Alexis Nihon Real Estate Investment Trust
TSX : AN.UN

Alexis Nihon Real Estate Investment Trust

November 08, 2006 06:00 ET

Alexis Nihon Announces Third Quarter Results

MONTREAL, QUEBEC--(CCNMatthews - Nov. 8, 2006) - Alexis Nihon Real Estate Investment Trust (TSX:AN.UN) today announced results for the third quarter ended September 30, 2006.

Third Quarter Highlights(i)



- Funds from operations increased 13.8% to $9.7 million
- Funds from operations per unit up 13.3% to $0.375
- Revenues from rental operations increased 10.3% to $33.8 million
- Net operating income rose 13.2% to $18.2 million
- Distributable income grew 9.4% to $8.2 million
- Distributable income payout ratio improved to 86.2% from 93.8%
- Completed acquisition of two properties, further diversifying portfolio

(i) Percentages compare third quarter 2006 results with third quarter
2005 results


"Alexis Nihon's financial results for the third quarter and year to date clearly demonstrate the effectiveness of our growth strategy," noted Paul J. Massicotte, President and Chief Executive Officer. "Our acquisitions and organic growth initiatives over the past year have enhanced the REIT's performance in every category and strengthened our ability to continue generating unitholder value."

"The REIT's continued improvement in funds from operations per unit and distributable income per unit indicate the accretive nature of our expansion initiatives and further strengthen the REIT's capacity to generate distributions to unitholders," said Rene Fortin, Senior Vice President and Chief Financial Officer.

Alexis Nihon acquired two properties during the quarter. In August, the REIT announced the acquisition of an industrial property in the Montreal borough of Pointe Claire. The property holds 40,000 square feet of gross leasable area, all of which is occupied by a single tenant. The $1.9 million acquisition price represents a going-in capitalization rate of 9.1% . In September, the REIT acquired an industrial property in the Montreal borough of Saint-Laurent. The property's 99,900 square feet is occupied by one tenant and the purchase price of $4.0 million equates to a capitalization rate of 9.4% .

"These acquisitions provide further depth to the REIT's property portfolio," said Guy Charron, Executive Vice President and Chief Operating Officer. "In addition, their locations in Saint-Laurent and Pointe Claire, where we already have other industrial properties, provide significant operating synergies."



Financial Highlights
(thousands of dollars except per unit amounts)
---------------------------------------------------------------------------
Period ended September 30 3 months 9 months
---------------------------------------------------------------------------
2006 2005 2006 2005
---------------------------------------------------------------------------
Revenues from rental operations $33,843 $30,671 $102,371 $88,515
---------------------------------------------------------------------------
Net operating income $18,196 $16,069 $54,604 $46,059
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Distributable income (i) $8,249 $7,540 $23,204 $21,741
---------------------------------------------------------------------------
Distributable income per unit
(diluted) (i) $0.305 $0.282 $0.863 $0.819
---------------------------------------------------------------------------
Funds from operations (i) $9,689 $8,514 $29,910 $24,636
---------------------------------------------------------------------------
FFO per unit (i) $0.375 $0.331 $1.159 $0.961
---------------------------------------------------------------------------

(i) Distributable Income and Funds From Operations are non-GAAP measures


Additional Financial Information

The financial statements are attached to this news release. The financial statements with accompanying notes, Management's Discussion and Analysis and Supplemental Information Package will be filed on SEDAR and made available at www.alexisnihon.com.

Conference Call and Webcast

Management will hold a conference call and live audio webcast on Wednesday, November 8, 2006 at 2 p.m. (ET) to discuss the REIT's third quarter performance. The call may be accessed by dialing 1-800-733-7571 or 416-915-5785. The webcast will also be accessible live and will be archived for 60 days at www.alexisnihon.com.

About Alexis Nihon REIT

The REIT currently owns interests in 65 office, retail and industrial properties, including a 426-unit, multi-family residential property, located in the greater Montreal area and the National Capital region. The REIT's portfolio has an aggregate of 9.1 million square feet of leasable area, of which 0.4 million square feet is co-owned.

Readers are cautioned distributable income, distributable income per unit, funds from operations and funds from operations per unit are non Generally Accepted Accounting Policy ("GAAP") measures and should not be construed as an alternative to net earnings and earnings per share determined in accordance with GAAP as an indicator of the REIT's performance. The REIT's methods of calculating these measures may differ from other issuers' methods and accordingly, they may not be comparable to measures used by other issuers.

This document may contain forward-looking statements, relating to Alexis Nihon REIT's operations or to the environment in which it operates, which are based on Alexis Nihon REIT's operations, estimates, forecasts and projections. These statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict, and/or are beyond Alexis Nihon REIT's control. A number of important factors could cause actual outcomes and results to differ materially from those expressed in these forward-looking statements. These factors include those set forth in other public filings. In addition, these forward-looking statements relate to the date on which they are made. Alexis Nihon REIT disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.



Alexis Nihon Real Estate Investment Trust
Consolidated Balance Sheets
(in thousands of dollars)
September 30, December 31,
2006 2005
(unaudited)
---------------------------------------------------------------------------

Assets

Income-producing properties (note 3) $ 697,397 $ 668,746
Intangible assets (note 4) 38,167 39,416
Land held for development 964 964
Other assets (note 5) 25,232 20,960
Due from companies under common control
of certain trustees of the REIT 412 535
---------------------------------------------------------------------------
$ 762,172 $ 730,621
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Liabilities

Debts on income-producing properties (note 6) $ 401,339 $ 370,321
Convertible debentures - liability component 53,571 53,468
Intangible liabilities (note 7) 2,606 3,203
Bank indebtedness (note 8) 57,063 41,969
Accounts payable and accrued liabilities 18,351 20,303
Distributions payable 2,086 2,251
---------------------------------------------------------------------------
535,016 491,515
---------------------------------------------------------------------------

Equity

Units 272,058 270,205
Net income 47,793 40,298
Other equity components 2,852 2,852
Distributions (95,547) (74,249)
---------------------------------------------------------------------------
227,156 239,106
---------------------------------------------------------------------------
$ 762,172 $ 730,621
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See accompanying notes


Alexis Nihon Real Estate Investment Trust
Consolidated Statements of Unitholders' Equity
For the Nine Months Ended September 30
(in thousands of dollars)
(unaudited)

Other
Units Net Equity
in $ Income Components Distributions Total
---------------------------------------------------------------------------
Unitholders'
Equity
December 31,
2005 $ 270,205 $ 40,298 $ 2,852 $ (74,249) $ 239,106
Net income - 7,495 - - 7,495
Units issued
(note 9) 1,853 - - - 1,853
Distributions - - - (21,298) (21,298)
---------------------------------------------------------------------------
Unitholders'
Equity
September 30,
2006 $ 272,058 $ 47,793 $ 2,852 $ (95,547) $ 227,156
---------------------------------------------------------------------------

---------------------------------------------------------------------------
Unitholders'
Equity
December 31,
2004 $ 267,234 $ 34,170 $ 2,852 $ (46,000) $ 258,256
Net income - 4,239 - - 4,239
Units issued
(note 9) 2,618 - - - 2,618
Distributions - - - (21,169) (21,169)
---------------------------------------------------------------------------
Unitholders'
Equity
September 30,
2005 $ 269,852 $ 38,409 $ 2,852 $ (67,169) $ 243,944
---------------------------------------------------------------------------
See accompanying notes


Alexis Nihon Real Estate Investment Trust
Consolidated Statements of Income
For the Three Months and Nine
Months Ended September 30
(in thousands of dollars, except per unit amounts)
(unaudited)

Three Months Ended Nine Months Ended
September 30, September 30,
2006 2005 2006 2005
---------------------------------------------------------------------------

Revenues from Rental
Operations (note 10) $ 33,843 $ 30,671 $ 102,371 $ 88,515
Rental Property
Operating Costs 15,647 14,602 47,767 42,456
---------------------------------------------------------------------------
Net Operating Income 18,196 16,069 54,604 46,059
---------------------------------------------------------------------------

Expenses

Interest (note 11) 7,889 6,919 22,613 19,396
Amortization of buildings 4,156 3,903 12,285 11,179
Other amortization (note 12) 3,856 2,839 10,266 7,737
Internalization of construction
management company - - - 1,613
General and administrative 464 493 1,576 1,561
Trust expenses 108 99 369 334
---------------------------------------------------------------------------
16,473 14,253 47,109 41,820
---------------------------------------------------------------------------
Net Income $ 1,723 $ 1,816 $ 7,495 $ 4,239
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---------------------------------------------------------------------------

Basic Net Income Per Unit
(note 13) $ 0.067 $ 0.071 $ 0.290 $ 0.165
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---------------------------------------------------------------------------

Diluted Net Income Per Unit
(note 13) $ 0.067 $ 0.071 $ 0.290 $ 0.165
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See accompanying notes


Alexis Nihon Real Estate Investment Trust
Consolidated Statements of Cash Flows
For the Three Months and Nine Months Ended September 30
(in thousands of dollars)
(unaudited)

Three Months Ended Nine Months Ended
September 30, September 30,
2006 2005 2006 2005
---------------------------------------------------------------------------

Cash Flows generated from
(used for)
Operating Activities
Net income $ 1,723 $ 1,816 $ 7,495 $ 4,239
Items not affecting cash:
Amortization of buildings 4,156 3,903 12,285 11,179
Other amortization 3,856 2,839 10,266 7,737
Amortization of above and
below market in-place leases (64) (56) (174) (179)
Amortization of deferred
financing costs 207 160 502 476
Amortization of deferred
recoverable costs 43 - 274 -
Accrued rental revenue (484) (360) (733) (1,238)
Internalization of
construction management
company - - - 1,613
Changes in:
Other assets (note 16) 3,026 2,324 (2,530) (5,129)
Accounts payable and
accrued liabilities (1,544) 213 (2,123) 6,723
Additions to tenant
improvements and leasing costs (1,935) (2,017) (6,365) (6,572)
Additions to deferred
recoverable costs (1,021) - (1,670) -
---------------------------------------------------------------------------
Cash Flows generated from
Operating Activities 7,963 8,822 17,227 18,849
---------------------------------------------------------------------------

