board of directors and management...

REPORT OF ACTIVITY 2003

Board of Directors

Paul Campbell 1-4

President and CEOSITQ

Jean Cartier 2-4

Assistant Vice-Rector,Human ResourcesUniversité Laval

Claude Caty 2

Senior Manager, InvestmentsFiducie globale des régimes de retraite de la Société de transport de Montréal

André Charest 1-2

Vice-President,Administration and FinanceCDP CapitalReal Estate Group

Claude Dalphond 2-3

Administrator

Pierre Duhaime 1

Vice-President,Investments ManagementCDP CapitalReal Estate Group

Léopold GagnonPresidentGanotec inc.

Francine Harel-GiassonProfessorHEC-Montréal

Reynald N. Harpin 3

Vice-President,Pension InvestmentsPension FundsAlcan Adminco inc.

Raymond Laurin 2

Vice-President Accounting,Information Management andPension Fund DepartmentFédération des Caisses DesjardinsComité de retraite du MouvementDesjardins

Louis Monette 1

President and General ManagerChairman of the BoardAssociation de bienfaisance et de retraite des policiers et policières de la Ville de Montréal

Fernand Perreault 1-3

Chairman of the Board, SITQPresident CDP CapitalReal Estate Group

Michel SanschagrinVice President and General ManagerAdministration and Chief ActuaryIndustrielle Alliance

1- Member of the Executive Committee2- Member of the Audit Committee3- Member of the Human Resources

and Remuneration Committee4- Member of the Retirement Committee

Executive Officers

Paul CampbellPresident and Chief Executive Officer

Jean-Louis DubéSenior Vice President,Asset Management

Louiselle PaquinSenior Vice President, Finance

Yvon TessierSenior Vice President, Investments

Daniel ArchambaultVice President, Quebec

Michel CyrVice President,Development and Construction

Pierre LefebvreVice President, Human Resources and Corporate Services

Management Team

Denis ÉpohVice President, Investments

Jean-François FournierVice President, Asset Management

André GirardVice President, Asset Management

Yves-André GodonVice President, Leasing

Marc LemaireVice President, Financial Services

Sylvain PelletierVice President, Asset Management

Denis PerreaultVice President, Asset Management

Jean-Paul MouzinPresident and General ManagerSITQ Europe S.A.

Paul Jean-Louis Louiselle Yvon Daniel Michel PierreCampbell Dubé Paquin Tessier Archambault Cyr Lefebvre

BOARD OF DIRECTORS AND MANAGEMENT TEAM

SITQCentre CDP Capital1001, square VictoriaMontréal, Québec H2Z 2B1Telephone : (514) 287-1852www.sitq.com

Published by

Communications and Public Affairs

Vice Presidency, Human Resources

and Corporate Services

SITQ

Writing: Communicateurs du Fauve

Production: Langevin Turcotte

Printing: Lithographie G. Monette inc.

Copyright SITQ, 2004

ISSN 1492–305X

SITQ

Report of activity (English ed.)

Ce rapport est aussi disponible en français.

SITQ PROFILE

Since its inception in 1984, SITQ has upheld a tradition of excellencethat has made it a leader in NorthAmerican and Western European real estate. Founded by the Caisse de dépôt et placement du Québec(CDP) with invested capital of$9 million, SITQ’s portfolio ofholdings has now reached $7.5 billionand is mostly comprised of prestigiousdowntown office buildings.

SITQ also enjoys the support of it’sshareholders, who give it strengthand stability. These shareholdersinclude the Caisse de dépôt et placement du Québec, which owns a93.4% interest, Alcan Canada MasterTrust, the Association de bienfaisanceet de retraite des policiers et policièresde la Ville de Montréal, the Régime de rentes du Mouvement Desjardins,the Fonds commun de placement des régimes de retraite de l’UniversitéLaval and the Fiducie globale desrégimes de retraite de la Société detransport de Montréal.

Including buildings held and managedon behalf of third parties, SITQ nowmanages assets of $14 billion. Itsportfolio totals more than 69 millionsquare feet in 485 buildings inCanada, the United States, Franceand the United Kingdom.

SITQ’s team of 424 employeesensures its success with top-qualityproperty management, investmentand assets management know-how,and insight into the real estate development sector. The SITQ headoffice is located at the Centre CDPCapital, in Montreal. The Companyhas offices in Toronto, Ontario,and Vancouver, British Columbia,as well as in Brussels, Belgium.It can also rely on the CDP Capitalteam in Paris.

TABLE OF CONTENTS

01 Presidents’ Message04 Financial profile 06 Asset Management10 Portfolio Management14 Real Estate Development18 Corporate Services21 Holdings Portfolio

Board of Directors and Management TeamSkills Development

THE SITQ MISSION

SITQ’s main focus is to live up to the expectations of its...

... investors and shareholders,by offering them an organization,resources and top-quality productsdesigned to develop and manage realestate vehicles that are as competitiveas they are diversified.

... tenants, by offering them choicelocations and environments thatencourage the growth of their business.

... employees, by giving them a stimulating and healthy work environment.

OUR VALUES

Quality of serviceIntegrityImportance of human resourcesTeamworkEfficiencyInnovationCommunity involvement

2003 2002

Cash flow from operations 323,787 373,556Total assets (fair market value) 8,350,632 10,021,810Managed Assets 14,165,722 16,133,325Acquisitions 270,600 1,030,000Disposals 1,626,000 609,000Capital investments 332,000 552,102in the portfolioCurrent rate of return 8.8% 9.4%Overall yield 8.1% 3.8%

FINANCIAL HIGHLIGHTS

All amounts are in Canadian dollars unless otherwise mentionned.

Recruiting, developing and retaining the best talent

is a major challenge and is a priority at SITQ, whose

performance relies on the professionalism of its team.

In this regard, the Company has sought to create

a stimulating and open professional environment,

bolstered by real opportunities to develop skills, solid

training programs and a structured succession plan.

