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Alexis Nihon REIT Announces Fourth Quarter and 2005 Year-End Results.

MONTREAL -- Acquisitions, expansion projects continue to grow FFO per unit to new high

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

2005 Highlights

- Increased funds from operations 15.3% to new high of $33.6 million

- Increased funds from operations per unit 7.6% to record $1.311 per unit

- Completed acquisitions totalling $75.9 million, increasing total leasable area 19.9% to 8.5 million square feet

- Completed redevelopment project totalling $9.2 million, adding 68,800 square feet of leasable space

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

- Improved distributable income payout ratio to 95.8% from 105.1%

- Maintained an average interest rate of 6.18% on existing mortgages

- Debt(i) to gross book value ratio of 59.7%, below REIT limit of 65.0%

- Ended 2005 with $117 million capacity for acquisitions and investments

(i) Including convertible debentures

Acquisitions of office and industrial properties during 2005 increased leasable area by 19.9%. The new area, combined with redeveloped retail footage, generated new highs with most key metrics.

Fourth quarter revenues advanced 12.7% over the same period in 2004, to a new high of $33.0 million. Distributable income increased 5.2% to $7.7 million, while funds from operations moved up 3.0% to $9.0 million.

For the year, revenues gained 23.0% to a new high of $121.5 million. Distributable income lifted 17.0% to a record $29.5 million, while funds from operations rose 15.2% to a benchmark of $33.6 million, or $1.31 per unit.

"During 2005, Alexis Nihon's acquisitions and redevelopment activities substantially increased the REIT's scale of operations and broadened our geographic presence," 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."

The five properties acquired during 2005 were acquired at capitalization rates that enable the added operations to be immediately accretive to distributable income, noted Guy Charron, Executive Vice President and Chief Operating Officer. "However, the ongoing decline in cap rates, particularly in the retail sector, is making redevelopment of existing properties and new construction increasingly attractive as alternatives."

Rene Fortin, Senior Vice President and Chief Financial Officer, pointed out the REIT's financings completed in 2004, combined with mortgages, term debt and bank credit facilities, enabled the REIT to complete all expansion activities in 2005.

"The REIT's capital structure permitted several expansion initiatives to be completed while increasing funds from operations per unit and distributable income per unit," said Mr. Fortin. "As a result, the REIT finished the year with a strong balance sheet and ample acquisition capacity, while continuing to meet debt obligations and make monthly distributions to unitholders."
Financial Highlights

(thousands of dollars except per-unit amounts)
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Period ended December 31 3 months 12 months
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 2005 2004 2005 2004
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Revenues from rental
 operations $32,981 $29,254 $121,496 $98,750
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Net operating income $16,771 $15,416 $62,830 $51,590
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Distributable income(1) $7,746 $7,363 $29,487 $25,197
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Distributable income
 per unit (diluted)(1) $0.289 $0.280 $1.108 $1.039
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Funds from operations(1) $8,995 $8,730 $33,631 $29,170
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FFO per unit(1) $0.350 $0.342 $1.311 $1.218
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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 Friday, March 3, 2006 at 2 p.m. (ET) to discuss the REIT's fourth quarter performance. The call will be webcast at www.alexisnihon.com and also may be accessed by dialing 1-866-250-4665 or 416-644-3428. A recording of the webcast will be archived until midnight on Friday, March 17, 2006. It will be accessible at www.alexisnihon.com and also by dialing 877-289-8525 or 416-640-1917 and entering passcode 21177132#.

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 8.5 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.
Consolidated Balance Sheets
As at December 31
(in thousands of dollars)

 2005 2004
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Assets

Income-producing properties (note 6) $ 668,746 $ 603,689
Intangible assets (note 7) 39,416 31,904
Land held for development 964 964
Cash and cash equivalents - 10,000
Other assets (note 8) 20,960 16,319
Due from companies under common control
 of certain trustees of the REIT (note 9) 535 250
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 $ 730,621 $ 663,126
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Liabilities

Debts on income-producing properties
 (note 10) $ 370,321 $ 334,674
Convertible debentures - liability
 component (note 11) 53,468 53,338
Intangible liabilities (note 12) 3,203 3,214
Bank indebtedness (note 13) 41,969 808
Accounts payable and accrued liabilities 20,303 10,555
Distributions payable 2,251 2,281
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 491,515 404,870
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Commitments and Contingencies (note 14)

Equity

Unitholders' equity 239,106 258,256
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 $ 730,621 $ 663,126
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See accompanying notes



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

 Other
 Units Net Equity
 in $ Income Components Distributions Total
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Unitholders'
 Equity -
 December 31,
 2004 $ 267,234 $ 34,170 $ 2,852 $ (46,000) $ 258,256
Net income - 6,128 - - 6,128
Units issued
 (note 15) 2,971 - - - 2,971
Distributions - - - (28,249) (28,249)
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Unitholders'
 Equity -
 December 31,
 2005 $ 270,205 $ 40,298 $ 2,852 $ (74,249) $ 239,106
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Unitholders'
 Equity -
 December 31,
 2003 $ 198,107 $ 22,822 $ 1,148 $ (19,527) $ 202,550
Net income - 11,348 - - 11,348
Units issued
 (note 15) 69,127 - - - 69,127
Convertible
 debentures -
 equity
 component - - 1,704 - 1,704
Distributions - - - (26,473) (26,473)
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Unitholders'
 Equity -
 December 31,
 2004 $ 267,234 $ 34,170 $ 2,852 $ (46,000) $ 258,256
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See accompanying notes



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

 2005 2004
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Revenues from Rental Operations (note 16) $ 121,496 $ 98,750
Rental Property Operating Costs 58,666 47,160
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Net Operating Income 62,830 51,590
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Expenses
 Interest (note 17) 26,413 20,184
 Amortization of buildings 15,220 12,849
 Other amortization (note 18) 10,856 4,980
 Internalization of construction management
 company (note 4) 1,613 -
 General and administrative 2,150 1,687
 Trust expenses 450 542
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 56,702 40,242
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Net Income $ 6,128 $ 11,348
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Basic Net Income Per Unit (note 20) $ 0.239 $ 0.474
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Diluted Net Income Per Unit (note 20) $ 0.239 $ 0.474
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See accompanying notes



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

 2005 2004
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Cash Flows generated from (used for) -

Operating Activities

Net income $ 6,128 $ 11,348
Items not affecting cash:
 Amortization of buildings 15,220 12,849
 Other amortization 10,856 4,980
 Amortization of above and below market
 in-place leases (232) (252)
 Amortization of deferred financing costs 655 248
 Amortization of deferred recoverable costs 280 -
 Interest on convertible debentures paid
 by units - 197
 Accrued rental revenue (1,704) (1,899)
 Internalization of construction
 management company 1,613 -
Changes in:
 Other assets (note 24) (3,470) 5,964
 Accounts payable and accrued liabilities 7,857 (1,347)
Additions to tenant improvements and
 leasing costs (9,080) (7,356)
Additions to deferred recoverable costs (1,189) -
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Cash Flows generated from Operating Activities 26,934 24,732
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Financing Activities

Increase in debts on income-producing properties 32,938 102,000
Repayment of debts on income-producing
 properties (12,683) (29,521)
Convertible debentures issued (net of
 issue costs) - 52,644
Amortization of fair value debt adjustment (126) (55)
Accretion on liability component of
 convertible debentures 130 42
Additions to deferred financing costs (613) (642)
Bank indebtedness 41,161 (4,129)
Proceeds of public offering of units (net
 of issue costs) - 56,159
Distributions (26,946) (25,374)
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Cash Flows generated from Financing Activities 33,861 151,124
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Investing Activities

Acquisition of rental properties (note 5) (62,971) (154,594)
Additions to buildings (7,541) (10,184)
Additions to furniture, fixtures and computers (172) (210)
Deposits on potential acquisitions 174 (755)
Due from companies under common control of
 certain trustees of the REIT (285) (113)
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Cash Flows used for Investing Activities (70,795) (165,856)
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(Decrease) Increase in Cash and Cash Equivalents (10,000) 10,000

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



Notes to Consolidated Financial Statements
December 31, 2005 and 2004
(dollar amounts are in thousands, except per unit amounts)



1. Description of the REIT

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

2. Changes in Accounting Policy

(a) Diluted Earnings per share

Effective October 1, 2005 the REIT adopted the Canadian Institute of Chartered Accountants ("CICA") Emerging Issues Committee Abstract ("EIC") No. 155 "The Effect of Contingently Convertible Instruments on the Computation of Diluted Earnings Per Share", retroactively with restatement. The adoption of the pronouncement had no material impact on the Diluted Net Income Per Unit of the REIT for the years ended December 31, 2004 and 2005.

(b) Convertible Debt Instruments

Effective October 17, 2005 the REIT prospectively adopted EIC No. 158 "Accounting for Convertible Debt Instruments". The adoption of the pronouncement has had no material impact on the financial statements.

3. Summary of Significant Accounting Policies

Principles of Consolidation

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

Use of Estimates

The preparation of the consolidated financial statements in conformity with Canadian generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting year. Because of the use of estimates inherent in the financial reporting process, actual results could differ from those estimates. Significant estimates and assumptions made by management include, but are not limited to, the useful lives of long-lived assets, the cash flows expected from the on-going use and disposal of long-lived assets, the discount rates used in determining certain fair value estimates and the fair values of tangible and intangible assets acquired upon the purchase of income-producing properties.

Revenue recognition

The REIT uses the straight-line method of recognizing rental revenue whereby the total amount of rental revenue to be received from leases is accounted for on a straight-line basis over the term of the related agreements. Percentage rents are recognized when the required level of sales has been achieved. Recoveries from tenants for taxes, insurance and other operating expenses are recognized as revenues in the period in which the applicable costs are incurred. Recoveries for repair and maintenance costs (deferred recoverable costs) are recognized on a straight-line basis over the expected life of the items. Parking and other incidental are recognized when the services are provided.