Financing Activities
Increase in debts on
income-producing properties - 28,968 37,146 32,906
Repayment of debts on
income-producing properties (2,761) (2,323) (16,836) (9,912)
Amortization of fair value
debt adjustment (31) (37) (77) (103)
Accretion on liability
component of convertible
debentures 35 33 103 97
Additions to deferred
financing costs (420) (145) (478) (258)
Bank indebtedness 11,414 (8,458) 15,094 38,029
Distributions (6,351) (6,719) (19,610) (20,253)
---------------------------------------------------------------------------
Cash Flows generated from
Financing Activities 1,886 11,319 15,342 40,506
---------------------------------------------------------------------------

Investing Activities
Acquisition of rental
properties (note 2) (7,910) (17,691) (27,496) (62,884)
Additions to buildings (930) (2,417) (3,315) (6,656)
Additions to furniture,
fixtures and computers - - (46) (70)
Deposits on potential
acquisitions (945) (20) (1,835) 103
Due from companies under
common control of certain
trustees of the REIT (64) (13) 123 152
---------------------------------------------------------------------------
Cash Flows used for
Investing Activities (9,849) (20,141) (32,569) (69,355)
---------------------------------------------------------------------------
Decrease in Cash and Cash
Equivalents - - - (10,000)
Cash and Cash Equivalents
- Beginning of Period - - - 10,000
---------------------------------------------------------------------------
Cash and Cash Equivalents
- End of Period $ - $ - $ - $ -
---------------------------------------------------------------------------
See accompanying notes


Alexis Nihon Real Estate Investment Trust

Notes to Consolidated Financial Statements
September 30, 2006

(dollar amounts are in thousands, except per unit amounts) (unaudited)


1. Description of the REIT

Alexis Nihon Real Estate Investment Trust (the "REIT") is an unincorporated closed-ended investment trust created by a contract of trust (the "Contract of Trust"). The REIT was established under, and is governed by, the laws of the Province of Quebec.

The accompanying unaudited interim consolidated financial statements are prepared in accordance with Canadian Generally Accepted Accounting Principles ("GAAP"). These consolidated financial statements are prepared using the same accounting policies and application thereof as the consolidated financial statements for the year ended December 31, 2005. They do not include all the information and disclosure required by Canadian GAAP for annual financial statements, and should be read in conjunction with the December 31, 2005 consolidated financial statements. Certain prior period figures have been reclassified to conform to the current period's presentation.

2. Acquisition of Rental Properties

The REIT acquired during the three months ending September 30, 2006 two industrial rental properties, in addition to two industrial rental properties and six retail rental properties during the second quarter of 2006. The following summarizes the net assets acquired:



Retail Industrial Total
Properties Properties Nine Months
---------------------------------------------------------------------------

Land $ 3,949 $ 8,757 $ 12,706
Buildings 6,845 11,484 18,329
Tenant improvements 1,360 - 1,360
Intangible assets and liabilities:
Lease origination costs for
in-place leases 3,130 3,588 6,718
Above market in-place leases - 51 51
Other assets 151 237 388
Accounts payable and accrued
liabilities (136) (35) (171)
Debt on income-producing property (4,005) - (4,005)
---------------------------------------------------------------------------
Consideration paid for the net
assets acquired $ 11,294 $ 24,082 $ 35,376
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Consideration paid funded by:
Bank indebtedness $ 10,594 $ 16,902 $ 27,496
Deposits 700 400 1,100
Balance of purchase price - 6,780 6,780
---------------------------------------------------------------------------
$ 11,294 $ 24,082 $ 35,376
---------------------------------------------------------------------------
---------------------------------------------------------------------------


The balance of purchase price payable bears interest at 5.5% until June 19, 2007 and 8% thereafter. Monthly repayment of $10 plus interest is payable from June 19, 2008 to June 19, 2009. The remaining balance is due on June 19, 2009. The balance of purchase price payable is grouped with debts on income-producing properties.

The results of operations of income-producing properties are included in the consolidated financial statements from their date of acquisition.



Alexis Nihon Real Estate Investment Trust

Notes to Consolidated Financial Statements
(unaudited)

3.Income-Producing Properties

September 30, December 31,
2006 2005
---------------------------------------------------------------------------
Accumulated Net Carrying Net Carrying
Cost Amortization Amount Amount
---------------------------------------------------------------------------
Land $ 140,641 $ - $ 140,641 $ 127,935
Buildings and tenant
improvements 596,607 48,758 547,849 535,091
Leasing costs 5,930 1,488 4,442 3,841
Tenant improvement
recorded on
acquisitions 2,499 339 2,160 970
Deferred recoverable
costs 2,859 554 2,305 909
---------------------------------------------------------------------------
$ 748,536 $ 51,139 $ 697,397 $ 668,746
---------------------------------------------------------------------------
---------------------------------------------------------------------------


4. Intangible Assets

September 30, December 31,
2006 2005
---------------------------------------------------------------------------
Accumulated Net Carrying Net Carrying
Cost Amortization Amount Amount
---------------------------------------------------------------------------

Lease origination costs
for in-place leases $ 56,065 $ 19,048 $ 37,017 $ 37,894
Above market in-place
leases 2,271 1,121 1,150 1,522
---------------------------------------------------------------------------
$ 58,336 $ 20,169 $ 38,167 $ 39,416
---------------------------------------------------------------------------
---------------------------------------------------------------------------


5. Other Assets

September 30, December 31,
2006 2005
---------------------------------------------------------------------------

Accounts receivable $ 3,683 $ 5,345
Deferred rent receivable 4,335 3,602
Prepaids 7,585 1,386
Deposits on potential acquisitions 1,316 581
Restricted funds 4,494 6,088
Deferred financing costs 3,056 3,080
Furniture, fixtures and computers 635 725
Other 128 153
---------------------------------------------------------------------------
$ 25,232 $ 20,960
---------------------------------------------------------------------------
---------------------------------------------------------------------------


6. Debts on Income-Producing Properties

September 30, December 31,
2006 2005
---------------------------------------------------------------------------

Loans secured by mortgages on income-producing
properties, bearing interest at a weighted
average annual rate of 6.07%, repayable in
blended monthly instalments of $2,885
maturing at various datesno later than
February 5, 2021 $399,103 $ 368,225
Accrued interest 1,992 1,874
---------------------------------------------------------------------------
401,095 370,099
Fair value debt adjustment 244 222
---------------------------------------------------------------------------
$ 401,339 $ 370,321
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Principal repayments of debt on income-producing properties are due as
follows:

Instalment Due on
payments maturity Total
---------------------------------------------------------------------------

2006 $ 2,746 $ 3,912 $ 6,658
2007 10,447 79,326 89,773
2008 8,329 50,034 58,363
2009 6,463 57,211 63,674
2010 6,409 22,745 29,154
Subsequent to 2010 47,746 103,735 151,481
---------------------------------------------------------------------------
82,140 316,963 399,103
Accrued interest 1,992
---------------------------------------------------------------------------
$ 401,095
---------------------------------------------------------------------------
---------------------------------------------------------------------------


7. Intangible Liabilities

September 30, December 31,
2006 2005
---------------------------------------------------------------------------
Accumulated Net Carrying Net Carrying
Cost Amortization Amount Amount
---------------------------------------------------------------------------
Below market in-place
leases $ 4,384 $ 1,778 $ 2,606 $ 3,203
---------------------------------------------------------------------------
---------------------------------------------------------------------------


8. Bank Indebtedness

The REIT's $70,000 credit facility is subject to annual review and consists of a general operating loan available by way of prime rate loans, bankers' acceptances and letters of credit. Borrowings by way of prime rate loans bear interest at prime plus 0.5% per annum. Borrowings by way of bankers' acceptances bear interest at a rate equal to the bankers' acceptance rate plus stamping fees equivalent to 2.25% per annum. The letter of credit facility is limited to $10,000 and bears interest at 1.25% per annum. The credit facility is secured by a first ranking hypothec on three income-producing properties having a net carrying amount of $46,151 and a second ranking hypothec on two income-producing properties having a net carrying amount of $241,955. The terms of the banking agreement require the REIT to meet certain financial covenants.

9. Units Issued and Outstanding

The interests in the REIT are represented by a single class of units which are unlimited in number. Each unit entitles the holder to a single vote and carries the right to participate in all distributions.

Changes to the balance of units issued and outstanding were as follows:



Nine Months Ended Nine Months Ended
September 30, 2006 September 30, 2005
---------------------------------------------------------------------------
Number Number
of units Amounts of units Amounts
---------------------------------------------------------------------------
Balance
- beginning of period 25,754,095 $ 270,205 25,515,935 $ 267,234
Issuance of units:
Internalization of
construction management - - 132,743 1,638
Distribution reinvestment
plan 144,071 1,853 77,395 980
---------------------------------------------------------------------------
Balance - end of period 25,898,166 $ 272,058 25,726,073 $ 269,852
---------------------------------------------------------------------------
---------------------------------------------------------------------------


Unit-Based Compensation Plan

During the three months ended September 30, 2006, the REIT recorded a total compensation expense of $33 (nine months - $100) (three months ended September 30, 2005 - $19 (nine months - $56)) for the various plans.




10. Revenues From Rental Operations

Three Months Ended Nine Months Ended
September 30, September 30,
2006 2005 2006 2005
---------------------------------------------------------------------------

Rental revenue contractually
due under the leases $ 33,295 $ 30,255 $ 101,464 $ 87,098
Accrued rental revenue 484 360 733 1,238
Amortization of above market
in-place leases (130) (128) (423) (366)
Amortization of below market
in-place leases 194 184 597 545
---------------------------------------------------------------------------
$ 33,843 $ 30,671 $ 102,371 $ 88,515
---------------------------------------------------------------------------
---------------------------------------------------------------------------

11. Interest

Three Months Ended Nine Months Ended
September 30, September 30,
2006 2005 2006 2005
---------------------------------------------------------------------------

Interest on debts on
income-producing properties,
at stated rate $ 5,986 $ 5,478 $ 17,681 $ 15,748
Interest on convertible
debentures, at stated rate 853 860 2,558 2,565
Accretion on liability
component of convertible
debentures 35 33 103 97
Amortization of deferred
financing costs 207 160 502 476
Amortization of fair value
debt adjustment (31) (37) (77) (103)
Other interest 839 425 1,846 613
---------------------------------------------------------------------------
$ 7,889 $ 6,919 $ 22,613 $ 19,396
---------------------------------------------------------------------------


Interest paid during the three months ended September 30, 2006 was $6,816
(nine months - $21,114) (three months ended September 30, 2005 - $5,737
(nine months - $17,890)).