When it comes to training, SITQ has adopted a

proactive approach and offers numerous programs

geared toward new employees, managers and

personnel as a whole.

A range of specific training courses support SITQ

policies, laws and corporate governance. Moreover,

the value attributed by the Company to the human

aspect also gives rise to courses, workshops and

luncheon-seminars.

Furthermore, a few managers take advantage of

the specialized programs offered within the scope

of the Chaire en immobilier UQAM-SITQ, including

the unique MBA program in property management,

through which Company's employees earned

diplomas.

The calibre of the SITQ team and its commitment

to on-going improvement vouch for the continued

growth of the company and its ability to deliver

sustained performance that lives up to the expec-

tations of the shareholders regarding earnings.

SKILLS DEVELOPMENT

(in thousand of dollars, except ratios)

FRONT PAGE:

MONTREAL HERALD’S ARCHITECTURAL LINTELSTANDING OUT AGAINSTCENTRE CDP CAPITALGLASS WALL.

1. TRAINING ON THE NEW CODE OF ETHICS

NATHALIE POMERLEAU, TONY ROY, FERNAND POIRIER, LISETTE ROY AND NATHALIE PELLETIER.

2. CHAIRE UQAM-SITQ PARTNERS

PAUL CAMPBELL AND PIERRE FILIATRAULT, DEANOF ÉCOLE DES SCIENCES DE LA GESTION, UQAM.

3. TRAINING ON QUALITY OF COMMUNICATIONS

CAROLINE HUPÉ, ALAIN CARRIÈRE, LUC PARENT, MIREILLE SOLARI, ROBERT BLAHUTA AND ARMAND MORIN.

4. MBA IN PROPERTY MANAGEMENT

ARMAND MORIN, JEAN-LOUIS DUBÉ, DENIS EPOH, ROBERT SHEITOYAN (PROGRAM DIRECTOR), DENIS PERREAULT AND JACQUES SAINT-PIERRE (INCUMBENT OF THE REAL ESTATE UQAM-SITQ CHAIRE).

1.

2.

3.

4.

PRESIDENTS’ MESSAGE

1

Throughout 2003, despite an uncertain economic

context, SITQ refocused its activities according to

the priorities targeted by its strategic plan of 2002.

Thus the company rounded out the year with a yield

that surpassed the indexes of its activity sector,

and its real estate portfolio has been restructured

in accordance with the business plan objectives.

In 2003, economic activity in North America and

Western Europe were characterized by a wait-and-see

attitude in the face of the uncertain economic recovery of

most markets. In Canada, the economy has nonetheless

shown a certain vigour despite the numerous events,

such as SARS and the mad cow disease crisis, that

affected it. At the end of the year, economic recovery

seemed well underway and had begun in Canada

before the United States, a rare occurrence.

In such a context, the vacancy rates increased,

particularly in class-B buildings, and 2004 will remain

difficult as regards rental, because predictions are that

the positive effects of economic recovery will only be

felt by the real estate market in 2005.

SITQ’s assets, a portfolio made up primarily of class-A

buildings, are less vulnerable, but the Company was

nevertheless affected by this situation in its markets.

However, SITQ’s current yield reached 8.8%, as

compared to 9.4% in 2002, while its overall yield

has clearly improved, increasing from 3.8% in 2002

to 8.1% in 2003.

To take advantage of market opportunities and by

concentrating on its capacity to keep its portfolio

liquid, SITQ disposed of $1.6 billion worth of assets.

The Company’s net worth is now $8.3 billion,

whereas it reached a peak of $10 billion in 2002.

Cash flow from operations, after income tax and

interest, dipped slightly to $323.8 million, while net

profit rose by 35%, reaching $407.6 million in 2003.

STRATEGIC ALIGNMENT

Consequent to its international development over the

past ten years, SITQ’s main activities will henceforward

be assets management and portfolio management. The

direction is clear: SITQ is first and foremost a company

specializing in investments and transactions, that is, it

exercises dynamic management of its portfolio in order

to generate the best possible earnings with its assets.

The Company thus maximizes the performance of

each building – and its overall portfolio – while taking

advantage of opportunities to buy and sell in the markets

selected.

Aside from the revision of its fundamental trades, SITQ

precisely defined the prime markets in which it intends

to invest. The Company will thus be present in a limited

number of highly liquid and deep markets, in Canada,

the United States, France and England. Finally, the

Company has narrowed its sectors of investment

and is now concentrating its portfolio in prime office

buildings located in city centres as well as business

parks. In other respects, it allows itself the flexibility

to take the necessary actions to seize exceptional

opportunities outside of its strategic alignment.

FERNAND PERREAULT AND PAUL CAMPBELL

ACHIEVEMENTS IN 2003

SITQ’s achievements in 2003 are in perfect harmony with

its business plan. Due to market conditions, SITQ focused

its strategy on the sale rather than on the acquisition

of buildings. There were thus very few acquisitions in a

market that was not particularly conducive to it. However,

a considerable number of sales enabled the Company to

dispose of products that were no longer in line with its

investment strategy, make profits and pay shareholders

a return on their investment.

In 2003, SITQ formed an asset management team

designed to further its knowledge of foreign markets,

in close collaboration with its partners throughout the

world. The main objective of the Assets Management

Division is to create value so that SITQ’s investments

generate a satisfactory profit for its shareholders.

SITQ’s approach advocates improving the quality

of the tenants and of the premises offered, and making the

latter correspond with the expectations of an ever-more

demanding clientele. Therefore, SITQ transfers its expertise

to its partners, since the operational principles applied in

assets management have long since been proven effective

in the real estate management sector in Quebec.

3

PARTNERSHIPS

SITQ has almost always counted on partnerships to

consolidate its expansion in foreign markets. By associ-

ating with well-established firms, SITQ reduces its risk

factor while benefiting from their in-depth knowledge

of their respective markets. The first Canadian fund

to undertake international diversification, SITQ has

built an enviable reputation in the targeted markets

throughout the world.

