Brookfield Canada Office Properties (BOXC) 6-K Current report (foreign)

Dear Unitholders:

Net income for the three months ended September 30, 2012 was $75.1 million ($0.81 per unit), compared to $50.7 million ($0.55 per unit) during the same period in 2011. Included in net income was a fair value gain of $39.6 million, compared to $20.7 million during the same period in 2011. The current IFRS value increased to $31.08 per unit from $30.55 per unit at the end of the prior quarter.

Funds from operations was $35.5 million ($0.38 per unit) for the three months ended September 30, 2012, compared to $30.0 million ($0.32 per unit) during the same period in 2011. Adjusted funds from operations was $27.4 million ($0.29 per unit) for the three months ended September 30, 2012, compared to $23.6 million ($0.25 per unit) during the same period in 2011.

Net operating income from commercial properties increased by $11.0 million to $67.9 million for the three months ended September 30, 2012, compared to $56.9 million during the same period in 2011. Achieved same-store net operating income of $60.8 million, an increase of $4.3 million over the prior year and $1.2 million over the prior quarter.

HIGHLIGHTS FOR THE THIRD QUARTER

Brookfield Canada Office Properties (the “Trust” or “BOX”) continued its pro-active leasing strategy in the third quarter of 2012, capitalizing on new and early renewal leasing opportunities throughout the portfolio. During the quarter, the Trust leased 435,000 square feet of space, at an average net rent of $33 per square foot compared to an average expiring net rent of $28 per square foot. The Trust’s occupancy rate finished the quarter at 97.1%, up 90 basis points from year-end 2011 and up 10 basis points from prior quarter. This compares favourably with the Canadian national average of 92.9%.

Leasing highlights from the third quarter include:

· 297,000 square feet in Toronto

- A five-year, 145,000-square-foot renewal with Bennett Jones Services Limited at First Canadian Place

- An average 14-year, 29,000-square-foot renewal with the Royal Bank of Canada at Hudson’s Bay Centre

- A five-year, 25,000-square-foot renewal with St. Michael’s Hospital at 2 Queen St. E.

- A five-year, 18,000-square-foot new lease with Geosoft Inc. at Queen’s Quay Terminal

· 75,000 square feet in Vancouver

- A five-year, 40,000-square-foot renewal with Spectra Energy Corp. at Royal Centre

· 57,000 square feet in Calgary

- A five-year, 20,000-square-foot renewal with BMO Nesbitt Burns Inc. at Bankers Hall

Achieved LEED Gold certification at Bay Wellington Tower and First Canadian Place in Toronto, and Fifth Avenue Place in Calgary. These sustainability accomplishments reaffirm the Trust’s commitment to owning environmentally conscious real estate and lowering the portfolio’s carbon footprint.

DISTRIBUTION DECLARATION

The Board of Trustees of Brookfield Canada Office Properties announced a distribution of $0.0975 per Trust unit payable on December 14, 2012 to holders of Trust Units of record at the close of business on November 30, 2012.

OUTLOOK

Our portfolio occupancy continues to climb, reflecting strong fundamentals in our core office markets. Due to the Trust’s continued success and strong financial position, we were pleased to be able to increase our annual distribution to unitholders by 8% during the last quarter.

Jan Sucharda

President and Chief Executive Officer

October 22, 2012

2 Q3/2012 Interim Report

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		90.6	%		2,379		232		2,611		169		2,780		25	%		695
Bay Wellington Tower		1		97.7	%		1,297		42		1,339		—		1,339		100	%		1,339
Brookfield Place Retail & Parking(1)		1		95.2	%		—		52		52		690		742		56	%		412
Bay Adelaide Centre West Tower		1		94.9	%		1,155		37		1,192		382		1,574		100	%		1,574
Exchange Tower		1		97.3	%		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		97.0	%		448		16		464		81		545		25	%		136
Queen’s Quay Terminal		1		97.7	%		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		95.0	%		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		99.8	%		1,944		224		2,168		409		2,577		50	%		1,289
Bankers Court		1		99.2	%		256		7		263		62		325		50	%		163
Suncor Energy Centre		2		99.5	%		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		99.7	%		5,340		299		5,639		897		6,536					3,269
VANCOUVER
Royal Centre		1		97.3	%		493		96		589		264		853		100	%		853
OTHER
Merivale Place, Nepean		1		100.0	%		—		3		3		—		3		100	%		3
TOTAL PORTFOLIO		28		97.1	%		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.

Brookfield Canada Office Properties 3

Contents

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL RESULTS 

PART I – OBJECTIVES AND FINANCIAL HIGHLIGHTS	6
PART II – FINANCIAL STATEMENT ANALYSIS	11
PART III – RISKS AND UNCERTAINTIES	24
PART IV – CRITICAL ACCOUNTING POLICIES AND ESTIMATES	27
CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS	30
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS	34
UNITHOLDER INFORMATION	40

4 Q3/2012 Interim Report

FORWARD-LOOKING STATEMENTS

This interim 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.

Brookfield Canada Office Properties 5

Management’s Discussion and Analysis of Financial Results

October 22, 2012

PART I – OBJECTIVES AND FINANCIAL HIGHLIGHTS

BASIS OF PRESENTATION

Financial data included in this Management’s Discussion and Analysis (“MD&A”) for the three and nine months ended September 30, 2012, includes material information up to October 22, 2012. Financial data provided has been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). 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 nine months as well as our financial position and future prospects. It should be read in conjunction with the condensed consolidated interim financial statements and appended notes, which begin on page 30 of this report. 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. 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 one-time transaction costs, fair value gains (losses), and certain other non-cash items, if any. 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. 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 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 19, a reconciliation of net income to funds from operations and adjusted funds from operations on page 22, and a reconciliation of cash generated from operating activities to adjusted funds from operations on page 22. Commercial property net operating income, funds from operations, and adjusted funds from operations do not have any standardized meaning prescribed by IFRS and therefore may not be comparable to similar measures presented by other companies.

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

OVERVIEW OF THE BUSINESS 

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

At September 30, 2012, the fair value of BOX’s total assets was $5,000.1 million. During the three months ended September 30, 2012, we generated $75.1 million of net income ($0.81 per unit), $35.5 million of funds from operations ($0.38 per unit), and $27.4 million of adjusted funds from operations ($0.29 per unit).

6 Q3/2012 Interim Report

FINANCIAL HIGHLIGHTS

BOX’s financial results are as follows:

	Three months ended Sept. 30				Nine months ended Sept. 30
(Millions, except per-unit amounts)	2012		2011		2012		2011
Results of operations
Total revenue	$	128.1	$	109.1	$	377.3	$	326.6
Net income		75.1		50.7		361.9		138.5
Funds from operations		35.5		30.0		103.1		93.9
Adjusted funds from operations		27.4		23.6		79.4		69.9
Distributions		25.8		25.2		76.1		75.5
Per unit amounts – attributable to unitholders
Net income		0.81		0.55		3.88		1.49
Funds from operations		0.38		0.32		1.11		1.01
Adjusted funds from operations		0.29		0.25		0.85		0.75
Distributions		0.28		0.27		0.82		0.81

(Millions, except per-unit amounts)	Sept. 30, 2012		Dec. 31, 2011
Balance sheet data
Total assets	$	5,000.1	$	4,698.1
Investment properties		4,942.0		4,637.9
Commercial property and corporate debt		1,993.8		1,980.3
Total equity		2,897.1		2,610.9
Value per Trust unit		31.08		28.01

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	$	3,131.1	$	414	$	1,264.5	$	1,866.6
Western region		9		7,389		4,122		1,810.9		439		729.3		1,081.6
Total		28		20,716		11,685	$	4,942.0	$	423	$	1,993.8	$	2,948.2

⁽¹⁾ 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 24.

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 7.6% of our leases, on average, mature annually up to 2016.

