Exhibit 99.2







Management’s Discussion
and Analysis of Financial Results



March 1, 2017



PART I – OBJECTIVES AND FINANCIAL
HIGHLIGHTS



BASIS OF PRESENTATION

Financial data included in this Management’s
Discussion and Analysis (“MD&A”) for the year ended December 31, 2016, includes material information up to
March 1, 2017. Financial data provided has been prepared in accordance with International Financial Reporting Standards as
issued by the International Accounting Standards Board (“IFRS”). All dollar references, unless otherwise stated, are
in millions of Canadian dollars except per unit amounts. Amounts in U.S. dollars are identified as “US$.”



Brookfield Canada Office Properties (“BOX,”
the “Trust,” “we”, “our” or “us”) was formed in connection with the reorganization
of BPO Properties Ltd. (“BPP”), a former wholly-owned subsidiary of Brookfield Office Properties Inc. (“BOPI”),
on May 1, 2010, in which BPP’s directly owned office assets were transferred to the Trust. In connection with the reorganization,
the Trust also acquired BOPI’s interest in Brookfield Place Toronto, which includes Bay Wellington Tower and partial interests
in the retail concourse and parking operations.



On December 1, 2011, we acquired from BOPI,
a 25% interest in nine office assets from its Canadian Office Fund portfolio totaling 6.5 million square feet in Toronto and Ottawa.
On July 11, 2013, we acquired Bay Adelaide East from BOPI totaling 1.2 million square feet in Toronto and on October 14, 2014,
we acquired Brookfield Place Calgary East from BOPI totaling 1.4 million square feet in Calgary.



The following discussion and analysis is intended
to provide readers with an assessment of the performance of BOX over the past year as well as our financial position and future
prospects. It should be read in conjunction with the consolidated financial statements and appended notes, which begin on page
37 of this report. In Part II – Financial Statement Analysis, we review our operating performance and financial position
as presented in our financial statements prepared in accordance with IFRS.



We included our discussion of operating performance
on an IFRS basis beginning on page 18 of the MD&A followed by a discussion of non-IFRS measures. Included in non-IFRS measures
are commercial property net operating income, same property net operating income ("Same property NOI"), Trust funds from
operations ("Trust FFO"), adjusted funds from operations ("AFFO"), total equity per unit, adjusted commercial
property revenue and revaluation (losses) gains on a per-unit and/or total basis. Commercial property net operating income, same
property net operating income, Trust funds from operations, adjusted funds from operations, total equity per unit, adjusted commercial
property revenue and revaluation (losses) gains do not have any standardized meaning prescribed by IFRS and therefore may not be
comparable to similar measures presented by other companies. We define commercial property net operating income as adjusted commercial
property revenue net of direct property operating expenses, including property administration costs that have been deducted, but
prior to deducting interest expense, general and administrative expenses and fair value gains (losses). Included in adjusted commercial
property revenue and revaluation (losses) gains is the impact of rental payments received pursuant to a related party lease, which
in accordance with IFRS, would be included in fair value gains (losses). We believe the inclusion of the rental lease payments,
net of non-cash rental revenue, is important to help investors understand the contracted economics of the Bay Adelaide East acquisition
on an "as-if-completed-and-stabilized basis" and the related recurring operating cash flows generated pursuant to that
arrangement. "As-if-completed-and-stabilized basis" refers to BOPI retaining the development obligations including construction,
lease-up and financing. Same property NOI is a subset of net operating income, which excludes net operating income that is earned
from assets acquired, disposed of or developed during the periods presented, or not of a recurring nature. Trust FFO is defined
as net income prior to transaction costs, revaluation (losses) gains which include the impact of rental payments received from
the related party lease as described above, and certain other non-cash items, if any. Trust FFO does not represent or approximate
cash generated from operating activities and is determined in accordance with the Real Property Association of Canada (“REALPAC”)
FFO white paper, except for the inclusion of the rental lease payments. It further includes all adjustments that are outlined in
the National Association of Real Estate Investment Trusts ("NAREIT") definition of FFO. AFFO is defined by us as Trust
FFO net of actual second-generation leasing commissions and tenant improvements, actual maintaining value capital expenditures
and straight-line rental income. Total equity per unit represents the book value of it's total equity divided by total units outstanding.



Commercial property net operating income is
an important measure that both investors and management use to assess operating performance of our commercial properties, and same
property net operating income allows the Trust to segregate the performance of leasing and operating initiatives on the portfolio
from the impact to performance from investing activities and non-recurring income (charges). Trust funds from operations is a widely
used measure in analyzing the performance of real estate notwithstanding the variability of its fair value. Adjusted funds from
operations is a measure used to assess an entity’s ability to pay distributions. Total equity per unit is an important measure
of an entity's current financial position because it reflects its total equity adjusted for all inflows and outflows, including
Trust FFO and changes in the value of its investment properties. We provide the components of commercial property net operating
income, a reconciliation of adjusted commercial property revenue and revaluation (losses) gains, a reconciliation of commercial
property net operating income to net income, a full reconciliation of net income to Trust funds from operations and adjusted funds
from operations, and a reconciliation of cash generated from operating activities to adjusted funds from operations beginning on
page 22.



Additional information, including our Annual
Information Form, is available on our Web site at www.brookfieldcanadareit.com or at www.sedar.com or www.sec.gov.



Brookfield Canada Office Properties1







OVERVIEW OF THE BUSINESS

BOX is a publicly traded, real estate investment
trust listed on the Toronto and New York stock exchanges under the symbol BOX.UN and BOXC, respectively.



The Trust invests, develops and operates commercial
office properties in Toronto, Ottawa and Calgary.



At December 31, 2016, the carrying value
of BOX’s total assets was $6,157.2 million. During the year ended December 31, 2016, we generated a net income of $95.5 million
($1.02 per unit), $156.9 million of Trust funds from operations ($1.68 per unit), and $121.1 million of adjusted funds from operations
($1.30 per unit).



22016 Annual Report







FINANCIAL HIGHLIGHTS

BOX’s financial results are as follows:





|(Millions, except per-unit amounts)            |  | 2016 |       |  | 2015 |   |       | 2014 | 
|---------------------------------------------- |  | ---- | ----- |  | ---- | - | ----- | ---- | 
|Results of operations                          |  |      |       |  |      |   |       |      | 
|Net income                                     |  | $    | 95.5  |  |      | $ | 351.4 |      | 
|Trust funds from operations(1)(2)              |  |      | 156.9 |  |      |   | 145.8 |      | 
|Adjusted funds from operations(1)(3)           |  |      | 121.1 |  |      |   | 94.6  |      | 
|Distributions                                  |  |      | 270.7 |  |      |   | 115.5 |      | 
|Per unit amounts – attributable to unitholders |  |      |       |  |      |   |       |      | 
|Net income                                     |  |      | 1.02  |  |      |   | 3.76  |      | 
|Trust funds from operations(1)(2)              |  |      | 1.68  |  |      |   | 1.56  |      | 
|Adjusted funds from operations(1)(3)           |  |      | 1.30  |  |      |   | 1.01  |      | 
|Distributions(4)                               |  |      | 1.29  |  |      |   | 1.24  |      | 







|(Millions, except per-unit amounts)    |  | Dec. 31, 2016 |         |  | Dec. 31, 2015 |   |         | Dec. 31, 2014 | 
|-------------------------------------- |  | ------------- | ------- |  | ------------- | - | ------- | ------------- | 
|Balance sheet data                     |  |               |         |  |               |   |         |               | 
|Total assets                           |  | $             | 6,157.2 |  |               | $ | 6,356.5 |               | 
|Investment properties                  |  |               | 6,081.3 |  |               |   | 6,267.8 |               | 
|Investment property and corporate debt |  |               | 2,828.0 |  |               |   | 2,838.5 |               | 
|Total equity                           |  |               | 3,162.4 |  |               |   | 3,333.0 |               | 
|Total equity per unit(1)               |  |               | 33.82   |  |               |   | 35.72   |               | 





| | (1) | Non-IFRS measure. Refer to description of non-IFRS measures
and reference to reconciliation to comparable IFRS measures beginning on page 20.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------

| | (2) | Refer to Reconciliation of adjusted commercial property
revenue and revaluation (losses) gains on page 21.
| | --- | ----------------------------------------------------------------------------------------------------------

| | (3) | Based on actual leasing commissions, tenant improvements
and maintaining value capital expenditures incurred.
| | --- | -------------------------------------------------------------------------------------------------------------

| | (4) | Excludes special distribution of $149.3 million ($1.60
per Trust unit), paid out on April 19, 2016 to holders of record at the close of business on April 5, 2016.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------



COMMERCIAL PROPERTY OPERATIONS

Our strategy to own premier properties in high-growth,
and in many instances supply-constrained markets with high barriers to entry, has created one of Canada’s most distinguished
portfolios of office properties. Our commercial-property portfolio consists of interests in 26 properties totaling 20.3 million
square feet, including 3.7 million square feet of parking and other. Our development portfolio consists of the Brookfield Place
Calgary East development site totaling 1.4 million square feet in Calgary. Our markets are the financial, government and energy
sectors primarily located in the cities of Toronto and Calgary. Our strategy is concentrating operations within a select number
of Canadian gateway cities with attractive tenant bases in order to maintain a meaningful presence and build on the strength of
our tenant relationships within these markets.



|Gross Leasable Area by City |  | Gross Leasable Area by Tenant Base
|--------------------------- |  | ----------------------------------
|as of December 31, 2016     |  | as of December 31, 2016           
|                            |  |                                   
|                            |  |                                   



We remain focused on the following strategic
priorities:



| | • | Realizing value from our investment properties through proactive leasing initiatives;
| | - | -------------------------------------------------------------------------------------

| | • | Prudent capital management, including the refinancing of mature investment properties; and
| | - | ------------------------------------------------------------------------------------------

| | • | Acquiring high-quality investment properties in our primary markets for value when opportunities arise.
| | - | -------------------------------------------------------------------------------------------------------



Brookfield Canada Office Properties3







The following table summarizes our commercial property portfolio
by region as at December 31, 2016:





|Region                |  | Number of Properties |    |  | Total Area (000’s Sq. Ft.) |  |        | BOX’s Owned Interest (000’s Sq. Ft.) |  |  | Fair Value  (Millions) |  |  | Fair Value Per Sq. Ft. |         |  | Debt(1)(Millions) |   |     | Net BookEquity(2)(Millions) | 
|--------------------- |  | -------------------- | -- |  | -------------------------- |  | ------ | ------------------------------------ |  |  | ---------------------- |  |  | ---------------------- | ------- |  | ----------------- | - | --- | --------------------------- | 
|Commercial properties |  |                      |    |  |                            |  |        |                                      |  |  |                        |  |  |                        |         |  |                   |   |     |                             | 
|Eastern region        |  |                      | 18 |  |                            |  | 13,507 |                                      |  |  | 8,220                  |  |  | $                      | 3,875.9 |  |                   | $ | 472 |                             | 
|Western region        |  |                      | 8  |  |                            |  | 6,827  |                                      |  |  | 3,415                  |  |  |                        | 1,521.1 |  |                   |   | 445 |                             | 
|Total                 |  |                      | 26 |  |                            |  | 20,334 |                                      |  |  | 11,635                 |  |  | $                      | 5,397.0 |  |                   | $ | 464 |                             | 



| | (1) | Excludes debt associated with our development property
and corporate debt.
| | --- | --------------------------------------------------------------------------

| | (2) | Represents fair value less debt and excludes working
capital, and is a non-IFRS measure.
| | --- | ----------------------------------------------------------------------------------------



An important characteristic of our portfolio
is the strong credit quality of our tenants. We direct special attention to credit quality, particularly in the current economic
environment, in order to ensure the long-term sustainability of rental revenues through economic cycles. Major tenants with over
500,000 square feet of space in the portfolio include government and related agencies, Suncor Energy Inc., Bank of Montreal, Deloitte
LLP and Canadian Natural Resources. A detailed list of major tenants is included in Part III (“Risks and Uncertainties”)
of this MD&A, beginning on page 26.



Our strategy is to sign long-term leases in
order to mitigate risk and reduce our overall re-tenanting costs. We typically commence discussions with tenants regarding their
space requirements well in advance of the contractual expiration, and although each market is different, the majority of our leases,
when signed, extend between five and 10-year terms. As a result of this strategy, approximately 4.3% of our leases, on average,
mature annually up to and including 2020. Our average lease term is eight years.



The following is a breakdown of lease maturities
by region with associated in-place rental rates on our commercial properties:









|                               |  | Total Portfolio |        |  | Toronto, Ontario |  |       | Ottawa, Ontario | 
|------------------------------ |  | --------------- | ------ |  | ---------------- |  | ----- | --------------- | 
|                               |  |                 |        |  |                  |  |       | Net Rent        | 
|                               |  | 000's           |        |  |                  |  |       | per             | 
|Year of Expiry                 |  | Sq. Ft.         |        |  | %                |  |       | Sq. Ft.(1)      | 
|Currently available            |  |                 | 874    |  |                  |  | 5.3   |                 | 
|2017                           |  |                 | 187    |  |                  |  | 1.1   |                 | 
|2018                           |  |                 | 715    |  |                  |  | 4.3   |                 | 
|2019                           |  |                 | 688    |  |                  |  | 4.1   |                 | 
|2020                           |  |                 | 1,265  |  |                  |  | 7.6   |                 | 
|2021                           |  |                 | 1,358  |  |                  |  | 8.2   |                 | 
|2022                           |  |                 | 1,335  |  |                  |  | 8.0   |                 | 
|2023                           |  |                 | 1,078  |  |                  |  | 6.5   |                 | 
|2024 and beyond                |  |                 | 9,130  |  |                  |  | 54.9  |                 | 
|Parking and other              |  |                 | 3,704  |  |                  |  | —     |                 | 
|Total                          |  |                 | 20,334 |  |                  |  | 100.0 | %               | 
|Average market net rent(2) (3) |  |                 |        |  |                  |  |       |                 | 







|                           |  | Calgary, Alberta |       |  | Other | 
|-------------------------- |  | ---------------- | ----- |  | ----- | 
|                           |  |                  |       |  |       | 
|                           |  | 000's            |       |  |       | 
|Year of Expiry             |  | Sq. Ft.          |       |  | %     | 
|Currently available        |  |                  | 369   |  |       | 
|2017                       |  |                  | 46    |  |       | 
|2018                       |  |                  | 128   |  |       | 
|2019                       |  |                  | 82    |  |       | 
|2020                       |  |                  | 279   |  |       | 
|2021                       |  |                  | 120   |  |       | 
|2022                       |  |                  | 373   |  |       | 
|2023                       |  |                  | 107   |  |       | 
|2024 and beyond            |  |                  | 4,129 |  |       | 
|Parking and other          |  |                  | 1,194 |  |       | 
|Total                      |  |                  | 6,827 |  |       | 
|Average market net rent(2) |  |                  |       |  |       | 





| | (1) | Net rent at expiration of lease.
| | --- | --------------------------------

| | (2) | Average market net rent represents management’s
estimate of average rent per square foot for buildings of similar quality to our portfolio. However, it may not necessarily be
representative of the specific space that is rolling in any specific year. Included on page 20 is the average leasing net rent
achieved on our year-to-date leasing as compared to the average expiring net rent.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (3) | Average market net rent for Toronto reflects higher
market rents for Brookfield Place Toronto, Bay Adelaide West and Bay Adelaide East, which comprise 39% of BOX’s exposure
in Toronto.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



42016 Annual Report







COMMERCIAL DEVELOPMENT

The following table summarizes our development
project at December 31, 2016:



|                              |  | Region  |  | Location                                                                      |  | Number of Sites |   |  | Owned Interest |  |     | Leasable Area (000's Sq. Ft.) | 
|----------------------------- |  | ------- |  | ----------------------------------------------------------------------------- |  | --------------- | - |  | -------------- |  | --- | ----------------------------- | 
|Brookfield Place Calgary East |  | Calgary |  | Within one block of Fifth Avenue Place, Bankers Hall and Suncor Energy Centre |  |                 | 1 |  |                |  | 100 | %                             | 



Brookfield Place Calgary East is currently
81.4% pre-leased to Cenovus and Bank of Nova Scotia. Completion remains on target for late 2017.



PERFORMANCE MEASUREMENT

The key indicators by which we measure our
performance are:



| | • | Net income per unit;
| | - | --------------------

| | • | Commercial property net operating income(1);
| | - | --------------------------------------------

| | • | Trust funds from operations per unit(1);
| | - | ----------------------------------------

| | • | Adjusted funds from operations per unit(1);
| | - | -------------------------------------------

| | • | Total equity per unit(1);
| | - | -------------------------

| | • | Overall indebtedness level;
| | - | ---------------------------

| | • | Weighted-average cost of debt; and
| | - | ----------------------------------

| | • | Occupancy levels.
| | - | -----------------

(1)Non IFRS-measure.



Although we monitor and analyze our financial
performance using a number of indicators, our primary business objective of generating reliable and growing cash flow is monitored
and analyzed using net income, commercial property net operating income, Trust funds from operations, and adjusted funds from operations.
Although net income is calculated in accordance with IFRS, IFRS does not prescribe standardized meanings for commercial property
net operating income, Trust funds from operations, and adjusted funds from operations; therefore, they are unlikely to be comparable
to similar measures presented by other entities. We provide the components of commercial property net operating income, a reconciliation
of adjusted commercial property revenue and revaluation (losses) gains, a reconciliation of commercial property net operating income
to net income and a full reconciliation of net income to Trust funds from operations and adjusted funds from operations beginning
on page 22 of this MD&A.



Net Income

Net income is calculated in accordance with
IFRS. Net income is used as a key indicator in assessing the profitability of the Trust.



KEY PERFORMANCE DRIVERS

In addition to monitoring and analyzing performance
in terms of net income, we consider the following items to be important drivers of our current and anticipated financial performance:



| | • | Increases in occupancies by leasing vacant space;
| | - | -------------------------------------------------

| | • | Increases in rental rates through maintaining or enhancing the quality of our assets and as market conditions permit; and
| | - | -------------------------------------------------------------------------------------------------------------------------

| | • | Reduction in operating costs through achieving economies of scale and diligently managing contracts.
| | - | ----------------------------------------------------------------------------------------------------



We also believe that the key external performance
drivers include the availability of:



| | • | Debt capital at a cost and on terms conducive to our goals;
| | - | -----------------------------------------------------------

| | • | Equity capital at a reasonable cost;
| | - | ------------------------------------

| | • | New property acquisitions that fit into our strategic plan; and
| | - | ---------------------------------------------------------------

| | • | Investors for dispositions of peak value or non-core assets.
| | - | ------------------------------------------------------------



Brookfield Canada Office Properties5







PART II – FINANCIAL STATEMENT ANALYSIS



ASSET PROFILE

Our total asset carrying value was $6,157.2
million at December 31, 2016 (compared to $6,356.5 million at December 31, 2015). The following is a summary of our assets:





|(Millions)                   |  | Dec. 31, 2016 |         |  | Dec. 31, 2015 |  
|---------------------------- |  | ------------- | ------- |  | ------------- | -
|Non-current assets           |  |               |         |  |               |  
|Investment properties        |  |               |         |  |               |  
|Commercial properties        |  | $             | 5,397.0 |  |               | $
|Commercial development       |  |               | 684.3   |  |               |  
|                             |  |               | 6,081.3 |  |               |  
|Current assets               |  |               |         |  |               |  
|Tenant and other receivables |  |               | 15.8    |  |               |  
|Other assets                 |  |               | 7.9     |  |               |  
|Cash and cash equivalents    |  |               | 52.2    |  |               |  
|                             |  |               | 75.9    |  |               |  
|Total                        |  | $             | 6,157.2 |  |               | $





COMMERCIAL PROPERTIES

Commercial properties comprise of our direct
interests in wholly owned commercial properties and our proportionate share of the related assets, liabilities, revenue and expenses
in our jointly controlled commercial properties.



The fair value of our commercial properties
was $5,397.0 million as at December 31, 2016 (compared to $5,805.1 million at December 31, 2015). The decrease in value
of commercial properties is primarily attributable to the disposition of Royal Centre in Vancouver and fair value losses in Calgary
to reflect current market conditions; offset by increases across the Toronto region as a result of capital expenditures, leasing
costs and rental rate increases due to improvements in tenant profiles and rental curves related to new leases and renewals.



A breakdown of our commercial properties is
as follows:





|                            |  |            |    |  |                 |  |        | BOX’s           |  |  |               |  |  |               |        
|--------------------------- |  | ---------- | -- |  | --------------- |  | ------ | --------------- |  |  | ------------- |  |  | ------------- | -------
|                            |  |            |    |  |                 |  |        | Owned           |  |  | Fair Value    |  |  | Fair Value    |        
|                            |  | Number of  |    |  | Total Area      |  |        | Interest        |  |  | Dec. 31, 2016 |  |  | Dec. 31, 2015 |        
|                            |  | Properties |    |  | (000's Sq. Ft.) |  |        | (000's Sq. Ft.) |  |  | (Millions)    |  |  | (Millions)    |        
|Eastern region              |  |            | 18 |  |                 |  | 13,507 |                 |  |  | 8,220         |  |  | $             | 3,875.9
|Western region              |  |            | 8  |  |                 |  | 6,827  |                 |  |  | 3,415         |  |  |               | 1,521.1
|Total commercial properties |  |            | 26 |  |                 |  | 20,334 |                 |  |  | 11,635        |  |  | $             | 5,397.0
|Fair value per Sq. Ft.      |  |            |    |  |                 |  |        |                 |  |  |               |  |  | $             | 464    





The key valuation metrics for our commercial
properties are as follows:





|                  |  | December 31, 2016 |      |   | December 31, 2015 | 
|----------------- |  | ----------------- | ---- | - | ----------------- | 
|                  |  | Maximum           |      |   | Minimum           | 
|Eastern region    |  |                   |      |   |                   | 
|Discount rate     |  |                   | 7.00 | % |                   | 
|Terminal cap rate |  |                   | 6.50 | % |                   | 
|Hold period (yrs) |  |                   | 14   |   |                   | 
|Western region    |  |                   |      |   |                   | 
|Discount rate     |  |                   | 6.75 | % |                   | 
|Terminal cap rate |  |                   | 6.25 | % |                   | 
|Hold period (yrs) |  |                   | 11   |   |                   | 





Fair values are most sensitive to changes in
discount rate assumptions and terminal capitalization rate assumptions. A 25 basis-point decrease in the discount and terminal
capitalization rates will impact the fair value of commercial properties by $108.3 million and $163.3 million, or 2.0% and 3.0%,
respectively, at December 31, 2016. Discount rates and terminal capitalization rates are inherently uncertain and may be impacted
by, among other things, movements in interest rates in the markets in which the assets are located. Changes in estimates of discount
and terminal capitalization rates across different markets are often independent of each other and do not necessarily move in the
same direction or of the same magnitude.