SITQ is also assessing the possibility of establishing

partnership agreements in view of sharing the owner-

ship of buildings that it owns entirely, of its national

subsidiaries and even of the company stock ownership,

if a strategic opportunity were to present itself.

OUTLOOK FOR 2004

In 2004, the real estate market will continue to face a

major rental challenge in all of SITQ’s markets, and this

for as long as the winds of economic recovery are not

felt in the industry. However, given the quality of its real

estate portfolio, SITQ is confident that it will continue

to show satisfactory profits.

Regarding transactions, the Company wishes to establish

a balance between acquisitions and disposals. Naturally,

the business opportunities encountered will be deter-

mining factors in this regard, but SITQ has strong

footholds in its targeted markets and has the liquidity

needed to undertake large-scale transactions.

In short, next year, the Company will keep up the

momentum it had in 2003, which saw the completion

of its realignment strategy in record time while making

interesting profits, despite a difficult economic situation.

We would like to personally thank the members of

our team, who make invaluable contributions to our

achievements and who are deeply committed to the

success of SITQ. The Company knows it can count on

them and ensures that they are allowed to reach their

full professional potential.

We would also like to thank the members of the Board

of Directors, who support the company by overseeing

its activities with an analytical yet positive eye. Finally,

we wish to extend our gratitude to our shareholders

and partners for the trust they put in us and for their

unshakeable strategic support.

Paul Campbell Fernand Perreault

President and Chairman of the Chief Executive Officer Board of Directors

4

Rental 1,101,314 1,144,038 926,331 713,847 610,841

Investment income 11,636 6,733 25,639 23,322 8,924

Cash flow from operations (before taxes and interest) 506,089 585,999 509,072 418,173 336,734

Cash flow from operations1 (after taxes and interest) 323,787 373,556 298,775 236,916 198,625

Net profit1 and 2 407,631 266,944 312,210 182,991 94,269

1. Excluding the interest payable to shareholders on subordinate debentures and exceptional items.2. Starting on January 1, 1999, the results of Bentall Corporation have been consolidated.If this investment

had been listed at its consolidation value, the amount of rent, investment income and cash-flow, both before taxes and interest and after taxes and interest, would have been $397,508, $18,192 and $254,837.

FINANCIAL PROFILE

Total assets 8,350,632 10,021,810 8,624,073 7,006,414 5,293,376

Real estate assets 6,897,414 8,652,067 7,472,432 6,125,450 4,579,459

Real estate investments 523,186 573,108 550,299 527,740 424,248

Third-party debts 3,972,803 5,046,196 4,190,743 3,356,016 2,518,542

Shareholders’ equity 3,244,299 3,986,925 3,828,877 2,684,478 1,970,277in the Corporation

Coverage and ratios

Interest coverage 2.91 2.82 2.52 2.44 2.56

Debt ratio (third-party debts/total assets) 50% 50% 49% 48% 48%

Immobilisations

Acquisitions 270,600 1,030,000 1,718,800 1,373,100 370,221

Disposals 1,626,000 609,800 1,191,100 384,800 129,870

Portfolios’ capital improvements 1 332,000 552,102 633,716 305,849 214,100

Yields

Current rate of return (cash flow from 8.8% 9.4% 9.0% 8.9% 9.5%operations on shareholders’ equity at market value)

Overall yield 8.1% 3.8% 12.7% 17.9% 13.3%(current rate of return plus capital appreciation yield)

1. Capital expendures, which include Bentall Corporation’s capital expenditures since 1999, totalled $86,054 in 1999.

Fiscal year (in thousand of dollars)

For the fiscal year ended December 31 2003 2002 2001 2000 1999

Fair value (in thousand of dollars, except ratios)

For the fiscal year ended December 31 2003 2002 2001 2000 1999

5

Holdings portfolio breakdown by sector

Holdings portfolio breakdownby region

20022003

75.485.2

Offices

7.82.9

Commercial

12.58.5

Development

4.33,.4

Others

90908080707060605050404030302020101000

20022003

21.325.5

Quebec

4.95.8

Ontario

10.19.0

Western Canada

36.733.4

United States

27.026.3

Europe

90908080707060605050404030302020101000

Asset Management1515 BROADWAY,NEW YORK

The value of the SITQ portfolio outside of Canada has

been growing steadily for several years. It now repre-

sents 60% of the real estate assets of the company.

Ever since it started acquiring buildings abroad, SITQ

has always paid special attention to the quality of

its asset management. This is the criterion it uses

to select choice partners. Moreover, given the extent

of its international portfolio and the complex issues

related to its sector of activity, the Company decided

to step up its direct involvement in the management

of its assets.

To support the growth of its foreign portfolio, SITQ

put together a team that specializes in optimizing

the value of each of the Company’s assets.

Asset management includes several points that cover

all the basic criteria for achieving superior earnings:

• Market intelligence, that is, in-depth knowledge

and development of each market targeted

by the strategic plan.

• Relationship with the partners, particularly

in maintaining the quality of business relations

and holdings structures.

• Financial risk management, including reliability,

quality and diversity of tenants.

• Contribution to real estate management, which

encompasses all the facets of managing a building,

such as negotiating and supervising management

and rental contracts, services for tenants, recom-

mendations and follow-up of rental and capital

asset policies.

• Creation of value, which consists in identifying

all the opportunities to generate or increase the

revenues of a building.

SITQ plays an active role in all aspects that have

an impact on the value and appreciation of its

assets, with priority given to contributing to maxi-

mizing occupancy of buildings under management.

The current rental market has slowed down in most

of the countries targeted by the Company. The value

of a building is highly dependent on its occupancy

rate. SITQ will adapt its expertise to reduce vacancy

rates to a minimum by improving, among other

things, the lease renewal rate. In the buildings

it manages, this rate is more than 70%, whereas

it is only about 35% in the markets where the

Company invests.

