CHARTER HALL GROUP - Proxy Solicitation & Information Statement 2011

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Explanatory statement in response to notice of meeting

ARSN 093 016 838

THE INDEPENDENT DIRECTOR COMMITTEE of Charter Hall Office Management Limited unanimously recommends that Unitholders vote the Resolution. Against

This is an important document issued by your Responsible Entity, Charter Hall Office Management Limited, and requires your immediate attention. You should read this document carefully and in its entirety before deciding how to vote on the Resolution. If you are in doubt as to what you should do, you should consult your legal, investment, or other professional adviser.

Important Notices

Defined Terms

Capitalised terms used in this Explanatory Statement are defined in the Glossary.

Nature of this document

The Meeting was called by Orange Capital. Although CHOML did not call the Meeting, this Explanatory Statement is provided by CHOML to Unitholders to assist Unitholders to make an informed decision on the Resolution that will be considered at the Meeting.

This document has been prepared and is issued by CHOML. Orange Capital did not prepare or issue this Explanatory Statement.

Read this Explanatory Statement

You should read this Explanatory Statement carefully and in its entirety before making a decision as to how to vote on the Resolution to be considered at the Meeting. If you are in doubt as to what you should do, you should consult your legal, investment or other professional adviser.

Responsibility for information

Except as outlined below, the information in this Explanatory Statement has been provided by CHOML and is the responsibility of CHOML.

While reasonable steps have been taken in preparing and issuing this document, none of CHOML, its related bodies corporate, directors, employees nor any other person taken to have been involved in the preparation of this document makes any representation or warranty, express or implied, as to the accuracy or completeness of the information contained. Except where otherwise disclosed, the information relating to Orange Capital, Moss, Fortius and Unitholder Group, in this document has been obtained by CHOML from the Notice of Meeting and other publicly available information.

Grant Samuel & Associates Pty Limited has prepared and is responsible for the information contained in Appendix A. CHOML does not assume any responsibility for the accuracy or completeness of the information contained in Appendix A, except in relation to information given by CHOML to Grant Samuel. Grant Samuel does not assume any responsibility for the accuracy or completeness of the information contained in this Explanatory Statement other than that contained in Appendix A.

Investment Decisions

Nothing in this Explanatory Statement constitutes investment, legal, tax or other advice. This Explanatory Statement does not take into account your individual investment objectives, financial situation or particular needs and should not be relied upon as the sole basis for any investment decision. You should consult your legal, investment, or other professional adviser before deciding whether to vote in favour or against the Resolution.

Disclosure regarding forward looking statements

This Explanatory Statement contains both historical and forward-looking statements in connection with CQO, including statements of current intention or expectation. The forward-looking statements in this Explanatory Statement are not based on historical facts, but rather reflect the current views of CHOML held only as at the date of this Explanatory Statement (or the date the statement was actually made, as the case may be) concerning future results and events and generally may be identified by the use of forward-looking words or phrases such as “believe”, “aim”, “expect”, “expected”, “targeted”, “anticipated”, “intending”, “foreseeing”, “likely”, “should”, “planned”, “may”, “estimated”, “potential” or other similar words and phrases. Similarly, statements that describe CHOML’s objectives, plans, goals or expectations may be forward-looking statements.

Any forward-looking statements included in this Explanatory Statement have been made on reasonable grounds. Although CHOML believes that the views reflected in any forward-looking statements in this Explanatory Statement have been made on a reasonable basis, no assurance can be given that such views will prove to be correct. As such forward-looking statements relate to future matters, they are subject to known and unknown risks, uncertainties, assumptions and other factors that may cause CQO’s actual results, performance or achievements to differ materially from the anticipated results, performance or achievements expressed, projected or implied by such forward-looking statements. Deviations as to future results, performance and achievements are both normal and to be expected. Unitholders should review carefully all of the information, including the financial information, included in this Explanatory Statement. The forward-looking statements included in this Explanatory Statement are made only as at the date of this Explanatory Statement or the date the statement was actually made, as the case may be. CHOML and its directors, officers and advisers give no representation, assurance or guarantee to Unitholders or any other person that any forward-looking statements will actually occur or be achieved. Unitholders are cautioned not to place undue reliance on forward-looking statements.

Subject to any continuing obligations under law or the ASX Listing Rules, CQO does not give any undertaking to update or revise any forward-looking statements after the date of this Explanatory Statement to reflect any change in expectations in relation to those statements or any change in events, conditions or circumstances on which any such statement is based.

Privacy

CHOML has collected your information from the register of Unitholders for the purpose of providing you with this Explanatory Statement. The type of information CHOML has collected about you includes your name, contact details and information on your unitholding in CQO. Without this information CHOML would be hindered in its ability to issue this Explanatory Statement. The Corporations Act requires the name and address of Unitholders to be held in a public register. Your information may be disclosed on a confidential basis to CHOML’s related bodies corporate and external service providers (such as the share registry of CQO and print and mail providers) and may be required to be disclosed to regulators such as ASIC and ASX.

Notice to persons outside Australia

This Explanatory Statement has been prepared in accordance with Australian law and the information contained in this Explanatory Statement may not be the same as that which would have been disclosed if this Explanatory Statement had been prepared in accordance with law and regulations outside Australia.

All references to $ are to Australian dollars unless otherwise stated.

Unitholder information line

If you have any queries regarding this Explanatory Statement or the Meeting, please contact the Unitholder information line on 1300 303 063 at any time between 9.00am and 5.00pm (Sydney time) on Monday to Friday.

Date

This Explanatory Statement is dated 8 July 2011.

Charter Hall Office REIT

Important Notices 02 Table of Contents 03 Letter from CHOML Chairman 04 Important Questions 06 Voting instructions 07 1. Background and Independent director Committee 08 2. Recommendation of the IdC 10 3. Management depth, capability and costs 12 4. alternate strategies for CQO 18 5. Risks that CQO Unitholders should consider 24 appendix a—Independent Review 28 appendix B—Questions to Moss 51 Glossary 58

The Explanatory statement in relation to the meeting of Charter Hall Office REIT Unitholders to be held at 10.00 am on 27 July 2011 in the Grand Ballroom, sheraton on the Park, 161 Elizabeth street, sydney, nsW, 2000

2 MaRkET sTREET, sYdnEY, nsW

Letter from CHOML Chairman

8 July 2011

Dear Unitholder,

I am writing to you as Independent Chairman of Charter Hall Office Management Limited (“CHOML”), the responsible entity of Charter Hall Office REIT (“CQO”), and as the Chairman of the Independent Director Committee (“IDC”).

You would have recently received information relating to a meeting of Unitholders to be held on 27 July 2011. The meeting has been called by Orange Capital, who is proposing a resolution to replace CHOML as the responsible entity of CQO with their nominee, Moss Capital Funds Management Limited (“Moss”). If appointed, Moss proposes to consider a new strategy for CQO. The change in responsible entity of CQO is therefore a significant decision for all Unitholders, and it is important that you carefully consider all of the information relating to the Resolution.

This Explanatory Statement is CHOML’s formal response to the Orange Capital proposal. It provides you with material information to assist you to decide how to vote on the Resolution. It has been prepared by the IDC, which is a sub-committee of the CHOML Board comprising the non-executive independent Directors: James Broadbent, Andrew Love and Roger Davis.

Conflicts of Interest

Orange Capital has complained that the CHOML Board has an inherent conflict of interest and is incentivised to favour the interests of Charter Hall and not make decisions that are in the best interests of Unitholders.

The CHOML Board unequivocally rejects this assertion.

The CHOML Board always ensures that decisions concerning CQO are made having regard to the best interests of Unitholders, and that any conflicts of interest, if and when they arise, are properly managed. The protocols and procedures that the CHOML Board has in place, which include the establishment of the IDC, ensure that the Board’s decision-making process is focussed on achieving outcomes that are in the best interests of Unitholders.

The CHOML Board accepts that any Unitholder is entitled to promote proposals that are consistent with its own commercial interests, and hedge funds like Orange Capital are particularly active in doing this. Orange Capital have indicated to me that one of their objectives is to achieve liquidity for their CQO holding, and have proposed a number of potential strategies to achieve this objective, including the liquidation of CQO’s assets or increasing CQO’s indebtedness. However, as the responsible entity of CQO, we need to make decisions having regard to the best interests of Unitholders, not particular Unitholders. The CHOML Board considers that such a short-term strategy aimed at providing liquidity which may risk weakening CQO’s financial position is therefore not in the best interests of Unitholders.

CHOML Board Strategy

The CHOML Board is actively seeking to drive earnings growth and reduce the discount between CQO’s stated net tangible asset backing and the trading price of CQO units.

To progress this objective, the CHOML Board has implemented a strategy that comprises three components:

re-focusing CQO as a simplified investment vehicle, owning Australian office assets, with a conservative and sustainable capital structure;
the disposal of non-core assets in Europe and Japan, and the sale of the US Assets; and
the return of surplus funds to Unitholders via a pro-rata distribution.

My fellow Directors and I have met with a number of Unitholders over the course of the past several months. Based on what we have been told at those meetings, the majority of Unitholders support this strategy.

IDC Process and Conclusions

The IDC has focused on a number of issues that it considers important in making a decision in relation to the Resolution, and has formed the following conclusions:

Lack of management depth and capability and uncertain costs: The IDC does not believe that Moss has the capability or resources to appropriately manage CQO’s assets. The IDC is also concerned that Moss does not currently have an Australian Financial Services Licence that is legally required for it to become the responsible entity of CQO, and it is not clear what Moss proposes will happen if the licence is not granted. The IDC is also concerned that the quantum of fees proposed to be paid to Moss and third parties is unclear. This exposes Unitholders to serious risks and uncertainties if the Resolution is passed.
Ability to implement the US strategy: The IDC believes CHOML is in a better position than Moss to manage the US assets and complete the US Sale Process, noting that the IDC has received no information as to the US management capacity and capability of Moss or its affiliates.
Australian strategy: CHOML regularly reviews CQO’s portfolio in order to optimise Unitholder returns. The IDC does not consider that Moss’ proposal of another strategic review of the Australian Assets by the new responsible entity, which involves soliciting proposals for the sale of these assets or CQO, would be in the best interests of Unitholders for the reasons set out in Section 4 of this Explanatory Statement.

Charter Hall Office REIT

Exposure to additional risks: The IDC considers that the replacement of the responsible entity exposes Unitholders to risks in relation to their investment in CQO to which they are not currently exposed, including events of default under CQO’s debt facilities and pre-emptive rights over certain CQO assets. Exposure to these risks may affect the performance and liquidity of CQO.

A detailed discussion of these key issues can be found in this Explanatory Statement. We encourage you to read the Explanatory Statement carefully and in its entirety.

Independent Review

The IDC retained Grant Samuel to prepare an Independent Review opining on the merits of the alternative strategies proposed for CQO. That review concludes that:

“In Grant Samuel’s opinion it is appropriate that the independent directors of CQO support the strategy to maintain CQO as an Australian focussed office real estate investment trust. Many unitholders have made a longer term investment in quality office property through CQO and it is unlikely that they would want to realise the Australian portfolio unless it was clear that this would lead to a material gain that would not otherwise be available.

