EXHIBIT 99.3MANAGEMENT’S DISCUSSION AND ANALYSIS (“MD&A”)*The following Management’s Discussion and Analysis (“MD&A”) should be read in conjunctionwith the Consolidated Financial Statements of Trizec Canada Inc. (“Trizec Canada” or the“Corporation”) and the notes thereto for the year ended December 31, 2005. The information in thisdocument is provided as of March 16, 2006.**Unless otherwise specified, all dollar amounts are expressed in United States dollars andreferences to “$” are to United States dollars. References to “C$” are to Canadian dollars. Forperiods prior to May 8, 2002, references to the “Corporation” or “Trizec Canada” refer toTrizecHahn Corporation (“TrizecHahn”), which became a wholly-owned subsidiary of Trizec Canada onMay 8, 2002.**Additional information relating to the Corporation for the year ended December 31, 2005, filed withapplicable Canadian securities regulators, may be accessed at www.sedar.com.***FORWARD-LOOKING STATEMENTS**Certain statements in the following MD&A contain forward-looking statements relating toTrizec Canada’s business and financial outlook, which are based on its current expectations,estimates, forecasts and projections. The use of forward-looking words such as “may”, “will”,“expects” or similar terms generally identify such statements. These statements are not guaranteesof future performance and involve risks, uncertainties, estimates and assumptions that aredifficult to predict. Therefore, actual outcomes and results may differ materially from thoseexpressed in these forward-looking statements. Readers, therefore, should not place undue relianceon any such forward-looking statements. Further, any forward-looking statement speaks only as ofthe date on which such statement is made and Trizec Canada undertakes no obligation to update anysuch statement to reflect new information, the occurrence of future events or circumstances orotherwise. A number of important factors could cause actual results to differ materially fromthose indicated by the forward-looking statements. Included, without limitation, among thesefactors are: **•** changes in national and local economic conditions, including those economic conditionsin Trizec Properties, Inc.’s (“Trizec Properties”) seven core markets;  **•** the extent, duration and strength of any economic recovery in the United States;  **•** Trizec Properties’ ability to maintain occupancy and to timely lease or re-lease office space;  **•** the extent of any bankruptcies and insolvencies of tenants of Trizec Properties;  **•** Trizec Properties’ ability to sell its non-core office properties in a timely manner;  **•** Trizec Properties’ ability to acquire office properties selectively in its core markets;  **•** Trizec Properties’ ability to integrate and realize the full benefits from its acquisitions;  **•** Trizec Properties’ ability to maintain real estate investment trust (“REIT”)qualification and changes to U.S. tax laws that affect REITs;  **•** material increases in the amount of special dividends payable by Trizec Properties toaffiliates of Trizec Canada on shares of Trizec Properties’ special voting stock as a resultof increases in the applicable cross-border withholding tax rates;  **•** the issuance of additional TPI common stock pursuant to the conversion of Class F stockoccurring as a result of United States Foreign Investment in Real Property Tax Act of 1980(“FIRPTA”) tax being incurred;  **•** Canadian tax laws that affect treatment of investment in U.S. real estate companies;  **•** the competitive environment in which Trizec Properties operates;  **•** the cost and availability of debt and equity financing to Trizec Properties;  **•** the effect of any impairment charges associated with changes in market conditions;
 

 
 **•** Trizec Properties’ ability to obtain, at a reasonable cost, adequate insurance coveragefor catastrophic events, such as earthquakes and terrorist acts;  **•** future demand for Trizec Canada’s and Trizec Properties’ debt and equity securities;  **•** Trizec Canada’s and Trizec Properties’ ability to attract and retain high-qualitypersonnel at a reasonable cost in a highly competitive labour environment;  **•** market conditions in existence at the time Trizec Properties’ sells assets;  **•** the possibility of change in law adverse to Trizec Canada;  **•** joint venture and partnership risks; and  **•** other risks and uncertainties detailed from time to time in Trizec Properties’ filingswith the Securities and Exchange Commission.Such factors also include those set forth in more detail in the Risk Factors section in TrizecCanada’s Annual Information Form dated March 16, 2006.**OVERVIEW**Trizec Canada is primarily engaged in the U.S. real estate business through its indirectapproximately 38**%**interest in Trizec Properties, Inc. (“Trizec Properties”), a publicly traded U.S.office real estate investment trust, or “REIT”. Trizec Properties is one of the largest owners andmanagers of commercial property in the United States, with owned interests in and management atDecember 31, 2005 of 50 U.S. office properties containing approximately 36.8 million square feet,or approximately 33.1 million square feet based upon Trizec Properties’ pro rata ownershipinterests. Its office properties are concentrated in seven core markets in the United Stateslocated in the following major metropolitan areas: Atlanta, Chicago, Dallas, Houston, Los Angeles,New York and Washington, D.C.Discussion of the Corporation’s business that is conducted through Trizec Properties has beenpresented separately and is analyzed and explained under the caption “INVESTMENT IN TRIZECPROPERTIES, INC.” This discussion reflects the results of Trizec Properties’ entire operations andis not limited to Trizec Canada’s economic interest. Other sections of the MD&A analyze andexplain the portion of the business conducted by Trizec Canada directly and through itsconsolidated subsidiaries. Unless otherwise indicated, references to Trizec Canada or theCorporation include Trizec Canada and its consolidated subsidiaries.In addition to its involvement in the U.S. real estate business, Trizec Canada holds and managescash, marketable securities and other assets. Additionally, the Corporation continues to manageits liabilities, including taxes exigible in connection with its historic operating activities andtransactions. The Corporation expects that shareholders holding a significant number of theCorporation’s shares may elect to redeem their shares commencing in August 2007; however, it isunlikely that notices of assessment and clearance certificates in respect of the relevant tax yearswill have been received by that time. Accordingly, the Corporation is exploring variousalternatives to ensure that the Corporation maintains sufficient resources until such time as allof its liabilities are discharged or otherwise provided for and that all shareholders are treatedfairly and equitably in connection with redemptions. Alternatives being considered include aholdback, prior to August 2007, of some of the Corporation’s net other assets until such time asall of its liabilities are satisfied. See “LIQUIDITY AND CAPITAL STRUCTURE — Redemption of shares”for further comments in this regard.Trizec Canada’s subordinate voting shares trade on the Toronto Stock Exchange under the symbolTZC.SV. Shares of Trizec Properties common stock trade on the New York Stock Exchange under thesymbol TRZ. Trizec Properties’ Form 10-K for the year ended December 31, 2005, including itsconsolidated financial statements, was filed with the United States Securities and ExchangeCommission on March 14, 2006. The     TRIZEC CANADA INC. Page 2 of 37 MANAGEMENT’S DISCUSSION AND ANALYSIS
 

 
Corporation’s financial disclosure, where applicable, is consistent with that of TrizecProperties. Trizec Properties’ Form 10-K does not form part of this MD&A.**CRITICAL ACCOUNTING ESTIMATES**The discussion and analysis of Trizec Canada’s financial condition and results of operationsare based upon its consolidated financial statements, which have been prepared in accordance withCanadian generally accepted accounting principles (“Canadian GAAP”). The preparation of thesefinancial statements requires the Corporation to make estimates and judgements that affect thereported amounts of assets and liabilities, revenues and expenses, and related disclosure ofcontingent assets and liabilities at the date of the financial statements. Actual results maydiffer from these estimates under different assumptions or conditions.Critical accounting estimates are defined as those that involve significant judgement andpotentially could result in materially different results under different assumptions andconditions. For a detailed description of Trizec Canada’s significant accounting policies, seeNote 1 in the notes to the December 31, 2005 consolidated financial statements. The following arethe critical accounting estimates used in the preparation of Trizec Canada’s consolidated financialstatements.**Determinationof variable interest entities (“VIEs”) and primary beneficiary**The Corporation has adopted AcG-15 on the consolidation of VIEs. VIEs include, among others:entities where the equity invested is considered insufficient to finance the entity’s activitieswithout relying on financial support from other parties; or entities where the equity holder lacksany one of three stipulated characteristics of a controlling financial interest, includingcircumstances where the equity interest and voting interest are disproportionate. If the entity isconsidered a VIE, then the Corporation must determine, based on certain criteria in the guideline,whether or not it is the primary beneficiary of the VIE. The primary beneficiary is defined as theentity that absorbs a majority of the VIE’s expected losses or, if no entity absorbs such amajority, the entity that receives a majority of the expected residual returns. Only if thecorporation is determined to be the primary beneficiary will it consolidate the VIE. Whereconsolidation is not considered appropriate, the Corporation accounts for its investment in the VIEin accordance with its policy for investments as outlined in the notes to the consolidatedfinancial statements.**Marketable securities**Marketable securities are considered portfolio investments by the Corporation and are accounted forby the cost method. Impairments are recognized only when there has been a loss in value of themarketable securities that is considered to be other than a temporary decline.**Income and other corporate taxes**Significant judgement is required in determining the Corporation’s estimated tax assets andliabilities and the ultimate assets and liabilities from income and other corporate taxes could bedifferent from the amounts recorded.**Accounting Change**In December 2005, the Canadian Institute of Chartered Accountants (“CICA”) issued Emerging IssuesCommittee Abstract EIC-159 “Conditional Asset Retirement Obligations” (“EIC-159”) related to CICAHandbook Section 3110 (“CICA 3110”) “Asset Retirement Obligations”. EIC-159 clarifies that theterm “conditional asset retirement obligation” as used in CICA 3110 refers to a legal obligation toperform an asset     TRIZEC CANADA INC. Page 3 of 37 MANAGEMENT’S DISCUSSION AND ANALYSIS
 

 
retirement activity in which the timing and/or method of settlement areconditional upon future events that may or may not be within an entity’s control. The obligationto perform the asset retirement activity is unconditional even though uncertainty exists about thetiming and/or method of settlement. Accordingly, an entity is required to recognize a liabilityfor the fair value of a conditional asset retirement obligation if the fair value can be reasonablyestimated. In addition, the fair value of the liability should be recognized when incurred.Uncertainty about the timing and/or method of settlement of a conditional asset retirementobligation should be factored into the measurement of the liability when sufficient informationexists. EIC-159 also clarifies when an entity would have sufficient information to reasonablyestimate the fair value of an asset retirement obligation. EIC-159 is effective for interim andannual reporting periods ending after March 31, 2006, but earlier adoption is encouraged.Certain of Trizec Properties’ real estate assets contain asbestos. Although Trizec Properties hasdetermined that the asbestos is appropriately contained in accordance with current environmentalregulations, Trizec Properties’ practice is to remediate the asbestos upon the renovation orredevelopment of its properties. Accordingly, these assets meet the criteria for recording anasset retirement obligation. The Corporation has adopted the provisions of EIC-159 on aretroactive basis with restatement of prior periods as required by the abstract.The adoption of this abstract resulted in a decrease in the Corporation’s investment in TrizecProperties of $1.6 million at December 31, 2004, and a decrease in opening retained earnings(deficit) and net income of $1.3 million and $0.3 million, respectively for the year ended December31, 2004. The adoption of this abstract had no impact on operating, financing and investingactivities as previously presented in the consolidated statement of cash flows for the year endedDecember 31, 2004.The adoption of this abstract had the effect of decreasing net income for the year ended December31, 2005 by $0.2 million.     TRIZEC CANADA INC. Page 4 of 37 MANAGEMENT’S DISCUSSION AND ANALYSIS
 

 
**FINANCIAL POSITION**The following presents the financial position of the Corporation as at December 31, 2005 and2004.         December 31    (US$ millions) **2005** 2004      (restated)**Assets**        **Current assets**        Cash and cash equivalents **$****73.5**   56.0 Restricted cash  **7.9**   7.9 Other assets  **17.9**   19.6     **99.3**   83.5 **Investment in Trizec Properties, Inc.**  **797.7**   760.1 **Investments and other assets**  **401.4**   435.0 **Future income taxes**  **112.5**   103.8    **$****1,410.9**   1,382.4  **Liabilities**        **Current liabilities**        Accounts payable and accrued liabilities **$****24.1**   31.3  **Exchangeable debentures**        Carrying amount  **844.4**   733.9 Deferred amount  **46.5**   157.0     **890.9**   890.9     **915.0**   922.2  **Shareholders’ Equity**        Share capital  **376.5**   376.5 Contributed surplus  **30.2**   30.2 Foreign currency translation adjustment  **14.7**   17.3 Retained earnings  **74.5**   36.2     **495.9**   460.2    **$****1,410.9**   1,382.4  **Cash and cash equivalents**Cash and cash equivalents increased by approximately $17.5 million to $73.5 million as at December31, 2005 as compared with $56.0 million as at December 31, 2004. The increase primarily reflectsthe impact of maturities of certain marketable securities held by Trizec Canada at December 31,2004, partially offset by the payment of general and administrative expenses and exchangeabledebenture interest for the year ended December 31, 2005.Trizec Canada’s cash and cash equivalents at December 31, 2005 of $73.5 million includes $57.8million denominated in U.S. dollars and $15.7 million (C$18.2 million) denominated in Canadiandollars. The allocation between currencies has been made to coincide with future anticipated cashrequirements.     TRIZEC CANADA INC. Page 5 of 37 MANAGEMENT’S DISCUSSION AND ANALYSIS
 