Brookfield Canada Office Properties 7

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
				Net Rent					Net Rent					Net Rent
	000's			per		000's			per		000's			Per
Year of Expiry		Sq. Ft.	%		Sq. Ft.(1)		Sq. Ft.	%		Sq. Ft.(1)		Sq. Ft.	%		Sq. Ft.(1)
Currently available		480	2.9				442	5.0				5	0.3
2012		146	0.9	$	31		123	1.4	$	32		9	0.5	$	19
2013		1,661	9.9		23		374	4.3		30		1,151	66.0		20
2014		359	2.1		32		287	3.3		31		9	0.5		26
2015		1,594	9.5		25		507	5.8		32		547	31.4		15
2016		1,631	9.7		26		793	9.0		30		4	0.2		21
2017		637	3.8		30		545	6.2		30		6	0.3		18
2018		636	3.8		32		400	4.6		30		¾	¾		¾
2019 & beyond		9,591	57.4		31		5,288	60.4		28		14	0.8		34
Parking		3,981	¾		¾		1,790	¾		¾		1,030	¾		¾
Total		20,716	100.0				10,549	100.0				2,775	100.0
Average market net rent(2) (3)				$	32				$	31				$	21

Calgary, Alberta							Vancouver, B.C.						Other
					Net Rent						Net Rent						Net Rent
	000's				per		000’s				per		000’s				Per
Year of Expiry	Sq. Ft.		%		Sq. Ft.(1)		Sq. Ft.		%		Sq. Ft.(1)		Sq. Ft.		%		Sq. Ft.(1)
Currently available		17		0.3				16		2.7				¾		¾
2012		14		0.2	$	35		¾		¾	$	¾		¾		¾	$	¾
2013		34		0.6		34		101		17.1		16		1		33.3		32
2014		52		1.0		37		11		1.9		29		¾		¾		¾
2015		504		8.9		29		36		6.1		25		¾		¾		¾
2016		757		13.4		22		77		13.1		26		¾		¾		¾
2017		65		1.2		28		21		3.6		28		¾		¾		¾
2018		213		3.8		36		23		3.9		37		¾		¾		¾
2019 & beyond		3,983		70.6		35		304		51.6		21		2		66.7		28
Parking		897		¾		¾		264		¾		¾		¾		¾		¾
Total		6,536		100.0				853		100.0				3		100.0
Average market net rent(2					$	36					$	33					$	¾

⁽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 21 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.

8 Q3/2012 Interim Report

PERFORMANCE MEASUREMENT

The key indicators by which we measure our performance are:

· Commercial property net operating income;

· Funds from operations per unit;

· Adjusted funds from operations per unit;

· Net income 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 19 of this MD&A.

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 one-time transaction costs, fair value gains (losses), and certain other non-cash items, if any. 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 22.

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 22. We also provide a reconciliation of cash generated from operating activities to adjusted funds from operations on page 22.

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.

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, and net income are all relevant measures.

Brookfield Canada Office Properties 9

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 are:

· The availability of equity capital at a reasonable cost;

· The availability of debt capital at a cost and on terms conducive to our goals; and

· The availability of new property acquisitions that fit into our strategic plan.

10 Q3/2012 Interim Report

PART II – FINANCIAL STATEMENT ANALYSIS

ASSET PROFILE

Our total asset carrying value was $5,000.1 million at September 30, 2012 (compared to $4,698.1 million at December 31, 2011). The following is a summary of our assets:

(Millions)	Sept. 30, 2012		Dec. 31, 2011
Non-current assets
Investment properties	$	4,942.0	$	4,637.9
Current assets
Tenant and other receivables		15.7		17.5
Other assets		6.4		7.2
Cash and cash equivalents		36.0		35.5
		58.1		60.2
Total	$	5,000.1	$	4,698.1

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 $4,942.0 million as at September 30, 2012 (compared to $4,637.9 million at December 31, 2011). The increase in value of investment properties is primarily attributable to increases at Bay Wellington Tower and Bay Adelaide Centre West Tower in Toronto, Suncor Energy Centre and Bankers Hall in Calgary, and Royal Centre in Vancouver during the nine months ended September 30, 2012.

A breakdown of our investment properties is as follows:

					BOX’s		Fair Value		Fair Value
	Number of		Total Area		Owned Interest		Sept. 30, 2012		Dec. 31, 2011
	Properties		(000's Sq. Ft.)		(000's Sq. Ft.)		(Millions)		(Millions)
Eastern region		19		13,327		7,563	$	3,131.1	$	2,947.3
Western region		9		7,389		4,122		1,810.9		1,690.6
Total investment properties		28		20,716		11,685	$	4,942.0	$	4,637.9
Fair value per Sq. ft.							$	423	$	397

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

	September 30, 2012										December 31, 2011
	Value psf		Discount Rate			Terminal Cap Rate			Hold Period (yrs)		Value psf		Discount Rate			Terminal Cap Rate			Hold Period (yrs)
Eastern region	$	414		6.5	%		5.7	%		11	$	390		6.6	%		6.1	%		11
Western region		439		6.5	%		5.9	%		10		410		6.8	%		6.3	%		10
Average	$	423		6.5	%		5.7	%		11	$	397		6.7	%		6.2	%		11

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 three and nine months ended September 30, 2012, such expenditures totaled $5.8 million and $19.9 million, respectively (compared to $9.9 million and $36.8 million during the same periods in 2011). The decrease is primarily related to higher tenant installation costs incurred on the lease-up of space at Suncor Energy Centre, Bay Adelaide Centre West Tower, Bankers Court, 105 Adelaide St. West and Fifth Avenue Place in 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 three and nine months ended September 30, 2012 totaled $7.2 million and $19.4 million, respectively (compared to $2.8 million and $8.4 million during the same periods 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.

Brookfield Canada Office Properties 11

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 three and nine months ended September 30, 2012, sustaining capital expenditures totaled $0.7 million and $1.4 million, respectively (compared with $0.1 million and $2.2 million during the same periods in 2011), while the remainder of $6.5 million and $18.0 million, respectively (compared with $2.7 million and $6.2 million during the same periods 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 and Fifth Avenue Place. Capital expenditures are recoverable in some cases through contractual tenant cost-recovery payments. During the three and nine months ended September 30, 2012, $5.3 million and $9.1 million respectively, of our total capital expenditures were recoverable, compared with $nil and $5.2 million during the same periods in 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 three and nine months ended September 30, 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 22.

For the three and nine months ended September 30, 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 and Bay Wellington Tower related to tenant build-outs.

	Three months ended Sept. 30				Nine months ended Sept. 30				Normalized quarterly activities
(Millions)	2012		2011		2012		2011		2012
Second-generation leasing commissions and tenant improvements	$	4.8	$	9.7	$	14.7	$	26.9	$	4.5
Sustaining capital expenditures		0.7		0.1		1.4		2.2		1.4
Total	$	5.5	$	9.8	$	16.1	$	29.1	$	5.9

The following table summarizes the changes in value of our investment properties during the nine months ended September 30, 2012:

(Millions)	Sept. 30, 2012
Beginning of period	$	4,637.9
Additions:
Capital expenditures and tenant improvements		32.6
Leasing commissions		4.7
Tenant inducements		2.0
Fair value gains		258.8
Other changes		6.0
End of period	$	4,942.0

TENANT AND OTHER RECEIVABLES

Tenant and other receivables decreased slightly to $15.7 million at September 30, 2012, from $17.5 million at December 31, 2011.

OTHER ASSETS

The components of other assets are as follows:

(Millions)	Sept. 30, 2012		Dec. 31, 2011
Prepaid expenses and other assets	$	5.6	$	6.4
Restricted cash		0.8		0.8
Total	$	6.4	$	7.2

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 September 30, 2012, cash balances were $36.0 million, compared to $35.5 million at December 31, 2011.