…the gain to unitholders from the realisation of the Australian portfolio is unlikely to be material …”

In relation to the proposal to change the Responsible Entity of CQO, Grant Samuel states that:

“it is not known if Moss Capital has the depth of management required to manage the CQO portfolio …”

and in relation to the US Sale Process:

“the sale of the United States portfolio could be adversely affected by changing the responsible entity midway through the sale process …”

A copy of the Independent Review is contained in Appendix A to this Explanatory Statement. You should read that review carefully and in its entirety.

Recommendation

Based on the above conclusions and the Independent Review, the IDC does not support the removal of CHOML as the responsible entity of CQO and its replacement with Moss.

THE IDC UNANIMOUSLY RECOMMENDS THAT UNITHOLDERS VOTE AGAINST THE RESOLUTION.

How to vote

Your vote is important and I encourage you to vote Against the Resolution at the Meeting on 27 July 2011.

You will have received a proxy form from Orange Capital when you received the Notice of Meeting, and another proxy form from CHC.

If you cannot attend the Meeting in person and you wish to vote or if you have already lodged a proxy form but wish to change your vote you may complete the enclosed proxy form and send it to CHOML in accordance with the directions on pages 6 and 7 of this Explanatory Statement. A reply paid envelope addressed to CHOML is enclosed for this purpose.

If you require a new proxy form for any reason, please call the official CQO Unitholder information line on 1300 303 063 and we will arrange for a new proxy form to be sent to you.

If you are in doubt as to what you should do, please consult your legal, investment, or other professional adviser.

Yours sincerely,

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Roger Davis

Independent Chairman

Explanatory statement in response to notice of meeting

Important Questions

Why am I receiving this document?

Orange Capital has convened a meeting of Unitholders to be held on 27 July 2011.

The purpose of the Meeting is to consider a resolution to remove CHOML as the responsible entity of CQO and to replace it with Moss, a nominee of Orange Capital and the Unitholder Group.

The IDC (Roger Davis—Chairman, James Broadbent and Andrew Love) has prepared this Explanatory Statement on behalf of CHOML.

The purpose of this Explanatory Statement is to provide you with further information to assist you to make an informed decision on how to vote on the Resolution.

What should I do?

You should read this Explanatory Statement carefully and in its entirety before deciding how to vote on the Resolution.

If you are in doubt as to what you should do, you should consult your legal, investment, or other professional adviser.

If you have any questions you should call the official CQO Unitholder information line on 1300 303 063. The Unitholder information line will endeavour to provide answers to your questions.

What is the recommendation of the IDC?

THE IDC RECOMMENDS THAT YOU SHOULD VOTE AGAINST THE RESOLUTION.

Detailed reasons for this recommendation are contained in Section 2 of this Explanatory Statement.

What should I do with the Proxy Form?

If you wish to vote in person, you must attend the Meeting on 27 July 2011. If you cannot attend the Meeting in person but wish to vote on the Resolution, you may do so by completing and submitting the enclosed proxy form.

If you wish to follow the recommendation of the IDC, you should complete the enclosed proxy form in the manner specified on the opposite page and return it to CHOML via one of the following methods:

by reply paid post: post the completed proxy form to CHOML in the enclosed reply paid envelope; or
by fax: fax the completed proxy form to CHOML at its registered office at +61 2 9262 6724; or
in person: hand deliver the completed proxy form to CHOML at its registered office at Level 11, 333 George Street, Sydney NSW 2000; or
by post: posting the completed proxy form to CHOML at Charter Hall Office Management Limited as Responsible Entity of Charter Hall Office REIT, Reply Paid 2704, Sydney NSW 2001

Duly completed proxy forms must be received by CHOML by no later than 10.00am on Monday, 25 July 2011 to be valid.

IF YOU HAVE ALREADY SUBMITTED A PROXY BUT WISH TO CHANGE THE WAY YOU VOTED, COMPLETE THE ENCLOSED PROXY FORM OR IF YOU OTHERWISE NEED A NEW PROXY FORM, PLEASE CALL THE OFFICIAL CQO UNITHOLDER INFORMATION LINE ON 1300 303 063 AND WE WILL ARRANGE FOR A NEW PROXY FORM TO BE SENT TO YOU.

6 Charter Hall Office REIT

Voting instructions

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lOdGe yOur VOte
 By mail: Charter Hall Office Management Limited  [By fax:] [ +61 2 9262 6724]
as responsible entity of Charter Hall Office
REIT
ARSN 093 016 838Manager: Charter Hall Office Management Limited Reply Paid 2704SYDNEY NSW 2001
ABN 75 006 765 206 AFSL 247075
As responsible entity of Charter Hall Office REIT  All enquiries to: Telephone: 1300 303 063 Overseas: +61 2 8280 7134
X99999999999
X99999999999
UNiTHOLDER VOTiNG FORM
I/We being a unitholder(s) of Charter Hall Office REIT (the Fund) and entitled to attend and vote hereby appoint:
steP 1 aPPOint a PrOXy
Step 1 PLEAsE NOTE: Leave this box blank
Roger Davis OR  if you have selected Roger Davis.
Tick this box Do not insert your own name(s).
or failing him, the Chairman of the Meeting, as my/our proxy to act generally at the meeting on my/our behalf (including, without
limitation, to vote as the proxy sees fit on any procedural resolution or motion) and to vote in accordance with the following direction for
me/us on my/our behalf at the General Meeting of Charter Hall Office REIT to be held at 10:00am (AEsT) on Wednesday, 27 July 2011,
at the Grand Ballroom, sheraton on the Park, 161 Elizabeth street, sydney and at any adjournment or postponement of the meeting.
Roger Davis is the Independent Chairman of the Charter Hall Office Management Limited Board and sits on the Independent Directors
Committee.
Proxies will only be valid and accepted by the Manager if they are signed and received no later than 48 hours before the meeting.
Please read the voting instructions overleaf.
Step 2 sTEP 2 VOtinG direCtiOns
Tick the Against box Ordinary resOlutiOn
resolution 1 For Against Abstain
Removal of Charter Hall Office Management Limited and appointment of Moss Capital Funds
Management Limited as Responsible Entity of the Fund
To consider, and if thought fit, pass as an ordinary resolution:
‘THAT:
(a) Charter Hall Office Management Limited ACN 006 765 206 be removed; and
(b) Moss Capital Funds Management Limited ACN 125 903 031 be appointed,
Step 3 as the responsible entity of Charter Hall Office REIT ARSN 093 016 838 pursuant to its constitution and section 601FM of the Corporations Act 2001 (Cth).’
Sign here in this box
steP 3 siGNATURE OF UNiTHOLDERs – THis MUsT BE COMPLETED
Step 4 Unitholder 1 (Individual) Joint Unitholder 2 (Individual) Joint Unitholder 3 (Individual)
Complete your full
contact details Sole Director and Sole Company Secretary Director/Company Secretary (Delete one) Director
Contact Name Contact Daytime Telephone Date of Execution
( ) / /
Step 5
This form should be signed by the Unitholder. If a joint holding, either Unitholder may sign. If signed by the Unitholder’s attorney, the power
Write the date here of attorney must have been previously noted by the registry or a certified copy attached to this form. If executed by a company, the form must
be executed in accordance with the company’s constitution and the This form should be signed by the Unitholder. If a joint holding, either Unitholder may sign. If signed by the Unitholder’s attorney, the power of attorney must have been previously noted by the registry or a certified copy attached to this form. If executed by a company, the form must Corporations Act 2001 (Cth). CQO PRX101
be executed in accordance with the company’s constitution and the Corporations Act 2001 (Cth).
CQO PRX101
CQO PRX101
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Explanatory statement in response to notice of meeting

1. Background

1.1. Strategy to reweight portfolio to Australia

In December 2008, CHOML announced a strategy of re-weighting CQO’s property portfolio towards Australian assets in order to provide Unitholders with a simplified exposure to the Australian office market over the long term. CQO has since sold non-core assets in Europe and Japan, resulting in CQO holding a portfolio of predominantly Australian and US assets. A sale of the US Assets, and the sale of the last non-core European asset, will complete this re-weighting strategy.

1.2. US Sale Process

In early 2011, CHOML announced that it had appointed Bank of America Merrill Lynch (“BOAML”) to assist it in a process to explore third party interest in the US Assets. Whilst a joint venture with wholesale investors in respect of the US Assets was initially explored, CHOML decided to pursue a broader sale of all CQO’s US assets following a noticeable improvement in the US capital markets and increased demand for quality office buildings.

On 18 May 2011, CHOML announced that the US Sale Process had received a wide range of expressions of interest and that it would commence a second phase of that process. A select group of parties were invited to undertake full due diligence and submit formal bids for the purchase of all or some of the US Assets. The US Sale Process is continuing, with binding purchase and sale agreements expected to be signed within the September quarter 2011.

CHOML has also confirmed its intention to return the net proceeds of the sale of the US Assets via a pro-rata special distribution to all Unitholders.

1.3. Meeting called by Orange Capital

Orange Capital has made a number of statements regarding their preferred strategy for CQO. These statements have not always been consistent.

On 30 May 2011, Orange Capital publicly announced that it had requested a copy of the Unitholder register of CQO in order to call a meeting of Unitholders to remove CHOML as CQO’s responsible entity. In that statement, Orange Capital said it believed that the new responsible entity would pursue an open market sale of all of CQO’s assets and return all net proceeds to Unitholders.

Orange Capital has since convened the Meeting in order to consider the Resolution to remove CHOML as the responsible entity of CQO and replace it with Moss.

In their Notice of Meeting, Orange Capital changed their previously announced realisation strategy in relation to the Australian Assets. Orange Capital’s current proposal is that if Moss is appointed as the new responsible entity of CQO it would:

continue with the US Asset Sale Process, with the net proceeds to be returned to Unitholders; and
undertake a strategic review of the balance of CQO’s assets including the Australian Assets, including inviting third parties to bid for the Australian Assets or for CQO.

8 Charter Hall Office REIT

1.4. Establishment and purpose of the IDC

The CHOML Board, which has had a majority of independent directors for over seven years, always ensures that decisions concerning CQO are made having regard to the best interest of Unitholders, and that any conflicts of interest, if and when they arise, are properly managed.

On 8 June 2011, CQO announced the formation of IDC comprising Roger Davis, Andrew Love and James Broadbent. The IDC is responsible for all decisions concerning the US Exit Strategy and any alternative proposal under consideration.

The IDC has therefore been responsible for reviewing and responding to the proposal by Orange Capital. This Explanatory Statement is the IDC’s formal response to the Orange Capital proposal, and includes the IDC’s recommendation on how to vote on the Resolution in Section 2.

The IDC considers it appropriate that it provide this Explanatory Statement, and that it is justified in making a recommendation on how to vote on the Resolution, recognising that should the Resolution be passed, they will no longer be directors of a company that is the responsible entity of CQO.

1.5. Preparation of this Explanatory Statement

In preparing this Explanatory Statement, the IDC has sought to ensure Unitholders are provided with all material information required to assist them in making an informed decision on how to vote on the Resolution. As such, this Explanatory Statement includes the IDC’s assessment of a number of key issues that should be considered by Unitholders when deciding how to vote on the Resolution.