With in-depth knowledge of the components of the

markets it is developing, SITQ is in a better position

than ever to make informed decisions to undertake

transactions that will render the expected earnings.

REAL ESTATE MANAGEMENT IN QUEBEC

SITQ started out as a Quebec-based real estate

owner and management company. This is the foun-

dation on which the Company has built its unique

know-how, which it exports beyond Canadian borders.

In 2003, SITQ invested some $30 million in buildings

in Quebec, allowing for substantial property

enhancements that maintain or increase the value

of its portfolio.

7

8

SITQ’s focus in Quebec was on rental, as in all

its markets. This was quite a challenge since the

Centre CDP Capital, by welcoming the teams of

the Caisse de dépôt et placement du Québec and its

subsidiaries, was freeing sizeable blocks of space in

SITQ buildings. In addition, in the first eight months

of the year, the rental market was on the fence due

to economic uncertainty. Despite this unfavourable

context, the Company’s performance was comparable

to the rest of the market, and closed out the year

with a vacancy rate of 12%.

SITQ has adopted proactive rental strategies.

Moreover, its determination to satisfy its clientele and

offer exceptional service quality gives the Company

a substantial edge in a competitive market.

This approach was demonstrated by several actions.

For example, customer service for SITQ buildings in

Quebec was centralized and now focuses more than

ever on the quality, responsiveness and standardiza-

tion of services in line with best business practices.

This initiative required a whole range of actions

from the training of staff to the simplification of

procedures.

Furthermore, SITQ conducted a customer satisfaction

survey in Quebec in view of pursuing its constant

improvement approach. Based on very positive

results, the Company developed a specific action

plan for each of its buildings in order to best meet

the needs of its tenants.

SITQ also oversaw the start-up of the Centre CDP

Capital, a non-traditional activity for the company.

As this building is a business centre for the Caisse

and its subsidiaries, the Company set up all the

internal support services – mail, reprographic

printing, etc. – that a large-scale company needs

to run efficiently.

Finally, the real estate management team contributed

to refocusing the SITQ portfolio in Quebec and

conducted its activities to ensure that transactions

would be completed smoothly.

In 2003, the Quebec real estate management team

took up major challenges most effectively. In 2004,

focus will continue to be on rental and the satisfac-

tion of the tenants and occupants of the buildings,

two priorities that are essential for generating solid

earnings for shareholders.

ASSET MANAGEMENT

MEETING WITH CLIENTS

SEATING, CLOCKWISE: CATHERINE SCHRAENEN-LEDUC,FRANÇOIS LEFEBVRE, NATHALIE KHOROMANSKY (SAMSON BÉLAIR), CLAUDE PERRIER (GE CAPITAL),DANIEL ARCHAMBAULT AND AMANI SAWAYA (HSBC).STANDING: CAROLE ARBOUR.

9

REAL ESTATE MANAGEMENT IN CANADA

Outside of Quebec, SITQ also handles real estate

management throughout Canada, through its sub-

sidiary Bentall Capital L.P. (BCLP), whose head office

is located in Vancouver. The BCLP team manages

some 10 million square feet in Ontario, Alberta,

and British Columbia, as well as in Seattle, in

the United States. BCLP is responsible for rental,

property management and asset management

of the buildings in its portfolio.

In Western Canada, as in Toronto, SITQ faces

difficult markets where the vacancy rates are high

and sometimes show negative absorption rates.

In these markets, also, rental and customer service

are therefore top priorities.

The management practices developed in Quebec

is gradually implanted in these markets: dynamic

rental methods, lease extensions, early lease renewal,

etc. This approach for securing leases is beneficial

to both the landlord and the tenant, while it adds

to the value of the building.

As in its operations outside of Canada, the SITQ asset

management team is active in the markets managed

by BCLP, in order to facilitate the transfer

of know-how and contribute to enhancing the value

of this substantial portfolio.

ASSET MANAGERS

JEAN-FRANÇOIS FOURNIER, TONY ROY AND DENIS PERREAULT (FOREGROUND).

JEAN-LOUIS DUBÉ, ANDRÉ GIRARD AND JEAN-CHARLES VIARD.

Portfolio Management

CENTRE CDP CAPITAL’SPARQUET, MONTREAL

11

In 2003, SITQ refocused its assets portfolio, both

in the designated markets and for selected products.

The Company’s prime markets are Canada (Montreal,

Toronto, Vancouver and Calgary), United States

(New York, Washington, Boston and the American

West Coast) and Europe (Paris and London). These are

fluid markets that offer both depth and buoyancy.

Basically, SITQ aims to concentrate its portfolio

in prestigious office buildings and business parks.

In other respects, market conditions prompted SITQ

to accelerate its disposal plan. The Company thus

disposed of $1.6 billion in assets, while its acquisitions

totalled $300 million.

A CONSTANTLY CHANGING PORTFOLIO

Internationally, real estate transactions are on the

rise. In 2003, several players were in buying mode,

a tangible sign that real estate remains a reliable

investment. This context allowed SITQ to accelerate

the refocusing of its portfolio while taking advantage

of the opportunities offered by a buyer’s market.

In Canada, SITQ disposed of assets that were no

longer compatible with its strategic priorities. Thus,

in Western Canada, SITQ disposed of two products

that were no longer targeted: a large shopping

centre in Victoria, and its interests in Apex, a resi-

dential development company located in Calgary.

In Quebec, the Company sold a large part of its

shopping centre portfolio to its sister company,

Ivanhoé Cambridge, which specializes in the man-

agement of this type of product. SITQ will gradually

sell its few remaining shopping centres. It also

disposed of several of its buildings in Laval as well

as land it owned in the Saint-Laurent district and

in Quebec City, as they no longer corresponded

to the markets targeted.