12 Q3/2012 Interim Report

LIABILITIES AND EQUITY

Our asset base of $5,000.1 million is financed with a combination of debt and equity. The components of our liabilities and equity are as follows:

(Millions)	Sept. 30, 2012		Dec. 31, 2011
Liabilities
Non-current liabilities
Commercial property and corporate debt	$	1,507.2	$	1,748.2
Current liabilities
Commercial property and corporate debt		486.6		232.1
Accounts payable and other liabilities		109.2		106.9
		2,103.0		2,087.2
Equity
Unitholders’ equity		799.2		718.8
Non-controlling interest		2,097.9		1,892.1
		2,897.1		2,610.9
Total liabilities and equity	$	5,000.1	$	4,698.1

COMMERCIAL PROPERTY AND CORPORATE DEBT 

Commercial property and corporate debt (current and non-current) totaled $1,993.8 million at September 30, 2012 (compared to $1,980.3 million at December 31, 2011). Commercial property and corporate debt at September 30, 2012 had a weighted-average interest rate of 5.3%. 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 and corporate debt portfolio with the average lease term of our properties. At September 30, 2012, the average term to maturity of our commercial property and corporate debt was five years, compared to our average lease term of eight years.

During the first quarter of 2012 we upsized 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 September 30, 2012, $60.0 million was drawn on the revolving corporate credit facility.

During the second quarter of 2012, we completed the refinancing of Exchange Tower in Toronto for $120.0 million, generating net proceeds of $64.3 million, at ownership, after repayment of the previous mortgage. The new debt for Exchange Tower has a 10-year term maturing April 27, 2022 and bears interest at 4.031% per annum.

During the second quarter of 2012, we also completed the refinancing of Royal Centre in Vancouver for $150.0 million, generating net proceeds of $39.0 million after repayment of the previous mortgage. The new debt for Royal Centre has a three-year term maturing June 1, 2015 and bears interest at 3.325% per annum.

During the third quarter of 2012, we extended the maturity on the debt at 151 Yonge St. in Toronto for a two-year period to July 2014 at a rate of bankers’ acceptance plus 170 basis points.

Brookfield Canada Office Properties 13

The details of commercial property and corporate debt at September 30, 2012, are as follows:

			Interest		Maturity		BOX’s Share
	Location		Rate %		Date		(Millions)			Mortgage Details
Commercial property
HSBC Building		Toronto		8.2		October 2012	$	19.8		Non-recourse - fixed rate
105 Adelaide St. West		Toronto		5.3		February 2013		20.8		Non-recourse - fixed rate
Bay Wellington Tower		Toronto		6.4		April 2013		251.1		Non-recourse - fixed rate
Bay Wellington Tower		Toronto		6.8		April 2013		60.4		Non-recourse - fixed rate
Hudson's Bay Centre(1)		Toronto		5.2		May 2013		104.7		Limited recourse - fixed rate
Bankers Hall		Calgary		6.7		November 2013		10.0		Non-recourse - fixed rate
Bankers Hall		Calgary		7.2		November 2013		148.4		Non-recourse - fixed rate
Jean Edmonds Towers		Ottawa		5.6		January 2014		0.4		Non-recourse - fixed rate
Suncor Energy Centre(2)		Calgary		6.4		June 2014		208.0		Non-recourse - fixed rate
151 Yonge St.		Toronto		2.9		July 2014		9.8		Non-recourse - floating rate
First Canadian Place		Toronto		5.4		December 2014		73.4		Non-recourse - fixed rate
Royal Centre		Vancouver		3.3		June 2015		149.0		Non-recourse - fixed rate
2 Queen St. E.		Toronto		5.6		December 2017		28.6		Non-recourse - fixed rate
22 Front St. West		Toronto		6.2		October 2020		18.5		Non-recourse - fixed rate
Bankers Court		Calgary		5.0		November 2020		46.1		Non-recourse - fixed rate
Queen's Quay Terminal		Toronto		5.4		April 2021		87.5		Non-recourse - fixed rate
Fifth Avenue Place		Calgary		4.7		August 2021		171.2		Non-recourse - fixed rate
Bay Adelaide Centre West Tower		Toronto		4.4		December 2021		400.0		Non-recourse - fixed rate
Exchange Tower		Toronto		4.0		April 2022		118.8		Non-recourse - fixed rate
Jean Edmonds Towers		Ottawa		6.8		January 2024		15.6		Non-recourse - fixed rate
Corporate
$200M Corporate Revolver(3)		¾		3.2		June 2014		60.0		Recourse - floating rate
				5.3				2,002.1
Premium on assumed mortgages								1.3
Deferred financing costs								(9.6	)
Total				5.3			$	1,993.8

⁽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 $33.1 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		Sept. 30, 2012
Remainder of 2012	$	12.4	$	19.7	$	32.1		8.2	%
2013		31.4		584.1		615.5		6.4	%
2014		25.3		337.7		363.0		5.5	%
2015		20.3		137.8		158.1		3.3	%
2016		19.3		¾		19.3		¾%
2017 and thereafter		108.2		697.6		805.8		4.7	%
Total	$	216.9	$	1,776.9	$	1,993.8		5.3	%

14 Q3/2012 Interim Report

CONTRACTUAL OBLIGATIONS

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

	Payments Due By Period
(Millions)	Total		1 year		2 – 3 years		4 – 5 Years		After 5 Years
Commercial property and corporate debt(1)	$	1,993.8	$	486.6	$	678.7	$	39.1	$	789.4
Interest expense – commercial property and corporate debt(2)		417.5		97.9		106.7		75.5		137.4
Minimum rental payments - ground leases(3)		544.6		7.5		15.1		15.1		506.9
	$	2,955.9	$	592.0	$	800.5	$	129.7	$	1,433.7

⁽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 customer 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 one credit rating agency, Dominion Bond Rating Service Inc. (“DBRS”). We are committed to arranging our affairs to maintain this rating and improve further over time.

Our credit rating at September 30, 2012, and at the date of this report was:

	DBRS
Issuer Rating	BBB(stable)

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 and could be up to $64.0 million ($63.0 million Australian dollars) in the event we are completely unsuccessful in defending the claims. During the quarter ended September 30, 2012, the amount of the contingent cash outflow increased by $18.0 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 13 of the condensed consolidated interim financial statements.

INCOME TAXES

The Trust is a “mutual fund trust” pursuant to theIncome 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 $109.2 million at September 30, 2012 (compared to $106.9 million at December 31, 2011). The increase is primarily related to accrued interest on semi-annual debts at Bay Wellington Tower, Suncor Energy Centre and Fifth Avenue Place.

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

(Millions)	Sept. 30, 2012		Dec. 31, 2011
Accounts payable and accrued liabilities	$	90.2	$	93.1
Accrued interest		19.0		13.8
Total	$	109.2	$	106.9

Brookfield Canada Office Properties 15

EQUITY

The components of equity are as follows:

(Millions)	Sept. 30, 2012		Dec. 31, 2011
Trust Units	$	550.9	$	550.5
Contributed surplus		3.1		3.1
Retained earnings		245.2		165.2
Unitholders’ equity		799.2		718.8
Non-controlling interest		2,097.9		1,892.1
Total	$	2,897.1	$	2,610.9

The following tables summarize the changes in the units outstanding during the three and nine months ended September 30, 2012 and September 30, 2011:

	Three months ended Sept. 30, 2012				Nine months ended Sept. 30, 2012
	Trust Units		Class B LP Units		Trust Units		Class B LP Units
Units issued and outstanding at beginning of period		26,122,033		67,088,022		26,110,560		67,088,022
Units issued pursuant to Distribution Reinvestment Plan		5,056		¾		16,529		¾
Total units outstanding at September 30, 2012		26,127,089		67,088,022		26,127,089		67,088,022

	Three months ended Sept. 30, 2011				Nine months ended Sept. 30, 2011
	Trust Units		Class B LP Units		Trust Units		Class B LP Units
Units issued and outstanding at beginning of period		26,100,669		67,088,022		26,095,603		67,088,022
Units issued pursuant to Distribution Reinvestment Plan		4,770		¾		9,836		¾
Total units outstanding at September 30, 2011		26,105,439		67,088,022		26,105,439		67,088,022

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 nine months ended September 30, 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.

