Alexis Nihon Real Estate Investment Trust
TSX : AN.UN

Alexis Nihon Real Estate Investment Trust

March 23, 2007 06:00 ET

Alexis Nihon REIT Announces Fourth Quarter and 2006 Year-End Results

Acquisitions increase FFO per unit to new year end high

MONTREAL, QUEBEC--(CCNMatthews - March 23, 2007) - Alexis Nihon Real Estate Investment Trust (TSX:AN.UN) today announced results for the fourth quarter and 12 months ended December 31, 2006.

2006 Highlights

- Increased funds from operations 11.3% to $37.4 million

- Increased funds from operations per unit 10.4% to $1.45 per unit

- Completed acquisitions totaling $38.1 million, increasing total leasable area 7.1% to 9.1 million square feet

- Paid monthly distributions at annual rate of $1.10 per unit

- Improved distributable income payout ratio to 92.0% from 95.8%

- Maintained an average interest rate of 6.0% on existing mortgages

- Debt(i) to gross book value ratio of 59.6%, below REIT limit of 65.0%

- Ended 2006 with $107 million capacity for acquisitions and investments

(i) Including convertible debentures

During 2006 the REIT acquired 10 properties, all in the greater Montreal area, that increased leasable area by 7.1% to 9.1 million square feet.

Fourth quarter revenues advanced 3.8% over the same period in 2005, to $34.2 million. Distributable income increased 0.5% to $7.8 million. Funds from operations decreased 16.2% to $7.5 million as a result of $1.6 million of costs related to the REIT's sale process. Excluding such costs, funds from operations increased 1.5% to $9.1 million versus 2005.

For the year, revenues gained 12.4% to a new high of $136.6 million. Distributable income increased 5.1% to a record $31.0 million, while funds from operations rose 11.3% to an unprecedented $37.4 million, or $1.45 per unit from $1.31 per unit in 2005.

"Alexis Nihon's financial results for 2006 were substantially improved by the acquisition of 10 properties during the year," said Robert A. Nihon, Executive Chairman. "The expanded property portfolio has significantly enlarged our scale of operations, improved our results and enhanced unitholder value."

"The ongoing downward pressure on capitalization rates, which indicate high property prices, spurred the REIT to enter the field of renovation and redevelopment of lesser-priced properties during 2006," noted Guy Charron, Executive Vice President and Chief Operating Officer. "In June we acquired an industrial property in Pointe Claire, Quebec at comparatively modest cost because it has mostly low ceilings. We plan to redevelop the property into space with high ceilings and at the same time, increase tenant density. When the project is completed, the property will be much more economical to operate and net operating income will be significantly increased."

Rene Fortin, Senior Vice President and Chief Financial Officer, noted the property acquisitions during 2006 were financed with a combination of cash reserves, commercial mortgages, term debt and bank credit facilities.

"The REIT's acquisitions were completed while increasing funds from operations per unit and distributable income per unit during 2006," said Mr. Fortin. "As a result, the REIT retained its strong balance sheet and significant acquisition capacity, while continuing to meet debt obligations and make monthly distributions to unitholders."



Financial Highlights
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(thousands of dollars except per-unit amounts)
---------------------------------------------------------------------------
Period ended December 31 3 months 12 months
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2006 2005 2006 2005
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Revenues from rental operations $34,233 $32,981 $136,604 $121,496
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Net operating income $17,628 $16,771 $ 72,232 $ 62,830
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Funds from operations (1) $ 7,537 $ 8,995 $ 37,447 $ 33,631
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FFO per unit (1) $ 0.29 $ 0.35 $ 1.45 $ 1.31
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Distributable income (1) $ 7,785 $ 7,746 $ 30,989 $ 29,487
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Distributable income per unit
(diluted) (1) $ 0.29 $ 0.29 $ 1.15 $ 1.11
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(1) Distributable income and FFO are non-GAAP measures


Board and management changes

On December 6, 2006, Senator Paul J. Massicotte resigned as President, Chief Executive Officer and Trustee of the REIT. On that date, the Board of Trustees named Robert A. Nihon, then Chairman of the REIT, to Executive Chairman. On December 14, 2006, Ian Wetherly resigned as a Trustee of the REIT.

Events Subsequent To Year End

Unitholder Rights Plan

On January 14, 2007, the REIT adopted a unitholder rights plan designed to prevent a creeping takeover. A copy of the unitholder rights plan has been filed via SEDAR and a summary can be found in the material change report dated January 22, 2007 which is also available on SEDAR.

Unitholders To Tender Their Units To The Offer

On March 1, 2007, an offer made by Homburg Acquisition Inc., a wholly-owned subsidiary of Homburg Invest Inc., to purchase all of the outstanding units of the REIT at a price of $18.60 in cash per Unit (the "Offer") and the related take-over bid circular as well as the trustees' circular of the REIT recommending acceptance of the Offer were mailed to all holders of record of the REIT. The Offer was made pursuant to the terms of a support agreement dated February 19, 2007 between the REIT and Homburg Invest Inc. and is open for acceptance until midnight (Montreal time) on April 5, 2007, unless extended or withdrawn by Homburg Acquisition Inc.

Copies of the take-over bid circular, the trustees' circular of the REIT and the support agreement are available on SEDAR.

Additional Financial Information

Attached to this news release are financial statements with accompanying notes and management's discussion and analysis. These documents plus a supplemental information package will be filed via SEDAR and made available at www.alexisnihon.com.

Conference Call and Webcast

Management will hold a conference call and live audio webcast on Friday, March 23, 2007 at 10 a.m. (ET) to discuss the REIT's fourth quarter performance. The call may be accessed by dialing 1-800-731-5319 or 416-644-3420. The webcast will also be accessible live and will be archived for 60 days at www.alexisnihon.com.

About Alexis Nihon REIT

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

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

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



Alexis Nihon Real Estate Investment Trust
Consolidated Financial Statements
December 31, 2006 and 2005


Auditors' Report

To the Unitholders 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, 2006 and 2005, 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, 2006 and 2005 and the results of its operations and its cash flows for the years then ended in accordance with Canadian Generally Accepted Accounting Principles.

RSM Richter, LLP

Chartered Accountants

Montreal, Quebec February 2, 2007

(Except for Notes 1 and 27, which are dated March 21, 2007)



Alexis Nihon Real Estate Investment Trust

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

2006 2005
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Assets

Income-producing properties (note 5) $ 697,016 $ 668,746
Intangible assets (note 6) 35,360 39,416
Properties held for development (note 7) 4,418 964
Other assets (note 8) 19,787 20,960
Due from companies under common control of certain
trustees of the REIT (note 9) 280 535
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$ 756,861 $ 730,621

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Liabilities

Debts on income-producing properties (note 10) $ 419,201 $ 370,321
Convertible debentures - liability component
(note 11) 39,370 53,468
Intangible liabilities (note 12) 2,416 3,203
Bank indebtedness (note 13) 40,007 41,969
Accounts payable and accrued liabilities 19,968 20,303
Distributions payable 2,475 2,251
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523,437 491,515
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Commitments and Contingencies (note 14)

Equity

Unitholders' equity 233,424 239,106
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$ 756,861 $ 730,621

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See accompanying notes



Alexis Nihon Real Estate Investment Trust

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

Other
Units Net Equity
in $ Income Components Distributions Total
---------------------------------------------------------------------------
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Unitholders'
Equity -
December
31, 2004 $ 267,234 $ 34,170 $ 2,852 $ (46,000) $ 258,256

Net income - 6,128 - - 6,128

Units issued
(note 15) 2,971 - - - 2,971

Distributions - - - (28,249) (28,249)
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Unitholders'
Equity -
December
31, 2005 $ 270,205 $ 40,298 $ 2,852 $ (74,249) $ 239,106

Net income - 6,958 - - 6,958

Units issued
(note 15) 2,127 - - - 2,127

Conversion of
convertible
debentures
(note 15) 14,210 - (452) - 13,758

Distributions - - - (28,525) (28,525)
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Unitholders'
Equity -
December
31,2006 $ 286,542 $ 47,256 $ 2,400 $(102,774) $ 233,424
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See accompanying notes



Alexis Nihon Real Estate Investment Trust

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

2006 2005
---------------------------------------------------------------------------
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Revenues from Rental Operations (note 16) $ 136,604 $ 121,496

Rental Property Operating Costs 64,372 58,666
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Net Operating Income 72,232 62,830
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Expenses

Interest (note 17) 30,344 26,413
Amortization of buildings 16,535 15,220
Other amortization (note 18) 14,141 10,856
General and administrative 2,140 2,150
Trust expenses 524 450
Internalization of construction management
company (note 3) - 1,613
Sale process costs (note 1) 1,590 -
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65,274 56,702
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Net Income $ 6,958 $ 6,128
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Basic Net Income Per Unit (note 20) $ 0.269 $ 0.239
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Diluted Net Income Per Unit (note 20) $ 0.269 $ 0.239
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See accompanying notes



Alexis Nihon Real Estate Investment Trust

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

2006 2005
---------------------------------------------------------------------------
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Cash Flows generated from (used for) -

Operating Activities

Net income $ 6,958 $ 6,128
Items not affecting cash:
Amortization of buildings 16,535 15,220
Other amortization 14,141 10,856
Amortization of above and below market in-place leases (245) (232)
Amortization of deferred financing costs 712 655
Amortization of deferred recoverable costs 340 280
Accrued rental revenue (939) (1,704)
Internalization of construction management company - 1,613
Changes in:
Other assets (note 23) 2,792 (3,143)
Accounts payable and accrued liabilities (506) 10,214
Additions to tenant improvements and leasing costs (9,589) (9,080)
Additions to deferred recoverable costs (3,008) (1,189)
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Cash Flows generated from Operating Activities 27,191 29,618
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Financing Activities

Increase in debts on income-producing properties 57,813 32,938
Repayment of debts on income-producing properties (19,610) (12,683)
Amortization of fair value debt adjustment (108) (126)
Accretion on liability component of convertible
debentures 137 130
Additions to deferred financing costs (612) (613)
Bank indebtedness (1,962) 41,161
Distributions paid (26,174) (26,946)
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Cash Flows generated from Financing Activities 9,484 33,861
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Investing Activities

Acquisition of rental properties (note 4) (27,496) (62,473)
Additions to buildings (7,082) (9,898)
Additions to property under development (196) -
Additions to furniture, fixtures and computers (89) (172)
Deposits on potential acquisitions (2,067) (651)
Due from companies under common control of
certain trustees of the REIT 255 (285)
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Cash Flows used for Investing Activities (36,675) (73,479)
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Decrease in Cash and Cash Equivalents - (10,000)

Cash and Cash Equivalents - Beginning of Year - 10,000
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Cash and Cash Equivalents - End of Year $ - $ -

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See accompanying notes


Alexis Nihon Real Estate Investment Trust

Notes to Consolidated Financial Statements
December 31, 2006 and 2005
(dollar amounts are in thousands, except per unit amounts)


1. Description of the REIT

General

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

Sale Process

On December 4, 2006, the REIT announced that its Board of Trustees would support an offer being made by Cominar Real Estate Investment Trust ("Cominar"). Pursuant to a combination agreement (the "Combination Agreement"), Cominar agreed (a) to acquire all of the issued and outstanding Units for, at the election of each Unitholder, either: (i) $17.00 in cash, or (ii) 0.77 of a unit of Cominar (subject to pro ration), and (b) to acquire all or substantially all of the assets of the REIT.

On January 14, 2007, the REIT adopted a unitholder rights plan designed to prevent a creeping takeover.

On January 24, 2007, the REIT executed an amendment to the Combination Agreement with Cominar providing for, among other things, the increase of the cash component of the proposed combination from $17.00 to $18.50. The REIT also received from Cominar a waiver of the application of certain sections of the Combination Agreement allowing the REIT to grant the access to material non public information and to participate in discussions with respect to a potential "Acquisition Proposal" within the meaning of the Combination Agreement with Homburg Invest Inc. ("Homburg"), Summit Real Estate Investment Trust and ING Real Estate Canada in certain circumstances.

On February 16, 2007, Homburg submitted to the REIT a binding proposal to make an all cash offer to acquire all the issued and outstanding Units that it does not already own at a price of $18.60 per Unit, subject to the execution of a support agreement substantially upon the same terms and conditions as the Combination Agreement with Cominar, including a termination fee of $12,500. Subsequently, the Trustees determined that Homburg's binding proposal was an "Acquisition Proposal" and a "Superior Proposal" within the meaning of the Combination Agreement and notified Cominar of its determination, allowing it to exercise its five-day right to match Homburg's proposal under the Combination Agreement.

On February 19, 2007, after Cominar waived its five-day right to match the proposal from Homburg, the REIT terminated the Combination Agreement with Cominar and entered into a support agreement with Homburg (the "Support Agreement") under which the REIT agreed to support an offer from Homburg or any subsidiary thereof to acquire all the issued and outstanding units of the REIT that it does not already own, at a price of $18.60 per Unit.

On March 1, 2007, an offer made by Homburg Acquisition Inc., a wholly-owned subsidiary of Homburg Invest Inc., to purchase all of the outstanding units of the REIT at a price of $18.60 in cash per Unit (the "Offer") and the related take-over bid circular as well as the trustees' circular of the REIT recommending acceptance of the Offer were mailed to all holders of record of the REIT. The Offer is open for acceptance until midnight (Montreal time) on April 5, 2007, unless extended or withdrawn by Homburg Acquisition Inc.

