired pursuant to the exercise of warrants.
All of the shares of common stock were issued or sold by us and there were no selling stockholders
in the offering. During the period from May 8, 2002 to December 31, 2004, the aggregate net proceeds from the
shares of common stock issued or sold by us pursuant to the offering upon exercise of the warrants
were approximately $834,649. There have been no expenses incurred in connection with the offering
to date. These proceeds were used for general corporate purposes. None of the proceeds from the offering were paid, directly or indirectly, to any of our
officers or directors or any of their associates, or to any persons owning ten percent or more of
our outstanding common stock or to any of our affiliates. 
 Item 6. Selected Financial Data The following financial data is derived from our audited consolidated financial statements.
The financial data set forth below should be read in conjunction with Item 7. Managements
Discussion and Analysis of Financial Condition and Results of Operations and our consolidated
financial statements and notes thereto appearing elsewhere in this annual report on Form 10-K. As described in Note 1 to our consolidated financial statements, the following financial
statements include, on a consolidated basis (as of December 31, 2004, 2003, and 2002 and for the
years ended December 31, 2004 and 2003) and a combined consolidated basis (as of December 31, 2001
and 2000 and for the years ended December 31, 2002, 2001, and 2000), the U.S. assets of TrizecHahn
Corporation, substantially all of which are owned and operated by Trizec Properties and Trizec R&E
Holdings, LLC (TREHI, formerly known as Trizec R&E Holdings, Inc. and TrizecHahn Developments
Inc.), TrizecHahns two primary U.S. operating and development companies prior to March 14, 2002.
Prior to March 14, 2002, TREHI was a wholly-owned subsidiary of TrizecHahn. Accordingly, the
organization presented in the following financial statements was not a legal entity for all periods
presented. Certain reclassifications have been made to 2003, 2002, 2001 and 2000 amounts to conform to
the 2004 presentation. These reclassifications primarily related to reclassifications of
previously issued operating results of discontinued operations in accordance with SFAS No. 144. 35




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##### Table of Contents



For the years ended December 312004
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2000(in millions)Operating Data:Revenues:Rentals and recoveries from tenants
    
    $
    599.0
    
    
    $
    600.6
    
    
    $
    608.7
    
    
    $
    589.9
    
    
    $
    596.8Total revenue
    
    
    712.1
    
    
    
    711.5
    
    
    
    721.9
    
    
    
    718.3
    
    
    
    718.4Expenses:Operating expenses and property taxes
    
    
    322.0
    
    
    
    340.4
    
    
    
    330.6
    
    
    
    305.6
    
    
    
    301.4General and administrative, exclusive of
stock option grant expense
    
    
    38.4
    
    
    
    39.3
    
    
    
    44.9
    
    
    
    25.9
    
    
    
    18.4Depreciation and amortization
    
    
    145.3
    
    
    
    136.0
    
    
    
    130.3
    
    
    
    116.7
    
    
    
    131.1Stock option grant expense
    
    
    1.3
    
    
    
    1.1
    
    
    
    5.2
    
    
    
    
    
    
    
    Reorganization (recovery) costs
    
    
    
    
    
    
    
    
    
    
    (3.3
    )
    
    
    15.9
    
    
    
    6.7Provision for loss on real estate
    
    
    12.7
    
    
    
    
    
    
    
    
    
    
    
    70.3
    
    
    
    3.7Loss on and provision for loss on investment
    
    
    14.6
    
    
    
    15.5
    
    
    
    60.8
    
    
    
    15.4
    
    
    
    Total expenses
    
    
    534.3
    
    
    
    532.3
    
    
    
    568.5
    
    
    
    549.8
    
    
    
    461.3Operating income
    
    
    177.8
    
    
    
    179.2
    
    
    
    153.4
    
    
    
    168.5
    
    
    
    257.1Other income (expense):Interest and other income
    
    
    5.4
    
    
    
    7.4
    
    
    
    6.1
    
    
    
    14.0
    
    
    
    7.9Foreign currency exchange gain
    
    
    3.3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (Loss) gain on early debt retirement
    
    
    (7.0
    )
    
    
    2.3
    
    
    
    
    
    
    
    (17.4
    )
    
    
    (1.5
    )Recovery on insurance claims
    
    
    0.7
    
    
    
    6.7
    
    
    
    3.8
    
    
    
    
    
    
    
    Interest expense
    
    
    (146.6
    )
    
    
    (150.6
    )
    
    
    (150.9
    )
    
    
    (118.3
    )
    
    
    (233.7
    )Derivative gain
    
    
    1.1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Lawsuit settlement
    
    
    3.7
    
    
    
    26.7
    
    
    
    
    
    
    
    
    
    
    
    Total other expense
    
    
    (139.4
    )
    
    
    (107.5
    )
    
    
    (141.0
    )
    
    
    (121.7
    )
    
    
    (227.3
    )Income before income taxes, minority
interest, income from unconsolidated real
estate joint ventures, discontinued
operations, gain (loss) on disposition of
real estate, net, and cumulative effect of a
change in accounting principle
    
    
    38.4
    
    
    
    71.7
    
    
    
    12.4
    
    
    
    46.8
    
    
    
    29.8(Provision) benefit for income and other
corporate taxes, net
    
    
    (4.4
    )
    
    
    41.8
    
    
    
    (4.9
    )
    
    
    (13.0
    )
    
    
    253.3Minority interest
    
    
    (1.8
    )
    
    
    (1.6
    )
    
    
    1.8
    
    
    
    0.4
    
    
    
    0.6Income from unconsolidated real estate joint
ventures including provision for loss on
investment ($58.9 and $46.9 for 2002 and
2001, respectively)
    
    
    15.2
    
    
    
    23.3
    
    
    
    (47.6
    )
    
    
    (34.0
    )
    
    
    19.4Income (loss) from continuing operations
    
    
    47.4
    
    
    
    135.2
    
    
    
    (38.3
    )
    
    
    0.2
    
    
    
    303.1Income from discontinued operations (net of
provision for loss on discontinued real
estate of $109.0, $18.2, and $209.2 for
2004, 2003, and 2002, respectively)
    
    
    (79.0
    )
    
    
    2.3
    
    
    
    (167.3
    )
    
    
    (146.0

    )
    
    
    43.0Gain on disposition of discontinued real
estate, net
    
    
    125.5
    
    
    
    58.8
    
    
    
    14.7
    
    
    
    
    
    
    
    Income (loss) before gain (loss) on
disposition of real estate, net, and
cumulative effect of a change in accounting
principle
    
    
    93.9
    
    
    
    196.3
    
    
    
    (190.9
    )
    
    
    (145.8
    )
    
    
    346.1Gain (loss) on disposition of real estate, net
    
    
    7.4
    
    
    
    11.3
    
    
    
    3.0
    
    
    
    (2.1
    )
    
    
    36.9Cumulative effect of a change in accounting
principle
    
    
    
    
    
    
    (3.8
    )
    
    
    
    
    
    
    (4.6
    )
    
    
    Net income (loss)
    
    
    101.3
    
    
    
    203.8
    
    
    
    (187.9
    )
    
    
    (152.5
    )
    
    
    383.0Special voting and Class F convertible
stockholders dividends
    
    
    (4.8
    )
    
    
    (5.2
    )
    
    
    (0.9
    )
    
    
    
    
    
    
    Net income (loss) available to common
stockholders
    
    $
    96.5
    
    
    $
    198.6
    
    
    $
    (188.8
    )
    
    $
    (152.5
    )
    
    $
    383.0
 36




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##### Table of Contents



For the years ended December 312004
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2000Pro forma(1)Income (loss) from continuing
operations available to common
stockholders per shareBasic
    
    $
    0.33
    
    
    $
    0.94
    
    
    $
    (0.24
    )
    
    $
    (0.01
    )
    
    $
    2.27Diluted
    
    $
    0.33
    
    
    $
    0.94
    
    
    $
    (0.24
    )
    
    $
    (0.01
    )
    
    $
    2.25Income (loss) available to common
stockholders per shareBasic
    
    $
    0.64
    
    
    $
    1.32
    
    
    $
    (1.26
    )
    
    $
    (1.02
    )
    
    $
    2.56Diluted
    
    $
    0.63
    
    
    $
    1.32
    
    
    $
    (1.26
    )
    
    $
    (1.02
    )
    
    $
    2.53Weighted average shares outstandingBasic
    
    
    151,596,514
    
    
    
    150,005,663
    
    
    
    149,477,187
    
    
    
    149,849,246
    
    
    
    149,849,246Diluted
    
    
    153,109,854
    
    
    
    150,453,281
    
    
    
    149,477,187
    
    
    
    149,849,246
    
    
    
    151,365,979
 For the years ended December 312004
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2000(in millions)Balance Sheet Data (at end of period):Real estate, net of accumulated depreciation
    
    $
    3,721.1
    
    
    $
    4,273.3
    
    
    $
    4790.8
    
    
    $
    4,929.5
    
    
    $
    4,546.6Cash and cash equivalents
    
    
    194.3
    
    
    
    129.3
    
    
    
    62.3
    
    
    
    297.4
    
    
    
    70.2Investment in unconsolidated real estate joint
ventures
    
    
    119.6
    
    
    
    231.2
    
    
    
    220.6
    
    
    
    289.2
    
    
    
    384.0Total assets
    
    
    4,525.4
    
    
    
    5,126.7
    
    
    
    5,546.4
    
    
    
    6,065.5
    
    
    
    5,531.7Total debt
    
    
    2,219.3
    
    
    
    2,867.0
    
    
    
    3,345.2
    
    
    
    3,017.8
    
    
    
    2,326.9Total liabilities
    
    
    2,558.5
    
    
    
    3,161.2
    
    
    
    3,668.1
    
    
    
    3,630.1
    
    
    
    2,884.9Stockholders equity
    
    
    1,959.4
    
    
    
    1,965.5
    
    
    
    1,878.3
    
    
    
    2,435.4
    
    
    
    2,646.8Cash Flow Information:Cash provided by operating activities
    
    $
    288.7
    
    
    $
    249.7
    
    
    $
    213.1
    
    
    $
    462.9
    
    
    $
    113.1Cash provided by (used in) investing activities
    
    $
    536.1
    
    
    $
    412.1
    
    
    $
    (17.4
    )
    
    $
    (597.0
    )
    
    $
    (52.7
    )Cash (used in) provided by financing activities
    
    $
    (759.8
    )
    
    $
    (594.7
    )
    
    $
    (430.9
    )
    
    $
    361.3
    
    
    $
    (70.6
    )Other Data:Number of office properties
    
    
    52
    
    
    
    64
    
    
    
    72
    
    
    
    76
    
    
    
    77Net rentable square feet of office properties
(in millions)
    
    
    37.3
    
    
    
    42.5
    
    
    
    48.6
    
    
    
    48.9
    
    
    
    49.8Occupancy of office properties weighted on
owned area
    
    
    89.5
    %
    
    
    86.6
    %
    
    
    89.0
    %
    
    
    94.3
    %
    
    
    94.2
    %Dividends per share (3)
    
    $
    0.80
    
    
    $
    0.80
    
    
    $
    0.26
    
    
    $
    
    
    
    $
    Funds from operations (2) (4)
    
    $
    141.8
    
    
    $
    334.4
    
    
    $
    (16.1
    )
    
    $
    29.0
    
    
    $
    508.0
 37




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(1)
    Prior to the corporate reorganization, Trizec Properties was an indirect
wholly-owned subsidiary of TrizecHahn. Accordingly, share and per share information for
periods prior to the corporate reorganization have been presented based on the number of
shares and the dilutive impact of options and warrants outstanding on May 8, 2002, the date
our common stock commenced regular trading. This share and per share information is referred
to as pro forma.(2)
    Funds from operations is a non-GAAP financial measure and the most directly
comparable GAAP measure to funds from operations is net income (loss) available to common
stockholders. Funds from operations is defined by the Board of Governors of the National
Association of Real Estate Investment Trusts, or NAREIT, as net income, computed in accordance
with accounting principles generally accepted in the United States, or GAAP, excluding gains
or losses from sales of properties and cumulative effect of a change in accounting principle,
plus real estate related depreciation and amortization, and after adjustments for
unconsolidated partnerships and joint ventures. Adjustments for unconsolidated partnerships
and joint ventures are calculated to reflect funds from operations on the same basis.
Effective as of the fourth quarter of 2003, we adopted the NAREIT calculation of funds from
operations. Prior to our adoption of the NAREIT methodology for calculating funds from
operations, we historically excluded certain items in calculating funds from operations, such
as gain on lawsuit settlement, gain on early debt retirement, minority interest, recovery on
insurance claims, effects of provision for loss on real estate and loss on and provision for
loss on investments, net of the tax benefit, that are required to be factored into the
calculation of funds from operations under the NAREIT methodology. The historical
calculations of funds from operations have been revised in accordance with the NAREIT
calculation.We believe that funds from operations is helpful to investors as one of several measures of the
performance of an equity REIT. We further believe that by excluding the effect of
depreciation, amortization and gains or losses from sales of real estate, all of which are
based on historical costs and which may be of limited relevance in evaluating current
performance, funds from operations can facilitate comparisons of operating performance between
periods and between other equity REITS. Investors should review funds from operations, along
with GAAP net income and cash flow from operating activities, investing activities and
financing activities, when trying to understand an equity REITs operating performance. As
discussed above, we compute funds from operations in accordance with current standards
established by NAREIT, which may not be comparable to funds from operations reported by other
REITs that do not define the term in accordance with the current NAREIT definition or that
interpret the current NAREIT definition differently than we do. While funds from operations is
a relevant and widely used measure of operating performance of equity REITs, it does not
represent cash generated from operating activities in accordance with GAAP, nor does it
represent cash available to pay distributions and should not be considered as an alternative to
net income, determined in accordance with GAAP, as an indication of our financial performance,
or to cash flow from operating activities, determined in accordance with GAAP, as a measure of
our liquidity, nor is it indicative of funds available to fund our cash needs, including our
ability to make cash distributions.(3)
    During the years ended December 31, 2004 and 2003, we declared four quarterly
dividends of $0.20 per common share. In 2002, subsequent to the corporate reorganization, we
declared and paid three quarterly dividends of $0.0875 per common share. Information
regarding periods prior to the corporate reorganization has not been provided as the dividends
were paid to our parent company.(4)
    The following table sets forth the reconciliation of funds from operations to net
income available to common stockholders: For the years ended December 312004
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2000Net income (loss) available to common
stockholders
    
    $
    96,489
    
    
    $
    198,527
    
    
    $
    (188,783
    )
    
    $
    (152,491
    )
    
    $
    382,996Add/(deduct):(Gain) loss on disposition of real estate, net
    
    
    (7,358
    )
    
    
    (11,351
    )
    
    
    (2,996
    )
    
    
    2,053
    
    
    
    (36,862
    )Gain on disposition of discontinued real
estate, net
    
    
    (125,508
    )
    
    
    (58,834
    )
    
    
    (14,716
    )
    
    
    
    
    
    
    Gain on disposition of real estate from
unconsolidated real estate joint
ventures
    
    
    (704
    )
    
    
    (230
    )
    
    
    
    
    
    
    
    
    
    
    Depreciation and amortization (real
estate related) including share of
unconsolidated real estate joint
ventures and discontinued operations
    
    
    178,847
    
    
    
    202,490
    
    
    
    190,397
    
    
    
    174,850
    
    
    
    161,841Cumulative effect of a change in
accounting principle
    
    
    
    
    
    
    3,845
    
    
    
    
    
    
    
    4,631
    
    
    
    Funds from operations available to
common stockholders
    
    $
    141,766
    
    
    $
    334,447
    
    
    $
    (16,098
    )
    
    $
    29,043
    
    
    $
    507,975
 38




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Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations In Item 7, the terms we, us, our and our company refer to Trizec Properties, Inc. as
of December 31, 2004, 2003, and 2002 and for the years ended December 31, 2004 and 2003; and to the
combined operations of all of the former U.S. holdings of our former parent company, TrizecHahn
Corporation (currently an indirect, wholly-owned subsidiary of Trizec Canada), substantially all of
which are owned and operated by Trizec Properties, Inc., Trizec R&E Holdings, LLC. (formerly known
as Trizec R&E Holdings, Inc. and TrizecHahn Developments Inc.) and their respective consolidated
subsidiaries for the year ended December 31, 2002. On March 14, 2002, Trizec R&E Holdings LLC was
contributed to Trizec Properties, Inc. The following discussion should be read in conjunction with Forward-Looking Statements and
the combined consolidated financial statements and the notes thereto that appear elsewhere in this
Form 10-K. The following discussion may contain forward-looking statements within the meaning of
the securities laws. Actual results could differ materially from those projected in such
statements as a result of certain factors set forth in thisForm 10-Kfor the year ended December
31, 2004. Overview We are one of the largest fully integrated and self-managed, publicly traded real estate
investment trusts, or REITs, in the United States. We are engaged in owning and managing office
properties in the United States. At December 31, 2004, we had total assets of approximately $4.5
billion and owned interests in and managed 52 U.S. office properties containing approximately 37.3
million square feet, or approximately 33.8 million square feet based on our pro rata economic
ownership interest in unconsolidated real estate joint ventures. Our office properties are
concentrated in seven core markets in the United States located in the following major metropolitan
areas: Atlanta; Chicago; Dallas; Houston; Los Angeles; New York; and Washington, D.C. We were launched as a publicly traded U.S. office REIT in May 2002, as part of the
reorganization of Canadian-based TrizecHahn Corporation. Concurrent with the reorganization, Trizec
Canada Inc., a Canadian company that holds approximately
40 percent of our common stock, was established. This
ownership structure enables non-U.S. investors to invest in us through Trizec Canada. On December 22, 2004, we completed the reorganization of our operating structure by converting
to an umbrella partnership real estate investment trust, or UPREIT, structure (the UPREIT
Conversion). In connection with the UPREIT Conversion, we formed a new operating entity, Trizec
Holdings Operating LLC, a Delaware limited liability company (the Operating Company), and entered
into a contribution agreement and an assignment and assumption agreement with the Operating Company
pursuant to which we contributed substantially all of our assets to the Operating Company in
exchange for (a) a combination of common units, special voting units and Series F convertible units
of limited liability company interest in the Operating Company and (b) the assumption by the
Operating Company of substantially all of our liabilities. We now conduct and intend to continue
to conduct our business, and own and intend to continue to own substantially all of our assets,
through the Operating Company. As the sole managing member of the Operating Company, we generally
have the exclusive power under the limited liability company agreement to manage and conduct the
business of the Operating Company, subject to certain limited approval and voting rights of the
other members that may be admitted in the future. Currently, the Operating Company is wholly owned
by us. Our overall goal is to increase stockholder value by creating sustained growth in operating
cash flow and by maximizing the value of our assets. We believe we can accomplish this using the
following strategies:  
    intensively leasing and managing our properties to maximize property operations;
    vigorously engaging in asset management to enhance the value of our properties;
    actively managing our portfolio to maximize total value of our properties;
    improving the efficiency and productivity of our operations; and
    maintaining a prudent and flexible capital plan. 39




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##### Table of Contents



By intensively leasing and managing our properties, we seek to maximize property operations by
increasing occupancy, achieving the highest possible rent levels, controlling operating and tenant
improvements costs, and profiting from the delivery of certain tenant services. Our asset management strategy is to invest capital in our existing portfolio to increase its
value and marketability. We engage in such activities as renovating and upgrading office
properties. Job growth is the single most significant factor in the demand for more office space, and has
a direct impact on our ability to do business profitably. Therefore, our portfolio strategy is to
invest in office properties primarily in major metropolitan areas  and submarkets within those
markets  that have historically demonstrated high job growth. As we continue to review emerging
job trends and other economic trends, market-by-market, we believe we are positioned to reduce or
increase our presence in some markets, and enter others that we believe have strong long-term
potential. While we are focused on investing in office properties in a relatively small number of
core markets, we maintain a national presence that we believe helps to insulate us from regional
economic downturns and we maintain a diverse tenant base that reduces the impact of cyclical
downturns in particular industries. The careful control of property operating expenses, as well as general and administrative
expenses, are key components in our efforts to maximize operating cash flow. Following our launch
in 2002, we centralized several corporate functions. We continue to seek ways to generate general
and administrative expense savings over time. We seek to maximize our cash flow growth, and therefore maximize the return on our capital.
In keeping with that, our capital strategy is to effectively manage both our cash on hand and
line(s) of credit, employ an appropriate degree of leverage, and limit our exposure to interest
rate volatility by obtaining fixed-rate debt and employing hedging strategies. In the past, we have raised capital through a variety of methods in addition to obtaining
secured debt. These methods have included selling assets or entering into joint ventures or
partnerships with equity providers. We may employ any of these methods in the future, along with
other strategies, such as issuing debt or equity securities and unsecured debt. 2004 Accomplishments During the year ended December 31, 2004, we completed the following key transactions:  
    In January 2004, we refinanced a $120.0 million mortgage on the Ernst & Young Plaza in Los Angeles, California. The new
10-year term mortgage has a fixed interest rate of 5.07%. The financing proceeds were used to repay the existing $120.0
million variable rate mortgage that had a maturity date of June 2004.
    In February 2004, we paid off and retired the mortgage loan on Galleria Towers, an office complex located in Dallas,
Texas. The mortgage had a principal balance of approximately $133.5 million, bore interest at a fixed rate of 6.79%
and was scheduled to mature in May 2004.
    In April 2004, we reduced our ownership stake in the Waterview development project, located in Arlington, Virginia, to
25%. We had an 80% interest in the joint venture that previously owned the development project. The new joint venture
entity that will now develop the mixed-use complex is owned 50% by CIM Groups CIM Urban Real Estate Fund, while JBG
and our company will own 25% each.
    In May 2004, we contributed ownership of Plaza of the Americas, located in Dallas, Texas, to a new joint venture that
is controlled 50%/50% by us and Dallas Plaza, L.P. We will continue to lease and manage the property on behalf of the
new partnership.
    In June 2004, we entered into a $750.0 million unsecured credit facility consisting of a $600.0 million revolving
component and a $150.0 million term component. The unsecured credit facility requires interest only payments, with the
interest rate established on a scale based upon the level of our total leverage. The unsecured credit 40




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facility replaced a $350.0 million secured credit facility and enabled us to remove encumbrances
on nine assets that had served as collateral under the secured credit facility.  
    In June 2004, we completed $600.0 million of non-recourse
refinancings on two midtown Manhattan office properties owned
jointly with San Francisco-based Swig Company- The Grace Building
at 1114 Avenue of the Americas and The World Apparel Center at
1411 Broadway. The two ten year loans carry an average fixed
interest face-rate of 5.52% and replaced a 7.5%
cross-collateralized loan totaling approximately $207.0 million.
    In June 2004, we repaid the mortgage loan on 1065 Avenue of the
Americas, a property located in New York, New York. The mortgage
loan had a principal balance of approximately $36.5 million, bore
interest at a fixed rate of 7.18% and was scheduled to mature in
December 2004.
    In June 2004, we established a dividend reinvestment and stock
purchase plan through which shares of our common stock may be
offered.
    In July 2004, we paid down approximately $444.1 million of our
variable interest rate commercial mortgage pass through
certificates primarily by drawing on our $750.0 million unsecured
credit facility. This repayment removed encumbrances on seven
assets making up part of a cross-collateralized and
cross-defaulted office property pool that secured the five loans.
    In July 2004, we paid off and retired the mortgage loan on Newport
Tower, a property located in Jersey City, New Jersey. The
mortgage loan had a principal balance of approximately $102.8
million, bore interest at a fixed rate of 7.09% and was scheduled
to mature in November 2004.
    In August 2004, we acquired Bank of America Plaza, located at 333
South Hope Street, Los Angeles, California, for a net purchase
price of approximately $420.7 million. Bank of America Plaza is a
55-story, 1.4 million square foot Class A office building situated
on a 4.2 acre site in the Bunker Hill area of downtown Los
Angeles. In conjunction with this acquisition, we entered into
two non-recourse mortgage loans totaling approximately $242.0
million, bearing interest at an average fixed rate of 5.31% and
scheduled to mature in September 2014.
    In October 2004, we announced that the Corporate Executive Board
Company will lease the entire office tower at the Waterview
mixed-use project in Arlington, Virginia.
    In November 2004, we acquired an interest in an entity that owns
2001 M Street, located in Washington, D.C., valued at
approximately $75.6 million.
    In December 2004, we completed our reorganization of our operating
structure by converting to what is commonly referred to as an
umbrella partnership real estate investment trust, or UPREIT
structure.
    During the year ended December 31, 2004, we sold an additional
fifteen office properties, two retail/entertainment properties and
three land parcels for an aggregate net sales price of
approximately $912.1 million. Current Economic Conditions and Outlook As indicated above, job growth has a significant and direct impact on our business. We
therefore look to indications of economic growth, and by correlation, resulting job growth, in
developing our current strategies and future outlook. Although the overall economy improved during
2004 compared to 2003, it has not produced enough office job growth to put office landlords in a
more profitable leasing position. The Bureau of Labor Statistics reported that 2.2 million jobs were created in 2004. This
compares favorably to the less than 100,000 jobs created in 2003. The most recent report showed
146,000 new jobs being created during the month of January 2005, resulting in employment levels
reaching the highest level since 2000. Another bright spot is that there appears to be positive
influences on future job growth with the news that 41




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productivity growth slowed sharply in the fourth quarter of 2004. This suggests that further
economic growth will necessitate the hiring of more workers as existing employee productivity has
peaked. This outlook for stronger employment growth is certainly a positive indicator, and while the
past few years have been difficult for the office market, it appears to us that the bottom of this
real estate cycle was reached in 2004. According to Cushman & Wakefield (C&W), overall and direct vacancy rates in the United
States both experienced further declines during the fourth quarter. For the year, overall vacancy
rates, which includes sublease space, declined by 1.4 percentage points and direct vacancy rates
declined by 0.5 points, marking the first year-over-year decline in overall office vacancy since
2000. At December 31, 2004, occupancy of our total portfolio was approximately 89.3% compared to
approximately 86.8% at December 31, 2003, a modest increase of approximately 2.5%. Driving these
trends are improving net absorption levels. C&W reports that overall absorption in the United
States, including sublease space, for 2004 was 38 million square feet. This was a significant
improvement over the 3.6 million square feet of overall absorption recorded in the prior year.
Direct absorption for the year was approximately 22 million square feet, compared to negative 15
million square feet in 2003. During the year ended December 31, 2004, we leased and released
approximately 5.9 million square feet at an average rental rate of approximately $21.81 per square
foot, while experiencing expiring leases of approximately 5.3 million square feet at approximately
$23.22 per square foot. This compares favorably to the year ended December 31, 2003, during which
we leased or released approximately 6.9 million square feet, while experiencing expiring leases of
approximately 8.1 million square feet. While office market conditions are generally showing signs of continued improvement, it is
still in the beginning stage of its recovery. Until we see a complete or near complete recovery,
we believe that the leasing environment will remain challenging as landlords continue to compete
very aggressively for tenants. Tenants continue to take advantage of the current market conditions
to renew early, while landlords continue to struggle with the amount of capital required to attract
new tenants or even in some circumstances maintain their current tenant base. As a result, for the
year ended December 31, 2004, tenant installation costs for our portfolio, including our pro rata
ownership interest in unconsolidated real estate joint ventures, approximated $20.69 per square
foot leased, compared to approximately $14.83 per square foot leased during the year ended December
31, 2003. Another important factor affecting the office market recovery is the level of new
construction. From a recent peak of 88 million square feet of office space delivered in 2001 in
the United States, development has slowed considerably to just 27 million square feet in 2003 and
23 million square feet in 2004, according to C&W. With projects currently under construction, it
is estimated that a similar amount will be completed in 2005. As part of our capital allocation strategy and favorable market conditions for property sales,
we disposed of fifteen office properties, two retail/entertainment properties and three land
parcels for an aggregate net sales price of approximately $912.1 million. The proceeds from such
sales were primarily used to paydown existing debt and fund the acquisition of Bank of America
Plaza in Los Angeles, California and the acquisition of an interest in an entity that owns 2001 M
Street in Washington, D.C. We note, however, that despite improvements in certain economic indicators, a stance of
cautious optimism remains prudent. Therefore, while we hope that economic growth continues to
improve and translate into employment growth and, in particular, office employment, we are cautious
that there will not be a material amount of jobs created in 2005 in time to produce increased
demand for office space. Risks We face risks normally associated with the ownership and operation of office real estate
properties. These include, but are not limited to, those set forth under Risk Factors  Risks
Relating to Our Business, in Part I of this Form 10-K. In addition, among the perceived risks we and our stockholders face are those set forth under
Risk Factors  Risks Relating to Our Capital Stock, in Part I of this Form 10-K. 42




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Critical Accounting Policies The discussion and analysis of our financial condition and results of operations are based
upon our consolidated financial statements. The preparation of financial statements in accordance
with accounting principles generally accepted in the United States of America requires management
to make estimates and assumptions that affect the reported 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 amounts will differ
from those estimates used in the preparation of these financial statements. Critical accounting policies are defined as those that involve significant judgment and
potentially could result in materially different results under different assumptions and
conditions. We believe the following critical accounting policies are affected by our more
significant judgments and estimates used in the preparation of our consolidated financial
statements. For a detailed description of these and other accounting policies, see Note 2 in the
notes to our consolidated financial statements included in this Form 10-K. Real Estate-Held for the Long Term We evaluate the recoverability of our real estate assets held for the long term and record an
impairment charge when there is an indicator of impairment and the undiscounted projected cash
flows of the property are less than the carrying amount. A significant, sustained decline in
operating results for a particular property could be an indicator of impairment and therefore
require a charge to income in the future. Real Estate - Held for Disposition With respect to real estate assets classified as held for disposition, the determination of
such classification is based on our intention and ability to sell these properties within a stated
timeframe. Real estate assets held for disposition are carried at the lower of their carrying
values or estimated fair value, less costs to sell. Estimated fair value is determined based on
managements estimates of amounts that would be realized if the property were offered for sale in
the ordinary course of business assuming a reasonable sales period and under normal market
conditions. Fair values are determined using valuation techniques including third party appraisals
when considered appropriate in the circumstances. Estimates of value include assumptions
concerning future property cash flows, disposal dates and expected purchaser risk adjusted rates of
return requirements. Different assumptions could result in significantly higher or lower estimates
of fair value than those determined by management. In addition, changes in future market
conditions could result in ultimate sale proceeds varying significantly from those assumed by
management, resulting in future gains or losses being recorded. Depreciation Depreciation of rental properties acquired prior to the adoption of Statement of Financial
Accounting Standards No. 141, Business Combinations (SFAS No. 141) is calculated using the
straight-line method over periods not exceeding a 40-year estimated life, subject to the terms of
any respective ground leases. Tenant improvements are deferred and amortized on a straight-line
basis over the shorter of the economic life or the term of the respective lease. Depreciation of
rental properties acquired subsequent to the adoption of SFAS No. 141 is based on the allocation of
the acquisition cost to land, building, tenant improvements and intangibles, if any, and the
determination of their useful lives are based on managements estimates. If we do not
appropriately allocate to these components or we incorrectly estimate the useful lives of these
components, our computation of depreciation and amortization expense may not appropriately reflect
the actual impact of these costs over future periods, which could effect net income. In accordance with SFAS No. 141, we allocate the purchase price of real estate to land,
building, tenant improvements and, if determined to be material, intangibles, such as the value of
above, below and at-market leases, origination costs associated with the in-place leases, and the
value of tenant relationships, if any. We depreciate the amount allocated to building and other
intangible assets over their estimated useful lives, which generally range from one to 40 years.
The values of the above and below market leases are amortized and recorded as either an increase
(in the case of below market leases) or a decrease (in the case of above market leases) to rental
income over 43




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##### Table of Contents



the remaining term of the associated lease. The value associated with in-place leases and
tenant relationships is amortized over the expected term of the relationship, which includes an
estimate of probability of the lease renewal, and its estimated term. If a tenant vacates its
space prior to the contractual termination of the lease and no rental payments are to be made on
the lease, any unamortized balance of the related intangible will be written off. Tenant
improvements and lease origination costs are amortized as an expense over the remaining life of the
lease (or charged against earnings if the lease is terminated prior to its contractual expiration
date). In accordance with SFAS No. 141, we perform the following procedures for properties we
acquire:  1)
    estimate the value of the property as if vacant as of the acquisition date;2)
    allocate the fair value of the property among land, site improvement, building,
and equipment and determine the associated asset life for each;3)
    estimate the fair value of the tenant improvements and calculate the associated
asset life;4)
    allocate the value of the above and below market leases to the intangible
assets and determine the associated life of the above/below market leases;5)
    allocate the value of the lease origination costs to the intangible assets and
calculate the associated asset life;6)
    calculate the intangible value to the in-place leases and the associated life
of these assets;7)
    calculate the value and associated life of the tenant relationships, if any;
and8)
    allocate the remaining value (if any) to goodwill and allocate to the purchase
price. Investments in Joint Ventures We apply the equity method of accounting to joint ventures in which we do not have a
controlling direct or indirect voting interest, but can exercise influence over the entity with
respect to its operations and major decisions. These investments are recorded initially at cost,
as investments in unconsolidated real estate joint ventures, and are subsequently adjusted for
equity in earnings and cash contributions and distributions. The joint venture agreements may
designate different percentage allocations among the venturers for income and losses; however, our
recognition of joint venture income or loss generally follows the distribution priorities. Any
difference between the carrying amount of these investments on our balance sheet and the underlying
equity in net assets is amortized as an adjustment to equity in earnings of unconsolidated joint
ventures over the respective lives of the underlying assets, as applicable. Under the equity
method of accounting, the net equity investment is reflected on our consolidated balance sheets,
and our share of net income or loss from the joint ventures is included on our consolidated
statements of operations. We also consolidate joint ventures in which we own less than a 100% equity interest if we are
deemed to be the primary beneficiary in such variable interest entities, as defined in the
Financial Accounting Standards Board Interpretation No. 46, Consolidation of Variable Interest
Entities (hereinafter defined). Deferred Charges We capitalize a portion of our internal costs related to our leasing activities. These costs
generally include compensation and related costs. The portion capitalized is based on an estimate
of time spent on successful leasing efforts. 44




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Revenue Recognition Estimates are used to establish amounts receivable from tenants for such things as common area
maintenance, real estate taxes and other cost recoveries. In addition, an estimate is made with
respect to our provision for allowance for doubtful accounts receivable. The allowance for
doubtful accounts reflects our estimate of the amounts of the recorded accounts receivable at the
balance sheet date that will not be realized from cash receipts in subsequent periods. If cash
receipts in subsequent periods vary from our estimates, or if our tenants financial condition
deteriorates as a result of operating difficulties, additional changes to the allowance may be
required. Derivative Instruments We use interest rate cap and swap agreements to manage risk from fluctuations in interest
rates as well as to hedge anticipated future financing transactions. We believe these agreements
are with counter-parties who are creditworthy financial institutions. We adopted Statement of Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities as amended by Statement of Financial Accounting Standards No.
137 and Statement of Financial Accounting Standards No. 138 (collectively, SFAS No. 133), as of
January 1, 2001. SFAS No. 133 establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other contracts, and hedging
activities. It requires the recognition of all derivative instruments as assets or liabilities in
our consolidated balance sheets at fair value. Changes in the fair value of derivative instruments
that are not designated as hedges or that do not meet the hedge accounting criteria in SFAS No. 133
are required to be reported through the statement of operations. For derivatives designated as
hedging instruments in qualifying cash flow hedges, the effective portion of changes in fair value
of the derivatives is recognized in other comprehensive income (loss) until the forecasted
transactions occur, and the ineffective portions are recognized in the statement of operations. We
assess the effectiveness of each hedging relationship by comparing the changes in cash flows of the
derivative hedging instrument with the changes in cash flows of the designated hedged item or
transaction. Upon early termination of a derivative instrument that has been designated as a hedge, the
resulting gains or losses are deferred and amortized as adjustments to interest expense of the
related debt over the remaining period covered by the terminated instrument. Fair Value of Financial Instruments We are required to determine quarterly the fair value of our mortgage debt and unsecured
notes. We are also required quarterly to adjust the carrying value of interest rate swaps and
caps, as well as the underlying hedged liability, to its fair value. In determining the fair value
of these financial instruments, we use third party quotations and internally developed models that
are based on current market conditions. For example, in determining the fair value of our mortgage
debt and unsecured notes, we discount the spread between the future contractual interest payments
and the projected future interest payments based on a current market rate. In determining the
current market rate, we add a market spread to the quoted yields on federal government debt
securities with similar maturity dates to our own debt. The market spread estimate is based on our
historical experience in obtaining either secured or unsecured financing and also is affected by
current market conditions. In determining the fair value of interest rate swaps and caps, we rely
on third party quotations to adjust the value of these instruments, as well as the hedged
liability, to its fair value. Because our valuations of our financial instruments are based on
these types of estimates, the fair value of our financial instruments may change if our estimates
do not turn out to be accurate. Income Taxes Historically, prior to electing REIT status, as part of the process of preparing our
consolidated financial statements we estimated our income tax expense and required liabilities.
This process required us to estimate our tax expense taking into consideration our tax planning
strategies. We used our judgment to determine our estimated tax liability, and ultimate
liabilities for income taxes could be different from the amounts recorded. 45




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##### Table of Contents



Insurance We utilize a wholly-owned taxable REIT subsidiary, Concord Insurance Limited (Concord), to
act as a captive insurance company and be one of the elements of our overall insurance program.
Concord acts as a primary carrier with respect to our terrorism insurance program, as well as our
general liability and workers compensation insurance program. Under such insurance programs, we
are generally responsible for up to $0.3 million per claim for both general liability and workers
compensation. We maintain excess liability insurance with independent insurance carriers to
minimize risks related to catastrophic claims. Liabilities associated with the risks that are
retained by us are estimated, in part, by considering historical claims experience, demographic
factors, severity factors and other actuarial assumptions. The estimated accruals for these
liabilities could be significantly affected if future occurrences and claims differ from these
assumptions and historical trends. Effective December 31, 2004, we formed Concordia Insurance LLC and Chapman Insurance LLC to
underwrite terrorism, general liability and workers compensation insurance programs for our wholly
owned and joint venture properties, respectively. Effective December 31, 2004, Concord will
underwrite terrorism, general liability and workers compensation insurance programs only for
properties we have third party management agreements with. Results of Operations The following discussion is based on our consolidated financial statements for the years ended
December 31, 2004, 2003 and 2002. For the year ended December 31, 2002, the consolidated financial statements present TrizecHahn
Corporations former U.S. holdings for the period January 1, 2002 through May 8, 2002, which are
now owned and operated by us. Prior to the corporate reorganization, we, along with our subsidiary
Trizec R&E Holdings LLC, or TREHI, (formerly known as Trizec R&E Holdings, Inc. and TrizecHahn
Developments Inc., which became our subsidiary on March 14, 2002), were TrizecHahn Corporations
two primary U.S. operating and development companies. The combined entities and their subsidiaries
were under the common control of TrizecHahn Corporation and have been presented utilizing the
historical cost basis of TrizecHahn Corporation. For additional information about the corporate
reorganization, see Part I  Item 1. Business in this Form 10-K. We have had acquisition, disposition and development activity in our property portfolio in the
periods presented. The table that follows is a summary of our acquisition and disposition activity
from January 1, 2002 to December 31, 2004 and reflects our total portfolio at December 31, 2004.
The buildings and total square feet shown include properties that we own in joint ventures with
other partners and reflect the total square footage of the properties and the square footage owned
by us based on our pro rata economic and legal ownership in the respective joint ventures or
managed properties. 46




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Office(1)
    
    
    RetailPro rata
    
    
    
    
    
    
    
    
    
    
    Pro rataOwned
    
    
    
    
    
    
    
    
    
    
    OwnedProperties as of:
    
    Properties
    
    
    Total Sq.Ft.
    
    
    Sq.Ft.
    
    
    Properties
    
    
    Total Sq.Ft.
    
    
    Sq.Ft.(in thousands)
    
    
    
    
    
    
    (in thousands)December 31, 2001
    
    
    76
    
    
    
    48,862
    
    
    
    41,323
    
    
    
    4
    
    
    
    2,285
    
    
    
    2,076Dispositions
    
    
    (5
    )
    
    
    (946
    )
    
    
    (946
    )
    
    
    
    
    
    
    
    
    
    
    Acquisitions
    
    
    1
    
    
    
    272
    
    
    
    272
    
    
    
    
    
    
    
    
    
    
    
    Acquisition of joint venture
interest
    
    
    
    
    
    
    
    
    
    
    933
    
    
    
    
    
    
    
    
    
    
    
    Additional space placed on-stream
    
    
    1
    
    
    
    560
    
    
    
    560
    
    
    
    
    
    
    
    
    
    
    
    Re-measurements
    
    
    
    
    
    
    136
    
    
    
    134
    
    
    
    
    
    
    
    
    
    
    
    December 31, 2002
    
    
    73
    
    
    
    48,884
    
    
    
    42,276
    
    
    
    4
    
    
    
    2,285
    
    
    
    2,076Dispositions
    
    
    (8
    )
    
    
    (6,357
    )
    
    
    (2,472
    )
    
    
    (2
    )
    
    
    (1,010
    )
    
    
    (855
    )Acquisitions
    
    
    
    
    
    
    232
    
    
    
    24
    
    
    
    
    
    
    
    (30
    )
    
    
    (30
    )December 31, 2003
    
    
    65
    
    
    
    42,759
    
    
    
    39,828
    
    
    
    2
    
    
    
    1,245
    
    
    
    1,191Dispositions
    
    
    (15
    )
    
    
    (7,091
    )
    
    
    (7,091
    )
    
    
    (2
    )
    
    
    (1,245
    )
    
    
    (1,191
    )Acquisitions
    
    
    2
    
    
    
    1,651
    
    
    
    1,646
    
    
    
    
    
    
    
    
    
    
    
    Sale of interest to a joint venture
    
    
    
    
    
    
    
    
    
    
    (588
    )
    
    
    
    
    
    
    
    
    
    
    Re-measurements
    
    
    
    
    
    
    (11
    )
    
    
    (11
    )
    
    
    
    
    
    
    
    
    
    
    December 31, 2004
    
    
    52
    
    
    
    37,308
    
    
    
    33,784
    
    
    
    
    
    
    
    
    
    
    
    
 In the financial information that follows, property revenues include rental income, recoveries
from tenants, parking and other income. Property operating expenses include costs that are
recoverable from our tenants (including but not limited to real estate taxes, utilities, insurance,
repairs and maintenance and cleaning) and other non-recoverable property-related expenses and
exclude depreciation and amortization expense.   (1)
    
    Includes our ownership of 151 Front Street
comprising approximately 272,000 square feet. 151 Front Street was sold on January 15, 2004. 47




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##### Table of Contents



Comparison of Year Ended December 31, 2004 to Year Ended December 31, 2003 The following is a table comparing our summarized operating results for the periods, including
other selected information. For the years endedDecember 31
    
    
    Increase
    
    
    %2004
    
    
    2003
    
    
    (Decrease)
    
    
    Change(dollars in thousands)Total Property Revenues
    
    $
    712,137
    
    
    $
    711,471
    
    
    $
    666
    
    
    
    0.1
    %Property operating expenses
    
    
    322,011
    
    
    
    340,427
    
    
    
    (18,416
    )
    
    
    5.4
    %General and administrative, exclusive of stock option grant
expense
    
    
    38,456
    
    
    
    39,304
    
    
    
    (848
    )
    
    
    2.2
    %Depreciation and amortization
    
    
    145,290
    
    
    
    135,987
    
    
    
    9,303
    
    
    
    6.8
    %Stock option grant expense
    
    
    1,303
    
    
    
    1,054
    
    
    
    249
    
    
    
    23.6
    %Provision for loss on real estate
    
    
    12,749
    
    
    
    
    
    
    
    12,749
    
    
    
    Loss on and provision for loss on investment
    
    
    14,558
    
    
    
    15,491
    
    
    
    (933
    )
    
    
    6.0
    %Total Expenses
    
    
    534,367
    
    
    
    532,263
    
    
    
    2,104
    
    
    
    0.4
    %Operating Income
    
    
    177,770
    
    
    
    179,208
    
    
    
    (1,438
    )
    
    
    0.8
    %Other Income (Expense)Interest and other income
    
    
    5,403
    
    
    
    7,398
    
    
    
    (1,995
    )
    
    
    27.0
    %Foreign currency exchange gain
    
    
    3,340
    
    
    
    
    
    
    
    3,340
    
    
    
    (Loss) Gain on early debt retirement
    
    
    (7,032
    )
    
    
    2,262
    
    
    
    (9,294
    )
    
    
    410.9
    %Recovery on insurance claims
    
    
    739
    
    
    
    6,673
    
    
    
    (5,934
    )
    
    
    88.9
    %Interest expense
    
    
    (146,584
    )
    
    
    (150,622
    )
    
    
    4,038
    
    
    
    2.7
    %Derivative gain
    
    
    1,073
    
    
    
    
    
    
    
    1,073
    
    
    
    Lawsuit settlement
    
    
    3,676
    
    
    
    26,659
    
    
    
    (22,983
    )
    
    
    86.2
    %Total Other Expense
    
    
    (139,385
    )
    
    
    (107,630
    )
    
    
    (31,755
    )
    
    
    29.5
    %Income before Income Taxes, Minority Interest, Income from
Unconsolidated Real Estate Joint Ventures, Discontinued
Operations, Gain on Disposition of Real Estate, Net, and
Cumulative Effect of a Change in Accounting Principle
    
    
    38,385
    
    
    
    71,578
    
    
    
    (33,193
    )
    
    
    46.4
    %(Provision) Benefit for income and other corporate taxes, net
    
    
    (4,379
    )
    
    
    41,777
    
    
    
    (46,156
    )
    
    
    110.5
    %Minority interest
    
    
    (1,834
    )
    
    
    (1,626
    )
    
    
    (208
    )
    
    
    12.8
    %Income from unconsolidated real estate joint ventures
    
    
    15,243
    
    
    
    23,336
    
    
    
    (8,093
    )
    
    
    34.7
    %Income from Continuing Operations
    
    
    47,415
    
    
    
    135,065
    
    
    
    (87,650
    )
    
    
    64.9
    %Discontinued OperationsIncome from discontinued operations (net of provision for
loss on discontinued real estate of $108,988 and $18,164
for 2004 and 2003, respectively)
    
    
    (78,968
    )
    
    
    2,348
    
    
    
    (81,316
    )
    
    
    3,463.2
    %Gain on disposition of discontinued real estate, net
    
    
    125,508
    
    
    
    58,834
    
    
    
    66,674
    
    
    
    113.3
    %Income Before Gain on Disposition of Real Estate, Net, and
Cumulative Effect of a Change in Accounting Principle
    
    
    93,955
    
    
    
    196,247
    
    
    
    (102,292
    )
    
    
    52.1
    %Gain on disposition of real estate, net
    
    
    7,358
    
    
    
    11,351
    
    
    
    (3,993
    )
    
    
    35.2
    %Income before Cumulative Effect of a Change in Accounting
Principle
    
    
    101,313
    
    
    
    207,598
    
    
    
    (106,285
    )
    
    
    51.2
    %Cumulative effect of a change in accounting principle
    
    
    
    
    
    
    (3,845
    )
    
    
    3,845
    
    
    
    Net Income
    
    
    101,313
    
    
    
    203,753
    
    
    
    (102,440
    )
    
    
    50.3
    %Special voting and Class F convertible stockholders dividends
    
    
    (4,824
    )
    
    
    (5,226
    )
    
    
    402
    
    
    
    7.7
    %Net Income Available to Common Stockholders
    
    $
    96,489
    
    
    $
    198,527
    
    
    $
    (102,038
    )
    
    
    51.4
    %Straight Line Revenue (excluding discontinued operations)
    
    $
    16,394
    
    
    $
    22,604
    
    
    $
    (6,210
    )
    
    
    27.5
    %Lease Termination Fees (excluding discontinued operations)
    
    $
    8,195
    
    
    $
    4,183
    
    
    $
    4,012
    
    
    
    95.9
    %
 48




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##### Table of Contents



Property Revenues Property revenues increased by approximately $0.7 million for the year ended December 31,
2004, compared to the year ended December 31, 2003. Property revenues increased by approximately
$14.8 million due to the acquisition of Bank of America Plaza, located in Los Angeles, California,
in the third quarter of 2004 and by approximately $1.3 million due to the acquisition of an
interest in 2001 M Street, located in Washington D.C., in the fourth quarter of 2004. In
addition, property revenues increased by approximately $4.0 million due to an increase in
termination fee income and by approximately $3.3 million primarily due to an increase in recovery
income. Property revenues also partially increased due to an increase of approximately $0.3
million in management fee income for the year ended December 31, 2004 compared to the year ended
December 31, 2003. These increases were substantially offset by decreases of approximately $11.2
million due to the sale of 151 Front Street, located in Toronto, Ontario, in the first quarter of
2004, by approximately $10.8 million due to the sale of a 50% interest in Plaza of the Americas,
located in Dallas, Texas, in the second quarter of 2004, and by approximately $0.5 million due to
the sale of Paseo Colorado in Pasadena, California in the first quarter of 2003. In addition,
property rental revenue decreased by approximately $0.5 million primarily due to a decrease in
average rental rates for the year ended December 31, 2004 compared to the year ended December 31,
2003. Lease termination fees are an element of ongoing real estate ownership. Included in the
property revenue analysis above, for the year ended December 31, 2004, we recorded approximately
$8.2 million of termination fees for our office portfolio compared to approximately $4.2 million
for the year ended December 31, 2003. Property Operating Expenses Property operating expenses decreased by approximately $18.4 million for the year ended
December 31, 2004 compared to the year ended December 31, 2003. The sale of 151 Front Street
resulted in a decrease of approximately $7.1 million, the sale of a 50% interest in Plaza of the
Americas resulted in a decrease of approximately $7.3 million, and the sale of Paseo Colorado
resulted in a decrease of approximately $0.6 million for the year ended December 31, 2004 compared
to the year ended December 31, 2003. Property operating expenses decreased by approximately $8.6
million due to a decrease in insurance expense and by approximately $1.1 million due to a decrease
in property tax expense primarily resulting from a property tax settlement for a property located
in Dallas, Texas. In addition, property operating expenses decreased by approximately $2.9 million
primarily due to a decrease in building management expenses and by approximately $2.4 million due
to a decrease in bad debt expense. These decreases were partially offset by an increase of
approximately $6.3 million due to the acquisition of Bank of America Plaza and by approximately
$0.3 million due to the acquisition of an interest in 2001 M Street. In addition, there was an
increase of approximately $5.0 million primarily due to an increase in utilities expense, repairs
and maintenance expense and other recoverable expenses for the year ended December 31, 2004
compared to the year ended December 31, 2003. Excluding the impact of lease termination fees on revenues, our office portfolio gross margin
(property revenues, excluding lease termination fees, less property operating expenses) increased
to 54.3% for the year ended December 31, 2004 from 51.9% for the year ended December 31, 2003,
primarily reflecting a decrease in operating expenses. General and Administrative Expense, Exclusive of Stock Option Grant Expense General and administrative expense includes expenses for corporate and portfolio asset
management functions. Expenses for property management and fee-based services are recorded as
property operating expenses. General and administrative expense decreased by approximately $0.8 million for the year ended
December 31, 2004 compared to the year ended December 31, 2003. This decrease is due primarily to
expense related to the net settlement of warrants incurred during the year ended December 31, 2003
and a decrease in bonus accruals during the year ended December 31, 2004. These decreases were
partially offset by separation costs incurred during the year ended December 31, 2004. In
addition, we terminated our lease at the Sears Tower, located in Chicago, Illinois, during the
fourth quarter of 2004 and paid a fee of approximately $3.2 million related to such termination. 49




