UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the quarterly period ended June 30, 2005

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the transition period from                      to                     .

TRIZEC PROPERTIES, INC.

(Exact name of registrant as specified in its charter)

Delaware		33-0387846
(State or Other Jurisdiction of		(I.R.S. Employer Identification No.)
Incorporation or Organization)
10 South Riverside Plaza
Chicago, IL		60606
(Address of Principal Executive Offices)		(Zip Code)

312-798-6000

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes þ No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
Yes þ No o

As of August 5, 2005, 155,163,043 shares of common stock, par value $0.01 per share, were issued and outstanding.

 

 

Table of Contents

						Page
PART I — FINANCIAL INFORMATION
		Item 1.		Financial Statements			3
		Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations			31
		Item 3.		Quantitative and Qualitative Disclosures about Market Risk			56
		Item 4.		Controls and Procedures			56
PART II — OTHER INFORMATION
		Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds			57
		Item 4.		Submission of Matters to a Vote of Security Holders			58
		Item 6.		Exhibits			59
				Exhibit Index			61
Certification of Chief Executive Officer
Certification of Chief Financial Officer
Certification of Chief Executive Officer
Certification of Chief Financial Officer

Forward-Looking Statements

This Form 10-Q contains forward-looking statements, within the meaning of Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”), relating to our business and financial outlook which are based on our current expectations, beliefs, projections, forecasts, future plans and strategies, and anticipated events or trends. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or the negative of these terms or other comparable terminology. We intend these forward-looking statements, which are not guarantees of future performance and financial condition, to be covered by the safe harbor provisions for forward-looking statements contained in Section 21E of the Exchange Act. Forward-looking statements are not historical facts. Instead, such statements reflect estimates and assumptions and are subject to certain risks and uncertainties that are difficult to predict or anticipate. Therefore, actual outcomes and results may differ materially from those projected or anticipated in these forward-looking statements. You should not place undue reliance on these forward-looking statements, which speak only as of the date this Form 10-Q is filed with the Securities and Exchange Commission (“SEC”). A number of important factors could cause actual results to differ materially from those indicated by the forward-looking statements, including, without limitation, the risks described in our annual report on Form 10-K filed with the SEC on March 11, 2005, as the same may be supplemented from time to time. These factors include, without limitation, the following:

	•		changes in national and local economic conditions, including those economic conditions in our seven core markets;
	•		the extent, duration and strength of any economic recovery;
	•		our ability to maintain occupancy and to timely lease or re-lease office space;
	•		the extent of any tenant bankruptcies and insolvencies;
	•		our ability to sell our non-core office properties in a timely manner;
	•		our ability to acquire office properties selectively in our core markets;
	•		our ability to maintain real estate investment trust (“REIT”) qualification and changes to U.S. tax laws that affect REITs;
	•		Canadian tax laws that affect treatment of investment in U.S. real estate companies;
	•		the competitive environment in which we operate;
	•		the cost and availability of debt and equity financing;
	•		the effect of any impairment charges associated with changes in market conditions;
	•		the sale or other disposition of shares of our common stock owned by Trizec Canada Inc.;
	•		our ability to obtain, at a reasonable cost, adequate insurance coverage for catastrophic events, such as earthquakes and terrorist acts; and
	•		other risks and uncertainties detailed from time to time in our filings with the SEC.

Trizec Properties, Inc.		Consolidated Balance Sheets (unaudited)

PART I — FINANCIAL STATEMENTS

Item 1. Financial Statements

		June 30,				December 31,
$ in thousands, except per share amounts		2005				2004
Assets
Real estate		$	4,461,498			$	4,335,159
Less: accumulated depreciation			(659,426	)			(619,010	)
Real estate, net			3,802,072				3,716,149
Cash and cash equivalents			70,283				194,265
Escrows and restricted cash			86,917				83,789
Investment in unconsolidated real estate joint ventures			121,094				119,641
Office tenant receivables (net of allowance for doubtful accounts of $4,069 and $6,677 at June 30, 2005 and December 31, 2004, respectively)			11,650				9,306
Deferred rent receivables (net of allowance for doubtful accounts of $899 and $831 at June 30, 2005 and December 31, 2004, respectively)			138,760				137,561
Other receivables (net of allowance for doubtful accounts of $2,644 and $2,473 at June 30, 2005 and December 31, 2004, respectively)			10,495				9,914
Deferred charges (net of accumulated amortization of $76,557 and $68,802 at June 30, 2005 and December 31, 2004, respectively)			117,598				115,669
Prepaid expenses and other assets, net			195,707				139,118
Total Assets		$	4,554,576			$	4,525,412
Liabilities and Stockholders’ Equity
Liabilities
Mortgage debt and other loans		$	2,029,625			$	2,069,282
Unsecured credit facility			150,000				150,000
Trade, construction and tenant improvements payables			19,520				25,386
Accrued interest expense			9,905				8,116
Accrued operating expenses and property taxes			85,825				86,713
Other accrued liabilities			168,270				135,201
Dividends payable			32,401				32,407
Taxes payable			33,790				51,406
Total Liabilities			2,529,336				2,558,511
Commitments and Contingencies			—				—
Minority Interest			7,583				7,348
Special Voting and Class F Convertible Stock			200				200
Stockholders’ Equity
Preferred stock, 50,000,000 shares authorized, $0.01 par value, none issued and outstanding			—				—
Common stock, 500,000,000 shares authorized, $0.01 par value, 155,090,996 and 152,164,471 issued at June 30, 2005 and December 31, 2004, respectively, and 155,036,651 and 152,132,857 outstanding at June 30, 2005 and December 31, 2004, respectively			1,551				1,521
Additional paid in capital			2,258,387				2,211,545
Accumulated deficit			(224,741	)			(232,965	)
Treasury stock, at cost, 54,345 and 31,614 shares at June 30, 2005 and December 31, 2004, respectively			(704	)			(415	)
Unearned compensation			(563	)			(798	)
Accumulated other comprehensive loss			(16,473	)			(19,535	)
Total Stockholders’ Equity			2,017,457				1,959,353
Total Liabilities and Stockholders’ Equity		$	4,554,576			$	4,525,412

