Net operating income is used by industry analysts, investors and management to measure operating performance of the Company's properties. Net operating income represents total property revenues less property operating expenses and maintenance expenses. Accordingly, net operating income excludes certain expenses included in the determination of net income such as indirect operating expenses, interest expense and amortization and excludes sales less cost of sales and interest and other income. Readers are cautioned that although the term "net operating income" is commonly used to measure, compare and explain the operating and financial performance of Canadian real estate companies, the term is not recognized under Canadian generally accepted accounting principles and accordingly the term does not necessarily have a standardized meaning and may not be comparable to similarly titled measures presented by other publicly traded entities.

Net operating income for the three months ended June 30, 2006 was $7.0 million, compared to $7.3 million for the same period in 2005. The Company has a property management and advisory services agreement with Morguard Investments Limited ("MIL"), a subsidiary of Morguard Corporation ("Morguard"), which directly or indirectly owns 67% of the Company's common shares, that provides for a range of services including asset management, property management, information system support, risk management administration, and corporate services. Effective January 1, 2006, the Company revised its management agreements with MIL and, as a result, $0.4 million was recorded in property operating expenses for the three months ended June 30, 2006. During the three months ended June 30, 2005, and prior to the revision of the management agreements with MIL, fees paid to MIL were recorded in general and administrative expenses. Excluding the property management fees described above, net operating income would have increased by $0.1 million for the three months ended June 30, 2006, or 2.0%, compared to the same period in 2005. The Company continues to benefit from high occupancy rates. As at June 30, 2006 the weighted average occupancy rate of the Company's portfolio was 98.0%, compared to 98.2% as at December 31, 2005 (June 30, 2005 - 97.8%).

Significant progress was achieved during the second quarter of 2006 to monetize the Company's investment in land. Sales in the Company's residential land development programme in Guelph, Ontario (the "Guelph Land Development") resulted in $11.0 million of revenue and was comprised of 149 lots sales (RPC's share) and one condominium block.

Interest expense for the three months ended June 30, 2006 was $2.8 million compared to $2.3 million for the same period in 2005. The increase in interest expense is mainly a result of the interest on the Company's new $45 million first-mortgage financing of the Colonnade, which closed on May 23, 2006 adding approximately $0.3 million to interest expense and interest incurred on the Company's brokerage margin account to acquire additional shares of Sizeler Property Investors, Inc. ("Sizeler") in March 2006 which accounts for approximately $0.1 million of additional interest during the three months ended June 30, 2006.

Interest and other income are comprised of the return realized on portfolio investments, as well as interest earned on loans and advances. Investment income for the three months ended June 30, 2006, was $1.0 million compared to $0.7 million in the same period in 2005. The increase is mainly due to higher interest rates being earned on the loan to Morguard Corporation and the loans receivable, as well as higher amounts being loaned into the Company's mezzanine real estate loan programme. As a result of the Company holding certain portfolio investments in US dollars, the Company recognized a foreign exchange loss of $1.3 million in the second quarter of 2006, as compared to a $0.3 million gain for the three months ended June 30, 2005.

For the six months ended June 30, 2006 and 2005

Net operating income for the six months ended June 30, 2006 was $14.1 million, compared to $14.6 million for same period in 2005. Revision of the Company's management arrangement with MIL resulting in $0.9 million being recorded in property operating expenses for the six months ended June 30, 2006. During the six months ended June 30, 2005, and prior to the revision of the management agreements with MIL, fees paid to MIL were recorded in general and administrative expenses. Excluding the property management fees described above, net operating income would have increased by $0.3 million for the six months ended June 30, 2006, or 2.0%, compared to the same period in 2005.

