UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

For the quarterly period ended March 31, 2004

or

For the transition period from ____________ to ____________.

Commission File Number: 001-16765

TRIZEC PROPERTIES, INC.

312-798-6000

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes þ No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes þ No o

As of April 30, 2004, 151,716,735 shares of common stock, par value $0.01 per share, were issued and outstanding.

Table of Contents

Forward-Looking Statements

This Form 10-Q, including the discussion in “Part I — Financial Information — Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains forward-looking statements relating to our business and financial outlook, which are based on our current expectations, estimates, forecasts and projections. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue,” or the negative of these terms or other comparable terminology. These forward-looking statements are not guarantees of future performance and involve risks, uncertainties, estimates and assumptions that are difficult to predict. Therefore, actual outcomes and results may differ materially from those expressed in these forward-looking statements. You should not place undue reliance on any such forward-looking statements. Further, any forward-looking statement speaks only as of the date on which such statement is made, and we undertake no obligation to update any such statement to reflect new information, the occurrence of future events or circumstances or otherwise. A number of important factors could cause actual results to differ materially from those indicated by the forward-looking statements. Such factors include those set forth in more detail in the Risk Factors section in our Form 10-K for the year ended December 31, 2003 filed with the U.S. Securities and Exchange Commission.

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PART I — FINANCIAL STATEMENTS

Item 1. Financial Statements

See accompanying notes to the financial statements.

3

See accompanying notes to the financial statements.

4

See accompanying notes to the financial statements.

5

See accompanying notes to the financial statements.

6

See accompanying notes to the financial statements.

7

See accompanying notes to the financial statements.

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1.		ORGANIZATION AND DESCRIPTION OF THE BUSINESS
		Trizec Properties, Inc. (“Trizec Properties” or the “Corporation”, formerly known as TrizecHahn (USA) Corporation) is a corporation organized under the laws of the State of Delaware and is approximately 40% indirectly owned by Trizec Canada, Inc. Effective January 1, 2001, Trizec Properties elected to be taxed as a real estate investment trust (“REIT”) pursuant to Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the “Code”). On February 14, 2002, the amended registration statement on Form 10 of Trizec Properties was declared effective by the Securities and Exchange Commission and, accordingly, Trizec Properties became subject to the reporting requirements of the Securities Exchange Act of 1934, as amended. Trizec Properties had been a substantially wholly-owned subsidiary of TrizecHahn Corporation (“TrizecHahn”), an indirect wholly-owned subsidiary of Trizec Canada Inc. A plan of arrangement (the “Reorganization”) was approved by the TrizecHahn stockholders on April 23, 2002, and on May 8, 2002, the effective date of the Reorganization, the common stock of Trizec Properties commenced regular trading on the New York Stock Exchange.
		Trizec Properties is one of the largest integrated, self-managed, publicly traded REITs in the United States. The Corporation operates in the U.S. where it owns, manages and develops office buildings. At March 31, 2004, the Corporation had ownership interests in a portfolio of 64 U.S. office properties comprising approximately 42.5 million square feet, or approximately 39.5 million square feet based on its pro rata economic ownership interest in joint ventures, concentrated in the metropolitan areas of seven major U.S. cities. At March 31, 2004, the occupancy of the Corporation’s 64 U.S. office properties was approximately 86.2%, or approximately 85.9% based on its pro rata economic ownership interest in joint ventures.
2.		BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
a.		Basis of Presentation
		The accompanying interim consolidated financial statements as of March 31, 2004 and December 31, 2003 and for the three months ended March 31, 2004 and 2003 include the accounts and operating results of the Corporation and its subsidiaries. All significant intercompany transactions have been eliminated.
		The Corporation consolidates certain entities in which it owns less than a 100% equity interest if it is deemed to be the primary beneficiary in a variable interest entity, as defined in the Financial Accounting Standards Board Interpretation No. 46R, “Consolidation of Variable Interest Entities — an interpretation of ARB 51” (“FIN No. 46R”). The Corporation also consolidates entities in which it has a controlling direct or indirect voting interest. The equity method of accounting is applied to entities in which the Corporation does not have a controlling direct or indirect voting interest, but can exercise influence over the entity with respect to its operations and major decisions. The cost method is applied when (i) the investment is minimal (typically less than 5%) and (ii) the Corporation’s investment is passive.
		The preparation of financial statements in accordance with accounting principles generally accepted in the United States (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual amounts will differ from those estimates used in the preparation of these financial statements.
b.		Interim Financial Statements
		The accompanying interim financial statements are unaudited; however, the financial statements have been prepared in accordance with GAAP for interim financial information and the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the disclosures required by GAAP. In the opinion of management, such financial statements reflect all adjustments necessary for a fair presentation of the financial position, results of operations and cash flows of the Corporation for the interim periods. All such adjustments are of a normal recurring nature. The results of operations for the interim periods are not necessarily indicative of the results to be obtained for other interim periods or for the full fiscal year. These financial statements should be read in conjunction with the Corporation’s financial statements and notes thereto contained in the Corporation’s 2003 Annual Report on Form 10-K.