See accompanying notes to the financial statements.

Trizec Properties, Inc.		Consolidated Statements of Operations (unaudited)

		For the three months ended								For the six months ended
		June 30,								June 30,
$ in thousands, except per share amounts		2005				2004				2005				2004
Revenues
Rentals		$	125,729			$	115,265			$	250,459			$	230,679
Recoveries from tenants			26,300				21,518				52,288				45,622
Parking and other			25,802				21,455				49,809				40,922
Fee income			1,983				3,255				3,593				6,402
Total Revenues			179,814				161,493				356,149				323,625
Expenses
Operating			58,748				53,149				117,045				108,414
Property taxes			22,290				18,027				44,520				36,253
General and administrative			10,007				9,053				19,015				13,330
Depreciation and amortization			41,254				30,810				80,327				63,262
Provision for loss on real estate			—				12,749				—				12,749
Provision for loss on investment			—				14,558				—				14,558
Total Expenses			132,299				138,346				260,907				248,566
Operating Income			47,515				23,147				95,242				75,059
Other Income (Expense)
Interest and other income			2,065				1,668				3,276				2,620
Foreign currency exchange gain			—				—				—				3,340
Loss on early debt retirement			—				(1,389	)			(14	)			(1,143	)
Recovery on insurance claims			—				486				—				692
Interest expense			(33,906	)			(33,504	)			(67,840	)			(68,038	)
Derivative gain (loss)			—				513				—				(1,498	)
Lawsuit settlement			—				—				760				94
Total Other Expense			(31,841	)			(32,226	)			(63,818	)			(63,933	)
Income (Loss) before Income Taxes, Minority Interest, Income from Unconsolidated Real Estate Joint Ventures, Discontinued Operations and Gain (Loss) on Disposition of Real Estate, Net			15,674				(9,079	)			31,424				11,126
Benefit (Provision) for income and other corporate taxes, net			2,737				(1,542	)			2,316				(3,032	)
Minority interest			(400	)			120				(435	)			(959	)
Income from unconsolidated real estate joint ventures			4,504				2,030				8,577				8,269
Income (Loss) from Continuing Operations			22,515				(8,471	)			41,882				15,404
Discontinued Operations
Income (Loss) from discontinued operations			2,723				(113,260	)			9,645				(99,695	)
Gain (Loss) on disposition of discontinued real estate, net			20,872				(2,788	)			21,079				29,608
Income (Loss) Before Gain (Loss) on Disposition of Real Estate, Net			46,110				(124,519	)			72,606				(54,683	)
Gain (Loss) on disposition of real estate, net			256				(12,426	)			256				2,345
Net Income (Loss)			46,366				(136,945	)			72,862				(52,338	)
Special voting and Class F convertible stockholders’ dividends			(1,175	)			(1,217	)			(2,384	)			(2,521	)
Net Income (Loss) Available to Common Stockholders		$	45,191			$	(138,162	)		$	70,478			$	(54,859	)

See accompanying notes to the financial statements.

Trizec Properties, Inc.		Consolidated Statements of Operations (unaudited) (Continued)

		For the three months ended								For the six months ended
		June 30,								June 30,
$ in thousands, except per share amounts		2005				2004				2005				2004
Earnings per common share
Income (Loss) from Continuing Operations Available to Common Stockholders per Weighted Average Common Share Outstanding:
Basic		$	0.14			$	(0.15	)		$	0.26			$	0.10
Diluted		$	0.14			$	(0.15	)		$	0.25			$	0.10
Net Income (Loss) Available to Common Stockholders per Weighted Average Common Share Outstanding:
Basic		$	0.29			$	(0.91	)		$	0.46			$	(0.36	)
Diluted		$	0.29			$	(0.91	)		$	0.45			$	(0.36	)
Weighted average shares outstanding
Basic			154,536,290				151,609,430				153,817,403				151,366,972
Diluted			156,745,758				151,609,430				155,961,321				152,791,889

See accompanying notes to the financial statements.