 
**Investment in Trizec Properties, Inc.**Trizec Canada owns approximately 38**%**of the shares of Trizec Properties common stock, representingone share of Trizec Properties common stock for each outstanding subordinate voting share andmultiple voting share of Trizec Canada. In addition, Trizec Canada owns all of the outstandingshares of Trizec Properties special stock and Trizec Properties class F convertible stock.The shares of Trizec Properties special stock enable the Corporation to cast a majority of thevotes in elections of the Trizec Properties board of directors taking place prior to January 1,2008. After January 1, 2008, the shares of Trizec Properties special stock become non-voting. Theshares of Trizec Properties special stock also entitle the Corporation, until November 2007, tocash dividends equal, on an after-tax basis, to non-Canadian taxes payable by Trizec Canada inrespect of any dividends paid to them by Trizec Properties. After the first date on which notaxing authority can make a further determination that Trizec Canada is liable for non-Canadiantaxes in respect of dividends paid on shares of Trizec Properties special stock or common stock,the shares of Trizec Properties special stock may be redeemed at the option of the Corporation orTrizec Properties for an aggregate redemption price of $0.1 million, plus any declared but unpaiddividends.The shares of Trizec Properties class F convertible stock are non-voting and are convertible intoshares of Trizec Properties common stock so that Trizec Canada will not bear a disproportionateshare of tax costs if tax pursuant to the United States Foreign Investment in Real Property Tax Actof 1980 (“FIRPTA”) is payable in connection with certain transactions or events involving theCorporation’s interest in Trizec Properties stock. After the conversion rights expire, the class Fconvertible stock is redeemable at the option of the Corporation or Trizec Properties for anaggregate redemption price of $0.1 million, plus any declared but unpaid dividends.Trizec Canada accounts for its investment in Trizec Properties using the equity method ofaccounting whereby the Corporation’s share (approximately 38**%**) of the net assets of TrizecProperties is presented on the Corporation’s balance sheet under the caption “Investment in TrizecProperties, Inc.”. The Corporation’s investment is adjusted for its share of net income or lossesand changes in shareholders’ equity, less dividends received on the shares of common stock, specialstock and class F convertible stock of Trizec Properties. As such, the value of Trizec Canada’sinvestment in Trizec Properties is dependent upon the operations, capital transactions and dividendpolicy of Trizec Properties. Dilution gains and losses are also recognized to the extent TrizecCanada’s interest is reduced.The per share quarterly dividend paid by Trizec Canada was the same as the per share dividend paidby Trizec Properties on its common stock.**Investments and other assets**Trizec Canada’s investments and other assets at December 31, 2005 are comprised of an investmentin common shares of Barrick Gold Corporation (“Barrick”), accounted for by the cost method, in theamount of approximately $286.2 million, deferred financing charges related to the Corporation’sthree series of outstanding exchangeable debentures in the amount of approximately $10.0 million,marketable securities in the amount of approximately $83.4 million and certain other vendor takeback notes from the monetization of European assets in the amount of approximately $21.8 million(€18.4 million). The Corporation has an additional vendor take back note, in the amount of $4.7million which is denominated in Euros (€4.0 million at December 31, 2005). Payment under thisnote is dependent upon the fair market value of certain European development properties at theearlier of the end of March 2007 or the date by which all of the development properties have beendisposed of. This note is recorded net of a provision that reduces its current carrying value to$nil.     TRIZEC CANADA INC. Page 6 of 37 MANAGEMENT’S DISCUSSION AND ANALYSIS
 

 
The 30,299,558 common shares of Barrick owned by the Corporation are pledged as collateral for thefull satisfaction of the Corporation’s obligations with respect to the principal amount of theexchangeable debentures upon the exchange or maturity thereof. The deferred financing charges arebeing amortized to income in the amount of approximately $0.6 million per year over the term of therelated exchangeable debentures. See “LIQUIDITY AND CAPITAL STRUCTURE — Exchangeable Debentures”below for additional information with respect to the exchangeable debentures.Trizec Canada’s portfolio of marketable securities at December 31, 2005 of $83.4 million includes$50.6 million of marketable securities denominated in U.S. dollars and $32.8 million (C$38.2million) denominated in Canadian dollars. Maturities for the portfolio of marketable securitieshave been arranged to coincide with future anticipated cash requirements in applicable currencies.**Future income taxes**Trizec Canada follows the liability method of accounting for future income taxes whereby income taxassets and liabilities are recognized for the estimated tax consequences attributable todifferences between the amounts reported for assets and liabilities in the financial statements andtheir respective tax bases, using substantively enacted tax rates.As at December 31, 2005 the Corporation has recognized a net future income tax asset in the amountof $112.5 million that is comprised of an asset of $242.6 million and a liability of $130.1million. The asset relates to provisions for losses that are available to be applied againstfuture years taxable income. The liability includes the estimated tax consequences of differencesbetween amounts reported for assets and liabilities in the financial statements and theirrespective tax bases.**Exchangeable debentures**The carrying amount of the Corporation’s three series of outstanding exchangeable debentures isbased on the market price, on the consolidated balance sheet date, of the underlying Barrick commonshares.As it is currently contemplated that Barrick common shares will be delivered in satisfaction of theCorporation’s obligations with respect to the principal amount of the exchangeable debentures uponthe exchange or maturity thereof, hedge accounting is used whereby the difference between thecarrying amount and the original issue amount of the debentures is recorded as a deferred amountuntil such time as there is a disposal of the underlying Barrick common shares.The pre-tax accounting gain to be realized on full settlement at maturity of the exchangeabledebentures is fixed at $604.7 million. Trizec Canada believes that, in the event of an earlyredemption, the future cash costs to redeem the exchangeable debentures will be primarily limitedto an early redemption premium of approximately $5.5 million required under the terms of two seriesof the exchangeable debentures plus accrued and unpaid interest. In addition, the Corporation doesnot expect to incur a cash tax liability in respect of the settlement due to the existence ofavailable losses and the Corporation’s status as a mutual fund corporation. As a mutual fundcorporation, the taxable portion of a capital gain in excess of losses applied would be subject totax at the corporate rate applicable to Trizec Canada’s income. However, Trizec Canada should beentitled to a full or partial refund in respect of taxes as Trizec Canada’s subordinate votingshares or multiple voting shares are redeemed or it pays a capital gains dividend to itsshareholders.     TRIZEC CANADA INC. Page 7 of 37 MANAGEMENT’S DISCUSSION AND ANALYSIS
 

 
**RESULTS OF OPERATIONS**The following statements of income compare the operating results for Trizec Canada on ayear-over-year basis:                               **Increase**For the years ended December 31         **(decrease) in**(US$ millions, except per share amounts) **2005** 2004 **Net Income**  (restated)**Share of earnings of Trizec Properties** **$****22.3**   20.4   1.9              **Expenses and other income**            General and administrative expense  **(11.4****)**  (7.6)  (3.8)Exchangeable debentures interest expense, net  **(12.4****)**  (12.4)  — Interest and other income  **6.1**   8.4   (2.3)Dilution gains  **6.7**   —   6.7 Foreign exchange gains, net  **4.2**   20.3   (16.1)Gain on sale of properties  **—**   4.6   (4.6)Interest expense  **—**   (0.5)  0.5               **Income before taxes and discontinued operations**  **15.5**   33.2   (17.7)Income and other corporate taxes  **9.8**   29.6   (19.8) **Income from continuing operations**  **25.3**   62.8   (37.5)**Share of income from discontinued operations of Trizec Properties**  **61.0**   28.0   33.0               **Net income** **$****86.3**   90.8   (4.5)              **Per share**            Basic and diluted            Income from continuing operations **$****0.42**   1.05   (0.63) Discontinued operations **$****1.02**   0.47   0.55  Net income **$****1.44**   1.52   (0.08) **Share of earnings of Trizec Properties**The increase in Trizec Canada’s total share of earnings (continuing and discontinued) of TrizecProperties of approximately $34.9 million for the year ended December 31, 2005 compared to the yearended December 31, 2004 reflects the increase in net income (prepared in accordance with CanadianGAAP) of Trizec Properties. Trizec Properties’ results for the year ended December 31, 2004reflect the impact of a second quarter provision in 2004 for loss on real estate and loss on earlydebt retirement, which was not repeated in 2005. Trizec Canada’s share of earnings of TrizecProperties for the year ended December 31, 2005 includes a $2.3 million charge in the fourthquarter to reflect the write-off by Trizec Properties of assets related to a real estate property.The adjustment made by Trizec Properties amounted to approximately $5.8 million and was charged toTrizec Properties’ retained earnings as at December 31, 2002.In addition, during the year ended December 31, 2005, the Corporation recorded dilution gains inthe amount of $6.7 million from the issuance of common stock by Trizec Properties for amounts inexcess of the Corporation’s carrying value.**General and administrative expense**General and administrative expense for the year ended December 31, 2005 of $11.4 million includesnon-recurring professional fees in the amount of approximately $3.0 million related to a proposedcapital     TRIZEC CANADA INC. Page 8 of 37 MANAGEMENT’S DISCUSSION AND ANALYSIS
 

 
transaction, which was expected to be beneficial to the Corporation’s shareholders. The proposedtransaction was evaluated by the Corporation and ultimately terminated during the third quarter of2005**.****Exchangeable debentures interest expense, net**Exchangeable debentures interest expense, net of dividends received on the common shares of Barrickowned by the Corporation, remained constant at approximately $12.4 million for the year endedDecember 31, 2005 compared with the year ended December 31, 2004. Interest on the two series ofexchangeable debentures aggregating approximately $409 million is calculated by reference to thedividend rate on the underlying Barrick common shares plus 1.35% and therefore the interest expensein excess of dividends received is effectively fixed at 1.35% per annum. Interest on the remainingseries of exchangeable debentures is 3% per annum and therefore the interest expense in excess ofdividends received is effectively variable based on changes to the amount of dividends paid on theunderlying Barrick common shares**.****Interest and other income**Total interest and other income decreased by approximately $2.3 million for the year endedDecember 31, 2005 compared to the year ended December 31, 2004. This decrease was primarily dueto income earned during 2004 related to the Corporation’s direct investment in the Hollywood &Highland Hotel and the impact of the proceeds on settlement of an investment held by a subsidiary,which was also recognized in 2004.**Foreign exchange gains, net**During the first quarter of 2004, Trizec Canada ceased to recognize foreign currency exchangemovements relating to European and Canadian assets and liabilities in shareholders’ equity as theseoperations are no longer considered to be self-sustaining. Commencing January 1, 2004, monetaryassets and liabilities are adjusted to current exchange rates with the corresponding adjustmentrecorded in net income for the period.During the first quarter of 2005, Trizec Canada recognized a portion of the historic Europeanforeign currency translation gain in the amount of $2.6 million as a result of the repatriation ofcertain invested capital from Germany**.**As a result of the repatriation of invested capital duringthe first quarter of 2004, the Corporation recognized a portion of the historic Canadian foreigncurrency translation gains in the amount of $8.1 million.The decrease of approximately $16.1 million in foreign exchange gains for the year ended December31, 2005 as compared with the year ended December 31, 2004 reflects the impact of an $8.3 milliondecrease in the fourth quarter of 2005 as compared with the fourth quarter of 2004. This decreasewas primarily as a result of significant appreciation in the Canadian dollar and the Euro relativeto the U.S. dollar in the fourth quarter of 2004, which was not repeated in the fourth quarter of2005.**Interest expense**With the exception of the three series of outstanding exchangeable debentures, Trizec Canada had nointerest bearing debt outstanding during 2005 and 2004. Total interest expense of $0.5 million forthe year ended December 31, 2004 related to the amortization of deferred financing costs on theCorporation’s revolving credit facility.     TRIZEC CANADA INC. Page 9 of 37 MANAGEMENT’S DISCUSSION AND ANALYSIS
 

 
**Income and other corporate taxes**The year ended December 31, 2005 compared to the year ended December 31, 2004 reflects the impactof the completion of an internal restructuring in 2004, whereby the Corporation determined that itsestimate of a current tax liability, relating to certain foreign withholding taxes, should bereduced by $34.8 million. This amount was credited to the consolidated statement of income duringthe second quarter of 2004. During the fourth quarter of 2005, as a result of changes in foreigntax law, the Corporation determined that its estimate of a foreign withholding tax liability in theamount of $7.8 million should be reduced to $nil.**LIQUIDITY AND CAPITAL STRUCTURE****Liquidity Overview**Trizec Canada satisfies its working capital requirements and other expenses from its assets net ofits investments in Trizec Properties and Barrick (“net other assets”). At December 31, 2005,following the disposition or monetization of substantially all assets other than the Corporation’sinterests in Trizec Properties and Barrick, Trizec Canada’s pro forma net other assets was $161.0million.Until November 2007, Trizec Canada expects to be able to fund its overhead expenses, the netinterest expense in respect of the exchangeable debentures (and the redemption premium payable ifthe exchangeable debentures are redeemed — equal to approximately $5.5 million) and to be able topay the same dividend per Trizec Canada subordinate voting share and multiple voting share asTrizec Properties pays per share of Trizec Properties common stock. Subsequent to November 2007,Trizec Canada’s ability to satisfy its working capital requirements and fund future dividenddistributions will be dependent upon its residual investment in Trizec Properties, any futuredividends it receives on shares of Trizec Properties common stock and its available net otherassets. In addition, at that time, Trizec Canada will not be entitled to dividends on the sharesof Trizec Properties special voting stock, dividends which currently reflect non-Canadian taxes,principally cross-border withholding taxes, in respect of dividends paid to Trizec Canada by TrizecProperties. Accordingly, thereafter Trizec Canada does not expect to pay per share dividends onits subordinate voting shares and multiple voting shares that are equivalent to the per sharedividends paid by Trizec Properties on its common stock***.***     TRIZEC CANADA INC. Page 10 of 37 MANAGEMENT’S DISCUSSION AND ANALYSIS
 