62016 Annual Report







Upon the signing of the majority of our leases,
we provide a capital allowance for tenant improvements or tenant inducements for leased space in order to accommodate the specific
space requirements of the tenant. In addition to these allowances, leasing commissions are paid to third-party brokers and Brookfield
Office Properties Management LP (“BOPM LP”), a subsidiary of BOPI. We may experience a delay between lease commencement
and the payment of leasing costs due to timing of the tenant installation and the required inspections and certifications. For
the year ended December 31, 2016, such expenditures totaled $32.7 million (compared to $43.8 million in 2015). The decrease
is primarily related to deferred tenant installation costs mainly at Fifth Avenue Place and Bankers Hall.



We also invest in ongoing maintenance and capital
improvement projects to sustain the high quality of the infrastructure and tenant service amenities in our properties. Total capital
expenditures for the year ended December 31, 2016 totaled $39.0 million (compared to $20.6 million in 2015). These expenditures
exclude repairs and maintenance costs. Fluctuations in our capital expenditures vary period over period based on required and planned
expenditures on our commercial properties.



Capital expenditures include maintaining value
expenditures, which are those required in order to maintain the properties in their current operating state. Capital expenditures
also include projects which represent improvements to an asset or reconfiguration of space that adds productive capacity in order
to increase rentable area or increase current rental rates. For the year ended December 31, 2016, maintaining value capital
expenditures totaled $4.9 million (compared with $8.7 million in 2015), enhancing capital expenditures totaled $18.3 million (compared
with $11.9 million in 2015), while the remaining capital expenditures totaled $15.8 million (compared to $nil in 2015) consist
of remaining construction costs at Bay Adelaide East. Capital expenditures are recoverable in some cases through contractual tenant
cost-recovery payments. During the year ended December 31, 2016, $11.0 million of our total capital expenditures were recoverable
(compared with $17.4 million in 2015).



The following table summarizes the second-generation
leasing commissions and tenant improvements, and maintaining value capital expenditures recorded on our commercial properties during
the year ended December 31, 2016. “Second-generation” leasing commissions and tenant improvements includes both
new and renewal tenants for all of our commercial properties and vary with the timing of renewals, vacancies and tenant mix. These
costs historically have been lower for renewals of existing tenants compared to new tenants.



For the year ended December 31, 2016,
second-generation leasing commissions and tenant improvements of $25.9 million consisted primarily of leasing commissions incurred
at Brookfield Place Toronto and Queen's Quay Terminal and tenant improvements incurred at Brookfield Place Toronto, Bay Adelaide
West, Queens Quay Terminal, Bankers Hall and Fifth Avenue Place related to tenant build-outs. Compared to the prior year of $39.5
million, the decrease is primarily related to lower tenant improvements incurred at Bankers Hall, Fifth Avenue Place, Suncor Energy
Centre and the sale of Royal Centre in the first quarter of 2016.





|(Millions)                                                    |  | 2016 |      |  | 2015 |  
|------------------------------------------------------------- |  | ---- | ---- |  | ---- | -
|Second-generation leasing commissions and tenant improvements |  | $    | 25.9 |  |      | $
|Maintaining value capital expenditures                        |  |      | 4.9  |  |      |  
|Total                                                         |  | $    | 30.8 |  |      | $





(1)A normalized level of activity is estimated based
on historical spend levels as well as anticipated levels over the next few years.



The following table summarizes the changes
in value of our commercial properties during the year ended December 31, 2016:





|(Millions)                                   |  | Dec. 31, 2016 |        
|-------------------------------------------- |  | ------------- | -------
|Balance at beginning of year                 |  | $             | 5,805.1
|Additions:                                   |  |               |        
|Capital expenditures and tenant improvements |  |               | 63.3   
|Leasing commissions                          |  |               | 8.1    
|Tenant inducements                           |  |               | 0.2    
|Investment property disposition              |  |               | (422.4 
|Revaluation losses(1)                        |  |               | (60.0  
|Other changes                                |  |               | 2.7    
|Balance at end of year                       |  | $             | 5,397.0





(1)Refer to Reconciliation of
adjusted commercial property revenue and revaluation (losses) gains on page 21.



Brookfield Canada Office Properties7







COMMERCIAL DEVELOPMENT

Commercial development consists of Brookfield
Place Calgary East which is a high quality, centrally located development site acquired from our parent company, BOPI for an aggregate
total investment of $966.3 million. The building was purchased on an “as-if-completed-and-stabilized basis,” and as
such, BOPI retains the development obligations including construction, lease-up and financing.



The following table summarizes the details
of the transaction and operational information as at December 31, 2016:





|(Millions, except Operational Information)    |  | Brookfield Place  Calgary East |          
|--------------------------------------------- |  | ------------------------------ | ---------
|Initial acquisition price                     |  | $                              | 245.5    
|Up-front equity commitment                    |  |                                | 81.8     
|First mortgage construction loan              |  |                                | 575.0    
|Final payment due to BOPI on stabilization(1) |  |                                | 64.0     
|Aggregate total investment                    |  | $                              | 966.3    
|                                              |  |                                |          
|Operational Information                       |  |                                |          
|Total Leasable Area (000's Sq. Ft.)           |  |                                | 1,400    
|Leased %                                      |  |                                | 81.4     
|Target Completion Date                        |  |                                | Late 2017





| | (1) | Subject to achieving stabilized net operating income
and targeted permanent financing, which is expected to occur in 2018.
| | --- | --------------------------------------------------------------------------------------------------------------------------



Commercial development under active development
is measured using a discounted cash flow model, net of costs to complete, as of the balance sheet date. The total fair value of
development land and infrastructure was $684.3 million at December 31, 2016.



The details of development expenditures are
as follows:





|(Millions)                             |  | 2016 |       |  | 2015 |  
|-------------------------------------- |  | ---- | ----- |  | ---- | -
|Construction costs                     |  | $    | 197.4 |  |      | $
|Property taxes and other related costs |  |      | 6.1   |  |      |  
|Borrowing costs capitalized            |  |      | 18.1  |  |      |  
|Total                                  |  | $    | 221.6 |  |      | $





The following table summarizes the changes
in value of our commercial development during the year ended December 31, 2016:





|(Millions)                   |  | Dec. 31, 2016 |      
|---------------------------- |  | ------------- | -----
|Balance at beginning of year |  | $             | 462.7
|Additions:                   |  |               |      
|Development expenditures     |  |               | 221.6
|Balance at end of year       |  | $             | 684.3





INVESTMENT PROPERTY DISPOSITION

During the year, we completed the sale of our
100% interest in Royal Centre. We generated net proceeds of $284.6 million





|(Millions)                      |  | 2016 |       
|------------------------------- |  | ---- | ------
|Sale proceeds                   |  | $    | 427.5 
|Selling costs                   |  |      | (5.1  
|Investment property disposition |  |      | 422.4 
|Repayment of mortgage           |  |      | (137.8
|Net sale proceeds               |  | $    | 284.6 





TENANT AND OTHER RECEIVABLES

Tenant and other receivables decreased to $15.8
million at December 31, 2016 from $23.8 million at December 31, 2015 mainly due to ground rent recoveries at Hudson's
Bay Centre and receipt of outstanding rental payments at Bay Adelaide East pursuant to a related party lease.



OTHER ASSETS

At December 31, 2016, the balance of other
assets is comprised of prepaid expenses and other assets of $7.9 million (compared to $7.3 million at December 31, 2015).



82016 Annual Report







CASH AND CASH EQUIVALENTS

We endeavor to maintain high levels of liquidity
to ensure that we can meet distribution requirements and react quickly to potential investment opportunities. At December 31,
2016, cash balances were $52.2 million (compared to $57.6 million at December 31, 2015).



LIABILITIES AND EQUITY

Our asset base of $6,157.2 million is financed
with a combination of debt and equity. The components of our liabilities and equity are as follows:





|(Millions)                             |  | Dec. 31, 2016 |         |  | Dec. 31, 2015 |  
|-------------------------------------- |  | ------------- | ------- |  | ------------- | -
|Liabilities                            |  |               |         |  |               |  
|Non-current liabilities                |  |               |         |  |               |  
|Investment property and corporate debt |  | $             | 2,753.6 |  |               | $
|Current liabilities                    |  |               |         |  |               |  
|Investment property and corporate debt |  |               | 74.4    |  |               |  
|Accounts payable and other liabilities |  |               | 166.8   |  |               |  
|                                       |  |               | 241.2   |  |               |  
|                                       |  |               | 2,994.8 |  |               |  
|Equity                                 |  |               |         |  |               |  
|Unitholders’ equity                    |  |               | 879.0   |  |               |  
|Non-controlling interest               |  |               | 2,283.4 |  |               |  
|                                       |  |               | 3,162.4 |  |               |  
|Total liabilities and equity           |  | $             | 6,157.2 |  |               | $





INVESTMENT PROPERTY AND CORPORATE DEBT

Investment property and corporate debt (current
and non-current) totaled $2,828.0 million at December 31, 2016 (compared to $2,838.5 million at December 31, 2015). Investment
property and corporate debt at December 31, 2016 had a weighted-average interest rate of 3.77%. Debt on our investment properties
is mainly non-recourse, thereby reducing overall financial risk to the Trust.



We attempt to match the maturity of our investment
property debt portfolio with the average lease term of our properties. At December 31, 2016, the average term to maturity
of our investment property debt was six years, compared to our average lease term of eight years.



During the second quarter of 2016, we extended
our debt at Hudson's Bay Centre, Toronto with upfinancing of $40.0 million for an additional two-year period to May 2018 at a rate
of CDOR plus 150 basis points.



During the third quarter of 2016, we extended
the $350 million revolving corporate credit facility with existing lenders for an additional year under the existing financial
terms, maturing August 29, 2021.



Brookfield Canada Office Properties9







The details of investment property and corporate
debt at December 31, 2016, are as follows:





|                                 |  | Location |  | Interest Rate % |      |   | Maturity Date |               | BOX’s Share (Millions) |   |         | Mortgage Details
|-------------------------------- |  | -------- |  | --------------- | ---- | - | ------------- | ------------- | ---------------------- | - | ------- | ----------------
|Income Producing                 |  |          |  |                 |      |   |               |               |                        |   |         |                 
|2 Queen St. East                 |  | Toronto  |  |                 | 5.64 | % |               | December 2017 |                        | $ | 28.6    |                 
|Hudson's Bay Centre(1)           |  | Toronto  |  |                 | 2.38 | % |               | May 2018      |                        |   | 137.3   |                 
|Bay Adelaide East(2)             |  | Toronto  |  |                 | 2.74 | % |               | December 2018 |                        |   | 326.7   |                 
|Brookfield Place Toronto         |  | Toronto  |  |                 | 3.24 | % |               | January 2020  |                        |   | 486.5   |                 
|22 Front St. West                |  | Toronto  |  |                 | 6.24 | % |               | October 2020  |                        |   | 16.4    |                 
|Bankers Court                    |  | Calgary  |  |                 | 4.96 | % |               | November 2020 |                        |   | 41.1    |                 
|Queen's Quay Terminal            |  | Toronto  |  |                 | 5.40 | % |               | April 2021    |                        |   | 78.6    |                 
|Fifth Avenue Place               |  | Calgary  |  |                 | 4.71 | % |               | August 2021   |                        |   | 154.2   |                 
|Bay Adelaide West                |  | Toronto  |  |                 | 4.43 | % |               | December 2021 |                        |   | 368.5   |                 
|Exchange Tower                   |  | Toronto  |  |                 | 4.03 | % |               | April 2022    |                        |   | 105.7   |                 
|105 Adelaide St. West            |  | Toronto  |  |                 | 3.87 | % |               | May 2023      |                        |   | 34.1    |                 
|Bankers Hall                     |  | Calgary  |  |                 | 4.38 | % |               | November 2023 |                        |   | 284.4   |                 
|First Canadian Place             |  | Toronto  |  |                 | 3.56 | % |               | December 2023 |                        |   | 74.7    |                 
|Jean Edmonds Towers              |  | Ottawa   |  |                 | 6.79 | % |               | January 2024  |                        |   | 15.6    |                 
|Place de Ville I                 |  | Ottawa   |  |                 | 3.75 | % |               | June 2025     |                        |   | 21.0    |                 
|Place de Ville II                |  | Ottawa   |  |                 | 3.75 | % |               | June 2025     |                        |   | 22.8    |                 
|Suncor Energy Centre             |  | Calgary  |  |                 | 5.19 | % |               | August 2033   |                        |   | 257.4   |                 
|                                 |  |          |  |                 |      |   |               |               |                        |   |         |                 
|Development                      |  |          |  |                 |      |   |               |               |                        |   |         |                 
|Brookfield Place Calgary East(3) |  | Calgary  |  |                 | 2.61 | % |               | November 2018 |                        |   | 325.6   |                 
|                                 |  |          |  |                 |      |   |               |               |                        |   |         |                 
|Corporate                        |  |          |  |                 |      |   |               |               |                        |   |         |                 
|$350M Corporate Revolver         |  | -        |  |                 | 2.36 | % |               | August 2021   |                        |   | 60.0    |                 
|                                 |  |          |  |                 | 3.77 | % |               |               |                        |   | 2,839.2 |                 
|Premium on assumed mortgages     |  |          |  |                 |      |   |               |               |                        |   | 0.8     |                 
|Deferred financing costs         |  |          |  |                 |      |   |               |               |                        |   | (12.0   | )               
|Total                            |  |          |  |                 | 3.77 | % |               |               |                        | $ | 2,828.0 |                 





| | (1) | This loan has limited recourse to the Trust for up to
$15.0 million.
| | --- | --------------------------------------------------------------------

| | (2) | This loan has a three year term from the date of the
initial advance maturing December 2016, and has limited recourse to the Trust for up to $50.0 million. Two one-year extension
options are available provided certain leasing thresholds have been met and no material defaults have occurred. The second criteria
to extend the maturity to 2018 has been met as of December 31, 2016.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (3) | This loan has limited recourse to the Trust for up to
$60.0 million. A one-year extension option is available provided certain leasing thresholds have been met and no material defaults
have occurred. The criteria to extend the maturity to 2018 has been met as of December 31, 2016.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Investment property and corporate debt maturities
for the next five years and thereafter are as follows:





|                                 |  |                 |       |  |            |   |         |          |  |   | Weighted-Average     | 
|-------------------------------- |  | --------------- | ----- |  | ---------- | - | ------- | -------- |  | - | -------------------- | 
|                                 |  | Scheduled       |       |  |            |   |         |          |  |   | Interest Rate (%) at | 
|(Millions, except interest data) |  | Amortization(1) |       |  | Maturities |   |         | Total(1) |  |   | Dec. 31, 2016        | 
|2017                             |  | $               | 45.8  |  |            | $ | 28.6    |          |  | $ | 74.4                 | 
|2018                             |  |                 | 49.3  |  |            |   | 789.7   |          |  |   | 839.0                | 
|2019                             |  |                 | 51.6  |  |            |   | —       |          |  |   | 51.6                 | 
|2020                             |  |                 | 41.3  |  |            |   | 499.2   |          |  |   | 540.5                | 
|2021                             |  |                 | 39.4  |  |            |   | 578.3   |          |  |   | 617.7                | 
|2022 and thereafter              |  |                 | 153.7 |  |            |   | 551.1   |          |  |   | 704.8                | 
|Total                            |  | $               | 381.1 |  |            | $ | 2,446.9 |          |  | $ | 2,828.0              | 





(1)Net of transaction costs.



102016 Annual Report







CONTRACTUAL OBLIGATIONS

The following table presents our contractual
obligations over the next five years and beyond:





|                                                             |  | Payments Due By Period |        
|------------------------------------------------------------ |  | ---------------------- | -------
|(Millions)                                                   |  | Total                  |        
|Investment property and corporate debt(1)                    |  | $                      | 2,828.0
|Interest expense – investment property and corporate debt(2) |  |                        | 502.2  
|Minimum rental payments - ground leases(3)                   |  |                        | 479.4  
|                                                             |  | $                      | 3,809.6





| | (1) | Net of transaction costs.
| | --- | -------------------------

| | (2) | Represents aggregate interest expense expected to be
paid over the term of the debt, on an undiscounted basis, based at current interest rates.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------

| | (3) | Represents minimum rental payments, on an undiscounted
basis, on land leases or other agreements.
| | --- | -------------------------------------------------------------------------------------------------



CREDIT RATINGS

Our access to financing depends on, among other
things, suitable market conditions and the maintenance of suitable long-term credit ratings. Our credit ratings may be adversely
affected by various factors, including increased debt levels, decreased earnings, declines in tenant demand, increased competition,
a further deterioration in general economic and business conditions and adverse publicity. Any downgrades in our credit ratings
may impede our access to capital markets or raise our borrowing rates.



We are currently rated by Dominion Bond Rating
Service Inc. (“DBRS”) and Standard & Poor’s (“S&P”). Our credit ratings at December 31,
2016, and at the date of this report were:



|              |  |  | DBRS         |  |  |  | S&P          | 
|------------- |  |  | ------------ |  |  |  | ------------ | 
|Issuer Rating |  |  | BBB (stable) |  |  |  | BBB (stable) | 



We are committed to arranging our affairs to
maintain these ratings and improve them over time.



Credit ratings are intended to provide investors
with an independent measure of the credit quality of an issue of securities. The credit ratings presented are not a recommendation
to purchase, hold or sell our Trust Units, as such ratings do not comment as to market price or suitability for a particular investor.
There is no assurance that any rating will remain in effect for any given period or that any rating will not be revised or withdrawn
entirely by the rating agency in the future if, in its judgment, circumstances so warrant.



CORPORATE GUARANTEES AND CONTINGENT OBLIGATIONS

We and our operating subsidiaries may be contingently
liable with respect to litigation and claims that arise from time to time in the normal course of business or otherwise. In addition,
we may execute agreements that provide for indemnifications and guarantees to third parties. Disclosure of commitments, guarantees,
and contingencies can be found in Note 15 of the consolidated financial statements.



INCOME TAXES

The Trust is a “mutual fund trust”
pursuant to the Income Tax Act (Canada). The Trust distributes or designates all taxable earnings to unitholders, and as
such, under current legislation, the obligation to pay tax rests with each unitholder. No current and deferred tax provisions are
required on the Trust’s income.



Brookfield Canada Office Properties11







ACCOUNTS PAYABLE AND OTHER LIABILITIES

Accounts payable and other liabilities decreased
to $166.8 million at December 31, 2016, from $185.0 million at December 31, 2015.



A summary of the components of accounts payable
and other liabilities is as follows:





|(Millions)                               |  | Dec. 31, 2016 |       |  | Dec. 31, 2015 |  
|---------------------------------------- |  | ------------- | ----- |  | ------------- | -
|Accounts payable and accrued liabilities |  | $             | 148.2 |  |               | $
|Accrued interest                         |  |               | 18.6  |  |               |  
|Total                                    |  | $             | 166.8 |  |               | $





EQUITY

The components of equity are as follows:





|(Millions)               |  | Dec. 31, 2016 |         |  | Dec. 31, 2015 |  
|------------------------ |  | ------------- | ------- |  | ------------- | -
|Trust Units              |  | $             | 559.0   |  |               | $
|Contributed surplus      |  |               | 2.9     |  |               |  
|Retained earnings        |  |               | 317.1   |  |               |  
|Unitholders’ equity      |  |               | 879.0   |  |               |  
|Non-controlling interest |  |               | 2,283.4 |  |               |  
|Total                    |  | $             | 3,162.4 |  |               | $





The following tables summarize the changes
in the units outstanding during the year ended December 31, 2016 and December 31, 2015:





|                                                        |  | 2016        |           
|------------------------------------------------------- |  | ----------- | ----------
|                                                        |  | Trust Units |           
|Units issued and outstanding at beginning of year       |  |             | 26,250,344
|Units issued pursuant to Distribution Reinvestment Plan |  |             | 162,827   
|Total units outstanding at December 31, 2016            |  |             | 26,413,171







|                                                        |  | 2015        |           
|------------------------------------------------------- |  | ----------- | ----------
|                                                        |  | Trust Units |           
|Units issued and outstanding at beginning of year       |  |             | 26,218,183
|Units repurchased                                       |  |             | (37,053   
|Units issued pursuant to Distribution Reinvestment Plan |  |             | 69,214    
|Total units outstanding at December 31, 2015            |  |             | 26,250,344





At December 31, 2016, the weighted average
number of Trust Units outstanding was 26,346,054 (compared to 26,246,958 for the year ended December 31, 2015).



In November 2016, we renewed our normal course
issuer bid for our Trust Units for a further one-year period. During the twelve-month period commencing November 14, 2016 and ending
November 13, 2017, we may purchase on the Toronto Stock Exchange (“TSX”), the New York Stock Exchange and any alternative
Canadian trading system up to 1,581,302 Trust Units, representing approximately 10% of our public float. During the year, we did
not purchase any Trust Units through open market purchases. A copy of the Notice of Intention relating to our normal course issuer
bid may be requested without charge.



