DEAR UNITHOLDERS,



2012 was another successful year for Brookfield
Canada Office Properties (“BOX”) (TSX: BOX.UN, NYSE: BOXC) as we successfully integrated our newest properties in Toronto
and Ottawa which were acquired in December 2011. 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. Although
we continue to believe there is room for the value of our units to grow in the market, we were pleased that our unitholders realized
a 25% total return on investment over the course of the year.



We are currently invested in 28 office properties totaling 20.7 million square feet across Toronto, Ottawa,
Calgary and Vancouver, each of those cities having exhibited positive real estate fundamentals over the course of the year. Our
best-in-class office towers help define the skylines in these markets – from Bay Wellington Tower and First Canadian Place
in Toronto to Bankers Hall and Suncor Energy Centre in Calgary. Our portfolio consistently outperforms the market in terms of occupancy
and achievable rents.























|FINANCIAL PERFORMANCE
        
        Funds from operations (FFO) was $139.0 million in 2012, a 9%
        increase from the 2011 total of $127.0 million. Commercial property net operating income increased 15% year-over-year, to $269.2
        million in 2012 from $234.6 million in 2011.
        
        Net income, which under IFRS measures changes in the fair values
        of an entity’s assets, increased 48% over the course of the year to $527.5 million. This increase speaks to the strength
        of the Canadian office markets we are invested in and the quality of our assets therein.
        
        LEASING
        
        BOX achieved a full-year leasing total of 1.3 million square
        feet and our occupancy rate finished the year at 96.9%, an increase of 70 basis points from year-end 2011. This rate compares favourably
        with the Canadian national average of 92.8%.
        
        Leasing highlights for 2012 include:
        
        • A five-year renewal for 145,000 square feet with Bennett
        Jones Services Limited at First Canadian Place, Toronto
        
        • A six-year renewal for 95,000 square feet with PwC Management
        Services at Suncor Energy Centre, Calgary. Subsequent to year-end, the renewal term was increased by four years to ten years in
        total. |  | • A six-year renewal and expansion for 56,000 square feet
        with McMillan LLP at Royal Centre, Vancouver
        
        • A 14-year new lease for 43,000 square feet with Deloitte
        Management at Bankers Court, Calgary
        
        • A five-year renewal for 40,000 square feet with Spectra
        Energy Corp. at Royal Centre, Vancouver
        
        CAPITAL INITIATIVES
        
        Continuing to take advantage of the appealing interest rate
        environment, we executed several capital initiatives of note during 2012, including:
        
        • Increased
        the Corporate Credit Facility.The Trust increased its liquidity by upsizing its corporate credit facility by $75 million
        to $200 million.
        
        • Refinanced
        debt at Exchange Tower, Toronto for $120 million.After repayment of the previous mortgage, the Trust generated net proceeds
        of $65 million. The new financing has a ten-year term with a fixed rate of 4.031% per annum.
        
        • Refinanced
        debt at Royal Centre, Vancouver for $150 million.After repayment of the previous mortgage, the Trust generated net proceeds
        of $39 million. The new financing has a three-year term with a fixed interest rate of 3.325% per annum.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------











FINANCIAL
HIGHLIGHTS

(MILLIONS,
EXCEPT PER-UNIT AMOUNTS)	2012	2011	2010

Results
of Operations

Total
revenue	$515.1	$446.7	$427.4

Net
income	527.5	355.4	329.0

Funds
from operations	139.0	127.0	119.2

Adjusted
funds from operations	107.4	95.4	82.3

Distributions	103.4	100.7	59.6

Per
unit amounts-attributable to unitholders

Net
income	$5.66	$3.81	$3.53

Funds
from operations	1.49	1.36	1.28

Adjusted
funds from operations	1.15	1.02	0.88

Distributions	1.11	1.08	0.64

(MILLIONS,
EXCEPT PER-UNIT AMOUNTS)	2012	2011	2010

Balance
sheet data

Total
assets	$5,163.6	$4,698.1	$4,007.2

Investment
properties	5,090.2	4,637.9	3,965.0

Commercial
property and corporate debt	2,013.0	1,980.3	1,591.8

Total
equity	3,035.6	2,610.9	2,344.9

Total equity per unit32.57	28.01	25.16

























|• Extended the $10 million debt at 151
        Yonge St., Toronto, for a two-year period to July 2014 at a rate of bankers’ acceptance plus 170 basis points.
        
        • Refinanced debt at HSBC Building, Toronto
        for $45 million. After repayment of the previous mortgage, the Trust generated net proceeds of $24 million. The new financing has
        a ten-year term with a fixed interest rate of 4.056% per annum.
        
        • Early refinanced debt at Bay Wellington
        Tower, Toronto for $525 million, subsequent to year-end. After repayment of the previous mortgage, the Trust generated net proceeds
        of $213 million of which a portion of the proceeds was used to fully repay the Trust’s corporate revolver. The new financing
        has a seven-year term with a fixed interest rate of 3.244% per annum.
        
        REJUVENTATION PROGRAM AT FIRST CANADIAN
        PLACE
        
        After three years of extensive exterior and
        interior renovation work, First Canadian Place, Canada’s tallest building, celebrated the completion of its large-scale rejuvenation
        project, Redefining First. Brookfield transformed the 72-storey, 2.8-million-square-foot building into a spectacular, energy-conscious
        centre for business, retail and leisure. |  | The most visible change to the iconic office
        tower was the total recladding of the building’s exterior. Replaced were the existing 45,000 pieces of Carrera marble with
        architecturally unique glass spandrel panels, creating a shimmering “new” silhouette on the Toronto skyline. Other
        significant upgrades included a refurbished main entrance, retail concourse and market area, along with a new physical plant and
        numerous energy efficiency upgrades to the building’s infrastructure.
        
        ENVIRONMENTAL INITIATIVES
        
        In addition to the changes described above,
        comprehensive environmental upgrades associated with the renovation led to First Canadian Place’s achieving LEED (Leadership
        in Energy and Environmental Design) Gold certification.
        
        Joining First Canadian Place, the following
        BOX properties achieved LEED EB:OM (Existing Buildings: Operations and Maintenance) Gold certification in 2012:
        
        • Bay Wellington Tower, Toronto
        
        • Exchange Tower, Toronto
        
        • HSBC Building, Toronto
        
        • Bankers Hall, Calgary
        
        • Suncor Energy Centre, Calgary
        
        • Fifth Avenue Place, Calgary
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





















|These properties join Bay Adelaide Centre West in Toronto and
        Bankers Court in Calgary, both of which were certified upon their completion in 2009. Our portfolio is now 72% LEED-Gold certified.
        
        DISTRIBUTION INCREASE
        
        In July 2012, the Board of Trustees was pleased to declare an
        8% increase to the yearly distribution per trust unit from $1.08 to $1.17. The Board and the rest of the management team felt that
        this increase in payout to those that hold our units was an appropriate and timely use of capital.
        
        TRADING ON NYSE
        
        In January 2012, BOX’s trust units began trading on the
        New York Stock Exchange (NYSE) under the stock symbol “BOXC.” Listing on the NYSE has opened up the opportunity to
        a wider range of companies and individuals looking to invest in the best commercial office properties in Canada.
        
        2013 OUTLOOK & PRIORITIES
        
        
        • As always, our first area of focus is leasing. We will
        continue our strategy of being proactive and maintaining an above-market occupancy rate. In particular, our main priorities are
        squarely aimed at the renewal of the government leases in Ottawa and leasing the larger vacancies within our portfolio. Specifically,
        these are in Toronto at 151 Yonge Street, First Canadian Place and Exchange Tower. |  | • Our second objective is to generate and preserve capital
        through refinancing and seek out opportunistic re-financings in advance of maturity dates given the continued low interest rate
        environment. We had significant success in this area during 2012 and as a result have built up our cash reserves. We will continue
        to look for opportunities to deploy the cash generated from recent up-financings.
        
        • Our third objective is to complete our sustainability
        initiatives. As mentioned earlier, 72% of our properties are LEED Gold-certified. We are targeting to certify to LEED Gold our
        Royal Centre property in Vancouver in 2013. Upon completion of our sustainability initiatives, we will monitor the quantitative
        impact and be proactive in reducing energy consumption and operating costs.
        
        Our operating markets remain strong and we will continue to
        look for opportunities to grow our business and add value for our unitholders.
        
        On behalf of our employees and the Board of Trustees, I thank
        you for your continued support.
        
        Sincerely,
        
        
        
        Jan Sucharda
        President & Chief Executive Officer
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





















Portfolio by City

Brookfield Canada Office Properties’
portfolio is composed of interests in 28 premier office properties totaling 20.7 million square feet, including 4.0 million square
feet of parking. Landmark properties include Brookfield Place and First Canadian Place in Toronto and Bankers Hall in Calgary.



|(Square
    feet in 000’s)               | Number
        of
        Properties | Leased
        % | Office | Retail | Leasable
        Area | Parking | Total  | Ownership
        Interest
        % | Owned
        Interest
|---------------------------------------- | ------------------------------------ | ---------------- | ------ | ------ | --------------------- | ------- | ------ | ------------------------------------ | ----------------------
|TORONTO                                  |                                      |                  |        |        |                       |         |        |                                      |                       
|First
    Canadian Place                 | 1                                    | 90.3%            | 2,379  | 232    | 2,611                 | 169     | 2,780  | 25%                                  | 695                   
|Bay
    Wellington Tower                 | 1                                    | 98.1%            | 1,297  | 42     | 1,339                 | —       | 1,339  | 100%                                 | 1,339                 
|Brookfield
    Place Retail & Parking(1) | 1                                    | 97.6%            | —      | 52     | 52                    | 690     | 742    | 56%                                  | 412                   
|Bay
    Adelaide Centre West Tower       | 1                                    | 95.4%            | 1,155  | 37     | 1,192                 | 382     | 1,574  | 100%                                 | 1,574                 
|Exchange
    Tower                       | 1                                    | 91.1%            | 963    | 66     | 1,029                 | 131     | 1,160  | 50%                                  | 580                   
|Hudson's
    Bay Centre                  | 1                                    | 99.9%            | 536    | 209    | 745                   | 186     | 931    | 100%                                 | 931                   
|2
    Queen St. E.                       | 1                                    | 100.0%           | 448    | 16     | 464                   | 81      | 545    | 25%                                  | 136                   
|Queen’s
    Quay Terminal                | 1                                    | 98.3%            | 427    | 78     | 505                   | —       | 505    | 100%                                 | 505                   
|151
    Yonge St.                        | 1                                    | 85.0%            | 289    | 11     | 300                   | 72      | 372    | 25%                                  | 93                    
|105
    Adelaide St. West                | 1                                    | 100.0%           | 177    | 7      | 184                   | 48      | 232    | 100%                                 | 232                   
|HSBC
    Building                        | 1                                    | 98.9%            | 188    | 6      | 194                   | 31      | 225    | 100%                                 | 225                   
|22
    Front St. West                    | 1                                    | 100.0%           | 136    | 8      | 144                   | —       | 144    | 100%                                 | 144                   
|                                         | 12                                   | 94.5%            | 7,995  | 764    | 8,759                 | 1,790   | 10,549 |                                      | 6,866                 
|                                         |                                      |                  |        |        |                       |         |        |                                      |                       
|OTTAWA                                   |                                      |                  |        |        |                       |         |        |                                      |                       
|Place
    de Ville I                     | 2                                    | 99.9%            | 570    | 12     | 582                   | 502     | 1,084  | 25%                                  | 271                   
|Place
    de Ville II                    | 2                                    | 99.2%            | 597    | 12     | 609                   | 433     | 1,042  | 25%                                  | 261                   
|Jean
    Edmonds Towers                  | 2                                    | 100.0%           | 541    | 13     | 554                   | 95      | 649    | 25%                                  | 162                   
|                                         | 6                                    | 99.7%            | 1,708  | 37     | 1,745                 | 1,030   | 2,775  |                                      | 694                   
|                                         |                                      |                  |        |        |                       |         |        |                                      |                       
|CALGARY                                  |                                      |                  |        |        |                       |         |        |                                      |                       
|Bankers
    Hall                         | 3                                    | 99.7%            | 1,944  | 224    | 2,168                 | 409     | 2,577  | 50%                                  | 1,289                 
|Bankers
    Court                        | 1                                    | 98.8%            | 256    | 7      | 263                   | 62      | 325    | 50%                                  | 163                   
|Suncor
    Energy Centre                 | 2                                    | 99.6%            | 1,710  | 22     | 1,732                 | 220     | 1,952  | 50%                                  | 976                   
|Fifth
    Avenue Place                   | 2                                    | 99.8%            | 1,430  | 46     | 1,476                 | 206     | 1,682  | 50%                                  | 841                   
|                                         | 8                                    | 99.6%            | 5,340  | 299    | 5,639                 | 897     | 6,536  |                                      | 3,269                 
|VANCOUVER                                |                                      |                  |        |        |                       |         |        |                                      |                       
|Royal
    Centre                         | 1                                    | 97.7%            | 493    | 96     | 589                   | 264     | 853    | 100%                                 | 853                   
|OTHER                                    |                                      |                  |        |        |                       |         |        |                                      |                       
|Merivale
    Place, Nepean               | 1                                    | 100.0%           | —      | 3      | 3                     | —       | 3      | 100%                                 | 3                     
|TOTAL
    PORTFOLIO                      | 28                                   | 96.9%            | 15,536 | 1,199  | 16,735                | 3,981   | 20,716 |                                      | 11,685                
|                                         |                                      |                  |        |        |                       |         |        |                                      |                       

(1) Brookfield Canada Office
Properties owns a 50% interest in the retail operations and is entitled to a 56% interest in the parking operations.











