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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-K

|                                            |  |                                                                                          |  | 
|------------------------------------------- |  | ---------------------------------------------------------------------------------------- |  | 
|[X]                                         |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934     |  | 
|For the fiscal year ended December 31, 2002
|                                            |  |                                                                                          |  | 
|or                                         
|                                            |  |                                                                                          |  | 
|[   ]                                       |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 |  | 
|For the transition period from  to         

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
incorporation or organization) |  | (I.R.S. Employer Identification No.)
|                                                               |  |                                     
|233 South Wacker Drive
Chicago, 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
Common Stock, $0.01 par value |  | Name of Exchange on Which Registered
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 and 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 at least the past 90 days. Yes [X]           No
[   ]

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. [   ]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes [   ]           No
[X]

The aggregate market value of the registrants outstanding common stock held by
non-affiliates of the registrant on June 28, 2002 was $913.7 million based on a
closing price of $16.86 as quoted on the New York Stock Exchange.

As of March 21, 2003, 150,029,664 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 29, 2003 are incorporated herein by reference in Part III.





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TABLE OF CONTENTS



|                                              |                                                                                                             |  |  |  |  |  |  | 
|--------------------------------------------- | ----------------------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I                                       
|                                              | Item 1.     Business                                                                                       
|                                              | Item 2.     Properties                                                                                     
|                                              | Item 3.     Legal Proceedings                                                                              
|                                              | Item 4.     Submission of Matters to a Vote of Security Holders.                                           
|PART II                                      
|                                              | Item 5.     Market for Registrants Common Equity and Related Stockholder Matters                          
|                                              | Item 6.     Selected Financial Data                                                                        
|                                              | Item 7.     Managements Discussion and Analysis of Financial Condition and Results of Operations          
|                                              | Item 7A.   Quantitative and Qualitative Disclosures About Market Risk                                      
|                                              | Item 8.     Financial Statements and Supplementary Data                                                    
|                                              | Item 9.     Changes in and Disagreements with Accountants on Accounting and Financial Disclosure           
|PART III                                     
|                                              | Item 10.     Directors and Executive Officers                                                              
|                                              | Item 11.     Executive Compensation                                                                        
|                                              | Item 12.     Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
|                                              | Item 13.     Certain Relationships and Related Transactions                                                
|                                              | Item 14.     Controls and Procedures                                                                       
|PART IV                                      
|                                              | Item 15.     Exhibits, Financial Statement Schedules and Reports on Form 8-K                               
|SIGNATURES                                   
|CERTIFICATIONS                               
|SCHEDULE                                     
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   
|EX-10.11 RESIGNATION AGREEMENT               
|EX-10.12 CANCELLATION OF EMPLOYMENT          
|EX-10.13 AMENDED & RESTATED CREDIT AGREEMENT 
|EX-10.14 LOAN AGREEMENT                      
|EX-10.15 CANADIAN TAX COOPERATION AGREEMENT  
|EX-23.1 CONSENT OF PRICEWATERHOUSECOOPERS LLP
|EX-24.1 POWER OF ATTORNEY                    



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Table of Contents

|         |          |  |                                                                                                |  |    |      |  | 
|-------- | -------- |  | ---------------------------------------------------------------------------------------------- |  | -- | ---- |  | 
|         |          |  |                                                                                                |  |    | Page
|         |          |  |                                                                                                |  |    |     
|PART I   |          |  |                                                                                                |  | 3  |     
|         | Item 1.  |  | Business                                                                                       |  |    | 3    | 
|         | Item 2.  |  | Properties                                                                                     |  |    | 21   | 
|         | Item 3.  |  | Legal Proceedings                                                                              |  |    | 31   | 
|         | Item 4.  |  | Submission of Matters to a Vote of Security Holders                                            |  |    | 32   | 
|PART II  |          |  |                                                                                                |  | 33 |     
|         | Item 5.  |  | Market for Registrants Common Equity
and Related Stockholder Matters                          |  |    | 33   | 
|         | Item 6.  |  | Selected Financial Data                                                                        |  |    | 34   | 
|         | Item 7.  |  | Managements Discussion and Analysis of Financial Condition and
Results of Operations          |  |    | 38   | 
|         | Item 7A. |  | Quantitative and Qualitative Disclosures About Market Risk                                     |  |    | 65   | 
|         | Item 8.  |  | Financial Statements and Supplementary Data                                                    |  |    | 66   | 
|         | Item 9.  |  | Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure           |  |    | 66   | 
|PART III |          |  |                                                                                                |  | 66 |     
|         | Item 10. |  | Directors and Executive Officers                                                               |  |    | 66   | 
|         | Item 11. |  | Executive Compensation                                                                         |  |    | 66   | 
|         | Item 12. |  | Security Ownership of Certain Beneficial Owners
and Management and Related Stockholder Matters |  |    | 66   | 
|         | Item 13. |  | Certain Relationships and Related Transactions                                                 |  |    | 66   | 
|         | Item 14. |  | Controls and Procedures                                                                        |  |    | 66   | 
|PART IV  |          |  |                                                                                                |  | 67 |     
|         | Item 15. |  | Exhibits, Financial Statement Schedules and Reports on Form 8-K                                |  |    | 67   | 

FORWARD-LOOKING STATEMENTS

This Form 10-K contains forward-looking statements relating to our business and
financial outlook, which are based on our current expectations, estimates,
forecasts and projections. In some cases, you can identify forward-looking
statements by terminology such as may, will, should, expects, plans,
anticipates, believes, estimates, predicts, potential or continue
or the negative of these terms or other comparable terminology. These
forward-looking statements are not guarantees of future performance and involve
risks, uncertainties, estimates and assumptions that are difficult to predict.
Therefore, actual outcomes and results may differ materially from those
expressed in these forward-looking statements. You should not place undue
reliance on any of these forward-looking statements. Further, any
forward-looking statement speaks only as of the date on which it is made, and
we undertake no obligation to update any such statement to reflect new
information, the occurrence of future events or circumstances or otherwise.

A number of important factors could cause actual results to differ materially
from those indicated by the forward-looking statements, including, but not
limited to, the risks described under Item 1. Business  Risk Factors in
this Form 10-K.

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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. At December 31, 2002, we had total assets of $5.6 billion and
owned interests in or managed 72 office properties containing approximately 49
million square feet, with our pro rata ownership interest totaling
approximately 42 million square feet. 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 originally incorporated as Trizec (USA) Holdings, Inc. in Delaware
on October 25, 1989. We changed our name to TrizecHahn (USA) Corporation in
1996 and to Trizec Properties, Inc. in 2002. Our principal executive offices
are located at 233 South Wacker Drive, 46th Floor, 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 will generally not be 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 Trizec Canada subordinate voting shares and
our exchange certificates. 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 approximately 40% of our common stock is owned
indirectly by Trizec Canada through its subsidiaries, with the

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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 will receive, 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, 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 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.

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 operating income;
| | - |  | --------------------------------------------------------------------------------------
|
| |  |  | 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.                                      

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Intensively Leasing and Managing Our Properties

By intensively leasing and managing our properties, we expect to maximize
the property operating income, or POI, from our properties. We define POI as
our total rental revenue including tenant recoveries and parking, fee and other
income less our operating expenses and property taxes, and including our share
of property net operating income from unconsolidated real estate joint
ventures. This measure excludes property related depreciation and amortization
expense. To maximize POI, 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 2002, average net rental rates on 6.9 million square feet of new and
renewal leases increased $0.87 per square foot. This increase generally
reflected the impact of re-leasing space in properties at higher average rents
than the average rents in effect at lease expiration. For our total portfolio,
our estimates of market rents at December 31, 2002 were on average
approximately 6.7% above our in-place rents. These market conditions
generally provide stability to our revenue flows.

Vacant space in our portfolio, which approximated 11.0% or 4.6 million
square feet at December 31, 2002, 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 2002, we acquired air rights in connection with two of our office
properties. We also incurred $122.4 million to renovate and upgrade 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, 2002, our seven
core markets accounted for 80% of our total office property POI. 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, we sold several non-core assets in 2002,
including Perimeter Woods in Charlotte, North Carolina, and Warner Center I, II
and III in Los Angeles, California.

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
on selected properties. As opportunities arise and market conditions

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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. Throughout 2002, we have realigned and simplified our
management structure and consolidated our seven regional accounting, payroll
and information services functions in Chicago. This process has resulted in a
net reduction of approximately 85 employees as of the end of 2002, and
increased efficiency in our service operation. 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 also pay attention to 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. 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.

An important source of liquidity for us is a secured revolving line of
credit that we renegotiated in the fourth quarter of 2002. The 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. Under the secured facility, as amended and restated, the financial
covenants are more flexible and our capacity to borrow is more certain than
under the original facility. As of December 31, 2002, the amount eligible to
be borrowed under this facility was $320.0 million and $90.0 million was
outstanding.

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 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.

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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, 2002, 2001 and 2000 are set forth in
note 21 to the consolidated financial statements included in this Form 10-K.
Our business is not seasonal.

Employees and Organizational Structure

At February 28,
2003, we had approximately 1,045 employees. Of these
employees,approximately 200 were employed in our corporate offices, with the
remainder employed regionally and locally in the operation of our property
portfolio. Additionally, approximately 135 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.

In 2002, we continued the process of centralizing our corporate leadership
and portfolio management functions in Chicago. Consistent with our focus on
core cities, we have dedicated regional leasing and property management teams
based in Atlanta, Chicago, Dallas, Houston, Los Angeles, New York and
Washington, D.C.

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 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.

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RISK FACTORS

You should carefully consider the risks described below. These risks are
not the only ones that our company may face. Additional risks not presently
known to us or that we currently consider immaterial may also impair our
business operations and hinder our ability to make expected distributions to
our stockholders.

This report also contains forward-looking statements that involve risks
and uncertainties. Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including the risks faced by us described below or elsewhere in this report.

Risks Relating To Our Business

Our economic performance and the value of our real estate assets are
subject to the risks incidental to the ownership and operation of real estate
properties.

Our economic performance, the value of our real estate assets and,
therefore, the value of your investment are subject to the risks normally
associated with the ownership and operation of real estate properties,
including but not limited to:



| |  |  | changes in the general and local economic climate;                                                                                                                                                                 
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | the cyclical nature of the real estate industry and possible
oversupply of, or reduced demand for, space in our core markets;                                                                                      
|
| |  |  | trends in the retail industry, in employment levels and in consumer spending patterns;                                                                                                                             
|
| |  |  | changes in interest rates and the availability of financing;                                                                                                                                                       
|
| |  |  | competition from other properties;                                                                                                                                                                                 
|
| |  |  | further declines in the overall economic activity in our core markets;                                                                                                                                             
|
| |  |  | changes in market rental rates and our ability to rent space on favorable terms;                                                                                                                                   
|
| |  |  | the bankruptcy, insolvency or credit deterioration of our tenants;                                                                                                                                                 
|
| |  |  | the need to periodically renovate, repair and re-lease space and the costs thereof;                                                                                                                                
|
| |  |  | increases in maintenance, insurance and operating costs;                                                                                                                                                           
|
| |  |  | civil unrest, acts of terrorism, earthquakes and other
natural disasters or acts of God that may result in uninsured
losses;                                                                                       
|
| |  |  | the 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. Real estate investments are relatively illiquid and,
therefore, our ability to vary our portfolio quickly in response to changes in
economic or other conditions is limited. 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.

Our inability to enter into renewal or new leases on favorable terms for
all or a substantial portion of space that is subject to expiring leases would
adversely affect our cash flows and operating results.

Scheduled lease expirations in our U.S. office portfolio over the next
five years average approximately 9.8% annually, based on owned space at
December 31, 2002. When leases for our properties expire, we may be unable to
promptly renew leases with existing tenants or lease the properties to new
tenants. In addition, even if we were able to enter into renewal or new leases
in a timely manner, the terms of those leases may be less favorable to us than
the terms of expiring leases because:

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| |  |  | the rental rates of the renewal or new leases may be
significantly lower than those of the expiring leases; or      
| | - |  | --------------------------------------------------------------------------------------------------------------------
|
| |  |  | tenant installation costs, including the cost of required
renovations or concessions to tenants, may be significant.

We expect significant lease expirations in 2003 among our office
properties in Atlanta, Dallas, Houston and the Washington, D.C. area. In order
to enter into renewal or new leases for large blocks of space in these markets,
we may incur substantial tenant installation costs. If we are unable to enter
into renewal or new leases on favorable terms for all or a substantial portion
of space that is subject to expiring leases, our cash flows and operating
results would suffer, which could reduce the amount of our dividends.

If a significant number of our tenants defaulted or sought bankruptcy
protection, our cash flows and operating results would suffer.

A tenant may experience a downturn in its business, which could cause the
loss of that tenant or weaken its financial condition and result in the
tenants inability to make rental payments when due. In addition, a tenant of
any of our properties may seek the protection of bankruptcy, insolvency or
similar laws, which could result in the rejection and termination of such
tenants lease and cause a reduction in our cash flows. Although we have not
experienced material losses from tenant bankruptcies, we cannot assure you that
tenants will not file for bankruptcy or similar protection in the future
resulting in material losses.

We cannot evict a tenant solely because of its bankruptcy. A court,
however, may authorize a 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 amounts it owes us under a lease. The loss of rental payments
from tenants and costs of re-leasing would adversely affect our cash flows and
operating results, thereby reducing the amount of our dividends.

Our business is substantially dependent on the economic climates of seven
core markets.

Our real estate portfolio consists mainly of office properties in seven
core markets, located in the following major metropolitan areas: Atlanta,
Chicago, Dallas, Houston, Los Angeles, New York and Washington, D.C. As a
result, our business is substantially dependent on the economies of these
markets. As a result of the current slowdown in economic activity, there has
been an increase in vacancy rates for office properties in all of 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
upon these economies, could result in further reduced demand for office space.
Although we believe that our real estate portfolio is significantly
diversified, a material 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 cash flows, operating
results and the amount of our dividends.

We may be unable to complete the disposition of our non-core
retail/entertainment properties on a timely basis or on acceptable terms.

We are currently completing the stabilization of two retail/entertainment
centers: Hollywood & Highland in Los Angeles, California, and Desert Passage in
Las Vegas, Nevada. These properties are described in more detail below under
PropertiesRetail/Entertainment Properties. We plan to hold both of these
projects until we determine that we can realize an acceptable level of value
upon disposition. A number of factors may impair our ability to dispose of
these properties on a timely basis or on acceptable terms, including:



| |  |  | physical characteristics, mixes of tenants and uses, required
operating resources and expertise and anchor tenants or other
attributes that might not be considered typical for a
retail/entertainment complex;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | the relatively large size and value of the assets;                                                                                                                                                               
|
| |  |  | their relatively short operating histories;                                                                                                                                                                      

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| |   |  |                                                                                                                                                                                   
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |  | the requirements of, and dependence of the relevant project
on, contractual and working relationships with key tenants,
operators, government authorities and other third parties;
|
| |  |  | the co-tenancy requirements in certain leases which could
negatively impact occupancy levels;                                                                                     
|
| |  |  | the limited number of parties with the strategic interest and
financial capability to be potential buyers of these properties;                                                    
|
| |  |  | competition for tenants or customers from other projects or
destinations; and                                                                                                     
|
| |  |  | fluctuating and seasonal demands of business travelers and
tourism, and economic conditions that may affect the demand for
travel in general.                                     

In addition, the unaffiliated owners of the Aladdin Hotel and Casino,
which adjoins Desert Passage, filed for Chapter 11 reorganization under the
U.S. Bankruptcy Code in September 2001, which could adversely affect our
ability to sell Desert Passage by:



| |  |  | impairing the public perception and interest of potential
patrons, tenants and purchasers in Desert Passage as a result of the
perceived association with the Aladdin;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | limiting or delaying our collection or enforcement of amounts
or obligations owed to us by the Aladdin; and                                                           
|
| |  |  | complicating or delaying the removal of liens potentially
affecting Desert Passage.                                                                                   

The bankruptcy of the Aladdin may have a negative impact on the property
operating income of Desert Passage while we hold it for disposition, which
could adversely affect our operating results.

We may have difficulty selling our properties, which may limit our
flexibility.

Large and high quality office properties like the ones that we own can be
difficult to sell, especially if local market conditions are poor. This may
limit our ability to change our portfolio promptly in response to changes in
economic or other conditions. In addition, federal tax laws impact our
decisions to sell properties that we have owned for fewer than four years, and
this may affect our ability to sell properties without adversely affecting
returns to our stockholders. Even if we do sell our properties, we may choose
to acquire additional properties within a certain time-frame to avoid adverse
tax consequences and take advantage of tax-free exchange provisions. These
restrictions reduce our ability to respond to changes in the performance of our
investments and could adversely affect our financial condition and results of
operations.

The impact of September 2001 terrorist attacks and the continuing threat
of terrorism may adversely affect operating results from our properties, as
well as our ability to sell properties that we are holding for disposition on a
timely basis or on acceptable terms.

The September 2001 terrorist attacks and the ongoing threat of terrorism
have had an adverse affect on the U.S. economy and, in particular, the
economies of the U.S. cities that comprise our core markets. The fear of
terrorist attacks has particularly impacted the tourism industry, upon which
many of our core markets, as well as our two retail/entertainment properties,
rely for a significant portion of their income. This economic impact could
adversely affect our operating results by reducing the number of tenants or the
financial capacity of tenants in our office properties, as well as by reducing
the number of guests and patrons at our retail/entertainment 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 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 we may not be able to fully pass on
to tenants. Each of these factors would have a material adverse impact on our
operating results and cash flow, as well as the amount of our dividends.

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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 secured revolving 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 this credit facility for working
capital, liquidity, funds for dividends and to finance potential future
acquisition and development activities. Our ability to borrow under our credit
facility is subject to compliance with our financial and other covenants. If
we are unable to borrow under our 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, 2002, our leverage, which we define as the ratio of our
mortgage debt and other loans less cash and cash equivalents to the sum of net
debt and the book value of shareholders and owners equity, was approximately
64%. Furthermore, our leverage likely will increase in the future upon our
anticipated acquisition of the Sears Tower in 2003. For additional information
about our interest in the Sears Tower, see Item 2. Properties  Office
Property Portfolio  Investment in Sears Tower in this report.

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.

Compliance with our tax cooperation agreement with Trizec Canada may limit
our flexibility in making real estate investments and conducting our business.

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.

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 the 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.

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Prior to the effective date of the 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 the
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, 2002 we had approximately $1.1 billion of debt outstanding
that is 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. We believe all of our properties are adequately insured. The
property insurance that we maintain has historically 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 currently contains 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 annual
aggregate limits that we consider commercially reasonable, considering the
availability and cost of such coverage. Our current terrorism coverage carries
an aggregate limit of $250 million on a portfolio-wide basis, excluding the
Sears Tower, which carries its own separate limit of $250 million. Since the
limit with respect to our portfolio may be, and the limit with respect to the
Sears Tower is, 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 our company due to the loss of revenues from
the impacted property and the capital we would have to invest in that property.
Any such circumstance could have a material adverse effect on our financial
condition and results of operations.

The federal Terrorism Risk Insurance Act, enacted in November 2002,
requires regulated insurers to make available coverage for certified acts of
terrorism (as defined by the statute) under property insurance policies, but we
cannot currently anticipate whether the scope and cost of such coverage will
compare favorably to stand-alone terrorism insurance, and thus whether it will
be commercially reasonable for us to change our coverage for acts of terrorism
going forward.

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Some of our lenders have taken or may take the position that our insurance
coverage against acts of terrorism no longer complies with covenants in our
debt agreements. Our lenders may also object to other technical provisions of
our insurance coverage. If a lender takes the position that our insurance
coverage is not in compliance with covenants in a debt agreement, we could be
deemed to be in default under the agreement. Alternately, we may be required
to obtain additional insurance to comply with the covenants. While we have
received notices to the effect that our insurance coverage may not comply with
loan covenants, we have reviewed our coverage and the loan documents
and believe that we comply with those documents and adequately
protect the lenders interests. We have initiated discussions with these
lenders and will do so with any others who take a similar position to satisfy
their concerns and assure that their interests and ours are adequately
protected. To the extent that we are unable to pass the costs of any
additional insurance on to tenants, these costs may have an adverse affect on
our cash flows and, therefore, on the amount of our dividends. If we do pass
the additional costs on to tenants, the resulting increased rents may adversely
affect the marketability of leased space in our properties. Additionally, 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.

We will continue to monitor the state of the insurance market, but we do
not currently expect that coverage for acts of terrorism on terms comparable to
pre-2002 policies will become available on commercially reasonable terms.

We carry earthquake insurance on our properties located in areas known to
be subject to earthquakes in an amount and subject to deductibles that we
believe are commercially reasonable. However, the amount of our 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 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 estimation of the value of the coverage.

There are other types of losses, such as from wars, acts of bio-terrorism
or the presence of mold at our properties, for which we cannot obtain insurance
at all or at a reasonable cost. 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 owners 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, that
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 investment, such as real estate taxes and maintenance and other
operating costs, generally do not decrease even when a property is not fully
occupied, or the rate of retail sales at a project decreases, 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.

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Our competitors may adversely affect our ability to lease our properties,
which may cause our cash flows and operating results to suffer.

We face significant competition from developers, managers and owners of
office, retail and mixed-use properties in seeking tenants for our properties.
Substantially all of our properties face competition from similar properties in
the same markets. 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 risks associated with property acquisitions.

Assuming we are able to obtain capital on commercially reasonable terms,
and that market conditions warrant it, we may acquire new office properties.
Competition from other well-capitalized real estate investors, including both
publicly traded real estate investment trusts and institutional investment
funds, may significantly increase the purchase price or prevent us from
acquiring a desired property. We may be unable to finance acquisitions on
favorable terms, or newly acquired properties may fail to perform as expected.
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 may 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. Therefore, we may have to
rely on third-party sources of capital, 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. Moreover, additional debt
financings may further 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

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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 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.

If we were required to accelerate our efforts to comply with the Americans
with Disabilities Act, our cash flows and operating results could suffer.

All of our properties must comply with the Americans with Disabilities
Act, or the ADA. The ADA has separate compliance requirements for public
accommodations and commercial facilities, but generally requires that
buildings be made accessible to people with disabilities. Compliance with ADA
requirements could require us to remove access barriers, and non-compliance
could result in the imposition of fines by the U.S. government or an award of
damages to private litigants. We believe that the costs of compliance with the
ADA will not have a material adverse effect on our cash flows or operating
results. However, if we must make changes to our properties on a more
accelerated basis than we anticipate, or if we are required to make substantial
alterations or capital expenditures in any of our properties, our cash flows
and operating results could suffer.

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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.

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.

We participate in eight office and two retail joint ventures or
partnerships. The office properties that we own through joint ventures or
partnerships total approximately 6.3 million square feet, with our ownership
interest totaling approximately 3.3 million 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;            
|
| |  |  | 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.

If we fail to 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;
| | - |  | ---------------------------------------------------------------------------

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| |  |  | 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.

In addition, failing to qualify as a REIT could impair our ability to
raise capital and expand our business, and could 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 analysis of various factual
matters and circumstances that may not be within our control. For example, the
Internal Revenue Service, or IRS, could change tax laws and regulations or the
courts may issue new rulings that make it 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.

In order to maintain our status as a REIT, we may be forced to borrow
funds during unfavorable market conditions.

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. This
requirement limits our ability to accumulate capital. We may not have
sufficient cash or other liquid assets to meet REIT distribution requirements.
As a result, we may need to incur debt to fund required distributions when
prevailing market conditions are not favorable. Difficulties in meeting
distribution requirements may arise as a result of:



| |  |  | differences in timing between when we must recognize income
for U.S. federal income tax purposes and when we actually receive
income;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | the effect of non-deductible capital expenditures;                                                                                   
|
| |  |  | the creation of reserves; or                                                                                                         
|
| |  |  | required debt or amortization payments.                                                                                              

If we are unable to borrow funds on favorable terms, our ability to make
distributions to our stockholders and our ability to qualify as a REIT may
suffer.

Risks Relating To Our Capital Stock

An ownership limitation in our certificate of incorporation 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 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 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. persons, would exceed 45% by value
of our issued and outstanding capital stock.

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. The inability of holders of our common stock to sell their
shares to persons other than qualifying U.S. persons, or the perception of this
inability, may adversely affect the market price of our common stock.

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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.

P.M. Capital Inc., a corporation controlled by Peter Munk, maintains an
ownership interest in Trizec Canada 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, controls P.M.
Capital Inc. P.M. Capital, through its ownership of Trizec Canadas multiple
voting shares, has a majority of the votes in elections of Trizec Canadas
board of directors and on other matters to be voted on by Trizec Canada
shareholders. Trizec Canada, 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 or its
subsidiaries hold our special voting stock until such time. Mr. Munks
effective control of Trizec Canada 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.

The sale or availability for sale of approximately 60 million shares of
our common stock owned indirectly by Trizec Canada 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 the corporate reorganization, approximately 60 million
shares, or approximately 40% of the outstanding shares of our common stock, are
held by Trizec Canada through an indirect, wholly-owned Hungarian subsidiary.
Dispositions of this common stock may occur in the following circumstances:



| |  |  | Trizec Canada shareholders will have the right to redeem
their shares from time to time, and Trizec Canada will have the
option of satisfying these redemptions with shares of our common
stock held by the Hungarian subsidiary.                                       
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | The Hungarian subsidiary has pledged as collateral for
secured credit facilities of TrizecHahn Corporation all 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.
|
| |  |  | Trizec Canada 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.                                                                                               

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.

We cannot predict what effect, if any, market sales of shares of our
common stock held indirectly by Trizec Canada or issued upon exercises of our
stock options or warrants or upon conversions of our Class F convertible

18



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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.

An anticipated increase in taxes applicable to dividends that we pay to a
Hungarian subsidiary of Trizec Canada may decrease the amount of our dividends
on our common stock.

As a result of the corporate reorganization, Trizec Canada owns
approximately 40% of our common stock indirectly through an indirect,
wholly-owned Hungarian subsidiary. The Hungarian subsidiary and its
shareholders 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
Hungarian subsidiary and by the Hungarian subsidiary to Trizec Canada.

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 within 66 months after the effective date of the
corporate reorganization.

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 dividends will
increase from approximately 10% to approximately 30%. 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 of our 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 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 TrizecHahn Corporation, Trizec Canada or their
subsidiaries may incur, we have issued all outstanding shares of our Class F
convertible stock to the indirect, wholly-owned Hungarian subsidiary of Trizec
Canada. Under the terms of the Class F convertible stock, this stock

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is convertible into shares of our common stock if TrizecHahn Corporation,
Trizec Canada or their subsidiaries incur FIRPTA tax and any related costs,
interest and penalties in connection with:



| |   |  |                                                                                                                                      |  |                                                                                                                                                                                                                                                                                              
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------ |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |  | the 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 effect those transactions or events, and
|
| |   |  |                                                                                                                                     |  | transactions or events after the end of the five-year
period required for our qualification 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.
Whether we will qualify as a domestically-controlled REIT on any date will
depend on our ability to demonstrate that less than 50% of our capital stock,
by value, has been owned directly or indirectly by persons who are not
qualifying U.S. persons during a continuous five-year period ending on that
date.

If any of TrizecHahn Corporation, Trizec Canada or their subsidiaries
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, would suffer immediate
dilution, which could be substantial. In addition, the sale of our common
stock by Trizec Canada 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 believe that none of TrizecHahn Corporation, Trizec Canada or
their subsidiaries should incur a material amount of FIRPTA tax in connection
with any of the transfers made as part of the 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 effect 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
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.

We believe that after the end of the five-year period required for our
qualification as a domestically-controlled REIT, neither Trizec Canada 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. Based on all of the facts and circumstances, we
believe that 63 months after the effective date of the corporate reorganization
we will be able to demonstrate that during the relevant time period less than
50% of our capital stock, by value, was owned directly or indirectly by persons
who were not qualifying U.S. persons and that, as a result, we will then
qualify as a domestically-controlled REIT.

Our certificate of incorporation and corporate policies are designed to
enable us to qualify as a domestically-controlled REIT as planned. The
ownership restrictions relating to non-U.S. persons in our certificate of
incorporation will 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

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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 63 months after the effective date of the
corporate reorganization.

Proposed federal tax legislation reducing or eliminating the tax on
dividends paid by companies to their shareholders could adversely affect the
market valuation of our stock.

Federal tax legislation currently pending in Congress proposes to reduce
or potentially eliminate taxes on corporate dividends. Due to the fact that
dividends paid by REITs are currently not taxed at the corporate level, REITs
are unlikely to receive any additional benefit from this legislation. If
adopted, however, the legislation could result in increased dividend payments
by other corporations. If enacted, the proposal could cause investors to view
the stock of non-REIT companies as more attractive relative to the stock of
REITs than currently is the case. We cannot predict the form in which this
proposal ultimately will be enacted, whether it will be enacted, or what effect
if any its enactment may have on the market value of our common stock.




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 concentrate our capital on our
core markets and to exit selectively from investments in our secondary markets
in an orderly fashion. 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, 2002.

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Office Portfolio Summary
(At December 31, 2002)

|                        |                       |            |    |                    |  |            |        |                   |  |           |     |                  |   |   |        |       |  |               |     |    |   |   |       |       |  |  |     |    |   |  |      |      |   |   |       |       | 
|----------------------- | --------------------- | ---------- | -- | ------------------ |  | ---------- | ------ | ----------------- |  | --------- | --- | ---------------- | - | - | ------ | ----- |  | ------------- | --- | -- | - | - | ----- | ----- |  |  | --- | -- | - |  | ---- | ---- | - | - | ----- | ----- | 
|                        |                       |            |    |                    |  |            |        |                   |  |           |     |                  |   |   |        |      
|                        |                       |            |    |                    |  |            |        |                   |  |           |     | POI for the Year |   |   |        |       |  | Average       |    
|                        |                       |            |    |                    |  |            |        | Ended             |  | Occupancy |     | In-place        
|                        |                       | No.        |    | Total Managed Area |  | Owned Area |        | December 31, 2002 |  | Weighted  |     | Net Rent        
|                        |                       | of         |    |                    |  |            |        |                   |  | on Owned  |     |                 
|                        |                       | Properties |    | 000s sq. ft.       |  | %          |        | 000s sq. ft.      |  | %         |     | $ millions       |   | % |        | Area  |  | $ per sq. ft.
|                        |                       |            |    |                    |  |            |        |                   |  |           |     |                  |   |   |        |       |  |              
|Core Markets            |                       |            |    |                    |  |            |        |                   |  |           |     |                  |   |   |        |       |  |               |     |    |   |   |       |       |  |  |     |    |   |  |      |      |   |   |       |      
|                        | Atlanta               |            |    | 7                  |  |            |        | 4,617             |  |           |     | 9                | % |   |        | 4,617 |  |               |     | 11 | % |   | $     | 50.9  |  |  |     | 9  | % |  |      | 87.1 | % |   | $     | 13.60 | 
|                        | Chicago               |            |    | 5                  |  |            |        | 5,946             |  |           |     | 12               | % |   |        | 2,434 |  |               |     | 6  | % |   |       | 37.9  |  |  |     | 7  | % |  |      | 94.2 | % |   |       | 13.90 | 
|                        | Dallas                |            |    | 5                  |  |            |        | 6,131             |  |           |     | 13               | % |   |        | 5,366 |  |               |     | 13 | % |   |       | 44.0  |  |  |     | 8  | % |  |      | 84.6 | % |   |       | 11.30 | 
|                        | Houston               |            |    | 6                  |  |            |        | 6,580             |  |           |     | 14               | % |   |        | 6,056 |  |               |     | 14 | % |   |       | 67.2  |  |  |     | 13 | % |  |      | 89.1 | % |   |       | 10.50 | 
|                        | Los Angeles Area      |            |    | 5                  |  |            |        | 2,811             |  |           |     | 6                | % |   |        | 2,620 |  |               |     | 6  | % |   |       | 32.7  |  |  |     | 6  | % |  |      | 88.1 | % |   |       | 15.40 | 
|                        | New York Area         |            |    | 7                  |  |            |        | 7,913             |  |           |     | 16               | % |   |        | 6,462 |  |               |     | 15 | % |   |       | 116.1 |  |  |     | 22 | % |  |      | 97.7 | % |   |       | 17.20 | 
|                        | Washington, D.C. Area |            |    | 20                 |  |            |        | 4,896             |  |           |     | 10               | % |   |        | 4,896 |  |               |     | 12 | % |   |       | 78.6  |  |  |     | 15 | % |  |      | 90.9 | % |   |       | 16.80 | 
|                        |                       |            |    |                    |  |            |        |                   |  |           |     |                  |   |   |        |       |  |               |     |    |   |   |       |       |  |  |     |    |   |  |      |      |   |   |       |      
|Total Core Markets      |                       |            | 55 |                    |  |            | 38,894 |                   |  |           | 80  | %                |   |   | 32,451 |       |  |               | 77  | %  |   | $ | 427.4 |       |  |  | 80  | %  |   |  | 90.3 | %    |   | $ | 14.10 |      
|                        |                       |            |    |                    |  |            |        |                   |  |           |     |                  |   |   |        |       |  |               |     |    |   |   |       |       |  |  |     |    |   |  |      |      |   |   |       |      
|Secondary Markets       |                       |            |    |                    |  |            |        |                   |  |           |     |                  |   |   |        |       |  |               |     |    |   |   |       |       |  |  |     |    |   |  |      |      |   |   |       |      
|                        | Charlotte             |            |    | 2                  |  |            |        | 1,366             |  |           |     | 3                | % |   |        | 1,366 |  |               |     | 3  | % |   | $     | 15.9  |  |  |     | 3  | % |  |      | 98.9 | % |   | $     | 10.80 | 
|                        | Minneapolis           |            |    | 2                  |  |            |        | 1,102             |  |           |     | 2                | % |   |        | 1,102 |  |               |     | 3  | % |   |       | 8.5   |  |  |     | 2  | % |  |      | 71.6 | % |   |       | 10.70 | 
|                        | Pittsburgh            |            |    | 1                  |  |            |        | 1,468             |  |           |     | 3                | % |   |        | 1,468 |  |               |     | 4  | % |   |       | 8.9   |  |  |     | 2  | % |  |      | 84.4 | % |   |       | 6.60  | 
|                        | St. Louis             |            |    | 2                  |  |            |        | 1,378             |  |           |     | 3                | % |   |        | 1,378 |  |               |     | 3  | % |   |       | 15.6  |  |  |     | 3  | % |  |      | 87.7 | % |   |       | 13.80 | 
|                        | Other                 |            |    | 10                 |  |            |        | 4,404             |  |           |     | 9                | % |   |        | 4,239 |  |               |     | 10 | % |   |       | 59.5  |  |  |     | 10 | % |  |      | 82.4 | % |   |       | 11.60 | 
|                        |                       |            |    |                    |  |            |        |                   |  |           |     |                  |   |   |        |       |  |               |     |    |   |   |       |       |  |  |     |    |   |  |      |      |   |   |       |      
|Total Secondary Markets |                       |            | 17 |                    |  |            | 9,718  |                   |  |           | 20  | %                |   |   | 9,553  |       |  |               | 23  | %  |   | $ | 108.4 |       |  |  | 20  | %  |   |  | 84.6 | %    |   | $ | 11.00 |      
|                        |                       |            |    |                    |  |            |        |                   |  |           |     |                  |   |   |        |       |  |               |     |    |   |   |       |       |  |  |     |    |   |  |      |      |   |   |       |      
|Total Office Properties |                       |            | 72 |                    |  |            | 48,612 |                   |  |           | 100 | %                |   |   | 42,004 |       |  |               | 100 | %  |   | $ | 535.8 |       |  |  | 100 | %  |   |  | 89.0 | %    |   | $ | 13.40 |      
|                        |                       |            |    |                    |  |            |        |                   |  |           |     |                  |   |   |        |       |  |               |     |    |   |   |       |       |  |  |     |    |   |  |      |      |   |   |       |      

In-place net rents consist of the amounts paid under our leases less the
costs of providing services and taxes. In-place net rents exclude
straight-line rent adjustments. In 2002, leases expired at an average net rent
of approximately $12.57 per square foot and were generally being signed at an
average net rent per square foot of approximately $13.44. Based upon our owned
area, leases expired at an average net rent of approximately $12.29 per square
foot and were generally being signed at an average net rent per square foot of
approximately $12.98.

Lease Profile

For our office portfolio, market rents at December 31, 2002 were on
average approximately 6.7% above our average in-place rents. Over the next
five years, beginning in 2003, scheduled lease expirations in our office
portfolio average approximately 9.8% annually, based on our owned space at
December 31, 2002. The data in the table are based on our owned area.
Expiration net rents exclude straight-line rent adjustments.

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Scheduled Annual Expirations of Office Leases(1)(At December 31, 2002)

|                        |                       |  |                  |       |                  |  |                  |    |                  |   |                  |       |       |  |        |     |   |  |       |    |        |   |       |       |       |  |        |     |   |  |       |    |      |   |       |       |  |  |       |     |  |  |      |    |   |   |       |       |  |  |       |     |  |  |    |    |   |   |       |       | 
|----------------------- | --------------------- |  | ---------------- | ----- | ---------------- |  | ---------------- | -- | ---------------- | - | ---------------- | ----- | ----- |  | ------ | --- | - |  | ----- | -- | ------ | - | ----- | ----- | ----- |  | ------ | --- | - |  | ----- | -- | ---- | - | ----- | ----- |  |  | ----- | --- |  |  | ---- | -- | - | - | ----- | ----- |  |  | ----- | --- |  |  | -- | -- | - | - | ----- | ----- | 
|                        |                       |  | 2003 Expirations |       | 2004 Expirations |  | 2005 Expirations |    | 2006 Expirations |   | 2007 Expirations
|                        |                       |  |                  |       |                  |  |                  |    |                  |   |                 
|                        |                       |  | 000s             |       |                  |  |                  |    |                  |   |                  |       | 000s  |  |        |     |   |  |       |    |        |   | 000s  |       |       |  |        |     |   |  |       |    | 000s |   |       |       |  |  |       |     |  |  | 000s |    |   |   |       |       |  |  |      
|                        |                       |  | sq. ft.          |       | %                |  | $ psf            |    | sq. ft           |   | %                |       | $ psf |  | sq. ft |     | % |  | $ psf |    | sq. ft |   | %     |       | $ psf |  | sq. ft |     | % |  | $ psf
|                        |                       |  |                  |       |                  |  |                  |    |                  |   |                  |       |       |  |        |     |   |  |       |    |        |   |       |       |       |  |        |     |   |  |      
|Core Markets            |                       |  |                  |       |                  |  |                  |    |                  |   |                  |       |       |  |        |     |   |  |       |    |        |   |       |       |       |  |        |     |   |  |       |    |      |   |       |       |  |  |       |     |  |  |      |    |   |   |       |       |  |  |       |     |  |  |    |    |   |   |       |      
|                        | Atlanta               |  |                  | 581   |                  |  |                  | 13 | %                |   | $                | 13.20 |       |  |        | 463 |   |  |       | 10 | %      |   | $     | 13.50 |       |  |        | 559 |   |  |       | 12 | %    |   | $     | 14.30 |  |  |       | 579 |  |  |      | 13 | % |   | $     | 16.80 |  |  |       | 551 |  |  |    | 12 | % |   | $     | 14.80 | 
|                        | Chicago               |  |                  | 113   |                  |  |                  | 5  | %                |   |                  | 13.30 |       |  |        | 217 |   |  |       | 9  | %      |   |       | 11.30 |       |  |        | 104 |   |  |       | 4  | %    |   |       | 14.60 |  |  |       | 298 |  |  |      | 12 | % |   |       | 11.30 |  |  |       | 186 |  |  |    | 8  | % |   |       | 14.00 | 
|                        | Dallas                |  |                  | 729   |                  |  |                  | 14 | %                |   |                  | 11.80 |       |  |        | 419 |   |  |       | 8  | %      |   |       | 12.10 |       |  |        | 498 |   |  |       | 9  | %    |   |       | 12.20 |  |  |       | 397 |  |  |      | 7  | % |   |       | 11.70 |  |  |       | 907 |  |  |    | 17 | % |   |       | 11.60 | 
|                        | Houston               |  |                  | 1,183 |                  |  |                  | 20 | %                |   |                  | 8.50  |       |  |        | 652 |   |  |       | 11 | %      |   |       | 10.60 |       |  |        | 214 |   |  |       | 4  | %    |   |       | 13.90 |  |  |       | 269 |  |  |      | 4  | % |   |       | 12.70 |  |  |       | 462 |  |  |    | 8  | % |   |       | 15.20 | 
|                        | Los Angeles Area      |  |                  | 289   |                  |  |                  | 11 | %                |   |                  | 17.30 |       |  |        | 232 |   |  |       | 9  | %      |   |       | 15.90 |       |  |        | 241 |   |  |       | 9  | %    |   |       | 16.90 |  |  |       | 310 |  |  |      | 12 | % |   |       | 13.10 |  |  |       | 147 |  |  |    | 6  | % |   |       | 16.10 | 
|                        | New York Area         |  |                  | 400   |                  |  |                  | 6  | %                |   |                  | 16.00 |       |  |        | 810 |   |  |       | 13 | %      |   |       | 16.50 |       |  |        | 428 |   |  |       | 7  | %    |   |       | 20.20 |  |  |       | 207 |  |  |      | 3  | % |   |       | 26.40 |  |  |       | 358 |  |  |    | 6  | % |   |       | 17.90 | 
|                        | Washington, D.C. Area |  |                  | 522   |                  |  |                  | 11 | %                |   |                  | 17.50 |       |  |        | 464 |   |  |       | 9  | %      |   |       | 14.70 |       |  |        | 729 |   |  |       | 15 | %    |   |       | 18.50 |  |  |       | 239 |  |  |      | 5  | % |   |       | 22.50 |  |  |       | 747 |  |  |    | 15 | % |   |       | 19.70 | 
|                        |                       |  |                  |       |                  |  |                  |    |                  |   |                  |       |       |  |        |     |   |  |       |    |        |   |       |       |       |  |        |     |   |  |       |    |      |   |       |       |  |  |       |     |  |  |      |    |   |   |       |       |  |  |       |     |  |  |    |    |   |   |       |      
|Total Core Markets      |                       |  | 3,817            |       |                  |  | 12               | %  |                  | $ | 12.70            |       |       |  | 3,257  |     |   |  | 10    | %  |        | $ | 13.70 |       |       |  | 2,773  |     |   |  | 9     | %  |      | $ | 16.10 |       |  |  | 2,299 |     |  |  | 7    | %  |   | $ | 15.70 |       |  |  | 3,358 |     |  |  | 10 | %  |   | $ | 15.50 |      
|                        |                       |  |                  |       |                  |  |                  |    |                  |   |                  |       |       |  |        |     |   |  |       |    |        |   |       |       |       |  |        |     |   |  |       |    |      |   |       |       |  |  |       |     |  |  |      |    |   |   |       |       |  |  |       |     |  |  |    |    |   |   |       |      
|Secondary Markets       |                       |  |                  |       |                  |  |                  |    |                  |   |                  |       |       |  |        |     |   |  |       |    |        |   |       |       |       |  |        |     |   |  |       |    |      |   |       |       |  |  |       |     |  |  |      |    |   |   |       |       |  |  |       |     |  |  |    |    |   |   |       |      
|                        | Charlotte             |  |                  | 72    |                  |  |                  | 5  | %                |   | $                | 13.80 |       |  |        | 69  |   |  |       | 5  | %      |   | $     | 12.60 |       |  |        | 206 |   |  |       | 15 | %    |   | $     | 17.30 |  |  |       | 193 |  |  |      | 14 | % |   | $     | 14.80 |  |  |       | 14  |  |  |    | 1  | % |   | $     | 15.90 | 
|                        | Minneapolis           |  |                  | 155   |                  |  |                  | 14 | %                |   |                  | 7.30  |       |  |        | 126 |   |  |       | 11 | %      |   |       | 7.00  |       |  |        | 58  |   |  |       | 5  | %    |   |       | 15.90 |  |  |       | 41  |  |  |      | 4  | % |   |       | 10.70 |  |  |       | 78  |  |  |    | 7  | % |   |       | 16.30 | 
|                        | Pittsburgh            |  |                  | 204   |                  |  |                  | 14 | %                |   |                  | 6.40  |       |  |        | 138 |   |  |       | 9  | %      |   |       | 7.80  |       |  |        | 123 |   |  |       | 8  | %    |   |       | 7.30  |  |  |       | 122 |  |  |      | 8  | % |   |       | 7.90  |  |  |       | 120 |  |  |    | 8  | % |   |       | 9.00  | 
|                        | St. Louis             |  |                  | 107   |                  |  |                  | 8  | %                |   |                  | 12.20 |       |  |        | 73  |   |  |       | 5  | %      |   |       | 13.40 |       |  |        | 215 |   |  |       | 16 | %    |   |       | 11.80 |  |  |       | 55  |  |  |      | 4  | % |   |       | 9.80  |  |  |       | 224 |  |  |    | 16 | % |   |       | 20.60 | 
|                        | Other                 |  |                  | 922   |                  |  |                  | 22 | %                |   |                  | 10.10 |       |  |        | 355 |   |  |       | 8  | %      |   |       | 10.50 |       |  |        | 428 |   |  |       | 10 | %    |   |       | 13.60 |  |  |       | 417 |  |  |      | 10 | % |   |       | 13.20 |  |  |       | 791 |  |  |    | 19 | % |   |       | 14.70 | 
|                        |                       |  |                  |       |                  |  |                  |    |                  |   |                  |       |       |  |        |     |   |  |       |    |        |   |       |       |       |  |        |     |   |  |       |    |      |   |       |       |  |  |       |     |  |  |      |    |   |   |       |       |  |  |       |     |  |  |    |    |   |   |       |      
|Total Secondary
Markets |                       |  | 1,460            |       |                  |  | 15               | %  |                  | $ | 9.60             |       |       |  | 761    |     |   |  | 8     | %  |        | $ | 9.90  |       |       |  | 1,030  |     |   |  | 11    | %  |      | $ | 13.30 |       |  |  | 828   |     |  |  | 9    | %  |   | $ | 12.40 |       |  |  | 1,227 |     |  |  | 13 | %  |   | $ | 15.30 |      
|                        |                       |  |                  |       |                  |  |                  |    |                  |   |                  |       |       |  |        |     |   |  |       |    |        |   |       |       |       |  |        |     |   |  |       |    |      |   |       |       |  |  |       |     |  |  |      |    |   |   |       |       |  |  |       |     |  |  |    |    |   |   |       |      
|Total  Owned Area      |                       |  | 5,277            |       |                  |  | 13               | %  |                  | $ | 11.80            |       |       |  | 4,018  |     |   |  | 10    | %  |        | $ | 13.00 |       |       |  | 3,803  |     |   |  | 9     | %  |      | $ | 15.40 |       |  |  | 3,127 |     |  |  | 7    | %  |   | $ | 14.80 |       |  |  | 4,585 |     |  |  | 11 | %  |   | $ | 15.40 |      
|                        |                       |  |                  |       |                  |  |                  |    |                  |   |                  |       |       |  |        |     |   |  |       |    |        |   |       |       |       |  |        |     |   |  |       |    |      |   |       |       |  |  |       |     |  |  |      |    |   |   |       |       |  |  |       |     |  |  |    |    |   |   |       |      
|Total Area              |                       |  | 6,008            |       |                  |  | 13               | %  |                  | $ | 11.70            |       |       |  | 4,339  |     |   |  | 10    | %  |        | $ | 13.40 |       |       |  | 3,983  |     |   |  | 9     | %  |      | $ | 15.70 |       |  |  | 3,239 |     |  |  | 7    | %  |   | $ | 15.10 |       |  |  | 4,722 |     |  |  | 10 | %  |   | $ | 15.50 |      
|                        |                       |  |                  |       |                  |  |                  |    |                  |   |                  |       |       |  |        |     |   |  |       |    |        |   |       |       |       |  |        |     |   |  |       |    |      |   |       |       |  |  |       |     |  |  |      |    |   |   |       |       |  |  |       |     |  |  |    |    |   |   |       |      



---

|(1) |  | Expiring rents exclude straight line rent. Expiring percentages based on
owned area except for the row Total Area, which is based on total area, and
excludes the Sears Tower.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Over the last three years, we have leased 23.1 million square feet of new
and renewal space. Occupancy for the entire portfolio based on owned area was
89.0% at December 31, 2002 down from 94.3% at December 31, 2001. For 2003, we
expect to lease between 6.0 and 7.0 million square feet, which will result in a
year-end occupancy of between 85.0% and 87.0%.

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 2,500 tenants in the portfolio at December 31, 2002.

|                                   |  |              |    |  
|---------------------------------- |  | ------------ | -- | -
|Industry                           |  | % Owned Area
|                                   |  |             
|Banking/Securities Brokers         |  |              | 15 | %
|Legal Services                     |  |              | 10 | %
|Computers/Communications           |  |              | 8  | %
|Miscellaneous Business Services    |  |              | 7  | %
|Insurance/Non-Bank Financial       |  |              | 6  | %
|Oil & Gas                          |  |              | 6  | %
|Wholesalers/Retailers              |  |              | 5  | %
|Government                         |  |              | 4  | %
|Engineering/Architectural Services |  |              | 4  | %
|Health Services                    |  |              | 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 16% of our POI
excluding straight-line rent adjustments for the year ended December 31, 2002.
No single tenant accounted for more than 4% of our POI. The following table
sets forth information concerning our ten largest tenants at December 31, 2002.

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|                                   |  |          |    |              |  |  |    |  
|---------------------------------- |  | -------- | -- | ------------ |  |  | -- | -
|Top Ten Tenants by POI             |  | % POI(1) |    | % Owned Area
|                                   |  |          |    |             
|Prudential Securities              |  |          | 4  | %            |  |  | 3  | %
|Government Services Administration |  |          | 2  | %            |  |  | 2  | %
|Goldman Sachs                      |  |          | 2  | %            |  |  | 1  | %
|Bank of America                    |  |          | 2  | %            |  |  | 2  | %
|Continental Airlines               |  |          | 1  | %            |  |  | 2  | %
|Ernst & Young                      |  |          | 1  | %            |  |  | 1  | %
|Bank One                           |  |          | 1  | %            |  |  | 1  | %
|Fried, Frank, Harris               |  |          | 1  | %            |  |  | 1  | %
|Devon Energy Corporation           |  |          | 1  | %            |  |  | 1  | %
|Bryan Cave LLP                     |  |          | 1  | %            |  |  | 1  | %
|                                   |  |          |    |              |  |  |    |  
|Total Top Ten Tenants              |  |          | 16 | %            |  |  | 15 | %
|                                   |  |          |    |              |  |  |    |  



---

|(1) |  | Excludes straight-line rent.
|--- |  | ----------------------------

Our Top Office Properties

The following table summarizes our top ten properties based on
contribution to our POI for the year ended December 31, 2002. All of the
properties in the table are 100% owned unless otherwise indicated.

|                                       |  |                 |  |              |   |   |    |   |   |   |    |  
|-------------------------------------- |  | --------------- |  | ------------ | - | - | -- | - | - | - | -- | -
|Top Ten Properties by POI Contribution |  | % POI(1)        |  | % Owned Area
|                                       |  |                 |  |             
|Allen Center                           |  | Houston, TX     |  |              | 9 | % |    |   | 8 | %
|One New York Plaza                     |  | New York, NY    |  |              | 7 | % |    |   | 6 | %
|Newport Tower                          |  | Jersey City, NJ |  |              | 4 | % |    |   | 2 | %
|The Grace Building (50%)               |  | New York, NY    |  |              | 3 | % |    |   | 2 | %
|1411 Broadway (50%)                    |  | New York, NY    |  |              | 3 | % |    |   | 1 | %
|110 William Street                     |  | New York, NY    |  |              | 3 | % |    |   | 2 | %
|Ernst & Young Plaza                    |  | Los Angeles, CA |  |              | 3 | % |    |   | 3 | %
|Continental Center I                   |  | Houston, TX     |  |              | 2 | % |    |   | 3 | %
|Renaissance Tower                      |  | Dallas, TX      |  |              | 2 | % |    |   | 4 | %
|Metropolitan Square                    |  | St. Louis, MO   |  |              | 2 | % |    |   | 2 | %
|                                       |  |                 |  |              |   |   |    |   |   |   |    |  
|Total Top Ten Properties               |  |                 |  |              |   |   | 38 | % |   |   | 33 | %
|                                       |  |                 |  |              |   |   |    |   |   |   |    |  



---

|(1) |  | Includes straight-line rent and excludes termination fees.
|--- |  | ----------------------------------------------------------

Investment in Sears Tower

The Sears Tower, located in Chicago, Illinois, is a 110-story, 3.5
million-square-foot office building that was 90.8% occupied at December 31,
2002. Major tenants currently include Ernst & Young, Goldman Sachs, Bank of
America, Merrill Lynch and Latham & Watkins. The Sears Tower and associated
assets are currently held in a trust for the benefit of an affiliate of Sears,
Roebuck and Co.

On December 3, 1997, we purchased a subordinated mortgage together with an
option to purchase the Sears Tower for a total of $70 million and became the
residual beneficiary of the trust that holds title to the Sears Tower. In
addition, we assumed responsibility for property management and leasing
services.

Our mortgage is subordinate to an existing non-recourse participating
mortgage and is subject to other participating interests. The first mortgage
has a principal plus accrued interest balance of $769.2 million at December 31,
2002. The first mortgage is currently serviced only to the extent of available
cash flows from the building. The minimum interest payment for 2002 was $37.5
million and it increases to $51.9 million for each of 2003 and 2004. The
maturity date for the first mortgage is July 2005. On or after July 2, 2005,
the owner of the Sears Tower may, in connection with the retirement of the
first mortgage, elect to have the Sears Tower appraised to determine the
repayment amount of the participating interests of the first mortgage lender as
well as all subordinate interests through an appraisal process. Based on
current projected cash flows for the Sears Tower, the amount

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required to fully retire the first mortgage and all subordinate
participating interests at maturity in July 2005 would be approximately $800
million.

Our subordinated mortgage, which matures in July 2010, had a principal
plus accrued interest balance of approximately $380.4 million at December 31,
2002, and also has participation rights on available cash flow. We have
determined that our investment in the subordinated mortgage is impaired. As a
result, we have recorded a loss provision to reduce our carrying value of this
investment. See Managements Discussion and Analysis of Financial Condition
and Result of Operations  Results of Operations  Comparison on Year Ended
December 31, 2002 to Year Ended December 31, 2001  Provision for Loss on
Investment.

The trust that holds title to the Sears Tower had a scheduled termination
date of January 1, 2003. Sears did not exercise its rights to acquire title
from the trust under the General Agreement dated November 7, 1994 by and among
Sears, a subsidiary of Sears, the holder of the first mortgage on the Sears
Tower and certain of our indirect subsidiaries, including Partner Tower, L.P.,
or PTLP. Although we are currently waiting for Sears and/or its subsidiary to
effect the conveyance of title, we expect that the Sears Tower and the other
assets of the trust will be distributed to PTLP as the residual beneficiary of
the trust and we will assume the participating first mortgage, pending
finalization of the documentation necessary for the transfer to occur. We will
continue to earn fees funded from pre-debt service cash flows from the building
for managing and leasing the Sears Tower.

Retail/Entertainment Properties

We currently own two retail/entertainment properties:



| |  |  | Hollywood & Highland in Los Angeles, California, 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. The
complex opened on November 8, 2001. The hotel opened on December 26,
2001. The retail portion of the project was 78.8% occupied at
December 31, 2002.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Desert Passage in Las Vegas, Nevada, a 475,000-square-foot
retail/entertainment complex within the Aladdin Hotel and Casino
complex, opened in August 2000. The project was 70.0% occupied at
December 31, 2002.                                                                                                                               

In the fourth quarter of 2001, we recorded an allowance for loss related
to these properties of $239.4 million. This allowance for loss reflects the
negative impact of the September 2001 terrorist attacks on tourism, upon which
Hollywood & Highland and Desert Passage depend for a significant portion of
their visitors. In addition, Desert Passage was impacted by the September 2001
filing of a Chapter 11 reorganization by the unaffiliated owners of the Aladdin
Hotel and Casino, which is adjacent to Desert Passage and upon which Desert
Passage further depends for a significant portion of its visitors.

The results of operations of both projects did not meet the levels
expected in 2002 and we believe the fair value of these properties has declined
further. Accordingly, an additional provision for loss in the amount of $238.4
million was recorded for the year ended December 31, 2002. See Managements
Discussion and Analysis of Financial Condition and Result of Operations 
Results of Operations  Comparison on Year Ended December 31, 2002 to Year
Ended December 31, 2001  Provision for Loss on real Estate. Further, we
anticipate that it will take considerably longer than originally expected to
stabilize these properties and that their sale prior to the end of 2003 is
unlikely. However, we still intend to follow our strategy to focus on the core
U.S. office business and to divest these non-core retail/entertainment assets,
as market conditions permit. Net proceeds will be redeployed into Class A
office buildings in our core markets or used to repay debt or for other
corporate purposes.

In January 2003, we sold Paseo Colorado, a 565,000-square-foot, mixed-use
re-development in Pasadena, California, for $113.5 million. The project opened
on September 28, 2001 and was 93.3% occupied at December 31, 2002.

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DESCRIPTION OF CERTAIN INDEBTEDNESS

Senior Secured Revolving Credit Facility

We entered into a three-year, $350.0 million senior unsecured revolving
credit facility with a group of banks in the fourth quarter of 2001. In the
fourth quarter of 2002, we and the group of banks unanimously agreed to amend
and restate the facility as a secured facility. Generally, in exchange for the
receipt of collateral, the banks agreed to provide more flexible financial
covenants than had been originally negotiated. For example, the banks agreed
to increase the total leverage ratio to 65.0% from 60.0% in the original
facility, with the exception that the total leverage ratio may reach 67.5% for
one calendar quarter in 2003. The 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 credit facility available to be borrowed at any time, is
determined by the encumbered properties that we, or our subsidiaries that
guarantee the credit facility, own and that satisfy certain conditions of
eligible properties. These conditions are not uncommon for credit facilities
of this nature. As of December 31, 2002, the amount eligible to be borrowed
was $320.0 million.

At December 31, 2002, $90.0 million was outstanding under the facility.
During 2003 we expect the outstanding balance to fluctuate. The balance will
likely be reduced as a result of proceeds generated from asset sales, secured
borrowings, operating cash flow and other sources of liquidity. The balance
will likely also increase from time-to-time as we use funds from the facility
to meet a variety of liquidity requirements.

We are subject to covenants customary for credit facilities of this
nature, including financial covenants, restrictions on other indebtedness,
restriction on encumbrances of properties that we use in determining our
borrowing capacity, and certain customary investment restrictions. Our
financial covenants include a restriction on dividends or distributions of more
than 90% of our funds from operations. If we are in default in respect of our
obligations under the credit facility, dividends will be limited to the amount
necessary to maintain REIT status.

TrizecHahn Office Properties Trust Commercial Mortgage Pass-Through
Certificates

In May 2001, we refinanced $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 $1.44 billion of commercial mortgage pass-through
certificates. As of December 31, 2002, the balance of these certificates was
$1.43 billion. The certificates are backed by mortgages that secure
non-recourse loans on 27 of our office properties and have maturities of five,
seven and ten years. At December 31, 2002, the weighted average interest rate
on this debt was 4.7%.

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 $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 7.3% and matures in May 2006. Subsequently, the loan was
securitized through the private issuance of $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, 2002, $237.8
million was outstanding under this facility.

Desert Passage Credit Facility

In May 1998, one of our subsidiaries entered into a loan agreement with a
group of banks to finance the construction of Desert Passage. The original
loan facility in the total amount of $194.0 million was amended in August 2002.
At the time of the amendment, the amount of the loan was fixed at $178.0
million, we became a co-borrower of the loan and the maturity was extended
until May 2005. The loan is secured by a mortgage on the

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property and is also guaranteed by certain of our other subsidiaries.
Interest is calculated periodically on a variable rate basis using a spread
over LIBOR.

Hollywood & Highland Credit Facility

In May 1999, one of our subsidiaries entered into a loan agreement with a
group of banks to finance the construction of the retail and entertainment
component of the Hollywood & Highland project. The total loan facility is in
the amount of $150.0 million, of which $145.5 million had been drawn as at
December 31, 2002. The loan is secured by a mortgage on the property and is
also guaranteed by us. Interest is calculated periodically on a variable rate
basis using a spread over LIBOR. On May 10, 2002, the maturity date of this
loan was extended to May 2004.

Hollywood Hotel Credit Facility

In April 2000, one of our subsidiaries entered into a loan agreement with
a group of banks to finance the construction of the Hollywood Hotel, of which
we currently own 91.5%. The total loan facility is in the amount of $98.0
million, of which $93.3 million had been drawn as of December 31, 2002 ($85.3
million at our pro rata share). The loan is secured by a mortgage on the
property and is also guaranteed by us. However, we are currently in the
process of amending and restating this loan, which is scheduled to mature in
April 2003. We 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. We expect that the amended and restated loan will mature in April
2005. Interest on the loan is calculated periodically on a variable rate basis
using a spread over LIBOR.

Paseo Colorado Credit Facility

In June 2000, one of our subsidiaries entered into a loan agreement with a
group of banks to finance the construction of the Paseo Colorado development.
The total loan facility was in the amount of $88.0 million, of which $74.8
million had been drawn as of December 31, 2002. The loan was secured by a
mortgage on the property and was also guaranteed by us. Interest was
calculated periodically on a variable rate basis using a spread over LIBOR.
The loan was scheduled to mature in June 2003, but could have been extended up
to September 2005 subject to meeting certain conditions. This loan was paid in
full in connection with our sale of Paseo Colorado on January 15, 2003.