Income-Producing Properties

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

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

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

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

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

Intangible Assets and Liabilities

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

Land held for development

Land held for development is carried at cost. The cost includes the purchase price of the land plus other acquisition-related costs.

Impairment of Long-Lived Assets

Long-lived assets, which include income-producing properties, intangibles, land held for development and furniture, fixtures and computers, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Impairment is assessed by comparing the carrying amount of an asset with the expected future net undiscounted cash flows from its use together with its residual value. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds their fair value.

Cash and Cash Equivalents

Cash and cash equivalents consist primarily of unrestricted cash and highly liquid investments having an initial maturity of three months or less.

Deferred Financing Costs

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

Income Taxes

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

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

Unit-Based Compensation Plans

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

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

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

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

4. Business Acquisition

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

The acquisition has been recorded at the exchange amount, which is the amount of the consideration established and agreed to by the related parties. The purchase price has been allocated as follows:
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Furniture and fixtures 25
Internalization of construction management expense 1,613
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Consideration paid $ 1,638
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The net income of the acquired company has been included in the consolidated statement of net income from the date of acquisition.

5. Acquisition of Rental Properties

During the year the REIT acquired five income-producing properties and related assets and liabilities (2004 - land held for development, 17 income-producing properties and related assets and liabilities). The following table summarizes the net assets acquired:
Office Industrial Total Total
 Property Properties 2005 2004
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Land held for development $ - $ - $ - $ 964
Land 2,955 12,022 14,977 32,763
Building 17,310 30,907 48,217 107,227
Tenant improvements - - - 1,139
Intangible assets and
 liabilities:
 Lease origination costs
 for in-place leases 4,865 11,052 15,917 33,430
 Above market in-place
 leases 439 - 439 1,780
 Below market in-place
 leases (570) (164) (734) (3,650)
Other assets - - - 2,765
Accounts payable and
 accrued liabilities - - - (1,471)
Debts on income-producing
 properties (7,749) (7,769) (15,518) (20,353)
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Cash consideration paid
 for the net assets
 acquired $ 17,250 $ 46,048 $ 63,298 $ 154,594
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The results of operations of income-producing properties are included in the consolidated financial statements from their date of acquisition.
6. Income-Producing Properties

 2005 2004
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 Net Net
 Accumulated Carrying Carrying
 Cost Amortization Amount Amount
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Land $ 127,935 $ - $ 127,935 $ 112,952
Building and tenant
 improvements 573,025 37,934 535,091 487,295
Leasing costs 4,798 957 3,841 2,345
Tenant improvement
 recorded on
 acquisitions 1,139 169 970 1,097
Deferred recoverable
 costs $ 1,189 $ 280 $ 909 $ -
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 $ 708,086 $ 39,340 $ 668,746 $ 603,689
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7. Intangible Assets

 2005 2004
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 Net Net
 Accumulated Carrying Carrying
 Cost Amortization Amount Amount
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Lease origination costs
 for in-place leases $ 49,347 $ 11,453 $ 37,894 $ 30,308
Above market in-place
 leases 2,219 697 1,522 1,596
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 $ 51,566 $ 12,150 $ 39,416 $ 31,904
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8. Other Assets

 2005 2004
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Accounts receivable $ 5,345 $ 2,824
Deferred rent receivable 3,602 1,899
Prepaids 1,386 1,412
Deposits on potential acquisitions 581 755
Restricted funds 6,088 5,593
Furniture, fixtures and computers 725 714
Deferred financing costs 3,080 3,122
Other 153 -
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 $ 20,960 $ 16,319
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Restricted funds held at Canadian financial institutions are pursuant to agreements with various mortgage lenders. Furniture, fixture and computers are net of accumulated amortization of $527 (December 31, 2004 - $340). Deferred financing costs are net of accumulated amortization of $901 (December 31, 2004 - $413)

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

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

 2005 2004
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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 $368,225 $ 332,675
Accrued interest 1,874 1,739
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 370,099 334,414

Fair value debt adjustment (note 17) 222 260
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 $ 370,321 $ 334,674
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Principal repayments of debt on income-producing properties are due
as follows:

 Instalments Due on
 payments maturity Total
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2006 $ 10,251 $ 20,895 $ 31,146
2007 9,676 79,326 89,002
2008 7,447 50,034 57,481
2009 5,617 47,064 52,681
2010 5,656 22,745 28,401
Subsequent to 2010 35,824 73,690 109,514
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 74,471 293,754 368,225

Accrued interest 1,874
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 $ 370,099
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11. Convertible Debentures

On August 31, 2004, the REIT issued $55 million principal amount of Series A subordinated unsecured convertible debentures (the "2004 Convertible Debentures") at a price of $1,000 per convertible debenture. The 2004 Convertible Debentures bear interest at 6.2% per annum payable semi-annually and will mature June 30, 2014. The 2004 Convertible Debentures will be convertible, subject to certain restrictions, in whole or in part, at the holders' option, at any time prior to June 27, 2014 into 73.2601 units per $1 000 of face value (in aggregate, 4.029 million units), subject to an anti-dilution adjustment, representing a conversion price of $13.65 per unit. Provided that the REIT is not in default at date of payments, the REIT may elect, at its option, to satisfy any obligation to pay the principal amount on maturity or the redemption date, by delivering units of the REIT. The number of units to be issued will be determined by dividing the principal amount of the 2004 Convertible Debentures that are to be redeemed or that are to mature, by 95% of the volume-weighted average trading price of the units of the REIT on the Toronto Stock Exchange (the "TSX") for the 20 consecutive trading days ending on the fifth trading day preceding the date of payment. In addition, units of the REIT may be issued to pay interest on the 2004 Convertible Debentures. The 2004 Convertible Debentures are not redeemable prior to June 30, 2008, except in the event of a change of control. On or after June 30, 2008 and prior to June 30, 2010, the 2004 Convertible Debentures may be redeemed by the REIT, in whole or in part, at a redemption price equal to the principal amount thereof plus accrued and unpaid interest, provided that the volume-weighted average trading price of the Units on the TSX for the 20 consecutive trading days ending on the fifth trading day preceding the date on which notice of redemption is given exceeds 125% of the conversion price. On or after June 30, 2010 and prior to June 30, 2014, the 2004 Convertible Debentures may be redeemed by the REIT at any time at a redemption price equal to the principal amount thereof plus accrued and unpaid interest.

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

 2005 2004
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 Net Net
 Accumulated Carrying Carrying
 Cost Amortization Amount Amount
---------------------------------------------------------------------

Below market in-place leases $ 4,384 $ 1,181 $ 3,203 $ 3,214
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13. 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 total net carrying amount of $46,149 and a second ranking hypothec on two income-producing properties having a total net carrying amount of $243,201. The terms of the banking agreement require the REIT to meet certain financial covenants.

14. Commitments and Contingencies

(a) The annual future payments required under emphyteutic leases, expiring from 2046 to 2065, on land for two income-producing properties and a portion of a third income-producing property having a total net carrying value of $43,664 (2004 - $42,994), are as follows:
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2006 $ 411
2007 415
2008 416
2009 416
2010 416
Subsequent to 2010 16,717



(b) The REIT is committed to payments under various service agreements for the maintenance of an income-producing property, expiring from 2006 to 2012. The estimated minimum payments required under these agreements are approximately as follows:
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2006 $ 2,017
2007 529
2008 498
2009 447
2010 447
Subsequent to 2010 728



(c) Letters of guarantee outstanding as at December 31, 2005 amount to $5,000 (2004 - $2,000). This amount has been given as a performance guarantee to execute required repairs under a mortgage agreement.

15. Units Issued and Outstanding

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

Changes to the balance of units issued and outstanding were as follows:
2005 2004
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 Number Number
 of units Amounts of units Amounts
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Balance - beginning of
 year 25,515,935 $ 267,234 20,091,900 $ 198,107
Issuance of units:
 Offerings - - 4,300,000 56,159
 Internalization of
 construction
 management (note 4) 132,743 1,638 - -
 Distribution reinvestment
 plan 105,417 1,333 51,531 621
 Interest on convertible
 debenture - - 16,061 197
 Conversion of convertible
 debenture - - 1,056,443 12,150
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Balance - end of year 25,754,095 $ 270,205 25,515,935 $ 267,234
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Distribution Reinvestment Plan

The REIT maintains a distribution reinvestment plan pursuant to which unitholders may elect to have all cash distributions of the REIT automatically reinvested in additional units. The plan gives to the reinvestment plan participants a number of units amounting to 103% of their cash distribution. During the year, 105,417 units (2004 - 51,531) have been issued at a weighted average price of $12.64 (2004 - $12.05) pursuant to the distribution reinvestment plan.

Unit-Based Compensation Plans

a) Unit Option Plan

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

b) Employee Unit Purchase Plan (EUPP)

The REIT has in effect an EUPP which gives eligible employees the opportunity to acquire units of the REIT for between 2% to 5% of their gross salaries and to have the REIT contribute, a further amount equal to 50% of the amount invested by the employees, over the following five years. The contributions are used to purchase units of the REIT in the open market.

c) Unit Bonus Plan

In 2005, the REIT adopted a Unit Bonus Plan (the "Plan") which provides for the grant of Trust Units to key executives and any other employees designated by the board of directors of the REIT, up to a maximum of 40% of their overall bonus. Annually, the REIT contributes the amount of the bonus to be rendered under the 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.