Trizec Properties, Inc.		Consolidated Statements of Comprehensive Income (unaudited)

		For the three months ended								For the six months ended
		June 30,								June 30,
$ in thousands		2005				2004				2005				2004
Net income (loss)		$	46,366			$	(136,945	)		$	72,862			$	(52,338	)
Other comprehensive (loss) income:
Unrealized losses on investments in securities:
Unrealized foreign currency exchange losses arising during the period			(47	)			(107	)			(71	)			(129	)
Unrealized foreign currency exchange (losses) gains on foreign operations			(60	)			(14	)			28				(240	)
Realized foreign currency exchange gain on foreign operations			—				—				—				(3,340	)
Unrealized derivative (losses) gains:
Effective portion of interest rate contracts			(930	)			15,196				2,571				12,468
Ineffective portion of interest rate contracts			—				(513	)			—				1,498
Amortization of forward rate contracts			267				142				534				233
Settlement of forward rate contracts			—				(5,758	)			—				(9,524	)
Total other comprehensive (loss) income			(770	)			8,946				3,062				966
Net comprehensive income (loss)		$	45,596			$	(127,999	)		$	75,924			$	(51,372	)

See accompanying notes to the financial statements.

Trizec Properties, Inc.		Consolidated Statements of Cash Flows (unaudited)

		For the six months ended
		June 30,
						2004
						(As Restated,
$ in thousands		2005				See Note 11)
Cash Flows from Operating Activities
Net Income (Loss)		$	72,862			$	(52,338	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Income from unconsolidated real estate joint ventures			(8,577	)			(8,269	)
Distributions from unconsolidated real estate joint ventures			8,577				8,269
Depreciation and amortization expense (including discontinued operations)			84,869				83,975
Amortization of financing costs			2,795				3,932
Amortization of value of acquired operating leases to rental revenue			(1,432	)			(220	)
Provision for bad debt			915				2,274
Gain on disposition of real estate (including discontinued operations)			(21,335	)			(31,953	)
Provision for loss on real estate (including discontinued operations)			—				131,350
Provision for loss on investment			—				14,558
Foreign currency exchange gain			—				(3,340	)
Derivative loss			—				1,498
Loss on early debt retirement			9				1,143
Lawsuit settlement			—				(94	)
Minority interest			435				959
Amortization of equity compensation			2,429				1,103
Stock option grant expense			47				324
Changes in assets and liabilities:
Escrows and restricted cash			(10,375	)			5,378
Office tenant receivables			(3,001	)			1,382
Other receivables			(588	)			(2,998	)
Deferred rent receivables			(6,176	)			(12,213	)
Prepaid expenses and other assets			(7,168	)			(4,320	)
Accounts payable, accrued liabilities and other liabilities			(25,846	)			(30,547	)
Net cash provided by operating activities			88,440				109,853
Cash Flows from Investing Activities
Real estate:
Acquisitions			(194,148	)			—
Tenant improvements and capital expenditures			(35,530	)			(43,291	)
Tenant leasing costs			(16,775	)			(17,785	)
Dispositions			86,703				377,519
Payment of minority interest			(200	)			(5,123	)
Escrows and restricted cash			(21,457	)			(81,864	)
Unconsolidated real estate joint ventures:
Investments			(3,182	)			(29,570	)
Distributions			3,035				218,887
Net cash (used in) provided by investing activities			(181,554	)			418,773
Cash Flows from Financing Activities
Mortgage debt and other loans:
Property financing			—				120,000
Principal repayments			(39,657	)			(302,918	)
Repaid on dispositions			—				(238,343	)
Draws on credit line			—				230,500
Paydowns on credit line			—				(230,500	)
Financing expenditures			—				(6,613	)
Escrows and restricted cash			28,704				—
Settlement of forward contracts			—				(3,767	)
Issuance of common stock			44,734				9,073
Dividends			(64,649	)			(62,670	)
Net cash used in financing activities			(30,868	)			(485,238	)
Net (Decrease) Increase in Cash and Cash Equivalents			(123,982	)			43,388
Cash and Cash Equivalents, beginning of period			194,265				129,299
Cash and Cash Equivalents, end of period		$	70,283			$	172,687

See accompanying notes to the financial statements.