16 Q3/2012 Interim Report

The following tables present distributions declared to Trust unitholders and non-controlling interest for the three and nine months ended September 30, 2012 and September 30, 2011:

	Three months ended Sept. 30, 2012				Nine months ended Sept. 30, 2012
(Millions, except per unit amounts)	Trust Units		Class B LP Units		Trust Units		Class B LP Units
Paid in cash or DRIP	$	4.6	$	12.1	$	18.7	$	48.3
Payable as of September 30, 2012		2.6		6.5		2.6		6.5
Total		7.2		18.6		21.3		54.8
Per unit	$	0.28	$	0.28	$	0.82	$	0.82

	Three months ended Sept. 30, 2011				Nine months ended Sept. 30, 2011
(Millions, except per unit amounts)	Trust Units		Class B LP Units		Trust Units		Class B LP Units
Paid in cash or DRIP	$	4.7	$	12.1	$	18.7	$	48.4
Payable as of September 30, 2011		2.4		6.0		2.4		6.0
Total		7.1		18.1		21.1		54.4
Per unit	$	0.27	$	0.27	$	0.81	$	0.81

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; and

§ property acquisitions.

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 operations; 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 55% 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.

Brookfield Canada Office Properties 17

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

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

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

At September 30, 2012, we had approximately $176.0 million of liquidity consisting of $36.0 million of cash on hand, and $140.0 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 September 30, 2012, our weighted-average cost of capital, assuming a 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)	Sept. 30, 2012			Dec. 31, 2011			Sept. 30, 2012		Dec. 31, 2011
Liabilities
Commercial property and corporate debt		5.3	%		5.5	%	$	1,993.8	$	1,980.3
Unitholders’ equity
Trust Units(3)		9.0	%		9.0	%		742.8		634.7
Other equity
Non-controlling interest(3)		9.0	%		9.0	%		1,909.7		1,631.9
Total		7.4	%		7.4	%	$	4,646.3	$	4,246.9

⁽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 9.0% return on equity for September 30, 2012 and December 31, 2011.

18 Q3/2012 Interim Report

OPERATING RESULTS

Set out below is a summary of the various components of our income statement results. Discussion of each of these components is provided on the following pages.

	Three months ended Sept. 30				Nine months ended Sept. 30
(Millions, except per unit amounts)	2012		2011		2012		2011
Commercial property net operating income
Revenue	$	128.1	$	109.0	$	377.3	$	326.0
Operating expenses		60.2		52.1		176.6		153.7
		67.9		56.9		200.7		172.3
Investment and other income		¾		0.1		¾		0.6
		67.9		57.0		200.7		172.9
Expenses
Interest		27.1		23.1		82.1		67.2
General and administrative		5.3		3.9		15.5		11.8
Income beforefair value gains		35.5		30.0		103.1		93.9
Fair value gains		39.6		20.7		258.8		44.6
Net income and comprehensive income	$	75.1	$	50.7	$	361.9	$	138.5
Net income and comprehensive income attributable to:
Unitholders		21.0		14.2		101.3		38.8
Non-controlling interest		54.1		36.5		260.6		99.7
	$	75.1	$	50.7	$	361.9	$	138.5
Net income per Trust unit	$	0.81	$	0.55	$	3.88	$	1.49

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 $128.1 million and $377.3 million for the three and nine months ended September 30, 2012, respectively (compared to $109.0 million and $326.0 million during the same periods 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:

	Three months ended Sept. 30				Nine months ended Sept. 30
(Millions)	2012		2011		2012		2011
Rental revenue	$	125.9	$	106.9	$	370.6	$	315.1
Straight-line rental income		2.2		1.7		6.0		9.9
Lease termination and non-recurring income		¾		0.4		0.7		1.0
Commercial property revenue		128.1		109.0		377.3		326.0
Investment and other income		¾		0.1		¾		0.6
Total	$	128.1	$	109.1	$	377.3	$	326.6

COMMERCIAL PROPERTY NET OPERATING INCOME

Our commercial property net operating income for the three and nine months ended September 30, 2012, was $67.9 million and $200.7 million, respectively (compared to $56.9 million and $172.3 million during the same periods 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 commercial property net operating income.

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

	Three months ended Sept. 30				Nine months ended Sept. 30
(Millions)	2012		2011		2012		2011
Revenue from commercial property operations	$	128.1	$	109.0	$	377.3	$	326.0
Operating expenses		60.2		52.1		176.6		153.7
Total	$	67.9	$	56.9	$	200.7	$	172.3

Brookfield Canada Office Properties 19

	Three months ended Sept. 30				Nine months ended Sept. 30
(Millions)	2012		2011		2012		2011
Commercial property net operating income – same property	$	60.8	$	56.5	$	179.4	$	171.3
Investment properties acquired		7.1		¾		20.6		¾
Lease termination and  non-recurring income		¾		0.4		0.7		1.0
Total	$	67.9	$	56.9	$	200.7	$	172.3

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 the third quarter of 2012, we continued to reduce our lease expiry profile.We feel confident with our current rollover risk exposure 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 nine months ended September 30, 2012, approximately 42.0% of our leases completed have rent escalation clauses that will increase rent by an average of $0.71 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 three and nine months ended September 30, 2012, we recognized $2.2 million and $6.0 million, respectively, of straight-line rental revenue (compared to $1.7 million and $9.9 million during the same periods 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.

Commercial property operating costs, which include real estate taxes, utilities, insurance, repairs and maintenance, cleaning, and other property-related expenses, were $60.2 million and $176.6 million for the three and nine months ended September 30, 2012, respectively (compared to $52.1 million and $153.7 million during the same periods in 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 commercial property net operating income. Our total portfolio occupancy rate increased to 97.1% at September 30, 2012, up 90 basis points from year-end 2011. At September 30, 2012, average in-place net rent throughout the portfolio was $26 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 September 30, 2012:

			Avg.		Avg. In-Place		Avg. Market
	Leasable Area		Lease Term		Net Rent		Net Rent
Region	(000's Sq. Ft.)		(Years)		($ per Sq. Ft.)		($ per Sq. Ft.)
Toronto, Ontario		8,759		7.8		27		31
Ottawa, Ontario		1,745		1.6		19		21
Calgary, Alberta		5,639		11.3		28		36
Vancouver, B.C.		589		8.5		21		33
Other		3		¾		¾		¾
Total		16,735		8.4		26		32

A summary of current and historical occupancy levels at September 30 for the past two years is as follows:

	Sept. 30, 2012				Sept. 30, 2011
	Leasable		%		Leasable		%
(000’s Sq. Ft., except % leased data)	Area		Leased		Area		Leased
Toronto, Ontario		8,759		95.0		5,384		96.2
Ottawa, Ontario		1,745		99.7		¾		¾
Calgary, Alberta		5,639		99.7		5,639		99.4
Vancouver, B.C.		589		97.3		589		97.0
Other		3		100.0		3		100.0
Total		16,735		97.1		11,615		97.8

During the nine months ended September 30, 2012, we leased 1,009,000 square feet of space, which included 437,000 square feet of new leasing and 572,000 square feet of renewals, compared to expiries of 512,000 square feet and accelerated expiries of 347,000. The average leasing net rent was $32 per square foot, which is an increase of 14.3% over the average expiring net rent of $28 per square foot.