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2.		BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES, Continued
c.		Stock Based Compensation
		Effective July 1, 2003, the Corporation adopted Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock Based Compensation” (“SFAS No. 123”), as amended by SFAS No. 148, “Accounting for Stock Based Compensation — Transition and Disclosure — an amendment of SFAS No. 123” (“SFAS No. 148”). The Corporation is applying the fair value recognition provisions of SFAS No. 123, as amended by SFAS No. 148, prospectively to all employee stock options granted after December 31, 2002. For employee stock option grants accounted for under SFAS No. 123, compensation cost is measured as the fair value of the stock option at the date of grant. This compensation cost is charged to earnings over the vesting period. For stock options issued prior to January 1, 2003, the Corporation will continue to account for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB No. 25”), and related interpretations. For employee stock option grants accounted for under APB No. 25, compensation cost is measured as the excess, if any, of the quoted market price of the Corporation’s common stock at the date of grant over the exercise price of the options granted. This compensation cost, if any, is charged to earnings over the vesting period. Except as detailed in Note 18 of the Corporation’s 2003 Annual Report on Form 10-K with respect to options that were granted in connection with the Reorganization, the Corporation’s policy is to grant options with an exercise price equal to the quoted market price of the Corporation’s common stock. In conjunction with the adoption of SFAS No. 123, as amended by SFAS No. 148, the Corporation recognized approximately $64 of additional stock option grant expense related to stock options issued during the three months ended March 31, 2003. In accordance with the transition requirements of SFAS No. 123, as amended by SFAS No. 148, the Corporation’s financial statements as of and for the three months ended March 31, 2003 have been restated to reflect such additional stock option grant expense. Stock option grant expense of $202 and $222 was recognized for the three months ended March 31, 2004 and 2003, respectively.
		The following reconciles net income available to common stockholders to pro forma net income available to common stockholders as if the fair value based method of accounting for employee stock options as prescribed under the provisions of SFAS No. 123 had been applied to all outstanding and unvested employee stock options, and presents reported earnings per share (“EPS”) and pro forma EPS.

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2.		BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES, Continued
d.		Reclassifications
		Certain reclassifications of prior period amounts have been made to the consolidated balance sheet and consolidated statements of operations and cash flows. These reclassifications have been made in the financial statements to conform to the 2004 presentation. These reclassifications have not changed the Corporation’s financial position as of December 31, 2003 or consolidated results of operations for the three months ended March 31, 2003.
3.		REAL ESTATE
		The Corporation’s investment in real estate is comprised of:

a.

Properties — Held for the Long Term

b.

Properties — Held for Disposition

Properties held for disposition include certain properties that the Corporation has decided to dispose of over a reasonable sales period.

(i)

At December 31, 2002, one retail/entertainment property and 151 Front Street were held for disposition subject to the transition rules of SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS No. 144”) and, accordingly, the Corporation accounted for these properties pursuant to SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets to be Disposed Of” (“SFAS No. 121”). During the year ended December 31, 2003, the retail/entertainment property was sold. Therefore, 151 Front Street remained the sole property held for disposition in accordance with SFAS No. 121 at December 31, 2003. During the three months ended March 31, 2004, the Corporation sold 151 Front Street, therefore, no properties were held for disposition in accordance with SFAS No. 121 at March 31, 2004.

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3.		REAL ESTATE, Continued
b.		Properties — Held for Disposition, Continued

The results of operations of the retail/entertainment property that had been designated as held for disposition in accordance with SFAS No. 121 and was sold during the year ended December 31, 2003, and the results of operations of 151 Front Street that had been designated as held for disposition in accordance with SFAS No. 121 and was sold during the three months ended March 31, 2004 are included, through the date of sale, in the revenues and expenses of the Corporation. The following summarizes the condensed results of operations for these properties.

