INTERIM REPORT TO SHAREHOLDERS JUNE 30, 2002

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1 Q2.qxd 8/20/2002 4:22 PM Page 1 INTERIM REPORT TO SHAREHOLDERS JUNE 30, 2002 FINANCIAL HIGHLIGHTS Three months ended June 30 Six months ended June 30 (Millions, except per share amounts) Results from operations Funds from operations and gains $ 26 $ 75 $ 121 $ 102 Net income Per diluted common share Funds from operations and gains $ 0.80 $ 2.48 $ 4.07 $ 3.21 Funds from operations prior to property gains $ 0.80 $ 0.74 $ 1.79 $ 1.47 Net income $ 0.52 $ 1.46 $ 2.93 $ 1.65 Dear Fellow Shareholders: We are pleased to share with you the financial and operating results for the six months ended June 30, Our results reflect the stability of our rental stream and long-term lease profile to high quality tenants. This strategic focus enables us to continue delivering growth in a somewhat more challenging leasing environment. FINANCIAL RESULTS Funds from operations before property disposition gains increased 8% during the second quarter of 2002 to $0.80 per share, compared with $0.74 per share in Same property net operating income increased by $3 million or 11%, excluding dispositions, attributable mainly to the significant increase in occupancy at Bankers Hall in Calgary. There were no property disposition gains in the second quarter, compared with the same period in 2001, in which property disposition gains totalled $50 million or $1.74 per share. For the three months ended June 30, 2002, net income per share totalled $0.52 compared with $1.46 per share for the same period in The 2001 figure included a property disposition gain of $1.29 per share. MAJOR INITIATIVES During the second quarter of 2002, BPO Properties: Completed the sale of a 50% interest in Bankers Hall in Calgary. BPO Properties entered into an agreement to sell a 50% interest in the 2.7 million square foot Bankers Hall complex to British Columbia Investment Management Corporation,

2 Q2.qxd 8/20/2002 4:22 PM Page 2 which closed August 1, This transaction generated net proceeds to BPO Properties of $113 million, net of non-recourse debt on the property, based on a sale price of $304 million. Bankers Hall is the premier office development in the heart of downtown Calgary, which features twin 44-storey office towers atop a four-storey retail podium. Bankers Hall is 96% leased to high-quality tenants including EnCana Corporation, Talisman Energy, RBC Financial and Canadian Natural Resources. Acquired in mid-2000 with over 400,000 square feet of vacancy, and with one of the two towers still under construction, BPO Properties leased the vacant space at rates higher than projected, acquired the land leases under the property, and subsequently finalized a long-term refinancing for the property. This transaction follows the sale of a 50% interest in Fifth Avenue Place in Calgary in 2001, and represents the culmination of the repositioning of the Calgary portfolio. Reached an agreement to acquire a 50% interest in Atrium on Bay in Toronto. The company paid $68 million ($126 per square foot), for the acquisition which closed on July 31, Located in downtown Toronto, at the corner of Yonge and Dundas Streets, the property has 1.1 million square feet of premium space in twin office towers atop a two-storey retail podium. Atrium on Bay is 91% leased to quality tenants including CIBC, Bell Canada, CGI and the Province of Ontario. Completed the sale of a non-core retail property in Toronto for net proceeds of $27 million. To date, this brings the total proceeds from non-core asset dispositions to $82 million, furthering the company's strategic focus on premier office properties in select cities in Canada. The balance of the company's noncore retail assets are expected to be sold by year end. Received regulatory approval to renew its Normal Course Issuer Bid, enabling the company to acquire up to 10% of its common shares during the 12-month period ending July 10, OPERATIONS REVIEW The Toronto office market began to show signs of slowing economic activity. Vacancy rates, including sublet space, continued to grow slowly, reaching 9% at the end of the second quarter. Direct vacancy, which excludes the impact of sublet space, reached 5%. BPO Properties is well-positioned with minimal lease maturities over the next several years, and average inplace net rents still well below current market rates. The Calgary office market benefited from improved commodity prices over the last six months, which translated into increased activity by many firms and a recovery from the economic slowdown. Our Calgary portfolio averages 98% occupancy with few expiries over the next five years. In total, approximately 466,000 square feet of space was leased across the portfolio in the first half of the year, including a new lease for 60,000 square feet with Noranda Inc. at Queen's Quay Terminal in Toronto. Subsequent to June 30, 2002, EnCana Corporation, a major integrated oil and gas company, leased 200,000 square feet at Bankers Hall, further enhancing the value of this premier asset. Occupancy in the office portfolio was 96% at the end of the second quarter, consistent with the occupancy at the beginning of the year. Average office portfolio net rental rates are 32% below current market rates, providing BPO Properties with internal growth opportunities as leases roll-over. OUTLOOK The quality of the company's commercial office portfolio, strong tenant base, long-term leases, and the strength of the oil and natural gas industries in Calgary provide a solid foundation for continued financial and operating performance during the balance of the year. David D. Arthur President and Chief Executive Officer August 14, / BPO PROPERTIES LTD.