Mortgage Debt and Other Loans

The following table sets forth information concerning mortgage debt and
other loans as of December 31, 2002. The economic interest of our owning
entity is 100% unless otherwise noted.

|                       |              |                |  |  |  |  |        |   |      |  |           |  |         |      |           |   |           |           |  |         |     |     |  |  | 
|---------------------- | ------------ | -------------- |  |  |  |  | ------ | - | ---- |  | --------- |  | ------- | ---- | --------- | - | --------- | --------- |  | ------- | --- | --- |  |  | 
|                       |              |                |  |  |  |  |        |   |      |  | Maturity  |  | Current |      | Principal |   | Term to  
|                       |              |                |  |  |  |  | F/V(1) |   | Date |  | Rate      |  | Balance |      | Maturity 
|                       |              |                |  |  |  |  |        |   |      |  |           |  |         |      |          
|(At December 31, 2002) |              |                |  |  |  |  |        |   |      |  |           |  |         |      |           |   |           | ($ 000's) |  | (Years)
|                      
|CMBS Transaction       |              |                |  |  |  |  |        |   |      |  |           |  |         |      |           |   |           |           |  |         |     |     |  | 
|                       | Class A-1 FL |                |  |  |  |  |        | V |      |  | 15-Apr-06 |  |         | 1.71 | %         |   | $         | 249,201   |  |         |     | 3.3 | 
|                       | Class A-2    |                |  |  |  |  |        | F |      |  | 15-May-11 |  |         | 6.09 | %         |   |           | 74,900    |  |         |     | 8.4 | 
|                       | Class A-3 FL |                |  |  |  |  |        | V |      |  | 15-Mar-08 |  |         | 1.80 | %         |   |           | 236,700   |  |         |     | 5.2 | 
|                       | Class A-3    |                |  |  |  |  |        | F |      |  | 15-Mar-08 |  |         | 6.21 | %         |   |           | 78,900    |  |         |     | 5.2 | 
|                       | Class A-4    |                |  |  |  |  |        | F |      |  | 15-May-11 |  |         | 6.53 | %         |   |           | 240,600   |  |         |     | 8.4 | 
|                       | Class B-1 FL |                |  |  |  |  |        | V |      |  | 15-Apr-06 |  |         | 1.85 | %         |   |           | 46,519    |  |         |     | 3.3 | 
|                       | Class B-3 FL |                |  |  |  |  |        | V |      |  | 15-Mar-08 |  |         | 1.95 | %         |   |           | 43,500    |  |         |     | 5.2 | 
|                       | Class B-3    |                |  |  |  |  |        | F |      |  | 15-Mar-08 |  |         | 6.36 | %         |   |           | 14,500    |  |         |     | 5.2 | 
|                       | Class B-4    |                |  |  |  |  |        | F |      |  | 15-May-11 |  |         | 6.72 | %         |   |           | 47,000    |  |         |     | 8.4 | 
|                       | Class C-3    |                |  |  |  |  |        | F |      |  | 15-Mar-08 |  |         | 6.52 | %         |   |           | 101,400   |  |         |     | 5.2 | 
|                       | Class C-4    |                |  |  |  |  |        | F |      |  | 15-May-11 |  |         | 6.89 | %         |   |           | 45,600    |  |         |     | 8.4 | 
|                       | Class D-3    |                |  |  |  |  |        | F |      |  | 15-Mar-08 |  |         | 6.94 | %         |   |           | 106,100   |  |         |     | 5.2 | 
|                       | Class D-4    |                |  |  |  |  |        | F |      |  | 15-May-11 |  |         | 7.28 | %         |   |           | 40,700    |  |         |     | 8.4 | 
|                       | Class E-3    |                |  |  |  |  |        | F |      |  | 15-Mar-08 |  |         | 7.25 | %         |   |           | 73,300    |  |         |     | 5.2 | 
|                       | Class E-4    |                |  |  |  |  |        | F |      |  | 15-May-11 |  |         | 7.60 | %         |   |           | 32,300    |  |         |     | 8.4 | 
|                       |              |                |  |  |  |  |        |   |      |  |           |  |         |      |           |   |           |           |  |         |     |     |  | 
|                       |              | Pre-swap:      |  |  |  |  |        |   |      |  |           |  | 4.71    | %    |           | $ | 1,431,220 |           |  |         | 5.9 |    
|                       |              | Post-swap: (2) |  |  |  |  |        |   |      |  |           |  | 5.14    | %    |           | $ | 1,431,220 |           |  |         | 5.9 |    

27



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##### Table of Contents



|                                                       |  |        |      |      |  |          |           |         |       |           |      |         |         |           |        |         |      |  |     | 
|------------------------------------------------------ |  | ------ | ---- | ---- |  | -------- | --------- | ------- | ----- | --------- | ---- | ------- | ------- | --------- | ------ | ------- | ---- |  | --- | 
|                                                       |  |        |      |      |  | Maturity |           | Current |       | Principal |      | Term to
|Property/Ownership                                     |  | F/V(1) |      | Date |  | Rate     |           | Balance |       | Maturity 
|                                                       |  |        |      |      |  |          |           |         |       |          
|(At December 31, 2002)                                 |  |        |      |      |  |          |           |         |       |           |      |         |         | ($ 000's) |        | (Years)
|                                                      
|Renaissance Tower                                      |  |        | F    |      |  | Jan-10   |           |         | 4.98  | %         |      | $       | 92,000  |           |        |         | 7.0  | 
|Galleria Towers I, II and III                          |  |        | F    |      |  | May-04   |           |         | 6.79  | %         |      |         | 135,730 |           |        |         | 1.4  | 
|Ernst & Young Plaza                                    |  |        | V    |      |  | Jun-04   |           |         | 4.17  | %         |      |         | 120,000 |           |        |         | 1.4  | 
|One New York Plaza                                     |  |        | F    |      |  | May-06   |           |         | 7.27  | %         |      |         | 237,768 |           |        |         | 3.3  | 
|1065 Ave. of the Americas (99%)                        |  |        | F    |      |  | Dec-04   |           |         | 7.18  | %         |      |         | 37,347  |           |        |         | 1.9  | 
|Newport Tower                                          |  |        | F    |      |  | Nov-04   |           |         | 7.09  | %         |      |         | 105,400 |           |        |         | 1.8  | 
|2000 L Street, N.W                                     |  |        | F    |      |  | Aug-07   |           |         | 6.26  | %         |      |         | 56,100  |           |        |         | 4.6  | 
|Watergate Office Building                              |  |        | F    |      |  | Feb-07   |           |         | 8.02  | %         |      |         | 18,434  |           |        |         | 4.1  | 
|1400 K Street, N.W                                     |  |        | F    |      |  | May-06   |           |         | 7.20  | %         |      |         | 21,956  |           |        |         | 3.3  | 
|Bethesda Crescent                                      |  |        | F    |      |  | Jan-08   |           |         | 7.10  | %         |      |         | 33,493  |           |        |         | 5.0  | 
|Bethesda Crescent                                      |  |        | F    |      |  | Jan-08   |           |         | 6.70  | %         |      |         | 2,775   |           |        |         | 5.0  | 
|Twinbrook Metro Plaza                                  |  |        | F    |      |  | Sep-08   |           |         | 6.65  | %         |      |         | 16,915  |           |        |         | 5.7  | 
|Goddard Corporate Park                                 |  |        | F    |      |  | May-09   |           |         | 7.00  | %         |      |         | 14,893  |           |        |         | 6.3  | 
|Two Ballston Plaza                                     |  |        | F    |      |  | Jun-08   |           |         | 6.91  | %         |      |         | 27,066  |           |        |         | 5.4  | 
|Rosslyn Gateway North                                  |  |        | F    |      |  | May-07   |           |         | 8.00  | %         |      |         | 10,820  |           |        |         | 4.3  | 
|Rosslyn Gateway South                                  |  |        | V    |      |  | Jul-07   |           |         | 3.39  | %         |      |         | 8,500   |           |        |         | 4.5  | 
|Sunrise Tech Park                                      |  |        | F    |      |  | Jan-06   |           |         | 6.75  | %         |      |         | 23,514  |           |        |         | 3.0  | 
|Bank of America Plaza (Charlotte)                      |  |        | F    |      |  | Feb-04   |           |         | 7.43  | %         |      |         | 66,204  |           |        |         | 1.1  | 
|Gateway Center                                         |  |        | F    |      |  | Sep-10   |           |         | 8.50  | %         |      |         | 41,362  |           |        |         | 7.7  | 
|Metropolitan Square                                    |  |        | F    |      |  | Jan-08   |           |         | 7.05  | %         |      |         | 87,281  |           |        |         | 5.0  | 
|250 West Pratt Street                                  |  |        | F    |      |  | Apr-05   |           |         | 6.77  | %         |      |         | 29,444  |           |        |         | 2.3  | 
|Bank of America Plaza (Columbia)                       |  |        | F    |      |  | Mar-05   |           |         | 6.90  | %         |      |         | 20,725  |           |        |         | 2.2  | 
|Esperante Office Building                              |  |        | F    |      |  | Mar-05   |           |         | 6.52  | %         |      |         | 23,501  |           |        |         | 2.2  | 
|Franklin Garage                                        |  |        | F    |      |  | May-03   |           |         | 6.85  | %         |      |         | 26,478  |           |        |         | 0.3  | 
|One Alliance Center                                    |  |        | V    |      |  | Oct-03   |           |         | 3.40  | %         |      |         | 55,107  |           |        |         | 0.8  | 
|Inner Belt Drive                                       |  |        | V    |      |  | Oct-03   |           |         | 4.25  | %         |      |         | 17,896  |           |        |         | 0.8  | 
|151 Front Street West                                  |  |        | V    |      |  | Jul-05   |           |         | 4.63  | %         |      |         | 17,281  |           |        |         | 2.5  | 
|Revolving Credit Facility                              |  |        | V    |      |  | Dec-04   |           |         | 3.55  | %         |      |         | 90,000  |           |        |         | 2.0  | 
|Other  Fixed                                          |  |        | F    |      |  |          |           |         |       |           | 5.10 | %       |         |           | 20,525 |         |      |  | 7.9 | 
|Other  Variable                                       |  |        | V    |      |  |          |           |         |       |           | 4.25 | %       |         |           | 1,338  |         |      |  | 1.5 | 
|                                                       |  |        |      |      |  |          |           |         |       |           |      |         |         |           |        |         |      |  |     | 
|Consolidated Office Mortgage and Other Debt            |  |        | 5.70 | %    |  | $        | 2,891,073 |         |       |           | 4.5  |        
|                                                       |  |        |      |      |  |          |           |         |       |           |      |         |         |           |        |         |      |  |     | 
|                                                       |  |        |      |      |  |          |           |         |       |           |      |         |         |           |        |         |      |  |     | 
|Desert Passage                                         |  |        | V    |      |  | May-05   |           |         | 3.56  | %         |      | $       | 178,011 |           |        |         | 2.4  | 
|Desert Passage                                         |  |        | F    |      |  | Nov-69   |           |         | 12.00 | %         |      |         | 16,667  |           |        |         | 66.9 | 
|Hollywood & Highland-Retail                            |  |        | V    |      |  | May-04   |           |         | 3.44  | %         |      |         | 145,525 |           |        |         | 1.4  | 
|Hollywood & Highland-Other                             |  |        | F    |      |  | Nov-06   |           |         | 13.59 | %         |      |         | 8,623   |           |        |         | 3.9  | 
|Hollywood & Highland-Other                             |  |        | F    |      |  | Apr-29   |           |         | 0.00  | %         |      |         | 30,561  |           |        |         | 26.3 | 
|Paseo Colorado                                         |  |        | V    |      |  | Jun-03   |           |         | 4.13  | %         |      |         | 74,778  |           |        |         | 0.5  | 
|                                                       |  |        |      |      |  |          |           |         |       |           |      |         |         |           |        |         |      |  |     | 
|Consolidated Retail Mortgage and Other Debt            |  |        | 3.88 | %    |  | $        | 454,165   |         |       |           | 5.8  |        
|                                                       |  |        |      |      |  |          |           |         |       |           |      |         |         |           |        |         |      |  |     | 
|                                                       |  |        |      |      |  |          |           |         |       |           |      |         |         |           |        |         |      |  |     | 
|Total Consolidated Debt                                |  |        | 5.45 | %    |  | $        | 3,345,238 |         |       |           | 4.7  |        
|                                                       |  |        |      |      |  |          |           |         |       |           |      |         |         |           |        |         |      |  |     | 
|                                                       |  |        |      |      |  |          |           |         |       |           |      |         |         |           |        |         |      |  |     | 
|Bank One Center (50%)                                  |  |        | V    |      |  | Dec-04   |           |         | 6.36  | %         |      | $       | 66,348  |           |        |         | 1.9  | 
|Marina Towers (50%)                                    |  |        | F    |      |  | Aug-07   |           |         | 7.92  | %         |      |         | 15,564  |           |        |         | 4.6  | 
|The Grace Building (50%)                               |  |        | F    |      |  | Mar-05   |           |         | 7.50  | %         |      |         | 55,484  |           |        |         | 2.2  | 
|The Grace Building (50%)                               |  |        | V    |      |  | Mar-03   |           |         | 4.88  | %         |      |         | 10,632  |           |        |         | 0.2  | 
|World Apparel Center (50%)                             |  |        | F    |      |  | Mar-05   |           |         | 7.50  | %         |      |         | 51,217  |           |        |         | 2.2  | 
|World Apparel Center (50%)                             |  |        | V    |      |  | Mar-03   |           |         | 4.88  | %         |      |         | 9,814   |           |        |         | 0.2  | 
|1460 Broadway (50%)                                    |  |        | V    |      |  | May-05   |           |         | 3.25  | %         |      |         | 12,475  |           |        |         | 2.4  | 
|New Center One (67%)                                   |  |        | F    |      |  | Oct-06   |           |         | 9.38  | %         |      |         | 10,122  |           |        |         | 3.8  | 
|New Center One (67%)                                   |  |        | F    |      |  | Aug-20   |           |         | 6.00  | %         |      |         | 5,067   |           |        |         | 17.7 | 
|Waterview (80%)                                        |  |        | V    |      |  | Sep-04   |           |         | 6.00  | %         |      |         | 14,680  |           |        |         | 1.7  | 
|Hollywood & Highland- Hotel (91.5%)                    |  |        | V    |      |  | Apr-03   |           |         | 4.19  | %         |      |         | 85,311  |           |        |         | 0.3  | 
|Hollywood & Highland- Hotel (91.5%)                    |  |        | F    |      |  | Apr-07   |           |         | 3.00  | %         |      |         | 4,573   |           |        |         | 4.3  | 
|Hollywood & Highland- Hotel (91.5%)                    |  |        | F    |      |  | Nov-06   |           |         | 13.59 | %         |      |         | 2,375   |           |        |         | 3.9  | 
|                                                       |  |        |      |      |  |          |           |         |       |           |      |         |         |           |        |         |      |  |     | 
|Unconsolidated Real Estate Joint Venture Mortgage Debt |  |        | 6.12 | %    |  | $        | 343,662   |         |       |           | 2.0  |        
|                                                       |  |        |      |      |  |          |           |         |       |           |      |         |         |           |        |         |      |  |     | 

28



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##### Table of Contents



|                                 |  |         |      |           |  |           |           |         |  |  |     | 
|-------------------------------- |  | ------- | ---- | --------- |  | --------- | --------- | ------- |  |  | --- | 
|                                 |  | Current |      | Principal |  | Term to  
|Total Mortgage and Other Debt(3) |  | Rate(2) |      | Balance   |  | Maturity 
|                                 |  |         |      |           |  |          
|                                 |  |         |      |           |  | ($ 000's) |           | (Years)
|                                
|Office                           |  |         | 5.79 | %         |  | $         | 3,142,476 |         |  |  | 4.3 | 
|Retail                           |  |         | 3.96 | %         |  |           | 546,424   |         |  |  | 4.9 | 
|                                 |  |         |      |           |  |           |           |         |  |  |     | 
|                                 |  |         | 5.52 | %         |  | $         | 3,688,900 |         |  |  | 4.4 | 
|                                 |  |         |      |           |  |           |           |         |  |  |     | 



---

|(1) |  | F refers to fixed rate debt, V refers to variable rate
debt.                                                                          
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Reflects $150 million of the 7 year floating rate
tranche of the CMBS loan that has been swapped from one-month
LIBOR to 6.01% fixed rate.
|   
|(3) |  | Includes our pro rata share of unconsolidated real
estate joint ventures.                                                                 

PROPERTY PORTFOLIO

Office Properties

Operating Properties

The following table sets forth key information as of December 31, 2002
with respect to our operating 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     |                   |            |           |      |           | Owned              |         |  |      |     
|                 |                 |                               |                                  |             |             |           |               |           | completion/ |                   | Total area |           | area |           | Occupancy weighted
|Name (Ownership) |                 | Location                      |                                  | renovation  |             | (sq. ft.) |               | (sq. ft.) |             | on owned area (2)
|                 |                 |                               |                                  |             |             |           |               |           |             |                  
|                 |                 |                               |                                  |             |             |           |               |           |             |                   |            |           |      |           |                    |         |  |      |      |     
|Core Markets     |                 |                               |                                  |             |             |           |               |           |             |                   |            |           |      |           |                    |         |  |      |      |     
|                 | Atlanta         |                               |                                  |             |             |           |               |           |             |                   |            |           |      |           |                    |         |  |      |      |      |  
|                 |                 | Interstate North Parkway      |                                  | Atlanta, GA |             |           | 1973/84/01    |           |             |                   | 955,000    |           |      |           | 955,000            |         |  |      | 90.9 | %   
|                 |                 | Colony Square                 |                                  | Atlanta, GA |             |           | 1970/73/95    |           |             |                   | 837,000    |           |      |           | 837,000            |         |  |      | 87.3 | %   
|                 |                 | The Palisades                 |                                  | Atlanta, GA |             |           | 1981/83/99    |           |             |                   | 627,000    |           |      |           | 627,000            |         |  |      | 83.5 | %   
|                 |                 | Newmarket Business Park       |                                  | Atlanta, GA |             |           | 1979/89       |           |             |                   | 617,000    |           |      |           | 617,000            |         |  |      | 87.4 | %   
|                 |                 | One Alliance Center           |                                  | Atlanta, GA |             |           | 2001          |           |             |                   | 560,000    |           |      |           | 560,000            |         |  |      | 82.6 | %   
|                 |                 | Lakeside Centre               |                                  | Atlanta, GA |             |           | 1984/86       |           |             |                   | 517,000    |           |      |           | 517,000            |         |  |      | 83.2 | %   
|                 |                 | Midtown Plaza                 |                                  | Atlanta, GA |             |           | 1984/85       |           |             |                   | 504,000    |           |      |           | 504,000            |         |  |      | 92.7 | %   
|                 |                 |                               |                                  |             |             |           |               |           |             |                   |            |           |      |           |                    |         |  |      |      |     
|                 | Total  Atlanta |                               | (7 properties)                   |             |             |           |               |           |             | 4,617,000         |            |           |      | 4,617,000 |                    |         |  | 87.1 | %   
|                 |                 |                               |                                  |             |             |           |               |           |             |                   |            |           |      |           |                    |         |  |      |      |     
|                 | Chicago         |                               |                                  |             |             |           |               |           |             |                   |            |           |      |           |                    |         |  |      |      |      |  
|                 |                 | Sears Tower (1)               |                                  | Chicago, IL |             |           | 1974          |           |             |                   | 3,512,000  |           |      |           |                   |         |  |      | 90.8 | %   
|                 |                 | Two North LaSalle             |                                  | Chicago, IL |             |           | 1979          |           |             |                   | 692,000    |           |      |           | 692,000            |         |  |      | 94.8 | %   
|                 |                 | 10 South Riverside            |                                  | Chicago, IL |             |           | 1965          |           |             |                   | 685,000    |           |      |           | 685,000            |         |  |      | 90.1 | %   
|                 |                 | 120 South Riverside           |                                  | Chicago, IL |             |           | 1967          |           |             |                   | 685,000    |           |      |           | 685,000            |         |  |      | 97.0 | %   
|                 |                 | 550 West Washington           |                                  | Chicago, IL |             |           | 2000          |           |             |                   | 372,000    |           |      |           | 372,000            |         |  |      | 95.5 | %   
|                 |                 |                               |                                  |             |             |           |               |           |             |                   |            |           |      |           |                    |         |  |      |      |     
|                 | Total  Chicago |                               | (5 properties)                   |             |             |           |               |           |             | 5,946,000         |            |           |      | 2,434,000 |                    |         |  | 94.2 | %   
|                 |                 |                               |                                  |             |             |           |               |           |             |                   |            |           |      |           |                    |         |  |      |      |     
|                 | Dallas          |                               |                                  |             |             |           |               |           |             |                   |            |           |      |           |                    |         |  |      |      |      |  
|                 |                 | Renaissance Tower             |                                  | Dallas, TX  |             |           | 1974/92       |           |             |                   | 1,739,000  |           |      |           | 1,739,000          |         |  |      | 86.8 | %   
|                 |                 | Bank One Center (50%)         |                                  | Dallas, TX  |             |           | 1987          |           |             |                   | 1,530,000  |           |      |           | 765,000            |         |  |      | 85.9 | %   
|                 |                 | Galleria Towers I, II and III |                                  | Dallas, TX  |             |           | 1982/85/91    |           |             |                   | 1,418,000  |           |      |           | 1,418,000          |         |  |      | 88.2 | %   
|                 |                 | Plaza of the Americas         |                                  | Dallas, TX  |             |           | 1980          |           |             |                   | 1,176,000  |           |      |           | 1,176,000          |         |  |      | 75.8 | %   
|                 |                 | Park Central I & II           |                                  | Dallas, TX  |             |           | 1970/71       |           |             |                   | 268,000    |           |      |           | 268,000            |         |  |      | 85.7 | %   
|                 |                 |                               |                                  |             |             |           |               |           |             |                   |            |           |      |           |                    |         |  |      |      |     
|                 | Total  Dallas  |                               | (5 properties)                   |             |             |           |               |           |             | 6,131,000         |            |           |      | 5,366,000 |                    |         |  | 84.6 | %   
|                 |                 |                               |                                  |             |             |           |               |           |             |                   |            |           |      |           |                    |         |  |      |      |     
|                 | Houston         |                               |                                  |             |             |           |               |           |             |                   |            |           |      |           |                    |         |  |      |      |      |  
|                 |                 | Allen Center                  |                                  | Houston, TX |             |           | 1972/78/80/95 |           |             |                   | 3,184,000  |           |      |           | 3,184,000          |         |  |      | 87.8 | %   
|                 |                 | Cullen Center                 |                                  |             |             |           |               |           |             |                   |            |           |      |           |                    |         |  |      |      |     
|                 |                 |                               | Continental Center I             | Houston, TX |             |           | 1984          |           |             |                   | 1,110,000  |           |      |           | 1,110,000          |         |  |      | 91.5 | %   
|                 |                 |                               | Continental Center II            |             | Houston, TX |           |               | 1971      |             |                   |            | 449,000   |      |           |                    | 449,000 |  |      |      | 89.0 | %
|                 |                 |                               | Kellogg Brown & Root Tower
(50%) |             | Houston, TX |           |               | 1978      |             |                   |            | 1,048,000 |      |           |                    | 524,000 |  |      |      | 93.6 | %
|                 |                 |                               | 500 Jefferson                    |             | Houston, TX |           |               | 1962/83   |             |                   |            | 390,000   |      |           |                    | 390,000 |  |      |      | 78.0 | %
|                 |                 | 3700 Bay Area Blvd            |                                  | Houston, TX |             |           | 1986          |           |             |                   | 399,000    |           |      |           | 399,000            |         |  |      | 97.2 | %   
|                 |                 |                               |                                  |             |             |           |               |           |             |                   |            |           |      |           |                    |         |  |      |      |     
|                 | Total  Houston |                               | (6 properties)                   |             |             |           |               |           |             | 6,580,000         |            |           |      | 6,056,000 |                    |         |  | 89.1 | %   

29



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##### Table of Contents



|                  |                               |                                 |                 |                   |  |           |              |           |             |                   |            |  |      |           |                    |  |  |      |       |   |  |  | 
|----------------- | ----------------------------- | ------------------------------- | --------------- | ----------------- |  | --------- | ------------ | --------- | ----------- | ----------------- | ---------- |  | ---- | --------- | ------------------ |  |  | ---- | ----- | - |  |  | 
|                  |                               |                                 |                 |                   |  |           |              |           | Year of     |                   |            |  |      |           | Owned              |  |  |      |      
|                  |                               |                                 |                 |                   |  |           |              |           | completion/ |                   | Total area |  | area |           | Occupancy weighted
|Name (Ownership)  |                               | Location                        |                 | renovation        |  | (sq. ft.) |              | (sq. ft.) |             | on owned area (2)
|                  |                               |                                 |                 |                   |  |           |              |           |             |                  
|                  |                               |                                 |                 |                   |  |           |              |           |             |                   |            |  |      |           |                    |  |  |      |       |  
|                  | Los Angeles Area              |                                 |                 |                   |  |           |              |           |             |                   |            |  |      |           |                    |  |  |      |       |   | 
|                  |                               | Ernst & Young Plaza             |                 | Los Angeles, CA   |  |           | 1985         |           |             |                   | 1,244,000  |  |      |           | 1,244,000          |  |  |      | 88.6  | %
|                  |                               | Marina Towers (50%)             |                 | Los Angeles, CA   |  |           | 1971/76      |           |             |                   | 382,000    |  |      |           | 191,000            |  |  |      | 84.3  | %
|                  |                               | 9800 La Cienega                 |                 | Los Angeles, CA   |  |           | 1985         |           |             |                   | 358,000    |  |      |           | 358,000            |  |  |      | 85.9  | %
|                  |                               | Landmark Square                 |                 | Long Beach, CA    |  |           | 1991         |           |             |                   | 444,000    |  |      |           | 444,000            |  |  |      | 91.2  | %
|                  |                               | Shoreline Square                |                 | Long Beach, CA    |  |           | 1988         |           |             |                   | 383,000    |  |      |           | 383,000            |  |  |      | 86.4  | %
|                  |                               |                                 |                 |                   |  |           |              |           |             |                   |            |  |      |           |                    |  |  |      |       |  
|                  | Total  Los Angeles Area      |                                 | (5 properties)  |                   |  |           |              |           |             | 2,811,000         |            |  |      | 2,620,000 |                    |  |  | 88.1 | %    
|                  |                               |                                 |                 |                   |  |           |              |           |             |                   |            |  |      |           |                    |  |  |      |       |  
|                  | New York Area                 |                                 |                 |                   |  |           |              |           |             |                   |            |  |      |           |                    |  |  |      |       |   | 
|                  |                               | One New York Plaza              |                 | New York, NY      |  |           | 1970/95      |           |             |                   | 2,458,000  |  |      |           | 2,458,000          |  |  |      | 99.7  | %
|                  |                               | The Grace Building (50%)        |                 | New York, NY      |  |           | 1971/2002    |           |             |                   | 1,519,000  |  |      |           | 758,000            |  |  |      | 99.7  | %
|                  |                               | 1411 Broadway (50%)             |                 | New York, NY      |  |           | 1970         |           |             |                   | 1,150,000  |  |      |           | 574,000            |  |  |      | 99.3  | %
|                  |                               | 110 William Street              |                 | New York, NY      |  |           | 1960/99      |           |             |                   | 868,000    |  |      |           | 868,000            |  |  |      | 98.2  | %
|                  |                               | 1065 Ave. of the Americas (99%) |                 | New York, NY      |  |           | 1958         |           |             |                   | 665,000    |  |      |           | 659,000            |  |  |      | 87.1  | %
|                  |                               | 1460 Broadway (50%)             |                 | New York, NY      |  |           | 1951/2000    |           |             |                   | 215,000    |  |      |           | 107,000            |  |  |      | 100.0 | %
|                  |                               | Newport Tower                   |                 | Jersey City, NJ   |  |           | 1990         |           |             |                   | 1,038,000  |  |      |           | 1,038,000          |  |  |      | 97.0  | %
|                  |                               |                                 |                 |                   |  |           |              |           |             |                   |            |  |      |           |                    |  |  |      |       |  
|                  | Total  New York Area         |                                 | (7 properties)  |                   |  |           |              |           |             | 7,913,000         |            |  |      | 6,462,000 |                    |  |  | 97.7 | %    
|                  |                               |                                 |                 |                   |  |           |              |           |             |                   |            |  |      |           |                    |  |  |      |       |  
|                  | Washington, D.C. Area         |                                 |                 |                   |  |           |              |           |             |                   |            |  |      |           |                    |  |  |      |       |   | 
|                  |                               | 2000 L Street, N.W              |                 | Washington, D.C   |  |           | 1968/98      |           |             |                   | 385,000    |  |      |           | 385,000            |  |  |      | 96.7  | %
|                  |                               | Watergate Office Building       |                 | Washington, D.C   |  |           | 1965/91      |           |             |                   | 261,000    |  |      |           | 261,000            |  |  |      | 95.8  | %
|                  |                               | 1225 Connecticut, N.W           |                 | Washington, D.C   |  |           | 1968/94      |           |             |                   | 224,000    |  |      |           | 224,000            |  |  |      | 100.0 | %
|                  |                               | 1400 K Street, N.W              |                 | Washington, D.C   |  |           | 1982/2002    |           |             |                   | 189,000    |  |      |           | 189,000            |  |  |      | 100.0 | %
|                  |                               | 1250 Connecticut, N.W           |                 | Washington, D.C   |  |           | 1964/96      |           |             |                   | 172,000    |  |      |           | 172,000            |  |  |      | 93.7  | %
|                  |                               | 1250 23rd Street, N.W           |                 | Washington, D.C   |  |           | 1990         |           |             |                   | 116,000    |  |      |           | 116,000            |  |  |      | 100.0 | %
|                  |                               | 2401 Pennsylvania               |                 | Washington, D.C   |  |           | 1991         |           |             |                   | 77,000     |  |      |           | 77,000             |  |  |      | 84.0  | %
|                  |                               |                                 |                 |                   |  |           |              |           |             |                   |            |  |      |           |                    |  |  |      |       |  
|                  |                               | Washington, D.C                 |                 | (7 properties)    |  |           |              |           |             |                   | 1,424,000  |  |      |           | 1,424,000          |  |  |      | 96.7  | %
|                  |                               |                                 |                 |                   |  |           |              |           |             |                   |            |  |      |           |                    |  |  |      |       |  
|                  |                               | Bethesda Crescent               |                 | Bethesda, MD      |  |           | 1987         |           |             |                   | 269,000    |  |      |           | 269,000            |  |  |      | 96.9  | %
|                  |                               | Twinbrook Metro Plaza           |                 | Rockville, MD     |  |           | 1986         |           |             |                   | 165,000    |  |      |           | 165,000            |  |  |      | 99.7  | %
|                  |                               | Silver Spring Metro Plaza       |                 | Silver Spring, MD |  |           | 1986         |           |             |                   | 687,000    |  |      |           | 687,000            |  |  |      | 87.0  | %
|                  |                               | Silver Spring Centre            |                 | Silver Spring, MD |  |           | 1987         |           |             |                   | 216,000    |  |      |           | 216,000            |  |  |      | 97.3  | %
|                  |                               | Goddard Corporate Park (3)      |                 | Lanham, MD        |  |           | 1993         |           |             |                   | 203,000    |  |      |           | 203,000            |  |  |      | 66.9  | %
|                  |                               |                                 |                 |                   |  |           |              |           |             |                   |            |  |      |           |                    |  |  |      |       |  
|                  |                               | Suburban Maryland               |                 | (5 properties)    |  |           |              |           |             |                   | 1,540,000  |  |      |           | 1,540,000          |  |  |      | 88.9  | %
|                  |                               |                                 |                 |                   |  |           |              |           |             |                   |            |  |      |           |                    |  |  |      |       |  
|                  |                               | Beaumeade Corporate Park        |                 | Washington, D.C   |  |           | 1990/98/2000 |           |             |                   | 460,000    |  |      |           | 460,000            |  |  |      | 100.0 | %
|                  |                               | Rosslyn Gateway (4)             |                 | Arlington, VA     |  |           | 1970         |           |             |                   | 253,000    |  |      |           | 253,000            |  |  |      | 93.2  | %
|                  |                               | Two Ballston Plaza              |                 | Arlington, VA     |  |           | 1988         |           |             |                   | 223,000    |  |      |           | 223,000            |  |  |      | 91.0  | %
|                  |                               | 1550 Wilson Boulevard           |                 | Arlington, VA     |  |           | 1983         |           |             |                   | 134,000    |  |      |           | 134,000            |  |  |      | 98.8  | %
|                  |                               | 1560 Wilson Boulevard           |                 | Arlington, VA     |  |           | 1987         |           |             |                   | 128,000    |  |      |           | 128,000            |  |  |      | 98.3  | %
|                  |                               | Reston Unisys                   |                 | Reston, VA        |  |           | 1980         |           |             |                   | 238,000    |  |      |           | 238,000            |  |  |      | 100.0 | %
|                  |                               | One Reston Place                |                 | Reston, VA        |  |           | 2000         |           |             |                   | 184,000    |  |      |           | 184,000            |  |  |      | 0.0   | %
|                  |                               | Sunrise Tech Park               |                 | Reston, VA        |  |           | 1983/85      |           |             |                   | 312,000    |  |      |           | 312,000            |  |  |      | 98.5  | %
|                  |                               |                                 |                 |                   |  |           |              |           |             |                   |            |  |      |           |                    |  |  |      |       |  
|                  |                               | Northern Virginia               |                 | (8 properties)    |  |           |              |           |             |                   | 1,932,000  |  |      |           | 1,932,000          |  |  |      | 88.1  | %
|                  |                               |                                 |                 |                   |  |           |              |           |             |                   |            |  |      |           |                    |  |  |      |       |  
|                  |                               |                                 |                 |                   |  |           |              |           |             |                   |            |  |      |           |                    |  |  |      |       |  
|                  | Total  Washington, D.C. Area |                                 | (20 properties) |                   |  |           |              |           |             | 4,896,000         |            |  |      | 4,896,000 |                    |  |  | 90.9 | %    
|                  |                               |                                 |                 |                   |  |           |              |           |             |                   |            |  |      |           |                    |  |  |      |       |  
|Secondary Markets |                               |                                 |                 |                   |  |           |              |           |             |                   |            |  |      |           |                    |  |  |      |       |  
|                  |                               |                                 |                 |                   |  |           |              |           |             |                   |            |  |      |           |                    |  |  |      |       |  
|                  | Charlotte                     |                                 |                 |                   |  |           |              |           |             |                   |            |  |      |           |                    |  |  |      |       |   | 
|                  |                               | Bank of America Plaza           |                 | Charlotte, NC     |  |           | 1974         |           |             |                   | 891,000    |  |      |           | 891,000            |  |  |      | 99.8  | %
|                  |                               | First Citizens Plaza            |                 | Charlotte, NC     |  |           | 1985         |           |             |                   | 475,000    |  |      |           | 475,000            |  |  |      | 97.2  | %
|                  |                               |                                 |                 |                   |  |           |              |           |             |                   |            |  |      |           |                    |  |  |      |       |  
|                  | Total  Charlotte             |                                 | (2 properties)  |                   |  |           |              |           |             | 1,366,000         |            |  |      | 1,366,000 |                    |  |  | 98.9 | %    
|                  |                               |                                 |                 |                   |  |           |              |           |             |                   |            |  |      |           |                    |  |  |      |       |  
|                  | Minneapolis                   |                                 |                 |                   |  |           |              |           |             |                   |            |  |      |           |                    |  |  |      |       |   | 
|                  |                               | Northstar Center                |                 | Minneapolis, MN   |  |           | 1916/62/86   |           |             |                   | 813,000    |  |      |           | 813,000            |  |  |      | 66.1  | %
|                  |                               | Minnesota Center                |                 | Minneapolis, MN   |  |           | 1987         |           |             |                   | 289,000    |  |      |           | 289,000            |  |  |      | 87.0  | %
|                  |                               |                                 |                 |                   |  |           |              |           |             |                   |            |  |      |           |                    |  |  |      |       |  
|                  | Total  Minneapolis           |                                 | (2 properties)  |                   |  |           |              |           |             | 1,102,000         |            |  |      | 1,102,000 |                    |  |  | 71.6 | %    

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|                 |                   |                           |                 |                     |  |           |         |           |             |                   |            |  |            |           |                    |  |      |      |      |   |  |  | 
|---------------- | ----------------- | ------------------------- | --------------- | ------------------- |  | --------- | ------- | --------- | ----------- | ----------------- | ---------- |  | ---------- | --------- | ------------------ |  | ---- | ---- | ---- | - |  |  | 
|                 |                   |                           |                 |                     |  |           |         |           | Year of     |                   |            |  |            |           | Owned              |  |      |      |     
|                 |                   |                           |                 |                     |  |           |         |           | completion/ |                   | Total area |  | area       |           | Occupancy weighted
|Name (Ownership) |                   | Location                  |                 | renovation          |  | (sq. ft.) |         | (sq. ft.) |             | on owned area (2)
|                 |                   |                           |                 |                     |  |           |         |           |             |                  
|                 |                   |                           |                 |                     |  |           |         |           |             |                   |            |  |            |           |                    |  |      |      |      |  
|                 | Pittsburgh        |                           |                 |                     |  |           |         |           |             |                   |            |  |            |           |                    |  |      |      |      |   | 
|                 |                   | Gateway Center            |                 | Pittsburgh, PA      |  |           | 1952/60 |           |             |                   | 1,468,000  |  |            |           | 1,468,000          |  |      |      | 84.4 | %
|                 |                   |                           |                 |                     |  |           |         |           |             |                   |            |  |            |           |                    |  |      |      |      |  
|                 | St. Louis         |                           |                 |                     |  |           |         |           |             |                   |            |  |            |           |                    |  |      |      |      |   | 
|                 |                   | Metropolitan Square       |                 | St. Louis, MO       |  |           | 1989    |           |             |                   | 1,041,000  |  |            |           | 1,041,000          |  |      |      | 88.2 | %
|                 |                   | St. Louis Place           |                 | St. Louis, MO       |  |           | 1983    |           |             |                   | 337,000    |  |            |           | 337,000            |  |      |      | 86.2 | %
|                 |                   |                           |                 |                     |  |           |         |           |             |                   |            |  |            |           |                    |  |      |      |      |  
|                 | Total  St. Louis |                           | (2 properties)  |                     |  |           |         |           |             | 1,378,000         |            |  |            | 1,378,000 |                    |  |      | 87.7 | %   
|                 |                   |                           |                 |                     |  |           |         |           |             |                   |            |  |            |           |                    |  |      |      |      |  
|                 | Other             |                           |                 |                     |  |           |         |           |             |                   |            |  |            |           |                    |  |      |      |      |   | 
|                 |                   | New Center One (67%) (5)  |                 | Detroit, MI         |  |           | 1983    |           |             |                   | 496,000    |  |            |           | 331,000            |  |      |      | 78.3 | %
|                 |                   | 250 West Pratt Street     |                 | Baltimore, MD       |  |           | 1986    |           |             |                   | 362,000    |  |            |           | 362,000            |  |      |      | 86.4 | %
|                 |                   | Bank of America Plaza     |                 | Columbia, SC        |  |           | 1989    |           |             |                   | 302,000    |  |            |           | 302,000            |  |      |      | 92.8 | %
|                 |                   | 1441 Main Street          |                 | Columbia, SC        |  |           | 1988    |           |             |                   | 264,000    |  |            |           | 264,000            |  |      |      | 95.1 | %
|                 |                   | 1333 Main Street          |                 | Columbia, SC        |  |           | 1983    |           |             |                   | 217,000    |  |            |           | 217,000            |  |      |      | 81.3 | %
|                 |                   | Borden Building           |                 | Columbus, OH        |  |           | 1974    |           |             |                   | 569,000    |  |            |           | 569,000            |  |      |      | 75.1 | %
|                 |                   | Clark Tower               |                 | Memphis, TN         |  |           | 1973/97 |           |             |                   | 648,000    |  |            |           | 648,000            |  |      |      | 84.1 | %
|                 |                   | Capital Center II & III   |                 | Sacramento, CA      |  |           | 1984/85 |           |             |                   | 529,000    |  |            |           | 529,000            |  |      |      | 71.6 | %
|                 |                   | Williams Center I & II    |                 | Tulsa, OK           |  |           | 1982/83 |           |             |                   | 770,000    |  |            |           | 770,000            |  |      |      | 83.3 | %
|                 |                   | Esperante Office Building |                 | West Palm Beach, FL |  |           | 1989    |           |             |                   | 247,000    |  |            |           | 247,000            |  |      |      | 88.9 | %
|                 |                   |                           |                 |                     |  |           |         |           |             |                   |            |  |            |           |                    |  |      |      |      |  
|                 | Total  Other     |                           | (10 properties) |                     |  |           |         |           |             | 4,404,000         |            |  |            | 4,239,000 |                    |  |      | 82.4 | %   
|                 |                   |                           |                 |                     |  |           |         |           |             |                   |            |  |            |           |                    |  |      |      |      |  
|                 |                   |                           |                 |                     |  |           |         |           |             |                   |            |  |            |           |                    |  |      |      |      |  
|Total            |                   | (72 properties)           |                 |                     |  |           |         |           | 48,612,000  |                   |            |  | 42,004,000 |           |                    |  | 89.0 | %   
|                 |                   |                           |                 |                     |  |           |         |           |             |                   |            |  |            |           |                    |  |      |      |      |  



---

|(1) |  | We hold a subordinated mortgage and option to purchase the property, and
we are the residual beneficiary of the trust that owns the property. In
addition, we have responsibility for property management and leasing
services. Accordingly, the property is excluded from operating statistics
other than aggregate square footage calculations.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Occupancy as shown is weighted on owned area and excludes the Sears
Tower.                                                                                                                                                                                                                                                                       
|   
|(3) |  | This property was sold on February 25, 2003.                                                                                                                                                                                                                                                                                                     
|   
|(4) |  | This property was sold on March 14, 2003.                                                                                                                                                                                                                                                                                                        
|   
|(5) |  | This property was sold on February 25, 2003.                                                                                                                                                                                                                                                                                                     

Other Properties

The following table sets forth key information as of December 31, 2002
with respect to our other properties. The economic interest of our owning
entity is 100%.

|                 |                      |               |               |                 |  |           |      |                     |  |            |           |      |  |         |           |       |  |      |      |   |  | 
|---------------- | -------------------- | ------------- | ------------- | --------------- |  | --------- | ---- | ------------------- |  | ---------- | --------- | ---- |  | ------- | --------- | ----- |  | ---- | ---- | - |  | 
|                 |                      |               |               |                 |  |           |      |                     |  |            |           |      |  |         |           | Owned |  |      |      |  
|                 |                      |               |               |                 |  |           |      | Year of completion/ |  | Total area |           | area |  |         |           |      
|Name (Ownership) |                      | Location      |               | renovation      |  | (sq. ft.) |      | (sq. ft.)           |  | Occupancy 
|                 |                      |               |               |                 |  |           |      |                     |  |           
|                 | 151 Front Street     |               | Toronto, ON   |                 |  | 1954/2000 |      |                     |  | 272,000    |           |      |  | 272,000 |           |       |  | 70.0 | %   
|                 | Desert Passage       |               | Las Vegas, NV |                 |  | 2000      |      |                     |  | 475,000    |           |      |  | 475,000 |           |       |  | 70.0 | %   
|                 | Paseo Colorado (1)   |               | Pasadena, CA  |                 |  | 2001      |      |                     |  | 565,000    |           |      |  | 410,000 |           |       |  | 93.3 | %   
|                 |                      |               |               |                 |  |           |      |                     |  |            |           |      |  |         |           |       |  |      |      |  
|                 | Hollywood & Highland |               |               |                 |  |           |      |                     |  |            |           |      |  |         |           |       |  |      |      |   | 
|                 |                      | Retail        |               | Los Angeles, CA |  |           | 2001 |                     |  |            | 645,000   |      |  |         | 645,000   |       |  |      | 78.8 | %
|                 |                      | Hotel (91.5%) |               | Los Angeles, CA |  |           | 2001 |                     |  |            | 600,000   |      |  |         | 546,000   |       |  |      | n/a  |  
|                 |                      |               |               |                 |  |           |      |                     |  |            |           |      |  |         |           |       |  |      |      |  
|                 |                      |               |               |                 |  |           |      |                     |  |            | 1,245,000 |      |  |         | 1,191,000 |       |  |      |      |  



---

|(1) |  | Includes 155,000 square feet owned directly by department store anchor.
This property was sold on January 15, 2003.
|--- |  | -------------------------------------------------------------------------------------------------------------------




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.

31



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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
fiscal quarter ended December 31, 2002.

32



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PART II




Item 5.     Market for Registrants Common Equity and Related Stockholder Matters

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 the corporate
reorganization. Prior to that time, there was no public market for our common
stock. As of March 19, 2003, there were approximately 350 holders of record of
our common stock. The following table shows the high and low sale prices per
share of our common stock as reported on the New York Stock Exchange for the
periods indicated:

|                                       |  |      |       |     |  |   |       | 
|-------------------------------------- |  | ---- | ----- | --- |  | - | ----- | 
|Quarterly Period Ended:                |  | High |       | Low
|                                       |  |      |       |    
|June 30, 2002 (commencing May 8, 2002) |  | $    | 17.29 |     |  | $ | 16.04 | 
|September 30, 2002                     |  |      | 16.81 |     |  |   | 10.60 | 
|December 31, 2002                      |  |      | 11.35 |     |  |   | 8.60  | 

Dividend Policy

Prior to the effective date of the corporate reorganization, we were an
indirect, substantially wholly-owned subsidiary of a larger corporation,
TrizecHahn Corporation. In the first quarter of 2002, TrizecHahn Corporation
shareholders received a dividend of $0.0875 per share. Following the corporate
reorganization, we made quarterly dividend distributions of $0.0875 per share
in each of last three quarters of 2002. Commencing in the first quarter of
2003 and thereafter, we intend to make distributions to the holders of our
common stock and special voting stock in an amount that is at least equal to
the minimum amount required to maintain REIT status each year through regular
quarterly dividends. We are required to distribute at least 90% of our net
taxable income each year, excluding capital gains, to our stockholders in order
to retain 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 shares of common stock
are being offered on a continuing basis pursuant to Rule 415 under the
Securities Act. We have not engaged an underwriter for the offering and the
aggregate price of the offering amount registered is $143,115,000.

During the period from May 8, 2002 to December 31, 2002, 59,400 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, 2002, the aggregate net
proceeds from the shares of common stock issued or sold by us pursuant to the
offering were $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.

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##### Table of Contents






Item 6.     Selected Financial Data

The following financial data are 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 Form 10-K.

As described in Note 1 to our consolidated financial statements, the
financial statements include, on a consolidated and combined consolidated
basis, the U.S. assets of TrizecHahn Corporation, substantially all of which
are owned and operated by Trizec Properties, Inc. and Trizec R & E Holdings,
Inc. (TREHI). On March 14, 2002, TREHI was contributed to Trizec Properties.
Prior to this, TREHI was an indirect wholly-owned subsidiary of TrizecHahn.
Accordingly, the organization presented in the financial statements was not a
legal entity for all periods presented.

|                                                                                                                                                                                                                                                                                                   |  |                                                     |        |                                 |               |      |        |      |        |      |       |      |        |   |       |   |        |   |        |   |        |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------------------------- | ------ | ------------------------------- | ------------- | ---- | ------ | ---- | ------ | ---- | ----- | ---- | ------ | - | ----- | - | ------ | - | ------ | - | ------ | -
|                                                                                                                                                                                                                                                                                                   |  |                                                     |        | For the years ended December 31
|                                                                                                                                                                                                                                                                                                   |  |                                                     |        |                                
|                                                                                                                                                                                                                                                                                                   |  |                                                     |        | 2002                            |               | 2001 |        | 2000 |        | 1999 |       | 1998
|                                                                                                                                                                                                                                                                                                   |  |                                                     |        |                                 |               |      |        |      |        |      |       |     
|                                                                                                                                                                                                                                                                                                   |  |                                                     |        |                                 | (in millions)
|Operating Data:                                                                                                                                                                                                                                                                                    |  |                                                     |        |                                 |               |      |        |      |        |      |       |      |        |   |       |   |        |   |        |  
|Revenues:                                                                                                                                                                                                                                                                                          |  |                                                     |        |                                 |               |      |        |      |        |      |       |      |        |   |       |   |        |   |        |  
|                                                                                                                                                                                                                                                                                                   |  | Rental, parking and other                           |        | $                               | 938.4         |      |        | $    | 893.2  |      |       | $    | 850.1  |   |       | $ | 781.5  |   |        | $ | 505.4  |  
|                                                                                                                                                                                                                                                                                                   |  |                                                     |        |                                 |               |      |        |      |        |      |       |      |        |   |       |   |        |   |        |   |        |  
|                                                                                                                                                                                                                                                                                                   |  | Total revenues                                      |        |                                 | 947.1         |      |        |      | 908.8  |      |       |      | 858.5  |   |       |   | 788.6  |   |        |   | 517.9  |  
|                                                                                                                                                                                                                                                                                                   |  |                                                     |        |                                 |               |      |        |      |        |      |       |      |        |   |       |   |        |   |        |   |        |  
|Expenses:                                                                                                                                                                                                                                                                                          |  |                                                     |        |                                 |               |      |        |      |        |      |       |      |        |   |       |   |        |   |        |  
|                                                                                                                                                                                                                                                                                                   |  | Operating and property taxes                        |        |                                 | (427.8        | )    |        |      | (371.1 | )    |       |      | (347.8 | ) |       |   | (326.2 | ) |        |   | (215.0 | )
|                                                                                                                                                                                                                                                                                                   |  | General and administrative                          |        |                                 | (44.9         | )    |        |      | (25.9  | )    |       |      | (18.4  | ) |       |   | (16.7  | ) |        |   | (9.0   | )
|                                                                                                                                                                                                                                                                                                   |  | Interest                                            |        |                                 | (192.7        | )    |        |      | (148.8 | )    |       |      | (260.4 | ) |       |   | (229.6 | ) |        |   | (155.4 | )
|                                                                                                                                                                                                                                                                                                   |  | Depreciation and amortization                       |        |                                 | (171.1        | )    |        |      | (157.0 | )    |       |      | (150.3 | ) |       |   | (129.8 | ) |        |   | (68.9  | )
|                                                                                                                                                                                                                                                                                                   |  | Stock option grant expense and
reorganization costs |        |                                 | (2.0          | )    |        |      | (15.9  | )    |       |      | (6.7   | ) |       |   | (5.0   | ) |        |   |       |  
|                                                                                                                                                                                                                                                                                                   |  | Derivative losses                                   |        |                                 | (0.2          | )    |        |      | (0.5   | )    |       |      |       |   |       |   |       |   |        |   |       |  
|                                                                                                                                                                                                                                                                                                   |  | Provision for loss on real estate and
investments   |        |                                 | (260.2        | )    |        |      | (273.5 | )    |       |      | (3.7   | ) |       |   |       |   |        |   |       |  
|                                                                                                                                                                                                                                                                                                   |  |                                                     |        |                                 |               |      |        |      |        |      |       |      |        |   |       |   |        |   |        |   |        |  
|                                                                                                                                                                                                                                                                                                   |  | Total expenses                                      |        |                                 | (1,098.9      | )    |        |      | (992.7 | )    |       |      | (787.3 | ) |       |   | (707.3 | ) |        |   | (448.3 | )
|                                                                                                                                                                                                                                                                                                   |  |                                                     |        |                                 |               |      |        |      |        |      |       |      |        |   |       |   |        |   |        |   |        |  
|(Loss) income before income taxes,
minority interest, (loss) income from
unconsolidated real estate joint
ventures, recovery on insurance claim,
discontinued operations, gain (loss) on
disposition of real estate,
extraordinary items and cumulative
effect of a change in accounting
principle |  |                                                     | (151.8 | )                               |               |      | (83.9  | )    |        |      | 71.2  |      |        |   | 81.3  |   |        |   | 69.6   |  
|(Provision) benefit from income and
other corporate taxes                                                                                                                                                                                                                                          |  |                                                     | (4.9   | )                               |               |      | (13.8  | )    |        |      | 252.8 |      |        |   | (22.8 | ) |        |   | (248.4 | )
|Minority interest                                                                                                                                                                                                                                                                                  |  |                                                     | 1.7    |                                 |               |      | 0.4    |      |        |      | 0.6   |      |        |   | 1.5   |   |        |   | 1.1    |  
|(Loss) income from unconsolidated real
estate joint ventures including
provision for loss on investment ($58.9,
$46.9, $0, $0, $0)                                                                                                                                                                 |  |                                                     | (47.6  | )                               |               |      | (33.9  | )    |        |      | 19.4  |      |        |   | 16.2  |   |        |   | 40.6   |  
|Recovery on insurance claim                                                                                                                                                                                                                                                                        |  |                                                     | 3.5    |                                 |               |      |       |      |        |      |      |      |        |   |      |   |        |   |       |  
|                                                                                                                                                                                                                                                                                                   |  |                                                     |        |                                 |               |      |        |      |        |      |       |      |        |   |       |   |        |   |        |   |        |  
|(Loss) income from continuing operations                                                                                                                                                                                                                                                           |  |                                                     | (199.1 | )                               |               |      | (131.2 | )    |        |      | 344.0 |      |        |   | 76.2  |   |        |   | (137.1 | )
|Income from discontinued operations
including gains on disposition                                                                                                                                                                                                                                 |  |                                                     | 8.2    |                                 |               |      | 3.4    |      |        |      | 3.6   |      |        |   | 3.5   |   |        |   | 4.4    |  
|Gain (loss) on disposition of real estate                                                                                                                                                                                                                                                          |  |                                                     | 3.0    |                                 |               |      | (2.1   | )    |        |      | 36.9  |      |        |   | (41.4 | ) |        |   | 535.0  |  
|Loss on early debt retirement and effect
of a change in accounting principle                                                                                                                                                                                                                       |  |                                                     |       |                                 |               |      | (22.6  | )    |        |      | (1.5  | )    |        |   |      |   |        |   |       |  
|                                                                                                                                                                                                                                                                                                   |  |                                                     |        |                                 |               |      |        |      |        |      |       |      |        |   |       |   |        |   |        |   |        |  
|Net (loss) income                                                                                                                                                                                                                                                                                  |  |                                                     | (187.9 | )                               |               |      | (152.5 | )    |        |      | 383.0 |      |        |   | 38.3  |   |        |   | 402.3  |  
|Dividends paid to special voting
shareholders                                                                                                                                                                                                                                                      |  |                                                     | (0.9   | )                               |               |      |       |      |        |      |      |      |        |   |      |   |        |   |       |  
|                                                                                                                                                                                                                                                                                                   |  |                                                     |        |                                 |               |      |        |      |        |      |       |      |        |   |       |   |        |   |        |   |        |  
|Net (loss) income available to common
shareholders                                                                                                                                                                                                                                                 |  | $                                                   | (188.8 | )                               |               | $    | (152.5 | )    |        | $    | 383.0 |      |        | $ | 38.3  |   |        | $ | 402.3  |  
|                                                                                                                                                                                                                                                                                                   |  |                                                     |        |                                 |               |      |        |      |        |      |       |      |        |   |       |   |        |   |        |   |        |  

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|                                                                                        |  |         |  |                                 |             |      |  |              |             |      |  |      |             |  |  |  |             |  |  |  |             | 
|--------------------------------------------------------------------------------------- |  | ------- |  | ------------------------------- | ----------- | ---- |  | ------------ | ----------- | ---- |  | ---- | ----------- |  |  |  | ----------- |  |  |  | ----------- | 
|                                                                                        |  |         |  | For the years ended December 31
|                                                                                        |  |         |  |                                
|                                                                                        |  |         |  | 2002                            |             | 2001 |  | 2000         |             | 1999 |  | 1998
|                                                                                        |  |         |  |                                 |             |      |  |              |             |      |  |     
|                                                                                        |  |         |  |                                 |             |      |  | Proforma (1)
|                                                                                        |  |         |  |                                 |             |      |  |             
|Net (loss) income available to
common shareholders per share                            |  |         |  |                                 |             |      |  |              |             |      |  |      |             |  |  |  |             |  |  | 
|                                                                                        |  | Basic   |  | $                               | (1.26       | )    |  |              | (1.02       | )    |  |      | 2.56        |  |  |  | 0.26        |  |  |  | 2.68        | 
|                                                                                        |  | Diluted |  | $                               | (1.26       | )    |  |              | (1.02       | )    |  |      | 2.53        |  |  |  | 0.25        |  |  |  | 2.66        | 
|Net (loss) income from continuing
operations available to common
shareholders per share |  |         |  |                                 |             |      |  |              |             |      |  |      |             |  |  |  |             |  |  | 
|                                                                                        |  | Basic   |  |                                 | (1.32       | )    |  |              | (0.89       | )    |  |      | 2.54        |  |  |  | 0.23        |  |  |  | 2.66        | 
|                                                                                        |  | Diluted |  |                                 | (1.32       | )    |  |              | (0.89       | )    |  |      | 2.52        |  |  |  | 0.23        |  |  |  | 2.63        | 
|Weighted average shares outstanding                                                     |  |         |  |                                 |             |      |  |              |             |      |  |      |             |  |  |  |             |  |  | 
|                                                                                        |  | Basic   |  |                                 | 149,477,187 |      |  |              | 149,849,246 |      |  |      | 149,849,246 |  |  |  | 149,849,246 |  |  |  | 149,849,246 | 
|                                                                                        |  | Diluted |  |                                 | 149,477,187 |      |  |              | 149,849,246 |      |  |      | 151,365,979 |  |  |  | 151,365,979 |  |  |  | 151,365,979 | 
|                                                                                        |  |         |  |                                 |             |      |  |              |             |      |  |      |             |  |  |  |             |  |  |  |            

|                                                                                                           |  |                                 |         |      |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|---------------------------------------------------------------------------------------------------------- |  | ------------------------------- | ------- | ---- |  | ---- | ------- | ---- |  | ---- | ------- | - |  | - | ------- | - |  | - | ------- | -
|                                                                                                           |  | For the years ended December 31
|                                                                                                           |  |                                
|                                                                                                           |  | 2002                            |         | 2001 |  | 2000 |         | 1999 |  | 1998
|                                                                                                           |  |                                 |         |      |  |      |         |      |  |     
|                                                                                                           |  | (in millions)                  
|Balance Sheet Data (at end of period):                                                                     |  |                                 |         |      |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|Real estate, net of accumulated depreciation                                                               |  | $                               | 4,823.7 |      |  | $    | 4,960.4 |      |  | $    | 4,578.8 |   |  | $ | 4,734.4 |   |  | $ | 4,051.8 |  
|Cash and cash equivalents                                                                                  |  |                                 | 62.3    |      |  |      | 297.4   |      |  |      | 70.2    |   |  |   | 80.4    |   |  |   | 78.6    |  
|Investment in unconsolidated real estate joint ventures                                                    |  |                                 | 220.6   |      |  |      | 289.2   |      |  |      | 384.0   |   |  |   | 342.0   |   |  |   | 305.1   |  
|Total assets                                                                                               |  |                                 | 5,579.3 |      |  |      | 6,096.4 |      |  |      | 5,564.0 |   |  |   | 5,541.3 |   |  |   | 5,017.4 |  
|Mortgage debt and other loans                                                                              |  |                                 | 3,345.2 |      |  |      | 3,017.8 |      |  |      | 2,326.9 |   |  |   | 2,587.2 |   |  |   | 2,257.7 |  
|Total liabilities                                                                                          |  |                                 | 3,701.0 |      |  |      | 3,661.1 |      |  |      | 2,917.2 |   |  |   | 4,011.4 |   |  |   | 3,149.5 |  
|Shareholders equity                                                                                       |  |                                 | 1,878.3 |      |  |      | 2,435.4 |      |  |      | 2,646.8 |   |  |   | 1,529.9 |   |  |   | 1,867.9 |  
|                                                                                                           |  |                                 |         |      |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|Cash Flow Information:                                                                                     |  |                                 |         |      |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|Cash provided by (used for) operating activities                                                           |  | $                               | 211.7   |      |  | $    | 462.9   |      |  | $    | 113.1   |   |  | $ | 490.7   |   |  | $ | (186.0  | )
|Cash provided by (used for) investing activities                                                           |  |                                 | (15.9   | )    |  |      | (597.0  | )    |  |      | (52.7   | ) |  |   | (873.2  | ) |  |   | (992.3  | )
|Cash provided by (used for) financing activities                                                           |  |                                 | (430.9  | )    |  |      | 361.3   |      |  |      | (70.6   | ) |  |   | 384.3   |   |  |   | 1,184.0 |  
|                                                                                                           |  |                                 |         |      |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|Other Data:                                                                                                |  |                                 |         |      |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|Number of office properties                                                                                |  |                                 | 72      |      |  |      | 76      |      |  |      | 77      |   |  |   | 89      |   |  |   | 87      |  
|Net rentable square feet of office properties (in millions)                                                |  |                                 | 48.6    |      |  |      | 48.9    |      |  |      | 49.8    |   |  |   | 52.0    |   |  |   | 48.0    |  
|Occupancy of office properties weighted on owned area                                                      |  |                                 | 89.0    | %    |  |      | 94.3    | %    |  |      | 94.2    | % |  |   | 91.4    | % |  |   | 90.4    | %
|Office property operating income (2)(6)                                                                    |  | $                               | 474.4   |      |  | $    | 499.9   |      |  | $    | 495.5   |   |  | $ | 450.9   |   |  | $ | 253.9   |  
|                                                                                                           |  |                                 |         |      |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|Office property operating income including pro rata joint
venture share and discontinued operations (3)(6) |  | $                               | 535.8   |      |  | $    | 564.5   |      |  | $    | 558.4   |   |  | $ | 513.1   |   |  | $ | 310.9   |  
|                                                                                                           |  |                                 |         |      |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|Funds from operations (4)(6)                                                                               |  | $                               | 307.6   |      |  | $    | 360.5   |      |  | $    | 250.3   |   |  | $ | 242.1   |   |  | $ | 198.4   |  
|Dividends per share (5)                                                                                    |  | $                               | 0.26    |      |  | $    |        |      |  | $    |        |   |  | $ |        |   |  | $ |        |  

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##### Table of Contents





---

|(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 proforma.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Office property operating income is defined as total rental revenue
including tenant recoveries plus parking, fee and other income, less
operating expenses and property taxes of our office portfolio. Office
property operating income is presented because this data is used by some
investors to evaluate the performance of, and to determine the estimated
fair market value of, our office property portfolio. We consider office
property operating income to be an indicative measure of our operating
performance due to the significance of our office property portfolio to
our overall results, and because this data can be used to evaluate our
ability to effectively manage our portfolio. However, this data should
not be considered as an alternative to net income, operating profit, cash
flows from operations or any other operating or liquidity performance
measure prescribed by GAAP. In addition, our definition and calculation
of office property operating income may not be comparable to similarly
titled measures reported by other companies. General and administrative,
interest, tax, depreciation and amortization expenses, which are not
reflected in the presentation of office property operating income, have
been, and will be, incurred by us. Investors are cautioned that these
excluded items are significant components in understanding and assessing
our financial performance.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   
|(3) |  | Office property operating income including pro rata joint venture share
and discontinued operations is defined as total rental revenue including
tenant recoveries plus parking, fee and other income, less operating
expenses and property taxes, plus our pro rata share of property net
operating income from unconsolidated real estate joint ventures and
properties designated as held for disposition pursuant to Statement of
Financial Accounting Standards No. 144. Office property operating income
including our pro rata joint venture share and discontinued operations is
presented because this data is used by some investors to evaluate the
performance of, and to determine the estimated fair market value of our
office property portfolio. We consider office property operating income
including pro rata joint venture share and discontinued operations to be
an indicative measure of our operating performance due to the significance
of our office property portfolio to our overall results, and because this
data can be used to evaluate our ability to effectively manage our
portfolio. However, this data should not be considered as an alternative
to net income, operating profit, cash flows from operations or any other
operating or liquidity performance measure prescribed by GAAP. In
addition, our definition and calculation of office property operating
income including pro rata joint venture share and discontinued operations
may not be comparable to similarly titled measures reported by other
companies. General and administrative, interest, tax, depreciation and
amortization expenses, which are not reflected in the presentation of
office property operating income including pro rata joint venture share
and discontinued operations, have been, and will be incurred by us.
Investors are cautioned that these excluded items are significant
components in understanding and assessing our financial performance.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   
|(4) |  | We believe that funds from operations, as defined by the Board of
Governors of the National Association of Real Estate Investment Trusts, or
NAREIT, is an appropriate measure of performance for an equity REIT. The
White Paper on Funds from Operations, approved by NAREIT in April 2002,
defines funds from operations as net income (loss), computed in accordance
with GAAP, excluding gains (or losses) from debt restructuring and sales
of properties, plus real estate related depreciation and amortization and
after adjustments for unconsolidated partnerships and joint ventures. We
compute funds from operations as loss (income) before income taxes,
minority interest, loss (income) from unconsolidated real estate joint
ventures, discontinued operations, gain (loss) on disposition of real
estate, extraordinary items and cumulative impact of a change in
accounting policy (computed in accordance with GAAP) adjusted for
unconsolidated real estate joint ventures and discontinued operations,
real estate related depreciation and amortization and current operating
taxes, in accordance with the standards established by NAREIT. In
addition, we eliminate the effects of provision for loss on real estate
and provision for and loss on investments because they are not
representative of our real estate operations. We believe that funds from
operations is helpful to investors as a measure of the performance of an
equity REIT because, along with cash flows from operating activities,
financing activities and investing activities, it provides investors with
an indication of our ability to incur and service debt, to make capital
expenditures and to fund other cash needs. Our computation of funds from
operations 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 from the way we interpret it. Funds from operations 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 flows 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.
|   
|(5) |  | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

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|(6) |  | The following table reflects the calculation of funds from operations;
office property operating income including pro rata joint ventures share
and discontinued operations; and office property operating income:
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                                                                                                                                                                                                                                                                   |  |                                 |        |      |  |      |       |      |  |      |       |   |  |   |       |   |  |   |        |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------- | ------ | ---- |  | ---- | ----- | ---- |  | ---- | ----- | - |  | - | ----- | - |  | - | ------ | -
|                                                                                                                                                                                                                                                                                                   |  | For the years ended December 31
|                                                                                                                                                                                                                                                                                                   |  |                                
|                                                                                                                                                                                                                                                                                                   |  | 2002                            |        | 2001 |  | 2000 |       | 1999 |  | 1998
|                                                                                                                                                                                                                                                                                                   |  |                                 |        |      |  |      |       |      |  |     
|                                                                                                                                                                                                                                                                                                   |  | (in millions)                  
|(Loss) income before income taxes, minority
interest, (loss) income from unconsolidated real
estate joint ventures, recovery on insurance
claim, discontinued operations, gain (loss) on
disposition of real estate, extraordinary items
and cumulative effect of a change in accounting
principle |  | $                               | (151.8 | )    |  | $    | (83.9 | )    |  | $    | 71.2  |   |  | $ | 81.3  |   |  | $ | 69.6   |  
|Add/(deduct):                                                                                                                                                                                                                                                                                      |  |                                 |        |      |  |      |       |      |  |      |       |   |  |   |       |   |  |   |        |  
|Provision for loss on real estate and investments                                                                                                                                                                                                                                                  |  |                                 | 260.2  |      |  |      | 258.0 |      |  |      | 3.7   |   |  |   |      |   |  |   |       |  
|Income from unconsolidated real estate joint
ventures                                                                                                                                                                                                                                              |  |                                 | (47.6  | )    |  |      | (33.9 | )    |  |      | 19.4  |   |  |   | 16.2  |   |  |   | 40.6   |  
|Provision for loss on unconsolidated real estate
joint ventures                                                                                                                                                                                                                                    |  |                                 | 58.9   |      |  |      | 46.9  |      |  |      |      |   |  |   |      |   |  |   |       |  
|Income from discontinued operations                                                                                                                                                                                                                                                                |  |                                 | 3.2    |      |  |      | 3.4   |      |  |      | 3.6   |   |  |   | 3.5   |   |  |   | 4.4    |  
|Depreciation and amortization (real estate
related) including share of unconsolidated real
estate joint ventures and discontinued operations                                                                                                                                                       |  |                                 | 190.5  |      |  |      | 174.9 |      |  |      | 161.8 |   |  |   | 142.3 |   |  |   | 85.8   |  
|Current operating taxes                                                                                                                                                                                                                                                                            |  |                                 | (4.9   | )    |  |      | (4.9  | )    |  |      | (9.4  | ) |  |   | (1.2  | ) |  |   | (2.0   | )
|Dividends paid to special voting shareholders                                                                                                                                                                                                                                                      |  |                                 | (0.9   | )    |  |      |      |      |  |      |      |   |  |   |      |   |  |   |       |  
|                                                                                                                                                                                                                                                                                                   |  |                                 |        |      |  |      |       |      |  |      |       |   |  |   |       |   |  |   |        |  
|Funds from operations                                                                                                                                                                                                                                                                              |  |                                 | 307.6  |      |  |      | 360.5 |      |  |      | 250.3 |   |  |   | 242.1 |   |  |   | 198.4  |  
|Add/(deduct):                                                                                                                                                                                                                                                                                      |  |                                 |        |      |  |      |       |      |  |      |       |   |  |   |       |   |  |   |        |  
|Interest income including share of unconsolidated
real estate joint ventures                                                                                                                                                                                                                       |  |                                 | (9.3   | )    |  |      | (17.2 | )    |  |      | (12.0 | ) |  |   | (9.6  | ) |  |   | (20.1  | )
|General and administrative expense                                                                                                                                                                                                                                                                 |  |                                 | 44.9   |      |  |      | 25.9  |      |  |      | 18.4  |   |  |   | 16.7  |   |  |   | 9.0    |  
|Interest expense including share of unconsolidated
real estate joint ventures                                                                                                                                                                                                                      |  |                                 | 219.0  |      |  |      | 180.5 |      |  |      | 295.4 |   |  |   | 262.3 |   |  |   | 222.5  |  
|Reorganization costs and stock option grant expense                                                                                                                                                                                                                                                |  |                                 | 2.0    |      |  |      | 15.9  |      |  |      | 6.7   |   |  |   | 5.0   |   |  |   |       |  
|Loss from securities investments and derivatives                                                                                                                                                                                                                                                   |  |                                 | 0.2    |      |  |      | 15.9  |      |  |      |      |   |  |   |      |   |  |   |       |  
|Non real estate related depreciation and
amortization including share of unconsolidated
real estate joint ventures                                                                                                                                                                                 |  |                                 | 2.7    |      |  |      | 3.1   |      |  |      | 3.4   |   |  |   | 2.5   |   |  |   | 4.6    |  
|Current operating taxes                                                                                                                                                                                                                                                                            |  |                                 | 4.9    |      |  |      | 4.9   |      |  |      | 9.4   |   |  |   | 1.2   |   |  |   | 2.0    |  
|Dividends paid to special voting shareholders                                                                                                                                                                                                                                                      |  |                                 | 0.9    |      |  |      |      |      |  |      |      |   |  |   |      |   |  |   |       |  
|Retail portfolio property operating income
including share of unconsolidated real estate
joint ventures                                                                                                                                                                                            |  |                                 | (37.1  | )    |  |      | (25.0 | )    |  |      | (13.2 | ) |  |   | (7.1  | ) |  |   | (105.5 | )
|                                                                                                                                                                                                                                                                                                   |  |                                 |        |      |  |      |       |      |  |      |       |   |  |   |       |   |  |   |        |  
|Office property operating income including pro
rata joint venture share and discontinued
operations                                                                                                                                                                                                |  |                                 | 535.8  |      |  |      | 564.5 |      |  |      | 558.4 |   |  |   | 513.1 |   |  |   | 310.9  |  
|Add/(deduct):                                                                                                                                                                                                                                                                                      |  |                                 |        |      |  |      |       |      |  |      |       |   |  |   |       |   |  |   |        |  
|Share of unconsolidated real estate joint ventures
office property operating income                                                                                                                                                                                                                |  |                                 | (50.7  | )    |  |      | (53.3 | )    |  |      | (50.2 | ) |  |   | (49.7 | ) |  |   | (45.5  | )
|Discontinued operations                                                                                                                                                                                                                                                                            |  |                                 | (10.7  | )    |  |      | (11.3 | )    |  |      | (12.7 | ) |  |   | (12.5 | ) |  |   | (11.5  | )
|                                                                                                                                                                                                                                                                                                   |  |                                 |        |      |  |      |       |      |  |      |       |   |  |   |       |   |  |   |        |  
|Office property operating income                                                                                                                                                                                                                                                                   |  | $                               | 474.4  |      |  | $    | 499.9 |      |  | $    | 495.5 |   |  | $ | 450.9 |   |  | $ | 253.9  |  
|                                                                                                                                                                                                                                                                                                   |  |                                 |        |      |  |      |       |      |  |      |       |   |  |   |       |   |  |   |        |  

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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 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, Inc. (formerly known as TrizecHahn
Developments Inc.) and their respective consolidated subsidiaries. On March
14, 2002, Trizec R & E Holdings, Inc. 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.

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
principally engaged in owning and managing office properties in the United
States. At December 31, 2002, we had total assets of $5.6 billion and owned
interests in or managed 72 office properties containing approximately 49
million square feet, with our pro rata ownership interest totaling
approximately 42 million square feet. 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.

At the end of 2000, we decided to be taxed as a REIT for U.S. federal
income tax purposes commencing in 2001. As a REIT, we generally will not be
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.

During the year ended December 31, 2002, the following key transactions
were completed:



| |  |  | TrizecHahn Corporations corporate reorganization which made
us a U.S.-based publicly traded REIT;                                                                                                               
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Our sale of non-core assets including five office properties,
two technology properties and various other residual assets;                                                                                       
|
| |  |  | Our acquisition of the remaining 75% interest we did not own
in Ernst & Young Plaza in Los Angeles, acquisition of 151 Front
Street in Toronto and acquisition of remaining air rights on two
Chicago properties;
|
| |  |  | Our acquisition and sale of an investment in Chelsfield plc.;
and                                                                                                                                                
|
| |  |  | Our completion of property financings of $189 million and
amendment of our $350 million credit facility as a secured facility
with more flexible financial covenants than had been originally
negotiated.        

Critical Accounting Policies

The discussion and analysis of our financial condition and results of
operations are based upon our consolidated financial statements, which have
been prepared in accordance with generally accepted accounting principles. The
preparation of these financial statements requires us to make estimates and
judgments that affect the reported amounts of assets and liabilities, revenues
and expenses, and related disclosure of contingent assets and liabilities at
the date of our financial statements. Actual results may differ from these
estimates under different assumptions or conditions.

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.

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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.

Investments in Unconsolidated Joint Ventures

We account for our investments in unconsolidated joint ventures using the
equity method of accounting, as we exercise significant influence over, but do
not control these entities. 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.

Investments

Investments in non-real estate assets consist primarily of marketable
equity securities and certain mortgages receivable, the most significant being
our mortgage receivable investment in the Sears Tower. The disclosure of fair
value of the Sears Tower mortgage receivable is based on estimated future cash
flows, expected risk adjusted rates of return and other factors, all of which
are subject to uncertainty. Accordingly, other fair values are possible.

We review, on a regular basis but not less than annually, or when events
or circumstances occur, our 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 being 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. These estimates of future cash
flow and fair values could vary and result in a significantly different
assessment of impairment.

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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.

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.

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.

Results of Operations

The following discussion is based on our consolidated financial statements
for the years ended December 31, 2002, 2001 and 2000.