20 Q3/2012 Interim Report

The details of our leasing activity for the nine months ended September 30, 2012, are as follows:

	Dec. 31, 2011				Activities during the nine months ended Sept. 30, 2012											Sept. 30, 2012
	Total							Average				Year One(1)		Average(2)		Total
	Leasable							Expiring				Leasing		Leasing		Leasable
(000's Sq. Ft.)	Area		Leased		Expiries			Net Rent		Leasing		Net Rent		Net Rent		Area		Leased
Toronto, Ontario		8,759		8,190		(511	)	$	27		638	$	29	$	30		8,759		8,317
Ottawa, Ontario		1,745		1,740		(7	)		23		7		29		30		1,745		1,740
Calgary, Alberta		5,639		5,604		(172	)		36		190		36		37		5,639		5,622
Vancouver, B.C.		589		568		(169	)		23		174		30		30		589		573
Other		3		3		¾			¾		¾		¾		¾		3		3
Total Leasing		16,735		16,105		(859	)	$	28		1,009	$	31	$	32		16,735		16,255

⁽¹⁾ Represents net rent in the first year.

⁽²⁾ Represents average net rent over lease term.

Additionally, during the nine months ended September 30, 2012, tenant improvements and leasing costs related to leasing activity that occurred averaged $9.51 per square foot, compared to $28.82 per square foot during the same period in 2011.

INVESTMENT AND OTHER INCOME

Investment and other income totaled $nil during the three and nine months ended September 30, 2012 (compared to $0.1 million and $0.6 million during the same periods in 2011). The amounts primarily include interest earned on cash balances and other income.

INTEREST EXPENSE

Interest expense totaled $27.1 million and $82.1 million during the three and nine months ended September 30, 2012, respectively (compared to $23.1 million and $67.2 million during the same periods 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, coupled with additional interest incurred on the revolving 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 $5.3 million and $15.5 million during the three and nine months ended September 30, 2012, respectively (compared to $3.9 million and $11.8 million during the same periods in 2011). The increase is primarily due to an increase in asset management fees during the year.

INCOME TAX EXPENSE

The Trust is a “mutual fund trust” pursuant to theIncome 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 three and nine months ended September 30, 2012, the Trust recognized fair value gains of $39.6 million and $258.8 million, respectively (compared to $20.7 million and $44.6 million during the same periods 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.

Brookfield Canada Office Properties 21

RECONCILIATION OF NET INCOME TO FUNDS FROM OPERATIONS

Funds from operations was $0.38 per unit and $1.11 per unit during the three and nine months ended September 30, 2012, respectively (compared to $0.32 per unit and $1.01 per unit during the same periods in 2011).

	Three months ended Sept. 30						Nine months ended Sept. 30
(Millions, except per unit amounts)	2012			2011			2012			2011
Net income	$	75.1		$	50.7		$	361.9		$	138.5
Deduct:
Fair value gains		(39.6	)		(20.7	)		(258.8	)		(44.6	)
Funds from operations	$	35.5		$	30.0		$	103.1		$	93.9
Funds from operations – unitholders		9.9			8.4			28.9			26.3
Funds from operations – non-controlling interest		25.6			21.6			74.2			67.6
	$	35.5		$	30.0		$	103.1		$	93.9
Weighted average Trust Units outstanding		26.1			26.1			26.1			26.1
Funds from operations per Trust unit	$	0.38		$	0.32		$	1.11		$	1.01

RECONCILIATION OF FUNDS FROM OPERATIONS TO ADJUSTED FUNDS FROM OPERATIONS

Adjusted funds from operations totaled $0.29 per unit and $0.85 per unit during the three and nine months ended September 30, 2012, respectively (compared to $0.25 per unit and $0.75 per unit during the same periods in 2011).

	Three months ended Sept. 30						Nine months ended Sept. 30
(Millions, except per unit amounts)	2012			2011			2012			2011
Funds from operations	$	35.5		$	30.0		$	103.1		$	93.9
Deduct:									��
Straight-line rental income		(2.2	)		(1.7	)		(6.0	)		(9.9	)
Normalized second-generation leasing commissions and tenant improvements(1)		(4.5	)		(3.8	)		(13.5	)		(11.4	)
Normalized sustaining capital expenditures(1)		(1.4	)		(0.9	)		(4.2	)		(2.7	)
Adjusted funds from operations	$	27.4		$	23.6		$	79.4		$	69.9
Adjusted funds from operations – unitholders		7.7			6.6			22.2			19.6
Adjusted funds from operations – non-controlling interest		19.7			17.0			57.2			50.3
	$	27.4		$	23.6		$	79.4		$	69.9
Weighted average Trust Units outstanding		26.1			26.1			26.1			26.1
Adjusted funds from operations per Trust unit	$	0.29		$	0.25		$	0.85		$	0.75
Trust unit distributions declared	$	0.28		$	0.27		$	0.82		$	0.81
Distribution ratio		97	%		108	%		97	%		108	%

⁽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

	Three months ended Sept. 30						Nine months ended Sept. 30
(Millions)	2012			2011			2012			2011
Cash generated from operating activities	$	32.1		$	40.5		$	99.5		$	84.8
Add (deduct):
Working capital and other		(0.8	)		(12.2	)		(9.8	)		(7.2	)
Leasing commissions and tenant inducements		2.6			0.5			9.1			7.8
Amortization of deferred financing costs		(0.6	)		(0.5	)		(1.7	)		(1.4	)
Normalized second-generation leasing commissions and tenant improvements		(4.5	)		(3.8	)		(13.5	)		(11.4	)
Normalized sustaining capital expenditures		(1.4	)		(0.9	)		(4.2	)		(2.7	)
Adjusted funds from operations	$	27.4		$	23.6		$	79.4		$	69.9

22 Q3/2012 Interim Report

QUARTERLY RESULTS

The results by quarter are as follows:

	2012						2011								2010
(Millions, except per unit amounts)	Q3		Q2		Q1		Q4		Q3		Q2		Q1		Q4
Revenue	$	128.1	$	124.0	$	125.2	$	120.1	$	109.1	$	109.8	$	107.7	$	109.4
Commercial property net operating income		67.9		66.8		66.0		63.0		57.0		58.9		57.0		52.7
Interest expense		27.1		27.5		27.5		24.7		23.1		22.3		21.8		22.0
Funds from operations		35.5		34.1		33.5		33.1		30.0		32.5		31.4		27.0
Adjusted funds from operations		27.4		26.3		25.7		25.5		23.6		23.9		22.4		18.5
Net income		75.1		134.4		152.4		216.9		50.7		47.5		40.3		234.4
Net income per Trust unit	$	0.81	$	1.44	$	1.63	$	2.33	$	0.54	$	0.51	$	0.43	$	2.51

Brookfield Canada Office Properties 23

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 atwww.brookfieldcanadareit.com or at www.sedar.com.

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 25 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 17 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 3.5% of our outstanding commercial property and corporate debt at September 30, 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 $0.7 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 $4.6 million on an annual basis or approximately $0.05 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 40.3% of the fair market value of our investment properties based on September 30, 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.