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Depreciation and Amortization Depreciation and amortization expense increased by approximately $9.3 million for the year
ended December 31, 2004 compared to the year ended December 31, 2003. Depreciation and
amortization expense increased by approximately $7.0 million due to the acquisition of Bank of America
Plaza and by approximately $0.5 million due to the acquisition of an interest in 2001 M Street. In
addition, depreciation and amortization expense increased approximately $4.8 million primarily due
to accelerated depreciation of tenant improvements resulting from the early termination of leases
and additional tenant improvements during the year ended December 31, 2004 compared to the year
ended December 31, 2003. These increases were offset by the disposition of a 50% interest in Plaza
of the Americas resulting in a decrease in depreciation and amortization expense of approximately
$3.0 million for the year ended December 31, 2004 compared to the year ended December 31, 2003. Stock Option Grant Expense Stock option grant expense is comprised of the amortization of the intrinsic value, at the
date of grant, of stock options granted upon the completion of the corporate reorganization and
stock option expense related to the adoption of Statement of Financial Accounting Standards No.
123, Accounting for Stock Based Compensation, or SFAS No. 123, for stock options issued in 2003.
For stock options granted in 2003, this non-cash cost incurred relates to the fair value of the
stock options at the date of grant. Stock option grant expense increased by approximately $0.2
million for the year ended December 31, 2004 compared to the year ended December 31, 2003. The
increase is primarily due to an increase in stock option grant expense of approximately $0.9
million resulting from the immediate vesting of certain stock options due to the separation of one
of our executives during the third quarter of 2004, offset by a decrease in stock option grant
expense of approximately $0.7 million primarily resulting from the cessation of amortization due to
the vesting of stock options. Provision for Loss on Real Estate During the year ended December 31, 2004, we recognized a provision for loss on real estate in
the aggregate amount of approximately $12.7 million. In May 2004, we entered into a joint venture
agreement with a third party to own and operate Plaza of the Americas, located in Dallas, Texas,
Trizec Plaza of the Americas, L.P. Prior to the formation of Trizec Plaza of the Americas L.P.,
Plaza of the Americas was 100% owned by us. In conjunction with the formation of Trizec Plaza of
the Americas, L.P., we sold a 50% interest in Plaza of the Americas to the third party for a net
sales price of approximately $47.8 million, resulting in a net loss on disposition of real estate
of approximately $20.8 million. In conjunction with the sale of our 50% interest in Plaza of the
Americas, we determined that the fair value of Plaza of the Americas, based on the contract price,
was less than our carrying value of such asset. Accordingly, we recognized a provision for loss on
real estate of approximately $12.7 million related to our 50% interest in Plaza of the Americas to
reduce the carrying value of such property to its fair value. Loss on and Provision for Loss on Investment During the year ended December 31, 2004, we recognized a provision for loss on investment of
approximately $14.6 million to reduce the carrying value of our investment in Main Street Partners,
L.P., a joint venture through which we own a 50% interest in Bank One Center in Dallas, Texas, to
its fair value. Fair value was determined by internal valuation. During the year ended December 31, 2003, we recorded a loss on investment of approximately
$15.5 million related to the sale of our interest in a subordinated mortgage collateralized by the
Sears Tower in Chicago, Illinois. Interest and Other Income Interest and other income decreased by approximately $2.0 million for the year ended December
31, 2004 compared to the year ended December 31, 2003. Interest and other income decreased due to
income received during the year ended December 31, 2003 of approximately $1.2 million due to death
benefits received on an insurance 50




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policy, approximately $1.3 million due to a litigation refund, and approximately $1.0 million
due to dividends received on the Chelsfield plc investment. These decreases were partially offset
by an increase in interest income resulting from an increase in average cash balances for the year
ended December 31, 2004 compared to the year ended December 31, 2003. Foreign Currency Exchange Gain During the year ended December 31, 2004, we sold 151 Front Street in Toronto Ontario,
recognizing a foreign currency exchange gain of approximately $3.3 million. (Loss) Gain on Early Debt Retirement During the year ended December 31, 2004, we recorded an aggregate loss on early debt
retirement of approximately $7.0 million. During the year ended December 31, 2004, we recorded a
loss on early debt retirement of approximately $1.4 million due to the write-off of unamortized
deferred financing costs related to the retirement of our $350.0 million revolving credit facility.
We recorded a loss on early debt retirement of approximately $3.2 million comprised of the
write-off of unamortized financing costs of approximately $2.4 million and a prepayment fee of
approximately $0.8 million related to the paydown of approximately $444.1 million of our variable
interest rate commercial mortgage pass-through certificates. In addition, in conjunction with the
sale of real estate and the refinancing of a $120.0 million mortgage loan, we recorded a loss on
early debt retirement of approximately $2.4 million comprised of the write-off of unamortized
deferred financing costs of approximately $0.9 million and a prepayment penalty of approximately
$2.7 million, offset by the forgiveness of debt of approximately $1.2 million. During the year ended December 31, 2003, we recorded an aggregate gain on early debt
retirement of approximately $2.3 million. We recorded an approximately $3.6 million gain on early
debt retirement related to the forgiveness of a $17.9 million construction facility on our
remaining technology property. On June 30, 2003, we conveyed title of our remaining technology
property to the lender and are no longer obligated to the lender under the $17.9 million
construction facility. The $3.6 million gain on early debt retirement is net of approximately $0.5
million remitted to the lender in full satisfaction of any exposure related to the construction
facility. This gain on early debt retirement is partially offset by the write-off of unamortized
deferred financing costs of approximately $1.3 million as a result of the repayment of secured
mortgages coinciding with the sale of the underlying properties. Recovery on Insurance Claims During the year ended December 31, 2004, we received approximately $0.4 million in insurance
proceeds related to a chiller we replaced at Plaza of the Americas, located in Dallas, Texas, that
was damaged in 2003. In addition, we received approximately $0.3 million in insurance proceeds
related to window replacements at 550 W. Washington, located in Chicago, Illinois, that were
damaged in 2003. Beginning in late 2001 and during 2002, we replaced a chiller at One New York Plaza in New
York, New York, that was damaged in 2001, and we expect total remediation and improvement costs
will be approximately $19.0 million. During the year ended December 31, 2003, we received
approximately $7.0 million in insurance proceeds related to this chiller. We filed a claim for
additional proceeds related to the chiller at One New York Plaza; however, we cannot assure you
that we will be successful with such effort. Interest Expense Interest expense decreased by approximately $4.0 million for the year ended December 31, 2004
compared to the year ended December 31, 2003. Early debt retirements resulted in a decrease in
interest expense of approximately $14.5 million. In addition, lower average debt balances
outstanding for year ended December 31, 2004 compared to the year ended December 31, 2003 due to
regular principal amortization and lump sum repayments resulted in a decrease in interest expense
of approximately $0.9 million. The retirement of debt due to property dispositions resulted in a
decrease in interest expense of approximately $1.3 million. These decreases were partially offset
by an increase in interest expense of approximately $3.5 million due to an increase in average
interest rates and additional interest expense related to refinancings for the year ended December
31, 2004 compared to the 51




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year ended December 31, 2003. A higher outstanding balance on our credit facility resulted in
an increase in interest expense of approximately $4.1 million for the year ended December 31, 2004
compared to the year ended December 31, 2003. In addition, in conjunction with the purchase of
Bank of America Plaza in Los Angeles, California and the acquisition of an interest in 2001 M
Street in Washington, D.C., during the year ended December 31, 2004, we entered into mortgage loans
totaling, in the aggregate, approximately $286.5 million which resulted in an increase in interest
expense of approximately $5.1 million. Derivative Gain In December 2004, we settled approximately $500.0 million of interest rate swap agreements.
As a result of the swap settlements, we recognized an approximately $1.1 million gain during the
year ended December 31, 2004. Lawsuit Settlement During the year ended December 31, 2004, we recorded a gain on lawsuit settlement of
approximately $3.6 million related to the final resolution and settlement of an asbestos claim.
Cash proceeds from this lawsuit settlement were received in the fourth quarter of 2004. In July 2003, we reached an agreement in which we agreed to end litigation and resolve
standing disputes concerning the development and subsequent bankruptcy of the hotel and casino
adjacent to our Desert Passage project. In exchange for our agreement to end the development
litigation and our agreement to permit and assist in the re-theming of the hotel and casino
complex, the other parties to the litigation have agreed to dismiss all claims against us. In the
third quarter of 2003, we recognized a gain on lawsuit settlement of approximately $26.7 million
comprised primarily of the forgiveness of debt. We did not receive any cash proceeds from the
litigation settlement. (Provision) Benefit for Income and Other Corporate Taxes, Net Income and other taxes includes franchise, capital, alternative minimum and foreign taxes
related to ongoing real estate operations. Income and other taxes increased by approximately $46.2
million for the year ended December 31, 2004 compared to the year ended December 31, 2003,
primarily due to the tax benefit of the disposition of our investment in the Sears Tower in
Chicago, Illinois of approximately $12.0 million, a tax settlement of approximately $21.0 million,
and the liquidation of the Hollywood TRS subsidiary of approximately $13.5 million during the year
ended December 31, 2003. Minority Interest During the year ended December 31, 2004, an increase in the redemption value in the TrizecHahn
Mid-Atlantic Limited Partnership redeemable units resulted in minority interest loss of
approximately $0.9 million and minority interest attributable to our consolidated joint ventures
resulted in minority interest loss of approximately $0.1 million. In addition, preferred returns
to the minority interest partner upon the sale of the Hollywood & Highland Hotel in Los Angeles,
California resulted in minority interest loss of approximately $0.7 million and the redemption of
TrizecHahn Mid-Atlantic Limited Partnership redeemable units resulted in minority interest loss of
approximately $1.0 million. These losses were partially offset by minority interest income of
approximately $0.9 million resulting from the sale of a land parcel during the second quarter of
2004. During the year ended December 31, 2003, an increase in the redemption value in the TrizecHahn
Mid-Atlantic Limited Partnership redeemable units resulted in minority interest loss of
approximately $1.6 million. 52




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Income from Unconsolidated Real Estate Joint Ventures Income from unconsolidated real estate joint ventures decreased by approximately $8.1 million
for the year ended December 31, 2004 compared to the year ended December 31, 2003. Income from
unconsolidated real estate joint ventures decreased by approximately $4.8 million due to a loss on
early debt retirement related to the refinancing of the mortgage loans on 1114 Avenue of the
Americas and 1411 Broadway, located in New York, New York, in June 2004. In addition,
approximately $4.2 million of the decrease is primarily due to an increase in interest expense
related to the refinancing of these mortgage loans in June 2004. Approximately $6.4 million of the
decrease is related to the sale of New Center One in Detroit, Michigan during the first quarter of
2003. These decreases were partially offset by an increase in income from unconsolidated real
estate joint ventures of approximately $0.7 million due to the gain on sale of the Waterview
development, located in Arlington, Virginia in 2004 and an increase of approximately $3.9 million
related to the consolidation of the Hollywood & Highland Hotel in Los Angeles, California at
December 31, 2003. Additionally, there was an increase in net income of approximately $2.7 million
in our other joint ventures for the year ended December 31, 2004 compared to the year ended
December 31, 2003. Discontinued Operations Income from properties classified as discontinued operations increased by approximately $9.5
million for the year ended December 31, 2004 compared to the year ended December 31, 2003. This
increase is primarily due to a decrease in interest expense of approximately $21.6 million for the
year ended December 31, 2004 compared to the year ended December 31, 2003 due to the retirement of
debt related to properties sold subsequent to December 31, 2002. This increase is offset by the
loss of net income due to properties sold subsequent to December 31, 2002. Income from
discontinued properties for the year ended December 31, 2003 includes the net income of properties
sold subsequent to December 31, 2002, whereas income from discontinued operations for the year
ended December 31, 2004 includes only the net income of properties sold subsequent to December 31,
2003. During the year ended December 31, 2004, we recognized a provision for loss on disposition of
discontinued real estate of approximately $109.0 million, relating to seven properties that were
designated as held for disposition on June 30, 2004, to reduce the carrying value of such
properties to fair value. Fair value of the seven properties was determined by contract prices,
less transaction costs and/or internal valuation. During the year ended December 31, 2003, we recorded a provision for loss on discontinued real
estate of approximately $14.5 million relating to Clark Tower in Memphis, Tennessee and
approximately $3.6 million relating to Minnesota Center in Minneapolis, Minnesota. The fair value
of each property was determined by a contract price, less transaction costs. During the year ended December 31, 2004, we recognized a gain on disposition of discontinued
real estate of approximately $125.5 million due to the sales of the Hollywood & Highland Complex
and fourteen non-core office properties. During the year ended December 31, 2003, we recognized a gain on disposition of discontinued
real estate of approximately $58.8 million due to the sales of eight non-core office properties. Gain on Disposition of Real Estate, Net In May 2004, we entered into a joint venture agreement with a third party to own and operate
Plaza of the Americas, located in Dallas, Texas, Trizec Plaza of the Americas, L.P. Prior to the
formation of Trizec Plaza of the Americas, L.P., Plaza of the Americas was 100% owned by us. In
conjunction with the formation of Trizec Plaza of the Americas, L.P., we sold a 50% interest in
Plaza of the Americas to the third party for a net sales price of approximately $47.8 million,
resulting in a net loss on disposition of real estate of approximately $20.8 million, for the sale
of the 50% interest. This loss is offset by a gain on disposition of real estate, net of the
related tax effect, of approximately $15.1 million due to the sale of 151 Front Street in Toronto,
Ontario which was subject to the transition rules of Statement of Financial Accounting Standards
No. 144 Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS No. 144). In
addition, during the year ended December 31, 2004, we disposed of three land parcels that resulted
in a gain on disposition of real estate of approximately $13.1 million. 53




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During the year ended December 31, 2003, we recognized a gain on disposition of real estate of
approximately $13.6 million due to the sale of Paseo Colorado in Pasadena, California which was
subject to the transition rules of SFAS No. 144. Cumulative Effect of a Change in Accounting Principle We elected to adopt the implementation of FIN No. 46R (hereinafter defined) as of December 31,
2003 and applied the provisions of FIN No. 46R for all entities as of such date. In applying the
provisions of FIN No. 46R to all entities, we determined that the Hollywood & Highland Hotel was a
variable interest entity (VIE) and we were its primary beneficiary. As such, we consolidated the
financial position and results of operations of the Hollywood & Highland Hotel as of December 31,
2003. Upon consolidation of the Hollywood & Highland Hotel, we recognized a cumulative effect of a
change in accounting principle of approximately $3.8 million representing the minority members
share of the Hollywood & Highland Hotels non-recoverable cumulative losses. 54




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Comparison of Year Ended December 31, 2003 to Year Ended December 31, 2002 The following is a table comparing our summarized operating results for the periods, including
other selected information. For the years endedDecember 31
    
    
    Increase
    
    
    %2003
    
    
    2002
    
    
    (Decrease)
    
    
    Change(dollars in thousands)Total Property Revenues
    
    $
    711,471
    
    
    $
    721,906
    
    
    $
    (10,435
    )
    
    
    1.4
    %Property operating expenses
    
    
    340,427
    
    
    
    330,622
    
    
    
    9,805
    
    
    
    3.0
    %General and administrative, exclusive of stock option grant
expense
    
    
    39,304
    
    
    
    44,935
    
    
    
    (5,631
    )
    
    
    12.5
    %Depreciation and amortization
    
    
    135,987
    
    
    
    130,183
    
    
    
    5,804
    
    
    
    4.5
    %Stock option grant expense
    
    
    1,054
    
    
    
    5,214
    
    
    
    (4,160
    )
    
    
    79.8
    %Reorganization recovery
    
    
    
    
    
    
    (3,260
    )
    
    
    3,260
    
    
    
    Loss on and provision for loss on investment
    
    
    15,491
    
    
    
    60,784
    
    
    
    (45,293
    )
    
    
    74.5
    %Total Expenses
    
    
    532,263
    
    
    
    568,478
    
    
    
    (36,215
    )
    
    
    6.4
    %Operating Income
    
    
    179,208
    
    
    
    153,428
    
    
    
    25,780
    
    
    
    16.8
    %Other Income (Expense)Interest and other income
    
    
    7,398
    
    
    
    6,067
    
    
    
    1,331
    
    
    
    21.9
    %Gain on early debt retirement
    
    
    2,262
    
    
    
    
    
    
    
    2,262
    
    
    
    Recovery on insurance claims
    
    
    6,673
    
    
    
    3,800
    
    
    
    2,873
    
    
    
    75.6
    %Interest expense
    
    
    (150,622
    )
    
    
    (150,863
    )
    
    
    241
    
    
    
    0.2
    %Lawsuit settlement
    
    
    26,659
    
    
    
    
    
    
    
    26,659
    
    
    
    Total Other Expense
    
    
    (107,630
    )
    
    
    (140,996
    )
    
    
    33,366
    
    
    
    23.7
    %Income before Income Taxes, Minority Interest, Income from
Unconsolidated Real Estate Joint Ventures, Discontinued
Operations, Gain on Disposition of Real Estate, Net, and
Cumulative Effect of a Change in Accounting Principle
    
    
    71,578
    
    
    
    12,432
    
    
    
    59,146
    
    
    
    475.8
    %Benefit (Provision) for income and other corporate taxes, net
    
    
    41,777
    
    
    
    (4,896
    )
    
    
    46,673
    
    
    
    953.3
    %Minority interest
    
    
    (1,626
    )
    
    
    1,766
    
    
    
    (3,392
    )
    
    
    192.1
    %Income from unconsolidated real estate joint ventures
including provision for loss on investment ($58,880 for 2002)
    
    
    23,336
    
    
    
    (47,631
    )
    
    
    70,967
    
    
    
    149.0
    %Income (Loss) from Continuing Operations
    
    
    135,065
    
    
    
    (38,329
    )
    
    
    173,394
    
    
    
    452.4
    %Discontinued OperationsIncome from discontinued operations (net of provision for
loss on discontinued real estate of $18,164 and $209,237
for 2003 and 2002, respectively)
    
    
    2,348
    
    
    
    (167,300
    )
    
    
    169,648
    
    
    
    101.4
    %Gain on disposition of discontinued real estate, net
    
    
    58,834
    
    
    
    14,716
    
    
    
    44,118
    
    
    
    299.8
    %Income (Loss) Before Gain on Disposition of Real Estate, Net,
and Cumulative Effect of a Change in Accounting Principle
    
    
    196,247
    
    
    
    (190,913
    )
    
    
    387,160
    
    
    
    202.8
    %Gain on disposition of real estate, net
    
    
    11,351
    
    
    
    2,996
    
    
    
    8,355
    
    
    
    278.9
    %Income (Loss) before Cumulative Effect of a Change in
Accounting Principle
    
    
    207,598
    
    
    
    (187,917
    )
    
    
    395,515
    
    
    
    210.5
    %Cumulative effect of a change in accounting principle
    
    
    (3,845
    )
    
    
    
    
    
    
    (3,845
    )
    
    
    Net Income (Loss)
    
    
    203,753
    
    
    
    (187,917
    )
    
    
    391,670
    
    
    
    208.4
    %Special voting and Class F convertible stockholders dividends
    
    
    (5,226
    )
    
    
    (866
    )
    
    
    (4,360
    )
    
    
    503.5
    %Net Income (Loss) Available to Common Stockholders
    
    $
    198,527
    
    
    $
    (188,783
    )
    
    $
    387,310
    
    
    
    205.2
    %Straight Line Revenue (excluding discontinued operations)
    
    $
    22,604
    
    
    $
    25,910
    
    
    $
    (3,306
    )
    
    
    12.8
    %Lease Termination Fees (excluding discontinued operations)
    
    $
    4,183
    
    
    $
    3,733
    
    
    $
    450
    
    
    
    12.1
    %
 55




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Property Revenue Property revenues decreased by approximately $10.4 million for the year ended December 31,
2003 compared to the year ended December 31, 2002. Property revenues decreased by approximately
$1.0 million due to the disposition of three non-core properties during the year ended December 31,
2002 and by approximately $18.2 million due primarily to the sale of Paseo Colorado, in Pasadena,
California in the first quarter of 2003. In addition, property revenues decreased by approximately
$17.5 million due primarily to a decrease in average occupancy and average rental rates for the
year ended December 31, 2003 as compared to the year ended December 31, 2002. These decreases were
partially offset by an increase of approximately $15.0 million due to the acquisition of the
remaining 75% interest in Ernst & Young Plaza in Los Angeles, California that we did not already
own and by approximately $4.0 million due to the acquisition of 151 Front Street in Toronto,
Ontario during the second quarter of 2002. Property revenues increased by approximately $6.4
million primarily due to new leasing in One Alliance Center in Atlanta, Georgia. In addition,
management fee income increased by approximately $0.9 million for the year ended December 31, 2003
as compared to the year ended December 31, 2002. Lease termination fees are an element of ongoing real estate ownership. Included in the
property revenue analysis above, for the year ended December 31, 2003, we recorded approximately
$4.2 million of termination fees for our office portfolio compared to approximately $3.7 million
for the year ended December 31, 2002. Property Operating Expense Property operating expenses increased by approximately $9.8 million for the year ended
December 31, 2003 compared to the year ended December 31, 2002. Property operating expenses
increased by approximately $9.1 million due to the office property acquisitions described above,
approximately $3.1 million due to new leasing in One Alliance Center in Atlanta, Georgia,
approximately $10.4 million due to an increase in insurance cost, approximately $2.5 million due to
an increase in bad debt expense, and approximately $0.6 million due to an increase in real estate
tax expense for the year ended December 31, 2003 compared to the year ended December 31, 2002.
These increases were partially offset by a decrease in property operating expenses of approximately
$5.9 million due primarily to decreases in utilities expense, repairs and maintenance expense and
other recoverable expenses and a decrease of approximately $4.3 million primarily due to a decrease
in building management expenses for the year ended December 31, 2003 compared to the year ended
December 31, 2002. In addition, property operating expenses decreased by approximately $5.1 million
for the year ended December 31, 2003 compared to the year ended December 31, 2002 due to the sale
of Paseo Colorado in Pasadena, California during the first quarter of 2003 and by approximately
$0.6 million due to the disposition of three non-core properties during the year ended December 31,
2002. Excluding the impact of lease termination fees on revenues, our office portfolio gross margin
(property revenues, excluding lease termination fees, less property operating expenses) decreased
to 51.9% for the year ended December 31, 2003 from 54.0% for the year ended December 31, 2002,
reflecting our decrease in property revenue and increased operating expenses. General and Administrative Expense, Exclusive of Stock Option Grant Expense General and administrative expense includes expenses for corporate and portfolio asset
management functions. Expenses for property management and fee-based services are recorded as
property operating expenses. General and administrative expense decreased by approximately $5.6 million for the year ended
December 31, 2003 compared to the year ended December 31, 2002. The decrease is due primarily to
separation costs incurred and professional fees paid in connection with the corporate
reorganization during the year ended December 31, 2002, offset by additional expense related to the
net settlement of warrants during the year ended December 31, 2003. 56




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Depreciation and Amortization Depreciation expense increased by approximately $5.8 million for the year ended December 31,
2003 compared to the year ended December 31, 2002. The completion of two office development
projects resulted in an increase in depreciation expense of approximately $2.3 million. The
increase in ownership of the Ernst & Young Plaza resulted in an increase in depreciation expense of
approximately $6.5 million. These increases were partially offset by less accelerated depreciation
of tenant improvements related to the early termination of leases for the year ended December 31,
2003 compared to the year ended December 31, 2002. Stock Option Grant Expense Stock option grant expense decreased by approximately $4.2 million for the year ended December
31, 2003 compared to the year ended December 31, 2002. This decrease is due primarily to
accelerated expense for employees separated from the company during the year ended December 31,
2002. This non-cash cost incurred during the year ended December 31, 2002 relates to the intrinsic
value, at the date of grant, of stock options granted upon the completion of the corporate
reorganization. This decrease is partially offset by additional stock option expense related to
adoption of SFAS No. 123 for stock options issued in 2003. This non-cash cost incurred during the
year ended December 31, 2003 relates to the fair value, at the date of grant, of stock options
granted during 2003. Reorganization Recovery During the year ended December 31, 2001, we recorded as reorganization costs a charge of
approximately $15.9 million to provide for employee severance, benefits and other costs associated
with implementing the reorganization plan. As a result of the completion of the reorganization and
centralization, during the fourth quarter of 2002, we reviewed the remaining liability based on
future estimated expenditures and, accordingly, reduced our accrual for anticipated expenditures by
approximately $3.3 million. Loss on and Provision for Loss on Investment During the year ended December 31, 2003, we recorded a loss on investment of approximately
$15.5 million related to the sale of our interest in a subordinated mortgage collateralized by the
Sears Tower in Chicago, Illinois. During the year ended December 31, 2002, we determined that our investment in the subordinated
mortgage collateralized by the Sears Tower was impaired. We estimated that the fair value of the
Sears Tower was insufficient to cover encumbrances senior to our position and the entire carrying
value of our investment. Accordingly, we recorded a provision for loss on investment of
approximately $48.3 million in the third quarter of 2002 to reduce the carrying value of our
investment in the Sears Tower to its estimated fair value of approximately $23.6 million. In
addition, in December 2002, we sold our interest in Chelsfield plc for approximately $76.6 million
and recognized a loss on investment of approximately $12.7 million. Interest and Other Income Interest and other income increased by approximately $1.3 million for the year ended December
31, 2003 compared to the year ended December 31, 2002. Interest and other income increased due to
income received during the year ended December 31, 2003 of approximately $1.2 million due to death
benefits received on an insurance policy, approximately $1.3 million due to a litigation refund and
approximately $1.0 million due to dividends received on the Chelsfield plc investment. These
increases were partially offset by a decrease in interest income due primarily to lower average
cash balances outstanding for the year ended December 31, 2003 compared to the year ended December
31, 2002. 57




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Gain on Early Debt Retirement During the year ended December 31, 2003, we recorded an aggregate gain on early debt
retirement of approximately $2.3 million. We recorded an approximately $3.6 million gain on early
debt retirement related to the forgiveness of a $17.9 million construction facility on our
remaining technology property. On June 30, 2003, we conveyed title of our remaining technology
property to the lender and are no longer obligated to the lender under the $17.9 million
construction facility. The $3.6 million gain on early debt retirement is net of approximately $0.5
million remitted to the lender in full satisfaction of any exposure related to the construction
facility. This gain on early debt retirement is partially offset by the write-off of unamortized
deferred financing costs of approximately $1.3 million as a result of the repayment of secured
mortgages coinciding with the sale of the underlying properties. Recovery on Insurance Claims Beginning in late 2001 and during 2002, we replaced a chiller at One New York Plaza in New
York that was damaged in 2001, and we expect total remediation and improvement costs will be
approximately $19.0 million. During the year ended December 31, 2003, we received approximately
$7.0 million in insurance proceeds related to this chiller. During the year ended December 31,
2002, we received approximately $3.8 million in insurance proceeds related to this chiller. We
filed a claim for additional proceeds related to the chiller at One New York Plaza; however, we
cannot assure you that we will be successful with such an effort. Interest Expense Interest expense decreased by approximately $0.2 million for the year ended December 31, 2003
compared to the year ended December 31, 2002. The impact of the disposal of Paseo Colorado in
Pasadena, California resulted in a decrease in interest expense of approximately $3.4 million.
Lower average debt balances outstanding due to regular principal amortization and lump sum
repayments resulted in a decrease in interest expense of approximately $1.4 million. A lower
outstanding balance on our $350 million revolving line of credit and associated standby fees
resulted in a decrease in interest expense of approximately $3.4 million. These decreases were
partially offset by the impact of office property acquisitions, primarily the increase in ownership
of the Ernst & Young Plaza, as well as an increase in the weighted average interest rate which
resulted in an increase in interest expense of approximately $5.9 million. Additionally, the
cessation of interest capitalization on our development projects resulted in an increase in
interest expense of approximately $2.1 million for the year ended December 31, 2003 as compared to
the year ended December 31, 2002. Lawsuit Settlement In July 2003, we reached an agreement in which we agreed to end litigation and resolve
standing disputes concerning the development and subsequent bankruptcy of the hotel and casino
adjacent to our Desert Passage project. In exchange for our agreement to end the development
litigation and our agreement to permit and assist in the re-theming of the hotel and casino
complex, the other parties to the litigation have agreed to dismiss all claims against us. In the
third quarter of 2003, we recognized a gain on lawsuit settlement of approximately $26.7 million
comprised primarily of the forgiveness of debt. We did not receive any cash proceeds from the
litigation settlement. Benefit (Provision) for Income and Other Corporate Taxes, Net Income and other taxes includes franchise, capital, alternative minimum and foreign taxes
related to ongoing real estate operations. Income and other taxes decreased by approximately $46.7
million for the year ended December 31, 2003 compared to the year ended December 31, 2002,
primarily due to the tax impact of the disposition of our investment in the Sears Tower in Chicago,
Illinois of approximately $12.0 million, a tax settlement which resulted in a benefit of
approximately $21.0 million, and the liquidation of the Hollywood TRS subsidiary which resulted in
a benefit of approximately $13.5 million. 58




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Minority Interest Minority interest income decreased by approximately $3.4 million for the year ended December
31, 2003 compared to the year ended December 31, 2002. The decrease is due to an increase in the
redemption value in the TrizecHahn Mid-Atlantic Limited Partnership redeemable units. Income from Unconsolidated Real Estate Joint Ventures Income from unconsolidated real estate joint ventures increased by approximately $71.0 million
for the year ended December 31, 2003 compared to the year ended December 31, 2002. Income from
unconsolidated real estate joint ventures increased by approximately $38.8 million due to the
recognition of a provision for loss on investment in real estate during the year ended December 31,
2002 related to the Hollywood & Highland Hotel in Los Angeles, California and a provision for loss
on investment in real estate in New Center One in Detroit, Michigan of approximately $20.1 million.
Approximately $3.0 million of the increase is due to the gain on sale of real estate and a gain on
early debt retirement from the sale of New Center One during the year ended December 31, 2003. In
addition, income from unconsolidated real estate joint ventures increased due primarily to an
increase in average rental rates in the New York market, partially offset by an increase in the net
loss at the Bank One Center in Dallas, Texas for the year ended December 31, 2003 compared to the
year ended December 31, 2002. Discontinued Operations Income from properties classified as discontinued operations decreased by approximately $21.4
million for the year ended December 31, 2003 compared to the year ended December 31, 2002. This
decrease is primarily due to the loss in net income for properties sold subsequent to December 31,
2002. Income from discontinued properties for the year ended December 31, 2002 includes the net
income of properties sold subsequent to December 31, 2001, whereas income from discontinued
operations for the year ended December 31, 2003 includes only the net income of properties sold
subsequent to December 31, 2002. During the year ended December 31, 2003, we recorded a provision for loss on discontinued real
estate of approximately $14.5 million relating to Clark Tower in Memphis, Tennessee and
approximately $3.6 million relating to Minnesota Center in Minneapolis, Minnesota. The fair value
of each property was determined by a contract price, less transaction costs. During the year ended December 31, 2002, we recorded a provision for loss on real estate in
the amount of approximately $142.4 million for the Hollywood & Highland Retail project in Los
Angeles, California to reduce the carrying value of the property to fair value. Fair value was
based on internal valuations. During the year ended December 31, 2002, we recognized a provision
for loss on real estate of approximately $57.0 million for Desert Passage in Las Vegas, Nevada to
reduce the carrying value of the property to fair value. Fair value was based on internal
valuations. In addition, during the year ended December 31, 2002, we recorded a provision for loss
on discontinued real estate of approximately $9.8 million relating to Goddard Corporate Park in
Lanham, Maryland. Fair value was determined by a contract price, less transaction costs. During the year ended December 31, 2003, we recognized a gain on disposition of discontinued
real estate of approximately $58.8 million due to the sales of eight non-core office properties. During the year ended December 31, 2002, we recognized a gain on disposition of discontinued
real estate of approximately $14.7 million due to the sales of three non-core properties. Gain on Disposition of Real Estate, Net During the year ended December 31, 2003, we recognized a gain on disposition of real estate of
approximately $13.6 million due to the sale of Paseo Colorado in Pasadena, California which was
subject to the transition rules of SFAS No. 144. 59




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During the year ended December 31, 2002, we recognized a gain on disposition of real estate of
approximately $3.0 million due to the sales of Hanover Office Park in Greenbelt, Maryland; Valley
Industrial Park in Seattle, Washington; Perimeter Woods in Charlotte, North Carolina; a technology
center in Chicago, Illinois and first refusal rights on an investment which were subject to the
transition rules of SFAS No. 144. Cumulative Effect of Change in Accounting Principle We elected to adopt the implementation of FIN No. 46R (hereinafter defined) as of December 31,
2003 and applied the provisions of FIN No. 46R for all entities as of such date. In applying the
provisions of FIN No. 46R to all entities, we determined that the Hollywood & Highland Hotel was a
variable interest entity (VIE) and we were its primary beneficiary. As such, we consolidated the
financial position and results of operations of the Hollywood & Highland Hotel as of December 31,
2003. Upon consolidation of the Hollywood & Highland Hotel, we recognized a cumulative effect of a
change in accounting principle of approximately $3.8 million representing the minority members
share of the Hollywood & Highland Hotels non-recoverable cumulative losses. Liquidity and Capital Resources Our objective is to ensure, in advance, that there are ample resources to fund ongoing
operating expenses, capital expenditures, debt service requirements and the distributions required
to maintain REIT status. We expect to meet our liquidity requirements over the next twelve months for normal recurring
expenditures, non-recurring capital expenditures, potential future acquisitions and developments,
major renovations, expansions, scheduled debt maturities, ground lease payments, operational tax
obligations, settlement of pre-REIT tax issues and distributions required to maintain our REIT
status through cash flows from operations, asset sales, entering into joint venture arrangements or
partnerships with equity providers, current cash and credit availability, refinancing of existing
mortgage debt, incurrence of secured or unsecured debt, proceeds from the possible sale of our
capital stock or a combination of these sources. Our net cash flow from operations is dependent
upon the occupancy levels of our properties, net effective rental rates on current and future
leases, collectibility of rent from our tenants, the level of operating and other expenses, as well
as other factors. Material changes in these factors may adversely affect our net cash flow from
operations. We expect to meet our liquidity requirements beyond twelve months for normal recurring
expenditures, non-recurring capital expenditures, potential future acquisitions and developments,
major renovations, expansions, scheduled debt maturities, ground lease payments, operational tax
obligations, settlement of pre-REIT tax issues and distributions required to maintain our REIT
status through cash flows from operations, asset sales, entering into joint venture arrangements or
partnerships with equity providers, current cash and credit availability, refinancing of existing
mortgage debt, incurrence of secured or unsecured debt, proceeds from the possible sale of our
capital stock or a combination of these sources. Our net cash flow from operations is dependent
upon the occupancy levels of our properties, net effective rental rates on current and future
leases, collectibility of rent from our tenants, the level of operating and other expenses, as well
as other factors. Material changes in these factors may adversely affect our net cash flow from
operations. We have a $750.0 million unsecured credit facility which matures in June 2007. The amount
available to be borrowed under the unsecured credit facility at any time is determined by certain
properties that we, or our subsidiaries that may from time to time guarantee the unsecured credit
facility, own that satisfy certain conditions of eligibility. These conditions are not uncommon
for unsecured credit facilities of this nature. During the remainder of its term, the amount
available to be borrowed under the unsecured credit facility will likely fluctuate. The capacity
under the unsecured credit facility may decrease as we sell or place permanent financing on assets
currently supporting the unsecured credit facility. In addition, the capacity under the unsecured
credit facility may decrease if assets no longer meet certain eligibility requirements. Likewise,
the capacity under the unsecured credit facility may increase as certain assets otherwise meet the
eligibility requirements. As of December 31, 2004, the amount available to be borrowed under the
unsecured credit facility was approximately $484.9 million, of which $150.0 million was drawn and
outstanding. During the remainder of the term of the unsecured credit facility, we expect the
outstanding balance to fluctuate. The balance under the unsecured credit facility will likely
increase from time to time as we use funds from the unsecured credit facility to meet a variety of
liquidity requirements such as dividend payments, tenant installation costs, future tax payments
and acquisitions that may not be fully met through 60




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operations. The balance under the unsecured credit facility will also likely be reduced as a
result of proceeds generated from asset sales, secured borrowings, operating cash flows and other
sources of liquidity. Under our unsecured credit facility, we are subject to covenants, including financial
covenants, restrictions on other indebtedness, restrictions on encumbrances of properties that we
use in determining our borrowing capacity and certain customary investment restrictions. The
financial covenants include the requirement for our total leverage ratio not to exceed 65.0% in
year one, 62.5% in year two and 60.0% in year three; the requirement that our interest coverage
ratio be greater than 2.0 times; the requirement that our fixed charge coverage ratio be greater
than 1.5 times; and the requirement that our net worth be in excess of $1.5 billion. Our financial
covenants also include a restriction on dividends or distributions of more than 90% of our funds
from operations (as defined in the unsecured credit facility agreement). If we are in default in
respect to our obligations under the unsecured credit facility agreement, dividends will be limited
to the amount necessary to maintain REIT status. We anticipated we would not meet all requirements
with respect to the dividend restriction covenant under the unsecured credit facility for the nine
months ended September 30, 2004 and the year ended December 31, 2004. As such, we requested and
received a waiver from the lenders of the unsecured credit facility which waives said requirements
for such covenant for the nine months ended September 30, 2004 and the year ended December 31,
2004. Other than noted, at December 31, 2004, we were in compliance with these financial
covenants. We also have available an effective shelf-registration statement under which we may offer and
sell of up to an aggregate amount of $750.0 million of common stock, preferred stock, depositary
shares representing shares of our preferred stock and warrants exercisable for common stock or
preferred stock. However, our ability to raise funds through sales of common stock, preferred
stock, depositary shares representing shares of our preferred stock and common and preferred stock
warrants is dependent upon, among other things, general market conditions for REITs, market
perceptions about our company, the current trading price of our stock and the current interest
rates. The proceeds from the sale of shares of common stock, preferred stock, depositary shares
representing shares of our preferred stock or common and preferred stock warrants, if any, would be
used for general corporate purposes, which may include, among other things, the acquisition of
additional properties or the repayment of outstanding indebtedness. After dividend distributions, our remaining cash from operations will not be sufficient to
allow us to retire all of our debt as it comes due. Accordingly, we will be required to refinance
maturing debt or repay it utilizing proceeds from property dispositions or the issuance of equity
securities. Our ability to refinance maturing debt will be dependent on our financial position,
the cash flow from our properties, the value of our properties, liquidity in the debt markets and
general economic and real estate market conditions. There can be no assurance that such
refinancing or proceeds will be available or be available on economical terms when necessary in the
future. Contractual Obligations The following table summarizes our contractual obligations as of December 31, 2004: Payments Due by Period ($ in thousands)Less than
    
    
    1  3
    
    
    3  5
    
    
    More thanTotal
    
    
    1 - Year
    
    
    Years
    
    
    Years
    
    
    5 - YearsLong-term debt
obligations (1)
    
    $
    2,069,282
    
    
    $
    51,127
    
    
    $
    525,758
    
    
    $
    527,794
    
    
    $
    964,603Ground lease obligations
    
    
    229,072
    
    
    
    1,119
    
    
    
    2,365
    
    
    
    2,512
    
    
    
    223,076Operating lease obligations
    
    
    1,347
    
    
    
    1,008
    
    
    
    290
    
    
    
    45
    
    
    
    4Purchase obligations (2)
    
    
    36,037
    
    
    
    20,403
    
    
    
    6,379
    
    
    
    3,853
    
    
    
    5,402Tenant obligations
    
    
    87,233
    
    
    
    66,829
    
    
    
    13,119
    
    
    
    4,205
    
    
    
    3,080Total
    
    $
    2,422,971
    
    
    $
    140,486
    
    
    $
    547,911
    
    
    $
    538,409
    
    
    $
    1,196,165
   (1)
    
    Included on balance sheet.(2)
    
    Purchase obligations include agreements to purchase goods or services that are
enforceable and legally binding and that specify all significant terms, including:
fixed or minimum quantities to be purchased; fixed, minimum or variable price
provisions; and the approximate timing of the transaction. 61




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We have various standing or renewable service contracts with vendors related to our
property management that provide for cancellation with insignificant or no cancellation penalties
and, therefore, have not been included in the above table. Off-Balance Sheet Arrangements As part of our ongoing business, we do not participate in transactions that generate
relationships with unconsolidated entities or financial partnerships, such as entities often
referred to as structured finance or special purpose entities, which would have been established
for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or
limited purposes. Therefore, we do not believe that we currently have any off-balance sheet
arrangements. Cash Flow Activity At December 31, 2004, we had $194.3 million in cash and cash equivalents as compared to $129.3
million at December 31, 2003. The increase is a result of the following cash flows: For the years ended December 312004
    
    
    2003
    
    
    2002(dollars in thousands)Cash provided by operating activities
    
    $
    288,680
    
    
    $
    249,650
    
    
    $
    213,119Cash provided by (used in) investing activities
    
    
    536,119
    
    
    
    412,115
    
    
    
    (17,376
    )Cash used in financing activities
    
    
    (759,833
    )
    
    
    (594,719
    )
    
    
    (430,924
    )$
    64,966
    
    
    $
    67,046
    
    
    $
    (235,181
    )
 Operating Activities Cash provided by operating activities for the year ended December 31, 2004 was approximately
$288.7 million compared to approximately $249.7 million for 2003, and approximately $213.1 million
for 2002. Cash flows from operations depend primarily on cash generated from lease payments from
leased spaces at our office properties. The change in cash flows from operating activities is
primarily attributable to the factors discussed in our analysis of results of operations for the
year ended December 31, 2004 compared to the years ended December 31, 2003 and 2002, as well as the
timing of receipt of revenues and the payment of expenses. Investing Activities Net cash provided by (used in) investing activities reflects the ongoing impact of
expenditures on tenant installation costs, capital expenditures, investments in and distributions
from unconsolidated real estate joint ventures, and the impact of acquisitions, developments and
dispositions. During the year ended December 31, 2004, approximately $536.1 million of cash was
generated in our investing activities, which are described below. During the year ended December
31, 2003, we generated approximately $412.1 million of cash in our investing activities as compared
to using approximately $17.4 million in 2002. Tenant Installation Costs Our office properties require periodic investments of capital for tenant installation costs
related to new and renewal leasing. Overall stagnant market conditions for the year ended December
31, 2004 resulted in a modest decrease in vacancies over the same period in the prior year. The
stagnant market conditions, combined with sublet space inventory in our major markets, has
increased the downward pressure on rental rates and the upward pressure on tenant installation
costs. For comparative purposes, the absolute total dollar amount of tenant installation costs in
any given period is less relevant than the cost on a per square foot basis. This is because the
total is impacted by the square footage both leased and occupied in any given period. Tenant
installation costs consist of tenant allowances and leasing costs. Leasing costs include leasing
commissions paid to third-party brokers representing tenants and costs associated with dedicated
regional leasing teams who represent us and deal with tenant representatives. The following table
reflects tenant installation costs for the total office portfolio, including our share of such
costs 62




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incurred by unconsolidated joint ventures, for both new and renewal office leases that
commenced during the respective periods, regardless of when such costs were actually paid. The
square feet leased data in the table represents our pro rata owned share of square feet leased. For the years ended December 312004
    
    
    2003
    
    
    2002(in thousands)Square feet leased- new leasing
    
    
    2,727
    
    
    
    3,196
    
    
    
    3,533- renewal leasing
    
    
    2,784
    
    
    
    2,982
    
    
    
    2,980Tenant square feet leased
    
    
    5,511
    
    
    
    6,178
    
    
    
    6,513Tenant installation costs
    
    $
    114,027
    
    
    $
    91,618
    
    
    $
    87,311
 Capital Expenditures To maintain the quality of our properties and preserve competitiveness and long-term value, we
pursue an ongoing program of capital expenditures, certain of which are not recoverable from
tenants. For the year ended December 31, 2004, capital expenditures for the total office
portfolio, including our share of such expenditures incurred by unconsolidated real estate joint
ventures, was approximately $13.9 million (2003-$21.6 million; 2002-$35.9 million).
Recurring capital expenditures include, for example, the cost of roof replacement and the cost of
replacing heating, ventilation, air conditioning and other building systems. In addition to
recurring capital expenditures, expenditures are made in connection with non-recurring events such
as asbestos abatement or removal costs, any major mechanical attribute or system replacement, and
any redevelopment or reconstruction costs directly attributable to extending or preserving the
useful life of the base building. Furthermore, as part of our office acquisitions, we have
routinely acquired and repositioned properties in their respective markets, many of which have
required significant capital improvements due to deferred maintenance and the existence of shell
space requiring initial tenant build-out at the time of acquisition. Some of these properties
required substantial renovation to enable them to compete effectively. We take these capital
improvement and new leasing tenant inducement costs into consideration at the time of acquisition
when negotiating our purchase price. Reconciliation to Consolidated Statements of Cash Flows The above information includes tenant installation costs granted, including leasing costs, and
capital expenditures for the total portfolio, including our share of such costs granted by
unconsolidated joint ventures, for leases that commenced during the periods presented. The amounts
included in our consolidated statements of cash flows represent the actual cash spent during the
periods, excluding our share of such costs and expenditures incurred by unconsolidated joint
ventures. The differences between these amounts represent timing differences between the lease
commencement dates and the actual cash expenditures. The reconciliation between the above amounts
and our consolidated statements of cash flows is as follows: For the years ended December 312004
    
    
    2003
    
    
    2002(dollars in thousands)Tenant installation
costs, including leasing
costs, for the owned office
portfolio
    
    $
    114,027
    
    
    $
    91,618
    
    
    $
    87,311Tenant installation costs,
including leasing costs, for
properties disposed of during
the period
    
    
    20,506
    
    
    
    3,140
    
    
    
    2,689Capital expenditures
    
    
    13,938
    
    
    
    21,590
    
    
    
    35,976Pro rata joint venture activity
    
    
    (6,210
    )
    
    
    (13,016
    )
    
    
    (14,988
    )Timing differences
    
    
    (13,607
    )
    
    
    4,911
    
    
    
    (3,345
    )Retail activity
    
    
    150
    
    
    
    6,942
    
    
    
    1,892Total tenant improvements,
leasing costs and capital
expenditures per combined
consolidated statement of cash
flows
    
    $
    128,804
    
    
    $
    115,185
    
    
    $
    109,535
 63




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Acquisitions In August 2004, we acquired Bank of America Plaza, located at 333 South Hope Street, Los
Angeles, California, from an unrelated third party for approximately $420.7 million. In November 2004, we acquired an interest in an entity that owns 2001 M Street, located in
Washington, DC, from an unrelated third party valued at approximately $75.6 million (see discussion
below). Dispositions During the year ended December 31, 2004, we sold fifteen office properties, a partial interest
in one office property, a partial interest in a joint venture development, two retail properties
and three land parcels, generating aggregate net proceeds of approximately $959.9 million, or
approximately $680.1 million after debt repayment. Consolidated Real Estate Joint Ventures Hollywood & Highland Hotel We elected to adopt the implementation of FIN No. 46R (hereinafter defined) as of December 31,
2003 and applied the provisions of FIN No. 46R for all entities as of such date. In applying the
provisions of FIN No. 46R to all entities, we determined that the Hollywood & Highland Hotel was a
VIE and we were its primary beneficiary. As such, we consolidated the financial position and
results of operations of the Hollywood & Highland Hotel as of December 31, 2003. The Hollywood & Highland Hotel is a 640-room hotel located in Los Angeles, California. At
December 31, 2003, we had a 91.5% ownership and economic interest in an entity that owns the
Hollywood & Highland Hotel. Prior to December 31, 2003, we accounted for the Hollywood & Highland
Hotel as an investment in an unconsolidated real estate joint venture. On December 31, 2003, we
consolidated the Hollywood & Highland Hotel. The net impact of the consolidation of the Hollywood
& Highland Hotel was an increase in our consolidated assets of approximately $94.0 million,
representing the net book value of the real estate, cash and cash equivalents and other assets. In
addition, we consolidated approximately $81.5 million of mortgage debt related to the Hollywood &
Highland Hotel. Our maximum exposure to loss was approximately $81.5 million, representing the
amount of mortgage debt outstanding at December 31, 2003. Upon consolidation of the Hollywood &
Highland Hotel, we recognized a cumulative effect of a change in accounting principle of
approximately $3.8 million representing the minority members share of the Hollywood & Highland
Hotels non-recoverable cumulative losses. On February 27, 2004, we sold the Hollywood & Highland
Hotel. Trizec 2001 M Street Holdings LLC In November 2004, we entered into a joint venture, Trizec 2001 M Street Holdings LLC, with an
unrelated third party to purchase an interest in an entity that owns 2001 M Street. Trizec 2001 M
Street Holdings LLC is owned 98% by us and 2% by a third party. Trizec 2001 M Street Holdings LLC
acquired such interest from an unrelated third party valued at approximately $75.6 million. The
property is encumbered by a non-recourse mortgage loan of approximately $44.5 million, bearing
interest at a fixed rate of 5.25% and scheduled to mature in December 2014. The remainder of the
purchase price was funded with proceeds from the 2004 unsecured credit facility. Unconsolidated Real Estate Joint Ventures In April 2004, the JBG/TrizecHahn Waterview Venture L.L.C., a joint venture through which we
owned an 80% interest in the Waterview Development, located in Arlington, Virginia, sold the
property, a mixed-use development parcel, to a newly formed joint venture, Waterview L.P., in
which we acquired a 25% interest. The JBG/TrizecHahn Waterview Venture L.L.C. recognized a gain on
disposition of real estate of approximately $1.1 million in conjunction with such sale. 64