Trust Units

Each Trust Unit is transferable and represents
an equal, undivided, beneficial interest in BOX and in any distributions, whether of net income, net realized capital gains, or
other amounts, and in the event of the termination or winding-up of the Trust, in the Trust’s net assets remaining after
satisfaction of all liabilities. All Trust Units rank among themselves equally and ratably without discrimination, preference,
or priority. Each Trust Unit entitles the holder thereof to one vote at all meetings of unitholders or with respect to any written
resolution of unitholders. The Trust Units have no conversion, retraction or redemption rights.



Special Voting Units

Special Voting Units are only issued in tandem
with Class B limited partnership units (“Class B LP Units”) of Brookfield Office Properties Canada LP (“BOPC
LP”) and are not transferable separately from the Class B LP Units to which they relate and upon any transfer of
Class B LP Units, such Special Voting Units will automatically be transferred to the transferee of the Class B LP Units.
As Class B LP Units are exchanged for Trust Units or purchased for cancellation, the corresponding Special Voting Units
will be cancelled for no consideration.



122016 Annual Report







Each Special Voting Unit entitles the holder
thereof to one vote at all meetings of unitholders or with respect to any resolution in writing of unitholders. Except for the
right to attend and vote at meetings of the unitholders or with respect to written resolutions of the unitholders, Special Voting
Units do not confer upon the holders thereof any other rights. A Special Voting Unit does not entitle its holder to any economic
interest in BOX, or to any interest or share in BOX, or to any interest in any distributions (whether of net income, net realized
capital gains, or other amounts), or to any interest in any net assets in the event of termination or winding-up.



Non-Controlling interest

We classify the outstanding Class B LP Units
as non-controlling interest for financial statement purposes in accordance with IFRS. The Class B LP Units are exchangeable on
a one-for-one basis (subject to customary anti-dilution provisions) for Trust Units at the option of the holder. Each Class B LP
Unit is accompanied by a Special Voting Unit that entitles the holder thereof to receive notice of, to attend, and to vote at all
meetings of unitholders of BOX. The holders of Class B LP Units are entitled to receive distributions when declared by BOPC LP
equal to the per-unit amount of distributions payable to each holder of Trust Units. However, the Class B LP Units have limited
voting rights over BOPC LP.



The following tables present distributions
declared to Trust unitholders and non-controlling interest for the year ended December 31, 2016 and December 31, 2015.





|                                    |  | 2016        |     
|----------------------------------- |  | ----------- | ----
|(Millions, except per unit amounts) |  | Trust Units |     
|Paid in cash or DRIP                |  | $           | 73.3
|Payable as of December 31, 2016     |  |             | 2.9 
|Total                               |  |             | 76.2
|Per unit(1)                         |  | $           | 1.29





| | (1) | Excludes special distribution of $149.3 million or $1.60
per Trust unit, paid out on April 19, 2016 to holders of record at the close of business on April 5, 2016.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------





|                                    |  | 2015        |     
|----------------------------------- |  | ----------- | ----
|(Millions, except per unit amounts) |  | Trust Units |     
|Paid in cash or DRIP                |  | $           | 29.6
|Payable as of December 31, 2015     |  |             | 2.7 
|Total                               |  |             | 32.3
|Per unit                            |  | $           | 1.24



We determine annual distributions to unitholders
by looking at forward-looking cash flow information, including forecasts and budgets and the future business prospects of the Trust.
We do not consider periodic cash flow fluctuations resulting from items such as the timing of property operating costs, property
tax installments, or semi-annual debenture and mortgage payable interest payments in determining the level of distributions to
unitholders. To determine the level of cash distributions made to unitholders, we consider the impact of, among other items, the
future growth in the income-producing portfolio, future acquisitions and dispositions, and leasing related to the income-producing
portfolio. Annual distributions to unitholders are expected to continue to be funded by cash flows generated from our portfolio.



CAPITAL RESOURCES AND LIQUIDITY

We employ a broad range of financing strategies
to facilitate growth and manage financial risk, with particular emphasis on the overall reduction of the weighted-average cost
of capital, in order to enhance returns for unitholders. Our principal liquidity needs for the next twelve months are to:



| | • | fund recurring expenses;
| | - | ------------------------

| | • | meet debt service requirements;
| | - | -------------------------------

| | • | make distributions;
| | - | -------------------

| | • | fund those capital expenditures deemed mandatory, including tenant improvements;
| | - | --------------------------------------------------------------------------------

| | • | fund current development costs not covered by construction loans; and
| | - | ---------------------------------------------------------------------

| | • | fund investing activities, which could include:
| | - | -----------------------------------------------

| | ▪ | discretionary capital expenditures;
| | - | -----------------------------------

| | ▪ | property acquisitions; and
| | - | --------------------------

| | ▪ | repurchases of our units.
| | - | -------------------------



Brookfield Canada Office Properties13







We believe that our liquidity needs will be
satisfied using cash on hand and cash flows generated from operating, investing, and financing activities. Rental revenue, recoveries
from tenants, interest and other income, available cash balances, divestiture of non-core assets, draws on our credit facilities
and refinancings (including upward refinancings) of maturing indebtedness are our principal sources of capital used to pay operating
expenses, distributions, debt service, capital expenditures, and leasing costs in our commercial-property portfolio. We seek to
increase income from our existing properties by controlling operating expenses and by maintaining quality standards for our properties
that promote high occupancy rates and support increases in rental rates while reducing tenant turnover. We believe our revenue,
along with proceeds from financing activities, will continue to provide the necessary funds for our short-term liquidity needs
and to fund anticipated ongoing distributions. However, material changes in these factors may adversely affect our net cash flows.



Our principal liquidity needs for periods beyond
the next year are for scheduled debt maturities, unit distributions, development costs and capital expenditures. We plan to meet
these needs with one or more of the following:



| | • | cash flow from operating activities;
| | - | ------------------------------------

| | • | credit facilities and refinancing opportunities;
| | - | ------------------------------------------------

| | • | construction loans; and
| | - | -----------------------

| | • | divestiture of commercial properties.
| | - | -------------------------------------



Our investment property and corporate debt
is primarily fixed-rate and non-recourse to the Trust. These investment-grade financings are typically structured on a loan-to-appraised-value
basis of between 50% and 65% as market conditions permit. In addition, in certain circumstances where a building is leased almost
exclusively to a high-credit-quality tenant, a higher loan-to-value financing, based on the tenant’s credit quality, is put
in place at rates commensurate with the cost of funds for the tenant. This reduces our equity requirements to finance investment
property and enhances equity returns.



Most of our borrowings are in the form of long-term
property-specific financings with recourse only to the specific assets. Limiting recourse to specific assets ensures that poor
performance within one area does not compromise our ability to finance the balance of our operations. Our maturity schedule is
fairly diversified so that financing requirements in any given year are manageable.



Our focus on structuring financings with investment-grade
characteristics ensures that debt levels on any particular asset can typically be maintained throughout a business cycle. This
enables us to limit covenants and other performance requirements, thereby reducing the risk of early payment requirements or restrictions
on the distribution of cash from the assets being financed.



To help ensure we are able to react to investment
opportunities quickly and on a value basis, we attempt to maintain a high level of liquidity. Our primary sources of liquidity
consist of cash and undrawn committed credit facilities. In addition, we structure our affairs to facilitate monetization of longer-duration
assets through financings, co-investor participations, or refinancings.



At December 31, 2016, our available liquidity
consists of $52.2 million of cash on hand, and $290.0 million of undrawn capacity on our corporate credit facility.



Cost of Capital

We continually strive to reduce our weighted-average
cost of capital and improve unitholders’ equity returns through value-enhancement initiatives and the consistent monitoring
of the balance between debt and equity financing.



As of December 31, 2016, our weighted-average
cost of capital, assuming a long-term 9.0% return on equity, was 6.2%. Our cost of capital is lower than many of our peers because
of the greater amount of investment-grade financing that can be placed on our assets, which is a function of the high-quality nature
of both the assets and the tenant base that composes our portfolio. In determining the long-term 9.0% return on equity, management
considers various factors including a review of various financial models such as dividend growth model and capital asset pricing
model, as well as examination of market returns. Based on the calculations of the financial models, market returns and historic
returns achieved by the Trust, management believes that the long-term 9.0% return is an appropriate benchmark.



142016 Annual Report







The following schedule details the capitalization
of the Trust and the related costs thereof:





|                                        |  | Cost of Capital(1) |     |   | Underlying Value(2) | 
|--------------------------------------- |  | ------------------ | --- | - | ------------------- | 
|(Millions, except cost of capital data) |  | Dec. 31, 2016      |     |   | Dec. 31, 2015       | 
|Liabilities                             |  |                    |     |   |                     | 
|Investment property and corporate debt  |  |                    | 3.8 | % |                     | 
|Unitholders’ equity                     |  |                    |     |   |                     | 
|Trust Units(3)                          |  |                    | 9.0 | % |                     | 
|Other equity                            |  |                    |     |   |                     | 
|Non-controlling interest(3)             |  |                    | 9.0 | % |                     | 
|Total                                   |  |                    | 6.2 | % |                     | 





| | (1) | Total weighted-average cost of capital is calculated
on the weighted average of underlying value.
| | --- | -------------------------------------------------------------------------------------------------

| | (2) | Underlying value of liabilities presents the cost to
retire debt on maturity. Underlying value of unitholders’ equity and other equity is based on the closing unit price of
BOX on the Toronto Stock Exchange.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (3) | Assumes a long-term 9.0% return on equity for December 31,
2016 and December 31, 2015.
| | --- | --------------------------------------------------------------------------------------



OPERATING RESULTS

Included on the following pages is a discussion
of the various components of our operating results in accordance with IFRS followed by a discussion of non-IFRS measures and corresponding
reconciliations to comparable IFRS measures.



The following table represents operating results
in accordance with IFRS:





|(Millions, except per unit amounts)                  |  | 2016 |       |   | 2015 |  
|---------------------------------------------------- |  | ---- | ----- | - | ---- | -
|Commercial property revenue                          |  | $    | 522.5 |   |      | $
|Direct commercial property expense                   |  |      | 265.7 |   |      |  
|                                                     |  |      | 256.8 |   |      |  
|Interest expense                                     |  |      | 91.6  |   |      |  
|General and administrative expense                   |  |      | 24.8  |   |      |  
|Income before fair value (losses) gains              |  |      | 140.4 |   |      |  
|Fair value (losses) gains                            |  |      | (44.9 | ) |      |  
|Net income and comprehensive income                  |  | $    | 95.5  |   |      | $
|Net income and comprehensive income attributable to: |  |      |       |   |      |  
|Unitholders                                          |  | $    | 26.8  |   |      | $
|Non-controlling interest                             |  |      | 68.7  |   |      |  
|                                                     |  | $    | 95.5  |   |      | $
|Net income per Trust unit                            |  | $    | 1.02  |   |      | $





COMMERCIAL PROPERTY REVENUE

Revenue from commercial properties includes
rental revenues earned from tenant leases, straight-line rent, percentage rent, and additional rent from the recovery of operating
costs and property taxes. Revenue from investment properties totaled $522.5 million for the year ended December 31, 2016 (compared
to $516.9 million in 2015). The increase is primarily due to incremental base rent and recoveries from Bay Adelaide East, higher
base rents and recoveries at Bay Adelaide West, Exchange Tower, First Canadian Place and Queen’s Quay Terminal; offset by
loss of base rents and recoveries from the sale of Royal Centre in the first quarter of 2016 and HSBC Building in the prior year,
as well as lower base rents and recoveries related to expiries at Fifth Avenue Place.



The components of revenue are as follows:





|(Millions)                         |  | 2016 |       |  | 2015 |  
|---------------------------------- |  | ---- | ----- |  | ---- | -
|Rental revenue                     |  | $    | 502.8 |  |      | $
|Non-cash rental revenue            |  |      | 16.9  |  |      |  
|Lease termination and other income |  |      | 2.8   |  |      |  
|Commercial property revenue        |  | $    | 522.5 |  |      | $





Our strategy of owning premier properties in
high-growth, and, in many instances, supply-constrained markets with high barriers to entry, along with our focus on executing
long-term leases with strong credit-rated tenants, has created one of Canada’s most distinguished portfolios of office properties.
In the past, this strategy has reduced our exposure to the cyclical nature of the real estate business. We feel confident with
our current rollover exposure, which is the percentage of our total managed space currently scheduled to expire, and are focused
on working toward renewals on expiries and backfilling vacant spaces in the upcoming months, as well as continuing to manage our
rollover exposure in the future years.



Brookfield Canada Office Properties15







Our leases generally have clauses that provide
for the collection of rental revenues in amounts that increase every few years, with these increases negotiated at the signing
of the lease. During the year ended December 31, 2016, approximately 69% of our leases executed had rent escalation clauses.
On average, these escalation clauses will increase rent annually by 1.1% over the terms of the respective leases. The large number
of high-credit-quality tenants in our portfolio lowers the risk of not realizing these increases. IFRS requires that these increases
be recorded on a straight-line basis over the life of the lease. For the year ended December 31, 2016, we recognized $16.9
million of non-cash rental revenue(compared to $1.1 million of non-cash rental revenue in 2015). Direct commercial property expenses,
which include real estate taxes, utilities, insurance, repairs and maintenance, cleaning, and other property-related expenses were
$265.7 million for the year ended December 31, 2016 (compared to $265.6 million in 2015).



Substantially all of our leases are net leases,
in which the lessee is required to pay its proportionate share of the property’s operating expenses such as utilities, repairs,
insurance, and taxes. Consequently, leasing activity is the principal contributor to the change in same-property net operating
income. Our total portfolio occupancy rate ended the quarter at 94.7%. At December 31, 2016, average in-place net rent throughout
the portfolio was $30 per square foot, compared with an average market net rent of $27 per square foot.



The following table shows the average lease
term, in-place rents, and estimated current market rents for similar space in each of our markets as of December 31, 2016:





|                 |  |                 |        |  | Avg.       |  |      | Avg. In-Place(1) |  |  | Avg. Market(2)  | 
|---------------- |  | --------------- | ------ |  | ---------- |  | ---- | ---------------- |  |  | --------------- | 
|                 |  | Leasable Area   |        |  | Lease Term |  |      | Net Rent         |  |  | Net Rent        | 
|Region           |  | (000's Sq. Ft.) |        |  | (Years)    |  |      | ($ per Sq. Ft.)  |  |  | ($ per Sq. Ft.) | 
|Toronto, Ontario |  |                 | 9,264  |  |            |  | 7.1  |                  |  |  | 30              | 
|Ottawa, Ontario  |  |                 | 1,730  |  |            |  | 6.8  |                  |  |  | 20              | 
|Calgary, Alberta |  |                 | 5,633  |  |            |  | 10.0 |                  |  |  | 32              | 
|Other            |  |                 | 3      |  |            |  | —    |                  |  |  | —               | 
|Total            |  |                 | 16,630 |  |            |  | 8.0  |                  |  |  | 30              | 







| | (1) | Average in-place net rent represents the annualized
cash amount on a per square foot basis collected from tenants plus tenant expense reimbursements less the operating expenses being
incurred for that space, excluding the impact of straight-lining rent escalations or amortizing free rent periods provided on
in-place leases.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (2) | Average market net rent represents management’s
estimate of average rent per square foot for buildings of similar quality to our portfolio. However, it may not necessarily be
representative of the specific space that is rolling in any specific year.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



A summary of current and historical occupancy
levels at December 31 for the past two years is as follows:





|                                      |  | Dec. 31, 2016 |        |  | Dec. 31, 2015 | 
|------------------------------------- |  | ------------- | ------ |  | ------------- | 
|                                      |  | Leasable      |        |  | %             | 
|(000’s Sq. Ft., except % leased data) |  | Area          |        |  | Leased        | 
|Toronto, Ontario                      |  |               | 9,264  |  |               | 
|Ottawa, Ontario                       |  |               | 1,730  |  |               | 
|Calgary, Alberta                      |  |               | 5,633  |  |               | 
|Vancouver, B.C.                       |  |               | —      |  |               | 
|Other                                 |  |               | 3      |  |               | 
|Total                                 |  |               | 16,630 |  |               | 





During 2016, we leased 1,467,000 square feet
of space, which included 846,000 square feet of new leasing, and 621,000 square feet of renewals, compared to expiries of 1,361,000
square feet and accelerated expiries of 150,000 square feet. The overall average leasing net rent was $33 per square foot, compared
to an average expiring net rent of $31 per square foot. At December 31, 2016, the average leasing net rent related to new
and renewed leases was $31 per square foot and $36 per square foot, respectively.



Leasing highlights from the fourth quarter
include:

| | • | A 13-year, 125,000-square foot new lease with WSP Canada Inc. at Fifth Avenue Place
| | - | -----------------------------------------------------------------------------------

| | • | A five-year, 112,000-square foot renewal with Aird & Berlis LLP at Brookfield Place Toronto
| | - | -------------------------------------------------------------------------------------------

| | • | A 10-year, 30,000-square foot new lease with Shire Pharma Canada ULC at Bay Adelaide East
| | - | -----------------------------------------------------------------------------------------

| | • | A six-year, 27,000-square foot renewal with Glencore Canada Corporation at First Canadian Place
| | - | -----------------------------------------------------------------------------------------------

| | • | A 10-year, 17,000-square foot renewal with Russell Investments Canada at First Canadian Place
| | - | ---------------------------------------------------------------------------------------------

| | • | A 10-year, 15,000-square foot new lease with The Consulate General of Israel at Hudson's Bay Centre
| | - | ---------------------------------------------------------------------------------------------------

| | • | A five-year, 13,000-square foot new lease with ECN Capital Corporation at Brookfield Place Toronto
| | - | --------------------------------------------------------------------------------------------------

| | • | A five-year, 12,000-square foot renewal and expansion lease with China Construction Bank at Brookfield Place Toronto
| | - | --------------------------------------------------------------------------------------------------------------------

| | • | A seven-year, 10,000-square foot new lease with DLA Piper (Canada) LLP at First Canadian Place
| | - | ----------------------------------------------------------------------------------------------



162016 Annual Report







The details of our leasing activity for the
year ended December 31, 2016, are as follows:





|                 |  |               |        |  | Activities during the year ended December 31, 2016 |  |        |            | 
|---------------- |  | ------------- | ------ |  | -------------------------------------------------- |  | ------ | ---------- | 
|                 |  |               |        |  |                                                    |  |        | Average(2) | 
|                 |  | Dec. 31, 2015 |        |  |                                                    |  |        | Expiring   | 
|(000's Sq. Ft.)  |  | Leased(1)     |        |  | Expiries                                           |  |        | Net Rent   | 
|Toronto, Ontario |  |               | 8,807  |  |                                                    |  | (1,054 | )          | 
|Ottawa, Ontario  |  |               | 1,650  |  |                                                    |  | (44    | )          | 
|Calgary, Alberta |  |               | 5,480  |  |                                                    |  | (412   | )          | 
|Vancouver, B.C.  |  |               | 545    |  |                                                    |  | (1     | )          | 
|Other            |  |               | 3      |  |                                                    |  | —      |            | 
|Total Leasing    |  |               | 16,485 |  |                                                    |  | (1,511 | )          | 
|                 |  |               |        |  |                                                    |  |        |            | 
|Development      |  |               | 1,000  |  |                                                    |  | —      |            | 





| | (1) | Restated for re-measurements.
| | --- | -----------------------------

| | (2) | Represents net rent in the final year.
| | --- | --------------------------------------

| | (3) | Year one leasing net rent is the rent at the commencement
of the lease term on a per square foot basis including tenant expense reimbursements, less operating expenses being incurred for
that space, but excluding the impact of straight-lining rent escalations or amortization of free rent periods.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (4) | Average leasing net rent is the average rent over the
lease term on a per square foot basis including tenant expense reimbursements, less operating expenses being incurred for that
space, but including the impact of straight-lining rent escalations or amortization of free rent periods.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (5) | Represents the disposition of Royal Centre in Q1 2016.
| | --- | ------------------------------------------------------



Additionally, during the year ended December 31,
2016, tenant improvements and leasing costs related to leasing activity that occurred averaged $16.77 per square foot, of which
$26.66 per square foot and $5.52 per square foot related to new and renewed leases, respectively, compared to $6.65 per square
foot during the same prior year period. The increase from the prior year period is primarily related to the higher tenant improvements
and leasing commissions incurred at Fifth Avenue Place.



INTEREST EXPENSE

Interest expense totaled $91.6 million during
the year ended December 31, 2016 (compared to $84.3 million in 2015). The increase is due to a lower capitalized imputed interest
on our development properties as a result of the transfer of Bay Adelaide East into an income producing property in Q4 2015; offset
by a lower outstanding balance on the revolving corporate facility and the reduction of interest due to the sales of HSBC Building
and Royal Centre in Q3 2015 and Q1 2016, respectively.



GENERAL AND ADMINISTRATIVE EXPENSES

General and administrative expenses were $24.8
million during the year ended December 31, 2016 (compared to $23.1 million in 2015).



INCOME TAX EXPENSE

The Trust is a “mutual fund trust”
pursuant to the Income Tax Act (Canada). The Trust distributes or designates all taxable earnings to unitholders, and as
such, under current legislation, the obligation to pay tax rests with each unitholder. No current and deferred tax provisions are
required on the Trust’s income.



FAIR VALUE (LOSSES) GAINS

During the year ended December 31, 2016,
the Trust recognized a fair value loss of $44.9 million (compared to $207.5 million of fair value gains in 2015). Fair value adjustments
are determined based on the movement of various parameters on a quarterly basis, including changes in projected cash flows as a
result of leasing and timing, discount rates, and terminal capitalization rates. Our investment property valuations have decreased
from December 31, 2015 due to changes in market parameters and rental rate assumptions primarily for the Calgary portfolio
to reflect current market conditions including the leveraging of rental curves for future leases.