12. Other Amortization

Three Months Ended Nine Months Ended
September 30, September 30,
2006 2005 2006 2005
---------------------------------------------------------------------------

Amortization of tenant
improvements and leasing costs
incurred through leasing
activities $ 896 $ 554 $ 2,365 $ 1,472
Amortization of furniture,
fixtures and computers 46 44 136 132
Amortization of lease
origination costs for
in-place leases recorded
on acquisitions 2,845 2,209 7,595 6,038
Amortization of tenant
improvements recorded
on acquisitions 69 32 170 95
---------------------------------------------------------------------------
$ 3,856 $ 2,839 $ 10,266 $ 7,737
---------------------------------------------------------------------------
---------------------------------------------------------------------------

13. Net Income Per Unit Calculations

Basic and diluted per unit amounts are based on the following:

Three Months Ended Three Months Ended
September 30, 2006 September 30, 2005
Basic Diluted Basic Diluted
---------------------------------------------------------------------------
Net income $ 1,723 $ 1,723 $ 1,816 $ 1,816
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Weighted average
number of units
outstanding 25,855,175 25,855,175 25,706,883 25,706,883
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Nine Months Ended Nine Months Ended
September 30, 2006 September 30, 2005
Basic Diluted Basic Diluted
---------------------------------------------------------------------------
Net income $ 7,495 $ 7,495 $ 4,239 $ 4,239
---------------------------------------------------------------------------

Weighted average
number of units
outstanding 25,806,958 25,806,958 25,635,732 25,635,732
---------------------------------------------------------------------------
---------------------------------------------------------------------------


The convertible debentures have been excluded from the calculation of the diluted net income per unit for the periods ending September 30, 2006 and 2005 as they are anti-dilutive.

14. Distributable Income

Distributable income is presented because the REIT believes this measure is a relevant measure of its ability to earn and distribute cash returns to unitholders. Distributable income, which is not defined within Canadian GAAP, has been calculated in accordance with the terms of the Contract of Trust as follows:



Three Months Ended Nine Months Ended
September 30, September 30,
2006 2005 2006 2005
---------------------------------------------------------------------------

Net income $ 1,723 $ 1,816 $ 7,495 $ 4,239
Add (deduct) :
Internalization of construction
management company - - - 1,613
Cancellation fee received - - (3,460) -
Amortization of buildings 4,156 3,903 12,285 11,179
Amortization of amounts
recorded on acquisitions:
Tenant improvements 69 32 170 95
Lease origination costs for
in-place leases 2,845 2,209 7,595 6,038
Above and below market
in-place leases (64) (56) (174) (179)
Accretion on liability component
of convertible debentures 35 33 103 97
Amortization of fair value debt
adjustments (31) (37) (77) (103)
Accrued rental revenue recognized
on a straight-line basis (484) (360) (733) (1,238)
---------------------------------------------------------------------------
Distributable income $ 8,249 $ 7,540 $ 23,204 $ 21,741
---------------------------------------------------------------------------
---------------------------------------------------------------------------


15. Segmented Information

Three Months Ended Multi-family
September 30, 2006 Office Retail Industrial residential Total
---------------------------------------------------------------------------
Revenues from rental
operations $ 15,966 $ 9,531 $ 6,867 $ 1,479 $ 33,843
Rental property
operating costs $ 8,067 $ 4,223 $ 2,516 $ 841 $ 15,647
---------------------------------------------------------------------------
Net operating income $ 7,899 $ 5,308 $ 4,351 $ 638 $ 18,196
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Three Months Ended
September 30, 2005
---------------------------------------------------------------------------
Revenues from rental
operations $ 14,848 $ 8,325 $ 6,108 $ 1,390 $ 30,671
Rental property
operating costs $ 7,809 $ 3,795 $ 2,126 $ 872 $ 14,602
---------------------------------------------------------------------------
Net operating income $ 7,039 $ 4,530 $ 3,982 $ 518 $ 16,069
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Nine Months Ended Multi-family
September 30, 2006 Office Retail Industrial residential Total
---------------------------------------------------------------------------
Revenues from rental
operations $ 47,653 $ 31,026 $ 19,483 $ 4,209 $ 102,371
Rental property
operating costs $ 25,203 $ 12,816 $ 7,281 $ 2,467 $ 47,767
---------------------------------------------------------------------------
Net operating income $ 22,450 $ 18,210 $ 12,202 $ 1,742 $ 54,604
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Income-producing
properties $ 310,156 $ 189,038 $ 164,661 $ 33,542 $ 697,397
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Intangible assets $ 13,737 $ 12,304 $ 12,126 $ - $ 38,167
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Nine Months Ended
September 30, 2005
---------------------------------------------------------------------------
Revenues from rental
operations $ 43,549 $ 25,093 $ 15,819 $ 4,054 $ 88,515
Rental property
operating costs $ 22,498 $ 11,464 $ 5,971 $ 2,523 $ 42,456
---------------------------------------------------------------------------
Net operating income $ 21,051 $ 13,629 $ 9,848 $ 1,531 $ 46,059
---------------------------------------------------------------------------
Income-producing
properties $ 313,028 $ 177,684 $ 145,732 $ 32,751 $ 669,195
---------------------------------------------------------------------------
Intangible assets $ 16,817 $ 11,142 $ 13,873 $ - $ 41,832
---------------------------------------------------------------------------


16. Supplemental Cash Flow Information

Change in Other Assets

Three Months Ended Nine Months Ended
September 30, September 30,
2006 2005 2006 2005
---------------------------------------------------------------------------

Accounts receivable $ 927 $ 471 $ 2,050 $ (855)
Prepaids 3,360 3,228 (6,199) (5,992)
Restricted funds (1,294) (1,398) 1,594 1,889
Other 33 23 25 (171)
---------------------------------------------------------------------------
$ 3,026 $ 2,324 $ (2,530) $ (5,129)
---------------------------------------------------------------------------

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 2006


The following discussion describes the business, the business environment, and management's expectations as at October 27, 2006. It should be read in conjunction with the consolidated financial statements of the Alexis Nihon Real Estate Investment Trust ("the REIT") for the three and nine month periods ended September 30, 2006, including the notes thereto, as well as management's discussion and analysis for the year ended December 31, 2005.

This discussion contains forward-looking statements relating to the REIT's operations and/or to the environment in which it operates, which are based on the REIT's expectations, estimates, forecasts and projections. These statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict, and/or are beyond the REIT's control. A number of important factors may cause actual outcomes and results to differ materially from those expressed in these forward-looking statements. These factors include those set forth in other public filings of the REIT. Therefore, readers should not place undue reliance on any such forward-looking statements. In addition, these forward-looking statements speak only as of the date on which they are made and the REIT disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or circumstances or otherwise.

All amounts reflected in this discussion are in thousands of dollars except for per unit and square foot amounts.

OVERVIEW AND OBJECTIVES

The REIT is an unincorporated closed-end real estate investment trust created pursuant to the Declaration of Trust and is governed by the laws of the Province of Quebec. The REIT began operations on December 20, 2002.

The REIT units and convertible debentures are publicly traded and listed on the Toronto Stock Exchange ("TSX") under the symbols AN.UN and AN.DB respectively. Additional information relating to the REIT is also available on the REIT's website at www.alexisnihon.com and on SEDAR at www.sedar.com.

The objectives of the REIT are:

i. To provide unitholders with stable and growing cash distributions, payable monthly and, to the maximum extent practicable, income tax deferred; and

ii. To improve and maximize unit value through future acquisitions of additional income-producing properties and the ongoing active management or redevelopment of the REIT's properties.

DISTRIBUTION REINVESTMENT PLAN

The REIT has a Unitholder Distribution Reinvestment Plan ("DRIP") providing unitholders with the option of reinvesting their total monthly cash distributions in additional units of the REIT, thereby allowing them to steadily increase their ownership without incurring any commission or other transaction cost. To encourage participation, unitholders registered in the DRIP will also receive additional units equal in value to 3% of the monthly distribution otherwise payable. The Plan is administered by National Bank Trust Inc., the REIT's transfer agent (1-800-341-1419). Please visit our website to download our DRIP brochure.

THIRD QUARTER 2006

On August 1, 2006, the REIT announced the acquisition of a single-tenant industrial property in the Montreal borough of Pointe-Claire for $1,900 representing a going-in capitalization rate of approximately 9.1% . The property measures 40,000 square feet and is 100% occupied. The purchase price was funded by the REIT's credit facilities. In the near future, the REIT intends to put long term financing on the property.

On September 13, 2006, the REIT announced the acquisition of a single-tenant industrial property located in the Montreal borough of St-Laurent. The property measures 99,900 square feet and was acquired for $6,100 representing a going-in capitalization rate of 9.4% . The purchase price was funded by the REIT's credit facilities pending arrangements of mortgage financing.

As of September 30, 2006, the REIT's portfolio consisted of 65 office, retail and industrial properties (including a 426-unit multi-family residential property) aggregating 9.1 million square feet of leasable area of which 0.4 million square feet is co-owned. There are 62 properties located in the Greater Montreal Area and 3 in the National Capital Region. The chart below outlines the REIT's portfolio of properties and square footage:



Property # of properties Leasable area (square feet)
-------------------------------------------------------------
Type Wholly owned Co-owned Wholly owned Co-owned
-------------------------------------------------------------------------
Office 20 - 2,987,677 -
Retail 10 - 1,602,552 -
Industrial 28 7(2) 3,795,396 410,417
Residential -(1) - 300,321 -
-------------------------------------------------------------------------
Total 58 7 8,685,946 410,417
-------------------------------------------------------------------------
-------------------------------------------------------------------------

1. With respect to the "# of properties", Place Alexis Nihon has been
included as one property in the office category. It includes two office
towers, a retail concourse and a multi-family residential component.