Contents





|MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL RESULTS        |   
|---------------------------------------------------------------- | --
|                                                                 |   
|PART I – OBJECTIVES AND FINANCIAL HIGHLIGHTS                     | 4 
|                                                                 |   
|PART II – FINANCIAL STATEMENT ANALYSIS                           | 9 
|                                                                 |   
|PART III – RISKS AND UNCERTAINTIES                               | 22
|                                                                 |   
|PART IV – CRITICAL ACCOUNTING POLICIES AND ESTIMATES             | 25
|                                                                 |   
|PART V – BUSINESS ENVIRONMENT AND OUTLOOK                        | 28
|                                                                 |   
|MANAGEMENT’S RESPONSIBILITY FOR THE FINANCIAL STATEMENTS         | 30
|                                                                 |   
|REPORT OF INDEPENDENT REGISTERED CHARTERED ACCOUNTANTS           | 31
|                                                                 |   
|Management’s Report on Internal Control over Financial Reporting | 32
|                                                                 |   
|REPORT OF INDEPENDENT REGISTERED CHARTERED ACCOUNTANTS           | 33
|                                                                 |   
|CONSOLIDATED FINANCIAL STATEMENTS                                | 34
|                                                                 |   
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                   | 38
|                                                                 |   
|UNITHOLDER INFORMATION                                           | 51
|                                                                 |   
|SELECTED FINANCIAL AND OPERATIONAL INFORMATION                   | 52
|                                                                 |   
|BOARD OF TRUSTEES AND OFFICERS                                   | 53





2





FORWARD-LOOKING STATEMENTS

This annual report to unitholders contains
“forward-looking information” within the meaning of Canadian provincial securities laws and “forward-looking
statements” within the meaning of Section 27A of the U.S. Securities Act of 1933, as amended, Section 21E of the U.S. Securities
Exchange Act of 1934, as amended, “safe harbor” provisions of the United States Private Securities Litigation Reform
Act of 1995 and in any applicable Canadian securities regulations. Forward-looking statements include statements that are predictive
in nature, depend upon or refer to future events or conditions, include statements regarding the operations, business, financial
condition, expected financial results, performance, prospects, opportunities, priorities, targets, goals, ongoing objectives, strategies
and outlook of the Trust and its subsidiaries, as well as the outlook for the Canadian economy for the current fiscal year and
subsequent periods, and include words such as “expects”, “anticipates”, “plans”, “believes”,
“estimates”, “seeks”, “intends”, “targets”, “projects”, “forecasts”
or negative versions thereof and other similar expressions, or future or conditional verbs such as “may”, “will”,
“should”, “would” and “could”.



Although the Trust believes that the anticipated
future results, performance or achievements expressed or implied by the forward-looking statements and information are based upon
reasonable assumptions and expectations, the reader should not place undue reliance on forward-looking statements and information
because they involve known and unknown risks, uncertainties and other factors, many of which are beyond the control of the Trust,
which may cause the actual results, performance or achievements of the Trust to differ materially from anticipated future results,
performance or achievement expressed or implied by such forward-looking statements and information.



Factors that could cause actual results
to differ materially from those contemplated or implied by forward-looking statements include, but are not limited to: risks incidental
to the ownership and operation of real estate properties including local real estate conditions, the ability to enter into new
leases or renew leases on favorable terms, dependence on tenants’ financial condition, uncertainties of real estate development,
acquisition and disposition activity; the impact or unanticipated impact of general economic, political and market factors in Canada;
the behavior of financial markets, including fluctuations in interest rates; equity and capital markets and the availability of
equity and debt financing and refinancing within these markets; the ability to complete and effectively integrate acquisitions
into existing operations and the ability to attain expected benefits therefrom; changes in accounting policies and methods used
to report financial condition (including uncertainties associated with critical accounting assumptions and estimates); the effect
of applying future accounting changes; business competition; operational and reputational risks; changes in government regulation
and legislation; changes in tax laws, catastrophic events, such as earthquakes and hurricanes; the possible impact of international
conflicts and other developments including terrorist acts; and other risks and factors detailed from time to time in our documents
filed with the securities regulators in Canada and the United States.



Caution should be taken that the foregoing
list of important factors that may affect future results is not exhaustive. When relying on the Trust’s forward-looking statements,
investors and others should carefully consider the foregoing factors and other uncertainties and potential events. Except as required
by law, the Trust undertakes no obligation to publicly update or revise any forward-looking statements or information, whether
written or oral, that may be as a result of new information, future events or otherwise.

3





Management’s Discussion and Analysis
of Financial Results

March 1, 2013



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, 2012, includes material information up to March
1, 2013. 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”
or the “Trust”) was formed in connection with the reorganization of BPO Properties Ltd. (“BPP”) 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 the interests of Brookfield Office Properties Inc. (“BPO” or “Brookfield Office Properties”)
in Brookfield Place, which includes Bay Wellington Tower and partial interests in the retail concourse and parking operations.



On December 1, 2011, we acquired from our
parent company, BPP, a 25% interest in nine office assets from its Canadian Office Fund portfolio totaling 6.5 million square feet
in Toronto and Ottawa (the “Acquired Assets” or the “Acquisition”).



The following discussion and analysis is
intended to provide readers with an assessment of the performance of BOX over the past two years 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 34 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.



In our discussion of operating performance,
we refer to commercial property net operating income, funds from operations, and adjusted funds from operations on a total and
per-unit basis. Commercial property net operating income, funds from operations, adjusted funds from operations and total equity
per unit 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 income from commercial property operations after direct
property operating expenses, including property administration costs have been deducted but prior to deducting interest expense,
general and administrative expenses, and fair value gains (losses). We define funds from operations as net income prior to transaction
costs and fair value gains (losses). Adjusted funds from operations is defined by us as funds from operations net of normalized
second-generation leasing commissions and tenant improvements, normalized sustaining capital expenditures, and straight-line rental
income. Total equity per unit represents the book value of our total equity, divided by total units outstanding.



Commercial property net operating income
is an important measure that we use to assess operating performance of our commercial properties, and funds from operations is
a widely used measure in analyzing the performance of real estate. Adjusted funds from operations is a measure used to assess an
entity’s ability to pay distributions. We provide the components of commercial property net operating income on page 17,
a reconciliation of net income to funds from operations and adjusted funds from operations on page 20, and a reconciliation of
cash generated from operating activities to adjusted funds from operations on page 20.



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.





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 and operates commercial
office properties in Toronto, Ottawa, Calgary, and Vancouver.



At December 31, 2012, the carrying value
of BOX’s total assets was $5,163.6 million. During 2012, we generated $527.5 million of net income ($5.66 per unit), $139.0
million of funds from operations ($1.49 per unit), and $107.4 million of adjusted funds from operations ($1.15 per unit).



4





FINANCIAL HIGHLIGHTS

BOX’s financial results are as follows:



|(Millions, except per-unit amounts)            |               |               | 2012          |         | 2011  |         | 2010 
|---------------------------------------------- | ------------- | ------------- | ------------- | ------- | ----- | ------- | -----
|Results of operations                          |               |               |               |         |       |         |      
|Total revenue                                  |               |               |               | $       | 515.1 | $       | 446.7
|Net income                                     |               |               |               |         | 527.5 |         | 355.4
|Funds from operations(1)                       |               |               |               |         | 139.0 |         | 127.0
|Adjusted funds from operations(1)              |               |               |               |         | 107.4 |         | 95.4 
|Distributions                                  |               |               |               |         | 103.4 |         | 100.7
|Per unit amounts – attributable to unitholders |               |               |               |         |       |         |      
|Net income                                     |               |               |               |         | 5.66  |         | 3.81 
|Funds from operations                          |               |               |               |         | 1.49  |         | 1.36 
|Adjusted funds from operations                 |               |               |               |         | 1.15  |         | 1.02 
|Distributions                                  |               |               |               |         | 1.11  |         | 1.08 
|                                               |               |               |              
|(Millions, except per-unit amounts)            | Dec. 31, 2012 | Dec. 31, 2011 | Dec. 31, 2010
|Balance sheet data                             |               |               |               |         |       |        
|Total assets                                   | $             | 5,163.6       | $             | 4,698.1 | $     | 4,007.2
|Investment properties                          |               | 5,090.2       |               | 4,637.9 |       | 3,965.0
|Commercial property and corporate debt         |               | 2,013.0       |               | 1,980.3 |       | 1,591.8
|Total equity                                   |               | 3,035.6       |               | 2,610.9 |       | 2,344.9
|Total equity per unit(1)                       |               | 32.57         |               | 28.01   |       | 25.16  
|                                               |               |               |               |         |       |         |      

(1)
Non-IFRS measure. Refer to page 7 for description of non-IFRS measures and reference to reconciliation to comparable IFRS measures.



COMMERCIAL-PROPERTY OPERATIONS

Our strategy is to own premier properties
in dynamic and supply-constrained markets with high barriers to entry, creating one of Canada’s most distinguished portfolios
of office properties. Our commercial-property portfolio consists of interests in 28 properties totaling 20.7 million square feet,
including 4.0 million square feet of parking. Our markets are the financial, government and energy sectors in the cities of Toronto,
Ottawa, Calgary, and Vancouver. 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.



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.
| | - | -------------------------------------------------------------------------------------------------------





The following table summarizes our investment
property portfolio by region:



|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(Millions) | Net Book Equity(1)(Millions) |  
|-------------- | -------------------- | ------------------------- | ---------------------------------------------------- | ----------------------------- | ------------------------------ | -------------- | ---------------------------- | -
|Eastern region | 19                   | 13,327                    | 7,563                                                | $                             | 3,208.5                        | $              | 424                          | $
|Western region | 9                    | 7,389                     | 4,122                                                |                               | 1,881.7                        |                | 457                          |  
|Total          | 28                   | 20,716                    | 11,685                                               | $                             | 5,090.2                        | $              | 436                          | $
|               |                      |                           |                                                      |                               |                                |                |                              |  

(1)
Represents fair value less debt and excludes working capital.



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, Imperial
Oil and Talisman Energy. A detailed list of major tenants is included in Part III (“Risks and Uncertainties”) of this
MD&A, beginning on page 22.



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 6.9% of our leases, on average,
mature annually up to 2017.



5





Our average lease term is eight years.
The following is a breakdown of lease maturities by region with associated in-place rental rates:



|Total Portfolio                | Toronto, Ontario | Ottawa, Ontario
|------------------------------ | ---------------- | ---------------
|                               |                  |                
|                               | 000's            |                
|Year of Expiry                 | Sq. Ft.          | %              
|Currently available            | 523              | 3.1            
|2013                           | 1,696            | 10.1           
|2014                           | 321              | 1.9            
|2015                           | 1,486            | 8.9            
|2016                           | 1,630            | 9.7            
|2017                           | 645              | 3.9            
|2018                           | 679              | 4.1            
|2019                           | 722              | 4.3            
|2020 & beyond                  | 9,033            | 54.0           
|Parking                        | 3,981            | 3⁄4              
|Total                          | 20,716           | 100.0          
|Average market net rent(2) (3) | $                | 32             
|                               |                  |                



|Calgary, Alberta           | Vancouver, B.C. | Other
|-------------------------- | --------------- | -----
|                           |                 |      
|                           | 000's           |      
|Year of Expiry             | Sq. Ft.         | %    
|Currently available        | 20              | 0.4  
|2013                       | 37              | 0.7  
|2014                       | 52              | 0.9  
|2015                       | 397             | 7.0  
|2016                       | 756             | 13.4 
|2017                       | 65              | 1.2  
|2018                       | 225             | 4.0  
|2019                       | 89              | 1.6  
|2020 & beyond              | 3,998           | 70.8 
|Parking                    | 897             | 3⁄4    
|Total                      | 6,536           | 100.0
|Average market net rent(2) | $               | 36   
|                           |                 |      

(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 19 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 Bay Wellington Tower and Bay Adelaide Centre West Tower, which
compose 29% of BOX’s exposure in Toronto.





6







PERFORMANCE
MEASUREMENT

The key indicators by which we measure
our performance are:



| | · | Net income per unit;
| | - | --------------------



| | · | Commercial property net operating income;
| | - | -----------------------------------------



| | · | Funds from operations per unit;
| | - | -------------------------------



| | · | Adjusted funds from operations per unit;
| | - | ----------------------------------------



| | · | Total equity per unit;
| | - | ----------------------



| | · | Overall indebtedness level;
| | - | ---------------------------



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



| | · | Occupancy levels.
| | - | -----------------



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, funds from operations, and adjusted funds from operations.
Although net income is calculated in accordance with IFRS, commercial property net operating income, funds from operations, and
adjusted funds from operations do not have any standardized meaning prescribed by IFRS and are therefore unlikely to be comparable
to similar measures presented by other entities. We provide the components of commercial property net operating income and a full
reconciliation of net income to funds from operations and adjusted funds from operations beginning on page 17 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.



Commercial property net operating income

Commercial property net operating income
is defined by us as income from commercial property operations after direct property operating expenses, including property administration
costs have been deducted but prior to deducting interest expense, general and administrative expenses, and 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.



Funds from Operations

We define funds from operations as net
income prior to transaction costs and fair value gains (losses). Funds from operations does not represent or approximate cash generated
from operating activities determined in accordance with IFRS. We provide a reconciliation of net income to funds from operations
on page 20.



Adjusted Funds from Operations

Adjusted funds from operations is defined
by us as funds from operations net of normalized second-generation leasing commissions and tenant improvements, normalized sustaining
capital expenditures, and straight-line rental income. Adjusted funds from operations is a widely used measure used to assess an
entity’s ability to pay distributions. We provide a reconciliation of funds from operations to adjusted funds from operations
on page 20. We also provide a reconciliation of cash generated from operating activities to adjusted funds from operations on page
20.



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 the best indicator of our
current financial position because it reflects our total equity adjusted for all inflows and outflows, including funds from operations
and changes in the value of our investment properties.



Although we believe funds from operations
is a widely used measure to analyze real estate, we believe that funds from operations, adjusted funds from operations, commercial
property net operating income, total equity per unit and net income are all relevant measures.



7





KEY PERFORMANCE DRIVERS

In addition to monitoring and analyzing
performance in terms of net income, commercial property net operating income, funds from operations, and adjusted funds from operations,
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 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
on non-core assets.
| | - | ------------------------------------------------------------





8







PART II – FINANCIAL STATEMENT
ANALYSIS



ASSET PROFILE

Our total asset carrying value was $5,163.6
million at December 31, 2012 (compared to $4,698.1 million at December 31, 2011). The following is a summary of our assets:



|(Millions)                   | Dec. 31, 2012 | Dec. 31, 2011
|---------------------------- | ------------- | -------------
|Non-current assets           |               |              
|Investment properties        | $             | 5,090.2      
|                             |               |              
|Current assets               |               |              
|Tenant and other receivables |               | 25.4         
|Other assets                 |               | 7.0          
|Cash and cash equivalents    |               | 41.0         
|                             |               | 73.4         
|Total                        | $             | 5,163.6      



INVESTMENT PROPERTIES

Investment properties comprise of our direct
interests in wholly owned commercial properties and our proportionate share in jointly controlled commercial properties.