NON-IFRS MEASURES

Although we monitor and analyze our financial
performance using a number of indicators, our primary business objective of generating reliable and growing cash flow is monitored
and analyzed using net income, commercial property net operating income, same property net operating income, Trust funds from operations,
adjusted funds from operations and total equity per unit. Although net income is calculated in accordance with IFRS, IFRS does
not prescribe standardized meanings for commercial property net operating income, Trust funds from operations, adjusted funds from
operations and total equity per unit; therefore, they are unlikely to be comparable to similar measures presented by other entities.



Brookfield Canada Office Properties17







Commercial property net operating income

Commercial property net operating income is
defined by us as adjusted commercial property revenue net of direct property operating expenses, including property administration
costs that have been deducted but prior to deducting interest expense, general and administrative expenses, and fair value gains
(losses). Included in adjusted commercial property revenue and revaluation (losses) gains is the impact of rental payments received
pursuant to a related party lease, which in accordance with IFRS, would be included in fair value gains (losses). Commercial property
net operating income is used as a key indicator of performance, as it represents a measure over which management of our commercial
property operations has control.



Same property net operating income

Same property net operating income or "Same
property NOI" is a subset of net operating income, which excludes net operating income that is earned from assets acquired,
disposed of or developed during the periods presented, or not of a recurring nature. Same property NOI allows the Trust to segregate
the performance of leasing and operating initiatives of the portfolio from the impact to performance from investing activities
and non-recurring income (charges), which for the historical periods presented consist primarily of lease termination income.



Trust Funds from Operations

Trust funds from operations or "Trust
FFO" is defined by us as net income prior to transaction costs, revaluation (losses) gains which include the impact of rental
payments received from the related party lease as described below, and certain other non-cash items, if any. Trust FFO does not
represent or approximate cash generated from operating activities and is determined in accordance with the REALPAC FFO white paper,
except for the inclusion of the rental lease payments. It further includes all adjustments that are outlined in the NAREIT definition
of FFO.



Adjusted Funds from Operations

Adjusted funds from operations or “AFFO”
is defined by us as Trust FFO net of actual second-generation leasing commissions and tenant improvements, actual maintaining value
capital expenditures, and straight-line rental income. AFFO is a widely used measure used to assess an entity’s ability to
pay distributions.



Total Equity per Unit

Total equity per unit represents the book value
of our total equity divided by total units outstanding. We believe that total equity per unit is an important measure of our current
financial position because it reflects our total equity adjusted for all inflows and outflows, including Trust FFO and changes
in the value of our investment properties.



RECONCILIATION OF ADJUSTED COMMERCIAL PROPERTY
REVENUE AND REVALUATION (LOSSES) GAINS



As part of the Trust’s acquisition of
Bay Adelaide East from BOPI on an “as-if-completed-and-stabilized basis”, the parties entered into a lease arrangement,
whereby the Trust would receive supplemental payments as part of a related party lease arrangement with BOPI that would result
in the Trust receiving the net operating cash flows reflective of stabilized 95% occupancy at the property, which is expected to
occur in 2017.



Management has adjusted commercial property
revenue and revaluation gains (losses) to reflect the impact of rental payments received pursuant to the related party lease of
$15.1 million, net of the non-cash straight-line rental revenue recognized in accordance with IFRS.



The Trust has received rental payments of $28.4
million from BOPI with respect to the leaseable area of Bay Adelaide East that is not currently generating third-party cash rental
income.



Under IFRS, the rental payments received from
BOPI are accounted for as a reduction to the carrying value of investment property as they were agreed to in connection with the
initial acquisition of the property from BOPI. The rental payments receivable from BOPI in this arrangement are inherently reflected
in the fair value of the investment property as part of the expected future cash flows in the Trust’s discounted cash flow
model. When the property is subsequently measured at fair value at year-end, the impact of the reduction to carrying value of the
investment property as a result of the rental payments received impacts the measurement of the fair value gains (losses) inherent
in the reconciliation of investment properties disclosed in accordance with International Accounting Standard ("IAS")
40, "Investment Property".



In accordance with IAS 17, "Leases",
the Trust recognizes any third-party lease revenue on a straight-line basis over the lease term. As a result, the Trust has recognized
non-cash straight-line rental revenue related to leases with third-party tenants that are not yet making cash payments of $13.3
million, but for which the Trust still receives cash rental payments pursuant to the related party lease.



The adjustment to commercial property revenue
presents the rental payments received from BOPI, net of the non-cash revenue currently recognized under IFRS, as though they were
received pursuant to a third-party lease and recorded as rental revenue. As a result, there is a corresponding adjustment to reverse
the impact of recording the payments as the reduction to the carrying value of the investment property, which results in an offsetting
adjustment to fair value gains (losses).



The net impact during the year of this adjustment
is $15.1 million.



182016 Annual Report







The Trust believes the inclusion of the rental
lease payments, net of non-cash rental revenue, is important to help investors understand the contracted economics of the Bay Adelaide
East acquisition on an “as-if-completed-and-stabilized basis” and the resulting recurring operating cash flows generated
pursuant to that arrangement.



The following table is a reconciliation of
the adjusted commercial property revenue and revaluation (losses) gains.



|(Millions, except per unit amounts)                         |  | 2016 |       | 2015
|----------------------------------------------------------- |  | ---- | ----- | ----
|Commercial property revenue per IFRS                        |  | $    | 522.5 |     
|Add:                                                        |  |      |       |     
|Impact of rental payments received from related party lease |  |      | 15.1  |     
|Adjusted commercial property revenue                        |  |      | 537.6 |     
|                                                            |  |      |       |     
|Fair value (losses) gain per IFRS                           |  |      | (44.9 | )   
|Deduct:                                                     |  |      |       |     
|Impact of rental payments received from related party lease |  |      | (15.1 | )   
|Revaluation (losses) gains                                  |  | $    | (60.0 | )   



COMMERCIAL PROPERTY NET OPERATING INCOME



Commercial Property NOI by City

for the year ended December 31, 2016 (in
$millions)







Commercial property net operating income includes
adjusted commercial property revenue less direct commercial property expense and is a key indicator of performance as it represents
a measure over which management of the commercial property operations has control. One of the ways in which we evaluate performance
is by comparing the performance of the commercial property portfolio on a same property basis. Same property commercial property
net operating income is defined as properties included in our consolidated results that we own and operate throughout both the
current and prior period. Accordingly, same property results would exclude properties acquired or sold during each period, as well
as significant lease termination and other income (charges) amounts that are non-recurring.



Our commercial property net operating income
for the year ended December 31, 2016, was $271.9 million (compared to $251.3 million in 2015). The increase is primarily due
to incremental net operating income at Bay Adelaide East, lower ground rent expense at Hudson’s Bay Centre, higher base rents
and recoveries related to new deals at Bay Adelaide West and Exchange Tower, and higher parking revenue at Bay Adelaide West; offset
by loss of net operating income due to the sales of Royal Centre and HSBC Building and lower base rent and recoveries related to
expiries at Fifth Avenue Place.



The components of commercial property net operating
income are as follows:



|(Millions)                               |  | 2016 |       | 2015
|---------------------------------------- |  | ---- | ----- | ----
|Adjusted commercial property revenue (1) |  | $    | 537.6 |     
|Direct commercial property expense       |  |      | 265.7 |     
|Total                                    |  | $    | 271.9 |     



(1)Refer to Reconciliation of adjusted commercial
property revenue and revaluation (losses) gains on page 22.



Same commercial property operation highlights are as follows:



|(Millions)                                                                 |  | 2016 |       | 2015
|-------------------------------------------------------------------------- |  | ---- | ----- | ----
|Commercial property net operating income – same property                   |  | $    | 234.9 |     
|Commercial property net operating income – development transferred         |  |      | 33.4  |     
|Commercial property net operating income – property sold during period (1) |  |      | 1.5   |     
|Lease termination and other income (charges)                               |  |      | 2.1   |     
|Total                                                                      |  | $    | 271.9 |     



(1)Royal Centre in Vancouver
sold in Q1 2016 and 151 Yonge St. and HSBC Building in Toronto sold in Q1 and Q3 2015, respectively.



Brookfield Canada Office Properties19







|                                        |  | Dec. 31, 2016 |       | Dec. 31, 2015
|--------------------------------------- |  | ------------- | ----- | -------------
|Same property average in-place net rent |  | $             | 29.01 |              
|Same property occupancy                 |  |               | 94.7  | %            



RECONCILIATION OF NET INCOME TO COMMERCIAL PROPERTY NET OPERATING
INCOME



|(Millions, except per unit amounts)      |  | 2016 |       | 2015
|---------------------------------------- |  | ---- | ----- | ----
|Net income                               |  | $    | 95.5  |     
|Add (deduct):                            |  |      |       |     
|Revaluation losses (gains)(1)            |  |      | 60.0  |     
|General and administrative expense       |  |      | 24.8  |     
|Interest expense                         |  |      | 91.6  |     
|Commercial property net operating income |  | $    | 271.9 |     



(1)Refer to Reconciliation of adjusted commercial
property revenue and revaluation (losses) gains on page 21.



RECONCILIATION OF NET INCOME TO TRUST FUNDS
FROM OPERATIONS



Trust funds from operations was $1.68 per unit
during the year ended December 31, 2016 (compared to $1.56 per unit in 2015).



|(Millions, except per unit amounts)                                  |  | 2016 |       | 2015
|-------------------------------------------------------------------- |  | ---- | ----- | ----
|Net income                                                           |  | $    | 95.5  |     
|Add (deduct):                                                        |  |      |       |     
|Revaluation losses (gains)(1)                                        |  |      | 60.0  |     
|Amortization of lease incentives                                     |  |      | 1.4   |     
|Trust funds from operations                                          |  | $    | 156.9 |     
|Trust funds from operations attributable to unitholders              |  |      | 43.9  |     
|Trust funds from operations attributable to non-controlling interest |  |      | 113.0 |     
|                                                                     |  | $    | 156.9 |     
|Weighted average Trust Units outstanding                             |  |      | 26.3  |     
|Trust funds from operations per Trust unit                           |  | $    | 1.68  |     



(1)Refer to Reconciliation
of adjusted commercial property revenue and revaluation (losses) gains on page 21.



RECONCILIATION OF TRUST FUNDS FROM OPERATIONS TO ADJUSTED FUNDS
FROM OPERATIONS



Adjusted funds from operations totaled $1.30
per unit during the year ended December 31, 2016 (compared to $1.01 per unit in 2015).



|(Millions, except per unit amounts)                                     |  | 2016 |       | 2015
|----------------------------------------------------------------------- |  | ---- | ----- | ----
|Trust funds from operations                                             |  | $    | 156.9 |     
|Deduct:                                                                 |  |      |       |     
|Straight-line rental income                                             |  |      | (5.0  | )   
|Second-generation leasing commissions and tenant improvements           |  |      | (25.9 | )   
|Maintaining value capital expenditures                                  |  |      | (4.9  | )   
|Adjusted funds from operations                                          |  | $    | 121.1 |     
|Adjusted funds from operations attributable to unitholders              |  |      | 33.9  |     
|Adjusted funds from operations attributable to non-controlling interest |  |      | 87.2  |     
|                                                                        |  | $    | 121.1 |     
|Weighted average Trust Units outstanding                                |  |      | 26.3  |     
|Adjusted funds from operations per Trust Unit                           |  | $    | 1.30  |     
|Trust unit distribution declared                                        |  | $    | 1.29  |     
|Distribution ratio                                                      |  |      | 99    | %   



AFFO is calculated by adjusting Trust FFO for
straight-line rental income, actual second-generation leasing commissions and tenant improvements, and actual maintaining value
capital expenditures for maintaining the infrastructure and current rental revenues of our properties. Actual expenditures will
vary from period to period and at times could be materially different depending on the timing of leasing activities and capital
plans. As a result, AFFO will experience volatility when comparing period-over-period results. Due to the volatile nature of AFFO,
we believe that it is important to compare the actual results with historic and projected averages of leasing costs and maintaining
value capital expenditures in order to determine the effects of a full office leasing cycle. Our 5-year historic average reflects
the actual leasing activities completed, while the 10-year average projections reflect our leasing expiry profile. We also believe
that these averages will provide insight to determining the normalized distribution payout ratio and growth in adjusted funds from
operations.



202016 Annual Report







The historic and projected averages are as follows:



|                                       |  | Annual amount     
|-------------------------------------- |  | ------------------
|                                       |  | 5-year            
|(Millions)                             |  | historical average
|Second generation                      |  |                   
|Leasing commissions                    |  | $                 
|Tenant improvements                    |  |                   
|Maintaining value capital expenditures |  |                   



RECONCILIATION
OF CASH FLOWS PROVIDED BY OPERATING ACTIVITIES TO ADJUSTED FUNDS FROM OPERATIONS



|(Millions)                                                    |  | 2016 |       | 2015
|------------------------------------------------------------- |  | ---- | ----- | ----
|Cash flows provided by operating activities                   |  | $    | 154.4 |     
|Add (deduct):                                                 |  |      |       |     
|Working capital and other                                     |  |      | (9.8  | )   
|Leasing commissions and tenant inducements                    |  |      | 10.3  |     
|Amortization of deferred financing costs                      |  |      | (3.0  | )   
|Second-generation leasing commissions and tenant improvements |  |      | (25.9 | )   
|Maintaining value capital expenditures                        |  |      | (4.9  | )   
|Adjusted funds from operations                                |  | $    | 121.1 |     



Brookfield Canada Office Properties21







QUARTERLY RESULTS



The results by quarter are as follows:



|                                         |  |    |       | 2016 |  | 2015
|---------------------------------------- |  | -- | ----- | ---- |  | ----
|(Millions, except per unit amounts)      |  | Q4 |       | Q3   |  | Q2  
|Adjusted commercial property revenue (1) |  | $  | 139.3 |      |  | $   
|Commercial property net operating income |  |    | 67.6  |      |  |     
|Interest expense                         |  |    | 22.8  |      |  |     
|Trust funds from operations              |  |    | 39.2  |      |  |     
|Adjusted funds from operations           |  |    | 25.6  |      |  |     
|Net income (loss)                        |  |    | 64.2  |      |  |     
|Net income (loss) per Trust unit         |  | $  | 0.69  |      |  | $   



(1)Refer to Reconciliation of adjusted commercial
property revenue and revaluation (losses) gains on page 21.



222016 Annual Report







PART III – RISKS AND UNCERTAINTIES



BOX’s financial results are affected
by the performance of our operations and various external factors influencing the specific sectors and geographic locations in
which we operate, as well as macroeconomic factors such as economic growth, inflation, interest rates, regulatory requirements
and initiatives, and litigation and claims that arise in the normal course of business.



Our strategy is to invest in premier assets
that generate sustainable streams of cash flow. Although high-quality assets may initially generate lower returns on capital, we
believe that the sustainability and future growth of their cash flows is more assured over the long term and, as a result, warrant
higher valuation levels. We also believe that the high quality of our asset base protects the Trust against future uncertainty
and enables us to invest with confidence when opportunities arise.



The following is a review of the material factors
and the potential impact these factors may have on our business operations. A more detailed description of our business environment
and risks is contained in our Annual Information Form, which is posted on our web site at www.brookfieldcanadareit.com or at www.sedar.com
or www.sec.gov.



PROPERTY-RELATED RISKS

Our strategy is to invest in high-quality office
properties as defined by the physical characteristics of the asset and, more important, the certainty of receiving rental payments
from large corporate tenants (with investment-grade credit ratings – see “Credit Risk” on page 27) that these
properties attract. Nonetheless, we remain exposed to certain risks inherent in the core office-property business.



Commercial property investments are generally
subject to varying degrees of risk depending on the nature of the property. These risks include changes in general economic conditions
(such as the availability and costs of mortgage funds), local conditions (such as an oversupply of space or a reduction in demand
for real estate in the markets in which we operate), the attractiveness of the properties to tenants, competition from other landlords
with competitive space, and our ability to provide adequate maintenance at an economical cost.



Certain significant expenditures, including
property taxes, maintenance costs, mortgage payments, insurance costs, and related charges, must be made regardless of whether
a property is producing sufficient income to service these expenses. Our office properties are subject to mortgages that require
substantial debt service payments. If we become unable or unwilling to meet mortgage payments on any property, losses could be
sustained as a result of the mortgagee’s exercise of its rights of foreclosure or of sale. We believe the stability and long-term
nature of our contractual revenues effectively mitigates these risks.



As owners of premier office properties, lease
rollovers also present a risk, as continued growth of rental income is dependent on strong leasing markets to ensure expiring leases
are renewed and new tenants are found promptly to fill vacancies. Refer to “Lease Rollover Risk” on page 27 of this
MD&A for further details.



INTEREST RATE AND FINANCING RISK

We attempt to stagger the maturities of our
mortgage portfolio evenly over a 10-year time horizon. We believe that this strategy will most effectively manage interest rate
risk.



As outlined under “Capital Resources
and Liquidity,” beginning on page 16 of this MD&A, we have an ongoing need to access debt markets to refinance maturing
debt as it comes due. There is a risk that lenders will not refinance such maturing debt on terms and conditions acceptable to
us or on any terms at all. Our strategy to stagger the maturities of our mortgage portfolio attempts to mitigate our exposure to
excessive amounts of debt maturing in any one year.



Approximately 30.0% of our outstanding investment
property and corporate debt at December 31, 2016 is floating-rate debt (December 31, 2015 – 28.7%) and subject
to fluctuations in interest rates. The effect of a 25-basis point increase in interest rates on interest expense relating to our
floating-rate debt, all else being equal, is an increase in interest expense of $2.1 million on an annual basis or $0.02 per unit.
In addition, there is interest rate risk associated with the Trust’s fixed rate debt due to the expected requirement to refinance
such debt in the year of maturity. The effect of a 25-basis point increase in interest rates on interest expense relating to fixed
rate debt maturing within one year, all else being equal, is an increase in interest expense of $0.1 million on an annual basis
or approximately $nil per unit.



The analysis does not reflect the impact a
changing interest rate environment could have on our overall performance and, as a result, it does not reflect the actions management
may take in such an environment.



We currently have a level of indebtedness for
the Trust of 46.5% of the fair market value of our commercial and development properties. This level of indebtedness is considered
by the Trust to be conservative and, based on this, the Trust believes that all debts will be financed or refinanced as they come
due in the foreseeable future.



Brookfield Canada Office Properties23







CREDIT RISK

Credit risk arises from the possibility that
tenants may be unable to fulfill their lease commitments. We mitigate this risk by ensuring that our tenant mix is diversified
and by limiting our exposure to any one tenant. We also maintain a portfolio that is diversified by industry type so that exposure
to a business sector is lessened. Currently, no single tenant represents more than 11.1% of total leasable area and 7.4% of commercial
property revenue.



We attempt to mitigate our credit risk by signing
long-term leases with tenants who have investment-grade credit ratings. The Trust directs special attention to the credit quality
of our tenants in order to ensure the long-term sustainability of rental revenues through economic cycles. Once a lease has been
signed, the Trust proactively monitors the financial performance of significant tenants on a regular basis and reviews the status
of arrears. The Trust regularly monitors indicators of increased risk within its tenant portfolio and maintains a formalized tenant
credit report to identify natural changes in credit quality.



The following list shows our top 20 largest
tenants by leasable area in our commercial properties portfolio and their respective lease commitments:



|   |  |                                    |  |                  |  |                 |  | 000’s Sq. Ft.(2) |   |      |  |      |     |     
|-- |  | ---------------------------------- |  | ---------------- |  | --------------- |  | ---------------- | - | ---- |  | ---- | --- | ----
|   |  | Tenant                             |  | Primary Location |  | CreditRating(1) |  | 2017             |   | 2018 |  | 2019 |     | 2020
|1  |  | Government and Related Agencies    |  | Toronto, Ottawa  |  | AAA             |  |                  |   |      |  |      | 292 |     
|2  |  | Suncor Energy Inc.                 |  | Calgary          |  | A-              |  |                  |   |      |  |      |     |     
|3  |  | Bank of Montreal                   |  | Toronto, Calgary |  | A+              |  |                  |   |      |  |      | 27  |     
|4  |  | Deloitte LLP                       |  | Toronto, Calgary |  | Not Rated       |  |                  |   |      |  |      |     |     
|5  |  | Canadian Natural Resources         |  | Calgary          |  | BBB+            |  |                  |   |      |  |      |     |     
|6  |  | Repsol Oil & Gas (Talisman Energy) |  | Calgary          |  | BBB-            |  |                  |   |      |  |      |     |     
|7  |  | Enbridge Inc.                      |  | Calgary          |  | BBB+            |  |                  |   |      |  |      |     |     
|8  |  | Bennett Jones                      |  | Toronto, Calgary |  | Not Rated       |  |                  |   |      |  |      |     |     
|9  |  | CIBC                               |  | Toronto, Calgary |  | A+              |  |                  |   |      |  |      |     |     
|10 |  | KPMG Management Services LP        |  | Toronto          |  | Not Rated       |  |                  |   |      |  |      |     |     
|11 |  | Royal Bank                         |  | Toronto, Calgary |  | AA-             |  |                  |   |      |  |      |     |     
|12 |  | Osler, Hoskin & Harcourt           |  | Toronto          |  | Not Rated       |  |                  |   |      |  |      |     |     
|13 |  | Goodmans LLP                       |  | Toronto          |  | Not Rated       |  |                  |   |      |  |      |     |     
|14 |  | Toronto Stock Exchange             |  | Toronto          |  | Not Rated       |  |                  |   |      |  |      | 131 |     
|15 |  | The Bay                            |  | Toronto          |  | B+              |  |                  |   |      |  |      |     |     
|16 |  | Borden Ladner Gervais LLP          |  | Toronto          |  | Not Rated       |  |                  |   |      |  |      |     |     
|17 |  | Gowlings Canada Inc.               |  | Toronto          |  | Not Rated       |  |                  |   |      |  |      |     |     
|18 |  | The Manufacturers Life Insurance   |  | Toronto          |  | AA-             |  |                  |   |      |  |      |     |     
|19 |  | Fasken Marteneau                   |  | Toronto          |  | Not Rated       |  |                  |   |      |  |      |     |     
|20 |  | Cenovus                            |  | Calgary          |  | BBB             |  |                  |   |      |  |      |     |     
|   |  | Total                              |  |                  |  |                 |  |                  | — |      |  |      | 450 |     
|   |  | Total %                            |  |                  |  |                 |  |                  | — | %    |  |      | 5.0 | %   



(1)From S&P.

