Alexis Nihon Real Estate Investment Trust
TSX : AN.UN

Alexis Nihon Real Estate Investment Trust

August 15, 2005 06:00 ET

Alexis Nihon REIT Announces Second Quarter Increase Of 14.4% In Funds From Operations

MONTREAL, QUEBEC--(CCNMatthews - Aug. 15, 2005) - Alexis Nihon Real Estate Investment Trust (TSX:AN.UN) today announced results for the second quarter and six months ended June 30, 2005.

Second Quarter Highlights (percentages compare 2Q05 with 2Q04)

- Funds from operations moved up 14.4% to $8.1 million or by 10.1% per unit to $0.317 per unit

- Revenues from rental operations increased 24.0% to $29.0 million

- Net operating income rose 26.2% to $15.4 million

- Distributable income gained 14.2% to $7.2 million

- Distributable income payout ratio improved to 98.7% from 110.3%

- Debt(a) to gross book value ratio of 59.2%, below REIT limit of 65.0%

- Ended quarter with $127 million capacity for acquisitions and investments

(a)Including convertible debentures

"Alexis Nihon's financial results for the second quarter and six months reflect the REIT's strong growth since the same periods in 2004," said Paul J. Massicotte, President and Chief Executive Officer. "The REIT has acquired 17 properties since June 30, 2004, which has significantly enlarged our scale of operations, improved our results and enhanced unitholder value."

"The performance improvement of Alexis Nihon included virtually all key metrics," said Guy Charron, Executive Vice President and Chief Operating Officer. He noted if the acquisitions are excluded, the same-property, year-over-year net operating income would have been 2.9% higher for the second quarter and 5.6% higher for the six-month period.

Rene Fortin, Senior Vice President and Chief Financial Officer, pointed to a significant increase in funds from operations per unit and distributable income per unit, both of which are key measures of operating performance.

Alexis Nihon's expansion initiatives during the second quarter included both organic growth and acquisitions. In April the REIT announced a $7-million expansion for Centre Laval Shopping Centre, comprising an addition of 68,830 square feet, of which 38,700 square feet is to be occupied by Best Buy in October 2005. In June the REIT acquired three industrial properties as a portfolio for $43.1 million. The properties are located in the Montreal boroughs of Lachine and St. Laurent, which will afford economies of scale to the REIT due to their proximity to other Alexis Nihon properties.



Financial Highlights

(thousands of dollars except per-unit amounts)
---------------------------------------------------------------------
Period ended June 30 3 months 6 months
---------------------------------------------------------------------
2005 2004 2005 2004
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Revenues from rental operations $28,856 $23,281 $57,844 $44,071

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Net operating income $15,405 $12,208 $29,990 $22,015

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Distributable income(1) $7,160 $6,267 $14,201 $11,073

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Distributable income per unit
(diluted)(1) $0.270 $0.253 $0.537 $0.491

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Funds from operations(1) $8,131 $7,105 $16,122 $12,530

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FFO per unit(1) $0.317 $0.288 $0.630 $0.560

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(1)Distributable income and FFO are non-GAAP measures


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 on SEDAR and made available at www.alexisnihon.com.

Conference Call and Webcast

Management will also hold a conference call and live audio webcast on Monday, August 15, 2005 at 2 p.m. (ET) to discuss the REIT's second quarter performance. The call may be accessed by dialing 1-800-814-4857 or 416-640-4127. NOTE: The webcast is accessible at www.alexisnihon.com, and will be archived for seven days.

About Alexis Nihon REIT

The REIT currently owns interests in 54 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 8.3 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
June 30, 2005
(unaudited)


Contents

Consolidated Balance Sheets 1

Consolidated Statements of Unitholders' Equity 2

Consolidated Statements of Income 3

Consolidated Statements of Cash Flows 4

Notes to the Consolidated Financial Statements 5 - 13


Alexis Nihon Real Estate Investment Trust

Consolidated Balance Sheets
(in thousands of dollars)

June 30, December 31,
2005 2004
(unaudited)
---------------------------------------------------------------------
---------------------------------------------------------------------
Assets

Income-producing properties (note 5) $ 645,884 $ 603,689
Intangible assets (note 6) 38,889 31,904
Land held for development 965 964
Cash and cash equivalents - 10,000
Other assets (note 7) 24,281 16,319
Due from companies under common
control of certain trustees of the REIT 85 250
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$ 710,104 $ 663,126
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Liabilities

Debts on income-producing
properties (note 8) $ 338,726 $ 334,674
Convertible debentures
- liability component 53,401 53,338
Intangible liabilities (note 9) 3,017 3,214
Bank indebtedness (note 10) 47,295 808
Accounts payable and accrued liabilities 16,601 10,555
Distributions payable 2,213 2,281
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461,253 404,870
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Equity

Unitholders' equity 248,851 258,256
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$ 710,104 $ 663,126
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See accompanying notes


Alexis Nihon Real Estate Investment Trust

Consolidated Statements of Unitholders' Equity
For the Six Months Ended June 30
(in thousands of dollars)
(unaudited)

Other
Units Net Equity
in $ Income Components Distributions Total
---------------------------------------------------------------------
---------------------------------------------------------------------

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

Net income - 2,423 - - 2,423

Units issued
(note 11) 2,269 - - - 2,269

Distributions - - - (14,097) (14,097)
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Unitholders'
Equity -
June 30,
2005 $ 269,503 $ 36,593 $ 2,852 $ (60,097) $ 248,851
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Unitholders'
Equity -
December 31,
2003 $ 198,107 $ 22,822 $ 1,148 $ (19,527) $ 202,550

Net income - 5,639 - - 5,639

Units issued
(note 11) 68,809 - - - 68,809

Distributions - - - (12,443) (12,443)
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Unitholders'
Equity -
June 30,
2004 $ 266,916 $ 28,461 $ 1,148 $ (31,970) $ 264,555
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See accompanying notes


Alexis Nihon Real Estate Investment Trust

Consolidated Statements of Income
For the Three Months and Six Months Ended June 30
(in thousands of dollars, except per unit amounts)
(unaudited)

Three Months Three Months Six Months Six Months
ended ended ended ended
June 30, June 30, June 30, June 30,
2005 2004 2005 2004
---------------------------------------------------------------------
---------------------------------------------------------------------

Revenues from
Rental Operations
(note 12) $ 28,856 $ 23,281 $ 57,844 $ 44,071

Rental Property
Operating Costs 13,451 11,073 27,854 22,056
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Net Operating Income 15,405 12,208 29,990 22,015
---------------------------------------------------------------------

Expenses

Interest (note 13) 6,340 4,347 12,477 8,469
Amortization of
buildings 3,653 3,134 7,276 5,844
Other amortization
(note 14) 2,515 741 4,898 939
Internalization
of construction
management company
(note 3) - - 1,613 -
General and
administrative 792 463 1,068 769
Trust expenses 97 248 235 355
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13,397 8,933 27,567 16,376
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Net Income $ 2,008 $ 3,275 $ 2,423 $ 5,639
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Basic Net Income
Per Unit (note 15) $ 0.078 $ 0.133 $ 0.095 $ 0.252
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Diluted Net Income
Per Unit (note 15) $ 0.078 $ 0.133 $ 0.095 $ 0.252
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See accompanying notes


Alexis Nihon Real Estate Investment Trust

Consolidated Statements of Cash Flows
For the Three Months and Six Months Ended June 30
(in thousands of dollars)
(unaudited)

Three Months Three Months Six Months Six Months
ended ended ended ended
June 30, June 30, June 30, June 30,
2005 2004 2005 2004
---------------------------------------------------------------------
---------------------------------------------------------------------

Cash Flows generated
from (used for) -
Operating Activities

Net income $ 2,008 $ 3,275 $ 2,423 $ 5,639
Items not affecting
cash:
Amortization of
buildings 3,653 3,134 7,276 5,844
Other amortization 2,515 741 4,898 939
Amortization of
above and below
market in-place
leases (65) (40) (123) (40)
Amortization of
deferred financing
costs 165 39 316 77
Interest on
convertible debentures
paid by units - - - 197
Accrued rental revenue (416) (616) (878) (884)
Internalization of
construction
management company - - 1,613 -
Tenant improvements
and leasing costs (2,495) (1,504) (4,555) (3,442)
Changes in:
Other assets (4,216) 241 (7,330) (1,396)
Accounts payable and
accrued liabilities 5,200 (2,287) 6,511 (2,987)
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Cash Flows generated
from Operating
Activities 6,349 2,983 10,151 3,947
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Financing Activities