The fair value of our investment properties
was $5,090.2 million as at December 31, 2012 (compared to $4,637.9 million at December 31, 2011). The increase in value of investment
properties is primarily attributable to the recognition of fair value gains as a result of improved market conditions and change
in valuation parameters.

A breakdown of our investment properties is as follows:



|                            |            |                 | BOX’s           | Fair Value    | Fair Value   
|--------------------------- | ---------- | --------------- | --------------- | ------------- | -------------
|                            | Number of  | Total Area      | Owned Interest  | Dec. 31, 2012 | Dec. 31, 2011
|                            | Properties | (000's Sq. Ft.) | (000's Sq. Ft.) | (Millions)    | (Millions)   
|Eastern region              | 19         | 13,327          | 7,563           | $             | 3,208.5      
|Western region              | 9          | 7,389           | 4,122           |               | 1,881.7      
|Total investment properties | 28         | 20,716          | 11,685          | $             | 5,090.2      
|Fair value per Sq. ft.      |            |                 |                 | $             | 436          



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



|               | December 31, 2012 | December 31, 2011
|-------------- | ----------------- | -----------------
|               |                   | Value psf        
|Eastern region |                   | $ 424            
|Western region |                   | 457              
|Average        |                   | $ 436            



Values are most sensitive to changes in
discount rates and timing or variability of cash flows.



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 Properties Management Corporation. For the year ended December 31, 2012, such expenditures totaled $27.0 million
(compared to $50.8 million in 2011). The decrease is primarily related to higher tenant installation costs incurred on the lease-up
of space at Bay Adelaide Centre West Tower, Suncor Energy Centre, Fifth Avenue Place, Bankers Court, Bay Wellington Tower and 105
Adelaide St. West during 2011.



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.
Capital expenditures for the year ended December 31, 2012 totaled $28.8 million (compared to $17.9 million in 2011). These expenditures
exclude repairs and maintenance costs. Fluctuations in our capital expenditures vary period over period based on required and planned
expenditures on our investment properties.



9





Capital expenditures include sustaining
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, 2012, sustaining capital expenditures
totaled $3.2 million (compared with $3.2 million in 2011), while the remainder of $25.6 million (compared with $14.7 million in
2011) primarily consist of the re-cladding project at First Canadian Place, elevator upgrades at Royal Centre, structural work
on the parking garage at Hudson’s Bay Centre and washroom upgrades at Bay Wellington Tower, Suncor Energy Centre, Fifth Avenue
Place and First Canadian Place. Capital expenditures are recoverable in some cases through contractual tenant cost-recovery payments.
During the year ended December 31, 2012, $15.4 million of our total capital expenditures were recoverable, compared with $10.6
million during the prior year.



The following table summarizes the second-generation
leasing commissions and tenant improvements, and sustaining capital expenditures recorded on our investment properties during the
year ended December 31, 2012, as well as the normalized level of activities. The normalized activities are used in calculating
adjusted funds from operations and they are estimated based on historical spend levels as well as anticipated spend levels over
the next few years. Second-generation leasing commissions and tenant improvements 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. Refer to the
reconciliation of funds from operations to adjusted funds from operations on page 20.



For the year ended December 31, 2012, second-generation
leasing commissions and tenant improvements consisted primarily of leasing commissions incurred at Bankers Hall, Hudson’s
Bay Centre and Royal Centre, and tenant improvements at Suncor Energy Centre, HSBC Building, Bay Wellington Tower, First Canadian
Place and Exchange Tower related to tenant build-outs.



|                                                              |  |  | Normalized annual activities(1)
|------------------------------------------------------------- |  |  | -------------------------------
|(Millions)                                                    |  |  |                                
|Second-generation leasing commissions and tenant improvements |  |  |                                
|Sustaining capital expenditures                               |  |  |                                
|Total                                                         |  |  |                                

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



The following table summarizes the changes
in value of our investment properties during the year ended December 31, 2012:



|(Millions)                                   |  |  |  | Dec. 31, 2012
|-------------------------------------------- |  |  |  | -------------
|Beginning of year                            |  |  |  | $            
|Additions:                                   |  |  |  |              
|Capital expenditures and tenant improvements |  |  |  |              
|Leasing commissions                          |  |  |  |              
|Tenant inducements                           |  |  |  |              
|Fair value gains                             |  |  |  |              
|Other changes                                |  |  |  |              
|End of year                                  |  |  |  | $            



Other changes represent net straight-line
rent recognized in accordance with IAS 17, “Leases” that is implied within the fair value of investment properties.



TENANT AND OTHER RECEIVABLES

Tenant and other receivables increased
to $25.4 million at December 31, 2012, from $17.5 million at December 31, 2011.



OTHER ASSETS

The components of other assets are as follows:



|(Millions)                        | Dec. 31, 2012 | Dec. 31, 2011
|--------------------------------- | ------------- | -------------
|Prepaid expenses and other assets | $             | 6.2          
|Restricted cash                   |               | 0.8          
|Total                             | $             | 7.0          



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, 2012, cash balances were $41.0 million, compared to $35.5 million at December 31, 2011.



10





LIABILITIES AND EQUITY

Our asset base of $5,163.6 million is financed
with a combination of debt and equity. The components of our liabilities and equity are as follows:



|(Millions)                             | Dec. 31, 2012 | Dec. 31, 2011
|-------------------------------------- | ------------- | -------------
|Liabilities                            |               |              
|Non-current liabilities                |               |              
|Commercial property and corporate debt | $             | 1,396.6      
|                                       |               |              
|Current liabilities                    |               |              
|Commercial property and corporate debt |               | 616.4        
|Accounts payable and other liabilities |               | 115.0        
|                                       |               | 2,128.0      
|                                       |               |              
|Equity                                 |               |              
|Unitholders’ equity                    |               | 838.1        
|Non-controlling interest               |               | 2,197.5      
|                                       |               | 3,035.6      
|Total liabilities and equity           | $             | 5,163.6      
|                                       |               |              



COMMERCIAL PROPERTY AND CORPORATE DEBT

Commercial property and corporate debt
(current and non-current) totaled $2,013.0 million at December 31, 2012 (compared to $1,980.3 million at December 31, 2011). The
increase is primarily attributable to refinancing related to Exchange Tower and HSBC Building in Toronto and Royal Centre in Vancouver,
offset by principal amortization payments. Commercial property and corporate debt at December 31, 2012 had a weighted-average interest
rate of 5.2%. Debt on our investment properties are mainly non-recourse, thereby reducing overall financial risk to the Trust.



We attempt to match the maturity of our
commercial property debt portfolio with the average lease term of our properties. At December 31, 2012, the average term to maturity
of our commercial property debt was five years, compared to our average lease term of eight years.



During the first quarter of 2012 we increased
our revolving corporate credit facility by $75.0 million to $200.0 million with the same five Canadian chartered banks. No changes
were made to the terms of the original facility. As of December 31, 2012, $68.0 million was drawn on the revolving corporate credit
facility (compared to $120.0 million at December 31, 2011).



The details of the financing transactions
completed in 2012 are as follows:



|(Millions)     |    |             | New Proceeds | Net Proceeds
        Generated(1) | Interest
        Rate (%) | Mortgage
        Detail | Maturity             
|-------------- | -- | ----------- | ------------ | --------------------------------- | ------------------------- | ----------------------- | ---------------------
|Exchange Tower | Q2 | Refinancing | $            | 120.0                             | $                         | 64.3                    | 4.031%               
|Royal Centre   | Q2 | Refinancing |              | 150.0                             |                           | 39.0                    | 3.325%               
|151 Yonge St.  | Q3 | Extension   |              | 3⁄4                                 |                           | 3⁄4                       | BA + 170 basis points
|HSBC Building  | Q4 | Refinancing |              | 44.5                              |                           | 24.7                    | 4.056%               

(1)Excludes
financing costs.





11





The details of commercial property and
corporate debt at December 31, 2012, are as follows:



|                               |           | Interest | Maturity      | BOX’s Share |           
|------------------------------ | --------- | -------- | ------------- | ----------- | ----------
|                               | Location  | Rate %   | Date          |             | (Millions)
|Commercial property            |           |          |               |             |           
|105 Adelaide St. West          | Toronto   | 5.3      | February 2013 | $           | 20.7      
|Bay Wellington Tower           | Toronto   | 6.4      | April 2013    |             | 247.7     
|Bay Wellington Tower           | Toronto   | 6.8      | April 2013    |             | 59.6      
|Hudson's Bay Centre(1)         | Toronto   | 5.2      | May 2013      |             | 104.1     
|Bankers Hall                   | Calgary   | 6.7      | November 2013 |             | 9.8       
|Bankers Hall                   | Calgary   | 7.2      | November 2013 |             | 147.5     
|Jean Edmonds Towers            | Ottawa    | 5.6      | January 2014  |             | 0.3       
|Suncor Energy Centre(2)        | Calgary   | 6.4      | June 2014     |             | 205.8     
|151 Yonge St.                  | Toronto   | 2.9      | July 2014     |             | 9.7       
|First Canadian Place           | Toronto   | 5.4      | December 2014 |             | 72.9      
|Royal Centre                   | Vancouver | 3.3      | June 2015     |             | 148.0     
|2 Queen St. E.                 | Toronto   | 5.6      | December 2017 |             | 28.6      
|22 Front St. West              | Toronto   | 6.2      | October 2020  |             | 18.4      
|Bankers Court                  | Calgary   | 5.0      | November 2020 |             | 45.9      
|Queen's Quay Terminal          | Toronto   | 5.4      | April 2021    |             | 87.0      
|Fifth Avenue Place             | Calgary   | 4.7      | August 2021   |             | 171.2     
|Bay Adelaide Centre West Tower | Toronto   | 4.4      | December 2021 |             | 398.3     
|Exchange Tower                 | Toronto   | 4.0      | April 2022    |             | 118.1     
|HSBC Building                  | Toronto   | 4.1      | January 2023  |             | 44.5      
|Jean Edmonds Towers            | Ottawa    | 6.8      | January 2024  |             | 15.6      
|                               |           |          |               |             |           
|Corporate                      |           |          |               |             |           
|$200M Corporate Revolver(3)    | 3⁄4         | 3.2      | June 2014     |             | 68.0      
|                               |           | 5.2      |               |             | 2,021.7   
|Premium on assumed mortgages   |           |          |               |             | 1.3       
|Deferred financing costs       |           |          |               |             | (10.0)    
|Total                          |           | 5.2      |               | $           | 2,013.0   
|                               |           |          |               |             |           

(1)This loan has limited recourse to the Trust’s parent, BPP, for up to $15.0 million. A two-year extension option
that extends the maturity to May 2015 is available to the Trust provided that certain debt service and loan-to-value thresholds
are met.

(2)This loan
includes a $32.7 million unsecured loan payable to the property’s joint venture partner.

(3)A one-year
extension option that extends the maturity to June 2015 is available to the Trust provided that no material defaults have occurred.



Commercial 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 | Maturities | Total   | Dec. 31, 2012       
|2013                | $                                | 32.3         | $          | 584.1   | $                   
|2014                |                                  | 26.3         |            | 345.6   |                     
|2015                |                                  | 21.4         |            | 137.8   |                     
|2016                |                                  | 20.3         |            | 3⁄4       |                     
|2017                |                                  | 21.3         |            | 28.6    |                     
|2018 and thereafter |                                  | 94.6         |            | 700.7   |                     
|Total               | $                                | 216.2        | $          | 1,796.8 | $                   
|                    |                                  |              |            |         |                     



12





CONTRACTUAL OBLIGATIONS

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



|                                                             |       |       | Payments Due By Period
|------------------------------------------------------------ | ----- | ----- | ----------------------
|                                                             |       |       |                       
|(Millions)                                                   |       | Total | 1 year                
|Commercial property and corporate debt(1)                    |       | $     | 2,013.0               
|Interest expense – commercial property and corporate debt(2) | 401.4 |       | 86.6                  
|Minimum rental payments - ground leases(3)                   |       |       | 499.7                 
|                                                             |       | $     | 2,914.1               
|                                                             |       |       |                       

(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”). We are committed to arranging
our affairs to maintain this rating and improve further over time.



Our credit rating at December 31, 2012,
and at the date of this report was:



|              |  | DBRS         | S & P            
|------------- |  | ------------ | -----------------
|Issuer Rating |  | BBB (stable) | BBB (negative)(1)

(1)Rating
was given in conjunction with BPO’s rating as S & P views these two related companies as one rated entity.



Credit ratings are intended to provide
investors with an independent measure of the credit quality of an issue of securities. The credit rating presented is not a recommendation
to purchase, hold or sell our Trust Units, as such rating does 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 are contingently
liable with respect to litigation and claims that arise from time to time in the normal course of business or otherwise. A specific
litigation is being pursued against one of our subsidiaries related to security on a defaulted loan. At this time, the amount of
contingent cash outflow related to the litigation and claims currently being pursued against us is uncertain but could be up to
$65.0 million ($63.0 million Australian dollars) in the event we are completely unsuccessful in defending the claims. During the
year ended December 31, 2012, the amount of the contingent cash outflow increased by $19.6 million ($19.0 million Australian dollars)
due to a change in the methodology of determining the amount of the claim that was adopted by the Courts.



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 14 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.



ACCOUNTS PAYABLE AND OTHER LIABILITIES

Accounts payable and other liabilities
totaled $115.0 million at December 31, 2012 (compared to $106.9 million at December 31, 2011). The increase is primarily related
to timing of accrued liabilities.



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



|(Millions)                               | Dec. 31, 2012 | Dec. 31, 2011
|---------------------------------------- | ------------- | -------------
|Accounts payable and accrued liabilities | $             | 102.3        
|Accrued interest                         |               | 12.7         
|Total                                    | $             | 115.0        

13





EQUITY

The components of equity are as follows:



|(Millions)               | Dec. 31, 2012 | Dec. 31, 2011
|------------------------ | ------------- | -------------
|Trust Units              | $             | 551.1        
|Contributed surplus      |               | 3.1          
|Retained earnings        |               | 283.9        
|Unitholders’ equity      |               | 838.1        
|Non-controlling interest |               | 2,197.5      
|Total                    | $             | 3,035.6      



The following tables summarize the changes
in the units outstanding during the year ended December 31, 2012 and December 31, 2011:



|                                                        |  | 2012
|------------------------------------------------------- |  | ----
|                                                        |  |     
|Units issued and outstanding at beginning of year       |  |     
|Units issued pursuant to Distribution Reinvestment Plan |  |     
|Total units outstanding at December 31, 2012            |  |     



|                                                        |  | 2011
|------------------------------------------------------- |  | ----
|                                                        |  |     
|Units issued and outstanding at beginning of year       |  |     
|Units issued pursuant to Distribution Reinvestment Plan |  |     
|Total units outstanding at December 31, 2011            |  |     



At December 31, 2012, the weighted average
number of Trust Units outstanding was 26,121,860 (compared to 26,101,811 at December 31, 2011).



In November 2012, we renewed our normal
course issuer bid for our Trust Units for a further one-year period. During the twelve-month period commencing November 7, 2012,
and ending November 6, 2013, we may purchase on the Toronto Stock Exchange and/or the New York Stock Exchange up to 1,306,448 Trust
Units, representing approximately 5% of our issued and outstanding Trust Units. No Trust Units were repurchased by the Trust under
our normal course issuer bid for the year ended December 31, 2012.



Trust Units

Each Trust Unit is transferable and represents
an equal, undivided, beneficial interest in BOX and 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.



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.



14





The following tables present distributions
declared to Trust unitholders and non-controlling interest for the year ended December 31, 2012 and December 31, 2011:



|                                    |  | 2012
|----------------------------------- |  | ----
|(Millions, except per unit amounts) |  |     
|Paid in cash or DRIP                |  |     
|Payable as of December 31, 2012     |  |     
|Total                               |  |     
|Per unit                            |  |     



|                                    |  | 2011
|----------------------------------- |  | ----
|(Millions, except per unit amounts) |  |     
|Paid in cash or DRIP                |  |     
|Payable as of December 31, 2011     |  |     
|Total                               |  |     
|Per unit                            |  |     



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 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; and
| | - | ------------------------------------------------------------------------------------



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



| | § | discretionary capital expenditures;
| | - | -----------------------------------



| | § | property acquisitions; and
| | - | --------------------------



| | § | repurchase of our units.
| | - | ------------------------







We believe that our liquidity needs will
be satisfied using cash on hand and cash flows generated from operating and financing activities. Rental revenue, recoveries from
tenants, interest and other income, available cash balances, 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, and capital expenditures. We plan to meet these needs
with one or more of the following:



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



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



Our commercial 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 commercial
property and enhances equity returns.

15







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 consists 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, 2012, we had approximately
$139.3 million of liquidity consisting of $41.0 million of cash on hand, and $98.3 million of undrawn capacity on our 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, 2012, our weighted-average
cost of capital, assuming a long-term 9.0% return on equity, was 7.4%. 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.



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, 2012      | Dec. 31, 2011      
|Liabilities                             |                    |                    
|Commercial property and corporate debt  | 5.2%               | 5.5%               
|Unitholders’ equity                     |                    |                    
|Trust Units(3)                          | 9.0%               | 9.0%               
|Other equity                            |                    |                    
|Non-controlling interest(3)             | 9.0%               | 9.0%               
|Total                                   | 7.4%               | 7.4%               
|                                        |                    |                    

(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, 2012 and December 31, 2011.



16





OPERATING RESULTS

Included on the following pages is a discussion
of the various components of our income statement results followed by a reconciliation of funds from operations and adjusted funds
from operations to comparable IFRS measures.



|(Millions, except per unit amounts)                  |  |  |  |  |  |  |  | 2012 |   | 2011 
|---------------------------------------------------- |  |  |  |  |  |  |  | ---- | - | -----
|Commercial property revenue                          |  |  |  |  |  |  |  |      | $ | 515.1
|Direct commercial property expense                   |  |  |  |  |  |  |  |      |   | 245.9
|Investment and other income                          |  |  |  |  |  |  |  |      |   | 3⁄4    
|Interest expense                                     |  |  |  |  |  |  |  |      |   | 109.3
|General and administrative expense                   |  |  |  |  |  |  |  |      |   | 20.9 
|Transaction costs                                    |  |  |  |  |  |  |  |      |   | 3⁄4    
|Income beforefair value gains                        |  |  |  |  |  |  |  |      |   | 139.0
|Fair value gains                                     |  |  |  |  |  |  |  |      |   | 388.5
|Net income and comprehensive income                  |  |  |  |  |  |  |  |      | $ | 527.5
|Net income and comprehensive income attributable to: |  |  |  |  |  |  |  |      |  
|Unitholders                                          |  |  |  |  |  |  |  |      | $ | 147.7
|Non-controlling interest                             |  |  |  |  |  |  |  |      |   | 379.8
|                                                     |  |  |  |  |  |  |  |      | $ | 527.5
|Net income per Trust unit                            |  |  |  |  |  |  |  |      | $ | 5.66 



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 $515.1 million for the year ended December 31, 2012 (compared
to $445.4 million in 2011). The increase is primarily due to the increase in occupancy at Bay Adelaide Centre West Tower, revenue
generated from the Acquired Assets commencing December 1, 2011 and the continued growth in same property revenues.

The components of revenue are as follows:



|(Millions)                         |  |  |  | 2012 |   | 2011 
|---------------------------------- |  |  |  | ---- | - | -----
|Rental revenue                     |  |  |  |      | $ | 505.8
|Straight-line rental income        |  |  |  |      |   | 8.0  
|Lease termination and other income |  |  |  |      |   | 1.3  
|Commercial property revenue        |  |  |  |      | $ | 515.1



COMMERCIAL PROPERTY NET OPERATING INCOME

Commercial property net operating income
includes commercial property revenue less direct commercial property expense (refer to page 7 for definition) and is a key indicator
of performance as it represents a measure over which management of the commercial property operations has control. Our commercial
property net operating income for the year ended December 31, 2012, was $269.2 million (compared to $234.6 million in 2011). The
increase is primarily due to the increase in occupancy at Bay Adelaide Centre West Tower, net operating income generated from the
Acquired Assets commencing December 1, 2011 and the continued growth in same property net operating income.



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



|(Millions)                         |  |  |  |  |   | 2012  |   | 2011 
|---------------------------------- |  |  |  |  | - | ----- | - | -----
|Commercial property revenue        |  |  |  |  | $ | 515.1 | $ | 445.4
|Direct commercial property expense |  |  |  |  |   | 245.9 |   | 210.8
|Total                              |  |  |  |  | $ | 269.2 | $ | 234.6



17







|(Millions)                                               |  |  |  | 2012 |   | 2011 
|-------------------------------------------------------- |  |  |  | ---- | - | -----
|Commercial property net operating income – same property |  |  |  |      | $ | 240.8
|Investment properties acquired                           |  |  |  |      |   | 27.1 
|Lease termination and other income                       |  |  |  |      |   | 1.3  
|Total                                                    |  |  |  |      | $ | 269.2



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. In 2012, we continued to
reduce our lease expiry profile.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
in the upcoming months, as well as continuing to manage our rollover exposure in the future years.



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, 2012, approximately 48.0% of our leases completed have rent escalation
clauses that will increase rent by an average of $0.73 per square foot on an annual basis over the term of the lease. 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, 2012, we recognized
$8.0 million of straight-line rental revenue (compared to $12.8 million in 2011). The decrease over the prior year is primarily
due to the expiry of free rent periods for the first generation tenants at Bay Adelaide Centre West Tower in Toronto.



Direct commercial property expenses, which
include real estate taxes, utilities, insurance, repairs and maintenance, cleaning, and other property-related expenses, were $245.9
million for the year ended December 31, 2012 (compared to $210.8 million in 2011). The increase is primarily due to expenses generated
from the Acquired Assets commencing December 1, 2011.

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 increased to 96.9% at December 31, 2012,
up 70 basis points from year-end 2011. At December 31, 2012, average in-place net rent throughout the portfolio was $27 per square
foot, compared with an average market net rent of $32 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, 2012:



|                 |                 | 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 | 8,759           | 7.7        | 28               | 31             
|Ottawa, Ontario  | 1,745           | 1.3        | 18               | 21             
|Calgary, Alberta | 5,639           | 11.2       | 28               | 36             
|Vancouver, B.C.  | 589             | 8.3        | 22               | 33             
|Other            | 3               | 3⁄4          | 3⁄4                | 3⁄4              
|Total            | 16,735          | 8.3        | 27               | 32             

(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, 2012 |          | Dec. 31, 2011
|------------------------------------- | -------- | ------------- | -------- | -------------
|                                      | Leasable | %             | Leasable | %            
|(000’s Sq. Ft., except % leased data) | Area     | Leased        | Area     | Leased       
|Toronto, Ontario                      | 8,759    | 94.5          | 8,759    | 93.5         
|Ottawa, Ontario                       | 1,745    | 99.7          | 1,745    | 99.7         
|Calgary, Alberta                      | 5,639    | 99.6          | 5,639    | 99.4         
|Vancouver, B.C.                       | 589      | 97.7          | 589      | 96.5         
|Other                                 | 3        | 100.0         | 3        | 100.0        
|Total                                 | 16,735   | 96.9          | 16,735   | 96.2         



18





During 2012, we leased 1,341,000 square
feet of space, which included 556,000 square feet of new leasing and 785,000 square feet of renewals, compared to expiries of 864,000
square feet and accelerated expiries of 370,000. The average leasing net rent was $33 per square foot, which is an increase of
17.9% over the average expiring net rent of $28 per square foot.



The details of our leasing activity for
the year ended December 31, 2012, are as follows:



|                 | Dec. 31, 2011 | Activities during the year ended Dec. 31, 2012 | Dec. 31, 2012
|---------------- | ------------- | ---------------------------------------------- | -------------
|                 | Total         |                                                |              
|                 | Leasable      |                                                |              
|(000's Sq. Ft.)  | Area          | Leased                                         |              
|Toronto, Ontario | 8,759         | 8,190                                          |              
|Ottawa, Ontario  | 1,745         | 1,740                                          |              
|Calgary, Alberta | 5,639         | 5,604                                          |              
|Vancouver, B.C.  | 589           | 568                                            |              
|Other            | 3             | 3                                              |              
|Total Leasing    | 16,735        | 16,105                                         |              

(1)
Represents net rent in the final year.

(2) Represents
net rent in the first year.

(3) Represents
average net rent over lease term.



Additionally, during the year ended December
31, 2012, tenant improvements and leasing costs related to leasing activity that occurred averaged $10.11 per square foot, compared
to $22.43 per square foot during 2011.



INVESTMENT AND OTHER INCOME

Investment and other income totaled $nil
in 2012 (compared to $1.3 million in 2011). The amounts primarily include interest earned on cash balances and other income.



INTEREST EXPENSE

Interest expense totaled $109.3 million
in 2012 (compared to $91.9 million in 2011). The increase is due to the up-financings at Queen’s Quay Terminal and Fifth
Avenue Place which occurred during the first and third quarters of 2011, respectively, the acquisition of the Canadian Office Fund
portfolio in the fourth quarter of 2011, coupled with additional interest incurred on the revolving corporate credit facility that
was drawn in December 2011 and the fixed-rate permanent financing placed on Bay Adelaide Centre West Tower at the end of 2011.



GENERAL AND ADMINISTRATIVE EXPENSES

General and administrative expenses were
$20.9 million in 2012 (compared to $17.0 million in 2011). The increase is primarily due to an increase in asset management fees
during the year.



TRANSACTION COSTS

Transaction
costs were $nilin 2012 (compared to $0.9 million in 2011).Costs
incurred during 2011 related to consulting and legal services in connection with the Acquisition.



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 GAINS

During the year ended December 31, 2012,
the Trust recognized fair value gains of $388.5 million (compared to $229.3 million in 2011). 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. The increase is primarily due to a change in terminal capitalization
rates and discount rates resulting from improved market conditions and recent market activities in Toronto and Calgary.



19





RECONCILIATION OF NET INCOME TO FUNDS FROM
OPERATIONS

Funds from operations was $1.49 per unit
during the year ended December 31, 2012 (compared to $1.36 per unit in 2011).

|                                                             |  |  |  |  |   |         |   |         |  | 
|------------------------------------------------------------ |  |  |  |  | - | ------- | - | ------- |  | 
|(Millions, except per unit amounts)                          |  |  |  |  |   | 2012    |   | 2011    | 
|Net income                                                   |  |  |  |  | $ | 527.5   | $ | 355.4   | 
|Add (deduct):                                                |  |  |  |  |   |         |   |         | 
|Fair value gains                                             |  |  |  |  |   | (388.5) |   | (229.3) | 
|Transaction costs                                            |  |  |  |  |   | 3⁄4       |   | 0.9     | 
|Funds from operations                                        |  |  |  |  | $ | 139.0   | $ | 127.0   | 
|Funds from operations attributable to unitholders            |  |  |  |  |   | 38.9    |   | 35.6    | 
|Funds from operationsattributable tonon-controlling interest |  |  |  |  |   | 100.1   |   | 91.4    | 
|                                                             |  |  |  |  | $ | 139.0   | $ | 127.0   | 
|Weighted average Trust Units outstanding                     |  |  |  |  |   | 26.1    |   | 26.1    | 
|Funds from operations per Trust unit                         |  |  |  |  | $ | 1.49    | $ | 1.36    | 
|                                                             |  |  |  |  |   |         |   |         |  | 



RECONCILIATION OF FUNDS FROM OPERATIONS
TO ADJUSTED FUNDS FROM OPERATIONS

Adjusted funds from operations totaled
$1.15 per unit during the year ended December 31, 2012 (compared to $1.02 per unit in 2011).

| |                                                                             |  |  |  |  |   |        |   |        | 
| | --------------------------------------------------------------------------- |  |  |  |  | - | ------ | - | ------ | 
| | (Millions, except per unit amounts)                                         |  |  |  |  |   | 2012   |   | 2011   | 
| | Funds from operations
        Deduct:                                       |  |  |  |  | $ | 139.0  | $ | 127.0  | 
| | Straight-line rental income                                                 |  |  |  |  |   | (8.0)  |   | (12.8) | 
| | Normalized second-generation leasing commissions and tenant improvements(1) |  |  |  |  |   | (18.0) |   | (15.2) | 
| | Normalized sustaining capital expenditures(1)                               |  |  |  |  |   | (5.6)  |   | (3.6)  | 
| | Adjusted funds from operations                                              |  |  |  |  | $ | 107.4  | $ | 95.4   | 
| | Adjusted funds from operations attributable to unitholders                  |  |  |  |  |   | 30.1   |   | 26.7   | 
| | Adjusted funds from operations attributable to non-controlling interest     |  |  |  |  |   | 77.3   |   | 68.7   | 
| |                                                                             |  |  |  |  | $ | 107.4  | $ | 95.4   | 
| | Weighted average Trust Units outstanding                                    |  |  |  |  |   | 26.1   |   | 26.1   | 
| | Adjusted funds from operations per Trust unit                               |  |  |  |  | $ | 1.15   | $ | 1.02   | 
| | Trust unit distributions declared                                           |  |  |  |  | $ | 1.11   | $ | 1.08   | 
| | Distribution ratio                                                          |  |  |  |  |   | 97%    |   | 106%   | 
| |                                                                             |  |  |  |  |   |        |   |        | 

(1)
As the components used in calculating adjusted funds from operations vary period to period, a normalized level of activity is estimated
based on historical spend levels as well as anticipated spend levels over the next few years. Sustaining capital expenditures relate
to capital items that are required to maintain the properties in their current operating state and exclude projects that are considered
to add productive capacity.



Adjusted funds from operations is calculated
by adjusting funds from operations for straight-line rental income, normalized second-generation leasing commissions and tenant
improvements, and sustaining capital expenditures for maintaining the infrastructure and current rental revenues of our properties.
There is no standard industry defined measure of adjusted funds from operations; therefore, our methodology of calculating adjusted
funds from operations will differ from other entities and may not be comparable to similar measures presented by other entities.



RECONCILIATION OF CASH FROM OPERATING ACTIVITIES
TO ADJUSTED FUNDS FROM OPERATIONS



|(Millions)                                                               |  |  |  |  |   | 2012   |   | 2011  
|------------------------------------------------------------------------ |  |  |  |  | - | ------ | - | ------
|Cash generated from operating activities
        Add (deduct):           |  |  |  |  | $ | 125.6  | $ | 117.5 
|Working capital and other                                                |  |  |  |  |   | (2.7)  |   | (21.7)
|Leasing commissions and tenant inducements                               |  |  |  |  |   | 10.4   |   | 19.6  
|Amortization of deferred financing costs                                 |  |  |  |  |   | (2.3)  |   | (2.1) 
|Transaction costs                                                        |  |  |  |  |   | 3⁄4      |   | 0.9   
|Normalized second-generation leasing commissions and tenant improvements |  |  |  |  |   | (18.0) |   | (15.2)
|Normalized sustaining capital expenditures                               |  |  |  |  |   | (5.6)  |   | (3.6) 
|Adjusted funds from operations                                           |  |  |  |  | $ | 107.4  | $ | 95.4  

20





QUARTERLY RESULTS



The results by quarter are as follows:



|                                         | 2012 | 2011 
|---------------------------------------- | ---- | -----
|(Millions, except per unit amounts)      | Q4   |      
|Revenue                                  | $    | 137.8
|Commercial property net operating income |      | 68.5 
|Interest expense                         |      | 27.2 
|Funds from operations                    |      | 35.9 
|Adjusted funds from operations           |      | 28.0 
|Net income                               |      | 165.6
|Net income per Trust unit                | $    | 1.78 



In the fourth quarter of 2012, revenues
increased as a result of new leases and renewals at market rents. Net income increased in the fourth quarter of 2012, when compared
with the third quarter due to higher fair value gains on investment properties.





21





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” below) 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 23
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,” on page 15 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 3.8% of our outstanding commercial
property and corporate debt at December 31, 2012 is floating-rate debt (December 31, 2011 – 6.0%) and subject to fluctuations
in interest rates. The effect of a 100-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 $0.8 million on an annual basis or approximately $0.01 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 debts in the year of maturity. The effect of a 100 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 $5.9 million on an annual
basis or approximately $0.06 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 39.5% of the fair market value of our investment properties based on
December 31, 2012 investment property valuations. 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.



22





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 property type so that exposure
to a business sector is lessened. Currently, no single tenant represents more than 13.8% of total leasable area and 6.4% 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 following list shows our top 20 largest
tenants by leasable area in our portfolio and their respective lease commitments:



|   |                                            |                             |                  |                | 000’s Sq. Ft.(2) |     
|-- | ------------------------------------------ | --------------------------- | ---------------- | -------------- | ---------------- | ----
|   | Tenant                                     | Primary Location            | Credit Rating(1) | Year of Expiry | 2013             | 2014
|1  | Government and related agencies            | Toronto, Ottawa, Calgary    | AAA              | Various        | 1,159            | 36  
|2  | Suncor Energy Inc.                         | Calgary                     | BBB+             | 2028           |                  |     
|3  | Bank of Montreal                           | Toronto, Calgary            | A+               | Various        | 51               |     
|4  | Imperial Oil                               | Calgary                     | AAA              | 2016           |                  |     
|5  | Talisman Energy                            | Calgary                     | BBB              | 2025           |                  |     
|6  | Royal Bank                                 | Toronto, Calgary, Vancouver | AA-              | Various        | 71               |     
|7  | Enbridge Inc.                              | Calgary                     | A-               | 2028           |                  |     
|8  | Deloitte LLP                               | Toronto, Calgary            | Not Rated        | Various        |                  |     
|9  | Bennett Jones                              | Toronto, Calgary            | Not Rated        | 2021/2027      |                  |     
|10 | KPMG Management Services LP                | Toronto                     | Not Rated        | 2025           |                  |     
|11 | Canadian Natural Resources                 | Calgary                     | BBB+             | 2026           |                  |     
|12 | CIBC                                       | Toronto, Calgary            | A+               | 2020/2053      |                  |     
|13 | EnCana Corporation                         | Calgary                     | BBB              | 2015           |                  |     
|14 | Osler, Hoskin & Harcourt                   | Toronto                     | Not Rated        | 2015/2030      |                  |     
|15 | McMillan LLP                               | Toronto, Vancouver          | Not Rated        | Various        | 5                |     
|16 | Goodmans LLP                               | Toronto                     | Not Rated        | 2026           |                  |     
|17 | The Bay                                    | Toronto                     | Not Rated        | 2019/2020      |                  |     
|18 | Gowlings Canada Inc.                       | Toronto                     | Not Rated        | 2020           |                  |     
|19 | The Manufacturers Life Insurance           | Toronto                     | AA-              | 2022           |                  |     
|20 | Spectra Energy (formerly Westcoast Energy) | Calgary, Vancouver          | BBB+             | 2020/2022      |                  |     
|   | Total                                      |                             |                  |                | 1,286            | 36  
|   | Total %                                    |                             |                  |                | 12.9%            | 0.4%

(1)From Standard & Poor’s.

(2) Percentage of total leasable
area, 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 6.9% of our leases mature annually up to 2017. 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, 2012:



|                 | Currently |       |      |       |       |      |      |      | 2020     |          |         |       
|---------------- | --------- | ----- | ---- | ----- | ----- | ---- | ---- | ---- | -------- | -------- | ------- | ------
|(000’s Sq. Ft.)  | Available | 2013  | 2014 | 2015  | 2016  | 2017 | 2018 | 2019 | & Beyond | Leasable | Parking | Total 
|Toronto, Ontario | 484       | 405   | 249  | 508   | 793   | 553  | 431  | 596  | 4,740    | 8,759    | 1,790   | 10,549
|Ottawa, Ontario  | 5         | 1,153 | 9    | 546   | 4     | 8    | 3⁄4    | 3⁄4    | 20       | 1,745    | 1,030   | 2,775 
|Calgary, Alberta | 20        | 37    | 52   | 397   | 756   | 65   | 225  | 89   | 3,998    | 5,639    | 897     | 6,536 
|Vancouver, B.C.  | 14        | 100   | 11   | 35    | 77    | 19   | 23   | 35   | 275      | 589      | 264     | 853   
|Other            | 3⁄4         | 1     | 3⁄4    | 3⁄4     | 3⁄4     | 3⁄4    | 3⁄4    | 2    | 3⁄4        | 3        | 3⁄4       | 3     
|Total            | 523       | 1,696 | 321  | 1,486 | 1,630 | 645  | 679  | 722  | 9,033    | 16,735   | 3,981   | 20,716
|% of total       | 3.1%      | 10.1% | 1.9% | 8.9%  | 9.7%  | 3.9% | 4.1% | 4.3% | 54.0%    | 100.0%   | 3⁄4       | 100.0%



23





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.



We are 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 except for British Columbia where the deductible
is 3% of the values for all locations where the physical loss, damage or destruction occurred. 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.



With respect to our commercial properties,
we purchase an insurance policy that covers acts of terrorism for limits up to $1.2 billion.





24





PART IV – CRITICAL ACCOUNTING
POLICIES AND ESTIMATES



Future accounting
policy changes

Financial instruments

IFRS 9, “Financial Instruments”
is a multi-phase project to replace IAS 39, “Financial Instruments: Recognition and Measurement”. IFRS 9 introduces
new requirements for classifying and measuring financial assets. In October 2010, the International Accounting Standards Board
(“IASB”) reissued IFRS 9, incorporating new requirements on accounting for financial liabilities and carrying over
from IAS 39 the requirements for de-recognition of financial assets and financial liabilities. In December 2011, the IASB issued
“Mandatory Effective Date of IFRS 9 and Transition Disclosures”, which amended the effective date of IFRS 9 to annual
periods beginning on or after January 1, 2015, and modified the relief from restating comparative periods and the associated disclosures
in IFRS 7, “Financial Instruments: Disclosures”. Early adoption is permitted. The IASB intends to expand IFRS 9 to
add new requirements for impairment of financial assets measured at amortized cost and hedge accounting. On completion of these
various phases, IFRS 9 will be a complete replacement of IAS 39.



Consolidated Financial Statements

IFRS 10, “Consolidated Financial
Statements” establishes principles for the preparation of financial statements when an entity controls one or more other
entities. The standard defines the principle of control and establishes control as the basis for determining which entities are
consolidated in the financial statements of the reporting entity. The standard also sets out the accounting requirements for the
preparation of consolidated financial statements.



Joint Arrangements

IFRS 11, “Joint Arrangements”
replaces the existing IAS 31, “Interests in Joint Ventures”. The standard requires that an entity consider whether
a joint arrangement is structured through a separate vehicle, as well as the terms of the contractual arrangement and other relevant
facts and circumstances, to assess whether the venture is entitled to only the net assets of the joint arrangement (a “joint
venture”) or to its share of the assets and liabilities of the joint arrangement (a “joint operation”). Joint
ventures are accounted for using the equity method, whereas joint operations are accounted for by recording the Trust’s share
of assets, liabilities, revenue and expenses.



Disclosure of Interests in Other Entities

IFRS 12, “Disclosure of Interests
in Other Entities” applies to entities that have an interest in a subsidiary, a joint arrangement, an associate or an unconsolidated
structured entity. The standard requires the reporting entity to disclose information that enables users of financial statements
to evaluate (i) the nature of, and risks associated with, the reporting entity’s interests in other entities and (ii) the
effects of those interests on the reporting entity’s financial position, financial performance and cash flows.



Fair Value Measurement

IFRS 13, “Fair Value Measurement”
replaces the current guidance on fair value measurement in IFRS with a single standard. The standard defines fair value, provides
guidance on its determination and requires disclosures about fair value measurements but does not change the requirements about
the items that should be measured and disclosed at fair value.



Financial Statement Presentation

The IASB issued amendments to IAS 1, “Presentation
of Financial Statements” which requires items within other comprehensive income (“OCI”) that will be reclassified
to profit and loss to be grouped separately from those that will not.



Each of the above are effective for annual
periods beginning on or after January 1, 2013, except for IFRS 9 which is effective for annual periods beginning on or after January
1, 2015. Earlier application is permitted for each standard. We anticipate adopting each of the above in the first quarter of the
year for which the standard is applicable and is currently evaluating the impact of each to its consolidated financial statements.



25





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. Commercial properties 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 weighted-average term of 11 years, including a terminal value based on the application of a capitalization
rate to estimated year 12 cash flows.



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.



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.



USE OF ESTIMATES

The preparation of our annual 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.



26





RELATED-PARTY TRANSACTIONS

In the normal course of operations, the
Trust enters into various transactions on market terms 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 Properties Management Corporation (“BPMC”), a subsidiary of BPP, 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
BPMC are calculated in accordance with the terms of the agreements. Included in direct commercial property expense during the year
ended December 31, 2012, are amounts paid to BPMC for property management services of $13.8 million (compared to $12.4 million
in 2011). Included in investment properties during the year ended December 31, 2012, are amounts paid to BPMC for leasing and construction
services of $3.1 million (compared to $6.9 million in 2011). Included in general and administrative expenses during the year ended
December 31, 2012, are amounts paid to BPMC for asset management and administrative and regulatory compliance services of $16.2
million (compared to $12.6 million in 2011).



Included in rental revenues during the
year ended December 31, 2012, are amounts received from Brookfield Asset Management Inc., the ultimate parent of BPP, and its affiliates
of $5.9 million (compared to $4.7 million in 2011).

27





PART V – BUSINESS ENVIRONMENT AND
OUTLOOK



OPERATING
ENVIRONMENT AND OUTLOOK

2012
was another successful year for BOX as we successfully integrated our newest properties in Toronto and Ottawa which were acquired
in the prior year and increased our annual distribution to unitholders by 8%. 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 full-year leasing total of 1.3 million square feet and our occupancy
rate finished the year at 96.9%, an increase of 70 basis points from year-end 2011. We also celebrated the completion of the large-scale
three year rejuvenation project at First Canadian Place that transformed the 72-storey, 2.8-million-square-foot building into a
spectacular, energy-conscious centre for business, retail and leisure.



Our
priorities for 2013 include focusing on leasing objectives, as we continue our strategy of being proactive and maintaining an above-market
occupancy rate. Since the beginning of 2013, we have seen an improvement in leasing activity and deal flow in the market. We are
also focused on generating and preserving capital through refinancing and seeking out opportunistic re-financings in advance of
our maturity dates given the continued low interest rate environment. We achieved significant success in this area during 2012
and as a result we have built up our cash reserves. We will continue to look for opportunities to deploy the cash generated from
recent up-financings. Lastly, we strive to complete our sustainability initiatives, as 72% of our properties are LEED Gold-certified.
We are targeting to certify to LEED Gold our Royal Centre property in Vancouver.



We
ended 2012 with $3.0 billion in net assets at a value per unit of $32.57, which represents a 16% increase over the course of the
year. Attributing to this increase was the growth in our funds from operations and the increase in value of our investment properties.



Looking
to the upcoming year, with a strong balance sheet offering financial flexibility, a well-leased portfolio with below-market net
rents, and strong fundamentals in our markets, BOX is well positioned to deliver on its commitment to unitholders in 2013.



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, 2012. Based on that evaluation, the Chief Executive Officer and
Chief Financial Officer concluded that such disclosure controls and procedures as of December 31, 2012, are effective in providing
reasonable assurance that material information relating to the Trust would be made known to us by others within those entities.



Internal
Controls over Financial Reporting

There
was no change in the Trust’s internal control over financial reporting that occurred during 2012 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, 2012, 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 32 of this annual report.









Bryan K. Davis

Chief Financial Officer

March 1, 2013



28





DISTRIBUTIONS

Trust distributions declared for the year
ended December 31, 2012 and December 31, 2011 are as follows:



|(Millions, except per unit amounts) |  |  | 2012 |  | 2011
|----------------------------------- |  |  | ---- |  | ----
|Paid in cash or DRIP                |  |  |      |  | $   
|Payable atDecember 31               |  |  |      |  |     
|Total                               |  |  |      |  |     
|Per unit                            |  |  |      |  | $   

29





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) to enable them to express
to the Board of Trustees and unitholders their opinion on the consolidated financial statements. Their report as independent registered
chartered accountants 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                          | Bryan K. Davis         
|President and Chief Executive Officer | Chief Financial Officer
|March 1, 2013                         |                        



30





Report of Independent Registered Chartered
Accountants



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, 2012 and December 31, 2011, and the consolidated statements of income and comprehensive income,
statements of changes in equity and statements of cash flows for the years then ended, and the notes to the consolidated financial
statements.



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 the Trust as at December 31, 2012 and December 31,
2011 and its financial performance and cash flows for the years then ended in accordance with International Financial Reporting
Standards as issued by the International Accounting Standards Board.



Other Matters

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, 2012, based on the criteria established in Internal Control — Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 1, 2013 expressed an unqualified
opinion on the Trust’s internal control over financial reporting.









Independent Registered Chartered Accountants

Licensed Public Accountants



March 1, 2013

Toronto, Canada



31







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, 2012, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission. Based on this assessment, management concluded that, as at December 31, 2012, 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, 2012 has been audited by Deloitte LLP, Independent
Registered Chartered Accountants, who also audited Brookfield Canada Office Properties’ consolidated financial statements
for the year ended December 31, 2012, and as stated in the Report of Independent Registered Chartered Accountants, Deloitte LLP,
expressed an unqualified opinion on the effectiveness of Brookfield Canada Office Properties' internal control over financial reporting.









|                                      |                        
|------------------------------------- | -----------------------
|                                      |                        
|Jan Sucharda                          | Bryan K. Davis         
|President and Chief Executive Officer | Chief Financial Officer
|March 1, 2013                         |                        







32





Report of Independent Registered Chartered
Accountants



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, 2012, based onthe criteria established in Internal
Control—Integrated Framework 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 generally accepted accounting principles. 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 generally accepted accounting principles,
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, 2012, based on the criteria established
in Internal Control — Integrated Frameworkissued 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, 2012 of the Trust and our report dated March 1,
2013 expressed an unqualified opinion on those financial statements.











Independent Registered Chartered Accountants

Licensed Public Accountants



March 1, 2013

Toronto, Canada



33







Consolidated Balance Sheets



|(Millions) (CDN$)                      | Note | Dec. 31, 2012 | Dec. 31, 2011
|-------------------------------------- | ---- | ------------- | -------------
|Assets                                 |      |               |              
|Non-current assets                     |      |               |              
|Investment properties                  | 4    | $             | 5,090.2      
|                                       |      |               |              
|Current assets                         |      |               |              
|Tenant and other receivables           | 6    |               | 25.4         
|Other assets                           | 7    |               | 7.0          
|Cash and cash equivalents              | 8    |               | 41.0         
|                                       |      |               | 73.4         
|Total assets                           |      | $             | 5,163.6      
|                                       |      |               |              
|Liabilities                            |      |               |              
|Non-current liabilities                |      |               |              
|Commercial property and corporate debt | 9    | $             | 1,396.6      
|                                       |      |               |              
|Current liabilities                    |      |               |              
|Commercial property and corporate debt | 9    |               | 616.4        
|Accounts payable and other liabilities | 10   |               | 115.0        
|                                       |      |               | 731.4        
|Total liabilities                      |      |               | 2,128.0      
|                                       |      |               |              
|Equity                                 | 12   |               |              
|Unitholders’ equity                    |      |               | 838.1        
|Non-controlling interest               |      |               | 2,197.5      
|Total equity                           |      |               | 3,035.6      
|Total liabilities and equity           |      | $             | 5,163.6      



See accompanying notes to the consolidated
financial statements.







On behalf of the Trust,





|                 |                                      
|---------------- | -------------------------------------
|                 |                                      
|Thomas F. Farley | Jan Sucharda                         
|Chairman         | President and Chief Executive Officer







34





Consolidated Statements of Income and
Comprehensive Income



|Years ended December 31                              |      |  |  |   
|---------------------------------------------------- | ---- |  |  | --
|(Millions, except per unit amounts) (CDN$)           | Note |  |  |   
|Commercial property revenue                          |      |  |  | 13
|Direct commercial property expense                   |      |  |  |   
|Investment and other income                          |      |  |  | 13
|Interest expense                                     |      |  |  |   
|General and administrative expense                   |      |  |  | 16
|Transaction costs                                    |      |  |  |   
|Income before fair value gains                       |      |  |  |   
|Fair value gains                                     |      |  |  |   
|Net income and comprehensive income                  |      |  |  |   
|                                                     |      |  |  |   
|Net income and comprehensive income attributable to: |      |  |  |   
|Unitholders                                          |      |  |  |   
|Non-controlling interest                             |      |  |  |   
|                                                     |      |  |  |   
|Net incomeper Trust unit – basic and diluted         |      |  |  |   
|                                                     |      |  |  |   



See accompanying notes to the consolidated
financial statements.









35





Consolidated Statements
of Changes in Equity



|Years ended December 31 (Millions) (CDN$)                             | Note |  |  | 2012 | 2011
|--------------------------------------------------------------------- | ---- |  |  | ---- | ----
|Trust Units                                                           |      |  |  |      |     
|Balance at beginning of year                                          |      |  |  |      |     
|Issuance of Trust Units under Distribution Reinvestment Plan (“DRIP”) | 11   |  |  |      |     
|Balance at end of year                                                |      |  |  |      |     
|Contributed surplus                                                   |      |  |  |      |     
|Balance at beginning of year                                          |      |  |  |      |     
|Acquisition of investment properties                                  |      |  |  |      |     
|Balance at end of year                                                |      |  |  |      |     
|Retained earnings                                                     |      |  |  |      |     
|Balance at beginning of year                                          |      |  |  |      |     
|Net income                                                            |      |  |  |      |     
|Distributions                                                         | 11   |  |  |      |     
|Balance at end of year                                                |      |  |  |      |     
|Total unitholders’ equity                                             |      |  |  |      |     
|                                                                      |      |  |  |      |     
|Non-controlling interest                                              |      |  |  |      |     
|Balance at beginning of year                                          |      |  |  |      |     
|Net income                                                            |      |  |  |      |     
|Distributions                                                         | 11   |  |  |      |     
|Acquisition of investment properties                                  |      |  |  |      |     
|Balance at end of year                                                |      |  |  |      |     
|Total equity                                                          |      |  |  |      |     



See accompanying notes to the consolidated
financial statements.



36





Consolidated Statements of Cash Flows



|Years ended December 31 (Millions) (CDN$)             | Note |  |  | 2012 | 2011
|----------------------------------------------------- | ---- |  |  | ---- | ----
|Operating activities                                  |      |  |  |      |     
|Net income                                            |      |  |  |      |     
|Add (deduct):                                         |      |  |  |      |     
|Straight-line rental income                           |      |  |  |      |     
|Amortization of deferred financing costs              |      |  |  |      |     
|Leasing commissions and tenant inducements            |      |  |  |      |     
|Fair value gains                                      |      |  |  |      |     
|Other working capital                                 |      |  |  |      |     
|Cash flows provided by operating activities           |      |  |  |      |     
|                                                      |      |  |  |      |     
|Investing activities                                  |      |  |  |      |     
|Capital expenditures                                  |      |  |  |      |     
|Acquisition of investment properties                  |      |  |  |      |     
|Cash flows used in investing activities               |      |  |  |      |     
|                                                      |      |  |  |      |     
|Financing activities                                  |      |  |  |      |     
|Commercial property debt arranged                     |      |  |  |      |     
|Commercial property debt repayments                   |      |  |  |      |     
|Commercial property debt amortization                 |      |  |  |      |     
|Corporate debt arranged                               |      |  |  |      |     
|Corporate debt repayments                             |      |  |  |      |     
|Trust unit distributions paid                         |      |  |  |      |     
|Class B LP unit distributions paid                    |      |  |  |      |     
|Cash flows (used in) provided by financing activities |      |  |  |      |     
|Increase in cash and cash equivalents                 |      |  |  |      |     
|Cash and cash equivalents, beginning of year          |      |  |  |      |     
|Cash and cash equivalents, end of year                | 8,18 |  |  |      |     
|                                                      |      |  |  |      |     



See accompanying notes to the consolidated
financial statements.







37





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 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 BPO Properties
Ltd. (“BPP”), which owns an aggregate equity interest in the Trust of 83.3% as of December 31, 2012 consisting of 40.5%
of the issued and outstanding units of BOX (“Trust Units”) and 100% 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. BOX primarily invests in and operates commercial office properties
in Toronto, Ottawa, Calgary, and Vancouver. The registered and operating office of the Trust is Brookfield Place, 181 Bay Street,
Suite 330, Toronto, Ontario, M5J 2T3.



The Trust was formed in connection with
the reorganization of BPP 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 the interests of Brookfield Office Properties Inc. (“BPO” or “Brookfield
Office Properties”) in Brookfield Place, which includes Bay Wellington Tower and partial interests in the retail concourse
and parking operations.



Pursuant to the Arrangement, holders of
BPP’s common shares, other than BPO, received one Trust Unit for each common share held.



On December 1, 2011, the Trust acquired
from its parent company, BPP, a 25% interest in nine office assets from BPP’s Canadian Office Fund portfolio totaling 6.5
million square feet in Toronto and Ottawa (the “Acquired Assets” or the “Acquisition”).



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 are 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. Standards and guidelines not effective for the current accounting
period are described in Note 3.



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

The consolidated financial statements include
the accounts of the Trust and its consolidated subsidiaries consisting of BOPC GP Inc. and BOPC LP, which are the entities over
which the Trust has control. Control exists when the Trust has the power, directly or indirectly, to govern the financial and operating
policies of an entity so as to obtain benefit from its activities. 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. Non-controlling interests in
the equity and results of the Trust are shown separately in equity on the consolidated balance sheets.



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

A joint venture is a contractual arrangement
pursuant to which the Trust and other parties undertake an economic activity that is subject to joint control whereby the strategic
financial and operating policy decisions relating to the activities of the joint venture require the unanimous consent of the parties
sharing control.



The Trust undertakes its activities under
joint venture arrangements through direct interests in the joint venture’s assets, rather than through the establishment
of a separate entity. Accordingly, the Trust’s proportionate share of jointly controlled assets, liabilities, revenues and
expenses are recognized in the consolidated financial statements and classified according to their nature.





38











| | (e) | Investment properties
| | --- | ---------------------

Investment properties
include commercial properties held to earn rental income. Commercial properties are recorded at fair value, determined based on
available market evidence, as at the consolidated balance sheet date. Related fair value gains and losses are recorded in net income
in the period in which they arise.



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



| | (f) | 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 carried at the lesser of carrying amount and fair value
less costs to sell. The profit or loss arising on re-classification or sale of a disposal group is recognized as discontinued operations.



| | (g) | 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.



| | (h) | 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.



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.



| | (i) | 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.



39





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
|Commercial property and corporate debt |  | Other liabilities     | Amortized cost
|Accounts payable and other liabilities |  | Other liabilities     | Amortized cost



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

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



| | (k) | 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.



| | (l) | Income taxes
| | --- | ------------

The Trust is a “mutual fund trust”
pursuant to the Income Tax Act (Canada). The Trust intends to distribute or designates 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.



| | (m) | 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(h). 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 lessor, 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(e). In applying this policy, judgment is applied in determining
whether certain costs are additions to the carrying amount of the property. Judgment is also applied in determining the extent
and frequency of independent appraisals.



(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) 	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.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



40







| | (n) | 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 the following:



| | (i) | Investment property
| | --- | -------------------

The critical estimates and assumptions
underlying the valuation of investment properties are set out in Note 4.