The consolidated financial statements present TrizecHahn Corporations
former U.S. holdings, which are now owned and operated by us. Prior to the
corporate reorganization, we, along with our subsidiary Trizec R & E Holding
Inc., or TREHI, (formerly known as 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, or
TrizecHahn, 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, 2000 to
December 31, 2002 and reflects our total portfolio at December 31, 2002. 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

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properties and the square footage owned by us based on our pro rata
economic ownership in the respective joint ventures or managed properties.

|                  |                                       |            |                |              |                |              |        |            |   |              |          |              |   |  |   |    |   |  |       |       |          |  |       |       |  
|----------------- | ------------------------------------- | ---------- | -------------- | ------------ | -------------- | ------------ | ------ | ---------- | - | ------------ | -------- | ------------ | - |  | - | -- | - |  | ----- | ----- | -------- |  | ----- | ----- | -
|                  |                                       |            | U. S. Office   |              | Other         
|                  |                                       |            |                |              |               
|                  |                                       |            |                |              |                |              |        |            |   |              | Pro rata |              |   |  |   |    |   |  |       |       | Pro rata
|Properties as of: |                                       | Properties |                | Total Sq.Ft. |                | Owned Sq.Ft. |        | Properties |   | Total Sq.Ft. |          | Owned Sq.Ft.
|                  |                                       |            |                |              |                |              |        |            |   |              |          |             
|                  |                                       |            | (in thousands) |              | (in
thousands)
|December 31, 1999 |                                       |            | 89             |              |                |              | 51,983 |            |   |              | 43,725   |              |   |  | 1 |    |   |  | 363   |       |          |  | 363   |      
|                  | Acquisitions                          |            |                |             |                |              |        |           |   |              |          |             |   |  |   |   |   |  |       |      |          |  |       |      |  
|                  | Dispositions                          |            |                | (12          | )              |              |        | (3,058     | ) |              |          | (3,058       | ) |  |   | (1 | ) |  |       | (363  | )        |  |       | (363  | )
|                  | Additional space placed on stream     |            |                | 1            |                |              |        | 678        |   |              |          | 678          |   |  |   | 1  |   |  |       | 475   |          |  |       | 475   |  
|                  | Reclassified to held for
development  |            |                | (1           | )              |              |        | (245       | ) |              |          | (196         | ) |  |   |   |   |  |       |      |          |  |       |      |  
|                  | Re-measurements                       |            |                |             |                |              |        | 473        |   |              |          | 367          |   |  |   |   |   |  |       |      |          |  |       |      |  
|                  |                                       |            |                |              |                |              |        |            |   |              |          |              |   |  |   |    |   |  |       |       |          |  |       |      
|December 31, 2000 |                                       |            | 77             |              |                |              | 49,831 |            |   |              | 41,516   |              |   |  | 1 |    |   |  | 475   |       |          |  | 475   |      
|                  | Acquisitions                          |            |                | 3            |                |              |        | 818        |   |              |          | 818          |   |  |   |   |   |  |       |      |          |  |       |      |  
|                  | Dispositions                          |            |                | (4           | )              |              |        | (1,937     | ) |              |          | (1,161       | ) |  |   |   |   |  |       |      |          |  |       |      |  
|                  | Additional space placed on-stream     |            |                |             |                |              |        | 150        |   |              |          | 150          |   |  |   | 3  |   |  |       | 1,810 |          |  |       | 1,601 |  
|                  |                                       |            |                |              |                |              |        |            |   |              |          |              |   |  |   |    |   |  |       |       |          |  |       |      
|December 31, 2001 |                                       |            | 76             |              |                |              | 48,862 |            |   |              | 41,323   |              |   |  | 4 |    |   |  | 2,285 |       |          |  | 2,076 |      
|                  | Dispositions                          |            |                | (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 |                                       |            | 72             |              |                |              | 48,612 |            |   |              | 42,004   |              |   |  | 5 |    |   |  | 2,557 |       |          |  | 2,348 |      
|                  |                                       |            |                |              |                |              |        |            |   |              |          |              |   |  |   |    |   |  |       |       |          |  |       |      

As a result of our acquisition, disposition and development activity, the
financial information presented shows significant changes in revenues and
expenses from year to year; therefore, we do not believe our year to year
financial data in isolation are necessarily comparable. Accordingly, the
analysis that follows focuses on changes resulting from properties that we
owned for the entire time during both years being analyzed, which we refer to
as our comparable portfolio, in addition to the changes attributable to our
total portfolio.

In the financial information that follows, property revenues include
rental revenue, recoveries from tenants for certain expenses, fee income and
parking and other revenue. Property operating expenses include property
operating expenses and property taxes and exclude depreciation and amortization
expense. Property operating income is defined as property revenues less
property operating expenses, before general and administrative expense,
depreciation and amortization, interest expense and income taxes.

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Comparison of Year Ended December 31, 2002 to Year Ended December 31,
2001

The following is a table comparing our summarized operating results for
the periods, including other selected information.

|                                                                                                                                                                                                                                                                                 |                                                 |   |                        |       |           |   |            |       |        |   |         |       |   |  |        |      |   
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------- | - | ---------------------- | ----- | --------- | - | ---------- | ----- | ------ | - | ------- | ----- | - |  | ------ | ---- | --
|                                                                                                                                                                                                                                                                                 |                                                 |   | For the years ended    |       |           |   |            |       |        |   |        
|                                                                                                                                                                                                                                                                                 |                                                 |   | December 31            |       |           |   |            |       |        |   |        
|                                                                                                                                                                                                                                                                                 |                                                 |   |                        |       | Increase/ |   | %         
|                                                                                                                                                                                                                                                                                 |                                                 |   | 2002                   |       | 2001      |   | (Decrease) |       | Change
|                                                                                                                                                                                                                                                                                 |                                                 |   |                        |       |           |   |            |       |       
|                                                                                                                                                                                                                                                                                 |                                                 |   | (dollars in thousands)
|Property revenues                                                                                                                                                                                                                                                                |                                                 | $ | 938,443                |       |           | $ | 893,181    |       |        | $ | 45,262  |       |   |  | 5.1    | %   
|Interest income                                                                                                                                                                                                                                                                  |                                                 |   | 8,679                  |       |           |   | 15,626     |       |        |   | (6,947  | )     |   |  | (44.5  | )%  
|                                                                                                                                                                                                                                                                                 |                                                 |   |                        |       |           |   |            |       |        |   |         |       |   |  |        |     
|Total revenues                                                                                                                                                                                                                                                                   |                                                 |   | 947,122                |       |           |   | 908,807    |       |        |   | 38,315  |       |   |  | 4.2    | %   
|                                                                                                                                                                                                                                                                                 |                                                 |   |                        |       |           |   |            |       |        |   |         |       |   |  |        |     
|Property operating expenses                                                                                                                                                                                                                                                      |                                                 |   | 427,849                |       |           |   | 371,164    |       |        |   | 56,685  |       |   |  | 15.3   | %   
|General and administrative                                                                                                                                                                                                                                                       |                                                 |   | 44,935                 |       |           |   | 25,854     |       |        |   | 19,081  |       |   |  | 73.8   | %   
|Interest expense                                                                                                                                                                                                                                                                 |                                                 |   | 192,660                |       |           |   | 148,821    |       |        |   | 43,839  |       |   |  | 29.5   | %   
|Depreciation and amortization                                                                                                                                                                                                                                                    |                                                 |   | 171,083                |       |           |   | 157,059    |       |        |   | 14,024  |       |   |  | 8.9    | %   
|Stock option grant expense                                                                                                                                                                                                                                                       |                                                 |   | 5,214                  |       |           |   |           |       |        |   | 5,214   |       |   |  |       |     
|Reorganization costs                                                                                                                                                                                                                                                             |                                                 |   | (3,260                 | )     |           |   | 15,922     |       |        |   | (19,182 | )     |   |  | (120.5 | )%  
|Derivative losses                                                                                                                                                                                                                                                                |                                                 |   | 180                    |       |           |   | 456        |       |        |   | (276    | )     |   |  | (60.5  | )%  
|Provision for loss on real estate                                                                                                                                                                                                                                                |                                                 |   | 199,455                |       |           |   | 258,091    |       |        |   | (58,636 | )     |   |  | (22.7  | )%  
|Provision for and loss on investments                                                                                                                                                                                                                                            |                                                 |   | 60,784                 |       |           |   | 15,371     |       |        |   | 45,413  |       |   |  | 295.4  | %   
|                                                                                                                                                                                                                                                                                 |                                                 |   |                        |       |           |   |            |       |        |   |         |       |   |  |        |     
|Total expenses                                                                                                                                                                                                                                                                   |                                                 |   | 1,098,900              |       |           |   | 992,738    |       |        |   | 106,162 |       |   |  | 10.7   | %   
|                                                                                                                                                                                                                                                                                 |                                                 |   |                        |       |           |   |            |       |        |   |         |       |   |  |        |     
|                                                                                                                                                                                                                                                                                 |                                                 |   |                        |       |           |   |            |       |        |   |         |       |   |  |        |     
|Loss before income taxes, minority interest, loss
from unconsolidated real estate joint ventures,
recovery on insurance claim, discontinued
operations, gain (loss) on disposition of real
estate, extraordinary items and cumulative effect of
a change in accounting principle |                                                 |   | (151,778               | )     |           |   | (83,931    | )     |        |   | (67,847 | )     |   |  | (80.8  | )%  
|Provision for income and other corporate taxes                                                                                                                                                                                                                                   |                                                 |   | (4,896                 | )     |           |   | (13,795    | )     |        |   | 8,899   |       |   |  | 64.5   | %   
|Minority interest                                                                                                                                                                                                                                                                |                                                 |   | 1,766                  |       |           |   | 433        |       |        |   | 1,333   |       |   |  | 307.9  | %   
|Loss from unconsolidated real estate joint ventures
including provision for loss on investment ($58,880
and $46,900)                                                                                                                                                             |                                                 |   | (47,631                | )     |           |   | (33,948    | )     |        |   | (13,683 | )     |   |  | (40.3  | )%  
|Recovery on insurance claim                                                                                                                                                                                                                                                      |                                                 |   | 3,480                  |       |           |   |           |       |        |   | 3,480   |       |   |  |       |     
|                                                                                                                                                                                                                                                                                 |                                                 |   |                        |       |           |   |            |       |        |   |         |       |   |  |        |     
|Loss from continuing operations                                                                                                                                                                                                                                                  |                                                 |   | (199,059               | )     |           |   | (131,241   | )     |        |   | (67,818 | )     |   |  | (51.7  | )%  
|Discontinued operations                                                                                                                                                                                                                                                          |                                                 |   |                        |       |           |   |            |       |        |   |         |       |   |  |        |     
|                                                                                                                                                                                                                                                                                 | Income from discontinued operations             |   |                        | 3,212 |           |   |            | 3,400 |        |   |         | (188  | ) |  |        | (5.5 | )%
|                                                                                                                                                                                                                                                                                 | Gain on disposition of discontinued real estate |   |                        | 4,934 |           |   |            |      |        |   |         | 4,934 |   |  |        |     |   
|Gain (loss) on disposition of real estate                                                                                                                                                                                                                                        |                                                 |   | 2,996                  |       |           |   | (2,053     | )     |        |   | 5,049   |       |   |  | 245.9  | %   
|                                                                                                                                                                                                                                                                                 |                                                 |   |                        |       |           |   |            |       |        |   |         |       |   |  |        |     
|Loss before extraordinary items and cumulative
effect of a change in accounting principle                                                                                                                                                                                        |                                                 |   | (187,917               | )     |           |   | (129,894   | )     |        |   | (58,023 | )     |   |  | (44.7  | )%  
|Loss on early debt retirement                                                                                                                                                                                                                                                    |                                                 |   |                       |       |           |   | (17,966    | )     |        |   | 17,966  |       |   |  |       |     
|Cumulative effect of a change in accounting principle                                                                                                                                                                                                                            |                                                 |   |                       |       |           |   | (4,631     | )     |        |   | 4,631   |       |   |  |       |     
|                                                                                                                                                                                                                                                                                 |                                                 |   |                        |       |           |   |            |       |        |   |         |       |   |  |        |     
|Net loss                                                                                                                                                                                                                                                                         |                                                 |   | (187,917               | )     |           |   | (152,491   | )     |        |   | (35,426 | )     |   |  | (23.2  | )%  
|Dividends paid to special voting shareholders                                                                                                                                                                                                                                    |                                                 |   | (866                   | )     |           |   |           |       |        |   | (866    | )     |   |  |       |     
|                                                                                                                                                                                                                                                                                 |                                                 |   |                        |       |           |   |            |       |        |   |         |       |   |  |        |     
|Net loss available to common shareholders                                                                                                                                                                                                                                        |                                                 | $ | (188,783               | )     |           | $ | (152,491   | )     |        | $ | (36,292 | )     |   |  | (23.8  | )%  
|                                                                                                                                                                                                                                                                                 |                                                 |   |                        |       |           |   |            |       |        |   |         |       |   |  |        |     
|Straight line revenue                                                                                                                                                                                                                                                            |                                                 | $ | 35,099                 |       |           | $ | 20,888     |       |        | $ | 14,211  |       |   |  | 68.0   | %   
|                                                                                                                                                                                                                                                                                 |                                                 |   |                        |       |           |   |            |       |        |   |         |       |   |  |        |     
|Lease termination fees                                                                                                                                                                                                                                                           |                                                 | $ | 8,041                  |       |           | $ | 21,697     |       |        | $ | (13,656 | )     |   |  | (62.9  | )%  
|                                                                                                                                                                                                                                                                                 |                                                 |   |                        |       |           |   |            |       |        |   |         |       |   |  |        |     

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The table below presents selected operating information for our total
portfolio (excluding joint ventures and discontinued operations) and for our
comparable portfolio of 59 office properties, which we owned both at December
31, 2002 and 2001, and in each case for the full year.

|                     |                      |                             |  |                        |         |           |  |            |         |        |  |   |         |   |  |  |       |   
|-------------------- | -------------------- | --------------------------- |  | ---------------------- | ------- | --------- |  | ---------- | ------- | ------ |  | - | ------- | - |  |  | ----- | --
|                     |                      |                             |  | For the years ended    |         |           |  |            |         |        |  |  
|                     |                      |                             |  | December 31            |         |           |  |            |         |        |  |  
|                     |                      |                             |  |                        |         | Increase/ |  | %         
|                     |                      |                             |  | 2002                   |         | 2001      |  | (Decrease) |         | Change
|                     |                      |                             |  |                        |         |           |  |            |         |       
|                     |                      |                             |  | (dollars in thousands)
|Total Portfolio      |                      |                             |  |                        |         |           |  |            |         |        |  |   |         |   |  | 
|                     | Office               |                             |  |                        |         |           |  |            |         |        |  |   |         |   |  |  |      
|                     |                      | Property revenues           |  | $                      | 847,709 |           |  | $          | 854,246 |        |  | $ | (6,537  | ) |  |  | (0.8  | )%
|                     |                      | Property operating expenses |  |                        | 373,306 |           |  |            | 354,336 |        |  |   | 18,970  |   |  |  | 5.4   | % 
|                     |                      |                             |  |                        |         |           |  |            |         |        |  |   |         |   |  |  |       |   
|                     |                      | Property operating income   |  | $                      | 474,403 |           |  | $          | 499,910 |        |  | $ | (25,507 | ) |  |  | (5.1  | )%
|                     |                      |                             |  |                        |         |           |  |            |         |        |  |   |         |   |  | 
|                     | Retail/Entertainment |                             |  |                        |         |           |  |            |         |        |  |   |         |   |  |  |      
|                     |                      | Property revenues           |  | $                      | 90,734  |           |  | $          | 38,935  |        |  | $ | 51,799  |   |  |  | 133.0 | % 
|                     |                      | Property operating expenses |  |                        | 54,543  |           |  |            | 16,828  |        |  |   | 37,715  |   |  |  | 224.1 | % 
|                     |                      |                             |  |                        |         |           |  |            |         |        |  |   |         |   |  |  |       |   
|                     |                      | Property operating income   |  | $                      | 36,191  |           |  | $          | 22,107  |        |  | $ | 14,084  |   |  |  | 63.7  | % 
|                     |                      |                             |  |                        |         |           |  |            |         |        |  |   |         |   |  | 
|Comparable Portfolio |                      |                             |  |                        |         |           |  |            |         |        |  |   |         |   |  | 
|                     | Office               |                             |  |                        |         |           |  |            |         |        |  |   |         |   |  |  |      
|                     |                      | Property revenues           |  | $                      | 784,700 |           |  | $          | 824,519 |        |  | $ | (39,819 | ) |  |  | (4.8  | )%
|                     |                      | Property operating expenses |  |                        | 347,577 |           |  |            | 342,113 |        |  |   | 5,464   |   |  |  | 1.6   | % 
|                     |                      |                             |  |                        |         |           |  |            |         |        |  |   |         |   |  |  |       |   
|                     |                      | Property operating income   |  | $                      | 437,123 |           |  | $          | 482,406 |        |  | $ | (45,283 | ) |  |  | (9.4  | )%
|                     |                      |                             |  |                        |         |           |  |            |         |        |  |   |         |   |  | 

U.S. macroeconomic conditions directly affect the employment levels of
office workers and the demand for office space, which affects our operating
performance.

In early 2003, economic indicators have continued to generate uncertainty
about the national economy. Overall, the economic indicators currently suggest
that the U.S. economy is not yet recovering. According to economy.com, an
independent provider of economic, financial and industry research, the
possibility of a recession remains. The economys difficulties are evident
across the nation and solid growth is occurring in only a few economic hubs
across the country.

General conditions for the U.S. office market remained difficult during
the fourth quarter of 2002. According to Cushman and Wakefield, the overall
national central business district, or CBD, vacancy rates increased from 14.4%
at September 30, 2002 to 14.8% at December 31, 2002, although leasing activity
did advance from 151 million square feet through the end of the third quarter
of 2002 to 208 million square feet for the year. National leasing activity for
2001 totaled 218 million square feet. National sublease availabilities appear
to have leveled out at approximately 123 million square feet for both the third
and fourth quarters of 2002.

Significant drivers in the demand for office space have historically been
employment trends and job growth. In New York, employment levels at December
2002 were 0.8% lower than in December 2001. However, this market experienced
month-over-month job growth from October through December 2002 resulting in a
1.5% increase for the fourth quarter of 2002. Month-over-month employment
levels in Chicago were flat in October and declined by 0.1% and 0.5% in the
last two months of 2002, respectively. Employment levels at December 2002 were
1.4% lower than December 2001. Atlantas employment levels in December 2002
were 1.1% lower than in December 2001; however, month-to-month employment
levels increased throughout the fourth quarter of 2002. In Dallas, employment
levels in December 2002 were down only 0.3% compared with December 2001 and
grew slightly month-to-month during the fourth quarter of 2002. Houston
employment levels at December 2002 increased by 0.2% over December 2001 and
also experienced month-over-month employment increases throughout the fourth
quarter of 2002. Washington D.C. had a 1.1% decrease in employment in 2002
versus the prior year and had relatively flat employment numbers for the fourth
quarter of 2002. In Los Angeles, employment growth levels of 0.4% were lower
in December 2002 compared to December 2001, but the fourth quarter of 2002 saw
a cumulative 0.8% growth in employment.

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Overall, leases comprising 13% of the square footage of our office
portfolio are scheduled to expire in 2003. Chicago and New York have the least
exposure to lease expirations with 5% and 6%, respectively, of the square
footage in each city subject to lease expirations in 2003. Houston with 20%
expiring, and Dallas with 14% expiring, are our core markets where the
percentage of square footage subject to lease expirations in 2003 exceeds our
portfolio average of 13%.

The trend in overall vacancies has continued upwards during 2002. This
trend, combined with the sublet space inventory, has increased downward
pressure on rental rates and upward pressure on leasing costs and concessions.

In an environment of stagnant or deteriorating economic conditions, it is
normal to experience increased rental delinquencies and tenant failures. We
monitor the financial strength of our key tenants and, therefore, their ability
to pay and the likelihood that they will continue to pay, through a watch list
process applied at the local, regional and corporate property management
levels. This monitoring process is designed to help us identify significant
credit risks. At the end of 2002, we were closely monitoring tenants with
leases representing approximately 3% of the leaseable area of our office
portfolio and 3% of our annual gross rent.

As a result of the continuing threat of terrorism, terrorism insurance
covering the full replacement value of each of our properties is currently
unavailable on commercially reasonable terms. Our current terrorism coverage
carries an aggregate limit of $250 million on a portfolio-wide basis, excluding
the Sears Tower, which carries its own separate limit of $250 million. Since
such limits may be, and with respect to Sears Tower is, less than the value of
affected properties, terrorist acts could result in damage to our properties in
excess of this limit, which could result in significant losses to our company
due to the loss of revenues from the impacted property and the capital we would
have to invest in that property. Any such circumstance could have a material
adverse effect on our financial condition and results of operations.

In addition, we have increased the level of security at some of our
properties in response to the terrorist attacks. We expect to be able to pass
on a significant portion of these costs related to increased security to
tenants through increased rents.

On December 3, 2001, a group of Enron Corporation companies filed for
Chapter 11 reorganization. Enron was our fourth largest tenant, contributing
2% of 2001 POI and occupying 793,000 square feet, primarily at the Allen Center
in Houston, Texas. As of January 31, 2002, Enron terminated all its leased
space at the average in-place net rent of approximately $9.30 per square foot.
At December 31, 2002, approximately 446,000 feet of this space had been leased
and occupied at an average net rent of approximately $14 per square foot.

Our management believes our portfolio is well positioned to continue to
perform through these more uncertain economic times due to its diversified
tenant and geographic asset base, primarily located in strong CBD markets in
the United States.

Property Operating Income  Property Revenue Less Property Operating
Expense

The $45.3 million total increase in property revenues in 2002 over 2001 is
the result of completion of all retail development properties by the end of
2001, the acquisition of office properties and the partial lease-up of One
Alliance Center in Atlanta, Georgia in 2002, partially offset by dispositions
and lower average occupancy as a result of some significant lease terminations.
These terminations include Enron, as noted above; a tenant occupying all
184,000 square feet at One Reston Place in Reston, Virginia that terminated in
December 2001; and, a tenant occupying 484,000 square feet at the Galleria
Towers in Dallas, Texas that terminated in October 2001.

For our total portfolio of 72 office properties for the year ended
December 31, 2002, we leased 6.9 million square feet (6.5 million square feet
on a pro rata basis) and occupancy decreased to 89.0% compared to 94.3% at
December 31, 2001, primarily due to the lease terminations noted above. We
achieved a $0.87 per square foot ($0.69 per square foot on a pro rata basis)
increase in net rental rates on new and renewal leasing, reflecting the impact
of space rolling over at properties with in-place rents below current market
levels.

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For the comparable portfolio of 66 office properties including our joint
ventures and discontinued operations, occupancy decreased from 94.3% at
December 31, 2001 to 89.0% at December 31, 2002. The average monthly occupancy
for these 66 properties was 89.7% for the year ended December 31, 2002 compared
with 93.1% for the year ended December 31, 2001.

For our 100% owned comparable portfolio of 57 office properties, which
excludes joint ventures and discontinued operations, property revenue decreased
$39.8 million or 4.8%. Excluding termination fees from both periods, property
revenue decreased $24.8 million or 3.1%.

The acquisition of three Class A office buildings (550 West Washington in
Chicago, 1225 Connecticut in Washington, D.C. and Two Ballston in Arlington,
Virginia) during the second quarter of 2001 and the acquisition of the
remaining 75% of Ernst & Young Plaza in Los Angeles, California that we did not
already own and 151 Front Street in Toronto, Ontario during the second quarter
of 2002 increased property revenue by $34.3 million for the year ended December
31, 2002 compared to 2001. In addition, current year revenue benefited by $9.4
million from the partial lease-up of One Alliance Center in Atlanta, Georgia,
which was completed in October 2001.

We disposed of five properties during the year ended December 31, 2002 and
four properties during 2001, which decreased revenues by $10.4 million.

Included in the above property revenue analysis are lease termination
fees. Lease termination fees are an element of ongoing real estate ownership,
and for the year ended December 31, 2002, we recorded $6.6 million of
termination fees for our office portfolio compared to $21.2 million for the
same period in the prior year.

Retail/entertainment property revenue increased $51.8 million and retail
property operating expenses increased by $37.7 million due to the completion of
all three retail/entertainment projects and our gaining control of the Desert
Passage retail/entertainment joint venture project on March 31, 2001 and, as of
April 1, 2001, consolidating 100% of its operating results. Previously, as a
jointly controlled partnership, 65% of the operating results from Desert
Passage were included in income from unconsolidated real estate joint ventures.
The retail/entertainment component of Hollywood & Highland in Los Angeles
opened on November 8, 2001. The hotel component opened at the end of December
2001. Paseo Colorado opened on September 28, 2001.

Office property operating expenses, which include real estate taxes,
utilities, repairs and maintenance, cleaning and other property-related
expenses and exclude depreciation and amortization expense, increased by $19.0
million due to the portfolio composition changes described above. For our
comparable portfolio, operating expenses increased $5.5 million due to higher
property taxes, increased security costs and higher bad debt expense partially
offset by lower utility expense. Excluding the impact on revenues of lease
termination fees, our comparable office portfolio gross margin decreased to
55.4% for the year ended December 31, 2002 from 57.4% for the year ended
December 31, 2001, reflecting our lower average occupancy.

Interest Income

The $6.9 million decrease in interest income for the year ended December
31, 2002 compared with the prior year period was primarily due to lower cash
balances and lower interest rates.

General and Administrative 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 increased by $19.1 million for the year
ended December 31, 2002, compared with the prior year period. Separation costs
associated with the departure of our former chief executive officer and other
senior management accounted for approximately $9.2 million of this increase.
The remainder of the increase is due primarily to additional senior management
costs and increased internal and external public company corporate compliance
costs as a result of our becoming a publicly traded REIT.

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Interest Expense

Interest expense increased by $43.8 million for the year ended December
31, 2002, compared with the prior year. Cessation of interest capitalization
for the three retail/entertainment development properties and One Alliance
Center, which were completed in late 2001, increased interest expense by $30.4
million. The impact of office acquisitions and the consolidation of Desert
Passage resulted in an increase of $9.0 million. The draws outstanding during
the year on our $350 million revolving line of credit, which was primarily used
to fund distributions in connection with the corporate reorganization, added
$8.9 million of interest expense. Incremental borrowings, including the
issuance of commercial mortgage backed securities in May 2001, and additional
financing of retail and development office projects increased interest expense
by $13.3 million. Average variable rates decreased by 227 basis points
compared to the prior year, which resulted in a decrease of $17.8 million.

Depreciation and Amortization

For the year ended December 31, 2002, depreciation expense was $14.0
million higher than in the prior year. The acquisition of three office
properties, the increase in ownership of the Ernst & Young Plaza, the
completion of office and retail development properties, the increase in tenant
improvements and the write off of unamortized tenant improvement costs for
Enron and other early lease terminations increased depreciation expense. This
increase was partially offset by dispositions in 2002 and 2001.

Stock Option Grant Expense

During the year ended December 31, 2002, we recorded stock option grant
expense of $5.2 million, including $1.4 million of accelerated expense for
employees separated during the year. This non-cash cost relates to the
intrinsic value at the date of grant of stock options granted upon the
completion of the corporate reorganization. These options were granted on
identical financial terms to the TrizecHahn Corporation options, which they
replaced.

Reorganization Costs

During the year ended December 31, 2001, we recorded as reorganization
costs a charge of $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, have reduced our accrual for anticipated
expenditures by $3.3 million.

Provision for Loss on Real Estate

Hollywood and Highland and Desert Passage depend on tourism for a
significant portion of their visitors. The September 11, 2001 terrorist
attacks and the continuing threat of terrorism impact the levels of visitors at
both projects. Further, the unaffiliated owner of the Aladdin Hotel and
Casino, which adjoins Desert Passage, filed for Chapter 11 reorganization in
September 2001 and continues to operate while under the supervision of the
bankruptcy court.

Due to these circumstances, we commissioned third-party appraisals of our
retail/entertainment properties in the fourth quarter of 2001. These
appraisals indicated a decline in the fair value of these assets and,
accordingly, for the year ended December 31, 2001, we recorded a provision for
loss of $192.5 million to reduce the carrying value of these assets. Of this
amount, $170.1 million relates to the Hollywood and Highland retail project and
$22.4 million relates to Desert Passage and certain remnant retail assets.

The results of operations of both projects did not meet the levels
expected in 2002 and we believe the fair value of these properties has declined
further. Accordingly, an additional provision for loss in the amount of $199.5
million, consisting of $142.5 million for Hollywood and Highland retail and
$57.0 million for Desert Passage, was recorded in the quarter ended September
30, 2002, based on internal valuations. Further, we anticipate that it will
take considerably longer than originally expected to stabilize these
properties. We plan to hold both of these projects until we determine that we
can realize an acceptable level of value upon disposition. As a result,

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Hollywood & Highland retail and Desert Passage were reclassified from
properties held for disposition to properties held for the long term at
September 30, 2002.

The provision for losses for both years related to the hotel component of
Hollywood and Highland have been recorded in loss from unconsolidated real
estate joint ventures.

During 2001, we also provided for the loss on our technology centers and
for two U.S. office assets held for sale, for which we recorded a loss of $65.6
million.

Provision for and Loss on Investments

We determined that our investment in the second mortgage receivable
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 the investment. Accordingly, a loss
provision of $48.3 million was recorded in 2002 to reduce the carrying value to
its estimated fair value of $23.6 million. On December 5, 2002, we sold our
interest in Chelsfield plc for $76.6 million and recognized a net loss of $12.7
million.

Provision for Income and Other Corporate Taxes

Income and other taxes for the current year includes franchise, capital,
alternative minimum and foreign taxes related to ongoing real estate
operations. Income and other taxes decreased by $8.9 million for the year
ended December 31, 2002, compared with the prior year, principally because
Trizec R & E Holdings, Inc. was subject to federal income taxes prior to its
inclusion in Trizec Properties.

Minority Interest

We recorded minority interest income of $1.8 million for the year ended
December 31, 2002 due to the decline in redemption value in the TrizecHahn
Mid-Atlantic Limited Partnership redeemable units. During the prior year we
recorded income of $0.4 million.

Loss from Unconsolidated Real Estate Joint Ventures

Loss from unconsolidated real estate joint ventures increased $13.7
million, primarily due to the $38.8 million provision for loss on our
investment in the Hollywood and Highland hotel project and a provision for loss
on investment in New Center One in Detroit, Michigan, of $20.1 million, which
had been designated by the joint venture as held for disposition and whose fair
value less selling costs was less than carrying value, partially offset by the
provision for loss in 2001 for the Hollywood and Highland hotel of $46.9
million. Income before the provision for losses on these joint venture
interests declined $1.7 million primarily due to Desert Passage being
consolidated commencing April 1, 2001, Ernst & Young Plaza being consolidated
commencing June 4, 2002 and a net loss on operations at the Hollywood &
Highland hotel.

Recovery on Insurance Claim

Beginning in late 2001 and during 2002, we have been replacing 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. To
date, we have spent approximately $16.2 million. We anticipate a partial
recovery from insurance proceeds, of which $3.8 million was received in 2002.

Discontinued Operations

In accordance with SFAS No. 144 Accounting for the Impairment or Disposal
of Long Lived Assets, effective for financial statements issued for fiscal
years beginning after December 15, 2001, net income and gain (loss) on sales of
real estate for properties sold subsequent to December 31, 2001 are reflected
in the consolidated statements of operations as Discontinued Operations for
both periods presented. Income from properties classified as discontinued
operations decreased by $0.2 million primarily due to the dispositions of three
office properties in

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2002 for which we recorded a gain of $14.7 million, offset by lower
interest expense as property-specific loans were paid off in 2001. The gain on
sale of properties was offset by a $9.8 million provision for loss on a
property held for disposition whose fair value less selling costs was less than
carrying value.

Gain (Loss) on Disposition of Real Estate

During the year ended December 31, 2002, we sold two office properties,
two technology centers, refusal rights and some residual lands which resulted
in a net gain of $3.0 million. During 2001, we disposed of four office
properties and some residual land for a net loss of $2.1 million.

Loss on Early Debt Retirement

During the year ended December 31, 2002, we had no losses on early debt
retirement. During the prior year, we recorded a cost of $18.0 million related
to the retirement of $1.2 billion of debt which was funded by the issuance of
approximately $1.4 billion in commercial mortgage backed securities. Of this
cost, $4.2 million relates to the write off of the unamortized deferred finance
costs.

Cumulative Effect of Change in Accounting Principle

As a consequence of implementing SFAS No. 133 Accounting for Derivative
Instruments and Hedging Activities, in the year ended December 31, 2001 we
wrote off deferred financing charges of $0.3 million and reclassified an
unrealized $4.4 million loss related to certain telecommunication securities
from accumulated other comprehensive loss, a component of equity, to cumulative
effect of a change in accounting principle.

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Comparison of Year Ended December 31, 2001 to Year Ended December 31, 2000

The following is a table comparing our summarized operating results for
the periods, including other selected information. Certain amounts have been
reclassified, including the effects for adoption of SFAS No. 144, to conform to
the 2002 presentation.

|                                                                                                                                                                                                                                                                     |  |                        |          |           |  |            |         |        |  |   |          |   |  |  |          |   
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------- | -------- | --------- |  | ---------- | ------- | ------ |  | - | -------- | - |  |  | -------- | --
|                                                                                                                                                                                                                                                                     |  | For the years ended    |          |           |  |            |         |        |  |  
|                                                                                                                                                                                                                                                                     |  | December 31            |          |           |  |            |         |        |  |  
|                                                                                                                                                                                                                                                                     |  |                        |          | Increase/ |  | %         
|                                                                                                                                                                                                                                                                     |  | 2001                   |          | 2000      |  | (Decrease) |         | Change
|                                                                                                                                                                                                                                                                     |  |                        |          |           |  |            |         |       
|                                                                                                                                                                                                                                                                     |  | (dollars in thousands)
|Property revenues                                                                                                                                                                                                                                                    |  | $                      | 893,181  |           |  | $          | 850,066 |        |  | $ | 43,115   |   |  |  | 5.1      | % 
|Interest income                                                                                                                                                                                                                                                      |  |                        | 15,626   |           |  |            | 8,431   |        |  |   | 7,195    |   |  |  | 85.3     | % 
|                                                                                                                                                                                                                                                                     |  |                        |          |           |  |            |         |        |  |   |          |   |  |  |          |   
|Total revenues                                                                                                                                                                                                                                                       |  |                        | 908,807  |           |  |            | 858,497 |        |  |   | 50,310   |   |  |  | 5.9      | % 
|                                                                                                                                                                                                                                                                     |  |                        |          |           |  |            |         |        |  |   |          |   |  |  |          |   
|Property operating expenses                                                                                                                                                                                                                                          |  |                        | 371,164  |           |  |            | 347,851 |        |  |   | 23,313   |   |  |  | 6.7      | % 
|General and administrative                                                                                                                                                                                                                                           |  |                        | 25,854   |           |  |            | 18,429  |        |  |   | 7,425    |   |  |  | 40.3     | % 
|Interest expense                                                                                                                                                                                                                                                     |  |                        | 148,821  |           |  |            | 260,381 |        |  |   | (111,560 | ) |  |  | (42.8    | )%
|Depreciation and amortization                                                                                                                                                                                                                                        |  |                        | 157,059  |           |  |            | 150,280 |        |  |   | 6,779    |   |  |  | 4.5      | % 
|Reorganization costs                                                                                                                                                                                                                                                 |  |                        | 15,922   |           |  |            | 6,680   |        |  |   | 9,242    |   |  |  | 138.4    | % 
|Derivative losses                                                                                                                                                                                                                                                    |  |                        | 456      |           |  |            |        |        |  |   | 456      |   |  |  |         |   
|Provision for loss on real estate                                                                                                                                                                                                                                    |  |                        | 258,091  |           |  |            | 3,677   |        |  |   | 254,414  |   |  |  | 6,919.1  | % 
|Provision for loss on investments                                                                                                                                                                                                                                    |  |                        | 15,371   |           |  |            |        |        |  |   | 15,371   |   |  |  |         |   
|                                                                                                                                                                                                                                                                     |  |                        |          |           |  |            |         |        |  |   |          |   |  |  |          |   
|Total expenses                                                                                                                                                                                                                                                       |  |                        | 992,738  |           |  |            | 787,298 |        |  |   | 205,440  |   |  |  | 26.1     | % 
|                                                                                                                                                                                                                                                                     |  |                        |          |           |  |            |         |        |  |   |          |   |  |  |          |   
|(Loss) income before income taxes, minority interest,
(loss) income from unconsolidated real estate joint
ventures, discontinued operations, gain (loss) on
disposition of real estate, extraordinary item and
cumulative effect of a change in accounting principle |  |                        | (83,931  | )         |  |            | 71,199  |        |  |   | (155,130 | ) |  |  | (217.9   | )%
|(Provision) benefit from income and other corporate taxes                                                                                                                                                                                                            |  |                        | (13,795  | )         |  |            | 252,840 |        |  |   | (266,635 | ) |  |  | (105.5   | )%
|Minority interest                                                                                                                                                                                                                                                    |  |                        | 433      |           |  |            | 580     |        |  |   | (147     | ) |  |  | (25.3    | )%
|(Loss) income from unconsolidated real estate joint ventures                                                                                                                                                                                                         |  |                        | (33,948  | )         |  |            | 19,417  |        |  |   | (53,365  | ) |  |  | (274.8   | )%
|                                                                                                                                                                                                                                                                     |  |                        |          |           |  |            |         |        |  |   |          |   |  |  |          |   
|(Loss) income from continuing operations                                                                                                                                                                                                                             |  |                        | (131,241 | )         |  |            | 344,036 |        |  |   | (475,277 | ) |  |  | (138.1   | )%
|Income from discontinued operations                                                                                                                                                                                                                                  |  |                        | 3,400    |           |  |            | 3,589   |        |  |   | (189     | ) |  |  | (5.3     | )%
|(Loss) gain on disposition of real estate                                                                                                                                                                                                                            |  |                        | (2,053   | )         |  |            | 36,862  |        |  |   | (38,915  | ) |  |  | (105.6   | )%
|                                                                                                                                                                                                                                                                     |  |                        |          |           |  |            |         |        |  |   |          |   |  |  |          |   
|(Loss) income before extraordinary items and cumulative
effect of a change in accounting policy                                                                                                                                                                      |  |                        | (129,894 | )         |  |            | 384,487 |        |  |   | (514,381 | ) |  |  | (133.8   | )%
|Loss on early debt retirement                                                                                                                                                                                                                                        |  |                        | (17,966  | )         |  |            | (1,491  | )      |  |   | (16,475  | ) |  |  | (1,105.0 | )%
|Cumulative effect of a change in accounting principle                                                                                                                                                                                                                |  |                        | (4,631   | )         |  |            |        |        |  |   | (4,631   | ) |  |  |         |   
|                                                                                                                                                                                                                                                                     |  |                        |          |           |  |            |         |        |  |   |          |   |  |  |          |   
|Net (loss) income                                                                                                                                                                                                                                                    |  | $                      | (152,491 | )         |  | $          | 382,996 |        |  | $ | (535,487 | ) |  |  | (139.8   | )%
|                                                                                                                                                                                                                                                                     |  |                        |          |           |  |            |         |        |  |   |          |   |  |  |          |   
|Straight line revenue                                                                                                                                                                                                                                                |  | $                      | 20,888   |           |  | $          | 25,534  |        |  | $ | (4,646   | ) |  |  | (18.2    | )%
|                                                                                                                                                                                                                                                                     |  |                        |          |           |  |            |         |        |  |   |          |   |  |  |          |   
|Lease termination fees                                                                                                                                                                                                                                               |  | $                      | 21,697   |           |  | $          | 5,336   |        |  | $ | 16,361   |   |  |  | 306.6    | % 
|                                                                                                                                                                                                                                                                     |  |                        |          |           |  |            |         |        |  |   |          |   |  |  |          |   

The table below presents selected operating information for our total
portfolio and for our comparable portfolio of 71 office properties, which we
owned both at December 31, 2001 and 2000, and in each case for the full year.

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|                     |        |                             |  |                        |         |           |  |            |         |        |  |   |        |  |  |  |       |  
|-------------------- | ------ | --------------------------- |  | ---------------------- | ------- | --------- |  | ---------- | ------- | ------ |  | - | ------ |  |  |  | ----- | -
|                     |        |                             |  | For the years ended    |         |           |  |            |         |        |  |  
|                     |        |                             |  | December 31            |         |           |  |            |         |        |  |  
|                     |        |                             |  |                        |         | Increase/ |  | %         
|                     |        |                             |  | 2001                   |         | 2000      |  | (Decrease) |         | Change
|                     |        |                             |  |                        |         |           |  |            |         |       
|                     |        |                             |  | (dollars in thousands)
|Total Portfolio      |        |                             |  |                        |         |           |  |            |         |        |  |   |        |  |  | 
|                     | Office |                             |  |                        |         |           |  |            |         |        |  |   |        |  |  |  |      
|                     |        | Property revenues           |  | $                      | 854,246 |           |  | $          | 838,068 |        |  | $ | 16,178 |  |  |  | 1.9   | %
|                     |        | Property operating expenses |  |                        | 354,336 |           |  |            | 342,527 |        |  |   | 11,809 |  |  |  | 3.4   | %
|                     |        |                             |  |                        |         |           |  |            |         |        |  |   |        |  |  |  |       |  
|                     |        | Property operating income   |  | $                      | 499,910 |           |  | $          | 495,541 |        |  | $ | 4,369  |  |  |  | 0.9   | %
|                     |        |                             |  |                        |         |           |  |            |         |        |  |   |        |  |  | 
|                     |        |                             |  |                        |         |           |  |            |         |        |  |   |        |  |  | 
|                     | Retail |                             |  |                        |         |           |  |            |         |        |  |   |        |  |  |  |      
|                     |        | Property revenues           |  | $                      | 38,935  |           |  | $          | 11,998  |        |  | $ | 26,937 |  |  |  | 224.5 | %
|                     |        | Property operating expenses |  |                        | 16,828  |           |  |            | 5,324   |        |  |   | 11,504 |  |  |  | 216.1 | %
|                     |        |                             |  |                        |         |           |  |            |         |        |  |   |        |  |  |  |       |  
|                     |        | Property operating income   |  | $                      | 22,107  |           |  | $          | 6,674   |        |  | $ | 15,433 |  |  |  | 231.2 | %
|                     |        |                             |  |                        |         |           |  |            |         |        |  |   |        |  |  | 
|                     |        |                             |  |                        |         |           |  |            |         |        |  |   |        |  |  | 
|Comparable Portfolio |        |                             |  |                        |         |           |  |            |         |        |  |   |        |  |  | 
|                     | Office |                             |  |                        |         |           |  |            |         |        |  |   |        |  |  |  |      
|                     |        | Property revenues           |  | $                      | 793,210 |           |  | $          | 748,585 |        |  | $ | 44,625 |  |  |  | 6.0   | %
|                     |        | Property operating expenses |  |                        | 346,771 |           |  |            | 327,451 |        |  |   | 19,320 |  |  |  | 5.9   | %
|                     |        |                             |  |                        |         |           |  |            |         |        |  |   |        |  |  |  |       |  
|                     |        | Property operating income   |  | $                      | 446,439 |           |  | $          | 421,134 |        |  | $ | 25,305 |  |  |  | 6.0   | %
|                     |        |                             |  |                        |         |           |  |            |         |        |  |   |        |  |  |  |       |  

During 2001, the U.S. economy continued to show weakness. According to
Cushman and Wakefield, the national CBD vacancy rate was 12.0% at December 31,
2001 up from 7.1% at year-end 2000. The overall national suburban vacancy rate
was 17.0% at year-end 2001, its highest level in seven years.

During the course of the year, the office space demand profile continued
to weaken as the manufacturing and high-tech sector slowdown spread throughout
the economy across all industries. Furthermore, the September 2001 terrorist
attacks in New York and Washington, D.C. and related circumstances have created
additional economic uncertainty and have reduced managements expectations
about the level of near-term growth. With substantial amounts of sublease
space being returned to office markets in 2001, many of the top CBD markets
have moved toward a condition where supply meets or exceeds demand for office
space.

On December 3, 2001, a group of Enron Corporation companies filed for
Chapter 11 reorganization. Enron was our fourth largest tenant, contributing
2% of POI and occupying 793,000 square feet, primarily at the Allen Center in
Houston, Texas. At December 31, 2001, Enrons average in-place net rent was
approximately $9.30 per square foot, while estimated market rents for the space
were approximately $14 to $15 per square foot.

Property Operating Income  Property Revenue Less Property Operating
Expense

The $43.1 million total increase in property revenues for the comparable
period is the result of improved performance in the core market office
properties, a higher level of termination fees and the part year impact of
acquisitions and on-stream development properties, offset by the impact of the
disposition of 16 office properties.

For our total portfolio of 76 properties for the year ended December 31,
2001, we leased 8.0 million square feet (7.2 million square feet on a pro rata
basis) and occupancy increased to 94.3% compared with 94.2% at December 31,
2000, primarily due to the impact of the three properties acquired during the
second quarter of 2001, as they ended the year at an average occupancy of 98%.
We also achieved a $1.03 per square foot ($0.81 per square foot on a pro rata
basis) increase in net rental rates on new and renewal leasing, reflecting the
impact of space rolling over at properties with in-place rents below current
market levels.

For the comparable portfolio of 71 properties, occupancy decreased from
94.4% to 94.1% and rental rates increased in key markets such as the Washington
D.C. area, New York and Chicago. The average monthly occupancy for these 71
properties was 92.6% compared to 91.8% in 2000. For our 100% owned comparable

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portfolio of 58 properties, excluding discontinued operations, property
revenue increased $44.6 million or 6.0%. Excluding termination fees from both
periods, property revenue increased $28.7 million or 3.9%.

The acquisition of three Class A office buildings during the second
quarter of 2001 increased property revenue by $16.8 million. The buildings are
located in core markets and were acquired for a purchase price of $182.1
million as a tax efficient re-investment of proceeds from non-core asset
dispositions. 550 West Washington in Chicago with 372,000 square feet is 96%
occupied. Its average lease term is 8.3 years with no expirations in the first
four years, and 4% expiring in the fifth year. 1225 Connecticut in Washington
D.C. with 224,000 square feet is 99.8% occupied by Ernst & Young under a lease
expiring in mid-2007. Two Ballston in Arlington, Virginia with 222,000 square
feet is 100% occupied with an average lease term of 3.9 years.

In addition, current period revenue benefited $17.3 million from the
completion in late 2000 of 225,000 square feet at Beaumeade Corporate Park in
Washington, D.C. and the 184,000-square-foot One Reston Place in Reston,
Virginia. These buildings were both 100% leased at completion. Also
contributing to this increase was 150,000 square feet at 3100 Interstate North
Parkway in Marietta, Georgia, which was completed and came on-stream 86% leased
in January 2001.

During the period, as planned we sold four non-core office properties.
These sales, combined with 12 properties sold in the second half of 2000,
reduced property rental revenue by $62.5 million for the year 2001.

Included in the above property revenue analysis are lease termination
fees. Lease termination fees are an element of ongoing real estate ownership,
and for the year ended December 31, 2001, we recorded $21.2 million of
termination fees for our office properties (2000  $5.3 million), which is
included in parking and other revenue. These fees relate to specific tenants
who have paid a fee to terminate their lease obligations before the end of the
contractual term of their leases. In 2001, a $9.4 million fee received from a
tenant which leased all 184,000 square feet at One Reston Place in Reston,
Virginia was recorded. In addition, a $4.2 million fee received from a tenant
at Galleria Towers in Dallas was also recorded.

Retail property revenue increased $26.9 million due to the completion of
all three development projects and our gaining control of the Desert Passage
retail/entertainment joint venture project on March 31, 2001 and, as of April
1, 2001, consolidating 100% of its operating results, offset by the impact of
the disposition of Fashion Outlet of Las Vegas in September 2000. Previously,
as a jointly controlled partnership, 65% of the operating results from Desert
Passage, from when the project was completed in August 2000, were included in
income from unconsolidated real estate joint ventures. The revised project
partnership agreement resulted in us gaining control over project operations
and disposition, with the minority partner participating only in project
distributions, primarily those arising upon disposition of the project. The
retail/entertainment component of Hollywood & Highland in Los Angeles opened on
November 8, 2001 and at year end it was 88% leased with occupancy at 72%. Paseo
Colorado opened September 28, 2001 and at year end it was 93% leased with
occupancy at 84%.

Property operating expenses, which include real estate taxes, utilities,
repairs and maintenance, cleaning and other property related expenses and
exclude depreciation and amortization expense, increased due to the portfolio
composition changes described above. Excluding the impact on revenues of lease
termination fees, our comparable office portfolio gross margin decreased to
55.1% from 55.9% on a year-over-year basis. For our comparable portfolio,
operating expenses increased due to a higher level of bad debt expense, an
increase in property taxes due to higher assessments and increases in
utilities, mainly electricity expense.

Interest Income

The $7.2 million increase in interest income for the year ended December
31, 2001 compared with the prior year period reflects interest income earned on
higher average cash balances resulting from disposition and refinancing
proceeds.

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General and Administrative Expense and Reorganization Costs

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.

Based on TrizecHahn Corporations strategic plan, we targeted general and
administrative expense savings to be derived from our focus on the office
portfolio and from both functional and office location consolidations. As a
result of a comprehensive review of our operations for this purpose, we
initiated a reorganization plan to simplify our management structure and
centralize accounting, payroll and information services functions in Chicago.
The reorganization plan will result in a net reduction of approximately 85
office employees by the end of 2002 in these areas. During 2001, we recorded
as reorganization costs a charge of $13.9 million, to provide for employee
severance, benefits and other costs associated with announced job redundancies
as a result of implementing the reorganization plan. Included in the
reorganization charge are $2.2 million of non-cash costs, which include $1.2
million for the accelerated recognition of a portion of the entitlements
pursuant to the escrowed share grant arrangement for certain U.S. employees and
$1.0 million for the write-off of furniture, fixtures and leasehold costs at
redundant locations.

In addition, in 2001, for REIT qualification purposes, we issued and
donated 400 shares of common stock to each of 100 charitable organizations.
The aggregate 40,000 shares of common stock have been estimated by management
to have a fair value of approximately $2.0 million, and such amount has been
recorded as a donation expense and included in reorganization costs.

General and administrative expenses increased by approximately $7.4
million for the year ended December 31, 2001 compared with the prior year
period, due primarily to the $3.2 million impact of share-based compensation
arrangements, which were introduced in late 2000, and increased professional
fees. General and administrative expenses for the year ended December 31, 2001
also included $2.0 million of transition costs associated with implementing the
reorganization plan. These costs were incurred for relocation, hiring and
consulting services in connection with executing the plan.

Interest Expense

Interest expense decreased by $111.6 million for the year ended December
31, 2001 compared with the same prior year period primarily due to the $86.2
million impact of $750 million of interest bearing parent advances, which were
settled for the issuance of equity in December 2000. In addition, interest
expense savings of $15.7 million from the disposition of non-core properties
was partially offset by the $12.0 million impact of acquisitions and on-stream
developments. The refinancing in May 2001, in which a special-purpose vehicle
created by one of our subsidiaries issued $1.44 billion of commercial mortgage
pass-through certificates, the proceeds of which were used to repay $1.16
billion of existing loans, generated $1.6 million of interest expense on the
incremental refinancing proceeds. Interest expense also benefited from
incremental interest capitalization of $8.8 million on equity invested in the
retail/entertainment projects under development and the $14.5 million impact of
a more favorable variable interest rate environment.

Depreciation and Amortization

For the year ended December 31, 2001, depreciation expense was $6.8
million higher than in the same prior year period due to the impact of
acquisitions, on-stream properties and increased depreciation and amortization
expense related to ongoing capitalized tenant installation costs, including
amortization of deferred leasing costs, offset by the impact of dispositions.

Provision for Loss on Real Estate

Hollywood & Highland in Los Angeles, California, and Desert Passage in Las
Vegas, Nevada, depend on tourism for a significant portion of their visitors.
The September 2001 terrorist attacks significantly impacted the levels of
tourism in Los Angeles and Las Vegas. In addition, the unaffiliated owners of
the Aladdin Hotel and Casino, which adjoins Desert Passage, filed for a Chapter
11 reorganization on September 28, 2001, negatively

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impacting the number of visitors at Desert Passage. During the fourth
quarter of 2001, we commissioned third-party appraisals of our
retail/entertainment properties. These appraisals indicated a decline in the
fair value of these assets and accordingly, for the year ended December 31,
2001, we recorded an allowance for loss of $192.5 million to reduce the
carrying value of these assets. Of this amount, $170.1 million relates to the
Hollywood & Highland retail, and $22.4 million relates to Desert Passage and
certain remnant retail assets. In addition, a $46.9 million provision related
to the hotel component was reflected in (loss) income from unconsolidated real
estate joint ventures.

We acquired three technology center development properties in Seattle,
Boston and Chicago, in late 2000. During 2001, we explored alternatives other
than developing these properties as technology centers. After considering
these alternatives, we decided to dispose of these properties in the near term
in an orderly manner. As a result, we recorded an allowance for loss of $62.9
million. In addition, an allowance for loss of $2.7 million was recorded
related to the planned sale of two non-core U.S. office assets. The five
properties were reclassified as properties held for disposition.

Provision for Loss on Investments

In 2001, we fully provided for our securities investments in certain
building telecommunication and service providers, recording a $15.4 million
charge, net of $3.5 million of deferred revenue, as events and circumstances
confirmed that the decline in value of these assets was considered to be other
than temporary. This provision comprised our investments in Allied Riser
Communications Corporation, Broadband Office Inc., Cypress Communications Inc.,
OnSite Access Inc., and Captivate Network, Inc.

(Provision) Benefit from Income and Other Corporate Taxes

The year over year change in income tax expense of $266.6 million is
primarily attributable to the fact that Trizec Properties determined to elect
REIT status effective as of January 1, 2001. Accordingly, during 2001 we did
not provide for federal income taxes in the United States related to our office
properties operations. In 2000, as we were not a REIT, our effective tax rate
was 39.45%. At December 31, 2000, as we would not be liable for U.S. income
taxes, we recorded a credit to income of $311.7 million representing the
reduction of a net deferred tax liability position relating to future years.

TrizecHahn Developments Inc., or THDI, was outside the Trizec Properties
group at December 31, 2001, but as part of the reorganization of TrizecHahn
Corporation it was contributed to Trizec Properties and, accordingly, THDI no
longer provides for federal income taxes. For the year ended December 31,
2001, we recorded a $1.6 million expense to eliminate a net deferred tax
liability position.

Included in income and other taxes are franchise, capital and alternative
minimum taxes related to ongoing real estate operations. These current
operating taxes for the year ended December 31, 2001 were $4.9 million compared
with $9.4 million in 2000.

(Loss) Income from Unconsolidated Real Estate Joint Ventures

Income from unconsolidated real estate joint ventures decreased $53.4
million primarily due to the $46.9 million provision for loss on our Hollywood
and Highland hotel project and to the impact of interest expense attributable
to the Desert Passage retail/entertainment project. As previously noted, the
Desert Passage project came on-stream in August 2000 and was accounted for as a
joint venture until March 31, 2001.

Gain (Loss) on Disposition of Real Estate

During 2001, we recorded a net loss of $2.1 million related to the sale of
four non-core office properties and residual land sites. The prior year gain
of $36.9 million related primarily to the sale of 12 non-core office
properties.

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Loss on Early Debt Retirement

On May 17, 2001, we retired early $1.16 billion of existing long-term
debt, which we funded through the issuance by a special-purpose vehicle created
by one of our subsidiaries of $1.4 billion of commercial mortgage pass-through
certificates. As a consequence of these early retirements, we recorded an
extraordinary loss of $18.0 million, consisting of contractual redemption
premiums of $13.8 million and the write-off of unamortized deferred financing
costs of $4.2 million.

Cumulative Effect of Change in Accounting Principle

As a consequence of implementing SFAS 133, we wrote off deferred financing
charges of $0.3 million and reclassified the unrealized $4.4 million loss
related to certain telecommunication securities from accumulated other
comprehensive loss, a component of equity, to cumulative effect of a change in
accounting principle.

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 scheduled debt maturities, normal recurring expenses, tax obligations and
distributions required to maintain REIT status through cash flows from
operations, the refinancing of mortgage debt and our current cash and credit
availability. Our net cash flow from operations is dependent upon the
occupancy level of our properties, the collectibility of rent from our tenants,
the level of operating and other expenses, and other factors. Material changes
in these factors may adversely affect our net cash flow from operations.

We expect to meet our liquidity requirement for periods beyond twelve
months for scheduled debt maturities, potential future acquisitions and
developments, major renovations, ground lease payments or purchases, expansions
and other non-recurring capital expenditures through cash flows from
operations, availability under our credit facility, the incurrence of secured
debt, asset sales, entering into joint ventures or partnerships with equity
providers, issuing equity securities or a combination of these methods.

We entered into a three-year, $350 million senior unsecured revolving
credit facility with a group of banks in the fourth quarter of 2001. During
the third quarter of 2002, while we believed we were in compliance with the
financial covenants contained in the credit facility, we obtained from the
lenders a temporary modification of the financial covenants and began active
discussions to permanently modify these covenants and certain other terms. In
the fourth quarter of 2002, we amended and restated the credit facility. The
group of banks unanimously agreed to amend and restate the facility as a
secured facility. Generally, in exchange for the receipt of collateral, the
banks agreed to provide more flexible financial covenants than had been
originally negotiated. The 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 credit facility available to be borrowed at any time is
determined by the encumbered properties that we, or our subsidiaries that
guarantee the credit facility, own and that satisfy certain conditions of
eligible properties. These conditions are not uncommon for credit facilities
of this nature. As of December 31, 2002, the amount eligible to be borrowed
was $320.0 million. At December 31, 2002, $90.0 million was outstanding under
the facility. During 2003 we expect the outstanding balance to fluctuate. The
balance will likely be reduced as a result of proceeds generated from asset
sales, secured borrowings, operating cash flow and other sources of liquidity.
The balance will likely also increase from time to time as we use funds from
the facility to meet a variety of liquidity requirements.

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Under our credit facility, we are subject to covenants, including
financial covenants, restrictions on other indebtedness, restriction 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%, with the
exception that the total leverage ratio may reach 67.5% for one calendar
quarter in 2003; the requirement for our interest coverage ratio to be greater
than 2.0 times; and the requirement for our 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. If we are in
default in respect of our obligations under the credit facility, dividends will
be limited to the amount necessary to maintain REIT status.

For REIT qualification purposes and to provide sufficient funding required
by TrizecHahn Corporation to complete the corporate reorganization, during the
period from January 1, 2002 to May 6, 2002, we made net distributions to
TrizecHahn Corporation of $530 million after deducting repayment of advances
due from our parent and affiliates. These distributions and repayments were
funded from a combination of $240 million cash on hand and borrowings under our
revolving credit facility. In addition, in connection with the corporate
reorganization, during the year ended December 31, 2002, advances due to our
parent and affiliates in respect of Trizec R & E Holdings, Inc. in the amount
of approximately $237 million were settled in exchange for newly-issued shares
when Trizec R & E Holdings, Inc. was contributed back to us.

Since the completion of the corporate reorganization, we made three
quarterly dividend distributions of $0.0875 per share to the holders of our
common stock on June 28, 2002, September 30, 2002 and December 30, 2002.
Commencing in 2003 and thereafter, we intend to make distributions to the
holders of our common stock and special voting stock at least equal to the
minimum amount required to maintain REIT status each year through regular
quarterly dividends.

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.

At December 31, 2002, we had $62.3 million in cash and cash equivalents as
compared to $297.4 million at December 31, 2001. The decrease is a result of
the following cash flows:

|                                                |  |                                 |          |      |  |      |          |   |  |   |         |  
|----------------------------------------------- |  | ------------------------------- | -------- | ---- |  | ---- | -------- | - |  | - | ------- | -
|                                                |  | For the years ended December 31
|                                                |  |                                
|                                                |  | 2002                            |          | 2001 |  | 2000
|                                                |  |                                 |          |      |  |     
|                                                |  | (dollars in thousands)         
|Cash provided by operating activities           |  | $                               | 211,661  |      |  | $    | 462,948  |   |  | $ | 113,121 |  
|Cash used in investing activities               |  |                                 | (15,918  | )    |  |      | (596,988 | ) |  |   | (52,724 | )
|Cash (used in)/provided by financing activities |  |                                 | (430,924 | )    |  |      | 361,279  |   |  |   | (70,554 | )
|                                                |  |                                 |          |      |  |      |          |   |  |   |         |  
|                                                |  | $                               | (235,181 | )    |  | $    | 227,239  |   |  | $ | (10,157 | )
|                                                |  |                                 |          |      |  |      |          |   |  |   |         |  

Operating Activities

Cash provided by operating activities was $211.7 million for 2002 compared
to $462.9 million for 2001, and $113.1 million for 2000. The decrease from
2001 to 2002 was primarily the result of decreased property operating income
combined with increased interest expense and general and administrative costs,
the change in escrows and restricted cash, and timing differences in other
working capital items. Similarly, the increase in operating cash flow from
2000 to 2001 was the result of increased property operating income, decreased
interest expense and changes in escrows and restricted cash. In 2002, we
funded $18.6 million into escrow and restricted cash accounts primarily due to
the consolidation of the Ernst and Young Plaza. During 2001, we received the
benefit of a release in escrow and restricted cash of $99.4 million, which had
been put into escrow during 2000 and which we used primarily to fund the three
office property acquisitions through a like-kind exchange. In 2002, we used
$49.3 million of cash related to prepaid expense and other assets and accounts
payable, accrued liabilities and other liabilities as compared to $20.3 million
provided in 2001 and $74.2 million in 2000. The differences are primarily

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related to the timing of payments for property tax, insurance,
reorganization and restructuring charges and expenditures that will be
recovered from tenants in future periods.

Investing Activities

Net cash used for investing activities reflects the ongoing impact of
expenditures on recurring and non-recurring tenant installation costs, capital
expenditures and the impact of acquisitions, developments and dispositions.
During the year ended December 31, 2002, we used $15.9 million of cash in our
investing activities as compared to $597.0 million in 2001 and $52.7 million in
2000. As described below, this reduction in the use of cash for investing
activities relates primarily to a decrease in acquisition costs and lower
levels of development activities.

Tenant Installation Costs

Our office properties require periodic investments of capital for tenant
installation costs related to new and renewal leasing. As noted above, overall
market conditions in 2002 reflected an increase in vacancies over the prior
year. This increase, 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 portfolio, including our share
of such costs incurred by non-consolidated 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 the pro rata owned share of square feet leased.

|                                          |                   |   |                                               |     |      |   |       |     |  |   |       |     | 
|----------------------------------------- | ----------------- | - | --------------------------------------------- | --- | ---- | - | ----- | --- |  | - | ----- | --- | 
|                                          |                   |   | For the years ended December 31              
|                                          |                   |   |                                              
|                                          |                   |   | 2002                                          |     | 2001 |   | 2000 
|                                          |                   |   |                                               |     |      |   |      
|                                          |                   |   | (in millions, except per square foot amounts)
|Square feet leased                        |                   |   |                                               |     |      |   |       |     |  |   |       |    
|                                          | - new leasing     |   |                                               | 3.5 |      |   |       | 4.5 |  |   |       | 4.8 | 
|                                          | - renewal leasing |   |                                               | 3.0 |      |   |       | 2.7 |  |   |       | 2.8 | 
|Tenant installation costs                 |                   | $ | 90.0                                          |     |      | $ | 106.4 |     |  | $ | 88.0  |    
|Tenant installation costs per square foot |                   | $ | 17.75                                         |     |      | $ | 14.80 |     |  | $ | 11.60 |    
|Tenant allowance costs per square foot    |                   | $ | 13.73                                         |     |      | $ | 9.40  |     |  | $ | 6.60  |    

For the twelve months ended December 31, 2002, of the $90.0 million office
tenant installation costs, approximately $26.7 million or $8.90 per square foot
(2001  $15.1 million or $5.60 per square foot; 2000  $16 million or $6.00 per
square foot) was incurred to renew existing tenants.

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,
2002, capital expenditures for the total office portfolio, including our share
of such expenditures incurred by non-consolidated joint ventures, was $35.9
million, (2001  $30.3 million; 2000  $53.3 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 code-required enhancements and
major upgrades to common areas and lobbies. 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

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take these capital improvement and new leasing tenant inducement costs
into consideration at the time of acquisition when negotiating our purchase
price.

Reconciliation to Combined 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 non-consolidated 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 non-consolidated joint ventures. The reconciliation between the above
amounts and our consolidated statements of cash flows is as follows:

|                                                                                                                    |  |                                 |         |      |  |      |         |   |  |   |         |  
|------------------------------------------------------------------------------------------------------------------- |  | ------------------------------- | ------- | ---- |  | ---- | ------- | - |  | - | ------- | -
|                                                                                                                    |  | For the years ended December 31
|                                                                                                                    |  |                                
|                                                                                                                    |  | 2002                            |         | 2001 |  | 2000
|                                                                                                                    |  |                                 |         |      |  |     
|                                                                                                                    |  | (dollars in thousands)         
|Tenant installation costs, including leasing costs                                                                  |  | $                               | 90,000  |      |  | $    | 106,438 |   |  | $ | 87,983  |  
|                                                                                                                    |  |                                 |         |      |  |      |         |   |  |   |         |  
|Capital expenditures                                                                                                |  |                                 | 35,976  |      |  |      | 30,345  |   |  |   | 53,272  |  
|Pro rata joint venture activity                                                                                     |  |                                 | (14,988 | )    |  |      | (22,419 | ) |  |   | (16,430 | )
|Timing differences                                                                                                  |  |                                 | (3,345  | )    |  |      | 8,266   |   |  |   | 3,159   |  
|Retail activity                                                                                                     |  |                                 | 1,892   |      |  |      | 6,024   |   |  |   | 1,465   |  
|                                                                                                                    |  |                                 |         |      |  |      |         |   |  |   |         |  
|Total tenant improvements, leasing costs and
capital expenditures per combined consolidated
statement of cash flows |  | $                               | 109,535 |      |  | $    | 128,654 |   |  | $ | 129,449 |  
|                                                                                                                    |  |                                 |         |      |  |      |         |   |  |   |         |  

Developments

Development expenditures were incurred during the three years presented
primarily on our retail/entertainment properties, as described below, and for
the completion of One Alliance Center. The latter project, located in the
Buckhead sub-market of Atlanta, Georgia, opened in early October 2001. This
$100 million, 560,000 square foot building is the first phase of a
four-building complex and is currently 83% occupied. In addition, development
expenditures reflect completion during 2000 of Beaumeade Corporate Park in
Washington, D.C., One Reston Place in Reston, Virginia and 3100 North Parkway
in Marietta, Georgia.

Retail/Entertainment Properties

The following table sets forth key information as of December 31, 2002
with respect to the retail/entertainment properties that we recently developed.
Our economic interest is 100% unless otherwise noted. Pro rata book values
shown in the table are the written down carrying values at our economic share.
Our economic ownership interest for the Hollywood & Highland hotel at December
31, 2002 was 91.5%, reflecting our minority partners conversion of $5 million
of equity into debt on September 26, 2002.

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|                     |               |               |                 |                    |           |           |         |           |  |          |           |            |  |               |           |                    |                     |   |       |      |   |  |  |  | 
|-------------------- | ------------- | ------------- | --------------- | ------------------ | --------- | --------- | ------- | --------- |  | -------- | --------- | ---------- |  | ------------- | --------- | ------------------ | ------------------- | - | ----- | ---- | - |  |  |  | 
|                     |               |               |                 |                    |           |           |         |           |  |          | Total     |            |  |               |           |                    | Pro rata Book Value |   |       |      |  
|Project Name         |               |               |                 |                    |           |           |         |           |  | Area     |           | Owned Area |  | Dec. 31, 2002 |           | Occupancy Dec. 31,
|(Ownership)          |               | Location      |                 | Date of Completion |           | (sq. ft.) |         | (sq. ft.) |  | ($ mil.) |           | 2002      
|                     |               |               |                 |                    |           |           |         |           |  |          |           |           
|Desert Passage       |               | Las Vegas, NV |                 | Aug. 2000          |           |           | 475,000 |           |  |          | 475,000   |            |  | $             | 205.7     |                    |                     |   | 70.0  | %   
|                     |               |               |                 |                    |           |           |         |           |  |          |           |            |  |               |           |                    |                     |   |       |      |   |  |  | 
|Paseo Colorado       |               | Pasadena, CA  |                 | Sept. 2001         |           |           | 565,000 |           |  |          | 410,000   |            |  |               | 87.9      |                    |                     |   | 93.3  | %   
|                     |               |               |                 |                    |           |           |         |           |  |          |           |            |  |               |           |                    |                     |   |       |      |   |  |  | 
|Hollywood & Highland |               |               |                 |                    |           |           |         |           |  |          |           |            |  |               |           |                    |                     |   |       |      |   |  |  | 
|                     | Retail        |               | Los Angeles, CA |                    | Nov. 2001 |           |         | 645,000   |  |          |           | 645,000    |  |               |           | 118.9              |                     |   |       | 78.8 | %
|                     | Hotel (91.5%) |               | Los Angeles, CA |                    | Dec. 2001 |           |         | 600,000   |  |          |           | 546,000    |  |               |           | 75.2               |                     |   |       | n/a  |  
|                     |               |               |                 |                    |           |           |         |           |  |          |           |            |  |               |           |                    |                     |   |       |      |   |  |  | 
|                     |               |               |                 |                    |           |           |         |           |  |          | 1,245,000 |            |  |               | 1,191,000 |                    |                     |   | 194.1 |      |   |  |  | 
|                     |               |               |                 |                    |           |           |         |           |  |          |           |            |  |               |           |                    |                     |   |       |      |   |  |  | 
|                     |               |               |                 |                    |           |           |         |           |  |          | 2,285,000 |            |  |               | 2,076,000 |                    |                     | $ | 487.7 |      |   |  |  | 
|                     |               |               |                 |                    |           |           |         |           |  |          |           |            |  |               |           |                    |                     |   |       |      |   |  |  | 

Hollywood & Highland and Desert Passage depend on tourism for a
significant portion of their visitors. The September 11, 2001 terrorist
attacks and the continuing threat of terrorism impact the levels of visitors at
both projects. Further, the unaffiliated owners of the Aladdin Hotel and
Casino, which adjoins Desert Passage, filed for Chapter 11 reorganization in
September 2001 and continues to operate while under the supervision of the
bankruptcy court. Appraisals indicated that the value of these properties and
other residual land had declined as of December 31, 2001. Accordingly we
recorded an allowance for loss in the amount of $239.4 million in the fourth
quarter of 2001 to reduce the carrying value of these properties.