Proceeds of public
offering of units
(net of issue costs) - 56,159 - 56,159
Increase in debts on
income-producing
properties 3,938 46,000 3,938 46,000
Repayment of debts on
income-producing
properties (3,205) (2,072) (7,589) (3,629)
Amortization of fair
value debt adjustment (33) - (66) -
Accretion on liability
component of
convertible debentures 33 - 64 -
Additions to deferred
financing costs (71) (370) (113) (420)
Bank indebtedness 40,674 (12,304) 46,487 (1,191)
Distributions (6,698) (6,264) (13,534) (11,663)
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Cash Flows generated
from Financing
Activities 34,638 81,149 29,187 85,256
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Investing Activities

Acquisition of rental
properties (note 4) (36,835) (82,434) (45,193) (82,434)
Additions to buildings (4,077) (1,603) (4,239) (6,748)
Additions to land held
for development (1) - (1) -
Additions to furniture,
fixtures and computers (35) (14) (70) (94)
Due from companies under
common control of
certain trustees of
the REIT (39) (81) 165 73
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Cash Flows used for
Investing Activities (40,987) (84,132) (49,338) (89,203)
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Decrease in Cash and
Cash Equivalents - - (10,000) -

Cash and Cash Equivalents
- Beginning of Period - - 10,000 -
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Cash and Cash Equivalents
- End of Period $ - $ - $ - $ -
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See accompanying notes


Alexis Nihon Real Estate Investment Trust

Notes to Consolidated Financial Statements
June 30, 2005
(dollar amounts are in thousands, except per unit amounts)
(unaudited)


1. Description of the REIT

Alexis Nihon Real Estate Investment Trust (the "REIT") is an unincorporated closed-ended investment trust created by a contract of trust (the "Contract of Trust") dated October 18, 2002 and amended and restated as of December 13, 2002. The REIT was established under, and is governed by, the laws of the Province of Quebec.

The accompanying unaudited interim consolidated financial statements are prepared in accordance with Canadian generally accepted accounting principles ("GAAP"). These consolidated financial statements are prepared using the same accounting policies and application thereof as the consolidated financial statements for the year ended December 31, 2004. They do not include all the information and disclosure required by Canadian GAAP for annual financial statements, and should be read in conjunction with the December 31, 2004 consolidated financial statements. Certain prior period figures have been reclassified to conform to the current period's presentation.

2. Change in Accounting Policy

Convertible Debentures

Effective July 1, 2004, the REIT early adopted the amendment to the recommendations of Section 3860 of the CICA Handbook with respect to accounting for financial instruments. The amendment requires the value ascribed to the issuer's option to convert the convertible debentures to a variable number of units to be classified as a liability instead of equity. The REIT applied this amendment retroactively. As a result, the REIT reclassified the 2002 convertible debenture from equity to liability (the value ascribed to the holder's option to convert as well as issue costs were immaterial) and the related interest expense, amounting to $84 for the three month period ending June 30, 2004, from unitholders' equity to the statement of income. Basic and diluted net income per unit were unaffected by this change.

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

The REIT acquired during the three months ending June 30, 2005 three industrial rental properties, in addition to an industrial rental property acquired during the first quarter of 2005. The following summarizes the net assets acquired:



Total Total
Three Months Six Months
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Land $ 10,925 $ 12,022
Building 24,274 30,102
Intangible assets and liabilities:
Lease origination costs for
in-place leases 9,405 11,052
Below market in-place leases - (164)
Debts on income-producing properties (7,769) (7,769)
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Consideration paid for the net
assets acquired $ 36,835 $ 45,243
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Consideration paid, funded by:

Cash and bank indebtedness $ 36,835 $ 45,243
less deposit - (50)
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$ 36,835 $ 45,193
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The results of operations of income-producing properties are
included in the consolidated financial statements from their date of
acquisition.


5. Income-Producing Properties

June 30, December 31,
2005 2004
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Accumulated Net Carrying Net Carrying
Cost Amortization Amount Amount
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Land $ 124,974 $ - $ 124,974 $ 112,952
Building and
tenant
improvements 545,466 28,582 516,884 487,295
Leasing costs 3,632 640 2,992 2,345
Tenant improvement
recorded on
acquisitions 1,139 105 1,034 1,097
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$ 675,211 $ 29,327 $ 645,884 $ 603,689
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6. Intangible Assets

June 30, December 31,
2005 2004
---------------------------------------------------------------------
Accumulated Net Carrying Net Carrying
Cost Amortization Amount Amount
---------------------------------------------------------------------

Lease origination
costs for in-place
leases $ 44,482 $ 6,951 $ 37,531 $ 30,308
Above market
in-place leases 1,780 422 1,358 1,596
---------------------------------------------------------------------

$ 46,262 $ 7,373 $ 38,889 $ 31,904
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7. Other Assets

June 30, December 31,
2005 2004
---------------------------------------------------------------------
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Accounts receivable $ 4,150 $ 2,824
Deferred rent receivable 2,777 1,899
Prepaids 10,632 1,412
Unit bonus plan 96 -
Deposits on potential acquisitions 582 755
Restricted funds 2,306 5,593
Deferred financing costs 2,919 3,122
Furniture, fixtures and computers 721 714
Short-term investments 98 -
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$ 24,281 $ 16,319
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At June 30, 2005 short-term investments consists of term deposits
bearing interest at a weighted average of 1.14% and maturing no later
than June 30, 2006.


8. Debts on Income-Producing Properties

June 30, December 31,
2005 2004
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Loans secured by mortgages on
income-producing properties,
bearing interest at a weighted
average annual rate of 6.30%,
repayable in blended monthly
instalments of $2,573 maturing at
various dates no later than
July 1, 2019 $ 336,718 $ 332,675
Accrued interest 1,749 1,739
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338,467 334,414

Fair value debt adjustment 259 260
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$ 338,726 $ 334,674
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Principal repayments of debt on income-producing properties are due
as follows:


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

2005 $ 4,860 $ 17,190 $ 22,050
2006 9,450 3,913 13,363
2007 8,877 79,326 88,203
2008 6,606 50,034 56,640
2009 4,732 47,064 51,796
Subsequent to 2009 39,145 65,521 104,666
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73,670 263,048 336,718

Accrued interest 1,749
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$ 338,467
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9. Intangible Liabilities

June 30, December 31,
2005 2004
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Accumulated Net Carrying Net Carrying
Cost Amortization Amount Amount
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Below market
in-place leases $ 3,814 $ 797 $ 3,017 $ 3,214
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10. Bank Indebtedness

The REIT has a $50,000 credit facility which consists of a general operating loan, banker's acceptance and letters of credit. Borrowings under the general operating loan bear interest at prime plus 0.5% per annum. Borrowings under the bankers' acceptance bear interest at the bankers' acceptance rate plus 2.25% per annum. The letter of credit facility is limited to $5,000. The credit facility is secured by a first ranking hypothec on three income-producing properties having a net carrying amount of $44,711 and a second ranking hypothec on two income-producing properties having a net carrying amount of $238,405. The terms of the banking agreement require the REIT to meet certain financial covenants.

11. 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:



Six Months Ended Six Months Ended
June 30, 2005 June 30, 2004
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Number Number
of units Amounts of units Amounts
---------------------------------------------------------------------

Balance - beginning
of period 25,515,935 $ 267,234 20,091,900 $ 198,107
Issuance of units:
Offerings - - 4,300,000 56,159
Internalization of
construction
management (note 3) 132,743 1,638 - -
Distribution
reinvestment plan 50,294 631 25,618 303
Interest on
convertible
debenture - - 16,061 197
Conversion of
convertible
debenture - - 1,056,443 12,150
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Balance - end
of period 25,698,972 $ 269,503 25,490,022 $ 266,916
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Unit Bonus Plan

The Unit Bonus Plan (the "Plan") provides for the grant of Trust Units to the chief executive officer, executive vice president and chief operating officer, senior vice presidents, vice presidents 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 Unit Bonus Plan 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. During the six month period ended June 30, 2005, the REIT contributed $128 to the Plan. An expense of $36 was recognized during the six month period ending June 30, 2005.