NOTE 3: Future
accounting policy changes

| | (a) | Financial instruments
| | --- | ---------------------

IFRS 9, “Financial Instruments”
is a multi-phase project to replace IAS 39, “Financial Instruments: Recognition and Measurement”. IFRS 9 introduces
new requirements for classifying and measuring financial assets. In October 2010, the International Accounting Standards Board
(“IASB”) reissued IFRS 9, incorporating new requirements on accounting for financial liabilities and carrying over
from IAS 39 the requirements for de-recognition of financial assets and financial liabilities. In December 2011, the IASB issued
“Mandatory Effective Date of IFRS 9 and Transition Disclosures”, which amended the effective date of IFRS 9 to annual
periods beginning on or after January 1, 2015, and modified the relief from restating comparative periods and the associated disclosures
in IFRS 7, “Financial Instruments: Disclosures”. Early adoption is permitted. The IASB intends to expand IFRS 9 to
add new requirements for impairment of financial assets measured at amortized cost and hedge accounting. On completion of these
various phases, IFRS 9 will be a complete replacement of IAS 39.



| | (b) | Consolidated Financial Statements
| | --- | ---------------------------------

IFRS 10, “Consolidated Financial
Statements” establishes principles for the preparation of financial statements when an entity controls one or more other
entities. The standard defines the principle of control and establishes control as the basis for determining which entities are
consolidated in the financial statements of the reporting entity. The standard also sets out the accounting requirements for the
preparation of consolidated financial statements.



| | (c) | Joint Arrangements
| | --- | ------------------

IFRS 11, “Joint Arrangements”
replaces the existing IAS 31, “Interests in Joint Ventures”. The standard requires that an entity consider whether
a joint arrangement is structured through a separate vehicle, as well as the terms of the contractual arrangement and other relevant
facts and circumstances, to assess whether the venture is entitled to only the net assets of the joint arrangement (a “joint
venture”) or to its share of the assets and liabilities of the joint arrangement (a “joint operation”). Joint
ventures are accounted for using the equity method, whereas joint operations are accounted for by recording the Trust’s share
of assets, liabilities, revenue and expenses.



| | (d) | Disclosure of Interests in Other Entities
| | --- | -----------------------------------------

IFRS 12, “Disclosure of Interests
in Other Entities” applies to entities that have an interest in a subsidiary, a joint arrangement, an associate or an unconsolidated
structured entity. The standard requires the reporting entity to disclose information that enables users of financial statements
to evaluate (i) the nature of, and risks associated with, the reporting entity’s interests in other entities and (ii) the
effects of those interests on the reporting entity’s financial position, financial performance and cash flows.



| | (e) | Fair Value Measurement
| | --- | ----------------------

IFRS 13, “Fair Value Measurement”
replaces the current guidance on fair value measurement in IFRS with a single standard. The standard defines fair value, provides
guidance on its determination and requires disclosures about fair value measurements but does not change the requirements about
the items that should be measured and disclosed at fair value.



| | (f) | Financial Statement Presentation
| | --- | --------------------------------

The
IASB issued amendments to IAS 1, “Presentation of Financial Statements” which requires items within other comprehensive
income (“OCI”) that will be reclassified to profit and loss to be grouped separately from those that will not.



Each
of the above are effective for annual periods beginning on or after January 1, 2013, except for IFRS 9 which is effective for annual
periods beginning on or after January 1, 2015. Earlier application is permitted for each standard. The Trust anticipates adopting
each of the above in the first quarter of the year for which the standard is applicable and is currently evaluating the impact
of each to its consolidated financial statements.



41





NOTE 4: Investment
properties



|(Millions)                                   |  | Dec. 31, 2012 | Dec. 31, 2011
|-------------------------------------------- |  | ------------- | -------------
|Balance at beginning of year                 |  |               | $ 4,637.9    
|Additions:                                   |  |               |              
|Investment property acquisitions             |  |               | 3⁄4            
|Capital expenditures and tenant improvements |  |               | 47.8         
|Leasing commissions                          |  |               | 5.8          
|Tenant inducements                           |  |               | 2.2          
|Fair value gains                             |  |               | 388.5        
|Other changes                                |  |               | 8.0          
|Balance at end of year                       |  |               | $ 5,090.2    



Other changes represent net straight-line
rent recognized in accordance with IAS 17, “Leases” that is implied within the fair value of investment properties.



The Trust determined 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 applicable balance sheet dates, less future cash outflows with respect to
such leases. Fair values were primarily determined by discounting the expected future cash flows, generally over a weighted-average
term of 11 years, including a terminal value based on the application of a capitalization rate to estimated year 12 cash flows.
In accordance with its policy, the Trust measures its investment properties using valuations prepared by management. The Trust
does not measure its investment properties based on valuations prepared by external valuation professionals.



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



|               | December 31, 2012 | December 31, 2011
|-------------- | ----------------- | -----------------
|               |                   |                  
|Eastern region |                   |                  
|Western region |                   |                  
|Average        |                   |                  



Values are most sensitive to changes in
discount rates and timing or variability of cash flows.



Included in investment properties is $94.4
million (compared to $102.4 million at December 31, 2011) of net straight-line rent receivables arising from the recognition of
rental revenue on a straight-line basis over the lease term in accordance with IAS 17, “Leases.”



Investment properties with a fair value
of approximately $924.4 million (compared to $825.2 million at December 31, 2011) are situated on land held under leases or other
agreements largely expiring after the year 2023. Investment properties do not include any properties held under operating leases.



Investment properties with a fair value
of $4,681.0 million (compared to $4,253.9 million at December 31, 2011) are pledged as security for commercial property and corporate
debt.



42





NOTE 5: INVESTMENT
IN JOINTLY CONTROLLED ASSETS

The Trust’s interests in the following
properties are subject to joint control and, accordingly, the Trust has recorded its share of the related assets, liabilities,
revenue, and expenses of the properties:



|                          | Proportionate Ownership Interest
|------------------------- | --------------------------------
|Jointly controlled assets |                                 
|Exchange Tower            |                                 
|Fifth Avenue Place        |                                 
|Bankers Hall              |                                 
|Bankers Court             |                                 
|Suncor Energy Centre      |                                 
|Brookfield Place Retail   |                                 
|Brookfield Place Parking  |                                 
|First Canadian Place (1)  |                                 
|2 Queen St. E. (1)        |                                 
|151 Yonge St. (1)         |                                 
|Place de Ville I (1)      |                                 
|Place de Ville II (1)     |                                 
|Jean Edmonds Towers (1)   |                                 

(1)On
December 1, 2011, the Trust acquired a 25% interest in nine office assets from BPP’s Canadian Office Fund portfolio (the
“Acquired Assets”).



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.



Summarized financial information in respect
of the Trust’s interest in jointly controlled assets is set out below:



|(Millions)              |  | Dec. 31, 2012 | Dec. 31, 2011
|----------------------- |  | ------------- | -------------
|Non-current assets      |  | $ 2,399.8     | $ 2,159.6    
|Current assets          |  | 33.9          | 34.5         
|Total assets            |  | 2,433.7       | 2,194.1      
|                        |  |               |              
|Non-current liabilities |  | 619.3         | 663.5        
|Current liabilities     |  | 210.3         | 124.3        
|Total liabilities       |  | 829.6         | 787.8        
|Net assets              |  | $ 1,604.1     | $ 1,406.3    





|(Millions)       |  | 2012    | 2011   
|---------------- |  | ------- | -------
|Revenue          |  | $ 246.8 | $ 186.0
|Expenses         |  | 145.5   | 112.4  
|                 |  | 101.3   | 73.6   
|Fair value gains |  | 207.1   | 48.5   
|Net income       |  | $ 308.4 | $ 122.1



In the period from the acquisition date
to December 31, 2011, the Trust recorded rental revenues and net income in connection with the Acquired Assets of $5.9 million
and $2.8 million, respectively. If the acquisition had been as of January 1, 2011, the rental revenues and net income of the Trust
would have been $60.8 million and $7.9 million, respectively, for the year ended December 31, 2011. These amounts do not include
certain ground rent expenditures, which are expected to be incurred commencing in 2014. In connection with this acquisition, the
Trust recognized acquisition-related costs of $0.9 million, which was recorded through transaction costs.



NOTE 6: TENANT AND OTHER RECEIVABLES

As of December 31, 2012, the Trust recorded
$0.2 million as a reserve against uncollectible tenant receivables, which is consistent with the amount at December 31, 2011.



As of December 31, 2012, $0.2 million of
the Trust’s balance of accounts receivables is over 90 days past due (compared to $0.8 million at December 31, 2011).



43





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 property type so that exposure to a business sector is lessened. Currently no one tenant represents more than
6.4% of commercial property revenue. This risk is further managed by signing long-term leases with tenants who have investment
grade credit ratings.



NOTE 7: OTHER ASSETS



|(Millions)                        |   | Dec. 31, 2012 | Dec. 31, 2011
|--------------------------------- | - | ------------- | -------------
|Prepaid expenses and other assets | $ | 6.2           | $            
|Restricted cash                   |   | 0.8           |              
|Total                             | $ | 7.0           | $            
|                                  |   |               |              



NOTE 8: CASH AND CASH EQUIVALENTS

At December 31, 2012, the Trust had $nil
of cash placed in term deposits, which is consistent with the amount at December 31, 2011. For the year ended December 31, 2012,
interest income of $nil was recorded on cash and cash equivalents, compared with $0.6 million in 2011.



Note9: Commercial property and corporate debt



|                                                       | Dec. 31, 2012 | Dec. 31, 2011
|------------------------------------------------------ | ------------- | -------------
|                                                       | Weighted      |              
|(Millions)                                             | Average Rate  | Debt Balance 
|Commercial property debt – fixed rate                  | 5.3%          | $ 1,935.7    
|Commercial property and corporate debt – floating rate | 3.2%          | 77.3         
|Total commercial property and corporate debt           | 5.2%          | $ 2,013.0    
|                                                       |               |              
|Current                                                |               | $ 616.4      
|Non-current                                            |               | 1,396.6      
|Totaldebt                                              |               | $ 2,013.0    
|                                                       |               |              



The Trust’s secured commercial property
and corporate debt is non-recourse to the Trust with the exception of $103.9 million (compared to $106.1 million at December 31,
2011) which has limited recourse to the Trust’s parent, BPP and $67.7 million (compared to $119.7 million at December 31,
2011) which has recourse to the Trust.



Commercial 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 | Maturities | Total   | Dec. 31, 2012       
|2013                | $                                | 32.3         | $          | 584.1   | $                   
|2014                |                                  | 26.3         |            | 345.6   |                     
|2015                |                                  | 21.4         |            | 137.8   |                     
|2016                |                                  | 20.3         |            | 3⁄4       |                     
|2017                |                                  | 21.3         |            | 28.6    |                     
|2018 and thereafter |                                  | 94.6         |            | 700.7   |                     
|Total               | $                                | 216.2        | $          | 1,796.8 | $                   
|                    |                                  |              |            |         |                     



For the year ended December 31, 2012, interest
of $109.3 million (compared to $91.9 million in 2011) was recorded on commercial property and corporate debt.



Approximately 3.8% of the Trust’s
outstanding commercial property and corporate debt at December 31, 2012, is floating rate debt (compared to 6.0% at December 31,
2011). The effect of a 100 basis-point increase in interest rates on interest expense relating to floating rate debt, all else
being equal, is an increase in interest expense of $0.8 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 debts in the year of maturity. The effect
of a 100 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 $5.9 million on an annual basis.



44





The fair value of commercial 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, 2012, the fair value of commercial property and
corporate debt exceeds the principal loan value of these obligations by $71.3 million (compared to an excess of $72.5 million at
December 31, 2011).



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. The Trust has debt totaling $584.1 million maturing in 2013, representing 29.0% of the Trust’s total debt outstanding
at December 31, 2012, of which $20.6 million, $410.1 million, $nil and $153.4 million matures in the first, second, third and fourth
quarter of 2013, respectively. Refer to Note 19 for details relating to the early re-financing of Bay Wellington Tower that was
completed subsequent to December 31, 2012.



During the first quarter of 2012 the Trust
increased its revolving corporate credit facility by $75.0 million to $200.0 million with the same five Canadian chartered banks.
No changes were made to the terms of the original facility. As of December 31, 2012, $68.0 million was drawn on the revolving corporate
credit facility (compared to $120.0 million at December 31, 2011).



The details of the financing transactions
completed in 2012 are as follows:



|(Millions)     |    |             | New Proceeds | Net Proceeds
        Generated(1) | Interest
        Rate (%) | Mortgage
        Detail | Maturity             
|-------------- | -- | ----------- | ------------ | --------------------------------- | ------------------------- | ----------------------- | ---------------------
|Exchange Tower | Q2 | Refinancing | $            | 120.0                             | $                         | 64.3                    | 4.031%               
|Royal Centre   | Q2 | Refinancing |              | 150.0                             |                           | 39.0                    | 3.325%               
|151 Yonge St.  | Q3 | Extension   |              | 3⁄4                                 |                           | 3⁄4                       | BA + 170 basis points
|HSBC Building  | Q4 | Refinancing |              | 44.5                              |                           | 24.7                    | 4.056%               

(1)Excludes
financing costs.



NOTE 10: ACCOUNTS PAYABLE AND OTHER LIABILITIES

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



|(Millions)                               | Dec. 31, 2012 | Dec. 31, 2011
|---------------------------------------- | ------------- | -------------
|Accounts payable and accrued liabilities | $             | 102.3        
|Accrued interest                         |               | 12.7         
|Total                                    | $             | 115.0        



NOTE 11: DISTRIBUTIONS

The following tables present distributions
declared for the year ended December 31, 2012 and December 31, 2011:



|                                    |  |  |  | 2012       
|----------------------------------- |  |  |  | -----------
|(Millions, except per unit amounts) |  |  |  | Trust Units
|Paid in cash or DRIP                |  |  |  |            
|Payable as of December 31, 2012     |  |  |  |            
|Total                               |  |  |  |            
|Per unit                            |  |  |  |            



|                                    |  | 2011
|----------------------------------- |  | ----
|(Millions, except per unit amounts) |  |     
|Paid in cash or DRIP                |  |     
|Payable as of December 31, 2011     |  |     
|Total                               |  |     
|Per unit                            |  |     



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,
2012, $610,349 (dollars) or 22,322 Trust Units were paid through the DRIP, compared to $332,231 (dollars), or 14,957 Trust Units
in 2011.





45







NOTE 12: EQUITY

The components of equity are as follows:



|(Millions)               | Dec. 31, 2012 | Dec. 31, 2011
|------------------------ | ------------- | -------------
|Trust Units              | $             | 551.1        
|Contributed surplus      |               | 3.1          
|Retained earnings        |               | 283.9        
|Unitholders’ equity      |               | 838.1        
|Non-controlling interest |               | 2,197.5      
|Total                    | $             | 3,035.6      



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, 2012, the Trust had a total of 26,132,882 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, 2012 and December 31, 2011:



|                                                  |  | 2012
|------------------------------------------------- |  | ----
|                                                  |  |     
|Units issued and outstanding at beginning of year |  |     
|Units issued pursuant to DRIP                     |  |     
|Total units outstanding at December 31, 2012      |  |     



|                                                  |  | 2011
|------------------------------------------------- |  | ----
|                                                  |  |     
|Units issued and outstanding at beginning of year |  |     
|Units issued pursuant to DRIP                     |  |     
|Total units outstanding at December 31, 2011      |  |     



At December 31, 2012, the weighted average
number of Trust Units outstanding was 26,121,860 (compared to 26,101,811 at December 31, 2011).