The results of operations of both projects have not met the levels
expected in 2002 and we believe the fair value of these properties has declined
further. Accordingly, an additional provision for loss in the amount of $238.4
million, consisting of $181.4 million for Hollywood & Highland (including the
hotel) and $57.0 million for Desert Passage, was recorded in the quarter ended
September 30, 2002, based on internal valuations. Further, we anticipate that
it will take considerably longer than originally expected to stabilize these
properties. We plan to hold both of these projects until we determine that we
can realize an acceptable level of value upon disposition As a result, both
properties were reclassified from properties held for disposition to properties
held for the long term as of September 30, 2002.

Dispositions

In 2002, we sold five office properties, two technology centers, refusal
rights and remnant lands generating net proceeds of $149.0 million and $140.1
million after debt repayment. In 2001, we sold four office properties and a
land site which generated net proceeds, after debt repayment, of $110.2
million. In 2000, we sold twelve properties which generated net proceeds,
after debt repayment, of $205.2 million.

Subsequent to the end of 2002, we sold Paseo Colorado in Pasadena,
California for $113.5 million, Goddard Corporate Park in Lanham, Maryland for
$18.3 million, New Center One in Detroit, Michigan for $7.5 million and Rosslyn
Gateway in Arlington, Virginia for $54.5 million.

Acquisitions

On April 19, 2002, in connection with the corporate reorganization,
TrizecHahn Corporation contributed its investment in Chelsfield plc, a UK real
estate company whose shares are listed on the London Stock Exchange, to us at
TrizecHahn Corporations value of approximately $89 million. We owned
approximately 19.5 million or 6.9% of the outstanding ordinary shares of
Chelsfield plc. In consideration for the ordinary shares of Chelsfield plc we
received, we issued 49,330 shares of our Class C Convertible Preferred Stock to
TrizecHahn Corporation at a value of approximately $54 million and TrizecHahn
Corporation retired a $35 million non-interest bearing advance from

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us. On December 5, 2002, we sold our investment in Chelsfield plc for
approximately $76.6 million and realized a loss of approximately $12.7 million.

On April 12, 2002, TrizecHahn Corporation transferred its interest in 151
Front Street in Toronto, Ontario, to us for approximately $29.6 million in
cash. We have recorded the property at approximately $29.1 million, which is
TrizecHahn Corporations historical cost basis. Consistent with TrizecHahn
Corporations classification at December 31, 2001, we have classified 151 Front
Street as held for disposition.

TrizecHahn Corporation had investments in private equity and venture
capital funds managed by Borealis Capital Corporation and in Borealis Capital
Corporation, which we collectively refer to as Borealis. On April 30, 2002,
TrizecHahn Corporation contributed its investment in Borealis to us in exchange
for 3,909 shares of our Class C Convertible Preferred Stock valued at
approximately $4.3 million. During the year, we received approximately $3.7
million related to the disposition of a portion of our interest in Borealis.

On June 4, 2002, we acquired the remaining 75% interest in Ernst & Young
Plaza in Los Angeles for an aggregate of $115.1 million of which, after the
assumption of debt and other net liabilities, we paid $35.9 million.
Additionally, we acquired the remaining ground leases related to two of our
Chicago office properties for $7.2 million, of which $4.0 million was financed
by new debt. During 2001, we acquired three office properties within our core
markets and partially acquired the ground leases at the two Chicago properties
for $202.7 million with financing of $48.5 million. During 2000, we acquired
three technology development properties for $86.3 million.

On December 3, 1997, we purchased a subordinated mortgage collateralized
by the Sears Tower in Chicago for $70 million and became the residual
beneficiary of the trust that holds title to the Sears Tower. The Sears Tower
is currently 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 the participating
first mortgage, were to be distributed to us as the residual beneficiary. We
are awaiting the conveyance of title from Sears. The balance of the first
mortgage, including accrued interest but excluding the lenders participating
interest in cash flow, is $769.2 million at December 31, 2002. We anticipate
that, upon conveyance of the title, we will consolidate the assets, liabilities
and results of operations of the Sears Tower.

Financing Activities

During the year ended December 31, 2002, we used $430.9 million in our
financing activities. During 2001, we generated $361.3 million and during 2000
we used $70.6 million of cash related to our financing activities. During
2002, property refinancing generated proceeds of $189.2 million compared to
$1.4 billion in the prior year, primarily when we issued $1.4 billion of
commercial mortgage backed securities and retired $1.2 billion of existing
debt. In 2000, we completed $60.9 million of property refinancings.
Reflecting the completion of development activities in 2002, we had development
financing of $70.6 million for the current year as compared to $227.2 million
in 2001 and $36.2 million in 2000. Debt repaid on disposition was $8.8 million
during 2002, $1.3 million in 2001 and $221.7 million in 2000, in each case
relating to the disposition activity discussed previously. During the year
ended December 31, 2002, we drew, on a net basis, $90.0 million on our
revolving line of credit and collected $112.7 million on our advances to parent
which, when combined with existing cash, was used primarily to fund
distributions to TrizecHahn of $643.2 million for a net distribution of $530.5
million in connection with the corporate reorganization. Additionally, we paid
$40.2 million of dividends to our shareholders subsequent to the reorganization
and advanced $35.0 million to our parent during the first quarter of 2002. In
2001, we had no draws on our revolving line of credit but did pay $499.0
million cash dividends and advanced $384.1 million to our parent and in 2000,
we advanced $143.9 million to our parent.

At December 31, 2002 our consolidated debt was approximately $3.3 billion.
The weighted average interest rate on our debt was 5.45% and the weighted
average maturity was approximately 4.7 years. The table that follows
summarizes the mortgage and other loan debt at December 31, 2002 and December
31, 2001:

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|                                              |                                             |                        |   |           |             |   |   |           |           |   | 
|--------------------------------------------- | ------------------------------------------- | ---------------------- | - | --------- | ----------- | - | - | --------- | --------- | - | 
|                                              |                                             |                        |   |           | December 31
|                                              |                                             |                        |   |           |            
|Debt Summary                                  |                                             | 2002                   |   | 2001     
|                                              |                                             |                        |   |          
|                                              |                                             | (dollars in thousands)
|Balance:                                      |                                             |                        |   |           |             |   |   |          
|                                              | Fixed rate                                  |                        | $ | 2,210,879 |             |   | $ | 2,128,064 |          
|                                              | Variable rate subject to interest rate caps |                        |   | 120,000   |             |   |   |          |          
|                                              | Variable rate                               |                        |   | 1,014,359 |             |   |   | 889,734   |          
|                                              |                                             |                        |   |           |             |   |   |          
|                                              |                                             | Total                  |   | $         | 3,345,238   |   |   | $         | 3,017,798 |  
|                                              |                                             |                        |   |           |             |   |   |          
|                                              | Collateralized property                     |                        | $ | 3,285,212 |             |   | $ | 2,992,772 |          
|                                              | Other loans                                 |                        |   | 60,026    |             |   |   | 25,026    |          
|                                              |                                             |                        |   |           |             |   |   |          
|                                              |                                             | Total                  |   | $         | 3,345,238   |   |   | $         | 3,017,798 |  
|                                              |                                             |                        |   |           |             |   |   |          
|Percent of total debt:                        |                                             |                        |   |           |             |   |   |          
|                                              | Fixed rate                                  |                        |   | 66.1      | %           |   |   | 70.5      | %        
|                                              | Variable rate subject to interest rate caps |                        |   | 3.6       | %           |   |   |          |          
|                                              | Variable rate                               |                        |   | 30.3      | %           |   |   | 29.5      | %        
|                                              |                                             |                        |   |           |             |   |   |          
|                                              |                                             | Total                  |   |           | 100.0       | % |   |           | 100.0     | %
|                                              |                                             |                        |   |           |             |   |   |          
|Weighted average interest rate at period end: |                                             |                        |   |           |             |   |   |          
|                                              | Fixed rate                                  |                        |   | 6.72      | %           |   |   | 6.91      | %        
|                                              | Variable rate subject to interest rate caps |                        |   | 4.17      | %           |   |   |          |          
|                                              | Variable rate                               |                        |   | 2.84      | %           |   |   | 3.01      | %        
|                                              |                                             |                        |   |           |             |   |   |          
|                                              |                                             | Total                  |   |           | 5.45        | % |   |           | 5.76      | %
|                                              |                                             |                        |   |           |             |   |   |          
|                                              |                                             |                        |   |           |             |   |   |          
|Leverage ratio:                               |                                             |                        |   |           |             |   |   |          
|                                              | Net debt to net debt plus book equity       |                        |   | 63.6      | %           |   |   | 52.8      | %        
|                                              |                                             |                        |   |           |             |   |   |          

At December 31, 2002 we had fixed the interest rates on $150.0 million
(December 31, 2001  $150.0 million) of the debt classified as fixed in the
above table by way of interest rate swap contracts with a weighted average
interest rate of 6.02% and maturing on March 15, 2008.

We have entered into interest rate cap contracts expiring June 2004 on
$120.0 million of variable rate debt, which limit the underlying LIBOR interest
rate to 6.5%. At December 31, 2002, the fair value of these interest rate cap
contracts was nominal. In addition, and not reclassified in the table above,
we have entered into an interest rate cap contract expiring April 2004 on
$584.7 million of U.S. dollar variable rate debt, which limits the underlying
LIBOR rate to 11.01% The fair value of this interest rate cap contract was
nominal at December 31, 2002.

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 less cash and cash equivalents, or net debt, to the sum of net
debt and the book value of shareholders and owners equity.

At December 31, 2002, a non-recourse loan secured by New Center One in
Detroit, Michigan, which is held in a joint venture, was in default. On
February 24, 2003, the joint venture sold the property and repaid the loan.

Subsequent to December 31, 2002, the lender for our remaining technology
property forwarded a notice of default related to debt service on the $17.9
million construction facility. We are in discussions with the lender as we
believe the loan is not in default and provides for further draws to fund debt
service. This loan is not cross-defaulted to any other of our loans and is
scheduled to mature in October 2003.

The increase in our leverage ratio from December 31, 2001 to December 31,
2002 resulted primarily from an increased amount of net debt combined with a
reduction of our book equity related to distributions required by the corporate
reorganization and a net loss for the twelve months ended December 31, 2002.

The table below segregates debt repayments between loans collateralized by
our office and retail properties and our other loans.

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|                                                    |                    |   |                        |           |        |   |         |         |       |   |        |        |  |   |           |           | 
|--------------------------------------------------- | ------------------ | - | ---------------------- | --------- | ------ | - | ------- | ------- | ----- | - | ------ | ------ |  | - | --------- | --------- | 
|                                                    |                    |   | Mortgage Debt          |           |        |   |         |         |       |   |       
|                                                    |                    |   |                        |           | Other  |   |         |         |      
|                                                    |                    |   | Office                 |           | Retail |   | Loans   |         | Total
|                                                    |                    |   |                        |           |        |   |         |         |      
|                                                    |                    |   | (dollars in thousands)
|Principal repayments due in                         |                    |   |                        |           |        |   |         |         |       |   |        |        |  |   |           |          
|                                                    | Balance of 2003    |   | $                      | 121,153   |        |   | $       | 74,778  |       |   | $      | 2,547  |  |   | $         | 198,478   | 
|                                                    | 2004               |   |                        | 571,816   |        |   |         | 145,525 |       |   |        | 1,259  |  |   |           | 718,600   | 
|                                                    | 2005               |   |                        | 109,454   |        |   |         | 178,011 |       |   |        | 1,362  |  |   |           | 288,827   | 
|                                                    | 2006               |   |                        | 724,160   |        |   |         |        |       |   |        | 8,590  |  |   |           | 732,750   | 
|                                                    | 2007               |   |                        | 108,882   |        |   |         |        |       |   |        | 784    |  |   |           | 109,666   | 
|                                                    | Subsequent to 2007 |   |                        | 1,251,433 |        |   |         |        |       |   |        | 45,484 |  |   |           | 1,296,917 | 
|                                                    |                    |   |                        |           |        |   |         |         |       |   |        |        |  |   |           |          
|Total                                               |                    | $ | 2,886,898              |           |        | $ | 398,314 |         |       | $ | 60,026 |        |  | $ | 3,345,238 |          
|                                                    |                    |   |                        |           |        |   |         |         |       |   |        |        |  |   |           |          
|                                                    |                    |   |                        |           |        |   |         |         |       |   |        |        |  |   |           |          
|Weighted average interest rate at
December 31, 2002 |                    |   | 5.70                   | %         |        |   | 3.62    | %       |       |   | 5.77   | %      |  |   | 5.45      | %        
|                                                    |                    |   |                        |           |        |   |         |         |       |   |        |        |  |   |           |          
|                                                    |                    |   |                        |           |        |   |         |         |       |   |        |        |  |   |           |          
|Weighted average term to maturity                   |                    |   | 4.5                    |           |        |   | 1.7     |         |       |   | 32.4   |        |  |   | 4.7       |          
|                                                    |                    |   |                        |           |        |   |         |         |       |   |        |        |  |   |           |          
|                                                    |                    |   |                        |           |        |   |         |         |       |   |        |        |  |   |           |          
|Percentage of fixed rate debt                       |                    |   | 74.6                   | %         |        |   |        |         |       |   | 97.8   | %      |  |   | 66.1      | %        
|                                                    |                    |   |                        |           |        |   |         |         |       |   |        |        |  |   |           |          

Some of our collateralized loans are cross-collateralized or subject to
cross-default or cross-acceleration provisions with other loans. Due to our
intention to dispose of our retail/entertainment centers, the mortgage debt
relating to these properties is all on a floating rate basis.

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. At December
31, 2002, our pro rata share of this debt amounted to approximately $343.7
million (December 31, 2001  $351.1 million).

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, 2002, approximately
69.7% or $2.3 billion (including variable rate debt subject to interest rate
caps) of our outstanding debt had fixed interest rates, which minimizes the
interest rate risk until the maturity of such outstanding debt.

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, 2002, we had hedge
contracts totaling $150.0 million. The hedging agreements convert variable
rate debt at LIBOR + 0.37% to a fixed rate of 6.01% and mature on March 15,
2008. In January 2003, we entered into two forward interest rate hedging
contracts, to convert $500.0 million of variable rate debt into fixed rate
debt, at an average rate of 2.61% effective July 2003. These hedging contracts
are not reflected in the chart above. 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, 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.

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At December 31, 2002, our total outstanding debt was approximately $3.3
billion, of which approximately $1.0 billion was variable rate debt after the
impact of the hedge agreements. At December 31, 2002, the average interest
rate on variable rate debt was approximately 2.99%. Taking the hedging
agreements into consideration, if market interest rates on our variable rate
debt were to increase by 10% (or approximately 30 basis points), the increase
in interest expense on the variable rate debt would decrease future earnings
and cash flows by approximately $3.0 million annually. If market rates of
interest increased by 10%, the fair value of the total debt outstanding would
decrease by approximately $78.0 million.

If market rates of interest on the variable rate debt were to decrease by
10% (or approximately 30 basis points), the decrease in interest expense on the
variable rate debt would increase future earnings and cash flows by
approximately $3.0 million annually. If market rates of interest decrease by
10%, the fair value of the total outstanding debt would increase by
approximately $26.1 million.

At December 31, 2001, our total outstanding debt was approximately $3.0
billion, of which approximately $889.7 million was variable rate debt after the
impact of the hedge agreements. At December 31, 2001, the average interest
rate on variable rate debt was approximately 3.0%. Taking the hedging
agreements into consideration, if market interest rates on our variable rate
debt were to increase by 10% (or approximately 30 basis points), the increase
in interest expense on the variable rate debt would decrease future earnings
and cash flows by approximately $2.7 million annually. If market rates of
interest increased by 10%, the fair value of the total debt outstanding would
decrease by approximately $55.7 million.

If market rates of interest on the variable rate debt were to decrease by
10% (or approximately 30 basis points), the decrease in interest expense on the
variable rate debt would increase future earnings and cash flows by
approximately $2.7 million annually. If market rates of interest decrease by
10%, the fair value of the total outstanding debt would increase by
approximately $58.1 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 addition to the acquisition from TrizecHahn of our investment in
Chelsfield plc, 151 Front Street and our investment in Borealis, as previously
discussed, we have certain arrangements with our parent company.

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.

For the years 2002, 2001 and 2000, 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 $10.9 million, $7.1 million and
$7.4 million for the years ended December 31, 2002, 2001 and 2000,
respectively.

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,

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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.

Competition

The leasing of real estate is highly competitive. We compete for tenants
with lessors, sublessors and developers of similar properties located in our
respective markets primarily on the basis of location, rent charged,
concessions offered, 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.

Environmental Matters

We believe, based on our internal reviews and other factors, that the
future costs relating to environmental remediation and compliance will not have
a material adverse effect on our financial position, results of operations or
liquidity. For a discussion of environmental matters, see
Item 1. Business 
Environmental Matters and Item 1. Business  Risk Factors  Environmental
problems at our properties are possible and may be costly in this Form 10-K.

Newly Issued Accounting Standards

On October 3, 2001, the Financial Accounting Standards Board, or FASB,
issued Statement of Financial Accounting Standards, or SFAS, No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets. SFAS No. 144
supersedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of. SFAS No. 144 applies to all
long-lived assets (including discontinued operations) and consequently amends
Accounting Principles Board Opinion No. 30, or APB 30, Reporting Results of
Operations  Reporting the Effects of Disposal of a Segment of a Business.
SFAS No. 144 requires that long-lived assets that are to be disposed of by sale
be measured at the lower of book value or fair value less cost to sell. Under
SFAS No. 144, certain conditions are required to be met for a property to be
classified as held for disposition. Under the transitional rules of the
standard, properties held for disposition as at the date of adoption are
required to satisfy these conditions within one year of adoption. Properties
currently held for disposition that do not meet such conditions by December 31,
2002 must be reclassified from held for disposition to held for the long term
at that date. Reclassification, if any, is measured at the lower of the
assets carrying amount before it was classified as held for disposition,
adjusting for any depreciation that would have been recognized had the asset
been continuously classified as held and used, and fair value at the date of
reclassification. We adopted this standard on January 1, 2002.

On April 30, 2002, the FASB issued SFAS No. 145, Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections. SFAS No. 145 rescinds both SFAS No. 4, Reporting Gains and
Losses from Extinguishment of Debt and the amendment to SFAS No. 4, No. 64,
Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements. SFAS No.
145 eliminates the requirement that gains and losses from the extinguishment of
debt be aggregated and, if material, classified as an extraordinary item, net
of the related income tax effect, unless the criteria in APB 30 are met. SFAS
No. 145 is effective for transactions occurring subsequent to May 15, 2002.
SFAS No. 145 will not have any impact on us beyond classification of loss on
early debt retirement, which was previously shown as an extraordinary item.

On June 28, 2002, the FASB issued SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities. SFAS No. 146 addresses
significant issues relating to the recognition, measurement and reporting of
costs associated with exit and disposal activities of a business.
Additionally, SFAS 146 addresses restructuring activities and nullifies the
guidance in Emerging Issues Task Force Issue No. 94-3 Liability Recognition
for Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including the Certain

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Costs Incurred in a Restructuring). SFAS No. 146 is effective for
transactions initiated after December 31, 2002. We will adopt this standard on
January 1, 2003 and expect no impact with respect to the adoption of this
standard.

On December 31, 2002, the FASB issued SFAS No. 148, Accounting for
Stock-Based Compensation  Transition and Disclosure, amending SFAS No. 123,
Accounting for Stock-Based Compensation. SFAS No. 148 provides two
additional alternative transition methods for recognizing an entitys voluntary
decision to change its method of accounting for stock-based employee
compensation to the fair-value method. In addition, SFAS No. 148 amends the
disclosure requirements of SFAS No. 123 so that entities will have to make
more-prominent disclosures regarding the pro forma effects of using the
fair-value method of accounting for stock-based compensation, present those
disclosures in a more accessible format in the footnotes to the annual
financial statements, and include those disclosures in interim financial
statements. SFAS No. 148s transition guidance and provisions for annual
disclosures are effective for fiscal years ending after December 15, 2002;
earlier application is permitted. The provisions for interim-period
disclosures are effective for financial reports that contain financial
statements for interim periods beginning after December 15, 2002.

In November 2002, the FASB issued FASB Interpretation No. 45, or FIN No.
45, Guarantors Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others. This interpretation
expands the disclosures to be made by a guarantor in its financial statements
about its obligations under certain guarantees and requires the guarantor to
recognize a liability for the fair value of an obligation assumed under a
guarantee. FIN No. 45 clarifies the requirements of SFAS No. 5, Accounting
for Contingencies, relating to guarantees. In general, FIN No. 45 applies to
contracts or indemnification agreements that contingently require the guarantor
to make payments to the guaranteed party based on changes in an underlying that
is related to an asset, liability, or equity security of the guaranteed party.
The disclosure requirements of FIN No. 45 are effective with respect to us as
of December 31, 2002, and require disclosure of the nature of the guarantee,
the maximum potential amount of future payments that the guarantor could be
required to make under the guarantee, and the current amount of the liability,
if any, for the guarantors obligations under the guarantee. The recognition
requirements of FIN No. 45 are to be applied prospectively to guarantees issued
or modified after December 31, 2002. We do not expect the requirements of FIN
No. 45 to have a material impact on results of operations, financial position
or liquidity.

In January 2003, the FASB issued FASB Interpretation No. 46, or FIN No.
46, Consolidation of Variable Interest Entities. The objective of this
interpretation is to provide guidance on how to identify a variable interest
entity, or VIE, and determine when the assets, liabilities, non-controlling
interests, and results of operations of a VIE need to be included in a
companys consolidated financial statements. A company that holds variable
interests in an entity will need to consolidate the entity if the companys
interest in the VIE is such that the company will absorb a majority of the
VIEs expected losses and/or receive a majority of the entitys expected
residual returns, if they occur. FIN No. 46 also requires additional
disclosures by primary beneficiaries and other significant variable interest
holders. In connection with any unconsolidated real estate joint ventures that
may qualify as a VIE, provisions of this interpretation are effective for
financial reports that contain interim periods beginning after June 15, 2003.
We are currently assessing all investments in unconsolidated real estate joint
ventures to determine whether the adoption of this interpretation will 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

We believe that funds from operations, as defined by the Board of
Governors of the National Association of Real Estate Investment Trusts, or
NAREIT, is an appropriate measure of performance for an equity REIT. The White
Paper on Funds from Operations approved by NAREIT in April 2002 defines funds
from operations as net income (loss), computed in accordance with GAAP,
excluding gains (or losses) from debt restructuring and sales of properties,
plus real estate related depreciation and amortization and after adjustments
for unconsolidated

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partnerships and joint ventures. We compute funds from operations as loss
(income) before income taxes, minority interest, loss (income) from
unconsolidated real estate joint ventures, discontinued operations, gain (loss)
on disposition of real estate, extraordinary items and cumulative impact of a
change in accounting policy (computed in accordance with GAAP) adjusted for
unconsolidated real estate joint ventures and discontinued operations, real
estate related depreciation and amortization and current operating taxes, in
accordance with the standards established by NAREIT. In addition, we eliminate
the effects of provision for loss on real estate and provision for and loss on
investments because they are not representative of our real estate operations.
We believe that funds from operations is helpful to investors as a measure of
the performance of an equity REIT because, along with cash flows from operating
activities, financing activities and investing activities, it provides
investors with an indication of our ability to incur and service debt, to make
capital expenditures and to fund other cash needs. Our computation of funds
from operations 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 from the
way we interpret it. Funds from operations 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 flows 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.

The following table reflects the calculation of funds from operations for
the years ended December 31, 2002, 2001 and 2000:

|                                                                                                                                                                                                                                                                                                   |                                                                                                                                              |   |                                 |         |      |   |         |         |   |   |         |         |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------- | - | ------------------------------- | ------- | ---- | - | ------- | ------- | - | - | ------- | ------- | -
|                                                                                                                                                                                                                                                                                                   |                                                                                                                                              |   | For the years ended December 31
|                                                                                                                                                                                                                                                                                                   |                                                                                                                                              |   |                                
|                                                                                                                                                                                                                                                                                                   |                                                                                                                                              |   | 2002                            |         | 2001 |   | 2000   
|                                                                                                                                                                                                                                                                                                   |                                                                                                                                              |   |                                 |         |      |   |        
|                                                                                                                                                                                                                                                                                                   |                                                                                                                                              |   | (dollars in thousands)         
|(Loss) income before income taxes, minority interest,
(loss) income from unconsolidated real estate joint
ventures, recovery on insurance claim, discontinued
operations, gain (loss) on disposition of real estate,
extraordinary items and cumulative effect of a change
in accounting principle |                                                                                                                                              | $ | (151,778                        | )       |      | $ | (83,931 | )       |   | $ | 71,199  |        
|                                                                                                                                                                                                                                                                                                   |                                                                                                                                              |   |                                 |         |      |   |         |         |   |   |         |        
|Add/(deduct):                                                                                                                                                                                                                                                                                      |                                                                                                                                              |   |                                 |         |      |   |         |         |   |   |         |        
|                                                                                                                                                                                                                                                                                                   | Provision for loss on real estate                                                                                                            |   |                                 | 199,455 |      |   |         | 258,091 |   |   |         | 3,677   |  
|                                                                                                                                                                                                                                                                                                   | Provision for and loss on investments excluding
provision for loss on securities investments                                                 |   |                                 | 60,784  |      |   |         |        |   |   |         |        |  
|                                                                                                                                                                                                                                                                                                   | Income from unconsolidated real estate joint
ventures excluding provision for loss on
investment ($58,880, 46,900 and 0)                     |   |                                 | 11,249  |      |   |         | 12,952  |   |   |         | 19,417  |  
|                                                                                                                                                                                                                                                                                                   | Depreciation and amortization (real estate
related) including share of unconsolidated real
estate joint ventures and discontinued operations |   |                                 | 190,397 |      |   |         | 174,850 |   |   |         | 161,841 |  
|                                                                                                                                                                                                                                                                                                   | Income from discontinued operations                                                                                                          |   |                                 | 3,212   |      |   |         | 3,400   |   |   |         | 3,589   |  
|                                                                                                                                                                                                                                                                                                   | Current operating taxes                                                                                                                      |   |                                 | (4,896  | )    |   |         | (4,869  | ) |   |         | (9,406  | )
|                                                                                                                                                                                                                                                                                                   |                                                                                                                                              |   |                                 |         |      |   |         |         |   |   |         |        
|Funds from operations                                                                                                                                                                                                                                                                              |                                                                                                                                              |   | 308,423                         |         |      |   | 360,493 |         |   |   | 250,317 |        
|                                                                                                                                                                                                                                                                                                   |                                                                                                                                              |   |                                 |         |      |   |         |         |   |   |         |        
|Dividends paid to holders of special voting shareholders                                                                                                                                                                                                                                           |                                                                                                                                              |   | (866                            | )       |      |   |        |         |   |   |        |        
|                                                                                                                                                                                                                                                                                                   |                                                                                                                                              |   |                                 |         |      |   |         |         |   |   |         |        
|                                                                                                                                                                                                                                                                                                   |                                                                                                                                              |   |                                 |         |      |   |         |         |   |   |         |        
|Funds from operations available to common shareholders                                                                                                                                                                                                                                             |                                                                                                                                              | $ | 307,557                         |         |      | $ | 360,493 |         |   | $ | 250,317 |        
|                                                                                                                                                                                                                                                                                                   |                                                                                                                                              |   |                                 |         |      |   |         |         |   |   |         |        




Item 7A.     Quantitative and Qualitative Disclosures About Market Risk

Information about quantitative and qualitative disclosure 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.

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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.




PART III




Item 10.     Directors and Executive Officers

Information relating to executive officers, directors and nominees for
director of Trizec and compliance with Section 16(a) of the Securities Exchange
Act of 1934 is set forth under the captions Proposal 1  Election of Directors
and Section 16(a) Beneficial Ownership Reporting Compliance, respectively, in
the Proxy Statement for the Annual Meeting of Stockholders to be held on May
29, 2003. Such information is incorporated herein by reference.




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 Stock Performance Graph in
the Proxy Statement referred to in Item 10 above. Such information is
incorporated herein by reference.




Item 12.     Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters

Information relating to ownership of our common stock by certain persons
is set forth under the caption Security Ownership of Certain Beneficial Owners
and Management in the Proxy Statement referred to in Item 10 above. Such
information is incorporated herein by reference. Information regarding
securities authorized for issuance under our equity compensation plans is set
forth under the caption Compensation of Directors and Executive
Officers  Equity Compensation Plan Information in the Proxy Statement referred
to in Item 10 above. Such information 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 Proxy Statement referred to in
Item 10 above. Such information is incorporated herein by reference.




Item 14.     Controls and Procedures

(a)  Evaluation of disclosure controls and procedures.Our chief executive
officer and acting co-chief financial officers are responsible for establishing
and maintaining disclosure controls and procedures (as defined in the
Securities Exchange Act of 1934 Rules 13a-14(c) and 15d-14(c)) for our company.
Our disclosure controls and procedures include our internal controls, as
that term is used in Section 302 of the Sarbanes-Oxley Act of 2002 and
described in the Securities and Exchange Commissions Release No. 34-46427
(August 29, 2002). Our chief executive officer and our acting co-chief
financial officers, after evaluating the effectiveness of our disclosure
controls and procedures as of a date within 90 days before the filing date of
this annual report, have concluded that our disclosure controls and procedures
are adequate and effective in timely alerting them to material information
relating to us (including our consolidated subsidiaries) required to be
included in our periodic SEC filings.

(b)  Changes in internal controls.During our financial reporting process for the year ended
December 31, 2002, we identified an internal control deficiency
in our consolidation process relating to the reconciliation of
intercompany accounts, which our independent accountants deemed to be
a reportable condition under standards established by the
American Institute of Certified Public Accountants. We evaluated this
matter and concluded that it has not had any material impact on our
financial statements. We are developing procedures to address this
deficiency, and anticipate that implementation of such procedures
will be completed in 2003. Other than as discussed above, there were no
significant changes in our internal controls or in other factors that
could significantly affect those controls subsequent to the date of
the evaluation. Consistent with the provisions and spirit of the
Sarbanes-Oxley Act and the rules and regulations of the SEC
thereunder, we maintain a process of continuous review of our
internal controls to improve and enhance them, with the assistance of
both our internal audit staff and our independent accountants.

66



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PART IV




Item 15.     Exhibits,
Financial Statement Schedules and Reports on Form 8-K

(a) Financial Statements and Financial Statement Schedules

See Index to Financial Statements on page F-1 of this Form 10-K.

(b) Reports on Form 8-K

We filed a current report on Form 8-K on November 22, 2002 in which we filed
under Item 5 a news release regarding the resignation of Gregory Hanson as our
chief financial officer.

(c) Exhibits

|        |  |                                                                                                                                                                                                                                                                                                                               
|------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                                                                                                                               
|Number  |  | Description                                                                                                                                                                                                                                                                                                                   
|        |  |                                                                                                                                                                                                                                                                                                                               
|2.1     |  | Arrangement Agreement dated as of March 8, 2002 by and among
TrizecHahn Corporation, Trizec Canada Inc., 4007069 Canada Inc.
and Trizec Properties, Inc. (incorporated herein 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
herein 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 herein
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 herein by reference to Exhibit 4.4 to
Trizec Properties, Inc.s Registration Statement on Form S-8, File
No. 333-87548).                                               
|        |  |                                                                                                                                                                                                                                                                                                                               
|3.3     |  | Amended and Restated Bylaws of Trizec Properties, Inc.
(incorporated herein 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     |  | Form of Common Stock Certificates (incorporated herein 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 herein 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 herein by reference to Exhibit 4.3 to Trizec
Properties, Inc.s Registration Statement on Form 10, File No.
001-16765).                                                                                                                         
|        |  |                                                                                                                                                                                                                                                                                                                               
|10.1    |  | Employment Agreement for Christopher Mackenzie (incorporated
herein by reference to Exhibit 10.1 to Trizec Properties, Inc.s
Registration Statement on Form 10, File No. 001-16765).                                                                                                                                         
|        |  |                                                                                                                                                                                                                                                                                                                               
|10.2    |  | Employment Agreement for Gregory Hanson (incorporated herein by
reference to Exhibit 10.2 to Trizec Properties, Inc.s
Registration Statement on Form 10, File No. 001-16765).                                                                                                                                                
|        |  |                                                                                                                                                                                                                                                                                                                               
|10.3    |  | Employment Agreement for Lee Wagman (incorporated herein by
reference to Exhibit 10.3 to Trizec Properties, Inc.s
Registration Statement on Form 10, File No. 001-16765).                                                                                                                                                    

67



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|        |  |                                                                                                                                                                                                                                                                                                                                                    
|------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                                                                                                                                                    
|Number  |  | Description                                                                                                                                                                                                                                                                                                                                        
|        |  |                                                                                                                                                                                                                                                                                                                                                    
|        |  |                                                                                                                                                                                                                                                                                                                                                    
|10.4    |  | Letter Agreement for Casey Wold (incorporated herein by reference
to Exhibit 10.4 to Trizec Properties, Inc.s Registration
Statement on Form 10, File No. 001-16765).                                                                                                                                                                             
|        |  |                                                                                                                                                                                                                                                                                                                                                    
|10.5    |  | Trizec Deferred Compensation Plan and Trust Agreement
(incorporated herein by reference to Exhibit 10.5 to Trizec
Properties, Inc.s Registration Statement on Form 10, File No.
001-16765).                                                                                                                                                       
|        |  |                                                                                                                                                                                                                                                                                                                                                    
|10.6    |  | TrizecHahn Developments Inc. Deferred Compensation Plan and Trust
Agreement (incorporated herein by reference to Exhibit 10.6 to
Trizec Properties, Inc.s Registration Statement on Form 10, File
No. 001-16765).                                                                                                                                 
|        |  |                                                                                                                                                                                                                                                                                                                                                    
|10.7    |  | Form of 2002 Trizec Properties, Inc. Stock Option Plan
(incorporated herein by reference to Exhibit 10.7 to Trizec
Properties, Inc.s Registration Statement on Form 10, File No.
001-16765).                                                                                                                                                      
|        |  |                                                                                                                                                                                                                                                                                                                                                    
|10.8    |  | General Agreement dated as of November 7, 1994 by and among
Metropolitan Life Insurance Company, AEW Partners, L.P., Partners
Tower, L.P., Tower Leasing, Inc., Sears, Roebuck and Co. and ST
Holdings, Inc. (incorporated herein by reference to Exhibit 10.8
to Trizec Properties, Inc.s Registration Statement on Form 10,
File No. 001-16765).
|        |  |                                                                                                                                                                                                                                                                                                                                                    
|10.9    |  | Employment Agreement dated August 14, 2002 between Timothy H.
Callahan and Trizec Properties, Inc. (incorporated herein by
reference to Exhibit 10.1 to Trizec Properties, Inc.s Quarterly
Report on Form 10-Q for the quarter ended September 30, 2002).                                                                                         
|        |  |                                                                                                                                                                                                                                                                                                                                                    
|10.10   |  | Resignation Agreement dated August 15, 2002 between Christopher
Mackenzie, Trizec Properties, Inc. and PM Capital Corp.
(incorporated herein by reference to Exhibit 10.2 to Trizec
Properties, Inc.s Quarterly Report on Form 10-Q for the quarter
ended September 30, 2002).                                                                    
|        |  |                                                                                                                                                                                                                                                                                                                                                    
|10.11  |  | Resignation Agreement dated December 9, 2002 between Gregory
Hanson and Trizec Properties, Inc.                                                                                                                                                                                                                                                    
|        |  |                                                                                                                                                                                                                                                                                                                                                    
|10.12  |  | Cancellation of Employment and Mutual Release Agreement dated
January 17, 2003 between Lee Wagman and Trizec Properties, Inc.                                                                                                                                                                                                                      
|        |  |                                                                                                                                                                                                                                                                                                                                                    
|10.13  |  | Amended and Restated Credit Agreement dated as of December 18,
2002 among Trizec Properties, Inc., as Borrower, various Lenders a
party thereto from time to time, and Deutsche Bank Trust Company
Americas, as Administrative Agent.                                                                                                              
|        |  |                                                                                                                                                                                                                                                                                                                                                    
|10.14  |  | 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.                                                                                                                                     
|        |  |                                                                                                                                                                                                                                                                                                                                                    
|10.15  |  | Canadian Tax Cooperation Agreement dated as of May 8, 2002 between
TrizecHahn Office Properties Ltd. and Trizec Properties, Inc.                                                                                                                                                                                                                   
|        |  |                                                                                                                                                                                                                                                                                                                                                    
|21.1    |  | Subsidiaries of Trizec Properties, Inc. (incorporated herein by
reference to Exhibit 21.1 to Trizec Properties, Inc.s
Registration Statement on Form 10, File No. 001-16765).                                                                                                                                                                     
|        |  |                                                                                                                                                                                                                                                                                                                                                    
|23.1   |  | Consent of PricewaterhouseCoopers LLP.                                                                                                                                                                                                                                                                                                             
|        |  |                                                                                                                                                                                                                                                                                                                                                    
|24.1   |  | Powers of Attorney.                                                                                                                                                                                                                                                                                                                                



---

| |  | Filed herewith.
|- |  | ---------------

68



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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 26, 2003 |  |                                                
|                     |  | By: /s/ Timothy H. Callahan                    
|                     |  |                                                
|                     |  | Timothy H. Callahan                            
|                     |  | President, 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 26, 2003 |  | /s/ Timothy H. Callahan                                                                                  
|                                         |  |                |  |                                                                                                          
|                                         |  |                |  | Timothy H. Callahan                                                                                      
|                                         |  |                |  | President, Chief Executive Officer and Director
(Principal executive officer)                            
|                                         |  |                |  |                                                                                                          
|                                         |  |                |  | /s/ Jeffrey D. Echt                                                                                      
|                                         |  |                |  |                                                                                                          
|                                         |  |                |  | Jeffrey D. Echt                                                                                          
|                                         |  |                |  | Senior Vice President, Finance and Treasury
(Principal financial officer)                                
|                                         |  |                |  |                                                                                                          
|                                         |  |                |  | /s/ Joanne E. Ranger                                                                                     
|                                         |  |                |  |                                                                                                          
|                                         |  |                |  | Joanne E. Ranger                                                                                         
|                                         |  |                |  | Senior Vice President and Chief Accounting Officer
(Principal financial and principal accounting officer)
|                                         |  |                |  |                                                                                                          
|                                         |  |                |  | /s/ Peter Munk*                                                                                          
|                                         |  |                |  |                                                                                                          
|                                         |  |                |  | Peter Munk                                                                                               
|                                         |  |                |  | Chairman of the Board of Directors                                                                       
|                                         |  |                |  |                                                                                                          
|                                         |  |                |  | /s/Brian Mulroney*                                                                                       
|                                         |  |                |  |                                                                                                          
|                                         |  |                |  | Brian Mulroney                                                                                           
|                                         |  |                |  | Director                                                                                                 
|                                         |  |                |  |                                                                                                          
|                                         |  |                |  | /s/ Glenn Rufrano*                                                                                       
|                                         |  |                |  |                                                                                                          
|                                         |  |                |  | Glenn Rufrano                                                                                            
|                                         |  |                |  | Director                                                                                                 
|                                         |  |                |  |                                                                                                          
|                                         |  |                |  | /s/ Richard Thompson*                                                                                    
|                                         |  |                |  |                                                                                                          
|                                         |  |                |  | Richard Thomson                                                                                          
|                                         |  |                |  | Director                                                                                                 
|                                         |  |                |  |                                                                                                          
|(signatures continued on following page)

69



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| |  |  |  |                                                                                         
| |  |  |  | ----------------------------------------------------------------------------------------
| |  |  |  | /s/ Polyvios Vintiadis*                                                                 
| |  |  |  |                                                                                         
| |  |  |  | Polyvios Vintiadis                                                                      
| |  |  |  | Director                                                                                
| |  |  |  |                                                                                         
| |  |  |  | /s/ Stephen Volk*                                                                       
| |  |  |  |                                                                                         
| |  |  |  | Stephen Volk                                                                            
| |  |  |  | Director                                                                                
| |  |  |  |                                                                                         
| |  |  |  | /s/ Casey Wold*                                                                         
| |  |  |  |                                                                                         
| |  |  |  | Casey Wold                                                                              
| |  |  |  | Executive Vice President, Chief Operating
Officer, Chief Investment Officer and
Director
| |  |  |  |                                                                                         
| |  |  |  | *By: /s/ Jeffrey D. Echt                                                                
| |  |  |  |                                                                                         
| |  |  |  | Jeffrey D. Echt                                                                         
| |  |  |  | as Attorney-in-Fact                                                                     

70



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##### Table of Contents






CERTIFICATIONS

I, Timothy H. Callahan, President and Chief Executive Officer, certify that:



|1. |  | I have reviewed this annual report on Form 10-K of Trizec
Properties, Inc.;                                                                                                                                                                                                                                             
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this annual report does not contain
any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading
with respect to the period covered by this annual report;
|  
|3. |  | Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly present
in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the
periods presented in this annual report;                   
|  
|4. |  | The registrants other certifying officers and I are
responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for
the registrant and have:                                                                                                  



| | a) |  | designed such disclosure controls and procedures
to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly
during the period in which this annual report is being
prepared;
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | evaluated the effectiveness of the registrants
disclosure controls and procedures as of a date within 90 days
prior to the filing date of this annual report (the
Evaluation Date); and                                                                                                  
|
| | c) |  | presented in this annual report our conclusions
about the effectiveness of the disclosure controls and
procedures based on our evaluation as of the Evaluation Date;                                                                                                                        



|5. |  | The registrants other certifying officers and I have
disclosed, based on our most recent evaluation, to the registrants
auditors and the audit committee of registrants board of directors
(or persons performing the equivalent functions):
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | all significant deficiencies in the design or
operation of internal controls which could adversely affect
the registrants ability to record, process, summarize and
report financial data and have identified for the registrants
auditors any material weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | any fraud, whether or not material, that involves
management or other employees who have a significant role in
the registrants internal controls; and                                                                                                                                        



|6. |  | The registrants other certifying officers and I have
indicated in this annual report whether there were significant
changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of our
most recent evaluation, including any corrective actions with regard
to significant deficiencies and material weaknesses.
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Date: March 26, 2003



| | /s/ Timothy H. Callahan
Timothy H. Callahan
President and Chief Executive Officer
| | ---------------------------------------------------------------------------------

71



---



##### Table of Contents



I, Jeffrey Echt, Senior Vice President, Finance and Treasury, certify that:



|1. |  | I have reviewed this annual report on Form 10-K of Trizec
Properties, Inc.;                                                                                                                                                                                                                                             
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this annual report does not contain
any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading
with respect to the period covered by this annual report;
|  
|3. |  | Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly present
in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the
periods presented in this annual report;                   
|  
|4. |  | The registrants other certifying officers and I are
responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for
the registrant and have:                                                                                                  



| | a) |  | designed such disclosure controls and procedures
to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly
during the period in which this annual report is being
prepared;
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | evaluated the effectiveness of the registrants
disclosure controls and procedures as of a date within 90 days
prior to the filing date of this annual report (the
Evaluation Date); and                                                                                                  
|
| | c) |  | presented in this annual report our conclusions
about the effectiveness of the disclosure controls and
procedures based on our evaluation as of the Evaluation Date;                                                                                                                        



|5. |  | The registrants other certifying officers and I have
disclosed, based on our most recent evaluation, to the registrants
auditors and the audit committee of registrants board of directors
(or persons performing the equivalent functions):
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | all significant deficiencies in the design or
operation of internal controls which could adversely affect
the registrants ability to record, process, summarize and
report financial data and have identified for the registrants
auditors any material weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | any fraud, whether or not material, that involves
management or other employees who have a significant role in
the registrants internal controls; and                                                                                                                                        



|6. |  | The registrants other certifying officers and I have
indicated in this annual report whether there were significant
changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of our
most recent evaluation, including any corrective actions with regard
to significant deficiencies and material weaknesses.
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Date: March 26, 2003



| | /s/ Jeffrey D. Echt
Jeffrey D. Echt
Senior Vice President, Finance and Treasury
| | -------------------------------------------------------------------------------

72



---



##### Table of Contents



I, Joanne Ranger, Senior Vice President and Chief Accounting Officer, certify
that:



|1. |  | I have reviewed this annual report on Form 10-K of Trizec
Properties, Inc.;                                                                                                                                                                                                                                             
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this annual report does not contain
any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading
with respect to the period covered by this annual report;
|  
|3. |  | Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly present
in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the
periods presented in this annual report;                   
|  
|4. |  | The registrants other certifying officers and I are
responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for
the registrant and have:                                                                                                  



| | a) |  | designed such disclosure controls and procedures
to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly
during the period in which this annual report is being
prepared;
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | evaluated the effectiveness of the registrants
disclosure controls and procedures as of a date within 90 days
prior to the filing date of this annual report (the
Evaluation Date); and                                                                                                  
|
| | c) |  | presented in this annual report our conclusions
about the effectiveness of the disclosure controls and
procedures based on our evaluation as of the Evaluation Date;                                                                                                                        



|5. |  | The registrants other certifying officers and I have
disclosed, based on our most recent evaluation, to the registrants
auditors and the audit committee of registrants board of directors
(or persons performing the equivalent functions):
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | all significant deficiencies in the design or
operation of internal controls which could adversely affect
the registrants ability to record, process, summarize and
report financial data and have identified for the registrants
auditors any material weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | any fraud, whether or not material, that involves
management or other employees who have a significant role in
the registrants internal controls; and                                                                                                                                        



|6. |  | The registrants other certifying officers and I have
indicated in this annual report whether there were significant
changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of our
most recent evaluation, including any corrective actions with regard
to significant deficiencies and material weaknesses.
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Date: March 26, 2003



| | /s/ Joanne E. Ranger
Joanne E. Ranger
Senior Vice President and Chief Accounting
Officer
| | ----------------------------------------------------------------------------------------

73



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##### Table of Contents



INDEX OF EXHIBITS

|        |  |                                                                                                                                                                                                                                                                                                                               
|------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                                                                                                                               
|Number  |  | Description                                                                                                                                                                                                                                                                                                                   
|        |  |                                                                                                                                                                                                                                                                                                                               
|2.1     |  | Arrangement Agreement dated as of March 8, 2002 by and among
TrizecHahn Corporation, Trizec Canada Inc., 4007069 Canada Inc.
and Trizec Properties, Inc. (incorporated herein 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
herein 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 herein
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 herein by reference to Exhibit 4.4 to
Trizec Properties, Inc.s Registration Statement on Form S-8, File
No. 333-87548).                                               
|        |  |                                                                                                                                                                                                                                                                                                                               
|3.3     |  | Amended and Restated Bylaws of Trizec Properties, Inc.
(incorporated herein 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     |  | Form of Common Stock Certificates (incorporated herein 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 herein 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 herein by reference to Exhibit 4.3 to Trizec
Properties, Inc.s Registration Statement on Form 10, File No.
001-16765).                                                                                                                         
|        |  |                                                                                                                                                                                                                                                                                                                               
|10.1    |  | Employment Agreement for Christopher Mackenzie (incorporated
herein by reference to Exhibit 10.1 to Trizec Properties, Inc.s
Registration Statement on Form 10, File No. 001-16765).                                                                                                                                         
|        |  |                                                                                                                                                                                                                                                                                                                               
|10.2    |  | Employment Agreement for Gregory Hanson (incorporated herein by
reference to Exhibit 10.2 to Trizec Properties, Inc.s
Registration Statement on Form 10, File No. 001-16765).                                                                                                                                                
|        |  |                                                                                                                                                                                                                                                                                                                               
|10.3    |  | Employment Agreement for Lee Wagman (incorporated herein by
reference to Exhibit 10.3 to Trizec Properties, Inc.s
Registration Statement on Form 10, File No. 001-16765).                                                                                                                                                    
|        |  |                                                                                                                                                                                                                                                                                                                               
|10.4    |  | Letter Agreement for Casey Wold (incorporated herein by reference
to Exhibit 10.4 to Trizec Properties, Inc.s Registration
Statement on Form 10, File No. 001-16765).                                                                                                                                                        
|        |  |                                                                                                                                                                                                                                                                                                                               
|10.5    |  | Trizec Deferred Compensation Plan and Trust Agreement
(incorporated herein by reference to Exhibit 10.5 to Trizec
Properties, Inc.s Registration Statement on Form 10, File No.
001-16765).                                                                                                                                  
|        |  |                                                                                                                                                                                                                                                                                                                               
|10.6    |  | TrizecHahn Developments Inc. Deferred Compensation Plan and Trust
Agreement (incorporated herein by reference to Exhibit 10.6 to
Trizec Properties, Inc.s Registration Statement on Form 10, File
No. 001-16765).                                                                                                            
|        |  |                                                                                                                                                                                                                                                                                                                               
|10.7    |  | Form of 2002 Trizec Properties, Inc. Stock Option Plan
(incorporated herein by reference to Exhibit 10.7 to Trizec
Properties, Inc.s Registration Statement on Form 10, File No.
001-16765).                                                                                                                                 

74



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##### Table of Contents



|        |  |                                                                                                                                                                                                                                                                                                                                                    
|------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                                                                                                                                                    
|Number  |  | Description                                                                                                                                                                                                                                                                                                                                        
|        |  |                                                                                                                                                                                                                                                                                                                                                    
|10.8    |  | General Agreement dated as of November 7, 1994 by and among
Metropolitan Life Insurance Company, AEW Partners, L.P., Partners
Tower, L.P., Tower Leasing, Inc., Sears, Roebuck and Co. and ST
Holdings, Inc. (incorporated herein by reference to Exhibit 10.8
to Trizec Properties, Inc.s Registration Statement on Form 10,
File No. 001-16765).
|        |  |                                                                                                                                                                                                                                                                                                                                                    
|10.9    |  | Employment Agreement dated August 14, 2002 between Timothy H.
Callahan and Trizec Properties, Inc. (incorporated herein by
reference to Exhibit 10.1 to Trizec Properties, Inc.s Quarterly
Report on Form 10-Q for the quarter ended September 30, 2002).                                                                                         
|        |  |                                                                                                                                                                                                                                                                                                                                                    
|10.10   |  | Resignation Agreement dated August 15, 2002 between Christopher
Mackenzie, Trizec Properties, Inc. and PM Capital Corp.
(incorporated herein by reference to Exhibit 10.2 to Trizec
Properties, Inc.s Quarterly Report on Form 10-Q for the quarter
ended September 30, 2002).                                                                    
|        |  |                                                                                                                                                                                                                                                                                                                                                    
|10.11  |  | Resignation Agreement dated December 9, 2002 between Gregory
Hanson and Trizec Properties, Inc.                                                                                                                                                                                                                                                    
|        |  |                                                                                                                                                                                                                                                                                                                                                    
|10.12  |  | Cancellation of Employment and Mutual Release Agreement dated
January 17, 2003 between Lee Wagman and Trizec Properties, Inc.                                                                                                                                                                                                                      
|        |  |                                                                                                                                                                                                                                                                                                                                                    
|10.13  |  | Amended and Restated Credit Agreement dated as of December 18,
2002 among Trizec Properties, Inc., as Borrower, various Lenders a
party thereto from time to time, and Deutsche Bank Trust Company
Americas, as Administrative Agent.                                                                                                              
|        |  |                                                                                                                                                                                                                                                                                                                                                    
|10.14  |  | 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.                                                                                                                                     
|        |  |                                                                                                                                                                                                                                                                                                                                                    
|10.15  |  | Canadian Tax Cooperation Agreement dated as of May 8, 2002 between
TrizecHahn Office Properties Ltd. and Trizec Properties, Inc.                                                                                                                                                                                                                   
|        |  |                                                                                                                                                                                                                                                                                                                                                    
|21.1    |  | Subsidiaries of Trizec Properties, Inc. (incorporated herein by
reference to Exhibit 21.1 to Trizec Properties, Inc.s
Registration Statement on Form 10, File No. 001-16765).                                                                                                                                                                     
|        |  |                                                                                                                                                                                                                                                                                                                                                    
|23.1   |  | Consent of PricewaterhouseCoopers LLP.                                                                                                                                                                                                                                                                                                             
|        |  |                                                                                                                                                                                                                                                                                                                                                    
|24.1   |  | Powers of Attorney.                                                                                                                                                                                                                                                                                                                                



---

| |  | Filed herewith.
|- |  | ---------------

75



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##### Table of Contents



INDEX TO FINANCIAL STATEMENTS

|                                                                                                                                                                                                                                                                  |  |      |      | 
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ---- | 
|                                                                                                                                                                                                                                                                  |  | Page
|                                                                                                                                                                                                                                                                  |  |     
|Report of Independent Accountants                                                                                                                                                                                                                                 |  |      | F-2  | 
|Consolidated Balance Sheets at December 31, 2002 and 2001 (at
December 31, 2001, the Balance Sheet was referred to as combined and
consolidated)                                                                                                                  |  |      | F-3  | 
|Consolidated Statements of Operations for the years ended December
31, 2002, 2001 and 2000 (for the years ended December 31, 2001 and
2000, the Statements of Operations were referred to as combined and
consolidated)                                           |  |      | F-5  | 
|Consolidated Statements of Comprehensive (Loss) Income for the years
ended December 31, 2002, 2001 and 2000 (for the years ended December
31, 2001 and 2000, the Statements of Comprehensive (Loss) Income were
referred to as combined and consolidated)         |  |      | F-7  | 
|Consolidated Statements of Changes in Shareholders Equity for the
years ended December 31, 2002, 2001 and 2000 (for the years ended
December 31, 2001 and 2000, the Statements of Changes in
Shareholders Equity were referred to as combined and consolidated) |  |      | F-8  | 
|Consolidated Statements of Cash Flows for the years ended December
31, 2002, 2001 and 2000 (for the years ended December 31, 2001 and
2000, the Statements of Cash Flows were referred to as combined and
consolidated)                                           |  |      | F-10 | 
|Notes to the Consolidated Financial Statements                                                                                                                                                                                                                    |  |      | F-13 | 
|Schedule III  Real Estate and Accumulated Depreciation                                                                                                                                                                                                           |  |      | F-53 | 
|Schedule  TrizecHahn Hollywood Hotel LLC financial statements                                                                                                                                                                                                    |  |      | F-59 | 

The Corporation is providing financial statements for TrizecHahn Hollywood
Hotel LLC (Hollywood Hotel) for the years ended December 31, 2002 and 2001
for the purpose of complying with Rule 3-09 of Securities and Exchange
Commission Regulation S-X. The Corporation has determined that Hollywood Hotel
is a significant subsidiary 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 exceeds 20% of
such income of the Corporation.

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



---



##### Table of Contents



Report of Independent Accountants

To the Shareholders and Directors of
      Trizec Properties, Inc.

In our opinion, the consolidated financial statements listed in the
accompanying index on page F-1 present fairly, in all material respects, the
financial position of Trizec Properties, Inc. at December 31, 2002 and 2001 and
the results of their operations and their cash flows for each of the three years in
the period ended December 31, 2002 in conformity with accounting principles
generally accepted in the United States of America. In addition, in our
opinion, the consolidated financial statement schedule listed in the
accompanying index 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 the
financial statement schedule are the responsibility of the Corporations
management; our responsibility is to express an opinion on these financial
statements and the financial statement schedule based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States of America, which 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.

As discussed in Note 2 to the consolidated financial statements, the
Corporation, on January 1, 2001, adopted Statement of Financial Accounting
Standards No. 133, Accounting for Derivative Instruments and Hedging
Activities, as amended and interpreted, and on January 1, 2002 adopted the
provisions of Statement of Financial Accounting Standards No. 144, Accounting
for the Impairment or Disposal of Long-Lived Assets.

/s/ PricewaterhouseCoopers LLP

Chicago, Illinois
February 25, 2003

F-2



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##### Table of Contents



Consolidated Balance Sheets at December 31, 2002 and 2001

|                                                                                                   |                                |      |             |          |   |   |           |          |  
|-------------------------------------------------------------------------------------------------- | ------------------------------ | ---- | ----------- | -------- | - | - | --------- | -------- | -
|                                                                                                   |                                |      | December 31
|                                                                                                   |                                |      |            
|$ thousands, except share and per share amounts                                                    |                                | 2002 |             | 2001    
|                                                                                                   |                                |      |             |         
|Assets                                                                                             |                                |      |             |          |   |   |           |         
|Real estate                                                                                        |                                | $    | 5,389,013   |          |   | $ | 5,399,031 |         
|                                                                                                   | Less: accumulated depreciation |      |             | (565,350 | ) |   |           | (438,584 | )
|                                                                                                   |                                |      |             |          |   |   |           |         
|Real estate, net                                                                                   |                                |      | 4,823,663   |          |   |   | 4,960,447 |         
|Cash and cash equivalents                                                                          |                                |      | 62,253      |          |   |   | 297,434   |         
|Escrows and restricted cash                                                                        |                                |      | 46,798      |          |   |   | 28,180    |         
|Investment in unconsolidated real estate joint ventures                                            |                                |      | 220,583     |          |   |   | 289,242   |         
|Investment in Sears Tower                                                                          |                                |      | 23,600      |          |   |   | 70,000    |         
|Office tenant receivables (net of allowance for
doubtful accounts of $9,181, $8,320, respectively) |                                |      | 26,536      |          |   |   | 33,308    |         
|Other receivables (net of allowance for doubtful
accounts of $9,124, $9,902, respectively)         |                                |      | 20,499      |          |   |   | 34,201    |         
|Deferred rent receivables (net of allowance for
doubtful accounts of $6,080, $6,209, respectively) |                                |      | 131,395     |          |   |   | 99,515    |         
|Deferred charges, net                                                                              |                                |      | 144,127     |          |   |   | 138,054   |         
|Prepaid expenses and other assets                                                                  |                                |      | 79,805      |          |   |   | 55,421    |         
|Advances to parent and affiliated companies                                                        |                                |      |            |          |   |   | 90,633    |         
|                                                                                                   |                                |      |             |          |   |   |           |         
|Total Assets                                                                                       |                                | $    | 5,579,259   |          |   | $ | 6,096,435 |         
|                                                                                                   |                                |      |             |          |   |   |           |         

F-3



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##### Table of Contents



Consolidated Balance Sheets at December 31, 2002 and 2001 (Continued)

|                                                           |                                                                                                                                                                            |      |             |           |  |   |           |           | 
|---------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---- | ----------- | --------- |  | - | --------- | --------- | 
|                                                           |                                                                                                                                                                            |      | December 31
|                                                           |                                                                                                                                                                            |      |            
|$ thousands, except share and per share amounts            |                                                                                                                                                                            | 2002 |             | 2001     
|                                                           |                                                                                                                                                                            |      |             |          
|                                                           |                                                                                                                                                                            |      |             |           |  |   |           |          
|Liabilities and Shareholders Equity                       |                                                                                                                                                                            |      |             |           |  |   |           |          
|                                                           |                                                                                                                                                                            |      |             |           |  |   |           |          
|Liabilities                                                |                                                                                                                                                                            |      |             |           |  |   |           |          
|Mortgage debt and other loans                              |                                                                                                                                                                            | $    | 3,345,238   |           |  | $ | 3,017,798 |          
|Trade, construction and tenant improvements payables       |                                                                                                                                                                            |      | 53,816      |           |  |   | 91,646    |          
|Accrued interest expense                                   |                                                                                                                                                                            |      | 12,931      |           |  |   | 12,007    |          
|Accrued operating expenses and property taxes              |                                                                                                                                                                            |      | 93,057      |           |  |   | 108,276   |          
|Other accrued liabilities                                  |                                                                                                                                                                            |      | 83,263      |           |  |   | 76,266    |          
|Taxes payable                                              |                                                                                                                                                                            |      | 109,949     |           |  |   | 113,862   |          
|Advances from parent and affiliated companies              |                                                                                                                                                                            |      |            |           |  |   | 236,619   |          
|                                                           |                                                                                                                                                                            |      |             |           |  |   |           |          
|Total Liabilities                                          |                                                                                                                                                                            |      | 3,698,254   |           |  |   | 3,656,474 |          
|                                                           |                                                                                                                                                                            |      |             |           |  |   |           |          
|                                                           |                                                                                                                                                                            |      |             |           |  |   |           |          
|Commitments and Contingencies                              |                                                                                                                                                                            |      |             |           |  |   |           |          
|                                                           |                                                                                                                                                                            |      |             |           |  |   |           |          
|Minority Interest                                          |                                                                                                                                                                            |      | 2,540       |           |  |   | 4,386     |          
|                                                           |                                                                                                                                                                            |      |             |           |  |   |           |          
|Redeemable Stock                                           |                                                                                                                                                                            |      | 200         |           |  |   | 200       |          
|                                                           |                                                                                                                                                                            |      |             |           |  |   |           |          
|                                                           |                                                                                                                                                                            |      |             |           |  |   |           |          
|Shareholders Equity                                       |                                                                                                                                                                            |      |             |           |  |   |           |          
|                                                           | Series B Convertible Preferred Stock, no shares
authorized at December 31, 2002, $1.00 par value, no
shares issued and outstanding at December 31, 2002
(2001 - 1,100,000) |      |             |          |  |   |           | 1,100,000 | 
|                                                           | Class C Convertible Preferred Stock, no shares
authorized at December 31, 2002, $1.00 par value, no
shares issued and outstanding at December 31, 2002
(2001 - 376,504)    |      |             |          |  |   |           | 414,154   | 
|                                                           | Common Stock, 500,000,000 shares authorized at December
31, 2002, $0.01 par value, 150,029,664 outstanding at
December 31, 2002 (2001 - 38,220,000)                        |      |             | 1,500     |  |   |           | 382       | 
|                                                           | Additional paid in capital                                                                                                                                                 |      |             | 2,181,958 |  |   |           | 922,844   | 
|Retained (deficit) earnings                                |                                                                                                                                                                            |      | (285,482    | )         |  |   | 6,514     |          
|Treasury stock, at cost, 3,646 shares at December 31, 2002 |                                                                                                                                                                            |      | (40         | )         |  |   |          |          
|Unearned compensation                                      |                                                                                                                                                                            |      | (3,593      | )         |  |   | (6,701    | )        
|Accumulated other comprehensive loss                       |                                                                                                                                                                            |      | (16,078     | )         |  |   | (1,818    | )        
|                                                           |                                                                                                                                                                            |      |             |           |  |   |           |          
|Total Shareholders Equity                                 |                                                                                                                                                                            |      | 1,878,265   |           |  |   | 2,435,375 |          
|                                                           |                                                                                                                                                                            |      |             |           |  |   |           |          
|Total Liabilities and Shareholders Equity                 |                                                                                                                                                                            | $    | 5,579,259   |           |  | $ | 6,096,435 |          
|                                                           |                                                                                                                                                                            |      |             |           |  |   |           |          

See accompanying notes to the financial statements

F-4



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##### Table of Contents



Consolidated Statements of Operations

|                                                                                                                                                                                                                                                                                                   |                                                 |      |                                 |         |   |      |          |         |  |   |         |         | 
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------- | ---- | ------------------------------- | ------- | - | ---- | -------- | ------- |  | - | ------- | ------- | 
|                                                                                                                                                                                                                                                                                                   |                                                 |      | For the years ended December 31
|                                                                                                                                                                                                                                                                                                   |                                                 |      |                                
|$ thousands, except share and per share amounts                                                                                                                                                                                                                                                    |                                                 | 2002 |                                 | 2001    |   | 2000
|                                                                                                                                                                                                                                                                                                   |                                                 |      |                                 |         |   |     
|Revenues                                                                                                                                                                                                                                                                                           |                                                 |      |                                 |         |   |      |          |         |  |   |         |        
|                                                                                                                                                                                                                                                                                                   | Rentals                                         |      | $                               | 698,005 |   |      | $        | 655,414 |  |   | $       | 649,743 | 
|                                                                                                                                                                                                                                                                                                   | Recoveries from tenants                         |      |                                 | 121,697 |   |      |          | 115,653 |  |   |         | 92,456  | 
|                                                                                                                                                                                                                                                                                                   | Parking and other                               |      |                                 | 108,970 |   |      |          | 110,624 |  |   |         | 94,297  | 
|                                                                                                                                                                                                                                                                                                   | Fee income                                      |      |                                 | 9,771   |   |      |          | 11,490  |  |   |         | 13,570  | 
|                                                                                                                                                                                                                                                                                                   | Interest                                        |      |                                 | 8,679   |   |      |          | 15,626  |  |   |         | 8,431   | 
|                                                                                                                                                                                                                                                                                                   |                                                 |      |                                 |         |   |      |          |         |  |   |         |        
|Total revenues                                                                                                                                                                                                                                                                                     |                                                 |      | 947,122                         |         |   |      | 908,807  |         |  |   | 858,497 |        
|                                                                                                                                                                                                                                                                                                   |                                                 |      |                                 |         |   |      |          |         |  |   |         |        
|Expenses                                                                                                                                                                                                                                                                                           |                                                 |      |                                 |         |   |      |          |         |  |   |         |        
|                                                                                                                                                                                                                                                                                                   | Operating                                       |      |                                 | 327,620 |   |      |          | 280,039 |  |   |         | 260,566 | 
|                                                                                                                                                                                                                                                                                                   | Property taxes                                  |      |                                 | 100,229 |   |      |          | 91,125  |  |   |         | 87,285  | 
|                                                                                                                                                                                                                                                                                                   | General and administrative                      |      |                                 | 44,935  |   |      |          | 25,854  |  |   |         | 18,429  | 
|                                                                                                                                                                                                                                                                                                   | Interest                                        |      |                                 | 192,660 |   |      |          | 148,821 |  |   |         | 260,381 | 
|                                                                                                                                                                                                                                                                                                   | Depreciation and amortization                   |      |                                 | 171,083 |   |      |          | 157,059 |  |   |         | 150,280 | 
|                                                                                                                                                                                                                                                                                                   | Stock option grant expense                      |      |                                 | 5,214   |   |      |          |        |  |   |         |        | 
|                                                                                                                                                                                                                                                                                                   | Reorganization costs/recovery                   |      |                                 | (3,260  | ) |      |          | 15,922  |  |   |         | 6,680   | 
|                                                                                                                                                                                                                                                                                                   | Derivative losses                               |      |                                 | 180     |   |      |          | 456     |  |   |         |        | 
|                                                                                                                                                                                                                                                                                                   | Provision for loss on real estate               |      |                                 | 199,455 |   |      |          | 258,091 |  |   |         | 3,677   | 
|                                                                                                                                                                                                                                                                                                   | Provision for and loss on investments           |      |                                 | 60,784  |   |      |          | 15,371  |  |   |         |        | 
|                                                                                                                                                                                                                                                                                                   |                                                 |      |                                 |         |   |      |          |         |  |   |         |        
|Total expenses                                                                                                                                                                                                                                                                                     |                                                 |      | 1,098,900                       |         |   |      | 992,738  |         |  |   | 787,298 |        
|                                                                                                                                                                                                                                                                                                   |                                                 |      |                                 |         |   |      |          |         |  |   |         |        
|(Loss) Income before Income Taxes, Minority Interest,
(Loss) Income from Unconsolidated Real Estate Joint
Ventures, Recovery on Insurance Claim, Discontinued
Operations, Gain (Loss) on Disposition of Real Estate,
Extraordinary Items and Cumulative Effect of a Change in
Accounting Principle |                                                 |      | (151,778                        | )       |   |      | (83,931  | )       |  |   | 71,199  |        
|(Provision) benefit from income and other corporate taxes                                                                                                                                                                                                                                          |                                                 |      | (4,896                          | )       |   |      | (13,795  | )       |  |   | 252,840 |        
|Minority interest                                                                                                                                                                                                                                                                                  |                                                 |      | 1,766                           |         |   |      | 433      |         |  |   | 580     |        
|(Loss) income from unconsolidated real estate joint
ventures including provision for loss on investment
($58,880, $46,900 and $0)                                                                                                                                                                  |                                                 |      | (47,631                         | )       |   |      | (33,948  | )       |  |   | 19,417  |        
|Recovery on insurance claim                                                                                                                                                                                                                                                                        |                                                 |      | 3,480                           |         |   |      |         |         |  |   |        |        
|                                                                                                                                                                                                                                                                                                   |                                                 |      |                                 |         |   |      |          |         |  |   |         |        
|(Loss) Income from Continuing Operations                                                                                                                                                                                                                                                           |                                                 |      | (199,059                        | )       |   |      | (131,241 | )       |  |   | 344,036 |        
|Discontinued Operations                                                                                                                                                                                                                                                                            |                                                 |      |                                 |         |   |      |          |         |  |   |         |        
|                                                                                                                                                                                                                                                                                                   | Income from discontinued operations             |      |                                 | 3,212   |   |      |          | 3,400   |  |   |         | 3,589   | 
|                                                                                                                                                                                                                                                                                                   | Gain on disposition of discontinued real estate |      |                                 | 4,934   |   |      |          |        |  |   |         |        | 
|                                                                                                                                                                                                                                                                                                   |                                                 |      |                                 |         |   |      |          |         |  |   |         |        
|(Loss) Income Before Gain (Loss) on Disposition of Real
Estate, Extraordinary Items and Cumulative Effect of a
Change in Accounting Principle                                                                                                                                                      |                                                 |      | (190,913                        | )       |   |      | (127,841 | )       |  |   | 347,625 |        
|Gain (loss) on disposition of real estate                                                                                                                                                                                                                                                          |                                                 |      | 2,996                           |         |   |      | (2,053   | )       |  |   | 36,862  |        
|                                                                                                                                                                                                                                                                                                   |                                                 |      |                                 |         |   |      |          |         |  |   |         |        
|(Loss) Income before Extraordinary Items and Cumulative
Effect of a Change in Accounting Principle                                                                                                                                                                                                 |                                                 |      | (187,917                        | )       |   |      | (129,894 | )       |  |   | 384,487 |        
|Loss on early debt retirement                                                                                                                                                                                                                                                                      |                                                 |      |                                |         |   |      | (17,966  | )       |  |   | (1,491  | )      
|Cumulative effect of a change in accounting principle                                                                                                                                                                                                                                              |                                                 |      |                                |         |   |      | (4,631   | )       |  |   |        |        
|                                                                                                                                                                                                                                                                                                   |                                                 |      |                                 |         |   |      |          |         |  |   |         |        
|                                                                                                                                                                                                                                                                                                   |                                                 |      |                                 |         |   |      |          |         |  |   |         |        
|Net (Loss) Income                                                                                                                                                                                                                                                                                  |                                                 |      | (187,917                        | )       |   |      | (152,491 | )       |  |   | 382,996 |        
|                                                                                                                                                                                                                                                                                                   |                                                 |      |                                 |         |   |      |          |         |  |   |         |        
|                                                                                                                                                                                                                                                                                                   |                                                 |      |                                 |         |   |      |          |         |  |   |         |        
|Dividends paid to special voting shareholders                                                                                                                                                                                                                                                      |                                                 |      | (866                            | )       |   |      |         |         |  |   |        |        
|                                                                                                                                                                                                                                                                                                   |                                                 |      |                                 |         |   |      |          |         |  |   |         |        
|                                                                                                                                                                                                                                                                                                   |                                                 |      |                                 |         |   |      |          |         |  |   |         |        
|Net (Loss) Income Available to Common Shareholders                                                                                                                                                                                                                                                 |                                                 | $    | (188,783                        | )       |   | $    | (152,491 | )       |  | $ | 382,996 |        
|                                                                                                                                                                                                                                                                                                   |                                                 |      |                                 |         |   |      |          |         |  |   |         |        

