Alexis Nihon Real Estate Investment Trust

Alexis Nihon Real Estate Investment Trust

March 21, 2005 06:00 ET

Alexis Nihon REIT Announces Fourth Quarter and 2004 Year-End Results


NEWS RELEASE TRANSMITTED BY CCNMatthews

FOR: ALEXIS NIHON REAL ESTATE INVESTMENT TRUST

TSX SYMBOL: AN.UN

MARCH 21, 2005 - 06:00 ET

Alexis Nihon REIT Announces Fourth Quarter and 2004
Year-End Results

MONTREAL, QUEBEC--(CCNMatthews - March 21, 2005) - Alexis Nihon Real
Estate Investment Trust (TSX:AN.UN) today announced results for the
fourth quarter and 12 months ended December 31, 2004.

Acquisitions during 2004 broadened leasable area by 45% and resulted in
new highs for most financial metrics. Fourth quarter revenues advanced
70% over the same period in 2003 to $29.3 million, while distributable
income moved up 73% to $7.4 million. Funds from operations totalled $8.7
million, or 34.2 cents per unit.

For the year, revenues increased 32% over 2003 to a new high of $98.8
million. The gain pushed up distributable income by 33% to a record
$25.2 million. Funds from operations increased 46% to $29.2 million, or
$1.22 per unit.

"The REIT aggressively executed its strategy of profitable growth by
expanding strongly in the greater Montreal area and entering the
National Capital Region," said Paul J. Massicotte, President and Chief
Executive Officer. "The REIT's achievements reflected the benefits of
our growth strategy, the soundness of our portfolio investments and the
strength of our team."

"The REIT's growth increased revenues and profitability to new highs for
both the fourth quarter and the year," said Rene Fortin, Senior
Vice-President and Chief Financial Officer. "In addition, the two
bought-deal financings during 2004 preserved the REIT's solid financial
position while maintaining monthly distributions to unitholders."

The REIT ended 2004 with secured debt totalling $335.5 million,
representing 49% of gross book value, well within the REIT's 60% limit.
All floating-rate debt was eliminated, and Alexis Nihon's bank credit
facility was increased to $50 million from $30 million.

2004 Highlights

- Completed acquisitions totalling $172.9 million, increasing total
leasable area 45% to 7.1 million square feet

- Completed redevelopment projects totalling $13.0 million, improving
170,000 square feet of leasable space

- Completed two financings:

- $58.7 million bought-deal offering of 4.3 million units

- $55.0 million bought-deal convertible debenture offering

- Extended weighted average term to maturity of mortgages to more than
5.8 years at December 31, 2004 from 3.5 years at January 1, 2004

- Negotiated average interest rate of 6.3% on existing mortgages

- Ended 2004 with acquisition capacity of $155 million



Financial Highlights

(thousands of dollars except per-unit amounts)
-----------------------------------------------------------------------
Period ended December 31 3 months 12 months
-----------------------------------------------------------------------
2004 2003 2004 2003
-----------------------------------------------------------------------
Revenues from rental operations $29,254 $17,197 $98,750 $75,033
-----------------------------------------------------------------------
Net operating income $15,416 $8,456 $51,590 $42,182
-----------------------------------------------------------------------
Net income $2,634 $3,108 $11,348 $22,292
-----------------------------------------------------------------------
Distributable income (1) $7,363 $4,257 $25,197 $18,956
-----------------------------------------------------------------------
Distributable income per unit
(diluted) (1) $0.280 $0.241 $1.039 $1.091
-----------------------------------------------------------------------
Funds from operations (1) $8,730 $4,603 $29,170 $19,986(2)
-----------------------------------------------------------------------
FFO per unit (1) $0.342 $0.264 $1.22 $1.17(2)
-----------------------------------------------------------------------
(1) Distributable income and FFO are non-GAAP measures
(2) Excludes one-time cancellation fee of $7,825 received in 2003


Conference Call and Webcast

Management will hold a conference call and live audio webcast on Monday,
March 21, 2005 at 2 p.m. (ET) to discuss the REIT's fourth quarter and
year end performance. The call may be accessed by dialing 1-800-796-7558
or 416-640-4127. The webcast is accessible at www.alexisnihon.com, and
will be archived for seven days.

About Alexis Nihon REIT

The REIT currently owns interests in 51 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 7.3 million square feet of
leasable area, of which 0.4 million square feet is co-owned.

Readers are cautioned that distributable income and funds from
operations 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 Financial Statements
December 31, 2004 and 2003


Contents

Auditors' Report 1
Consolidated Balance Sheets 2
Consolidated Statements of Unitholders' Equity 3
Consolidated Statements of Income 4
Consolidated Statements of Cash Flows 5
Notes to the Consolidated Financial Statements 6 - 21


Auditors' Report


To the Trustees of
Alexis Nihon Real Estate Investment Trust (the "REIT")


We have audited the consolidated balance sheets of Alexis Nihon Real
Estate Investment Trust as at December 31, 2004 and 2003, and the
consolidated statements of income, unitholders' equity and cash flows
for the years then ended. These financial statements are the
responsibility of the REIT's management. Our responsibility is to
express an opinion on these financial statements based on our audit.

We conducted our audits in accordance with Canadian generally accepted
auditing standards. Those standards require that we plan and perform an
audit to obtain reasonable assurance whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation.

In our opinion, these consolidated financial statements present fairly,
in all material respects, the financial position of the REIT as at
December 31, 2004 and 2003 and the results of its operations and its
cash flows for the years then ended in accordance with Canadian
generally accepted accounting principles.

Chartered Accountants

Montreal, Quebec

February 4, 2005



Consolidated Balance Sheets
As at December 31
(in thousands of dollars)

2004 2003
(restated -
note 2e)
-----------------------------------------------------------------------
-----------------------------------------------------------------------

Assets

Income-producing properties (note 5) $ 603,689 $ 459,523
Intangible assets (note 6) 31,904 -
Land held for development 964 -
Cash and cash equivalents (note 7) 10,000 -
Other assets (note 8) 16,319 14,108
Due from companies under common control
of certain trustees of the REIT (note 9) 250 137
-----------------------------------------------------------------------
$ 663,126 $ 473,768
-----------------------------------------------------------------------
-----------------------------------------------------------------------

Liabilities

Debts on income-producing
properties (note 10) $ 334,674 $ 241,897
Convertible debentures -
liability component (note 11) 53,338 12,150
Intangible liabilities (note 12) 3,214 -
Bank indebtedness (note 13) 808 4,937
Accounts payable and accrued liabilities 10,555 10,431
Distributions payable 2,281 1,803
-----------------------------------------------------------------------
404,870 271,218
-----------------------------------------------------------------------

Commitments and Contingencies (note 14)
Equity
Unitholders' equity 258,256 202,550
-----------------------------------------------------------------------
$ 663,126 $ 473,768
-----------------------------------------------------------------------
-----------------------------------------------------------------------
See accompanying notes

Consolidated Statements of Unitholders' Equity
For the Years Ended December 31
(in thousands of dollars)

Inter-
est
on
Other Conver-
Equity tible
Units Net Comp- Deben- Distri-
in $ Income onents ture butions Total
---------------------------------------------------------------------
---------------------------------------------------------------------

Unitholders'
Equity -
December 31,
2003,
as previously
reported $198,107 $23,636 $1,148 $(814) $(19,527) $202,550

Change in
accounting
policy (note 2e) - (814) - 814 - -
---------------------------------------------------------------------

Unitholders'
Equity -
December 31,
2003,
as restated 198,107 22,822 1,148 - (19,527) 202,550

Net income - 11,348 - - - 11,348

Units issued
(note 15) 69,127 - - - - 69,127

Convertible
debentures -
equity component
(note 11) - - 1,704 - - 1,704

Distributions - - - - (26,473) (26,473)
---------------------------------------------------------------------

Unitholders'
Equity -
December 31,
2004 $267,234 $34,170 $2,852 $ - $(46,000) $258,256
---------------------------------------------------------------------
---------------------------------------------------------------------

---------------------------------------------------------------------
---------------------------------------------------------------------

Unitholders'
Equity -
December 31,
2002,
as previously
reported $161,605 $556 $38 $(26) $(600) $161,573

Change in
accounting
policy (note 2e) - (26) - 26 - -
---------------------------------------------------------------------

Unitholders'
Equity -
December 31,
2002,
as restated 161,605 530 38 - (600) 161,573
Net income - 22,292 - - - 22,292

Units issued
(note 15) 36,502 - - - - 36,502

Income subsidy
(note 24) - - 1,110 - - 1,110

Distributions - - - - (18,927) (18,927)
---------------------------------------------------------------------

Unitholders'
Equity -
December 31,
2003 $198,107 $22,822 $1,148 $- $(19,527) $202,550
---------------------------------------------------------------------
---------------------------------------------------------------------

See accompanying notes


Consolidated Statements of Income
For the Years Ended December 31
(in thousands of dollars, except per unit amounts)

2004 2003
(restated-
note 2e)
---------------------------------------------------------------------
---------------------------------------------------------------------

Revenues from Rental Operations (note 16) $98,750 $75,033

Rental Property Operating Costs 47,160 32,851
---------------------------------------------------------------------

Net Operating Income 51,590 42,182
---------------------------------------------------------------------

Expenses

Interest (note 17) 20,184 14,008
General and administrative 1,687 1,584
Amortization of buildings (note 2a) 12,849 3,379
Other amortization (note 18) 4,980 375
Trust expenses 542 544
---------------------------------------------------------------------
40,242 19,890
---------------------------------------------------------------------

Net Income $11,348 $22,292
---------------------------------------------------------------------
---------------------------------------------------------------------

Basic Net Income Per Unit (note 20) $0.474 $1.308
---------------------------------------------------------------------
---------------------------------------------------------------------

Diluted Net Income Per Unit (note 20) $0.474 $1.275
---------------------------------------------------------------------
---------------------------------------------------------------------

See accompanying notes


Consolidated Statements of Cash Flows
For the Years Ended December 31
(in thousands of dollars)

2004 2003
(restated-
note 2e)
---------------------------------------------------------------------
Cash Flows generated from (used for) -

Operating Activities
Net income $ 11,348 $22,292
Items not affecting cash:
Amortization of buildings 12,849 3,379
Other amortization 4,980 375
Amortization of above and below market
in-place leases (252) -
Amortization of deferred financing costs 248 165
Interest on convertible debentures paid by units 197 788
Accrued rental revenue (1,899) -
Income subsidy - 1,110
Tenant improvements and leasing costs (7,356) (4,384)
Changes in:
Other assets 5,964 (9,133)
Accounts payable and accrued liabilities (1,347) 8,534
---------------------------------------------------------------------
Cash Flows generated from Operating Activities 24,732 23,126
---------------------------------------------------------------------

Financing Activities
Increase in debts on income-producing properties 102,000 85,020
Repayment of debts on income-producing properties (29,521) (38,398)
Convertible debentures issued (net of issue costs) 52,644 -
Amortization of fair value debt adjustment (55) -
Accretion on liability component of convertible
debentures 42 -
Additions to deferred financing costs (642) (265)
Bank indebtedness (4,129) (3,343)
Due to companies under common control of certain
trustees of the REIT - (521)
Proceeds of public offering of units (net of
issue costs) 56,159 35,470
Distributions (25,374) (16,906)
---------------------------------------------------------------------
Cash Flows generated from Financing Activities 151,124 61,057
---------------------------------------------------------------------

Investing Activities
Acquisitions (note 4) (154,594) (81,208)
Additions to buildings (10,184) (7,457)
Additions to furniture, fixtures and computers (210) (345)
Deposits on potential acquisitions (755) -
Due from companies under common control of
certain trustees of the REIT (113) (137)
---------------------------------------------------------------------
Cash Flows used for Investing Activities (165,856) (89,147)
---------------------------------------------------------------------
Increase (Decrease) in Cash and Cash Equivalents 10,000 (4,964)
Cash and Cash Equivalents - Beginning of Year - 4,964
---------------------------------------------------------------------
Cash and Cash Equivalents - End of Year $ 10,000 $-
---------------------------------------------------------------------
---------------------------------------------------------------------

See accompanying notes


Notes to Consolidated Financial Statements
December 31, 2004 and 2003
(dollar amounts are in thousands, except per unit amounts)


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") dated October 18, 2002 and amended and
restated as of December 13, 2002. The REIT was established under, and is
governed by, the laws of the Province of Quebec. The REIT began
operations on December 20, 2002.

2. Changes in Accounting Policies

(a) Amortization of Income-Producing Properties

Effective January 1, 2004, the REIT changed its accounting policy for
amortization of income-producing properties. The REIT is now using the
straight-line method over 35 years. Previously, the sinking fund method
was used. The REIT has made this change in order to conform with the
adoption of new recommendations by the Canadian Institute of Chartered
Accountants ("CICA"), which disallow the use of the sinking fund method.
The effect of the change on the consolidated financial statements for
the year ended December 31, 2004, based on the income-producing
properties owned by the REIT at December 31, 2003, is to decrease net
income by $6,632. This change has been applied prospectively.

(b) Acquisitions of Income-Producing Properties

The CICA's abstract concerning the accounting for operating leases
acquired in either an asset acquisition or a business combination
(EIC-140) is prospective in application and effective for acquisitions
initiated on or after September 12, 2003. EIC-140 requires an enterprise
that acquires real estate in either an asset acquisition or business
combination, to allocate a portion of the purchase price to the fair
value of tenant improvements and in-place operating leases acquired in
connection with the real estate property. A portion of the purchase
price should also be allocated to the fair value of customer
relationships relating to the probability that existing tenants will
renew their leases. The tenant improvements and lease origination costs
for in-place leases are amortized as an expense over the remaining term
of the lease. The value of the above and below market in-place leases
are amortized and recorded as either an increase (below market leases)
or a decrease (above market leases) to revenues from rental operations
over the remaining term of the lease. The value of tenant relationships
are amortized over the term of the lease and renewal periods. In the
event that a tenant vacates its leased space prior to the contractual
termination of the lease and rental payments are not being made on the
lease, any unamortized balance of the related tenant improvements,
intangible assets or liabilities are written-off. Prior to the
application of this abstract, the cost of income-producing property
acquisitions was allocated to land and buildings.