2. The REIT owns 25% of 102,032 square feet (3 properties), and 50% of
308,385 square feet (4 properties).


The portfolio has a mix of approximately 950 non-residential tenancies,
including many high quality, national tenants with strong covenants.


FINANCIAL PERFORMANCE

The financial results of the REIT for the last eight quarters are
summarized in the following table:

2004 2005 2006
-----------------------------------------------------------------
Dec. March June Sept. Dec. March June Sept.

Revenues
from
rental
opera-
tions $29,254 $28,988 $28,856 $30,671 $32,981 $32,685 $35,843 $33,843
---------------------------------------------------------------------------
Rental
property
operating
costs 13,838 14,403 13,451 14,602 16,210 16,221 15,899 15,647
---------------------------------------------------------------------------
Net
operating
income 15,416 14,585 15,405 16,069 16,771 16,464 19,944 18,196
---------------------------------------------------------------------------
Interest 6,257 6,137 6,340 6,919 7,017 7,255 7,469 7,889
---------------------------------------------------------------------------
Amortization
of
build-
ings 3,632 3,623 3,653 3,903 4,041 4,020 4,109 4,156
---------------------------------------------------------------------------
Other
amortiz-
ation 2,532 2,383 2,515 2,839 3,119 3,063 3,347 3,856
---------------------------------------------------------------------------
Internaliz-
ation
of
construc-
tion
manage-
ment - 1,613 - - - - - -
---------------------------------------------------------------------------
General
and
admini-
strative 312 276 792 493 589 550 562 464
---------------------------------------------------------------------------
Trust
expenses 49 138 97 99 116 150 111 108
---------------------------------------------------------------------------
12,782 14,170 13,397 14,253 14,882 15,038 15,598 16,473
---------------------------------------------------------------------------
Net
Income 2,634 415 2,008 1,816 1,889 1,426 4,346 1,723
---------------------------------------------------------------------------
Add/
(Deduct) :
---------------------------------------------------------------------------
Amortization
of
build-
ings 3,632 3,623 3,653 3,903 4,041 4,020 4,109 4,156
---------------------------------------------------------------------------
Internal-
ization
of
construc-
tion
manage-
ment - 1,613 - - - - - -
---------------------------------------------------------------------------
Cancellation
fee
received - - - - - - (3,460) -
---------------------------------------------------------------------------
Amortization
of
amounts
recorded
on
acquisi-
tions :
---------------------------------------------------------------------------
Tenant
improve-
ments 7 32 31 32 32 32 69 69
---------------------------------------------------------------------------
Lease
origina-
tion
costs for
in-place
leases 1,742 1,880 1,949 2,209 2,293 2,292 2,458 2,845
---------------------------------------------------------------------------
Above
and
below
market
in-place
leases (153) (58) (65) (56) (53) (56) (54) (64)
---------------------------------------------------------------------------
Accretion
on
liability
component
of
conver-
tible
deben-
tures 42 31 33 33 33 33 35 35
---------------------------------------------------------------------------
Amortization
of fair
value debt
adjust-
ments (33) (33) (33) (37) (23) (23) (23) (31)
---------------------------------------------------------------------------
Accrued
rental
revenue
recognized
on a
straight
-line
basis (508) (462) (416) (360) (466) (335) 86 (484)
---------------------------------------------------------------------------
Distribu-
table
Income
(1) $ 7,363 $ 7,041 $ 7,160 $ 7,540 $ 7,746 $7,389 $ 7,566 $ 8,249
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Distribu-
tions $ 7,017 $ 7,033 $ 7,064 $ 7,072 $ 7,080 $7,088 $ 7,097 $ 7,113

Distribu-
tions
per
unit $ 0.275 $ 0.275 $ 0.275 $ 0.275 $ 0.275 $0.275 $ 0.275 $ 0.275
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Funds
from
opera-
tions
(1) $ 8,730 $ 7,991 $ 8,131 $ 8,514 $ 8,995 $8,465 $11,756 $ 9,689

Funds
from
opera-
tions
per
unit $ 0.342 $ 0.313 $ 0.317 $ 0.331 $ 0.350 $0.329 $ 0.456 $ 0.375
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Net
income
per
unit:
Basic $ 0.103 $ 0.016 $ 0.078 $ 0.071 $ 0.073 $0.055 $ 0.168 $ 0.067

Diluted
(2) $ 0.103 $ 0.016 $ 0.078 $ 0.071 $ 0.073 $0.055 $ 0.168 $ 0.067
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Distribu-
table
income
per
unit:
Basic $ 0.289 $ 0.276 $ 0.279 $ 0.293 $ 0.301 $0.287 $ 0.293 $ 0.319

Diluted $ 0.280 $ 0.267 $ 0.270 $ 0.282 $ 0.289 $0.277 $ 0.282 $ 0.305
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Total
Asse-
ts $663,126 $ 710,104 $ 730,621 $759,853
$ 661,068 $734,089 $ 729,511 $762,172

Total
Debt
(3) $ 388,820 $ 439,422 $ 465,758 $ 503,316
$ 390,247 $ 465,354 $ 473,498 $511,973
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Weighted
average
number
of
units:

Basic 25,506,516 25,677,642 25,736,198 25,800,052
25,520,625 25,706,883 25,764,652 25,855,175

Diluted
(for
net
income)
(2) 25,506,516 25,677,642 25,736,198 25,800,052
25,520,625 25,706,883 25,764,652 25,855,175

Diluted
(for
distri-
butable
in-
come) 29,535,822 29,706,948 29,765,504 29,829,358
29,549,931 29,736,189 29,793,958 29,884,481
---------------------------------------------------------------------------

1. Distributable income and Funds from operations are non-GAAP measures,
see definition on pages 8 and 10.

2. Convertible debentures have been excluded from the calculations of
the diluted net income per unit since they are anti-dilutive.

3. Total debt comprises debts secured by mortgages, bank indebtedness, and
the liability component of convertible debentures.


Factors that have caused period to period variances in the REIT's financial results mainly result from acquisitions of properties completed by the REIT at various times throughout 2005 and 2006.

The period to period increases in the weighted average number of units (basic and diluted) used in calculating per unit amounts result from units issued via:



---------------------------------------------------------------------------
Three Nine
months months
ended ended
---------------------------------------------------------------------------
Year-ended Dec. 31 Sept. 30 Sept. 30
---------------------------------------------------------------------------
2004 2005 2006 2006
---------------------------------------------------------------------------
- the REIT's DRIP 51,531 105,417 62,911 144,071
---------------------------------------------------------------------------
- the acquisition of the assets
of ANC Construction Inc.
(March 2005) - 132,743 - -
---------------------------------------------------------------------------


NET OPERATING INCOME

The quarterly and year-to-date ("YTD") analysis by sector of the REIT's net operating income ("NOI") is explained in greater detail in the following section entitled "Segmented Analysis". In summary, for the quarter ended September 30, 2006, NOI totaled $18,196 (YTD: $54,604) which was a year-over-year ("YOY") increase of $2,127 (YTD: $8,545) or 13.2% (YTD: 18.6%).

Of the increase, $936 (YTD: $4,443) is attributable to the NOI generated from the acquisition of properties acquired at various times YOY. Excluding acquired properties from the 2006 NOI, the same property NOI for the quarter and YTD would have totaled $17,260 (YTD: $50,161) reflecting a positive variance of $1,191 (YTD: $4,102) or 7.4% (YTD: 8.9%) over 2005.



---------------------------------------------------------------------------
Three months Nine months
ended ended
-------------------------------------------
Same property YOY NOI variance Sept. 30, 2006 Sept. 30, 2006
---------------------------------------------------------------------------
- Increase (decrease) in straight-lining
of rents $124 ($505)
---------------------------------------------------------------------------
- Increase (decrease) in amortization of
above and below market in-place leases 8 (5)
---------------------------------------------------------------------------
- Net positive variance associated with
occupancies and redevelopment 620 1,309
---------------------------------------------------------------------------
- Decrease (increase) in non-recoverable
and bad debt expense 218 (202)
---------------------------------------------------------------------------
- Increase in cancellation penalties received 379 3,664
---------------------------------------------------------------------------
- Negative variance in other income (278) (370)
---------------------------------------------------------------------------
- Increase in the residential sector NOI 120 211
---------------------------------------------------------------------------
Net positive variance $1,191 $4,102
---------------------------------------------------------------------------
---------------------------------------------------------------------------


Excluding the YOY impact of straight-lining of rents and other accounting changes, the same property portfolio NOI reflected an increase of $1,059 (YTD: $4,612) or 6.8% (YTD: 10.3%) .