	(ii)		At December 31, 2002, the Corporation had two office properties designated as held for disposition pursuant to SFAS No. 144. During the first quarter of 2003 these two office properties were sold and one additional office property located in West Palm Beach, Florida was designated as held for disposition pursuant to SFAS No. 144. During the second quarter of 2003, one additional office property located in Memphis, Tennessee was designated as held for disposition pursuant to SFAS No. 144. Also during the second quarter of 2003, the Corporation recognized a provision for loss on disposition of discontinued real estate of approximately $14,592 relating to the office property located in Memphis, Tennessee, which is included in loss on disposition of discontinued real estate. The fair value was determined by using the contract price less transaction costs. During the third quarter of 2003, the office property located in Memphis, Tennessee and the office property located in West Palm Beach, Florida were sold and one additional office property located in Minneapolis, Minnesota was designated as held for disposition pursuant to SFAS No. 144. During the third quarter of 2003, the Corporation recognized a provision for loss on disposition of discontinued real estate of approximately $3,572 relating to the office property located in Minneapolis, Minnesota, which is included in loss on disposition of discontinued real estate. The fair value was determined by using the contract price less transaction costs. During the fourth quarter of 2003, the office property located in Minneapolis, Minnesota was sold. Additionally, one office property located in Los Angeles, California, one building of an office property located in Dallas, Texas and a retail property located in Las Vegas, Nevada were designated as held for disposition pursuant to SFAS No. 144 and were sold during the fourth quarter of 2003. As a result, no properties were held for disposition in accordance with SFAS No. 144 at December 31, 2003. During the first quarter of 2004, the Hollywood & Highland Hotel in Los Angeles, California, and the Hollywood & Highland Retail in Los Angeles, California (together with the Hollywood & Highland Hotel, the “Hollywood & Highland Complex”) were designated as held for disposition pursuant to SFAS No. 144 and were sold during the quarter. Therefore, no properties were held for disposition in accordance with SFAS No. 144 at March 31, 2004.
			The results of operations, through the date of sale, and the gains on disposition for these ten sold properties designated as held for disposition in accordance with SFAS No. 144, for all periods presented, have been reported as discontinued operations. The following summarizes the condensed results of operations for these properties, excluding the gain on disposition.

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3.		REAL ESTATE, Continued
b.		Properties — Held for Disposition, Continued

c.

Gain on Disposition of Real Estate During the Three Months Ended March 31, 2004 Under Transition Rules of SFAS No. 144

	(1)		Gain on sale is net of tax provision of approximately $5,538.
			In conjunction with the sale of 151 Front Street in Toronto, Ontario, the Corporation recognized a foreign currency exchange gain of approximately $3,340 representing the accumulated foreign currency translation adjustments related to the operations of the property through the date of sale.

d.

Gain on Disposition of Discontinued Real Estate During the Three Months Ended March 31, 2004 Designated as Held for Sale Pursuant to SFAS No. 144

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4.		UNCONSOLIDATED REAL ESTATE JOINT VENTURES
		The Corporation participates in unconsolidated real estate joint ventures in various operating properties which are accounted for using the equity method. In most instances, these projects are managed by the Corporation.
a.		The following is a summary of the Corporation’s ownership in unconsolidated real estate joint ventures at March 31, 2004 and December 31, 2003:

(1)

The amounts shown above approximate the Corporation’s economic and legal ownership interest as of March 31, 2004 and December 31, 2003. Cash flows from operations, capital transactions and net income are allocated to the joint venture partners in accordance with their respective partnership agreements. The Corporation’s share of these items is subject to change based on, among other things, the operations of the property and the timing and amount of capital transactions.

(2)

This property has not been consolidated as the minority member has substantive participating rights that afford the minority member equal voting rights on all major decisions as well as final approval of the operating and capital expenditures budgets.

(3)

This property was consolidated as of December 31, 2003 in accordance with FIN No. 46R. The Corporation sold this property on February 27, 2004.