In 2005, the REIT recorded a total compensation expense of $73 (December 31, 2004 - $1) for the various plans.
16. Revenues From Rental Operations

 2005 2004
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Rental revenue contractually due under
 the leases $ 119,560 $ 96,599
Accrued rental revenue 1,704 1,899
Amortization of above market in-place leases (513) (184)
Amortization of below market in-place leases 745 436
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 $ 121,496 $ 98,750
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---------------------------------------------------------------------


17. Interest

 2005 2004
---------------------------------------------------------------------
---------------------------------------------------------------------

Interest on debts on income-producing
 properties, at stated rate $ 21,353 $ 18,104
Interest on convertible debentures, at
 stated rate 3,410 1,421
Accretion on liability component of
 convertible debentures 130 42
Amortization of deferred financing costs 655 248
Amortization of fair value debt adjustment (126) (55)
Other interest 991 424
---------------------------------------------------------------------
 $ 26,413 $ 20,184
---------------------------------------------------------------------
---------------------------------------------------------------------



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

Interest paid during the year was $25,619 (2004 - $19,206).
18. Other Amortization

 2005 2004
---------------------------------------------------------------------
---------------------------------------------------------------------

Amortization of tenant improvements and leasing
 costs incurred through leasing activities $ 2,212 $ 1,612
Amortization of furniture, fixtures and
 computers 186 204
Amortization of lease origination costs for
 in-place leases incurred through acquisitions 8,331 3,122
Amortization of tenant improvements incurred
 through acquisitions 127 42
---------------------------------------------------------------------
 $ 10,856 $ 4,980
---------------------------------------------------------------------
---------------------------------------------------------------------



19. Income Taxes

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

The REIT's subsidiaries are Canadian-based enterprises which are subject to tax on their taxable income under the Income Tax Act (Canada) at an average rate of approximately 31%. There is no provision required for the years ended December 31, 2005 and 2004.
20. Net Income Per Unit Calculations

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

 2005 2004
---------------------------------------------------------------------
 Basic Diluted Basic Diluted
---------------------------------------------------------------------
Net income $ 6,128 $ 6,128 $ 11,348 $ 11,348
---------------------------------------------------------------------
---------------------------------------------------------------------
Weighted average number
 of units outstanding 25,661,055 25,661,055 23,942,455 23,942,455
---------------------------------------------------------------------
---------------------------------------------------------------------



Convertible debentures have been excluded from the calculations of the diluted net income per unit for the year ended December 31, 2005 and 2004 since they are anti-dilutive.

21. Distributable Income

Distributable income is presented because the REIT believes this measure is a relevant measure of its ability to earn and distribute cash returns to unitholders. Distributable income, which is not defined within Canadian generally accepted accounting principles, has been calculated in accordance with the terms of the Contract of Trust as follows:
2005 2004
---------------------------------------------------------------------

Net income $ 6,128 $ 11,348
Add (deduct)
 Internalization of construction management
 company 1,613 -
 Amortization of buildings 15,220 12,849
 Amortization of amounts recorded on
 acquisitions:
 Tenant improvements 127 42
 Lease origination costs for in-place leases 8,331 3,122
 Above and below market in-place leases (232) (252)
 Accretion on liability component of
 convertible debentures 130 42
 Amortization of fair value debt adjustments (126) (55)
 Accrued rental revenue (1,704) (1,899)
---------------------------------------------------------------------
Distributable income $ 29,487 $ 25,197
---------------------------------------------------------------------
---------------------------------------------------------------------



22. Investments in Co-Owned Properties

The REIT'S pro-rata share of the assets and liabilities of the Co-Owned Properties as at December 31, 2005 and 2004, as well as its proportionate share in the revenues, expenses and cash flows for the years then ended are as follows:
2005 2004
---------------------------------------------------------------------

Income-producing properties $ 8,715 $ 8,834
Debts on income-producing properties 4,177 4,443
Accounts payable and accrued liabilities 168 125

Revenues 1,361 1,427
Expenses 1,266 1,239
Net income 95 188

Cash flows from:
 Operating activities 382 344
 Financing activities (266) (244)
 Investing activities (116) (100)
---------------------------------------------------------------------
---------------------------------------------------------------------



23. Segmented Information

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

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

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

The REIT utilizes the same accounting policies for its segments as those described in note 3.
Multi-family
2005 Office Retail Industrial residential Total
---------------------------------------------------------------------

Revenues from
 rental
 operations $ 59,821 $ 34,274 $ 22,053 $ 5,348 $ 121,496

Rental property
 operating costs 31,283 15,731 8,348 3,304 58,666
---------------------------------------------------------------------

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

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

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

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

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


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

Revenues from
 rental
 operations $ 52,181 $ 28,374 $ 12,884 $ 5,311 $ 98,750

Rental property
 operating costs 26,143 12,838 4,994 3,185 47,160
---------------------------------------------------------------------

Net operating
 income $ 26,038 $ 15,536 $ 7,890 $ 2,126 $ 51,590
---------------------------------------------------------------------

Income-producing
 properties $ 291,564 $ 174,997 $ 103,991 $ 33,137 $ 603,689
---------------------------------------------------------------------

Intangible
 assets $ 12,979 $ 12,382 $ 6,543 $ - $ 31,904
---------------------------------------------------------------------

Additions to
 income-producing
 properties $ 63,858 $ 43,370 $ 51,278 $ 163 $ 158,669
---------------------------------------------------------------------

Additions to
 intangible
 assets $ 13,830 $ 13,257 $ 8,123 $ - $ 35,210
---------------------------------------------------------------------
---------------------------------------------------------------------


24. Supplemental Cash Flow Information

Change in Other Assets

 2005 2004
---------------------------------------------------------------------
---------------------------------------------------------------------
Accounts receivable $ (2,848) $ 868
Prepaids 26 (467)
Restricted funds (495) 5,563
Other (153) -
---------------------------------------------------------------------

 $ (3,470) $ 5,964
---------------------------------------------------------------------
---------------------------------------------------------------------



25. Related Party Transactions

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

Head Lease

In order to provide unitholders of the REIT with stable, predictable revenues in respect of certain vacant spaces that are expected to be leased in the near term, the head lessee, a company under common control of certain trustees of the REIT, entered into the head lease with the REIT. The head lease is for a term of ten years and applies to approximately 68,165 (2004 - 166,661) square feet of leasable area of the income-producing properties at specified market rental rates. For 2005, the head lease revenue amounted to $1,332 (2004 - $2,248).

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

Other

Accounts payable and accrued liabilities include $Nil (2004 - $896) due to companies under common control of certain trustees of the REIT.

26. Financial Instruments

Credit Risk

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

Interest Rate Risk

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

Fair Value of Financial Instruments

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

The fair value of the debts on income-producing properties at December 31, 2005 and 2004 has been established by discounting the future cash flows using interest rates corresponding to that which the REIT would currently be able to obtain for loans with similar maturity dates and terms. Based on these assumptions, the fair value of debts on income-producing properties at December 31, 2005 has been estimated at $378,750 (2004 - $344,645) compared with the carrying value of $368,447 (2004 - $332,935).

The fair value of the 2004 convertible debentures as at December 31, 2005 is $56,100 (2004 - $55,000) compared with the carrying value of $55,172 (2004 - $55,042) . The fair values are based on the 2004 convertible debentures' market rates at December 31, 2005 and 2004.

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

27. Comparative Figures

Certain reclassifications of 2004 amounts have been made to facilitate comparison with the current year.

28. Subsequent Event

Subsequent to year end, the REIT put in place conventional first mortgage loans on twelve income-producing properties totaling $38,934. In addition, the REIT repaid a mortgage loan on an additional property in the amount of $7,131.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
 FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 FOR THE YEAR ENDED DECEMBER 31, 2005




The following discussion describes the business, the business environment, and management's expectations as at February 28, 2006. It should be read in conjunction with the consolidated financial statements of the Alexis Nihon Real Estate Investment Trust ("the REIT") for the years ended December 31, 2005, and 2004, as well as the notes thereto.

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

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

OVERVIEW AND OBJECTIVES

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

The REIT units and convertible debentures 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.

2005 OVERVIEW

On January 1st, 2005, the REIT acquired the operations of ANC Construction Inc., the REIT's construction management business for renovations and leasehold improvements, principally in respect to properties owned by the REIT. ANC Construction Inc. was a company indirectly controlled by Paul J. Massicotte, the REIT's president and CEO, and Robert A. Nihon, chairman of the REIT's Board of Trustees. The purchase price of $1.6 million was paid through the issuance of 132,743 units of the REIT on March 31, 2005.

On February 2nd, 2005, the REIT announced the acquisition of a 225,600 square foot, 98% leased, industrial property in Boucherville, Quebec for $8.4 million representing an initial capitalization rate of approximately 11.1%.

On April 26, 2005, the REIT announced an expansion of $9.2 million at its Centre Laval shopping centre located in Laval. Plans called for a 68,830 square foot expansion of which 38,705 square feet is occupied by Best Buy and 14,900 square feet is occupied by Ares both of whose stores opened in mid-October 2005. When fully leased, the expansion space is expected to generate approximately $1.0 million annually in net operating income.

On June 17, 2005, the REIT announced the acquisition of a 953,604 square foot, 100% leased, portfolio of three industrial properties in Montreal, Quebec for $43.1 million representing a capitalization rate of approximately 8.8%.