For the three and twelve months ending December 31, 2006, $1,590 in costs were expensed relating to the REIT's sale process. These costs include legal, advisory and other professional fees as well as $551 of due diligeance costs on potential property acquisitions that the REIT has had to withdraw from. Additional costs are expected to be incurred in future quarters as the transaction nears completion. Pursuant to the terms of the Combination Aggreement and the Support Agreement, in certain circumstances, Cominar and Homburg shall be entitled to a "Termination Fee" of $12,500 each. If the Support Agreement is terminated under certain circumstances by Homburg or by the REIT, the REIT has agreed to pay the out-of-pocket expenses of Homburg to a maximum of $600.

2. 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.

Consolidation of Variable Interest Entities

Effective January 1, 2005, the REIT adopted The Canadian Institute of Chartered Accountants' Accounting Guideline 15, "Consolidation of Variable Interest Entities". This guideline provides recommendations for applying consolidation principles to entities that are subject to control on a basis other than ownership through voting interest. The REIT has assessed the impact of the accounting guideline and has determined that there is no material impact from the adoption of this standard on the 2005 and 2006 consolidated financial statements.

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 made by management include, but are not limited to, the useful lives of long-lived assets, the cash flows expected from the on-going use and disposal of long-lived assets, the discount rates used in determining certain fair value estimates and the fair values of tangible and intangible assets acquired upon the purchase of income-producing properties.

Revenue Recognition

The REIT uses the straight-line method of recognizing rental revenue whereby the total amount of rental revenue to be received from leases is accounted for on a straight-line basis over the term of the related agreements. 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. Recoveries for repair and maintenance costs (deferred recoverable costs) are recognized on a straight-line basis over the expected life of the items. Parking and other incidental are recognized when the services are provided.

Income-Producing Properties

Income-producing properties include land, buildings, tenant improvements (developed by the REIT), leasing costs, deferred recoverable costs and tenant improvements recorded on acquisitions which are carried at cost less accumulated amortization. Cost includes the purchase price of the asset plus acquisition-related costs. Income-producing properties are reviewed periodically for impairment as described under "Impairment of Long-Lived Assets".

Maintenance and repairs that are not recoverable from tenants are either expensed as incurred, or, in the case of a major item, capitalized to buildings and amortized on a straight-line basis over the expected useful life of the item.

Amortization of buildings is provided using the straight-line method over 35 years.

Major repair and maintenance items that are recoverable from tenants are capitalized to deferred recoverable costs and amortized on a straight-line basis over the expected useful life of the items. The amortization of these items are included in rental property operating costs.

Amortization of leasing costs and tenant improvements including tenant inducements and allowances are provided using the straight-line method over the terms of the related leases.

Intangible Assets and Liabilities

A portion of the purchase price of an income-producing property must be allocated to intangible components including in-place leasing costs, above and below market leases and tenant relationships, if any. This allocation is based on management's estimate of their fair values. These intangibles are amortized on a straight-line basis over the terms of the related leases. The amortization of the above and below market in-place leases is recorded in revenues from rental operations. Intangibles are reviewed periodically for impairment as described under "Impairment of Long-Lived Assets".

Properties Held for Development

Properties held for development include two lands and one building, which are carried at cost. Cost includes the purchase price of the asset, acquisition-related costs, other direct costs of development and construction, property taxes, interest on specific debt and all incidental property expenses. Properties held for development are reviewed periodically for impairment as described under "Impairment of Long-Lived Assets".

Capitalization of costs to properties under development continues until the property reaches its accounting completion date, the determination of which is based on achieving a satisfactory occupancy level.

Impairment of Long-Lived Assets

Long-lived assets, which include income-producing properties, intangibles, properties held for development and furniture, fixtures and computers, 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.

Deferred Financing Costs

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

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.

Unit-Based Compensation Plans

The REIT has in effect the following unit-based compensation plans:

a) 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.

b) 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.

c) A long-term incentive plan as described in note 15. A compensation expense is recognized for the REIT's contributions to the plan over the vesting period.

3. Business Acquisition

On January 1, 2005, the REIT acquired the assets of a construction management company owned by certain trustees of the REIT for a consideration of approximately $1,638 paid by the issuance of 132,743 units of the REIT. Substantially all of the purchase price has been expensed as an internalization of construction management services by the REIT in accordance with EIC-138 "Internalization of the management function in a royalty or income trust".

The acquisition has been recorded at the exchange amount, which is the amount of the consideration established and agreed to by the related parties. The purchase price has been allocated as follows:



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Furniture and fixtures $ 25
Internalization of construction management expense 1,613
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Consideration paid $ 1,638
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The net income of the acquired company has been included in the consolidated statement of net income from the date of acquisition.

4. Acquisition of Rental Properties

During the year, the REIT acquired ten income-producing properties and related assets and liabilities (2005 - five income-producing properties and related assets and liabilities). A portion of one income-producing property has been classified as held for development. The following table summarizes the net assets acquired:



Retail Industrial Total Total
Properties Properties 2006 2005
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Land held for development $ - $ 1,786 $ 1,786 $ -
Building under development - 1,472 1,472 -
Land 3,949 6,971 10,920 14,977
Buildings 6,845 10,012 16,857 48,217
Tenant improvements 1,360 - 1,360 -
Intangible assets and
liabilities:
Lease origination costs
for in-place leases 3,130 3,588 6,718 15,917
Above market in-place
leases - 51 51 439
Below market in-place
leases - - - (734)
Other assets 151 237 388 -
Accounts payable and
accrued liabilities (136) (35) (171) -
Debts on income-producing
properties (4,005) - (4,005) (15,518)
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Consideration paid for the
net assets acquired $ 11,294 $ 24,082 $ 35,376 $ 63,298
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Consideration paid funded by:
Cash and bank indebtedness $ 10,594 $ 16,902 $ 27,496 $ 62,473
Deposits 700 400 1,100 825
Balance of purchase price - 6,780 6,780 -
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$ 11,294 $ 24,082 $ 35,376 $ 63,298
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The balance of purchase price payable bears interest at 5.5% until June 19, 2007 and 8% thereafter. Monthly repayment of $10 plus interest is payable from June 19, 2008 to June 19, 2009. The remaining balance is due on June 19, 2009. The balance of purchase price payable is grouped with debts on income-producing properties.

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



5. Income-Producing Properties

2006 2005
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Accumulated Net Carrying Net Carrying
Cost Amortization Amount Amount
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Land $ 138,855 $ - $ 138,855 $ 127,935
Buildings and
tenant
improvements 601,254 53,873 547,381 535,091
Leasing costs 6,802 1,691 5,111 3,841
Tenant improvement
recorded on
acquisitions 2,499 407 2,092 970
Deferred
recoverable
costs 4,197 620 3,577 909
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$ 753,607 $ 56,591 $ 697,016 $ 668,746
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6. Intangible Assets

2006 2005
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Accumulated Net Carrying Net Carrying
Cost Amortization Amount Amount
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Lease origination
costs for in-place
leases $ 56,065 $ 21,736 $ 34,329 $ 37,894
Above market
in-place leases 2,270 1,239 1,031 1,522
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$ 58,335 $ 22,975 $ 35,360 $ 39,416
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7. Properties Held for Development

2006 2005
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Land held for development $ 2,750 $ 964
Building under development 1,668 -
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$ 4,418 $ 964
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During the year, interest expense of $64 (2005 - $Nil) was capitalized to properties held for development.



8. Other Assets

2006 2005
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Accounts receivable $ 2,897 $ 5,345
Deferred rent receivable 4,541 3,602
Prepaids 1,285 1,386
Deposits on potential acquisitions 1,548 581
Restricted funds 6,290 6,088
Deferred financing costs 2,503 3,080
Furniture, fixtures and computers 627 725
Other 96 153
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$ 19,787 $ 20,960
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Restricted funds held at Canadian financial institutions are pursuant to agreements with various mortgage lenders.

Deferred financing costs are net of accumulated amortization of $1,613 (December 31, 2005 - $901).

Furniture, fixture and computers are net of accumulated amortization of $714 (December 31, 2005 - $527).

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

2006 2005
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Loans secured by mortgages on income-producing
properties, bearing interest at a weighted
average annual rate of 6.0%, repayable in blended
monthly instalments of $3,011 maturing at various
dates no later than December 1, 2021 $ 416,971 $ 368,225
Accrued interest 2,017 1,874
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418,988 370,099

Fair value debt adjustment (note 17) 213 222
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$ 419,201 $ 370,321
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Principal repayments of debt on income-producing properties are due
as follows:

Instalments Due on
payments maturity Total
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2007 $ 10,867 $ 79,326 $ 90,193
2008 8,783 50,034 58,817
2009 6,940 57,211 64,151
2010 6,913 22,738 29,651
2011 6,770 5,064 11,834
Subsequent to 2011 44,171 118,154 162,325
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84,444 332,527 416,971

Accrued interest 2,017
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$ 418,988
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11. 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 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 an effective interest 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.

During the year, $14,607 (2005 - $Nil) of face value of the 2004 Convertible Debentures were converted into 1,070,105 units of the REIT at a conversion price of $13.65 per unit (see note 15). At December 31, 2006, $40,393 (2005 - $55,000) of face value of the 2004 Convertible Debentures was outstanding.



12. Intangible Liabilities

2006 2005
---------------------------------------------------------------------------
Accumulated Net Carrying Net Carrying
Cost Amortization Amount Amount
---------------------------------------------------------------------------

Below market
in-place leases $ 4,384 $ 1,968 $ 2,416 $ 3,203
---------------------------------------------------------------------------
---------------------------------------------------------------------------


13. Bank Indebtedness

The REIT's $70,000 credit facility is subject to annual review and consists of a general operating loan available by way of prime rate loans, bankers' acceptances and letters of credit. Borrowings by way of prime rate loans bear interest at prime plus 0.5% per annum. Borrowings by way of bankers' acceptances bear interest at a rate equal to the bankers' acceptance rate plus stamping fees equivalent to 2.25% per annum. The letter of credit facility is limited to $10,000 and bears interest at 1.25% per annum. The credit facility is secured by a first ranking hypothec on three income-producing properties having a net carrying amount of $46,025 and a second ranking hypothec on two income-producing properties having a net carrying amount of $241,445. The terms of the banking agreement require the REIT to meet certain financial covenants, such as gross book value, debt service coverage, fair value of the properties given as security and occupancy rate. No default occured during the year ended December 31, 2006.

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 total net carrying value of $43,657 (2005 - $43,664), are as follows:



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

2007 $ 415
2008 416
2009 416
2010 416
2011 416
Subsequent to 2011 16,301



(b) The REIT is committed to payments under various service agreements
for the maintenance of an income-producing property, expiring from 2007
to 2012. The estimated minimum payments required under these agreements
are approximately as follows:

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

2007 $ 2,288
2008 590
2009 526
2010 542
2011 558
Subsequent to 2011 332



(c) Letters of guarantee outstanding as at December 31, 2006 amount to
$5,000 (2005 - $5,000). This amount has been given as a performance
guarantee to execute required repairs under a mortgage agreement.


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:



2006 2005
---------------------------------------------------------------------------
Number Number
of units Amounts of units Amounts
---------------------------------------------------------------------------

Balance - beginning of year 25,754,095 $ 270,205 25,515,935 $ 267,234
Issuance of units:
Internalization of
construction management
company (note 3) - - 132,743 1,638
Distribution
reinvestment plan 164,364 2,127 105,417 1,333
Conversion of
convertible debentures
(note 11) 1,070,105 14,210 - -
---------------------------------------------------------------------------

Balance - end of year 26,988,564 $ 286,542 25,754,095 $ 270,205
---------------------------------------------------------------------------
---------------------------------------------------------------------------


During the year, $14,607 (2005 - $Nil) of face value of the 2004 Convertible Debentures were converted into 1,070,105 units of the REIT at a conversion price of $13.65 per unit. The face value of the 2004 Convertible Debentures, net of a discount of $372, plus a proportionate share of the equity component in the amount of $452, net of the applicable unamortized deferred financing costs of $477, was added to REIT unit capital.

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, 164,364 units (2005 - 105,417) have been issued at a weighted average price of $12.94 (2005 - $12.64) pursuant to the distribution reinvestment plan. As at December 31, 2006, the plan was suspended due to the Support Agreement (see note 1).

Unit-Based Compensation Plans

a) Unit Option Plan

The REIT has a unit option plan (the "Plan") under which 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. As at December 31, 2006, the plan was suspended due to the Support Agreement (see note 1).

b) Employee Unit Purchase Plan (EUPP)

The REIT has in effect 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. As at December 31, 2006, the plan was suspended due to the Support Agreement (see note 1).

c) Long-Term Incentive Plan

In 2005, the REIT adopted a Long-Term Incentive Plan (the "LTIP") which provides for the grant of Trust Units to key executives and any other employees designated by the board of directors of the REIT, up to a maximum of 40% of their overall bonus. Annually, the REIT contributes the amount of the bonus to be rendered under the LTIP to the trust administering the plan, which in turn purchases units of the REIT on the open market. The employees become entitled to the units and the income from the distributions over a three-year period of continuous employment. The REIT's contributions and accumulated distributions are recorded as deferred compensation expense (included in other assets) and expensed over the vesting period. As at December 31, 2006, the LTIP was suspended due to the Support Agreement (see note 1). In the event of a change of control, the LTIP calls for the immediate payment of all accumulated unpaid contributions to all participants.

