##### 



(BROOKFIELD PICTURE) THIRD QUARTER REPORT            September 30, 2004 FINANCIAL HIGHLIGHTS Unaudited
    
    Three months ended Sept. 30
    
    Nine months ended Sept. 30(Millions, except per share amounts)
    
    2004
    
    2003
    
    2004
    
    2003Funds from operations (FFO)
    
    $
    108
    
    
    $
    91
    
    
    $
    390
    
    
    $
    267FFO per
share - diluted
    
    
    0.62
    
    
    
    0.55
    
    
    
    2.30
    
    
    
    1.59Net income
    
    
    50
    
    
    
    50
    
    
    
    186
    
    
    
    153Net income
per share - diluted
    
    
    0.25
    
    
    
    0.29
    
    
    
    1.00
    
    
    
    0.88
 Dear Shareholders: With another quarter of solid financial results, Brookfield continues to
execute its value-added strategy through the accretive deployment of capital
into premier properties in high-growth markets. For the nine months ended September 30, 2004, Brookfields funds from
operations increased by 45% to $2.30 per share from $1.59 per share during the
same period in 2003. Funds from operations prior to lease termination income
increased by 21% to $1.92 per share from $1.59 per share during the same period
in 2003. Net income increased by 14% to $1.00 per share from $0.88 per share
during the same period in 2003. For the three months ended September 30, 2004, Brookfields funds from
operations increased by 13% to $0.62 per share from $0.55 per share during the
same period in 2003. Net income of $50 million was consistent with the same
period in 2003. MAJOR INITIATIVES IN THE THIRD QUARTER OF 2004 >
    
    Acquired Potomac Towerin the Washington, D.C. market from Deutsche
Immobilien Fonds AG (DIFA) for $106 million. The 19-story office tower
located on the Potomac River in Rosslyn, Virginia, offers unobstructed
views of the Washington, D.C. skyline. It measures 238,000 rentable square
feet of office space and has a 165,000 square foot eight-level parking
garage. The building is 100% leased. During the past ten months,
Brookfield has assembled a high-quality Washington, D.C. area portfolio
comprising 1.5 million square feet which includes this asset, 701 Ninth
Street, N.W. and 1625 Eye Street, N.W.>
    
    Financed 1625 Eye Street, N.W., Washington, D.C.,with a $130 million,
ten-year, 6.0% fixed rate mortgage. The financing is comprised of
two-stage funding, with $74 million funded in September 2004, and
additional proceeds of $56 million available upon future lease-up.>
    
    Acquired a $27 million, seven-year, 11.2% fixed rate mezzanine debt
investmentfor the Bank of America Center, San Franciscos premiere office
property, which comprises the junior-most tier of a $750 million financing
for the 1.78 million square foot tower.>
    
    Completed the issue of C$150 million Class AAA Series K preferred shares
at a dividend rate of 5.2%. The proceeds were used for general corporate
purposes including the repayment of existing floating rate preferred
shares and debt.>
    
    Repurchased 1.1 million common shares year-to-dateat an average price of
$28.84 per share. In addition, the normal course issuer bid was renewed,
permitting the company to acquire up to 7.8 million common shares during
the period September 15, 2004 to September 14, 2005. Since the inception
of the normal course issuer bid in 1999, 11.9 million shares have been
repurchased at an average price of $19.27 per share.
 Q3/2004 INTERIM REPORT
    
    1




---



##### 



OPERATING HIGHLIGHTS The majority of Brookfields markets continue to improve, as evidenced by a
modest increase in job growth statistics, particularly in the financial and
professional services sectors. The result has been an increase in leasing
demand and a decrease in vacancy rates. At September 30, 2004, the company had
an occupancy rate of 96.5% in its core markets of New York, Boston, Washington,
D.C., Toronto and Calgary, and an occupancy rate of 93.9% across the portfolio.
Operating highlights for the third quarter included: >
    
    Increased commercial property operating income by $17 million.During the
third quarter of 2004, net operating income from commercial property
operations was $168 million, compared with $151 million during the same
period in 2003. This continued strong performance was driven by the
companys relatively low vacancy during the last two years and the
addition to the current property portfolio of 300 Madison, 1625 Eye St.,
and 701 9th Street.>
    
    Leased approximately 800,000 square feet of spaceof space since the end
of the second quarter of 2004, including:
 Toronto  -
    
    A 10-year lease renewal with Canadian Imperial Bank of Commerce for 331,000
square feet at Atrium on Bay; Washington, D.C.  -
    
    A new 10-year lease with the Federal Housing Finance Board for 70,000
square feet at 1625 Eye St., N.W., subsequent to the end of the third
quarter, bringing the property occupancy rate up to 73%; Calgary  -
    
    A new six-year lease with Imperial Oil for 68,000 square feet at Fifth
Avenue Place;-
    
    A 10-year renewal and expansion with management consulting firm Towers
Perrin for 49,000 square feet at Petro-Canada Centre; New York  -
    
    A 16-year lease expansion with Cleary Gottlieb for 44,000 square feet at
One Liberty Plaza;-
    
    A new 10-year lease with Computer Generated Solutions, a firm relocating
from midtown Manhattan, for 40,000 square feet at Three World Financial
Center, subsequent to the end of the third quarter; and Boston  -
    
    A five-year lease renewal with Citigroup Capital Markets for 41,000 sq. ft.
at 53 State Street. This brings Brookfields year-to-date leasing total to 2.5 million
square feet, representing approximately four times the amount of space
contractually expiring. >
    
    Earned $11 million from residential land development operations,an
increase of $4 million over the third quarter of 2003, as low interest
rates and continued strong demand continue to fuel the North American
housing market.
 CHANGE IN ACCOUNTING POLICY Historically, Brookfields accounting policy has been to record revenues in
accordance with the actual payments received under the terms of the companys
leases, which typically increase over time, and to record depreciation on a
sinking-fund basis. However, commencing January 1, 2004, accounting standards
require both straight-line rent recognition and straight-line depreciation.
This change resulted in additional revenue of $16 million and additional
depreciation of $43 million before the effect of taxes for the nine months
ended September 30, 2004 ($6 million of additional revenue and $15 million of
additional depreciation for the three months ended September 30, 2004). A
schedule reconciling FFO to a non straight-line rent basis can be found in the
supplemental information package to allow for comparability with prior periods. DIVIDEND DECLARATION The Board of Directors of Brookfield declared a quarterly common share dividend
of $0.16 per share payable on December 31, 2004 to shareholders of record at
the close of business on December 1, 2004. Shareholders resident in the United
States will receive payment in U.S. dollars and shareholders resident in Canada
will receive their dividends in Canadian dollars at the exchange rate on the
record date, unless they elect otherwise. The quarterly dividends payable for
the Class AAA, Series F, G, H, I, J and K preferred shares were also declared
payable on December 31, 2004 to shareholders of record at the close of business
on December 15, 2004. OUTLOOK In a recovering office market, Brookfield remains well-positioned for growth
with our premier quality assets, significant liquidity and long-term lease
profile. Sustained job growth is the key to the future and for the first time
in four years, the momentum is moving in the right direction. Looking forward,
we remain optimistic. -s- Gordon E. Arnell
    

-s- Richard B. ClarkGordon E. Arnell
    
    Richard B. ClarkChairman
    
    President & CEOOctober 29, 2004
 2
    
    Brookfield Properties Corporation




---



##### 



Managements Discussion and Analysis INTRODUCTION The following discussion and analysis is intended to provide readers with an
assessment of our performance for the first nine months and the third quarter
during each of the past two years as well as our financial position and future
prospects. It should be read in conjunction with the unaudited consolidated
interim financial statements and appended notes which are included on page 14
of this report. Additional information, including the companys Annual Report
and Annual Information Form, are available on the companys Web site at
www.brookfieldproperties.com or on SEDARs Web site at www.sedar.com. All figures are expressed in U.S. dollars unless otherwise noted. Brookfields
financial results are as follows: Three months ended Sept. 30
    
    Nine months ended Sept. 30(Millions, except per share amounts)
    
    2004
    
    2003
    
    2004
    
    2003Total revenue
    
    $
    345
    
    
    $
    320
    
    
    $
    1,052
    
    
    $
    916Funds from operations (FFO)
    
    
    108
    
    
    
    91
    
    
    
    390
    
    
    
    267FFO per
share - diluted
    
    
    0.62
    
    
    
    0.55
    
    
    
    2.30
    
    
    
    1.59Net income
    
    
    50
    
    
    
    50
    
    
    
    186
    
    
    
    153Net income
per share - diluted
    
    
    0.25
    
    
    
    0.29
    
    
    
    1.00
    
    
    
    0.88
 (Millions)
    
    
    
    
    
    
    
    
    
    Sept. 30, 2004
    
    Dec. 31, 2003Commercial properties
    
    
    
    
    
    
    
    
    
    $
    6,626
    
    
    $
    6,297Total assets
    
    
    
    
    
    
    
    
    
    
    8,390
    
    
    
    8,097Commercial property debt
    
    
    
    
    
    
    
    
    
    
    4,524
    
    
    
    4,537Capital base
    
    
    
    
    
    
    
    
    
    
    3,209
    
    
    
    2,997
 COMMERCIAL PROPERTIES Brookfields strategy is to own, develop and manage premier commercial
properties in downtown locations of select cities in North America.
Brookfields portfolio consists of 47 properties and development sites,
predominantly office buildings, comprising 46 million square feet of rentable
area and development capacity in which Brookfield has proportionate ownership
interests in 35 million square feet. The commercial property portfolio is focused in seven North American cities,
with New York, Boston, Washington D.C., Toronto and Calgary, comprising 86% of
the portfolio on a net operating income basis. The acquisition of two premier assets in Washington, D.C. accounts for most of
the increase in book value of commercial properties from December 31, 2003. 701
9th Street, N.W. was purchased for $167.1 million in the first quarter of 2004
and Potomac Tower was purchased for $106 million in the third quarter of 2004.
A breakdown of the companys commercial properties by region at September 30,
2004 is as follows: Leasable
    
    Brookfield
    
    Sept. 30
    
    Dec. 31Area
    
    Owned Interest
    
    2004
    
    2003Region
    
    (000s Sq. Ft.)
    
    (000s Sq. Ft.)
    
    (Millions)
    
    (Millions)New York, New York
    
    
    11,221
    
    
    
    9,506
    
    
    $
    3,515
    
    
    $
    3,531Boston, Massachusetts
    
    
    2,163
    
    
    
    1,103
    
    
    
    329
    
    
    
    333Washington, D.C.
    
    
    1,557
    
    
    
    1,557
    
    
    
    435
    
    
    
    Toronto, Ontario
    
    
    6,790
    
    
    
    4,777
    
    
    
    1,010
    
    
    
    928Calgary, Alberta
    
    
    6,331
    
    
    
    3,166
    
    
    
    431
    
    
    
    450Denver, Colorado
    
    
    3,017
    
    
    
    2,811
    
    
    
    371
    
    
    
    372Minneapolis, Minnesota
    
    
    3,008
    
    
    
    3,008
    
    
    
    406
    
    
    
    400Other
    
    
    1,275
    
    
    
    1,275
    
    
    
    129
    
    
    
    28335,362
    
    
    
    27,203
    
    
    $
    6,626
    
    
    $
    6,297Office development properties
    
    
    10,292
    
    
    
    8,293
    
    
    
    383
    
    
    
    349Total
    
    
    45,654
    
    
    
    35,496
    
    
    $
    7,009
    
    
    $
    6,646
 Q3/2004 INTERIM REPORT
    
    3




---



##### 



DEVELOPMENT PROPERTIES Development properties increased by $7 million to $691 million as at September
30, 2004 from $684 million at December 31, 2003. The increase is primarily
attributable to additional capitalized costs on our commercial development
properties, offset by a reduction in residential development inventory. During
the first nine months of 2004, the company capitalized approximately $30
million related to the Three World Financial Center project, and expects to
continue to capitalize similar amounts for the remainder of the year. The
details of the development property portfolio are as follows: Sept. 30, 2004
    
    Dec. 31, 2003Buildable Sq. Ft.
    
