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Tishman Speyer Australia Limited (ABN 43 106 909 871) Responsible Entity of the Tishman Speyer Office Fund ARSN 108 809 534 Level 12, The Chifley Tower 2 Chifley Square Sydney NSW 2000 www.tsof.com.au PH: 61 2 9921 3900 FAX: 61 2 9921 3999 21 August 2009 The Manager Company Announcements Australian Securities Exchange Limited 20 Bridge Street Sydney NSW 2000 Tishman Speyer Office Fund (ASX: TSO) Dear Sir/Madam Tishman Speyer Office Fund - Takeover offer by MIRELF III Australia AIV, LP (“Madison”) We enclose, in accordance with Item 14 of section 633(1) of the Corporations Act 2001 (Cwlth), a copy of the Target’s Statement in relation to the off-market takeover bid by Madison for ordinary units in TSO. The Target’s Statement has been lodged with the Australian Securities and Investments Commission and sent to Madison, and is being sent to TSO Unitholders today. For further information, please contact: Tishman Speyer Australia Limited Kerr Bray Fund Manager (612) 9921 3901 . Tishman Speyer Office Fund (ASX: TSO) has an interest in 18 high-quality assets in 11 markets across the U.S. TSO is managed by Tishman Speyer, one of the leading owners, developers, operators and fund managers of first-class real estate in the world. Tishman Speyer maintains in-house acquisitions and development; design and construction; property management; investment management; leasing; tax and risk management professionals. Since 1978, Tishman Speyer has acquired, developed and operated over 325 projects totaling over 116 million square feet and more than 92,000 residential units, and a property portfolio of over US$54.2 billion in total value across the United States, Europe, Latin America and Asia, including signature properties such as New York's Rockefeller Center and Chrysler Center, Berlin's Sony Center and Torre Norte in Sao Paolo, Brazil. Tishman Speyer owns and/or manages over 72.6 million square feet, representing 221 office and mixed-use buildings, and approximately 63,200 residential units. For personal use only

Tishman Speyer Office Fund (ASX: TSO) · Tishman Speyer Office Fund (ASX: TSO) has an interest in 18 high-quality assets in 11 markets across the U.S. TSO is managed by Tishman Speyer,

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Page 1: Tishman Speyer Office Fund (ASX: TSO) · Tishman Speyer Office Fund (ASX: TSO) has an interest in 18 high-quality assets in 11 markets across the U.S. TSO is managed by Tishman Speyer,

Tishman Speyer Australia Limited (ABN 43 106 909 871) Responsible Entity of the Tishman Speyer Office Fund

ARSN 108 809 534 Level 12, The Chifley Tower

2 Chifley Square Sydney NSW 2000

www.tsof.com.au PH: 61 2 9921 3900

FAX: 61 2 9921 3999 21 August 2009 The Manager Company Announcements Australian Securities Exchange Limited 20 Bridge Street Sydney NSW 2000 Tishman Speyer Office Fund (ASX: TSO) Dear Sir/Madam

Tishman Speyer Office Fund - Takeover offer by MIRELF III Australia AIV, LP (“Madison”)

We enclose, in accordance with Item 14 of section 633(1) of the Corporations Act 2001 (Cwlth), a copy of the Target’s Statement in relation to the off-market takeover bid by Madison for ordinary units in TSO.

The Target’s Statement has been lodged with the Australian Securities and Investments Commission and sent to Madison, and is being sent to TSO Unitholders today.

For further information, please contact: Tishman Speyer Australia Limited Kerr Bray Fund Manager (612) 9921 3901

. Tishman Speyer Office Fund (ASX: TSO) has an interest in 18 high-quality assets in 11 markets across the U.S. TSO is managed by Tishman Speyer, one of the leading owners, developers, operators and fund managers of first-class real estate in the world. Tishman Speyer maintains in-house acquisitions and development; design and construction; property management; investment management; leasing; tax and risk management professionals. Since 1978, Tishman Speyer has acquired, developed and operated over 325 projects totaling over 116 million square feet and more than 92,000 residential units, and a property portfolio of over US$54.2 billion in total value across the United States, Europe, Latin America and Asia, including signature properties such as New York's Rockefeller Center and Chrysler Center, Berlin's Sony Center and Torre Norte in Sao Paolo, Brazil. Tishman Speyer owns and/or manages over 72.6 million square feet, representing 221 office and mixed-use buildings, and approximately 63,200 residential units.

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THIS IS AN IMPORTANT DOCUMENT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you do not understand it or you are in doubt as to how you should act, please contact your professional adviser immediately

Target�s Statement

This Target�s Statement has been issued by Tishman Speyer Australia Limited (ABN 43 106 909 871) (�TSAL�) in its capacity as responsible entity of Tishman Speyer Office Fund (ARSN 108 809 534) (�TSO�) in response to the takeover bid made by MIRELF III Australia AIV, LP (�Madison�)

The Independent Directors unanimously recommend that you REJECT Madison�s Offer and do nothing in relation to any

communications received from Madison

The Independent Expert has concluded that Madison�s Offer is NEITHER FAIR NOR REASONABLE

Financial adviser Credit Suisse (Australia) Ltd

Legal adviserMallesons Stephen Jaques

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Table of Contents 1 Reasons why you should REJECT Madison�s Offer 5 2 Your choices as a TSO Unitholder 8 3 Frequently asked questions 11 4 Detailed reasons for the Independent Directors� unanimous recommendation 18 5 TSAL�s proposed debt restructuring and capital management strategy 28 6 Risks 33 7 Important issues 36 8 Additional information 46 9 Glossary 50

Important Notices This Target�s Statement dated 21 August 2009 is given by TSAL, in its capacity as Responsible Entity of TSO, under Part 6.5 Division 3 of the Corporations Act. This Target�s Statement is given in response to Madison�s Offer made pursuant to the Replacement Bidder�s Statement dated 30 July 2009. Defined terms A number of defined terms are used in this Target�s Statement. These terms are explained in the Glossary in section 9. All references to $, dollars and cents are to Australian currency, unless specified otherwise. No account of personal circumstances This Target�s Statement does not take into account the individual investment objectives, financial or tax situation or particular needs of any TSO Unitholder or any other person. This document should not be relied upon as the sole basis for any investment decisions in relation to TSO Units. You may wish to seek independent financial and taxation advice before making a decision whether or not to accept Madison�s Offer for your TSO Units. Disclaimer regarding forward looking statements Some statements in this Target�s Statement are in the nature of forward looking statements, including statements of current intention, statements of opinion and predictions as to possible future events. You should be aware that such statements are not statements of fact and there can be no certainty of outcome in relation to the matters to which the statements relate. Forward looking statements and statements in the nature of forward looking statements are subject to many inherent risks and uncertainties before actual outcomes are achieved. Those risks and uncertainties include factors and risks specific to the listed property fund sector, as well as general economic conditions and conditions in the financial markets generally. Those risks and uncertainties are not all within the control of TSO, TSAL or the Directors and cannot be predicted by TSO, TSAL or the Directors. Actual events or results may differ materially from the events or results expressed or implied in any forward looking statement and any statement in the nature of a forward looking statement in this Target�s Statement, and such deviations are both normal and to be expected. None of TSO, TSAL, the Directors, or any person named in this Target�s Statement with their consent or any person involved in the preparation of this Target�s Statement makes any representation or warranty (either express or implied) as to the accuracy or likelihood of fulfilment of any forward looking statement and any statement in the nature of a forward looking statement in this Target�s Statement, or any events or results expressed or implied in any forward looking statement. You are cautioned not to place undue reliance on those statements having regard to the fact that the outcome may not be achieved. The forward looking statements and statements in the nature of forward looking statements in this Target�s Statement reflect views held only as at the date of this Target�s Statement. Risks TSO Unitholders will be aware from previous TSO disclosures that there are risk factors associated with an investment in TSO Units. Those risks apply irrespective of Madison�s Offer. A brief outline of those risks is set out in section 6.1 of this Target�s Statement. There are also some specific risks which arise in the context of Madison�s Offer and TSAL�s proposed debt restructuring and capital management strategy. Those risks are set out in sections 6.2 and 6.3 of this Target�s Statement. You should consider these risks before making a decision whether or not to accept Madison�s Offer for your TSO Units. ASIC and ASX disclaimer A copy of this Target�s Statement has been lodged with ASIC and provided to the ASX. None of ASIC, the ASX or any of their respective officers takes any responsibility for the content of this Target�s Statement. TSO Unitholder Information Line TSO has established an information line which TSO Unitholders should call if they have any queries in relation to Madison�s Offer. The telephone number for the TSO Unitholder Information Line is 1300 131 678 (within Australia) or + 61 2 8280 7173 (from outside Australia). It is available Monday to Friday between 8.30am and 5.30pm, AEST. Further information relating to Madison�s Offer can be obtained from TSO�s website at www.tsof.com.au.

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Tishman Speyer Australia Limited (ABN 43 106 909 871) Responsible Entity of the Tishman Speyer Office Fund

ARSN 108 809 534 Level 12, The Chifley Tower

2 Chifley Square Sydney NSW 2000

www.tsof.com.au PH: 61 2 9921 3900

FAX: 61 2 9921 3999

21 August 2009

Dear TSO Unitholder

You should have recently received a Bidder�s Statement from MIRELF III Australia AIV, LP (�Madison�) in relation to its offer to acquire your TSO Units.

This Target�s Statement explains why the Independent Directors unanimously recommend that you REJECT Madison�s Offer. Each of the Independent Directors intends to REJECT Madison�s Offer in relation to the TSO Units they own or control.

Deloitte Corporate Finance Pty Limited, as the Independent Expert, has estimated the fair market value of the TSO Units to be in the range of $0.84 and $1.02 per TSO Unit and has concluded that Madison�s Offer is neither fair nor reasonable.

Reasons for the Independent Directors� unanimous rejection of Madison�s Offer

The key reasons for the Independent Directors� unanimous recommendation to REJECT Madison�s Offer are, in the view of the Independent Directors, straight forward and compelling:

1) The Offer Consideration of $0.30 per TSO Unit represents a substantial discount to TSO�s stated Net Asset Value (NAV) per TSO Unit as at 30 June 2009.

2) Madison�s Offer does not provide a solution to TSO�s liquidity needs or address the near-term financing requirements of TSO. By contrast, TSAL has made substantial progress in implementing a strategy designed to strengthen TSO�s financial position in the near term, and realise assets and return capital to TSO Unitholders in an orderly and efficient manner in the medium term - details of this strategy are set out in this Target�s Statement.

TSAL believes that if Madison obtains more than a 50% interest in TSO, this may place at risk the successful implementation of the debt restructuring and capital management strategy.

3) Madison�s Offer is opportunistically timed to take advantage of the current volatility in global debt and equity markets.

4) Madison�s Offer is subject to terms that are conditional and uncertain. The Offer will lapse unless Madison waives the non-fulfilment of the No Material Adverse Change Condition or circumstances change. If Madison waives the No Material Adverse Change Condition and there is a change of control in TSO, the interests of TSO and TSO Unitholders may be adversely affected.

5) Deloitte Corporate Finance Pty Limited, as the Independent Expert, has concluded that Madison�s Offer is neither fair nor reasonable.

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A full discussion of these issues and the reasons for the Independent Directors� unanimous recommendation is set out in this Target�s Statement.

Strategy for debt restructure and capital management

On 12 August 2009, TSAL provided an update on its progress in connection with the development of a proposed debt restructuring and potential capital management initiatives to address TSO�s debt and liquidity position.

Section 5 of this Target�s Statement sets out further details of the proposed debt restructuring and capital management strategy. The inter-dependent elements of that strategy would involve:

1) repaying in full the Empire Hawkeye Facility and restructuring the US REIT Facility to obtain significant covenant relief and permit US REIT to access undrawn funds;

2) raising a minimum of US$55 million from one or more capital management initiatives, including the possible sale of investment properties outside the Prime Plus Portfolio;

3) TSP and its affiliates agreeing to waive payment of any performance fees in December 2009; and

4) managing TSO�s investment portfolio to enable an orderly realisation of those investments by 2015 and the return of net proceeds to TSO Unitholders.

We urge you to read this Target�s Statement and the Independent Expert�s Report in full, consult with your independent professional adviser and call the TSO Unitholder Information Line if you have any queries.

If there are any material developments, including in relation to Madison�s Offer or the debt restructure and capital management strategy, TSO Unitholders will be updated.

I re-iterate that the unanimous recommendation of your Independent Directors is to REJECT the Offer from Madison.

Graham J Kelly Chairman Tishman Speyer Australia Limited

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Key Dates Date of Madison�s Initial Bidder�s Statement 13 July 2009 Date of Madison�s Replacement Bidder�s Statement 30 July 2009 Date of Madison�s Offer 6 August 2009 Date of Madison�s Second Supplementary Bidder�s Statement 20 August 2009 Date of this Target�s Statement 21 August 2009 Status of Conditions Date (unless extended) 2 September 2009 Closing Date (unless extended or the Offer is withdrawn) 11 September 2009 Note: unless otherwise stated, all times referred to in this Target�s Statement are references to AEST. The Status of Conditions Date and the Closing Date may be varied in accordance with the Corporations Act.

What To Do

THE INDEPENDENT DIRECTORS UNANIMOUSLY RECOMMEND THAT YOU REJECT

MADISON�S INADEQUATE AND OPPORTUNISTICALLY TIMED OFFER

TO REJECT MADISON�S OFFER SIMPLY:

• DO NOTHING and disregard all communications you receive from Madison

• DO NOT send back the Acceptance Form

• DO NOT tell your Broker to accept Madison�s Offer

You Should 1 Read this Target�s Statement and the Independent Expert�s Report 2 Consult with your investment, financial, taxation or other professional

adviser if in doubt about what to do 3 If you have any questions, call the TSO Unitholder Information Line

on: • 1300 131 678 (within Australia); or • + 61 2 8280 7173 (from outside Australia). It is available Monday to Friday between 8.30am and 5.30pm AEST.

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Target�s Statement

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1 Reasons why you should REJECT Madison�s Offer

The Independent Directors unanimously recommend that TSO Unitholders REJECT Madison�s INADEQUATE and OPPORTUNISTIC Offer. Each Independent Director intends to REJECT Madison�s Offer in relation to the TSO Units they own or control.

Due to the potential conflict which arises as a result of their relationship with TSP (refer to section 4.1 of this Target�s Statement), the TSP Directors have chosen not to make a recommendation in respect of Madison�s Offer.

The reasons for the Independent Directors� unanimous recommendation are summarised below. Further details relating to these reasons are set out in section 4 of this Target�s Statement.

1.1 The Offer Consideration represents a substantial discount to TSO�s stated NAV and TSO�s trading price on the ASX

The Offer Consideration of $0.30 per TSO Unit represents:

(a) a 47% discount to TSO�s NAV of $0.57 per TSO Unit as at 30 June 2009;

(b) a 74% discount to TSO�s pre-tax NAV of $1.17 per TSO Unit as at 30 June 2009; and

(c) an 89% discount from TSO�s peak NAV of $2.67 per TSO Unit as at 30 June 2007.

TSO�s trading price at the close of trading on 19 August 2009 was $0.39 per TSO Unit, which represents a 30% premium to the Offer Consideration.

Refer to section 4.2 of this Target�s Statement for further details.

1.2 Madison�s Offer does not provide a solution to TSO�s liquidity needs or address TSO�s near-term financing requirements The main facility over TSO�s interest in the Prime Plus Portfolio is the Empire Hawkeye Facility which expires on 1 December 2009. TSO currently does not have sufficient liquidity available to repay this facility. Madison�s Offer does not provide a solution to TSO�s liquidity needs or address the near-term financing requirements of TSO.

TSAL has made substantial progress in implementing a strategy designed to strengthen TSO�s financial position in the near term and realise assets and return capital to TSO Unitholders in an orderly and efficient manner in the medium term. Section 5 of this Target�s Statement sets out further details of the proposed strategy. In summary, the inter-dependent elements of that strategy would involve:

(a) repaying in full the Empire Hawkeye Facility and restructuring the US REIT Facility to obtain significant covenant relief and permit US REIT to access undrawn funds;

(b) raising a minimum of US$55 million from one or more capital management initiatives, including the possible sale of investment properties outside the Prime Plus Portfolio;

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(c) TSP and its affiliates agreeing to waive payment of any performance fees in December 2009; and

(d) managing TSO�s investment portfolio to enable an orderly realisation of those investments by 2015 and the return of net proceeds to TSO Unitholders.

TSAL believes that if Madison obtains more than a 50% interest in TSO, this may place at risk the successful implementation of the debt restructuring and capital management strategy.

Refer to section 4.3 of this Target�s Statement for further details.

1.3 Opportunistic nature of Madison�s Offer, which does not include a plan to strengthen TSO�s financial position TSAL believes that Madison�s Offer has been opportunistically timed to take advantage of the current volatility in global debt and equity markets at a comparative low point in the US property cycle, and before TSAL has been able to finalise and implement the debt restructuring and capital management initiatives designed to deal with the current market conditions and TSO�s debt and liquidity position.

Furthermore, although Madison would be in a position to control TSO were it ultimately to acquire an interest in more than 50% of the TSO Units, the Offer Consideration does not reflect the premium for control that would normally be associated with a takeover bid for 100% of a listed entity.

Refer to section 4.4 of this Target�s Statement for further details.

1.4 Madison�s Offer is subject to terms that are conditional and uncertain

As at the date of this Target�s Statement, Madison�s Offer is subject to a No Material Adverse Change Condition and a No Prescribed Occurrences Condition. The Offer will lapse unless Madison waives the No Material Adverse Change Condition or circumstances change. If Madison waives the No Material Adverse Change Condition and there is a change of control in TSO, including if Madison acquires more than 50% of TSO, the interests of TSO and TSO Unitholders may be adversely affected.

Refer to section 4.5 of this Target�s Statement for further details.

1.5 The Independent Expert has concluded that Madison�s Offer is neither fair nor reasonable

The Independent Expert has:

(a) estimated the fair market value of the TSO Units to be in the range of $0.84 and $1.02 per TSO Unit; and

(b) concluded that Madison�s Offer is neither fair nor reasonable.

A full copy of the Independent Expert�s Report also accompanies this Target�s Statement as Annexure A. You should read that report carefully before making a decision whether or not to accept Madison�s Offer for your TSO Units.

TSAL will advise you if there are any material developments in relation to Madison�s Offer, the proposed debt restructuring and capital management

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strategy and any other matters material to your decision as to whether or not to accept Madison�s Offer.

If you are in any doubt as to the action that you should take in relation to Madison�s Offer, you should consult a professional adviser. In particular, the tax consequences of accepting Madison�s Offer will depend upon your individual circumstances. Accordingly, you should consult your tax adviser if you need further information regarding the tax consequences of acquiring, holding or disposing of TSO Units.

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2 Your choices as a TSO Unitholder

As a TSO Unitholder you currently have three choices available to you.

CHOICE 1: Reject Madison�s Offer

To follow the Independent Directors� unanimous recommendation to REJECT Madison�s Offer, simply disregard all communications you receive from Madison:

(a) Do not return the Acceptance Form that was sent to you with the Bidder�s Statement (or any new Acceptance Form that Madison sends to you);

(b) Do not tell your Broker to accept Madison�s Offer; and

(c) Do not otherwise fill in or send any documents to Madison.

You should note that:

(a) If you choose to reject Madison�s Offer, Madison will be able to compulsorily acquire, for the same consideration as under Madison�s Offer, any TSO Units for which it has not received acceptances if during, or at the end of, the Offer Period Madison (taken together with its associates):

(i) has a relevant interest in at least 90% (by number) of the TSO Units; and

(ii) has acquired at least 75% (by number) of the TSO Units for which it has made an Offer.

(b) If Madison acquires more than 50% and less than 90% of the TSO Units, the interests of TSO and TSO Unitholders may be adversely affected. In circumstances where Madison controls TSO and you continue to hold TSO Units you will be exposed to the risks associated with being a minority TSO Unitholder. Some of those risks are explained in sections 4.5 and 7.3 of this Target�s Statement. Unitholders should also refer to section 6 of this Target�s Statement for a summary of risk factors relating to an investment in TSO Units as well as those risks that arise in the context of Madison�s Offer and TSAL�s proposed debt restructuring and capital management strategy.

CHOICE 2: Sell your TSO Units on the ASX

You may sell all or some of your TSO Units on the ASX for cash, provided you have not previously accepted Madison�s Offer for those TSO Units.

The volume weighted average price of TSO Units traded on the ASX from 14 July 2009 (the first trading date after Madison announced its intention to make Madison�s Offer) to 19 August 2009 was $0.334, which represents an 11% premium to the Offer Consideration of $0.30 per TSO Unit. As at the close of trading on 19 August 2009, TSO�s Unit price was $0.39, which represents a 30% premium to the Offer Consideration. The latest price for TSO Units may be obtained from the ASX website www.asx.com.au.

If you sell your TSO Units on the ASX, you will receive the consideration for your TSO Units sooner than if you accept Madison�s Offer.

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If you sell your TSO Units on the ASX, you should be aware that:

(a) you will lose the opportunity to receive future returns from TSO, and will not benefit from the implementation of TSAL�s proposed debt restructuring and capital management strategy, which has been designed to strengthen TSO�s financial position in the near-term and realise assets in an orderly and efficient manner in the medium term in order to maximise returns to TSO Unitholders. Refer to sections 4.3 and 5 of this Target�s Statement for further details;

(b) you may incur a brokerage charge for selling those TSO Units;

(c) you may be liable for CGT or income tax on the sale of your TSO Units (refer to section 7.6 of this Target�s Statement and section 6 of the Bidder�s Statement for further details);

(d) you will lose the ability to accept Madison�s Offer; and

(e) you will lose the opportunity to benefit from any possible increase in the Offer Consideration or any consideration that may be offered under any other offer (which may or may not eventuate).

You may wish to seek independent financial and taxation advice from your professional adviser and Broker as to any action that you may decide to take in relation to your TSO Units.

CHOICE 3: Accept Madison�s Offer

The Independent Directors unanimously recommend that you REJECT Madison�s inadequate and opportunistic Offer.

However, you may choose to accept Madison�s Offer for all or some of your TSO Units. To accept Madison�s Offer, you should follow the instructions in the Bidder�s Statement and on the Acceptance Form provided to you by Madison.

Madison has stated that the Offer will remain open until 7.00pm (AEST) on 11 September 2009, which is specified in the Bidder�s Statement as the current scheduled closing date of Madison�s Offer. It is possible that Madison will choose to extend the Offer Period one or more additional times in accordance with the Corporations Act.

TSO Unitholders who accept Madison�s Offer should be aware that:

(a) if the Conditions of Madison�s Offer are satisfied or waived, you will cease to be a TSO Unitholder and will lose the opportunity to benefit from the implementation of TSAL�s proposed debt restructuring and capital management strategy, which has been designed to strengthen TSO�s financial position in the near term and realise assets in an orderly and efficient manner in the medium term in order to maximise returns to TSO Unitholders (refer to sections 4.3 and 5 of this Target�s Statement for further details);

(b) you will not be paid the Offer Consideration for your TSO Units until after Madison�s Offer becomes unconditional, however it is uncertain when (if ever) this will occur. Whether and when you will receive payment for your TSO Units if you accept Madison�s Offer are set out in section 3 (�When will I be paid if I accept Madison�s Offer?�) of this Target�s Statement and in section 8.2 of the Bidder�s Statement;

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(c) you may not know whether Madison�s Offer will become unconditional (or be extended) until the Status of Conditions Date currently scheduled for 2 September 2009, which date may be extended;

(d) you will not be able to sell your TSO Units on the ASX or to any other person that may make an offer for your TSO Units, or deal with your TSO Units in any manner while Madison�s Offer remains open (unless you are permitted to withdraw your acceptance);

You will only be permitted to withdraw your acceptance of Madison�s Offer in limited circumstances. Essentially, this will only occur if Madison varies its Offer in a way that delays the date for payment of the Offer Consideration by more than a month (such as by extending the Closing Date for more than a month while the Offer remains conditional), or if the Offer lapses or Madison withdraws its Offer. Madison�s Offer may only be withdrawn with the written consent of ASIC, subject to the conditions (if any) specified by ASIC;

(e) if the Conditions of Madison�s Offer are not satisfied or waived and Madison�s Offer lapses, you will then be free to deal with your TSO Units even if you have accepted Madison�s Offer; and

(f) you may be liable for CGT or income tax on the disposal of your TSO Units (refer to section 7.6 of this Target�s Statement and section 6 of the Bidder�s Statement for further details).

The Independent Directors encourage you to consider your personal risk profile, investment strategy, tax position and financial circumstances before making any decision in relation to your TSO Units, including making a decision whether or not to accept Madison�s Offer for your TSO Units.

The Independent Directors unanimously recommend that you REJECT Madison�s Offer and simply disregard all communications you receive from Madison. Refer to sections 1 and 4 of this Target�s Statement for detailed reasons as to the Independent Directors� unanimous recommendation. Refer to sections 4.3 and 5 for details of TSAL�s proposed debt restructuring and capital management strategy and section 6 of this Target�s Statement for a summary of risk factors relating to an investment in TSO Units as well as those risks that arise in the context of Madison�s Offer and TSAL�s proposed debt restructuring and capital management strategy.

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3 Frequently asked questions

This section answers some frequently asked questions about Madison�s Offer, and is not intended to address all issues relevant to TSO Unitholders. This section should be read together with all other parts of this Target�s Statement, including the Independent Expert�s Report attached as Annexure A.

What is Madison offering for my TSO Units?

Madison has made a conditional Offer of $0.30 for each TSO Unit you hold.

What is the Bidder�s Statement? The Bidder�s Statement is the document setting out the terms and conditions of Madison�s Offer and (as at the date of this Target�s Statement) includes the Initial Bidder�s Statement dated 13 July 2009 and the Replacement Bidder�s Statement dated 30 July 2009.

TSO Unitholders should also be aware that Madison released a Second Supplementary Bidder�s Statement on 20 August 2009.

What is this Target�s Statement? This Target�s Statement has been prepared by TSAL and provides TSAL�s response to Madison�s Offer, including the recommendation of the Independent Directors to REJECT Madison�s Offer.

What do the Independent Directors recommend?

The Independent Directors unanimously recommend that you REJECT the inadequate and opportunistic Offer.

The reasons for the Independent Directors� unanimous recommendation are detailed in sections 1 and 4 of this Target�s Statement.

In accordance with this recommendation, the Independent Directors intend to REJECT Madison�s Offer in relation to the TSO Units they own or control.

If there is a change in this recommendation or any material developments in relation to Madison�s Offer or TSAL�s debt restructuring and capital management strategy (refer to section 5 of this Target�s Statement), TSAL will lodge a supplementary Target�s Statement and advise you accordingly.

What does the Independent Expert say?

The Independent Expert has valued TSO Units at between $0.84 and $1.02 per TSO Unit, and has concluded that Madison�s Offer is NEITHER FAIR NOR REASONABLE.

The Independent Expert�s Report accompanies this Target�s Statement as Annexure A. You are encouraged to review the Independent Expert�s Report carefully before making a decision whether or not to accept Madison�s Offer for your TSO Units.

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What choices do I have as a TSO Unitholder?

As a TSO Unitholder you have the choice to:

(a) REJECT Madison�s Offer, in which case you do not need to take any action. The Independent Directors unanimously recommend you REJECT Madison�s inadequate and opportunistic Offer;

(b) sell all or some of your TSO Units on the ASX, which may be at a higher or lower price than the Offer Consideration (unless you have previously accepted Madison�s Offer and have not validly withdrawn your acceptance); or

(c) accept Madison�s Offer for all or some of your TSO Units, in which case you should follow the instructions in the Bidder�s Statement on the Acceptance Form that accompanies the Bidder�s Statement. If you accept Madison�s Offer, you may only withdraw your acceptance in limited circumstances.

For further information as to your choices, refer to section 2 of this Target�s Statement.

You may wish to seek independent financial and taxation advice from your professional adviser as to any action that you may decide to take in relation to Madison�s Offer and your TSO Units.

What should I do if I want to follow the Independent Directors� recommendation?

To follow the Independent Directors� unanimous recommendation to REJECT Madison�s Offer, you should DO NOTHING. You should disregard all communications you receive from Madison:

(a) Do not return the Acceptance Form that was sent to you with the Bidder�s Statement (or any new Acceptance Form that Madison sends to you);

(b) Do not tell your Broker to accept Madison�s Offer; and

(c) Do not otherwise fill in or send any documents to Madison.

When do I have to make a decision? If you wish to follow the Independent Directors� unanimous recommendation and REJECT Madison�s Offer, you should do nothing and disregard all communications you receive from Madison.

If you wish to accept Madison�s Offer for some or all of your TSO Units, you must do so before the Closing Date. Madison�s Offer is currently scheduled to close at 7.00pm (AEST) on 11 September 2009, but the Offer Period may be extended in certain circumstances. Refer to section 3 (�When does Madison�s Offer close and can the Offer be extended?�) and section 8.5 of the Bidder�s Statement for details of circumstances in which the Offer Period can be extended.

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Is Madison�s Offer conditional? Yes. As at 20 August 2009, the outstanding conditions to

the Offer are (in summary):

(a) No Material Adverse Change Condition (refer to �What is the No Material Adverse Change Condition?� below, as well as section 4.5(a) of this Target�s Statement and section 8.9(b) of the Bidder�s Statement for further information); and

(b) No Prescribed Occurrences Condition (refer to �What is the No Prescribed Occurrences Condition?� in this section 3, as well as section 8.9(c) of the Bidder�s Statement for further information).

Madison announced on 4 August 2009 that the FIRB Condition had been fulfilled, so that Madison�s Offer has become free of that condition.

What is the No Material Adverse Change Condition?

Madison�s Offer is conditional on TSO confirming in the Target�s Statement that there has not been a material adverse change in or in relation to TSO, including as a result of any Change of Control (which, for example, would occur if any person or group is or becomes the beneficial owner directly or indirectly of more than 50% of the equity of TSO), and that confirmation is not materially varied, revoked or qualified before the Closing Date (refer to section 4.5(a) of this Target�s Statement and section 8.9(b) of the Bidder�s Statement for further details).

As at the date of this Target�s Statement, the Directors are unable to make a statement to satisfy the No Material Adverse Change Condition.

As such, the Offer will lapse unless Madison waives the non-fulfilment of the No Material Adverse Change Condition or circumstances change.

If Madison waives the No Material Adverse Change Condition and there is a change of control in TSO, the interests of TSO and TSO Unitholders may be adversely affected. Refer to sections 4.5, 7.2 and 7.3 of this Target�s Statement for further details.

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What is the No Prescribed Occurrences Condition?

Madison�s Offer is conditional on various �Prescribed Occurrences� not occurring between the Announcement Date and the Closing Date (refer to section 8.9(c) of the Bidder�s Statement).

While Madison has not waived the No Prescribed Occurrences Condition, it has confirmed in its Bidder�s Statement that it would not regard the sale of some or all of TSO�s investment properties (as outlined in the TSO Investor Update and the ASX announcement dated 20 May 2009), as being the disposal of a substantial part of TSO�s business or property and would not rely upon any such sale as resulting in the non-satisfaction of this condition (refer to section 4.4 of the Bidder�s Statement).

What happens if I accept Madison�s Offer and the Conditions are not satisfied or waived?

If the No Material Adverse Change Condition is not waived before the end of the Offer Period or the No Prescribed Occurrence Condition is not satisfied or waived within 3 business days after the end of the Offer Period:

(a) Madison�s Offer will lapse; and

(b) if you have accepted Madison�s Offer, that acceptance will be void and of no effect whatsoever, and the Offer Consideration will not be paid to you.

If the No Material Adverse Change Condition is waived and the No Prescribed Occurrence Condition is satisfied or waived, you will be paid the Offer Consideration by Madison in accordance with the Offer (refer to section 8.2 of the Bidder�s Statement). You should be aware that Madison can only waive the No Material Adverse Change Condition during the period ending 7 days before the end of the Offer Period. If that Condition is not waived before that deadline, unless circumstances change, Madison�s Offer will lapse at 7:00pm (AEST) on the Closing Date and all acceptances of Madison�s Offer will be void and of no effect.

Even while Madison�s Offer remains conditional, you cannot withdraw your acceptance before the end of the Offer Period except in limited circumstances (refer to �If I accept Madison�s Offer, can I withdraw my acceptance?� in this section 3).

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What are the consequences of accepting Madison�s Offer now?

Accepting Madison�s Offer would (subject to the availability of any withdrawal rights discussed below):

(a) cause you to lose the opportunity to benefit from the implementation of TSAL�s proposed debt restructuring and capital management strategy (refer to sections 4.3 and 5 of this Target�s Statement for further details);

(b) prevent you from selling your TSO Units on the ASX;

(c) prevent you from accepting any superior offer that may be made by a third party;

(d) cause you to relinquish control of your TSO Units to Madison until the Offer becomes, or is declared to be, unconditional; and

(e) give Madison the option in its sole and absolute discretion to acquire your TSO Units (by waiving the Conditions) or to allow the Offer to lapse.

The effect of accepting Madison�s Offer is set out in sections 8.6 and 8.7 of the Bidder�s Statement. TSO Unitholders should read those provisions in full to understand the effect that acceptance will have on their ability to exercise rights attaching to TSO Units and the representations and warranties which they make by accepting the Offer.

If I accept Madison�s Offer, can I withdraw my acceptance?

If you accept Madison�s Offer now, you may not currently withdraw your acceptance of Madison�s Offer.

You may only withdraw your acceptance in the future if Madison varies the Offer in a way that postpones by more than one month the time when Madison is required to satisfy its obligations under the Offer. This will occur if Madison extends the Offer Period by more than one month and the Offer is still subject to Conditions at that time.

What happens if I do nothing? If you do nothing, then you will not have accepted Madison�s Offer within the Offer Period and you will remain a TSO Unitholder.

Madison will be able to compulsorily acquire, for the same consideration as under Madison�s Offer, any TSO Units for which it has not received acceptances if during, or at the end of, the Offer Period Madison (taken together with its associates):

(a) has a relevant interest in at least 90% (by number) of the TSO Units; and

(b) has acquired at least 75% (by number) of the TSO Units for which it has made an Offer.

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Madison has indicated that, if Madison and its associates

have a relevant interest in 90% or more of TSO Units and its Offer becomes unconditional, it intends to compulsorily acquire your TSO Units. If Madison proceeds to compulsory acquisition, then you will be paid the last price offered by Madison for TSO Units under the Offer before compulsory acquisition commenced. Refer to section 7.4 of this Target�s Statement and section 4.5 of the Bidder�s Statement for further details.

If Madison and its associates have a relevant interest between 50% and 90% of TSO Units, you will be a minority unitholder in TSO. The implications of this are described in sections 7.1, 7.2 and 7.3 of this Target�s Statement.

When does Madison�s Offer close and can the Offer be extended?

Madison�s Offer will close at 7.00pm (AEST) on 11 September 2009, unless it is extended or withdrawn by Madison in accordance with the Corporations Act.

While the Offer is subject to Conditions, Madison may extend the Offer Period at any time before giving the notice of status of Conditions. However if the Offer becomes unconditional (that is, all the Conditions are satisfied or waived), Madison may extend the Offer Period at any time before the end of the Offer Period.

In addition, if, within the last 7 days of the Offer Period:

(a) Madison improves the Offer Consideration; or

(b) Madison�s voting power in TSO increases to more than 50%,

the Offer Period will be automatically extended so that it ends 14 days after the relevant event occurs.

Can Madison withdraw its offer? Madison�s Offer may only be withdrawn with the written consent of ASIC, subject to the conditions (if any) specified by ASIC.

When will I be paid if I accept Madison�s Offer?

If you accept the Offer, you will only receive the Offer Consideration if the Offer becomes unconditional. In that case you will be paid the Offer Consideration on or before the later of:

(a) 1 month after the date the Offer becomes or is declared unconditional; and

(b) 1 month after the date you accept the Offer if the Offer is, at the time of your acceptance, unconditional,

but in any event (provided Madison�s Offer becomes or is declared unconditional), no later than 21 days after the Closing Date. Refer to section 8.2 of the Bidder�s Statement for further details.

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What are the tax implications of accepting Madison�s Offer?

A general description of the potential taxation treatment for TSO Unitholders accepting Madison�s Offer, as well as a summary of US taxation issues for TSO, is set out in section 7.6 of this Target�s Statement and in section 6 of the Bidder�s Statement. You should not rely on those descriptions as advice for your own affairs.

You should consult your taxation adviser for detailed taxation advice in relation to your individual tax situation before making a decision as to whether or not to accept Madison�s Offer for your TSO Units. You may, for example, be liable for CGT if you accept Madison�s Offer.

How can I get updates on the TSO Unit price?

If you have access to the internet, you can receive updates by visiting the ASX website at www.asx.com.au or TSO�s website at www.tsof.com.au.