(c) Impairment of Long-Lived Assets

On January 1, 2004 the REIT prospectively adopted section 3063 of the
CICA handbook, "Impairment of long-lived assets". Long-lived assets are
reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
Impairment is assessed by comparing the carrying amount of an asset with
the expected future net undiscounted cash flows from its use together
with its residual value. If such assets are considered to be impaired,
the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceeds their fair value. The REIT
assessed all its assets upon adoption of the new standard and determined
that no impairment existed.

(d) Revenue Recognition

Effective January 1, 2004, the REIT changed its method of applying its
revenue recognition policy to rental revenue from leases with variable
rents or payments. The REIT recognizes now on a straight-line basis over
the term of the leases rental revenue from all leases. Previously, only
rental revenue from leases with rents or payments varying significantly
were recorded on a straight-line basis. The effect of the change on the
consolidated financial statements for the year ended December 31, 2004
is to increase net income by $1,899. The difference between the rental
revenue recognized and the amounts contractually due under the leases,
accrued rental revenue, is recorded as deferred rent receivable, which
is included in other assets. This change has been applied retroactively
without restatement of prior year financial statements as there is no
material impact.

(e) Convertible Debentures

Effective July 1, 2004, the REIT early adopted the amendment to the
recommendations of Section 3860 of the CICA Handbook with respect to
accounting for financial instruments. The amendment requires the value
ascribed to the issuer's option to convert the convertible debentures to
a variable number of units be classified as a liability as at December
31, 2002 instead of equity. The REIT has applied this amendment
retroactively. As a result, the REIT has reclassified the 2002
convertible debenture (see note 11) from equity to liability (the value
ascribed to the holder's option to convert as well as issue costs were
immaterial) and the related interest expense amounting to $282 (2003 -
$788) has been reclassified from unitholders' equity to the statement of
income. Basic and diluted net income per unit are unaffected by this
change.

3. Summary of Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements include the accounts of the REIT,
its subsidiairies and its proportionate share of assets, liabilities,
revenues and expenses of co-owned properties. On consolidation, all
material inter-entity transactions and balances have been eliminated.

Use of Estimates

The preparation of the consolidated financial statements in conformity
with Canadian generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, the disclosure of contingent assets
and liabilities at the date of the consolidated financial statements and
the reported amounts of revenue and expenses during the reporting year.
Because of the use of estimates inherent in the financial reporting
process, actual results could differ from those estimates. Significant
estimates and assumptions are made by management are used for, but not
limited to, the estimated useful lives of long-lived assets, the
recoverability of such assets by their estimated future undiscounted
cash flows, the purchase price allocation on real estate acquisitions,
and fair value for disclosure purpose.

Revenue recognition

Rents are recognized as revenue over the terms of the related
agreements. Leases, which include contractual increases in basic rents,
are accounted for on a straight-line basis for the year ended December
31, 2004. See note 2d) for accounting policies for the year ended
December 31, 2004. Percentage rents are recognized when the required
level of sales has been achieved. Recoveries from tenants for taxes,
insurance and other operating expenses are recognized as revenues in the
period in which the applicable costs are incurred. Parking and other
incidental are recognized when the services are provided.

Income-Producing Properties

Acquisitions of income-producing properties have been accounted for as
purchased assets from the commencement of operations on December 20,
2002 to December 31, 2003. On September 12, 2003, the Canadian Institute
of Chartered Accountants issued an Emerging Issues Committee Abstract
(EIC-140) which requires that a portion of the purchase price of a real
estate property be allocated to the fair value of intangible components.
EIC-140 is to be applied prospectively to transactions initiated after
September 12, 2003. The REIT, having initiated or completed the
acquisitions presented in the financial statements for the year ended
December 31, 2003 prior to the issuance of the abstract, applied EIC-140
to acquisitions made on or after January 1, 2004.

Income-producing properties are stated at the lower of cost less
accumulated amortization and net recoverable amounts. Cost includes the
purchase price of the property plus other acquisition-related costs. Net
recoverable amounts represent the estimated future net cash flows
expected to be received from the ongoing use and residual worth of the
properties.

Amortization

Effective January 1, 2004, the amortization of buildings is provided
using the straight-line method over 35 years. Previously, the
amortization was provided using the sinking fund method in increasing
annual amounts at a rate of 5% per annum compounded annually so as to
fully amortize the cost of building over 35 years. See note 2 a) Change
in Accounting Policy.

The amounts recorded for amortization of buildings are based on
estimates of the remaining useful life of these assets. Maintenance and
repairs are charged to expense when incurred.

Leasing costs and tenant improvements including tenant inducements and
allowances are deferred and amortized over the terms of the related
leases. Other deferred charges are amortized over terms appropriate to
the expenditure.

The tenant improvements and lease origination costs for in-place leases
are amortized as an expense over the remaining term of the lease. The
value of the above and below market in-place leases are amortized and
recorded as either an increase (below market leases) or a decrease
(above market leases) to revenues from rental operations over the
remaining term of the lease. The value of tenant relationships is
amortized over the term of the lease and renewal periods.

Land held for development

Land held for development is stated at the lower of cost and net
recoverable amounts. Cost includes the purchase price of the land plus
other acquisition-related costs. Net recoverable amounts represent the
estimated future net cash flows expected to be received from the ongoing
use and residual worth of the land, after taking into account estimated
costs to complete the development.

Income Taxes

Income taxes for the subsidiary companies are accounted for using the
liability method. Under this method, future income taxes are recognized
for the expected future tax consequences of differences between the
carrying amount of balance sheet items and their corresponding tax
values.

Future income taxes are computed using substantively enacted corporate
income tax rates for the years in which the differences are expected to
reverse.

Deferred Financing Costs

Deferred financing costs are amortized over the terms of the related
debt.

Unit Option Plan

The REIT has a unit option plan as described in note 15. The REIT will
recognize the fair value of unit options on their grant date as
compensation expense over the period that the unit options vest.

Employee Unit Purchase Plan

The REIT has an employee unit purchase plan (EUPP) as described in note
15. A compensation expense is recognized for the REIT's contributions to
the plan over the vesting period.

4. Acquisitions

During the year the REIT acquired a land held for development, 17
income-producing properties and related assets and liabilities (2003 -
interest in seven co-owned industrial properties (the "Co-Owned
Properties"), eight income-producing office properties and related
assets and liabilities).



The following table summarize the net assets acquired:

Land held
for Office Retail Industrial Total Total
development Properties Property Properties 2004 2003
---------------------------------------------------------------------

Land held
for
development $ 964 $ - $ - $ - $ 964 $ -
Land - 5,732 13,132 13,899 32,763 11,385
Building - 51,760 19,640 35,827 107,227 74,954
Tenant
improvements - - 1,139 - 1,139 -
Intangible
assets and
liabilities:
Lease
origination
costs for
in-place
leases - 13,707 12,898 6,825 33,430 -
Above market
in-place
leases - 123 359 1,298 1,780 -
Below market
in-place
leases - (521) (2,491) (638) (3,650) -
Other assets - 387 647 1,731 2,765 105
Accounts payable
and accrued
liabilities - (752) (97) (622) (1,471) (415)
Debts on
income-producing
properties - - - (20,353)(20,353) (4,821)
---------------------------------------------------------------------
Cash
consideration
paid for the
net assets
acquired $ 964 $ 70,436 $ 45,227 $ 37,967$154,594 $ 81,208
---------------------------------------------------------------------
---------------------------------------------------------------------


The results of operations of income-producing properties and the REIT's
proportionate share of revenues and expenses of the Co-Owned Properties
are included in the consolidated financial statements from their date of
acquisition.

The REIT acquired two office properties in 2004 and the Co-Owned
Properties in 2003 from companies under common control of certain
trustees of the REIT. These transactions were measured at the exchange
amount which is the amount established and agreed to by the related
parties.



5. Income-Producing Properties

2004 2003
---------------------------------------------------------------------
Accumulated Net Carrying Net Carrying
Cost Amortization Amount Amount
---------------------------------------------------------------------

Land $ 112,952 $ - $ 112,952 $ 80,489
Building and
tenant
improvements 505,045 17,750 487,295 378,335
Leasing costs 2,782 437 2,345 699
Tenant
improvement
recorded on
acquisitions 1,139 42 1,097 -
---------------------------------------------------------------------

$ 621,918 $ 18,229 $ 603,689 $ 459,523
---------------------------------------------------------------------
---------------------------------------------------------------------


6. Intangible Assets

2004 2003
---------------------------------------------------------------------
Accumulated Net Carrying Net Carrying
Cost Amortization Amount Amount
---------------------------------------------------------------------

Lease origination
costs for in-place
leases $ 33,430 $ 3,122 $ 30,308 $ -
Above market
in-place leases 1,780 184 1,596 -
---------------------------------------------------------------------

$ 35,210 $ 3,306 $ 31,904 $ -
---------------------------------------------------------------------
---------------------------------------------------------------------


7. Cash and Cash Equivalents

Cash and cash equivalents consist of a $10,000 (December 31, 2003 -
$NIL) term deposit bearing interest at an interest rate of 2.45% and
maturing on January 5, 2005.



8. Other Assets

2004 2003
---------------------------------------------------------------------
---------------------------------------------------------------------

Accounts receivable $ 2,824 $ 927
Deferred rent receivable 1,899 -
Prepaids 1,412 945
Deposits on potential acquisitions 755 -
Restricted funds 5,593 11,156
Deferred financing costs 3,122 372
Furniture, fixture and computers 714 708
---------------------------------------------------------------------

$ 16,319 $ 14,108
---------------------------------------------------------------------
---------------------------------------------------------------------


Restricted funds held at Canadian financial institutions include $141
(December 31, 2003 - $7,080) which is to be released as the
redevelopment of an income-producing property is finalized and $5,452
(December 31, 2003 - $4,076) pursuant to agreements with various
mortgage lenders.

Deferred financing costs are net of accumulated amortization of $413
(December 31, 2003 - $165).

Furniture, fixture and computers are net of accumulated amortization of
$340 (December 31, 2003 - $137).

9. Due from Companies Under Common Control of Certain Trustees of the
REIT

The amounts due from companies under common control of certain trustees
of the REIT are non-interest bearing and have no specific terms of
repayment.



10. Debts on Income-Producing Properties

2004 2003
---------------------------------------------------------------------
---------------------------------------------------------------------

Loans secured by mortgages on income-producing
properties, bearing interest at a weighted
average annual rate of 6.3%, repayable in
blended monthly instalments of $2,527
maturing at various dates no later than
July 1, 2019 $ 332,675 $ 240,704
Accrued interest 1,739 1,193
---------------------------------------------------------------------
334,414 241,897
Fair value debt adjustment (note 17) 260 -
---------------------------------------------------------------------
$ 334,674 $ 241,897
---------------------------------------------------------------------
---------------------------------------------------------------------


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

Instalments Due on
payments maturity Total
---------------------------------------------------------------------

2005 $ 9,463 $ 20,035 $ 29,498
2006 9,122 3,913 13,035
2007 8,530 79,326 87,856
2008 6,240 50,034 56,274
2009 4,588 40,300 44,888
Subsequent to 2009 38,506 62,618 101,124
---------------------------------------------------------------------
76,449 256,226 332,675
Accrued interest 1,739
---------------------------------------------------------------------

$ 334,414
---------------------------------------------------------------------
---------------------------------------------------------------------


11. Convertible Debentures

2004 Convertible Debentures

On August 31, 2004, the REIT issued $55 million principal amount of
Series A subordinated unsecured convertible debentures (the "2004
Convertible Debentures") at a price of $1,000 per convertible debenture.
The 2004 Convertible Debentures bear interest at 6.2% per annum payable
semi-annually and will mature June 30, 2014. The 2004 Convertible
Debentures will be convertible, subject to certain restrictions, in
whole or in part, at the holders' option, at any time prior to June 27,
2014 into 73.2601 units per $1 000 of face value (in aggregate, 4.029
million units), subject to an anti-dilution adjustment, representing a
conversion price of $13.65 per unit.

Provided that the REIT is not in default at date of payments, the REIT
may elect, at its option, to satisfy any obligation to pay the principal
amount on maturity or the redemption date, by delivering units of the
REIT. The number of units to be issued will be determined by dividing
the principal amount of the 2004 Convertible Debentures that are to be
redeemed or that are to mature, by 95% of the volume-weighted average
trading price of the units of the REIT on the Toronto Stock Exchange
(the "TSX") for the 20 consecutive trading days ending on the fifth
trading day preceding the date of payment. In addition, units of the
REIT may be issued to pay interest on the 2004 Convertible Debentures.
The 2004 Convertible Debentures are not redeemable prior to June 30,
2008, except in the event of a change of control. On or after June 30,
2008 and prior to June 30, 2010, the 2004 Convertible Debentures may be
redeemed by the REIT, in whole or in part, at a redemption price equal
to the principal amount thereof plus accrued and unpaid interest,
provided that the volume-weighted average trading price of the Units on
the TSX for the 20 consecutive trading days ending on the fifth trading
day preceding the date on which notice of redemption is given exceeds
125% of the conversion price. On or after June 30, 2010 and prior to
June 30, 2014, the 2004 Convertible Debentures may be redeemed by the
REIT at any time at a redemption price equal to the principal amount
thereof plus accrued and unpaid interest.