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 December 31, 2005, the REIT's portfolio consisted of 55 office, retail and industrial properties (including a 426-unit multi-family residential property) aggregating 8.5 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 - 1,488,005 -
Industrial 24 7(2) 3,300,722 410,417
Residential -(1) - 300,321 -
---------------------------------------------------------------------
Total 48 7 8,076,725 410,417
---------------------------------------------------------------------
---------------------------------------------------------------------



(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 years 2005 and 2004, in total and by quarter, are summarized in the following table:
2005
 ----------------------------------------------------
 Total Dec. Sept. June March

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

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

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

 56,702 14,882 14,253 13,397 14,170
---------------------------------------------------------------------

Net Income 6,128 1,889 1,816 2,008 415
Add/(Deduct):
 Amortization of
 buildings 15,220 4,041 3,903 3,653 3,623
 Internalization
 of
 construction
 management 1,613 - - - 1,613
 Amortization
 of amounts
 recorded on
 acquisitions:
 Tenant
 improvements 127 32 32 31 32
 Lease
 origination
 costs for
 in-place
 leases 8,331 2,293 2,209 1,949 1,880
 Above and
 below
 market
 in-place
 leases (232) (53) (56) (65) (58)
 Accretion on
 liability
 component of
 convertible
 debentures 130 33 33 33 31
 Amortization
 of fair value
 debt
 adjustments (126) (23) (37) (33) (33)
 Accrued rental
 revenue
 recognized
 on a
 straight-line
 basis (1,704) (466) (360) (416) (462)
---------------------------------------------------------------------
Distributable
 Income (1) $ 29,487 $ 7,746 $ 7,540 $ 7,160 $ 7,041
---------------------------------------------------------------------
---------------------------------------------------------------------

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

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

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

Distributable
 income per
 unit:
Basic $ 1.149 $ 0.301 $ 0.293 $ 0.279 $ 0.276
Diluted $ 1.108 $ 0.289 $ 0.282 $ 0.270 $ 0.267
---------------------------------------------------------------------
---------------------------------------------------------------------
Total Assets $ 730,621 $ 730,621 $ 734,089 $ 710,104 $ 661,068
Total Debt(3) $ 465,758 $ 465,758 $ 465,354 $ 439,422 $ 390,247
---------------------------------------------------------------------
---------------------------------------------------------------------

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


 2004
 ----------------------------------------------------
 Total Dec. Sept. June March

Revenues from
 rental
 operations $ 98,750 $ 29,254 $ 25,425 $ 23,281 $ 20,790
Rental property
 operating costs 47,160 13,838 11,266 11,073 10,983
---------------------------------------------------------------------

Net operating
 income 51,590 15,416 14,159 12,208 9,807
---------------------------------------------------------------------

Interest 20,184 6,257 5,458 4,347 4,122
Amortization
 of buildings 12,849 3,632 3,373 3,134 2,710
Other
 amortization 4,980 2,532 1,509 741 198
Internalization
 of construction
 management - - - - -
General and
 administrative 1,687 312 606 463 306
Trust 542 49 138 248 107
---------------------------------------------------------------------

 40,242 12,782 11,084 8,933 7,443
---------------------------------------------------------------------
Net Income 11,348 2,634 3,075 3,275 2,364

Add/(Deduct):
 Amortization of
 buildings 12,849 3,632 3,373 3,134 2,710
 Internalization
 of construction
 management - - - - -
 Amortization of
 amounts recorded
 on acquisitions:
 Tenant
 improvements 42 7 35 - -
 Lease origination
 costs for
 in-place
 leases 3,122 1,742 866 514 -
 Above and below
 market
 in-place
 leases (252) (153) (59) (40) -
 Accretion on
 liability
 component of
 convertible
 debentures 42 42 - - -
 Amortization of
 fair value
 debt
 adjustments (55) (33) (22) - -
 Accrued rental
 revenue
 recognized
 on a
 straight-line
 basis (1,899) (508) (507) (616) (268)
---------------------------------------------------------------------
Distributable
 Income (1) $ 25,197 $ 7,363 $ 6,761 $ 6,267 $ 4,806
---------------------------------------------------------------------
---------------------------------------------------------------------

Distributions $ 26,473 $ 7,017 $ 7,013 $ 6,913 $ 5,530
Distributions
 per unit $ 1.100 $ 0.275 $ 0.275 $ 0.275 $ 0.275
---------------------------------------------------------------------
---------------------------------------------------------------------

Funds from
 operations(1) $ 29,170 $ 8,730 $ 7,910 $ 7,105 $ 5,425
Funds from
 Operations
 per unit $ 1.218 $ 0.342 $ 0.310 $ 0.288 $ 0.270
---------------------------------------------------------------------
---------------------------------------------------------------------

Net income
 per unit:
Basic $ 0.474 $ 0.103 $ 0.121 $ 0.133 $ 0.118
Diluted(2) $ 0.474 $ 0.103 $ 0.121 $ 0.133 $ 0.118
---------------------------------------------------------------------
---------------------------------------------------------------------

Distributable
 income
 per unit:
Basic $ 1.052 $ 0.289 $ 0.265 $ 0.254 $ 0.239
Diluted $ 1.039 $ 0.280 $ 0.263 $ 0.253 $ 0.237
---------------------------------------------------------------------
---------------------------------------------------------------------
Total Assets $ 663,126 $ 663,126 $ 670,814 $ 564,405 $ 479,803
Total Debt(3) $ 388,820 $ 388,820 $ 392,627 $ 288,014 $ 268,540
---------------------------------------------------------------------
---------------------------------------------------------------------

Weighted
 average
 number of
 units:
Basic 23,942,455 25,506,516 25,494,379 24,637,663 20,096,970
Diluted
 (for
 net income) 23,942,455 25,506,516 25,494,379 24,637,663 20,096,970
Diluted
 (for
 distributable
 income) 25,663,683 29,535,822 26,808,283 25,102,034 21,153,413
---------------------------------------------------------------------
---------------------------------------------------------------------



(1) Distributable income and Funds from operations are non-GAAP measures, see definition on pages 8 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 2005. The 2005 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 and ii) the issuance of units on the acquisition of ANC Construction Inc. in March 2005 and in 2004 to: 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 and iv) the conversion of the 2002 Convertible Debenture in May 2004 into units of the REIT.

NET OPERATING INCOME

The quarter over quarter ("QOQ") and year to date ("YTD") analysis by sector of the REIT's net operating income ("NOI") is explained in greater detail in the following section entitled "Segmented Analysis". In summary, for the year ended December 31, 2005, NOI totaled $62,830 which was an increase of $11,240 or 21.8% over the same period last year.

Of the increase, $11,075 is attributable to the NOI generated from the acquisition of 22 properties acquired at various times in 2004 (17 properties) and 2005 (5 properties). In total, 5 office, 2 retail, and 15 industrial properties were acquired during this time representing 3,530,760 square feet.

Had these properties been excluded from the 2005 NOI, the same property NOI for the year 2005 would have totaled $51,755 reflecting a positive variance of $165 or 0.3% over 2004.
Three months ended Year ended
Same property YOY -----------------------------------------
 NOI variance March June Sept. Dec. Dec. 31, 2005
---------------------------------------------------------------------
- Increase (decrease) in
 straight-lining of rents $194 ($199) ($147) ($43) ($195)
- Increase (decrease) in
 amortization of above and
 below market in-place
 leases 58 25 (4) (98) (19)
- Net positive (negative)
 variance associated with
 occupancies and
 redevelopment 685 (48) (328) (1) 308
- (Increase) decrease in
 non-recoverable and bad
 debt expense (365) 443 (89) (212) (223)
- Increase in cancellation
 penalties received - 8 240 - 248
- Positive (negative)
 variance in other income 193 95 (111) (48) 129
- Net increase (decrease)
 in the residential sector
 NOI 111 32 (150) (76) (83)
---------------------------------------------------------------------
Net variance $876 $356 ($589) ($478) $165
---------------------------------------------------------------------
---------------------------------------------------------------------



Excluding the YOY impact of straight-lining of rents and other accounting changes, the same property portfolio reflected an increase of $379 or 0.7%.
SEGMENTED ANALYSIS

Office Three months ended
 -------------------------------------------------
 Mar. 31 June 30 Sept. 30
 -------------------------------------------------
 2005 2004 2005 2004 2005 2004
 -------------------------------------------------
Revenues from
 rental operations $14,458 $11,660 $14,243 $12,926 $14,848 $12,895
Rental property
 operating costs 7,792 6,184 6,897 6,203 7,809 6,270
 -------------------------------------------------
Net operating
 income $6,666 $5,476 $7,346 $6,723 $7,039 $6,625
 -------------------------------------------------
 -------------------------------------------------


Office Three months ended Year ended
 ------------------------------------------------
 Dec. 31 Dec. 31
 ------------------------------------------------
 2005 2004 2005 2004
 ------------------------------------------------
Revenues from rental
 operations $16,272 $14,700 $59,821 $52,181
Rental property
 operating costs 8,785 7,486 31,283 26,143
 ------------------------------------------------
Net operating income $7,487 $7,214 $28,538 $26,038
 ------------------------------------------------
 ------------------------------------------------



Net operating income from office rental operations totaled $28,538 for the year compared with $26,038 in 2004 representing an increase of $2,500 or 9.6%. The positive variance for the year is summarized as follows:
Three months ended Year ended
Same property YOY -----------------------------------------
 NOI variance March June Sept. Dec. Dec. 31, 2005
---------------------------------------------------------------------
- NOI contribution from
 properties acquired $1,546 $684 $635 $628 $3,493
- Decrease in
 straight-lining or
 rents (44) (83) (121) (18) (266)
- Increase in
 amortization of above
 and below market
 in-place leases 20 20 22 2 64
- (Negative) positive
 variance associated
 with occupancies (97) (484) (190) 144 (627)
- (Negative) positive
 variances in
 non-recoverable
 and bad debt expense (288) 487 (51) (256) (108)
- (Decrease) increase in
 cancellation penalties
 received (10) 8 69 - 67
- Positive (negative)
 variance in other
 income 63 (9) 50 (227) (123)
---------------------------------------------------------------------
Net positive variance $1,190 $623 $414 $273 $2,500
---------------------------------------------------------------------
---------------------------------------------------------------------