In the United States, also, SITQ pulled out of markets

that are now out of focus, that is, Los Angeles and

San Diego. The Company also disposed of five of the

six buildings that remained in the Loutex portfolio,

in Texas and Louisiana. Moreover, it took advantage

of the window of opportunity, in early 2004, to sell

two buildings in Washington, a choice market where

it intends to pursue its active portfolio management

operations.

Finally, in Europe, SITQ sold the Tour Adria and

capitalized on the appreciation of the value generated

in this major development project. It also disposed

of its interests in Castle Quay Centre, Banbury,

United Kingdom, and some of its units in Hercules

Unit Trust, thus reducing its participation to 5.3%.

TARGETED ACQUISITIONS

Although sales made up most of SITQ’s transactions

in 2003, the Company nevertheless acquired several

assets consistent with its strategic alignment.

12

In Canada, in keeping with its mission as a real

estate management firm, SITQ acquired four buildings

that formerly belonged to the Caisse de dépôt et

placement du Québec, namely, the Price Building

in Quebec City, and the buildings located on the

same quadrangle as its Montreal business center:

the Centre CDP Capital, the Montreal Herald and

415 Saint-Antoine, known as MECO. These buildings

represent an appreciable contribution to the

architectural heritage of Quebec and respect the

commitment of SITQ to devote a portion of its

portfolio to long-term holdings.

Finally, the Company acquired interests in Colyzeo

Investments, a major European real estate fund.

Although this type of investment remains marginal

according to the Company’s business plan, it repre-

sents an interesting financial lever and constitutes a

prime vehicle in view of a possible future partnership.

.

KNOW-HOW TO SUPPORT PARTNERS

Active in international markets since 1993, SITQ

has developed a wealth of know-how in tax systems,

financing and financial packaging. Its partners

recognize its ability to maximize the value of its real

estate assets. In fact, the SITQ team masters all of

the vehicles available and is well-versed in the art

of finding solutions that are tailored to the needs

and constraints of those involved.

SITQ’s flexible, creative and thorough approach is

naturally a valuable contribution to the partnership

agreements signed by the Company. Together with

the Company’s know-how in all the facets of real

estate, SITQ’s expertise in the financial and fiscal

side of the industry is another lever in the niche

of asset management for third parties, a growing

activity at SITQ.

TRANSACTIONAL BALANCE IN 2004

In 2003, the high demand of real estate investors

proved to be quite fortunate for SITQ, which was

able to refocus its portfolio quickly and profitably.

The Company disposed of marginal buildings

and assets that had come to maturity, thus cashing

in gains at the top of the cycle.

In 2004, SITQ will aim for balance between its acqui-

sitions and disposals. However, it will keep a close

watch on market conditions and opportunities, and

will continue to make its transactions with the sole

purpose of maximizing earnings for its shareholders.

PORTFOLIO MANAGEMENT

FINANCIAL AND FISCAL MANAGEMENT

MICHEL BORDUAS, LOUISELLE PAQUINAND MARC LEMAIRE.

LA DÉFENSE, PARISTOUR ADRIA, AT RIGHT HAND SIDE.

Real Estate Development

BENTALL TOWER V, VANCOUVER

BENTALL TOWER V UNDER CONSTRUCTION, VANCOUVER

15

SITQ invests considerable amounts in the buildings

it owns to constantly improve the quality of its

portfolio and thus optimize its value. Furthermore,

SITQ undertakes development and construction

projects when opportunities for profit have been

identified. For the Company, real estate development

is first and foremost a way to invest in view of

obtaining higher yields.

However, although several development and

construction projects in progress were completed

last year, no new projects were undertaken because

disposals were the priority in 2003.

DEVELOPMENT IN CANADA

Several development projects in Quebec were

completed this year. At the Cité Multimédia, the first

seven phases, totalling 1 million square feet, of which

more than 95% is rented, were sold at the beginning

of 2004. The construction of a final building, in which

SITQ is partner for 37.5%, was also completed, with

only the fitting out of the future tenants remaining

to be completed.

CITÉ MULTIMÉDIA, MONTREAL

PHASE 8 PHASE 4

16

In Western Canada, the construction of the Bentall

Tower V has been completed and the building is in

use. Bentall Centre is a prestigious complex of office

buildings in downtown Vancouver. Tower V has

23 floors – 344,000 square feet – to which another

11 floors may be added as soon as the rental market

is favourable.

Finally, Building A of the IBM Corporate Park,

in Calgary, was completed and opened.

DEVELOPMENT INTERNATIONALLY

Outside of Canada, in order to share risk and expand

its expertise, SITQ is undertaking development projects

jointly with partners that have extensive knowledge

of their respective markets.

In the United States, the Company pursued – and will

continue to do so in 2004 – the major undertaking

of restoring and expanding 340 Madison Avenue,

in New York. The project represents considerable

enhancement of the value of this property, upgrading

it from class-B to a class-A building. Furthermore,

in Bellevue, a suburb of Washington, Phase I of

the Summit project, a 13-story office building with

310,000 square feet of rental space, was completed

and opened. Phase II of this project will start as soon

as the occupancy rate is sufficient.

In Europe, SITQ and its partner, Colony Capital, found

a single tenant who will rent the entire Tour Adria,

a development project that was completed in 2002

in the district of La Défense, Paris. This class-A office

building was sold in 2003, thus enabling the Company

to make a profit on this project.

Still in Paris, SITQ and Colony Capital obtained the

construction permits for the development of T1 Tower,

a 37-story office building with 750,000 square feet

of space. The plans and specifications of this major

undertaking were completed and construction may

begin when the rental conditions become favourable.

Finally in London, where the rental market is slow,

construction of new phases of the Chiswick Park

complex has been put on hold pending an upturn

in this sector.

In accordance with its strategic plan, in 2003

SITQ completed various development projects that

contributed to the performance of the company.