In accordance with the amendment to Section 3860 of the CICA Handbook,
the 2004 Convertible Debentures were divided into their liability and
equity components, measured at their respective fair values at time of
issue. Interest expense on the 2004 Convertible Debentures is determined
by applying a discount rate of 6.6% to the outstanding liability
component. The difference between actual cash interest payments and
interest expense is accreted to the liability component of the 2004
Convertible Debentures up to the face value of the 2004 Convertible
Debentures. Issue costs related to the 2004 Convertible Debentures are
deferred and amortized over the term of the debt.

2002 Convertible Debenture

On December 20, 2002, the REIT issued $12.15 million principal amount of
subordinated unsecured convertible debenture (the "2002 Convertible
Debenture") at par. The 2002 Convertible Debenture were bearing interest
at 6.5% per annum payable quarterly and would have matured December 31,
2005. Provided that the REIT was not in default at date of payments, the
REIT may have elected, at its option, to satisfy any obligation to pay
interest on any interest payment date, and/or the principal amount on
maturity or the redemption date, by delivering units of the REIT equal
in value at the date of payment to the amount due. In order to determine
the value of a unit for such purposes, the value of the units on the
date of payment shall be deemed to be equal to the volume weighted
average trading price (calculated by dividing the total value by the
total volume of units traded on The Toronto Stock Exchange during the
twenty consecutive trading days ending five trading days preceding the
date of payment). On May 10, 2004, the entire 2002 Convertible Debenture
was converted into 1,056,443 units of the REIT at a conversion price of
$11.50 per unit (see note 15).

During the year the REIT elected to satisfy its obligations on interest
on the 2002 Convertible Debenture by delivering 16,061 units (2003 -
71,800) equal in value to $197 (2003 - $814) (see note 15 ).



12. Intangible Liabilities

2004 2003
---------------------------------------------------------------------
Accumulated Net Carrying Net Carrying
Cost Amortization Amount Amount
---------------------------------------------------------------------

Below market
in-place leases $ 3,650 $ 436 $ 3,214 $ -
---------------------------------------------------------------------
---------------------------------------------------------------------


13. Bank Indebtedness

As at December 31, 2004, the REIT's $50,000 credit facility is subject
to annual review and consists of a general operating loan, banker's
acceptance and letters of credit.

Borrowings under the general operating loan bear interest at prime plus
0.5% per annum. Borrowings under the bankers' acceptance bear interest
at the bankers' acceptance rate plus 2.25% per annum. The letter of
credit facility is limited to $5,000. The credit facility is secured by
a first ranking hypothec on three income-producing properties having a
net carrying amount of $45,435 and a second ranking hypothec on two
income-producing properties having a net carrying amount of $237,654.

The terms of the banking agreement require the REIT to meet certain
financial covenants.



14. Commitments and Contingencies

(a) The annual future payments required under emphyteutic leases,
expiring from 2046 to 2065, on land for two income-producing
properties and a portion of a third income-producing property
having a net carrying value of $42,994 (2003 - $38,979), are
as follows:

---------------------------------------------------------------------

2005 $ 411
2006 411
2007 415
2008 416
2009 416
Subsequent to 2009 17,134

(b) The REIT is committed to payments under various service
agreements for the maintenance of an income-producing property,
expiring from 2005 to 2012. The estimated minimum payments required
under these agreements are approximately
as follows:

---------------------------------------------------------------------

2005 $ 3,814
2006 2,017
2007 529
2008 498
2009 447
Subsequent to 2009 1,175

(c) Letters of guarantee outstanding as at December 31, 2004 amount
to $2,000 (2003 - $2,017). This amount has been given as a
performance guarantee to execute required repairs under a mortgage
agreement.

(d) Guarantees on debts on income-producing properties for
proportionately consolidated Co-Owned Properties total $182 (2003 -
$327). Of this amount the REIT's proportionate share amounting to
$45 (2003 - $82) has been included in debts on income-producing
properties. The REIT would be liable in the event of a default of
the Co-Owned Properties. The related debts are secured by specific
charges against the Co-Owned Properties.


15. 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:



2004 2003
---------------------------------------------------------------------
Number Number
of units Amounts of units Amounts
---------------------------------------------------------------------

Balance - beginning
of year 20,091,900 $ 198,107 16,901,200 $ 161,605
Issuance of units:
Offerings 4,300,000 56,159 3,100,000 35,470
Distribution reinvestment
plan 51,531 621 18,900 218
Interest on convertible
debenture (note 11) 16,061 197 71,800 814
Conversion of convertible
debenture (note 11) 1,056,443 12,150 - -
---------------------------------------------------------------------

Balance - end of year 25,515,935 $ 267,234 20,091,900 $ 198,107
---------------------------------------------------------------------
---------------------------------------------------------------------


On December 18, 2003, the REIT raised gross proceeds of $36,735 through
the issuance of 3.1 million units at a price of $11.85 per unit through
a private placement offering (the "2003 Offering"). Costs relating to
the 2003 Offering include underwriters' fees and other issue costs of
$1,265 and were charged directly to unitholders' equity.

On April 8, 2004, the REIT raised gross proceeds of $58,695 through the
issuance of 4.3 million units to the public at a price of $13.65 per
unit (the "April 2004 Offering"). Costs relating to the April 2004
Offering include underwriters' fees and other issue costs of $2,536 and
were charged directly to unitholders' equity.

On May 10, 2004, the holder of the 2002 Convertible Debenture, a company
under common control of certain trustees of the REIT, exercised its
option to convert the entire convertible debenture into 1,056,443 units
of the REIT at a conversion price of $11.50 per unit.

Employee Unit Purchase Plan

On July 1, 2004, the REIT adopted an EUPP which gives eligible employees
the opportunity to acquire units of the REIT for between 2% to 5% of
their gross salaries and to have the REIT contribute, a further amount
equal to 50% of the amount invested by the employees, over the following
five years. The contributions are used to purchase units of the REIT in
the open market. A compensation expense of $1 has been recognized for
the REIT's contributions under the EUPP.

Unit Option Plan

On December 20, 2002, the REIT adopted a unit option plan (the "Plan"),
which is subject to the rules of the Toronto Stock Exchange. Unit
options may be issued to employees, directors, officers or Trustees of
the REIT, its wholly-owned subsidiaries as well as certain trusts of
which the REIT is directly or indirectly a beneficiary. The total number
of units in respect of which options may be granted under the Plan may
not exceed 2,535,180 units. The unit option plan provides that at no
time shall the number of units reserved for issuance under the Plan
exceed 15% of the then outstanding units. The exercise price of the
options will be equal to the market price of the units on the day before
the day on which the option is granted. The option shall be exercisable
for a period not exceeding 10 years. No grants have been awarded under
the Plan.

Distribution Reinvestment Plan

The REIT maintains a distribution reinvestment plan pursuant to which
unitholders may elect to have all cash distributions of the REIT
automatically reinvested in additional units. The plan gives to the
reinvestment plan participants a number of units amounting to 103% of
their cash distribution. During the year, 51,531 units (2003 - 18,900)
have been issued at a weighted average price of $12.05 (2003 - $11.53)
pursuant to the distribution reinvestment plan.



16. Revenues From Rental Operations

2004 2003
---------------------------------------------------------------------
---------------------------------------------------------------------
Rental revenue contractually due under
the leases $ 96,599 $ 75,033
Accrued rental revenue 1,899 -
Amortization of above market in-place leases (184) -
Amortization of below market in-place leases 436 -
---------------------------------------------------------------------
$ 98,750 $ 75,033
---------------------------------------------------------------------
---------------------------------------------------------------------

17. Interest

2004 2003
(restated -
note 2 e)
---------------------------------------------------------------------
---------------------------------------------------------------------
Interest on debts on income-producing
properties, at stated rate $ 18,104 $ 12,767
Interest on convertible debentures, at
stated rate 1,421 788
Accretion on liability component of
convertible debentures 42 -
Other interest 424 288
Amortization of deferred financing costs 248 165
Amortization of fair value debt adjustment (55) -
---------------------------------------------------------------------
$ 20,184 $ 14,008
---------------------------------------------------------------------
---------------------------------------------------------------------


Certain debts on income-producing properties assumed on acquisitions
completed during the year have been adjusted to fair value using the
market interest rate at the time of acquisition. This fair value debt
adjustment is amortized to interest expense over the remaining life of
the debts.

Interest paid during the year was $19,206 (2003 - $12,937).



18. Other Amortization

2004 2003
---------------------------------------------------------------------
---------------------------------------------------------------------
Amortization of tenant improvements and leasing
costs incurred through leasing activities $ 1,612 $ 242
Amortization of furniture, fixtures and computers 204 133
Amortization of lease origination costs for
in-place leases incurred through acquisitions 3,122 -
Amortization of tenant improvements incurred
through acquisitions 42 -
---------------------------------------------------------------------
$ 4,980 $ 375
---------------------------------------------------------------------
---------------------------------------------------------------------


19. Income Taxes

The REIT is an unincorporated, closed-ended investment trust created by
the Contract of Trust governed by the laws of the Province of Quebec.
The REIT is taxed as a "mutual fund trust" for income tax purposes.
Pursuant to the Contract of Trust, the REIT will make distributions or
designate all taxable income earned by the REIT to unitholders and will
deduct such distributions and designations for income tax purposes.
Therefore, no provision for income taxes has been made. Income tax
obligations relating to distribution from the REIT are the obligations
of the unitholders.

The REIT's subsidiaries are Canadian-based enterprises which are subject
to tax on their taxable income under the Income Tax Act (Canada) at an
average rate of approximately 31%. There is no provision required for
the years ended December 31, 2004 and 2003.



20. Net Income Per Unit Calculations

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

2004 2003
---------------------------------------------------------------------
Basic Diluted Basic Diluted
---------------------------------------------------------------------

Net income $ 11,348 $ 11,348 $ 22,292 $ 22,292
add: interest on
convertible debentures - - - 788
---------------------------------------------------------------------

Net income available to
unitholders $ 11,348 $ 11,348 $ 22,292 $ 23,080
---------------------------------------------------------------------
---------------------------------------------------------------------

Weighted average number
of units outstanding 23,942,455 23,942,455 17,046,230 17,046,230
add: incremental units
from assumed conversion
of convertible debentures - - - 1,056,443
---------------------------------------------------------------------
Weighted average number
of units used in
calculation 23,942,455 23,942,455 17,046,230 18,102,673
---------------------------------------------------------------------
---------------------------------------------------------------------


Convertible debentures have been excluded from the calculations of the
diluted net income per unit for the year ended December 31, 2004 since
they are anti-dilutive.

21. 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 generally accepted accounting principles, has been calculated
in accordance with the terms of the Contract of Trust as follows:



2004 2003
---------------------------------------------------------------------
Net income $ 11,348 $ 22,292
Add (deduct)
Income subsidy - 1,110
Cancellation fee received - (7,825)
Amortization of buildings 12,849 3,379
Amortization of amounts recorded
on acquisitions:
Tenant improvements 42 -
Lease origination costs for
in-place leases 3,122 -
Above and below market
in-place leases (252) -
Accretion on liability component
of convertible debentures 42 -
Amortization of fair value debt
adjustments (55) -
Accrued rental revenue recognized
on a straight-line basis (1,899) -
---------------------------------------------------------------------

Distributable income $ 25,197 $ 18,956
---------------------------------------------------------------------
---------------------------------------------------------------------


22. Investments in Co-Owned Properties

The REIT'S pro-rata share of the assets and liabilities of the Co-Owned
Properties as at December 31, 2004 and 2003, as well as its
proportionate share in the revenues, expenses and cash flows since April
1, 2003, date of acquisition of its investment in these properties, are
as follows:



2004 2003
---------------------------------------------------------------------

Income-producing properties $ 8,834 $ 8,940
Debts on income-producing properties 4,443 4,687
Accounts payable and accrued liabilities 125 187

Revenues 1,427 953
Expenses 1,239 948
Net income 188 5

Cash flows from:
Operating activities 344 305
Financing activities (244) (134)
Investing activities (100) (171)
---------------------------------------------------------------------
---------------------------------------------------------------------


23. Segmented Information

The segmented information is aligned to conform to the REIT's strategic
business unit organization and is disaggregated among four segments:
office, retail, industrial and multi-family residential properties.

The REIT, its subsidiaries and the Co-Owned Properties operate in Quebec
in the above-mentioned segments.

The operating segments are managed separately because of the different
types of properties, tenants and marketing strategies involved. The REIT
evaluates segment performance based on net operating income which is
entirely allocated amongst the segments.

The REIT utilizes the same accounting policies for its segments as those
described in note 3.



Multi-family
2004 Office Retail Industrial residential Total
---------------------------------------------------------------------

Revenues from rental
operations $ 52,181 $ 28,374 $ 12,884 $ 5,311 $ 98,750
Rental property
operating costs 26,143 12,838 4,994 3,185 47,160
---------------------------------------------------------------------
Net operating
income $ 26,038 $ 15,536 $ 7,890 $ 2,126 $ 51,590
---------------------------------------------------------------------
Income-producing
properties $ 291,564 $ 174,997 $ 103,991 $ 33,137 $ 603,689
---------------------------------------------------------------------
Intangible assets $ 12,979 $ 12,382 $ 6,543 $ - $ 31,904
---------------------------------------------------------------------
Additions to
income-producing
properties $ 63,858 $ 43,370 $ 51,278 $ 163 $ 158,669
---------------------------------------------------------------------
Additions to
intangible assets $ 13,830 $ 13,257 $ 8,123 $ - $ 35,210
---------------------------------------------------------------------
---------------------------------------------------------------------


Multi-family
2003 Office Retail Industrial residential Total
---------------------------------------------------------------------
Revenues from rental
operations $ 29,799 $ 31,646 $ 8,487 $ 5,101 $ 75,033
Rental property
operating costs 15,025 11,312 3,271 3,243 32,851
---------------------------------------------------------------------
Net operating
income $ 14,774 $ 20,334 $ 5,216 $ 1,858 $ 42,182
---------------------------------------------------------------------
Income-producing
properties $ 235,533 $ 135,546 $ 54,634 $ 33,810 $ 459,523
---------------------------------------------------------------------
Intangible assets $ - $ - $ - $ - $ -
---------------------------------------------------------------------
Additions to
income-producing
properties $ 78,190 $ 6,732 $ 13,176 $ 82 $ 98,180
---------------------------------------------------------------------
Additions to
intangible assets $ - $ - $ - $ - $ -
---------------------------------------------------------------------
---------------------------------------------------------------------


24. Related Party Transactions

The following related party transactions were measured at the exchange
amount which is the amount established and agreed to by the related
parties.