Trizec Properties, Inc.		Consolidated Statements of Cash Flows (unaudited) (Continued)

		For the six months ended
		June 30,
						2004
						(As Restated,
$ in thousands		2005				See Note 11)
Supplemental Cash Flow Disclosures:
Cash paid during the period for:
Interest (inclusive of interest capitalized)		$	67,203			$	77,229
Taxes		$	15,345			$	7,029
Interest Capitalized		$	417			$	—
Write-off of accounts receivable		$	3,284			$	3,236
Write-off of retired assets		$	19,766			$	17,052
Non-cash investing and financing activities:
Dividends payable on common stock, special voting stock and Class F convertible stock		$	32,401			$	32,402
Mortgage debt and other loans assumed by purchasers upon property dispositions		$	—			$	41,106
Forgiveness of debt upon property disposition		$	—			$	1,237
Changes in accounts due to non-cash contribution into an unconsolidated real estate joint venture:
Investment in unconsolidated real estate joint ventures		$	—			$	48,000
Real estate		$	—			$	(48,000	)
Changes in accounts due to basis differential adjustment in connection with non-cash contribution to an unconsolidated real estate joint venture:
Investment in unconsolidated real estate joint venture		$	—			$	5,148
Deferred rent receivables, net		$	—			$	(1,768	)
Deferred charges, net		$	—			$	(1,195	)
Prepaid expenses and other assets		$	—			$	(2,185	)
In conjunction with property acquisitions, the following assets and liabilities were assumed:
Purchase of real estate		$	194,277			$	—
Prepaid expenses and other assets, net			22				—
Accrued operating expenses and property taxes			(142	)			—
Other accrued liabilities			(9	)			—
		$	194,148			$	—

See accompanying notes to the financial statements.

Notes to the Financial Statements
$ in thousands, except per share amounts

1.

ORGANIZATION AND DESCRIPTION OF THE BUSINESS

		Trizec Properties, Inc. (“Trizec Properties” or the “Corporation,” formerly known as TrizecHahn (USA) Corporation) is a corporation organized under the laws of the State of Delaware and is approximately 39% indirectly owned by Trizec Canada Inc. Effective January 1, 2001, Trizec Properties elected to be taxed as a real estate investment trust (“REIT”) pursuant to Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the “Code”). Prior to May 8, 2002, Trizec Properties was a substantially owned subsidiary of TrizecHahn Corporation (“TrizecHahn”), an indirect wholly-owned subsidiary of Trizec Canada Inc. A plan of arrangement (the “Reorganization”) was approved by the TrizecHahn shareholders on April 23, 2002. On May 8, 2002, the effective date of the Reorganization, the common stock of Trizec Properties commenced trading on the New York Stock Exchange.
		On December 22, 2004, Trizec Properties completed the reorganization of its operating structure by converting to an umbrella partnership real estate investment trust, or UPREIT, structure (the “UPREIT Conversion”). In connection with the UPREIT Conversion, the Corporation formed a new operating entity, Trizec Holdings Operating LLC, a Delaware limited liability company (the “Operating Company”), and entered into a contribution agreement and an assignment and assumption agreement with the Operating Company pursuant to which the Corporation contributed substantially all of its assets to the Operating Company in exchange for (a) a combination of common units, special voting units and Series F convertible units of limited liability company interest in the Operating Company and (b) the assumption by the Operating Company of substantially all of the Corporation’s liabilities. The Corporation now conducts and intends to continue to conduct its business, and owns and intends to continue to own substantially all of its assets, through the Operating Company. As the sole managing member of the Operating Company, the Corporation generally has the exclusive power under the limited liability company agreement to manage and conduct the business of the Operating Company, subject to certain limited approval and voting rights of other members that may be admitted in the future. Currently, the Operating Company is wholly-owned by the Corporation.
		Trizec Properties is a self-managed, publicly traded REIT, headquartered in Chicago, Illinois. At June 30, 2005, the Corporation had ownership interests in a portfolio of 52 office properties concentrated in the metropolitan areas of seven major U.S. cities, comprising approximately 37.3 million square feet of total area. Of the 52 office properties, 45 office properties comprising approximately 30.3 million square feet are consolidated and seven office properties comprising approximately 7.0 million square feet are unconsolidated real estate joint venture properties. Based on owned area, the Corporation’s 52 office properties comprise approximately 33.8 million square feet. At June 30, 2005, the occupancy of the Corporation’s 52 office properties was approximately 87.9% based on total area. Occupancy of the Corporation’s 45 consolidated office properties was approximately 88.2% and occupancy of the Corporation’s seven unconsolidated real estate joint venture properties was approximately 86.5%. Based on owned area, the Corporation’s 52 office properties were approximately 88.0% occupied. Owned area reflects the Corporation’s consolidated office properties and its pro rata share of its unconsolidated real estate joint venture properties based on its economic ownership interest in those unconsolidated real estate joint ventures.

2.

BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

		Basis of Presentation
		The accompanying interim consolidated financial statements as of June 30, 2005 and for the three and six months ended June 30, 2005 and 2004 include the accounts and operating results of the Corporation and its subsidiaries. All significant intercompany transactions have been eliminated.
		The Corporation consolidates certain entities in which it owns less than a 100% equity interest if it is deemed to be the primary beneficiary in a variable interest entity (“VIE”), as defined in Financial Accounting Standards Board Interpretation No. 46R, “Consolidation of Variable Interest Entities — an interpretation of ARB 51” (“FIN No. 46R”). The Corporation also consolidates entities in which it has a

Notes to the Financial Statements
$ in thousands, except per share amounts

2.

BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES, Continued

		Basis of Presentation, Continued
		controlling direct or indirect voting interest. The equity method of accounting is applied to entities in which the Corporation does not have a controlling direct or indirect voting interest, but can exercise influence over the entity with respect to its operations and major decisions. The cost method is applied to entities when (i) the Corporation’s investment is minimal (typically less than 5%) and (ii) the Corporation’s investment is passive.
		The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual amounts will differ from those estimates used in the preparation of these financial statements.
		Interim Financial Statements
		The accompanying interim financial statements and related notes are unaudited; however, the financial statements have been prepared in accordance with GAAP for interim financial information and the rules and regulations of the SEC. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such SEC rules and regulations. In the opinion of management, such financial statements reflect all adjustments necessary for a fair presentation of the financial position, results of operations and cash flows of the Corporation for the interim periods presented. All such adjustments are of a normal recurring nature. The results of operations for the interim periods presented are not necessarily indicative of the results to be obtained for other interim periods or for the full fiscal year. These financial statements should be read in conjunction with the Corporation’s financial statements and notes thereto contained in the Corporation’s 2004 Annual Report on Form 10-K filed with the SEC on March 11, 2005.
		Stock Based Compensation
		Effective July 1, 2003, the Corporation adopted Statement of Financial Accounting Standards No. 123, “Accounting for Stock Based Compensation” (“SFAS No. 123”), as amended by Statement of Financial Accounting Standards No. 148, “Accounting for Stock Based Compensation - Transition and Disclosure” (“SFAS No. 148”). The Corporation is applying the fair value recognition provisions of SFAS No. 123, as amended by SFAS No. 148, prospectively to all employee stock options granted after December 31, 2002. For employee stock option grants accounted for under SFAS No. 123, compensation cost is measured as the fair value of the stock option at the date of grant. This compensation cost is expensed over the vesting period. For employee stock options issued prior to January 1, 2003, the Corporation will continue to account for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB No. 25”), and related interpretations. For employee stock option grants accounted for under APB No. 25, compensation cost is measured as the excess, if any, of the fair value of the Corporation’s common stock at the date of grant over the exercise price of the options granted. This compensation cost, if any, is expensed over the vesting period. Except as detailed in Note 19 of the Corporation’s 2004 Annual Report on Form 10-K with respect to employee stock options that were granted in connection with the Reorganization, the Corporation’s policy is to grant options with an exercise price equal to the fair value of the Corporation’s common stock at the date of the grant. Stock option grant expense of $(12) and $122 was recognized for the three months ended June 30, 2005 and 2004, respectively. Stock option grant expense of $47 and $324 was recognized for the six months ended June 30, 2005 and 2004, respectively.
		In December 2004, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123 (Revised 2004), “Share-Based Payment” (“SFAS No. 123(R)”). SFAS No. 123(R) is a revision of SFAS No. 123 and also supercedes APB No. 25 and its related implementation guidance. SFAS No. 123(R) requires that compensation cost is measured as the fair value of the stock option at the date of grant, eliminates the alternative to use the intrinsic value method of accounting prescribed in APB No. 25,

Notes to the Financial Statements
$ in thousands, except per share amounts

2.

BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES, Continued

		Stock Based Compensation, Continued
		and clarifies and expands the guidance of SFAS No. 123 in several areas. SFAS No. 123(R) is effective as of the beginning of the first annual reporting period that begins after June 15, 2005. SFAS No. 123(R) applies to all awards granted, modified, repurchased, or cancelled after the effective date and the cumulative effect of initially applying SFAS No. 123(R), if any, is to be recognized as of the required effective date. The Corporation will adopt SFAS No. 123(R) commencing as of January 1, 2006 using the modified prospective application method. The Corporation does not expect the requirements of SFAS No. 123(R) to have a material impact on its results of operations, financial position or liquidity.
		The following reconciles net income available to common stockholders to pro forma net income available to common stockholders and presents reported earnings per share (“EPS”) and pro forma EPS, in each case, as if the fair value based method of accounting for employee stock options as prescribed under the provisions of SFAS No. 123 had been applied to all outstanding and unvested employee stock options.

		For the three months ended								For the six months ended
		June 30,								June 30,
		2005				2004				2005				2004
Net income (loss) available to common stockholders, as reported		$	45,191			$	(138,162	)		$	70,478			$	(54,859	)
Add back:
Stock option grant expense, as reported			(12	)			122				47				324
Deduct:
Stock option grant expense, pro forma			12				(217	)			(47	)			(529	)
Net income (loss) available to common stockholders, pro forma		$	45,191			$	(138,257	)		$	70,478			$	(55,064	)
Net income (loss) available to common stockholders per weighted average common share outstanding:
Basic, as reported		$	0.29			$	(0.91	)		$	0.46			$	(0.36	)
Basic, pro forma		$	0.29			$	(0.91	)		$	0.46			$	(0.36	)
Diluted, as reported		$	0.29			$	(0.91	)		$	0.45			$	(0.36	)
Diluted, pro forma		$	0.29			$	(0.91	)		$	0.45			$	(0.36	)