It will continue down this path in 2004, while keeping

an eye open for new, promising opportunities.

REAL ESTATE DEVELOPMENT

17

SUMMIT, BELLEVUE

LA DÉFENSE, TOUR T1, PARISSCALE MODEL

340 MADISON, NEW YORK

SUMMIT, BELLEVUE

Corporate Services

CHARLINE SYLVESTRE

19

In the performance of its activities, SITQ relies on

a team that handles all the services necessary for

the smooth running of the company. Like the trans-

actional and operational services of the Company,

corporate services fell into step with the refocusing

of strategic orientation.

Then, in accordance with its strategic priorities, SITQ

remodelled its organizational structure in 2003 to

create a team specialized in asset management. In

the upcoming years, the company will maintain its

proactive approach to ensure that the structure and

work organization remain flexible and able to adapt

to market challenges and business opportunities.

CENTRE CDP CAPITAL,MONTREAL

20

Regarding information technologies, the software

package OneWorld Xe by J.D. Edwards has been

operational since April 2003, and is producing the

expected results. Recognized as the best transactional

system for real estate management, it provides

the data necessary for the decision-making process

and supports long-term growth and development of

the Company.

SITQ also remains committed to the community, and

is pursuing with conviction its social involvement.

This year, its annual golf tournament, La Classique

SITQ, made it possible to donate some $175,000 to

charitable organizations. Furthermore, considerable

sums were donated to various organizations, in

accordance with the Company’s policy on donations

and sponsorships.

Finally, SITQ renewed its commitment to fund the

Chaire en immobilier of the Université du Québec

à Montréal. This initiative enables UQAM to offer

graduate and post-graduate programs in real estate, as

well as platforms for exchange and on-going training.

CORPORATE SERVICES

The Human Resources Department continues

to work toward making SITQ a choice employer.

The focus is on succession planning and the

development of skills, with all the initiatives that

this engenders, the objective naturally being to

enable all employees to fulfil their potential and

remain keen to take on new challenges. SITQ is also

eager to ensure the quality of its team in the long

term in view of forecasts of personnel shortages.

Accredited by the Mouvement québécois de la

qualité, SITQ upholds its commitment to the quality

of its processes and services. This consciousness

that characterizes the staff as a whole is definitely

one of the strengths of the Company.

PIERRE LEFEBVRE AND FRANÇOISE ELIE-BRADY IN FRONT OF THE ONEWORLD Xe SERVER.

CENTRAIDE’S UMBRELLAS WALK

NICOLE MONTSION, VINCENZO VENTURA, MIREILLE SOLARI, FANNIE TRÉPANIER ANDCLAUDETTE HUDON.

21

HOLDING PORTFOLIO

QuebecShopping centres and miscellaneous propertiesCarrefour Alma Alma 100 257,000 24,000Place du Havre Chandler 100 86,000 8,000Édifice 1212 Chicoutimi 100 25,000 2,000Place du Saguenay Chicoutimi 100 305,000 28,000Carrefour Gaspé Gaspé 90 139,000 13,000Galeries Jonquière Jonquière 100 229,000 21,000Grande Place Rimouski 50 150,000 14,000Carrefour Jeannois Roberval 100 118,000 11,000Sphèretech Saint-Laurent 100 192,000 18,000Subtotal 1,501,000 139,000

QuebecOffice buildings, mixed-use complexes and business parks420 Armand-Frappier Laval 100 50,000 5,000440 Armand-Frappier Laval 100 49,000 5,000480 Armand-Frappier Laval 100 49,000 5,000415 Saint-Antoine (MECO) Montreal 100 51,000 5,000500 Sherbrooke West Montreal 50 480,000 45,0001000 de la Gauchetière West Montreal 100 910,000 85,0001055 blvd. René-Lévesque East Montreal 55 134,000 12,0001981 McGill College Montreal 85 643,000 60,0002001 McGill College Montreal 100 509,000 47,000Centre CDP Capital Montreal 100 568,000 53,000Montreal World Trade Center Montreal 100 564,000 52,000Cité Multimédia (Phases I to VII operational) Montreal 37.5 970,000 90,000Édifice Sun Life Montreal 50 942,000 88,000Le Windsor Montreal 50 257,000 24,000Place Victoria Montreal 50 1,050,000 98,000Place Ville-Marie Montreal 100 2,567,000 239,000Édifice de la Haute-Ville Quebec City 100 266,000 25,000Édifice Mérici Quebec City 100 126,000 12,000Édifice Price Quebec City 100 57,000 5,000RD Tech Quebec City 100 99,000 9,000Complexe de Ville Sainte-Foy 100 208,000 19,0001111 Dr.-Frederik-Philips Saint-Laurent 100 101,000 9,0003300 Côte-Vertu Saint-Laurent 100 97,000 9,0007075 Place Robert Joncas Saint-Laurent 100 220,000 20,0006801 des Grandes Prairies Saint-Léonard 60 281,000 26,000Subtotal 11,248,000 1,047,000

21

Buildings Location Share Leasable Leasable(%) area area

(in sq. ft.) (in sq. meters)

HOLDING PORTFOLIO

22



OntarioOffice buildings, mixed-use complexes and business parksAIG Building Burlington 100 91,000 8,000Burloak Tech Park (6 buildings) Burlington 100 429,000 40,000Airport Square Mississauga 100 116,000 11,000College Square Mississauga 100 86,000 8,000College Square II Mississauga 100 158,000 15,00090 Sheppard North York 100 265,000 25,00055 University Toronto 100 264,000 25,000North York Centre Toronto 100 467,000 43,000Steeles Technology Campus

3381 Steeles Avenue Toronto 25 174,000 16,0003389 Steeles Avenue Toronto 25 330,000 31,0003900/4000 Victoria Place (2 buildings) Toronto 25 130,000 12,000