Retail Three months ended
 -------------------------------------------------
 Mar. 31 June 30 Sept. 30
 -------------------------------------------------
 2005 2004 2005 2004 2005 2004
 -------------------------------------------------
Revenues from
 rental operations $8,478 $5,689 $8,290 $6,666 $8,325 $7,437
Rental property
 operating costs 3,850 3,008 3,819 3,118 3,795 3,018
 -------------------------------------------------
Net operating
 income $4,628 $2,681 $4,471 $3,548 $4,530 $4,419
 -------------------------------------------------
 -------------------------------------------------


Retail Three months ended Year ended
 ------------------------------------------------
 Dec. 31 Dec. 31
 ------------------------------------------------
 2005 2004 2005 2004
 ------------------------------------------------
Revenues from rental
 operations $9,181 $8,582 $34,274 $28,374
Rental property
 operating costs 4,267 3,694 15,731 12,838
 ------------------------------------------------
Net operating income $4,914 $4,888 $18,543 $15,536
 ------------------------------------------------
 ------------------------------------------------



For the year 2005, the retail sector net operating income totaled $18,543 compared with $15,536 in 2004. The YOY positive variance of $3,007 or 19.4% is detailed as follows:
Three months ended Year ended
Same property YOY -----------------------------------------
 NOI variance March June Sept. Dec. Dec. 31, 2005
---------------------------------------------------------------------
- NOI contribution from
 properties acquired $957 $625 $353 $ - $1,935
- Increase (decrease) in
 straight-lining of rents 190 (147) (76) (96) (129)
- Increase (decrease) in
 amortization of above
 and below market
 in-place leases 69 29 10 (103) 5
- Net positive (negative)
 variance associated with
 occupancies and
 redevelopment 704 419 (91) 85 1,117
- Increase in cancellation
 penalties received - - 33 - 33
- Positive (negative)
 variance in other
 income 27 (3) (118) 140 46
---------------------------------------------------------------------
Net positive variance $1,947 $923 $111 $26 $3,007
---------------------------------------------------------------------
---------------------------------------------------------------------



Industrial Three months ended
 -------------------------------------------------
 Mar. 31 June 30 Sept. 30
 -------------------------------------------------
 2005 2004 2005 2004 2005 2004
 -------------------------------------------------
Revenues from rental
 operations $4,752 $2,160 $4,959 $2,364 $6,108 $3,721
Rental property
 operating costs 1,949 887 1,895 919 2,126 1,275
 -------------------------------------------------
Net operating income $2,803 $1,273 $3,064 $1,445 $3,982 $2,446
 -------------------------------------------------
 -------------------------------------------------


Industrial Three months ended Year ended
 ------------------------------------------------
 Dec. 31 Dec. 31
 ------------------------------------------------
 2005 2004 2005 2004
 ------------------------------------------------
Revenues from rental
 operations $6,234 $4,639 $22,053 12,884
Rental property
 operating costs 2,378 1,913 8,348 4,994
 ------------------------------------------------
Net operating income $3,856 $2,726 $13,705 $7,890
 ------------------------------------------------
 ------------------------------------------------



The industrial sector reflects a YOY positive variance of $5,815 or 73.7%. Net operating income for the year totaled $13,705 compared with the $7,890 in 2004. The contributing factors include:
Three months ended Year ended
Same property YOY -----------------------------------------
 NOI variance March June Sept. Dec. Dec. 31, 2005
---------------------------------------------------------------------
- NOI contribution from
 properties acquired $1,399 $1,532 $1,511 $1,205 $5,647
- Impact of
 straight-lining or
 rents 48 31 50 71 200
- (Decrease) increase
 in amortization of
 above and below market
 in-place leases (31) (24) (36) 3 (88)
- Net positive (negative)
 variance associated
 with occupancies 78 17 (47) (230) (182)
- Increase in cancellation
 penalties received 10 - 138 - 148
- (Increase) decrease in
 non-recoverable and bad
 debt expense (77) (44) (37) 44 (114)
- Positive (negative)
 variance in other
 income 103 107 (43) 37 204
---------------------------------------------------------------------
Net positive variance $1,530 $1,619 $1,536 $1,130 $5,815
---------------------------------------------------------------------
---------------------------------------------------------------------



Residential Three months ended
 -------------------------------------------------
 Mar. 31 June 30 Sept. 30
 -------------------------------------------------
 2005 2004 2005 2004 2005 2004
 -------------------------------------------------
Revenues from rental
 operations $1,300 $1,281 $1,364 $1,325 $1,390 $1,372
Rental property
 operating costs 812 904 840 833 872 703
 -------------------------------------------------
Net operating income $488 $377 $524 $492 $518 $669
 -------------------------------------------------
 -------------------------------------------------


Residential Three months ended Year ended
 ------------------------------------------------
 Dec. 31 Dec. 31
 ------------------------------------------------
 2005 2004 2005 2004
 ------------------------------------------------
Revenues from rental
 operations $1,294 $1,333 $5,348 $5,311
Rental property
 operating costs 780 745 3,304 3,185
 ------------------------------------------------
Net operating income $514 $588 $2,044 $2,126
 ------------------------------------------------
 ------------------------------------------------



Net operating income for the residential sector totaled $2,044 representing a YOY decrease of $82 or 3.9%. In summary, variances resulted from:
Three months ended Year ended
Same property YOY -----------------------------------------
 NOI variance March June Sept. Dec. Dec. 31, 2005
---------------------------------------------------------------------
- Increase in revenues
 generated from rental
 increases on regular
 apartments $27 $28 $40 $34 $129
- (Decrease) increase in
 revenues generated from
 the executive suites (9) 11 (21) (75) (94)
- Positive (negative)
 variances in operating
 expenses 93 (7) (170) (33) (117)
---------------------------------------------------------------------
Net negative variance $111 $32 ($151) ($74) ($82)
---------------------------------------------------------------------
---------------------------------------------------------------------



INTEREST EXPENSE

Interest expense consists of interest paid on secured mortgages on the income-producing properties as well as interest on the REIT's general bank indebtedness, interest on convertible debentures, accretion of the liability component of the convertible debentures, amortization of the fair value debt adjustments on mortgages assumed on acquisitions, and amortization of deferred financing costs. As at December 31, 2005, interest expense totaled $26,413 compared with $20,184 in 2004. The YOY variance of $6,229 results from:
- Interest on secured mortgages on income producing
 properties acquired $3,373
- Increase in interest on convertible debentures 1,989
- Interest on new mortgages put in place 1,517
- Increase on interest accretion on convertible
 debentures 89
- Increase in interest on general bank indebtedness 744
- Interest savings on secured mortgages repaid upon
 maturity (965)
- Amortization of the fair value debt adjustments relating
 to mortgages assumed on the acquisition of certain
 properties (71)
- Other, net (447)
---------------------------------------------------------------------
Net increase $6,229
---------------------------------------------------------------------
---------------------------------------------------------------------



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
 -------------------------------------------------
 Dec. Sept. June Mar. Dec. Sept. June Mar.
Weighted-average
 interest rate 6.2% 6.2% 6.3% 6.3% 6.3% 6.3% 6.3% 6.4%
 -------------------------------------------------
 -------------------------------------------------
Weighted-average
 term to maturity
 (years) 5.08 5.33 5.46 5.61 5.83 6.07 5.30 3.54
 -------------------------------------------------
 -------------------------------------------------



GENERAL AND ADMINISTRATIVE EXPENSES

General and administrative expenses, which consist of the REIT's overhead costs net of amounts recovered under operating expenses, totaled $2,150 for the year 2005 compared to $1,687 in 2004. The YOY variance of $463 is attributable to the following:
- Increase in capital taxes paid by the REIT's subsidiaries $107
- Increase in legal, audit and professional fees 150
- Increase in costs associated with non-concluded
 acquisitions 67
- Other 139
---------------------------------------------------------------------
Net increase $463
---------------------------------------------------------------------
---------------------------------------------------------------------



AMORTIZATION EXPENSE

For the year ended December 31, 2005, total amortization (buildings and other) was $26,076 compared to $17,829 in 2004. The YOY increase of $8,247 results from approximately $5,294 of amortization of lease origination costs for in-place leases and tenant improvements incurred through acquisitions, as well as approximately $1,839 of amortization of buildings principally for properties acquired, and $1,114 of amortization on tenant improvements, commissions and property additions.

TRUST EXPENSES

Trust expenses in 2005 totaled $450 versus $542. The YOY decrease of $92 primarily results from the reduction of annual filling fees relating to the prospectuses in 2004 of $89.

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 (see "2005 Overview" in previous pages), 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 by quarter and YOY are as follows:

 Twelve
 months ended
 Three months ended - 2005 Dec. 31
 ------------------------------------------------
 Mar. 31 June 30 Sept. 30 Dec. 31 2005 2004
 ------------------------------------------------

Distributable
 Income $7,041 $7,160 $7,540 $7,746 $29,487 $25,197

Per unit:
 Basic $0.276 $0.279 $0.293 $0.301 $1.149 $1.052
 Diluted $0.267 $0.270 $0.282 $0.289 $1.108 $1.039

Distributions
 paid $7,033 $7,064 $7,072 $7,080 $28,249 $26,473

Distributable income
 payout ratio 99.9% 98.7% 93.8% 91.4% 95.8% 105.1%



Increases in distributions paid reflects distributions made on units issued throughout the year on the REIT's DRIP (105,417 units in 2005); as well as 132,743 units issued as payment on the acquisition of the REIT's construction management division on March 31, 2005.