		Recent Accounting Pronouncements
		In March 2005, the Financial Accounting Standards Board issued Interpretation No. 47, “Accounting for Conditional Asset Retirement Obligations — an Interpretation of FASB Statement No. 143” (“FIN 47”). FIN 47 clarifies that the term “conditional asset retirement obligation” as used in Statement of Financial Accounting Standards No. 143, “Accounting for Asset Retirement Obligations” refers to a legal obligation to perform an asset retirement activity in which the timing and/or method of settlement are conditional upon future events that may or may not be within an entity’s control. The obligation to perform the asset retirement activity is unconditional even though uncertainty exists about the timing and/or method of settlement. Accordingly, an entity is required to recognize a liability for the fair value of a conditional asset retirement obligation if the fair value can be reasonably estimated. In addition, the fair value of the liability should be recognized when incurred. Uncertainty about the timing and/or method of settlement of a conditional asset retirement obligation should be factored into the measurement of the liability when sufficient information exists. FIN 47 also clarifies when an entity would have sufficient information to reasonably estimate the fair value of an asset retirement obligation. FIN 47 is effective for fiscal years

Notes to the Financial Statements
$ in thousands, except per share amounts

2.

BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES, Continued

		Recent Accounting Pronouncements, Continued
		ending after December 15, 2005. The Corporation is reviewing the provisions of FIN 47 and assessing the impact, if any, it will have on the Corporation upon adoption.
		In June 2005, the FASB ratified the consensus reached by the Emerging Issues Task Force (“EITF”) regarding EITF 04-5, “Investor’s Accounting for an Investment in a Limited Partnership When the Investor is the Sole General Partner and the Limited Partners Have Certain Rights.” The conclusion provides a framework for addressing the question of when a sole general partner, as defined in EITF 04-5, should consolidate a limited partnership. The EITF has concluded that the general partner of a limited partnership should consolidate a limited partnership unless (1) the limited partners possess substantive kick-out rights as defined in paragraph B20 of FIN 46R, or (2) the limited partners possess substantive participating rights similar to the rights described in Issue 96-16, “Investor’s Accounting for an Investee When the Investor has a Majority of the Voting Interest by the Minority Shareholder or Shareholders Have Certain Approval or Veto Rights.” In addition, the EITF concluded that the guidance should be expanded to include all limited partnerships, including those with multiple general partners. The Corporation will adopt EITF 04-5 as of December 31, 2005. The Corporation is currently assessing all of its investments in unconsolidated real estate joint ventures to determine the impact, if any, the adoption of EITF 04-5 will have on results of operations, financial position or liquidity.
		In June 2005, the FASB ratified the consensus reached by the EITF regarding EITF No. 05-6, “Determining the Amortization Period for Leasehold Improvements.” The guidance requires that leasehold improvements acquired in a business combination, or purchased subsequent to the inception of a lease, be amortized over the lesser of the useful life of the assets or a term that includes renewals that are reasonably assured at the date of the business combination or purchase. The guidance is effective for periods beginning after June 29, 2005. The Corporation does not believe that the adoption of EITF 05-6 will have a significant effect on its financial statements.
		Reclassifications
		Certain reclassifications have been made to the consolidated balance sheet and consolidated statements of operations and cash flows. These reclassifications have not changed the Corporation’s financial position as of December 31, 2004 or consolidated results of operations or cash flows for the three and six months ended June 30, 2004.

3.

REAL ESTATE

The Corporation’s investment in real estate is comprised of:

		June 30,				December 31,
		2005				2004
Properties:
Held for the long term, net		$	3,540,712			$	3,621,634
Held for disposition, net			261,360				94,515
		$	3,802,072			$	3,716,149

Notes to the Financial Statements
$ in thousands, except per share amounts

3.

REAL ESTATE, Continued

Properties — Held for the Long Term

		June 30,				December 31,
		2005				2004
Rental properties:
Land		$	537,937			$	510,662
Buildings and improvements			3,283,644				3,399,132
Tenant improvements			284,817				278,794
Furniture, fixtures and equipment			12,003				9,469
			4,118,401				4,198,057
Less: accumulated depreciation			(602,119	)			(600,853	)
			3,516,282				3,597,204
Properties held for development			24,430				24,430
Properties held for the long term, net		$	3,540,712			$	3,621,634

Properties — Held for Disposition

		June 30,				December 31,
		2005				2004
Rental properties:
Land		$	24,500			$	9,229
Buildings and improvements			277,265				94,863
Tenant improvements			16,902				8,580
			318,667				112,672
Less: accumulated depreciation			(57,307	)			(18,157	)
Properties held for disposition, net		$	261,360			$	94,515

(i) At December 31, 2003, 151 Front Street in Toronto, Ontario was held for disposition subject to the transition rules of Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS No. 144”) and, accordingly, the Corporation accounted for this property pursuant to Statement of Financial Accounting Standards No. 121, “Accounting for the Impairment of Long-Lived Assets to be Disposed Of” (“SFAS No. 121”). On January 15, 2004, the Corporation sold 151 Front Street. Therefore, no properties were held for disposition in accordance with SFAS No. 121 at June 30, 2005 and 2004.