12. Revenues From Rental Operations

Three Months Ended Six Months Ended
June 30, June 30,
2005 2004 2005 2004
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Rental revenue contractually
due under the leases $ 28,375 $ 22,625 $ 56,843 $ 43,147
Accrued rental revenue 416 616 878 884
Amortization of above market
in-place leases (119) (5) (238) (5)
Amortization of below market
in-place leases 184 45 361 45
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$ 28,856 $ 23,281 $ 57,844 $ 44,071
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13. Interest

Three Months Three Months Six Months Six Months
ended ended ended ended
June 30, June 30, June 30, June 30,
2005 2004 2005 2004
---------------------------------------------------------------------
---------------------------------------------------------------------

Interest on debts
on income-producing
properties, at
stated rate $ 5,108 $ 4,071 $ 10,270 $ 7,854
Interest on
convertible debentres,
at stated rate 864 84 1,705 281
Accretion on liability
component of
convertible debentures 33 - 64 -
Other interest 203 153 188 257
Amortization of
deferred financing
costs 165 39 316 77
Amortization of fair
value debt adjustment (33) - (66) -
---------------------------------------------------------------------

$ 6,340 $ 4,347 $ 12,477 $ 8,469
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---------------------------------------------------------------------

Interest paid during the three months ended June 30, 2005 was $6,161
(six months - $12,153) (three months ended June 30, 2004 - $4,312
(six months - $8,370)).

14. Other Amortization


Three Months Three Months Six Months Six Months
ended ended ended ended
June 30, June 30, June 30, June 30,
2005 2004 2005 2004
---------------------------------------------------------------------
---------------------------------------------------------------------

Amortization of
tenant improvements
and leasing costs
incurred through
leasing activities $ 490 $ 182 $ 918 $ 336
Amortization of
furniture, fixtures
and computers 45 45 88 89
Amortization of lease
origination costs for
in-place leases
recorded on
acquisitions 1,949 514 3,829 514
Amortization of tenant
improvements recorded
on acquisitions 31 - 63 -
---------------------------------------------------------------------

$ 2,515 $ 741 $ 4,898 $ 939
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15. Net Income Per Unit Calculations

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

Three Months Ended Three Months Ended
June 30, 2005 June 30, 2004
Basic Diluted Basic Diluted
---------------------------------------------------------------------

Net income $ 2,008 $ 2,008 $ 3,275 $ 3,275
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Weighted average number
of units outstanding 25,677,642 25,677,642 24,637,663 24,637,663
---------------------------------------------------------------------
---------------------------------------------------------------------


Six Months Ended Six Months Ended
June 30, 2005 June 30, 2004
Basic Diluted Basic Diluted
---------------------------------------------------------------------

Net income $ 2,423 $ 2,423 $ 5,639 $ 5,639
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Weighted average number
of units outstanding 25,599,567 25,599,567 22,367,316 22,367,316
---------------------------------------------------------------------
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The convertible debentures have been excluded from the calculation of the diluted net income per unit for the periods ending June 30, 2005 and 2004 as they are anti-dilutive.

16. Distributable Income

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



Three Months Ended Six Months Ended
June 30, June 30,
2005 2004 2005 2004
---------------------------------------------------------------------

Net income $ 2,008 $ 3,275 $ 2,423 $ 5,639
Add (deduct)

Internalization of construction
management company - - 1,613 -
Amortization of buildings 3,653 3,134 7,276 5,844
Amortization of amounts
recorded on acquisitions:
Tenant improvements 31 - 63 -
Lease origination costs for
in-place leases 1,949 514 3,829 514
Above and below market
in-place leases (65) (40) (123) (40)
Accretion on liability component
of convertible debentures 33 - 64 -
Amortization of fair value debt
adjustments (33) - (66) -
Accrued rental revenue recognized
on a straight-line basis (416) (616) (878) (884)
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Distributable income $ 7,160 $ 6,267 $ 14,201 $ 11,073
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17. Segmented Information

Three Months Ended Multi-family
June 30, 2005 Office Retail Industrial residential Total
---------------------------------------------------------------------

Revenues from
rental
operations $ 14,243 $ 8,290 $ 4,959 $ 1,364 $ 28,856
Rental property
operating costs $ 6,897 $ 3,819 $ 1,895 $ 840 $ 13,451
---------------------------------------------------------------------
Net operating
income $ 7,346 $ 4,471 $ 3,064 $ 524 $ 15,405
---------------------------------------------------------------------
---------------------------------------------------------------------

Three Months Ended
June 30, 2004
---------------------------------------------------------------------

Revenues from
rental
operations $ 12,926 $ 6,666 $ 2,364 $ 1,325 $ 23,281
Rental property
operating costs $ 6,203 $ 3,118 $ 919 $ 833 $ 11,073
---------------------------------------------------------------------

Net operating
income $ 6,723 $ 3,548 $ 1,445 $ 492 $ 12,208
---------------------------------------------------------------------
---------------------------------------------------------------------


Six Months Ended Multi-family
June 30, 2005 Office Retail Industrial residential Total
---------------------------------------------------------------------

Revenues from
rental
operations $ 28,701 $ 16,768 $ 9,711 $ 2,664 $ 57,844
Rental property
operating
costs $ 14,689 $ 7,669 $ 3,844 $ 1,652 $ 27,854
---------------------------------------------------------------------

Net operating
income $ 14,012 $ 9,099 $ 5,867 $ 1,012 $ 29,990
---------------------------------------------------------------------
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Income-producing
properties $ 292,281 $175,347 $ 145,410 $ 32,846 $645,884
---------------------------------------------------------------------
---------------------------------------------------------------------

Intangible
assets $ 12,363 $ 6,154 $ 20,372 $ - $ 38,889
---------------------------------------------------------------------
---------------------------------------------------------------------

Six Months Ended
June 30, 2004
---------------------------------------------------------------------

Revenues from
rental
operations $ 24,583 $ 12,355 $ 4,527 $ 2,606 $ 44,071
Rental property
operating
costs $ 12,387 $ 6,126 $ 1,806 $ 1,737 $ 22,056
---------------------------------------------------------------------

Net operating
income $ 12,196 $ 6,229 $ 2,721 $ 869 $ 22,015
---------------------------------------------------------------------
---------------------------------------------------------------------

Income-producing
properties $ 275,944 $159,975 $ 61,598 $ 33,405 $530,922
---------------------------------------------------------------------
---------------------------------------------------------------------

Intangible
assets $ 8,978 $ 7,131 $ 170 $ - $ 16,279
---------------------------------------------------------------------
---------------------------------------------------------------------


18. Subsequent Event

Subsequent to June 30, 2005 the REIT entered into a commitment for a hypothecary loan amounting to $18,000 on one of the properties acquired during the quarter ended June 30, 2005. The loan bears interest at a rate of 4.68% and is repayable over a five year period.



MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE THREE AND SIX MONTH PERIODS ENDED JUNE 30, 2005


The following discussion describes the business, the business environment, and management's expectations as at July 29, 2005. It should be read in conjunction with the consolidated financial statements of the Alexis Nihon Real Estate Investment Trust ("the REIT") for the three and six month periods ended June 30, 2005 and the notes thereto, as well as the management's discussion and analysis for the year ended December 31, 2004.

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

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

OVERVIEW AND OBJECTIVES

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

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

The objectives of the REIT are:

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

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

DISTRIBUTION REINVESTMENT PLAN

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

SECOND QUARTER OVERVIEW

On April 26, 2005, the REIT announced an expansion of $7 million at its Centre Laval shopping center located at 1600 Le Corbusier Boulevard in Laval. Plans call for a 68,830 square foot expansion of which approximately 38,700 square feet is to be occupied by Best Buy and is projected to open in mid-October 2005. The net operating income generated by Best Buy is expected to be approximately $0.7 million annually. When fully leased, the expansion space is expected to generate approximately $1.0 million annually in net operating income.

On June 17, 2005, the REIT announced the acquisition of a 952,960 square foot, 100% leased, portfolio of three industrial properties in Montreal, Quebec for $43.1 million representing a capitalization rate of approximately 8.8%.

