##### 



(BROOKFIELD LOGO) FIRST QUARTER REPORTMARCH 31, 2004 FINANCIAL HIGHLIGHTS Unaudited
    
    Three months ended(Millions, except per share amounts)
    
    Mar. 31, 2004
    
    Mar. 31, 2003Funds from operations (FFO)
    
    $
    120
    
    
    $
    86Funds from operations per share - diluted
    
    
    0.70
    
    
    
    0.51Net income
    
    
    56
    
    
    
    50Net income per share - diluted
    
    
    0.30
    
    
    
    0.29
 Dear Shareholders: Our focused strategy of investing in high-barrier, high-growth markets,
pro-actively leasing to solid tenants, along with disciplined asset and capital
management programs, has enabled us to produce consistently strong results. FINANCIAL RESULTS ON TRACK Funds from operations (FFO) increased 37% to $0.70 per share for the three
months ended March 31, 2004, over $0.51 per share during the same period in
2003. Net income increased $6 million for the three months ended March 31, 2004 to
$56 million or $0.30 per share, compared to $50 million or $0.29 per share for
2003. MAJOR INITIATIVES IN THE FIRST QUARTER  >
    
    Acquired Edison Place, 701 9th Street, N.W., in Washington, D.C.for
$167.1 million, including the assumption of $151.6 million of long-term
mortgage debt. The 547,000 square foot, 10-story office building was
completed in 2001 and is fully occupied by the Potomac Electric Power
Company under a 25-year master lease. The transaction marks Brookfields
second acquisition of a major Class A office building in Washington, D.C.,
following the purchase of 1625 Eye St., N.W., in December 2003.>
    
    Refinanced Republic Plazain Denver with a $170 million ten-year
non-recourse mortgage financing at a fixed interest rate of 5.1%,
representing a reduction of approximately 400 basis points from the prior
fixed-rate mortgage financing.>
    
    Sold the companys 20% interest in Gulf Canada Square in Calgary. The
sale occurred following the successful renewal of a 400,000 square foot
lease with Canadian Pacific Railway Company and marked the completion of
the companys strategy to invest, reposition, and monetize unsurfaced
value from this asset, all within a 14-month time frame.




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##### 



>
    
    Repurchased 650,400 common sharesof the company year-to-date at an
average price of $29.59 per share. This brings the total number of shares
repurchased since the inception of the normal course issuer bid to 11.4
million at an average price of $18.91 per share.>
    
    Agreed to issue C$200 million of preferred shareswith a dividend rate of
5.0% subsequent to quarter-end. The issuance further strengthens the
companys balance sheet and reduces its overall cost of capital. Closing
is expected to occur on April 30, 2004. OPERATING HIGHLIGHTS Brookfields markets are beginning to improve, as evidenced by the absorption
of sublease space and modestly declining vacancy rates. At quarter-end, the
company had an occupancy rate of 96.7% in its core markets of New York, Boston,
Washington, D.C., Toronto and Calgary, and an occupancy rate of 93.9% across
the portfolio.  >
    
    Increased current commercial property operating income by $37 million.
During the first quarter of 2004, net operating income from current
commercial property operations was $179 million, compared with $142
million in 2003. The increase includes the contribution from 300 Madison
Avenue in New York and 1625 Eye Street in Washington, D.C., the $16
million net leasing fee realized upon the successful completion of the
sublease at 300 Madison Avenue, and an increment of $5 million of
straight-line rent due to the change in accounting policy.>
    
    Leased 1.2 million square feetof space during the first quarter of 2004,
approximately five times the amount contractually expiring, including: New York  
    
    a twenty-year lease with Cadwalader, Wickersham & Taft for 460,000 square
feet in One World Financial Center. The transaction will result in a
one-time $60 million net gain in the second quarter of 2004 upon the
termination of the existing lease on the space which Cadwalader will occupy;
    
    a fifteen-year lease renewal with Dow Jones & Company for 151,000 square
feet in One World Financial Center; and
    
    a ten-year lease renewal with Fleming, Zulack & Williamson for 44,000
square feet in One Liberty Plaza. Toronto  
    
    a five-year renewal with TD Bank for 187,000 square feet at BCE Place, the
third of BCE Places three anchor tenants to renew in the past twelve
months, further reducing the 2005 rollover exposure in this market. Minneapolis  
    
    a ten-year lease with Target for 94,000 square feet at 33 South
Sixth Street; and
    
    a twelve-year lease with Rider Bennett for
88,000 square feet at 33 South Sixth Street. BROOKFIELD PROPERTIES CORPORATION 2




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>
    
    Earned $8 million from residential land development operations,an
increase of $1 million over the first quarter of 2003, as the housing
market across North America remains strong. DIVIDENDS The Board of Directors of Brookfield declared a quarterly common share dividend
of $0.15 per share, payable on June 30, 2004 to shareholders of record at the
close of business on June 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 and J preferred shares were also declared payable
on June 30, 2004 to shareholders of record at the close of business on June 15,
2004. OUTLOOK As we look to the balance of the year, we expect our pro-active leasing
strategy of reaching out to tenants in advance of maturities wherever possible
will continue to strengthen our financial results. In addition, we will strive
to continue enhancing value for shareholders through the implementation of our
solid growth strategy which includes the acquisition of high-quality properties
in stable, high-growth markets. -s- Gordon E. Arnell Gordon E. ArnellChairman -s- Richard B. Clark Richard B. ClarkPresident & CEO April 28, 2004 Note: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. This interim report makes reference to funds from operations on a total and
per share basis. Management uses funds from operations as a key measure to
evaluate performance and to determine the underlying value of its business.
Shareholders are encouraged to consider both net income and funds from
operations in assessing Brookfields results. Q1/2004 INTERIM REPORT 3




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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 quarter 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 13 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 March 31(Millions, except per share amounts)
    