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

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4.		UNCONSOLIDATED REAL ESTATE JOINT VENTURES, Continued
b.		Unconsolidated Real Estate Joint Venture Financial Information, Continued
		In March 2004, 1114 TrizecHahn-Swig, L.L.C. and 1411 TrizecHahn-Swig, L.L.C. paid off and retired a mortgage loan with a principal balance of approximately $39,843 that bore interest at a rate of LIBOR plus 3.5%. The Corporation loaned its joint venture partner approximately $20,030 in conjunction with the debt retirement. The loan to the Corporation’s joint venture partner bears interest at a rate of LIBOR plus 2.75%, is payable in full on the earlier of March 18, 2005 or the refinancing of the joint venture’s existing mortgage and is collateralized by the joint venture partner’s investment in the joint venture. The loan receivable due from the Corporation’s joint venture partner is included in other receivables.
		Income Statement Information

		Included in rentals for the three months ended March 31, 2003 is a termination fee of approximately $5,503 received from General Motors Corporation, which occupied the majority of New Center One and also was our joint venture partner through one of its affiliates, New-Cen Commercial Corporation.
5.		CONSOLIDATED REAL ESTATE JOINT VENTURES
		Consolidation of the Hollywood & Highland Hotel
		The Corporation applied the provisions of FIN No. 46R for all entities as of December 31, 2003. The Corporation determined that the Hollywood & Highland Hotel was a VIE in which the Corporation was the primary beneficiary.
		The Hollywood & Highland Hotel is a 640-room hotel located in Los Angeles, California. At December 31, 2003, the Corporation had a 91.5% ownership and economic interest in an entity that owned the Hollywood & Highland Hotel. Prior to December 31, 2003, the Corporation accounted for the Hollywood & Highland Hotel as an investment in an unconsolidated real estate joint venture. On December 31, 2003, the Corporation consolidated the Hollywood & Highland Hotel. The net impact of the consolidation of the Hollywood & Highland Hotel was an increase in the Corporation’s consolidated assets of approximately $93,979, representing the net book value of the real estate, cash and cash equivalents and other assets. In addition, the Corporation consolidated approximately $81,517 of mortgage debt related to the Hollywood & Highland Hotel. The Corporation’s maximum exposure to loss was approximately $81,517, representing the amount of mortgage debt outstanding at December 31, 2003. Upon consolidation of the Hollywood & Highland Hotel, the Corporation recognized a cumulative effect of a change in accounting principle of approximately $3,845 representing the minority member’s share of the Hollywood & Highland Hotel’s non-recoverable cumulative losses. On February 27, 2004, the Corporation sold the Hollywood & Highland Hotel.

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6.

MORTGAGE DEBT, OTHER LOANS AND REVOLVING CREDIT FACILITY

		Certain of the Corporation’s loans are cross-collateralized with, or subject to cross-default or cross-acceleration provisions in, other loans.
a.		Collateralized Property Loans
		Property loans are collateralized by deeds of trust or mortgages on properties and mature at various dates between May 2004 and June 2013.
		At March 31, 2004 and December 31, 2003, the Corporation had outstanding interest rate swap contracts in the notional amount of $150,000, bearing a weighted average interest rate of 6.02% and maturing on March 15, 2008. In addition, at March 31, 2004 and December 31, 2003, the Corporation had outstanding interest rate swap contracts in the notional amount of $500,000, bearing a weighted average interest rate of 2.61% plus various spreads and maturing between July 1, 2005 and January 1, 2006. At March 31, 2004 and December 31, 2003, such interest rate swap agreements had fixed the interest rate on $586,920 and $650,000 of variable rate debt, respectively. Due to the pay off and retirement of certain amounts of variable rate debt during the three months ended March 31, 2004, the Corporation had interest rate swap contracts outstanding exceeding the Corporation’s unhedged variable rate debt in the notional amount of approximately $63,080 at March 31, 2004. For the three months ended March 31, 2004, the Corporation recorded through earnings a derivative loss of approximately $2,011 which represented the total ineffectiveness of certain interest rate swap contracts that were used to hedge variable rate debt that has been paid off and retired. All components of each derivative’s gain or loss were included in the assessment of hedge effectiveness. At March 31, 2004 and December 31, 2003, the debt subject to interest rate swap contracts was classified as fixed in the above table. The aggregate cost to unwind these interest rate swap contracts was approximately $24,807 and $20,325 at March 31, 2004 and December 31, 2003, respectively.
		The Corporation entered into interest rate cap contracts expiring in June 2004 on $120,000 of its variable rate debt, which limit the underlying LIBOR interest rate to 6.5%. At March 31, 2004 and December 31, 2003, the fair value of these interest rate cap contracts was nominal. In addition, and not reclassified in the table above, the Corporation entered into an interest rate cap contract expiring in April 2004 on approximately $584,700 of its variable rate debt, which limits the underlying LIBOR rate to 11.01%. At March 31, 2004 and December 31, 2003, the fair value of this interest rate cap contract was nominal.
b.		Refinancing and Early Debt Retirement
		In January 2004, the Corporation refinanced the $120,000 mortgage loan on Ernst & Young Plaza in Los Angeles, California, which bore a variable interest rate of LIBOR plus 2.75% and was scheduled to mature in June 2004, with a $120,000 mortgage loan bearing a fixed interest rate of 5.07% and scheduled to mature in February 2014. In December 2003, the Corporation entered into forward rate swap agreements to lock in a maximum effective interest rate on the refinanced mortgage loan. The forward rate swap agreements were entered into at current market rates and, therefore, had no initial cost. Upon closing of the refinanced mortgage loan, the Corporation paid approximately $3,766 in settlement of the forward rate swap agreements, which has been recorded in other comprehensive income. The approximately $3,766 paid on settlement will be amortized to interest expense over the life of the mortgage loan. In addition, the