These key issues are:

Management: the respective management depth, capabilities and cost of management services provided by CHOML and Moss—see Section 3;
Strategy: the respective strategies for CQO, in relation to the US Sale Process as well as the ownership of Australian Assets—see Section 4; and
Risks: the risks related to a change in responsible entity and the implementation of Moss’ proposed strategy for CQO—see Section 5.

1.6. Independent Review

The IDC has retained Grant Samuel to prepare an Independent Review opining on the merits of the alternative strategies for CQO.

A full copy of the Independent Review is included in this Explanatory Statement at Appendix A.

Explanatory statement in response to notice of meeting

2. Recommendation of the IDC

2.1. CHOML Board Composition

The Directors of CHOML at the date of this Explanatory Statement are:

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Director: Position:
Roger Davis Non Executive Chair (Independent)
James Broadbent Non Executive Director (Independent)
Andrew Love Non Executive Director (Independent)
David Harrison Executive Director (Joint Managing Director Charter Hall Group)
David Southon Executive Director (Joint Managing Director Charter Hall Group)
Alternate Director:
Adrian Taylor Chief Executive Officer of CHOML
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The IDC is constituted by Roger Davis, James Broadbent and Andrew Love. The IDC has been responsible for the preparation of this Explanatory Statement and only the IDC gives a recommendation.

2.2. Recommendation

THE IDC UNANIMOUSLY RECOMMENDS THAT UNITHOLDERS VOTE AGAINST THE RESOLUTION.

Each member of the IDC who holds CQO units intends to vote those units Against the Resolution.

10 Charter Hall Office REIT

2.3. Reasons for recommendation

The IDC’s reasons for making its recommendation are as follows:

a) Lack of management depth and capability and uncertain costs: The IDC does not believe that Moss has the capability or resources to appropriately manage CQO’s assets. The IDC is also concerned that Moss does not currently have an Australian Financial Services Licence that is legally required for it to become the responsible entity of CQO, and it is not clear what Moss proposes will happen if the licence is not granted. The IDC is also concerned that the quantum of fees proposed to be paid to Moss and third parties is unclear. This exposes Unitholders to serious risks and uncertainties if the Resolution is passed.
b) Ability to implement the US Strategy: The IDC believes CHOML is in a better position than Moss to manage and complete the US Sale Process noting that the IDC has received no information as to the US management capacity and capability of Moss or its affiliates.
c) Australian strategy: CHOML regularly conducts strategic reviews of CQO’s portfolio in order to optimise Unitholder returns. The IDC does not consider that Moss’ proposal of a strategic review of the Australian Assets by a new responsible entity, which involves soliciting proposals for the sale of these assets would be in the best interests of Unitholders for the reasons set out in Section 4.
d) Exposure to additional risks: The IDC considers that the replacement of the responsible entity exposes Unitholders to risks in relation to their investment in CQO to which they are not currently exposed, including events of default under CQO’s debt facilities, and pre-emptive rights over certain CQO assets. Exposure to these risks may affect the performance and liquidity of CQO.
e) Conclusion of Grant Samuel: The IDC’s view on the strategy regarding the Australian Assets is consistent with the opinion of Grant Samuel as set out in the Independent Review. Grant Samuel states as follows:

The gain to unitholders from the realisation of the Australian portfolio is unlikely to be material …”

In relation to the proposal to change the Responsible Entity of CQO, Grant Samuel states that:

“it is not known if Moss Capital has the depth of management required to manage the CQO portfolio …”

and in relation to the US Sale Process:

“the sale of the United States portfolio could be adversely affected by changing the responsible entity midway through the sale process …”

Appendix A contains a complete copy of the Independent Review. Unitholders are urged to read the Independent Review

carefully and in its entirety.

11 Explanatory statement in response to notice of meeting

3. Management depth, capability and costs

CQO owns a portfolio of real estate assets that are now located predominantly in Australia and the United States. Key portfolio details as at 31 May 2011 unless otherwise stated are set out in the following table.

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Australia United States Total [1]
Number of properties 19 14 33
30 June property valuations $1.9 billion $1.6 billion $3.5 billion
Net lettable area – 100% 410,086sqm 759,910sqm 1,169,996sqm
Gross annual income ($AU) $185.5 million $178.7 million $364.2 million
Occupancy [2] 94% 82% 87%
Weighted average lease expiry [2] 4.5 years 5.7 years 5.1 years
YTD leasing activity [2] 104,700sqm (26%) 103,300sqm (14%) 208,000sqm (18%)
Number of markets 11 14 25
Number of tenants 207 322 529
Number of entities 16 42 58
Debt refinanced (last 12 months) [3] - - $1.5 billon
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Note: 1. excludes Berlin asset.

includes letters of intent
includes new facilities, refinancing, repayments and is approximate

3.1. CHOML Management

Who are CHOML and CHC?

CHOML is wholly owned by Charter Hall Group (“CHC”), one of the largest independent specialist Australian real estate fund managers with over $10 billion of funds under management and 20 listed and unlisted funds. CHC is a diversified property group with over 270 staff located across six locations around the world. CHC and CHOML both have extensive experience in managing real estate assets and businesses such as CQO’s over a number of years.

Management of office properties is the core competency of CHC, with

$6.7 billion office assets under management across Australia and the US
74 office assets globally
over 1.5 million square metres of office properties owned or managed
approximately 5% of Australian premium / grade A CBD office space under management

These operations allow CHC to achieve significant economies of scale in the management of office buildings which directly benefit Unitholders.

What employees, resources and systems does CHOML have for managing CQO?

CHOML has access to employees, resources and systems that have proven to be capable of managing the Assets since CHC acquired the CQO management platform from Macquarie Group in 2010. Prior to that transaction, CHOML, under Macquarie ownership, had been developed specifically to manage the CQO Assets since CQO’s IPO in December 1993.

Of particular relevance is CHOML’s dedicated US based team which was established in 2004. The US based team carry a strong track record, having been involved in over US$6 billion of office building transactions, raised or refinanced over US$1.3 billion of debt, and leased over 6 million square feet of office space.

12 Charter Hall Office REIT

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Employees CHC has a large team focused on management of CQO, including:
� equivalent of 40 full-time employees dedicated to CQO (Australia: 28; United States: 12)
� 70 shared service staff regularly providing services such as property & financial management,
asset and engineering services, acquisitions, disposals, leasing, tax, accounting & treasury,
marketing & investor relations, legal, compliance & company secretarial
� access to over 50 additional employees with relevant expertise
Resources � offices in Sydney, Melbourne, Brisbane, Perth, Adelaide and Chicago
� extensive market intelligence network that comes from a scale of real estate investment
� access to bespoke research and proprietary market data
Systems The CQO management platform comprises a sophisticated IT system that complements the Charter Hall
systems that are designed to assist in the proper management of the Assets. The systems include:
� integrated US customised asset management and accounting on both Yardi and Dyna
� integrated property investment forecasting software including Cougar in Australia and MRI for
accounting in both Australia and the US
� compliance systems including INX and Blueprint
� Visual Risk treasury management software
� development management software for projects such as 171 Collins St
� Miraqle and Salesforce customer relationship tools for investor and customer relations purposes
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What management fees and other costs are paid by CQO?

The fees payable to CHOML in relation to the management of CQO are set out in CQO’s constitution and have been disclosed to Unitholders in detail on the CQO website and in CQO’s annual reports.

In summary, the management fees and other costs payable by CQO comprise three components:

A base management fee payable to CHOML, calculated as:
a. 0.45% per annum of the value of the total assets of CQO up to $1 billion; plus
b. 0.40% per annum of the value of the total assets of CQO over $1 billion
Performance fees payable to CHOML, measured at 6 monthly intervals and payable in new CQO Units, dependent on the relative performance of CQO to the Office Property REIT Accumulation Index (“Index”), equivalent to the value of:
a. 5% of Outperformance (measured as market capitalisation x percentage outperformance) above the Index; plus
b. 10% of any Outperformance above a 2% threshold

Any underperformance of CQO against the Index is carried forward to future periods. Performance fees are not paid if they would cause management fees to exceed an annual cap of 80 basis points of gross assets (except in limited circumstances of sustained performance).

Other management costs and expenses are payable out of CQO’s assets. These include costs of acquiring or disposing of assets, leasing fees, technical and professional advice, capital raising costs, as well as routine expenses such as registry, audit, accounting, marketing, tax, insurance and compliance costs.

13 Explanatory statement in response to notice of meeting

3. Management depth, capability and costs

Some of the costs and expenses referred to in paragraph 3 above are paid to related parties of CHOML (i.e. entities within the CHC Group). Where a related party within the CHC Group is able to provide CHOML with services to a required standard that would otherwise need to be provided by a third party, CHOML may seek to appoint that party on an arm’s length basis.

In the last two full financial years, CHOML and its related parties (or their predecessors), have been paid the following fees and expense reimbursements.

==> picture [498 x 81] intentionally omitted <==

----- Start of picture text -----

Base fee ($m)
Related party costs and
(paid to CHOML or its Performance fee ($m)
expenses ($m)
predecessor)
FY10 [1,2] 15.9 0.0 4.5
FY09 (Macquarie) 21.5 0.0 5.3 [3]
----- End of picture text -----

Notes: 1. CHOML was wholly owned by Charter Hall for four months of FY10

CHOML’s predecessor was wholly owned by Macquarie Group in FY09 and eight months of FY10
excluding fees for investment banking services provided by Macquarie Group

A related party of CHOML is entitled to disposal fees in relation to the US Sale Process. These fees comprise a vendor due diligence fee of 0.25% of gross sales price and a transaction fee of 0.75% of gross sales price. The payment of these disposal fees is subject to a separate contract between the related party and CQO’s US subsidiaries, and therefore, in the event that CHOML is removed as responsible entity of CQO, these fees remain payable in accordance with the terms of that contract. CHOML’s external adviser, BOAML, is also entitled to a market-based fee in relation to the US Sale Process which fee remains payable if CHOML is removed as responsible entity of CQO.

How do CQO’s management costs under CHOML management compare to its peers?

As illustrated in the chart below, the IDC understands that the management expense ratio of CQO (an A-REIT sector benchmark to measure management costs) is in line with the comparable ratios of other similar REITs that are listed on the ASX.

==> picture [423 x 238] intentionally omitted <==

----- Start of picture text -----

1.40%
1.20%
1.00%
0.80%
0.60%
0.40%
0.20%
0.00%
IOF CQO CPA CFX GPT1 DXS1
2009 2010
Managment expense ratio
----- End of picture text -----

Source: Morgan Stanley Research Notes: 1. GPT and Dexus operate under internal management structures.

14 Charter Hall Office REIT

3.2. Moss Management

Information about Moss

The information provided in the Notice of Meeting was not sufficient in order for the IDC to form a view about who Moss is, what employees, resources and systems Moss has for managing CQO or what fees will be payable to Moss and others if the Resolution is passed.

The IDC considered that such information was necessary in order for Unitholders to be able to make an informed decision on the Resolution.

Accordingly, on 28 June 2011, the IDC sought further information directly from Moss in relation to, amongst other things:

what employees, resources and systems Moss has for managing CQO
what fees will be payable to Moss and others for managing CQO
what transitional arrangements did Moss propose to have in place to ensure continuity of management across the CQO portfolio

A full list of the information requested from Moss by the IDC is set out in Appendix B to this Explanatory Statement.