    2004
    
    2003Total revenue
    
    $
    326
    
    
    $
    295Funds from operations
    
    
    120
    
    
    
    86Funds from operations per share - diluted
    
    
    0.70
    
    
    
    0.51Net income
    
    
    56
    
    
    
    50Net income per share - diluted
    
    
    0.30
    
    
    
    0.29
 (Millions)
    
    Mar. 31, 2004
    
    Dec. 31, 2003Commercial properties
    
    $
    6,493
    
    
    $
    6,297Total assets
    
    
    8,329
    
    
    
    8,097Commercial property debt
    
    
    4,582
    
    
    
    4,537Capital base
    
    
    2,977
    
    
    
    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 45 million square feet of rentable
area and development capacity in which Brookfield has ownership interest 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 85% of
the portfolio on a net operating income basis. In March 2004, the company completed the purchase of Edison Place, 701 9th
Street, N.W. in Washington, D.C for $167.1 million. Located one block from the
MCI Center and directly across the street from the National Portrait Gallery
and Gallery Place Metro Station, Edison Place measures 547,000 square feet,
including 364,000 rentable square feet of office, retail and storage space, and
a 183,000 square foot, five-level underground parking garage containing 418
spaces. The 10-story office building was completed in 2001 and is fully
occupied by the Potomac Electric Power Company under a 25-year lease. This
acquisition accounts for most of the increase in book value of commercial
properties from December 31, 2003. A breakdown of the companys commercial
properties by region is as follows: Leasable
    
    Brookfield
    
    Mar. 31
    
    Dec. 31Area
    
    Owned Interest
    
    2004
    
    2003Region
    
    (000s Sq. Ft.)
    
    (000s Sq. Ft.)
    
    (Millions)
    
    (Millions)New York, New York
    
    
    11,221
    
    
    
    9,506
    
    
    $
    3,517
    
    
    $
    3,531Boston, Massachusetts
    
    
    2,163
    
    
    
    1,103
    
    
    
    331
    
    
    
    333Washington, D.C.
    
    
    1,118
    
    
    
    1,118
    
    
    
    330
    
    
    
    Toronto, Ontario
    
    
    7,021
    
    
    
    4,893
    
    
    
    999
    
    
    
    928Calgary, Alberta
    
    
    6,331
    
    
    
    3,166
    
    
    
    420
    
    
    
    450Denver, Colorado
    
    
    3,017
    
    
    
    2,811
    
    
    
    371
    
    
    
    372Minneapolis, Minnesota
    
    
    3,008
    
    
    
    3,008
    
    
    
    400
    
    
    
    400Other
    
    
    1,275
    
    
    
    1,275
    
    
    
    125
    
    
    
    28335,154
    
    
    
    26,880
    
    
    $
    6,493
    
    
    $
    6,297Office development properties
    
    
    10,292
    
    
    
    8,293
    
    
    
    361
    
    
    
    349Total
    
    
    45,446
    
    
    
    35,173
    
    
    $
    6,854
    
    
    $
    6,646
 BROOKFIELD PROPERTIES CORPORATION 4




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DEVELOPMENT PROPERTIES Development properties increased by $41 million to $725 million as at March 31,
2004 from $684 million at December 31, 2003. The increase is attributable to
additional capitalized costs on our commercial development properties and
acquisitions by the companys land development operations. The company
capitalized approximately $12 million in the first quarter of 2004 related to
the Three World Financial Center project, and will continue to capitalize
similar amounts for the remainder of the year. The company expects to transfer
this project from development properties to commercial properties by the end of
the year. The details of the development property portfolio are as follows: Mar. 31, 2004
    
    Dec. 31, 2003Buildable Sq. Ft
    
    (Millions)
    
    (Millions)
    
    ChangeCommercial developments and infrastructureThree World Financial Center
    
    
    1,200,000
    
    
    $
    224
    
    
    $
    212
    
    
    $
    12Bay-Adelaide Centre
    
    
    1,800,000
    
    
    
    90
    
    
    
    90
    
    
    
    Hudsons Bay Centre
    
    
    1,092,000
    
    
    
    26
    
    
    
    26
    
    
    
    Other:Penn Station
    
    
    2,500,000BCE Place III
    
    
    800,000Republic Plaza
    
    
    400,0003,700,000
    
    
    
    21
    
    
    
    21
    
    
    
    7,792,000
    *
    
    
    361
    
    
    
    349
    
    
    
    12Residential development land and infrastructureUnder development
    
    
    
    
    
    
    210
    
    
    
    210
    
    
    
    Held for development
    
    
    
    
    
    
    154
    
    
    
    125
    
    
    
    29Total
    
    
    
    
    
    $
    725
    
    
    $
    684
    
    
    $
    41
  *
    
    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 8 million square feet of high-quality, centrally-located
development properties in New York and Toronto, the company generally
undertakes developments only when the risk-adjusted returns are adequate and
significant pre-leasing for at least 50% to 60% of the space has been achieved. RECEIVABLES AND OTHER Receivables and other assets decreased to $646 million at March 31, 2004 from
$717 million at December 31, 2003. The decrease is primarily related to a
deposit on the acquisition of a land lease on one of the companys commercial
properties. The components of receivables and other assets are as follows: (Millions)
    
    Mar. 31, 2004
    
    Dec. 31, 2003Receivables and real estate mortgages
    
    $
    413
    
    
    $
    499Prepaid expenses and other assets
    
    
    227
    
    
    
    212Non-core real estate assets held for sale
    
    
    6
    
    
    
    6Total
    
    $
    646
    
    
    $
    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 shorter 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 cost with a fair value equal to their book value and
an average yield of 2.5% which mature over the period of 2005 to 2007. As at
March 31, 2004, cash balances totaled $148 million compared to $132 million at
December 31, 2003. Marketable securities totaled $317 million at March 31,
2004, an increase of $50 million over $267 million held at December 31, 2003,
as excess funds were invested in additional investment-grade corporate bonds. Q1/2004 INTERIM REPORT 5




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COMMERCIAL PROPERTY DEBT Commercial property debt totaled $4,582 million at March 31, 2004, compared
with $4,537 million at December 31, 2003. Commercial property debt at March 31,
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. Commercial property debt maturities for the next five years and
thereafter are as follows: Weighted Average(Millions)
    
    Scheduled
    
    
    
    
    
    
    
    
    
    Interest Rate atYear
    
    Amortizations
    
    Maturities
    
    Total
    
    Mar. 31, 2004Remainder 2004
    
    $
    103
    
    
    $
    121
    
    
    $
    224
    
    
    
    6.9
    %2005
    
    
    133
    
    
    
    60
    
    
    
    193
    
    
    
    7.3
    %2006
    
    
    144
    
    
    
    16
    
    
    
    160
    
    
    
    7.4
    %2007
    
    
    140
    
    
    
    476
    
    
    
    616
    
    
    
    5.1
    %2008
    
    
    158
    
    
    
    116
    
    
    
    274
    
    
    
    6.8
    %2009 and thereafter
    
    
    
    
    
    
    3,115
    
    
    
    3,115
    
    
    
    6.6
    %Total
    
    $
    678
    
    
    $
    3,904
    
    
    $
    4,582
    
    
    
    6.6
    %
 During the quarter, the company refinanced Republic Plaza in Denver with a $170
million, ten-year, fixed-rate mortgage at 5.1% interest. This refinancing
represents a reduction of approximately 400 basis points from the prior
fixed-rate mortgage. The companys bank credit facility is in the form of a three-year revolving
facility totaling $150 million as at March 31, 2004. This facilitys floating
rate has a weighted average interest rate of 2.5% and was drawn in the amount
of $50 million as at March 31, 2004. ACCOUNTS PAYABLE AND OTHER LIABILITIES Accounts payable and other liabilities totaled $717 million at March 31, 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 $310 million at March 31, 2004, compared with $269 million
at December 31, 2003. The components of the companys accounts payable and
other liabilities are as follows: (Millions)
    
    Mar. 31, 2004
    
    Dec. 31, 2003Accounts payable
    
    $
    347
    
    
    $
    276Prepaid lease termination revenue
    
    
    60
    
    
    
    AdvancesRevolving five-year term facilities
    
    
    141
    
    
    
    119Other
    
    
    169
    
    
    
    150Total
    
    $
    717
    
    
    $
    545
 FUTURE INCOME TAXES At March 31, 2004, the company had a future income tax liability of $53 million
compared to $18 million at December 31, 2003, an increase of $35 million due to
the utilization of tax losses. 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)
    
    Mar. 31, 2004
    
    Dec. 31, 2003BPO Properties
    
    $
    37
    
    
    $
    72Brookfield Financial Properties
    
    
    10
    
    
    
    9Total
    
    $
    47
    
    
    $
    81
 BROOKFIELD PROPERTIES CORPORATION 6




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Interests of others in BPO Properties decreased to $37 million at March 31,
2004 from $72 million at December 31, 2003 as a result of the payment of a
special dividend during the quarter. The interests of others in Brookfield
Financial Properties at March 31, 2004 remains consistent with year-end. PREFERRED SHARES - SUBSIDIARIES AND CORPORATE The company and its subsidiaries have approximately $1.0 billion of preferred
equity outstanding as at March 31, 2004  $412 million issued by its
consolidated subsidiaries and $586 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: (Millions)
    
    Mar. 31, 2004
    
    Dec. 31, 2003BPO Properties
    
    $
    291
    
    
    $
    294100% owned subsidiaries
    
    
    121
    
    
    
    121Total
    
    $
    412
    
    
    $
    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
    
    Mar. 31, 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
    
    
    
    154Total
    
    
    
    
    
    
    
    
    
    $
    586
    
    
    $
    586
 Dividends paid on preferred shares issued by the company are accounted for as
capital distributions. During the first quarter of 2004, the company paid
preferred dividends of $9 million compared with $4 million during the same
period of 2003. The increase relates to dividends paid on $415 million of
preferred shares issued during 2003 through three offerings with favorable
dividend rates averaging 5.4%. Subsequent to the quarter-end, the company issued 8,000,000 Class AAA Series J
preferred shares for total proceeds of C$200 million. Proceeds will be utilized
for general corporate purposes including the repayment of corporate debt. See
subsequent event disclosure in Note 15 of the companys consolidated interim
financial statements for further discussions. COMMON SHARES The company has 156.4 million issued and outstanding common shares. On a fully
diluted basis, the company has 160.1 million common shares outstanding,
calculated as follows: Mar. 31, 2004
    
    Dec. 31, 2003Common shares outstanding
    
    
    156,430,603
    
    
    
    156,246,701Unexercised options and warrants
    
    

    3,624,164
    
    
    
    3,306,240Common shares outstanding - diluted
    
    
    160,054,767
    
    
    
    159,552,941Common shares repurchased
    
    
    358,700
    
    
    
    5,006,700
 The fully diluted book value per common share at March 31, 2004 was $12.52
compared with $12.31 at December 31, 2003. Subsequent to the quarter-end the
company repurchased an additional 291,700 shares under its normal course issuer
bid, bringing the total number of common shares repurchased year-to-date to
650,400 common shares at an average price of $29.59 per share. Q1/2004 INTERIM REPORT 7