Interest expense for the six months ended June 30, 2006 was $5.3 million compared to $5.4 million for the same period in 2005. The decrease in interest expense is mainly a result of the Company's cash redemption of its 7% subordinated convertible debentures ("7% Debentures") which occurred on February 23, 2005 (the "Redemption Date"). Offsetting the decrease in interest for the six months ended June 30, 2005, was the Company's $45 million first-mortgage financing of the Colonnade, which closed on May 23, 2006 and interest incurred on the Company's brokerage margin account.

Investment income for the six months ended June 30, 2006 increased to $2.1 million, from $1.6 million in the same period of 2005. As a result of the Company holding certain portfolio investments in US dollars, the Company recognized a foreign exchange loss of $1.1 million during the six months ended June 30 2006, as compared to a $0.4 million gain for the same period in 2005.

FUNDS FROM OPERATIONS

The Company uses Funds from Operations ("FFO") in addition to net income to report operating results. FFO is an industry standard for evaluating operating performance defined as net income plus amortization and future income taxes, and excludes gains or losses from the sale of depreciable property and is not adjusted for gains realized on the disposition of portfolio investments. FFO is not indicative of funds available to meet the Company's cash requirements. The Company computes FFO in accordance with the recently amended definitions of the Real Property Association of Canada. However, FFO is not a recognized measure under Canadian generally accepted accounting principles and accordingly the term does not necessarily have a standardized meaning and may not be comparable to similarly titled measures presented by other publicly traded entities.

FFO was calculated as follows:

-------------------------------------------------------------------------

Three months ended Six month ended

June 30 June 30

---------------------- ------------------

(unaudited, in thousands

of Canadian dollars) 2006 2005 2006 2005

-------------------------------------------------------------------------

Net income $3,839 $2,554 $6,309 $1,079

Amortization - rental properties

and intangible assets 1,671 1,675 3,277 3,316

Amortization - deferred leasing

costs 243 325 529 630

Future income taxes 194 101 500 473

Loss on redemption of convertible

debentures - - - 3,091

Other 1 (26) 2 (52)

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$5,948 $4,629 $10,617 $8,537

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FFO for the three months ended June 30, 2006 were $6.0 million ($0.55 per common share) compared to $4.6 million ($0.42 per common share) for the same period in 2005. The increase in FFO primarily reflects the stronger operating results discussed above. FFO for the six months ended June 30, 2006 increased to $10.6 million compared to $8.6 million in 2005.

CHANGES IN FINANCIAL CONDITION

The balance of portfolio investments was $41.6 million at June 30, 2006 (market value - $48.0 million), compared to $29.3 million as at December 31, 2005 (market value - $29.3 million) and is comprised of a portfolio of corporate bonds, the Company's investment in common shares of Sizeler and an investment in a private US-based real estate entity. As of June 30, 2006, the corporate bonds, which mature before the end of 2008, had a weighted average yield to maturity of 6.5%.

The Company's investment in Sizeler is comprised of 2,123,600 common shares, representing approximately 9.9% of the issued and outstanding shares of Sizeler. The market value of the Company's investment in Sizeler currently exceeds its cost by approximately $5.4 million. Sizeler had previously announced the retention of a financial advisor to assist with the analysis of strategic alternatives, and the Company continues to monitor Sizeler's activities in this regard.

The Company has a revolving loan agreement with Morguard that provides for a maximum advance to Morguard of $20 million at an interest rate equal to 175 basis points over the 30-day bankers' acceptance rate. The weighted average interest rate earned on the advance to Morguard for the six months ended June 30, 2006 was 5.8%. In February and March 2006, the Company received a total of $10 million repayment of the revolving loan with Morguard. In May 2006 the Company advanced Morguard $10 million, bringing the balance to $20 million at June 30, 2006.

As of June 30, 2006 the Company had loaned $10.8 million in short-term, mezzanine real-estate loans. The loans are secured through charges on the underlying assets. The weighted average annualized yield on the mezzanine loans is 11.2%. During the six months ended June 30, 2006, the Company advanced $10.4 million under four mezzanine loan agreements and was repaid $14.5 million under four loan agreements.