(2)Reflects the year of maturity related to lease(s)
included in the ‘Beyond’ column.

(3)Percentage of total leasable area of commercial
properties, prior to considering partnership interests in partially owned properties; excludes parking.



LEASE ROLLOVER RISK

Lease roll-over risk arises from the possibility
that we may experience difficulty renewing leases as they expire or in re-leasing space vacated by tenants upon early lease expiry.
We attempt to stagger our lease-expiry profile so that we are not faced with disproportionate amounts of space expiring in any
one year. Approximately 4.3%, on average, of our leases mature annually up to and including 2020. Our portfolio has a weighted-average
lease life of eight years. We further mitigate this risk by maintaining a diversified portfolio mix by geographic location and
by proactively leasing space in advance of its contractual expiry.



The following table sets out lease expiries, by square footage,
for our portfolio at December 31, 2016.



|(000’s Sq. Ft.)  |  | Currently
    Available |     | 2017 |  | 2018 |     | 2019 |  | 2020 |     | 2021 |  | 2022 |     | 2023 |  | 2024 & Beyond |       | Leasable |  | Parking |       | Total
|---------------- |  | ----------------------- | --- | ---- |  | ---- | --- | ---- |  | ---- | --- | ---- |  | ---- | --- | ---- |  | ------------- | ----- | -------- |  | ------- | ----- | -----
|Toronto, Ontario |  |                         | 419 |      |  |      | 130 |      |  |      | 553 |      |  |      | 519 |      |  |               | 977   |          |  |         | 664   |      
|Ottawa, Ontario  |  |                         | 86  |      |  |      | 11  |      |  |      | 34  |      |  |      | 86  |      |  |               | 9     |          |  |         | 574   |      
|Calgary, Alberta |  |                         | 369 |      |  |      | 46  |      |  |      | 128 |      |  |      | 82  |      |  |               | 279   |          |  |         | 120   |      
|Other            |  |                         | —   |      |  |      | —   |      |  |      | —   |      |  |      | 1   |      |  |               | —     |          |  |         | —     |      
|Total            |  |                         | 874 |      |  |      | 187 |      |  |      | 715 |      |  |      | 688 |      |  |               | 1,265 |          |  |         | 1,358 |      
|% of total       |  |                         | 5.3 | %    |  |      | 1.1 | %    |  |      | 4.3 | %    |  |      | 4.1 | %    |  |               | 7.6   | %        |  |         | 8.2   | %    



242016 Annual Report







ENVIRONMENTAL RISKS

As an owner of real property, we are subject
to various laws relating to environmental matters. These laws could hold us liable for the costs of removal and remediation of
certain hazardous substances or waste present in our buildings, released or deposited on or in our properties or disposed of at
other locations. These costs could be significant and would reduce cash available for our business. The failure to remove or remediate
such substances could adversely affect our ability to sell or our ability to borrow using such real estate as collateral and could
potentially result in claims against us. We are not aware of any material non-compliance with environmental laws at any of our
properties nor are we aware of any pending or threatened investigations or actions by environmental regulatory authorities in connection
with any of our properties or any pending or threatened claims relating to environmental conditions at our properties.



We will continue to make the necessary capital
and operating expenditures to ensure that we are compliant with environmental laws and regulations. Although there can be no assurances,
we do not believe that costs relating to environmental matters will have a material effect on our business, financial condition
or results of operations. However, environmental laws and regulations can change rapidly and we may become subject to more stringent
environmental laws and regulations in the future. Compliance with more stringent environmental laws and regulations could have
an adverse effect on our business, financial condition, or results of operations.



OTHER RISKS AND UNCERTAINTIES

Real estate is relatively illiquid. Such illiquidity
may limit our ability to vary our portfolio promptly in response to changing economic or investment conditions. Also, financial
difficulties of other property owners resulting in distressed sales could depress real estate values in the markets in which we
operate.



Our investment properties generate a relatively
stable source of income from contractual tenant rent payments. Continued growth of rental income is dependent on strong leasing
markets to ensure expiring leases are renewed and new tenants are found promptly to fill vacancies at attractive rental rates.
With leasing markets performance being impacted by the strength of the economies in which we operate, it is possible we could see
downward pressure on overall occupancy levels and net effective rents if economic recovery slows or stalls. We are, however, substantially
protected against short-term market conditions, as most of our leases are long-term in nature with an average term of eight years.



INSURANCE RISKS

We maintain insurance on our commercial properties
in amounts and with deductibles that we believe are in line with what owners of similar properties carry. We maintain all risk
property insurance and rental value coverage (including coverage for the perils of flood, earthquake and windstorm). Our all risk
policy limit is $1.5 billion per occurrence. Our earthquake limit is $500 million per occurrence and in the annual aggregate. This
coverage is subject to a $100,000 (dollars) deductible for all locations. The flood limit is $500 million per occurrence and in
the annual aggregate, and is subject to a deductible of $25,000 (dollars) for all losses arising from the same occurrence. Windstorm
is included under the all risk coverage limit of $1.65 billion.



With respect to our commercial properties, we purchase an insurance
policy that covers acts of terrorism for limits up to $1.5 billion.



Brookfield Canada Office Properties25









PART IV – CRITICAL ACCOUNTING POLICIES
AND ESTIMATES



FUTURE ACCOUNTING POLICY CHANGES

The following are the accounting policies that
the Trust expects to adopt in the future:



Revenue from Contracts with Customers

In May 2014, the IASB issued its new revenue
standard, IFRS 15, “Revenue from Contracts with Customers”. IFRS 15 specifies how and when revenue should be recognized
as well as requiring more informative and relevant disclosures. IFRS 15 supersedes IAS 18, “Revenue”, IAS 11, “Construction
Contracts” and a number of revenue-related interpretations. Application of the standard is mandatory and it applies to nearly
all contracts with customers: the main exceptions are leases, financial instruments and insurance contracts. IFRS 15 is effective
for annual periods on or after January 1, 2018 with early adoption permitted and will be applied retrospectively. The Trust is
currently evaluating the impact to the consolidated financial statements.



Financial Instruments

On July 25, 2014, the IASB issued its final
version of IFRS 9, “Financial Instruments” which will replace IAS 39, "Financial Instruments: Recognition and
Measurement". IFRS 9, as amended, introduces a logical approach for the classification of financial assets, which is driven
by cash flow characteristics and the business model in which an asset is held. This single, principle-based approach replaces existing
rule-based requirements that are generally considered to be overly complex and difficult to apply. The new model results in a single
impairment model being applied to all financial instruments, thereby removing a source of complexity associated with previous accounting
requirements. It also introduces a new, expected-loss impairment model that will require more timely recognition of expected credit
losses.  IFRS 9 is effective for annual periods beginning on or after January 1, 2018, with early adoption permitted and will
be applied retrospectively. The Trust is currently evaluating the impact to the consolidated financial statements.



Leases

On January 13, 2016, the IASB published a new
standard, IFRS 16, "Leases". The new standard will bring most leases on-balance sheet for lessees under a single model,
eliminating the distinction between operating and finance leases. Lessor accounting, however, remains largely unchanged and the
distinction between operating and finance leases is retained. Under IFRS 16 a lessee recognizes a right-of-use asset and a lease
liability. The right-of-use asset is treated similarly to other non-financial assets and depreciated accordingly and the liability
accrues interest. This will typically produce a front-loaded expense profile (whereas operating leases under IAS 17, "Leases",
would typically have had a straight-line expenses) as an assumed linear depreciation of the right-of-use asset and decreasing interest
on the liability will lead to an overall decrease of expense over the reporting period. IFRS 16 supersedes IAS 17 "Leases"
and related interpretations and is effective for periods beginning on or after January 1, 2019, with earlier adoption permitted
if IFRS 15 "Revenue from Contracts with Customers" has also been applied. The Trust is currently evaluating the impact
to the consolidated financial statements.



Statement of Cash Flows

In January 2016, the IASB issued an amendment
to IAS 7, "Statement of Cash Flows". The amendments to IAS 7 requires that the following changes in liabilities arising
from financing activities are disclosed (to the extent necessary): (i) changes from financing cash flows; (ii) changes arising
from obtaining or losing control of subsidiaries or other businesses; (iii) the effect of changes in foreign exchange rates; (iv)
changes in fair values; and (v) other changes. The amendment to IAS 7 is effective for annual periods beginning January 1, 2017.
Since the amendments are being issued less than one year before the effective date, the Trust is not required to provide comparative
information when it first applies the amendments. The Trust is currently evaluating the impact to the consolidated financial statements.



CRITICAL ACCOUNTING POLICIES

Our critical accounting policies are those
that we believe are the most important in portraying our financial condition and results of operations, and require the most subjective
judgment and estimates on the part of management.



Investment Properties



Investment properties include commercial properties
held to earn rental income and properties that are being constructed or developed for future use as investment properties. Commercial
properties and commercial development are recorded at fair value, determined based on available market evidence, at the balance
sheet date. We determine the fair value of each investment property based upon, among other things, rental income from current
leases and assumptions about rental income from future leases reflecting market conditions at the balance sheet date, less future
cash flows in respect of such leases. Fair values are primarily determined by discounting the expected future cash flows, generally
over a term of 10 years including a terminal value based on the application of a capitalization rate to estimated year 11 cash
flows. Commercial development under active development is measured using a discounted cash flow model, net of costs to complete,
as of the balance sheet date. Valuations of investment properties are most sensitive to changes in the discount rate and timing
or variability of cash flows. The cost of commercial development includes direct development costs, realty taxes and borrowing
costs directly attributable to the development. Borrowing costs associated with direct expenditures on the property under development
are capitalized. The amount of borrowing costs capitalized is determined first by reference to borrowings specific to the project,
where relevant, and otherwise by applying a weighted average cost of borrowings to eligible expenditures after adjusting for borrowings
associated with other specific developments. Where borrowings are associated with a specific development, the amount capitalized
is the gross cost incurred on those borrowings less any investment income arising on their temporary investment. Borrowing costs
are capitalized from the commencement of the development until the date of practical completion. The capitalization of borrowing
costs is suspended if there are prolonged periods when development activity is interrupted. We consider practical completion to
have occurred when the property is capable of operating in the manner intended by management. Generally this occurs upon completion
of construction and receipt of all necessary occupancy and other material permits. Where we have pre-leased space as of or prior
to the start of the development and the lease requires us to construct tenant improvements which enhance the value of the property,
practical completion is considered to occur on completion of such improvements.



262016 Annual Report







Initial direct leasing costs we incur in negotiating
and arranging tenant leases are added to the carrying amount of investment properties.



Tax

The Trust is a “mutual fund trust”
pursuant to the Income Tax Act (Canada). The Trust distributes or designates all taxable earnings to unitholders, and as
such, under current legislation, the obligation to pay tax rests with each unitholder. Deferred income taxes are not recognized
in the Trust’s financial statements on the basis that the Trust can deduct distributions paid such that its liability for
income taxes is substantially reduced or eliminated for the year, and the Trust intends to continue to distribute its taxable income
and continue to qualify as a real estate investment trust for the foreseeable future.



Revenue Recognition

We account for our leases with tenants as operating
leases as we have retained substantially all of the risks and benefits of ownership of our investment properties. Revenue recognition
under a lease commences when the tenant has a right to use the leased asset. Generally, this occurs on the lease commencement date
or, where we are required to make additions to the property in the form of tenant improvements that enhance the value of the property,
upon substantial completion of those improvements. The total amount of contractual rent to be received from operating leases is
recognized on a straight-line basis over the term of the lease; a straight-line rent or free-rent receivable, which is included
in the carrying amount of investment property, is recorded for the difference between the rental revenue recorded and the contractual
amount received.



An allowance for doubtful accounts is recorded,
if necessary, for estimated losses resulting from the inability of tenants to make required rent payments. The computation of this
allowance is based on the tenants’ payment history and current credit status as well as certain industry-specific or geography-specific
credit considerations. We also make judgments with respect to whether tenant improvements provided in connection with a lease enhance
the value of the leased property, which determines whether such amounts are treated as additions to investment property as well
as the point in time at which revenue recognition under the lease commences. In addition, where a lease allows a tenant to elect
to take all or a portion of any unused tenant improvement allowance as a rent abatement, we must exercise judgment in determining
the extent to which the allowance represents an inducement that is amortized as a reduction of lease revenue over the term of the
lease.



Rental revenue also includes percentage participating
rents and recoveries of operating expenses, including property taxes. Percentage participating rents are recognized when tenants’
specified sales targets have been met. Operating expense recoveries are recognized in the period that recoverable costs are chargeable
to tenants.



ADOPTION OF ACCOUNTING STANDARDS



The Trust adopted Amendments to IFRS 11, “Joint
Arrangements: Accounting for Acquisitions of Interests in Joint Operations”, effective for periods beginning on or after
January 1, 2016.  The amendments add new guidance to IFRS 11 on accounting for the acquisition of an interest in a joint operation
in which the activity of the joint operation constitutes a business, as defined in IFRS 3, “Business Combinations”. 
Acquirers of such interests are to apply the relevant principles on business combination accounting in IFRS 3 and other standards,
as well as disclosing the relevant information specified in these standards for business combinations. The Trust has evaluated
the impact to the consolidated financial statements and concluded that no change to its current treatment is required.



Critical judgments in applying accounting
policies

The critical judgments that have been made
in applying our accounting policies and that have the most significant effect on the amounts in the consolidated financial statements
are described in Note 2(n) in the consolidated financial statements.



USE OF ESTIMATES

The preparation of our consolidated financial
statements requires management to make judgments, estimates, and assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts
of revenues and expenses during the reporting period. Our estimates are based on historical experience and on various other assumptions
that are believed to be reasonable under the circumstances. The result of our ongoing evaluation of these estimates forms the basis
for making judgments about the carrying values of assets and liabilities and the reported amounts of revenues and expenses that
are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions.



On February 18, 2016, the Ontario Ministry of Finance published
amendments to regulation 70/91 to the Land Transfer Act (Ontario) that may impact the transfers of partnership interests
in prior fiscal years. The Trust is currently evaluating the impact of the amendments to its consolidated financial statements.



Brookfield Canada Office Properties27







RELATED-PARTY TRANSACTIONS

In the normal course of operations, the Trust
enters into various transactions with related parties that have been measured at exchange value and are recognized in the consolidated
financial statements.



The Trust has entered into two service-support
agreements with BOPM LP, dated May 1, 2010, for the provision of property management, leasing, construction, and asset management
services. The purpose of the agreements is to provide the services of certain personnel and consultants as are necessary to help
the Trust operate and manage its assets and tenant base; it also includes a cost-recovery for administrative and regulatory compliance
services provided. The fees paid to BOPM LP are calculated in accordance with the terms of the agreements. Included in direct commercial
property expense during the year ended December 31, 2016, are amounts paid to BOPM LP for property management services of
$14.5 million (compared to $13.7 million in 2015). Included in investment properties during the year ended December 31, 2016,
are amounts paid to BOPM LP for leasing and construction services of $6.3 million (compared to $8.3 million in 2015). Included
in general and administrative expenses during the year ended December 31, 2016, are amounts paid to BOPM LP for asset management
and administrative and regulatory compliance services of $20.2 million (compared to $19.5 million in 2015). Effective November
1, 2016, BOPM LP assigned all of its right, title, interest in and obligations under the asset management agreement with respect
to the provision of investment advisory services (“Investment Advisory Services”) to Brookfield Asset Management Private
Institutional Capital Adviser US, LLC (“BAM PIC”), a wholly-owned subsidiary of Brookfield Asset Management Inc. ("BAM").
Included in general and administrative expenses during the year ended December 31, 2016, are amounts paid to BAM PIC for Investment
Advisory Services of $1.1 million.



As part of the the Trust's acquisition of Bay
Adelaide East from BOPI on an "as-if-completed-and-stabilized basis", the Trust entered into a lease arrangement with
BOPI where during the year ended December 31, 2016, rental payments, net of non-cash revenue recognized under IFRS of $15.1
million were received pursuant to the related party lease (compared to $nil in 2015). Refer to "Reconciliation of adjusted
commercial property revenue and revaluation (losses) gains" on page 21 of the MD&A for details. Further, as part of the
Bay Adelaide East development agreement, the Trust will make a final stabilization payment to BOPI of $56.0 million, subject to
achieving stabilized net operating income and targeted permanent financing. This final payment is included in the aggregate total
investment of Bay Adelaide East of $601.9 million as BOPI retains the development obligations including construction, lease-up
and financing.



Included in fair value gains (losses) during
the year ended December 31, 2016 is $0.7 million (compared to $1.2 million during the same period in 2015), paid to a subsidiary
of BAM for services provided for the disposition of Royal Centre during the first quarter of 2016.



Included in rental revenues during the year
ended December 31, 2016, are amounts received from BAM, the ultimate parent of BOPI, and its affiliates of $11.5 million (compared
to $9.8 million in 2015). Included in investment properties during the year ended December 31, 2016, are amounts paid to a
subsidiary of BAM of $18.8 million (compared to $83.3 million included in commercial developments in 2015) pursuant to a contract
to construct Bay Adelaide East.



During the year ended December 31, 2016
the Trust paid $6.3 million (compared to $5.5 million in 2015) to subsidiaries of BAM for its all-risk property insurance and rental
value coverage, and acts of terrorism coverage as well as sustainable energy services.



282016 Annual Report







PART V – BUSINESS ENVIRONMENT AND
OUTLOOK



OPERATING ENVIRONMENT AND OUTLOOK

We closed out 2016 with stable operational
and financial results as we experienced improvements in our Toronto portfolio and stabilized the Calgary portfolio. Key highlights
for the year included 1.5 million square feet of leasing and $325.0 million of capital generation through disposition of an investment
property and new financings. Our performance over the past year reiterates our belief that BOX offers institutional investors and
individual shareholders alike the best option to invest in the most prestigious office properties in Canada. On the leasing front,
BOX achieved a respectable leasing volume of 1.5 million square feet despite of the economic downturn in Calgary; as well, our
portfolio occupancy rate of 94.7% compared favourably with the Canadian national average of 88.1%. We also improved our rollover
exposure up to 2020 by 5.7%. With respect to capital, we divested our investment in Vancouver at peak value and repatriated $285.0
million. In terms of financing initiatives, we completed the refinancing at Hudson’s Bay Centre which generated net proceeds
of $40.0 million. We also extended our corporate credit facility for an additional year under the existing financial terms.



The decline in global oil prices has put substantial
pressure on Calgary’s energy sector for a second consecutive year. Companies continue to cut capital budgets, lower operational
expectations and reduce work forces. Although our exposure to the energy sector is approximately 24% of the overall portfolio,
our tenant base represents many of the strongest players in the oil & gas sector and our average remaining lease term in Calgary
is 10 years. In particular, the Calgary average annual exposure is only 1.5% for the next 3 years; but given the current operating
environment in that region we are working diligently to build a strong pipeline in Toronto to guard against potential losses in
Calgary. We believe that our portfolio will continue to maintain an above-market occupancy rate in 2017.



We ended 2016 with $3.2 billion in net assets
at a value per unit of $33.82. In addition, we ended the year with $342.2 million of available liquidity and we have sufficient
time until our next debt maturity in December 2017 to look for refinancing opportunities.



With a strong balance sheet offering financial
flexibility and a well-leased portfolio, BOX is well positioned to weather the economic downturn in Calgary and to deliver on its
commitment to unitholders.



DISCLOSURE CONTROLS AND PROCEDURES

Management, including the Chief Executive Officer
and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in the applicable
Canadian and U.S. securities law) as of December 31, 2016. Based on that evaluation, the Chief Executive Officer and Chief
Financial Officer concluded that such disclosure controls and procedures were effective as of December 31, 2016.



INTERNAL CONTROLS OVER FINANCIAL REPORTING

There was no change in the Trust’s internal
control over financial reporting that occurred during 2016 that has materially affected, or is reasonably likely to materially
affect, the Trust’s internal control over financial reporting. Management has also evaluated the effectiveness of the Trust’s
internal control over financial reporting as of December 31, 2016, and based on that assessment concluded that the Trust’s
internal control over financial reporting was effective. Refer to Management’s Report on Internal Control over Financial
Reporting on page 35 of this annual report.



|                        | 
|----------------------- | 
|Bryan K. Davis          | 
|Chief Financial Officer | 
|March 1, 2017           | 



Brookfield Canada Office Properties29







Management's Responsibility for the Financial
Statements



The consolidated financial statements and management’s
financial analysis and review contained in this annual report are the responsibility of the management of the Trust. To fulfill
this responsibility, the Trust maintains a system of internal controls to ensure that its reporting practices and accounting and
administrative procedures are appropriate and provide assurance that relevant and reliable financial information is produced. The
consolidated financial statements have been prepared in conformity with International Financial Reporting Standards as issued by
the International Accounting Standards Board and, where appropriate, reflect estimates based on management’s best judgment
in the circumstances. The financial information presented throughout this annual report is consistent with the information contained
in the consolidated financial statements.



Deloitte LLP, the independent auditors appointed
by the unitholders, have audited the consolidated financial statements in accordance with Canadian generally accepted auditing
standards and the standards of the Public Company Accounting Oversight Board (United States). Their report as Independent Registered
Public Accounting Firm is set out on the following page.