 
The following presents the pro forma net other assets position of Trizec Canada at December 31,2005:                       Adjustments for          Barrick Shares and          TrizecHahn          Exchangeable Investment in Pro Forma Trizec  Total Debentures Trizec Properties Canada **Assets**                Cash and cash equivalents **$****73.5**   —   —   **73.5** Restricted cash  **7.9**   —   —   **7.9** Other assets  **17.9**   —   (12.0)  **5.9** Investment in Trizec Properties, Inc.  **797.7**   —   (797.7)  **—** Marketable securities  **83.6**   —   —   **83.6** Investment in Barrick  **286.2**   (286.2)  —   **—** Investments and other assets  **31.6**   (10.0)  —   **21.6** Future income taxes  **112.5**   —   —   **112.5**    **$****1,410.9**   (296.2)  (809.7)  **305.0**  **Liabilities**                Exchangeable debentures **$****890.9**   (890.9)  —   **—** Accounts payable and accrued liabilities  **24.1**   (6.6)  —   **17.5**    **$****915.0**   (897.5)  —   **17.5**                 **287.5** Adjustment to future income taxes to estimated liability              **(126.5****)** **Pro forma net other assets**             **$****161.0**  Trizec Canada’s balance sheet at December 31, 2005 includes a net asset of $112.5 millionrecorded in respect of future income taxes. This amount reflects the potential future Canadian taxbenefit of non-capital and net capital losses and temporary differences related to provisions forlosses minus a provision for potential income taxes in respect of prior fiscal periods. No valuehas been considered attributable to the potential future Canadian tax benefit of losses andtemporary differences in the above pro forma analysis, for the purpose of the valuation of the netother assets, because of Trizec Canada’s Canadian tax status as a mutual fund corporation. Thevalue of future income taxes for this purpose is estimated to be a net liability of $14.0 million,which reflects the removal of amounts attributable to the potential future Canadian tax benefit oflosses and temporary differences.**Mutual fund corporation**Trizec Canada conducts its affairs in order to qualify as a mutual fund corporation under theIncome Tax Act (Canada) (the “Tax Act”) and intends to continue to do so. The Corporation believesthat, to date, it has met all requirements to qualify as a mutual fund corporation. Further,Trizec Canada intends to take such steps as are within its control to ensure that it qualifies as,and continues to qualify as, a mutual fund corporation.If Trizec Canada were to fail to qualify as a mutual fund corporation, Trizec Canada and itsshareholders would be subject to materially adverse tax consequences, the most significant of whichwould be Trizec Canada’s disqualification from the capital gains refund provisions of the Tax Actapplicable to mutual fund corporations and the treatment of all or a portion of any redemptionproceeds as a dividend paid by Trizec Canada to redeeming shareholders. As a result, any incometax payable on gains resulting from dispositions of shares of Trizec Properties common stock(including in connection with the redemption of the Corporation’s subordinate voting shares ormultiple voting shares) or Barrick common shares could exhaust all or substantially all of theCorporation’s net other assets, and, further, could restrict Trizec Canada’s ability to deliver oneshare of Trizec Properties common stock for each Trizec Canada share on redemption thereof.     TRIZEC CANADA INC. Page 11 of 37 MANAGEMENT’S DISCUSSION AND ANALYSIS
 

 
**Redemption of shares**Holders of subordinate voting shares and multiple voting shares have a right to require TrizecCanada to redeem all or part of the shares held by them upon payment of a retraction price (the“Retraction Price”) determined in accordance with the articles of Trizec Canada.Until August 15, 2007, the Retraction Price is equal to the least of (i) 95% of the arithmeticaverage of the closing price for the subordinate voting shares on the Toronto Stock Exchange (the“TSX”) for the 10-day trading period following the “Retraction Pricing Date” (as determined inaccordance with the articles of Trizec Canada), (ii) the price at which the last board lot ofsubordinate voting shares traded on the TSX on the Retraction Pricing Date, and (iii) the per shareafter-tax net asset value of Trizec Canada as set out in the next net asset value notice publishedfollowing the applicable Retraction Pricing Date. In accordance with the articles of TrizecCanada, the per share after-tax net asset value used to determine the Retraction Price will bebased on, (i) the current market value of the Corporation’s assets, (ii) a notional amountrepresenting the amount of cash that Trizec Canada would be entitled to receive if all options thatwere in-the-money were exercised on the date that the calculation is made, (iii) liabilities asrecorded in the Corporation’s financial statements, (iv) amounts that would be payable in respectof FIRPTA tax if all the shares of Trizec Properties common stock were disposed of, and (v)allowances (which do not meet the definition of a liability or contingent liability in accordancewith Canadian GAAP and are therefore not provided for or disclosed in the financial statements) forother liabilities contingent or otherwise that may be asserted in the future. Subject to theoutcome of the study currently being undertaken by the Corporation (see discussion below), theRetraction Price following August 15, 2007 will be the per share after-tax net asset value ofTrizec Canada as set out in the next net asset value notice published following the applicableRetraction Pricing Date.Although Trizec Canada’s shareholders have the right to redeem their shares at any time, to date noredemptions have taken place. The Corporation expects that a significant number of itsshareholders may elect to redeem their shares following August 15, 2007. Among other things, thisreflects the expectation that after that time the calculation of Trizec Canada’s per shareafter-tax net asset value will no longer reflect a provision for FIRPTA tax related to dispositionsby Trizec Canada of shares of Trizec Properties common stock.In the course of carrying on business, Trizec Canada has engaged in various activities andtransactions, including reorganizations and sales of businesses and assets. The Corporationbelieves that all liabilities related to its activities and transactions have been paid or providedfor in its financial statements. However, there can be no certainty that, for example, relevanttaxation authorities will not propose adjustments or take actions that may give rise to presentlyunanticipated liabilities that the Corporation’s tax losses may not be adequate or available tooffset, or that other liabilities will not be asserted. In particular, certain tax audits have notprogressed as expeditiously as originally anticipated, and consequently it is likely that noticesof assessment and/or clearance certificates in respect of the relevant tax years will not have beenreceived by August 15, 2007. While the Corporation will continue to strive to resolve itsliabilities and obtain tax clearance certificates prior to that date, the Corporation now believesthat, with the prospect of significant redemptions, it may be necessary to take tax and otherliabilities that may be asserted in the future into account in connection with share redemptions.Accordingly, an allowance for liabilities, contingent or otherwise, that may be asserted in thefuture may need to be made in calculating the Corporation’s per share after-tax net asset value forthe purposes of establishing the Retraction Price.The Corporation is committed to ensuring that all shareholders, regardless of whether or when theyelect to redeem their shares, will be treated equitably in respect of excess cash remaining afterall of the Corporation’s liabilities have been discharged or otherwise provided for. In thisregard, Trizec Canada has retained professional advisors and is exploring various alternatives toensure that the Corporation maintains sufficient     TRIZEC CANADA INC. Page 12 of 37 MANAGEMENT’S DISCUSSION AND ANALYSIS
 

 
resources until such time as all of its liabilities are discharged or otherwise provided for andthat all shareholders are treated fairly and equitably in connection with redemptions.Alternatives being considered include a holdback of some of the Corporation’s net other assets, inlieu of an allowance for contingent and other liabilities, until such time as all of itsliabilities have been discharged. Prior to August 15, 2007, a determination will be made by theBoard of Directors in respect of such alternatives to achieve fairness for all shareholders.Trizec Canada intends that if a holdback mechanism is adopted, it will provide for the receipt byredeeming shareholders of their pro rata share of the Corporation’s investment in Trizec Propertiesand potentially cash reflecting a portion of Trizec Canada’s other net asset value. Suchshareholders would also be entitled to receive their pro rata share of the Corporation’s remainingother net assets, if any, once all liabilities are ultimately discharged or otherwise provided for.**Dividends**Trizec Canada indirectly owns one share of Trizec Properties common stock for each outstandingTrizec Canada subordinate voting share and multiple voting share. Trizec Canada receives quarterlydividends on the shares of common stock and special voting stock it holds of Trizec Properties,enabling it to pay the same dividend per Trizec Canada share as Trizec Properties pays per share ofcommon stock. It is expected that Trizec Canada will, until November 2007, pay the same dividendper Trizec Canada subordinate voting share and multiple voting share as Trizec Properties pays pershare of Trizec Properties common stock. After November 2007, the special voting stock of TrizecProperties will cease to pay dividends and thereafter Trizec Canada does not expect to pay pershare dividends on its subordinate voting shares and multiple voting shares that are equivalent tothe per share dividends paid by Trizec Properties on its common stock.Trizec Properties’ ability to pay future dividends, and consequently Trizec Canada’s ability to payfuture dividends, is subject to the risks incidental to the ownership and operation of real estateproperties in the United States by Trizec Properties. Trizec Properties has stated that it intendsto make distributions to its shareholders at least equal to the minimum amount required to maintainREIT status each year through regular quarterly dividend distributions.During the first quarter of 2005, Trizec Properties declared a quarterly dividend distribution of$0.20 per share of common stock. On April 22, 2005, Trizec Canada made a quarterly dividenddistribution of $0.20 per share relating to the first quarter of 2005.During the second quarter of 2005, Trizec Properties declared a quarterly dividend distribution of$0.20 per share of common stock. On July 22, 2005, Trizec Canada made a quarterly dividenddistribution of $0.20 per share relating to the second quarter of 2005.During the third quarter of 2005, Trizec Properties declared a quarterly dividend distribution of$0.20 per share of common stock. On October 24, 2005, Trizec Canada made a quarterly dividenddistribution of $0.20 per share relating to the third quarter of 2005.During the fourth quarter of 2005, Trizec Properties declared a quarterly dividend distribution of$0.20 per share of common stock. On January 24, 2006 Trizec Canada made a quarterly dividenddistribution of $0.20 per share relating to the fourth quarter of 2005.     TRIZEC CANADA INC. Page 13 of 37 MANAGEMENT’S DISCUSSION AND ANALYSIS
 

 
**Exchangeable debentures**As at December 31, 2005, the Corporation had outstanding approximately $204.4 million principalamount Floating Rate Debentures, Series 1999-1, $204.4 million principal amount Floating RateDebentures,Series 1999-2 and $275.0 million principal amount 3% Exchangeable Debentures (collectively, the“exchangeable debentures”). The 3% Exchangeable Debentures mature on January 29, 2021 and theFloating Rate Debentures, Series 1999-1 and Series 1999-2 mature on March 12, 2024. The principalamount of the exchangeable debentures are redeemable at the option of the holders for a fixednumber of Barrick common shares, subject to the right of the Corporation to deliver cash or acombination of cash and Barrick common shares in lieu of the prescribed number of Barrick commonshares.The Corporation owns 30,299,558 common shares of Barrick that are pledged as collateral for thefull satisfaction of the Corporation’s obligations with respect to the principal amount of theexchangeable debentures upon the exchange or maturity thereof. It is currently anticipated thatBarrick common shares will be delivered to holders of the exchangeable debentures in connectionwith any exercise of the exchange rights. Accordingly, the Corporation does not consider there tobe liquidity concerns associated with its obligations to satisfy the principal amounts of theexchangeable debentures.The net interest expense on Trizec Canada’s 3% Exchangeable Debentures is predicated on Barrickhaving the financial ability to pay future dividends. A reduction in the future dividends paid byBarrick would have the effect of increasing the Corporation’s future net interest expense.**Revolving credit facility**As at December 31, 2005, Trizec Canada had available a $10 million revolving credit facilitysecured by six million shares of Trizec Properties common stock with no material financialcovenants. No amounts were drawn and outstanding under the credit facility at December 31, 2005 or2004. The Corporation’s ability to draw on this credit facility is subject to the approval of thelender.**Outstanding shares**The following numbers of Trizec Canada shares and share purchase options were outstanding atDecember 31, 2005 and March 16, 2006.           Issued and Outstanding at   December 31  March 16   2005  2006  Subordinate Voting Shares  52,400,097   52,400,097 Multiple Voting Shares  7,522,283   7,522,283     59,922,380   59,922,380           Options to purchase Subordinate Voting Shares  784,042   784,042  **Contingencies**The Corporation is contingently liable under guarantees that are issued in the normal course ofbusiness and with respect to litigation and claims that arise from time to time. While the finaloutcome with respect to claims and litigation pending at December 31, 2005 cannot be predicted withcertainty, in the opinion of management, any liability that may arise from such contingencies wouldnot have a material adverse effect on the consolidated financial position, results of operations orliquidity of the Corporation.     TRIZEC CANADA INC. Page 14 of 37 MANAGEMENT’S DISCUSSION AND ANALYSIS
 