Sales at the Guelph Land Development during the first six months of 2006 resulted in the Company taking back mortgages in the amount of $11.2 million. The mortgages taken back mature in 2009, are interest free for periods ranging from 18 to 24 months and thereafter bear interest at the lower of 8% or prime plus 1%.

During the quarter, the Company received the proceeds of a $45 million first mortgage financing secured by the Company's interest in 131 Bloor Street West, Toronto, for a four-year term at a fixed interest rate of 5.2%. The proceeds will be used for general corporate purposes.

The Company has the resources to meet its maturing debt obligations and the capacity to grow the business as a result of selling non-core assets in previous years. Other than changes previously discussed in this MD&A, there have been no material changes to the Company's contractual obligations and commitments during the six months ended June 30, 2006. The Company has no off-balance sheet financing arrangements.

EARNINGS PER COMMON SHARE

Earnings per share ("EPS") for the three months ended June 30, 2006 were $0.35 per common share (diluted - $0.35 per common share) compared to $0.23 per common share (diluted - $0.23 per common share) for the first quarter in 2005. EPS for the six months ended June 30, 2006 were $0.58 per common share (diluted - $0.58 per common share) compared to $1.17 per common share (diluted - $0.30 per common share) for the six months ended June 30, 2005.

Subsequent to the issuance of the Company's financial statements for the three months ended March 31, 2005, it was determined that the amounts recognized in connection with the first quarter of 2005 conversion and redemption of 7% Debentures required adjustment. The amount recognized for common shares issued on conversion was understated by $3.8 million and the amount relieved on such conversion from other paid-in capital (representing the equity value of the holders' conversion option) was understated by $3.8 million. On the subsequent redemption of the balance of the 7% Debentures, the remaining amount in other paid-in capital (representing the equity value of the holders' conversion option) was transferred to deficit. The amount transferred to deficit has also been reduced by $3.8 million. These adjustments have no impact on total shareholders' equity, net income or cash flows for the three months ended March 31, 2005. However, because the amount transferred to deficit enters into the computation of basic earnings per share, basic earnings per share as previously presented for the first quarter of 2005 has been reduced by $0.38.

Diluted earnings per share for the six months ended June 30, 2005 has also been adjusted to exclude both the adjusted amount transferred to deficit as described above and the loss on redemption of convertible debentures. Diluted earnings per share as previously presented for the six months ended June 30, 2005 have been reduced by $0.94. This reduction in diluted earnings per share is reflected in diluted earnings per share for the six months ended June 30, 2005.

SELECTED QUARTERLY FINANCIAL INFORMATION

(unaudited, in thousands of Canadian dollars, except per share amounts)

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2006 2005 2004

--------------- ------------------------------- ---------------

Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3

(restated)

-------------------------------------------------------------------------

Gross

revenues $24,584 $16,745 $15,640 $13,793 $13,649 $13,995 $13,784 $13,619

Net

operating

income 7,011 7,049 7,643 7,216 7,308 7,340 7,382 7,222

Net income

(loss) 3,839 2,470 2,613 4,586 2,554 (1,475) 258 539

- per basic

share 0.35 0.23 0.24 0.42 0.23 0.98 0.03 0.06

- per

diluted

share 0.35 0.23 0.24 0.42 0.23 0.08 0.03 0.06

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The three months ended September 30, 2005 included a $4.0 million gain resulting from the disposition of the US REIT investments. Earnings per share for the three months ended March 31, 2005 included $11.0 million, representing the equity component on the 7% debentures that was transferred from paid-in capital to deficit on the Redemption Date. Fluctuations in quarterly earnings during 2004 were primarily the result of foreign exchange losses of $1.1 million and $1.0 million recorded during the three months ended September 30, 2004 and December 31, 2004, respectively.

DIVIDEND

The Board of Directors has declared the third quarterly dividend of 14 cents per common share, payable on September 29, 2006 to shareholders of record at the close of business on September 15, 2006.