F-5



---



##### Table of Contents



Consolidated Statements of Operations (Continued)

|                                                |         |      |                                 |             |   |      |          |             |   |  |   |             | 
|----------------------------------------------- | ------- | ---- | ------------------------------- | ----------- | - | ---- | -------- | ----------- | - |  | - | ----------- | 
|                                                |         |      | For the years ended December 31
|                                                |         |      |                                
|$ thousands, except share and per share amounts |         | 2002 |                                 | 2001        |   | 2000
|                                                |         |      |                                 |             |   |     
|                                                |         |      |                                 |             |   |      | Proforma
|                                                |         |      |                                 |             |   |      |         
|Earnings per common share                       |         |      |                                 |             |   |      |          |             |   |  |   |            
|                                                | Basic   |      | $                               | (1.26       | ) |      | $        | (1.02       | ) |  | $ | 2.56        | 
|                                                | Diluted |      | $                               | (1.26       | ) |      | $        | (1.02       | ) |  | $ | 2.53        | 
|Weighted average shares outstanding             |         |      |                                 |             |   |      |          |             |   |  |   |            
|                                                | Basic   |      |                                 | 149,477,187 |   |      |          | 149,849,246 |   |  |   | 149,849,246 | 
|                                                | Diluted |      |                                 | 149,477,187 |   |      |          | 149,849,246 |   |  |   | 151,365,979 | 

See accompanying notes to the financial statements

F-6



---



##### Table of Contents



Consolidated Statements of Comprehensive (Loss) Income

|                                                 |                                                                        |                                                                                                              |          |                                 |         |      |          |   |        |   |         |   |        |  
|------------------------------------------------ | ---------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------ | -------- | ------------------------------- | ------- | ---- | -------- | - | ------ | - | ------- | - | ------ | -
|                                                 |                                                                        |                                                                                                              |          | For the years ended December 31
|                                                 |                                                                        |                                                                                                              |          |                                
|$ thousands                                      |                                                                        | 2002                                                                                                         |          | 2001                            |         | 2000
|                                                 |                                                                        |                                                                                                              |          |                                 |         |     
|Net (loss) income                                |                                                                        | $                                                                                                            | (187,917 | )                               |         | $    | (152,491 | ) |        | $ | 382,996 |  
|                                                 |                                                                        |                                                                                                              |          |                                 |         |      |          |   |        |   |         |  
|Other comprehensive (loss) income, before taxes: |                                                                        |                                                                                                              |          |                                 |         |      |          |   |        |   |         |  
|                                                 | Unrealized gains (losses) on investments in securities:                |                                                                                                              |          |                                 |         |      |          |   |        |   |         |   |       
|                                                 |                                                                        | Unrealized holding gains (losses) arising during
the period                                                  |          |                                 | (11,786 | )    |          |   |       |   |         |   | (4,351 | )
|                                                 |                                                                        | Unrealized foreign currency exchange losses
arising during the period                                        |          |                                 | 26      |      |          |   |       |   |         |   |       |  
|                                                 |                                                                        | Realized losses on investment in securities                                                                  |          |                                 | 11,786  |      |          |   |       |   |         |   |       |  
|                                                 |                                                                        | Reclassification adjustment for the cumulative
effect of a change in accounting principle
included in income |          |                                 |        |      |          |   | 4,351  |   |         |   |       |  
|                                                 | Unrealized foreign currency exchange gain (loss) on
foreign operations |                                                                                                              |          | 943                             |         |      |          |  |        |   |         |  |       
|                                                 | Unrealized derivative losses:                                          |                                                                                                              |          |                                 |         |      |          |   |        |   |         |   |       
|                                                 |                                                                        | Effective portion of interest rate contracts                                                                 |          |                                 | (15,229 | )    |          |   | (1,818 | ) |         |   |       |  
|Taxes on other comprehensive income (loss)       |                                                                        |                                                                                                              |         |                                 |         |      |         |   |        |   | 1,716   |  
|Impact of REIT election                          |                                                                        |                                                                                                              |         |                                 |         |      |         |   |        |   | (1,716  | )
|                                                 |                                                                        |                                                                                                              |          |                                 |         |      |          |   |        |   |         |  
|                                                 |                                                                        |                                                                                                              |          |                                 |         |      |          |   |        |   |         |  
|Total other comprehensive (loss) income          |                                                                        |                                                                                                              | (14,260  | )                               |         |      | 2,533    |   |        |   | (4,351  | )
|                                                 |                                                                        |                                                                                                              |          |                                 |         |      |          |   |        |   |         |  
|                                                 |                                                                        |                                                                                                              |          |                                 |         |      |          |   |        |   |         |  
|Net comprehensive (loss) income                  |                                                                        | $                                                                                                            | (202,177 | )                               |         | $    | (149,958 | ) |        | $ | 378,645 |  
|                                                 |                                                                        |                                                                                                              |          |                                 |         |      |          |   |        |   |         |  

See accompanying notes to the financial statements

F-7



---



##### Table of Contents



Consolidated Statements of Changes in Shareholders Equity (Continued)
$ thousands, except share amounts

|                             |                                                                                                 |   |                                                      |          |                      |  |                     |          |              |   |           |            |        |  |           |            |        |   |         |          |   |  |         |          |   |   |     |       |  |  |            |            | 
|---------------------------- | ----------------------------------------------------------------------------------------------- | - | ---------------------------------------------------- | -------- | -------------------- |  | ------------------- | -------- | ------------ | - | --------- | ---------- | ------ |  | --------- | ---------- | ------ | - | ------- | -------- | - |  | ------- | -------- | - | - | --- | ----- |  |  | ---------- | ---------- | 
|                             |                                                                                                 |   | For the years ended December 31, 2002, 2001 and 2000
|                             |                                                                                                 |   |                                                     
|                             |                                                                                                 |   | Series A Convertible                                 |          | Series B Convertible |  | Class C Convertible |          |              |   |           |            |        |  |          
|                             |                                                                                                 |   | Preferred Stock                                      |          | Preferred Stock      |  | Preferred Stock     |          | Common Stock
|                             |                                                                                                 |   |                                                      |          |                      |  |                     |          |             
|                             |                                                                                                 |   | $                                                    |          | Shares               |  | $                   |          | Shares       |   | $         |            | Shares |  | $         |            | Shares
|                             |                                                                                                 |   |                                                      |          |                      |  |                     |          |              |   |           |            |        |  |           |            |       
|Balance at December 31, 1999 |                                                                                                 | $ | 212,000                                              |          |                      |  | 212,000             |          |              | $ | 350,000   |            |        |  | 350,000   |            |        | $ |        |          |   |  |        |          |   | $ |    |       |  |  | 1,068      |           
|                             | Net income                                                                                      |   |                                                      |         |                      |  |                     |         |              |   |           |           |        |  |           |           |        |   |         |         |   |  |         |         |   |   |     |      |  |  |            |           | 
|                             | Escrowed shares granted                                                                         |   |                                                      |         |                      |  |                     |         |              |   |           |           |        |  |           |           |        |   |         |         |   |  |         |         |   |   |     |      |  |  |            |           | 
|                             | Amortization of escrowed
share grants                                                           |   |                                                      |         |                      |  |                     |         |              |   |           |           |        |  |           |           |        |   |         |         |   |  |         |         |   |   |     |      |  |  |            |           | 
|                             | Other comprehensive loss                                                                        |   |                                                      |         |                      |  |                     |         |              |   |           |           |        |  |           |           |        |   |         |         |   |  |         |         |   |   |     |      |  |  |            |           | 
|                             | Issuance of shares                                                                              |   |                                                      |         |                      |  |                     |         |              |   |           | 750,000    |        |  |           | 750,000    |        |   |         |         |   |  |         |         |   |   |     |      |  |  |            |           | 
|Balance at December 31, 2000 |                                                                                                 | $ | 212,000                                              |          |                      |  | 212,000             |          |              | $ | 1,100,000 |            |        |  | 1,100,000 |            |        | $ |        |          |   |  |        |          |   | $ |    |       |  |  | 1,068      |           
|                             | Net loss                                                                                        |   |                                                      |         |                      |  |                     |         |              |   |           |           |        |  |           |           |        |   |         |         |   |  |         |         |   |   |     |      |  |  |            |           | 
|                             | Dividends                                                                                       |   |                                                      |         |                      |  |                     |         |              |   |           |           |        |  |           |           |        |   |         |         |   |  |         |         |   |   |     |      |  |  |            |           | 
|                             | Amortization of escrowed
share grants                                                           |   |                                                      |         |                      |  |                     |         |              |   |           |           |        |  |           |           |        |   |         |         |   |  |         |         |   |   |     |      |  |  |            |           | 
|                             | Other comprehensive income                                                                      |   |                                                      |         |                      |  |                     |         |              |   |           |           |        |  |           |           |        |   |         |         |   |  |         |         |   |   |     |      |  |  |            |           | 
|                             | Conversion to Common Stock                                                                      |   |                                                      | (212,000 | )                    |  |                     | (212,000 | )            |   |           |           |        |  |           |           |        |   |         |         |   |  |         |         |   |   |     |      |  |  |            | 358        | 
|                             | Issuance of shares for cash                                                                     |   |                                                      |         |                      |  |                     |         |              |   |           |           |        |  |           |           |        |   |         | 414,154  |   |  |         | 376,504  |   |   |     |      |  |  |            |           | 
|                             | Exchange of 1,425 shares
for 38,000,000 under
recapitalization plan                             |   |                                                      |         |                      |  |                     |         |              |   |           |           |        |  |           |           |        |   |         |         |   |  |         |         |   |   |     | 380   |  |  |            | 37,998,574 | 
|                             | Issuance of shares in
consideration for net
assets received                                     |   |                                                      |         |                      |  |                     |         |              |   |           |           |        |  |           |           |        |   |         |         |   |  |         |         |   |   |     | 2     |  |  |            | 180,000    | 
|                             | Exchange of Common Stock
for Special Voting Stock
and Class F Convertible
Preferred Stock       |   |                                                      |         |                      |  |                     |         |              |   |           |           |        |  |           |           |        |   |         |         |   |  |         |         |   |   |     |      |  |  |            |           | 
|                             | Issuance of shares as a
donation                                                                |   |                                                      |         |                      |  |                     |         |              |   |           |           |        |  |           |           |        |   |         |         |   |  |         |         |   |   |     |      |  |  |            | 40,000     | 
|                             | Common Stock dividends in
excess of available
retained earnings                                 |   |                                                      |         |                      |  |                     |         |              |   |           |           |        |  |           |           |        |   |         |         |   |  |         |         |   |   |     |      |  |  |            |           | 
|Balance at December 31, 2001 |                                                                                                 | $ |                                                     |          |                      |  |                    |          |              | $ | 1,100,000 |            |        |  | 1,100,000 |            |        | $ | 414,154 |          |   |  | 376,504 |          |   | $ | 382 |       |  |  | 38,220,000 |           
|                             | Net loss                                                                                        |   |                                                      |         |                      |  |                     |         |              |   |           |           |        |  |           |           |        |   |         |         |   |  |         |         |   |   |     |      |  |  |            |           | 
|                             | Dividends                                                                                       |   |                                                      |         |                      |  |                     |         |              |   |           |           |        |  |           |           |        |   |         |         |   |  |         |         |   |   |     |      |  |  |            |           | 
|                             | Amortization of escrowed
share grants                                                           |   |                                                      |         |                      |  |                     |         |              |   |           |           |        |  |           |           |        |   |         |         |   |  |         |         |   |   |     |      |  |  |            |           | 
|                             | Other comprehensive loss                                                                        |   |                                                      |         |                      |  |                     |         |              |   |           |           |        |  |           |           |        |   |         |         |   |  |         |         |   |   |     |      |  |  |            |           | 
|                             | TREHI Settlement of
advances from parent                                                        |   |                                                      |         |                      |  |                     |         |              |   |           |           |        |  |           |           |        |   |         |         |   |  |         |         |   |   |     |      |  |  |            |           | 
|                             | Issuance of shares as
consideration for net
Trizec R & E Holdings,
Inc. (TREHI) assets
received |   |                                                      |         |                      |  |                     |         |              |   |           |           |        |  |           |           |        |   |         | 296,627  |   |  |         | 269,661  |   |   |     |      |  |  |            | 30,317     | 
|                             | Conversion to Common Stock                                                                      |   |                                                      |         |                      |  |                     |         |              |   |           | (1,100,000 | )      |  |           | (1,100,000 | )      |   |         | (769,344 | ) |  |         | (699,404 | ) |   |     | 1,000 |  |  |            | 99,982,556 | 
|                             | Issuance of shares under
recapitalization plan
stock split                                      |   |                                                      |         |                      |  |                     |         |              |   |           |           |        |  |           |           |        |   |         |         |   |  |         |         |   |   |     | 116   |  |  |            | 11,616,637 | 
|                             | Issuance of shares as
consideration for
Chelsfield plc stock
received                           |   |                                                      |         |                      |  |                     |         |              |   |           |           |        |  |           |           |        |   |         | 54,263   |   |  |         | 49,330   |   |   |     |      |  |  |            |           | 

(table continued below)

(table continued from above)

|                             |                                                                                                 |   |                                                      |           |           |   |          |          |              |   |               |   |       |   |         |         |   |   |             |         |   |   |           |          |  
|---------------------------- | ----------------------------------------------------------------------------------------------- | - | ---------------------------------------------------- | --------- | --------- | - | -------- | -------- | ------------ | - | ------------- | - | ----- | - | ------- | ------- | - | - | ----------- | ------- | - | - | --------- | -------- | -
|                             |                                                                                                 |   | For the years ended December 31, 2002, 2001 and 2000
|                             |                                                                                                 |   |                                                     
|                             |                                                                                                 |   |                                                      |           |           |   |          |          |              |   |               |   |       |   |         |         |   |   | Accumulated |         |   |   |          
|                             |                                                                                                 |   | Additional                                           |           | (Deficit) |   |          |          |              |   |               |   |       |   | Other   |         |   |   |            
|                             |                                                                                                 |   | Paid In                                              |           | Retained  |   | Treasury |          | Unearned     |   | Comprehensive |   |       |   |        
|                             |                                                                                                 |   | Capital                                              |           | Earnings  |   | Stock    |          | Compensation |   | Loss          |   | Total
|                             |                                                                                                 |   |                                                      |           |           |   |          |          |              |  
|Balance at December 31, 1999 |                                                                                                 | $ | 978,219                                              |           |           | $ | (10,334  | )        |              | $ |              |   |       | $ |        |         |   | $ |            |         |   | $ | 1,529,885 |         
|                             | Net income                                                                                      |   |                                                      |          |           |   |          | 382,996  |              |   |               |  |       |   |         |        |   |   |             |        |   |   |           | 382,996  |  
|                             | Escrowed shares granted                                                                         |   |                                                      |          |           |   |          |         |              |   |               |  |       |   |         | (12,402 | ) |   |             |        |   |   |           | (12,402  | )
|                             | Amortization of escrowed
share grants                                                           |   |                                                      |          |           |   |          |         |              |   |               |  |       |   |         | 689     |   |   |             |        |   |   |           | 689      |  
|                             | Other comprehensive loss                                                                        |   |                                                      |          |           |   |          |         |              |   |               |  |       |   |         |        |   |   |             | (4,351  | ) |   |           | (4,351   | )
|                             | Issuance of shares                                                                              |   |                                                      |          |           |   |          |         |              |   |               |  |       |   |         |        |   |   |             |        |   |   |           | 750,000  |  
|Balance at December 31, 2000 |                                                                                                 | $ | 978,219                                              |           |           | $ | 372,662  |          |              | $ |              |   |       | $ | (11,713 | )       |   | $ | (4,351      | )       |   | $ | 2,646,817 |         
|                             | Net loss                                                                                        |   |                                                      |          |           |   |          | (152,491 | )            |   |               |  |       |   |         |        |   |   |             |        |   |   |           | (152,491 | )
|                             | Dividends                                                                                       |   |                                                      |          |           |   |          | (213,657 | )            |   |               |  |       |   |         |        |   |   |             |        |   |   |           | (213,657 | )
|                             | Amortization of escrowed
share grants                                                           |   |                                                      |          |           |   |          |         |              |   |               |  |       |   |         | 5,012   |   |   |             |        |   |   |           | 5,012    |  
|                             | Other comprehensive income                                                                      |   |                                                      |          |           |   |          |         |              |   |               |  |       |   |         |        |   |   |             | 2,533   |   |   |           | 2,533    |  
|                             | Conversion to Common Stock                                                                      |   |                                                      | 212,000   |           |   |          |         |              |   |               |  |       |   |         |        |   |   |             |        |   |   |           |         |  
|                             | Issuance of shares for cash                                                                     |   |                                                      |          |           |   |          |         |              |   |               |  |       |   |         |        |   |   |             |        |   |   |           | 414,154  |  
|                             | Exchange of 1,425 shares
for 38,000,000 under
recapitalization plan                             |   |                                                      |          |           |   |          |         |              |   |               |  |       |   |         |        |   |   |             |        |   |   |           | 380      |  
|                             | Issuance of shares in
consideration for net
assets received                                     |   |                                                      | 16,548    |           |   |          |         |              |   |               |  |       |   |         |        |   |   |             |        |   |   |           | 16,550   |  
|                             | Exchange of Common Stock
for Special Voting Stock
and Class F Convertible
Preferred Stock       |   |                                                      | (580      | )         |   |          |         |              |   |               |  |       |   |         |        |   |   |             |        |   |   |           | (580     | )
|                             | Issuance of shares as a
donation                                                                |   |                                                      | 2,000     |           |   |          |         |              |   |               |  |       |   |         |        |   |   |             |        |   |   |           | 2,000    |  
|                             | Common Stock dividends in
excess of available
retained earnings                                 |   |                                                      | (285,343  | )         |   |          |         |              |   |               |  |       |   |         |        |   |   |             |        |   |   |           | (285,343 | )
|Balance at December 31, 2001 |                                                                                                 | $ | 922,844                                              |           |           | $ | 6,514    |          |              | $ |              |   |       | $ | (6,701  | )       |   | $ | (1,818      | )       |   | $ | 2,435,375 |         
|                             | Net loss                                                                                        |   |                                                      |          |           |   |          | (187,917 | )            |   |               |  |       |   |         |        |   |   |             |        |   |   |           | (187,917 | )
|                             | Dividends                                                                                       |   |                                                      |          |           |   |          | (104,079 | )            |   |               |  |       |   |         |        |   |   |             |        |   |   |           | (104,079 | )
|                             | Amortization of escrowed
share grants                                                           |   |                                                      |          |           |   |          |         |              |   |               |  |       |   |         | 3,865   |   |   |             |        |   |   |           | 3,865    |  
|                             | Other comprehensive loss                                                                        |   |                                                      |          |           |   |          |         |              |   |               |  |       |   |         |        |   |   |             | (14,260 | ) |   |           | (14,260  | )
|                             | TREHI Settlement of
advances from parent                                                        |   |                                                      | 236,619   |           |   |          |         |              |   |               |  |       |   |         |        |   |   |             |        |   |   |           | 236,619  |  
|                             | Issuance of shares as
consideration for net
Trizec R & E Holdings,
Inc. (TREHI) assets
received |   |                                                      | (296,627  | )         |   |          |         |              |   |               |  |       |   |         |        |   |   |             |        |   |   |           |         |  
|                             | Conversion to Common Stock                                                                      |   |                                                      | 1,868,344 |           |   |          |         |              |   |               |  |       |   |         |        |   |   |             |        |   |   |           |         |  
|                             | Issuance of shares under
recapitalization plan
stock split                                      |   |                                                      | (117      | )         |   |          |         |              |   |               |  |       |   |         |        |   |   |             |        |   |   |           | (1       | )
|                             | Issuance of shares as
consideration for
Chelsfield plc stock
received                           |   |                                                      |          |           |   |          |         |              |   |               |  |       |   |         |        |   |   |             |        |   |   |           | 54,263   |  

See accompanying notes to the financial statements

F-8



---



##### Table of Contents



Consolidated Statements of Changes in Shareholders Equity (Continued)
$ thousands, except share amounts

|                             |                                                                               |   |                                                      |   |                      |  |                     |   |              |   |   |   |        |  |   |   |        |   |   |       |  |  |   |       |  |   |       |   |  |  |             |         |  
|---------------------------- | ----------------------------------------------------------------------------- | - | ---------------------------------------------------- | - | -------------------- |  | ------------------- | - | ------------ | - | - | - | ------ |  | - | - | ------ | - | - | ----- |  |  | - | ----- |  | - | ----- | - |  |  | ----------- | ------- | -
|                             |                                                                               |   | For the years ended December 31, 2002, 2001 and 2000
|                             |                                                                               |   |                                                     
|                             |                                                                               |   | Series A Convertible                                 |   | Series B Convertible |  | Class C Convertible |   |              |   |   |   |        |  |  
|                             |                                                                               |   | Preferred Stock                                      |   | Preferred Stock      |  | Preferred Stock     |   | Common Stock
|                             |                                                                               |   |                                                      |   |                      |  |                     |   |             
|                             |                                                                               |   | $                                                    |   | Shares               |  | $                   |   | Shares       |   | $ |   | Shares |  | $ |   | Shares
|                             |                                                                               |   |                                                      |   |                      |  |                     |   |              |   |   |   |        |  |   |   |       
|                             | Issuance of shares upon
exercise of warrants and
stock options                |   |                                                      |  |                      |  |                     |  |              |   |   |  |        |  |   |  |        |   |   |      |  |  |   |      |  |   |       | 2 |  |  |             | 183,800 |  
|                             | Issuance of shares as
consideration for
investment in Borealis
received       |   |                                                      |  |                      |  |                     |  |              |   |   |  |        |  |   |  |        |   |   | 4,300 |  |  |   | 3,909 |  |   |       |  |  |  |             |        |  
|                             | Intrinsic value of stock
option grant                                         |   |                                                      |  |                      |  |                     |  |              |   |   |  |        |  |   |  |        |   |   |      |  |  |   |      |  |   |       |  |  |  |             |        |  
|                             | Option expense for
vested options                                             |   |                                                      |  |                      |  |                     |  |              |   |   |  |        |  |   |  |        |   |   |      |  |  |   |      |  |   |       |  |  |  |             |        |  
|                             | Preferred and Common
Stock dividends in
excess of available
retained earnings |   |                                                      |  |                      |  |                     |  |              |   |   |  |        |  |   |  |        |   |   |      |  |  |   |      |  |   |       |  |  |  |             |        |  
|                             | Deemed equity
contribution on
repayment of advances to
parent                 |   |                                                      |  |                      |  |                     |  |              |   |   |  |        |  |   |  |        |   |   |      |  |  |   |      |  |   |       |  |  |  |             |        |  
|                             | Deemed distribution on
acquisition of 151 Front
Street                        |   |                                                      |  |                      |  |                     |  |              |   |   |  |        |  |   |  |        |   |   |      |  |  |   |      |  |   |       |  |  |  |             |        |  
|                             | Treasury shares                                                               |   |                                                      |  |                      |  |                     |  |              |   |   |  |        |  |   |  |        |   |   |      |  |  |   |      |  |   |       |  |  |  |             | (3,646  | )
|                             |                                                                               |   |                                                      |   |                      |  |                     |   |              |   |   |   |        |  |   |   |        |   |   |       |  |  |   |       |  |   |       |   |  |  |             |         |  
|Balance at December 31, 2002 |                                                                               | $ |                                                     |   |                      |  |                    |   |              | $ |  |   |        |  |  |   |        | $ |  |       |  |  |  |       |  | $ | 1,500 |   |  |  | 150,029,664 |        
|                             |                                                                               |   |                                                      |   |                      |  |                     |   |              |   |   |   |        |  |   |   |        |   |   |       |  |  |   |       |  |   |       |   |  |  |             |         |  

(table continued below)

(table continued from above)

|                             |                                                                               |   |                                                      |          |           |   |          |   |              |   |               |     |       |   |        |        |   |   |             |   |  |   |           |          |  
|---------------------------- | ----------------------------------------------------------------------------- | - | ---------------------------------------------------- | -------- | --------- | - | -------- | - | ------------ | - | ------------- | --- | ----- | - | ------ | ------ | - | - | ----------- | - |  | - | --------- | -------- | -
|                             |                                                                               |   | For the years ended December 31, 2002, 2001 and 2000
|                             |                                                                               |   |                                                     
|                             |                                                                               |   |                                                      |          |           |   |          |   |              |   |               |     |       |   |        |        |   |   | Accumulated |   |  |   |          
|                             |                                                                               |   | Additional                                           |          | (Deficit) |   |          |   |              |   |               |     |       |   | Other  |        |   |   |            
|                             |                                                                               |   | Paid In                                              |          | Retained  |   | Treasury |   | Unearned     |   | Comprehensive |     |       |   |       
|                             |                                                                               |   | Capital                                              |          | Earnings  |   | Stock    |   | Compensation |   | Loss          |     | Total
|                             |                                                                               |   |                                                      |          |           |   |          |   |              |   |               |     |      
|                             | Issuance of shares upon
exercise of warrants and
stock options                |   |                                                      | 2,635    |           |   |          |  |              |   |               |    |       |   |        |       |   |   |             |  |  |   |           | 2,637    |  
|                             | Issuance of shares as
consideration for
investment in Borealis
received       |   |                                                      |         |           |   |          |  |              |   |               |    |       |   |        |       |   |   |             |  |  |   |           | 4,300    |  
|                             | Intrinsic value of stock
option grant                                         |   |                                                      | 6,011    |           |   |          |  |              |   |               |    |       |   |        | (6,011 | ) |   |             |  |  |   |           |         |  
|                             | Option expense for
vested options                                             |   |                                                      |         |           |   |          |  |              |   |               |    |       |   |        | 5,214  |   |   |             |  |  |   |           | 5,214    |  
|                             | Preferred 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   |           |   |          |  |              |   |               |    |       |   |        |       |   |   |             |  |  |   |           | 22,113   |  
|                             | Deemed distribution on
acquisition of 151 Front
Street                        |   |                                                      | (486     | )         |   |          |  |              |   |               |    |       |   |        |       |   |   |             |  |  |   |           | (486     | )
|                             | Treasury shares                                                               |   |                                                      |         |           |   |          |  |              |   |               | (40 | )     |   |        | 40     |   |   |             |  |  |   |           |         |  
|                             |                                                                               |   |                                                      |          |           |   |          |   |              |   |               |     |       |   |        |        |   |   |             |   |  |   |           |          |  
|Balance at December 31, 2002 |                                                                               | $ | 2,181,958                                            |          |           | $ | (285,482 | ) |              | $ | (40           | )   |       | $ | (3,593 | )      |   | $ | (16,078     | ) |  | $ | 1,878,265 |         
|                             |                                                                               |   |                                                      |          |           |   |          |   |              |   |               |     |       |   |        |        |   |   |             |   |  |   |           |          |  

See accompanying notes to the financial statements

F-9



---



##### Table of Contents



Consolidated Statements of Cash Flows

|                                                                                         |                                            |                                                                                                                                    |          |                                 |         |      |          |          |          |   |         |         |          |  
|---------------------------------------------------------------------------------------- | ------------------------------------------ | ---------------------------------------------------------------------------------------------------------------------------------- | -------- | ------------------------------- | ------- | ---- | -------- | -------- | -------- | - | ------- | ------- | -------- | -
|                                                                                         |                                            |                                                                                                                                    |          | For the years ended December 31
|                                                                                         |                                            |                                                                                                                                    |          |                                
|$ thousands                                                                              |                                            | 2002                                                                                                                               |          | 2001                            |         | 2000
|                                                                                         |                                            |                                                                                                                                    |          |                                 |         |     
|Cash Flows from Operating Activities                                                     |                                            |                                                                                                                                    |          |                                 |         |      |          |          |          |   |         |        
|Net income (loss)                                                                        |                                            | $                                                                                                                                  | (187,917 | )                               |         | $    | (152,491 | )        |          | $ | 382,996 |        
|Adjustments to reconcile net (loss) income to net cash provided
by operating activities: |                                            |                                                                                                                                    |          |                                 |         |      |          |          |          |   |         |        
|                                                                                         |                                            | Loss (income) from unconsolidated real estate joint
ventures including provision for loss on investments
($58,880, $46,900 and $0) |          |                                 | 47,631  |      |          |          | 33,948   |   |         |         | (19,417  | )
|                                                                                         |                                            | Depreciation and amortization expense (including
discontinued operations)                                                          |          |                                 | 175,889 |      |          |          | 161,078  |   |         |         | 154,118  |  
|                                                                                         |                                            | Amortization of financing costs                                                                                                    |          |                                 | 8,355   |      |          |          | 9,586    |   |         |         | 16,102   |  
|                                                                                         |                                            | (Gain) loss on disposition of real estate (including
discontinued operations)                                                      |          |                                 | (7,930  | )    |          |          | 2,053    |   |         |         | (36,862  | )
|                                                                                         |                                            | Minority interest                                                                                                                  |          |                                 | (1,766  | )    |          |          | (433     | ) |         |         | (580     | )
|                                                                                         |                                            | Derivative losses                                                                                                                  |          |                                 | 180     |      |          |          | 456      |   |         |         |         |  
|                                                                                         |                                            | Deferred compensation                                                                                                              |          |                                 | 3,865   |      |          |          | 5,012    |   |         |         | 689      |  
|                                                                                         |                                            | Provision for loss on real estate                                                                                                  |          |                                 | 199,455 |      |          |          | 258,091  |   |         |         | 3,677    |  
|                                                                                         |                                            | Provision for and loss on investments                                                                                              |          |                                 | 60,784  |      |          |          | 15,371   |   |         |         |         |  
|                                                                                         |                                            | Deferred income tax (benefit) expense                                                                                              |          |                                 |        |      |          |          | 8,926    |   |         |         | (315,540 | )
|                                                                                         |                                            | Loss on early debt retirement                                                                                                      |          |                                 |        |      |          |          | 4,211    |   |         |         |         |  
|                                                                                         |                                            | Stock option grant expense                                                                                                         |          |                                 | 5,214   |      |          |          |         |   |         |         |         |  
|                                                                                         |                                            | Reorganization costs                                                                                                               |          |                                 | (3,260  | )    |          |          | 4,201    |   |         |         |         |  
|                                                                                         |                                            | Cumulative effect of change in accounting principle                                                                                |          |                                 |        |      |          |          | 4,631    |   |         |         |         |  
|Purchase of shares for escrowed share grant plan                                         |                                            |                                                                                                                                    |         |                                 |         |      |         |          |          |   | (12,402 | )      
|Changes in assets and liabilities:                                                       |                                            |                                                                                                                                    |          |                                 |         |      |          |          |          |   |         |        
|                                                                                         |                                            | Escrows and restricted cash                                                                                                        |          |                                 | (18,618 | )    |          |          | 99,415   |   |         |         | (88,945  | )
|                                                                                         |                                            | Office tenant receivables                                                                                                          |          |                                 | 6,811   |      |          |          | 10,947   |   |         |         | (14,675  | )
|                                                                                         |                                            | Other receivables                                                                                                                  |          |                                 | 7,385   |      |          |          | (3,955   | ) |         |         | (3,828   | )
|                                                                                         |                                            | Deferred rent receivables                                                                                                          |          |                                 | (35,097 | )    |          |          | (18,390  | ) |         |         | (26,369  | )
|                                                                                         |                                            | Prepaid expenses and other assets                                                                                                  |          |                                 | (28,108 | )    |          |          | 8,694    |   |         |         | (12,298  | )
|                                                                                         |                                            | Accounts payable, accrued liabilities and other liabilities                                                                        |          |                                 | (21,212 | )    |          |          | 11,597   |   |         |         | 86,455   |  
|                                                                                         |                                            |                                                                                                                                    |          |                                 |         |      |          |          |          |   |         |        
|Net cash provided by operating activities                                                |                                            |                                                                                                                                    | 211,661  |                                 |         |      | 462,948  |          |          |   | 113,121 |        
|                                                                                         |                                            |                                                                                                                                    |          |                                 |         |      |          |          |          |   |         |        
|Cash Flows from Investing Activities                                                     |                                            |                                                                                                                                    |          |                                 |         |      |          |          |          |   |         |        
|                                                                                         | Real estate:                               |                                                                                                                                    |          |                                 |         |      |          |          |          |   |         |         |         
|                                                                                         |                                            | Acquisitions                                                                                                                       |          |                                 | (68,517 | )    |          |          | (202,740 | ) |         |         | (86,347  | )
|                                                                                         |                                            | Development expenditures                                                                                                           |          |                                 | (74,405 | )    |          |          | (362,425 | ) |         |         | (241,268 | )
|                                                                                         |                                            | Tenant improvements and capital expenditures                                                                                       |          |                                 | (84,220 | )    |          |          | (88,740  | ) |         |         | (97,769  | )
|                                                                                         |                                            | Tenant leasing costs                                                                                                               |          |                                 | (25,315 | )    |          |          | (39,914  | ) |         |         | (31,680  | )
|                                                                                         |                                            | Dispositions                                                                                                                       |          |                                 | 148,974 |      |          |          | 111,553  |   |         |         | 426,950  |  
|                                                                                         | Redemption of minority interest units      |                                                                                                                                    |          | (118                            | )       |      |          |         |          |   |         |        |         
|                                                                                         | Disposition of investments                 |                                                                                                                                    |          | 80,423                          |         |      |          |         |          |   |         |        |         
|                                                                                         | Unconsolidated real estate joint ventures: |                                                                                                                                    |          |                                 |         |      |          |          |          |   |         |         |         
|                                                                                         |                                            | Investments                                                                                                                        |          |                                 | (11,861 | )    |          |          | (30,123  | ) |         |         | (53,263  | )
|                                                                                         |                                            | Distributions                                                                                                                      |          |                                 | 19,121  |      |          |          | 15,401   |   |         |         | 30,653   |  
|                                                                                         |                                            |                                                                                                                                    |          |                                 |         |      |          |          |          |   |         |        
|                                                                                         | Net cash used in investing activities      |                                                                                                                                    |          | (15,918                         | )       |      |          | (596,988 | )        |   |         | (52,724 | )       
|                                                                                         |                                            |                                                                                                                                    |          |                                 |         |      |          |          |          |   |         |        

F-10



---



##### Table of Contents



Consolidated Statements of Cash Flows (Continued)

|                                                     |                                                     |                         |          |                                 |          |      |         |          |            |   |         |         |          |  
|---------------------------------------------------- | --------------------------------------------------- | ----------------------- | -------- | ------------------------------- | -------- | ---- | ------- | -------- | ---------- | - | ------- | ------- | -------- | -
|                                                     |                                                     |                         |          | For the years ended December 31
|                                                     |                                                     |                         |          |                                
|$ thousands                                          |                                                     | 2002                    |          | 2001                            |          | 2000
|                                                     |                                                     |                         |          |                                 |          |     
|                                                     |                                                     |                         |          |                                 |          |      |         |          |            |   |         |        
|Cash Flows from Financing Activities                 |                                                     |                         |          |                                 |          |      |         |          |            |   |         |        
|                                                     | Mortgage debt and other loans:                      |                         |          |                                 |          |      |         |          |            |   |         |         |         
|                                                     |                                                     | Acquisition financing   |          |                                 | 4,000    |      |         |          | 48,500     |   |         |         |         |  
|                                                     |                                                     | Development financing   |          |                                 | 70,552   |      |         |          | 227,231    |   |         |         | 36,158   |  
|                                                     |                                                     | Property financing      |          |                                 | 189,169  |      |         |          | 1,441,390  |   |         |         | 60,909   |  
|                                                     |                                                     | Principal repayments    |          |                                 | (161,822 | )    |         |          | (1,219,713 | ) |         |         | (88,208  | )
|                                                     |                                                     | Repaid on dispositions  |          |                                 | (8,842   | )    |         |          | (1,321     | ) |         |         | (221,727 | )
|                                                     |                                                     | Draws on credit line    |          |                                 | 375,000  |      |         |          |           |   |         |         |         |  
|                                                     |                                                     | Paydowns on credit line |          |                                 | (285,000 | )    |         |          |           |   |         |         |         |  
|                                                     | Refinancing expenditures                            |                         |          | (10,421                         | )        |      |         | (19,858  | )          |   |         | (1,622  | )       
|                                                     | Issuance of common stock                            |                         |          | 2,637                           |          |      |         |         |            |   |         |        |         
|                                                     | Distribution of additional paid in capital          |                         |          | (486                            | )        |      |         |         |            |   |         |        |         
|                                                     | Net advance from parent company and affiliates      |                         |          | 77,746                          |          |      |         | 384,050  |            |   |         | 143,936 |         
|                                                     | Dividends                                           |                         |          | (683,457                        | )        |      |         | (499,000 | )          |   |         |        |         
|                                                     |                                                     |                         |          |                                 |          |      |         |          |            |   |         |        
|                                                     | Net cash (used in) provided by financing activities |                         |          | (430,924                        | )        |      |         | 361,279  |            |   |         | (70,554 | )       
|                                                     |                                                     |                         |          |                                 |          |      |         |          |            |   |         |        
|                                                     |                                                     |                         |          |                                 |          |      |         |          |            |   |         |        
|Net (Decrease) Increase in Cash and Cash Equivalents |                                                     |                         | (235,181 | )                               |          |      | 227,239 |          |            |   | (10,157 | )      
|                                                     |                                                     |                         |          |                                 |          |      |         |          |            |   |         |        
|Cash and Cash Equivalents, beginning of year         |                                                     |                         | 297,434  |                                 |          |      | 70,195  |          |            |   | 80,352  |        
|                                                     |                                                     |                         |          |                                 |          |      |         |          |            |   |         |        
|                                                     |                                                     |                         |          |                                 |          |      |         |          |            |   |         |        
|Cash and Cash Equivalents, end of year               |                                                     | $                       | 62,253   |                                 |          | $    | 297,434 |          |            | $ | 70,195  |        
|                                                     |                                                     |                         |          |                                 |          |      |         |          |            |   |         |        

See accompanying notes to the financial statements

F-11



---



##### Table of Contents



Consolidated Statements of Cash Flows (Continued)

|                                             |                                                                                       |      |                                 |         |  |      |   |         |  |  |   |         | 
|-------------------------------------------- | ------------------------------------------------------------------------------------- | ---- | ------------------------------- | ------- |  | ---- | - | ------- |  |  | - | ------- | 
|                                             |                                                                                       |      | For the years ended December 31
|                                             |                                                                                       |      |                                
|$ thousands                                  |                                                                                       | 2002 |                                 | 2001    |  | 2000
|                                             |                                                                                       |      |                                 |         |  |     
|Supplemental cash flow disclosures:          |                                                                                       |      |                                 |         |  |      |   |         |  |  |   |        
|                                             |                                                                                       |      |                                 |         |  |      |   |         |  |  |   |        
|Cash paid during the year for:               |                                                                                       |      |                                 |         |  |      |   |         |  |  |   |        
|                                             |                                                                                       |      |                                 |         |  |      |   |         |  |  |   |        
|                                             | Interest                                                                              |      | $                               | 188,240 |  |      | $ | 177,124 |  |  | $ | 266,598 | 
|                                             |                                                                                       |      |                                 |         |  |      |   |         |  |  |   |        
|                                             | Interest capitalized to properties under development                                  |      | $                               | 2,145   |  |      | $ | 33,194  |  |  | $ | 22,044  | 
|                                             |                                                                                       |      |                                 |         |  |      |   |         |  |  |   |        
|                                             | Other corporate taxes                                                                 |      | $                               | 5,359   |  |      | $ | 10,160  |  |  | $ | 4,871   | 
|                                             |                                                                                       |      |                                 |         |  |      |   |         |  |  |   |        
|Non-cash investing and financing activities: |                                                                                       |      |                                 |         |  |      |   |         |  |  |   |        
|                                             |                                                                                       |      |                                 |         |  |      |   |         |  |  |   |        
|                                             | Mortgage debt assumed upon obtaining control of joint
venture investment              |      | $                               | 105,555 |  |      | $ | 194,674 |  |  | $ |        | 
|                                             |                                                                                       |      |                                 |         |  |      |   |         |  |  |   |        
|                                             | Non-cash issuance of Class C Convertible Preferred Stock in
exchange for other assets |      | $                               | 355,190 |  |      | $ |        |  |  | $ |        | 
|                                             |                                                                                       |      |                                 |         |  |      |   |         |  |  |   |        
|                                             | Non-cash settlement of advance from parent in exchange for
common stock of TREHI      |      | $                               | 236,619 |  |      | $ |        |  |  | $ |        | 
|                                             |                                                                                       |      |                                 |         |  |      |   |         |  |  |   |        
|                                             | Non-cash retirement of advance to parent in exchange for
other assets                 |      | $                               | 35,000  |  |      | $ |        |  |  | $ |        | 
|                                             |                                                                                       |      |                                 |         |  |      |   |         |  |  |   |        
|                                             | Transfer of joint venture interest to real estate upon
obtaining control              |      | $                               | 13,514  |  |      | $ | 70,680  |  |  | $ |        | 
|                                             |                                                                                       |      |                                 |         |  |      |   |         |  |  |   |        
|                                             | Mortgage debt assumed by purchasers on property dispositions                          |      | $                               |        |  |      | $ |        |  |  | $ | 47,415  | 
|                                             |                                                                                       |      |                                 |         |  |      |   |         |  |  |   |        
|                                             | Non-cash issuance of shares of Series B Convertible
Preferred stock                   |      | $                               |        |  |      | $ |        |  |  | $ | 750,000 | 
|                                             |                                                                                       |      |                                 |         |  |      |   |         |  |  |   |        
|                                             |                                                                                       |      |                                 |         |  |      |   |         |  |  |   |        
|                                             | Non-cash issuance of shares of common stock                                           |      | $                               |        |  |      | $ | 16,550  |  |  | $ |        | 
|                                             |                                                                                       |      |                                 |         |  |      |   |         |  |  |   |        
|                                             |                                                                                       |      |                                 |         |  |      |   |         |  |  |   |        
|                                             | Other non-cash financings                                                             |      | $                               |        |  |      | $ | 3,000   |  |  | $ |        | 
|                                             |                                                                                       |      |                                 |         |  |      |   |         |  |  |   |        

See accompanying notes to the financial statements

F-12



---



##### Table of Contents



Notes to the Financial Statements
$ thousands, except share and per share amounts



|1. |  | ORGANIZATION AND DESCRIPTION OF THE BUSINESS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | Organization                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|  
|   |  | Trizec 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. 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 regular trading on the New York Stock Exchange.
|  
|   |  | The accompanying financial statements include, on a consolidated and
combined consolidated basis, the U.S. assets of TrizecHahn, substantially
all of which are owned and operated by Trizec Properties and Trizec R & E
Holdings, Inc. (TREHI, formerly known as TrizecHahn Developments Inc.),
TrizecHahns two primary U.S. operating and development companies. As
described in Note 14, 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 these financial
statements was not a legal entity for 2000, 2001 or the entire 2002 year.                                                                                                                                                                                                                                                                                                                 
|  
|   |  | The Corporation operated as separate stand alone entities 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 periods prior to the
Reorganization. However, the financial results prior to the
Reorganization are not necessarily indicative of future operating results
and no adjustments have been 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.                                                                                                                                                                                           
|  
|   |  | The Corporation operates primarily in the U.S. where it owns, manages and
develops office buildings and mixed-use properties. At December 31, 2002,
it had ownership interests in and managed a high-quality portfolio of 72
U.S. office properties concentrated in the central business districts of
seven major U.S. cities. In addition, the Corporation has completed the
development and is stabilizing its three retail/entertainment projects
(one of which was sold on January 15, 2003). At the end of 2000, Trizec
Properties decided that it would elect 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), commencing in
2001.                                                                                                                                                                                                                                            
|  
|2. |  | SIGNIFICANT ACCOUNTING POLICIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|  
|a. |  | Basis of Presentation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|  
|   |  | The accompanying financial statements include the combined accounts of
Trizec Properties and TREHI and of all subsidiaries in which they have a
controlling interest. 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. The accompanying
financial statements have been presented using TrizecHahns historical
cost basis. All significant intercompany balances and transactions have
been eliminated.                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|  
|   |  | For presentation purposes, the Corporation refers to and describes the
accompanying financial statements at December 31, 2002 and 2001 and for
each year ended December 31, 2002, 2001 and 2000 as consolidated.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

F-13



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##### Table of Contents



Notes to the Financial Statements
$ thousands, except share and per share amounts



|2. |  | SIGNIFICANT ACCOUNTING POLICIES (CONTD)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|b. |  | Accounting 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|  
|c. |  | Real Estate                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|  
|   |  | Rental properties are recorded at cost, less accumulated depreciation.
The cost of buildings and improvements includes the purchase price of the
property, legal fees and acquisition costs. Depreciation of rental
properties is determined using the straight-line method over a 40 year
estimated useful life period, subject to the terms of any respective
ground leases.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|  
|   |  | Properties under development consist of rental properties under
construction and are recorded at cost, reduced for impairment losses where
appropriate. Properties are classified as properties under development
until the property is substantially completed and available for occupancy,
at which time such properties are classified as rental properties. 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 completed
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 the
property. If the analysis indicates that the carrying value is not
recoverable from future cash flows, the property is written down to
estimated fair value and an impairment loss is recognized.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|  
|   |  | Effective January 1, 2002, the Corporation adopted Statement of Financial
Accounting Standards (SFAS) No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. Pursuant to the provisions of SFAS No.
144, properties meeting the specific criteria of SFAS No. 144 are
classified as held for disposition. At December 31, 2001, the Corporation
had designated certain properties as held for disposition pursuant to SFAS
No. 121 Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of. The transition rules of SFAS No.
144 require that such properties continue to be accounted for pursuant to
SFAS No. 121 if at December 31, 2002, these properties have met the
criteria set forth in 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.
|  
|   |  | Tenant improvements are deferred and amortized on a straight-line basis
over 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

F-14



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##### Table of Contents



Notes to the Financial Statements
$ thousands, except share and per share amounts



|2. |  | SIGNIFICANT ACCOUNTING POLICIES (CONTD)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|c. |  | Real Estate (Contd)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|  
|   |  | Furniture, equipment and certain improvements are depreciated on a
straight-line basis over periods of up to 10 years.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|  
|d. |  | Revenue Recognition                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|  
|   |  | The 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, 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 $35,099, $20,888 and $25,534 for the years ended December 31,
2002, 2001 and 2000, 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, income from tenants for early lease termination and income
from ancillary operations from the retail/entertainment properties.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|  
|   |  | 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 SEC Staff Accounting Bulletin
No. 101 Revenue Recognition in Financial Statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|  
|   |  | The Corporation provides an allowance for doubtful accounts 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 SFAS 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|  
|e. |  | Investments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|  
|   |  | The Corporation accounts for its investments in unconsolidated real estate
entities 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.

F-15



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##### Table of Contents



Notes to the Financial Statements
$ thousands, except share and per share amounts



|2. |  | SIGNIFICANT ACCOUNTING POLICIES (CONTD)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|e. |  | Investments (Contd)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|  
|   |  | Investments in which the Corporation does not exercise significant
influence are accounted for by the cost method. 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 SFAS No. 115,
Accounting for Certain Investments in Debt and Equity Securities.
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.
|  
|f. |  | Income Taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|  
|   |  | In December 2000, Trizec Properties determined that it would elect to be
taxed as a REIT pursuant to Sections 856 through 860 of the Code,
commencing in 2001. The REIT election was effective with the filing of
the Corporations 2001 tax return. In general, a corporation that
distributes at least 90% of its REIT taxable income to its shareholders in
any taxable year, and complies with certain other requirements (relating
primarily to its organization, the nature of its assets and the sources of
its revenues) is not subject to United States federal income taxation to
the extent of the income which it distributes. Trizec Properties believes
that it meets the qualifications for REIT status as of December 31, 2002
and December 31, 2001. For the years ended December 31, 2002 and 2001,
the Corporation distributed 100% of its REIT taxable income to its
shareholders. Accordingly, no provision has been made in the consolidated
financial statements for federal income taxes for the years ended December
31, 2002 and 2001 in respect of Trizec Properties. The Corporation is
subject to state and local income taxes and to federal income tax and
excise tax on its undistributed income. In addition, taxable income from
non-REIT activities managed through taxable REIT subsidiaries (TRS), and
from foreign entities, are subject to federal, state, local and foreign
income taxes.                       
|  
|   |  | In connection with its election to be taxed as a REIT, Trizec Properties
also elected to be subject to the built-in gain rules. Under these
rules, taxes may be payable at the time and to the extent that the net
unrealized gains on Trizec Properties assets at the date of conversion to
REIT status are recognized in taxable dispositions of such assets in the
ten-year period following conversion. Such net unrealized gains are
estimated to be approximately $2.3 billion. Management currently believes
that Trizec Properties will not incur a material amount of such taxes on
built-in gains during the ten-year period as substantially all of its
assets are not held for disposition and due to the potential for Trizec
Properties to make non-taxable asset dispositions, such as like-kind
exchanges.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

F-16



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##### Table of Contents



Notes to the Financial Statements
$ thousands, except share and per share amounts



|2. |  | SIGNIFICANT ACCOUNTING POLICIES (CONTD)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|f. |  | Income Taxes (Contd)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|  
|   |  | TRS deferred income taxes, where applicable, and deferred income taxes in
respect of Trizec Properties in 2000, 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.                                                                                                                                                                                                                                                                                                                                                                     
|  
|g. |  | Cash and Cash Equivalents                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|  
|   |  | Cash 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|  
|h. |  | Escrows and Restricted Cash                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|  
|   |  | Escrows consist primarily of amounts held by lenders to provide for future
property tax expenditures and tenant improvements. In addition, during
the years 2002 and 2001 and at December 31, 2000, 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|  
|i. |  | Deferred Charges                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|  
|   |  | Deferred 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|  
|j. |  | Derivative Instruments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|  
|   |  | The Corporation uses interest rate cap and swap agreements to manage risk
from fluctuations in interest rates. Prior to January 1, 2001 the
Corporation accounted for interest rate cap contracts as hedges and, as a
result, the carrying values of the financial instruments were not adjusted
to reflect their current market values. Any amounts receivable or payable
arising from interest rate cap contracts were recognized as an adjustment
of interest expense. Premiums paid to arrange interest rate cap contracts
were deferred and amortized to interest expense over the term of the
contracts. Under interest rate swap agreements, payments or receipts were
recognized as adjustments to interest expense. The Corporation believes
these agreements are with counterparties who are creditworthy financial
institutions.                                                                                                                                                                                                                                                                  
|  
|   |  | The Corporation adopted SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities as amended by SFAS No. 137 and SFAS
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
combined consolidated balance sheet 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 (loss) income until the forecasted
transactions occur, and the ineffective portions are recognized in the
statement of operations.

F-17



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##### Table of Contents



Notes to the Financial Statements
$ thousands, except share and per share amounts



|2. |  | SIGNIFICANT ACCOUNTING POLICIES (CONTD)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|j. |  | Derivative Instruments (Contd)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|  
|   |  | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|  
|   |  | The Corporation uses certain interest rate protection agreements to manage
risks from fluctuations in variable interest rates, as well as to hedge
anticipated future financing transactions. Upon adoption of SFAS No. 133,
the Corporation recorded an asset of approximately $709 (included in
prepaid expenses and other assets) and recorded a liability of
approximately $709 (included in other accrued liabilities) related to the
fair values of these agreements. In addition, the Corporation expensed
deferred charges of $280 related to these agreements. This was reflected
in net income as a cumulative effect of a change in accounting principle.
The Corporations derivatives also include investments in warrants to
purchase shares of common stock of other public companies. Based on the
terms of the warrant agreements, the warrants meet the definition of a
derivative and accordingly must be marked to fair value with the impact
reflected in the statement of operations. Prior to January 1, 2001, the
Corporation had been recording the warrants at fair value through
accumulated other comprehensive (loss) income as available-for-sale
securities under SFAS No. 115. Upon adoption of SFAS No. 133, the
Corporation reclassified $4,351, the unrealized holding loss in respect of
the warrants, from accumulated other comprehensive (loss) income to a
cumulative effect of a change in accounting principle.
|  
|   |  | For the year ended December 31, 2002, the Corporation recorded derivative
losses of $180 (2001  $456, 2000  $0) through the statement of
operations, which included the total ineffectiveness of all cash flow
hedges. The Corporation also recorded a derivative loss and write-down of
$15,371 for the year ended December 31, 2001, that has been included in
provision for and loss on investments in the statement of operations. For
the year ended December 31, 2002, the Corporation recorded unrealized
derivative loses through other comprehensive income of $15,229 (2001
 $1,818; 2000  $0). The Corporation expects that no material amounts will
be reclassified from other comprehensive (loss) income into earnings
within the next twelve months.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|  
|k. |  | Fair Value of Financial Instruments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|  
|   |  | The 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 estimated fair value of the investment in Sears Tower is determined by
the value of the underlying property, which is based on estimated future
cash flow, expected risk adjusted rates of return and other factors all of
which are subject to uncertainty. Accordingly, other 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|  
|l. |  | Minority Interest                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|  
|   |  | The Corporation owns 100% of the general partner units and 98% of the
limited partnership units (Units) at December 31, 2002 (December 31,
2001  100% and 98%, respectively) of TrizecHahn Mid-Atlantic Limited
Partnership (the 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 Partnership is required to pay cash to the
holder in an amount equal to the redemption value, or the Corporation has
the option of triggering the effective issuance of freely tradable shares
of Common Stock of                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

F-18



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##### Table of Contents



Notes to the Financial Statements
$ thousands, except share and per share amounts



|2. |  | SIGNIFICANT ACCOUNTING POLICIES (CONTD)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|l. |  | Minority Interest (Contd)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|  
|   |  | Trizec Properties. The redemption value of the outstanding Units is
$2,540 at December 31, 2002 (December 31, 2001  $4,386).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|  
|   |  | The change in redemption value is recorded as an allocation to minority
interest in the consolidated statements of operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|  
|m. |  | Stock Based Compensation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|  
|   |  | The Corporation accounts for stock-based compensation using the intrinsic
value method prescribed in Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees, and related interpretations
(APB No. 25). For stock option grants, under APB No. 25, compensation
cost is measured as the excess, if any, of the quoted market price 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 recognized into
income over the vesting period. Except as detailed in Note 16 (a) in
which options were granted in connection with the Reorganization, the
Corporations policy is to grant options with an exercise price equal to
the quoted market price of the Corporations Common Stock. Stock option
grant expense of $5,214, $0 and $0 was recognized for the years ended
December 31, 2002, 2001 and 2000, respectively.
|  
|   |  | The Corporation has a compensation arrangement comprised of restricted
share grants of Trizec Properties common stock (prior to the
Reorganization date, TrizecHahn subordinate voting shares) which is
described in Note 16. Compensation expense, based on the quoted market
price of the underlying TrizecHahn shares at the date of grant, is
recognized in respect of these restricted share grants over the three year
vesting period of the share grants on a straight-line basis. The date of
grant is the date the shares of TrizecHahn were purchased and placed into
a trust for the employees. The unamortized portion is included in
consolidated shareholders equity as unearned compensation. Under certain
circumstances defined in the arrangement, these shares can revert back to
the Corporation. Such shares are recorded as treasury stock at the
unamortized unearned compensation amount related to those shares.     
|  
|   |  | The following reconciles net (loss) income available to common
shareholders to pro forma net (loss) income available to common
shareholders under SFAS No. 123 and presents reported earnings per share
(EPS) and pro forma EPS.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

|                                                                |                                         |   |                                |         |      |   |          |   |  |   |         |   | 
|--------------------------------------------------------------- | --------------------------------------- | - | ------------------------------ | ------- | ---- | - | -------- | - |  | - | ------- | - | 
|                                                                |                                         |   | For the year ended December 31
|                                                                |                                         |   |                               
|                                                                |                                         |   | 2002                           |         | 2001 |   | 2000    
|                                                                |                                         |   |                                |         |      |   |         
|Net (loss) income available to common
shareholders, as reported |                                         | $ | (188,783                       | )       |      | $ | (152,491 | ) |  | $ | 382,996 |  
|Add back:                                                       |                                         |   |                                |         |      |   |          |   |  |   |         |  
|                                                                | Stock option grant expense, as reported |   |                                | 5,214   |      |   |          |  |  |   |         |  | 
|Deduct:                                                         |                                         |   |                                |         |      |   |          |   |  |   |         |  
|                                                                | Stock option expense, pro forma         |   |                                | (11,791 | )    |   |          |  |  |   |         |  | 
|                                                                |                                         |   |                                |         |      |   |          |   |  |   |         |  
|Pro forma net (loss) income available to
common shareholders    |                                         | $ | (195,360                       | )       |      | $ | (152,491 | ) |  | $ | 382,996 |  
|                                                                |                                         |   |                                |         |      |   |          |   |  |   |         |  

|     |                      |  |   |       |   |  |          |       |   |  |   |      | 
|---- | -------------------- |  | - | ----- | - |  | -------- | ----- | - |  | - | ---- | 
|     |                      |  |   |       |   |  | Proforma
|     |                      |  |   |       |   |  |         
|EPS: |                      |  |   |       |   |  |          |       |   |  |   |     
|     | Basic, as reported   |  | $ | (1.26 | ) |  | $        | (1.02 | ) |  | $ | 2.56 | 
|     |                      |  |   |       |   |  |          |       |   |  |   |     
|     | Basic, pro forma     |  | $ | (1.31 | ) |  | $        | (1.02 | ) |  | $ | 2.56 | 
|     |                      |  |   |       |   |  |          |       |   |  |   |     
|     | Diluted, as reported |  | $ | (1.26 | ) |  | $        | (1.02 | ) |  | $ | 2.53 | 
|     |                      |  |   |       |   |  |          |       |   |  |   |     
|     | Diluted, pro forma   |  | $ | (1.31 | ) |  | $        | (1.02 | ) |  | $ | 2.53 | 
|     |                      |  |   |       |   |  |          |       |   |  |   |     

F-19



---



##### Table of Contents



Notes to the Financial Statements
$ thousands, except share and per share amounts



|2. |  | SIGNIFICANT ACCOUNTING POLICIES (CONTD)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|m. |  | Stock Based Compensation (Contd)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|  
|   |  | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|  
|n. |  | Recent Accounting Pronouncements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|  
|   |  | On April 30, 2002, the Financial Accounting Standards Board (FASB)
issued 145, Rescission of SFAS 4, 44, and 64, Amendment of SFAS No. 13,
and Technical Corrections. SFAS No. 145 rescinds SFAS No. 4, Reporting
Gains and Losses from Extinguishment of Debt (SFAS No. 4), and the
amendment to SFAS No. 4, SFAS No. 64, Extinguishments of Debt Made to
Satisfy Sinking-Fund Requirements. SFAS No. 145 eliminates the
requirement that gains and losses from the extinguishment of debt be
aggregated and, if material, classified as an extraordinary item, net of
the related income tax effect, unless the criteria in Accounting
Principles Board Opinion No. 30, Reporting the Results of
Operations-Reporting the Effects of Disposal of a Segment of a Business,
and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions are met. SFAS No. 145 is effective for transactions
occurring subsequent to May 15, 2002. SFAS No. 145 will not have any
impact on the Corporation, other than the classification of loss on early
debt retirement which was previously shown as extraordinary item.                                                                                                                                                                                                                                                                                                                                                                                                                       
|  
|   |  | On June 28, 2002 the FASB issued SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities. SFAS No. 146 addresses
significant issues relating to the recognition, measurement and reporting
of costs associated with exit and disposal activities of a business.
Additionally, SFAS 146 addresses restructuring activities and nullifies
the guidance in Emerging Issues Task Force (EITF) Issue No. 94-3,
Liability Recognition for Certain Employee Termination Benefits and Other
Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring). SFAS No. 146 is effective for transactions initiated
after December 31, 2002. The Corporation will adopt this standard on
January 1, 2003 and expects no impact with respect to the adoption of this
standard.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|  
|   |  | On December 31, 2002, the FASB issued SFAS 148, Accounting for
Stock-Based Compensation  Transition and Disclosure, amending SFAS 123,
Accounting for Stock-Based Compensation. SFAS 148 provides two
additional alternative transition methods for recognizing an entitys
voluntary decision to change its method of accounting for stock-based
employee compensation to the fair-value method. In addition, SFAS 148
amends the disclosure requirements of SFAS 123 so that entities will have
to (1) make more-prominent disclosures regarding the pro forma effects of
using the fair-value method of accounting for stock-based compensation,
(2) present those disclosures in a more accessible format in the footnotes
to the annual financial statements, and (3) include those disclosures in
interim financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|  
|   |  | SFAS 148s transition guidance and provisions for annual disclosures are
effective for fiscal years ending after December 15, 2002. The provisions
for interim-period disclosures are effective for financial reports that
contain financial statements for interim periods beginning after December
15, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|  
|   |  | In November 2002, the FASB issued FASB Interpretation No. 45 (FIN No. 45),
Guarantors Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others. This
interpretation expands the disclosures to be made by a guarantor in its
financial statements about its obligations under certain guarantees and
requires the guarantor to recognize a liability for the fair value of an
obligation assumed under a guarantee. FIN No. 45 clarifies the
requirements of SFAS No. 5, Accounting for Contingencies, relating to
guarantees. In general, FIN No. 45 applies to contracts or
indemnification agreements that contingently require the guarantor to make
payments to the guaranteed party based on changes in an underlying that is
related to an asset, liability, or equity security of the guaranteed
party. The disclosure requirements of FIN No. 45 are effective with
respect to the Corporation as of December 31, 2002, and require disclosure
of the nature of the guarantee, the maximum potential amount of future
payments that the guarantor could be required to make under the guarantee,
and the current amount of the liability, if any, for the guarantors
obligations under the guarantee. The recognition requirements of FIN No.
45 are to be applied prospectively to guarantees issued or modified after
December 31, 2002. The Corporation does not expect the requirements of
FIN No. 45 to have a material impact on results of operations, financial
position or liquidity.