In 2006, the REIT recorded a total compensation expense of $132 (2005 - $75) for the various plans.

Distributions

The REIT is required to distribute to unitholders not less than 85% of the Distributable Income as defined in the Contract of Trust.



16. Revenues From Rental Operations

2006 2005
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Rental revenue contractually due under the leases $ 135,420 $ 119,560
Accrued rental revenue 939 1,704
Amortization of above market in-place leases (542) (513)
Amortization of below market in-place leases 787 745
---------------------------------------------------------------------------
$ 136,604 $ 121,496
---------------------------------------------------------------------------
---------------------------------------------------------------------------



17. Interest

2006 2005
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Interest on debts on income-producing properties,
at stated rate $ 23,688 $ 21,353
Interest on convertible debentures, at stated rate 3,337 3,410
Accretion on liability component of convertible
debentures 137 130
Amortization of deferred financing costs 712 655
Amortization of fair value debt adjustment (108) (126)
Other interest 2,578 991
---------------------------------------------------------------------------
$ 30,344 $ 26,413
---------------------------------------------------------------------------
---------------------------------------------------------------------------


Certain debts on income-producing properties assumed on acquisitions 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 $29,913 (2005 - $25,619).



18. Other Amortization

2006 2005
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Amortization of tenant improvements and
leasing costs incurred through leasing activities $ 3,433 $ 2,212
Amortization of furniture, fixtures and computers 187 186
Amortization of lease origination costs for
in-place leases incurred through acquisitions 10,283 8,331
Amortization of tenant improvements incurred
through acquisitions 238 127
---------------------------------------------------------------------------

$ 14,141 $ 10,856
---------------------------------------------------------------------------
---------------------------------------------------------------------------


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.

New income trust legislation was proposed by the Federal Ministry of Finance on December 21, 2006. Under the proposed legislation, certain distributions made by "mutual fund trusts" would no longer be deductible for income tax purposes. This new legislation would come into effect starting 2011. Early indications are that certain real estate investment trusts would be excluded from this proposed legislation, so long as certain technical tests are met. Currently, it is premature to determine the extent at which the legislation would affect the REIT. The REIT will study the detailed legislation at which time it becomes available.

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 32%. There is no provision required for the years ended December 31, 2006 and 2005.



20. Net Income Per Unit Calculations

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

2006 2005
---------------------------------------------------------------------------

Basic Diluted Basic Diluted
---------------------------------------------------------------------------

Net income $ 6,958 $ 6,958 $ 6,128 $ 6,128
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Weighted average number of
units outstanding 25,885,323 25,885,323 25,661,055 25,661,055
---------------------------------------------------------------------------
---------------------------------------------------------------------------


Convertible debentures have been excluded from the calculations of the diluted net income per unit for the year ended December 31, 2006 and 2005 since they are anti-dilutive.

21. 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, 2006 and 2005, as well as its proportionate share in the revenues, expenses and cash flows for the years then ended are as follows:



2006 2005
---------------------------------------------------------------------------

Income-producing properties $ 8,709 $ 8,715
Debts on income-producing properties 3,922 4,177
Accounts payable and accrued liabilities 155 168

Revenues 1,448 1,361
Expenses 1,280 1,266
Net income 168 95

Cash flows from:
Operating activities 521 382
Financing activities (255) (266)
Investing activities (266) (116)

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


22. 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 the province of Quebec and Ontario 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 2.



Multi-family
2006 Office Retail Industrial residential Total
---------------------------------------------------------------------------

Revenues from rental
operations $ 63,448 $ 40,762 $ 26,712 $ 5,682 $ 136,604
Rental property
operating costs 33,757 17,486 9,870 3,259 64,372
---------------------------------------------------------------------------

Net operating income $ 29,691 $ 23,276 $ 16,842 $ 2,423 $ 72,232

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

Income-producing
properties $ 313,196 $ 188,893 $ 161,578 $ 33,349 $ 697,016

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

Intangible assets $ 12,966 $ 11,733 $ 10,661 $ - $ 35,360

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

Additions to
income-producing
properties $ 10,999 $ 15,961 $ 20,287 $ 1,569 $ 48,816

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

Additions to
intangible
assets $ - $ 3,130 $ 3,639 $ - $ 6,769

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



Multi-family
2005 Office Retail Industrial residential Total
---------------------------------------------------------------------------

Revenues from rental
operations $ 59,821 $ 34,274 $ 22,053 $ 5,348 $ 121,496
Rental property
operating costs 31,283 15,731 8,348 3,304 58,666
---------------------------------------------------------------------------

Net operating income $ 28,538 $ 18,543 $ 13,705 $ 2,044 $ 62,830

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

Income-producing
properties $ 312,701 $ 178,037 $ 145,332 $ 32,676 $ 668,746

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

Intangible assets $ 16,063 $ 10,729 $ 12,624 $ - $ 39,416

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

Additions to
income-producing
properties $ 30,800 $ 7,440 $ 44,506 $ 150 $ 82,896

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

Additions to
intangible assets $ 5,304 $ - $ 11,052 $ - $ 16,356

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



23. Supplemental Cash Flow Information

Change in Other Assets

2006 2005
---------------------------------------------------------------------------

Accounts receivable $ 2,836 $ (2,521)
Prepaids 101 26
Restricted funds (202) (495)
---------------------------------------------------------------------------
Other 57 (153)
---------------------------------------------------------------------------

$ 2,792 $ (3,143)
---------------------------------------------------------------------------
---------------------------------------------------------------------------


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.

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 69,550 (2005 - 169,080) square feet of leasable area of the income-producing properties during 2006 at specified market rental rates. For 2006, the head lease revenue amounted to $564 (2005 - $1,332).

As security for the obligation of the head lease, a company under common control of certain trustees of the REIT has pledged units 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 accounts receivable, deposits, restricted funds, bank indebtedness, accounts payable and accrued liabilities and distributions payable 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 at December 31, 2006 and 2005 has been established by discounting the future cash flows using interest rates corresponding to those 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, 2006 has been estimated at $424,458 (2005 - $378,750) compared with the carrying value of $417,184 (2005 - $368,447).

The fair value of the 2004 convertible debentures as at December 31, 2006 is $50,087 (2005 - $56,100) compared with the carrying value of $40,622 (2005 - $55,172). The fair values are based on the 2004 convertible debentures' market rates at December 31, 2006 and 2005.

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 2005 amounts have been made to facilitate comparison with the current year.

27. Subsequent Events

On January 26, 2007, legal proceedings were instituted by Senator Paul J. Massicotte, the former President and Chief Executive Officer of the REIT, against the REIT, its Trustees, and Alexis Nihon Management (Canada) Inc., a wholly-owned subsidiary of the REIT, under the employment agreement claiming $500 of bonuses that are now claimed to be payable as well as $1,200 as severance and compensation in the event of a change of control of the REIT. It is still the REIT's view, based on advice of legal counsel, that, as a result of his resignation on December 6, 2006, no payments are owed.

Subsequent to December 31, 2006, and as at March 21, 2007, $32,786 of face value of the 2004 Convertible Debentures were converted into 2,401,882 units of the REIT at a conversion price of $13.65 per unit.



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

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2006

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


The following discussion describes the business, the business environment, and management's expectations as at March 22, 2007. 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, 2006 and 2005, as well as the notes thereto.

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

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

OVERVIEW AND OBJECTIVES

The REIT is an unincorporated closed-end real estate investment trust created pursuant to a contract of trust made as of October 18, 2002, as amended and restated as of December 13, 2002 and as of May 15,2006 (the "Contract of Trust"). 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.

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.

Under the terms of the Support Agreement (see "Sale Process"), the REIT's covenants include certain restrictions on expenditures made other than in the ordinary course of business, therefore, limiting the REIT's ability to pursue its second objective while the Support Agreement is in effect.

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 Computershare Trust Company of Canada, the REIT's transfer agent (1-800-564-6253). Please visit our website to download our DRIP brochure.

On December 3, 2006, in accordance with the terms of the Combination Agreement (see "Sale Process"), the trustees suspended the effects of the DRIP. Under the terms of the Support Agreement, the REIT agreed to maintain the suspension of the DRIP and to terminate the DRIP as soon as possible upon the successful completion of the offer (see "Sale Process).

2006 OVERVIEW OF ACTIVITIES

On April 4, 2006, the REIT announced the acquisition of a retail property portfolio on the south shore region of the Greater Montreal Area. The acquisition was comprised of six free standing retail buildings totaling 98,117 square feet, which were 90.2% occupied. The acquisition price of $15,000 represented a going-in capitalization rate of approximately 8.1%, net of an assumed mortgage of approximately $3,900 and was funded by the REIT's credit facilities. The interest rate on the assumed mortgage was 6.19%, has a 20 year amortization, and matures July 1, 2009.

On May 15, 2006, the REIT announced that unitholders attending its annual and special meeting approved a resolution allowing management, within certain specific limits, to invest in acquisitions of vacant land and property development. The resolution amends the REIT's Contract of Trust, which proscribed acquisition of vacant land not adjoining current portfolio properties.

On May 31, 2006, the REIT announced the acquisition of a mutli-tenant industrial property in the Montreal borough of Saint-Laurent for $4,000 representing a going-in capitalization rate of approximately 8.5%. The property measures 60,351 square feet and is 100% occupied by three tenants. The purchase price was funded by the REIT's credit facilities. Long term financing on the property was subsequently put in place on October 13, 2006 (see "Debt Financing and Contractual Obligations").

On June 20, 2006, the REIT announced the acquisition of a multi-tenant industrial property located in the Montreal borough of Pointe-Claire. The property holds a total of 894,300 square feet of land. Gross leasable area ("GLA") currently comprises 292,900 square feet, including a portion measuring 112,600 square feet with a 24-foot clear ceiling height. The balance of GLA has clear ceiling heights ranging from 16 feet to 18 feet that is planned to be redeveloped into space with higher ceilings. The first phase of the redevelopment would feature approximately 100,000 square feet of GLA. The REIT also intends to increase the density of the site from the current 33% to approximately 45% to 50% by adding multi-tenant industrial spaces. As such, a portion of the property has been classified as Properties held for development in the REIT's financial statements. It includes land and building, carried at cost, as well as acquisition related costs, other direct costs of development and construction, property taxes, interest on specific debt and all incidental property expenses. The $11,100 acquisition price equates to $37.90 per square foot of current leasable area, or $12.41 per square foot on total site area. Of the purchase price, $4,300 was funded by the REIT's credit facilities. The $6,800 balance of sale has been financed by the vendor for a three-year term.

On August 1, 2006, the REIT announced the acquisition of a single-tenant industrial property in the Montreal borough of Pointe-Claire for $1,900 representing a going-in capitalization rate of approximately 9.1%. The property measures 40,000 square feet and is 100% occupied. The purchase price was funded by the REIT's credit facilities. Long term financing on the property was subsequently put in place on December 18, 2006, (see "Debt Financing and Contractual Obligations").

On September 13, 2006, the REIT announced the acquisition of a single-tenant industrial property located in the Montreal borough of St-Laurent. The property measures 99,957 square feet and was acquired for $6,100 representing a going-in capitalization rate of 9.4%. The purchase price was funded by the REIT's credit facilities. Long term financing on the property was subsequently put in place on December 18, 2006, (see "Debt Financing and Contractual Obligations").

On October 10, 2006, the Board of Trustees of Alexis Nihon announced that it had created a special committee to plan and oversee the search for a new chief executive officer to replace Senator Paul J. Massicotte, who had indicated his intention to retire as President and Chief Executive Officer of Alexis Nihon.

On December 6, 2006, the REIT announced that it had appointed Robert A. Nihon as Executive Chairman, and that Senator Paul J. Massicotte had resigned as trustee and President and Chief Executive Officer of the REIT.

On December 14, 2006, the REIT announced that Ian G. Wetherly had resigned as Trustee of the REIT for personal reasons.

As of December 31, 2006, the REIT's portfolio consisted of 65 office, retail and industrial properties (including a 426-unit multi-family residential property) aggregating 9.1 million square feet of leasable area of which 0.4 million square feet is co-owned. There are 62 properties located in the Greater Montreal Area and 3 in the National Capital Region. The chart below outlines the REIT's portfolio of properties and square footage:



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

(1) With respect to the "# of properties", Place Alexis Nihon has been
included as one property in the office category. It includes two
office towers, a retail concourse and a multi-family residential
component.
(2) The REIT owns 25% of 102,032 square feet (3 properties), and 50% of
308,385 square feet (4 properties).


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

SALE PROCESS

On November 20, 2006, the Trustees of the REIT created a Transaction Committee, chaired by Gerard A. Limoges and comprised of Mr. Limoges, Richard Guay, Thomas J. Leathong and Philip M. O'Brien, being all of the independent trustees of the REIT, and authorized the Transaction Committee to conduct formal discussions with Cominar Real Estate Investment Trust ("Cominar") regarding a possible combination between the REIT and Cominar.