As of June 30, 2005, the REIT's portfolio consisted of 54 office, retail and industrial properties, including a 426-units multi-family residential property, aggregating 8.3 million square feet of leasable area of which 0.4 million square feet is co-owned. There are 52 properties located in the Greater Montreal Area and 2 in the National Capital Region. The chart below outlines the REIT's portfolio of properties and square footage:



Property # of properties Leasable area (square feet)
----------------------------------------------------------
Type Wholly owned Co-owned Wholly owned Co-owned
---------------------------------------------------------------------
Office 19 - 2,813,741 -
Retail 4 - 1,434,400 -
Industrial 24 7(2) 3,300,722 410,417
Residential -(1) - 300,321 -
---------------------------------------------------------------------
Totals 47 7 7,849,184 410,417
---------------------------------------------------------------------
---------------------------------------------------------------------

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 871 non-residential tenancies, including many high quality, national tenants with strong covenants.

FINANCIAL PERFORMANCE

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



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

Sept. Dec. March June Sept. Dec.

Revenues from
rental
operations $24,161 $17,197 $20,790 $23,281 $25,425 $29,254
Rental property
operating costs 7,922 8,741 10,983 11,073 11,266 13,838
---------------------------------------------------------------------

Net operating
income 16,239 8,456 9,807 12,208 14,159 15,416
---------------------------------------------------------------------

Interest 3,522 3,702 4,122 4,347 5,458 6,257

Amortization of
buildings 846 885 2,710 3,134 3,373 3,632

Other amortization 79 194 198 741 1,509 2,532

Internalization of
construction
management - - - - - -

General and
administrative 300 459 306 463 606 312

Trust 134 108 107 248 138 49
---------------------------------------------------------------------

4,881 5,348 7,443 8,933 11,084 12,782
---------------------------------------------------------------------

Net Income 11,358 3,108 2,364 3,275 3,075 2,634

Add/(Deduct):

Income Subsidy 292 264 - - - -

Cancellation fee
received (7,825) - - - - -

Amortization of
buildings 846 885 2,710 3,134 3,373 3,632

Internalization
of construction
management - - - - - -

Amortization of
amounts recorded
on acquisitions:

Tenant improvements - - - - 35 7

Lease origination
costs for in-place
leases - - - 514 866 1,742

Above and below
market in-place
leases - - - (40) (59) (153)

Accretion on
liability component
of convertible
debentures - - - - - 42

Amortization of fair
value debt
adjustments - - - - (22) (33)

Accrued rental
revenue recognized
on a straight-line
basis - - (268) (616) (507) (508)
---------------------------------------------------------------------

Distributable
Income(1) $4,671 $4,257 $4,806 $6,267 $6,761 $7,363
---------------------------------------------------------------------
---------------------------------------------------------------------

Distributions $4,664 $4,954 $5,530 $6,913 $7,013 $7,017

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

Funds from
operations(1) $4,800 $4,580 $5,425 $7,105 $7,910 $8,730

Funds from
operations per
unit $0.283 $0.269 $0.270 $0.288 $0.310 $0.342
---------------------------------------------------------------------
---------------------------------------------------------------------

Net income per
unit:

Basic $0.670 $0.179 $0.118 $0.133 $0.121 $0.103

Diluted(2) $0.642 $0.179 $0.118 $0.133 $0.121 $0.103
---------------------------------------------------------------------
---------------------------------------------------------------------

Distributable
income per unit:

Basic $0.276 $0.245 $0.239 $0.254 $0.265 $0.289

Diluted $0.271 $0.241 $0.237 $0.253 $0.263 $0.280
---------------------------------------------------------------------
---------------------------------------------------------------------

Total Assets $392,965 $479,803 $670,814
$473,768 $564,405 $663,126

Total Debt(3) $216,198 $268,540 $392,627
$258,984 $288,014 $388,820
---------------------------------------------------------------------
---------------------------------------------------------------------

Weighted average
number of units:

Basic 16,945,503 20,096,970 25,494,379
17,046,230 24,637,663 25,506,516

Diluted
(for net
income) 18,001,946 20,096,970 25,494,379
18,102,673 24,637,663 25,506,516

Diluted (for
distributable
income) 18,001,946 21,153,413 26,808,283
18,102,673 25,102,034 29,535,822
---------------------------------------------------------------------
---------------------------------------------------------------------


2005
------------------------------------
March June

Revenues from rental operations $28,988 $28,856

Rental property operating costs 14,403 13,451
---------------------------------------------------------------------

Net operating income 14,585 15,405
---------------------------------------------------------------------

Interest 6,137 6,340

Amortization of buildings 3,623 3,653

Other amortization 2,383 2,515

Internalization of construction
management 1,613 -

General and administrative 276 792

Trust 138 97
---------------------------------------------------------------------

14,170 13,397
---------------------------------------------------------------------

Net Income 415 2,008

Add/(Deduct):

Income Subsidy - -

Cancellation fee received - -

Amortization of buildings 3,623 3,653

Internalization of construction
management 1,613 -

Amortization of amounts recorded
on acquisitions:

Tenant improvements 32 31

Lease origination costs for
in-place leases 1,880 1,949

Above and below market in-place leases (58) (65)

Accretion on liability component of
convertible debentures 31 33

Amortization of fair value debt
adjustments (33) (33)

Accrued rental revenue recognized
on a straight-line basis (462) (416)
---------------------------------------------------------------------

Distributable Income(1) $7,041 7,160
---------------------------------------------------------------------
---------------------------------------------------------------------

Distributions $7,033 $7,064

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

Funds from operations(1) $7,991 $8,131

Funds from operations per unit $0.313 $0.317
---------------------------------------------------------------------
---------------------------------------------------------------------

Net income per unit:

Basic $0.016 $0.078

Diluted(2) $0.016 $0.078
---------------------------------------------------------------------
---------------------------------------------------------------------

Distributable income per unit:

Basic $0.276 $0.279

Diluted $0.267 $0.270
---------------------------------------------------------------------
---------------------------------------------------------------------

Total Assets $661,068 $710,104

Total Debt(3) $390,247 $439,422
---------------------------------------------------------------------
---------------------------------------------------------------------

Weighted average number of units:

Basic 25,520,625 25,677,642

Diluted (for net income) 25,520,625 25,677,642

Diluted (for distributable income) 29,549,931 29,706,948
---------------------------------------------------------------------
---------------------------------------------------------------------



1. Distributable income and Funds from operations are non-GAAP
measure, see definition on pages 6 and 11.
2. Convertible debentures have been excluded from the calculations of
the diluted net income per unit in 2004 and in 2005 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 variations mainly result from acquisitions completed by the REIT in 2004 and during the first six months of 2005. The increase in the weighted average number of units (basic and diluted) results from units issued via: i) the REIT's DRIP, ii) the payment of interest in the form of units of the REIT on the 2002 Convertible Debenture, iii) a new issue of units in April 2004, iv) the conversion of the 2002 Convertible Debenture in May 2004 into units of the REIT, and v) the issuance of units on the acquisition of ANC Construction Inc. in March 2005.

NET OPERATING INCOME

The quarterly and year to date ("YTD") analysis by sector of the REIT's net operating income ("NOI") is explained in greater detail in the segmented analysis section. In summary, for the quarter ended June 30, 2005, NOI totaled $15,405 (YTD: $29,990) which was an increase of $3,197 (YTD: $7,975) or 26.2% (YTD: 36.2%) over the same quarter last year.

Of the increase, $2,841 (YTD $6,743) is attributable to the NOI generated from the acquisition of 17 properties acquired since June 2004. In total, 2 office, 1 retail, and 14 industrial properties were acquired during this time representing 2,539,547 square feet.

Had these properties been excluded, the same properties year over year ("YOY") NOI for the quarter and YTD would have totaled $12,564 and $23,247 respectively reflecting a positive variance of $356 versus the same quarter last year and $1,232 YTD.



Three months Six months
ended ended
June 30, 2005 June 30, 2005
---------------------------------------------------------------------

- Decrease in straight-lining
of rents ($199) ($5)

- Increase in above and below market
in-place leases (re: EIC-140) 25 83

- Net (negative) positive variance
associated with occupancies and
redevelopment (48) 637

- Decrease in bad debt expense 358 61

- Decrease in non-recoverable expenses 85 17

- Positive variance in other income 103 296

- Net increase in the residential
sector NOI 32 143
---------------------------------------------------------------------

Net variance $356 $1,232
---------------------------------------------------------------------
---------------------------------------------------------------------


Excluding the impact of YOY straight-lining of rents and EIC-140, the same property portfolio reflected an increase of $530 or 4.3% (YTD: $1,154, 5.2%).