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In May 2004, we entered into a joint venture agreement with a third party to own and operate
Plaza of the Americas, located in Dallas, Texas. Prior to the formation of Trizec Plaza of the
Americas, L.P., Plaza of the Americas was 100% owned by us. In conjunction with the formation of
Trizec Plaza of the Americas, L.P., we sold a 50% interest in Plaza of the Americas to the third
party for a net sales price of approximately $47.8 million, resulting in a net loss on disposition
of real estate of approximately $20.8 million. In conjunction
with the sale of our 50% interest in Plaza of the Americas, we determined that the fair value of
Plaza of the Americas, based upon the contract price, was less than our carrying value of such
asset. Accordingly, we recognized a provision for loss on real estate of approximately $12.7
million related to our 50% interest in Plaza of the Americas to reduce the carrying value of such
property to its fair value. As part of the periodic assessment of our real estate investments relative to both the extent
to which such investments are consistent with our long-term real estate investment objectives and
performance and prospects of each investment, we determined in the second quarter of 2004 that our
investment in Main Street Partners, L.P., a joint venture through which we own a 50% interest in
Bank One Center in Dallas, Texas, was impaired. As a result of the reassessment of the anticipated
future operating results of such non-core investment, we determined that our investment in such
joint venture was impaired. We recognized a provision for loss on investment of approximately
$14.6 million to reduce the carrying value of such investment to its fair value. During the year ended December 31, 2004, we made cash and non-cash contributions and advances
to our unconsolidated real estate joint ventures in the aggregate amount of approximately $97.7
million, and received distributions from our unconsolidated real estate joint ventures in the
aggregate amount of approximately $253.6 million. Included in distributions received from our
unconsolidated real estate joint ventures is approximately $167.2 million of distributions received
from the Swig Joint Ventures (defined hereinafter) due to proceeds received from the refinancing of
its mortgage loan. This distribution exceeded our cumulative investment in the Swig Joint Ventures
(defined hereinafter) by approximately $43.2 million, which has been recorded in other accrued
liabilities. Financing Activities During the year ended December 31, 2004, we used approximately $759.8 million in our financing
activities due primarily to approximately $882.3 million of principal repayments on mortgage debt,
approximately $279.8 million of repayments of mortgage debt and other loans upon property
dispositions and approximately $10.9 million of financing fees related to refinancing of certain
mortgage debt and financing costs incurred in conjunction with our $750.0 million unsecured credit
facility. We also established an escrow of approximately $28.7 million related to the modification
and subsequent payment in full of the mortgage loan related to the sale of 250 West Pratt Street,
located in Baltimore, Maryland. Additionally, we incurred and paid approximately $3.8 million in
settlement of forward rate contracts used to lock into a maximum effective interest rate on certain
mortgage debt. We also paid approximately $126.0 million in dividends to our stockholders. These
uses were partially offset by proceeds from mortgage debt financings and refinancings, net draws on
our unsecured line of credit and proceeds from the issuance of common stock. At December 31, 2004 our consolidated debt was approximately $2.2 billion. The weighted
average interest rate on our debt was 6.21% and the weighted average maturity was approximately 4.9
years. The table that follows summarizes the mortgage and other loan debt at December 31, 2004 and
December 31, 2003: 65




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December 31Debt Summary
    
    2004
    
    
    2003(dollars in thousands)Balance:Fixed rate
    
    $
    2,110,511
    
    
    $
    2,608,877Variable rate subject to interest rate caps
    
    
    
    
    
    
    120,000Variable rate
    
    
    108,771
    
    
    
    138,098Total
    
    $
    2,219,282
    
    
    $
    2,866,975Collateralized property
    
    $
    2,024,055
    
    
    $
    2,806,233Unsecured credit facility
    
    
    150,000
    
    
    
    Other loans
    
    
    45,227
    
    
    
    60,742Total
    
    $
    2,219,282
    
    
    $
    2,866,975Percent of total debt:Fixed rate
    
    
    95.1
    %
    
    
    91.0
    %Variable rate subject to interest rate caps
    
    
    
    %
    
    
    4.2
    %Variable rate
    
    
    4.9
    %
    
    
    4.8
    %Total
    
    
    100.0
    %
    
    
    100.0
    %Weighted average interest rate at period end:Fixed rate
    
    
    6.33
    %
    
    
    5.95
    %Variable rate subject to interest rate caps
    
    
    
    %
    
    
    3.91
    %Variable rate
    
    
    3.87
    %
    
    
    4.20
    %Total
    
    
    6.21
    %
    
    
    5.78
    %Leverage ratio:Net debt to net debt plus book equity
    
    
    53.1
    %
    
    
    59.2
    %
 The variable rate debt shown above bears interest based primarily on various spreads over
LIBOR. The leverage ratio is the ratio of mortgage and other debt to the sum of mortgage and other
debt and the book value of stockholders equity. The decrease in our leverage ratio from December
31, 2003 to December 31, 2004 was primarily attributable to the repayment of existing debt upon the
sale of non-core properties. Unsecured Credit Facility We entered into a three-year, $350.0 million revolving credit facility, the 2001 Revolving
Credit Facility, with a group of banks in the fourth quarter of 2001. In the fourth quarter of
2002, the group of banks unanimously agreed to amend and restate the 2001 Revolving Credit Facility
and we entered into the 2002 Revolving Credit Facility. Generally, in exchange for the receipt of
collateral, the group of banks agreed to provide more flexible financial covenants than had been
originally negotiated. In June 2004, we retired the 2002 Revolving Credit Facility and entered
into a $750.0 million unsecured credit facility with a group of banks, the 2004 Unsecured Credit
Facility. The 2004 Unsecured Credit Facility consists of a $600.0 million revolving component and
a $150.0 million term component, bears interest at LIBOR plus a spread of 1.15% to 2.0% based on
our total leverage, and matures in June 2007. The financial covenants, as defined in the 2004
Unsecured Credit Facility, include the quarterly requirements for the total leverage ratio not to
exceed 65.0% during year one, 62.5% during year two and 60.0% during year three; the requirement
for the interest coverage ratio to be greater than 2.0 times; the requirement for the fixed charge
coverage ratio to be greater than 1.5 times; and the requirement for the net worth to be in excess
of $1.5 billion. Our financial covenants also include a restriction on dividends or distributions
of more than 90% of our funds from operations (as defined in the 2004 Unsecured Credit Facility
agreement). If we are in default in respect of our obligations under the 2004 Unsecured Credit
Facility agreement, dividends will be limited to the amount necessary to maintain REIT status. At
December 31, 2004, we were in compliance with these financial covenants. Certain conditions of the
2004 Unsecured Credit Facility may restrict the amount eligible to be borrowed at any time. In
conjunction with the retirement of the 2002 Revolving Credit Facility, we recorded a loss on early
debt retirement of approximately $1.4 million comprised of the write-off of unamortized deferred
financing costs. 66




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At December 31, 2004, the amount eligible to be borrowed under the 2004 Unsecured Credit
Facility was approximately $484.9 million, $150.0 million of which was drawn and outstanding. At
December 31, 2003, the amount eligible to be borrowed under the 2002 Revolving Credit Facility was
approximately $217.0 million, none of which was drawn and outstanding. Financing, Refinancing and Early Debt Retirement In January 2004, we refinanced the $120.0 million mortgage loan on Ernst & Young Plaza in Los
Angeles, California, which bore interest at a variable rate of LIBOR plus 2.75% and was scheduled
to mature in June 2004, with a $120,000 mortgage loan bearing interest at a fixed rate of 5.07% and
scheduled to mature in February 2014. In December 2003, we entered into forward rate swap
agreements to lock in a maximum effective interest rate on the refinanced mortgage loan. The
forward rate swap agreements were entered into at current market rates and, therefore, had no
initial cost. Upon closing of the refinanced mortgage loan, we paid approximately $3.8 million in
settlement of the forward rate swap agreements, which has been recorded in other comprehensive
income. The approximately $3.8 million paid on settlement of the forward rate swap agreements will
be amortized to interest expense over the life of the mortgage loan. In addition, we recorded a
loss on early debt retirement of approximately $0.3 million, comprised primarily of the write-off
of unamortized deferred financing costs. In February 2004, we paid off and retired the mortgage loan on Galleria Towers in Dallas,
Texas. The mortgage loan had a principal balance of approximately $133.5 million, bore interest at
a fixed rate of 6.79% and was scheduled to mature in May 2004. In conjunction with the pay off and
retirement of the mortgage loan, we recorded a loss on early debt retirement of approximately $0.04
million, comprised primarily of the write-off of unamortized deferred financing costs. In June 2004, we repaid the mortgage loan on 1065 Avenue of the Americas in New York, New
York. The mortgage loan had a principal balance of approximately $36.5 million, bore interest at a
fixed rate of 7.18% and was scheduled to mature in December 2004. In July 2004, we paid off and retired the mortgage loan on Newport Tower in Jersey City, New
Jersey. The mortgage loan had a principal balance of approximately $102.8 million, bore interest
at a fixed rate of 7.09% and had a maturity date of November 2004. In July 2004, we paid down approximately $444.1 million of our variable rate commercial
mortgage pass-through certificates primarily by drawing on the 2004 Unsecured Credit Facility. The variable interest rate commercial mortgage pass-through certificates
bore interest at a variable rate of LIBOR plus various spreads between 0.289% and 0.529% and were
scheduled to mature between 2006 and 2008. In conjunction with the pay down of the variable
interest rate commercial mortgage pass-through certificates, we recorded a loss on early retirement
of debt of approximately $3.2 million, comprised of the write-off of unamortized deferred financing
costs of approximately $2.4 million and a prepayment fee of approximately $0.9 million. In August 2004, in conjunction with the acquisition of Bank of America Plaza, located at 333 South
Hope Street, Los Angeles, California, we entered into two non-recourse mortgage loans totaling
approximately $242.0 million, bearing interest at an average fixed rate of 5.31% and scheduled to
mature in September 2014. In November 2004, we paid off and retired the mortgage loan on Bank of America Plaza, in
Columbia, South Carolina. The mortgage loan had a principal balance of approximately $19.9
million, bore interest at a fixed rate of 6.90% and had a maturity date of March 2005. The
Corporation sold Bank of America Plaza in December 2004. In December 2004, in conjunction with the sale of 250 West Pratt Street, located in Baltimore,
Maryland, we and the lender of the mortgage loan collateralized by such property, agreed to modify
certain terms of the mortgage loan. The lender of the mortgage loan agreed to release the property
as collateral for the mortgage loan in consideration of the establishment of an escrow, for the
benefit of the lender, in the amount of approximately $28.7 million. The escrow is comprised of funds to be used to repay the full outstanding principal balance of the mortgage loan as well as
interest payments through January 3, 2005. On January 3, 2005, the funds held in escrow were 67




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released to the lender. The escrow funds of approximately $28.7 million are included in
restricted cash on our balance sheet at December 31, 2004. In conjunction with the sale of real estate during the year ended December 31, 2004, we paid
off approximately $279.8 million of mortgage debt, resulting in a loss on early debt retirement of
approximately $2.0 million comprised primarily of the write-off of unamortized deferred financing
costs, partially offset by the forgiveness of debt. Property loans are collateralized by deeds of trust or mortgages on properties and mature on
various dates between January 2005 and December 2014. Hedging Activities At December 31, 2004 and 2003, we had outstanding interest rate swap contracts in the notional
amount of $150.0 million, bearing a weighted average interest rate of 6.02% and maturing on March
15, 2008. In addition, at December 31, 2003, we had outstanding interest rate swap contracts in
the notional amount of $500.0 million, bearing a weighted average interest rate of 2.61% plus
various spreads and maturing between July 1, 2005 and January 1, 2006. For the year ended December
31, 2004, we recorded unrealized derivative gains, related to interest rate swap contracts, through
other comprehensive income of approximately $13.2 million. For the years ended December 31, 2003
and 2002, we recorded unrealized derivative losses, related to interest rate swap contracts,
through other comprehensive income of approximately $4.3 million and $15.2 million, respectively.
Due to the pay off and retirement of certain amounts of variable rate debt during the year ended
December 31, 2004, and due to the anticipated pay off and retirement of certain variable rate debt
in the future, we de-designated interest rate swap contracts in the notional amount of $375.0
million. In December 2004, we settled $500.0 million of interest rate swap contracts. As a
result of the settlement of $500.0 million of interest rate swap contracts, we realized a
derivative gain of approximately $1.1 million for the year ended December 31, 2004. At December
31, 2004, the debt hedged by the remaining interest rate swap contracts was classified as fixed in
the above table. The aggregate cost to unwind these interest rate swap contracts was approximately
$9.2 million and $20.3 million at December 31, 2004 and 2003, respectively. We expect to amortize
approximately $5.5 million from other comprehensive income into earnings within the next twelve
months. In June 2002, we entered into interest rate cap contracts that expired in June 2004 on $120.0
million of our variable rate debt, which limited the underlying LIBOR interest rate on such debt to
6.50%. At December 31, 2003, the fair value of these interest rate cap contracts was nominal. In
addition, and not reclassified in the table above at December 31, 2003, we entered into an interest
rate cap contract that expired in April 2004 on approximately $584.7 million of our variable rate
debt, which limited the underlying LIBOR rate on such debt to 11.01%. At December 31, 2003, the
fair value of this interest rate cap contract was nominal. In April 2004, we elected to exercise the first of two one-year extensions on approximately
$272.7 million of our variable interest rate commercial mortgage pass-through certificates, thereby
extending the maturity date of such variable interest rate commercial mortgage pass-through
certificates to April 2005. In conjunction with such extension, we entered into an
interest rate cap agreement expiring on April 15, 2005 that limits the underlying LIBOR interest
rate on the variable interest rate commercial mortgage pass-through certificates to 8.93%. Unconsolidated Joint Venture Mortgage Debt The consolidated mortgage and other debt information presented above does not reflect
indebtedness secured by property owned in joint venture partnerships as they are accounted for
under the equity method of accounting. At December 31, 2004 and 2003, our pro rata share of this
debt amounted to approximately $420.2 million and $232.7 million, in the aggregate, respectively. In March 2004, 1114 TrizecHahn-Swig, L.L.C. and 1411 TrizecHahn-Swig, L.L.C., joint ventures
through which we own 50% interests in The Grace Building and 1411 Broadway, respectively, together,
the Swig Joint Ventures, repaid and retired a mortgage loan with a principal balance of
approximately $39.8 million that bore interest at a rate of LIBOR plus 3.5%. We loaned our joint
venture partner approximately $20.0 million in 68




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conjunction with the debt pay off and retirement. The loan to our joint venture partner bore
interest at a rate of LIBOR plus 2.75%, was payable in full on the earlier of March 18, 2005 or the
refinancing of the joint ventures remaining mortgage loan, and was collateralized by the joint
venture partners investment in the joint venture. The loan to our joint venture partner was
repaid in full and retired in June 2004 in conjunction with the refinancing discussed below. In June 2004, the Swig Joint Ventures refinanced an approximately $206.9 million mortgage
loan, which bore interest at a fixed rate of 7.50% and was scheduled to mature in March 2005, with
two mortgage loans totaling approximately $600.0 million, bearing interest at an average fixed rate
of 5.52% and scheduled to mature in July 2014. In May 2004, the Swig Joint Ventures entered into
forward rate swap agreements to lock in a maximum effective interest rate on the refinanced
mortgage loans. The forward rate swap agreements were entered into at current market rates and,
therefore, had no initial cost. Upon closing of the refinanced mortgage loans, we advanced
approximately $11.5 million to the Swig Joint Ventures and the Swig Joint Ventures paid
approximately $11.5 million to settle the forward rate swap agreements, which has been recorded in
other comprehensive income. The approximately $11.5 million paid on settlement of the forward rate
swap agreements will be amortized into interest expense over the life of the mortgage loan. The
Swig Joint Ventures recorded a loss on early debt retirement of approximately $10.2 million
comprised primarily of the write-off of unamortized deferred financing costs and a yield
maintenance fee. In June 2004, Trizec Plaza of the Americas, L.P. entered into an approximately $68.0 million
mortgage loan, bearing interest at a fixed rate of 5.12% and maturing in June 2011. Plaza of the
Americas was removed from a pool of cross-collateralized loans that are part of a 2001 commercial
mortgage-backed securities financing. In August 2004, Main Street Partners, L.P. repaid and retired the mezzanine loan on Bank One
Center. The mezzanine loan had a principal balance of approximately $19.1 million, bore interest
at a variable rate of 11.9% and was scheduled to mature in December 2004. Main Street Partners,
L.P. recorded a loss on early debt retirement of approximately $0.1 million comprised of the write
off of unamortized deferred financing costs. Liability for Obligations of Partners We were contingently liable for certain obligations related to the Hollywood & Highland Hotel,
one of our consolidated real estate joint ventures. At December 31, 2003, we had guaranteed or
were otherwise contingently liable for an approximately $74.0 million mortgage loan that was
scheduled to mature in April 2005. All of the assets of the Hollywood & Highland Hotel were
available for the purpose of satisfying this obligation. On February 27, 2004, we sold the
Hollywood & Highland Complex and, thus, are no longer contingently liable for obligations related
to the Hollywood & Highland Hotel. Principal Repayments The table below segregates debt repayments between loans collateralized by our office
properties and our other loans. Some of our collateralized loans are cross-collateralized or subject to cross-default or
cross-acceleration provisions with other loans. 69




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Total Debt(1)Office
    
    
    Other
    
    
    Total(dollars in thousands)Principal repayments due in:Balance of 2005
    
    $
    22,253
    
    
    $
    28,874
    
    
    $
    51,1272006
    
    
    429,286
    
    
    
    386
    
    
    
    429,6722007
    
    
    95,814
    
    
    
    272
    
    
    
    96,0862008
    
    
    512,347
    
    
    
    276
    
    
    
    512,6232009
    
    
    14,876
    
    
    
    295
    
    
    
    15,171Subsequent to 2009
    
    
    949,479
    
    
    
    15,124
    
    
    
    964,603Total
    
    $
    2,024,055
    
    
    $
    45,227
    
    
    $
    2,069,282Weighted average interest rate at December 31, 2004
    
    
    6.31
    %
    
    
    6.43
    %
    
    
    6.32
    %Weighted average term to maturity (in years)
    
    
    5.2
    
    
    
    2.5
    
    
    
    5.1Percentage of fixed rate debt including variable rate debt
subject to interest rate caps and interest rate swap contracts
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
   (1)
    
    Excludes unsecured credit facility. Dividends On March 10, 2004, we declared a quarterly dividend of $0.20 per share of common stock,
payable on April 15, 2004, to the holders of record at the close of business on March 31, 2004. On
June 14, 2004, we declared a quarterly dividend of $0.20 per share of common stock, payable on July
15, 2004, to the holders of record at the close of business on
June 30, 2004. On September 14,
2004, we declared a quarterly dividend of $0.20 per share of common stock, payable on October 15,
2004, to the holders of record at the close of business on September 30, 2004. On December 10,
2004, we declared a quarterly dividend of $0.20 per share of common stock, payable on January 15,
2005, to the holders of record at the close of business on December 31, 2004. The aggregate amount
of dividends paid on April 15, 2004, July 15, 2004, October 15, 2004, and January 15, 2005 totaled
approximately $30.5 million, $30.5 million, $30.5 million, and $30.6 million, respectively. On March 10, 2004, we declared an aggregate dividend of approximately $0.005 million for the
Class F convertible stock, payable on April 15, 2004, to the holders of record at the close of
business on March 31, 2004. We accrued an additional $0.001 dividend for the Class F convertible
stock on March 31, 2004, June 30, 2004, September 30, 2004, and December 31, 2004, respectively. On March 10, 2004, we declared an aggregate dividend of approximately $0.6 million for the
special voting stock, payable on April 15, 2004, to the holders of record at the close of business
on March 31, 2004, and accrued an additional $0.7 million dividend for the special voting stock.
On June 14, 2004, we declared an aggregate dividend of approximately $0.6 million for the special
voting stock, payable on July 15, 2004, to the holders of record at the close of business on June
30, 2004, and accrued an additional $0.6 million dividend for the special voting stock. On
September 14, 2004, we declared an aggregate dividend of approximately $1.7 million for the special
voting stock, payable on October 15, 2004, of which, approximately $0.3 million had been previously
accrued, to the holders of record at the close of business on September 30, 2004. On December 10,
2004, we declared an aggregate dividend of approximately $1.8 million for the special voting stock,
payable on January 15, 2005, of which approximately $0.9 million had been previously accrued to the
holders of record at the close of business on December 31, 2004. For federal income tax purposes, 84.1% of the dividends paid to common stockholders in 2004
represents ordinary income. Approximately 21.0% of the ordinary dividend income is treated as
qualified dividends. Approximately 15.9% of the dividends paid to common stockholders in 2004
represents return of capital. The Alternative Minimum Tax adjustments apportioned to the
common stockholders in 2004 is $(0.13) per share. 70




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Provision for Loss on Real Estate In May 2004, we entered into a joint venture agreement with a third party to own and operate
Plaza of the Americas, located in Dallas, Texas (Trizec Plaza of the Americas, L.P.). Prior to
the formation of Trizec Plaza of the Americas, L.P., Plaza of the Americas was 100% owned by us.
In conjunction with the formation of Trizec Plaza of the Americas, L.P, we sold a 50% interest in
Plaza of the Americas to the third party for a net sales price of approximately $47.8 million,
resulting in a net loss on disposition of real estate of approximately $20.8 million. In
conjunction with the sale of our 50% interest in Plaza of the Americas, we determined that the fair
value of Plaza of the Americas, based upon the contract price, was less than our carrying value of
such asset. Accordingly, we recognized a provision for loss on real estate of approximately $12.7
million related to our 50% interest in Plaza of the Americas to reduce the carrying value of such
property to its fair value. Provision for Loss and Recovery of Provision for Loss on Discontinued Real Estate As part of the periodic assessment of our real estate properties relative to both the extent
to which such assets are consistent with our long-term real estate investment objectives and the
performance and prospects of each asset, we determined in the second quarter of 2004 that our
investments in seven real estate properties were impaired. Given our strategy focused on owning
core real estate in our seven core markets, we reduced our anticipated recovery period of certain
of our remaining non-core assets. As a result of the reduction in the anticipated holding period,
together with a reassessment of the anticipated future operating income of such non-core real
estate properties and the effects of new competition and demand for the properties, we determined
that our investments in the Borden Building, Park Central I, 1333 Main Street, Lakeside Centre, New
Market Business Park, Bank of America  Columbia and Williams Center I & II were impaired. In
accordance with SFAS No. 144, we recorded a provision for loss on discontinued real estate in the
aggregate amount of approximately $78.3 million in the second quarter of 2004 to reduce the book
value of such non-core assets to their estimated fair values. During the third quarter of 2004, we
entered into agreements to sell Lakeside Centre, New Market Business Park and Bank of America-
Columbia at sales prices in excess of previous expectations. In accordance with SFAS No. 144, we
reduced our provision for loss on discontinued real estate in the aggregate amount of approximately
$9.6 million to increase the book values of Lakeside Centre, New Market Business Park and Bank of
America  Columbia to their fair values based upon established contract prices, less estimated
costs to sell. During the second quarter of 2004, internal valuations indicated that the value of Gateway
Center, located in Pittsburgh, Pennsylvania, had declined. Accordingly, a provision for loss on
real estate in the amount of approximately $40.3 million was recorded in the second quarter of
2004. Gateway Center was encumbered by a mortgage loan in the principal amount of approximately
$39.8 million. In August 2004, we received a notice of default related to the debt service from
the lender of the mortgage loan on Gateway Center. In September 2004, we and the lender of the
mortgage loan on Gateway Center agreed to modify certain terms of such mortgage loan primarily to
reduce the yield maintenance penalty upon prepayment of the mortgage loan, as well as to allow the
lender of the mortgage loan to participate in sales proceeds in excess of certain debt repayment
and debt repayment costs upon the sale of Gateway Center. In conjunction with this loan
modification, the lender of the mortgage loan granted a forbearance with respect to any default by
us under the terms of the mortgage loan prior to modification. If we default on any of the terms
of the loan modification, the forbearance becomes null and void and the lender of the mortgage loan
is entitled to exercise all of its rights and remedies under the original mortgage loan, including
acceleration of the payment of the mortgage loan in full. Market Risk  Quantitative and Qualitative Information Market risk is the risk of loss from adverse changes in market prices and interest rates. Our
future earnings, cash flows and fair values relevant to financial instruments are dependent upon
prevailing market interest rates. The primary market risk facing us is long-term indebtedness,
which bears interest at fixed and variable rates. The fair value of our long-term debt obligations
is affected by changes in market interest rates. We manage our market risk by matching long-term
leases on our properties with long-term fixed rate non-recourse debt of similar durations. At
December 31, 2004, approximately 95.1%, or approximately $2.1 billion, of our outstanding debt had
fixed interest rates (including variable rate debt subject to interest rate caps and interest rate
swap agreements), which minimizes the interest rate risk until the maturity of such outstanding
debt. 71




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We utilize certain derivative financial instruments at times to limit interest rate risk.
Interest rate protection agreements are used to convert variable rate debt to a fixed rate basis or
to hedge anticipated financing transactions. Derivatives are used for hedging purposes rather than
speculation. We do not enter into financial instruments for trading purposes. We have entered
into hedging arrangements with financial institutions we believe to be creditworthy counterparties.
Our primary objective when undertaking hedging transactions and derivative positions is to reduce
our floating rate exposure, which, in turn, reduces the risks that variable rate debt imposes on
our cash flows. Our strategy partially protects us against future increases in interest rates. At
December 31, 2004, we had hedge contracts totaling $150.0 million. Hedge contracts totaling $150.0
million convert variable rate debt at LIBOR plus various spreads to a fixed rate of 6.02% and
mature on March 15, 2008. We may consider entering into additional hedging agreements with respect
to all or a portion of our variable rate debt. We may borrow additional money with variable rates
in the future. Increases in interest rates could increase interest expense in unhedged variable
rate debt, which, in turn, could affect cash flows and our ability to service our debt. As a
result of the hedging agreements, decreases in interest rates could increase interest expense as
compared to the underlying variable rate debt and could result in us making payments to unwind such
agreements. At December 31, 2004, our total outstanding debt was approximately $2.2 billion, of which
approximately $108.8 million (exclusive of debt subject to interest rate caps) was variable rate
debt after the impact of the hedge agreements. At December 31, 2004, the average interest rate on
variable rate debt was approximately 3.87%. Taking the hedging agreements into consideration, if
market interest rates on our variable rate debt were to increase by 10% (or approximately 39 basis
points), the increase in interest expense on the variable rate debt would decrease future earnings
and cash flows by approximately $0.4 million annually. If market rates of interest increase by
10%, the fair value of the total debt outstanding would decrease by approximately $46.0 million. Taking the hedging agreements into consideration, if market rates of interest on the variable
rate debt were to decrease by 10% (or approximately 39 basis points), the decrease in interest
expense on the variable rate debt would increase future earnings and cash flows by approximately
$0.4 million annually. If market rates of interest decrease by 10%, the fair value of the total
outstanding debt would increase by approximately $47.6 million. These amounts were determined solely by considering the impact of hypothetical interest rates
on our financial instruments. These analyses do not consider the effect of the reduced level of
overall economic activity that could exist in an environment with significantly fluctuating
interest rates. Further, in the event of significant change, management would likely take actions
to further mitigate our exposure to the change. Due to the uncertainty of specific actions we may
undertake to minimize possible effects of market interest rate increases, this analysis assumes no
changes in our financial structure. Related Party Transactions In connection with the corporate reorganization, we entered into a tax cooperation agreement
with TrizecHahn Office Properties, Ltd., a wholly-owned, Canadian subsidiary of TrizecHahn
Corporation. Under the agreement, we have agreed to continue to conduct our business activities
with regard to the consequences under Canadian tax legislation to TrizecHahn Office Properties
Ltd., related Canadian corporations and Trizec Canada. Compliance with this agreement may require
us to conduct our business in a manner that may not always be the most efficient or effective
because of potential adverse Canadian tax consequences. Furthermore, we may incur incremental
costs due to the need to reimburse these entities for any negative tax consequences. In connection with the corporate reorganization, we have agreed to provide shared services to
TrizecHahn and therefore continue to provide certain services to assist TrizecHahn in fulfilling
its public disclosure obligations and conducting investor, media and public relations. TrizecHahn
has agreed to and continues to provide accounting services in conjunction with the corporate
reorganization. For the years ended December 31, 2004 and 2003, we have recorded other income of
approximately $0.1 million and $0.4 million, respectively, for such services provided to
TrizecHahn. In addition, we have recorded general and administrative expense for the years ended
December 31, 2004 and 2003, of approximately $0.4 million and $0.5 million, respectively, for such
services provided to us. At December 31, 2004, we had a receivable balance of approximately $0.5
million and a payable balance of approximately $0.5 million related to such services. At December
31, 2003, we had a receivable balance of approximately $0.4 million and a payable balance of
approximately $0.5 million related to such services. 72




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For the years 2002 and 2001, we, in the normal course of business, reimbursed TrizecHahn
and/or affiliates for direct third party purchased services and a portion of salaries for certain
employees for direct services rendered. A significant portion of the reimbursements had been for
allocated or direct insurance premiums, which amounted to approximately $10.9 million and
approximately $7.1 million for the years ended December 31, 2002 and 2001, respectively. For the
year ended December 31, 2003, we were reimbursed by TrizecHahn for insurance premiums that amounted
to approximately $0.2 million. In connection with the corporate reorganization, some outstanding TrizecHahn employee stock
options were cancelled and replaced with options to acquire subordinate voting shares of Trizec
Canada. For every outstanding option to acquire one Trizec Canada subordinate voting share, Trizec
Canada, directly or indirectly, holds one of our warrants entitling Trizec Canada to one share of
our common stock at any time prior to the respective warrants expiration date. We expect that
Trizec Canada will exercise these warrants whenever and to the extent that one or more options to
acquire Trizec Canada subordinate voting shares are exercised. Trizec Canadas anticipated
acquisition of one share of our common stock whenever one of its stock options is exercised is
intended to maintain economic equivalence between shares of our common stock and Trizec Canada
subordinate voting shares. On October 9, 2003, 4172352 Canada, Inc., an affiliate of Trizec Canada Inc., contributed
approximately $4.0 million to us in exchange for preferred membership units in an entity that held
a 91.5% interest in the Hollywood & Highland Hotel. The holders of the preferred membership units
were entitled to an initial dividend of 8% per annum, increasing to 12% per annum, as well as any
unrecovered capital contribution at the time of liquidation. On February 27, 2004, we sold the
Hollywood & Highland Hotel. We remitted approximately $4.8 million to 4172352 Canada, Inc. in full
satisfaction of any outstanding dividends and unrecovered capital contributions. In December 2004, we sold 110 William Street, located in New York, New York, to an affiliate
of Swig Investment Company, one of our joint venture partners, for a net sale price of
approximately $158.5 million. Gain Contingencies In September 2004, we and the Los Angeles County Assessors Office presented to the Los
Angeles County Assessment Appeals Board a written stipulation agreeing to the base year value in
2000, and the 2001, 2002, 2003 and 2004 assessed values of the Hollywood & Highland Complex,
located in Los Angeles, California. The stipulation provided for substantial reductions in the
assessed value of the Hollywood & Highland Complex for all years. The Los Angeles County
Assessment Appeals Board approved the stipulation and adopted the values as set forth in the
stipulation, which will result in a real estate tax refund. We will recognize this real estate tax
refund in the period it is received. Beginning in late 2001 and during 2002, we replaced a chiller at One New York Plaza, located
in New York, New York, that was damaged in 2001. Total remediation and improvement costs were
approximately $19.1 million. Through December 31, 2004, we have received approximately $12.1
million in insurance proceeds related to this incident. We have filed a claim for additional
proceeds of approximately $7.0 million; however, we cannot provide assurance that we will be
successful in collecting the additional proceeds. We will recognize the additional proceeds, if
any, in the period received. Other In June 2004, we established a dividend reinvestment and stock purchase plan which allows
stockholders to reinvest all or a portion of their dividends in additional shares of our common
stock. The dividend reinvestment and stock purchase plan also allows non-stockholders to purchase
shares of our common stock through the plan and provides both stockholders and non-stockholders the
option to purchase shares of our common stock without paying fees or commissions by making optional
cash investments of $0.0001 million to $0.01 million per month for current stockholders or $0.0003
million to $0.01 million per month for persons who are not current stockholders. Purchases of
greater than $0.01 million per month can be accomplished by us granting a waiver to the $0.01
million limit. 73




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Newly Issued Accounting Standards In December 2004, the FASB issued SFAS No. 123 (Revised 2004), Share-Based Payment (SFAS
No. 123(R)). SFAS No. 123(R) is a revision of SFAS No. 123, Accounting for Stock-Based
Compensation (SFAS No. 123) and also supercedes APB Opinion No. 25, Accounting for Stock Issued
to Employees (APB No. 25) and its related implementation guidance. SFAS No. 123(R) requires that
compensation cost is measured as the fair value of the stock option at the date of grant,
eliminates the alternative to use the intrinsic value method of accounting prescribed in APB No.
25, and clarifies and expands the guidance of SFAS No. 123 in several areas. SFAS No. 123(R) is
effective as of the beginning of the first interim or annual reporting period that begins after
June 15, 2005. SFAS No. 123(R) applies to all awards granted, modified, repurchased, or cancelled
after the effective date and the cumulative effect of initially applying SFAS No. 123(R), if any,
is to be recognized as of the required effective date. We will adopt SFAS No. 123(R) commencing as of
July 1, 2005 using the modified prospective application method. We do not expect the requirements
of SFAS No. 123(R) to have a material impact on results of operations, financial position or
liquidity. Inflation Substantially all of our leases provide for separate property tax and operating expense
escalations over a base amount. In addition, many of our leases provide for fixed base rent
increases or indexed increases. We believe that inflationary increases may be at least partially
offset by these contractual rent increases. Funds from Operations Funds from operations is a non-GAAP financial measure. Funds from operations is defined by the
Board of Governors of the National Association of Real Estate Investment Trusts, or NAREIT, as net
income, computed in accordance with accounting principles generally accepted in the United States,
or GAAP, excluding gains or losses from sales of properties and cumulative effect of a change in
accounting principle, plus real estate related depreciation and amortization, and after adjustments
for unconsolidated partnerships and joint ventures. Adjustments for unconsolidated partnerships
and joint ventures are calculated to reflect funds from operations on the same basis. Effective as
of the fourth quarter of 2003, we adopted the NAREIT calculation of funds from operations. Prior
to our adoption of the NAREIT methodology for calculating funds from operations, we historically
excluded certain items in calculating funds from operations, such as gain on lawsuit settlement,
gain on early debt retirement, minority interest, recovery on insurance claims, effects of
provision for loss on real estate and loss on and provision for loss on investments, net of the tax
benefit, that are required to be factored into the calculation of funds from operations under the
NAREIT methodology. We have revised our historical calculation of funds from operations in
accordance with the NAREIT calculation in the table set forth below. Therefore, prior year amounts
also reflect the revised guidance. We believe that funds from operations is helpful to investors as one of several measures of
the performance of an equity REIT. We further believe that by excluding the effect of
depreciation, amortization and gains or losses from sales of real estate, all of which are based on
historical costs and which may be of limited relevance in evaluating current performance, funds
from operations can facilitate comparisons of operating performance between periods and between
other equity REITs. Investors should review funds from operations, along with GAAP net income and
cash flow from operating activities, investing activities and financing activities, when trying to
understand an equity REITs operating performance. As discussed above, we compute funds from
operations in accordance with current standards established by NAREIT, which may not be comparable
to funds from operations reported by other REITs that do not define the term in accordance with the
current NAREIT definition or that interpret the current NAREIT definition differently than we do.
While funds from operations is a relevant and widely used measure of operating performance of
equity REITs, it does not represent cash generated from operating activities in accordance with
GAAP, nor does it represent cash available to pay distributions and should not be considered as an
alternative to net income, determined in accordance with GAAP, as an indication of our financial
performance, or cash flow from operating activities, determined in accordance with GAAP, as a
measure of our liquidity, nor is it indicative of funds available to fund our cash needs, including
our ability to make cash distributions. 74




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The following table sets forth the reconciliation of funds from operations to net income
available to common stockholders for the years ended December 31, 2004, 2003 and 2002: For the years ended December 312004
    
    
    2003
    
    
    2002(dollars in thousands)Net income (loss) available to common stockholders
    
    $
    96,489
    
    
    $
    198,527
    
    
    $
    (188,783
    )Add/(deduct):Gain on disposition of real estate, net
    
    
    (7,358
    )
    
    
    (11,351
    )
    
    
    (2,996
    )Gain on disposition of discontinued real estate, net
    
    
    (125,508
    )
    
    
    (58,834
    )
    
    
    (14,716
    )Gain on disposition of real estate from
unconsolidated real estate joint ventures
    
    
    (704
    )
    
    
    (230
    )
    
    
    Depreciation and amortization (real estate related)
including share of unconsolidated real estate joint
ventures and discontinued operations
    
    
    178,847
    
    
    
    202,490
    
    
    
    190,397Cumulative effect of a change in accounting principle
    
    
    
    
    
    
    3,845
    
    
    
    Funds from operations available to common stockholders
    
    $
    141,766
    
    
    $
    334,447
    
    
    $
    (16,098
    )
 
 Item 7A. Quantitative and Qualitative Disclosures About Market Risk Information about quantitative and qualitative disclosures about market risk is incorporated
herein by reference from Item 7. Managements Discussion and Analysis of Financial Condition and
Results of Operations Market Risk  Quantitative and Qualitative Information. 
 Item 8. Financial Statements and Supplementary Data See Index to Financial Statements on page F-1 of this Form 10-K. 
 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. 
 Item 9A. Controls and Procedures Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures Under the supervision and with the participation of our management, including our Chief
Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of
our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated
under the Securities Exchange Act of 1934, as amended (the Exchange Act). Based on this
evaluation, our management concluded that our disclosure controls and procedures were effective as
of the end of the period covered by this annual report. Managements Report on Internal Control Over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over
financial reporting, as such term is defined in Exchange Act Rules 13a-15(f). Under the
supervision and with the participation of our management, including our Chief Executive Officer and
Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control
over financial reporting based on the framework in Internal Control  Integrated Frameworkissued
by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation
under the framework in Internal Control  Integrated Framework, our management concluded that our
internal control over financial reporting was effective as of December 31, 2004. 75




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Our managements assessment of the effectiveness of our internal control over financial
reporting as of December 31, 2004 has been audited by PricewaterhouseCoopers LLP, an independent
registered public accounting firm, as stated in their report which is included herein. Changes in Internal Control Over Financial Reporting There has been no change in our internal control over financial reporting during our most
recent fiscal quarter that has materially affected, or is reasonably likely to materially affect,
our internal control over financial reporting. 
 Item 9B.      Other Information None.
 
 PART III 
 Item 10.      Directors and Executive Officers of the Registrant Information relating to our executive officers, directors and nominees for director is
incorporated by reference to Proposal 1  Election of Directors in our definitive Proxy Statement
for the 2005 Annual Meeting of Stockholders, to be held on May 19, 2005. Information concerning
compliance with Section 16(a) of the Securities Exchange Act is incorporated by reference to
Section 16(a) Beneficial Ownership Reporting Compliance in the 2005 Proxy Statement. Information
relating to the audit committee of our board of directors and our audit committee financial expert
is incorporated by reference to Committees of the Board of Directors  Audit Committee in the
2005 Proxy Statement. Our board of directors has adopted a Code of Business Conduct and Ethics, applicable to all
employees and directors of Trizec. This Code also applies to our senior financial executives,
including our Chief Executive Officer and our Chief Financial Officer (who is both our principal
financial and principal accounting officer). The Code of Business Conduct and Ethics is posted on
our website at www.trz.com under the headings Investors  Corporate Governance. We will also
provide a print copy of the Code to any stockholder upon request. We intend to disclose any
amendments to the Code of Business Conduct and Ethics, as well as any waivers for senior financial
executives, on our website at www.trz.com. 
 Item 11.      Executive Compensation Information relating to executive compensation is set forth under the captions Compensation
of Directors and Executive Officers, Compensation Committee Report on Executive Compensation and
Compensation Committee Interlocks and Insider Participation in the 2005 Proxy Statement and is
incorporated herein by reference. 
 Item 12.      Security Ownership of Certain Beneficial Owners and Management Information relating to ownership of our common stock by certain persons is set forth under
the caption Stock Ownership Information in the 2005 Proxy Statement and is incorporated herein by
reference. 
 Item 13.      Certain Relationships and Related Transactions Information relating to existing or proposed relationships or transactions between us and any
of our affiliates is set forth under the caption Certain Relationships and Related Transactions
in the 2005 Proxy Statement and is incorporated herein by reference. 76




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Item 14.      Principal Accountant Fees and Services Information relating to the fees and services provided by our principal accountant and our
audit committees pre-approval policies and procedures is set forth under the caption Proposal 2 
Ratification of Re-Appointment of Independent Auditor  Audit and Non-Audit Fees of
PricewaterhouseCoopers LLP in the 2005 Proxy Statement and is incorporated herein by
reference. 
 PART IV 
 Item 15.      Exhibits and Financial Statement Schedules  (a)
    Financial Statements and Financial Statement Schedules  (1)
    See Index to Financial Statements on page F-1 of this Form 10-K.(2)
    ExhibitsThe exhibits required by this item are set forth on the Exhibit Index attached hereto. 77




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SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized. TRIZEC PROPERTIES, INC.Date: March 10, 2005By:
    
    /s/ Timothy H. CallahanTimothy H. CallahanPresident, Chief Executive Officer and Director
 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the capacities and on the
dates indicated. Date: March 10, 2005
    
    /s/ Timothy H. CallahanTimothy H. Callahan
President, Chief Executive Officer and Director
(Principal executive officer)/s/ Michael C. ColleranMichael C. Colleran
Executive Vice President and Chief Financial Officer
(Principal financial and accounting officer)/s/ Peter MunkPeter Munk
Chairman of the Board of Directors/s/ L. Jay CrossL. Jay Cross
Director/s/ Brian MulroneyBrian Mulroney
Director/s/ James J. OConnorJames J. OConnor
Director/s/ Glenn RufranoGlenn Rufrano
Director
 78




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/s/ Richard ThomsonRichard Thomson
Director/s/ Polyvios VintiadisPolyvios Vintiadis
Director/s/ Stephen VolkStephen Volk
Director
 79




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INDEX OF EXHIBITS ExhibitNumber
    
    Description2.1
    
    Arrangement Agreement dated as of March 8, 2002 by and among TrizecHahn
Corporation, Trizec Canada Inc., 4007069 Canada Inc. and Trizec Properties, Inc.
(incorporated by reference to Exhibit 2.1 to Trizec Properties, Inc.s
Registration Statement on Form S-11, File No. 333-84878).2.2
    
    Arrangement Agreement Amending Agreement dated as of April 23, 2002 by and among
TrizecHahn Corporation, Trizec Canada Inc., 4007069 Canada Inc. and Trizec
Properties, Inc. (incorporated by reference to Exhibit 2.2 to Trizec Properties,
Inc.s Quarterly Report on Form 10-Q for the quarter ended June 30, 2002).3.1
    
    Fourth Amended and Restated Certificate of Incorporation of Trizec Properties,
Inc., filed on February 11, 2002 (incorporated by reference to Exhibit 3.1 to
Trizec Properties, Inc.s Registration Statement on Form 10, File No. 001-16765).3.2
    
    Certificate of Amendment to Fourth Amended and Restated Certificate of
Incorporation of Trizec Properties, Inc., filed on April 29, 2002 (incorporated by
reference to Exhibit 4.4 to Trizec Properties, Inc.s Registration Statement on
Form S-8, File No. 333-87548).3.3
    
    Certificate of Amendment to Fourth Amended and Restated Certificate of
Incorporation of Trizec Properties, Inc., filed on May 20, 2004 (incorporated by
reference to Exhibit 3.1 of Trizec Properties, Inc.s Quarterly Report on Form
10-Q for the Quarterly Period Ended June 30, 2004).3.4
    
    Amended and Restated Bylaws of Trizec Properties, Inc. (incorporated by reference
to Exhibit 3.3 to Trizec Properties, Inc.s Quarterly Report on Form 10-Q for the
quarter ended March 31, 2002).4.1
    
    Specimen of Common Stock Certificates (incorporated by reference to Exhibit 4.1 to
Trizec Properties, Inc.s Registration Statement on Form 10 (File No. 001-16765)).4.2
    
    Form of Exchange Certificates (incorporated by reference to Exhibit 4.2 to Trizec
Properties, Inc.s Registration Statement on Form 10 (File No. 001-16765)).4.3
    
    Form of Custody Agreement relating to the Exchange Certificates (incorporated by
reference to Exhibit 4.3 to Trizec Properties, Inc.s Registration Statement on
Form 10, File No. 001-16765).10.1
    
    Contribution Agreement, dated as of December 22, 2004, by and between Trizec
Properties, Inc. and Trizec Holdings Operating LLC (incorporated by reference to
Exhibit 10.1 of Trizec Properties, Inc.s Current Report on Form 8-K dated
December 22, 2004).10.2
    
    Assignment and Assumption Agreement, dated as of December 22, 2004, by and between
Trizec Properties, Inc. and Trizec Holdings Operating LLC (incorporated by
reference to Exhibit 10.2 of Trizec Properties, Inc.s Current Report on Form 8-K
dated December 22, 2004).10.3
    
    Limited Liability Company Agreement of Trizec Holdings Operating LLC, dated as of
December 22, 2004 (incorporated by reference to Exhibit 10.3 of Trizec Properties,
Inc.s Current Report on Form 8-K dated December 22, 2004).10.4
    
    Credit Agreement, dated as of June 29, 2004, among Trizec Properties, Inc. and
Trizec Holdings, Inc., as Borrowers, the Lenders party thereto from time to time,
and Deutsche Bank Trust Company Americas, as Administrative Agent (incorporated by
reference to Exhibit 10.1 of Trizec Properties, Inc.s Quarterly Report on Form
10-Q for the Quarterly Period Ended June 30, 2004).
 80




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ExhibitNumber
    
    Description10.5
    
    Joinder Agreement, dated as of December 22, 2004, by Trizec Holdings Operating LLC
(relating to the Credit Agreement referenced as Exhibit 10.4 above) (incorporated
by reference to Exhibit 10.4 of Trizec Properties, Inc.s Current Report on Form
8-K dated December 22, 2004).10.6
    
    Loan Agreement dated as of May 17, 2001 between Secore Financial Corporation, as
lender, and certain subsidiaries of Trizec Properties, Inc. named on the signature
page thereof, as borrowers and guarantors (incorporated by reference to Exhibit
10.14 to Trizec Properties, Inc.s Annual Report on Form 10-K for the year ended
December 31, 2002).10.7
    
    Canadian Tax Cooperation Agreement dated as of May 8, 2002 between TrizecHahn
Office Properties Ltd. and Trizec Properties, Inc. (incorporated by reference to
Exhibit 10.15 to Trizec Properties, Inc.s Annual Report on Form 10-K for the year
ended December 31, 2002).10.8*
    
    Employment Agreement, dated as of August 14, 2002, between Timothy H. Callahan and
Trizec Properties, Inc. (incorporated by reference to Exhibit 10.1 to Trizec
Properties, Inc.s Quarterly Report on Form 10-Q for the quarter ended September
30, 2002).10.9*
    
    Employment Agreement, dated as of January 4, 2005, by and between Trizec
Properties, Inc. and Brian Lipson (incorporated by reference to Exhibit 10.1 of
Trizec Properties, Inc.s Current Report on Form 8-K dated January 4, 2005).10.10*
    
    Employment Agreement, dated as of January 4, 2005, by and between Trizec
Properties, Inc. and Michael Colleran (incorporated by reference to Exhibit 10.2
of Trizec Properties, Inc.s Current Report on Form 8-K dated January 4, 2005).10.11*
    
    Employment Agreement, dated as of January 4, 2005, by and between Trizec
Properties, Inc. and William Tresham (incorporated by reference to Exhibit 10.3 of
Trizec Properties, Inc.s Current Report on Form 8-K dated January 4, 2005).10.12*
    
    Employment Arrangement Letter, dated as of February 13, 2003, by and between
Trizec Properties, Inc. and Ted Jadwin.10.13*
    
    Resignation Agreement, dated as of September 17, 2004, by and between Trizec
Properties, Inc. and Casey R. Wold (incorporated by reference to Exhibit 10.1 of
Trizec Properties, Inc.s Current Report on Form 8-K dated September 17, 2004).10.14a*
    
    Form of Bonus Restricted Stock Rights Agreement under the Trizec Properties, Inc.
2003 Long-Term Incentive Plan (as amended and restated effective May 29, 2003)
(incorporated by reference to Exhibit 10.1 to Trizec Properties, Inc.s Current
Report on Form 8-K dated February 18, 2005).10.14b*
    
    Form of Long-Term Incentive Restricted Stock Rights Award Agreement under the
Trizec Properties, Inc. Long-Term Incentive Plan (incorporated by reference to
Exhibit 10.2 to Trizec Properties, Inc.s Current Report on Form 8-K dated
February 18, 2005).10.15*
    
    Cancellation of Employment and Mutual Release Agreement dated January 17, 2003
between Lee Wagman and Trizec Properties, Inc. (incorporated by reference to
Exhibit 10.12 to Trizec Properties, Inc.s Annual Report on Form 10-K for the year
ended December 31, 2002).10.16*
    
    Trizec Deferred Compensation Plan and Trust Agreement (incorporated by reference
to Exhibit 10.5 to Trizec Properties, Inc.s Registration Statement on Form 10,
File No. 001-16765).10.17*
    
    TrizecHahn Developments Inc. Deferred Compensation Plan and Trust Agreement
(incorporated by reference to Exhibit 10.6 to Trizec Properties, Inc.s
Registration Statement on Form 10, File No. 001-16765).10.18*
    
    Trizec Properties, Inc. 2002 Long Term Incentive Plan (formerly known as the
Trizec Properties, Inc. 2002 Stock Option Plan) (Amended and Restated effective
May 29, 2003) (incorporated by reference to Exhibit 4.3 to Trizec Properties,
Inc.s Post-Effective Amendment No. 1 to the Registration Statement on Form S-8,
File No. 333-87548).
 81




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ExhibitNumber
    
    Description10.19*
    
    First Amendment, dated as of December 10, 2004, to Trizec Properties, Inc. 2002
Long Term Incentive Plan (amended and restated effective May 29, 2003)10.20*
    
    Trizec Properties, Inc. 2003 Employee Stock Purchase Plan (incorporated by
reference to Exhibit 4.3 to Trizec Properties, Inc.s Registration Statement on
Form S-8, File No. 333-106514).10.21*
    
    Trizec Properties, Inc. Deferred Compensation Plan (incorporated by reference to
Exhibit 10.12 of Trizec Properties, Inc.s Annual Report on Form 10-K for the year
ended December 31, 2003).10.22*
    
    Amendment, dated May 4, 2004, to Trizec Properties, Inc. Deferred Compensation
Plan (incorporated by reference to Exhibit 10.1 of Trizec Properties, Inc.s
Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2004).10.23*
    
    Second Amendment, dated as of August 3, 2004, to Trizec Properties, Inc. Deferred
Compensation Plan.10.24*
    
    Trizec Properties, Inc. 2004 Long-Term Outperformance Compensation Program under
the Trizec Properties, Inc. 2002 Long-Term Incentive Plan (which includes a form
of award agreement as Exhibit A thereto) (incorporated by reference to Exhibit
10.1 of Trizec Properties, Inc.s Current Report on Form 8-K dated October 21,
2004).10.25*
    
    Trizec Properties, Inc. Non-Employee Directors Deferred Compensation Plan
(incorporated by reference to Exhibit 10.2 of Trizec Properties, Inc.s Quarterly
Report on Form 10-Q for the quarterly period ended March 31, 2004).10.26*
    
    First Amendment, dated as of August 3, 2004, to Trizec Properties, Inc.
Non-Employee Directors Deferred Compensation Plan.10.27*
    
    2004 Non-Employee Director Fees and
Other Compensation.10.28*
    
    2004 Compensation for Named Executive Officers.12.1
    
    Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Dividends.21.1
    
    Subsidiaries of Trizec Properties, Inc.23.1
    
    Consent of PricewaterhouseCoopers LLP.31.1
    
    Rule 13a-14(a)/15d-14(a) Certification of the Chief Executive Officer.31.2
    
    Rule 13a-14(a)/15d-14(a) Certification of the Chief Financial Officer.32.1
    
    Section 1350 Certification of the Chief Executive Officer.32.2
    
    Section 1350 Certification of the Chief Financial Officer.
   
