The Honourable James M. Flaherty, PC, MP Minister of Finance Department of Finance Canada 140 O Connor Street Ottawa, Ontario Canada K1A 0G5

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1 MEMBERS The Honourable James M. Flaherty, PC, MP Minister of Finance Department of Finance Canada 140 O Connor Street Ottawa, Ontario Canada K1A 0G5 Re: Proposed Amendments to the Real Estate Investment Trust Rules Dear Minister Flaherty, January 31 st, 2011 REALpac would like to commend the Department of Finance for your diligent work on the Real Estate Investment Trust (REIT) file. As experts in the field, we certainly recognize the complex nature of this investment vehicle and appreciate the dedication exhibited towards producing this proposal. The December 16, 2010 proposed changes to the REIT rules resonated very well through the Canadian commercial real estate industry, and REALpac REIT Members are unanimous in their support of the proposed changes. The majority of these proposed changes are precisely what the industry has been hoping for, and we thank you for what will end up being extremely helpful legislation once enacted. After significant analysis and in-depth consultations with our REIT members, we have identified several small drafting issues that should be amended before the legislation is passed into law. For your convenience and in response to your request for comments, we have attached a detailed commentary that meticulously outlines what we believe to be the only remaining technical issues with the proposed REIT legislative rule changes. (See Attached). REALpac and its member companies agree that the proposed changes will create an environment for Canadian REITs that will enable them to grow. Finance Canada has consistently demonstrated its ability to recognize and support burgeoning industries, and these proposed changes support this fact. Canadian REITs will continue to provide a safe investment vehicle for all Canadians interested in diversifying their portfolios. REALpac and its REIT members plan to move the industry forward as a result of these proposals, while retaining the historically safe and profitable structure that has been a trademark of Canadian REITs since their inception. Please feel free to contact me at your earliest convenience at mbrooks@realpac.ca or ext. 225 or Ryan J. Eickmeier at reickmeier@realpac.ca or ext. 224, should you have any questions or comments about our recommendations for the proposed REIT rule changes. Regards, Alberta Investment Management Corporation Allied Irish Banks, p.l.c. Allied Properties REIT Artis REIT Aspen Properties Ltd. Avison Young Baybridge Seniors Housing Inc. Bentall Kennedy Group BMO Capital Markets Real Estate Group Boardwalk REIT Brookfield Financial Real Estate Group Brookfield Real Estate Opportunity Fund Cadillac Fairview Corporation Ltd., The Calloway REIT Canadian Tire Corporation Canderel CAPREIT CB Richard Ellis Limited Chartwell Seniors Housing REIT CIBC Commercial Mortgages Inc. CIBC World Markets Inc. Colliers International. Inc. Cominar REIT CREIT (Canadian REIT) Crombie REIT Cushman & Wakefield Ltd. Dundee REIT ECL Developments Limited EPIC Realty Partners Inc. Fengate Capital Management Ltd. First Capital Realty Inc. First National Financial LP Gazit America Inc. Grosvenor Americas Limited GWL Realty Advisors Inc. H & R REIT Homestead Land Holdings Limited IGRI Inc. InnVest REIT Ivanhoe Cambridge Killam Properties Inc. M3 Capital Partners LLC. Macquarie Capital Markets Canada, Ltd. Manulife Financial MCAN Mortgage Corporation Melcor Developments Ltd. Menkes Development Ltd. MI Developments Inc. Minto Group, The Morguard Corporation Morguard Investments Limited Morguard REIT Mortgage Fund Three National Bank Financial Inc. Northern Property REIT NorthWest Healthcare Properties REIT Ontario Realty Corporation OPTrust Oxford Properties Group Inc. Parkbridge Lifestyle Communities Inc.. Partners REIT Plazacorp Retail Properties Limited. Presima Inc. Primaris Retail REIT Public Storage Canadian Properties Raymond James Ltd. RBC Capital Markets Real Estate Group Redcliff Realty Advisors Inc. Retrocom Mid-Market REIT RioCan REIT Scotia Capital Inc. Scotiabank Scott s REIT SilverBirch Hotels & Resorts Sun Life Assurance Company of Canada TD Securities Inc. Timbercreek Asset Management Inc. Transglobe Apartment REIT Whiterock REIT Michael Brooks Chief Executive Officer Ryan J. Eickmeier Manager, Government Relations & Policy Attach.