On December 3, 2006, the REIT executed a combination agreement with Cominar (the "Combination Agreement") pursuant to which Cominar agreed (a) to acquire all of the issued and outstanding Units of the REIT for, at the election of each Unitholder, either: (i) $17.00 in cash, or (ii) 0.77 of a unit of Cominar (subject to pro ration), and (b) to acquire all or substantially all of the assets of the REIT.

On January 14, 2007, the REIT adopted a unitholder rights plan designed to prevent a creeping takeover. A copy of the unitholder rights plan has been filed via SEDAR and a summary can be found in the material change report dated January 22, 2007 which is also available on SEDAR.

On January 24, 2007, the REIT executed an amendment to the Combination Agreement with Cominar providing for, among other things, the increase of the cash component of the proposed combination from $17.00 to $18.50. The REIT also received from Cominar a waiver of the application of certain sections of the Combination Agreement allowing the REIT to grant the access to material non public information and to participate in discussions with respect to a potential "Acquisition Proposal" within the meaning of the Combination Agreement with Homburg Invest Inc. ("Homburg Invest"), Summit Real Estate Investment Trust and ING Real Estate Canada in certain circumstances.

On February 16, 2007, Homburg Invest submitted to the REIT a binding proposal to make an all cash offer to acquire all the issued and outstanding Units of the REIT that it does not already own at a price of $18.60 per Unit, subject to the execution of a support agreement substantially upon the same terms and conditions as the Combination Agreement with Cominar, including a termination fee of $12,500. Later that day, the Trustees determined that Homburg Invest's binding proposal was an "Acquisition Proposal" and a "Superior Proposal" within the meaning of the Combination Agreement and notified Cominar of its determination, allowing it to exercise its five-day right to match Homburg Invest's proposal under the Combination Agreement.

On February 19, 2007, after Cominar waived its five-day right to match the proposal from Homburg Invest, the REIT terminated the Combination Agreement with Cominar and entered into a support agreement with Homburg Invest (the "Support Agreement") under which the REIT agreed to support an offer from Homburg Invest or any subsidiary to acquire all the issued and outstanding units of the REIT that it does not already own at a price of $18.60 per Unit.

On March 1, 2007, an offer made by Homburg Acquisition Inc., a wholly-owned subsidiary of Homburg Invest, to purchase all of the outstanding units of the REIT at a price of $18.60 in cash per Unit (the "Offer") and the related take-over bid circular as well as the trustees' circular of the REIT recommending acceptance of the Offer were mailed to all holders of record of the REIT. The Offer is open for acceptance until midnight (Montreal time) on April 5, 2007, unless extended or withdrawn by Homburg Acquisition Inc..

For the three and twelve months ending December 31, 2006, $1,590 in costs were expensed relating to the REIT's sale process. These costs include legal, advisory and other professional fees as well as $551 of due diligence costs associated with potential property acquisitions that the REIT has had to withdraw from. Additional costs are expected to be incurred in future quarters as the transaction nears completion. These costs have been added back to net income in the calculation of distributable income. Pursuant to the terms of the Combination Agreement and the Support Agreement, in certain circumstances, Cominar and Homburg shall be entitled to a "Termination Fee" of $12,500 each. If the Support Agreement is terminated under certain circumstances by Homburg or by the REIT, the REIT has agreed to pay the out-of-pocket expenses of Homburg to a maximum of $600.

For a more detailed description of the sale process, including the background to such process, see the Trustees' circular of the REIT dated February 27, 2007 recommending acceptance of the Offer available on SEDAR at www.sedar.com.

FINANCIAL PERFORMANCE

The financial results of the REIT for the years 2005 and 2006, by quarter and in total, are summarized in the following table:



2005
-----------------------------------------------------------
March June Sept. Dec. Total

Revenues from
rental
operations $ 28,988 $ 28,856 $ 30,671 $ 32,981 $ 121,496
Rental property
operating costs 14,403 13,451 14,602 16,210 58,666
---------------------------------------------------------------------------

Net operating
income 14,585 15,405 16,069 16,771 62,830
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Interest 6,137 6,340 6,919 7,017 26,413
Amortization
of buildings 3,623 3,653 3,903 4,041 15,220
Other
amortization 2,383 2,515 2,839 3,119 10,856
Internalization
of construction
management
company 1,613 - - - 1,613
General and
administrative 276 792 493 589 2,150
Trust expenses 138 97 99 116 450
Sale process
costs - - - - -
---------------------------------------------------------------------------
---------------------------------------------------------------------------

14,170 13,397 14,253 14,882 56,702
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Net Income (loss) 415 2,008 1,816 1,889 6,128

Add/(Deduct):
Amortization
of buildings 3,623 3,653 3,903 4,041 15,220
Internalization
of
construction
management
company 1,613 - - - 1,613
Cancellation
fee received - - - - -
Offer costs - - - - -
Amortization
of amounts
recorded on
acquisitions:
Tenant
improvements 32 31 32 32 127
Lease
origination
costs for
in-place
leases 1,880 1,949 2,209 2,293 8,331
Above and
below market
in-place
leases (58) (65) (56) (53) (232)
Accretion on
liability
component of
convertible
debentures 31 33 33 33 130
Amortization
of fair
value debt
adjustments (33) (33) (37) (23) (126)
Accrued rental
revenue
recognized on
a straight
-line basis (462) (416) (360) (466) (1,704)
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Distributable
Income (1) $ 7,041 $ 7,160 $ 7,540 $ 7,746 $ 29,487

Distributable
income per
unit:
Basic $ 0.276 $ 0.279 $ 0.293 $ 0.301 $ 1.149
Diluted $ 0.267 $ 0.270 $ 0.282 $ 0.289 $ 1.108
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Distributions $ 7,033 $ 7,064 $ 7,072 $ 7,080 $ 28,249
Distributions
per unit $ 0.275 $ 0.275 $ 0.275 $ 0.275 $ 1.100
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Funds from
operations (1) $ 7,991 $ 8,131 $ 8,514 $ 8,995 $ 33,631
Funds from
operations
per unit $ 0.313 $ 0.317 $ 0.331 $ 0.350 $ 1.311
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Net income
(loss) per unit:
Basic $ 0.016 $ 0.078 $ 0.071 $ 0.073 $ 0.239
Diluted (2) $ 0.016 $ 0.078 $ 0.071 $ 0.073 $ 0.239
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Total Assets $ 661,068 $ 710,104 $ 734,089 $ 730,621 $ 730,621
Total Debt (3) $ 390,247 $ 439,422 $ 465,354 $ 465,758 $ 465,758
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Weighted average
number of units:
Basic 25,520,625 25,677,642 25,706,883 25,736,198 25,661,055
Diluted (for
net income) 25,520,625 25,677,642 25,706,883 25,736,198 25,661,055
Diluted (for
distributable
income) 29,549,931 29,706,948 29,736,189 29,765,504 29,690,361
---------------------------------------------------------------------------



2006
-----------------------------------------------------------
March June Sept. Dec. Total

Revenues from
rental
operations $ 32,685 $ 35,843 $ 33,843 $ 34,233 $ 136,604
Rental property
operating costs 16,221 15,899 15,647 16,605 64,372
-----------------------------------------------------------
Net operating
income 16,464 19,944 18,196 17,628 72,232
-----------------------------------------------------------

Interest 7,255 7,469 7,889 7,731 30,344
Amortization of
buildings 4,020 4,109 4,156 4,250 16,535
Other
amortization 3,063 3,347 3,856 3,875 14,141
Internalization
of construction
management
company - - - - -
General and
administrative 550 562 464 564 2,140
Trust expenses 150 111 108 155 524
Sale process
costs - - - 1,590 1,590
---------------------------------------------------------------------------
15,038 15,598 16,473 18,165 65,274
---------------------------------------------------------------------------

Net Income (loss) 1,426 4,346 1,723 (537) 6,958

Add/(Deduct):
Amortization
of buildings 4,020 4,109 4,156 4,250 16,535
Internalization
of construction
management
company - - - - -
Cancellation
fee received - (3,460) - - (3,460)
Offer costs - - - 1,590 1,590
Amortization
of amounts
recorded on
acquisitions:
Tenant
improvements 32 69 69 68 238
Lease
origination
costs for
in-place
leases 2,292 2,458 2,845 2,688 10,283
Above and
below
market
in-place
leases (56) (54) (64) (71) (245)
Accretion on
liability
component of
convertible
debentures 33 35 35 34 137
Amortization
of fair value
debt
adjustments (23) (23) (31) (31) (108)
Accrued rental
revenue
recognized on
a straight
-line basis (335) 86 (484) (206) (939)
---------------------------------------------------------------------------

Distributable
Income (1) $ 7,389 $ 7,566 $ 8,249 $ 7,785 $ 30,989

Distributable
income per unit:
Basic $ 0.287 $ 0.293 $ 0.319 $ 0.298 $ 1.197
Diluted $ 0.277 $ 0.282 $ 0.305 $ 0.286 $ 1.150
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Distributions $ 7,088 $ 7,097 $ 7,113 $ 7,227 $ 28,525
Distributions
per unit $ 0.275 $ 0.275 $ 0.275 $ 0.275 $ 1.100
---------------------------------------------------------------------------

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

Funds from
operations (1) $ 8,465 $ 11,756 $ 9,689 $ 7,537 $ 37,447
Funds from
operations
per unit $ 0.329 $ 0.456 $ 0.375 $ 0.289 $ 1.447
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Net income
(loss) per
unit:
Basic $ 0.055 $ 0.168 $ 0.067 $ (0.021) $ 0.269
Diluted (2) $ 0.055 $ 0.168 $ 0.067 $ (0.021) $ 0.269
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Total Assets $ 729,511 $ 759,853 $ 762,172 $ 756,861 $ 756,861
Total Debt (3) $ 473,498 $ 503,316 $ 511,973 $ 498,578 $ 498,578
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Weighted average
number of units:
Basic 25,764,652 25,800,052 25,855,175 26,117,865 25,885,323
Diluted (for
net income) 25,764,652 25,800,052 25,855,175 26,117,865 25,885,323
Diluted (for
distributable
income) 29,793,958 29,829,358 29,884,481 29,940,925 29,862,644
---------------------------------------------------------------------------

(1) Distributable income and Funds from operations are non-GAAP measures,
see definition on pages 10 and 13.
(2) Convertible debentures have been excluded from the calculations of the
diluted net income per unit in 2005 and in 2006 since they are anti-
dilutive.
(3) Total debt comprises debts secured by mortgages, bank indebtedness,
and the liability component of convertible debentures.


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

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



Twelve Three Twelve
months months months
ended ended ended
Dec. 31 Dec. 31 Dec. 31
----------------------------

2005 2006 2006
---- ---- ----
- the REIT's DRIP 105,417 20,293 164,364
- the acquisition of the assets of ANC
Construction Inc. (March 2005) 132,743 - -
- conversion of Series A 6.2% Convertible
Unsecured Subordinated Debentures - 1,070,105 1,070,105


During the fourth quarter of 2006, $14,607 (2005; NIL) of face value of the 2004 Convertible Debentures were converted into 1,070,105 units of the REIT at a conversion price of $13.65 per unit. At December 31, 2006, $40,393 (2005; $55,000) of face value of the 2004 Convertible Debentures was outstanding.

NET OPERATING INCOME

The quarter over quarter ("QOQ") and year to date ("YTD") analysis by sector of the REIT's net operating income ("NOI") is explained in greater detail in the following section entitled "Segmented Analysis". In summary, for the year ended December 31, 2006, NOI totaled $72,232 which was an increase of $9,402 or 15.0% over the same period last year.

Of the increase, $5,296 is attributable to the NOI generated from the acquisition of properties acquired at various times YOY. Excluding acquired properties from the 2006 NOI, the same property NOI for the year 2006 would have totaled $66,936 reflecting a positive variance of $4,106 or 6.5% over 2005.



Three months ended Year ended
------------------------------ -----------
Dec. 31,
Same property YOY NOI variance March June Sept. Dec. 2006
--------------------------------------------------------------- -----------
- (Decrease) increase
straight-lining of rents ($127) ($502) $124 ($260) ($765)
- (Decrease) increase in
amortization of above and
below market in-place leases (2) (11) 8 18 13
- Net positive variance
associated with occupancies
and redevelopment 363 326 620 158 1,467
- (Increase) decrease in
non-recoverable and bad debt
expense (64) (356) 218 23 (179)
- (Decrease) increase in
cancellation penalties
received (16) 3,301 379 (9) 3,655
- Positive (negative) variance
in other income 65 (158) (278) (93) (464)
- Net (decrease) increase in the
residential sector NOI (5) 97 120 167 379
--------------------------------------------------------------- -----------
Net positive variance $214 $2,697 $1,191 $4 $4,106
--------------------------------------------------------------- -----------
--------------------------------------------------------------- -----------


Excluding the YOY impact of accounting changes, including straight-lining of rents and amortization of above and below market in-place leases, the same property portfolio NOI reflected an increase of $4,858 or 8.0%.