    
    Filed herewith.*
    
    Denotes a management contract or compensatory plan, contract or arrangement. 82




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INDEX TO FINANCIAL STATEMENTS  
 PageReport of Independent Registered Public Accounting Firm
    
    F-2Consolidated Balance Sheets at December 31, 2004 and 2003
    
    F-4Consolidated Statements of Operations for the years ended December
 31, 2004, 2003 and 2002
    
    F-5Consolidated Statements of Comprehensive Income (Loss) for the years
 ended December 31, 2004, 2003 and 2002
    
    F-7Consolidated Statements of Changes in Stockholders Equity for the
 years ended December 31, 2004, 2003 and 2002
    
    F-8Consolidated Statements of Cash Flows for the years ended December
 31, 2004, 2003 and 2002
    
    F-10Notes to the Consolidated Financial Statements
    
    F-14Schedule III  Real Estate and Accumulated Depreciation
    
    F-62TrizecHahn Hollywood Hotel LLC financial statements
    
    F-67
  The Corporation is providing financial statements for TrizecHahn Hollywood Hotel LLC
(Hollywood Hotel) for the year ended December 31, 2002 for the purpose of complying with Rule
3-09 of Securities and Exchange Commission Regulation S-X. The Corporation has determined that
Hollywood Hotel was a significant subsidiary for the year ended December 31, 2002 as the
Corporations equity in the income from continuing operations before income taxes, extraordinary
items and cumulative effect of a change in accounting principle of Hollywood Hotel exceeded 20% of
such income of the Corporation for such periods. All other schedules for which provision is made in the applicable accounting regulations of
the Securities and Exchange Commission are not required under the related instructions or are
inapplicable, and therefore have been omitted. F-1




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Report of Independent Registered Public Accounting Firm To the Board of Directors and Stockholders of
Trizec Properties, Inc. We have completed an integrated audit of Trizec Properties, Inc.s 2004 consolidated financial
statements and of its internal control over financial reporting as of December 31, 2004 and audits
of its 2003 and 2002 consolidated financial statements in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Our opinions, based on our audits, are
presented below. Consolidated Financial statements and financial statement schedule In our opinion, the consolidated financial statements listed in the index appearing on page F-1,
present fairly, in all material respects, the financial position of Trizec Properties, Inc. and its
subsidiaries (the Corporation) at December 31, 2004 and 2003, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 2004 in conformity with
accounting principles generally accepted in the United States of America. In addition, in our
opinion, the financial statement schedule listed in the
indexappearing on page F-1, presents fairly, in
all material respects, the information set forth therein when read in conjunction with the related
consolidated financial statements. These financial statements and financial statement schedule are
the responsibility of the Corporations management. Our responsibility is to express an opinion on
these financial statements and financial statement schedule based on our audits. We conducted our
audits of these statements in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit of financial statements includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis for our opinion. As discussed in Note 2 to the consolidated financial statements, the Corporation, on January 1,
2003 adopted the provisions of Statement of Financial Accounting Standards No. 145, Rescission of
FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections;
on July 1, 2003 adopted the provisions of Statement of Financial Accounting Standards No. 123,
Accounting for Stock Based Compensation, as amended by Statement of Financial
Accounting Standards No. 148, Accounting for Stock Based Compensation  Transition and
Disclosure; and on December 31, 2003 adopted the provisions of Financial Accounting Standards
Board Interpretation No. 46 (revised December 2003), Consolidation of Variable Interest Entities 
an interpretation of ARB 51. Internal control over financial reporting Also, in our opinion, managements assessment, included in Managements Report on Internal
Control Over Financial Reporting appearing under Item 9A, that
the Corporation maintained effective
internal control over financial reporting as of December 31, 2004 based on criteria established
in Internal Control  Integrated Frameworkissued by the Committee of Sponsoring Organizations of
the Treadway Commission (COSO), is fairly stated, in all material respects, based on those
criteria. Furthermore, in our opinion, the Corporation maintained, in all material respects,
effective internal control over financial reporting as of December 31, 2004, based on criteria
established in Internal Control  Integrated Frameworkissued by the COSO. The Corporations
management is responsible for maintaining effective internal control over financial reporting and
for its assessment of the effectiveness of internal control over financial reporting. Our
responsibility is to express opinions on managements assessment and on the effectiveness of the
Corporations internal control over financial reporting based on our audit. We conducted our audit of
internal control over financial reporting in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective internal control over financial
reporting was maintained in all material respects. An audit of internal control over financial
reporting includes F-2




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obtaining an understanding of internal control over financial reporting, evaluating managements
assessment, testing and evaluating the design and operating effectiveness of internal control,
and performing such other procedures as we consider necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinions. A companys internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. A
companys internal control over financial reporting includes those policies and procedures that (i)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of management and directors of the company;
and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the companys assets that could have a material effect on the
financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate. PricewaterhouseCoopers LLP
Chicago, Illinois
March 10, 2005 F-3




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##### Table of Contents



Trizec Properties, Inc.
    
    Consolidated Balance Sheets at December 31, 2004 and 2003
 
 December 31
    
    
    December 31$ in thousands, except per share amounts
    
    2004
    
    
    2003AssetsReal estate
    
    $
    4,339,983
    
    
    $
    4,915,942Less: accumulated depreciation
    
    
    (618,864
    )
    
    
    (642,627
    )Real estate, net
    
    
    3,721,119
    
    
    
    4,273,315Cash and cash equivalents
    
    
    194,265
    
    
    
    129,299Escrows and restricted cash
    
    
    83,789
    
    
    
    72,862Investment in unconsolidated real estate joint ventures
    
    
    119,641
    
    
    
    231,185Office tenant receivables (net of allowance for
doubtful accounts of $6,677 and $7,096 at December 31,
2004 and December 31, 2003, respectively)
    
    
    9,306
    
    
    
    9,887Deferred rent receivables (net of allowance for
doubtful accounts of $831 and $1,517 at December 31,
2004 and December 31, 2003, respectively)
    
    
    137,561
    
    
    
    148,847Other receivables (net of allowance for doubtful
accounts of $2,473 and $10,243 at December 31, 2004
and December 31, 2003, respectively)
    
    
    9,914
    
    
    
    18,687Deferred charges (net of accumulated amortization of
$68,948 and $76,063, respectively)
    
    
    110,699
    
    
    
    121,842Prepaid expenses and other assets
    
    
    139,118
    
    
    
    120,805Total Assets
    
    $
    4,525,412
    
    
    $
    5,126,729Liabilities and Stockholders EquityLiabilitiesMortgage debt and other loans
    
    $
    2,069,282
    
    
    $
    2,866,975Unsecured credit facility
    
    
    150,000
    
    
    
    Trade, construction and tenant improvements payables
    
    
    25,386
    
    
    
    17,306Accrued interest expense
    
    
    8,116
    
    
    
    9,092Accrued operating expenses and property taxes
    
    
    86,713
    
    
    
    95,961Other accrued liabilities
    
    
    135,201
    
    
    
    87,519Dividends payable
    
    
    32,407
    
    
    
    31,567Taxes payable
    
    
    51,406
    
    
    
    42,352Total Liabilities
    
    
    2,558,511
    
    
    
    3,150,772Commitments and Contingencies
    
    
    
    
    
    
    Minority Interest
    
    
    7,348
    
    
    
    10,287Special Voting and Class F Convertible Stock
    
    
    200
    
    
    
    200Stockholders EquityPreferred stock, 50,000,000 shares authorized, $0.01 par value, none issued and
outstanding
    
    
    
    
    
    
    Common stock, 500,000,000 shares authorized, $0.01 par value, 152,164,471 and
151,058,491 issued at December 31, 2004 and December 31, 2003, respectively, and
152,132,857 and 151,040,480 outstanding at December 31, 2004 and December 31, 2003,
respectively
    
    
    1,521
    
    
    
    1,510Additional paid in capital
    
    
    2,211,545
    
    
    
    2,193,728Accumulated deficit
    
    
    (232,965
    )
    
    
    (207,395
    )Treasury stock, at cost, 31,614 and 18,011 shares at December 31, 2004 and December
31, 2003, respectively
    
    
    (415
    )
    
    
    (237
    )Unearned compensation
    
    
    (798
    )
    
    
    (1,267
    )Accumulated other comprehensive loss
    
    
    (19,535
    )
    
    
    (20,869
    )Total Stockholders Equity
    
    
    1,959,353
    
    
    
    1,965,470Total Liabilities and Stockholders Equity
    
    $
    4,525,412
    
    
    $
    5,126,729
 See accompanying notes to the financial statements. F-4




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##### Table of Contents



Trizec Properties, Inc.
    
    Consolidated Statements of Operations
 
 For the years ended December 31$ in thousands, except share and per share amounts
    
    2004
    
    
    2003
    
    
    2002RevenuesRentals
    
    $
    497,666
    
    
    $
    499,769
    
    
    $
    508,944Recoveries from tenants
    
    
    101,340
    
    
    
    100,824
    
    
    
    99,763Parking and other
    
    
    102,083
    
    
    
    100,172
    
    
    
    103,428Fee income
    
    
    11,048
    
    
    
    10,706
    
    
    
    9,771Total Revenues
    
    
    712,137
    
    
    
    711,471
    
    
    
    721,906ExpensesOperating
    
    
    244,598
    
    
    
    260,337
    
    
    
    252,102Property taxes
    
    
    77,413
    
    
    
    80,090
    
    
    
    78,520General and administrative, exclusive of stock option
grant expense
    
    
    38,456
    
    
    
    39,304
    
    
    
    44,935Depreciation and amortization
    
    
    145,290
    
    
    
    135,987
    
    
    
    130,183Stock option grant expense
    
    
    1,303
    
    
    
    1,054
    
    
    
    5,214Reorganization recovery
    
    
    
    
    
    
    
    
    
    
    (3,260
    )Provision for loss on real estate
    
    
    12,749
    
    
    
    
    
    
    
    Loss on and provision for loss on investment
    
    
    14,558
    
    
    
    15,491
    
    
    
    60,784Total Expenses
    
    
    534,367
    
    
    
    532,263
    
    
    
    568,478Operating Income
    
    
    177,770
    
    
    
    179,208
    
    
    
    153,428Other Income (Expense)Interest and other income
    
    
    5,403
    
    
    
    7,398
    
    
    
    6,067Foreign currency exchange gain
    
    
    3,340
    
    
    
    
    
    
    
    (Loss) Gain on early debt retirement
    
    
    (7,032
    )
    
    
    2,262
    
    
    
    Recovery on insurance claims
    
    
    739
    
    
    
    6,673
    
    
    
    3,800Interest expense
    
    
    (146,584
    )
    
    
    (150,622
    )
    
    
    (150,863
    )Derivative gain
    
    
    1,073
    
    
    
    
    
    
    
    Lawsuit settlement
    
    
    3,676
    
    
    
    26,659
    
    
    
    Total Other Expense
    
    
    (139,385
    )
    
    
    (107,630
    )
    
    
    (140,996
    )Income before Income Taxes, Minority Interest, Income from
Unconsolidated Real Estate Joint Ventures, Discontinued
Operations and Gain on Disposition of Real Estate, Net and
Cumulative Effect of a Change in Accounting Principle
    
    
    38,385
    
    
    
    71,578
    
    
    
    12,432(Provision) Benefit for income and other corporate taxes, net
    
    
    (4,379
    )
    
    
    41,777
    
    
    
    (4,896
    )Minority interest
    
    
    (1,834
    )
    
    
    (1,626
    )
    
    
    1,766Income from unconsolidated real estate joint ventures
including provision for loss on investment ($58,880 for 2002)
    
    
    15,243
    
    
    
    23,336
    
    
    
    (47,631
    )Income (Loss) from Continuing Operations
    
    
    47,415
    
    
    
    135,065
    
    
    
    (38,329
    )Discontinued OperationsIncome from discontinued operations (net of provision for
loss on discontinued real estate of $108,988, $18,164, and
$209,237 for 2004, 2003, and 2002, respectively)
    
    
    (78,968
    )
    
    
    2,348
    
    
    
    (167,300
    )Gain on disposition of discontinued real estate, net
    
    
    125,508
    
    
    
    58,834
    
    
    
    14,716Income (Loss) Before Gain on Disposition of Real Estate, Net,
and Cumulative Effect of a Change in Accounting Principle
    
    
    93,955
    
    
    
    196,247
    
    
    
    (190,913
    )Gain on disposition of real estate, net
    
    
    7,358
    
    
    
    11,351
    
    
    
    2,996Income (Loss) before Cumulative Effect of a Change in Accounting
Principle
    
    
    101,313
    
    
    
    207,598
    
    
    
    (187,917
    )Cumulative effect of a change in accounting principle
    
    
    
    
    
    
    (3,845
    )
    
    
    Net Income (Loss)
    
    
    101,313
    
    
    
    203,753
    
    
    
    (187,917
    )Special voting and Class F convertible stockholders dividends
    
    
    (4,824
    )
    
    
    (5,226
    )
    
    
    (866
    )Net Income (Loss) Available to Common Stockholders
    
    $
    96,489
    
    
    $
    198,527
    
    
    $
    (188,783
    )
 See accompanying notes to the financial statements. F-5




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##### Table of Contents



Trizec Properties, Inc.
    
    Consolidated Statements of Operations (Continued)
 
 For the years ended December 31$ in thousands, except share and per share amounts
    
    2004
    
    
    2003
    
    
    2002Pro formaEarnings per common shareIncome (Loss) from Continuing Operations
Available to Common Stockholders per Weighted
Average Common Share Outstanding:Basic
    
    $
    0.33
    
    
    $
    0.94
    
    
    $
    (0.24
    )Diluted
    
    $
    0.33
    
    
    $
    0.94
    
    
    $
    (0.24
    )Net Income (Loss) Available to Common
Stockholders per Weighted Average Common
Share Outstanding:Basic
    
    $
    0.64
    
    
    $
    1.32
    
    
    $
    (1.26
    )Diluted
    
    $
    0.63
    
    
    $
    1.32
    
    
    $
    (1.26
    )Weighted average shares outstandingBasic
    
    
    151,596,514
    
    
    
    150,005,663
    
    
    
    149,477,187Diluted
    
    
    153,109,854
    
    
    
    150,453,281
    
    
    
    149,477,187
 See accompanying notes to the financial statements. F-6




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##### Table of Contents



Trizec Properties, Inc.
    
    Consolidated Statements of Comprehensive Income (Loss)
 
 For the years ended December 31$ in thousands
    
    2004
    
    
    2003
    
    
    2002Net income (loss)
    
    $
    101,313
    
    
    $
    203,753
    
    
    $
    (187,917
    )Other comprehensive income (loss):Unrealized gains (losses) on investments in securities:Unrealized foreign currency exchange gains arising
during the period
    
    
    188
    
    
    
    259
    
    
    
    26Unrealized holding losses arising during the period
    
    
    
    
    
    
    
    
    
    
    (11,786
    )Realized losses on investment in securities
    
    
    
    
    
    
    
    
    
    
    11,786Unrealized foreign currency exchange (losses) gains on
foreign operations
    
    
    (260
    )
    
    
    2,643
    
    
    
    943Realized foreign currency exchange gain on foreign
operations
    
    
    (3,340
    )
    
    
    
    
    
    
    Unrealized derivative gains (losses):Effective portion of interest rate contracts
    
    
    13,187
    
    
    
    (4,256
    )
    
    
    (15,229
    )Ineffective portion of interest rate contracts
    
    
    317
    
    
    
    
    
    
    
    Settlement of forward rate contract
    
    
    (8,758
    )
    
    
    (3,437
    )
    
    
    Total other comprehensive income (loss)
    
    
    1,334
    
    
    
    (4,791
    )
    
    
    (14,260
    )Net comprehensive income (loss)
    
    $
    102,647
    
    
    $
    198,962
    
    
    $
    (202,177
    )
 See accompanying notes to the financial statements. F-7




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##### Table of Contents



Trizec Properties, Inc.
    
    Consolidated Statements of Changes in Stockholders Equity
 
 AccumulatedSeries B Convertible
    
    
    Class C Convertible
    
    
    
    
    
    
    
    
    
    
    Additional
    
    
    (Deficit)
    
    
    
    
    
    
    
    
    
    
    OtherPreferred Stock
    
    
    Preferred Stock
    
    
    Common Stock
    
    
    Paid In
    
    
    Retained
    
    
    Treasury
    
    
    Unearned
    
    
    Comprehensive$
    
    
    Shares
    
    
    $
    
    
    Shares
    
    
    $
    
    
    Shares
    
    
    Capital
    
    
    Earnings
    
    
    Stock
    
    
    Compensation
    
    
    Income (Loss)
    
    
    TotalBalance at December 31, 2001
    
    $
    1,100,000
    
    
    
    1,100,000
    
    
    $
    414,154
    
    
    
    376,504
    
    
    $
    382
    
    
    
    38,220,000
    
    
    $
    922,844
    
    
    $
    6,514
    
    
    $
    
    
    
    $
    (6,701
    )
    
    $
    (1,818
    )
    
    $
    2,435,375Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (187,917
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (187,917
    )Dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (104,079
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (104,079
    )Amortization of escrowed share grants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,865
    
    
    
    
    
    
    
    3,865Other comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (14,260
    )
    
    
    (14,260
    )TREHI Settlement of advances from parent
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    236,619
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    236,619Issuance of shares as consideration for
net Trizec R & E Holdings, Inc. (TREHI) assets
received
    
    
    
    
    
    
    
    
    
    
    296,627
    
    
    
    269,661
    
    
    
    
    
    
    
    30,317
    
    
    
    (296,627
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Conversion to Common Stock
    
    
    (1,100,000
    )
    
    
    (1,100,000
    )
    
    
    (769,344
    )
    
    
    (699,404
    )
    
    
    1,000
    
    
    
    99,982,556
    
    
    
    1,868,344
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    

    
    
    
    
    Issuance of shares under
recapitalization plan stock split
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    116
    
    
    
    11,616,637
    
    
    
    (117
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1
    )Issuance of shares as consideration for
Chelsfield plc stock received
    
    
    
    
    
    
    
    
    
    
    54,263
    
    
    
    49,330
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    54,263Issuance of shares upon exercise of
warrants and stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    183,800
    
    
    
    2,635
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,637Issuance of shares as consideration for
investment in Borealis received
    
    
    
    
    
    
    
    
    
    
    4,300
    
    
    
    3,909
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,300Intrinsic value of stock option grant
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,011
    
    
    
    
    
    
    
    
    
    
    
    (6,011
    )
    
    
    
    
    
    
    Option expense for vested options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,214
    
    
    
    
    
    
    
    5,214Preferred and Common Stock dividends in
excess of available retained earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (579,378
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (579,378
    )Deemed equity contribution on repayment
of advances to parent
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22,113
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22,113Deemed distribution on acquisition of
151 Front Street
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (486
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (486
    )Treasury shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,646
    )
    
    
    
    
    
    
    
    
    
    
    (40
    )
    
    
    40
    
    
    
    
    
    
    
    Balance at December 31, 2002
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    1,500
    
    
    
    150,029,664
    
    
    $
    2,181,958
    
    
    $
    (285,482
    )
    
    $
    (40
    )
    
    $
    (3,593
    )
    
    $
    (16,078
    )
    
    $
    1,878,265Net Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    203,753
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    203,753Dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (125,666
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (125,666
    )Amortization of escrowed share grants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,598
    
    
    
    
    
    
    
    2,598Other comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,791
    )
    
    
    (4,791
    )Issuance of restricted stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3
    
    
    
    345,000
    
    
    
    3,785
    
    
    
    
    
    
    
    
    
    
    
    (3,788
    )
    
    
    
    
    
    
    Cancellation of restricted stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2
    )
    
    
    (233,000
    )
    
    
    (2,302
    )
    
    
    
    
    
    
    
    
    
    
    2,304
    
    
    
    
    
    
    
    Amortization of restricted stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    379
    
    
    
    
    
    
    
    379Issuance of shares upon exercise of
warrants and stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9
    
    
    
    877,256
    
    
    
    9,961
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,970Issuance of shares, ESPP
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    35,925
    
    
    
    445
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    445Intrinsic value option expense for
vested options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    402
    
    
    
    
    
    
    
    402Fair value option expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    652
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    652Forfeiture of stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (234
    )
    
    
    
    
    
    
    
    
    
    
    234
    
    
    
    
    
    
    
    Deemed equity contribution on repayment
of advances to parent
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (537
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (537
    )Treasury shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (14,365
    )
    
    
    
    
    
    
    
    
    
    
    (197
    )
    
    
    197
    
    
    
    
    
    
    
    
 See accompanying notes to the financial statements. F-8




---



##### Table of Contents



Trizec Properties, Inc.
    
    Consolidated Statements of Changes in Stockholders Equity (Continued)
 
 AccumulatedSeries B Convertible
    
    
    Class C Convertible
    
    
    
    
    
    
    
    
    
    
    Additional
    
    
    (Deficit)
    
    
    
    
    
    
    
    
    
    
    OtherPreferred Stock
    
    
    Preferred Stock
    
    
    Common Stock
    
    
    Paid In
    
    
    Retained
    
    
    Treasury
    
    
    Unearned
    
    
    Comprehensive$
    
    
    Shares
    
    
    $
    
    
    Shares
    
    
    $
    
    
    Shares
    
    
    Capital
    
    
    Earnings
    
    
    Stock
    
    
    Compensation
    
    
    Income (Loss)
    
    
    TotalBalance at December 31, 2003
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    1,510
    
    
    
    151,040,480
    
    
    $
    2,193,728
    
    
    $
    (207,395
    )
    
    $
    (237
    )
    
    $
    (1,267
    )
    
    $
    (20,869
    )
    
    $
    1,965,470Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    101,313
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    101,313Dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (126,883
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (126,883
    )Other comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,334
    
    
    
    1,334Cancellation of restricted stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (91
    )
    
    
    91
    
    
    
    
    
    
    
    Amortization of restricted stock and units
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,448
    
    
    
    
    
    
    
    
    
    
    
    221
    
    
    
    
    
    
    
    2,669Issuance of shares upon exercise of warrants and
stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10
    
    
    
    1,013,549
    
    
    
    12,802
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,812Issuance of shares, ESPP
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    92,431
    
    
    
    1,331
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,332Intrinsic value option expense for vested options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    103
    
    
    
    
    
    
    
    103Fair value option expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,200
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,200Forfeiture of stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (54
    )
    
    
    
    
    
    
    
    
    
    
    54
    
    
    
    
    
    
    
    Amortization of outperformance plan
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    90
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    90Treasury shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13,603
    )
    
    
    
    
    
    
    
    
    
    
    (87
    )
    
    
    
    
    
    
    
    
    
    
    (87
    )Balance at December 31, 2004
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    1,521
    
    
    
    152,132,857
    
    
    $
    2,211,545
    
    
    $
    (232,965
    )
    
    $
    (415
    )
    
    $
    (798
    )
    
    $
    (19,535
    )
    
    $
    1,959,353
 See accompanying notes to the financial statements. F-9




---



##### Table of Contents



Trizec Properties, Inc.
    
    Consolidated Statements of Cash Flows
 
 For the years ended December 31$ in thousands
    
    2004
    
    
    2003
    
    
    2002Cash Flows from Operating ActivitiesNet income (loss)
    
    $
    101,313
    
    
    $
    203,753
    
    
    $
    (187,917
    )Adjustments to reconcile net income (loss) to net cash provided
by operating activities:(Income) loss from unconsolidated real estate joint
ventures including provision for loss on investments
($58,880 for 2002)
    
    
    (15,243
    )
    
    
    (23,336
    )
    
    
    47,631Distributions from unconsolidated real estate joint ventures
    
    
    15,243
    
    
    
    21,660
    
    
    
    Depreciation and amortization expense (including
discontinued operations)
    
    
    166,008
    
    
    
    186,056
    
    
    
    175,889Amortization of financing costs
    
    
    7,293
    
    
    
    9,464
    
    
    
    8,355Amortization of value of acquired operating leases to
rental revenue
    
    
    (949
    )
    
    
    
    
    
    
    Provision for bad debt
    
    
    4,845
    
    
    
    14,336
    
    
    
    12,222Gain on disposition of real estate (including discontinued
operations)
    
    
    (132,866
    )
    
    
    (70,185
    )
    
    
    (7,930
    )Minority interest
    
    
    1,834
    
    
    
    1,626
    
    
    
    (1,766
    )Derivative gain
    
    
    (1,073
    )
    
    
    
    
    
    
    Amortization of equity compensation
    
    
    2,759
    
    
    
    2,977
    
    
    
    3,865Provision for loss on real estate
    
    
    121,737
    
    
    
    18,164
    
    
    
    199,455Loss on and provision for loss on investment
    
    
    14,558
    
    
    
    15,491
    
    
    
    60,784Foreign currency exchange gain
    
    
    (3,340
    )
    
    
    
    
    
    
    Loss (gain) on early debt retirement
    
    
    7,032
    
    
    
    (2,262
    )
    
    
    Compensation charge for net settlement of warrants
    
    
    
    
    
    
    2,080
    
    
    
    Lawsuit settlement
    
    
    (94
    )
    
    
    (26,659
    )
    
    
    Stock option grant expense
    
    
    1,303
    
    
    
    1,054
    
    
    
    5,214Reorganization recovery
    
    
    
    
    
    
    
    
    
    
    (3,260
    )Cumulative effect of a change in accounting principle
    
    
    
    
    
    
    3,845
    
    
    
    Changes in assets and liabilities:Escrows and restricted cash
    
    
    3,787
    
    
    
    4,637
    
    
    
    (17,160
    )Office tenant receivables
    
    
    (3,133
    )
    
    
    4,891
    
    
    
    (3,778
    )Other receivables
    
    
    9,142
    
    
    
    3,471
    
    
    
    7,374Deferred rent receivables
    
    
    (18,952
    )
    
    
    (28,336
    )
    
    
    (36,719
    )Prepaid expenses and other assets
    
    
    23,737
    
    
    
    (36,287
    )
    
    
    (28,108
    )Accounts payable, accrued liabilities and other liabilities
    
    
    (16,261
    )
    
    
    (56,790
    )
    
    
    (21,032
    )Net cash provided by operating activities
    
    
    288,680
    
    
    
    249,650
    
    
    
    213,119Cash Flows from Investing ActivitiesReal estate:Tenant improvements and capital expenditures
    
    
    (96,509
    )
    
    
    (88,844
    )
    
    
    (84,220
    )Tenant leasing costs
    
    
    (32,295
    )
    
    
    (26,341
    )
    
    
    (25,315
    )Acquisitions
    
    
    (493,428
    )
    
    
    
    
    
    
    (68,517
    )Dispositions
    
    
    959,868
    
    
    
    573,713
    
    
    
    148,974Development expenditures
    
    
    
    
    
    
    (903
    )
    
    
    (74,405
    )Redemption of minority interest units
    
    
    (499
    )
    
    
    
    
    
    
    (118
    )Disposition of investments
    
    
    
    
    
    
    
    
    
    
    80,423Payment of minority interest
    
    
    (4,660
    )
    
    
    
    
    
    
    Contribution from minority interest
    
    
    1,011
    
    
    
    
    
    
    
    Cash from consolidation of joint venture
    
    
    
    
    
    
    9,659
    
    
    
    Escrows and restricted cash
    
    
    14,031
    
    
    
    (30,701
    )
    
    
    (1,458
    )Escrows and restricted cash from consolidation of joint venture
    
    
    
    
    
    
    2,594
    
    
    
    Unconsolidated real estate joint ventures:Investments
    
    
    (49,708
    )
    
    
    (27,062
    )
    
    
    (11,861
    )Distributions
    
    
    238,308
    
    
    
    
    
    
    
    19,121Net cash provided by (used in) investing activities
    
    
    536,119
    
    
    
    412,115
    
    
    
    (17,376
    )
 See accompanying notes to the financial statements. F-10




---



##### Table of Contents



Trizec Properties, Inc.
    
    Consolidated Statements of Cash Flows (Continued)
 
 For the years ended December 31$ in thousands
    
    2004
    
    
    2003
    
    
    2002Cash Flows from Financing ActivitiesMortgage debt and other loans:Property financing
    
    
    120,000
    
    
    
    85,862
    
    
    
    189,169Principal repayments
    
    
    (882,297
    )
    
    
    (191,197
    )
    
    
    (161,822
    )Repaid on dispositions
    
    
    (279,827
    )
    
    
    (307,702
    )
    
    
    (8,842
    )Draws on credit line
    
    
    811,250
    
    
    
    160,100
    
    
    
    375,000Paydowns on credit line
    
    
    (661,250
    )
    
    
    (250,100
    )
    
    
    (285,000
    )Acquisition financing
    
    
    286,500
    
    
    
    
    
    
    
    4,000Development financing
    
    
    
    
    
    
    
    
    
    
    70,552Financing expenditures
    
    
    (10,909
    )
    
    
    (2,481
    )
    
    
    (10,421
    )Escrows and restricted cash
    
    
    (28,704
    )
    
    
    
    
    
    
    Settlement of forward rate contract
    
    
    (3,767
    )
    
    
    (3,437
    )
    
    
    Settlement of swap agreements
    
    
    1,073Net advance from parent company and affiliates
    
    
    
    
    
    
    
    
    
    
    77,746Issuance of common stock
    
    
    14,144
    
    
    
    8,335
    
    
    
    2,637Distribution of additional paid in capital
    
    
    
    
    
    
    
    
    
    
    (486
    )Dividends
    
    
    (126,046
    )
    
    
    (94,099
    )
    
    
    (683,457
    )Net cash used in financing activities
    
    
    (759,833
    )
    
    
    (594,719
    )
    
    
    (430,924
    )Net Increase (Decrease) in Cash and Cash Equivalents
    
    
    64,966
    
    
    
    67,046
    
    
    
    (235,181
    )Cash and Cash Equivalents, beginning of year
    
    
    129,299
    
    
    
    62,253
    
    
    
    297,434Cash and Cash Equivalents, end of year
    
    $
    194,265
    
    
    $
    129,299
    
    
    $
    62,253
 See accompanying notes to the financial statements. F-11




---



##### Table of Contents



Trizec Properties, Inc.
    
    Consolidated Statements of Cash Flows (Continued)
 
 For the years ended December 31$ in thousands
    
    2004
    
    
    2003
    
    
    2002Supplemental cash flow disclosures:Cash paid (received) during the year for:Interest, inclusive of interest capitalized
    
    $
    154,131
    
    
    $
    176,417
    
    
    $
    188,240Interest capitalized to properties under development
    
    $
    
    
    
    $
    
    
    
    $
    2,145Taxes
    
    $
    (25,327
    )
    
    $
    55,378
    
    
    $
    5,359Write-off of accounts receivable
    
    $
    13,720
    
    
    $
    19,865
    
    
    $
    3,649Write-off of retired assets
    
    $
    41,671
    
    
    $
    48,962
    
    
    $
    47,268Non-cash investing and financing activities:Forgiveness of debt upon property disposition
    
    $
    1,237
    
    
    $
    
    
    
    $
    Forgiveness of debt upon conveyance of property
    
    $
    
    
    
    $
    17,896
    
    
    $
    Mortgage debt and other loans assumed by purchasers on
property dispositions
    
    $
    41,106
    
    
    $
    25,594
    
    
    $
    Mortgage debt assumed upon obtaining control of joint venture
investment
    
    $
    
    
    
    $
    
    
    
    $
    105,555Dividends payable on common stock, special voting stock and
Class  convertible preferred stock
    
    $
    32,407
    
    
    $
    31,567
    
    
    $
    Non-cash issuance of restricted stock
    
    $
    
    
    
    $
    3,788
    
    
    $
    Non-cash issuance of Class C convertible preferred stock in
exchange for other assets
    
    $
    
    
    
    $
    
    
    
    $
    355,190Non-cash settlement of advance from parent in exchange for
common stock of TREHI
    
    $
    
    
    
    $
    
    
    
    $
    236,619Non-cash retirement of advance to parent in exchange for
other assets
    
    $
    
    
    
    $
    
    
    
    $
    35,000Transfer of joint venture interest to real estate upon
obtaining control
    
    $
    
    
    
    $
    
    
    
    $
    13,514Changes in accounts due to non-cash contribution into an
unconsolidated real estate joint venture:Investment in unconsolidated real estate joint ventures
    
    $
    48,000
    
    
    $
    
    
    
    $
    Real estate
    
    
    (48,000
    )
    
    
    
    
    
    
    Changes in accounts due to basis differential adjustment in
connection with non-cash contribution to an unconsolidated
real estate joint venture:Investment in unconsolidated real estate joint ventures
    
    $
    5,148
    
    
    $
    
    
    
    $
    Deferred rent receivables, net
    
    
    (1,768
    )
    
    
    
    
    
    
    Deferred charges, net
    
    
    (1,195
    )
    
    
    
    
    
    
    Prepaid expenses and other assets
    
    
    (2,185
    )
    
    
    
    
    
    
    
 See accompanying notes to the financial statements. F-12




---



##### Table of Contents



Trizec Properties, Inc.
    
    Consolidated Statements of Cash Flows (Continued)
 
 For the years ended December 31$ in thousands
    
    2004
    
    
    2003
    
    
    2002In conjunction with the property and land acquisitions,
the following assets and liabilities were assumed:Purchase of real estate
    
    $
    496,254
    
    
    $
    
    
    
    $
    148,615Accrued operating expenses and real estate taxes
    
    
    (1,353
    )
    
    
    
    
    
    
    Other accrued liabilities
    
    
    (1,473
    )
    
    
    
    
    
    
    (932
    )Mortgage debt and other loans
    
    
    
    
    
    
    
    
    
    
    (79,166
    )Acquisition of real estate
    
    $
    493,428
    
    
    $
    
    
    
    $
    68,517Assets and liabilities from consolidation of joint venture:Net investment in real estate
    
    $
    
    
    
    $
    84,696
    
    
    $
    Other receivables
    
    
    
    
    
    
    2,140
    
    
    
    Prepaid expenses and other assets
    
    
    
    
    
    
    2,918
    
    
    
    Mortgage debt
    
    
    
    
    
    
    (81,517
    )
    
    
    Other accrued liabilities
    
    
    
    
    
    
    (3,274
    )
    
    
    Minority interest
    
    
    
    
    
    
    (4,868
    )
    
    
    
 See accompanying notes to the financial statements. F-13




---



##### Table of Contents



Notes to the Financial Statements
$ in thousands, except share and per share amounts 
  1.
    ORGANIZATION AND DESCRIPTION OF THE BUSINESSOrganizationTrizec Properties, Inc. (Trizec Properties or the Corporation, formerly known as
TrizecHahn (USA) Corporation) is a corporation organized under the laws of the State of
Delaware and is approximately 40% indirectly owned by Trizec Canada Inc. Effective January
1, 2001, Trizec Properties elected to be taxed as a real estate investment trust (REIT)
pursuant to Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the
Code). On February 14, 2002, the amended registration statement on Form 10 of Trizec
Properties was declared effective by the Securities and Exchange Commission and,
accordingly, Trizec Properties became subject to the reporting requirements of the
Securities Exchange Act of 1934, as amended. Trizec Properties was a substantially
wholly-owned subsidiary of TrizecHahn Corporation (TrizecHahn), an indirect whollyowned
subsidiary of Trizec Canada Inc. A plan of arrangement (the Reorganization) was approved
by the TrizecHahn shareholders on April 23, 2002 and on May 8, 2002, the effective date of
the Reorganization, the common stock of Trizec Properties commenced trading on the New York
Stock Exchange.On December 22, 2004, Trizec Properties completed the reorganization of its operating
structure by converting to an umbrella partnership real estate investment trust, or UPREIT,
structure (the UPREIT Conversion). In connection with the UPREIT Conversion, the
Corporation formed a new operating entity, Trizec Holdings Operating LLC, a Delaware limited
liability company (the Operating Company), and entered into a contribution agreement and
an assignment and assumption agreement with the Operating Company pursuant to which the
Corporation contributed substantially all of its assets to the Operating Company in exchange
for (a) a combination of common units, special voting units and Series F convertible units
of limited liability company interest in the Operating Company and (b) the assumption by the
Operating Company of substantially all of the Corporations liabilities. The Corporation
now conducts and intends to continue to conduct its business, and owns and intends to
continue to own substantially all of its assets, through the Operating Company. As the sole
managing member of the Operating Company, the Corporation generally has the exclusive power
under the limited liability company agreement to manage and conduct the business of the
Operating Company, subject to certain limited approval and voting rights of other members
that may be admitted in the future. Currently, the Operating Company is wholly owned by the
Corporation.The accompanying financial statements include, on a consolidated basis (as of December 31,
2004 and 2003 and for the years ended December 31, 2004 and 2003) and a combined
consolidated basis (for the year ended December 31, 2002), the U.S. assets of TrizecHahn,
substantially all of which are owned and operated by Trizec Properties and Trizec R&E
Holdings, LLC (TREHI, formerly known as Trizec R&E Holdings, Inc. and TrizecHahn
Developments Inc.), TrizecHahns two primary U.S. operating and development companies prior
to March 14, 2002. As described in Note 17, on March 14, 2002, TREHI was contributed to
Trizec Properties. Prior to March 14, 2002, TREHI was a wholly-owned subsidiary of
TrizecHahn. Accordingly, the organization presented in the accompanying financial
statements was not a legal entity for the entire year ended December 31, 2002.The Corporation operated as a separate stand-alone entity prior to the Reorganization date
and, as such, no additional expenses incurred by TrizecHahn or its related entities were, in
managements view, necessary to be allocated to the Corporation for the period prior to the
Reorganization. However, the financial results prior to the Reorganization are not
necessarily indicative of future operating results and no adjustments were made to reflect
possible incremental changes to the cost structure as a result of the Reorganization. The
incremental charges will include, but are not limited to, additional senior management
compensation expense to supplement the existing senior management team and internal and
external public company corporate compliance costs.Trizec Properties is a self-managed, publicly traded REIT headquartered in Chicago,
Illinois. At December 31, 2004, the Corporation had ownership interests in and managed a
portfolio of 52 office properties concentrated in the metropolitan areas of seven major U.S.
cities, comprising approximately 37.3 million square feet (unaudited), or approximately 33.8
million square feet (unaudited) including its pro rata economic
ownership interests in
unconsolidated real estate joint ventures. At December 31, 2004, the occupancy of the
Corporations 52 office properties was approximately 89.3% (unaudited), or
approximately 89.5% (unaudited) including its pro rata economic ownership interests in
unconsolidated real estate joint ventures. F-14




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Notes to the Financial Statements
$ in thousands, except share and per share amounts 
  2.
    SIGNIFICANT ACCOUNTING POLICIESBasis of PresentationThe accompanying financial statements as of December 31, 2004 and 2003, and for the years
ended December 31, 2004 and 2003 include the accounts and operating results of Trizec
Properties and all of its subsidiaries. The accompanying financial statements for the year
ended December 31, 2002 include the combined accounts of Trizec Properties, TREHI and all
subsidiaries. Prior to the contribution of TREHI to Trizec Properties, both Trizec
Properties and TREHI were indirect wholly owned subsidiaries under the common control of
TrizecHahn. All significant intercompany transactions have been eliminated.For presentation purposes, the Corporation refers to and describes the accompanying
financial statements for the year ended December 31, 2002 as consolidated.Assets that were transferred at the date of the Reorganization are reflected in the
accompanying financial statements and have been presented using TrizecHahns historical cost
basis.The Corporation consolidates certain entities in which it owns less than a 100% equity
interest if it is deemed to be the primary beneficiary in a variable interest entity
(VIE), as defined in Financial Accounting Standards Board Interpretation No. 46R,
Consolidation of Variable Interest Entities  an interpretation of ARB 51 (FIN No. 46R).
The Corporation also consolidates entities in which it has a controlling direct or indirect
voting interest. The equity method of accounting is applied to entities in which the
Corporation does not have a controlling direct or indirect voting interest, but can exercise
influence over the entity with respect to its operations and major decisions. The cost
method of accounting is applied to entities when (i) the Corporations investment is minimal
(typically less than 5%) and (ii) the Corporations investment is passive.Accounting EstimatesThe preparation of financial statements in accordance with accounting principles generally
accepted in the United States of America requires management to make estimates and
assumptions that affect the reported 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 amounts will differ
from those estimates used in the preparation of these financial statements.Real EstateRental properties are recorded at cost, less accumulated depreciation. Depreciation of
rental properties acquired prior to the adoption of Statement of Financial Accounting
Standards No. 141, Business Combinations (SFAS No. 141) is calculated using the
straight-line method over periods not exceeding a 40-year estimated life, subject to the
terms of any respective ground leases. Tenant improvements are deferred and amortized on a
straight-line basis over the shorter of the economic life or the term of the respective
lease.Maintenance and repair costs are expensed against operations as incurred. Planned major
maintenance activities (for example: roof replacement and the replacement of heating,
ventilation, air conditioning and other building systems), significant building
improvements, replacements and major renovations, all of which improve or extend the useful
life of the properties, are capitalized to rental properties and amortized over their
estimated useful lives.Furniture, equipment and certain improvements are depreciated on a straight-line basis over
periods of up to 10 years. F-15




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Notes to the Financial Statements
$ in thousands, except share and per share amounts 
  2.
    SIGNIFICANT ACCOUNTING POLICIES, continuedReal Estate, continuedIn accordance with SFAS No. 141, the Corporation allocates the purchase price of real estate
to land, building, tenant improvements and, if determined to be material, intangibles, such
as the value of above, below and at-market leases, origination costs associated with the
in-place leases, and the value of tenant relationships, if any. The Corporation depreciates
the amount allocated to building and other intangible assets over their estimated useful
lives, which generally range from one to 40 years. The values of the above and below market
leases are amortized and recorded as either an increase (in the case of below market leases)
or a decrease (in the case of above market leases) to rental income over the remaining term
of the associated lease. The value associated with in-place leases and tenant relationships
is amortized over the expected term of the relationship, which includes an estimate of
probability of the lease renewal, and its estimated term. If a tenant vacates its space
prior to the contractual termination of the lease and no rental payments are to be made on
the lease, any unamortized balance of the related intangible will be written off. Tenant
improvements and lease origination costs are amortized as an expense over the remaining life
of the lease (or charged against earnings if the lease is terminated prior to its
contractual expiration date).In accordance with SFAS No. 141, the Corporation performs the following procedures for
properties it acquires:  1)
    estimate the value of the property as if vacant as of the acquisition date;2)
    allocate the fair value of the property among land, site improvement, building,
and equipment and determine the associated asset life for each;3)
    estimate the fair value of the tenant improvements and calculate the associated
asset life;4)
    allocate the value of the above and below market leases to the intangible
assets and determine the associated life of the above/below market leases;5)
    allocate the value of the lease origination costs to the intangible assets and
calculate the associated asset life;6)
    calculate the intangible value to the in-place leases and the associated life
of these assets;7)
    calculate the value and associated life of the tenant relationships, if any;
and8)
    allocate the remaining value (if any) to goodwill and allocate to the purchase
price.  Properties under development consist of rental properties under construction and are
recorded at cost, reduced for impairment losses where appropriate. Properties are
classified as under development until the property is substantially completed and available
for occupancy, at which time such properties are classified as rental properties and
depreciation commences. The cost of properties under development includes costs incurred in
connection with their acquisition, development and construction. Such costs consist of all
direct costs including interest on general and specific debt and other direct expenses.If events or circumstances indicate that the carrying value of a rental property, a rental
property under development, or a property held for development may be impaired, a
recoverability analysis is performed based on estimated undiscounted future cash flows to be
generated from property operations and its projected disposition. If the analysis indicates
that the carrying value is not recoverable from such future cash flows, the property is
written down to estimated fair value and an impairment loss is recognized. F-16




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Notes to the Financial Statements
$ in thousands, except share and per share amounts 
  2.
    SIGNIFICANT ACCOUNTING POLICIES, continuedReal Estate, continuedPursuant to the provisions of Statement of Financial Accounting Standards No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS No. 144),
properties held for disposition are carried at the lower of their carrying values (i.e.,
cost less accumulated depreciation and any impairment loss recognized, where applicable) or
estimated fair values less costs to sell. Estimated fair value is determined based on
managements estimate of amounts that would be realized if the property were offered for
sale in the ordinary course of business assuming a reasonable sales period and under normal
market conditions. Carrying values are reassessed at each balance sheet date. Implicit in
managements assessment of fair values are estimates of future rental and other income
levels for the properties and their estimated disposal dates. Due to the significant
uncertainty in determining fair value, actual proceeds realized on the ultimate sale of
these properties will differ from estimates and such differences could be material.
Depreciation ceases once a property is classified as held for disposition.Revenue RecognitionThe Corporation has retained substantially all of the benefits and risks of ownership of its
rental properties and, therefore, accounts for leases with its tenants as operating leases.
Rental revenues include minimum rents and recoveries of operating expenses and property
taxes. Recoveries of operating expenses and property taxes are recognized in the period the
expenses are incurred.The Corporation reports minimum rental revenue on a straight-line basis, whereby the known
amount of cash to be received under a lease is recognized into income evenly over the term
of the respective lease. The amount by which straight-line rental revenue exceeds minimum
rents collected in accordance with the lease agreements is included in deferred rent
receivables. When a property is acquired, the term of existing leases is considered to
commence as of the acquisition date for purposes of this calculation. The impact of the
straight-line adjustment increased rental revenue by approximately $16,394, $22,604 and
$25,910 for the years ended December 31, 2004, 2003 and 2002, respectively.Certain tenants are required to pay overage rents based on sales over a stated base amount
during the lease year. The Corporation recognizes overage rents only when each tenants
actual sales exceed the stated base amount.Parking and other revenue includes income from parking spaces leased to tenants, income from
tenants for additional services provided by the Corporation and income from tenants for
early lease termination.Revenue is recognized on payments received from tenants for early lease terminations after
the Corporation determines that all the necessary criteria have been met in accordance with
Securities Exchange Commissions Staff Accounting Bulletin No. 101, Revenue Recognition in
Financial Statements.The Corporation provides an allowance for doubtful accounts on a specific identification
basis representing that portion of tenant, other and deferred rent receivables which are
estimated to be uncollectible. Such allowances are reviewed periodically based upon the
recovery experience of the Corporation.The Corporation recognizes property sales in accordance with Statement of Financial
Accounting Standards No. 66, Accounting for Sales of Real Estate. The Corporation
generally records the sales of operating properties using the full accrual method at closing
when the earnings process is deemed to be complete. Sales not qualifying for full
recognition at the time of sale are accounted for under other appropriate deferral methods.Deferred revenue in respect of building telecommunication and service provider license
agreements is recognized to income over the effective term of the license agreements. If a
license agreement is terminated early, any remaining unamortized balance is recognized in
income at that time. F-17




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Notes to the Financial Statements
$ in thousands, except share and per share amounts 
  2.
    SIGNIFICANT ACCOUNTING POLICIES, continuedInvestmentsInvestments in joint ventures in which the Corporation does not have a controlling direct or
indirect voting interest, but can exercise significant influence over the entity with
respect to its operations and major decisions, are accounted for using the equity method of
accounting whereby the cost of an investment is adjusted for the Corporations share of
equity in net income or loss from the date of acquisition and reduced by distributions
received. The income or loss of each entity is allocated in accordance with the provision
of the applicable operating agreements. The allocation provisions in these agreements may
differ from the ownership interest held by each investor. Differences between the carrying
amount of the Corporations investment in the respective entities and the Corporations
share of the underlying equity of such unconsolidated entities are amortized over the
respective lives of the underlying assets, as applicable.Investments in which the Corporations interest is minimal (typically less than 5%) and
passive are accounted for by the cost method of accounting. Income is recognized only to
the extent of dividends or cash received.The carrying value of investments which the Corporation determines to have an impairment in
value considered to be other than temporary are written down to their estimated realizable
value.Marketable equity securities are accounted for in accordance with Statement of Financial
Accounting Standards No. 115, Accounting for Certain Investments in Debt and Equity
Securities (SFAS No. 115). Unrealized gains and losses on marketable equity securities
that are designated as available-for-sale are included in accumulated other comprehensive
(loss) income.Investments in securities of non-publicly traded companies are recorded at cost as they are
not considered marketable under SFAS No. 115. The equity securities which relate to
building telecommunication and service provider license agreements and other non-publicly
traded investments are included in prepaid expenses and other assets.Mortgages receivable collateralized by real estate are carried at cost. The Corporation
reviews, on a regular basis but not less than annually, or when events or circumstances
occur, its mortgages receivable for impairment. Impairment is recognized when the carrying
values of the mortgages receivable will not be recovered either as a result of the inability
of the underlying assets performance to meet the contractual debt service terms of the
underlying debt or the fair values of the collateral assets are insufficient to cover the
obligations and encumbrances, including the carrying values of the mortgages receivable, in
a sale between unrelated parties in the normal course of business. When a mortgage is
considered impaired, an impairment charge is measured based on the present value of the
expected future cash flows discounted at the effective rate of the mortgage or if the cash
flows cannot be predicted with reasonable reliability, then the impaired mortgage is valued
at the fair value of the underlying collateral. Interest income is generally recognized
based on the terms and conditions of the mortgages receivable. Interest income ceases to be
recognized when the underlying assets do not meet the contractual terms of the mortgages
receivable, and are delinquent for a 90 day period. At such time interest income is
generally recognized on a cash basis as payments are received.Income TaxesThe Corporation determined that it would elect to be taxed as a REIT pursuant to Sections
856 through 860 of the Internal Revenue Code of 1986 as amended, commencing in 2001. In
general, a corporation that distributes at least 90% of its REIT taxable ordinary income to
its shareholders in any taxable year, and complies with certain other requirements (relating
primarily to its organization, the nature of its assets, the sources of its revenues and
ownership rules) is not subject to United States federal income taxation to the extent of
the income which it distributes. However, the Corporation is still subject to state and
local income taxes and to federal income tax on its undistributed income. The Corporation
believes that it meets the qualifications for REIT status as of December 31, 2004, 2003, and
2002, and distributed 100% of its REIT taxable income to its shareholders for those years.
The Corporation has also apportioned to its
stockholders 100% of its alternative minimum tax (AMT) adjustments. As a result, no
provision has F-18