    (Millions)
    
    (Millions)
    
    ChangeCommercial developments and infrastructureThree World Financial Center, New York
    
    
    1,200,000
    
    
    $
    242
    
    
    $
    212
    
    
    $
    30Bay-Adelaide Centre, Toronto
    
    
    1,800,000
    
    
    
    93
    
    
    
    90
    
    
    
    3Hudsons Bay Centre, Toronto
    
    
    1,092,000
    
    
    
    27
    
    
    
    26
    
    
    
    1Other:401 West 31st Street, New York
    
    
    2,500,000BCE Place III, Toronto
    
    
    800,000Republic Plaza, Denver
    
    
    400,0003,700,000
    
    
    
    21
    
    
    
    21
    
    
    
    7,792,000
    *
    
    $
    383
    
    
    $
    349
    
    
    $
    34Residential development land and infrastructureUnder development
    
    
    
    
    
    
    152
    
    
    
    210
    
    
    
    (58
    )Held for development
    
    
    
    
    
    
    156
    
    
    
    125
    
    
    
    31Total
    
    
    
    
    
    $
    691
    
    
    $
    684
    
    
    $
    7
 * Excludes rights which Brookfield holds on Site 26 at the World Financial Center in New York. Although Brookfield is not a speculative developer, the company is a
full-service real estate company with in-house development expertise. With
approximately eight million square feet of high-quality, centrally-located
development properties in New York, Toronto, and Denver, the company generally
undertakes developments only when the risk-adjusted returns are adequate and
significant preleasing for at least 50% to 60% of the space has been achieved. RECEIVABLES AND OTHER Receivables and other assets decreased slightly to $691 million at September
30, 2004 from $717 million at December 31, 2003. The components of receivables
and other assets are as follows: (Millions)
    
    
    
    
    
    
    
    
    
    Sept. 30, 2004
    
    Dec. 31, 2003Receivables and real estate mortgages
    
    
    
    
    
    
    
    
    
    $
    476
    
    
    $
    499Prepaid expenses and other assets
    
    
    
    
    
    
    
    
    
    
    210
    
    
    
    212Non-core real estate assets held for sale
    
    
    
    
    
    
    
    
    
    
    5
    
    
    
    6Total
    
    
    
    
    
    
    
    
    
    $
    691
    
    
    $
    717
 CASH AND MARKETABLE SECURITIES Brookfield maintains high levels of liquidity to ensure that it can react quickly to potential investment opportunities. This liquidity
consists of cash and marketable securities which contribute investment returns, as well as committed lines of credit. To ensure the
company maximizes its returns, cash balances are generally carried at a modest level, and excess cash is used to repay revolving credit
lines and invested in short-term marketable securities, which provide a source of liquidity to fund investment initiatives. Marketable
securities are comprised of a portfolio of fixed-rate corporate bonds which are carried at amortized cost with a fair value which approximates their book value and an average yield of 2.5% and matures over the period of 2005 to 2007. As at September 30, 2004, cash
balances decreased to $96 million from $132 million at December 31, 2003 and marketable securities increased to $286 million
from $267 million at December 31, 2003 as excess funds were invested in additional investment-grade corporate bonds. COMMERCIAL PROPERTY DEBT Commercial property debt totaled $4,524 million at September 30, 2004, compared with $4,537 million at December 31, 2003. The
decrease is primarily related to the repayment of corporate debt with the proceeds received from the issuance of 8,000,000 Class AAA
Series J preferred shares in April 2004, offset by the financing of 1625 Eye Street in Washington, D.C. Commercial property debt at
September 30, 2004 had an average interest rate of 6.6% and an average term to maturity of 12 years. Predominantly all of Brookfields
commercial property debt is recourse only to specific properties, thereby reducing the overall financial risk to the company. 4
    
    Brookfield Properties Corporation




---



##### 



The largest property debt in order of maturity is as follows: BrookfieldInterest
    
    Maturity
    
    ProportionateCommercial Property
    
    Location
    
    Rate %
    
    Date
    
    Share (Millions)
    
    Mortgage DetailsOne World Financial Center
    
    New York
    
    
    3.11
    
    
    
    2007
    
    
    $
    300
    
    
    Recourse, floating rateCanada Trust Tower
    
    Toronto
    
    
    6.54
    
    
    
    2007
    
    
    
    104
    
    
    Non-recourse, fixed rateTrade Center Denver
    
    Denver
    
    
    7.00
    
    
    
    2007
    
    
    
    51
    
    
    Non-recourse, fixed ratePetro-Canada Centre
    
    Calgary
    
    
    6.43
    
    
    
    2008
    
    
    
    106
    
    
    Non-recourse, fixed rate245 Park Avenue
    
    New York
    
    
    6.65
    
    
    
    2011
    
    
    
    249
    
    
    Non-recourse, fixed rateOne Liberty Plaza
    
    New York
    
    
    6.75
    
    
    
    2011
    
    
    
    414
    
    
    Non-recourse, fixed rateFifth Avenue Place
    
    Calgary
    
    
    7.59
    
    
    
    2011
    
    
    
    62
    
    
    Non-recourse, fixed rateExchange Tower
    
    Toronto
    
    
    6.83
    
    
    
    2012
    
    
    
    53
    
    
    Non-recourse, fixed rateTwo World Financial Center
    
    New York
    
    
    6.91
    
    
    
    2013
    
    
    
    718
    
    
    Non-recourse, fixed rateFour World Financial Center
    
    New York
    
    
    6.95
    
    
    
    2013
    
    
    
    380
    
    
    Non-recourse, fixed rateBay Wellington Tower
    
    Toronto
    
    
    6.49
    
    
    
    2013
    
    
    
    284
    
    
    Non-recourse, fixed rateBankers Hall
    
    Calgary
    
    
    7.20
    
    
    
    2013
    
    
    
    144
    
    
    Non-recourse, fixed rateRepublic Plaza
    
    Denver
    
    
    5.15
    
    
    
    2014
    
    
    
    170
    
    
    Non-recourse, fixed rate1625 Eye Street
    
    Washington
    
    
    6.00
    
    
    
    2014
    
    
    
    74
    
    
    Non-recourse, fixed rateRoyal Centre
    
    Vancouver
    
    
    7.50
    
    
    
    2022
    
    
    
    42
    
    
    Non-recourse, fixed rate53 State Street
    
    Boston
    
    
    6.91
    
    
    
    2023
    
    
    
    75
    
    
    Non-recourse, fixed rate33 South Sixth Street
    
    Minneapolis
    
    
    6.72
    
    
    
    2027
    
    
    
    99
    
    
    Non-recourse, fixed rateDain Plaza
    
    Minneapolis
    
    
    7.37
    
    
    
    2027
    
    
    
    85
    
    
    Non-recourse, fixed rate701 9th Street
    
    Washington
    
    
    6.73
    
    
    
    2028
    
    
    
    152
    
    
    Non-recourse, fixed rate75 State Street
    
    Boston
    
    
    7.00
    
    
    
    2028
    
    
    
    88
    
    
    Non-recourse, fixed rate300 Madison Avenue
    
    New York
    
    
    7.26
    
    
    
    2032
    
    
    
    534
    
    
    Non-recourse, fixed rateDevelopment debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    150
    
    
    Non-recourse, floating rateCorporate credit facility
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    100
    
    
    Recourse, floating rateOther
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    90
    
    
    Various termsTotal
    
    
    
    
    
    
    6.60
    
    
    
    
    
    
    $
    4,524
 Commercial property debt maturities for the next five years and thereafter are as follows: Weighted Average(Millions)
    
    Scheduled
    
    
    
    
    
    
    
    
    
    Interest Rate atYear
    
    Amortization
    
    Maturities
    
    Total
    
    Sept. 30, 2004Remainder 2004
    
    $
    63
    
    
    $
    
    
    
    $
    63
    
    
    
    6.9
    %2005
    
    
    134
    
    
    
    233
    
    
    
    367
    
    
    
    7.3
    %2006
    
    
    145
    
    
    
    17
    
    
    
    162
    
    
    
    7.4
    %2007
    
    
    143
    
    
    
    470
    
    
    
    613
    
    
    
    5.1
    %2008
    
    
    160
    
    
    
    119
    
    
    
    279
    
    
    
    6.8
    %2009 and thereafter
    
    
    
    
    
    
    3,040
    
    
    
    3,040
    
    
    
    6.6
    %Total
    
    $
    645
    
    
    $
    3,879
    
    
    $
    4,524
    
    
    
    6.6
    %
 During the first quarter of 2004, the company refinanced Republic Plaza in Denver with a $170 million, ten-year, fixed-rate mortgage
at 5.15% interest. This refinancing represents a reduction of approximately 400 basis points from the prior fixed-rate mortgage. During
the third quarter of 2004, the company financed 1625 Eye Street in Washington, D.C. with a $130 million, ten-year, 6% fixed rate
mortgage. The financing is comprised of two-stage funding, with $74 million funded in September 2004, and additional proceeds of
$56 million available upon future lease-up. The companys bank credit facility is in the form of a three-year revolving facility totaling $150 million. This facilitys floating rate has
a weighted average interest rate of approximately 3% and was drawn in the amount of $100 million as at September 30, 2004. Q3/2004 INTERIM REPORT
    
    5




---



##### 



ACCOUNTS PAYABLE AND OTHER LIABILITIES Accounts payable and other liabilities totaled $551 million at September 30,
2004, compared with $545 million at December 31, 2003. Advances represent
credit facilities which are primarily recourse in nature to subsidiaries of the
company and totaled $241 million at September 30, 2004, compared with $269
million at December 31, 2003. The components of the companys accounts payable
and other liabilities are as follows: (Millions)
    
    Sept. 30, 2004
    
    Dec. 31, 2003Accounts payable
    
    $
    310
    
    
    $
    276AdvancesRevolving five-year term facilities
    
    
    122
    
    
    
    119Other
    
    
    119
    
    
    
    150Total
    
    $
    551
    
    
    $
    545
 FUTURE INCOME TAXES At September 30, 2004, the company had a future income tax liability of $106
million compared to $18 million at December 31, 2003, an increase of $88
million with the deferred tax expense generated on the utilization of tax
losses during the year-to-date. INTERESTS OF OTHERS IN PROPERTIES In addition to 100% owned subsidiaries, Brookfield conducts its commercial
property operations through BPO Properties Ltd. (BPO Properties) in Canada
and through Brookfield Financial Properties, L.P. (Brookfield Financial
Properties) in the U.S. which holds substantially all of the companys
interests in its New York, Boston and Washington assets. The following table
details the components of interests of other shareholders: (Millions)
    
    Sept. 30, 2004
    
    Dec. 31, 2003BPO Properties
    
    $
    39
    
    
    $
    72Brookfield Financial Properties
    
    
    11
    
    
    
    9Total
    
    $
    50
    
    
    $
    81
 Interests of others in BPO Properties decreased to $39 million at September 30,
2004 from $72 million at December 31, 2003 as a result of the payment of a
special dividend during the first quarter of 2004. The interests of others in
Brookfield Financial Properties increased by $2 million to $11 million at
September 30, 2004 primarily due to the earnings in the first nine months of
2004, including the proportionate share of interests of others in the lease
termination income earned in the second quarter of 2004. PREFERRED SHARES - SUBSIDIARIES AND CORPORATE The company and its subsidiaries have approximately $1.2 billion of preferred
equity outstanding as at September 30, 2004 - $425 million issued by its
consolidated subsidiaries and $732 million issued by Brookfield. This equity
represents low-cost capital for the company without dilution to the common
equity base. a) Subsidiaries The companys subsidiaries have the following preferred shares outstanding: Shares
    