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RESULTS OF OPERATIONS Total commercial property operations contributed $179 million of net operating
income in 2004, a 19% increase over 2003 net operating income of $150 million.
The increase includes the contribution from 300 Madison Avenue in New York and
1625 Eye Street in Washington, D.C., the net leasing fee realized upon the
successful completion of the sublease at 300 Madison Avenue, and an increment
of $5 million of straight-line rent due to a change in accounting policy. See
Note 2 of the consolidated interim financial statements for further
discussions. Net operating income contributed by current commercial properties totaled $179
million in the first quarter of 2004, an increase of 26% over $142 million
during the same period in 2003. Total net operating income during the first
quarter of 2003 included $8 million of income from the 49% interest in 245 Park
Avenue in New York which was subsequently sold in October 2003. Three months ended March 31 (Millions)
    
    2004
    
    2003Operating income from current properties
    
    $
    179
    
    
    $
    142Operating income from properties sold
    
    
    
    
    
    
    8Net operating income
    
    $
    179
    
    
    $
    150
 COMPONENTS OF NET OPERATING INCOME The components of total net operating income are as follows: Three months ended March 31 (Millions)
    
    2004
    
    2003Rental revenue
    
    $
    271
    
    
    $
    241Property operating costs
    
    
    92
    
    
    
    91Net operating income
    
    $
    179
    
    
    $
    150
 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 in the first quarter over the past two years
is as follows: Three months ended March 31 (Millions)
    
    2004
    
    2003Net operating income prior to straight-line rental income, prior period
    
    $
    150
    
    
    $
    150(a) Contractual increases on in-place leases
    
    
    2
    
    
    
    4(b) Rental increases achieved on in-place rents when re-leased
    
    
    1
    
    
    
    2(c) Lease-up of vacancies
    
    
    
    
    
    
    1(d) Acquisitions, net of dispositions
    
    
    21
    
    
    
    (7
    )(e) Straight-line rental income
    
    
    5
    
    
    
    Net operating income, end of period
    
    $
    179
    
    
    $
    150
 (a) Contractual increases on in-place leases During the three-month period ended March 31, 2004, net operating income
increased $2 million due to contractual increases, compared with $4 million in
2003. 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. (b) Rental increases achieved on in-place rents when re-leased During the first quarter of 2004, higher rental rates on the re-leasing of
space in the portfolio contributed $1 million of increased net operating income
over 2003. At March 31, 2004, average in-place net rents throughout the
portfolio increased to $23 per square foot compared with $21 per square foot at
March 31, 2003. The first quarter 2004 average market rents was $24 per square
foot, consistent with the same period in 2003. BROOKFIELD PROPERTIES CORPORATION 8




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##### 



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 March 31,
2004: Gross
    
    Average
    
    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
    
    
    2,786
    
    
    
    20
    
    
    $
    38
    
    
    $
    50Downtown
    
    
    8,435
    
    
    
    10
    
    
    
    32
    
    
    
    25Boston, Massachusetts
    
    
    2,163
    
    
    
    6
    
    
    
    30
    
    
    
    35Washington, D.C.
    
    
    1,118
    
    
    
    22
    
    
    
    30
    
    
    
    35Toronto, Ontario
    
    
    7,021
    
    
    
    7
    
    
    
    20
    
    
    
    21Calgary, Alberta
    
    
    6,331
    
    
    
    9
    
    
    
    13
    
    
    
    15Denver, Colorado
    
    
    3,017
    
    
    
    4
    
    
    
    14
    
    
    
    16Minneapolis, Minnesota
    
    
    3,008
    
    
    
    8
    
    
    
    9
    
    
    
    13Other
    
    
    1,275
    
    
    
    8
    
    
    
    9
    
    
    
    15Total*
    
    
    35,154
    
    
    
    10
    
    
    $
    23
    
    
    $
    24
  *
    
    Excludes developments. (c) Lease-up of vacancies Contribution to net operating income from lease-ups decreased marginally by $1
million in the first quarter of 2004 compared with the same period in 2003.
Contributions from vacancy lease-ups was greater in the first quarter of 2003
due to vacancies leased in properties acquired in 2000. Brookfields total
portfolio occupancy rate at March 31, 2004 decreased marginally to 93.9% from
94.1% at year-end. A summary of current and historical occupancy levels is as
follows: Mar. 31, 2004
    
    Dec. 31, 2003Total
    
    %
    
    Total
    
    %(000s Sq. Ft.)
    
    Leased
    
    (000s Sq. Ft.)
    
    LeasedNew York, New York
    
    
    11,221
    
    
    
    97.9
    %
    
    
    11,262
    
    
    
    97.7
    %Boston, Massachusetts
    
    
    2,163
    
    
    
    97.7
    %
    
    
    2,163
    
    
    
    97.7
    %Washington, D.C.
    
    
    1,118
    
    
    
    75.8
    %
    
    
    
    
    
    
    Toronto, Ontario
    
    
    7,021
    
    
    
    95.7
    %
    
    
    6,884
    
    
    
    96.1
    %Calgary, Alberta
    
    
    6,331
    
    
    
    98.0
    %
    
    
    7,454
    
    
    
    97.6
    %Denver, Colorado
    
    
    3,017
    
    
    
    83.5
    %
    
    
    3,017
    
    
    
    82.9
    %Minneapolis, Minnesota
    
    
    3,008
    
    
    
    79.1
    %
    
    
    3,008
    
    
    
    74.1
    %Other
    
    
    1,275
    
    
    
    87.9
    %
    
    
    1,851
    
    
    
    90.5
    %Total*
    
    
    35,154
    
    
    
    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. The acquisition of properties,
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 $21 million of net operating income. The sale of properties
decreased net operating income by $7 million in the first quarter of 2003. (e) Straight-line rental income As a result of adopting CICA section 1100, Generally Accepted Accounting
Principles, commencing January 1, 2004, the company recognized an additional
$5 million of straight-line rental income. 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 discussions. DEVELOPMENT AND RESIDENTIAL OPERATIONS Development and residential operations contributed $8 million of income for the
first quarter of 2004, an increase of $1 million from $7 million in 2003. Our
development and residential operations continued to benefit from the low
interest rate environment and are on track to exceed the year 2003 results. Q1/2004 INTERIM REPORT 9