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Notes to the Financial Statements
$ in thousands, except share and per share amounts 
  2.
    SIGNIFICANT ACCOUNTING POLICIES, continuedIncome Taxes, continuedbeen made in the consolidated financial statements for federal income taxes for REIT
purposes for the years ended December 31, 2004, 2003, and 2002 in respect of the
Corporation, other than built-in gain tax, as discussed below.If the Corporation fails to qualify as a REIT in any taxable year, it will be subject to
federal income tax (including any applicable AMT) on its taxable income at regular corporate
rates. For the years ended December 31, 2004, 2003 and 2002, the Corporation had net
operating loss carryforwards of approximately $10,927, $45,099 and $49,537, respectively and AMT credits
of approximately $23,537, $21,411 and $21,080, respectively. A valuation allowance fully offsets these
amounts and as a result no deferred tax assets have been established.In connection with its election to be taxed as a REIT, the Corporation also elected to be
subject to the built-in gain (BIG) rules. Under these rules, taxes may be payable at the
time and to the extent that the net unrealized gains on the Corporations assets at the date
of conversion to REIT status are recognized in taxable dispositions of such assets in the
ten-year period following conversion. For the years ended December 31, 2004, 2003 and 2002,
the Corporation incurred BIG taxes of approximately $7,101, $1,139, and $144 respectively, which were all
paid on an AMT basis.Taxable income from the Corporations taxable REIT subsidiaries (TRS) is subject to
federal, state and local income taxes. TRS deferred income taxes, where applicable, are
accounted for using the asset and liability method. Under this method, deferred income
taxes are recognized for temporary differences between the financial reporting basis of
assets and liabilities and their respective tax basis and for operating loss and tax credit
carryforwards based on enacted tax rates expected to be in effect when such amounts are
realized or settled. However, deferred tax assets are recognized only to the extent that it
is more likely than not that they will be realized based on consideration of available
evidence, including tax planning strategies and other factors. For the years ended December
31, 2004, 2003 and 2002, the Corporations TRS had net operating loss carryforwards of
approximately $7,480, $6,937 and $5,623. A valuation allowance fully offsets these amounts and, as a
result, no deferred tax assets have been established.Cash and Cash EquivalentsCash and cash equivalents consist of currency on hand, demand deposits with financial
institutions, and short-term highly-liquid investments with an original maturity of 90 days
or less.Escrows and Restricted CashEscrows consist primarily of amounts held by lenders to provide for future property tax
expenditures and tenant improvements. In addition, during the years 2004 and 2003, escrows
included net proceeds, intended to be reinvested, from sale of real estate assets intended
to qualify for tax deferred gain recognition under Section 1031 of the Code. Restricted
cash represents amounts committed for various utility deposits and security deposits.
Certain of these amounts may be reduced upon the fulfillment of specific obligations.Deferred ChargesDeferred charges include deferred finance and leasing costs. Costs incurred to obtain
financing are capitalized and amortized into interest expense on a straight-line basis,
which approximates the effective yield method, over the term of the related debt.All direct and indirect leasing costs, including a portion of estimated internal leasing
costs associated with the rental of properties, are capitalized and amortized over the term
of the related lease. Unamortized costs are charged to expense upon the early termination
of the related lease. F-19




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Notes to the Financial Statements
$ in thousands, except share and per share amounts 
  2.
    SIGNIFICANT ACCOUNTING POLICIES, continuedDerivative InstrumentsThe Corporation uses interest rate cap and swap contracts to manage risk from fluctuations
in interest rates as well as to hedge anticipated future financing transactions. The
Corporation believes these agreements are with counter-parties who are creditworthy
financial institutions.The Corporation adopted Statement of Financial Accounting Standards No. 133, Accounting for
Derivative Instruments and Hedging Activities as amended by Statement of Financial
Accounting Standards No. 137 and Statement of Financial Accounting Standards No. 138
(collectively, SFAS No. 133), as of January 1, 2001. SFAS No. 133 establishes accounting
and reporting standards for derivative instruments, including certain derivative instruments
embedded in other contracts, and hedging activities. It requires the recognition of all
derivative instruments as assets or liabilities in the Corporations consolidated balance
sheets at fair value. Changes in the fair value of derivative instruments that are not
designated as hedges, or that do not meet the hedge accounting criteria in SFAS No. 133, are
required to be reported through the statement of operations. For derivatives designated as
hedging instruments in qualifying cash flow hedges, the effective portion of changes in fair
value of the derivatives is recognized in other comprehensive income (loss) until the
forecasted transactions occur, and the ineffective portions are recognized in the statement
of operations. The Corporation assesses the effectiveness of each hedging relationship by
comparing the changes in cash flows of the derivative hedging instrument with the changes in
cash flows of the designated hedged item or transaction.Upon early termination of a derivative instrument that has been designated as a hedge, the
resulting gains or losses are deferred and amortized as adjustments to interest expense of
the related debt over the remaining period covered by the terminated instrument.Fair Value of Financial InstrumentsThe estimated fair value of mortgage debt and other loans is based on the values derived
using market interest rates of similar instruments. In determining estimates of the fair
value of financial instruments, the Corporation must make assumptions regarding current
market interest rates, considering the term of the instrument and its risk. Current market
interest rates are generally selected from a range of potentially acceptable rates and,
accordingly, other effective rates and/or fair values are possible.The carrying amounts of cash and cash equivalents, escrows and restricted cash, accounts
receivable, other assets, and accounts payable and accrued liabilities approximate their
fair value due to the short maturities of these financial instruments.Stock Based CompensationEffective July 1, 2003, the Corporation adopted Statement of Financial Accounting Standards
No. 123 Accounting for Stock Based Compensation (SFAS No. 123), as amended by Statement
of Financial Accounting Standards No. 148 Accounting for Stock Based Compensation 
Transition and Disclosure (SFAS No. 148). The Corporation is applying the fair value
recognition provisions of SFAS No. 123, as amended by SFAS No. 148, prospectively to all
employee stock options granted after December 31, 2002. For employee stock option grants
accounted for under SFAS No. 123, compensation cost is measured as the fair value of the
stock option at the date of grant. This compensation cost is expensed over the vesting
period. For employee stock options issued prior to January 1, 2003, the Corporation will
continue to account for stock-based compensation using the intrinsic value method prescribed
in Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees
(APB No. 25), and related interpretations. For employee stock option grants accounted for
under APB No. 25, compensation cost is measured as the excess, if any, of the fair value of
the Corporations common stock at the date of grant over the exercise price of the options
granted. This compensation cost, if any, is expensed over the vesting period. Except as
detailed in Note 19 with respect to employee stock options that were granted in connection
with the Reorganization, the Corporations policy is to grant options with an exercise price
equal to the fair value of the Corporations common stock at the date of grant. Stock
option grant expense
of approximately $1,303, $1,054 and $5,214 was recognized for the years ended December 31,
2004, 2003 and 2002, respectively. F-20




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Notes to the Financial Statements
$ in thousands, except share and per share amounts 
  2.
    SIGNIFICANT ACCOUNTING POLICIES, continuedStock Based Compensation, continuedThe following reconciles net income (loss) available to common stockholders to pro forma net
income (loss) available to common stockholders and presents reported earnings per share
(EPS) and pro forma EPS, in each case, as if the fair value based method of accounting for
employee stock options, as prescribed under the provisions of SFAS No. 123, had been applied
to all outstanding and unvested employee stock options. Compensation expense related to
restricted stock, restricted unit and restricted stock right awards is not presented in the
table below as such awards were issued under SFAS No. 123 and, therefore, compensation
expense related to these awards is already reflected in net income. For the years ended December 312004
    
    
    2003
    
    
    2002Net income (loss) available to common
stockholders, as reported
    
    $
    96,489
    
    
    $
    198,527
    
    
    $
    (188,783
    )Add back:Stock option grant expense, as reported
    
    
    1,303
    
    
    
    1,054
    
    
    
    5,214Deduct:Stock option expense, pro forma
    
    
    (1,705
    )
    
    
    (3,308
    )
    
    
    (11,791
    )Net income (loss) available to common
stockholders, pro forma
    
    $
    96,087
    
    
    $
    196,273
    
    
    $
    (195,360
    )Pro formaNet Income (Loss) Available to Common
Stockholders per Weighted Average Common
Share Outstanding:Basic, as reported
    
    $
    0.64
    
    
    $
    1.32
    
    
    $
    (1.26
    )Basic, pro forma
    
    $
    0.63
    
    
    $
    1.31
    
    
    $
    (1.31
    )Diluted, as reported
    
    $
    0.63
    
    
    $
    1.32
    
    
    $
    (1.26
    )Diluted, pro forma
    
    $
    0.63
    
    
    $
    1.30
    
    
    $
    (1.31
    )
  The pro forma stock option expense presented above may not be indicative of future periods
expense due to the effects of the options issued in connection with the Reorganization.Recent Accounting PronouncementsIn December 2004, the FASB issued SFAS No. 123 (Revised 2004), Share-Based Payment (SFAS
No. 123(R)). SFAS No. 123(R) is a revision of SFAS No. 123, Accounting for Stock-Based
Compensation (SFAS No. 123) and also supercedes APB Opinion No. 25, Accounting for Stock
Issued to Employees (APB No. 25) and its related implementation guidance. SFAS No. 123(R)
requires that compensation cost is measured as the fair value of the stock option at the
date of grant, eliminates the alternative to use the intrinsic value method of accounting
prescribed in APB No. 25, and clarifies and expands the guidance of SFAS No. 123 in several
areas. SFAS No. 123(R) is effective as of the beginning of the first interim or annual
reporting period that begins after June 15, 2005. SFAS No. 123(R) applies to all awards
granted, modified, repurchased, or cancelled after the effective date and the cumulative
effect of initially applying SFAS No. 123(R), if any, is to be recognized as of the required
effective date. The Corporation will adopt SFAS No. 123(R) commencing as of July 1, 2005
using the modified prospective application method. The Corporation does not expect the
requirements of SFAS No. 123(R) to have a material impact on its results of operations,
financial position or liquidity. F-21




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Notes to the Financial Statements
$ in thousands, except share and per share amounts 
  2.
    SIGNIFICANT ACCOUNTING POLICIES, continuedEarnings Per ShareBasic and diluted earnings per share are computed by dividing the net income (loss)
available to common stockholders by the weighted average common shares and diluted weighted
average common shares outstanding for each period. After giving effect to the
Reorganization on May 8, 2002, the Corporation had 149,849,246 shares of common stock
outstanding. Pursuant to Statement of Financial Accounting Standards No. 128, Earnings Per
Share, in determining the weighted average number of common shares outstanding, it is
assumed that these shares had been issued at the beginning of the period for the year ended
December 31, 2002. Additionally, the employee stock options and warrants issued in
connection with the Reorganization have been assumed to be issued at the beginning of the
period for the year ended December 31, 2002.ReclassificationsCertain reclassifications of prior period amounts have been made to the consolidated balance
sheet and consolidated statements of operations and cash flows. These reclassifications
have been made in the financial statements to conform to the 2004 presentation. These
reclassifications have not changed the Corporations financial position as of December 31,
2003 or consolidated results of operations or cash flows for the years ended December 31,
2003 or 2002.3.
    REAL ESTATEThe Corporations investment in real estate is comprised of: December 312004
    
    
    2003Properties:Held for the long term, net
    
    $
    3,626,551
    
    
    $
    4,048,178Held for disposition, net
    
    
    94,568
    
    
    
    225,137$
    3,721,119
    
    
    $
    4,273,315
 Properties  Held for the Long Term December 312004
    
    
    2003Rental properties:Land
    
    $
    510,662
    
    
    $
    529,430Buildings and improvements
    
    
    3,399,132
    
    
    
    3,806,219Tenant improvements
    
    
    283,565
    
    
    
    301,160Furniture, fixtures and equipment
    
    
    9,469
    
    
    
    7,8114,202,828
    
    
    
    4,644,620Less: accumulated depreciation
    
    
    (600,707
    )
    
    
    (629,607
    )3,602,121
    
    
    
    4,015,013Properties held for development
    
    
    24,430
    
    
    
    33,165Properties held for the long term, net
    
    $
    3,626,551
    
    
    $
    4,048,178
 Properties  Held for Disposition December 312004
    
    
    2003Rental properties, net
    
    $
    94,568
    
    
    $
    212,178Properties held for development
    
    
    
    
    
    
    12,959Properties held for disposition, net
    
    $
    94,568
    
    
    $
    225,137
 F- 22




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##### Table of Contents



Notes to the Financial Statements
$ in thousands, except share and per share amounts 
  3.
    REAL ESTATE, continuedProperties  Held for Disposition, continuedProperties held for disposition include certain properties that the Corporation has decided
to dispose of in an orderly manner over a reasonable sales period.  (i)
    The table below summarizes the Corporations properties designated as held for
disposition subject to the transition rules of SFAS No. 144 and, accordingly, accounted
for pursuant to Statement of Financial Accounting Standards No. 121, Accounting for
the Impairment of Long-Lived Assets to be Disposed Of (SFAS No. 121). DateDate
    
    ReclassifiedDesignated as
    
    as Held forHeld for
    
    the Long
    
    Provision
    
    DateProperty
    
    Location
    
    Disposition
    
    Term
    
    Taken
    
    DisposedHanover Office Park
    
    Greenbelt, MD
    
    Dec-01
    
    
    
    $
    
    
    
    Jan-02Valley Industrial Park
    
    Seattle, WA
    
    Dec-01
    
    
    
    
    
    
    
    Feb-02Perimeter Woods
    
    Charlotte, NC
    
    Dec-01
    
    
    
    
    
    
    
    Apr-02Clybourn Center
    
    Chicago, IL
    
    Dec-01
    
    
    
    
    
    
    
    Jun-02Paseo Colorado
    
    Pasadena, CA
    
    Dec-01
    
    
    
    
    
    
    
    Jan-03Inner Belt
    
    Boston, MA
    
    Dec-01
    
    Sep-02
    
    
    
    
    
    Jun-03Desert Passage
    
    Las Vegas, NV
    
    Dec-01
    
    Sep-02
    
    
    57,024
    
    
    Dec-03Hollywood & Highland
  Retail
    
    Los Angeles, CA
    
    Dec-01
    
    Sep-02
    
    
    142,431
    
    
    Feb-04151 Front Street
    
    Toronto, ON
    
    Apr-02
    
    
    
    
    
    
    
    Jan-04
  In accordance with SFAS No. 121, the results of operations and gains or losses on
disposition for the six properties previously designated as held for disposition
subject to the transition rules of SFAS No. 144 and not reclassified as held for the
long term are included, for all periods presented, in the revenues and expenses of
the Corporation.The following summarizes the combined condensed results of operations, excluding any
gains or losses on disposition, of the six properties previously designated as held
for disposition subject to the transition rules of SFAS No. 144 and not reclassified
as held for the long term through the earlier of their respective disposition dates
or the years ended December 31, 2004, 2003 and 2002. For the years ended December 312004
    
    
    2003
    
    
    2002Total revenues
    
    $
    507
    
    
    $
    10,716
    
    
    $
    24,593Operating expenses
    
    
    (374
    )
    
    
    (4,739
    )
    
    
    (7,814
    )Property taxes
    
    
    (75
    )
    
    
    (1,732
    )
    
    
    (2,420
    )Depreciation and amortization
    
    
    
    
    
    
    
    
    
    
    (65
    )Interest and other income
    
    
    (68
    )
    
    
    8
    
    
    
    120Interest expense
    
    
    (100
    )
    
    
    (1,417
    )
    
    
    (4,115
    )(Loss) Income before gain on
disposition of real estate,
net
    
    $
    (110
    )
    
    $
    2,836
    
    
    $
    10,299
 F-23




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##### Table of Contents



Notes to the Financial Statements
$ in thousands, except share and per share amounts 
  3.
    REAL ESTATE, continuedProperties  Held for Disposition, continued  (ii)
    The table below summarizes the Corporations properties designated as held
for disposition pursuant to SFAS No. 144. DateDesignated asHeld for
    
    Provision
    
    DateProperty
    
    Location
    
    Disposition
    
    Taken
    
    DisposedPlaza West
    
    Bethesda, MD
    
    Jun-02
    
    $
    
    
    
    Jul-02McKinney Place
    
    Dallas, TX
    
    Sep-02
    
    
    
    
    
    Oct-02Warner Center
    
    Los Angeles, CA
    
    Sep-02
    
    
    
    
    
    Dec-02Goddard Corporate Park
    
    Lanham, MD
    
    Dec-02
    
    
    9,782
    
    
    Feb-03Rosslyn Gateway
    
    Arlington, VA
    
    Dec-02
    
    
    
    
    
    Mar-03Esperante Office Building
    
    W. Palm Beach, FL
    
    Mar-03
    
    
    
    
    
    Sep-03Clark Tower
    
    Memphis, TN
    
    Jun-03
    
    
    14,592
    
    
    Aug-03Minnesota Center
    
    Minneapolis, MN
    
    Sep-03
    
    
    3,572
    
    
    Oct-039800 La Cienega
    
    Los Angeles, CA
    
    Dec-03
    
    
    
    
    
    Nov-03Park Central II
    
    Dallas, TX
    
    Dec-03
    
    
    
    
    
    Dec-03Desert Passage
    
    Las Vegas, NV
    
    Dec-03
    
    
    57,024
    
    
    Dec-03Hollywood & Highland Retail
    
    Los Angeles,  CA
    
    Feb-04
    
    
    142,431
    
    
    Feb-04Hollywood & Highland Hotel
    
    Los Angeles, CA
    
    Feb-04
    
    
    
    
    
    Feb-041441 Main Street
    
    Columbia, SC
    
    Jun-04
    
    
    
    
    
    Jun-04St. Louis Place
    
    St. Louis, MO
    
    Jun-04
    
    
    
    
    
    Jun-04Borden Building
    
    Columbus, OH
    
    Jun-04
    
    
    22,095
    
    
    Jul-04Park Central I
    
    Dallas, TX
    
    Jun-04
    
    
    2,703
    
    
    Aug-041333 Main Street
    
    Columbia, SC
    
    Jun-04
    
    
    7,023
    
    
    Aug-043700 Bay Area Blvd.
    
    Houston, TX
    
    Jun-04
    
    
    
    
    
    Sep-04Lakeside Centre and New
Market Business Park
    
    Atlanta, GA
    
    Jun-04
    
    
    10,261
    
    
    Dec-04Bank of America-Columbia
    
    Columbia, SC
    
    Jun-04
    
    
    3,525
    
    
    Dec-04Williams Center I & II
    
    Tulsa, OK
    
    Jun-04
    
    
    23,051
    
    
    N/ACapital Center II & III
    
    Sacramento, CA
    
    Sep-04
    
    
    
    
    
    Sep-04Silver Spring Centre
    
    Silver Spring, MD
    
    Sep-04
    
    
    
    
    
    Nov-04Gateway Center
    
    Pittsburgh, PA
    
    Sep-04
    
    
    40,330
    
    
    Dec-04110 William Street
    
    New York, NY
    
    Sep-04
    
    
    
    
    
    Dec-04250 West Pratt Street
    
    Baltimore, MD
    
    Sep-04
    
    
    
    
    
    Dec-04Shoreline Square
    
    Long Beach, CA
    
    Sep-04
    
    
    
    
    
    N/A
  In accordance with SFAS No. 144, the results of operations and gains or losses on
disposition, if any, for the twenty-seven properties previously designated as held
for disposition and sold prior to December 31, 2004, for all periods presented,
have been reported as discontinued operations. In addition, in accordance with
SFAS No. 144, the results of operations of the two properties designated as held
for disposition and not sold, for all periods presented, have been reported as
discontinued operations.The following summarizes the combined condensed results of operations, excluding
any gains or losses on disposition, of the twenty-seven properties previously
designated as held for disposition and sold prior to December 31, 2004 and the two
properties designated as held for disposition and not sold, through the earlier of
their respective disposition dates or the years ended December 31, 2004, 2003 and
2002. F-24




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##### Table of Contents



Notes to the Financial Statements
$ in thousands, except share and per share amounts 
  3.
    REAL ESTATE, continuedProperties  Held for Disposition, continued For the years ended December 312004
    
    
    2003
    
    
    2002Total revenues
    
    $
    132,747
    
    
    $
    236,943
    
    
    $
    275,345Operating expenses
    
    
    (59,806
    )
    
    
    (112,431
    )
    
    
    (120,563
    )Property taxes
    
    
    (12,338
    )
    
    
    (19,876
    )
    
    
    (24,794
    )Depreciation and amortization
    
    
    (20,718
    )
    
    
    (50,068
    )
    
    
    (45,707
    )Provision for loss on
discontinued real estate
    
    
    (108,988
    )
    
    
    (18,164
    )
    
    
    (209,237
    )Interest and other income
    
    
    3,687
    
    
    
    1,132
    
    
    
    2,671Interest expense
    
    
    (13,552
    )
    
    
    (35,188
    )
    
    
    (45,015
    )(Loss) Income from
discontinued operations, net
of provision for loss on
discontinued real estate
    
    $
    (78,968
    )
    
    $
    2,348
    
    
    $
    (167,300
    )
  Acquisitions of Real Estate During the Year Ended December 31, 2004 NetDate
    
    
    
    
    
    Rentable
    
    
    PurchasePurchased
    
    Property
    
    Location
    
    Sq. Ft.
    
    
    Price(unaudited)August 27
    
    Bank of America Plaza
    
    Los Angeles, CA
    
    
    1,422,000
    
    
    $
    420,693November 12
    
    2001 M Street
    
    Washington, D.C.
    
    
    229,000
    
    
    
    75,561
    (1)$
    496,254
  (1)
    Value of acquired interest  In August 2004, the Corporation acquired Bank of America Plaza, located at 333 South Hope
Street, Los Angeles, California, from an unrelated third party for a net purchase price of
approximately $420,693. The acquisition was financed with two non-recourse mortgage loans
totaling approximately $242,000, bearing interest at an average fixed rate of 5.31% and
scheduled to mature in September 2014. The remainder of the purchase price was funded from
proceeds from the Corporations 2004 Unsecured Credit Facility (hereinafter defined).In November 2004, the Corporation entered into a joint venture, Trizec 2001 M Street
Holdings LLC, with an unrelated third party to purchase an interest in an entity that owns
2001 M Street. Trizec 2001 M Street Holdings LLC is owned 98% by the Corporation and 2% by
a third party. Trizec 2001 M Street Holdings LLC acquired such interest from an unrelated
third party valued at approximately $75,561 (see Note 5). The property is encumbered by a
non-recourse mortgage loan of approximately $44,500, bearing interest at a fixed rate of
5.25% and scheduled to mature in December 2014. The remainder of the purchase price was
funded with proceeds from the Corporations 2004 unsecured credit facility (hereinafter
defined).In accordance with SFAS No. 141, the Corporation allocated the net purchase price of Bank of
America Plaza and the value of the acquired interest in the entity that owns 2001 M Street
as follows: Bank of AmericaPlaza
    
    
    2001 M StreetLand
    
    $
    51,774
    
    
    $
    24,920Building and Improvements
    
    
    292,471
    
    
    
    46,763Chiller Plant
    
    
    11,151
    
    
    
    Tenant Improvements
    
    
    9,520
    
    
    
    1,501Leasing Commissions
    
    
    6,608
    
    
    
    1,049In-Place Lease Value at Market
    
    
    26,563
    
    
    
    6,390Tenant Relationship Value
    
    
    27,269
    
    
    
    5,792Above Market Lease Value
    
    
    5,477
    
    
    
    67Below Market Lease Value
    
    
    (10,140
    )
    
    
    (10,921
    )$
    420,693
    
    
    $
    75,561
 F-25




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##### Table of Contents



Notes to the Financial Statements
$ in thousands, except share and per share amounts 
  3.
    REAL ESTATE, continuedAcquisitions of Real Estate During the Year Ended December 31, 2002 RentableDate Acquired
    
    Property
    
    Location
    
    Sq.ft.
    
    
    Purchase Price(unaudited)April 12
    
    151 Front Street
    
    Toronto, ON
    
    
    272,000
    
    
    $
    29,115June 3
    
    10 and 120 Riverside 
acquisition of       ground lease and other obligations
    
    Chicago, IL
    
    
    
    
    
    
    7,150June 4
    
    Ernst & Young Plaza
    
    Los Angeles, CA
    
    
    1,252,000
    
    
    
    112,350$
    148,615
  In June 2002, the Corporation acquired the remaining 75% interest in Ernst & Young Plaza that
it did not already own for a net purchase price of approximately $112,350. The Corporation
assumed approximately $79,166 in debt related to the 75% interest acquired. The Corporation
has consolidated the results of operations of Ernst & Young Plaza beginning in June 2002.In April 2002, the Corporation acquired 151 Front Street from TrizecHahn, a related party,
and, accordingly, the acquisition has been recorded at TrizecHahns historical cost basis.
This property was sold in January 2004.In accordance with SFAS No. 141, the Corporation allocated the net purchase price of Ernst &
Young Plaza as follows: E&Y PlazaLand
    
    $
    25,500Building and Improvements
    
    
    63,744Tenant Improvements
    
    
    14,327Leasing Commissions
    
    
    2,239In-Place Lease Value at Market
    
    
    8,963Above Market Lease Value
    
    
    3,554Below Market Lease Value
    
    
    (5,977
    )$
    112,350
  Ground Lease ObligationsProperties carried at a net book value of approximately $364,286 and $544,004 at December 31,
2004 and 2003, respectively, are situated on land subject to lease agreements expiring in the
years 2021 to 2086. Minimum land rental payments for each of the next five years and
thereafter are as follows: Years ending December 31, 2005
    
    $
    1,1192006
    
    
    1,1192007
    
    
    1,2462008
    
    
    1,2552009
    
    
    1,257Thereafter
    
    
    223,076$
    229,072
  Additional rent is payable under certain land lease agreements based on rental revenue or net
cash flows from properties. Ground lease payments of approximately $2,990, $2,961 and $2,862
are included in operating expenses for the years ended December 31, 2004, 2003 and 2002,
respectively. F-26




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##### Table of Contents



Notes to the Financial Statements
$ in thousands, except share and per share amounts 
  3.
    REAL ESTATE, continuedFuture Minimum RentsFuture minimum rentals, excluding operating expense recoveries, to be received under
non-cancelable tenant leases in effect at December 31, 2004 for each of the next five years
and thereafter, are as follows: Years ending December 31, 2005
    
    $
    496,8352006
    
    
    452,4242007
    
    
    410,7402008
    
    
    365,0442009
    
    
    304,259Thereafter
    
    
    871,685$
    2,900,987
  4.
    UNCONSOLIDATED REAL ESTATE JOINT VENTURESThe Corporation participates in unconsolidated real estate joint ventures in various
operating properties which are accounted for using the equity method. In most instances,
these projects are managed by the Corporation.The following is a summary of the Corporations ownership in unconsolidated real estate joint
ventures at December 31, 2004 and December 31, 2003: Legal Interest(1)December 31Entity
    
    Property and Location
    
    2004
    
    
    2003Marina Airport Building, Ltd.
    
    Marina Towers, Los Angeles, CA
    
    
    50
    %
    
    
    50
    %Dresser Cullen Venture
    
    Kellogg, Brown & Root Tower, Houston, TX
    
    
    50
    %
    
    
    50
    %Main Street Partners, L.P.
    
    Bank One Center, Dallas, TX
    
    
    50
    %
    
    
    50
    %1114 TrizecHahn-Swig, L.L.C.
    
    The Grace Building, New York, NY

    
    
    50
    %
    
    
    50
    %1411 TrizecHahn-Swig, L.L.C.
    
    1411 Broadway, New York, NY
    
    
    50
    %
    
    
    50
    %1460 Leasehold TrizecHahn Swig L.L.C./1460 Fee TrizecHahn Swig L.L.C.
    
    1460 Broadway, New York, NY
    
    
    50
    %
    
    
    50
    %JBG/TrizecHahn Waterview Venture L.L.C.
    
    Waterview Development, Arlington, VA(2) (3)
    
    
    
    %
    
    
    80
    %Waterview L.P.
    
    Waterview Development, Arlington, VA(3)
    
    
    25
    %
    
    
    
    %Trizec Plaza of the Americas, L.P.
    
    Plaza of the Americas, Dallas, TX(4)
    
    
    50
    %
    
    
    
    %
  (1)
    The amounts shown above approximate the Corporations legal ownership interest
as of December 31, 2004 and December 31, 2003. Cash flows from operations, capital
transactions and net income are allocated to the joint venture partners in accordance with
their respective partnership agreements. The Corporations share of these items is subject to
change based on, among other things, the operations of the property and the timing and amount
of capital transactions.  (2)
    This property was not consolidated as the minority member had substantive
participating rights that afforded the minority member equal voting rights on all major
decisions as well as final approval of the operating and capital expenditures budgets.  (3)
    On April 30, 2004, the members of the JBG/TrizecHahn Waterview Venture
L.L.C. sold the property to a newly formed joint venture in which the Corporation acquired a
25% interest. See discussion below.  (4)
    On May 18, 2004, the Corporation sold a 50% interest in Plaza of the
Americas and formed Trizec Plaza of the Americas L.P. joint venture. See discussion below.  Unconsolidated Real Estate Joint Venture Financial InformationThe following represents combined summarized financial information of the Corporations
unconsolidated real estate joint ventures. The individual joint ventures that contribute
more than 10% of the Corporations consolidated net income have been itemized in the tables
below. F-27




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##### Table of Contents



Notes to the Financial Statements
$ in thousands, except share and per share amounts 
  4.
    UNCONSOLIDATED REAL ESTATE JOINT VENTURES, continuedUnconsolidated Real Estate Joint Venture Financial Information, continued December 31,
    
    
    December 31,2004
    
    
    2003AssetsReal estate, net
    
    $
    522,249
    
    
    $
    426,450Other assets
    
    
    213,965
    
    
    
    146,057Total assets
    
    $
    736,214
    
    
    $
    572,507LiabilitiesMortgage debt and other loans
    
    
    850,908
    
    
    
    452,609Other liabilities
    
    
    33,646
    
    
    
    23,248Partners equity
    
    
    (148,340
    )
    
    
    96,650Total liabilities and equity
    
    $
    736,214
    
    
    $
    572,507Corporations share of equity
    
    $
    (91,486
    )
    
    $
    55,582Net excess of cost of
investments over the net book value
of underlying assets
    
    
    167,939
    
    
    
    175,603Reclassification of
distributions in excess of
investment in an unconsolidated
joint venture
    
    
    43,188
    
    
    
    Carrying value of
Corporations investment in
unconsolidated real estate joint
ventures
    
    $
    119,641
    
    
    $
    231,185Corporations share of mortgage debt
    
    $
    420,160
    
    
    $
    232,712
 For the Years Ended December 312004
    
    
    2003
    
    
    2002HollywoodNew
    
    
    &
    
    
    OtherCenter
    
    
    Highland
    
    
    JointTotal
    
    
    Total
    
    
    One
    
    
    Hotel
    
    
    Ventures
    
    
    TotalTotal Revenues
    
    $
    203,674
    
    
    $
    213,113
    
    
    $
    9,362
    
    
    $
    14,266
    
    
    $
    187,780
    
    
    $
    211,408ExpensesOperating and other
    
    
    99,220
    
    
    
    100,575
    
    
    
    4,180
    
    
    
    12,239
    
    
    
    88,519
    
    
    
    104,938Depreciation and amortization
    
    
    24,985
    
    
    
    26,914
    
    
    
    1,931
    
    
    
    1,090
    
    
    
    25,544
    
    
    
    28,565Provision for loss on real estate
    
    
    
    
    
    
    
    
    
    
    20,010
    
    
    
    42,423
    
    
    
    
    
    
    
    62,433Total expenses
    
    
    124,205
    
    
    
    127,489
    
    
    
    26,121
    
    
    
    55,752
    
    
    
    114,063
    
    
    
    195,936Other income (expense)Interest and other income
    
    
    843
    
    
    
    602
    
    
    
    27
    
    
    
    16
    
    
    
    1,081
    
    
    
    1,124(Loss) Gain on early debt
retirement
    
    
    (10,263
    )
    
    
    4,125
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Interest expense
    
    
    (42,606
    )
    
    
    (37,927
    )
    
    
    (2,030
    )
    
    
    (6,165
    )
    
    
    (36,277
    )
    
    
    (44,472
    )Total other expense
    
    
    (52,026
    )
    
    
    (33,200
    )
    
    
    (2,003
    )
    
    
    (6,149
    )
    
    
    (35,196
    )
    
    
    (43,348
    )Income (loss) before gain on
disposition of real estate, net
    
    
    27,443
    
    
    
    52,424
    
    
    
    (18,762
    )
    
    
    (47,635
    )
    
    
    38,521
    
    
    
    (27,876
    )Gain on disposition of real estate
    
    
    1,080
    
    
    
    1,136
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income (loss)
    
    $
    28,523
    
    
    $
    53,560
    
    
    $
    (18,762
    )
    
    $
    (47,635
    )
    
    $
    38,521
    
    
    $
    (27,876
    )Corporations share of net income
(loss)
    
    $
    15,243
    
    
    $
    23,336
    
    
    $
    (19,118
    )
    
    $
    (44,685
    )
    
    $
    16,172
    
    
    $
    (47,631
    )
 F-28




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##### Table of Contents



Notes to the Financial Statements
$ in thousands, except share and per share amounts 
 4. UNCONSOLIDATED REAL ESTATE JOINT VENTURES, continued Unconsolidated Real Estate Joint Venture Financial Information, continued The joint ventures that owned New Center One and Hollywood & Highland Hotel have recorded
provision for losses to the carrying values of these properties. The Corporations share of
these provisions for loss was approximately $58,880 for the year ended December 31, 2002. At December 31, 2002, a non-recourse loan secured by New Center One in Detroit, Michigan,
which was held in a joint venture, was in default. On February 25, 2003, the joint venture
sold the property and repaid the loan. Contributions, Advances and Distributions During the year ended December 31, 2004, the Corporation made cash and non-cash
contributions and advances to its unconsolidated real estate joint ventures in the aggregate
amount of approximately $97,708, and received distributions from its unconsolidated real
estate joint ventures in the aggregate amount of approximately $253,551. Included in
distributions received from the Corporations unconsolidated real estate joint ventures is
approximately $167,165 of distributions received from the Swig Joint Ventures (defined
hereinafter) due to proceeds received from the refinancing of its mortgage loan. This
distribution has exceeded the Corporations cumulative investment in the Swig Joint Ventures
by approximately $43,188, which has been recorded in other accrued liabilities as the
Corporation is committed to provide financial support to the Swig Joint Ventures in the
future. During the year ended December 31, 2003, the Corporation made contributions and
advances to its unconsolidated real estate joint ventures in the aggregate amount of
approximately $27,062, and received distributions from its unconsolidated real estate joint
ventures in the aggregate amount of approximately $21,660. 1114 TrizecHahn-Swig, L.L.C. and 1411 TrizecHahn-Swig, L.L.C. In March 2004, 1114 TrizecHahn-Swig, L.L.C. and 1411 TrizecHahn-Swig, L.L.C., joint ventures
through which the Corporation owns approximately 50% interests in The Grace Building and
1411 Broadway, respectively, (together, the Swig Joint Ventures) repaid and retired a
mortgage loan with a principal balance of approximately $39,843 that bore interest at a rate
of LIBOR plus 3.5%. The Corporation loaned its joint venture partner approximately $20,030
in conjunction with the debt pay off and retirement. The loan to the Corporations joint
venture partner bore interest at a rate of LIBOR plus 2.75%, was payable in full on the
earlier of March 18, 2005 or the date of the refinancing of the joint ventures remaining
mortgage loan, and was collateralized by the joint venture partners investment in the joint
venture. The Corporations loan to its joint venture partner was repaid in full and retired
in June 2004 in conjunction with the refinancing discussed below. In June 2004, the Swig Joint Ventures refinanced an approximately $206,868 mortgage loan,
which bore interest at a fixed rate of 7.50% and was scheduled to mature in March 2005, with
two mortgage loans totaling approximately $600,000, bearing interest at an average fixed
rate of 5.52% and scheduled to mature in July 2014. In May 2004, the Swig Joint Ventures
entered into forward rate swap agreements to lock in a maximum effective interest rate on
the refinanced mortgage loans. The forward rate swap agreements were entered into at
current market rates and, therefore, had no initial cost. Upon closing of the refinanced
mortgage loans, the Corporation advanced approximately $11,540 to the Swig Joint Ventures
and the Swig Joint Ventures paid approximately $11,540 to settle the forward rate swap
agreements, which has been recorded in other comprehensive income. The approximately
$11,540 paid on settlement of the forward rate swap agreements will be amortized into
interest expense over the life of the mortgage loan. The Swig Joint Ventures repaid the
approximately $11,540 advance in the third quarter of 2004. The Swig Joint Ventures
recorded a loss on early debt retirement of approximately $10,150 comprised primarily of the
write-off of unamortized deferred financing costs and a yield maintenance fee. F-29




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Notes to the Financial Statements
$ in thousands, except share and per share amounts 
 4. UNCONSOLIDATED REAL ESTATE JOINT VENTURES, continued Trizec Plaza of the Americas, L.P. In May 2004, the Corporation entered into a joint venture agreement with a third
party to own and operate Plaza of the Americas, located in Dallas, Texas. Prior to the
formation of Trizec Plaza of the Americas, L.P., Plaza of the Americas was 100% owned
by the Corporation. In conjunction with the formation of Trizec Plaza of the Americas,
L.P., the Corporation sold a 50% interest in Plaza of the Americas to the third party
for a net sales price of approximately $47,794, resulting in a net loss on disposition
of real estate of approximately $20,836. In conjunction with the sale of its 50%
interest in Plaza of the Americas, the Corporation determined that the fair value of
Plaza of the Americas, based upon the contract price, was less than the Corporations
carrying value of such asset. Accordingly, the Corporation recognized a provision for
loss on real estate of approximately $12,749 related to its 50% interest in Plaza of
the Americas to reduce the carrying value of such property to its fair value. In June 2004, Trizec Plaza of the Americas, L.P. entered into an approximately
$68,000 mortgage loan, bearing interest at a fixed rate of 5.12% and maturing in July
2011. Plaza of the Americas was removed from a pool of cross-collateralized loans that
are part of a 2001 commercial mortgage-backed securities financing. JBG/TrizecHahn Waterview Venture L.L.C. In April 2004, the JBG/TrizecHahn Waterview Venture L.L.C., a joint venture through which
the Corporation owned an 80% interest in the Waterview Development, located in Arlington,
Virginia, sold the property, a mixed-use development land parcel, to a newly formed joint
venture, Waterview L.P. in which the Corporation acquired a 25% interest. The
JBG/TrizecHahn Waterview Venture L.L.C. recognized a gain on disposition of real estate of
approximately $1,080 in conjunction with such sale. Main Street Partners, L.P. As part of the periodic assessment of the Corporations real estate investments relative to
both the extent to which such investments are consistent with the Corporations long-term
real estate investment objectives and performance and prospects of each investment, the
Corporation determined in the second quarter of 2004 that its investment in Main Street
Partners, L.P., a joint venture through which the Corporation owns a 50% interest in Bank
One Center in Dallas, Texas, was impaired. As a result of the reassessment of the
anticipated future operating results of such non-core investment, the Corporation determined
that its investment in such joint venture was impaired. The Corporation recognized a
provision for loss on investment of approximately $14,558 to reduce the carrying value of
such investment to its fair value. In addition, in August 2004, Main Street Partners, L.P.
repaid and retired the mezzanine loan on Bank One Center. The mezzanine loan had a
principal balance of approximately $19,102, bore interest at a variable rate of 11.90% and
was scheduled to mature in December 2004. Main Street Partners, L.P. recorded a loss on
early debt retirement of approximately $113 comprised of the write off of unamortized
deferred financing costs. 5. CONSOLIDATED REAL ESTATE JOINT VENTURES Although the financial condition and results of operations of the following joint ventures
are consolidated, there are unaffiliated parties that own an interest in these joint
ventures. The Corporation consolidates these joint ventures because it owns at least 50% of
the respective ownership entities and controls major decisions. The following is a summary
of the Corporations ownership in consolidated real estate joint ventures at December 31,
2004 and December 31, 2003: F-30




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##### Table of Contents



Notes to the Financial Statements
$ in thousands, except share and per share amounts 
 5. CONSOLIDATED REAL ESTATE JOINT VENTURES, continued Legal Interest(1)December 31Entity
    
    Property and Location
    
    
    2004
    
    
    
    2003TrizecHahn Hollywood Hotel L.L.C.
    
    Hollywood & Highland Hotel,
Los Angeles, CA(2)
    
    
    
    
    
    
    91.5
    %TrizecHahn
1065 Avenue of the Americas L.L.C.
    
    1065 Avenue of the Americas, New York, NY
    
    
    99.0
    %
    
    
    99.0
    %Trizec 2001 M Street Holdings L.L.C.
    
    2001 M Street, Washington, D.C.
    
    
    98.0
    %
    
    
    TrizecHahn Mid-Atlantic Limited
Partnership
    
    Various
    
    
    98.0
    %
    
    
    98.0
    %
   (1)
 (2)  This property was consolidated as of December 31, 2003 in accordance with FIN
No. 46R. The Corporation sold this property on February 27, 2004. Hollywood & Highland Hotel The Corporation applied the provisions of FIN No. 46R for all entities as of December 31,
2003. The Corporation determined that the Hollywood & Highland Hotel was a VIE in which the
Corporation was the primary beneficiary. The Hollywood & Highland Hotel is a 640-room hotel located in Los Angeles, California. At
December 31, 2003, the Corporation had a 91.5% ownership and economic interest in an entity
that owned the Hollywood & Highland Hotel. Prior to December 31, 2003, the Corporation
accounted for the Hollywood & Highland Hotel as an investment in an unconsolidated real
estate joint venture. On December 31, 2003, the Corporation consolidated the Hollywood &
Highland Hotel. The net impact of the consolidation of the Hollywood & Highland Hotel was
an increase in the Corporations consolidated assets of approximately $93,979, representing
the net book value of the real estate, cash and cash equivalents and other assets. In
addition, the Corporation consolidated approximately $81,517 of mortgage debt related to the
Hollywood & Highland Hotel. The Corporations maximum exposure to loss was approximately
$81,517, representing the amount of mortgage debt outstanding at December 31, 2003. Upon
consolidation of the Hollywood & Highland Hotel, the Corporation recognized a cumulative
effect of a change in accounting principle of approximately $3,845 representing the minority
members share of the Hollywood & Highland Hotels non-recoverable cumulative losses. On
February 27, 2004, the Corporation sold the Hollywood & Highland Hotel (see Note 15). Trizec 2001 M Street Holdings L.L.C. In November 2004, the Corporation entered into a joint venture, Trizec 2001 M Street
Holdings L.L.C., with an unrelated third party to purchase an interest in an entity that owns
2001 M Street. Trizec 2001 M Street Holdings L.L.C. is owned 98% by the Corporation and 2% by
a third party. Trizec 2001 M Street Holdings L.L.C. acquired such interest from an unrelated
third party valued at approximately $75,561. The property is encumbered by a non-recourse
mortgage loan of approximately $44,500, bearing interest at a fixed rate of 5.25% and
scheduled to mature in December 2014. The remainder of the purchase price was funded with
proceeds from the Corporations 2004 unsecured credit facility (hereinafter defined). TrizecHahn Mid-Atlantic Limited Partnership The Corporation owns 100% of the general partner units and 98% of the limited partnership
units (Units) at December 31, 2004 and 2003 of TrizecHahn Mid-Atlantic Limited
Partnership. The remaining Units are held by unrelated limited partners who have a right
to redeem their Units before 2012, at a redemption value equal to the fair market value of
an equivalent number of shares of common stock of Trizec Properties. Upon redemption of
the Units, the TrizecHahn Mid-Atlantic Limited Partnership is required to pay cash to the
holder in an amount equal to the redemption value, or the Corporation has the option of F-31




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##### Table of Contents



Notes to the Financial Statements
$ in thousands, except share and per share amounts 
 5. CONSOLIDATED REAL ESTATE JOINT VENTURES, continued TrizecHahn Mid-Atlantic Limited Partnership, continued triggering the effective issuance of freely tradable shares of common stock of Trizec
Properties. The redemption value of the outstanding Units is approximately $4,543 and
$4,166 at December 31, 2004 and 2003, respectively. The change in redemption value is
recorded as an allocation to minority interest in the consolidated statements of operations. 6. INVESTMENT IN SEARS TOWER Mortgage Receivable On December 3, 1997, the Corporation purchased a subordinated mortgage collateralized by the
Sears Tower in Chicago, Illinois, for approximately $70,000 (the Subordinated Mortgage)
and became the residual beneficiary of the trust that holds title to the Sears Tower. The
outstanding balance of the Subordinated Mortgage, including accrued interest, was
approximately $294.0 million at acquisition. At December 31, 2002, the Sears Tower was held
by a trust established for the benefit of an affiliate of Sears, Roebuck and Co. The trust
had a scheduled termination date of January 1, 2003, at which time the assets of the trust,
subject to a participating first mortgage, were to be distributed to the Corporation as the
residual beneficiary. The Subordinated Mortgage was subordinate to an existing non-recourse
participating first mortgage (the First Mortgage). The Subordinated Mortgage held by the Corporation, which was to mature in July 2010, had
certain participation rights to the extent of available cash flow. Since acquisition, the
Corporation had not been accruing interest income on the Subordinated Mortgage due to the
uncertainty regarding ultimate collectibility of accrued interest. In 2002, a loss
provision of approximately $48,292 was recorded to reduce the carrying value of the
Corporations investment in the Sears Tower to its estimated fair value of approximately
$23,600. On August 28, 2003, the Corporation sold its interest in the Subordinated Mortgage to
Metropolitan Life Insurance Company, the holder of the First Mortgage, for approximately
$9,000. During the third quarter of 2003, the Corporation recognized a loss on the sale of
its interest in the Subordinated Mortgage to Metropolitan Life Insurance Company of
approximately $15,491. In addition, the Corporation recognized a tax benefit related to
this transaction of approximately $12,000 which is included in benefit (provision) for
income and other corporate taxes. 7. DEFERRED CHARGES Deferred charges consist of the following: December 312004
    
    
    2003Leasing costs
    
    $
    147,697
    
    
    $
    154,266Financing costs
    
    
    31,950
    
    
    
    43,639179,647
    
    
    
    197,905Less: Accumulated amortization
    
    
    (68,948
    )
    
    
    (76,063
    )$
    110,699
    
    
    $
    121,842
 F-32




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##### Table of Contents



Notes to the Financial Statements
$ in thousands, except share and per share amounts 
 8. MORTGAGE DEBT, OTHER LOANS AND CREDIT FACILITY Properties Held for theLong Term
    
    
    Other Loans
    
    
    Total DebtWeighted average
    
    
    
    
    
    
    Weighted average
    
    
    
    
    
    
    Weighted average
    
    
    
    
    
    
    Weighted averageinterest rates at
    
    
    Dec. 31,
    
    
    interest rates at
    
    
    Dec. 31,
    
    
    interest rates at
    
    
    Dec. 31,
    
    
    interest rates at
    
    
    Dec. 31,Dec. 31, 2004
    
    
    2004
    
    
    Dec. 31, 2004
    
    
    2004
    
    
    Dec 31, 2004
    
    
    2004
    
    
    Dec. 31, 2003
    
    
    2003Collateralized
property loans:At fixed
rates
    
    
    6.31
    %
    
    $
    2,024,055
    
    
    
    
    
    
    $
    
    
    
    
    6.31
    %
    
    $
    2,024,055
    
    
    
    5.99

    %
    
    $
    2,548,340At variable
rates (subject
to interest rate
caps)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3.91
    %
    
    
    120,000At variable
rates
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4.20
    %
    
    
    137,893Other
loansAt fixed
rates
    
    
    5.84
    %
    
    
    16,723
    
    
    
    6.75
    %
    
    
    28,504
    
    
    
    6.43
    %
    
    
    45,227
    
    
    
    4.32
    %
    
    
    60,7426.31
    %
    
    $
    2,040,778
    
    
    
    6.75
    %
    
    $
    28,504
    
    
    
    6.32
    %
    
    $
    2,069,282
    
    
    
    5.78
    %
    
    $
    2,866,975Unsecured credit
facility
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4.76
    %
    
    
    150,000
    
    
    
    
    
    
    
    6.21
    %
    
    $
    2,219,282
    
    
    
    5.78
    %
    
    $
    2,866,975
 Certain of the Corporations loans are cross-collateralized with, or subject to
cross-default or cross-acceleration provisions in, other loans. Collateralized Property Loans Property loans are collateralized by deeds of trust or mortgages on properties and mature on
various dates between January 2005 and December 2014. At December 31, 2004 and 2003, the Corporation had outstanding interest rate swap contracts
in the notional amount of $150,000, bearing a weighted average interest rate of 6.02% and
maturing on March 15, 2008. In addition, at December 31, 2003, the Corporation had
outstanding interest rate swap contracts in the notional amount of $500,000, bearing a
weighted average interest rate of 2.61% plus various spreads and maturing between July 1,
2005 and January 1, 2006. For the year ended December 31, 2004, the Corporation recorded
unrealized derivative gains, related to interest rate swap contracts, through other
comprehensive income of approximately $13,187. For the years ended December 31, 2003 and
2002, the Corporation recorded unrealized derivative losses, related to interest rate swap
contracts, through other comprehensive income of approximately $4,256 and $15,229,
respectively. Due to the pay off and retirement of certain amounts of variable rate debt
during the year ended December 31, 2004, and due to the anticipated pay off and retirement
of certain variable rate debt in the future, the Corporation de-designated interest rate
swap contracts in the notional amount of $375,000. In December 2004, the Corporation
settled $500,000 of interest rate swap contracts. As a result of the settlement of
$500,000 of interest rate swap contracts, the Corporation realized a derivative gain of
approximately $1,073 for the year ended December 31, 2004. At December 31, 2004, the debt
hedged by the remaining interest rate swap contracts was classified as fixed in the above
table. The aggregate cost to unwind these interest rate swap contracts was approximately
$9,239 and $20,325 at December 31, 2004 and 2003, respectively. The Corporation expects to
amortize approximately $5,477 from other comprehensive income (loss) into earnings within
the next twelve months. In June 2002, the Corporation entered into interest rate cap contracts that expired in June
2004 on $120,000 of its variable rate debt, which limited the underlying LIBOR interest rate
on such debt to 6.50%. At December 31, 2003, the fair value of these interest rate cap
contracts was nominal. In addition, and not reclassified in the table above at December 31,
2003, the Corporation entered into an interest rate cap contract that expired in April 2004
on approximately $584,700 of its variable rate debt, which limited the underlying LIBOR rate
on such debt to 11.01%. At December 31, 2003, the fair value of this interest rate cap
contract was nominal. In April 2004, the Corporation elected to exercise the first of two one-year extensions on
approximately $272,720 of its variable interest rate commercial mortgage pass-through
certificates, thereby extending the maturity date of such variable interest rate commercial
mortgage pass-through certificates to April 2005. In conjunction with such extension, the
Corporation entered into an interest rate cap agreement expiring on F-33