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6.		MORTGAGE DEBT, OTHER LOANS AND REVOLVING CREDIT FACILITY, Continued
b.		Refinancing and Early Debt Retirement, Continued
		Corporation recorded a loss on early debt retirement of approximately $343, comprised primarily of the write-off of unamortized deferred financing costs.
		In February 2004, the Corporation paid off and retired the mortgage loan on Galleria Towers in Dallas, Texas. The mortgage loan had a principal balance of approximately $133,490, bore interest at 6.79% and was scheduled to mature in May 2004. The Corporation recorded a loss on early debt retirement of approximately $40, comprised primarily of the write-off of unamortized deferred financing costs.
		In conjunction with the sale of real estate during the three months ended March 31, 2004, the Corporation paid off approximately $238,343 of mortgage debt, resulting in a gain on early debt retirement of approximately $629 comprised primarily of the forgiveness of debt, partially offset by the write-off of unamortized deferred financing costs.
c.		Revolving Credit Facility
		At March 31, 2004, the amount eligible to be borrowed under the Corporation’s revolving credit facility was approximately $124,275, of which approximately $34,000 was drawn and outstanding. At December 31, 2003, the amount eligible to be borrowed under the Corporation’s revolving credit facility was approximately $217,005, none of which was drawn and outstanding.
d.		Liability for Obligations of Partners
		The Corporation was contingently liable for certain obligations related to the Hollywood & Highland Hotel, one of the Corporation’s consolidated real estate joint ventures. At December 31, 2003, the Corporation had guaranteed or was otherwise contingently liable for an approximately $74,000 mortgage loan that was scheduled to mature in April 2005. All of the assets of the Hollywood & Highland Hotel were available for the purpose of satisfying this obligation. On February 27, 2004, the Corporation sold the Hollywood & Highland Complex and, thus, is no longer contingently liable for obligations related to the Hollywood & Highland Hotel.
7.		STOCKHOLDERS’ EQUITY
a.		Dividends
		On March 10, 2004, the Corporation declared a quarterly dividend of $0.20 per common share, payable on April 15, 2004, to the holders of record at the close of business on March 31, 2004. The aggregate amount of dividends paid on April 15, 2004 totaled approximately $30,488.
		On March 10, 2004, the Corporation declared an aggregate dividend of approximately $5 for the Class F convertible stock, payable on April 15, 2004, to the holders of record at the close of business on March 31, 2004, and accrued an additional $1 dividend for the Class F convertible stock.
		On March 10, 2004, the Corporation declared an aggregate dividend of approximately $629 for the special voting stock, payable on April 15, 2004, to the holders of record at the close of business on March 31, 2004, and accrued an additional $674 dividend for the special voting stock.
b.		Restricted Stock Rights
		During the three months ended March 31, 2004, the Corporation awarded 405,950 restricted stock rights to certain employees. These restricted stock rights had a fair value of approximately $6,816 on the date of grant. The restricted stock rights vest ratably over periods of three to five years. Compensation expense will be charged to earnings over the vesting period.