Whom should I call if I have any questions?

TSAL has established an information line for TSO Unitholders in relation to Madison�s Offer. The telephone number is:

• 1300 131 678 (within Australia); or

• + 61 2 8280 7173 (from outside Australia).

It is available Monday to Friday between 8.30am and 5.30pm (AEST). Announcements made to the ASX by TSAL and other information relating to Madison�s Offer can be obtained from TSO�s website at www.tsof.com.au.

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4 Detailed reasons for the Independent Directors� unanimous recommendation

4.1 Directors of TSAL The directors of TSAL, the Responsible Entity for TSO, as at the date of this Target�s Statement are:

Graham J Kelly Chairman and Independent Non-Executive Director

Jerry I Speyer Non-Executive Director

Robert J Speyer Non-Executive Director

Richard M Haddock Independent Non-Executive Director

David N Augarten CEO and Executive Director

The TSAL Board recognised the potential for conflict to arise in relation to the position of the TSP Directors, being Jerry Speyer, Robert Speyer and David Augarten. Specifically, TSAL is an indirect subsidiary of TSP, and affiliates of TSP have direct and indirect ownership and contractual interests in the real estate assets in which TSO has investment interests. To manage such conflicts, the TSAL Board has established:

(a) an Independent Response Committee, comprising the Independent Directors, to consider Madison�s Offer - the Independent Response Committee does not include any of the three TSP Directors; and

(b) protocols and procedures to manage potential conflicts arising during normal TSAL Board meetings.

Due to the potential conflict which arises as a result of their relationship with TSP, the TSP Directors have chosen not to make a recommendation in respect of Madison�s Offer.

The Independent Directors, being Graham Kelly and Richard Haddock, unanimously recommend that you REJECT Madison�s inadequate and opportunistic Offer for the reasons set out below.

4.2 The Offer Consideration represents a substantial discount to TSO�s stated NAV The Offer Consideration of $0.30 per TSO Unit represents:

(a) a 47% discount to TSO�s NAV of $0.57 per TSO Unit as at 30 June 2009;

(b) a 74% discount to TSO�s pre-tax NAV of $1.17 per TSO Unit as at 30 June 2009; and

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(c) an 89% discount from TSO�s peak NAV of $2.67 per TSO Unit as at 30 June 2007.

Following the announcement of Madison�s Offer on 13 July 2009, TSO Units have continued to trade at or above the Offer Consideration of $0.30 per Unit with a volume weighted average trading price of $0.334 per Unit, representing a premium of 11% to the Offer Consideration. TSO�s trading price at the close of trading on 19 August 2009 was $0.39 per TSO Unit, which represents a 30% premium to the Offer Consideration.

4.3 Madison�s Offer does not provide a solution to TSO�s liquidity needs or address TSO�s near-term financing requirements TSAL�s strategy has been to acquire and own a diversified portfolio of quality office properties located in core locations in the US funded partly with debt with the objective of enhancing returns on Unitholder equity over the medium term.

The onset of a more restrictive and expensive debt and equity capital environment and a decline in economic activity in the US over the past 12-24 months (the so-called �Global Financial Crisis�) has resulted in a significant reduction in US property values and rents. In turn these events have resulted in an increase in TSO�s gearing levels and made it significantly more difficult for TSO to refinance its debts.

All of TSO�s property-level debts are non-recourse facilities (subject to customary carve outs) secured against individual properties and portfolios, with limited financial covenants and expiry dates between December 2012 and May 2017.

TSO also has two corporate debt facilities of a type which may no longer be available in the market place on terms that would be in the interests of TSO Unitholders. Those two facilities, which are the subject of the proposed debt restructuring, are:

(a) the US REIT Facility, which matures in May 2010 (with two one year extension options, provided no default under the facility then exists, and other conditions are satisfied) drawn to US$288 million as at 30 June 2009. This facility is secured by, among other things, pledges of the equity interests that US REIT holds in certain subsidiaries and joint ventures and is subject to various financial covenants, including minimum net worth, minimum liquidity, maximum leverage and minimum debt service coverage requirements; and

(b) the Empire Hawkeye Facility, which expires on 1 December 2009, and is drawn to US$148.1 million as at 30 June 2009 (TSO�s share). This facility is secured by the direct and indirect equity interests in Prime Plus owned by Fund V, Empire Hawkeye and TST Empire and the equity interests in Empire Hawkeye owned by US REIT.

The carrying value of TSO�s property portfolio has been revalued in its 30 June 2009 accounts, reflecting an aggregate decline of 26.1% from 31 December 2008. While US REIT is not currently in breach of any financial covenants, if those valuations were to be reflected in qualifying appraisals the next time the properties� value is determined for purposes of testing compliance with the US REIT Facility financial covenants, the facility�s minimum net worth and maximum leverage covenants would be breached and the lenders could demand early repayment of the loan. In addition, any failure (as a result of the significant declines in property values attributable to two of the Lakeside, Virginia properties, which have a nil attributed equity value in the consolidated financial statements for the year ended 30 June 2009)

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to comply with �solvency� and related covenants under the property-level debt facilities could in due course constitute a default under the current terms of the US REIT Facility due to cross-default provisions. Under the proposed restructured terms of the US REIT Facility, any breach of a property-level financial covenant with respect to the Lakeside properties will not affect the US REIT Facility. TSAL believes that US REIT will close the restructuring of the US REIT Facility and obtain immediate covenant relief prior to the current Closing Date of Madison�s Offer of 11 September 2009. Refer to section 5.1 for further details.

In TSAL�s view, TSO�s depressed stock price, particularly when compared to NAV, is partly a reflection of these near term liquidity challenges and the increased risk of a forced sale of TSO�s assets if those challenges are not successfully resolved. Accordingly, TSAL intends to implement a strategy designed to strengthen TSO�s financial position in the near term and realise assets in an orderly and efficient manner in the medium term in order to maximise returns to TSO Unitholders. The strategy includes the following strategic initiatives:

(a) Restructure of the US REIT Facility and repayment in full of the Empire Hawkeye Facility. US REIT has obtained commitments from greater than 40% of the lenders in the syndicate, including Deutsche Bank Trust Company Americas as administrative agent and lender to a restructure of the US REIT Facility substantially on terms set forth in a term sheet, subject to the execution and delivery of definitive documentation satisfactory to each such lender. The approval of 51% of the lenders is required to enter into and close the restructured facility. Upon closing, the restructured facility will provide for significant covenant relief, among other things. The restructured facility will also provide for the ability to draw upon the facility�s remaining US$112 million capacity (the �US REIT Facility Final Funding�) upon the satisfaction of certain conditions set out in section 5 of this Target�s Statement (including raising an additional US$55 million in liquidity as described in greater detail below). The draw down of the US$112 million does not require any further approval by the syndicate lenders.

TSAL believes that US REIT will close the restructuring of the US REIT Facility and obtain immediate covenant relief prior to the current Closing Date of Madison�s Offer of 11 September 2009.

(b) Repayment in full of the Empire Hawkeye Facility. A condition of drawing the US REIT Facility Final Funding is that the Empire Hawkeye Facility be repaid in full upon drawdown. The total outstanding balance on the Empire Hawkeye Facility is US$164.5 million as at 30 June 2009, of which TSO�s share is US$148.1 million as at 30 June 2009. The repayment of TSO�s share of the Empire Hawkeye Facility will be funded by a combination of:

(i) the additional US$112 million from the US REIT Facility; and

(ii) a portion of the US$55 million of additional liquidity to be generated by US REIT in the near term.

(c) Increasing liquidity in the near term. In order to fund TSO�s share of the Empire Hawkeye Facility repayment and satisfy the conditions to drawing upon the US REIT Facility Final Funding referred to in paragraph 4.3(a) above, TSAL intends to raise a minimum of US$55 million liquidity in US REIT from one or more of the following capital management initiatives:

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(i) raising at least US$120 million of net debt against 300 Park Avenue, New York, of which TSO�s share of net proceeds would be US$55 million (which financing would require the approval of the 49% owner of Prime Plus is more fully described in section 5.1);

(ii) raising approximately US$24 million of net debt against 400 Castro Street, Silicon Valley, of which TSO�s share of net proceeds would be US$11.0 million (which financing would require the approval of the 99% owner of Prime Plus is more fully described in section 5.1);

(iii) the sale of one or more of:

(A) 3 MacArthur Place, Orange County;

(B) 550 Terry Francois Boulevard, San Francisco; and

(C) the Beverly Hills portfolio.

If all properties listed above were sold, it is estimated that the total net proceeds would be approximately US$79 million after repayment of US$327.5 million of property level debt, and after deducting selling and closing costs (based on expected sales prices where terms have been agreed with purchasers, or book values otherwise); or

(iv) In the event that sufficient liquidity cannot be raised from the above initiatives, TSAL would need to consider other options to generate liquidity within an expedited timeframe, including raising additional capital that could be in the form of an issue of ordinary equity, debt or hybrid capital.

(d) Restructure of performance fees. In order to facilitate TSO�s proposed restructuring and address issues with uncertain asset values in the current environment, TSP and Fund V have agreed that, in connection with the US REIT Facility Final Funding and the repayment of the Empire Hawkeye Facility discussed above, they will waive the payment of any performance fees that could become payable to TSP and Fund V under certain asset management agreements in December 2009. Those waivers will only become effective upon the occurrence of the US REIT Facility Final Funding and the repayment of the Empire Hawkeye Facility.

(e) Orderly and efficient realisation of investments and return of capital to TSO Unitholders. Subject to market conditions, TSAL intends to pursue a strategy of instructing US REIT to realise its investments during the period 2013 to 2015 (or earlier in the case of properties that are not part of the Prime Plus Portfolio) and return net proceeds to TSO Unitholders. This shift in strategy is intended to maximise proceeds for TSO Unitholders. Refer to section 5 of this Target�s Statement for further details on this strategy.

TSAL believes that these debt restructuring and capital management initiatives will benefit all TSO Unitholders by providing TSO with a more favourable timeframe and opportunity to seek to realise assets to enable TSO to return proceeds at values substantially higher than Madison�s Offer Consideration and the price at which TSO Units currently trade on the ASX.

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For further information in relation to TSAL�s debt restructuring efforts and capital management initiatives, refer to section 5 of this Target�s Statement.

4.4 Opportunistic nature of Madison�s Offer, which does not include a plan to strengthen TSO�s financial position TSAL believes that Madison�s Offer has been opportunistically timed to take advantage of the current volatility in global debt and equity markets at a comparative low point in the US property cycle, and before TSAL has been able to finalise and implement the debt restructuring and capital management initiatives designed to deal with the current market conditions and TSO�s debt and liquidity position.

The Offer Consideration is lower than the current trading price of TSO Units on the ASX and significantly lower than TSO�s NAV calculated either before or after provision for deferred tax liabilities (described in section 4.2 of this Target�s Statement).

The table below illustrates the Offer Consideration relative to the trading price of TSO Units and NAV from the time of TSO�s listing on the ASX through 19 August 2009:

1.  TSO's audited accounts and NAV for the period prior to the 31 December 2005 accounts were on an AGAAP basis and excluded provisions for the deferred tax liability. TSO's audited accounts for 31 December 2005 and thereafter were prepared on an IFRS basis and included the deferred tax liability. 

Furthermore, although Madison would be in a position to control TSO were it ultimately to acquire an interest in more than 50% of the TSO Units, the Offer Consideration does not reflect the premium for control that would normally be associated with a takeover bid for 100% of a listed entity.

While recent market volatility has negatively impacted the vast majority of listed REITs and other listed investment classes, TSAL has continued to focus on the longer term strategic imperatives of strengthening TSO, its balance sheet and its underlying real

Tishman Speyer Office Fund: Stock Price versus Stated NAV

$0.00

$0.50

$1.00

$1.50

$2.00

$2.50

$3.00

01-Dec-04 01-Jun-05 01-Dec-05 01-Jun-06 01-Dec-06 01-Jun-07 01-Dec-07 01-Jun-08 01-Dec-08 01-Jun-09

TSO Closing Price on ASX TSO Audited NAV post tax (1) TSO Audited NAV pre tax Madison Offer Consideration

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estate investment interests, with a view to maximising value for all TSO Unitholders. In TSAL�s view, neither Madison�s Offer nor the current trading price of TSO Units on the ASX reflect the potential value of TSO should TSAL succeed in executing its proposed debt restructuring and capital management strategy.

For further information in relation to TSAL�s restructuring and strategic initiatives, refer to section 5 of this Target�s Statement.

4.5 Madison�s Offer is subject to terms that are conditional and uncertain (a) No Material Adverse Change Condition

As at the date of this Target�s Statement, Madison�s Offer is subject to a No Material Adverse Change Condition requiring that this Target�s Statement contain a statement approved by the Directors which confirms:

�after due enquiry, that no act, fact, matter, event or circumstance has occurred since the Announcement Date which has, will or is reasonably likely to result in a material adverse change in or in relation to TSO, Owned/Controlled Entities or the assets, material contracts, liabilities, structure, operation, business, financial or trading position and/or performance, profitability or prospects of TSO or its Owned/Controlled Entities including as a result of any change of control (as defined in the Corporations Act) (including a Change of Control), and that statement is not materially varied, revoked or qualified (whether in any supplementary Target�s Statement or otherwise) before the Closing Date�.

If Madison were to acquire greater than 50% of the TSO Units, a Change of Control would be deemed to have occurred for the purposes of the No Material Adverse Change Condition.

The Directors note that, as Madison�s Offer is an Offer for all of the TSO Units, and is not subject to a minimum acceptance condition, there is significant uncertainty as to what Madison�s final holding of TSO Units will be following the close of its Offer. Accordingly, as at the date of this Target�s Statement, the Directors are unable to make a statement to satisfy the No Material Adverse Change Condition. Consequently, the Offer will lapse unless Madison waives the non-fulfilment of the No Material Adverse Change Condition or circumstances change.

Further, the Directors currently do not consider that they will be able to make a statement as to the existence of, or likelihood of, any change of control (as defined in the Corporations Act, including a Change of Control) in relation to TSO (or any of the Owned/Controlled Entities) before the Status of Conditions Date or the Closing Date.

Madison has stated in its Bidder�s Statement that it does not intend to waive the No Material Adverse Change Condition if it determines that, after considering the disclosures made about TS Manager�s Change of Control option under the Contingent Option Agreement and the No Material Adverse Change Condition in this Target�s Statement, a Change of Control would have a material adverse effect on TSO.

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As part of its consideration of the Material Adverse Change Condition, the Directors have made due enquiry as to the potential ramifications of a change of control (as defined in the Corporations Act, including a Change of Control) for TSO and its operations, and have determined the following with respect to a situation where a change of control occurs:

(i) TS Manager�s Change of Control option under the Contingent Option Agreement would be triggered, and TS Manager would have the right to acquire some or all of the indirect interests in certain assets held by the US REIT (including US REIT�s interest in Empire Hawkeye) at fair market value - TS Manager has notified the Directors that it reserves its rights with respect to the TS Manager�s Change of Control option and any other rights which may arise as a result of a change of control;

(ii) US REIT may be in default under the US REIT Facility if it takes certain actions following the Change of Control (refer to section 7.1 of this Target�s Statement);

(iii) depending on the nature of the Change of Control, the Beverly Hills property owners may be in default under the Beverly Hills Facility (refer to section 7.1 of this Target�s Statement);

(iv) TSO would likely no longer qualify as a �foreign private issuer� and would be required to comply with significant and burdensome SEC registration and reporting requirements (refer to section 7.2 of this Target�s Statement);

(v) TSAL may not be able or willing to act as Responsible Entity of TSO, and may have itself removed and replaced as Responsible Entity of TSO in accordance with applicable laws - TSAL has not made a decision as to what action (if any) it will take in the event of any relevant change of control;

(vi) the Change of Control may trigger an obligation to pay transfer taxes in certain US jurisdictions. Refer to section 7.6 of this Target�s Statement for further details; and

(vii) the Change of Control may mean that TSO can no longer qualify for the benefits of the US/Australia double tax treaty. Refer to section 7.6 of this Target�s Statement for further details.

The occurrence of any one or more of these results may have a significant negative impact on TSO and its operations.

On the basis of this review and the structure of Madison�s Offer, the Directors believe that, depending on Madison�s final holding of TSO Units following the close of its Offer, there is a risk that an �act, fact, matter, event or circumstance �will occur which has, will or is reasonably likely to result in a material adverse change in or in relation to TSO, Owned/Controlled Entities or the assets, material contracts, liabilities, structure, operation, business, financial or trading position and/or performance, profitability or prospects of TSO or its Owned/Controlled Entities including as a result of any change of control (as defined in the Corporations Act) (including a Change of Control)�.

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For further information on the Conditions, refer to section 3 of this Target�s Statement and section 8.9 of the Bidder�s Statement. For details of additional risks associated with being a minority TSO unitholder if Madison were to acquire greater than 50% of the TSO Units, refer to section 7.2 of this Target�s Statement.

(b) Uncertainty surrounding Madison�s ownership intentions

TSAL believes that Madison�s intentions under the Offer are uncertain.

Madison states in its Bidder�s Statement that it is not seeking to obtain control of TSO. Instead, its stated objective is to acquire an additional 10-20% stake in TSO in order to increase its total holding to 30-40% of the TSO Units on issue. However, TSAL believes that it is difficult to reconcile Madison�s stated intentions with the fact that:

• it has launched a full takeover bid for TSO; and

• it has stated in its Bidder�s Statement that it would proceed to compulsorily acquire all TSO Units if it were entitled to do so.

(c) Uncertainty of the impact of Madison�s Offer on TSO�s operations

If Madison were to obtain effective or outright control of TSO, it would be in a position to exert significant influence on the management of TSO.

Madison states in its Bidder�s Statement that it is not seeking to make any significant changes to TSO�s business or operations, or to replace TSAL as Responsible Entity of TSO. Madison also acknowledges that management of real estate for third parties is not the core business of either Madison or Madison International Realty.

Madison has not provided any details in the Bidder�s Statement regarding:

(i) its intentions or management capabilities if it were to acquire more than 50% of TSO Units, including detailing its intentions for management of TSO if TSAL were not able or willing to act as Responsible Entity of TSO; or

(ii) its strategy to address the liquidity challenges currently facing TSO and source the capital required to meet TSO�s future financial obligations.

If Madison were to become the controlling TSO Unitholder, TSAL believes that there may be risks for those unitholders who continue to own all or part of their TSO Units, including that Madison may:

(i) have objectives and preferences for the management of TSO which differ from the objectives and preferences of minority TSO Unitholders;

(ii) lack the experience and strategic vision to address the liquidity and other challenges faced by TSO, including as result of current market conditions; and

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(iii) place at risk the successful implementation of the debt restructuring and capital management strategy.

If Madison acquires more than 50% of TSO Units pursuant to its Offer (after having declared its Offer unconditional), this may have a significant negative impact on TSO and its operation and business, and the interests of TSO Unitholders. That impact is described in further detail in section 7 of this Target�s Statement. In particular, TSO Unitholders should be aware of the following:

(i) if, as a result of Madison�s acquisition of TSO Units, more than 50% of TSO Units are directly or indirectly �held of record� by residents of the US, TSO may lose its status under the US Securities Exchange Act of 1934 (as amended) as a �foreign private issuer�. If this were the case and TSO Units continue to be �held of record� by not fewer than 500 persons worldwide, TSO may be required to comply with the burdensome SEC registration and reporting requirements under that Act. This would be a materially adverse development for TSO and may constitute a breach of the No Material Adverse Change Condition. Refer to section 7.2 of this Target�s Statement for further details; and

(ii) there are a number of potential negative tax implications for TSO and TSO Unitholders in the US and Australia. Refer to section 7.6 of this Target�s Statement for full details.

(d) Uncertainty of the impact of Madison�s Offer on contractual arrangements regarding Change of Control

If Madison acquires more than 50% of TSO Units pursuant to its Offer (after having declared its Offer unconditional), Change of Control provisions appearing in the Exclusivity and Future Acquisitions Agreement and Contingent Option Agreement would be triggered (refer to section 3.3(c) of the Bidder�s Statement). The effect of a Change of Control under those agreements would:

(i) give TS Manager the right, under the Contingent Option Agreement, to acquire some or all of US REIT�s direct and indirect property investments (including US REIT�s interest in Empire Hawkeye); and

(ii) give TSP a right to terminate the Exclusivity and Future Acquisitions Agreement.

For further information regarding the potential negative impact of Madison�s Offer on TSO�s agreements and loan documents refer to sections 7.1 and 7.3 of this Target�s Statement.

4.6 The Independent Expert has concluded that Madison�s Offer is neither fair nor reasonable The Independent Expert has:

(a) estimated the fair market value of the TSO Units to be in the range of $0.84 and $1.02 per TSO Unit; and

(b) concluded that Madison�s Offer is neither fair nor reasonable.

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A full copy of the Independent Expert�s Report accompanies this Target�s Statement as Annexure A. You should read that report carefully before making a decision whether or not to accept Madison�s Offer for your TSO Units.

4.7 Recommendation and intentions In assessing Madison�s Offer, the Independent Directors have had regard to a number of considerations, including the information set out in the Bidder�s Statement.

Based on this assessment and for the reasons set out in this Target�s Statement (in particular those set out in sections 1 and 4 of this Target�s Statement), the Independent Directors believe that Madison�s Offer is opportunistic and that the consideration offered by Madison of $0.30 per TSO Unit is materially inadequate.

The Independent Directors unanimously recommend that you REJECT Madison�s Offer.

The Independent Directors intend to REJECT Madison�s Offer in relation to the TSO Units they own or control. The Independent Directors (and their associates) collectively hold 0.37% of the total number of TSO Units on issue as of 21 August 2009.

TSP company policy currently prohibits TSP employees (including those TSP employees serving as TSAL directors) from owning TSO Units.

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5 TSAL�s proposed debt restructuring and capital management strategy

TSAL intends to pursue strategic initiatives aimed at strengthening TSO�s debt and liquidity position and allowing the orderly realisation of investments over the medium term and return of capital to TSO Unitholders in an amount per TSO Unit substantially in excess of the Offer Consideration and the current trading price of TSO Units on the ASX. Details of this strategy are set out in this section 5.

5.1 Restructuring of the US REIT Facility and full repayment of the Empire Hawkeye Facility

TSO, through its US REIT subsidiary, has a US$400 million debt facility, currently drawn to US$288 million, which expires in May 2010, with two one-year extension options. US REIT has obtained commitments from greater than 40% of the lenders in the syndicate, including Deutsche Bank Trust Company Americas, as administrative agent and lender for the US REIT Facility to a restructure of the US REIT Facility substantially on terms set forth in a final term sheet. US REIT expects to obtain the requisite 51% approval by the lenders in the syndicate to close the restructuring, which will immediately provide for significant covenant relief. Thereafter, following the satisfaction of certain conditions, including raising an additional US$55 million in liquidity as further described below, US REIT can draw upon the facility�s remaining US$112 million capacity (the �US REIT Facility Final Funding�).

TSAL believes that US REIT will close the restructuring of the US REIT Facility and obtain immediate covenant relief prior to the current Closing Date of Madison�s Offer of 11 September 2009.

Key provisions of the restructured debt include:

(a) New financial covenants:

(i) Maximum Debt to Gross Asset Value (GAV) Ratio: increased from 65% to 85%. For the purposes of this covenant, based on the valuations reflected in the 30 June 2009 accounts, Debt to GAV Ratio was 76.2% as at 30 June 2009;

(ii) Minimum Tangible Net Worth: reduced from US$747 million to US$125 million and the covenant will no longer be reset based on new equity issuances. For the purposes of this covenant, based on the valuations reflected in the 30 June 2009 accounts, the Tangible Net Worth was US$238.2 million as at 30 June 2009;

(iii) Minimum Debt Service Coverage Ratio (DSCR): decreased from 1.20x to 1.05x. For the purposes of this covenant, the actual DSCR was 1.76x for the 12 month period ending 30 June 2009; and

(iv) Minimum Liquidity Covenant: eliminated;

(b) Conversion of the facility to a term loan (from a revolver);

(c) The loan margin (over LIBOR, subject to a minimum LIBOR rate of 2.00%) revised to reflect current market conditions and determined based on US REIT�s Debt to GAV Ratio. At a Debt to GAV Ratio of less than 50%, the margin will be 400 bps, with stepped increases to a maximum of 600 bps at

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ratios of greater than 65%. As at 30 June 2009 (and using the June 2009 independent valuations), US REIT�s Debt to GAV ratio was 76.2%;

(d) No new acquisitions by US REIT or its subsidiaries, including Prime Plus and Empire Hawkeye;

(e) Mandatory amortisation of US REIT Facility using all net proceeds from future debt issuance, payments from casualty/condemnation events (subject to existing mortgage loan documents) and asset sales, subject to US REIT ability to retain such proceeds up to the first US$85 million of Net Liquidity Proceeds (as defined in the term sheet) for general liquidity purposes;

(f) No distributions from US REIT except those which are required to maintain REIT status;

(g) For the purposes of testing financial covenants, all properties to be revalued as a condition to each maturity extension option (being May 2010 and May 2011) and otherwise from time to time at the determination of the Required Lenders; and

(h) Relief from certain cross-default provisions, solvency requirements and other related covenants shall not apply to the Lakeside and 550 Terry Francois Boulevard properties.

Key conditions precedent to the US REIT Facility Final Funding include:

(a) US REIT generating at least US$55 million in additional cash liquidity, the sources for which may include, amongst other things, financing 300 Park, raising new debt secured by 400 Castro Street, Silicon Valley and the sale of 550 Terry Francois Boulevard, San Francisco, the Beverly Hills Portfolio and 3 MacArthur Place, Orange County, subject to achieving minimum agreed sales prices and compliance with the applicable terms and conditions set out in the loan documents (some of which are further described below);

(b) No default or event of default occurring; and

(c) TSO granting a Bankruptcy Guarantee; and

(d) Payment of a 1.00% amendment fee to the lenders who consent to the modifications.

Key events to occur concurrently with US REIT Facility Final Funding:

(a) Repayment of the US$164.5 million outstanding amount of the Empire Hawkeye Facility (TSO�s share being US$148.1 million as at 30 June 2009);

(b) Subject to the occurrence of the US REIT Facility Final Funding:

(i) any performance fees payable by US REIT or Empire Hawkeye to Fund V, TSP or their affiliates under certain asset management agreements in December 2009 to be waived; and

(ii) all future performance fees to be calculated and paid on the actual realisation of TSO�s assets and subordinated to the full repayment of the US REIT Facility;

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(c) Fund V granting a non-recourse carve out guarantee;

(d) The provision of additional security, including:

(i) giving the lenders certain voting and control rights within Empire Hawkeye upon the occurrence of certain trigger events, including foreclosure of the pledge by US REIT of its interest in Empire Hawkeye upon a default under the US REIT Facility (TSO Unitholders should note that Fund V has granted its approval conditional upon the US REIT Facility Final Funding for changes to the Empire Hawkeye organisational documents, including granting of the right to elect the Prime Plus Special Director in certain circumstances such as foreclosure on the collateral security for the US REIT Facility);

(ii) a first mortgage on 3 MacArthur Place, Orange County (unless the property is sold);

(iii) to the extent not provided at the closing of the restructured US REIT Facility, first lien pledges of 100% of Borrower�s interests in 550 Terry Francois Boulevard, San Francisco, and Lakeside, Virginia (unless the applicable senior lenders do not consent to such pledges, notwithstanding US REIT�s commercially reasonable efforts to obtain such lender consent); and

(iv) Empire Hawkeye becoming effectively a pass-through entity whereby all Prime Plus cash distributions received by Empire Hawkeye will be distributed to its partners and no new borrowings will be incurred (unless and until the US REIT Facility is repaid in full).

5.2 Increasing Liquidity in the Near Term

As a condition precedent to the US REIT Facility Final Funding, US REIT is required to raise US$55 million in additional liquidity in the near term. TSAL believes that this liquidity can be raised from one or more of the following initiatives:

(a) raising at least US$120 million of net debt against 300 Park Avenue, New York of which TSO�s share of net proceeds would be US$55 million (TSAL currently has an agreed upon term sheet with Deutsche Bank Trust Company Americas);

(b) raising approximately US$24 million of net debt against 400 Castro Street, Silicon Valley, of which TSO�s share of net proceeds would be US$11.0 million (TSAL currently has an agreed upon term sheet with Deutsche Bank Trust Company Americas);

(c) the sale of TSO�s 99.9% owned 3 MacArthur Place, Orange County. A contract has been signed at a price of US$31 million; closing remains conditional on additional due diligence, lender approval of the restructuring of US REIT Facility and other customary closing conditions. The property is currently unencumbered. After payment of selling and closing costs the sale would release proceeds of approximately US$30 million;

(d) the sale of TSO�s 99.9% owned 550 Terry Francois Boulevard, San Francisco. US REIT is in negotiations to agree terms at a price expected to be approximately US$136 million. After the purchaser assumes US$107.5 million

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of debt secured by the property, and after payment of selling and closing costs, the sale would release proceeds of approximately US$24 million;

(e) the sale of TSO�s 99.9% owned Beverly Hills Portfolio comprising three properties. US REIT is in negotiations to agree terms at a price expected to be approximately US$250 million. After of the purchaser assumes US$220 million of debt secured by the property, and after payment of selling and closing costs, the sale would release proceeds of approximately US$24.5 million; and

(f) in the event that sufficient liquidity cannot be raised from the above initiatives, TSAL would need to consider other options to generate liquidity within an expedited timeframe including raising additional capital which could be in the form of ordinary equity, debt or hybrid capital.

In order to finance 300 Park and 400 Castro and to give the lenders certain voting and control rights within Empire Hawkeye upon the occurrence of certain trigger events, the approval of the 49% owner of Prime Plus is required. TSAL is currently in discussions with such owner in order to obtain the required approval.

5.3 Restructure of performance fees

In order to facilitate TSO�s proposed restructuring and address issues with uncertain asset values in the current environment, TSP and Fund V have agreed that, in connection with the US REIT Facility Final Funding and the repayment of the Empire Hawkeye Facility, they will waive the payment of any performance fees that could become payable to Fund V and TSP under certain asset management agreements in December 2009.

Additionally, the calculation and payment of the Empire Hawkeye and US REIT performance fees that are currently due on 1 December 2014, and every five years thereafter will instead be calculated and paid on the actual realisation of TSO�s assets, which further aligns the interests of Fund V and TSP with those of TSO Unitholders. As an additional concession to the US REIT Facility lenders, Fund V and TSP have agreed that, in connection with the US REIT Facility Final Funding and the repayment of the Empire Hawkeye Facility, they will subordinate the payment of any future performance fees to the full repayment of the US REIT Facility.

These changes to the performance fee are contingent on the occurrence of the US REIT Facility Final Funding, as further described in section 5.1 of this Target�s Statement.

5.4 Orderly and Efficient Realisation of Investments and Return of Capital to Unitholders

TSAL will, subject to market conditions and applicable loan covenants, pursue a change in strategy of realising all of its investments by 2015 and returning the net proceeds of that realisation to TSO Unitholders. In particular, and as disclosed at the time of the initial public offering, Prime Plus has an obligation to realise the Prime Plus Portfolio on and from 8 July 2013. This obligation must be satisfied by 8 July 2015 unless otherwise agreed by the investors in Prime Plus (including Empire Hawkeye).

TSO will generally be subject to US federal withholding tax, as well as branch profits tax, on capital gain dividends attributable to the sale of its remaining assets. As of 30 June 2009, TSO has recorded a deferred tax liability of US$164.8 million with respect to the US federal income taxes potentially payable in the future on the receipt of such

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capital gain dividends. This liability has been calculated by reference to US federal income tax law, including interpretation of a notice issued by the US Internal Revenue Service (IRS Notice) in 2007. Specifically, the deferred tax liability calculation reflects the following interpretations: (a) upon sale of the Prime Plus properties, TSO�s capital gain in the Prime Plus

properties will be determined by reference to the tax basis in the assets, without any offset for the tax basis of TSO�s interest in certain entities that indirectly own the Prime Plus properties; and

(b) capital losses cannot be offset against such capital gains for these purposes.

There is uncertainty surrounding the application of the IRS Notice. If the tax law is changed, or if the uncertainties surrounding the IRS Notice are clarified: (a) the deferred tax liability may be lower if it is determined that capital losses can

be offset against the capital gains arising from sale of the Prime Plus Properties; and

(b) the deferred tax liability may be lower if it is determined that such capital gain can be offset by TSO�s tax basis in certain entities that indirectly own the Prime Plus properties. Alternatively, the deferred tax liability could be reduced if TSO were to sell its interest in certain entities that indirectly own the Prime Plus properties, rather than selling the individual assets.

It is currently not possible to predict whether TSO will be able to structure a sale of its assets in order to avoid incurring such deferred tax liability or whether the uncertainties around the IRS Notice will be clarified.

 

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6 Risks

TSO Unitholders will be aware from previous TSO disclosures that there are risk factors associated with an investment in TSO Units. Those risks apply irrespective of Madison�s Offer. A brief outline of those risks is set out below in section 6.1.

There are also some specific risks which arise in the context of Madison�s Offer and TSAL�s proposed debt restructuring and capital management strategy as set out in section 5 of this Target�s Statement. Those risks are set out in below in sections 6.2 and 6.3.

You should consider these risks in forming your decision whether to reject or accept Madison�s Offer for all or part of your TSO Units, or otherwise sell your Units on the ASX.

6.1 TSO�s existing risk profile

There are various risks inherent to an investment in a listed managed investment scheme with underlying real estate investments. There are also risks specific to TSO�s structure and investment portfolio, which consists solely of interests in commercial office properties located in certain markets in the US.

Those risks, many of which are outside the control of TSAL and cannot be mitigated, and other risks which are not known at this time, may negatively impact the performance of TSO, the value of its underlying investments and the market price of TSO Units.

In addition to the risks identified in sections 6.2 and 6.3 below, the Directors consider the most pertinent risks to be:

(a) global and US economic conditions, including disruption of global credit markets;

(b) demand for rental of prime commercial office space in the US and fluctuations in the value and rental of properties in which TSO has investment interests;

(c) properties in which TSO has investment interests being uninsured or underinsured against various catastrophic losses;

(d) fluctuations in foreign exchange rates;

(e) increasing interest rates, diminished availability of debt capital, and more restrictive terms for debt financing, the ability to refinance debts as and when they fall due and the potential for default under its debt arrangements;

(f) the imposition of significant costs or liabilities as a result of environmental regulation;

(g) changes in laws that have an adverse impact on the value of TSO�s investments or TSO Units; and

(h) adverse tax consequences if any of the TSO investment entities that currently qualify as a REIT fail to qualify as a REIT under United States federal income tax law.

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For more detail in relation to these risks and other risks relevant to your investment in TSO Units, please refer to section 11 of TSO�s Product Disclosure Statement dated 17 October 2005 and section 7 of TSO�s IPO Product Disclosure Statement dated 9 November 2004. Refer to section 8.8 of this Target�s Statement for details on how to access copies of those documents.

6.2 Risks inherent in TSO�s proposed debt restructuring and capital management strategy

As described in section 5 of this Target�s Statement, TSAL intends to implement certain initiatives aimed at strengthening TSO�s capital structure and allowing the orderly realisation of assets over the medium term and return of capital to Unitholders substantially in excess of Madison�s Offer price and TSO�s current trading price on the ASX.

If the proposed debt restructure and capital management initiatives are not successful, there is a risk that TSO may not be able to repay its debts as and when they fall due.

(a) Risks associated with the restructure

There are a number of risks inherent in the proposed debt restructuring and capital management strategy. Those risks include:

(i) US REIT may not be able to secure a modification of the US REIT Facility;

(ii) US REIT may not be able to satisfy a condition of the US REIT Facility Final Funding including, for instance, raising the required US$55 million of additional liquidity. If this were to occur, US REIT would likely be in breach of certain covenants under the US REIT Facility in December 2009, which could cause the outstanding US$288 million balance of the loan (as at 30 June 2009) to become payable in full at that time. TSO does not currently have sufficient liquidity to repay the US REIT Facility, nor does it have sufficient liquidity to repay its share of the outstanding US$148.1 million balance of the Empire Hawkeye Facility (as at 30 June 2009) if the US REIT Facility Final Funding does not occur. As such, TSO would need to raise additional funds, which could be in the form of asset sales or capital raisings;

(iii) TSAL may not be able to raise adequate funds from the capital management initiatives it is currently contemplating to achieve adequate increased liquidity in the near term; and

(iv) the concessions given by TSP and Fund V relating to the waiver of the performance fee in December 2009 and the calculation and payment of all future performance fees will not be effective if the US REIT Facility Final Funding does not occur.

Additionally, as TSAL will no longer acquire any properties, the restructure may lead to it losing the benefit of the Exclusivity and Future Acquisition Agreements. TSP has the right to terminate the agreement if TSAL declines to participate in two consecutive investment opportunities, or if TSO declines to participate in three investment opportunities in a 24 month period. TSAL is not aware that TSP has any current intention to offer it any investment

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opportunities under the agreement. Refer to section 7.1 of this Target�s Statement for further details.

(b) Risks of not achieving objective of restructure

If any of TSAL�s initiatives fail, TSO�s capital restructure and capital management strategy may be jeopardised, which could put TSO at risk of insolvency. If TSO becomes insolvent and an administrator is appointed, the liquidation of TSO�s assets is likely to be viewed as a �distressed sale�, resulting in prices that could be materially below book values, which would in turn diminish TSO Unitholder equity.

In addition, investors should be aware that even if TSAL is able to implement its initiatives, there can be no guarantee that TSAL�s chosen strategy will achieve the orderly and efficient realisation of assets and return of capital at values substantially higher than Madison�s Offer implies.

Further, the US REIT Facility will mature, if both extension options are taken up, in May 2012. At that time US REIT would be obliged to either repay or refinance the then outstanding balance of the US REIT Facility.

It should also be noted that TSAL may decide to terminate or alter this strategy or components of this strategy at any time.

6.3 Risks relating to your decision whether to accept Madison�s Offer

This section details risks that the Directors consider to be pertinent to any decision whether to accept Madison�s Offer.

(a) Effect of a lapse of Madison�s Offer

If Madison�s Offer lapses and no higher or alternative proposal emerges, it is possible (at least in the short term) that TSO Units will continue to trade at a significant discount to the Independent Expert�s assessed value of TSO Units, and that the trading price of TSO Units on the ASX may fall below the Offer Consideration.

(b) Effect of Madison holding greater than 50% in TSO

There are also risks associated with Madison becoming a controlling Unitholder in TSO, including risks associated with reduced liquidity, and risks associated with the occurrence of a �change of control�. In particular, TSAL believes that if Madison obtains more than a 50% interest in TSO, this may place at risk the successful implementation of the debt restructuring and capital management strategy. For further information on these risks, please refer to sections 7.1, 7.2 and 7.3 below.

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7 Important issues

7.1 Potential impact of Madison�s Offer on material arrangements and under applicable US securities laws

(a) Pre-emptive rights

On the occurrence of a Change of Control as defined below, TS Manager may exercise pre-emptive rights to acquire any or all of US REIT�s property investments, including US REIT�s interest in Empire Hawkeye. For these purposes, a Change of Control includes each of the following:

(i) any person or group becomes the beneficial owner of more than 50% of the TSO Units; or

(ii) TSAL is removed as the Responsible Entity of TSO.

Those pre-emptive rights were granted to TS Manager by US REIT under the Contingent Option Agreement concurrently with TSO�s IPO. From the time at which a Change of Control occurs, TS Manager has one year to exercise its right to purchase some or all of US REIT�s property investments.

The price at which TS Manager may acquire those investments will be the fair market value as determined by an independent valuer as at a date which is not later than the earlier of:

(i) the date that is six months after the occurrence of the Change of Control; and

(ii) the date on which the pre-emptive right is exercised.

In the case of indirect property interests, the price will be the amount that would be distributed to US REIT if the property asset was sold for its fair market value and the proceeds (minus any outstanding liabilities and 1% of the appraised value for estimated expenses) distributed to US REIT (and any co-owners).

The impact of a Change of Control on the No Material Adverse Change Condition is described in section 4.5 of this Target�s Statement.

The terms of the pre-emptive rights under the Contingent Option Agreement have previously been disclosed in more detail (refer to section 15.19 of TSO�s Product Disclosure Statement dated 17 October 2005).

(b) Investment pipeline

TSO currently has the right to participate in investment opportunities sourced by TSP. Under the Exclusivity and Future Acquisitions Agreements, TSP granted TSO the right to invest a minimum of 25% in future US Core/Core Plus Office Asset acquisition opportunities (or non-US assets that would have been US Core/Core Plus Office Asset acquisition opportunities had they been in the US) sourced by TSP and otherwise satisfying TSO�s investment criteria.

Under the proposed restructure of the US REIT Facility, TSAL will be restricted from acquiring further properties (refer to section 5.1(d) �Key

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provisions of the restructured debt� of this Target�s Statement). Accordingly, TSAL will be unable to participate in investment opportunities sourced by TSP until amounts outstanding under the US REIT Facility are repaid. This may lead to TSP terminating the Exclusivity and Future Acquisitions Agreements (refer to section 6.2(a) of this Target�s Statement).

Additionally, Madison�s Offer may lead to TSP having the right to terminate the Exclusivity and Future Acquisitions Agreements if there is a �Change of Control� with respect to TSO. For these purposes, a �Change of Control� has the same meaning as under the Contingent Option Agreement.

Under the �Change of Control� provisions, TSP would have the right to terminate the Exclusivity and Future Acquisitions Agreements if Madison acquired sufficient TSO Units under Madison�s Offer to result in Madison becoming the beneficial owner of more than 50% of all issued and outstanding TSO Units, or if TSAL is removed as the Responsible Entity (which could happen even if Madison holds fewer than 50% of TSO Units as the requisite majority to replace the Responsible Entity of TSO is 50% of votes cast on such a resolution).

Madison has stated in its Bidder�s Statement that the termination of the Exclusivity and Future Acquisitions Agreements would not prevent the satisfaction of the No Material Adverse Change Condition of Madison�s Offer (refer to section 4.3 of the Bidder�s Statement for further details).

The terms of the Exclusivity and Future Acquisitions Agreements have previously been disclosed in greater detail (refer to section 15.18 of TSO�s Product Disclosure Statement dated 17 October 2005).

(c) US REIT Facility

Under the US REIT Facility, US REIT has the capacity to borrow up to US$400m. The facility is currently drawn to US$288m. US REIT would be in default under the facility if Tishman Speyer Control Persons were to cease to have the ability to direct the management and policies of US REIT and conduct the day to day business operations of US REIT (a �US REIT Change of Control�).

Tishman Speyer Control Persons currently have the ability to direct the management and policies of US REIT and conduct the day to day business operations of US REIT because:

(i) the board of US REIT is made up of Tishman Speyer Control Persons and, under the US REIT Articles, the day to day business operations of US REIT are conducted by its board; and

(ii) TSAL, US REIT�s sole stockholder, is controlled by Tishman Speyer Control Persons. In its position as sole stockholder, TSAL can remove and replace any director of US REIT.

If Madison were to obtain a less than 50% equity interest in TSO, TSAL does not believe that Madison would be entitled to take any action that could result in a US REIT Change of Control. However, if Madison were to acquire a 50% or greater interest in TSO, it could, if it chose, take action (including causing TSAL to be replaced as Responsible Entity of TSO and causing the successor

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Responsible Entity to remove Tishman Speyer Control Persons from the board of US REIT) that could result in Tishman Speyer Control Persons ceasing to have the ability to direct the management and policies of US REIT and conduct the day to day business operations of US REIT, triggering a US REIT Change of Control. The consequences of a US REIT Change of Control are described below.

Whilst there is risk that a US REIT Change of Control may occur if Madison were to acquire a 50% or greater interest in TSO, there is no certainty regarding whether Madison would take actions in respect of the Responsible Entity and the US REIT board that would result in a US REIT Change of Control with the consequence of a default under the US REIT Facility. Madison has stated that it has no current intention to remove TSAL as Responsible Entity of TSO (other than in circumstances in which it acquires all of the issued Units in TSO - refer to section 4.3(b) of the Bidder�s Statement). However, Madison has reserved the right to change its stated intentions in the future.

A default under the US REIT Facility would cause the outstanding principal and interest accrued under the loan to become immediately due and payable. The US REIT lenders would be entitled to foreclose on any equity interests in subsidiaries and joint ventures that US REIT has pledged to the lenders and to exercise any other rights and remedies available under the US REIT Facility or under applicable laws.

Included among the interests that have been pledged to the lenders as collateral security for the US REIT Facility are:

(i) US REIT�s limited partner interest in Empire Hawkeye; and

(ii) US REIT�s limited liability company interest in each of the limited liability companies that indirectly own the Beverly Hills and 3 Imperial real property assets.

Foreclosure on those equity pledges would likely involve the sale of the underlying properties (in accordance with the US Uniform Commercial Code). The lenders under the US REIT Facility would be entitled to bid up to the full amount of the outstanding indebtedness under the US REIT Facility, in addition to certain costs and fees, at any such foreclosure sale. Any excess proceeds (over and above outstanding indebtedness under the US REIT Facility) would be payable to US REIT.

(d) Beverly Hills Facility

Under the Beverly Hills Facility, the Beverly Hills property owners, as borrowers, would be in default if Tishman Speyer Control Persons, or a fund or other entity controlled by one or more Tishman Speyer Control Persons, were to no longer control day-to-day management and operations of the Beverly Hills borrowers.

As noted above with respect to the US REIT Facility, should Madison acquire a 50% or greater interest in TSO, it could, if it chose, take action (including causing TSAL to be replaced as Responsible Entity of TSO and causing the successor Responsible Entity to remove Tishman Speyer Control Persons from the board of US REIT) that could result in Tishman Speyer Control Persons no longer controlling day-to-day management and operations of the Beverly Hills

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Borrowers. This would lead to a default under the Beverly Hills Facility, entitling the Beverly Hills lenders to declare the loan to be immediately due and payable. The Beverly Hills lenders would be entitled to foreclose on the Beverly Hills properties and to exercise any other rights and remedies available under the Beverly Hills Facility or under applicable laws.

7.2 US securities laws

Under US securities laws, TSO is currently deemed to be a �foreign private issuer� and is eligible to make use of exemptions from requirements to register and file periodic and current reports with the SEC. If Madison, a limited partnership organised under Delaware law, acquires additional TSO Units under Madison�s Offer with the result that more than 50% of TSO�s outstanding Units are directly or indirectly held by residents of the US, TSO may cease to be a foreign private issuer. Based on recent analyses commissioned by TSO of its Unitholders, TSO has reason to believe that approximately 40% of all outstanding units are currently held, directly or indirectly, by residents of the US.

If a non-US company, such as TSO, determines on the last day of its fiscal year that it no longer qualifies as a �foreign private issuer� and it has total assets of more than $10 million and its units are held of record by 500 or more persons worldwide, it must generally comply with the US domestic issuer reporting regime within six months. Based on recent reports of holders of record of TSO units, TSO has reason to believe that TSO Units are currently held of record by more than 500 persons worldwide. The next determination date of �foreign private issuer� status for TSO will be 30 June 2010.

The consequences of becoming a US domestic reporting company are significant and burdensome with consequential increases in costs to meet enhanced reporting and compliance obligations. First, TSO would have to file a registration statement with the SEC not later than 120 days after 30 June 2010. The registration statement would be required to include a description of TSO�s business, risk factors, directors and executive officers, compensation and other matters, as well as three years of financial statements prepared in accordance with US generally accepted accounting principles. After registering with the SEC, TSO would be required to, amongst other things:

(a) file with the SEC annual reports, quarterly reports and current reports;

(b) file with the SEC a proxy statement (including required executive compensation and corporate governance disclosure) in connection with its annual meeting of TSO Unitholders and any special meetings; and

(c) comply with many aspects of the Sarbanes-Oxley Act of 2002 and the related rules.

7.3 Implications of Madison acquiring more than 50% of TSO Units

Madison�s Offer is not subject to any minimum acceptance condition.

If Madison were to acquire more than 50% of the TSO Units then, provided the Conditions are satisfied or waived, Madison would acquire a majority unitholding in TSO. For details as to the potential material adverse effect that a Change of Control would have on the interests of TSO and its operations, refer to sections 4.5(a) and 7.1 of this Target�s Statement.

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In addition, Madison fails to detail its intentions should it acquire more than 50% and less than 90% of TSO Units, apart from noting that such an interest would trigger a Change of Control. The Bidder�s Statement is silent on Madison�s intentions for management of TSO if TSAL is not able or willing to act as Responsible Entity of TSO, as well as its strategy to address the current liquidity needs facing TSO (refer to section 4.5(c) of this Target�s Statement for further details).

Unitholders who accept Madison�s Offer for only part of their TSO unitholding risk an uncertain future as a minority TSO unitholder. Possible implications include:

(a) that the liquidity of TSO Units is likely to be lower than at present, and the risk that TSO could be fully or partially removed from certain ASX/S&P market indices due to lack of free float and/or liquidity;

(b) if the number of TSO Unitholders is less than that required by the ASX Listing Rules to maintain an ASX listing then Madison may seek to have TSO removed from the official list of the ASX. If that were to occur, TSO Units would not be able to be bought or sold on the ASX; and

(c) if Madison were to acquire 75% or more of TSO Units, it would be able to pass a special resolution of TSO. This would enable Madison to, among other things, change TSO�s constitution;

In addition, there may be a number of negative tax implications associated with Madison acquiring greater than 50% of TSO Units, as well as the likelihood that TSO would no longer qualify as a �foreign private issuer�. Refer to sections 7.2 and 7.6 of this Target�s Statement for further details.

7.4 Implications of Madison acquiring more than 90% of TSO Units - compulsory acquisition

Madison will be able to compulsorily acquire, on the same terms as Madison�s Offer, any TSO Units for which it has not received acceptances if during, or at the end of, the Offer Period Madison (taken together with its associates):

(a) has a relevant interest in at least 90% (by number) of the TSO Units; and

(b) has acquired at least 75% (by number) of the TSO Units for which it has made an Offer.

If both of those thresholds are met, Madison will have 1 month from the end of the Offer Period within which to give compulsory acquisition notices to TSO Unitholders who have not accepted the Offer. The consideration payable by Madison will be the Offer Consideration. Madison has indicated that if it became entitled to compulsorily acquire outstanding TSO Units, it would likely do so (refer to section 4.5 of the Bidder�s Statement).

If Madison does not become entitled to compulsorily acquire TSO Units in accordance with the above procedures, it may nevertheless become entitled to exercise general compulsory acquisition rights under Part 6A.2 Division 1 of the Corporations Act.

TSO Unitholders may challenge any compulsory acquisition, but this would require the relevant TSO Unitholders to establish to the satisfaction of a competent court of law that the terms do not represent fair value for the TSO Units. If TSO Units are

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compulsorily acquired, TSO Unitholders are not likely to receive any payment until at least 1 month after the compulsory acquisition notices are sent.

7.5 Transaction expenses

Madison�s Offer has resulted in TSO incurring expenses that would not otherwise arise from ordinary operations in the current financial year. Those expenses are currently anticipated to be approximately $4-5 million, assuming that the Closing Date is 11 September 2009. Expenses include legal, financial and tax advisers engaged to assist in this transaction and other transaction related expenses which will have a negative impact on the after tax earnings in the current financial year.

7.6 Taxation

Note, this Target�s Statement was not intended or written to be used, and it cannot be used by any taxpayer, for the purpose of avoiding penalties that may be imposed on the taxpayer under US Federal tax law.

(a) Australian resident TSO Unitholders

Section 6 of the Bidder�s Statement sets out an overview of the Australian tax implications of accepting Madison�s Offer. Set out below is a high level summary of the key Australian tax considerations that should be relevant to an assessment of the tax consequences of accepting Madison�s Offer. Non-resident unitholders should consult their professional tax advisors in relation to the tax consequences of accepting Madison�s Offer in their respective country of residence.

The following is a general outline of the Australian taxation consequences based on the Income Tax Assessment Act 1936 (�ITAA 1936�), the Income Tax Assessment Act 1997 (�ITAA 1997�), the A New Tax System (Goods and Services Tax) Act 1999 (�the GST Act�), relevant stamp duty legislation, applicable case law and published Australian Taxation Office (�ATO�) rulings, determinations and administrative practice at the date of this statement. Australian tax law may be amended at any time and therefore the taxation consequences discussed below may alter if there is a change in the taxation law after the date of this statement.

The following comments will not cover every possible Australian tax consideration that could apply to all TSO Unitholders. The comments only cover the Australian tax implications of the Offer to TSO Unitholders who hold the TSO Units on capital account. In particular, the comments do not cover TSO Unitholders who:

(i) hold the TSO Units on revenue account or as trading stock in the ordinary course of carrying on a business;

(ii) are financial institutions, insurance companies, partnerships or trusts;

(iii) are Australian residents that hold TSO Units as part of an enterprise carried on by the Australian resident at or through a permanent establishment of the Australian resident in a foreign country;

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(iv) are non-residents of Australia that hold TSO Units as part of an enterprise carried on by the non-resident at or through a permanent establishment of the non-resident in Australia; or

(v) are exempt from Australian tax.

The taxation consequences for a particular TSO Unitholder may vary depending on the circumstances of each TSO Unitholder. Accordingly, the information below should not be relied upon by TSO Unitholders as formal tax advice. Each TSO Unitholder should consult with their own professional tax adviser regarding the consequences of Madison�s Offer in light of current tax laws and their particular investment circumstances.

Depending on the individual circumstances of each unitholder, if the TSO Unitholder is an Australian resident, a capital gain or a capital loss may be realised on a disposal of TSO Units to Madison. An assessable capital gain should arise to the extent that the capital proceeds received on the disposal exceed the capital gains tax cost base of the TSO Units. A capital loss should arise to the extent that the capital proceeds received on the disposal are less than the CGT reduced cost base of the TSO Units.

Generally, the CGT cost base of the TSO Units should be the acquisition cost paid, plus any capital acquisition and/or disposal costs relating to the TSO Units. The CGT cost base may be further reduced by any previous tax deferred distributions (except to the extent the tax deferred distribution related to a discount capital gain) as set out in the annual trust distribution statements provided by TSO.

The extent of any Australian tax liability on the disposal of TSO Units will depend on the individual circumstances of each unitholder.

TSO Unitholders who are individuals, certain trusts or superannuation funds may be eligible to claim a CGT discount on any net gains arising on TSO Units acquired at least 12 months before disposal. TSO Unitholders should also be aware that they will not be eligible to discount any capital gain they may make by accepting Madison�s Offer if that acceptance is made within 12 months of the date of acquisition of those TSO Units. If a CGT discount is available, the amount of capital gain (after offset of any capital losses available to the TSO Unitholder) is reduced by one half for individuals or one third for complying superannuation funds.

(b) Non-resident TSO Unitholders

Generally, non-resident TSO Unitholders would not be subject to CGT on a disposal of their TSO Units unless the TSO Units constitute �taxable Australian property�. Broadly, a non-resident TSO Unitholder will not be subject to Australian CGT on the disposal of their TSO Units unless:

(i) the TSO Unitholder (together with associates) holds 10% or more of the issued TSO Units (at the time of disposal or throughout a 12 month period within the last 24 months before disposal); and

(ii) more than 50% of the market value of TSO�s assets are taxable Australian real property (e.g. Australian land).

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On the basis that currently, TSO does not directly or indirectly hold any taxable Australian real property, then the TSO Units should not constitute taxable Australian property. As such, any capital gain or loss arising to a non-resident TSO Unitholder on the disposal of their TSO Units to Madison pursuant to the Offer should not have any Australian CGT consequences.

Non-resident unitholders should consult their professional tax advisors in relation to the tax consequences of accepting the Offer in their respective country of residence.

(c) Transfer taxes

Australia

TSO Unitholders should not be liable for stamp duty or GST on the transfer of their Units pursuant to the Offer.

US

Most US state and local jurisdictions impose taxes upon the transfer of real property located within their borders. In some jurisdictions, these "transfer taxes" can be triggered by a transfer of a direct or indirect controlling interest in an entity that holds real estate located in such jurisdiction. Pursuant to the Offer, Madison could potentially acquire a controlling interest in TSO. Consequently, the Offer may give rise to state and local transfer taxes in certain jurisdictions. Such transfer taxes are often determined with reference to the gross value of such real property (without reduction for mortgage or other indebtedness) and may be calculated on a base purchase price that is higher than the amount actually paid for TSO Units under Madison's Offer. Depending on the local law, liability for any such transfer taxes may attach to the selling TSO Unitholders, the purchaser of TSO's units, and TSO and its subsidiaries. Based on current appraised values and a preliminary examination of transfer tax statutes, TSAL believe that there would be at least US$2,731,455 in transfer taxes triggered if Madison were to acquire a controlling interest in TSO. These transfer taxes are imposed in states in which liability does attach to the selling TSO Unitholders. However, in this case, TSAL believes the tax authorities would pursue the relevant TSO subsidiaries in the US. This transfer tax would be in addition to any transfer taxes imposed upon the sale of the assets of TSO in any other transaction. The amount of such transfer taxes may be substantially increased by events occurring after completion of Madison�s Offer (such as subsequent sales of interests in TSO's real property by parties owning such interests), some of which events may be outside of TSO's control. TSO does not guarantee or warrant that potential transfer taxes would not be greater than the amount described above in the event Madison were to acquire a controlling interest in TSO.

(d) US federal income taxation issues for US TSO Unitholders

A holder of TSO Units that is generally subject to US federal income taxation with respect to its Units that sells Units pursuant to Madison�s Offer generally will recognise gain or loss for US federal income tax purposes upon such sale in an amount equal to the difference, if any, between the amount realised on the sale and such holder�s adjusted tax basis in such Units. Because TSAL

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believes that TSO is a �passive foreign investment company� or �PFIC� for US federal income tax purposes, such gain may be subject to disadvantageous US federal income tax treatment. Specifically, such gain could be subject to a substantial interest charge and could be characterised as ordinary income (rather than as capital gain) in whole or in part.

The US federal income tax rules relating to investments by US persons in non-US entities generally, and �PFICs� in particular, are complex and this discussion does not address all of the US federal income tax considerations of participating in the Madison�s Offer that may be relevant to specific US holders in light of their particular circumstances. US holders are urged to consult their own tax advisors with respect to their particular tax situations, including, in the case of US holders subject to special rules under US federal income tax law, with reference to any special issues that participating in the Madison�s Offer may raise for such persons.

(e) Australian taxation issue for TSO - Impact of Madison�s Offer on any carried forward tax losses in TSO

The Offer may result in TSO potentially losing the benefit of any carry forward tax losses under the Australian taxation loss recoupment rules for trusts. The higher the proportion of TSO Units that Madison acquires under the Offer, the greater the risk that this could occur. However, TSO Unitholders should note that TSAL does not believe that the loss of any benefit under the Australian taxation loss recoupment rules would have a material impact on TSO or TSO Unitholders.

(f) US taxation issues for TSO - Loss of treaty benefits

TSO currently believes that it qualifies for benefits under the current US/Australia double tax treaty (the �Treaty�) as a result of TSO Units being �regularly traded� on the ASX, within the meaning of US federal income tax law. (In general, to satisfy this test for any taxable year, trades in TSO Units must be made in more than de minimis quantities on at least 60 days during such taxable year, and the aggregate number of TSO Units traded during such taxable year must be at least 10% of the average number of TSO Units outstanding during such taxable year).

TSO and the TSO Unitholders recognise three principal US federal income tax benefits from TSO qualifying for the benefits of the Treaty. First, dividends paid to TSO from US REIT, other than dividends attributable to capital gains realised directly or indirectly by US REIT, are subject to 15% US tax withholding (rather than the normally applicable 30% rate) to the extent attributable to TSO Unitholders that own less than 5% of the Units (and certain individual Australian TSO Unitholders that own less than 10% of the Units). Such TSO Unitholders generally recognise the benefit of such reduced withholding. Second, TSO is generally subject to US federal income tax, at the TSO level, on distributions from US REIT that are attributable to capital gains from the sale of US real property interests by US REIT or its subsidiaries. There are two components to this tax: 35% US federal corporate income tax, and a so-called �branch profits tax� on the gain after deduction for the corporate tax. The branch profits tax component of this US federal income tax is normally computed at a rate of 30%, but is reduced to 5% pursuant to the Treaty, so TSO effectively bears US federal income tax on these capital gain distributions at a 38.25% rate so long as it qualifies for the benefits of the

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Treaty. Finally, interest payable from US REIT to TSO is subject to US federal tax withholding at a reduced 10% rate under the Treaty, as opposed to the normally applicable 30% rate.

If, as a result of acceptance of Madison�s Offer, TSO no longer qualified for the benefits of the Treaty, TSO and the TSO Unitholders would no longer recognise the US federal income tax benefits described above. Instead, dividends paid to TSO from US REIT, other than dividends attributable to capital gains, would be subject to 30% US tax withholding, without regard to the identity of the TSO Unitholders. Moreover, TSO would be subject to US federal branch profits tax at a 30% rate, so TSO would bear effective US federal income tax at a 54.5% rate on distributions from US REIT that are attributable to the sale of US real property interests by US REIT or its subsidiaries. Finally, interest paid from US REIT to TSO would be subject to 30% US tax withholding.

It is unclear whether the TSO Units will continue to be �regularly traded� and therefore whether TSO will continue to qualify for the benefits of the Treaty, after the completion of the Offer. According to the Bidder�s Statement, Madison�s current objective is to acquire in the order of 10%-20% of additional TSO Units, giving it an aggregate holding of between 30%-40% of all of the TSO Units. If Madison only acquired 10%-20% of additional TSO Units, it is currently expected that the TSO Units will continue to be �regularly traded� after the completion of the Offer and that TSO will continue to qualify for the benefits of the Treaty, although there can be no assurance in this regard as it will depend on the actual trading of the TSO Units. Furthermore, there can be no assurance that Madison will not acquire substantially more than 10%-20% of the TSO Units. The greater the amount of TSO Units acquired pursuant to the Offer (and thus the smaller the amount of TSO Units held by the public), the greater the likelihood that the level of trading in the TSO Units will not be sufficient to be considered �regularly traded� following the Offer and, thus, the greater the likelihood that TSO will no longer qualify for benefits under the Treaty. As a result, TSO, as well as TSO Unitholders that do not accept the Offer, may be subject to material adverse US tax implications due to the Offer if, after the Offer, the TSO Units are not regularly traded and TSO does not qualify for the benefits of the Treaty.

TSO Unitholders should seek their own taxation advice in relation to their own individual circumstances. For further information TSO Unitholders should also refer to section 6 of Madison�s Bidder�s Statement.

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8 Additional information

8.1 Other material information

This Target�s Statement is required to include all the information that TSO Unitholders and their professional advisers would reasonably require to make an informed assessment whether or not to accept Madison�s Offer, but:

(a) only to the extent to which it is reasonable for TSO Unitholders and their professional advisers to expect to find this information in this Target�s Statement; and

(b) only if the information is known to any Director.

The Directors are of the opinion that, as at the date of this Target�s Statement, the information that TSO Unitholders and their professional advisers would reasonably require to make an informed assessment whether or not to accept Madison�s Offer is:

(a) the information contained in the Bidder�s Statement;

(b) the information contained in the Target�s releases to the ASX prior to the date of this Target�s Statement; and

(c) the information contained in this Target�s Statement (including the information contained in the Independent Expert�s Report).

The Directors have assumed, for the purposes of preparing this Target�s Statement, that the information in the Bidder�s Statement is accurate (unless they have expressly indicated otherwise in this Target�s Statement). However, the Directors do not take any responsibility for the contents of the Bidder�s Statement and are not to be taken to be endorsing, in any way, any or all of the statements contained in it.

In deciding what information should be included in this Target�s Statement, the Directors have had regard to:

(a) the nature of the TSO Units;

(b) the matters that TSO Unitholders may reasonably be expected to know;

(c) the fact that certain matters may reasonably be expected to be known to TSO Unitholders� professional advisers; and

(d) the time available to TSAL to prepare this Target�s Statement.

8.2 Information about TSO

Change in financial position of TSO since last financial report

TSO�s last published audited financial statements are for the year ended 30 June 2009 as lodged with the ASX on 21 August 2009.

Except as disclosed in this Target�s Statement and any announcement made by TSO since 30 June 2009, the Directors are not aware of any material change to TSO�s financial position as disclosed in TSO�s audited financial statements for the year ended 30 June 2009 lodged with the ASX on 21 August 2009.

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8.3 Interests of Directors

(a) Interests of Directors in TSO Units

The number and description of TSO Units in which each of the Directors have a relevant interest is set out in the table below.

Director Number of TSO Units Number and description

of other units (if any) Graham Kelly 500,000

(ASX announcement 9 March 2009)

-

Jerry Speyer - - Robert Speyer - - Richard Haddock 746,100

(ASX announcement 9 March 2009)

-

David Augarten - -

As at the date of this Target�s Statement, each Independent Director intends to REJECT Madison�s Offer in relation to the TSO Units he owns or controls.

(b) Dealings by Directors in TSO Units

There have been no acquisitions or disposals of TSO Units by any Director in the four months ending on the day preceding the date of this Target�s Statement.

(c) Interests and dealings in Madison

None of TSO, TSAL or any of the Directors has a relevant interest in securities of Madison or any Related Body Corporate of Madison.

There have been no acquisitions or disposals of securities in Madison or any Related Body Corporate of Madison by TSAL or TSO, or any of their respective associates, or any of the Directors in the four months ending on the day preceding the date of this Target�s Statement.

(d) Benefits to Directors

No benefit (other than a benefit permitted by section 200F or 200G of the Corporations Act and compulsory superannuation entitlements) has been paid or will be paid to any Director, secretary or executive officer in connection with the loss of, or such individual�s resignation from, his or her office.

(e) Conditional agreements

No agreement has been made between any of the Directors and any other person in connection with or conditional upon the outcome of Madison�s Offer.

(f) Interests in contracts with Madison

No Director has any interest in any contract entered into by Madison.

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(g) Other interests of Directors

No Director has any interest in Madison�s Offer, other than the interests set out elsewhere in this Target�s Statement.

8.4 Issued TSO Units

The total number of TSO Units as at the date of this Target�s Statement is 338,440,904.

8.5 Material litigation

There is no current litigation of a material nature against TSO.

8.6 Impact of Madison�s Offer on employee arrangements

TSO does not have any employees, and Madison�s Offer will therefore have no impact on any employee arrangements.

8.7 Consents

(a) Consent to inclusion of a statement

The following persons have given and have not, before the date of this Target�s Statement, withdrawn their consent to the inclusion of the following information in this Target�s Statement in the form and context in which it is included, and to all references in this Target�s Statement to that information in the form and context in which they appear:

(i) Deloitte Corporate Finance Pty Limited - to be named as Independent Expert, and to the inclusion of the Independent�s Expert Report and statements said to be based on statements made in the Independent Expert�s Report; and

(ii) each Director - to be named as a Director and to the inclusion of statements made by him.

(b) Consent to be named

Mallesons Stephen Jaques has given and has not, before the date of this Target�s Statement, withdrawn its consent to the inclusion of its name in this Target�s Statement as legal adviser to TSAL.

Credit Suisse (Australia) Ltd has given and has not, before the date of this Target�s Statement, withdrawn its consent to the inclusion of its name in this Target�s Statement as financial adviser to TSAL.

(c) Disclaimer regarding statements made and responsibility

Each person named above as having given its consent to the inclusion of a statement being named in this Target�s Statement:

(i) does not make, or purport to make, any statement in this Target�s Statement or any statement on which a statement in this Target�s Statement is based, other than a statement included in this Target�s Statement with the consent of that person; and

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(ii) to the maximum extent permitted by law, expressly disclaims and takes no responsibility for any part of this Target�s Statement, other than a reference to its name and any other statement which has been included in this Target�s Statement with the consent of that person.

8.8 Miscellaneous

Publicly available information

This Target�s Statement contains statements that are made in, or based on statements made in, documents lodged with ASIC or given to the ASX by TSO and Madison. Any TSO Unitholder who would like to receive a copy of those documents may obtain a copy free of charge during the Offer Period by calling the TSO Unitholder Information Line on 1300 131 678 (within Australia) or + 61 2 8280 7173 (from outside Australia). It is available Monday to Friday between 8.30am and 5.30pm, AEST. Copies of announcements by TSO may also be obtained from its website at www.tsof.com.au.

8.9 Date of Target�s Statement

This Target�s Statement is dated 21 August 2009, which is the date on which it was lodged with ASIC.

8.10 Approval of Target�s Statement

This Target�s Statement has been approved by a resolution passed by the Directors.

Graham Kelly Chairman Tishman Speyer Australia Limited

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9 Glossary

9.1 Definitions

40 Broad Street means 40 Broad Street, New York.

Acceptance Form means the acceptance form attached to the Bidder�s Statement for the transfer of TSO Units under Madison�s Offer.

AEST means Australian Eastern Standard Time.

AGAAP means Australian Generally Accepted Accounting Principles.

Announcement Date means 13 July 2009 being the date on which Madison announced its intention of making Madison�s Offer and served its Initial Bidder�s Statement on TSAL.

ASIC means Australian Securities and Investments Commission.

ASX means ASX Limited (ABN 98 008 624 691) or the market operated by that company.

Australia or Australian means the Commonwealth of Australia.

Bankruptcy Guarantee means a guarantee given executed by TSAL for the benefit of the administrative agent and lender for lenders under the US REIT Facility, pursuant to which TSAL will guarantee the payment of certain costs, losses, liabilities and expenses incurred by such administrative agent and/or lenders in the event that an a bankruptcy or insolvency process in respect of the borrower under the US REIT Facility (or other relevant person connected with the borrower) is commenced.

Bayside Towers means Bayside Towers, Foster City, California.

Beverly Hills Facility is the loan agreement, dated 4 May 2007, between Eurohypo AG, New York Branch, the New York branch of a German banking corporation and 407 N. Maple, L.P., Beverly Place, L.P. and Maple Plaza, L.P., as the same may be amended from time to time.

Beverly Hills Portfolio means the portfolio of assets comprised of Maple Plaza, 407 North Maple Drive, and Beverly Mercedes Place.

Bidder means Madison.

Bidder�s Statement means the bidder�s statement in relation to Madison�s Offer, prepared by Madison and includes (as at the date of this Target�s Statement) the Initial Bidder�s Statement dated 13 July 2009 and the Replacement Bidder�s Statement dated 30 July 2009.

Broker means a person who is a share broker and a participant in CHESS.

CGT means capital gains tax, a tax levied by the Australian federal government.

Change of Control means the occurrence of any of the following:

(a) TSAL is removed as the responsible entity of TSO;

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(b) a resolution is passed or meeting convened to consider a proposal to liquidate or dissolve TSAL, US REIT or TSO;

(c) TSO:

(i) consolidates or merges, or causes US REIT to consolidate or merge, with another entity,

(ii) disposes, in whole or part, of its interest in US REIT, or

(iii) causes US REIT to dispose of all or any portion of its interest in Empire Hawkeye or any New JV Entity; and

(d) any person or group is or becomes the beneficial owner directly or indirectly of more than 50% of the equity of TSO then outstanding normally entitled to vote for the election of directors.

CHESS means the Clearing House Electronic Subregister System which provides for electronic share transfer in Australia.

Closing Date means the later of 11 September 2009 or any date to which the Offer Period is extended in accordance with the Corporations Act.

Condition means each of the defeating conditions to Madison�s Offer set out in section 8.9 of the Bidder�s Statement, including the No Material Adverse Change condition.

Contingent Option Agreement means the Contingent Option Agreement between US REIT, as optionor, and TS Manager, as Optionee, dated 1 December 2004.

Corporations Act means the Corporations Act 2001 (Cwlth).

Director means a current director of TSAL.

Empire Hawkeye means Empire Hawkeye Partners, L.P., a limited partnership organised under the laws of the State of Delaware, US.

Empire Hawkeye Facility means the Mezzanine Loan Agreement, dated 1 December 2004, between Empire Hawkeye and TST PH (together, the TST Holders) to finance the TST Holder�s acquisition of Prime Plus stock and Deutsche Bank Trust Company Americas.

Exclusivity and Future Acquisitions Agreement means, collectively, the Future Acquisitions Agreement entered into by TSO (acting through TSAL) and TSP dated 1 December 2004 and the Future Acquisitions Agreement (Non-US) entered into by TSO (acting through TSAL) and TSP dated 31 July 2006.

FIRB means the Foreign Investments Review Board.

FIRB Condition means the condition to obtain FIRB approval to the proposed acquisition of up to all the TSO Units as set out in section 8.9 of the Bidder�s Statement.

Fund V means Tishman Speyer/Citigroup Alternative Investments US Real Estate Venture V, L.P., a limited partnership organised under the laws of the State of Delaware, US.

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GST has the meaning it has in the GST Act.

GST exclusive market value has the meaning it has in the GST Act.

GST Act means the A New Tax System (Goods and Services Tax) Act 1999 (Cwlth).

IFRS means International Financial Reporting Standards.

Independent Directors means the Directors Graham J Kelly and Richard M Haddock.

Independent Expert means Deloitte Corporate Finance Pty Limited (ABN 19 003 833 127).

Independent Expert�s Report means the report prepared by the Independent Expert as to whether Madison�s Offer is fair and reasonable, a copy of which accompanies this Target�s Statement as Annexure A.

Independent Response Committee means the independent committee formed by the TSAL Board, comprising the Independent Directors.

Initial Bidder�s Statement means the bidder�s statement in relation to Madison�s Offer prepared by Madison and dated 13 July 2009.

IPO means the initial public offering of TSO Units on the ASX on 1 December 2004.

LIBOR means London Inter-Bank Offer Rate.

Madison means MIRELF III Australia AIV, L.P. being a limited partnership registered in the State of Delaware, US, and the Bidder and issuer of the Bidder�s Statement in respect of Madison�s Offer.

Madison International Realty means Madison International Realty, LLC, a limited liability corporation registered in the state of Delaware, US, and its owned and controlled subsidiary entities.

NAV means the net asset value per TSO Unit as reported in TSO�s financial statements after provision for potential future tax liabilities that could become payable in the future upon the sale of TSO�s properties.

New JV Entity means new joint venture entities established or to be established to hold an indirect interest in assets acquired by TSO (other than the Prime Plus Portfolio) pursuant to the terms of the Exclusivity and Future Acquisitions Agreements.

No Material Adverse Change Condition means the defeating condition set out in section 8.9(b) of the Bidder�s Statement.

No Prescribed Occurrences Condition mean the condition set out in section 8.9(c) of the Bidder�s Statement.

Offer or Madison�s Offer means the takeover offer by Madison for TSO Units as described in the Bidder�s Statement.

Offer Consideration means the consideration offered under Madison�s Offer. As at the date of this Target�s Statement, it is $0.30 per TSO Unit.

Offer Period has the same meaning given in the Bidder�s Statement.

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Optionee means TS Manager (or an affiliate).

Owned/Controlled Entities means a company or trust owned or controlled by TSAL as the Responsible Entity of TSO.

Prime Plus means Prime Plus Investments, Inc., a company incorporated under the laws of the State of Maryland, US.

Prime Plus Portfolio means an asset portfolio an interest in which was acquired by TSO at or around the time of the IPO through the Empire Hawkeye - Prime Plus structure (unless the context otherwise requires, the Prime Plus Portfolio includes Bayside Towers and excludes 40 Broad Street).

Properties means the real estate assets in which TSO has an interest.

REIT means Real Estate Investment Trust.

Related Body Corporate has the meaning it has in the Corporations Act.

relevant interest means a relevant interest as defined in the Corporations Act.

Replacement Bidder�s Statement means the revised bidder�s statement in relation to Madison�s Offer (including the first supplementary bidder�s statement) prepared by Madison and dated 30 July 2009.

Required Lenders means, as of any relevant date, those lenders representing not less than 51% of the US REIT Facility.

Responsible Entity means a responsible entity as defined in the Corporations Act.

SEC means US Securities and Exchange Commission.

Second Supplementary Bidder�s Statement means the second supplementary bidder�s statement prepared by Madison dated 20 August 2009.

Status of Conditions Date means the date of lodgement of Madison�s notice disclosing the status of the Conditions, being 2 September 2009 unless extended in accordance with section 630(2) of the Corporations Act.

Target�s Statement means this booklet.

Tishman Speyer Control Persons means any of Robert V. Tishman, Jerry I. Speyer, Robert J. Speyer, their spouses, descendants, heirs, legatees or devisees and/or the managing directors of TSP on the date �control� is sought to be determined, who were either serving as such on a specified date or have been employed by TSP or its affiliates for at least five years prior to that date.

TSAL means Tishman Speyer Australia Limited (ABN 43 106 909 871), in its capacity as Responsible Entity of TSO unless the context requires otherwise.

TSAL Board means the board of directors of TSAL.

TS Manager means the Tishman Speyer Australia Asset Manager, LLC, a limited liability company organised under the laws of the State of Delaware, US, an affiliate of TSP.

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TSO means Tishman Speyer Office Fund (ARSN 108 909 534).

TSO Investor Update means the update provided to investors regarding TSO on 24 March 2009.

TSO Unit means an ordinary unit in TSO.

TSO Unitholder or Unitholder means a registered holder of TSO Units.

TSO Unitholder Information Line means the Tishman Speyer Office Fund takeover bid investor information line on 1300 131 678 (within Australia) or + 61 2 8280 7173 (from outside Australia).

TSP means Tishman Speyer Properties, L.P., a limited partnership organised under the laws of the State of New York, US.

TSP Directors means the Jerry I Speyer, Robert J Speyer and David N Augarten.

TST Empire means TST Empire PH, L.L.C, a limited liability company organised under the laws of Delaware, US.

TST PH means TST Empire PH, L.L.C., a limited liability company organised under the laws of the State of Delaware, US.

US means the United States of America.

US Core/Core Plus Office Assets means a single-tenant or multi-tenant stabilised office building located in a US prime central business district or an associated suburban market, which building (i) is not expected to require significant development or redevelopment efforts, but may require material capital improvements in connection with re-leasing programs as current leases expire, and (ii) is projected (on the basis of signed leases in place at the time a direct or indirect interest in such building is proposed to be acquired) to be substantially leased to tenants for at least the three year period immediately following the date of acquisition.

US REIT means Tishman Speyer US Office, Inc., a corporation incorporated under the laws of the State of Maryland, US.

US REIT Facility means the Revolving Loan Agreement, dated as of 4 May 2007, among US REIT, various lenders and Deutsche Bank Trust Company Americas, as administrative agent, as the same may be amended from time to time.

US REIT Facility Final Funding means the drawing by US REIT of the remaining US$112 million available under the US REIT Facility, which is subject to certain conditions as set out in section 5 of this Target�s Statement.

voting power means voting power as defined in the Corporations Act.

9.2 Interpretation

Unless the context otherwise requires:

(a) headings used in this Target�s Statement are inserted for convenience and do not affect the interpretation of this Target�s Statement;

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(b) words or phrases defined in the Corporations Act have the same meanings when used in this Target�s Statement;

(c) a reference to a section is a reference to a section of this Target�s Statement;

(d) a reference to a statute, ordinance, code or other law includes regulations and other instruments under it and consolidations, amendments, re-enactments or replacements of any of them;

(e) the singular includes the plural and vice versa; and

(f) the word �person� includes an individual, a firm, a body corporate, a partnership, a joint venture, an unincorporated body or association, or any government agency.

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Annexure A Independent Expert�s Report

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Tishman Speyer Office Fund Independent expert�s report 20 August 2009  

 

 

 

   

 

   

 

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Financial services guide

Deloitte Corporate Finance Pty Limited A.B.N. 19 003 833 127

AFSL 241457 Grosvenor Place

225 George Street Sydney NSW 2000

PO Box N250 Grosvenor Place Sydney NSW 1220 Australia

20 August 2009 What is a Financial Services Guide? This Financial Services Guide (FSG) provides important information to assist you in deciding whether to use any of the general financial product advice provided by Deloitte Corporate Finance Pty Limited (Deloitte Corporate Finance, we, us or our) the holder of Australian Financial Services Licence (AFSL) No. 241457. The contents of this FSG include: • who we are and how we can be contacted • what services we are authorised to provide under our AFSL • how we (and any other relevant parties) are remunerated in relation to any

general financial product advice we may provide • details of any potential conflicts of interest • details of our dispute resolution systems and how you can access them. Information about us We have been engaged by Tishman Speyer Australia Limited, as responsible entity of Tishman Speyer Office Fund (TSOF), to give general financial product advice in the form of a report to be provided to you in connection with an off-market takeover offer for all of the issued ordinary units in TSOF made by MIRELF III Australia AIV, L.P. You are not the party or parties who engaged us to prepare this report. We are not acting for any person other than the party or parties who engaged us. We are required to give you an FSG by law because our report is being provided to you. You may contact us using the details located above. Deloitte Corporate Finance is ultimately owned by the Australian partnership of Deloitte Touche Tohmatsu. The Australian partnership of Deloitte Touche Tohmatsu and its related entities provide services primarily in the areas of audit, tax, consulting, and financial advisory services. Our directors may be partners in the Australian partnership of Deloitte Touche Tohmatsu. The Australian partnership of Deloitte Touche Tohmatsu is a member of Deloitte Touche Tohmatsu (a Swiss Verein). As a Swiss Verein (association), neither Deloitte Touche Tohmatsu nor any of its member firms has any liability for each other�s acts or omissions. Each of the member firms is a separate and independent legal entity operating under the names �Deloitte,� �Deloitte & Touche,� �Deloitte Touche Tohmatsu,� or other, related names. Services are provided by the member firms or their subsidiaries and affiliates and not by the Deloitte Touche Tohmatsu Verein. The general financial product advice in our report is provided by Deloitte Corporate Finance and not by the Australian partnership of Deloitte Touche Tohmatsu, its related entities, or the Deloitte Touche Tohmatsu Verein. Associations and relationships We do not have any formal associations or relationships with any entities that are issuers of financial products. However, you should note that we and the Australian partnership of Deloitte Touche Tohmatsu (and its related bodies corporate) may from time to time provide professional services to financial product issuers in the ordinary course of business. What financial services are we licensed to provide? The AFSL we hold authorises us to provide the following financial services to retail and wholesale clients: • provide general financial product advice in respect of:

- debentures, stocks or bonds to be issued or proposed to be issued by a government

- interests in managed investment schemes including investor directed portfolio services

- securities • deal in a financial product by arranging for another person to apply for,

acquire, vary or dispose of financial products in respect of: - debentures, stocks or bonds issued or to be issued by a government - interests in managed investment schemes including investor directed

portfolio services - securities.

Information about the general financial product advice we provide The financial product advice provided in our report is known as �general advice� because it does not take into account your personal objectives, financial situation or needs. You should consider whether the general advice contained in our report is appropriate for you, having regard to your own personal objectives, financial situation or needs.

If our advice is being provided to you in connection with the acquisition or potential acquisition of a financial product issued by another party, we recommend you obtain and read carefully the relevant offer document provided by the issuer of the financial product. The purpose of the offer document is to help you make an informed decision about the acquisition of a financial product. How are we and our employees remunerated? Our fees are usually determined on a fixed fee or time cost basis and may include reimbursement of any expenses incurred in providing the services. Fee arrangements are agreed with the party or parties who actually engage us, and we confirm our remuneration in a written letter of engagement to the party or parties who actually engage us. Our fee is estimated at AUD380,000 and will also be disclosed in the relevant offer document prepared by the issuer of the financial product. Deloitte Corporate Finance, its directors and officers, any related bodies corporate or associates and their directors and officers, do not receive any commissions or other benefits, except for the fees rendered to the party or parties who actually engage us. All employees receive a salary. Our employees are eligible for annual salary increases and bonuses based on overall performance but do not receive any commissions or other benefits arising directly from services provided to you. The remuneration paid to our directors reflects their individual contribution to the company and covers all aspects of performance. We do not pay commissions or provide other benefits to other parties for referring prospective clients to us. What should you do if you have a complaint? If you have any concerns regarding our report or service, you may wish to advise us. Our internal complaint handling process is designed to respond to your concerns promptly and equitably. All complaints must be in writing addressed to: The Complaints Officer PO Box N250 Grosvenor Place Sydney NSW 1220 E-mail: [email protected] Fax (02) 9255 8678 If you are not satisfied with the steps we have taken to resolve your complaint, you may contact the Financial Ombudsman Service (FOS). FOS provides free advice and assistance to consumers to help them resolve complaints relating to members of the financial services industry. Complaints may be submitted to FOS at: Financial Ombudsman Service Limited GPO Box 3 Melbourne VIC 3001 Telephone: 1300 780 808 Fax: +61 3 9613 6399 Email: [email protected] Internet: http://www.fos.org.au What compensation arrangements do we have? We are required by the Corporations Act 2001 (Cth) to have arrangements for compensating retail clients for losses they suffer as a result of a breach of our obligations under Chapter 7 of the Corporations Act. The Australian partnership of Deloitte Touche Tohmatsu holds a professional indemnity insurance policy that covers the financial services provided by Deloitte Corporate Finance. This policy satisfies the requirements of section 912B of the Corporations Act and provides coverage of former representatives and Deloitte Corporate Finance employees in respect of financial services performed whilst they were engaged by us. Privacy Any personal information collected by us will be handled in accordance with our Privacy Statement, which summarises our policies and practices governing the treatment of personal information that we acquire from and about you. We do not disclose any personal information about you to other parties without your permission, except as required or permitted by law. A copy of our Privacy Statement can be downloaded from our website at www.deloitte,com.au or by contacting us using the details located on the first page of this FSG.

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Deloitte Corporate Finance Pty Limited A.B.N. 19 003 833 127

AFSL 241457

Grosvenor Place 225 George Street

Sydney NSW 2000 PO Box N250 Grosvenor Place

Sydney NSW 1220 Australia

DX 10307SSE Tel: +61 (0) 2 9322 7000

Fax: +61 (0) 2 9322 7001 www.deloitte.com.au

Member of Deloitte Touche Tohmatsu

The Independent Directors Tishman Speyer Australia Limited as the Responsible Entity of Tishman Speyer Office Fund Level 12 The Chifley Tower 2 Chifley Square Sydney NSW 2000 20 August 2009

Dear Independent Directors

Independent expert�s report Introduction On 13 July 2009 (the Announcement Date), MIRELF III Australia AIV, L.P. (Madison) announced an off-market takeover offer (the Original Offer) for all of the issued ordinary units in Tishman Speyer Office Fund (TSOF or the Fund) that Madison did not own (at the Announcement Date, Madison had an interest in approximately 20.13% of the issued ordinary units in TSOF) at AUD0.30 cash per unit.

On 30 July 2009 (the Revised Announcement Date), Madison issued a bidder�s statement (the Bidder�s Statement) replacing that issued in connection with the Original Offer, in which the Original Offer was supplemented with additional information about Madison, its intentions and its funding capability (the Offer).

The consideration offered was unchanged at AUD0.30 cash per TSOF unit (the Offer Price).

The Offer, which is effective from 6 August 2009 to 11 September 2009 (or subsequent date if the Offer is extended in accordance with Section 650C of the Corporations Act), represents a 27.7% premium to the Fund�s closing unit price at 13 July 2009, the Announcement Date, and a premium of 8.2% and 27.5% to the volume weighted average price (VWAP) of TSOF�s units over the 30 trading days and 60 trading days preceding the Announcement Date, respectively.

Purpose of the report As Madison does not have any directors in common with TSOF and/or Tishman Speyer Australia Limited (TSAL), the responsible entity of TSOF, and it does not have more than 30% of the voting units in TSOF, there is no legal requirement for an independent expert�s report in respect of the Offer, as prescribed under Section 640 of the Corporations Act. However, the Independent Directors of TSAL, as responsible entity of TSOF, have requested us to prepare an independent expert�s report on the Offer in order to assist TSOF�s unitholders who are not associated with Madison (the Unitholders) in their consideration of the Offer.

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2

Deloitte: Tishman Speyer Office Fund

 

This report is to be included in a Target�s Statement to be sent to Unitholders and has been prepared for the exclusive purpose of assisting Unitholders in their consideration of the Offer. We are not responsible to you, or anyone else, whether for our negligence or otherwise, if the report is used by any other person for any other purpose.

Basis of evaluation In order to assess whether the Offer is fair and reasonable we have:

• assessed whether the Offer is fair by estimating the fair market value of an ordinary TSOF unit and comparing that value to the estimated fair market value of the consideration to be received by Unitholders pursuant to the Offer

• assessed the reasonableness of the Offer by considering other advantages and disadvantages of the Offer to Unitholders.

Based on our understanding of Australian Securities and Investment Commission (ASIC)�s policy intent on the appropriate interpretation of the �fair� and �reasonable� tests in Regulatory Guide 111, we note the following:

• in assessing the fairness of the Offer, an expert should not have regard to any entity specific or structural issues such as excess gearing which may temporarily impair an entity�s ability to realise full fair market value for its assets. Instead, in assessing fairness, an orderly market for the underlying assets of the Fund should be assumed, even if such market circumstances do not exist at the time of the fairness assessment

• entity specific factors may be appropriate matters to be taken into account when assessing the reasonableness of the Offer.

As a result of the above, in considering the fairness of the Offer we did not consider any potential valuation impact that may arise as a consequence of the Fund�s current debt refinancing issues.

Summary and conclusion In our opinion the Offer is neither fair nor reasonable. In arriving at this opinion, we have had regard to the following factors:

The Offer is not fair Set out in the table below is a comparison of our assessment of the fair market value of a TSOF unit on a control basis with the consideration offered by Madison.

Table 1: Evaluation of fairness

Low value per unit (AUD)

High value per unit (AUD)

Estimated fair market value of a TSOF unit 0.84 1.02 Offer Price 0.30 0.30

Source: Deloitte Corporate Finance analysis

The consideration offered by Madison is below the range of our estimate of the fair market value of a TSOF unit. Accordingly we have concluded that that the Offer is not fair.

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Deloitte: Tishman Speyer Office Fund

 

Valuation of a TSOF unit We estimated the fair market value of a TSOF unit based on the net assets method and cross-checked our valuation to asset and earnings multiples for publicly listed comparable entities. Whilst we have analysed the recent trading of TSOF units, due to certain limitations, we do not consider this trading represents a reliable benchmark of the valuation of a TSOF unit on a control basis.

We estimated the fair market value of TSOF�s assets and liabilities having regard to the audited statement of financial position of TSOF as at 30 June 2009 which reflected a net asset value of AUD191.9 million (or AUD0.57 per unit). We concluded that the fair market value of a TSOF unit is between AUD0.84 and AUD1.02. In arriving at the above conclusion we considered the following:

• we have reviewed the independent valuations prepared by external appraisers in respect of TSOF�s interest in 18 office properties located throughout the U.S. (the Properties), which represent the main investment held by TSOF. We concluded that these independent valuations are an appropriate estimate of the current fair market value of the Properties. The table below summarises the valuations of the Properties together with assumptions made in relation to discount rates and terminal capitalisation rates in the discounted cash flow valuation of these properties

Table 2: Summary of Property valuations

Property TSOF interest

Discount rate

Terminal capitalisation

rate

Independent valuations1

(USDm) 300 Park Avenue 45.9% 8.50% 7.50% 298.4 CitySpire 45.9% 8.50% 7.50% 71.1 Greenwich American Centre 45.9% 9.00% 8.00% 78.0 Bala Plaza 45.9% 9.75% 8.50% 70.0 227 West Monroe Street 45.9% 8.50% 7.75% 194.6 222 West Adams Street 45.9% 8.75% 7.75% 90.0 Plaza East I and II 45.9% 10.50% 9.50% 22.4 520 Pike Tower 45.9% 9.50% 8.50% 43.6 One Bush Street 45.9% 8.00% 6.50% 48.2 595 Market Street 45.9% 8.25% 6.75% 55.1 Bayside Towers 45.9% 8.87% 8.00% 21.8 400 Castro Street 45.9% 9.25% 8.00% 39.2 Lakeside Complex 99.9% 9.50% 8.75% 55.6 550 Terry Francois Boulevard 99.9% 8.50% 7.50% 125.0 Maple Plaza 99.9% 9.50% 8.00% 108.6 407 North Maple Drive 99.9% 8.75% 8.00% 71.4 Beverly Mercedes Place 99.9% 8.75% 8.00% 49.6 3 MacArthur Place 99.9% 9.25% 8.00% 31.7 Total 1,474.6

Source: TSOF

Notes:

1. Value attributable to TSOF on a pro-rata basis resulting from independent valuations at 30 June 2009.

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• we have adjusted the reported net tangible assets (NTA) by discounting the deferred tax liabilities recorded under the Australian Accounting Standards. This discount reflects our assessment of the market value of this liability and makes allowance for the following factors:

- tax may only be payable when properties are sold and on a going concern basis these properties may not be sold for a number of years, if ever

- there are various ways in which sale transactions may be structured which could significantly reduce tax payable on a sale compared to the recorded book value of this liability.

Based on our analysis, we have discounted the book value of the deferred tax liabilities by 50% to 80%

• we have converted our valuation based in USD at the latest reported exchange rate to AUD.

The most significant factor impacting our estimate of the fair market value of a TSOF unit is the underlying values of the Properties. The valuations of the Properties have declined 26.1% in the past six months and 33.5% in the past 12 months. Whether these valuations continue to fall or rise in future will be a major driver of the value of a TSOF unit.

Given the high level of debt in the Fund, our valuation is extremely sensitive to relatively small movements in the underlying value of the Properties. Assuming a fixed deferred tax liability of 65% (the mid-point of our selected discount range) of the value booked on 30 June 2009, our estimate of the fair market value of a TSOF unit would be impacted by movements in the underlying Property valuations as follows.

Figure 1: Valuation of a unit in the Fund � sensitivity to movements in Property values

0.14

0.41

0.67

0.93

1.19

1.46

1.72

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

1.60

1.80

2.00

‐15% ‐10% ‐5% 0% 5% 10% 15%

Valuation range

AUD1.02

Offer Price AUD0.30

AUD0.84

Net asset valuation:Sensitivity to Property valuations

% Change in value of Properties at 30 June 2009

AUD

 Source: Deloitte Corporate Finance analysis 

Note: this sensitivity analysis does not contemplate additional adjustments to the deferred tax liability and to the performance fee that could arise from a higher or lower value of the Properties.

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Based on the above figure, it can be seen that a +/-5% movement in the underlying Property valuations would have an approximate +/- AUD0.26 impact on the value of a TSOF unit under the net asset method. A decrease in value of the Properties higher than 12.0% compared to the current valuations would result in the Offer exceeding the fair market value of a TSOF unit.

Furthermore, since the vast majority of the assets and liabilities of the Fund are denominated in USD, the fair market value of a TSOF unit is sensitive to the AUD/USD exchange rate assumed. Our valuation is based on AUD/USD of 0.83, in line with the exchange rate as at 18 August 2009. Movements in the exchange rate would cause changes to the fair market value of a TSOF unit expressed in AUD with any variation being relatively linear. For example, a 5% appreciation in the AUD versus the USD would result in an approximate 5% fall in the fair market value of a TSOF unit expressed in AUD.

The Offer is not reasonable In accordance with ASIC Regulatory Guide 111 an offer is reasonable if it is fair. An offer might also be reasonable if, despite being �not fair�, the expert believes that there are sufficient reasons for Unitholders to accept the offer in the absence of any higher bid before the close of the offer.

We have formed our opinion on the reasonableness of the Offer based on an analysis of the likely advantages and disadvantages to Unitholders of accepting the Offer.

Advantages of accepting the Offer The likely advantages to Unitholders if the Offer is accepted include:

There is a risk that TSOF Unitholders may ultimately realise a value lower than the Offer Price

The Offer provides Unitholders with the opportunity to realise AUD0.30 for their investment which represents a premium of 35.9% to the volume weighted average price of TSOF units over the three months preceding the Announcement Date.

Whilst the Offer Price represents a significant discount to our estimated fair market value of a TSOF unit, there is a risk that Unitholders may realise a value lower than both our valuation range and the Offer Price. The main cause of risk for Unitholders would be if the Fund ultimately realises values for its Properties lower than those stated in the independent valuations at 30 June 2009. Lower valuations may be realised either because the market values of the Properties continue to decline or the Fund is forced to sell some of these Properties in a sub-optimal manner in order to meet its debt repayment obligations.

Should the Fund be unable to refinance its corporate facilities maturing in December 2009 and 2010, or corporate facilities are requested to be repaid as a result of a breach of covenants, TSOF could potentially face the following scenarios:

• a sale of its assets and/or investments in an accelerated timeframe

• lending banks could force the Fund into administration or to enter a liquidation process.

Either of these outcomes could result in a sale of the Fund�s assets at prices significantly lower than those implied in our net asset valuation.

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Under the above circumstances, the amount that Unitholders could expect to obtain by holding the units may be significantly less than our estimated fair market value and may also be less than the Offer. Our estimated fair market value of the Fund is not premised on a liquidation scenario. Whilst the estimated current value of the Properties represents the amount that could be expected to be obtained in an orderly sale process, a forced sale scenario could result in lower values being realised, as the sale process may not be orderly and current market liquidity in the U.S. office property market is very low with very few major transactions taking place.

Furthermore, we expect that in a forced sale scenario there would be less scope to structure a sale of the assets in a manner that would minimise the tax payable on potential capital gains.

In order to achieve full value additional equity may be required to be injected in the Fund

Our estimated fair market value of TSOF units does not take into account specific circumstances currently affecting the Fund such as short term debt maturities and potential breaches of covenants on the US REIT (a U.S. based investment vehicle of TSOF) debt facility.

Whilst our valuation range is based on the Fund as a going concern, should the actions TSAL management is working on to resolve the current liquidity issues of the Fund be unsuccessful, the Fund would likely require an injection of capital to de-risk its financial structure.

Such an injection of capital would likely involve Unitholders being offered rights to contribute additional equity. If Unitholders did not participate in such a rights issue, they would run the risk of having their interests significantly diluted as such an equity raising would likely be priced at a large discount to NTA and recent unit trading prices.

Management Fee leakage could decrease the net return to Unitholders

The ongoing management fees payable by TSOF represent a future cash outflow which is not explicitly recognised in our valuation of a unit in the Fund. Such fees would be payable as long as the Fund and its investments are externally managed by TSAL and TS Manager, or any possible replacement external manager.

These costs are incurred for the purpose of improving the performance of the Fund either by sourcing new investment opportunities or by increasing the return of the existing portfolio. Accordingly, it would be arguable that the ongoing cost associated with such management services produces a return equal or higher than the cost.

However, to the extent that the services provided by the external manager do not add value to the Fund in excess of this cost, the payment of future management fees may represent a leakage of value for the Fund.

Price may decrease from current levels if the Offer is rejected

On the Announcement Date TSOF units were trading at a 21.7% discount to the Offer (or AUD0.235 per unit). Once the Offer period lapses, there may be a temporary overhang in TSOF units given the value floor that the Offer will provide until 11 September 2009.

However, this risk may not be large as, subsequent to the Announcement Date, units have been consistently trading at prices higher than the Offer Price. F

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Since the Announcement Date, the Fund has made public announcements providing high level guidance in relation to management activity to resolve the Fund�s liquidity issues, revaluation of the Properties at 30 June 2009 and waiver of any performance fees payable by December 2009 (previously estimated at USD90 million). Whilst it is difficult to establish a direct correlation between these public announcements and the trading in the Fund�s units, it is arguable that the trading price of TSOF units is no longer supported solely by the Offer.

Disadvantages of accepting the Offer The likely disadvantages to Unitholders if the Offer is accepted include:

Unitholders will miss the opportunity to participate in any medium term appreciation in the Fund�s property values

Whilst there is no certainty that the Fund�s property values will appreciate, general market sentiment indicates that the current stage in the economic cycle is unlikely to be an optimum time to realise value for U.S. office properties.

Due to the very high financial leverage of the Fund, any appreciation in the Fund�s property values over time would be likely to translate to a significant improvement in the Fund�s net tangible asset (NTA) value.

If Unitholders accept the Offer they will forgo the opportunity to participate in this leveraged exposure to any medium term upside in the values of the Fund�s investments in the Properties.

Current refinancing activity by the Fund�s management could potentially unlock substantial value to Unitholders

TSOF is currently exploring alternatives to restructure its financial position. We understand that TSOF is currently negotiating with lending banks to restructure certain debt facilities and considering an asset realisation strategy aimed at resolving its liquidity issues (the Proposed Restructure). The key terms of the Proposed Restructure are summarised below:

• restructure of the US REIT debt facility (the Proposed Debt Restructure) to allow US REIT to draw upon the facility�s remaining USD112 million and provide covenant relief (in the form of new financial covenants). Although the above terms have been finalised, in order to become effective these modifications will need approval by at least 51% of the syndicate lenders. TSAL advises that it expects US REIT will receive the required approvals prior to 11 September 2009, the closing date of the Offer

• raise additional liquidity (a minimum of USD55 million will be required to close the Proposed Debt Restructure) from one or more capital management initiatives, including the possible sale of investment properties directly controlled by US REIT and/or by raising debt against unencumbered properties

• the proceeds from the above will be used to repay TSOF�s portion of the Empire Hawkeye debt facility

• Tishman Speyer and its affiliates would agree upon completion of the Proposed Debt Restructure and repayment of the Empire Hawkeye debt facility to waive the payment of any performance fees that could become payable in December 2009 and that future performance fees will be calculated and paid on the actual realisation of TSOF�s assets and subordinated to full repayment of the US REIT debt facility

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• TSAL would, subject to market conditions and applicable loan covenants, pursue a change in strategy of realising TSOF�s remaining investments by 2015 and returning the net proceeds to the Unitholders.

Should the Proposed Restructure be successful, the risk associated with the Fund�s capital structure would be reduced. Successful completion of the Proposed Restructure could unlock significant value to Unitholders by causing a market re-rating of TSOF�s unit trading price and reduce the current implied discount to NTA.

Since the Announcement Date the units have traded at a premium to the Offer

Since the Announcement Date, TSOF units have been trading between AUD0.300 and AUD0.425. As a result, Unitholders may be able to realise a value higher than the Offer Price by selling their units on the market. Possible reasons that could explain this trading activity are:

• the market is expecting either an increase in the Offer, or an alternative and better offer from an external party

• the market expects TSOF will be able to solve its financial issues

• on 12 August 2009, the Fund announced that no performance fee (previously estimated at USD90 million) would be payable in 2009 conditional on closing of the Proposed Debt Restructure

• the market has re-rated the value of the units.

Inability to participate in alternative takeover offers for TSOF

Although there are no alternative offers at present, it is possible that an alternative offer or proposal may emerge and as Madison is able to waive all or any conditions to the Offer, Unitholders that accept the Offer may not be able to participate in any alternative superior proposals that may emerge, regardless of the acceptance level.

Unitholders would not participate in the benefits of favourable debt funding terms

Our valuation of a TSOF unit does not factor in the benefits of favourable terms currently included in some of TSOF�s fixed interest rate borrowings.

Although it is difficult to quantify the benefit of favourable borrowing terms compared to the current market terms, we consider that:

• it would be challenging to obtain the existing terms associated with current implied loan-to-value ratios (LVR) (i.e. facilities in respect of the properties controlled by the Fund, with the exception of 3 MacArthur Place, have implied loan-to-value ratios ranging from 86% to 101%)

• a portion of this debt could be considered comparable to mezzanine or equity financing. We note that the margins demanded for such debt are typically higher than the interest rates currently being paid.

If Unitholders do not accept the Offer they will derive future benefits associated with ongoing financing costs below those otherwise attainable in the current market.

Other matters

Should the Offer be only partially accepted (i.e. should Madison achieve its stated intention to acquire an overall 30% to 40% interest in the Fund), the non-accepting Unitholders may potentially face the following downside risk:

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• subsequent to Madison�s acquisition, the units are likely to be more thinly traded than they are at present, therefore attracting a higher liquidity discount

• Madison could obtain a �blocking stake� in the Fund. This could limit the potential for other takeover offers for the entity. Unitholders may be less likely to realise a full takeover premium for their securities in the future

• Madison�s stated intention is to remain a passive investor. As a result, Madison�s increased investment in the Fund may not provide any relief to the financing issues the Fund is currently facing.

If Madison acquired an interest higher than 50% but lower than 90%, certain change of control provisions could be triggered and exercised, in particular:

• Tishman Speyer could terminate the �Exclusivity and Futures Acquisitions Agreement� (refer to section 7.1 of the Target�s Statement for further details)

• TS Manager could exercise its pre-emptive rights under the �Contingent Option Agreement� (refer to section 7.1 of the Target�s Statement for further details)

• removal of Tishman Speyer or its affiliates as a controlling entity could represent a default event for the US REIT debt facility and for the loans associated with TSOF�s properties located in Beverly Hills, California

• the successful completion of the Proposed Restructure may be compromised.

Furthermore, under this scenario, there is a possibility that TSOF would, amongst other consequences:

• no longer qualify as a �foreign private issuer� in the U.S. and could be required to comply with much more onerous reporting requirements

• no longer take advantage of certain favourable tax treatments under the current Australian/U.S. double tax treaty as a result of TSOF�s units being no longer �regularly traded� on the ASX in accordance with the meaning of U.S. federal income tax law.

Tax consequences Acceptance of the Offer may result in adverse tax consequences for the Unitholders. Whilst we note that the tax implications will vary depending on the circumstances of each Unitholder, possible tax consequences for Australian resident Unitholders include the following:

• the acceptance of the Offer may accelerate tax payable for Unitholders as it may crystallise a tax liability in the short-term, which would otherwise have been deferred. Unitholders should evaluate the capital gains or other tax consequences of acceptance in assessing whether to accept the Offer

• some Unitholders may not have held the units for a 12 month period and may not be eligible for the 50% discounted cost base under capital gains tax provisions.

For further details of the tax consequences of accepting the Offer to Australian and non-Australian resident Unitholders, you should refer to the Bidder�s Statement and to section 7.6 of the Target�s Statement. F

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Conclusion on reasonableness On balance, in our opinion, the advantages of the Offer do not outweigh the disadvantages.

In particular, we are of the view that upon completion of the Proposed Restructure, the risk of the Fund having to sell its properties in a sub-optimal manner would significantly diminish. Assuming no further downward revaluation of its investments, the Fund would be unlikely to face refinancing risk until May 2012 and the Fund would significantly strengthen its liquidity position.

Opinion In our opinion, the Offer is neither fair nor reasonable to Unitholders. An individual unit holder�s decision in relation to the Offer may be influenced by his or her particular circumstances. If in doubt the Unitholders should consult an independent adviser.

This opinion should be read in conjunction with our detailed report which sets out our scope and findings.

Yours faithfully

DELOITTE CORPORATE FINANCE PTY LIMITED

Mark Pittorino Stephen Ferris

Director Director

 

 

 

Note: All amounts stated in this report may be subject to rounding.

 

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Deloitte: Tishman Speyer Office Fund

 

Contents 1  Terms of the Offer 13 1.1  Summary of the Offer 13 

1.2  Madison�s intentions 13 

1.3  Profile of Madison 14 

1.4  Conditions to the Offer 15 

2  Scope of the report 16 2.1  Purpose of the report 16 

2.2  Basis of evaluation 16 

2.3  Limitations and reliance on information 18 

3  REITs and U.S. office property market 19 3.1  Introduction 19 

3.2  Overview of REITs 19 

3.3  The A-REIT sector 20 

3.4  The U.S. office property sector 22 

3.5  Outlook 27 

4  Profile of TSOF 29 4.1  TSOF history 29 

4.2  Legal structure 30 

4.3  Key management arrangements 31 

4.4  TSOF Property Portfolio 32 

4.5  Tax structure 36 

4.6  Competitive position of TSOF 37 

4.7  Capital structure 38 

4.8  Security trading history 44 

4.9  Financial performance 46 

4.10  Financial position 49 

5  Valuation methodology 51 5.1  Valuation methodologies 51 

5.2  Selection of valuation methodologies 52 For

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6  Valuation of TSOF 53 

6.1  Introduction 53 

6.2  Net assets value on a going concern basis 53 

6.3  Market evidence 59 

7  Evaluation and conclusion 68 7.1  Fairness 68 

7.2  Reasonableness 68 

7.3  Conclusion 73 

Appendices Appendix 1: Glossary 74 

Appendix 2: Property compendium 77 

Appendix 3: Recent capital raisings in the A-REIT sector 81 

Appendix 4: Comparable REITs 83 

Appendix 5: Sources of information 88 

Appendix 6: Qualifications, declarations and consents 89 

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1 Terms of the Offer 1.1 Summary of the Offer On 13 July 2009 (the Announcement Date), MIRELF III Australia AIV, L.P. (Madison) announced an off-market takeover offer (the Original Offer) for all of the issued ordinary units in Tishman Speyer Office Fund (TSOF or the Fund) that Madison did not own (at the Announcement Date, Madison had an interest in approximately 20.13% of the issued ordinary units in TSOF1) at AUD0.30 cash per unit.

On 30 July 2009 (the Revised Announcement Date), Madison issued a bidder�s statement (the Bidder�s Statement) replacing that issued in connection with the Original Offer, in which the Original Offer was supplemented with additional information about Madison, its intentions and its funding capability (the Offer).

The consideration offered was unchanged at AUD0.30 cash per TSOF unit (the Offer Price).

The Offer, which will be effective from 6 August 2009 to 11 September 2009 (or subsequent date if the Offer is extended in accordance with Section 650C of the Corporations Act), represents a 27.7% premium to the Fund�s closing unit price at 13 July 2009, the Announcement Date, and a premium of 8.2% and 27.5% to the volume weighted average price (VWAP) of TSOF�s units over the 30 trading days and 60 trading days preceding the Announcement Date, respectively.

1.2 Madison�s intentions In the Bidder�s Statement Madison stated that, notwithstanding the Offer is for all ordinary issued units in TSOF, its current objective is to obtain a 30% to 40% interest in the Fund (which would equate to an additional 10% to 20% over and above its existing interest in TSOF).

Furthermore, Madison stated that investing in the underlying assets held by TSOF, being U.S. commercial real estate is wholly consistent with the investment strategy of Madison and Madison International Realty Group (Madison�s ultimate parent company) of acquiring illiquid real estate interests in investment vehicles worldwide. In addition, Madison stated that it is not seeking to obtain control of TSOF, noting that:

• its current intentions are not to make any changes to the continued operations of TSOF and that the business of TSOF will continue to be carried out in substantially the same manner as it is presently carried out

• it currently intends to make no major changes to the operation�s of TSOF, including any redeployment of TSOF property

• currently it has no intention of removing Tishman Speyer Australia Limited (TSAL) as responsible entity of TSOF or appointing a new responsible entity of TSOF. However, Madison stated that if it obtained a 100% ownership of the Fund, either as a result of a compulsory acquisition as permitted by law (i.e. in case acceptances to

                                                            1 Over the past seven months Madison has acquired 68,127,783 TSOF units through on market acquisitions on the Australian Securities Exchange (ASX) which, after a recent buy-back of units by TSOF, resulted in Madison owning a 20.13% stake in TSOF.

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the Offer are greater than 90% and Madison acquires at least 75% (by number) of TSOF�s Units for which it has made an Offer) or as a result of full acceptance of the Offer, it will reserve the right to consider changes to the management agreements with TSAL

• Madison International Realty Group does not have the management team necessary to manage TSOF nor does it have an office located in Australia.

1.3 Profile of Madison Madison is a Limited Partnership which was formed for the purpose of acquiring TSOF Units. Madison is registered in the U.S. and managed by Madison International Holdings III, LLC, part of Madison International Realty Group, a U.S. based real estate investment firm that provides liquidity to investors holding illiquid or thinly traded units or interests in any type of real estate investment vehicles around the world, which has underlying U.S. or Western European commercial real estate assets.

Madison International Realty Group�s strategy is to make investments between USD5 million and USD75 million with a focus on real estate properties including office, retail, multifamily rental, senior housing and hospitality. Since 1996, investment vehicles promoted and managed by Madison International Realty Group have acquired over USD500 million (approximately AUD625 million) of interests in real estate assets.

The following table illustrates a sample of Madison International Realty Group�s transactions:

Table 3: Investments made by Madison International Realty Group

Property Location Size (sft1) Currency

Capital invested (million) Ownership

Devonshire House London, UK 186,472 GBP 19.7 17.5% Chrysler East Building New York City 745,000 USD 37.4 24.6% Eastbridge Landing New York City 153,370 USD 41.0 43.7% 31 West 52nd Street New York City 719,714 USD 12.8 5.1% 53 and 75 State Street Boston MA 1,890,000 USD 3.7 2.4% The Seagram Building New York City 769,000 USD 6 6.7% Suburban Office Portfolio

Charlotte & Releigh, NC 241,000 USD 10 49.0%

Garden City Plaza New York City 484,916 USD 16 49.0% 300 Park Avenue New York City 719,000 USD 5 8.4%

Falk Group Portfolio

Munich, Rhineland-Pflaz, Nürnberg, Germany 635,592 GBP 54 n/a2

150 Fifth Avenue New York City 210,000 USD 12 26.4% One and Two Shell Plaza Texas, US 1,796,418 USD 1 2.8%

Source: Madison International Reality Group website

Notes:

1. Square foot

2. Madison has provided liquidity to a Frankfurt-based mortgage bank by acquiring a series of first position mortgage loans collateralised by the portfolio of commercial real estate.

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Madison stated that it has sufficient funding to complete the Offer, in particular, it has more than AUD100 million of uncalled capital commitments from its investors which would be drawn down for the purpose of the cash payment associated with the Offer. If the Offer is fully accepted, it would result in a maximum cash payment of approximately AUD81.1 million (based on the Offer Price of AUD0.30 per TSOF Unit). Accordingly, Madison has stated that the Offer is not contingent on financing.

1.4 Conditions to the Offer The Offer is subject to various conditions (as detailed in the Bidder�s Statement), the most significant being:

• approval from the Foreign Investment Review Board (FIRB). We note that FIRB approved the transaction and, as a result, this condition is satisfied

• no material adverse change or change of control confirmation in the Target�s Statement. However, in the Bidder�s Statement Madison noted that it may waive this condition after considering additional information which it expects will be provided in the Target�s Statement

• no prescribed occurrences including the following:

- TSOF converts all or any of its units into a larger or smaller number of units

- TSOF or a subsidiary resolves to reduce its capital in any way

- TSOF issues units, or grants an option over its units, or agrees to make such an issue or grant such an option

- a subsidiary of TSOF issues shares or grants options over its shares, or agrees to make such an issue or grant such an option

- TSOF or a subsidiary issues, or agrees to issue, convertible notes

- TSOF or a subsidiary disposes, or agrees to dispose, of the whole, or a substantial part of its business or property

- TSOF or a subsidiary resolves to be wound up

- a liquidator or provisional liquidator of TSAL or of a subsidiary is appointed

- a court makes an order for the winding up of TSOF or of a subsidiary under 436C of the Corporations Act

- TSAL or a subsidiary executes a deed of company arrangement

- a receiver, or a receiver and manager, is appointed in relation to the whole, or a substantial part, of the property of TSAL or of a subsidiary.

Madison stated it may choose to waive any of the above conditions.

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2 Scope of the report 2.1 Purpose of the report As Madison does not have any directors in common with TSOF and/or TSAL and it does not have more than 30% of the voting units in TSOF, there is no legal requirement for an independent expert�s report in respect of the Offer, as prescribed under Section 640. However, the Directors of TSAL, as responsible entity of TSOF, have requested us to prepare an independent expert�s report on the Offer in order to assist TSOF�s unitholders who are not associated with Madison (the Unitholders) in their consideration of the Offer.

This report is to be included in a Target�s Statement to be sent to Unitholders and has been prepared for the exclusive purpose of assisting Unitholders in their consideration of the Offer. We are not responsible to you, or anyone else, whether for our negligence or otherwise, if the report is used by any other person for any other purpose.

2.2 Basis of evaluation

2.2.1 Guidance In our determination as to whether the Offer is fair and reasonable, we have had regard to common market practice and to Australian Securities and Investment Commission (ASIC) Regulatory Guide 111 regarding the content of expert�s reports. The Regulatory Guide prescribes standards of best practice in the preparation of independent expert�s reports pursuant to Section 640.

ASIC Regulatory Guide 111 This regulatory guide provides guidance in relation to the content of independent expert�s reports prepared for transactions under Chapters 5, 6 and 6A of the Corporations Act, in relation to:

• takeover bids

• schemes of arrangement

• compulsory acquisitions or buy-outs

• acquisitions approved by security holders under item 7 of s611

• selective capital reductions

• related party transactions

• transactions with persons in a position of influence

• demergers and demutualisations of financial institutions3

• buy-backs.

ASIC Regulatory Guide 111 refers to a �control transaction� as being the acquisition (or increase) of a controlling stake in a company that could be achieved, for example, by way of a takeover offer, scheme of arrangement, approval of an issue of shares using item 7 of s611, a selective capital reduction or selective buy back under Ch 2J.

In respect of control transactions, under ASIC Regulatory Guide 111 an offer is:

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• fair, when the value of the consideration is equal to or greater than the value of the securities subject to the takeover offer. The comparison must be made assuming 100% ownership of the target company (i.e. including a control premium)

• reasonable, if it is fair, or, despite not being fair, after considering other significant factors, security holders should accept the offer under the takeover offer, in the absence of any higher bids before the close of the offer.

To assess whether the Offer is fair and reasonable to Unitholders, we have adopted the tests of whether the Offer is either fair and reasonable, not fair but reasonable, or neither fair nor reasonable, as set out in ASIC Regulatory Guide 111.

2.2.2 Fairness ASIC Regulatory Guide 111 defines an offer as being fair if the value of the offer price is equal to or greater than the value of the securities the subject of the offer. The comparison must be made assuming 100% ownership of the target company.

Accordingly we have assessed whether the Offer is fair by comparing the Offer Price offered with the value of a TSOF unit on a control basis.

The TSOF units have been valued at fair market value, which we have defined as the amount at which the units would be expected to change hands between a knowledgeable willing buyer and a knowledgeable willing seller, neither of whom is under any compulsion to buy or sell. Special purchasers may be willing to pay higher prices to reduce or eliminate competition, to ensure a source of material supply or sales, or to achieve cost savings or other synergies arising on business combinations, which could only be enjoyed by the special purchaser. Our valuation of a TSOF unit has not been premised on the existence of a special purchaser.

We have assessed whether the Offer is fair by comparing the value of a TSOF unit with the Offer Price to be received from Madison. We have assessed the value of each TSOF unit by estimating the current value on a control basis and dividing this value by the number of units on issue.

Based on our understanding of ASIC�s policy intent on the appropriate interpretation of the �fair� and �reasonable� tests in Regulatory Guide 111, we note the following:

• in assessing the fairness of the Offer, an expert should not have regard to any entity specific or structural issues such as excess gearing which may temporarily impair an entity�s ability to realise full fair market value for its assets. Instead, in assessing fairness, an orderly market for the underlying assets of the Fund should be assumed, even if such market circumstances do not exist at the time of the fairness assessment

• entity specific factors may be appropriate matters to be taken into account when assessing the reasonableness of the Offer.

As a result of the above, in considering the fairness of the Offer we did not consider any potential valuation impact that may arise as consequence of the current debt refinancing issues impacting on the value of a unit in the Fund.

Any such factors in relation to the current situation of the Fund were considered in our assessment of the reasonableness of the Offer. F

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2.2.3 Reasonableness ASIC Regulatory Guide 111 considers an offer in respect of a control transaction to be reasonable if either:

• the offer is fair

• despite not being fair, but considering other significant factors, Unitholders should accept the offer in the absence of any higher bid before the close of the Offer.

To assess the reasonableness of the Offer we considered the following significant factors in addition to determining whether the Offer is fair:

• the existing unit holding of Madison in TSOF

• any significant unit holding in TSOF

• the likely market price and liquidity of TSOF�s Units in the absence of the Offer

• carry forward tax losses, cash flows or other benefits available to Madison upon achieving 100% ownership of TSOF

• any special value of TSOF to Madison

• the value to an alternative bidder and the likelihood of an alternative offer being made

• other implications associated with the Unitholders rejecting the Offer

• any other specific circumstances currently affecting TSOF.

2.2.4 Individual circumstances We have evaluated the Offer for Unitholders as a whole and have not considered the effect of the Offer on the particular circumstances of individual investors. Due to their particular circumstances, individual investors may place a different emphasis on various aspects of the Offer from the one adopted in this report. Accordingly, individuals may reach different conclusions to ours on whether the Offer is fair and reasonable and therefore in the best interests of Unitholders. If in doubt investors should consult an independent adviser.

2.3 Limitations and reliance on information The opinion of Deloitte Corporate Finance is based on economic, market and other conditions prevailing at the date of this report. Such conditions can change significantly over relatively short periods of time. This report should be read in conjunction with the declarations outlined in Appendix 6.

We would specifically draw to the attention of Unitholders that recent volatility in capital markets and the current economic outlook has created significant uncertainty with respect to the valuation of assets. Recognising these factors, we consider that our opinions may be more susceptible to change than would normally be the case.

This engagement has been conducted in accordance with professional standard APES 225 Valuation Services issued by the Accounting Professional and Ethical Standards Board Limited (APESB). Our procedures and enquiries do not include verification work nor constitute an audit or a review engagement in accordance with standards issued by the Auditing and Assurance Standards Board.

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3 REITs and U.S. office property market 3.1 Introduction TSOF is an ASX listed Real Estate Investment Trust (REIT) and, when referred to Australian REIT, A-REIT), with a portfolio of 18 commercial office complexes located in the United States of America (U.S.).

REITs are investment vehicles which allow investors to purchase a tradeable interest in a diversified and professionally managed portfolio of real estate and in general, adopt one of two structures:

• stand-alone funds providing investors pure exposure to the underlying real estate portfolio

• stapled securities providing investors exposure to funds management, property development and/or other corporate activities in addition to the real estate portfolio.

TSOF adopts the first REIT structure and its investors are exposed to the underlying portfolio of office properties in the U.S. In this section we set out an overview of REITs, the A-REIT sector and of the U.S. office property sector.

3.2 Overview of REITs REITs provide an opportunity for investors to purchase an interest in a professionally managed portfolio generally comprising quality investment-grade properties offering increased liquidity compared to direct property investment.

Listed REITs can be traded on an exchange thereby increasing liquidity when compared to direct investments in property. Investors gain exposure to both the value of the real estate owned by the REIT and regular rental income generated from the properties. REITs are responsible for property investment, maintenance, administration and making decisions about any capital improvements.

Returns from REITs are generated from income and capital growth. Regular income, or yields, typically in the range of 6% to 10% per annum from rentals is a common feature of REITs, with distributions typically being made quarterly or semi-annually. In addition to distributions, REITs also offer the opportunity for capital growth as a result of increases in the market values of the underlying property investments.

REITs invest across a range of properties in a variety of geographical regions, with varying lease lengths and tenant types. Investors generally evaluate REITs by assessing the security of the income stream which is typically derived from rental income on the underlying assets, the quality of the individual properties and tenants, the length of tenant leases, the level of gearing, rental yields and the quality of management. The relative risk of these elements will generally be reflected in the yield (return on investment) of individual REITs.

REITs may also be able to access tax concessions such as capital allowances and some of the tax associated with rental income earned may be deferred. The tax deferred component generally ranges from 15% to 100% and is passed on to investors through tax-deferred distributions. F

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REITs are often categorised by sub-sector depending on the nature of the investment properties comprising the underlying portfolio. The main categories of REITs include office, industrial, retail, hotels and diversified (which invest in a mixture of the sub-sectors) as well as other alternative property assets.

The REIT sector has historically been perceived as a low risk investment offering steady income and therefore attractive investments for risk averse, yield-focused investors seeking a liquid exposure to property.

The global financial crisis, which has resulted in a deterioration of world economies and greatly reduced the availability of debt, has had an adverse impact on the REIT sector globally. The underperformance of the REIT sector through this period has damaged the sector�s reputation as a low-risk asset class.

3.3 The A-REIT sector The A-REIT market emerged during the 1990s following a collapse in the commercial property market which highlighted limitations of direct investment including liquidity and untimely valuations. This resulted in a wave of A-REIT listings during the 1990s, offering investors liquidity, market-based unit pricing and regular valuations. In the late 1990s to early 2000s, transaction activity accelerated with significant consolidation occurring within the sector. Offshore earnings based REITs also began to seek equity funding from the Australian capital markets, such as TSOF in 2004.

In 2007 the A-REIT market experienced a record year of capital raisings with over AUD10 billion of equity capital raisings as REITs pursued growth strategies. In 2009, the focus of the sector has shifted as a substantial amount of capital has been raised in the market to re-capitalise REIT balance sheets which had become over-geared as a consequence of underlying asset values decreasing and a tightening of credit.

There are currently 57 REITs trading on the ASX of which 27 are stapled securities and combined, these REITs account for over 12% of the world�s listed real estate. Australia has the most securitised property markets in the world with almost half of Australia�s institutional grade real estate held by listed public entities. In comparison, the U.S. REIT market, the most developed of all the REIT markets, has 161 REITs listed on the New York Stock Exchange (NYSE) with a total market capitalisation of USD322.7 billion as at July 2009.

The Standard and Poor�s (S&P)/ASX 200 Property Index (the Property Index), the primary industry indicator, includes 16 of the REITs trading on the ASX. The market capitalisation of the Property Index is approximately AUD62.8 billion, which represents approximately 5.4% of the market capitalisation of the S&P/ASX 200 Index.

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Over the period from 2000 to 2007, the listed A-REIT sector performed strongly with a Compound Annual Growth Rate (CAGR) of 10%, slightly outperforming the broader equities market with a lower level of volatility.

The recent global financial crisis has, however, resulted in A-REIT market capitalisation falling by approximately 60% in the 12 month period to December 2008, compared to the general Australian equity market capitalisation which fell by approximately 40% over the same period. The highly publicised refinancing problems of a number of property-related entities including Centro Property Group, Goodman Group and GPT Group has contributed to a decline in investor confidence, resulting in A-REITs being negatively re-rated. The A-REIT market capitalisation continued to fall from January 2009 to June 2009 by 17% while general equity indices improved marginally during this period by 7%. The performance gap between general equity indices and property indices continued to widen from late 2007 to June 2009, as illustrated in the figure below.

Figure 2: Performance of A-REIT index relative to ASX200 index (1 December 2004 � 18 August 2009)

0

50

100

150

200

250

Dec-2004 Jun-2005 Dec-2005 Jun-2006 Dec-2006 Jun-2007 Dec-2007 Jun-2008 Dec-2008 Jun-2009

Inde

x (re

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d)

ASX Property Index ASX 200  

Source: Bloomberg

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3.4 The U.S. office property sector

3.4.1 Overview The U.S. office property market is the largest office property market in the world with approximately USD1.6 billion square feet of downtown office space. In comparison, the Australian central business district (CBD) office property market comprises 139 million square feet.

Over the period from 2003 to 2007, the downtown U.S. office market has experienced positive net absorption supported by a buoyant employment market and strong fundamentals. Vacancy rates over this period averaged between 10% and 14%. Office property yields are typically the lowest of all the property sectors as it is seen as a less risky investment than retail or industrial. Accordingly, capitalisation rates applied in property valuations have been low historically averaging 6.3% over the last two years. However, the U.S. office market has rapidly deteriorated over the last twelve months which has seen average capitalisation rates increasing to 7.7% according to market analysts and commentators.

U.S. Gross Domestic Product (GDP) has contracted 5.5% during the first quarter of 2009, being the third quarterly GDP decline in succession (the last time this occurred was in 1974 to 1975). At the end of June 2009 approximately 6.5 million jobs were lost since the onset of the recession (3.4 million of which occurred during 2009) and a large component of these job losses were from financial companies and banking institutions. Education, health services and government sectors were relatively shielded from job cutting. The U.S. official unemployment rate was 9.5% in June 2009, the highest since 1982.

The decline in the labour markets since mid 2007 has resulted in substantial amounts of space being returned to the market. In June 2009, the overall U.S. office market vacancy rate reached 15.9%, its highest level in four years. Over the past year office market rents declined 16%, the largest decline in more than seven years.

As the supply of commercial space has exceeded tenant demand, new lease and sublease offerings have adversely impacted rents. Expiring leases are being renegotiated at much lower rent levels for short periods of time to increase demand for capacity available and accelerate cost recovery opportunities. Competition among landlords to secure tenants has been rapidly increasing.

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The above factors have led to a sharp decrease in the market values of properties as a result of increasing capitalisation rates and reduction of rents. Furthermore, capital available for acquisitions has dramatically shrunk with issuance of commercial mortgage-backed securities in the U.S. stalling. However, with few transactions in the market, there have been limited opportunities to substantiate current property valuations.

Notwithstanding this negative trend, it is noted that there is little evidence of foreclosure and forced selling activity as lenders seem to be more willing to extend loans in the hope of improved refinancing conditions and fundamentals in the future.

The following figure illustrates the performance of the U.S. office property market relative to the Australian property market. Over the period from December 2004 to March 2007 the U.S. office property sector outperformed the Australian REIT market by approximately 30%. In the subsequent period to June 2009, as the global financial crisis expanded, the U.S. office sector experienced a larger decline than the Australian REIT market and exhibited greater volatility.

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Figure 3: Performance of U.S. office relative to A-REIT index (1 December 2004 � 18 August 2009)

0

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40

60

80

100

120

140

160

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Dec-2004 Jun-2005 Dec-2005 Jun-2006 Dec-2006 Jun-2007 Dec-2007 Jun-2008 Dec-2008 Jun-2009

Inde

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ASX Property Index Dow Jones Select Real Estate Office Index

Source: Bloomberg

In general, the U.S. property market appears to be ahead of Australia in the current economic cycle however, the Australian market has benefitted from a relative shortage of supply and a much lower increase in the unemployment rate.

3.4.2 TSOF relevant markets TSOF�s property portfolio comprises high grade office properties (generally defined as Class A) located in major business centres in the U.S. These are characterised as having blue chip tenants with long-term lease profiles. Class A properties have historically been highly sought after by REITs, institutional investors and high net worth investors, resulting in correspondingly lower capitalisation rates.

In general, tenants of US office properties are operating in finance, business management, information services and government and therefore, usually seek property in areas conveniently located in financial hubs and top commercial centres. Due to the nature of these tenants, long-term leases are generally entered into with the leaseholder.

Financial service providers have been responsible for driving up the rents for Class A office space in recent years, particularly in the dominant global financial centres, being New York, Boston and Chicago. However, since the onset of the global financial crisis, Class A office markets in financial hubs have continued to experience negative net absorption month-on-month, a reflection of the deterioration of the financial services sector. The cost of Class A office space (in terms of both capital value and rental income) has experienced the greatest decline of all the U.S. office sectors.

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The second quarter of 2009 saw leasing and sales conditions across the U.S. office market plummet at a rate unforeseen previously. The value of Class A office buildings has declined substantially from the prices paid at the peak of the market in 2007 with market analysts and commentators estimating a decline ranging from 30% to 60%. In addition, office-leasing activity is off 39% from year-ago levels and all but three U.S. office markets posted negative net absorption over the first two quarters of 20092.

In general, additional declines in net effective rent are expected to continue into 2010.

The figure below sets out the recent performance, in terms of price per square foot (sft), of selected U.S. office markets.

Figure 4: Class A office rents and movement in occupancy costs over the 12 months to 30 June 2009

64.82

27.4533.57 31.56 33.27

20.64 17.98

29.4033.89

24.89

36.72

-15.84%

-5.08% -4.17%

-25.23%

-8.92%

-1.95%

7.28%

-12.55%

-4.29%-2.08%

-3.50%

-35.00%

-25.00%

-15.00%

-5.00%

5.00%

15.00%

25.00%

35.00%

80.00

60.00

40.00

20.00

0.00

20.00

40.00

60.00

80.00

% ch

ange

in re

nt

Rent

per s

qft (

USD)

Class A Market Rent % Change in rent over 12 months to June 2009

Source: CoStar Group, Inc.

Below we provide a general overview of the recent performance of the major CBDs located in proximity to the markets that TSOF operates in3:

• New York office property market has recorded one of the most significant declines worldwide in the year to date, recording negative net absorption of 4.8 million sqft, predominantly as a result of a worsening unemployment rate in the range of 8% to 9%. The prevailing vacancy rate for Class A office space in New York is approximately 8% (although in Midtown Manhattan are expected to be much higher) compared to 6% in the prior year. Vacancy rates are at their highest level since 2004 due to the impact of the financial crisis on New York City�s large financial sector. Class A office space occupancy costs have declined 16% across the New York

                                                            2 CoStar Group, Inc. 3 The CBD markets considered may reflect different dynamics to those applying to the Properties, especially in relation to Bala Plaza and Lakeside as noted further below.

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market, in Midtown Manhattan alone rental rates declined 28%. Negative net absorption is expected to continue through 2010, primarily due to continued additions of sublease space to inventory and low prospective tenant demand

• Chicago office market fundamentals reflect a weaker sentiment to the New York office market. Unemployment has increased to 8.1% and commensurately the vacancy rate for Class A space has risen to approximately 17%, compared to 14% in the prior year, as leasing activity decreased across the Chicago office market. The vacancy rate within the Metro Chicago office market is lower at 14.7%. Rental rates have declined by 5% across the Chicago Office market in the 12 months to June 2009. Net effective office rents in the Chicago are not expected to increase until 2012

• Los Angeles, West office market is experiencing record low leasing activity levels resulting in a vacancy rate of approximately 14%, compared to 11% in the prior year, for Class A office space. In the Beverly Hills submarket vacancy rates are currently 12.7%. Rental rates in the Los Angeles Class A office market declined 4% over the 12 months to June 2009 with the most pronounced decline occurring in the Beverly Hills submarket as landlords offer discounts that range from 10% to 15% below the quoted market rents to lease office space. Unemployment continues to worsen as most companies continue to reduce operating costs. Approximately 20 office buildings representing 640,932 square feet have been delivered to the market at the end of the 2nd quarter with an additional 3,808,308 square feet still under construction. The additional supply, in addition to vacancies and growing sublease space will result continued competition among landlord for a diminishing pool of new tenants

• San Francisco was one of the worst affected markets, recording four consecutive quarters of negative absorption. This has resulted in an increase in the vacancy rate to 13%, compared to 9% in the prior year. Class A office rental rates have declined sharply by 25% with falls of up to 50% for premium Class A space which financial services and law firms had once occupied. With an abundance of vacant space, tenants are taking advantage of affordable rates. As a result, the office property sector is undergoing a flight to quality with the majority of leasing transactions in the quarter ended June 2009 occurring in Class A space, albeit at lower net effective rents than in previous quarters. Continued decrease in net effective rents is expected through 2010

• Seattle office market experienced an increase in vacancy rate from approximately 8% to 13% over the year ended June 2009 due to the several new buildings being delivered to the market coupled with weakening office demand. This has resulted in a decline in Class A office rents of 9%. Vacancy rates are forecast to increase further as projects under construction approach completion. This is expected to result in downward pressure on occupancy costs as owners of new buildings coming online offer lower effective rates in order to secure tenants. A wave of new speculative office developments will hit the market this year, most with little or no leasing activity

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• Orange County office vacancy rate has reached levels substantially higher than the overall vacancy rate for the US office sector as at June 2009. Unemployment in Orange County has reached all-time highs and continues to rise. In the 12 months to June 2009, Class A office rental rates fell to their lowest rates in three years and are expected to worsen through 2009. With new deliveries slowed, positive absorption is expected in 2011, but nowhere near previous highs in 2000 and 2005

• Milwaukee office market has maintained a relatively stable vacancy rate of approximately 13%, compared to 12% in the prior year. In contrast to the aggregate US office market, rental rates for Class A office space have increased 7% which was primarily attributed to limited new office additions to the market. However, there is a vast supply of vacant Class A space that is placing downward pressure on occupancy costs and construction of new office buildings

• Philadelphia office market4 has remained relatively resilient through the economic downturn in 2008, with vacancies remaining relatively stable. Despite downward pressure, rental rates did not decrease significantly during 2008. The market has started to show signs of a slowdown in leasing activity resulting in negative net absorption and Class A office vacancy rates increasing from 11% to 13% in the year to date. However, the Philadelphia office market should be comparatively well positioned to recover more quickly due to the region�s diversity of industries

• Washington DC office market5 is the exception within the broader office sector. Whilst the overall US office sector has deteriorated, the Washington DC office market has experienced positive net absorption in the year to date. Vacancy rates have increased from 13% to 15% over the 12 months to June 2009. Occupancy costs have declined 4% over the same period. Washington DC employment is forecast to strengthen supported by increased government spending which is expected to sustain demand for office space.

3.5 Outlook Across the global REIT sector, market sentiment is negative with many industry participants signalling lower distributions and asset realisations or restructures in an attempt to lower balance sheet gearing levels. Recent company reports have been characterised by property and intangible asset impairments which have reduced net asset values.

A general re-rating of the sector has resulted in A-REIT security prices trading at significant discounts to their reported net asset value and NTA�s. The sharpest falls in market value have been recorded by those A-REITs with exposure to weak offshore markets, those with high levels of debt and those with exposure to relatively high risk activities, such as property development and tourism.

                                                            4 We refer to the broad Philadelphia real estate market as a reference to Bala Plaza property in Bala Cynwyd. However, we note that this property is located in the outskirts of Philadelphia whose market analysis may differ from that described herein. 5 We refer to the broad Washington real estate market as a reference to the Lakeside complex located in North Virgina. However, we note that these two markets may differ significantly due to the different locations.

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Substantial asset write downs have put pressure on debt covenants and pushed bank lenders to demand either aggressive asset sales or equity raisings to re-capitalise A-REIT balance sheets. The current environment is likely to make many features of the previous model difficult to replicate and is likely to result in a substantial overhaul of the A-REIT market. The market is expected to see a shift in the A-REIT product offering toward more passive attributes such as rental income from property, de-leveraging of balance sheets and less focus on development activity as a means for driving yield and performance.

Deteriorating fundamentals and an inability to refinance maturing debt will be dominant issues for investors and lenders in assessing REITs going forward. The sector faces substantial debt maturities over the next three years. Further recapitalisations are forecast by market analysts and commentators as the A-REIT industry is scheduled to refinance $15 billion over the period to December 2010.

Office fundamentals are forecast to continue to weaken significantly over the remainder of 2009. As US office occupancies and rents decrease, office REITs will likely maintain focus on recapitalising to shield worsening gearing ratios and financial interest coverage.

US economic fundamentals are generally expected to stabilise by late 2010 in a collaborative effort by banks and regulators offering troubled businesses refinancing options. Accordingly, further expansion in capitalisation rates will be mitigated by:

• decreases in risk premia as the economy stabilises

• opportunistic buyer demand

• debt restructuring.

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4 Profile of TSOF TSOF is a registered managed investment scheme listed on the ASX. TSOF has interests in 18 commercial office complexes located in or near the CBD�s of major markets in the U.S. The figure below illustrates the geographic overview of these properties.

Figure 5: Geographic overview of TSOF�s property investments

Source: TSOF

TSAL is the responsible entity of TSOF. Tishman Speyer Australia Limited, L.L.C., an indirect subsidiary of Tishman Speyer Properties, L.P. (Tishman Speyer) based in the U.S., is the sole shareholder of TSAL.

Tishman Speyer, a private real estate company, is one of the leading owners, developers, fund managers and operators of real estate in the world. With a primary focus on top-quality office properties located in the CBDs of major urban areas, Tishman Speyer has acquired, built or developed more than 325 properties totalling over 116 million sft across the U.S., Europe and Latin America. With a global team of over 800 real estate professionals, Tishman Speyer currently manages a worldwide portfolio of over 72 million sft.

4.1 TSOF history In December 2004, TSOF was listed on the ASX following an initial capital raising of AUD526.5 million comprising 263,274,672 securities issued at a price of AUD2.00 per unit. In conjunction with debt funding, proceeds from the capital raising were used to invest in a U.S. real estate investment trust (Tishman Speyer U.S. Office, Inc., referred to as US REIT) which acquired a 45.9% indirect interest in Prime Plus Investments, Inc (Prime Plus), an investment vehicle which owns a portfolio of 12 U.S. office properties6 (the PPI Properties) in a joint venture agreement with Government of Singapore Investment Corporation (Realty) Pte Limited (GIC) and a Tishman Speyer sponsored

                                                            6 Since TSOF acquired its interest in Prime Plus, it has sold a property in New York City and purchased another property in San Francisco (Bayside Towers).

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investment fund (Tishman Speyer/Citigroup Alternative Investments U.S. Real Estate Venture V, L.P. referred to as Fund V).

Since listing, TSOF, through US REIT, acquired a 99.9% interest in six additional U.S. commercial office buildings including:

• Lakeside at Loudoun Tech, Northern Virginia (Lakeside), a complex of three four-storey office buildings, acquired in September 2005 for USD90.75 million

• 550 Terry Francois Boulevard, San Francisco (550 Terry Francois), acquired in November 2005 for USD173.31 million

• three �A� grade office buildings located in the Beverly Hills submarket of Los Angeles, Maple Plaza, North Maple Drive and Beverly Mercedes Place (collectively, Beverly Hills Properties), acquired in May 2007 for USD334.84 million

• 3 MacArthur Place, Orange County (3 MacArthur and collectively with Lakeside, Terry Francois and the Beverly Hills Properties, the Controlled Properties), acquired in June 2007 for USD83.87 million.

4.2 Legal structure TSOF�s primary asset is all of the issued and outstanding common stock of US REIT which, in turn, owns indirect interests in the PPI Properties and in the Controlled Properties (collectively the Properties). The following figure sets out the organisational structure of TSOF.

Figure 6: TSOF group structure

Responsible Entity

Unitholders

TSOF

US REIT

Empire Hawkeye

Fund V

GIC Prime Plus

12 Properties2

TSAL

Lakeside

Terry Francois

MacArthur

Beverly Hills Properties

TishmanSpeyer

100%

49.99%

8.18%

49.0%

1.01%

91.82%

>99.9%1

Australia

U.S.

Madison

20.13%79.87%

TS Manager

99.99% 0.01%

Source: TSOF

Notes:

1. The minority interests in US REIT consist of non-voting preference shares issued to third parties to assist US REIT comply with U.S. tax rules applying to real estate investment trusts

2. A detailed list of the PPI Properties is provided in Section 4.4 and in Appendix 2.

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TSAL is responsible for the overall management of the Fund�s investments and determines the membership of the board of US REIT on behalf of TSOF.

All of the Fund�s interests in the Properties are held through entities directly or indirectly owned by US REIT which is operated and managed from the U.S. by associates of Tishman Speyer.

US REIT owns a 91.82% limited partner interest in Empire Hawkeye (a partnership for U.S. federal income tax purposes), which originally acquired interests in the PPI Properties via a direct 49.99% stake in Prime Plus. As a result, TSOF has effective ownership of an indirect 45.9% interest in Prime Plus.

The remaining interest in Prime Plus is split between the following parties:

• GIC through a 49% direct interest

• an investment fund sponsored by Tishman Speyer (Fund V) through an indirect interest of 1.01% in Prime Plus and through an 8.18% limited partner interest in Empire Hawkeye (both interests representing in aggregate, an effective 5.1% interest in Prime Plus).

TSOF does not control Empire Hawkeye or Prime Plus, however, it exercises significant influence over these entities.

The manager of TSOF�s indirect investments in Empire Hawkeye and the subsidiaries holding the investments in the Controlled Properties is Tishman Speyer Australia Asset Manager, L.L.C. (TS Manager). The ultimate parent of TS Manager and TSAL is Tishman Speyer.

US REIT also owns, through separate subsidiaries, 99.9% of each of the Controlled Properties.

4.3 Key management arrangements Pursuant to their management agreements and the constitution of TSOF, TSAL,TS Manager and Fund V are entitled to receive the following remuneration from TSOF, U.S. REIT, Empire Hawkeye and their subsidiaries and associates:

• base management fee of 0.5% per annum of TSOF�s proportionate share of the gross value of investment assets held directly or indirectly by TSOF (the Management Fee). Gross value is based on the carrying value of each investment asset

• performance fees are payable from Empire Hawkeye and US REIT to Fund V and TS Manager, respectively, if the investment return in Empire Hawkeye�s interest in Prime Plus and in US REIT�s interest in the Controlled Properties exceed a hurdle rate of 10.5% per annum (the Performance Fees). The hurdle rate is calculated as a notional return based on Empire Hawkeye�s and US REIT�s equity investments, net cash flow distributed to Empire Hawkeye and US REIT during the holding period and any change in appraised valuation of the underlying property investments at the end of each five year calculation period. To the extent that the investment return exceeds the hurdle rate, a fee equal to 30% of the total excess return is payable in December 2009 and at the end of each five year period following that date

• disposal fee is payable to Fund V at market rates prevailing at the time of the property disposal but is capped at 1% of the Fund�s proportionate share of the sale price of the relevant property

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• acquisition fee of 1% of the purchase price or the Fund�s proportionate share is payable to Fund V for sourcing new investments.

In addition to the aforementioned fees, other fees payable by the Fund include reimbursement of out-of-pocket expenses, leasing commissions, construction management fees, development management fees and property management fees. Property management fees are payable on an ongoing basis for the management of the day-to-day operations of the properties. The fee, which is dependent on the market, ranges from 2.5% to 4.0% of gross revenue.

As noted above, Tishman Speyer and its affiliates have broad control over TSOF�s activities. In particular they control:

• TSAL

• TS Manager

• �Prime Plus Asset Manager�, which provides asset management services to Prime Plus

• the property manager for each Property.

Whilst Unitholders have the right to remove TSAL as the responsible entity of TSOF, it is noted that in this circumstance, as well as in case other change of control events (such as a third party becoming the beneficial owner directly or indirectly of more than 50% of the equity of the Fund) occur with respect to TSOF or US REIT, then:

• under the �Contingent Option Agreement� TS Manager will have, for one year after the change of control, the option to acquire US REIT�s indirect interest in certain assets, including US REIT�s limited partner interest in Empire Hawkeye, at a price based on the appraised fair market value of the underlying real estate, as well as US REIT�s interest in the Controlled Properties

• Tishman Speyer will have the right to terminate the �Exclusivity and Future Acquisitions Agreement� under which TSAL (acting on behalf of TSOF) has the right to invest in Tishman Speyer sourced pipeline of U.S. office assets. We note that all of TSOF�s investments subsequent to its IPO were sourced by Tishman Speyer under this agreement

• certain debt facilities could be in default (refer to Section 4.7.1 for further details).

Further details of these terms are provided in the Target�s Statement.

4.4 TSOF Property Portfolio Although TSOF is focused on the U.S. office property market, TSOF�s property portfolio is diverse with reference to location and tenants.

The principal focus of the Fund's investment activities is office assets which meet the following investment criteria:

• a single-tenant or multi-tenant stabilised office building located in a prime central business district or an associated suburban market

• properties which are not expected to require significant development or redevelopment efforts but may require material capital improvements in connection with re-leasing as current leases expire

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• properties which are expected to be substantially leased to tenants for at least the three year period following the acquisition.

The properties are located amongst the employment and population hubs of the U.S. with the majority being leased on a long term basis to major corporations and professional service firms.

An overview of the properties for the year ending 30 June 2009 is set out in the table below. A more detailed description of the Properties can be found in Appendix 2.

Table 4: The Properties

Property Location

Market value1

(USDm)

TSOF share

(USDm)Value per sft

% leased

Avg. lease term

% of leased area

expiring in FY10

Prime Plus (45.9% indirect interest) 300 Park Avenue New York 650.0 298.4 847.0 96.0% 11.5 6.1% CitySpire New York 155.0 71.1 427.1 94.5% 5.9 6.3% Greenwich American Centre Connecticut 170.0 78.0 263.8 100.0% 6.8 0% Bala Plaza Bala Cynwyd 152.6 70.0 142.0 94.8% 5.3 7.6% 227 West Monroe Street Chicago 424.0 194.6 269.4 86.6% 8.8 7.8% 222 West Adams Street Chicago 196.0 90.0 212.2 81.0% 7.0 0.8% Plaza East I and II Milwaukee 48.9 22.4 104.2 88.9% 3.4 12.2% 520 Pike Tower Seattle 95.0 43.6 250.8 88.7% 3.9 20.4% One Bush Street San Francisco 105.0 48.2 353.7 100.0% 4.4 0% 595 Market Street San Francisco 120.0 55.1 287.7 93.5% 4.5 3.7% Bayside Towers San Francisco

Peninsula 47.5 21.8 181.5 94.4% 2.2 0%

400 Castro Street San Francisco Peninsula

85.3 39.2 615.1 100.0% 8.3 0%

Subtotal 2,249.3 1,032.4 307.82 91.4%2 6.72

US REIT (99.9% interest) Lakeside Complex North Virginia 55.7 55.6 181.4 92.3% 5.1 16.6% 550 Terry Francois San Francisco 125.0 125.0 442.1 100.0% 8.3 0% Maple Plaza Beverly Hills 108.7 108.6 378.2 83.2% 3.0 24.3% 407 North Maple Drive Beverly Hills 71.5 71.4 436.5 100.0% 6.9 0% Beverly Mercedes Place Beverly Hills 49.6 49.6 385.9 100.0% 3.5 0% 3 MacArthur Orange County 31.7 31.7 128.5 77.5% 2.1 29.3% Subtotal 442.2 441.8 312.2 92.2% 5.2 Total 2,691.5 1,474.6 308.52 91.3%2 6.22 8.2%

Source: TSOF

Notes:

1. Based on independent valuations as at 30 June 2009

2. Weighted average by sft.

The Properties have a relatively low vacancy rate and long term lease contracts with well established companies. There is a low proportion of lease expiring over the next 12

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months representing a weighted average of 8.2% of the Fund�s portfolio. The weighted average lease expiry of the portfolio as at 30 June 2009 is 6.2 years.

The Fund�s portfolio of 18 properties was independently valued at 30 June 2009 at a total market value attributable to the Fund of USD1,474.6 million reflecting a decrease of approximately 26.1% from the 31 December 2008 and 33.5% from the 30 June 2008 valuations, respectively. Below we set out the historical trend in the book value of the Properties attributable to the Fund.

Figure 7: Attributable asset value breakdown

0.855

1.475

0.00

0.25

0.50

0.75

1.00

1.25

1.50

1.75

2.00

2.25

2.50

Dec-2004 Jun-2005 Jun-2006 Jun-2007 Jun-2008 Dec-2008 Jun-2009 Jun-2009

Valu

e (U

SD b

illio

n)

TSOF's share of Properties valuation Acquisitions Revaluations Additions

Source: TSOF

Note: Additions include capitalised tenant incentives, straight line income adjustments and leasing commissions.

A further breakdown of the decrease in the property valuations since December 2008, by primary regional market, is presented in the figure below.

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5%

6%

7%

8%

9%

10%

11%

Dec-04 Mar-05 Oct-05 Dec-06 Jun-07 Jun-08 Dec-08 Jun-09

Figure 8: Portfolio revaluations by region

(26%)

(15%)(35%)

(25%)

(38%)

(16%)

(13%)

(34%)(47%)

(33%)

0

100

200

300

400

500

600

700

New York Philadelphia Seattle San Francisco

San Francisco

Penninsula

Milwaukee Chicago Washington DC

Orange County

Beverly Hills

Value (USD million)

Jun-09 Dec-08 Source: TSOF

The figures below illustrate the range in TSOF�s historical trend in discount rates and terminal capitalisation rates used to assess the value of the Properties. The discount rates represent the discount factor applied to each property�s cash flows to derive the net present value of each property. The terminal capitalisation rate is applied to the terminal cash flow to derive the terminal value of each property.  Figure 9: TSOF terminal capitalisation rates Figure 10: TSOF discount rates

Source: TSOF

5%

6%

7%

8%

9%

10%

11%

12%

Dec-04 Mar-05 Oct-05 Dec-06 Jun-07 Jun-08 Dec-08 Jun-09

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4.5 Tax structure

4.5.1 Income tax Under current Australian tax legislation, the Fund is not liable to pay Australian income tax provided its taxable income and taxable realised gains are fully distributed to unitholders.

Under the U.S. Internal Revenue Code, US REIT should not be subject to U.S. federal income taxes provided that it distributes annually all of its taxable income to its unitholders and satisfies certain other requirements. In order to maintain its qualification as a REIT, US REIT must, amongst other requirements:

• distribute at least 90% of its taxable income (net of capital gains) to its security holders annually

• no more than 50% in value of its securities of beneficial interest may be owned, directly or indirectly (e.g. by unitholders), by five or fewer individuals during the last half of a taxable year or during a shorter proportionate part of a shorter taxable year.

Under current Australian tax legislation, unitholders of TSOF may be entitled to receive a foreign tax credit for U.S. withholding tax deducted from dividends and interest paid to TSOF by US REIT.

4.5.2 Capital gain tax Should the Fund realise and distribute a capital gain on disposal of its U.S. investments, a U.S. tax liability may arise. However, a foreign tax credit for an equivalent amount would be available to Australian Unitholders. This can be used to offset their Australian tax liabilities arising in relation to foreign sourced income, including foreign sourced income distributed by the Fund.

Under Australian Accounting Standards, a deferred tax liability (or asset) must be recognised based on movements in the carrying value and tax cost base of investment property assets, with any movements reflected in the income statement as a tax expense.

As at 30 June 2009, TSOF recognised a deferred tax liability of USD164.8 million.

This provision relates to withholding tax attributable to capital gains realisable on the future disposal of investments plus branch profits tax. This provision has been calculated by reference to U.S. federal income tax law, including interpretation of a notice by the U.S. Internal Revenue Service (IRS Notice), issued in 2007, that:

• TSOF�s capital gain on the PPI Properties will be determined by reference to the tax base in the assets without any offset for the tax base of TSOF�s interest in the entities that indirectly own the PPI Properties; and

• capital losses cannot offset capital gains for these purposes.

TSAL advises that there is uncertainty surrounding the application of this IRS Notice and has taken a conservative approach accordingly.

For illustration purposes, if the tax law is changed or the uncertainties surrounding the Notice are clarified, TSAL management has estimated that: F

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• the deferred tax liability would be lower by approximately USD48.8 million if capital losses can offset capital gains; and

• the deferred tax liability would be lower by approximately USD85.4 million if it is determined that the capital gain can be offset by TSOF�s tax basis in the entities that indirectly own the PPI Properties. Alternatively, the deferred tax liability could be similarly reduced if TSOF were to sell its interest in the entities that indirectly own the PPI Properties, rather than the individual assets.

4.6 Competitive position of TSOF The table below sets out the strengths, weaknesses, opportunities and threats (SWOT) for TSOF.

Table 5: SWOT analysis

Strengths Weaknesses • diversified portfolio across a

broad range of industries and geographical locations within the US

• successful in completing leasing contracts amidst current market uncertainty

• Class A office properties located in major business districts with relatively low vacancy rates and long-term leases

• access to management and market intelligence from Tishman Speyer

• covenants on debt and current high level of

gearing levels limit TSOF�s options to raise capital or draw on existing facilities for its financial commitments

• substantial debt of USD148.1 million7 maturing in the current financial year

• Fund�s property portfolio includes assets located in some of the most distressed metropolitan areas of U.S. (i.e. New York, San Francisco)

Threats Opportunities • further deepening of current global recession,

rising U.S. unemployment and an increase in the cost of capital weakening new space uptake

• if ongoing negotiations with lenders to re-set terms and covenants are unsuccessful, the business may be forced to realise assets in a sub-optimal manner. Although refinancing of the debt would provide relief to the Fund from capital constraints, it is likely this will occur on much more onerous terms than those currently in place

• any sale of Properties could crystallise a tax liability upon distribution to Unitholders

• sale of assets and recapitalisation of the Fund

could relieve liquidity pressure on the Fund and unlock value to Unitholders over the medium term

• potentially realising values for assets above current market valuations if economic conditions improve

Source: Deloitte Corporate Finance analysis

                                                            7 This excludes the amount attributable to the US REIT debt facility, in the currently drawn amount of USD288 million, which is classified as a current liability in the audited financial accounts of TSOF as at 30 June 2009.

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4.7 Capital structure

4.7.1 Debt funding As at 30 June 2009, TSOF had an implied look-through gearing of approximately 75.4%8.

The Fund has two subordinated corporate loans held by US REIT and Empire Hawkeye. Deutsche Bank is the leading syndicate bank providing these funding facilities. The remaining loans within the property portfolio have first mortgage loans secured against the Properties (the PPI Properties have securitised first mortgage and mezzanine loans against the entire portfolio of properties, excluding 300 Park Avenue and 400 Castro Street which are unencumbered), with the only exception being 3 MacArthur.

The table below summarises the key terms of the existing debt facilities.

Table 6: TSOF debt summary as at 30 June 2009

Facility

Facility size(100%) USDm

Draw down amount

(TSO share) USDm2

Expiry date Interest rate

  Fund level Empire Hawkeye 164.5 148.1 Dec-09 Libor +1.85% US REIT 400.0 288.0 May-121 Libor+ 1.75% - 2.25% Asset level Prime Plus (PPI Loan) 895.5 411.0 Jan-14 5.87% (fixed) Lakeside I and II 42.0 42.0 Oct-15 5.37% (fixed) Lakeside III 14.4 14.4 Mar-14 5.23% (fixed) 550 Terry Francois 107.5 107.4 Dec-12 5.49% (fixed) Beverly Hills Properties 220.0 219.8 Jun-17 5.54% (fixed) Total 1,843.9 1,230.7

Source: TSOF

Notes:

1. Loan matures on May 2010 however, US REIT has the option to extend to May 2012, provided there is no breach of covenants

2. Drawn amount does not reflect an amortisation of capitalised establishment fees.

The figure below depicts the maturity profile as at 30 June 2009 of the Fund�s existing debt facilities.

                                                            8 Look-through gearing assumes the Fund�s interests in certain associates (i.e. Prime Plus) are proportionally consolidated into the Fund as opposed to being accounted for with the equity method. The on-balance sheet gearing of the Fund as at 30 June 2009 was 64.7%.

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Figure 11: Maturity of TSO�s existing debt facilities as at 30 June 2009

Source: TSOF

Note: financial years ending 30 June We note the following in relation to TSOF�s debt facilities that are close to maturity:

• the Empire Hawkeye facility (the Empire Hawkeye Debt Facility) matures on 1 December 2009 (although no principal amortisation was required prior to 8 January 2009). TSOF�s share in the amount drawn down on this facility as at 30 June 2009 was USD148.1 million, of which a floating interest rate is payable. An interest rate swap, which expires on 1 December 2009, has been entered into on this facility. The effective interest rate on this facility as at 30 June 2009 was 3.39%9. The facility is secured by all property and interests in property owned or acquired by any loan party throughout the life of the loan

• US REIT holds a revolving credit facility of USD400 million which has been drawn down to USD288 million as at 30 June 2009 (the US REIT Debt Facility). The facility has a maturity date of 4 May 2010; however, US REIT has the option to extend the facility to 4 May 2012. A floating interest rate is payable on the amount drawn and the margin payable varies between 1.75% and 2.25% per annum depending on the level of leverage. The facility is secured by pledges over the equity interests that US REIT holds in certain subsidiaries and joint ventures.

The two abovementioned facilities are subject to financial covenants. The following table summarises the terms of the covenants together with the relevant ratios as at 30 June 2009.

                                                            9 Inclusive of interest on the facility, income from the interest rate swap, margin and unused facility fee.

0

50

100

150

200

250

300

350

400

450

FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17

USD

mill

ion

Debt held by controlled entities Debt held by associates

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Table 7: Covenants to US REIT Debt Facility and Empire Hawkeye Debt Facility as at 30 June 2009

Covenant Empire Hawkeye facility US REIT facility Debt service coverage ratio (DSCR) Loan freeze >1.4 times >1.3 times Event of default n/a1 >1.2 times Current ratio2 1.76 times 1.76 times Debt � gross asset value (GAV) Loan freeze n/a <65.00% Event of default n/a <70.00% Current ratio2 38.70% 56.47% Minimum net worth Event of default3 n/a <USD747m Current value2 n/a USD760m

Source: TSOF

Notes:

1. n/a = not applicable

2. Covenant based on independent appraisal firm valuation as at 31 December 2008

3. Required to maintain a minimum tangible net worth of at least USD747 million. Furthermore, there is a requirement to hold minimum liquidity of not less than USD25 million.

The Fund�s compliance with the covenants listed above is based on independent valuations of the Fund�s assets as at 31 December 2008. The US REIT minimum net worth covenant is extremely close to being breached with headroom of only USD13 million. We note that if compliance with those covenants were based on independent valuations of the Fund�s assets as at 30 June 2009, US REIT would be in breach of two of its US REIT covenants, being the debt to GAV ratio (Debt/GAV Ratio) and minimum net worth covenant.

A breach of these covenants would entitle the lenders to force the sale of US REIT�s equity interest in Empire Hawkeye and in the Controlled Properties. However, the lenders could not force the sale of the underlying assets in the Empire Hawkeye portfolio (i.e. PPI Properties) as these are subject to a lock-out provision with GIC and cannot be sold until July 2013.

In addition to the covenant requirements, the facilities at the fund and asset level have change of control provisions applicable. Below is a summary of the key terms:

• US REIT Debt Facility. Should Tishman Speyer or its affiliates cease to control the management and operation of US REIT a default could occur

• Beverly Hills Properties loan. The terms of this loan require, amongst other things, that Tishman Speyer or its affiliates continue to control the management and operations of each owner of the Beverly Hills Properties. Upon default of this term, the lenders could declare the loan immediately due and payable.

For further details on the change of control provisions, refer to the Target�s Statement. For

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4.7.2 Liquidity position and the �Proposed Restructure� The Fund has reached a position where funding liquidity has become difficult. In particular, major concerns relate to the following funding requirements:

• maturity of the Empire Hawkeye Facility in December 2009. As at 30 June 2009 the debt amounts to USD164.5 million (or USD148.1 million attributable to TSOF)

• risk of covenant breach in relation to the US REIT Facility. A default of the covenants could enable the lending banks to demand immediate repayment of this facility currently drawn to USD288 million

• payment of the Performance Fees in December 2009. However, if the calculation were based on the latest draft independent valuations, the Performance Fees would be expected to be nil.

As at 30 June 2009, the Fund had USD53 million in cash on-balance sheet (or AUD66 million) and USD49.7 million (or AUD61.7 million) held by associates available to meet the above potential capital commitments.

We understand that TSOF is currently negotiating with lending banks a restructure of certain debt facilities and an asset realisation strategy aimed at resolving its liquidity issues (the Proposed Restructure). The key terms, which have been agreed with Deutsche Bank Trust Company Americas (the agent for the bank group), of the Proposed Restructure are summarised below:

• restructure of the US REIT Facility (the Proposed Debt Restructure) to allow to draw upon the facility�s remaining USD112 million and provide covenant relief, in particular:

- increasing the maximum Debt/GAV Ratio from 65% to 85%. As at 30 June 2009 the ratio was 56.47%. However, if the 30 June 2009 property valuations were used to calculate this ratio, it would be 76.24%

- reduction in the minimum net worth covenant from USD747 million to USD125 million. The actual net worth was USD760 million as at 30 June 2009. However, if the 30 June 2009 property valuations were used in this calculation the net worth would be USD238.2 million. Furthermore, the covenant will no longer be reset as a result of new equity issuance

- minimum DSCR decreased from 1.20 times to 1.05 times. As at 30 June 2009 DSCR was 1.76 times

- minimum liquidity covenant eliminated.

The loan margin over LIBOR will be (subject to a minimum LIBOR rate of 2.00%) increased and linked to the Fund�s Debt/GAV Ratio to range from 4.00% (assuming a Debt /GAV Ratio of less than 50%) to 6.00% (from a Debt/GAV Ratio of 65% and above). As at 30 June 2009 the Debt/GAV Ratio was 56.47%. Furthermore, the facility would be provided with additional security including, amongst other provisions, giving certain voting and controlling rights on to the lenders and a first mortgage on 3 MacArthur (unless such property was sold as part of the Proposed Restructure). F

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In order to become effective the above modifications will require to be approved by at least 51% of the facility�s lenders. TSAL advises that it expects a formal legal modification of these terms will be achieved prior to 11 September 2009, the closing date of the Offer. The Proposed Debt Restructure will require a payment by TSOF of a 1.0% amendment fee to the lenders who consent to the modifications.

The proceeds from the above capital raisings will be used to repay the TSOF�s portion of the Empire Hawkeye Debt Facility.

• raise additional liquidity (a minimum of USD55 million will be required to close Debt Restructure) via one or more of the following options:

- raising debt against 300 Park Avenue, New York and/or 400 Castro Street, Silicon Valley. As noted above, both these properties are currently unencumbered under the PPI Loan

- sale of one or more of 550 Terry Francois, 3 MacArthur and the Beverly Hills Properties. TSAL advises that negotiations in relation to these properties are in advance status and conditional bids have been submitted for amounts in the region or above the book value as at 30 June 2009. The offers are subject to, amongst other conditions, due diligence. We note that the proceeds to TSOF from the sale of 550 Terry Francois and the Beverly Hills Properties will have to be net by the repayment of the debt secured by these properties (refer to Table 6 above for further details).

In addition, as part of (and conditional upon) the Proposed Restructure Tishman Speyer and Fund V would agree to waive the payment of any Performance Fees that could become payable in December 2009 and that future Performance Fees will be calculated on the actual realisation of TSOF�s assets and subordinated to full repayment of the US REIT debt facility.

Furthermore, TSAL has announced that it would, subject to market conditions and applicable loan covenants, pursue a change in strategy of realising TSOF�s remaining investments by 2015 and return the net proceeds to the Unitholders. As part of the Proposed Restructure, TSOF will not pursue, directly or through its subsidiaries, new acquisitions and not distribute any dividends except those currently required in order to maintain the REIT status.

TSAL advises that should Madison acquire an interest in the Fund higher than 50% the successful completion of the Proposed Restructure may be in doubt as it may trigger change of control provisions at the debt facilities level (that is, lending banks may decide not to pursue the Proposed Debt Restructure as a result Madison obtaining a stake of 50% or higher in the Fund) or by causing TSAL and/or other affiliates of Tishman Speyer cease to manage certain the operations or interests of the Fund.

For further details of the Proposed Restructure, refer to Section 5 of the Target�s Statement.

At the date of this report, there is still risk that the Proposed Restructure may not ultimately be completed or that it could be completed at terms less favourable than those currently being contemplated. F

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4.7.3 Equity capital TSOF currently has 338,440,904 securities on issue. With a 20.13% interest, Madison is the largest unitholder in the Fund. We have set out the largest TSOF unitholders as at 30 July 2009 in the table below.

Table 8: Top ten Unitholders in TSOF as at 30 July 2009

Name Number of Units % total issued

Units Madison 68,127,783 20.1% Goldentree Asset Management 37,659,130 11.1% Renaissance Property Securities 17,364,717 5.1% Deutsche Securities 15,655,981 4.6% Macquarie Funds Group 13,683,982 4.0% Telstra Super 11,377,687 3.4% Principal Global Investors 9,634,024 2.8% Vanguard Investments Australia 8,969,660 2.7% Cedar Hill Capital Partners 8,419,906 2.5% UBS Global Asset Management 6,834,210 2.0% Total 197,727,080 58.4% Other 140,713,824 41.6% Total units on issue 338,440,904 100.0%

Source: TSOF

We note that between 30 June 2008 and 30 June 2009, the Fund has been progressively buying back its units on-market and has cancelled 4,578,829 units at an average cost of AUD0.1077.

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4.8 Security trading history A summary of TSOF�s quarterly unit price movements and trading volumes from March 2005 to 18 August 2009 is provided in the table below.

Table 9: TSOF quarterly unit price information

Quarter end date Low

(AUD) High

(AUD) Last trade

(AUD) VWAP

Weekly average volume

(�million) March 2005 1.930 2.030 1.950 1.983 9.5 June 2005 1.910 2.270 2.080 2.062 8.6 September 2005 2.070 2.200 2.170 2.139 9.0 December 2005 1.995 2.140 2.070 2.077 5.3 March 2006 2.050 2.330 2.300 2.206 10.5 June 2006 2.160 2.350 2.190 2.268 9.5 September 2006 2.140 2.440 2.380 2.252 11.0 December 2006 2.370 2.660 2.490 2.483 6.6 March 2007 2.440 3.100 2.490 2.676 11.4 June 2007 2.340 2.810 2.370 2.608 7.6 September 2007 2.130 2.550 2.200 2.304 9.7 December 2007 1.450 2.310 1.625 1.909 11.0 March 2008 1.150 1.680 1.375 1.390 11.8 June 2008 1.300 1.730 1.370 1.529 9.6 September 2008 0.865 1.450 0.930 1.186 14.6 December 2008 0.095 0.540 0.175 0.283 12.1 March 2009 0.045 0.175 0.077 0.107 13.5 June 2009 0.080 0.350 0.275 0.198 11.8 June 2009 to Announcement Date 0.230 0.325 0.235 0.263 3.8 Post Announcement Date to date 0.300 0.425 0.380 0.333 7.4

Source: Bloomberg

Since the peak achieved in February 2007 of AUD3.10 per unit, where the Fund traded at a premium to net tangible assets (NTA) of 30%, the unit price progressively declined to its low in March 2009 of AUD0.05, trading a discount to NTA per unit of 97%. Units have been relatively thinly traded over the six month period to 13 July 2009, (approximately 11.9 million TSOF units were traded on a weekly basis equating to 3.4% of TSOF�s total issued capital). Subsequent to the Announcement Date, TSOF�s units have been consistently trading above AUD0.30.

The figure below depicts TSOF�s unit price performance compared with its reported NTA per unit.

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Figure 12: TSO unit price performance on ASX

.0

5.0

10.0

15.0

20.0

25.0

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

Volu

me

(mill

ion)

Pric

e (A

UD

)

Volume TSOF unit price NTA per unit Adjusted NTA per unit

Source: Bloomberg, TSOF

Note: NTA per unit is calculated net of deferred tax liability and Adjusted NTA per unit is calculated excluding deferred tax liability.

Whilst the performance of the Fund has to some extent been affected by the overall performance of the REIT sector, TSOF�s unit price has significantly underperformed the ASX Property Index and the U.S. Office Property Index since its listing in 2004. Furthermore, we note that there does not appear to be any significant correlation between TSOF�s unit price and the AUD/USD spot exchange rate since the Fund�s listing.

The figures below illustrate the relative performance of TSOF�s unit price to key property indices in the Australian and U.S. stock markets (ASX 200 Property Index and the Dow Jones Select Real Estate Office Index (the U.S. Office Property Index)) and to AUD/USD exchange rate.

Figure 13: TSOF�s relative performance to the S&P/ASX 300 Index and the Comparables Index

Figure 14: TSOF�s relative performance to the AUD/USD cross rate

Source: Bloomberg

0

20

40

60

80

100

120

140

160

180

200

Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09

base

= 1

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TSOF ASX Property Index Dow Jones Select Real Estate Office Index

0.0

0.3

0.6

0.9

1.2

1.5

1.8

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Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09

AU

D/U

SD e

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TSO

F un

it pr

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AU

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TSOF security price AUD/USD exchange rateFor

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4.9 Financial performance The large majority of TSOF�s financial activity is in USD. Accordingly, below we set out the financial performance of TSOF for the financial years ended 30 June 2006 to 30 June 2009 in USD under the Australian Accounting Standards.

Table 10: Financial performance1

30-Jun-06 (USD�000

) 30-Jun-07 (USD�000)

30-Jun-08 (USD�000)

30-Jun-09 (USD�000)

Income from associates Rent income 131,422 132,940 129,237 147,547 Property and Corporate expenses (55,831) (56,745) (55,225) (56,621) Manager fees (5,061) (5,553) (7,517) (7,084) Provision for performance fee (13,579) (133,182) 13,171 133,590 Fair value adjustment on investment properties 44,832 412,371 (49,915) (479,210) Other income 93 12 289 (1,190) Other costs2 (2,021) (4,152) (7,188) (8,979) Share of net income from associates 99,855 345,691 22,852 (271,947)

Income from consolidated entities Rent income 18,500 31,790 62,153 63,177 Property and Corporate expenses (6,967) (11,588) (25,818) (27,460) Manager fees (855) (1,517) (3,179) (3,494) Provision for performance fee - - (482) 482 Fair value adjustment on investment properties (1,610) (2,361) 46,672 (300,291) Net fair value decrement on financial derivatives - - - (27,896) Other costs3 (2,194) 6,747 17,076 2,803 Consolidated net income 6,874 23,071 96,422 (292,679)

EBIT 106,729 368,762 119,274 (564,626) Interest income 3,186 2,687 2,015 116 Interest expense (38,121) (48,239) (68,739) (64,008) Net interest (34,935) (45,552) (66,724) (63,892) Profit/(loss) before tax expense and minority interest 71,794 323,210 52,550 (628,518) Tax expenses (18,131) (114,241) (156,679) 164,495 Minority (5) (8) (59) 286 Profit/(loss) attributable to unit holders 53,658 208,961 (104,188) (463,737) Profit/(loss) attributable to unit holders (AUD) 71,422 263,646 (112,029) (628,633) Distribution per security (AUD) 0.17 0.17 0.17 0.00

Source: TSOF

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Notes:

1. Although the above financial data is originally based on audited accounts of TSOF, the USD translation was not subject to audit.

2. Includes amortisation of leasing costs, tenant incentives and corporate expenses

3. Includes net fair value increment on financial derivatives and foreign exchange gain.

We note the following in regards to the financial performance of the Fund:

• attributable rental income increased by 10.1% in the 2009 financial year despite economic uncertainty adversely affecting property markets. The increase was driven by, amongst other factors, the renegotiation in February 2008 of the Colgate-Palmolive lease agreement (300 Park Avenue, New York) as the higher rent impacted for the whole financial year

• for the year ending 30 June 2009, the Fund incurred a loss of USD463.7 million primarily as a result of the downward revaluations in property values. As at 30 June 2009, TSOF recorded a property revaluation loss of USD779.5 million (on TSOF�s attributable basis) based on independent valuations prepared by external appraisers. As a result of the adverse movements in property values, the provision for the Performance Fee was reduced to nil with a positive impact on profit and loss of USD134 million

• there were no distributions payable for the year ended 30 June 2009.

The above earnings are subject to significant non-cash items. In order to illustrate a measure of earnings closer to the actual cash flows of a business, it is common for REITs to disclose a �Funds from operation� (FFO) reference of income. FFO is generally determined as net income after tax adjusted for fair value movements on investment properties and derivatives, the provision for the performance fee, deferred tax expenses and leasing costs.

The table below sets out the Fund�s FFO over the four years ended 30 June 2009.

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Table 11: FFO

30-Jun-06 (USD�000)

30-Jun-07 (USD�000)

30-Jun-08 (USD�000)

30-Jun-09 (USD�000)

Net Income 53,658 208,961 (104,188) (463,737) Adjustments Gain/(Loss) on revaluation of investments (47,120) (406,512) 3,243 779,501 Gain/(Loss) on property transactions Movement in provision for performance fee 13,579 133,182 (12,689) (134,072) Movement in provision for deferred tax expense 16,911 113,226 155,815 (165,357) Leasing costs (1,398) - 7,010 9,070 Fair value movements on derivatives 2,354 (6,306) (12,425) 29,086 FX Gain - - (4,940) (2,803) Borrowing costs - 806 - - Interest income (1,014) - - - Transaction costs - - 953 - FFO 36,970 43,357 32,779 51,688 FFO/per TSOF unit (U.S. cents) 12.88 13.79 9.56 15.11 Translation in AUD FFO 49,436 56,859 43,148 69,581 FFO/per TSOF unit (AUD cents)1 17.2 18.1 12.6 20.3

Source: TSOF

Notes:

1. Based on weighted average units on issue.

We note that the above analysis does not include non-recurring costs associated with closing out the hedging contracts in 2009 of approximately USD7.845 million (or AUD9.8 million). If this was included in the calculation of FFO, the implied FFO per unit would be USD0.128 (or AUD0.175).

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4.10 Financial position The audited balance sheets of the Fund as at 30 June 2006 to 2009, expressed in USD, are summarised in the table below.

Table 12: Financial position

30-Jun-06 (USD�000)

30-Jun-07 (USD�000)

30-Jun-08 (USD�000)

30-Jun-09

(USD�000) Cash and cash equivalent 4,753 14,543 14,188 53,283 Other 4,595 8,993 13,321 4,272 Total current assets 9,348 23,536 27,509 57,555 Investments in associates 542,589 831,039 808,366 505,803 Cash 29,360 29,883 33,311 49,655 Investment properties 1,062,365 1,537,314 1,480,229 1,032,429 Interest bearing liabilities (525,827) (575,712) (557,812) (559,127) Provision for performance fees (13,579) (146,761) (133,590) - Other (9,730) (13,685) (13,772) (17,154) Investment properties 264,573 602,043 738,800 442,200 Derivative assets - 5,528 15,301 - Financial assets - 84,000 - - Total non-current assets 807,162 1,522,610 1,562,467 948,003 Total assets 816,510 1,546,146 1,589,976 1,005,558 Trade and other payables 13,090 12,032 11,694 15,936 Interest bearing liabilities - - - 286,515 Provision for distribution 18,845 24,743 28,034 - Total current liabilities 31,935 36,775 39,728 302,451 Interest bearing liabilities 208,292 558,375 599,834 383,345 Provision for performance fee - - 482 - Deferred tax liability 61,160 174,389 330,205 164,847 Other 121 484 484 484 Total non-current liabilities 269,573 733,248 931,005 548,676 Total liabilities 301,508 770,023 970,733 851,127 Net assets (USD) 515,002 776,123 619,243 154,431 Net assets (AUD) 705,842 914,584 644,040 191,887 Per unit analysis NTA (USD) 1.73 2.26 1.81 0.46NTA (AUD) 2.37 2.67 1.88 0.57 On-balance sheet gearing 25% 36% 37% 65% Look-through gearing 52% 48% 49% 75%

Source: TSOF

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Notes:

1. Although the above financial data is originally based on the audited accounts of TSOF, the USD translation was not subject to audit.

We note the following with respect to TSOF�s financial position as at 30 June 2009:

• the increase in cash largely relates to TSOF retaining distribution payments for the 12 months to 30 June 2009 and drawing down on the US REIT facility

• investment properties held by TSOF�s subsidiaries and its equity accounted share of investment properties held by associates are carried at fair value. Independent valuations of the investment properties were obtained at 30 June 2009 resulting in a net decrease in value of approximately USD744.4 million compared to 30 June 2008. These are further discussed in Section 4.4

• the provision for Performance Fees payable on both TSOF�s investment in Empire Hawkeye and US REIT was adjusted to nil reflecting the substantial decrease in value of TSOF�s investment in the Properties

• the increase in short term financial borrowings at 30 June 2009 results from reclassification of the US REIT Debt Facility as current

• foreign exchange derivatives have been used historically by TSOF in order to create a degree of certainty over the impact of movements in the USD/AUD exchange rates on income. As at 30 June 2009, TSOF had closed out all of its forward foreign exchange hedging contracts and had not entered into new contracts during the financial year ending 30 June 2009

• the substantial fair value adjustment to TSOF�s investments in the Properties resulted in a significant reduction in the deferred tax liability.

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5 Valuation methodology 5.1 Valuation methodologies To estimate the fair market value of the Units in TSOF we have considered common market practice and the valuation methodologies recommended by ASIC Regulatory Guide 111, which deals with the content of independent expert�s reports. These are discussed below.

5.1.1 Market based methods Market based methods estimate an entity�s fair market value by considering the market price of transactions in its securities or the market value of comparable entities.

Market based methods include:

• capitalisation of maintainable earnings

• analysis of a company�s recent security trading history

• industry specific methods.

The capitalisation of maintainable earnings method estimates fair market value based on the entity�s future maintainable earnings and an appropriate earnings multiple. An appropriate earnings multiple is derived from market transactions involving comparable entities. The capitalisation of maintainable earnings method is appropriate where the entity�s earnings are relatively stable.

The most recent security trading history provides evidence of the fair market value of an entity�s securities where they are publicly traded in an informed and liquid market.

Industry specific methods estimate market value using rules of thumb for a particular industry. Generally rules of thumb provide less persuasive evidence of the market value of an entity than other valuation methods because they may not account for entity specific factors.

5.1.2 Discounted cash flow methods Discounted cash flow methods estimate market value by discounting a company�s future cash flows to a net present value. These methods are appropriate where a projection of future cash flows can be made with a reasonable degree of confidence. Discounted cash flow methods are commonly used to value early stage businesses or projects with a finite life.

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5.1.3 Asset based methods Asset based methods estimate the market value of an entity�s securities based on the realisable value of its identifiable net assets. Asset based methods include:

• orderly realisation of assets method

• liquidation of assets method

• net assets on a going concern basis.

The orderly realisation of assets method estimates fair market value by determining the amount that would be distributed to security holders, after payment of all liabilities including realisation costs and taxation charges that arise, assuming the entity is wound up in an orderly manner.

The liquidation method is similar to the orderly realisation of assets method except the liquidation method assumes the assets are sold in a shorter time frame. Since wind up or liquidation of the entity may not be contemplated, these methods in their strictest form may not necessarily be appropriate. The net assets on a going concern basis method estimates the market values of the net assets of an entity but does not take account of realisation costs.

These asset based methods ignore the possibility that the business�s value could exceed the realisable value of its assets as they ignore the value of intangible assets such as customer lists, management, supply arrangements and goodwill. Asset based methods may be appropriate when businesses are not profitable, a significant proportion of an entity�s assets are liquid, or for asset holding companies.

5.2 Selection of valuation methodologies Due to the asset-holding nature of TSOF�s operations we are of the opinion that the most appropriate methodology to value TSOF is the net assets on a going concern basis method.

In addition, we have also considered market evidence derived from our analysis of the following:

• recent trading price of TSOF�s units

• earnings and assets-based multiples observed in listed securities and/or transactions involving entities comparable to the Fund.

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6 Valuation of TSOF 6.1 Introduction Deloitte has estimated the fair market value of a unit in TSOF to be in the range of AUD0.84 to AUD1.02 on a control basis.

For the purpose of our opinion fair market value is defined as the amount at which the units in the Fund would be expected to change hands between a knowledgeable willing buyer and a knowledgeable willing seller, neither being under a compulsion to buy or sell. We have not considered special value in this assessment.

Based on our understanding of ASIC�s policy intent on the appropriate interpretation of the �fair� and �reasonable� tests in Regulatory Guide 111, we note the following:

• in assessing the fairness of the Offer, an expert should not have regard to any entity specific or structural issues such as excess gearing which may temporarily impair an entity�s ability to realise full fair market value for its assets. Instead, in assessing fairness, an orderly market for the underlying assets of the Fund should be assumed, even if such market circumstances do not exist at the time of the fairness assessment

• entity specific factors may be appropriate matters to be taken into account when assessing the reasonableness of the Offer.

We have estimated the fair market value of a TSOF unit by reference to the underlying market value of its net assets (Section 6.2). In addition, we have compared certain valuation parameters implied by our net asset valuation to those of comparable entities (Section 6.3.3) and analysed recent trading in TSOF units (Section 6.3.2) to provide further evidence of their fair market value.

6.2 Net assets value on a going concern basis In order to estimate the fair market value of TSOF�s assets and liabilities we have used the audited statement of financial position of TSOF as at 30 June 2009 and made adjustments, where appropriate, to reflect differences between fair market values and book values. The results of our analysis are set out in the table below.

Table 13: Valuation of a unit in the Fund

TSOF Low

(USDm)

TSOF High

(USDm)

Unit Low USD

Unit High USD

Unit Low AUD

Unit High AUD

NTA as at 30 June 2009 154.43 154.43 0.46 0.46 0.55 0.55 Adjustments - Deferred tax liability 82.42 131.88 0.24 0.39 0.29 0.47 Fair market value of the Fund/Unit

236.85 286.31 0.70 0.85 0.84 1.02

Source: Deloitte Corporate Finance analysis

Note: AUD/USD exchange rate of 0.83 as at 18 August 2009 was assumed as a reference for conversion.

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Below we discuss each of the above adjustments and comment on other considerations impacting our valuation.

Market value of property portfolio The NTA as at 30 June 2009 reflects current valuations of each of the underlying Properties prepared by independent appraisers (the Appraisers). The table below summarises the book value of the property assets together with assumptions made in relation to discount rates and terminal capitalisation rates in the discounted cash flow valuation of these properties.

Table 14: Summary of the Properties valuations

Property TSOF

interest

Discount

rate

Terminal Capitalisation

rate

Book value1

(USDm) 300 Park Avenue 45.9% 8.50% 7.50% 298.4 CitySpire 45.9% 8.50% 7.50% 71.1 Greenwich American Centre 45.9% 9.00% 8.00% 78.0 Bala Plaza 45.9% 9.75% 8.50% 70.0 227 West Monroe Street 45.9% 8.50% 7.75% 194.6 222 West Adams Street 45.9% 8.75% 7.75% 90.0 Plaza East I and II 45.9% 10.50% 9.50% 22.4 520 Pike Tower 45.9% 9.50% 8.50% 43.6 One Bush Street 45.9% 8.00% 6.50% 48.2 595 Market Street 45.9% 8.25% 6.75% 55.1 Bayside Towers 45.9% 8.87% 8.00% 21.8 400 Castro Street 45.9% 9.25% 8.00% 39.2 Lakeside Complex 99.9% 9.50% 8.75% 55.6 550 Terry Francois Boulevard 99.9% 8.50% 7.50% 125.0 Maple Plaza 99.9% 9.50% 8.00% 108.6 407 North Maple Drive 99.9% 8.75% 8.00% 71.4 Beverly Mercedes Place 99.9% 8.75% 8.00% 49.6 3 MacArthur 99.9% 9.25% 8.00% 31.7 Total 1,474.6

Source: TSOF, the Appraisers

Notes:

1. Properties� value attributable to TSOF on a pro-rata basis resulting from independent valuations at 30 June 2009.

We have conducted a review of the market values of the Properties based on 18 valuation reports prepared by the Appraisers as at 30 June 2009. Based on our review, we have concluded that:

• we consider the Appraisers to be independent from TSOF and TSAL and their related entities based upon statements included in the certification of the appraisals

• the reports were prepared by professionals who appear to have sufficient levels of qualification and competence to provide an informed opinion as to the fair market value of the assets

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• the valuation methods used by the Appraisers are not inappropriate and have been correctly applied to determine the fair market values of the assets

• the assumptions and valuation metrics used are not unreasonable and not inappropriate for the purpose of estimating the fair market values of the Properties

• nothing came to our attention that would cause us to make any adjustment for any valuation movements since 30 June 2009. However, we note that continued downward pressure on rents may possibly result in a future decrease in value especially for those properties with relatively high levels of near term lease expirations.

TSOF has control over the six Controlled Properties. In respect of the PPI Properties, TSOF is able to exercise significant influence, however, it does not have full control of the underlying assets.

We note that unless specific terms apply to the agreements regulating common ownership of the assets, it is market practice to assess the pro-rata value of a property based on the total property value, without any further adjustments or discounts to value the attributable portion of the property. Under the terms regulating Prime Plus, there is a restriction on the sale of the PPI Properties until July 2013. As a result, whilst TSOF may be able to sell its indirect interest in Prime Plus, it could not enforce a sale of the underlying properties until 2013. Whilst this represents a limitation that an owner of a 100% interest in a property would be unlikely to face, we note that it is the Fund�s objective to maintain ownership of these investments over the medium term. Furthermore, we note that a sale of the underlying properties, as opposed to a sale of the interest in Prime Plus, would crystallise a capital gains tax and would therefore not represent an optimal option for disposal of TSOF�s interest in the PPI Properties.

Based on the above, we do not consider it necessary to allow for any discount to the full pro-rata share of the independent valuations in our valuation of TSOFs indirect interest in the PPI Properties.

Given the high level of debt in the Fund, our valuation is extremely sensitive to relatively small movements in the underlying value of the Properties. Assuming a fixed deferred tax liability of 65% (the mid-point of our selected discount range) of the value booked on 30 June 2009, our estimate of the fair market value of a TSOF unit would be impacted by movements in the underlying Property valuations as follows.

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Figure 15: Valuation of a unit in the Fund � sensitivity to movements in Property values

0.14

0.41

0.67

0.93

1.19

1.46

1.72

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

1.60

1.80

2.00

‐15% ‐10% ‐5% 0% 5% 10% 15%

Valuation range

AUD1.02

Offer Price AUD0.30

AUD0.84

Net asset valuation:Sensitivity to Property valuations

% Change in value of Properties at 30 June 2009

AUD

Source: Deloitte Corporate Finance analysis 

Note: this sensitivity analysis does not contemplate additional adjustments to the deferred tax liability and to the performance fee that could arise from a higher or lower value of the Properties. Based on the above figure it can be seen that a +/-5% movement in the underlying Property valuations would have an approximate +/- AUD0.26 impact on the value of a TSOF unit under the net asset method.

Furthermore, since the vast majority of the assets and liabilities of the Fund are denominated in USD, the fair market value of a TSOF unit is sensitive to the AUD/USD exchange rate assumed. Our valuation is based on a AUD/USD exchange rate of 0.83, in line with the exchange rate as at 18 August 2009. Movements in the exchange rate would cause changes to the fair market value of a TSOF unit expressed in AUD with any variation being relatively linear. For example, a 5% appreciation in the AUD versus the USD would result in an approximate 5% fall in the fair market value of a TSOF unit expressed in AUD.

Deferred tax liabilities As discussed in Section 4.5.2, the book value of the deferred tax liability is based on capital gains existing at the date of the acquisition of the interest in Prime Plus and on notional capital gains accrued subsequent to the acquisition date of each relevant property.

In respect of the deferred tax liability, we observe the following:

• if TSOF�s investment in the Properties is held in perpetuity a capital gain would never materialise

• TSAL has stated its intention to unwind the Fund by 2015. Depending on the sale strategy for the assets this would likely cause payment of capital gain tax upon distribution of these gains to the Unitholders

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• capital gains would be taxable only if distributed to the Unitholders. If reinvested into a qualifying asset, such as other properties, they would be deferred

• even if TSOF incurred tax liabilities as a consequence of selling properties, Australian Unitholders would receive an equivalent foreign tax credit for the US withholding tax paid. The credit would be for an amount equivalent to the Unitholder�s proportional share of the tax paid in the U.S.

• a potential buyer of the portfolio of properties held by the Fund would be likely to seek to structure an acquisition in a tax efficient manner

• TSOF has announced it is currently marketing certain Controlled Properties. We understand that bids have already been received and that the sale of all or some of these properties is likely to occur by the end of 2009. As noted in Section 4.5.2, should the sale occur at the current book values no capital gains tax would be payable with respect to these assets

• TSAL advises that the application of the IRS Notice which underpins the assessment of TSOF�s deferred tax liability under the Australian Accounting Standards is unclear. TSAL management estimated that, should capital losses (mostly associated with the Controlled Properties) be allowed to offset capital gains, the deferred tax liability would be lower by approximately USD48.9 million

• notwithstanding the above factors, we consider that a potential purchaser of the Fund would factor in a discount to take account of a tax liability that may ultimately be crystallised.

Based on the above, we have judgementally adjusted the deferred tax liability to reflect the uncertainty over the payment of a potential future liability by assuming that only 50% to 80% of the carrying value as at 30 June 2009 of the deferred tax liability associated will be effectively payable. This discount to the book value of the deferred tax liability also reflects a discount for the time value of the potential liability as even if it becomes payable it may not be payable for a number of years.

Impact of change of exchange rate The NTA as at 30 June 2009 is based on an AUD/USD exchange rate prevailing at that date (0.8048). For the purpose of our valuation we have used the exchange rate as at 18 August 2009 of 0.83.

Other considerations In assessing the fair market value of a TSOF unit under the net asset approach we have also considered the following matters.

Intangible assets We are of the view that there are no intangible assets which are not otherwise identified in the accounts of the Fund, which should be attributed a market value.

Hedge book As at 30 June 2009, TSOF had closed out all of its forward foreign currency exchange contracts with only a fixed amount of AUD2.7 million payable on certain contracts. As a result, we have not factored in any further adjustment.

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Retained earnings from 30 June 2009 Since 30 June 2009 the Fund has generated income of approximately USD5.0 million. However, management advises that costs incurred in relation to the Offer and the Restructure (i.e. legal and financial advice) to date are likely to eliminate the majority of the income generated. As a result, we have not applied any adjustment to reflect earnings retained from 30 June 2009.

Management Fees As discussed in Section 4.3, the Fund pays to TSAL and TS Manager certain fees for the management of the Fund and of its investments. These equate to 0.5% per annum of the proportionate share of the gross value of investment assets held directly or indirectly by TSOF. Management fees paid for the year ended 30 June 2009 were approximately USD10.5 million.

The payment of management fees to TSAL and TS Manager under the relevant agreements are not included in the property cash flows used by the Appraisers in their independent valuations of the Properties. Accordingly, the Management Fees represent a future cash outflow which is not recognised in the financial position of the Fund as at 30 June 2009.

Such fees would be payable as long as the Fund and its investments are externally managed by TSAL and TS Manager (or another manager).

Investment property management is a highly scalable business model where costs tend to be relatively fixed. A third party buyer considering purchasing the Fund would likely be able to achieve economies of scale on the portfolio management and therefore would be likely to factor in only a portion of this management fee cash outflow when assessing the purchase price to acquire the Fund.

Furthermore, there is an argument that such costs would not be factored in at all when assessing the market value of a property holding company. These costs are incurred for the purpose of improving the performance of the Fund either by sourcing new investment opportunities or by increasing the return of the existing portfolio. Accordingly, it can be argued that the ongoing costs associated with such management services produces a return equal or higher than the investment.

Based on the above considerations, we do not consider it appropriate to make any valuation adjustment for the Management Fee.

The agreements in place between TSAL, TS Manager and TSOF assume payment of other fees in relation to acquisitions or divestments. As we are valuing the Fund as is and we are not assuming any major development of its assets portfolio we have not considered any liability arising from such management activity.

Terms of debt funding As detailed in Section 4.7.1, the Fund has, directly or indirectly, a series of debt facilities secured against either corporate structures or Properties. Some of these borrowings include terms that are more favourable than those that could be achieved in the current U.S. debt market. F

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Given the short term maturity of the Empire Hawkeye Debt Facility (December 2009) and the risks associated with breach of covenants for the US REIT Debt Facility, we do not expect a buyer would place any value on the terms of these borrowings.

All of the borrowings at the asset level (which incur a fixed interest rate) were arranged during or before 2007 (the Fixed Interest Rate Borrowings). Subsequent to mid-2007 the terms of debt financing have progressively tightened. Margins demanded over the bank swap bills have widened and loan-to-value ratios have substantially decreased. Bank bill swaps in the U.S. market have declined, however margins required have expanded significantly, especially for highly geared businesses.

Although it is difficult to precisely assess what the hypothetical terms of the Fixed Interest Rate Borrowings would be should they be refinanced in today�s market, we consider that:

• it would be very difficult to obtain the existing terms associated with the current implied LVRs (i.e. debt facilities secured by the Controlled Properties, with the exception of 3 MacArthur, have implied LVRs ranging from 86% to 101%)

• a portion of this debt could be considered to be comparable to mezzanine or equity financing. We note that the margins demanded for such loans are far higher than the interest rates currently being paid.

Based on the above, we consider that the Fixed Interest Rate Borrowings incorporate value which is not reflected in our net asset valuation.

On the other hand, we observe that some of these loans have change of control provisions and other terms that may limit the ability of a buyer to access these favourable financing arrangements. In addition, if the underlying assets were sold, any benefit associated with the current favourable terms would not be realised. Due to the inherent uncertainty in quantifying this potential benefit we have not attributed any specific value to the favourable debt funding terms in our valuation analysis.

6.3 Market evidence

6.3.1 Introduction The fair market value of an entity estimated through a net asset value approach does not necessarily reflect the price at which securities of that entity would be expected to be exchanged in an on or off-market transaction. Below we analyse the valuation parameters observed from publicly available market data. In particular, we have observed:

• the recent trading price of TSOF Units

• earnings and asset-based multiples derived from listed companies and transactions involving entities comparable to the Fund.

6.3.2 Analysis of recent trading in TSOF units TSOF�s unit price ranged from AUD0.05 to AUD0.35 for the six months prior to the Announcement Date and traded between AUD0.300 to AUD0.425 subsequent to the Announcement Date. The Table below sets out historical observations in the trading price of the Fund.

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Table 15: Summary � analysis of recent TSOF unit trading method

Low High VWAP

Volume daily

average (million)

Premium / (discount) implied by the Offer

Price1 Prior to the Announcement Date Six months 0.05 0.35 0.15 2.46 100% Three months 0.12 0.35 0.22 2.06 36% One month 0.23 0.35 0.28 1.26 6% One week 0.23 0.32 0.26 0.78 17% One day 0.23 0.32 0.24 1.03 24% Subsequent to the Announcement Date

To date 0.30 0.43 0.33 1.47 (10%)

Source: Deloitte Corporate Finance analysis

Notes:

1. Based on VWAP.

The market can be expected to provide an objective assessment of the market value of a listed entity, where the market is well informed and liquid. Market prices should theoretically incorporate the influence of all publicly known information relevant to the value of an entity�s securities.

However, we are of the view that the price at which TSOF units have been recently trading may not be an appropriate measure of the underlying fair market value of TSOF�s Units. In particular, we consider that the units may have been trading at a significant discount to fair market value due to a number or specific circumstances affecting the Fund. These are outlined below.

High debt levels and refinancing risk As discussed in Section 4.7, the Fund has a high level of financial gearing and has some near term refinancing obligations. In pricing the Fund�s Units the market might have applied a discount to factor in the following risks:

• insolvency risks. We are of the view that the market has factored in risks associated with the Fund�s potential financial difficulties given the impending maturity of certain financial liabilities and risk of debt covenant breaches (to date the market has not been informed of any breach of covenant of the Fund�s debt facilities). The market is likely to have factored in a significant discount to the Fund�s fair market value as a result of the potential need to realise losses in a distressed asset sales if such action were required to repay debt commitments

• dilution risks. Given the potential need to raise equity capital to comply with ongoing debt covenants, the market may have factored in a discount to the Fund�s fair market value to reflect the risk of dilution resulting from a potential equity raising. In

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Appendix 3 we set out a list of recent capital raisings in the A-REIT sector with an analysis of the implied discount to NTA and security trading price.

Assets devaluation risks TSOF�s financial results for the year ended 30 June 2008 and TSOF�s financial results for the half year ended 31 December 2008 were released to the market on 26 September 2008 and 26 February 2009, respectively. Given the ongoing market turbulence that has occurred since the release of these results and declining asset values in the U.S. office property market, it is likely that the market has anticipated further asset devaluations.

Minority interest Security prices from market trading do not generally reflect the market value for control of a company as they are for portfolio holdings. Australian studies indicate the premiums required to obtain control of companies range between 20% and 40% of the portfolio holding values.

Units are thinly traded Notwithstanding TSOF is followed by a number of equities analysts, its Units are relatively thinly traded on the market. This could affect the relevance of on market transactions as a reference for the fair market value of TSOF�s units.

Conclusion As a result of the above, we are of the view that the recent trading price of the Units does not represent an objective assessment of the underlying fair market value of TSOF�s Units on a control basis.

6.3.3 Earning- and asset-based multiples We have identified a number of listed property funds with characteristics that are broadly comparable to TSOF. Given that the Fund�s property investments are focused on the U.S. office market and the capital of the Fund is predominantly traded by Australian investors, we have selected a broad range of externally managed property funds in the ASX 300 and real estate companies with investments predominantly in the office market listed in the U.S. The tables below summarises the key observations of this analysis for the two markets.

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Table 16: Comparable REIT trading multiples

Company

Last reported

date

Market cap

(million1)Gearing (%)2,4,5 P/NTA4,5

Ungeared P/NTA3, 4,5

P/FFO5 (times)

A-REITs Pure real estate exposure APN European Retail Property Group Dec-08 29 62% 0.11 0.81 n/a Bunnings Warehouse Property Trust Jun-09 563 19% 0.77 0.82 n/a CFS Retail Property Trust Jun-09 4,363 27% 0.88 0.91 13.6x ING Industrial Fund Dec-08 442 53% 0.14 0.56 2.9x ING Real Estate Community Living Dec-08 37 25% 0.05 0.35 n/a Macquarie CountryWide Trust Dec-08 849 56% 0.38 0.74 4.8x Macquarie DDR Trust Dec-08 104 59% 0.12 0.69 1.6x Average 43% 0.35 0.70 5.7x Median 53% 0.14 0.74 3.9x Office property Commonwealth Property Office Fund Jun-09 1,334 27% 0.63 0.73 11.1x RNY Property Trust Jun-09 26 49% 0.14 0.62 1.6x ING Office Fund Dec-08 1,018 19% 0.38 0.51 5.8x Macquarie Office Trust Dec-08 1,192 47% 0.44 0.73 3.7x Westpac Office Trust Dec-08 130 58% 0.30 0.74 n/a Average 40% 0.38 0.67 5.6x Median 47% 0.38 0.73 4.8x Average (all A-REITs) 42% 0.36 0.68 5.7x Median (all A-REITs) 48% 0.34 0.73 4.3x U.S. Listed Office REITs Vornado Realty Trust Jun-09 9,678 52% 1.20 1.21 12.5x Boston Properties Inc Jun-09 7,718 48% 1.52 1.32 12.1x Corporate Office Properties Trust Jun-09 2,051 57% 1.79 1.41 14.2x PS Business Parks Inc Jun-09 1,163 2% 0.90 1.54 8.5x Kilroy Realty Corp Jun-09 1,056 46% 1.09 1.16 9.0x Parkway Properties Inc/Md Jun-09 366 57% 0.61 0.96 5.4x Maguire Properties Inc Jun-09 50 105% n/m 1.12 n/m Brookfield Properties Corp Jun-09 5,588 59% 1.02 1.09 7.6x Highwoods Properties Inc Jun-09 1,976 49% 1.51 1.31 10.9x HRPT Properties Trust Jun-09 1,291 45% 0.44 0.83 5.4x Kilroy Realty Corp Jun-09 2,385 46% 1.08 1.13 9.5x Mack-Cali Realty Corp Jun-09 1,860 54% 0.89 1.04 8.4x Alexandria Real Estate Equities Inc Jun-09 1,272 53% 0.65 0.86 5.5x Brandywine Realty Trust Jun-09 1,358 53% 0.59 0.92 8.8x Douglas Emmett Inc Jun-09 2,375 42% 0.46 0.79 6.9x SL Green Realty Corp Jun-09 9,678 52% 1.20 1.21 12.5x Average 51% 0.98 1.11 8.9x Median 52% 0.96 1.12 8.6x TSOF (based on mid-point of net asset valuation)

Jun-09 315 75% 1.64 1.08 4.6x

TSOF (based on the Offer) Jun-09 102 75% 0.53 0.94 1.5x

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Source: Bloomberg, Deloitte Corporate Finance analysis

n/a = not available

n/m = not meaningful

Notes:

1. Market capitalisation, based on trading prices as at 18 August 2009 is expressed in AUD million for A-REITs and in USD million for US based REITs

2. Gearing is calculated as (Net debt)/(GAV � Cash). Some of the selected listed companies have significant investments in non-controlled entities which are not consolidated into their balance sheets. The gearing levels presented for the A-REITs is on a look-through basis, that is, incorporating the proportionally-attributable financial liabilities and/or assets of their equity accounted associates. However, the U.S. REIT gearing is calculated without taking into account U.S. REIT�s proportionate share of the debt and cash in associates

3. The Ungeared Price to NTA for A-REITs is calculated as (Market capitalisation + Look-through net debt)/(Look-through total tangible assets � Cash). For U.S. REITs the Ungeared Price to NTA is calculated as (Market capitalisation + Net debt) / (Total tangible assets - Cash)

4. We note that certain selected A-REITs have booked a deferred tax liability associated with potential capital gains similar to TSOF. This liability is included in our calculation of the relevant metrics and multiples set out in the table

5. We note that since the latest reported financial accounts were released ING Office Fund has completed an equity capital raising. Given the reported NTA and debt position do not factor in the impact of the capital raising, we have adjusted this to reflect an increase in NTA and a decrease in the net debt position. We note that since the latest reported date other changes may have occurred which could impact NTA and the net debt position (i.e. dividend distributions, income/loss, asset revaluations, etc.), which we have ignored them for the purpose of this analysis

6. Calculated with reference to actual (or estimated) FFO for the year ended 30 June 2009 for A-REITs and for the year ending 31 December 2009 for U.S. REITs

7. Based on unadjusted FFO for the year ended 30 June 2009.

The table above shows the multiples for TSOF implied by our valuation (Section 6.2) and as implied from the Offer compared to those implied by listed comparable companies. Whilst our net asset valuation reflects a control value, valuation metrics derived from security trading of listed companies may incorporate a minority interest discount to reflect that only small parcels of securities are generally traded on stock markets.

Having reference to TSOF�s results at 30 June 2009, we have calculated the following implied multiples:

• net assets valuation: - P/NTA of 1.64, or 1.08 on an ungeared and look-through basis (Ungeared

P/NTA) - Current FFO multiple of 4.6 times

• Offer: - P/NTA of 0.53 and Ungeared P/NTA of 0.94 - Current FFO multiple of 1.5 times

Below we compare the above multiples with those implied by the selected listed comparable companies.

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P/NTA multiples This analysis shows a broad range of multiples across the selected comparable companies. Selected A-REITs are trading at an average P/NTA multiple of 0.36 (or Ungeared P/NTA of 0.68). US-REITs are trading, on average, at higher implied multiples: P/NTA of 0.98 and Ungeared P/NTA of 1.11.

Whilst we consider the Ungeared P/NTA a benchmark for our net asset valuation we note the following limitations in relying on this market data:

• Australian Accounting Standards require fair value treatment of real estate investments which are revalued at each reporting period. In contrast, US GAAP requires the property to be initially recorded at its acquisition cost and subsequently depreciated over its useful life to its salvage value and tested for impairment. As a result, NTA-based multiples are less comparable for US-REITs

• with the exception of HRPT Properties Trust, all the selected U.S. REITs are self-managed investment property trusts. We note that TSOF incurs variable management fees associated with the gross value of its property investments

• the majority of the selected U.S. REITs are involved in activities parallel to pure investment in real estate such as asset management and property development. These are likely to generate intangible value beyond that normally recognised in the balance sheet of a pure externally-managed investment holding company such as TSOF. Fees generated by asset management and growth associated with property development are likely to reflect a premium to the reported NTA

• balance sheets of REITs reporting under the Australian Accounting Standards have become more volatile as the fair value of the bulk of their assets has changed significantly. The majority of the financial positions used as a reference for the selected listed A-REITs� NTA are based on financial reports as at 31 December 2008. As a result, multiples of NTA observed in Table 16 are likely to factor in a discount to reflect the potential that property values have subsequently declined further.

We note that many A-REITs have recently announced property asset revaluations as set out in the table below, although they have not yet released their accounts as at 30 June 2009.

Table 17: Recently announced asset property revaluations from selected A-REITs

Company Overall portfolio U.S. portfolio Macquarie CountryWide Trust (8.9%) (11.8%) Macquarie DDR Trust (21.4%) (21.4%) ING Office Fund (12.4%) (17.4%) Macquarie Office Trust (10.7%) (13.2%) Westpac Office Trust (4.4%) n/a Average (11.6%) (16.0%)

Source: Company announcements, Deloitte Corporate Finance analysis

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The decline in property values booked by TSOF as at 30 June 2009 is far larger than that booked by its peers.

Given that the adjusted NTA we are using to assess the fair market value of TSOF is based on fair values as at 30 June 2009 (which reflects a downward revaluation of its portfolio of properties of 26.1%), we consider the observed NTA multiples in the table above are less appropriate as a benchmark

• as noted in our analysis of the recent trading price of TSOF units, some of the selected A-REITs are experiencing liquidity issues. In particular, RNY Property Trust and Macquarie DDR Trust face short term refinancing issues. As discussed in Section 6.2, our net asset valuation of TSOF does not factor any concerns the market may have about the TSOF�s liquidity position

Certain A-REITs have partially solved, or are in the process of resolving, their funding requirements by raising equity capital, restructuring or refinancing their funding facilities and by selling assets. These include CFS Retail Property Trust, Commonwealth Property Office Fund, ING Office Fund, ING Real Estate Community Living Group, Macquarie Countrywide Trust, Macquarie DDR Trust and Macquarie Office Trust

• P/NTA implied by our net asset valuation of TSOF appears to be significantly higher than that observed for the comparable companies. This is also a result of our adjustment to the Fund�s deferred tax liability. Very few other A-REITs have booked a significant deferred tax liability associated with capital gains potentially payable upon sale of their foreign assets. We note that excluding the impact of the deferred tax liability the implied P/NTA of our net asset valuation of the Fund would be 0.79.

P/FFO multiples We observe that for most of the selected REITs, Funds from operations (FFO) are expected to decline in the short term as a result of declining rental payments (especially for those REITs with a high portion of the lease portfolio expiring in the short term) and more onerous funding terms. TSOF has not provided guidance for its earnings for the year ending 30 June 2010, however, we expect FFO to deteriorate over the current financial year as a result of higher interest expenses associated with the Proposed Debt Restructure.

Selected A-REITs are trading at an average P/FFO multiple of 5.7 times. The Australian office REITs are trading at an average P/FFO multiple of 5.6 times. U.S. office REITs are trading at an average P/FFO multiple of 8.9 times.

In relation to the above we note the following:

• the P/FFO multiple implied by the Offer is significantly lower than that observed for the comparable companies

• U.S. based REITs are currently trading at higher FFO multiples than the selected A-REITs. The majority of the selected U.S. REITs have undertaken substantial recapitalisations and their resources appear to be sufficient to meet short term funding requirements (either to refinance debt or to sustain capital expenditures)

• Commonwealth Property Office Fund is currently trading at relatively high multiples. The fund has investments in the Australian office property market with very low vacancy rates and no major concerns about its funding position.

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• within the selected A-REITs, we consider Macquarie Office Trust, ING Office Fund (although both have only partial exposure to the U.S. market) and Macquarie Countrywide Trust (for its current exposure to the U.S. market10 although its property investments are focused on the retail sector) to be the most relevant benchmarks to compare TSOF�s FFO multiple implied by our net asset valuation. The average P/FFO multiple for these selected A-REITs is 4.8 times which is broadly in line with the P/FFO multiple implied by our net asset valuation.

Other market evidence Whilst we would normally benchmark our net asset valuation with multiples implied by comparable transactions, we do not consider this approach appropriate as there is limited evidence of recent corporate transactions involving REITs in both the Australian and the US markets.

The latest observed corporate transaction in the US market involving a REIT with an office investment focus was the merger between American Financial Realty Trust and Gramercy Capital Corporation completed in April 2008 for a consideration of US$3.3 billion in cash and stock. The deal value implied a forecast P/FFO multiple of approximately 11 times and a nominal discount to NTA.

There has been limited transaction activity also in the A-REIT sector with the majority of the deals involving capital raisings and the acquisition of non-controlling stakes. The recently completed AUD200 million recapitalisation of Orchard Industrial Fund comprised a AUD56 million private placement to Growthpoint properties and a AUD144 million rights offering. This transaction also involved an internalisation of funds management and a restructure of the security into a stapled REIT. The latest significant transaction (excluding capital raisings) that has occurred in the A-REIT sector is ProLogis�s acquisition of Macquarie ProLogis Trust completed in July 2007 for approximately AUD1.2 billion. The acquisition price implied a premium to NTA of 32%.

A-REIT activity has recently been concentrated on asset portfolio divestment primarily aimed at solving short term funding issues. In particular, we note the following activity:

                                                            10 Macquarie Countrywide Trust recently announced the sale of a large part of its investments in the U.S. This will substantially reduce the trust�s exposure to this market.

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• Macquarie Countrywide Trust has recently agreed to sell its 75% interest in a U.S. portfolio comprising 86 properties for US$1.3 billion. This transaction implies a capitalisation rate of 9.1%

• Macquarie DDR Trust is unwinding its joint venture selling three U.S. centres back to Developers Diversified Realty Corp in exchange for its 14.5% stake in the trust and US$1.6 million cash which is likely to cause downward pressure on these A-REIT unit prices.

A similar trend is observable in the U.S. where SL Green Realty Corp has recently announced a sale (which is still pending and subject to conditions) of a 49.5% interest in one of its office properties in midtown New York. The transaction results in an implied asset valuation of approximately $504.2 million, or $547 per square foot and an implied capitalisation rate of 6.25%.

Notwithstanding the above transactions, given the specific characteristics differentiating each asset portfolio we consider this evidence insufficient to enable us to draw specific conclusions on the reasonableness of our estimated net asset valuation of TSOF.

6.3.4 Conclusion Based on the above we consider that our net asset valuation of the Fund is broadly supported by the observed market evidence.

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7 Evaluation and conclusion 7.1 Fairness ASIC Regulatory Guide 111 defines an offer as being fair if the value of the offer price is equal to or greater than the value of the securities being the subject of the offer. Set out in the table below is a comparison of our assessment of the fair market value of a TSOF unit on a control basis with the consideration offered by Madison.

Table 18: Evaluation of fairness

Low value per unit (AUD)

High value per unit (AUD)

Estimated fair market value of a TSOF unit 0.84 1.02 Offer Price 0.30 0.30

Source: Deloitte Corporate Finance analysis

The consideration offered by Madison is below the range of our estimate of the fair market value of a TSOF unit. Accordingly we have concluded that that the Offer is not fair.

7.2 Reasonableness In accordance with ASIC Regulatory Guide 111 an offer is reasonable if it is fair. An offer might also be reasonable if, despite being �not fair�, the expert believes that there are sufficient reasons for Unitholders to accept the offer in the absence of any higher bid before the close of the offer.

We have formed our opinion on the reasonableness of the Offer based on an analysis of the likely advantages and disadvantages to Unitholders of accepting the Offer.

Advantages of accepting the Offer The likely advantages to Unitholders if the Offer is accepted include:

There is a risk that TSOF Unitholders may ultimately realise a value lower than the Offer Price

The Offer provides Unitholders with the opportunity to realise AUD0.30 for their investment which represents a premium of 35.9% to the three month VWAP for TSOF units.

Whilst the Offer Price represents a significant discount to our estimated fair market value of a TSOF unit there is a risk that Unitholders may realise a value lower than both our valuation range and the Offer Price. The main cause of risk for Unitholders would be if the Fund ultimately realises values for its properties lower than those stated in the independent valuations at 30 June 2009. Lower valuations may be realised either because the market values of the properties continue to decline or the Fund is forced to sell some of these properties in a sub-optimal manner in order to meet its debt repayment obligations.

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Should the Fund be unable to refinance its corporate facilities maturing in December 2009, or corporate facilities are requested to be repaid as a result of a breach of covenants, TSOF could potentially face the following scenarios:

• a sale of its assets and/or investments in an accelerated timeframe

• lending banks could force the Fund into administration or to enter a liquidation process. This could result in a sale of the Fund�s assets at prices significantly lower than those implied in our net asset valuation.

Either of these outcomes could result in a sale of the Fund�s assets at prices significantly lower than those implied in our net asset valuation.

Under the above circumstances, the amount that Unitholders could expect to obtain by holding the units may be significantly less than our estimated fair market value and may also be less than the Offer. Our estimated fair market value of the Fund is not premised on a liquidation scenario. Whilst the estimated current value of the Properties represents the amount that could be expected to be obtained in an orderly sale process, a forced sale scenario could result in lower values being realised, as the sale process may not be orderly and current market liquidity in the U.S. office property market is very low with very few major transactions taking place.

Furthermore, we expect that in a forced sale scenario there would be less scope to structure a sale of the assets in a manner that would minimise the tax payable on potential capital gains.

In order to achieve full value additional equity may be required to be injected in the Fund

Our estimated fair market value of TSOF units does not take into account specific circumstances currently affecting the Fund such as short term debt maturities and potential breaches of covenants on the US REIT Debt Facility.

Whilst our valuation range is based on the Fund as a going concern, should the Proposed Restructure be unsuccessful, the Fund would likely require an injection of capital to de-risk its financial structure.

Such an injection of capital would likely involve Unitholders being offered rights to contribute additional equity. If Unitholders did not participate in such a rights issue, they would run the risk of having their interests significantly diluted as such an equity raising would likely be priced at a large discount to NTA and recent unit trading prices.

Management Fee leakage could decrease the net return to Unitholders

The ongoing management fees payable by TSOF represent a future cash outflow which is not explicitly recognised in our valuation of a unit in the Fund. Such fees would be payable as long as the Fund and its investments are externally managed by TSAL and TS Manager, any possible replacement external manager.

These costs are incurred for the purpose of improving the performance of the Fund either by sourcing new investment opportunities or by increasing the return of the existing portfolio. Accordingly, it would be argued that the ongoing cost associated with such management services produce a return equal or higher than the cost.

However, to the extent that the services provided by the external manager do not add value to the Fund in excess of this cost, the payment of future management fees may represent a leakage of value for the Fund.

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Price may decrease from current levels if the Offer is rejected

On the Announcement Date TSOF units were trading at a 27.7% discount to the Offer (or AUD0.235 per unit). Once the Offer period lapses, there may be a temporary overhang in TSOF units given the value floor that the Offer will provide until 11 September 2009.

However, this risk may not be large as, subsequent to the Announcement Date, units have been consistently trading at prices higher than the Offer Price.

Since the Announcement Date, the Fund has made public announcements providing high level guidance in relation to management activity to resolve the Fund�s liquidity issues, revaluation of the Properties at 30 June 2009 and waiver of any Performance Fees payable by December 2009 (previously estimated at USD90 million). Whilst it is difficult to establish a direct correlation between these public announcements and the trading in the Fund�s units, it is arguable that the trading price of TSOF units is no longer supported solely by the Offer.

Disadvantages of accepting the Offer The likely disadvantages to Unitholders if the Offer is accepted include:

Unitholders will miss the opportunity to participate in any medium term appreciation in the Fund�s property values

Whilst there is no certainty that the Fund�s property values will appreciate general market sentiment indicates that the current stage in the economic cycle is unlikely to be an optimum time to realise value for U.S. office properties.

Due to the very high financial leverage of the Fund, any appreciation in the Fund�s property values over time would be likely to translate to a significant improvement in the Fund�s NTA value.

If Unitholders accept the Offer they will forgo the opportunity to participate in this leveraged exposure to any medium term upside in the values of the Fund�s properties.

Current refinancing activity by the Fund�s management could potentially unlock substantial value to Unitholders

TSOF is currently exploring alternatives to restructure its financial position. We understand that the Proposed Restructure is in advanced stage and its terms are likely to be finalised shortly after the issue of this report.

Should the Proposed Restructure be successful, the risk associated with the Fund�s capital structure would be reduced. Successful completion of the Proposed Restructure could unlock significant value to Unitholders by causing a market re-rating of TSOF unit trading price and reduce the current implied discount to NTA.

Since the Announcement Date the units have traded at a premium to the Offer

Since the Announcement Date, TSOF units have been trading between AUD0.300 and AUD0.425. As a result, Unitholders may be able to realise a value higher than the Offer Price by selling their units on the market. Possible reasons that could explain this trading activity.

• the market is expecting either an increase in the Offer, or an alternative and better offer from an external party

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• the market expects TSOF will be able to solve its financial issues

• on 12 August 2009, the Fund announced that no Performance Fees (previously estimated at USD90 million) would be payable in 2009 conditional on closing of the Proposed Debt Restructure

• the market has re-rated the value of the units

Whilst the above points incorporate a high level of speculation, the fact that Units are trading at a premium to the Offer indicate that the market is generally considering the Offer insufficient.

Inability to participate in alternative takeover offers for TSOF

Although there are no alternative offers at present, it is possible that an alternative offer or proposal may emerge and as Madison is able to waive all or any conditions to the Offer, Unitholders that accept the Offer may not be able to participate in any alternative superior proposals that may emerge, regardless of the acceptance level.

Unitholders would not participate in the benefits of favourable debt funding terms

Our valuation of a TSOF unit does not factor in the benefits of favourable terms currently included in some of TSOF�s fixed interest rate borrowings.

Although it is difficult to quantify the benefit of the favourable terms of the Fixed Interest Rate Borrowings to the current market terms, we consider that:

• it would be challenging to obtain the existing terms associated with the current implied loan-to-value ratios (LVRs) (i.e. facilities in respect of the properties controlled by the Fund, with the exception of 3 MacArthur, have implied LVRs ranging from 86% to 101%)

• a portion of this debt could be considered to be comparable to mezzanine or equity financing. We note that the margins demanded for such debt are typically higher than the interest rates currently being paid.

If Unitholders do not accept the Offer they will derive the future benefits associated with ongoing financing costs below those otherwise attainable in the current market.

Other matters

Should the Offer be only partially accepted (i.e. should Madison achieve its stated intention to acquire an overall 30% to 40% interest in the Fund), the non-accepting Unitholders may potentially face the following downside risk:

• subsequent to Madison�s acquisition, the units are likely to be more thinly traded than they are at present, therefore attracting a higher liquidity discount

• Madison could obtain a �blocking stake� in the Fund. This could limit the potential for other takeover offers for the entity. Unitholders may be less unlikely to realise a full takeover premium for their securities in the future

• based on the intentions stated in the Bidder Statement, Madison�s intention is to remain a passive investor. As a result, Madison�s increased investment in the Fund may not provide any relief to the financing issues the Fund is currently facing.

If Madison acquired an interest higher than 50% but lower than 90%, certain change of control provisions could be triggered and exercised, in particular:

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• Tishman Speyer could terminate the �Exclusivity and Futures Acquisitions Agreement� (refer to section 7.1 of the Target�s Statement for further details)

• TS Manager could exercise its pre-emptive rights under the �Contingent Option Agreement� (refer to section 7.1 of the Target�s Statement for further details)

• removal of Tishman Speyer or its affiliates as a controlling entity could represent a default event for a number of debt facilities held by the Fund, in particular the US REIT debt facility and the loans secured against TSOF�s properties located in Beverly Hills, California. This could also compromise negotiations currently being undertaken with the lenders

• the successful completion of the Proposed Restructure may be compromised.

Furthermore, under this scenario, there is a possibility that TSOF would, amongst other consequences:

• no longer qualify as a �foreign private issuer� in the U.S. and could be required to comply with much more onerous reporting requirements

• no longer take advantage of certain favourable tax treatment under the current Australian/U.S. double tax treaty as a result of TSOF�s units being no longer �regularly traded� on the ASX in accoridance with the meaning of U.S. federal income tax law.

Tax consequences Acceptance of the Offer may result in adverse tax consequences for the Unitholders. Whilst we note that the tax implications will vary depending on the circumstances of each unitholder, possible tax consequences for Australian resident Unitholders include the following:

• the acceptance of the Offer may accelerate tax payable for Unitholders, as it may crystallise a tax liability in the short-term, which would otherwise have been deferred. Unitholders should evaluate the capital gains or other tax consequences of acceptance in assessing whether to accept the Offer

• some Unitholders may not have held the units for a 12 month period and may not be eligible for the 50% discounted cost base under capital gains tax provisions.

For further details of the tax consequences of accepting the Offer to Australian and non-Australian resident Unitholders, you should refer to the Bidder�s Statement and to section 7.6 of the Target�s Statement.

Conclusion on reasonableness On balance, in our opinion, the advantages of the Offer do not outweigh the disadvantages.

In particular, we are of the view that upon completion of the Proposed Restructure, the risk of the Fund having to sell its properties in a sub-optimal manner would significantly diminish. Assuming no further downward revaluation of its investments, the Fund would be unlikely to face refinancing risk until May 2012 and the Fund would significantly strengthen its liquidity position. F

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7.3 Conclusion Based on the foregoing, we are of the opinion that the Offer is neither fair nor reasonable.

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Appendix 1: Glossary

Reference Definition

Announcement Date 13 July 2009

APESB Accounting Professional and Ethical Standards Board Limited

Appraisers Independent appraisers of the Properties at 30 June 2009

A-REIT Australian Real Estate Investment Trust

ASA Australian Auditing Standard

ASIC Australian Securities and Investments Commission

ASX Australian Securities Exchange Limited

AUASB Auditing and Assurance Standards Board

AUD Australian dollars

Beverly Hills Properties Maple Plaza, North Maple Drive and Beverly Mercedes Place, three �A� grade office buildings located in the Beverly Hills submarket of Los Angeles

Bidder�s Statement The bidder�s statement issued by Madison on 30 July 2009 replacing that issued in connection with the Original Offer, in which the Original Offer was supplemented with additional information about Madison, its intentions and its funding capability

CBD Central business district

Controlled Properties 3 MacArthur, Lakeside, 550 Terry Francois and the Beverly Hills Properties

Deloitte Corporate Finance Deloitte Corporate Finance Pty Limited

Directors The directors of TSAL

DSCR Debt service coverage ratio

EBIT Earnings before interest and tax

EBITDA Earnings before interest, tax, depreciation and amortisation

Empire Hawkeye Empire Hawkeye Partners, L.P, a partnership for U.S. federal income tax purposes

Empire Hawkeye Debt Facility

Empire Hawkeye debt facility maturing 1 December 2009

FFO Funds from operation

FIRB Foreign Investment Review Board

Fixed Interest Rate Borrowing

Borrowings at the Properties level which pay a fixed interest rate

FSG Financial Services Guide

Fund Tishman Speyer Office Fund

Fund V Tishman Speyer/Citigroup Alternative Investments U.S. Real Estate Venture V, L.P.

FY Financial year

GAV Gross asset value

GDP Gross Domestic Product

GIC Government of Singapore Investment Corporation (Realty) Pte Limited

IPO Initial public offering

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Reference Definition

IRS Notice Notice concerning capital gains taxation issued by the U.S. Internal Revenue Service

Lakeside Lakeside at Loudoun Technology Park Northern, Virginia

LVR Loan to value ratio

3 MacArthur 3 MacArthur Place, Orange County

Madison MIRELF III Australia AIV, L.P.

Management Fee Base management fee of 0.5% per annum of TSOF�s proportionate share of the gross value of investment assets held directly or indirectly by TSOF

NPAT Net profit after tax

NTA Net tangible assets

NYSE New York Stock Exchange

Offer The off-market takeover offer made by Madison for all of the issued ordinary units in TSOF that Madison did not own at AUD0.30 cash per unit

Offer Price AUD0.30 cash per TSOF unit

Original Offer Madison�s off-market takeover offer for all of the issued ordinary units in TSOF that Madison did not own on 13 July 2009

Performance Fee Payable from Empire Hawkeye and US REIT to Fund V and TS Manager if the investment return in Empire Hawkeye�s interest in Prime Plus and in US REIT�s interest in the Controlled Properties exceed a hurdle rate of 10.5% per annum

PPI Properties A portfolio of 12 U.S. office properties owned by Prime Plus

Prime Plus Prime Plus Investments, Inc.

Properties The PPI Properties and the Controlled Properties, 18 office properties located throughout the U.S.

Property Index The S&P/ASX 200 Property Index

Proposed Debt Restructure Restructure of the US REIT debt facility to draw upon the facility�s remaining USD112 million and provide covenant relief

Proposed Restructure TSAL�s proposed debt restructuring and asset realisation strategy

REIT Real estate investment trust

Revised Announcement 30 July 2009

Sft Square feet

S&P Standard and Poors

SWOT Strengths, weaknesses, opportunities and threats

Target�s Statement Target�s Statement issued by TSOF in relation to the Offer

550 Terry Francois 550 Terry Francois Boulevard, San Francisco

Tishman Speyer Tishman Speyer Properties, L.P.

TSAL Tishman Speyer Australia Limited

TS Manager Tishman Speyer Australia Asset Manager, L.L.C. For

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Reference Definition

TSOF Tishman Speyer Office Fund

Unitholders TSOF�s unitholders not associated with Madison

U.S. United States

USD United States dollar

U.S. Office Property Index The Dow Jones Select Real Estate Office Index

US REIT Tishman Speyer U.S. Office, Inc.

US REIT Debt Facility US REIT debt facility maturing on May 2010 and extendible up to May 2012 at the option of TSOF

VWAP Volume weighted average price

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Appendix 2: Property compendium Following we provide an overview of TSOF�s properties.

300 Park Avenue, New York 300 Park Avenue is a 25-storey, 772,002 sft Class A office building that was constructed in 1954. The building consists of a 14-storey base with progressively set back upper floors. In 1998 a substantial interior renovation was completed which included a new lobby, a retrofit of the heating, ventilation and air-conditioning system, a full elevator modernisation, an upgraded main electrical distribution system and the installation of a new fire alarm system. In 2000, the property underwent a façade renovation program which included new high-performance windows, aluminium spandrel panels and retail storefronts. Amenities include 24-hour manned security with security system access and turnstiles, a news stand, a messenger centre, and easy access to Grand Central Terminal and all forms of public transportation.

300 Park Avenue is currently 96.01% leased with the following major tenants: Colgate-Palmolive Company (71%); Greenhill & Company, Inc. (9%); and Goldentree Asset Management (7%).

CitySpire, New York CitySpire is a 24-storey, 367,225 sft office building with ground floor retail located in Manhattan�s Midtown submarket. The building is classified as a Class A however, due to the building�s exposure on a one way cross street as well as its mid-block location; the building is considered inferior to other Class A buildings in the submarket. The building contains office and residential condominiums and a below grade parking garage. CitySpire is currently 94.5% leased with the following major tenants: Windels, Marx, Davies and Ives (13%); Bennett Footwear (7%); JBT (6%); and RJ Palmer LLC (6%).

Greenwich American Centre, Greenwich Located in Greenwich, Connecticut, the Greenwich American Centre comprises a four-storey, Class A suburban office building, a two-storey annex building that is attached to the main building via a covered walkway, a five-level subterranean parking garage that contains 1,900 spaces, and several smaller ancillary buildings. In addition, there is a Guest House / Mansion which is a free-standing former residence constructed in the early 1900s. In total, the property contains a net rentable area of 650,413 sft. The main office buildings were constructed in 1970. The property, which is located in northwest Greenwich approximately seven miles from the CBD, is considered unique and is larger than the typical Greenwich Class A office property.

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Bala Plaza, Philadelphia Bala Plaza is a four-building office complex with a connected Saks Fifth Avenue retail store located in Bala Cynwyd, the first suburban submarket outside of the Philadelphia CBD. This location has convenient vehicular and commuter rail access to downtown Philadelphia. The complex offers restaurants, deli, medical centre, newsstand, stock brokerage office, law offices, temporary personnel agencies and parking for 3,800 cars, including 900 indoor spaces.

One Bala Plaza is a six-storey, 379,413 sft Class B building constructed in 1968. One Bala Plaza is currently 95.1% leased with the following major tenants: Philadelphia Insurance (36%); Greater Philadelphia Radio (10%); and Keystone Shipping (9%).

Two Bala Plaza is a nine-storey, 363,232 square foot Class B building that was constructed in 1969. Two Bala Plaza is currently 96.6% leased with the following major tenants: Saks Fifth Avenue retail store (28%); CBS Radio (8%); and United States Postal Service (7%).

Three Bala Plaza is comprised of two wings, Bala Plaza East and West, with seven-storey Class A buildings with a total of 385,012 square feet constructed in 1982. Three Bala Plaza is currently 94.1% leased with the following major tenants: Primavera Systems (39%); United National (32%); Promissor (30%); MCI (15%) and Isdaner & Co. (8%).

227 West Monroe, Chicago 227 West Monroe is a 60-storey, 1,582,066 sft Class A office building with ground floor retail located in Chicago. The property is located on the south side of West Monroe Street and the east side of South Franklin Street between Adams and Monroe Streets and has two lower levels of valet parking.

222 West Adams, Chicago 222 West Adams is a 35-storey, 929,150 sft Class A office building with ground floor retail located in Chicago. The property is located on the north side of West Adams Street and the east side of South Franklin Street between Adams and Monroe Streets and has two lower levels of valet parking.

Plaza East I and II, Milwaukee Plaza East I and II is a Class A office building located in the financial district of downtown Milwaukee. The property consists of two 14-storey office towers spanning the entire block and a six-storey parking facility and an outdoor plaza totalling 476,655 sft. The building is currently 88.9% leased with the following major tenants: GSA/FBI (15%) and Associated Bank (5%).

520 Pike Tower, Seattle 520 Pike Tower is a 29-storey, 383,288 sft Class A office building with ground floor retail located in Seattle. Pike Tower is currently 86.5% leased with the following major tenants: Wells Fargo (10%), Envision Telephony (5%), AIG (4%), Grant Thornton (4%), Marchex (3%) and H&M (3%). F

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One Bush Street, San Francisco One Bush Plaza comprises a Class A office building and a freestanding retail building with a total net rentable area of 328,555 sft. The retail building is currently leased to E-trade. The property has two levels of subterranean parking. The property's office and retail components are currently 100% leased. The only vacant space is for storage.

595 Market Street, San Francisco 595 Market Street is a 30-storey, 429,920 sft Class A office building with ground floor retail located in San Francisco. The building does not contain parking. The building is currently 93.5% leased with the following major tenants: Visa, (10%); Consumer Credit Counseling (7%); Calypso Technologies (5%); and Commonwealth Club (4%). Approximately 20% of the lease contracts will be expiring in each of the next 2 years.

Bayside Towers, Foster City Bayside Towers is a Class-A property consisting of two six-storey office buildings, totalling in 262,790 sft of rentable space. Bayside Towers is owned by Bayside Towers, Inc, an entity controlled by Tishman Speyer in 2005. They acquired the property from the original developer, Legacy Partners. Located in Foster City, Bayside Towers is 30 minutes north of San Jose and 20 minutes south of San Francisco. Foster City is located amidst a network of Bay Area highways and the San Mateo Bridge, giving the property high accessibility from all directions. It features a landscaped courtyard and plaza area, shoreline access with footbridge to bay side jogging path, and an additional development potential of 88,000 square feet of marketable space.

Bayside Tower I, is a six-storey Class A office building completed in 1999. Bayside Tower I is currently 100% leased with the following major tenants: Applera Corporation (64%) and Legacy Partners (36%).

Bayside Tower II is a six-storey Class A office building completed in 1999. Bayside Tower II is currently 88.80% leased with the following major tenants: Phillips Electronics (50%); E2OPEN, Inc. (18%); and Arena Solutions (10%).

400 Castro Street, Silicon Valley 400 Castro, Silicon Valley Centre, was completed in 2002 and consists of a six-storey Class A office building containing 138,681 sft of net rentable area. The property includes four and a half levels of underground parking. The property is currently100% leased to three tenants. Although three tenants occupy the building, one takes up approximately 93% of the space (Fenwick & West) with a lease that does not expire until August of 2017. Fenwick & West is a general practice law firm that offers services to national and international high-tech and life sciences clients, with specialisations in corporate law (venture capital, mergers and initial public offerings), intellectual property, domestic and international tax law and litigation and other dispute resolution methods. The company was founded in 1972 and now has more than 275 attorneys in U.S. offices across Silicon Valley and San Francisco, California.

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Lakeside at Loudoun Tech, Northern Virginia The Lakeside at Loudoun Tech consists of three, 4-storey, Class A office buildings in Sterling. The three buildings are referred to as Lakeside I, Lakeside II, and Lakeside III and cumulatively contain 307,031 sft. The Lakeside complex is currently 98.3% leased with Lakeside I and III containing multiple tenants and Lakeside II 100% leased by one tenant.

550 Terry Francois Boulevard, San Francisco Built in 2002, 550 Terry Francois is a six-storey office building totalling 282,773 sft. 550 Terry Francois is located in the centre of San Francisco�s Mission Bay District. The building is currently 100% leased with Gap, Inc. as the only tenant.

Maple Plaza, Beverly Hills Maple Plaza was built in 1987 and has three storeys, a two level underground parking garage as well as two three-storey atrium level entrances and a ground floor retail restaurant tenant. There are currently 40 tenants leasing space at the property. Maple Plaza is currently 82.5% leased with the following major tenants: Morgan Stanley (16%); Netflix (7%); and Participant Productions (3%).

407 North Maple Drive, Beverly Hills 407 North Maple was built in 2003 and has four storeys and a three level underground parking garage with 479 spaces. It is currently fully occupied by one tenant, Fox Interactive Media, Inc. since 2006. This current lease does not expire until May of 2016. Fox Interactive Media is a subsidiary of the News Corporation and its holdings include MySpace and a myriad of other news and entertainment related entities. News Corp. is the guarantor of the lease.

Beverly Mercedes Place, Beverly Hills Beverly Mercedes Place was built in 1990 and houses a Mercedes Benz dealership and service centre as well as four office tenants and an underground parking garage. The building is fully leased and its exposure to rollover in the first five years appears to be below average compared to the market, mainly due to the long term leases of Miller-DM, the Mercedes Benz dealer. There is also a significant probability that this tenant will renew given the high profile location within the lucrative trade area. Beverly Mercedes Place is currently 100% leased with the following major tenants: Miller-DM, Inc. (20%); Marvel Enterprises (14%); EWT, LLC (13%) and The Broder Webb Chervin Silberman Agency (12%).

3 MacArthur Place, Orange County 3 MacArthur Place was built in 1991 and has eleven storeys and an underground parking garage. There are currently 23 tenants leasing space at the property which is 77.5% leased. The major tenants include: Omnipoint (15.55%), Tenent Health Systems (10.17%), and Archstone Communities (7.77%). F

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Appendix 3: Recent capital raisings in the A-REIT sector There have been an increasing number of equity capital raisings in the A-REIT market in the past nine months. The figure below presents a summary of the recent capital raisings undertaken in the A-REIT sector and the substantial discount to net tangible asset value and VWAP prior to the announcement of the capital raising at which they have transacted.

Figure 16: Recent A-REIT capital raisings  

A-REIT Announcement

date Capital raised (AUD million)

Discount to NTA

Discount to 5-day VWAP

Placement Stockland Group 8-Oct-08 300 (2.9%) 0.0% CFS Retail Property 9-Oct-08 325 (13.8%) (10.1%) FKP Property Group 15-Oct-08 28 (60.3%) 54.1% Aspen Group 17-Oct-08 22 (36.2%) (3.1%) Goodman Group 24-Oct-08 230 (54.1%) (19.8%) Dexus Property Group 3-Dec-08 302 (56.5%) (0.8%) ING Office Fund 5-Dec-08 150 (55.8%) (14.4%) Macquarie Office Trust 12-Dec-08 100 (86.8%) (16.6%) Commonwealth Property Office Fund 22-Jan-09 192 (50.6%) (16.7%) Westfield Group 3-Feb-09 2,900 (25.3%) (13.2%) Lend Lease Corporation 4-Feb-09 303 2.9% (9.7%) GPT Group 7-May-09 300 (75.5%) (11.2%) Orchard Industrial Fund 18-May-09 56 (70.9%) (89.6%) Charter Hall 27-May-09 24 (69.7%) (12.1%) Mirvac Group 4-Jun-09 153 (59.0%) (5.9%) Macquarie Leisure Trust Group 25-Jun-09 42 (19.0%) (19.0%) Australand Property Group 27-Jul-09 475 (56.5%) (13.4%) Goodman Group 10-Aug-09 167 (73.7%) (64.3%) Average(Placements) (48.0%) (14.8%) Entitlement offer FKP Property Group 15-Oct-08 151 (70.2%) 101.3% GPT Group 23-Oct-08 1,619 (83.7%) (16.8%) Goodman Group 24-Oct-08 604 (54.1%) (19.8%) Mirvac Group 5-Nov-08 500 (76.1%) (23.5%) ING Office Fund 5-Dec-08 350 (55.8%) (14.4%) Macquarie Office Trust 12-Dec-08 408 (86.8%) (16.6%) Abacus Property Group 27-Feb-09 187 (80.2%) 11.9% Peet Limited 27-Mar-09 82 (20.9%) (12.2%) Dexus Property Group 21-Apr-09 749 (51.1%) (17.3%) GPT Group 7-May-09 1,400 (75.5%) (11.2%) Bunnings Warehouse Property Fund 7-May-09 150 (17.6%) (11.9%) Stockland Group 13-May-09 1,980 (44.4%) (9.5%) Orchard Industrial Fund 18-May-09 144 (70.9%) (89.6%) F

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A-REIT Announcement

date Capital raised (AUD million)

Discount to NTA

Discount to 5-day VWAP

Aspen Group 19-May-09 82 (73.9%) (13.2%) Charter Hall Group 27-May-09 49 (69.7%) (12.1%) Mirvac Group 4-Jun-09 947 (59.0%) (5.9%) ING Office Fund 17-Jun-09 325 (65.4%) (16.8%) FKP Property Group 25-Jun-09 324 (87.0%) (69.2%) Goodman Group 10-Aug-09 1,112 (73.7%) (13.1%) Challenger Diversified Property Fund 6-Aug-09 130 (58.1%) (7.4%) Average (Entitlement offers) (63.7%) (13.4%) Average-all (56.3%) (14.0%)

Source: ASX, Bloomberg and Deloitte Corporate Finance analysis Note: The net tangible asset per security has been based on the NTA�s reported by the company prior to the announcement date.

We make the following comments in relation to the A-REIT capital raising analysis presented above:

• all but one of the recent equity capital raisings shown in Figure 16 were undertaken at substantial discounts relative to the net tangible asset values prior to the announcement of the equity raising. The discounts ranged from 87% to a premium of 2.9%

• the average discount to the net tangible asset value is lower for placements (48%) compared to entitlement offers (56.3%). There have been no pure rights offers observed recently in the A-REIT sector. Rights offers are directed to the whole security register whilst placements are usually directed to specific institutional investors. Entitlement offers comprise both a placement and a rights issue as part of the capital raising and the offer price is generally equal across both components

• there does not appear to be a correlation between the amount or proportion of capital raised and the discount to net tangible assets observed

• A-REITs have raised substantial equity capital primarily to satisfy short-term debt requirements, reduce balance sheet gearing and meet capital expenditure/working capital obligations. Furthermore, some A-REITs with significant portions of debt and interest costs denominated in foreign currencies were required to raise capital to meet debt covenants which were breached following the depreciation of the Australian dollar in late 2008.

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Appendix 4: Comparable REITs We provide the descriptions for each of the comparables as follows:

A-REIT with pure real estate exposure

APN European Retail Property Group APN European Retail Property Group is a listed property trust which invests in a portfolio of 36 retail properties located in seven countries across Europe. APN European Retail Property Group is principally engaged in the ownership, development, operation and asset management activities undertaken with respect to its portfolio of European retail properties.

Bunnings Warehouse Property Trust Bunnings Warehouse Property Trust is an Australian property trust, focused on warehouse retailing properties and in particular, Bunnings Warehouse properties which are externally managed by Bunnings Group Limited, a wholly owned subsidiary of Wesfarmers Limited. The trust�s portfolio is comprised of 61 investment retail and industrial properties located throughout Australia.

CFS Retail Property Trust CFS Retail Property Trust is an Australian property trust that invests in, manages and develops a portfolio of retail assets throughout Australia. The trust invests in 25 retail properties including supermarkets, discount department stores, department stores, and specialty shops.

ING Industrial Fund ING Industrial Fund is a property trust listed on the ASX, with a portfolio of over 500 prime industrial properties and business parks. ING Industrial Fund invests in prime industrial properties, focusing on assets with income and capital growth potential over the medium to long term spanning across Australia, Canada and Western Europe.

ING Real Estate Community Living Group ING Real Estate Community Living Group is an Australian property trust involved in development, owning and operation of senior and student housing community real estate. The portfolio is comprised of 98 properties and across Australia, Canada, New Zealand and the U.S, with a geographical focus on Australia.

Macquarie CountryWide Trust Macquarie CountryWide Trust owns a portfolio of 258 properties including supermarkets and shopping centres located in non-metropolitan areas throughout Australia, New Zealand, Europe and the U.S. The trust is currently in the process of reducing its US exposure through the sale of a 75% interest in its US portfolio.

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Macquarie DDR Trust Macquarie DDR Trust is an Australian listed property trust that invests in and manages a portfolio of U.S. community shopping centres under a joint venture agreement with Developers Diversified Realty (DDR). Macquarie DDR Trust has retail properties located in the United States and investments in other assets in Australia and as at 31 December 2008 had 80 properties in the portfolio. Macquarie DDR trust is currently in the process of unwinding its US exposure and has recently completed the sale of its US portfolio to DDR.

AU Listed Office REITs

Commonwealth Property Office Fund Commonwealth Property Office Fund is a property trust that invests in, manages and develops a portfolio of 27 prime office buildings and office parks located in central business district and major suburban markets of Australia.

RNY Property Trust RNY Property Trust is an Australian listed property trust which invests in a portfolio comprising 24 commercial office properties located in the New York Tri-State area in the U.S.

ING Office Fund ING Office Fund invests in office buildings located in key markets throughout the world. ING Office Fund is involved in property investment, leasing, management and development in Australia. The fund's geographically-diversified portfolio includes 29 commercial properties and office buildings throughout the world�s premier office markets spanning Australia, Europe and the United States, Australia.

Macquarie Office Trust Macquarie Office Trust is a property trust with a portfolio consisting of 42 high grade office buildings located in major business districts throughout Australia, U.S., Europe and Japan. Macquarie Office Management Limited is responsible for the overall activities and strategy of the Trust, as well as coordinating operations and managing investments

Westpac Office Trust Westpac Office Trust is a property trust with a portfolio of eight prime commercial properties in Australia and New Zealand, with a strong focus on Sydney. The properties are leased primarily to investment grade tenants.

US Listed Office REITs

Vornado Realty Trust Vornado Realty Trust is a fully integrated real estate investment trust. The trust owns, manages and leases 112 office properties in New York City, Washington, DC, and Northern Virginia. Vornado Realty Trust also owns 176 retail properties in 21 States, including Washington, DC and Puerto Rico. F

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Boston Properties Inc Boston Properties Inc. is a fully integrated real estate investment trust. The trust owns, manages, and develops office properties in the U.S., with a significant presence in Boston, Washington, D.C., Midtown Manhattan and San Francisco, owning 163 office properties, one hotel and three retail properties.

Corporate Office Properties Trust Corporate Office Properties Trust is REIT that focuses on customer relationships and tenant requirements in the U.S Government, defence information technology and data sectors. Corporate Office Properties Trust focuses on the acquisition, ownership and operation of suburban office properties located in large office parks. Portfolio consists of 238 operating properties and 14 office properties under construction or development, which are located in Maryland, Virginia, Colorado, Texas, Pennsylvania and New Jersey.

PS Business Parks Inc PS Business Parks, Inc is a fully-integrated, self-advised and self-managed REIT that acquires, owns, operates and develops commercial properties, primarily multi-tenant flex, office and industrial space. The company is in the commercial property business, with properties located in eight states: Arizona, California, Florida, Maryland, Oregon, Texas, Virginia, and Washington.

Kilroy Realty Corporation Kilroy Realty Corporation is a REIT engaged in the ownership, acquisition, development and operation of office and industrial properties located in California and Washington. Kilroy Realty Corporation�s Portfolio consists of 92 office buildings and 42 industrial buildings as at 31 December 2008.

Parkway Properties Inc Parkway Properties Inc is a REIT specialising in the operation, leasing, acquisition and ownership of office properties. The company performs these services for its own account and for other institutional investors through co-ownership structures, such as discretionary funds and/or partnerships. Parkway Properties Inc operates primarily in south-eastern and south-western U.S. and Chicago. Parkway Properties Inc�s portfolio consists of 67 office properties as at 31 December 2008.

Maguire Properties Inc Maguire Properties Inc is a REIT that owns and operates Class A office properties in the Los Angeles central business district in California. The company is primarily focused on owning and operating high quality office properties in the high-barrier-to-entry Southern California. Maguire Properties Inc�s portfolio consists of indirect ownership of whole or partial interests in 36 office and retail properties.

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Brookfield Properties Corporation Brookfield Properties Corporation owns, develops, and manages North American office properties. The company's portfolio comprises various commercial properties and development sites, including the World Financial Centre in New York and BCE Place in Toronto. Brookfield Properties Corporation�s portfolio consists of 108 office properties as at 31 December 2008. Its primary markets are the financial, energy and government centre cities of New York, Boston, Washington, D.C., Houston, Los Angeles, Toronto, Calgary and Ottawa.

Highwoods Properties Inc Highwoods Properties Inc is a fully integrated, self-administered, and self-managed REIT engaged in the acquisition, development and operation of office, industrial, retail, and residential rental properties. Highwoods Properties Inc operates in markets throughout the south-eastern and mid-western U.S. Highwoods Properties Inc�s portfolio consists of 311 in-service office, industrial and retail properties as at 31 December 2008.

HRPT Properties Trust HRPT Properties Trust is a REIT which primarily owns office buildings located in CBD and suburban areas of major metropolitan markets in the U.S., and has a large concentration of properties leased to the U.S. Government and medical related tenants. HRPT Properties Trust�s portfolio consists of 353 office properties and 184 industrial as at 31 December 2008. In addition, HRPT owns industrial lands in Hawaii.

Mack-Cali Realty Corporation Mack-Cali Realty Corporation is a fully integrated, self administered, self managed REIT providing management, leasing, development, construction, and other tenant related services for its Class A real estate portfolio. The properties consist of 255 office and 95 office/flex buildings located in the Northeast and the District of Columbia as at 31 December 2008.

Alexandria Real Estate Equities Inc Alexandria Real Estate Equities Inc acquires, manages, expands and develops office and laboratory space properties. The company leases its properties to pharmaceutical, biotechnology, diagnostic and personal care products companies, research institutions and related government agencies. There are 155 properties are located in California, suburban Washington D.C., New England, the Mid-east and Southeast and four properties located in Canada, as at 31 December 2008.

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Brandywine Realty Trust Brandywine Realty Trust is a self-administered, self-managed and fully integrated REIT engaged in the ownership, management, leasing, acquisition, and development of primarily suburban office properties across the U.S. It also owns an interest in and operates a commercial real estate management services company. Brandy Wine Realty Trust�s portfolio consists of 214 office properties, 22 industrial facilities and one mixed-use property as at 31 December 2008. The properties are located in California, Texas, Washington D.C, Virginia, Philadelphia and Pennsylvania

Douglas Emmett Inc Douglas Emmett Inc is an integrated, self-administered and self-managed REIT and the owners and operators of office and multifamily properties located in submarkets in California and Hawaii. The company focuses on owning and acquiring a substantial share of top-tier office properties and multifamily communities in neighbourhoods that possess significant supply constraints, high-end executive housing and key lifestyle amenities.

SL Green Realty Corporation SL Green Realty Corporation is a fully integrated, self-administered and self-managed REIT. The trust is exclusively focused on owning and operating office buildings in Manhattan. The company owns interests in commercial office properties in the New York Metro area, primarily in midtown Manhattan. Its investments in the New York Metro area also include properties in Brooklyn, Queens, Long Island, Westchester County, Connecticut and New Jersey.

 

 

 

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Appendix 5: Sources of information In preparing this report we have had access to the following principal sources of information:

• TSOF�s annual reports for the 2006, 2007 and 2008 financial years

• TSOF�s audited accounts for the financial year ended 30 June 2009

• TSOF�s Product Disclosure Statement issued in relation to the Fund�s IPO in 2004 and information released in relation to subsequent capital raisings

• various TSOF presentations

• the Bidder�s Statement issued by Madison

• the Target�s Statement

• TSOF company website

• CoStar Group, Inc.

• publically available information on the U.S. office market published in broker reports and various articles or publications from market analysts and commentators

• publicly available information on comparable companies and market transactions published in broker�s reports, ASX announcements, Bloomberg Financial Markets, Mergermarket, SDC Platinum and Mergerstat

• independent property valuations of TSOF�s properties at 30 June 2009

• Orient Capital Pty Limited ShareTrak report.

In addition, we have had discussions and correspondence with certain directors and executives, including Kerr Bray, Fund Manager and Sandra McAloon, Financial Controller and executives of Tishman Speyer based in the U.S. in relation to the above information and to current operations and prospects.

 

 

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Appendix 6: Qualifications, declarations and consents The report has been prepared at the request of the Independent Directors of TSAL, as responsible entity of TSOF and is to be included in the Target�s Statement to be given to the Unitholders for consideration of the Offer. Accordingly, it has been prepared only for the benefit of the Independent Directors and those persons entitled to receive the Target�s Statement in their assessment of the Offer outlined in the report and should not be used for any other purpose. We are not responsible to you, or anyone else, whether for our negligence or otherwise, if the report is used by any other person for any other purpose. Further, recipients of this report should be aware that it has been prepared without taking account of their individual objectives, financial situation or needs. Accordingly, each recipient should consider these factors before acting on the Offer. This engagement has been conducted in accordance with professional standard APES 225 Valuation Services issued by the APESB.

The report represents solely the expression by Deloitte Corporate Finance of its opinion as to whether the Offer is fair and reasonable Deloitte Corporate Finance consents to this report being included in the Target�s Statement.

Statements and opinions contained in this report are given in good faith but, in the preparation of this report, Deloitte Corporate Finance has relied upon the completeness of the information provided by TSAL and TSOF and their officers, employees, agents or advisors which Deloitte Corporate Finance believes, on reasonable grounds, to be reliable, complete and not misleading. Deloitte Corporate Finance does not imply, nor should it be construed, that it has carried out any form of audit or verification on the information and records supplied to us. Drafts of our report were issued to TSAL management for confirmation of factual accuracy.

In recognition that Deloitte Corporate Finance may rely on information provided by TSAL and TSOF and their officers, employees, agents or advisors, TSAL and TSOF have agreed that they will not make any claim against Deloitte Corporate Finance to recover any loss or damage which TSAL and TSOF may suffer as a result of that reliance and that it will indemnify Deloitte Corporate Finance against any liability that arises out of either Deloitte Corporate Finance�s reliance on the information provided by TSAL and TSOF and its officers, employees, agents or advisors.

To the extent that this report refers to prospective financial information we have considered the prospective financial information and the basis of the underlying assumptions. The procedures involved in Deloitte Corporate Finance�s consideration of this information consisted of enquiries of TSAL personnel and analytical procedures applied to the financial data. These procedures and enquiries did not include verification work nor constitute an audit or a review engagement in accordance with standards issued by the Auditing and Assurance Standards Board.

Based on these procedures and enquiries, Deloitte Corporate Finance considers that there are reasonable grounds to believe that the prospective financial information for TSOF included in this report has been prepared on a reasonable basis. In relation to the prospective financial information, actual results may be different from the prospective financial information of TSOF referred to in this report since anticipated events frequently do not occur as expected and the variation may be material. The achievement of the prospective financial information is dependent on the outcome of the assumptions. Accordingly, we express no opinion as to whether the prospective financial information will be achieved. F

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Deloitte Corporate Finance holds the appropriate Australian Financial Services licence to issue this report and is owned by the Australian Partnership Deloitte Touche Tohmatsu. The employees of Deloitte Corporate Finance principally involved in the preparation of this report were Mark Pittorino, Director, BComm, CA, MAppFin, Michele Picciotta, Senior Manager, BComm (Hons) and Natalie Paradisis, Manager, B.Bus, CPA, MBus,Fin. Each has many years experience in the provision of corporate financial advice, including specific advice on valuations, mergers and acquisitions, as well as the preparation of expert reports.

Neither Deloitte Corporate Finance, Deloitte Touche Tohmatsu, nor any partner or executive or employee thereof has any financial interest in the outcome of the Offer which could be considered to affect our ability to render an unbiased opinion in this report. Deloitte Corporate Finance will receive a fee estimated at AUD380,000 exclusive of GST in relation to the preparation of this report. This fee is based upon time spent at our normal hourly rates and is not contingent upon the success or otherwise of the Offer.

 

About Deloitte In Australia, Deloitte has 12 offices and over 4,500 people and provides audit, tax, consulting, and financial advisory services to public and private clients across the country. Known as an employer of choice for innovative human resources programs, we are committed to helping our clients and our people excel. Deloitte's professionals are dedicated to strengthening corporate responsibility, building public trust, and making a positive impact in their communities.

For more information, please visit Deloitte�s web site at www.deloitte.com.au

Deloitte refers to one or more of Deloitte Touche Tohmatsu, a Swiss Verein, and its network of member firms, each of which is a legally separate and independent entity. Please see www.deloitte.com/au/about for a detailed description of the legal structure of Deloitte Touche Tohmatsu and its member firms.

© Deloitte Touche Tohmatsu. August, 2009. All rights reserved.

 

 

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