24 Q3/2012 Interim Report

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:

			Credit			000’s Sq. Ft.(2)
	Tenant	Primary Location	Rating(1)	Year of Expiry		2012			2013			2014			2015			2016			Beyond			Total			% of Sq. Ft.(2)
1	Government and related agencies	Toronto, Ottawa, Calgary	AAA		Various		8			1,169			64			595			204			265			2,305			13.8	%
2	Suncor Energy Inc.	Calgary	BBB+		2028																	1,354			1,354			8.1	%
3	Bank of Montreal	Toronto, Calgary	A+		Various					51									17			1,101			1,169			7.0	%
4	Imperial Oil	Calgary	AAA		2016														717						717			4.3	%
5	Talisman Energy	Calgary	BBB		2015/2025											12						527			539			3.2	%
6	Royal Bank	Toronto, Calgary, Vancouver	AA-		Various					71						12			16			391			490			2.9	%
7	Enbridge Inc.	Calgary	A-		2028																	333			333			2.0	%
8	Bennett Jones	Toronto, Calgary	Not Rated		2021/2027																	318			318			1.9	%
9	KPMG Management Services LP	Toronto	Not Rated		2025																	297			297			1.8	%
10	Canadian Natural Resources	Calgary	BBB+		2026																	290			290			1.7	%
11	CIBC	Toronto, Calgary	A+		2020/2053																	289			289			1.7	%
12	Deloitte & Touche	Toronto, Calgary	Not Rated		Various											98			49			134			281			1.7	%
13	EnCana Corporation	Calgary	BBB		2015											241									241			1.4	%
14	Osler, Hoskin & Harcourt	Toronto	Not Rated		2015/2030											36						191			227			1.4	%
15	McMillan LLP	Toronto, Vancouver	Not Rated		Various																	215			215			1.3	%
16	Goodmans LLP	Toronto	Not Rated		2026																	182			182			1.1	%
17	The Bay	Toronto	Not Rated		2019/2020																	179			179			1.1	%
18	Gowlings Canada Inc.	Toronto	Not Rated		2020																	170			170			1.0	%
19	The Manufacturers Life Insurance	Toronto	AA-		2022																	169			169			1.0	%
20	Spectra Energy (formerly Westcoast Energy)	Calgary, Vancouver	BBB+		2015/2022																	165			165			1.0	%
	Total						8			1,291			64			994			1,003			6,570			9,930			59.4	%
	Total %						0.1	%		13.0	%		0.6	%		10.0	%		10.1	%		66.2	%		100.0	%

⁽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 7.6% of our leases mature annually up to 2016. 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 September 30, 2012:

	Currently			Remainder																					2019
(000’s Sq. Ft.)	Available			2012			2013			2014			2015			2016			2017			2018			& Beyond			Leasable			Parking		Total
Toronto, Ontario		442			123			374			287			507			793			545			400			5,288			8,759			1,790		10,549
Ottawa, Ontario		5			9			1,151			9			547			4			6			¾			14			1,745			1,030		2,775
Calgary, Alberta		17			14			34			52			504			757			65			213			3,983			5,639			897		6,536
Vancouver, B.C.		16			—			101			11			36			77			21			23			304			589			264		853
Other		—			—			1			—			—			—			—			—			2			3			—		3
Total		480			146			1,661			359			1,594			1,631			637			636			9,591			16,735			3,981		20,716
% of total		2.9	%		0.9	%		9.9	%		2.1	%		9.5	%		9.7	%		3.8	%		3.8	%		57.4	%		100.0	%		¾		100.0	%

Brookfield Canada Office Properties 25

ENVIRONMENTAL RISKS

As an owner of real property, we are subject to various federal, provincial, and municipal laws relating to environmental matters. Such laws provide that we could be liable for the costs of removing certain hazardous substances and remediating certain hazardous locations. The failure to remove or remediate such substances or locations, if any, could adversely affect our ability to sell such real estate or 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 and we may become subject to more stringent environmental laws and regulations in the future, which 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.

26 Q3/2012 Interim Report

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 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”. IFRS 11 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.

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.

USE OF ESTIMATES

The preparation of our condensed consolidated interim 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 condensed consolidated interim 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.

Brookfield Canada Office Properties 27

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 condensed consolidated interim 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 operating expenses during the three and nine months ended September 30, 2012, are amounts paid to BPMC for property management services of $3.1 million and $10.1 million, respectively (compared to $3.0 million and $9.0 million during the same periods in 2011). Included in investment properties during the three and nine months ended September 30, 2012, are amounts paid to BPMC for leasing and construction services of $0.7 million and $2.1 million, respectively (compared to $3.0 million and $5.7 million during the same periods in 2011). Included in general and administrative expenses during the three and nine months ended September 30, 2012, are amounts paid to BPMC for asset management and administrative and regulatory compliance services of $4.2 million and $11.8 million, respectively (compared to $2.8 million and $9.1 million during the same periods in 2011).

Included in rental revenues during the three and nine months ended September 30, 2012, are amounts received from Brookfield Asset Management Inc., the ultimate parent of BPP, and its affiliates of $1.5 million and $4.4 million, respectively, which are consistent with the amounts earned during the same periods in 2011.

28 Q3/2012 Interim Report

DISTRIBUTIONS

Trust distributions declared for the three and nine months ended September 30, 2012 and September 30, 2011 are as follows:

	Three months ended Sept. 30				Nine months ended Sept. 30
(Millions, except per unit amounts)	2012		2011		2012		2011
Paid in cash or DRIP	$	4.6	$	4.7	$	18.7	$	18.7
Payable at September 30		2.6		2.4		2.6		2.4
Total		7.2		7.1		21.3		21.1
Per unit	$	0.28	$	0.27	$	0.82	$	0.81

Brookfield Canada Office Properties 29

Condensed Consolidated Balance Sheets

(Unaudited)
(Millions) (CDN$)	Note		Sept. 30, 2012		Dec. 31, 2011
Assets
Non-current assets
Investment properties		4	$	4,942.0	$	4,637.9
Current assets
Tenant and other receivables		5		15.7		17.5
Other assets		6		6.4		7.2
Cash and cash equivalents		7		36.0		35.5
				58.1		60.2
Total assets			$	5,000.1	$	4,698.1
Liabilities
Non-current liabilities
Commercial property and corporate debt		8	$	1,507.2	$	1,748.2
Current liabilities
Commercial property and corporate debt		8		486.6		232.1
Accounts payable and other liabilities		9		109.2		106.9
				595.8		339.0
Total liabilities				2,103.0		2,087.2
Equity		11
Unitholders’ equity				799.2		718.8
Non-controlling interest				2,097.9		1,892.1
Total equity				2,897.1		2,610.9
Total liabilities and equity			$	5,000.1	$	4,698.1

See accompanying notes to the condensed consolidated interim financial statements.

30 Q3/2012 Interim Report

Condensed Consolidated Statements of Income and Comprehensive Income

(Unaudited)			Three months ended Sept. 30				Nine months ended Sept. 30
(Millions, except per unit amounts) (CDN$)	Note		2012		2011		2012		2011
Commercial property net operating income				12,15
Revenue			$	128.1	$	109.0	$	377.3	$	326.0
Operating expenses				60.2		52.1		176.6		153.7
				67.9		56.9		200.7		172.3
Investment and other income		12		—		0.1		—		0.6
				67.9		57.0		200.7		172.9
Expenses
Interest				27.1		23.1		82.1		67.2
General and administrative		15		5.3		3.9		15.5		11.8
Income before fair value gains				35.5		30.0		103.1		93.9
Fair value gains				39.6		20.7		258.8		44.6
Net income and comprehensive income			$	75.1	$	50.7	$	361.9	$	138.5
Net income and comprehensive income attributable to:
Unitholders			$	21.0	$	14.2	$	101.3	$	38.8
Non-controlling interest				54.1		36.5		260.6		99.7
			$	75.1	$	50.7	$	361.9	$	138.5
Net incomeper Trust unit			$	0.81	$	0.55	$	3.88	$	1.49

See accompanying notes to the condensed consolidated interim financial statements.

Brookfield Canada Office Properties 31

Condensed Consolidated Statements of Changes in Equity

(Unaudited)			Nine months ended Sept. 30
(Millions) (CDN$)	Note		2012			2011
Trust Units
Balance at beginning of period			$	550.5		$	550.2
Issuance of Trust Units under Distribution Reinvestment Plan (“DRIP”)		10		0.4			0.2
Balance at end of period				550.9			550.4
Contributed surplus
Balance at beginning of period				3.1			¾
Balance at end of period				3.1			¾
Retained earnings
Balance at beginning of period				165.2			93.9
Net income				101.3			38.8
Distributions		10		(21.3	)		(21.1	)
Balance at end of period				245.2			111.6
Total unitholders’ equity			$	799.2		$	662.0
Non-controlling interest
Balance at beginning of period			$	1,892.1		$	1,700.8
Net income				260.6			99.7
Distributions		10		(54.8	)		(54.4	)
Balance at end of period				2,097.9			1,746.1
Total equity			$	2,897.1		$	2,408.1

See accompanying notes to the condensed consolidated interim financial statements.