York Mills Centre Toronto 100 538,000 50,000Subtotal 3,048,000 284,000

Western CanadaOffice buildings, mixed-use complexes and business parksPalliser Square

One Palliser Square Calgary 100 378,000 35,000Tower Centre Calgary 100 259,000 24,000

IBM Centre Building A Calgary 100 122,000 11,000Crestwood Corporate Centre (9 buildings) Centre Richmond 50 757,000 70,0001075 West Georgia Vancouver 25 364,000 34,0001166 West Pender Vancouver 100 140,000 13,000Bentall Centre

Tower I Vancouver 60 262,000 24,000Tower II Vancouver 60 175,000 16,000Tower III Vancouver 60 492,000 46,000Tower IV Vancouver 75 571,000 53,000Tower V Vancouver 100 345,000 32,000

Subtotal 3,865,000 358,000

23

HOLDING PORTFOLIO



United StatesOffice building, mixed-use complexes and business parksNewport Corporate Center

One Newport Bellevue 100 90,000 8,000Two Newport Bellevue 100 40,000 4,000Four Newport Bellevue 100 154,000 14,000Five Newport Bellevue 100 283,000 26,000Newport Heights Bellevue 100 33,000 3,000Newport Terrace Bellevue 100 136,000 13,000Newport Tower Bellevue 100 222,000 21,000

Summit Ridge Bellevue 100 68 ,000 6,000The Summit Bellevue 100 309,000 29,000One Boston Place Boston 49.75 784,000 73,000The Center (11 buildings) Dallas 75 881,000 82,000Campus at Cherry Creek (3 buildings) Denver 100 355,000 33,000Cherry Creek Corporate Centre Denver 100 238,000 22,0001001 McKinney Houston 49.99 377,000 35,0001 Park Avenue New York 45 913,000 85,000498 7th Avenue New York 49.90 874,000 81,0001250 Broadway New York 45.135 632,000 59,0001515 Broadway New York 45.135 1,610,000 150,000Millenium Business Park

Building A Redmond 100 81,000 8,000Building B Redmond 100 88,000 8,000Building C Redmond 100 100,000 9,000Building D Redmond 100 99,000 9,000Building E Redmond 100 81,000 8,000Building F Redmond 100 88,000 8,000

US Bank Centre Seattle 50 932,000 87,000First Union Centre Tampa 49.99 389,000 36,000Amarillo Texas 90 306,000 28,000Investment Building Washington D.C. 47.5 371,000 34,000Republic Place Washington D.C. 40 213,000 20,000Sequoia Plaza Washington D.C. 40.992 371,000 34,000Subtotal 11,118,000 1,033,000

FranceOffice building, mixed-use complexes and business parksLa Défense

L’Esplanade Paris 55.02 551,000 51,000Tour Pacific Paris 55.02 524,000 49,000Tour Prisma Paris 55.02 260,000 24,000Le Michelet Paris 55.02 186,000 17,000Le Diamant Paris 55.02 142,000 13,000Utopia (Boieldieu) Paris 55.02 53,000 5,000

Le Friedland Paris 55.02 108,000 10,000L’Anjou Paris 55.02 103,000 10,000Subtotal 1,927,000 179,000

Hôtel Jardins de Paris Paris 80 470 rooms

United KingdomCity of London Unit Trust (CLOUT) London 37.5 892,000 83,000Subtotal 892,000 83,000

Leasable Leasablearea area


Location Share Leasable Leasable(%) area area


24

Canada 19,662,000 1,828,000United States 11,118,000 1,033,000 Europe 2,819,000 262,000

Total of SITQ’s holding portfolio 33,599,000 3,123,000

Total of SITQ’s portfolio of managed properties (excluding investments) 69,097,000 6,407,000

340 Madison New York 49.9 700,000 65,000

Total of SITQ’s portfolio

HOLDING PORTFOLIO

Main property in development (investment of over $100 millions)

Published by

Communications and Public Affairs

Vice Presidency, Human Resources

and Corporate Services

SITQ

Writing: Communicateurs du Fauve

Production: Langevin Turcotte

Printing: Lithographie G. Monette inc.

Copyright SITQ, 2004

ISSN 1492–305X

SITQ

Report of activity (English ed.)

Ce rapport est aussi disponible en français.

SITQ PROFILE

Since its inception in 1984, SITQ has upheld a tradition of excellencethat has made it a leader in NorthAmerican and Western European real estate. Founded by the Caisse de dépôt et placement du Québec(CDP) with invested capital of$9 million, SITQ’s portfolio ofholdings has now reached $7.5 billionand is mostly comprised of prestigiousdowntown office buildings.

SITQ also enjoys the support of it’sshareholders, who give it strengthand stability. These shareholdersinclude the Caisse de dépôt et placement du Québec, which owns a93.4% interest, Alcan Canada MasterTrust, the Association de bienfaisanceet de retraite des policiers et policièresde la Ville de Montréal, the Régime de rentes du Mouvement Desjardins,the Fonds commun de placement des régimes de retraite de l’UniversitéLaval and the Fiducie globale desrégimes de retraite de la Société detransport de Montréal.

Including buildings held and managedon behalf of third parties, SITQ nowmanages assets of $14 billion. Itsportfolio totals more than 69 millionsquare feet in 485 buildings inCanada, the United States, Franceand the United Kingdom.

SITQ’s team of 424 employeesensures its success with top-qualityproperty management, investmentand assets management know-how,and insight into the real estate development sector. The SITQ headoffice is located at the Centre CDPCapital, in Montreal. The Companyhas offices in Toronto, Ontario,and Vancouver, British Columbia,as well as in Brussels, Belgium.It can also rely on the CDP Capitalteam in Paris.

TABLE OF CONTENTS

01 Presidents’ Message04 Financial profile 06 Asset Management10 Portfolio Management14 Real Estate Development18 Corporate Services21 Holdings Portfolio

Board of Directors and Management TeamSkills Development

THE SITQ MISSION

SITQ’s main focus is to live up to the expectations of its...