F-20



---



##### Table of Contents



Notes to the Financial Statements
$ thousands, except share and per share amounts



|2. |  | SIGNIFICANT ACCOUNTING POLICIES (CONTD)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|n. |  | Recent Accounting Pronouncements (Contd)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|  
|   |  | In January 2003, the FASB issued FASB Interpretation No. 46 (FIN No. 46),
Consolidation of Variable Interest Entities. The objective of this
interpretation is to provide guidance on how to identify a variable
interest entity (VIE) and determine when the assets, liabilities,
non-controlling interests, and results of operations of a VIE need to be
included in a companys consolidated financial statements. A company that
holds variable interests in an entity will need to consolidate the entity
if the companys interest in the VIE is such that the company will absorb
a majority of the VIEs expected losses and/or receive a majority of the
entitys expected residual returns, if they occur. FIN No. 46 also
requires additional disclosures by primary beneficiaries and other
significant variable interest holders. In connection with any of the
Corporations unconsolidated real estate joint ventures that may qualify
as a VIE, provisions of this interpretation are effective for financial
reports that contain interim periods beginning after June 15, 2003. The
Corporation is currently assessing all investments in unconsolidated real
estate joint ventures to determine whether the adoption of this
interpretation will have a material impact on results of operations,
financial position or liquidity.
|  
|o. |  | Earnings Per Share                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|  
|   |  | Basic and diluted earnings per share are computed by dividing the net
(loss) income available to common shareholders by the weighted average
shares and diluted 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 SFAS No.
128, Earnings Per Share, in determining the weighted average number of
shares, it is assumed that these shares had been issued at the beginning
of each period presented. Additionally, the options and warrants issued
in connection with the Reorganization have been assumed to be issued at
the beginning of each period presented. For the years ended December 31,
2001 and 2000, the dilutive effect, if any, of the options and warrants
has been calculated based on the price of the Corporations Common Stock
on May 8, 2002, or $16.82 per share.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|  
|p. |  | Reclassifications                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|  
|   |  | Certain reclassifications of prior period amounts have been made to the
statements of operations, including the effects for the adoption of SFAS
No. 144. These reclassifications have been made in the financial
statements to conform to the 2002 presentation. These reclassifications
have not changed the results of operations for the years ended December
31, 2001 and 2000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|  
|3. |  | REAL ESTATE                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|  
|   |  | The Corporations investment in real estate is comprised of:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

|           |                        |   |             |           |      |   |           |           | 
|---------- | ---------------------- | - | ----------- | --------- | ---- | - | --------- | --------- | 
|           |                        |   | December 31
|           |                        |   |            
|           |                        |   | 2002        |           | 2001
|           |                        |   |             |           |     
|Properties |                        |   |             |           |      |   |           |          
|           | Held for the long term |   | $           | 4,650,219 |      |   | $         | 4,329,889 | 
|           | Held for disposition   |   |             | 173,444   |      |   |           | 630,558   | 
|           |                        |   |             |           |      |   |           |          
|           |                        | $ | 4,823,663   |           |      | $ | 4,960,447 |          
|           |                        |   |             |           |      |   |           |          

F-21



---



##### Table of Contents



Notes to the Financial Statements
$ thousands, except share and per share amounts



|3. |  | REAL ESTATE (CONTD)
|-- |  | --------------------



|a. |  | Properties  Held for
the Long Term
|-- |  | -----------------------------------

|                                |                                   |   |             |           |      |   |           |           |  
|------------------------------- | --------------------------------- | - | ----------- | --------- | ---- | - | --------- | --------- | -
|                                |                                   |   | December 31
|                                |                                   |   |            
|                                |                                   |   | 2002        |           | 2001
|                                |                                   |   |             |           |     
|Rental properties               |                                   |   |             |           |      |   |           |          
|                                | Land                              |   | $           | 604,156   |      |   | $         | 519,682   |  
|                                | Buildings and improvements        |   |             | 4,213,380 |      |   |           | 3,866,714 |  
|                                | Tenant improvements               |   |             | 347,346   |      |   |           | 250,824   |  
|                                | Furniture, fixtures and equipment |   |             | 13,060    |      |   |           | 14,060    |  
|                                |                                   |   |             |           |      |   |           |          
|                                |                                   |   | 5,177,942   |           |      |   | 4,651,280 |          
|                                | Less: accumulated depreciation    |   |             | (552,933  | )    |   |           | (432,562  | )
|                                |                                   |   |             |           |      |   |           |          
|                                |                                   |   | 4,625,009   |           |      |   | 4,218,718 |          
|Properties under development    |                                   |   |            |           |      |   | 82,515    |          
|Properties held for development |                                   |   | 25,210      |           |      |   | 28,656    |          
|                                |                                   |   |             |           |      |   |           |          
|                                |                                   | $ | 4,650,219   |           |      | $ | 4,329,889 |          
|                                |                                   |   |             |           |      |   |           |          



|b. |  | Properties  Held for Disposition
|-- |  | ---------------------------------

|                                |  |             |         |      |  |   |         | 
|------------------------------- |  | ----------- | ------- | ---- |  | - | ------- | 
|                                |  | December 31
|                                |  |            
|                                |  | 2002        |         | 2001
|                                |  |             |         |     
|Rental properties               |  | $           | 159,738 |      |  | $ | 275,983 | 
|Properties under development    |  |             |        |      |  |   | 306,630 | 
|Properties held for development |  |             | 13,706  |      |  |   | 47,945  | 
|                                |  |             |         |      |  |   |         | 
|                                |  | $           | 173,444 |      |  | $ | 630,558 | 
|                                |  |             |         |      |  |   |         | 



| |  | Properties 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 Corporation initially designated properties as held for
disposition at December 31, 2000, and designated additional
properties as held for disposition during the year ended December
31, 2001. These assets are subject to the transition rules of SFAS
No. 144, and, accordingly, the Corporation continues to account for
these properties pursuant to SFAS No. 121.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | --- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     |  | Properties held for disposition at December 31, 2001, included
three retail/entertainment properties, three technology center
development properties, two non-core office properties and certain
retail non-operating assets. During the year ended December 31,
2002, two of the retail/entertainment properties and one of the
technology properties were reclassified to properties held for the
long term, and the two non-core office properties, two of the
technology properties and the retail non-operating assets were
sold. In addition, the Corporation acquired 151 Front Street from
TrizecHahn which had been designated as held for disposition in
accordance with SFAS 121 (see Note 14). As a result, at December
31, 2002, one retail/entertainment property and 151 Front Street
remain as held for disposition in accordance with SFAS 121 with the
results of operations included in continuing operations. The
results of operations for these two properties owned by the
Corporation at December 31, 2002 and the two non-core office
properties that had been designated and were sold during 2002 are
included, through the date of sale, in revenue and expenses of the
Corporation. The following summarizes the condensed results of
operations for these properties.
|
| |     |  | F-22                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               



---



##### Table of Contents



Notes to the Financial Statements
$ thousands, except share and per share amounts



|3. |  | REAL ESTATE (CONTD)                      
|-- |  | ------------------------------------------
|  
|b. |  | Properties  Held for Disposition (Contd)

|                              |  |                                |        |      |  |      |        |   |  |   |       |  
|----------------------------- |  | ------------------------------ | ------ | ---- |  | ---- | ------ | - |  | - | ----- | -
|                              |  | For the
years endedDecember 31
|                              |  |                               
|                              |  | 2002                           |        | 2001 |  | 2000
|                              |  |                                |        |      |  |     
|Rentals                       |  | $                              | 24,593 |      |  | $    | 8,449  |   |  | $ | 3,179 |  
|Interest                      |  |                                | 120    |      |  |      | 254    |   |  |   | 15    |  
|                              |  |                                |        |      |  |      |        |   |  |   |       |  
|Total Revenue                 |  |                                | 24,713 |      |  |      | 8,703  |   |  |   | 3,194 |  
|Operating expenses            |  |                                | (7,814 | )    |  |      | (2,265 | ) |  |   | (583  | )
|Property taxes                |  |                                | (2,420 | )    |  |      | (836   | ) |  |   | (253  | )
|Interest expense              |  |                                | (4,115 | )    |  |      | (699   | ) |  |   | (275  | )
|Depreciation and amortization |  |                                | (65    | )    |  |      | (513   | ) |  |   | (138  | )
|                              |  |                                |        |      |  |      |        |   |  |   |       |  
|Net income                    |  | $                              | 10,299 |      |  | $    | 4,390  |   |  | $ | 1,945 |  
|                              |  |                                |        |      |  |      |        |   |  |   |       |  



| | (ii) |  | Subsequent to January 1, 2002, the Corporation designated
five office properties as held for disposition pursuant to SFAS 144.
During 2002, three of these properties were sold, and at December
31, 2002, two of the properties remained as held for disposition.
Accordingly, the results of operations, through the date of sale,
and the gains on disposition for these five office properties, for
all periods presented, have been reported as discontinued
operations. The following summarizes the condensed results of
operations for these properties, excluding the gain on disposition.
| | ---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                    |  |                                 |        |      |  |      |        |   |  |   |        |  
|----------------------------------- |  | ------------------------------- | ------ | ---- |  | ---- | ------ | - |  | - | ------ | -
|                                    |  | For the
years ended
December 31
|                                    |  |                                
|                                    |  | 2002                            |        | 2001 |  | 2000
|                                    |  |                                 |        |      |  |     
|Rentals                             |  | $                               | 17,707 |      |  | $    | 19,093 |   |  | $ | 20,484 |  
|Interest                            |  |                                 | 58     |      |  |      | 51     |   |  |   | 49     |  
|                                    |  |                                 |        |      |  |      |        |   |  |   |        |  
|Total Revenues                      |  |                                 | 17,765 |      |  |      | 19,144 |   |  |   | 20,533 |  
|Operating expenses                  |  |                                 | (5,598 | )    |  |      | (6,230 | ) |  |   | (6,178 | )
|Property taxes                      |  |                                 | (1,432 | )    |  |      | (1,557 | ) |  |   | (1,629 | )
|Interest expense                    |  |                                 | (2,717 | )    |  |      | (3,938 | ) |  |   | (5,299 | )
|Depreciation and amortization       |  |                                 | (4,806 | )    |  |      | (4,019 | ) |  |   | (3,838 | )
|                                    |  |                                 |        |      |  |      |        |   |  |   |        |  
|Income from discontinued operations |  | $                               | 3,212  |      |  | $    | 3,400  |   |  | $ | 3,589  |  
|                                    |  |                                 |        |      |  |      |        |   |  |   |        |  



|c. |  | Ground Lease Obligations                                                                                                                                                                                                                                                                             
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | Properties carried at a net book value of approximately $553,571 at
December 31, 2002 (December 31, 2001  $841,679) are situated on land
subject to lease agreements expiring in the years 2017 to 2086. Minimum
land rental payments for each of the next five years and thereafter are as
follows:

|                               |            |      |         |         |       | 
|------------------------------ | ---------- | ---- | ------- | ------- | ----- | 
|Years ending December 31, 2003 |            | $    | 1,737   |        
|                               |            | 2004 |         |         | 1,739 | 
|                               |            | 2005 |         |         | 1,739 | 
|                               |            | 2006 |         |         | 1,755 | 
|                               |            | 2007 |         |         | 1,867 | 
|                               | Thereafter |      |         | 256,169 |      
|                               |            |      |         |        
|                               |            | $    | 265,006 |        
|                               |            |      |         |        



| |  | Additional rent is payable under certain land lease agreements based on
rental revenue or net cash flow from properties. Included in operating
expenses for the year ended December 31, 2002 is $3,784 of ground lease
payments (December 31, 2001  $5,120; 2000  $3,646).
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-23



---



##### Table of Contents



Notes to the Financial Statements
$ thousands, except share and per share amounts



|3. |  | REAL ESTATE (CONTD)                                                                                                                                            
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|d. |  | Future Minimum Rents                                                                                                                                            
|  
|   |  | Future minimum rentals to be received under non-cancelable tenant leases
in effect at December 31, 2002, excluding operating expense recoveries,
are as follows:

|                               |            |      |           |           |         | 
|------------------------------ | ---------- | ---- | --------- | --------- | ------- | 
|Years ending December 31, 2003 |            | $    | 634,284   |          
|                               |            | 2004 |           |           | 585,519 | 
|                               |            | 2005 |           |           | 528,642 | 
|                               |            | 2006 |           |           | 469,198 | 
|                               |            | 2007 |           |           | 386,269 | 
|                               | Thereafter |      |           | 1,247,722 |        
|                               |            |      |           |          
|                               |            | $    | 3,851,634 |          
|                               |            |      |           |          



|e. |  | Acquisitions                                                                  
|-- |  | ------------------------------------------------------------------------------
|  
|   |  | During the years presented, the Corporation acquired the following
properties:



| | (i) |  | Acquisitions during the year ended December 31, 2002
| | --- |  | ----------------------------------------------------

|              |  |                                       |  |                 |  |        |           |      |  |             |         |             |  |       |         | 
|------------- |  | ------------------------------------- |  | --------------- |  | ------ | --------- | ---- |  | ----------- | ------- | ----------- |  | ----- | ------- | 
|              |  |                                       |  |                 |  |        |           |      |  |             |         |             |  | Total
|              |  |                                       |  |                 |  |        |           |      |  | Rentable    |         | Acquisition
|Date Acquired |  | Property                              |  | Location        |  | Sq.ft. |           | Cost
|              |  |                                       |  |                 |  |        |           |     
|              |  |                                       |  |                 |  |        |           |      |  | (unaudited) |         |             |  |      
|April 12      |  | 151 Front Street                      |  | Toronto, ON     |  |        | 272,000   |      |  | $           | 29,115  |            
|June 3        |  | 10 and 120 Riverside - acquisition of |  |                 |  |        |           |      |  |             |         |             |  |      
|              |  | ground lease and other obligations    |  | Chicago, IL     |  |        |           |      |  |             | 7,150   |            
|June 4        |  | Ernst & Young Plaza                   |  | Los Angeles, CA |  |        | 1,252,000 |      |  |             | 115,112 |            
|              |  |                                       |  |                 |  |        |           |      |  |             |         |             |  |       |         | 
|              |  |                                       |  |                 |  |        |           |      |  |             |         |             |  | $     | 151,377 | 
|              |  |                                       |  |                 |  |        |           |      |  |             |         |             |  |       |         | 



| |  | On June 4, 2002, the Corporation obtained control of Ernst & Young Plaza
by acquiring the remaining 75% interest it did not own. The Corporation
paid $35,946 in cash and assumed $79,166 in debt related to the 75%
interest acquired. In addition, the Corporation transferred $26,389 in
debt related to its pro rata share of the joint venture debt, $1,386 in
net working capital and $13,514 from investment in unconsolidated real
estate joint ventures. The Corporation has consolidated the results of
operations from June 4, 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 (see Note 14).                                                                                                                                                                                                                                                                                                                                                           



| | (ii) |  | Acquisitions during the year ended December 31, 2001
| | ---- |  | ----------------------------------------------------

|              |  |                                       |  |                |  |             |         |      |  |          |        |             |  |       |         | 
|------------- |  | ------------------------------------- |  | -------------- |  | ----------- | ------- | ---- |  | -------- | ------ | ----------- |  | ----- | ------- | 
|              |  |                                       |  |                |  |             |         |      |  |          |        |             |  | Total
|              |  |                                       |  |                |  |             |         |      |  | Rentable |        | Acquisition
|Date Acquired |  | Property                              |  | Location       |  | Sq.ft.      |         | Cost
|              |  |                                       |  |                |  |             |         |     
|              |  |                                       |  |                |  | (unaudited) |         |      |  |          |        |             |  |      
|May 11        |  | Two Ballston Plaza                    |  | Arlington, VA  |  |             | 222,000 |      |  | $        | 44,530 |            
|May 15        |  | 550 West Washington                   |  | Chicago, IL    |  |             | 372,000 |      |  |          | 77,335 |            
|May 24        |  | 1225 Connecticut, N.W                 |  | Washington, DC |  |             | 224,000 |      |  |          | 59,875 |            
|November 10   |  | 10 and 120 Riverside - acquisition of |  |                |  |             |         |      |  |          |        |             |  |      
|              |  | ground lease and other obligations    |  | Chicago, IL    |  |             |        |      |  |          | 21,000 |            
|              |  |                                       |  |                |  |             |         |      |  |          |        |             |  |       |         | 
|              |  |                                       |  |                |  |             |         |      |  |          |        |             |  | $     | 202,740 | 
|              |  |                                       |  |                |  |             |         |      |  |          |        |             |  |       |         | 

F-24



---



##### Table of Contents



Notes to the Financial Statements
$ thousands, except share and per share amounts



|3. |  | REAL ESTATE (CONTD) 
|-- |  | ---------------------
|  
|e. |  | Acquisitions (Contd)



| | (iii) |  | Acquisitions during the year ended December 31, 2000
| | ----- |  | ----------------------------------------------------

|              |  |                             |  |             |  |      |        |  |  |                  |        | 
|------------- |  | --------------------------- |  | ----------- |  | ---- | ------ |  |  | ---------------- | ------ | 
|              |  |                             |  |             |  |      |        |  |  | TotalAcquisition
|Date Acquired |  | Development Sites           |  | Location    |  | Cost
|              |  |                             |  |             |  |     
|September 29  |  | Valley Industrial Park      |  | Seattle, WA |  | $    | 46,791 | 
|October 15    |  | 150 and 200 Inner Belt Road |  | Boston, MA  |  |      | 27,589 | 
|October 16    |  | Clybourn Center             |  | Chicago, IL |  |      | 11,967 | 
|              |  |                             |  |             |  |      |        |  |  |                  |        | 
|              |  |                             |  |             |  |      |        |  |  | $                | 86,347 | 
|              |  |                             |  |             |  |      |        |  |  |                  |        | 



|f. |  | Cost to complete                                                                                                                      
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | Expenditures required to complete properties under development are
estimated at $0 at December 31, 2002 (December 31, 2001  $53,244).

F-25



---



##### Table of Contents



Notes to the Financial Statements
$ thousands, except share and per share amounts



|4. |  | UNCONSOLIDATED REAL ESTATE JOINT VENTURES                                                                                                                                                                                                                                                           
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | The Corporation participates in incorporated and unincorporated joint
ventures, limited liability companies and partnerships with other
venturers in various operating properties which are accounted for using
the equity method. In most instances, these projects are managed by the
Corporation.
|  
|a. |  | The following is a summary of the Corporations ownership in
unconsolidated real estate joint ventures:                                                                                                                                                                                             

|                                     |  |                                             |  |                        |  |      |      |  
|------------------------------------ |  | ------------------------------------------- |  | ---------------------- |  | ---- | ---- | -
|                                     |  |                                             |  | Corporations Economic
|                                     |  |                                             |  | Interest(1)           
|                                     |  |                                             |  |                       
|                                     |  |                                             |  | December 31           
|                                     |  |                                             |  |                       
|Entity(6)                            |  | Property and Location                       |  | 2002                   |  | 2001
|                                     |  |                                             |  |                        |  |     
|Marina Airport Building, Ltd.        |  | Marina Towers, Los Angeles, CA              |  | 50%                    |  |      | 50   | %
|WHTCP Realty L.L.C.(2)               |  | Ernst & Young Plaza, Los Angeles, CA        |  | 100%                   |  |      | 25   | %
|Dresser Cullen Venture               |  | Kellogg, Brown & Root Tower, Houston, TX    |  | 50%                    |  |      | 50   | %
|Main Street Partners, LP             |  | Bank One Center, Dallas, TX                 |  | 50%                    |  |      | 50   | %
|Trizec New Center Development        |  |                                             |  |                        |  |      |      |  
|Associates (a Partnership)           |  | New Center One, Detroit, MI(5)              |  | 67%                    |  |      | 67   | %
|1114 TrizecHahn-Swig, L.L.C          |  | The Grace Building, New York, NY            |  | 50%                    |  |      | 50   | %
|1141 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   | %
|TrizecHahn Waterview LP              |  | Waterview Development, Arlington, VA        |  | 80%                    |  |      | 80   | %
|TrizecHahn Hollywood Hotel L.L.C.(3) |  | Hollywood & Highland Hotel, Los Angeles, CA |  | 91.5%                  |  |      | 84.5 | %
|Aladdin Bazaar L.L.C.(4)             |  | Desert Passage, Las Vegas, NV               |  | 100%                   |  |      | 100  | %



---

|(1) |  | The amounts shown above approximate the Corporations economic ownership
interest for the periods presented. Cash flow 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. The Corporations legal ownership may differ.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | On June 4, 2002, the Corporation, as described in Note 3, acquired the
75% interest in this property it did not already own. The Corporation
consolidates this property.                                                                                                                                                                                                                                                                                                                                     
|   
|(3) |  | On September 26, 2002, the Corporations ownership increased to 91.5%.                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   
|(4) |  | On March 30, 2001, Aladdin Bazaar L.L.C.s operating agreement was
amended. The amendment, among other provisions, gave the Corporation sole
authority to market and sell the property and terminated the other
partners right to participate in the management or control of the
shopping center. As of April 1, 2001, the Corporation accounts for the
property and its operations under the consolidation method of accounting.                                                                          
|   
|(5) |  | This property was sold on February 24, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   
|(6) |  | The Corporation is reviewing these investments in order to assess the
impact, if any, of applying FIN 46 for reporting periods beginning after
June 15, 2003.                                                                                                                                                                                                                                                                                                                                                

F-26



---



##### Table of Contents



Notes to the Financial Statements
$ thousands, except share and per share amounts



|4. |  | UNCONSOLIDATED REAL ESTATE JOINT VENTURES (CONTD)                                                                                                                                                                        
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|b. |  | Unconsolidated Real Estate Joint Venture Financial Information                                                                                                                                                            
|  
|   |  | The following represents combined summarized financial information of the
unconsolidated real estate joint ventures. The joint ventures that
contribute more than 10% of net income have been itemized in the table
below.

Balance Sheet

|                                     |                               |   |             |         |          |   |             |         |       |   |         |         |            |   |          |         |       |   |        |        |             |   |         |         |  |   |         |         |  |   |           |         | 
|------------------------------------ | ----------------------------- | - | ----------- | ------- | -------- | - | ----------- | ------- | ----- | - | ------- | ------- | ---------- | - | -------- | ------- | ----- | - | ------ | ------ | ----------- | - | ------- | ------- |  | - | ------- | ------- |  | - | --------- | ------- | 
|                                     |                               |   | December 31
|                                     |                               |   |            
|                                     |                               |   | 2002        |         | 2001    
|                                     |                               |   |             |         |         
|                                     |                               |   |             |         |          |   | Hollywood & |         |       |   |         |         |            |   |          |         |       |   |        |        | Hollywood & |   | Other   |         |  |   |        
|                                     |                               |   | New Center  |         | Highland |   | Other Joint |         |       |   |         |         | New Center |   | Highland |         | Joint |   |        |        |            
|                                     |                               |   | One         |         | Hotel    |   | Ventures    |         | Total |   | One     |         | Hotel      |   | Ventures |         | Total
|                                     |                               |   |             |         |          |   |             |         |       |   |         |         |            |   |          |         |      
|Assets                               |                               |   |             |         |          |   |             |         |       |   |         |         |            |   |          |         |       |   |        |        |             |   |         |         |  |   |         |         |  |   |           |        
|                                     | Real estate, net              |   | $           | 11,056  |          |   | $           | 79,818  |       |   | $       | 632,552 |            |   | $        | 723,426 |       |   | $      | 38,858 |             |   | $       | 114,519 |  |   | $       | 783,151 |  |   | $         | 936,528 | 
|                                     | Other assets                  |   |             | 1,267   |          |   |             | 5,517   |       |   |         | 146,271 |            |   |          | 153,055 |       |   |        | 2,847  |             |   |         | 7,386   |  |   |         | 188,327 |  |   |           | 198,560 | 
|                                     |                               |   |             |         |          |   |             |         |       |   |         |         |            |   |          |         |       |   |        |        |             |   |         |         |  |   |         |         |  |   |           |        
|Total assets                         |                               |   | 12,323      |         |          |   | 85,335      |         |       |   | 778,823 |         |            |   | 876,481  |         |       |   | 41,705 |        |             |   | 121,905 |         |  |   | 971,478 |         |  |   | 1,135,088 |        
|                                     |                               |   |             |         |          |   |             |         |       |   |         |         |            |   |          |         |       |   |        |        |             |   |         |         |  |   |         |         |  |   |           |        
|Liabilities                          |                               |   |             |         |          |   |             |         |       |   |         |         |            |   |          |         |       |   |        |        |             |   |         |         |  |   |         |         |  |   |           |        
|                                     | Mortgage debt and other
loans |   |             | 22,782  |          |   |             | 100,874 |       |   |         | 461,977 |            |   |          | 585,633 |       |   |        | 25,845 |             |   |         | 77,583  |  |   |         | 585,268 |  |   |           | 688,696 | 
|                                     | Other liabilities             |   |             | 580     |          |   |             | 1,505   |       |   |         | 35,068  |            |   |          | 37,153  |       |   |        | 1,624  |             |   |         | 11,005  |  |   |         | 56,288  |  |   |           | 68,917  | 
|                                     | Partners equity              |   |             | (11,039 | )        |   |             | (17,044 | )     |   |         | 281,778 |            |   |          | 253,695 |       |   |        | 14,236 |             |   |         | 33,317  |  |   |         | 329,922 |  |   |           | 377,475 | 
|                                     |                               |   |             |         |          |   |             |         |       |   |         |         |            |   |          |         |       |   |        |        |             |   |         |         |  |   |         |         |  |   |           |        
|Total liabilities and equity         |                               | $ | 12,323      |         |          | $ | 85,335      |         |       | $ | 778,823 |         |            | $ | 876,481  |         |       | $ | 41,705 |        |             | $ | 121,905 |         |  | $ | 971,478 |         |  | $ | 1,135,088 |        
|                                     |                               |   |             |         |          |   |             |         |       |   |         |         |            |   |          |         |       |   |        |        |             |   |         |         |  |   |         |         |  |   |           |        
|Corporations Share of Equity        |                               |   |             |         |          |   |             |         |       |   |         |         |            | $ | 220,583  |         |       |   |        |        |             |   |         |         |  |   |         |         |  | $ | 289,242   |        
|                                     |                               |   |             |         |          |   |             |         |       |   |         |         |            |   |          |         |       |   |        |        |             |   |         |         |  |   |         |         |  |   |           |        
|Corporations Share of
Mortgage Debt |                               |   |             |         |          |   |             |         |       |   |         |         |            | $ | 343,662  |         |       |   |        |        |             |   |         |         |  |   |         |         |  | $ | 351,063   |        
|                                     |                               |   |             |         |          |   |             |         |       |   |         |         |            |   |          |         |       |   |        |        |             |   |         |         |  |   |         |         |  |   |           |        

F-27



---



##### Table of Contents



Notes to the Financial Statements
$ thousands, except share and per share amounts



|4. |  | UNCONSOLIDATED REAL ESTATE JOINT VENTURES (CONTD)
|-- |  | --------------------------------------------------

Statements of Operations



|                                                |                               |   |                                 |       |          |   |             |        |       |   |            |        |       |   |          |        |             |   |             |       |  |   |         |   |  |   |         |        |  |   |         |        | 
|----------------------------------------------- | ----------------------------- | - | ------------------------------- | ----- | -------- | - | ----------- | ------ | ----- | - | ---------- | ------ | ----- | - | -------- | ------ | ----------- | - | ----------- | ----- |  | - | ------- | - |  | - | ------- | ------ |  | - | ------- | ------ | 
|                                                |                               |   | For the Years Ended December 31
|                                                |                               |   |                                
|                                                |                               |   | 2002                            |       | 2001    
|                                                |                               |   |                                 |       |         
|                                                |                               |   |                                 |       |          |   | Hollywood & |        | Other |   |            |        |       |   |          |        |             |   | Hollywood & |       |  |   |         |   |  |   |        
|                                                |                               |   | New Center                      |       | Highland |   | Joint       |        |       |   |            |        | New   |   | Highland |        | Other Joint |   |             |       | 
|                                                |                               |   | One                             |       | Hotel    |   | Ventures    |        | Total |   | Center One |        | Hotel |   | Ventures |        | Total      
|                                                |                               |   |                                 |       |          |   |             |        |       |   |            |        |       |   |          |        |            
|Rentals                                         |                               | $ | 9,071                           |       |          | $ | 14,266      |        |       | $ | 180,871    |        |       | $ | 204,208  |        |             | $ | 9,747       |       |  | $ |        |   |  | $ | 196,560 |        |  | $ | 206,307 |       
|Interest                                        |                               |   | 27                              |       |          |   | 16          |        |       |   | 1,081      |        |       |   | 1,124    |        |             |   | 111         |       |  |   | 83      |   |  |   | 2,638   |        |  |   | 2,832   |       
|                                                |                               |   |                                 |       |          |   |             |        |       |   |            |        |       |   |          |        |             |   |             |       |  |   |         |   |  |   |         |        |  |   |         |       
|Total Revenues                                  |                               |   | 9,098                           |       |          |   | 14,282      |        |       |   | 181,952    |        |       |   | 205,332  |        |             |   | 9,858       |       |  |   | 83      |   |  |   | 199,198 |        |  |   | 209,139 |       
|                                                |                               |   |                                 |       |          |   |             |        |       |   |            |        |       |   |          |        |             |   |             |       |  |   |         |   |  |   |         |        |  |   |         |       
|Expenses                                        |                               |   |                                 |       |          |   |             |        |       |   |            |        |       |   |          |        |             |   |             |       |  |   |         |   |  |   |         |        |  |   |         |       
|                                                | Operating and other           |   |                                 | 4,344 |          |   |             | 12,944 |       |   |            | 82,268 |       |   |          | 99,556 |             |   |             | 4,950 |  |   |         | 6 |  |   |         | 89,588 |  |   |         | 94,544 | 
|                                                | Interest                      |   |                                 | 2,029 |          |   |             | 6,239  |       |   |            | 35,352 |       |   |          | 43,620 |             |   |             | 2,322 |  |   |         |  |  |   |         | 46,901 |  |   |         | 49,223 | 
|                                                | Depreciation and
amortization |   |                                 | 1,344 |          |   |             | 1,651  |       |   |            | 28,602 |       |   |          | 31,597 |             |   |             | 2,157 |  |   |         |  |  |   |         | 31,439 |  |   |         | 33,596 | 
|                                                |                               |   |                                 |       |          |   |             |        |       |   |            |        |       |   |          |        |             |   |             |       |  |   |         |   |  |   |         |        |  |   |         |       
|Total expenses                                  |                               |   | 7,717                           |       |          |   | 20,834      |        |       |   | 146,222    |        |       |   | 174,773  |        |             |   | 9,429       |       |  |   | 6       |   |  |   | 167,928 |        |  |   | 177,363 |       
|                                                |                               |   |                                 |       |          |   |             |        |       |   |            |        |       |   |          |        |             |   |             |       |  |   |         |   |  |   |         |        |  |   |         |       
|Income before
provision for loss
on real estate |                               |   | 1,381                           |       |          |   | (6,552      | )      |       |   | 35,730     |        |       |   | 30,559   |        |             |   | 429         |       |  |   | 77      |   |  |   | 31,270  |        |  |   | 31,776  |       
|Provision for loss
on real estate               |                               |   | (26,750                         | )     |          |   | (42,423     | )      |       |   |           |        |       |   | (69,173  | )      |             |   |            |       |  |   | (51,801 | ) |  |   |        |        |  |   | (51,801 | )     
|                                                |                               |   |                                 |       |          |   |             |        |       |   |            |        |       |   |          |        |             |   |             |       |  |   |         |   |  |   |         |        |  |   |         |       
|Net (loss) income                               |                               | $ | (25,369                         | )     |          | $ | (48,975     | )      |       | $ | 35,730     |        |       | $ | (38,614  | )      |             | $ | 429         |       |  | $ | (51,724 | ) |  | $ | 31,270  |        |  | $ | (20,025 | )     
|                                                |                               |   |                                 |       |          |   |             |        |       |   |            |        |       |   |          |        |             |   |             |       |  |   |         |   |  |   |         |        |  |   |         |       
|Corporations share
of net (loss) income        |                               |   |                                 |       |          |   |             |        |       |   |            |        |       | $ | (47,631  | )      |             |   |             |       |  |   |         |   |  |   |         |        |  | $ | (33,948 | )     
|                                                |                               |   |                                 |       |          |   |             |        |       |   |            |        |       |   |          |        |             |   |             |       |  |   |         |   |  |   |         |        |  |   |         |       

[Additional columns below]

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

|                                                |                               |   |                                 |       |          |   |             |   |       |   |         |        |  |   |         |        | 
|----------------------------------------------- | ----------------------------- | - | ------------------------------- | ----- | -------- | - | ----------- | - | ----- | - | ------- | ------ |  | - | ------- | ------ | 
|                                                |                               |   | For the Years Ended December 31
|                                                |                               |   |                                
|                                                |                               |   | 2000                           
|                                                |                               |   |                                
|                                                |                               |   |                                 |       |          |   | Hollywood & |   | Other |   |         |        | 
|                                                |                               |   | New Center                      |       | Highland |   | Joint       |   |       |   |        
|                                                |                               |   | One                             |       | Hotel    |   | Ventures    |   | Total
|                                                |                               |   |                                 |       |          |   |             |   |      
|Rentals                                         |                               | $ | 7,088                           |       |          | $ |            |   |       | $ | 195,108 |        |  | $ | 202,196 |       
|Interest                                        |                               |   | 101                             |       |          |   | 125         |   |       |   | 2,813   |        |  |   | 3,039   |       
|                                                |                               |   |                                 |       |          |   |             |   |       |   |         |        |  |   |         |       
|Total Revenues                                  |                               |   | 7,189                           |       |          |   | 125         |   |       |   | 197,921 |        |  |   | 205,235 |       
|                                                |                               |   |                                 |       |          |   |             |   |       |   |         |        |  |   |         |       
|Expenses                                        |                               |   |                                 |       |          |   |             |   |       |   |         |        |  |   |         |       
|                                                | Operating and other           |   |                                 | 3,541 |          |   |             |  |       |   |         | 88,478 |  |   |         | 92,019 | 
|                                                | Interest                      |   |                                 | 1,868 |          |   |             |  |       |   |         | 53,503 |  |   |         | 55,371 | 
|                                                | Depreciation and
amortization |   |                                 | 949   |          |   |             |  |       |   |         | 25,519 |  |   |         | 26,468 | 
|                                                |                               |   |                                 |       |          |   |             |   |       |   |         |        |  |   |         |       
|Total expenses                                  |                               |   | 6,358                           |       |          |   |            |   |       |   | 167,500 |        |  |   | 173,858 |       
|                                                |                               |   |                                 |       |          |   |             |   |       |   |         |        |  |   |         |       
|Income before
provision for loss
on real estate |                               |   | 831                             |       |          |   | 125         |   |       |   | 30,421  |        |  |   | 31,377  |       
|Provision for loss
on real estate               |                               |   |                                |       |          |   |            |   |       |   | (24     | )      |  |   | (24     | )     
|                                                |                               |   |                                 |       |          |   |             |   |       |   |         |        |  |   |         |       
|Net (loss) income                               |                               | $ | 831                             |       |          | $ | 125         |   |       | $ | 30,397  |        |  | $ | 31,353  |       
|                                                |                               |   |                                 |       |          |   |             |   |       |   |         |        |  |   |         |       
|Corporations share
of net (loss) income        |                               |   |                                 |       |          |   |             |   |       |   |         |        |  | $ | 19,417  |       
|                                                |                               |   |                                 |       |          |   |             |   |       |   |         |        |  |   |         |       



|   |  | The joint ventures that own New Center One and Hollywood and Highland hotel
have recorded provision for losses to the carrying values of these
properties. The Corporations pro rata share of these provisions for loss
was $58,880, $46,900 and $0 for the years ended December 31, 2002, 2001 and
2000, respectively.                                                                          
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | As of December 31, 2002, a non-recourse loan secured by New Center One in
Detroit, MI, which is held in a joint venture, was in default. On February
25, 2002, the joint venture sold the property and repaid the loan.                                                                                                                                                                           
|  
|c. |  | Liability for Obligations of Partners                                                                                                                                                                                                                                                                                                                                                             
|  
|   |  | The Corporation is contingently liable for certain obligations of its
partners. In each case, all of the assets of the venture are available for
the purpose of satisfying such obligations. The Corporation had guaranteed
or was otherwise contingently liable for approximately $10,499 as of
December 31, 2002 (December 31, 2001  $12,968) of its partners share of
recourse property debt.

F-28



---



##### Table of Contents



Notes to the Financial Statements
$ thousands, except share and per share amounts



|5. |  | 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 $70 million
and became the residual beneficiary of the trust that holds title to the
Sears Tower. The balance of the mortgage, including accrued interest,
was $294 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. (Sears). 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 Corporation is awaiting the conveyance
of title from Sears. The Corporation anticipates that, upon conveyance of
the title, it will consolidate the assets, liabilities and results of
operations.                                                                                                                                                                                                     
|  
|   |  | The Corporations mortgage is subordinate to an existing non-recourse
participating first mortgage and is subject to other participating
interests. The first mortgage is serviced only to the extent of
available cash flow. Beginning in 2002, certain minimum interest
payments were required under the terms of the participating first
mortgage. The minimum interest payment for 2002 was $37,500, increasing
to $51,900 per year for 2003 and 2004. The maturity date for this
mortgage is July 2005. On or after July 2, 2005, the owner of the Sears
Tower may, in connection with the retirement of the first mortgage, elect
to have the Sears Tower appraised to determine the repayment amount of
the participating interests of the first mortgage lender as well as all
subordinate interests through an appraisal process. Excluding the
lenders participating interest in cash flow, the balance of the first
mortgage, including accrued interest was $769,153 at December 31, 2002
(December 31, 2001  $778,903).                                                                       
|  
|   |  | The subordinated mortgage held by the Corporation, which matures in July
2010, had a balance, including accrued interest, of $380,437 at December
31, 2002, (December 31, 2001  $363,065) and has certain participation
rights to the extent of available cash flow. Since acquisition, the
Corporation has not been accruing interest income on the subordinated
mortgage due to uncertainty regarding ultimate collection of interest.
Had the Corporation accrued interest on the mortgage receivable, interest
income would have been increased by $17.4 million for the years ended
December 31, 2002, 2001 and 2000. The Corporation has determined, based
on an external appraisal of the underlying property, that its investment
is impaired. The Corporation estimates that the fair value of the Sears
Tower is insufficient to cover both the encumbrances senior to the
Corporations position and the entire carrying value of the investment.
Accordingly, in 2002, a loss provision of $48.3 million was recorded to
reduce the carrying value to its estimated fair value of $23.6 million.
|  
|6. |  | DEFERRED CHARGES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|  
|   |  | Deferred charges consist of the following:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

|                               |  |             |         |      |  |   |         |  
|------------------------------ |  | ----------- | ------- | ---- |  | - | ------- | -
|                               |  | December 31
|                               |  |            
|                               |  | 2002        |         | 2001
|                               |  |             |         |     
|Leasing costs                  |  | $           | 158,101 |      |  | $ | 147,570 |  
|Financing costs                |  |             | 51,025  |      |  |   | 39,156  |  
|                               |  |             |         |      |  |   |         |  
|                               |  |             | 209,126 |      |  |   | 186,726 |  
|Less: Accumulated amortization |  |             | (64,999 | )    |  |   | (48,672 | )
|                               |  |             |         |      |  |   |         |  
|                               |  | $           | 144,127 |      |  | $ | 138,054 |  
|                               |  |             |         |      |  |   |         |  

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##### Table of Contents



Notes to the Financial Statements
$ thousands, except share and per share amounts



|7. |  | MORTGAGE DEBT, OTHER LOANS AND REVOLVING CREDIT FACILITY
|-- |  | --------------------------------------------------------



|                                                  |  |                                   |      |                                 |  |                   |           |                  |  |  |      |   |  |   |         | 
|------------------------------------------------- |  | --------------------------------- | ---- | ------------------------------- |  | ----------------- | --------- | ---------------- |  |  | ---- | - |  | - | ------- | 
|                                                  |  | Properties Held for the Long Term |      | Properties Held for Disposition
|                                                  |  |                                   |      |                                
|                                                  |  | Weighted average                  |      |                                 |  |                   |           | Weighted average |  |  |      |  
|                                                  |  | interest rates at                 |      | Dec. 31,                        |  | interest rates at |           | Dec. 31,        
|                                                  |  | Dec. 31, 2002                     |      | 2002                            |  | Dec. 31, 2002     |           | 2002            
|                                                  |  |                                   |      |                                 |  |                   |           |                 
|Collateralized property loans:                    |  |                                   |      |                                 |  |                   |           |                  |  |  |      |   |  |   |         | 
|At fixed rates                                    |  |                                   | 6.74 | %                               |  | $                 | 2,126,211 |                  |  |  | 6.99 | % |  | $ | 25,983  | 
|At variable rates
(subject to
interest rate caps) |  |                                   | 4.17 | %                               |  |                   | 120,000   |                  |  |  |     |   |  |   |        | 
|At variable rates                                 |  |                                   | 2.70 | %                               |  |                   | 912,459   |                  |  |  | 4.15 | % |  |   | 100,559 | 
|Other loans                                       |  |                                   | 5.77 | %                               |  |                   | 60,026    |                  |  |  |     |   |  |   |        | 
|                                                  |  |                                   |      |                                 |  |                   |           |                  |  |  |      |   |  |   |         | 
|                                                  |  |                                   | 5.48 | %                               |  | $                 | 3,218,696 |                  |  |  | 4.74 | % |  | $ | 126,542 | 
|                                                  |  |                                   |      |                                 |  |                   |           |                  |  |  |      |   |  |   |         | 

[Additional columns below]

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

|                                                  |  |                   |      |          |  |                   |           |                  |  |  |      |   |  |   |           | 
|------------------------------------------------- |  | ----------------- | ---- | -------- |  | ----------------- | --------- | ---------------- |  |  | ---- | - |  | - | --------- | 
|                                                  |  | Total Debt       
|                                                  |  |                  
|                                                  |  | Weighted average  |      |          |  |                   |           | Weighted average |  |  |      |  
|                                                  |  | interest rates at |      | Dec. 31, |  | interest rates at |           | Dec. 31,        
|                                                  |  | Dec. 31, 2002     |      | 2002     |  | Dec. 31, 2001     |           | 2001            
|                                                  |  |                   |      |          |  |                   |           |                 
|Collateralized
property loans:                    |  |                   |      |          |  |                   |           |                  |  |  |      |   |  |   |           | 
|At fixed rates                                    |  |                   | 6.75 | %        |  | $                 | 2,152,194 |                  |  |  | 6.89 | % |  | $ | 2,106,664 | 
|At variable rates
(subject to
interest rate caps) |  |                   | 4.17 | %        |  |                   | 120,000   |                  |  |  |     |   |  |   |          | 
|At variable rates                                 |  |                   | 2.84 | %        |  |                   | 1,013,018 |                  |  |  | 3.00 | % |  |   | 886,108   | 
|Other loans                                       |  |                   | 5.77 | %        |  |                   | 60,026    |                  |  |  | 8.10 | % |  |   | 25,026    | 
|                                                  |  |                   |      |          |  |                   |           |                  |  |  |      |   |  |   |           | 
|                                                  |  |                   | 5.45 | %        |  | $                 | 3,345,238 |                  |  |  | 5.76 | % |  | $ | 3,017,798 | 
|                                                  |  |                   |      |          |  |                   |           |                  |  |  |      |   |  |   |           | 



|   |  | In the table above, mortgage debt and other loans have been presented on
a basis consistent with the classification of the underlying
collateralized properties, by properties held for the long term or held
for disposition. Certain of the Corporations loans are
cross-collateralized or subject to cross-default or cross-acceleration
provisions with other loans.                                                                
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|a. |  | Collateralized Property Loans                                                                                                                                                                                                                                                                                                                                                                                                            
|  
|   |  | Property loans are collateralized by deeds of trust or mortgages on
properties, and mature at various dates between March 2003 and May 2011.
The loan maturing in March 2003 is extendable at the option of the
Corporation. The carrying value, net of accumulated depreciation, of
encumbered properties at December 31, 2002 was approximately $4.8 billion
(December 31, 2001  $4.3 billion).                                       
|  
|   |  | At December 31, 2002, the Corporation has fixed the interest rates on
$150 million (December 31, 2001  $150 million) of the debt classified as
fixed, in the above table, by way of interest rate swap contracts with a
weighted average interest rate of 6.02% and maturing on March 15, 2008.
The cost to unwind these interest swap contracts is approximately $18.5
million at December 31, 2002 (December 31, 2001  $3.6 million).
|  
|   |  | During 2002, the Corporation entered into interest rate cap contracts
expiring June 2004 on $120 million of variable rate debt that limits the
underlying LIBOR interest rate to 6.5%. At December 31, 2002, the fair
value of these interest rate cap contracts was nominal.                                                                                                                                                            
|  
|   |  | In addition, and not reclassified in the table above, during 2001, the
Corporation entered into an interest rate cap contract expiring April
2004 on $584.7 million of U.S. dollar variable rate debt, which limits
the underlying LIBOR rate to 11.01%. The fair value of this interest
rate cap contract was nominal at December 31, 2002.                                                                                             

F-30



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##### Table of Contents



Notes to the Financial Statements
$ thousands, except share and per share amounts



|7. |  | MORTGAGE DEBT, OTHER LOANS AND REVOLVING CREDIT FACILITY (CONTD)                
|-- |  | ---------------------------------------------------------------------------------
|  
|b. |  | Principal Repayments                                                             
|  
|   |  | Principal repayments of debt outstanding at December 31, 2002 are due as follows:

| |                           |  |      |  |  |   |                               |  |                     |   |             |  |       |   |        |  |  |   |           |  | 
| | ------------------------- |  | ---- |  |  | - | ----------------------------- |  | ------------------- | - | ----------- |  | ----- | - | ------ |  |  | - | --------- |  | 
| |                           |  |      |  |  |   | Collateralized Property Loans |  |                     |   |             |  |       |   |       
| |                           |  |      |  |  |   |                               |  |                     |   |             |  |       |   |       
| |                           |  |      |  |  |   | Properties Held for           |  | Properties Held for |   |             |  |       |   |        |  | 
| |                           |  |      |  |  |   | the Long Term                 |  | Disposition         |   | Other Loans |  | Total
| |                           |  |      |  |  |   |                               |  |                     |   |             |  |      
| | Years ending December 31, |  | 2003 |  |  | $ | 119,964                       |  |                     | $ | 75,967      |  |       | $ | 2,547  |  |  | $ | 198,478   | 
| |                           |  | 2004 |  |  |   | 716,062                       |  |                     |   | 1,279       |  |       |   | 1,259  |  |  |   | 718,600   | 
| |                           |  | 2005 |  |  |   | 270,074                       |  |                     |   | 17,391      |  |       |   | 1,362  |  |  |   | 288,827   | 
| |                           |  | 2006 |  |  |   | 723,063                       |  |                     |   | 1,097       |  |       |   | 8,590  |  |  |   | 732,750   | 
| |                           |  | 2007 |  |  |   | 91,167                        |  |                     |   | 17,715      |  |       |   | 784    |  |  |   | 109,666   | 
| | Subsequent to             |  | 2007 |  |  |   | 1,238,340                     |  |                     |   | 13,093      |  |       |   | 45,484 |  |  |   | 1,296,917 | 
| |                           |  |      |  |  |   |                               |  |                     |   |             |  |       |   |        |  |  |   |           | 
| |                           |  |      |  |  | $ | 3,158,670                     |  |                     | $ | 126,542     |  |       | $ | 60,026 |  |  | $ | 3,345,238 | 
| |                           |  |      |  |  |   |                               |  |                     |   |             |  |       |   |        |  |  |   |           | 



|   |  | The estimated fair value of the Corporations debt approximates its
carrying value at December 31, 2002, and 2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|c. |  | Refinancing and loss on early retirement of debt                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|  
|   |  | On May 17, 2001, the Corporation retired early $1.2 billion of existing
long-term debt, which was funded through the issuance of $1.4 billion of
commercial mortgage backed securities. As a consequence of these early
retirements, for the year ended December 31, 2001 the Corporation
recorded an extraordinary charge of $18.0 million, consisting of
contractual redemption premiums of $13.8 million, and the write-off of
unamortized deferred financing costs of $4.2 million.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|  
|d. |  | Line of Credit                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|  
|   |  | The Corporation entered into a three-year, $350 million unsecured
revolving credit facility with a group of banks in the fourth quarter of
2001. During the third quarter of 2002, while the Corporation believed it
was in compliance with the financial covenants contained in the credit
facility, the Corporation obtained from the lenders a temporary
modification of the financial covenants and began active discussions to
permanently modify these covenants and certain other terms. In the
fourth quarter of 2002, the credit facility was amended and restated.
The group of banks unanimously agreed to amend and restate the facility
as a collateralized facility. Generally, in exchange for the receipt of
collateral, the banks agreed to provide more flexible financial covenants
than had been originally negotiated. The financial covenants, as defined
in the credit facility, include the quarterly requirements for total
leverage ratio not to exceed 65%, with the exception that the total
leverage ratio may reach 67.5% for one calendar quarter in 2003, the
requirement for the interest coverage ratio to be greater than 2.0 times
and the requirement for the net worth to be in excess of $1.5 billion.
At December 31, 2002, the Corporation was in compliance with these
financial covenants. Certain conditions of the amended credit facility
may restrict the amount eligible to be borrowed at any time. At December
31, 2002, the amount eligible to be borrowed was $320 million and $90
million was outstanding under this facility (December 31, 2001  $0).
|  
|e. |  | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

F-31



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##### Table of Contents



Notes to the Financial Statements
$ thousands, except share and per share amounts



|7. |  | MORTGAGE DEBT, OTHER LOANS AND REVOLVING CREDIT FACILITY (CONTD)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|f. |  | Guarantees of Indebtedness                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|  
|   |  | At December 31, 2001, $241,616 of guarantees in connection with mortgage
debt and other loans, including the Corporations pro rata share of
certain unconsolidated joint venture debt, had been provided by
TrizecHahn Office Properties, Limited (THOPL) and/or TrizecHahn
Holdings Limited, both related parties. As a consequence of the
Reorganization, these guarantees have been assumed by the Corporation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|  
|8. |  | REORGANIZATION COSTS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|  
|   |  | 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 in Chicago. The reorganization plan resulted in the
separation of approximately 150 employees, exclusive of any new hires, by
the end of 2002.                                                                                                                                                                                                                                                                                                                                                                                                           
|  
|   |  | During the year ended December 31, 2001, the Corporation recorded as
reorganization costs, a pre-tax charge of $15,922 to provide for employee
severance, benefits and other costs associated with implementing the
reorganization plan. Included in this charge are $2,201 of non-cash
costs which represent the accelerated recognition of a portion of the
entitlements pursuant to the escrowed share grant arrangement for certain
employees ($1,196) and the write-off of furniture, fixtures and leasehold
costs at redundant locations ($1,005). Also included in this charge is a
non-cash donation expense related to the issuance and donation of 400
shares of Trizec Properties common stock, par value $0.01, to each of 100
charitable organizations for REIT qualification purposes. The aggregate
40,000 shares of Common Stock have been estimated by management to have a
fair value of approximately $2,000.                                                                                               
|  
|   |  | During 2000, the Corporation recorded $4,200 for employee severance and
benefits associated with the planned wind-down of the
retail/entertainment business. In addition, the Corporation incurred
$2,480 of incremental professional advisory fees in order to explore
certain strategic transactions and costs incurred to qualify as a REIT.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|  
|   |  | 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, has reduced its accrual for anticipated expenditures by
$3,260. At December 31, 2002, an amount of $3,482 (December 31, 2001 -
$18,345) was included in other accrued liabilities with respect to these
liabilities.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|  
|9. |  | PROVISION FOR LOSS ON REAL ESTATE                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|  
|   |  | At December 31, 2002, the Corporation owned three retail/entertainment
properties. The Hollywood & Highland complex (including the hotel) in
Los Angeles, California and Paseo Colorado in Pasadena, California opened
in the fourth quarter of 2001. Desert Passage in Las Vegas, Nevada
opened in 2000. At December 31, 2001, the properties had been classified
as held for disposition.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|  
|   |  | Hollywood & Highland and Desert Passage depend on tourism for a
significant portion of their visitors. The September 11, 2001 terrorist
attacks and the continuing threat of terrorism have impacted the levels
of visitors at both projects. Further, the unaffiliated owners of the
Aladdin Hotel and Casino, which adjoins Desert Passage, filed for Chapter
11 reorganization in September 2001 and continues to operate while under
the supervision of the bankruptcy court. External appraisals indicated
that the value of these properties and residual lands had declined as of
December 31, 2001. Accordingly, the Corporation recorded a provision for
loss in the fourth quarter of 2001 to reduce the carrying value of these
properties in the amount of $239.4 million , including $46.9 million for
the hotel component of Hollywood & Highland, which represents the
corporations pro rata share of the provision for loss which is recorded
in (loss) income from unconsolidated real estate joint ventures.

F-32



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Notes to the Financial Statements
$ thousands, except share and per share amounts



|9.  |  | PROVISION FOR LOSS ON REAL ESTATE (CONTD)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | The results of operations of both projects did not meet the levels
expected in 2002 and the Corporation believes the fair value of these
properties has declined further. Accordingly, an additional provision
for loss in the amount of $238.4 million, consisting of $181.4 million
for Hollywood & Highland (including $38.9 million for the hotel) and
$57.0 million for Desert Passage, was recorded in the quarter ended
September 30, 2002, based on internal valuations. Further, the
Corporation anticipates that it will take considerably longer than
originally expected to stabilize these properties until the Corporation
determines it can realize an acceptable level of value upon disposition,
and that their sale prior to the end of 2003 is unlikely. As a result,
the book value of the properties  $120.1 million for Hollywood and
Highland retail, excluding the hotel component which is included in
investments in unconsolidated real estate joint ventures (See Note 4),
and $207.0 million for Desert Passage  had been reclassified from
properties held for disposition to properties held for the long term at
September 30, 2002.
|   
|    |  | On January 15, 2003, Paseo Colorado was sold.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   
|    |  | The Corporation acquired three technology center development properties
in Seattle, Boston and Chicago, in late 2000. During 2001, the
Corporation explored alternatives other than developing these properties
as technology centers. After considering these alternatives, the
Corporation decided to dispose of these properties. As a result, the
Corporation recorded a provision for loss of $62.9 million for the year
ended December 31, 2001. In addition, a provision for loss of $2.7
million was recorded related to the planned sale of two non-core U.S.
office assets.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   
|10. |  | PROVISION FOR AND LOSS ON INVESTMENTS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   
|    |  | As described in Note 5, during the year ended December 31, 2002, the
Corporation recorded a loss on its investment in the Sears Tower of $48.3
million. On December 5, 2002, the Corporation sold its interest in
Chelsfield plc for approximately $76.6 million, resulting in a loss of
$12.7 million.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   
|    |  | During the year ended December 31, 2001, the Corporation fully provided
for the cost of securities investments in certain building
telecommunication and service providers, recording a $15,371 charge,
which was net of the recognition of $3,542 of deferred license revenue on
licenses that were terminated, as events and circumstances confirmed that
the decline in value of these assets was considered to be other than
temporary. This provision included the Corporations investment in
Allied Riser Communications Corporation, Broadband Office Inc., Cypress
Communications Inc. and OnSite Access Inc., which were originally
received at no cash cost in exchange for providing licenses for building
access rights.                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   
|    |  | In addition, included in the provision for loss is the investment in
Captivate Network Inc., a privately held company, which was the
Corporations only other investment in a building service provider. This
investment consisted of common stock and warrants convertible into common
stock. In November 2001, the Corporations subordinate ownership equity
interest was significantly diluted as a result of preferential funding by
other investors.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

F-33



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##### Table of Contents



Notes to the Financial Statements
$ thousands, except share and per share amounts



|11. |  | INCOME AND OTHER CORPORATE TAXES                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|a.  |  | 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 loss available to common shareholders to taxable
income for the years ended December 31, 2002 and 2001.

|                                                         |  |                                 |          |      |  |   |          |  
|-------------------------------------------------------- |  | ------------------------------- | -------- | ---- |  | - | -------- | -
|                                                         |  | For the Years Ended December 31
|                                                         |  |                                
|                                                         |  | 2002                            |          | 2001
|                                                         |  |                                 |          |     
|Net Loss Available to Common Shareholders                |  | $                               | (188,783 | )    |  | $ | (152,491 | )
|Elimination of earnings from unconsolidated subsidiaries |  |                                 | 86       |      |  |   | 222,931  |  
|Special dividend not deductible for tax                  |  |                                 | 866      |      |  |   |         |  
|Book/tax differences on gains (losses) from disposition  |  |                                 | (17,698  | )    |  |   | 2,846    |  
|Straight-line rent adjustments                           |  |                                 | (40,109  | )    |  |   | (22,334  | )
|Depreciation and amortization timing differences         |  |                                 | 1,794    |      |  |   | 13,915   |  
|Net operating loss utilized                              |  |                                 | (10,927  | )    |  |   |         |  
|Revenue recognition timing differences                   |  |                                 | 21,761   |      |  |   | (3,805   | )
|Provision for losses not deductible for tax              |  |                                 | 316,410  |      |  |   | 86,713   |  
|Other book/tax differences, net                          |  |                                 | 1,202    |      |  |   | (4,851   | )
|                                                         |  |                                 |          |      |  |   |          |  
|REIT Taxable Income                                      |  | $                               | 84,602   |      |  | $ | 142,924  |  
|                                                         |  |                                 |          |      |  |   |          |  



|b. |  | Provision for Income and Other Corporate Taxes                                                                                                                        
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | The information which follows presents Trizec Properties on a pre-and
post-REIT qualification basis. The provision for income and other
corporate taxes is as follows:

|                    |                                                         |   |          |                               |   |                                 |         |        |   |      |         |        |   |   |         |  
|------------------- | ------------------------------------------------------- | - | -------- | ----------------------------- | - | ------------------------------- | ------- | ------ | - | ---- | ------- | ------ | - | - | ------- | -
|                    |                                                         |   |          |                               |   | For the years ended December 31
|                    |                                                         |   |          |                               |   |                                
|                    |                                                         |   |          |                               |   | 2002                            |         | 2001   |   | 2000
|                    |                                                         |   |          |                               |   |                                 |         |        |   |     
|(Provision) Benefit |                                                         |   |          |                               |   |                                 |         |        |   |      |         |       
|                    | Income taxes                                            |   |          |                               |   |                                 |         |        |   |      |         |        |  
|                    |                                                         |   | Current  |                               |   |                                 |         |        |   |      |         |        |   |   |        
|                    |                                                         |   |          | REIT election                 |   | $                               |        |        |   | $    |        |        |   | $ | (53,294 | )
|                    |                                                         |   | Deferred |                               |   |                                 |         |        |   |      |         |        |   |   |        
|                    |                                                         |   |          | Operations                    |   |                                 |        |        |   |      | (7,277  | )      |   |   | (49,410 | )
|                    |                                                         |   |          | REIT election                 |   |                                 |         |        |   |      |        |        |   |   | 364,950 |  
|                    |                                                         |   |          | Contribution of TREHI to REIT |   |                                 |        |        |   |      | (1,649  | )      |   |   |        |  
|                    | Franchise, capital, alternative minimum and foreign tax |   |          | (4,896                        | ) |                                 |         | (4,869 | ) |      |         | (9,406 | )
|                    |                                                         |   |          |                               |   |                                 |         |        |   |      |         |       
|                    |                                                         | $ | (4,896   | )                             |   | $                               | (13,795 | )      |   | $    | 252,840 |       
|                    |                                                         |   |          |                               |   |                                 |         |        |   |      |         |       



| |  | Deferred income taxes resulted primarily from temporary differences and
the timing of recognition of net operating loss carry-forwards and asset
cost bases, as well as differences in asset useful lives and depreciation
methods, for financial and tax reporting purposes. Deferred taxes have
been provided for the following:
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | For Trizec Properties prior to electing REIT status;.          
| | - |  | ---------------------------------------------------------------
|
| |  |  | For TREHI, prior to being contributed to Trizec Properties; and
|
| |  |  | For other companies outside the Trizec Properties group.       



| |  | Deferred taxes were nominal for the year ended December 31, 2002.
Deferred taxes for the years ended December 31, 2001 and 2000 were
determined using a rate of 35% and 39.45%, respectively, which reflects a
federal rate of 34% for both years and a weighted average state rate of
1% and 4.45%, respectively.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-34



---



##### Table of Contents



Notes to the Financial Statements
$ thousands, except share and per share amounts



|11. |  | INCOME AND OTHER CORPORATE TAXES (CONTD)                                                                                                                                                 
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|b.  |  | Provision for Income and Other Corporate Taxes (Contd)                                                                                                                                   
|   
|    |  | TREHI was contributed to Trizec Properties during 2002. As a result,
TREHIs remaining deferred tax asset at December 31, 2001 of $1,649 was
eliminated and charged to income tax expense.
|   
|    |  | The provision for taxes on income differs from the provision computed at
statutory rates as follows:                                                                                      

|                                                                                 |  |                                 |        |      |  |      |         |   |  |   |         |  
|-------------------------------------------------------------------------------- |  | ------------------------------- | ------ | ---- |  | ---- | ------- | - |  | - | ------- | -
|                                                                                 |  | For the years ended December 31
|                                                                                 |  |                                
|                                                                                 |  | 2002                            |        | 2001 |  | 2000
|                                                                                 |  |                                 |        |      |  |     
|Provision computed at combined federal and state
statutory rates                 |  | $                               |       |      |  | $    |        |   |  | $ | (51,706 | )
|Franchise, capital, alternative minimum and foreign tax                          |  |                                 | (4,896 | )    |  |      | (4,869  | ) |  |   | (9,406  | )
|TREHI income tax recovery computed at combined federal
and state statutory rates |  |                                 |       |      |  |      | 73,768  |   |  |   |        |  
|TREHI allowance for loss not tax effected                                        |  |                                 |       |      |  |      | (82,734 | ) |  |   |        |  
|Contribution of TREHI to REIT                                                    |  |                                 |       |      |  |      | (1,649  | ) |  |   |        |  
|Impact of REIT election on Trizec Properties                                     |  |                                 |       |      |  |      |        |   |  |   | 311,656 |  
|Other                                                                            |  |                                 |       |      |  |      | 1,689   |   |  |   | 2,296   |  
|                                                                                 |  |                                 |        |      |  |      |         |   |  |   |         |  
|(Provision) Benefit                                                              |  | $                               | (4,896 | )    |  | $    | (13,795 | ) |  | $ | 252,840 |  
|                                                                                 |  |                                 |        |      |  |      |         |   |  |   |         |  



|c. |  | Impact of REIT Election                                                                                             
|-- |  | --------------------------------------------------------------------------------------------------------------------
|  
|   |  | Trizec Properties conversion to REIT status had the following impact on
taxes for the year ended December 31, 2000:

|                                                                                     |  |                    |         |  
|------------------------------------------------------------------------------------ |  | ------------------ | ------- | -
|                                                                                     |  | For the year ended
|                                                                                     |  | December 31, 2000 
|                                                                                     |  |                   
|Benefit (provision)                                                                  |  |                    |         |  
|i. Elimination of Trizec Properties net deferred tax liability at December 31, 2000 |  | $                  | 364,950 |  
|ii. Current taxes payable arising from REIT election                                 |  |                    | (53,294 | )
|                                                                                     |  |                    |         |  
|Net tax benefit                                                                      |  | $                  | 311,656 |  
|                                                                                     |  |                    |         |  



| | i.  |  | Trizec Properties believes that, as a REIT, it will not be
liable for income taxes at the federal level in the United States to
the extent of the income it distributes, or in most of the states in
which it operates, from 2001 forward. Accordingly, the Corporation
reduced Trizec Properties existing deferred tax assets and
liabilities relating to future years by crediting the income
statement with an amount totaling $364,950 at December 31, 2000.
| | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | ii. |  | The election of REIT status resulted in the deemed
liquidation of all subsidiaries owned by Trizec Properties. The gain
arising from this deemed liquidation will result in net taxes
payable which was estimated at $53.3 million as of December 31, 2000
and is now estimated to be $51.6 million as of December 31, 2002.                                                                                                                                     

F-35



---



##### Table of Contents



Notes to the Financial Statements
$ thousands, except share and per share amounts



|12. |  | GAIN (LOSS) ON DISPOSITION OF REAL ESTATE                                                                                                             
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | During the years presented, the Corporation disposed of the following
properties and recorded the following gain (loss) on disposition of real
estate:
|   
|a.  |  | Dispositions During the Year Ended December 31, 2002 Under Transition
Rules of SFAS No. 144                                                           

|            |  |                          |  |               |  |        |         |       |  |             |        |       |  |      |        |  |  |   |       | 
|----------- |  | ------------------------ |  | ------------- |  | ------ | ------- | ----- |  | ----------- | ------ | ----- |  | ---- | ------ |  |  | - | ----- | 
|Date        |  |                          |  |               |  |        |         |       |  | Rentable    |        | Sales |  | Gain
|Sold        |  | Property                 |  | Location      |  | Sq.ft. |         | Price |  | On Sale    
|            |  |                          |  |               |  |        |         |       |  |            
|            |  |                          |  |               |  |        |         |       |  | (unaudited) |        |       |  |      |        |  |  |  
|January 31  |  | Hanover Office Park      |  | Greenbelt, MD |  |        | 16,000  |       |  | $           | 877    |       |  | $    | 31     | 
|February 20 |  | Valley Industrial Park   |  | Seattle, WA   |  |        |        |       |  |             | 27,301 |       |  |      | 64     | 
|April 24    |  | Perimeter Woods          |  | Charlotte, NC |  |        | 313,000 |       |  |             | 26,119 |       |  |      | 34     | 
|June 11     |  | Clybourn Center          |  | Chicago, IL   |  |        |        |       |  |             | 11,599 |       |  |      | 1,710  | 
|Various     |  | Residual lands and other |  | Various       |  |        |        |       |  |             | 4,849  |       |  |      | 1,157  | 
|            |  |                          |  |               |  |        |         |       |  |             |        |       |  |      |        |  |  |   |       | 
|            |  |                          |  |               |  |        |         |       |  |             |        |       |  | $    | 70,745 |  |  | $ | 2,996 | 
|            |  |                          |  |               |  |        |         |       |  |             |        |       |  |      |        |  |  |   |       | 



|b. |  | Dispositions During the Year Ended December 31, 2001
|-- |  | ----------------------------------------------------

|           |  |                            |  |              |  |        |         |       |  |             |        |       |  |             |         |   |  |   |        |  
|---------- |  | -------------------------- |  | ------------ |  | ------ | ------- | ----- |  | ----------- | ------ | ----- |  | ----------- | ------- | - |  | - | ------ | -
|Date       |  |                            |  |              |  |        |         |       |  | Rentable    |        | Sales |  | Gain/(Loss)
|Sold       |  | Property                   |  | Location     |  | Sq.ft. |         | Price |  | On Sale    
|           |  |                            |  |              |  |        |         |       |  |            
|           |  |                            |  |              |  |        |         |       |  | (unaudited) |        |       |  |             |         |   |  |  
|January 16 |  | Camp Creek Business Center |  | Atlanta, GA  |  |        | 258,000 |       |  | $           | 16,860 |       |  | $           | 497     |  
|January 19 |  | First Stamford Place       |  | Stamford, CT |  |        | 774,000 |       |  |             | 59,587 |       |  |             | 984     |  
|February 9 |  | Fisher/Albert Kahn         |  | Detroit, MI  |  |        | 905,000 |       |  |             | 28,677 |       |  |             | (5,116  | )
|June 30    |  | Park Central Land          |  | Dallas, TX   |  |        |        |       |  |             | 2,092  |       |  |             | 1,179   |  
|Various    |  | Residual lands             |  | Various      |  |        |        |       |  |             | 7,337  |       |  |             | 403     |  
|           |  |                            |  |              |  |        |         |       |  |             |        |       |  |             |         |   |  |   |        |  
|           |  |                            |  |              |  |        |         |       |  |             |        |       |  | $           | 114,553 |   |  | $ | (2,053 | )
|           |  |                            |  |              |  |        |         |       |  |             |        |       |  |             |         |   |  |   |        |  



|c. |  | Dispositions During the Year Ended December 31, 2000
|-- |  | ----------------------------------------------------

|             |  |                                |  |                 |  |        |         |       |  |             |        |       |  |        |         |   |  |       |        | 
|------------ |  | ------------------------------ |  | --------------- |  | ------ | ------- | ----- |  | ----------- | ------ | ----- |  | ------ | ------- | - |  | ----- | ------ | 
|             |  |                                |  |                 |  |        |         |       |  |             |        |       |  |        |         |   |  | Gain/
|Date         |  |                                |  |                 |  |        |         |       |  | Rentable    |        | Sales |  | (Loss)
|Sold         |  | Property                       |  | Location        |  | Sq.ft. |         | Price |  | On Sale    
|             |  |                                |  |                 |  |        |         |       |  |            
|             |  |                                |  |                 |  |        |         |       |  | (unaudited) |        |       |  |        |         |   |  |      
|June 15      |  | The Interchange                |  | Atlanta, GA     |  |        | 118,000 |       |  | $           | 16,012 |       |  | $      | 1,533   |  
|August 7     |  | Encino Gateway                 |  | Los Angeles, CA |  |        | 338,000 |       |  |             | 51,572 |       |  |        | (361    | )
|August 7     |  | The Pinkerton Building         |  | Los Angeles, CA |  |        | 200,000 |       |  |             | 32,462 |       |  |        | 6,360   |  
|September 1  |  | Newmarket Business Park (Land) |  | Atlanta, GA     |  |        |        |       |  |             | 1,909  |       |  |        | 329     |  
|September 6  |  | Fashion Outlet of Las Vegas    |  | Primm, NV       |  |        | 363,000 |       |  |             | 41,592 |       |  |        | 756     |  
|September 12 |  | One Concord Center             |  | Concord, CA     |  |        | 346,000 |       |  |             | 53,579 |       |  |        | 14,957  |  
|September 28 |  | Highlands Overlook             |  | Atlanta, GA     |  |        | 246,000 |       |  |             | 10,835 |       |  |        | (2,437  | )
|October 20   |  | Courthouse Square              |  | Alexandria, VA  |  |        | 114,000 |       |  |             | 16,143 |       |  |        | 1,993   |  
|November 3   |  | 6006 Executive Blvd            |  | Rockville, MD   |  |        | 42,000  |       |  |             | 7,504  |       |  |        | (815    | )
|November 3   |  | Twinbrook Metro Park           |  | Rockville, MD   |  |        | 554,000 |       |  |             | 78,672 |       |  |        | (10,031 | )
|November 20  |  | Two Pershing Square            |  | Kansas City, MO |  |        | 511,000 |       |  |             | 70,693 |       |  |        | 8,092   |  
|December 15  |  | Twinbrook Office Center        |  | Rockville, MD   |  |        | 163,000 |       |  |             | 26,897 |       |  |        | (13     | )
|December 21  |  | Spring Park/Sugarland West     |  | Herndon, VA     |  |        | 426,000 |       |  |             | 66,495 |       |  |        | 16,499  |  
|             |  |                                |  |                 |  |        |         |       |  |             |        |       |  |        |         |   |  |       |        | 
|             |  |                                |  |                 |  |        |         |       |  |             |        |       |  | $      | 474,365 |   |  | $     | 36,862 | 
|             |  |                                |  |                 |  |        |         |       |  |             |        |       |  |        |         |   |  |       |        | 



| |  | In conjunction with the sales in 2000, the Corporation incurred
prepayment premiums, wrote-off unamortized deferred financing costs and
incurred other costs for the early retirement of debt totaling $2,319
($1,491, net of tax). This has been recorded as an extraordinary item in
the statement of operations.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-36



---



##### Table of Contents



Notes to the Financial Statements
$ thousands, except share and per share amounts



|13. |  | GAIN ON DISPOSITION OF DISCONTINUED REAL ESTATE                                                                               
|--- |  | ------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | During 2002, the Corporation sold the following properties that had been
designated as held for sale pursuant to SFAS No. 144:

|            |  |                                   |  |                 |  |        |         |       |   |             |        |       |        |        |        |   |  |       |        | 
|----------- |  | --------------------------------- |  | --------------- |  | ------ | ------- | ----- | - | ----------- | ------ | ----- | ------ | ------ | ------ | - |  | ----- | ------ | 
|            |  |                                   |  |                 |  |        |         |       |   |             |        |       |        |        |        |   |  | Gain/
|Date        |  |                                   |  |                 |  |        |         |       |   | Rentable    |        | 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 |       |        |        | 3,339  |  
|October 17  |  | McKinney Place                    |  | Dallas, TX      |  |        |         |       |   |             | 12,650 |       |        |        | 1,881  |  
|December 11 |  | Warner Center                     |  | Los Angeles, CA |  |        |         |       |   |             | 32,428 |       |        |        | 9,693  |  
|            |  |                                   |  |                 |  |        |         |       |   |             |        |       |        |        |        |   |  |       |        | 
|            |  |                                   |  |                 |  |        |         |       |   |             |        |       |        | $      | 78,229 |   |  |       | 14,716 | 
|            |  | Provision for loss on real estate |  |                 |  |        |         |       |  |             |        |       | (9,782 | )     
|            |  |                                   |  |                 |  |        |         |       |   |             |        |       |        |        |        |   |  |       |        | 
|            |  |                                   |  |                 |  |        |         |       |   |             |        |       |        | $      | 78,229 |   |  | $     | 4,934  | 
|            |  |                                   |  |                 |  |        |         |       |   |             |        |       |        |        |        |   |  |       |        | 



|    |  | At December 31, 2002, the fair value less selling costs of one office
property, Goddard Corporate Park in Lanham, Maryland, held for
disposition was $9.8 million less than the carrying value of the
property.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|14. |  | RELATED PARTY INFORMATION                                                                                                                                                                                      
|   
|a.  |  | Transactions During 2002                                                                                                                                                                                       



| | (i)   |  | TREHI                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | ----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |       |  | On January 1, 2002, TREHI settled its existing advance from parent
of $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 $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 $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 $29.1 million, 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 million. The Corporation owned approximately 19.5 million
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 million
and retired a $35 million non-interest bearing advance from the
Corporation.