Income Subsidy

In order to provide unitholders of the REIT with an income stream
reflecting an expected lease renewal for a specific tenancy and a
contractual rental increase for a specific tenancy, companies under
common control of certain trustees of the REIT have provided an income
subsidy (the "Income Subsidy") to the REIT equal to such expected
renewal and contractual rental increase, until such time as the Income
Subsidy was replaced by rental revenue from occupying tenants. For 2004,
the Income Subsidy amounted to $Nil (2003 - $1,110).

Head Lease

In order to provide unitholders of the REIT with stable, predictable
revenues in respect of certain vacant spaces that are expected to be
leased in the near term, the head lessee, a company under common control
of certain trustees of the REIT, entered into the head lease with the
REIT. The head lease is for a term of ten years and applies to
approximately 166,661 (2003 - 197,319) square feet of leasable area of
the income-producing properties at specified market rental rates. For
2004, the head lease revenue amounted to $2,248 (2003 - $2,810).

As security for the obligation of the Income Subsidy and head lease, a
company under common control of certain trustees of the REIT has pledged
units of the REIT.

Other

Accounts payable and accrued liabilities include $896 (2003 - $2,062)
due to companies under common control of certain trustees of the REIT.

During the year, the REIT received services of $8,344 (2003 - $8,435)
from a construction management company under common control of certain
trustees of the REIT.

25. Financial Instruments

Credit Risk

Management reviews a new tenant's credit history before signing new
leases and conducts regular reviews of its existing tenants' credit
performance.

Interest Rate Risk

The REIT is exposed to interest rate risk on debts on income-producing
properties and bank indebtedness which bear interest based on prime
rates. The fair value of the debts and bank indebtedness will fluctuate
as a result of changes in interest rates.

Fair Value of Financial Instruments

The fair value of the REIT's, cash and cash equivalents, accounts
receivable, deposits, restricted funds, bank indebtedness and accounts
payable and accrued liabilities approximate their carrying amounts due
to the relatively short periods to maturity of the instruments.

The fair value of the debts on income-producing properties and the 2002
convertible debenture at December 31, 2004 and 2003, has been
established by discounting the future cash flows using interest rates
corresponding to that which the REIT would currently be able to obtain
for loans with similar maturity dates and terms. Based on these
assumptions, the fair value of debts on income-producing properties at
December 31, 2004 has been estimated at $344,645 (2003 - $245,014)
compared with the carrying value of $332,935 (2003 - $240,704) and the
fair value of the 2002 convertible debentures has been estimated at $NIL
(2003 - $12,435) compared with the carrying value of $NIL (2003 -
$12,150).

The fair value of the 2004 convertible debentures as at December 31,
2004 is $55,000 compared with the carrying value of $55,042. The fair
value is based on the convertible debenture's market rate at December
31, 2004.

A reasonable estimate of fair value could not be made for amounts due to
and from companies under common control of certain trustees of the REIT
as there is no comparable market data.

26. Comparative Figures

Certain reclassifications of 2003 amounts have been made to facilitate
comparison with the current year.

27. Subsequent Event

Subsequent to year end, the REIT completed the acquisition of an
income-producing property for an approximate purchase price of $8,400.
The transaction was funded using part of the proceeds raised from the
issuance of the 2004 Convertible Debentures.


MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2004

The following discussion describes the business, the business
environment, and management's expectations as at February 28, 2005. It
should be read in conjunction with the consolidated financial statements
of the Alexis Nihon Real Estate Investment Trust ("the REIT") for the
years ended December 31, 2004, and 2003 and the notes thereto, as well
as the Prospectuses dated December 13, 2002, April 8, 2004 and August
19, 2004.

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.

BUSINESS OVERVIEW AND OBJECTIVES

The REIT is an unincorporated closed-end real estate investment trust
created pursuant to the Declaration of Trust dated October 18, 2002, as
amended and restated as of December 13, 2002. The REIT is governed by
the laws of the Province of Quebec and began operations on December 20,
2002.

The REIT units and convertible debenture 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.

As at December 31, 2004 the REIT owned interest in 50 office, retail and
industrial properties, including a 426-unit multi-family residential
property. The properties are located in the Greater Montreal Area (48)
and the National Capital Region (2). The REIT's portfolio has an
aggregate of 7.1 million square feet of leasable area, of which 0.4
million square feet is co-owned. The portfolio has a mix of over 860
non-residential tenancies, including many high quality, national tenants
with strong covenants.

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. Please visit our website to download our DRIP brochure.



SELECTED ANNUAL INFORMATION

The following sets forth certain selected annual information
concerning the REIT:

In thousands of dollars, Year ended Year ended Period of Dec.
except per unit amounts Dec. 31, 2004 Dec. 31, 2003 20 to 31, 2002
(restated) (restated)
-----------------------------------------------------------------------
Total revenues $98,750 $75,033 $2,136
Net operating income $51,590 $42,182 $1,195
Net income $11,348 $22,292 $530
-----------------------------------------------------------------------
Net income per unit:
Basic $0.474 $1.308 $0.031
Diluted (1) $0.474 $1.275 $0.031
-----------------------------------------------------------------------
Distributable income (2) $25,197 $18,956 $673
Distributable income per unit:
Basic $1.052 $1.112 $0.040
Diluted $1.039 $1.091 $0.039
-----------------------------------------------------------------------
Distributions $26,473 $18,927 $600
Distributions per unit: $1.10 $1.10 $0.03548
-----------------------------------------------------------------------
Funds from operations (FFO)(2) $29,170 $19,986(4) $699
FFO per unit $1.22 $1.17(4) $0.04
-----------------------------------------------------------------------
Total assets $663,126 $473,768 $374,486
Total debt (3) $388,820 $258,984 $210,910
-----------------------------------------------------------------------
Weighted average number
of units:
Basic 23,942,455 17,046,230 16,901,200
Diluted (for net income) 23,942,455 18,102,673 17,957,642
Diluted (for distributable
income & FFO) 25,663,683 18,102,673 17,957,642
-----------------------------------------------------------------------


(1) The convertible debentures issued in 2004 have been excluded from
the calculations of diluted net income per unit for the year ended
December 31, 2004 since they are anti-dilutive.

(2) Distributable income and FFO are not Generally Accepted Accounting
Principal ("GAAP") measures, see definitions on pages 6 and 12.

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

(4) Excludes the one-time cancellation fee of $7,825 received in 2003.

Factors that have caused variations between the 2004 and 2003 twelve
month periods result primarily from acquisitions completed in December
2003 and in 2004, a cancellation penalty received in 2003, as well as
changes in accounting policies explained further in these pages. The
increase in the weighted average number of units (basic and diluted)
result from units issued via: i) a private placement in December 2003,
ii) the REIT's DRIP, iii) the payment of interest on the AN Convertible
Debenture, iv) a new issue of units in April 2004, and v) the conversion
of the AN Convertible Debenture in May 2004. All of these events are
also explained further in these pages.

2004 OVERVIEW

On April 2, the REIT announced its strategy of expanding its operations
into the National Capital Region when it acquired a 320,900 square foot
fully leased office building in Gatineau, Quebec for $46,319
representing a capitalization rate of approximately 8.6%.

On April 8, the REIT raised gross proceeds of $58,695 through the
issuance of 4.3 million units to the public at a price of $13.65 per
unit. Costs relating to the issuance of units, including underwriters'
fees and other issue costs of approximately $2,536 were charged directly
to unitholders' equity. As well, the underwriters exercised the entire
option granted from an entity affiliated with the Nihon Family to
purchase up to 600,000 units of the REIT from that company at a price of
$13.65 per unit.

On April 30, the REIT announced the acquisition of a 204,700 square
foot, 93% leased, industrial property in Longueuil, Quebec for $7,191
representing a capitalization rate of approximately 11%.

On May 3, the REIT announced the acquisition of a 186,500 square foot,
87% leased, retail power center in Saint-Jerome, Quebec for $24,457
representing an initial capitalization rate of 7.5%, The rate is
expected to rise to approximately 9.25% as lease-up of the remaining
space progresses.

On May 10, the holder of the AN Convertible Debenture, an entity
affiliated with the Nihon/Massicotte Group, exercised its option to
convert the entire convertible debenture of $12,150 into 1,056,443 units
of the REIT at a conversion price of $11.50 per unit.

On June 21, the REIT announced the acquisition of a second office
building in Gatineau, Quebec. The 26,400 square foot, fully leased,
office building was acquired for $4,467 representing a capitalization
rate of approximately 10%.

In June, the REIT also completed the redevelopment of a portion of the
Centre Laval shopping center that began in July 2003. The redevelopment,
encompassing 130,000 square feet of space including an expansion of
approximately 7,400 square feet, was completed in order to accommodate
both The Brick and Future Shop, which opened their establishments in
June 2004.

On July 26, the REIT announced the acquisition of a portfolio of nine
industrial properties in Montreal for $35,900 representing a
capitalization rate of approximately 9.2% (including the assumption of
existing debt detailed further under "Debt Financing"). The portfolio
totals 749,300 square feet and was 90% leased overall.

On August 31, the REIT raised gross proceeds of $55,000 through the
issuance of convertible unsecured subordinated debentures with an
interest rate of 6.20% per annum, payable semi-annually on June 30 and
December 31 commencing on December 31, 2004. The debentures mature on
June 30, 2014. Costs relating to the convertible debentures include
underwriters' fees and other issue costs of $2,356 which are deferred
and amortized over the terms of the debt. In accordance with the
amendment to Section 3860 of the CICA Handbook, the convertible
debentures were divided into their liability and equity components,
measured at their respective fair values at time of issue.

On September 3, the REIT announced the acquisition of a portfolio of
four properties consisting of two office, one industrial, and one retail
property as well as 199,715 square feet of land held for development in
Montreal for $54,400 representing a going-in capitalization rate of
approximately 8.9%, increasing to 10% upon lease-up to stabilized
occupancy levels. The portfolio totals 608,800 square feet and was 86.3%
leased overall.

In September, the REIT completed the redevelopment of a portion of Place
Alexis Nihon in order to accommodate a new Winners outlet in the retail
section. The tenant took occupancy of 41,645 square feet and opened for
business on September 16, 2004. As a result, the gross leasable area of
Place Alexis Nihon increased by approximately 8,129 square feet to
account for common area space that is now occupied by the tenant.

As of December 31, 2004, the REIT's portfolio consisted of 50 properties
aggregating 7.1 million square feet of leasable area of which 0.4
million square feet is co-owned. In 2004, the REIT's portfolio of
properties increased by 17 properties and by over 2.1 million square
feet delivering growth of 31.3% in the REIT's income-producing
properties ($460 million at December 31, 2003 to $604 million at
December 31, 2004). 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 19 - 2,813,741 -
Retail 4 - 1,432,100 -
Industrial 20 7 (2) 2,121,508 410,417
Residential - (1) - 300,321 -
-----------------------------------------------------------------------
Totals 43 7 6,667,670 410,417
-----------------------------------------------------------------------
-----------------------------------------------------------------------


(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).



FINANCIAL RESULTS

The financial results of the REIT are summarized in the following table:

Three months ended
-----------------------------------------------------------------------
Mar. 31 June 30 Sept. 30
-----------------------------------------------------------------------
2004 2003 2004 2003 2004 2003
-----------------------------------------------------------------------

Revenues from rental
operations $20,790 $16,682 $23,281 $16,993 $25,425 $24,161
Rental property
operating costs 10,983 8,021 11,073 8,167 11,266 7,922
-----------------------------------------------------------------------
Net operating income 9,807 8,661 12,208 8,826 14,159 16,239
-----------------------------------------------------------------------

Interest 4,122 3,314 4,347 3,470 5,458 3,522
General and
administrative 306 443 463 382 606 300
Amortization of
buildings 2,710 850 3,134 798 3,373 846
Other amortization 198 36 741 66 1,509 79
Trust 107 137 248 165 138 134
-----------------------------------------------------------------------
7,443 4,780 8,933 4,881 11,084 4,881
-----------------------------------------------------------------------

Net Income 2,364 3,881 3,275 3,945 3,075 11,358
Add/(Deduct):
Income Subsidy - 259 - 295 - 292
Cancellation fee
received - - - - - (7,825)
Amortization of
buildings 2,710 850 3,134 798 3,373 846
Amortization of
amounts recorded on
acquisitions:
Tenant improvements - - - - 35 -
Lease origination
costs for in-place
leases - - 514 - 866 -
Above and below
market in-place
leases - - (40) - (59) -
Accretion on
liability component
of convertible
debentures - - - - - -
Amortization of fair
value debt
adjustments - - - - (22) -
Accrued rental
revenue recognized on
a straight-line basis (268) - (616) - (507) -
-----------------------------------------------------------------------
Distributable
Income (1) $4,806 $4,990 $6,267 $5,038 $6,761 $4,671
-----------------------------------------------------------------------
-----------------------------------------------------------------------
Net income per unit:
Basic $0.118 $0.230 $0.133 $0.233 $0.121 $0.670
Diluted (2) $0.118 $0.227 $0.133 $0.230 $0.121 $0.642
-----------------------------------------------------------------------
-----------------------------------------------------------------------
Distributable income
per unit:
Basic $0.239 $0.295 $0.254 $0.298 $0.265 $0.276
Diluted $0.237 $0.289 $0.253 $0.291 $0.263 $0.271
-----------------------------------------------------------------------
-----------------------------------------------------------------------

(1) Distributable income is a non-GAAP measure, see definition on
page 6.