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 June 30, 2005, interest expense totaled $6,340 (YTD: $12,477) compared with $4,347 (YTD: $8,469) in 2004. The YOY variance results from:



Three months Six months
ended ended
June 30, 2005 June 30, 2005
---------------------------------------------------------------------

- Interest on secured mortgages on
income producing properties
acquired $1,158 $2,334

- Increase in interest on convertible
debentures 780 1,424

- Interest on new mortgages put in
place YOY 281 909

- Increase on interest accretion on
convertible debentures 33 64

- Increase (decrease) in interest on
general bank indebtedness 82 (8)

- Interest savings on secured mortgages
repaid upon maturity (302) (615)

- Amortization of the fair value debt
adjustments relating to mortgages
assumed on the acquisition of certain
properties (33) (66)

- Other, net (6) (34)
---------------------------------------------------------------------

Net variance $1,993 $4,008
---------------------------------------------------------------------
---------------------------------------------------------------------


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



2004 2005
-------------------------------------------------
Mar. June Sept. Dec. Mar. June
-------------------------------------------------

Weighted-average
interest rate 6.4% 6.3% 6.3% 6.3% 6.3% 6.3%
-------------------------------------------------
-------------------------------------------------

Weighted-average
term to maturity
(years) 3.54 5.30 6.07 5.83 5.61 5.46
-------------------------------------------------
-------------------------------------------------


GENERAL AND ADMINISTRATIVE EXPENSES

General and administrative expenses, which consist of the REIT's net overhead costs, totaled $792 for the quarter (YTD: $1,068) of 2005 compared to $463 (YTD: $769) in 2004. The period over period variances are attributable to the following:



Three months Six months
ended ended
June 30, 2005 June 30, 2005
---------------------------------------------------------------------

- YOY increase in income taxes paid
by the REIT's subsidiaries $87 $87

- YOY increase in salaries associated
with the REIT's growth 82 82

- YOY higher legal, audit and
professional fees 70 70

- YOY higher costs associated with
non-concluded acquisitions 37 37

- Other 53 23
---------------------------------------------------------------------

Net variance $329 $299
---------------------------------------------------------------------
---------------------------------------------------------------------


AMORTIZATION EXPENSE

For the quarter ended June 30, 2005, total amortization (buildings and other) was $6,168 (YTD: $12,174) compared to $3,875 (YTD: $6,783) in 2004. The REIT recorded approximately $1,466 (YTD: $3,378) of amortization of lease origination costs for in-place leases and tenant improvements incurred through acquisitions. The YOY increase also reflects approximately $418 (YTD: $ 1,231) of amortization of buildings principally for properties acquired, as well as $408 (YTD: $782) of amortization on tenant improvements, commissions and property additions.


TRUST EXPENSES

Trust expenses in the quarter totaled $97 (YTD: $235) versus $248 (YTD: $355) for the same period in 2004. The YOY decrease primarily results from the following:



Three months Six months
ended ended
June 30, 2005 June 30, 2005
---------------------------------------------------------------------

- YOY decrease in director's and
officers insurance $(4) $(7)

- YOY lower trustee fees and expenses (16) (21)

- YOY lower audit related fees (24) (23)

- YOY lower annual filing fees (108) (74)

- YOY higher agent fees 1 5
---------------------------------------------------------------------

Net variance $(151) $(120)
---------------------------------------------------------------------
---------------------------------------------------------------------


INTERNALIZATION OF CONSTRUCTION MANAGEMENT

The CICA's abstract (EIC-138) concerning the accounting for the internalization of the management function in royalty and income trusts, requires that the consideration paid for the early termination of a management contract should be charged to expense in the same period as the management internalization transaction is consummated.

As a result of the acquisition and internalization of the REIT's construction management company on January 1st, 2005, substantially all of the purchase price ($1,613 of the $1,638) has been expensed by the REIT in accordance with EIC-138 with the exception of $25 for acquiring the fair value of the furniture, fixtures and computers.

DISTRIBUTABLE INCOME

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

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

Distributable income for the quarter and YOY is as follows:



Three months ended Six months ended
June 30 June 30
2005 2004 2005 2004
-------------------------------------------
-------------------------------------------

Distributable Income $7,160 $6,267 $14,201 $11,073

Per unit:
Basic $0.279 $0.254 $0.555 $0.495
Diluted $0.270 $0.253 $0.537 $0.491

Distributions paid $7,064 $6,913 $14,097 $12,443

Distributable income
payout ratio 98.7% 110.3% 99.3% 112.4%


Increases in distributions paid reflects distributions made on units issued on the REIT's DRIP (76,208 units issued since July 2004); in addition to a treasury issue of 4,300,000 on April 16, 2004; the conversion on May 10, 2004 of the convertible debenture into 1,056,443 units; and the issuance of 132,743 new units issued as payment in the acquisition of the REIT's construction management division on March 31, 2005.

LEASING DATA

To date, in 2005, leases for 493,445 square feet of space expired at a weighted average net rental rate of $9.69 per square foot. Of this amount, 260,516 square feet having a weighted average net rental rate of $8.84 was renewed at a weighted average net rental rate of $9.29 During the same period, 282,814 square feet of vacant space was leased at a weighted average net rental rate of $9.85 per square foot.

The following tables reflect the REIT's average occupancies and net rental rates:



Occupancies As at June 30, 2004 As at December 31, 2004
---------------------------------------------------------------------
Area Area
Segment (sq.ft.) Occupancy (sq.ft.) Occupancy
---------------------------------------------------------------------

Office 2,604,253 88.8% 2,813,741 87.1%
Retail 1,234,776 94.4%(1) 1,432,100 96.6%
Industrial 1,564,304 93.0% 2,531,925 89.9%
Residential 300,321 96.9% 300,321 95.8%
---------------------------------------------------------------------
Overall 5,703,654 92.6%(1) 7,078,087 90.4%
---------------------------------------------------------------------
---------------------------------------------------------------------


Occupancies As at March 31, 2005 As at June 30, 2005
---------------------------------------------------------------------
Area Area
Segment (sq.ft.) Occupancy (sq.ft.) Occupancy
---------------------------------------------------------------------

Office 2,813,741 88.0% 2,813,741 86.9%
Retail 1,434,400 94.7% 1,434,400 95.5%
Industrial 2,757,535 87.1% 3,711,139 92.4%
Residential 300,321 96.0% 300,321 98.8%
---------------------------------------------------------------------
Overall 7,305,997 89.3% 8,259,601 91.3%
---------------------------------------------------------------------
---------------------------------------------------------------------


Net rental rate 2004 2005
---------------------------------------------------------------------
Segment June 30 December 31 March 31 June 30
---------------------------------------------------------------------

Office $11.04 $11.03 $11.19 $11.03

Retail 13.26 13.07 12.92 13.04

Industrial 5.02 5.38 5.28 4.97

Residential(2) 1,011.20 1,030.14 1,006.23 1,032.10
---------------------------------------------------------------------

Overall $10.19 $9.70 $9.54 $8.89
---------------------------------------------------------------------
---------------------------------------------------------------------

1. Excludes areas affected by the Centre Laval and Place Alexis Nihon
Winners redevelopments.
2. The residential sector sets forth the average monthly gross rent
per unit.


The REIT'S YOY (June 2005 vs June 2004) occupancy levels and net rental rates have been affected by acquisitions of properties having lower occupancy levels and net rental rates than the existing portfolio averages. Excluding acquired properties the YOY same portfolio occupancy levels and net rental rates reflect the following:



December
June 30, 2004 31, 2004 June 30, 2005
---------------------------------------------------
Net Net Net
Segment Area Occu- rental Occu- rental Occu- rental
(sq. ft.) pancy rate pancy rate pancy rate
---------------------------------------------------------------------

Office 2,604,253 88.8% $11.04 87.7% $10.98 86.8% $10.91

Retail 1,234,776 94.4%(1) 13.26 96.2% 13.16 95.0% 13.33

Indus-
trial 1,564,304 93.0% 5.02 94.0% 5.10 92.8% 5.07

Residen-
tial(2) 300,321 96.9% 1,011.20 95.8% 1,030.14 98.8% 1,032.10
---------------------------------------------------------------------

Overall 5,703,654 92.6%(1) $10.19 91.7% $10.23 90.8% $10.19
---------------------------------------------------------------------
---------------------------------------------------------------------

1. Excludes areas affected by the Centre Laval and Place Alexis Nihon
Winners redevelopment.
2. The residential sector sets forth the average monthly gross rent
per unit.