    Preferred
    
    Cumulative(Millions, except share information)
    
    Outstanding
    
    Shares Series
    
    Dividend Rate
    
    Sept. 30, 2004
    
    Dec. 31, 2003BPO Properties1,805,489
    
    
    Series G
    
    70% of bank prime
    
    $
    36
    
    
    $
    353,816,527
    
    
    Series J
    
    70% of bank prime
    
    
    75
    
    
    
    74300
    
    
    Series K
    
    30-day BA + 0.4%
    
    
    118
    
    
    
    1152,847,711
    
    
    Series M
    
    70% of bank prime
    
    
    56
    
    
    
    55800,000
    
    
    Series N
    
    30-day BA + 0.4%
    
    
    16
    
    
    
    15$
    301
    
    
    $
    294100%-owned subsidiaries
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    124
    
    
    
    121Total
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    425
    
    
    $
    415
 Dividends paid on preferred shares issued by subsidiaries are a component of
interests of others in properties expense. 6
    
    Brookfield Properties Corporation




---



##### 



b) Corporate The company has the following preferred shares outstanding: Shares
    
    Cumulative(Millions, except share information)
    
    Outstanding
    
    Dividend Rate
    
    Sept. 30, 2004
    
    Dec. 31, 2003Class A redeemable voting
    
    
    6,312,000
    
    
    
    7.50
    %
    
    $
    11
    
    
    $
    11Class AA Series E
    
    
    2,000,000
    
    
    70% of bank prime
    
    
    34
    
    
    
    34Class AAA Series F
    
    
    8,000,000
    
    
    
    6.00
    %
    
    
    126
    
    
    
    126Class AAA Series G
    
    
    4,400,000
    
    
    
    5.25
    %
    
    
    110
    
    
    
    110Class AAA Series H
    
    
    8,000,000
    
    
    
    5.75
    %
    
    
    151
    
    
    
    151Class AAA Series I
    
    
    8,000,000
    
    
    
    5.20
    %
    
    
    154
    
    
    
    154Class AAA Series J
    
    
    8,000,000
    
    
    
    5.00
    %
    
    
    146
    
    
    
    Total
    
    
    
    
    
    
    
    
    
    $
    732
    
    
    $
    586
 During the second quarter of 2004, the company issued 8,000,000 Class AAA
Series J preferred shares at a dividend rate of 5.0% for total proceeds of
C$200 million. The proceeds were used to pay down corporate debt. Subsequent to the third quarter of 2004, the company issued 6,000,000 Class AAA
Series K preferred shares at a dividend rate of 5.2% for total proceeds of
C$150 million. Proceeds of the issue will be utilized for general corporate
purposes including the repayment of existing floating-rate preferred shares and
debt. See subsequent event disclosure in Note 15 of the companys consolidated
interim financial statements for further discussion. Dividends paid on preferred shares issued by the company are accounted for as
capital distributions. During the first nine months of 2004, the company paid
preferred dividends of $29 million compared with $14 million during the same
period of 2003. During the third quarter of 2004, the company paid preferred
dividends of $11 million compared with $5 million during the same period of
2003. The increase relates to dividends paid on $561 million of preferred
shares issued during 2003 and 2004 through four offerings with favorable
dividend rates averaging 5.3%. COMMON SHARES The company has 155.8 million issued and outstanding common shares. On a
diluted basis, the company has 159.0 million common shares outstanding,
calculated as follows: Sept. 30, 2004
    
    Dec. 31, 2003Common shares outstanding
    
    
    155,848,323
    
    
    
    156,246,701Unexercised options and warrants
    
    
    3,187,464
    
    
    
    3,306,240Common
shares outstanding  diluted
    
    
    159,035,787
    
    
    
    159,552,941Common shares repurchased
    
    
    1,115,500
    
    
    
    5,006,700
 The diluted book value per common share at September 30, 2004 was $13.00
compared with $12.31 at December 31, 2003. During the nine months ended
September 30, 2004, the company repurchased 1.1 million shares under its normal
course issuer bid at an average price of $28.84 per share (32,000 shares at an
average price of $31.45 for the three months ended September 30, 2004). Since
the inception of the normal course issuer bid in 1999, 11.9 million shares have
been repurchased at an average price of $19.27 per share. RESULTS OF OPERATIONS For the nine month period ended September 30, 2004, total commercial property
operations increased 26% to $573 million from $453 million during the same
period in 2003. Total commercial property operations contributed $168 million
of net operating income during the third quarter of 2004, an 11% increase over
the same period 2003 net operating income of $151 million. The increase is due
to the contribution from 300 Madison Avenue in New York, 1625 Eye Street and
701 9th Street in Washington, D.C. and an increment of $16 million of
straight-line rent during the first nine months of 2004 ($6 million during the
three months ended September 30, 2004) due to a change in accounting policy.
See Note 2 of the consolidated interim financial statements for further
discussion. Three months ended Sept. 30
    
    Nine months ended Sept. 30(Millions)
    
    2004
    
    2003
    
    2004
    
    2003Operating income from properties
    
    $
    168
    
    
    $
    151
    
    
    $
    513
    
    
    $
    453Lease termination income
    
    
    
    
    
    
    
    
    
    
    60
    
    
    
    Net operating income
    
    $
    168
    
    
    $
    151
    
    
    $
    573
    
    
    $
    453
 Q3/2004 INTERIM REPORT
    
    7




---



##### 



COMPONENTS OF NET OPERATING INCOME The components of total net operating income are as follows: Three months ended Sept. 30
    
    Nine months ended Sept. 30(Millions)
    
    2004
    
    2003
    
    2004
    
    2003Rental revenue
    
    $
    273
    
    
    $
    254
    
    
    $
    795
    
    
    $
    737Property operating costs
    
    
    105
    
    
    
    103
    
    
    
    282
    
    
    
    284Net operating income prior to lease termination income
    
    
    168
    
    
    
    151
    
    
    
    513
    
    
    
    453Lease termination income
    
    
    
    
    
    
    
    
    
    
    60
    
    
    
    Net operating income
    
    $
    168
    
    
    $
    151
    
    
    $
    573
    
    
    $
    453
 Net operating income growth is comprised of contractual increases on in-place
leases, rental increases achieved on in-place rents when re-leased, lease-up of
vacancies, acquisitions net of dispositions and straight-line rental income.
The growth in net operating income during the first nine months and in the
third quarter in each of the past two years is as follows: Three months ended Sept. 30
    
    Nine months ended Sept. 30(Millions)
    
    2004
    
    2003
    
    2004
    
    2003Net operating income excluding lease termination income,
prior period
    
    $
    151
    
    
    $
    146
    
    
    $
    453
    
    
    $
    448(a) Contractual increases on in-place leases
    
    
    2
    
    
    
    5
    
    
    
    5
    
    
    
    11(b) Rental increases achieved on in-place rents when re-leased
    
    
    1
    
    
    
    3
    
    
    
    2
    
    
    
    7(c) Lease-up of vacancies
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    3(d) Acquisitions, net of dispositions
    
    
    8
    
    
    
    (4
    )
    
    
    37
    
    
    
    (16
    )(e) Straight-line rental income
    
    
    6
    
    
    
    
    
    
    
    16
    
    
    
    168
    
    
    
    151
    
    
    
    513
    
    
    
    453(f) Lease termination income
    
    
    
    
    
    
    
    
    
    
    60
    
    
    
    Net operating income, end of period
    
    $
    168
    
    
    $
    151
    
    
    $
    573
    
    
    $
    453
 (a) Contractual increases on in-place leases Brookfields leases generally have clauses which provide for the collection of
rental revenues in amounts that increase every five years, with these increases
negotiated at the signing of the lease. The high-credit quality of tenants in
the companys portfolio in general lowers the risk of realizing these
increases. During the nine and three months ended September 30, 2004, net
operating income increased $5 million and $2 million, respectively, due to
contractual increases, compared with $11 million and $5 million during the same
periods in 2003. (b) Rental increases achieved on in-place rents when re-leased During the nine months ended September 30, 2004, higher rental rates on the
re-leasing of space in the portfolio contributed $2 million of increased net
operating income over 2003 ($1 million for the three months ended September 30,
2004). At September 30, 2004, average in-place net rents throughout the
portfolio remained consistent with the first and second quarters of 2004 at $23
per square foot compared with $21 per square foot at September 30, 2003.
Average market net rent was $24 per square foot at September 30, 2004,
consistent with the net rate in the first and second quarters of 2004 and
September 30, 2003. The following table shows the average in-place rents and estimated current
market rents for similar space in each of the companys markets as at September
30, 2004: Gross
    
    Avg.
    
    Avg. In-place
    
    Avg. MarketLeasable Area
    
    Lease Term
    
    Net Rent
    
    Net Rent(000s Sq. Ft.)
    
    (Years)
    
    ($ per Sq. Ft.)
    
    ($ per Sq. Ft.)New York, New YorkMidtown Manhattan
    
    
    2,786
    
    
    
    20
    
    
    $
    38
    
    
    $
    50Downtown Manhattan
    
    
    8,435
    
    
    
    10
    
    
    
    32
    
    
    
    25Boston, Massachusetts
    
    
    2,163
    
    
    
    6
    
    
    
    30
    
    
    
    32Washington, D.C.
    
    
    1,557
    
    
    
    17
    
    
    
    29
    
    
    
    38Toronto, Ontario
    
    
    6,790
    
    
    
    7
    
    
    
    20
    
    
    
    21Calgary, Alberta
    
    
    6,331
    
    
    
    9
    
    
    
    13
    
    
    
    15Denver, Colorado
    
    
    3,017
    
    
    
    4
    
    
    
    14
    
    
    
    15Minneapolis, Minnesota
    
    
    3,008
    
    
    
    8
    
    
    
    9
    
    
    
    13Other
    
    
    1,275
    
    
    
    8
    
    
    
    9
    
    
    
    15Total*
    
    
    35,362
    
    
    
    10
    
    
    $
    23
    
    
    $
    24
 * Excludes developments. 8
    
    Brookfield Properties Corporation




---



##### 



(c) Lease-up of vacancies Contribution to net operating income from lease-ups decreased by $3 million
during the nine months ended September 30, 2004 and by $1 million during the
third quarter of 2004 compared with the same periods in 2003. Contributions
from vacancy lease-ups were greater in 2003 due to vacancies leased in
properties acquired in 2000. Brookfields total portfolio occupancy rate at
September 30, 2004 decreased marginally to 93.9% from 94.1% at year-end, and
remained unchanged from 93.9% at June 30, 2004. A summary of current and
historical occupancy levels is as follows: Sept. 30, 2004
    
    Dec. 31, 2003Total
    
    %
    
    Total
    
    %(000s Sq. Ft.)
    
    Leased
    
    (000s Sq. Ft.)
    
    LeasedNew York, New York
    
    
    11,221
    
    
    
    98.0
    %
    
    
    11,262
    
    
    
    97.7
    %Boston, Massachusetts
    
    
    2,163
    
    
    
    95.9
    %
    
    
    2,163
    
    
    
    97.7
    %Washington, D.C.
    