(2) Convertible debentures have been excluded from the calculations of
the diluted net income per unit for the three and twelve month
periods in 2004 since they are anti-dilutive.



Three months ended Year ended
-----------------------------------------------------------------------
Dec. 31 Dec. 31
-----------------------------------------------------------------------
2004 2003 2004 2003
-----------------------------------------------------------------------

Revenues from rental
operations $29,254 $17,197 $98,750 $75,033
Rental property
operating costs 13,838 8,741 47,160 32,851
-----------------------------------------------------------------------
Net operating income 15,416 8,456 51,590 42,182
-----------------------------------------------------------------------

Interest 6,257 3,702 20,184 14,008
General and
administrative 312 459 1,687 1,584
Amortization of
buildings 3,632 885 12,849 3,379
Other amortization 2,532 194 4,980 375
Trust 49 108 542 544
-----------------------------------------------------------------------
12,782 5,348 40,242 19,890
-----------------------------------------------------------------------

Net Income 2,634 3,108 11,348 22,292
Add/(Deduct):
Income Subsidy - 264 - 1,110
Cancellation fee received - - - (7,825)
Amortization of buildings 3,632 885 12,849 3,379
Amortization of amounts
recorded on acquisitions:
Tenant improvements 7 - 42 -
Lease origination costs
for in-place leases 1,742 - 3,122 -
Above and below
market in-place
leases (153) - (252) -
Accretion on liability
component of convertible
debentures 42 - 42 -
Amortization of fair
value debt adjustments (33) - (55) -
Accrued rental revenue
recognized on a
straight-line basis (508) - (1,899) -
-----------------------------------------------------------------------
Distributable Income (1) $7,363 $4,257 $25,197 $18,956
-----------------------------------------------------------------------
-----------------------------------------------------------------------
Net income per unit:
Basic $0.103 $0.179 $0.474 $1.308
Diluted (2) $0.103 $0.179 $0.474 $1.275
-----------------------------------------------------------------------
-----------------------------------------------------------------------
Distributable income
per unit:
Basic $0.289 $0.245 $1.052 $1.112
Diluted $0.280 $0.241 $1.039 $1.091
-----------------------------------------------------------------------
-----------------------------------------------------------------------

(1) Distributable income is a non-GAAP measure, see definition on
page 6.

(2) Convertible debentures have been excluded from the calculations of
the diluted net income per unit for the three and twelve month
periods in 2004 since they are anti-dilutive.


NET OPERATING INCOME

The variances in net operating income ("NOI") are explained in greater
detail in the segmented analysis section both by quarter and for the
year. In summary, for the year ended December 31, 2004, NOI totaled
$51,590 which was an increase of $9,408 (22.3%) over the same period
last year.

During the third quarter of 2003, the REIT received a cancellation fee
of $7,825 from a tenant. This cancellation fee was recorded as revenue.
Excluding this amount from the 2003 revenues, the year-over-year ("YOY")
NOI reflects an increase of $17,233 (50.2%).

Of the increase, $15,882 is attributable to the NOI generated from
properties acquired during the year, as mentioned previously, including
the effect on NOI of the eight Laval office properties acquired in late
December of 2003.

Had these properties been excluded, the same property NOI for the year
2004 would have totaled $35,708, reflecting a positive variance of
$1,351 or 3.9% (again, excluding the one-time cancellation fee from last
year's NOI). The latter variance is a result of:



Three months ended Year ended
-----------------------------------------------------------------------
Mar. June Sept. Dec. Dec. 31, 2004
-----------------------------------------------------------------------
- Rental revenue
previously under
income subsidy
in 2003 $ 258 $ 258 $ 259 $ 259 $ 1,034

- Temporary rental
loss resulting from
areas under
redevelopment (450) (263) - - (713)

- Rental income from
areas previously
under redevelopment - - 525 525 1,050

- Positive (negative)
net impact from
residential sector (26) 2 126 166 268

- Negative impacts
associated with
lower occupancies
resulting from
tenant move-outs
and insolvencies (821) (390) (415) (200) (1,826)

- Positive impact of
changes in
accounting policies
with respect to
revenue recognition
and EIC-140
(see Changes in
Accounting Policies) 268 656 566 661 2,151

- Variances in
non-recoverable
and bad debt expense (94) (113) - (406) (613)
-----------------------------------------------------------------------
Net positive
variance $ (865) $ 150 $ 1,061 $ 1,005 $ 1,351
-----------------------------------------------------------------------
-----------------------------------------------------------------------


In 2004, leases for 639,180 square feet of space expired at a weighted
average net rental rate of $8.99 per square foot. Of this amount,
403,872 square feet having a weighted average net rental rate of $8.22
was renewed at a weighted average net rental rate of $8.31 During the
same period, 546,327 square feet of vacant space was leased at a
weighted average net rental rate of $9.38 per square foot.

The overall occupancy rate of the portfolio was 90.4% at December 31,
2004 at a weighted average net rental rate of $9.70 per square foot.
This compares to occupancy at September 30, 2004 of 90.6% at a weighted
average net rental of $9.66; to occupancy at June 30, 2004 of 92.6% at a
weighted average net rental rate of $10.19 per square foot to occupancy
at March 31, 2004 of 91.3% at a weighted average net rental rate of
$10.05 per square foot, and to occupancy at December 31, 2003 of 91.5%
at a weighted average net rental rate of $9.94 per square foot. The
occupancy rate and weighted average net rental rate fluctuations result
from acquisitions of properties whose occupancies and net rental rates
were lower than the pre-acquisition properties of the REIT. Refer to the
Leasing Data section for explanations and details of variances as well
as same portfolio comparisons.

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 debenture, amortization of the
fair value debt adjustments on mortgages assumed on acquisitions, and
amortization of deferred financing costs. For the year 2004, interest
expense totalled $20,184 compared with $14,008 in 2003. The variance
results from:



- Interest on secured mortgages on income producing
properties acquired YOY $6,076

- YOY increase in interest on convertible debentures 675

- YOY increase in interest on general bank indebtedness 144

- YOY interest savings on secured mortgages repaid upon maturity (482)

- Amortization of the fair value debt adjustments relating to
mortgages assumed on the acquisition of certain properties (55)

- Other, net (182)
-----------------------------------------------------------------------

Net variance $6,176
-----------------------------------------------------------------------
-----------------------------------------------------------------------

The table below reflects the weighted-average interest rate on existing
mortgages by quarter and YOY as well as the weighted-average term to
maturity.

2004 2003
-----------------------------------------------------------------------
Mar. 31 June 30 Sept. 30 Dec. 31 Dec. 31
Weighted-average
interest rate 6.4% 6.3% 6.3% 6.3% 6.4%
-----------------------------------------------------------------------
-----------------------------------------------------------------------

Weighted-average
term to maturity (years) 3.54 5.30 6.07 5.83 3.78
-----------------------------------------------------------------------
-----------------------------------------------------------------------


GENERAL AND ADMINISTRATIVE EXPENSES

General and administrative expenses, which consist of the REIT's net
overhead costs, totaled $1,687 for the year 2004 compared to $1,584 in
2003. The YOY increase is attributable to hiring costs and salaries for
additional employees and general overhead costs resulting from the
REIT's growth.

AMORTIZATION EXPENSE

For the year ended December 31, 2004, total amortization (buildings and
other) was $17,829 compared to $3,754 in 2003. The variance results
primarily from the requirement to change the REIT's method of
amortization in order to conform to the Canadian Institute of Chartered
Accountants ("CICA") adopted recommendation which effectively disallows
the use of the sinking fund method of amortization, which method was
previously used by the REIT in amortizing its income-producing
properties. The REIT has therefore adopted the straight-line method
which fully amortizes the properties over their estimated useful lives
of 35 years. The effect of the change added approximately $6,632 to
amortization of buildings. As well the REIT recorded approximately
$3,164 of amortization in accordance with EIC-140 for the amortization
of the lease origination costs for in-place leases and the tenant
improvements incurred through acquisitions (see "Changes in Accounting
Policies"). The YOY increase also reflects approximately $3,700 of
amortization of buildings for properties acquired.

TRUST EXPENSES

Trust expenses in 2004 totaled $542 and remained relatively unchanged
versus last year's amount of $544.

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),
income tax expense, amounts received under the AN Income Subsidy, 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, and of the
full impact of EIC-140, as well as the exclusion in 2003 of a specific
lease cancellation fee.



Distributable income by quarter and YOY are as follows:

Twelve months ended
Three months ended - 2004 Dec. 31
Mar. 31 June 30 Sept. 30 Dec. 31 2004 2003
-----------------------------------------------------------------------
Distributable
Income $4,806 $6,267 $6,761 $7,363 $25,197 $18,956

Per unit:
Basic $0.239 $0.254 $0.265 $0.289 $1.052 $1.112
Diluted $0.237 $0.253 $0.263 $0.280 $1.039 $1.091

Distributions
paid $5,530 $6,913 $7,013 $7,017 $26,473 $18,927

Distributable
income payout
ratio 115.1% 110.3% 103.7% 95.3% 105.1% 99.8%


Increases in distributions paid reflects distributions made on 3.1
million new units issued on December 18, 2003 resulting from a private
placement; 4.3 million new units issued on April 8, 2004 resulting from
a new issue; 1.1 million new units issued on the conversion of the AN
Convertible Debenture on May 10, 2004; units issued throughout the year
on the REIT's DRIP (51,531 units in 2004); as well as units issued as
interest payment on the AN Convertible Debenture (16,061 units in 2004).



LEASING DATA

The following table reflects the REIT's weighted average occupancy:

2004 2003
------------------------------------------------------------------
Segment March June September December December
------------------------------------------------------------------
Office 87.0% 88.8% 86.9% 87.1% 89.5%
Retail 96.9% (1,2) 94.4% (2) 95.5% 96.6% 95.4%(1)
Industrial 93.2% 93.0% 91.0% 89.9% 91.4%
Residential 95.9% 96.9% 97.5% 95.8% 94.1%
------------------------------------------------------------------
Overall 91.3% (1,2) 92.6% (2) 90.6% 90.4% 91.5%(1)
------------------------------------------------------------------
------------------------------------------------------------------
(1) Excludes areas affected by the Centre Laval redevelopment.
(2) Excludes areas affected by the Place Alexis Nihon Winners
redevelopment.

The REIT'S YOY occupancy levels have been affected by acquisitions
of properties having lower occupancy levels than the existing
portfolio averages. Excluding these acquired properties the YOY
same portfolio occupancy levels reflect the following:


Segment Dec. 2004 Dec. 2003
-------------------------------------------------------
Office 85.9% 89.5%
Retail 97.2% 95.4% (1)
Industrial 93.3% 91.4%
Residential 95.8% 94.1%
-------------------------------------------------------
Overall 91.2% 91.5% (1)
-------------------------------------------------------
-------------------------------------------------------
(1) Excludes areas affected by the Centre Laval redevelopment.


With the exception of the office sector, all other sectors show YOY
favorable variances resulting from leasing activities. The office sector
unfavorable variance of 3.6% YOY, which represents approximately 82,000
square feet of space, is attributable principally to: i) the move-out in
March 2004 of a tenant at lease expiry occupying approximately 27,000
square feet in the Fenelon building, and ii) a tenant occupying
approximately 58,000 square feet of space in the 1080 Beaver Hall Hill
property who exercised its option to cancel the lease in order to
relocate to the government-subsidized E-Commerce place building in July
2004.

Since September 30, 2004, the overall occupancy level decreased by 20
basis points. The office and retail sectors reflected increases in
occupancy levels of 20 basis points and 110 basis points respectively as
a result of increased leasing activities. The industrial sector showed a
decrease of 110 basis points primarily resulting from anticipated
move-outs of tenants at lease expiration. As for the decrease of 170
basis points in the residential sector, this is attributable to
vacancies in many of the 72 furnished apartments, which are leased on a
short term basis, and are normally vacant on December 31, due to
seasonal holidays.



