Alexis Nihon Real Estate Investment Trust
TSX : AN.UN

Alexis Nihon Real Estate Investment Trust

November 10, 2005 06:00 ET

Alexis Nihon REIT Announces Third Quarter Results

MONTREAL, QUEBEC--(CCNMatthews - Nov. 10, 2005) -

Distributable Income Rises 11.5%; Funds From Operations Per Unit Up 6.8%

Alexis Nihon Real Estate Investment Trust (TSX:AN.UN) today announced results for the third quarter and nine months ended September 30, 2005.

Third Quarter Highlights (percentages compare 3Q05 with 3Q04)

- Funds from operations moved up 7.6% to $8.5 million

- Funds from operations per unit gained 6.8% to $0.331 per unit

- Revenues from rental operations increased 20.6% to $30.7 million

- Net operating income rose 13.5% to $16.1 million

- Distributable income gained 11.5% to $7.5 million

- Distributable income payout ratio improved by 9.9% to 93.8% from 103.7%

- Debt(i) to gross book value ratio of 60.0%, below REIT limit of 65.0%

- Ended quarter with $110 million capacity for acquisitions and investments

(i) Including convertible debentures

"Alexis Nihon's financial results for the third quarter and nine months have been substantially improved by the acquisition of 18 properties acquired at various times since July 2004," said Paul J. Massicotte, President and Chief Executive Officer. "The REIT's expanded property portfolio has increased our revenue base, raised our market profile, added to geographic diversification and enhanced unitholder value."

"Most of the properties acquired over the past year have been in the industrial sector, where availability and capitalization rates are the most favorable," said Guy Charron, Executive Vice President and Chief Operating Officer. "However, we also added office properties and one retail centre, which will preserve the REIT's diverse mix of asset classes."

Rene Fortin, Senior Vice President and Chief Financial Officer, noted rationalization and integration activities following the REIT's accretive acquisitions, plus ongoing attention to cost control, have improved funds from operations per unit and distributable income per unit, both of which are key measures of operating performance.

"The combination of strong cash flow from operations, a well-structured balance sheet and several financing options will allow the REIT to continue its accretive growth, while generating distributable income exceeding requirements for monthly distributions to unitholders," Mr. Fortin added.

Alexis Nihon expanded its portfolio holdings by making one acquisition during the third quarter. The REIT purchased an office property in downtown Ottawa for $24.5 million, representing a capitalization rate of approximately 9.7%. The building holds 173,936 square feet and is 96% leased, mostly to public sector agencies.



Financial Highlights
--------------------

(thousands of dollars except per-unit amounts)
---------------------------------------------------------------------
Period ended September 30 3 months 9 months
2005 2004 2005 2004

---------------------------------------------------------------------
Revenues from rental
operations $30,671 $25,425 $88,515 $69,496
---------------------------------------------------------------------
Net operating income $16,069 $14,159 $46,059 $36,174
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Distributable income(1) $7,540 $6,761 $21,741 $17,834
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Distributable income per
unit (diluted)(1) $0.282 $0.263 $0.819 $0.753
---------------------------------------------------------------------
Funds from operations(1) $8,514 $7,910 $24,636 $20,440
---------------------------------------------------------------------
FFO per unit(1) $0.331 $0.310 $0.961 $0.868
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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 Thursday, November 10, 2005 at 2 p.m. (ET) to discuss the REIT's third quarter performance. The call may be accessed by dialing 1-866-250-4665 or 416-644-3428. 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 55 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 8.4 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
September 30, 2005
(unaudited)



Consolidated Balance Sheets
(in thousands of dollars)

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

Income-producing properties (note 4) $ 669,195 $ 603,689
Intangible assets (note 5) 41,832 31,904
Land held for development 964 964
Cash and cash equivalents - 10,000
Other assets (note 6) 22,000 16,319
Due from companies under common
control of certain trustees
of the REIT 98 250
---------------------------------------------------------------------

$ 734,089 $ 663,126
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---------------------------------------------------------------------

Liabilities

Debts on income-producing properties
(note 7) $ 373,083 $ 334,674
Convertible debentures - liability 53,434 53,338
component
Intangible liabilities (note 8) 3,403 3,214
Bank indebtedness (note 9) 38,837 808
Accounts payable and accrued
Liabilities 19,170 10,555
Distributions payable 2,218 2,281
---------------------------------------------------------------------
490,145 404,870
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Equity

Unitholders' equity 243,944 258,256
---------------------------------------------------------------------
$ 734,089 $ 663,126
---------------------------------------------------------------------
See accompanying notes


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

Other
Units Net Equity Distri-
in $ Income Components butions Total
---------------------------------------------------------------------
---------------------------------------------------------------------
Unitholders'
Equity -
December 31,
2004 $ 267,234 $ 34,170 $ 2,852 $ (46,000) $ 258,256
Net income - 4,239 - - 4,239
Units issued
(note 10) 2,618 - - - 2,618
Distributions - - (21,169) (21,169)
---------------------------------------------------------------------

Unitholders'
Equity -
September 30,
2005 $ 269,852 $ 38,409 $ 2,852 $ (67,169) $ 243,944
---------------------------------------------------------------------
---------------------------------------------------------------------

---------------------------------------------------------------------
---------------------------------------------------------------------
Unitholders'
Equity -
December 31,
2003 $ 198,107 $ 22,822 $ 1,148 $ (19,527) $ 202,550
Net income - 8,714 - - 8,714
Units issued
(note 10) 68,951 - - - 68,951
Convertible
debentures -
equity
component - - 1,704 - 1,704
Distributions - - - (19,456) (19,456)
---------------------------------------------------------------------
Unitholders'
Equity -
September 30,
2004 $ 267,058 $ 31,536 $ 2,852 $ (38,983) $ 262,463
---------------------------------------------------------------------
---------------------------------------------------------------------

See accompanying notes



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

Three Months Ended Nine Months Ended
September 30, September 30,
2005 2004 2005 2004
---------------------------------------------------------------------
---------------------------------------------------------------------
Revenues from Rental
Operations (note 11) $ 30,671 $ 25,425 $ 88,515 $ 69,496
Rental Property
Operating Costs 14,602 11,266 42,456 33,322
---------------------------------------------------------------------
Net Operating Income 16,069 14,159 46,059 36,174
---------------------------------------------------------------------

Expenses

Interest (note 12) 6,919 5,458 19,396 13,927
Amortization of
buildings 3,903 3,373 11,179 9,217
Other amortization
(note 13) 2,839 1,509 7,737 2,448
Internalization of
construction
management company
(note 2) - - 1,613 -
General and
administrative 493 606 1,561 1,375
Trust expenses 99 138 334 493
---------------------------------------------------------------------
14,253 11,084 41,820 27,460
---------------------------------------------------------------------

Net Income $ 1,816 $ 3,075 $ 4,239 $ 8,714
---------------------------------------------------------------------
---------------------------------------------------------------------

Basic Net Income
Per Unit (note 14) $ 0.071 $ 0.121 $ 0.165 $ 0.372
---------------------------------------------------------------------
---------------------------------------------------------------------
Diluted Net Income
Per Unit (note 14) $ 0.071 $ 0.121 $ 0.165 $ 0.372
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---------------------------------------------------------------------