In November 2012, 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
7, 2012, and ending November 6, 2013, the Trust may purchase on the Toronto Stock Exchange and/or the New York Stock Exchange up
to 1,306,448 Trust Units, representing approximately 5% of its issued and outstanding Trust Units. No Trust Units were repurchased
by the Trust under its normal course issuer bid for the year ended December 31, 2012.



Trust Units

Each Trust Unit is transferable and represents
an equal, undivided, beneficial interest in BOX and 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. 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.







46





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.



NOTE 13: REVENUE AND
Expenses

(a) Commercial property revenue

The components of revenue are as follows:



|(Millions)                         |  |  |  | 2012 |   | 2011 
|---------------------------------- |  |  |  | ---- | - | -----
|Rental revenue                     |  |  |  |      | $ | 505.8
|Straight-line rental income        |  |  |  |      |   | 8.0  
|Lease termination and other income |  |  |  |      |   | 1.3  
|Commercial property revenue        |  |  |  |      | $ | 515.1



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)                                    |   | 2012    |   | 2011   
|--------------------------------------------- | - | ------- | - | -------
|Not later than 1 year                         | $ | 246.1   | $ | 234.4  
|Later than 1 year and not longer than 5 years |   | 862.6   |   | 754.5  
|Later than 5 years                            |   | 1,136.9 |   | 1,012.7
|                                              | $ | 2,245.6 | $ | 2,001.6



(b) Expenses

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



|(Millions)                      |  |  |  |  | 2012 | 2011 
|------------------------------- |  |  |  |  | ---- | -----
|Employee benefits               |  |  |  |  | $    | 18.4 
|Interest expense                |  |  |  |  |      | 109.3
|Property maintenance            |  |  |  |  |      | 114.1
|Real estate taxes               |  |  |  |  |      | 107.5
|Ground rents                    |  |  |  |  |      | 7.2  
|Asset management fees and other |  |  |  |  |      | 19.6 
|Total expenses                  |  |  |  |  | $    | 376.1



Operating expenses include ground rent
expenses for the year ended December 31, 2012, of $7.2 million (compared to $4.0 million in 2011) 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 11 and 102 years. The Trust does not have an option to purchase the leased land at the expiry of the lease periods.



Future minimum lease payments under these
arrangements are as follows:



|(Millions)                                    |   | 2012  |   | 2011 
|--------------------------------------------- | - | ----- | - | -----
|Not later than 1 year                         | $ | 7.0   | $ | 7.5  
|Later than 1 year and not longer than 5 years |   | 28.0  |   | 30.2 
|Later than 5 years                            |   | 464.7 |   | 512.5
|                                              | $ | 499.7 | $ | 550.2



(c) Investment and other income

Investment and other income was $nil for
the year ended December 31, 2012 (compared to $1.3 million in 2011). The amounts primarily include interest earned on cash balances
and other income.



47





NOTE 14: 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) The Trust and its operating subsidiaries
are contingently liable with respect to litigation and claims that arise from time to time in the normal course of business or
otherwise. A specific litigation is being pursued against one of the Trust’s subsidiaries related to security on a defaulted
loan. At this time, the amount of contingent cash outflow related to the litigation and claims currently being pursued against
the Trust is uncertain but could be up to $65.0 million ($63.0 million Australian dollars) in the event the Trust is completely
unsuccessful in defending the claims. During the year ended December 31, 2012, the amount of the contingent cash outflow increased
by $19.6 million ($19.0 million Australian dollars) due to a change in the methodology of determining the amount of the claim that
was adopted by the Courts.



(c) The Trust has currently guaranteed
up to $200.0 million related to its revolving corporate credit facility. As of December 31, 2012 the Trust has issued letters of
credit of $33.7 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
except for British Columbia where the deductible is 3% of the values for all locations where the physical loss, damage or destruction
occurred. 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.



With respect to its commercial properties,
the Trust purchases an insurance policy that covers acts of terrorism for limits up to $1.2 billion.



NOTE 15: SEGMENTED INFORMATION

The Trust has only one business segment:
the ownership and operation of investment properties in Canada.



NOTE 16: RELATED-PARTY TRANSACTIONS

In the normal course of operations, the
Trust enters into various transactions on market terms 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 Properties Management Corporation (“BPMC”), a subsidiary of BPP, 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
BPMC are calculated in accordance with the terms of the agreements. Included in direct commercial property expense during the year
ended December 31, 2012, are amounts paid to BPMC for property management services of $13.8 million (compared to $12.4 million
in 2011). Included in investment properties during the year ended December 31, 2012, are amounts paid to BPMC for leasing and construction
services of $3.1 million (compared to $6.9 million in 2011). Included in general and administrative expenses during the year ended
December 31, 2012, are amounts paid to BPMC for asset management and administrative and regulatory compliance services of $16.2
million (compared to $12.6 million in 2011).



Included in rental revenues during the
year ended December 31, 2012, are amounts received from Brookfield Asset Management Inc., the ultimate parent of BPP, and its affiliates
of $5.9 million (compared to $4.7 million in 2011).



Compensation of Independent Trustees

The remuneration of independent trustees
during the year ended December 31, 2012 and 2011 was as follows:



|(Millions)        |   | 2012 |   | 2011
|----------------- | - | ---- | - | ----
|Cash compensation | $ | 0.2  | $ | 0.2 
|Unit-based awards |   | 0.2  |   | 0.2 
|                  | $ | 0.4  | $ | 0.4 



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.



48





NOTE 17: 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, 2012, the weighted-average cost of capital,
assuming a long-term 9.0% return on equity, was 7.4%, which is consistent with December 31, 2011.



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, 2012      | Dec. 31, 2011      
|Liabilities                             |                    |                    
|Commercial property and corporate debt  | 5.2%               | 5.5%               
|Unitholders’ equity                     |                    |                    
|Trust Units(3)                          | 9.0%               | 9.0%               
|Other equity                            |                    |                    
|Non-controlling interest(3)             | 9.0%               | 9.0%               
|Total                                   | 7.4%               | 7.4%               
|                                        |                    |                    

(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, 2012 and December 31, 2011.



Commercial property and corporate debt

The Trust’s commercial 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, 2012, 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, and capital expenditures. The Trust’s strategy
is to meet these needs with one or more of the following:



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



| | • | refinancing opportunities.
| | - | --------------------------



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, 2012, the
average term to maturity of the Trust’s commercial property and corporate debt portfolio was five 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 commercial 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                  | 1 year 
|Commercial property and corporate debt(1) |       | $                      | 2,414.4
|Accounts payable and other liabilities    | 115.0 |                        | 115.0  
|                                          |       |                        |        

(1) Includes repayment of principal
and interest.



49





NOTE 18: OTHER INFORMATION

Supplemental cash flow information:



|(Millions)         |  |  | 2012 | 2011
|------------------ |  |  | ---- | ----
|Cash interest paid |  |  |      |     
|                   |  |  |      |     



NOTE 19: SUBSEQUENT EVENT

Subsequent to year end, on January 9, 2013,
the Trust completed the early re-financing of Bay Wellington Tower for $525.0 million. The new financing has a 7-year term with
a fixed interest rate of 3.244% per annum. After repayment of the previous mortgage, the Trust generated net proceeds of $213.0
million. No break costs were incurred on the early re-financing.



On February 1, 2013, the Trust repaid the
debt at 105 Adelaide St. West in Toronto for $20.7 million.



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 28, 2013.



50





Unitholder Information



DISTRIBUTION PAYMENT DATES



|             |  |  | 2013        | 2012             | 2011       
|------------ |  |  | ----------- | ---------------- | -----------
|(Dollars)    |  |  | Trust Units | Class B LP Units | Trust Units
|January 15   |  |  | $ 0.0975    | $ 0.0975         | $ 0.09     
|February 15  |  |  | 0.0975      | 0.0975           | 0.09       
|March 15     |  |  | 0.0975      | 0.0975           | 0.09       
|April 15     |  |  |             |                  | 0.09       
|May 15       |  |  |             |                  | 0.09       
|June 15      |  |  |             |                  | 0.09       
|July 15      |  |  |             |                  | 0.09       
|August 15    |  |  |             |                  | 0.09       
|September 15 |  |  |             |                  | 0.09       
|October 15   |  |  |             |                  | 0.0975     
|November 15  |  |  |             |                  | 0.0975     
|December 15  |  |  |             |                  | 0.0975     



51





Selected Financial
and Operational Information



|December 31 (Millions, except per-unit and operating information) |  | 2012       | 2011       | 2010      
|----------------------------------------------------------------- |  | ---------- | ---------- | ----------
|Financial results                                                 |  |            |            |           
|Commercial property net operating income                          |  | $ 269.2    | $ 234.6    | $ 219.5   
|Funds from operations                                             |  | 139.0      | 127.0      | 119.2     
|Adjusted funds from operations                                    |  | 107.4      | 95.4       | 82.3      
|Distributions                                                     |  | 103.4      | 100.7      | 59.6      
|Net income                                                        |  | 527.5      | 355.4      | 329.0     
|Total assets                                                      |  | 5,163.6    | 4,698.1    | 4,007.2   
|Unitholders’ equity                                               |  | 838.1      | 718.8      | 644.1     
|                                                                  |  |            |            |           
|Per Trust unit                                                    |  |            |            |           
|Trust Units outstanding                                           |  | 26,132,882 | 26,110,560 | 26,095,603
|Class B LP Units outstanding                                      |  | 67,088,022 | 67,088,022 | 67,088,022
|Funds from operations                                             |  | 1.49       | 1.36       | 1.28      
|Adjusted funds from operations                                    |  | 1.15       | 1.02       | 0.88      
|Distributions                                                     |  | 1.11       | 1.08       | 0.64      
|Unitholders value                                                 |  | 32.57      | 28.01      | 25.16     
|                                                                  |  |            |            |           
|Operating data                                                    |  |            |            |           
|Number of commercial properties                                   |  | 28         | 28         | 19        
|Total area (000’s of sq. ft.)                                     |  | 20,716     | 20,716     | 14,402    
|Owned interest (000’s of sq. ft.)                                 |  | 11,685     | 11,685     | 10,226    
|Average occupancy (%)                                             |  | 96.9       | 96.2       | 97.1      





52







|Board of Trustees
        
        Thomas F. Farley
        Chairman of the Board
        President and Global Chief Operating Officer
        Brookfield Office Properties Inc.
        
        T. Jan Sucharda
        President and Chief Executive Officer
        Brookfield Canada Office Properties
        
        Dennis H. Friedrich
        Chief Executive Officer
        Brookfield Office Properties Inc.
        
        Paul D. McFarlane
        Corporate Director
        
        Colum Bastable
        Chairman, Cushman & Wakefield Ltd.
        
        Michael F.B. Nesbitt
        President, Montrose Mortgage Co. Ltd.
        
        Roderick D. Fraser, Ph.D., O.C.
        Officer, Order of Canada | Officers
        
        T. Jan Sucharda
        President and Chief Executive Officer
        
        Bryan K. Davis
        Chief Financial Officer
        
        Stefan Dembinski
        Senior Vice President, Asset Management, Eastern
        
        Ian Parker
        Senior Vice President, Asset Management, Western
        
        Deborah R. Rogers
        Senior Vice President, Legal Counsel, Secretary
        
        Ryk Stryland
        Senior Vice President, Development
        
        T. Nga Trinh
        Senior Vice President, Investments
        
        D. Cameron Black
        Vice President, Legal Counsel, Western
        
        Melissa Coley
        Vice President, Investor Relations and Communications
        
        Elliott S. Feintuch
        Vice President, Legal Counsel, Eastern
        
        Michael Yam
        Vice President & Controller
        
        Brett M. Fox
        Assistant Secretary
        
        Michelle L. Campbell
        Assistant Secretary
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



53









BROOKFIELD CANADA OFFICE PROPERTIES CORPORATE
INFORMATION





HEAD OFFICE



181 Bay Street, Suite 330

Toronto, Ontario M5J 2T3

Tel: 416.359.8555

Fax: 416.359.8596

www.brookfieldcanadareit.com



TRANSFER AGENT



CIBC Mellon Trust Company

P.O. Box 700Station B

Montreal, Quebec H3B 3K3

Tel: 416.682.3860 / 800.387.0825

Fax: 888.249.6189

Website: www.canstockta.com

E-mail: inquiries@canstockta.com



STOCK EXCHANGE LISTING



|Series      | Stock Symbol | Exchange  | Record Date                     | Payment Date               
|----------- | ------------ | --------- | ------------------------------- | ---------------------------
|Trust Units | BOX.UN, BOXC | TSX, NYSE | Last business day of each month | Fifteenth day of each month





UNITHOLDER INFORMATION



Brookfield Canada Office Properties welcomes
inquiries from unitholders, analysts, media representatives and other interested parties. Questions relating to investor relations
or media inquiries can be directed to Matthew Cherry, Director, Investor Relations and Communications at 416.359.8593 or via e-mail
at matthew.cherry@brookfield.com. Inquiries regarding financial results should be directed to Bryan Davis, Chief Financial Officer
at 416.359.8612 or via e-mail at bryan.davis@brookfield.com.



Unitholder questions relating to distributions,
address changes and unit certificates should be directed to the Trust's Transfer Agent, CIBC Mellon Trust, as listed above.



ANNUAL MEETING OF UNITHOLDERS



The Annual Meeting of Unitholders will be held
in Toronto at the Hockey Hall of Fame at Brookfield Place, 30 Yonge St., at 1:30 pm on April 22, 2013. Unitholders may also participate
in the meeting by webcast on brookfieldcanadareit.com















Brookfield Canada Office Properties



181 Bay Street, Suite 330



Toronto, Ontario M5J 2T3



Tel: 416.359.8555



Fax: 416.359.8596



www.brookfieldcanadareit.com