3 Q2.qxd 8/20/2002 4:22 PM Page 3 Consolidated Financial Statements Consolidated Balance Sheet unaudited Jun. 30 Dec. 31 (Millions) Notes Assets Commercial properties 2 $ 1,320 $ 1,448 Cash and cash equivalents Future income taxes Loans receivable Other assets $ 2,002 $ 2,001 Liabilities and shareholders equity Mortgages and other borrowings 3 $ 794 $ 865 Accounts payable and other liabilities Shareholders equity 4 1,110 1,026 $ 2,002 $ 2,001 Q2/2002 INTERIM REPORT / 3

4 Q2.qxd 8/20/2002 4:22 PM Page 4 Consolidated Statement of Income unaudited Three months ended June 30 Six months ended June 30 (Millions, except per share amounts) Commercial properties Revenue $ 58 $ 79 $ 122 $ 160 Expenses Loans and investment income Expenses Interest Administrative and large corporation tax Funds from operations (FFO) before the following Gains on disposition of properties Funds from operations and gains Depreciation and amortization Future income taxes and other non-cash items, net Net income $ 18 $ 46 $ 89 $ 57 Net income per common share basic and diluted Net income prior to property gains $ 0.52 $ 0.17 $ 1.08 $ 0.36 Property disposition gains $ 0.52 $ 1.46 $ 2.93 $ 1.65 Consolidated Statement of Retained Earnings unaudited Six months ended June 30 (Millions) Retained earnings, beginning of period $ 564 $ 475 Net income Preferred share dividends paid (5) (10) Retained earnings, end of period $ 648 $ / BPO PROPERTIES LTD.

5 Q2.qxd 8/20/2002 4:22 PM Page 5 Consolidated Statement of Cashflow unaudited Three months ended June 30 Six months ended June 30 (Millions) Operating activities Net income $ 18 $ 46 $ 89 $ 57 Add (deduct) Depreciation and amortization Future income taxes and other non-cash items Gains on disposition of properties (50) (65) (50) Other working capital (13) (5) (66) (10) 59 Investing activities Commercial properties Acquisition of properties (9) (84) Tenant improvements (3) (9) (4) (14) Development and redevelopment expenditures (13) (12) (19) (26) Disposition of properties Financing activities Debt arranged Debt amortization and repayments (4) (116) (6) (119) Preferred share dividends paid (3) (5) (5) (10) (4) (38) (6) (6) Increase in cash and cash equivalents Cash and cash equivalents, beginning of period Cash and cash equivalents, end of period $ 518 $ 189 $ 518 $ 189 Q2/2002 INTERIM REPORT / 5

6 Q2.qxd 8/20/2002 4:22 PM Page 6 Notes to the Consolidated Financial Statements NOTE 1. SUMMARY OF ACCOUNTING POLICIES These consolidated interim financial statements should be read in conjunction with the company s most recent annual consolidated financial statements that include information necessary or useful to understanding of the company s businesses and financial statement presentations. The consolidated interim financial statements follow the same accounting policies and methods of application as the most recent annual consolidated financial statements. The quarterly financial statements are unaudited. Financial information in this Report reflects any adjustments that are, in the opinion of management, necessary to a fair statement of results for the interim periods in accordance with generally accepted accounting principles ( GAAP ) in Canada. Certain prior year amounts have been restated or reclassified to conform to the current year s presentation. NOTE 2. COMMERCIAL PROPERTIES At June 30, 2002, the company s property portfolio is comprised of interests in 19 commercial properties and development sites totalling approximately 13 million square feet of space, in which BPO Properties has a net interest in approximately 9 million square feet. Net Rentable Owned Jun. 30 Dec. 31 Area Interest s sq.ft. 000 s sq.ft. Millions Millions Office properties 9,459 6,958 $ 1,078 $ 1,160 Retail properties ,251 7,750 1,159 1,299 Development properties 2,770 1, ,021 8,862 $ 1,320 $ 1,448 NOTE 3. MORTGAGES AND OTHER BORROWINGS Mortgages and other borrowings consist primarily of commercial property mortgages which are secured by specific properties without recourse to the company. 93% of the debt payable is on a fixed interest rate basis. Contractual mortgage principal repayments at June 30, 2002 are as follows: Weighted Average Interest Rate at Remainder 2007 & (Millions) June 30, Beyond Total Mortgages and other borrowings 7.0% $ 5 $ 12 $ 25 $ 13 $ 14 $ 725 $ 794 NOTE 4. SHAREHOLDERS' EQUITY Consolidated statement of changes in shareholders equity follows: Jun. 30, 2002 Dec. 31, 2001 Preferred Common Retained Preferred Common Retained (Millions) Shares Shares Earnings Total Shares Shares Earnings Total Balance, beginning of period $ 382 $ 80 $ 564 $ 1,026 $ 382 $ 80 $ 475 $ 937 Net income Preferred share dividends paid (5) (5) (18) (18) Balance, end of period $ 382 $ 80 $ 648 $ 1,110 $ 382 $ 80 $ 564 $ 1,026 6 / BPO PROPERTIES LTD.