On 1 July 2011, Moss replied to the IDC stating:

“In relation to the series of questions in your letter [of 28 June 2011] concerning managing CQO in the event that the resolution to appoint Moss Capital as responsible entity of CQO is passed … we advise that Moss Capital is fully resourced to undertake the role …”

Moss provided no further comment in relation to these matters, nor any specific information in relation to the IDC’s questions. The IDC considers this response to be wholly unsatisfactory, and as a result, is not satisfied that Moss has the management depth, capability or resources to manage CQO’s assets on an ongoing basis.

The remainder of this section 3.2 of the Explanatory Statement is based upon the limited information that is provided in the Notice of Meeting.

Who is Moss?

The Notice of Meeting provides some information about Moss, in particular details about the Moss directors and the Moss management team who will be responsible for the day-to-day management of CQO’s assets if the Resolution is passed.

Whilst the Notice of Meeting describes the experience of management and directors of Moss (including when they worked for organisations other than Moss), it does not describe what experience Moss itself has in operating businesses such as CQO nor does it describe Moss’ assets or other business activities.

Moss did not provide any further information on these matters when requested to do so by the IDC.

Accordingly, the information provided does not give the IDC any real understanding of who Moss is nor does it satisfy the IDC that Moss has the requisite expertise or experience to operate a business such as CQO.

What employees, resources and systems does Moss have for managing CQO?

The Notice of Meeting contemplates that Moss will be responsible for the “day-to-day” management of CQO and that Fortius Group will provide asset management services in respect of CQO’s properties.

The Notice of Meeting refers to several Moss management executives and Fortius management executives who will be responsible for the management of CQO if the Resolution is passed and Moss is appointed as Responsible Entity of CQO.

The Notice of Meeting does not make clear what employees, resources and systems both Moss and Fortius Group will have available to them for managing CQO’s portfolio of 37 properties located in the US and Australia. As far as the IDC is aware, Moss does not have any office or management infrastructure located in the United States. Further, the Notice of Meeting does not make clear what specific assistance Fortius Group will provide Moss in respect of the management of CQO. As at the date of this Explanatory Statement, the IDC does not know whether Moss has entered into any such agreement with Fortius Group, nor does it know the terms of any such agreement.

Accordingly, the information provided in the Notice of Meeting does not satisfy the IDC that Moss has the required employees, resources and systems to undertake the proper management of CQO’s assets in Australia and in the United States.

Moss’ statement that “Moss is fully resourced to undertake the role...” does not provide any comfort to the IDC on those issues.

15 Explanatory statement in response to notice of meeting

3. Management depth, capability and costs

Does Moss have a current Australian Financial Services Licence to act as responsible entity of CQO?

As at the date of this Explanatory Statement, Moss does not hold an AFSL that authorises Moss to act as responsible entity of CQO. In the Notice of Meeting the following statement is made:

“MCFM has been issued with a pending Australian financial services licence (number 398196) with the requisite authorisations to operate the Fund. MCFM expects that this AFSL will be issued in final form from the close of the Meeting to permit immediate management of the Fund by MCFM.”

The IDC requested Moss to provide the basis for the stated expectation and what Moss proposes will happen if the AFSL is not issued. Moss did not provide that information.

Accordingly, Unitholders have no assurance that Moss will be granted the AFSL by the date of the Meeting, in which case Moss may not be legally permitted to become the new responsible entity of CQO even if the Resolution is passed. As Moss has not explained to Unitholders what will happen in those circumstances, Unitholders are exposed to serious risks and uncertainties if the Resolution is passed.

What fees will be payable to Moss and others if the Resolution is approved?

Set out below is an extract from the Notice of Meeting in which Orange Capital sets out the following proposed fee schedule to be paid to Moss if it is appointed as the responsible entity to CQO:

a base management fee per annum of 0.30% per annum of the Gross Value of all of the Assets (plus fees payable to co-owners) with 50% of the fee deferred until the earliest of the following events:
in the case of the US Assets, the completion of the sale of the US Assets;
in the case of the Australian Assets, the completion of the Strategic Review;

or

for all of the Assets, if the 3-month rolling volume weighted average price of CQO Units (measured at the end of each calendar month) is greater than the last stated NTA adjusted for any Asset sales announced during that period;
a performance fee if Unitholders receive consideration or distributions in excess of the following hurdles (before deduction of the performance fee), calculated on the Gross Value of the Assets disposed of, as set out below:

==> picture [462 x 96] intentionally omitted <==

----- Start of picture text -----

Unitholder value realised (per unit) % fee of gross value of Assets disposed of
>$4.00 0.05%
>$4.25 0.10%
>$4.50 0.15%
----- End of picture text -----

For example, if Unitholders received distributions or consideration of $4.30 per Unit, MCFM would be entitled to a performance fee equal to the Gross Value of the Assets disposed of multiplied by 0.10%.

In any event, the fees of MCFM will not exceed the entitlements of the Responsible Entity under the Fund’s constitution ( Current Entitlement ). If the fees payable to MCFM would otherwise exceed the Current Entitlement, they are to be deferred until the payment of them would not exceed the Current Entitlement or to be paid out of the difference between the Current Entitlement since MCFM was appointed as Responsible Entity and the actual fees paid to it.

Separately disposal fees may be paid to related bodies corporate of MCFM for services provided with respect to the disposal of Assets. Any fees paid will be on arm’s length terms and in any event will not exceed:

0.05% of the Gross Value of the US Assets sold; and
0.15% of the Gross Value of the Australian Assets sold.

16 Charter Hall Office REIT

IDC considerations in relation to Moss fee arrangements

The IDC has a number of concerns with Orange Capital’s proposal regarding the fees and costs to be paid to Moss and to third parties if the Resolution is passed.

Concerns as to uncertainty of proposed fee structure

The IDC is concerned that the operation of the proposed new fee structure is unclear in many respects. Based on the limited information provided in the Notice of Meeting:

it is not clear how certain fees are calculated, when certain fees will be paid or how the proposed cap on fees will operate
it is not clear whether expenses incurred by Moss in relation to the performance of its duties will be borne by CQO if Moss is appointed as the responsible entity
it is not clear what is the quantum of fees that will be payable, or expenses that will be reimbursed, to third parties (including Fortius) in return for property and asset management services

Concerns as to alignment with Unitholder interests

The proposed new fee structure explicitly incentivises Moss to dispose of CQO’s assets, notwithstanding that Moss’ strategic review of the Australian Assets has not been completed. For the reasons outlined in Section 4, the IDC does not consider the disposal of the Australian Assets in the near term is in the best interests of Unitholders.

Concerns as to the constitutional validity of proposed fee structure

The Corporations Act provides that if a responsible entity is to have any right to be paid fees out of scheme property (or to be indemnified for expenses), those rights must be specified in the scheme constitution.

The proposed new fee structure is fundamentally different to the existing structure and is not set out in the current CQO Constitution. Therefore, Moss will have no right to those fees unless CQO’s Constitution is first amended to provide for their payment. The fact that the total quantum of the proposed new fees may be capped at the level currently permitted under CQO’s constitution does not alleviate this requirement.

The Notice of Meeting does not propose any amendment to the CQO Constitution to provide for the proposed new fee structure.

3.3. IDC conclusion

The IDC has sought to undertake a detailed examination of the management depth, capability and costs of management services provided by CHOML, as well as those proposed to be provided by Moss (together with Fortius Group) in the event that the Resolution is passed.

Based on this examination, the IDC has concluded as follows:

i. The management depth and capability of CHOML and its associated CHC Group entities is well known to CQO Unitholders, and has been the subject of significant public disclosure by both CHOML and CHC over the last fifteen months. In the opinion of the IDC, CHOML has demonstrated that it has access to employees, resources and systems that have proven to be capable of managing the Assets
ii. Under CHOML management, CQO’s management expense ratio is in line with the comparable measure for other externally managed A-REITs
iii. A related party of CHOML is entitled to disposal fees in relation to the US Sale Process, as described in Section 3.1. Whilst this fee may exceed the fee proposed to be charged by Moss, the IDC considers that the level of services provided by CHC entities and Moss respectively would be materially different, and notes that CHC has undertaken significant work to date. It is also unclear whether there would be further additional costs if the US Sale Process was managed by Moss
iv. The IDC is not satisfied that Moss has the management depth, capability or resources to appropriately manage CQO’s Assets
v. While the fees payable to Moss could be lower than the fees payable to CHOML, there is significant uncertainty as to the scope and quantum of management fees to be paid to Moss and third parties in the event that the Resolution is passed
vi. Moss is not currently licensed to act as responsible entity of CQO as at the date of this Explanatory Statement and it is unclear what Moss proposes will happen if the AFSL is not issued

17 Explanatory statement in response to notice of meeting

4. Alternate Strategies for CQO

4.1. US strategy

US Sale Process update

As noted earlier in this Explanatory Statement, CHOML has adopted a strategy to dispose of the United States assets and return the net proceeds to Unitholders via a pro rata special distribution.

It is expected that indicative bids in relation to the US Sale Process will shortly be received from a number of bidders. Following assessment of these proposals, CHOML, in conjunction with its adviser, BOAML, intends to shortlist a select number of preferred bidders with a view to executing binding sale agreements during the September quarter of 2011.

Completion of the US Sale Process is expected to be an intensive exercise. CHOML has been advised that there may also be a period of up to nine months between signing binding sale agreements for the US Assets and financial completion of those sales if, as is likely, the purchaser(s) of the US Assets seek the consent of CQO’s US lenders to roll-over the debt on the US Assets and comply with other conditions for completion. The time to obtain such lender consents is outside the control of both CHOML and the potential purchasers.

Therefore, it is likely that at least some of the US Assets will remain in the ownership of CQO until at least early 2012. During this time, the properties will need to be properly managed by a manager with appropriate expertise, depth and capability. This will be critical to preserving the value of those properties, and in order to comply with contract conditions including possible warranties. A failure to do so may mean that the conditions for completion are not satisfied resulting in either the sale not completing, or an adjustment to proceeds received by CQO.

In the event that the US Sale Process is completed, CHOML’s intention is to return the net proceeds to Unitholders via a pro-rata special distribution.

Moss’ strategy for US Assets

The Notice of Meeting indicates that the proposed strategy of Moss in relation to the US Assets is to:

sell the US Assets, pursuant to the process that is currently being managed by CHOML and BOAML
return to CQO Unitholders, by way of a pro-rata distribution, the net proceeds from the sale of the US Assets

This strategy is broadly the same as CHOML’s existing strategy.

IDC Conclusion regarding the completion of the US Sale Process

The IDC considers that CHOML is best placed to continue to manage the US Assets, and the US Sale Process, in conjunction with its advisers, BOAML.