The same portfolio occupancy levels in the retail and residential sectors show YOY favorable variances resulting from leasing activities. The YOY office sector unfavorable variance of 2.0%, which represents approximately 52,100 square feet of space, as well as the industrial sector unfavorable variance of 0.2%, representing approximately 3,100 square feet of space, is attributable principally to the expected move outs of tenants at lease expiry.

Since March 31, 2005, the overall portfolio occupancy level increased by 2.0%. The office sector reflected a decrease in occupancy of 1.1% as a result of the expected move out of a tenant occupying 33,615 square feet in a suburban office property. The retail, industrial and residential sectors reflected increases of 0.8%, 5.3% and 2.8% respectively and result primarily from increased leasing activity as well as from the acquisition of three 100% leased industrial properties (excluding these three properties the industrial sector QOQ increase would have been 2.7%).



SEGMENTED ANALYSIS

Three months Six months
ended June 30 ended June 30
Office 2005 2004 2005 2004
---------------------------------------------------------------------

Revenues from rental operations $14,243 $12,926 $28,701 $24,583
Rental property operating costs 6,897 6,203 14,689 12,387
---------------------------------------------------------------------
Net operating income $7,346 $6,723 $14,012 $12,196
---------------------------------------------------------------------
---------------------------------------------------------------------


Net operating income from office rental operations totaled $7,346 for the quarter (YTD: $14,012) compared with $6,723 in 2004 (YTD: $12,196). The YOY positive variance of $623 or 9.3% (YTD: $1,816 or 14.9%) is summarized as follows:



Three months Six months
ended ended
June 30, 2005 June 30, 2005
---------------------------------------------------------------------

- NOI contribution from
properties acquired $684 $2,230

- Decrease in straight-lining
of rents associated with
leasing and acquisitions (83) (127)

- Increase in above and below
market in-place leases
(re: EIC-140) 20 40

- Net negative variance associated
with occupancies (484) (581)

- Decrease in bad debt expense 358 61

- Positive variances in
non-recoverable expenses 129 138

- Cancellation fees received 8 (2)

- (Negative) positive variance in
other income (9) 57
---------------------------------------------------------------------

Net positive variance $623 $1,816
---------------------------------------------------------------------
---------------------------------------------------------------------


Three months Six months
ended June 30 ended June 30
Retail 2005 2004 2005 2004
---------------------------------------------------------------------

Revenues from rental operations $8,290 $6,666 $16,768 $12,355
Rental property operating costs 3,819 3,118 7,669 6,126
---------------------------------------------------------------------
Net operating income $4,471 $3,548 $9,099 $6,229
---------------------------------------------------------------------
---------------------------------------------------------------------


For the quarter the retail sector net operating income totaled $4,471 (YTD: $9,099) compared with $3,548 (YTD: $6,229) in 2004. The YOY positive variance of $923 or 26.0% (YTD: $2,870 or 46.1%) is detailed as follows:



Three months Six months
ended ended
June 30, 2005 June 30, 2005
---------------------------------------------------------------------

- NOI contribution from
properties acquired $625 $1,582

- (Decrease) increase in
straight-lining of rents
associated with leasing and
acquisitions (147) 43

- Increase in above and below market
in-place leases (re: EIC-140) 29 98

- Net positive variance associated
with occupancies and redevelopment 419 1,123

- (Negative) positive variance in other
income and non-recoverable expenses (3) 24
---------------------------------------------------------------------
Net positive variance $923 $2,870
---------------------------------------------------------------------
---------------------------------------------------------------------


Three months Six months
ended June 30 ended June 30
Industrial 2005 2004 2005 2004
---------------------------------------------------------------------

Revenues from rental operations 4,959 $2,364 $9,711 $4,527
Rental property operating costs 1,895 919 3,844 1,806
---------------------------------------------------------------------
Net operating income $3,064 $1,445 $5,867 $2,721
---------------------------------------------------------------------
---------------------------------------------------------------------


The industrial sector reflects a YOY positive variance of $1,619 or 112% for the quarter (YTD: $3,146 or 115.6%). Net operating income totaled $3,064 (YTD: $5,867) compared with the $1,445 (YTD $2,721) in 2004. The contributing factors include:



Three months Six months
ended ended
June 30, 2005 June 30, 2005
---------------------------------------------------------------------

- NOI contribution from properties
acquired $1,532 $2,931

- Impact of straight-lining of rents
associated with leasing and
acquisitions 31 79

- Decrease in above and below market
in-place leases (re: EIC-140) (24) (55)

- Net positive variance associated
with occupancies 17 95

- Increase in non-recoverable expenses (44) (121)

- Positive variance in other income 107 217
---------------------------------------------------------------------

Net positive variance $1,619 $3,146
---------------------------------------------------------------------
---------------------------------------------------------------------


Three months Six months
ended June 30 ended June 30
Residential 2005 2004 2005 2004
---------------------------------------------------------------------

Revenues from rental operations $1,364 $1,325 $2,664 $2,606
Rental property operating costs 840 833 1,652 1,737
---------------------------------------------------------------------
Net operating income $524 $492 $1,012 $869
---------------------------------------------------------------------
---------------------------------------------------------------------


Net operating income for the residential sector totaled $524 (YTD $1,012) representing a YOY increase of $32 or 6.5% (YTD $143 of 16.5%). In summary, variances resulted from:



Three months Six months
ended ended
June 30, 2005 June 30, 2005
---------------------------------------------------------------------

- Increase in revenues generated
from rental increases on regular
apartments $28 $55

- Increase in revenues generated from
the executive suites 11 3

- Net (negative) positive variances
in operating expenses (7) 85
---------------------------------------------------------------------

Net positive variance $32 $143
---------------------------------------------------------------------
---------------------------------------------------------------------


DEBT FINANCING AND CONTRACTUAL OBLIGATIONS

During the second quarter the REIT repaid upon maturity the mortgage on 9960-9970 Cote de Liesse, Lachine in the amount of $832. The mortgage had an interest rate of 8.2% and matured in May 2005.

On June 17, 2005 the REIT acquired a portfolio of three industrial properties and assumed a mortgage of $7,704 on the property located at 2105, 32nd Avenue, Lachine. The mortgage bears interest at 5.82%, has a 20-year amortization, and matures in February 2009.

On June 30, 2005 the REIT put in place a 10-year mortgage of $3,938 on another of the properties acquired on June 17, 2005 located at 1111, 46th Avenue, Lachine. The mortgage bears interest at 4.98%, has a 25-year amortization, and matures in July 2015.

As at June 30, 2005, the REIT's debt secured by income-producing properties was $386,021 representing 51.8% of gross book value (book value of the REIT's assets plus accumulated amortization less intangible liabilities was $744,946), well below its 60% threshold limit. Including the convertible debentures, the percentage is 59.0% (limit 65%). Floating rate debt, which cannot exceed 15% of gross book value was $47,295 or 6.4%.

The REIT's contractual obligations on the other mortgages in existence as of December 31, 2004 have remained unchanged.

LIQUIDITY AND CAPITAL EXPENDITURES

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



Three months ended Six months ended
June 30 June 30
FFO/Net Income Reconciliation: 2005 2004 2005 2004
---------------------------------------------------------------------
---------------------------------------------------------------------

Net Income (per financial
statements) $2,008 $3,275 $2,423 $5,639

Adjustments to reconcile net
income to FFO:
Internalization of construction
management company - - 1,613 -
Amortization of buildings 3,653 3,134 7,276 5,844
Other amortization, excluding
amortization of furniture,
fixtures & computers 2,470 696 4,810 850
Interest on the AN Convertible
Debentures paid by units - - - 197
---------------------------------------------------------------------
Funds from operations 8,131 7,105 16,122 12,530
---------------------------------------------------------------------
---------------------------------------------------------------------

Distribution paid 7,064 6,913 14,097 12,443
---------------------------------------------------------------------
---------------------------------------------------------------------

FFO payout ratio 86.9% 97.3% 87.4% 99.3%
---------------------------------------------------------------------
---------------------------------------------------------------------

FFO per unit $0.317 $0.288 $0.630 $0.560
---------------------------------------------------------------------
---------------------------------------------------------------------

Distributions per unit $0.275 $0.275 $0.550 $0.550
---------------------------------------------------------------------
---------------------------------------------------------------------


The cash generated from operating activities, conventional mortgage financing, as well as funds from operating and acquisition facilities, have been used to meet all of the REIT's liquidity requirements during the second quarter of 2005 and were principally utilized for funding property acquisitions, repayments of debts on income-producing properties, and distributions to unitholders.