NORMAL COURSE ISSUER BID

During the six months ended June 30, 2006, the Company acquired 41,600 common shares pursuant to its current normal course issuer bid at an average cost of $14.34.

Additional information relating to the Company can be found on SEDAR at www.sedar.com and on the Company's website at www.revprop.com.

Revenue Properties Company Limited is a real estate company that owns a portfolio of commercial real estate, aggregating approximately 2.1 million square feet of leasable space. The Company's primary focus is the acquisition, development, and ownership of income producing properties in Canada.

REVENUE PROPERTIES COMPANY LIMITED

CONSOLIDATED BALANCE SHEETS

-------------------------------------------------------------------------

June 30 December 31

(in thousands of Canadian dollars) 2006 2005

-------------------------------------------------------------------------

(unaudited)

ASSETS

Rental properties $166,276 $168,748

Land held for development and sale 3,553 6,944

Intangible assets 3,614 3,756

Other assets 3,839 2,942

Accounts receivable 6,227 6,068

Mortgages and loans receivable 43,834 37,699

Portfolio investments 41,649 29,264

Cash and cash equivalents 21,486 5,688

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$290,478 $261,109

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LIABILITIES AND SHAREHOLDERS' EQUITY

Long-term debt $196,056 $154,473

Bank indebtedness - 17,372

Accounts payable and accrued liabilities 11,633 9,662

Future income tax liability 10,277 9,777

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217,966 191,284

Shareholders' equity 72,512 69,825

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$290,478 $261,109

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REVENUE PROPERTIES COMPANY LIMITED

CONSOLIDATED STATEMENTS OF INCOME

THREE AND SIX MONTHS ENDED JUNE 30

-------------------------------------------------------------------------

Three months Six months

----------------- ------------------

(unaudited, in thousands of Canadian (Restated)

dollars, except per share amounts) 2006 2005 2006 2005

-------------------------------------------------------------------------

RENTAL OPERATIONS

Rental revenues $13,615 $13,649 $27,525 $27,606

Property operating expenses 6,604 6,341 13,465 12,958

-------------------------------------------------------------------------

7,011 7,308 14,060 14,648

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REAL ESTATE SALES

Sales 10,969 - 13,804 38

Cost of sales 6,566 - 8,800 28

-------------------------------------------------------------------------

4,403 - 5,004 10

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Other operating expenses (income):

Interest 2,832 2,333 5,349 5,370

Amortization - financing costs 40 44 90 128

General and administrative 265 492 668 1,103

Interest and other income (1,032) (724) (2,129) (1,567)

Foreign exchange loss (gain) 1,256 (255) 1,052 (374)

Amortization - rental properties

and intangible assets 1,671 1,675 3,277 3,316

Amortization - deferred leasing

costs 243 325 529 630

-------------------------------------------------------------------------

5,275 3,890 8,836 8,606

-------------------------------------------------------------------------

OPERATING INCOME 6,139 3,418 10,228 6,052

Loss on redemption of convertible

debentures - - - 3,091

-------------------------------------------------------------------------

INCOME BEFORE INCOME TAXES 6,139 3,418 10,228 2,961

Income taxes

Current 2,106 763 3,419 1,409

Future 194 101 500 473

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2,300 864 3,919 1,882

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NET INCOME $3,839 $2,554 $6,309 $1,079

-------------------------------------------------------------------------

Per basic and diluted common share

Earnings per common share

Basic $0.35 $0.23 $0.58 $1.17

Diluted $0.35 $0.23 $0.58 $0.30

Weighted average number of shares

outstanding (in thousands)

Basic 10,875 10,987 10,893 10,330

Diluted 10,880 10,999 10,898 12,272

CONSOLIDATED STATEMENTS OF DEFICIT

THREE AND SIX MONTHS ENDED JUNE 30

-------------------------------------------------------------------------

Three months Six months

------------------- -------------------

(unaudited, in thousands (Restated) (Restated)

of Canadian dollars) 2006 2005 2006 2005

----------------------------------------------------- -------------------

Deficit at beginning of period,

as restated $46,042 $52,148 $46,984 $60,179

Net income (3,839) (2,554) (6,309) (1,079)