    
    1,557
    
    
    
    82.5
    %
    
    
    
    
    
    
    Toronto, Ontario
    
    
    6,790
    
    
    
    94.5
    %
    
    
    6,884
    
    
    
    96.1
    %Calgary, Alberta
    
    
    6,331
    
    
    
    98.3
    %
    
    
    7,454
    
    
    
    97.6
    %Denver, Colorado
    
    
    3,017
    
    
    
    84.7
    %
    
    
    3,017
    
    
    
    82.9
    %Minneapolis, Minnesota
    
    
    3,008
    
    
    
    78.8
    %
    
    
    3,008
    
    
    
    74.1
    %Other
    
    
    1,275
    
    
    
    89.0
    %
    
    
    1,851
    
    
    
    90.5
    %Total*
    
    
    35,362
    
    
    
    93.9
    %
    
    
    35,639
    
    
    
    94.1
    %New York/Boston/Washington/Toronto/Calgary
    
    
    28,062
    
    
    
    96.5
    %
    
    
    27,763
    
    
    
    97.3
    %Denver/Minneapolis/Other
    
    
    7,300
    
    
    
    83.0
    %
    
    
    7,876
    
    
    
    80.4
    %Total*
    
    
    35,362
    
    
    
    93.9
    %
    
    
    35,639
    
    
    
    94.1
    %
 *Excludes developments. (d) Acquisitions, net of dispositions The value created in Brookfields mature commercial properties provides the
company with the opportunity to generate additional gains and capital in order
to reinvest in other assets at higher returns. For the nine month period ended
September 30, 2004, the acquisition of properties in Washington, D.C. and the
completion of the development project at 300 Madison Avenue in New York, net of
dispositions, as well as the net leasing fee realized upon the successful
completion of the sublease of 800,000 square feet to PricewaterhouseCoopers at
300 Madison Avenue in New York, contributed an additional $37 million of net
operating income compared to a decrease of $16 million from the sale of
properties in 2003. The acquisition of properties, net of dispositions, contributed an additional
$8 million of net operating income for the third quarter of 2004, and the sale
of properties decreased net operating income by $4 million in the third quarter
of 2003. (e) Straight-line rental income As a result of adopting CICA Handbook section 1100, Generally Accepted
Accounting Principles, commencing January 1, 2004, the company recognized an
additional $16 million of straight-line rental income during the nine months
ended September 30, 2004 ($6 million during the three months ended September
30, 2004). This adoption was on a prospective basis, and therefore no
adjustments were made to prior periods. See Note 2 to the consolidated interim
financial statements for further discussion. (f) Lease termination income During the first quarter of 2004, the company entered into a twenty-year lease
with Cadwalader, Wickersham & Taft for 460,000 square feet in One World
Financial Center in New York. The transaction resulted in a net gain of $60
million in the second quarter of 2004 upon termination of the lease with the
prior tenant. While these events are opportunistic and difficult to predict,
the dynamic tenant base, which is typical of our buildings, should provide
Brookfield with similar opportunities in the future. DEVELOPMENT AND RESIDENTIAL OPERATIONS Development and residential operations contributed $29 million of income during
the first nine months ending September 30, 2004, an increase of $8 million from
the same period in 2003. During the third quarter of 2004, development and
residential operations contributed $11 million of income, an increase of $4
million from the same period in 2003. Our development and residential
operations continued to benefit from the low interest rate environment and
strong demand in the North American housing market. INTEREST AND OTHER Interest and other income for the nine months ended September 30, 2004
decreased to $36 million compared with $45 million for the same period in 2003.
Interest and other income for the third quarter of 2004 decreased to $11
million compared with $16 million for the same period in 2003. The decrease
primarily related to the completion of the companys residential condominium
development project in Toronto. Q3/2004 INTERIM REPORT
    
    9




---



##### 



UNALLOCATED COSTS Unallocated costs were $248 million for the nine months ended September 30,
2004, compared with $252 million during the same period in 2003. Unallocated
costs were $82 million for the third quarter of 2004, compared with $83 million
during the same period in 2003. The amounts are comprised of interest expense,
administrative and development expenses and other shareholders interests
expenses, as follows: (a) Interest expense Interest expense was $201 million for the nine months ended September 30, 2004,
compared with $203 million during the same period in 2003. The decrease is
primarily related to the sale of a 49% interest in 245 Park Avenue in New York
in October 2003. Interest expense was $67 million in the third quarter of 2004,
compared with $66 million during the same period in 2003. This increase is a
result of debt assumed on the purchase of 701 9th Street in Washington, the
placement of higher levels of investment-grade debt on properties, offset by
the reduction of debt through amortization and the sale of a 49% interest in
245 Park Avenue in New York in October 2003. (b) Administrative and development expenses Administrative costs for the nine months ended September 30, 2004 decreased to
$31 million from $33 million during the same period 2003 as the company
continued to implement cost reduction initiatives. Administrative costs for the
third quarter of 2004 were $10 million, compared with $11 million during the
same period in 2003. (c) Other shareholders interests expenses Other shareholders interests consolidated in the companys accounts consist of
earnings attributable to properties represented by the interests not owned by
Brookfield in BPO Properties and Brookfield Financial Properties, as well as
dividends on preferred shares issued by these and other wholly-owned
subsidiaries. During the nine months ended September 30, 2004, other
shareholders interests expenses of $16 million was consistent with the same
period in 2003. During the third quarter of 2004, other shareholders
interests expenses decreased marginally to $5 million compared with $6 million
in the same period in 2003. DEPRECIATION EXPENSES Depreciation during the nine months ended September 30, 2004 increased by $47
million to $105 million. Depreciation expense was $36 million during the third
quarter of 2004, an increase of $16 million over the $20 million during the
same period in 2003. The majority of this increase was due to additional
depreciation and amortization recognized with the adoption of CICA Handbook
section 1100 requiring a change to a straight-line basis. See Note 2 to the
consolidated interim financial statements for further discussion. NET INCOME Brookfields net income per share during the first nine months of 2004
increased by 14% to $1.00 per share from $0.88 per share during the same period
in 2003. Net income during the third quarter of 2004 decreased to $0.25 per
diluted share from $0.29 per share during the same period in 2003. Net income
per share is calculated as follows: Three months ended Sept. 30
    
    Nine months ended Sept. 30(Millions, except per share information)
    
    2004
    
    2003
    
    2004
    
    2003Net income
    
    $
    50
    
    
    $
    50
    
    
    $
    186
    
    
    $
    153Preferred share dividends
    
    
    (11
    )
    
    
    (5
    )
    
    
    (29
    )
    
    
    (14
    )Net income available to common shareholders
    
    $
    39
    
    
    $
    45
    
    
    $
    157
    
    
    $
    139Weighted
average common shares outstanding - diluted
    
    
    157.0
    
    
    
    156.9
    
    
    
    157.1
    
    
    
    159.0Net income
per share - diluted
    
    $
    0.25
    
    
    $
    0.29
    
    
    $
    1.00
    
    
    $
    0.88
 FUNDS FROM OPERATIONS Funds from operations (FFO) is defined as net income, prior to extraordinary
items, non-cash items and depreciation and amortization of capital assets.
While Brookfield believes that FFO is the most relevant measure to analyze real
estate based on the fact that commercial properties generally appreciate rather
than depreciate, the company believes that both FFO and net income are both
relevant measures. The company computes FFO in accordance with the definitions
provided by the Canadian Institute of Public and Private Real Estate Companies
(CIPPREC) in Canada and substantially in accordance with the National
Association of Real Estate Investment Trusts (NAREIT) in the United States.
FFO does not represent cash generated from operating activities determined in
accordance with Generally Accepted Accounting Principles (GAAP) in the United
States or Canada and should not be considered as an alternative to such GAAP
measures. Brookfields strong tenant base and pro-active leasing strategies contributed
to an increase in FFO of 45% for the nine months ended September 30, 2004 to
$2.30 per share from $1.59 per share during the same period in 2003. FFO
during the third quarter of 2004 10
    
    Brookfield Properties Corporation




---



##### 



increased 13% to $0.62 per share compared with $0.55 per share during the same
period in 2003. FFO available to common shareholders and FFO per share are
calculated as follows: Three months ended Sept. 30
    
    Nine months ended Sept. 30(Millions, except per share information)
    
    2004
    
    2003
    
    2004
    
    2003FFO
    
    $
    108
    
    
    $
    91
    
    
    $
    390
    
    
    $
    267Preferred share dividends
    
    
    (11
    )
    
    
    (5
    )
    
    
    (29
    )
    
    
    (14
    )FFO available to common shareholders
    
    $
    97
    
    
    $
    86
    
    
    $
    361
    
    
    $
    253Weighted
average common shares outstanding - diluted
    
    
    157.0
    
    
    
    156.9
    
    
    
    157.1
    
    
    
    159.0FFO per
share - diluted
    
    $
    0.62
    
    
    $
    0.55
    
    
    $
    2.30
    
    
    $
    1.59
 LIQUIDITY AND CAPITAL RESOURCES Brookfield employs a broad range of financing strategies to facilitate growth
and manage financial risk, with particular focus on the overall reduction of
the weighted average cost of capital, thereby enhancing returns to common
shareholders. FFO represents the primary source of liquidity to fund debt service, dividend
payments, and recurring capital and leasing costs in the companys commercial
property portfolio. Sufficient cashflows are generated by the companys
properties to service these obligations. In addition, Brookfields tax status
as a corporation and substantial tax loss pools allow the company to reinvest
and retain cash generated by operations without incurring cash taxes. As at September 30, 2004, Brookfield had approximately $232 million (December
31, 2003 - $562 million) of indebtedness outstanding to Brascan Corporation and
its affiliates. During the first quarter of 2004, the company, based on an
agreement signed in 1997, purchased the land lease on one of its Canadian
properties for an amount equal to its carrying value of $80 million from
Brascan Corporation. Commercial property debt assumed by Brookfield is primarily fixed-rate and
non-recourse to the company. These investment-grade financings are typically
structured on a 50% to 60% loan-to-appraised-value basis. In addition, in
certain circumstances when a building is leased almost exclusively to a
high-quality tenant, a higher loan to value financing, based on the tenants
credit quality, is put in place at rates commensurate with the cost of funds
for the tenant. This reduces the companys equity requirements to finance
commercial property, and as a result, enhances equity returns. CONTRACTUAL OBLIGATIONS The following table presents contractual obligations of the company over the
next five years: Payments due by period(Millions)
    
    Total
    
    Less than one year
    
    1-3 years
    
    4-5 years
    
    After 5 yearsCommercial property debt
    
    $
    4,524
    
    
    $
    63
    
    
    $
    1,142
    
    
    $
    460
    
    
    $
    2,859Other obligations
    
    
    241
    
    
    
    84
    
    
    
    35
    
    
    
    
    
    
    
    122Total obligations
    
    $
    4,765
    
    
    $
    147
    
    
    $
    1,177
    
    
    $
    460
    
    
    $
    2,981
 Other obligations include shareholder advances and debt attributable to the
land development operations. See Note 8 of the consolidated interim financial
statements for further discussion on other obligations. REAL ESTATE INDUSTRY AND RISKS Industry risks are unchanged from those discussed in the December 31, 2003
Annual Report. In addition, further discussion on risk factors to consider in
evaluating Brookfield can be found in our Annual Information Form. Both
resources are posted on the companys Web site at www.brookfieldproperties.com
or on SEDARs Web site at www.sedar.com. DERIVATIVE FINANCIAL INSTRUMENTS The company and its subsidiaries utilize derivative financial instruments
primarily to manage financial risks, including interest rate, commodity and
foreign exchange risks. Realized and unrealized gains and losses on derivative
financial instruments designated as hedges of financial risks are included in
income in the same period as when the underlying asset, liability or
anticipated transaction affects income. At September 30, 2004, the company had
foreign exchange contracts to sell a notional amount of C$300 million
designated as hedges for accounting purposes to manage the companys foreign
exchange risk in respect to its Canadian-denominated net assets. Financial instruments that are not designated as hedges are carried at
estimated fair values, and gains and losses arising from changes in fair values
are recognized in income in the period the changes occur. The use of derivative
contracts is governed by documented risk management policies and approved
limits. Q3/2004 INTERIM REPORT
    