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##### Table of Contents



Notes to the Financial Statements
$ in thousands, except share and per share amounts 
 8. MORTGAGE DEBT, OTHER LOANS AND CREDIT FACILITY, continued Collateralized Property Loans, continued April 15, 2005 that limits the underlying LIBOR interest rate on the variable interest rate
commercial mortgage pass-through certificates to 8.93%. In August 2004, in conjunction with the acquisition of Bank of America Plaza, located at 333
Hope Street, Los Angeles, California, the Corporation entered into two non-recourse mortgage
loans totaling approximately $242,000, bearing interest at an average fixed rate of 5.31%
and scheduled to mature in September 2014. Principal repayments of debt outstanding at December 31, 2004 are due as follows: CollateralizedProperty Loans
    
    
    Other Loans
    
    
    TotalYears ending December 31, 2005
    
    $
    22,253
    
    
    $
    28,874
    
    
    $
    51,1272006
    
    
    429,286
    
    
    
    386
    
    
    
    429,6722007
    
    
    95,814
    
    
    
    272
    
    
    
    96,0862008
    
    
    512,347
    
    
    
    276
    
    
    
    512,6232009
    
    
    14,876
    
    
    
    295
    
    
    
    15,171Subsequent to 2009
    
    
    949,479
    
    
    
    15,124
    
    
    
    964,603$
    2,024,055
    
    
    $
    45,227
    
    
    $
    2,069,282
 The estimated fair value of the Corporations debt approximates its carrying value at
December 31, 2004, and 2003. Refinancing and Early Debt Retirement In January 2004, the Corporation refinanced the $120,000 mortgage loan on Ernst & Young
Plaza in Los Angeles, California, which bore interest at a variable rate of LIBOR plus 2.75%
and was scheduled to mature in June 2004, with a $120,000 mortgage loan bearing interest at
a fixed rate of 5.07% and scheduled to mature in February 2014. In December 2003, the
Corporation entered into forward rate swap agreements to lock in a maximum effective
interest rate on the refinanced mortgage loan. The forward rate swap agreements were
entered into at current market rates and, therefore, had no initial cost. Upon closing of
the refinanced mortgage loan, the Corporation paid approximately $3,767 in settlement of the
forward rate swap agreements, which has been recorded in other comprehensive income. The
approximately $3,767 paid on settlement of the forward rate swap agreements will be
amortized to interest expense over the life of the mortgage loan. In addition, the
Corporation recorded a loss on early debt retirement of approximately $343, comprised
primarily of the write-off of unamortized deferred financing costs. In February 2004, the Corporation paid off and retired the mortgage loan on Galleria Towers
in Dallas, Texas. The mortgage loan had a principal balance of approximately $133,490, bore
interest at a fixed rate of 6.79% and was scheduled to mature in May 2004. In conjunction
with the pay off and retirement of the mortgage loan, the Corporation recorded a loss on
early debt retirement of approximately $40, comprised primarily of the write-off of
unamortized deferred financing costs. In June 2004, the Corporation repaid the mortgage loan on 1065 Avenue of the Americas in New
York, New York. The mortgage loan had a principal balance of approximately $36,498, bore
interest at a fixed rate of 7.18% and was scheduled to mature in December 2004. F-34




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Notes to the Financial Statements
$ in thousands, except share and per share amounts 
 8. MORTGAGE DEBT, OTHER LOANS AND CREDIT FACILITY, continued Refinancing and Early Debt Retirement, continued In July 2004, the Corporation paid off and retired the mortgage loan on Newport Tower in
Jersey City, New Jersey. The mortgage loan had a principal balance of approximately
$102,810, bore interest at a fixed rate of 7.09% and had a maturity date of November 2004. In July 2004, the Corporation paid down approximately $444,149 of its variable rate
commercial mortgage pass-through certificates primarily by drawing on the 2004 Unsecured
Credit Facility (hereinafter defined). The variable interest rate commercial mortgage
pass-through certificates bore interest at a variable rate of LIBOR plus various spreads
between 0.289% and 0.529% and were scheduled to mature between 2006 and 2008. In
conjunction with the pay down of the variable interest rate commercial mortgage pass-through
certificates, the Corporation recorded a loss on early retirement of debt of approximately
$3,233, comprised of the write-off of unamortized deferred financing costs of approximately
$2,376 and a prepayment fee of approximately $857. In November 2004, the Corporation paid off and retired the mortgage loan on Bank of America
Plaza, in Columbia, South Carolina. The mortgage loan had a principal balance of
approximately $19,918, bore interest at a fixed rate of 6.90% and had a maturity date of
March 2005. The Corporation sold Bank of America Plaza in December 2004. In December 2004, in conjunction with the sale of 250 West Pratt Street, located in
Baltimore, Maryland, the Corporation and the lender of the mortgage loan collateralized by
such property, agreed to modify certain terms of the mortgage loan. The lender of the
mortgage loan agreed to release the property as collateral for the mortgage loan in
consideration of the establishment of an escrow, for the benefit of the lender, in the
amount of approximately $28,704. The escrow is comprised of funds to be used to repay the
full outstanding principal balance of the mortgage loan as well as interest payments through
January 3, 2005. On January 3, 2005, the funds held in escrow were released to the lender.
The escrow funds of approximately $28,704 are included in restricted cash on the
Corporations balance sheet at December 31, 2004. In conjunction with the sale of real estate during the year ended December 31, 2004, the
Corporation paid off approximately $279,827 of mortgage debt, resulting in a loss on early
debt retirement of approximately $2,027 comprised of the write-off of unamortized deferred
financing costs of approximately $608 and a prepayment penalty of approximately $2,656,
offset by the forgiveness of debt of approximately $1,237. During the first quarter of 2003, the lender for the Corporations remaining technology
property forwarded a notice of default related to debt service on the $17,896 construction
facility. On June 30, 2003, the Corporation conveyed title for such property to the lender
and was no longer obligated to the lender under the $17,896 construction facility. In
addition, the Corporation remitted approximately $483 to the lender in full satisfaction of
any amounts owed to the lender related to the construction facility. On June 30, 2003, the
Corporation recorded a gain on early debt retirement of approximately $3,619 related to this
transaction. This loan was not cross-defaulted to any other of the Corporations loans and
was scheduled to mature in October 2003. In June 2003, the Corporation refinanced the approximately $55,107 variable rate development
loan on One Alliance Center in Atlanta, Georgia, which was scheduled to mature in October
2003, with a $70,000, 4.78% fixed rate mortgage that matures in June 2013. In May 2003, the
Corporation, through a third party, arranged to set a maximum rate on this loan through a
forward rate agreement. Upon closing of this loan, the Corporation paid approximately
$3,437 in settlement of this forward rate agreement, which it has recorded in other
comprehensive income. The amount paid on settlement will be amortized into interest expense
over the life of the loan. In conjunction with the sale of real estate during the year ended December 31, 2003, the
Corporation paid off and retired approximately $307,702 of mortgage debt, resulting in a
loss on early debt retirement of approximately $1,357 comprised primarily of the write-off
of unamortized deferred financing costs. F-35




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##### Table of Contents



Notes to the Financial Statements
$ in thousands, except share and per share amounts 
 8. MORTGAGE DEBT, OTHER LOANS AND CREDIT FACILITY, continued Unsecured Credit Facility The Corporation entered into a three-year, $350,000 revolving credit facility (the 2001
Revolving Credit Facility) with a group of banks in the fourth quarter of 2001. In the

fourth quarter of 2002, the group of banks unanimously agreed to amend and restate the 2001
Revolving Credit Facility (the 2002 Revolving Credit Facility). Generally, in exchange
for the receipt of collateral, the group of banks agreed to provide more flexible financial
covenants than had been originally negotiated. In June 2004, the Corporation retired the
2002 Revolving Credit Facility and entered into a $750,000 unsecured credit facility with a
group of banks (the 2004 Unsecured Credit Facility). The 2004 Unsecured Credit Facility
consists of a $600,000 revolving component and a $150,000 term component, bears interest at
LIBOR plus a spread of 1.15% to 2.0% based on the Corporations total leverage, and matures
in June 2007. The financial covenants, as defined in the 2004 Unsecured Credit Facility,
include the quarterly requirements for the total leverage ratio not to exceed 65.0% during
year one, 62.5% during year two and 60.0% during year three; the requirement for the
interest coverage ratio to be greater than 2.0 times; the requirement for the fixed charge
coverage ratio to be greater than 1.5 times; and the requirement for net worth to be in
excess of $1.5 billion. The financial covenants also include a restriction on dividends or
distributions of more than 90% of the Corporations funds from operations (as defined in the
2004 Unsecured Credit Facility Agreement). If the Corporation is in default in respect of
its obligations under the 2004 Unsecured Credit Facility Agreement, dividends will be
limited to the amount necessary to maintain REIT status. The Corporation anticipated it
would not meet all requirements with respect to the dividend restriction covenant under the
2004 Unsecured Credit Facility Agreement for the nine months ended September 30, 2004 and
the year ended December 31, 2004. As such, the Corporation requested and received a waiver
from the lenders of the 2004 Unsecured Credit Facility which waives said requirements for
such covenant for the nine months ended September 30, 2004 and the year ended December 31,
2004. Other than noted, at December 31, 2004, the Corporation was in compliance with these
financial covenants. Certain conditions of the 2004 Unsecured Credit Facility may restrict
the amount eligible to be borrowed at any time. In conjunction with the retirement of the
2002 Revolving Credit Facility, the Corporation recorded a loss on early debt retirement of
approximately $1,389 comprised of the write-off of unamortized deferred financing costs. At December 31, 2004, the amount eligible to be borrowed under the Corporations 2004
Unsecured Credit Facility was approximately $484,928, of which $150,000 was drawn and
outstanding. At December 31, 2003, the amount eligible to be borrowed under the
Corporations 2002 Revolving Credit Facility was approximately $217,005, none of which was
drawn and outstanding. Limitations on Indebtedness The Corporation conducts its operations through various subsidiaries which are party to loan
agreements containing provisions that require the maintenance of financial ratios and impose
limitations on additional indebtedness and possible distributions in respect of capital
stock. Liability for Obligations of Partners The Corporation was contingently liable for certain obligations related to the Hollywood &
Highland Hotel, one of the Corporations consolidated real estate joint ventures. At
December 31, 2003, the Corporation had guaranteed or was otherwise contingently liable for
an approximate $74,000 mortgage loan that was scheduled to mature in April 2003. All of
the assets of the Hollywood & Highland Hotel were available for the purpose of satisfying
this obligation. In April 2003, the joint venture amended and restated this loan,
extending its maturity to April 2005. In addition, as part of the new agreement, the
Hollywood & Highland Hotel joint venture paid approximately $15,267 to reduce the
outstanding balance to approximately $78,000. The joint venture was also required to make
a further payment of approximately $4,000 in October 2003 and was required to make another
payment of approximately $4,000 in April 2004, so that the balance of the loan outstanding
in April 2004 would be approximately $70,000. In April 2004, the loan was to be subject to
a potential additional paydown based on a new appraisal. At December 31, 2002, the total
amount the Corporation had guaranteed or was otherwise contingently liable for was
approximately $100,867. This included approximately $93,267 related to the Hollywood &
Highland Hotel and approximately $7,600 related to the Corporations New Center One joint F-36




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##### Table of Contents



Notes to the Financial Statements
$ in thousands, except share and per share amounts 
 8. MORTGAGE DEBT, OTHER LOANS AND CREDIT FACILITY, continued Liability for Obligations of Partners, continued venture that was retired upon the sale of the property in the New Center One joint venture.
On February 27, 2004, the Corporation sold the Hollywood & Highland complex and is no
longer contingently liable for obligations related to the Hollywood & Highland Hotel. 9. REORGANIZATION COSTS AND RECOVERY Based on the strategic plan adopted at the end of 2000, the Corporation targeted general and
administrative expense savings from the benefits to be derived from both functional and
office location consolidations. As a result of a comprehensive review of its operations
during 2001 for this purpose, the Corporation initiated a reorganization plan to simplify
its management structure and centralize accounting, payroll and information services
functions at its headquarters in Chicago. The reorganization plan resulted in the
separation of approximately 150 employees, exclusive of any new hires, by the end of 2002. As a result of the completion of the reorganization and office centralization, during the
fourth quarter of 2002, the Corporation reviewed the remaining liability based on future
estimated expenditures and, accordingly, reduced its accrual for anticipated expenditures by
approximately $3,260. At December 31, 2004 and 2003, approximately $30 and $2,308,
respectively, was included in other accrued liabilities with respect to these liabilities. 10. PROVISION FOR LOSS ON REAL ESTATE In May 2004, the Corporation entered into a joint venture agreement with a third party to
own and operate Plaza of the Americas, located in Dallas, Texas. Prior to the formation of
Trizec Plaza of the Americas, L.P., Plaza of the Americas was 100% owned by the Corporation.
In conjunction with the formation of Trizec Plaza of the Americas, L.P., the Corporation
sold a 50% interest in Plaza of the Americas to the third party for a net sales price of
approximately $47,794, resulting in a net loss on disposition of real estate of
approximately $20,836. In conjunction with the sale of its 50% interest in Plaza of the
Americas, the Corporation determined that the fair value of Plaza of the Americas, based
upon the contract price, was less than the Corporations carrying value of such asset.
Accordingly, the Corporation recognized a provision for loss on real estate of approximately
$12,749 related to its 50% interest in Plaza of the Americas to reduce the carrying value of
such property to its fair value. 11. PROVISION FOR LOSS AND RECOVERY OF PROVISION FOR LOSS ON DISCONTINUED REAL ESTATE As part of the periodic assessment of the Corporations real estate properties relative to
both the extent to which such assets are consistent with the Corporations long-term real
estate investment objectives and the performance and prospects of each asset, the
Corporation determined in the second quarter of 2004 that its investments in seven real
estate properties were impaired. Given the Corporations strategy focused on owning core
real estate in its seven core markets, the Corporation reduced its anticipated recovery
period of certain of its remaining non-core assets. As a result of the reduction in the
anticipated holding period, together with a reassessment of the anticipated future operating
income of such non-core real estate properties and the effects of new competition and demand
for the properties, the Corporation determined that its investments in the Borden Building,
Park Central I, 1333 Main Street, Lakeside Centre, New Market Business Park, Bank of America
  Columbia and Williams Center I & II were impaired. In accordance with SFAS No. 144, the
Corporation recorded a provision for loss on discontinued real estate in the aggregate
amount of approximately $78,271 in the second quarter of 2004 to reduce the book value of
such non-core assets to their estimated fair values. During the third quarter of 2004, the
Corporation entered into agreements to sell Lakeside Centre, New Market Business Park and
Bank of America- Columbia at sales prices in excess of previous expectations. In accordance
with SFAS No. 144, the Corporation reduced its provision for loss on discontinued real
estate in the aggregate amount of F-37




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Notes to the Financial Statements
$ in thousands, except share and per share amounts 
 11. PROVISION FOR LOSS AND RECOVERY OF PROVISION FOR LOSS ON DISCONTINUED REAL ESTATE, continued approximately $9,613 to increase the book values of Lakeside Centre, New Market Business
Park and Bank of America- Columbia to their fair values based upon established contract
prices, less estimated costs to sell. During the second quarter of 2004, internal valuations indicated that the value of Gateway
Center, located in Pittsburgh, Pennsylvania, had declined. Accordingly, a provision for
loss on real estate in the amount of approximately $40,330 was recorded in the second
quarter of 2004. Gateway Center was encumbered by a mortgage loan in the principal amount
of approximately $39,838. In August 2004, the Corporation received a notice of default
related to the debt service from the lender of the mortgage loan on Gateway Center. In
September 2004, the Corporation and the lender of the mortgage loan on Gateway Center agreed
to modify certain terms of such mortgage loan primarily to reduce the yield maintenance
penalty upon prepayment of the mortgage loan, as well as to allow the lender of the mortgage
loan to participate in sales proceeds in excess of certain debt repayment and debt repayment
costs upon the sale of Gateway Center. In conjunction with this loan modification, the
lender of the mortgage loan granted a forbearance with respect to any default by the
Corporation under the terms of the mortgage loan prior to modification. If the Corporation
defaults on any of the terms of the loan modification, the forbearance becomes null and void
and the lender of the mortgage loan is entitled to exercise all of its rights and remedies
under the original mortgage loan, including acceleration of the payment of the mortgage loan
in full. During the second quarter of 2003, the Corporation determined that the fair value of Clark
Tower, located in Memphis, Tennessee, was less than its carrying value. Fair value was
based on a sale contract less estimated costs to sell. Accordingly, a provision for loss on
real estate in the amount of approximately $14,592 was recorded in the second quarter of
2003. During the third quarter of 2003, the Corporation determined that the fair value of
Minnesota Center, located in Minneapolis, Minnesota, was less than its carrying value. Fair
value was based on a sale contract less estimated costs to sell. Accordingly, a provision
for loss on real estate in the amount of approximately $3,572 was recorded in the third
quarter of 2003. During 2002, internal valuations indicated that the value of Desert Passage, located in Las
Vegas, Nevada, and Hollywood & Highland Retail, located in Los Angeles, California, had
declined. Accordingly, an additional provision for loss in the amount of approximately
$142,431 for Hollywood & Highland Retail and approximately $57,024 for Desert Passage was
recorded in 2002. In addition, during the fourth quarter of 2002, the Corporation
determined that the fair value of Goddard Corporate Park, located in Lanham, Maryland, was
less than its carrying value. Fair value was based on a sale contract less estimated costs
to sell. Accordingly, a provision for loss on real estate in the amount of approximately
$9,782 was recorded in the fourth quarter of 2002. 12. PROVISION FOR AND LOSS ON INVESTMENTS As part of the periodic assessment of the Corporations real estate investments relative to
both the extent to which such investments are consistent with the Corporations long-term
real estate investment objectives and performance and prospects of each investment, the
Corporation determined in the second quarter of 2004 that its investment in Main Street
Partners, L.P., a joint venture through which the Corporation owns a 50% interest in Bank
One Center in Dallas, Texas, was impaired. As a result of the reassessment of the
anticipated future operating results of such non-core investment, the Corporation determined
that its investment in such joint venture was impaired. The Corporation recognized a
provision for loss on investment of approximately $14,558 to reduce the carrying value of
such investment to its fair value. On August 28, 2003, the Corporation sold its interest in the Subordinated Mortgage
collateralized by the Sears Tower to Metropolitan Life Insurance Company for approximately
$9,000. The Corporation recorded a loss on investment due to the sale of the Subordinated
Mortgage of approximately $15,491. F-38




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##### Table of Contents



Notes to the Financial Statements
$ in thousands, except share and per share amounts 
 12. PROVISION FOR AND LOSS ON INVESTMENTS, continued In 2002, the Corporation recorded a loss on its investment in the Sears Tower of
approximately $48,292 to reduce the carrying value of the Corporations investment in the
Sears Tower to its estimated fair value of approximately $23,600. In addition, on December
5, 2002, the Corporation sold its interest in Chelsfield plc for approximately $76,622,
resulting in a loss on investment of approximately $12,679. 13. INCOME AND OTHER CORPORATE TAXES Reconciliation of Net Income to Taxable Income REIT taxable income differs from net income reported for financial reporting purposes due to
differences for U.S. federal tax purposes in the estimated useful lives and methods used to
compute depreciation and the carrying value of the investments in properties and the timing
of revenue recognition, among other things. The following table reconciles the
Corporations net income (loss) available to common stockholders to taxable income for the
years ended December 31, 2004, 2003 and 2002. For the years ended December 312004
    
    
    2003
    
    
    2002Net
Income (Loss) Available to Common Stockholders
    
    $
    96,489
    
    
    $
    198,527
    
    
    $
    (188,783
    )Elimination of earnings from unconsolidated
subsidiaries
    
    
    (18,412
    )
    
    
    6,897
    
    
    
    86Special dividend not deductible for tax purposes
    
    
    4,824
    
    
    
    5,226
    
    
    
    866Federal income tax (benefit) provision
    
    
    (1,520
    )
    
    
    (50,178
    )
    
    
    143Book/tax differences on losses from disposition
    
    
    (144,020
    )
    
    
    (56,423
    )
    
    
    (17,698
    )Straight-line rent adjustments
    
    
    (19,010
    )
    
    
    (26,305
    )
    
    
    (40,109
    )Depreciation and amortization timing differences
    
    
    36,819
    
    
    
    35,143
    
    
    
    1,794Net operating loss utilized
    
    
    (34,172
    )
    
    
    (4,437
    )
    
    
    (549
    )Provision for losses not deductible for tax
    
    
    136,295
    
    
    
    
    
    
    
    316,410Dividend income from taxable REIT subsidiaries
    
    
    21,252
    
    
    
    
    
    
    
    Other book/tax differences, net
    
    
    (5,238
    )
    
    
    16,980
    
    
    
    12,442REIT Taxable Income
    
    $
    73,307
    
    
    $
    125,430
    
    
    $
    84,602
 (Provision) Benefit for Income and Other Corporate Taxes The (provision) benefit for income and other corporate taxes is as follows: For the years ended December 312004
    
    
    2003
    
    
    2002Provision
computed at combined federal and state statutory rates
    
    $
    
    
    
    $
    
    
    
    $
    Franchise,
income, alternative minimum and foreign tax
    
    
    (3,963
    )
    
    
    (6,102
    )
    
    
    (4,896
    )Capital loss carryback
    
    
    730
    
    
    
    26,902
    
    
    
    Change in reserve
    
    
    (1,146
    )
    
    
    20,977
    
    
    
    (Provision) Benefit from operations
    
    
    (4,379
    )
    
    
    41,777
    
    
    
    (4,896
    )(Provision) Benefit on gains and losses
    
    
    (9,218
    )
    
    
    2,333
    
    
    
    Total (provisions) benefits
    
    $
    (13,597
    )
    
    $
    44,110
    
    
    $
    (4,896
    )
 F-39




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##### Table of Contents



Notes to the Financial Statements
$ in thousands, except share and per share amounts 
 13. INCOME AND OTHER CORPORATE TAXES, continued In 2003, the Corporation recognized a tax benefit from a capital loss carryback resulting in
a refund of taxes of approximately $29,235. The Corporation had various sale and
liquidation transactions that resulted in a capital loss in 2003. For tax purposes, this
capital loss was carried back three years to a non-REIT tax year. As a result, the
Corporation was able to offset prior year capital gains with this 2003 capital loss, which
allowed the Corporation to claim a tax refund. The carryback of the 2003 capital loss to
2000 reinstated a pre-REIT regular net operating loss of approximately $44,748 and an AMT net operating
loss of $0. This pre-REIT net operating loss is in addition to a regular net operating loss
of approximately $10,927 and AMT net operating loss of approximately $8,653 that originated as a part of the 2002
reorganization. The pre-REIT net operating loss has been fully utilized to offset
built-in-gain income recognized by the Corporation. For the years ended December 31, 2004, 2003, and 2002, the Corporation had net operating
loss carryforwards of approximately $10,927, $45,099, and $49,537, respectfully, and AMT credits of
approximately $23,537, $21,411, and $21,080, respectively. The current net operating loss carryforward
expires between 2020 and 2022. A valuation allowance fully offsets these amounts. In 1999, the IRS commenced an examination of the Corporations prior tax years including the
year ended December 31, 1998. In 2000, the Corporation became aware that the IRS was
challenging the treatment of two separate dispositions, which were treated as Section 1031
exchanges (non-taxable) during the 1998 tax year. Based on the IRS audit and its assertion
that these events were taxable, the Corporation recorded a tax liability of approximately
$37,626 in 2000, representing an estimate of the probable tax liability resulting from these
two transactions. In the fourth quarter of 2003, the Corporation concluded its appeals
process with the IRS concerning the 1998 tax audit. The Corporation and the IRS agreed to a
resolution, but as of December 31, 2004, the Corporation had not yet received the final
definitive documentation from the IRS evidencing the agreement. At December 31, 2003, the
Corporation reduced its tax liability relating to the two transactions to approximately
$16,649, which represented the amount owed by the Corporation, agreed to by the Corporation
and the IRS. The reduction of the tax liability resulted in a tax benefit of approximately
$20,977. The Corporation reduced its original estimate because it believed that the
resolution with the IRS was probable and provided a better estimate of the tax liability.
In February 2005, the Corporation received the final documentation from the IRS, which is
consistent with the previous agreement. 14. GAIN (LOSS) ON DISPOSITION OF REAL ESTATE During the three years ended December 31, 2004, the Corporation disposed of the following
properties and recorded the following gain (loss) on disposition of real estate: Gain (Loss) on Disposition of Real Estate, Net, During the Year Ended December 31, 2004 Date
    
    
    
    
    
    Rentable
    
    
    Net Sale
    
    
    Gain (Loss)Sold
    
    Property
    
    Location
    
    Sq. Ft.
    
    
    Price
    
    
    On Sale(unaudited)January 15
    
    151 Front Street
    
    Toronto, ON
    
    
    272,000
    
    
    $
    58,228
    
    
    $
    20,343May 10
    
    Residual land
    
    Sarasota, FL
    
    
    
    
    
    
    1,005
    
    
    
    1,005May 18
    
    Plaza of the Americas(l)
    
    Dallas, TX
    
    
    588,000
    (2)
    
    
    47,794
    
    
    
    (20,724
    )June 14
    
    Woodbridge land
    
    Woodbridge, VA
    
    
    
    
    
    
    15,359
    
    
    
    7,380November 23
    
    Residual Land
    
    Woodbridge, VA
    
    
    
    
    
    
    4,489
    
    
    
    4,489$
    126,875
    
    
    $
    12,493Tax expense related to sale
    
    
    
    
    
    
    (5,135
    )Gain on disposition of real estate, net
    
    
    
    
    
    $
    7,358
  (1)
 (2)Represents 50% of rentable square feet.


In conjunction with the sale of 151 Front Street in Toronto, Ontario, the Corporation
recognized a foreign currency exchange gain of approximately $3,340 representing the
accumulated foreign currency translation adjustments related to the operations of the
property through the date of sale.

F-40



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Notes to the Financial Statements
$ in thousands, except share and per share amounts 
 14. GAIN (LOSS) ON DISPOSITION OF REAL ESTATE, continued Gain on Disposition of Real Estate During the Year Ended December 31, 2003 Date
    
    
    
    
    
    Rentable
    
    
    Net Sales
    
    
    GainSold
    
    Property
    
    Location
    
    Sq.ft.
    
    
    Price
    
    
    On Sale(unaudited)January 15
    
    Paseo Colorado
    
    Pasadena, CA
    
    
    410,000
    
    
    $
    111,402
    
    
    $
    13,605Gain on disposition of real estate
    
    $
    111,402
    
    
    $
    13,605
 Gain on Disposition of Real Estate During the Year Ended December 31, 2002 Date
    
    
    
    
    
    Rentable
    
    
    Net Sales
    
    
    GainSold
    
    Property
    
    Location
    
    Sq.ft.
    
    
    Price
    
    
    On Sale(unaudited)January 31
    
    Hanover Office Park
    
    Greenbelt, MD
    
    
    16,000
    
    
    $
    877
    
    
    $
    31February 20
    
    Valley Industrial Park
    
    Seattle, WA
    
    
    
    
    
    
    27,301
    
    
    
    64April 24
    
    Perimeter Woods
    
    Charlotte, NC
    
    
    313,000
    
    
    
    26,119
    
    
    
    34June 11
    
    Clybourn Center
    
    Chicago, IL
    
    
    
    
    
    
    11,599
    
    
    
    1,710Various
    
    Residual lands and other
    
    Various
    
    
    
    
    
    
    4,849
    
    
    
    1,157Gain on disposition of real estate
    
    $
    70,745
    
    
    $
    2,996
 15. GAIN (LOSS) ON DISPOSITION OF DISCONTINUED REAL ESTATE During the three years ended December 31, 2004, the Corporation sold the following
properties that had been designated as held for disposition pursuant to SFAS No. 144: Gain (Loss) on Disposition of Discontinued Real Estate, Net, During the Year Ended December
31, 2004 for Properties Designated as Held for Disposition Pursuant to SFAS No. 144 Date
    
    
    
    
    
    Rentable
    
    Net Sales
    
    Gain (Loss)Sold
    
    Property
    

    Location
    
    Sq. Ft.
    
    Price
    
    On Sale(unaudited)February 27
    
    Hollywood & Highland Retail
    
    Los Angeles, CA
    
    
    645,000
    
    
    $
    114,415
    
    
    $
    23,583February 27
    
    Hollywood & Highland Hotel
    
    Los Angeles, CA
    
    
    600,000
    
    
    
    84,332
    
    
    
    8,607June 24
    
    1441 Main Street
    
    Columbia, SC
    
    
    274,000
    
    
    
    26,415
    
    
    
    6,020June 30
    
    St. Louis Place
    
    St. Louis, MO
    
    
    337,000
    
    
    
    30,097
    
    
    
    (8,847
    )July 30
    
    Borden Building
    
    Columbus, OH
    
    
    569,000
    
    
    
    28,305
    
    
    
    (274
    )August 20
    
    Park Central I
    
    Dallas, TX
    
    
    128,000
    
    
    
    4,668
    
    
    
    (281
    )August 27
    
    1333 Main Street
    
    Columbia, SC
    
    
    225,000
    
    
    
    12,087
    
    
    
    112September 22
    
    Capital Center II & III
    
    Sacramento, CA
    
    
    529,000
    
    
    
    68,940
    
    
    
    15,600September 28
    
    3700 Bay Area Blvd
    
    Houston, TX
    
    
    399,000
    
    
    
    41,992
    
    
    
    3,725November 30
    
    Silver Spring Centre
    
    Silver Spring, MD
    
    
    216,000
    
    
    
    37,018
    
    
    
    15,323December 1
    
    Lakeside Centre/New Market  Business
Park
    
    Atlanta, GA
    
    
    1,135,000
    
    
    
    91,423
    
    
    
    206December 10
    
    Gateway Center
    
    Pittsburgh, PA
    
    
    1,468,000
    
    
    
    51,185
    
    
    
    7,692December 16
    
    110 William Street
    
    New York, NY
    
    
    868,000
    
    
    
    158,472
    
    
    
    55,177December 17
    
    250 West Pratt Street
    
    Baltimore, MD
    
    
    368,000
    
    
    
    50,509
    
    
    
    3,551December 30
    
    Bank of America Plaza
    
    Columbia, SC
    
    
    303,000
    
    
    
    33,135
    
    
    
    (603
    )$
    832,993
    
    
    $
    129,591Tax expense related to sales, net
    
    
    
    
    
    
    
    (4,083
    )Gain on disposition of discontinued real estate, net
    
    
    
    
    
    
    $
    125,508
 F-41




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Notes to the Financial Statements
$ in thousands, except share and per share amounts 
 15. GAIN (LOSS) ON DISPOSITION OF DISCONTINUED REAL ESTATE, continued Gain (Loss) on Disposition of Discontinued Real Estate, Net, During the Year Ended December
31, 2003 for Properties Designated as Held for Disposition Pursuant to SFAS No. 144 Gain/Date
    
    
    
    
    
    Rentable
    
    
    Net Sales
    
    
    (Loss)Sold
    
    Property
    
    Location
    
    Sq.ft.
    
    
    Price
    
    
    On Sale(unaudited)February 25
    
    Goddard Corporate Park
    
    Lanham, MD
    
    
    203,000
    
    
    $
    17,908
    
    
    $
    (890
    )March 14
    
    Rosslyn Gateway
    
    Arlington, VA
    
    
    253,000
    
    
    
    53,911
    
    
    
    9,429August 6
    
    Clark Tower
    
    Memphis, TN
    
    
    650,000
    
    
    
    38,907
    
    
    
    59September 25
    
    Esperante Office Building
    
    W. Palm Beach, FL
    
    
    248,000
    
    
    
    59,886
    
    
    
    19,155October 15
    
    Minnesota Center
    
    Minneapolis, MN
    
    
    289,000
    
    
    
    40,236
    
    
    
    459November 19
    
    9800 LaCienega
    
    Los Angeles, CA
    
    
    358,000
    
    
    
    21,915
    
    
    
    941December 15
    
    Park Central II
    
    Dallas, TX
    
    
    140,000
    
    
    
    7,726
    
    
    
    838December 22
    
    Desert Passage
    
    Las Vegas, NV
    
    
    445,000
    
    
    
    239,119
    
    
    
    26,510$
    479,608
    
    
    $
    56,501Tax benefit related to sales, net
    
    
    
    
    
    
    
    2,333Gain on disposition of discontinued real estate, net
    
    
    
    
    
    
    $
    58,834
 Gain (Loss) on Disposition of Discontinued Real Estate, Net, During the Year Ended December
31, 2002 for Properties Designated as Held for Disposition Pursuant to SFAS No. 144 Gain/Date
    
    
    
    
    
    Rentable
    
    
    Net Sales
    
    
    (Loss)Sold
    
    Property
    
    Location
    
    Sq.ft.
    
    
    Price
    
    
    On Sale(unaudited)June 24
    
    Warner Center,Panavision Building
    
    Los Angeles, CA
    
    
    148,000
    
    
    $
    13,461
    
    
    $
    (197
    )July 12
    
    Plaza West
    
    Bethesda, MD
    
    
    99,000
    
    
    
    19,690
    
    
    
    3,339October 17
    
    McKinney Place
    
    Dallas, TX
    
    
    146,000
    
    
    
    12,650
    
    
    
    1,881December 11
    
    Warner Center
    
    Los Angeles, CA
    
    
    224,000
    
    
    
    32,428
    
    
    
    9,693Gain on disposition of real estate, net
    
    
    $
    78,229
    
    
    $
    14,716
 16. LAWSUIT SETTLEMENT In December 2004, the Corporation received approximately $3,582 as final settlement of
outstanding asbestos property damage claims related to certain of the Corporations sold
properties. In July 2003, the Corporation reached an agreement in which the Corporation agreed to end
litigation and resolve standing disputes concerning the development and subsequent
bankruptcy of the hotel and casino adjacent to the Desert Passage project. In exchange for
the Corporations agreement to end the development litigation and the Corporations
agreement to permit and assist in the re-theming of the hotel and casino complex, the other
parties to the litigation agreed to dismiss all claims against the Corporation. This
settlement agreement was approved by the United States Bankruptcy Court for the District of
Nevada in August 2003. In the third quarter of 2003, the Corporation recognized a gain on
lawsuit settlement of approximately $26,659 comprised primarily of the forgiveness of debt.
The Corporation did not receive any cash proceeds from the litigation settlement. F-42




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##### Table of Contents



Notes to the Financial Statements
$ in thousands, except share and per share amounts 
 17. RELATED PARTY INFORMATION Transactions During 2004 On October 9, 2003, 4172352 Canada, Inc., an affiliate of Trizec Canada Inc.,
contributed approximately $4,000 to the Corporation in exchange for preferred
membership units in an entity that indirectly held a 91.5% interest in the Hollywood &
Highland Hotel. The holders of the preferred membership units were entitled to an
initial dividend of 8% per annum, increasing to 12% per annum, as well as any
unrecovered capital contribution at the time of liquidation. On February 27, 2004, the
Corporation sold the Hollywood & Highland Hotel. The Corporation remitted
approximately $4,790 to 4172352 Canada, Inc. in full satisfaction of any outstanding
dividends and unrecovered capital contribution. In December 2004, the Corporation sold 110 William Street, located in New York,
New York, to an affiliate of Swig Investment Company, one of the Corporations joint
venture partners, for a net sale price of approximately $158,472. Transactions During 2003 In July 2003, the Corporation issued 173,006 shares of its common stock to its Chairman of
the Board as a net settlement of the exercise of 1,000,000 warrants held by the Chairman.
The Corporation recognized compensation expense of approximately $2,080 related to the net
settlement of such warrants, which is included in general and administrative expense. Transactions During 2002 (i) TREHI On January 1, 2002, TREHI settled its existing advance from parent of approximately
$236,619 in exchange for issuing 237 shares of TREHI common stock to TrizecHahn. As
a result of this transaction, advances from parent was reduced by approximately
$236,619 with a corresponding increase to additional paid-in capital. On March 14, 2002, TrizecHahn contributed its investment in TREHI to Trizec
Properties in exchange for 30,317 shares of Trizec Properties common stock and
269,661 shares of Trizec Properties Class C Convertible Preferred Stock. As a
result of this transaction, Trizec Properties Class C Convertible Preferred Stock
was increased by approximately $296,627 with a corresponding decrease to additional
paid-in capital. (ii) Acquisition of 151 Front Street On April 12, 2002, TrizecHahn transferred its interest in 151 Front Street, Toronto,
Ontario, to the Corporation for approximately $29.6 million in cash. As a result of
this related party transaction, the Corporation has recorded property value of
approximately $29,115, which is TrizecHahns historical cost basis. The difference
between cash paid and the historic book value has been recorded as a distribution of
additional paid-in capital. 151 Front Street has been classified as a property held
for disposition pursuant to the transition rules of SFAS No. 144. (iii) Contribution of Chelsfield plc On April 19, 2002, in connection with the Reorganization, TrizecHahn contributed its
investment in Chelsfield plc, a UK real estate company whose shares are listed on
the London Stock Exchange, to the Corporation at TrizecHahns value of approximately
$89,266. The Corporation owned approximately 19,512 ordinary shares, or
approximately 6.9% of the outstanding ordinary shares, of Chelsfield plc as a result
of this contribution. In consideration for the ordinary shares of Chelsfield plc
received, TrizecHahn was issued 49,330 shares of Trizec Properties Class C
Convertible Preferred Stock at a value of approximately $54,263 and retired a
$35,000 non-interest bearing advance from the Corporation. F-43




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##### Table of Contents



Notes to the Financial Statements
$ in thousands, except share and per share amounts 
 17. RELATED PARTY INFORMATION, continued Transactions During 2002, continued (iii) Contribution of Chelsfield plc, continued The Corporations investment in Chelsfield plc had been designated as an equity
investment available for sale. The investment was carried at fair value with the
resulting unrealized gain or loss, including any unrealized foreign currency
exchange gain or loss, being recorded in other comprehensive income. On December 5,
2002, the Corporation sold its interest in Chelsfield plc for approximately $76,622.
The Corporation recorded a loss of approximately $12,679. (iv) Contribution of Borealis TrizecHahn had investments in private equity and venture capital funds managed by
Borealis Capital Corporation and in Borealis Capital Corporation (collectively
referred to as Borealis). On April 30, 2002, TrizecHahn contributed its
investment in Borealis to the Corporation in exchange for 3,909 shares of Trizec
Properties Class C Convertible Preferred Stock valued at approximately $4,300.
During the year ended December 31, 2002, the Corporation received approximately
$3,653 related to the disposition of a portion of its interest in Borealis. Other Related Party Information For the periods presented, the Corporation, in the normal course of business, reimbursed its
parent and/or affiliates for direct third party purchased services and a portion of salaries
for certain employees for direct services rendered. A significant portion of the
reimbursements had been for allocated or direct insurance premiums, which amounted to
approximately $10,915 for the year ended December 31, 2002. For the year ended December 31,
2003, the Corporation was reimbursed by its parent for insurance premiums, which amounted to
approximately $196. In connection with the Reorganization, the Corporation entered into a tax cooperation
agreement with TrizecHahn Office Properties, Limited. Under the agreement, the Corporation
agreed to continue to conduct its business activities with regard to the consequences under
Canadian tax legislation to TrizecHahn Office Properties, Limited, related Canadian
corporations and Trizec Canada Inc. Compliance with this agreement may require the
Corporation to conduct its business in a manner that may not always be the most efficient or
effective because of potential adverse Canadian tax consequences. Furthermore, incremental
costs may be incurred due to the need to reimburse these entities for any negative tax
consequences. In connection with the Reorganization, the Corporation agreed to provide shared services to
TrizecHahn, and, therefore, continues to provide certain services to assist TrizecHahn in
fulfilling its public disclosure obligations and conducting investor, media and public
relations. TrizecHahn agreed to, and continues to, provide accounting services in
conjunction with the Reorganization. For the years ended December 31, 2004 and 2003, the
Corporation recorded other income of approximately $106 and $404, respectively, for such
services provided to TrizecHahn. In addition, the Corporation recorded general and
administrative expense for the years ended December 31, 2004 and 2003 of approximately $350
and $478, respectively, for such services provided to the Corporation. At December 31,
2004, the Corporation had a receivable balance of approximately $510 and a payable balance
of approximately $460 related to such services. At December 31, 2003, the Corporation had a
receivable balance of approximately $404 and a payable balance of approximately $478 related
to such services. F-44




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Notes to the Financial Statements
$ in thousands, except share and per share amounts 
 18. REDEEMABLE STOCK The following classes of stock have been presented on the balance sheet outside of
stockholders equity as a result of the redemption features available to the holders of the
stock. Class F Convertible Stock On December 3, 2001, the Corporation authorized and issued 100,000 shares of Class F
Convertible Stock with a par value of $0.01 per share. The Class F Convertible Stock is held by a subsidiary of Trizec Canada Inc. and is
non-voting, entitled to cumulative dividends at a fixed rate per annum of $0.05 per share,
redeemable at the Corporations option or the holders option after the expiration of the
conversion period for $1.00 per share plus unpaid declared dividends and convertible at the
holders option only upon the occurrence of certain defined events during a defined
conversion period into a number of shares of common stock based on a defined formula. The stock is convertible into additional shares of the Corporations common stock so that
the Corporation and its stockholders, and Trizec Canada Inc. and its shareholders, may share
the burden if tax pursuant to the Foreign Investment in Real Property Tax Act of 1980, or
FIRPTA, is payable in connection with the Reorganization or other limited types of
transactions or events. The Corporation cannot declare or pay dividends on any of the other classes of stock nor can
the Corporation redeem or purchase for cancellation any of the other classes of stock unless
all unpaid and undeclared cumulative dividends have been declared and paid or set apart for
payment. The Corporation has recorded the holders redemption feature at $100 at December 31, 2004
and 2003. Special Voting Stock On December 3, 2001, the Corporation authorized and issued 100 shares of Special Voting
Stock with a par value of $0.01 per share. All shares of Special Voting Stock are held by a
subsidiary of Trizec Canada Inc. The Special Voting Stock has special voting rights that give the holder, when aggregated
with the voting rights of Trizec Canada Inc. and its subsidiaries pursuant to ownership of
common stock, a majority of votes in elections of directors to the Board of Directors of the
Corporation at any time prior to January 1, 2008, so long as Trizec Canada Inc. and its
subsidiaries hold at least 5% of the Corporations common stock. Thereafter, the Special
Voting Stock is non-voting. In addition, for 66 months after the effective date of the
Reorganization, this stock will entitle its holder to cash dividends that reflect
non-Canadian taxes, principally cross-border withholding taxes, payable in respect of common
stock dividends and special voting stock dividends paid to Trizec Canada Inc. or its
subsidiaries. The Special Voting Stock is redeemable at the Corporations or the holders
option after a defined date at $1,000 per share plus unpaid declared dividends. The Corporation has recorded the holders redemption feature at $100 at December 31, 2004
and 2003. 19. STOCKHOLDERS EQUITY Reorganization On May 7, 2002, all issued and outstanding shares of Series B Convertible Preferred Stock
and all issued and outstanding shares of Class C Convertible Preferred Stock (except 4
shares held by a charity which were converted on May 21, 2002) were converted into common
stock and the outstanding shares of Common Stock were split on a 1.0840374367693 for 1 basis
resulting in 149,805,946 shares being owned indirectly by TrizecHahn and 43,300 shares being
owned by third-party charities. On May 8, 2002, the Reorganization became effective with
the result that, as of May 8, 2002, 59,922,379 shares of common stock were owned directly or
indirectly by Trizec Canada Inc. and 89,926,867 shares were owned by former TrizecHahn
stockholders and by third-party charities. F-45




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Notes to the Financial Statements
$ in thousands, except share and per share amounts 
 19. STOCKHOLDERS EQUITY, continued Reorganization, continued Additionally, the Corporation issued 8,368,932 options and 8,772,418 warrants to purchase
shares of common stock in connection with the Reorganization. The 8,368,932 options granted on May 8, 2002 as part of the Reorganization were granted to
replace existing TrizecHahn options. The vesting period and exercise price (which has been
stated in United States dollars at the conversion rate on May 8, 2002) of the newly issued
options is the same as the options which they replaced. The expiration date for certain
options has been extended to November 7, 2007. The exercise price of certain of these options was less than the Corporations share price
on May 8, 2002. Accordingly, the Corporation recognized $6,011 as unearned compensation,
which represents the intrinsic value of the options on the grant date. The Corporation
immediately recorded an expense of $2,002, which represents the options that were already
vested on the grant date. During the remainder of 2002, the Corporation amortized $3,212
into income. The remaining $797 of unearned compensation is recognized into earnings over
the vesting period of the options. Series B Convertible Preferred Stock The Series B Convertible Preferred Stock was non-voting, entitled to cumulative dividends at
a fixed rate per annum of 7.5% of the redemption value, redeemable at the Corporations
option at $1,000 per share plus unpaid cumulative dividends and convertible at the holders
option into a number of shares of common stock equal to $1,000 divided by the fair market
value of one share of common stock at the time of conversion, as determined by the Board of
Directors. On April 19, 2002, in connection with the Reorganization, the Corporation paid $111,050 of
cumulative dividends on its Series B Convertible Preferred Stock. On May 7, 2002, all issued and outstanding shares of Series B Convertible Stock were
converted into common stock. Class C Convertible Preferred Stock The Class C Convertible Preferred Stock was non-voting, entitled to cumulative dividends at
a fixed rate per annum of 7% of the redemption value, redeemable at the Corporations option
after December 28, 2006 at $1,100 per share plus unpaid cumulative dividends and convertible
at the holders option into a number of shares of common stock equal to $1,100 divided by
the fair market value of one share of common stock at the time of the conversion, as
determined by the Board of Directors. On March 29, 2002, in connection with the Reorganization, the Corporation paid $12,405 of
cumulative dividends on its Class C Convertible Preferred Stock. On May 7, 2002, all issued and outstanding shares of Class C Convertible Preferred Stock
(except four shares held by a charity which were converted on May 21, 2002) were converted
into common stock. 2004 Dividends On March 10, 2004, the Corporation declared a quarterly dividend of $0.20 per share of
common stock, payable on April 15, 2004, to the holders of record at the close of business
on March 31, 2004. On June 14, 2004, the Corporation declared a quarterly dividend of $0.20
per share of common stock, payable on July 15, 2004, to the holders of record at the close
of business on June 30, 2004. On September 14, 2004, the Corporation declared a quarterly
dividend of $0.20 per share of common stock, payable on October 15, 2004, to the holders of
record at the close of business on September 30, 2004. On December 10, 2004, the
Corporation declared a quarterly dividend of $0.20 per share of common stock, payable on
January 15, 2005, to the holders of record at the close of business on December 31, 2004.
The aggregate amount of F-46




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##### Table of Contents



Notes to the Financial Statements
$ in thousands, except share and per share amounts 
 19. STOCKHOLDERS EQUITY, continued 2004 Dividends, continued dividends paid on April 15, 2004, July 15, 2004, October 15, 2004, and January 15, 2005
totaled approximately $30,488, $30,496, $30,518, and $30,557, respectively. On March 10, 2004, the Corporation declared an aggregate dividend of approximately $5 for
the Class F convertible stock, payable on April 15, 2004, to the holders of record at the
close of business on March 31, 2004. The Corporation accrued an additional $1 dividend for
the Class F convertible stock on March 31, 2004, June 30, 2004, September 30, 2004, and
December 31, 2004, respectively. On March 10, 2004, the Corporation declared an aggregate dividend of approximately $629 for
the special voting stock, payable on April 15, 2004, to the holders of record at the close
of business on March 31, 2004, and accrued an additional $674 dividend for the special
voting stock. On June 14, 2004, the Corporation declared an aggregate dividend of
approximately $629 for the special voting stock, payable on July 15, 2004, to the holders of
record at the close of business on June 30, 2004, and accrued an additional $587 dividend
for the special voting stock. On September 14, 2004, the Corporation declared an aggregate
dividend of approximately $1,719 for the special voting stock, payable on October 15, 2004,
of which, approximately $326 had been previously accrued, to the holders of record at the
close of business on September 30, 2004. On December 10, 2004, the Corporation declared an
aggregate dividend of approximately $1,843 for the special voting stock, payable on January
15, 2005, of which approximately $935 had been previously accrued to the holders of record
at the close of business on December 31, 2004. For federal income tax purposes, 84.1% of the dividends paid to common stockholders in 2004
represents ordinary income. Approximately 21.0% of the ordinary dividend income is treated
as qualified dividends. Approximately 15.9% of the dividends paid to common stockholders in
2004 represents return of capital. The AMT adjustments apportioned to the common
stockholders in 2004 was $(0.13) per share. 2003 Dividends On March 18, 2003, the Corporation declared a quarterly dividend of $0.20 per common share,
payable on April 15, 2003, to the holders of record at the close of business on March 31,
2003. On June 17, 2003, the Corporation declared a quarterly dividend of $0.20 per common
share, payable on July 15, 2003, to the holders of record at the close of business on June
30, 2003. On September 16, 2003, the Corporation declared a quarterly dividend of $0.20 per
common share, payable on October 15, 2003, to the holders of record at the close of business
on September 30, 2003. On December 10, 2003, the Corporation declared a quarterly dividend
of $0.20 per common share, payable on January 15, 2004, to the holders of record at the
close of business on December 31, 2003. The dividends paid on April 15, 2003, July 15,
2003, October 15, 2003 and January 15, 2004 totaled approximately $30,006, $30,071, $30,107
and $30,255, respectively. On March 18, 2003, the Corporation declared an aggregate dividend of approximately $6 for
the Class F convertible stock, payable on April 15, 2003. The Corporation accrued an
additional aggregate dividend of approximately $1 on March 31, 2003, June 30, 2003,
September 30, 2003 and December 31, 2003, respectively. On March 18, 2003, the Corporation declared an aggregate dividend of approximately $776 for
the special voting stock, payable on April 15, 2003. On June 17, 2003, the Corporation
declared an aggregate dividend of approximately $629 for the special voting stock, payable
on July 15, 2003. On September 16, 2003, the Corporation declared an aggregate dividend of
approximately $2,504 for the special voting stock, payable on October 15, 2003. On December
10, 2003, the Corporation declared an aggregate dividend of approximately $1,308 for the
special voting stock, payable on January 15, 2004. For federal income tax purposes, 100% of the dividends paid to common stockholders in 2003
represents ordinary income. Approximately 0.4% of the ordinary dividend income is treated
as qualified dividends. The AMT adjustments apportioned to the common stockholders in 2003
was $(0.03) per share. F-47