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##### 



INTEREST AND OTHER Interest and other income for the first quarter of 2004 decreased marginally to
$14 million compared with $15 million for the same period in 2003. UNALLOCATED COSTS Unallocated costs were $81 million for the three months ended March 31, 2004,
compared with $86 million in 2003. The amounts are comprised of interest
expense, administrative and development expenses and other shareholders
interests expenses, as follows: Interest expense Interest expense decreased 6% to $66 million in the first quarter of 2004,
compared with $70 million in 2003. This decrease is primarily a result of the
reduction of debt through amortization and the sale of a 49% interest in 245
Park Avenue in New York in October 2003, offset partially by the placement of
investment-grade debt on acquisitions. Administrative and development expenses Administrative costs for the first quarter of 2004 decreased to $10 million
from $11 million in 2003, as the company implemented cost reduction initiatives
during the first quarter. Other shareholders interests expenses Other shareholders interests in the income from properties, 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. These costs remained
consistent with 2003. DEPRECIATION EXPENSES Depreciation expense was $34 million for the first quarter of 2004, an increase
of $16 million over the $18 million incurred for the same period during 2003.
The majority of this increase was due to additional depreciation and
amortization recognized with the adoption of CICA section 1100 requiring a
change to a straight-line basis. See Note 2 to the consolidated interim
financial statements for further discussions. NET INCOME Brookfields net income per share during the first quarter of 2004 increased to
$0.30 per diluted share, calculated as follows: Three months ended March 31(Millions, except per share amounts)
    
    2004
    
    2003Net income
    
    $
    56
    
    
    $
    50Preferred share dividends
    
    
    (9
    )
    
    
    (4
    )Net income for common shares
    
    $
    47
    
    
    $
    46Weighted average shares outstanding
    
    
    157.5
    
    
    
    161.4Net income per share - diluted
    
    $
    0.30
    
    
    $
    0.29
 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 for common
shareholders. Brookfields funds from operations, defined as income from commercial
properties prior to non-cash taxes, depreciation and amortization, 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 it to reinvest and retain cash
generated by operations without incurring cash taxes. As at March 31, 2004, Brookfield had approximately $415 million (December 31,
2003  $562 million) of unsecured indebtedness outstanding to Brascan
Corporation and its affiliates. In March 2004, the company, based on an
agreement signed in 1997, purchased the land lease on one of its Canadian
properties with a carrying value of $80 million from an affiliate of 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 where 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 the
property, and as a result, enhances equity returns. BROOKFIELD PROPERTIES CORPORATION 10




---



##### 



CONTRACTUAL OBLIGATIONS The following table presents contractual obligations of the company over the
next five years: Payments due by periodTotal
    
    Less than 1 year
    
    1-3 years
    
    4-5 years
    
    After 5 yearsCommercial property debt
    
    $
    4,582
    
    
    $
    224
    
    
    $
    969
    
    
    $
    442
    
    
    $
    2,947Other obligations
    
    
    310
    
    
    
    140
    
    
    
    29
    
    
    
    
    
    
    
    141Total obligations
    
    $
    4,892
    
    
    $
    364
    
    
    $
    998
    
    
    $
    442
    
    
    $
    3,088
 Other obligations include shareholder advances and debt attributable to the
land development operations. See Note 8 of the consolidated interim financial
statements for further discussions on other obligations. 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 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 net income
determined in accordance with GAAP. Brookfields strong tenant base and pro-active leasing strategies contributed
to an increase in FFO of 37% to $0.70 per share during the first quarter of
2004 compared with $0.51 per share during the same period in 2003. 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. Financial instruments that are not designated as hedges are carried at
estimated fair values, and gains and losses arising from changes in fair values
are recognized in income in the period the changes occur. The use of
non-hedging derivative contracts is governed by documented risk management
policies and approved limits. 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 on four markets: Calgary, Edmonton and
Toronto in Canada and Denver 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 $5 million and
additional depreciation of $13 million before any tax effects during the first
quarter of 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 Q1/2004 INTERIM REPORT 11




---



##### 



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. 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 April 28, 2004 Dividends paid by the company in the first quarter of 2004 and in the past
three fiscal years are as follows. Mar. 31, 2004
    
    Dec. 31, 2003
    
    Dec. 31, 2002
    
    Dec. 31, 2001Common shares(1) (US$)
    
    $
    0.15
    
    
    $
    0.50
    
    
    $
    0.40
    
    
    $
    0.33Class A preferred shares (C$)
    
    
    0.0469
    
    
    
    0.1875
    
    
    
    0.1875
    
    
    
    0.1875Class AA Series E preferred shares (C$)
    
    
    0.1915
    
    
    
    0.8202
    
    
    
    0.7272
    
    
    
    1.1009Class AAA Series A preferred shares (C$)
    
    
    
    
    
    
    
    
    
    
    1.6521
    
    
    
    2.25Class AAA Series B preferred shares (C$)
    
    
    
    
    
    
    
    
    
    
    1.6521
    
    
    
    2.25Class AAA Series C preferred shares (C$)
    
    
    
    
    
    
    1.2356
    
    
    
    2.00
    
    
    
    2.00Class AAA Series D preferred shares (C$)
    
    
    
    
    
    
    1.2356
    
    
    
    2.00
    
    
    
    2.00Class AAA Series F preferred shares (C$)
    
    
    0.3750
    
    
    
    1.50
    
    
    
    0.3986
    
    
    
    Class AAA Series G preferred shares (US$)
    
    
    0.3281
    
    
    
    0.7237
    
    
    
    
    
    
    
    Class AAA Series H preferred shares (C$)
    
    
    0.3594
    
    
    
    0.3033
    
    
    
    
    
    
    
    
  (1)
    