SEGMENTED ANALYSIS



Office Three months ended
------ -------------------------------------------------
Mar. 31 June 30 Sept. 30
-------------------------------------------------
2005 2006 2005 2006 2005 2006
---- ---- ---- ---- ---- ----

Revenues from rental
operations $14,458 $16,081 $14,243 $15,606 $14,848 $15,966
Rental property
operating costs 7,792 8,846 6,897 8,290 7,809 8,067
-------------------------------------------------
Net operating income $6,666 $7,235 $7,346 $7,316 $7,039 $7,899
-------------------------------------------------
-------------------------------------------------

Three months
Office ended Years ended
------ ---------------- ---------------
Dec. 31 Dec. 31
---------------- ---------------
2005 2006 2005 2006
---- ---- ---- ----

Revenues from rental operations $16,272 $15,795 $59,821 $63,448
Rental property operating costs 8,785 8,554 31,283 $33,757
---------------- ---------------
Net operating income $7,487 $7,241 $28,538 $29,691
---------------- ---------------
---------------- ---------------


Net operating income from office rental operations totaled $29,691 for the year compared with $28,538 in 2005 representing an increase of $1,153 or 4.0%. The positive variance for the year is summarized as follows:



Three months Year
ended ended
------------------------- ---------
Dec. 31,
YOY NOI variance March June Sept. Dec. 2006
---------------------------------------------------------------- ---------
- NOI contribution from properties
acquired $638 $685 $357 $ - $1,680
- Decrease in straight-lining of rents (21) (47) (50) (77) (195)
- Increase in amortization of above
and below market in-place leases 9 8 7 5 29
- (Negative) positive variance
associated with occupancies (95) 45 82 (229) (197)
- (Negative) positive variances in
non-recoverable and bad debt expense (41) (473) 87 201 (226)
- (Decrease) increase in cancellation
penalties received - (184) 496 (9) 303
- Positive (negative) variance in
other income 79 (64) (119) (137) (241)
----------------------------------------------------------------- --------
Net positive (negative) variance $569 ($30) $860 ($246) $1,153
----------------------------------------------------------------- --------
----------------------------------------------------------------- --------



Retail Three months ended
------ ----------------------------------------------------------
Mar. 31 June 30 Sept. 30 Dec. 31
----------------------------------------------------------
2005 2006 2005 2006 2005 2006 2005 2006
---- ---- ---- ---- ---- ---- ---- ----

Revenues from
rental
operations $8,478 $8,985 $8,290 $12,510 $8,325 $9,531 $9,181 $9,736
Rental property
operating costs 3,850 4,117 3,819 4,476 3,795 4,223 4,267 4,670
----------------------------------------------------------
Net operating
income $4,628 $4,868 $4,471 $8,034 $4,530 $5,308 $4,914 $5,066
----------------------------------------------------------
----------------------------------------------------------


Retail Years ended
------ -----------------
Dec. 31
-----------------
2005 2006
---- ----

Revenues from rental operations $34,274 $40,762
Rental property operating costs 15,731 17,486
-----------------
Net operating income $18,543 $23,276
-----------------
-----------------


For the year 2006, the retail sector net operating income totaled $23,276 compared with $18,543 in 2005. The YOY positive variance of $4,733 or 25.5% is detailed as follows:



Three months Year
ended ended
------------------------- ---------
Dec. 31,
YOY NOI variance March June Sept. Dec. 2006
---------------------------------------------------------------- ---------
- NOI contribution from
properties acquired $ - $317 $272 $298 $887
- (Decrease) increase in
straight-lining of rents (136) (471) 123 (179) (663)
- Net positive variance
associated with occupancies
and redevelopment 366 204 350 128 1,048
- (Negative) positive variances
in non-recoverable and bad
debt expense (23) 93 125 (147) 48
- (Decrease) increase in
cancellation penalties
received (18) 3,460(1) - - 3,442
- Positive (negative) variance in
other income 51 (40) (92) 52 (29)
--------------------------------------------------------------------------
Net positive variance $240 $3,563 $778 $152 $4,733
--------------------------------------------------------------------------
--------------------------------------------------------------------------


(1) During the second quarter of 2006, the REIT entered into a lease termination agreement with Club Monaco Corp. (the "Tenant") who occupied 19,753 square feet at the REIT's retail property located at 777 St-Catherine Street West, Montreal, and whose lease was to expire on January 31, 2016. At the same time, the REIT entered into a lease agreement with Gap (Canada) Inc. (the "New Tenant") for a 10 year term. The termination agreement called for the tenant to pay the REIT a $4,000 lease cancellation fee, representing the present value of the difference in rental between the Tenant and the New Tenant. The Board of Trustees, in accordance with the REIT's Contract of Trust, approved by way of resolution that $3,460 of the cancellation fee (representing the cancellation fee net of three months of accelerated rent), which is recorded as revenue, be excluded from the REIT's Distributable Income (see "Distributable Income").



Industrial Three months ended
---------- ---------------------------------------------------------
Mar. 31 June 30 Sept. 30 Dec. 31
---------------------------------------------------------
2005 2006 2005 2006 2005 2006 2005 2006
---- ---- ---- ---- ---- ---- ---- ----

Revenues from
rental
operations $4,752 $6,287 $4,959 $6,329 $6,108 $6,867 $6,234 $7,229
Rental property
operating costs 1,949 2,409 1,895 2,356 2,126 2,516 2,378 2,589
---------------------------------------------------------
Net operating
income $2,803 $3,878 $3,064 $3,973 $3,982 $4,351 $3,856 $4,640
---------------------------------------------------------
---------------------------------------------------------


Industrial Years ended
---------- ----------------
Dec. 31
----------------
2005 2006
---- ----

Revenues from rental operations $22,053 26,712
Rental property operating costs 8,348 9,870
----------------
Net operating income $13,705 $16,842
----------------
----------------


The industrial sector reflects a YOY positive variance of $3,137 or 22.9% . Net operating income for the year totaled $16,842 compared with the $13,705 in 2005. The contributing factors include:



Three months Year
ended ended
------------------------- ---------
Dec. 31,
YOY NOI variance March June Sept. Dec. 2006
---------------------------------------------------------------- ---------
- NOI contribution from properties
acquired $1,027 $840 $307 $555 $2,729
- Impact of straight-lining of
rents 30 16 51 (4) 93
- (Decrease) increase in
amortization of above and
below market in-place leases (11) (19) 1 13 (16)
- Net positive variance associated
with occupancies 92 77 188 259 616
- Increase (decrease) in
cancellation penalties received 2 25 (117) - (90)
- Decrease (increase) in
non-recoverable and bad debt
expense - 24 6 (31) (1)
- Negative variance in other income (65) (54) (67) (8) (194)
---------------------------------------------------------------- ---------
Net positive variance $1,075 $909 $369 $784 $3,137
---------------------------------------------------------------- ---------
---------------------------------------------------------------- ---------



Residential Three months ended
----------- ---------------------------------------------------------
Mar. 31 June 30 Sept. 30 Dec. 31
---------------------------------------------------------
2005 2006 2005 2006 2005 2006 2005 2006
---- ---- ---- ---- ---- ---- ---- ----

Revenues from
rental
operations $1,300 $1,332 $1,364 $1,398 $1,390 $1,479 $1,294 $1,473
Rental property
operating costs 812 849 840 777 872 841 780 792
---------------------------------------------------------
Net operating
income $488 $483 $524 $621 $518 $638 $514 $681
---------------------------------------------------------
---------------------------------------------------------


Residential Years ended
----------- ---------------
Dec. 31
---------------
2005 2006
---- ----

Revenues from rental operations $5,348 $5,682
Rental property operating costs 3,304 3,259
---------------
Net operating income $2,044 $2,423
---------------
---------------


Net operating income for the residential sector totaled $2,423 representing a YOY increase of $379 or 18.6%. In summary, variances resulted from:



Three months Year
ended ended
------------------------- ---------
Dec. 31,
YOY NOI variance March June Sept. Dec. 2006
---------------------------------------------------------------- ---------
- Increase in revenues generated from
rental increases on regular
apartments $42 $53 $28 $71 $194
- (Decrease) increase in revenues
generated from the executive suites (10) (19) 60 109 140
- (Negative) positive variances in
operating expenses (37) 63 32 (13) 45
---------------------------------------------------------------- ---------
Net (negative) positive variance ($5) $97 $120 $167 $379
---------------------------------------------------------------- ---------
---------------------------------------------------------------- ---------


INTEREST EXPENSE

Interest expense consists of interest paid on secured mortgages on the income-producing properties as well as interest on the REIT's general bank indebtedness, interest on convertible debentures, accretion of the liability component of the convertible debentures, amortization of the fair value debt adjustments on mortgages assumed on acquisitions, and amortization of deferred financing costs. As at December 31, 2006, interest expense totaled $30,344 compared with $26,413 in 2005. The YOY variance of $3,931 results from:



- Interest on secured mortgages on income producing properties
acquired $ 1,990
- Decrease in interest on convertible debentures (73)
- Interest on new mortgages put in place 1,459
- Increase on interest accretion on convertible debentures 7
- Increase in interest on general bank indebtedness 1,444
- Interest savings on secured mortgages repaid upon maturity (538)
- Amortization of the fair value debt adjustments relating to
mortgages assumed on the acquisition of
certain properties 19
- Other, net (377)
--------------------------------------------------------------------------
Net increase $ 3,931
--------------------------------------------------------------------------
--------------------------------------------------------------------------


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.



2005 2006
--------------------- -----------------------
Mar. June Sept. Dec. Mar. June Sept. Dec.
---- ---- ----- ---- ---- ---- ----- ----
Weighted-average
interest rate 6.3% 6.3% 6.2% 6.2% 6.1% 6.1% 6.1% 6.0%
--------------------- -----------------------
Weighted-average
term to maturity (years) 5.61 5.46 5.33 5.08 6.02 5.84 5.60 5.62
--------------------- -----------------------
--------------------- -----------------------


AMORTIZATION EXPENSE

For the year ended December 31, 2006, total amortization (buildings $16,535 and other $14,141) totaled $30,676 compared to $26,076 in 2005. The YOY increase of $4,600 results from approximately $2,063 of amortization of lease origination costs for in-place leases and tenant improvements incurred through acquisitions, as well as approximately $910 of amortization of buildings principally for properties acquired, and $1,627 of amortization on tenant improvements, commissions and property additions.

GENERAL AND ADMINISTRATIVE EXPENSES

General and administrative expenses, which consist of the REIT's overhead costs, net of amounts recovered under operating expenses, totaled $2,140 for the year 2006 and were consistent with the previous years amount of $2,150.

TRUST EXPENSES

Trust expenses in 2006 totaled $524 versus $450 in 2005. The YOY increase of $74 primarily results from higher trustee fees associated with the REIT's growth.

SALE PROCESS COSTS

The REIT incurred $1,590 (2005: nil) of costs relating to its sale process (see "Sale Process") during the fourth quarter of 2006. Additional costs are expected to be incurred in future quarters as the transaction nears completion.

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 Contract of Trust. These adjustments include adding back amortization (but not amortization of tenant inducements and other leasing costs) and income tax expense, and excluding any gains or losses on the disposition of assets. Also excluded are any amounts that the Trustees in their discretion determine to be appropriate, including the impact of the change in accounting policy for the straight-lining of contractual rent increases, the full impact of EIC-140, the internalization of the REIT's construction management function which was fully expensed in accordance with EIC-138, as well as $3,460 of the $4,000 cancellation penalty received by the REIT during the second quarter (see "Retail" under the "Segmented Analysis" section). In addition, offer costs of $1,117 have been added back in the calculation of distributable income for the year 2006.



Distributable income by quarter and YOY are as follows:

Twelve months
Three months ended - 2006 ended Dec. 31
----------------------------------- ----------------
Mar. 31 June 30 Sept. 30 Dec. 31 2006 2005
----------------------------------- ----------------

Distributable Income $7,389 $7,566 $8,249 $7,785 $30,989 $29,487

Per unit:
Basic $0.287 $0.293 $0.319 $0.298 $1.197 $1.149
Diluted $0.277 $0.282 $0.305 $0.286 $1.150 $1.108

Distributions paid $7,088 $7,097 $7,113 $7,227 $28,525 $28,249

Distributable income
payout ratio 95.9% 93.8% 86.2% 92.8% 92.0% 95.8%


LEASING DATA

In 2006, leases for 1,098,754 square feet of space expired at a weighted average net rental rate of $8.00 per square foot. Of this amount, 673,535 square feet having a weighted average net rental rate of $9.18 was renewed at a weighted average net rental rate of $9.29. During the same period, 625,399 square feet of vacant space was leased at a weighted average net rental rate of $9.64 per square foot.