2 REALpac Response to Proposed Amendments to the Real Estate Investment Trust Rules: Detailed Commentary Consolidated to Include the Amendments Proposed on December 16, 2010 in BLUE With further Proposed edits by REALpac and Notes to Draft in RED (1) The following definitions apply in this section and in sections 104 and 122. eligible resale property means real or immovable property (other than capital property) of an entity, in which a trust the investments in which are listed or traded on a stock exchange or other public market holds a security, that is contiguous to a particular real or immovable property that is capital property of the entity or of another entity in which the trust holds a security; and [NTD: Further changes required to allow for condominium projects that are not contiguous.] the holding of which is incidental, to the acquisition of or holding of the particular real or immovable property. [NTD: the word acquisition of is necessary since the requirement to originally hold/create a parcel to be ultimately sold off (the Tim Horton s pad example) may arise on acquisition. entity means a corporation, trust or partnership. equity, of an entity, means if the entity is a corporation, a share of the capital stock of the corporation; if the entity is a trust, an income or capital interest in the trust; if the entity is a partnership, an interest as a member of the partnership; a liability of the entity (and, for purposes of the definition "publicly-traded liability" in this section, a security of the entity that is a liability of another entity) if the liability is convertible into, or exchangeable for, equity of the entity or of another entity, or any amount paid or payable in respect of the liability is contingent or dependent on the use of or production from property, or is computed by reference to revenue, profit, cash flow, commodity price or any other similar criterion or by reference to dividends paid or payable to shareholders of any class of shares of the capital stock of a corporation, or to income or capital paid or payable to any member of a partnership or beneficiary under a trust; and a right to, or to acquire, anything described in this paragraph and any of paragraphs (a) to (d). equity value, of an entity at any time, means the total fair market value at that time of

3 if the entity is a corporation, all of the issued and outstanding shares of the capital stock of the corporation; if the entity is a trust, all of the income or capital interests in the trust; or if the entity is a partnership, all of the interests in the partnership. excluded subsidiary entity, for a taxation year, means an entity none of the equity of which is at any time in the taxation year listed or traded on a stock exchange or other public market; nor held by any person or partnership other than a real estate investment trust, a taxable Canadian corporation, a SIFT trust (determined without reference to subsection (2)), a SIFT partnership (determined without reference to subsection 197(8)), or an excluded subsidiary entity for the taxation year. gross REIT revenue, of an entity for a taxation year, means the total of all amounts each of which is an amount received in the taxation year or receivable in the taxation year (depending on the method regularly followed by the entity in computing the entity's income) by the entity otherwise than as or on account of capital or eligible resale properties; or a capital gain of the entity for that taxation year; and gains from the dispositions of eligible resale properties investment, in a trust or partnership, means does not include a property that is a security of the trust or partnership, or a right which may reasonably be considered to replicate a return on, or the value of, a security of the trust or partnership; but an unaffiliated publicly-traded liability of the trust or partnership, nor regulated innovative capital.