The consolidated financial statements have
been further examined by the Board of Trustees and by its Audit Committee, which meets with the auditors and management to review
the activities of each and reports to the Board of Trustees. The auditors have direct and full access to the Audit Committee and
meet with the committee both with and without management present. The Board of Trustees, directly and through its Audit Committee,
oversees management’s responsibilities and is responsible for reviewing and approving the consolidated financial statements.



|                                      |                        
|------------------------------------- | -----------------------
|Jan Sucharda                          |                        
|President and Chief Executive Officer | Bryan K. Davis         
|March 1, 2017                         | Chief Financial Officer



302016 Annual Report







Report of Independent Registered Public Accounting
Firm



To the Board of Trustees and Unitholders of Brookfield Canada
Office Properties



We have audited the accompanying consolidated
financial statements of Brookfield Canada Office Properties and subsidiaries (the “Trust”), which comprise the consolidated
balance sheets as at December 31, 2016 and December 31, 2015, and the consolidated statements of income and comprehensive
income, consolidated statements of changes in equity, and consolidated statements of cash flows for the years then ended, and a
summary of significant accounting policies and other explanatory information.



Management's Responsibility for the Consolidated Financial Statements

Management is responsible for the preparation
and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards
as issued by the International Accounting Standards Board, and for such internal control as management determines is necessary
to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or
error.



Auditor's Responsibility

Our responsibility is to express an opinion
on these consolidated financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted
auditing standards and the standards of the Public Company Accounting Oversight Board (United States). Those standards require
that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated
financial statements are free from material misstatement.



An audit involves performing procedures to
obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend
on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements,
whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s
preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate
in the circumstances. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness
of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.



We believe that the audit evidence we have
obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion.



Opinion

In our opinion, the consolidated financial
statements present fairly, in all material respects, the financial position of Brookfield Canada Office Properties and subsidiaries
as at December 31, 2016 and December 31, 2015, and their financial performance and their cash flows for the years then
ended in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board.



Other Matter

We have also audited, in accordance with the
standards of the Public Company Accounting Oversight Board (United States), the Trust’s internal control over financial reporting
as of December 31, 2016, based on the criteria established in Internal Control - Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 1, 2017 expressed an unqualified
opinion on the Trust's internal control over financial reporting.



|/s/ Deloitte LLP                   | 
|---------------------------------- | 
|                                   | 
|Chartered Professional Accountants | 
|Licensed Public Accountants        | 
|March 1, 2017                      | 
|Toronto, Canada                    | 



Brookfield Canada Office Properties31







Management's Report on Internal Control over
Financial Reporting



Management of Brookfield Canada Office Properties
is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial
reporting is a process designed by, or under the supervision of, the Chief Executive Officer and the Chief Financial Officer and
effected by the Board of Trustees, management and other personnel to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with International Financial
Reporting Standards as issued by the International Accounting Standards Board.



Due to its inherent limitations, internal control
over financial reporting may not prevent or detect misstatements on a timely basis. Also, projections of any evaluation to the
effectiveness of internal control over the financial reporting to future periods are subject to the risk that the controls may
become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.



Management assessed the effectiveness of Brookfield
Canada Office Properties’ internal control over financial reporting as of December 31, 2016, based on criteria established
in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Based on this assessment, management concluded that, as at December 31, 2016, Brookfield Canada Office Properties’ internal
control over financial reporting is effective. There are no material weaknesses that have been identified by Management.



Brookfield Canada Office Properties' internal
control over financial reporting as of December 31, 2016 has been audited by Deloitte LLP, Independent Registered Public Accounting
Firm, who also audited Brookfield Canada Office Properties’ consolidated financial statements for the year ended December 31,
2016, and as stated in the Report of Independent Registered Public Accounting Firm, Deloitte LLP expressed an unqualified opinion
on the effectiveness of Brookfield Canada Office Properties' internal control over financial reporting.



|                                      |                        
|------------------------------------- | -----------------------
|Jan Sucharda                          |                        
|President and Chief Executive Officer | Bryan K. Davis         
|March 1, 2017                         | Chief Financial Officer



322016 Annual Report







Report of Independent Registered Public Accounting
Firm



To the Board of Trustees and Unitholders of Brookfield Canada
Office Properties



We have audited the internal control over financial
reporting of Brookfield Canada Office Properties and subsidiaries (the “Trust”) as of December 31, 2016, based
on criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of
the Treadway Commission. The Trust’s management is responsible for maintaining effective internal control over financial
reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying
Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Trust’s
internal control over financial reporting based on our audit.



We conducted our audit in accordance with the
standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a
material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed
risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides
a reasonable basis for our opinion.



A company’s internal control over financial
reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial
officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other
personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with International Financial Reporting Standards as issued by the International Accounting
Standards Board. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the
assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation
of financial statements in accordance with International Financial Reporting Standards as issued by the International Accounting
Standards Board, and that receipts and expenditures of the company are being made only in accordance with authorizations of management
and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.



Because of the inherent limitations of internal
control over financial reporting, including the possibility of collusion or improper management override of controls, material
misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of
the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls
may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.



In our opinion, the Trust maintained, in all
material respects, effective internal control over financial reporting as of December 31, 2016, based on the criteria established
in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.



We have also audited, in accordance with Canadian
generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States), the consolidated
financial statements as of and for the year ended December 31, 2016 of the Trust and our report dated March 1, 2017 expressed
unmodified/unqualified opinion on those financial statements



|/s/ Deloitte LLP                   | 
|---------------------------------- | 
|                                   | 
|Chartered Professional Accountants | 
|Licensed Public Accountants        | 
|March 1, 2017                      | 
|Toronto, Canada                    | 



Brookfield Canada Office Properties33







Consolidated Balance Sheets





|(Millions) (CDN$)                      |  | Note |      | Dec 31, 2016 |  | Dec 31, 2015
|-------------------------------------- |  | ---- | ---- | ------------ |  | ------------
|Assets                                 |  |      |      |              |  |             
|Non-current assets                     |  |      |      |              |  |             
|Investment properties                  |  |      |      |              |  |             
|Commercial properties                  |  |      | 5, 6 |              |  | $           
|Commercial development                 |  |      | 5    |              |  |             
|                                       |  |      |      |              |  |             
|Current assets                         |  |      |      |              |  |             
|Tenant and other receivables           |  |      | 8    |              |  |             
|Other assets                           |  |      | 9    |              |  |             
|Cash and cash equivalents              |  |      |      |              |  |             
|                                       |  |      |      |              |  |             
|Total assets                           |  |      |      |              |  | $           
|                                       |  |      |      |              |  |             
|Liabilities                            |  |      |      |              |  |             
|Non-current liabilities                |  |      |      |              |  |             
|Investment property and corporate debt |  |      | 10   |              |  | $           
|Current liabilities                    |  |      |      |              |  |             
|Investment property and corporate debt |  |      | 10   |              |  |             
|Accounts payable and other liabilities |  |      | 11   |              |  |             
|                                       |  |      |      |              |  |             
|Total liabilities                      |  |      |      |              |  |             
|                                       |  |      |      |              |  |             
|Equity                                 |  |      | 13   |              |  |             
|Unitholders’ equity                    |  |      |      |              |  |             
|Non-controlling interest               |  |      |      |              |  |             
|Total equity                           |  |      |      |              |  |             
|Total liabilities and equity           |  |      |      |              |  | $           



See accompanying notes to the consolidated financial statements.



342016 Annual Report







Consolidated Statements of Income and Comprehensive
Income





|Years ended December 31                              |  |      |            |      |  |     
|---------------------------------------------------- |  | ---- | ---------- | ---- |  | ----
|(Millions, except per unit amounts) (CDN$)           |  | Note |            | 2016 |  | 2015
|Commercial property revenue                          |  |      | 14         | (a)  |  | $   
|Direct commercial property expense                   |  |      | 14 (b), 17 |      |  |     
|Interest expense                                     |  |      | 14         | (b)  |  |     
|General and administrative expense                   |  |      | 14 (b), 17 |      |  |     
|Income before fair value (losses) gains              |  |      |            |      |  |     
|Fair value (losses) gains                            |  |      | 5, 17      |      |  |     
|Net income and comprehensive income                  |  |      |            |      |  | $   
|                                                     |  |      |            |      |  |     
|Net income and comprehensive income attributable to: |  |      |            |      |  |     
|Unitholders                                          |  |      |            |      |  | $   
|Non-controlling interest                             |  |      |            |      |  |     
|                                                     |  |      |            |      |  | $   
|Net income per Trust unit – basic and diluted        |  |      |            |      |  | $   



See accompanying notes to the consolidated financial statements.



Brookfield Canada Office Properties35







Consolidated Statements of Changes in Equity





|Years ended December 31 (Millions) (CDN$)                             |  | Note |    | 2016 |  | 2015
|--------------------------------------------------------------------- |  | ---- | -- | ---- |  | ----
|Trust Units                                                           |  |      |    |      |  |     
|Balance at beginning of year                                          |  |      |    |      |  | $   
|Repurchase of Trust Units                                             |  |      | 13 |      |  |     
|Issuance of Trust Units under Distribution Reinvestment Plan (“DRIP”) |  |      | 12 |      |  |     
|Balance at end of year                                                |  |      |    |      |  |     
|Contributed surplus                                                   |  |      |    |      |  |     
|Balance at beginning and end of year                                  |  |      |    |      |  |     
|Repurchase of Trust Units                                             |  |      | 13 |      |  |     
|Balance at end of year                                                |  |      |    |      |  |     
|Retained earnings                                                     |  |      |    |      |  |     
|Balance at beginning of year                                          |  |      |    |      |  |     
|Net income and comprehensive income                                   |  |      |    |      |  |     
|Distributions                                                         |  |      | 12 |      |  |     
|Balance at end of year                                                |  |      |    |      |  |     
|Total unitholders’ equity                                             |  |      |    |      |  | $   
|                                                                      |  |      |    |      |  |     
|Non-controlling interest                                              |  |      |    |      |  |     
|Balance at beginning of year                                          |  |      |    |      |  | $   
|Net income and comprehensive income                                   |  |      |    |      |  |     
|Distributions                                                         |  |      | 12 |      |  |     
|Balance at end of year                                                |  |      |    |      |  |     
|Total equity                                                          |  |      |    |      |  | $   



See accompanying notes to the consolidated financial statements.



362016 Annual Report







Consolidated Statements
of Cash Flows



|Years ended December 31 (Millions) (CDN$)             |  | Note |       | 2016 |  | 2015
|----------------------------------------------------- |  | ---- | ----- | ---- |  | ----
|Operating activities                                  |  |      |       |      |  |     
|Net income                                            |  |      |       |      |  | $   
|Add (deduct):                                         |  |      |       |      |  |     
|Non-cash rental revenue                               |  |      | 14    | (a)  |  |     
|Amortization of deferred financing costs              |  |      |       |      |  |     
|Leasing commissions and tenant inducements            |  |      |       |      |  |     
|Fair value losses (gains)                             |  |      | 5, 17 |      |  |     
|Interest expense                                      |  |      |       |      |  |     
|Interest paid                                         |  |      |       |      |  |     
|Other working capital                                 |  |      |       |      |  |     
|Cash flows provided by operating activities           |  |      |       |      |  |     
|                                                      |  |      |       |      |  |     
|Investing activities                                  |  |      |       |      |  |     
|Disposition of commercial property                    |  |      | 6     |      |  |     
|Capital expenditures – commercial properties          |  |      |       |      |  |     
|Capital expenditures – commercial development         |  |      |       |      |  |     
|Cash flows provided by (used in) investing activities |  |      |       |      |  |     
|                                                      |  |      |       |      |  |     
|Financing activities                                  |  |      |       |      |  |     
|Investment and development property debt arranged     |  |      |       |      |  |     
|Investment property debt repayments                   |  |      | 6     |      |  |     
|Investment property debt amortization                 |  |      |       |      |  |     
|Corporate debt arranged                               |  |      |       |      |  |     
|Corporate debt repayments                             |  |      |       |      |  |     
|Repurchase of Trust units                             |  |      | 13    |      |  |     
|Trust unit distributions paid                         |  |      | 19    |      |  |     
|Class B LP unit distributions paid                    |  |      | 19    |      |  |     
|Cash flows (used in) provided by financing activities |  |      |       |      |  |     
|Decrease in cash and cash equivalents                 |  |      |       |      |  |     
|Cash and cash equivalents, beginning of year          |  |      |       |      |  |     
|Cash and cash equivalents, end of year                |  |      |       |      |  | $   



See accompanying notes to the consolidated financial statements.



Brookfield Canada Office Properties37







Notes to the Consolidated Financial Statements



NOTE 1: NATURE AND DESCRIPTION OF THE
TRUST

Brookfield Canada Office Properties (the
“Trust” or “BOX”) is an unincorporated, closed-end real estate investment trust (“REIT”) established
under and governed by the laws of the Province of Ontario, Canada and created pursuant to a declaration of trust dated March 19,
2010 and amended and restated February 24, 2012. Although it is intended that BOX qualifies as a “mutual fund trust”
pursuant to the Income Tax Act (Canada), BOX is not a mutual fund under applicable securities laws.



The Trust is a subsidiary of Brookfield
Office Properties Inc. (“BOPI”), which owns an aggregate equity interest in the Trust of 52.4% as of December 31,
2016 consisting of 73.0% of the issued and outstanding Class B limited partnership units (“Class B LP Units”) of Brookfield
Office Properties Canada LP (“BOPC LP”), a subsidiary of BOX that owns direct interests in the Trust’s investment
properties. In addition, BOPI’s parent company, Brookfield Property Partners LP (“BPY”), directly owns an aggregate
equity interest in the Trust of 30.7% consisting of 40.0% of the issued and outstanding units of BOX (“Trust Units”)
and 27.0% of the Class B LP Units. BOX primarily invests in and operates commercial office properties in Toronto, Ottawa, and Calgary.
The registered and operating office of the Trust is Brookfield Place Toronto, 181 Bay Street, Suite 330, Toronto, Ontario, M5J
2T3.



NOTE 2: SIGNIFICANT ACCOUNTING POLICIES

| | (a) | Statement of compliance
| | --- | -----------------------

The consolidated financial statements have
been prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards
Board (“IFRS”).



| | (b) | Basis of presentation
| | --- | ---------------------

The financial statements have been prepared
on a going concern basis and have been presented in Canadian dollars rounded to the nearest million. The accounting policies set
out below have been applied consistently in all material respects. New and revised standards not effective for the current accounting
year are described in Note 3.



| | (c) | Basis of consolidation
| | --- | ----------------------

The consolidated financial statements include
the accounts of the Trust and its subsidiaries consisting of BOPC GP Inc. and BOPC LP, which are the entities over which the Trust
has control. Control is achieved when the Trust has power over an entity; is exposed, or has rights, to variable returns from its
involvement with the investee; and has the ability to use its power to affect its returns. The Trust holds all of the Class A Limited
Partnership Units of BOPC LP (“Class A LP Units”). The holders of the Class A LP Units are entitled to vote at all
meetings of the partners of BOPC LP. In addition, BOX is the sole shareholder of BOPC GP Inc., the general partner of BOPC LP,
which has full power and exclusive authority to administer, manage, control and operate the business and affairs of BOPC LP. The
Trust reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more
of the three elements of control.



Non-controlling interests in the equity
and results of the Trust are shown separately in equity on the consolidated balance sheets.



All intercompany assets, liabilities, equity,
income, expenses and cash flows relating to transactions between the Trust and its subsidiaries are eliminated on consolidation.



| | (d) | Interests in joint operations
| | --- | -----------------------------

A joint operation is a joint arrangement
whereby the parties that have joint control of the arrangement have rights to the assets, and obligations for the liabilities,
relating to the arrangement. This usually results through a direct interest in the assets rather than through the establishment
of a separate entity. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions
about the relevant activities require unanimous consent of the parties sharing control. The Trust has determined that its joint
arrangements are all joint operations.



Where the Trust undertakes its activities
under joint operations, the Trust recognizes its share of jointly controlled assets, liabilities, revenues and expenses in the
consolidated financial statements, which are classified according to their nature.



| | (e) | Fair value measurement
| | --- | ----------------------

The Trust measures its non-financial assets
such as investment properties, at fair value at each balance sheet date. Fair values of financial instruments measured at amortized
cost are described in Note 2(j).



Fair value is the price that would be received
to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date,
regardless of whether that price is directly observable or estimated using another valuation technique. In estimating the fair
value of an asset or liability, the Trust takes into account the characteristics of the asset or liability and available market
evidence at the measurement date.



382016 Annual Report







In addition, for financial reporting purposes,
fair value measurements are categorized into Level 1, 2 or 3 based on the degree to which the inputs to the fair value measurements
are observable and the significance of the inputs to the fair value measurement in its entirety, which are described as follows:



| | • | Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities
that the Trust can access at the measurement date;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------

| | • | Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable
for the asset or liability, either directly or indirectly; and
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------

| | • | Level 3 inputs are unobservable inputs for the asset or liability.
| | - | ------------------------------------------------------------------



| | (f) | Investment properties
| | --- | ---------------------

Investment properties include commercial
properties held to earn rental income and properties that are being constructed or developed for future use as investment properties.
Commercial properties and commercial developments are recorded at fair value, determined based on available market evidence, at
the balance sheet date. The Trust determines the fair value of each investment property based upon, among other things, rental
income from current leases and assumptions about rental income from future leases reflecting market conditions at the balance sheet
date, less future cash flows in respect of such leases. Fair values are primarily determined by discounting the expected future
cash flows, generally over a weighted-average term of 10 years, including a terminal value based on the application of a capitalization
rate to estimated year 11 cash flows. Commercial development under active development is measured using a discounted cash flow
model, net of costs to complete, as of the balance sheet date. Valuations of investment properties are most sensitive to changes
in the discount rate assumptions and terminal capitalization rate assumptions.



The cost of commercial development includes
direct development costs, realty taxes and borrowing costs directly attributable to the development. Borrowing costs associated
with direct expenditures on properties under development are capitalized. The amount of borrowing costs capitalized is determined
first by reference to borrowings specific to the project, where relevant, and otherwise by applying a weighted average cost of
borrowings to eligible expenditures after adjusting for borrowings associated with other specific developments. Where borrowings
are associated with specific developments, the amount capitalized is the gross cost incurred on those borrowings less any investment
income arising on their temporary investment. Borrowing costs are capitalized from the commencement of the development until the
date of practical completion. The capitalization of borrowing costs is suspended if there are prolonged periods when development
activity is interrupted. The Trust considers practical completion to have occurred when the property is capable of operating in
the manner intended by management. Generally this occurs upon completion of construction and receipt of all necessary occupancy
and other material permits. Where the Trust has pre-leased space as of or prior to the start of the development and the lease requires
the Trust to construct tenant improvements which enhance the value of the property, practical completion is considered to occur
on completion of such improvements.



Initial direct leasing costs we incur in
negotiating and arranging tenant leases are added to the carrying amount of investment properties.



| | (g) | Assets held for sale
| | --- | --------------------

Non-current assets and groups of assets
and liabilities that comprise disposal groups are categorized as assets held for sale where the asset or disposal group is available
for sale in its present condition and the sale is highly probable. For this purpose, a sale is highly probable if management is
committed to a plan to achieve the sale, there is an active program to find a buyer, the non-current asset or disposal group is
being actively marketed at a reasonable price, the sale is anticipated to be completed within one year from the date of classification,
and it is unlikely there will be changes to the plan. Where an asset or disposal group is acquired with a view to resale, it is
classified as a non-current asset held for sale if the disposal is expected to take place within one year of the acquisition and
it is highly likely that the other conditions referred to above will be met within a short period following the acquisition. Non-current
assets held for sale and disposal groups are measured at fair value as described in Note 2(e).



| | (h) | Provisions
| | --- | ----------

A provision is a liability of uncertain
timing or amount. Provisions are recognized when the Trust has a present legal or constructive obligation as a result of past events,
it is probable that an outflow of resources will be required to settle the obligation, and the amount can be reliably estimated.
Provisions are not recognized for future operating losses. Provisions are measured at the present value of the expenditures expected
to be required to settle the obligation using a discount rate that reflects current market assessments of the time value of money
and the risks specific to the obligation. Provisions are remeasured at each balance sheet date using the current discount rate.
The increase in the provision due to the passage of time is recognized as interest expense.



| | (i) | Revenue recognition
| | --- | -------------------

The Trust has retained substantially all
of the risks and benefits of ownership of its investment properties and therefore accounts for leases with its tenants as operating
leases. Revenue recognition under a lease commences when the tenant has a right to use the leased asset. Generally, this occurs
on the lease inception date or, where the Trust is required to make additions to the property in the form of tenant improvements
that enhance the value of the property, upon substantial completion of those improvements. The total amount of contractual rent
to be received from operating leases is recognized on a straight-line basis over the term of the lease; a straight-line rent receivable,
which is included in the carrying amount of investment property, is recorded for the difference between the rental revenue recorded
and the contractual amount received.





Brookfield Canada Office Properties39







Rental revenue also includes percentage
participating rents and recoveries of operating expenses, including property and capital taxes. Percentage participating rents
are recognized when tenants’ specified sales targets have been met. Operating expense recoveries are recognized in the period
that recoverable costs are chargeable to tenants.



| | (j) | Financial instruments and derivatives
| | --- | -------------------------------------

Derivative instruments are recorded on
the consolidated balance sheets at fair value, including those derivatives that are embedded in financial or non-financial contracts
and that are not closely related to the host contract, and gains and losses arising from changes in fair value of derivative instruments
are recognized in net income in the period the changes occur.