Management expects to be able to continue to meet all of the REIT's ongoing obligations and to finance future growth through the issuance of new equity as well as by using conventional real estate debt, short term financing from the REIT's credit facilities, and the REIT's stable cash flow. The REIT currently has a theoretical acquisition capacity of approximately $127 million for growth investments, while still meeting its debt covenants.

CAPITAL EXPENDITURES, LEASING COMMISSIONS AND TENANT IMPROVEMENTS

Capital expenditures, leasing commissions and tenant improvements totaled $6,572 in the second quarter of 2005 (YTD: $8,794). Details to the amounts incurred are as follows:



Three months Six months
ended ended
June 30, 2005 June 30, 2005
---------------------------------------
Additions to buildings:

Redevelopment (Centre Laval) $ 3,255 $ 3,255
Parking repairs 834 854
Non-recoverable maintenance(1) (677) (338)
Recoverable maintenance 665 468
---------------------------------------

Total additions to buildings 4,077 4,239
---------------------------------------

Tenant improvements &
leasing costs:

Renewals & vacant space lease-ups 2,025 3,406
Value enhancing(2) - 197
Redevelopment 48 93
Leasing commissions 422 859
---------------------------------------
Total tenant improvements
& leasing costs 2,495 4,555
---------------------------------------
Total $ 6,572 $ 8,794
---------------------------------------
---------------------------------------


1. Reflects certain reclassifications to "Acquisitions of rental
properties" previously reflected as additions to buildings.
2. Reflects tenant improvements and leasing commissions spent
leasing-up then vacant space on properties that have been acquired
by the REIT, to the sustainable level of occupancy.


OUTSTANDING UNITS DATA

As of June 30, 2005, the Nihon/Massicotte Group hold approximately 29.65% of the 25,698,972 outstanding units of the Alexis Nihon REIT.

RISKS AND UNCERTAINTIES

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

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

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

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

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

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

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

OUTLOOK

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

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

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

The REIT's quality, well-located properties are competitively positioned in the Greater Montreal Area and National Capital Region. Professional management and a focus on service position Alexis Nihon REIT particularly well to attract and retain long-term tenants.

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

SUBSEQUENT EVENT

Subsequent to June 30, 2005 the REIT has put in place a hypothecary loan amounting to $18,000 on one of the properties acquired on June 17, 2005 (2000 Halpern, St-Laurent). The loan bears interest at a rate of 4.68%, is repayable over a five year period, and has a 25-year amortization.



ALEXIS NIHON
REAL ESTATE INVESTMENT TRUST

Three Months Ended June 30, 2005

Supplemental Information Package

The Supplemental Information Package should be read in conjunction
with the Annual Report for the year ended December 31, 2004, with
the Quarterly Reports for the three months ended March 31, 2005 and
2004, June 30, 2005 and 2004 and September 30, 2004, as well as with
the Prospectus dated December 13, 2002.

Corporate Information

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

Transfer Agent
National Bank Trust Inc. Unit Trading Activity on the
1100 University Street Toronto Stock Exchange
Montreal, Quebec
H3B 2G7 High Low Close Volume
Toll-free number: 1-800-341-1419 Quarter $ $ $ (000)
----------------------------------
Q2/05 13.22 12.20 12.85 1,500
Investor Relations Contact Q1/05 13.80 11.88 12.58 2,492
Rene Fortin, CGA Q4/04 13.41 12.06 12.55 2,013
Senior Vice President and Q3/04 12.66 11.75 12.20 2,347
Chief Financial Officer Q2/04 13.69 10.35 12.10 3,031
Tel.: 514-737-3344 Q1/04 14.25 12.17 13.65 1,432
Fax: 514-931-1618 ----------------------------------
----------------------------------
Email: rfortin@alexisnihon.com Source: Toronto Stock Exchange

Research Coverage:

Scotia Capital Himalaya Jain, CFA (416) 863-7218

National Bank Financial Michael Smith, CFA (416) 869-8022

RBC Securities Neil Downey, CA, CFA (416) 842-7835

Desjardins Securities Frank B. Mayer, MA (416) 867-3764

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

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

Canaccord Capital Shant Poladian (416) 869-6595

BMO Nesbitt Burns Karine MacIndoe (416) 359-4269

Genuity Capital Markets Marc Rothschild (416) 687-5428


Selected Quarterly Information

Quarter Ended
In thousands
of dollars,
except per June 30, March 31, Dec 31, Sept 30, June 30, March 31,
unit amounts 2005 2005 2004 2004 2004 2004
--------------------------------------------------------
Revenues
From
Rental
Operations 28,856 28,988 29,254 25,425 23,281 20,790
Net Operating
Income 15,405 14,585 15,416 14,159 12,208 9,807
Net Operating
Income Margin 53.4% 50.3% 52.7% 55.7% 52.4% 47.2%

Net Income 2,008 415 2,634 3,075 3,275 2,364
Net Income per
unit:
Basic 0.078 0.016 0.103 0.121 0.133 0.118
Diluted(a) 0.078 0.016 0.103 0.121 0.133 0.118

Distributable
Income 7,160 7,041 7,363 6,761 6,267 4,806
Distributable
Income Per
Unit:
Basic 0.279 0.276 0.289 0.265 0.254 0.239
Diluted 0.270 0.267 0.280 0.263 0.253 0.237

Distributions 7,064 7,033 7,017 7,013 6,913 5,530
Distributions
Per Unit: 0.275 0.275 0.275 0.275 0.275 0.275
Payout ratio
(12-month
basis) 99.3% 102.0% 105.1% 110.5% 110.3% 105.5%

Funds From
Operations 8,131 7,991 8,730 7,910 7,105 5,425
Funds from
Operations
Per Unit:
Basic 0.317 0.313 0.342 0.310 0.288 0.270
Payout ratio
(per quarter) 86.9% 88.0% 80.4% 88.7% 97.3% 101.9%

Income-producing
properties 645,884 608,753 603,689 603,723 530,922 463,742
Total Assets 710,104 661,068 663,126 670,814 564,405 479,803

Debts on
income-producing
properties 338,726 330,257 334,674 339,331 284,268 240,340
Bank
indebtedness 47,295 6,621 808 - 3,746 16,050
Convertible
debentures -
liability
component 53,401 53,369 53,338 53,296 - 12,150

Unitholders'
Equity 248,851 253,523 258,256 262,463 264,555 199,717

Number of
units at
end of
Period 25,698,972 25,515,935 25,490,022
25,668,306 25,501,890 20,118,544

Number of
options at
end of
Period 4,029,306 4,029,306 -
4,029,306 4,029,306 1,056,443

Weighted
Average
Number
of Units:
Basic 25,677,642 25,506,516 24,637,663
25,520,625 25,494,379 20,096,970

Diluted
(for net
income)
(a) 25,677,642 25,506,516 24,637,663
25,520,625 25,494,379 20,096,970

Diluted
(for
distributable
income) 29,706,948 29,535,822 25,102,034
29,549,931 26,808,283 21,153,413

(a) 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) Q2/05 Q2/04 Change
$ $ Vs Q2/04
------------------------------------
Office 14,243 12,926 1,317
Retail 8,290 6,666 1,624
Industrial 4,959 2,364 2,595
Multi-family residential 1,364 1,325 39
------------------------------------
Total 28,856 23,281 5,575
------------------------------------
------------------------------------

Segmented Net Operating Income

(in thousands of dollars) Q2/05 Q2/04 Change
$ $ Vs Q2/04
------------------------------------
Office 7,346 6,723 623
Retail 4,471 3,548 923
Industrial 3,064 1,445 1,619
Multi-family residential 524 492 32
------------------------------------
Total 15,405 12,208 3,197
------------------------------------
------------------------------------


Segmented Gross Book Value of Income-Producing Properties

(in thousands of dollars) Q2/05 Q2/04 Q4/04 Change Change
$ $ $ Vs Q2/04 Vs Q4/04
---------------------------------------------
Office 306,019 281,097 301,076 24,922 4,943
Retail 182,750 162,873 180,161 19,877 2,589
Industrial 149,160 62,710 106,381 86,450 42,779
Multi-family
residential 34,428 34,148 34,300 280 128
---------------------------------------------
Total 672,357 540,828 621,918 131,529 50,439
---------------------------------------------
---------------------------------------------