In arriving at this conclusion, the IDC has had regard to the following factors:

CHOML’s detailed understanding of the properties, entities , debt facilities and ownership structures that comprise the US Assets, overseen by the management team operating out of CHOML’s Chicago office
CHOML’s capability and resources to manage the US Assets in the event that either:
binding contracts are entered into for all the US Assets and the assets need to be managed through to completion of the US Sale Process (a potential period of up to 9 months); or
some or all of the US Assets remain unsold and need to be managed for the foreseeable future
the IDC is not satisfied, based on the information set out in the Notice of Meeting and Moss’ response to the IDC’s request for further information (refer Section 3 for further details), that Moss possesses the requisite US management depth, capability and resources to manage the US Assets, under either scenario set out above

4.2. CHOML’s Australian strategy

Under CHOML management, CQO intends to provide investors with an exposure to high quality Australian CBD office assets, with asset acquisition and disposal strategies designed to maximise the income and capital growth of the portfolio through the real estate cycle. The strategy has been designed to cater for, and appeal to, investors wanting a longer-term exposure to Australian commercial real estate. CQO invests in land primarily for the purpose of deriving rental income.

The CHOML Board’s strategy for CQO will, if implemented, result in CQO becoming a pure-play Australian office REIT, with an appropriate and conservative capital structure.

When the CHOML Board’s strategy to re-weight CQO towards Australian assets is fully implemented, it is therefore expected that CQO will:

18 Charter Hall Office REIT

comprise a portfolio of approximately $1.9 billion of high quality, well-leased, Australian investment-grade office assets located in capital cities and mature in-fill markets
exhibit strong geographic diversification, with a strategic weighting towards specific Australian markets that are expected to deliver attractive income and capital growth over the long term
receive secure rental returns from high-quality tenants, particularly government agencies and investment grade and equivalent corporates
have a sustainable and conservative capital structure with a stated gearing target of between 25-35%
deliver attractive and competitive distributions to Unitholders through a distribution payout ratio of between 75-90% depending on capital requirements

It is expected that the successful implementation of this strategy will assist in attracting broad investor support and reduce the gap between the market price of CQO Units and its NTA backing per unit.

In the Independent Review in Appendix A of this Explanatory Statement, Grant Samuel highlights that until the global financial crisis, most office REITs traded at prices relatively close to their NTA backing.

Reviews of CHOML’s Australian Strategy

The CHOML Board, in conjunction with CHOML management, regularly review all elements of its Australian strategy. These reviews consider a range of factors, including, but not limited to the following:

strategic alternatives to maximise value for CQO Unitholders
initiatives to close any “value gap” that may exist from time to time between the market price of CQO units and CQO’s NTA backing per unit
the ability of CQO to deliver attractive risk adjusted returns based on its management arrangements, capital structure and asset portfolio
the composition of CQO’s portfolio to deliver optimal returns to CQO Unitholders

The chart below illustrates CQO’s unit price performance relative to the S&P/ASX 200 A-REIT Index over the last 12 months.

==> picture [467 x 251] intentionally omitted <==

----- Start of picture text -----

160.0160.0
150.0150.0
140.0140.0
130.0130.0
120.0120.0
110.0110.0
100.0100.0
90.090.0
80.080.0
Jul-10Jul-10 Aug-10Aug-10 Sep-10Sep-10 Oct-10Oct-10 Nov-10 Dec-10Nov-10 Dec-10 Jan-11Jan-11 Feb-11Mar-11Feb-11 Mar-11 Apr-11Apr-11 May-May-11 Jun-11Jun-11 Jul-11Jul-11
11
CQOCQO S&P/ASX 200 A-REIT IndexS&P/ASX 200 AREIT Index
----- End of picture text -----

19 Explanatory statement in response to notice of meeting

4. Alternate Strategies for CQO

Approach to Asset disposal

On an annual basis, CHOML considers the strategic disposal of non-core assets if it believes such disposal will be in the best interests of Unitholders.

As set out in the chart below, the consistent review of the portfolio is demonstrated by the strategic disposal of 13 Australian and US properties delivering significant value for Unitholders. This $1.1 billion of sales delivered a $250 million return above cost and unlevered returns of between 10% and 30%.

Assets Sold

==> picture [514 x 262] intentionally omitted <==

----- Start of picture text -----

40% 16
35% 14
30% 12
29%
25% 27% 26% 10
23%
20% 8
20%
15% 6
15%
13%
10% 4
11% 11% 11% 11%
10% 10%
5% 2
0% 0
May-05 May-05 Jan-06 Dec-06 Mar-07 Jul-07 Aug-07 Apr-08 Mar-08 Dec-08 Mar-09 Apr-09 Jun-09
Preston Sterling Stadium One Liberty Elizabeth Burwood 10 & 30 505 Little Lang Centre Wachovia Naylor ATO North 1100 Hay St
Commons Plaza Gateway Square Plaza North Sydney South Collins St Parramatta Financial House Bridge West Perth
Dallas Dallas Orange Boston Sydney Wacker Melbourne Center Adelaide Perth
County Chicago Miami
Unlevered Return Years Held
IRR (%) Years Held
----- End of picture text -----

CHOML considerations regarding a disposal of the Australian Assets

CHOML does not consider that a disposal of CQO’s Australian assets in the near term is in the best interests of Unitholders. CHOML has formed that opinion based on the following considerations:

the Australian office market is demonstrating signs of a recovery, providing CQO with the opportunity to capture value uplift
improving conditions in the majority of Australian markets with declining vacancy rates, reduced incentives and improving leasing volumes
supports expectation of future rental and capital growth that will benefit Unitholder returns
CQO’s portfolio of quality assets and tenants helps provide earnings security
tenancy profile characterised by a majority of investment grade, government and equivalent tenants
strong relationships demonstrated by recent key lease renewals at Argus Centre (Telstra) and Moonee Ponds (ATO)
Relatively shallow depth of potential buyers could impact pricing
the A-REIT sector (ex-Westfield Group) is trading at a 7.2% discount to NTA; the A-REIT office sub-sector is trading at a 13.9% discount to NTA; capacity for A-REITs to raise equity to fund acquisitions is limited
availability of debt finance is limited with evidence of risk aversion from real estate lenders; margins remain elevated
according to JPMorgan’s Australian REIT research, as at June 2011, there was approximately $10 billion of institutional real estate for sale - competing supply is significant
Asset repositioning is required to increase income and value
a number of assets in the Australian portfolio would benefit from repositioning over a 2-3 year period
Forced seller perception could impact pricing
Orange Capital has publicly stated its desire to liquidate CQO’s Australian portfolio, potentially impacting on the price tactics employed by interested parties

20 Charter Hall Office REIT

The Rental Property Clock – Office Market Rents

==> picture [236 x 148] intentionally omitted <==

----- Start of picture text -----

Late Early
Upturn Downturn
Melbourne
Adelaide
Early Sydney Late
Upturn Perth Canberra Downturn
Brisbane
----- End of picture text -----

Source: Jones Lang LaSalle Research

Gross Effective Rents

==> picture [253 x 183] intentionally omitted <==

----- Start of picture text -----

AUD per sqm p.a. AUD per sqm p.a.
$1,000 $1,000
$900 $900
$800 $800
$700 $700
$600 $600
$500 $500
$400 $400
$300 $300
$200 $200
$100 $100
$0 $0
2003 2004 2005 2006 2007 2008 2009 2010 2011
2003 2004 2005 2006 2007 2008 2009 2010 2011
Sydney Sydney Melbourne Melbourne Brisbane Brisbane Perth Perth Adelaide Adelaide Canberra Canberra
Source: Jones Lang LaSalle Research As at Q1/2011
----- End of picture text -----

Gross effective rents have now stabilised and started to grow reflecting the early stages of a market recovery

4.3. Moss’ Australian strategy

The Notice of Meeting makes a number of statements in relation to the proposed strategy for CQO’s Australian Assets in the event that Moss is appointed as responsible entity of CQO. As described above, the IDC has not identified a material difference between the Moss strategy and the CHOML strategy in relation to the US Assets.

In relation to the Australian Assets, the Notice of Meeting from Orange Capital envisages a strategic review of:

CQO’s capital requirements and current cash position to determine if any of the cash currently held on CQO’s balance sheet should be distributed or returned to Unitholders; and
the Australian Assets with interested parties formally invited to bid for all of the Australian Assets or the CQO units.

The Notice of Meeting contains little additional detail in relation to the proposed future strategy of CQO. As outlined in Section 3, the IDC sought further information from Moss regarding these matters in a letter dated 28 June 2011. As at the date of this Explanatory Statement, Moss has provided no satisfactory response to these enquiries.

Based on the information available, the IDC makes the following observations on Moss’ proposed strategy in relation to CQO’s Australian Assets.

Strategic Objectives

Public statements by Orange Capital on 30 May 2011 (that is, prior to their Notice of Meeting) suggested that their preferred strategy involved the sale of all of CQO’s Assets, including the Australian Assets, and the return of proceeds to Unitholders.

In the view of the IDC, a strategy of this nature may provide additional short-to-medium term liquidity for CQO Unitholders, but may not necessarily maximise Unitholder value, nor be consistent with the desire of many CQO Unitholders to invest in a vehicle with exposure to the long terms returns of the Australian office market.

The IDC, as well as the CHOML Board, accept that Unitholders are entitled to promote proposals that further their own commercial interests. Nonetheless, the IDC is conscious that the responsible entity of CQO has an obligation to make decisions in the best interests of Unitholders, rather than just particular Unitholders.

21 Explanatory statement in response to notice of meeting

4. Alternate Strategies for CQO

Cash Position

The Notice of Meeting includes conflicting statements in relation to CQO’s cash position. Whilst section 1.2 of the Notice of Meeting states that Moss’ strategic review would include a review of whether any cash on CQO’s balance sheet should be returned to Unitholders, section 5.1 of the same document contemplates using that cash to fund a repayment of any of CQO’s debt facilities that become repayable due to an event of default resulting from a change in responsible entity.

As at 31 May 2011, CQO had Look-Through Cash reserves of approximately $265 million. Some of this cash cannnot be utilised due to joint venture or lender restrictions, and the remainder is allocated to specific purposes. The table below provides more detail.

==> picture [498 x 242] intentionally omitted <==

----- Start of picture text -----

Amount Amount
As at 31 May 2011 Notes:
($m) ($m)
Total Look-Through Cash 265
Joint venture cash (27) Cash in joint ventures, not unilaterally controlled by CQO
Cash restricted by lender requirements (e.g. $56 million
Lender restricted cash (62)
cash security under Australian CMBS programme)
Declared distribution (54) Cash set aside for Distribution payable in August 2011
US property and REIT Cash retained in US property entities to meet on-going
(17)
level cash operating requirements
Syndicate paydown (50) June-11 Australian syndicate debt repayment
Cash reserve to fund forecast capital expenditure and
Residual cash 55
other operational requirements
Committed capex for US properties 21
Committed capex for FY12
Committed capex for Australian properties 60
Total committed capex FY12 81 To be partially funded through residual cash
----- End of picture text -----

As is indicated above, CQO’s residual cash balance is significantly less than total Look-Through Cash. CHOML considers that a cash balance of this level is appropriate in order to:

a) partially fund CQO’s FY12 committed capex program of $81 million; and
b) maintain an appropriate liquidity buffer.

Value Leakage

There are a number of potential value leakages that may result from the strategy articulated in the Notice of Meeting. In the event of either a change in the responsible entity of CQO, or a sale of the Australian Assets, or both, these value leakages may stem from:

the triggering of pre-emptive rights in relation to several of CQO’s co-owned assets
a potential event of default under CQO’s Australian debt facilities
capital gains tax consequences on the sale of Assets
transaction costs on the sale of Assets

The risks in relation to these value leakages are set out in more detail in Section 5 of this Explanatory Statement.

22 Charter Hall Office REIT

4.4. Comparison of Strategies for Australian Assets

==> picture [498 x 290] intentionally omitted <==

----- Start of picture text -----

CHOML Moss
Australian � CHOML is focused on delivering long term � Moss proposes to undertake a strategic review
Asset returns to Unitholders from income and capital of the Australian Assets with interested parties
ownership growth formally invited to bid for all of the assets or
� CHOML’s strategy is to maintain a well CQO units
diversified portfolio of Australian Assets � Orange Capital has previously indicated that a
sale of all Australian Assets is its most desired
� CHOML regularly reviews all elements of its
Australian strategy, including the sale of Assets strategy
when it is in the best interests of Unitholders
Capital � CHOML is focused on capital management � Moss will undertake a strategic review of
management initiatives to reduce the gap between the CQO capital requirements of CQO to determine
unit price and NTA whether any of the cash on CQO’s balance
sheet should be returned to Unitholders
� Current free cash on balance sheet is applied
to payment of distributions, debt reduction, � As at the date of this Explanatory Statement,
funding of capital expenditure and maintaining Moss has given no indication in relation to
a prudent level of liquidity target gearing levels in the event Assets are
not sold
� CHOML will seek to maintain appropriate
gearing of 25-35%
� Payout ratio expected to be between 75-90%,
depending on capital requirements
� CHOML will seek to extend and diversify
average debt maturity on acceptable terms
----- End of picture text -----

4.5. IDC Conclusions

The IDC has considered the stated strategy for CQO under the management of CHOML, and the proposed strategy for CQO under the management of Moss in the event that it is appointed as responsible entity of CQO.

The IDC has formed the following conclusions in relation to the alternative strategies for CQO:

There is no material distinction between the strategies proposed by CHOML and Moss in relation to the US Assets
CHOML’s management depth, knowledge of CQO’s US Assets and structures, and US-based resources place it in a better position to manage CQO’s US Assets and the US Sale Process, which is already well advanced
The substantive differences between CHOML and Moss in relation to the Australian Assets relate to:
a) whether a formal strategic review of the Australian Assets is required
b) whether third parties should be formally invited to bid for CQO’s Australian Assets or the units in CQO
The IDC notes that CHOML undertakes regular reviews of the strategy for CQO and based on CQO’s price performance relative to the A-REIT index over the last 12 months and track record of asset sales, believes that the strategic initiatives undertaken by CHOML have been in the best interest of Unitholders
The IDC does not consider that a strategic review by a new responsible entity of CQO, which involves a process to solicit proposals for a sale of the Australian Assets is in the best interests of Unitholders, because:
a) of the increased risks to which Unitholders are exposed in the event of a change of responsible entity or unsuccessful asset sale process. These risks are further explained in Section 5.
b) the IDC does not believe that a formal sale process for CQO’s Australian Assets or a campaign to solicit interest in CQO itself is in the best interests of Unitholders at this time for the reasons explained in Section 4
c) if implemented, it would deny Unitholders exposure to CQO’s high-quality CBD office assets, which will be inconsistent with Unitholders’ reason for investing in CQO

The IDC has also taken into account the opinion of Grant Samuel, who concluded:

The gain to unitholders from the realisation of the Australian portfolio is unlikely to be material …”

This opinion from Grant Samuel provides an independent confirmation of the CHOML strategy outlined above.

Explanatory statement in response to notice of meeting

5. Risks that CQO Unitholders should consider

If the Resolution is approved, CQO Unitholders will be subject to a series of risks to which they are not currently subject. These risks may affect CQO’s performance. Unitholders are encouraged to read the description of these risks carefully and in full.

5.1. Key risks related to a change in responsible entity

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Risk Description
Pre-emptive Rights/Joint Several of CQO’s Australian Assets are held in joint ventures and/or co-ownership arrangements.
Venture Agreements on The agreements that govern these ownership structures dictate that in the event there is a change
Australian Assets in the responsible entity of CQO, certain pre-emptive rights may be triggered in favour of the co-
owner/joint venture partner.
A change of responsible entity would (directly or indirectly) afford CQO’s co-owner/ joint venture
partner on No.1 Martin Place the right to purchase CQO’s interest in that asset at independent
valuation. It may also afford CQO’s co-owner/ joint venture partner on 2 Park Street and
171 Collins Street the right to purchase CQO’s interest in that asset.
Although the pre-emptive arrangements may facilitate the realisation of value approximating book
value for these assets, the IDC notes:
� the pre-emptive rights trigger (either directly or indirectly) upon a change of responsible
entity, and CQO may be forced to sell its interest in those assets irrespective of the best
interests of Unitholders, the intention of the new responsible entity or the outcome of any
strategic review
� the pre-emptive rights relate to some of CQO’s most significant and valuable assets, and
the exercise of the pre-emptive rights by a co-owner / joint venture partner may reduce the
quality, scale and attractiveness of CQO’s remaining portfolio to potential investors
� the exercise of the pre-emptive rights over the most high profile CQO assets may reduce the
strategic options available to any new responsible entity
Impact on the US A number of CQO’s US Assets are held in joint ventures and/or co-ownership arrangements.
Sale Process The agreements that govern these ownership structures dictate that in the event that:
� there is a change in the responsible entity of CQO; or
� CQO agrees to sell the particular US assets,
certain pre-emptive rights are triggered in favour of the co-owner/joint venture partner.
CHOML, in conjunction with BOAML, is seeking to engage with US co-owners and joint venture
partners to manage these pre-emptive rights in the context of the US Sale Process.
A change in the responsible entity of CQO may exacerbate the risk that these preemptive
arrangements adversely impact the US Sale Process.
Impact on Australian As the current Responsible Entity of CQO, CHOML is a party to CQO’s Australian syndicated
Debt Facilities bank facility which is currently drawn to approximately $400 million. The syndicated facility has
security over a specific portfolio of CQO properties which, as at 30 June 2011, had a book value of
approximately $1,231 million.
The syndicated facility will be in default as a direct and immediate consequence of the proposed
change of responsible entity from CHOML to Moss. An event of default authorises the syndicate
participants to accelerate repayment and to enforce security for the syndicate debt.
In the event the syndicate participants exercise their right for immediate repayment of the loan, the
syndicate participants may prevent the payment of distributions to Unitholders, including the most
recently announced distribution payable in August this year.
In addition, the consent of the syndicate facility participants is required to return more than $200
million of capital in aggregate to Unitholders.
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24 Charter Hall Office REIT

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Risk Description
Impact on Australian The backstop bank Facility, which is subject to final documentation, will when executed and
CMBS refinancing customary conditions precedent have been satisfied, be available for the purpose of refinancing the
Australian CMBS issuance which matures in September 2011. The facility will be in default if there
is a change of Responsible Entity; in this respect, its terms parallel those of CQO’s general bank
debt facility described above.
In the event of a change of responsible entity, there is a risk that this facility would no longer be
available for drawdown by CQO to refinance the CMBS in September 2011.
Business continuity risks When CHC acquired the CHOML management platform from Macquarie Group in 2010 almost all
senior management, asset management and finance personnel transferred to CHOML. In addition,
CHC entered into extensive transitional services arrangements with Macquarie Group. The
existence of these transitional services arrangements facilitated continuity of management, systems
and resources during the transition. The transitional arrangements included:
� a full extraction of data and assistance with the migration of such data to the new manager
� migration of software licences, website, emails and mobile phone details
� all corporate and business records
� regulatory compliance checklists and reporting frameworks
� copies of fund level policies and procedures
� breach registers and training records
� transitional accounting and financial management services
Charter Hall has informed the IDC that, as at the date of the Explanatory Statement it has not been
approached by Moss with a request to provide transitional services arrangements, such as those
set out above, in the event that the Resolution is passed. No similar request has been made directly
to CHOML.
There is a risk that Moss does not have in place transitional arrangements beyond certain statutory
requirements, and as a result, may not be in a position to properly manage CQO’s Assets in the
event that the Resolution is passed.
Residual fee and other In the event that CHOML is removed as responsible entity of CQO, related parties of CHOML may
payment obligations remain entitled to receive fees or other payments as set out in Section 3.1
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25 Explanatory statement in response to notice of meeting

5. Risks that CQO Unitholders should consider

5.2. Key risks related to an Australian Asset sale and capital return

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Risk Description
Value prospects in As outlined in Section 4, the IDC does not believe the current market represents the appropriate
current market time to conduct a sale of CQO’s Australian Assets. Grant Samuel supports this conclusion.
There is a risk that, in the event that an asset sale program was conducted in the current market,
CQO may not receive bids for all of the Australian Assets at prices approximating book value.
There is also a risk that, if the pre-emptive rights over certain of CQO’s high-profile assets are
exercised, the remainder of CQO’s portfolio may be seen as less attractive by potential purchasers,
impacting both the ability to sell these assets, and the price that may be obtained from such a sale
process.
Status of CQO during an There is no certainty that any sale program for CQO’s Australian Assets will be completed in a
asset sale program timely manner, and there may be an extended period between a decision to sell CQO’s Australian
assets and the time at which Unitholders receive any return of capital.
Additionally, it is not clear from public statements from either Moss or Orange Capital that CQO
would necessarily remain ASX-listed during an asset sale or liquidation program.
Tax on Sale of Australian The information set out below is general in nature only and it should not be relied on as providing
Assets taxation advice for any CQO Unitholder.
CQO’s Australian property assets had a book carrying value as at 30 June 2011 of $1,899.8
million. A sale of these assets at book carrying value would result in a net capital gain to CQO of
approximately $536.9 million, after offsetting capital losses brought forward from prior years but
excluding any other potential capital losses that could become available.
CQO Unitholders who are entitled to income distributions of CQO during the income year of an asset
sale would be subject to tax on a share of the net capital gain that CQO makes on that sale (‘CQO
Capital Gain’) based on their respective share of total income distributions of CQO for that year.
Australian resident Unitholders would pay income tax at their marginal income tax rates after
factoring in whether the capital gains tax (‘CGT’) discount will be available to them, in respect of
their pro-rata share of the CQO Capital Gain.
CQO Unitholders who are non residents of Australia and who are not required to lodge an
Australian income tax return, will have the tax liability on their pro rata share of any CQO Capital
Gain collected by CQO and remitted to the Australian Taxation Office under the managed
investment trust (‘MIT’) withholding tax regime.
CQO will be required to deduct MIT withholding tax from the CQO distribution (ignoring any CGT
discount) to non resident Unitholders as follows:
Residency Withholding tax rate
Exchange of information [1] 7.5%
Non-EOI country 30%
Note: 1. This includes the United States
There may be additional withholding tax implications for CQO Unitholders who have not quoted a
Tax File Number, Australian Business Number or appropriate exemption for that year.
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26 Charter Hall Office REIT

5.3. Key risks related to the resolution not being passed

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Risk Description
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Liquidity event for	If the Resolution is not passed, CHOML will remain as the responsible entity of CQO, and will
selected CQO investors	continue to manage CQO and implement the strategies outlined in Section 4.
	Historically, investors in CQO have predominantly been grouped into one of three categories:
	� traditional institutional investment managers
	� retail investors
	� aligned investors (e.g. Charter Hall Group companies; Macquarie Group companies)
	Recently, a number of hedge fund investors, such as Orange Capital, have entered the CQO
	Unitholder register. Hedge funds typically have a shorter investment horizon that the groups of
	investors referred to above, and may have a greater requirement for liquidity in their investment
	positions.
	In the event that the Resolution is not passed, some hedge fund investors may seek to liquidate
	their investment in CQO. This may lead to instability in the CQO Unitholder register, leading to
	potential volatility in the CQO unit price.