SEGMENTED ANALYSIS

Office Three months ended Nine months ended
Sept. 30, Sept. 30,
---------------------------------------------------------------------------
2005 2006 2005 2006
---------------------------------------------------------------------------
Revenues from rental
operations $14,848 $15,966 $43,549 $47,653
---------------------------------------------------------------------------
Rental property
operating costs 7,809 8,067 22,498 25,203
---------------------------------------------------------------------------
Net operating income $7,039 $7,899 $21,051 $22,450
---------------------------------------------------------------------------
---------------------------------------------------------------------------


Net operating income from office rental operations totaled $7,899 for the quarter (YTD: $22,450) compared with $7,039 (YTD: $21,051) in 2005 representing an increase of $860 (YTD: $1,399) or 12.2% (YTD: 6.6%) . The variance is summarized as follows:



Three months Nine months
ended ended
YOY NOI variance Sept. 30, 2006 Sept. 30, 2006
---------------------------------------------------------------------------
- NOI contribution from properties acquired $357 $1,680
---------------------------------------------------------------------------
- Decrease in straight-lining of rents (50) (118)
---------------------------------------------------------------------------
- Increase in amortization of above and below
market in-place leases 7 24
---------------------------------------------------------------------------
- Positive variance associated with occupancies 82 32
---------------------------------------------------------------------------
- Positive (negative) variance in non-recoverable
and bad debt expense 87 (427)
---------------------------------------------------------------------------
- Increase in cancellation fees received 496 312
---------------------------------------------------------------------------
- Negative variance in other income (119) (104)
---------------------------------------------------------------------------
Net positive variance $860 $1,399
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Retail Three months ended Nine months ended
Sept. 30, Sept. 30,
---------------------------------------------------------------------------
2005 2006 2005 2006
---------------------------------------------------------------------------
Revenues from rental operations $8,325 $9,531 $25,093 $31,026

Rental property operating costs 3,795 4,223 11,464 12,816
---------------------------------------------------------------------------
Net operating income $4,530 $5,308 $13,629 $18,210
---------------------------------------------------------------------------
---------------------------------------------------------------------------


For the quarter, the retail sector net operating income totaled $5,308 (YTD: $18,210) compared with $4,530 (YTD: $13,629) in 2005. The positive variance of $778 (YTD: $4,581) or 17.2% (YTD: 33.6%) is detailed as follows:



Three months Nine months
ended ended
YOY NOI variance Sept. 30, 2006 Sept. 30, 2006
---------------------------------------------------------------------------
- NOI contribution from properties
acquired $272 $589
---------------------------------------------------------------------------
- Increase (decrease) in straight-lining
of rents 123 (484)
---------------------------------------------------------------------------
- Net positive variance associated with
occupancies and redevelopment 350 920
---------------------------------------------------------------------------
- Positive variance in non-recoverable
and bad debt expense 125 195
---------------------------------------------------------------------------
- Increase in cancellation fees received - 3,442(1)
---------------------------------------------------------------------------
- Negative variance in other income (92) (81)
---------------------------------------------------------------------------
Net positive variance $778 $4,581
---------------------------------------------------------------------------
---------------------------------------------------------------------------

(1) During the second quarter, the REIT entered into a lease termination
agreement with Club Monaco Corp. (the "Tenant") who occupied 19,753
square feet at the REIT's retail property located at 777 St-Catherine
Street West, Montreal, and whose lease was to expire on January 31,
2016. At the same time, the REIT entered into a lease agreement with
Gap (Canada) Inc. (the "New Tenant") for a 10 year term. The
termination agreement called for the tenant to pay the REIT a $4,000
lease cancellation fee, representing the present value of the
difference in rental between the Tenant and the New Tenant. The Board
of Trustees, in accordance with the REIT's Contract of Trust, approved
by way of resolution that $3,460 of the cancellation fee (representing
the cancellation fee net of three months of accelerated rent), which is
recorded as revenue, be excluded from the REIT's Distributable Income
(see "Distributable Income").


Industrial Three months ended Nine months ended
Sept. 30, Sept. 30,
---------------------------------------------------------------------------
2005 2006 2005 2006
---------------------------------------------------------------------------
Revenues from rental operations $6,108 $6,867 $15,819 $19,483
Rental property operating costs 2,126 2,516 5,971 7,281
---------------------------------------------------------------------------
Net operating income $3,982 $4,351 $9,848 $12,202
---------------------------------------------------------------------------
---------------------------------------------------------------------------


The industrial sector reflects a YOY positive variance of $369 (YTD: $2,354) or 9.3% (YTD: $23.9%) . Net operating income for the quarter totaled $4,351 (YTD: $12,202) compared with the $3,982 (YTD: $9,848) in 2005. The contributing factors include:



Three months Nine months
ended ended
YOY NOI variance Sept. 30, 2006 Sept. 30, 2006
---------------------------------------------------------------------------
- NOI contribution from properties acquired $307 $2,174
---------------------------------------------------------------------------
- Impact of straight-lining of rents 51 97
---------------------------------------------------------------------------
- Increase (decrease) in amortization of
above and below market in-place leases 1 (29)
---------------------------------------------------------------------------
- Net positive variance associated with
occupancies 188 357
---------------------------------------------------------------------------
- Decrease in cancellation penalties received (117) (90)
---------------------------------------------------------------------------
- Positive variance in non-recoverable and
bad debt expense 6 30
---------------------------------------------------------------------------
- Negative variance in other income (67) (185)
---------------------------------------------------------------------------
Net positive
variance $369 $2,354
---------------------------------------------------------------------------
---------------------------------------------------------------------------


Residential Three months ended Nine months ended
Sept. 30, Sept. 30,
---------------------------------------------------------------------------
2005 2006 2005 2006
---------------------------------------------------------------------------
Revenues from rental operations $1,390 $1,479 $4,054 $4,209
Rental property operating costs 872 841 2,523 2,467
---------------------------------------------------------------------------
Net operating income $518 $638 $1,531 $1,742
---------------------------------------------------------------------------
---------------------------------------------------------------------------


Net operating income for the residential sector totaled $638 (YTD: $1,742) representing a YOY increase of $120 (YTD: $211) or 23.2% (YTD: 13.8%). In summary, variances resulted from:



Three months Nine months
ended ended
YOY NOI variance Sept. 30, 2006 Sept. 30, 2006
---------------------------------------------------------------------------
- Increase in revenues generated from
rental increases on regular apartments $28 $123

- Increase in revenues generated from
the executive suites 60 31

- Positive variance in operating expenses 32 57
---------------------------------------------------------------------------
Net positive variance $120 $211
---------------------------------------------------------------------------
---------------------------------------------------------------------------


INTEREST EXPENSE

Interest expense consists of interest paid on secured mortgages on the income-producing properties as well as interest on the REIT's general bank indebtedness, interest on convertible debentures, accretion of the liability component of the convertible debentures, amortization of the fair value debt adjustments on mortgages assumed on acquisitions, and amortization of deferred financing costs. As at September 30, 2006, interest expense totaled $7,889 (YTD: $22,613) compared with $6,919 (YTD: $19,396) in 2005. The YOY variance of $970 (YTD: $3,217) results from:



Three months Nine months
ended ended
Sept. 30, 2006 Sept. 30, 2006
---------------------------------------------------------------------------
- Interest on secured mortgages on
income-producing properties acquired $454 $1,771
---------------------------------------------------------------------------
- Decrease in interest on convertible
debentures (7) (7)
---------------------------------------------------------------------------
- Interest on new mortgages put in place 338 977
---------------------------------------------------------------------------
- Increase on interest accretion on
convertible debentures 2 6
---------------------------------------------------------------------------
- Increase in interest on general bank
indebtedness 376 1,155
---------------------------------------------------------------------------
- Interest savings on secured mortgages
repaid upon maturity (142) (402)
---------------------------------------------------------------------------
- Amortization of the fair value debt
adjustments relating to mortgages assumed
on the acquisition of certain properties 6 26
---------------------------------------------------------------------------
- Other, net (57) (309)
---------------------------------------------------------------------------
Net increase $970 $3,217
---------------------------------------------------------------------------
---------------------------------------------------------------------------


The table below reflects the weighted-average interest rate on the REIT's existing mortgages for the last eight quarters as well as the weighted-average term to maturity:



2004 2005 2006
----------------------------------------------------------
Dec. Mar. June Sept. Dec. Mar. June Sept.
Weighted-average
interest rate 6.3% 6.3% 6.3% 6.2% 6.2% 6.1% 6.1% 6.1%
----------------------------------------------------------
----------------------------------------------------------

Weighted-average
term to maturity
(years) 5.83 5.61 5.46 5.33 5.08 6.02 5.84 5.60
----------------------------------------------------------
----------------------------------------------------------


GENERAL AND ADMINISTRATIVE EXPENSES

General and administrative expenses, which consist of the REIT's overhead costs, net of amounts recovered under operating expenses, totaled $464 (YTD: $1,576) for the quarter compared to $493 (YTD: $1,561) in 2005. General and Administrative expenses are slightly lower than the same period in 2005.

AMORTIZATION EXPENSE

For the quarter ended September 30, 2006, amortization (buildings and other) totaled $8,012 (YTD: $22,551) compared to $6,742 (YTD: $18,916) in 2005. The YOY increase of $1,270 (YTD: $3,635) results from approximately $673 (YTD: $1,632) of amortization of lease origination costs for in-place leases and tenant improvements incurred through acquisitions, as well as approximately $105 (YTD: $801) of amortization of buildings principally for properties acquired, and $492 (YTD: $1,202) of amortization on tenant improvements, commissions and property additions.

TRUST EXPENSES

Trust expenses during the third quarter of 2006 totaled $108 (YTD: $369) versus $99 (YTD: $334) in 2005. The YOY increase of $9 (YTD: $35) primarily results from higher trustee fees associated with the REIT's growth.

DISTRIBUTABLE INCOME

Distributable income and distributable income per unit are non-GAAP measures and should not be construed as an alternative to net earnings and earnings per unit determined in accordance with GAAP as an indicator of the REIT's performance. The REIT's methods of calculating these measures may differ from other issuers' methods and accordingly, they may not be comparable to measures used by other issuers.

Distributable income represents net income determined in accordance with Canadian GAAP, subject to certain adjustments as set out in the Declaration of Trust. These adjustments include adding back amortization (but not amortization of tenant inducements and other leasing costs) and income tax expense and excluding any gains or losses on the disposition of assets. Also excluded are any amounts that the Trustees in their discretion determine to be appropriate, including the impact of the change in accounting policy for the straight-lining of contractual rent increases, the full impact of EIC-140, the internalization of the REIT's construction management function which was fully expensed in accordance with EIC-138, as well as $3,460 of the $4,000 cancellation penalty received by the REIT during the second quarter (see "Retail" under the "Segmented Analysis" section).



Distributable income for the quarter and YOY is as follows:

Three months ended Sept. 30, Nine months ended Sept. 30,
2005 2006 2005 2006
-----------------------------------------------------------

Distributable Income $7,540 $8,249 $21,741 $23,204

Per unit:
Basic $0.293 $0.319 $0.848 $0.899
Diluted $0.282 $0.305 $0.819 $0.863
Distributions paid $7,072 $7,113 $21,169 $21,298
Distributable income
payout ratio 93.8% 86.2% 97.4% 91.8%


LEASING DATA

To date in 2006, leases for 780,668 square feet of space expired at a weighted average net rental rate of $8.81 per square foot. Of this amount, 594,770 square feet having a weighted average net rental rate of $9.01 was renewed at a weighted average net rental rate of $9.11. During the same period, 492,438 square feet of vacant space was leased at a weighted average net rental rate of $9.46 per square foot.