LEASING DATA

In 2005, leases for 987,404 square feet of space expired at a weighted average net rental rate of $8.55 per square foot. Of this amount, 685,840 square feet having a weighted average net rental rate of $7.89 was renewed at a weighted average net rental rate of $8.01. During the same period, 587,104 square feet of vacant space was leased at a weighted average net rental rate of $10.98 per square foot.

The following tables reflect the REIT's average occupancies and net rental rates:
2005
 -----------------------------------------------------------
Occupancies March 31, June 30, September 30,
---------------------------------------------------------------------
 Area Area Area
Segment (sq.ft.) Occupancy (sq.ft.) Occupancy (sq.ft.) Occupancy
---------------------------------------------------------------------
Office 2,813,741 88.0% 2,813,741 86.9% 2,987,677 87.5%
Retail 1,434,400 94.7% 1,434,400 95.5% 1,434,400 95.9%
Indus-
 trial 2,757,535 87.1% 3,711,139 92.4% 3,711,139 90.4%
Residen-
 tial 300,321 96.0% 300,321 98.8% 300,321 95.5%
---------------------------------------------------------------------
Overall 7,305,997 89.3% 8,259,601 91.3% 8,433,537 90.5%
---------------------------------------------------------------------
---------------------------------------------------------------------


 2005 2004
 --------------------------------------------------------
Occupancies December 31, December 31,
---------------------------------------------------------------------
 Area Area
Segment (sq.ft.) Occupancy (sq.ft.) Occupancy
---------------------------------------------------------------------
Office 2,987,677 88.4% 2,813,741 87.1%
Retail 1,488,005 96.1% 1,432,100 96.6%
Industrial 3,711,139 91.2% 2,531,925 89.9%
Residential 300,321 92.8% 300,321 95.8%
---------------------------------------------------------------------
Overall 8,487,142 91.1% 7,078,087 90.4%
---------------------------------------------------------------------
---------------------------------------------------------------------



Net rental rate 2005 2004
---------------------------------------------------------------------
Segment March 31, June 30, September 30, December 31, December 31,
---------------------------------------------------------------------
Office $11.19 $11.03 $11.36 $11.35 $11.03
Retail 12.62 13.04 13.29 13.56 13.07
Industrial 5.28 4.97 4.99 5.00 5.38
Residen-
 tial(1) 1,006.23 1,032.10 1,046.17 1,037.28 1,030.14
---------------------------------------------------------------------
Overall $9.54 $8.89 $9.11 $9.18 $9.70
---------------------------------------------------------------------
---------------------------------------------------------------------



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

Since September 30, 2005, the overall portfolio occupancy level increased by 0.6% to 91.1%. The office, retail and industrial sectors reflected increases of 0.9%, 0.2% and 0.8% respectively. The increases in the office and industrial sectors resulted from increased leasing activity. As for the retail sector, the increase resulted from the opening in October 2005 of Best Buy (38,705 square feet) and Ares (14,900 square feet) in the new expansion space at Centre Laval. As for the residential sector, the decrease of 2.7% is attributable to vacancies as at December 31, in the 72 furnished apartments, which are leased on a short-term basis, and are historically mostly vacant at year end due to seasonal holidays.

The REIT'S YOY and QOQ occupancy levels and net rental rates may have been affected by acquisitions of properties having slightly lower occupancy levels and lower net rental rates than the existing portfolio averages. Excluding acquired properties the YOY same portfolio occupancy levels and net rental rates reflect the following:
December 31, 2004 December 31, 2005
 -----------------------------------------
 Area Net rental Net rental
Segment (sq.ft.) Occupancy rate Occupancy rate
---------------------------------------------------------------------
Office 2,813,741 87.1% $11.03 88.0% $11.11
Retail 1,432,100 96.6% 13.07 96.1% 13.40
Industrial 2,531,925 89.9% 5.38 87.3% 5.45
Residential(1) 300,321 95.8% 1,030.14 92.8% 1,037.28
---------------------------------------------------------------------
Overall 7,078,087 90.4% $9.70 89.6% $9.83
---------------------------------------------------------------------
---------------------------------------------------------------------



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

The same portfolio occupancy level in the office sector shows a YOY favorable variance of $0.9% resulting from leasing activities. The YOY retail and industrial sectors' unfavorable variances of 0.5%, and 2.6% respectively, which represents approximately 7,160 square feet of retail space and 65,830 square feet of industrial space, is attributable principally to expected move outs of tenants at lease expiry, as well as YOY vacancies resulting from tenant insolvencies. The YOY negative variance of 3.0% in the residential sector results from lower occupancy of the executive suites which are leased on short-term leases.

DEBT FINANCING AND CONTRACTUAL OBLIGATIONS

In addition to the issuance of 132,743 units on March 31, 2005, discussed previously (see "2005 Overview"), the REIT also completed the following financing activities:
During the year the REIT repaid upon maturity the mortgages on:

Property Amount Rate Maturity
---------------------------------------------------------------------
- 80 - 140 Lindsay Street, Dorval $835 8.4% January
- 8411 - 8453 Dalton Road, Mount-Royal $497 8.4% January
- 8459 - 8497 Dalton Road, Mount-Royal $692 8.4% January
- 9960 - 9970 Cote de Liesse Road, Lachine $844 8.2% May



On June 17, 2005 the REIT acquired a portfolio of three industrial properties and assumed a mortgage of $7,704 on the property located at 2105, 23rd Avenue, Lachine. The mortgage bears interest at 5.82%, has a 20 year amortization, and matures in February 2009.

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

On July 18, 2005 the REIT put in place a hypothecary loan of $18,000 on an industrial property located at 2000 Halpern, St. Laurent, which had been acquired on June 17, 2005. 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.

During the year, the REIT also extended on a month-to-month basis the following mortgages with the consent of the lenders, under the same terms and conditions, while negotiations on a new financing agreement were being finalized (see "Subsequent Events"):
Principal
Property Amount(1) Rate Maturity
---------------------------------------------------------------------
- 3339 - 3403 Griffith Street,
 St. Laurent $3,863 5.875% July
- 777 St. Catherine Street West,
 Montreal $7,131 7.870% October
- 1925 - 1975 Hymus Blvd., Dorval $1,717 8.250% October
- 8100 Cavendish Blvd., St-Laurent $2,384 5.875% December
- 8545 - 8579 Dalton Road,
 Mount-Royal $979 5.600% December
- 8605 - 8639 Dalton Road,
 Mount-Royal $951 5.600% December

(1) As at December 31, 2005



In addition, the REIT renewed its $50,000 credit facility for a six month period from November 1, 2005 to April 30, 2006. The credit facility is subject to annual reviews and consists of a general operating loan and letters of credit. Advances under the credit facility bear interest at prime plus 0.5% or at the rate for bankers' acceptances plus 2.25%. The terms of the credit facility provide for conditions precedent to draw-downs, events of default and negative covenants customary for operating facilities of such nature and certain negative covenants with respect to the incurrence of debt by the REIT. In addition to second ranking hypothecs on Place Alexis Nihon and Centre Laval, the facility is secured by a first ranking hypothec on the properties located at 1080 Beaver Hall Hill, Montreal, Quebec; 2102-2150, 32nd Avenue, Montreal (Lachine), Quebec; and 1615-1805, 55th Avenue, Montreal (Dorval), Quebec. The credit facility was renewed on the same terms and conditions except that if the occupancy rate of 1080 Beaver Hall Hill falls below 65% for a full quarter, the REIT will have 60 days from the end of such quarter to bring the occupancy rate up to 75%, failing which, the REIT will have to provide additional security in an amount of $10,000.

As at December 31, 2005, the REIT's debt secured by income-producing properties was $412,290 representing 52.8% of gross book value (book value of the REIT's assets plus accumulated amortization less intangible liabilities was $780,336), well below its 60% threshold limit. Including the convertible debentures, the percentage is 59.7% (limit 65%). Floating rate debt, which cannot exceed 15% of gross book value, totaled $41,969 or 5.4%.

The REIT's contractual obligations at December 31, 2005 were as follows:
Payments due by period
 ----------------------------------------------
 Less than 1 - 3 4 - 5 After 5
 Total 1 year years Years years
 ----------------------------------------------
Long-term debt $370,099 $33,020 $146,483 $81,082 $109,514
Emphyteutic leases 18,791 411 831 832 16,717
Maintenance agreements 4,666 2,017 1,027 894 728
Convertible debentures 55,000 - - - 55,000
 ----------------------------------------------
Total $448,556 $35,448 $148,341 $82,808 $181,959
 ----------------------------------------------
 ----------------------------------------------



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:
Twelve
 Three months ended - 2005 months ended
FFO/Net Income Mar. June Sept. Dec. December 31,
 Reconciliation: 31 30 30 31 2005 2004
---------------------------------------------------------------------

Net Income (per
 financial statements) $415 $2,008 $1,816 $1,889 $6,128 $11,348

Adjustments to
 reconcile net income
 to FFO:
 Internalization of
 construction
 management company 1,613 - - - 1,613 -
 Amortization of
 buildings 3,623 3,653 3,903 4,041 15,220 12,849
 Other amortization,
 excluding
 amortization of
 furniture, fixtures
 & computers 2,340 2,470 2,795 3,065 10,670 4,776
 Interest on the AN
 Convertible Debentures
 paid by units - - - - - 197
---------------------------------------------------------------------
Funds from operations $7,991 $8,131 $8,514 $8,995 $33,631 $29,170
---------------------------------------------------------------------
---------------------------------------------------------------------
Distributions $7,033 $7,064 $7,072 $7,080 $28,249 $26,473
---------------------------------------------------------------------
---------------------------------------------------------------------
FFO payout ratio 88.0% 86.9% 83.1% 78.7% 84.0% 90.8%
---------------------------------------------------------------------
---------------------------------------------------------------------
FFO per unit $0.313 $0.317 $0.331 $0.350 $1.311 $1.218
---------------------------------------------------------------------
---------------------------------------------------------------------
Distributions per unit $0.275 $0.275 $0.275 $0.275 $1.100 $1.100
---------------------------------------------------------------------
---------------------------------------------------------------------