In accordance with SFAS No. 121, the results of operations of 151 Front Street are included, for all periods presented, in the continuing revenues and expenses of the Corporation. The following summarizes the combined condensed results of operations for 151 Front Street through January 15, 2004.

		For the six months ended June 30,
		2005				2004
Total revenues		$	—			$	484
Operating expenses			—				(419	)
Property taxes			—				(75	)
Interest expense			—				(100	)
Loss before gain on disposition of real estate, net		$	—			$	(110	)

Notes to the Financial Statements
$ in thousands, except per share amounts

3.

REAL ESTATE, Continued

Properties Held for Disposition, Continued

(ii)

The table below summarizes the Corporation’s properties designated as held for disposition pursuant to SFAS No. 144.

				Date
				Designated
				as Held for		Provision				Date
Property		Location		Disposition		Taken				Disposed
Hollywood & Highland Retail		Los Angeles, CA		Feb-04		$	142,431			Feb-04
Hollywood & Highland Hotel		Los Angeles, CA		Feb-04			—			Feb-04
1441 Main Street		Columbia, SC		Jun-04			—			Jun-04
St. Louis Place		St. Louis, MO		Jun-04			—			Jun-04
Borden Building		Columbus, OH		Jun-04			22,095			Jul-04
Park Central I		Dallas, TX		Jun-04			2,703			Aug-04
1333 Main Street		Columbia, SC		Jun-04			7,023			Aug-04
3700 Bay Area Blvd.		Houston, TX		Jun-04			—			Sep-04
Lakeside Centre and New Market Business Park		Atlanta, GA		Jun-04			10,261			Dec-04
Bank of America-Columbia		Columbia, SC		Jun-04			3,525			Dec-04
Williams Center I & II		Tulsa, OK		Jun-04			23,051			N/A
Capital Center II & III		Sacramento, CA		Sep-04			—			Sep-04
Silver Spring Centre		Silver Spring, MD		Sep-04			—			Nov-04
Gateway Center		Pittsburgh, PA		Sep-04			40,330			Dec-04
110 William Street		New York, NY		Sep-04			—			Dec-04
250 West Pratt Street		Baltimore, MD		Sep-04			—			Dec-04
Shoreline Square		Long Beach, CA		Sep-04			—			Apr-05
Northstar Center		Minneapolis, MN		Jun-05			—			N/A
Metropolitan Square		St. Louis, MO		Jun-05			—			N/A
Watergate Office Building		Washington, D.C.		Jun-05			—			N/A

		In accordance with SFAS No. 144, the results of operations and gains or losses on disposition, if any, for the seventeen properties previously designated as held for disposition and sold prior to June 30, 2005, for all periods presented, have been reported as discontinued operations. In addition, in accordance with SFAS No. 144, the results of operations of the four properties designated as held for disposition and not sold, for all periods presented, have been reported as discontinued operations.
		The following summarizes the combined condensed results of operations, excluding any gains or losses on disposition, of the seventeen properties previously designated as held for disposition and sold prior to June 30, 2005 and the four properties designated as held for disposition and not sold, through the earlier of their respective disposition dates or the three and six months ended June 30, 2005 and 2004, respectively.

Notes to the Financial Statements
$ in thousands, except per share amounts

3.

REAL ESTATE, Continued

Properties Held for Disposition, Continued

		For the three months ended								For the six months ended
		June 30,								June 30,
		2005				2004				2005				2004
Total revenues		$	13,872			$	44,900			$	29,680			$	103,326
Operating expenses			(6,016	)			(18,921	)			(13,876	)			(43,214	)
Property taxes			(1,189	)			(4,565	)			1,579				(9,453	)
Depreciation and amortization			(2,276	)			(9,806	)			(4,542	)			(20,717	)
Provision for loss on discontinued real estate			—				(118,601	)			—				(118,601	)
Interest and other income			13				38				272				3,245
Interest expense			(1,743	)			(6,305	)			(3,530	)			(14,281	)
Benefit for income and other taxes			62				—				62				—
Income (loss) from discontinued operations		$	2,723			$	(113,260	)		$	9,645			$	(99,695	)

Gain on Disposition of Discontinued Real Estate During the Six Months Ended June 30, 2005 Designated as Held for Disposition Pursuant to SFAS No. 144

														Net
										Rentable				Sales				Gain on
Date Sold		Property				Location				Sq. Ft.				Price				Sale
April 6		Shoreline Square				Long Beach, CA					383,000			$	86,668			$	21,021
														$	86,668			$	21,021

Acquisitions of Real Estate During the Six Months Ended June 30, 2005

Date

Rentable

Purchased

Property

Location

Sq. Ft.

Net Purchase Price

April 28

1200 K Street, N.W.

Washington, D.C.