4 non-portfolio earnings, of a SIFT trust for a taxation year, means the total of the amount, if any, by which the total of all amounts each of which is the SIFT trust's income for the taxation year from a business carried on by it in Canada or from a non-portfolio property, other than income that is a taxable dividend received by the SIFT trust, exceeds the total of all amounts each of which is the SIFT trust's loss for the taxation year from a business carried on by it in Canada or from a non-portfolio property, and the amount, if any, by which the total of all taxable capital gains of the SIFT trust from dispositions of non-portfolio properties during the taxation year, and one-half of the total of all amounts each of which is deemed under subsection 131(1) to be a capital gain of the SIFT trust for the taxation year in respect of a non-portfolio property of the SIFT trust for the taxation year exceeds the total of the allowable capital losses of the SIFT trust for the taxation year from dispositions of non-portfolio properties during the taxation year. non-portfolio property of a trust or partnership for a taxation year means a property, held by the trust or partnership at any time in the taxation year, that is a security of a subject entity (other than a portfolio investment entity), if at that time the trust or partnership holds [10% Test] securities of the subject entity that have a total fair market value that is greater than 10% of the equity value of the subject entity, or securities of the subject entity that, together with all of the securities that the trust or partnership holds of entities affiliated with the subject entity, have a total fair market value that is greater than 50% of the equity value of the trust or partnership; a Canadian real, immovable or resource property, if at any time in the taxation year the total fair market value of all properties held by the trust or partnership that are Canadian real, immovable or resource properties is greater than 50% of the equity value of the trust or partnership; or [Used in Carrying on a Business Test] a property that the trust or partnership, or a person or partnership with whom the trust or partnership does not deal at arm's length, uses at that time in the course of carrying on a business in Canada.

5 portfolio investment entity at any time means an entity that does not at that time hold any non-portfolio property. public market includes any trading system or other organized facility on which securities that are qualified for public distribution are listed or traded, but does not include a facility that is operated solely to carry out the issuance of a security or its redemption, acquisition or cancellation by its issuer. publicly-traded liability, of an entity, means a liability that is a security of the entity, that is not equity of the entity and that is listed or traded on a stock exchange or other public market. qualified REIT property of a trust at any time means a property, held by the trust, that is at that time [Real or Immovable Property Branch] real or immovable property that is capital property of the trust; [Management Subsidiary Branch] a security of a subject entity all or substantially all of the gross REIT revenue of which, for its taxation year that ends in the trust's taxation year that includes that time, is from maintaining, improving, leasing or managing real or immovable properties that are capital properties of the trust or of an entity of which the trust holds a share or an interest, including real or immovable properties that the trust, or an entity of which the trust holds a share or an interest, holds together with one or more other persons or partnerships, or eligible resale properties of an entity (other than the trust) described in subparagraph (i); [Title Subsidiary Branch] a security of a subject entity, if the entity holds no property other than legal title to real or immovable property of the trust or of another subject entity all of the securities of which are held by the trust (including real or immovable property that the trust or the other subject entity holds together with one or more other persons or partnerships), and property described in paragraph (d); or [Ancillary Property Branch] tangible personal property, or for civil law corporeal movable property, ancillary to the earning by the trust of the amounts described in subparagraphs (b)(i) and (iii) of the definition real estate investment trust ; [NTD: The proposed amendment should be withdrawn, otherwise, specific categories must be added for permitted property that is not tangible personal property, such as cash, bank deposits, tenant receivable, real or immovable property purchase price adjustments, indemnities and other contractual rights, foreign currency and other derivatives ancillary to the earning of rent and capital gains from real or immovable properties [For example] Indebtedness of a Canadian corporation represented by a bankers' acceptance, property described by either paragraph (a) or (b) of the definition "qualified investment" in section 204, or a deposit with a credit union that are ancillary to the earning of rent from real or immovable properties. [NTD this has to exist otherwise new REIT IPO s that initially have all cash, REITs that sell a large asset, or REITs that do a large equity raise or debt offering may find themselves offside]