The following tables reflect the average occupancies and net rental rates of the REIT's portfolio for the last five quarters:



Occupancies December 31, 2005 March 31, 2006 June 30, 2006
--------------------------------------------------------------------------
Segment Area (sq.ft.) Occupancy Area (sq.ft.) Occupancy Area (sq.ft.)
--------------------------------------------------------------------------
Office 2,987,677 88.4% 2,987,677 88.4% 2,987,677
Retail 1,488,005 96.1% 1,488,005 93.9% 1,586,122
Industrial 3,711,139 91.2% 3,711,139 93.6% 3,953,483(1)
Residential 300,321 92.8% 300,321 94.6% 300,321
--------------------------------------------------------------------------
Overall 8,487,142 91.1% 8,487,142 91.9% 8,827,603(1)
--------------------------------------------------------------------------
--------------------------------------------------------------------------


Occupancies June 30, September 30, 2006 December 31, 2006
2006
---------------------------------------------------------------------------
Segment Occupancy Area (sq.ft.) Occupancy Area (sq.ft.) Occupancy
---------------------------------------------------------------------------
Office 88.2% 2,987,677 86.8% 2,987,677 88.0%
Retail 95.0% 1,602,552 96.1% 1,602,552 96.6%
Industrial 94.1%(1) 4,107,906(1) 94.5%(1) 4,107,906(1) 92.5%(1)
Residential 97.7% 300,321 98.8% 300,321 94.7%
---------------------------------------------------------------------------
Overall 92.4%(1) 8,998,456(1) 92.4%(1) 8,998,456(1) 91.8%(1)
---------------------------------------------------------------------------
---------------------------------------------------------------------------



Net rental rate
---------------

Segment December March June September December
------- 31, 31, 30, 30, 31,
2005 2006 2006 2006 2006
---------------------------------------------------------------------------
Office $11.35 $11.53 $11.51 $11.47 $11.42
Retail 13.56 13.60 13.74 13.31 13.43
Industrial 5.00 4.98 5.02 4.99 5.09
Residential (2) 1,037.28 1,035.72 1,056.72 1,089.18 1,090.08
---------------------------------------------------------------------------
Overall $9.21 $9.20 $9.19 $9.04 $9.13
---------------------------------------------------------------------------
---------------------------------------------------------------------------

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

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


Since September 30, 2006, the overall portfolio occupancy level decreased by 0.6% to 91.8%. The office and retail sectors reflected increases of 1.2% and 0.5% respectively, which resulted from increased leasing activity. As for the industrial sector, the decrease of 2.0% (or approximately 82,200 square feet) resulted primarily form the move-out of a tenant prior to lease expiry (but who's lease was to expire in January 2007) occupying 100,000 square feet, in order to allow tenant improvement work to begin for a new tenant who is to take occupancy in May 2007. The residential sector decrease of 4.1% is attributable to vacancies as at December 31, in the 72 furnished apartments, which are leased on a short-term basis, and are historically mostly vacant at year end due to seasonal holidays.



The REIT'S YOY same portfolio occupancy levels and net rental rates,
excluding properties acquired during 2006, are as follows:

December 31, 2005 December 31, 2006
--------------------------------------------------
Area Net rental Net rental
Segment (sq.ft.) Occupancy rate Occupancy rate
-------------------------------------------------------------------------
Office 2,987,677 88.4% $11.35 88.0% $11.42
Retail 1,488,005 96.1% 13.56 97.5% 13.45
Industrial 3,711,139 91.2% 5.00 91.8% 5.07
Residential 300,321 92.8% 1,037.28(1) 94.7% 1,090.08(1)
-------------------------------------------------------------------------
Overall 8,487,142 91.1% $9.21 91.5% $9.28
-------------------------------------------------------------------------
-------------------------------------------------------------------------

(1) The residential sector sets forth the average monthly gross rent per
unit.


The YOY same portfolio occupancy levels in the retail and industrial sectors show YOY favorable variances of 1.4% and 0.6% respectively resulting from increased leasing activities. The YOY office sector unfavorable variance of 0.4%, which represents approximately 12,000 square feet, is attributable principally to expected move outs of tenants at lease expiry. The YOY favorable variance of 1.9% in the residential sector results from higher occupancy of the executive suites, which are leased on short-term leases.

DEBT FINANCING AND CONTRACTUAL OBLIGATIONS

On January 10, 2006, the REIT put in place conventional first mortgage loans on 12 properties, as described below, totaling $38,934 for a 15 year term bearing interest at a rate of 5.174% . The loans are cross-collateralized and cross-defaulted, and subject to certain conditions. After a 5 year period, these provisions can be cancelled. Secondary financing is permitted subject to certain conditions.



Mortgage Amortization
-------- ------------
Property Amount Period
-------- ------ ------

- 1925 - 1975 Hymus Blvd., Dorval $3,953 30 years
- 80 - 140 Lindsay Street, Dorval 1,828 30 years
- 8411 - 8453 Dalton Road, Mount-Royal 1,166 30 years
- 8459 - 8497 Dalton Road, Mount-Royal 1,566 30 years
- 8545 - 8579 Dalton Road, Mount-Royal 1,725 30 years
- 8605 - 8639 Dalton Road, Mount-Royal 1,449 30 years
- 9960 - 9970 Cote de Liesse, Lachine 1,242 30 years
- 6320 - 6380 Cote de Liesse, St-Laurent 2,691 30 years
- 455 Fenelon Blvd., Dorval 8,617 30 years
- 3339 - 3403 Griffith Street, St-Laurent 5,037 30 years
- 8100 Cavendish Blvd., St-Laurent 3,657 25 years
- 1225 Volta Street, Boucherville 6,003 25 years
--------
$38,934
--------
--------


On February 1, 2006, the REIT repaid the mortgage loan on the property located at 777 St-Catherine Street West, Montreal, in the amount of $7,090.

On March 17, 2006 the REIT increased its existing credit facility from $50,000 to $60,000 by increasing the second ranking hypothec on Centre Laval.

On April 4, 2006, the REIT acquired a portfolio of six free standing retail properties located on the south shore region of the Greater Montreal Area and assumed a mortgage of $3,900 on the property located at 1200 Place Nobel, Boucherville. The mortgage bears interest at 6.19%, has a 20-year amortization, and matures on July 1, 2009. In addition, on May 12, 2006, the REIT put in place a $4,500 mortgage on the three properties located at 2401 Rolland Therrien and 1165-1175 Chemin du Tremblay, Longueuil, as well as a $1,900 mortgage on the two properties located at 1200-1220 rue des Promenades, Saint-Bruno. Both of these loans bear interest at 5.77%, have a 15-year term, a 25-year amortization, and are interest only on the first five years.

On June 20, 2006, the REIT acquired a multi-tenant industrial property located at 2400 Trans-Canada, in the Montreal borough of Saint-Laurent, Quebec and negotiated a balance of sale of $6,800 with the vendor. The balance of sale is for a term of three years whereby years one and two are interest only, at 5.5% and 8% respectively. In year three, interest is at 8 % and capital repayments of $10 per month are required. The loan can be repaid, without penalty, at any time.

On June 30, 2006, the REIT obtained approval from its lenders to increase its existing credit facility from $60,000 to $70,000 by increasing the second ranking hypothec on Place Alexis Nihon.

On October 2, 2006, the REIT put in place a $10,575 mortgage on its property located at 777 St-Catherine Street West, Montreal, at an interest rate of 5.31%, on a 30-year amortization, and maturing in September 2016.

On October 13, 2006, the REIT put in place a $3,075 mortgage on its property located at 5055-5065 Levy Street, in the Montreal borough of Saint-Laurent, at an interest rate of 5.138%, on a 30-year amortization, and maturing in November 2011. The property was acquired on May 31, 2006.

On November 28, 2006, the REIT put in place a 15-year mortgage of $5,000 on its property located at 9999 Cavendish, in the Montreal borough of Saint-Laurent, at an interest rate of 5.3% and a 25 year amortization. The previous loan amount was $3,900, had an interest rate of 7.3% and had a 10-year amortization period.

On December 18, 2006, the REIT put in place a 5-year mortgage of $1,400 on its property located at 243 Hymus, in the Montreal borough of Pointe-Claire, at an interest rate of 4.84% with a 20-year amortization period. The property had been acquired on August 1st, 2006.

On December 18, 2006, the REIT put in place a 5-year mortgage of $4,500 on its property located at 2555 Pitfield, in the Montreal borough of Saint-Laurent, at an interest rate of 4.84% and a 25-year amortization. The property had been acquired on September 13, 2006.

As at December 31, 2006, the REIT's debt secured by income-producing properties was $459,208 representing 54.9% of gross book value (book value of the REIT's assets plus accumulated amortization less intangible liabilities was $836,319), well below its 60% threshold limit. Including the convertible debentures, the percentage is 59.6% (limit 65%). Floating rate debt, which cannot exceed 15% of gross book value, totaled $40,007 or 4.8% .



The REIT's contractual obligations at December 31, 2006 were as follows:

Payments due by period
----------------------------------------------------
Less than 1 - 3 4 - 5 After 5
Total 1 year years Years years
----------------------------------------------------
Long-term debt $ 418,988 $92,210 $ 122,968 $41,485 $162,325
Emphyteutic leases 18,380 415 832 832 16,301
Maintenance agreements 4,836 2,288 1,116 1,100 332
Convertible debentures 40,393 - - - 40,393
----------------------------------------------------
Total $ 482,597 $94,913 $ 124,916 $43,417 $219,351
----------------------------------------------------
----------------------------------------------------


LIQUIDITY AND CAPITAL EXPENDITURES

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



Twelve months
ended
Three months ended - 2006 December 31,
Mar. 31 June 30 Sept. 30 Dec. 31 2006 2005
---------------------------------------------------------------------------
Net Income (loss) (per
financial statements) $1,426 $4,346 $1,723 ($537) $6,958 $6,128

Adjustments to
reconcile net income
to FFO:
Internalization of
construction
management company - - - - - 1,613
Amortization of
buildings 4,020 4,109 4,156 4,250 16,535 15,220
Other amortization,
excluding
amortization of
furniture, fixtures
& computers 3,019 3,301 3,810 3,824 13,954 10,670
---------------------------------------------------------------------------

Funds From Operations
(FFO) $8,465 $11,756 $9,689 $7,537 $37,447 $33,631

Deduct / (Add):
Cancellation fee
received - 3,460 522 - 3,982 -
Accrued rental revenue
recognized on a
straight-line basis 335 (86) 484 206 939 1,704
Above and below market
in-place leases 56 54 64 71 245 232
Normalized leasing
costs(1) 1,429 1,429 1,429 1,429 5,716 5,716
Capital expenditure
reserve(2) 327 358 338 343 1,366 1,215
Offer costs - - - (1,590) (1,590) -
---------------------------------------------------------------------------
Adjusted Funds From
Operations (AFFO) $6,318 $6,541 $6,852 $7,078 $26,789 $24,764
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Distributions $7,088 $7,097 $7,113 $7,227 $28,525 $28,249
---------------------------------------------------------------------------
---------------------------------------------------------------------------
FFO payout ratio 83.7% 60.4% 73.4% 95.9% 76.2% 84.0%
---------------------------------------------------------------------------
---------------------------------------------------------------------------
FFO per unit(3) $0.329 $0.456 $0.375 $0.289 $1.447 $1.311
---------------------------------------------------------------------------
---------------------------------------------------------------------------
AFFO payout ratio 112.2% 108.5% 103.8% 102.1% 106.5% 114.1%
---------------------------------------------------------------------------
---------------------------------------------------------------------------
AFFO per unit(3) $0.245 $0.254 $0.265 $0.271 $1.035 $0.965
---------------------------------------------------------------------------
---------------------------------------------------------------------------

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

(2) Calculated as 1% of total revenues.

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


FFO was reduced by $1,590 in the fourth quarter, and for the year 2006 due to costs expensed relating to the Offer. FFO per Unit was also affected as a result.

AFFO can fluctuate when comparing QOQ results since leasing costs, and operating capital expenditures may vary from year to year, at times dramatically, resulting from lease maturities, and capital expenditures programs contemplated or planned in any year. As such, the REIT utilizes a normalized leasing cost estimate, based on a stabilized occupancy level for the REIT's portfolio, as well as a capital expenditure reserve of 1% of total revenues, to calculate its AFFO for the year in order to provide a more stable and representative AFFO amount.

The cash generated from operating activities, conventional mortgage financings, as well as funds from operating and acquisition facilities have been used to meet all of the REIT's liquidity requirements in 2006 and were principally utilized for funding property acquisitions, principal repayments of debts on income-producing properties, and distributions to unitholders.

Management expects to be able to continue to meet all of the REIT's ongoing obligations and to finance future growth through the issuance of new equity as well as by using conventional real estate debt, short-term financing from the REIT's credit facilities, and the REIT's stable cash flow, the whole subject to the terms of the Support Agreement (see "Sale Process"). The REIT currently has a theoretical acquisition capacity of approximately $107,000 for growth investments, while still meeting its debt covenants.

CAPITAL EXPENDITURES, LEASING COMMISSIONS AND TENANT IMPROVEMENTS

Capital expenditures, leasing commissions and tenant improvements totaled $19,679 in 2006 compared to $20,167 in 2005. Details of the amounts incurred are as follows:



Twelve months ended
2005 2006
----------------------
Additions to buildings:
Residential tower renovations $ 235 $ 1,569
Redevelopment 5,886 2,804
Parking repairs 1,833 2,165
Non-recoverable capital maintenance 843 544
Recoverable maintenance 2,290 3,008
----------------------
Total additions to buildings 11,087 10,090
----------------------
Tenant improvements & leasing costs:
Renewals & vacant space lease-ups 6,329 6,691
Redevelopment 895 893
Leasing commissions 1,856 2,005
----------------------
Total tenant improvements & leasing costs 9,080 9,589
----------------------

Total $ 20,167 $ 19,679
----------------------
----------------------


Since the REIT acquires properties that sometimes reflect occupancy levels that are below the REIT's portfolio averages, as part of its growth strategy, the REIT's tenant improvements and leasing costs can fluctuate dramatically from year to year as leasing-up of then vacant space occurs. In addition, the volume of leases maturing in any given year may also fluctuate significantly, which may also impact total costs in any given year. As such, the REIT does not calculate its AFFO based on actual amounts spent as reflected above. Instead, the REIT utilizes a normalized leasing cost estimate for tenant improvements and leasing commissions based on a stabilized occupancy level, projected over four years, in its calculation of AFFO (see "Liquidity and Capital Expenditures").