32 Q3/2012 Interim Report

Condensed Consolidated Statements of Cash Flows

(Unaudited)			Nine months ended Sept. 30
(Millions)(CDN$)	Note		2012			2011
Operating activities
Net income			$	361.9		$	138.5
Add (deduct):
Straight-line rental income				(6.0	)		(9.9	)
Amortization of deferred financing costs				1.7			1.4
Leasing commissions and tenant inducements				(9.1	)		(7.8	)
Fair value gains				(258.8	)		(44.6	)
Other working capital				9.8			7.2
Cash flows provided by operating activities				99.5			84.8
Investing activities
Capital expenditures				(35.8	)		(24.5	)
Cash flows used in investing activities				(35.8	)		(24.5	)
Financing activities
Commercial property debt arranged				267.2			264.4
Commercial property debt repayments				(166.7	)		(97.3	)
Commercial property debt amortization				(28.7	)		(17.9	)
Corporate debt arranged				73.0			—
Corporate debt repayments				(133.0	)		—
Trust unit distributions paid				(20.7	)		(20.7	)
Class B LP unit distributions paid				(54.3	)		(53.9	)
Cash flows (used in) provided by financing activities				(63.2	)		74.6
Increase in cash and cash equivalents				0.5			134.9
Cash and cash equivalents, beginning of period				35.5			20.4
Cash and cash equivalents, end of period		7,16	$	36.0		$	155.3

See accompanying notes to the condensed consolidated interim financial statements.

Brookfield Canada Office Properties 33

Notes to the Condensed Consolidated Interim 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. Although it is intended that BOX qualifies as a “mutual fund trust” pursuant to theIncome 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 September 30, 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 formation of the Trust involved the reorganization of BPO Properties Ltd. (“BPP”), 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, the Trust acquired from BPP, a 25% interest in nine office assets from its Canadian Office Fund portfolio in Toronto and Ottawa.

NOTE 2: SIGNIFICANT ACCOUNTING POLICIES

(a) Basis of presentation

These condensed consolidated interim financial statements have been prepared in accordance with IAS 34, “Interim Financial Reporting” as issued by the International Financial Accounting Standards Board (“IASB”). Accordingly, certain information and footnote disclosure normally included in annual financial statements prepared in accordance with International Financial Reporting Standards (“IFRS”), as issued by the IASB, have been omitted or condensed.

The financial statements have been prepared using the same accounting policies and methods as those used in the consolidated financial statements for the year ended December 31, 2011. The financial statements have been presented in Canadian dollars rounded to the nearest million unless otherwise indicated. These interim financial statements should be read in conjunction with the Trust’s consolidated financial statements for the year ended December 31, 2011.

(b) Estimates

The preparation of financial statements in accordance with IAS 34 requires the use of certain critical accounting estimates. It also requires management to exercise judgment in applying the Trust’s accounting policies. The critical accounting estimates and judgments have been set out in Note 2 to the Trust’s consolidated financial statements for the year ended December 31, 2011.

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 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.

34 Q3/2012 Interim Report

(c) Joint Arrangements

IFRS 11, “Joint Arrangements” replaces the existing IAS 31, “Interests in Joint Ventures”. IFRS 11 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.

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.

NOTE 4: Investment properties

	Nine months ended		Year ended
(Millions)	Sept. 30, 2012		Dec. 31, 2011
Balance at beginning of period	$	4,637.9	$	3,965.0
Additions:
Investment property acquisitions		—		362.1
Capital expenditures and tenant improvements		32.6		43.1
Leasing commissions		4.7		15.6
Tenant inducements		2.0		10.0
Fair value gains		258.8		229.3
Other changes		6.0		12.8
Balance at end of period	$	4,942.0	$	4,637.9

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

All properties were valued by the Trust based on available market evidence. 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. In connection with determining these values, the Trust obtains valuations of selected investment properties prepared by qualified external valuation professionals and considers the results of such valuations in arriving at its own conclusions on values.

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

	September 30, 2012								December 31, 2011
	Discount Rate			Terminal Cap Rate			Hold Period (yrs)		Discount Rate			Terminal Cap Rate			Hold Period (yrs)
Eastern region		6.5	%		5.7	%		11		6.6	%		6.1	%		11
Western region		6.5	%		5.9	%		10		6.8	%		6.3	%		10
Average		6.5	%		5.7	%		11		6.7	%		6.2	%		11

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

Brookfield Canada Office Properties 35

NOTE 5: TENANT AND OTHER RECEIVABLES

As of September 30, 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 September 30, 2012, $0.3 million of the Trust’s balance of accounts receivables is over 90 days past due (compared to $0.8 million at December 31, 2011).

NOTE 6: OTHER ASSETS

(Millions)	Sept. 30, 2012		Dec. 31, 2011
Prepaid expenses and other assets	$	5.6	$	6.4
Restricted cash		0.8		0.8
Total	$	6.4	$	7.2

NOTE 7: CASH AND CASH EQUIVALENTS

At September 30, 2012, the Trust had $nil of cash placed in term deposits, which is consistent with the amount at December 31, 2011. For the three and nine months ended September 30, 2012, interest income of $nil was recorded on cash and cash equivalents, compared with $0.1 million and $0.2 million during the same periods in 2011.

Note8:Commercial property and corporate debt

	Sept. 30, 2012					Dec. 31, 2011
	Weighted								Weighted
(Millions)	Average Rate			Debt Balance		Average Rate			Debt Balance
Commercial property debt – fixed rate		5.3	%	$	1,924.4		5.6	%	$	1,860.6
Corporate debt – floating rate		3.2	%		69.4		3.3	%		119.7
Total commercial property and corporate debt		5.3	%	$	1,993.8		5.5	%	$	1,980.3
Current				$	486.6				$	232.1
Non-current					1,507.2					1,748.2
Total debt				$	1,993.8				$	1,980.3

The Trust’s secured commercial property and corporate debt is non-recourse to the Trust with the exception of $104.5 million (compared to $106.1 million at December 31, 2011) which has limited recourse to the Trust’s parent, BPP and $59.6 million (compared to $119.7 million at December 31, 2011) which has recourse to the Trust.

During the first quarter of 2012 the Trust upsized 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 September 30, 2012, $60.0 million was drawn on the revolving corporate credit facility.

During the second quarter of 2012, the Trust completed the refinancing of Exchange Tower in Toronto for $120.0 million, generating net proceeds of $64.3 million, at ownership, after repayment of the previous mortgage. The new debt for Exchange Tower has a 10-year term maturing April 27, 2022 and bears interest at 4.031% per annum.

During the second quarter of 2012, the Trust also completed the refinancing of Royal Centre in Vancouver for $150.0 million, generating net proceeds of $39.0 million after repayment of the previous mortgage. The new debt for Royal Centre has a three-year term maturing June 1, 2015 and bears interest at 3.325% per annum.

During the third quarter of 2012, the Trust extended the maturity on the debt at 151 Yonge St. in Toronto for a two-year period to July 2014 at a rate of bankers’ acceptance plus 170 basis points.