7 Q2.qxd 8/20/2002 4:22 PM Page 7 NOTE 5. FUNDS FROM OPERATIONS AND GAINS PER SHARE Three months ended June 30 Six months ended June 30 (Millions, except per share amounts) FFO per common share basic and diluted FFO prior to property gains $ 0.80 $ 0.74 $ 1.79 $ 1.47 Property disposition gains $ 0.80 $ 2.48 $ 4.07 $ 3.21 NOTE 6. SEGMENTED INFORMATION The company s operations are focussed primarily on the investment in commercial office and retail properties in Canada. The following summary represents financial information for the company s principal areas of business: Retail & Development Office Properties Properties Loans & Other Total Jun. 30 Dec. 31 Jun. 30 Dec. 31 Jun. 30 Dec. 31 Jun. 30 Dec. 31 (Millions) Carrying value $ 1,078 $ 1,161 $ 241 $ 288 $ 683 $ 552 $ 2,002 $ 2,001 Acquisitions Capital investments Retail & Development Office Properties Properties Loans & Other Total Six months ended Jun. 30 Jun. 30 Jun. 30 Jun. 30 Jun. 30 Jun. 30 Jun. 30 Jun. 30 (Millions) Property revenue $ 104 $ 117 $ 18 $ 43 $ $ $ 122 $ 160 Property expenses (50) (58) (10) (21) (60) (79) Net operating income Loans and investment income Operating income Interest expense (27) (25) (7) (4) (27) (36) Administrative expenses and large corporation tax (3) (2) (1) (1) (1) (4) (4) Gains on disposition Depreciation and amortization (9) (11) (1) (5) (10) (16) Future income taxes, and other non-cash items (22) (29) Net income $ 80 $ 71 $ 6 $ 9 $ 25 $ 6 $ 89 $ 57 Q2/2002 INTERIM REPORT / 7

8 Q2.qxd 8/20/2002 4:22 PM Page 8 Corporate Information SHAREHOLDER INQUIRIES Investor relations and media inquiries should be directed to the Investor Relations Department at (416) Inquiries regarding financial results should be directed to Steven J. Douglas, Senior Vice President and Chief Financial Officer at (416) Shareholder questions relating to shares, preferred shares, dividends, address changes and share certificates should be directed to the company s Transfer Agent: CIBC Mellon Trust Company By mail: P.O. Box 7010, Adelaide Street Postal Station, Toronto, Ontario, M5C 2W9 By courier: 199 Bay Street, Commerce Court West, Securities Level, Toronto, Ontario, M5L 1G9 Attention: Courier Window Tel: (416) Toll free: (800) (throughout North America) Fax: (416) Website: inquiries@cibcmellon.com BPO PROPERTIES LTD. BPO Properties Ltd. is a leading Canadian real estate company focussed on the ownership and value enhancement of premier office properties. The current property portfolio is comprised of interests in 19 commercial properties and development sites totalling 13 million square feet. The company's objective is to realize superior financial returns for shareholders by enhancing the value of its real estate assets and by making opportunistic investment in new assets. BPO Properties common shares trade on the TSX under the symbol BPP. Further information about the company can be found on our website at HEAD OFFICE BCE Place, 181 Bay Street Suite 4300, P.O. Box 770 Toronto, Ontario M5J 2T3 Tel: (416) Fax (416) Website: