CHC response to Orange Capital notice of Meeting

In Charter Hall's view, there are a number of key reasons why you should vote ‘AGAINST' the resolution being proposed by the Activist Hedge Funds at the meeting on 27 July 2011 because:

1.             Charter Hall considers that it is far better resourced and experienced to manage CQO's A$3.7bn portfolio of Australian and US assets, with the US portfolio sale well progressed. Moss Capital has not provided the evidence that it has adequate resources to manage CQO's assets.

Charter Hall is a seasoned, aligned, well resourced and integrated manager with A$10.4 billion of real estate assets under management. It is one of the largest ASX-listed specialist Australian real estate fund manager possessing core office capabilities as highlighted by:

• ·               A$195 million (approximately) co-investment in CQO, making it the largest single unitholder[2]. Charter Hall has committed to increase its stake in CQO from 10% to 13.3%, provided it continues as responsible entity, it intends to reinvest the proceeds of any CQO's return of capital arising from the US asset sales into CQO;
• ·               A$6.7 billion of office assets under management (74 office assets);
• ·               1.5 million sqm of office properties owned or managed, with A$337 million co-invested;
• ·               Currently manages an office portfolio equivalent in size to circa 5% of the total Australian CBD office space premium/A grade office supply;
• ·               A fully integrated real estate platform with established infrastructure that enables in-house value creation across asset life cycle;
• ·               A 20 year track record of managing Australian institutional real estate and currently manages 20 listed and unlisted funds on behalf of institutional and retail investors; and
• ·               An experienced, well resourced and focused management team with over 270 staff located across six offices.

Over the past 15 months, Charter Hall has stabilised and added value to the CQO portfolio, by reweighting the portfolio to Australia, significantly reducing its gearing, extending lease terms and improving both earnings and distributions per unit. Under Charter Hall's management, before the Activist Hedge Funds started acquiring units, CQO outperformed the A-REIT index, delivering unitholder returns of 15.98% compared with S&P/A-REIT 200 Accumulation Index's 2.51%.[3]

Charter Hall considers Moss Capital has provided no relevant evidence of:

• ·               Funds management expertise or experience in the office sector
• ·               Retail funds management expertise or experience
• ·               Expertise or experience in managing a listed funds platform
• ·               A track record of managing capital and delivering returns on behalf of other people

According to Moss Capital's website, the only significant institutional fund under management is a wholesale Australian Solar Fund that invests in solar energy infrastructure projects, with a target fund size of A$100 million. Additionally, Moss Capital does not currently hold an appropriate Australian Financial Services License (AFSL) authorising it, if appointed, to manage CQO. Further, Moss Capital has not provided any explanation of what would happen should it be unsuccessful in obtaining an appropriate AFSL following any appointment as the replacement responsible entity of CQO.   

The Activist Hedge Funds have sought to address these failings of Moss Capital by appointing a relatively unknown company, Fortius Group, to provide a number of property related services to CQO in respect of its Australian assets.

The explanatory memorandum does not address how Moss Capital will manage CQO's US assets prior to the sale of those assets. Fortius Group is a small Australian funds management business with approximately 11 real estate employees. In their communications, the Activist Hedge Funds provide no compelling evidence of a proven track record by Fortius Group in successfully managing office assets, such as those within the CQO portfolio, or any experience in managing a listed vehicle that demands the communication, compliance and governance skills required by listed investors. The Activist Hedge Funds have not outlined Moss Capital and Fortius Group skills to manage CQO, including, capital management, portfolio management, asset management, financial management, forecasting, budgeting, tenant relationships and managing near term lease expiries.

The Activist Hedge Funds have advised that there will be costs incurred in changing the responsible entity[4]. However, they have not provided any detail of what those costs are (other than costs relating to calling and running the meeting) and whether those costs will be borne by CQO unitholders. By contrast, Charter Hall paid all costs on its acquisition of the management rights to CHOML in March 2010.

2.            In Charter Hall's view Moss Capital does not have an effective strategy for CQO

In Charter Hall's view Moss Capital has not articulated a strategy for managing CQO beyond the current management of the vehicle other than to explore a liquidation of the Australian portfolio. The explanatory memorandum contains no stated strategy for managing CQO, a capital management plan or an asset management plan. Additionally, Moss Capital has not stated how it intends to manage any events of default that would be triggered under CQO's debt facilities, the potential activation of rights of co-owners under documentation or the taxable capital gain within CQO, if the Australian portfolio is liquidated.

Charter Hall has a clearly stated strategy for CQO, designed to further close the NTA gap and to maximise total investor returns.

Post the planned US sale, Charter Hall's preferred strategy for CQO is to continue to:

• ·               Focus on high quality office buildings in the Sydney and Melbourne CBD markets, with measured exposure to Brisbane and Perth;
• ·               Generate sustainable earnings from a portfolio of prime, stabilised Australian office assets;
• ·               Enhance rental returns through moderate exposure to office developments / refurbishments;
• ·               Lease unoccupied space to blue chip and government tenants with high quality covenants;
• ·               Actively implement capital management initiatives;
• ·               Continue CQO's long standing track record of selective divestment of non-core assets;
• ·               Maintain conservative gearing of 25% - 35%;
• ·               Target higher distribution payout ratio of 75% - 90%; and
• ·               Extend and diversify average debt maturity.

By comparison, the Activist Hedge Funds and Moss Capital have not provided a clear strategy for CQO beyond undertaking a Strategic Review of CQO, but various public statements released by the Activist Hedge Funds have alluded to their preference of (i) the winding up of CQO or (ii) the sale of CQO units, as a desired outcome of the Strategic Review.

3.             Charter Hall believes a forced sale or liquidation of CQO's Australian portfolio will significantly increase risks / costs and be value destructive for unitholders

Charter Hall believes that any forced liquidation of the Australian portfolio is likely to realise net proceeds at a significant discount to book values and be value destructive for unitholders.  There is currently circa A$13 billion[5] of institutional real estate current ‘on the market', and in Charter Hall's view the state of the financing market and the level of the Australian dollar would further deter domestic and international buyer interest. If the Activist Hedge Funds' strategy is pursued, there is significant uncertainty around the trading price and ultimate realised value for CQO unitholders.

The Activist Hedge Funds have previously made public statements regarding the winding up of CQO. In Charter Hall's view, the Activist Hedge Funds' desire to liquidate the Australian assets is driven by their need to provide a liquidity event to meet their short term investment objectives. In Charter Hall's view the Activist Hedge Funds' objectives are unlikely to be consistent with the investment objectives of the majority of CQO unitholders.

4.            Charter Hall believes there are serious conflicts with the Activist Hedge Fund proposal

Charter Hall believes that, if appointed as the responsible entity of CQO, Moss Capital is incentivised by the fee structure to favour liquidation of the Australian portfolio, in a manner consistent with the interests of the Activist Hedge Funds. Moss Capital has proposed a fee structure which involves payment of a performance fee calculated by reference to whether the assets of CQO are sold above certain values.  Moss Capital's financial incentives are inconsistent with the interests of those CQO unitholders who have medium and long term investment objectives in relation to CQO.  As mentioned above, Charter Hall believes that the actions of the Activist Hedge Funds are not driven by long term economics, but by a need to provide a liquidity event to meet their own short term investment objectives.

Moss Capital has not identified any independent directors on its responsible entity board.[6] 

In addition, Moss Capital has stated that, if appointed as responsible entity, it will appoint Moelis & Company, the Activist Hedge Funds' own financial adviser, to act as financial adviser to CQO and to undertake the Strategic Review of the fund.[7] In Charter Hall's view, this appointment displays an inherent and serious conflict, which the Activist Hedge Funds have not confirmed how it will be resolved.

5.            Charter Hall believes removal of CHOML as responsible entity of CQO will severely disrupt the US asset sale process and impact the net proceeds to unitholders

Charter Hall believes that the removal of CHOML as responsible entity would severely disrupt the US asset sale process and reduce the net proceeds.  Charter Hall has intimate knowledge of CQO's assets, markets, financing arrangements, ownership structures, joint venture partners, lenders, and tenant relationships that will be crucial in facilitating the sale of the US assets and minimise leakage of value.  The current US sale process is well progressed with independent advisors and committees appointed to oversee the process.  The removal of CHOML would place the successful and timely completion of the sale process at risk, thereby potentially preventing or delaying a significant return of capital to unitholders.  

6.            CQO's Australian syndicate facility will be in default as a direct and immediate consequence of the removal of CHOML as responsible entity of CQO and may give co-owners of certain premium-grade properties jointly owned by CQO the right to acquire CQO's interest in prime properties

CHOML as responsible entity of CQO has publicly announced that the removal of responsible entity will have the direct and immediate consequence that CQO's Australian syndicate facility will be in default. This provides lenders with the ability to accelerate debt repayment, prevent the payment of distributions and returns of capital, to enforce security over CQO's assets or to otherwise force the sale of assets. Charter Hall believes that it is likely to trigger additional costs for CQO.

In addition, the removal of the responsible entity of CQO may trigger a right under joint venture agreements governing certain jointly owned premium grade CQO properties for the co-owner to acquire CQO's interest in the relevant property (1 Martin Place and 2 Park Street). Charter Hall believes that the disposal of the remainder of the portfolio without these prime properties is likely to diminish investor interest.

Charter Hall understands that Moss Capital has not yet approached CQO's key Australian lenders. The question remains unanswered by Moss Capital how current Australia debt facilities will be repaid or refinanced after any change of the responsible entity. In their NOM, the Activist Hedge Funds have noted that following a change of responsible entity there is no guarantee that refinancing will be available to CQO on reasonable terms.[8]

7.            CQO unitholders may be subject to a significant capital gains tax liability if the Australian portfolio is liquidated

CQO has advised that a sale of the Australian portfolio at the 31 December 2010 book value would result in a net capital gain to CQO of approximately A$555.8 million, after offsetting Australian capital losses brought forward from prior years, but excluding other potential capital losses which could become available. Australian resident unitholders would be taxable at their marginal rate of tax on their share of this capital gain should the Australian assets be liquidated. This disadvantages Australian investors as after applying any applicable capital gains tax discount, the highest net marginal tax rate for an Australian resident unitholder is 30.00% for companies, 23.25% for individuals and trusts, and 10.00% for superannuation funds[9] relative to 7.50% for US based investors.

FOR THESE REASONS YOU SHOULD VOTE ‘AGAINST' THE RESOLUTION TO REPLACE CHARTER HALL AS RESPONSIBLE ENTITY OF CQO WITH MOSS CAPITAL.

The original notice of meeting sent to you by the Activist Hedge Funds was accompanied by a form of proxy which defaults to their lawyer unless you indicate otherwise. That proxy form also requires that it be sent to Computershare who are the Activist Hedge Fund's agent.  

IF YOU WISH TO VOTE ‘AGAINST' THE RESOLUTION, PLEASE COMPLETE THE ENCLOSED PROXY FORM AND RETURN IT IN THE ENCLOSED REPLY PAID ENVELOPE TO CHOML AS RESPONSIBLE ENTITY OF CQO.   IF YOU WISH YOU CAN FAX, MAIL OR HAND DELIVER THAT PROXY FORM TO CHOML USING THE DETAILS SET OUT ON THE PROXY FORM.  IF YOU HAVE ALREADY RETURNED A COMPLETED PROXY FORM AND NOW WISH TO VOTE AGAINST THE RESOLUTION YOU CAN CHANGE YOUR VOTE BY RETURNING THE ENCLOSED PROXY FORM USING THE DETAILS SET OUT ON THE PROXY FORM AND IT WILL SUPERSEDE ANY EARLIER DATED PROXY FORM(S) RETURNED BY YOU.

To avoid technical issues with your proxy form, please call the Charter Hall Investor Services line below if you have any questions before completing the proxy form. You may still attend the meeting even if you complete the proxy form and send it back to CHOML prior to the meeting.

Investor Services

If you have any questions, please contact Charter Hall Investor Services on 1300 551 378 (Australia), +61 2 8280 7705 (Non-Australia) or visit www.chaterhall.com.au.

Yours faithfully

Kerry Roxburgh                 David Harrison                                   David Southon

Charter Hall Chairman       Charter Hall Joint Managing Director    Charter Hall Joint Managing Director

 CHARTER HALL VERSUS MOSS CAPITAL AND FORTIUS - EXPERIENCE AND STRATEGY

1		charter hall is a seasoned, WELL RESOURCED, integrated manager with A$10.4bn of assets under management —    CHC is one of the largest ASX-listed specialist Australian real estate fund manager with core capabilities in office: A$6.7 billion of office asset under management 1.5 million sqm of office properties owned or managed, with A$337 million co-invested Currently manages circa 5% of Australia's CBD office space, most of which comprises prime / A-grade office assets located in strategic markets —    A fully  integrated real estate platform with established infrastructure that enables in-house value creation across asset life cycle —    20 year track record of managing Australian institutional real estate and currently manages 20 listed and unlisted funds on behalf of institutional and retail investors —    Experienced, well resourced and focused management team with over 270 staff located across six offices
2		CHARTER HALL has delivered CQO outperformance of 16% prior to ANY INVESTMENT BY THE Activist Hedge Funds —    CHC has its largest single co-investment in CQO (approximately A$195 million[10] (significantly larger than the value of the CQO management rights)) and is fully aligned with CQO's strategic direction and long term returns CQO has outperformed the A-REIT index since CHC took over its management, delivering unitholder returns of 15.98% compared with S&P/A-REIT 200 Accumulation Index's 2.51%[11] Weighted average lease expiry (‘WALE') increased from 3.9 years to 4.4 years under CHC management [12] Tenant retention rate increased from 81.0% to 89.0%² under CHC management —    Other key global achievements under CHC management include: Leases agreed across 242,000 sqm of the portfolio[13] A new 12 year lease with Telstra at the Argus Centre, Melbourne increasing WALE from 0.4 years to 11.3 years, and improving the valuation from A$114 million to A$129 million Secured BHP Billiton as an anchor tenant of 171 Collins St, Melbourne Renewal of the ATO lease at Moonee Ponds for 22,000 sqm (two years ahead of the expiry) Terms agreed over 61,326 sqft at Promenade 2, Atlanta Completed debt refinancing of A$1,371 million[14] —    CQO has successfully sold €158 million (A$215 million) of assets in Europe and ¥3.5 billion (A$41 million)[15] of assets in Japan —    Increased annual distribution by 9.5% to 20.25 cents per unit
3		CHARTER HALL has a clearLY stated strategy FOR CQO to FURTHER close the NTA gap and deliver total investor returns —    Post the US asset sale, CQO will continue to: Focus on high quality office buildings in Sydney and Melbourne, with measured exposure to Brisbane and Perth Generate sustainable earnings from a portfolio of prime, stabilised Australian office assets Enhance returns through a balanced exposure to office developments / refurbishments Lease unoccupied space to blue chip and government tenants with high quality covenants Actively implement capital management initiatives Selective divestment of non-core assets Maintain conservative gearing  of 25% - 35% Target higher distribution payout ratio of 75% - 90% Extend and diversify average debt maturity —    US asset sale is currently well progressed and CHC has clearly stated its support for the sale and the intention to distribute net sale proceeds to unitholders 28 expressions of interest received in the first phase Second phase is nearing completion with a select number of investors being granted access to due diligence Expected to enter binding contracts during the September 2011 quarter —    Charter Hall believes that a sale of the Australian portfolio in the current environment is likely to promote discounts to book value for the following reasons   In Charter Hall's opinion the current Australian office market is in the recovery phase of the property cycle and is underpinned by strong fundamentals and an improving outlook Circa A$13 billion[16] of institutional real estate current ‘on the market', and the state of the financing market and the level of Australian dollar would further deter domestic and international buyer interests
4		Moss Capital doES not PROVIDE EVIDENCE OF iTS track record —    Moss Capital has provided no evidence of its funds management expertise in the office sector, no evidence of its expertise in managing a listed fund platform and it provides no evidence of a track record of managing a substantial amount of capital and delivering returns for others —    Moss Capital does not currently hold the applicable Australian Financial Services Licence which is legally required to manage CQO —    To-date, Charter Hall believes Moss Capital's investments have been ad hoc with no focus on any particular sector According to Moss Capital's website, the only significant institutional fund under management is a wholesale Australian Solar Fund that invests in solar energy infrastructure projects, with a target fund size of A$100 million. —    Moss Capital has not articulated a strategy for CQO in the event that the Australian portfolio is not sold following their proposed strategic review  —    Moss Capital has not articulated a comprehensive long term fund management strategy, asset management philosophy or capital management plan for CQO and it: Has not confirmed any distribution policy for CQO Has not outlined how they plan to deal with potential events of default under debt documentation, pre-emptive rights in joint venture documents or tax issues at CQO —    Moss Capital has not confirmed the US based directors that are required to ensure that the US portfolio maintains REIT status (allowing efficient distribution of income) —    There are no independent directors on the board of the proposed responsible entity and no detail has been provided of any of the proposed directors —    Moss Capital has no current or proposed co-investment in CQO
5		Fortius GROUP PROVIDES NO EVIDENCE THEY ARE equipped to BE APPOINTED TO PROVIDE ANY PROPERTY SERVICES FOR CQO'S EXTENSIVE portfolio —    Fortius Group is a relatively unknown family owned with an Australian only unlisted funds management business employing approximately 11 real estate employees headed by Ray Sproats —    Fortius Group provides no evidence of a successful track record of managing institutional capital —    Fortius Group has provided no evidence of their: Experience in managing a portfolio of prime and A-grade office assets Experience in undertaking portfolio sales and acquisitions Tenant relationships and / or capability to sign and renew leases Ability to source its own asset deals – it relies on third parties charging additional fees for their                       services  Capability or expertise to assist in closing CQO's US asset sale programme

Important Notices

This document has been prepared and issued by Charter Hall Limited (ABN 57 113 531 150) and Charter Hall Funds Management Limited (ABN 31 082 991 786, AFSL 262861) as responsible entity of the Charter Hall Property Trust (together, 'Charter Hall') in response to the Notice of Meeting issued by Orange Capital and the Explanatory Memorandum issued by Orange Capital, Luxor Capital and Point Lobos on 26 June 2011. This document is not issued by the responsible entity of CQO, Charter Hall Office Management Limited (ABN 75 006 765 206).

While reasonable steps have been taken in preparing and issuing this document, none of Charter Hall, 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 the Activist Hedge Funds, Moss Capital, Fortius Group, Moelis & Company, or attributed to JP Morgan or IRESS in this document has been obtained by Charter Hall from the Notice of Meeting and other publicly available information.

The information in this document is general information.  It is not intended to be relied upon as financial product advice to CQO unitholders and does not take into account the investment objectives, financial situation or needs or any particular unitholder. Charter Hall encourages each CQO unitholder to obtain independent financial, legal, tax or other professional advice before making any decisions about how to vote at the meeting, or their investment in CQO.

Some of the statements appearing in this document may be in the nature of forward looking statements.  You should be aware that such statements are based on various assumptions and are, by their very nature, subject to uncertainty and contingencies, many of which are outside the control of Charter Hall and its related bodies corporate.  Actual events or results may vary from the events or results expressed or implied in any forward looking statement and any variation may be materially positive or negative.  No representation or warranty is made by Charter Hall, its related bodies corporate, directors, employees or any other person taken to have been involved in the preparation of this document that any of the events or results expressed or implied in any forward looking statement will be achieved.  You are cautioned not to place undue reliance on such statements.

This document is not intended to be, and does not constitute, an offer or a recommendation to acquire any securities in Charter Hall.

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