The following tables reflect the REIT's portfolio average occupancies and net rental rates as at September 30, 2006 in comparison to last quarter (June 30, 2006) and to the same quarter last year (September 30, 2005):



Occupancies September 30, 2005 June 30, 2006 September 30, 2006
---------------------------------------------------------------------------
Segment Area Occupancy Area Occupancy Area Occupancy
(sq.ft.) (sq.ft.) (sq.ft.)
---------------------------------------------------------------------------
Office 2,987,677 87.5% 2,987,677 88.2% 2,987,677 86.8%
---------------------------------------------------------------------------
Retail 1,434,400 95.9% 1,586,122 95.0% 1,602,552 96.1%
---------------------------------------------------------------------------
Industrial 3,711,139 90.4% 3,953,483(1) 94.1%(1) 4,107,906(1) 94.5%(1)
---------------------------------------------------------------------------
Residential 300,321 95.5% 300,321 97.7% 300,321 98.8%
---------------------------------------------------------------------------
Overall 8,433,537 90.5% 8,827,603(1) 92.4%(1) 8,998,456(1) 92.4%(1)
---------------------------------------------------------------------------
---------------------------------------------------------------------------


Net rental rate

Segment September 30, 2005 June 30, 2006 September 30, 2006
---------------------------------------------------------------------------
Office $11.36 $11.51 $11.47
---------------------------------------------------------------------------
Retail 13.29 13.74 13.31
---------------------------------------------------------------------------
Industrial 4.99 5.02 4.99
---------------------------------------------------------------------------
Residential(2) 1,046.17 1,056.72 1,089.18
---------------------------------------------------------------------------
Overall $9.11 $9.22 $9.08
---------------------------------------------------------------------------
---------------------------------------------------------------------------

1. Excludes 97,907 square feet at 2400 Trans-Canada, Pointe-Claire,
Quebec, which is to be redeveloped (110,907 square feet; June 30, 2006).

2. The residential sector sets forth the average monthly gross rent per
unit.


Since June 30, 2006, the REIT's overall portfolio occupancy level has remained unchanged at 92.4% . The retail, industrial and residential sectors reflected increases of 1.1%, 0.4% and 1.1% respectively. The office sector reflected a decrease of 1.4% since last quarter. The retail and industrial sector increases resulted from increased leasing activity, as well as from the acquisition of two 100% occupied industrial properties since June 30, 2006. Excluding these acquisitions, the industrial sector would have reflected an increase of 0.2% (94.3% occupancy). The office sector decrease in occupancy of 1.4%, representing approximately 42,000 square feet, resulted primarily from a tenant exercising their right to an early termination (20,000 square feet) as well as a tenant bankruptcy (20,000 square feet). As for the residential sector, the increase resulted from stronger demand for the 72 furnished apartments, which are leased on a short-term basis.

The REIT'S YOY and quarter over quarter ("QOQ") same portfolio occupancy levels and net rental rates excluding acquired properties since September 30, 2005, are as follows:



September 30, June 30, September 30,
2005 2006 2006
-------------------------------------------------------------
Net Net Net
Area Occu- rental Occu- rental Occu- rental
(sq.ft.) pancy rate pancy rate pancy rate
---------------------------------------------------------------------------
Segment
---------------------------------------------------------------------------
Office 2,987,677 87.5% $11.36 88.2% $11.51 86.8% $11.47
---------------------------------------------------------------------------
Retail 1,434,400 95.9% 13.29 95.1% 13.69 96.8% 13.33
---------------------------------------------------------------------------
Industrial 3,711,139 90.4% 4.99 93.8% 5.01 93.9% 5.03
---------------------------------------------------------------------------
Residen-
tial(1) 300,321 95.5% 1,046.17 97.7% 1,056.72 98.8% 1,089.18
---------------------------------------------------------------------------
Overall 8,433,537 90.5% $9.11 92.1% $9.25 92.1% $9.20
---------------------------------------------------------------------------
---------------------------------------------------------------------------
1. The residential sector sets forth the average monthly gross rent per
unit.


As reflected above, the same portfolio occupancy levels in the retail and industrial sectors shows YOY favorable variances of 0.9% and 3.5% respectively resulting from leasing activities. The YOY office sector occupancy decreased by 0.7% or approximately 20,900 square feet. As for the YOY positive variance of 3.3% in the residential sector, this resulted from higher occupancy of the executive suites, which are leased on short-term leases.

DEBT FINANCING AND CONTRACTUAL OBLIGATIONS

As at September 30, 2006, the REIT's debt secured by income-producing properties was $458,402 representing 55.0% of gross book value (book value of the REIT's assets plus accumulated amortization less intangible liabilities was $832,940), well below its 60% threshold limit. Including the convertible debentures, the percentage is 61.5% (limit 65%). Floating rate debt, which cannot exceed 15% of gross book value, totaled $57,063 or 6.9% .

The REIT's other contractual obligations remained unchanged from December 31, 2005.

LIQUIDITY AND CAPITAL EXPENDITURES

Funds from operations ("FFO") is a measure of the funds generated from the business before adjusting for capital needs and leasing costs. Adjusted funds from operations ("AFFO") is an alternative method of determining available cash flow after adjusting FFO for capital needs and leasing costs. The REIT considers FFO, FFO per unit, as well as AFFO to be indicative measures of operating performance. FFO and AFFO are not measures defined by GAAP but are becoming more widely used by the real estate industry and are presented herein in accordance with the recommendation of the Real Property Association of Canada ("REALpac"). It may not, however, be comparable to similar measures presented by other real estate investment trust. The following are the calculations of FFO and AFFO based on the industry's standard definition:



Three months Nine months
ended September 30 ended September 30
2005 2006 2005 2006
---------------------------------------------------------------------------

Net Income (per financial statements) $1,816 $1,723 $4,239 $7,495

Adjustments to reconcile net income
to FFO:
Internalization of construction
management company - - 1,613 -
Amortization of buildings 3,903 4,156 11,179 12,285
Other amortization, excluding
amortization of furniture,
fixtures & computers 2,796 3,810 7,605 10,130
---------------------------------------------------------------------------
Funds From Operations (FFO) $8,515 $9,689 $24,636 $29,910

Deduct / (Add):
Cancellation fee received - 522 - 3,982
Accrued rental revenue recognized
on a straight-line basis 360 484 1,238 733
Above and below market in-place leases 56 64 179 174
Normalized leasing costs(1) 1,429 1,429 4,287 4,287
Capital expenditure reserve(2) 307 338 885 1,023
---------------------------------------------------------------------------
Adjusted Funds From Operation (AFFO) $6,363 $6,852 $18,047 $19,711
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Distributions $7,072 $7,113 $21,169 $21,298
---------------------------------------------------------------------------
---------------------------------------------------------------------------
FFO payout ratio 83.1% 73.4% 85.9% 71.2%
---------------------------------------------------------------------------
---------------------------------------------------------------------------
FFO per unit(3) $0.331 $0.375 $0.961 $1.159
---------------------------------------------------------------------------
---------------------------------------------------------------------------
AFFO payout ratio 111.1% 103.8% 117.3% 108.1%
---------------------------------------------------------------------------
---------------------------------------------------------------------------
AFFO per unit(3) $0.248 $0.265 $0.704 $0.764
---------------------------------------------------------------------------
---------------------------------------------------------------------------

1. Calculated based on the REIT's estimation of the average leasing costs
associated with its portfolio of properties subsequent to achieving a
stabilized occupancy, projected over the years 2007 to 2010.

2. Calculated as 1% of total revenues.

3. Based on the weighted average number of units outstanding.


The cash generated from operating activities, conventional mortgage financings, as well as funds from operating and acquisition facilities have been used to meet all of the REIT's liquidity requirements during the quarter and were principally utilized for funding property acquisitions, principal repayments of debts on income-producing properties, and distributions to unitholders.

Management expects to be able to continue to meet all of the REIT's ongoing obligations and to finance future growth through the issuance of new equity as well as by using conventional real estate debt, short-term financing from the REIT's credit facilities, and the REIT's stable cash flow. The REIT currently has a theoretical acquisition capacity of approximately $85,000 for growth investments, while still meeting its debt covenants.

CAPITAL EXPENDITURES, LEASING COMMISSIONS AND TENANT IMPROVEMENTS

Capital expenditures, leasing commissions and tenant improvements totaled $3,886 during the quarter (YTD: $11,350). Details of the amounts incurred are as follows:



Three months Nine months
ended ended
Sept. 30, 2006 Sept. 30, 2006
-----------------------------------

Additions to buildings:
Residential tower renovations $ 124 $ 1,537
Redevelopment 1,008 1,368
Parking repairs (30) 286
Non-recoverable capital maintenance 98 124
Recoverable maintenance 751 1,670
-----------------------------------

Total additions to buildings 1,951 4,985
-----------------------------------

Tenant improvements & leasing costs:
Renewals & vacant space lease-ups 1,142 4,647
Value enhancing(1) 393 619
Leasing commissions 400 1,099
-----------------------------------

Total tenant improvements & leasing costs 1,935 6,365
-----------------------------------

Total $ 3,886 $ 11,350
-----------------------------------
-----------------------------------

1. Reflects tenant improvements and leasing commissions spent leasing-up
then vacant space on properties that have been acquired by the REIT,
to the sustainable level of occupancy.


OUTSTANDING UNITS DATA

As of September 30, 2006, the Nihon/Massicotte Group hold approximately 29.3% of the 25,898,166 outstanding units of the Alexis Nihon REIT.