See accompanying notes


Consolidated Statements of Cash Flows
For the Three Months and Nine Months Ended September 30
(in thousands of dollars)
(unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2005 2004 2005 2004
---------------------------------------------------------------------
---------------------------------------------------------------------
Cash Flows generated from
(used for) -
Operating Activities
Net income $ 1,816 $ 3,075 $ 4,239 $ 8,714
Items not affecting cash:
Amortization of
buildings 3,903 3,373 11,179 9,217
Other amortization 2,839 1,509 7,737 2,448
Amortization of above
and below market
in-place leases (56) (59) (179) (99)
Amortization of deferred
financing costs 160 50 476 127
Interest on convertible
debentures paid by units - - - 197
Accrued rental revenue (360) (507) (1,238) (1,391)
Internalization of
construction management
company - - 1,613 -
Tenant improvements and
leasing costs (2,017) (1,861) (6,572) (5,303)
Changes in:
Other assets 2,304 3,944 (5,026) 2,548
Accounts payable and
accrued liabilities 213 1,026 6,723 (1,961)
---------------------------------------------------------------------
Cash Flows generated
from Operating
Activities 8,802 10,550 18,952 14,497
---------------------------------------------------------------------
Financing Activities
Proceeds of public
offering of units
(net of issue costs) - - - 56,159
Convertible debentures
issued (net of costs) - 52,644 - 52,644
Increase in debts on
income-producing
properties 28,968 56,000 32,906 102,000
Repayment of debts on
income-producing
properties (2,323) (21,268) (9,912) (24,897)
Amortization of fair
value debt adjustment (37) - (103) -
Accretion on liability
component of
convertible debentures 33 - 97 -
Additions to deferred
financing costs (145) (90) (258) (510)
Bank indebtedness (8,458) (3,746) 38,029 (4,937)
Distributions (6,719) (6,854) (20,253) (18,517)
---------------------------------------------------------------------
Cash Flows generated
from Financing
Activities 11,319 76,686 40,506 161,942
---------------------------------------------------------------------
Investing Activities
Acquisition of rental
properties (note 3) (17,691) (72,160) (62,884) (154,594)
Additions to buildings (2,417) (1,169) (6,656) (7,917)
Additions to furniture,
fixtures and computers - - (70) (94)
Due from companies
under common control
of certain trustees
of the REIT (13) 37 152 110
---------------------------------------------------------------------
Cash Flows used for
Investing Activities (20,121) (73,292) (69,458) (162,495)
---------------------------------------------------------------------
Decrease in Cash
and Cash Equivalents - 13,944 (10,000) 13,944
Cash and Cash
Equivalents -
Beginning of Period - - 10,000 -
---------------------------------------------------------------------
Cash and Cash
Equivalents -
End of Period $ - $ 13,944 $ - $ 13,944
---------------------------------------------------------------------
---------------------------------------------------------------------

See accompanying notes



Notes to Consolidated Financial Statements
September 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. 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:



---------------------------------------------------------------------
Furniture and fixtures $ 25
Internalization of construction management expense 1,613
---------------------------------------------------------------------

Consideration paid $ 1,638
---------------------------------------------------------------------
---------------------------------------------------------------------


The net income of the acquired company has been included in the consolidated statement of net income from the date of acquisition.

3. Acquisition of Rental Properties

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



Office Industrial Total
Property Properties Nine Months
---------------------------------------------------------------------

Land $ 2,955 $ 12,022 $ 14,977
Building 17,248 30,906 48,154
Intangible assets and
liabilities:
Lease origination
costs for in-place
leases 4,841 11,052 15,893
Above market in-place
leases 439 - 439
Below market in-place
leases (570) (164) (734)
Debts on income-producing
properties (7,749) (7,769) (15,518)
---------------------------------------------------------------------
Consideration paid for
the net assets acquired $ 17,164 $ 46,047 $ 63,211
---------------------------------------------------------------------
---------------------------------------------------------------------

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

4. Income-Producing Properties

September 30, December 31,
2005 2004
---------------------------------------------------------------------
Accumulated Net Carrying Net Carrying
Cost Amortization Amount Amount
---------------------------------------------------------------------
Land $ 127,929 $ - $ 127,929 $ 112,952
Building and
Tenant
improvements 569,659 33,128 536,531 487,295
Leasing costs 4,489 756 3,733 2,345
Tenant
Improvement
recorded
on
acquisitions 1,139 137 1,002 1,097
---------------------------------------------------------------------
$ 703,216 $ 34,021 $ 669,195 $ 603,689
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---------------------------------------------------------------------


5. Intangible Assets

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

Lease origination
costs for in-place
leases $ 49,323 $ 9,160 $ 40,163 $ 30,308
Above market
in-place leases 2,219 550 1,669 1,596
---------------------------------------------------------------------
$ 51,542 $ 9,710 $ 41,832 $ 31,904
---------------------------------------------------------------------
---------------------------------------------------------------------

6. Other Assets
September 30, December 31,
2005 2004
---------------------------------------------------------------------
Accounts receivable $ 3,679 $ 2,824
Deferred rent receivable 3,137 1,899
Prepaids 7,404 1,412
Unit bonus plan 73 -
Deposits on potential acquisitions 325 755
Restricted funds 3,704 5,593
Deferred financing costs 2,904 3,122
Furniture, fixtures and computers 676 714
Short-term investments 98 -
---------------------------------------------------------------------
$ 22,000 $ 16,319
---------------------------------------------------------------------
---------------------------------------------------------------------

At September 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.


7. Debts on Income-Producing Properties

September 30, December 31,
2005 2004
---------------------------------------------------------------------
---------------------------------------------------------------------
Loans secured by mortgages on income-
producing properties, bearing
interest at a weighted average annual
rate of 6.18%, repayable in blended
monthly instalments of $2,789 maturing
at various dates
no later than July 1, 2019 $ 370,946 $ 332,675
Accrued interest 1,915 1,739
---------------------------------------------------------------------

372,861 334,414
Fair value debt adjustment 222 260
---------------------------------------------------------------------
$ 373,083 $ 334,674
---------------------------------------------------------------------
---------------------------------------------------------------------

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

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

2005 $ 2,555 $ 17,190 $ 19,745
2006 10,210 3,913 14,123
2007 9,676 79,326 89,002
2008 7,447 50,034 57,481
2009 5,616 47,064 52,680
Subsequent to 2009 41,570 96,345 137,915
---------------------------------------------------------------------
77,074 293,872 370,946

Accrued interest 1,915
---------------------------------------------------------------------

$ 372,861
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---------------------------------------------------------------------

8. Intangible Liabilities

September 30, December 31,
2005 2004
---------------------------------------------------------------------
Accumulated Net Carrying Net Carrying
Cost Amortization Amount Amount
---------------------------------------------------------------------
Below market in-
place leases $ 4,384 $ 981 $ 3,403 $ 3,214
---------------------------------------------------------------------
---------------------------------------------------------------------


9. 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 $45,086 and a second ranking hypothec on two income-producing properties having a net carrying amount of $243,107. The terms of the banking agreement require the REIT to meet certain financial covenants.

10. Units Issued and Outstanding

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

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



Nine Months Ended Nine Months Ended
September 30, 2005 September 30, 2004
---------------------------------------------------------------------
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 2) 132,743 1,638 - -
Distribution
reinvestment plan 77,395 980 37,486 445
Interest on convertible
debenture - - 16,061 197
Conversion of convertible
debenture - - 1,056,443 12,150
---------------------------------------------------------------------
Balance - end of
period 25,726,073 $ 269,852 25,501,890 $ 267,058
---------------------------------------------------------------------
---------------------------------------------------------------------


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. An expense of $55 was recognized during the nine month period ending September 30, 2005.



11. Revenues From Rental Operations

Three Months Ended Nine Months Ended
September 30, September 30,
2005 2004 2005 2004
---------------------------------------------------------------------

Rental revenue contractually
due under the leases $ 30,255 $ 24,859 $ 87,098 $ 68,006
Accrued rental revenue 360 507 1,238 1,391
Amortization of above market
in-place leases (128) (60) (366) (65)
Amortization of below market
in-place leases 184 119 545 164
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$ 30,671 $ 25,425 $ 88,515 $ 69,496
---------------------------------------------------------------------
---------------------------------------------------------------------

12. Interest
Three Months Ended Nine Months Ended
September 30, September 30,
2005 2004 2005 2004
---------------------------------------------------------------------
Interest on debts on income-
producing properties,
at stated rate $ 5,478 $ 5,050 $ 15,748 $ 12,904
Interest on convertible
debentres, at stated rate 860 280 2,565 561
Accretion on liability
component of convertible
debentures 33 - 97 -
Other interest 425 78 613 335
Amortization of deferred
financing costs 160 72 476 149
Amortization of fair value
debt adjustment (37) (22) (103) (22)
---------------------------------------------------------------------

$ 6,919 $ 5,458 $ 19,396 $ 13,927
---------------------------------------------------------------------
---------------------------------------------------------------------

Interest paid during the three months ended September 30, 2005 was
$6,597 (nine months - $18,750) (three months ended September 30,
2004 - $5,089 (nine months - $13,421)).

13. Other Amortization
Three Months Ended Nine Months Ended
September 30, September 30,
2005 2004 2005 2004
---------------------------------------------------------------------
Amortization of tenant
improvements and leasing
costs incurred through
leasing activities $ 554 $ 561 $ 1,472 $ 897
Amortization of furniture,
fixtures and computers 44 47 132 136
Amortization of lease
origination costs for in-
place leases recorded on
acquisitions 2,209 866 6,038 1,380
Amortization of tenant
improvements recorded on
acquisitions 32 35 95 35
---------------------------------------------------------------------
$ 2,839 $ 1,509 $ 7,737 $ 2,448
---------------------------------------------------------------------
---------------------------------------------------------------------


14. Net Income Per Unit Calculations

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

Three Months Ended Three Months Ended
September 30, 2005 September 30, 2004
Basic Diluted Basic Diluted
---------------------------------------------------------------------
Net income $ 1,816 $ 1,816 $ 3,075 $ 3,075
---------------------------------------------------------------------
---------------------------------------------------------------------
Weighted average
number of units
outstanding 25,706,883 25,706,883 25,494,379 25,494,379
---------------------------------------------------------------------
---------------------------------------------------------------------


Nine Months Ended Nine Months Ended
September 30, 2005 September 30, 2004
Basic Diluted Basic Diluted
---------------------------------------------------------------------
Net income $ 4,239 $ 4,239 $ 8,714 $ 8,714
---------------------------------------------------------------------
---------------------------------------------------------------------
Weighted average
number of units
outstanding $ 25,635,732 25,635,732 23,417,279 23,417,279
---------------------------------------------------------------------
---------------------------------------------------------------------

The convertible debentures have been excluded from the calculations
of the diluted net income per unit for the three and nine month
periods ending September 30, 2005 and 2004 as they are anti-dilutive.


15. 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 Nine Months Ended
September 30, September 30,
2005 2004 2005 2004
---------------------------------------------------------------------
Net income $ 1,816 $ 3,075 $ 4,239 $ 8,714
Add (deduct)
Internalization of
construction management
company - - 1,613 -
Amortization of buildings 3,903 3,373 11,179 9,217
Amortization of amounts
recorded on acquisitions:
Tenant improvements 32 35 95 35
Lease origination costs for
in-place leases 2,209 866 6,038 1,380
Above and below market
in-place leases (56) (59) (179) (99)
Accretion on liability component
of convertible debentures 33 - 97 -
Amortization of fair value debt
adjustments (37) (22) (103) (22)
Accrued rental revenue
Recognized on a straight-line
basis (360) (507) (1,238) (1,391)
---------------------------------------------------------------------
Distributable income $ 7,540 $ 6,761 $ 21,741 $ 17,834
---------------------------------------------------------------------
---------------------------------------------------------------------


16. Segmented Information

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

Revenues from
rental operations $ 14,848 $ 8,325 $ 6,108 $ 1,390 $ 30,671
Rental property
operating costs $ 7,809 $ 3,795 $ 2,126 $ 872 $ 14,602
---------------------------------------------------------------------

Net operating
income $ 7,039 $ 4,530 $ 3,982 $ 518 $ 16,069
---------------------------------------------------------------------
---------------------------------------------------------------------

Three Months Ended
September 30, 2004
---------------------------------------------------------------------
Revenues from
rental operations $ 12,895 $ 7,437 $ 3,721 $ 1,372 $ 25,425
Rental property
operating costs $ 6,270 $ 3,018 $ 1,275 $ 703 $ 11,266
---------------------------------------------------------------------

Net operating
income $ 6,625 $ 4,419 $ 2,446 $ 669 $ 14,159
---------------------------------------------------------------------
---------------------------------------------------------------------


Multi-
family
Nine Months Ended residen-
September 30, 2005 Office Retail Industrial tial Total
---------------------------------------------------------------------

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


Nine Months Ended
September 30, 2004
---------------------------------------------------------------------
Revenues from
rental
operations $ 37,478 $ 19,792 $ 8,248 $ 3,978 $ 69,496
Rental property
operating costs $ 18,657 $ 9,144 $ 3,081 $ 2,440 $ 33,322
---------------------------------------------------------------------
Net operating
income $ 18,821 $ 10,648 $ 5,167 $ 1,538 $ 36,174
---------------------------------------------------------------------
---------------------------------------------------------------------
Income-producing
properties $ 290,709 $ 175,463 $ 104,353 $ 33,198 $ 603,723
---------------------------------------------------------------------
---------------------------------------------------------------------
Intangible
assets $ 13,423 $ 12,795 $ 7,547 $ - $ 33,765
---------------------------------------------------------------------
---------------------------------------------------------------------


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


The following discussion describes the business, the business environment, and management's expectations as at October 28, 2005. It should be read in conjunction with the consolidated financial statements of the Alexis Nihon Real Estate Investment Trust ("the REIT") for the three and nine month periods ended September 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. 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.

THIRD QUARTER OVERVIEW

On September 1, 2005, the REIT announced the acquisition of a 173,936 square foot, 96% leased, office property in Ottawa, Ontario for $24.5 million representing a capitalization rate of approximately 9.7%.

As of September 30, 2005, the REIT's portfolio consisted of 55 office, retail and industrial properties (including a 426-unit multi-family residential property) aggregating 8.4 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 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 4 - 1,434,400 -
Industrial 24 7(2) 3,300,722 410,417
Residential -(1) - 300,321 -
---------------------------------------------------------------------
Total 48 7 8,023,120 410,417
---------------------------------------------------------------------
---------------------------------------------------------------------

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 over 900 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:



2005
----------------------------------------
Sept. June March

Revenues from rental
operations $30,671 $28,856 $28,988

Rental property operating
costs 14,602 13,451 14,403
---------------------------------------------------------------------

Net operating income 16,069 15,405 14,585
---------------------------------------------------------------------

Interest 6,919 6,340 6,137

Amortization of buildings 3,903 3,653 3,623

Other amortization 2,839 2,515 2,383

Internalization of
construction management - - 1,613

General and administrative 493 792 276

Trust 99 97 138
---------------------------------------------------------------------

14,253 13,397 14,170
---------------------------------------------------------------------

Net Income 1,816 2,008 415

Add/(Deduct):

Income Subsidy - - -

Amortization of buildings 3,903 3,653 3,623

Internalization of construction
management - - 1,613

Amortization of amounts
recorded on acquisitions:

Tenant improvements 32 31 32

Lease origination costs for
in-place leases 2,209 1,949 1,880

Above and below market
in-place leases (56) (65) (58)

Accretion on liability component
of convertible debentures 33 33 31

Amortization of fair value
debt adjustments (37) (33) (33)

Accrued rental revenue recognized
on a straight-line basis (360) (416) (462)
---------------------------------------------------------------------

Distributable Income(1) $7,540 $7,160 $7,041
---------------------------------------------------------------------
---------------------------------------------------------------------

Distributions $7,072 $7,064 $7,033

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

Funds from operations(1) $8,514 $8,131 $7,991

Funds from operations per unit $0.331 $0.317 $0.313
---------------------------------------------------------------------
---------------------------------------------------------------------

Net income per unit:

Basic $0.071 $0.078 $0.016

Diluted(2) $0.071 $0.078 $0.016
---------------------------------------------------------------------
---------------------------------------------------------------------

Distributable income per unit:

Basic $0.293 $0.279 $0.276

Diluted $0.282 $0.270 $0.267
---------------------------------------------------------------------
---------------------------------------------------------------------

Total Assets $734,089 $710,104 $661,068

Total Debt(3) $465,354 $439,422 $390,247
---------------------------------------------------------------------
---------------------------------------------------------------------

Weighted average number of units:

Basic 25,706,883 25,677,642 25,520,625

Diluted (for net income) 25,706,883 25,677,642 25,520,625

Diluted (for distributable
income) 29,736,189 29,706,948 29,549,931
---------------------------------------------------------------------
---------------------------------------------------------------------

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.


2004 2003
-----------------------------------------------------
Dec. Sept. June Mar. Dec.
Revenues
From
Rental
operations $29,254 $25,425 $23,281 $20,790 $17,197

Rental
property
operating
costs 13,838 11,266 11,073 10,983 8,741
---------------------------------------------------------------------

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

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

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

Other
amortization 2,532 1,509 741 198 194

Internalization
of
construction
management - - - - -

General and
administrative 312 606 463 306 459

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

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

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

Add/(Deduct):

Income Subsidy - - - - 264

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

Internalization
of
construction
management - - - - -

Amortization
of
amounts
recorded
on
acquisitions:

Tenant
improvements 7 35 - - -

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

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

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

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

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

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

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

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

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

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

Net income
per unit:

Basic $0.103 $0.121 $0.133 $0.118 $0.179

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

Distributable
income
per unit:

Basic $0.289 $0.265 $0.254 $0.239 $0.245

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

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

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

Weighted
average
number
of units:

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

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

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

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 variances mainly result from acquisitions completed by the REIT in 2004 and during the first nine months of 2005. The increase in the weighted average number of units (basic and diluted) used in calculating net income per unit 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 September 30, 2005, NOI totaled $16,069 (YTD: $46,059) which was an increase of $1,910 (YTD: $9,885) or 13.5% (YTD: 27.3%) over the same quarter last year.

Of the increase, $2,499 (YTD $9,242) is attributable to the NOI generated from the acquisition of 18 properties acquired at various times since July 2004. In total, 3 office, 1 retail, and 14 industrial properties were acquired during this time representing 2,713,483 square feet.

Had these properties been excluded, the same properties year over year ("YOY") NOI for the quarter would have totaled $13,570 (YTD: $36,817) reflecting a negative variance of $589 (YTD: $642 positive) versus the same quarter last year.



Three months Nine months
Same property YOY third ended ended
quarter NOI variance Sept. 30, 2005 Sept. 30, 2005
---------------------------------------------------------------------
Decrease in straight-lining
of rents $(147) $(152)

(Decrease) increase in above
and below market in-place
leases (re: EIC-140) (4) 79

Net (negative) positive
variance associated with
occupancies and redevelopment (328) 309

Increase in non-recoverable expenses (89) (11)

Increase in cancellation fees received 221 248

(Negative) positive variance in
other income (92) 176

Net decrease in the residential
sector NOI (150) (7)
---------------------------------------------------------------------
Net variance $(589) $642
---------------------------------------------------------------------
---------------------------------------------------------------------


Excluding the impact of YOY straight-lining of rents and EIC-140, the same property portfolio reflected a decrease of $438 or (3.0)% (YTD: increase $715 or 2.0%).

INTEREST EXPENSE

Interest expense consists of interest paid on secured mortgages on the income-producing properties as well as interest on the REIT's general bank indebtedness, interest on convertible debentures, accretion of the liability component of the convertible debentures, amortization of the fair value debt adjustments on mortgages assumed on acquisitions, and amortization of deferred financing costs. As at September 30, 2005, interest expense totaled $6,919 (YTD: $19,396) compared with $5,458 (YTD: $13,927) in 2004. The period over period variance results from:



Three months Nine months
ended ended
Sept. 30, 2005 Sept. 30, 2005
---------------------------------------------------------------------
Interest on secured
mortgages on income
producing properties acquired $418 $2,752

Increase in interest on
convertible debentures 579 2,003

Interest on new mortgages
put in place YOY 590 1,499

Increase on interest
accretion on convertible
debentures 33 97

Increase in interest on
general bank indebtedness 342 334

Interest savings on secured
mortgages repaid upon maturity (291) (906)
Amortization of the fair value
debt adjustments relating
to mortgages assumed on the
acquisition of certain properties (15) (81)

Other, net (195) (229)
---------------------------------------------------------------------
Net variance $1,461 $5,469
---------------------------------------------------------------------
---------------------------------------------------------------------


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 2004
-----------------------------------------
Sept. June Mar. Dec. Sept. June
-----------------------------------------
Weighted-average
interest rate 6.2% 6.3% 6.3% 6.3% 6.3% 6.3%
-----------------------------------------
-----------------------------------------
Weighted-average
term to maturity (years) 5.33 5.46 5.61 5.83 6.07 5.30
-----------------------------------------
-----------------------------------------