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Notes to the Financial Statements
$ in thousands, except share and per share amounts 
 19. STOCKHOLDERS EQUITY, continued 2002 Dividends In connection with the Reorganization, on April 19, 2002, the Corporation paid cash
dividends of $519,753, of which $51,425 has been charged to retained earnings and the
remainder has been charged against additional paid in capital. The 8,772,418 warrants
issued in connection with the Reorganization were recognized as a non-cash dividend of
$24,208, the fair value of the warrants. During 2002, the Corporation declared and paid three quarterly dividends of $0.0875 per
share of common stock, totaling $39,383. In addition, pursuant to the terms of the Special
Voting Stock, the Corporation declared and paid three quarterly special dividends totaling
$866, which represented the withholding taxes on the Common Stock dividends paid to Trizec
Canada Inc. and its subsidiaries subsequent to the Reorganization. For federal income tax purposes, 100% of the dividends paid to common stockholders in 2002
represents return of capital. The AMT adjustments apportioned to the common stockholders in
2002 was $0.01 per share. Dividend Reinvestment and Stock Purchase Plan In June 2004, the Corporation established a dividend reinvestment and stock purchase plan
which allows stockholders to reinvest all or a portion of their dividends in additional
shares of the Corporations common stock. The dividend reinvestment and stock purchase plan
also allows non-stockholders to purchase shares of the Corporations common stock through
the plan and provides both stockholders and non-stockholders the option to purchase shares
of the Corporations common stock without paying fees or commissions by making optional cash
investments of $0.1 to $10 per month for current stockholders or $0.3 to $10 per month for
persons who are not current stockholders. Purchases of greater than $10 per month can be
accomplished by the Corporation granting a waiver to the $10 limit. Treasury Stock During the year ended December 31, 2004, common shares held in treasury increased by
approximately $88 due to 5,403 common shares surrendered as payment of statutory
withholdings for the vesting of restricted common stock. During the year ended December 31, 2004, common shares held in treasury increased by
approximately $90 due to the forfeiture of 8,200 shares of restricted stock. Priority The capital stock of the Corporation has the following ranking upon the voluntary or
involuntary liquidation, dissolution or winding up of, or any distribution of the assets of
the Corporation among its shareholders for the purpose of winding up its affairs (from most
senior to the least): Class F Convertible Stock; Special Voting Stock; and common stock. Restrictions on Ownership Pursuant to the Corporations certificate of incorporation, ownership of the Corporations
capital stock by persons other than qualifying U.S. persons is limited to 45% by value in
the aggregate so that the Corporation will be in a position to attain
domestically-controlled REIT status for U.S. federal income tax purposes within 63 months
after the effective date of the Reorganization. F-48




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##### Table of Contents



Notes to the Financial Statements$ in thousands, except share and per share amounts
  20.
    LONG TERM INCENTIVE PLAN AND OTHER AWARDSOn May 8, 2002, the effective date of the Reorganization, the Corporation adopted the 2002 Stock Option Plan (the Plan). The purpose of the Plan is to attract, retain and motivate directors, officers and key employees and advisors of the Corporation and to advance the interest of the Corporation by affording these individuals the opportunity, through the grant of stock-based awards, to acquire an increased proprietary interest in the Corporation. The Plan also permitted certain non-qualified stock options to be granted in connection with the Reorganization. The Plan was subsequently amended and restated, effective May 29, 2003, as the 2002 Long Term Incentive Plan (the 2002 Plan). The 2002 Plan is administered by the Compensation Committee which is appointed by the Corporations Board of Directors.The 2002 Plan authorizes the grant to eligible individuals of incentive stock options, non-qualified stock options, stock appreciation rights (either alone or in tandem with a stock option grant), restricted stock awards, performance awards and other compensation based on shares of the Corporations common stock.A maximum of 19,000,000 shares of Trizec Properties common stock were approved to be issued under the Plan. At December 31, 2004, 10,185,972 shares were available for future awards under the 2002 Plan.Stock OptionsThe Corporation did not grant non-qualified stock options during the year ended December 31, 2004.During the year ended December 31, 2003, the Corporation granted 2,297,500 non-qualified stock options to certain employees. The non-qualified stock options granted vest over three years, have a weighted average strike price of $8.66 per share and expire ten years from date of grant.In connection with the Reorganization, employees, former employees and non-employee directors holding options to purchase subordinate voting shares of TrizecHahn that were cancelled in exchange for options received such options under the Plan. The vesting periods for these options range from immediately upon grant to up to four years. The options have a life of between 5.5 and 7 years.The table below shows the movements during the years ended December 31, 2004, 2003, and 2002 in the stock options that the Corporation has granted. Prior to Reorganization, the Corporation did not have a stock option plan. Weighted Average
    
    
    Number ofPrice
    
    
    OptionsBalance at December 31, 2001
    
    $
    
    
    
    
    Options granted
    
    
    16.91
    
    
    
    9,368,932Options exercised
    
    
    14.49
    
    
    
    (124,400
    )Options canceled/forfeited
    
    
    19.11
    
    
    
    (669,100
    )Balance at December 31, 2002
    
    
    16.77
    
    
    
    8,575,432Options granted
    
    
    8.66
    
    
    
    2,297,500Options canceled/forfeited
    
    
    17.22
    
    
    
    (1,675,768
    )Balance at December 31, 2003
    
    
    14.66
    
    
    
    9,197,164Options exercised
    
    
    12.21
    
    
    
    (742,612
    )Options canceled/forfeited
    
    
    16.20
    
    
    
    (1,158,369
    )Balance at December 31, 2004
    
    $
    14.67
    
    
    
    7,296,183
 F-49




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##### Table of Contents



Notes to the Financial Statements$ in thousands, except share and per share amounts
  20.
    LONG TERM INCENTIVE PLAN AND OTHER AWARDS, continuedStock Options, continuedThe following table summarizes certain information about the outstanding options at December
31, 2004: Outstanding OptionsWtd. Avg. years
    
    
    
    
    
    Exercisable Optionsremaining before
    
    
    Wtd. Avg. Exercise
    
    
    
    
    
    
    Wtd. Avg. ExerciseRange of Prices
    
    Number Outstanding
    
    
    expiration
    
    
    Price
    
    
    Number Exercisable
    
    
    Price$  8.61 to $11.64
    
    
    1,679,467
    
    
    
    8.19
    
    
    $
    8.68
    
    
    
    429,294
    
    
    $
    8.70$11.94 to $14.58
    
    
    1,601,175
    
    
    
    3.96
    
    
    
    12.90
    
    
    
    1,601,175
    
    
    
    12.90$14.87 to $17.98
    
    
    2,056,917
    
    
    
    2.57
    
    
    
    15.90
    
    
    
    2,026,842
    
    
    
    15.88$18.16 to $22.01
    
    
    1,958,624
    
    
    
    2.99
    
    
    
    19.96
    
    
    
    1,729,624
    
    
    
    20.187,296,183
    
    
    
    4.28
    
    
    $
    14.67
    
    
    
    5,786,935
    
    
    $
    15.81
  The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted average assumptions: 2003
    
    
    2002Expected Dividend Yield
    
    
    9.2
    %
    
    
    8.2
    %Expected Price Volatility
    
    
    24.7
    %
    
    
    25.5
    %Risk Free Interest Rate
    
    
    2.7
    %
    
    
    4.5
    %Expected
Life of Options Fair Value of Options
    
    5-Years
    
    5-Years$
    0.59
    
    
    $
    1.63
  Restricted Stock, Restricted Units and Restricted Stock RightsDuring the year ended December 31, 2004, the Corporation awarded 405,950 restricted stock
rights and 115,700 performance based restricted stock rights to certain employees. These
restricted stock rights and performance based restricted stock rights had fair values of
approximately $6,816 and $1,943, respectively, on the date of grant. The restricted stock
rights vest ratably over periods of three to five years. The performance based restricted
stock rights vest ratably over a period of five years provided that specific performance
objectives are achieved. Compensation expense will be charged to earnings over the vesting
period.During the year ended December 31, 2004, the Corporation awarded 14,056 restricted stock
rights to certain directors of the Corporation. These restricted stock rights had a fair
value of approximately $229 on the date of grant. The restricted stock rights vest on
January 1, 2005. Compensation expense will be charged to earnings over the vesting period.During the year ended December 31, 2003, the Corporation awarded 172,500 shares of
restricted common stock and 172,500 shares of performance based restricted common stock to
certain employees. These shares of restricted common stock and performance based restricted
common stock had fair values of approximately $1,894 and $1,894, respectively, on the date
of grant. The restricted common stock vests ratably over five years. The performance based
restricted common stock vests over periods from one to five years provided that specific
performance objectives are achieved. Compensation expense will be charged to earnings over
the vesting period. In December 2003, certain employees elected to have 116,500 shares of
restricted common stock and 116,500 shares of performance based restricted common stock
cancelled and were issued 116,500 restricted units and 116,500 performance based restricted
units in their place. The restricted units vest over the same five-year period and have the
same fair value as the restricted common shares cancelled. The performance based restricted
units vest over the same one to five year period, provided that specific performance
objectives are achieved, and have the same fair value as the performance based restricted
common shares cancelled. Holders of the restricted units and performance based restricted
units have the option to defer settlement of such units for a period of at least three
additional years. Compensation expense will be charged to earnings over the vesting period. F-50




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Notes to the Financial Statements$ in thousands, except share and per share amounts
  20.
    LONG TERM INCENTIVE PLAN AND OTHER AWARDS, continuedWarrantsIn connection with the Reorganization, the Corporation issued 8,772,418 warrants. The table
below summarizes the movement in the warrants outstanding during the years ended December
31, 2004, 2003, and 2002. Prior to Reorganization, the Corporation did not have warrants
outstanding. Weighted
    
    
    Number ofAverage Price
    
    
    WarrantsBalance at December 31, 2001
    
    $
    
    
    
    
    Warrants granted
    
    
    15.58
    
    
    
    8,772,418Warrants exercised
    
    
    14.05
    
    
    
    (59,400
    )Warrants canceled/forfeited
    
    
    15.97
    
    
    
    (1,365,100
    )Balance at December 31, 2002
    
    
    15.51
    
    
    
    7,347,918Warrants exercised
    
    
    10.48
    
    
    
    (1,704,250
    )Warrants canceled/forfeited
    
    
    18.01
    
    
    
    (2,369,534
    )Balance at December 31, 2003
    
    
    16.34
    
    
    
    3,274,134Warrants exercised
    
    
    14.19
    
    
    
    (263,581
    )Warrants canceled/forfeited
    
    
    20.83
    
    
    
    (632,261
    )Balance at December 31, 2004
    
    $
    15.38
    
    
    
    2,378,292
  The following table summarizes certain information abut the outstanding warrants at December
31, 2004: Outstanding WarrantsWtd. Avg. years
    
    
    
    
    
    Exercisable Warrantsremaining before
    
    
    Wtd. Avg. Exercise
    
    
    
    
    
    
    Wtd. Avg. ExerciseRange of Prices
    
    Number Outstanding
    
    
    expiration
    
    
    Price
    
    
    Number Exercisable
    
    
    Price$14.51 to $14.99
    
    
    770,125
    
    
    
    1.23
    
    
    $
    14.84
    
    
    
    770,125
    
    
    $
    14.84$15.15 to $15.50
    
    
    600,000
    
    
    
    3.01
    
    
    
    15.21
    
    
    
    600,000
    
    
    
    15.21$15.57 to $20.41
    
    
    1,008,167
    
    
    
    2.29
    
    
    
    15.90
    
    
    
    1,008,167
    
    
    
    15.902,378,292
    
    
    
    2.13
    
    
    $
    15.38
    
    
    
    2,378,292
    
    
    $
    15.38
  21.
    EARNINGS PER SHAREFor the year ended December 31, 2004, basic and dilutive weighted average shares outstanding
were 151,596,514 and 153,109,854, respectively. In computing weighted average dilutive shares outstanding, basic weighted average shares outstanding were increased by 1,513,340 in
respect to stock options and warrants that had a dilutive effect. Not included in the
computation of diluted net income available to common stockholders per share, as they would
have had an anti-dilutive effect, were 3,306,598 stock options, 707,000 warrants and 535,706
shares of restricted stock and restricted stock rights. The dilutive shares were calculated
based on $16.20 per share, which represents the average daily trading price for the year
ended December 31, 2004.For the year ended December 31, 2003, basic and dilutive weighted average shares outstanding
were 150,005,663 and 150,453,281, respectively. In computing weighted average dilutive shares outstanding, basic weighted average shares outstanding were increased by 447,618 in
respect to stock options and warrants that had a dilutive effect. Not included in the
computation of diluted net income available to common stockholders per share, as they would
have had an anti-dilutive effect, were 8,671,032 stock options and 5,966,918 warrants. The
dilutive shares were calculated based on $11.31 per share, which represents the average
daily trading price for the year ended December 31, 2003.In connection with the Reorganization on May 8, 2002, the Corporation modified the number of
its issued and outstanding shares of common stock as described in Note 19 and issued
8,368,932 options and 8,772,418 warrants to purchase shares of common stock. This resulted
in 149,849,246 shares of common stock and 17,141,350 options and warrants being outstanding
on May 8, 2002. F-51




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Notes to the Financial Statements$ in thousands, except share and per share amounts
  21.
    EARNINGS PER SHARE, continuedBasic and diluted earnings per share of common stock for the year ended December 31, 2002
have been computed as if the 149,849,246 shares of common stock and 17,141,350 stock options
and warrants had been issued and outstanding as of the beginning of each respected period.
All Trizec Properties common stock equivalents were considered for the purpose of
determining dilutive shares outstanding. The Corporation used the average daily trading
price from May 8, 2002 through December 31, 2002 to determine the dilutive effect for the
year ended December 31, 2002. Therefore, basic and diluted earnings per share of common
stock are referred to as pro forma for the year ended December 31, 2002.For the year ended December 31, 2002, basic and dilutive weighted average shares outstanding
were 149,477,187. Not included in the computation of diluted net income available to common
stockholders per share, as they would have had an anti-dilutive effect, were 8,575,432 stock
options and 7,347,918 warrants. The dilutive shares were calculated based on $12.61 per
share, which represents the average daily trading price from May 8, 2002 through December
31, 2002. For the years ended December 312004
    
    
    2003
    
    
    2002Income (Loss) from continuing operations
    
    $
    47,415
    
    
    $
    135,065
    
    
    $
    (38,329
    )Gain on disposition of real estate, net
    
    
    7,358
    
    
    
    11,351
    
    
    
    2,996Less: Special voting and Class F convertible
stockholders dividends
    
    
    (4,824
    )
    
    
    (5,226
    )
    
    
    (866
    )Income (Loss) from Continuing Operations Available
to Common Stockholders
    
    
    49,949
    
    
    
    141,190
    
    
    
    (36,199
    )Discontinued operations
    
    
    46,540
    
    
    
    61,182
    
    
    
    (152,584
    )Cumulative effect of a change in accounting principle
    
    
    
    
    
    
    (3,845
    )
    
    
    Net Income (Loss) Available to Common Stockholders
    
    $
    96,489
    
    
    $
    198,527
    
    
    $
    (188,783
    )Pro formaBasic Earnings per Common ShareIncome (Loss) from continuing operations available
to common stockholders
    
    $
    0.33
    
    
    $
    0.94
    
    
    $
    (0.24
    )Discontinued operations
    
    
    0.31
    
    
    
    0.41
    
    
    
    (1.02
    )Cumulative effect of a change in accounting principle
    
    
    
    
    
    
    (0.03
    )
    
    
    Net Income (Loss) Available to Common Stockholders
    
    $
    0.64
    
    
    $
    1.32
    
    
    $
    (1.26
    )Pro formaDiluted Earnings per Common ShareIncome (Loss) from continuing operations available
to common stockholders
    
    $
    0.33
    
    
    $
    0.94
    
    
    $
    (0.24
    )Discontinued operations
    
    
    0.30
    
    
    
    0.41
    
    
    
    (1.02
    )Cumulative effect of a change in accounting principle
    
    
    
    
    
    
    (0.03
    )
    
    
    Net Income (Loss) Available to Common Stockholders
    
    $
    0.63
    
    
    $
    1.32
    
    
    $
    (1.26
    )Pro formaWeighted average shares outstandingBasic
    
    
    151,596,514
    
    
    
    150,005,663
    
    
    
    149,477,187Diluted
    
    
    153,109,854
    
    
    
    150,453,281
    
    
    
    149,477,187
 F-52




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Notes to the Financial Statements$ in thousands, except share and per share amounts
  22.
    EMPLOYEE BENEFIT PLANS401(k)PlansThe TrizecHahn USA Employee 401(k) Plan and the TrizecHahn Developments Employee 401(k) Plan
were established to cover eligible employees of Trizec Properties and TrizecHahn Development
Inc. and employees of any designated affiliates. The two plans were merged on December 8,
2002 (the 401(k) Plan). The 401(k) Plan permits eligible persons to defer up to 30% of
their annual compensation, subject to certain limitations imposed by the Code. The
employees elective deferrals are immediately vested and non-forfeitable upon contribution
to the 401(k) Plan. In 2004, 2003 and 2002, Trizec Properties and TREHI matched dollar for
dollar employee contributions to the 401(k) Plan up to 5% of the employees annual
compensation not to exceed $6. The Corporation incurred expense of approximately $1,641,
$1,646 and $1,643 for the years ended December 31, 2004, 2003 and 2002, respectively,
related to the 401(k) Plan.Deferred Compensation PlansTwo of the Corporations subsidiaries had deferred compensation plans for a select group of
management and highly compensated employees. Effective May 5, 2003, the two plans were
merged (the 2003 Plan).Under the 2003 Plan, employees are permitted to defer up to 100% of their base salary and/or
bonus on a pre-tax basis and to invest the deferred amount in various investment options.
Additionally, the Corporation may make discretionary contributions under the 2003 Plan on
behalf of participants. Upon completion of a minimum deferral period of four years,
participants may elect to release a portion of the deferred amount. In connection with the
deferred compensation plan, a grantor trust has been established and contributions are made
to the trust in amounts equal to participants deferrals and any discretionary
contributions. Amounts deferred, and discretionary contributions if any, are expensed as
funded. The Corporation incurred expense of approximately $13, $38 and $38 for the years
ended December 31, 2004, 2003 and 2002, respectively. As of December 31, 2004, the
Corporation had assets, included in prepaid expenses and other assets, of approximately
$5,614 and a liability of approximately $2,605, representing the contributions to the 2003
Plan and obligations to the 2003 Plan, respectively. As of December 31, 2003, the
Corporation had assets, included in prepaid expenses and other assets, of approximately
$5,610 and a liability of approximately $3,528, representing the contributions to the 2003
Plan and obligations to the 2003 Plan, respectively.On December 10, 2003, the Compensation Committee and the Corporations Board of Directors
approved a deferred compensation plan effective as of January 1, 2004 (the 2004 Plan).
Under the 2004 Plan, a select group of management and highly compensated employees of the
Corporation are permitted to defer up to 75% of their base salary and/or up to 100% of their
commission and bonus on a pre-tax basis and to invest the deferred amount in various
investment options. The minimum amount of salary, commissions or bonus that may be deferred
is one percent, but not less than $5 per deferral period. In addition, the 2004 Plan
permits certain employees who receive restricted stock rights to defer settlement of such
awards. The Corporation may make discretionary contributions under the 2004 Plan on behalf
of participants. Such employees can elect to receive the deferred amounts as either a lump
sum payment or annual installments for up to five years after a minimum five-year deferral
period. Amounts deferred and discretionary contributions, if any, are expensed as funded.
The Corporation incurred expense of approximately $52 for the year ended December 31, 2004.
As of December 31, 2004, the Corporation had a liability of approximately $730, representing
the obligations to the 2004 Plan.Employee Stock Purchase PlanOn March 18, 2003, the Board of Directors of the Corporation approved an employee stock
purchase plan (the ESPP) that became effective upon approval by the Corporations
stockholders on May 29, 2003. A total of 2,250,000 shares of the Corporations common stock
are available for purchase under the ESPP. All employees of the Corporation and certain
designated subsidiaries of the Corporation are eligible to participate in the ESPP as of the
first month following the completion of six months of continuous employment. The ESPP
provides for an offering period which generally runs from March 1 to February 28 or 29 of
each year; however, the initial offering period under the ESPP ran from September 2, 2003
through February 29, 2004. Eligible employees may purchase shares worth up to $25 in fair
market value per calendar year. The purchase price of the common stock under the ESPP is
85% of the lower of the fair F-53




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Notes to the Financial Statements$ in thousands, except share and per share amounts
  22.
    EMPLOYEE BENEFIT PLANS, continuedEmployee Stock Purchase Plan, continuedmarket value of the common stock on (a) the first day of the offering period or (b) the date
when the shares are purchased. Shares are purchased on the last trading day of each
calendar month. For the year ended December 31, 2004, 92,431 shares had been issued to
employees under the ESPP. For the year ended December 31, 2003, 35,925 shares had been
issued to employees under the ESPP.Long-Term Outperformance Compensation ProgramOn October 21, 2004, the Compensation Committee of the Corporations Board of Directors made
awards to certain senior executives of the Corporation under a long-term incentive
compensation program known as the Trizec Properties, Inc. 2004 Long-Term Outperformance
Compensation Program (the OPP). The OPP was designed as a feature of the Trizec
Properties, Inc. 2002 Long-Term Incentive Plan, as amended (the LTIP), which plan
previously was approved by the Corporations stockholders, to provide meaningful incentives
to senior executives to increase stockholder value by aligning the interests of senior
management with the interests of the Corporations stockholders. The size and dollar value
of the incentive pool, if any, will depend on the extent to which the Corporations
performance over a three-year period commencing on October 20, 2004 and ending on October
19, 2007, as measured by the Corporations total rate of return to stockholders, exceeds a
pre-established performance threshold. The pre-established performance threshold under the
OPP is equal to the greater of (a) 110% of the average of the total rate of return to
stockholders achieved by members of a pre-determined peer group of companies over the
three-year measurement period and (b) a 10% total annual rate of return to the Corporations
stockholders, compounded annually over the three-year measurement period. The aggregate
award amount potentially allocable to the senior executives will be a dollar amount equal to
6% of the product of (a) the Corporations total rate of return to stockholders over the
three-year measurement period minus the pre-established performance threshold, multiplied by
(b) the Corporations market capitalization on October 20, 2004. The aggregate award amount
will be paid in the form of shares of restricted stock granted under the LTIP. Subject to
certain limited exceptions, the aggregate award amount and maximum number of shares of
restricted stock issuable to participants may not exceed the lesser of (a) $25,000 and (b)
2.5% of the aggregate number of shares of the Corporations common stock outstanding on a
fully diluted basis as of October 19, 2007. The fair value of the award on October 20, 2004
was $1,720. The Corporation will amortize the value of the award in accordance with SFAS
No. 123 over the vesting period. Seventy-five percent of the award vests on October 19,
2007 and 25% of the award vests on October 19, 2008.23.
    ESCROWED SHARE GRANTSOn November 9, 2000, TrizecHahn Corporation made grants of escrowed shares to 26 U.S.
employees under which an escrow agent purchased a total of 904,350 TrizecHahn subordinate
voting shares in the open market and deposited them in escrowed accounts. The grants were
made for the purpose of retaining key employees. In connection with the Reorganization, the
TrizecHahn subordinate voting shares in escrow were exchanged in the same manner that all
other subordinate voting shares of TrizecHahn were exchanged. The employee is entitled to
the voting rights and dividends paid on the shares during the escrow period. One-third of
the share grant vests and is released to the employee on each of the anniversary dates of
the grant over a three-year period. Under the terms of the grants, an employee who
voluntarily terminates employment, unless such termination was the result of the alteration
by the Corporation of the essential terms of employment without the employees consent in a
manner materially adverse to the employee, or whose employment was terminated for cause,
forfeited any entitlement to the shares not yet released from escrow. Fully accelerated
vesting occurred if an employees employment was terminated by the Corporation without
cause, by an employee as a result of the alteration by the Corporation of the essential
terms of employment without the employees consent in a manner materially adverse to the
employee, or due to the death of the employee. Upon a change of control, some employees
were also entitled to receive fully accelerated vesting. The first and second tranches of shares vested on November 9, 2001 and November 9, 2002, respectively. Prior to the vesting
of the third tranche, F-54




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Notes to the Financial Statements$ in thousands, except share and per share amounts
  23.
    ESCROWED SHARE GRANTS, continueda limited number of the employees who received grants were given the opportunity to defer
the vesting until a later date. Five of the eligible employees deferred their vesting, so
that on November 9, 2003, 174,034 shares that had not been deferred, fully vested and 55,004
shares remained unvested due to these deferrals. On February 22, 2004, all of the remaining
grants vested. The cost of acquiring the shares of $12,402 was being amortized to
compensation expense, on a straight-line basis, over the vesting period. Amounts expensed
in respect of the escrowed share grants totaled approximately $2,598 and $3,856 for the
years ended December 31, 2003 and 2002, respectively. During the year ended December 31,
2003, 14,365 shares reverted back to the Corporation with an unamortized unearned
compensation amount of approximately $197 and are held in treasury. During the year ended
December 31, 2002, 3,646 shares reverted back to the Corporation with an unamortized
unearned compensation amount of approximately $40 and are held in treasury.24.
    CONTINGENCIESLitigationThe Corporation is contingently liable under guarantees that are issued in the normal course
of business and with respect to litigation and claims that arise from time to time. While
the final outcome with respect to claims and litigation pending at December 31, 2004, cannot
be predicted with certainty, in the opinion of management, any liability which may arise
from such contingencies would not have a material adverse effect on the consolidated
financial position, results of operations or liquidity of the Corporation.Concentration of Credit RiskThe Corporation maintains its cash and cash equivalents at financial institutions. The
combined account balances at each institution typically exceed Federal Deposit Insurance
Corporation (FDIC) insurance coverage and, as a result, there is a concentration of credit
risk related to amounts on deposit in excess of FDIC insurance coverage. Management
believes that this risk is not significant.The Corporation performs ongoing credit evaluations of tenants and may require tenants to
provide some form of credit support such as corporate guarantees and/or other financial
guarantees. Although the Corporations properties are geographically diverse and tenants
operate in a variety of industries, to the extent the Corporation has a significant
concentration of rental revenue from any single tenant, the inability of that tenant to make
its lease payment could have an adverse effect on the Corporation.EnvironmentalThe Corporation, as an owner of real estate, is subject to various federal, state and local
laws and regulations relating to environmental matters. Under these laws, the Corporation
is exposed to liability primarily as an owner or operator of real property and, as such, it
may be responsible for the cleanup or other remediation of contaminated property.
Contamination for which the Corporation may be liable could include historic contamination,
spills of hazardous materials in the course of its tenants regular business operations and
spills or releases of hydraulic or other toxic oils. An owner or operator can be liable for
contamination or hazardous or toxic substances in some circumstances whether or not the
owner or operator knew of, or was responsible for, the presence of such contamination or
hazardous or toxic substances. In addition, the presence of contamination or hazardous or
toxic substances on property, or the failure to properly clean up or remediate such
contamination or hazardous or toxic substances when present, may materially and adversely
affect the ability to sell or lease such contaminated property or to borrow using such
property as collateral.Asbestos-containing material (ACM) is present in some of the Corporations properties.
Environmental laws govern the presence, maintenance and removal of asbestos. The
Corporation believes that it manages ACM in accordance with applicable laws and plans to
continue managing ACM as appropriate and in accordance with applicable laws and believes
that the cost to do so will not be material. F-55




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Notes to the Financial Statements$ in thousands, except share and per share amounts
  24.
    CONTINGENCIES, continuedEnvironmental, continuedThe cost of compliance with existing environmental laws has not had a material adverse
effect on the Corporations financial condition and results of operations, and the
Corporation does not believe it will have such an impact in the future. In addition, the
Corporation has not incurred, and does not expect to incur any material costs or liabilities
due to environmental contamination at properties it currently owns or has owned in the past.
However, the Corporation cannot predict the impact of new or changed laws or regulations on
its properties or on properties that it may acquire in the future. The Corporation has no
current plans for substantial capital expenditures with respect to compliance with
environmental laws.InsuranceThe Corporation carries insurance on its properties of types and in amounts that it believes
are in line with coverage customarily obtained by owners of similar properties. The
Corporation believes all of its properties are adequately insured. The property insurance
that has been maintained historically has been on an all risk basis, which, until 2003,
included losses caused by acts of terrorism. Following the terrorist activity of September
11, 2001 and the resulting uncertainty in the insurance market, insurance companies
generally excluded insurance against acts of terrorism from their all risk policies. As a
result, the Corporations all risk insurance coverage contained specific exclusions for
losses attributable to acts of terrorism. In light of this development, for 2003 the
Corporation purchased stand-alone terrorism insurance on a portfolio-wide basis with annual
aggregate limits that it considers commercially reasonable, considering the availability and
cost of such coverage. Such terrorism coverage carried an aggregate limit of $250,000 on a
portfolio-wide basis. Effective December 31, 2003, the Corporation amended its insurance
coverage for acts of terrorism as a result of the Terrorism Risk Insurance Act of 2002
(TRIA) enacted by Congress and signed into law by President Bush in November 2002.
Effective December 31, 2003, the Corporation formed a wholly-owned taxable REIT subsidiary,
Concord Insurance Limited (Concord), to act as a captive insurance company and be the
primary carrier with respect to its terrorism insurance program. The Corporations expired
terrorism insurance program that provided a limit of $250,000 in the aggregate per year was
replaced with a terrorism insurance program with a limit of $500,000 per occurrence, as
prescribed under the provisions of TRIA. This current terrorism insurance program provides
coverage for certified nuclear, chemical and biological exposure, whereas the previous
insurance program did not cover such exposure. Under TRIA, the Corporation has a per
occurrence deductible of $100 and retains responsibility for 10% of the cost of each
nuclear, chemical and biological certified event up to a maximum of $50,000 per occurrence.
If the certified terrorism event is not found to be a nuclear, chemical or biological event,
the Corporations 10% exposure is limited to the $100 deductible. The federal government is
obligated to cover the remaining 90% of the loss above the deductible up to $100,000,000 in
the aggregate annually. Since the limit with respect to the Corporations portfolio may be
less than the value of the affected properties, terrorist acts could result in property
damage in excess of its current coverage, which could result in significant losses to the
Corporation due to the loss of capital invested in the property, the loss of revenues from
the impacted property and the capital that would have to be invested in that property. Any
such circumstance could have a material adverse effect on the Corporations financial
condition and results of operations. In the future, the Corporation may obtain different
coverage depending on the availability and cost of third party insurance in the marketplace.During 2003, the Corporation received notices to the effect that its insurance coverage
against acts of terrorism may not comply with loan covenants under certain debt agreements.
The Corporation reviewed its coverage and believes that it complied with these documents and
that its insurance coverage adequately protected the lenders interests. The Corporation
initiated discussions with these lenders to satisfy their concerns and assure that their
interests and the Corporations interests are adequately protected. As a result of the
Corporations discussions, the lenders who sent such notices in 2003 accepted the insurance
coverage that the Corporation provided, one of whom did so with a formal irrevocable waiver
for the 2003 policies. The Corporation did not receive any such notices in 2004.The new terrorism insurance program described above became effective on December 31, 2003.
Because the program relies upon TRIA, which was not signed into law until November 2002, it
may not conform to the formal insurance requirements of the loan covenants that pre-dated
TRIA. While the Corporation F-56




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Notes to the Financial Statements$ in thousands, except share and per share amounts
  24.
    CONTINGENCIES, continuedInsurance, continuedbelieves it is in compliance with its loan covenants, a lender may take the position that
the Corporations insurance program is not in compliance with covenants in a debt agreement
and the Corporation could be deemed to be in default under the agreement. In that case, the
Corporation may decide to obtain insurance to replace or supplement its insurance program in
order to fulfill the lenders request. While the Corporation believes its terrorism
insurance coverage meets the formal and substantive provisions of its loan agreements, a
lender under one of its loan agreements has verbally indicated that the Corporations
terrorism insurance may not meet the precise requirements of a loan agreement. The
Corporation has not received, nor does it expect to receive, a notice of default from the
lender. Furthermore, the lender has stated that a written waiver will be provided to the
Corporation or that the loan will be amended to ensure that the Corporations coverage will
be compliant. In the future, the Corporations ability to obtain debt financing, and/or the
terms of such financing, may be adversely affected if lenders insist upon additional
requirements or greater insurance coverage against acts of terrorism than may be available
to the Corporation in the marketplace at rates, or on terms, that are commercially
reasonable.Effective May 1, 2004, the Corporation elected to also utilize Concord to underwrite its
general liability and workers compensation insurance programs. Under such insurance
programs, the Corporation is generally responsible for up to $250 per claim for both general
liability and workers compensation. The Corporation maintains excess liability insurance
with independent insurance carriers to minimize risks related to catastrophic claims.
Liabilities associated with the risks that are retained by the Corporation are estimated, in
part, by considering historical claims experience, demographic factors, severity factors and
other actuarial assumptions. The estimated accruals for these liabilities could be
significantly affected if future occurrences and claims differ from these assumptions and
historical trends.Insofar as the Corporation owns Concord, it is responsible for its liquidity and capital
resources, and the accounts of Concord are part of the Corporations consolidated financial
statements. If the Corporation experiences a loss and Concord is required to pay under its
insurance policies, the Corporation would ultimately record the loss to the extent of
Concords required payment.Effective December 31, 2004, the Corporation formed Concordia Insurance LLC and Chapman
Insurance LLC to underwrite terrorism, general liability and workers compensation insurance
programs for its wholly owned and joint venture properties, respectively. Effective
December 31, 2004, Concord will underwrite terrorism, general liability and workers
compensation insurance programs only for properties the Corporation has third party
management agreements with.The Corporations earthquake insurance on its properties located in areas known to be
subject to earthquakes is in an amount and subject to deductibles that the Corporation
believes are commercially reasonable. However, the amount of earthquake insurance coverage
may not be sufficient to cover all losses from earthquakes. Since the limit with respect
to the Corporations portfolio may be less than the value of the affected properties,
earthquakes could result in property damage in excess of its current coverage, which could
result in significant losses to the Corporation due to the loss of capital invested in the
property, the loss of revenues from the impacted property and the capital that would have to
be invested in that property. Any such circumstances could have a material adverse effect
on the Corporations financial condition and results of operations. As a result of
increased costs of coverage and decreased availability, the amounts of the third party
earthquake insurance the Corporation may be able to purchase on commercially reasonable
terms may be reduced. In addition, the Corporation may discontinue earthquake insurance on
some or all of its properties in the future if the premiums exceed the Corporations
estimate of the value of the coverage.There are other types of losses, such as from acts of war, acts of bio-terrorism or the
presence of mold at the Corporations properties, for which coverage is not available in the
market to the Corporation or other purchasers of commercial insurance policies. With
respect to such losses and losses from acts of terrorism, earthquakes or other catastrophic
events, if the Corporation experiences a loss that is uninsured or that exceeds policy
limits, it could lose the capital invested in the damaged properties, as well as the
anticipated future revenues from those properties. Depending on the specific circumstances
of each affected property, it is possible that the Corporation could be liable for mortgage
indebtedness or other obligations related to F-57




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Notes to the Financial Statements$ in thousands, except share and per share amounts
  24.
    CONTINGENCIES, continuedInsurance, continuedthe property. Any such loss could materially and adversely affect the Corporations
business and financial condition and results of operations.Additionally, although the Corporation generally obtains owners title insurance policies
with respect to its properties, the amount of coverage under such policies may be less than
the full value of such properties. If a loss occurs resulting from a title defect with
respect to a property where there is no title insurance or the loss is in excess of insured
limits, the Corporation could lose all or part of its investment in, and anticipated income
and cash flows from, such property.25.
    SEGMENTED INFORMATIONThe Corporation has determined that its reportable segments are those that are based on the
Corporations method of internal reporting, which classifies its office operations by
regional geographic area. This reflects a management structure with dedicated regional
leasing and property management teams. The Corporations reportable segments by major
metropolitan area for office operations in the United States are: Atlanta, Chicago, Dallas,
Houston, Los Angeles, New York, Washington D.C. and secondary markets. The Corporation
primarily evaluates operating performance based on internal operating income, which is
defined as total revenue including tenant recoveries, parking, fee and other income less
operating expenses and property taxes, and include properties that have been designated as
held for disposition and reported as discontinued operations. Of the properties reported as
discontinued operations, four are in Washington, D.C.; three are in Dallas, TX; three are in
Los Angeles, CA; two are in Atlanta, GA; one is in Houston, TX; one is in New York, NY; and
twelve are in the secondary markets of West Palm Beach, FL; Memphis, TN; Minneapolis, MN;
Columbia, SC; St. Louis, MO; Columbus, OH; Tulsa, OK; Sacramento, CA; Pittsburgh, PA and
Baltimore, MD. In addition, two properties located in Los Angeles, CA and one property
located in Las Vegas, NV are included in corporate and other. Internal operating income
excludes property related depreciation and amortization expense. The accounting policies
for purposes of internal reporting are the same as those described for the Corporation in
Note 2  Significant Accounting Policies, except that real estate operations conducted
through unconsolidated joint ventures are consolidated on a proportionate line-by-line
basis, as opposed to the equity method of accounting. All key financing, investing, capital
allocation and human resource decisions are managed at the corporate level.The following presents internal property operating income by reportable segment for the
years ended December 31, 2004, 2003 and 2002. F-58




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Notes to the Financial Statements$ in thousands, except share and per share amounts
  25.
    SEGMENTED INFORMATION, continuedFor the years ended December 31, 2004, 2003 and 2002 Office PropertiesAtlanta
    
    
    
    Chicago
    
    
    
    Dallas
    
    
    
    Houston2004
    
    
    2003
    
    
    2002
    
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    
    2004
    
    
    2003
    
    
    2002Property operationsTotal property revenue
    
    
    $
    88,532
    
    
    $
    88,499
    
    
    $
    85,923
    
    
    
    $
    75,137
    
    
    $
    71,277
    
    
    $
    69,402
    
    
    
    $
    88,304
    
    
    $
    93,279
    
    
    $
    101,877
    
    
    
    $
    122,387
    
    
    $
    128,138
    
    
    $
    128,787Total property expense
    
    
    
    (35,800
    )
    
    
    (36,912
    )
    
    
    (34,933
    )
    
    
    
    (33,863
    )
    
    
    (34,567
    )
    
    
    (31,437
    )
    
    
    
    (47,136
    )
    
    
    (54,722
    )
    
    
    (57,760
    )
    
    
    
    (61,084
    )
    
    
    (61,218
    )
    
    
    (61,470
    )Internal operating income
    
    
    $
    52,732
    
    
    $
    51,587
    
    
    $
    50,990
    
    
    
    $
    41,274
    
    
    $
    36,710
    
    
    $
    37,965
    
    
    
    $
    41,168
    
    
    $
    38,557
    
    
    $
    44,117
    
    
    
    $
    61,303
    
    
    $
    66,920
    
    
    $
    67,317Internal property assets
    
    
    $
    406,837
    
    
    $
    513,308
    
    
    
    
    
    
    
    $
    382,680
    
    
    $
    383,835
    
    
    
    
    
    
    
    $
    503,372
    
    
    $
    626,117
    
    
    
    
    
    
    
    $
    434,726
    
    
    $
    465,220
 Office Properties, continuedLos Angeles
    
    
    
    New York
    
    
    
    Washington D.C.2004
    
    
    2003
    
    
    2002
    
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    
    2004
    
    
    2003
    
    
    2002Property operationsTotal property revenue
    
    
    $
    72,217
    
    
    $
    66,016
    
    
    $
    59,449
    
    
    
    $
    217,761
    
    
    $
    215,181
    
    
    $
    208,637
    
    
    
    $
    118,926
    
    
    $
    117,338
    
    
    $
    128,444Total property expense
    
    
    
    (33,380
    )
    
    
    (30,476
    )
    
    
    (26,663
    )
    
    
    
    (100,057
    )
    
    
    (99,277
    )
    
    
    (92,323
    )
    
    
    
    (45,509
    )
    
    
    (47,735
    )
    
    
    (49,742
    )Internal operating income
    
    
    $
    38,837
    
    
    $
    35,540
    
    
    $
    32,786
    
    
    
    $
    117,704
    
    
    $
    115,904
    
    
    $
    116,314
    
    
    
    $
    73,417
    
    
    $
    69,603
    
    
    $
    78,702Internal property assets
    
    
    $
    748,814
    
    
    $
    324,550
    
    
    
    
    
    
    
    $
    936,574
    
    
    $
    1,026,939
    
    
    
    
    
    
    
    $
    836,287
    
    
    $
    779,203
 Office Properties, continuedSecondary Markets
    
    
    
    Corporate and Other
    
    
    
    Total2004
    
    
    2003
    
    
    2002
    
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    
    2004
    
    
    2003
    
    
    2002Property operationsTotal property revenue
    
    
    $
    131,188
    
    
    $
    180,545
    
    
    $
    196,606
    
    
    
    $
    31,574
    
    
    $
    103,185
    
    
    $
    141,332
    
    
    
    $
    946,026
    
    
    $
    1,063,458
    
    
    $
    1,120,457Total property expense
    
    
    
    (73,200
    )
    
    
    (98,438
    )
    
    
    (104,021
    )
    
    
    
    (10,549
    )
    
    
    (66,778
    )
    
    
    (89,220
    )
    
    
    
    (440,578
    )
    
    
    (530,123
    )
    
    
    (547,569
    )Internal operating income
    
    
    $
    57,988
    
    
    $
    82,107
    
    
    $
    92,585
    
    
    
    $
    21,025
    
    
    $
    36,407
    
    
    $
    52,112
    
    
    
    $
    505,448
    
    
    $
    533,335
    
    
    $
    572,888Internal property assets
    
    
    $
    446,563
    
    
    $
    824,709
    
    
    
    
    
    
    
    $
    219,688
    
    
    $
    431,045
    
    
    
    
    
    
    
    $
    4,915,541
    
    
    $
    5,374,926
 F-59




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##### Table of Contents



Notes to the Financial Statements
$ in thousands, except share and per share amounts  25. SEGMENTED INFORMATION, continued The following is a reconciliation of internal property operating income to income (loss)
from continuing operations. For the years ended December 31,2004
    
    
    2003
    
    
    2002Internal property revenue
    
    $
    946,026
    
    
    $
    1,063,458
    
    
    $
    1,120,457Less: Real estate joint venture property
revenue
    
    
    (101,142
    )
    
    
    (115,044
    )
    
    
    (123,206
    )Less: Discontinued operations
    
    
    (132,747
    )
    
    
    (236,943
    )
    
    
    (275,345
    )Total revenues
    
    
    712,137
    
    
    
    711,471
    
    
    
    721,906Internal property operating expenses
    
    
    (440,578
    )
    
    
    (530,123
    )
    
    
    (547,569
    )Less: Real estate joint venture operating
expenses
    
    
    46,423
    
    
    
    57,389
    
    
    
    71,590Less: Discontinued operations
    
    
    72,144
    
    
    
    132,307
    
    
    
    145,357Total operating expenses and property taxes
    
    
    (322,011
    )
    
    
    (340,427
    )
    
    
    (330,622
    )General and administrative, exclusive of
stock option grant expense
    
    
    (38,456
    )
    
    
    (39,304
    )
    
    
    (44,935
    )Depreciation and amortization
    
    
    (145,290
    )
    
    
    (135,987
    )
    
    
    (130,183
    )Stock option grant expense
    
    
    (1,303
    )
    
    
    (1,054
    )
    
    
    (5,214
    )Reorganization recovery
    
    
    
    
    
    
    
    
    
    
    3,260Provision for loss on real estate
    
    
    (12,749
    )Loss on and provision for loss on investment
    
    
    (14,558
    )
    
    
    (15,491
    )
    
    
    (60,784
    )Interest and other income
    
    
    5,403
    
    
    
    7,398
    
    
    
    6,067Foreign currency exchange gain
    
    
    3,340
    
    
    
    
    
    
    
    (Loss) Gain on early debt retirement
    
    
    (7,032
    )
    
    
    2,262
    
    
    
    Recovery on insurance claims
    
    
    739
    
    
    
    6,673
    
    
    
    3,800Interest expense
    
    
    (146,584
    )
    
    
    (150,622
    )
    
    
    (150,863
    )Derivative gain
    
    
    1,073Lawsuit settlement
    
    
    3,676
    
    
    
    26,659
    
    
    
    (Provision) benefit for income and other
corporate taxes, net
    
    
    (4,379
    )
    
    
    41,777
    
    
    
    (4,896
    )Minority interest
    
    
    (1,834
    )
    
    
    (1,626
    )
    
    
    1,766Income from unconsolidated real estate
joint ventures including provision for loss
on investment ($58,800 for 2002)
    
    
    15,243
    
    
    
    23,336
    
    
    
    (47,631
    )Income (Loss) from Continuing Operations
    
    $
    47,415
    
    
    $
    135,065
    
    
    $
    (38,329
    )
 The following is a reconciliation of internal property assets to consolidated total assets. 2004
    
    
    2003Internal property assets
    
    $
    4,915,541
    
    
    $
    5,374,926Less: Pro rata real estate joint venture assets
    
    
    (509,770
    )
    
    
    (479,382
    )Add: Investment in unconsolidated real estate
joint
ventures
    
    
    119,641
    
    
    
    231,185Total Assets
    
    $
    4,525,412
    
    
    $
    5,126,729
 F-60




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##### Table of Contents



Notes to the Financial Statements
$ in thousands, except share and per share amounts  26. INTERIM FINANCIAL INFORMATION (UNAUDITED) The tables below reflect the Corporations selected quarterly information for the years
ended December 31, 2004 and 2003. Certain 2004 and 2003 amounts have been reclassified to
the current presentation of discontinued operations. 2004First
    
    
    Second
    
    
    Third
    
    
    FourthQuarter
    
    
    Quarter
    
    
    Quarter
    
    
    QuarterTotal revenues
    
    $
    188,933
    
    
    $
    157,619
    
    
    $
    180,208
    
    
    $
    185,377Income (Loss) before income taxes, minority
interest, income from unconsolidated real
estate joint ventures, discontinued
operations, gain (loss) on disposition of
real estate, net, and cumulative effect of a
change in accounting principle
    
    
    24,233
    
    
    
    (9,472
    )
    
    
    9,782
    
    
    
    13,842Income (Loss) from continuing operations
    
    
    27,903
    
    
    
    (8,864
    )
    
    
    13,197
    
    
    
    15,179Discontinued operations
    
    
    41,933
    
    
    
    (115,655
    )
    
    
    36,098
    
    
    
    84,164Gain (Loss) on disposition of real estate, net
    
    
    14,771
    
    
    
    (12,426
    )
    
    
    249
    
    
    
    4,764Net income (loss)
    
    
    84,607
    
    
    
    (136,945
    )
    
    
    49,544
    
    
    
    104,107Net income (loss) available to common
stockholders
    
    $
    83,303
    
    
    $
    (138,162
    )
    
    $
    48,150
    
    
    $
    103,198Net income (loss) available to common
stockholders:Basic
    
    $
    0.55
    
    
    $
    (0.91
    )
    
    $
    0.32
    
    
    $
    0.68Diluted
    
    $
    0.55
    
    
    $
    (0.91
    )
    
    $
    0.31
    
    
    $
    0.67Weighted average shares:Basic
    
    
    151,124,515
    
    
    
    151,609,430
    
    
    
    151,762,295
    
    
    
    151,884,824Diluted
    
    
    152,767,608
    
    
    
    151,609,430
    
    
    
    153,351,683
    
    
    
    153,470,355
 2003First
    
    
    Second
    
    
    Third
    
    
    FourthQuarter
    
    
    Quarter
    
    
    Quarter
    
    
    QuarterTotal revenues
    
    $
    177,549
    
    
    $
    175,765
    
    
    $
    177,682
    
    
    $
    180,475Income before income taxes, minority
interest, income from unconsolidated real
estate joint ventures, discontinued
operations, gain on disposition of real
estate, net, and cumulative effect of a
change in accounting principle
    
    
    21,457
    
    
    
    18,991
    
    
    
    24,919
    
    
    
    6,211Income from continuing operations
    
    
    29,894
    
    
    
    20,727
    
    
    
    39,730
    
    
    
    44,714Discontinued operations
    
    
    17,577
    
    
    
    (9,387
    )
    
    
    21,596
    
    
    
    31,396Gain on disposition of real estate, net
    
    
    11,351
    
    
    
    
    
    
    
    
    
    
    
    Cumulative effect of a change in accounting
principle
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,845
    )Net income
    
    
    58,822
    
    
    
    11,340
    
    
    
    61,326
    
    
    
    72,265Net income available to common stockholders
    
    $
    58,039
    
    
    $
    10,710
    
    
    $
    58,822
    
    
    $
    70,956Net income available to common stockholders:Basic
    
    $
    0.39
    
    
    $
    0.07
    
    
    $
    0.39
    
    
    $
    0.47Diluted
    
    $
    0.39
    
    
    $
    0.07
    
    
    $
    0.39
    
    
    $
    0.47Weighted average shares:Basic
    
    
    149,785,046
    
    
    
    149,785,046
    
    
    
    149,933,043
    
    
    
    150,512,323Diluted
    
    
    149,809,100
    
    
    
    150,289,382
    
    
    
    150,521,687
    
    
    
    151,519,320
 F-61




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##### Table of Contents



Schedule III  Real Estate and
Accumulated Depreciation at December 31, 2004  Subsequent CostsInitial Cost to Company
    
    
    Capitalized, Net
    
    
    Total Cost at 12/31/04Date ofEncumbrances
    
    
    
    
    
    
    Building and
    
    
    
    
    
    
    Building and
    
    
    
    
    
    
    Building and
    
    
    
    
    
    
    Accumulated
    
    
    Construction/
    
    
    
    DepreciableDescription
    
    Notes
    
    Location
    
    at 12/31/04
    
    
    Land
    
    
    additions
    
    
    Land
    
    
    additions
    
    
    Land
    
    
    additions
    
    
    Total (1)
    
    
    Depreciation
    
    
    Renovation
    
    Date Acquired
    
    Lives (2)Properties held for the long termRental PropertiesAtlantaInterstate North Parkway
    
    
    
    Atlanta, GA
    
    $
    (51,115
    )
    
    $
    6,900
    
    
    $
    63,619
    
    
    $
    
    
    
    $
    28,779
    
    
    $
    6,900
    
    
    $
    92,398
    
    
    $
    99,298
    
    
    $
    (16,672
    )
    
    1973/84/01
    
    Dec. 10/98
    
    40Colony Square
    
    
    
    Atlanta, GA
    
    
    (61,546
    )
    
    
    8,900
    
    
    