Segmented Net Book Value of Income-Producing Properties

(in thousands of dollars) Q2/05 Q2/04 Q4/04 Change Change
$ $ $ Vs Q2/04 Vs Q4/04
---------------------------------------------
Office 292,281 275,944 291,564 16,337 717
Retail 175,347 159,975 174,997 15,372 350
Industrial 145,410 61,598 103,991 83,812 41,419
Multi-family
residential 32,846 33,405 33,137 (559) (291)
---------------------------------------------
Total 645,884 530,922 603,689 114,962 42,195
---------------------------------------------
---------------------------------------------

Portfolio Summary

June 30, March 31, Dec 31, Sept 30, June 30, March 31,
2005 2005 2004 2004 2004 2004
-------------------------------------------------------

Leasable
Area
(000
square
feet)

Office 2,814 2,814 2,814 2,814 2,604 2,257
Retail 1,434 1,434 1,432 1,432 1,235 1,041
Industrial(a) 3,711 2,758 2,532 2,532 1,564 1,358
Multi-family
residential 300 300 300 300 300 300
-------------------------------------------------------
Total 8,259 7,306 7,078 7,078 5,703 4,956
-------------------------------------------------------
-------------------------------------------------------


Number of
Properties

Office 19 19 19 19 17 15
Retail 4 4 4 4 3 2
Industrial(a) 31 28 27 27 17 16
Multi-family
residential(b) N/A N/A N/A N/A N/A N/A
-------------------------------------------------------
Total 54 51 50 50 37 33
-------------------------------------------------------
-------------------------------------------------------


Change of Leasable Area

Square feet (000) %
Q2/05 Q2/05
Vs Q4/04 Vs Q2/04 Vs Q4/04 Vs Q2/04
------------------------------------------
Office - 210 0.0% 8.1%
Retail 2 199 0.1% 16.1%
Industrial 1,179 2,147 46.6% 137.3%
Multi-family residential - - 0.0% 0.0%
------------------------------------------
Total 1,181 2,556 Total 16.7% 44.8%
------------------------------------------
------------------------------------------

Change of Number of Properties

No. of Properties %
Q2/05 Q2/05
Vs Q4/04 Vs Q2/04 Vs Q4/04 Vs Q2/04
------------------------------------------
Office - 2 0.0% 11.8%
Retail - 1 0.0% 33.3%
Industrial 4 14 14.8% 82.4%
Multi-family residential - - 0.0% 0.0%
Total 4 17 Total 8.0% 45.9%
------------------------------------------
------------------------------------------

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

Q2/05 Q2/04 Q4/04 Change Change
Occupancy Vs Q2/04 Vs Q4/04
---------------------------------------------------------------------

Office 86.9% 88.8% 87.1% -1.9% -0.2%
Retail 95.5% 94.4%(a) 96.6% 1.1% -1.1%
Industrial 92.4% 93.0% 89.9% -0.6% 2.5%
Multi-family
residential 98.8% 96.9% 95.8% 1.9% 3.0%
-------------------------------------------------
Total 91.3% 92.6%(a) 90.4% -1.3% 0.9%
-------------------------------------------------
-------------------------------------------------

(a) Excludes area affected by redevelopment.


Top 10 Tenants

% of Total
Revenues
---------------------------------------------------------------------
---------------------------------------------------------------------
1 Public Works & Government Services Canada 6.28%
2 LDL Logistics Dev. Corp. 2.31%
3 Richter Management Ltd. 1.92%
4 Club Monaco 1.77%
5 ISM Information Management Corporation 1.73%
6 CP Ships (Canada) Agencies Ltd. 1.70%
7 Hudson's Bay Company 1.43%
8 KSH Solutions Inc. 1.08%
9 Sico 1.03%
10 Brick 1.01%
---------------------------------------------------------------------
Total 20.26%
---------------------------------------------------------------------
---------------------------------------------------------------------

Leasing Activities


Lease Expirations and Renewals by Segment

Office Retail Industrial Total
Expiring Leases/2005
---------------------------------------------------------------------
Number of tenants 35 41 38 114
Area (Square feet) 146,680 52,523 294,242 493,445
Average net rent/square foot $ 13.59 $ 22.20 $ 5.52 $ 9.69
---------------------------------------------------------------------

Renewed Leases as at Q2
---------------------------------------------------------------------
Number of tenants 16 29 27 72
Area (Square feet) 49,800 28,141 182,575 260,516
Average net rent/square foot $ 10.76 $ 27.46 $ 6.08 $ 9.29
---------------------------------------------------------------------

New Leases as at Q2
---------------------------------------------------------------------
Number of tenants 28 13 24 65
Area (Square feet) 102,538 20,395 159,881 282,814
Average net rent/square foot $ 13.88 $ 19.07 $ 6.09 $ 9.85
---------------------------------------------------------------------


Lease Expirations

Office Retail Industrial Total
Number of tenants
---------------------------------------------------------------------
2006 56 29 63 148
2007 84 37 36 157
2008 67 37 36 140
2009 36 36 24 96
2010 51 38 22 111
After 66 75 16 157
---------------------------------------------------------------------

Area (square feet)
---------------------------------------------------------------------
2006 264,099 39,156 830,828 1,134,083
2007 525,994 76,354 413,663 1,016,011
2008 397,708 397,910 365,157 1,160,775
2009 175,383 143,285 262,421 581,089
2010 323,065 142,897 670,351 1,136,313
After 694,890 615,117 639,748 1,949,755
---------------------------------------------------------------------

Weighted Average Net Rent
(per square foot)
---------------------------------------------------------------------
2006 $ 9.98 $ 28.04 $ 5.20 $ 7.10
2007 $ 10.87 $ 18.50 $ 5.10 $ 9.10
2008 $ 11.68 $ 4.98 $ 5.11 $ 7.31
2009 $ 9.98 $ 12.65 $ 5.19 $ 8.48
2010 $ 10.89 $ 17.50 $ 4.67 $ 8.05
---------------------------------------------------------------------


Weighted Average Term to Maturity on Existing Leases 4.86 years

Debt Summary

Debt Maturities

Year Amount % of Total Debt Average
$ Outstanding Rate
---------------------------------------------------------------------
2005 17,498,365 5.20% 6.91%
2006 4,396,528 1.31% 7.30%
2007 84,142,783 24.99% 6.59%
2008 54,649,389 16.23% 6.44%
2009 52,852,309 15.70% 5.53%
After 123,179,028 36.58% 6.25%
-------------------------------------------------
336,718,402 100.00% 6.30%
-------------------------------------------------
-------------------------------------------------

Weighted average term: 5.46 years


Financing Activities

Subsequent to June 30, 2005, the REIT obtained a new mortgage on an income-producing property for an amount of $18,000,000. The mortgage bears interest at 4.68% and is repayable over five years.

In addition, the REIT completed the acquisition of three industrial income-producing properties. The REIT assumed a mortgage of $7,704,201 (FMV $7,769,490) on one property bearing interest at 5.82% maturing February 1, 2009, and obtained a mortgage of $3,937,500 bearing interest at 4.98% maturing July 1, 2015 on a second property. A mortgage was obtained on the third property subsequent to year end as was previously described above.

During the six months ended June 30, 2004 there were repayments of four mortgages amounting to approximately $2,868,000.

At current gross book value, the REIT's maximum borrowing capacity is $126,800,000.

Financing Capacity

As at June 30, 2005, debt (excluding convertible debentures) /gross book value ratio: 51.8%

As at June 30, 2005, debt (including convertible debentures) /gross book value ratio: 59.0%



Ratio analysis

June 30, March 31, Dec 31, Sept 30, June 30, March 31,
2004 2005 2004 2004 2004 2004
----------------------------------------------------------
Debt to
gross book
value
(excluding
convertible
debentures) 51.8% 48.9% 49.2% 49.7% 50.2% 52.7%
Debt to gross
book value
(including
convertible
debentures) 59.0% 56.6% 57.0% 57.5% 50.2% 52.7%
Interest
coverage ratio 2.29 2.31 2.41 2.46 2.64 2.28


Contact Information