GENERAL AND ADMINISTRATIVE EXPENSES

General and administrative expenses, which consist of the REIT's overhead costs net of amounts recovered under operating expenses, totaled $493 for the quarter (YTD: $1,561) compared to $606 (YTD: $1,375) in 2004. The period over period variances are attributable to the following:



Three months Nine months
ended ended
Sept. 30, 2005 Sept. 30, 2005
---------------------------------------------------------------------
YOY increase in income taxes
paid by the REIT's subsidiaries $20 $107
YOY decrease in salaries (90) (8)
YOY (lower) higher legal,
audit and professional fees (7) 63
YOY higher costs associated
with non-concluded acquisitions 30 67
Other (66) (43)
---------------------------------------------------------------------
Net variance $(113) $186
---------------------------------------------------------------------
---------------------------------------------------------------------


AMORTIZATION EXPENSE

For the quarter ended September 30, 2005, total amortization (buildings and other) was $6,742 (YTD: $18,916) compared to $4,882 (YTD: $11,665) in 2004. The YOY increase results from approximately $1,340 (YTD: $4,718) of amortization of lease origination costs for in-place leases and tenant improvements incurred through acquisitions, as well as approximately $262 (YTD: $1,493) of amortization of buildings principally for properties acquired, and $258 (YTD: $1,040) of amortization on tenant improvements, commissions and property additions.

TRUST EXPENSES

Trust expenses in the quarter totaled $99 (YTD: $334) versus $138 (YTD: $493) for the same period in 2004. The YOY decrease primarily results from the following:



Three months Nine months
ended ended
Sept. 30, 2005 Sept. 30, 2005
---------------------------------------------------------------------
YOY decrease in director's and
officers insurance cost $(4) $(11)
YOY lower trustee fees and expenses (7) (28)
YOY lower audit related fees (12) (35)
YOY lower annual filing fees (16) (90)
YOY higher agent fees - 5
---------------------------------------------------------------------
Net variance $(39) $(159)
---------------------------------------------------------------------
---------------------------------------------------------------------


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 1, 2005, substantially all of the purchase price ($1,613 of the $1,638) was 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 Nine months ended
September 30 September 30
2005 2004 2005 2004
------------------------------------------
Distributable Income $7,540 $6,761 $21,741 $17,834

Per unit:
Basic $0.293 $0.265 $0.848 $0.760
Diluted $0.282 $0.263 $0.819 $0.754

Distributions paid $7,072 $7,013 $21,169 $19,456

Distributable income
payout ratio 93.8% 103.7% 97.4% 109.1%


Increases in distributions paid reflects distributions made on units issued on the REIT's DRIP (91,440 units issued since October 2004); in addition to a treasury issue of 4,300,000 units 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 606,913 square feet of space expired at a weighted average net rental rate of $9.68 per square foot. Of this amount, 348,718 square feet having a weighted average net rental rate of $9.27 was renewed at a weighted average net rental rate of $9.58. During the same period, 421,675 square feet of vacant space was leased at a weighted average net rental rate of $10.18 per square foot.

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



Occupancies As at September 30, 2005 As at June 30, 2005
------------------------------------------- ------------------------
Segment Area (sq.ft.) Occupancy Area (sq.ft.) Occupancy
------------------------------------------- ------------------------
Office 2,987,677 87.5% 2,813,741 86.9%

Retail 1,434,400 95.9% 1,434,400 95.5%

Industrial 3,711,139 90.4% 3,711,139 92.4%

Residential 300,321 95.5% 300,321 98.8%
------------------------------------------- ------------------------

Overall 8,433,537 90.5% 8,259,601 91.3%
------------------------------------------- ------------------------
------------------------------------------- ------------------------



Occupancies As at December 31, 2004 As at September 30, 2004
------------------------------------------- ------------------------
Segment Area (sq.ft.) Occupancy Area (sq.ft.) Occupancy
------------------------------------------- ------------------------
Office 2,813,741 87.1% 2,813,741 86.9%

Retail 1,432,100 96.6% 1,432,100 95.5%

Industrial 2,531,925 89.9% 2,531,925 91.0%

Residential 300,321 95.8% 300,321 97.5%
---------------------------------------------------------------------

Overall 7,078,087 90.4% 7,078,087 90.6%
---------------------------------------------------------------------
---------------------------------------------------------------------


Net rental rate 2005 2004
---------------------------------------------------------------------
Segment September 30 June 30 December 31 September 30
---------------------------------------------------------------------
Office $11.36 $11.03 $11.03 $11.03

Retail 13.29 13.04 13.07 12.85

Industrial 4.99 4.97 5.38 5.38

Residential(1) 1,046.17 1,032.10 1,030.14 1,028.64
---------------------------------------------------------------------

Overall $9.11 $8.89 $9.70 $9.65
---------------------------------------------------------------------
---------------------------------------------------------------------

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


The REIT'S YOY (September 2005 vs September 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:



September 30, 2005
----------------------------
Area Net rental
Segment (sq. ft.) Occupancy rate
----------- ----------------- ------------------------------

Office 2,813,741 87.0% $11.10

Retail 1,432,100 95.9% 13.29

Industrial 2,531,925 86.1% 5.46

Residential(1) 300,321 95.5% 1,046.17
----------- ----------------- ------------------------------

Overall 7,078,087 88.8% $9.96
----------- ----------------- ------------------------------
----------- ----------------- ------------------------------

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



December 31, 2004 September 30, 2004
---------------------- ----------------------
Area Net rental Net rental
Segment (sq. ft.) Occupancy rate Occupancy rate
------- --------- ---------------------- ----------------------

Office 2,813,741 87.1% $11.03 86.9% $11.03

Retail 1,432,100 96.6% 13.07 95.5% 12.85

Industrial 2,531,925 89.9% 5.38 91.0% 5.38

Resident-
ial(1) 300,321 95.8% 1,030.14 97.5% 1,028.64
------- --------- ---------------------- ----------------------

Overall 7,078,087 90.4% $9.70 90.6% $9.65
------- --------- ---------------------- ----------------------
------- --------- ---------------------- ----------------------

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


The same portfolio occupancy levels in the office and retail sectors show YOY favorable variances resulting from leasing activities. The YOY industrial sector unfavorable variance of 4.9%, which represents approximately 124,000 square feet of space, is attributable principally to the expected move outs of tenants at lease expiry, as well as YOY vacancies resulting from tenant insolvencies. The YOY negative variance of 2.0% in the residential sector results from lower occupancy of the executive suites which are leased on short term leases.

Since June 30, 2005 the overall portfolio occupancy level decreased by 0.8%. The office and retail sectors reflected increases of 0.6% and 0.4% respectively resulting primarily from increased leasing activity. As well, the office sector was positively affected by the acquisition of an office property whose occupancy at September 30 was 95.6%. Excluding this property, the office sector quarter over quarter ("QOQ") increase would have been 0.1%. The industrial and residential sectors reflected QOQ decreases of 2.0% and 3.3% respectively. The industrial sector decrease representing approximately 75,000 square feet resulted primarily from expected move outs of tenants at lease expiry as well as an early termination of a tenant occupying 27,000 square feet in order to accommodate an expansion of an existing tenant effective October 1, 2005. As for the residential sector, the decrease resulted from QOQ lower occupancy of the executive suites which are leased on a short term basis.