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 in 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 $117 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 $18,978 in 2005 compared to $17,540 in 2004. Details of the amounts incurred are as follows:
Twelve months ended
 2004 2005
 ----------------------
Additions to buildings:
 Redevelopment - Centre Laval(1) $ 3,836 $ 5,886
 Parking repairs 2,125 1,833
 Non-recoverable maintenance 461 1,078
 Recoverable maintenance 3,762 1,101
 ----------------------
Total additions to buildings 10,184 9,898
 ----------------------
Tenant improvements & leasing costs:
 Renewals & vacant space lease-ups 2,464 5,902
 Value enhancing(2) - 644
 Redevelopment 2,860 895
 Leasing commissions 2,032 1,639
 ----------------------
Total tenant improvements & leasing costs 7,356 9,080
 ----------------------
Total $ 17,540 $ 18,978
 ----------------------
 ----------------------



(1) Includes an accrual of $2,357 for additions incurred 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 December 31, 2005, the Nihon/Massicotte Group hold approximately 30.1% of the 25,754,095 outstanding units of the Alexis Nihon REIT.

At February 28, 2006, there were 25,764,926 units of the REIT issued and outstanding.

EMPLOYEE UNIT PURCHASE PLAN

The REIT has in effect an Employee Unit Purchase Plan ("EUPP") which gives eligible employees the opportunity to acquire units of the REIT for between 2% and 5% of their gross salaries. The REIT contributes a further amount equal to 50% of the amount invested by the employees over the next five years. The contributions are used to purchase units of the REIT in the open market.

UNIT BONUS PLAN

In 2005, the REIT adopted a Unit Bonus Plan (the "Plan") which provides for the grant of Trust Units to key executives and any other employee designated by the board of directors of the REIT, up to a maximum of 40% of their overall bonus. Annually, the REIT contributes the amount of the bonus to be rendered under the 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.

In 2005, the REIT recorded a compensation expense of $73.

RELATED PARTY TRANSACTIONS

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

Head Lease

At the time of the IPO in December 2002, and in order to provide unitholders of the REIT with stable, predictable revenues in respect to 218,097 square feet of certain vacant spaces, the AN Head Lessee, a company under common control of certain trustees of the REIT, entered into a head lease with the REIT. The head lease is for a term of 10 years and, of the original head lease space, applied in 2005 to approximately 68,165 (2004 - 166,661) square feet of leasable area of the income-producing properties at specified market rental rates. For 2005, the head lease revenue amounted to $1,332 (2004 - $2,248).

An acceptable tenant must be approved by the members of the Head Lease Committee in order for the Head Lease space to be permanently retired. As at December 31, 2005, 39.2% of the remaining Head Lease area of 68,165 sq.ft., has been leased.

CRITICAL ACCOUNTING ESTIMATES

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

Impairment of long lived assets

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

Property Acquisitions

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

Fair Value of Financial Instruments

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

CHANGES IN ACCOUNTING POLICIES

a) Diluted Earnings per share

Effective October 1, 2005 the REIT adopted the Canadian Institute of Chartered Accountants ("CICA") Emerging Issues Committee Abstract ("EIC") No. 155 "The Effect of Contingently Convertible Instruments on the Computation of Diluted Earnings Per Share", retroactively with restatement. The adoption of the pronouncement had no material impact on the Diluted Net Income Per Unit of the REIT for the years ended December 31, 2004 and 2005.

b) Convertible Debt Instruments

Effective October 17, 2005 the REIT prospectively adopted EIC No. 158 "Accounting for Convertible Debt Instruments". The adoption of the pronouncement has had no material impact on the financial statements.

DISCLOSURE CONTROLS AND PROCEDURES

The REIT maintains appropriate information systems, procedures and controls to ensure that new information disclosed externally is complete, reliable and timely. The Chief Executive Officer and the Chief Financial Officer of the REIT evaluated the effectiveness of the REIT's disclosure controls and procedures (as defined in Multilateral Instruments 52-109, Certification of Disclosure in Issuers' Annual and Interim Filings) as at December 31, 2005 and have concluded that such disclosure controls and procedures are operating effectively.

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 2006 are expected to remain at the current level.

SUBSEQUENT EVENTS

On January 10, 2006, the REIT put in place conventional first mortgage loans on 12 properties, as described below, totaling $38,934 for a 15 year term bearing interest at a rate of 5.174%. The loans are cross-collateralized and cross-defaulted, and subject to certain conditions. After a 5 year period, these provisions could be cancelled. Secondary financing is permitted subject to certain conditions.
Mortgage Amortization
Property Amount Period
---------------------------------------------------------------------
- 1925 - 1975 Hymus Blvd., Dorval $3,953 30 years
- 80 - 140 Lindsay Street, Dorval 1,828 30 years
- 8411 - 8453 Dalton Road, Mount-Royal 1,166 30 years
- 8459 - 8497 Dalton Road, Mount-Royal 1,566 30 years
- 8545 - 8579 Dalton Road, Mount-Royal 1,725 30 years
- 8605 - 8639 Dalton Road, Mount-Royal 1,449 30 years
- 9960 - 9970 Cote de Liesse, Lachine 1,242 30 years
- 6320 - 6380 Cote de Liesse, St. Laurent 2,691 30 years
- 455 Fenelon Blvd., Dorval 8,617 30 years
- 3339 - 3403 Griffith Street, St. Laurent 5,037 30 years
- 8100 Cavendish Blvd., St. Laurent 3,657 25 years
- 1225 Volta Street, Boucherville 6,003 25 years
 ---------
 $38,934
 ---------
 ---------



In addition, on February 1, 2006 the REIT repaid the mortgage loan on 777 St. Catherine Street West, in the amount of $7,090.
ALEXIS NIHON
 REAL ESTATE INVESTMENT TRUST


 Three Months Ended December 31, 2005

 Supplemental Information Package



The Supplemental Information Package should be read in conjunction with the Annual Report for the year ended December 31, 2005 and 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
1 Place Alexis Nihon
3400 De Maisonneuve Blvd. West
Suite 1010
Montreal, Quebec
H3Z 3B8


Trading Symbol
Toronto Stock Exchange: AN.UN


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


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



Quarterly Distributions

Quarter Distribution
---------------------------
Q4/05 $0.275
Q3/05 $0.275
Q2/05 $0.275
Q1/05 $0.275
Q4/04 $0.275
Q3/04 $0.275
Q2/04 $0.275
Q1/04 $0.275
---------------------------
---------------------------



Unit Trading Activity on the
Toronto Stock Exchange

 High Low Close Volume
Quarter $ $ $ (000)
-----------------------------------------
Q4/05 13.50 11.85 13.30 1,686
Q3/05 13.51 12.96 13.50 1,923
Q2/05 13.22 12.20 12.85 1,500
Q1/05 13.80 11.88 12.58 2,492
Q4/04 13.41 12.06 12.55 2,013
Q3/04 12.66 11.75 12.20 2,347
Q2/04 13.69 10.35 12.10 3,031
Q1/04 14.25 12.17 13.65 1,432
-----------------------------------------
-----------------------------------------
Source: Toronto Stock Exchange



Research Coverage:

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

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

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

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

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

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

Canaccord Capital Shant Poladian (416) 869-6595

BMO Nesbitt Burns Karine MacIndoe (416) 359-4269

Genuity Capital Markets Marc Rothschild (416) 687-5428



Selected Quarterly Information

 Year Ended
In thousands of dollars, Dec 31, Dec 31,
 except per unit amounts 2005 2004
 --------------------------

Revenues From Rental Operations 121,496 98,750
Net Operating Income 62,830 51,590
Net Operating Income Margin 51.7% 52.2%

Net Income 6,128 11,348
Net Income per unit:
 Basic 0.239 0.474
 Diluted(i) 0.239 0.474

Distributable Income 29,487 25,197
Distributable Income Per Unit:
 Basic 1.149 1.052
 Diluted 1.108 1.039

Distributions 28,249 26,473
Distributions Per Unit: 1.100 1.100
Payout ratio (12-month basis) 95.8% 105.1%

Funds From Operations 33,631 29,170
Funds from Operations Per Unit:
 Basic 1.311 1.218
Payout ratio (per quarter) 84.0% 90.8%

Income-producing properties 668,746 603,689
Total Assets 730,621 663,126

Debts on income-producing properties 370,321 334,674
Bank indebtedness 41,969 808
Convertible debentures - liability
 component 53,468 53,338

Unitholders' Equity 239,106 258,256

Number of units at end of Period 25,754,095 25,515,935
Number of options at end of Period 4,029,306 4,029,306

Weighted Average Number of Units:
 Basic 25,661,055 23,942,455
 Diluted (for net income)(i) 25,661,055 23,942,455
 Diluted (for distributable income) 29,690,361 25,663,683

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


 Quarter Ended
In thousands of
 dollars,
 except per Dec 31, Sept 30, June 30, March 31, Dec 31,
 unit amounts 2005 2005 2005 2005 2004
 ----------------------------------------------------

Revenues From
 Rental
 Operations 32,981 30,671 28,856 28,988 29,254
Net Operating
 Income 16,771 16,069 15,405 14,585 15,416
Net Operating
 Income Margin 50.9% 52.4% 53.4% 50.3% 52.7%