    The 2003 common share dividend excludes the distribution of Brookfield Homes. BROOKFIELD PROPERTIES CORPORATION 12




---



##### 



Consolidated Financial Statements Consolidated Balance Sheet Mar. 31
    
    Dec. 312004
    
    2003(US Millions)
    
    Note
    
    Unaudited
    
    AuditedAssetsCommercial properties
    
    
    3
    
    
    $
    6,493
    
    
    $
    6,297Development properties
    
    
    4
    
    
    
    725
    
    
    
    684Receivables and other
    
    
    5
    
    
    
    646
    
    
    
    717Marketable securities
    
    
    6
    
    
    
    317
    
    
    
    267Cash and cash equivalents
    
    
    
    
    
    
    148
    
    
    
    132$
    8,329
    
    
    $
    8,097LiabilitiesCommercial property debt
    
    
    7
    
    
    $
    4,582
    
    
    $
    4,537Accounts payable and other liabilities
    
    
    8
    
    
    
    717
    
    
    
    545Future income tax liability
    
    
    
    
    
    
    53
    
    
    
    18Shareholders interestsInterests of others in properties
    
    
    9
    
    
    
    47
    
    
    
    81Preferred sharesSubsidiaries
    
    
    10
    
    
    
    412
    
    
    
    415Corporate
    
    
    10
    
    
    
    586
    
    
    
    586Common shares
    
    
    11
    
    
    
    1,932
    
    
    
    1,915$
    8,329
    
    
    $
    8,097
 See accompanying notes to the consolidated interim financial statements. Consolidated Statement of Retained Earnings Unaudited
    
    Three months ended March 31(US Millions)
    
    2004
    
    2003Retained earnings - beginning of period
    
    $
    797
    
    
    $
    630Net income
    
    
    56
    
    
    
    50Shareholder distributionsPreferred share dividends
    
    
    (9
    )
    
    
    (4
    )Common share dividends
    
    
    (23
    )
    
    
    (16
    )Amount paid in excess of the book value of common shares
purchased for cancellation
    
    
    (7
    )
    
    
    Retained earnings - end of period
    
    $
    814
    
    
    $
    660
 See accompanying notes to the consolidated interim financial statements. Q1/2004 INTERIM REPORT 13




---



##### 



Consolidated Statement of Income Unaudited
    
    Three months ended March 31(US Millions, except per share amounts)
    
    2004
    
    2003Total revenue
    
    $
    326
    
    
    $
    295Net operating incomeCommercial property operationsOperating income from current properties
    
    $
    179
    
    
    $
    142Operating income from properties sold
    
    
    
    
    
    
    8Total commercial property operations
    
    
    179
    
    
    
    150Development and residential operations
    
    
    8
    
    
    
    7Interest and other
    
    
    14
    
    
    
    15201
    
    
    
    172ExpensesInterest
    
    
    66
    
    
    
    70Administrative and development
    
    
    10
    
    
    
    11Interests of others in properties
    
    
    5
    
    
    
    5Income before undernoted
    
    
    120
    
    
    
    86Depreciation and amortization
    
    
    34
    
    
    
    18Taxes and other non-cash items
    
    
    30
    
    
    
    18Net income
    
    $
    56
    
    
    $
    50Net income per share - basic and diluted
    
    $
    0.30
    
    
    $
    0.29
 See accompanying notes to the consolidated interim financial statements. BROOKFIELD PROPERTIES CORPORATION 14




---



##### 



Consolidated Statement of Cashflow Unaudited
    
    Three months ended Mar. 31(US Millions)
    
    2004
    
    2003Operating activitiesNet income
    
    $
    56
    
    
    $
    50Depreciation and amortization
    
    
    34
    
    
    
    18Taxes and other non-cash items
    
    
    30
    
    
    
    18120
    
    
    
    86Commercial property tenant improvements
    
    
    (8
    )
    
    
    (6
    )Other
    
    
    185
    
    
    
    (29
    )Cashflow from operating activities
    
    
    297
    
    
    
    51Financing activities and capital distributionsCommercial property debt arranged
    
    
    205
    
    
    
    467Commercial property debt repayments
    
    
    (291
    )
    
    
    (416
    )Subordinated note receivable
    
    
    
    
    
    
    34Other advances
    
    
    1
    
    
    
    4Common shares of Brookfield acquired
    
    
    (11
    )
    
    
    (33
    )Common shares issued
    
    
    7
    
    
    
    1Cashflow (distributed to) retained from other shareholders
    
    
    (33
    )
    
    
    2Preferred share dividends
    
    
    (9
    )
    
    
    (4
    )Common share dividends
    
    
    (23
    )
    
    
    (16
    )Cashflow (used in) provided from financing activities and capital distributions
    
    
    (154
    )
    
    
    39Investment activitiesMarketable securities
    
    
    (50
    )
    
    
    (Acquisitions) dispositions of real estate, net
    
    
    (60
    )
    
    
    4Development and redevelopment investments
    
    
    (14
    )
    
    
    (52
    )Capital expenditures
    
    
    (3
    )
    
    
    (2
    )Cashflow used in investing activities
    
    
    (127
    )
    
    
    (50
    )Increase in cash resources
    
    
    16
    
    
    
    40Opening cash and cash equivalents
    
    
    132
    
    
    
    76Closing cash and cash equivalents
    
    $
    148
    
    
    $
    116
 See accompanying notes to the consolidated interim financial statements. Q1/2004 INTERIM REPORT 15




---



##### 



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. The consolidated interim financial statements are unaudited and follow the
accounting policies summarized in the notes to the consolidated annual
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 $5 million and
additional depreciation of $13 million before any tax effects during the first
quarter of 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. BROOKFIELD PROPERTIES CORPORATION 16




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##### 



NOTE 3. COMMERCIAL PROPERTIES A breakdown of commercial properties is as follows: (Millions)
    