SEGMENTED ANALYSIS
------------------

Three months Nine months
ended Sept. 30 ended Sept. 30
Office 2005 2004 2005 2004
---------------------------------------------------------------------
Revenues from rental
operations $14,848 $12,895 $43,549 $37,478
Rental property operating
costs 7,809 6,270 22,498 18,657
---------------------------------------------------------------------
Net operating income $7,039 $6,625 $21,051 $18,821
---------------------------------------------------------------------
---------------------------------------------------------------------


Net operating income from office rental operations totaled $7,039 for the quarter (YTD: $21,051) compared with $6,625 in 2004 (YTD: $18,821). The YOY positive variance of $414 or 6.2% (YTD: $2,230 or 11.8%) is summarized as follows:



Three months Nine months
ended ended
Sept. 30, 2005 Sept. 30, 2005
---------------------------------------------------------------------
NOI contribution from
properties acquired $635 $2,865
Decrease in straight-lining
of rents (121) (248)
Increase in above and below
market in-place leases
(re: EIC-140) 22 62
Net negative variance
associated with occupancies (190) (771)
Decrease in bad debt expense - 61
(Negative) positive variances
in non-recoverable expenses (51) 86
Increase in cancellation
fees received 69 67
Positive variance in
other income 50 108
---------------------------------------------------------------------
Net positive variance $414 $2,230
---------------------------------------------------------------------
---------------------------------------------------------------------



Three months Nine months
ended Sept. 30 ended Sept. 30
Retail 2005 2004 2005 2004
---------------------------------------------------------------------

Revenues from rental
operations $8,325 $7,437 $25,093 $19,792
Rental property operating
costs 3,795 3,018 11,464 9,144
---------------------------------------------------------------------
Net operating income $4,530 $4,419 $13,629 $10,648
---------------------------------------------------------------------
---------------------------------------------------------------------


For the quarter the retail sector net operating income totaled $4,530 (YTD: $13,629) compared with $4,419 (YTD: $10,648) in 2004. The YOY positive variance of $111 or 2.5% (YTD: $2,981 or 28.0%) is detailed as follows:



Three months Nine months
ended ended
Sept. 30, 2005 Sept. 30, 2005
---------------------------------------------------------------------
NOI contribution from
properties acquired $353 $1,935
Decrease in straight-lining
of rents (76) (33)
Increase in above and below
market in-place lease revenues
(re: EIC-140) 10 108
Net (negative) positive
variance associated with
occupancies and redevelopment (91) 1,032
Negative variance in other
income and non-recoverable
expenses (85) (61)
---------------------------------------------------------------------
Net positive variance $111 $2,981
---------------------------------------------------------------------
---------------------------------------------------------------------


Three months Nine months
ended Sept. 30 ended Sept. 30
Industrial 2005 2004 2005 2004
---------------------------------------------------------------------
Revenues from rental
operations $6,108 $3,721 $15,819 $8,248
Rental property operating
costs 2,126 1,275 5,971 3,081
---------------------------------------------------------------------
Net operating income $3,982 $2,446 $9,848 $5,167
---------------------------------------------------------------------
---------------------------------------------------------------------


The industrial sector reflects a YOY positive variance of $1,536 or 62.8% (YTD: $4,681 or 90.6%). Net operating income for the quarter totaled $3,982 (YTD: $9,848) compared with the $2,446 (YTD $5,167) in 2004. The contributing factors include:



Three months Nine months
ended ended
Sept. 30, 2005 Sept. 30, 2005
---------------------------------------------------------------------
NOI contribution from
properties acquired $1,511 $4,442
Impact of straight-lining
of rents 50 129
Decrease in above and below
market in-place leases
(re: EIC-140) (36) (91)
Net (negative) positive
variance associated
with occupancies (47) 48
Increase in cancellation
fees received 138 138
Increase in non-recoverable
expenses (37) (158)
(Negative) positive variance
in other income (43) 173
---------------------------------------------------------------------
Net positive variance $1,536 $4,681
---------------------------------------------------------------------
---------------------------------------------------------------------


Three months Nine months
ended Sept. 30 ended Sept. 30
Residential 2005 2004 2005 2004
---------------------------------------------------------------------

Revenues from rental
operations $1,390 $1,372 $4,054 $3,978
Rental property operating
costs 872 703 2,523 2,440
---------------------------------------------------------------------
Net operating income $518 $669 $1,531 $1,538
---------------------------------------------------------------------
---------------------------------------------------------------------


Net operating income for the residential sector totaled $518 (YTD $1,531) representing a YOY decrease of $151 or 22.6% (YTD: $7 or 0.5%). In summary, variances resulted from:



Three months Nine months
ended ended
Sept. 30, 2005 Sept. 30, 2005
---------------------------------------------------------------------
Increase in revenues generated
from rental increases
on regular apartments $40 $95
Decrease in revenues generated
from the executive suites (21) (18)
Negative variances in
operating expenses (170) (84)
---------------------------------------------------------------------
Net negative variance $(151) $(7)
---------------------------------------------------------------------
---------------------------------------------------------------------


DEBT FINANCING AND CONTRACTUAL OBLIGATIONS

On July 18, 2005 the REIT put in place a hypothecary loan of $18,000 on an industrial property acquired in the second quarter of 2005 located at 2000 Halpern, St.Laurent. The loan bears interest at a rate of 4.68%, maturing on August 1, 2010, and has a 25-year amortization.

On September 1, 2005 the REIT acquired an office property located at 400 Cooper Street in Ottawa and assumed a mortgage of $7,749 bearing interest at 6.0%, having a 25-year amortization, and maturing on April 1, 2010. In addition, the REIT put in place a hypothecary loan of $11,000 bearing interest at 5.19%, on a 25-year amortization, maturing on September 1, 2015.

As at September 30, 2005, the REIT's debt secured by income-producing properties was $411,920 representing 53.1% of gross book value (book value of the REIT's assets plus accumulated amortization less intangible liabilities was $775,781), well below its 60% threshold limit. Including the convertible debentures, the percentage is 60.0% (limit 65%). Floating rate debt, which cannot exceed 15% of gross book value was $38,837 or 5.0%.