SEGMENTED ANALYSIS

OFFICE Three months ended
-----------------------------------------------------------------------
Mar. 31 June 30 Sept. 30
-----------------------------------------------------------------------
2004 2003 2004 2003 2004 2003
-----------------------------------------------------------------------

Revenues from
rental operations $11,657 $7,619 $12,926 $7,382 $12,895 $7,126
Rental property
operating costs 6,184 3,806 6,203 3,715 6,270 3,594
-----------------------------------------------------------------------
Net operating
income $5,473 $3,813 $6,723 $3,667 $6,625 $3,532
-----------------------------------------------------------------------
-----------------------------------------------------------------------


OFFICE Three months ended Year ended
-----------------------------------------------------------------------
Dec. 31 Dec. 31
-----------------------------------------------------------------------
2004 2003 2004 2003
-----------------------------------------------------------------------

Revenues from
rental operations $14,703 $7,672 $52,181 $29,799
Rental property
operating costs 7,486 3,910 26,143 15,025
-----------------------------------------------------------------------
Net operating income $7,217 $3,762 $26,038 $14,774
-----------------------------------------------------------------------
-----------------------------------------------------------------------

Net operating income from office rental operations totaled $26,038 for
the year compared with $14,774 in 2003 (+ 76.2%). The positive variance
of $11,264 for the year is summarized as follows:

Three months ended Year ended
-----------------------------------------------------------------------
Mar. June Sept. Dec. Dec. 31, 2004
-----------------------------------------------------------------------
- Contribution from
properties
acquired $ 1,834 $ 2,762 $ 3,008 $ 3,635 $ 11,239

- Negative impacts
associated with
lower occupancies
resulting from
tenant move-outs
and insolvencies (466) (10) (329) (282) (1,087)

- Rental revenue
previously under
income subsidy
in 2003 181 181 181 181 724

- Positive impact
of changes in
accounting
policies with
respect
to revenue
recognition and
EIC-140
(see Changes in
Accounting Policies) 163 234 233 243 873

- Variances in non-
recoverable and bad
debt expense (52) (111) - (322) (485)
-----------------------------------------------------------------------
Net positive
variance $ 1,660 $ 3,056 $ 3,093 $ 3,455 $ 11,264
-----------------------------------------------------------------------
-----------------------------------------------------------------------


RETAIL Three months ended
-----------------------------------------------------------------------
Mar. 31 June 30 Sept. 30
-----------------------------------------------------------------------
2004 2003 2004 2003 2004 2003
-----------------------------------------------------------------------

Revenues from rental
operations $5,689 $5,943 $6,666 $6,062 $7,437 $13,517
Rental property
operating costs 3,008 2,734 3,118 2,812 3,018 2,730
-----------------------------------------------------------------------
Net operating income $2,681 $3,209 $3,548 $3,250 $4,419 $10,787
-----------------------------------------------------------------------
-----------------------------------------------------------------------


RETAIL Three months ended Year ended
-----------------------------------------------------------------------
Dec. 31 Dec. 31
-----------------------------------------------------------------------
2004 2003 2004 2003
-----------------------------------------------------------------------

Revenues from rental
operations $8,582 $6,124 $28,374 $31,646
Rental property operating
costs 3,694 3,036 12,838 11,312
-----------------------------------------------------------------------
Net operating income $4,888 $3,088 $15,536 $20,334
-----------------------------------------------------------------------
-----------------------------------------------------------------------

The retail sector net operating income totaled $15,536 in 2004 compared
with $20,334 in 2003. The 2003 amount includes a one-time cancellation
fee received from a tenant. Excluding this amount from the 2003 NOI,
the YOY variance become positive by $3,027 (+24.2%) and is detailed as
follows:

Three months ended Year ended
-----------------------------------------------------------------------
Mar. June Sept. Dec. Dec. 31, 2004
-----------------------------------------------------------------------
- Contribution from
properties acquired $ - $ 333 $ 619 $ 958 $ 1,910

- Rental revenue
previously under
income subsidy in 2003 77 77 78 78 310

- Temporary rental loss
resulting from areas
under redevelopment (450) (263) - - (713)

- Rental income from
areas previously under
redevelopment - - 525 525 1,050

- Negative impacts
associated with lower
occupancy resulting
from tenant move-outs
and insolvencies (206) (250) (79) (132) (667)

- Positive impact of
changes in accounting
policies with respect
to revenue recognition
and EIC-140
(see Changes in
Accounting Policies) 93 403 314 455 1,265

- Variances in
non-recoverable and
bad debt expense (42) (2) - (84) (128)
-----------------------------------------------------------------------
Net (negative) positive
variance $ (528) $ 298 $ 1,457 $ 1,800 $ 3,027
-----------------------------------------------------------------------
-----------------------------------------------------------------------


INDUSTRIAL Three months ended
-----------------------------------------------------------------------
Mar. 31 June 30 Sept. 30
-----------------------------------------------------------------------
2004 2003 2004 2003 2004 2003
-----------------------------------------------------------------------

Revenues from rental
operations $2,163 $1,869 $2,364 $2,278 $3,721 $2,208
Rental property
operating costs 887 633 919 859 1,275 831
-----------------------------------------------------------------------
Net operating income $1,276 $1,236 $1,445 $1,419 $2,446 $1,377
-----------------------------------------------------------------------
-----------------------------------------------------------------------


INDUSTRIAL Three months ended Year ended
-----------------------------------------------------------------------
Dec. 31 Dec. 31
-----------------------------------------------------------------------
2004 2003 2004 2003
-----------------------------------------------------------------------

Revenues from rental
operations $4,636 $2,132 $12,884 $8,487
Rental property
operating costs 1,913 948 4,994 3,271
-----------------------------------------------------------------------
Net operating income $2,723 $1,184 $7,890 $5,216
-----------------------------------------------------------------------
-----------------------------------------------------------------------

The industrial sector reflects a positive variance of $2,674 (+ 51.3%)
for the year 2004. Net operating income totaled $7,890 compared with
the $5,216 in 2003. The contributing factors include:


Three months ended Year ended
-----------------------------------------------------------------------
Mar. June Sept. Dec. Dec. 31, 2004
-----------------------------------------------------------------------
- Contribution from
properties acquired $ 177 $ 137 $ 1,057 $ 1,362 $ 2,733

- Net impact associated
with variances in
occupancies (149) (130) (7) 214 (72)

- Positive impact of
changes in accounting
policies with respect
to revenue recognition
and EIC-140
(see Changes in
Accounting Policies) 12 19 19 (37) 13
-----------------------------------------------------------------------
- Net positive variance $ 40 $ 26 $ 1,069 $ 1,539 $ 2,674
-----------------------------------------------------------------------
-----------------------------------------------------------------------


RESIDENTIAL Three months ended
------------------------------------------------------------------------
Mar. 31 June 30 Sept. 30
------------------------------------------------------------------------
2004 2003 2004 2003 2004 2003

Revenues from
rental
operations $1,281 $1,251 $1,325 $1,271 $1,372 $1,310
Rental property
operating costs 904 848 833 781 703 767
Net operating
income $377 $403 $492 $490 $669 $543
------------------------------------------------------------------------
------------------------------------------------------------------------


RESIDENTIAL Three months ended Year ended
-----------------------------------------------------------------------
Dec. 31 Dec. 31
-----------------------------------------------------------------------
2004 2003 2004 2003
-----------------------------------------------------------------------

Revenues from rental
operations $1,333 $1,269 $5,311 $5,101
Rental property operating
costs 745 847 3,185 3,243
-----------------------------------------------------------------------
Net operating income $588 $422 $2,126 $1,858
-----------------------------------------------------------------------
-----------------------------------------------------------------------

Net operating income for the residential sector totaled $2,126
representing a YOY increase of $268 (+14.4%). In summary, variances
resulted from:


Three months ended Year ended
-----------------------------------------------------------------------
Mar. June Sept. Dec. Dec. 31, 2004
-----------------------------------------------------------------------
- Revenues generated from
rental increases on
regular apartments $ 33 $ 28 $ 24 $ 27 $ 112

- Revenues generated from
higher (lower) occupancy
of executive suites (3) 26 36 40 99

- Net variances in
operating expenses (56) (52) 66 99 57
-----------------------------------------------------------------------
Net (negative) positive
variance $ (26) $ 2 $ 126 $ 166 $ 268
-----------------------------------------------------------------------
-----------------------------------------------------------------------


DEBT FINANCING

In addition to the issuance of new units in April, as well as the
issuance of convertible debentures in August, discussed previously (see
"2004 Overview"), the REIT also completed the following financing
activities:

In April, the REIT put in place a $37.5 million, 5.51%, 15-year term and
amortization, mortgage bond (the "Bond") on the 320,900 square foot
office property located at 550 de la Cite, in Gatineau, Quebec. The Bond
has received an "A" rating from Dominion Bond Rating Services. The Bond
is secured by a first ranking hypothec on the property in the amount of
$37.5 million.

In June, the REIT put in place a $3.6 million, 6.61%, 15 year term,
25-year amortization, conventional mortgage on the 26,400 square foot
office property located at 480 de la Cite, in Gatineau, Quebec. As well,
the REIT also put in place a $4.9 million conventional mortgage on the
2025 de la Metropole property in Longueuil, Quebec. The term is for 42
months, bearing interest at 5.23% and has a 20-year amortization period.

In July, the REIT:

- refinanced and extended for a term of 10 years, the mortgages on three
industrial properties, namely:


Amortization
Outstanding Loan to Rate period
debt at value ------------------------------
maturity ratio Before After Before After
-----------------------------------------------------------------------
- 2024-2080 32nd,
Avenue, Lachine $2,064 61% 5.625% 6.455% 15 yrs 20 yrs
- 1949 O. Gagnon,
Lachine $2,678 63% 5.625% 6.455% 15 yrs 20 yrs
- 3071-3075 L.A. Amos,
Lachine $5,516 67% 5.625% 6.455% 15 yrs 20 yrs


- assumed the following mortgages on the portfolio of nine industrial
properties acquired on July 26, 2004 (see "2004 Overview"). In
accordance with GAAP, certain debts assumed were adjusted to fair value
using the market interest rate at the time of acquisition. This fair
value debt adjustment is amortized to interest expense over the
remaining life of the debts on income-producing properties:



Amount Rate Maturity
-----------------------------------------------------------------------
- 1925-1975 Hymus, Dorval $1,870 8.25% October 1, 2005
- 7527-7583 Henri-Bourassa,
Montreal $3,178 6.62% March 1, 2008
- 80-140 Lindsay, Dorval $857 8.40% January 1, 2005
- 8552-8648 Pie IX, Montreal $4,982 6.62% March 1, 2008
- 8740-8878 Pie IX, Montreal $5,848 6.62% March 1, 2008
- 8411-8453 Dalton, Mount-Royal $510 8.40% January 1, 2005
- 8459-8497 Dalton, Mount-Royal $710 8.40% January 1, 2005
- 8545-8579 Dalton, Mount-Royal $1,057 5.60% December 1, 2005
- 8605-8639 Dalton, Mount-Royal $1,027 5.60% December 1, 2005

- repaid upon maturity the mortgages on:


Amount Rate
-----------------------------------------------------------
- 2102-2150 32nd Avenue, Lachine $1,666 6.75%
- 1615-1805 55th Avenue, Dorval $4,894 5.50%


- put in place a 10 year mortgage of $17,000 on the St-Jerome Power
Center which was acquired in May 2004 (see "2004 Overview"). The
mortgage bears interest at 6.33% and has a 25-year amortization period:

In September, the REIT;

- put in place a 10 year mortgage of $39,000 on the portfolio of four
properties acquired on September 3, 2004 (see "2004 Overview"). The
mortgage bears interest at 6.30% and has a 25-year amortization period.

- repaid upon maturity the mortgages on:



Amount Rate
-----------------------------------------------------------------
- 6320-6380 Cote de Liesse, St-Laurent $2,507 Prime + 1.5%
- 455 Fenelon, Dorval $6,441 8%
- 777 Ste. Catherine Street
West, Montreal $3,825 Prime + 1.0%


In October, the REIT repaid the balance of sale amount of $2.5 million
on the 777 Ste-Catherine street West property.

In addition, the REIT renewed and increased its credit facility from
$30,000 to $50,000. The credit facility will be subject to annual review
and consists of a general operating loan and letters of credit. Advances
under the credit facility will bear interest at prime plus 0.5% or at
the rate for bankers' acceptances plus 2.25%. The terms of the credit
facility provide for conditions precedent to draw-downs, events of
default and negative covenants customary for operating facilities of
such nature and certain negative covenants with respect to the
incurrence of debt by the REIT. In addition to second ranking hypothecs
on Place Alexis Nihon and Centre Laval, the facility will be secured by
a first ranking hypothec on the properties located at 1080 Beaver Hall
Hill, Montreal, Quebec; 2102-2150, 32nd Avenue, Montreal (Lachine),
Quebec; and 1615-1805, 55th Avenue, Montreal (Dorval), Quebec.

As at December 31, 2004, the REIT's debt secured by income-producing
properties was $335,482 representing 49.2% of gross book value (book
value of the REIT's assets plus accumulated amortization less intangible
liabilities was $682,200), well below its 60% threshold limit. Including
the convertible debentures, the percentage is 57.0% (limit 65%). There
was no floating rate debt, which cannot exceed 15% of gross book value.



The REIT's contractual obligations at December 31, 2004 were as follows:

Payments due by period
-----------------------------------------------------------------------
Less than 1 - 3 4 - 5 After 5
Total 1 year years years years
-----------------------------------------------------------------------
Long-term debt $334,414 $31,237 $100,891 $101,162 $101,124
Emphyteutic leases 19,203 411 826 832 17,134
Maintenance
agreements 8,480 3,814 2,546 945 1,175
Convertible
debentures 55,000 - - - 55,000
-----------------------------------------------------------------------
Total $417,097 $35,462 $104,263 $102,939 $174,433
-----------------------------------------------------------------------
-----------------------------------------------------------------------


LIQUIDITY AND CAPITAL EXPENDITURES

Funds from operations ("FFO") is a measure of the funds generated from
the business before reinvestment in the business or provision for other
capital needs. The REIT considers FFO to be an indicative measure of
operating performance. FFO is not a measure defined by GAAP. FFO as
presented is in accordance with the recommendations of the Canadian
Institute of Public and Private Real Estate Companies ("CIPPREC"). It
may not, however, be comparable to similar measures presented by other
real estate investment trusts. The following is the calculation of FFO
based on the industry's standard definition:



FFO/Net Income Reconciliation:

Twelve months ended
Three months ended - 2004 Dec. 31
Mar. June Sept. Dec. 2004 2003 2003
31 30 30 31 (1)
-----------------------------------------------------------------------
Net Income
(per
financial
statements) $2,364 $3,275 $3,075 $2,634 $11,348 $14,467 $22,292

Adjustments
to
reconcile
net income
to FFO:

Amortization
of
buildings 2,710 3,134 3,373 3,632 12,849 3,379 3,379

Other
amortization,
excluding
amortization
of
furniture,
fixtures
& computers 154 696 1,462 2,464 4,776 242 242

Interest
on the AN
Convertible
Debentures
paid by
units 197 - - - 197 788 788

Income
Subsidy - - - - - 1,110 1,110
-----------------------------------------------------------------------
Funds from
operations $5,425 $7,105 $7,910 $8,730 $29,170 $19,986 $27,811
-----------------------------------------------------------------------
-----------------------------------------------------------------------

Distribution
paid $5,530 $6,913 $7,013 $7,017 $26,473 $18,927 $18,927
-----------------------------------------------------------------------
-----------------------------------------------------------------------

FFO payout
ratio 101.9% 97.3% 88.7% 80.4% 90.8% 94.7% 68.1%
-----------------------------------------------------------------------
-----------------------------------------------------------------------

FFO per unit $0.270 $0.288 $0.310 $0.342 $1.218 $1.172 $1.632
-----------------------------------------------------------------------
-----------------------------------------------------------------------

Distributions
per unit $0.275 $0.275 $0.275 $0.275 $1.100 $1.100 $1.100
-----------------------------------------------------------------------
-----------------------------------------------------------------------

(1) Excludes the one-time cancellation fee of $7,825 received in 2003.