5.4. Ongoing risks related to an investment in CQO

Risk	Description
Ongoing risks There are various risks associated with an investment in CQO. These include general risks affecting the operations of CQO, various risks which affect the property industry as well as various risks affecting the price of CQO units as with any stock market investment. Unitholders should be aware that they will continue to be exposed to such risks regardless of whether the Resolution is passed.

Risk

Description

Ongoing risks
There are various risks associated with an investment in CQO. These include general risks affecting
the operations of CQO, various risks which affect the property industry as well as various risks
affecting the price of CQO units as with any stock market investment. Unitholders should be aware
that they will continue to be exposed to such risks regardless of whether the Resolution is passed.

27 Explanatory statement in response to notice of meeting

Appendix A—Independent Review

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50 Charter Hall Office REIT

Appendix B—Questions to Moss

Charter Hall Office Management Limited ABN 75 006 765 206 AFS Licence No. 247075 Responsible entity of Charter Hall Office REIT

Mr W Moss Moss Capital Funds Management Limited GPO Box 1511 Sydney, NSW 2001

28 June 2011

Dear Mr Moss

Level 11, 333 George Street Sydney NSW 2000 GPO Box 2704 Sydney NSW 2001

Direct +61 2 8908 4000 Australia 1300 365 585 International +61 2 8908 4036

CHARTER HALL OFFICE REIT (CQO)

1 Background

I am the Chair of the Independent Director Committee ( IDC ) of Charter Hall Office Management Limited ( CHOML ), which is the responsible entity of CQO.

I refer to the notice of meeting dated 26 June 2011 ( Notice of Meeting ) issued by Orange Capital LLC ( Orange Capital ) and certain other CQO Unitholders convening a meeting of CQO Unitholders to be held on 27 July 2011 to consider a resolution to appoint your company as responsible entity of CQO.

The IDC will also provide information to CQO Unitholders for the purpose of allowing CQO Unitholders to make an informed decision on the resolution included in the Notice of Meeting issued by Orange Capital ( Notice of Meeting ).

To the extent that the Notice of Meeting does not include the information set out below, the IDC requests that you respond in writing to the questions below as soon as possible (and in any event before 5.00pm on 1 July 2011 as the IDC expects the information is readily to hand). Your response will allow the IDC to make a timely disclosure to CQO Unitholders about information they may need to take into account for the purpose of making an informed decision on the resolution to be considered at the meeting.

In providing information to CQO Unitholders dealing with any matters raised in this letter we will be relying on the accuracy and completeness of the response you provide. This will be made clear in the communication that the IDC sends to CQO Unitholders.

The IDC has also requested some information from Charter Hall Group, given that it is the holding company of CHOML, the responsible entity of CQO. We are dealing with Charter Hall Group on the same formal basis as we are dealing with you, given the importance of ensuring that only materially complete and accurate information is provided to CQO Unitholders.

2 Management of CQO’s assets

The management by CHOML of CQO’s assets both in Australia and the United States has been undertaken with the assistance of a management team which is located in both Australia and the United States, together with management information systems that were transferred from the previous

Page | 1

51 Explanatory statement in response to notice of meeting

Appendix B—Questions to Moss

responsible entity of CQO for a material cost that was paid by Charter Hall Group. These systems include the following key management tools and packages:

both Yardi and Dyna, being fundamental and market standard for the investment management of institutional real estate in the U.S.;
MRI for accounting in both Australia and the US;
compliance systems including INX and Blueprint or equivalent;
property forecasting tools, including Cougar in Australia;
derivative financial instrument management package such as Visual Risk (forecasting, risk and compliance applications);
best practice access to bespoke property research (e.g. PPR in the U.S. JLL subscriber service and PCA subscription in Australia;
development management software for projects like 171 Collins St; and
Miracle, Salesforce or equivalent customer relationship tools for investor relations purposes.

These are considered to be essential to the stewardship and investment management performance of the CQO assets.

In comparison, Orange Capital’s announcement refers to the Australian real estate assets of CQO being managed by Moss Capital Funds Management Limited ( Moss ) with the assistance of Fortius Funds Management Limited ( Fortius ).

The IDC would like to understand the resources and capabilities that you will have to operate CQO effectively and manage its assets, under each of the potential conclusions of the strategic review of the Australian assets. In that regard, please can you confirm the following:

2.1 where are Moss’ offices located in Australia and in the United States;
2.2 how many employees does Moss have in Australia and in the United States that will be dedicated to managing CQO on an equivalent full time basis;
2.3 does Moss and/or Fortius currently have access to any of the management tools and packages which are used by CHOML as describe above;
2.4 does Moss have existing IT and other systems in place of a scale that would be capable of managing CQO’s assets and in particular providing the essential services that are critical for the proper management of the assets;
2.5 what specific assistance has Fortius agreed to provide Moss in respect of the management of CQO;
2.6 what is the duration of the agreement between Moss and Fortius regarding the assistance that Fortius has agreed to provide;
2.7 what fees will be paid to Fortius in relation to the provision of property, financial and asset management services and who will bear the cost of those fees;
2.8 is Fortius able to provide the required property, financial and asset management services without the assistance of other external parties – if not, what other external resources will be required and who will bear the cost of those external resources;

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52 Charter Hall Office REIT

Appendix B—Questions to Moss

2.9 where are Fortius’ offices located in Australia and in the United States;
2.10 how many employees does Fortius have in Australia and in the United States that will be dedicated to managing CQO’s assets on an equivalent full time basis;
2.11 is Moss able to undertake the management of the Australian real estate assets of CQO without the assistance of Fortius;
2.12 describe the strategies you would consider to optimise the performance of CQO at both a portfolio and asset level;
2.13 describe your experience in managing (as a principal) interest in joint ventures (such as the Two Park Street Trust, 1 Martin Place Trust(s), MPG Office Trust etc) and how you have been able to add value in these situations;
2.14 describe your experience with and approach to dealing with CQO’s lenders, with particular reference to successful refinances over A$200 million conducted since 2008 (i.e. post credit crisis).
3 Charter Hall Assistance

You will be aware that section 601FR of the Corporations Act imposes obligations on CHOML in the event that there is a change of responsible entity of CQO. Those legal obligations have limitations and you will be aware that, upon a change in responsible entity, it is not uncommon for:

employees of the outgoing responsible entity to be employed by the new responsible entity to ensure, for the benefit of unitholders, inter alia the retention of the existing knowledge base; and
resource and transitional services agreements to be put in place to ensure that the new responsible entity is able to properly perform its role.
Assuming that CQO Unitholders approve a change in the responsible entity, please confirm the following:
3.1 will you require any information or assistance from CHOML or Charter Hall Group in relation to business integration and transition and, if you require such information or assistance, the nature of the assistance that will be required;
3.2 for what duration you will require assistance from CHOML or Charter Hall Group in relation to business integration and transition;
3.3 do you consider that the information or assistance that you will require from CHOML or Charter Hall Group in relation to business integration and transition is within or beyond the level of support which CHOML is required by law to provide;
3.4 are you prepared to reimburse CHOML or Charter Hall Group for providing the assistance you require in relation to business integration and transition and if so on what basis;
3.5 do you propose to offer employment to the existing employees of CHOML or Charter Hall Group who currently manage the assets of CQO and, if so, on what terms;
3.6 have you approached CHOML or Charter Hall Group with a request for any information or assistance that you will require in relation to business integration and transition or any matters set out above.

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53 Explanatory statement in response to notice of meeting

Appendix B—Questions to Moss

4 Licensing issues

As you will be aware, the responsible entity of a managed investment scheme such as CQO must hold an Australian financial services licence ( AFSL ) authorising the responsible entity to operate the scheme. We note that the Notice of Meeting contains the following disclosure:

“ MCFM has been issued with a pending Australian financial services licence (number 398196) with the requisite authorisations to operate the Fund. MCFM expects that this AFSL will be issued in final form from the close of the Meeting to permit immediate management of the Fund of MCFM. ”

In that regard, please confirm the following:

4.1 does Moss expect the AFSL that will be issued to it will specifically authorise Moss to:
enter into derivative contracts and general insurance contracts;
give specific advice to retail clients;
- enter into foreign exchange contracts;
operate schemes for both wholesale and retail clients;
4.2 who does Moss propose will be its advisers (as that term is defined in ASIC Regulatory Guide 146) under any AFSL that is granted to Moss;
4.3 if Moss does not hold an AFSL that authorises it to operate a managed investment scheme on 27 July 2011 (despite its stated expectation), on what basis does Moss propose to operate CQO.

5 US Sale Process

CHOML has announced to ASX that Phase 2 of the sale process in respect of CQO’s US assets is expected to result in bids for the US assets of CQO in early July 2011, with binding contracts for the portfolio being entered into during the September quarter 2011 (assuming satisfactory bids are made).

Any change of responsible entity pursuant to the resolutions that Orange Capital intends to propose will take place after Phase 2 of the US sale process has completed, but before contracts for the purchase of the US properties are entered into.

If bids for some or all of the US assets are received at the conclusion of Phase 2 of the sale process, CQO expects that the following workstreams will be required to be undertaken in order to effect any sale:

final negotiations of detailed terms sheet(s) and agreement of final terms of exclusive due diligence;
full negotiation of all purchase agreements with one or more parties;
full tax and structuring advice and negotiation (40 entities);
structuring and execution/negotiation of arrangements regarding pre-emptive rights under all joint ventures;
negotiation of all debt assumption/transfer between lender and purchaser (this will include due diligence as well as financial and legal documentation);

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54 Charter Hall Office REIT

Appendix B—Questions to Moss

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 negotiation of all debt defeasance where debt not assumed;
 negotiation of final entity closing statements and income/expense reconciliations/bank
reconciliations and related matters for properties and entities;
 ensuring compliance with all conditions precedent to any sale (e.g. tenant estoppels, Alta
Surveys, title insurance);
 completion of all post-closing obligations (reconciliations (property& entity)/filings/registrations of
transfers/year-end tax & accounting returns (for all entities)/collapsing of structures/regulatory
requirements);
 completion of transfer of all property/entity data (e.g. physical documents/bank
accounts/records and files etc).
Please confirm the following:
5.1 what is your intended strategy in respect of CQO’s US assets in the event that a sale of some or
all of the US properties does not proceed following Phase 2 of the sale process (for example,
where the process does not result in any bids or results in unsatisfactory bids);
5.2 please provide details of your capacity to continue to manage any US assets of CQO that are
not sold following Phase 2 of the sale process;
5.3 please provide details of your capacity to continue to manage any US assets of CQO pending
the completion of any sales that are agreed following Phase 2 of the sale process;
5.4 if bids for some or all of the US assets are received at the conclusion of Phase 2 of the sale
process, who do you propose will be involved in undertaking the workstreams that will be
required in order to effect any sale (as described above);
5.5 re question 5.4 – please provide details on how you propose that the persons who will be
involved in those workstreams will be provided with sufficient background so as to be able to
continue the sale process effectively, efficiently and in a manner to serve the best possible
outcomes.
6 Governance and conflicts of interest
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Orange Capital’s advisers indicated that one of its objectives is to achieve sufficient liquidity to enable it to exit its investment in CQO. We have had many discussions with CQO unitholders about their objectives. Based on those discussions it is evident to us that many CQO unitholders do not want to exit their CQO unitholding and we are told that they support the strategy that the CHOML Board has stated publicly. In light of this, it seems clear that the objectives of Orange Capital may be different to the objectives of many other CQO unitholders. Accordingly, please:

6.1 Describe your proposed governance model for CQO, including any capacity for investor oversight and plans for the appointment of new independent directors;
6.2 Describe any arrangements you have with Orange Capital, Luxor Capital Group LP and Point Lobos LLC.