    53,408
    
    
    
    
    
    
    
    18,492
    
    
    
    8,900
    
    
    
    71,900
    
    
    
    80,800
    
    
    
    (13,773
    )
    
    1970/73/95
    
    Dec. 23/96
    
    40The Palisades
    
    
    
    Atlanta, GA
    

    
    
    
    
    
    7,250
    
    
    
    67,499
    
    
    
    
    
    
    
    16,303
    
    
    
    7,250
    
    
    
    83,802
    
    
    
    91,052
    
    
    
    (16,037
    )
    
    1981/83/99
    
    Dec. 16/98
    
    40Midtown Plaza
    
    
    
    Atlanta, GA
    
    
    (42,295
    )
    
    
    9,093
    
    
    
    52,923
    
    
    
    
    
    
    
    5,664
    
    
    
    9,093
    
    
    
    58,587
    
    
    
    67,680
    
    
    
    (11,677
    )
    
    1984/85
    
    Nov. 19/97
    
    40One Alliance Center
    
    3
    
    Atlanta, GA
    
    
    (68,547
    )
    
    
    10,079
    
    
    
    
    
    
    
    
    
    
    
    87,769
    
    
    
    10,079
    
    
    
    87,769
    
    
    
    97,848
    
    
    
    (9,214
    )
    
    2001
    
    Dec. 16/98
    
    40Total  Atlanta
    
    
    
    
    
    
    (223,503
    )
    
    
    42,222
    
    
    
    237,449
    
    
    
    
    
    
    
    157,007
    
    
    
    42,222
    
    
    
    394,456
    
    
    
    436,678
    
    
    
    (67,373
    )ChicagoFranklin Garage
    
    
    
    Chicago, IL
    
    
    
    
    
    
    30,438
    
    
    
    10,612
    
    
    
    
    
    
    
    1,390
    
    
    
    30,438
    
    
    
    12,002
    
    
    
    42,440
    
    
    
    (2,004
    )
    
    1974
    
    Dec. 3/97
    
    40Two North LaSalle
    
    
    
    Chicago, IL
    
    
    (41,726
    )
    
    
    9,305
    
    
    
    54,094
    
    
    
    
    
    
    
    19,632
    
    
    
    9,305
    
    
    
    73,726
    
    
    
    83,031
    
    
    
    (13,270
    )
    
    1979/00
    
    Dec. 10/98
    
    40Dec. 10/98, Nov. 10/01,10 South Riverside
    
    
    
    Chicago, IL
    
    
    (48,231
    )
    
    
    14,262
    
    
    
    63,171
    
    
    
    
    
    
    
    30,165
    
    
    
    14,262
    
    
    
    93,336
    
    
    
    107,598
    
    
    
    (15,372
    )
    
    1965/99
    
    Jun. 3/02
    
    40Dec. 10/98, Nov. 10/01,120 South Riverside
    
    
    
    Chicago, IL
    
    
    (46,998
    )
    
    
    14,262
    
    
    
    53,222
    
    
    
    
    
    
    
    25,214
    
    
    
    14,262
    
    
    
    78,436
    
    
    
    92,698
    
    
    
    (17,694
    )
    
    1967/99
    
    Jun. 3/02
    
    40550 West Washington
    
    
    
    Chicago, IL
    
    
    (33,666
    )
    
    
    11,505
    
    
    
    65,830
    
    
    
    
    
    
    
    191
    
    
    
    11,505
    
    
    
    66,021
    
    
    
    77,526
    
    
    
    (5,977
    )
    
    2000
    
    May 15/01
    
    40Total  Chicago
    
    
    
    
    
    
    (170,621
    )
    
    
    79,772
    
    
    
    246,929
    
    
    
    
    
    
    
    76,592
    
    
    
    79,772
    
    
    
    323,521
    
    
    
    403,293
    
    
    
    (54,317
    )DallasRenaissance Tower
    
    
    
    Dallas, TX
    
    
    (92,000
    )
    
    
    3,150
    
    
    
    105,834
    
    
    
    
    
    
    
    32,951
    
    
    
    3,150
    
    
    
    138,785
    
    
    
    141,935
    
    
    
    (38,421
    )
    
    1974/92
    
    Oct. 31/96
    
    40Galleria Towers I, II and III
    
    
    
    Dallas, TX
    
    
    
    
    
    
    21,435
    
    
    
    196,728
    
    
    
    
    
    
    
    22,595
    
    
    
    21,435
    
    
    
    219,323
    
    
    
    240,758
    
    
    
    (32,921
    )
    
    1982/85/91
    
    Jan. 15/99
    
    40Total  Dallas
    
    
    
    
    
    
    (92,000
    )
    
    
    24,585
    
    
    
    302,562
    
    
    
    
    
    
    
    55,546
    
    
    
    24,585
    
    
    
    358,108
    
    
    
    382,693
    
    
    
    (71,342
    )HoustonAllen Center
    
    
    
    Houston, TX
    
    
    (298,722
    )
    
    
    21,375
    
    
    
    236,851
    
    
    
    
    
    
    
    25,636
    
    
    
    21,375
    
    
    
    262,487
    
    
    
    283,862
    
    
    
    (55,645
    )
    
    1972/78/80/95
    
    Nov. 19/96
    
    40Continental Center I
    
    
    
    Houston, TX
    
    
    (94,074
    )
    
    
    14,756
    
    
    
    69,741
    
    
    
    
    
    
    
    30,236
    
    
    
    14,756
    
    
    
    99,977
    
    
    
    114,733
    
    
    
    (28,469
    )
    
    1984
    
    Oct. 31/96
    
    40Continental Center II
    
    
    
    Houston, TX
    
    
    (19,251
    )
    
    
    1,500
    
    
    
    9,793
    
    
    
    
    
    
    
    12,402
    
    
    
    1,500
    
    
    
    22,195
    
    
    
    23,695
    
    
    
    (6,947
    )
    
    1971
    
    Oct. 31/96
    
    40500 Jefferson
    
    
    
    Houston, TX
    
    
    
    
    
    
    413
    
    
    
    7,937
    
    
    
    
    
    
    
    2,391
    
    
    
    413
    
    
    
    10,328
    
    
    
    10,741
    
    
    
    (2,218
    )
    
    1962/83
    
    Oct. 31/96
    
    40Total  Houston
    
    
    
    
    
    
    (412,047
    )
    
    
    38,044
    
    
    
    324,322
    
    
    
    
    
    
    
    70,665
    
    
    
    38,044
    
    
    
    394,987
    
    
    
    433,031
    
    
    
    (93,279
    )
 F-62




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##### Table of Contents



Schedule III  Real Estate and
Accumulated Depreciation at December 31, 2004  Subsequent CostsInitial Cost to Company
    
    
    Capitalized, Net
    
    
    Total Cost at 12/31/04Date ofEncumbrances
    
    
    
    
    
    
    Building and
    
    
    
    
    
    
    Building and
    
    
    
    
    
    
    Building and
    
    
    
    
    
    
    Accumulated
    
    
    Construction/
    
    
    
    DepreciableDescription
    
    Notes
    
    Location
    
    at 12/31/04
    
    
    Land
    
    
    additions
    
    
    Land
    
    
    additions
    
    
    Land
    
    
    Additions
    
    
    Total (1)
    
    
    Depreciation
    
    
    Renovation
    
    Date Acquired
    
    Lives (2)Los Angeles AreaLandmark Square
    
    
    
    Long Beach, CA
    
    
    (44,382
    )
    
    
    18,477
    
    
    
    68,813
    
    
    
    
    
    
    
    4,701
    
    
    
    18,477
    
    
    
    73,514
    
    
    
    91,991
    
    
    
    (13,014
    )
    
    1991
    
    Aug. 11/98
    
    40Ernst & Young Plaza
    
    
    
    Los Angeles, CA
    
    
    (118,617
    )
    
    
    31,445
    
    
    
    113,490
    
    
    
    
    
    
    
    3,527
    
    
    
    31,445
    
    
    
    117,017
    
    
    
    148,462
    
    
    
    (19,342
    )
    
    1985
    
    June 4/02
    
    40Bank of America Plaza
    
    
    
    Los Angeles, CA
    
    
    (242,000
    )
    
    
    51,774
    
    
    
    313,143
    
    
    
    10
    
    
    
    728
    
    
    
    51,784
    
    
    
    313,871
    
    
    
    365,655
    
    
    
    (2,711
    )
    
    1974
    
    Aug. 27/04
    
    40Total  Los Angeles Area
    
    
    
    
    
    
    (404,999
    )
    
    
    101,696
    
    
    
    495,446
    
    
    
    10
    
    
    
    8,956
    
    
    
    101,706
    
    
    
    504,402
    
    
    
    606,108
    
    
    
    (35,067
    )New York AreaOne New York Plaza
    
    
    
    New York, NY
    
    
    (232,119
    )
    
    
    58,676
    
    
    
    340,107
    
    
    
    
    
    
    
    25,687
    
    
    
    58,676
    
    
    
    365,794
    
    
    
    424,470
    
    
    
    (51,176
    )
    
    1970/95
    
    Apr. 30/99
    
    401065 Avenue of the Americas
    
    
    
    New York, NY
    
    
    
    
    
    
    19,715
    
    
    
    44,882
    
    
    
    
    
    
    
    10,237
    
    
    
    19,715
    
    
    
    55,119
    
    
    
    74,834
    
    
    
    (10,544
    )
    
    1958
    
    Jan. 5/97
    
    40Newport Tower
    
    
    
    Jersey City, NJ
    
    
    
    
    
    
    2,054
    
    
    
    161,582
    
    
    
    
    
    
    
    1,782
    
    
    
    2,054
    
    
    
    163,364
    
    
    
    165,418
    
    
    
    (29,481
    )
    
    1990
    
    Feb. 24/97
    
    40Total  New York Area
    
    
    
    
    
    
    (232,119
    )
    
    
    80,445
    
    
    
    546,571
    
    
    
    
    
    
    
    37,706
    
    
    
    80,445
    
    
    
    584,277
    
    
    
    664,722
    
    
    
    (91,201
    )Washington, D.C. Area2000 L Street, N.W
    
    
    
    Washington, DC
    
    
    (56,100
    )
    
    
    7,728
    
    
    
    56,767
    
    
    
    
    
    
    
    20,209
    
    
    
    7,728
    
    
    
    76,976
    
    
    
    84,704
    
    
    
    (17,774
    )
    
    1968/98
    
    Feb. 2/98
    
    40Watergate Office Building
    
    
    
    Washington, DC
    
    
    (17,215
    )
    
    
    4,853
    
    
    
    45,281
    
    
    
    
    
    
    
    4,731
    
    
    
    4,853
    
    
    
    50,012
    
    
    
    54,865
    
    
    
    (10,694
    )
    
    1965/91
    
    Feb. 2/98
    
    401400 K Street, N.W
    
    
    
    Washington, DC
    
    
    (21,246
    )
    
    
    8,786
    
    
    
    21,219
    
    
    
    
    
    
    
    13,145
    
    
    
    8,786
    
    
    
    34,364
    
    
    
    43,150
    
    
    
    (6,934
    )
    
    1982/02
    
    Feb. 2/98
    
    401250 Connecticut, N.W
    
    
    
    Washington, DC
    
    
    (25,320
    )
    
    
    6,457
    
    
    
    37,427
    
    
    
    
    
    
    
    2,550
    
    
    
    6,457
    
    
    
    39,977
    
    
    
    46,434
    
    
    
    (6,601
    )
    
    1964/96
    
    Jan. 11/99
    
    401250 23rd Street, N.W.
    
    
    
    Washington, DC
    
    
    
    
    
    
    3,515
    
    
    
    24,922
    
    
    
    
    
    
    
    347
    
    
    
    3,515
    
    
    
    25,269
    
    
    
    28,784
    
    
    
    (5,642
    )
    
    1990
    
    Feb. 2/98
    
    402401 Pennsylvania
    
    
    
    Washington, DC
    
    
    (17,829
    )
    
    
    4,419
    
    
    
    24,674
    
    
    
    
    
    
    
    2,312
    
    
    
    4,419
    
    
    
    26,986
    
    
    
    31,405
    
    
    
    (4,270
    )
    
    1991
    
    Dec. 16/98
    
    401225 Connecticut
    
    
    
    Washington, DC
    
    
    
    
    
    
    8,865
    
    
    
    51,010
    
    
    
    
    
    
    
    698
    
    
    
    8,865
    
    
    
    51,708
    
    
    
    60,573
    
    
    
    (4,587
    )
    
    1968/94
    
    May 24/01
    
    402001 M Street
    
    
    
    Washington, DC
    
    
    (44,500
    )
    
    
    24,919
    
    
    
    48,265
    
    
    
    
    
    
    
    
    
    
    
    24,919
    
    
    
    48,265
    
    
    
    73,184
    
    
    
    (231
    )
    
    1987
    
    Nov. 12/05
    
    40Bethesda Crescent
    
    
    
    Bethesda, MD
    
    
    (35,143
    )
    
    
    7,359
    
    
    
    55,509
    
    
    
    
    
    
    
    2,553
    
    
    
    7,359
    
    
    
    58,062
    
    
    
    65,421
    
    
    
    (13,229
    )
    
    1987
    
    Dec. 23/97
    
    40Twinbrook Metro Plaza
    
    
    
    Rockville, MD
    
    
    (16,289
    )
    
    
    4,250
    
    
    
    24,003
    
    
    
    
    
    
    
    1,836
    
    
    
    4,250
    
    
    
    25,839
    
    
    
    30,089
    
    
    
    (4,153
    )
    
    1986
    
    Aug. 20/98
    
    40Silver Spring Metro Plaza
    
    
    
    Silver Spring, MD
    
    
    (58,606
    )
    
    
    5,311
    
    
    
    98,142
    
    
    
    
    
    
    
    10,460
    
    
    
    5,311
    
    
    
    108,602
    
    
    
    113,913
    
    
    
    (17,350
    )
    
    1986
    
    Dec. 2/98
    
    40Beaumeade Corporate Park
    
    
    
    Ashburn, VA
    
    
    (15,363
    )
    
    
    2,103
    
    
    
    11,733
    
    
    
    
    
    
    
    11,039
    
    
    
    2,103
    
    
    
    22,772
    
    
    
    24,875
    
    
    
    (3,008
    )
    
    1990/98/00
    
    Dec. 16/98
    
    401550 & 1560 Wilson Blvd.
    
    
    
    Arlington, VA
    
    
    (26,458
    )
    
    
    4,958
    
    
    
    28,849
    
    
    
    
    
    
    
    6,256
    
    
    
    4,958
    
    
    
    35,105
    
    
    
    40,063
    
    
    
    (6,605
    )
    
    1983/87
    
    Dec. 10/98
    
    40Two Ballston Plaza
    
    
    
    Arlington, VA
    
    
    (26,413
    )
    
    
    6,691
    
    
    
    37,837
    
    
    
    
    
    
    
    2,073
    
    
    
    6,691
    
    
    
    39,910
    
    
    
    46,601
    
    
    
    (3,635
    )
    
    1988
    
    May 11/01
    
    40Reston Unisys
    
    
    
    Reston, VA
    
    
    (20,389
    )
    
    
    5,706
    
    
    
    34,934
    
    
    
    
    
    
    
    3
    
    
    
    5,706
    
    
    
    34,937
    
    
    
    40,643
    
    
    
    (7,999
    )
    
    1980
    
    Feb. 2/98
    
    40One Reston Crescent
    
    
    
    Reston, VA
    
    
    (18,777
    )
    
    
    4,247
    
    
    
    810
    
    
    
    
    
    
    
    27,597
    
    
    
    4,247
    
    
    
    28,407
    
    
    
    32,654
    
    
    
    (2,582
    )
    
    2000
    
    Feb. 2/98
    
    40Sunrise Tech Park
    
    
    
    Reston, VA
    
    
    (22,806
    )
    
    
    6,346
    
    
    
    36,618
    
    
    
    
    
    
    
    3,582
    
    
    
    6,346
    
    
    
    40,200
    
    
    
    46,546
    
    
    
    (6,227
    )
    
    1983/85
    
    Dec. 15/98
    
    40Total  Washington, D.C. Area
    
    
    
    
    
    
    (422,454
    )
    
    
    116,513
    
    
    
    638,000
    
    
    
    
    
    
    
    109,391
    
    
    
    116,513
    
    
    
    747,391
    
    
    
    863,904
    
    
    
    (121,521
    )
 F-63




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##### Table of Contents



Schedule III - Real Estate andAccumulated Depreciation at December 31, 2004  Subsequent Costs,Initial Cost to Company
    
    
    Capitalized Net
    
    
    Total Cost at 12/31/04
    
    
    Date ofEncumbrances
    
    
    
    
    
    
    Building and
    
    
    
    
    
    
    Building and
    
    
    
    
    
    
    Building and
    
    
    
    
    
    
    Accumulated
    
    
    Construction/
    
    
    
    DepreciableDescription
    
    Notes
    
    Location
    
    at 12/31/04
    
    
    Land
    
    
    additions
    
    
    Land
    
    
    Additions
    
    
    Land
    
    
    additions
    
    
    Total (1)
    
    
    Depreciation
    
    
    Renovation
    
    Date Acquired
    
    Lives (2)CharlotteBank of America Plaza
    
    
    
    Charlotte, NC
    
    
    
    
    
    
    11,250
    
    
    
    103,530
    
    
    
    
    
    
    
    5,149
    
    
    
    11,250
    
    
    
    108,679
    
    
    
    119,929
    
    
    
    (16,512
    )
    
    1974
    
    Dec. 21/98
    
    40First Citizens Plaza
    
    
    
    Charlotte, NC
    
    
    
    
    
    
    
    
    
    
    61,348
    
    
    
    
    
    
    
    3,948
    
    
    
    
    
    
    
    65,296
    
    
    
    65,296
    
    
    
    (12,139
    )
    
    1985
    
    Jul. 15/98
    
    40Total  Charlotte
    
    
    
    
    
    
    
    
    
    
    11,250
    
    
    
    164,878
    
    
    
    
    
    
    
    9,097
    
    
    
    11,250
    
    
    
    173,975
    
    
    
    185,225
    
    
    
    (28,651
    )MinneapolisNorthstar Center
    
    
    
    Minneapolis, MN
    
    
    
    
    
    
    2,500
    
    

    
    44,501
    
    
    
    
    
    
    
    25,093
    
    
    
    2,500
    
    
    
    69,594
    
    
    
    72,094
    
    
    
    (11,391
    )
    
    1916/62/86
    
    Oct. 31/96
    
    40St. LouisMetropolitan Square
    
    
    
    St. Louis, MO
    
    
    (83,035
    )
    
    
    13,625
    
    
    
    125,636
    
    
    
    
    
    
    
    6,350
    
    
    
    13,625
    
    
    
    131,986
    
    
    
    145,611
    
    
    
    (23,962
    )
    
    1989
    
    Dec. 8/97
    
    40Total Rental Properties
    
    
    
    
    
    
    (2,040,778
    )
    
    
    510,652
    
    
    
    3,126,294
    
    
    
    10
    
    
    
    556,403
    
    
    
    510,662
    
    
    
    3,682,697
    
    
    
    4,193,359
    
    
    
    (598,104
    )Properties held for future developmentOther residual land
    
    
    
    Various
    
    
    
    
    
    
    24,430
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24,430
    
    
    
    
    
    
    
    24,430
    
    
    
    Total  Properties held for the long-term
    
    
    
    
    
    
    (2,040,778
    )
    
    
    535,082
    
    
    
    3,126,294
    
    
    
    10
    
    
    
    556,403
    
    
    
    535,092
    
    
    
    3,682,697
    
    
    
    4,217,789
    
    
    
    (598,104
    )Properties held for dispositionRental propertiesWilliams Center I & II
    
    4
    
    Tulsa, OK
    
    
    
    
    
    
    3,522
    
    
    
    32,617
    
    
    
    
    
    
    
    7,063
    
    
    
    3,522
    
    
    
    39,680
    
    
    
    43,202
    
    
    
    (7,697
    )
    
    1982/83
    
    Dec. 10/98
    
    40Shoreline Square
    
    
    
    Long Beach, CA
    
    
    
    
    
    
    5,707
    
    
    
    59,138
    
    
    
    
    
    
    
    4,678
    
    
    
    5,707
    
    
    
    63,816
    
    
    
    69,523
    
    
    
    (10,460
    )
    
    1988
    
    Sep. 24/98
    
    40Total properties held for disposition
    
    
    
    
    
    
    
    
    
    
    9,229
    
    
    
    91,755
    
    
    
    
    
    
    
    11,741
    
    
    
    9,229
    
    
    
    103,496
    
    
    
    112,725
    
    
    
    (18,157
    )Management businessFurniture, fixtures and equipment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,469
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,469
    
    
    
    9,469
    
    
    
    (2,603
    )Total real estate
    
    
    
    
    
    $
    (2,040,778
    )
    
    $
    544,311
    
    
    $
    3,227,518
    
    
    $
    10
    
    
    $
    568,144
    
    
    $
    544,321
    
    
    $
    3,795,662
    
    
    $
    4,339,983
    
    
    $
    (618,864
    )
 F-64




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##### Table of Contents



Schedule III  Real Estate and
Accumulated Depreciation at December 31, 2004  NOTES  1.
    The aggregate cost for federal income tax purposes as of December 31, 2004 was approximately
$3.0 billion.2.
    The life to compute depreciation on buildings is 40 years. The life to compute depreciation
on building improvements is over the term of the related lease. Furniture, fixtures and
equipment are depreciated over periods of up to 10 years.3.
    This property was previously under development and was transferred to rental properties in
2002.4.
    A provision was taken on this property in the second quarter of 2004. SUMMARY OF ACTIVITY A summary of activity of investment in real estate and accumulated depreciation is as follows: The changes in investment in real estate for the years ended December 31, 2004, 2003 and 2002 are
as follows: December 312004
    
    
    2003
    
    
    2002Balance, beginning of the year
    
    $
    4,915,942
    
    
    $
    5,356,165
    
    
    $
    5,368,045Additions during the year:Acquisitions
    
    
    438,100
    
    
    
    
    
    
    
    147,189Improvements
    
    
    99,158
    
    
    
    86,764
    
    
    
    158,617Previously held in an unconsolidated
joint venture now consolidated
    
    
    
    
    
    
    88,615
    
    
    
    41,872Deductions during the year:Properties disposed of
    
    
    (925,637
    )
    
    
    (564,075
    )
    
    
    (132,727
    )Provision for loss on properties
held for disposition
    
    
    (108,625
    )
    
    
    (18,164
    )
    
    
    (204,273
    )Sale of interest to unconsolidated
joint venture
    
    
    (48,000
    )
    
    
    
    
    
    
    Write-off of fully depreciated assets
    
    
    (30,955
    )
    
    
    (33,363
    )
    
    
    (22,558
    )Balance, end of year
    
    $
    4,339,983
    
    
    $
    4,915,942
    
    
    $
    5,356,165
 F-65




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##### Table of Contents



Schedule III  Real Estate and
Accumulated Depreciation at December 31, 2004  The changes in accumulated depreciation for the years ended December 31, 2004, 2003 and 2002 are as
follows: December 312004
    
    
    2003
    
    
    2002Balance, beginning of the year
    
    $
    (642,627
    )
    
    $
    (565,350
    )
    
    $
    (438,584
    )Additions during the year:Depreciation
    
    
    (138,161
    )
    
    
    (159,311
    )
    
    
    (153,962
    )Previously held in an unconsolidated
joint venture now consolidated
    
    
    
    
    
    
    (3,919
    )
    
    
    (6,034
    )Deductions during the year:Properties disposed of
    
    
    130,969
    
    
    
    52,590
    
    
    
    10,672Write-off of fully depreciated assets
    
    
    30,955
    
    
    
    33,363
    
    
    
    22,558Balance, end of year
    
    $
    (618,864
    )
    
    $
    (642,627
    )
    
    $
    (565,350
    )
 F-66




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##### Table of Contents



SCHEDULE 
 TRIZECHAHN HOLLYWOOD HOTEL LLC
(a Delaware limited liability company) CONSOLIDATED FINANCIAL STATEMENTS
AND
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM YEARS ENDED DECEMBER 31, 2002 and 2001 F-67




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##### Table of Contents



INDEX TO FINANCIAL STATEMENTS PageReport
of Independent Registered Public Accounting Firm
    
    F-69Consolidated Statements of Financial Position as of December 31, 2002 and 2001
    
    F-70Consolidated Statements of Operations for the years ended December 31, 2002 and 2001
    
    F-71Consolidated Statements of Members Capital for the years ended December 31, 2002 and 2001
    
    F-72Consolidated Statements of Cash Flows for the years ended December 31, 2002 and 2001
    
    F-73Notes to Consolidated Financial Statements
    
    F-75
 F-68




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##### Table of Contents



Report of Independent Registered Public Accounting Firm To the Members of
TrizecHahn Hollywood Hotel LLC In our opinion, the accompanying consolidated statements of financial position and the related
consolidated statements of operations, of members capital and of cash flows present fairly, in all
material respects, the financial position of TrizecHahn Hollywood Hotel LLC (the Company) at
December 31, 2002 and December 31, 2001, and the results of their operations and their cash flows
for the years then ended in conformity with accounting principles generally accepted in the United
States of America. 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 of these statements in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan and perform the
audit to obtain reasonable assurance about 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, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion. /s/ PricewaterhouseCoopers LLP February 25, 2003 F-69




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##### Table of Contents



TRIZECHAHN HOLLYWOOD HOTEL LLC
(a Delaware limited liability company) CONSOLIDATED STATEMENTS OF FINANCIAL POSITION As of December 312002
    
    
    2001ASSETSHotel propertyBuildings and improvements
    
    $
    57,522,359
    
    
    $
    98,251,985Land
    
    
    7,346,096
    
    
    
    7,346,096Equipment and other
    
    
    14,456,573
    
    
    
    11,328,113Accumulated depreciation
    
    
    (821,291
    )
    
    
    78,503,737
    
    
    
    116,926,194Cash and cash equivalents
    
    
    3,757,062
    
    
    
    901,001Restricted cash
    
    
    169,135
    
    
    
    4,888,638Accounts receivable, net of allowance of $74,614 and $0 respectively
    
    
    1,777,618
    
    
    
    48,663Inventory
    
    
    2,028,755
    
    
    
    1,691,845Prepaid expenses and other assets, net
    
    
    284,416
    
    
    
    1,019,759$
    86,520,723
    
    
    $
    125,476,100LIABILITIES AND MEMBERS CAPITALMortgage debt and other loans
    
    $
    100,873,891
    
    
    $
    80,248,669Interest payable
    
    
    475,797
    
    
    
    317,000Accounts payable and accrued liabilities
    
    
    2,523,746
    
    
    
    684,497Due to affiliates
    
    
    1,061,686
    
    
    
    1,161,756Accrued construction costs
    
    
    
    
    
    
    10,246,811104,935,120
    
    
    
    92,658,733Commitments and contingenciesMembers capital
    
    
    (18,414,397
    )
    
    
    32,817,367$
    86,520,723
    
    
    $
    125,476,100
 See accompanying notes to financial statements. F-70




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##### Table of Contents



TRIZECHAHN HOLLYWOOD HOTEL LLC
(a Delaware limited liability company) CONSOLIDATED STATEMENTS OF OPERATIONS For the years endedDecember 312002
    
    
    2001Operating revenue:Hotel sales  rooms
    
    $
    19,474,315
    
    
    $
    38,306Hotel sales - food and beverage
    
    
    7,075,282
    
    
    
    13,277Hotel sales  other
    
    
    2,668,764
    
    
    
    4,973Total revenues
    
    
    29,218,361
    
    
    
    56,556Operating expenses:Hotel operating costs - rooms
    
    
    5,993,402
    
    
    
    211,055Hotel operating costs - food and beverage
    
    
    6,897,897
    
    
    
    106,681Hotel operating costs - other
    
    
    1,854,875
    
    
    
    18,746Inventory expense
    
    
    590,094
    
    
    
    General and administrative
    
    
    3,736,991
    
    
    
    50,432Sales and marketing
    
    
    3,086,673
    
    
    
    13,269Repairs and maintenance
    
    
    1,606,848
    
    
    
    30,438Utilities
    
    
    893,111
    
    
    
    5,650Management fee
    
    
    657,416
    
    
    
    1,273Property taxes
    
    
    1,542,986
    
    
    
    Professional fees
    
    
    45,117
    
    
    
    Insurance
    
    
    459,363
    
    
    
    Total operating expenses
    
    
    27,364,773
    
    
    
    437,544Gain/(loss) from operations
    
    
    1,853,588
    
    
    
    (380,988
    )Non-operating revenue:Interest income
    
    
    15,667
    
    
    
    83,144Non-operating expenses:Provision for loss on hotel property
    
    
    42,422,917
    
    
    
    31,597,896Initial start up and opening costs
    
    
    943,549
    
    
    
    4,208,366Interest expense
    
    
    5,223,524
    
    
    
    Amortization of financing costs
    
    
    783,066
    
    
    
    Depreciation expense - building
    
    
    821,291
    
    
    
    Depreciation expense - inventory
    
    
    945,230
    
    
    
    Net loss
    
    $
    (49,270,322
    )
    
    $
    (36,104,106
    )
 See accompanying notes to financial statements. F-71




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TRIZECHAHN HOLLYWOOD HOTEL LLC
(a Delaware limited liability company) CONSOLIDATED STATEMENTS OF MEMBERS CAPITAL
For the years ended December 31, 2002 and 2001 TrizecHahn
    
    
    RENHollywood Inc.
    
    
    Hollywood LLC
    
    
    TotalBalance, January 1, 2001
    
    $
    57,304,329
    
    
    $
    10,525,919
    
    
    $
    67,830,248Contributions
    
    
    1,091,225
    
    
    
    
    
    
    
    1,091,225Net loss
    
    
    (30,504,359
    )
    
    
    (5,599,747
    )
    
    
    (36,104,106
    )Balance, December 31, 2001
    
    
    27,891,195
    
    
    
    4,926,172
    
    
    
    32,817,367Contributions
    
    
    3,038,558
    
    
    
    
    
    
    
    3,038,558Redemption of contribution
    
    
    
    
    
    
    (5,000,000
    )
    
    
    (5,000,000
    )Net loss
    
    
    (44,982,774
    )
    
    
    (4,287,548
    )
    
    
    (49,270,322
    )Balance, December 31, 2002
    
    $
    (14,053,021
    )
    
    $
    (4,361,376
    )
    
    $
    (18,414,397
    )
 See accompanying notes to financial statements. F-72




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TRIZECHAHN HOLLYWOOD HOTEL LLC
(a Delaware limited liability company) CONSOLIDATED STATEMENTS OF CASH FLOWS For the years endedDecember 312002
    
    
    2001Cash flows from operating activities:Net loss
    
    $
    (49,270,322
    )
    
    $
    (36,104,106
    )Adjustments to reconcile net income to net cash provided by
operating activities:Amortization of financing costs
    
    
    783,066
    
    
    
    Depreciation expense
    
    
    1,766,521
    
    
    
    Provision for loss on hotel property
    
    
    42,422,917
    
    
    
    31,597,896Changes in assets and liabilities:Accounts receivable
    
    
    (1,728,955
    )
    
    
    (48,663
    )Inventory
    
    
    (1,282,140
    )
    
    
    (1,691,845
    )Prepaid expenses and other assets
    
    
    (19,523
    )
    
    
    Accounts payable and accrued liabilities
    
    
    1,839,249
    
    
    
    661,757Due to affiliates
    
    
    (100,070
    )
    
    
    1,113,246Interest payable
    
    
    158,797
    
    
    
    Net cash used in operating activities
    
    
    (5,430,460
    )
    
    
    (4,471,715
    )Cash flows from investing activities:Additions to buildings and improvements
    
    
    (11,940,103
    )
    
    
    (46,546,006
    )Additions to equipment and other
    
    
    (3,128,460
    )
    
    
    (14,502,796
    )Decrease in restricted cash
    
    
    4,719,503
    
    
    
    1,311,250Net cash used in investing activities
    
    
    (10,349,060
    )
    
    
    (59,737,552
    )Cash flows from financing activities:Draws on construction loan
    
    
    15,694,223
    
    
    
    64,019,043Capital lease payments
    
    
    (69,001
    )
    
    
    Financing costs
    
    
    (28,199
    )
    
    
    Contributions from members
    
    
    3,038,558
    
    
    
    1,091,225Net cash provided by financing activities
    
    
    18,635,581
    
    
    
    65,110,268Net increase in cash
    
    
    2,856,061
    
    
    
    901,001Cash and cash equivalents, beginning of year
    
    
    901,001
    
    
    
    Cash and cash equivalents, end of year
    
    $
    3,757,062
    
    
    $
    901,001
 See accompanying notes to financial statements. F-73




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TRIZECHAHN HOLLYWOOD HOTEL LLC
(a Delaware limited liability company) CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued) SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: For the years endedDecember 312002
    
    
    2001Cash paid during the year for:Interest, including amounts capitalized ($0 and $2,957,795)
    
    $
    5,064,727
    
    
    $
    2,957,795Non-cash investing and financing activities:Capital lease
    
    $
    
    
    
    $
    2,665,700Redemption of members contribution
    
    $
    5,000,000
    
    
    $
    
 See accompanying notes to financial statements. F-74




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##### Table of Contents



TRIZECHAHN HOLLYWOOD HOTEL LLC
(a Delaware limited liability company) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  A.
    Organization and Basis of Presentation:TrizecHahn Hollywood Hotel LLC (the Company) is a Delaware limited liability company,
consisting of TrizecHahn Hollywood Inc. (THH) and REN Hollywood, LLC (REN) as members,
and was formed in 1999 to develop, own and operate a hotel in Hollywood, California. The
hotel is located in the heart of Hollywood, California at Hollywood & Highland Avenues and
opened on December 26, 2001. It is a full-service hotel and has approximately 637 rooms,
extensive banquet facilities as well as other amenities including pool, restaurants, and
valet parking. An affiliate of REN, Renaissance Hotel Management, LLC (Manager), provides
hotel management services pursuant to a management agreement.On September 26, 2002, the Company entered into a lease transaction (Lease) whereby the
hotel is leased to Hollywood Hotel TRS No. 2 LLC (TRS No. 2), which is wholly-owned by the
Company. The Lease expires on September 30, 2007, but is automatically extended for four
renewal terms of five years each provided no event of default has occurred and is
continuing. Rent is payable monthly and is an amount equal to the greater of the calculated
amount of minimum rent for the month or the amount of percentage rent calculated based on
gross room revenues, gross food and beverage revenues and gross other revenues. Minimum
rent is $3,214,000 for the first year, $5,142,000 for the second year and is increased by an
inflation factor annually thereafter. The monthly amount of minimum rent is determined
based on the percentage that budgeted gross revenues for the month are of the total years
budgeted gross revenues.THH is wholly-owned by Hollywood Hotel TRS No. 1 LLC, which is wholly-owned by Trizec R&E
Holdings, Inc. (TREHI). TREHI became, as of March 14, 2002, a wholly owned subsidiary of
Trizec Properties, Inc. (TPI), a publicly traded U.S. office REIT. Prior to September 26,
2002, THH was directly wholly-owned by TREHI.REN is an indirect wholly-owned subsidiary of Marriott International Inc., a U.S. public
company. At December 31, the Member interests are as follows: 2002
    
    
    2001TrizecHahn Hollywood Inc.
    
    
    91.47
    %
    
    
    84.49
    %REN Hollywood, LLC
    
    
    8.53
    %
    
    
    15.51
    %
  The financials statements include all of the accounts of TrizecHahn Hollywood Hotel LLC and
TRS No. 2. All significant intercompany balances and transactions have been eliminated.Certain prior period figures have been reclassified to conform to current year presentation.B.
    Summary of Significant Accounting Policies:Cash and Cash Equivalents
Short-term liquid investments with an original maturity of three months or less are
considered cash equivalents. F-75




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TRIZECHAHN HOLLYWOOD HOTEL LLC
(a Delaware limited liability company) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)  B.
    Summary of Significant Accounting Policies (Continued):Restricted Cash
Under the terms of the management agreement, a minimum of 1% gross revenue, as defined, in
the first fiscal year, and 2% for all subsequent fiscal years is required to be deposited
into a reserve for the replacement of furniture, fixtures and equipment. At December 31,
2002 and 2001, $169,135 and $0, respectively, were included in cash restricted for
furniture, fixtures and equipment. Restricted cash of $4,888,638 at December 31, 2001
represented cash amounts to be used to fund development expenditures.Inventories
Supplies and food and beverage inventory consists primarily of short-term supplies and
furnishings. Inventory that was purchased during the three months ended March 31, 2002 was
added to the base inventory from December 31, 2001. Inventory is being depreciated based on
a three-year life. Replacement purchases are expensed as incurred.Hotel Property and Equipment
Hotel property is recorded at cost and includes direct construction costs, interest,
construction loan fees, property taxes and related costs capitalized during the construction
period. Chilled water systems were acquired under a capital lease arrangement. The costs
of hotel buildings and improvements are depreciated using the straight-line method over an
estimated useful life of 39 years. Equipment, furniture, and other assets have varying
lives ranging from 3 to 15 years. Major improvements and replacements significantly
extending the useful lives of the assets are capitalized, while ordinary maintenance and
repairs are expensed as incurred.Carrying Values of Hotel Property
The Company adopted Statement of Financial Accounting Standards (SFAS) No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets, on January 1, 2002. Under
the provisions of SFAS No. 144, the Company assesses its hotel property for impairment
whenever events or changes in circumstances indicate that the carrying amount of the
property may not be recoverable. Estimated fair value is determined based on managements
estimate of amounts that would be realized if the property were offered for sale in the
ordinary course of business assuming a reasonable sales period and under normal market
conditions. Carrying value is reassessed at each balance sheet date. Implicit in
managements assessment of fair value is estimates of future rental and other income levels
for the property and its estimated disposal dates. Due to the significant uncertainty in
determining fair value, actual proceeds realized on the ultimate sale of the property will
differ from estimates and such differences could be material.The hotel property depends on tourism for a significant portion of its visitors. The
September 11, 2001 terrorist attacks and the continuing threat of terrorism have impacted
the levels of tourism at the hotel. As part of a valuation analysis performed on the hotel,
an independent third party appraisal was obtained that indicated the value of the hotel had
declined as of December 31, 2001. Accordingly, an impairment charge of approximately $31.6
million for the year ended December 31, 2001 was recorded to reduce the carrying value of
the property.The result of operations of the hotel did not meet the levels expected in 2002 and the
Company believes that the fair value of the property has declined further. Accordingly, an
additional impairment charge of approximately $42.4 million was recorded for the year ended
December 31, 2002, based on an internal valuation of the hotel. F-76




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##### Table of Contents



TRIZECHAHN HOLLYWOOD HOTEL LLC
(a Delaware limited liability company) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)  B.
    Summary of Significant Accounting Policies (Continued):At December 31, 2001, the property was considered as held for disposition pursuant to the
provisions of SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of. The Company anticipates that it will take longer than
originally expected to stabilize this property. The Company plans to hold the property
until it can determine that it can realize an acceptable level of value on disposition. The
property is no longer considered as held for disposition and accordingly, depreciation
commenced on October 1, 2002.Prepaid Expenses and Other Assets
Costs incurred to obtain construction financing are amortized to interest expense over the
life of the loan. At December 31, 2002 and 2001, total deferred finance charges, net of
accumulated amortization was as follows. 2002
    
    
    2001Deferred finance charges
    
    $
    3,227,253
    
    
    $
    3,199,054Accumulated amortization
    
    
    (2,962,361
    )
    
    
    (2,179,295
    )$
    264,892
    
    
    $
    1,019,759
  Revenue Recognition
Revenues are recognized when earned upon facility use or food and beverage consumption.
Room sales are recognized upon guest check-out. An allowance of 3% of the weighted average
monthly accounts receivable balance is provided for potential credit losses.Promotion Expense
Initial start up costs and opening costs are expensed as incurred.Use of Estimates
The preparation of financial statements in accordance with accounting principles generally
accepted in the United States requires management to make estimates and assumptions that
affect the reported 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 amounts will differ from those estimates
used in the preparation of these financial statements.Income Taxes
Taxable income or loss of the Company is reported by, and is the responsibility of, the
respective members. Accordingly, the Company has no provision for income taxes.Concentrations of Credit Risk
The Companys financial instruments that are exposed to concentrations of credit risk
consist primarily of cash and cash equivalents and accounts receivable. Accounts receivable
includes amounts due from credit card companies, group travel organizations and others for
the use of banquet facilities. The Company places its temporary cash investments with high
credit quality institutions and cash accounts with federally insured institutions. Cash
balances with any one institution may be in excess of the federally insured limits. The
Company has not experienced any losses in such investments or accounts and believes it is
not exposed to any significant credit risk with respect to cash and cash equivalents. F-77




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##### Table of Contents



TRIZECHAHN HOLLYWOOD HOTEL LLC
(a Delaware limited liability company) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)  C.
    Mortgage Debt and Other LoansConstruction Loan
On April 13, 2000, the Company entered into a construction loan agreement (Loan Agreement)
with various financial institutions, as the Lenders, collateralized by the hotel property
and a building loan deed of trust. The Company can borrow up to $98,000,000 (the Note).
At December 31, 2002, $93,277,192 (December 31, 2001 - $77,582,969) had been drawn on
the construction loan.The Loan Agreement provides for an interest-only payment and accrues at either a LIBOR Rate
or Base Rate, as defined, plus a margin (at Companys option). At December 31, 2002, the
LIBOR based rate was utilized at an all-in-one rate of 4.1875% (December 31, 2001 -
4.94%). In addition, the Company is required to pay a fee on the unused portion of the loan
in the amount of .25% per annum. The note is due on April 13, 2003, unless extended by four
six-month options, subject to certain financial requirements. Principal repayments are only
required if the note is extended. Management is currently in the process of amending and
restating this loan. The Company will likely repay a portion of the loan to reduce the
balance to $78.0 million by April 2003 and likely repay an additional $8.0 million by April
2004, so that the balance at April 2004 will be approximately $70.0 million. At April 30,
2004, the loan will be subject to a potential paydown based on a new appraisal. The Company
expects that the amended and restated loan will mature in April 2005.The Loan Agreement requires the Company to meet an ongoing debt service coverage ratio of at
least 1.4 beginning after the Initial Maturity Date, April 2003. If the minimum debt
coverage ratio is not maintained, the lender will require excess cash flow, as defined in
the Loan Agreement, to be applied to the outstanding loan balance. These terms are being
modified as part of the loan amendment. Also required by the Loan Agreement are a number of
covenants, including a requirement to submit annual audited financial statements 120 days
after the Companys fiscal year end.In connection with the Note, TPI serves as guarantor with respect to the repayment of
interest and principal. As payment guarantor, TPI is required to maintain a minimum net
worth requirement and is required to maintain certain leverage and interest coverage ratios,
as defined.Loan from Member
Under the operating agreement (the Agreement), provided that REN has contributed the
maximum development contribution, REN has the right to cause the Company to redeem $5
million of RENs contribution. This right is exercisable only if, concurrently with such
redemption, REN or its affiliates makes a $5 million loan to the Company on the terms and
conditions outlined in the operating agreement. On September 26, 2002, REN exercised its
redemption right and concurrently, an affiliate of REN, MICC (California), LLC, loaned to
the Company $5 million (MICC Loan). The redemption was effective retroactive to January
31, 2002.The loan is subordinate to the Note, is non-recourse and is collateralized by the pledge of
Members interests. Interest accrues at 13% per annum and is payable at 10% per annum in
monthly installments. All principal and accrued interest is payable on April 1, 2007.The terms of this loan were subsequently amended to waive the requirement for monthly
payments of interest effective November 1, 2002 and to reduce the interest accrual rate from
13% to 3%. If the MICC loan becomes due and payable prior to maturity, the amount required
to repay the loan will be the amount due under the terms of the loan less an amount equal to
the sum of monthly payments that would have been payable under the terms of the original
loan agreement, prior to this amendment, from the date of the early repayment to the
maturity date. F-78




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##### Table of Contents



TRIZECHAHN HOLLYWOOD HOTEL LLC
(a Delaware limited liability company) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)  C.
    Mortgage Debt and Other Loans (Continued):Capital Lease Obligation
During 2001, the Company entered into an agreement with a commercial energy service provider
to operate the onsite-chilled water system that serves both the retail complex and hotel
facility (just adjacent to the hotel site). The initial term of the lease agreement is 15
years, expiring November 2016, and contains a 5-year renewal option. Provisions are made
for title to transfer to the Company as the agreement expires. The monthly payment consists
of a fixed portion of $34,770 over the term, plus a variable operation and maintenance cost,
which adjusts annually. The cost of the system is classified as equipment and is being
depreciated over its useful life of 15 years. The balance, net of amortization, was
$2,596,699 at December 31, 2002 (December 31, 2001 - $2,665,700). Annual payments are
as follows: Year ending December 31, 2003
    
    $
    417,2402004
    
    
    417,2402005
    
    
    417,2402006
    
    
    417,2402007
    
    
    417,240Thereafter
    
    
    3,685,620$
    5,771,820
  D.
    Member Contributions, Distributions and Allocation of Net Income (Loss):Through December 31, 2002, THH had made cash contributions of approximately $61.3 million
and REN had made its maximum required cash contribution of $10.5 million. The Agreement
provides that the managing member, THH, will issue a Cash Notice to each member as required.
If the required contribution is not made within the parameters of the agreement, then the
funding member can loan the amount to the partnership (Deficit Loans) or the non-funding
members ownership is subject to a proportionate percentage of dilution. Deficit Loans bear
interest at prime + 6%.Amounts advanced by THH during 2002 and 2001 to fund initial working capital needs, unfunded
development costs and debt servicing amounts have been recorded as capital contributions as
the Company expects that these amounts may be repaid from the eventual sale of the hotel
property. Current operating amounts paid for by THH or REN are recorded as due to
affiliates.During 2002, of the $3,038,558 advanced by THH, $797,349 was contributed as Deficit Loans
pursuant to the Agreement and, accordingly, $27,609 of interest was recorded.The Agreement includes a provision for REN to redeem $5 million of its capital contribution
and concurrently loan the redeemed amount to the Company. REN exercised the redemption
right on September 26, 2002, which was effective retroactive to January 31, 2002.Member distributions, to the extent allowable, will be made monthly, first to repay any
Deficit Loans made by any Member, if any, as defined in the Agreement (prorata based on the
relative amounts outstanding under those loans), then to each Member based on each Members
respective ownership interest at the date of distribution.Net income and loss is allocated as defined in the Agreement. Generally, it provides for
specific allocations of net income and loss based on each members proportionate share. To
the extent net income or losses were previously allocated, net income is first allocated to
net losses, then remaining amounts are applied in proportion with the member interests. F-79




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##### Table of Contents



TRIZECHAHN HOLLYWOOD HOTEL LLC
(a Delaware limited liability company) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)  E.
    Fair Value of Financial Instruments:The carrying amount of cash and cash equivalents, accounts receivable and accounts payable
are reasonable estimates of their fair values due to the short-term nature of those
instruments. The carrying amount of accounts receivable and mortgage debt and other loans
also approximates their fair value at December 31, 2002 and 2001.F.
    Commitments and Contingencies:Construction Cost to Complete
The hotel was substantially complete on December 26, 2001. Estimated costs to complete
were $0 at December 31, 2002 ($13 million at December 31, 2001).Legal
The Company, from time to time, is involved in various claims and legal actions arising in
the ordinary course of business. Although the final outcome of these matters cannot be
determined, it is managements opinion, based in part upon advice from legal counsel, that
the final resolution of these matters will not have a material adverse effect on the
Companys financial position, results of operations, or liquidity.Insurance
The insurance on the property is part of the portfolio-wide insurance obtained by TPI. All
references to insurance obtained by the Company refer to the hotel property coverage under
TPIs portfolio-wide policy. The Company carries insurance on the property of types and in
amounts that it believes are in line with coverage customarily obtained by owners of similar
properties. The Company believes the property is adequately insured. The property
insurance that has been maintained historically has been on an all risk basis which, until
2003, included losses caused by acts of terrorism. Following the terrorist activity of
September 11, 2001 and the resulting uncertainty in the insurance market, insurance
companies generally excluded insurance against acts of terrorism from their all risk
policies. As a result, the Companys all risk insurance coverage currently contains
specific exclusions for losses attributable to acts of terrorism. In light of this
development, for 2003, the Company purchased stand-alone terrorism insurance with annual
aggregate limits that it considers commercially reasonable, considering the availability and
cost of such coverage.The Companys earthquake insurance is in an amount and subject to deductibles that the
Company believes are commercially reasonable. However, the amount of earthquake insurance
coverage may not be sufficient to cover losses from earthquakes. As a result of increased
costs of coverage and decreased availability, the amounts of the third party earthquake
insurance the Company may be able to purchase on commercially reasonable terms may be
reduced.The Company has workers compensation and general liability insurance with self-insurance
retention of $25,000 per occurrence for 2002 and 2001. An estimate of the amount due and
payable claims for which the Company is liable is included in accounts payable and accrued
liabilities. F-80




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##### Table of Contents



TRIZECHAHN HOLLYWOOD HOTEL LLC
(a Delaware limited liability company) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)  G.
    Related-Party Transactions:THH and its affiliates provided development and various legal services to the Company during
development. The development fee was computed at 4% of hard construction costs, as defined.
A summary of costs and fees incurred and capitalized during 2001 are as follows: For the year endedDecember 31, 2001Payroll and related benefits
    
    $
    589,585Development fee
    
    
    1,643,026Legal
    
    
    11,000$
    2,243,611
  There were no costs or fees incurred and capitalized during 2002.In addition, under a shared capital lease agreement for the chiller system, during 2001 an
affiliated entity of THH in the adjacent retail shopping complex purchased and financed the
chiller infrastructure. The Company shared in the cost and capital lease arrangement for
$2,665,700. (See Note C.)Under the management agreement, affiliates of REN provide hotel management services. The
agreement expires December 31, 2027. The managers operating fee will be based on 2.25% of
gross revenues, as defined, for 2002, 2.50% in 2003, and 3% thereafter. There are also
provisions that allow additional fees should operating profits exceed 11% return on assets.
Management fees of $657,416 and $1,273 were incurred in 2002 and 2001.As part of the development and initial start up of the hotel for the year ended December 31,
2002 and 2001, $943,549 and $4,152,410 of cost reimbursement were incurred with an affiliate
of REN. In addition, the Company regularly purchases inventory from an affiliate of REN.
Inventory purchases totaled $1,780,885 in 2002 (2001  $1,644,898).The Company reimburses affiliates of THH for allocated or direct insurance premiums. For
the year ended December 31, 2002, the amount was $459,363 ($0 for the year ended December
31, 2001), and was included in accounts payable to affiliates.An affiliate of REN provides chain services such as national sales office services, central
training services and national representation system services to the Company. Amounts
incurred in 2002 were $714,332. Amounts were nominal during 2001. F-81