    11




---



##### 



SEGMENTED INFORMATION The company and its subsidiaries operate in the U.S. and Canada within the
commercial property business and the residential land development business. The
commercial markets in which the company operates are primarily New York,
Boston, Washington, D.C., Denver and Minneapolis in the U.S., and Toronto and
Calgary in Canada. Approximately 75% of the companys net operating income or
70% of the companys FFO are derived from the U.S. The companys residential
land development operations are focused in five markets: Calgary, Edmonton and
Toronto in Canada and Denver and Texas in the U.S. Details of the segmented
financial information for the companys principal areas of business by industry
and geographic location are provided in Note 16 of the companys consolidated
interim financial statements. CHANGES IN ACCOUNTING POLICIES Effective January 1, 2004, the company adopted CICA Handbook section 1100,
Generally Accepted Accounting Principles. The section establishes standards
for financial reporting in accordance with Canadian GAAP, and provides guidance
on sources to consult when selecting accounting policies and determining
appropriate disclosures when a matter is not dealt with explicitly in the
primary sources of Canadian GAAP. In particular, this section requires the
company to record income arising from tenant leases and depreciation on
buildings on a straight-line basis. Adoption of this section resulted in
recognition of additional straight-line rental revenue of $16 million and
additional depreciation of $43 million before any tax effects during the nine
months ended September 30, 2004 ($6 million of additional straight-line rental
revenue and $15 million of additional depreciation during the three months
ended September 30, 2004). Effective January 1, 2004, the company adopted CICA Handbook section 3063,
Impairment of Long-Lived Assets. The section provides that an impairment loss
be recognized when the carrying value of an asset exceeds the total
undiscounted cash flows expected from its use and eventual disposition. The
impairment recognized is measured as the amount by which the carrying value
exceeds its fair value. The adoption of section 3063 did not have a significant
impact on the companys consolidated interim financial statements. Effective January 1, 2004, the company adopted CICA Handbook section 3110,
Asset Retirement Obligations. The section addresses the recognition and
re-measurement of obligations associated with the retirement of a tangible
long-lived asset. This standard provides that obligations associated with the
retirement of tangible long-lived assets be recorded as liabilities when those
obligations are incurred, with the amount of the liability initially measured
at fair value. These obligations are capitalized to the book value of the
related long-lived assets and are depreciated over the useful life of the
related asset. The adoption of section 3110 did not have a significant impact
on the companys consolidated interim financial statements. Effective January 1, 2004, the company adopted Accounting Guideline 13,
Hedging Relationships, (AcG 13), a new accounting guideline issued by the
CICA addressing identification, designation, documentation and effectiveness of
hedging relationships for the purposes of applying hedge accounting. Under AcG
13, hedge designation of derivative financial instruments is only allowed if,
both at the inception of the hedge and throughout the hedge period, the changes
in the fair value or cash flows of the derivative instruments are expected to
substantially offset the fair value or cash flows of the underlying asset,
liability or anticipated transaction. Realized and unrealized gains and losses
on derivative financial instruments designated as hedges of financial risks are
included in income in the same period as when the underlying asset, liability
or anticipated transaction affects income. The adoption of AcG 13 did not have
a significant impact on the companys consolidated interim financial
statements. The company has adopted CICA Emerging Issue Committee Abstract 140, Accounting
for Operating Leases Acquired in Either an Asset Acquisition or Business
Combination, (EIC 140), issued in September 2003. EIC 140 requires that when
a company acquires real estate in either an asset acquisition or business
combination, a portion of the purchase price should be allocated to the
in-place leases to reflect the intangible amounts of leasing costs, above or
below market leases and tenant relationship values, if any. These intangible
costs are amortized over their respective lease terms. The adoption of EIC 140
did not have a significant impact on the companys consolidated interim
financial statements. FORWARD-LOOKING STATEMENTS This interim report to shareholders contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended,
and, Section 21E of the Securities Exchange Act of 1934, as amended. The words
believe, expect, anticipate, intend, estimate and other expressions
which are predictions of or indicate future events and trends and which do not
relate to historical matters identify forward-looking statements. Reliance
should not be placed on forward-looking statements because they involve known
and unknown risks, uncertainties and other factors, which may cause the actual
results, performance or achievements of the company to differ materially from
anticipated future results, performance or achievement expressed or implied by
such forward-looking statements. Factors that could cause actual results to
differ materially from those set forth in the forward-looking statements
include general economic conditions, local real estate conditions, timely
re-leasing of occupied square footage upon expiration, interest rates,
availability of equity and debt financing and other risks detailed from time to
time in the documents filed by the company with the securities regulators in
Canada and the United States. The company undertakes no obligation to publicly
update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise. 12
    
    Brookfield Properties Corporation




---



##### 



USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. In particular, estimates are
required in the determination of: future cash flows utilized in assessing net
recoverable amounts and net realizable values; depreciation and amortization;
value of goodwill and intangible assets; ability to utilize tax losses; hedge
effectiveness; and fair values for disclosure purposes. These estimates are
impacted by, among other things, movements in interest rates and other factors
as described in the analysis of business environment and risks included in our
annual MD&A. The interrelated and complex nature of these factors prevents us
from quantifying the overall impact of movements on the companys financial
statements. ADDITIONAL INFORMATION A supplementary information package with more detailed financial information is
posted on Brookfields Web site and should be read in conjunction with this
Interim Report. -s- Craig J. Laurie Craig J. Laurie
Senior Vice President and Chief Financial Officer October 29, 2004 DIVIDENDS PAID Dividends paid per share by the company during the first nine months of 2004
and in the past three fiscal years are as follows: Sept. 30, 2004
    
    Dec. 31, 2003
    
    Dec. 31, 2002
    
    Dec. 31, 2001Common shares(1) (US$)
    
    $
    0.4600
    
    
    $
    0.5000
    
    
    $
    0.4000
    
    
    $
    0.3300Class A preferred shares (C$)
    
    
    0.1406
    
    
    
    0.1875
    
    
    
    0.1875
    
    
    
    0.1875Class AA Series E preferred shares (C$)
    
    
    0.5256
    
    
    
    0.8202
    
    
    
    0.7272
    
    
    
    1.1009Class AAA Series A preferred shares (C$)
    
    
    
    
    
    
    
    
    
    
    1.6521
    
    
    
    2.2500Class AAA Series B preferred shares (C$)
    
    
    
    
    
    
    
    
    
    
    1.6521
    
    
    
    2.2500Class AAA Series C preferred shares (C$)
    
    
    
    
    
    
    1.2356
    
    
    
    2.0000
    
    
    
    2.0000Class AAA Series D preferred shares (C$)
    
    
    
    
    
    
    1.2356
    
    
    
    2.0000
    
    
    
    2.0000Class AAA Series F preferred shares (C$)
    
    
    1.1250
    
    
    
    1.5000
    
    
    
    0.3986
    
    
    
    Class AAA Series G preferred shares (US$)
    
    
    0.9844
    
    
    
    0.7237
    
    
    
    
    
    
    
    Class AAA Series H preferred shares (C$)
    
    
    1.0781
    
    
    
    0.3033
    
    
    
    
    
    
    
    Class AAA Series I preferred shares (C$)
    
    
    0.9750
    
    
    
    
    
    
    
    
    
    
    
    Class AAA Series J preferred shares (C$)
    
    
    0.5208
    
    
    
    
    
    
    
    
    
    
    
    
  (1)
    
    The 2003 common share dividend excludes the distribution of Brookfield Homes Corporation. Q3/2004 INTERIM REPORT
    
    
    13




---



##### 



Consolidated Financial Statements CONSOLIDATED BALANCE SHEET Sept. 30, 2004
    
    Dec. 31, 2003(Millions)
    
    Note
    
    Unaudited
    
    AuditedAssetsCommercial properties
    
    
    3
    
    
    $
    6,626
    
    
    $
    6,297Development properties
    
    
    4
    
    
    
    691
    
    
    
    684Receivables and other
    
    
    5
    
    
    
    691
    
    
    
    717Marketable securities
    
    
    6
    
    
    
    286
    
    
    
    267Cash and cash equivalents
    
    
    
    
    
    
    96
    
    
    
    132$
    8,390
    
    
    $
    8,097LiabilitiesCommercial property debt
    
    
    7
    
    
    $
    4,524
    
    
    $
    4,537Accounts payable and other liabilities
    
    
    8
    
    
    
    551
    
    
    
    545Future income tax liability
    
    
    
    
    
    
    106
    
    
    
    18Shareholders interestsInterests of others in properties
    
    
    9
    
    
    
    50
    
    
    
    81Preferred sharesSubsidiaries
    
    
    10
    
    
    
    425
    
    
    
    415Corporate
    
    
    10
    
    
    
    732
    
    
    
    586Common shares
    
    
    11
    
    
    
    2,002
    
    
    
    1,915$
    8,390
    
    
    $
    8,097
 See accompanying notes to the consolidated interim financial statements. CONSOLIDATED STATEMENT OF RETAINED EARNINGS Unaudited
    
    Three months ended Sept. 30
    
    Nine months ended Sept. 30(Millions)
    
    2004
    
    2003
    
    2004
    
    2003Retained
earnings - beginning of period
    
    $
    845
    
    
    $
    692
    
    
    $
    797
    
    
    $
    630Net income
    
    
    50
    
    
    
    50
    
    
    
    186
    
    
    
    153Shareholder distributionsPreferred share dividends
    
    
    (11
    )
    
    
    (5
    )
    
    
    (29
    )
    
    
    (14
    )Common share dividends
    
    
    (25
    )
    
    
    (23
    )
    
    
    (72
    )
    
    
    (55
    )Amount paid in excess of the book value of common shares
purchased for cancellation
    
    
    
    
    
    
    (2
    )
    
    
    (23
    )
    
    
    (2
    )Retained earnings, end of period
    
    $
    859
    
    
    $
    712
    
    
    $
    859
    
    
    $
    712
 14
    
    Brookfield Properties Corporation




---



##### 



CONSOLIDATED STATEMENT OF INCOME Unaudited
    
    
    
    
    
    Three months ended Sept. 30
    
    Nine months ended Sept. 30(Millions, except per share amounts)
    
    Note
    
    2004
    
    2003
    
    2004
    
    2003Total revenue
    
    
    
    
    
    $
    345
    
    
    $
    320
    
    
    $
    1,052
    
    
    $
    916Net operating incomeCommercial property operationsOperating income from properties
    
    
    
    
    
    $
    168
    
    
    $
    151
    
    
    $
    513
    
    
    $
    453Lease termination income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    60
    
    
    
    Total commercial property operations
    
    
    
    
    
    
    168
    
    
    
    151
    
    
    
    573
    
    
    
    453Development and residential operations
    
    
    
    
    
    
    11
    
    
    
    7
    
    
    
    29
    
    
    
    21Interest and other
    
    
    
    
    
    
    11
    
    
    
    16
    
    
    
    36
    
    
    
    45190
    
    
    
    174
    
    
    
    638
    
    
    
    519ExpensesInterest
    
    
    
    
    
    
    67
    
    
    
    66
    
    
    
    201
    
    
    
    203Administrative and development
    
    
    
    
    
    
    10
    
    
    
    11
    
    
    
    31
    
    
    
    33Interests of others in properties
    
    
    
    
    
    
    5
    
    
    
    6
    
    
    
    16
    
    
    
    16Income before undernoted
    
    
    
    
    
    
    108
    
    
    
    91
    
    
    
    390
    
    
    
    267Depreciation and amortization
    
    
    
    
    
    
    36
    
    
    
    20
    
    
    
    105
    
    
    
    58Taxes and other non-cash items
    
    
    
    
    
    
    22
    
    
    
    21
    
    
    
    99
    
    
    
    56Net income
    
    
    
    
    
    $
    50
    
    
    $
    50
    
    
    $
    186
    
    
    $
    153Net
income per share  basic
    
    
    11
    
    
    $
    0.25
    
    
    $
    0.29
    
    
    $
    1.01
    
    
    $
    0.88Net
income per share  diluted
    
    
    11
    
    
    $
    0.25
    
    
    $
    0.29
    
    
    $
    1.00
    
    
    $
    0.88
 See accompanying notes to the consolidated interim financial statements. Q3/2004 INTERIM REPORT
    
    
    15




---



##### 



CONSOLIDATED STATEMENT OF CASHFLOW Unaudited
    
    Three months ended Sept. 30
    
    Nine months ended Sept. 30(Millions)
    
    2004
    
    2003
    
    2004
    
    2003Operating activitiesNet income
    
    $
    50
    
    
    $
    50
    
    
    $
    186
    
    
    $
    153Depreciation and amortization
    
    
    36
    
    
    
    20
    
    
    
    105
    
    
    
    58Taxes and other non-cash items
    
    
    22
    
    
    
    21
    
    
    
    99
    
    
    
    56108
    
    
    
    91
    
    
    
    390
    
    
    
    267Commercial property tenant improvements
    
    
    (15
    )
    
    
    (5
    )
    
    
    (34
    )
    
    
    (13
    )Other
    
    
    (40
    )
    
    
    22
    
    
    
    49
    
    
    
    15Cashflow from operating activities
    
    
    53
    
    
    
    108
    
    
    
    405
    
    
    
    269Financing activities and capital distributionsCommercial property debt arranged
    
    
    117
    
    
    
    52
    
    
    
    322
    
    
    
    544Commercial property debt repayments
    
    
    (27
    )
    
    
    (125
    )
    
    
    (491
    )
    
    
    (614
    )Subordinated note receivable
    
    
    
    
    
    
    40
    
    
    
    
    
    
    
    98Other advances
    
    
    (4
    )
    
    
    (15
    )
    
    
    (2
    )
    
    
    (14
    )Common shares of Brookfield acquired
    
    
    (1
    )
    
    
    (6
    )
    
    
    (32
    )
    
    
    (93
    )Common shares issued
    
    
    1
    
    
    
    2
    
    
    
    9
    
    
    
    4Preferred shares issued, net
    
    
    
    
    
    
    
    
    
    
    143
    
    
    
    107Preferred shares redeemed
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (74
    )Cashflow retained from (distributed to) other shareholders
    
    
    (2
    )
    
    
    1
    
    
    
    (33
    )
    
    
    (13
    )Preferred share dividends
    
    
    (11
    )
    
    
    (5
    )
    
    
    (29
    )
    
    
    (14
    )Common share dividends
    
    
    (25
    )
    
    
    (23
    )
    
    
    (72
    )
    
    
    (55
    )Cashflow provided by (used in) financing activities
and capital distributions
    
    
    48
    
    
    
    (79
    )
    
    
    (185
    )
    
    
    (124
    )Investment activitiesMarketable securities
    
    
    26
    
    
    
    
    
    
    
    (19
    )
    
    
    Dispositions (acquisitions) of real estate, net
    
    
    (114
    )
    
    
    23
    
    
    
    (174
    )
    
    
    27Development and redevelopment investments
    
    
    (15
    )
    
    
    (44
    )
    
    
    (46
    )
    
    
    (139
    )Capital expenditures
    
    
    (10
    )
    
    
    (5
    )
    
    
    (17
    )
    
    
    (11
    )Cashflow used in investing activities
    
    
    (113
    )
    
    
    (26
    )
    
    
    (256
    )
    
    
    (123
    )Increase (decrease) in cash resources
    
    
    (12
    )
    
    
    3
    
    
    
    (36
    )
    
    
    22Opening cash and cash equivalents
    
    
    108
    
    
    
    95
    
    
    
    132
    
    
    
    76Closing cash and cash equivalents
    
    $
    96
    
    
    $
    98
    
    
    $
    96
    
    
    $
    98
 16
    
    Brookfield Properties Corporation




---



##### 



Notes to the Consolidated Interim Financial Statements NOTE 1. SUMMARY OF ACCOUNTING POLICIES Reference is made to the most recently-issued Annual Report of Brookfield
Properties Corporation (the company) which includes information necessary or
useful to understanding the companys businesses and financial statement
presentation. In particular, the companys significant accounting policies and
practices were presented as Note 1 to the Consolidated Financial Statements
included in that Report, and have been consistently applied in the preparation
of these interim financial statements except for the changes in accounting
policies described in Note 2. Financial information in this report reflects any
adjustments (consisting only of normal recurring adjustments) that are, in the
opinion of management, necessary to reflect a fair statement of results for the
interim periods in accordance with Canadian generally accepted accounting
principles. The results reported in these consolidated interim financial statements should
not be regarded as necessarily indicative of results that may be expected for
the entire year. Certain prior period amounts have been restated or
reclassified to conform to the current periods presentation. NOTE 2. CHANGES IN ACCOUNTING POLICIES Effective January 1, 2004, the company adopted CICA Handbook section 1100,
Generally Accepted Accounting Principles. The section establishes standards
for financial reporting in accordance with Canadian GAAP, and provides guidance
on sources to consult when selecting accounting policies and determining
appropriate disclosures when a matter is not dealt with explicitly in the
primary sources of Canadian GAAP. In particular, this section requires the
company to record income arising from tenant leases and depreciation on
buildings on a straight-line basis. Adoption of this section resulted in
recognition of additional straight-line rental revenue of $16 million and
additional depreciation of $43 million before any tax effects during the nine
months ended September 30, 2004 ($6 million of additional straight-line rental
revenue and $15 million of additional depreciation during the three months
ended September 30, 2004). Effective January 1, 2004, the company adopted CICA Handbook section 3063,
Impairment of Long-Lived Assets. The section provides that an impairment loss
be recognized when the carrying value of an asset exceeds the total
undiscounted cash flows expected from its use and eventual disposition. The
impairment recognized is measured as the amount by which the carrying value
exceeds its fair value. The adoption of section 3063 did not have a significant
impact on the companys consolidated interim financial statements. Effective January 1, 2004, the company adopted CICA Handbook section 3110,
Asset Retirement Obligations. The section addresses the recognition and
re-measurement of obligations associated with the retirement of a tangible
long-lived asset. This standard provides that obligations associated with the
retirement of tangible long-lived assets be recorded as liabilities when those
obligations are incurred, with the amount of the liability initially measured
at fair value. These obligations are capitalized to the book value of the
related long-lived assets and are depreciated over the useful life of the
related asset. The adoption of section 3110 did not have a significant impact
on the companys consolidated interim financial statements. Effective January 1, 2004, the company adopted Accounting Guideline 13,
Hedging Relationships, (AcG 13), a new accounting guideline issued by the
CICA addressing identification, designation, documentation and effectiveness of
hedging relationships for the purposes of applying hedge accounting. Under AcG
13, hedge designation of derivative financial instruments is only allowed if,
both at the inception of the hedge and throughout the hedge period, the changes
in the fair value or cash flows of the derivative instruments are expected to
substantially offset the fair value or cash flows of the underlying asset,
liability or anticipated transaction. Realized and unrealized gains and losses
on derivative financial instruments designated as hedges of financial risks are
included in income in the same period as when the underlying asset, liability
or anticipated transaction affects income. The adoption of AcG 13 did not have
a significant impact on the companys consolidated interim financial
statements. The company has adopted CICA Emerging Issue Committee Abstract 140, Accounting
for Operating Leases Acquired in Either an Asset Acquisition or Business
Combination, (EIC 140), issued in September 2003. EIC 140 requires that when
a company acquires real estate in either an asset acquisition or business
combination, a portion of the purchase price should be allocated to the
in-place leases to reflect the intangible amounts of leasing costs, above or
below market leases and tenant relationship values, if any. These intangible
costs are amortized over their respective lease terms. The adoption of EIC 140
did not have a significant impact on the companys consolidated interim
financial statements. Q3/2004 INTERIM REPORT
    
    
    17




---



##### 



NOTE 3. COMMERCIAL PROPERTIES A breakdown of commercial properties is as follows: (Millions)
    
    Sept. 30, 2004
    
    Dec. 31, 2003Commercial properties
    
    $
    7,172
    
    
    $
    6,748Less: accumulated depreciation
    
    
    (546
    )
    
    
    (451
    )Total
    
    $
    6,626
    
    
    $
    6,297
 NOTE 4. DEVELOPMENT PROPERTIES Development properties include commercial developments, primarily for office
development, and residential land under and held for development. A breakdown
of development properties is as follows: (Millions)
    
    Sept. 30, 2004
    
    Dec. 31, 2003Commercial developments
    
    $
    383
    
    
    $
    349Residential development land
    
    
    308
    
    
    
    335Total
    
    $
    691
    
    
    $
    684
 NOTE 5. RECEIVABLES AND OTHER The components of receivables and other assets are as follows: (Millions)
    
    Sept. 30, 2004
    
    Dec. 31, 2003Receivables and real estate mortgages
    
    $
    476
    
    
    $
    499Prepaid expenses and other assets
    
    
    210
    
    
    
    212Non-core real estate assets held for sale
    
    
    5
    
    
    
    6Total
    
    $
    691
    
    
    $
    717
 NOTE 6. MARKETABLE SECURITIES Marketable securities are comprised of a portfolio of fixed-rate corporate
bonds which are carried at amortized cost with a fair value which approximates
their book value and an average yield of 2.5% and matures over the period of
2005 to 2007. NOTE 7. COMMERCIAL PROPERTY DEBT Predominantly all of the commercial property mortgages are secured by
individual properties without recourse to the company. Approximately 87% of the
companys commercial property debt is due after 2006. Principal RepaymentsWeighted Average
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Sept. 30
    
    Dec. 31Interest Rate at
    
    Remainder
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2009 &
    
    2004
    
    2003(Millions)
    
    Sept. 30, 2004
    
    2004
    
    2005
    
    2006
    
    2007
    
    2008
    
    Beyond
    
    Total
    
    TotalCommercial property
debt
    
    
    6.6
    %
    
    $
    63
    
    
    $
    367
    
    
    $
    162
    
    
    $
    613
    
    
    $
    279
    
    
    $
    3,040
    
    
    $
    4,524
    
    
    $
    4,537
 NOTE 8. ACCOUNTS PAYABLE AND OTHER LIABILITIES The components of the companys accounts payable and other liabilities are as
follows: (Millions)
    
    Sept. 30, 2004
    
    Dec. 31, 2003Accounts payable
    
    $
    310
    
    
    $
    276AdvancesRevolving five-year term facilities
    
    
    122
    
    
    
    119Other
    
    
    119
    
    
    
    150Total
    
    $
    551
    
    
    $
    545
 Advances represent credit facilities which are primarily recourse in nature to
subsidiaries of the company. Advances include a revolving five-year term
facility borrowed from a shareholder and bears interest based on the prime
rate. This revolving facility is convertible at either partys option into a
fixed-rate financing at 9.75% repayable in 2015. Interest expense relating to
these advances for the nine months ended September 30, 2004 were $3 million
($2003 - $3 million) and $1 million during the third quarter of 2004 ($2003 -$1
million). 18
    
    Brookfield Properties Corporation




---



##### 



Other advances are comprised of debt attributable to the land development
business of $119 million (2003 - $150 million). The weighted average interest
rate on these advances as at September 30, 2004 was 4.2% (2003 - 4.4%).
Advances totaling $84 million are due by the end of 2004, and the remaining
balances are due prior to 2009. NOTE 9. INTERESTS OF OTHERS IN PROPERTIES Interests of others in properties include the amounts of common equity related
to other shareholders interests in property ownership entities which are
consolidated in the companys accounts. The balances are as follows: (Millions)
    
    Sept. 30, 2004
    
    Dec. 31, 2003BPO Properties
    
    $
    39
    
    
    $
    72Brookfield Financial Properties
    
    
    11
    
    
    
    9Total
    
    $
    50
    
    
    $
    81
 NOTE 10. PREFERRED SHARES: SUBSIDIARIES AND CORPORATE Subsidiaries and corporate preferred shares outstanding are as follows: a) Subsidiaries The companys subsidiaries have the following preferred shares outstanding: (Millions)
    
    Sept. 30, 2004
    
    Dec. 31, 2003BPO Properties
    
    $
    301
    
    
    $
    294100%-owned subsidiaries
    
    
    124
    
    
    
    121Total
    
    $
    425
    
    
    $
    415
 Dividends paid on preferred shares issued by subsidiaries are a component of
interests of others in properties expense. b) Corporate The company has the following preferred shares outstanding: Shares
    
    Cumulative(Millions, except share information)
    
    Outstanding
    
    Dividend Rate
    
    Sept. 30, 2004
    
    Dec. 31, 2003Class A redeemable voting
    
    
    6,312,000
    
    
    
    7.50
    %
    
    $
    11
    
    
    $
    11Class AA Series E
    
    
    2,000,000
    
    
    70% of bank prime
    
    
    34
    
    
    
    34Class AAA Series F
    
    
    8,000,000
    
    
    
    6.00
    %
    
    
    126
    
    
    
    126Class AAA Series G
    
    
    4,400,000
    
    
    
    5.25
    %
    
    
    110
    
    
    
    110Class AAA Series H
    
    
    8,000,000
    
    
    
    5.75
    %
    
    
    151
    
    
    
    151Class AAA Series I
    
    
    8,000,000
    
    
    
    5.20
    %
    
    
    154
    
    
    
    154Class AAA Series J
    
    
    8,000,000
    
    
    
    5.00
    %
    
    
    146
    
    
    
    Total
    
    
    
    
    
    
    
    
    
    $
    732
    
    
    $
    586
 Dividends paid on preferred shares issued by the company are accounted for as
capital distributions. During the nine months ended
September 30, 2004, the company paid preferred dividends of $29 million
compared with $14 million during the same period of 2003.
During the three months ended September 30, 2004, the company paid preferred
dividends of $11 million compared with $5 million
during the same period of 2003. NOTE 11. COMMON SHARES The companys common equity is comprised of the following: (Millions)
    
    Sept. 30, 2004
    
    Dec. 31, 2003Common shares
    
    $
    1,083
    
    
    $
    1,084Retained earnings and cumulative translation adjustment*
    
    
    919
    
    
    
    831Total
    
    $
    2,002
    
    
    $
    1,915
 *Includes foreign currency
cumulative translation adjustment of $60 million (Dec. 31, 2003 - $34 million). Q3/2004 INTERIM REPORT
    
    
    19




---



##### 



Net income per share and weighted average common shares outstanding are
calculated as follows: Three months ended Sept. 30
    
    Nine months ended Sept. 30(Millions, except per share information)
    
    2004
    
    2003
    
    2004
    
    2003Net income
    
    $
    50
    
    
    $
    50
    
    
    $
    186
    
    
    $
    153Preferred share dividends
    
    
    (11
    )
    
    
    (5
    )
    
    
    (29
    )
    
    
    (14
    )Net income available to common shareholders
    
    $
    39
    
    
    $
    45
    
    
    $
    157
    
    
    $
    139Weighted
average common shares outstanding - basic
    
    
    155.8
    
    
    
    156.2
    
    
    
    156.0
    
    
    
    157.8Net
income per share - basic
    
    $
    0.25
    
    
    $
    0.29
    
    
    $
    1.01
    
    
    $
    0.88Weighted
average common shares outstanding - diluted
    
    
    157.0
    
    
    
    156.9
    
    
    
    157.1
    
    
    
    159.0Net
income per share - diluted
    
    $
    0.25
    
    
    $
    0.29
    
    
    $
    1.00
    
    
    $
    0.88Weighted
average common shares outstanding - basic
    
    
    155.8
    
    
    
    156.2
    
    
    
    156.0
    
    
    
    157.8Unexercised options and warrants
    
    
    1.2
    
    
    
    0.7
    
    
    
    1.1
    
    
    
    1.2Weighted
average common shares outstanding - diluted
    
    
    157.0
    
    
    
    156.9
    
    
    
    157.1
    
    
    
    159.0
 NOTE 12. STOCK-BASED COMPENSATION The company accounts for stock options using the fair value market method.
Under this method, compensation expense for stock options that are direct
awards of stock is measured at fair value at the grant date using an option
pricing model and recognized over the vesting period. Options issued under the companys Share Option Plan vest proportionately over
five years and expire ten years after the grant date. The exercise price is
equal to the market price at the grant date. During the first quarter of 2004, the company granted 975,000 stock options
under the Share Option Plan with an exercise price of $29.42 per share, which
was equal to the market price on the grant date. The compensation expense was
calculated using the Black-Scholes model of valuation, assuming a 10-year term,
16.0% volatility, and an interest rate of 4.6%. NOTE 13. GUARANTEES In the normal course of operations, the company and its consolidated
subsidiaries execute agreements that provide for indemnification and guarantees
to third parties in transactions such as business dispositions, business
acquisitions, sales of assets, sales of services, securitization agreements and
underwriting and agency agreements. In particular, the company provided income
guarantees to the co-owners in connection with the sale of certain properties
in prior years. These guarantees are based on a specified level of contractual
occupancy until July 2007 and a specified rate of return until July 2005. Based
on estimated levels of contractual occupancy and rate of return, the company
has provided for potential payments of $2 million at the time of sale. The company has also agreed to indemnify its directors and certain of its
officers and employees. The nature of substantially all of the indemnification
undertakings prevent the company from making a reasonable estimate of the
maximum potential amount that could be required to pay third parties as the
agreements do not specify a maximum amount and the amounts are dependent upon
the outcome of future contingent events, the nature and likelihood of which
cannot be determined at this time. Historically, neither the company nor its
consolidated subsidiaries have made significant payments nor do they expect to
make any significant payments under such indemnification agreements. NOTE 14. OTHER INFORMATION As at September 30, 2004, Brookfield had approximately $232 million (December
31, 2003 - $562 million) of indebtedness outstanding to Brascan Corporation and
its affiliates. During the first quarter of 2004, the company, based on an
agreement signed in 1997, purchased the land lease on one of its Canadian
properties for an amount equal to its carrying value of $80 million from
Brascan Corporation. Cash taxes paid during the nine months ended September 30, 2004 were
$6 million (2003 - $5 million) and $2 million during
the third quarter of 2004 (2003 - $2
million). Cash interest paid during the nine months ended September 30, 2004
totaled $212 million (2003 - $235 million) and $71 million during the third
quarter of 2004 (2003 - $76 million). NOTE 15. SUBSEQUENT EVENTS On October 22, 2004, the company completed the issuance of C$150 million Class
AAA, Series K preferred shares at a dividend rate of 5.2%. 20
    
    Brookfield Properties Corporation




---



##### 



NOTE 16. SEGMENTED INFORMATION The company and its subsidiaries operate in the United States and Canada within
the commercial property and the residential development business. The following
summary presents segmented financial information for the companys principal
areas of business by industry and geographical location for the nine months
ended September 30: United States
    
    Canada
    
    Total(Millions)
    
    2004
    
    2003
    
    2004
    
    2003
    
    2004
    
    2003Commercial property operationsRental revenues
    
    $
    574
    
    
    $
    526
    
    
    $
    221
    
    
    $
    211
    
    
    $
    795
    
    
    $
    737Lease termination income
    
    
    60
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    60
    
    
    
    Expenses
    
    
    186
    
    
    
    192
    
    
    
    96
    
    
    
    92
    
    
    
    282
    
    
    
    284448
    
    
    
    334
    
    
    
    125
    
    
    
    119
    
    
    
    573
    
    
    
    453Development and residentialRevenues
    
    
    8
    
    
    
    13
    
    
    
    153
    
    
    
    121
    
    
    
    161
    
    
    
    134Expenses
    
    
    7
    
    
    
    13
    
    
    
    125
    
    
    
    100
    
    
    
    132
    
    
    
    1131
    
    
    
    
    
    
    
    28
    
    
    
    21
    
    
    
    29
    
    
    
    21Other revenues
    
    
    12
    
    
    
    20
    
    
    
    24
    
    
    
    25
    
    
    
    36
    
    
    
    45Operating income
    
    
    461
    
    
    
    354
    
    
    
    177
    
    
    
    165
    
    
    
    638
    
    
    
    519Interest expense
    
    
    160
    
    
    
    165
    
    
    
    41
    
    
    
    38
    
    
    
    201
    
    
    
    203Administrative and development
    
    
    15
    
    
    
    15
    
    
    
    16
    
    
    
    18
    
    
    
    31
    
    
    
    33Interests of others in properties
    
    
    4
    
    
    
    1
    
    
    
    12
    
    
    
    15
    
    
    
    16
    
    
    
    16Income before undernoted
    
    
    282
    
    
    
    173
    
    
    
    108
    
    
    
    94
    
    
    
    390
    
    
    
    267Depreciation and amortization
    
    
    73
    
    
    
    40
    
    
    
    32
    
    
    
    18
    
    
    
    105
    
    
    
    58Income before unallocated costs
    
    
    209
    
    
    
    133
    
    
    
    76
    
    
    
    76
    
    
    
    285
    
    
    
    209Taxes and other non-cash items
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    99
    
    
    
    56Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    186
    
    
    $
    153Acquisitions (dispositions) of real estate, net
    
    $
    121
    
    
    $
    (4
    )
    
    $
    53
    
    
    $
    (23
    )
    
    $
    174
    
    
    $
    (27
    )Commercial property tenant improvements
    
    
    27
    
    
    
    4
    
    
    
    7
    
    
    
    9
    
    
    
    34
    
    
    
    13Development and redevelopment investments
    
    
    42
    
    
    
    136
    
    
    
    4
    
    
    
    3
    
    
    
    46
    
    
    
    139Capital expenditures
    
    
    9
    
    
    
    5
    
    
    
    8
    
    
    
    6
    
    
    
    17
    
    
    
    11
 United States
    
    Canada
    
    TotalSept. 30
    
    Dec. 31
    
    Sept. 30
    
    Dec. 31
    
    Sept. 30
    
    Dec. 31(Millions)
    
    2004
    
    2003
    
    2004
    
    2003
    
    2004
    
    2003AssetsCommercial properties
    
    $
    5,101
    
    
    $
    4,842
    
    
    $
    1,525
    
    
    $
    1,455
    
    
    $
    6,626
    
    
    $
    6,297Development properties
    
    
    326
    
    
    
    373
    
    
    
    365
    
    
    
    311
    
    
    
    691
    
    
    
    684Receivables and other
    
    
    342
    
    
    
    334
    
    
    
    349
    
    
    
    383
    
    
    
    691
    
    
    
    717Marketable securities
    
    
    286
    
    
    
    
    
    
    
    
    
    
    
    267
    
    
    
    286
    
    
    
    267Cash and cash equivalents
    
    
    63
    
    
    
    101
    
    
    
    33
    
    
    
    31
    
    
    
    96
    
    
    
    132$
    6,118
    
    
    $
    5,650
    
    
    $
    2,272
    
    
    $
    2,447
    
    
    $
    8,390
    
    
    $
    8,097
 Q3/2004 INTERIM REPORT
    
    
    21




---



##### 



The following summary presents segmented financial information for the
companys principal areas of business by industry and geographical location for
the three months ended September 30: United States
    
    Canada
    
    Total(Millions)
    
    2004
    
    2003
    
    2004
    
    2003
    
    2004
    
    2003Commercial property operationsRental revenues
    
    $
    194
    
    
    $
    174
    
    
    $
    79
    
    
    $
    80
    
    
    $
    273
    
    
    $
    254Expenses
    
    
    69
    
    
    
    66
    
    
    
    36
    
    
    
    37
    
    
    
    105
    
    
    
    103125
    
    
    
    108
    
    
    
    43
    
    
    
    43
    
    
    
    168
    
    
    

    151Development and residentialRevenues
    
    
    3
    
    
    
    3
    
    
    
    58
    
    
    
    47
    
    
    
    61
    
    
    
    50Expenses
    
    
    3
    
    
    
    3
    
    
    
    47
    
    
    
    40
    
    
    
    50
    
    
    
    43
    
    
    
    
    
    
    
    11
    
    
    
    7
    
    
    
    11
    
    
    
    7Other revenues
    
    
    3
    
    
    
    6
    
    
    
    8
    
    
    
    10
    
    
    
    11
    
    
    
    16Operating income
    
    
    128
    
    
    
    114
    
    
    
    62
    
    
    
    60
    
    
    
    190
    
    
    
    174Interest expense
    
    
    53
    
    
    
    53
    
    
    
    14
    
    
    
    13
    
    
    
    67
    
    
    
    66Administrative and development
    
    
    4
    
    
    
    5
    
    
    
    6
    
    
    
    6
    
    
    
    10
    
    
    
    11Interests of others in properties
    
    
    1
    
    
    
    
    
    
    
    4
    
    
    
    6
    
    
    
    5
    
    
    
    6Income before undernoted
    
    
    70
    
    
    
    56
    
    
    
    38
    
    
    
    35
    
    
    
    108
    
    
    
    91Depreciation and amortization
    
    
    25
    
    
    
    14
    
    
    
    11
    
    
    
    6
    
    
    
    36
    
    
    
    20Income before unallocated costs
    
    
    145
    
    
    
    42
    
    
    
    27
    
    
    
    29
    
    
    
    72
    
    
    
    71Taxes and other non-cash items
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22
    
    
    
    21Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    50
    
    
    $
    50Acquisitions (dispositions) of real estate, net
    
    $
    106
    
    
    $
    
    
    
    $
    8
    
    
    $
    (23
    )
    
    $
    114
    
    
    $
    (23
    )Commercial property tenant improvements
    
    
    13
    
    
    
    3
    
    
    
    2
    
    
    
    2
    
    
    
    15
    
    
    
    5Development and redevelopment investments
    
    
    13
    
    
    
    44
    
    
    
    2
    
    
    
    
    
    
    
    15
    
    
    
    44Capital expenditures
    
    
    4
    
    
    
    2
    
    
    
    6
    
    
    
    3
    
    
    
    10
    
    
    
    5
 Quarterly Financial Statistics Unaudited
    
    2004
    
    2003(Millions, except per share amount)
    
    Q3
    
    Q2
    
    Q1
    
    Q4
    
    Q3
    
    Q2
    
    Q1TotalFunds from operations - prior
to lease termination income and gains
    
    $
    108
    
    
    $
    103
    
    
    $
    120
    
    
    $
    94
    
    
    $
    91
    
    
    $
    90
    
    
    $
    86Funds from operations
    
    
    108
    
    
    
    162
    
    
    
    120
    
    
    
    193
    
    
    
    91
    
    
    
    90
    
    
    
    86Net income
    
    
    50
    
    
    
    80
    
    
    
    56
    
    
    
    126
    
    
    
    50
    
    
    
    53
    
    
    
    50Common equity - book value
    
    
    2,002
    
    
    
    1,949
    
    
    
    1,932
    
    
    
    1,915
    
    
    
    1,816
    
    
    
    1,795
    
    
    
    1,773Common shares outstanding
    
    
    155.8
    
    
    
    155.8
    
    
    
    156.4
    
    
    
    156.2
    
    
    
    156.2
    
    
    
    156.3
    
    
    
    158.7Per common share - dilutedFunds from operations - prior to lease termination income and gains
    
    $
    0.62
    
    
    $
    0.60
    
    
    $
    0.70
    
    
    $
    0.56
    
    
    $
    0.55
    
    
    $
    0.53
    
    
    $
    0.51Funds from operations
    
    
    0.62
    
    
    
    0.98
    
    
    
    0.70
    
    
    
    1.19
    
    
    
    0.55
    
    
    
    0.53
    
    
    
    0.51Net income
    
    
    0.25
    
    
    
    0.45
    
    
    
    0.30
    
    
    
    0.75
    
    
    
    0.29
    
    
    
    0.30
    
    
    
    0.29Dividends(1)
    
    
    0.16
    
    
    
    0.15
    
    
    
    0.15
    
    
    
    0.15
    
    
    
    0.15
    
    
    
    0.10
    
    
    
    0.10Book value
    
    
    13.00
    
    
    
    12.68
    
    
    
    12.52
    
    
    
    12.31
    
    
    
    11.71
    
    
    
    11.58
    
    
    
    11.23Market trading price (NYSE) - US$
    
    
    32.26
    
    
    
    28.75
    
    
    
    31.11
    
    
    
    28.70
    
    
    
    23.50
    
    
    
    21.25
    
    
    
    19.65Market trading price (TSX) - C$
    
    
    40.58
    
    
    
    38.22
    
    
    
    40.58
    
    
    
    37.30
    
    
    
    31.69
    
    
    
    29.00
    
    
    
    29.19
 (1) The common share dividends in the first quarter of 2003 excludes the distribution of Brookfield Homes Corporation. 22
    
    Brookfield Properties Corporation




---



##### 



Shareholder Information STOCK EXCHANGE LISTINGS Outstanding atSeptember 30, 2004
    
    Symbol
    
    Stock ExchangeCommon Shares
    
    
    155,848,323
    
    
    BPO
    
    New York / TorontoClass A Preferred SharesSeries A
    
    
    2,050,000
    
    
    Not listed
    
    
    Series B
    
    
    4,262,000
    
    
    Not listed
    
    
    Class AA Preferred SharesSeries E
    
    
    2,000,000
    
    
    Not listed
    
    
    Class AAA Preferred SharesSeries F
    
    
    8,000,000
    
    
    BPO.PR.F
    
    TorontoSeries G
    
    
    4,400,000
    
    
    BPO.PR.U
    
    TorontoSeries H
    
    
    8,000,000
    
    
    BPO.PR.H
    
    TorontoSeries I
    
    
    8,000,000
    
    
    BPO.PR.I
    
    TorontoSeries J
    
    
    8,000,000
    
    
    BPO.PR.J
    
    TorontoSeries K(1)
    
    
    6,000,000
    
    
    BPO.PR.K
    
    Toronto
 (1) Series K were issued subsequent to September 30, 2004. DIVIDEND RECORD AND PAYMENT DATES(2) Record Date
    
    Payment DateCommon Shares(3)
    
    First day of March, June,
September and December
    
    Last day of March, June,
September and DecemberClass A Preferred SharesSeries A, B
    
    First day of March and
September
    
    15th day of March and
SeptemberClass AA Preferred SharesSeries E
    
    15th day of March, June
September and December
    
    Last day of March, June,
September and DecemberClass AAA Preferred SharesSeries F, G, H, I, J and K
    
    15th day of March, June
September and December
    
    Last day of March, June,
September and December
  (2)
    
    All dividends are subject to declaration by the companys Board of
Directors.(3)
    
    Common shareholders resident in the United States will receive payment in
U.S. dollars and shareholders resident in Canada will receive their dividends
in Canadian dollars at the exchange rate on the date of record, unless they
elect otherwise. FIVE YEAR COMMON SHARE DIVIDEND HISTORY (US Dollars)
    
    2000
    
    2001
    
    2002
    
    2003
    
    2004March 31
    
    $
    
    
    
    $
    
    
    
    $
    0.10
    
    
    $
    0.10
    (5)
    
    $
    0.15June 30
    
    
    0.12
    
    
    
    0.13
    
    
    
    0.10
    
    
    
    0.10
    
    
    
    0.15September 30
    
    
    
    
    
    
    0.10
    (4)
    
    
    0.10
    
    
    
    0.15
    
    
    
    0.16December 31
    
    
    0.13
    
    
    
    0.10
    
    
    
    0.10
    
    
    
    0.15
    
    
    
    0.16
  (4)
    
    Effective September 2001, Brookfield initiated a quarterly dividend payment in place of the semi-annual payment.(5)
    
    Excludes the distribution of Brookfield Homes Corporation. Q3/2004 INTERIM REPORT
    
    23




---



##### 



Corporate Information CORPORATE PROFILE Brookfield Properties Corporation owns, develops and manages premier North
American office properties. The Brookfield portfolio comprises 47 commercial
properties and development sites totaling 46 million square feet, including
landmark properties such as the World Financial Center in New York City and BCE
Place in Toronto. Brookfield is inter-listed on the New York and Toronto Stock
Exchanges under the symbol BPO. SHAREHOLDER INQUIRIES Brookfield welcomes inquiries from shareholders, analysts, media
representatives and other interested parties. Questions relating to investor
relations or media inquiries can be directed to Melissa Coley, Vice President,
Investor Relations at (212) 417-7215 or via e-mail at
mcoley@brookfieldproperties.com. Inquiries regarding financial results should
be directed to Craig Laurie, Senior Vice President and Chief Financial Officer
at (212) 417-7040 or via e-mail at claurie@brookfieldproperties.com. Brookfield Properties Corporation One Liberty Plaza
    
    BCE Place, Bay Wellington Tower165 Broadway, 6th Floor
    
    181 Bay Street, Suite 330New York, New York 10006
    
    Toronto, Ontario M5J 2T3Tel: (212) 417-7000
    
    Tel: (416) 369-2300Fax: (212) 417-7196
    
    Fax: (416) 369-2301www.brookfieldproperties.com
 Shareholder questions relating to dividends, address changes and share
certificates should be directed to the companys Transfer Agent: CIBC Mellon Trust Company By mail:
    
    P.O. Box 7010, Adelaide Street Postal Station, Toronto, Ontario, M5C 2W9By courier:
    
    199 Bay Street, Commerce Court West, Securities LevelToronto, Ontario, M5L 1G9Attention: Courier WindowTel:
    
    (800) 387-0825; (416) 643-5500Fax:
    
    (416) 643-5501Web site:
    
    www.cibcmellon.comE-mail:
    
    inquiries@cibcmellon.com
 COMMUNICATIONS We strive to keep our shareholders updated on our progress through a
comprehensive annual report, quarterly interim reports, periodic press releases
and quarterly conference calls. Brookfield maintains a Web site, brookfieldproperties.com, which provides
access to our published reports, press releases, statutory filings,
supplementary information and stock and dividend information as well as summary
information on the company. We maintain an investor relations program and respond to inquiries in a timely
manner. Management meets on a regular basis with investment analysts and
shareholders to ensure that accurate information is available to investors, and
conducts quarterly conference calls and webcasts to discuss the companys
financial results. We strive to disseminate material information about the
companys activities to the media in a timely, factual and accurate manner. (BROOKFIELD LOGO)