OUTSTANDING UNITS DATA

As of December 31, 2006, the Nihon Family held approximately 16.7% of the 26,988,564 outstanding units of the Alexis Nihon REIT.

At March 22, 2007, there were 29,390,446 units of the REIT issued and outstanding.

EMPLOYEE UNIT PURCHASE PLAN

The REIT has in effect an Employee Unit Purchase Plan ("EUPP") which gives eligible employees the opportunity to acquire units of the REIT for between 2% and 5% of their gross salaries. The REIT contributes a further amount equal to 50% of the amount invested by the employees over the next five years. The contributions are used to purchase units of the REIT in the open market. On November 28, 2006, subject to the execution of the Combination Agreement, the Human Resources and Compensation Committee suspended the effects of the EUPP. Under the terms of the Support Agreement, the REIT agreed to maintain the suspension of the EUPP and to terminate the EUPP as soon as possible upon the successful completion of the offer (see "Sale Process").

LONG-TERM INCENTIVE PLAN

In 2005, the REIT adopted a Long-Term Incentive Plan (the "LTIP") which provides for the grant of Trust Units to key executives and any other employee designated by the board of directors of the REIT, up to a maximum of 40% of their overall bonus. Annually, the REIT contributes the amount of the bonus to be rendered under the LTIP to the trust administering the plan, which in turn purchases units of the REIT on the open market. The employees become entitled to the units and the income from the distributions over a three year period of continuous employment. The REIT's contributions and accumulated distributions are recorded as deferred compensation expense (included in other assets) and expensed over the vesting period. In 2006, the REIT recorded a compensation expense of $132 (2005: $75).

On December 3, 2006, in compliance with the terms of the Combination Agreement, the Trustees suspended the effects of the LTIP. Under the terms of the Support Agreement the REIT agreed to maintain the suspension of the LTIP and to terminate the LTIP as soon as possible upon the successful completion of the offer (see "Sale Process"). The LTIP provides for the acceleration of unvested units upon a change of control of the REIT.

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

At the time of the IPO in December 2002, and in order to provide unitholders of the REIT with stable, predictable revenues in respect to 218,097 square feet of certain vacant spaces, the AN Head Lessee, a company under common control of certain trustees of the REIT, entered into a head lease with the REIT. The head lease is for a term of 10 years and, of the original head lease space, applied in 2006 to approximately 69,550 (2005 - 169,080) square feet of leasable area of the income-producing properties at specified market rental rates. For 2006, the head lease revenue amounted to $564 (2005 - $1,332).

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, 2006, 43.8% of the remaining Head Lease area of 69,550 sq.ft., has been leased.

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 three critical areas of judgment in the application of accounting policies that affect the financial condition and results of operations of the REIT.

Impairment of long lived assets

Management reviews the long-lived assets used in operations for impairment when there is an event or change in circumstances that indicates an impairment in value. An asset is considered impaired when the undiscounted future cash flows are not sufficient to recover the asset's carrying value. If such impairment is present, an impairment loss is recognized based on the excess of the carrying amount of the asset over its fair value. The evaluation of anticipated cash flows is based in part on assumptions regarding future occupancy, rental rates, capital requirements and residual values that could differ materially from actual results in future periods.

Property Acquisitions

For acquisitions of properties initiated on or after September 12, 2003, the CICA has issued guidance for accounting for operating leases in connection with these acquisitions. Through management's judgment and estimates, the purchase price must be allocated to land site improvements, building, the above or below market value of in place operating leases, the fair value of tenant improvements, in-place leasing costs and the value of the relationship with the existing tenants. These estimates will impact rentals from income properties, expense and amortization expense recorded on both a quarterly and annual basis.

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.

FUTURE CHANGES IN SIGNIFICANT ACCOUNTING POLICIES

The Canadian Institute of Chartered Accountants issued three new accounting standards that are effective for the REIT's fiscal year commencing January 1, 2007, which are to be applied on a retroactive basis without restatement to prior periods: Section 1530, Comprehensive Income; Section 3855, Financial Instruments - Recognition and Measurement; and Section 3865, Hedges.

Comprehensive Income

Under Section 1530, comprehensive income is comprised of net earnings and other comprehensive income ("OCI"), which represents changes in unitholders' equity during a period arising from transactions and other events with non-owner sources. OCI generally would include unrealized gains and losses on financial assets classified as available-for-sale, unrealized foreign currency translation adjustments net of hedging arising from self-sustaining foreign operations, and changes in the fair value of the effective portion of cash flow hedging instruments. The REIT's consolidated financial statements will include a consolidated statement of other comprehensive income while the cumulative amount and accumulated other comprehensive income ("AOCI"), will be presented as a separate category of unitholders' equity.

Financial Instruments - Recognition and Measurement

Section 3855 establishes standards for recognizing and measuring financial assets, financial liabilities and non-financial derivatives. All financial instruments are required to be measured at fair value on initial recognition, except for certain related party transactions. Measurement in subsequent periods depends on whether the financial instrument has been classified as held-for-trading, available-for-sale, held-to-maturity, loans and receivables, or other liabilities.

Financial assets and financial liabilities classified as held-for-trading are required to be measured at fair value with gains and losses recognized in net earnings.

Financial assets classified as held-to-maturity, loans and receivables and financial liabilities (other than those held-for-trading) are required to be measured at amortized cost using the effective interest method of amortization.

Available-for-sale financial assets are required to be measured at fair value with unrealized gains and losses recognized in OCI. Investments in equity instruments classified as available-for-sale that do not have a quoted market price in an active market should be measured at cost.

Derivative instruments must be recorded on the balance sheet at fair value including those derivatives that are embedded in a financial instrument or other contract but are not closely related to the host financial instrument or contract, respectively. Changes in the fair values of derivative instruments are required to be recognized in net earnings, except for derivatives that are designated as a cash flow hedge, in which case the fair value change for the effective portion of such hedge relationship is required to be recognized in OCI.

The standard permits the REIT to designate any financial instrument whose fair value can be reliably measured as held-for-trading on initial recognition or adoption of the standard, even if that instrument would not otherwise satisfy the definition of held-for-trading set out in Section 3855.

The standard specifically excludes Section 3065, Leases, from the definition of financial instruments, except for derivatives that are embedded in a lease contract. Other significant accounting implications arising on adoption of the standard include the initial recognition of certain financial guarantees at fair value on the balance sheet and the use of the effective interest method of amortization for any transaction costs or fees, premiums or discounts earned or incurred for financial instruments measured at amortized cost.

Hedges

Section 3865 specifies the criteria under which hedge accounting can be applied and how hedge accounting should be executed for each of the permitted hedging strategies: fair value hedges, cash flow hedges and hedges of a foreign currency exposure of a net investment in a self-sustaining foreign operation.

In a fair value hedging relationship, the carrying value of the hedged item will be adjusted by gains or losses attributable to the hedged risk and recognized in net earnings. The changes in the fair value of the hedged item, to the extent that the hedging relationship is effective as defined by the standard ("effective"), will be offset by changes in the fair value of the hedging derivative. In a cash flow hedging relationship, the effective portion of the change in the fair value of the hedging derivative will be recognized in OCI. The ineffective portion as defined by the standard ("ineffective") will be recognized in net earnings. The amounts recognized in AOCI will be reclassified to net earnings in those periods in which net earnings is affected by the variability in the cash flows of the hedged item. In hedging a foreign currency exposure of a net investment in a self-sustaining foreign operation, the effective portion of foreign exchange gains and losses on the hedging instruments will be recognized in OCI and the ineffective portion is recognized in net earnings.

Deferred gains or losses on the hedging instrument with respect to hedging relationships that were discontinued prior to the transition date but qualify for hedge accounting under the new standards will be recognized in the carrying amount of the hedged item and amortized to net earnings over the remaining term of the hedged item for fair value hedges, and for cash flow hedges will be recognized in AOCI and reclassified to net earnings in the same period during which the hedged item affects net earnings. However, for discontinued hedging relationships that do not qualify for hedge accounting under the new standards, the deferred gains and losses will be recognized in the opening balance of retained earnings on transition.

Impact of Adopting Sections 1530, 3855 and 3865

The transition adjustment attributable to the above described standards will be recognized in the opening balance of retained earnings or AOCI at January 1, 2007 and is not expected to be material to the REIT's consolidated financial position.

DISCLOSURE CONTROLS AND PROCEDURES

The REIT's disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed by the REIT is recorded, processed, summarized and reported within the time periods specified under Canadian securities laws, and include controls and procedures that are designated to ensure that information is accumulated and communicated to management, including the Executive Vice-President and Chief Operating Officer (the "COO") and the Senior Vice-President and Chief Financial Officer (the "CFO"), to allow timely decisions regarding required disclosure.

As of December 31, 2006, an evaluation was carried out, under the supervision of and with the participation of management, including the COO and CFO, of the effectiveness of the REIT's disclosure controls and procedures as defined under Multilateral Instrument 52-109. Based on that evaluation, the COO and CFO concluded that the design and operation of the REIT's disclosure controls and procedures were effective as at December 31, 2006.

INTERNAL CONTROL OVER FINANCIAL REPORTING

Management is responsible for establishing and maintaining adequate internal control over financial reporting to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. Management evaluated the design of the REIT's internal control over financial reporting as at December 31, 2006, and based on that evaluation determined that the REIT's internal control over financial reporting was designed effectively.

No changes were made in the REIT's internal control over financial reporting during the year ended December 31, 2006, that have materially affected, or are reasonably likely to materially affect, the REIT's internal control over financial reporting.

Note, however that a control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, including instances of fraud, if any, have been detected. These inherent limitations include, amongst other items: (i) that management's assumptions and judgments could ultimately prove to be incorrect under varying conditions and circumstances; or (ii) the impact of isolated errors.

Additionally, controls may be circumvented by the unauthorized acts of individuals, by collusion of two or more people, or by management override. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential (future) conditions.

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.

New income trust legislation was proposed by the Federal Ministry of Finance on December 21, 2006. Under the proposed legislation, certain distributions made by "mutual fund trusts" would no longer be deductible for income tax purposes. This new legislation would come into effect starting 2011. Early indications are that certain real estate investment trusts would be excluded from this proposed legislation, so long as certain technical tests are met. Currently, it is premature to determine the extent at which the legislation would affect the REIT. The REIT will study the detailed legislation at which time it becomes available.

The REIT is currently the subject of the offer, upon successful completion of the offer, there could be significant changes to the business, operations and management of the REIT.

OUTLOOK

The REIT is currently the subject of the Offer, which is open for acceptance until midnight (Montreal time) on April 5, 2007, unless extended or withdrawn by Homburg Acquisition Inc. (see "Sale Process").

Should the offer not be completed, the REIT intends to pursue accretive acquisitions in current and adjacent markets that present favorable opportunities, with the goal of enhancing unitholder value. The current portfolio provides a strong base from which to achieve these objectives, and, with an experienced management team, the REIT is well positioned to capitalize on opportunities.

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

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

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

Barring any unanticipated events, distributions to unitholders in 2007 are expected to remain at the current level.

SUBSEQUENT EVENTS

On January 3, 2007, the mortgage pertaining to the property located at 2260, 32nd Avenue in the Montreal borough of Lachine, was repaid upon maturity for $2,317.

On January 26, 2007, legal proceedings were instituted by Senator Paul J. Massicotte, the former President and Chief Executive Officer of the REIT, against the REIT, its Trustees, and Alexis Nihon Management (Canada) Inc., a wholly-owned subsidiary of the REIT, under the employment agreement claiming $500 of bonuses that are now claimed to be payable as well as $1,200 as severance and compensation in the event of a change of control of the REIT. It is still the REIT's view, based on advice of legal counsel, that, as a result of his resignation on December 6, 2006, no payments are owed.

Subsequent to December 31, 2006, and as at March 22, 2007, $32,786 of face value of the 2004 Convertible Debentures were converted into 2,401,882 units of the REIT at a conversion price of $13.65 per unit.



ALEXIS NIHON
REAL ESTATE INVESTMENT TRUST

Three Months Ended December 31, 2006

Supplemental Information Package


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



Corporate Information

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

Trading Symbols
Toronto Stock Exchange
AN.UN - Units
AN.DB - Convertible debentures

Transfer Agent
Computershare Trust Company of Canada
1500 University Street, 7th Floor
Montreal, Quebec
H3A 3S8
Tel.: 514-982-7888

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


Quarterly Distributions

Quarter Distribution
----------------------------------------------
Q4/06 $ 0.275
Q3/06 $ 0.275
Q2/06 $ 0.275
Q1/06 $ 0.275
Q4/05 $ 0.275
Q3/05 $ 0.275
Q2/05 $ 0.275
Q1/05 $ 0.275
----------------------------------------------


Unit Trading Activity on the
Toronto Stock Exchange

High Low Close Volume
Quarter $ $ $ (000)
-------------------------------------------
Q4/06 17.20 12.95 17.06 10,652
Q3/06 13.80 12.61 13.74 5,100
Q2/06 13.64 12.61 13.20 2,718
Q1/06 14.04 13.05 13.42 3,446
Q4/05 13.50 11.85 13.30 1,686
Q3/05 13.51 12.96 13.50 1,923
Q2/05 13.22 12.20 12.85 1,500
Q1/05 13.80 11.88 12.58 2,492
-------------------------------------------
Source: Toronto Stock Exchange


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



Selected Quarterly Information


Year Ended
In thousands of dollars, Dec 31, Dec 31,
except per unit amounts 2006 2005
----------------------
Revenues From
Rental Operations 136,604 121,496
Net Operating Income 72,232 62,830
Net Operating
Income Margin 52.9% 51.7%

Net Income 6,958 6,128
Net Income per unit:
Basic 0.269 0.239
Diluted(i) 0.269 0.239

Distributable Income 30,989 29,487
Distributable Income Per Unit:
Basic 1.197 1.149
Diluted 1.150 1.108

Distributions 28,525 28,249
Distributions Per Unit: 1.100 1.100
Payout ratio (12-month basis) 92.0% 95.8%

Funds From Operations 37,447 33,631
Funds from Operations Per Unit:
Basic 1.447 1.311
Payout ratio (per quarter) 76.2% 84.0%

Income-producing properties 697,016 668,746
Total Assets 756,861 730,621

Debts on income-producing properties 419,201 370,321
Bank indebtedness 40,007 41,969
Convertible debentures - liability component 39,370 53,468

Unitholders' Equity 233,424 239,106

Number of units at end of Period 26,988,564 25,754,095
Number of options at end of Period 2,959,195 4,029,306

Weighted Average Number of Units:
Basic 25,885,323 25,661,055
Diluted (for net income)(i) 25,885,323 25,661,055
Diluted (for distributable
income) 29,862,644 29,690,361



In thousands of Quarter Ended
dollars, except Dec 31, Sept 30, June 30, March 31, Dec 31,
per unit amounts 2006 2006 2006 2006 2005
------------------------------------------------------
Revenues From
Rental Operations 34,233 33,843 35,843 32,685 32,981
Net Operating
Income 17,628 18,196 19,944 16,464 16,771
Net Operating
Income Margin 51.5% 53.8% 55.6% 50.4% 50.9%

Net Income (537) 1,723 4,346 1,426 1,889
Net Income per
unit:
Basic (0.002) 0.067 0.168 0.055 0.073
Diluted(i) (0.002) 0.067 0.168 0.055 0.073

Distributable
Income 7,785 8,249 7,566 7,389 7,746
Distributable
Income Per Unit:
Basic 0.298 0.319 0.293 0.287 0.301
Diluted 0.286 0.305 0.282 0.277 0.289

Distributions 7,227 7,113 7,097 7,088 7,080
Distributions Per
Unit: 0.275 0.275 0.275 0.275 0.275
Payout ratio
(12-month
basis) 92.0% 91.7% 93.7% 94.9% 95.8%

Funds From
Operations 7,537 9,689 11,756 8,465 8,995
Funds from
Operations Per
Unit:
Basic 0.307 0.375 0.456 0.329 0.350
Payout ratio (per
quarter) 90.2% 73.4% 60.4% 83.7% 78.7%

Income-producing
properties 697,016 697,397 691,957 667,626 668,746
Total Assets 756,861 762,172 759,853 729,511 730,621

Debts on
income-producing
properties 419,201 401,339 404,131 389,706 370,321
Bank indebtedness 40,007 57,063 45,649 30,291 41,969
Convertible
debentures
liability component 39,370 53,571 53,536 53,501 53,468

Unitholders' Equity 233,424 227,156 231,735 233,842 239,106

Number of units
at end of Period 26,988,564 25,898,166 25,835,255 25,784,501 25,754,095
Number of options
at end of Period 2,959,195 4,029,306 4,029,306 4,029,306 4,029,306

Weighted Average
Number of Units:
Basic 26,117,865 25,855,175 25,800,052 25,764,652 25,736,198
Diluted (for net
income)(i) 26,117,865 25,855,175 25,800,052 25,764,652 25,736,198
Diluted (for
distributable
income) 29,940,925 29,884,481 29,829,358 29,793,958 29,765,504

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



Segmented Information

Segmented Revenues From Rental Operations

(in thousands of dollars) Q4/06 Q4/05 Change
$ $ Vs Q4/05
-------------------------
Office 15,795 16,272 (477)
Retail 9,736 9,181 555
Industrial 7,229 6,234 995
Multi-family residential 1,473 1,294 179
-------------------------
Total 34,233 32,981 1,252
-------------------------
-------------------------


Segmented Net Operating Income

(in thousands of dollars) Q4/06 Q4/05 Change
$ $ Vs Q4/05
------------------------
Office 7,241 7,487 (246)
Retail 5,066 4,914 152
Industrial 4,640 3,856 784
Multi-family residential 681 514 167
------------------------
Total 17,628 16,771 857
------------------------
------------------------


Segmented Gross Book Value of Income-Producing Properties

(in thousands of dollars) Q4/06 Q3/06 Q4/05 Change Change
$ $ $ Q3/06 Q4/05
-----------------------------------------
Office 342,408 336,585 331,409 5,823 10,999
Retail 203,773 202,618 187,812 1,155 15,961
Industrial 171,172 173,111 150,885 (1,939) 20,287
Multi-family residential 36,254 36,222 34,685 32 1,569
-----------------------------------------
Total 753,607 748,536 704,791 5,071 48,816
-----------------------------------------
-----------------------------------------


Segmented Net Book Value of Income-Producing Properties

(in thousands of dollars) Q4/06 Q3/06 Q4/05 Change Change
$ $ $ Q3/06 Q4/05
-----------------------------------------
Office 313,196 310,156 312,701 3,040 495
Retail 188,893 189,038 178,037 (145) 10,856
Industrial 161,578 164,661 145,332 (3,083) 16,246
Multi-family residential 33,349 33,542 32,676 (193) 673
-----------------------------------------
Total 697,016 697,397 668,746 (381) 28,270
-----------------------------------------
-----------------------------------------


Portfolio Summary

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

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


Number of Properties

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


Change of Leasable Area

Square feet (000) %
Q4/06 Q4/06
Vs Q4/05 Vs Q3/06 Vs Q4/05 Vs Q3/06
------------------ ------------------
Office - - 0.0% 0.0%
Retail 114 - 7.7% 0.0%
Industrial 495 - 13.3% 0.0%
Multi-family residential - - 0.0% 0.0%
------------------ ------------------
Total 609 - Total 7.2% 0.0%
------------------ ------------------
------------------ ------------------


Change of Number of Properties

No. of Properties %
Q4/06 Q4/06
Vs Q4/05 Vs Q3/06 Vs Q4/05 Vs Q3/06
------------------ ------------------
Office - - 0.0% 0.0%
Retail 6 - 150.0% 0.0%
Industrial 4 - 12.9% 0.0%
Multi-family residential - - 0.0% 0.0%
------------------ ------------------
Total 10 - Total 18.2% 0.0%
------------------ ------------------
------------------ ------------------

(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

Q4/06 Q3/06 Q4/05 Change Change
Occupancy Vs Q3/06 Vs Q4/05
-------------------------------------------------------------------
Office 88.0% 86.8% 88.4% 1.2% -0.4%
Retail 96.6% 96.1% 96.1% 0.5% 0.5%
Industrial 92.5% 94.5% 91.2% -2.0% 1.3%
Multi-family residential 94.7% 98.8% 92.8% -4.1% 1.9%
-----------------------------------------
Total 91.8% 92.4% 91.1% -0.6% 0.7%
-----------------------------------------
-----------------------------------------


Top 10 Tenants

% of Total Number of
Revenues Leases
-------------------------------------------------------------------------
-------------------------------------------------------------------------
1 Public Works & Government Services Canada 8.25% 13
2 LDL Logistics Dev.Corp. 2.13% 1
3 Richter Management Limited 2.09% 4
4 Hapag Lloyd (Canada) 1.59% 1
5 Societe Immobiliere du Quebec 1.55% 18
6 Hudson's Bay Co. 1.49% 2
7 ISM Information Management Corporation 1.14% 1
8 KSH Solutions Inc. 1.04% 1
9 Sico 0.99% 5
10 Brick 0.98% 1
-------------------------------------------------------------------------
Total 21.23% 47
-------------------------------------------------------------------------
-------------------------------------------------------------------------


Leasing Activities

Lease Expirations and Renewals by Segment

Office Retail Industrial Total
Expired Leases as at Q4
-------------------------------------------------------------------------
Number of tenants 69 48 80 197
Area (Square feet) 309,860 70,018 718,876 1,098,754
Average net rent/square foot $9.89 $24.02 $5.63 $8.00
-------------------------------------------------------------------------

Renewed Leases as at Q4
-------------------------------------------------------------------------
Number of tenants 53 36 59 148
Area (Square feet) 261,861 48,898 362,776 673,535
Average net rent/square foot $10.36 $23.91 $6.55 $9.29
-------------------------------------------------------------------------

New Leases as at Q4
-------------------------------------------------------------------------
Number of tenants 51 34 40 125
Area (Square feet) 172,528 113,871 339,000 625,399
Average net rent/square foot $10.26 $21.66 $5.28 $9.64
-------------------------------------------------------------------------


Lease Expirations

Office Retail Industrial Total
Number of tenants
----------------------------------------------------------------------
2007 64 50 61 175
2008 77 38 52 167
2009 62 40 48 150
2010 78 42 30 150
2011 18 24 22 64
After 117 102 38 257
----------------------------------------------------------------------

Area (square feet)
----------------------------------------------------------------------
2007 305,032 83,299 820,600 1,208,931
2008 394,387 398,528 565,931 1,358,846
2009 330,923 154,097 398,265 883,285
2010 352,116 112,996 729,579 1,194,691
2011 108,110 101,296 223,605 433,011
After 1,092,583 729,547 1,133,265 2,955,395
----------------------------------------------------------------------

Weighted Average Net Rent
(per square foot)
----------------------------------------------------------------------
2007 $11.10 $21.01 $5.01 $7.65
2008 $11.59 $5.19 $5.37 $7.13
2009 $11.60 $12.60 $5.17 $8.88
2010 $10.66 $19.20 $4.89 $7.94
2011 $13.32 $18.29 $6.29 $10.85
----------------------------------------------------------------------


Weighted Average Term to Maturity on Existing Leases 4.48 years


Debt Summary

Debt Maturities

Year Amount % of Total Debt Average
$ Outstanding Rate
---------------------------------------------------------
2007 80,852,976 19.39% 6.59%
2008 52,315,361 12.55% 6.44%
2009 61,182,777 14.67% 5.75%
2010 25,045,827 6.01% 5.08%
2011 6,329,564 1.52% 8.05%
After 191,244,283 45.87% 5.77%
----------------------------------------------
416,970,788 100.00% 6.00%
----------------------------------------------
----------------------------------------------

Weighted average term: 5.62 years


Financing Activities

On October 2, 2006, the REIT put in place a $10,575,000 mortgage on its property located at 777 St. Catherine St. W., Montreal, at an interest rate of 5.31%, on a 30-year amortization, and maturing in September 2016.

On October 13, 2006 the REIT put in place a $3,075,000 mortgage on its property located at 5055-5065 Levy St., in the Montreal borough of Saint-Laurent, at an interest rate of 5.138%, on a 30-year amortization, and maturing in November 2011. The property was acquired on May 31, 2006.

On November 28, 2006, the REIT put in place a 15-year mortgage of $5,000,000 on its property located at 9999 Cavendish, in the Montreal borough of Saint-Laurent, at an interest rate of 5.3% and a 25-year amortization. The previous loan amount was $3,900,000, had an interest rate of 7.3% and had a 10-year amortization period.

On December 18, 2006, the REIT put in place a 5-year mortgage of $1,400,000 on its property located at 243 Hymus, in the Montreal borough of Pointe-Claire, at an interest rate of 4.84% with a 20-year amortization period. The property had been acquired on August 1, 2006.

On December 18, 2006, the REIT put in place a 5-year mortgage of $4,500,000 on its property located at 2555 Pitfield, in the Montreal borough of Saint-Laurent, at an interest rate of 4.84% with a 25-year amortization period. The property had been acquired on September 13, 2006.

At current gross book value, the REIT's maximum borrowing capacity is $107,000,000

Financing Capacity

As at December 31, 2006, debt (excluding convertible debentures) /gross book value ratio: 54.9%

As at December 31, 2006, debt (including convertible debentures) /gross book value ratio: 59.6%



Ratio analysis

Dec Sept June March Dec Sept June March
31, 30, 30, 31, 31, 30, 30, 31,
2006 2006 2006 2006 2005 2005 2005 2005
--------------------------------------------------
Debt to gross book
value (excluding
convertible
debentures) 54.9% 55.0% 54.7% 53.6% 52.8% 53.1% 51.8% 48.9%
Debt to gross book
value (including
convertible
debentures) 59.6% 61.5% 61.2% 60.4% 59.7% 60.0% 59.0% 56.6%
Interest coverage ratio 2.19 2.23 2.58 2.17 2.29 2.24 2.29 2.31


Subsequent Event

On January 3, 2007, the mortgage pertaining the property located at the civic address 2260 32nd Ave. (Lachine) had come to maturity and was fully repaid. The principal amount was $2,317,000 with accrued interest of $16,000.

Contact Information