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7.		STOCKHOLDERS’ EQUITY, Continued
b.		Restricted Stock Rights, Continued
		During the three months ended March 31, 2004, the Corporation awarded 115,700 performance based restricted stock rights to certain employees. These performance based restricted stock rights had a fair value of approximately $1,943 on the date of grant. The performance based restricted stock rights vest ratably over a period of five years provided that specific performance objectives are achieved. Compensation expense will be charged to earnings over the vesting period.
c.		Employee Stock Purchase Plan
		During the three months ended March 31, 2004, 57,764 shares were issued to employees under the Corporation’s Employee Stock Purchase Plan.
d.		Stock Options
		During the three months ended March 31, 2004, certain employees of the Corporation exercised 349,699 non-qualified employee stock options. Gross proceeds to the Corporation from the exercise of such non-qualified employee stock options were approximately $3,836.
e.		Warrants
		During the three months ended March 31, 2004, certain employees of the Corporation exercised 236,081 warrants. Gross proceeds to the Corporation from the exercise of such warrants were approximately $3,329.
8.		EARNINGS PER SHARE
		For the three months ended March 31, 2004, dilutive shares outstanding were increased by 1,643,093 shares in respect of stock options, warrants and restricted stock that had a dilutive effect. Not included in the computation of diluted net income available to common stockholders per share, as they would have had an anti-dilutive effect, were 3,389,598 stock options, 707,000 warrants and 521,650 shares of restricted stock rights. The dilutive shares were calculated based on $16.14 per share, which represents the average daily trading price for the three months ended March 31, 2004.
		For the three months ended March 31, 2003, dilutive shares outstanding were increased by 24,054 shares in respect of stock options and warrants that had a dilutive effect. Not included in the computation of diluted net income available to common stockholders per share, as they would have had an anti-dilutive effect, were 8,081,764 stock options and 6,906,386 warrants. The dilutive shares were calculated based on $8.93 per share, which represents the average daily trading price for the three months ended March 31, 2003.

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8.

EARNINGS PER SHARE, Continued

9.		CONTINGENCIES
a.		Litigation
		The Corporation is contingently liable with respect to routine litigation and claims arising in the ordinary course of business from time to time. While the final outcome with respect to claims and litigation pending at March 31, 2004 cannot be predicted with certainty, in the opinion of management, any liability which may arise from such contingencies would not have a material adverse effect on the consolidated financial position, results of operations or liquidity of the Corporation.
b.		Concentration of Credit Risk
		The Corporation maintains its cash and cash equivalents at financial institutions. The combined account balances at each institution typically exceed Federal Deposit Insurance Corporation (“FDIC”) insurance coverage and, as a result, there is a concentration of credit risk related to amounts on deposit in excess of FDIC insurance coverage. Management believes that this risk is not material.
		The Corporation performs ongoing credit evaluations of tenants and may require tenants to provide some form of credit support, such as corporate guarantees and/or other financial guarantees. Although the Corporation’s properties are geographically diverse and tenants operate in a variety of industries, to the extent the Corporation has a significant concentration of rental revenue from any single tenant, the inability of that tenant to make its lease payments could have an adverse effect on the Corporation.