6 real estate investment trust, for a taxation year, means a trust that is resident in Canada throughout the taxation year, if [Qualified REIT Properties Requirement] at each time in the taxation year the total fair market value at that time of all non-portfolio that are qualified REIT properties held by the trust is at least 90% of the total fair market value at that time of all non-portfolio properties held by the trust; [95% Revenue Test] not less than 9590% of the trust's revenuesgross REIT revenue for the taxation year are derivedis from one or more of the following: rent from real or immovable properties, interest, capital gains from dispositions of real or immovable properties, dividends, and royalties;, and gains from dispositions of eligible resale properties; [75% Revenue Test] not less than 75% of the trust's revenuesgross REIT revenue for the taxation year are derivedis from one or more of the following: rent from real or immovable properties, interest from mortgages, or hypothecs, on real or immovable properties, and capital gains from dispositions of real or immovable properties; and [75% Assets Test] at each time in the taxation year an amount, that is equal to 75% or more of the equity value of the trust at that time, is the amount that is the total fair market value of all properties held by the trust each of which is real or immovable property, indebtedness of a Canadian corporation represented by a bankers' acceptance, property described by either paragraph (a) or (b) of the definition "qualified investment" in section 204, or a deposit with a credit union; and investments in the trust are, at any time in the taxation year, listed or traded on a stock exchange or other public market. real or immovable property, of a taxpayer, includes [Quasi REIT Test] a security held by the taxpayer, if the security is a security of a trust that satisfies (or of any other entity that would, if it were a trust, satisfy) the conditions set out in paragraphs (a) to (d) of the definition real estate investment trust, or

7 [Actual Real Property Test] an interest in real property or a real right in immovables (other than a right to a rental or royalty described in paragraph (d) or (e) of the definition Canadian resource property in subsection 66(15)); but [Depreciable Property Test] does not include any depreciable property, other than a property included, otherwise than by an election permitted by regulation, in Class 1, 3 or 31 of Schedule II to the Income Tax Regulations, a property ancillary to the ownership or utilization of a property described in subparagraph (i), or a lease in, or a leasehold interest in respect of, land or property described in subparagraph (i). "regulated innovative capital" means equity of a trust, where since November 2006, the equity has been authorized by the Superintendent of Financial Institutions or by a provincial regulatory authority having powers similar to those of the Superintendent, as Tier 1 or Tier 2 capital of a financial institution (as defined by subsection 181(1)); the terms and conditions of the equity have not changed after August 1, 2008; the trust has not issued any equity after October 31, 2006; and the trust does not hold any non-portfolio property other than liabilities of the financial institution, and shares of the capital stock of the financial institution that were acquired by the trust for the sole purpose of satisfying a right to require the trust to accept, as demanded by a holder of the equity, the surrender of the equity. rent from real or immovable properties includes rent or similar payments or payments on account of or in lieu of rent [NTD: captures lease early termination payments and conforms section to Section 212] the use of, or right to use, real or immovable properties, and payment for services ancillary to the rental of real or immovable properties and customarily supplied or rendered in connection with the rental of real or immovable properties, but does not include payment for services supplied or rendered, other than those described in subparagraph (a)(ii), to the tenants of such properties,

8 fees for managing or operating such properties, payment for the occupation of, use of, or right to use a room in a hotel or other similar lodging facility, or rent based on profits 1. security of a particular entity means any right, whether absolute or contingent, conferred by the particular entity or by an entity that is affiliated with the particular entity, to receive, either immediately or in the future, an amount that can reasonably be regarded as all or any part of the capital, of the revenue or of the income of the particular entity, or as interest paid or payable by the particular entity, and for greater certainty includes a liability of the particular entity; if the particular entity is a corporation, a share of the capital stock of the corporation, and a right to control in any manner whatever the voting rights of a share of the capital stock of the corporation; if the particular entity is a trust, an income or a capital interest in the trust; if the particular entity is a partnership, an interest as a member of the partnership; and a right to, or to acquire, anything described in this paragraph and any of paragraphs (a) to (d). SIFT trust, being a specified investment flow-through trust, for a taxation year means a trust (other than an excluded subsidiary entity, or a real estate investment trust, for the taxation year) that meets the following conditions at any time during the taxation year: the trust is resident in Canada; investments in the trust are listed or traded on a stock exchange or other public market; and the trust holds one or more non-portfolio properties. subject entity means a person or partnership that is a corporation resident in Canada; a trust resident in Canada; a Canadian resident partnership; or a non-resident person, or a partnership that is not described in paragraph (c), the principal source of income of which is one or any combination of sources in Canada. 1 Rent based on gross revenues should not generally be considered to be "rent based on profits".