7 Change of strategy

On 30 May 2011, Orange Capital issued a media release in which Orange Capital and certain other unitholders stated that they believed that the new responsible entity should be appointed to carry out a simple mandate to sell CQO’s assets and return the net proceeds to unitholders in a timely manner.

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55 Explanatory statement in response to notice of meeting

Appendix B—Questions to Moss

The reference to CQO’s assets in that media release included not only the US assets (which are currently the subject of a sale process as you know) but also CQO’s Australian assets.

In Orange Capital’s 16 June 2011 media release, which included reference to Moss as the proposed new responsible entity for CQO, Orange Capital stated that the strategy to be pursued included undertaking a strategic review of the Australian assets with interested parties formally invited to bid for all of the Australian assets or for the CQO units.

Further, Orange Capital stated in that media release that it is not interested in conducting a disadvantageous sale of the Australian assets which of course is a completely different strategy to the strategy proposed publicly by media release two weeks earlier.

Please can you confirm the following:

7.1 whether you had discussions with Orange Capital prior to 29 May 2011 about the strategy for CQO’s Australian assets;
7.2 if you had discussions with Orange Capital prior to 29 May 2011 about the strategy for CQO’s Australian assets – did you then agree with the statement being made in the 30 May media release concerning a sale of all of CQO’s assets;
7.3 if the strategy is now to undertake a strategic review of the Australian assets, what was the reason for the change in strategy;
7.4 in light of the change in public statements, whether you believe that Moss has a mandate to sell the Australian assets;
7.5 to the extent the Australian assets are not sold as part of the strategic review what is the strategy for the fund. What do you believe to be the appropriate level of gearing for CQO and are there other capital management initiatives that you are considering;
7.6 assuming that CQO Unitholders approve a change in the responsible entity, do you intend to maintain the listing of CQO on ASX following each of:
- your appointment as the responsible entity;
the sale of CQO’s United States assets and any subsequent return of capital to CQO unitholders;
any sale of CQO’s Australian assets and any subsequent return of capital to CQO unitholders;
7.7 have you had any discussions with Orange Capital or any other CQO unitholders regarding your intentions as to the continued listing of CQO on ASX, if so please describe the outcome of those discussions.

8 US REIT Status

As you will be aware, CQO is a “Real Estate Investment Trust” for the purpose of US law. This status provides considerable tax benefits to CQO.

In this regard, assuming that CQO Unitholders approve a change in the responsible entity, please confirm:

8.1 that you intend to maintain CQO’s status as a “Real Estate Investment Trust” for the purpose of US law following each of:

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56 Charter Hall Office REIT

Appendix B—Questions to Moss

your appointment as the responsible entity;
the sale of CQO’s United States assets and any subsequent return of capital to CQO unitholders;
any sale of CQO’s Australian assets and any subsequent return of capital to CQO unitholders;
8.2 if you intend to maintain CQO’s status as a “Real Estate Investment Trust” for the purpose of US law – what is your strategy to maintain that status;
8.3 who do you propose to be appointed as directors of each of CQO’s US REIT Boards;
8.4 the location where each person, who you propose to appoint as a director of each of CQO’s US REIT Boards, is currently domiciled (and whether any of those persons proposes to change their domiciliation upon or after such appointment).

Given Orange Capital and the concerned unitholders have used the media to publish their views about the appropriate strategy for CQO, the IDC considers that it is important for CQO Unitholders to understand these issues in detail.

Also, I would be grateful if, when you reply, you could let me know whether you have discussed either the contents of this letter or any request made in it, or your response or any part of your response, with Orange Capital or any other CQO Unitholders.

Yours faithfully

Roger Davis

Chairman – Charter Hall Office Management Limited

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57 Explanatory statement in response to notice of meeting

Glossary

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AFSL means Australian financial services licence
ASIC means the Australian Securities and Investments Commission
Assets means the US Assets and the Australian Assets
ASX means ASX Limited (ACN 008 624 691) or, as the context requires, the financial market known as the
Australian Securities Exchange operated by it
AUM means assets under management
Australian Assets means the assets of CQO that are located in Australia
BOAML means Bank of America, Merrill Lynch
Board means the board of directors of CHOML
CHC or Charter Hall means, together, Charter Hall Limited ABN 57 113 531 150 and Charter Hall Funds Management Limited
ABN 31 082 991 786, as the responsible entity of the Charter Hall Property Trust ARSN 113 339 147
CHOML means Charter Hall Office Management Limited ACN 006 765 206, the responsible entity of CQO
CQO means Charter Hall Office REIT ARSN 093 016 838
Director means a director of CHOML
Explanatory Statement means this explanatory statement
Fortius means Fortius Asset Management Pty Limited ACN 151 512 757 and/or Fortius Funds Management Pty
Limited ACN 093 111 641, as the context requires
FUM means funds under management
FY means financial year
Grant Samuel means Grant Samuel & Associates Pty Limited ACN 050 036 372
Independent Director means the independent director committee established by the Board consisting of Roger Davis, Andrew
Committee or IDC Love and James Broadbent, with responsibility for matters as described in CHOML’s announcement to
ASX dated 8 June 2011
Independent Review means the report prepared by Grant Samuel, a copy of which is set out in Appendix A
Look-Through Cash means cash held on CQO’s balance sheet in addition to proportional share of cash held in joint-ventures
and subsidiary entities
LTM means last twelve months
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58 Charter Hall Office REIT

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Luxor means Luxor Capital Group, LP
Manager means the responsible entity of CQO
Meeting means the general meeting of Unitholders to be held at 10.00 am AEST on 27 July 2011 in the Grand
Ballroom, Sheraton on the Park, 161 Elizabeth Street, Sydney, NSW, as called by Orange Capital and to
which the Notice of Meeting relates
Moss means Moss Capital Funds Management Limited ACN 125 903 031 and/or Moss Capital Pty Limited
ACN 135 588 224, as the context requires
Notice of Meeting means the notice of meeting dated 26 June 2011 pursuant to which the Meeting has been called by
Orange Capital, and as the context requires, includes the Explanatory Memorandum dated 26 June
2011 prepared and issued by the Unitholder Group
NTA means net tangible assets
Orange Capital means Orange Capital, LLC
Point Lobos means Point Lobos Capital, LLC
Protocol means the protocol under which the IDC was established and which sets out the role and
responsibilities of the IDC
REIT means real estate investment trust
Resolution means the resolution in the Notice of Meeting relating to the removal of CHOML, and the appointment of
Moss, as the responsible entity of CQO
Unitholder Group means Orange Capital, Luxor and Point Lobos
Unitholder means a registered holder of units in CQO
US Assets means the assets of CQO that are located in the United States of America
US Exit Strategy means the proposal by CHOML as announced to ASX on 30 May 2011, to pursue the sale of the whole
of the US Assets and to then return the net proceeds to Unitholders via a pro-rata special distribution to
all Unitholders
US Sale Process means the process currently being undertaken by CHOML, with the assistance of BOAML
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59 Explanatory statement in response to notice of meeting

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www.charterhall.com.au/cqo

AI assistant

CHARTER HALL GROUP — Proxy Solicitation & Information Statement 2011

64645_rns_2011-07-07_967b2958-8a2b-4f6d-ab07-5e97331f1dd5.pdf

Important Notices

Defined Terms

Nature of this document

Read this Explanatory Statement

Responsibility for information

Investment Decisions

Disclosure regarding forward looking statements

Privacy

Notice to persons outside Australia

Unitholder information line

Table of Contents

Letter from CHOML Chairman

8 July 2011

Conflicts of Interest

CHOML Board Strategy

IDC Process and Conclusions

Independent Review

Recommendation

THE IDC UNANIMOUSLY RECOMMENDS THAT UNITHOLDERS VOTE AGAINST THE RESOLUTION.

How to vote

Why am I receiving this document?

What should I do?

What is the recommendation of the IDC?

THE IDC RECOMMENDS THAT YOU SHOULD VOTE AGAINST THE RESOLUTION.

What should I do with the Proxy Form?

Voting instructions

1. Background

1.1. Strategy to reweight portfolio to Australia

1.2. US Sale Process

1.3. Meeting called by Orange Capital

1.4. Establishment and purpose of the IDC

1.5. Preparation of this Explanatory Statement

1.6. Independent Review

2. Recommendation of the IDC

2.1. CHOML Board Composition

2.2. Recommendation

THE IDC UNANIMOUSLY RECOMMENDS THAT UNITHOLDERS VOTE AGAINST THE RESOLUTION.

2.3. Reasons for recommendation

3. Management depth, capability and costs

3.1. CHOML Management

Who are CHOML and CHC?

What employees, resources and systems does CHOML have for managing CQO?

What management fees and other costs are paid by CQO?

3. Management depth, capability and costs

How do CQO’s management costs under CHOML management compare to its peers?

3.2. Moss Management

Information about Moss

Who is Moss?

What employees, resources and systems does Moss have for managing CQO?

3. Management depth, capability and costs

Does Moss have a current Australian Financial Services Licence to act as responsible entity of CQO?

What fees will be payable to Moss and others if the Resolution is approved?

or

IDC considerations in relation to Moss fee arrangements

Concerns as to uncertainty of proposed fee structure

Concerns as to alignment with Unitholder interests

Concerns as to the constitutional validity of proposed fee structure

3.3. IDC conclusion

4. Alternate Strategies for CQO

4.1. US strategy

US Sale Process update

Moss’ strategy for US Assets

IDC Conclusion regarding the completion of the US Sale Process

4.2. CHOML’s Australian strategy

Reviews of CHOML’s Australian Strategy

4. Alternate Strategies for CQO

Approach to Asset disposal

Assets Sold

CHOML considerations regarding a disposal of the Australian Assets

The Rental Property Clock – Office Market Rents

Gross Effective Rents

4.3. Moss’ Australian strategy

Strategic Objectives

4. Alternate Strategies for CQO

Cash Position

Value Leakage

4.4. Comparison of Strategies for Australian Assets

CHARTER HALL GROUP Proxy Solicitation & Information Statement 2011

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