F-37



---



##### Table of Contents



Notes to the Financial Statements
$ thousands, except share and per share amounts



|14. |  | RELATED PARTY INFORMATION (CONTD)
|--- |  | ----------------------------------
|   
|a.  |  | Transactions During 2002 (Contd) 



| | (iii) |  | Contribution of Chelsfield plc (Contd)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | ----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |       |  | 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 $76.6 million. The Corporation recorded a loss of
approximately $12.7 million.                                                                                      
|
| | (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 $4.3 million. During the year ended December 31,
2002, the Corporation received approximately $3.7 million related
to the disposition of a portion of its interest in Borealis.



|b. |  | Transactions During 2001
|-- |  | ------------------------



| | (i)  |  | On September 17, 2001, $34,000 in cash dividends were paid on
Trizec Properties Common Stock.           
| | ---- |  | --------------------------------------------------------------------------------------------------------
|
| | (ii) |  | In connection with the Reorganization, the Corporation
completed the following transactions during 2001.



| |  |  | The Corporation declared and paid a cash dividend
of $465,000 to all common stockholders, representing pre-REIT
earnings and profits and estimated 2001 taxable income.                             
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | On December 3, 2001, all outstanding shares of
Trizec Properties Series A Convertible Preferred Stock were
converted into 357.6 shares of Trizec Properties Common Stock,
par value $0.01 per share.
|
| |  |  | On December 3, 2001, Trizec Properties entered
into a recapitalization agreement with its sole shareholder
pursuant to which:                                                                       
|

| |  |  | all issued and outstanding shares of Trizec
Properties Common Stock were exchanged for 38,000,000
shares of Trizec Properties Common Stock, par value $0.01
per share;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | 100 shares of Trizec Properties Special
Voting Stock, par value $0.01 per share, were issued; and,                                                                    
|
| |  |  | 100,000 shares of Trizec Properties Class F
Convertible Stock, par value $0.01 per share, were issued.                                                                
|

| |  |  | On December 11, 2001 certain U.S. technology
center assets that were included in these combined
consolidated financial statements but held directly by
TrizecHahn were transferred to the Corporation. Pursuant to
the Reorganization, these assets, net of related debt and
other liabilities, which were held by a separate subsidiary of
TrizecHahn (823 Inc.), were contributed to the Corporation
in consideration for issuing to TrizecHahn 180,000 shares of
Trizec Properties Common Stock, par value $0.01 per share. As
a result of this transaction, Trizec Properties Common Stock
and Additional paid-in capital was increased by $2 and $16,548
respectively, with a corresponding decrease to Advances to
parent and affiliated companies. As a consequence, 823 Inc.
became a wholly-owned subsidiary of Trizec Properties.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-38



---



##### Table of Contents



Notes to the Financial Statements
$ thousands, except share and per share amounts



|14. |  | RELATED PARTY INFORMATION (CONTD)
|--- |  | ----------------------------------
|   
|b.  |  | Transactions During 2001 (Contd) 



| | (ii) |  | In connection with the Reorganization, the Corporation
completed the following transactions during 2001. (contd)
| | ---- |  | -----------------------------------------------------------------------------------------------------------------



| |  |  | On December 28, 2001 the Corporation filed an
amended and restated Certificate of Incorporation authorizing
750,000 shares of Class C Convertible Preferred Stock, par
value $1.00 per share. Pursuant to a private placement
offering of Class C Convertible Preferred Stock to its common
stockholders, and subscriptions thereof, Class C Convertible
Preferred Stock was subscribed for in the amount of $414,154.
The price per share was $1,100.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|c. |  | Transactions During 2000                                                                                                                                                                                                                                                                                  
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | On December 18, 2000, the Corporation issued 750,000 shares of Series B
Preferred Stock to THOPL. The consideration for the preferred shares was
a reduction, pursuant to the trust indenture, in the amount of $750,000,
of the principal amount of the 12% Senior Notes due to THOPL by the
Corporation.
|  
|   |  | On December 19, 2000, THOPL contributed the 750,000 shares of Series B
Preferred Stock to Trizec Properties direct parent company.                                                                                                                                                                       
|  
|d. |  | Other Related Party Information                                                                                                                                                                                                                                                                           

|                                                                                            |                                                    |   |             |   |      |   |         |         | 
|------------------------------------------------------------------------------------------- | -------------------------------------------------- | - | ----------- | - | ---- | - | ------- | ------- | 
|                                                                                            |                                                    |   | December 31
|                                                                                            |                                                    |   |            
|                                                                                            |                                                    |   | 2002        |   | 2001
|                                                                                            |                                                    |   |             |   |     
|Non-interest bearing advances from Trizec Properties
to the parent and affiliated companies |                                                    | $ |            |   |      | $ | 90,633  |        
|                                                                                            |                                                    |   |             |   |      |   |         |        
|Advances from the parent and affiliated companies                                           |                                                    |   |             |   |      |   |         |        
|                                                                                            | Non-interest bearing advances to Trizec Properties |   | $           |  |      |   | $       | 236,619 | 
|                                                                                            | Non-interest bearing advances to TREHI             |   | $           |  |      |   | $       | 236,619 | 
|                                                                                            |                                                    |   |             |   |      |   |        
|                                                                                            |                                                    | $ |            |   |      | $ | 236,619 |        
|                                                                                            |                                                    |   |             |   |      |   |         |        



| |  | As part of the Reorganization, TrizecHahn repaid its remaining advances
from the Corporation. At December 31, 2001, the non-interest bearing
advances from and to the parent and affiliated companies were unsecured
and due on demand.                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Included in interest expense for the year ended December 31, 2002 is $0
(year ended December 31, 2001  $0; 2000  $86,200) of interest expense
paid to the parent and affiliated companies. On December 18, 2000 the
Corporation repaid $750,000 Senior Notes payable through the issuance of
Series B Preferred Stock. These notes bore interest at 12%.                                                                                                                                                                                                                                                                                                                                
|
| |  | 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
$10,915, $7,102 and $7,428, for the years ended December 31, 2002, 2001
and 2000, respectively.                                                                                                                                                                                                                           
|
| |  | In connection with the corporate reorganization, the Corporation entered
into a tax cooperation agreement with THOPL. Under the agreement, the
Corporation has agreed to continue to conduct its business activities
with regard to the consequences under Canadian tax legislation to THOPL,
related Canadian corporations and Trizec Canada. 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.

F-39



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##### Table of Contents



Notes to the Financial Statements
$ thousands, except share and per share amounts



|15. |  | REDEEMABLE STOCK                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | The following classes of stock have been presented on the balance sheet
outside of shareholders equity as a result of the redemption features
available to the holders of the stock.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   
|a.  |  | Class F Convertible Stock                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   
|    |  | On December 3, 2001 the Corporation issued 100,000 shares (authorized
100,000 shares) of Class F Convertible Stock with a par value $0.01 of
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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   
|    |  | Cumulative undeclared dividends on the Class F Convertible Stock are $5
(2001  $0; 2000  $0).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   
|    |  | 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, 2002 and 2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   
|b.  |  | Special Voting Stock                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   
|    |  | On December 3, 2001, the Corporation issued 100 shares (authorized 100
shares) of Special Voting Stock with a par value $0.01 of 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, 2002 and 2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

F-40



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##### Table of Contents



Notes to the Financial Statements
$ thousands, except share and per share amounts



|16. |  | SHAREHOLDERS EQUITY                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|a.  |  | 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 shareholders and by third-party charities.
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 expiry 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 will be recognized into earnings over the
vesting period of the options.                                                                                                                                                                                                                                                                                                                                                     
|   
|b.  |  | Series A Convertible Preferred Stock                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   
|    |  | The Series A Preferred Stock was non-voting, entitled to
non-participating and non-cumulative dividends as may have been
determined by the Board of Directors, redeemable at the Corporations
option at $1,000 per share, and convertible at the holders option into a
number of shares of Common Stock based on a defined formula. On December
3, 2001, all outstanding Series A Convertible Preferred Stock was
cancelled and converted into 357.6 shares of Common Stock.                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   
|c.  |  | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   
|    |  | During 2000, 750,000 shares of Series B Preferred Stock with a par value
of $1.00 were authorized and issued to THOPL.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   
|    |  | 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 was converted into Common Stock.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   
|    |  | Cumulative undeclared dividends on the Series B Preferred Stock are $0 at
December 31, 2002 (2001  $137,723; 2000  $55,223).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

F-41



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##### Table of Contents



Notes to the Financial Statements
$ thousands, except per share and per share amounts



|16. |  | SHAREHOLDERS EQUITY (CONTD)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|d.  |  | 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 Series B Convertible
Preferred Stock (except four shares held by a charity which were
converted on May 21, 2002) were converted into Common Stock.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   
|    |  | Cumulative undeclared dividends on the Class C Convertible Preferred
Stock are $0 at December 31, 2002 (2001  $238; 2000  $0).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   
|e.  |  | 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.                                                                                                                                                                                                                                                                                                                                                                                  
|   
|    |  | Subsequent to the Reorganization, the Corporation declared and paid three
quarterly dividends of $0.0875 per Common Share totaling $39,383 million.
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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   
|    |  | On September 17, 2001, $34,000 in cash dividends were paid to common
stockholders. On December 17, 2001, $465,000 in cash dividends were paid
to common stockholders. These cash dividends have been reflected as a
distribution of retained earnings of $213,657 and as a reduction of
additional paid-in capital of $285,343 being the amount in excess of
available Trizec Properties combined retained earnings at the time these
dividends were declared. For federal income tax purposes, 98.3% of the
dividends paid in 2001 represented ordinary income; 0.9% represented a
return of capital; 0.4% represented capital gains at 20%; and, 0.4%
represented capital gains at 25%.                                                                                       
|   
|f.  |  | Stock Options                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   
|    |  | The Trizec Properties, Inc. 2002 Stock Option Plan (the Plan) was
adopted on May 8, 2002, the effective date of the Reorganization. Under
the Plan, awards to purchase shares of the Corporations Common Stock at
prices which are not below the market price at the time of the granting
of the options may be granted to all employees and all non-employee
directors. 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.
|   
|    |  | A maximum of 19,000,000 shares of Trizec Properties Common Stock were
approved to be issued under the Plan. At December 31, 2002, 9,631,068
options were available for future awards.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

F-42



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##### Table of Contents



Notes to the Financial Statements
$ thousands, except per share and per share amounts



|16. |  | SHAREHOLDERS EQUITY (CONTD)                                                                                                                                                                                                      
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|f.  |  | Stock Options (Contd)                                                                                                                                                                                                             
|   
|    |  | The table below shows the movements during the year ended December 31,
2002 in the stock options that the Corporation has granted. Prior years
are not presented as the Corporation did not have a stock option plan
prior to 2002.
|   
|    |  | Stock Options                                                                                                                                                                                                                      

|                                 |                  |               |          |         |           |  |           |           | 
|-------------------------------- | ---------------- | ------------- | -------- | ------- | --------- |  | --------- | --------- | 
|                                 |                  |               | Weighted |         | Number of
|Exercise Price                   |                  | Average Price |          | Options
|                                 |                  |               |          |        
|Granted during 2002              |                  |               |          |         |           |  |           |          
|                                 | $11.00 to $15.92 |               | $        | 14.02   |           |  |           | 3,743,980 | 
|                                 | $15.93 to $18.41 |               | $        | 17.64   |           |  |           | 3,574,593 | 
|                                 | $18.42 to $22.01 |               | $        | 20.91   |           |  |           | 2,050,359 | 
|                                 |                  |               |          |         |           |  |           |          
|                                 |                  | $             | 16.91    |         |           |  | 9,368,932 |          
|                                 |                  |               |          |         |           |  |           |          
|Exercised during 2002            |                  |               |          |         |           |  |           |          
|                                 | $11.00 to $15.92 |               | $        | 14.49   |           |  |           | 124,400   | 
|                                 | $15.93 to $18.41 |               | $        |        |           |  |           |          | 
|                                 | $18.42 to $22.01 |               | $        |        |           |  |           |          | 
|                                 |                  |               |          |         |           |  |           |          
|                                 |                  | $             | 14.49    |         |           |  | 124,400   |          
|                                 |                  |               |          |         |           |  |           |          
|Cancelled during 2002            |                  |               |          |         |           |  |           |          
|                                 | $11.00 to $15.92 |               | $        | 14.88   |           |  |           | 75,850    | 
|                                 | $15.93 to $18.41 |               | $        | 18.28   |           |  |           | 205,500   | 
|                                 | $18.42 to $22.01 |               | $        | 20.37   |           |  |           | 387,750   | 
|                                 |                  |               |          |         |           |  |           |          
|                                 |                  | $             | 19.11    |         |           |  | 669,100   |          
|                                 |                  |               |          |         |           |  |           |          
|Outstanding at December
31, 2002 |                  |               |          |         |           |  |           |          
|                                 | $11.00 to $15.92 |               | $        | 13.99   |           |  |           | 3,543,730 | 
|                                 | $15.93 to $18.41 |               | $        | 17.60   |           |  |           | 3,369,093 | 
|                                 | $18.42 to $22.01 |               | $        | 21.03   |           |  |           | 1,662,609 | 
|                                 |                  |               |          |         |           |  |           |          
|                                 |                  | $             | 16.77    |         |           |  | 8,575,432 |          
|                                 |                  |               |          |         |           |  |           |          



| |  | During the year ended December 31, 2002, 3,528,980 options were granted
at exercise prices below the then market price with a weighted average
price of $11.02, 1,000,000 options were granted at the then market price
and 4,839,952 options were granted at exercise prices above the then
market price with a weighted average price of $11.13.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The following table summarizes certain information about the outstanding
options at December 31, 2002.                                                                                                                                                                                                                                            

|                 |  |                     |           |                     |  |                  |      |                    |  |       |       |  |  |                    |           |  |  |   |       | 
|---------------- |  | ------------------- | --------- | ------------------- |  | ---------------- | ---- | ------------------ |  | ----- | ----- |  |  | ------------------ | --------- |  |  | - | ----- | 
|                 |  | Outstanding Options |           | Exercisable Options
|                 |  |                     |           |                    
|                 |  |                     |           |                     |  | Wtd. Avg. years  |      |                    |  |       |       |  |  |                    |           |  |  |  
|                 |  |                     |           |                     |  | remaining before |      | Wtd. Avg. Exercise |  |       |       |  |  | Wtd. Avg. Exercise
|Range of Prices  |  | Number Outstanding  |           | expiration          |  | Price            |      | Number Exercisable |  | Price
|                 |  |                     |           |                     |  |                  |      |                    |  |      
|$11.00 to $15.92 |  |                     | 3,543,730 |                     |  |                  | 6.40 |                    |  | $     | 13.99 |  |  |                    | 2,422,655 |  |  | $ | 13.61 | 
|$15.93 to $18.41 |  |                     | 3,369,093 |                     |  |                  | 4.76 |                    |  |       | 17.60 |  |  |                    | 1,398,093 |  |  |   | 17.97 | 
|$18.42 to $22.01 |  |                     | 1,662,609 |                     |  |                  | 5.00 |                    |  |       | 21.03 |  |  |                    | 1,493,443 |  |  |   | 21.23 | 
|                 |  |                     |           |                     |  |                  |      |                    |  |       |       |  |  |                    |           |  |  |   |       | 
|                 |  |                     | 8,575,432 |                     |  |                  | 5.38 |                    |  | $     | 16.77 |  |  |                    | 5,314,191 |  |  | $ | 16.90 | 
|                 |  |                     |           |                     |  |                  |      |                    |  |       |       |  |  |                    |           |  |  |   |       | 



| |  | The per share weighted average fair value of options granted during 2002
was $1.63. No options were granted prior to the Reorganization. The per
share fair value of each option granted is estimated on the date of grant
using the Black-Scholes option-pricing model. In determining the fair
values of the options, the Corporation assumed a dividend yield of 8.2%,
a volatility of 25.5%; expected share price of between $11.94 and $16.82;
interest rates between 3.32% and 4.61% with a weighted average interest
rate of 4.47%; and, the expected life of 5 years. The compensation costs
under SFAS No. 123 Accounting for Stock Based Compensation would be on
a pro forma basis, $11,791, $0 and $0 for the years ended December 31,
2002, 2001 and 2000, respectively.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-43



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##### Table of Contents



Notes to the Financial Statements
$ thousands, except per share and per share amounts



|16. |  | SHAREHOLDERS EQUITY (CONTD)                                                                                                                                                                                                                                                                   
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|g.  |  | Warrants                                                                                                                                                                                                                                                                                        
|   
|    |  | In connection with the Reorganization, the Corporation issued 8,772,418
warrants. The table below summarizes the movement in the warrants
outstanding during the year ended December 31, 2002. Prior years are not
presented as the Corporation did not have warrants outstanding prior to
2002.

|                                 |                  |               |       |          |  |           |           |           |  | 
|-------------------------------- | ---------------- | ------------- | ----- | -------- |  | --------- | --------- | --------- |  | 
|                                 |                  |               |       | Weighted |  | Number of
|Exercise Price                   |                  | Average Price |       | Warrants
|                                 |                  |               |       |         
|Granted during 2002              |                  |               |       |          |  |           |           |          
|                                 | $9.57 to $14.99  |               | $     | 12.39    |  |           |           | 3,922,417 | 
|                                 | $15.00 to $18.41 |               | $     | 16.59    |  |           |           | 2,980,244 | 
|                                 | $18.42 to $22.84 |               | $     | 20.64    |  |           |           | 1,869,757 | 
|                                 |                  |               |       |          |  |           |           |          
|                                 |                  | $             | 15.58 |          |  |           | 8,772,418 |          
|                                 |                  |               |       |          |  |           |           |          
|Exercised during 2002            |                  |               |       |          |  |           |           |          
|                                 | $9.57 to $14.99  |               | $     | 14.05    |  |           |           | 59,400    | 
|                                 | $15.00 to $18.41 |               | $     |         |  |           |           |          | 
|                                 | $18.42 to $22.84 |               | $     |         |  |           |           |          | 
|                                 |                  |               |       |          |  |           |           |          
|                                 |                  | $             | 14.05 |          |  |           | 59,400    |          
|                                 |                  |               |       |          |  |           |           |          
|Cancelled during 2002            |                  |               |       |          |  |           |           |          
|                                 | $9.57 to $14.99  |               | $     | 12.11    |  |           |           | 648,100   | 
|                                 | $15.00 to $18.41 |               | $     | 17.88    |  |           |           | 97,000    | 
|                                 | $18.42 to $22.84 |               | $     | 19.70    |  |           |           | 620,000   | 
|                                 |                  |               |       |          |  |           |           |          
|                                 |                  | $             | 15.97 |          |  |           | 1,365,100 |          
|                                 |                  |               |       |          |  |           |           |          
|Outstanding at December
31, 2002 |                  |               |       |          |  |           |           |          
|                                 | $9.57 to $14.99  |               | $     | 12.41    |  |           |           | 3,214,917 | 
|                                 | $15.00 to $18.41 |               | $     | 16.54    |  |           |           | 2,883,244 | 
|                                 | $18.42 to $22.84 |               | $     | 21.11    |  |           |           | 1,249,757 | 
|                                 |                  |               |       |          |  |           |           |          
|                                 |                  | $             | 15.51 |          |  |           | 7,347,918 |          
|                                 |                  |               |       |          |  |           |           |          



|h.  |  | 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.                                 
|   
|i.  |  | 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.
|   
|17. |  | EARNINGS PER SHARE                                                                                                                                                                                                                                                                                                                                                                                    
|   
|    |  | In connection with the Reorganization, the Corporation modified the
number of its issued and outstanding shares of Common Stock as described
in Note 16 (a) 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 or warrants being outstanding on May
8, 2002.                          
|   
|    |  | At December 31, 2002, the Corporation had 150,029,664 shares of common
stock outstanding after deducting 3,646 shares held in treasury.                                                                                                                                                                                                                                                               
|   
|    |  | For determining basic earnings per share, the weighted average number of
shares outstanding was 149,477,187 for the year ended December 31, 2002.
Not included in the computation of diluted income per share, as they
would have had an anti-dilutive effect, were 8,575,432 stock options and
7,347,918 warrants.                                                                                   

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##### Table of Contents



Notes to the Financial Statements
$ thousands, except per share and per share amounts



|17. |  | EARNINGS PER SHARE (CONTD)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | The dilutive shares were calculated based on $12.61 per share, which
represents the average daily trading price from May 8, 2002, the date the
Corporations Common Stock began regular trading, to December 31, 2002.                                                                                                                                                                                                                                                                                                  
|   
|    |  | For periods prior to May 8, 2002, earnings per share are referred to as
proforma.                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   
|    |  | For determining basic earnings per share, the weighted average number of
shares outstanding was 149,849,246 for the years ended December 31, 2001
and 2000. For the year ended December 31, 2001, not included in the
computation of diluted earnings per share were 8,368,932 options and
8,772,418 warrants as they would have had an anti-dilutive effect. The
dilutive shares were calculated based on $16.82 per share, which
represents the Corporations share price on the effective date of the
Reorganization.
|   
|    |  | For the year ended December 31, 2000, dilutive shares outstanding were
increased by 1,516,733 in respect of stock options, escrowed share grants
and warrants, that had a dilutive effect. Not included in the
computation of diluted income per share were 4,839,952 stock options and
2,959,898 warrants as they would have had an anti-dilutive effect. The
dilutive shares were calculated based on $16.82 per share, which
represents the Corporations share price on the Reorganization date.                    

|                                                                          |  |                                 |          |      |  |      |          |   |  |   |         |  
|------------------------------------------------------------------------- |  | ------------------------------- | -------- | ---- |  | ---- | -------- | - |  | - | ------- | -
|                                                                          |  | For the years ended December 31
|                                                                          |  |                                
|                                                                          |  | 2002                            |          | 2001 |  | 2000
|                                                                          |  |                                 |          |      |  |     
|(Loss) income from continuing operations                                  |  | $                               | (199,059 | )    |  | $    | (131,241 | ) |  | $ | 344,036 |  
|Gain (loss) on disposition of real estate                                 |  |                                 | 2,996    |      |  |      | (2,053   | ) |  |   | 36,862  |  
|Less: Dividends paid to special voting shareholders                       |  |                                 | (866     | )    |  |      |         |   |  |   |        |  
|                                                                          |  |                                 |          |      |  |      |          |   |  |   |         |  
|(Loss) Income from Continuing Operations Available
to Common Shareholders |  |                                 | (196,929 | )    |  |      | (133,294 | ) |  |   | 380,898 |  
|Discontinued operations                                                   |  |                                 | 8,146    |      |  |      | 3,400    |   |  |   | 3,589   |  
|Loss on early debt retirement                                             |  |                                 |         |      |  |      | (17,966  | ) |  |   | (1,491  | )
|Cumulative effect of a change in accounting principle                     |  |                                 |         |      |  |      | (4,631   | ) |  |   |        |  
|                                                                          |  |                                 |          |      |  |      |          |   |  |   |         |  
|Net (Loss) Income Available to Common Shareholders                        |  | $                               | (188,783 | )    |  | $    | (152,491 | ) |  | $ | 382,996 |  
|                                                                          |  |                                 |          |      |  |      |          |   |  |   |         |  

|                                                                          |  |   |       |   |  |          |       |   |  |   |       |  
|------------------------------------------------------------------------- |  | - | ----- | - |  | -------- | ----- | - |  | - | ----- | -
|                                                                          |  |   |       |   |  | Proforma
|                                                                          |  |   |       |   |  |         
|Basic Earnings per Common Share                                           |  |   |       |   |  |          |       |   |  |   |       |  
|(Loss) income from continuing operations available
to common shareholders |  | $ | (1.32 | ) |  | $        | (0.89 | ) |  | $ | 2.54  |  
|Discontinued operations                                                   |  |   | 0.06  |   |  |          | 0.02  |   |  |   | 0.03  |  
|Loss on early debt retirement                                             |  |   |      |   |  |          | (0.12 | ) |  |   | (0.01 | )
|Cumulative effect of a change in accounting principle                     |  |   |      |   |  |          | (0.03 | ) |  |   |      |  
|                                                                          |  |   |       |   |  |          |       |   |  |   |       |  
|Net (Loss) Income Available to Common Shareholders                        |  | $ | (1.26 | ) |  | $        | (1.02 | ) |  | $ | 2.56  |  
|                                                                          |  |   |       |   |  |          |       |   |  |   |       |  

|                                                                          |  |   |       |   |  |          |       |   |  |   |       |  
|------------------------------------------------------------------------- |  | - | ----- | - |  | -------- | ----- | - |  | - | ----- | -
|                                                                          |  |   |       |   |  | Proforma
|                                                                          |  |   |       |   |  |         
|Diluted Earnings per Common Share                                         |  |   |       |   |  |          |       |   |  |   |       |  
|(Loss) income from continuing operations available
to common shareholders |  | $ | (1.32 | ) |  | $        | (0.89 | ) |  | $ | 2.52  |  
|Discontinued operations                                                   |  |   | 0.06  |   |  |          | 0.02  |   |  |   | 0.02  |  
|Loss on early debt retirement                                             |  |   |      |   |  |          | (0.12 | ) |  |   | (0.01 | )
|Cumulative effect of a change in accounting principle                     |  |   |      |   |  |          | (0.03 | ) |  |   |      |  
|                                                                          |  |   |       |   |  |          |       |   |  |   |       |  
|Net (Loss) Income Available to Common Shareholders                        |  | $ | (1.26 | ) |  | $        | (1.02 | ) |  | $ | 2.53  |  
|                                                                          |  |   |       |   |  |          |       |   |  |   |       |  

|                                    |         |  |  |             |  |  |          |             |  |  |  |             | 
|----------------------------------- | ------- |  |  | ----------- |  |  | -------- | ----------- |  |  |  | ----------- | 
|                                    |         |  |  |             |  |  | Proforma
|                                    |         |  |  |             |  |  |         
|Weighted average shares outstanding |         |  |  |             |  |  |          |             |  |  |  |            
|                                    | Basic   |  |  | 149,477,187 |  |  |          | 149,849,246 |  |  |  | 149,849,246 | 
|                                    |         |  |  |             |  |  |          |             |  |  |  |            
|                                    | Diluted |  |  | 149,477,187 |  |  |          | 149,849,246 |  |  |  | 151,365,979 | 
|                                    |         |  |  |             |  |  |          |             |  |  |  |            

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##### Table of Contents



Notes to the Financial Statements
$ thousands, except per share and per share amounts



|18. |  | EMPLOYEE BENEFIT PLANS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|a.  |  | 401(k) Plans                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   
|    |  | The TrizecHahn USA Employee 401(k) Plan and the TrizecHahn Developments
Employee 401(k) Plan (the 401(k) Plans) were established to cover
eligible employees of Trizec Properties and THDI and employees of any
designated affiliates. The 401(k) Plans permit 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) Plans. In
2002, Trizec Properties and TREHI matched dollar for dollar employee
contributions to the 401(k) Plans up to 5% of the employees annual
compensation not to exceed $6.4. The Corporation incurred expense for
the year ended December 31, 2002 of approximately $1,643 (year ended
December 31, 2001  $2,137; 2000  $2,621), related to the 401(k) Plans.
The two plans were merged on December 8, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   
|b.  |  | Deferred Compensation Plan                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   
|    |  | Two of the Corporations subsidiaries have deferred compensation plans
for a select group of management and highly compensated employees. Since
the provisions of the plans are substantially the same, in this
discussion, any reference to the deferred compensation plan refers to
both plans. Under the 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 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 amount expensed for the period ended
December 31, 2002 was $38 (December 31, 2001  $25; 2000  $28). As at
December 31, 2002, the Corporation has assets, included in prepaid
expenses and other assets, together with an equal amount in accounts
payable of $3,360 (December 31, 2001  $2,770) representing the
contributions to the plan and obligations to the employees.
|   
|19. |  | ESCROWED SHARE GRANTS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   
|    |  | On November 9, 2000, TrizecHahn made grants of escrowed shares to certain
U.S. employees under which an escrow agent purchased 904,350 of
TrizecHahns subordinate voting shares in the open market, and deposited
them in escrowed accounts. The employee is entitled to the voting rights
and dividends paid on the shares during the period. One-third of the
share grants vest and are released to the employees on each of the
anniversary dates of the grant over a three-year period. Under certain
employment termination conditions, the employees entitlement to the
shares is forfeited and the shares are returned for cancellation, while
fully accelerated vesting occurs if an employee is terminated without
cause. These shares were exchanged in the Reorganization in the same
manner as all other subordinate voting shares of TrizecHahn were
exchanged. The cost of acquiring the shares of $12,402 is being
amortized to compensation expense, on a straight-line basis, over the
vesting period. Amounts expensed in respect of the escrowed share grants
totaled $3,865 for the year ended December 31, 2002 (for the year ended
December 31, 2001  $5,012, 2000  $689). During the year ended December
31, 2002, 3,646 shares reverted back to the Corporation with an
unamortized unearned compensation amount of $40.                                                                    
|   
|20. |  | CONTINGENCIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   
|a.  |  | Litigation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   
|    |  | The 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, 2002, 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

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Notes to the Financial Statements
$ thousands, except per share and per share amounts



|20. |  | CONTINGENCIES (CONTD)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|b.  |  | Concentration of Credit Risk                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   
|    |  | The Corporation maintains its cash and cash equivalents at financial
institutions. The combined account balances at each institution
typically exceed Federal Deposit Insurance Corporation 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   
|c.  |  | Environmental                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   
|    |  | The 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, or ACM, is present in some of its
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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   
|    |  | 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 as 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   
|d.  |  | Insurance                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   
|    |  | The 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 currently contains
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. The Corporations current
terrorism coverage carries an aggregate limit of $250 million on a
portfolio-wide basis, excluding the Sears Tower, which carries its own
separate limit of $250 million. Since the limit with respect to the
Corporations portfolio may be, and the limit with respect to the Sears
Tower is, less than the value of the affected properties, terrorist acts

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Notes to the Financial Statements
$ thousands, except per share and per share amounts



|20. |  | CONTINGENCIES (CONTD)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|d.  |  | Insurance (Contd)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   
|    |  | could result in property damage in excess of the current coverage, which
could result in significant losses to the Corporation due to 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 financial condition and results of operations of
the Corporation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   
|    |  | The federal Terrorism Risk Insurance Act, enacted in November 2002,
requires regulated insurers to make available coverage for certified acts
of terrorism (as defined by the statute) under property insurance
policies, but the Corporation cannot currently anticipate whether the
scope and cost of such coverage will compare favorable to stand-alone
terrorism insurance and, thus, whether it will be commercially reasonable
for the Corporation to change its coverage for acts of terrorism going
forward.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   
|    |  | Some of the Corporations lenders have taken or may take the position
that its insurance coverage against acts of terrorism no longer complies
with covenants in its debt agreements. The lenders may also object to
other technical provisions of the Corporations insurance coverage. If a
lender takes the position that the insurance coverage is not in
compliance with covenants in a debt agreement, the Corporation could be
deemed to be in default under the agreement. Alternately, the
Corporation may be required to obtain additional insurance to comply with
the covenants. While the Corporation has received notices to the effect
that its insurance coverage may not comply with loan covenants, the
Corporation has reviewed its coverage and the loan documents and believes
that it complies with those documents and adequately
protects the lenders interests. The Corporation has initiated
discussions with these lenders and will do so with any others who take a
similar position, to satisfy their concerns and assure that their
interests and the interests of the Corporation are adequately protected.
To the extent that the Corporation is unable to pass the costs of any
additional insurance on to tenants, these costs may have an adverse
affect on the Corporations operating results and cash flows. If the
Corporation does pass the additional costs on to tenants, the resulting
increased rents may adversely affect the marketability of leased space in
its properties. Additionally, in the future, the Corporations 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 the Corporation in the marketplace at rates or on terms that
are commercially reasonable.
|   
|    |  | The Corporation will continue to monitor the state of the insurance
market, but it does not currently expect that coverage for acts of
terrorism on terms comparable to pre-2002 policies will become available
on commercially reasonable terms.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   
|    |  | The Corporations earthquake insurance on its properties located in areas
known to be subject to earthquakes 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 losses from earthquakes. 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
estimation of the value of the coverage.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   
|    |  | There are other types of losses, such as from wars, acts of bio-terrorism
or the presence of mold at the Corporations properties, for which it
cannot obtain insurance at all or at a reasonable cost. 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 the
property. Any such loss could materially and adversely affect the
Corporations business and financial condition and results of operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

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|20. |  | CONTINGENCIES (CONTD)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|d.  |  | Insurance (Contd)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   
|    |  | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   
|21. |  | SEGMENTED INFORMATION                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   
|    |  | The 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 areas for office operations in the United States are:
Atlanta, Chicago, Dallas, Houston, Los Angeles, New York, Washington D.C.
and secondary markets. A separate management group heads the
retail/entertainment development segment. The Corporation primarily
evaluates operating performance based on internal property operating
income, which is defined as total revenue including tenant recoveries,
parking, fee and other income less operating expenses and property taxes
including properties that have been designated as held for disposition
and reported as discontinued operations. Of the five properties reported
as discontinued operations, one is in Dallas, one is in Los Angeles and
three are in Washington, D.C. Internal property 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 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. Asset information by reportable segment is not
reported since the Corporation does not use this measure to assess
performance; therefore, the depreciation and amortization expenses are
not allocated among segments.
|   
|    |  | The following presents internal property operating income by reportable
segment for the years ended December 30, 2002, 2001 and 2000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   
|    |  | F-49                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       



---



##### Table of Contents



Notes to the Financial Statements
$ thousands, except per share and per share amounts



|21. |  | SEGMENTED INFORMATION (CONTD)                      
|--- |  | ----------------------------------------------------
|   
|    |  | For the years ended December 31, 2002, 2001 and 2000

|                                   |  |                   |         |         |  |        |         |         |  |      |         |      |  |      |         |      |  |      |         |      |  |      |         |      |  |   |         |   |  |   |         |   |  |   |         |   |  |   |         |   |  |   |         |   |  |   |         |  
|---------------------------------- |  | ----------------- | ------- | ------- |  | ------ | ------- | ------- |  | ---- | ------- | ---- |  | ---- | ------- | ---- |  | ---- | ------- | ---- |  | ---- | ------- | ---- |  | - | ------- | - |  | - | ------- | - |  | - | ------- | - |  | - | ------- | - |  | - | ------- | - |  | - | ------- | -
|                                   |  | Office Properties
|                                   |  |                  
|                                   |  | Atlanta           |         | Chicago |  | Dallas |         | Houston
|                                   |  |                   |         |         |  |        |         |        
|                                   |  | 2002              |         | 2001    |  | 2000   |         | 2002    |  | 2001 |         | 2000 |  | 2002 |         | 2001 |  | 2000 |         | 2002 |  | 2001 |         | 2000
|                                   |  |                   |         |         |  |        |         |         |  |      |         |      |  |      |         |      |  |      |         |      |  |      |         |     
|Property operations                |  |                   |         |         |  |        |         |         |  |      |         |      |  |      |         |      |  |      |         |      |  |      |         |      |  |   |         |   |  |   |         |   |  |   |         |   |  |   |         |   |  |   |         |   |  |   |         |  
|Total property revenue             |  | $                 | 84,836  |         |  | $      | 76,271  |         |  | $    | 69,116  |      |  | $    | 68,641  |      |  | $    | 60,599  |      |  | $    | 47,690  |      |  | $ | 98,896  |   |  | $ | 113,826 |   |  | $ | 106,129 |   |  | $ | 121,617 |   |  | $ | 130,127 |   |  | $ | 118,609 |  
|Total property expense             |  |                   | (33,942 | )       |  |        | (29,976 | )       |  |      | (27,396 | )    |  |      | (30,749 | )    |  |      | (31,813 | )    |  |      | (28,266 | )    |  |   | (54,870 | ) |  |   | (54,089 | ) |  |   | (50,794 | ) |  |   | (54,399 | ) |  |   | (59,128 | ) |  |   | (51,551 | )
|                                   |  |                   |         |         |  |        |         |         |  |      |         |      |  |      |         |      |  |      |         |      |  |      |         |      |  |   |         |   |  |   |         |   |  |   |         |   |  |   |         |   |  |   |         |   |  |   |         |  
|Internal property
operating income |  | $                 | 50,894  |         |  | $      | 46,295  |         |  | $    | 41,720  |      |  | $    | 37,892  |      |  | $    | 28,786  |      |  | $    | 19,424  |      |  | $ | 44,026  |   |  | $ | 59,737  |   |  | $ | 55,335  |   |  | $ | 67,218  |   |  | $ | 70,999  |   |  | $ | 67,058  |  
|                                   |  |                   |         |         |  |        |         |         |  |      |         |      |  |      |         |      |  |      |         |      |  |      |         |      |  |   |         |   |  |   |         |   |  |   |         |   |  |   |         |   |  |   |         |   |  |   |         |  

|                                   |  |                            |         |          |  |                 |         |      |  |      |         |      |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |   |  |   |         |   |  |   |         |  
|---------------------------------- |  | -------------------------- | ------- | -------- |  | --------------- | ------- | ---- |  | ---- | ------- | ---- |  | ---- | ------- | ---- |  | ---- | ------- | - |  | - | ------- | - |  | - | ------- | - |  | - | ------- | - |  | - | ------- | -
|                                   |  | Office Properties (cont'd)
|                                   |  |                           
|                                   |  | Los Angeles                |         | New York |  | Washington D.C.
|                                   |  |                            |         |          |  |                
|                                   |  | 2002                       |         | 2001     |  | 2000            |         | 2002 |  | 2001 |         | 2000 |  | 2002 |         | 2001 |  | 2000
|                                   |  |                            |         |          |  |                 |         |      |  |      |         |      |  |      |         |      |  |     
|Property operations                |  |                            |         |          |  |                 |         |      |  |      |         |      |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |   |  |   |         |   |  |   |         |  
|Total property revenue             |  | $                          | 58,490  |          |  | $               | 41,087  |      |  | $    | 43,958  |      |  | $    | 195,986 |      |  | $    | 191,913 |   |  | $ | 177,411 |   |  | $ | 126,972 |   |  | $ | 140,450 |   |  | $ | 111,870 |  
|Total property expense             |  |                            | (25,779 | )        |  |                 | (17,412 | )    |  |      | (17,067 | )    |  |      | (79,933 | )    |  |      | (76,126 | ) |  |   | (72,118 | ) |  |   | (48,420 | ) |  |   | (44,360 | ) |  |   | (39,141 | )
|                                   |  |                            |         |          |  |                 |         |      |  |      |         |      |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |   |  |   |         |   |  |   |         |  
|Internal property
operating income |  | $                          | 32,711  |          |  | $               | 23,675  |      |  | $    | 26,891  |      |  | $    | 116,053 |      |  | $    | 115,787 |   |  | $ | 105,293 |   |  | $ | 78,552  |   |  | $ | 96,090  |   |  | $ | 72,729  |  
|                                   |  |                            |         |          |  |                 |         |      |  |      |         |      |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |   |  |   |         |   |  |   |         |  

|                                   |  |                            |         |              |  |        |         |       |  |      |          |      |  |      |          |      |  |      |          |      |  |      |          |      |  |   |         |   |  |   |         |   |  |   |        |   |  |   |           |   |  |   |           |   |  |   |          |  
|---------------------------------- |  | -------------------------- | ------- | ------------ |  | ------ | ------- | ----- |  | ---- | -------- | ---- |  | ---- | -------- | ---- |  | ---- | -------- | ---- |  | ---- | -------- | ---- |  | - | ------- | - |  | - | ------- | - |  | - | ------ | - |  | - | --------- | - |  | - | --------- | - |  | - | -------- | -
|                                   |  | Office Properties (Cont'd) |         |              |  |        |         |       |  |      |          |      |  |      |          |      |  |      |          |      |  |     
|                                   |  |                            |         |              |  |        |         |       |  |      |          |      |  |      |          |      |  |      |          |      |  |     
|                                   |  | Secondary Markets          |         | Total Office |  | Retail |         | Total
|                                   |  |                            |         |              |  |        |         |      
|                                   |  | 2002                       |         | 2001         |  | 2000   |         | 2002  |  | 2001 |          | 2000 |  | 2002 |          | 2001 |  | 2000 |          | 2002 |  | 2001 |          | 2000
|                                   |  |                            |         |              |  |        |         |       |  |      |          |      |  |      |          |      |  |      |          |      |  |      |          |     
|Property operations                |  |                            |         |              |  |        |         |       |  |      |          |      |  |      |          |      |  |      |          |      |  |      |          |      |  |   |         |   |  |   |         |   |  |   |        |   |  |   |           |   |  |   |           |   |  |   |          |  
|Total property revenue             |  | $                          | 204,335 |              |  | $      | 216,801 |       |  | $    | 276,453  |      |  | $    | 959,773  |      |  | $    | 971,074  |      |  | $    | 951,236  |      |  | $ | 102,797 |   |  | $ | 44,205  |   |  | $ | 22,622 |   |  | $ | 1,062,570 |   |  | $ | 1,015,279 |   |  | $ | 973,858  |  
|Total property expense             |  |                            | (95,913 | )            |  |        | (93,621 | )     |  |      | (106,506 | )    |  |      | (424,005 | )    |  |      | (406,525 | )    |  |      | (392,839 | )    |  |   | (65,677 | ) |  |   | (19,215 | ) |  |   | (9,356 | ) |  |   | (489,682  | ) |  |   | (425,740  | ) |  |   | (402,195 | )
|                                   |  |                            |         |              |  |        |         |       |  |      |          |      |  |      |          |      |  |      |          |      |  |      |          |      |  |   |         |   |  |   |         |   |  |   |        |   |  |   |           |   |  |   |           |   |  |   |          |  
|Internal property
operating income |  | $                          | 108,422 |              |  | $      | 123,180 |       |  | $    | 169,947  |      |  | $    | 535,768  |      |  | $    | 564,549  |      |  | $    | 558,397  |      |  | $ | 37,120  |   |  | $ | 24,990  |   |  | $ | 13,266 |   |  | $ | 572,888   |   |  | $ | 589,539   |   |  | $ | 571,663  |  
|                                   |  |                            |         |              |  |        |         |       |  |      |          |      |  |      |          |      |  |      |          |      |  |      |          |      |  |   |         |   |  |   |         |   |  |   |        |   |  |   |           |   |  |   |           |   |  |   |          |  

F-50



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##### Table of Contents



Notes to the Financial Statements
$ thousands, except per share and per share amounts



|21. |  | SEGMENTED INFORMATION (CONTD)                                                                                      
|--- |  | --------------------------------------------------------------------------------------------------------------------
|   
|    |  | The following is a reconciliation of internal property operating income
to (loss) income from continuing operations.

|                                                                                                                               |  |                                 |           |      |  |      |           |   |  |   |          |  
|------------------------------------------------------------------------------------------------------------------------------ |  | ------------------------------- | --------- | ---- |  | ---- | --------- | - |  | - | -------- | -
|                                                                                                                               |  | For the years ended December 31
|                                                                                                                               |  |                                
|                                                                                                                               |  | 2002                            |           | 2001 |  | 2000
|                                                                                                                               |  |                                 |           |      |  |     
|Internal property revenue                                                                                                      |  | $                               | 1,062,570 |      |  | $    | 1,015,279 |   |  | $ | 973,858  |  
|Less: Real estate joint venture property revenue                                                                               |  |                                 | (106,420  | )    |  |      | (103,005  | ) |  |   | (103,308 | )
|Less: Discontinued operations                                                                                                  |  |                                 | (17,707   | )    |  |      | (19,093   | ) |  |   | (20,484  | )
|Interest income                                                                                                                |  |                                 | 8,679     |      |  |      | 15,626    |   |  |   | 8,431    |  
|                                                                                                                               |  |                                 |           |      |  |      |           |   |  |   |          |  
|Total revenues                                                                                                                 |  |                                 | 947,122   |      |  |      | 908,807   |   |  |   | 858,497  |  
|                                                                                                                               |  |                                 |           |      |  |      |           |   |  |   |          |  
|Internal property operating expenses                                                                                           |  |                                 | (489,682  | )    |  |      | (425,740  | ) |  |   | (402,195 | )
|Less: Real estate joint venture operating expenses                                                                             |  |                                 | 54,803    |      |  |      | 46,789    |   |  |   | 46,537   |  
|Less: Discontinued operations                                                                                                  |  |                                 | 7,030     |      |  |      | 7,787     |   |  |   | 7,807    |  
|                                                                                                                               |  |                                 |           |      |  |      |           |   |  |   |          |  
|Total operating expenses and property taxes                                                                                    |  |                                 | (427,849  | )    |  |      | (371,164  | ) |  |   | (347,851 | )
|                                                                                                                               |  |                                 |           |      |  |      |           |   |  |   |          |  
|General and administrative expenses                                                                                            |  |                                 | (44,935   | )    |  |      | (25,854   | ) |  |   | (18,429  | )
|Interest expense                                                                                                               |  |                                 | (192,660  | )    |  |      | (148,821  | ) |  |   | (260,381 | )
|Depreciation and amortization expense                                                                                          |  |                                 | (171,083  | )    |  |      | (157,059  | ) |  |   | (150,280 | )
|Stock option grant expense                                                                                                     |  |                                 | (5,214    | )    |  |      |          |   |  |   |         |  
|Reorganization costs                                                                                                           |  |                                 | 3,260     |      |  |      | (15,922   | ) |  |   | (6,680   | )
|Derivative losses                                                                                                              |  |                                 | (180      | )    |  |      | (456      | ) |  |   |         |  
|Provision for loss on real estate                                                                                              |  |                                 | (199,455  | )    |  |      | (258,091  | ) |  |   | (3,677   | )
|Provision for and loss on investments                                                                                          |  |                                 | (60,784   | )    |  |      | (15,371   | ) |  |   |         |  
|Provision for income and other corporate taxes                                                                                 |  |                                 | (4,896    | )    |  |      | (13,795   | ) |  |   | 252,840  |  
|Minority interest                                                                                                              |  |                                 | 1,766     |      |  |      | 433       |   |  |   | 580      |  
|(Loss) income from unconsolidated real estate
joint ventures including provision for loss on
investment ($58,800, $46,900, $0) |  |                                 | (47,631   | )    |  |      | (33,948   | ) |  |   | 19,417   |  
|Recovery on insurance claim                                                                                                    |  |                                 | 3,480     |      |  |      |          |   |  |   |         |  
|                                                                                                                               |  |                                 |           |      |  |      |           |   |  |   |          |  
|(Loss) Income from Continuing Operations                                                                                       |  | $                               | (199,059  | )    |  | $    | (131,241  | ) |  | $ | 344,036  |  
|                                                                                                                               |  |                                 |           |      |  |      |           |   |  |   |          |  

F-51



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##### Table of Contents



Notes to the Financial Statements
$ thousands, except per share and per share amounts



|22. |  | INTERIM FINANCIAL INFORMATION (UNAUDITED)
|--- |  | -----------------------------------------

|                                                   |  |         |         |         |  |         |         |         |  |   |          |   |  |   |         |  
|-------------------------------------------------- |  | ------- | ------- | ------- |  | ------- | ------- | ------- |  | - | -------- | - |  | - | ------- | -
|                                                   |  | 2002   
|                                                   |  |        
|                                                   |  | First   |         | Second  |  | Third   |         | Fourth 
|                                                   |  | Quarter |         | Quarter |  | Quarter |         | Quarter
|                                                   |  |         |         |         |  |         |         |        
|Property revenues                                  |  | $       | 229,420 |         |  | $       | 230,903 |         |  | $ | 239,646  |   |  | $ | 238,474 |  
|Operating expenses                                 |  |         | 73,873  |         |  |         | 75,150  |         |  |   | 84,873   |   |  |   | 93,724  |  
|Property taxes                                     |  |         | 25,455  |         |  |         | 24,762  |         |  |   | 26,070   |   |  |   | 23,942  |  
|                                                   |  |         |         |         |  |         |         |         |  |   |          |   |  |   |         |  
|Property operating income                          |  | $       | 130,092 |         |  | $       | 130,991 |         |  | $ | 128,703  |   |  | $ | 120,808 |  
|                                                   |  |         |         |         |  |         |         |         |  |   |          |   |  |   |         |  
|Loss (income) from continuing operations           |  | $       | 44,518  |         |  | $       | 32,345  |         |  | $ | (258,743 | ) |  | $ | (17,179 | )
|                                                   |  |         |         |         |  |         |         |         |  |   |          |   |  |   |         |  
|Discontinued operations                            |  | $       | 1,083   |         |  | $       | 661     |         |  | $ | 4,053    |   |  | $ | 2,349   |  
|                                                   |  |         |         |         |  |         |         |         |  |   |          |   |  |   |         |  
|Net (loss) income                                  |  | $       | 45,582  |         |  | $       | 36,977  |         |  | $ | (254,264 | ) |  | $ | (16,212 | )
|                                                   |  |         |         |         |  |         |         |         |  |   |          |   |  |   |         |  
|Net (loss) income available to common
shareholders |  | $       | 45,582  |         |  | $       | 36,673  |         |  | $ | (254,545 | ) |  | $ | (16,493 | )
|                                                   |  |         |         |         |  |         |         |         |  |   |          |   |  |   |         |  

|                        |         |  |          |             |  |  |  |             |  |  |  |             |   |  |  |             |  
|----------------------- | ------- |  | -------- | ----------- |  |  |  | ----------- |  |  |  | ----------- | - |  |  | ----------- | -
|                        |         |  | Proforma |             |  |  |  |             |  |  |  |             |   |  | 
|                        |         |  |          |             |  |  |  |             |  |  |  |             |   |  | 
|Earnings per share      |         |  |          |             |  |  |  |             |  |  |  |             |   |  |  |            
|                        | Basic   |  |          | .30         |  |  |  | .25         |  |  |  | (1.70       | ) |  |  | (.11        | )
|                        | Diluted |  |          | .30         |  |  |  | .24         |  |  |  | (1.70       | ) |  |  | (.11        | )
|Weighted average shares |         |  |          |             |  |  |  |             |  |  |  |             |   |  |  |            
|                        | Basic   |  |          | 149,849,246 |  |  |  | 149,372,623 |  |  |  | 149,535,079 |   |  |  | 149,677,974 |  
|                        | Diluted |  |          | 151,365,979 |  |  |  | 150,239,058 |  |  |  | 149,535,079 |   |  |  | 149,677,974 |  

|                                                    |  |         |         |         |  |         |         |         |  |   |         |   |  |   |          |  
|--------------------------------------------------- |  | ------- | ------- | ------- |  | ------- | ------- | ------- |  | - | ------- | - |  | - | -------- | -
|                                                    |  | 2001   
|                                                    |  |        
|                                                    |  | First   |         | Second  |  | Third   |         | Fourth 
|                                                    |  | Quarter |         | Quarter |  | Quarter |         | Quarter
|                                                    |  |         |         |         |  |         |         |        
|Property revenues                                   |  | $       | 205,077 |         |  | $       | 223,947 |         |  | $ | 224,004 |   |  | $ | 240,153  |  
|Operating expenses                                  |  |         | 63,585  |         |  |         | 68,683  |         |  |   | 69,243  |   |  |   | 78,528   |  
|Property taxes                                      |  |         | 21,653  |         |  |         | 22,475  |         |  |   | 23,226  |   |  |   | 23,771   |  
|                                                    |  |         |         |         |  |         |         |         |  |   |         |   |  |   |          |  
|Property operating income                           |  | $       | 119,839 |         |  | $       | 132,789 |         |  | $ | 131,535 |   |  | $ | 137,854  |  
|                                                    |  |         |         |         |  |         |         |         |  |   |         |   |  |   |          |  
|Loss (income) from continuing operations            |  | $       | 40,124  |         |  | $       | 42,566  |         |  | $ | (12,046 | ) |  | $ | (201,885 | )
|                                                    |  |         |         |         |  |         |         |         |  |   |         |   |  |   |          |  
|Discontinued operations                             |  | $       | 457     |         |  | $       | 472     |         |  | $ | 1,226   |   |  | $ | 1,245    |  
|                                                    |  |         |         |         |  |         |         |         |  |   |         |   |  |   |          |  
|Loss on early retirement of debt                    |  | $       |        |         |  | $       | 17,966  |         |  | $ |        |   |  | $ |         |  
|                                                    |  |         |         |         |  |         |         |         |  |   |         |   |  |   |          |  
|Cumulative effect of change in accounting
principle |  | $       | (4,631  | )       |  | $       |        |         |  | $ |        |   |  | $ |         |  
|                                                    |  |         |         |         |  |         |         |         |  |   |         |   |  |   |          |  
|Net (loss) income                                   |  | $       | 37,431  |         |  | $       | 21,135  |         |  | $ | (8,488  | ) |  | $ | (202,569 | )
|                                                    |  |         |         |         |  |         |         |         |  |   |         |   |  |   |          |  
|Net (loss) income available to common
shareholders  |  | $       | 37,431  |         |  | $       | 21,135  |         |  | $ | (8,488  | ) |  | $ | (202,569 | )
|                                                    |  |         |         |         |  |         |         |         |  |   |         |   |  |   |          |  

|                        |         |          |  |             |  |  |  |             |  |  |  |             |   |  |  |             |  
|----------------------- | ------- | -------- |  | ----------- |  |  |  | ----------- |  |  |  | ----------- | - |  |  | ----------- | -
|                        |         | Proforma
|                        |         |         
|Earnings per share      |         |          |  |             |  |  |  |             |  |  |  |             |   |  |  |            
|                        | Basic   |          |  | .25         |  |  |  | .14         |  |  |  | (.06        | ) |  |  | (1.35       | )
|                        | Diluted |          |  | .25         |  |  |  | .14         |  |  |  | (.06        | ) |  |  | (1.35       | )
|Weighted average shares |         |          |  |             |  |  |  |             |  |  |  |             |   |  |  |            
|                        | Basic   |          |  | 149,849,246 |  |  |  | 149,849,246 |  |  |  | 149,849,246 |   |  |  | 149,849,246 |  
|                        | Diluted |          |  | 151,365,979 |  |  |  | 151,365,979 |  |  |  | 149,849,246 |   |  |  | 149,849,246 |  

F-52



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##### Table of Contents



Schedule III  Real Estate and Accumulated
Depreciation as at December 31, 2002
($ thousands)

|                                  |  |       |   |          |  |              |  |      |          |              |          |      |        |                         |        |                  |         |  |         |   |   |                  |   |   |        |  |         | 
|--------------------------------- |  | ----- | - | -------- |  | ------------ |  | ---- | -------- | ------------ | -------- | ---- | ------ | ----------------------- | ------ | ---------------- | ------- |  | ------- | - | - | ---------------- | - | - | ------ |  | ------- | 
|                                  |  |       |   |          |  |              |  |      |          |              |          |      |        |                         |        |                  |         |  |         |   |   | Subsequent Costs
|                                  |  |       |   |          |  |              |  |      |          |              |          |      |        | Initial Cost to Company |        | Capitalized, Net
|                                  |  |       |   |          |  |              |  |      |          |              |          |      |        |                         |        |                 
|                                  |  |       |   |          |  |              |  |      |          | Encumbrances |          |      |        |                         |        | Building and     |         |  |         |   |   | Building and    
|Description                       |  | Notes |   | Location |  | at 12/31/02  |  | Land |          | additions    |          | Land |        | additions              
|                                  |  |       |   |          |  |              |  |      |          |              |          |      |        |                        
|Properties held for the long term |  |       |   |          |  |              |  |      |          |              |          |      |        |                         |        |                  |         |  |         |   |   |                  |   |   |        |  |         | 
|Rental Properties                 |  |       |   |          |  |              |  |      |          |              |          |      |        |                         |        |                  |         |  |         |   |   |                  |   |   |        |  |         | 
|Atlanta                           |  |       |   |          |  |              |  |      |          |              |          |      |        |                         |        |                  |         |  |         |   |   |                  |   |   |        |  |         | 
|Interstate North Parkway          |  |       |   |          |  | Atlanta, GA  |  | $    | (60,000  | )            |          | $    | 6,900  |                         |        | $                | 63,619  |  |         | $ |  |                  |   | $ | 28,256 | 
|Colony Square                     |  |       |   |          |  | Atlanta, GA  |  |      | (72,250  | )            |          |      | 8,900  |                         |        |                  | 53,408  |  |         |   |  |                  |   |   | 18,509 | 
|The Palisades                     |  |       |   |          |  | Atlanta, GA  |  |      | (48,800  | )            |          |      | 7,650  |                         |        |                  | 67,499  |  |         |   |  |                  |   |   | 16,497 | 
|Newmarket Business Park           |  |       | 6 |          |  | Atlanta, GA  |  |      |         |              |          |      | 4,450  |                         |        |                  | 40,172  |  |         |   |  |                  |   |   | 5,785  | 
|Lakeside Centre                   |  |       |   |          |  | Atlanta, GA  |  |      | (31,000  | )            |          |      | 4,700  |                         |        |                  | 41,740  |  |         |   |  |                  |   |   | 4,164  | 
|Midtown Plaza                     |  |       |   |          |  | Atlanta, GA  |  |      | (49,590  | )            |          |      | 9,093  |                         |        |                  | 52,923  |  |         |   |  |                  |   |   | 5,579  | 
|One Alliance Center               |  |       | 4 |          |  | Buckhead, GA |  |      | (55,107  | )            |          |      | 10,079 |                         |        |                  |        |  |         |   |  |                  |   |   | 82,816 | 
|                                  |  |       |   |          |  |              |  |      |          |              |          |      |        |                         |        |                  |         |  |         |   |   |                  |   |   |        |  |         | 
|Total  Atlanta                   |  |       |   |          |  |              |  |      |          |              | (316,747 | )    |        |                         | 51,772 |                  |         |  | 319,361 |   |   |                  |  |   |        |  | 161,606 | 
|                                  |  |       |   |          |  |              |  |      |          |              |          |      |        |                         |        |                  |         |  |         |   |   |                  |   |   |        |  |         | 
|Chicago                           |  |       |   |          |  |              |  |      |          |              |          |      |        |                         |        |                  |         |  |         |   |   |                  |   |   |        |  |         | 
|Franklin Garage                   |  |       |   |          |  | Chicago, IL  |  |      | (26,478  | )            |          |      | 30,438 |                         |        |                  | 10,612  |  |         |   |  |                  |   |   | 1,177  | 
|Two North LaSalle                 |  |       |   |          |  | Chicago, IL  |  |      | (49,000  | )            |          |      | 9,305  |                         |        |                  | 54,094  |  |         |   |  |                  |   |   | 16,285 | 
|10 South Riverside                |  |       |   |          |  | Chicago, IL  |  |      | (55,417  | )            |          |      | 14,413 |                         |        |                  | 63,171  |  |         |   |  |                  |   |   | 22,791 | 
|120 South Riverside               |  |       |   |          |  | Chicago, IL  |  |      | (53,917  | )            |          |      | 14,413 |                         |        |                  | 53,222  |  |         |   |  |                  |   |   | 25,049 | 
|550 West Washington               |  |       | 6 |          |  | Chicago, IL  |  |      |         |              |          |      | 11,505 |                         |        |                  | 65,830  |  |         |   |  |                  |   |   | 166    | 
|                                  |  |       |   |          |  |              |  |      |          |              |          |      |        |                         |        |                  |         |  |         |   |   |                  |   |   |        |  |         | 
|Total  Chicago                   |  |       |   |          |  |              |  |      |          |              | (184,812 | )    |        |                         | 80,074 |                  |         |  | 246,929 |   |   |                  |  |   |        |  | 65,468  | 
|                                  |  |       |   |          |  |              |  |      |          |              |          |      |        |                         |        |                  |         |  |         |   |   |                  |   |   |        |  |         | 
|Dallas                            |  |       |   |          |  |              |  |      |          |              |          |      |        |                         |        |                  |         |  |         |   |   |                  |   |   |        |  |         | 
|Renaissance Tower                 |  |       |   |          |  | Dallas, TX   |  |      | (92,000  | )            |          |      | 3,150  |                         |        |                  | 105,834 |  |         |   |  |                  |   |   | 28,890 | 
|Galleria Towers I, II and III     |  |       |   |          |  | Dallas, TX   |  |      | (135,730 | )            |          |      | 21,435 |                         |        |                  | 196,728 |  |         |   |  |                  |   |   | 17,723 | 
|Plaza of the Americas             |  |       |   |          |  | Dallas, TX   |  |      | (66,160  | )            |          |      | 12,500 |                         |        |                  | 114,459 |  |         |   |  |                  |   |   | 8,918  | 
|Park Central I & II               |  |       |   |          |  | Dallas, TX   |  |      | (8,500   | )            |          |      | 748    |                         |        |                  | 12,493  |  |         |   |  |                  |   |   | 3,064  | 
|                                  |  |       |   |          |  |              |  |      |          |              |          |      |        |                         |        |                  |         |  |         |   |   |                  |   |   |        |  |         | 
|Total  Dallas                    |  |       |   |          |  |              |  |      |          |              | (302,390 | )    |        |                         | 37,833 |                  |         |  | 429,514 |   |   |                  |  |   |        |  | 58,595  | 
|                                  |  |       |   |          |  |              |  |      |          |              |          |      |        |                         |        |                  |         |  |         |   |   |                  |   |   |        |  |         | 
|Houston                           |  |       |   |          |  |              |  |      |          |              |          |      |        |                         |        |                  |         |  |         |   |   |                  |   |   |        | 
|Allen Center                      |  |       |   |          |  | Houston, TX  |  |      | (350,410 | )            |          |      | 21,375 |                         |        |                  | 236,851 |  |         |   |  |                  |   |   | 23,345 | 
|Continental Center I              |  |       |   |          |  | Houston, TX  |  |      | (110,310 | )            |          |      | 14,756 |                         |        |                  | 69,741  |  |         |   |  |                  |   |   | 31,842 | 
|Continental Center II             |  |       |   |          |  | Houston, TX  |  |      | (22,540  | )            |          |      | 1,500  |                         |        |                  | 9,793   |  |         |   |  |                  |   |   | 13,094 | 
|500 Jefferson                     |  |       | 6 |          |  | Houston, TX  |  |      |         |              |          |      | 413    |                         |        |                  | 7,937   |  |         |   |  |                  |   |   | 3,042  | 
|3700 Bay Area Blvd                |  |       | 6 |          |  | Houston, TX  |  |      |         |              |          |      | 3,675  |                         |        |                  | 33,659  |  |         |   |  |                  |   |   | 2,973  | 
|                                  |  |       |   |          |  |              |  |      |          |              |          |      |        |                         |        |                  |         |  |         |   |   |                  |   |   |        |  |         | 
|Total  Houston                   |  |       |   |          |  |              |  |      |          |              | (483,260 | )    |        |                         | 41,719 |                  |         |  | 357,981 |   |   |                  |  |   |        |  | 74,296  | 
|                                  |  |       |   |          |  |              |  |      |          |              |          |      |        |                         |        |                  |         |  |         |   |   |                  |   |   |        |  |         | 

(Table cont below)

(Table cont from top)

|                                  |  |                        |        |           |  |              |         |              |  |            |         |             |  |              |         |      |  |             |               |  |  |                  |  |  |    |  |  | 
|--------------------------------- |  | ---------------------- | ------ | --------- |  | ------------ | ------- | ------------ |  | ---------- | ------- | ----------- |  | ------------ | ------- | ---- |  | ----------- | ------------- |  |  | ---------------- |  |  | -- |  |  | 
|                                  |  | Total Cost at 12/31/02 |        |           |  |              |         |              |  |            |         |             |  |             
|                                  |  |                        |        |           |  |              |         |              |  |            |         |             |  |             
|                                  |  |                        |        |           |  |              |         |              |  |            |         |             |  |              |         |      |  | Date of     |               |  |  |                  |  |  |    | 
|                                  |  |                        |        |           |  | Building and |         |              |  |            |         | Accumulated |  | Construction |         | Date |  | Depreciable
|Description                       |  | Land                   |        | additions |  | Total (1)    |         | Depreciation |  | Renovation |         | Acquired    |  | Lives (2)   
|                                  |  |                        |        |           |  |              |         |              |  |            |         |             |  |             
|Properties held for the long term |  |                        |        |           |  |              |         |              |  |            |         |             |  |              |         |      |  |             |               |  |  |                  |  |  |    |  |  | 
|Rental Properties                 |  |                        |        |           |  |              |         |              |  |            |         |             |  |              |         |      |  |             |               |  |  |                  |  |  |    |  |  | 
|Atlanta                           |  |                        |        |           |  |              |         |              |  |            |         |             |  |              |         |      |  |             |               |  |  |                  |  |  |    |  | 
|Interstate North Parkway          |  | $                      | 6,900  |           |  | $            | 91,875  |              |  | $          | 98,775  |             |  | $            | (9,690  | )    |  |             | 1973/84/01    |  |  | Dec. 10/98       |  |  | 40 | 
|Colony Square                     |  |                        | 8,900  |           |  |              | 71,917  |              |  |            | 80,817  |             |  |              | (12,254 | )    |  |             | 1970/73/95    |  |  | Dec. 23/96       |  |  | 40 | 
|The Palisades                     |  |                        | 7,650  |           |  |              | 83,996  |              |  |            | 91,646  |             |  |              | (10,782 | )    |  |             | 1981/83/99    |  |  | Dec. 16/98       |  |  | 40 | 
|Newmarket Business Park           |  |                        | 4,450  |           |  |              | 45,957  |              |  |            | 50,407  |             |  |              | (4,794  | )    |  |             | 1979/89       |  |  | Dec. 16/98       |  |  | 40 | 
|Lakeside Centre                   |  |                        | 4,700  |           |  |              | 45,904  |              |  |            | 50,604  |             |  |              | (4,905  | )    |  |             | 1984/86       |  |  | Dec. 16/98       |  |  | 40 | 
|Midtown Plaza                     |  |                        | 9,093  |           |  |              | 58,502  |              |  |            | 67,595  |             |  |              | (8,350  | )    |  |             | 1984/85       |  |  | Nov. 19/97       |  |  | 40 | 
|One Alliance Center               |  |                        | 10,079 |           |  |              | 82,816  |              |  |            | 92,895  |             |  |              | (2,426  | )    |  |             | 2001          |  |  | Dec. 16/98       |  |  | 40 | 
|                                  |  |                        |        |           |  |              |         |              |  |            |         |             |  |              |         |      |  |             |               |  |  |                  |  |  |    |  |  | 
|Total  Atlanta                   |  |                        | 51,772 |           |  |              | 480,967 |              |  |            | 532,739 |             |  |              | (53,201 | )    |  |             |               |  |  |                  |  |  |    |  |  | 
|                                  |  |                        |        |           |  |              |         |              |  |            |         |             |  |              |         |      |  |             |               |  |  |                  |  |  |    |  |  | 
|Chicago                           |  |                        |        |           |  |              |         |              |  |            |         |             |  |              |         |      |  |             |               |  |  |                  |  |  |   
|Franklin Garage                   |  |                        | 30,438 |           |  |              | 11,789  |              |  |            | 42,227  |             |  |              | (1,592  | )    |  |             | 1974          |  |  | Dec. 3/97        |  |  | 40 | 
|Two North LaSalle                 |  |                        | 9,305  |           |  |              | 70,379  |              |  |            | 79,684  |             |  |              | (8,347  | )    |  |             | 1979          |  |  | Dec. 10/98       |  |  | 40 | 
|                                  |  |                        |        |           |  |              |         |              |  |            |         |             |  |              |         |      |  |             |               |  |  | Dec. 10/98, Nov. |  |  |    | 
|10 South Riverside                |  |                        | 14,413 |           |  |              | 85,962  |              |  |            | 100,375 |             |  |              | (9,417  | )    |  |             | 1965          |  |  | 10/01, Jun. 3/02 |  |  | 40 | 
|                                  |  |                        |        |           |  |              |         |              |  |            |         |             |  |              |         |      |  |             |               |  |  | Dec. 10/98, Nov. |  |  |    | 
|120 South Riverside               |  |                        | 14,413 |           |  |              | 78,271  |              |  |            | 92,684  |             |  |              | (10,062 | )    |  |             | 1967          |  |  | 10/01, Jun. 3/02 |  |  | 40 | 
|550 West Washington               |  |                        | 11,505 |           |  |              | 65,996  |              |  |            | 77,501  |             |  |              | (2,688  | )    |  |             | 2000          |  |  | May 15/01        |  |  | 40 | 
|                                  |  |                        |        |           |  |              |         |              |  |            |         |             |  |              |         |      |  |             |               |  |  |                  |  | 
|Total  Chicago                   |  |                        | 80,074 |           |  |              | 312,397 |              |  |            | 392,471 |             |  |              | (32,106 | )    |  |             |               |  |  |                  |  | 
|                                  |  |                        |        |           |  |              |         |              |  |            |         |             |  |              |         |      |  |             |               |  |  |                  |  | 
|Dallas                            |  |                        |        |           |  |              |         |              |  |            |         |             |  |              |         |      |  |             |               |  |  |                  |  |  |    |  |  | 
|Renaissance Tower                 |  |                        | 3,150  |           |  |              | 134,724 |              |  |            | 137,874 |             |  |              | (28,722 | )    |  |             | 1974/92       |  |  | Oct. 31/96       |  |  | 40 | 
|Galleria Towers I, II and III     |  |                        | 21,435 |           |  |              | 214,451 |              |  |            | 235,886 |             |  |              | (22,094 | )    |  |             | 1982/85/91    |  |  | Jan. 15/99       |  |  | 40 | 
|Plaza of the Americas             |  |                        | 12,500 |           |  |              | 123,377 |              |  |            | 135,877 |             |  |              | (13,678 | )    |  |             | 1980          |  |  | Aug. 4/98        |  |  | 40 | 
|Park Central I & II               |  |                        | 748    |           |  |              | 15,557  |              |  |            | 16,305  |             |  |              | (1,903  | )    |  |             | 1970/71       |  |  | Dec. 10/98       |  |  | 40 | 
|                                  |  |                        |        |           |  |              |         |              |  |            |         |             |  |              |         |      |  |             |               |  |  |                  |  | 
|Total  Dallas                    |  |                        | 37,833 |           |  |              | 488,109 |              |  |            | 525,942 |             |  |              | (66,397 | )    |  |             |               |  |  |                  |  | 
|                                  |  |                        |        |           |  |              |         |              |  |            |         |             |  |              |         |      |  |             |               |  |  |                  |  | 
|Houston                           |  |                        |        |           |  |              |         |              |  |            |         |             |  |              |         |      |  |             |               |  |  |                  |  |  |    |  |  | 
|Allen Center                      |  |                        | 21,375 |           |  |              | 260,196 |              |  |            | 281,571 |             |  |              | (43,967 | )    |  |             | 1972/78/80/95 |  |  | Nov. 19/96       |  |  | 40 | 
|Continental Center I              |  |                        | 14,756 |           |  |              | 101,583 |              |  |            | 116,339 |             |  |              | (22,478 | )    |  |             | 1984          |  |  | Oct. 31/96       |  |  | 40 | 
|Continental Center II             |  |                        | 1,500  |           |  |              | 22,887  |              |  |            | 24,387  |             |  |              | (5,175  | )    |  |             | 1971          |  |  | Oct. 31/96       |  |  | 40 | 
|500 Jefferson                     |  |                        | 413    |           |  |              | 10,979  |              |  |            | 11,392  |             |  |              | (2,608  | )    |  |             | 1962/83       |  |  | Oct. 31/96       |  |  | 40 | 
|3700 Bay Area Blvd                |  |                        | 3,675  |           |  |              | 36,632  |              |  |            | 40,307  |             |  |              | (4,238  | )    |  |             | 1986          |  |  | Aug. 5/98        |  |  | 40 | 
|                                  |  |                        |        |           |  |              |         |              |  |            |         |             |  |              |         |      |  |             |               |  |  |                  |  | 
|Total  Houston                   |  |                        | 41,719 |           |  |              | 432,277 |              |  |            | 473,996 |             |  |              | (78,466 | )    |  |             |               |  |  |                  |  |  |    |  |  | 
|                                  |  |                        |        |           |  |              |         |              |  |            |         |             |  |              |         |      |  |             |               |  |  |                  |  | 