 
In addition, the Corporation had provided a certain indemnification, which expired at the end ofDecember 2005, related to the sale during 2003 of its interest in the TriGranit joint venture.During the fourth quarter of 2005, the Corporation received notice that a claim has been made underthis indemnification in the amount of approximately $2.0 million (€1.7 million). The controllingshareholder of the Corporation is considered related to the party making the claim under theindemnification as a result of his indirect shareholdings in the claimant. The Corporation is ofthe view that the claim is without merit and intends to vigorously defend its position andaccordingly, no amounts have been accrued in these financial statements at December 31, 2005.The Corporation has also provided a certain indemnification, which expires on July 16, 2006,related to the sale during 2003 of a certain TriStannifer Developments’ property. The maximumamount of this indemnification cannot be reasonably estimated at this time.**RELATED PARTY TRANSACTIONS**In connection with the Arrangement, the Corporation agreed to provide services to and receiveservices from Trizec Properties. During the year ended December 31, 2005, the Corporation charged$0.5 million (2004 — $1.4 million) to Trizec Properties in relation to such services, and TrizecProperties charged the Corporation $0.4 million (2004 — $0.4 million). These services wereprovided in the normal course of business and included reimbursements for direct third partypurchased services, and a portion of salaries for certain employees for direct services rendered.The Corporation and Trizec Properties continue to provide certain services to each other under theterms of the Arrangement.On October 9, 2003, the Corporation invested approximately $4.0 million to Trizec Properties inexchange for preferred membership units in an entity that held a 91.5% interest in the Hollywood &Highland Hotel. The holders of the preferred membership units were entitled to an initial dividendof 8% per annum, increasing to 12% per annum, as well as any unrecovered capital contributions atthe time of liquidation. On February 27, 2004, Trizec Properties sold the Hollywood & HighlandHotel and remitted approximately $4.8 million to the Corporation in full satisfaction of anyoutstanding dividends and unrecovered capital contributions.**NEWLY ISSUED ACCOUNTING STANDARDS AND RECENT PRONOUNCEMENTS****CICA Handbook Section 3855 (“CICA 3855”) “Financial Instruments — Recognition andMeasurement”**CICA 3855 prescribes when a financial asset, financial liability, or non-financial derivative is tobe recognized on the balance sheet and at what amount – sometimes using fair value; other timesusing cost-based measures. It also specifies how financial instrument gains and losses are to bepresented. CICA 3855 applies to interim and annual financial statements relating to fiscal yearsbeginning on or after October 1, 2006. Earlier adoption is permitted only as of the beginning of afiscal year ending on or after December 31, 2004. An entity adopting this Section for a fiscalyear beginning before October 1, 2006 must also adopt CICA 3865 “Hedges” and CICA 1530“Comprehensive Income”.The Corporation is currently evaluating the impact of adoption of CICA 3855 and has not yetdetermined the effect of adoption on its results of operations and financial condition.     TRIZEC CANADA INC. Page 15 of 37 MANAGEMENT’S DISCUSSION AND ANALYSIS
 

 
**CICA Handbook Section 3865 (“CICA 3865”) “Hedges”**CICA 3865 is applicable whenever a company chooses to designate a hedging relationship foraccounting purposes. It builds on existing Accounting Guideline AcG-13 “Hedging Relationships”,and Section 1650 “Foreign Currency Translation”, by specifying how hedge accounting is to beapplied and what disclosures are necessary when it is applied. CICA 3865 applies for interim andannual financial statements relating to fiscal years beginning on or after October 1, 2006.Earlier adoption is permitted only as of the beginning of a fiscal year that ends on or afterDecember 31, 2004. An entity adopting this Section for a fiscal year beginning before October 1,2006 must also adopt CICA 3855 “Financial Instruments — Recognition and Measurement” and Section1530 “Comprehensive Income”.The Corporation is currently evaluating the impact of adoption of CICA 3865 and has not yetdetermined the effect of adoption on its results of operations and financial condition.**CICAHandbook Section 1530 (“CICA 1530”) “Comprehensive Income”**CICA 1530 introduces new standards for reporting and display of comprehensive income.Comprehensive income is the change in equity (net assets) of an enterprise during a reportingperiod from transactions and other events and circumstances from non-owner sources. It includesall changes in equity during a period except those resulting from investments by owners anddistributions to owners. CICA 1530 applies to interim and annual financial statements relating tofiscal years beginning on or after October 1, 2006. Earlier adoption is permitted only as of thebeginning of a fiscal year ending on or after December 31, 2004. Financial statements of priorperiods are required to be restated for certain comprehensive income items. In addition, anenterprise is encouraged, but not required to present reclassification adjustments, in comparativefinancial statements provided for earlier periods. An entity adopting this Section for a fiscalyear beginning before October 1, 2006 must also adopt CICA 3855 “Financial Instruments -Recognition and Measurement” and CICA 3865 “Hedges”.The Corporation is currently evaluating the impact of adoption of CICA 1530 and has not yetdetermined the effect of adoption on its results of operations and financial condition.**CICAHandbook Section 3251 (“CICA 3251”) “Equity”**CICA 3251 replaces CICA 3250 “Surplus”. It establishes standards for the presentation of equityand changes in equity during a reporting period. CICA 3251 applies to interim and annual financialstatements relating to fiscal years beginning on or after October 1, 2006. Earlier adoption ispermitted only as of the beginning of a fiscal year ending on or after December 31, 2004.Financial statements of prior periods are required to be restated for certain specifiedadjustments. For all other items, comparative financial statements presented are not restated, butan adjustment to the opening balance of accumulated other comprehensive income may be required. Anentity adopting this CICA for a fiscal year beginning before October 1, 2006 must also adopt CICA3855 “Financial Instruments — Recognition and Measurement”, CICA 3865 “Hedges”, and Section 1530“Comprehensive Income”.The Corporation is currently evaluating the impact of adoption of CICA 3251 and has not yetdetermined the effect of adoption on its results of operations and financial condition.     TRIZEC CANADA INC. Page 16 of 37 MANAGEMENT’S DISCUSSION AND ANALYSIS
 

 
**SUMMARY QUARTERLY INFORMATION**The following summarizes Trizec Canada’s operating results on a quarterly basis. In additionto the accounting change, certain comparatives have been reclassifiedto conform to the current year’spresentation of discontinued operations.                     For the year ended December 31, 2005 1st  2nd  3rd  4th    (US$ millions, except per share amounts) Quarter  Quarter  Quarter  Quarter  Year  Share of earnings of Trizec Properties $7.9   9.2   4.1   1.1   22.3 Income from continuing operations  5.7   4.8   6.7   8.1   25.3 Discontinued operations  3.2   9.9   10.2   37.7   61.0 Net income  8.9   14.7   16.9   45.8   86.3 Income per share – basic and diluted                    Continuing operations  0.10   0.08   0.11   0.14   0.42 Discontinued operations  0.05   0.17   0.17   0.63   1.02 Net income  0.15   0.25   0.28   0.77   1.44                      For the year ended December 31, 2004 1st  2nd  3rd  4th    (US$ millions, except per share amounts) Quarter  Quarter  Quarter  Quarter  Year  Share of earnings of Trizec Properties $9.9   (9.4)  11.1   8.8   20.4 Income from continuing operations  13.5   27.8   9.9   11.6   62.8 Discontinued operations  18.6   (43.3)  16.3   36.4   28.0 Net income (loss)  32.1   (15.5)  26.2   48.0   90.8 Income (loss) per share – basic and diluted                    Continuing operations  0.23   0.46   0.17   0.19   1.05 Discontinued operations  0.31   (0.72)  0.27   0.61   0.47 Net income (loss)  0.54   (0.26)  0.44   0.80   1.52      TRIZEC CANADA INC. Page 17 of 37 MANAGEMENT’S DISCUSSION AND ANALYSIS
 

 
**SELECTED ANNUAL INFORMATION**The following summarizes selected financial data for Trizec Canada for each of the three mostrecently completed financial years in addition to the accounting change, certain comparatives havebeen reclassified to conform to the current year’s presentation of discontinued operations.             As at December 31,         (US$ millions, except per share amounts) 2005  2004  2003  Investment in Trizec Properties, Inc. $797.7   760.1   765.8 Total assets  1,410.9   1,382.4   1,385.6 Exchangeable debentures            Carrying amount  844.4   733.9   688.1 Deferred amount  46.5   157.0   202.8              For the years ended December 31, 2005  2004  2003  Share of earnings of Trizec Properties $22.3   20.4   55.6 Income from continuing operations  25.3   62.8   118.6 Discontinued operations  61.0   28.0   18.7 Net income  86.3   90.8   137.3 Income per share – basic and diluted            Continuing operations $0.42   1.05   1.98 Discontinued operations $1.02   0.47   0.31 Net income $1.44   1.52   2.29 Cash dividends per share $0.80   0.80   0.60 **DISCLOSURE CONTROLS AND PROCEDURES AND INTERNAL CONTROLS OVER FINANCIAL REPORTING**Disclosure controls and procedures are designed to provide reasonable assurance that allrelevant information is gathered and reported to senior management, including the CEO and CFO, on atimely basis so that appropriate decisions can be made regarding public disclosure.An evaluation of the effectiveness of the design and operations of our disclosure controls andprocedures was conducted as of December 31, 2005, by and under the supervision of Trizec Canada’smanagement, including the CEO and CFO. Based on this evaluation, the CEO and CFO have concludedthat Trizec Canada’s disclosure controls and procedures, as defined in Multilateral Instrument52-109, Certification of Disclosure in Issuer’s Annual and Interim Filings, and in Rule 13a-15(e)under the Securities Exchange Act of 1934 (the Exchange Act), are effective to ensure thatinformation required to be disclosed in reports that Trizec Canada files and submits under Canadiansecurities legislation and the Exchange Act is recorded, processed, summarized and reported withinthe time periods specified in those rules and forms.Internal controls over financial reporting are designed to provide reasonable assurance regardingthe reliability of Trizec Canada’s financial reporting and compliance with Canadian generallyaccepted accounting principles in its financial statements.Trizec Canada’s management has evaluated whether there are changes in its internal controls overfinancial reporting during the year ended December 31, 2005 that have materially affected, or arereasonably likely to materially affect, its internal controls over financial reporting. No suchchanges were identified through management’s evaluation or any other means.For the year ending December 31, 2006, Trizec Canada expects to comply with Section 404 of theSarbanes-Oxley Act, which requires that Trizec Canada issue a report on management’s assessment ofthe effectiveness     TRIZEC CANADA INC. Page 18 of 37 MANAGEMENT’S DISCUSSION AND ANALYSIS
 

 
of its internal controls over financial reporting and the management’s assessment be independentlyaudited by the shareholders’ auditors.**INVESTMENT IN TRIZEC PROPERTIES, INC.**The following discussion of the Corporation’s business that is conducted through TrizecProperties is based upon Trizec Properties’ consolidated financial statements for the years endedDecember 31, 2005 and 2004, adjusted for certain differences between Canadian GAAP and UnitedStates generally accepted accounting principles (“U.S. GAAP”). This discussion of the results ofTrizec Properties reflects Trizec Properties’ entire operations and is not limited to TrizecCanada’s pro rata economic interest therein.**Critical Accounting Policies**The preparation of Trizec Properties’ financial statements requires it to make estimates andjudgements that affect the reported amounts of assets and liabilities, revenues and expenses, andrelated disclosure of contingent assets and liabilities at the date of the financial statements.Actual results may differ from these estimates under different assumptions or conditions. Criticalaccounting estimates are defined as those that involve significant judgement and potentially couldresult in materially different results under different assumptions and conditions. The followingare critical accounting policies used by Trizec Properties in connection with the preparation ofits financial statements.***Real Estate***- ***Held for Disposition***With respect to real estate assets classified as held for disposition, the determination of suchclassification is based on Trizec Properties’ stated intention and ability to sell these propertieswithin a stated time period. Real estate assets held for disposition are carried at the lower oftheir carrying values or estimates fair value less costs to sell. Estimated fair value isdetermined based on estimates by management of Trizec Properties of amounts that would be realizedif the property were offered for sale in the ordinary course of business assuming a reasonablesales period and under normal market conditions. Fair values are determined using valuationtechniques including third party appraisals when considered appropriate in the circumstances.Estimates of value include assumptions concerning future property cash flows, disposal dates andexpected purchaser risk adjusted rates of return requirements. Different assumptions could resultin significantly higher or lower estimates of fair value than those determined by management. Inaddition, changes in future market conditions could result in ultimate sale proceeds varyingsignificantly from those assumed by management, resulting in future gains or losses being recorded.***Real Estate***-***Held for the Long Term***Trizec Properties evaluates the recoverability of its real estate assets held for the long term andrecords an impairment charge when there is an indicator of impairment and the undiscountedprojected cash flows of the property are less than the carrying amount. A decline in operatingresults for a particular property could be an indicator of impairment and may therefore require acharge to income in the future.***Deferred Charges***Trizec Properties capitalizes a portion of its internal costs related to its dedicated regionalleasing functions. These costs generally include compensation and related costs. The portioncapitalized is based on an estimate of successful leasing efforts.     TRIZEC CANADA INC. Page 19 of 37 MANAGEMENT’S DISCUSSION AND ANALYSIS
 

 
***Revenue Recognition***Estimates are used to establish amounts receivable from tenants for such things as common areamaintenance, real estate taxes and other cost recoveries. In addition, an estimate is made withrespect to Trizec Properties’ provision for allowance for doubtful accounts receivable. Theallowance for doubtful accounts reflects Trizec Properties’ estimate of the amounts of the recordedaccounts receivable at the balance sheet date that will not be realized from cash receipts insubsequent periods. If cash receipts in subsequent periods vary from the Trizec Properties’estimates, or if a tenant’s financial condition deteriorates as a result of operating difficulties,additional changes to the allowance may be required.Trizec Properties generally records the sales of operating properties using the full accrual methodat closing when the earnings process is deemed to be complete. Sales not qualifying for fullrecognition at the time of sale are accounted for under other appropriate deferral methods.***Depreciation***Trizec Properties computes depreciation on its properties using the straight line method based onan estimated useful life of 40 years. The portion of the acquisition cost allocated between landand building for each property may vary based on estimated land value and other factors. Theallocation of the acquisition cost to building and the determination of the useful life are basedon estimates by management of Trizec Properties of the composite life of the buildings.**Accounting Definitions**Gross margin is not a recognized measure under Canadian GAAP. Trizec Properties’ managementbelieves that in addition to net income (loss), gross margin is a useful supplemental measure as itprovides investors with an indication of the performance of the office portfolio. Investors shouldbe cautioned, however, that gross margin should not be construed as an alternative to net income asdetermined in accordance with Canadian GAAP as an indicator of profitability. Trizec Properties’method of calculating gross margin may differ from other companies and, accordingly, gross marginmay not be comparable to measures used by other companies.**Differences from Canadian Accounting Principles**Trizec Canada prepares its consolidated financial statements in accordance with Canadian GAAP.Trizec Properties prepares its consolidated financial statements in accordance with U.S. GAAP.U.S. GAAP varies in certain significant respects from Canadian GAAP. The effect of these principaldifferences on the balance sheet and statement of income of Trizec Properties are quantified anddescribed below.     TRIZEC CANADA INC. Page 20 of 37 MANAGEMENT’S DISCUSSION AND ANALYSIS
 