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9.		CONTINGENCIES, Continued
c.		Environmental
		The Corporation, as an owner of real estate, is subject to various federal, state and local laws and regulations relating to environmental matters. Under these laws, the Corporation is exposed to liability primarily as an owner or operator of real property and, as such, may be responsible for the cleanup or other remediation of contaminated property. Contamination for which the Corporation may be liable could include historic contamination, spills of hazardous materials in the course of its tenants’ regular business operations and spills or releases of hydraulic or other toxic oils. An owner or operator of real property can be liable for contamination or hazardous or toxic substances in some circumstances whether or not the owner or operator knew of, or was responsible for, the presence of such contamination or hazardous or toxic substances. In addition, the presence of contamination or hazardous or toxic substances on property, or the failure to properly clean up or remediate such contamination or hazardous or toxic substances when present, may materially and adversely affect the ability to sell or lease such contaminated property or to borrow using such property as collateral.
		Asbestos-containing material (“ACM”) is present in some of the Corporation’s properties. Environmental laws govern the presence, maintenance and removal of asbestos. The Corporation believes that it manages ACM in accordance with applicable laws and plans to continue managing ACM as appropriate and in accordance with applicable laws and believes that the cost to do so will not be material.
		The cost of compliance with existing environmental laws has not had a material adverse effect on the Corporation’s financial condition and results of operations, and the Corporation does not believe it will have such an impact in the future. In addition, the Corporation has not incurred, and does not expect to incur any material costs or liabilities due to environmental contamination at properties it currently owns or has owned in the past; however, there can be no assurance that this will be the case. In addition, the Corporation cannot predict the impact of new or changed laws or regulations on its properties or on properties that it may acquire in the future. The Corporation has no current plans for substantial capital expenditures with respect to compliance with environmental laws.
d.		Insurance
		The Corporation carries insurance on its properties of types and in amounts that it believes are in line with coverage customarily obtained by owners of similar properties. The Corporation believes all of its properties are adequately insured. The property insurance that has been maintained historically has been on an “all risk” basis, which, until 2003, included losses caused by acts of terrorism. Following the terrorist activity of September 11, 2001 and the resulting uncertainty in the insurance market, insurance companies generally excluded insurance against acts of terrorism from their “all risk” policies. As a result, the Corporation’s “all risk” insurance coverage contained specific exclusions for losses attributable to acts of terrorism. In light of this development, for 2003 the Corporation purchased stand-alone terrorism insurance on a portfolio-wide basis with annual aggregate limits that it considers commercially reasonable, considering the availability and cost of such coverage. Such terrorism coverage carried an aggregate limit of $250,000 on a portfolio-wide basis. Effective December 31, 2003, the Corporation amended its insurance coverage for acts of terrorism as a result of the Terrorism Risk Insurance Act of 2002 (“TRIA”) enacted by Congress and signed into law by President Bush in November 2002. The Corporation’s expired terrorism insurance program that provided a limit of $250,000 in the aggregate per year was replaced with a terrorism insurance program with a limit of $500,000 per occurrence. This current terrorism insurance program provides coverage for certified nuclear, chemical and biological exposure, whereas the previous insurance coverage excluded this exposure. Under TRIA, the Corporation has a per occurrence deductible of $100 and retains responsibility for 10% of the cost of each nuclear, chemical and biological certified event up to a maximum of $50,000 per occurrence. If the certified terrorism event is not found to be a nuclear, chemical or biological event, the Corporation’s 10% exposure is limited to the $100 deductible. The federal government is obligated to cover the remaining 90% of the loss above the deductible up to $100,000,000 in the aggregate annually. Since the limit with respect to the Corporation’s portfolio may be less than the value of the affected properties, terrorist acts could result in property damage in excess of our current coverage, which could result in significant losses to the Corporation due to the loss of capital