The following summarizes the Trust’s
classification and measurement of financial instruments:



|Financial assets and liabilities       |  | Classification        |  | Measurement   
|-------------------------------------- |  | --------------------- |  | --------------
|Cash and cash equivalents              |  | Loans and receivables |  | Amortized cost
|Tenant receivables                     |  | Loans and receivables |  | Amortized cost
|Investment property and corporate debt |  | Other liabilities     |  | Amortized cost
|Accounts payable and other liabilities |  | Other liabilities     |  | Amortized cost



With the exception of Investment property
and corporate debt, the carrying amounts of these financial assets and liabilities approximate fair value. The fair value of investment
property and corporate debt is determined by discounting contractual principal and interest payments at estimated current market
interest rates for the instrument. Current market interest rates are determined with reference to current benchmark rates for a
similar term and current credit spreads for debt with similar terms and risks.



| | (k) | Cash and cash equivalents
| | --- | -------------------------

Cash and cash equivalents include cash
and short-term investments with original maturities of three months or less.



| | (l) | Non-controlling interest
| | --- | ------------------------

Class B LP Units are classified as non-controlling
interest and are presented as a component of equity as they represent equity interests in BOPC LP not attributable, directly or
indirectly, to the Trust.



| | (m) | Income taxes
| | --- | ------------

The Trust is a “mutual fund trust”
pursuant to the Income Tax Act (Canada). The Trust intends to distribute or designate all taxable earnings to unitholders
and, under current legislation, the obligation to pay tax rests with each unitholder. No current or deferred tax provision is recognized
in the Trust’s financial statements on the Trust’s income.



| | (n) | Critical judgments in applying accounting policies
| | --- | --------------------------------------------------

The following are the critical judgments
that have been made in applying the Trust’s accounting policies and that have the most significant effect on the amounts
in the consolidated financial statements:



| | (i) | Leases
| | --- | ------

The Trust’s policy for
revenue recognition on investment properties is described in Note 2(i). In applying this policy, the Trust makes judgments with
respect to whether tenant improvements provided in connection with a lease enhance the value of the leased property, which determines
whether such amounts are treated as additions to investment property as well as the point in time at which revenue recognition
under the lease commences. In addition, where a lease allows a tenant to elect to take all or a portion of any unused tenant improvement
allowance as a rent abatement, the Trust must exercise judgment in determining the extent to which the allowance represents an
inducement that is amortized as a reduction of lease revenue over the term of the lease.



The Trust also makes judgments
in determining whether certain leases, in particular those tenant leases with long contractual terms where the lessee is the sole
tenant in a property and long-term ground leases where the Trust is lessee, are operating or finance leases. The Trust has determined
that all of its leases are operating leases.



| | (ii) | Investment property
| | ---- | -------------------

The Trust’s accounting policies relating to
investment property are described in Note 2(f). In applying this policy, judgment is applied in determining whether certain costs
are additions to the carrying amount of the property and, for properties under development, identifying the point at which practical
completion of the property occurs and identifying the directly attributable borrowing costs to be included in the carrying value
of the development property.



402016 Annual Report







| | (iii) | Income taxes
| | ----- | ------------

Deferred income taxes are not
recognized in the Trust’s financial statements on the basis that the Trust can deduct distributions paid such that its liability
for income taxes is substantially reduced or eliminated for the year, and the Trust intends to continue to distribute its taxable
income and continue to qualify as a real estate investment trust for the foreseeable future.



| | (iv) | Assets held for sale
| | ---- | --------------------

The Trust’s accounting
policies relating to assets held for sale are described in Note 2(g). In applying this policy, judgment is applied in determining
whether sale of certain assets is highly probable, which is a necessary condition for being presented within assets held for sale.
Also, judgment is applied in determining whether disposal groups represent a component of the entity, the results of which should
be recorded in discontinued operations on the consolidated statements of income.



| | (v) | Common control transactions
| | --- | ---------------------------

IFRS does not include specific
measurement guidance for transfers of businesses or subsidiaries between entities under common control. Accordingly, the Trust
has developed a policy to account for such transactions taking into consideration other guidance in the IFRS framework and pronouncements
of other standard-setting bodies. The Trust’s policy is to record assets and liabilities recognized as a result of transfers
of businesses or subsidiaries between entities under common control at the carrying value on the transferor’s financial statements. Differences
between the carrying amount of the consideration paid or received, where the Trust is the transferor, and the carrying amount of
the assets and liabilities transferred are recorded directly in equity.



| | (vi) | Consolidated financial statements
| | ---- | ---------------------------------

The Trust’s accounting
policies relating to consolidation are described in Note 2(c). In applying this policy, judgment is applied in determining whether
the Trust has control over the entity and if facts or circumstances indicate that there are changes to one or more of the elements
of control.



| | (o) | Critical Accounting Estimates and Assumptions
| | --- | ---------------------------------------------

The Trust makes estimates and assumptions
that affect the carrying amounts of assets and liabilities, disclosure of contingent assets and liabilities, and the reported amount
of earnings for the period. Actual results could differ from estimates. The estimates and assumptions that are critical to the
determination of the amounts reported in the consolidated financial statements relate to investment property. The critical estimates
and assumptions underlying the valuation of investment properties are set out in Note 4.



NOTE 3: ADOPTION OF ACCOUNTING STANDARD

The Trust adopted Amendments to IFRS 11,
“Joint Arrangements: Accounting for Acquisitions of Interests in Joint Operations”, effective for periods beginning
on or after January 1, 2016.  The amendments add new guidance to IFRS 11 on accounting for the acquisition of an interest
in a joint operation in which the activity of the joint operation constitutes a business, as defined in IFRS 3, “Business
Combinations”.  Acquirers of such interests are to apply the relevant principles on business combination accounting
in IFRS 3 and other standards, as well as disclosing the relevant information specified in these standards for business combinations.
The Trust has evaluated the impact to the consolidated financial statements and concluded that no change to its current treatment
is required.



NOTE 4: FUTURE ACCOUNTING POLICY CHANGES

| | (a) | Revenue from Contracts with Customers
| | --- | -------------------------------------

In May 2014, the IASB issued its new revenue
standard, IFRS 15, “Revenue from Contracts with Customers”. IFRS 15 specifies how and when revenue should be recognized
as well as requiring more informative and relevant disclosures. IFRS 15 supersedes IAS 18, “Revenue”, IAS 11, “Construction
Contracts” and a number of revenue-related interpretations. Application of the standard is mandatory and it applies to nearly
all contracts with customers: the main exceptions are leases, financial instruments and insurance contracts. IFRS 15 is effective
for annual periods on or after January 1, 2018 with early adoption permitted and will be applied retrospectively. The Trust is
currently evaluating the impact to the consolidated financial statements.



| | (b) | Financial Instruments
| | --- | ---------------------

On July 25, 2014, the IASB issued its final
version of IFRS 9, “Financial Instruments” which will replace IAS 39, "Financial Instruments: Recognition and
Measurement". IFRS 9, as amended, introduces a logical approach for the classification of financial assets, which is driven
by cash flow characteristics and the business model in which an asset is held. This single, principle-based approach replaces existing
rule-based requirements that are generally considered to be overly complex and difficult to apply. The new model results in a single
impairment model being applied to all financial instruments, thereby removing a source of complexity associated with previous accounting
requirements. It also introduces a new, expected-loss impairment model that will require more timely recognition of expected credit
losses.  IFRS 9 is effective for annual periods beginning on or after January 1, 2018, with early adoption permitted and will
be applied retrospectively. The Trust is currently evaluating the impact to the consolidated financial statements.





Brookfield Canada Office Properties41







| | (c) | Leases
| | --- | ------

On January 13, 2016, the IASB published
a new standard, IFRS 16, "Leases". The new standard will bring most leases on-balance sheet for lessees under a single
model, eliminating the distinction between operating and finance leases. Lessor accounting, however, remains largely unchanged
and the distinction between operating and finance leases is retained. Under IFRS 16 a lessee recognizes a right-of-use asset and
a lease liability. The right-of-use asset is treated similarly to other non-financial assets and depreciated accordingly and the
liability accrues interest. This will typically produce a front-loaded expense profile (whereas operating leases under IAS 17,
"Leases", would typically have had a straight-line expenses) as an assumed linear depreciation of the right-of-use asset
and decreasing interest on the liability will lead to an overall decrease of expense over the reporting period. IFRS 16 supersedes
IAS 17 "Leases" and related interpretations and is effective for periods beginning on or after January 1, 2019, with
earlier adoption permitted if IFRS 15 "Revenue from Contracts with Customers" has also been applied. The Trust is currently
evaluating the impact to the consolidated financial statements.



| | (d) | Statement of Cash Flows
| | --- | -----------------------

In January 2016, the IASB issued an amendment
to IAS 7, "Statement of Cash Flows". The amendments to IAS 7 requires that the following changes in liabilities arising
from financing activities are disclosed (to the extent necessary): (i) changes from financing cash flows; (ii) changes arising
from obtaining or losing control of subsidiaries or other businesses; (iii) the effect of changes in foreign exchange rates; (iv)
changes in fair values; and (v) other changes. The amendment to IAS 7 is effective for annual periods beginning January 1, 2017.
Since the amendments are being issued less than one year before the effective date, the Trust is not required to provide comparative
information when it first applies the amendments. The Trust is currently evaluating the impact to the consolidated financial statements.



NOTE 5: INVESTMENT PROPERTIES





|                                                |  | December 31, 2016     |         |   | December 31, 2015      |  
|----------------------------------------------- |  | --------------------- | ------- | - | ---------------------- | -
|(Millions)                                      |  | Commercial properties |         |   | Commercial development |  
|Balance at beginning of year                    |  | $                     | 5,805.1 |   |                        | $
|Additions:                                      |  |                       |         |   |                        |  
|Capital expenditures and tenant improvements    |  |                       | 63.3    |   |                        |  
|Leasing commissions                             |  |                       | 8.1     |   |                        |  
|Tenant inducements                              |  |                       | 0.2     |   |                        |  
|Reclassification of commercial development, net |  |                       | —       |   |                        |  
|Investment property disposition                 |  |                       | (422.4  | ) |                        |  
|Fair value (losses) gains                       |  |                       | (44.9   | ) |                        |  
|Other changes(1)                                |  |                       | (12.4   | ) |                        |  
|Balance at end of year                          |  | $                     | 5,397.0 |   |                        | $



(1)Included in
other changes for the year ended ended December 31, 2016 is $28.4 million of rental payments received from a related party
lease. Refer to Note 17-Related-Party Transactions for details.



| | (a) | Fair value of investment properties
| | --- | -----------------------------------

In accordance with its policy, the Trust
measures and records investment properties using internally prepared valuations. The Trust does not measure its investment properties
based on valuations prepared by external valuation professionals. Fair values are most sensitive to changes in discount rate assumptions
and terminal capitalization rate assumptions. The Trust determines the fair value of each commercial property by undertaking the
discounted cash flow model whereby expected future cash flows are discounted, generally over a 10 year hold period, including a
terminal value based on the application of a terminal capitalization rate to estimated year 11 cash flows. Commercial developments
under active development are measured using a discounted cash flow model, net of costs to complete, as of the balance sheet date.
The Trust prepares these valuations considering asset and market specific factors, as well as observable transactions for similar
assets.



The determination of fair value requires
the use of estimates, which the Trust determines using external information and observable conditions, where possible, in conjunction
with internal analysis. There are currently no known trends, events or uncertainties that the Trust reasonably believes could have
a sufficiently pervasive impact across the Trust’s businesses to materially affect the methodologies or assumptions utilized
to determine the estimated fair values. Discount rates and terminal capitalization rates are inherently uncertain and may be impacted
by, among other things, movements in interest rates in the markets in which the assets are located. Changes in estimates of discount
and terminal capitalization rates across different markets are often independent of each other and do not necessarily move in the
same direction or of the same magnitude. Further, impacts to the Trust’s fair values of investment properties from changes
in discount or terminal capitalization rates and expected cash flows are usually inversely correlated. Decreases (increases) in
the discount rate or terminal capitalization rate result in increases (decreases) of fair value. Such decreases (increases) may
be mitigated by decreases (increases) in expected future cash flows included in the valuation analysis, as circumstances that typically
give rise to increased interest rates (e.g., strong economic growth, inflation) usually give rise to increased cash flows at the
asset level.



422016 Annual Report







The key valuation metrics for the Trust’s investment properties
are set out in the following tables:



|                  |  | December 31, 2016 |      |   | December 31, 2015 | 
|----------------- |  | ----------------- | ---- | - | ----------------- | 
|                  |  | Maximum           |      |   | Minimum           | 
|Eastern region    |  |                   |      |   |                   | 
|Discount rate     |  |                   | 7.00 | % |                   | 
|Terminal cap rate |  |                   | 6.50 | % |                   | 
|Hold period (yrs) |  |                   | 14   |   |                   | 
|                  |  |                   |      |   |                   | 
|Western region    |  |                   |      |   |                   | 
|Discount rate     |  |                   | 6.75 | % |                   | 
|Terminal cap rate |  |                   | 6.25 | % |                   | 
|Hold period (yrs) |  |                   | 11   |   |                   | 



A 25 basis-point decrease in the discount and terminal capitalization
rates will impact the fair value of commercial properties by $108.3 million and $163.3 million or 2.0% and 3.0%, respectively,
at December 31, 2016.



| | (b) | Development activities
| | --- | ----------------------



During the fourth quarter of 2014, the
Trust acquired Brookfield Place Calgary East from its parent company, BOPI, for an aggregate total investment of $966.3 million.
The building was purchased on an “as-if-completed-and-stabilized basis,” and as such, BOPI retains the development
obligations including construction, lease-up and financing. As part of the acquisition, the Trust formed an independent committee
and engaged third-party advisors to evaluate the fairness of the transaction.



The following table summarizes the details
of the transaction:





|(Millions)                                    |  | Brookfield  Place
 Calgary East |      
|--------------------------------------------- |  | ------------------------------- | -----
|Initial acquisition price                     |  | $                               | 245.5
|Up-front equity commitment                    |  |                                 | 81.8 
|First mortgage construction loan              |  |                                 | 575.0
|Final payment due to BOPI on stabilization(1) |  |                                 | 64.0 
|Aggregate total investment                    |  | $                               | 966.3



(1)Subject
to achieving stabilized net operating income and targeted permanent financing, which is expected to occur in 2018.



As part of the Brookfield Place Calgary
East acquisition, the title to Brookfield Place Calgary West ("BPCW") was also transferred to the Trust because the development
site is currently under one legal title. However, the acquisition agreements provide that all economic benefits and obligations
of BPCW remain with BOPI. BOPI has also agreed to indemnify the Trust for all current liabilities, future costs and obligations
in respect of BPCW. As part of the transaction, the Trust entered into a separate agreement to sell BPCW back to BOPI upon the
City of Calgary approving the severance of the east and west parcels, which is anticipated to occur by the end of 2017. Accordingly,
the Trust has not reflected the value of the BPCW site and related debt of the same amount
in the financial statements.



During the year ended December 31,
2016, the Trust capitalized a total of $221.6 million (compared to $300.9 million in 2015) of costs related to commercial developments.
Included in this amount during the year ended December 31, 2016, is $6.1 million (compared to $12.7 million in 2015) of property
taxes and other related costs and $18.1 million (compared to $27.0 million in 2015) of capitalized borrowing costs. The weighted
average capitalization rate used for capitalization of borrowing costs on commercial developments was 3.9%.



NOTE 6: INVESTMENT PROPERTY DISPOSITION

During the year, the Trust completed the
sale of its 100% interest in Royal Centre. The Trust generated net proceeds of $284.6 million.





|(Millions)                      |  | 2016 |       
|------------------------------- |  | ---- | ------
|Sale proceeds                   |  | $    | 427.5 
|Selling costs                   |  |      | (5.1  
|Investment property disposition |  |      | 422.4 
|Repayment of mortgage           |  |      | (137.8
|Net sale proceeds               |  | $    | 284.6 





Brookfield Canada Office Properties43







NOTE 7: INVESTMENT IN JOINTLY CONTROLLED OPERATIONS

The Trust undertakes its activities under
jointly controlled operations through direct interests in assets, rather than through the establishment of a separate entity. The
Trust’s interests in the following properties are classified as joint operations and, accordingly, the Trust has recognized
its share of the related assets, liabilities, revenues and expenses for the following properties:





|                          |  |                            |  | Principal place of     |  | Ownership interest and voting rights |   
|------------------------- |  | -------------------------- |  | ---------------------- |  | ------------------------------------ | --
|Jointly controlled assets |  | Nature                     |  | business/incorporation |  | 2016                                 |   
|Exchange Tower            |  | Commercial office property |  | Toronto, Ontario       |  |                                      | 50
|Fifth Avenue Place        |  | Commercial office property |  | Calgary, Alberta       |  |                                      | 50
|Bankers Hall              |  | Commercial office property |  | Calgary, Alberta       |  |                                      | 50
|Bankers Court             |  | Commercial office property |  | Calgary, Alberta       |  |                                      | 50
|Suncor Energy Centre      |  | Commercial office property |  | Calgary, Alberta       |  |                                      | 50
|Brookfield Place Retail   |  | Commercial office property |  | Toronto, Ontario       |  |                                      | 50
|Brookfield Place Parking  |  | Commercial office property |  | Toronto, Ontario       |  |                                      | 56
|First Canadian Place      |  | Commercial office property |  | Toronto, Ontario       |  |                                      | 25
|2 Queen St. East          |  | Commercial office property |  | Toronto, Ontario       |  |                                      | 25
|Place de Ville I          |  | Commercial office property |  | Toronto, Ontario       |  |                                      | 25
|Place de Ville II         |  | Commercial office property |  | Toronto, Ontario       |  |                                      | 25
|Jean Edmonds Towers       |  | Commercial office property |  | Toronto, Ontario       |  |                                      | 25



(1)First Canadian
Place is subject to a land lease with respect to 50% of the land on which the property is situated. The land lease will expire
on December 1, 2023 subject to an extension under certain circumstances. At the expiry of the land lease, the other land owner
will have the option to acquire, for a nominal amount, an undivided 50% beneficial interest in the office tower.



NOTE 8: TENANT AND OTHER RECEIVABLES

As of December 31, 2016, $0.7 million
of the Trust’s balance of accounts receivable is over 90 days past due (compared to $0.2 million at December 31, 2015).



The Trust’s maximum exposure to credit
risk associated with tenant and other receivables is equivalent to its carrying value. Credit risk related to tenant receivables
arises from the possibility that tenants may be unable to fulfill their lease commitments. The Trust manages this risk by attempting
to ensure that its tenant mix is diversified and by limiting its exposure to any one tenant. The Trust maintains a portfolio that
is diversified by industry type so that exposure to a particular sector is lessened. Currently no one tenant represents more than
7.4% of commercial property revenue. This risk is further managed by attempting to sign long-term leases with tenants who have
investment grade credit ratings.



NOTE 9: OTHER ASSETS

At December 31, 2016, the Trust’s
balance of other assets is comprised of prepaid expenses and other assets of $7.9 million (compared to $7.3 million at December 31,
2015).



NOTE 10: INVESTMENT PROPERTY AND CORPORATE DEBT



|                                                       |  | Dec. 31, 2016 |      |   | Dec. 31, 2015 |  
|------------------------------------------------------ |  | ------------- | ---- | - | ------------- | -
|                                                       |  | Weighted      |      |   |               |  
|(Millions)                                             |  | Average Rate  |      |   | Debt Balance  |  
|Investment property debt – fixed rate                  |  |               | 4.27 | % |               | $
|Investment property and corporate debt – floating rate |  |               | 2.60 | % |               |  
|Total investment property and corporate debt           |  |               | 3.77 | % |               | $
|                                                       |  |               |      |   |               |  
|Current                                                |  |               |      |   |               | $
|Non-current                                            |  |               |      |   |               |  
|Total debt                                             |  |               |      |   |               | $



The Trust’s secured investment property
and corporate debt is non-recourse to the Trust with the exception of $137.3 million at December 31, 2016 (compared to $97.3
million at December 31, 2015) which has limited recourse to the Trust and guarantees as discussed in Note 15(d).





442016 Annual Report







Investment property and corporate debt
maturities for the next five years and thereafter are as follows:





|                                 |  |                 |       |  |            |   |         |          |  |   | Weighted-Average     | 
|-------------------------------- |  | --------------- | ----- |  | ---------- | - | ------- | -------- |  | - | -------------------- | 
|                                 |  | Scheduled       |       |  |            |   |         |          |  |   | Interest Rate (%) at | 
|(Millions, except interest data) |  | Amortization(1) |       |  | Maturities |   |         | Total(1) |  |   | Dec. 31, 2016        | 
|2017                             |  | $               | 45.8  |  |            | $ | 28.6    |          |  | $ | 74.4                 | 
|2018                             |  |                 | 49.3  |  |            |   | 789.7   |          |  |   | 839.0                | 
|2019                             |  |                 | 51.6  |  |            |   | —       |          |  |   | 51.6                 | 
|2020                             |  |                 | 41.3  |  |            |   | 499.2   |          |  |   | 540.5                | 
|2021                             |  |                 | 39.4  |  |            |   | 578.3   |          |  |   | 617.7                | 
|2022 and thereafter              |  |                 | 153.7 |  |            |   | 551.1   |          |  |   | 704.8                | 
|Total                            |  | $               | 381.1 |  |            | $ | 2,446.9 |          |  | $ | 2,828.0              | 



(1)Net of transaction costs.



For the year ended December 31, 2016,
interest of $91.6 million (compared to $84.3 million in 2015) was expensed relating to investment property and corporate debt.



Approximately 30.0% of the Trust's outstanding
investment property and corporate debt at December 31, 2016 is floating-rate debt (December 31, 2015 – 28.7%).
The effect of a 25-basis point increase in interest rates on interest expense relating to our floating-rate debt, all else being
equal, is an increase in interest expense of $2.1 million on an annual basis. In addition there is interest rate risk associated
with the Trust’s fixed rate debt due to the expected requirement to refinance such debt in the year of maturity. The effect
of a 25-basis point increase in interest rates on interest expense relating to fixed rate debt maturing within one year, all else
being equal, is an increase in interest expense of $0.1 million on an annual basis.



The fair value of investment property and
corporate debt is determined by discounting contractual principal and interest payments at estimated current market interest rates
for the instrument. Current market interest rates are determined with reference to current benchmark rates for a similar term and
current credit spreads for debt with similar terms and risks. As of December 31, 2016, the fair value of investment property
and corporate debt exceeds the principal loan value of these obligations by $109.4 million (compared to an excess of $160.3 million
at December 31, 2015).