DISCLOSURE CONTROLS AND PROCEDURES

An evaluation of the effectiveness of the design of the REIT's disclosure controls and procedures was conducted as of September 30, 2006, by and under the supervision of the REIT's management, including the President and Chief Executive Office (the "CEO"), the Executive Vice-President and Chief Operating Officer (the "COO"), as well as the Senior Vice-President and Chief Financial Office (the "CFO"). Based on this evaluation, the CEO, COO and CFO have concluded that the REIT's disclosure controls and procedures, as defined in Multilateral Instrument 52-109, Certification of Disclosure in Issuers' Annual and Interim Filings, are designed effectively to ensure that information required to be disclosed in reports that the REIT file's or submits under Canadian securities legislation is recorded, processed, summarized and reported within the time periods specified in those rules and forms.

RISKS AND UNCERTAINTIES

Like any real estate ownership, there are certain risk factors inherent in the normal course of business of the REIT.

All immovable property investments are subject to elements of risk, including general economic conditions, local real estate markets, demand of leased premises and competition from other available premises.

The REIT is exposed to interest rate risk on its borrowings. It minimizes this risk by restricting total debt, excluding convertible debentures, to 60% of gross book value (65% including convertible debentures) and to 15% of gross book value on short-term floating rate borrowings. In addition, terms to maturity of long-term debt are staggered over time and are closely matched to the remaining average lease terms.

The REIT is exposed to credit risk as an owner of real estate in that tenants may become unable to pay the contracted rents. Management mitigates this risk by carrying out appropriate credit checks and related due diligence on the significant tenants. Although diversified by asset class and property type, the REIT's portfolio is concentrated in the Greater Montreal Area and National Capital Region and will derive most of its income from properties located in those regions. Consequently, the market value of the properties and the income generated from them could be negatively affected by changes in local and regional economic conditions.

The REIT has been structured to ensure that mandated investment guidelines and operating criteria are strictly adhered to. These policies govern such matters as the type and location of properties that the REIT can acquire, the maximum leverage allowed, the requirement for appropriate insurance coverage as well as environmental policies.

The REIT has maintained its ability to properly manage both operational and financial risks. The REIT's properties are leased under long-term arrangements to a diversified base of creditworthy tenants with strong covenants and are mainly financed with long-term fixed rate mortgages.

Other than as described above, no single tenant is critical to the REIT's ability to meet its financial obligations. The REIT's broad tenant base assists in attempting to fulfill its primary goal of maintaining a predictable cash flow. Risk is further minimized through a low vacancy rate and relatively few short-to-medium term lease renewals.

OUTLOOK

As appropriate, the REIT intends to pursue accretive acquisitions in current and adjacent markets that present favorable opportunities, with the goal of enhancing unitholder value. The current portfolio provides a strong base from which to achieve these objectives, and, with an experienced management team, the REIT is well positioned to capitalize on opportunities.

The top priority is to prudently manage and maximize the value of our current portfolio.

At the same time, the REIT is equally focused on aggressively managing costs and increasing operating efficiencies.

The REIT's quality, well located properties are competitively positioned in the Greater Montreal Area and National Capital Region. Its professional management team, and its focus on service, position the REIT particularly well in order to attract and retain long-term tenants.

Barring any unanticipated events, distributions to unitholders in 2006 are expected to remain at the current level.

SUBSEQUENT EVENTS

On October 2, 2006, the REIT put in place a 10-year hypothecary loan of $10,575 on one of its retail properties located at 777 Ste-Catherine Street West. The loan bears interest at 5.31% and has a 30-year amortization period. The previous loan amount of $7,090 on the property had been paid down on February 1, 2006.

On October 13, 2006, the REIT put in place a 5-year hypothecary loan of $3,075 on an industrial property located at 5055 Levy Street in the borough of St-Laurent, Montreal, which it had acquired on May 31, 2006. The loan bears interest at 5.138% and has a 30-year amortization period.



ALEXIS NIHON
REAL ESTATE INVESTMENT TRUST

Three Months Ended September 30, 2006

Supplemental Information Package


The Supplemental Information Package should be read in conjunction with the Annual Report for the year ended December 31, 2005 and 2004, with the Quarterly Reports for the three months ended September 30, 2006 and 2005, June 30, 2006 and 2005 and March 31, 2006 and 2005.



Corporate Information

Head Office Quarterly Distributions
1 Place Alexis Nihon
3400 De Maisonneuve
Blvd. West Quarter Distribution
Suite 1010 ---------------------------------------------
Montreal, Quebec Q3/06 $0.275
H3Z 3B8 Q2/06 $0.275
Q1/06 $0.275
Q4/05 $0.275
Q3/05 $0.275
Trading Symbols Q2/05 $0.275
Toronto Stock Exchange Q1/05 $0.275
AN.UN - Units Q4/04 $0.275
AN.DB - Convertible ---------------------------------------------
debentures ---------------------------------------------

Unit Trading Activity on the
Transfer Agent Toronto Stock Exchange
National Bank Trust Inc.
1100 University Street High Low Close Volume
Montreal, Quebec Quarter $ $ $ (000)
H3B 2G7 ----------------------------------------
Q3/06 13.80 12.61 13.74 5,100
Toll-free number: 1-800-341-1419 Q2/06 13.64 12.61 13.20 2,718
Q1/06 14.04 13.05 13.42 3,446
Q4/05 13.50 11.85 13.30 1,686
Investor Relations Contact Q3/05 13.51 12.96 13.50 1,923
Rene Fortin, CGA Q2/05 13.22 12.20 12.85 1,500
Senior Vice President and Q1/05 13.80 11.88 12.58 2,492
Chief Financial Officer Q4/04 13.41 12.06 12.55 2,013
Tel.: 514-737-3344 ---------------------------------------
Fax: 514-931-1618 ---------------------------------------
Email: rfortin@alexisnihon.com Source: Toronto Stock Exchange

Research Coverage:

Scotia Capital Himalaya Jain, CFA (416) 863-7218
National Bank Financial Michael Smith, CFA (416) 869-8022
RBC Securities Neil Downey, CA, CFA (416) 842-7835
Desjardins Securities Frank B. Mayer, MA (416) 867-3764
CIBC World Markets Rossa O'Reilly, CFA (416) 594-7296
TD Securities Sam Damiani, CFA (416) 983-9640
Canaccord Capital Shant Poladian (416) 869-6595
BMO Nesbitt Burns Karine MacIndoe (416) 359-4269
Genuity Capital Markets Marc Rothschild (416) 687-5428


Selected Quarterly Information

Quarter Ended
In thousands of dollars, Sept 30, June 30, March 31, Dec 31,
except per unit amounts 2006 2006 2006 2005
------------------------------------------------

Revenues From Rental
Operations 33,843 35,843 32,685 32,981

Net Operating Income 18,196 19,944 16,464 16,771
Net Operating Income
Margin 53.8% 55.6% 50.4% 50.9%

Net Income 1,723 4,346 1,426 1,889
Net Income per unit:
Basic 0.067 0.168 0.055 0.073
Diluted (i) 0.067 0.168 0.055 0.073

Distributable Income 8,249 7,566 7,389 7,746
Distributable Income Per
Unit:
Basic 0.319 0.293 0.287 0.301
Diluted 0.305 0.282 0.277 0.289

Distributions 7,113 7,097 7,088 7,080
Distributions Per Unit: 0.275 0.275 0.275 0.275
Payout ratio (12-month
basis) 91.7% 93.7% 94.9% 95.8%

Funds From Operations 9,689 11,756 8,465 8,995
Funds from Operations
Per Unit:
Basic 0.375 0.456 0.329 0.350
Payout ratio (per quarter) 73.4% 60.4% 83.7% 78.7%

Income-producing property 697,397 691,957 667,626 668,746
Total Assets 762,172 759,853 729,511 730,621

Debts on income-producing
properties 401,339 404,131 389,706 370,321
Bank indebtedness 57,063 45,649 30,291 41,969
Convertible debentures -
liability component 53,571 53,536 53,501 53,468

Unitholders' Equity 227,156 231,735 233,842 239,106

Number of units at end of
Period 25,898,166 25,835,255 25,784,501 25,754,095
Number of options at end
of Period 4,029,306 4,029,306 4,029,306 4,029,306

Weighted Average Number
of Units:
Basic 25,855,175 25,800,052 25,764,652 25,736,198
Diluted
(for net income)(i) 25,855,175 25,800,052 25,764,652 25,736,198
Diluted (for distributable
income) 29,884,481 29,829,358 29,793,958 29,765,504


Quarter Ended
In thousands of dollars, Sept 30, June 30, March 31, Dec 31,
except per unit amounts 2005 2005 2005 2004
------------------------------------------------
Revenues From Rental
Operators 30,671 28,856 28,988 29,254

Net Operating Income 16,069 15,405 14,585 15,416
Net Operating Income
Margin 52.4% 53.4% 50.3% 52.7%

Net Income 1,816 2,008 415 2,634
Net Income per unit:
Basic 0.071 0.078 0.016 0.103
Diluted (i) 0.071 0.078 0.016 0.103

Distributable Income 7,540 7,160 7,041 7,363
Distributable Income
Per Units
Basic 0.293 0.279 0.276 0.289
Diluted 0.282 0.270 0.267 0.280

Distributions 7,072 7,064 7,033 7,017
Distributions Per Unit: 0.275 0.275 0.275 0.275
Payout ratio (12-month basis) 96.8% 99.3% 102.0% 105.1%

Funds From Operations 8,514 8,131 7,991 8,730
Funds from Operations Per
Unit:
Basic 0.331 0.317 0.313 0.342
Payout ratio (per quarter) 83.1% 86.9% 88.0% 80.4%

Income-producing properties 669,195 645,884 608,753 603,689
Total Assets 734,089 710,104 661,068 663,126

Debts on income-producing
properties 373,083 338,726 330,257 334,674
Bank indebtedness 38,837 47,295 6,621 808
Convertible debentures -
liability component 53,434 53,401 53,369 53,338

Unitholders' Equity 243,944 248,851 253,523 258,256

Number of units at end
of Period 25,726,073 25,698,972 25,668,306 25,515,935
Number of options at end
of Period 4,029,306 4,029,306 4,029,306 4,029,306

Weighted Average Number
of Units
Basic 25,706,883 25,677,642 25,520,625 25,506,516
Diluted (for net income) 25,706,883 25,677,642 25,520,625 25,506,516
Diluted (for
distributable income) 29,736,189 29,706,948 29,549,931 29,535,822

(i) Convertible debentures have been excluded from the calculations of the
diluted net income per unit for all the above mentioned periods since
they are anti-dilutive.