389,000

$

194,277

$

194,277

		In April 2005, the Corporation acquired 1200 K Street, N.W., located in Washington, D.C., from an unrelated third party for a net purchase price of approximately $194,277. The property was purchased with available cash.
		In accordance with Statement of Financial Accounting Standards No. 141, “Business Combinations” (“SFAS No. 141”), the Corporation allocated the net purchase price of 1200 K Street, N.W. as follows:

Land		$	48,252
Building and improvements			119,689
Tenant improvements			7,114
Leasing commissions			9,748
In-place lease value at market			32,857
Tenant relationship value			19,108
Below market lease value			(42,491	)
		$	194,277

Notes to the Financial Statements
$ in thousands, except per share amounts

4.

UNCONSOLIDATED REAL ESTATE JOINT VENTURES

		The Corporation participates in unconsolidated real estate joint ventures in various operating properties which are accounted for using the equity method. In most instances, these projects are managed by the Corporation.
		The following is a summary of the Corporation’s ownership in unconsolidated real estate joint ventures at June 30, 2005 and December 31, 2004:

				Legal Interest(1)
				June 30,				December 31,
Entity		Property and Location		2005				2004
Marina Airport Building, Ltd.		Marina Towers, Los Angeles, CA			50	%			50	%
Dresser Cullen Venture		Kellogg, Brown & Root Tower, Houston, TX			50	%			50	%
Main Street Partners, L.P.		Bank One Center, Dallas, TX			50	%			50	%
1114 TrizecHahn-Swig, L.L.C.		The Grace Building, New York, NY			50	%			50	%
1411 TrizecHahn-Swig, L.L.C.		1411 Broadway, New York, NY			50	%			50	%
1460 Leasehold TrizecHahn Swig
L.L.C./1460 Fee TrizecHahn Swig L.L.C.		1460 Broadway, New York, NY			50	%			50	%
Trizec Plaza of the Americas, L.P.		Plaza of the Americas, Dallas, TX(2)			50	%			50	%
Waterview L.P.		Waterview Development, Arlington, VA(3)			25	%			25	%

		Unconsolidated Real Estate Joint Venture Financial Information
		The following represents combined summarized financial information of the Corporation’s unconsolidated real estate joint ventures:

Balance Sheet Information

		June 30,				December 31,
		2005				2004
Assets
Real estate, net		$	528,740			$	521,761
Other assets			219,739				214,453
Total assets		$	748,479			$	736,214
Liabilities and equity
Mortgage debt and other loans		$	850,139			$	850,908
Other liabilities			40,134				33,646
Partners’ equity			(141,794	)			(148,340	)
Total liabilities and equity		$	748,479			$	736,214
Corporation’s share of equity		$	(90,103	)		$	(91,486	)
Net excess of cost of investments over the net book value of underlying assets			167,481				167,939
Reclassification of distributions in excess of investments in unconsolidated real estate joint ventures			43,716				43,188
Carrying value of Corporation’s investment in unconsolidated real estate joint ventures		$	121,094			$	119,641
Corporation’s share of mortgage debt		$	419,666			$	420,160

Notes to the Financial Statements
$ in thousands, except per share amounts

4.		UNCONSOLIDATED REAL ESTATE JOINT VENTURES, Continued
		During the six months ended June 30, 2005, the Corporation made contributions to its unconsolidated real estate joint ventures in the aggregate amount of approximately $2,765, capitalized interest on its investment in the Waterview Development in the aggregate amount of approximately $417, and received distributions from its unconsolidated real estate joint ventures in the aggregate amount of approximately $11,612. During the six months ended June 30, 2004, the Corporation made contributions and advances to its unconsolidated real estate joint ventures in the aggregate amount of approximately $77,570, and received distributions from its unconsolidated real estate joint ventures in the aggregate amount of approximately $227,156. The Corporation has received net distributions in excess of its investments in 1114 TrizecHahn-Swig, L.L.C. and 1411 TrizecHahn-Swig, L.L.C. (the “Swig Joint Ventures”). At June 30, 2005 and December 31, 2004, such excess net distributions totaled approximately $43,716 and $43,188, respectively, and have been recorded in other accrued liabilities as the Corporation is committed to provide financial support to the Swig Joint Ventures in the future.
		Income Statement Information

		For the three months ended								For the six months ended
		June 30,								June 30,
		2005				2004				2005				2004
Total Revenues		$	52,472			$	48,397			$	104,672			$	97,477
Expenses
Operating and other			23,877				20,572				48,739				41,540
Depreciation and amortization			5,232				4,796				12,117				10,531
Total Expenses			29,109				25,368				60,856				52,071
Other Income (Expense)
Interest and other income			439				309				742				389
Loss on early debt retirement			—				(10,150	)			—				(10,150	)
Interest expense			(12,368	)			(8,499	)			(23,749	)			(16,733	)
Total Other Expense			(11,929	)			(18,340	)			(23,007	)			(26,494	)
Income before Gain on Disposition of Real Estate			11,434				4,689				20,809				18,912
Gain on disposition of real estate			—				1,080				—				1,080
Net Income		$	11,434			$	5,769			$	20,809			$	19,992
Corporation’s share of net income		$	4,504			$	2,030			$	8,577			$	8,269