Interest rate risk arises when the fair
value or future cash flows of commercial property and corporate debt fluctuate because of changes in market interest rates. Financing
risk arises when lenders will not refinance maturing debt on terms and conditions acceptable to the Trust, or on any terms at all.
The Trust attempts to stagger the maturities of its borrowings, as well as obtain fixed-rate debt as the means of managing interest
rate risk. The Trust has an ongoing need to access debt markets to refinance maturing debt as it comes due. The Trust’s strategy
to stagger its borrowing maturities attempts to mitigate the Trust’s exposure to excessive amounts of debt maturing in any
one year.



During the second quarter of 2016, we extended
our debt at Hudson's Bay Centre, Toronto with upfinancing of $40.0 million for an additional two-year period to May 2018 at a rate
of CDOR plus 150 basis points.



During the third quarter of 2016, the Trust
extended its revolving corporate credit facility for an additional year under the existing financial terms, maturing August 29,
2021. As of December 31, 2016, $60.0 million was drawn on the revolving corporate credit facility.



NOTE 11: ACCOUNTS PAYABLE AND OTHER LIABILITIES

The components of the Trust’s accounts
payable and other liabilities are as follows:





|(Millions)                               |  | Dec. 31, 2016 |       |  | Dec. 31, 2015 |  
|---------------------------------------- |  | ------------- | ----- |  | ------------- | -
|Accounts payable and accrued liabilities |  | $             | 148.2 |  |               | $
|Accrued interest                         |  |               | 18.6  |  |               |  
|Total                                    |  | $             | 166.8 |  |               | $



Brookfield Canada Office Properties45







NOTE 12: DISTRIBUTIONS

The following tables present distributions
declared for the year ended December 31, 2016 and December 31, 2015:





|                                    |  | 2016        |     
|----------------------------------- |  | ----------- | ----
|(Millions, except per unit amounts) |  | Trust Units |     
|Paid in cash or DRIP                |  | $           | 73.3
|Payable as of December 31, 2016     |  |             | 2.9 
|Total                               |  | $           | 76.2
|Per unit(1)                         |  | $           | 1.29



(1)Excludes special distribution of $149.3 million
or $1.60 per Trust unit, paid out on April 19, 2016 to holders of record at the close of business on April 5, 2016.





|                                    |  | 2015        |     
|----------------------------------- |  | ----------- | ----
|(Millions, except per unit amounts) |  | Trust Units |     
|Paid in cash or DRIP                |  | $           | 29.6
|Payable as of December 31, 2015     |  |             | 2.7 
|Total                               |  | $           | 32.3
|Per unit                            |  | $           | 1.24



The Trust has implemented a distribution
reinvestment plan (“DRIP”), which allows certain Canadian resident unitholders to elect to have their distributions
reinvested in additional Trust Units. No brokerage commissions or service charges are payable in connection with the purchase of
Trust Units under the DRIP and the Trust will pay all administrative costs. The automatic reinvestment of distributions under the
DRIP does not relieve holders of Trust Units of any income tax applicable to such distributions. For the year ended December 31,
2016, $4,523,970 (dollars) or 162,827 Trust Units were issued through the DRIP, compared to $1,859,505 (dollars), or 69,214 Trust
Units during the same period in 2015.



The Trust paid a special distribution of
$149.3 million or $1.60 per Trust Unit, paid out on April 19, 2016 to holders of record at the close of business on April 5, 2016.



NOTE 13: EQUITY

The components of equity are as follows:





|(Millions)               |  | Dec. 31, 2016 |         |  | Dec. 31, 2015 |  
|------------------------ |  | ------------- | ------- |  | ------------- | -
|Trust Units              |  | $             | 559.0   |  |               | $
|Contributed surplus      |  |               | 2.9     |  |               |  
|Retained earnings        |  |               | 317.1   |  |               |  
|Unitholders’ equity      |  |               | 879.0   |  |               |  
|Non-controlling interest |  |               | 2,283.4 |  |               |  
|Total                    |  | $             | 3,162.4 |  |               | $



Authorized Capital and Outstanding Securities

The Trust is authorized to issue an unlimited
number of two classes of units: Trust Units and Special Voting Units. Special Voting Units are only issued in tandem with
the issuance of Class B LP Units. As of December 31, 2016, the Trust had a total of 26,413,171 Trust Units outstanding
and 67,088,022 Class B LP Units outstanding (and a corresponding number of Special Voting Units).



The following tables summarize the changes in the units outstanding
during the year ended December 31, 2016 and December 31, 2015:



|                                                  |  | 2016        |           
|------------------------------------------------- |  | ----------- | ----------
|                                                  |  | Trust Units |           
|Units issued and outstanding at beginning of year |  |             | 26,250,344
|Units issued pursuant to DRIP                     |  |             | 162,827   
|Total units outstanding at December 31, 2016      |  |             | 26,413,171



|                                                  |  | 2015        |           
|------------------------------------------------- |  | ----------- | ----------
|                                                  |  | Trust Units |           
|Units issued and outstanding at beginning of year |  |             | 26,218,183
|Units repurchased                                 |  |             | (37,053   
|Units issued pursuant to DRIP                     |  |             | 69,214    
|Total units outstanding at December 31, 2015      |  |             | 26,250,344





462016 Annual Report







For the year ended December 31, 2016,
the weighted average number of Trust Units outstanding was 26,346,054 (compared to 26,246,958 for the year ended December 31,
2015).



In November 2016, the Trust renewed its
normal course issuer bid for its Trust Units for a further one-year period. During the twelve-month period commencing November
14, 2016 and ending November 13, 2017, the Trust may purchase on the Toronto Stock Exchange (“TSX”), the New York Stock
Exchange and any alternative Canadian trading system up to 1,581,302 Trust Units, representing approximately 10% of its public
float. During the year, the Trust did not purchase any Trust Units through open market purchases.



Trust Units

Each Trust Unit is transferable and represents
an equal, undivided, beneficial interest in BOX and in any distributions, whether of net income, net realized capital gains, or
other amounts, and in the event of the termination or winding-up of the Trust, in the Trust’s net assets remaining after
satisfaction of all liabilities. All Trust Units rank among themselves equally and ratably without discrimination, preference,
or priority. Each Trust Unit entitles the holder thereof to one vote at all meetings of unitholders or with respect to any written
resolution of unitholders. The Trust Units have no conversion, retraction, or redemption rights.



Special Voting Units

Special Voting Units are only issued in
tandem with Class B LP Units of BOPC LP and are not transferable separately from the Class B LP Units to which they
relate and upon any transfer of Class B LP Units, such Special Voting Units will automatically be transferred to the
transferee of the Class B LP Units. As Class B LP Units are exchanged for Trust Units or purchased for cancellation,
the corresponding Special Voting Units will be cancelled for no consideration.



Each Special Voting Unit entitles the holder
thereof to one vote at all meetings of unitholders or with respect to any resolution in writing of unitholders. Except for the
right to attend and vote at meetings of the unitholders or with respect to written resolutions of the unitholders, Special Voting
Units do not confer upon the holders thereof any other rights. A Special Voting Unit does not entitle its holder to any economic
interest in BOX, or to any interest or share in BOX, or to any interest in any distributions (whether of net income, net realized
capital gains, or other amounts), or to any interest in any net assets in the event of termination or winding-up.



Non-Controlling interest

The Trust classifies the outstanding Class
B LP Units as non-controlling interest for financial statement purposes in accordance with IFRS. The Class B LP Units are exchangeable
on a one-for-one basis (subject to customary anti-dilution provisions) for Trust Units at the option of the holder. Each Class
B LP Unit is accompanied by a Special Voting Unit that entitles the holder thereof to receive notice of, to attend, and to vote
at all meetings of unitholders of BOX. The holders of Class B LP Units are entitled to receive distributions when declared by BOPC
LP equal to the per-unit amount of distributions payable to each holder of Trust Units. However, the Class B LP Units have limited
voting rights over BOPC LP.



BOPC LP is a subsidiary of BOX, which owns
100% of the issued and outstanding Class A LP Units of BOPC LP. Summarized financial information for BOPC LP has not been disclosed
as all the investment properties are held in BOPC LP and as such BOPC LP is substantially the same as BOX.



NOTE 14: REVENUE AND EXPENSES

| | (a) | Commercial property revenue
| | --- | ---------------------------

The components of revenue are as follows:





|(Millions)                         |  | 2016 |       |  | 2015 |  
|---------------------------------- |  | ---- | ----- |  | ---- | -
|Rental revenue                     |  | $    | 502.8 |  |      | $
|Non-cash rental revenue            |  |      | 16.9  |  |      |  
|Lease termination and other income |  |      | 2.8   |  |      |  
|Commercial property revenue        |  | $    | 522.5 |  |      | $



The Trust generally leases investment properties
under operating leases with lease terms between five and 10 years, with options to extend up to five additional years.



Future minimum rental commitments on non-cancellable tenant
operating leases are as follows:





|(Millions)                                    |  | 2016 |         |  | 2015 |  
|--------------------------------------------- |  | ---- | ------- |  | ---- | -
|Not later than 1 year                         |  | $    | 270.6   |  |      | $
|Later than 1 year and not longer than 5 years |  |      | 1,146.1 |  |      |  
|Later than 5 years                            |  |      | 1,953.6 |  |      |  
|                                              |  | $    | 3,370.3 |  |      | $



Brookfield Canada Office Properties47







| | b) | Expenses
| | -- | --------



The following represents an analysis of
the nature of the expense included in direct commercial property expense, interest expense, and general and administrative expense:





|(Millions)                      |  | 2016 |       |  | 2015 |  
|------------------------------- |  | ---- | ----- |  | ---- | -
|Employee benefits (1)           |  | $    | 18.7  |  |      | $
|Interest expense                |  |      | 91.6  |  |      |  
|Property maintenance            |  |      | 121.2 |  |      |  
|Real estate taxes               |  |      | 114.9 |  |      |  
|Ground rents                    |  |      | 12.4  |  |      |  
|Asset management fees and other |  |      | 23.3  |  |      |  
|Total expenses                  |  | $    | 382.1 |  |      | $

1)Includes $18.7 million
paid to a subsidiary of BAM for payroll services during 2016 (2015 - $18.5 million)



Operating expenses include ground rent
expenses year ended December 31, 2016, of $12.4 million (compared to $16.6 million in 2015) representing rent expense associated
with operating leases for land on which certain of the Trust's investment properties are situated. These leases have remaining
terms of between seven and 98 years.



Future minimum lease payments under these
arrangements are as follows:





|(Millions)                                    |  | 2016 |       |  | 2015 |  
|--------------------------------------------- |  | ---- | ----- |  | ---- | -
|Not later than 1 year                         |  | $    | 7.4   |  |      | $
|Later than 1 year and not longer than 5 years |  |      | 29.8  |  |      |  
|Later than 5 years                            |  |      | 442.2 |  |      |  
|                                              |  | $    | 479.4 |  |      | $



NOTE 15: GUARANTEES, CONTINGENCIES,
AND OTHER

(a) In the normal course of operations,
the Trust and its consolidated subsidiaries execute agreements that provide for indemnification and guarantees to third parties
in transactions such as business dispositions, business acquisitions, lease-up of development properties, sales of assets, and
sales of services.



(b) As of December 31, 2016, the Trust
had commitments totaling $85.9 million for Brookfield Place Calgary East development costs to third parties.



(c) As of December 31, 2016, the Trust
has guaranteed up to $350.0 million related to its revolving corporate credit facility, up to $50.0 million related to the construction
loan on Bay Adelaide East and up to $60.0 million related to the construction loan on Brookfield Place Calgary East. As of December 31,
2016, the Trust has issued letters of credit of $3.8 million related to its revolving corporate credit facility.



(d) The Trust maintains insurance on its
commercial properties in amounts and with deductibles that the Trust believes are in line with what owners of similar properties
carry. The Trust maintains all risk property insurance and rental value coverage (including coverage for the perils of flood, earthquake
and windstorm). The Trust’s all risk policy limit is $1.5 billion per occurrence. The Trust’s earthquake limit is $500
million per occurrence and in the annual aggregate. This coverage is subject to a $100,000 (dollars) deductible for all locations.
The flood limit is $500 million per occurrence and in the annual aggregate, and is subject to a deductible of $25,000 (dollars)
for all losses arising from the same occurrence. Windstorm is included under the all risk coverage limit of $1.5 billion. With
respect to its commercial properties, the Trust purchases an insurance policy that covers acts of terrorism for limits up to $1.65
billion.



NOTE 16: SEGMENTED INFORMATION

The Trust has only one business segment:
the ownership and operation of investment properties in Canada. The Trust identifies each investment property as an individual
segment and has aggregated them into a single reportable segment based on similarity in the nature of the product, tenants and
individual operational processes.



482016 Annual Report







NOTE 17: RELATED-PARTY TRANSACTIONS

In the normal course of operations, the
Trust enters into various transactions with related parties that have been measured at exchange value and are recognized in the
consolidated financial statements.



The Trust has entered into two service-support
agreements with Brookfield Office Properties Management LP (“BOPM LP”), a subsidiary of BOPI, for the provision of
property management, leasing, construction, and asset management services. The purpose of the agreements is to provide the services
of certain personnel and consultants as are necessary to help the Trust operate and manage its assets and tenant base; it also
includes a cost-recovery for administrative and regulatory compliance services provided. The fees paid to BOPM LP are calculated
in accordance with the terms of the agreements. Included in direct commercial property expense during the year ended December 31,
2016, are amounts paid to BOPM LP for property management services of $14.5 million (compared to $13.7 million in 2015). Included
in investment properties during the year ended December 31, 2016, are amounts paid to BOPM LP for leasing and construction
services of $6.3 million (compared to $8.3 million in 2015). Included in general and administrative expenses during the year ended
December 31, 2016, are amounts paid to BOPM LP for asset management and administrative and regulatory compliance services
of $20.2 million (compared to $19.5 million in 2015). Effective November 1, 2016, BOPM LP assigned all of its right, title, interest
in and obligations under the asset management agreement with respect to the provision of investment advisory services (“Investment
Advisory Services”) to Brookfield Asset Management Private Institutional Capital Adviser US, LLC (“BAM PIC”),
a wholly-owned subsidiary of BAM. Included in general and administrative expenses during the year ended December 31, 2016,
are amounts paid to BAM PIC for Investment Advisory Services of $1.1 million.



As part of the Trust’s acquisition
of Bay Adelaide East from BOPI on an "as-if-completed-and-stabilized basis", wherein BOPI retains the development obligations
including construction, lease-up and financing, the parties entered into a lease arrangement, whereby the Trust would receive supplemental
payments from BOPI to support an agreed upon net operating income target until achieving stabilized net operating income, which
is expected to occur in 2017. During the year ended December 31, 2016 rental payments of $28.4 million were received pursuant
to the related party lease (compared to $nil in 2015), which have been recognized as a reduction of the carrying value of the building.
Further, as part of the development agreement, the Trust will make a final stabilization payment to BOPI of $56.0 million, subject
to achieving stabilized net operating income and targeted permanent financing. This final payment is included in the carrying value
of Bay Adelaide East of $601.9 million.



Included in fair value gains (losses) during
the year ended December 31, 2016 is $0.7 million (compared to $1.2 million in 2015) paid to a subsidiary of BAM for services
provided for the disposition of Royal Centre during the first quarter of 2016.



Included in rental revenues during the
year ended December 31, 2016, are amounts received from BAM and its affiliates of $11.5 million (compared to $9.8 million
in 2015).



During the year ended December 31,
2016, the Trust paid $6.3 million (compared to $5.5 million in 2015) to subsidiaries of BAM for its all-risk property insurance
and rental value coverage, and acts of terrorism coverage as well as sustainable energy services.



Refer to Note 5, Investment Properties,
for information on the acquisition of Brookfield Place Calgary East development from BOPI. Included in investment properties during
the year ended December 31, 2016 are amounts paid to a subsidiary of BAM of $18.8 million (compared to $83.3 million in 2015)
for commercial developments pursuant to a contract to construct Bay Adelaide East.



Compensation of Independent Trustees

The remuneration of independent trustees
during the year ended December 31, 2016 and 2015 was as follows:





|(Millions)        |  | 2016 |     |  | 2015 |  
|----------------- |  | ---- | --- |  | ---- | -
|Cash compensation |  | $    | 0.4 |  |      | $
|Unit-based awards |  |      | 0.3 |  |      |  
|                  |  | $    | 0.7 |  |      | $



The remuneration of independent trustees
is determined by the Trust's Governance and Nominating Committee having regard to the complexity of the Trust's operations, the
risks and responsibilities involved in being a trustee of the Trust, the requirement to participate in scheduled and special board
meetings, expected participation on the board's standing committees and compensation paid to trustees of comparable entities.



NOTE 18: CAPITAL MANAGEMENT AND LIQUIDITY

The Trust employs a broad range of financing
strategies to facilitate growth and manage financial risk.



The Trust continually strives to reduce
its weighted-average cost of capital and improve unitholders’ equity returns through value-enhancement initiatives and the
consistent monitoring of the balance between debt and equity financing. As of December 31, 2016, the weighted-average cost
of capital, assuming a long-term 9.0% return on equity, was 6.2% (compared to 6.2% in 2015).



Brookfield Canada Office Properties49







The following schedule details the capitalization
of the Trust and the related costs thereof:





|                                        |  | Cost of Capital(1) |     |   | Underlying Value(2) | 
|--------------------------------------- |  | ------------------ | --- | - | ------------------- | 
|(Millions, except cost of capital data) |  | Dec. 31, 2016      |     |   | Dec. 31, 2015       | 
|Liabilities                             |  |                    |     |   |                     | 
|Investment property and corporate debt  |  |                    | 3.8 | % |                     | 
|Unitholders’ equity                     |  |                    |     |   |                     | 
|Trust Units(3)                          |  |                    | 9.0 | % |                     | 
|Other equity                            |  |                    |     |   |                     | 
|Non-controlling interest(3)             |  |                    | 9.0 | % |                     | 
|Total                                   |  |                    | 6.2 | % |                     | 



| | (1) | Total weighted-average cost of capital is calculated on the weighted average of underlying value.
| | --- | -------------------------------------------------------------------------------------------------



| | (2) | Underlying value of liabilities presents the cost to retire debt on maturity. Underlying value of unitholders’ equity
and other equity is based on the closing unit price of BOX on the TSX.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (3) | Assumes a long-term 9.0% return on equity for December 31, 2016 and December 31, 2015.
| | --- | --------------------------------------------------------------------------------------



Investment property and corporate debt

The Trust’s investment property and
corporate debt is primarily fixed-rate and non-recourse to the Trust, thereby reducing the overall financial risk to the Trust.
These financings are typically structured on a loan-to-appraised value basis of between 50% and 65% when the market permits. In
addition, in certain circumstances where a building is leased almost exclusively to a high-credit quality tenant, a higher loan-to-value
financing, based on the tenant’s credit quality, is put in place at rates commensurate with the cost of funds for the tenant.
This reduces equity requirements to finance investment property and enhances equity returns.



The Trust is subject to certain covenants
on its borrowings, including debt service coverage and loan-to-value thresholds. As of December 31, 2016, the Trust was in
compliance with all of its covenants.



The Trust’s strategy is to satisfy
its liquidity needs using cash on hand, cash flows generated from operating activities, and cash provided by financing activities.
Rental revenue, recoveries from tenants, interest and other income, available cash balances, draws on credit facilities, and refinancings,
including upward refinancings, of maturing indebtedness are the Trust’s principal sources of capital used to pay operating
expenses, distributions, debt service, and recurring capital and leasing costs in its investment property portfolio.



The principal liquidity needs for periods
beyond the next year are for unit distributions, scheduled debt maturities, recurring and non-recurring capital expenditures, and
development costs. The Trust’s strategy is to meet these needs with one or more of the following:



| | • | cash flow from operations;
| | - | --------------------------

| | • | construction loans;
| | - | -------------------

| | • | credit facilities and refinancing opportunities; and
| | - | ----------------------------------------------------

| | • | divestiture of investment properties.
| | - | -------------------------------------



The Trust attempts to match the maturity
of its commercial property and corporate debt portfolio with the average lease terms of its properties. At December 31, 2016,
the average term to maturity of the Trust’s investment property and corporate debt portfolio was six years and the Trust’s
average lease term of its properties was approximately eight years. The Trust will continue to make efforts to match the maturity
of the investment property and corporate debt portfolio with the average lease term of its properties.



The following table presents the contractual
maturities of the Trust’s financial liabilities:





|                                           |  | Payments Due By Period |        
|------------------------------------------ |  | ---------------------- | -------
|(Millions)                                 |  | Total                  |        
|Investment property and corporate debt (1) |  | $                      | 3,330.2
|Accounts payable and other liabilities     |  |                        | 166.8  



(1) Includes repayment of principal and interest.





502016 Annual Report







NOTE 19: OTHER INFORMATION

Supplemental cash flow information:





|                                                        |  | 2016        |      |   | 2015             |  
|------------------------------------------------------- |  | ----------- | ---- | - | ---------------- | -
|(Millions)                                              |  | Trust Units |      |   | Class B LP Units |  
|Distributions declared to unitholders (1)               |  | $           | 76.2 |   |                  | $
|Add: Distributions payable at the beginning of the year |  |             | 2.7  |   |                  |  
|Less: Distributions payable at the end of the year      |  |             | (2.9 | ) |                  |  
|Less: Distributions to participants in DRIP             |  |             | (4.6 | ) |                  |  
|Cash distributions paid                                 |  | $           | 71.4 |   |                  | $



(1)Included for the
year ended December 31, 2016, is a special distribution of $149.3 million or $1.60 per Trust Unit, paid out on April 19, 2016
to holders of record at the close of business on April 5, 2016.



NOTE 20: APPROVAL OF ANNUAL FINANCIAL
STATEMENTS

The annual financial statements were approved
by the Trust’s Board of Trustees and authorized for issue on January 23, 2017.







Brookfield Canada Office Properties51