9 unaffiliated publicly-traded liability, of an entity at any time means a publicly-traded liability of the entity if, at that time the total fair market value of all publicly-traded liabilities of the entity that are held at that time by persons or partnerships that are not affiliated with the entity is at least 90% of the total fair market value of all publicly-traded liabilities of the entity. (1.1) For the purposes of the definition real estate investment trust in subsection (1), subsection (1.2) applies to an entity (referred to in this subsection and subsection (1.2) as the parent entity ) for a taxation year, if the parent entity holds, in the taxation year, a non-portfolio property that is a security of another entity (referred to in this subsection and subsection (1.2) as the subsidiary entity ); and an amount (referred to in subsection (1.2) as the specified amount ) that has become payable by the subsidiary entity in respect of the security is included in computing the parent entity's gross REIT revenue for the taxation year. [NTD: This look-through rule applies broadly. In addition to amounts payable, amounts paid should also be re-characterized as qualifying gross REIT revenue.] (1,2) If this subsection applies to a parent entity for a taxation year because a specified amount has become payable by a subsidiary entity, to the extent that the specified amount can reasonably be considered to have become payable out of the subsidiary entity's gross REIT revenue from a particular source, it is deemed to be gross REIT revenue of the parent entity for the taxation year from the particular source and not from any other source. [NTD: Further amendments should be considered to (1) exclude any ill effect when dividends are paid/payable from a REIT s management subsidiaries and (2) include as qualifying gross REIT revenue dividends paid/payable from a subsidiary entity resident in a country other than Canada and paid/payable out of the subsidiary entities qualifying gross REIT revenue.] (1.3) For the purposes of the definition real estate investment trust in subsection (1), in determining whether an amount included in gross REIT revenue of a trust for a taxation year is from a particular source that is in respect of real or immovable property situated in a country other than Canada, each of the following amounts is deemed to be from that particular source and not from any other source: an amount that is included in gross REIT revenue of the trust for the taxation year and that is a gain from fluctuations in the value of the currency of that country relative to Canadian currency, in respect of the particular source, or debt incurred by the trust for the purpose of earning revenue from the particular source; and

10 an amount that is included in gross REIT revenue of the trust for the taxation year and that results from an agreement that provides for the purchase, sale or exchange of currency, and can reasonably be considered to have been made by the trust to reduce its risk in fluctuations in the value of the currency of that country relative to Canadian currency. [NTD: If in respect of real or immovable property, the amendments deem the gain on a foreign currency hedge to be qualifying gross REIT revenue. The foreign currency provisions should accommodate hedging even if the real or immovable property or the related debt is held in foreign subsidiary entities. Also, the foreign currency derivative instrument should be qualified REIT property.] [NTD: Interest rate derivative contracts on debts incurred to acquire or refinance real or immovable properties should also be qualified REIT property, with the gains under such contracts included as qualifying gross REIT revenue (2) The definition SIFT trust applies to a trust for a taxation year of the trust that ends after 2006, except that if the trust would have been a SIFT trust on October 31, 2006 had that definition been in force and applied to the trust as of that date, that definition does not apply to the trust for a taxation year of the trust that ends before the earlier of 2011, and (a) the first day after December 15, 2006 on which the trust exceeds normal growth as determined by reference to the normal growth guidelines issued by the Department of Finance on December 15, 2006, as amended from time to time, unless that excess arose as a result of a prescribed transaction.