    Mar. 31, 2004
    
    Dec. 31, 2003Commercial properties
    
    $
    6,974
    
    
    $
    6,748Less: accumulated depreciation
    
    
    (481
    )
    
    
    (451
    )Total
    
    $
    6,493
    
    
    $
    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)
    
    Mar. 31, 2004
    
    Dec. 31, 2003Commercial developments
    
    $
    361
    
    
    $
    349Residential development land
    
    
    364
    
    
    
    335Total
    
    $
    725
    
    
    $
    684
 NOTE 5. RECEIVABLES AND OTHER The components of receivables and other assets are as follows: (Millions)
    
    Mar. 31, 2004
    
    Dec. 31, 2003Receivables and real estate mortgages
    
    $
    413
    
    
    $
    499Prepaid expenses and other assets
    
    
    227
    
    
    
    212Non-core real estate assets held for sale
    
    
    6
    
    
    
    6Total
    
    $
    646
    
    
    $
    717
 NOTE 6. MARKETABLE SECURITIES Marketable securities are comprised of a portfolio of fixed-rate corporate
bonds which are carried at cost with a fair value equal to their book value and
an average yield of 2.5% which mature 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. Weighted Average
    
    Principal Repayments
    
    Mar. 31
    
    Dec. 31Interest Rate at
    
    Remainder
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2009 &
    
    2004
    
    2003(Millions)
    
    March 31, 2004
    
    2004
    
    2005
    
    2006
    
    2007
    
    2008
    
    Beyond
    
    Total
    
    TotalCommercial property
debt
    
    
    6.6
    %
    
    $
    224
    
    
    $
    193
    
    
    $
    160
    
    
    $
    616
    
    
    $
    274
    
    
    $
    3,115
    
    
    $
    4,582
    
    
    $
    4,537
 Q1/2004 INTERIM REPORT 17




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NOTE 8. ACCOUNTS PAYABLE AND OTHER LIABILITIES The components of the companys accounts payable and other liabilities are as
follows: (Millions)
    
    Mar. 31, 2004
    
    Dec. 31, 2003Accounts payable
    
    $
    347
    
    
    $
    276Prepaid lease termination revenue
    
    
    60
    
    
    
    AdvancesRevolving five-year term facilities
    
    
    141
    
    
    
    119Other
    
    
    169
    
    
    
    150Total
    
    $
    717
    
    
    $
    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 in the first quarter of 2004 includes $1
million (2003  $1 million) relating to these advances. Other advances are comprised mainly of debt attributable to the land
development business of $169 million (2003  $150 million). The weighted
average interest rate on these advances as at March 31, 2004 was 4.1% (2003 -
4.4 %). Advances totaling $140 million are due by the end of 2004, and the
remaining balances are due prior to 2008. 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)
    
    Mar. 31, 2004
    
    Dec. 31, 2003BPO Properties
    
    $
    37
    
    
    $
    72Brookfield Financial Properties
    
    
    10
    
    
    
    9Total
    
    $
    47
    
    
    $
    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)
    
    Mar. 31, 2004
    
    Dec. 31, 2003BPO Properties
    
    $
    291
    
    
    $
    294100% owned subsidiaries
    
    
    121
    
    
    
    121Total
    
    $
    412
    
    
    $
    415
 Dividends paid on preferred shares issued by subsidiaries are a component of
interests of others in properties expense. BROOKFIELD PROPERTIES CORPORATION 18




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b) Corporate The company has the following preferred shares outstanding: Shares
    
    Cumulative(Millions except share information)
    
    Outstanding
    
    Dividend Rate
    
    Mar. 31, 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
    
    
    
    154Total
    
    
    
    
    
    
    
    
    
    $
    586
    
    
    $
    586
 Dividends paid on preferred shares issued by the company are accounted for as
capital distributions. During the first quarter of 2004, the company paid
preferred dividends of $9 million compared with $4 million during the same
period of 2003. NOTE 11. COMMON SHARES The companys common equity is comprised of the following: (Millions except share information)
    
    Mar. 31, 2004
    
    Dec. 31, 2003Common shares
    
    $
    1,088
    
    
    $
    1,084Retained earnings and cumulative translation adjustment*
    
    
    844
    
    
    
    831Total
    
    $
    1,932
    
    
    $
    1,915Common sharesCommon shares outstanding
    
    
    156,430,603
    
    
    
    156,246,701Unexercised options and warrants
    
    
    3,624,164
    
    
    
    3,306,240Common
shares outstanding  diluted
    
    
    160,054,767
    
    
    
    159,552,941
  *
    
    Includes foreign currency cumulative translation adjustment of $30
million (Dec. 31, 2003 - $34 million). 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, 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. Q1/2004 INTERIM REPORT 19




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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 March 31, 2004, Brookfield had approximately $415 million (December 31,
2003  $562 million) of unsecured indebtedness outstanding to Brascan
Corporation and its affiliates. In March 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 an
affiliate of Brascan Corporation. Cash taxes paid for the three months ended March 31, 2004 were $2 million (2003
- $2 million) and cash interest paid totaled $70 million
(2003 - $81 million). NOTE 15. SUBSEQUENT EVENTS During the quarter, 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 is expected to result in the recognition of
a net gain of approximately $60 million in the second quarter of 2004 upon
termination of the existing lease. In April 2004, the company completed the issuance of C$200 million Class AAA,
Series J preferred shares at a dividend rate of 5.0%. BROOKFIELD PROPERTIES CORPORATION 20




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##### 



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 three months
ended March 31: United States
    
    Canada
    
    Total(Millions)
    
    2004
    
    2003
    
    2004
    
    2003
    
    2004
    
    2003Commercial property operationsRental revenues
    
    $
    196
    
    
    $
    179
    
    
    $
    75
    
    
    $
    62
    
    
    $
    271
    
    
    $
    241Expenses
    
    
    60
    
    
    