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9.		CONTINGENCIES, Continued
d.		Insurance, Continued
		invested in the property, the loss of revenues from the impacted property and the capital that would have to be invested in that property.
		Any such circumstance could have a material adverse effect on our financial condition and results of operations of the Corporation. In the future, the Corporation may obtain different coverage depending on the availability and cost of third party insurance in the marketplace.
		During 2003, the Corporation received notices to the effect that its insurance coverage against acts of terrorism may not comply with loan covenants under certain debt agreements. The Corporation reviewed its coverage and believes that it complied with these documents and that its insurance coverage adequately protected the lenders’ interests. The Corporation initiated discussions with these lenders to satisfy their concerns and assure that their interests and its interests are adequately protected. As a result of the Corporation’s discussions, the lenders who sent such notices in 2003 accepted the insurance coverage that the Corporation provided, one of whom did so with a formal irrevocable waiver for the 2003 policies.
		The new terrorism insurance program described above became effective on December 31, 2003. Because the program relies upon TRIA, which was not signed into law until November 2002, it may not conform to the formal insurance requirements of the loan covenants that pre-dated TRIA. While we believe we are in compliance with our loan covenants, a lender may take the position that the Corporation’s new insurance program is not in compliance with covenants in a debt agreement and the Corporation could be deemed to be in default under the agreement. In that case, the Corporation may decide to obtain insurance to replace or supplement its new insurance program in order to fulfill the lender’s request. While we believe our terrorism insurance coverage meets the formal and substantive provisions of our loan agreements, a lender under one of our loan agreements has verbally indicated that our terrorism insurance may not meet the precise requirements of a loan agreement. We have not received, nor do we expect to receive, a notice of default from the lender. Furthermore, the lender has stated that a written waiver for 2004 will be provided to the Corporation. In the future, the Corporation’s ability to obtain debt financing, and/or the terms of such financing, may be adversely affected if lenders insist upon additional requirements or greater insurance coverage against acts of terrorism than may be available to the Corporation in the marketplace at rates, or on terms, that are commercially reasonable.
		The Corporation will continue to monitor the state of the insurance market, but it does not currently expect that coverage for acts of terrorism on terms comparable to pre-2002 policies will become available on commercially reasonable terms.
		The Corporation’s earthquake insurance on its properties located in areas known to be subject to earthquakes is in an amount and subject to deductibles that the Corporation believes are commercially reasonable. However, the amount of earthquake insurance coverage may not be sufficient to cover all losses from earthquakes. Since the limit with respect to the Corporation’s portfolio may be less than the value of the affected properties, earthquakes could result in property damage in excess of our current coverage, which could result in significant losses to the Corporation due to the loss of capital invested in the property, the loss of revenues from the impacted property and the capital that would have to be invested in that property. Any such circumstances could have a material adverse effect on the Corporation’s financial condition and results of operations. As a result of increased costs of coverage and decreased availability, the amounts of the third party earthquake insurance the Corporation may be able to purchase on commercially reasonable terms may be reduced. In addition, the Corporation may discontinue earthquake insurance on some or all of its properties in the future if the premiums exceed the Corporation’s estimation of the value of the coverage.
		There are other types of losses, such as from acts of war, acts of bio-terrorism or the presence of mold at the Corporation’s properties, for which coverage is not available in the market to the Corporation or other purchasers of commercial insurance policies. With respect to such losses and losses from acts of terrorism, earthquakes or other catastrophic events, if the Corporation experiences a loss that is uninsured or that

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9.		CONTINGENCIES, Continued
d.		Insurance, Continued
		exceeds policy limits, it could lose the capital invested in the damaged properties, as well as the anticipated future revenues from those properties. Depending on the specific circumstances of each affected property, it is possible that the Corporation could be liable for mortgage indebtedness or other obligations related to the property. Any such loss could materially and adversely affect the Corporation’s business and financial condition and results of operations.
		Additionally, although the Corporation generally obtains owners’ title insurance policies with respect to its properties, the amount of coverage under such policies may be less than the full value of such properties. If a loss occurs resulting from a title defect with respect to a property where there is no title insurance or the loss is in excess of insured limits, the Corporation could lose all or part of its investment in, and anticipated income and cash flows from, such property.
10.		SEGMENTED INFORMATION
		The Corporation has determined that its reportable segments are those that are based on the Corporation’s method of internal reporting, which classifies its office operations by regional geographic area. This reflects a management structure with dedicated regional leasing and property management teams. The Corporation’s reportable segments by major metropolitan area for office operations in the United States are: Atlanta, Chicago, Dallas, Houston, Los Angeles, New York, Washington D.C. and secondary markets. The Corporation primarily evaluates operating performance based on internal property operating income, which is defined as total revenue including tenant recoveries, parking, fee and other income less operating expenses and property taxes including properties that have been designated as held for disposition and reported as discontinued operations. Of the seven office properties reported as discontinued operations, one is in Dallas, one is in Los Angeles, two are in the Washington, D.C. metropolitan area and three are in the secondary markets of West Palm Beach, Florida, Memphis, Tennessee, and Minneapolis, Minnesota, respectively. Of the three retail properties reported as discontinued operations and included in the corporate and other reportable segment in the following table, one is in Las Vegas and two are in Los Angeles. Internal operating income excludes property related depreciation and amortization expense. The accounting policies for purposes of internal reporting are the same as those described for the Corporation in Note 2 from the Corporation’s 2003 Annual Report on Form 10-K, Significant Accounting Policies, except that real estate operations conducted through joint ventures are consolidated on a proportionate line-by-line basis, as opposed to the equity method of accounting. All key financing, investing, capital allocation and human resource decisions are managed at the corporate level.
		The following presents internal property operating income by reportable segment for the three months ended March 31, 2004 and 2003.

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10.		SEGMENTED INFORMATION, Continued
		For the three months ended March 31, 2004 and 2003