F-53



---



##### Table of Contents



Schedule III  Real Estate and Accumulated
Depreciation as at December 31, 2002
($ thousands)

|                              |  |       |   |          |  |                   |  |      |          |              |          |      |        |                         |        |                  |         |  |         |  |   |                  |   |  |        |  |        | 
|----------------------------- |  | ----- | - | -------- |  | ----------------- |  | ---- | -------- | ------------ | -------- | ---- | ------ | ----------------------- | ------ | ---------------- | ------- |  | ------- |  | - | ---------------- | - |  | ------ |  | ------ | 
|                              |  |       |   |          |  |                   |  |      |          |              |          |      |        |                         |        |                  |         |  |         |  |   | Subsequent Costs
|                              |  |       |   |          |  |                   |  |      |          |              |          |      |        | Initial Cost to Company |        | Capitalized, Net
|                              |  |       |   |          |  |                   |  |      |          |              |          |      |        |                         |        |                 
|                              |  |       |   |          |  |                   |  |      |          | Encumbrances |          |      |        |                         |        | Building and     |         |  |         |  |   | Building and    
|Description                   |  | Notes |   | Location |  | at 12/31/02       |  | Land |          | additions    |          | Land |        | additions              
|                              |  |       |   |          |  |                   |  |      |          |              |          |      |        |                        
|Los Angeles Area              |  |       |   |          |  |                   |  |      |          |              |          |      |        |                         |        |                  |         |  |         |  |   |                  |   |  |        |  |        | 
|9800 La Cienega               |  |       | 6 |          |  | Los Angeles, CA   |  |      |         |              |          |      | 3,405  |                         |        |                  | 18,041  |  |         |  |  |                  |   |  | 6,567  | 
|Landmark Square               |  |       | 6 |          |  | Long Beach, CA    |  |      |         |              |          |      | 18,477 |                         |        |                  | 68,813  |  |         |  |  |                  |   |  | 4,859  | 
|Shoreline Square              |  |       | 6 |          |  | Long Beach, CA    |  |      |         |              |          |      | 5,707  |                         |        |                  | 59,138  |  |         |  |  |                  |   |  | 4,030  | 
|Ernst & Young Plaza           |  |       |   |          |  | Los Angeles, CA   |  |      | (120,000 | )            |          |      | 34,971 |                         |        |                  | 118,744 |  |         |  |  |                  |   |  | 3,397  | 
|                              |  |       |   |          |  |                   |  |      |          |              |          |      |        |                         |        |                  |         |  |         |  |   |                  |   |  |        |  |        | 
|Total  Los Angeles Area      |  |       |   |          |  |                   |  |      |          |              | (120,000 | )    |        |                         | 62,560 |                  |         |  | 264,736 |  |   |                  |  |  |        |  | 18,853 | 
|                              |  |       |   |          |  |                   |  |      |          |              |          |      |        |                         |        |                  |         |  |         |  |   |                  |   |  |        |  |        | 
|New York Area                 |  |       |   |          |  |                   |  |      |          |              |          |      |        |                         |        |                  |         |  |         |  |   |                  |   |  |        |  |        | 
|One New York Plaza            |  |       |   |          |  | New York, NY      |  |      | (237,768 | )            |          |      | 58,676 |                         |        |                  | 340,107 |  |         |  |  |                  |   |  | 23,536 | 
|110 William Street            |  |       |   |          |  | New York, NY      |  |      | (85,000  | )            |          |      | 12,450 |                         |        |                  | 77,711  |  |         |  |  |                  |   |  | 12,969 | 
|1065 Avenue of the Americas   |  |       | 3 |          |  | New York, NY      |  |      | (37,347  | )            |          |      | 19,518 |                         |        |                  | 44,433  |  |         |  |  |                  |   |  | 5,584  | 
|Newport Tower                 |  |       |   |          |  | Jersey City, NJ   |  |      | (105,400 | )            |          |      | 2,054  |                         |        |                  | 161,582 |  |         |  |  |                  |   |  | 1,907  | 
|                              |  |       |   |          |  |                   |  |      |          |              |          |      |        |                         |        |                  |         |  |         |  |   |                  |   |  |        |  |        | 
|Total  New York Area         |  |       |   |          |  |                   |  |      |          |              | (465,515 | )    |        |                         | 92,698 |                  |         |  | 623,833 |  |   |                  |  |  |        |  | 43,996 | 
|                              |  |       |   |          |  |                   |  |      |          |              |          |      |        |                         |        |                  |         |  |         |  |   |                  |   |  |        |  |        | 
|Washington, D.C. Area         |  |       |   |          |  |                   |  |      |          |              |          |      |        |                         |        |                  |         |  |         |  |   |                  |   |  |        |  |        | 
|2000 L Street, N.W            |  |       |   |          |  | Washington, DC    |  |      | (56,100  | )            |          |      | 7,728  |                         |        |                  | 56,767  |  |         |  |  |                  |   |  | 19,825 | 
|Watergate Office Building     |  |       |   |          |  | Washington, DC    |  |      | (19,020  | )            |          |      | 4,853  |                         |        |                  | 45,281  |  |         |  |  |                  |   |  | 4,396  | 
|1400 K Street, N.W            |  |       |   |          |  | Washington, DC    |  |      | (21,956  | )            |          |      | 8,786  |                         |        |                  | 21,219  |  |         |  |  |                  |   |  | 9,830  | 
|1250 Connecticut, N.W         |  |       |   |          |  | Washington, DC    |  |      | (29,750  | )            |          |      | 6,457  |                         |        |                  | 37,427  |  |         |  |  |                  |   |  | 1,741  | 
|1250 23rd Street, N.W         |  |       | 6 |          |  | Washington, DC    |  |      |         |              |          |      | 3,515  |                         |        |                  | 24,922  |  |         |  |  |                  |   |  | 347    | 
|2401 Pennsylvania             |  |       |   |          |  | Washington, DC    |  |      | (20,870  | )            |          |      | 4,419  |                         |        |                  | 24,674  |  |         |  |  |                  |   |  | 2,098  | 
|1225 Connecticut              |  |       | 6 |          |  | Washington, DC    |  |      |         |              |          |      | 8,865  |                         |        |                  | 51,010  |  |         |  |  |                  |   |  | 357    | 
|Bethesda Crescent             |  |       |   |          |  | Bethesda, MD      |  |      | (36,268  | )            |          |      | 7,359  |                         |        |                  | 55,509  |  |         |  |  |                  |   |  | 2,664  | 
|Twinbrook Metro Plaza         |  |       |   |          |  | Rockville, MD     |  |      | (16,915  | )            |          |      | 4,250  |                         |        |                  | 24,003  |  |         |  |  |                  |   |  | 1,377  | 
|Silver Spring Metro Plaza     |  |       |   |          |  | Silver Spring, MD |  |      | (68,790  | )            |          |      | 5,311  |                         |        |                  | 98,142  |  |         |  |  |                  |   |  | 9,725  | 
|Silver Spring Centre          |  |       |   |          |  | Silver Spring, MD |  |      | (15,280  | )            |          |      | 3,320  |                         |        |                  | 19,129  |  |         |  |  |                  |   |  | 1,161  | 
|Beaumeade Corporate Park      |  |       |   |          |  | Washington, DC    |  |      | (18,000  | )            |          |      | 2,103  |                         |        |                  | 11,733  |  |         |  |  |                  |   |  | 10,908 | 
|1550 & 1560 Wilson Blvd       |  |       |   |          |  | Arlington, VA     |  |      | (31,000  | )            |          |      | 4,958  |                         |        |                  | 28,849  |  |         |  |  |                  |   |  | 6,552  | 
|2 Ballston Plaza              |  |       |   |          |  | Arlington, VA     |  |      | (27,066  | )            |          |      | 6,691  |                         |        |                  | 37,837  |  |         |  |  |                  |   |  | 155    | 
|Reston Unisys                 |  |       |   |          |  | Reston, VA        |  |      | (23,970  | )            |          |      | 5,706  |                         |        |                  | 34,934  |  |         |  |  |                  |   |  | 9      | 
|Reston Crescent  Phase 2     |  |       |   |          |  | Reston, VA        |  |      | (22,000  | )            |          |      | 4,247  |                         |        |                  | 810     |  |         |  |  |                  |   |  | 20,153 | 
|Sunrise Tech Park             |  |       |   |          |  | Reston, VA        |  |      | (23,514  | )            |          |      | 6,346  |                         |        |                  | 36,618  |  |         |  |  |                  |   |  | 2,623  | 
|                              |  |       |   |          |  |                   |  |      |          |              |          |      |        |                         |        |                  |         |  |         |  |   |                  |   |  |        |  |        | 
|Total  Washington, D.C. Area |  |       |   |          |  |                   |  |      |          |              | (430,499 | )    |        |                         | 94,914 |                  |         |  | 608,864 |  |   |                  |  |  |        |  | 93,921 | 
|                              |  |       |   |          |  |                   |  |      |          |              |          |      |        |                         |        |                  |         |  |         |  |   |                  |   |  |        |  |        | 

(Table cont below)

(Table cont from top)

|                              |  |                        |        |           |  |              |         |              |  |            |         |             |  |              |         |      |  |             |            |  |  |            |  |  |    |  |  | 
|----------------------------- |  | ---------------------- | ------ | --------- |  | ------------ | ------- | ------------ |  | ---------- | ------- | ----------- |  | ------------ | ------- | ---- |  | ----------- | ---------- |  |  | ---------- |  |  | -- |  |  | 
|                              |  | Total Cost at 12/31/02 |        |           |  |              |         |              |  |            |         |             |  |             
|                              |  |                        |        |           |  |              |         |              |  |            |         |             |  |             
|                              |  |                        |        |           |  |              |         |              |  |            |         |             |  |              |         |      |  | Date of     |            |  |  |            |  |  |    | 
|                              |  |                        |        |           |  | Building and |         |              |  |            |         | Accumulated |  | Construction |         | Date |  | Depreciable
|Description                   |  | Land                   |        | additions |  | Total (1)    |         | Depreciation |  | Renovation |         | Acquired    |  | Lives (2)   
|                              |  |                        |        |           |  |              |         |              |  |            |         |             |  |             
|Los Angeles Area              |  |                        |        |           |  |              |         |              |  |            |         |             |  |              |         |      |  |             |            |  |  |            |  |  |    |  |  | 
|9800 La Cienega               |  |                        | 3,405  |           |  |              | 24,608  |              |  |            | 28,013  |             |  |              | (6,639  | )    |  |             | 1985       |  |  | Oct. 31/96 |  |  | 40 | 
|Landmark Square               |  |                        | 18,477 |           |  |              | 73,672  |              |  |            | 92,149  |             |  |              | (9,024  | )    |  |             | 1991       |  |  | Aug. 11/98 |  |  | 40 | 
|Shoreline Square              |  |                        | 5,707  |           |  |              | 63,168  |              |  |            | 68,875  |             |  |              | (7,374  | )    |  |             | 1988       |  |  | Sep. 24/98 |  |  | 40 | 
|Ernst & Young Plaza           |  |                        | 34,971 |           |  |              | 122,141 |              |  |            | 157,112 |             |  |              | (8,154  | )    |  |             | 1985       |  |  | June 4/02  |  |  | 40 | 
|                              |  |                        |        |           |  |              |         |              |  |            |         |             |  |              |         |      |  |             |            |  |  |            |  |  |    |  |  | 
|Total  Los Angeles Area      |  |                        | 62,560 |           |  |              | 283,589 |              |  |            | 346,149 |             |  |              | (31,191 | )    |  |             |            |  |  |            |  |  |    |  |  | 
|                              |  |                        |        |           |  |              |         |              |  |            |         |             |  |              |         |      |  |             |            |  |  |            |  |  |    |  |  | 
|New York Area                 |  |                        |        |           |  |              |         |              |  |            |         |             |  |              |         |      |  |             |            |  |  |            |  |  |    |  |  | 
|One New York Plaza            |  |                        | 58,676 |           |  |              | 363,643 |              |  |            | 422,319 |             |  |              | (31,810 | )    |  |             | 1970/95    |  |  | Apr. 30/99 |  |  | 40 | 
|110 William Street            |  |                        | 12,450 |           |  |              | 90,680  |              |  |            | 103,130 |             |  |              | (9,807  | )    |  |             | 1960/99    |  |  | Dec. 10/98 |  |  | 40 | 
|1065 Avenue of the Americas   |  |                        | 19,518 |           |  |              | 50,017  |              |  |            | 69,535  |             |  |              | (6,509  | )    |  |             | 1958       |  |  | Jan. 5/97  |  |  | 40 | 
|Newport Tower                 |  |                        | 2,054  |           |  |              | 163,489 |              |  |            | 165,543 |             |  |              | (21,232 | )    |  |             | 1990       |  |  | Feb. 24/97 |  |  | 40 | 
|                              |  |                        |        |           |  |              |         |              |  |            |         |             |  |              |         |      |  |             |            |  |  |            |  |  |    |  |  | 
|Total  New York Area         |  |                        | 92,698 |           |  |              | 667,829 |              |  |            | 760,527 |             |  |              | (69,358 | )    |  |             |            |  |  |            |  |  |    |  |  | 
|                              |  |                        |        |           |  |              |         |              |  |            |         |             |  |              |         |      |  |             |            |  |  |            |  |  |    |  |  | 
|Washington, D.C. Area         |  |                        |        |           |  |              |         |              |  |            |         |             |  |              |         |      |  |             |            |  |  |            |  |  |    |  |  | 
|2000 L Street, N.W            |  |                        | 7,728  |           |  |              | 76,592  |              |  |            | 84,320  |             |  |              | (12,361 | )    |  |             | 1968/98    |  |  | Feb. 2/98  |  |  | 40 | 
|Watergate Office Building     |  |                        | 4,853  |           |  |              | 49,677  |              |  |            | 54,530  |             |  |              | (7,372  | )    |  |             | 1965/91    |  |  | Feb. 2/98  |  |  | 40 | 
|1400 K Street, N.W            |  |                        | 8,786  |           |  |              | 31,049  |              |  |            | 39,835  |             |  |              | (4,509  | )    |  |             | 1982/02    |  |  | Feb. 2/98  |  |  | 40 | 
|1250 Connecticut, N.W         |  |                        | 6,457  |           |  |              | 39,168  |              |  |            | 45,625  |             |  |              | (4,230  | )    |  |             | 1964/96    |  |  | Jan. 11/99 |  |  | 40 | 
|1250 23rd Street, N.W         |  |                        | 3,515  |           |  |              | 25,269  |              |  |            | 28,784  |             |  |              | (3,972  | )    |  |             | 1990       |  |  | Feb. 2/98  |  |  | 40 | 
|2401 Pennsylvania             |  |                        | 4,419  |           |  |              | 26,772  |              |  |            | 31,191  |             |  |              | (2,693  | )    |  |             | 1991       |  |  | Dec. 16/98 |  |  | 40 | 
|1225 Connecticut              |  |                        | 8,865  |           |  |              | 51,367  |              |  |            | 60,232  |             |  |              | (2,023  | )    |  |             | 1968/94    |  |  | May 24/01  |  |  | 40 | 
|Bethesda Crescent             |  |                        | 7,359  |           |  |              | 58,173  |              |  |            | 65,532  |             |  |              | (9,491  | )    |  |             | 1987       |  |  | Dec. 23/97 |  |  | 40 | 
|Twinbrook Metro Plaza         |  |                        | 4,250  |           |  |              | 25,380  |              |  |            | 29,630  |             |  |              | (2,854  | )    |  |             | 1986       |  |  | Aug. 20/98 |  |  | 40 | 
|Silver Spring Metro Plaza     |  |                        | 5,311  |           |  |              | 107,867 |              |  |            | 113,178 |             |  |              | (11,367 | )    |  |             | 1986       |  |  | Dec. 2/98  |  |  | 40 | 
|Silver Spring Centre          |  |                        | 3,320  |           |  |              | 20,290  |              |  |            | 23,610  |             |  |              | (2,462  | )    |  |             | 1987       |  |  | Apr. 30/98 |  |  | 40 | 
|Beaumeade Corporate Park      |  |                        | 2,103  |           |  |              | 22,641  |              |  |            | 24,744  |             |  |              | (1,803  | )    |  |             | 1990/98/00 |  |  | Dec. 16/98 |  |  | 40 | 
|1550 & 1560 Wilson Blvd       |  |                        | 4,958  |           |  |              | 35,401  |              |  |            | 40,359  |             |  |              | (4,710  | )    |  |             | 1983/87    |  |  | Dec. 10/98 |  |  | 40 | 
|2 Ballston Plaza              |  |                        | 6,691  |           |  |              | 37,992  |              |  |            | 44,683  |             |  |              | (1,619  | )    |  |             | 1988       |  |  | May 11/01  |  |  | 40 | 
|Reston Unisys                 |  |                        | 5,706  |           |  |              | 34,943  |              |  |            | 40,649  |             |  |              | (5,679  | )    |  |             | 1980       |  |  | Feb. 2/98  |  |  | 40 | 
|Reston Crescent  Phase 2     |  |                        | 4,247  |           |  |              | 20,963  |              |  |            | 25,210  |             |  |              | (1,291  | )    |  |             | 2000       |  |  | Feb. 2/98  |  |  | 40 | 
|Sunrise Tech Park             |  |                        | 6,346  |           |  |              | 39,241  |              |  |            | 45,587  |             |  |              | (3,861  | )    |  |             | 1983/85    |  |  | Dec. 15/98 |  |  | 40 | 
|                              |  |                        |        |           |  |              |         |              |  |            |         |             |  |              |         |      |  |             |            |  |  |            |  |  |    |  |  | 
|Total  Washington, D.C. Area |  |                        | 94,914 |           |  |              | 702,785 |              |  |            | 797,699 |             |  |              | (82,297 | )    |  |             |            |  |  |            |  |  |    |  |  | 
|                              |  |                        |        |           |  |              |         |              |  |            |         |             |  |              |         |      |  |             |            |  |  |            |  |  |    |  |  | 

F-54



---



##### Table of Contents



Schedule III  Real Estate and Accumulated
Depreciation as at December 31, 2002
($ thousands)

|                              |  |       |     |          |  |                     |  |      |          |              |            |      |        |                         |         |                  |         |  |           |  |        |                  |        |   |         |   |         | 
|----------------------------- |  | ----- | --- | -------- |  | ------------------- |  | ---- | -------- | ------------ | ---------- | ---- | ------ | ----------------------- | ------- | ---------------- | ------- |  | --------- |  | ------ | ---------------- | ------ | - | ------- | - | ------- | 
|                              |  |       |     |          |  |                     |  |      |          |              |            |      |        |                         |         |                  |         |  |           |  |        | Subsequent Costs
|                              |  |       |     |          |  |                     |  |      |          |              |            |      |        | Initial Cost to Company |         | Capitalized, Net
|                              |  |       |     |          |  |                     |  |      |          |              |            |      |        |                         |         |                 
|                              |  |       |     |          |  |                     |  |      |          | Encumbrances |            |      |        |                         |         | Building and     |         |  |           |  |        | Building and    
|Description                   |  | Notes |     | Location |  | at 12/31/02         |  | Land |          | additions    |            | Land |        | additions              
|                              |  |       |     |          |  |                     |  |      |          |              |            |      |        |                        
|Charlotte                     |  |       |     |          |  |                     |  |      |          |              |            |      |        |                         |         |                  |         |  |           |  |        |                  |        |   |         |   |         | 
|Bank of America Plaza         |  |       |     |          |  | Charlotte, NC       |  |      | (66,204  | )            |            |      | 11,250 |                         |         |                  | 103,530 |  |           |  |       |                  |        |   | 5,175   |  
|First Citizens Plaza          |  |       | 6   |          |  | Charlotte, NC       |  |      |         |              |            |      |       |                         |         |                  | 61,348  |  |           |  |       |                  |        |   | 4,018   |  
|                              |  |       |     |          |  |                     |  |      |          |              |            |      |        |                         |         |                  |         |  |           |  |        |                  |        |   |         |   |         | 
|Total  Charlotte             |  |       |     |          |  |                     |  |      |          |              | (66,204    | )    |        |                         | 11,250  |                  |         |  | 164,878   |  |        |                  |       |   |         |   | 9,193   | 
|                              |  |       |     |          |  |                     |  |      |          |              |            |      |        |                         |         |                  |         |  |           |  |        |                  |        |   |         |   |         | 
|Minneapolis                   |  |       |     |          |  |                     |  |      |          |              |            |      |        |                         |         |                  |         |  |           |  |        |                  |        |   |         |   |         | 
|Northstar Center              |  |       | 6   |          |  | Minneapolis, MN     |  |      |         |              |            |      | 2,500  |                         |         |                  | 44,501  |  |           |  |       |                  |        |   | 21,503  |  
|Minnesota Center              |  |       |     |          |  | Minneapolis, MN     |  |      | (23,000  | )            |            |      | 1,527  |                         |         |                  | 43,606  |  |           |  |       |                  |        |   | 3,825   |  
|                              |  |       |     |          |  |                     |  |      |          |              |            |      |        |                         |         |                  |         |  |           |  |        |                  |        |   |         |   |         | 
|Total Minneapolis             |  |       |     |          |  |                     |  |      |          |              | (23,000    | )    |        |                         | 4,027   |                  |         |  | 88,107    |  |        |                  |       |   |         |   | 25,328  | 
|                              |  |       |     |          |  |                     |  |      |          |              |            |      |        |                         |         |                  |         |  |           |  |        |                  |        |   |         |   |         | 
|Pittsburgh                    |  |       |     |          |  |                     |  |      |          |              |            |      |        |                         |         |                  |         |  |           |  |        |                  |        |   |         |   |         | 
|Gateway Center                |  |       |     |          |  | Pittsburgh, PA      |  |      | (41,362  | )            |            |      | 6,260  |                         |         |                  | 55,627  |  |           |  |       |                  |        |   | 32,306  |  
|                              |  |       |     |          |  |                     |  |      |          |              |            |      |        |                         |         |                  |         |  |           |  |        |                  |        |   |         |   |         | 
|St. Louis                     |  |       |     |          |  |                     |  |      |          |              |            |      |        |                         |         |                  |         |  |           |  |        |                  |        |   |         |   |         | 
|Metropolitan Square           |  |       |     |          |  | St. Louis, MO       |  |      | (87,281  | )            |            |      | 13,625 |                         |         |                  | 125,636 |  |           |  |       |                  |        |   | 6,107   |  
|St. Louis Place               |  |       | 6   |          |  | St. Louis, MO       |  |      |         |              |            |      | 3,500  |                         |         |                  | 32,169  |  |           |  |       |                  |        |   | 607     |  
|                              |  |       |     |          |  |                     |  |      |          |              |            |      |        |                         |         |                  |         |  |           |  |        |                  |        |   |         |   |         | 
|Total  St. Louis             |  |       |     |          |  |                     |  |      |          |              | (87,281    | )    |        |                         | 17,125  |                  |         |  | 157,805   |  |        |                  |       |   |         |   | 6,714   | 
|                              |  |       |     |          |  |                     |  |      |          |              |            |      |        |                         |         |                  |         |  |           |  |        |                  |        |   |         |   |         | 
|Other                         |  |       |     |          |  |                     |  |      |          |              |            |      |        |                         |         |                  |         |  |           |  |        |                  |        |   |         |   |         | 
|250 West Pratt Street         |  |       |     |          |  | Baltimore, MD       |  |      | (29,444  | )            |            |      | 7,238  |                         |         |                  | 41,853  |  |           |  |       |                  |        |   | 1,703   |  
|Bank of America Plaza         |  |       |     |          |  | Columbia, SC        |  |      | (20,725  | )            |            |      | 5,590  |                         |         |                  | 32,378  |  |           |  |       |                  |        |   | 2,064   |  
|1441 Main Street              |  |       | 6   |          |  | Columbia, SC        |  |      |         |              |            |      | 3,154  |                         |         |                  | 18,374  |  |           |  |       |                  |        |   | 2,844   |  
|1333 Main Street              |  |       | 6   |          |  | Columbia, SC        |  |      |         |              |            |      | 3,025  |                         |         |                  | 17,468  |  |           |  |       |                  |        |   | 1,535   |  
|Borden Building               |  |       |     |          |  | Columbus, OH        |  |      | (31,000  | )            |            |      | 5,784  |                         |         |                  | 44,140  |  |           |  |       |                  |        |   | 5,838   |  
|Clark Tower                   |  |       |     |          |  | Memphis, TN         |  |      | (31,000  | )            |            |      | 5,450  |                         |         |                  | 50,089  |  |           |  |       |                  |        |   | 2,916   |  
|Capital Center II & III       |  |       |     |          |  | Sacramento, CA      |  |      | (33,000  | )            |            |      | 8,384  |                         |         |                  | 42,529  |  |           |  |       |                  |        |   | 6,123   |  
|Williams Center I & II        |  |       |     |          |  | Tulsa, OK           |  |      | (37,500  | )            |            |      | 5,400  |                         |         |                  | 49,554  |  |           |  |       |                  |        |   | 2,499   |  
|Esperante Office Building     |  |       |     |          |  | West Palm Beach, FL |  |      | (23,501  | )            |            |      | 5,806  |                         |         |                  | 33,877  |  |           |  |       |                  |        |   | 3,885   |  
|Inner Belt                    |  |       | 4   |          |  | Boston, MA          |  |      | (17,896  | )            |            |      | 24,027 |                         |         |                  | 3,562   |  |           |  | (9,709 | )                |        |   | (3,562  | )
|                              |  |       |     |          |  |                     |  |      |          |              |            |      |        |                         |         |                  |         |  |           |  |        |                  |        |   |         |   |         | 
|Total  Other                 |  |       |     |          |  |                     |  |      |          |              | (224,066   | )    |        |                         | 73,858  |                  |         |  | 333,824   |  |        |                  | (9,709 | ) |         |   | 25,845  | 
|                              |  |       |     |          |  |                     |  |      |          |              |            |      |        |                         |         |                  |         |  |           |  |        |                  |        |   |         |   |         | 
|Retail                        |  |       |     |          |  |                     |  |      |          |              |            |      |        |                         |         |                  |         |  |           |  |        |                  |        |   |         |   |         | 
|Hollywood & Highland  retail |  |       | 4,5 |          |  | Los Angeles, CA     |  |      | (145,523 | )            |            |      | 13,108 |                         |         |                  |        |  |           |  |       |                  |        |   | 107,254 |  
|Desert Passage                |  |       | 5   |          |  | Las Vegas, NV       |  |      | (178,011 | )            |            |      | 26,667 |                         |         |                  | 240,150 |  |           |  |       |                  |        |   | (54,259 | )
|                              |  |       |     |          |  |                     |  |      |          |              |            |      |        |                         |         |                  |         |  |           |  |        |                  |        |   |         |   |         | 
|Total  Retail                |  |       |     |          |  |                     |  |      |          |              | (323,534   | )    |        |                         | 39,775  |                  |         |  | 240,150   |  |        |                  |       |   |         |   | 52,995  | 
|                              |  |       |     |          |  |                     |  |      |          |              |            |      |        |                         |         |                  |         |  |           |  |        |                  |        |   |         |   |         | 
|Total Rental Properties       |  |       |     |          |  |                     |  |      |          |              | (3,068,670 | )    |        |                         | 613,865 |                  |         |  | 3,891,609 |  |        |                  | (9,709 | ) |         |   | 669,116 | 
|                              |  |       |     |          |  |                     |  |      |          |              |            |      |        |                         |         |                  |         |  |           |  |        |                  |        |   |         |   |         | 

(Table cont below)

(Table cont from top)

|                              |  |                        |         |           |  |              |           |              |  |            |           |             |  |              |          |      |  |             |            |  |  |            |  |  |    |  |  | 
|----------------------------- |  | ---------------------- | ------- | --------- |  | ------------ | --------- | ------------ |  | ---------- | --------- | ----------- |  | ------------ | -------- | ---- |  | ----------- | ---------- |  |  | ---------- |  |  | -- |  |  | 
|                              |  | Total Cost at 12/31/02 |         |           |  |              |           |              |  |            |           |             |  |             
|                              |  |                        |         |           |  |              |           |              |  |            |           |             |  |             
|                              |  |                        |         |           |  |              |           |              |  |            |           |             |  |              |          |      |  | Date of     |            |  |  |            |  |  |    | 
|                              |  |                        |         |           |  | Building and |           |              |  |            |           | Accumulated |  | Construction |          | Date |  | Depreciable
|Description                   |  | Land                   |         | additions |  | Total (1)    |           | Depreciation |  | Renovation |           | Acquired    |  | Lives (2)   
|                              |  |                        |         |           |  |              |           |              |  |            |           |             |  |             
|Charlotte                     |  |                        |         |           |  |              |           |              |  |            |           |             |  |              |          |      |  |             |            |  |  |            |  |  |    |  |  | 
|Bank of America Plaza         |  |                        | 11,250  |           |  |              | 108,705   |              |  |            | 119,955   |             |  |              | (10,782  | )    |  |             | 1974       |  |  | Dec. 21/98 |  |  | 40 | 
|First Citizens Plaza          |  |                        |        |           |  |              | 65,366    |              |  |            | 65,366    |             |  |              | (8,613   | )    |  |             | 1985       |  |  | Jul. 15/98 |  |  | 40 | 
|                              |  |                        |         |           |  |              |           |              |  |            |           |             |  |              |          |      |  |             |            |  |  |            |  |  |    |  |  | 
|Total  Charlotte             |  |                        | 11,250  |           |  |              | 174,071   |              |  |            | 185,321   |             |  |              | (19,395  | )    |  |             |            |  |  |            |  |  |    |  |  | 
|                              |  |                        |         |           |  |              |           |              |  |            |           |             |  |              |          |      |  |             |            |  |  |            |  |  |    |  |  | 
|Minneapolis                   |  |                        |         |           |  |              |           |              |  |            |           |             |  |              |          |      |  |             |            |  |  |            |  |  |    |  |  | 
|Northstar Center              |  |                        | 2,500   |           |  |              | 66,004    |              |  |            | 68,504    |             |  |              | (8,013   | )    |  |             | 1916/62/86 |  |  | Oct. 31/96 |  |  | 40 | 
|Minnesota Center              |  |                        | 1,527   |           |  |              | 47,431    |              |  |            | 48,958    |             |  |              | (5,909   | )    |  |             | 1987       |  |  | Oct. 1/98  |  |  | 40 | 
|                              |  |                        |         |           |  |              |           |              |  |            |           |             |  |              |          |      |  |             |            |  |  |            |  |  |    |  |  | 
|Total Minneapolis             |  |                        | 4,027   |           |  |              | 113,435   |              |  |            | 117,462   |             |  |              | (13,922  | )    |  |             |            |  |  |            |  |  |    |  |  | 
|                              |  |                        |         |           |  |              |           |              |  |            |           |             |  |              |          |      |  |             |            |  |  |            |  |  |    |  |  | 
|Pittsburgh                    |  |                        |         |           |  |              |           |              |  |            |           |             |  |              |          |      |  |             |            |  |  |            |  |  |    |  |  | 
|Gateway Center                |  |                        | 6,260   |           |  |              | 87,933    |              |  |            | 94,193    |             |  |              | (21,925  | )    |  |             | 1952/60    |  |  | Oct. 31/96 |  |  | 40 | 
|                              |  |                        |         |           |  |              |           |              |  |            |           |             |  |              |          |      |  |             |            |  |  |            |  |  |    |  |  | 
|St. Louis                     |  |                        |         |           |  |              |           |              |  |            |           |             |  |              |          |      |  |             |            |  |  |            |  |  |    |  |  | 
|Metropolitan Square           |  |                        | 13,625  |           |  |              | 131,743   |              |  |            | 145,368   |             |  |              | (17,072  | )    |  |             | 1989       |  |  | Dec. 8/97  |  |  | 40 | 
|St. Louis Place               |  |                        | 3,500   |           |  |              | 32,776    |              |  |            | 36,276    |             |  |              | (3,406   | )    |  |             | 1983       |  |  | Sep. 24/98 |  |  | 40 | 
|                              |  |                        |         |           |  |              |           |              |  |            |           |             |  |              |          |      |  |             |            |  |  |            |  |  |    |  |  | 
|Total  St. Louis             |  |                        | 17,125  |           |  |              | 164,519   |              |  |            | 181,644   |             |  |              | (20,478  | )    |  |             |            |  |  |            |  |  |    |  |  | 
|                              |  |                        |         |           |  |              |           |              |  |            |           |             |  |              |          |      |  |             |            |  |  |            |  |  |    |  |  | 
|Other                         |  |                        |         |           |  |              |           |              |  |            |           |             |  |              |          |      |  |             |            |  |  |            |  |  |    |  |  | 
|250 West Pratt Street         |  |                        | 7,238   |           |  |              | 43,556    |              |  |            | 50,794    |             |  |              | (5,645   | )    |  |             | 1986       |  |  | Feb. 17/98 |  |  | 40 | 
|Bank of America Plaza         |  |                        | 5,590   |           |  |              | 34,442    |              |  |            | 40,032    |             |  |              | (4,533   | )    |  |             | 1989       |  |  | Feb. 19/98 |  |  | 40 | 
|1441 Main Street              |  |                        | 3,154   |           |  |              | 21,218    |              |  |            | 24,372    |             |  |              | (3,621   | )    |  |             | 1988       |  |  | Dec. 13/96 |  |  | 40 | 
|1333 Main Street              |  |                        | 3,025   |           |  |              | 19,003    |              |  |            | 22,028    |             |  |              | (2,627   | )    |  |             | 1983       |  |  | Apr. 30/97 |  |  | 40 | 
|Borden Building               |  |                        | 5,784   |           |  |              | 49,978    |              |  |            | 55,762    |             |  |              | (5,784   | )    |  |             | 1974       |  |  | Dec. 1/98  |  |  | 40 | 
|Clark Tower                   |  |                        | 5,450   |           |  |              | 53,005    |              |  |            | 58,455    |             |  |              | (6,732   | )    |  |             | 1973/97    |  |  | May 11/98  |  |  | 40 | 
|Capital Center II & III       |  |                        | 8,384   |           |  |              | 48,652    |              |  |            | 57,036    |             |  |              | (6,828   | )    |  |             | 1984/85    |  |  | Apr. 10/98 |  |  | 40 | 
|Williams Center I & II        |  |                        | 5,400   |           |  |              | 52,053    |              |  |            | 57,453    |             |  |              | (5,522   | )    |  |             | 1982/83    |  |  | Dec. 10/98 |  |  | 40 | 
|Esperante Office Building     |  |                        | 5,806   |           |  |              | 37,762    |              |  |            | 43,568    |             |  |              | (4,846   | )    |  |             | 1989       |  |  | Feb. 2/98  |  |  | 40 | 
|Inner Belt                    |  |                        | 14,318  |           |  |              |          |              |  |            | 14,318    |             |  |              |         |      |  |             | n/a        |  |  | Oct. 15/00 |  |  |   | 
|                              |  |                        |         |           |  |              |           |              |  |            |           |             |  |              |          |      |  |             |            |  |  |            |  |  |    |  |  | 
|Total  Other                 |  |                        | 64,149  |           |  |              | 359,669   |              |  |            | 423,818   |             |  |              | (46,138  | )    |  |             |            |  |  |            |  |  |    |  |  | 
|                              |  |                        |         |           |  |              |           |              |  |            |           |             |  |              |          |      |  |             |            |  |  |            |  |  |    |  |  | 
|Retail                        |  |                        |         |           |  |              |           |              |  |            |           |             |  |              |          |      |  |             |            |  |  |            |  |  |    |  |  | 
|Hollywood & Highland  retail |  |                        | 13,108  |           |  |              | 107,254   |              |  |            | 120,362   |             |  |              | (1,496   | )    |  |             | 2001       |  |  | Mar. 11/97 |  |  | 40 | 
|Desert Passage                |  |                        | 26,667  |           |  |              | 185,891   |              |  |            | 212,558   |             |  |              | (6,876   | )    |  |             | 2000       |  |  | Mar. 31/01 |  |  | 40 | 
|                              |  |                        |         |           |  |              |           |              |  |            |           |             |  |              |          |      |  |             |            |  |  |            |  |  |    |  |  | 
|Total  Retail                |  |                        | 39,775  |           |  |              | 293,145   |              |  |            | 332,920   |             |  |              | (8,372   | )    |  |             |            |  |  |            |  |  |    |  |  | 
|                              |  |                        |         |           |  |              |           |              |  |            |           |             |  |              |          |      |  |             |            |  |  |            |  |  |    |  |  | 
|Total Rental Properties       |  |                        | 604,156 |           |  |              | 4,560,725 |              |  |            | 5,164,881 |             |  |              | (543,246 | )    |  |             |            |  |  |            |  |  |    |  |  | 
|                              |  |                        |         |           |  |              |           |              |  |            |           |             |  |              |          |      |  |             |            |  |  |            |  |  |    |  |  | 

F-55



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##### Table of Contents



Schedule III  Real Estate and Accumulated Depreciation as at December 31, 2002
($ thousands)

|                                             |  |       |   |          |  |               |  |      |         |           |            |      |        |              |         |                  |        |                        |           |           |      |            |         |            |        |          |         |           |        |   |         |  |        |        |           |           |        |      |           |      |        |          |          |         |           |  |  |            |  |  |    |  |  |  |  | 
|-------------------------------------------- |  | ----- | - | -------- |  | ------------- |  | ---- | ------- | --------- | ---------- | ---- | ------ | ------------ | ------- | ---------------- | ------ | ---------------------- | --------- | --------- | ---- | ---------- | ------- | ---------- | ------ | -------- | ------- | --------- | ------ | - | ------- |  | ------ | ------ | --------- | --------- | ------ | ---- | --------- | ---- | ------ | -------- | -------- | ------- | --------- |  |  | ---------- |  |  | -- |  |  |  |  | 
|                                             |  |       |   |          |  |               |  |      |         |           |            |      |        |              |         |                  |        |                        |           |           |      | Subsequent |         |            |        |          |         |           |        |   |         |  |        |        |           |           |        |      |           |      |        |          |          |         |           |  |  |            |  | 
|                                             |  |       |   |          |  |               |  |      |         |           |            |      |        | Initial Cost |         | Costs            |        |                        |           |           |      |            |         |            |        |          |         |           |        |   |         |  |        |        |           |           |        |      |           |      |        |          |          |        
|                                             |  |       |   |          |  |               |  |      |         |           |            |      |        | to Company   |         | Capitalized, Net |        | Total Cost at 12/31/02 |           |           |      |            |         |            |        |          |         |           |        |  
|                                             |  |       |   |          |  |               |  |      |         |           |            |      |        |              |         |                  |        |                        |           |           |      |            |         |            |        |          |         |           |        |  
|                                             |  |       |   |          |  |               |  |      |         |           |            |      |        |              |         |                  |        |                        |           |           |      |            |         |            |        |          |         |           |        |   |         |  |        |        |           |           |        |      |           |      |        | Accumu-  |          | Date of |           |  |  |            |  |  |    | 
|                                             |  |       |   |          |  |               |  |      |         | Encum-    |            |      |        |              |         | Building         |        |                        |           |           |      | Building   |         |            |        |          |         | Building  |        |   |         |  |        | lated  |           | Construc- |        |      |           |      |        | Depreci-
|                                             |  |       |   |          |  |               |  |      |         | brances   |            |      |        |              |         | and              |        |                        |           |           |      | and        |         |            |        |          |         | and       |        |   |         |  |        | Depre- |           | tion      |        | Date |           | able
|Description                                  |  | Notes |   | Location |  | at 12/31/02   |  | Land |         | additions |            | Land |        | additions    |         | Land             |        | additions              |           | Total (1) |      | ciation    |         | Renovation |        | Acquired |         | Lives (2)
|                                             |  |       |   |          |  |               |  |      |         |           |            |      |        |              |         |                  |        |                        |           |           |      |            |         |            |        |          |         |          
|Properties held for future development       |  |       |   |          |  |               |  |      |         |           |            |      |        |              |         |                  |        |                        |           |           |      |            |         |            |        |          |         |           |        |   |         |  |        |        |           |           |        |      |           |      |        |          |          |         |           |  |  |            |  |  |    |  |  |  |  | 
|Other residual land                          |  |       |   |          |  | Various       |  |      |        |           |            |      | 25,210 |              |         |                  |       |                        |           |           |     |            |         |            |       |          |         |           | 25,210 |   |         |  |       |        |           |           | 25,210 |      |           |      |       |          |          |         |           |  |  |            |  |  |    |  |  | 
|                                             |  |       |   |          |  |               |  |      |         |           |            |      |        |              |         |                  |        |                        |           |           |      |            |         |            |        |          |         |           |        |   |         |  |        |        |           |           |        |      |           |      |        |          |          |         |           |  |  |            |  |  |    |  |  |  |  | 
|Total  Properties held for the
long-term    |  |       |   |          |  |               |  |      |         |           | (3,068,670 | )    |        |              | 639,075 |                  |        |                        | 3,891,609 |           |      |            | (9,709  | )          |        |          | 669,116 |           |        |   | 629,366 |  |        |        | 4,560,725 |           |        |      | 5,190,091 |      |        |          | (543,246 | )       |           |  |  |            |  |  |    |  |  |  |  | 
|                                             |  |       |   |          |  |               |  |      |         |           |            |      |        |              |         |                  |        |                        |           |           |      |            |         |            |        |          |         |           |        |   |         |  |        |        |           |           |        |      |           |      |        |          |          |         |           |  |  |            |  |  |    |  |  |  |  | 
|Properties held for disposition              |  |       |   |          |  |               |  |      |         |           |            |      |        |              |         |                  |        |                        |           |           |      |            |         |            |        |          |         |           |        |   |         |  |        |        |           |           |        |      |           |      |        |          |          |         |           |  |  |            |  |  |    |  |  |  |  | 
|Rental properties                            |  |       |   |          |  |               |  |      |         |           |            |      |        |              |         |                  |        |                        |           |           |      |            |         |            |        |          |         |           |        |   |         |  |        |        |           |           |        |      |           |      |        |          |          |         |           |  |  |            |  |  |    |  |  |  |  | 
|Goddard Corporate Park                       |  |       |   |          |  | Lanham, MD    |  |      | (14,893 | )         |            |      | 3,842  |              |         |                  | 24,437 |                        |           |           |     |            |         |            | (8,844 | )        |         |           | 3,842  |   |         |  | 15,593 |        |           |           | 19,435 |      |           |      | (3,943 | )        |          |         | 1993      |  |  | Feb. 2/98  |  |  | 40 | 
|Rosslyn Gateway                              |  |       |   |          |  | Arlington, VA |  |      | (19,591 | )         |            |      | 5,546  |              |         |                  | 38,297 |                        |           |           |     |            |         |            | 3,647  |          |         |           | 5,546  |   |         |  | 41,944 |        |           |           | 47,490 |      |           |      | (6,650 | )        |          |         | 1970      |  |  | Feb. 2/98  |  |  | 40 | 
|Paseo Colorado                               |  |       | 4 |          |  | Pasadena, CA  |  |      | (74,778 | )         |            |      | 359    |              |         |                  | 11,807 |                        |           |           |     |            |         |            | 75,700 |          |         |           | 359    |   |         |  | 87,507 |        |           |           | 87,866 |      |           |      |       |          |          |         | 2001      |  |  | Oct. 31/96 |  |  |   | 
|151 Front Street                             |  |       |   |          |  | Toronto, ON   |  |      | (17,280 | )         |            |      | 2,980  |              |         |                  | 14,659 |                        |           |           | (104 | )          |         |            | (170   | )        |         |           | 2,876  |   |         |  | 14,489 |        |           |           | 17,365 |      |           |      | (1,825 | )        |          |         | 1954/2000 |  |  | Apr. 12/02 |  |  | 40 | 
|                                             |  |       |   |          |  |               |  |      |         |           |            |      |        |              |         |                  |        |                        |           |           |      |            |         |            |        |          |         |           |        |   |         |  |        |        |           |           |        |      |           |      |        |          |          |         |           |  |  |            |  |  |    |  |  |  |  | 
|Total rental properties                      |  |       |   |          |  |               |  |      |         |           | (126,542   | )    |        |              | 12,727  |                  |        |                        | 89,200    |           |      |            | (104    | )          |        |          | 70,333  |           |        |   | 12,623  |  |        |        | 159,533   |           |        |      | 172,156   |      |        |          | (12,418  | )       |           |  |  |            |  |  |    |  |  |  |  | 
|Properties held for future development       |  |       |   |          |  |               |  |      |         |           |            |      |        |              |         |                  |        |                        |           |           |      |            |         |            |        |          |         |           |        |   |         |  |        |        |           |           |        |      |           |      |        |          |          |         |           |  |  |            |  |  |    |  |  |  |  | 
|Skywalk                                      |  |       |   |          |  | Toronto, ON   |  |      |        |           |            |      | 11,078 |              |         |                  |       |                        |           |           | (385 | )          |         |            |       |          |         |           | 10,693 |   |         |  |       |        |           |           | 10,693 |      |           |      |       |          |          |         |           |  |  | Apr. 12/02 |  |  |    | 
|Goddard Corporate Park land                  |  |       |   |          |  | Lanham, MD    |  |      |        |           |            |      | 3,013  |              |         |                  |       |                        |           |           |     |            |         |            |       |          |         |           | 3,013  |   |         |  |       |        |           |           | 3,013  |      |           |      |       |          |          |         |           |  |  | Feb. 2/98  |  |  |    | 
|                                             |  |       |   |          |  |               |  |      |         |           |            |      |        |              |         |                  |        |                        |           |           |      |            |         |            |        |          |         |           |        |   |         |  |        |        |           |           |        |      |           |      |        |          |          |         |           |  |  |            |  |  |    |  |  |  |  | 
|Total properties held for future
development |  |       |   |          |  |               |  |      |         |           |           |      |        |              | 14,091  |                  |        |                        |          |           |      |            | (385    | )          |        |          |        |           |        |   | 13,706  |  |        |        |          |           |        |      | 13,706    |      |        |          |         |         |           |  |  |            |  |  |    |  |  |  |  | 
|                                             |  |       |   |          |  |               |  |      |         |           |            |      |        |              |         |                  |        |                        |           |           |      |            |         |            |        |          |         |           |        |   |         |  |        |        |           |           |        |      |           |      |        |          |          |         |           |  |  |            |  |  |    |  |  |  |  | 
|Total properties held for disposition        |  |       |   |          |  |               |  |      |         |           | (126,542   | )    |        |              | 26,818  |                  |        |                        | 89,200    |           |      |            | (489    | )          |        |          | 70,333  |           |        |   | 26,329  |  |        |        | 159,533   |           |        |      | 185,862   |      |        |          | (12,418  | )       |           |  |  |            |  |  |    |  |  |  |  | 
|                                             |  |       |   |          |  |               |  |      |         |           |            |      |        |              |         |                  |        |                        |           |           |      |            |         |            |        |          |         |           |        |   |         |  |        |        |           |           |        |      |           |      |        |          |          |         |           |  |  |            |  |  |    |  |  |  |  | 
|Management
business                         
|Furniture,
fixtures
and
equipment            |  |       |   |          |  |               |  |      |        |           |            |      |       |              |         |                  | 13,060 |                        |           |           |     |            |         |            |       |          |         |           |       |   |         |  | 13,060 |        |           |           | 13,060 |      |           |      | (9,686 | )        |          |         |           |  |  |            |  |  |    |  |  | 
|                                             |  |       |   |          |  |               |  |      |         |           |            |      |        |              |         |                  |        |                        |           |           |      |            |         |            |        |          |         |           |        |   |         |  |        |        |           |           |        |      |           |      |        |          |          |         |           |  |  |            |  |  |    |  |  |  |  | 
|Total real estate                            |  |       |   |          |  |               |  |      |         | $         | (3,195,212 | )    |        | $            | 665,893 |                  |        | $                      | 3,993,869 |           |      | $          | (10,198 | )          |        | $        | 739,449 |           |        | $ | 655,695 |  |        | $      | 4,733,318 |           |        | $    | 5,389,013 |      |        | $        | (565,350 | )       |           |  |  |            |  |  |    |  |  |  |  | 
|                                             |  |       |   |          |  |               |  |      |         |           |            |      |        |              |         |                  |        |                        |           |           |      |            |         |            |        |          |         |           |        |   |         |  |        |        |           |           |        |      |           |      |        |          |          |         |           |  |  |            |  |  |    |  |  |  |  | 

F-56



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##### Table of Contents



Schedule III  Real Estate and
Accumulated Depreciation at December 31, 2002

NOTES



|1. |  | The aggregate cost for federal income tax purposes as of December 31,
2002 was approximately $3.9 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. |  | The Corporation has a 99% legal ownership interest in this property.                                                                                                                                                                         
|  
|4. |  | These properties were previously under development and were transferred
to rental properties in 2002.                                                                                                                                        
|  
|5. |  | During the year ended December 31, 2002, the Corporation recorded the
following allowance for loss related to these properties:                                                                                                              

|                              |  |   |         | 
|----------------------------- |  | - | ------- | 
|Desert Passage                |  | $ | 54,909  | 
|Hollywood & Highland  Retail |  |   | 139,582 | 
|Goddard                       |  |   | 9,782   | 
|                              |  |   |         | 
|                              |  | $ | 204,273 | 
|                              |  |   |         | 



|6. |  | These properties are collateral for the $350 million revolving credit
facility. The amount outstanding at December 31, 2002 on this credit
facility was $90 million.
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------

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, 2002,
2001 and 2000 are as follows:

|                               |                            |                                                                  |           |             |          |      |           |      |          |   |           |  |          |  
|------------------------------ | -------------------------- | ---------------------------------------------------------------- | --------- | ----------- | -------- | ---- | --------- | ---- | -------- | - | --------- |  | -------- | -
|                               |                            |                                                                  |           | December 31
|                               |                            |                                                                  |           |            
|                               |                            |                                                                  |           | 2002        |          | 2001 |           | 2000
|                               |                            |                                                                  |           |             |          |      |           |     
|Balance, beginning of the year |                            | $                                                                | 5,399,031 |             |          | $    | 4,883,826 |      |          | $ | 4,940,601 | 
|                               | Additions during the year  |                                                                  |           |             |          |      |           |      |          |   |           |  |         
|                               |                            | Acquisitions                                                     |           |             | 147,189  |      |           |      | 202,740  |   |           |  | 86,347   |  
|                               |                            | Improvements                                                     |           |             | 160,479  |      |           |      | 428,081  |   |           |  | 340,875  |  
|                               |                            | Previously held in a consolidated
joint venture now consolidated |           |             | 41,872   |      |           |      | 268,281  |   |           |  |         |  
|                               | Deductions during the year |                                                                  |           |             |          |      |           |      |          |   |           |  |         
|                               |                            | Properties disposed of                                           |           |             | (132,727 | )    |           |      | (124,024 | ) |           |  | (478,669 | )
|                               |                            | Provision for loss on properties
held for disposition            |           |             | (204,273 | )    |           |      | (253,230 | ) |           |  |         |  
|                               |                            | Write-off of fully depreciated assets                            |           |             | (22,558  | )    |           |      | (6,643   | ) |           |  | (5,328   | )
|                               |                            |                                                                  |           |             |          |      |           |      |          |   |           | 
|Balance, end of year           |                            | $                                                                | 5,389,013 |             |          | $    | 5,399,031 |      |          | $ | 4,883,826 | 
|                               |                            |                                                                  |           |             |          |      |           |      |          |   |           | 

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Schedule III  Real Estate and
Accumulated Depreciation at December 31, 2002

The changes in accumulated depreciation for the years ended December 31, 2002,
2001 and 2000 are as follows:

|                               |                            |                                                                      |          |             |          |      |          |      |          |   |          |   |          |  
|------------------------------ | -------------------------- | -------------------------------------------------------------------- | -------- | ----------- | -------- | ---- | -------- | ---- | -------- | - | -------- | - | -------- | -
|                               |                            |                                                                      |          | December 31
|                               |                            |                                                                      |          |            
|                               |                            |                                                                      |          | 2002        |          | 2001 |          | 2000
|                               |                            |                                                                      |          |             |          |      |          |     
|Balance, beginning of the year |                            | $                                                                    | (438,584 | )           |          | $    | (305,038 | )    |          | $ | (206,248 | )
|                               | Additions during the year  |                                                                      |          |             |          |      |          |      |          |   |          |   |         
|                               |                            | Depreciation                                                         |          |             | (153,962 | )    |          |      | (144,680 | ) |          |   | (141,607 | )
|                               |                            | Previously held in a
non-consolidated joint venture now
consolidated |          |             | (6,034   | )    |          |      | (2,927   | ) |          |   |         |  
|                               | Deductions during the year |                                                                      |          |             |          |      |          |      |          |   |          |   |         
|                               |                            | Properties disposed of                                               |          |             | 10,672   |      |          |      | 7,418    |   |          |   | 37,489   |  
|                               |                            | Write-off of fully depreciated assets                                |          |             | 22,558   |      |          |      | 6,643    |   |          |   | 5,328    |  
|                               |                            |                                                                      |          |             |          |      |          |      |          |   |          |  
|Balance, end of year           |                            | $                                                                    | (565,350 | )           |          | $    | (438,584 | )    |          | $ | (305,038 | )
|                               |                            |                                                                      |          |             |          |      |          |      |          |   |          |  

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SCHEDULE

TRIZECHAHN HOLLYWOOD HOTEL LLC
(a Delaware limited liability company)

CONSOLIDATED FINANCIAL STATEMENTS
AND
REPORT OF INDEPENDENT ACCOUNTANTS

YEARS ENDED DECEMBER 31, 2002 and 2001

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INDEX TO FINANCIAL STATEMENTS

|                                                                                           |  |      |      | 
|------------------------------------------------------------------------------------------ |  | ---- | ---- | 
|                                                                                           |  | Page
|                                                                                           |  |     
|Report of Independent Accountants                                                          |  |      | F-61 | 
|Consolidated Statements of Financial Position as of December 31, 2002 and 2001             |  |      | F-62 | 
|Consolidated Statements of Operations for the years ended December 31, 2002 and 2001       |  |      | F-63 | 
|Consolidated Statements of Members Capital for the years ended December 31, 2002 and 2001 |  |      | F-64 | 
|Consolidated Statements of Cash Flows for the years ended December 31, 2002 and 2001       |  |      | F-65 | 
|Notes to Consolidated Financial Statements                                                 |  |      | F-67 | 

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Report of Independent Accountants

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
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 auditing standards generally accepted in the
United States of America, which 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

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TRIZECHAHN HOLLYWOOD HOTEL LLC
(a Delaware limited liability company)

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

|                                                                     |                            |   |                   |            |      |   |             |            | 
|-------------------------------------------------------------------- | -------------------------- | - | ----------------- | ---------- | ---- | - | ----------- | ---------- | 
|                                                                     |                            |   | As of December 31
|                                                                     |                            |   |                  
|                                                                     |                            |   | 2002              |            | 2001
|                                                                     |                            |   |                   |            |     
|ASSETS                                                               |                            |   |                   |            |      |   |             |           
|Hotel property                                                       |                            |   |                   |            |      |   |             |           
|                                                                     | Buildings and improvements |   | $                 | 57,522,359 |      |   | $           | 98,251,985 | 
|                                                                     | Land                       |   |                   | 7,346,096  |      |   |             | 7,346,096  | 
|                                                                     | Equipment and other        |   |                   | 14,456,573 |      |   |             | 11,328,113 | 
|                                                                     | Accumulated depreciation   |   |                   | (821,291   | )    |   |             |           | 
|                                                                     |                            |   |                   |            |      |   |             |           
|                                                                     |                            |   | 78,503,737        |            |      |   | 116,926,194 |           
|Cash and cash equivalents                                            |                            |   | 3,757,062         |            |      |   | 901,001     |           
|Restricted cash                                                      |                            |   | 169,135           |            |      |   | 4,888,638   |           
|Accounts receivable, net of allowance of $74,614 and $0 respectively |                            |   | 1,777,618         |            |      |   | 48,663      |           
|Inventory                                                            |                            |   | 2,028,755         |            |      |   | 1,691,845   |           
|Prepaid expenses and other assets, net                               |                            |   | 284,416           |            |      |   | 1,019,759   |           
|                                                                     |                            |   |                   |            |      |   |             |           
|                                                                     |                            | $ | 86,520,723        |            |      | $ | 125,476,100 |           
|                                                                     |                            |   |                   |            |      |   |             |           
|LIABILITIES AND MEMBERS CAPITAL                                     |                            |   |                   |            |      |   |             |           
|Mortgage debt and other loans                                        |                            | $ | 100,873,891       |            |      | $ | 80,248,669  |           
|Interest payable                                                     |                            |   | 475,797           |            |      |   | 317,000     |           
|Accounts payable and accrued liabilities                             |                            |   | 2,523,746         |            |      |   | 684,497     |           
|Due to affiliates                                                    |                            |   | 1,061,686         |            |      |   | 1,161,756   |           
|Accrued construction costs                                           |                            |   |                  |            |      |   | 10,246,811  |           
|                                                                     |                            |   |                   |            |      |   |             |           
|                                                                     |                            |   | 104,935,120       |            |      |   | 92,658,733  |           
|Commitments and contingencies                                        |                            |   |                   |            |      |   |             |           
|Members capital                                                     |                            |   | (18,414,397       | )          |      |   | 32,817,367  |           
|                                                                     |                            |   |                   |            |      |   |             |           
|                                                                     |                            | $ | 86,520,723        |            |      | $ | 125,476,100 |           
|                                                                     |                            |   |                   |            |      |   |             |           

See accompanying notes to financial statements.

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TRIZECHAHN HOLLYWOOD HOTEL LLC
(a Delaware limited liability company)

CONSOLIDATED STATEMENTS OF OPERATIONS

|                            |                                           |   |                     |            |      |   |             |            | 
|--------------------------- | ----------------------------------------- | - | ------------------- | ---------- | ---- | - | ----------- | ---------- | 
|                            |                                           |   | For the years ended
|                            |                                           |   | December 31        
|                            |                                           |   |                    
|                            |                                           |   | 2002                |            | 2001
|                            |                                           |   |                     |            |     
|Operating revenue:          |                                           |   |                     |            |      |   |             |           
|                            | Hotel sales  rooms                       |   | $                   | 19,474,315 |      |   | $           | 38,306     | 
|                            | Hotel sales  food and beverage           |   |                     | 7,075,282  |      |   |             | 13,277     | 
|                            | Hotel sales  other                       |   |                     | 2,668,764  |      |   |             | 4,973      | 
|                            |                                           |   |                     |            |      |   |             |           
|                            | Total revenues                            |   |                     | 29,218,361 |      |   |             | 56,556     | 
|                            |                                           |   |                     |            |      |   |             |           
|Operating expenses:         |                                           |   |                     |            |      |   |             |           
|                            | Hotel operating costs  rooms             |   |                     | 5,993,402  |      |   |             | 211,055    | 
|                            | Hotel operating costs  food and beverage |   |                     | 6,897,897  |      |   |             | 106,681    | 
|                            | Hotel operating costs  other             |   |                     | 1,854,875  |      |   |             | 18,746     | 
|                            | Inventory expense                         |   |                     | 590,094    |      |   |             |           | 
|                            | General and administrative                |   |                     | 3,736,991  |      |   |             | 50,432     | 
|                            | Sales and marketing                       |   |                     | 3,086,673  |      |   |             | 13,269     | 
|                            | Repairs and maintenance                   |   |                     | 1,606,848  |      |   |             | 30,438     | 
|                            | Utilities                                 |   |                     | 893,111    |      |   |             | 5,650      | 
|                            | Management fee                            |   |                     | 657,416    |      |   |             | 1,273      | 
|                            | Property taxes                            |   |                     | 1,542,986  |      |   |             |           | 
|                            | Professional fees                         |   |                     | 45,117     |      |   |             |           | 
|                            | Insurance                                 |   |                     | 459,363    |      |   |             |           | 
|                            |                                           |   |                     |            |      |   |             |           
|                            | Total operating expenses                  |   |                     | 27,364,773 |      |   |             | 437,544    | 
|                            |                                           |   |                     |            |      |   |             |           
|Gain/(loss) from operations |                                           |   | 1,853,588           |            |      |   | (380,988    | )         
|Non-operating revenue:      |                                           |   |                     |            |      |   |             |           
|                            | Interest income                           |   |                     | 15,667     |      |   |             | 83,144     | 
|Non-operating expenses:     |                                           |   |                     |            |      |   |             |           
|                            | Provision for loss on hotel property      |   |                     | 42,422,917 |      |   |             | 31,597,896 | 
|                            | Initial start up and opening costs        |   |                     | 943,549    |      |   |             | 4,208,366  | 
|                            | Interest 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.

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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     |             | REN           |   |            |            |  
|                           |                            |   | Hollywood Inc. |             | Hollywood LLC |   | Total     
|                           |                            |   |                |             |               |   |           
|Balance, January 1, 2001   |                            | $ | 57,304,329     |             |               | $ | 10,525,919 |            |   | $ | 67,830,248  |            
|                           | Contributions              |   |                | 1,091,225   |               |   |            |           |   |   |             | 1,091,225   |  
|                           | Net loss                   |   |                | (30,504,359 | )             |   |            | (5,599,747 | ) |   |             | (36,104,106 | )
|                           |                            |   |                |             |               |   |            |            |   |   |             |            
|Balance, December 31, 2001 |                            |   | 27,891,195     |             |               |   | 4,926,172  |            |   |   | 32,817,367  |            
|                           | Contributions              |   |                | 3,038,558   |               |   |            |           |   |   |             | 3,038,558   |  
|                           | Redemption 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.

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TRIZECHAHN HOLLYWOOD HOTEL LLC
(a Delaware limited liability company)

CONSOLIDATED STATEMENTS OF CASH FLOWS

|                                             |  |                                                                                   |                                      |                                          |             |                     |            |      |             |            |            |  
|-------------------------------------------- |  | --------------------------------------------------------------------------------- | ------------------------------------ | ---------------------------------------- | ----------- | ------------------- | ---------- | ---- | ----------- | ---------- | ---------- | -
|                                             |  |                                                                                   |                                      |                                          |             | For the years ended
|                                             |  |                                                                                   |                                      |                                          |             | December 31        
|                                             |  |                                                                                   |                                      |                                          |             |                    
|                                             |  |                                                                                   |                                      |                                          |             | 2002                |            | 2001
|                                             |  |                                                                                   |                                      |                                          |             |                     |            |     
|Cash 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          |            |      |             | 31,597,896 |           
|                                             |  |                                                                                   | Changes 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  |      |             |            | 661,757    |  
|                                             |  |                                                                                   |                                      | Due to affiliates                        |             |                     | (100,070   | )    |             |            | 1,113,246  |  
|                                             |  |                                                                                   |                                      | Interest 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   |                     |            |      | 1,311,250   |           
|                                             |  |                                                                                   |                                      |                                          |             |                     |            |     
|                                             |  | Net cash used in investing activities                                             |                                      |                                          | (10,349,060 | )                   |            |      | (59,737,552 | )         
|                                             |  |                                                                                   |                                      |                                          |             |                     |            |     
|Cash flows from financing activities:        |  |                                                                                   |                                      |                                          |             |                     |            |     
|                                             |  | Draws on construction loan                                                        |                                      |                                          | 15,694,223  |                     |            |      | 64,019,043  |           
|                                             |  | Capital lease payments                                                            |                                      |                                          | (69,001     | )                   |            |      |            |           
|                                             |  | Financing costs                                                                   |                                      |                                          | (28,199     | )                   |            |      |            |           
|                                             |  | Contributions from members                                                        |                                      |                                          | 3,038,558   |                     |            |      | 1,091,225   |           
|                                             |  |                                                                                   |                                      |                                          |             |                     |            |     
|                                             |  | Net cash provided by financing activities                                         |                                      |                                          | 18,635,581  |                     |            |      | 65,110,268  |           
|                                             |  |                                                                                   |                                      |                                          |             |                     |            |     
|Net increase in cash                         |  |                                                                                   | 2,856,061                            |                                          |             |                     | 901,001    |     
|Cash 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.

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TRIZECHAHN HOLLYWOOD HOTEL LLC
(a Delaware limited liability company)

CONSOLIDATED STATEMENTS OF CASH
FLOWS
(Continued)

|                                             |                                     |                                                             |   |                     |           |      |   |           |           | 
|-------------------------------------------- | ----------------------------------- | ----------------------------------------------------------- | - | ------------------- | --------- | ---- | - | --------- | --------- | 
|                                             |                                     |                                                             |   | For the years ended
|                                             |                                     |                                                             |   | December 31        
|                                             |                                     |                                                             |   |                    
|                                             |                                     |                                                             |   | 2002                |           | 2001
|                                             |                                     |                                                             |   |                     |           |     
|Cash paid during the year for:               |                                     |                                                             |   |                     |           |      |   |          
|                                             |                                     | Interest, including amounts capitalized ($0 and $2,957,795) |   | $                   | 5,064,727 |      |   | $         | 2,957,795 | 
|                                             |                                     |                                                             |   |                     |           |      |   |          
|Non-cash investing and financing activities: |                                     |                                                             |   |                     |           |      |   |          
|                                             | Capital lease                       |                                                             | $ |                    |           |      | $ | 2,665,700 |          
|                                             |                                     |                                                             |   |                     |           |      |   |          
|                                             | Redemption of members contribution |                                                             | $ | 5,000,000           |           |      | $ |          |          
|                                             |                                     |                                                             |   |                     |           |      |   |          

See accompanying notes to financial statements.

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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 |       | 2001
|                          |  |      |       |     
|TrizecHahn 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.                                                                  

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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):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |  | 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-68



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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 |            | 2001
|                         |  |      |            |     
|Deferred finance charges |  | $    | 3,227,253  |      |  | $ | 3,199,054  |  
|Accumulated 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.

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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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |  | Construction 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-70



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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 |            | $    | 417,240   |          
|                              |            | 2004 |           |           | 417,240 | 
|                              |            | 2005 |           |           | 417,240 | 
|                              |            | 2006 |           |           | 417,240 | 
|                              |            | 2007 |           |           | 417,240 | 
|                              | Thereafter |      |           | 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-71



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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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

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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 ended
|                             |  | December 31, 2001 
|                             |  |                   
|Payroll and related benefits |  | $                  | 589,585   | 
|Development fee              |  |                    | 1,643,026 | 
|Legal                        |  |                    | 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.                                                                                                                                                                                          

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