The cash generated from operating activities, net proceeds from the
issuance of units and convertible debentures, conventional mortgage
financing, as well as funds from operating and acquisition facilities,
have been used to meet all of the REIT's liquidity requirements in 2004
and were principally utilized for funding property acquisitions,
repayments of debts on income-producing properties, and distributions to
unitholders for the year ended December 31, 2004.

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 an acquisition capacity of approximately
$155 million for growth investments, while still meeting its debt
covenants.

CAPITAL EXPENDITURES, LEASING COMMISSIONS AND TENANT IMPROVEMENTS

Capital expenditures, leasing commissions and tenant improvements
totaled $17,540 in 2004 compared to $11,841 in 2003. Details to the
amounts incurred in 2004 are as follows:



Additions to buildings:

Capital expenditures:
Parking repairs $ 2,125
Non-recoverable maintenance 461
Redevelopment 3,836
Recoverable maintenance 3,762
----------------------------------------------------
Total additions to buildings 10,184
----------------------------------------------------

Tenant improvements & leasing costs:

Tenant improvements:
Renewals & vacant space lease-ups 2,464
Redevelopment 2,860
Leasing commissions 2,032
----------------------------------------------------
Total tenant improvements & leasing costs 7,356
----------------------------------------------------
Total $ 17,540
----------------------------------------------------


OUTSTANDING UNITS DATA

As of December 31, 2004, the Nihon/Massicotte Group hold approximately
29.9% of the 25,515,935 outstanding units of the Alexis Nihon REIT.

At February 28, 2005, there were 25,520,534 units of the REIT issued and
outstanding.

EMPLOYEE UNIT PURCHASE PLAN

On July 1, 2004, the REIT adopted an Employee Unit Purchase Plan
("EUPP") which gives eligible employees the opportunity to acquire units
of the REIT for between 2% to 5% of their gross salaries. The REIT
contributes a further amount equal to 50% of the amount invested by the
employees over the following five years. The contributions are used to
purchase units of the REIT in the open market. As at December 31, 2004 a
compensation expense of $1 is recognized for the REIT's contributions
under the EUPP.

RELATED PARTY TRANSACTIONS

The following related-party transactions were measured at the exchange
amount, which is the amount established and agreed to by the related
parties.

Head Lease

In order to provide unitholders of the REIT with stable, predictable
revenues in respect of certain vacant spaces that are expected to be
leased in the near term, the head lessee, a company under common control
of certain trustees of the REIT, entered into the head lease with the
REIT. The head lease is for a term of 10 years and applies to
approximately 166,661 (2003 - 197,319) square feet of leasable area of
the income-producing properties at specified market rental rates. For
2004, the head lease revenue amounted to $2,248 (2003 - $2,810).

An acceptable tenant must be approved by the members of the Head Lease
Committee in order for the Head Lease space to be permanently retired.
As at December 31, 2004, 61.5% of the remaining Head Lease area of
166,661 sq.ft., representing 61.6% of the gross rental value, has been
leased.

Income Subsidy

In order to provide unitholders of the REIT with an income stream
reflecting an expected lease renewal for a specific tenancy and a
contractual rental increase for a specific tenancy, companies under
common control of certain trustees of the REIT have provided an income
subsidy (the "Income Subsidy") to the REIT. The subsidy is equal to such
expected renewal and contractual rental increase, until such time as the
Income Subsidy was replaced by rental revenue from occupying tenants.
For 2004, the Income Subsidy amounted to $Nil (2003 - $1,110).

As security for the obligation of the Income Subsidy and head lease, a
company under common control of certain trustees of the REIT has pledged
units of the REIT.

Other

The acquisition of the two office properties located in Gatineau, Quebec
(see "2004 Overview") were purchased from entities under common control
of certain trustees of the REIT.

Accounts payable and accrued liabilities include $896 (2003 - $2,062)
due to companies under common control of certain trustees of the REIT.

During the year, the REIT received services of $8,344 (2003 - $8,435)
from a construction company under common control of certain trustees of
the REIT.

CRITICAL ACCOUNTING ESTIMATES

The financial statements are based on the selection and application of
critical accounting policies set forth in the notes to the consolidated
financial statements, which require management to make significant
estimates and assumptions. Management believes that there are two
critical areas of judgment in the application of accounting policies
that affect the financial condition and results of operations of the
REIT.

Asset Valuation of Real Estate

Income-producing properties, the REIT's major asset class, are stated at
the lower of cost less accumulated amortization and net recoverable
amounts on the assumption that the properties will be held for the long
term. Net recoverable amounts represent the estimated future cash flow
from the use and residual value of the property. The REIT relies on
assumptions of future rental income and expected future property values
that could be impacted by industry performance and prospects, as well as
the business and economic conditions that are expected to prevail during
the holding period. Should the underlying assumptions change materially,
the estimated net recoverable amount could change by a significant
amount.

Amortization

Effective January 1, 2004, the REIT adopted the new CICA requirements
for the amortization of buildings to the straight-line method so as to
fully amortize the cost of buildings over the useful life of a building
estimated to be 35 years. The use of a different estimate of the useful
life would result in a different amount of amortization expense for the
period (see "Changes in Accounting Policies").

Acquisitions of Income-Producing Properties

The REIT adopted the new CICA requirements for accounting for
income-producing properties acquired on or after September 12, 2003. In
accordance with the requirements, the REIT allocates the purchase price
of income-producing property to land, building, tenant improvements,
in-place operating leases acquired in connection with the real estate
property and customer relationships, if any. Management uses estimates
in the assignment of the purchase price (see "Changes in Accounting
Policies").

Management's estimates of fair value could vary in different
circumstances and result in another determination that could affect
reported financial results.

Fair Value of Financial Instruments

Management reports the fair value of financial instruments. Fair value
of financial instruments approximate amounts at which these instruments
could be exchanged between knowledgeable and willing parties. The
estimated fair values may differ in amount from that which could be
realized in an immediate settlement of the instruments. Management
estimates the fair value of mortgages payable based on current market
rates for mortgages of similar terms. Fair values of convertible
debentures are reported in the financial statements based on current
market prices.

CHANGES IN ACCOUNTING POLICIES

Amortization of Income-Producing Properties

Effective January 1, 2004, the REIT changed its accounting policy for
the amortization of income-producing properties. The REIT is now using
the straight-line method over 35 years. Previously, the sinking fund
method was used. The REIT has made this change in order to conform with
the adoption of new recommendations by the Canadian Institute of
Chartered Accountants ("CICA"), which disallow the use of the sinking
fund method. The effect of the change on the consolidated financial
statements for the year ended December 31, 2004, based on the
income-producing properties owned by the REIT at December 31, 2003, is
to decrease net income by $6,632. This change has been applied
prospectively.

Acquisitions of Income-Producing Properties

The CICA's abstract (EIC-140) concerning the accounting for operating
leases acquired in either an asset acquisition or a business combination
is prospective in application and effective for acquisitions initiated
on or after September 12, 2003. The abstract requires that where an
enterprise acquires real estate in either an asset acquisition or
business combination, a portion of the purchase price should be
allocated to the fair value of tenant improvements and in-place
operating leases acquired in connection with the real estate property. A
portion of the purchase price would be allocated to the fair value of
customer relationships relating to the probability that existing tenants
will renew their leases.

The REIT records acquired "above and below" market leases at their fair
value, which is equal to the difference between (1) the contractual
amounts to be paid pursuant to each in-place lease and (2) management's
estimate of fair market lease rates for each corresponding in-place
lease, measured over a period equal to the remaining term of the leases.
Such difference is discounted using a rate which reflects the risks
associated with the leases acquired. Recorded amounts for lease
origination costs for in-place leases are based on the REIT's evaluation
of the specific characteristics of each tenant's lease. Factors to be
considered include estimates of carrying costs during expected lease-up
periods considering current market conditions, and costs to execute
similar leases. Tenant relationship values are determined based on the
costs avoided if the respective tenants were to renew their leases at
the end of the existing term, adjusted for the estimated probability
that the tenants will renew. Land is stated at appraised value and
building and tenant improvements at a depreciated replacement cost. The
cost of acquisitions includes the purchase price of property, legal fees
and other acquisition costs.

The tenant improvements and lease origination costs for in-place leases
are amortized as an expense over the remaining term of the lease. The
value of the above and below market in-place leases are amortized and
recorded as either an increase (below market leases) or a decrease
(above market leases) to revenues from rental operations over the
remaining term of the lease. The value of tenant relationships are
amortized over the term of the lease and renewal periods. In the event
that a tenant vacates its leased space prior to the contractual
termination of the lease and rental payments are not being made on the
lease, any unamortized balance of the related tenant improvements,
intangible assets or liabilities are written-off.

Prior to the application of this abstract, the cost of income-producing
property acquisitions was allocated to land and buildings. Effectively,
this abstract will result in a smaller portion of the purchase price
being allocated to building and effectively accelerate some of the
amortization of acquired assets. In determining distributable income,
the impact this abstract has on net income will be reversed as the
impact will result from changes in amortization, which is a non-cash
charge in determining net income.

Impairment of Long-Lived Assets

On January 1, 2004 the REIT prospectively adopted section 3063 of the
CICA handbook, "Impairment of long-lived assets". Long-lived assets are
reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
Impairment is assessed by comparing the carrying amount of an asset with
the expected future net undiscounted cash flows from its use together
with its residual value. If such assets are considered to be impaired,
the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceeds their fair value. The REIT
assessed all its assets upon adoption of the new standard and whenever
events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable and determined that no impairment
existed.

Revenue Recognition

Effective January 1, 2004, the REIT changed its method of applying its
revenue recognition policy to rental revenue from leases with variable
rents or payments. The REIT recognizes now on a straight-line basis over
the term of the leases rental revenue from all leases. Previously, only
rental revenue from leases with rents or payments varying significantly
were recorded on a straight-line basis. The effect of the change on the
consolidated financial statements for the year ended December 31, 2004
is to increase net income by $1,899. The difference between the rental
revenue recognized and the amounts contractually due under the leases,
accrued rental revenue, is recorded as deferred rent receivable, which
is included in other assets. This change has been applied retroactively
without restatement of prior year financial statements as there is no
material impact.

Convertible Debentures

Effective July 1, 2004, the REIT early adopted the amendment to the
recommendations of Section 3860 of the CICA Handbook with respect to
accounting for financial instruments. The amendment requires the value
ascribed to the issuer's option to convert the convertible debentures to
a variable number of units be classified as a liability instead of
equity. The effect of the adoption of this amendment is that the REIT
has reclassified the convertible debenture which was outstanding during
2003 and up to May 10, 2004 from equity to liability (the value ascribed
to the holder's option to convert as well as issue costs were
immaterial) and the related interest expense has been reclassified from
unitholders' equity to the statement of income. The REIT has applied the
amendment retroactively. The following table summarizes the effect on
the REIT's financial statements:



2004 2003
-----------------------------------------------------------------------
Effect on the income statement
Increase in interest expense $1,463 $788

Effect on the balance sheet
Increase in convertible debentures -
liability component 53,338 12,150
Decrease in convertible debentures -
equity component (53,296) (12,150)


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. Professional
management and a focus on service position Alexis Nihon REIT
particularly well to attract and retain long-term tenants.

Barring any unanticipated events, distributions to unitholders in 2005
are expected to remain at the current level.

SUBSEQUENT EVENT

On February 2, 2005, the REIT completed the acquisition of a 225,600
square foot industrial property in Boucherville, Quebec for $8.4
million, representing a capitalization rate of approximately 11.1% and a
purchase price of $37 per square foot. The transaction was funded
entirely with funds remaining to be deployed from the convertible
debenture issue that closed in August 2004.


ALEXIS NIHON

REAL ESTATE INVESTMENT TRUST

Three Months Ended December 31, 2004

Supplemental Information Package

The Supplemental Information Package should be read in conjunction with
the Annual Report for the year ended December 31, 2004 and 2003, with
the Quarterly Reports for the three months ended March 31, 2004 and
2003, June 30, 2004 and 2003 and September 30, 2004 and 2003, as well as
with the Prospectus' dated December 13, 2002 April 8, 2004 and August
19, 2004.