NOTE 9: ACCOUNTS PAYABLE AND OTHER LIABILITIES

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

(Millions)	Sept. 30, 2012		Dec. 31, 2011
Accounts payable and accrued liabilities	$	90.2	$	93.1
Accrued interest		19.0		13.8
Total	$	109.2	$	106.9

36 Q3/2012 Interim Report

NOTE 10: DISTRIBUTIONS

The following tables present distributions declared for the nine months ended September 30, 2012 and September 30, 2011:

	Nine months ended Sept. 30, 2012
(Millions, except per unit amounts)	Trust Units		Class B LP Units
Paid in cash or DRIP	$	18.7	$	48.3
Payable as of September 30, 2012		2.6		6.5
Total		21.3		54.8
Per unit	$	0.82	$	0.82

	Nine months ended Sept. 30, 2011
(Millions, except per unit amounts)	Trust Units		Class B LP Units
Paid in cash or DRIP	$	18.7	$	48.4
Payable as of September 30, 2011		2.4		6.0
Total		21.1		54.4
Per unit	$	0.81	$	0.81

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 nine months ended September 30, 2012, $440,071 (dollars) or 16,529 Trust Units were paid through the DRIP, compared to $214,298 (dollars), or 9,836 Trust Units during the same period in 2011.

NOTE 11: EQUITY

The components of equity are as follows:

(Millions)	Sept. 30, 2012		Dec. 31, 2011
Trust Units	$	550.9	$	550.5
Contributed surplus		3.1		3.1
Retained earnings		245.2		165.2
Unitholders’ equity		799.2		718.8
Non-controlling interest		2,097.9		1,892.1
Total	$	2,897.1	$	2,610.9

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 September 30, 2012, the Trust had a total of 26,127,089 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 nine months ended September 30, 2012 and September 30, 2011:

	Nine months ended Sept. 30, 2012
	Trust Units		Class B LP Units
Units issued and outstanding at beginning of period		26,110,560		67,088,022
Units issued pursuant to DRIP		16,529		¾
Total units outstanding at September 30, 2012		26,127,089		67,088,022

	Nine months ended Sept. 30, 2011
	Trust Units		Class B LP Units
Units issued and outstanding at beginning of period		26,095,603		67,088,022
Units issued pursuant to DRIP		9,836		¾
Total units outstanding at September 30, 2011		26,105,439		67,088,022

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 nine months ended September 30, 2012.

Brookfield Canada Office Properties 37

NOTE 12: COMMERCIAL PROPERTY OPERATIONS

(a) Revenue

The components of revenue are as follows:

	Three months ended Sept. 30				Nine months ended Sept. 30
(Millions)	2012		2011		2012		2011
Rental revenue	$	125.9	$	106.9	$	370.6	$	315.1
Straight-line rental income		2.2		1.7		6.0		9.9
Lease termination and non-recurring income		¾		0.4		0.7		1.0
Commercial property revenue		128.1		109.0		377.3		326.0
Investment and other income		¾		0.1		¾		0.6
Total	$	128.1	$	109.1	$	377.3	$	326.6

(b) Investment and other income

Investment and other income was $nil for the three and nine months ended September 30, 2012 (compared to $0.1 million and $0.6 million during the same periods in 2011). The amounts primarily include interest earned on cash balances and other income.

NOTE 13: 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 and could be up to $64.0 million ($63.0 million Australian dollars) in the event the Trust is completely unsuccessful in defending the claims. During the quarter ended September 30, 2012, the amount of the contingent cash outflow increased by $18.0 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 entered into fixed gas-purchase contracts with a third-party gas supplier, which cover the period from November 1, 2011 to October 31, 2012. As of September 30, 2012, the remaining commitment for the Trust to purchase gas for its facilities was $0.1 million.

(d) The Trust has currently guaranteed up to $200.0 million related to its unsecured credit facility.

(e) As of September 30, 2012 the Trust had commitments totaling $0.6 million to third parties for the First Canadian Place re-cladding and re-positioning project in Toronto.

(f) The Trust maintains insurance on our 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 14: SEGMENTED INFORMATION

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

38 Q3/2012 Interim Report

NOTE 15: 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 condensed consolidated interim 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 operating expenses during the three and nine months ended September 30, 2012, are amounts paid to BPMC for property management services of $3.1 million and $10.1 million, respectively (compared to $3.0 million and $9.0 million during the same periods in 2011). Included in investment properties during the three and nine months ended September 30, 2012, are amounts paid to BPMC for leasing and construction services of $0.7 million and $2.1 million, respectively (compared to $3.0 million and $5.7 million during the same periods in 2011). Included in general and administrative expenses during the three and nine months ended September 30, 2012, are amounts paid to BPMC for asset management and administrative and regulatory compliance services of $4.2 million and $11.8 million, respectively (compared to $2.8 million and $9.1 million during the same periods in 2011).

Included in rental revenues during the three and nine months ended September 30, 2012, are amounts received from Brookfield Asset Management Inc., the ultimate parent of BPP, and its affiliates of $1.5 million and $4.4 million, respectively, which are consistent with the amounts earned during the same periods in 2011.

NOTE 16: OTHER INFORMATION

Supplemental cash flow information:

	Three months ended Sept. 30				Nine months ended Sept. 30
(Millions)	2012		2011		2012		2011
Cash interest paid	$	20.2	$	12.0	$	75.2	$	55.3

NOTE 17: SUBSEQUENT EVENT

Subsequent to the third quarter, the Trust repaid the debt at HSBC Building in Toronto for $19.8 million.

Note 18: APPROVAL OF INTERIM FINANCIAL STATEMENTS

The interim financial statements were approved by the Trust’s Board of Trustees and authorized for issue on October 22, 2012.

Brookfield Canada Office Properties 39

Unitholder Information

DISTRIBUTION PAYMENT DATES

	2012				2011				2011
(Dollars)	Trust Units		Class B LP Units		Trust Units		Class B LP Units		Trust Units		Class B LP Units
January 15	$	0.09	$	0.09	$	0.08	$	0.08	$	¾	$	¾
February 15		0.09		0.09		0.09		0.09		¾		¾
March 15		0.09		0.09		0.09		0.09		¾		¾
April 15		0.09		0.09		0.09		0.09		¾		¾
May 15		0.09		0.09		0.09		0.09		¾		¾
June 15		0.09		0.09		0.09		0.09		0.08		0.08
July 15		0.09		0.09		0.09		0.09		0.08		0.08
August 15		0.09		0.09		0.09		0.09		0.08		0.08
September 15		0.09		0.09		0.09		0.09		0.08		0.08
October 15		0.0975		0.0975		0.09		0.09		0.08		0.08
November 15		0.0975		0.0975		0.09		0.09		0.08		0.08
December 15		0.0975		0.0975		0.09		0.09		0.08		0.08

40 Q3/2012 Interim Report

Information

PROFILE

Brookfield Canada Office Properties is a Canadian real estate investment trust, focusing on the ownership and value enhancement of premier office properties. The current property portfolio is comprised of interests in 28 premier office properties totaling 20.7 million square feet. Landmark properties include Brookfield Place and First Canadian Place in Toronto and Bankers Hall in Calgary.

BROOKFIELD CANADA OFFICE PROPERTIES

Brookfield Place, Bay Wellington Tower

181 Bay Street, Suite 330

Toronto, Ontario M5J 2T3

Tel: 416.359.8555

Fax: 416.359.8596

www.brookfieldcanadareit.com

UNITHOLDER INQUIRIES

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 share certificates should be directed to the Trust’s Transfer Agent:

CIBC MELLON TRUST COMPANY

P.O. Box 700

Station 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

COMMUNICATIONS

We strive to keep our unitholders updated on our progress through a comprehensive annual report, quarterly interim reports, periodic press releases and quarterly conference calls.

Brookfield Canada Office Properties maintains a Web site,www.brookfieldcanadareit.com, which provides access to our published reports, press releases, statutory filings, supplementary information and trust and distribution information as well as summary information on the Trust.

Brookfield Canada Office Properties 41

www.brookfieldcanadareit.com