Segmented Information

Segmented Revenues From Rental Operations

(in thousands of dollars) Q3/06 Q3/05 Change
$ $ Vs Q3/05
------------------------
Office 15,966 14,848 1,118
Retail 9,531 8,325 1,206
Industrial 6,867 6,108 759
Multi-family residential 1,479 1,390 89
------------------------
Total 33,843 30,671 3,172
------------------------
------------------------

Segmented Net Operating Income

(in thousands of dollars) Q3/06 Q3/05 Change
$ $ Vs Q3/05
------------------------
Office 7,899 7,039 860
Retail 5,308 4,530 778
Industrial 4,351 3,982 369
Multi-family residential 638 518 120
------------------------
Total 18,196 16,069 2,127
------------------------
------------------------


Segmented Gross Book Value of Income-Producing Properties

(in thousands of dollars) Q3/06 Q4/05 Q3/05 Change Change
$ $ $ Q4/05 Q3/05
Office 336,585 331,409 329,041 5,176 7,544
Retail 202,618 187,812 186,219 14,806 16,399
Industrial 173,111 150,885 150,352 22,226 22,759
Multi-family residential 36,222 34,685 34,545 1,537 1,677
----------------------------------------------
Total 748,536 704,791 700,157 43,745 48,379
----------------------------------------------
----------------------------------------------

Segmented Net Book Value of Income-Producing Properties

(in thousands of dollars) Q3/06 Q4/05 Q3/05 Change Change
$ $ $ Q4/05 Q3/05
Office 310,156 312,701 313,028 (2,545) (2,872)
Retail 189,038 178,037 177,684 11,001 11,354
Industrial 164,661 145,332 145,732 19,329 18,929
Multi-family residential 33,542 32,676 32,751 866 791
----------------------------------------------
Total 697,397 668,746 669,195 28,651 28,202
----------------------------------------------
----------------------------------------------


Portfolio Summary

Sept June March Dec Sept June March Dec
30, 30, 31, 31, 30, 30, 31, 31,
2006 2006 2006 2005 2005 2005 2005 2004
------------------------------------------------------------
Leasable Area
(000 square
feet)

Office 2,988 2,988 2,988 2,988 2,988 2,814 2,814 2,814
Retail 1,602 1,586 1,488 1,488 1,434 1,434 1,434 1,432
Industrial (i) 4,206 3,954 3,711 3,711 3,711 3,711 2,758 2,532
Multi-family
residential 300 300 300 300 300 300 300 300
------------------------------------------------------------
Total 9,096 8,828 8,487 8,487 8,433 8,259 7,306 7,078
------------------------------------------------------------
------------------------------------------------------------

Number of
Properties

Office 20 20 20 20 20 19 19 19
Retail 10 10 4 4 4 4 4 4
Industrial (i) 35 33 31 31 31 31 28 27
Multi-family
Residential (ii) N/A N/A N/A N/A N/A N/A N/A N/A
------------------------------------------------------------
Total 65 63 55 55 55 54 51 50
------------------------------------------------------------
------------------------------------------------------------

Change of Leasable Area
Square feet (000)
Q3/06 Q3/06
Vs Q4/05 Vs Q3/05 Vs Q4/05 Vs Q3/05
----------------------- ------------------

Office - - 0.0% 0.0%
Retail 114 168 7.7% 11.7%
Industrial 495 495 13.3% 13.3%
Multi-family
residential - - 0.0% 0.0%
----------------------- ------------------
Total 609 663 Total 7.2% 7.9%
----------------------- -----------------
----------------------- ------------------

Change of Number of Properties

No. of Properties %
Q3/06 Q3/06
Vs Q4/05 Vs Q3/05 Vs Q4/05 Vs Q3/05
----------------------- ------------------

Office - - 0.0% 0.0%
Retail 6 6 150.0% 150.0%
Industrial 4 4 12.9% 12.9%
Multi-family
residential - - 0.0% 0.0%
------------------- ------------------
Total 10 10 Total 18.2% 18.2%
------------------- ------------------
------------------- ------------------

(i) The REIT owns 25% of 102,032 square feet (3 properties) and 50% of
308,385 square feet (4 properties).

(ii) Place Alexis Nihon has been included in the office properties
category.

The office properties category includes 611,535 sq ft of office space at
Place Alexis Nihon.

The retail properties category includes 391,029 sq ft
of retail space at Place Alexis Nihon.

The multi-family residential properties category includes 300,321 sq ft
of multi-family residential space at Place Alexis Nihon.


Leasing Activities

Occupancy rate

Q3/06 Q4/05 Q3/05 Change Change
Occupancy Vs Q4/05 Vs Q3/05
---------------------------------------------------------------------------
Office 86.8% 88.4% 87.5% -1.6% -0.7%
Retail 96.1% 96.1% 95.9% 0.0% 0.2%
Industrial 94.5% 91.2% 90.4% 3.3% 4.1%
Multi-family
residential 98.8% 92.8% 95.5% 6.0% 3.3%
------- ------ ------ -----------------
Total 92.4% 91.1% 90.5% 1.3% 1.9%
------- ------ ------ -----------------
------- ------ ------ -----------------

Top 10 Tenants

% of Total
Revenues
---------------------------------------------------------------------------
---------------------------------------------------------------------------
1 Public Works & Government Services Canada 8.24%
2 LDL Logistics Dev. Corp. 2.13%
3 Richter Management Ltd. 1.97%
4 CP Ships (Canada) Agencies Ltd. 1.59%
5 Societe Immobiliere du Quebec 1.55%
6 Hudson's Bay Company 1.47%
7 ISM Information Management Corporation 1.14%
8 KSH Solutions Inc. 1.03%
9 Sico 0.99%
10 Brick 0.98%
---------------------------------------------------------------------------
Total 21.09%
---------------------------------------------------------------------------
---------------------------------------------------------------------------


Leasing Activities

Lease Expirations and Renewals by Segment

Office Retail Industrial Total
Expired Leases as at Q3
---------------------------------------------------------------------------
Number of tenants 53 45 66 164
Area (Square feet) 261,332 68,914 450,422 780,668
Average net rent/square foot $ 9.37 $ 23.17 $ 6.29 $ 8.81
---------------------------------------------------------------------------

Renewed Leases as at Q3
---------------------------------------------------------------------------
Number of tenants 40 33 49 122
Area (Square feet) 220,661 47,794 326,315 594,770
Average net rent/square foot $ 9.92 $ 22.53 $ 6.60 $ 9.11
---------------------------------------------------------------------------

New Leases as at Q3
---------------------------------------------------------------------------
Number of tenants 32 22 32 86
Area (Square feet) 112,100 91,460 288,878 492,438
Average net rent/square foot $ 10.76 $ 21.04 $ 5.29 $ 9.46
---------------------------------------------------------------------------

Lease Expirations
Office Retail Industrial Total
Number of tenants
---------------------------------------------------------------------------
Oct to Dec 2006 18 3 14 35
2007 67 49 57 173
2008 78 35 52 165
2009 59 41 42 142
2010 74 42 30 146
After 114 122 54 290
---------------------------------------------------------------------------
Area (square feet)
---------------------------------------------------------------------------
Oct to Dec 2006 58,254 4,370 186,417 249,041
2007 393,346 82,546 898,505 1,374,397
2008 398,855 392,428 572,695 1,363,978
2009 321,681 156,057 378,095 855,833
2010 344,754 112,996 729,579 1,187,329
After 1,052,844 824,311 1,312,002 3,189,157
---------------------------------------------------------------------------

Weighted Average Net Rent
(per square foot)
---------------------------------------------------------------------------
Oct to Dec 2006 $ 10.47 $ 10.71 $ 4.87 $ 6.28
2007 $ 12.55 $ 20.84 $ 4.91 $ 8.05
2008 $ 11.47 $ 4.86 $ 5.36 $ 7.00
2009 $ 11.54 $ 12.47 $ 5.12 $ 8.88
2010 $ 10.66 $ 19.20 $ 4.89 $ 7.93
---------------------------------------------------------------------------

Weighted Average Term to Maturity on Existing Leases 4.45 years


Debt Summary

Debt Maturities

Year Amount % of Total Debt Average
$ Outstanding Rate
----------------------------------------------------------------
2006 3,942,722 0.99% 7.30%
2007 81,423,666 20.40% 6.59%
2008 52,719,887 13.21% 6.44%
2009 61,606,513 15.44% 5.75%
2010 25,183,474 6.31% 5.08%
After 174,226,181 43.65% 5.93%
----------------------------------------------------------------
399,102,443 100.00% 6.07%
----------------------------------------------------------------
----------------------------------------------------------------

Weighted average term: 5.6 years


Financing Activities

Subsequent to September 30, 2006, the REIT obtained two new mortgages on income-producing properties for an amount of $10,575,000 and $3,075,000. The mortgages bear interest at 5.31% and 5.14% and mature in 2016 and 2011.

At current gross book value, the REIT's maximum borrowing capacity is $85,000,000

Financing Capacity

As at September 30, 2006, debt (excluding convertible debentures) /gross book value ratio: 55.0%.

As at September 30, 2006, debt (including convertible debentures) /gross book value ratio: 61.5%.



Ratio analysis

Sept June March Dec Sept June March Dec
30, 30, 31, 31, 30, 30, 31, 31,
2006 2006 2006 2005 2005 2005 2005 2004
----------------------------------------------------------
Debt to gross
book value
(excluding
convertible
debentures) 55.0% 54.7% 53.6% 52.8% 53.1% 51.8% 48.9% 49.2%
Debt to gross
book value
(including
convertible
debentures) 61.5% 61.2% 60.4% 59.7% 60.0% 59.0% 56.6% 57.0%
Interest
coverage ratio 2.23 2.58 2.17 2.29 2.24 2.29 2.31 2.41


Contact Information