Dividends paid 1,523 1,537 3,051 3,080

Redemption amount of 7% convertible

debentures credited to deficit - - - (11,049)

-------------------------------------------------------------------------

Deficit, at end of period $43,726 $51,131 $43,726 $51,131

-------------------------------------------------------------------------

REVENUE PROPERTIES COMPANY LIMITED

CONSOLIDATED STATEMENTS OF CASH FLOW

THREE AND SIX MONTHS ENDED JUNE 30

-------------------------------------------------------------------------

Three months Six months

(unaudited, in thousands -------------------- -------------------

of Canadian dollars) 2006 2005 2006 2005

-------------------------------------------------------------------------

OPERATING ACTIVITIES

Net income $3,839 $2,554 $6,309 $1,079

Add (deduct) non-cash items:

Amortization - rental properties

and intangible assets 1,671 1,675 3,277 3,316

Amortization - deferred leasing

costs 243 325 529 630

Amortization - financing costs 40 44 90 128

Accretion on liability component

of convertible debentures - - - 315

Future income taxes 194 101 500 473

Gain on sale of portfolio

investments - - (79) -

Loss on redemption of convertible

debentures - - - 3,091

Stepped rent lease adjustment (232) (263) (480) (526)

Other 1 (26) 2 (52)

Deferred leasing commissions (69) - (79) -

Investment in land held for

development and sale 3,674 (161) 3,391 (117)

Net change in other assets and

liabilities (3,998) (37) (7,468) 2,485

-------------------------------------------------------------------------

5,363 4,212 5,992 10,822

-------------------------------------------------------------------------

INVESTING ACTIVITIES

Acquisition and development of

rental properties (612) (1,891) (1,001) (2,695)

Deferred leasing costs additions (59) (600) (61) (789)

Portfolio investments - acquisitions - - (15,609) -

- settlement

and sales - 461 1,763 461

Loan to Morguard Corporation (10,000) - (10,000) (5,000)

Repayment of loan to Morguard

Corporation - - 10,000 -

Loans receivable 5,407 3,252 4,127 2,469

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(5,264) 1,222 (10,781) (5,554)

-------------------------------------------------------------------------

FINANCING ACTIVITIES

Repayment of mortgage principal (1,100) (1,054) (3,418) (1,890)

Proceeds from mortgage financing 45,000 - 45,000 60,000

Decrease in bank indebtedness (22,833) (590) (17,372) (3,147)

Redemption of convertible

debentures - - - (53,424)

Dividends paid (1,523) (1,537) (3,051) (3,080)

Common shares purchased and

cancelled - (63) (599) (1,067)

Proceeds from issuance of capital

stock - - 28 8

-------------------------------------------------------------------------

19,544 (3,244) 20,588 (2,600)

-------------------------------------------------------------------------

Net increase in cash and cash

equivalents during the period 19,643 2,190 15,799 2,668

Effect of foreign currency

translation on cash balances (1) (44) (1) (64)

Cash and cash equivalents at

beginning of period 1,844 3,834 5,688 3,376

-------------------------------------------------------------------------

Cash and cash equivalents at

end of period $21,486 $5,980 $21,486 $5,980

-------------------------------------------------------------------------

Supplemental cash flow information:

Cash interest paid $2,636 $2,096 $5,118 $4,820

Cash interest and dividends

received 1,254 666 2,221 1,329

Cash income taxes paid 684 859 2,484 1,611

For further information: K. (Rai) Sahi, Chief Executive Officer, Telephone: (905) 281-5888; Paul Miatello, Chief Financial Officer, Telephone: (905) 281-5943

Source: newswire