    66
    
    
    
    32
    
    
    
    25
    
    
    
    92
    
    
    
    91136
    
    
    
    113
    
    
    
    43
    
    
    
    37
    
    
    
    179
    
    
    
    150Development and residential operationsRevenues
    
    
    2
    
    
    
    3
    
    
    
    39
    
    
    
    36
    
    
    
    41
    
    
    
    39Expenses
    
    
    2
    
    
    
    3
    
    
    
    31
    
    
    
    29
    
    
    
    33
    
    
    
    32
    
    
    
    
    
    
    
    8
    
    
    
    7
    
    
    
    8
    
    
    
    7Other revenues
    
    
    5
    
    
    
    8
    
    
    
    9
    
    
    
    7
    
    
    
    14
    
    
    
    15Operating income
    
    

    141
    
    
    
    121
    
    
    
    60
    
    
    
    51
    
    
    
    201
    
    
    
    172Interest expense
    
    
    53
    
    
    
    58
    
    
    
    13
    
    
    
    12
    
    
    
    66
    
    
    
    70Administrative and development
    
    
    5
    
    
    
    5
    
    
    
    5
    
    
    
    6
    
    
    
    10
    
    
    
    11Interests of others in properties
    
    
    1
    
    
    
    1
    
    
    
    4
    
    
    
    4
    
    
    
    5
    
    
    
    5Income before undernoted
    
    
    82
    
    
    
    57
    
    
    
    38
    
    
    
    29
    
    
    
    120
    
    
    
    86Depreciation and amortization
    
    
    23
    
    
    
    12
    
    
    
    11
    
    
    
    6
    
    
    
    34
    
    
    
    18Income before unallocated costs
    
    
    59
    
    
    
    45
    
    
    
    27
    
    
    
    23
    
    
    
    86
    
    
    
    68Taxes and other non-cash items
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    30
    
    
    
    18Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    56
    
    
    $
    50Acquisitions (dispositions) of real estate, net
    
    $
    15
    
    
    $
    (4
    )
    
    $
    45
    
    
    $
    
    
    
    $
    60
    
    
    $
    (4
    )Commercial property tenant improvements
    
    
    6
    
    
    
    3
    
    
    
    2
    
    
    
    3
    
    
    
    8
    
    
    
    6Development and redevelopment investments
    
    
    12
    
    
    
    50
    
    
    
    2
    
    
    
    2
    
    
    
    14
    
    
    
    52Capital expenditures
    
    
    2
    
    
    
    1
    
    
    
    1
    
    
    
    1
    
    
    
    3
    
    
    
    2
 United States
    
    Canada
    
    TotalMar. 31
    
    Dec. 31
    
    Mar. 31
    
    Dec. 31
    
    Mar. 31
    
    Dec. 31(Millions)
    
    2004
    
    2003
    
    2004
    
    2003
    
    2004
    
    2003AssetsCommercial properties
    
    $
    4,996
    
    
    $
    4,842
    
    
    $
    1,497
    
    
    $
    1,455
    
    
    $
    6,493
    
    
    $
    6,297Development properties
    
    
    401
    
    
    
    373
    
    
    
    324
    
    
    
    311
    
    
    
    725
    
    
    
    684Receivables and other
    
    
    344
    
    
    
    334
    
    
    
    302
    
    
    
    383
    
    
    
    646
    
    
    
    717Marketable securities
    
    
    
    
    
    
    
    
    
    
    317
    
    
    
    267
    
    
    
    317
    
    
    
    267Cash and cash equivalents
    
    
    116
    
    
    
    101
    
    
    
    32
    
    
    
    31
    
    
    
    148
    
    
    
    132$
    5,857
    
    
    $
    5,650
    
    
    $
    2,472
    
    
    $
    2,447
    
    
    $
    8,329
    
    
    $
    8,097
 Q1/2004 INTERIM REPORT 21




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Shareholder Information Stock Exchange Listings Outstanding at March 31, 2004
    
    Symbol
    
    Stock ExchangeCommon Shares
    
    
    156,430,603
    
    
    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
    
    Toronto
 Dividend Record and Payment Dates(1) Record Date
    
    Payment DateCommon
Shares(2)
    
    First day of March, June,
September and December
    
    Last day of March, June,
September and DecemberClass A Preferred SharesSeries A
    
    First day of March and
September
    
    15th day of March and
SeptemberSeries 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
    
    15th day of March, June
September and December
    
    Last day of March, June,
September and DecemberSeries G
    
    15th day of March, June
September and December
    
    Last day of March, June,
September and DecemberSeries H
    
    15th day of March, June
September and December
    
    Last day of March, June,
September and DecemberSeries I
    
    15th day of March, June
September and December
    
    Last day of March, June,
September and DecemberSeries J
    
    15th day of March, June
September and December
    
    Last day of March, June,
September and December
  (1)All dividends are subject to declaration by the companys Board of
Directors.(2)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
    
    
    $
    2.10
    (4)
    
    $
    0.15June 30
    
    
    0.12
    
    
    
    0.13
    
    
    
    0.10
    
    
    
    0.10
    
    
    
    0.15September 30
    
    
    
    
    
    
    0.10
    (3)
    
    
    0.10
    
    
    
    0.15December 31
    
    
    0.13
    
    
    
    0.10
    
    
    
    0.10
    
    
    
    0.15
  (3)
    
    Effective September 2001, Brookfield initiated a quarterly
dividend payment in place of the semi-annual payment.  (4)
    
    Including the distribution of Brookfield Homes Corporation at
a book value of $2.00 per share. BROOKFIELD PROPERTIES CORPORATION 22




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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 45 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 Plaza165 Broadway, 6th Floor
New York, New York 10006
Tel: (212)417-7000
www.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 PostalStation, 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. Q1/2004 INTERIM REPORT 23




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(BROOKFIELD LOGO)