Corporate Information

Head Office
1 Place Alexis Nihon
3400 De Maisonneuve Blvd. West
Suite 1010
Montreal, Quebec
H3Z 3B8

Trading Symbol
Toronto Stock Exchange: AN.UN

Transfer Agent
National Bank Trust Inc.
1100 University Street
Montreal, Quebec
H3B 2G7
Toll-free number: 1-800-341-1419

Investor Relations Contact
Rene Fortin, CGA
Senior Vice President and Chief Financial Officer
Tel.: 514-737-3344
Fax: 514-931-1618
Email: rfortin.info@alexisnihon.com


Quarterly Distributions

Quarter Distribution
-------------------------------
Q4/04 $0.275
Q3/04 $0.275
Q2/04 $0.275
Q1/04 $0.275
Q4/03 $0.275
Q3/03 $0.275
Q2/03 $0.275
Q1/03 $0.275
-------------------------------
-------------------------------


Unit Trading Activity on the Toronto Stock Exchange

High Low Close Volume
Quarter $ $ $ (000)
-----------------------------------------------------
Q4/04 13.41 12.06 12.55 2,013
Q3/04 12.66 11.75 12.20 2,347
Q2/04 13.69 10.35 12.10 3,031
Q1/04 14.25 12.17 13.65 1,432
Q4/03 13.49 11.30 13.49 1,148
Q3/03 12.20 10.75 11.48 1,006
Q2/03 11.72 9.80 11.15 1,758
Q1/03 10.14 9.75 9.90 1,723
-----------------------------------------------------
-----------------------------------------------------
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
Marc Rothschild (416) 867-2051

CIBC World Markets Rossa O'Reilly, CFA (416) 594-7296
Nelson Mah, CA

TD Securities Sam Damiani, CFA (416) 983-9640

Canaccord Capital Shant Poladian (416) 869-6595

BMO Nesbitt Burns Karine MacIndoe (416) 359-4269



Selected Quarterly Information

Year Ended
---------------------
In thousands of dollars, Dec 31, Dec 31,
except per unit amounts 2004 2003
---------------------

Revenues From
Rental Operations 98,750 75,033
Net Operating Income 51,590 42,182
Net Operating
Income Margin 52.2% 56.2%

Net Income 11,348 22,292
Net Income per unit:
Basic 0.474 1.308
Diluted (i) 0.474 1.275

Distributable Income 25,197 18,956
Distributable Income Per Unit:
Basic 1.052 1.112
Diluted 1.039 1.091

Distributions 26,473 18,927
Distributions Per Unit: 1.100 1.100
Payout ratio (12-month
basis) 105.1% 99.8%

Income-producing
properties 603,689 459,523
Total Assets 663,126 473,768

Debts on income-producing
properties 334,674 241,897
Bank indebtedness 808 4,937
Convertible debentures -
liability component 53,338 12,150

Unitholders' Equity 258,256 202,550

Number of units
at end of Period 25,515,935 20,091,900
Number of options
at end of Period 4,029,306 1,056,443

Weighted Average Number of Units:
Basic 23,942,455 17,046,230
Diluted (for net income) (i) 23,942,455 18,102,673
Diluted (for distributable
income) 25,663,683 18,102,673


Selected Quarterly Information (continued)

Quarter Ended
In thousands of ---------------------------------------------------
dollars, except Dec 31, Sept 30, June 30, March 31, Dec 31,
per unit amounts 2004 2004 2004 2004 2003
---------------------------------------------------
Revenues From
Rental Operations 29,254 25,425 23,281 20,790 17,197
Net Operating
Income 15,416 14,159 12,208 9,807 8,456
Net Operating
Income Margin 52.7% 55.7% 52.4% 47.2% 49.2%

Net Income 2,634 3,075 3,275 2,364 3,108
Net Income per unit:
Basic 0.103 0.121 0.133 0.118 0.179
Diluted (i) 0.103 0.121 0.133 0.118 0.179

Distributable
Income 7,363 6,761 6,267 4,806 4,257
Distributable
Income Per Unit:
Basic 0.289 0.265 0.254 0.239 0.245
Diluted 0.280 0.263 0.253 0.237 0.241

Distributions 7,017 7,013 6,913 5,530 4,955
Distributions
Per Unit: 0.275 0.275 0.275 0.275 0.275
Payout ratio
(12-month
basis) 105.1% 110.5% 110.3% 105.5% 99.8%

Income-producing
properties 603,689 603,723 530,922 463,742 459,523
Total Assets 663,126 670,814 564,405 479,803 473,768

Debts on
income-producing
properties 334,674 339,331 284,268 240,340 241,897
Bank indebtedness 808 - 3,746 16,050 4,937
Convertible
debentures -
liability
component 53,338 53,296 - 12,150 12,150

Unitholders'
Equity 258,256 262,463 264,555 199,717 202,550

Number of units
at end of
Period 25,515,935 25,501,890 25,490,022 20,118,544 20,091,900
Number of
options
at end of
Period 4,029,306 4,029,306 - 1,056,443 1,056,443

Weighted
Average
Number of
Units:
Basic 25,506,516 25,494,379 24,637,663 20,096,970 17,408,984
Diluted
(for net
income) (i) 25,506,516 25,494,379 24,637,663 20,096,970 18,465,427
Diluted
(for
distributable
income) 26,535,822 26,808,283 25,102,034 21,153,413 18,465,427

(i) Convertible debentures have been excluded from the calculations
of the diluted net income per unit for the three month periods
ending March 31, 2004, June 30, 2004, September 30, 2004 and
December 31, 2004, as well as the year ended December 31, 2004
since they are anti-dilutive.


Segmented Information

Segmented Revenues From Rental Operations

(in thousands of dollars) Q4/04 Q4/03 Change
$ $ Vs Q4/03
----------------------
Office 14,703 7,672 7,031
Retail 8,582 6,124 2,458
Industrial 4,636 2,132 2,504
Multi-family residential 1,333 1,269 64
----------------------
Total 29,254 17,197 12,057
----------------------
----------------------


Segmented Net Operating Income

(in thousands of dollars) Q4/04 Q4/03 Change
$ $ Vs Q4/03
----------------------
Office 7,217 3,762 3,455
Retail 4,888 3,088 1,800
Industrial 2,723 1,184 1,539
Multi-family residential 588 422 166
----------------------
Total 15,416 8,456 6,960
----------------------
----------------------


Segmented Gross Book Value of Income-Producing Properties

(in thousands of dollars) Q4/04 Q3/04 Q4/03 Change Change
$ $ $ Vs Q3/04 Vs Q4/03
-----------------------------------------
Office 301,076 298,094 237,218 2,982 63,858
Retail 180,161 179,402 136,790 759 43,371
Industrial 106,381 105,954 55,104 427 51,277
Multi-family residential 34,300 34,148 34,137 152 163
-----------------------------------------
Total 621,918 617,598 463,249 4,320 158,669
-----------------------------------------
-----------------------------------------


Segmented Net Book Value of Income-Producing Properties

(in thousands of dollars) Q4/04 Q3/04 Q4/03 Change Change
$ $ $ Vs Q3/04 Vs Q4/03
-----------------------------------------
Office 291,564 290,709 235,533 855 56,031
Retail 174,997 175,463 135,546 (466) 39,451
Industrial 103,991 104,353 54,634 (362) 49,357
Multi-family residential 33,137 33,198 33,810 (61) (673)
-----------------------------------------
Total 603,689 603,723 459,523 (34) 144,166
-----------------------------------------
-----------------------------------------


Portfolio Summary

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

Office 2,814 2,814 2,604 2,257
Retail 1,432 1,432 1,235 1,041
Industrial 2,532(i) 2,532(i) 1,564(i) 1,358(i)
Multi-family residential 300 300 300 300
-----------------------------------
Total 7,078 7,078 5,703 4,956
-----------------------------------
-----------------------------------


Dec 31, Sept 30, June 30, March 31,
2003 2003 2003 2003
-----------------------------------

Leasable Area (000 square feet)

Office 2,257 1,371 1,371 1,371
Retail 1,041 1,041 1,041 1,041
Industrial 1,358(i) 1,358(i) 1,358(i) 948
Multi-family residential 300 300 300 300
-----------------------------------
Total 4,956 4,070 4,070 3,660
-----------------------------------
-----------------------------------


Number of Properties
Dec 31, Sept 30, June 30, March 31,
2004 2004 2004 2004
-----------------------------------
Office 19 19 17 15
Retail 4 4 3 2
Industrial 27(i) 27(i) 17(i) 16(i)
Multi-family residential N/A(ii) N/A(ii) N/A(ii) N/A(ii)
-----------------------------------
Total 50 50 37 33
-----------------------------------
-----------------------------------


Number of Properties
Dec 31, Sept 30, June 30, March 31,
2003 2003 2003 2003
-----------------------------------
Office 15 7 7 7
Retail 2 2 2 2
Industrial 16(i) 16(i) 16(i) 9
Multi-family residential N/A(ii) N/A(ii) N/A(ii) N/A(ii)
-----------------------------------
Total 33 25 25 18
-----------------------------------
-----------------------------------


Change of Leasable Area
Square feet (000) %
Vs Q3/04 Vs Q4/03 Vs Q3/04 Vs Q4/03
----------------- -----------------
Office - 557 0.0% 24.7%
Retail - 391 0.0% 37.6%
Industrial - 1,174 0.0% 86.5%
Multi-family residential - - 0.0% 0.0%
----------------- -----------------
Total - 2,122 Total 0.0% 42.8%
----------------- -----------------
----------------- -----------------


Change of Number of Properties

No. of Properties %
Vs Q3/04 Vs Q4/03 Vs Q3/04 Vs Q4/03
----------------- -----------------
Office - 4 0.0% 26.7%
Retail - 2 0.0% 100.0%
Industrial - 11 0.0% 68.8%
Multi-family residential - - 0.0% 0.0%
----------------- -----------------
Total - 17 Total 0.0% 68.0%
----------------- -----------------
----------------- -----------------

(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

Q4/04 Q3/04 Q4/03 Change Change
Occupancy Vs Q3/04 Vs Q4/03
---------------------------------------------------------------------
Office 87.1% 86.9% 89.5% 0.2% -2.4%
Retail 96.6% 95.5% 95.4%(i) 1.1% 1.2%
Industrial 89.9% 91.0% 91.4% -1.1% -1.5%
Multi-family residential 95.8% 97.5% 94.1% -1.7% 1.7%
----- ----- -------- -----------------
Total 90.4% 90.6% 91.5%(i) -0.2% -1.1%
----- ----- -------- -----------------
----- ----- -------- -----------------

(i) Excludes area affected by the Centre Laval redevelopment.


Top 10 Tenants
% of Total
Revenues
---------------------------------------------------------------------
1 Public Works & Government Services Canada 5.39%
2 Richter Management Ltd. 2.46%
3 ISM Information Management Corporation 2.18%
4 Club Monaco 2.17%
5 Sico 1.28%
6 Optimal Payments Inc. 1.26%
7 Tioxide Canada Inc. 1.23%
8 CP Ships (Canada) Agencies Ltd. 1.22%
9 Wal-Mart Canada 1.17%
10 KSH Solutions Inc. 1.16%
---------------------------------------------------------------------
Total 19.54%
---------------------------------------------------------------------
---------------------------------------------------------------------


Leasing Activities

Lease Expirations and Renewals by Segment

Office Retail Industrial Total
Expiring Leases/2004
---------------------------------------------------------------------
Number of tenants 52 51 45 148
Area (Square feet) 197,442 68,912 372,826 639,180
Average net rent/square foot $11.31 $22.67 $5.24 $8.99
---------------------------------------------------------------------

Renewed Leases as at Q4
---------------------------------------------------------------------
Number of tenants 21 40 28 89
Area (Square feet) 94,837 46,547 262,488 403,872
Average net rent/square foot $10.37 $21.07 $5.29 $8.31
---------------------------------------------------------------------

New Leases as at Q4
---------------------------------------------------------------------
Number of tenants 35 20 35 90
Area (Square feet) 124,045 159,282 263,000 546,327
Average net rent/square foot $12.25 $13.92 $5.27 $9.38
---------------------------------------------------------------------


Lease Expirations
Office Retail Industrial Total
Number of tenants
---------------------------------------------------------------------
2005 58 49 57 164
2006 52 28 53 133
2007 78 35 36 149
2008 62 32 27 121
2009 36 36 20 92
After 93 89 16 198
---------------------------------------------------------------------

Area (square feet)
---------------------------------------------------------------------
2005 236,030 73,734 537,228 846,992
2006 267,865 36,905 485,958 790,728
2007 488,980 76,854 387,057 952,891
2008 425,534 394,506 316,622 1,136,662
2009 168,453 148,232 221,918 538,603
After 869,260 679,824 248,145 1,797,229
---------------------------------------------------------------------

Weighted Average Net Rent
(per square foot)
---------------------------------------------------------------------
2005 $12.82 $18.73 $5.26 $8.54
2006 $10.31 $29.25 $5.75 $8.39
2007 $11.22 $18.44 $4.97 $9.26
2008 $11.67 $4.65 $4.97 $7.37
2009 $9.96 $12.86 $5.28 $8.83
---------------------------------------------------------------------


Weighted Average Term to Maturity on Existing Leases 4.64 years

Debt Summary


Debt Maturities

Year Amount % of Total Debt Average
$ Outstanding Rate
---------------------------------------------------------------------
2005 20,830,143 6.26% 7.10%
2006 4,575,728 1.38% 7.30%
2007 85,170,166 25.60% 6.59%
2008 55,379,524 16.65% 6.44%
2009 45,752,873 13.75% 5.48%
After 120,966,766 36.36% 6.29%
--------------------------------------
332,675,200 100.00% 6.34%
--------------------------------------
--------------------------------------

Weighted average term: 5.83 years

Financing Activities

Subsequent to December 31, 2004, the REIT completed the acquisition
of an income-producing property for an approximate purchase price of
$8,400,000. The transaction was funded using part of the proceeds
raised from the issuance of the 2004 Convertible Debentures.

There were repayments in January 2005 of three mortgages amounting
to approximately $2,024,000.

At current gross book value, the REIT's maximum borrowing capacity is
$155,000,000.

Financing Capacity

As at December 31, 2004, debt (excluding convertible debentures) /
gross book value ratio: 49.2%

As at December 31, 2004, debt (including convertible debentures) /
gross book value ratio: 57.0%


Ratio analysis
Dec Sept June March Dec Sept June March
31, 30, 30, 31, 31, 30, 30, 31,
2004 2004 2004 2004 2003 2003 2003 2003
-----------------------------------------------
Debt to gross
book value (i) 49.2% 49.7% 50.2% 52.7% 51.7% 51.5% 52.4% 51.4%
Interest coverage
ratio 2.41 2.46 2.64 2.28 2.13 4.49 2.39 2.44

(i) Excluding convertible debentures


-30-

Contact Information