Net Income 1,889 1,816 2,008 415 2,634
Net Income
 per unit:
 Basic 0.073 0.071 0.078 0.016 0.103
 Diluted(i) 0.073 0.071 0.078 0.016 0.103

Distributable
 Income 7,746 7,540 7,160 7,041 7,363
Distributable
 Income Per Unit:
 Basic 0.301 0.293 0.279 0.276 0.289
 Diluted 0.289 0.282 0.270 0.267 0.280

Distributions 7,080 7,072 7,064 7,033 7,017
Distributions
 Per Unit: 0.275 0.275 0.275 0.275 0.275
Payout ratio
 (12-month basis) 95.8% 96.8% 99.3% 102.0% 105.1%

Funds From
 Operations 8,995 8,514 8,131 7,991 8,730
Funds from
 Operations Per
 Unit:
 Basic 0.350 0.331 0.317 0.313 0.342
Payout ratio
 (per quarter) 78.7% 83.1% 86.9% 88.0% 80.4%

Income-producing
 properties 668,746 669,195 645,884 608,753 603,689
Total Assets 730,621 734,089 710,104 661,068 663,126

Debts on
 income-
 producing
 properties 370,321 373,083 338,726 330,257 334,674
Bank
 indebtedness 41,969 38,837 47,295 6,621 808
Convertible
 debentures -
 liability
 component 53,468 53,434 53,401 53,369 53,338

Unitholders'
 Equity 239,106 243,944 248,851 253,523 258,256

Number of
 units
 at end of
 Period 25,754,095 25,726,073 25,698,972 25,668,306 25,515,935
Number of
 options at
 end of Period 4,029,306 4,029,306 4,029,306 4,029,306 4,029,306

Weighted
 Average
 Number of
 Units:
 Basic 25,736,198 25,706,883 25,677,642 25,520,625 25,506,516
 Diluted
 (for net
 income)(i) 25,736,198 25,706,883 25,677,642 25,520,625 25,506,516
 Diluted
 (for
 distri-
 butable
 income) 29,765,504 29,736,189 29,706,948 29,549,931 29,535,822

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



Segmented Information

Segmented Revenues From Rental Operations

(in thousands of dollars) Q4/05 Q4/04 Change
 $ $ Vs Q4/04
 --------------------------------
Office 16,271 14,703 1,568
Retail 9,182 8,582 600
Industrial 6,235 4,636 1,599
Multi-family residential 1,293 1,333 (40)
 --------------------------------
 Total 32,981 29,254 3,727
 --------------------------------
 --------------------------------


Segmented Net Operating Income

(in thousands of dollars) Q4/05 Q4/04 Change
 $ $ Vs Q4/04
 --------------------------------
Office 7,486 7,217 269
Retail 4,914 4,888 26
Industrial 3,858 2,723 1,135
Multi-family residential 513 588 (75)
 --------------------------------
 Total 16,771 15,416 1,355
 --------------------------------
 --------------------------------


Segmented Gross Book Value of Income-Producing Properties

(in thousands of dollars) Q4/05 Q3/05 Q4/04 Change Change
 $ $ $ Q3/05 Q4/04
 -------------------------------------------
Office 331,409 332,100 301,076 (691) 30,333
Retail 187,788 186,219 180,161 1,569 7,627
Industrial 150,885 150,352 106,381 533 44,504
Multi-family residential 34,685 34,545 34,300 140 385
 -------------------------------------------
 Total 704,767 703,216 621,918 1,551 82,849
 -------------------------------------------
 -------------------------------------------


Segmented Net Book Value of Income-Producing Properties

(in thousands of dollars) Q4/05 Q3/05 Q4/04 Change Change
 $ $ $ Q3/05 Q4/04
 -------------------------------------------
Office 312,701 313,028 291,564 (327) 21,137
Retail 178,037 177,684 174,997 353 3,040
Industrial 145,332 145,732 103,991 (400) 41,341
Multi-family residential 32,676 32,751 33,137 (75) (461)
 -------------------------------------------
 Total 668,746 669,195 603,689 (449) 65,057
 -------------------------------------------
 -------------------------------------------



Portfolio Summary

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

Leasable Area
 (000 square feet)

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


Number of Properties

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


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


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



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

(ii) Place Alexis Nihon has been included in the office properties category. The office properties category includes 611,535 sq ft of office space at Place Alexis Nihon.

The retail properties category includes 391,029 sq ft of retail space at Place Alexis Nihon.

The multi-family residential properties category includes 300,321 sq ft of multi-family residential space at Place Alexis Nihon.
Leasing Activities

Occupancy rate

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

Office 88.4% 87.5% 87.1% 0.9% 1.3%
Retail 96.1% 95.9%(a) 96.6% 0.2% -0.5%
Industrial 91.2% 90.4% 89.9% 0.8% 1.3%
Multi-family residential 92.8% 95.5% 95.8% -2.7% -3.0%
 --------------------------------------------
 Total 91.1% 90.5%(a) 90.4% 0.6% 0.7%
 --------------------------------------------
 --------------------------------------------

(a) Excludes area affected by redevelopment.



Top 10 Tenants
 % of Total
 Revenues
---------------------------------------------------------------------
---------------------------------------------------------------------
1 Public Works & Government Services Canada 8.02%
2 LDL Logistics Dev. Corp. 2.11%
3 Richter Management Ltd. 1.87%
4 Club Monaco 1.62%
5 CP Ships (Canada) Agencies Ltd. 1.56%
6 Hudson's Bay Company 1.30%
7 ISM Information Management Corporation 1.11%
8 KSH Solutions Inc. 0.99%
9 Sico 0.94%
10 Brick 0.92%
---------------------------------------------------------------------
 Total 20.44%
---------------------------------------------------------------------
---------------------------------------------------------------------



Leasing Activities

Lease Expirations and Renewals by Segment

 Office Retail Industrial Total
Expiring Leases/2005
---------------------------------------------------------------------
Number of tenants 80 32 61 173
Area (Square feet) 298,089 66,229 623,086 987,404
Average net rent/square foot 13.50 $ 18.19 $ 5.15 $ 8.55 $
---------------------------------------------------------------------

Renewed Leases as at Q3
---------------------------------------------------------------------
Number of tenants 53 22 42 117
Area (Square feet) 187,248 31,586 467,006 685,840
Average net rent/square foot 12.21 $ 22.96 $ 5.32 $ 8.01 $
---------------------------------------------------------------------

New Leases as at Q3
---------------------------------------------------------------------
Number of tenants 77 20 42 139
Area (Square feet) 239,710 95,398 251,996 587,104
Average net rent/square foot 13.63 $ 17.15 $ 6.13 $ 10.98 $
---------------------------------------------------------------------



Lease Expirations
 Office Retail Industrial Total
Number of tenants
---------------------------------------------------------------------
2006 53 31 62 146
2007 86 38 41 165
2008 78 36 42 156
2009 51 36 28 115
2010 71 45 30 146
After 71 86 29 186
---------------------------------------------------------------------

Area (square feet)
---------------------------------------------------------------------
2006 257,537 38,728 728,530 1,024,795
2007 536,284 78,003 452,229 1,066,516
2008 430,352 394,834 401,916 1,227,102
2009 298,688 147,827 312,492 759,007
2010 365,754 155,448 719,925 1,241,127
After 742,050 647,327 774,900 2,164,277
---------------------------------------------------------------------

Weighted Average Net Rent
(per square foot)
---------------------------------------------------------------------
2006 9.70 $ 27.22 $ 5.40 $ 7.30 $
2007 11.04 $ 18.62 $ 5.15 $ 9.10 $
2008 11.78 $ 5.01 $ 5.10 $ 7.41 $
2009 11.83 $ 12.66 $ 5.12 $ 9.23 $
2010 11.03 $ 17.77 $ 4.86 $ 8.29 $
---------------------------------------------------------------------

Weighted Average Term to Maturity on Existing Leases 4.64 years



Debt Summary

Debt Maturities

Year Amount % of Total Debt Average
 $ Outstanding Rate
---------------------------------------------------------------------
2006 21,233,437 5.77% 6.99%
2007 83,081,709 22.56% 6.59%
2008 53,896,307 14.64% 6.44%
2009 52,115,171 14.15% 5.53%
2010 25,586,304 6.95% 5.08%
After 132,312,203 35.93% 6.16%
 -----------------------------------------------------------
 368,225,131 100.00% 6.18%
 -----------------------------------------------------------
 -----------------------------------------------------------

Weighted average term: 5.08 years



Financing Activities

Subsequent to year end, the REIT put in place conventional first mortgage loans on twelve income-producing properties totaling $38,934. In addition, the REIT repaid a mortgage loan on an additional property in the amount of $7,131.

During the twelve 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 $117,100,000

Financing Capacity

As at December 31, 2005, debt (excluding convertible debentures) /gross book value ratio: 52.8%

As at December 31, 2005, debt (including convertible debentures) /gross book value ratio: 59.7%
Ratio analysis
 Dec Sept June March Dec Sept June March
 31, 30, 30, 31, 31, 30, 30, 31,
 2005 2005 2005 2005 2004 2004 2004 2004
 ------------------------------------------------
Debt to gross book
 value (excluding
 convertible
 debentures) 52.8% 53.1% 51.8% 48.9% 49.2% 49.7% 50.2% 52.7%
Debt to gross book
 value (including
 convertible
 debentures) 59.7% 60.0% 59.0% 56.6% 57.0% 57.5% 50.2% 52.7%
Interest coverage
 ratio 2.29 2.24 2.29 2.31 2.41 2.46 2.64 2.28



Alexis Nihon Real Estate Investment Trust (TSX:AN.UN)
COPYRIGHT 2006 Business Wire
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