 
                                 **Trizec Properties, Inc.**                            **Balance Sheets**             **2005**             2004As at December 31, **U.S.** Proportionate Leasing Property Derivative     **CDN** CDN(US$ millions) **GAAP** Consolidation Costs Book Value Instruments Other **GAAP** GAAP **Assets**                                Real estate, net **$****3,897.4**   479.7   135.1   (39.4)  —   —   **4,472.8**   4,205.7 Cash and cash equivalents  **36.5**   —   —   —   —   —   **36.5**   194.3 Escrows and Restricted cash  **70.0**   35.0   —   —   —   —   **105.0**   116.9 Investment in unconsolidatedreal estate joint ventures  **206.6**   (206.6)  —   —   —   —   **—**   — Other assets  **499.7**   86.5   (135.1)  —   2.1   1.3   **454.5**   372.2                                     **$****4,710.2**   394.6   —   (39.4)  2.1   1.3   **5,068.8**   4,889.1                                   **Liabilities**                                Mortgage debt and other loans **$****2,210.3**   413.7   —   —   —   —   **2,624.0**   2,639.4 Accounts payable and accruedliabilities  **374.5**   (19.1)  —   —   (1.8)  6.4   **360.0**   317.1 Minority interest  **8.1**   —   —   —   —   (5.5)  **2.6**   2.8 Redeemable preferred stock  **0.2**   —   —   —   —   (0.2)  **—**   —     **2,593.1**   394.6   —   —   (1.8)  0.7   **2,986.6**   2,959.3  **Shareholders’ Equity**  **2,117.1**   —   —   (39.4)  3.9   0.6   **2,082.2**   1,929.8    **$****4,710.2**   394.6   —   (39.4)  2.1   1.3   **5,068.8**   4,889.1           **Trizec Canada’s investment in Trizec Properties, Inc. under Canadian GAAP:**        Assets **$****5,068.8**   4,889.1 Liabilities  **2,986.6**   2,959.3  Net Assets **$****2,082.2**   1,929.8  Trizec Canada’s share (approximately 38% (2004 – 39%)) **$****797.7**   760.1       TRIZEC CANADA INC. Page 21 of 37 MANAGEMENT’S DISCUSSION AND ANALYSIS
 

 
                                                               Increase**Trizec Properties, Inc.**                             (decrease)**Statements of Income**                             in NetFor the years ended December 31,         2005             2004 Income  **U.S.** Proportionate Property Book Accounting     **CDN** CDN CDN(US$ millions) **GAAP** Consolidation Value Change Other **GAAP** GAAP GAAP **Revenues**                                Property revenue **$****722.0**   108.1   —   —   —   **830.1**   748.5   81.6   **Expenses**                                Property operating expenses  **(337.4****)**  (51.5)  —   (0.6)  —   **(389.5****)**  (336.4)  (53.1)General and administrative expense  **(38.7****)**  —   —   —   —   **(38.7****)**  (39.8)  1.1 Depreciation and amortization expense  **(170.8****)**  (17.2)  1.4   (0.2)  —   **(186.8****)**  (145.6)  (41.2)Provision for loss on real estate  **—**   —   —   —   —   **—**   (25.2)  25.2 Provision for loss on investment  **—**   —   —   —   —   **—**   —   —     **(546.9****)**  (68.7)  1.4   (0.8)  —   **(615.0****)**  (547.0)  (68.0) **Operating Income**  **175.1**   39.4   1.4   (0.8)  —   **215.1**   201.5   13.6                                   **Other income (expenses)**                                Interest and other income  **6.6**   1.0   —   —   —   **7.6**   5.7   1.9 Foreign currency exchange gain  **—**   —   —   —   —   **—**   3.3   (3.3)Loss on early debt retirement  **(6.8****)**  (0.8)  —   —   —   **(7.6****)**  (12.0)  4.4 Recovery on insurance claims  **—**   —   —   —   —   **—**   0.7   (0.7)Interest expense  **(138.6****)**  (24.0)  —   —   —   **(162.6****)**  (157.4)  (5.2)Derivative gain (loss)  **—**   (0.6)  —   —   —   **(0.6****)**  —   (0.6)Lawsuit settlement  **3.3**   —   —   —   —   **3.3**   3.7   (0.4)    **(135.5****)**  (24.4)  —   —   —   **(159.9****)**  (156.0)  (3.9)                                  **Income before the following**  **39.6**   15.0   1.4   (0.8)  —   **55.2**   45.5   9.7 Gain on sale of properties, net  **—**   —   —   —   0.2   **0.2**   10.2   (10.0)Provision for income and other corporate taxes  **3.8**   —   —   —   —   **3.8**   (13.7)  17.5 Minority interest  **(1.0****)**  —   —   —   0.9   **(0.1****)**  —   (0.1)Income from unconsolidated real estate jointventures  **15.0**   (15.0)  —   —   —   **—**   —   —   **Income from continuing operations**  **57.4**   —   1.4   (0.8)  1.1   **59.1**   42.0   17.1                                   **Discontinued operations**                                Income from discontinued operations  **19.6**   —   0.1   —   —   **19.7**   (63.5)  83.2 Gain on disposition of discontinued real estate  **133.1**   —   4.2   —   —   **137.3**   134.7   2.6      **152.7**   —   4.3   —   —   **157.0**   71.2   85.8   **Gain (loss) on disposition on real estate, net**  **0.2**   —   —   —   (0.2)  **—**   —   —   **Income before cumulative effect of change inaccounting principle**  **210.3**   —   5.7   (0.8)  0.9   **216.1**   113.2   102.9  Cumulative effect of a change in accountingprinciple  **(4.9****)**  —   —   4.9   —   **—**   —   —   **Net income** **$****205.4**   —   5.7   4.1   0.9   **216.1**   113.2   102.9   **Trizec Canada’s share of earnings of Trizec Properties under Canadian GAAP** Continuing operations                     **$****22.3**   20.4     Discontinued operations                      **61.0**   28.0                            **$****83.3**   48.4           TRIZEC CANADA INC. Page 22 of 37 MANAGEMENT’S DISCUSSION AND ANALYSIS
 

 
***Proportionate consolidation***Under U.S. GAAP, proportionate consolidation is generally not permitted for joint ventures and thecost, equity or full consolidation methods of accounting must be followed, as appropriate. UnderCanadian GAAP, the accounts of all jointly controlled incorporated and unincorporated jointventures and partnerships are proportionately consolidated according to the Corporation’s ownershipinterest.***Leasing costs***Under Canadian GAAP, leasing costs are classified as part of real estate, net, whereas under U.S.GAAP they are classified as deferred charges and included in other assets.***Property book value***Under Canadian GAAP, building depreciation, gain on sale of properties, net, and provision forlosses on properties are affected as a result of lower carrying values of certain propertiescompared with U.S. GAAP. These differences resulted from historical adjustments to the carryingamounts of assets acquired whose tax bases, at acquisition date, differed from the assigned valuesfor accounting purposes. The tax effect of these bases differences was added to the carrying valueof the associated properties on acquisition for U.S. GAAP purposes. Under Canadian GAAP, the taxeffect of these bases differences was charged to retained earnings on implementation, on January 1,2000, of CICA Handbook Section 3465 “Income Taxes”.***Derivative instruments***Under U.S. GAAP, Trizec Properties follows Statement of Financial Accounting Standards (“SFAS”) No.133, “Accounting for Derivative Instruments and Hedging Activities”. SFAS No. 133 establishesaccounting and reporting standards for derivative instruments, including certain derivativeinstruments embedded in other contracts, and hedging activities. It requires the recognition ofall derivative instruments as assets or liabilities in the Corporation’s consolidated balance sheetat fair value. Changes in the fair value of derivative instruments that are not designated ashedges or that do not meet the hedge accounting criteria in SFAS No. 133 are required to bereported through the statement of operations. For derivatives designated as hedging instruments inqualifying cash flow hedges, the effective portion of changes in fair value of the derivatives isrecognized in other comprehensive income (loss) until the forecasted transactions occur and theineffective portions are recognized in the statement of operations. In addition, Trizec Propertiesuses certain interest rate protection agreements to manage risks from fluctuations in variableinterest rates, as well as to hedge anticipated future financing transactions. Under CanadianGAAP, the Corporation accounts for interest rate cap contracts as hedges and, as a result, thecarrying values of the financial instruments are not adjusted to reflect their current marketvalues, except for any non-hedging portions of the derivative instruments. Any amount receivableor payable arising from interest rate cap contracts are recognized as an adjustment of interestexpense. Premiums paid to arrange interest rate cap contracts are deferred and amortized tointerest expense over the term of the contracts. Under interest rate swap agreements, payments orreceipts are recognized as adjustments to interest expense.**Accounting Change**Under U.S. GAAP, the cumulative effect of adopting Financial Accounting Standards boardInterpretation No. 47, “Accounting for Conditional Asset Retirement Obligations – an Interpretationof FASB Statement No. 143” (“FIN No. 47”) is recorded as a “Cumulative Effect of a Change inAccounting Principle”. Under Canadian GAAP, Trizec Canada adopted EIC-159 and accounted for thischange retroactively with restatement of prior     TRIZEC CANADA INC. Page 23 of 37 MANAGEMENT’S DISCUSSION AND ANALYSIS
 

 
periods. FIN No. 47 and ECI-159 are not substantively different with the exception of restatementof prior periods.**Pending Acquisition**In December 2005, Trizec Properties entered into a purchase agreement with General Electric CapitalCorporation (“GECC”), and a merger agreement with GECC, Arden Realty, Inc. (“Arden”) and certain oftheir affiliates pursuant to which it has agreed to acquire 13 office properties totalingapproximately 4.1 million (unaudited) square feet and several development land parcels located inSouthern California that are currently owned by Arden (the “Arden portfolio”) for an aggregateconsideration of approximately $1.63 billion. Trizec Properties expects to fund the acquisitionwith a bridge loan of up to $1.48 billion. Trizec Properties anticipates that the bridge loan willhave a twelve-month term, with two six-month extension options. The balance of the acquisitionprice will be funded with a draw on Trizec Properties’ existing unsecured credit facility and theissuance of up to approximately $75.0 million of common units in the Operating Company (definedbelow) to holders of limited partnership interests in Arden’s operating partnership. TrizecProperties anticipates that the outstanding balance on the bridge loan and unsecured creditfacility will be gradually repaid with proceeds from future property dispositions and permanentmortgage financings.Trizec Properties’ acquisition of the Arden portfolio is contingent upon the completion of GECC’sacquisition of Arden. Trizec Properties anticipates that the closing of the Arden portfolioacquisition will occur by the end of the second quarter of 2006.**UPREIT structure**On December 22, 2004, Trizec Properties completed the reorganization of its operating structure byconverting to an umbrella partnership real estate investment trust, or UPREIT, structure (the“UPREIT Conversion”). In connection with the UPREIT Conversion, Trizec Properties formed a newoperating entity, Trizec Holdings Operating LLC, a Delaware limited liability company (the“Operating Company). Trizec Properties now conducts and intends to continue to conduct itsbusiness, and owns and intends to continue to own substantially all of its assets, through theOperating Company. As the sole managing member of the Operating Company, Trizec Propertiesgenerally has the exclusive power under the limited liability company agreement to manage andconduct the business of the Operating Company, subject to certain limited approval and votingrights of other members that may be admitted in the future. Currently, the Operating Company iswholly owned by Trizec Properties.**Trends in Occupancy**Although the macroeconomic conditions that negatively affected employment levels over the past fewyears have improved, demand for office space in Trizec Properties’ core markets has been relativelystagnant resulting in relatively flat occupancy rates. However, Trizec Properties is optimisticthat demand for office space will continue to improve during 2006 and into 2007. The office rentalmarket continues to be extremely competitive. Such competitive environment for attracting tenantscontinues to apply downward pressure on market rents and upward pressure on tenant incentives.Although rental rates for new and renewal leasing have remained relatively flat for the year endedDecember 31, 2005, Trizec Properties has experienced modest decreases in rental rates for new andrenewal leasing during the fourth quarter of 2005. Trizec Properties’ focus for 2006 will be torenew or re-lease expiring space. The table below reflects occupancy rates by market at December31, 2005 compared to December 31, 2004 and shows the percentage of square feet scheduled to expireduring 2006 for its office portfolio.     TRIZEC CANADA INC. Page 24 of 37 MANAGEMENT’S DISCUSSION AND ANALYSIS
 