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 and particularly FFO per unit, 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 Nine months ended
FFO/Net Income September 30 September 30
Reconciliation: 2005 2004 2005 2004
---------------------------------------------------------------------
Net Income
(per financial
statements) $1,816 $3,075 $4,239 $8,714

Adjustments to
reconcile net
income to FFO:
Internalization of
construction
management
company - - 1,613 -
Amortization of
buildings 3,903 3,373 11,179 9,217
Other amortization,
excluding
amortization of
furniture, fixtures
& computers 2,795 1,462 7,605 2,312
Interest on the AN
Convertible
Debentures
paid by units - - - 197
---------------------------------------------------------------------
Funds from
operations $8,514 $7,910 $24,636 $20,440
---------------------------------------------------------------------
---------------------------------------------------------------------
Distribution paid $7,072 $7,014 $21,169 $19,457
---------------------------------------------------------------------
---------------------------------------------------------------------
FFO payout ratio 83.1% 88.7% 85.9% 95.2%
---------------------------------------------------------------------
---------------------------------------------------------------------
FFO per unit $0.331 $0.310 $0.961 $0.870
---------------------------------------------------------------------
---------------------------------------------------------------------
Distributions
per unit $0.275 $0.275 $0.825 $0.825
---------------------------------------------------------------------
---------------------------------------------------------------------


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 third quarter of 2005 and were principally utilized for funding property acquisitions, principal repayments of debts on income-producing properties, and distributions to unitholders.

Management expects to be able to continue to meet all of the REIT's ongoing obligations and to finance future growth through the issuance of new equity as well as by using conventional real estate debt, short-term financing from the REIT's credit facilities, and the REIT's stable cash flow. The REIT currently has a theoretical acquisition capacity of approximately $110 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 $6,791 in the third quarter of 2005 (YTD: $15,585). Details to the amounts incurred are as follows:



Three months Nine months
ended ended
Sept. 30, 2005 Sept. 30, 2005
-----------------------------------
Additions to buildings:

Redevelopment (Centre Laval)(1) $ 3,074 $ 5,386
Parking repairs 407 1,261
Non-recoverable maintenance 1,000 1,605
Recoverable maintenance 293 761
-----------------------------------
Total additions to buildings 4,774 9,013
-----------------------------------
Tenant improvements & leasing costs:

Renewals & vacant space lease-ups 1,003 4,426
Value enhancing(2) 199 560
Redevelopment 172 234
Leasing commissions 643 1,352
-----------------------------------
Total tenant improvements &
leasing costs 2,017 6,572
-----------------------------------
Total $ 6,791 $ 15,585
-----------------------------------
-----------------------------------

1. Included in redevelopment costs in an accrual of $2,357 for
additions incurred in the quarter but not yet paid for.
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 September 30, 2005, the Nihon/Massicotte Group hold approximately 30.1% of the 25,726,073 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. 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 2005 are expected to remain at the current level.

ALEXIS NIHON

REAL ESTATE INVESTMENT TRUST

Three Months Ended September 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, 2005 and 2004, as well as with the Prospectus' dated December 13, 2002, April 8, 2004, and August 19, 2004.



Corporate Information

Head Office Quarterly Distributions
1 Place Alexis Nihon
3400 De Maisonneuve Blvd. West Quarter Distribution
Suite 1010 ----------------------------------
Montreal, Quebec Q3/05 $0.275
H3Z 3B8 Q2/05 $0.275
Q1/04 $0.275
Q4/04 $0.275
Trading Symbol Q3/04 $0.275
Toronto Stock Exchange: AN.UN Q2/04 $0.275
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)
----------------------------------
Q3/05 13.51 12.96 13.50 1,923
Investor Relations Contact Q2/05 13.22 12.20 12.85 1,500
Rene Fortin, CGA Q1/05 13.80 11.88 12.58 2,492
Senior Vice President and Q4/04 13.41 12.06 12.55 2,013
Chief Financial Officer Q3/04 12.66 11.75 12.20 2,347
Tel.: 514-737-3344 Q2/04 13.69 10.35 12.10 3,031
Fax: 514-931-1618 Q1/04 14.25 12.17 13.65 1,432
Email: rfortin@alexisnihon.com ----------------------------------
----------------------------------
Source: Toronto Stock Exchange

Research Coverage:

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

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

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

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

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

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

Canaccord Capital Shant Poladian (416) 869-6595

BMO Nesbitt Burns Karine MacIndoe (416) 359-4269

Genuity Capital Markets Marc Rothschild (416) 687-5428


Selected Quarterly Information

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

Revenues From
Rental Operations 30,671 28,856 28,988
Net Operating Income 16,069 15,405 14,585
Net Operating
Income Margin 52.4% 53.4% 50.3%

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

Distributable Income 7,540 7,160 7,041
Distributable Income Per Unit:
Basic 0.293 0.279 0.276
Diluted 0.282 0.270 0.267

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

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

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

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

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

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

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

(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.


Selected Quarterly Information

Quarter Ended

In thousands of dollars, Dec 31, Sept 30, June 30, March 31,
except per unit amounts 2004 2004 2004 2004
---------------------------------------------------------------------

Revenues From
Rental Operations 29,254 25,425 23,281 20,790
Net Operating Income 15,416 14,159 12,208 9,807
Net Operating
Income Margin 52.7% 55.7% 52.4% 47.2%

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

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

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

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

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

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

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

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

Weighted Average Number
of Units:
Basic 25,506,516 24,637,663
25,494,379 20,096,970
Diluted (for net
income)(a) 25,506,516 24,637,663
25,494,379 20,096,970
Diluted (for
distributable income) 29,535,822 25,102,034
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) Q3/05 Q3/04 Change
$ $ Vs Q3/04
------------------------------------
Office 14,848 12,895 1,953
Retail 8,325 7,437 888
Industrial 6,108 3,721 2,387
Multi-family residential 1,390 1,372 18
------------------------------------
Total 30,671 25,425 5,246
------------------------------------
------------------------------------


Segmented Net Operating Income

(in thousands of dollars) Q3/05 Q3/04 Change
$ $ Vs Q3/04
------------------------------------
Office 7,039 6,625 414
Retail 4,530 4,419 111
Industrial 3,982 2,446 1,536
Multi-family residential 518 669 (151)
------------------------------------
Total 16,069 14,159 1,910
------------------------------------
------------------------------------


Segmented Gross Book Value of Income-Producing Properties

(in thousands Q3/05 Q3/04 Q4/04 Change Change
of dollars) $ $ $ Vs Q3/04 Vs Q4/04
----------------------------------------------------
Office 332,100 298,094 301,076 34,006 31,024
Retail 186,219 179,402 180,161 6,817 6,058
Industrial 150,352 105,954 106,381 44,398 43,971
Multi-family
residential 34,545 34,148 34,300 397 245
----------------------------------------------------
Total 703,216 617,598 621,918 85,618 81,298
----------------------------------------------------
----------------------------------------------------


Segmented Net Book Value of Income-Producing Properties


(in thousands Q3/05 Q3/04 Q4/04 Change Change
of dollars) $ $ $ Vs Q3/04 Vs Q4/04
----------------------------------------------------
Office 313,028 290,709 291,564 22,319 21,464
Retail 177,684 175,463 174,997 2,221 2,687
Industrial 145,732 104,353 103,991 41,379 41,741
Multi-family
residential 32,751 33,198 33,137 (447) (386)
----------------------------------------------------
Total 669,195 603,723 603,689 65,472 65,506
----------------------------------------------------
----------------------------------------------------


Portfolio Summary

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

Office 2,988 2,814 2,814 2,814 2,814 2,604 2,257
Retail 1,434 1,434 1,434 1,432 1,432 1,235 1,041
Indust-
rial(a) 3,711 3,711 2,758 2,532 2,532 1,564 1,358
Multi-family
residential 300 300 300 300 300 300 300
-----------------------------------------------------------
Total 8,433 8,259 7,306 7,078 7,078 5,703 4,956
-----------------------------------------------------------
-----------------------------------------------------------