... investors and shareholders,by offering them an organization,resources and top-quality productsdesigned to develop and manage realestate vehicles that are as competitiveas they are diversified.

... tenants, by offering them choicelocations and environments thatencourage the growth of their business.

... employees, by giving them a stimulating and healthy work environment.

OUR VALUES

Quality of serviceIntegrityImportance of human resourcesTeamworkEfficiencyInnovationCommunity involvement

2003 2002

Cash flow from operations 323,787 373,556Total assets (fair market value) 8,350,632 10,021,810Managed Assets 14,165,722 16,133,325Acquisitions 270,600 1,030,000Disposals 1,626,000 609,000Capital investments 332,000 552,102in the portfolioCurrent rate of return 8.8% 9.4%Overall yield 8.1% 3.8%

FINANCIAL HIGHLIGHTS

All amounts are in Canadian dollars unless otherwise mentionned.

Recruiting, developing and retaining the best talent

is a major challenge and is a priority at SITQ, whose

performance relies on the professionalism of its team.

In this regard, the Company has sought to create

a stimulating and open professional environment,

bolstered by real opportunities to develop skills, solid

training programs and a structured succession plan.

When it comes to training, SITQ has adopted a

proactive approach and offers numerous programs

geared toward new employees, managers and

personnel as a whole.

A range of specific training courses support SITQ

policies, laws and corporate governance. Moreover,

the value attributed by the Company to the human

aspect also gives rise to courses, workshops and

luncheon-seminars.

Furthermore, a few managers take advantage of

the specialized programs offered within the scope

of the Chaire en immobilier UQAM-SITQ, including

the unique MBA program in property management,

through which Company's employees earned

diplomas.

The calibre of the SITQ team and its commitment

to on-going improvement vouch for the continued

growth of the company and its ability to deliver

sustained performance that lives up to the expec-

tations of the shareholders regarding earnings.

SKILLS DEVELOPMENT

(in thousand of dollars, except ratios)

FRONT PAGE:

MONTREAL HERALD’S ARCHITECTURAL LINTELSTANDING OUT AGAINSTCENTRE CDP CAPITALGLASS WALL.

1. TRAINING ON THE NEW CODE OF ETHICS

NATHALIE POMERLEAU, TONY ROY, FERNAND POIRIER, LISETTE ROY AND NATHALIE PELLETIER.

2. CHAIRE UQAM-SITQ PARTNERS

PAUL CAMPBELL AND PIERRE FILIATRAULT, DEANOF ÉCOLE DES SCIENCES DE LA GESTION, UQAM.

3. TRAINING ON QUALITY OF COMMUNICATIONS

CAROLINE HUPÉ, ALAIN CARRIÈRE, LUC PARENT, MIREILLE SOLARI, ROBERT BLAHUTA AND ARMAND MORIN.

4. MBA IN PROPERTY MANAGEMENT

ARMAND MORIN, JEAN-LOUIS DUBÉ, DENIS EPOH, ROBERT SHEITOYAN (PROGRAM DIRECTOR), DENIS PERREAULT AND JACQUES SAINT-PIERRE (INCUMBENT OF THE REAL ESTATE UQAM-SITQ CHAIRE).

1.

2.

3.

4.

REPORT OF ACTIVITY 2003

Board of Directors

Paul Campbell 1-4

President and CEOSITQ

Jean Cartier 2-4

Assistant Vice-Rector,Human ResourcesUniversité Laval

Claude Caty 2

Senior Manager, InvestmentsFiducie globale des régimes de retraite de la Société de transport de Montréal

André Charest 1-2

Vice-President,Administration and FinanceCDP CapitalReal Estate Group

Claude Dalphond 2-3

Administrator

Pierre Duhaime 1

Vice-President,Investments ManagementCDP CapitalReal Estate Group

Léopold GagnonPresidentGanotec inc.

Francine Harel-GiassonProfessorHEC-Montréal

Reynald N. Harpin 3

Vice-President,Pension InvestmentsPension FundsAlcan Adminco inc.

Raymond Laurin 2

Vice-President Accounting,Information Management andPension Fund DepartmentFédération des Caisses DesjardinsComité de retraite du MouvementDesjardins

Louis Monette 1

President and General ManagerChairman of the BoardAssociation de bienfaisance et de retraite des policiers et policières de la Ville de Montréal

Fernand Perreault 1-3

Chairman of the Board, SITQPresident CDP CapitalReal Estate Group

Michel SanschagrinVice President and General ManagerAdministration and Chief ActuaryIndustrielle Alliance

1- Member of the Executive Committee2- Member of the Audit Committee3- Member of the Human Resources

and Remuneration Committee4- Member of the Retirement Committee

Executive Officers

Paul CampbellPresident and Chief Executive Officer

Jean-Louis DubéSenior Vice President,Asset Management

Louiselle PaquinSenior Vice President, Finance

Yvon TessierSenior Vice President, Investments

Daniel ArchambaultVice President, Quebec

Michel CyrVice President,Development and Construction

Pierre LefebvreVice President, Human Resources and Corporate Services

Management Team

Denis ÉpohVice President, Investments

Jean-François FournierVice President, Asset Management

André GirardVice President, Asset Management

Yves-André GodonVice President, Leasing

Marc LemaireVice President, Financial Services

Sylvain PelletierVice President, Asset Management

Denis PerreaultVice President, Asset Management

Jean-Paul MouzinPresident and General ManagerSITQ Europe S.A.

Paul Jean-Louis Louiselle Yvon Daniel Michel PierreCampbell Dubé Paquin Tessier Archambault Cyr Lefebvre

BOARD OF DIRECTORS AND MANAGEMENT TEAM

SITQCentre CDP Capital1001, square VictoriaMontréal, Québec H2Z 2B1Telephone : (514) 287-1852www.sitq.com

board of directors and management...

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