 
             **OWNED AREA**  **Occupancy Rates At** Percentage of space  **December 31, 2005** December 31, 2004 expiring during 2006Core Markets            Atlanta  **91.2****%**  89.0%  11.9%Chicago  **87.1****%**  94.0%  15.1%Dallas  **84.8****%**  85.2%  6.3%Houston  **84.3****%**  84.4%  5.6%Los Angeles  **89.2****%**  88.4%  15.1%New York  **92.3****%**  96.8%  5.0%Washington, D.C  **90.6****%**  95.0%  8.1%              Total Core Markets  **88.5****%**  90.2%  8.8%              Secondary Markets  **85.8****%**  83.9%  30.1%              Total Office Properties  **88.2****%**  89.5%  10.7%             For the year ended December 31, 2005, Trizec Properties leased approximately 5.3 millionsquare feet of owned area new and renewal space. Occupancy for Trizec Properties’ portfolio basedon owned area was approximately 88.2% at December 31, 2005, compared to approximately 89.5% atDecember 31, 2004. In addition, for the year ended December 31, 2005, based upon owned area,leases expired at an average gross rent of approximately $24.58 per square foot and were generallybeing signed at an average gross rent of approximately $23.81 per square foot.Trizec Properties monitors the financial strength of its key tenants and, therefore, their abilityto pay rent and the likelihood that they will continue to pay rent, through a watch list processapplied at the local, regional and corporate property management levels. This monitoring processis designed to help it identify significant credit risks. At the end of December 2005, TrizecProperties was closely monitoring tenants with leases representing approximately 1.6% of theleaseable area of its U.S. office portfolio and approximately 1.5% of the annual gross rent of itsU.S. office portfolio.**Results of operations for the year ended December 31, 2005*****Property Revenues***Property revenues increased by approximately $81.6 million for the year ended December 31, 2005compared to the year ended December 31, 2004. In line with Trizec Properties’ overall investmentstrategy, it acquired Bank of America Plaza, located in Los Angeles, California, in the thirdquarter of 2004; an interest in 2001 M Street, located in Washington D.C., in the fourth quarter of2004; 1200 K Street, N.W., located in Washington, D.C., in the second quarter of 2005; and Figueroaat Wilshire, located in Los Angeles, California, in the third quarter of 2005. Such acquisitionsresulted in an increase in property revenues of approximately $71.8 million for the year endedDecember 31, 2005 compared to the year ended December 31, 2004. Additional rental revenueincreased by approximately $7.9 million primarily due to an increase in average occupancy in theWashington, D.C. and Los Angeles markets, as well as an increase in rental rates in the New Yorkmarket. Tenant recoveries increased by approximately $3.1 million primarily due to an increase inrecoverable operating expenses as discussed below. In addition, parking and other income increasedby approximately $6.7 million primarily due to an increase in fees associated with servicesprovided to tenants. These increases were partially offset by a decrease in property revenues ofapproximately $0.6 million due to the sale of 151 Front Street, located in Toronto, Ontario, in thefirst quarter of 2004, and a decrease of approximately $3.2 million due to the sale of a 50%interest in Plaza of the Americas, located in Dallas, Texas, in the second quarter of 2004. Inaddition, there was a decrease of approximately $4.2 million in management fee income for the year     TRIZEC CANADA INC. Page 25 of 37 MANAGEMENT’S DISCUSSION AND ANALYSIS
 

 
ended December 31, 2005 compared to the year ended December 31, 2004. This decrease was primarilydue to the cessation of Trizec Properties’ management of the Sears Tower, located in Chicago,Illinois, in the second quarter of 2004.Lease termination fees are an element of ongoing real estate ownership. Included in the propertyrevenue analysis above, for the year ended December 31, 2005, Trizec Properties recognizedapproximately $7.2 million of termination fees compared to approximately $8.2 million for the yearended December 31, 2004.***Property Operating Expenses***Property operating expenses increased by approximately $53.1 million for the year ended December31, 2005 compared to the year ended December 31, 2004. Property operating expenses increased byapproximately $31.5 million due to the acquisitions of Bank of America Plaza, 1200 K Street, N.W.,Figueroa at Wilshire and an interest in 2001 M Street. Property operating expenses increased byapproximately $18.1 million primarily due to an increase in utilities expense in the Dallas andHouston markets and general increases in repairs and maintenance expense and other recoverableexpenses for the year ended December 31, 2005 compared to the year ended December 31, 2004. Inaddition, approximately $8.2 million of the increase in property operating expenses was due to anincrease in property taxes, primarily in the New York market. These increases were partiallyoffset by a decrease in property operating expenses of approximately $3.0 million due to the saleof a 50% interest in Plaza of the Americas in the second quarter of 2004 and the sale of 151 FrontStreet in the first quarter of 2004. In addition, a decrease in insurance expense resulted in adecrease in property operating expenses of approximately $1.7 million for the year ended December31, 2005 compared to the year ended December 31, 2004.Excluding the impact of lease termination fees on revenues, Trizec Properties’ gross margin(property revenues, excluding lease termination fees, less property operating expenses) decreasedto approximately 52.7% for the year ended December 31, 2005 from approximately 54.6% for the yearended December 31, 2004, primarily reflecting an increase in operating expenses.***General and Administrative***General and administrative expense includes expenses for corporate and portfolio asset managementfunctions. Expenses for property management and fee-based services are recorded as propertyoperating expenses.General and administrative expense decreased by approximately $1.1 million for the year endedDecember 31, 2005 compared to the year ended December 31, 2004. During the fourth quarter of 2004,Trizec Properties terminated its lease at the Sears Tower, located in Chicago, Illinois, and paid afee of approximately $3.2 million related to such termination. In addition, there was a decreasein separation costs during the year ended December 31, 2005 compared to the year ended December 31,2004. These decreases were partially offset by an increase in employee compensation during theyear ended December 31, 2005 compared to the year ended December 31, 2004.***Depreciation and Amortization***Depreciation and amortization expense increased by approximately $41.2 million for the year endedDecember 31, 2005 compared to the year ended December 31, 2004. The acquisitions of Bank ofAmerica Plaza, 1200 K Street, N.W., Figueroa at Wilshire and an interest in 2001 M Street resultedin an increase in depreciation and amortization expense of approximately $38.1 million. Additionaltenant improvements incurred for the relocation of Trizec Properties’ corporate headquarters, aswell as the write off of unamortized tenant     TRIZEC CANADA INC. Page 26 of 37 MANAGEMENT’S DISCUSSION AND ANALYSIS
 

 
improvements on its former corporate headquarters, resulted in an increase in depreciation andamortization expense of approximately $1.3 million. In addition, depreciation and amortizationexpense increased by approximately $2.6 million primarily due to accelerated depreciation of tenantimprovements resulting from early termination of leases and additional depreciation related totenant improvements incurred subsequent to January 1, 2004. These increases in depreciation andamortization expense were partially offset by a decrease in depreciation and amortization expenseof approximately $0.8 million due to the disposition of a 50% interest in Plaza of the Americas inthe second quarter of 2004.***Provision for loss on real estate***During the year ended December 31, 2004, Trizec Properties recognized a provision for loss on realestate in the aggregate amount of approximately $25.2 million. In May 2004, Trizec Propertiesentered into a joint venture agreement with a third party to own and operate Plaza of the Americas,located in Dallas, Texas, “Trizec Plaza of the Americas, L.P.” Prior to the formation of TrizecPlaza of the Americas L.P., Plaza of the Americas was 100% owned by Trizec Properties. Inconjunction with the formation of Trizec Plaza of the Americas, L.P., Trizec Properties sold a 50%interest in Plaza of the Americas to the third party for a net sales price of approximately $47.8million, resulting in a net loss on disposition of real estate of approximately $20.1 million. Inconjunction with the sale of its 50% interest in Plaza of the Americas, Trizec Propertiesdetermined that the fair value of Plaza of the Americas, based on the contract price, was less thanits carrying value of such asset. Accordingly, Trizec Properties recognized a provision for losson real estate of approximately $12.0 million related to its 50% interest in Plaza of the Americasto reduce the carrying value of such property to its fair value.In addition, during the year ended December 31, 2004, Trizec Properties recognized a provision forloss on real estate of approximately $13.2 million to reduce the carrying value of its investmentin Main Street Partners, L.P., a joint venture through which it owns a 50% interest in Bank OneCenter in Dallas, Texas, to its fair value. Fair value was determined by internal valuation.***Interest and Other Income***Interest and other income increased by approximately $1.9 million for the year ended December 31,2005 compared to the year ended December 31, 2004 primarily due to an increase in average cashbalances and an increase in interest rates for the year ended December 31, 2005 compared to theyear ended December 31, 2004.***Foreign Currency Exchange Gain***During the year ended December 31, 2004, Trizec Properties sold 151 Front Street in TorontoOntario, recognizing a foreign currency exchange gain of approximately $3.3 million.***Loss on Early Debt Retirement***During the year ended December 31, 2005, Trizec Properties recorded an aggregate loss on early debtretirement of approximately $7.6 million. In conjunction with the sales of Metropolitan Square andTwinbrook Metro Plaza, Trizec Properties repaid and retired the mortgage loans collateralized bysuch properties, resulting in a loss on early debt retirement of approximately $5.9 million,comprised of yield maintenance fees. In addition, Trizec Properties also repaid and retired themortgage loan collateralized by the Watergate Office Building, resulting in a loss on early debtretirement of approximately $0.6 million, comprised of a yield maintenance fee. Trizec Propertiesrecorded a loss on early debt retirement of approximately $0.1 million due to the write-off ofunamortized deferred financing costs related to the repayment of approximately $19.0 million of itsvariable interest rate commercial mortgage pass-through certificates. Also, in October 2005,     TRIZEC CANADA INC. Page 27 of 37 MANAGEMENT’S DISCUSSION AND ANALYSIS
 

 
Trizec Properties amended and restated its $750.0 million unsecured credit facility resulting in aloss on early debt retirement of approximately $0.2 million due to the write-off of unamortizeddeferred financing costs.In December 2004, in conjunction with the sale of 250 West Pratt Street, located in Baltimore,Maryland, Trizec Properties and the lender of the mortgage loan collateralized by such propertyagreed to modify certain terms of the mortgage loan. The lender of the mortgage loan agreed torelease the property as collateral for the mortgage loan in consideration of the establishment ofan escrow, for the benefit of the lender, in the amount of approximately $28.7 million. The escrowwas comprised of funds to be used to repay the full outstanding principal balance of the mortgageloan as well as interest payments through January 3, 2005. The escrow funds of approximately $28.7million were included in restricted cash on Trizec Properties’ balance sheet at December 31, 2004.On January 3, 2005, the funds held in escrow were released to the lender. In conjunction with therepayment and retirement of the mortgage loan in January 2005, Trizec Properties recorded a minimalloss on early debt retirement, comprised primarily of the write-off of unamortized deferredfinancing costs.During the year ended December 31, 2004, Trizec Properties recorded an aggregate loss on early debtretirement of approximately $7.0 million. During the year ended December 31, 2004, TrizecProperties recorded a loss on early debt retirement of approximately $1.4 million due to thewrite-off of unamortized deferred financing costs related to the retirement of its $350.0 millionrevolving credit facility. Trizec Properties recorded a loss on early debt retirement ofapproximately $3.2 million comprised of the write-off of unamortized deferred financing costs ofapproximately $2.4 million and a prepayment fee of approximately $0.8 million related to therepayment of approximately $444.1 million of its variable interest rate commercial mortgagepass-through certificates. In addition, in conjunction with the sale of real estate and therefinancing of a $120.0 million mortgage loan, Trizec Properties recorded a loss on early debtretirement of approximately $2.4 million comprised of the write-off of unamortized deferredfinancing costs of approximately $0.9 million and a prepayment penalty of approximately $2.7million, offset by the forgiveness of debt of approximately $1.2 million.***Recovery on Insurance Claims***During the year ended December 31, 2005, Trizec Properties received approximately $0.1 million ininsurance proceeds related to window replacements at 550 W. Washington, located in Chicago,Illinois, that were damaged in 2003.During the year ended December 31, 2004, Trizec Properties received approximately $0.4 million ininsurance proceeds related to a chiller it replaced at Plaza of the Americas, located in Dallas,Texas, that was damaged in 2003. In addition, Trizec Properties received approximately $0.3million in insurance proceeds related to window replacements at 550 W. Washington, located inChicago, Illinois, that were damaged in 2003.***Interest Expense***Interest expense increased by approximately $5.2 million for the year ended December 31, 2005compared to the year ended December 31, 2004. A higher outstanding balance on Trizec Properties’credit facility resulted in an increase in interest expense of approximately $5.8 million for theyear ended December 31, 2005 compared to the year ended December 31, 2004. In addition, inconjunction with the purchase of Bank of America Plaza in Los Angeles, California and theacquisition of an interest in 2001 M Street in Washington, D.C., during the year ended December 31,2004, Trizec Properties entered into mortgage loans totaling, in the aggregate, approximately$286.5 million which resulted in an increase in interest expense of approximately $9.8 million.These increases were partially offset by a decrease in interest expense of approximately $5.9million due to the settlement of certain interest rate swap contracts during the fourth quarter of2004. In addition, capitalized interest on the Waterview mixed-use development resulted in adecrease in interest expense of     TRIZEC CANADA INC. Page 28 of 37 MANAGEMENT’S DISCUSSION AND ANALYSIS
 

 
approximately $0.7 million. Interest expense decreased approximately $7.8 million due to therepayment and retirement of certain mortgage loans including approximately $444.1 million of TrizecProperties’ variable rate commercial mortgage pass-through certificates in the second half of 2004.***Lawsuit and Other Settlements***During the year ended December 31, 2005, Trizec Properties recorded a gain on lawsuit settlement ofapproximately $0.9 million related to the settlement and recovery of damages on development land atInterstate Parkway, located in Atlanta, Georgia. Cash proceeds from this lawsuit settlement werereceived in the third quarter of 2005. Also during the year ended December 31, 2005, TrizecProperties recognized a gain of approximately $1.0 million related to the settlement and recoveryof damages from a former tenant at 12010 Sunrise Valley Drive, located in Reston, Virginia. Cashproceeds from this settlement were received in the fourth quarter of 2005. In addition, TrizecProperties recognized a gain on lawsuit settlement of approximately $0.6 million as finalsettlement of damage claims related to certain of its sold properties. Cash proceeds from thislawsuit settlement were received in the fourth quarter of 2005.During the year ended December 31, 2004, Trizec Properties recorded a gain on lawsuit settlement ofapproximately $3.7 million related to the final resolution and settlement of an asbestos claim.Cash proceeds from this lawsuit settlement were received in the fourth quarter of 2004.***Provision for Income and Other Corporate Taxes***Income and other taxes include franchise, capital, alternative minimum and foreign taxes related toongoing real estate operations. Income and other taxes decreased by approximately $17.5 millionfor the year ended December 31, 2005 compared to the year ended December 31, 2004 primarily due toa settlement of previously recorded tax liabilities, to a reduction in state taxes and built-ingain taxes as a result of legal entity restructuring, and a reduction in certain state and federaltax liabilities from the completion of various tax returns during the period.Trizec Properties had previously recorded a tax liability related to 1998 tax issues between it anda wholly-owned subsidiary of Trizec Canada Inc. and the IRS. During the second quarter of 2005,the wholly-owned subsidiary of Trizec Canada Inc. reached a settlement with, and made payment to,the IRS with regard to the 1998 tax matters. As a result, Trizec Properties determined that it hadbeen relieved of any potential tax liability related to this matter and therefore reduced its taxliability by, and recorded a benefit from income taxes of, approximately $2.8 million.***Minority Interest***During the year ended December 31, 2005, minority interest attributable to Trizec Properties’consolidated joint ventures resulted in a minority interest loss of approximately $0.1 million.***Gain on Sale of Properties***In May 2004, Trizec Properties entered into a joint venture agreement with a third party to own andoperate Plaza of the Americas, located in Dallas, Texas. Prior to the formation of Trizec Plaza ofthe Americas, L.P., Plaza of the Americas was 100% owned by Trizec Properties. In conjunction withthe formation of Trizec Plaza of the Americas, L.P., Trizec Properties sold a 50% interest in Plazaof the Americas to the third party for a net sales price of approximately $47.8 million, resultingin a net loss on disposition of real estate of approximately $20.1 million, for the sale of the 50%interest. This loss is offset by a gain on disposition of real estate, of approximately $20.6million due to the sale of 151 Front Street in Toronto, Ontario which was subject to the     TRIZEC CANADA INC. Page 29 of 37 MANAGEMENT’S DISCUSSION AND ANALYSIS
 

 
transition rules of CICA 3475. In addition, during the year ended December 31, 2004, TrizecProperties disposed of four land parcels that resulted in a gain on disposition of real estate ofapproximately $9.7 million.***Discontinued Operations***Income from properties classified as discontinued operations decreased by approximately $17.4million for the year ended December 31, 2005 compared to the year ended December 31, 2004. Incomefrom discontinued operations for the year ended December 31, 2004 includes the net income from allproperties classified as held for disposition and not sold prior to January 1, 2004, whereas incomefrom discontinued operations for the year ended December 31, 2005 includes only the net income fromproperties classified as held for disposition and not sold prior to January 1, 2005.During the fourth quarter of 2005, Trizec Properties entered into an agreement with a third partyto sell Williams Center I & II for a gross sale price of approximately $42.5 million. As part ofthe agreement, Trizec Properties is to provide a $2.0 million subordinated personally guaranteednote to the buyer, reducing the net proceeds to be paid to Trizec Properties. The terms of thenote require payments to be made to Trizec Properties from excess cash flow of the property, asdefined under the note agreement. To the extent the property does not generate excess cash flow,interest accrues on the note and payment is deferred.In addition, after the contract to sell Williams Center I & II had been executed, a tenant notifiedTrizec Properties of its intent to terminate its lease for a payment of approximately $3.3 million.As part of the sale agreement, Trizec Properties was required to obtain approval for thetransaction from the buyer. The buyer approved the transaction which was effected via a reductionin the sale proceeds to be paid to it in the amount of the termination fee.As a result of the above terms, the expected net sales proceeds on the sale of Williams Center I &II at December 31, 2005 was less than the carrying value of the asset. In accordance with CICA3475, Trizec Properties recorded a provision for loss on real estate in the amount of approximately$3.5 million.During the year ended December 31, 2004, Trizec Properties recognized a provision for loss ondisposition of discontinued real estate of approximately $104.1 million, relating to eightproperties that were designated as held for disposition on June 30, 2004, to reduce the carryingvalue of such properties to fair value. Fair value of the eight properties was determined bycontract prices, less transaction costs and/or internal valuation.During the year ended December 31, 2005, Trizec Properties disposed of five non-core officeproperties that resulted in a gain on disposition of discontinued real estate of approximately$137.3 million.During the year ended December 31, 2004, Trizec Properties recognized a gain on disposition ofdiscontinued real estate of approximately $134.7 million due to the sales of the Hollywood &Highland Complex and fourteen non-core office properties.**Liquidity and Capital Resources**Trizec Properties’ stated objective is to ensure, in advance, that there are ample resources tofund ongoing operating expenses, capital expenditures, debt service requirements and thedistributions required to maintain its REIT status.Trizec Properties expects to meet its liquidity requirements over the next twelve months, andbeyond, for normal recurring expenditures, non-recurring capital expenditures, potential futureacquisitions and developments, major renovations, expansions, scheduled debt maturities, groundlease payments, operational tax obligations, settlement of pre-REIT tax issues and dividenddistributions (including special dividend     TRIZEC CANADA INC. Page 30 of 37 MANAGEMENT’S DISCUSSION AND ANALYSIS
 

 
distributions on its special voting stock) through cash flows from operations, asset sales,entering into joint venture arrangements or partnerships with equity providers, current cash andcredit availability, refinancing of existing mortgage debt, incurrence of secured debt, proceedsfrom the possible sale of its capital stock or a combination of these sources. While TrizecProperties may be able to anticipate and plan for certain liquidity needs, there may be unexpectedincreases in uses of cash that are beyond its control and which would affect its financialcondition and results of operations. For example, Trizec Properties may be required to comply withnew laws or regulations that cause it to incur unanticipated capital expenditures for itsproperties, thereby increasing its liquidity needs. In addition, Trizec Canada may engage ininternal transactions, such as transferring some or all of its common stock and special votingstock that it owns to another affiliate, or the withholding rate on dividends paid to Trizec Canadamay increase. In either such case, the special dividend payments that Trizec Properties makes toTrizec Canada will increase.Even if there are no material changes to Trizec Properties’ anticipated uses of cash, its sourcesof cash may be less than anticipated or needed. Trizec Properties’ net cash flow from operations,the single largest source of cash, is dependent upon the occupancy levels of its properties, neteffective rental rates on current and future leases, collectibility of rent from its tenants, thelevel of operating and other expenses, as well as other factors. Material changes in these factorsmay adversely affect its net cash flow from operations.Trizec Properties has a $750.0 million unsecured credit facility, which matures in October 2008.The amount available for it to borrow under the unsecured credit facility at any time is determinedby certain properties that Trizec Properties, or its subsidiaries that may from time to timeguarantee the unsecured credit facility, own that satisfy certain conditions of eligibility. Theseconditions are common for unsecured credit facilities of this nature. The amount available forTrizec Properties to borrow under the unsecured credit facility for the remainder of its term willlikely fluctuate. The capacity under the unsecured credit facility may decrease if it sells orplace permanent financing on assets currently supporting the unsecured credit facility. Inaddition, the capacity under the unsecured credit facility may decrease if assets no longer meetcertain eligibility requirements. Likewise, the capacity under the unsecured credit facility mayincrease if certain assets otherwise meet the eligibility requirements. As of December 31, 2005,the amount available for Trizec Properties to borrow under the unsecured credit facility wasapproximately $750.0 million, of which $347.0 million was outstanding. During the remainder of theterm of the unsecured credit facility, Trizec Properties expects the outstanding balance tofluctuate. The balance under the unsecured credit facility will likely increase from time to timeas Trizec Properties uses funds from the unsecured credit facility to meet a variety of liquidityrequirements such as dividend payments, tenant installation costs, future tax payments andacquisitions that may not be fully met through operations. The balance under the unsecured creditfacility will also likely be reduced from time to time as Trizec Properties pays it down withproceeds generated from asset sales, secured borrowings, operating cash flows and other sources ofliquidity.In October 2005, Trizec Properties and the lenders under its $750.0 million unsecured creditfacility agreed to amend and restate the unsecured credit facility (the “2005 Unsecured CreditFacility”). Among other things, the lenders agreed to convert the facility from a $600.0 millionrevolver component and a $150.0 million term component to a $750.0 million revolver, reduce theinterest rate on borrowings and extend the term through October 2008. The 2005 Unsecured CreditFacility bears interest at LIBOR plus a spread of 0.95% to 1.65% based on its total leverage andmatures in October 2008. The financial covenants, as defined in the 2005 Unsecured CreditFacility, include the quarterly requirements for the total leverage ratio not to exceed 60.0%; therequirement for the interest coverage ratio to be greater than 2.0 times; the requirement for thefixed charge coverage ratio to be greater than 1.5 times; and the requirement for the net worth tobe in excess of $1.5 billion. These financial covenants also restrict dividends or distributionsto no more than 90% of Trizec Properties’ funds from operations (as defined in the 2005 UnsecuredCredit Facility agreement). If Trizec Properties is in default in respect of its obligations underthe 2005 Unsecured Credit Facility agreement, dividends will be     TRIZEC CANADA INC. Page 31 of 37 MANAGEMENT’S DISCUSSION AND ANALYSIS
 

 
limited to the amount necessary to maintain its REIT status. At December 31, 2005, TrizecProperties was in compliance with these financial covenants.Trizec Properties also have available an effective shelf-registration statement under which it mayoffer and sell up to an aggregate amount of $750.0 million of common stock, preferred stock,depositary shares representing shares of its preferred stock and warrants exercisable for commonstock or preferred stock. However, Trizec Properties’ ability to raise funds through sales ofcommon stock, preferred stock, depositary shares representing shares of its preferred stock andcommon and preferred stock warrants is dependent upon, among other things, general marketconditions for REITs, market perceptions about the company, the trading price of its stock andinterest rates. The proceeds from the sale of shares of common stock, preferred stock, depositaryshares representing shares of its preferred stock or common and preferred stock warrants, if any,would be used for general corporate purposes, which may include, among other things, theacquisition of additional properties or the repayment of outstanding indebtedness.After dividend distributions, Trizec Properties’ remaining cash from operations may not besufficient to allow it to retire all of its debt as it comes due. Accordingly, Trizec Propertiesmay be required to refinance maturing debt or repay it utilizing proceeds from propertydispositions or issuance of equity securities. Trizec Properties’ ability to refinance maturingdebt will be dependent on its financial position, the cash flow it receives from its properties,the value of its properties, liquidity in the debt markets and general economic and real estatemarket conditions. There can be no assurance that such refinancing or proceeds will be available,or be available on economical terms, in the future.**Contractual Obligations**The following table summarizes Trizec Properties’ contractual obligations as of December 31, 2005:                           **Less than**  **1 – 3**  **3 – 5**  **More than**   **Total**  **1- Year**  **Years**  **Years**  **5- Years** Long-term debt(1) $2,210.3  $402.7  $827.8  $119.7  $860.1 Ground lease obligations  226.2   1.0   2.3   2.3   220.6 Operating lease  16.8   3.0   5.8   3.7   4.3 Purchase obligations(2)  45.3   28.1   7.7   5.8   3.7 Tenant obligations  116.0   91.8   20.8   2.1   1.3                 Total $2,614.6  $526.6  $864.4  $133.6  $1,090.0                  (1) Included on balance sheet prepared under U.S. GAAP – does not include pro-ratashare of long-term debt real estate joint ventures. (2) Purchase obligations include agreements to purchase goods or services that areenforceable and legally binding and that specify all significant terms, including: fixed orminimum quantities to be purchased; fixed, minimum or variable price provisions; and theapproximate timing of the transaction.Trizec Properties has various standing or renewable service contracts with vendors related to itsproperty management that provide for cancellation with insignificant or no cancellation penaltiesand, therefore, have not been included in the above table.**Off-Balance Sheet Arrangements**As part of Trizec Properties ongoing business, it does not participate in transactions thatgenerate relationships with unconsolidated entities or financial partnerships, such as entitiesoften referred to as structured finance or special purpose entities, which would have beenestablished for the purpose of facilitating off-balance sheet     TRIZEC CANADA INC. Page 32 of 37 MANAGEMENT’S DISCUSSION AND ANALYSIS
 

 
arrangements or other contractually narrow or limited purposes. Therefore, Trizec Properties doesnot believe that it currently has any off-balance sheet arrangements.**Cash Flow Activity**At December 31, 2005, Trizec Properties had $36.5 million in cash and cash equivalents as comparedto $194.3 million at December 31, 2004.**Operating Activities**Cash flows from operations depend primarily on cash generated from lease payments from leasedspaces at Trizec Properties’ office properties, less expenses incurred to operate the officeproperties. Most of the amount by which Trizec Properties’ revenues from real estate operationsexceeded property operating expenses was cash flow. Trizec Properties applied most of this cashflow toward interest expense, scheduled principal amortization on mortgage loans, repayments andretirements of mortgage loans, dividends to its stockholders (including special dividenddistributions on its special voting stock), capital improvements and leasing costs for TrizecProperties’ operating properties, operational tax obligations and general and administrativeexpense. Trizec Properties expects to continue to use cash flow provided by operations to meet itsshort-term liquidity requirements.**Investing Activities**Net cash used in and provided by investing activities reflects the net impact of the acquisitionsand dispositions of certain properties, investments in, and distributions from, Trizec Properties’real estate joint ventures and the ongoing impact of expenditures on tenant installation costs andcapital expenditures.***Acquisitions***In April 2005, Trizec Properties acquired 1200 K Street, N.W., located in Washington, D.C., from anunrelated third party for approximately $194.3 million.In July 2005, Trizec Properties acquired Figueroa at Wilshire, located in Los Angeles, California,from an unrelated third party for approximately $360.0 million. To finance a substantial portionof the purchase price of this acquisition, Trizec Properties borrowed approximately $302.0 millionunder its unsecured credit facility.***Dispositions***During the year ended December 31, 2005, Trizec Properties sold five office properties, generatingnet proceeds of approximately $424.5 million, or approximately $326.8 million after debt repayment.***Tenant Installation Costs***TrizecProperties’ office properties require periodic investments of capital for tenant installationcosts related to new and renewal leasing. As noted above, the competitive office rental market,combined with sublet space inventory in its major markets, has continued the upward pressure ontenant installation costs. For comparative purposes, the absolute total dollar amount of tenantinstallation 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 givenperiod. Tenant installation costs consist of tenant allowances and leasing costs. Leasing costsinclude leasing commissions paid to third-party brokers representing tenants and costs associatedwith dedicated regional leasing teams who represent Trizec Properties and deal with tenant     TRIZEC CANADA INC. Page 33 of 37 MANAGEMENT’S DISCUSSION AND ANALYSIS
 

 
representatives. The following table reflects tenant installation costs for the total officeportfolio owned at December 31, 2005, and 2004, respectively, including its share of such costsincurred by real estate joint ventures, for both new and renewal office leases that commencedduring the respective periods, regardless of when such costs were actually paid. The square feetleased data in the table represents Trizec Properties’ pro rata owned share of square feet leased.         **For the years ended December 31** **2005**  **2004**   **(in thousands)** **Square feet leased**        - new leasing  **2.4**   2.7 - renewal leasing  **2.9**   2.8 **Tenant square feet leased**  **5.3**   5.5 **Tenant installation costs** **$****99.9**  $114.0  ***Capital Expenditures***To maintain the quality of Trizec Properties’ properties and preserve competitiveness and long-termvalue, it pursues an ongoing program of capital expenditures, certain of which are not recoverablefrom tenants. For the year ended December 31, 2005, capital expenditures for the total officeportfolio, including its share of such expenditures incurred by real estate joint ventures, wasapproximately $28.9 million (2004-$13.9 million). Recurring capital expenditures include,for example, the cost of roof replacement and the cost of replacing heating, ventilation, airconditioning and other building systems. In addition to recurring capital expenditures,expenditures are made in connection with non-recurring events such as asbestos abatement or removalcosts, major mechanical attribute or system replacement and redevelopment or reconstruction costsdirectly attributable to extending or preserving the useful life of the base building.Furthermore, as part of its office property acquisitions, Trizec Properties has routinely acquiredand repositioned properties in their respective markets, many of which have required significantcapital improvements due to deferred maintenance and the existence of shell space requiring initialtenant build-out at the time of acquisition. Some of these properties required substantialrenovation to enable them to compete effectively. Trizec Properties takes these capitalimprovement and new leasing tenant inducement costs into consideration when negotiating itspurchase price at the time of acquisition.**Financing Activities**During the year ended December 31, 2005, Trizec Properties used approximately $46.8 million in itsfinancing activities due primarily to approximately $108.3 million of principal repayments onmortgage debt, approximately $97.7 million of repayments of mortgage debt upon propertydispositions and approximately $4.2 million of financing fees primarily incurred in conjunctionwith the modification of its unsecured credit facility. Trizec Properties also paid approximately$129.8 million in dividends to its stockholders. These uses were partially offset by net draws onits unsecured credit facility of approximately $197.0 million, proceeds from the issuance of commonstock of approximately $67.5 million due to stock option and warrant exercises and approximately$28.7 million released from an escrow established for repayment of the mortgage loan of 250 WestPratt, located in Baltimore, Maryland.During the year ended December 31, 2004, Trizec Properties used approximately $759.8 million in itsfinancing activities due primarily to approximately $882.3 million of principal repayments onmortgage debt, approximately $279.8 million of repayments of mortgage debt and other loans uponproperty dispositions and approximately $10.9 million of financing fees related to refinancing ofcertain mortgage debt and financing costs incurred in conjunction with its $750.0 million unsecuredcredit facility. Trizec Properties also established an escrow of approximately $28.7 millionrelated to the modification and subsequent payment in full of the     TRIZEC CANADA INC. Page 34 of 37 MANAGEMENT’S DISCUSSION AND ANALYSIS
 

 
mortgage loan related to the sale of 250 West Pratt Street, located in Baltimore, Maryland.Additionally, Trizec Properties incurred and paid approximately $3.8 million in settlement offorward rate contracts used to lock into a maximum effective interest rate on certain mortgagedebt. Trizec Properties also paid approximately $126.0 million in dividends to its stockholders.These uses were partially offset by proceeds from mortgage debt financings and refinancings, netdraws on its unsecured line of credit and proceeds from the issuance of common stock.During the year ended December 31, 2003, Trizec Properties used approximately $594.7 million in itsfinancing activities due primarily to approximately $191.2 million of principal repayments onmortgage debt, approximately $307.7 million of repayments of mortgage debt and other loans repaidupon property dispositions, net repayments on its unsecured credit facility of approximately $90.0million and approximately $2.5 million of financing costs. Additionally, Trizec Propertiesincurred and paid approximately $3.4 million in settlement of forward rate contracts used to lockinto a maximum effective interest rate on certain mortgage debt. Trizec Properties also paidapproximately $94.1 million in dividends to its stockholders. These uses were partially offset byproceeds from mortgage debt financings and the issuance of common stock.***Unsecured Credit Facility***In October 2005, Trizec Properties and the lenders under its $750.0 million unsecured creditfacility agreed to amend and restate the unsecured credit facility (the “2005 Unsecured CreditFacility”). Among other things, the lenders agreed to convert the facility from a $600.0 millionrevolver component and a $150.0 million term component to a $750.0 million revolver, reduce theinterest rate on borrowings and extend the term through October 2008. The 2005 Unsecured CreditFacility bears interest at LIBOR plus a spread of 0.95% to 1.65% based on Trizec Properties’ totalleverage and matures in October 2008. The financial covenants, as defined in the 2005 UnsecuredCredit Facility, include the quarterly requirements for the total leverage ratio not to exceed60.0%; the requirement for the interest coverage ratio to be greater than 2.0 times; therequirement for the fixed charge coverage ratio to be greater than 1.5 times; and the requirementfor the net worth to be in excess of $1.5 billion. These financial covenants also restrictdividends or distributions to no more than 90% of Trizec Properties’ funds from operations (asdefined in the 2005 Unsecured Credit Facility agreement). If Trizec Properties is in default inrespect of its obligations under the 2005 Unsecured Credit Facility agreement, dividends will belimited to the amount necessary to maintain its REIT status. For those lenders that participatedin both the 2004 Unsecured Credit Facility and the 2005 Unsecured Credit Facility, any remainingunamortized deferred financing costs as well as additional costs incurred with the amendment andrestatement are being amortized over the term of the 2005 Unsecured Credit Facility. For lendersthat did not participate in the 2005 Unsecured Credit Facility, Trizec Properties recorded a losson early debt retirement of approximately $0.2 million comprised of the write-off of unamortizeddeferred financing costs.At December 31, 2005, the amount eligible to be borrowed under the 2005 Unsecured Credit Facilitywas approximately $750.0 million, of which $347.0 million was drawn and outstanding. At December31, 2004, the amount eligible to be borrowed under the 2004 Unsecured Credit Facility wasapproximately $484.9 million, of which $150.0 million was drawn and outstanding. Certainconditions of the 2005 Unsecured Credit Facility may restrict the amount eligible to be borrowed atany time.***Early Debt Retirement***In December 2004, in conjunction with the sale of 250 West Pratt Street, located in Baltimore,Maryland, Trizec Properties and the lender of the mortgage loan collateralized by such propertyagreed to modify certain terms of the mortgage loan. The lender of the mortgage loan agreed torelease the property as collateral for the mortgage loan in consideration of the establishment ofan escrow, for the benefit of the lender, in the amount of approximately $28.7 million. The escrowwas comprised of funds to be used to repay the full outstanding     TRIZEC CANADA INC. Page 35 of 37 MANAGEMENT’S DISCUSSION AND ANALYSIS
 

 
principal balance of the mortgage loan as well as interest payments through January 3, 2005. Theescrow funds of approximately $28.7 million were included in restricted cash on Trizec Properties’balance sheet at December 31, 2004. On January 3, 2005, the funds held in escrow were released tothe lender. In conjunction with the repayment and retirement of the mortgage loan, TrizecProperties recorded a loss on early debt retirement of approximately $0.01 million, comprisedprimarily of the write-off of unamortized deferred financing costs.In July 2005, in conjunction with the sale of Metropolitan Square, located in St. Louis, Missouri,Trizec Properties repaid and retired the mortgage loan collateralized by such property. Themortgage loan had a principal balance of approximately $81.7 million, bore interest at a fixed rateof 7.05%, and was scheduled to mature in January 2008. In conjunction with the repayment andretirement of the mortgage loan, Trizec Properties recorded a loss on early debt retirement ofapproximately $5.2 million, comprised of a yield maintenance fee.In September 2005, Trizec Properties repaid approximately $19.0 million of its variable interestrate commercial mortgage pass-through certificates primarily by drawing on its unsecured creditfacility. The variable interest rate commercial mortgage pass-through certificates bore interestat a variable rate of LIBOR plus various spreads between 0.3785% and 0.5285% and were scheduled tomature in March 2008. In conjunction with the repayment of the variable interest rate commercialmortgage pass-through certificates, Trizec Properties recorded a loss on early debt retirement ofapproximately $0.08 million, comprised of the write-off of unamortized deferred financing costs.In September 2005, Trizec Properties repaid and retired the mortgage loan collateralized by theWatergate Office Building, located in Washington, D.C. The mortgage loan had a principal balanceof approximately $16.5 million, bore interest at a fixed rate of 8.02% and was scheduled to maturein February 2007. In conjunction with the repayment and retirement of the mortgage loan, TrizecProperties recorded a loss on early debt retirement of approximately $0.6 million, comprised of ayield maintenance fee.In October 2005, in conjunction with the sale of Twinbrook Metro Plaza, located in Rockville,Maryland, Trizec Properties repaid and retired the mortgage loan collateralized by such property.The mortgage loan had a principal balance of approximately $16.0 million, bore interest at a fixedrate of 6.65% and was scheduled to mature in September 2008. In conjunction with the repayment andretirement of the mortgage loan, Trizec Properties recorded a loss on early debt retirement ofapproximately $0.7 million, comprised primarily of a yield maintenance fee.In October 2005, Trizec Properties repaid and retired the mortgage loan collateralized by SunriseTech Park, located in Reston, Virginia. The mortgage loan had a principal balance of approximately$22.5 million, bore interest at a fixed rate of 6.75% and was scheduled to mature in January 2006.Property loans are collateralized by deeds of trust or mortgages on properties and mature onvarious dates between May 2006 and December 2014.***Hedging Activities***At December 31, 2005 and 2004, Trizec Properties had outstanding interest rate swap contracts inthe notional amount of $150.0 million, bearing a weighted average interest rate of 5.60% andmaturing on March 15, 2008. The aggregate cost to unwind these interest rate swap contracts wasapproximately $2.8 million and $9.2 million at December 31, 2005 and 2004, respectively.In September 2005, Trizec Properties entered into a forward rate swap contract in the notionalamount of approximately $250.0 million, at a swap rate of 4.53%, to lock in a maximum interest rateon an anticipated     TRIZEC CANADA INC. Page 36 of 37 MANAGEMENT’S DISCUSSION AND ANALYSIS
 

 
refinancing of the mortgage loan on One New York Plaza, located in New York, New York. TrizecProperties expects to complete such refinancing in 2006. The forward rate swap contract wasentered into at current market rates and, therefore, had no initial cost. Upon settlement of theswap contract, Trizec Properties may be obligated to pay the counterparty a settlement payment, oralternatively, it may be entitled to receive settlement proceeds from the counterparty. Any moniespaid or received will be amortized to interest expense over the term of the refinanced mortgageloan.**Subsequent Events**In January 2006, Trizec Properties sold Williams Center I & II, located in Tulsa, Oklahoma, for agross sale price of approximately $42.5 million. As part of the sale, it provided a $2.0 millionsubordinated personally guaranteed note to the buyer, reducing the net proceeds.In February 2006, Trizec Properties repaid and retired the mortgage loan collateralized by 1400 KStreet, N.W., located in Washington, D.C. At December 31, 2005, the mortgage loan had a principalbalance of approximately $20.8 million, bore interest at a fixed rate of 7.20%, and was scheduledto mature in May 2006.In March 2006, Trizec Properties refinanced the mortgage loan collateralized by One New York Plaza,located in New York, New York. The mortgage loan, which, at December 31, 2005, had a principalbalance of approximately $228.7 million and bore interest at a fixed rate of 7.27%, was refinancedwith a $400.0 million mortgage loan scheduled to mature in March 2016, and bearing interest at afixed rate of 5.14%, after settlement of forward-starting swap contracts.In March 2006, Trizec Properties sold First Citizens Plaza, located in Charlotte, North Carolina,for a gross sale price of approximately $77.3 million.     TRIZEC CANADA INC. Page 37 of 37 MANAGEMENT’S DISCUSSION AND ANALYSIS