Number of
Properties

Office 20 19 19 19 19 17 15
Retail 4 4 4 4 4 3 2
Indust-
rial(a) 31 31 28 27 27 17 16
Multi-family
residential(b) N/A N/A N/A N/A N/A N/A N/A
Total 55 54 51 50 50 37 33
-----------------------------------------------------------
-----------------------------------------------------------


Change of Leasable Area

Square feet (000) %
Q3/05 Q3/05
Vs Q4/04 Vs Q3/04 Vs Q4/04 Vs Q3/04
----------------------------------------------
Office 174 174 6.2% 6.2%
Retail 2 2 0.1% 0.1%
Industrial 1,179 1,179 46.6% 46.6%
Multi-family
residential - - 0.0% 0.0%
----------------------------------------------
Total 1,355 1,355 Total 19.1% 19.1%
----------------------------------------------
----------------------------------------------


Change of Number of Properties

No. of Properties %
Q3/05 Q3/05
Vs Q4/04 Vs Q3/04 Vs Q4/04 Vs Q3/04
----------------------------------------------
Office 1 1 5.3% 5.3%
Retail - - 0.0% 0.0%
Industrial 4 4 14.8% 14.8%
Multi-family
residential - - 0.0% 0.0%
----------------------------------------------
Total 5 5 Total 10.0% 10.0%
----------------------------------------------
----------------------------------------------

(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

Q3/05 Q3/04 Q4/04 Change Change
Occupancy Vs Q3/04 Vs Q4/04
---------------------------------------------------------------------

Office 87.5% 86.9% 87.1% 0.6% 0.4%
Retail 95.9% 95.5%(a) 96.6% 0.4% -0.7%
Industrial 90.4% 91.0% 89.9% -0.6% 0.5%
Multi-family
residential 95.5% 97.5% 95.8% -2.0% -0.3%
--------------------------------------------------
Total 90.5% 90.6%(a) 90.4% -0.1% 0.1%
--------------------------------------------------
--------------------------------------------------

(a)Excludes area affected by redevelopment.


Top 10 Tenants

% of Total
Revenues
---------------------------------------------------------------------
---------------------------------------------------------------------
1 Public Works & Government Services Canada 7.98%
2 LDL Logistics Dev. Corp. 2.09%
3 Richter Management Ltd. 1.74%
4 Club Monaco 1.60%
5 ISM Information Management Corporation 1.57%
6 CP Ships (Canada) Agencies Ltd. 1.54%
7 Hudson's Bay Company 1.29%
8 KSH Solutions Inc. 0.98%
9 Sico 0.94%
10 Brick 0.92%
---------------------------------------------------------------------
Total 20.66%
---------------------------------------------------------------------
---------------------------------------------------------------------


Leasing Activities

Lease Expirations and Renewals by Segment

Office Retail Industrial Total
Expiring Leases/2005
---------------------------------------------------------------------
Number of tenants 69 25 46 140
Area (Square feet) 223,741 46,606 336,566 606,913
Average net rent/square
foot 13.96 $ 18.85 $ 5.56 $ 9.68 $
---------------------------------------------------------------------

Renewed Leases as at Q2
---------------------------------------------------------------------
Number of tenants 44 17 30 91
Area (Square feet) 120,755 24,599 203,364 348,718
Average net rent/square
foot 12.96 $ 22.41 $ 6.02 $ 9.58 $
---------------------------------------------------------------------

New Leases as at Q2
---------------------------------------------------------------------
Number of tenants 64 13 34 111
Area (Square feet) 186,025 33,054 202,596 421,675
Average net rent/square
foot 13.61 $ 14.71 $ 6.29 $ 10.18 $
---------------------------------------------------------------------


Lease Expirations

Office Retail Industrial Total
Number of tenants
---------------------------------------------------------------------
2006 57 32 64 153
2007 85 37 36 158
2008 76 36 40 152
2009 50 35 27 112
2010 67 41 25 133
After 69 82 24 175
---------------------------------------------------------------------

Area (square feet)
---------------------------------------------------------------------
2006 271,420 44,543 829,314 1,145,277
2007 524,907 77,002 406,436 1,008,345
2008 427,458 395,728 377,507 1,200,693
2009 297,588 141,404 263,622 702,614
2010 360,987 148,865 684,178 1,194,030
After 733,289 638,739 723,540 2,095,568
---------------------------------------------------------------------

Weighted Average Net Rent
(per square foot)
---------------------------------------------------------------------
2006 10.02 $ 26.52 $ 5.27 $ 7.22 $
2007 10.92 $ 18.67 $ 5.08 $ 9.16 $
2008 11.84 $ 4.94 $ 5.16 $ 7.47 $
2009 11.94 $ 12.57 $ 5.24 $ 9.55 $
2010 11.06 $ 17.55 $ 4.71 $ 8.23 $
---------------------------------------------------------------------

Weighted Average Term to Maturity on Existing Leases 4.61 years


Debt Summary

Debt Maturities

Year Amount % of Total Debt Average
$ Outstanding Rate
---------------------------------------------------------------------
2005 17,263,452 4.65% 6.92%
2006 4,304,242 1.16% 7.30%
2007 83,616,367 22.54% 6.59%
2008 54,276,065 14.63% 6.44%
2009 52,485,711 14.15% 5.53%
After 159,000,662 42.86% 5.99%
--------------------------------------------------------
370,946,499 100.00% 6.18%
--------------------------------------------------------
--------------------------------------------------------

Weighted average term: 5.33 years


Financing Activities

During the three months ended September 30, 2005, the REIT completed an acquisition of an office income-producing property. The REIT assumed a mortgage of $7,749,191 on this property bearing interest at 6.00% maturing April 1, 2010; and obtained an additional mortgage on this property of $11,000,000 bearing interest at 5.19% maturing September 1, 2015. In addition, a mortgage of $18,000,000 bearing interest at 4.68% maturing August 1, 2010 was obtained on an industrial rental property acquired in the second quarter of 2005.

During the nine months ended September 30, 2005 there were repayments of four mortgages amounting to approximately $2,868,000

At current gross book value, the REIT's maximum borrowing capacity is $110,100,000

Financing Capacity

As at September 30, 2005, debt (excluding convertible debentures) /gross book value ratio: 53.1%

As at September 30, 2005, debt (including convertible debentures) /gross book value ratio: 60.0%



Ratio analysis

Sept June March Dec Sept June March
30, 30, 31, 31, 30, 30, 31,
2005 2005 2005 2004 2004 2004 2004
----------------------------------------------------
Debt to gross
book value
(excluding
convertible
debentures) 53.1% 51.8% 48.9% 49.2% 49.7% 50.2% 52.7%
Debt to gross
book value
(including
convertible
debentures) 60.0% 59.0% 56.6% 57.0% 57.5% 50.2% 52.7%
Interest coverage
ratio 2.24 2.29 2.31 2.41 2.46 2.64 2.28


Contact Information